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Exhibit 7.1
DECADE BATTERY LTD.
Financial Statements
October 31, 2002
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INDEPENDENT AUDITORS' REPORT
To the Directors of
Decade Battery Ltd.
We have audited the accompanying balance sheet of Decade Battery Ltd. as of
October 31, 2002 and the related statements of operations and cash flow for the
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Decade Battery Ltd. as of
October 31, 2002 and the results of its operations and its cash flows for the
period then ended in conformity with generally accepted accounting principles in
the United States of America.
Toronto, Canada "MINTZ & PARTNERS LLP"
March 26, 2004
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DECADE BATTERY LTD.
Balance Sheet
October 31, 2002
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Assets
Current assets
Accounts receivable $ 118,972
Other receivables 6,252
Inventory 136,990
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Total assets $ 262,214
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Liabilities and Stockholders' Equity
Current liabilities
Due to affiliate (note 2) $ 222,290
Income taxes payable 7,985
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Total current liabilities 230,275
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Stockholders' Equity
Class A shares, no par value, unlimited shares authorized,
one share issued and outstanding (note 3) 1
Class B shares, no par value, unlimited shares authorized,
no shares issued and outstanding (note 3) -
Retained earnings 31,938
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Total stockholders' equity 31,939
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Total liabilities and stockholders' equity $ 262,214
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See notes to financial statements
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DECADE BATTERY LTD.
Statement of Operations
For the period from October 10, 2001 to October 31, 2002
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Sales $ 298,127
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Cost of goods sold 258,204
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Gross profit 39,923
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Net income before taxes 39,923
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Provision for current income taxes (7,985)
Net income and retained earnings at end of period $ 31,938
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Earnings per share of common stock $ 31,938
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Weighted average number of common shares outstanding 1
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See notes to financial statements
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DECADE BATTERY LTD.
Statement of Cash Flows
For the period from October 10, 2001 to October 31, 2002
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Cash flows from operating activities
Net income $ 31,938
Adjustment to reconcile net income to net cash
(used) by operating activities
Changes in operating assets and liabilities
Accounts receivable (118,972)
Inventory (136,990)
Income taxes payable 7,985
Other receivables (6,252)
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Net cash (used) by operating activities (222,291)
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Cash flows from financing activities
Issuance of common stock 1
Due to affiliate 222,290
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Net cash provided by financing activities 222,291
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Net increase (decrease) in cash -
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Cash, end of period $ -
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There is no supplemental disclosure of non-cash financing activities as there
were no such activities.
See notes to financial statements
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DECADE BATTERY LTD.
Notes to Financial Statements
October 31, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company commenced selling batteries and ancillary electronic products in
Canada on January 1, 2002.
BASIS OF PRESENTATION
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States.
USE OF ESTIMATES
Use of these accounting principles required management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
These estimates are reviewed periodically, and, as adjustments become necessary,
they are reported in earnings in the period in which they become known. The
financial statements reflect the following policies.
REVENUE
Revenue from the sale of products is recognized at the time of delivery when all
requirements of a completed transaction have been met.
INVENTORY
Batteries and ancillary electronic products inventory is recorded at the lower
of cost and net realizable value with cost being determined on the first-in,
first-out basis.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS No.
109, deferred tax assets and liabilities are determined based on temporary
differences between the financial statement and tax bases of assets and
liabilities and net operating loss and credit carryforwards using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. A provision for income tax
expense is recognized for income taxes payable for the current period, plus the
net changes in deferred tax amounts.
OTHER COMPREHENSIVE INCOME
The Company does not have any other comprehensive income items.
EARNINGS PER SHARE
For the ten month period ended October 31, 2002, net income per share has been
computed using the net income for the period divided by the weighted average
number of shares outstanding.
Diluted loss per share is not presented as the Company has no diluting items.
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DECADE BATTERY LTD.
Notes to Financial Statements (continued)
October 31, 2002
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company is Canadian dollars. Certain purchases
are made in US dollars and have been translated into Canadian dollars, the
reporting currency, in accordance with Statement of Financial Accounting
Standards No. 52 "Foreign Currency Translation". Monetary assets and liabilities
are translated at the exchange rate at the balance sheet date and revenue and
expenses are translated at the exchange rate at the date those elements are
recognized.
NOTE 2 - RELATED PARTY TRANSACTIONS
Amounts due to/from affiliates consists of amounts due to/from companies under
common control and are non-interest bearing with no specific terms for
repayment.
Amounts due to affiliates at October 31, 2002 were as follows:
Due to DCS Electronics Limited $222,290
During the ten month period ended October 31, 2002, the Company made sales of
$109,267 to DCS Electronics Limited (a related party by virtue of common
ownership by David C. Simmonds) of which $94,766 was outstanding and is included
in accounts receivable at October 31, 2002.
NOTE 3 - CAPITAL STOCK
The Company was incorporated on October 10, 2001 under the laws of Canada.
The Company is authorized to issue an unlimited number of Class A and Class B
shares having the following rights, privileges, restrictions and conditions.
Class A
- without nominal or par value
- right to vote at all meetings of shareholders
- to receive the remaining property of the Company upon dissolution
Class B
- to receive dividends as fixed by the board of directors
- right upon liquidation, to repayment of the amount paid for such
shares (plus any declared and unpaid dividends) in priority to Class A
shares
- not entitled to vote at all meetings except as otherwise specifically
provided in the Canada Business Corporations Act.
Outstanding Class A shares: one
Outstanding Class B shares: none
NOTE 4 - INCOME TAXES
The Company's combined federal and provincial income tax rate is approximately
20% on income eligible as a Canadian controlled private corporation.
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DECADE BATTERY LTD.
Notes to Financial Statements (continued)
October 31, 2002
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of accounts receivables and accrued liabilities and income
taxes payable approximates fair value because of the short maturity of these
instruments. Unless otherwise noted, it is management's opinion that the Company
is not exposed to significant interest, currency or credit risk arising from
these financial instruments.