<Page 58>
TITAN TRADING ANALYTICS INC.
CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31, 1998
<Page 59>
AUDITORS' REPORT
-----------------
To the Directors of
Titan Trading Analytics Inc.
We have audited the consolidated balance sheets of Titan
Trading Analytics Inc. as at October 31, 1998 and 1997 and
the consolidated statements of operations and deficit and
cash flows for each of the years in the three year period
ended October 31, 1998. 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 audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements
present fairly, in all material respects, the financial
position of the company as at October 31, 1998 and 1997 and
the results of its operations and cash flows for each of the
years in the three year period ended October 31, 1998 in
accordance with generally accepted accounting principles in
Canada. As required by the Company Act (B.C.), we report
that, in our opinion, these principles have been applied on a
consistent basis.
\s\ Collins Barrow
CHARTERED ACCOUNTANTS
Vancouver, Canada
January 13, 1999
<Page 60>
TITAN TRADING ANALYTICS
-----------------------
(Incorporated under the laws of British Columbia)
CONSOLIDATED BALANCE SHEET
--------------------------
OCTOBER 31, 1998
----------------
ASSETS 1998 1997
------ ---- ----
Current assets
Cash, due from brokers,
and short-term investments $ 1,363,816 $ 1,667,530
Accounts receivable 5,794 22,634
Prepaid expenses 746 3,483
---------- ----------
1,370,356 1,693,647
Software and systems development (note 3) 259,147 185,571
Capital assets (note 4) 43,400 45,420
--------- ----------
$ 1,672,903 $ 1,924,638
=========== ===========
LIABILITIES
-----------
Current liabilities
Accounts payable and
accrued liabilities $ 30,339 $ 20,922
---------- ----------
SHAREHOLDERS' EQUITY
---------------------
Share capital (note 5) 2,802,962 2,671,712
Deficit (1,160,398) (767,996)
---------- ---------
1,642,564 1,903,716
---------- ---------
$ 1,672,903 $1,924,638
========== =========
Approved by the Directors
\S\ MICHAEL PAAUWE , Director
- ------------------------
\S\ MICHAEL GOSSLAND , Director
- ------------------------
See accompanying notes to the consolidated financial statements.
<Page 61>
TITAN TRADING ANALYTICS
-----------------------
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1998
-----------------------------------
1998 1997 1996
---- ---- ----
Revenue
Software sales $ 53,051 $ 36,040 $ 21,213
Demonstration and
testing income --- 56,761 ---
Trading income 70,607 --- ---
---------- ---------- ----------
123,658 92,801 21,213
---------- ---------- ----------
Expenses
Advertising, marketing
and promotion 129,299 48,157 65,159
Amortization 140,258 84,297 37,228
Bank charges 2,408 1,452 1,811
Capital taxes 6,157 4,850 ---
Directors' fees 5,000 --- ---
Demonstration and testing 42,490 --- 57,934
Investor relations 31,888 --- ---
Management fees 65,055 44,887 34,364
Office 12,567 15,005 10,118
Professional fees 17,934 13,424 8,669
Rent 6,177 5,900 6,330
Research and development 3,483 3,483 7,436
Salaries and benefits 63,224 47,282 43,750
Telephone 4,118 4,533 5,060
Travel 27,459 20,345 13,946
---------- ---------- ----------
557,517 293,615 291,805
---------- ---------- ----------
(433,859) (200,814) (270,592)
Interest and other income 41,457 58,581 35,290
---------- ---------- ----------
Net loss for the year (392,402) (142,233) (235,302)
Deficit, beginning of the year (767,996) (625,763) (390,461)
---------- ---------- ----------
Deficit, end of the year $(1,160,398) $ (767,996) $ (625,763)
========== ========== ==========
Net loss per share
for the year (note 7(e)) $(.04) $(.02) $(.03)
===== ===== =====
See accompanying notes to the consolidated financial statements.
<Page 62>
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1998
-----------------------------------
1998 1997 1996
---- ---- ----
Cash flows from (used in)
operating activities
Net loss for the year $ (392,402) $ (142,233) $ (235,302)
Adjustments for:
Amortization 140,258 84,297 37,228
Foreign exchange
loss (gain) (35,754) (3,624) 8,190
---------- ---------- ----------
(287,898) (61,560) (189,884)
Net change in
non-cash working
capital balances
Decrease (increase)
in accounts
receivable 16,840 (13,390) 3,437
Decrease in prepaid
Expenses 2,737 9,755 26,047
Increase (decrease)
in Accounts
payable and
accrued
liabilities 9,417 (12,322) 10,446
---------- ---------- ----------
Cash used in operating
activities (258,904) (77,517) (149,954)
---------- ---------- ----------
Cash flows used in
investing activities
Software and system
development (198,718) (146,134) (129,935)
Acquisitions of
capital assets (13,096) (5,432) (19,295)
--------- ----------- ----------
Cash used in investing
activities (211,814) (151,566) (149,230)
--------- ----------- ----------
Cash flows from (used in)
financing activities
Share subscriptions
received and
issuance of
common shares 131,250 302,400 1,165,500
Share issue costs --- --- (141,089)
--------- ----------- ----------
Cash from financing
activities 131,250 302,400 1,024,411
--------- ----------- ----------
Foreign exchange gain
(loss) on cash held in
foreign currency 35,754 3,624 (8,190)
--------- ----------- ----------
Net increase (decrease)
in cash during the year (303,714) 76,941 717,037
Cash, due from brokers,
and short-term
investments, beginning
of the year 1,667,530 1,590,589 873,552
--------- ----------- ----------
Cash, due from brokers,
and short-term
investments, end of
the year $ 1,363,816 $ 1,667,530 $ 1,590,589
----------- ----------- ----------
See accompanying notes to the consolidated financial statements.
<Page 63>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
1. General information
The company develops, uses for its own account, and markets
financial software trading systems.
2. Significant accounting policies
These financial statements are prepared in accordance with
accounting principles generally accepted in Canada which do
not differ from those established in the United States, except
as disclosed in note 8.
a) Consolidation - The financial statements include the
accounts of the company and of its wholly-owned subsidiary,
Titan Trading Corp.
b) Short-term investments - Short-term investments are
carried at the lower of cost or market. Gains and losses from
demonstration and testing and from trading short-term
investments are recognized as income on the trade date.
c) Research and development - Research costs are expensed
when incurred. Development costs are expensed when incurred
prior to the establishment of technical feasibility.
Subsequent to the establishment of technical feasibility,
the costs associated with the development of a commercial
product for which adequate resources exist to market the
product are capitalized as software and systems development.
Capitalization of development costs ceases when the product
is available for general release to customers or once
internal utilization commences.
d) Software and systems development - Software and
systems development costs are amortized on a product by product
basis at the greater of (i) the ratio of gross revenues over
aggregate anticipated gross revenues or (ii) straight-line
over the remaining estimated economic life of the related
products. The estimated economic life of the company's
products is three years.
e) Capital assets - Capital assets are recorded at cost
and amortized at the following annual rates:
Computer equipment - 30% declining balance
Copyrights and trademarks - 20% straight line
Furniture and equipment - 20% declining balance
f) Software sales - Revenue arising from software sales
is recognized at the time of the sale unless the company is
obligated to provide services in the future in which case a
portion of the revenue is deferred until the services have
been performed.
g) Foreign currency translation - Foreign currency
transactions are translated using the temporal method, whereby:
i) monetary items are translated at the rate of
exchange in effect at the balance sheet date;
ii) non-monetary items are
translated at historical exchange rates; and
iii) revenue and expense items are
translated at the average rate of exchange for the year.
h) Use of estimates - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates. Significant
areas requiring the use of management estimates relate to
the valuation of software and systems development and the
determination of useful lives of software and systems
development and capital assets for purposes of calculating
amortization.
<Page 64>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
2. Significant accounting policies - continued
i) Cash and cash equivalents - Cash and cash equivalents
includes highly liquid investments that are readily
convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value. Investments
with an original maturity of more than three months are not
included in cash and cash equivalents.
3. Software and systems development
1998 1997
---- ----
Cost $ 474,787 $ 276,069
Accumulated amortization (215,640) (90,498)
---------- ----------
$ 259,147 $ 185,571
========== ==========
Software and system development
cost is comprised of:
1998 1997
---- ----
Computer services $ 29,520 $ 18,495
Contract services 359,583 200,750
Other 60,769 34,909
Rent 10,200 7,200
Salaries 14,715 14,715
-------- --------
$ 474,787 $ 276,069
========= ========
4. Capital assets
1998
----------------------------------------
Accumulated
Cost Amortization Net
------------ ------------ ------------
Computer equipment $ 82,785 $ 50,034 $ 32,751
Copyrights and
trademarks 13,464 6,714 6,750
Furniture and
equipment 7,370 3,471 3,899
------------ ------------ ------------
$ 103,619 $ 60,219 $ 43,400
============ ============ ============
1997
----------------------------------------
Accumulated
Cost Amortization Net
------------ ------------ ------------
Computer equipment $ 71,675 $ 38,378 $ 33,297
Copyrights and
trademarks 11,836 4,184 7,652
Furniture and
equipment 7,012 2,541 4,471
------------ ------------ ------------
$ 90,523 $ 45,103 $ 45,420
============ ============ ============
Copyrights and trademarks includes $10,000
acquired in 1995 from a related individual.
<Page 65>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
5. Share capital
Number
of Shares Amount
--------- ------
Authorized
100,000,000 common shares,
without par value
Issued
Balance, November 1, 1996 8,416,001 $ 2,229,312
Issued for cash 316,000 442,400
--------- ---------
Balance, October 31, 1997 8,732,001 2,671,712
Issued for cash 125,000 131,250
--------- ---------
Balance, October 31, 1998 8,857,001 $ 2,802,962
========= =========
During 1997 the company issued 316,000 common shares for
$442,400, $140,000 of which had been received on account of
share subscriptions during 1996.
3,000,000 of the common shares issued during 1996 are held in
escrow with their release being subject to regulatory
approval. The release from escrow is based upon the policies
of the British Columbia Securities Commission and is based on
cumulative cash flow as defined during the ten-year period
ending October 31, 2005.
Stock options and common share purchase warrants
Directors, Officers and Common Share
Employee Stock Options Purchase Warrants
----------------------- -----------------
Outstanding,
November 1, 1996
Number 830,000 125,000
Exercise price $.90 to July 2001 $.90 to July 1997
and $1.05 to July
1998
Exercised during 1997 --- ---
Issued during 1997 --- 158,000
$1.75 to June 1998
Cancelled during 1998 --- (158,000)
Exercised during 1998 --- (125,000)
--------- ---------
Outstanding,
October 31, 1998 830,000 ---
========= =========
<Page 66>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
6. Income taxes
The financial statements do not reflect the potential tax
reductions which may be available through the application of
losses of $1,223,000 carried forward against future years'
earnings otherwise subject to income taxes.
The losses expire as follows:
2001 $ 67,000
2002 322,000
2003 373,000
2004 248,000
2005 470,000
----------
1,480,000
Losses attributable to timing
Differences (257,000)
----------
$ 1,223,000
==========
7. Other information
a) Related party transactions
Included in the statement of operations and deficit are the
following transactions with officers and directors and
related individuals:
1998 1997 1996
---- ---- ----
Expenses
Management fees $ 65,055 $ 44,887 $ 34,032
Rent $ 4,200 $ 4,200 $ 4,200
Research and development $ --- $ --- $ 6,250
Software and systems development costs incurred during the
year includes $161,833 (1997 - $109,500) paid to officers
and directors.
At October 31, 1998, $7,438 (1997 - $6,093) due to officers
and directors is included in accounts payable and accrued
liabilities.
Share issue costs for 1996 include $18,000 paid to an
officer and director.
The company has contract services agreements with officers
requiring the company to pay monthly fees of $14,917 to
December 2001 and additional amounts if not renewed at that
time.
The related party transactions are in the normal course of
operations and are recorded at the amount paid.
<Page 67>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
7. Other information - continued
b) Financial instruments
The company's financial instruments consist of cash, due
from brokers, and short-term investments, accounts
receivable, and accounts payable. Unless otherwise noted,
it is management's opinion that the company is not exposed
to significant interest, currency or credit risks arising
from these financial instruments. A significant portion of
the company's cash, due from brokers, and short-term
investments are denominated in United States dollars.
Therefore, the realization of these amounts into Canadian
dollars can fluctuate based on foreign exchange rates. The
fair values of these financial instruments approximate their
carrying values, unless otherwise noted.
c) Geographic information
Substantially all of the company's software sales are to
customers in the United States.
d) Foreign exchange gains and losses
Foreign exchange gains and losses arising because of changes
in the exchange rate between Canadian and United States
currency arose because of trading in short-term investments.
Trading income includes foreign exchange gains of $18,897.
Interest and other income for 1997 includes foreign
exchange gains of $8,623 (1996 - losses of $5,932).
e) Loss per share
The loss per share is calculated on the basis of the
weighted average number of shares outstanding during the
year which was 8,775,837 (1997 - 8,680,131; 1996 -
6,966,045).
f) Cash used in operating activities includes:
1998 1997 1996
---- ---- ----
Bank charges and interest paid $ (2,407) $ (1,452) $ (1,811)
Interest received $ 45,329 $ 49,957 $ 41,223
g) Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems
use two digits rather than four to identify a year. Date-
sensitive systems may recognize the year 2000 as 1900 or
some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the
Year 2000 Issue may be experienced before, on or after
January 1, 2000, and, if not addressed, the impact on
operations and financial reporting may range from minor
errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It
is not possible to be certain that all aspects of the Year
2000 Issue affecting the entity, including those related to
the efforts of customers, suppliers, or other third parties,
will be fully resolved.
<Page 68>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
7. Other information - continued
h) Comparative figures
The comparative figures have been reclassified, where
applicable, to conform with the current year's presentation.
8. United States accounting principles
a) Balance sheet
There are no differences between United States generally
accepted accounting principles and Canadian generally
accepted accounting principles that would result in material
changes to the balance sheet.
b) Short-term investments
Under United States generally accepted accounting
principles, short-term investments are recorded at market
value. At October 31, 1998 and 1997, there were no
differences between the cost and the market value of the
short-term investments.
c) Escrow shares
Under United States generally accepted accounting
principles, the 3,000,000 common shares held in escrow are
considered contingent shares because the conditions for
issuance are not currently met and will not be met by the
mere passage of time. When these shares are released from
escrow, to the extent their fair market value exceeds their
issuance price, compensation expense would be recognized by
the company.
d) Share issue costs
Under United States generally accepted accounting
principles, share issue costs paid to employees are required
to be expensed. Accordingly, share issue costs of $18,000
paid to an officer and director in 1996 would result in an
increase in management fees expense in 1996.
e) Loss per share
Under United States generally accepted accounting
principles, the loss per share is calculated on the basis
that the weighted average number of shares outstanding
during the year excludes shares which are considered
contingent shares. On that basis:
1998 1997 1996
---- ---- ----
Weighted average number of
shares outstanding 5,775,837 5,680,131 4,515,225
========= ========= =========
Net loss per share $(.07) $(.03) $(.06)
===== ===== =====
<Page 69>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
8. United States accounting principles - continued
f) Stock options
Under United States generally accepted accounting
principles, granting of stock options to directors, officers
and employees may give rise to a charge to income for
compensation. The company has prepared its financial
statements in accordance with APB 25 under which stock
options are measured by the intrinsic value method whereby
directors, officers and employee compensation cost is
limited to the excess of the quoted market price at date of
grant over the option exercise price. Since the exercise
price equalled the quoted market price at the dates the
stock options were granted, there was no compensation cost
to be recognized. Had the company fully adopted the
recommendations of SFAS 123 and valued the options using a
fair market value method such as the Black-Scholes option
pricing model, there would be an increase in employee and
director compensation costs charged to income of $Nil in
1998, $Nil in 1997 and $6,350 in 1996. The weighted average
grant date fair market value of options granted was
determined using the Black-Scholes option pricing model
assuming a risk-free interest rate of 6.25%; an option life
of 5 years; an expected volatility of 13% and that no
dividends would be paid until after the expiry date of the
options.
1998 1997 1996
---- ---- ----
Net loss under United States
generally accepted accounting
policies $ (392,402) $ (142,233) $ (253,302)
Increase in directors',
officers' and employees'
compensation --- --- 6,350
--------- --------- ---------
$ (392,402) $ (142,233) $ (259,652)
========= ========= =========
Net loss per share if
SFAS 123 adopted $(.07) $(.03) $(.06)
===== ===== =====