KPMG
Financial Statements of
3608948 CANADA INC.
Year ended December 31, 2000
(in Canadian Dollars)
<PAGE 49>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the balance sheet of 3608948 Canada Inc. as at December 31, 2000
and the statements of earnings and retained earnings and cash flows for the year
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 Canadian 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 financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2000 and the
results of its operations and its cash flows for the year then ended in
accordance with Canadian generally accepted accounting principles.
Chartered Accountants
Montreal, Canada
February 26, 2001
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3608948 CANADA INC.
Balance Sheet
December 31, 2000
(with comparative figures for 1999)
(in Canadian Dollars)
2000 1999
Assets
Current assets:
Cash CD $ 166,826 CD $ 62,178
Marketable securities 1,643 -
Accounts receivable 369,058 14,847
Notes receivable 2,000 -
Prepaid expenses 1,584 -
-------- -------
541,111 77,025
Capital assets (note 2) 305,958 46,166
-------- -------
CD $ 847,069 CD $123,191
========= =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities CD $ 157,148 CD $ 37,897
Income taxes payable 172,934 -
Advance from a shareholder, without interest - 20,750
--------- --------
330,082 58,647
--------- --------
Future tax liabilities 13,400 -
--------- --------
Shareholders equity:
Share capital (note 3) 1,000 1,000
Retained earnings 502,587 63,544
--------- --------
503,587 64,544
--------- --------
Lease commitment (note 4) - -
--------- --------
CD $ 847,069 CD $123,191
======== ========
See accompanying notes to financial statements.
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3608948 CANADA INC.
Statement of Earnings and Retained Earnings
Year ended December 31, 2000
(with comparative figures for the seven-month period ended December 31, 1999)
(in Canadian Dollars)
2000 1999
(12 months) (7 months)
Revenue CD $ 3,101,068 CD $ 315,343
----------- --------
Expenses:
Salaries and benefits 1,551,391 21,860
Website development contracts 238,641 175,637
Placement agencies 148,512 -
Rent 97,850 1,368
Travel and representation 90,728 7,590
Bad debt 134,955 -
Amortization 64,545 9,077
Professional fees 44,125 11,071
Advertising 30,353 -
Telecommunications 24,179 6,659
Office expenses 19,134 5,464
Car rental and expenses 10,380 956
Loss on devaluation of marketable securities 9,259 -
Taxes and licenses 6,622 250
Other expenses 5,722 824
Interest and bank charges 3,547 804
Internet access 3,042 539
Insurance 2,712 -
Gifts and donations 1,800 -
---------- --------
2,487,497 242,099
---------- --------
Earnings before income taxes 613,571 73,244
---------- --------
Income taxes:
Current 161,128 9,700
Future 13,400 -
---------- --------
174,528 9,700
---------- --------
Net earnings 439,043 63,544
Retained earnings, beginning of year 63,544 -
---------- --------
Retained earnings, end of year CD$ 502,587 CD $ 63,544
========= =======
See accompanying notes to financial statements.
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3608948 CANADA INC.
Statement of Cash Flows
Year ended December 31, 2000
(with comparative figures for the seven-month period ended December 31, 1999)
(in Canadian Dollars)
2000 1999
(12 months) (7 months)
Cash flows from operating activities:
Net earnings CD$ 439,043 CD$ 63,544
Adjustments for:
Amortization 64,545 9,077
Devaluation of marketable securities 9,259 -
Future tax 13,400 -
Change in non-cash working capital:
Accounts receivable (354,211) (14,847)
Accounts payable 103,195 28,197
Income taxes payable 188,989 9,700
Prepaid expenses (1,584) -
--------- --------
462,636 95,671
--------- --------
Cash flows from financing activities:
(Decrease) increase in advance from a director (20,750) 20,750
Issue of share capital - 1,000
--------- ---------
(20,750) 21,750
--------- ---------
Cash flows from investing activities:
Capital assets (324,336) (55,243)
Increase in marketable securities (10,902) -
Increase in notes receivable (2,000) -
--------- ---------
(337,238) (55,243)
--------- ---------
Increase in cash and cash equivalents during
the year 104,648 62,178
Cash and cash equivalents, beginning of year 62,178 -
--------- ----------
Cash and cash equivalents, end of year CD$ 166,826 CD$ 62,178
======== ========
Additional information concerning cash flows:
Interest paid CD $ 3,527 CD$ -
Income taxes paid - -
See accompanying notes to financial statements.
<PAGE 53>
3608948 CANADA INC.
Notes to Financial Statements
Year ended December 31, 2000
(in Canadian Dollars)
ORGANIZATION
The Company was incorporated on June 7, 1999 under the provisions of the
Canada Business Corporations Act and its principal business activity
comprises the design of web sites and operates under the name of Ideas and
Associates.
1. Significant accounting policies:
<a> Basis of presentation:
The Company's accounting policies are in accordance with accounting
principles accepted in Canada ("Canadian GAAP") which are consistent with
accounting principles generally accepted in the United States ("US GAAP") in
all material respects. The 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 reported period. Actual results could differ from those
estimates. The following policies are considered to be significant.
(b> Capital assets:
Capital assets are carried at cost. Amortization is provided using the
following methods and annual rates:
Asset Method Rate
- -----------------------------------------------------------
Office furniture and equipment Declining balance 20%
Computer hardware Declining balance 30%
Computer software Declining balance 50%
Leasehold improvements Straight-line 20%
(c> Marketable securities:
Marketable securities are stated at the lower of cost and market value.
(d> Revenue recognition:
Revenues are generated from service and maintenance contracts where revenue
is recognized, as the services are provided in agreement with the contracts.
The contracts do not provide any warranties, guarantees or rights of
returns.
(e) Foreign exchange:
Monetary assets and liabilities denominated in foreign currencies are
translated at the year-end exchange rate in effect at the balance sheet
date. Other balance sheet items and income and expenses are translated at
the average rate of exchange prevailing at the respective transaction date.
Gains or losses on foreign exchange are included in the determination of net
income.
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3608948 CANADA INC.
Notes to Financial Statements, Continued
Year ended December 31, 2000
(in Canadian Dollars)
1. Significant accounting policies (continued):
(f) Income taxes:
The Company follows the asset and liability method for accounting for income
taxes. Under the asset and liability method, the change in the net future
tax asset or liability is to be included in income. Future assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which temporary differences are expected to
be recovered or settled.
<g) Cash and cash equivalents
The Company considers deposits in banks, certificates of deposit and short-
term investments with original maturities of three months or less as cash
and cash equivalents.
(h) Earnings per share
Earnings per share was calculated based on weighted average number of shares
outstanding throughout the year. The Company has no dilutive instruments
outstanding.
2. Capital assets:
2000 1999
Accumulated Net book Net book
Cost depreciation value value
Office furniture and equipment CD $ 90,955 CD$ 10,923 CD $ 80,032 CD$ 9,132
Computer hardware 217,579 43,190 174,389 35,178
Computer software 64,160 18,822 45,338 1,856
Leasehold Improvements 6,885 686 6,199 -
-------- -------- -------- -------
CD $ 379,579 CD$ 73,621 CD$ 305,958 CD$46,166
========= ======= ======== ======
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3608948 CANADA INC.
Notes to Financial Statements, Continued
Year ended December 31 2000
(in Canadian Dollars)
3. Share capital:
2000 1999
Authorized in an unlimited number of:
Class A common shares, voting, participating
Class B common shares, non-voting
Class C preferred shares, voting, redeemable
Class D preferred shares, non-voting, retractable,
preferential and non-cumulative dividend
Class E preferred shares, non-voting, retractable,
preferential and non-cumulative dividend,
non-participating
Class F preferred shares, non-voting, preferential and
non-cumulative dividend, retractable, non-participating
Class G preferred shares, non-voting, preferential and
non-cumulative dividend
Issued:
1,000 Class A common shares CD $ 1,000 CD $ 1,000
====== =======
4. Lease commitment:
Minimum annual payments under long-term operating lease for each of the five
succeeding years are:
2001 CD $ 89,075
2002 108,836
2003 108,836
2004 108,836
2005 59,365
5. Economic dependence:
The Company is economically dependent on two clients that accounted for most
of its revenues in the current year.
6. Financial instruments:
(a) Fair value of financial assets and financial liabilities
The carrying values of cash, marketable securities, accounts receivable,
accounts payable and accrued liabilities, and advances from shareholders
approximate their fair value due to the relatively short periods to maturity
of these items or because they are receivable or payable on demand.
(b) Credit risk:
The Company regularly monitors its credit risk exposure to its customers and
takes steps to mitigate the risk of loss. The Company's extension of credit
is based on an evaluation of each customer's financial condition.
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3608948 Canada Inc.
Interim Balance Sheet
As at September 30 2001
(in Canadian Dollars)
(Unaudited)
Assets
Current Assets:
Cash CD $ (23,906.66)
Non-registered investments 150,000.00
Marketable securities 345.00
Accounts receivable 1,273,071.50
Notes receivable 12,843.45
Pre-Paid expenses 8,568.48
-------------
CD$ 1,420,921.77
Capital Assets 434,536.13
-------------
CD$ 1,855,457.90
==============
Liabilities and Shareholders' Equity
Current liabilities:
Bank loan CD$ 559,000.00
Accounts payable and accrued liabilities 194,161.50
Current portion of long term debt 17,749.98
Income taxes Payable 98,642.00
--------------
CD$ 869,553.48
--------------
Future tax liabilities 13,400.00
--------------
Long term liabilities:
Long term debt 126,000.00
--------------
CD$ 1,008,953.48
--------------
Shareholders' equity:
Share Capital 1,000.00
Retained earnings 845,504.42
--------------
846,504.42
--------------
CD$ 1,855,457.90
==============
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3608948 Canada Inc.
Interim Statement of Earnings and Retained Earnings
For the period ended September 30, 2001
(in Canadian Dollars)
(Unaudited)
Revenue CD$ 4,342,484.47
-------------
Expenses
Salaries and benefits 2,957,098.81
Other Selling, General & Administration expenses 813,235.74
Interest expense 32,460.47
Depreciation expense 94,710.46
-------------
3,897,505.48
-------------
Earning before income taxes 444,978.99
Income taxes - current 102,062.00
-------------
Net earnings for the period 342,916.99
Retained earnings, beginning of period 502,587.43
-------------
Retained earnings, end of period CD$ 845,504.42
==============
<PAGE 58)
3608948 CANADA INC.
STATEMENT OF CASH FLOWS
Nine month period ended September 30, 2001
(in Canadian Dollars)
(Unaudited)
Cash flows from operating activities:
Net earnings CD $ 341,013
Adjustments for:
Amortization -
Devaluation of marketable securities -
Future tax -
Change in non-cash working capital:
Accounts receivable (694,566)
Accounts payable 16,989
Income taxes payable (172,934)
Prepaid expenses (4,991)
----------
(514,489)
----------
Cash flows from financing activities:
(Decrease) increase in advance from a director -
Bank loan 559,000
----------
559,000
----------
Cash flows from investing activities:
Capital assets (221,579)
Increase in marketable securities -
Increase in notes receivable -
----------
(221,579)
----------
(Decrease) increase in cash and cash equivalents
during the period (177,068)
Cash and cash equivalents, beginning of period 166,826
----------
Cash and cash equivalents, end of period CD $ (10,242)
==========
Additional information concerning cash flows:
Interest paid $ 23,810
Income taxes paid 172,934
<PAGE 59>
3608948 CANADA INC.
NOTES TO FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 2001
(in Canadian Dollars)
(Unaudited)
3608948 Canada Inc.(the "Company") has elected to omit substantially all
footnotes to the financial statements for the nine months ended September 30,
2001.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustments which
are, in the opinion of management, necessary to properly reflect the results of
the period presented. The information presented is not necessarily indicative
of the results from operations expected for the full fiscal year.