SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12
MIAD SYSTEMS LTD.
-------------------------------------------
(Name of Registrant as specified in its charter)
(Name of Person(s) Filing Proxy Statement), if other than Registrant
Payment of Filing Fee (Check the appropriate box):
[X ] No fee required
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
-----------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
-----------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: (A)
-----------
(4) Proposed maximum aggregate value of transaction:
--------
(5) Total fee paid:
------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------
(3) Filing Party:
-----------------------------------------------
(4) Date Filed:
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MIAD SYSTEMS LTD.
43 Riveria Drive, Unit 7
Markham, Ontario, Canada, L3R 5J6
-------------
NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, JUNE 26, 2002
TO THE SHAREHOLDERS OF MIAD SYSTEMS LTD.
Notice is hereby given that an Annual Meeting of the shareholders of
MIAD SYSTEMS LTD. (the "Corporation") will be held on Wednesday, June 26, 2002,
at the hour of 10:00 o'clock in the forenoon Toronto time, for the following
purposes:
1. to receive and consider the report of the directors and to receive and
consider the financial statements of the Corporation for the period
ended September 30, 2001, together with the auditors report thereon,
which such report, financial statements and auditors reports were
mailed to the shareholders together with this notice of meeting;
2. to elect directors for the ensuing year;
3. to appoint auditors for the ensuing year and to authorize the directors
to fix the remuneration to be paid to the auditors;
4. to transact such other business as may properly be transacted at such
meetings or any adjournment thereof.
Reference is made to the heading "Particulars of Matters to be Acted
Upon" in the attached Information Circular setting forth a description of the
matters referred to in items 2 to 3 above. If you are unable to attend the
meeting in person, please read the information contained in the accompanying
Information Circular and the Instrument of Proxy enclosed herewith and complete
and return the Proxy within the time period specified in the Information
Circular. The enclosed Proxy is solicited by management, but you may amend it,
if you so desire, by striking out the names listed therein and inserting in the
space provided the name of the person you wish to represent you at the meeting.
Dated at Toronto, Ontario as of this 22nd day of May, 2002.
BY ORDER OF THE BOARD,
"MICHAEL A. GREEN" DIRECTOR AND PRESIDENT
MIAD SYSTEMS LTD.
43 Riveria Drive, Unit 7
Markham, Ontario, Canada, L3R 5J6
-------------
MANAGEMENT INFORMATION CIRCULAR
AS OF MAY 22, 2002
-------------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, JUNE 26, 2002
-------------------------------
SOLICITATION OF PROXIES
SOLICITATION OF PROXIES
- -----------------------
THIS INFORMATION CIRCULAR (THE "CIRCULAR") IS FURNISHED IN CONNECTION
WITH THE SOLICITATION BY THE MANAGEMENT OF MIAD SYSTEMS LTD. (THE "CORPORATION")
OF PROXIES TO BE USED AT THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS OF THE
CORPORATION TO BE HELD ON WEDNESDAY, JUNE 26, 2002, AT THE HOUR OF 10:00 A.M.,
AT 390 BAY STREET, SUITE 1102, TORONTO, ONTARIO, FOR THE PURPOSES SET FORTH IN
THE ACCOMPANYING NOTICE OF MEETING. IT IS EXPECTED THAT THE SOLICITATION WILL BE
PRIMARILY BY MAIL BUT PROXIES MAY ALSO BE SOLICITED PERSONALLY BY REGULAR
EMPLOYEES AND DIRECTORS OF THE CORPORATION AT A NOMINAL COST. THE COST OF ANY
SUCH SOLICITATION BY MANAGEMENT WILL BE BORNE BY THE CORPORATION.
APPOINTMENT AND REVOCATION OF PROXIES
- -------------------------------------
The persons named in the enclosed form of proxy are Directors and
Senior Officers of the Corporation. A SHAREHOLDER DESIRING TO APPOINT SOME OTHER
PERSON TO REPRESENT HIM AT THE MEETING MAY DO SO BY INSERTING SUCH PERSON'S
NAME, WHO NEED NOT BE A SHAREHOLDER OF THE CORPORATION, IN THE BLANK SPACE
PROVIDED IN THE FORM OF PROXY AND, IN EITHER CASE, DELIVERING THE COMPLETED
PROXY TO THE SECRETARY OF THE CORPORATION AT 43 RIVIERA DRIVE, UNIT 6, MARKHAM,
ONTARIO, OR TO MANHATTAN TRANSFER REGISTRAR CO., 58 DORCHESTER ROAD, LAKE
RONKONKOMA, NEW YORK, 11779, AT LEAST 72 HOURS PRIOR TO THE MEETING IN ORDER FOR
THE PROXY TO BE VOTED. A Proxy must be executed by a shareholder or his attorney
authorized in writing or, if executed by a body corporate, by an Officer or
Attorney thereof, duly authorized.
Any Shareholder giving a Proxy may, in addition to in any other manner
permitted by law, revoke the Proxy by depositing an instrument in writing
executed by the Shareholder or by his Attorney authorized in writing, or if the
Shareholder is a body corporate, by an Officer or Attorney thereof duly
authorized, at the head office of the Corporation or at MANHATTAN TRANSFER
REGISTRAR CO., at any time up to and including the last business day preceding
the day of the Meeting, or any adjournment thereof, at which the Proxy is to be
used or with the Chairman of the Meeting on the day of the Meeting or any
adjournment thereof.
EXERCISE OF DISCRETION BY PROXIES
- ---------------------------------
Shares represented by properly executed Proxies will be voted or
withheld from voting in accordance with the instructions of the Shareholder
giving the Proxy on any ballot that may be called for, and, if the Shareholder
specifies a choice with respect to any matter to be acted upon, the shares will
be voted accordingly. IF NO CHOICE IS SPECIFIED, THE SHARES REPRESENTED BY SUCH
PROXIES WILL, EXCEPT WHERE PROHIBITED BY LAW, BE VOTED IN FAVOUR OF THE MATTER
IDENTIFIED IN THE NOTICE OF MEETING.
THE ENCLOSED FORM OF PROXY CONFERS DISCRETIONARY AUTHORITY UPON THE
PERSONS NAMED THEREIN WITH RESPECT TO AMENDMENTS OR VARIATIONS TO MATTERS
IDENTIFIED IN THE NOTICE OF MEETING AND WITH RESPECT TO OTHER MATTERS WHICH MAY
PROPERLY COME BEFORE THE MEETING. At the time of printing this Circular,
management of the Corporation knows of no such amendments, variations or other
matters to come before the Meeting other than the matters referred to in the
Notice of Meeting. HOWEVER, IF OTHER MATTERS WHICH ARE NOT KNOWN TO THE
MANAGEMENT OF THE CORPORATION SHOULD COME BEFORE THE MEETING, THE SHARES
REPRESENTED BY ANY PROXY WILL BE VOTED ON SUCH MATTERS IN ACCORDANCE WITH THE
BEST JUDGEMENT OF THE PERSONS NAMED THEREIN.
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
- -------------------------------------------
As of the date hereof, the Corporation has outstanding 3,711,400 common
shares without nominal or par value, each carrying the right to one vote per
share.
The Board of Directors of the Corporation has fixed May 21, 2002, (the
"RECORD DATE") as the Record Date for the purpose of determining the
shareholders entitled to receive notice of the Meeting. In accordance with the
provisions of the Business Corporations Act (Ontario) (the "ACT") the
Corporation will prepare a list of shareholders as at the Record Date. In
accordance with the voting rights attaching to the common shares, each
shareholder named in the list will be entitled to vote, on all resolutions put
forth at the Meeting for which such shareholder is entitled to vote, the shares
shown opposite his or her name on the said list, except to the extent that: (i)
the shareholder has transferred his or her shares after the Record Date; and
(ii) the transferee of those shares produces properly endorsed share
certificates or otherwise establishes that he or she owns the shares and
demands, not later than 10 days before the Meeting, that his or her name be
included in the list of shareholders before the Meeting, in which case the
transferee will be entitled to vote his or her shares at the Meeting. The
failure of a shareholder to receive the Notice of Meeting does not deprive him
or her of the right to vote at the Meeting.
To the knowledge of the directors or officers of the Corporation, the
following shareholders beneficially own, directly or indirectly, or exercise
control, or direction over, more than 10% of the voting rights attaching to the
outstanding common shares of the Corporation, as at the date hereof:
Name of Shareholder Number of Common Shares Percentage of Total Shares
- --------------------------------------------------------------------------------
Michael Green 1,960,000 52.8%
Cede & Co. 837,970 22.6%
Adrienne Green 490,000 13.2%
PARTICULARS OF MATTERS TO BE ACTED UPON
- ---------------------------------------
A. ELECTION OF DIRECTORS
The Articles of Incorporation of the Corporation provide that the board
of directors of the Corporation consist of a minimum of one (1) and a maximum of
seven (7) directors. The board of directors presently consists of one (1)
director to be elected annually. Each director will hold office until the next
annual meeting of the shareholders of the Corporation or until his/her successor
is duly elected unless his office is earlier vacated in accordance with the
By-laws of the Corporation.
Management has nominated one person to act as the director of the
Corporation. THE PERSONS NAMED IN THE ENCLOSED INSTRUMENT OF PROXY INTEND TO
VOTE FOR THE ELECTION OF THE NOMINEES WHOSE NAMES ARE SET FORTH BELOW. The
director who is standing for re-election by the shareholders has held office
from the dates indicated below. Management does not contemplate that this
nominee will be unable to serve as a director but, if that should occur for any
reason prior to the Meeting, the persons named in the enclosed form of Proxy
reserve the right to vote for another nominee in their discretion.
The following table and notes thereto states the name of the person
proposed to be nominated for election as a Director, his principal occupation or
employment for the past five years, the year in which he became a Director of
the Corporation, and the number of shares of the Corporation beneficially owned,
directly or indirectly, by him as of May 22, 2002. The Corporation does not
presently have an executive committee or an audit committee of the Board of
Directors.
NUMBER OF
NAME SHARES CHIEF OCCUPATION
- --------- -------------- ----------------
Michael A. Green 1,960,000 Director, President of Miad
Director, since Systems Ltd.
Nov.15, 1996, and President
since Sept.30, 1998.
NOTE:
1) The information as to shares beneficially owned, not being within the
knowledge of the Corporation, has been furnished by the representative nominees
individually.
B. STATEMENT OF EXECUTIVE COMPENSATION
For the fiscal year ended September 30, 2001, the Corporation had three
(3) "Executive Officers" as such term is defined in Form 40 under the Regulation
to the Securities Act of Ontario. During the most recently completed financial
year the Corporation paid a total of * for salaries and bonuses to directors and
senior officers of the Corporation.
1. Compensation of Named Executive Officers
----------------------------------------
The following table sets forth all compensation in respect of
individuals ("Named Executive Officers") who were, as at September 30, 2001,
earning a combined salary and bonus in excess of Cdn. One Hundred Thousand
Dollars ($100,000.00) for the fiscal year ended September 30, 2001:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation* Awards
-------------------- ------
Name and $000* Securities
Principal Under Options All Other
Position Year Salary Bonus Other Granted Compensation
- --------- ---- ------ ----- ----- ------ ------------
Michael
Green 1999 $135 $15 $ n/a n/a
President/ 2000 $180 $26 $ n/a n/a
CEO 2001 $180 $15 $ n/a n/a
Joseph
Misetich 1999 $12.5 $5.1 $ n/a n/a
Vice- 2000 $50 $92.3 $ n/a n/a
President 2001 $57 $92.5 $ n/a n/a
* amounts expressed in Canadian dollars.
2. Termination of Employment, Change in Responsibilities and Employment
Contracts
-----------------------------------------------------------------------
The Corporation and its subsidiaries have entered into the following
employment contracts with the Named Executive Officers. Pursuant to an agreement
between the Corporation and Messr. Green, the Corporation has agreed to pay to
Mr. Green a salary of $200,000.00, a commission of $5,000.00 for each One
Million Dollars ($1,000,000.00) of sales achieved by the Corporation in each
fiscal year (to a maximum of Ten Million Dollars ($10,000,000.00) in sales, a
commission of $12,000.00 for each One Million Dollars ($1,000,000.00) of sales
achieved by the Corporation in each fiscal year for sales in excess of Ten
Million Dollars ($10,000,000.00), a one time bonus of Twenty Thousand Dollars
($20,000.00) in the event that the Corporation achieves sales in any fiscal year
in excess of Ten Million Dollars ($10,000,000.00), a bonus at the rate of 4% of
the Corporation's pre-tax profit, the reimbursement of reasonable and legitimate
business expenses, and employment benefits in accordance with the Corporation's
current employment benefits plan.
Pursuant to an agreement between the Corporation and Messr. Misetich,
the Corporation has agreed to pay to Mr. Misetich a salary of $50,000.00, a
commission of two and one half percent (2 1/2%) to three percent (3%) of billed
revenue depending on the gross margin of the transaction, a one time bonus of
Fifteen Thousand Dollars ($15,000.00) in the event that the Corporation achieves
sales in any fiscal year from Mr. Misetich's accounts in excess of Two Million
Five Hundred Thousand Dollars ($2,500,000.00), an additional one time bonus of
Twenty Five Thousand Dollars ($25,000.00) in the event that the Corporation
achieves sales in any fiscal year from Mr. Misetich's accounts in excess of
Three Million Thousand Dollars ($3,000,000.00), a car allowance of Eight Hundred
Dollars ($800.00) per month, as well as reimbursement for reasonable and
legitimate business expenses and employment benefits in accordance with the
Corporation's current employment benefits plan.
C. APPOINTMENT OF AUDITORS
Unless such authority is withheld, the persons named in the enclosed
instrument of proxy intend to vote to appoint Messrs. Brodeur Dennis, Chartered
Accountants, Toronto, Ontario, as auditors of the Corporation to hold office
until the next Annual Meeting of Shareholders and to authorize the directors to
fix their remuneration.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED ON
- -----------------------------------------------------
Certain directors proposed as nominees for election to the Board of
Directors of the Corporation, are parties to employment agreements with the
Corporation, as described above, under heading "B. STATEMENT OF EXECUTIVE
COMPENSATION" "COMPENSATION OF NAMED EXECUTIVE OFFICERS" and "TERMINATION OF
EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS".
GENERAL
- -------
The information contained herein is given as of May 22, 2002.
Management knows of no additional matters to come before the Meeting. Receipt at
such Meeting of a report of the Directors and auditors and the Corporation's
Financial Statements for its fiscal period ended September 30, 2001 will not
constitute approval or disapproval of any matters referred to therein.
The contents and the sending of this Circular and the sending of it to
holders of common shares of the Corporation, to each director of the
Corporation, to the auditors of the Corporation and to the appropriate
governmental agencies have been approved by the Board of Directors of the
Corporation.
/s/ MICHAEL A. S. GREEN
------------------------------
Michael A. S. Green
PRESIDENT
May 22, 2002
MIAD SYSTEMS LTD.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
AND
INDEPENDENT AUDITORS' REPORT
Appendix A
MIAD SYSTEMS LTD.
INDEX TO FINANCIAL STATEMENTS
Page
- --------------------------------------------------------------------------------
Independent Auditors' Report 2
Balance Sheets 3
Statements of Operations 4
Statement of Shareholders' Equity (Deficit) 5
Statements of Cash Flows 6
Notes to Financial Statements 7 - 13
1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
MIAD Systems Ltd.
We have audited the balance sheets of MIAD Systems Ltd. (the "Company") as at
September 30, 2001 and 2000, and the related the statements of operations,
shareholders' equity (deficit) and cash flows for the years 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 audits in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform the 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.
We believe that our audits provide 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 the Company as of September 30,
2001 and 2000 and the results of its operations and its cash flows for the years
then ended in accordance with accounting principles generally accepted in
Canada. There are no differences between United States GAAP and Canadian GAAP as
they relate to the financial statements of MIAD Systems Ltd.; see note 10 for
certain disclosure differences.
/s/ Brodeur Dennis Chartered Accountants
Brodeur Dennis Chartered Accountants
Richmond Hill, Ontario
November 27, 2001
2
MIAD SYSTEMS LTD.
BALANCE SHEETS
SEPTEMBER 30, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
ASSETS 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 520,396 $ 259,977
Accounts receivable, net (Notes 2, 4 and 5) 486,367 1,579,327
Inventories (Notes 2, 4 and 5) 243,856 196,753
Prepaid expenses 19,195 27,695
----------- -----------
Total current assets 1,269,814 2,063,752
Capital assets (Note 3) 31,375 28,557
----------- -----------
TOTAL $ 1,301,189 $ 2,092,309
=========== ===========
LIABILITIES
- -------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued charges (Note 5) $ 1,298,289 1,882,490
Current portion of loans payable (Note 4) -- 56,491
----------- -----------
Total current liabilities 1,298,289 1,938,981
----------- -----------
Total liabilities 1,298,289 1,938,981
----------- -----------
SHAREHOLDERS' EQUITY (DEFICIT)
- -------------------------------------------------------------------------------------------------------------------
Capital stock (Note 6)
First Preference shares without par value , authorized - unlimited;
issued and outstanding - Nil
Common shares without par value, authorized - unlimited; issued and
outstanding 3,711,400 at September 30, 2001; 3,673,400 at
September 30, 2000 590,299 532,501
Deficit (587,399) 379,173
----------- -----------
Total stockholders' equity (deficit) 2,900 153,328
----------- -----------
TOTAL $ 1,301,189 $ 2,092,309
=========== ===========
See notes to financial statements
3
MIAD SYSTEMS LTD.
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
2001 2000
- -------------------------------------------------------------------------------
Sales, net $ 8,085,766 $ 7,802,650
Cost of sales, net 6,900,644 6,750,013
----------- -----------
Gross Margin 1,185,122 1,052,637
----------- -----------
Operating Expenses
Wages and benefits 989,433 854,814
Salesmen's auto, travel and promotion 167,306 139,859
Rent 48,103 43,312
Professional fees 54,291 35,397
Office and general 42,330 25,984
Telephone 27,901 24,752
Insurance 18,308 23,770
Interest on loans payable 15,913 21,294
Bank charges 8,977 9,157
Advertising 3,507 7,432
Utilities 5,620 5,128
Bad Debts 5,000 (248)
Depreciation 6,659 10,244
----------- -----------
Total operating expenses 1,393,348 1,200,895
----------- -----------
Loss before provision for income taxes (208,226) (148,258)
----------- -----------
Provision for income taxes -- --
----------- -----------
Net loss $ (208,226) $ (148,258)
=========== ===========
Net loss per common share
Basic and fully diluted (Note 10(i)) (0.06) (0.04)
Weighted average common shares outstanding:
Basic and fully diluted 3,685,268 3,512,322
See notes to financial statements
4
MIAD SYSTEMS LTD.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
(All Amounts Expressed in Canadian Dollars)
Common Shares
Shares Amount (Deficit) Total
--------- --------- --------- ---------
Balances September 30, 1999 3,322,500 $ 147,635 $(230,915) $ (83,280)
Shares issued for service 110,000 33,000 -- 33,000
Exercise of warrants 240,900 351,866 -- 351,866
Net loss for the year ended
September 30, 2000 -- -- (148,258) (148,258)
--------- --------- --------- ---------
Balances September 30, 2000 3,673,400 532,501 (379,173) 153,328
Exercise of warrants 38,000 57,798 -- 57,798
Net loss for the year ended
September 30, 2001 -- -- (208,226) (208,226)
--------- --------- --------- ---------
Balances September 30, 2001 3,711,400 $ 590,299 $(587,399) $ 2,900
========= ========= ========= =========
See notes to financial statements
5
MIAD SYSTEMS LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
2001 2000
- -------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $ (208,226) $ (148,258)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 6,659 10,244
Common shares issued for services -- 33,000
Changes in certain assets and liabilities
Accounts receivable 1,092,960 (1,314,352)
Inventories (47,103) (44,045)
Prepaid expenses 8,500 (25,500)
Accounts payable and accrued charges (584,201) 1,469,386
----------- -----------
Net cash used in operating activities 268,589 (19,525)
----------- -----------
Cash flows from investing activities
Purchases of property and equipment (9,477) (9,307)
----------- -----------
Net cash used in investing activities (9,477) (9,307)
Cash flows from financing activities
Repayment on loans payable (56,491) (87,523)
Net proceeds from private placement 57,798 351,866
----------- -----------
Net cash provided by financing activities 1,307 264,343
----------- -----------
Net increase in cash and cash equivalents 260,419 235,511
Cash and cash equivalents at beginning of year 259,977 24,466
----------- -----------
Cash and cash equivalents at end of year $ 520,396 $ 259,977
=========== ===========
Supplemental Disclosure of Cash Flow Information
Interest paid in cash during the period $ 15,913 $ 21,294
=========== ===========
Income taxes paid in cash during the period $ -- $ --
=========== ===========
See notes to financial statements
6
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
1. Description of Business
- --------------------------------------------------------------------------------
MIAD Systems Ltd. (the "Company") was incorporated in 1993 under the laws
of the Province of Ontario and is primarily engaged in computer
manufacturing, distribution and integration, network design,
implementation and support.
2. Significant Accounting Policies
- --------------------------------------------------------------------------------
Basis of Accounting
These financial statements are prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") which differ in certain
respects with United States GAAP. United States GAAP disclosure
requirements are presented in Note 10.
Allowance for Doubtful accounts
At September 30, 2001 and 2000, the allowance for doubtful accounts on
accounts receivable was $5,000 and Nil respectively.
Capital Assets and Depreciation
Capital assets are recorded at cost less accumulated depreciation. The
useful lives of internal computers is eight years. The useful live of
furniture and fixtures is eight years. Depreciation based upon the
estimated useful lives of the assets is calculated as follows.
Office Equipment - 30% declining balance method
Computer equipment - 30% declining balance method
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less. The Company periodically
maintains cash balances in financial institutions in excess of insured
limits.
Concentrations of Credit Risk
The company has no significant off-balance sheet concentration of credit
risk such as foreign exchange contracts, options contracts or other
foreign currency hedging arrangements. Financial instruments that
potentially subject the Company to a concentration of credit risk consist
primarily of accounts receivable. Concentration of credit risk with
respect to accounts receivable is limited to certain customers to whom the
Company makes substantial sales. During fiscal year ended September 30,
2001, one customer accounted for 36% of the Company's revenue and had a
nil balance in accounts receivable at year end. No single customer
accounted for 10% of the accounts receivable at September 30, 2001. During
the fiscal year ended September 30, 2000 , one customer accounted for 13%
of the Company's revenue and 49% of the accounts receivable at year end
and another customer accounted for 14% of the Company's Revenue accounted
for 9% of the accounts receivable at year end.
Foreign Currency Transactions
Monetary assets and liabilities denominated in a foreign currency are
translated into Canadian dollars at the rate of exchange prevailing at the
balance sheet date.
7
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
2. Significant Accounting Policies Continued
- --------------------------------------------------------------------------------
Fair Value of financial instruments
Cash, receivables, and accounts payable and accrued charges are reflected
in the financial statements at fair value due to the short term maturity
of those instruments. The fair values of the company's loans payable are
the same as the recorded amounts because rates and terms approximate
current market conditions.
Inventories
Inventories are valued at the lower of cost or net realizable value, with
cost being determined on an average cost basis. As at September 30, 2001
and 2000, inventory by major classification was as follows: 2001 2000
2001 2000
---- ----
Finished goods $ 50,894 $ 14,103
Component parts 192,962 182,650
------- -------
$ 243,856 $ 196,753
========= =========
Net Loss per Common Share
Basic net loss per share is computed by dividing net loss available to the
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted net loss per share is computed by
giving effect to all dilutive securities convertible into common shares.
Revenue Recognition
Revenues from the sales of products are recognized upon shipment and when
all significant contractual obligation have been satisfied and collection
is reasonably assured. The company ships products FOB our warehouse and
uses common carriers to deliver the goods. Provision is made for an
estimate of product returns and doubtful accounts and is based on
historical experience.
Revenue from the sales of software is recognized at the date of shipment
to customers. The company ships software products FOB our warehouse and
uses common carriers to deliver the goods.
Revenue from network installations are recognized after the completion of
the installation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in Canada requires the Company's management
to make estimates 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 years presented. Actual results could differ
from those estimates.
8
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
3. Capital assets
- --------------------------------------------------------------------------------
Accumulated Net Net
Cost Depreciation 2001 2000
----------------------------------------------------
Office equipment $ 51,081 $ 34,788 $ 16,293 $ 19,734
Furniture and fixtures 35,215 20,133 15,082 8,823
----------------------------------------------------
$ 86,296 $ 54,921 $ 31,375 $ 28,557
====================================================
During the year ended September 30, 2001, the Company charged depreciation of
$6,659 and during the year ended September 30, 2000 charged depreciation of
$10,244.
4. Loans Payable 2001 2000
- --------------------------------------------------------------------------------
(i) Metcan Information Technologies $ -- $ 101,000
Repayments monthly of $6,664 blended principal
and interest at 15% per annum
Matures July 31, 2001
(ii) 636090 Ontario Limited -- 43,014
Repayments of $5,000 blended principal
and interest at 15% per annum
Matures June 30, 2000
-----------------------
Total Debt -- 144,014
Less: Current Portion -- 79,014
-----------------------
Long term Debt $ -- $ 65,000
=======================
The above loans were secured by a General Security Agreement covering
accounts receivable and inventory.
5. Accounts payable
- --------------------------------------------------------------------------------
During 2000, the Company signed General Security Agreements with two of its
suppliers granting security over all of the assets of the company ranking
after Metcan Information Technologies Inc.'s General Security Agreement and
after any banking security. One supplier is owed $688,085 and the second
supplier is owed $281,228. The company purchases the majority of its products
from these two suppliers. The president of the company has personally
guaranteed all debts owing to one of the suppliers.
9
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
6. Capital Stock
- --------------------------------------------------------------------------------
i) In October 1999, 25,000 common shares were issued for past services with an
aggregate consideration of $5,000 U.S. ($7,500 Cdn.) and 85,000 common
shares were issued to an officer as incentive to execute an employment
agreement with an aggregate consideration of $17,000 U.S. ($25,500 Cdn.)
ii) During the year ended September 30, 2000, 240,900 common shares were issued
on the exercise of 240,900 warrants for the aggregate consideration of
$240,900 U.S. ($351,866Cdn.). At September 30, 2000, 654,600 warrants remain
outstanding.
iii)During the year, 38,000 common shares were issued on the exercise of 38,000
warrants for the aggregate consideration of $38,000 U.S. ($57,798 Cdn,). At
September 30, 2001, 616,600 warrants remain outstanding
iv) The Company is authorized to issue an unlimited number of shares of common
stock without par value (which is the common form of incorporation in
Canada), of which 3,711,400 shares are issued and outstanding as of
September 30, 2001. The holders of common stock are entitled to one vote per
share held and have the sole right and power to vote on all matters on which
a vote of shareholders is taken. The holders of the common stock do not have
any preemptive rights to subscribe for or purchase any shares of any class
of stock.
The company is authorized to issue an unlimited number of first preference
shares without par value of which none are issued and outstanding. The
shares may be issued in one or more series with the designation, rights,
privileges, restrictions and conditions to be fixed by the board by articles
of amendment to the certificate of incorporation which must be approved by
special resolution of the shareholders.
The Company has authorized common stock purchase warrants which entitle the
holder to purchase one share of restricted common stock at an exercise price
of $1.00 U.S. per share at any time prior to March 31, 2002. Until
exercised, holders of the warrants have none of the rights of shareholders
of the company.
7. Tax Losses
- --------------------------------------------------------------------------------
The Company has unrecorded non-capital income tax loss carryforwards that may
be used to reduce future tax liabilities. Due to the uncertainty regarding
the ultimate utilization of the net operating loss carryforwards, the Company
has not recorded any net benefit of the loss carryforwards. These losses will
expire in the following years:
2003 $ 92,000
2006 $ 126,000
2007 $ 123,000
2008 $ 195,000
10
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
8. Lease Obligations
- --------------------------------------------------------------------------------
The company is committed under various lease agreements as follows;
i) Premises
The Company's rent expense for the year ended September 30, 2001 was $48,103
and the rent expense for the year ended September 30, 2000 was $43,312. The
Company has negotiated an extension to the current lease for a term of four
years ending November 30, 2005 at a rent of approximately $7,000 per month.
ii) Vehicles
The Company is leasing three vehicles at aggregate annual costs of
approximately $36,000. These leases expire at varying dates.
9. Licencing Agreement
- --------------------------------------------------------------------------------
The company entered into a licencing agreement with International Business
Machines Corporation (IBM) whereby the company has nonexclusive rights to
sell certain licensed products in Canada. The company is required to pay
flat annual fee for this right. The company paid $18,000 for fiscal 2001 and
$16,500 for fiscal 2000.
10. United States GAAP Disclosure Requirements
- --------------------------------------------------------------------------------
(i) Net Loss Per Common Share
- --------------------------------------------------------------------------------
Under United States GAAP, SFAS No.128, "Earnings Per Share", requires the
companies to replace the presentation of primary earnings per share ("EPS")
with a presentation of basic EPS. The statements also requires dual
presentation of basic and fully diluted EPS for all entities with complex
capital structures. For the years ended September 30, 2001 and September 30,
2000, basic and diluted weighted average common shares include only common
shares outstanding. The inclusion of stock warrants and the stock option
plan would be antidilutive and as a result are not included. The stock
warrants, if exercised would have increased common shares outstanding at
September 30, 2001 and September 30, 2000 by 616,600 and 654,600 shares,
respectively.
(ii)Revenue Recognition
- --------------------------------------------------------------------------------
The Company recognizes revenue in accordance with the provisions of
Statement of Position 97-2, Software Revenue Recognition. Revenue from
Software license fees is recognized when there is evidence of an
arrangement, the product has been shipped, fees are fixed and determinable
and the collection of the related receivable is probable.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". This SAB
provides guidance on the recognition, presentation, and disclosure of
revenue in the financial statements and is effective no later than the
fourth quarter of fiscal years beginning after December 15, 1999. The SAB
No. 101 draws on the existing accounting rules and defines the basic
criteria that must be met before we can record revenue. The impact of
adopting SAB 101 did not have a significant effect on the results of
operations or financial position.
11
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
(iii) Freight Costs
- --------------------------------------------------------------------------------
Freight costs incurred for delivering goods to customers are included in
cost of goods sold and amounted to $40,066 and $ 51,151 in 2001 and 2000,
respectively. The Company generated $24,081 and $21,014 of freight revenues
recharged to customers in 2001 and 2000, respectively, and these amounts are
included in sales.
(iv)Statement of Comprehensive Income
- --------------------------------------------------------------------------------
In Accordance with SFAS No. 130, "Reporting Comprehensive Income", the
Company is required to report its comprehensive income. Other comprehensive
income refers to revenue, expenses, and gains and losses that under
generally accepted accounting principles are included in comprehensive
income but are excluded from net income, as these amounts are recorded
directly as an adjustment to stockholders' equity. A statement of
comprehensive income is not presented since the Company has no items of the
comprehensive income. Comprehensive income is the same as net income for the
years presented herein.
(v) Equity Based Compensation
- --------------------------------------------------------------------------------
The company stock option plan authorizes the granting of stock options to
employees. Under the plan, the exercise price of the option equals the
market price of the the Company's stock on the grant date. The option vests
equally over four years with a maximum term of ten years.
The Company currently accounts for its equity based compensation using the
accounting prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. Since the Company is not required
to adopt the fair value based recognition provisions prescribed under SFAS
No.123, accounting for stock based compensation, it has elected only to
comply with disclosure requirements in SFAS No.123, which include disclosing
pro forma net income as if the fair value based method of accounting had
been applied. Fair value of the options was determined using an
option-pricing model which considers the exercise price and expected life of
the option as of the grant date, expected dividends on the units, volatility
and the risk-free interest rate for the expected term of the option. No
compensation was recognized under the Stock Option Plan during the period
June 1, 1999 (inception) to September 30, 2001. Had compensation cost for
the Company's Stock Option Plan been determined based on the fair value at
the grant date consistent with the method of FASB statement 123, $4,241 of
compensation expense would have been recognized. This resulted in no
material impact on earnings per share.
The following table summarizes the stock option plan activity:
Stock Options Exercise Price
Granted 160,000 0.20
Granted 40,000 1.75
Exercised -- --
Cancelled -- --
Balance, September 30, 2001 200,000 --
------------------------------
Exercisable, September 30, 2001 80,000
==============================
12
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
vi) Income taxes
- --------------------------------------------------------------------------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred taxes are provided on a liability
method whereby deferred tax assets are recognized for deductible temporary
differences, operating loss carryforwards , and tax credit carryforwards,
and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment.
A summary of the provision for income taxes for the year ended September 30,
2001 is as follows:
Currently Payable $ --
Deferred benefit 224,150
Valuation allowance (224,150)
----------
Provision for income taxes $ --
==========
Deferred tax assets (liabilities) at September 30, 2000 are as follows:
Available Non-capital losses $ 136,400
Expenses not currently deductible for taxes 87,750
Less: Valuation allowance (224,150)
----------
Net deferred tax assets $ --
==========
The Company has used an estimated federal tax rate of 26% and an estimated
provincial tax rate of 14% for all deferred tax computations. The Company
has recorded a valuation allowance in accordance with the provisions of SFAS
No. 109 to reflect the estimated amount of deferred tax assets that may not
be realized. The Company has available non-capital losses as of September
30, 2001 of approximately $536,000. The non-capital losses will expire
beginning in 2003.
(vii)Litigation
- --------------------------------------------------------------------------------
From time to time the Company is exposed to claims and legal actions in the
normal course of business, some of which are initiated by the Company.
Management believes that the settlement or resolution of such actions, if
any, will not have a material effect on the financial position or results of
operations of the Company.
(viii)Recent Accounting Pronouncements
- --------------------------------------------------------------------------------
In June 1998, FASB issued SFAS No.133, "Accounting for Derivative
Instruments and Hedging Activities" SFAS No.138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment of FASB
133" establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires an entity to recognize
all derivatives as either assets or liabilities in the statement of
financial position, and measure those instruments at fair value. Changes in
the far value of those derivatives will be reported in earnings or other
comprehensive income depending on the use of the derivative and whether the
derivative qualifies for hedge accounting. SFAS NO. 133 and SFAS No.138 are
effective for all fiscal years beginning after June 30, 2000. The Company
will adopt SFAS No. 133, as amended by SFAS No.138, on October 1, 2000. The
company does not expect this adoption to have any impact on reported
earnings, comprehensive income, or financial position as the company has
identified no embedded derivative instruments requiring separate accounting
treatment or engage in hedging activities
13
Appendix B
MIAD SYSTEMS LTD.
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
AND
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
MIAD SYSTEMS LTD.
INDEX TO FINANCIAL STATEMENTS
Page
Independent Accountants' Review Report 1
Balance Sheets 2
Statements of Operations 35
Statements of Cash Flows 4
Notes to Financial Statements 5-7
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Directors of
Miad Systems Ltd.
We have reviewed the accompanying balance sheets of Miad Systems Ltd. (The
"Company") as at December 31, 2001 and the related statements of operations and
cash flows for the three month periods then ended. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for then to be in conformity
with generally accepted accounting principles.
/s/ Brodeur Dennis Chartered Accountants
-----------------------------------------
Brodeur Dennis Chartered Accountants
Richmond Hill, Ontario
February 14, 2002
1
MIAD SYSTEMS LTD.
BALANCE SHEET
AS AT DECEMBER 31, 2001
(All Amounts Expressed in Canadian Dollars)
UNAUDITED
December 31, December 31,
ASSETS 2001 2001
- ---------------------------------------------------------------------------------------
Current assets:
Cash $ 107,949 $ 520,396
Accounts receivable 620,743 486,367
Inventories 238,484 243,856
Prepaid expenses 26,416 19,195
----------- -----------
Total current assets 975,592 1,269,814
Capital assets 36,203 31,375
----------- -----------
TOTAL $ 1,011,795 $ 1,301,189
=========== ===========
LIABILITIES
- ---------------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued charges $ 1,051,396 $ 1,298,289
----------- -----------
Total current liabilities 1,051,396 1,298,289
----------- -----------
Total liabilities 1,051,396 1,298,289
----------- -----------
SHAREHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------------------------------------------------------
Capital stock
First Preference shares without par value,
authorized - unlimited; issued and outstanding - Nil
Common shares withou par value, authorized - unlimited;
issued and outstanding 3,711,400 at December 31, 2001;
3,711,400 at September 30, 2001 590,299 590,299
Deficit (629,900) (587,399)
----------- -----------
Total stockholders' equity (Deficit) (39,601) 2,900
----------- -----------
TOTAL $ 1,011,795 $ 1,301,189
=========== ===========
2
MIAD SYSTEMS LTD.
STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 2001
(All Amounts Expressed in Canadian Dollars)
UNAUDITED
December 31, December 31,
2001 2000
- --------------------------------------------------------------------------------
Sales $ 1,344,028 $ 2,125,090
Cost of sales 1,114,008 1,769,197
----------- -----------
Gross Margin 230,020 355,893
----------- -----------
Expenses
Advertising 3,281 355
Bank charges 2,886 429
Depreciation 2,222 2,142
Insurance 2,391 5,694
Interest on loans payable -- 3,037
Office and general 12,581 15,187
Professional fees 14,344 1,839
Rent 12,410 10,727
Salesmen's Auto, travel and promotion 38,657 38,123
Telephone 9,570 7,166
Utilities 1,298 1,549
Wages and benefits 172,881 243,038
----------- -----------
272,521 329,286
----------- -----------
Income (loss) for the period (42,501) 26,607
Deficit at beginning of year (587,399) (379,173)
----------- -----------
Deficit at end of period $ (629,900) $ (352,566)
=========== ===========
Net income (loss) per common share
Basic and diluted (0.011) 0.007
Weighted-average shares outstanding:
Basic 3,711,400 3,673,400
3
MIAD SYSTEMS LTD.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 2001
(All Amounts Expressed in Canadian Dollars)
UNAUDITED
December 31, December 31,
2001 2000
- --------------------------------------------------------------------------------
Operating Activities
Net income (loss) for the period $ (42,501) $ 26,607
Items not requiring cash 2,222 2,142
Depreciation -- --
--------- ---------
(40,279) 28,749
Changes in certain non-cash working capital items
Accounts receivable (116,376) 740,796
Inventories 5,372 46,558
Prepaid expenses (7,221) (1,637)
Accounts payable and accrued charges (246,893) (834,309)
--------- ---------
Total cash from (used for) operating activities (405,397) (19,843
--------- ---------
Financing Activities
Repayment of loans payable -- (18,154)
--------- ---------
Total cash from (used for) financing activities -- (18,154)
--------- ---------
Investing Activities
Capital asset additions (7,050) --
--------- ---------
Total cash from (used for ) investing activities (7,050) --
--------- ---------
Change in cash position during the year (412,447) (37,997)
Cash and cash equivalents at beginning of year 520,396 259,977
--------- ---------
Cash and cash equivalents at end of year $ 107,949 $ 221,980
========= =========
Supplemental Information
Interest paid $ -- $ 3,037
4
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
(UNAUDITED)
1. Basis of Presentation
- --------------------------------------------------------------------------------
The accompanying financial statements of MIAD Systems Ltd. (the "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions to Form
10-QSB and other applicable regulations of the Securities and Exchange
Commission (SEC). Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of the management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. The financial statements as of
and for the period ended December 31, 2001 and 2000 are unaudited. The
financial statements for the period ended December 31, 2001 and December
31, 2000 have been reviewed by an independent public accountant pursuant to
Item 310(b) of Regulation S-B and following applicable standards for
conducting such reviews, and the report of the accountant is included as
part of this filing. The results of operations for the interim periods are
not necessarily indicative of the results of operation for the fiscal year.
These financial statements should be read in conjunction with the audited
financial statements and footnotes for its fiscal year ended September 30,
2001 included in the Company's filings on Form 10-KSB
2. Significant Accounting Policies
- --------------------------------------------------------------------------------
Description of Business
MIAD Systems Ltd. (the "Company") was incorporated in 1993 under the laws
of the Province of Ontario and is primarily engaged in computer
manufacturing, distribution and integration, network design, implementation
and support.
Capital Assets and Depreciation
Capital assets are recorded at cost less accumulated depreciation. The
useful lives of internal computers is eight years. The useful live of
furniture and fixtures is eight years. Depreciation based upon the
estimated useful lives of the assets is calculated as follows.
Office Equipment - 30% declining balance method
Computer equipment - 30% declining balance method
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with
an original maturity of three months or less. The Company periodically
maintains cash balances in financial institutions in The company has
no significant off-balance sheet concentration of credit risk such as
foreign excess of insured limits.
Concentrations of Credit Risk
The company has no significant off-balance sheet concentration of
credit risk such as foreign exchange contracts, options contracts or
other foreign currency hedging arrangements. Financial instruments
that potentially subject the Company to a concentration of credit risk
consist primarily of accounts receivable. Concentration of credit risk
with respect to accounts receivable is limited to certain customers to
whom the Company makes substantial sales.
Foreign Currency Transactions
Monetary assets and liabilities denominated in a foreign currency are
translated into Canadian dollars at the rate of exchange prevailing at
the balance sheet date.
5
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
(UNAUDITED)
2. Significant Accounting Policies Continued
- --------------------------------------------------------------------------------
Fair Value of financial instruments
Cash, receivables, and accounts payable and accrued charges are
reflected in the financial statements at fair value due to the short
term maturity of those instruments. The fair values of the company's
loans payable are the same as the recorded amounts because rates and
terms approximate current market conditions.
Inventories
Inventories are valued at the lower of cost or net realizable value,
with cost being determined on an average cost basis.
Net Income (Loss) per Common Share
Basic net income (loss) per share is computed by dividing net income
(loss) available to the common shareholders by the weighted average
number of common shares outstanding for the period. Diluted net loss
per share is computed by giving effect to all dilutive securities
convertible into common shares.
Revenue Recognition
Revenues from the sales of products are recognized upon shipment and
when all significant contractual obligation have been satisfied and
collection is reasonably assured. The company ships products FOB our
warehouse and uses common carriers to deliver the goods. Provision is
made for an estimate of product returns and doubtful accounts and is
based on historical experience.
Revenue from the sales of software is recognized at the date of
shipment to customers. The company ships software products FOB our
warehouse and uses common carriers to deliver the goods.
Revenue from network installations are recognized after the completion
of the installation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to
make estimates 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 years presented. Actual results
could differ from those estimates.
6
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 2001 and 2000
(All Amounts Expressed in Canadian Dollars)
(UNAUDITED)
3. Capital Stock
- --------------------------------------------------------------------------------
During the period ended December 31, 2001 there were no stock transactions. At
December 31, 2001, 616,600 warrants remain outstanding.
4. Income Taxes
- --------------------------------------------------------------------------------
Any income taxes generated by net income for the period is offset by non-capital
losses carried forward. Any deferred asset generated by the net loss for the
period is offset in its entirety by a valuation allowance.
7
Appendix C
MIAD SYSTEMS LTD.
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2001 AND 2000
AND
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
MIAD SYSTEMS LTD.
INDEX TO FINANCIAL STATEMENTS
Page
Independent Accountants' Review Report 1
Balance Sheets 2
Statements of Operations 3
Statements of Cash Flows 4
Notes to Financial Statements 5-7
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Directors of
Miad Systems Ltd.
We have reviewed the accompanying balance sheets of Miad Systems Ltd. (The
"Company") as at March 31, 2002 and the related statements of operations and
cash flows for the three month and six month periods then ended. These financial
statements are the responsibility of the Company's management. We conducted our
review in accordance with standards established by the American Institute of
Certified Public Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements. Accordingly, we do not express such
an opinion. Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements for then to be in
conformity with generally accepted accounting principles.
/s/ Brodeur Dennis Chartered Accountants
Brodeur Dennis Chartered Accountants
Richmond Hill, Ontario
May 5, 2002
1
MIAD SYSTEMS LTD.
BALANCE SHEETS
(All Amounts Expressed in Canadian Dollars)
(UNAUDITED)
March 31, September 30,
ASSETS 2002 2001
- -----------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 40,594 $ 520,396
Accounts receivable, net 718,866 486,367
Inventories 174,426 243,856
Prepaid expenses 40,236 19,195
---------------------------
Total current asset 974,122 1,269,814
Capital assetS 34,668 31,375
---------------------------
TOTAL $ 1,008,790 $ 1,301,189
=========== ===========
LIABILITIES
- -----------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued charges $ 1,039,593 $ 1,298,289
---------------------------
Total current liabilities 1,039,593 1,298,289
---------------------------
Total liabilities 1,039,593 1,298,289
---------------------------
SHAREHOLDERS' EQUITY(DEFICIT)
- -----------------------------------------------------------------------------------------------------
Capital stock
First Preference shares without par value , authorized - unlimited;
issued and outstanding - Nil
Common shares without par value, authorized - unlimited; issued and
outstanding 3,711,400 at March 31, 2002; 3,711,400 at September
31, 2001 590,299 590,299
Deficit (621,102) (587,399)
---------------------------
Total stockholders' equity (deficit (30,803) 2,900
---------------------------
TOTAL $ 1,008,790 $ 1,301,189
===========================
See notes to financial statements
2
MIAD SYSTEMS LTD.
STATEMENTS OF OPERATIONS
(All Amounts Expressed in Canadian Dollars)
(UNAUDITED)
Three months ended Six months ended
March 31, March 31,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Sales, net $ 1,476,985 $ 2,821,722 $ 2,821,013 $ 4,946,812
Cost of sales, net 1,213,786 2,389,622 2,327,794 4,158,819
---------------------------------------------------------------------
Gross margin 263,199 432,100 493,219 787,993
---------------------------------------------------------------------
Operating expenses
Advertising 1,066 1,367 4,347 1,722
Bank charges 4,276 448 7,162 877
Depreciation 2,240 2,142 4,462 4,284
Insurance -- 12,303 2,391 17,997
Interest on loans payable -- 4,177 -- 7,214
Office and general 7,003 9,288 19,584 24,475
Professional fees 10,109 3,043 24,453 4,882
Rent 19,749 13,159 32,159 23,886
Salesmen's expenses 25,097 39,708 63,754 77,831
Telephone 8,438 6,854 18,008 14,020
Utilities 3,994 1,472 5,292 3,021
Wages and benefits 172,429 311,709 345,310 554,747
---------------------------------------------------------------------
Total operating expenses 254,401 405,670 526,922 734,956
---------------------------------------------------------------------
Income (loss) before income taxes 8,798 26,430 (33,703) 53,037
Provision for income taxes -- -- -- --
---------------------------------------------------------------------
Net income (loss) $ 8,798 $ 26,430 $ (33,703) $ 53,037
=====================================================================
Net income (loss) per common share
Basic $ 0.002 $ 0.01 $ (0.01) $ 0.01
Fully diluted $ 0.002 $ 0.01 $ (0.01) $ 0.01
Weighted average common shares outstanding:
Basic 3,711,400 3,673,400 3,711,400 3,673,400
Fully diluted 4,328,000 4,013,675 4,328,000 4,013,675
See notes to financial statements
3
MIAD SYSTEMS LTD.
STATEMENTS OF CASH FLOWS
(All Amounts Expressed in Canadian Dollars)
(UNAUDITED)
Six months ended
March 31,
2002 2001
- -------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $ (33,703) $ 53,037
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 4,462 4,284
Common shares issued for services -- --
Changes in certain assets and liabilities
Accounts receivable (232,499) 544,014
Inventories 69,430 40,749
Prepaid expenses (21,041) (6,970)
Accounts payable and accrued charges (258,696) (682,877)
-----------------------
Net cash used in operating activities (472,047) (47,763)
-----------------------
Cash flows from investing activities
Purchases of property and equipment (7,755) (665)
-----------------------
Net cash used in investing activities (7,755) (665)
Cash flows from financing activities
Repayments on loans payable -- (36,975)
-----------------------
Net cash provided by financing activities -- (36,975)
-----------------------
Net increase in cash and cash equivalents (479,802) (85,403)
Cash and cash equivalents at beginning of period 520,396 259,977
-----------------------
Cash and cash equivalents at end of period $ 40,594 $ 174,574
=======================
Supplemental disclosure of cash flow information
Interest paid in cash during the period $ -- $ 7,214
=======================
Income taxes paid in cash during the period $ -- $ --
=======================
See notes to financial statements
4
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED MARCH 31, 2002 and 2001
(All Amounts Expressed in Canadian Dollars)
(UNAUDITED)
1. Basis of Presentation
- --------------------------------------------------------------------------------
The accompanying financial statements of MIAD Systems Ltd. (the "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial information and other applicable
regulations of the Securities and Exchange Commission (SEC). Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of the management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The financial statements as of and for the period ended March 31,
2002 and 2001 are unaudited. The financial statements for the period ended
March 31, 2002 and March 31, 2001 have been reviewed by an independent
public accountant pursuant to Item 310(b) of Regulation S-B and following
applicable standards for conducting such reviews, and the report of the
accountant is included as part of this filing. The results of operations
for the interim periods are not necessarily indicative of the results of
operation for the fiscal year. These financial statements should be read in
conjunction with the audited financial statements and footnotes for its
fiscal year ended September 30, 2001 included in the Company's filings on
Form 10-KSB.
2. Significant Accounting Policies
- --------------------------------------------------------------------------------
Description of Business
MIAD Systems Ltd. (the "Company") was incorporated in 1993 under the laws
of the Province of Ontario and is primarily engaged in computer
manufacturing, distribution and integration, network design, implementation
and support.
Capital Assets and Depreciation
Capital assets are recorded at cost less accumulated depreciation. The
useful lives of internal computers is eight years. The useful live of
furniture and fixtures is eight years. Depreciation based upon the
estimated useful lives of the assets is calculated as follows.
Office Equipment - 30% declining balance method
Computer equipment - 30% declining balance method
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with
an original maturity of three months or less. The Company periodically
maintains cash balances in financial institutions in excess of insured
limits.
Concentrations of Credit Risk
The company has no significant off-balance sheet concentration of
credit risk such as foreign exchange contracts, options contracts or
other foreign currency hedging arrangements. Financial instruments
that potentially subject the Company to a concentration of credit risk
consist primarily of accounts receivable. Concentration of credit risk
with respect to accounts receivable is limited to certain customers to
whom the Company makes substantial sales.
Foreign Currency Transactions
Monetary assets and liabilities denominated in a foreign currency are
translated into Canadian dollars at the rate of exchange prevailing at
the balance sheet date.
5
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED MARCH 31, 2002 and 2001
(All Amounts Expressed in Canadian Dollars)
(UNAUDITED)
2. Significant Accounting Policies Continued
- --------------------------------------------------------------------------------
Fair Value of financial instruments
Cash, receivables, and accounts payable and accrued charges are
reflected in the financial statements at fair value due to the short
term maturity of those instruments. The fair values of the company's
loans payable are the same as the recorded amounts because rates and
terms approximate current market conditions.
Inventories
Inventories are valued at the lower of cost or net realizable value,
with cost being determined on an average cost basis.
Net Income (Loss) per Common Share
Basic net income (loss) per share is computed by dividing net income
(loss) available to the common shareholders by the weighted average
number of common shares outstanding for the period. Diluted net loss
per share is computed by giving effect to all dilutive securities
convertible into common shares.
Revenue Recognition
Revenues from the sales of products are recognized upon shipment and
when all significant contractual obligation have been satisfied and
collection is reasonably assured. The company ships products FOB our
warehouse and uses common carriers to deliver the goods. Provision is
made for an estimate of product returns and doubtful accounts and is
based on historical experience.
Revenue from the sales of software is recognized at the date of
shipment to customers. The company ships software products FOB our
warehouse and uses common carriers to deliver the goods.
Revenue from network installations are recognized after the completion
of the installation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to
make estimates 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 years presented. Actual results
could differ from those estimates.
6
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED MARCH 31, 2002 and 2001
(All Amounts Expressed in Canadian Dollars)
(UNAUDITED)
3. Capital Stock
- --------------------------------------------------------------------------------
During the period ended March 31, 2002 there were no stock transactions. At
March 31, 2002, 616,600 warrants remain outstanding.
4. Income Taxes
- --------------------------------------------------------------------------------
Any income taxes generated by net income for the period is offset by
non-capital losses carried forward. Any deferred asset generated by the net
loss for the period is offset in its entirety by a valuation allowance.
7
MIAD SYSTEMS LTD.
INSTRUMENT OF PROXY
FOR THE ANNUAL MEETING
TO BE HELD ON WEDNESDAY, JUNE 26, 2002
THIS PROXY IS SOLICITED ON BEHALF OF
THE MANAGEMENT OF THE CORPORATION
I, ___________________________________ the undersigned, being a
shareholder of MIAD SYSTEMS LTD. (the "Corporation"), hereby appoint MICHAEL
GREEN, a Director and President of the Corporation or failing him, Adrienne
Green, Secretary of the Corporation, or instead of either of the foregoing,
__________________________________ as my Proxy, to vote for me and on my behalf
at the Annual of shareholders of the Corporation, to be held on Wednesday, the
26th day of June, 2002, and at any adjournment thereof and to vote the shares in
the capital stock of the Corporation registered in the name of the undersigned
with respect to the matters set forth below as follows:
1. On the election of the Directors nominated by management as follows:
MICHAEL GREEN
FOR _____________ WITHHOLD VOTE_________________
2. The appointment of Messrs. Brodeur Dennis, Chartered Accountants,
Chartered Accountants, Toronto, Ontario, as auditors of the
Corporation, and to authorize the directors to fix their remuneration.
FOR ____________ WITHHOLD VOTE_________________
The undersigned hereby revokes any proxy previously given. WITNESS my hand this
day of ____________ , 2002.
- ----------------------------- ----------------------------------
NAME (PLEASE PRINT) SIGNATURE OF SHAREHOLDER
NOTES:
1. This proxy confers authority for the above-named to vote his/her
discretion with respect to amendments or variations to the matters
identified in the Notice of Meeting accompanying this proxy
instrumented or on any other matters which may properly come before the
meeting. WHERE NO CHOICE IS SPECIFIED BY THE SHAREHOLDER, THIS PROXY
WILL CONFER AUTHORITY AND WILL BE VOTED IN FAVOUR OF THE MATTERS
REFERRED TO ABOVE.
2. EACH SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON TO REPRESENT HIM/HER
AT THE MEETING OTHER THAN THE PERSON SPECIFIED ABOVE. Such right may be
exercised by striking out the names of the specified persons and by
inserting in the blank space provided the name of the person to be
appointed, who need not be a shareholder of the Corporation.
3. This proxy must be executed by the shareholder or his/her attorney duly
authorized in writing. If the shareholder is a corporation, this proxy
must be executed under its corporate seal or by an officer or attorney
thereof duly authorized.
4. Please date this Proxy. If not dated, it shall be deemed to be dated
the day on which it is mailed.