Exhibit 99.1
AUDITORS' REPORT
February 11, 2003
To the Shareholders of GLOBAL THERMOELECTRIC INC.
We have audited the consolidated balance sheet of Global Thermoelectric
Inc. as at December 31, 2002 and the consolidated statements of operations and
accumulated deficit and cash flows for the year then ended. These consolidated
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 auditing standards generally
accepted in Canada and the standards of the Public Company Accounting Oversight
Board (United States). 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 December
31, 2002 and the results of its operations and its cash flows for the year then
ended in accordance with Canadian generally accepted accounting principles.
We have not audited any periods prior to December 31, 2002.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
CHARTERED ACCOUNTANTS
Calgary, Alberta
AUDITORS' REPORT
To the Shareholders of
GLOBAL THERMOELECTRIC INC.
We have audited the consolidated balance sheets of Global
Thermoelectric Inc. as at December 31, 2001 and 2000 and the consolidated
statements of operations and accumulated deficit and cash flows for the year
ended December 31, 2001, the nine month period ended December 31, 2000 and the
year ended March 31, 2000. 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 Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight
Board (United States). 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 December
31, 2001 and 2000 and the results of its operations and its cash flows for the
year ended December 31, 2001, the nine month period ended December 31, 2000 and
the year ended March 31, 2000 in accordance with Canadian generally accepted
accounting principles.
/S/ ERNST & YOUNG LLP
Calgary, Canada
February 22, 2002
Chartered Accountants
GLOBAL THERMOELECTRIC INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS)
DECEMBER 31, DECEMBER 31,
2002 2001
--------- ---------
ASSETS
Current
Cash and cash equivalents $ 29,230 $ 83,370
Short-term investments 66,076 37,694
Accounts receivable (note 3) 4,806 5,155
Inventory (note 4) 3,096 4,220
Prepaid expenses 727 570
Current assets of discontinued operations (note 9) -- 502
--------- ---------
103,935 131,511
--------- ---------
Capital assets (note 5) 18,416 15,286
Investment 52 52
--------- ---------
$ 122,403 $ 146,849
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 7,014 $ 6,485
Income taxes payable 231 269
Current portion of obligations under capital leases (note 8) 207 233
Current liabilities of discontinued operations (note 9) -- 183
--------- ---------
7,452 7,170
--------- ---------
Research and development loan (note 7) 200 200
Site restoration (note 14) 286 --
Obligations under capital leases (note 8) -- 207
Commitments and contingencies (notes 6 and 14)
Shareholders' equity
Share capital (note 11) 158,920 158,821
Contributed surplus 725 725
Accumulated deficit (45,180) (20,274)
--------- ---------
114,465 139,272
--------- ---------
$ 122,403 $ 146,849
========= =========
See accompanying notes
Approved on behalf of the Board of Directors:
/S/ JOHN C. HOWARD /S/ ROBERT B. SNYDER
Director Director
2
GLOBAL THERMOELECTRIC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
-------- -------- --------
Revenue--Generators $ 21,770 $ 15,357 $ 14,649
Cost of goods sold 13,119 10,474 10,851
-------- -------- --------
Gross margin 8,651 4,883 3,798
Revenue--Fuel cell contract research 541 -- --
Investment income 2,899 5,911 3,605
-------- -------- --------
12,091 10,794 7,403
-------- -------- --------
Expenses
Research, engineering and development 23,321 15,087 4,980
Marketing 1,932 1,697 1,193
Business development 2,713 1,119 86
General and administrative 5,291 3,600 1,935
Interest on obligations under capital leases 29 47 55
Foreign exchange gain (49) (372) (276)
Depreciation 2,981 1,807 495
-------- -------- --------
Loss from continuing operations before income taxes (24,127) (12,191) (1,065)
Income taxes (note 10)
Current 416 777 902
-------- -------- --------
Net loss from continuing operations (24,543) (12,968) (1,967)
Discontinued operations net of income tax (note 9)
Earnings (loss) from discontinued operations 137 433 (372)
Gain on sale of discontinued operations -- 744 --
-------- -------- --------
Net loss (24,406) (11,791) (2,339)
Accumulated deficit, beginning of period (20,274) (7,983) (5,162)
Dividends on preferred shares (note 11) (500) (500) (482)
-------- -------- --------
Accumulated deficit, end of period $(45,180) $(20,274) $ (7,983)
======== ======== ========
Basic and diluted net loss per common share from
continuing operations (note 13) $ (0.89) $ (0.49) $ (0.09)
Basic and diluted net earnings (loss) per common share
from discontinued operations (note 13) 0.01 0.04 (0.01)
-------- -------- --------
Basic and diluted net loss per common share (note 13) $ (0.88) $ (0.45) $ (0.10)
======== ======== ========
See accompanying notes
3
GLOBAL THERMOELECTRIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS)
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
--------- --------- ---------
OPERATING ACTIVITIES
Net loss from continuing operations $ (24,543) $ (12,968) $ (1,967)
Add (deduct) non-cash items:
Depreciation 2,981 1,807 495
Site restoration (note 14) 641 -- --
Loss (gain) on disposal of capital assets 16 12 (1)
Net change in non-cash working capital balances (note 15) 2,026 853 953
--------- --------- ---------
(18,879) (10,296) (520)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from research and development loan -- 10 100
Repayment of obligations under capital leases (233) (249) (306)
Proceeds on issuance of share capital, net of issue costs
(note 11) 99 96 119,203
Preferred share dividends (note 11) (500) (500) (482)
Net change in non-cash working capital balances (note 15) -- (314) 314
--------- --------- ---------
(634) (957) 118,829
--------- --------- ---------
INVESTING ACTIVITIES
Purchase of capital assets (6,127) (9,007) (5,551)
Proceeds on sale of capital assets -- 37 3
Purchase of investment -- (52) --
(Purchase) proceeds of short-term investments (28,382) 93,026 (130,720)
Cash from discontinued operations 456 5,160 (1,751)
Net change in non-cash working capital balances (note 15) (574) 879 --
--------- --------- ---------
(34,627) 90,043 (138,019)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents during
the period (54,140) 78,790 (19,710)
Cash and cash equivalents, beginning of period 83,370 4,580 24,290
--------- --------- ---------
Cash and cash equivalents, end of period $ 29,230 $ 83,370 $ 4,580
========= ========= =========
Supplemental cash flow information (note 15)
See accompanying notes
4
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
1. NATURE OF OPERATIONS
The principal business of Global Thermoelectric Inc. (the "Company") is
the development and commercialization of power generating equipment based on
solid oxide fuel cell technology. The Company's research, engineering and
development expenditures are predominately focused on residential combined heat
and power products and small-scale industrial stationary products. The Company
also manufactures and distributes thermoelectric generators for remote power
needs. The principal applications for thermoelectric generators include natural
gas well and pipeline protection systems and remote power for instrumentation,
automation and telecommunication systems.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have, in management's opinion,
been properly prepared within the framework of the accounting policies
summarized below.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada ("Canadian GAAP"). A
reconciliation of results from operations to United States GAAP ("U.S. GAAP") is
provided in note 18.
USE OF ESTIMATES
The timely preparation of consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the period. Actual results could differ from
those estimates.
The Company has estimated the useful lives of capital assets based on
an assessment of historical experience, expected lives commonly used by
industry participants, and management's expectations based on the assets'
purpose. Significant changes in assumptions related to the assets' purpose and
changes in the competitive environment could result in impairment of the
carrying value of the Company's capital assets.
The Company has estimated the warranty provision based on historical
warranty claims experience of the particular products sold and the terms of the
related contracts. As at December 31, 2002, the warranty provision included in
current liabilities was $1,016,465 (December 31, 2001 -- $1,048,827). Product
customization as well as environmental conditions relating to a product's
operational location could result in actual warranty costs differing from the
warranty provision.
5
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
CONSOLIDATION
These consolidated financial statements include the assets,
liabilities, and results of operations of Global Thermoelectric Inc. and its
wholly owned subsidiary company, Global Thermoelectric Corporation, a company
incorporated under the laws of the State of Delaware.
CASH AND CASH EQUIVALENTS
At December 31, 2002, cash and cash equivalents consist of cash on
deposit and short-term interest bearing securities with interest rates ranging
from 2.4% to 2.8% maturing within three months of the date of purchase.
Interest is accrued in the statement of operations as earned.
INVESTMENTS
At December 31, 2002, short-term investments consist of government
securities, corporate bonds and commercial paper with high credit ratings which
have original maturities of three months or more and interest rates ranging
from 2.3% to 3.5%. In addition, short-term investments include $1,716,765
(52,117,946 Indian Rupees) of restricted funds held in India. Upon approval by
an India regulatory authority, the Company expects to repatriate these funds
from India in 2003. Short-term investments are classified as held to maturity
and are recorded at cost.
The long-term investment consists of shares in an entity over which the
Company does not exercise control or significant influence. The investment is
carried at cost. During the year, in the normal course of operations, the
Company purchased at fair market value $2,495,174 (year ended December 31, 2001
-- $2,363,544; nine months ended December 31, 2000 -- $1,287,614) of materials
and equipment from this entity.
INVENTORY
Inventories of finished goods and work in progress are valued at the
lower of cost, determined on a unit cost basis, and net realizable value. Unit
cost includes materials, labour and production overhead. Raw materials and
purchased parts are valued at the lower of cost, determined on a first-in,
first-out basis, and net realizable value.
CAPITAL ASSETS
Capital assets are recorded at cost. Depreciation is applied on a
straight-line basis to recognize the cost less estimated salvage value of
capital assets, over their estimated useful lives as follows:
Buildings 20 years
Leasehold improvements 3 - 10 years
Machinery and equipment 3 - 10 years
Computer hardware and software 3 - 5 years
Equipment under capital leases 5 - 20 years
The depreciation of equipment recorded under capital leases is
included in depreciation expense in the statement of operations.
6
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
The Canadian Institute of Chartered Accountants ("CICA") issued Section
3063, "Impairment of long-lived assets" which is effective April 1, 2003 on a
prospective basis. The Company has chosen to adopt this standard effective
January 1, 2002. This standard requires that in cases where undiscounted
expected cash flows associated with long-lived assets are less than their
carrying value, an impairment loss be recognized. This assessment of
recoverability must be tested whenever events or changes in circumstances
indicate that the long-lived asset's carrying amount may not be recoverable.
Should the Company determine that an asset's carrying amount is not recoverable,
an impairment loss is recognized based upon the amount by which the carrying
amount exceeds the asset's fair value, or discounted cashflows. Previously, the
Company's policy was to recognize an impairment loss based upon the asset's
undiscounted cashflows. The adoption of this standard did not have any impact on
the Company's current financial position or results or operations, however its
impact in future years could be material.
GOODWILL
Effective January 1, 2002, the Company adopted the new CICA Section
3062, "Goodwill and other intangible assets." Under the new standard, goodwill
and certain intangible assets are no longer subject to amortization, but are
instead tested at least annually for impairment. The adoption of this standard
did not have any impact on the Company's current financial position or results
or operations, however its impact in future years could be material.
RESEARCH, ENGINEERING AND DEVELOPMENT EXPENDITURES
With the exception of those that are capital in nature, research,
engineering and development costs are expensed as incurred unless a development
project meets the criteria for deferral. No development costs have been deferred
as at December 31, 2002.
Included in depreciation expense is $2,271,000 (year ended December 31,
2001 -- $1,350,000; nine months ended December 31, 2000 -- $254,000) relating to
depreciation of capital assets for research, engineering and development
activities.
GOVERNMENT ASSISTANCE AND INVESTMENT TAX CREDITS
Government assistance is recorded as either a reduction of the cost of
the applicable capital assets or credited in the statement of operations as
determined by the nature of the assistance. All assistance received was recorded
as a reduction to research, engineering and development expense in the
applicable period.
Investment tax credits as determined under Canadian tax legislation are
accounted for using the cost reduction approach. Credits are recorded, when
utilized, as either a reduction of the cost of applicable capital assets or
credited in the statement of operations depending on the nature of the
expenditures which gave rise to the credits. For the periods presented, no
investment tax credits were applied against capital assets or credited in the
statement of operations.
REVENUE RECOGNITION
Revenue from product sales is recorded on shipment to the customer
provided there are no other significant obligations to be fulfilled by the
Company and collection is reasonably assured. Service revenue is recognized when
the service is performed. Revenue from long-term contracts with multiple
deliverable arrangements is recognized as the elements of the contract are
delivered based upon their respective fair value. In circumstances where
uncertainty exists about customer acceptance relating to certain elements of a
contract, revenue is not recognized until acceptance occurs.
7
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
FOREIGN CURRENCY TRANSLATION
Effective January 1, 2002, the Company retroactively adopted the
amended CICA Section 1650, "Foreign currency translation." This amendment
eliminates the deferral and amortization of gains and losses on long-term
foreign currency denominated monetary items. Such gains and losses must now be
included in income in the current period. The adoption of this standard did not
have any impact on the Company's current or prior financial position or results
of operations.
Consistent with amended CICA Section 1650, monetary assets and
liabilities which are denominated in a foreign currency are translated at period
end exchange rates. Revenue and expenses are translated at rates of exchange
prevailing during the period. All exchange gains and losses are reflected in net
loss in the period incurred.
The Company's foreign subsidiary is considered financially and
operationally integrated and therefore the temporal method of translation of
foreign currencies is followed. Monetary items are translated at period end
exchange rates; non-monetary items are translated at historical exchange rates;
revenue and expense items are translated at rates of exchange prevailing during
the period; and, depreciation and amortization are translated at the same
exchange rate as the assets to which they relate.
STOCK-BASED COMPENSATION
The Company has an incentive stock option plan which is described in
note 12. No compensation expense is recognized for this plan when stock options
are issued. Any consideration paid to the Company on the exercise of stock
options is credited to share capital.
Effective January 1, 2002, the CICA introduced "Stock-based
compensation and other stock-based payments." This standard requires companies
to disclose the impact on earnings as if the fair value based method of
accounting for employee stock option plans had been used. Note 12 presents pro
forma information with respect to fair value accounting for stock options and
includes all options granted by the Company since inception.
INCOME TAXES
Income taxes are calculated using the liability method of tax
allocation. Under this method, future tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities, and measured using the substantially enacted tax rates and laws
that will be in effect when the differences are expected to reverse. A valuation
allowance is recorded to the extent there is uncertainty regarding realization
of future tax assets.
RECLASSIFICATIONS
Certain information provided in prior periods has been reclassified to
conform with the current period presentation.
8
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
3. ACCOUNTS RECEIVABLE
DECEMBER 31, DECEMBER 31,
2002 2001
--------------- --------------
Trade receivables $ 3,258 $ 4,473
Interest receivable 1,355 325
Other receivables 193 357
---------- ----------
$ 4,806 $ 5,155
========== ==========
4. INVENTORY
DECEMBER 31, DECEMBER 31,
2002 2001
--------------- --------------
Raw materials and parts $ 2,919 $ 3,764
Work in progress and finished goods 177 456
---------- ----------
$ 3,096 $ 4,220
========== ==========
5. CAPITAL ASSETS
DECEMBER 31, 2002
-------------------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
----------- ---------------- -------------
Land $ 17 $ -- $ 17
Buildings 1,481 1,209 272
Leasehold improvements 3,941 949 2,992
Machinery and equipment 17,989 5,175 12,814
Computer hardware and software 3,451 1,737 1,714
Equipment under capital leases 1,206 599 607
--------- --------- ---------
$ 28,085 $ 9,669 $ 18,416
========= ========= =========
DECEMBER 31, 2001
-------------------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
----------- ---------------- -------------
Land $ 17 $ -- $ 17
Buildings 1,455 1,191 264
Leasehold improvements 3,754 570 3,184
Machinery and equipment 13,115 3,524 9,591
Computer hardware and software 2,434 944 1,490
Equipment under capital leases 1,206 466 740
--------- --------- ---------
$ 21,981 $ 6,695 $ 15,286
========= ========= =========
At December 31, 2002, machinery and equipment includes $1,240,383 of
purchased assets that have not been depreciated as these assets were not
commissioned or available for use. The Company expects to commission these
assets in early 2003.
6. CREDIT FACILITIES
The Company has an operating line of credit to a maximum of $20,000,000
and a facility to support contractual guarantees to a maximum of US$4,000,000
with a Canadian chartered bank. Borrowings under these facilities bear interest
at the bank's prime rate, and are repayable on demand. The Company has pledged
as collateral a general security agreement over existing and future property of
the Company and a hypothecation of funds held on deposit with the bank. At
December 31, 2002, letters of guarantee and other guarantees issued pursuant to
these facilities totaled US$2,974,704 (December 31, 2001 -- US$2,849,986).
9
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
Included in the Company's outstanding guarantees at December 31, 2002
is US$1,523,471 relating to bid bonds and performance guarantees. These bid
bonds and performance guarantees expire between March 2, 2003 and October 31,
2005.
Subsequent to December 31, 2002, the Company has been notified that its
outstanding performance guarantees have been reduced by US$1,164,932.
7. RESEARCH AND DEVELOPMENT LOAN
The loan advanced from the Canadian Department of Natural Resources is
non-interest bearing and repayable over a 15 year period starting March 31, 2000
based on 5% of revenues relating to the commercialization of fuel cell
technology, up to the original sum received. No amounts have been repaid to
date.
8. OBLIGATIONS UNDER CAPITAL LEASES
DECEMBER 31, DECEMBER 31,
2002 2001
---------- -----------
Capital leases, with an average effective interest rate of 8.75%, repayable
in monthly installments not exceeding $21,749 including interest, due at
varying dates to December 31, 2003 $ 207 $ 440
Less current portion (207) (233)
---------- ----------
$ -- $ 207
========== ==========
Future minimum lease payments under capital leases are as follows:
2003 $ 214
Amount representing interest (7)
-------
$ 207
=======
9. DISCONTINUED OPERATIONS
On June 18, 2001 (the "measurement date"), the Company signed a letter
of intent with a U.S. purchaser for the sale of its military heater business
segment. Closing of the transaction was completed on August 24, 2001. For
reporting purposes, the results of operations and the financial position of this
business segment have been presented as discontinued operations.
Details of the assets and liabilities of the heater business segment
are as follows:
DECEMBER 31, DECEMBER 31,
2002 2001
---------- ----------
Current assets of discontinued operations:
Accounts receivable $ -- $ 502
---------- ----------
$ -- $ 502
========== ==========
Current liabilities of discontinued operations:
Accounts payable and accrued liabilities $ -- $ 46
Warranty provision -- 137
---------- ----------
$ -- $ 183
========== ==========
10
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
Based on no warranty claims experienced in 2002, and the previous
expiry of contractual warranty periods, the Company recorded a $136,814 non-cash
recovery during the year ended December 31, 2002 relating to its previous
warranty liability.
Additional selected financial information for the heater business
segment is as follows:
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
------------- ------------- -------------
Revenue $ -- $ 7,607 $ 3,688
Earnings (loss) from discontinued operations prior to
the measurement date, net of income tax -- 433 (372)
Recovery of warranty provision, net of income tax 137 -- --
------------- ------------- -------------
Earnings (loss) from discontinued operations,
net of income tax 137 433 (372)
------------- ------------- --------------
Gain on sale of discontinued operations,
net of income tax -- 744 --
------------- ------------- -------------
Net earnings (loss) from discontinued operations,
net of income tax $ 137 $ 1,177 $ (372)
============= ============= ==============
11
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
10. INCOME TAXES
The Company's computation of income tax expense is as follows:
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
---------------- --------------- ---------------
Expected income tax recovery from continuing operations $ (9,467) $ (5,135) $ (475)
at 39.24%
(December 31, 2001--42.12%; December 31, 2000--44.62%)
Add (deduct):
Non-deductible expenses 35 32 15
Benefit of tax losses and deductions not recognized 9,432 5,103 460
Foreign income taxes 251 608 590
Large corporations tax 165 169 312
------------- ------------- -------------
Income tax expense $ 416 $ 777 $ 902
============= ============= =============
The Company has available to carry forward the following:
DECEMBER 31, DECEMBER 31,
2002 2001
--------------- --------------
Scientific research and experimental development expenditures $ 51,531 $ 25,629
Non-capital losses $ 2,684 $ --
Share issue costs $ 3,218 $ 5,638
Investment tax credits $ 11,694 $ 6,686
The utilization of investment tax credits will reduce scientific
research and experimental development expenditures otherwise available.
The scientific research and experimental development expenditures can
be carried forward indefinitely and applied to reduce taxable income in future
years. Non-capital losses and share issue costs can be applied to reduce taxable
income in future years and investment tax credits can be used to offset future
taxes otherwise payable and expire as follows:
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 TOTAL
--------- --------- ------ ------ ------ ------ ------- -------- -------- -------- --------
Non-capital
losses $ -- $ -- $ -- $ -- $ -- $ 989 $ 1,695 $ -- $ -- $ -- $ 2,684
========= ========= ====== ====== ====== ====== ======= ======== ======== ======== =======
Share issue costs $ 1,586 $ 1,323 $ 309 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 3,218
========= ========= ====== ====== ====== ====== ======= ======== ======== ======== =======
Investment tax
credits $ -- $ -- $ -- $ -- $ 189 $ 415 $ 521 $ 1,781 $ 3,628 $ 5,160 $11,694
========= ========= ====== ====== ====== ====== ======= ======== ======== ======== =======
12
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
COMPONENTS OF FUTURE INCOME TAXES
The Company has not recognized net future tax assets as reflected by
the valuation allowance reported below. The net future tax asset (current and
non-current) comprises:
DECEMBER 31, DECEMBER 31,
2002 2001
----------- -----------
Investment tax credit carry-forwards $ 11,694 $ 6,686
Scientific research and experimental development expenditures 13,991 6,747
Non-capital losses 943 --
Share issue costs 1,130 2,008
Provision for warranty costs 357 374
Differences between tax base and reported amounts of depreciable
assets (3,432) (2,729)
Valuation allowance (24,683) (13,086)
$ -- $ --
=========== ===========
11. SHARE CAPITAL
A) AUTHORIZED:
Unlimited number of common shares
Unlimited number of preferred shares, issuable in series
B) ISSUED AND OUTSTANDING COMMON AND PREFERRED SHARES:
DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
--------------------- -------------------- -----------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES SHARES SHARES
(000'S) AMOUNT (000'S) AMOUNT (000'S) AMOUNT
-------- ---------- -------- --------- -------- ----------
COMMON SHARES:
Balance, beginning of period 29,005 $ 134,557 28,923 $ 134,461 25,843 $ 39,522
Issued on sale and exercise of special
warrants -- -- -- -- 2,900 100,050
Share issue costs -- -- -- 11 -- (5,481)
Issued on exercise of options 167 99 82 85 180 370
-------- ---------- -------- --------- -------- ----------
Balance, end of period 29,172 $ 134,656 29,005 $ 134,557 28,923 $ 134,461
------ ---------- ------ ------ ----------
SERIES 2 PREFERRED SHARES:
Balance, beginning of period 1,000 $ 24,264 1,000 $ 24,264 $ -- $ --
Issued for cash -- -- -- -- 1,000 25,000
Share issue costs -- -- -- -- -- (736)
-------- ---------- -------- --------- -------- ----------
Balance, end of period 1,000 $ 24,264 1,000 $ 24,264 1,000 $ 24,264
-------- ---------- ------- --------- -------- ---------
$158,920 $158,821 $ 158,725
========= ========= ==========
Series 2 non-voting preferred shares were issued with the
covenant that the proceeds of $25,000,000 be used for solid oxide fuel
cell development, subject to certain restrictions. To December 31,
2002, the Company has expended $56,109,000 on qualifying expenditures.
The preferred shares have a cumulative dividend of 1% to 5% per annum,
based on an inverse relationship to the volume weighted average share
price of the Company's common shares, determined quarterly. The
dividend rate decreases in increments of 1% from the maximum rate of 5%
with each $5.00 increase in the weighted average share price above
$30.96, to a minimum rate of 1%. The preferred shares are convertible
at the option of the holder into a lesser number of common shares based
on the fraction by which their face value of $25.00 is of the
conversion prices identified below:
13
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
PERIOD OF CONVERSION CONVERSION PRICE
To July 31, 2005 $30.96
August 1, 2005 to July 31, 2010 $33.54
August 1, 2010 to July 31, 2015 $36.12
August 1, 2015 to July 31, 2020 $38.70
After July 31, 2020 95% of the then current market price
Dividends can be paid at the Company's option with an equivalent number of
the Company's common shares based on their current market price during the
quarter of dividend accumulation, determined on a previous 20 trading day,
volume-weighted, average basis. A minimum of $500,000 of preferred share
dividends must be paid annually. Cumulative unpaid dividends are increased by a
2.45% quarterly rate, compounded quarterly, until payment thereof. All
cumulative unpaid dividends must be paid by December 31, 2010. The shares are
redeemable by the Company at their face value after July 31, 2004, subject to
certain conditions.
During the year ended December 31, 2002, the Company declared and paid a
dividend of $500,000 on the Series 2 preferred shares (year ended December 31,
2001--$500,000; nine months ended December 31, 2000--$481,910). As at December
31, 2002, dividends in arrears totaled $1,601,600 (December 31, 2001--$762,657).
On December 3, 2002, the Company received approval from the Toronto Stock
Exchange ("TSX") to proceed with normal course purchases of its outstanding
common shares. During the period commencing December 5, 2002 and ending on
December 1, 2003, the Company may acquire up to 1,458,584 common shares, being
5% of its issued and outstanding common shares. Any common share purchases will
be purchased at the market price at the time of purchase and will be cancelled
and returned to treasury. During the period ended December 31, 2002 no common
shares were repurchased.
12. STOCK-BASED COMPENSATION
Under the Company's Amended Incentive Stock Option Plan (the "Plan"),
options to purchase common shares may be granted, at the discretion of the Board
of Directors, to directors, officers, employees and consultants of the Company.
At December 31, 2002, shares reserved for issuance under the Plan totaled
2,205,667. The exercise prices for options are based on the current trading
price of the common shares on the TSX immediately prior to the Board of
Directors approving the option grant. These options are typically granted for
services provided to the Company and generally vest equally over a three or four
year period. The aggregate number of common shares that may be reserved for
allotment pursuant to options granted to any one individual may not exceed, at
the date of the grant, 5% of the common shares outstanding. The options are
non-transferable, and if not exercised, will expire at such time as determined
by the Board, but in any event, shall not exceed a period of five years from the
date the option is granted. A summary of the Company's stock options issued to
directors, officers and employees is as follows:
NUMBER WEIGHTED
OF AVERAGE
OPTIONS EXERCISE
(000'S) PRICE
------- -------
Balance March 31, 2000 $ 628 $ 3.32
Options granted 530 27.58
Options exercised (180) 2.05
------- -------
Balance, December 31, 2000 978 16.70
Options granted 978 15.72
Options exercised (82) 1.05
Options cancelled (30) 21.40
------- -------
Balance, December 31, 2001 1,844 16.10
Options granted 817 2.98
Options exercised (167) 0.59
Options cancelled (971) 19.58
------- -------
Balance, December 31, 2002 1,523 $ 8.54
======= =======
The following table summarizes information about stock options outstanding
at December 31, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ ---------------------------------
WEIGHTED
NUMBER AVERAGE NUMBER
OUTSTANDING AT REMAINING WEIGHTED EXERCISABLE AT WEIGHTED
DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE
2002 (000'S) LIFE (YEARS) EXERCISE PRICE 2002 (000'S) EXERCISE PRICE
-------------- ------------- -------------- --------------- ---------------
RANGE OF EXERCISE PRICES
- ------------------------
$ 1.15 to $ 3.35 619 4.39 $ 2.34 29 $ 1.15
$ 4.66 to $ 7.60 222 4.13 6.64 33 7.42
$ 8.60 to $ 14.00 397 3.15 9.86 154 9.48
$ 18.55 to $ 27.00 285 2.98 21.63 104 22.26
---------- ------------- ----------- ---------- -----------
$ 1.15 to $ 27.00 1,523 3.77 $ 8.54 320 $ 12.65
========== ============= =========== ========== ===========
The following table presents pro forma information with respect to fair
value accounting for stock options. The fair value of stock options has been
estimated on the date of grant by reference to the Black-Scholes option-pricing
model. For the year ended December 31, 2002, the Company assumed that the life
of all options granted equals four years, no common share dividends will be
paid, average expected volatility of 121.9% (December 31, 2001--126.2%; December
31, 2000--128.4%) and an average risk free interest rate of 3.89% (December 31,
2001--3.50%; December 31, 2000--5.00%). The effects of applying Section 3870 may
not be representative of the effects on reported net (loss) income for future
years.
NINE MONTHS
YEAR ENDED DECEMBER YEAR ENDED DECEMBER ENDED DECEMBER 31,
31, 2002 31, 2001 2000
Net loss
As reported $ (24,406) $ (11,791) $ (2,339)
Compensatory fair value of options granted 5,399 5,265 2,078
---------- ---------- ----------
Pro forma net loss $ (29,805) $ (17,056) $ (4,417)
========== ========== ==========
Basic and diluted pro forma net loss per common
share $ (1.07) $ (0.63) $ (0.18)
========== ========== ==========
14
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
13. NET LOSS PER SHARE
Net loss per common share is based on the weighted average number of
common shares outstanding during the period. The Company utilizes the treasury
stock method in the determination of the diluted per common share amounts. Under
this method, the diluted weighted average number of common shares amount is
calculated on the basis that all stock options and convertible preferred shares
were exercised with the related proceeds used to purchase common shares of the
Company at their average market price for the period.
The numerators and denominators used in the calculation of basic net
loss per common share are determined as detailed in the following table. Stock
options and convertible preferred shares are not included in the denominator as
they would be anti-dilutive for the periods presented.
YEAR ENDED YEAR ENDED DECEMBER NINE MONTHS ENDED
DECEMBER 31, 2002 31, 2001 DECEMBER 31, 2000
------------------ ------------------- ------------------
Numerator:
Net loss from continuing operations $ (24,543) $ (12,968) $ (1,967)
Less: Dividends on preferred shares 500 500 482
Dividends in arrears on preferred shares 839 763 --
---------- ---------- ----------
(25,882) (14,231) (2,449)
---------- ---------- ----------
Net earnings (loss) from discontinued operations 137 1,177 (372)
---------- ---------- ----------
Net loss available to common shareholders $ (25,745) $ (13,054) $ (2,821)
========== ========== ==========
Denominator (000's):
Number of common shares outstanding at beginning
of period 29,005 28,923 25,843
Weighted average number of common shares issued
during period 110 38 1,070
---------- ---------- ----------
Weighted average number of common shares
outstanding at end of period 29,115 28,961 26,913
========== ========== ==========
14. COMMITMENTS AND CONTINGENCIES
The Company has entered into future commitments including operating
leases for office premises, plant facilities and office equipment with future
minimum lease payments for the next five years as follows:
2003 $ 939
2004 775
2005 735
2006 62
2007 --
----------
$ 2,511
==========
Operating leases relating to the Company's corporate office and fuel
cell facilities contain renewal options to extend the leases for two additional
five-year periods beyond the current expiry date of January 31, 2006.
Land adjacent to the Company's Bassano manufacturing facility requires
remediation as a result of historical operations. Based on an independent
assessment, the Company has estimated and provided for current and subsequent
restoration and monitoring expenditures of $640,877. Actual results could differ
from estimated amounts.
15
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
15. CHANGE IN NON-CASH WORKING CAPITAL BALANCES; SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Changes in non-cash working capital balances are comprised of the
following:
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- ----------------- -----------------
Changes in non-cash working capital:
Accounts receivable $ 349 $ 3,520 $ (2,648)
Inventory 1,124 (307) 422
Prepaid expenses (157) (352) 68
Accounts payable and accrued liabilities, net of
current site restoration 174 (487) 2,468
Income taxes payable (38) (551) 624
Deferred revenue -- (405) 333
----------- ----------- -----------
$ 1,452 $ 1,418 $ 1,267
=========== =========== ===========
Attributable to:
Operating activities $ 2,026 $ 853 $ 953
Financing activities -- (314) 314
Investing activities (574) 879 --
----------- ----------- -----------
$ 1,452 $ 1,418 $ 1,267
=========== =========== ===========
Supplemental cash flow information:
Interest paid $ 29 $ 53 $ 55
=========== =========== ===========
Income taxes paid $ 465 $ 1,340 $ 285
=========== =========== ===========
16
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
16. OPERATING SEGMENT INFORMATION
The Company has two operating segments consisting of the development
and commercialization of fuel cell technology and the commercial manufacturing
and sale of thermoelectric generators. Revenue derived from fuel cells during
the year ended December 31, 2002 relates to the development of propane reforming
solutions as part of a project funded by the U.S. Propane Education and Research
Council.
The accounting policies used in these business segments are the same as
those described in the summary of significant accounting policies.
YEAR ENDED DECEMBER 31, 2002
---------------------------------------------------------------------------
FUEL CELLS GENERATORS CORPORATE TOTAL
----------- ----------- ----------- -----------
Revenue--Domestic $ -- $ 4,100 $ -- $ 4,100
--International -- 17,670 -- 17,670
----------- ----------- ----------- -----------
-- 21,770 -- 21,770
Cost of goods sold -- 13,119 -- 13,119
----------- ----------- ----------- -----------
Gross margin -- 8,651 -- 8,651
Revenue--Fuel cell contract
research 541 -- -- 541
Investment income -- -- 2,899 2,899
----------- ----------- ----------- -----------
541 8,651 2,899 12,091
----------- ----------- ----------- -----------
Expenses
Research, engineering and
development 22,227 1,094 -- 23,321
Marketing -- 1,932 -- 1,932
Business development 2,496 217 -- 2,713
General and administrative 552 677 4,062 5,291
Interest on obligations
under capital leases -- -- 29 29
Foreign exchange gain -- -- (49) (49)
Depreciation 2,225 508 248 2,981
----------- ----------- ----------- -----------
(Loss) earnings from continuing
operations before income taxes $ (26,959) $ 4,223 $ (1,391) $ (24,127)
=========== =========== =========== ===========
Capital asset expenditures $ 5,628 $ 233 $ 266 $ 6,127
=========== =========== =========== ===========
Total assets utilized in the
segment $ 16,290 $ 8,350 $ 97,763 $ 122,403
=========== =========== =========== ===========
17
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 2001
------------------------------------------------------------------------------
FUEL CELLS GENERATORS CORPORATE TOTAL
----------- ----------- ----------- -----------
Revenue--Domestic $ -- $ 5,717 $ -- $ 5,717
--International -- 9,640 -- 9,640
----------- ----------- ----------- -----------
-- 15,357 -- 15,357
Cost of goods sold -- 10,474 -- 10,474
----------- ----------- ----------- -----------
Gross margin -- 4,883 -- 4,883
Investment income -- -- 5,911 5,911
----------- ----------- ----------- -----------
-- 4,883 5,911 10,794
----------- ----------- ----------- -----------
Expenses
Research, engineering and
development 13,988 1,099 -- 15,087
Marketing -- 1,697 -- 1,697
Business development 1,103 16 -- 1,119
General and administrative 274 489 2,837 3,600
Interest on obligations under
capital leases -- -- 47 47
Foreign exchange gain -- -- (372) (372)
Depreciation 1,307 337 163 1,807
----------- ----------- ----------- -----------
(Loss) earnings from continuing
operations before income taxes $ (16,672) $ 1,245 $ 3,236 $ (12,191)
=========== =========== =========== ===========
Capital asset expenditures $ 7,917 $ 219 $ 871 $ 9,007
=========== =========== =========== ===========
Total assets utilized in the
segment $ 13,021 $ 10,788 $ 122,538 $ 146,347
=========== =========== =========== ===========
NINE MONTHS ENDED DECEMBER 31, 2002
---------------------------------------------------------------------------
FUEL CELLS GENERATORS CORPORATE TOTAL
----------- ----------- ----------- -----------
Revenue--Domestic $ -- $ 2,281 $ -- $ 2,281
--International -- 12,368 -- 12,368
----------- ----------- ----------- -----------
-- 14,649 -- 14,649
Cost of goods sold -- 10,851 -- 10,851
----------- ----------- ----------- -----------
Gross margin -- 3,798 -- 3,798
Investment income -- -- 3,605 3,605
-- 3,798 3,605 7,403
----------- ----------- ----------- -----------
Expenses
Research, engineering and development 4,643 337 -- 4,980
Marketing -- 1,193 -- 1,193
Business development 86 -- -- 86
General and administrative 75 162 1,698 1,935
Interest on obligations under
capital leases -- -- 55 55
Foreign exchange gain -- -- (276) (276)
Depreciation 227 217 51 495
----------- ----------- ----------- -----------
(Loss) earnings from continuing
operations before income taxes $ (5,031) $ 1,889 $ 2,077 $ (1,065)
=========== =========== =========== ===========
Capital asset expenditures $ 5,196 $ 256 $ 99 $ 5,551
=========== =========== =========== ===========
Total assets utilized in the segment $ 5,748 $ 15,104 $ 135,470 $ 156,322
=========== =========== =========== ===========
18
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
International revenue includes generator sales and service as follows:
YEAR ENDED DECEMBER YEAR ENDED NINE MONTHS ENDED
31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- ----------------- -----------------
United States $ 8,404 $ 3,450 $ 1,916
Asia 4,280 3,784 8,524
South America 2,699 898 1,740
Middle East 2,068 1,151 --
Other international 219 357 188
----------------- ----------------- -----------------
Total international revenue $ 17,670 $ 9,640 $ 12,368
================= ================= =================
Asian revenue includes sales to the Gas Authority of India of $2,431,000
for the year ended December 31, 2002 (year ended December 31, 2001--$666,000;
nine months ended December 31, 2000--$7,006,000). In addition, revenue from
three other customers exceeded 10% of total revenue during the year ended
December 31, 2002. Revenue and location of these three customers are as follows:
$3,704,000--United States, $2,706,000--United States and $2,068,000--Middle
East.
17. FINANCIAL INSTRUMENTS
A) FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
The fair value of cash and cash equivalents, short-term investments,
accounts receivable, accounts payable and accrued liabilities and income taxes
payable approximates their carrying value because of the short-term nature of
these instruments. The carrying value of obligations under capital leases and
the site restoration liability approximate their fair value. The fair value of
the research and development loan is not determinable as the timing of repayment
is dependant upon commercial revenue derived from the related technology.
B) CREDIT RISK
The Company manufactures thermoelectric generators for sale primarily to
customers in the oil and natural gas industry in North America and international
locations. The Company generally extends unsecured credit to North American
customers, and therefore, the collection of these receivables may be affected by
changes in economic or other conditions and may accordingly impact the Company's
overall credit risk. Management believes the risk is mitigated by the size,
reputation and diverse nature of the companies to which they extend credit.
Material international sales are generally secured with letters of credit or by
Export Development Canada to reduce risk of material losses on the collection of
receivables.
The Company has not previously experienced any material credit losses on
the collection of receivables. Of the Company's significant individual accounts
receivable at December 31, 2002, approximately 34% were owing from two customers
(December 31, 2001--47% from four customers; December 31, 2000--48% from two
customers).
19
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
C) FOREIGN EXCHANGE RISK
Foreign exchange risk is the risk that variations in exchange rates
between the Canadian dollar and foreign currencies will affect the Company's
operating and financial results. The Company earns a significant portion of its
operating revenue in U.S. dollars and does not use derivative instruments to
reduce its exposure to this foreign exchange risk. For the year ended December
31, 2002, 72% of the Company's revenue was denominated in U.S. dollars (year
ended December 31, 2001--63%; nine months ended December 31, 2000--84%).
D) INTEREST RATE RISK
The Company is exposed to interest rate risk in relation to interest
income earned on short-term interest bearing securities and short-term
investments. At December 31, 2002, the increase or decrease in net earnings for
each 1% change in interest rates earned on cash and cash equivalents, and
short-term investments amounts to approximately $953,000 per annum (year ended
December 31, 2001--$1,210,000; nine months ended December 31,
2000--$1,015,000).
18. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The Company's consolidated financial statements have been prepared in
accordance with Canadian GAAP, which differs in certain respects from U.S. GAAP.
The effects of significant accounting differences on the Company's consolidated
statements of operations and accumulated deficit are as follows:
YEAR ENDED DECEMBER YEAR ENDED DECEMBER NINE MONTHS ENDED
31, 2002 31, 2001 DECEMBER 31, 2000
-------------- -------------- --------------
Net loss under Canadian GAAP $ (24,406) $ (11,791) $ (2,339)
Deduct adjustments for:
Stock-based compensation (9) -- --
-------------- -------------- --------------
Net loss and comprehensive loss under U.S. GAAP (24,415) (11,791) (2,339)
-------------- -------------- --------------
Accumulated deficit, beginning of period (20,274) (7,983) (5,162)
Dividends on preferred shares (500) (500) (482)
-------------- -------------- --------------
Accumulated deficit, end of period $ (45,189) $ (20,274) $ (7,983)
============== ============== ==============
Basic and diluted net loss per common share (0.88) (0.45) (0.10)
============== ============== ==============
STOCK-BASED COMPENSATION
Pursuant to Note 12, the Company has disclosed the effects on reported
net loss of the compensatory value of stock options granted using the fair value
method. Under U.S. GAAP, the Company has adopted the intrinsic value method of
accounting for stock options. Under the intrinsic value method, 347,325 options
granted to certain officers and directors in 2002 are subject to variable
accounting, resulting in an additional expense under U.S. GAAP of $9,000 in
2002.
20
GLOBAL THERMOELECTRIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER COMMON SHARE AMOUNTS)
ASSET RETIREMENT OBLIGATIONS
In June 2001, FASB issued FAS 143, "Accounting for Asset Retirement
Obligations," effective for years beginning after June 15, 2002. The standard
requires legal obligations associated with the retirement of long-lived
tangible assets be recognized at fair value. The adoption of this standard does
not have any impact on the Company's current financial position or results of
operations, however its impact in future years could be material.
RECENT ACCOUNTING STANDARDS
In November 2002, FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Interpretation No. 45 clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. It also requires additional disclosures be made by a guarantor in
its interim and annual financial statements about its obligations under certain
guarantees that it has issued. The initial recognition and measurement
provisions of Interpretation No. 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The adoption of this
standard is not expected to have a significant impact on the Company's current
financial position or results of operations, however its impact in future years
could be material.
In July 2002, FASB issued FAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement eliminates the definition and
requirements of Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (Including Certain Costs Incurred in a Restructuring)." FAS 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Such a liability must be
measured at fair value. FAS 146 is effective for exit or disposal activities
initiated after December 31, 2002. The adoption of this standard does not have
any impact on the Company's current financial position or results of
operations, however its impact in future years could be material.
In January 2003, FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities." This interpretation is effective for variable
interest entities created after January 31, 2003. It applies to all other
variable interest entities in which an enterprise holds a variable interest in
the first fiscal year or interim period beginning after June 15, 2003. The
adoption of this standard does not have any impact on the Company's current
financial position or results of operations, however its impact in future years
could be material.
21