CALCITECH LTD.
(FORMERLY KEMGAS LTD.)
RESTATED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
CalciTech Limited (formerly Kemgas Limited)
To the shareholders and board of directors of CalciTech Limited (formerly
Kemgas Limited)
We have audited the accompanying consolidated balance sheets of CalciTech
Limited (formerly Kemgas Limited) (a company in the development stage) as of
February 28, 2002 and February 28, 2001, and the related consolidated statements
of operations, shareholders' deficiency, and cash flows for the three years in
the period ended February 28, 2002. 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 International Standards on Auditing,
and with auditing standards generally accepted in the United States of America
and Canada. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
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 consolidated financial position of CalciTech Limited
(formerly Kemgas Limited) (a development stage company) as of February 28, 2002
and February 28, 2001, and the consolidated results of its operations and its
cash flows for the three years in the period ended February 28, 2002 in
accordance with International Accounting Standards.
As described in Note 2 to the financial statements, the Company has restated its
financial statements for each of the years in the three year period ended
February 28, 2002 to adjust the accounting for certain deferred development
costs and convertible debt.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3.1 to the
financial statements, the Company has incurred losses and negative cash flows
from operations for the years ended February 28, 2002, February 28, 2001 and
February 29, 2000. These matters raise substantial doubt about its ability to
continue as a going concern. Management plans in regard to these matters are
also described in Note 3.1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
International Accounting Standards vary in certain respects from accounting
principles generally accepted in the United States and in Canada. The
application of United States generally accepted accounting principles, as
restated, and Canadian generally accepted accounting principles would have
affected the determination of net loss and shareholders' deficiency for the
financial years ended February 28, 2002, February 28, 2001 and February 29, 2000
to the extent summarized in Note 15 to the consolidated financial statements.
PricewaterhouseCoopers
Paris, France
August 6, 2002, except for Note 2 and the second paragraph of Note 15, for which
the date is September 15, 2003
2
Comments by Auditor for Canadian Readers on Canadian-International
Standards on Auditing Reporting Differences
Canadian reporting standards for auditors do not permit a reference to
conditions and events that cast a substantial doubt on a company's ability to
continue as a going concern, such as those described in the above paragraph,
when these are adequately disclosed in the financial statements. Under Canadian
reporting standards for auditors, the going concern paragraph would be excluded
from this report.
3
CALCITECH LIMITED
(a company in the development stage)
RESTATED CONSOLIDATED BALANCE SHEETS
February 28, 2002 and February 28, 2001
(amounts in thousands of US dollars)
Notes 2002 restated 2001 restated
ASSETS
Current assets
Cash and cash equivalents 3.6 $ 11 $ 196
Receivables 14 8
Prepaid expenses and other current assets 73 12
-------------- -------------
Total current assets 98 216
Non-current assets
Property, plant and equipment, net 5 120 40
Patents, net 3.8 and 6 67 -
-------------- -------------
Total non-current assets 187 40
-------------- -------------
TOTAL ASSETS $ 285 $ 256
============== =============
The accompanying notes are integral part of the consolidated financial statements
4
CALCITECH LIMITED
(a company in the development stage)
RESTATED CONSOLIDATED BALANCE SHEET
February 28, 2002 and February 28, 2001
(amounts in thousands of US dollars, except per
share data)
Notes 2002 restated 2001 restated
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities
Accounts payable and accrued liabilities $ 1,145 $ 579
Convertible debentures - current portion of liability element 3.14 285 106
-------------------- --------------------
Total current liabilities 1,430 685
Provisions 12 325 200
Credit facility 7 2,043 2,370
Convertible debentures - non-current portion of liability element 3.14 87 96
-------------------- --------------------
Total liabilities 3,885 3,351
Minority interest 10 - 51
Shareholders' deficiency 9
Common stock, Cdn $ 0.001 par value; 120,000,000 shares authorized in
2002, 50,000,000 in 2001; issued and
outstanding: 43,724,179 shares in 2002 and 2001 1,778 1,778
Share premium 26,296 26,296
Holders' options outstanding on credit facility 55 57
Contribution surplus 51 47
Convertible debentures 3,303 1,245
Deficit accumulated during development stage (35,113) (32,595)
Cumulative foreign currency translation adjustments 30 26
--------------------- --------------------
Total shareholders' deficiency (3,600) (3,146)
--------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $ 285 $ 256
The accompanying notes are integral part of the consolidated financial statements
5
CALCITECH LIMITED
(a company in the development stage)
RESTATED CONSOLIDATED STATEMENT OF OPERATIONS
February 28, 2002, February 28, 2001 and February
29 2000 (amounts in thousands of US dollars,
except per share data)
Notes 2002 restated 2001 restated 2000 restated
Revenues $ - $ - $ -
Cost of revenues - - -
----------- ----------- -------------------
Gross margin - - -
Research and development expenses $ 696 $ 1,618 $ 1,371
General and administrative expenses 939 543 931
Settlement of legal dispute 12 400 - -
----------- ----------- -------------------
Operating loss (2,035) (2,161) (2,302)
Interest expense, net (201) (363) (244)
----------- ----------- -------------------
Loss before income taxes and minority interest (2,236) (2,524) (2,546)
Provision for income taxes 12 (333) (9) (12)
----------- ----------- -------------------
Loss from ordinary activities (2,569) (2,533) (2,558)
Minority interest 10 51 - -
----------- ----------- -------------------
Net loss $ (2,518) $ (2,533)$ (2,558)
=========== =========== ===================
Net loss per share:
Basic $ (0.058) $ (0.063)$ (0.083)
Diluted $ (0.058) $ (0.063)$ (0.083)
Shares used in net loss per share calculation:
Basic 43,724,179 39,890,846 30,933,290
Diluted 43,724,179 39,890,846 30,933,290
The accompanying notes are integral part of the consolidated financial statements
6
CALCITECH LIMITED
(a company in the development stage)
RESTATED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
February 28, 2002, February 28, 2001 and February
29, 2000 (amounts in thousands of US dollars except
number of shares)
Holders' option Contributed
outstanding on surplus
Note Common Stock Share convertible note
premium payable
Shares Amounts
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, February 28, 1999 as previously presented 29,917,386 1,768 16,631 -- --
Effect of change for deferred development costs -- -- -- -- --
Effect of change for convertible debt -- -- 88 92 --
Balances, February 28, 1999 as restated 29,917,386 1,768 16,719 92 --
Net loss -- -- -- -- (2,558)
Drawing on credit facility 7 -- -- -- 49 --
Issuance of common stock upon conversion of credit
facility 7 2,429,150 2 625 (27) --
Interest on convertible debentures -- -- -- -- --
Conversion of convertible debentures, net of finders fee 4 7,202,643 5 7,093 -- 1
Conversion of options 4 175,000 -- -- -- --
Value assigned to the conversion feature 4 -- -- 1,345 --
Foreign currency translation adjustments -- -- -- -- --
Balances, February 29, 2000 as restated 39,724,179 1,775 25,782 114 1
Net loss -- -- -- -- (2,533)
Drawing on credit facility 7 -- -- -- 49 --
Issuance of common stock upon conversion of credit
facility 9.2 4,000,000 3 514 (63) --
Issuance of convertible debentures, net of finders fee 9.1 -- -- -- -- --
Foreign currency translation adjustments -- -- -- -- --
Balances, February 28, 2001 as restated 43,724,179 1,778 26,296 57 47
Net loss -- -- -- -- --
Drawing on credit facility 7 -- -- -- 2 --
Conversion of credit facility into convertible
debenture 9.1 -- -- -- (4) --
net of finders fee
Foreign currency translation adjustments -- -- -- -- --
Balances, February 28, 2002 as restated 43,724,179 1,778 26,296 55 51
Balances, February 28, 1999 as previously presented 8,148 (26,292) (23) 232
Effect of change for deferred development costs -- (723) -- (723)
Effect of change for convertible debt -- (86) -- 94
Deficit Cumulative Total
accumulated currency consolidated
Convertible during translation shareholders'
Debentures devlopment stage adjustments deficieny
- --------------------------------------------------------------------------------------------------------------------------
Balances, February 28, 1999 as restated 8,148 (27,101) (23) (397)
Net loss -- (2,558)
Drawing on credit facility -- -- -- --
Issuance of common stock upon conversion of credit
facility -- -- -- 600
Interest on convertible debentures 403 (403) -- --
Conversion of convertible debentures, net of finders fee 4 (7,206) -- -- (107)
Conversion of options -- -- -- --
Value assigned to the conversion feature -- (1,345) -- --
Foreign currency translation adjustments -- -- 202 202
Balances, February 29, 2000 as restated -- (30,062) 179 (2,211)
Net loss -- (2,533) -- (2,533)
Drawing on credit facility -- -- -- 6
Issuance of common stock upon conversion of credit
facility -- -- -- 500
Issuance of convertible debentures, net of finders fee 1,245 -- -- 1,245
Foreign currency translation adjustments -- -- (153) (153)
Balances, February 28, 2001 as restated 1,245 (32,595) 26 (3,146)
Net loss -- (2,518) -- (2,518)
Drawing on credit facility -- -- -- 2
Conversion of credit facility into convertible
debenture 2,058 -- -- 2,058
net of finders fee
Foreign currency translation adjustments -- -- 4 4
Balances, February 28, 2002 as restated 3,303 (35,113) 30 (3,600)
The accompanying notes are integral part of the consolidated financial statements
7
CALCITECH LIMITED
(a company in the development stage)
RESTATED CONSOLIDATED STATEMENT OF CASH FLOWS
February 28, 2002, February 28, 2001 and February 29, 2000
(amounts in thousands of US dollars)
2002 restated 2001 restated 2000
restated
Cash flows from operating activities
Loss before income taxes and minority interest $ (2,236) $ (2,524) $ (2,546)
Non cash items
Depreciation and amortization 3 1,205 608
Interest expense 201 363 344
-------------- -------------- -------------
Operating loss before working capital changes (2,032) (956) (1,594)
Changes in working capital :
Decrease /(increase) in accounts receivable (6) 1 (3)
Decrease /(increase) in other current assets (61) (1) 8
Increase/(decrease) in accounts payable and accrued expenses, and
provisions used 202 125 (65)
-------------- -------------- -------------
Cash used in operations (1,897) (831) (1,654)
Interest paid to financial institutions - (5) (1)
Income taxes paid (8) (9) (12)
-------------- -------------- -------------
Net cash used in operating activities (1,905) (845) (1,667)
Cash flows from investing activities
Acquisition of property, plant and equipment (164) (1) -
-------------- -------------- -------------
Net cash used in investing activities (164) (1) -
Cash flows from financing activities
Payment of bank loans - (7) (12)
Proceeds from issuance of convertible debentures 2,500 441 -
Proceeds from credit facility 2,316 1,080 1,684
Payment of credit facility (2,643) (324) -
Finders fee (125) (52) (108)
Non-controlling investment in Odda - 51 -
Interest paid on convertible debentures (210) - -
-------------- -------------- -------------
Net cash provided by financing activities 1,838 1,189 1,564
Effect of exchange rate changes on cash 46 (153) 202
-------------- -------------- -------------
Net increase / (decrease) in cash and cash equivalents (185) 190 99
Cash and cash equivalents, beginning of year 196 6 7
-------------- -------------- -------------
Cash and cash equivalents, end of year $ 11 $ 196 $ 106
============== ============== =============
The accompanying notes are integral part of the consolidated financial statements
8
(a company in the development stage)
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENT - Year ended February 28,
2002 (amounts in thousands of US dollars, except per share data)
1. BUSINESS OF THE COMPANY
CalciTech Limited (formerly Kemgas Ltd.) (the "Company") is incorporated in the
jurisdiction of Bermuda. Starting from the production of acetylene from which
revenues were generated until 1997, the Company changed its business model to
concentrate on the production of precipitated calcium carbonate (PCC). The
production of acetylene gas from calcium carbide generates significant
quantities of carbide lime. CalciTech decided to develop a process for producing
a low cost PCC from waste lime. PCC is a white pigment which can only be
produced from pure, white limestone deposits and is currently used in a wide
range of applications, including paper filling and high value pharmaceutical and
food additives.
Revenue from the principal activity has not yet started.
Throughout these notes to the restated consolidated financial statements, all
referenced amounts reflect the balances and amounts on a restated basis.
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company determined that it was required to restate the accounting for
development activities and convertible debt to conform the accounting to GAAP.
As a result of the foregoing, the Company has restated its financial statements
for the three years ended February 28, 2002.
Set forth below are the restatement adjustments included in the restatement of
the previously issued financial statements, each of which is a "fundamental
error" within the meaning of IAS 8.
Considering the following circumstances:
- - There remains a technical and design risk that it will not be possible
to scale-up production in the manner envisaged and a risk that the
cost, timing and efficiency of commercial production will not be
consistent with the current plans;
- - The production process is new and has not been tried before, so there
are several risks associated with the scale up to full commercial
production;
- - There are no firm sales contract;
the criteria set by International Accounting Standards for the deferral of
development costs, as further described in Note 3.10, have not yet been met, and
consequently the Company restated the financial statements to expense
development costs, which had been deferred in previously issued financial
statements.
Considering that the small scale plant was constructed to provide final process
data and bulk samples and to reduce the technical risk in moving up to a full
scale plant, management has not demonstrated the technical feasibility of
completing the asset for use in commercial production. The small-scale
9
production plant, which had been considered a tangible asset in the previously
issued financial statements, was accordingly expensed as a development activity
in the restated consolidated financial statements.
Considering that being in the development stage does not preclude the Company
from obtaining reliable measure of the fair market value of its compound debt
instruments, the fair values on issue of the debt of the liability component and
the equity conversion component of convertible debt were determined and
classified separately. The fair value of the liability component is calculated
using the interest rate for an equivalent non-convertible debt. The residual
amount, representing the value of the conversion rights, is included in
shareholders' equity. The values of convertible debentures and credit facility,
which had been entirely posted to shareholders' equity and liabilities in the
previously issued financial statements, were accordingly split between
shareholders' equity and liabilities in the restated consolidated financial
statements, and the classification of flows relating thereto in equity and the
statement of operations was amended accordingly.
Summary of Restatement Items
The following tables present the impact of the restatement adjustments on the
Company's previously reported 2002, 2001 and 2000 results and financial position
on a condensed basis:
2002 2001 2000
Statement of operations: As previousy As restated As previously restated As previousy As restated
reported
Gross margin - - - - - -
Research and development expenses $ 88 696 $ 1,640 1,618 $ 1,745 1,371
General and administrative expenses 897 939 543 543 931 931
Settlement of legal dispute 400 400 - - - -
----------------------- ----------------------- -----------------------
Operating loss (1,385) (2,035) (2,183) (2,161) (2,676) (2,302)
Interest expense, net (142) (201) (263) (363) (598) (244)
----------------------- ----------------------- -----------------------
Loss before income taxes and minority interest (1,527) (2,236) (2,446) (2,524) (3,274) (2,546)
Provision for income taxes (333) (333) (9) (9) (12) (12)
----------------------- ----------------------- -----------------------
Loss from ordinary activities (1,860) (2,569) (2,455) (2,533) (3,286) (2,558)
Minority interest 51 51 - - - -
----------------------- ----------------------- -----------------------
Net loss $ (1,809) (2,518)$ (2,455) (2,533)$ (3,286) (2,558)
======================= ======================= =======================
Net loss per share:
Basic $ -0.041 -0.058 $ -0.062 -0.063 $ -0.106 -0.083
Diluted $ -0.041 -0.058 $ -0.062 -0.063 $ -0.106 -0.083
Shares used in net loss per share calculation:
Basic 43,724,179 43,724,179 39,890,846 39,890,846 30,933,290 30,933,290
Diluted 43,724,179 43,724,179 39,890,846 39,890,846 30,933,290 30,933,290
10
2002 2001
Balance sheet: As previously As restated As previously As restated
reported reported
ASSETS
Current assets
Cash and cash equivalents $ 11 11 $ 196 196
Receivables 14 14 8 8
Prepaid expenses and other current assets 73 73 12 12
---------------------- ----------------------
Total current assets 98 98 216 216
Non-current assets
Property, plant and equipment, net 397 120 40 40
Patents, net 67 67 - -
Deferred development costs, net 658 - 327 0
---------------------- ----------------------
Total non-current assets 1,122 187 367 40
---------------------- ----------------------
TOTAL ASSETS $ 1,220 285 $ 583 256
====================== ======================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities
Accounts payable and accrued
liablities $ 1,145 1,145 $ 579 579
---------------------- ----------------------
Total current liabilities 1,145 1,145 579 579
Provisions 325 325 200 200
Credit facility 2,043 2,043 2,370 2,370
---------------------- ----------------------
Total liabilities 3,513 3,513 3,149 3,149
Minority interest - - 51 51
Shareholders' deficiency
Common stock, Cdn $ 0.001 par value;
120,000,000 shares authorized in
2002, 50,000,000 in 2001; issued and
outstanding: 43,724,179 shares in 2002
and 2001 1,778 1,778 1,778 1,778
Share premium 26,039 26,039 26,164 26,164
Convertible debentures 3,948 3,948 1,448 1,448
Deficit accumulated during development
stage (34,088) (35,023) (32,033) (32,360)
Cumulative foreign currency translation
adjustments 30 30 26 26
---------------------- ----------------------
Total shareholders' deficiency (2,293) (3,228) (2,617) (2,944)
---------------------- ----------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIENCY $ 1,220 285 $ 583 256
====================== ======================
11
3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 Going concern
The financial statements have been prepared assuming the Company will continue
as a going concern. Under the going concern assumption, an entity is ordinarily
viewed as continuing in business for the foreseeable future with neither the
intention nor the necessity of liquidation, ceasing trading or seeking
protection from creditors pursuant to laws or regulations. In assessing whether
the going concern assumption is appropriate, management takes into account all
available information for the foreseeable future, in particular for the twelve
months from the balance sheet date.
The Company is in the development stage and has therefore incurred cumulative
losses of $35,113 through February 28, 2002 and current liabilities exceed
current assets by $1,332. Accordingly, there is significant doubt about the
Company's ability to continue as a going concern. The ability to continue as a
going concern is dependent upon securing borrowing and raising further capital
until such time as the Company is generating adequate revenue as to be
self-supporting.
The credit facility agreement with Epsom Investment Services N.V. to provide up
to $5 million (see Note 7) has been further extended to March 5, 2003. As at
February 28, 2002, $2,043 of this facility had been drawn down. Further, Epsom
agreed to convert part of this facility into equity for $450 in February 2002.
Also during February 2002, the Company announced a private placement of mixed
securities to raise $2,000 (see Note 9.3). This placement was successfully
closed on April 12, 2002.
Management is currently pursuing mezzanine financing to further fund the
development of its products and markets and to carry out its business plan.
Assets and liabilities are recorded on the basis that the Company will be able
to realize its assets and discharge its liabilities in the normal course of
business. Accordingly, the financial statements do not include any adjustments
to the carrying values of assets and liabilities that might be necessary should
the Company be unable to continue as a going concern.
3.2 Basis of presentation
The consolidated financial statements are prepared and presented in accordance
with International Accounting Standards. A reconciliation of net income and
shareholders' equity between IAS and the accounting principles generally
accepted in the United States (US GAAP) is included in Note 15.
Certain disclosure differences between IAS and Canadian GAAP are included in
Note 15.
12
3.3 Principles of consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany balances and transactions have been
eliminated.
3.4 Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
3.5 Foreign currency translation
The reporting currency of the Company is the US dollar (USD), which is also the
measurement currency of the parent company. The parent company elected the US
dollar as its measurement currency rather than the Bermudan dollar (BMD), which
is the currency of its country of domicile, to reflect the fact that the
majority of its financing, consulting and labor costs are denominated in US
dollars.
The measurement currency of the Company's operating foreign subsidiaries is
their local currency, generally the Euro. Assets and liabilities of the
Company's foreign subsidiaries are translated into US dollars using the exchange
rate in effect at the balance sheet date. Additionally, their expenses are
translated using exchange rates approximating average rates prevailing during
the year. Translation adjustments that arise from translating their financial
statements from their local currencies to US dollars are accumulated and
reflected as a separate component of shareholders' equity.
Gains and losses that arise from the effect of exchange rate changes on balances
denominated in currencies other than the measurement currency of each of the
Company and its subsidiaries are included in the statements of operations as
incurred.
3.6 Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
3.7 Property, plant and equipment
Property, plant and equipment are stated at cost and are depreciated on a
straight-line basis over their estimated useful lives set out below:
Leasehold improvements lesser of lease term or 10 years
Plant and equipment 10 years
Office furniture and equipment 5 to 10 years
Maintenance and repairs are charged to expense when incurred.
13
3.8 Patents
Expenditure on acquired patents is capitalized and amortized over their useful
lives. Legal expenditure for the protection of technology developed by the
Company is recognized as an expense as incurred below, except when additional
future economic benefits can be attributed to such protection at closing date.
3.9 Goodwill
Under the purchase method of accounting, the excess of the purchase price of the
business acquired over the fair value of tangible and intangible assets at the
date of acquisition has been assigned to goodwill. Such amounts are amortized
over a maximum of 15 years on a straight-line basis. The carrying value of
goodwill is reviewed on an annual basis relying on a number of factors including
business plans and economic projections using an undiscounted cash-flow method.
Provision is made for any impairment identified, using the discounted cash-flow
method.
3.10 Research and development
Research and development costs are expensed as incurred, except for development
costs which are deferred as intangible assets when the Company can demonstrate
all of the following:
o the technical feasibility of completing the intangible asset so that it
will be available for use or sale;
o its intention and ability to use or sell the intangible asset;
o the existence of a market for the output of the intangible asset or the
intangible asset itself;
o the availability of adequate technical resources to complete the
development;
o the availability of adequate financial and other resources to complete the
development and to use or sell the intangible asset, subject to the ability
of the Company to continue as a going concern, as described in Note 3.1;
o its ability to measure the expenditure attributable to the intangible asset
during its development reliably.
Deferred development costs are originally recorded at cost, which includes:
o expenditure on materials and services used or consumed in generating the
intangible asset;
o the salaries, wages and other employment related costs of personnel
directly engaged in generating the asset, and
o any expenditure that is directly attributable to generating the asset, such
as the amortization of patents used to generate the asset.
Any costs capitalized are amortized on a straight-line basis over the period of
expected future benefit.
14
The Company has determined that its development activities do not meet the
aforementioned criteria for deferral.
3.11 Net loss per common share
Basic net loss per share is computed by dividing net loss by the weighted
average number of shares outstanding.
For the purpose of calculating diluted earnings per share, the net profit
attributable to ordinary shareholders and the weighted average number of shares
outstanding is adjusted for the effects of all dilutive potential ordinary
shares. The effects of anti-dilutive potential ordinary shares are ignored in
calculating diluted earnings per share. Potential ordinary shares are
anti-dilutive when their conversion to ordinary shares would decrease loss per
share from continuing operations.
3.12 Fair value of financial instruments
Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable, accounts payable, and accrued
expenses approximate fair value due to their short maturities, based on
borrowing rates currently available to the Company.
3.13 Deferred taxation
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to amounts expected to be realized.
Deferred tax assets are recognized only to the extent that future taxable profit
will be available such that realization of the related tax benefit is more
likely than not.
3.14 Stock options
The Company does not recognize any compensation expense with respect to stock
options.
3.15 Convertible debt accounting
On issue of convertible debentures and credit facility, the fair value of the
conversion option is determined. This amount is recognized and presented
separately in shareholders' equity. The obligation to make future payments of
principal and interest to the holder of the option is calculated using a deemed
market interest rate for an equivalent non-convertible bond. The obligation to
make future payments of interest is carried as a liability until extinguished on
conversion or maturity of the notes. When the Company has the option to convert
15
the principal and, if applicable, the interest on these notes, the obligation to
make future payments of principal to the holder is carried as equity.
The fair value of the liability component, representing the obligation to make
future payments of interest to the holder of the conversion option is calculated
using a deemed market interest rate for an equivalent non-convertible bond. The
residual amount, representing the value of the equity conversion component, is
included in shareholders' deficiency.
4. Acquisition
On February 29, 1996, the Company acquired the remaining 50.1% of Kemgas
Corporation Inc. and its subsidiaries (KCI) not already owned by the Company
exchanging for each share of KCI: o one common share of the Company; and o $1.00
in the form of 7.5% convertible debentures.
The Company also undertook to take over the 1,050,000 outstanding stock options
in KCI.
The acquisition was accounted for under the purchase method and accordingly,
goodwill of $12,691 was recognized. Based on subsequent developments in strategy
and operations, CalciTech determined that the goodwill relating to the
acquisition of KCI had been impaired. As required by generally accepted
accounting principles, this change in estimate which amounted to a charge of
$10,649 was recorded in the year ended February 28, 1999.
Under an agreement dated February 25, 2000, Epsom Investment Services N.V.,
which represented 100% of the holders of the convertible debentures (amounting
to $5,562 at that date) and acting in a non-discretionary role, agreed to
convert the debentures plus accrued interest to February 18, 2000 (amounting to
$1,640 at that date) into common shares of the Company on the basis of one share
for each $1 of note. The remaining option holders also agreed to convert their
175,000 options into common shares of the Company on the basis of one CalciTech
Ltd. share for one KCI option. This resulted in the issue of 7,377,643 common
shares.
5. Property, plant and equipment
Property, plant and equipment consists of the following:
16
2002 2001
Leasehold improvements $ 17 $ 17
Building 81 -
Plant and equipment 52 52
Laboratory equipment 5 -
Office furniture and equipment 48 44
------------ -----------
Total gross value 203 113
Less accumulated depreciation (83) (73)
------------ -----------
Total property, plant and equipment, net $ 120 $ 40
============ ===========
Depreciation expense totaled $12, $11 and $11 for the years ended February 28,
2002, February 28, 2001 and February 29, 2000, respectively.
6. PATENTS
Patents can be summarized as following:
2002 2001
Net amount at beginning of the year $ - $ 1,193
Additions 71 -
Amortized during the year (4) (1,193)
----------- -------------
Balance at the end of the year 67 -
=========== =============
Gross amount 3,244 3,173
Accumulated amortization (3,177) -
----------- -------------
Balance at the end of the year $ 67 $ -
=========== =============
The Company acquired via the combination with KCI (Note 4) rights to several
patents in the field of Acetylene production, equipment for this production and
PCC with expiry dates up to the year 2009.
Patents were initially amortized over a period of 13 years. During the year
ended February 28, 1999, the estimated remaining useful life of the patents was
revised to 3 years. This change was made in view of the fact that technological
obsolescence arises at a faster rate than expiry of legal rights attached to the
asset. As a result, those patents were fully amortized at February 28, 2001.
Amortization expense amounted to $4, $1,193, and $597 for the years ended
February 28, 2002, February 28, 2001 and February 29, 2000, respectively.
17
7. CREDIT FACILITY AGREEMENT
On February 28, 1998 the Company entered in a credit facility agreement of up to
$2,330 with Epsom Investment Services N.V., which represented 100% of the
lenders and acting in a non-discretionary role, bearing interest at 8% per annum
and due year 2000.
In April 1999, the Company re-negotiated an extension of the existing credit
facility agreement with Epsom Investment Services N.V. to provide up to $5
million for the purposes of funding the Company's PCC development program for a
term to February 28, 2001. Interest rate per annum was reduced to 7 3/4% .
In February 2001, the Company re-negotiated a further extension of the existing
credit facility agreement for a term to March 4, 2002 at an annual interest rate
of 7 3/4%. A further extension has been negotiated extending the facility to
March 5, 2003 with the same rate of interest.
The balance due on the credit facility agreement can be converted in part or in
whole into shares of common stock at any time at the option of the holder. The
conversion price is equal to 80% of the trading price per share of common stock
on the date such note was made or additional advances were made. The facility is
collateralized by the assets of the Company.
The credit facility is presented as follows:
2002 2001
Face value of note issued during the year 2,174 1,080
Less equity conversion component (2) (6)
------------ ------------
2,172 1,074
Interest expense 144 358
Conversion of note into common shares - (500)
Conversion of note into convertible debentures (2,500) (1,059)
Payments made during the year (143) (324)
------------ ------------
(327) (451)
Liability component at the beginning of the year 2,370 2,821
------------ ------------
Liability component at end of the year 2,043 2,370
============ ============
Effective interest rate at year end 7.75% 11.75%
------------ ------------
The carrying amount of the credit facility approximates its fair value.
18
8. COMMITMENT
The Company leases its principal management services office under an operating
lease expiring in October 2004. Under the terms of the lease agreement, the
Company has the option to extend the term of the lease for three years. At
February 28, 2002, future minimum payments amounted to $7.
9. SHAREHOLDERS' DEFICIENCY
9.1. Convertible debentures
In February 2001, the Company entered into an agreement for the placement of 8%
convertible debentures in the sum of $1,500 for a term to February 2003. Of this
amount, $441 was paid in cash and $1,059 was exchanged for the credit facility.
Interest is payable quarterly. Investors may after two years or on any prior
dividend payments date up to maturity, convert into common shares at the greater
of 75% of the average closing price for the ten trading days prior to the
conversion or the market price per share at the time of closing. This instrument
qualifies for equity classification under IAS as long as there is no indication
that the shares of the Company may be delisted. If that future event was to
occur within 270 days after the date of conversion, the investors may put the
debentures to the Company at 100% of their original amount plus accrued and
unpaid interest. Accordingly, the instrument would be reclassified to debt from
the date that the decision to delist the shares was made. The investors shall
also receive 20,000 warrants for every $100 invested, exercisable for a two year
period at 125% of the closing average offer price for the previous ten trading
days.
The Company may redeem the convertible debentures in whole or in part at any
time up to two years. On the maturity date, the Company also has the right to
convert any or all of the amounts of principal and any unpaid interest, into
common stock. A finders fee of 5% and 1,000 common stock purchase warrants per
$100 invested was paid.
In July 2001, the Company entered into a further agreement for the placement of
7.5% convertible debentures in the sum of $2,500 for a term to November 2003.
The terms of the note are exactly the same as those on the notes issued in
February 2001. The investors also received 20,000 warrants for every $100
invested, exercisable for a two year period at 125% of the closing average offer
price for the previous ten trading days.
The effective interest rate assigned to the liability element is 12%.
9.2 Conversion of credit facility
In February 2001, the Company entered into an agreement to convert part of the
balance due on the credit facility agreement (amounting to $500) with Epsom
Investment Services N.V. (Note 7) into common stock of the Company on the basis
of one share for each US$0.125 of note. This resulted in the issue of 4,000,000
common shares.
19
9.3 Agreements with post balance sheet effect
In February 2002, Epsom Investment Services N.V. agreed to convert an additional
$ 450 of the balance due on the credit facility agreement into common stock of
the Company on the basis of one share for each $0.32 of note. This conversion
will result in the issue of common stock of 1,424,050 common shares.
During February 2002, the Company announced a private placement of mixed
securities to raise US$ 2,000 by way of 7.5% convertible debentures in the sum
of $ 300, with the same terms and conditions as previous issues, and by the
issue of common stock in the sum of $ 1,700 at a discount of 10% to the market
average price, with the issue for each share taken down of a twelve month
warrant for one additional share at a premium of 20% to the strike price. The
placing, which was completed after the end of the financial year, subject to the
approval of the Canadian Venture Exchange, consisted of 4,933,091 common shares,
priced at CDN $0.55 with a twelve month warrant to purchase an additional common
share for each share taken down at CDN $0.66, and US$300 7.5% convertible
debentures.
9.4 Stock option plan
Under the provision of the Canadian Venture Exchange (formerly Vancouver Stock
Exchange), a total of 10% of issued shares may be granted to directors, officers
and employees of the Company in the form of stock options. The options generally
expire five years from the date of the grant.
Stock option activity was as follows:
Number of Exercise price per share
Shares
Balance at February 28, 1999 2,185,000 Cdn $0.80 to 1.50
Options lapsed (1,175,000) Cdn $0.29 to 1.50
Options granted 500,000 Cdn $0.30
--------------- -----------------------------
Balance at February 29, 2000 1,510,000 Cdn $0.29 to 0.30
--------------- -----------------------------
Options lapsed (350,000) Cdn $0.29
Options granted -
--------------- -----------------------------
Balance at February 28, 2001 1,160,000 Cdn $0.29 to 0.30
Options lapsed -
Options granted -
--------------- -----------------------------
Balance at February 28, 2002 1,160,000 Cdn $0.29 to 0.30
All options that were outstanding as at December 8, 1999, originally priced at
Cdn $0.80 to 1.50 have had their exercise price amended to Cdn $0.29.
20
The following table summarizes information with respect to stock options as of
February 28, 2002:
Number of Status Number of Weighted average
Exercise options options remaining contractual
price outstanding exercisable life (years)
Cdn $0.30 500,000 Exercisable 500,000 3.25
Cdn $0.29 660,000 Exercisable 660,000 0.98
---------- ---------
1,160,000 1,160,000
9.5 Other information
The Company is committed to issue 100,000 common shares for services in
connection with the preparation and filing of a registration statement under the
Securities Exchange Act (US) and listing on the National Associations of
Securities Dealers Automated Quotation System (NASDAQ), in the event that the
Company elects to obtain a NASDAQ listing.
The Company has never paid or distributed dividends.
10. MINORITY interest
During the year ended February 28, 2001, the Company contributed 51% of the
share capital of CalciTech Odda A-S ("Odda") (a Norwegian company) through a
wholly-owned subsidiary, CalciTech Holdings ApS (a Danish company, formed on
October 31, 2000). Minority interest represents the interest in the company
owned by a third party.
11. Income taxes
Under the current Bermuda law, the Company is not required to pay any income
taxes in Bermuda. The Company has received an undertaking from the Minister of
Finance of Bermuda that in the event of any such taxes being imposed, the
Company will be exempted from such taxation until March 28, 2016.
Loss before income taxes and minority interest consists of the following:
2002 2001 2000
Bermuda $ (2,021) (2,335)$ (2,680)
Rest of world (215) (189) 134
--------- --------- ----------
Loss before income taxes and minority interest $ (2,236)$ (2,524)$ (2,546)
21
There are no significant deferred taxes reflecting the net tax effects of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
There are no significant operating loss carry-forwards as of February 28, 2002.
12. PROVISIONS AND CONTINGENCIES
The Company had received a claim from one of its former customers. Based upon
the information provided by this customer, the Company has offered and accrued
$200 to settle the dispute. During October 2001, the Company reached settlement
with its former customer. Settlement in a sum of $601 was affected by the
Company by making installment payments of $201 at the execution of the
settlement agreement, $200 on October 31, 2001, $100 on March 31, 2002, and $100
on October 31, 2002. Payment of the first two installments was effected during
the financial year which resulted in a full cessation of claims from the former
customer. Whilst reaching the settlement, the Company accepted no responsibility
for the claims.
The Company is subject to legal proceeding, claims, and litigation arising in
the ordinary course of business. The Company and its subsidiaries are
occasionally challenged by local tax authorities. The Company records a
provision for these tax risks based on its most available information on the tax
claim in each tax jurisdiction. The Company's management does not expect that
the ultimate cost to resolve these matters will have a material adverse effect
on the Company's consolidated financial position, results of operations, or cash
flows.
13. RELATED PARTY TRANSACTIONS
The amount paid to shareholders, directors and officers of the Company and their
related companies for consulting and other services totaled $196, $240 and $180
for the years ended February 28, 2002, February 28, 2001 and February 29, 2000,
respectively.
In the financial year ended February 28, 2002, this amount included $175 paid to
EuroHelvetia TrustCo S.A., who were contracted by CalciTech to act as the
Company's exclusive financial advisors. EuroHelvetia charge their fees for work
related to advice on private placements, fund raising and project finance. Roger
A. Leopard, Chief Executive Officer and President of the Company, is also a
director of EuroHelvetia TrustCo S.A.. EuroHelvetia also provide administration
of Epsom Investment Services N.V..
Roger A. Leopard charged the remaining $ 21 to CalciTech Group Services in
providing strategic and industrial counseling services.
22
14. FINANCIAL INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The Company operates in one business segment. The following table presents
information by geographical area:
2002 2001 2000
Operating loss
Bermuda $ (1,882)$ (1,972)$ (2,436)
Rest of world (153) (189) 134
--------- --------- ----------
Total $ (2,035)$ (2,161)$ (2,302)
Identifiable assets
Bermuda $ 67 $ -
Rest of world 218 256
--------- ---------
Total $ 285 $ 256
15. DIFFERENCES BETWEEN INTERNATIONAL ACCOUNTING STANDARDS, US GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The Company's consolidated financial statements are prepared in accordance with
International Accounting Standards (IAS), which differ from generally accepted
accounting principles in the United States (US GAAP) and generally accepted
accounting principles in Canada (Canadian GAAP).
Under US GAAP, the beneficial conversion feature embedded in the credit facility
should be recognized and measured by allocating a portion of the proceeds equal
to the intrinsic value of that feature to additional paid-in capital. The
Company has restated its net loss in accordance with US GAAP to reflect this
accounting policy. The effect was the additional charge to net loss as
represented by "Beneficial conversion feature on credit facility". There was no
effect on Shareholders' deficiency from this change. Share option expense was
restated to account for the reclassification of certain options as fixed that
were previously accounted for as variable.
23
The principal differences between IAS and US GAAP are presented below together
with explanations of certain adjustments that affect consolidated net income and
total shareholders' equity:
2002 2001 2000 Cumulative total
since inception
restated restated restated restated
Net loss in accordance with IAS, restated $ (2,518)$ (2,533)$ (2,558)$ (33,473)
Interest, finders fee and currency translation on convertible debentures (275) (52) - (327)
Beneficial conversion feature on credit facility (543) (240) (470) (2,012)
Share options accounting (123) - - (123)
------------ ------------ ------------ ------------------
Net loss in accordance with US GAAP $ (3,459)$ (2,825)$ (3,028)$ (35,935)
Basic net loss per share under US GAAP $ (0.079)$ (0.071)$ (0.098)$
Diluted net loss per share under US GAAP $ (0.079)$ (0.071)$ (0.098)$
Shareholders' deficiency in accordance with IAS, restated $ (3,600)$ (3,146)$
Convertible debentures (3,633) (1,300)
------------ ------------
Shareholders' deficiency in accordance with US GAAP $ (7,233)$ (4,446)$
Under US GAAP, convertible debentures should not be included within
shareholders' deficiency. Accordingly, interest and the foreign currency
translation adjustment on the principal element, and finders fee would be
charged to income under US GAAP.
The Company's share option plan is treated as a compensatory plan under US GAAP.
For the purpose of this reconciliation, the Company has adopted Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its share options which were
granted to employees and non-employee directors elected by shareholders.
Under APB 25, compensation expense is recognized when exercise prices are below
the fair market value of the underlying shares. The repricing of options on
December 8, 1999 required the Company to follow variable plan accounting, under
which compensation cost is remeasured each period. Due to the rise in market
value, a compensation expense of USD 123, as restated in September 2003, was
recorded for the first time in the financial year ended February 28, 2002.
Under US GAAP, additional disclosures would include, but not necessary be
limited to the following:
24
Consideration received for shares of stock, warrants, rights and other
equity securities
Number Amount
As at February 28, 1987 8,167,825 $ 10,560
Performance shares for patent rights 10,000,000 -
Issue of shares for cash 766,667 838
----------------- --- -------------------
As at February 29, 1988 18,934,492 11,398
Issue of shares for cash 250,000 359
----------------- --- -------------------
As at February 28, 1989 and 1990 19,184,492 11,757
Issue of shares for cash 1,000,000 602
----------------- --- -------------------
As at February 28, 1991 20,184,492 12,359
Issue of shares for cash 600,000 394
Exercise of stock options 23,000 15
Issue of shares for debt 413,171 271
Reduction of paid up capital - (12,169)
----------------- --- -------------------
As at February 29, 1992 21,220,663 870
Exercise of stock options 207,000 140
Exercise of warrants 70,000 56
Performance shares cancelled (10,000,000) -
----------------- --- -------------------
As at February 28, 1993 11,497,663 1,066
Exercise of warrants 530,000 483
Exercise of stock options 11,000 18
Acquisition of Kemgas Corporation Inc. 5,187,495 109
----------------- --- -------------------
As at February 28, 1994 17,226,158 1,676
Exercise of stock options 75,000 82
Exercise of stock options 75,000 -
----------------- --- -------------------
As at February 28, 1995 17,376,158 1,758
Exercise of stock options 200,000 -
Acquisition of 50.1% Kemgas Corporation Inc. 5,187,505 4
----------------- --- -------------------
As at February 29, 1996 22,763,663 1,762
Exercise of Kemgas Corporation Inc. stock options 375,000 -
----------------- --- -------------------
As at February 28, 1997 23,138,663 1,762
Issue of shares on conversion of credit facility 3,800,000 4
----------------- --- -------------------
As at February 28, 1998 26,938,663 1,766
Issue of shares on conversion of credit facility 2,978,723 2
----------------- --- -------------------
As at February 28, 1999 29,917,386 1,768
Issue of shares for cash 2,429,150 2
Conversion of convertible debentures 7,202,643 5
Exercise of Kemgas Corporation Inc. stock options 175,000 -
----------------- --- -------------------
As at February 29, 2000 39,724,179 1,775
Issue of shares on conversion of credit facility 4,000,000 3
----------------- --- -------------------
As at February 28, 2002 and February 28, 2001 43,724,179 $ 1,778
================= === ===================
25
Options Outstanding Option price per share
Cdn.
Balance, February 28, 1990 1,850,000 $ 0.45
Options granted 490,000 0.90
Options cancelled (1,925,000) 0.45 to 0.90
---------------------------- --- --------------------------
Balance, February 28, 1991 415,000 0.90
Options granted 100,000 0.90
Options granted 25,000 1.49
Options granted 20,000 1.50
Options exercised (23,000) 0.90
Options cancelled (40,000) 0.90
---------------------------- --- --------------------------
Balance, February 29, 1992 497,000 0.90 to 1.50
Options exercised (207,000) 0.90 to 1.50
Options cancelled (115,000) 0.90 to 1.50
Options granted 75,000 1.50
---------------------------- --- --------------------------
Balance, February 28, 1993 250,000 0.90 to 1.50
Options granted 131,000 2.25
Options exercised (11,000) 2.25
Options cancelled (100,000) 1.50
---------------------------- --- --------------------------
Balance, February 28, 1994 270,000 0.90 to 2.25
Options granted 200,000 2.28
Options exercised (75,000) 1.50
Options exercised (75,000) 0.90
---------------------------- --- --------------------------
Balance, February 28, 1995 320,000 2.25 to 2.28
Options exercised (200,000) 2.28
---------------------------- --- --------------------------
Balance, February 29, 1996 120,000 2.25
Options lapsed (10,000) 2.25
Options granted 750,000 2.45
Options granted 425,000 US$ 2.50
---------------------------- --- --------------------------
Balance, February 28, 1997 1,285,000 2.25 to 2.45 & 2.50
Options lapsed (1,175,000) 2.45 & 2.50
Options granted 1,925,000 1.50
---------------------------- --- --------------------------
Balance, February 28, 1998 2,035,000 1.50 to 2,25
Options lapsed (600,000) 1.50 to 2.25
Options granted 750,000 0.80 to 1.50
---------------------------- --- --------------------------
Balance, February 28, 1999 2,185,000 0.80 to 1.50
Options lapsed (1,175,000) 0.29 to 1.50
Options granted 500,000 0.30
---------------------------- --- --------------------------
Balance, February 29, 2000 1,510,000 0.29 to 0.30
Options lapsed (350,000) 0.29
---------------------------- --- --------------------------
Balance, February 28, 2002 and February 28, 2001 1,160,000 0.29 to 0.30
============================ === ==========================
The Company has elected to adopt the disclosure provisions of Statement of
Financial Accounting Standards No 123, "Accounting for Stock-Based
Compensation", and continues to follow Accounting Principles Board Opinion No 25
and related interpretation in accounting for its employee stock options.
26
Had compensation cost for the plan been determined based on the fair value of
the options using the minimum value method at the grant date for awards in the
three year period ended February 28, 2002 consistent with the provisions of SFAS
No 123, the Company's net loss and loss per share would have been as follows:
2002 2001 2000
Net loss per US GAAP:
- - As reported $ (3,459)$ (2,825)$ (3,028)
- - Pro forma $ (3,336)$ (2,825)$ (3,109)
Net loss per share per US GAAP - Proforma:
Basic net loss per share under US GAAP $ (0.076)$ (0.071)$ (0.101)
Diluted net loss per share under US GAAP $ (0.076)$ (0.071)$ (0.101)
The fair value of each option grant is estimated on the date of grant using the
Black & Scholes option pricing model, with the following assumptions for grants
made: dividend yields of 0% for all periods; annual risk-free interest rate of
4.5%; expected volatility of 60%. All grants were made during the financial year
2000.
Development Stage Entity
The Company is still in the development stage and under US GAAP falls under the
provisions of FAS No. 7 "Accounting and reporting by development stage
enterprises".
The cumulative amounts are stated in accordance with International Accounting
Standards.
27
Statement of income
- -------------------
Notes Cumulative
totals since
inception
restated
Revenues $ 2,728
Cost of revenues (1,996)
---------------------
Gross margin 732
Research and development expenses $ 8,637
General and administrative expenses 12,530
Settlement of legal dispute 12 400
Write-down of goodwill 4 10,649
Other expenses 184
---------------------
Operating loss (31,668)
Interest expense, net (3,122)
---------------------
Loss before income taxes and minority interest (34,790)
Provision for income taxes 12 (374)
---------------------
Loss from ordinary activities (35,164)
Minority interest 10 51
---------------------
Net loss $ (35,113)
=====================
28
Statement of cash flows
Cumulative
totals since totals since
inception
restated
Cash flows from operating activities
Loss before income taxes and minority interest $ (34,768)
Non cash items
Depreciation and amortization 4,742
Write-down of property, plant and equipment 2,033
Write-down of inventory 459
Write-down of goodwill 10,649
Interest expense 3,122
Equity in earnings of affiliates 86
------------------
Operating loss before working capital changes (13,677)
Changes in working capital :
Decrease /(increase) in accounts receivable, prepaid expenses and other current assets 173
Increase/(decrease) in accounts payable and accrued expenses, and provisions used 632
------------------
Cash used in operations (12,872)
Interest paid to financial institutions (427)
Income taxes paid (49)
------------------
Net cash used in operating activities (13,348)
Cash flows from investing activities
Acquisition of property, plant and equipment (728)
Purchase of KCI net of cash acquired 537
------------------
Net cash used in investing activities (191)
Cash flows from financing activities
Payment of bank loans (670)
Proceeds from issuance of common stock 5,912
Proceeds from issuance of convertible debentures 2,941
Proceeds from credit facility 7,950
Payment of credit facility (2,967)
Finders fee (285)
Increase in bank overdraft 437
Non-controlling investment in Odda 51
Interest paid on convertible debentures (210)
------------------
Net cash provided by financing activities 13,159
Effect of exchange rate changes on cash 391
------------------
Net increase / (decrease) in cash and cash equivalents 11
Cash and cash equivalents, at inception -
------------------
Cash and cash equivalents, end of year $ 11
==================
29
New accounting pronouncements under US GAAP
Commencing March 1, 2001, new standards have been effective for the Company
under both IAS and US GAAP with respect to accounting policies of financial
instruments: IAS 39 "Accounting for Financial Instruments " and SFAS No. 133
(SFAS 133) "Accounting for Derivative Instruments and Hedging Activities", as
amended by SFAS No. 137 and SFAS No. 138.
Adoption of these new standards did not have any effect on net loss and
shareholders' deficiency under International Accounting Standards and US GAAP at
March 1, 2001.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141, "Business Combinations", and Statement No. 142, "Goodwill and
other Intangible Assets".
The adoption of SFAS 141 and SFAS 142 will have no effect on net loss and
shareholders' deficiency under US GAAP at March 1, 2002.
30
There is no reconciling difference between net loss and shareholders' deficiency
in accordance with IAS and Canadian GAAP for the years ended February 28, 2002
and February 28, 2001.
Under Canadian GAAP, additional disclosures would be required as follows:
Analysis of research and development costs and general and administrative
expenditure
2002 2001 2000
Research and development
Amortization patents 4 1,193 597
Consultancy - - 12
Pilot plant 690 409 296
Technical salaries - - 390
Travel - - 49
Patents - 16 27
Legal fees 2 - -
----------- ----------- ------------
$ 696 $ 1,618 $ 1,371
=========== =========== ============
General and administrative
Audit 63 33 20
Legal 197 53 92
Filing and annual charges 23 52 33
Board expenses 3 3 73
Insurance 22 19 7
Office 11 34 24
Rent and rates 39 26 35
Leasing 18 - -
Salaries and benefits 175 126 257
Shareholder communication 53 58 9
Telephone 17 12 16
Travel 64 56 50
Bank charges 9 2 6
Consulting 175 - -
Depreciation 15 12 11
General expenses 55 57 298
----------- ----------- ------------
$ 939 $ 543 $ 931
=========== =========== ============
16. List of principal consolidated companies
Principal consolidated companies are as follows:
Name of company Countries Holding Proportion Nature of business
- --------------- --------- ------- ----------- ------------------
held
----
Kemgas North America Inc. USA Ordinary shares 100% Marketing (dormant)
CalciTech Group Services SARL France Ordinary shares 100% Administration
CalciTech Holdings ApS Denmark Ordinary shares 100% Holding company
CalciTech Odda A-S Norway Ordinary shares 51% Production of PCC
CalciTech Deutschland GmbH Germany Ordinary shares 100% Production of PCC
31
17. NUMBER OF EMPLOYEES (UNAUDITED)
Headcount was 9, 7 and 6 as of February 28, 2002 and 2001 and February 29, 2000,
respectively.
32