UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934.
OR
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2002.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
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Commission file number: 0-29208
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IGN INTERNET GLOBAL NETWORK INC.
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(Exact name of registrant as specified in its charter)
Province of British Columbia
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(Jurisdiction of incorporation or organization)
Suite 1304, 925 West Georgia Street, Vancouver, British Columbia,Canada,V6C 3L2
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common shares without par value
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
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(Title of Class)
Number of outstanding shares of each of the Company's classes of capital or
common stock as of the period covered by the annual report. As of June 30,2002,
there were 8,188,780 common shares issued and outstanding.
EXHIBIT INDEX APPEARS AT
SEQUENTIALLY NUMBERED PAGE 46
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Not Applicable
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Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 V Item 18
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TABLE OF CONTENTS
GLOSSARY OF TERMS .....................................................4
NOTE REGARDING FORWARD-LOOKING STATEMENTS.................................5
PART I....................................................................6
ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.................6
ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE...............................6
ITEM 3.KEY INFORMATION.......................................................6
The Operations.........................................................6
Acquisitions and Dispositions..........................................7
A. Selected Financial Data...........................................7
Exchange Rates......................................................8
Dividend Policy.....................................................9
B. Capitalization and Indebtedness...................................9
C. Reasons for the Offer and Use of Proceeds.........................9
D. Risk Factors......................................................9
Lack of Revenues....................................................9
Cash Flow Deficiency and Lack of Financing..........................9
Shares Reserved for Future Issuance; Dilution.......................9
Shares of the Company are Considered Penny Stocks
and are Subject to the Penny Stock Rules.........................10
Foreign Incorporation..............................................10
Passive Foreign Investment Corporation.............................10
ITEM 4.INFORMATION ON THE COMPANY...........................................11
A. Development of the Company......................................11
Name and Incorporation.............................................11
B. Business Overview...............................................11
C. Organizational Structure........................................12
Acquisitions and Dispositions......................................13
D. Property, Plants and Equipment..................................13
ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS.........................14
A. Operating Results...............................................14
B. Liquidity and Capital Resources.................................16
C. Research and Development, Patents and Licenses, Etc.............17
D. Trend Information...............................................17
ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES...........................17
A. Directors and Senior Management.................................17
B. Compensation....................................................18
Long Term Incentive Plan Awards to Executive Officer...............19
Options & SARs Granted to Executive Officer........................19
Aggregate Options/SARs Exercised During the Most Recently
Completed Fiscal Year and Fiscal Year End Options/SARs Values....19
Termination of Employment, Change in Responsibilities and
Employment Contracts.............................................20
Compensation of Directors..........................................20
Indebtedness of Directors and Senior Officers......................20
Management Contracts...............................................20
OM Management Ltd. Management Agreement............................20
Stock Options......................................................21
C. Board Practices.................................................21
D. Employees.......................................................22
E. Share Ownership.................................................22
ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS....................22
A. Major Shareholders..............................................22
B. Related Party Transactions......................................23
Performance Shares and Escrow Securities...........................23
C. Interests of Experts and Counsel................................23
ITEM 8.FINANCIAL INFORMATION................................................23
A. Statements and Other Financial Information......................23
Legal Proceedings..................................................24
Dividend Policy....................................................24
B. Significant Changes.............................................24
ITEM 9.THE OFFER AND LISTING................................................24
A. Offer and Listing Details.......................................24
B. Plan of Distribution............................................25
C. Markets.........................................................26
D. Selling Shareholders............................................26
E. Dilution........................................................26
F. Expenses of the Issue...........................................26
ITEM 10.ADDITIONAL INFORMATION..............................................26
A. Share Capital...................................................26
B. Memorandum and Articles of Association..........................26
Securities Register................................................26
Powers of Directors................................................27
Election and Removal of Directors...............................27
Powers and Duties of Directors..................................28
Directors.......................................................28
Borrowing.......................................................29
Description of Securities..........................................30
Common Shares...................................................30
C. Material Contracts..............................................30
D. Exchange Controls...............................................30
E. Taxation........................................................33
U.S. Holders.......................................................34
Distribution on Common Shares of the Company.......................34
Foreign Tax Credit.................................................35
Disposition of Common Shares of the Company........................36
Other Considerations...............................................36
Canadian Federal Income Tax Consequences...........................40
Dividends.......................................................40
Disposition of Common Shares....................................40
F. Dividends and Paying Agents.....................................41
G. Statements by Experts...........................................41
H. Documents on Display............................................41
I. Subsidiary Information..........................................42
ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........42
ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES..............42
PART II..................................................................42
ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.....................42
ITEM 14.MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS.................................................42
ITEM 15.RESERVED............................................................42
ITEM 16.RESERVED............................................................42
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PART III.................................................................42
ITEM 17.FINANCIAL STATEMENTS................................................42
ITEM 18.FINANCIAL STATEMENTS................................................42
ITEM 19.FINANCIAL STATEMENTS AND EXHIBITS...................................42
GLOSSARY OF TERMS
Browser Software, such as Netscape and Internet Explorer that
enables the user to view and experience web pages.
CD ROM Abbreviation of Compact Disc-Read-Only Memory, an optical
disk capable of storing large amounts of electronic data.
Electronic The transmission of messages over communications networks.
mail (e-mail) The messages can be notes entered from a user's keyboard
or attached electronic files.
Electronic Cash Monetary value in an electronic form used to perform
financial transactions specifically on the Internet and
other electronic formats.
Internet A global network connection of computers allowing users to
transfer and share files, data, information and financial
transactions.
Internet Commerce A service provided over the internet with the intention
Service of developing profitable operations.
Internet Commerce An organization that provides users with the ability to
Service Provider transact commerce over the Internet.
Internet Service An organization that provides users with access to the
Provider Internet.
Web site A registered location on the World Wide Web owned and
managed by an individual, company or organization.
World Wide Web A portion of the Internet that enables Web site owners to
display or promote products, services, activities or
information.
Words importing the singular number only include the plural and vice versa, and
words importing any gender include all genders.
4
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for statements of historical fact, certain information contained in this
Annual Report constitutes "forward-looking statements." Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause our actual results or achievements to be materially different
from any future results or achievements expressed or implied by such forward-
looking statements. Any statements that express or involve discussions with
respect to predictions, expectations, beliefs, plans, projections, objectives,
assumptions or future events or performance (often, but not always, using words
or phrases such as "expects" or "does not expect", "is expected", "anticipates"
or "does not anticipate", "plans", "estimates" or "intends", or stating that
certain actions, events or results "may", "could", "would", "might" or "will"
be taken, occur or be achieved) are not statements of historical fact and may
be "forward-looking statements." Such statements are included, among other
places, in this document under the headings "Key Information", "Information on
the Company" and "Operating and Financial Review and Prospects."
Forward-looking statements are based on expectations, estimates and projections
at the time the statements are made that involve a number of risks and
uncertainties which could cause actual results or events to differ materially
from those presently anticipated
Certain forward-looking statements are identified by a cross-reference to this
Note. Additional information concerning these and other factors which could
affect the operation or financial results of IGN Internet Global Network Inc.
are included in this document under the heading "Key Information - Risk
Factors".
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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
IGN Internet Global Network Inc. (the "Parent Company") was incorporated by
registration of its memorandum and articles under the laws of the Province of
British Columbia on September 15, 1987, under the name "Grand Resources Inc."
(Please see Item 4)
The Parent Company has nine subsidiaries and is a discretionary beneficiary of
a trust. The Parent Company, through its wholly owned subsidiary, IGN (BVI)
Inc. ("IGN-BVI"), owns 10% (100 Class A voting common shares) of Internet
Global Network (Barbados) Inc. ("IGN-Barbados") and is a beneficiary of the
Trust which owns the remaining 90% (900 Class B non-voting common shares) of
IGN-Barbados. As well, IGN-BVI owns 100% of the issued and outstanding non-
cumulative, non-voting redeemable preference shares of IGN-Barbados.
IGN-Barbados, together with Axion (Barbados) Inc. ("Axion-Barbados") and
another shareholder own a private company, Winventure Limited ("Winventure").
Axion-Barbados was a wholly owned subsidiary of the public company, Axion
Communications Inc. ("Axion") until January 2000 when its shares were sold
to an unrelated party. WinStreak Limited ("WinStreak"), a wholly owned
subsidiary of Winventure, operates gaming activities.
The Parent Company has also incorporated INTERFI Corporation in Barbados,
INTERFI Internet Financial Services Inc. in the British Virgin Islands,
INTERFI Financial Services Inc. in Nevada, USA and INTERFI Corporation in St.
Kitts (collectively known as 'INTERFI'). INTERFI Financial Services Inc. is
wholly owned by the Parent Company and the remainder of the INTERFI companies
are wholly owned subsidiaries of IGN-Barbados. INTERFI processes all financial
transactions which are incurred on the Internet for the corporate entity as
well as for independent third parties.
The Parent Company has also incorporated Winstreak Services Limited in British
Columbia, Canada.
The Parent Company and all of its subsidiaries shall be collectively referred
to as the "Parent Company".
The Operations
On April 1, 2001, the Parent Company had ceased operations as there is too much
competition in the internet casinos market. The Parent Company is presently
exploring other sources of action, including the divestiture of the casino
software and other related components of the Parent Company.
Effective June 21, 2002, the Parent Company had been designated by the TSX
Venture Exchange (the "Exchange"), in accordance with Policy 2.6. A listed
company trading under the Inactive designation does not meet the Tier
Maintenance Requirements ("TMR") of the Exchange as outlined in the
Exchange's Policy 2.5.
6
Sections 4 and 5 of Policy 2.6 outline the requirements, procedures and
deadlines for an Inactive company to meet TMR. A comprehensive plan for
reactivation must be filed with the Corporate Maintenance Department of the
Exchange by the Parent Company within 12 months of being designated Inactive
and the Parent Company is required to demonstrate that it will meet the TMR
within 18 months of being designated Inactive.
Acquisitions and Dispositions
During the year ended June 30, 2002, the Parent Company did not acquire,
through Internet Global Network (Barbados) Inc., any additional ownership
interest in Winventure (2001 - 0.21%). The Parent Company owns approximately
86% of the outstanding common shares of Winventure as at June 30, 2002.
A. Selected Financial Data
This data has been derived from our audited financial statements, which have
been prepared in accordance with accounting principles generally accepted in
Canada ("Canadian GAAP") and reconciled for material measurement differences
to accounting principles generally accepted in the United States ("U.S. GAAP")
Set forth in the following table are selected financial data with respect to
the Parent Company's financial condition and results of operation for the years
ended June 30, 2002, 2001, 2000, 1999, and 1998. The selected financial and
operating information as at June 30, 2002 and 2001 and for each of the years in
the three year period ended June 30, 2002 should be read in conjunction with
the financial statements and notes thereto included elsewhere herein and in
conjunction with Item 5: Operating and Financial Review and Prospects. The
selected financial data as at and for these periods have been extracted from,
and are qualified by reference to the financial statements included herein at
Item 17. The selected financial data as at June 30, 2000, 1999, and 1998 and
for each of the periods in the two-year period ended June 30, 1999 have been
extracted from audited financial statements not included herein.
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Fiscal Years ended June 30,
2002 2001 2000 1999 1998
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Interest and Other Revenue
Canadian GAAP $ 804 $ 16,552 $ 20,610 $ 27,928 $ 73,864
U.S. GAAP $ 804 $ 16,552 $ 20,610 $ 53,574 $ 73,864
Total Assets
Canadian GAAP $ 15,541 $ 69,456 $ 1,079,011 $ 1,856,253 $ 3,703,802
U.S. GAAP $ 15,541 $ 69,456 $ 1,079,011 $ 1,856,253 $ 3,703,802
Loss
Canadian GAAP $ 143,736 $ 999,758 $ 1,246,503 $ 3,390,305 $ 5,269,673
U.S. GAAP $ 143,736 $ 999,758 $ 1,255,548 $ 3,400,289 $ 5,269,673
Shareholders' Equity
Canadian GAAP $ 299,706 $ 155,970 $ 843,788 $ 1,455,291 $ 2,852,919
U.S. GAAP $ 299,706 $ 155,970 $ 843,788 $ 1,455,291 $ 2,852,919
Share capital
Canadian GAAP $13,503,911 $13,503,911 $13,503,911 $12,343,911 $10,876,234
U.S. GAAP $13,503,911 $13,503,911 $13,522,940 $12,353,895 $10,876,234
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Weighted average number
of shares outstanding 8,188,780 8,188,780 7,202,303 6,210,081 5,798,839
Loss Per Share(1)
Canadian GAAP $ 0.02 $ 0.10 $ 0.13 $ 0.41 $ 0.67
U.S. GAAP $ 0.02 $ 0.12 $ 0.17 $ 0.55 $ 0.91
Cash provided by (used in)
Operating activities
Canadian GAAP $ (8,437) $ (537,872) $ (733,235) $(1,681,925) $(4,785,864)
U.S. GAAP $ (8,437) $ (537,872) $ (733,235) $(1,681,925) $(4,785,864)
Investing activities
Canadian GAAP $ - $ (4,135) $ 54,930 $ (85,379) $(1,634,454)
U.S. GAAP $ - $ (4,135) $ 54,930 $ (85,379) $(1,634,454)
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(1) Basic loss per share - Fully diluted loss per share has not been calculated
due to its anti-dilutive effect.
Exchange Rates
Unless otherwise indicated, all monetary references herein are denominated in
Canadian Dollars. References to "$" or "Dollars" are to Canadian Dollars and
references to "US$" or "U.S. Dollars" are to United States Dollars.
The following table sets out the exchange rates, based on the noon buying rates
in New York City for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York, for the conversion
of Canadian dollars into United States dollars in effect at the end of the
following periods, and the average exchange rates (based on the average of
the exchange rates on the last day of each month in such periods) and the
range of high and low exchange rates for such periods.
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Year Ended June 30,
2002 2001 2000 1999 1998
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Average for Period .6376 .6579 .6612 .6787 .7028
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Month Ended
December November October September August July
2002 2002 2002 2002 2002 2002
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High for Period .6461 .6440 .6407 .6433 .6442 .6603
Low for Period .6386 .6288 .6272 .6304 .6264 .6297
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As of June 30, 2002, the noon rate of exchange, as reported by the Federal
Reserve Bank of New York for the conversion of United States dollars into
Canadian dollars was US$0.6583 (US$1.00 = CDN$1.5190).
As of December 31, 2002, the noon rate of exchange, as reported by the
Federal Reserve Bank of New York for the conversion of United States dollars
into Canadian dollars was US$0.6376 (US$1.00 = CDN$1.5683).
8
Dividend Policy
No dividends have been paid on any class of shares of the Parent Company since
the date of its incorporation and it is not contemplated that any dividends
will be paid in the immediate or foreseeable future.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
In addition to other information and other risk factors set forth elsewhere in
this Annual Report, the following risk factors should be carefully considered
in evaluating our business because such factors currently may have a
significant impact on our business, operating results and financial condition.
Lack of Revenues
The Parent Company is currently unable to meet its operating cash requirements.
The Parent Company expects to continue to incur losses as it continues to
explore other resources of action, including divestiture of the casino and/or
other components of the Parent Company.
Cash Flow Deficiency and Lack of Financing
The only sources of funds presently available to the Parent Company are the
exercise of outstanding stock options by holders of such options, or the sale
of equity capital of the Parent Company, in whole or in part. There can be no
assurance that the Parent Company will be successful in raising additional
funds to fund its operations or that additional financing, if any, can be
obtained on terms acceptable to the Parent Company. This could have a material
adverse impact on the Parent Company's business.
Shares Reserved for Future Issuance; Dilution
As of June 30, 2002, the Parent Company has reserved 1,023,000 common shares
for issuance on the exercise of 1,023,000 incentive stock options. If such
options are fully exercised, such common shares would constitute 12% of the
Parent Company's then share capital. The issuance of new common shares will
result in dilution to the Parent Company's existing shareholders. The exercise
of such options and the subsequent resale of such common shares in the public
market could adversely affect the prevailing market price and the Parent
Company's ability to raise equity capital in the future at a time and price
which it deems appropriate. The Parent Company may also enter into commitments
in the future which would require the issuance of additional common shares and
the Parent Company may grant additional share purchase warrants and stock
options. See "Options to Purchase Securities From Parent Company."
9
Shares of the Company are Considered Penny Stocks and are Subject to
the Penny Stock Rules
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934
(the "Exchange Act") impose sales practice and disclosure requirements on
certain brokers-dealers who engage in certain transactions involving "a penny
stock." Subject to certain exceptions, a penny stock generally includes any
non-NASDAQ equity security that has a market price of less than $5.00 per share.
The Parent Company's shares are expected to be deemed penny stock for the
purposes of the Exchange Act. The additional sales practice and disclosure
requirements imposed upon brokers-dealers may discourage broker-dealers from
effecting transactions in the Parent Company's shares, which could severely
limit the market liquidity of the shares and impede the sale of the shares in
the secondary market.
Under the penny stock regulations, a broker-dealer selling penny stock to
anyone other than an established customer or "accredited investor" (generally,
an individual with net worth in excess of $1,000,000 or an annual income
exceeding $200,000, or $300,000 together with his or her spouse) must make a
special suitability determination for the purchaser and must receive the
purchaser's written consent to the transaction prior to sale, unless the
broker-dealer or the transaction is otherwise exempt. In addition, the penny
stock regulations require the broker-dealer to deliver, prior to any
transaction involving a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, unless the broker-dealer or
the transaction is otherwise exempt. A broker-dealer is also required to
disclose commissions payable to the broker-dealer and the registered
representative and current quotations for the securities. Finally, a broker-
dealer is required to send monthly statements disclosing recent price
information with respect to the penny stock held in a customer's account and
information with respect to the limited market in penny stocks.
Foreign Incorporation
The Parent Company is incorporated under the laws of British Columbia, Canada
and all of the Company's Directors and Officers are residents of Canada.
Consequently, it may be difficult for United States investors to effect
service of process within the United States upon the Company or upon those
directors or officers who are not residents of the United States, or to
realize in the United States upon judgments of United States courts predicated
upon civil liabilities under the United States Securities Exchange Act of 1934,
as amended. A judgment of a U.S. court predicated solely upon such civil
liabilities may be enforceable in Canada by a Canadian court if the U.S. court
in which the judgment was obtained had jurisdiction, as determined by the
Canadian court, in the matter. There is substantial doubt whether an original
action could be brought successfully in Canada against any of such persons or
the Parent Company predicated solely upon such civil liabilities.
Passive Foreign Investment Corporation
Certain United States income tax legislation contains rules governing "passive
foreign investment companies" ("PFIC") which can have significant tax effects
on U.S. Holders of foreign companies. These rules do not apply to non-U.S.
Holders. In the U.S., a PFIC is defined as a company that is not formed in the
United States and, for any taxable year, either (i) 75% or more of its gross
income is "passive income", which includes interest, dividends and certain
rents and royalties or (ii) the average percentage, by fair market value (or,
if the Parent Company is a controlled foreign company or makes an election,
adjusted tax basis) of its assets that produce or are held for the production
of "passive income" is 50% or more. The Parent Company believes that it
qualified as a PFIC for the fiscal year ended December 31, 1998 and may qualify
as a PFIC in subsequent years. There can be no assurance that the Parent
Company's determination concerning its PFIC status will not be challenged or
that it will be able to satisfy record keeping requirements which will be
imposed on it. This could adversely impact a U.S. Holder's tax situation.
Each U.S. Holder of the Company is urged to consult a tax advisor with
respect to
10
how the PFIC rules affect their tax situation. For further tax
information, see "Item 7 - Taxation - Passive Foreign Investment Company".
ITEM 4. INFORMATION ON THE COMPANY
A. Development of the Company
Name and Incorporation
IGN Internet Global Network Inc. (the "Parent Company") was incorporated
by registration of its memorandum and articles under the laws of the Province
of British Columbia on September 15, 1987, under the name "Grand Resources
Inc." The Parent Company changed its name from "Grand Resources Inc." to "Bay
Street Ventures Inc." effective November 18, 1987. The Parent Company changed
its name from "Bay Street Ventures Inc." to "Cenco Petroleum Ltd." effective
September 20, 1991. The Parent Company changed its name from "Cenco Petroleum
Ltd." to "IGC Internet Gaming Corporation" and subdivided its share capital on
a 1:1.5 basis effective August 7, 1996. The Parent Company changed its name
from "IGC Internet Gaming Corporation" to "IGN Internet Global Network Inc."
effective November 21, 1996.
The Parent Company's common shares have been listed on the Vancouver Stock
Exchange (now the TSX Venture Exchange, also formerly Canadian Venture
Exchange) since September 28, 1993 having a trading symbol "IGN". As of
November 19, 1997, the Parent Company's common shares received clearance for
an unpriced quotation on the OTC Bulletin Board by the NASD Regulation, Inc.
in the United States under the trading symbol "IGN-IF". Effective January 30,
1998, the Parent Company's common shares commenced trading on the Berlin Stock
Exchange having a trading symbol "IGN GR". See "Item 9 - The Offering and
Listing".
The Parent Company's head and principal office is located at Suite 1304-925
West Georgia Street, Vancouver, B.C., Canada V6C 3L2. The Parent Company's
registered and records office and address is care of its solicitors, Catalyst
Corporate Finance Lawyers, Suite 1100-1055 West Hastings Street, Vancouver,
B.C., V6E 2E9.
B. Business Overview
Prior to March 27, 1996, the Parent Company was in the business of oil and gas
exploration and development. Since this date, the Parent Company has disposed
of or abandoned all of its resource properties and is no longer subject to
any agreements relating to the exploration or development of such properties.
>From March 27, 1996 to April 2001, the Parent Company, through its
subsidiaries, had focused its efforts on the development of Internet Commerce
Services, including information access, entertainment, gaming and financial
services. Initially, the Parent Company developed an Internet gaming operation
which incorporated an Internet casino, sports book and sports pool. The sports
book and sports pool have since been shut down. The Parent Company then
completed the development of its financial transaction processing operations
and developed an Internet broadcasting service. The Parent Company is now
looking at other courses of action, including divestiture of the casino and/or
other components of the Parent Company.
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C. Organizational Structure
The Parent Company has nine subsidiaries and is a discretionary beneficiary
of a trust. The particulars regarding the Parent Company's subsidiaries and
the trust are as follows:
Date of Jurisdiction of
Percentage Incorporation or Incorporation or
Name of Subsidiary or Trust Ownership (4) Settlement Settlement
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Internet Global Network (Barbados) Inc. 100%(3) January 31, 1997 Barbados
INTERFI Corporation 100%(3) November 18, 1996 Barbados
INTERFI Financial Services Inc. 100% December 6, 1996 Nevada
Winventure Limited 86.12%(1) (3) February 18, 1997 British Virgin Islands
WinStreak Limited 86.12%(1) (3)(5) March 13, 1997 St. Kitts
INTERFI Corporation 100%(3) October 9, 1997 St. Kitts
The InterActive Technology Trust N/A(2) December 1, 1997 Bermuda
(the "Trust")
IGN (BVI) Inc. 100% July 8, 1997 British Virgin Islands
INTERFI Internet Financial Services Inc. 100%(3) May 8, 1997 British Virgin Islands
Winstreak Services Limited 100% October 6, 1998 Canada
(1) Ownership based on contributions and subject to change. See
"Item 1 - Description of Business - Winventure".
(2) The Trust's beneficiaries are the Parent Company, IGN (BVI) Inc. and the
International Committee of the Red Cross. See "Item 1 - Description of
Business - The InterActive Technology Trust".
(3) The Parent Company controls each of these entities, indirectly, through
its wholly owned subsidiary IGN (BVI) Inc. See "Item 1 - Description of
Business - The InterActive Technology Trust".
(4) Represents the percentage of voting securities held. The InterActive
Technology Trust also owns 100% of the Class B non-voting common shares of
Internet Global Network (Barbados) Inc. IGN (BVI) Inc. also owns 100% of
the issued and outstanding non-voting redeemable preference shares of
Internet Global Network (Barbados) Inc.
(5) Effective May 2002, Winstreak Limited had been dissolved.
The Parent Company, through its wholly owned subsidiary, IGN (BVI) Inc.
("IGN-BVI"), owns 10% (100 Class A voting common shares) of Internet Global
Network (Barbados) Inc. ("IGN-Barbados") and is a beneficiary of the Trust
which owns the remaining 90% (900 Class B non-voting common shares) of
IGN-Barbados. As well, IGN-BVI owns 100% of the issued and outstanding
non-cumulative, non-voting redeemable preference shares of IGN-Barbados.
IGN-Barbados, together with Axion (Barbados) Inc. ("Axion-Barbados") and
another shareholder own a private company, Winventure Limited ("Winventure").
Axion-Barbados was a wholly owned subsidiary of the public company, Axion
Communications Inc. ("Axion") until January 2000 when its shares were sold
to an unrelated party. WinStreak Limited ("WinStreak"), a wholly owned
subsidiary of Winventure, operates gaming activities.
The Parent Company has also incorporated INTERFI Corporation in Barbados,
INTERFI Internet Financial Services Inc. in the British Virgin Islands,
INTERFI Financial Services Inc. in Nevada, USA and INTERFI Corporation in
St. Kitts (collectively known as 'INTERFI'). INTERFI Financial Services
Inc. is wholly owned by the Parent Company and the remainder of the INTERFI
companies are wholly owned subsidiaries of IGN-Barbados. INTERFI processes
all financial transactions which are incurred on the Internet for the
corporate entity as well as for independent third parties.
The Parent Company has also incorporated Winstreak Services Limited in British
Columbia, Canada.
The Parent Company and all of its subsidiaries shall be collectively referred
to as the "Company".
12
The InterActive Technology Trust
The Trustee for the Trust is Harrington Trust Limited. The Trustee has sole
discretion to use funds held by the Trust to invest in securities, discharge
debts, distribute to its beneficiaries (being the Parent Company, IGN-BVI and
the International Committee of the Red Cross) and effect any other transactions
that the Trustee deems necessary for the benefit of the Trust. Distributions to
the beneficiaries are at the discretion of the Trustee provided that
distributions to the International Committee of the Red Cross are limited to
a maximum of US$100,000 in any calendar year.
All of the Trustee's activities and Trust transactions are subject to review by
the Protector who, at its sole discretion, may request the resignation of the
Trustee and appoint a new Trustee. Both the Trustee and the Protector are
independent third parties to the Company, Axion and Thunderbird.
The Trust owns all (900) issued and outstanding Class B non-voting common
shares of IGN-Barbados. IGN-BVI owns all (100) issued and outstanding Class
A voting common shares of IGN-Barbados.
Winventure
IGN-Barbados, Axion-Barbados, and another shareholder of Winventure and
Winventure entered into a written agreement (the "Winventure Agreement")
dated July 31, 1997, wherein the parties agreed to contribute funds and
technical expertise into Winventure. Winventure's wholly owned subsidiary,
WinStreak, operates gaming activities primarily on the Internet.
Pursuant to the Winventure Agreement, the parties acknowledge that each of
the three shareholders will own a percentage of Winventure, based on their
respective monetary contributions. IGN-Barbados must approve any sale,
transfer, mortgage, pledge or encumbrance of Winventure's shares, and has a
right of first refusal on the sale of any of Winventure's ownership by the
other shareholders. If further financing of Winventure is needed, the three
shareholders of Winventure will be presented with investment offers by
Winventure. IGN-Barbados has the option of accepting any investment offers
rejected by Axion-Barbados or the other shareholder of Winventure. As at
June 30, 2002, IGN-Barbados owned approximately 86.12% of Winventure, with
Axion-Barbados 7.33% and the other shareholder 6.50%.
Acquisitions and Dispositions
During the year ended June 30, 2002, the Parent Company did not acquire,
through Internet Global Network (Barbados) Inc., any additional ownership
interest in Winventure. The Parent Company owns approximately 86.12% of the
outstanding common shares of Winventure as at June 30, 2002.
During the fiscal year ended June 30, 2001 the Parent Company, through
IGN-Barbados, acquired an additional 0.21% ownership in Winventure and its
wholly owned subsidiary, WinStreak. This resulted from successive cash
investments totalling $28,388 during the 2001 fiscal year in the common
shares of Winventure by the Parent Company. As at June 30, 2001, the Parent
Company held 86.12% of the beneficial ownership in Winventure and its wholly
owned subsidiary, WinStreak.
D. Property, Plants and Equipment
The Parent Company currently shares approximately 6,700 square feet of office
space at Suite 1304, 925 West Georgia Street, Vancouver, B.C., Canada with a
number of other companies under a lease which expires November 30, 2004. The
shared property provides office space to the Parent Company for administrative
and shareholder promotion purposes.
13
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of the financial condition, changes in financial
condition and results of operations of the Parent Company as at June 30, 2002
and 2001 and for its last three fiscal years ending June 30, 2000, 1999, 1998,
should be read in conjunction with the financial statements of the Company
and related notes included herein. Unless expressly stated otherwise, all
references to dollar amounts in this section are to Canadian dollars.
A reconciliation of the financial statements to U.S. GAAP is set forth in
Note 10 of the audited June 30, 2002 financial statements included herein at
Part IV - Item 17. Refer to Note 10 for an itemized discussion and analysis
of the material measurement differences between Canadian GAAP and U.S. GAAP.
A. Operating Results
A comparison of the results of operations for the fiscal years ended June 30,
2002, 2001 and 2000 are as follows:
Year Ended June 30, 2002
For the year ended June 30, 2002, the Company incurred a loss of $143,736 or
$0.02 per share compared to a loss of $999,758 or $0.10 per share in the
previous year. Total revenues for the year ended June 30, 2002 were $6,538
compared to $47,042 in 2001, all of which was derived from interest income.
General and administrative expenses in fiscal 2002 were $110,724 as compared
to $1,078,099 in fiscal 2001. The decrease in expenses resulted from the
Company's shut down of its internet casino operations since April 2001.
As at June 30, 2002, the Company has an outstanding 1,023,000 directors and
employees stock options to purchase a total of 1,023,000 common shares of the
Company at a price of $0.10 per share. 390,000 of the stock options expires
on October 13, 2003. 3,000 expires on March 3, 2004 and 630,000 expires on
January 25, 2007. During the year ended June 30, 2002, the exercise price of
393,000 stock options was amended from $0.19 per common share to $0.10 per
common share.
During the year ended June 30, 2002, the Company's 2,125,000 escrow shares
were cancelled and returned to treasury and the Company's 1,000,000 share
purchase warrants expired on March 9, 2002.
Year Ended June 30, 2001
For the year ended June 30, 2001, the Company incurred a loss of $999,758 or
$0.10 per share compared to a loss of $1,246,503 or $0.13 per share in the
previous year. Total revenues for the year ended June 30, 2001 were $47,042
compared to $59,401 in 2000, all of which was derived from internet gaming
and interest income. General and administrative expenses in fiscal 2001 were
$1,100,926 as compared to $1,389,243 in fiscal 2000. The decrease in general
and administrative fees was primarily due to a decrease in amortization of
capital assets. This decrease was offset by an increase in consulting fees
due to outsourced accounting services and insignificant changes in some
other general and administrative expenses.
During the year-ended June 30, 2000, the Company issued 1,000,000 special
warrants at a price of $0.60 per unit. Each unit was converted, at no
additional consideration, into one common share and non-transferable share
purchase warrant. Each share purchase warrant entitled the holder to purchase
an additional common share at $0.75 per share for a period of two years to
March 9, 2002. The Company
14
issued 98,500 additional special warrants as a finder's fee exercisable, for
no additional consideration, into 98,500 common shares of the Company.
As at June 30, 2001 there are 1,000,000 share purchase warrants outstanding.
Each share purchase warrant entitles the holder to purchase an additional
common share at $0.75 per share for a period of two years expiring March 9,
2002.
As at June 30, 2001, the Company there are 514,000 stock options outstanding.
Each stock option entitles the holder common shares at a price of $0.19 per
share expiring 390,000 shares on October 13, 2003, 54,000 shares on March 3,
2005, and 70,000 shares on January 24, 2002.
As at June 30, 2001, 2,125,000 (2000 and 1999 - 2,125,000) common shares of
the Company were subject to an escrow agreement under which the shares may
not be transferred, assigned or otherwise dealt with without the consent of
the relevant regulatory body having jurisdiction thereon.
Year Ended June 30, 2000
For the year ended June 30, 2000, the Company incurred a loss of $1,246,503
or $0.13 per share compared to a loss of $3,390,305 or $0.41 per share in
the previous year. Total revenues for the year ended June 30, 2000 were $59,401
compared to $248,306 in 1999, all of which was derived from internet gaming
and interest income. Management fees decreased from $80,000 in 1999 to $41,946
in 2000 as a result of the discontinuance of the fees during the
reorganization. Office and administration expenses significantly decreased to
$11,254 in 2000 as compared to $206,984 for the year ended June 30, 1999 as a
result of WinStreak restructuring its operations in St. Kitts, West Indies.
Sales and marketing expenses decreased from $270,551 in 1999 to $48,652 in
2000 due to a decrease in marketing and promotional activities during the
period WinStreak's Internet casino was temporarily closed. Telephone and
internet expenses decreased from $132,748 in 1999 to $52,875 in fiscal 2000
due to sharing telephone and Internet access costs in St. Kitts with
WinStreak's sub-tenants. Wages and benefits decreased from $550,569 in 1999
to $143,243 in 2000, due to staffing reductions. The streamlining of all
operations, along with solidifying the balance sheet through an equity
financing further described below, has and should continue to positively
impact the Company's operational performance into the future. In 1999, the
Company incurred a loss on disposal of assets of $735,701 which was not
repeated in 2000. A write-down of capital assets of $31,187 was incurred
during the year ended June 30, 2000, compared to a write-down of $270,654
in the 1999 year.
The Company's cash balance decreased from $603,506 as at June 30, 1999 to
$560,201 as at June 30, 2000. The decrease of $43,305 resulted primarily
from the additional payments on prepaid expenses for the year.
During the year-ended June 30, 2000, the Company issued 1,000,000 special
warrants at a price of $0.60 per unit. Each unit was converted, at no
additional consideration, into one common share and non-transferable share
purchase warrant. Each share purchase warrant entitled the holder to
purchase an additional common share at $0.75 per share for a period of two
years to March 9, 2002. The Company issued 98,500 additional special warrants
as a finder's fee exercisable, for no additional consideration, into 98,500
common shares of the Company.
As at June 30, 2000 there are 1,000,000 share purchase warrants outstanding.
Each share purchase warrant entitles the holder to purchase an additional
common share at $0.75 per share for a period of two years expiring March 9,
2002.
15
As at June 30, 2000, there were 849,000 stock options outstanding. Each
stock option entitles the holder common shares at a price of $0.62 per
share expiring 400,000 shares on October 13, 2003, 59,000 shares on March 3,
2005, 290,000 shares on June 18, 2001, and 100,000 shares on January 24, 2002.
As at June 30, 2000, 2,125,000 (1999 - 2,125,000) common shares of the Company
were subject to an escrow agreement under which the shares may not be
transferred, assigned or otherwise dealt with without the consent of the
relevant regulatory body having jurisdiction thereon.
B. Liquidity and Capital Resources
The Company reported a negative working capital of $181,931 at June 30, 2002
compared to a negative working capital of $82,189 at June 30, 2001 representing
a decrease of $99,742. As at June 30, 2002, the Company had a net cash on hand
of $9,757 compared to $18,194 in the previous year. Current assets excluding
cash at June 30, 2002 decreased by $3,394 compared to June 30, 2001 which is
attributable to the operations in internet gaming. Current liabilities at June
30, 2002 decreased by $94,690 primarily due to an increase in due to related
parties of $101,377.
The Company utilized $146,752 in cash to fund its operating activities before
net changes in non-cash working capital balances at June 30, 2002 and deducted
non-controlling interest of $3,016. By comparison, the Company utilized
$1,053,884 in cash from its operating activities before net changes in non-cash
working capital balances at June 30, 2001.
Net changes in non-cash working capital balances utilized $91,295 of cash at
June 30, 2002, increasing cash utilized in operating activities to $8,437. By
comparison, net changes in non-cash working capital balances generated $121,101
of cash at June 30, 2001, increasing cash used in operating activities to
$537,872.
The Company's cash position at June 30, 2002, totaled $9,757 compared to
$18,194 for the same period in 2001. The Company has a negative working capital
balance at June 30, 2002 of $181,931. Aside from such cash, the Company has
no material unused sources of liquid assets. The Company does not have any
bank debt and has no restrictions on its cash flow other than ongoing
operating expenses which amounted to $153,290 in fiscal 2002 as compared to
$1,100,926 in fiscal 2001.
The Company's activities have been funded principally through sales of equity
securities and this source of financing is anticipated to continue until the
Company develops a cash flow from operations. See "Note Regarding Forward
Looking Statements." The ability of the Company to continue operations is
dependent on the ability of the Company to continue to obtain financing. The
ability of the Company to access the capital markets is substantially
determined by the success or failure of its proposed business.
The only sources of funds presently available to the Company are through the
exercise of outstanding stock options by holders of such options (see "Item
12 - Options to Purchase Securities from the Company"), or the sale of equity
capital of the Company, in whole or in part. Although the Company has been
successful in raising the necessary funds in the past, there can be no
assurance that, and management cannot predict whether the Company will have
sufficient financing to meet its future capital requirements or that additional
financing will be available on terms acceptable to the Company in the future.
Under U.S. GAAP the use of the term "substantial doubt" would be used in
regards to the ability of the Company to continue as a going concern. See
"Item 3 - Key Information - Risk Factors - Cash Flow Deficiency and Lack of
Financing".
16
C. Research and Development, Patents and Licenses, Etc.
Not applicable.
D. Trend Information
The Company does not know of any other trends, demands, commitments, events
or uncertainties that will result in, or that are reasonably likely to result
in, the Company's liquidity either materially increasing or decreasing at
present or in the foreseeable future.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following is a list of the directors and senior officers of the Company
as at June 30, 2002, their municipalities of residence, their current
positions with the Company and their principal occupations during the past
five years. All of the Directors are residents of Canada.
Name, Age and Municipality Position(s) with the Terms of the Various
of Residence Company Offices Held
- -----------------------------------------------------------------------------------------------------
Praveen K. Varshney (1)(2) President and Director President for the Parent Company
3886 West 38th Avenue since September 1999.
Vancouver, B.C.
V6N 2Y4 Director of the Parent Company from
Canada September 1991 to May 1997.
Principal, Varshney Capital Corp.,
from January 2000 to present; Principal,
Varshney Chowdhry Group of Companies,
August, 1991 to December 1999; Partner,
Varshney Chowdhry & Co., Chartered
Accountants, between May 1993 and
September 1995; Self-employed Chartered
Accountant, Vancouver, B.C., between
August 1991 and April 1993.
- -----------------------------------------------------------------------------------------------------
17
Name, Age and Municipality Position(s) with the Terms of the Various
of Residence Company Offices Held
- -----------------------------------------------------------------------------------------------------
Peeyush K. Varshney (1)(2) Director Director of the Parent Company since
4506 Belmont Avenue May 1997; Treasurer of the Parent
Vancouver, B.C. Company from August 1996
V6R 1C4 to May 1997.
Canada
Principal, Varshney Capital Corp., from
January 2000 to present; Principal,
Varshney Chowdhry Group of
Companies, August, 1991 to December 1999;
Associate, Campney & Murphy, Barristers
and Solicitors, from September 1994 to
July 1996; Articled Student, Farris,
Vaughan, Wills & Murphy, Barristers and
Solicitors from September 1993 to August
1994.
Sieglinde Riedi Kammer (1) Director Director of the Parent Company since
Dorfstrasse 39 September 1996.
8184 Bachenbulach
Zurich, Switzerland Self employed Investment Consultant,
from 1996 to Present; Managing
Director, Eagle Capital & Administration
Ltd., from 1993 to 1996.
Bali Chowdhry Secretary Secretary of the Parent Company since
119 East 47th Avenue April 1996.
Vancouver, B.C.
V5W 2A6 Executive Assistant, Camphor Ventures
Canada Inc. since May 1996; Dental Hygienist,
Lakeview Dental Group from January 95 to
Dec. 95; Camgara Dental Group from
January 92 to December 94.
- -----------------------------------------------------------------------------------------------------
(1) Denotes member of the Company's Audit Committee.
(2) Messrs. Praveen Varshney and Peeyush Varshney are brothers.
Directors were elected at the last Annual General Meeting held on December
24, 2002 and/or appointed to fill any vacancy created on the Board of
Directors, and serve until the next Annual General Meeting of Members, or
until their successors are appointed. Officers are appointed by the Board
of Directors and serve at the pleasure of the board.
B. Compensation
The aggregate amount of compensation paid by the Company during the fiscal
year ended June 30, 2002, to all Directors and Officers, as a group, for
services in all capacities was $69,500. See "Management Contracts" below.
The Company is required under applicable securities legislation in Canada,
to disclose to its shareholders details of compensation paid to its Directors
and Officers. The following information fairly reflects all material
information regarding compensation paid to the Company's Directors and
Officers, which information has been disclosed to the Company's shareholders
in accordance with applicable Canadian law:
18
Executive officers are entitled to participate in incentive stock options
granted by the Company. For additional information with respect to stock
options granted to executive officers, please refer to the heading "Stock
Options" under Item 12 below.
- -------------------------------------------------------------------------------------------------------|-----------------------
| Annual Compensation | Long Term Compensation |
- ------------------------------------------------------------------------------------------------------------|------------------
| | Awards | Payouts |
- ------------------------------------------------------------------------------------------------------------|------------------
| | | | | | Restricted | |
| | | | | Securities | Shares or | | All
Name and | Fiscal | | | Other Annual | Under | Restricted | | Other
Position | Year | | | Compensation (1) | Options | Share | LTIP | Compensation
of Principal | Ending | Salary | Bonus | | Granted | Units | Pay-Outs |
- -------------------------------------------------------------------------------------------------------------------------------
Praveen K. Varshney 2002 Nil Nil $69,500 119,000 Nil Nil Nil
President & Director 2001 Nil Nil $72,000 Nil Nil Nil Nil
2000 Nil Nil $36,000 40,000 Nil Nil Nil
- -------------------------------------------------------------------------------------------------------------------------------
(1) These monies were paid to OM Management Ltd., a private British Columbia
company wholly-owned by Mr. Varshney pursuant to a Management and
Administrative Services Agreement. Refer to "Management Contracts" for
further particulars.
Long Term Incentive Plan Awards to Executive Officer
The Company has no long-term incentive plans in place and therefore there were
no awards made under any long-term incentive plan to the Named Executive
Officers during the Company's financial year ended June 30, 2002.
Options & SARs Granted to Executive Officer
During the year ended June 30, 2002, the Named Executive Officer was granted
119,000 incentive stock options. During this period, no outstanding SARs
were held by the Named Executive Officer.
Aggregate Options/SARs Exercised During the Most Recently Completed
Fiscal Year and Fiscal Year End Options/SARs Values
The following table sets out incentive stock options exercised by the Named
Executive Officer, during the most recently completed fiscal year as well
as the fiscal year end value of stock options held by the Named Executive
Officer. During this period, no outstanding SARs were held by the Named
Executive Officer.
- -----------------------------------------------------------------------------------------------------------
Value of Unexercised
Securities Aggregate Unexercised Options at In-the-Money Options at Fiscal
Acquired on Value Fiscal Year-End Year-End ($) Exercisable /
Name Exercise (#) Realized ($)(1) Exercisable/Unexercisable (#) Unexercisable(2)
- -----------------------------------------------------------------------------------------------------------
Praveen K. Nil Nil 264,000/Nil Nil/Nil
Varshney
- -----------------------------------------------------------------------------------------------------------
(1) Based on the difference between the option exercise price and the closing
market price of the Company's shares, on the date of exercise.
19
(2) In-the-Money Options are those where the market value of the underlying
securities as at the most recent fiscal year end exceeds the option
exercise price. The closing market price of the Company's shares as at
May 31, 2002, the last trade prior to the Company's year-end, June 30,
2002, was $0.05. There were no trades between June 1, 2002 and July 7,
2002. The closing market price of the Company's shares as at July 8,
2002, was $0.04.
Termination of Employment, Change in Responsibilities and Employment
Contracts
Reference is made to "Management Contracts" for compensation received by
Praveen K. Varshney, the Named Executive Officer of the Company.
There are no other compensatory plans or arrangements with respect to the
Named Executive Officer resulting from the resignation, retirement or
other termination of employment or from a change of control of the Company.
Compensation of Directors
Compensation for the Named Executive Officer has already been disclosed
above. Effective January 1, 2000, the Company entered into a Director's
Services Agreement (the "Kammer Agreement") with Sieglinde Riedi Kammer,
a director of the Company, pursuant to which the Company retained Sieglinde
Riedi Kammer to provide director's services to the Company. The duration
of service pursuant to the Kammer Agreement is on a month-to-month basis at
a remuneration of $1,000 per month. Save and except as aforesaid, no cash
compensation was paid to any director of the Company for the director's
services as a director during the fiscal year ended June 30, 2001. The
Kammer Agreement was terminated effective April 1, 2001.
Other than as set out above, the Company has no standard arrangement pursuant
to which directors are compensated by the Company for their services in their
capacity as directors except for the granting from time to time of incentive
stock options in accordance with the policies of the TSX Venture Exchange.
During the most recently completed financial year, the Company did not grant
any incentive stock options to directors.
Indebtedness of Directors and Senior Officers
None of the directors or senior officers of the Company have been indebted to
the Company or its subsidiary during the fiscal year ended June 30, 2002.
Management Contracts
The Company is party to management contracts with the following companies all
of which relate to compensation paid to certain members of management for
their services to the Company.
OM Management Ltd. Management Agreement
---------------------------------------
Effective January 1, 2000, the Company entered into a Management and
Administrative Services Agreement (the "OM Agreement") with OM Management
Ltd. ("OM"), a private British Columbia company wholly-owned by Praveen K.
Varshney, the President, Vice President Finance and a director of the
Company, pursuant to which the Company retained OM to provide management
and administrative services. The OM Agreement has a term of three years
with compensation at the rate of $5,000 per month for management services
and $1,000 per month for administrative services. Effective June 1, 2002,
the OM Agreement was amended to reduce the management fees paid to OM from
$5,000 per month to $2,500 per month.
20
During the fiscal year ended June 30, 2002, the Company paid $57,500 in
management fees and $12,000 in administrative fees to OM pursuant to the
OM Agreement.
Save and except as aforesaid, management functions of the Company are
substantially performed by directors or senior officers of the Company
and not, to any substantial degree, by any other person with whom the
Company has contracted.
Stock Options
As of June 30, 2002, the Company had allotted up to 628,000 common shares
for issuance to four directors and senior officers on exercise of the
stock options. These shares will be issued at a price of $0.10 per share
on exercise of the stock options. The following is a summary of the stock
options held by directors and officers of the Parent Company outstanding
at June 30, 2002:
- -------------------------------------------------------------------------------
Exercise Expiry Date Shares Under
Optionees Price (D/M/Yr) Option
- -------------------------------------------------------------------------------
DIRECTORS AND SENIOR OFFICERS
Bali Chowdhry $0.10 13/10/2003 86,000
Peeyush K. Varshney $0.10 13/10/2003 159,000
$0.10 25/01/2007 119,000
Praveen K. Varshney $0.10 13/10/2003 145,000
$0.10 25/01/2007 119,000
-------
628,000
=======
- -------------------------------------------------------------------------------
Of the 628,000 stock options, 390,000 stock options were granted on October 13,
1998 and 238,000 stock options were granted on January 25, 2002. The Exchange
approved the granting of stock options on October 16, 1998 and January 29, 2002
respectively. As of the date of Exchange approval, the fair value of the shares
underlying the stock options was $1.95 and $0.10, respectively.
C. Board Practices
The Company's board of directors consists of three members, the terms of which
expire at the general meeting of shareholders to be held in each year.
Directors are elected by a majority of the votes of the Company's common shares
present in person or represented by proxy at its annual meeting of
shareholders and entitled to vote at such election. Each director will hold
office until his or her term expires and his or her successor has been elected
and qualified. Executive officers serve at the discretion of the board of
directors. Officers are elected at the annual meeting of the directors held
immediately after the annual general meeting of shareholders.
The Company has granted and intends to continue to grant incentive stock
options to employees, directors, officers and consultants on terms and
conditions established by the Board of Directors at the time of the grant and
in accordance with the Company's stock option plan and prevailing Exchange
21
policy. The Company's directors do not receive any monies for serving in their
capacity as directors and there is currently no arrangement for the payment
of any compensation in the future.
The board of directors has set up an audit committee which consists of Messrs.
Praveen Varshney, Peeyush Varshney and Mrs. Sieglinde Riedi Kammer. The audit
committee engages on behalf of the Company the independent public accountants
to audit the Company's annual financial statements, and reviews and approves
the planned scope of the annual audit.
D. Employees
As at June 30, 2002, the Parent Company has 1 employee performing
administration and accounting duties.
E. Share Ownership
The following list indicates the number of shares held beneficially by
Directors and Officers of the Company as at June 30, 2002 and the corresponding
percentage of the Company's issued capital such shares represent:
- --------------------------------------------------------------------------------
Title of Class Number Owned Percent of Class
- --------------------------------------------------------------------------------
Praveen K. Varshney Common Stock 321,750 3.93%
Peeyush K. Varshney Common Stock 6,975 0.09%
------- -----
328,725 4.02%
======= =====
- --------------------------------------------------------------------------------
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
To the best of the Company's knowledge, the Company is not directly or
indirectly owned or controlled by another Company or by any foreign government.
The following table sets forth the shareholdings of those persons who own of
record or are known to the Company to own beneficially, directly or indirectly,
or exercise control or direction over, more than 5% of the issued and
outstanding common shares of the Company as at the date of this annual report:
22
- ---------------------------------------------------------------------------------------
Identity of Person or Group Type of Ownership Amount Owned Percent of Class
- ---------------------------------------------------------------------------------------
CDS & Co. (NCI) Direct 7,909,872(1) 96.59%
PO Box 1038 Stn A
25 The Esplanade
Toronto, ON M5W 1G5
- ---------------------------------------------------------------------------------------
(1) Beneficial ownership of these shares cannot be determined from publicly
available information. CDS & Co. is a depository trust firm holding shares on
behalf of brokerage firms and other financial institutions.
B. Related Party Transactions
Other than as disclosed in "Item 6. Directors, Senior Management and
Employees - B. Compensation" and the transactions set forth below, there are no
other related party transactions or proposed transactions involving any
insider, proposed nominee for election as director, or associate or affiliate
of an insider, of the Company that have occurred during the three most
recently completed fiscal years of the Company or during the period since the
end of the Company's most recently completed fiscal year. There are no debts
owing directly or indirectly to the Company by any director or officer of the
Company, or by an associate of any director or officer of the Company.
Management of the Company has an interest in the following transactions, all
of which relate to compensation paid to former and present members of
management for their past and present services to the Company.
(1) Praveen K. Varshney is a controlling shareholder of OM Management Ltd..
During fiscal 2002, the Company accrued OM management fees of $57,500
and was reimbursed for administrative services of $12,000. OM is in
the business of providing management services to public companies.
(2) Praveen K. Varshney and Peeyush K. Varshney are directors of Afrasia
Mineral Fields Inc. ("Afrasia"). During fiscal 2002, the Company accrued
Afrasia rent of $21,506. Afrasia is an oil and gas exploration company.
The Company believes that the terms of the transactions were on terms as
favorable as those which could have been negotiated with unaffiliated third
parties.
Performance Shares and Escrow Securities
As at the date of this annual report, the common shares of the Company are not
subject to any escrow agreement, which may not be transferred, assigned or
otherwise dealt with thought the consent of regulatory authorities.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Statements and Other Financial Information
Attached hereto are the Company's audited financial statements, consisting
of balance sheets as at June 30, 2002 and 2001, and statements and operations
and deficit, deferred exploration and cash flows for each of the years in
the three-year period ended June 30, 2002 along with related notes and
Auditor's
23
Report and Comments by Auditors for U.S. Readers on Canada-U.S. Reporting
Difference. See "Item 17. Financial Statements."
Legal Proceedings
None.
Dividend Policy
No dividends have been paid on any class of shares of the Company since the
date of its incorporation and it is not contemplated that any dividends will
be paid in the immediate or foreseeable future.
B. Significant Changes
Not applicable.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
The common shares of the Parent Company were listed for trading on the VSE
(now the TSX Venture Exchange) on September 28, 1993. The Parent Company's
trading symbol on the TSX Venture Exchange is "IGN". The Parent Company has
also received clearance for an unpriced quotation on the OTC Bulletin Board
by the NASD Regulation, Inc. in the United States effective November 19, 1997
under the trading symbol "IGNIF" and commenced trading on June 18, 1998.
Effective January 30, 1998, the Parent Company's common shares commenced
trading on the Berlin Stock Exchange, having a trading symbol "IGN GR". On
June 30, 2002, 8,188,780 common shares of the Parent Company were outstanding.
The closing price of the Parent Company's common shares on the TSX Venture
Exchange on June 30, 2002 was $0.05. The following summarizes the reported
high and low prices for the periods indicated on the TSX Venture Exchange:
- -------------------------------------------------------------------------------
High Low
- -------------------------------------------------------------------------------
Monthly Stock Prices
December 2002 $ 0.04 $ 0.04
November 2002 $ 0.04 $ 0.02
October 2002 $ 0.04 $ 0.03
September 2002 $ 0.07 $ 0.04
August 2002 $ 0.04 $ 0.04
July 2002 $ 0.04 $ 0.04
June 2002 $ 0.05 $ 0.05
May 2002 $ 0.05 $ 0.05
April 2002 $ 0.05 $ 0.05
Quarterly Stock Prices
- -------------------------------------------------------------------------------
24
- -------------------------------------------------------------------------------
High Low
- -------------------------------------------------------------------------------
Fiscal 2002
First Quarter $ 0.10 $ 0.08
Second Quarter $ 0.16 $ 0.05
Third Quarter $ 0.07 $ 0.04
Fourth Quarter $ 0.05 $ 0.05
Fiscal 2001
First Quarter $ 0.70 $ 0.46
Second Quarter $ 0.64 $ 0.14
Third Quarter $ 0.20 $ 0.12
Fourth Quarter $ 0.12 $ 0.07
Annual Stock Prices
Fiscal 2000 $ 1.80 $ 0.40
Fiscal 1999 $ 3.28 $ 0.41
- -------------------------------------------------------------------------------
The following table indicates the approximate number of record holders of
common shares with United States addresses and the portion and percentage of
common shares held in the United States as at June 30, 2002:
- --------------------------------------------------------------------------------
Total Number Number of Number of Common Percentage of
of Holders U.S. Holders Shares Common
Held in the U.S. Shares Held in the U.S.
- --------------------------------------------------------------------------------
40 4 233,558 2.9%
- --------------------------------------------------------------------------------
The computation of the number and percentage of common shares held in the
United States is based upon the number of common shares held by record holders
with United States addresses and by trusts, estates or accounts with United
States addresses as disclosed to the Company following inquiry to all record
holders known to the Company to be trustees, executors, guardians, custodians
or other fiduciaries holding common shares for one or more trusts, estates or
accounts. United States residents may beneficially own common shares held of
record by non-United States residents.
A substantial number of common shares are held in "street name" by trustees,
executors, guardians, custodians or other fiduciaries, including depositories,
brokerage firms and financial institutions. Based on the number of annual
reports and proxy statements requested by such nominees, management of the
Company estimates that the number of beneficial holders of common shares
exceeds 500 of which over 350 holders have United States addresses.
B. Plan of Distribution
Not applicable.
25
C. Markets
The Company's Common Shares are quoted on the TSX Venture Exchange in the
province of British Columbia, Canada under the trading symbol "IGN".
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Securities Register
The Company shall keep or cause to be kept a register of members, a register
of transfers and a register of allotments within British Columbia, all as
required by the Company Act, and may combine one or more of such registers.
If the Company's capital shall consist of more than one class of shares, a
separate register of members, register of transfers and register of allotments
may be kept in respect of each class of shares. The Directors may appoint a
trust company to keep the aforesaid registers or, if there is more than one
class of shares, the Director may appoint a trust company, which need not be
the same trust company, to keep the registers for each class of shares. The
Directors may also appoint one or more trust companies, including the trust
company which keeps the said registers of its shares or of a class thereof,
as transfer agent for its shares or such class thereof, as the case may be,
and the same or another trust company or companies as registrar for its shares
or such class thereof, as the case may be. The Directors may terminate the
appointment of any such trust company at any time and may appoint another
trust company in its place.
Unless prohibited by the Company Act, the company may keep or cause to be
kept within the Province one or more branch registers of members and may, if
the Company is, or becomes, a reporting company, cause to be kept outside
the Province one or more branch register of members.
The Company shall not at any time close its register of members.
26
Powers of Directors
Election and Removal of Directors
---------------------------------
At each annual general meeting of the Company all the Directors shall retire
and the members entitled to vote at the meeting shall elect a Board of
Directors consisting of the number of Directors for the time being fixed
pursuant to these Articles. If the Company is, or becomes, a company that
is not a reporting company and all the members entitled to attend and vote
at an annual general meeting consent in writing to the business required to
be transacted at such meeting, the meeting shall be deemed for the purpose
of this Part to have been held on the date specified in the consent or in
the resolutions consented to in writing dealing with such business.
A retiring Director shall be eligible for re-election.
Where the Company fails to hold an annual general meeting or the members fail
to consent to the business required to be transacted at such meeting, the
Directors then in office shall be deemed to have been elected or appointed
as Directors on the last day on which the annual general meeting could have
been held pursuant to these Articles and they may continue to hold office
until other Directors are appointed or elected or until the day on which the
next annual general meeting is held.
If at any general meeting at which there should be an election of Directors,
the places of any of the retiring Directors are not filled by such election,
such of the retiring Directors who are not re-elected as may be requested by
the newly elected Directors shall, if willing to do so, continue in office to
complete the number of Directors for the time being fixed pursuant to these
Articles until further new Directors are elected at a general meeting convened
for the purpose. If any such election or continuance of Directors does not
result in the election or continuance of the number of Directors for the time
being fixed pursuant to these Articles such number shall be fixed at the
number of Directors actually elected or continued in office.
Any casual vacancy occurring in the Board of Directors may be filled by the
remaining Directors or Director.
The office of a Director shall be vacated if the Director:
(a) resigns his office by notice in writing delivered to the registered
office of the Company; or
(b) ceases to be qualified to act as a Director pursuant to the Company Act.
The Parent Company may by special resolution remove any Director before the
expiration of his period of office and may by an ordinary resolution appoint
another person in his stead.
Notwithstanding anything contained in these Articles, the Parent Company may
at any time by ordinary resolution, increase the number of Directors previously
fixed or determined and may, by ordinary resolution, elect such person or
persons to fill the vacancy or vacancies thereby created.
Between successive annual general meetings the Directors shall have power to
appoint one or more additional Directs but the number of additional Directs
shall not at any time exceed 1/3 of the number of Directs elected or appointed
at the last annual general meeting of the Company. Any additional Directors
so appointed shall hold office only until the next following annual general
meeting of the company abut shall be eligible for election at such meeting and
so long as he is additional Director the number of Directs shall be increased
accordingly.
27
Any Director may by instrument in writing, telegram, telex, telecopier or any
other method of transmitting legibly recorded messages delivered or sent to
the Company appoint any person to be his alternate to act in his place at
meetings of the Directors at which he is not present unless the Directors shall
have disapproved the appointment of such person as an alternate and shall have
given notice to that effect to the Director appointing the alternate within a
reasonable time after delivery of such instrument to the Company. Every such
alternate shall be entitled to notice of meetings of the Directors and to
attend and vote as a Director at a meeting at which the person appointing him
is not personally present and, if he is a Director, to have a separate vote on
behalf of the Director by whom he was appointed in addition to his own vote.
A Director may at any time by instrument, telegram, telex, telecopier or any
other method of transmitting legibly recorded messages delivered or sent to the
Company revoke the appointment of an alternate appointed by him. The
remuneration payable to such an alternate shall be payable out of the
remuneration of the Director appointing him.
Powers and Duties of Directors
------------------------------
The Directors shall manage, or supervise the management of, the affairs and
business of the Company and shall have authority to exercise all such powers
of the Company as are not, by the Company Act, the Memorandum of the Company
or these Articles, required to be exercised by the Company in general meeting.
The Directors may from time to time by power of attorney or other instrument
under the seal of the Company appoint any person to be the attorney of the
Company for such purposes, and with such powers, authorities and discretions
(not exceeding those vested in or exercisable by the Directors under these
Articles and excepting the powers of the Directors relating to the constitution
of the Board and of any of its committees and the appointment or removal of
officers and the power to declare dividends) and for such period, with such
remuneration and subject to such conditions as the Directors may think fit,
and any such appointment may be made in favour of any of the Directs or any
of the members of the Company or in favour of any company, or of any of the
members, directors, nominees or managers of any company, firm or joint venture
and any such power of attorney may contain such provisions for the protection
or convenience of persons dealing with such attorney as the Directs think fit.
Any such attorney may be authorized by the Directs to sub-delegate all or any
of the powers, authorities and discretions for the time being vested in him.
Directors
---------
The subscribers to the Memorandum of the company are the first Directors.
The Directors to succeed the first Directors may be appointed in writing by
all the subscribers or by resolution passed at a meeting of the subscribers
or, if not so appointed, they shall be elected by the members entitled to vote
on the election of Directors and the number of Directors shall be the same as
the number of Directors so appointed or elected. The number of Directors,
excluding additional Directors, may be fixed or changed from time to time by
ordinary resolution, whether previous notice thereof has been given or not,
by notwithstanding anything contained in these Articles the number of Directors
shall never be less than one or, if the Company is, or becomes, a reporting
company, less than three.
The remuneration of the Directors as such may from time to time be determined
by the Directors or, if the Directors shall so decide, by the members. Such
remuneration may be in addition to any salary or other remuneration paid to
any officer or employee of the Company as such who is also a Director. The
Directors shall be repaid such reasonable travelling, accommodation and other
expenses as they incur in and about the business of the company and if any
Director shall perform any professional or other services for the company that
in the opinion of the Directors are outside the ordinary duties of a Director
28
or shall otherwise be specially occupied in or about the Company's business,
he may be paid a remuneration to be fixed by the beard, or at the option of
such Director, by the Company in general meeting, and such remuneration may be
either in addition to or in substitution for any other remuneration that he
may be entitled to receive. Unless otherwise determined by ordinary resolution,
the Directors on behalf of the Company may pay a gratuity, pension or
retirement allowance to any Director who has held any office or appointment
with the company or to his spouse or dependants and may make contributions to
any fund and pay premiums for the purchase or provision of any such gratuity,
pension or allowance.
A Director shall not be required to hold a share in the capital of the Company
as qualification for his office but shall be qualified to become or act as a
Director as required by the Company Act.
Borrowing
---------
The Directors may from time to time in their discretion authorize the Company
to:
(a) borrow money in such amount, in such manner, on such security, from
such sources and upon such terms and conditions as they think fit;
(b) guarantee the repayment of money borrowed by a person or the
performances of any obligation of any person;
(c) issue bonds, debentures, notes and other debt obligations either
outright or as continuing security for any indebtedness or liability,
direct or indirect, or obligations of the Company or of any other
person; and
(d) mortgage, charge (whether by way of specific or floating charge) or
give other security on the undertaking or on the whole or any part of
the property and assets of the Company, both present and future.
Any bonds, debentures, notes or other debt obligations of the Company may be
issued at a discount, premium or otherwise and with any special privileges
as to redemption, surrender, drawing, allotment of or conversion into or
exchange for shares or other securities, attending and voting at general
meetings of the Company, appointment of Directors or otherwise may by their
terms be assignable free from any equities between the Company and the person
to whom they were issued or any subsequent holder thereof, all as the
Directors may determine.
The Company shall keep or cause to be kept within the Province of British
Columbia in accordance with the Company Act a register of its debentures
and a register of debenture holders, which registers may be combined, and,
subject to the provisions of the Company Act, may keep or cause to be kept
one or more branch registers of its debenture holders at such place or places
as the Directors may by resolution, regulation or otherwise make such
provisions as they think fit respecting the keeping of such branch registers.
Every bond, debenture, note or other debt obligation of the Company shall be
signed manually by at least one Director or officer of the Company or by or
on behalf of a trustee, registrar, branch registrar, transfer agent or branch
transfer agent for the bond, debenture, note or other debt obligation appointed
by the Company or under any instrument under which the bond, debenture, note or
other debt obligation is issued and any additional signatures may be printed
or otherwise mechanically reproduced thereon and, in such event, a bond,
debenture, note or other debt obligation so signed is as valid as if assigned
manually notwithstanding that any person whose signature is so printed or
mechanically reproduced shall have ceased to hold the office that he is stated
on such bond, debenture, note or other debt obligation to hold at the date
of the issue thereof.
29
If the Company is, or becomes, a reporting company, it shall keep or cause to
be kept a register of its indebtedness to every Director or officer of the
Company or an associate of any of them in accordance with the provisions of
the Company Act.
Description of Securities
The Company is authorized to issue one class of shares, namely an unlimited
number of Common Shares without par value.
Common Shares
-------------
The Company is authorized to issue an unlimited number of common shares
without nominal or par value of which, as at June 30, 2002, 8,188,780 are
issued and outstanding as fully paid and non-assessable, 628,000 are reserved
under directors' and management stock options (see "Item 6E. Directors,
Senior Management and Employees - Share Ownership - Stock Options").
The holders of the common shares are entitled to:
a. to vote at all meetings of shareholders, except meetings at which only
holders of a specified class of shares are entitled to vote, and on
every poll taken at every such meeting, or adjourned meeting, every
holder of Common Shares shall be entitled to one vote in respect of each
Common Share held;
b. subject to the rights of the holders of Preferred Shares, to receive
the remaining property of the Company upon a dissolution; and
c. subject to the rights to dividends of the holders of Preferred Shares,
to receive all other dividends declared by the Company.
C. Material Contracts
Nil
D. Exchange Controls
The following disclosure addresses provisions of the Investment Canada Act
(the "ICA"), enacted on June 20, 1985, that are material to an investment
in the Company.
Canada has no system of exchange controls. There are no exchange restrictions
on borrowing from foreign countries or on the remittance of dividends,
interest, royalties and similar payments, management fees, loan repayments,
settlement of trade debts or the repatriation of capital.
The ICA requires prior notification to the Government of Canada on the
"acquisition of control" of Canadian businesses by non-Canadians, as defined
in the ICA. Certain acquisitions of control, discussed below, are reviewed
by the Government of Canada. The term "acquisition of control" is defined as
any one or more non-Canadian persons acquiring all or substantially all of
the assets used in the Canadian business, or the acquisition of the voting
shares of a Canadian corporation carrying on the Canadian business or the
acquisition of the voting interests of an entity controlling or carrying on
the Canadian business. The acquisition of the majority of the outstanding
shares is deemed to be an "acquisition of control" of a corporation. The
acquisition of less than a majority, but one-third or more, of the voting
30
shares of a corporation is presumed to be an "acquisition of control" of a
corporation unless it can be established that the purchaser will not control
the corporation.
Investments requiring notification and review are all direct acquisitions of
Canadian businesses with assets of $5,000,000 or more (subject to the comments
below on WTO investors), and all indirect acquisitions of Canadian businesses
(subject to the comments below on WTO investors) with assets of more than
$50,000,000 or with assets of between $5,000,000 and $50,000,000 which
represent more than 50% of the value of the total international transaction.
In addition, specific acquisitions or new businesses in designated types of
business activities related to Canada's cultural heritage or national identity
could be reviewed if the Government of Canada considers that it is in the
public interest to do so.
The ICA was amended with the implementation of the Agreement establishing the
World Trade Organization ("WTO") to provide for special review thresholds for
"WTO investors", as defined in the ICA. "WTO investor" generally means:
(a) an individual, other than a Canadian, who is a national of a WTO member
(such as, for example, the United States), or who has the right of
permanent residence in relation to that WTO member;
(b) governments of WTO members; and
(c) entities that are not Canadian controlled, but which are WTO investor
controlled, as determined by rules specified in the ICA.
The special review thresholds for WTO investors do not apply, and the general
rules described above do apply, to the acquisition of control of certain types
of businesses specified in the ICA, including a business that is a "cultural
business". If the WTO investor rules apply, an investment in the shares of the
Company by or from a WTO investor will be reviewable only if it is an
investment to acquire control of the Company and the value of the assets of
the Company is equal to or greater than a specified amount (the "WTO Review
Threshold"). The WTO Review Threshold is adjusted annually by a formula
relating to increases in the nominal gross domestic product of Canada. For
2001, the WTO Review Threshold was determined to be $209,000,000.
If any non-Canadian, whether or not a WTO investor, acquires control of the
Company by the acquisition of shares, but the transaction is not reviewable
as described above, the non-Canadian is required to notify the Canadian
government and to provide certain basic information relating to the investment.
A non-Canadian, whether or not a WTO investor, is also required to provide a
notice to the government on the establishment of a new Canadian business. If
the business of the Company is then a prescribed type of business activity
related to Canada's cultural heritage or national identity, and if the Canadian
government considers it to be in the public interest to do so, then the
Canadian government may give a notice in writing within 21 days requiring the
investment to be reviewed.
For non-Canadians (other than WTO investors), an indirect acquisition of
control, by the acquisition of voting interests of an entity that directly or
indirectly controls the Company, is reviewable if the value of the assets of
the Company is then $50,000,000 or more. If the WTO investor rules apply,
then this requirement does not apply to a WTO investor, or to a person
acquiring the entity from a WTO investor. Special rules specified in the ICA
apply if the value of the assets of the Company is more than 50% of the value
of the entity so acquired. By these special rules, if the non-Canadian
(whether or not a WTO investor) is acquiring control of an entity that directly
or indirectly controls the Company, and the value of the assets of the Company
and all other entities carrying on business in Canada, calculated in the
31
manner provided in the ICA and the regulations under the ICA, is more than 50%
of the value, calculated in the manner provided in the ICA and the regulations
under the ICA, of the assets of all entities, the control of which is acquired,
directly or indirectly, in the transaction of which the acquisition of control
of the Company forms a part, then the thresholds for a direct acquisition of
control as discussed above will apply, that is, a WTO Review Threshold of
$209,000,000 (in 2001) for a WTO investor or a threshold of $5,000,000 for a
non-Canadian other than a WTO investor. If the value exceeds that level,
then the transaction must be reviewed in the same manner as a direct
acquisition of control by the purchase of shares of the Company.
If an investment is reviewable, an application for review in the form
prescribed by the regulations is normally required to be filed with the
Director appointed under the ICA (the "Director") prior to the investment
taking place and the investment may not be consummated until the review has
been completed. There are, however, certain exceptions. Applications
concerning indirect acquisitions may be filed up to 30 days after the
investment is consummated and applications concerning reviewable investments
in culture-sensitive sectors are required upon receipt of a notice for review.
In addition, the Minister (a person designated as such under the ICA) may
permit an investment to be consummated prior to completion of the review,
if he is satisfied that delay would cause undue hardship to the acquiror or
jeopardize the operations of the Canadian business that is being acquired.
The Director will submit the application to the Minister, together with any
other information or written undertakings given by the acquiror and any
representation submitted to the Director by a province that is likely to be
significantly affected by the investment.
The Minister will then determine whether the investment is likely to be of
net benefit to Canada, taking into account the information provided and
having regard to certain factors of assessment where they are relevant.
Some of the factors to be considered are:
(a) the effect of the investment on the level and nature of economic
activity in Canada, including the effect on employment, on resource
processing, and on the utilization of parts, components and services
produced in Canada;
(b) the effect of the investment on exports from Canada;
(c) the degree and significance of participation by Canadians in the
Canadian business and in any industry in Canada of which it forms
a part;
(d) the effect of the investment on productivity, industrial efficiency,
technological development, product innovation and product variety in
Canada;
(e) the effect of the investment on competition within any industry or
industries in Canada;
(f) the compatibility of the investment with national industrial, economic
and cultural policies;
(g) the compatibility of the investment with national industrial, economic
and cultural policies taking into consideration industrial, economic
and cultural objectives enunciated by the government or legislature of
any province likely to be significantly affected by the investment; and
(h) the contribution of the investment to Canada's ability to compete in
world markets.
32
To ensure prompt review, the ICA sets certain time limits for the Director and
the Minister. Within 45 days after a completed application has been received,
the Minister must notify the acquirer that he is satisfied that the investment
is likely to be of net benefit to Canada, or that he is unable to complete his
review, in which case he shall have 30 additional days to complete his review
(unless the acquirer agrees to a longer period), or he is not satisfied that
the investment is likely to be of net benefit to Canada.
Where the Minister has advised the acquirer that he is not satisfied that the
investment is likely to be of net benefit to Canada, the acquirer has the right
to make representations and submit undertakings within 30 days of the date of
the notice (or any further period that is agreed upon between the acquirer and
the Minister). On the expiration of the 30 day period (or the agreed
extension), the Minister must quickly notify the acquirer that he is now
satisfied that the investment is likely to be of net benefit to Canada or that
he is not satisfied that the investment is likely to be of net benefit to
Canada. In the latter case, the acquirer may not proceed with the investment
or, if the investment has already been consummated, must divest itself of
control of the Canadian business.
The ICA provides civil remedies for non-compliance with any provision. There
are also criminal penalties for breach of confidentiality or providing false
information.
Except as provided in the ICA, there are no limitations under the laws of
Canada, the Province of Alberta or in any constituent documents of the Company
on the right of non-Canadians to hold or vote the common shares of the Company.
The ICA specifically exempts certain transactions from either notification or
review. Included among this category of transactions is the acquisition of
voting shares or other voting interests by any person in the ordinary course
of that person's business as a trader or dealer in securities.
The Company does not have assets of more than $179 million.
E. Taxation
A brief description of certain provisions of the tax treaty between Canada
and the United States is included below, together with a brief outline of
certain taxes, including withholding provisions to which United States security
holders are subject under existing laws and regulations of Canada and the
United States. The consequences, if any, of state and local taxes are not
considered. The following information is general and security holders should
seek the advice of their own tax advisors, tax counsel or accountants with
respect to the applicability or effect on their own individual circumstances
of not only the matters referred to herein, but also any state or local taxes.
The Company has not paid dividends on the common shares in any of its last five
fiscal years, and has no plans to pay dividends in the immediate future. See
"Item 8 - Selected Financial Data - Dividend Policy". Canadian federal tax
legislation would require a 25% withholding from any dividends paid or deemed
to be paid to the Company's non-resident shareholders. However, shareholders
resident in the United States would generally have this rate reduced to 15%
pursuant to the tax treaty between Canada and the United States. The
withholding tax rate on the gross amount of dividends is reduced to 5% if the
beneficial owner of the dividend is a U.S. corporation, which owns at least
10% of the voting stock of the Canadian Corporation paying the dividends.
The amount of stock dividends paid to non-residents of Canada would be subject
to withholding tax at the same rate as cash dividends. The amount of a stock
dividend (for tax purposes) would generally be equal to the amount by which the
paid-up capital of the Company had increased by reason of the payment of such
dividend. The Company will furnish additional tax information to shareholders
in the event of such a dividend. Interest paid or deemed to be
33
paid on the Company's debt securities held by non-Canadian residents may also
be subject to Canadian withholding tax, depending upon the terms and provisions
of such securities and any applicable tax treaty.
Gains derived from a disposition of shares of the Company by a non-resident
shareholder will be subject to tax in Canada only if not less than 25% of any
class of shares of the Company were owned by the non-resident shareholder
and/or persons with whom the non-resident did not deal at arm's length at any
time during the five year period immediately preceding the disposition. In
such cases, gains derived by a U.S. shareholder from a disposition of shares
of the Company would likely be exempt from tax in Canada by virtue of the
Canada-U.S. tax treaty.
All prospective investors are advised to consult their own tax advisors with
respect to the specific tax consequences of purchasing common shares.
U.S. Holders
As used herein, a "U.S. Holder" means a holder of common shares of the Company
who is (i) a citizen or individual resident of the United States, (ii) a
corporation or partnership created or organized in or under the laws of the
United States or of any political subdivision thereof, (iii) an estate whose
income is taxable in the United states irrespective of source or (iv) a trust
subject to the primary supervision of a court within the United States and
control of a United States fiduciary as described Section 7701(a)(30) of the
Code. This summary does not address the tax consequences to, and U.S. Holder
does not include, persons subject to specific provisions of federal income
tax law, such as tax-exempt organizations, qualified retirement plans,
individual retirement accounts and other tax-deferred accounts, financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, persons or entities that have a
"functional currency" other than the U.S. dollar, shareholders subject to
the alternative minimum tax, shareholders who hold common shares as part of
a straddle, hedging or a conversion transaction, constructive sale or other
arrangement involving more than one position, and shareholders who acquired
their common shares through the exercise of employee stock options or otherwise
as compensation for services. This summary is limited to U.S. Holders who own
common shares as capital assets within the meaning of Section 1221 of the Code.
This summary does not address the consequences to a person or entity holding
an interest in a shareholder or the consequences to a person of the ownership,
exercise or disposition of any options, warrants or other rights to acquire
common shares.
Distribution on Common Shares of the Company
U.S. Holders receiving dividend distributions (including constructive
dividends)with respect to common shares of the Company are required to include
in gross income for United States federal income tax purposes the gross amount
of such distributions equal to the U.S. dollar value of such distributions on
the date of receipt (based on the exchange rate on such date) to the extent
that the Company has current or accumulated earnings and profits, without
reduction for any Canadian income tax withheld from such distributions. Such
Canadian tax withheld may be credited, subject to certain limitations, against
the U.S. Holder's federal income tax liability or, alternatively, may be
deducted in computing the U.S. Holder's federal taxable income by those who
itemize deductions. (See more detailed discussion at "Foreign Tax Credit"
below). To the extent that distributions exceed current or accumulated earnings
and profits of the Company, they will be treated first as a return of capital
up to the U.S. Holder's adjusted basis in the common shares and thereafter as
gain from the sale or exchange of the common shares. Preferential tax rates
for long-term capital gains are applicable to a U.S. Holder which is an
individual, estate or trust. There are currently no preferential tax rates
for long-term capital gains for a U.S. Holder which is a corporation.
34
In the case of foreign currency received as a dividend that is not converted
by the recipient into U.S. dollars on the date of receipt, a U.S. Holder
will have a tax basis in the foreign currency equal to its U.S. dollar value
on the date of receipt. Generally any gain or loss recognized upon a
subsequent sale or other disposition of the foreign currency, including the
exchange for U.S. dollars, will be ordinary income or loss. However, an
individual whose realized gain does not exceed $200 will not recognize that
gain, to the extent that there are no expenses associated with the transaction
that meet the requirement for deductibility as a trade or business expense
(other than travel expenses in connection with a business trip) or as an
expense for the production of income.
Dividends paid on the common shares of the Company generally will not be
eligible for the dividends received deduction provided to corporations
receiving dividends from certain United States corporations. A U.S. Holder
which is a corporation and which owns shares representing at least 10% of
the voting power and value of the Company may, under certain circumstances,
be entitled to a 70% (or 80% if the U.S. Holder owns shares representing
at least 20% of the voting power and value of the Company) deduction of
the United States source portion of dividends received from the Company
(unless the Company qualifies as a "foreign personal holding company" or a
"passive foreign investment Company," as defined below). The availability
of this deduction is subject to several complex limitations which are beyond
the scope of this discussion.
Certain information reporting and backup withholding rules may apply with
respect to the Company's common shares. In particular, a payor or middleman
within the U.S., or in certain cases outside the U.S., will be required to
withhold 31% of any payments to a holder of the Company's common shares of
dividends on, or proceeds from the sale of, such common shares within the U.S.,
unless the holder is an exempt recipient, if the holder fails to furnish
its correct taxpayer identification number or otherwise fails to comply with,
or establish an exemption from, the backup withholding tax requirements.
Any amounts withheld under the U.S. backup withholding tax rules will be
allowed as a refund or a credit against the U.S. federal income tax liability,
provided the required information is furnished to the IRS. U.S. Holders are
urged to consult their own tax counsel regarding the information reporting
and backup withholding rules applicable to the Company's common shares.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income
tax with respect to the ownership of common shares of the Company may be
entitled, at the option of the U.S. Holder, to either receive a deduction
or a tax credit for such foreign tax paid or withheld. Generally, it will
be more advantageous to claim a credit because a credit reduces United
States federal income taxes on a dollar-for-dollar basis, while a deduction
merely reduces the taxpayer's income subject to tax. This election is made
on a year-by-year basis and applies to all foreign taxes paid by (or
withheld from) the U.S. Holder during that year. There are significant and
complex limitations which apply to the credit, among which is the general
limitation that the credit cannot exceed the proportionate share of the U.S.
Holder's United States income tax liability that the U.S. Holder's foreign
sources income bears to his or its worldwide taxable income. In the
determination of the application of this limitation, the various items of
income and deduction must be classified into foreign and domestic sources.
Complex rules govern this classification process. In addition, this
limitation is calculated separately with respect to specific classes of income
such as "passive income," "high withholding tax interest," "financial services
income," "shipping income," and certain other classifications of income.
Dividends distributed by the Company will generally constitute "passive income"
or, in the case of certain U.S. Holders, "financial services income" for these
purposes. In addition, U.S. Holders which are corporations that own 10% or
more of the voting stock of the Company may be entitled to an "indirect"
foreign tax credit under Section 902
35
with respect to payment of dividends by the Company under certain circumstances
and subject to complex rules and limitations. The availability of the foreign
tax credit and the application of the limitations on the credit are fact
specific, and U.S. Holders of common shares of the Company should consult
their own tax advisors regarding their particular circumstances.
Disposition of Common Shares of the Company
A U.S. Holder will recognize gain or loss upon the sale of common shares of
the Company equal to the difference, if any, between (i) the amount of cash
plus the fair market value of any property received, and (ii) the shareholder's
tax basis in the common shares of the Company. Preferential tax rates apply
to long-term capital gains of U.S. Holders which are individuals, estates or
trusts. This gain or loss will be capital gain or loss if the common shares
are a capital asset in the hands of the U.S. Holder, which will be long-term
capital gain or loss if the common shares of the Company are held for more
than one year. Deductions for net capital losses are subject to significant
limitations. For U.S. Holders which are not corporations, any unused portion
of such net capital loss may be carried over to be used in later tax years
until such net capital loss is thereby exhausted. For U.S. Holders that are
corporations (other than corporations subject to Subchapter S of the Code),
an unused net capital loss may be carried back three years and carried
forward five years from the loss year to be offset against capital gains
until such net capital loss is thereby exhausted.
Other Considerations
In the following circumstances, the above sections of this discussion may not
describe the United States federal income tax consequences resulting from
the holding and disposition of common shares:
Foreign Personal Holding Company
--------------------------------
If at any time during a taxable year (i) more than 50% of the total combined
voting power or the total value of the corporation's outstanding shares is
owned, directly or indirectly, by five or fewer individuals who are citizens
or residents of the United States and (ii) 60% (50% in some circumstances)
or more of the corporation's gross income for such year was "foreign
personal holding corporation ." In that event, U.S. Holders that hold common
shares would be required to include in gross income for such year their
allocable portions of such passive income to the extent the corporation
does not actually distribute such income. The Company does not believe that
it currently qualifies as a foreign personal holding corporation. However,
there can be no assurance that the Company will not be considered a foreign
personal holding corporation for the current or any future taxable year.
Foreign Investment Company
--------------------------
If 50% or more of the combined voting power or total value of the Company's
outstanding shares is held, directly or indirectly, by citizens or residents
of the United States, United States domestic partnerships or corporations,
or estates or trusts other than foreign estates or trusts (as defined by the
Code Section 7701(a)(31)), and the Company is found to be engaged primarily
in the business of investing, reinvesting, or trading in securities,
commodities, or any interest therein, it is possible that the Company may be
treated as a "foreign investment corporation" as defined in Section 1246 of
the Code, causing all or part of any gain realized by a U.S. Holder selling
or exchanging common shares to be treated as ordinary income rather than
capital gain. The Company does not believe that it currently qualifies as
a foreign investment corporation. However, there can be no assurance that
the Company will not be considered a foreign investment corporation for the
current or any future taxable year.
Passive Foreign Investment Corporation
--------------------------------------
36
Certain United States income tax legislation contains rules governing "passive
foreign investment companies" ("PFIC") which can have significant tax effects
on U.S. Holders of foreign corporations. These rules do not apply to non-U.S.
Holders. Section 1297 of the Code defines a PFIC as a corporation that is not
formed in the United States and, for any taxable year, either (i) 75% or more
of its gross income is "passive income", which includes interest, dividends and
certain rents and royalties or (ii) the average percentage, by fair market
value (or, if the corporation is not publicly traded and either is a controlled
foreign corporation or makes an election, by adjusted tax basis) of its assets
that produce or are held for the production of "passive income" is 50% or more.
If a foreign corporation owns, directly or indirectly, at least 25% by value of
the stock a second corporation, then for purposes of the PFIC tests described
above, the first corporation will be treated as owning a proportionate share of
the assets of, and as receiving a proportionate share of the income of, the
second corporation.
The Company believes that it qualified as a PFIC for the fiscal year ended June
30, 2002 and may have qualified as a PFIC in prior years. The Company may or
may not qualify as a PFIC in subsequent years due to changes in its assets and
business operations. There can be no assurance that the Company's
determination concerning its PFIC status will not be challenged or that it will
be able to satisfy record keeping requirements that will be imposed on a
qualified electing fund ("QEF"). Each U.S. Holder of the Company is urged to
consult a tax advisor with respect to how the PFIC rules affect their tax
situation.
A U.S. Holder who holds stock in a foreign corporation during any year in which
such corporation qualifies as a PFIC is subject to United States federal income
taxation under one of two alternative tax regimes at the election of each such
U.S. Holder. The following is a discussion of such two alternative tax regimes
applied to such U.S. Holders of the Company. In addition, special rules apply
if a foreign corporation qualifies as both a PFIC and a "controlled foreign
corporation" (as defined below) and a U.S. Holder owns, actually or
constructively, 10% or more of the total combined voting power of all classes
of stock entitled to vote of such foreign corporation (See more detailed
discussion at "Controlled Foreign Corporation" below).
A U.S. Holder who elects in a timely manner to treat the Company as a QEF (an
"Electing U.S. Holder") will be subject, under Section 1293 of the Code, to
current federal income tax for any taxable year in which the Company qualifies
as a PFIC on his pro rata share of the Company's (i) "net capital gain" (the
excess of net long-term capital gain over net short-term capital loss), which
will be taxed as long-term capital gain to the Electing U.S. Holder and (ii)
"ordinary earnings" (the excess of earnings and profits over net capital gain),
which will be taxed as ordinary income to the Electing U.S. Holder, in each
case, for the shareholder's taxable year in which (or with which) the Company's
taxable year ends, regardless of whether such amounts are actually
distributed.
The effective QEF election also allows the Electing U.S. Holder to (i)
generally treat any gain realized on the disposition of his Company common
shares (or deemed to be realized on the pledge of his shares) as capital
gain; (ii) treat his share of the Company's net capital gain, if any, as
long-term capital gain instead of ordinary income; and (iii) either avoid
interest charges resulting from PFIC status altogether, or make an annual
election, subject to certain limitations, to defer payment of current taxes
on his share of the Company's annual realized net capital gain and ordinary
earnings subject, however, to an interest charge. If the Electing U.S. Holder
is not a corporation, such an interest charge would be treated as "personal
interest" that is not deductible.
The procedure a U.S. Holder must comply with in making an effective QEF
election will depend on whether the year of the election is the first year
in the U.S. Holder's holding period in which the Company is a PFIC. If the
U.S. Holder makes a QEF election in such first year, i.e., a timely QEF
37
election, then the U.S. Holder may make the QEF election by simply filing the
appropriate documents at the time the U.S. Holder files his tax return for
such first year. If, however, the Company qualified as a PFIC in a prior
year, then in addition to filing documents, the U.S. Holder must elect to
recognize (i) under the rules of Section 1291 of the Code (discussed herein),
any gain that he would otherwise recognize if the U.S. Holder sold his stock
on the qualification date or (ii) if the Company is a controlled foreign
corporation, the U.S. Holder's pro rata share of the Company's post-1986
earnings and profits as of the qualification date. The qualification date
is the first day of the Company's first tax year in which the Company
qualified as a QEF with respect to such U.S. Holder. The elections to
recognize such gain or earnings and profits can only be made if such U.S.
Holder's holding period for the common shares of the Company includes the
qualification date. By electing to recognize such gain or earnings and
profits, the U.S. Holder will be deemed to have made a timely QEF election.
A U.S. Holder who made elections to recognize gain or earnings and profits
after May 1, 1992 and before January 27, 1997 may, under certain
circumstances, elect to change such U.S. Holder's qualification date to the
first day of the first QEF year. U.S. Holders are urged to consult a tax
advisor regarding the availability of and procedure for electing to recognize
gain or earnings and profits under the foregoing rules.
A QEF election, once made with respect to the Company, applies to the tax year
for which it was made and to all subsequent tax years, unless the election is
invalidated or terminated, or the IRS consents to revocation of the election.
If a QEF election is made by a U.S. Holder and the Company ceases to qualify
as a PFIC in a subsequent tax year, the QEF election will remain in effect,
although not applicable, during those tax years in which the Company does not
qualify as a PFIC. Therefore, if the Company again qualifies as a PFIC in
a subsequent tax year, the QEF election will be effective and the U.S. Holder
will be subject to the rules described above for Electing U.S. Holders in such
tax year and any subsequent tax years in which the Company qualifies as a PCIF.
In addition, the QEF election remains in effect, although not applicable, with
respect to an Electing U.S. Holder even after such U.S. Holder disposes of all
of his or its direct and indirect interest in the shares of the Company
qualifies as a PFIC.
If a U.S. Holder does not make a timely QEF election during a year in which it
holds (or is deemed to have held) the shares in question and the Company is a
PFIC (a "Non-electing U.S. Holder"), then special taxation rules under Section
1291 of the Code will apply to (i) gains realized on the disposition (or deemed
to be realized by reasons of a pledge) of his Company common shares and (ii)
certain "excess distributions", (generally, distributions received in the
current taxable year that are in excess of 125% of the average distributions
received during the three preceding years or, if shorter, the U.S. Holder's
holding period) by the Company.
A Non-electing U.S. Holder generally would be required to pro rate all gains
realized on the disposition of his Company common shares and all excess
distribution of his Company common shares over the entire holding period for
the common shares. All gains or excess distributions allocated to prior
years of the U.S. Holder (other than years prior to the first taxable year of
the Company during such U.S. Holder's holding period and beginning after
January 1, 1987 for which it was a PFIC) would be taxed at the highest tax
rate for each such prior year applicable to ordinary income. The Non-Electing
U.S. Holder also would be liable for interest on the foregoing tax liability
for each such prior year calculated as if such liability had been due with
respect to each such prior year. A Non-electing U.S. Holder that is not a
corporation must treat this interest charge as "personal interest" which, as
discussed above, is wholly nondeductible. The balance of the gain of the
excess distribution will be treated as ordinary income in the year of the
disposition or distribution, and no interest charge will be incurred with
respect to such balance.
If the Company is a PFIC for any taxable year during which a Non-electing
U.S. Holder holds Company common shares, then the Company will continue to
be treated as a PFIC with respect to such Company
38
common shares, even if it is no longer definitionally a PFIC. A
Non-Electing U.S. Holder may terminate this deemed PFIC status by electing
to recognize a gain (which will be taxed under the rules discussed above for
Non-Electing U.S. Holders) as if such Company common shares had been sold on
the last day of the last taxable year for which it was a PFIC.
Effective for tax years of U.S. Holders beginning after December 31, 1997,
U.S. Holders who hold, actually or constructively, marketable stock (as
specifically defined in the Treasury Regulations) of a foreign corporation
that qualifies as a PFIC may annually elect to mark such stock to the market
(a "mark-to-market election'). If such an election is made, such U.S. Holder
will generally not be subject to the special taxation rules of Section 1291
discussed above. However, if the mark-to-market election is made by a
Non-electing U.S. Holder after the beginning of the holding period for the
PFIC stock, then the Section 1291 rules will apply to certain dispositions
of, distributions on and other amounts taxable with respect to the Company
common shares. A U.S. Holder who makes the mark-to market election will
include in income for the taxable year for which the election was made an
amount equal to the excess, if any, of the fair market value of such shares
as of the common shares of the Company as of the close of such tax year over
such U.S. Holder's adjusted basis in such common shares. In addition, the
U.S. Holder is allowed a deduction for the lesser of (i) the excess, if any,
of such U.S. Holder's adjusted tax basis in the common shares over the fair
market value of such shares as of the close of the tax year, or (ii) the
excess, if any of (A) the mark-to-market gains for the common shares in the
Company included by such U.S. Holder for prior tax years, including any
amount which would have been included for any prior tax year but for the
Section 1291 interest on tax deferral rules discussed above with respect to
Non-electing U.S. Holders, over (B) the mark-to-market loses for shares that
were allowed as deductions for prior tax years. A U.S. Holder's adjusted
tax basis in the common shares of the Company will be adjusted to reflect the
amount included in or deducted from income as a result of a mark-to-market
election. A mark-to-market election applies to the taxable year in which the
election is made and to each subsequent taxable year, unless the Company
common shares cease to be marketable, as specifically defined, or the IRS
consents to revocation of the election. Because the IRS has not established
procedures for making a mark-to-market election, U.S. Holders should consult
their tax advisor regarding the manner of making such an election.
Under Section 1291(f) of the code, the IRS has issued Proposed Treasury
Regulations that, subject to certain exceptions, would treat as taxable
certain transfers of PFIC stock by Non-electing U.S. Holders that were
generally not otherwise taxed, such as gifts, exchanges pursuant to
corporate reorganizations, and transfers at death. Generally, in such
ceases the basis of the Company common shares in the hands of the transferee
and the basis of any property received in exchange for those common shares
would be increased by the amount of gain recognized. Under the Proposed
Treasury Regulations, an Electing U.S. Holder would not be taxed on certain
transfers of PFIC stock, such as gifts, exchanges pursuant to corporate
reorganizations, and transfers at death. The transferee's basis in this
case will depend on the manner in which the common shares are transferred.
The specific tax effect to the U.S. Holder and the transferee may vary
based on the manner in which the common shares are transferred. Each U.S.
Holder of the Company is urged to consult a tax advisor with respect to how
the PFIC rules affect their tax situation.
Certain special, generally adverse, rules will apply with respect to Company
common shares while the Company is a PFIC whether or not it is treated as a
QEF. For example under Section 1298(b)(6) of the Code, a U.S. Holder who
uses PFIC stock as security for a loan (including a margin loan) will, except
as may be provided in regulations, be treated as having made a taxable
disposition of such shares.
Controlled Foreign Corporation
------------------------------
39
If more than 50% of the total combined voting power of all classes of shares
entitled to vote or the total value of the shares of the Company is owned,
actually or constructively, by citizens or residents of the United States,
United States domestic partnerships and corporations or estates or trusts
other than foreign estates or trusts (as defined by the Code Section
7701(a)(31)), each of whom own, actually or constructively, 10% or more of
the total combined voting power of all classes of shares entitled to vote
of the Company ("United States shareholder"), the Company could be treated
as a controlled foreign corporation ("CFC") under Subpart F of the Code.
This classification would effect many complex results, one of which is the
inclusion of certain income of a CFC which is subject to current U.S. tax.
The United States generally taxes a United States Shareholder of a CFC
currently on their pro rata shares of the Subpart F income of the CFC.
Such United States Shareholders are generally treated as having received a
current distribution out of the CFC's Subpart F income and are also subject
to current U.S. tax on their pro rata shares of the CFC's earnings invested
in U.S. property. The foreign tax credit described above may reduce the U.S.
tax on these amounts. In addition, under Section 1248 of the Code, gain from
the sale or exchange of shares by a U.S. Holder of common shares of the
Company who is or was a United States Shareholder at any time during the
five-year period ending with the sale or exchange is treated as ordinary
income to the extent of earnings and profits of the Company attributable to the
shares sold or exchanged. If a foreign corporation is both a PFIC and a CFC,
the foreign corporation generally will not be treated as a PFIC with respect
to United States Shareholders of the CFC. This rule generally will be
effective for taxable years of United States Shareholders beginning after 1997
and for taxable years of foreign corporations ending with or within such
taxable years of United States Shareholders. Special rules apply to United
States shareholders who are subject to the special taxation rules under Section
1291 discussed above with respect to a PFIC. Because of the complexity of
Subpart F, a more detailed review of these rules is outside of the scope of
this discussion. The Company does not believe that it currently qualifies as
a CFC. However, there can be no assurance that the Company will not be
considered a CFC for the current or any future taxable year.
Canadian Federal Income Tax Consequences
The following is a general discussion of all material Canadian federal income
tax consequences, under current law, generally applicable to (a "Holder") of
one or more common shares of Telesis North Communications Inc. (the "Company")
who for the purposes of the Income Tax Act (Canada)(the "Act") is a non-resident
of Canada, holds his common shares as capital property and deals at arm's
length with the Company and is restricted to such circumstances.
Dividends
---------
A Holder will be subject to Canadian withholding tax ("Part XIII Tax") equal
to 25%, or such lower rate as may be available under an applicable tax treaty,
of the gross amount of any dividend paid or deemed to be paid on his common
shares. Under the 1995 Protocol amending the Canada-U.S. Income Tax Convention
(1980) (the "Treaty") the rate of Part XIII Tax applicable to a dividend on
common shares paid to a Holder who is a resident of the United States is
reduced from the 25% rate. Under the Treaty, the Company will be required to
withhold Part XIII Tax at 15% from each dividend so paid and remit the withheld
amount directly to the Receiver General for Canada for the account of the
Holder. The 15% rate is further reduced to 5% if the shareholder is a
corporation owning at least 10% of the outstanding common shares of the
Company.
Disposition of Common Shares
----------------------------
A Holder who disposes of a common share, including by deemed disposition on
death, will not be subject to Canadian tax on any capital gain (or capital
loss) thereby realized unless the common share constituted "taxable Canadian
property" as defined by the Act. Generally, a common share will not constitute
40
taxable Canadian property of a Holder unless he held the common share as
capital property used by him carrying on a business (other than an insurance
business) in Canada, or he or persons with whom he did not deal at arm's length
alone or together held or held options to acquire, at any time within the five
years preceding the disposition, 25% or more of the shares of any class of the
capital stock of the Company. The disposition of a common share that
constitutes "taxable Canadian property" of a Holder could also result in a
capital loss, which can be used to reduce all taxable income (only that portion
of taxable income derived from a capital gain).
A capital gain occurs when proceeds from the disposition of a share of other
capital property exceeds the original cost. A capital loss occurs when the
proceeds from the disposition of a share are less than the original cost.
Under the Act, capital gain is effectively taxed at a lower rate as only 50%
of the gain is effectively included in the Holder's taxable income.
A Holder who is a resident of the United States and realizes a capital gain on
a disposition of a common share that was taxable Canadian property will
nevertheless, by virtue of the Treaty, generally be exempt from Canadian tax
thereon unless (a) more than 50% of the value of the common share is derived
from, or forms an interest in, Canadian real estate, including Canadian
mineral resource properties, (b) the common share formed part of the business
property of a permanent establishment that the Holder has or had in Canada
within the 12 months preceding disposition, or (c) the Holder (i) was a
resident of Canada at any time within the 10 years immediately, and for a
total of 120 months during the 20 years, preceding the disposition, and (ii)
owned the common share when he ceased to be a resident in Canada.
A Holder who is subject to Canadian tax in respect of a capital gain realized
on disposition of a common share must include one half of the capital gain
(taxable capital gain) in computing his taxable income earned in Canada.
The Holder may, subject to certain limitations, deduct one half of any capital
loss (allowable capital loss) arising on disposition of taxable Canadian
property from taxable gains realized in the year of disposition in respect
to taxable Canadian property. To the extent the capital loss is not deductible
in the current year the taxpayer may deduct the capital loss (after taking
into account the inclusion rate of a previous year) from such taxable capital
gains of any of the three preceding years or any subsequent year.
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
The Company has filed with the Securities and Exchange Commission this
Annual Report on Form 20-F, including exhibits, under the Securities and
Exchange Act of 1934 with respect to the Company's Common Shares.
You may read and copy all or any portion of the Annual Report of other
information in our files in the Commission's public reference room at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at Seven World Trade
Centre, 13th Floor, New York, NY 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You may request copies of these documents
upon payment of a duplicating fee, by writing to the Commission. Please
call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms.
41
I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS
None.
ITEM 15. RESERVED
ITEM 16. RESERVED
PART III
ITEM 17. FINANCIAL STATEMENTS
The Financial Statements have been prepared in accordance with Canadian GAAP
and are presented in Canadian dollars. There are material measurement
differences between United States and Canadian GAAP. A reconciliation of
the financial statements to United States GAAP is set forth in Note 10 to
the Financial Statements.
ITEM 18. FINANCIAL STATEMENTS
See "Item 17. Financial Statements."
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
--------------------
Auditors' Report and Comments by Auditors for United States Readers
on Canada-United States Reporting Difference dated August 20, 2002.
Balance Sheets at June 30, 2002 and 2001.
42
(a) Financial Statements
--------------------
Statements of Operations and Deficit for the Years Ended June 30,
2002, 2001, and 2000.
Statements of Cash Flows for the Years Ended June 30, 2002, 2001
and 2000.
Notes to Financial Statements for the Years Ended June 30, 2002,
2001, and 2000.
43
EXHIBITS
The following exhibits are attached to and form part of this Annual Report:
Exhibit
1.1 Memorandum and Articles, as amended*
1.2 Management and Administrative Services Contract between the
Company and O.M. Management Ltd. dated May 1, 1992*
1.3 Escrow Agreement dated February 11, 1997*
1.4 Stock Options Agreements between the Company and various employees
and directors*
1.5 Sponsorship Agreement dated August 23, 1996*
1.6 Sharc, Inc. Agreement dated August 24, 1996*
1.7 Auditors' consent letters*
1.8 Lease Agreement dated July 1, 1997 between Williams, Ricardo and
WinStreak (St. Kitts) Ltd.*
1.9 Shareholders' Agreement dated July 31, 1997 among Internet Global
Network (Barbados) Inc. and Axion Holdings (Barbados) Inc. and
Thunderbird (Barbados) Inc. and Winventure Limited*
2.0 The InterActive Technology Trust Agreement dated December 1, 1997
among Frank Buser, Harrington Trust Limited, and David Hauenstein*
2.1 Agreement dated August 24, 1996 between Sharc, Inc. and IGC
Internet Gaming Corp.*
2.2 Management services agreement dated December 1, 1997 between IGN
Internet Global Network Inc. and Madhuri Ventures Inc. *
2.3 Management services agreement dated December 1, 1997 between IGN
Internet Global Network Inc. and Madhuri Ventures Inc. *
2.4 Fourth Sublease dated June 30, 1998 among Afrasia Mineral Fields
Inc., Akash Ventures Inc., Andina Development Corp., Axion
Communications Inc., Camphor Ventures Inc. and IGN Internet
Global Network Inc. *
2.5 Merchant Processing Agreement dated May 22, 1998 between the Bank
of Nevis and INTERFI Corporation. *
3.0 Sublease dated November 1, 1998 between Winstreak Limited and
Databank International Ltd. *
3.1 Equipment lease dated November 1, 1998 between Winstreak Limited
and Databank International Ltd. *
3.2 Management services agreement dated January 1, 2000 between IGN
Internet Global Network Inc. and O.M Management Ltd.*
* Previously submitted
44
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Company certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
IGN INTERNET GLOBAL NETWORK INC.
By: "Peeyush K. Varshney"
-----------------------------
Peeyush K. Varshney
Director
DATED: December 31, 2002
45
IGN INTERNET GLOBAL NETWORK INC.
ANNUAL REPORT ON FORM 20-F
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------
Exhibits Page
- -----------------------------------------------------------------------------------------------
KPMG LLP Auditors' Report on Consolidated Financial Statements for the years *
ended June 30, 1999, 1998 and 1997
KPMG LLP Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Conflict *
Minni, Bella & Co. Auditor's Report on Consolidated Financial Statements for *
the year ended June 30, 1996
Notes to the Consolidated Financial Statements of the Company *
KPMG LLP Auditors' Report on Consolidated Financial Statements for the *
years ended June 30, 2000, 1999, 1998 and 1997
KPMG LLP Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Conflict *
Consolidated Balance Sheets as at June 30, 2000, 1999, 1998 and 1997 *
Consolidated Statement of Operations and Deficit for the years ended *
June 30, 2000, 1999, 1998 and 1997
Consolidated Statement of Changes in Financial Position for the years *
ended June 30, 2000, 1999, 1998 and 1997
Notes to the Consolidated Financial Statements of the Company *
J.A. Minni & Associates Inc. Auditors' Report on Consolidated Financial *
Statements for the years ended June 30, 2001, 2000 and 1999
J.A. Minni & Associates Inc. Comments by Auditors for U.S. Readers *
on Canada-U.S. Reporting Conflict
Consolidated Balance Sheets as at June 30, 2001, 2000 and 1999 *
Consolidated Statements of Operations and Deficit for the years *
ended June 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended *
June 30, 2001, 2000 and 1999
Notes to the Consolidated Financial Statements of the Company *
J.A. Minni & Associates Inc. Auditors' Report on Consolidated 49
Financial Statements for the years ended June 30, 2001, 2000 and 1999
49
J.A. Minni & Associates Inc. Comments by Auditors for U.S. Readers on 49
Canada-U.S. Reporting Conflict
Consolidated Balance Sheets as at June 30, 2001, 2000 and 1999 50
Consolidated Statements of Operations and Deficit for the years ended 51
June 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended 52
June 30, 2001, 2000 and 1999
Notes to the Consolidated Financial Statements of the Company 53
- -----------------------------------------------------------------------------------------------
* Previously submitted
46
IGN INTERNET GLOBAL NETWORK INC.
ANNUAL REPORT ON FORM 20-F
EXHIBIT INDEX
- -----------------------------------------------------------------------------------------------
Exhibits Page
- -----------------------------------------------------------------------------------------------
1.1 Memorandum and Articles, as amended. *
1.2 Management and Administrative Services Contract between the *
Company and O.M. Management Ltd. dated May 1, 1992.
1.3 Escrow Agreement dated February 11, 1997. *
1.4 Stock Option Agreements between the Company and various employees and directors. *
1.5 Sponsorship Agreement Dated August 23, 1996. *
1.6 Sharc, Inc. Agreement dated August 24, 1996. *
1.7 Auditors' consent letters. *
1.8 Lease Agreement dated July 1, 1997 between Williams, Ricardo *
and WinStreak (St. Kitts) Ltd.
1.9 Shareholders' Agreement dated July 31, 1997 among Internet Global *
Network (Barbados) Inc. and Axion Holdings (Barbados) Inc. and
Thunderbird (Barbados) Inc. and Winventure Limited.
2.0 The InterActive Technology Trust Agreement dated December 1, 1997 among *
Frank Buser, Harrington Trust Limited, and David Hauenstein.
2.1 Agreement dated August 24, 1996 between Sharc, Inc. and IGC Internet Gaming Corp. *
2.2 Management services agreement dated December 1, 1997 between IGN Internet *
Global Network Inc. and Madhuri Ventures Inc.
2.3 Management services agreement dated December 31, 1997 between IGN Internet *
Global Network Inc. and Futura Capital Ltd.
2.4 Fourth Sublease dated June 30, 1998 among Afrasia Mineral Fields Inc., *
Akash Ventures Inc., Andina Development Corp., Axion Communications
Inc., Camphor Ventures Inc. and IGN Internet Global Network Inc.
2.5 Merchant Processing Agreement dated May 22, 1998 between the Bank of *
Nevis and INTERFI Corporation.
3.0 Sublease agreement dated November 1, 1998 between Winstreak Limited *
and Databank International Ltd.
3.1 Equipment lease agreement dated November 1, 1998 between Winstreak Limited *
and Databank International Ltd.
3.2 Management services agreement dated January 1, 2000 between IGN Internet *
Global Network Inc. and O.M. Management Ltd
- -----------------------------------------------------------------------------------------------
* Previously submitted.
47
IGN INTERNET GLOBAL NETWORK INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
(Prepared in Canadian dollars)
AUDITOR'S REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
48
J. A. MINNI & ASSOCIATES INC. SUITE 1104-750 WEST PENDER STREET
CERTIFIED GENERAL ACCOUNTANT VANCOUVER, BRITISH COLUMBIA
Jerry A. Minni, C.G.A.* CANADA V6C 2T8
Geoffrey S. V. Pang, C.G.A., FCCA ** TELEPHONE: (604)683-0343
FAX: (604)683-4499
* Incorporated Professional
**Associate
AUDITOR'S REPORT
To the Directors,
IGN Internet Global Network Inc.
I have audited the consolidated balance sheet of IGN INTERNET GLOBAL NETWORK
INC. as at June 30, 2002 and 2001 and the consolidated statements of
operations, deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based
on my audit.
With respect to the financial statements I conducted my audit in accordance
with Canadian generally accepted auditing standards and United States generally
accepted auditing standards. Those standards require that I 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 my opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at June 30, 2002 and 2001,
and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
CERTIFIED GENERAL ACCOUNTANT
Vancouver, BC
August 20, 2002
COMMENTS FOR US READERS ON CANADA-UNITED STATES REPORTING DIFFERENCES
- -------------------------------------------------------------------------------
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described
in Note 1 to the financial statements. My report to the directors dated August
20, 2002 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the auditor's report
when these are adequately disclosed in the financial statements.
CERTIFIED GENERAL ACCOUNTANT
Vancouver, BC
August 20, 2002
49
IGN INTERNET GLOBAL NETWORK INC.
CONSOLIDATED BALANCE SHEETS AS AT JUNE 30, 2002 AND 2001
ASSETS
------
2002 2001
---- ----
CURRENT ASSETS
Cash and short-term investments $ 9,757 $ 18,194
Accounts receivable 3,509 -
Prepaid expenses - 115
-------- ---------
13,266 18,309
CAPITAL ASSETS (Note 4) 2,275 51,147
-------- ---------
$ 15,541 $ 69,456
======== =========
LIABILITIES
-----------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 66,726 $ 73,413
Due to related parties 128,471 27,094
-------- ---------
195,197 100,507
NON-CONTROLLING INTEREST 120,050 124,919
-------- ---------
SHAREHOLDERS' DEFICIENCY
------------------------
SHARE CAPITAL (Note 5) 13,503,911 13,503,911
DEFICIT (13,803,617) (13,659,881)
---------- -----------
(299,706) (155,970)
-------- ---------
$ 15,541 $ 69,456
========== ==========
APPROVED BY THE DIRECTORS:
"Peeyush K. Varshney"
- -------------------------
"Praveen K. Varshney"
- -------------------------
The accompanying notes are an integral part of the financial statements.
50
IGN INTERNET GLOBAL NETWORK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR YEARS ENDED JUNE 30, 2002, 2001 AND 2000
2002 2001 2000
---- ---- ----
REVENUE $ 6,538 $ 47,042 $ 59,401
-------------- -------------- -------------
EXPENSES
Amortization 3,650 348,131 732,476
Bank charges and interest 1,257 4,427 5,084
Bad debt - 7,401 -
Consulting - 67,391 7,312
Foreign exchange loss 1,368 218 1,955
Management fees 57,500 69,000 41,946
Office and administration1 5,495 42,771 11,254
Other - - 13,640
Professional fees 13,926 64,252 108,454
Regulatory fees, transfer agent and 8,781 13,464 12,101
shareholder information
Rent 21,506 19,993 9,763
Sales and marketing 301 72,624 48,652
Software maintenance (16,027) 124,704 186,464
Telephone and internet 903 83,545 52,875
Travel 808 9,548 11,604
Wages and benefits 1,256 150,630 143,243
Interest and other income (804) (16,552) (20,610)
Write-down of capital assets 43,370 13,566 31,187
Gain on forgiveness of debt - (1,803) (8,157)
Loss on disposal of capital assets - 27,616 -
-------------- -------------- -------------
153,290 1,100,926 1,389,243
-------------- -------------- -------------
LOSS FOR THE YEAR BEFORE
NON-CONTROLLING INTEREST (146,752) (1,053,884) (1,329,842)
NON-CONTROLLING INTEREST 3,016 54,126 83,339
-------------- -------------- -------------
NET LOSS FOR THE YEAR (143,736) (999,758) (1,246,503)
DEFICIT, BEGINNING OF YEAR (13,659,881) (12,660,123) (11,413,620)
-------------- -------------- -------------
DEFICIT, END OF YEAR $ (13,803,617) $ (13,659,881) $ (12,660,123)
============== ============== =============
LOSS PER SHARE $ (0.02) $ (0.10) $ (0.13)
-------------- -------------- -------------
The accompanying notes are an integral part of the financial statements
51
IGN INTERNET GLOBAL NETWORK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000
2002 2001 2000
---- ---- ----
OPERATING ACTIVITIES
Net loss for the year $ (143,736) $ (999,758) $ (1,246,503)
Items not involving cash:
Amortization 3,650 348,131 732,476
Bad debt - 7,401 -
Write-down of capital assets 43,370 13,566 31,187
Gain on forgiveness of debt - (1,803) (8,157)
Loss on disposal of capital assets - 27,616 -
Non-controlling interest (3,016) (54,126) (83,339)
-------------- -------------- -------------
(99,732) (658,973) (574,336)
Cash provided (used) by net changes in
non-cash working capital items:
Accounts receivable (3,509) 42,956 (16,434)
Prepaid expenses 115 59,891 (33,524)
Accounts payable and accrued liabilities (6,688) 4,801 (111,566)
Customer deposits - (12,404) 1,378
Due to related parties 101,377 25,847 1,247
-------------- -------------- -------------
(8,437) (537,872) (733,235)
-------------- -------------- -------------
INVESTING ACTIVITIES
Additions to capital assets - (9,136) (14,015)
Proceeds on disposal of capital assets - 5,001 68,945
-------------- -------------- -------------
- (4,135) 54,930
-------------- -------------- -------------
FINANCING ACTIVITIES
Special warrants - - 600,000
Net proceeds from issuance of common shares - - 35,000
Non-controlling interest - - -
-------------- -------------- -------------
- - 635,000
-------------- -------------- -------------
DECREASE IN CASH AND SHORT
TERM INVESTMENTS (8,437) (542,007) (43,305)
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF YEAR 18,194 560,201 603,506
-------------- -------------- -------------
CASH AND SHORT-TERM INVESTMENTS,
END OF YEAR $ 9,757 $ 18,194 $ 560,201
============== ============== =============
The accompanying notes are an integral part of the financial statements.
52
IGN INTERNET GLOBAL NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
1. NATURE AND CONTINUANCE OF OPERATIONS
The Company has been designated as inactive on June 01, 2002 by the TSX
Venture Exchange. The Company was previously in the business, through its
subsidiaries, of providing and developing internet services, including
gaming, financial services, advertising, commerce and broadcasting.
These financial statements have been prepared on the going concern basis
The Company commenced commercial operations in the 1998 fiscal year, and
had ceased operations on April 1, 2001 as there is too much competitionin
the internet casinos market. The Company is exploring other sources of
action, including the divestiture of the casino and/or other components of
the Company. The application of the going concern concept is dependent upon
the Company's ability to obtain necessary financing to meet its working
capital requirements, and to realize its capital assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries INTERFI Financial Services
Inc. (incorporated in Nevada, USA), Winstreak Services Limited
(incorporated in British Columbia, Canada) and IGN (BVI) Inc.
(incorporated in British Virgin Islands) which holds all the issued and
outstanding voting common shares of Internet Global Network (Barbados)
Inc. (incorporated in Barbados) and subsidiaries. The major subsidiaries
of Internet Global Network (Barbados) Inc. are INTERFI Corporation
(incorporated in St. Kitts) (wholly-owned) and Winventure Limited
(incorporated in British Virgin Islands) (86% owned) and Winventure
Limited's wholly-owned subsidiary WinStreak Limited (incorporated in
St. Kitts). The Company and IGN (BVI) Inc. are beneficiaries of The
InterActive Technology Trust which holds all of the issued and
outstanding non-voting common shares of Internet Global Network
(Barbados) Inc.
All material inter-company transactions and balances are eliminated on
consolidation.
53
IGN INTERNET GLOBAL NETWORK INC. Page 2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
b) Capital Assets
--------------
Capital assets are carried at cost less accumulated amortization. Annual
rates of amortization are as follows:
Computer hardware - 30% declining balance
Computer software, acquired - 100% straight-line
Furniture, fixtures and equipment - 20% declining balance
Deferred software development costs - straight-line, not exceeding
three years
Costs incurred to develop internal-use computer software are capitalized
during the application development stage only. Costs capitalized include
external direct costs of materials and services consumed in developing
internal-use software, and the excess purchase price over the net book
value of assets acquired pursuant to additional ownership interests
purchased in Winventure Limited (Note 3). All other costs incurred to
develop internal-use computer software are expensed as incurred.Software
development costs are amortized on a straight-line basis over a period
not exceeding three years.
Registration fees and related costs relating to an internet gaming
licence in St. Kitts were deferred and amortized on a straight-line
basis over two years.
c) Foreign Currency Translation
----------------------------
Integrated foreign operations and foreign denominated assets and
liabilities of Canadian operations are translated into Canadian dollars
at exchange rates prevailing at the balance sheet date for monetary
items and at exchange rates prevailing at the transaction date for
non-monetary items. Foreign denominated revenue and expense items are
translated at exchange rates prevailing at the transaction date, except
for amortization which is translated at historical rates of exchange.
Exchange gains and losses are recognized currently in income.
d) Income Taxes
------------
The Company has accounted for income taxes by the deferral method
whereby deferred income taxes are recognized for differences in the
timing for accounting and income tax purposes.
54
IGN INTERNET GLOBAL NETWORK INC. Page 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
e) Revenue Recognition
-------------------
Gaming revenue is recorded based on the net win from gaming operations
during the year.
f) Loss per Share
--------------
Loss per share has been calculated based on the weighted average number
of shares outstanding during the periods. Fully diluted loss per share
has not been presented as it would be anti-dilutive.
g) Use of Estimates
----------------
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant areas
requiring the use of management estimates relate to the recoverability
of capital assets. Actual results could differ from those estimates.
h) Financial Instruments
---------------------
The carrying amounts reported in the balance sheet for cash and short-
term investments, accounts receivable, receivable on sale of capital
assets, accounts payable and accrued liabilities, and amounts due to
related parties approximate their fair values due to the short-term
to maturity of these instruments.
i) Stock-based Compensation
------------------------
No compensation expense is recognized when stock or stock options are
issued to employees. Any consideration paid by employees on exercise
of stock options or purchase of stock is credited to share capital.
55
IGN INTERNET GLOBAL NETWORK INC. Page 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
3. ACQUISITIONS OF FURTHER INTERESTS IN SUBSIDIARY
Winventure Limited ("Winventure") and its wholly owned subsidiary, Winstreak
Limited, carried out the internet gaming development and operation
activities of the Company. Winventure has two other shareholders, one of
which is a related party. During the year ended June 30, 2002, the Company
did not acquire, through Internet Global Network (Barbados) Inc., any
additional ownership interest in Winventure, (2001 - 0.21%). The company
owns approximately 86% of the outstanding common shares of Winventure as at
June 30, 2002.
In previous years, additional acquisition had been accounted for using the
purchase method whereby the excess purchase price over the book value of
the identifiable net assets acquired was allocated to deferred software
development cost.
4. CAPITAL ASSETS
2002
-----------------------------------------
Accumulated Net book
Cost amortization value
----------- ------------ ----------
Computer hardware $ 5,032 $ 2,757 $ 2,275
Computer software, acquired - - -
Deferred software development costs - - -
----------- ------------ ----------
$ 5,032 $ 2,757 $ 2,275
=========== ============ ==========
2001
-----------------------------------------
Accumulated Net book
Cost amortization value
----------- ------------ ----------
Computer hardware $ 162,439 $ 116,221 $ 46,218
Computer software, acquired 592,034 589,359 2,675
Deferred software development costs 895,287 893,033 2,254
----------- ------------ ----------
$ 1,649,760 $ 1,598,613 $ 51,147
=========== ============ ==========
56
IGN INTERNET GLOBAL NETWORK INC. Page 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
5. SHARE CAPITAL
a) Authorized
----------
150,000,000 common shares without par value.
b) Issued and Fully Paid
---------------------
Number of shares Amount
---------------- ------
Balance, June 30, 1999 8,611,280 $ 12,343,911
Issued during the year for cash pursuant to:
Private placement 1,000,000 600,000
Exercise of options 54,000 35,000
Exercise of special warrants 500,000 525,000
Issued for finder's fee 148,500 111,600
Less issuance costs - (111,600)
---------- ------------
Balance, June 30, 2000 and 2001 10,313,780 $ 13,503,911
Cancellation of shares under escrow (2,125,000) -
---------- ------------
Balance, June 30, 2002 8,188,780 $ 13,503,911
========== ============
c) Stock Options
-------------
The Company has 1,023,000 stock options outstanding in total (2001 -
514,000). Summaries of options granted are as follows:
Number of Weighted average
shares exercise price
--------- ----------------
Balance, June 30, 1999 854,000 1.27
Granted 100,000 0.62
Exercised (54,000) 0.65
Cancelled / expired (51,000) 1.00
--------
Balance, June 30, 2000 849,000 0.62
Cancelled / expired (335,000) 0.19
-------
Balance, June 30, 2001 514,000 0.19
Granted 630,000 0.10
Cancelled / expired (121,000) 0.14
-------
Balance, June 30, 2002 1,023,000 0.10
=========
During the year ended June 30, 2002, 393,000 stock options with an
exercise price of $0.19 (2001 - $0.62) per share were amended to an
exercise price of $0.10 per share.
57
IGN INTERNET GLOBAL NETWORK INC. Page 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
5. SHARE CAPITAL - continued
As at June 30, 2002, the following stock options were outstanding:
Number of shares Exercise price Expiry date
---------------- -------------- -----------
390,000 $ 0.10 October 13, 2003
3,000 0.10 March 3, 2004
630,000 0.10 January 25, 2007
d) Shares held in Escrow
---------------------
As at June 30, 2002 the common shares are not subject to any escrow
agreement, which may not be transferred, assigned or otherwise dealt
with without the consent of regulatory authorities (2001 - 2,125,000).
e) Share Purchase Warrants
-----------------------
As at June 30,2002 there were no share purchase warrants(2001-1,000,000).
The 1,000,000 share purchase warrants expired on March 9,2002.
6. INCOME TAXES
The Company has approximately $3,679,000 non-capital Canadian income tax
loss carry forwards which expire as follows:
2003 $ 56,000
2004 701,000
2005 1,304,000
2006 653,000
2007 398,000
2008 447,000
2009 120,000
----------
$3,679,000
==========
58
IGN INTERNET GLOBAL NETWORK INC. Page 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
The tax benefit of these losses has not been reflected in the financial
statements.
7. RELATED PARTY TRANSACTIONS
(a) During the year, the Company accrued $57,000 (2001 - $60,000; 2000 -
$30,000) to companies controlled by a director of the Company for
management services.
(b) During the year, the Company accrued $12,000 (2001 - $12,000; 2000 -
$6,000) for administrative services to a company controlled by a
director and officer of the Company.
(c) During the year, the Company paid $Nil (2001 - Nil; 2000 - $994) for
internet services to a company with common directors.
(d) During the year, the Company accrued $21,506 (2001 - $12,381; 2000 -
$9,763) for rental charges to a company with common directors.
8. COMMITMENTS
The Company entered into a management service agreement with a company
controlled by a director of the Company to provide general management and
administrative services at a monthly charge of $5,000 and $1,000
respectively for a period of three years to December 31, 2002. Effective
June 1, 2002, the management fee had been reduced to $2,500 as a result of
the Company being designated as inactive by the TSX Venture Exchange.
59
IGN INTERNET GLOBAL NETWORK INC. Page 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
9. SEGMENTED INFORMATION
The Company had two reportable operating segments, being gaming and internet
services. Internet services include financial services and advertising. The
Company's operations and assets are located in Canada, Costa Rica and
St.Kitts.
a) Information about profit or loss and assets:
Internet
2002 Gaming Services Corporate Total
---- ------ -------- --------- -----
Revenues from
external customers $ 6,538 $ - $ - $ 6,538
Amortization - - 3,650 3,650
Loss from write-down
of capital assets 40,257 3,113 - 43,370
Loss for the year 16,190 4,174 123,372 143,736
Total assets 3 9,665 5,873 15,541
Internet
2001 Gaming Services Corporate Total
---- ------ -------- --------- -----
Revenues from
external customers $ 47,042 $ - $ - $ 47,042
Amortization 340,278 - 7,853 348,131
Loss on disposal of capital
assets 27,616 - - 27,616
Loss from write-down of
capital assets 13,566 - - 13,566
Gain on forgiveness of debt - - 1,803 1,803
Loss for the year 509,450 20,010 470,298 999,758
Total assets 42,109 16,202 11,145 69,456
Expenditures on capital assets - - 9,135 9,135
60
IGN INTERNET GLOBAL NETWORK INC. Page 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
9. SEGMENTED INFORMATION - CONTINUED
Internet
2000 Gaming Services Corporate Total
---- ------ -------- --------- -----
Revenues from
external customers $ 59,401 $ - $ - $ 59,401
Amortization 715,483 14,921 2,072 732,476
Loss from write-down of
capital assets 14,993 12,266 3,928 31,187
Gain on forgiveness of debt - (12,621) 4,464 (8,157)
Loss for the year 829,987 23,655 392,861 1,246,503
Total assets 440,644 28,879 609,488 1,079,011
Expenditures on capital
assets 8,984 - 5,031 14,015
b) Geographic information:
2002 2001 2000
------------------------ ------------------------- ------------------------
Revenues Capital assets Revenues Capital assets Revenues Capital assets
------------------------ ------------------------- ------------------------
Canada $ - $ 2,275 $ - $ 28,149 $ - $ 79,395
Costa Rica - - - 14,843 - 142,667
St. Kitts 6,538 - 47,042 8,155 59,401 193,786
-------- ----------- -------- ---------- -------- ----------
$ 6,538 $ 2,275 $ 47,042 $ 51,147 $ 59,401 $ 415,848
-------- ----------- -------- ---------- -------- ----------
Revenues are attributed to geographic segment based on location of
subsidiary or operating division.
10.RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
Except as described below, there are no material measurement differences in
these financial statements between Canadian generally accepted accounting
principles ("Canadian GAAP") and those applicable in the United States ("US
GAAP") or from practices prescribed by the Securities and Exchange
Commission.
a) Loss Per Share
--------------
Under US GAAP, the 2,125,000 shares held in escrow during the years
ended June 30, 2001 and 2000 would not have been included in the
calculation of the weighted average number of shares outstanding during
the years and would not have been included in the weighted average
number of shares outstanding used in the calculation of loss per share.
61
IGN INTERNET GLOBAL NETWORK INC. Page 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
10.RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES - continued
These escrow shares, together with options outstanding (Note 5(c)) have
not been included in the computation of fully diluted earnings per share
because to do so would be anti-dilutive. These escrow shares and options
could potentially dilute basic earnings per share in the future.
b) Income Taxes
------------
The Company has accounted for taxes by the deferral method whereby
deferred income taxes are recognized for differences in the timing of
recognition of revenue and expenses for accounting and income tax
purposes. US GAAP requires the use of the asset and liability method
of accounting for income taxes whereby deferred tax assets or
liabilities are recognized for estimated future tax effects attributable
to differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax bases, measured
using the provisions of enacted tax laws. However, the application of US
GAAP does not result in a material difference from accounting for income
taxes by the Company as no net value would be assigned to loss carry
forwards and timing differences related to capital assets under either
principles.
c) Stock-based Compensation
------------------------
Under Canadian GAAP the Company does not recognize any compensatory
element for options granted to employees, directors or non-employees.
The Financial Accounting Standards Board in the US has issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" which encourages entities to adopt a fair value methodology
of accounting for stock-based compensation. As permitted by the
statement, the Company has elected to continue measuring compensation
costs for employees using the intrinsic value based method of accounting.
62
IGN INTERNET GLOBAL NETWORK INC. Page 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
10.RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES - continued
c) Stock-based Compensation - continued
------------------------------------
Under the intrinsic value method, compensation is the excess, if any, of
the quoted market value of the stock at the date of the granting of
options to employees and directors to purchase stock over the amount an
optionee must pay to acquire the stock at that date. The excess is
recognized by a charge to operations over the vesting period. As the
exercise price of options granted by the Company to employees and
directors approximates, or is greater than, the market value at the
grant date, the Company has determined that the adoption of this
accounting policy for stock options granted to employees and directors
has no material effect on its financial position or results of operations
for US GAAP purposes.
Stock options granted to non-employees for services rendered to the
Company are required to be accounted for under US GAAP based on the fair
value of the services provided or the stock options granted and charged
to operations over the vesting period. The stock-based compensation
expense in respect of stock options to non-employees, under US GAAP,
based upon the fair value of the options using an option pricing model,
would be $900 for the year ended June 30, 2002 (2001-$nil; 2000-$9,045).
The significant assumptions used to estimate the market value of the
options included a risk free interest rate of 3.5%, a weighted average
expected life of five years, expected volatility of 103% and expected
dividends of $nil.
d) Derivative Instruments and Hedging Activity
-------------------------------------------
Effective for fiscal years beginning after June 15, 2000, Statement of
Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for
Derivative Instruments and Hedging Activity", is applicable for US GAAP
purposes. SFAS 133 established accounting and reporting standards for
derivative instruments and for hedging activities. As at June 30, 2002,
the Company does not have any derivative or hedging instruments and,
therefore, does not believe the adoption of SFAS 133 would result in a
material GAAP difference.
e) Certain Transactions Involving Stock Compensation
-------------------------------------------------
The Financial Accounting Standards Board issued interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation" ("FIN
No. 44"), in March 2000. This interpretation clarifies the application
of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", with respect to certain issues in accounting for
employee stock-based compensation and is generally effective as of
July 1, 2000.
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IGN INTERNET GLOBAL NETWORK INC. Page 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
10.RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES - continued
e) Certain Transactions Involving Stock Compensation - continued
-------------------------------------------------------------
Under FIN No. 44, the stock options that have been repriced as described
in Note 5(c) will be classified as variable options with the effect, that
from July 1, 2000, a compensation expense will be recorded in each period
on these options to the extent that the market price of the Company's
shares as at each period end exceeds the greater of the exercise price
and the market value of the shares on July 1, 2000. As at June 30, 2002
and 2001, the market price of the Company's shares was lower than the
exercise price and the market value of the shares on July 1, 2000.
Therefore, the adoption of FIN No. 44 does not result in a material
GAAP difference.
f) Reconciliation
--------------
The effect of these differences on the loss, loss per share and financial
position as reported under Canadian GAAP would be as follows:
2002 2001 2000
---- ---- ----
Loss, Canadian GAAP $ (143,736) $ (999,758) $ (1,246,503)
Stock based compensation
(Note 10(c)) (900) - (9,045)
------------ ------------ ------------
Loss, US GAAP $ (144,636) $ (999,758) $ (1,255,548)
------------ ------------ ------------
Loss per share, US GAAP $ (0.02) $ (0.12) $ (0.17)
------------ ------------ ------------
Weighted average number
of common shares
outstanding, US GAAP 8,188,780 8,188,780 7,202,303
------------ ------------ ------------
Share capital, Canadian
GAAP $ 13,503,911 $ 13,503,911 $ 13,503,911
Stock based compensation
(Note 10(c)) 19,929 19,029 19,029
------------ ------------ ------------
Share capital, US GAAP $ 13,523,840 $ 13,522,940 $ 13,522,940
------------ ------------ ------------
Deficit, Canadian GAAP $(13,803,617) $(13,659,881) $(12,660,123)
Stock based compensation
(Note 10(c)) (19,929) (19,029) (19,029)
------------ ------------ ------------
Deficit, US GAAP $(13,823,546) $(13,678,910) $(12,679,152)
------------ ------------ ------------
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