TITAN TRADING ANALYTICS INC.
CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31, 2002
Collins Barrow Suite 800
Chartered Accountants 1030 West Georgia Street
Vancouver, Canada
V6E 3B9
T. 604 685 0564
F. 604 685 2050
e-mail: vancouver@collinsbarrow.com
AUDITORS' REPORT
-----------------
To the Shareholders of
Titan Trading Analytics Inc.
We have audited the consolidated balance sheets of Titan Trading Analytics Inc.
as at October 31, 2002 and 2001 and the consolidated statements of operations
and deficit and cash flows for each of the years in the three-year period ended
October 31, 2002. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at October 31,
2002 and 2001 and the results of its operations and cash flows for each of
the years in the three year period ended October 31, 2002 in accordance with
generally accepted accounting principles in Canada. As required by the Company
Act (British Columbia), we report that, in our opinion, these principles have
been applied on a consistent basis.
"Collins Barrow"
CHARTERED ACCOUNTANTS
Vancouver, Canada
March 2, 2003
TITAN TRADING ANALYTICS INC.
----------------------------
(Incorporated under the laws of British Columbia)
CONSOLIDATED BALANCE SHEET
--------------------------
OCTOBER 31
----------
- -------------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------------
ASSETS
Current assets
Cash, due from brokers, and short-term investments $ 819 $ 375,417
Accounts receivable 2,296 3,813
Prepaid expenses --- 1,934
-----------------------
3,115 381,164
Software and systems development (note 3) --- 224,250
Capital assets (note 4) 5,000 42,490
-----------------------
$ 8,115 $ 647,904
=======================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 53,980 $ 32,707
-----------------------
SHAREHOLDERS' EQUITY
Share capital (note 5) 3,715,938 3,715,938
Deficit (3,761,803) (3,100,741)
-----------------------
(45,865) 615,197
-----------------------
$ 8,115 $ 647,904
=======================
- -------------------------------------------------------------------------------
Approved by the Directors
"Ken Powell" , Director
- ---------------
"Michael Gossland" , Director
- ------------------
See accompanying notes to the consolidated financial statements
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
------------------------------------------------
- ------------------------------------------------------------------------------------
Year Ended October 31
2002 2001 2000
- ------------------------------------------------------------------------------------
Software and subscription sales $ 45,374 $ 40,894 $ 26,505
-----------------------------------------
Expenses
Advertising, marketing and promotion 15,013 24,806 90,676
Amortization 246,300 192,833 188,584
Bank charges 2,758 2,479 2,850
Bad debt 3,000 --- ---
Directors' fees --- 5,000 5,000
Financing fees --- 23,683 ---
Foreign exchange loss (gain) 2,938 (4,560) 7,686
Investor relations 15,724 39,182 111,582
Management fees 61,456 64,938 114,322
Office and miscellaneous 19,273 27,297 20,786
Professional fees 28,677 32,987 31,126
Rent 5,439 5,611 5,374
Research and development 78,558 106,023 ---
Salaries and benefits 210,409 159,425 105,056
System testing 7,857 16,729 ---
Telephone 6,242 9,434 9,275
Travel 3,373 13,120 8,862
-----------------------------------------
707,017 718,987 701,179
-----------------------------------------
(661,643) (678,093) (674,674)
Interest and other income 581 11,802 15,605
Net loss for the year (661,062) (666,291) (659,069)
Deficit, beginning of the year (3,100,741) (2,434,450) (1,775,381)
------------------------------------------
Deficit, end of the year $ (3,761,803) $(3,100,741) $ (2,434,450)
=============================================
Net loss per share (note 7(e)) $(.07) $(.07) $(.07)
=============================================
- -------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
- -------------------------------------------------------------------------------------------------
Year Ended October 31
2002 2001 2000
- -------------------------------------------------------------------------------------------------
Cash flows from (used in) operating activities
Net loss for the year $ (661,062) $ (666,291) $ (659,069)
Adjustments for:
Amortization 246,300 192,833 188,584
Foreign exchange loss (gain) 2,938 (4,560) 7,686
Loss on disposition of capital assets 1,021 --- ---
----------------------------------------
(410,803) (478,018) (462,799)
Net change in non-cash working capital balances
Decrease (increase) in accounts receivable 1,517 1,956 (2,040)
Decrease (increase) in prepaid expenses 1,934 3,542 (4,730)
Increase (decrease) in accounts
payable and accrued liabilities 21,273 15,260 (5,046)
----------------------------------------
Cash used in operating activities (386,079) (457,260) (474,615)
----------------------------------------
Cash flows from (used in) investing activities
Software and systems development --- (104,889) (226,423)
Disposition (acquisitions) of capital assets 14,419 (17,392) (14,861)
----------------------------------------
Cash from (used in) investing activities 14,419 (122,281) (241,284)
----------------------------------------
Cash flows from financing activities
Issuance of common shares --- 340,000 572,976
----------------------------------------
Cash from financing activities --- 340,000 572,976
----------------------------------------
Foreign exchange gain (loss) on cash held in
foreign currency (2,938) 4,560 (7,686)
----------------------------------------
Net decrease in cash during the year (374,598) (234,981) (150,609)
Cash, due from brokers, and short-term
investments, beginning of the year 375,417 610,398 761,007
----------------------------------------
Cash, due from brokers, and short-term
investments, end of the year $ 819 $ 375,417 $ 610,398
========================================
- -------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 2002
----------------
1. Continued operations
These financial statements have been prepared on the basis of accounting
principles applicable to a going concern, which assume that the company will
continue in operation for the foreseeable future and will be able to realize
its assets and discharge its liabilities in the normal course of operations.
However, the company has incurred significant operating losses over the past
three fiscal years and has a working capital deficiency. The company has an
urgent need for equity capital and financing for working capital
requirements.
2. Significant accounting policies
These financial statements are prepared in accordance with accounting
principles generally accepted in Canada which do not differ from those
established in the United States, except as disclosed in note 8.
a) Consolidation - The financial statements include the accounts of the
company and of its wholly-owned subsidiary, Titan Trading Corp.
b) Short-term investments - Short-term investments are carried at the lower
of cost or market. Gains and losses from trading short-term investments
are recognized as income on the trade date.
c) Research and development - Research costs are expensed when incurred.
Development costs are expensed when incurred prior to the establishment
of technical feasibility. Subsequent to the establishment of technical
feasibility, the costs associated with the development of a commercial
product for which adequate resources exist to market the product or a
product to be used internally are capitalized as software and systems
development. Capitalization of development costs ceases when the product
is available for general release to customers or once internal
utilization commences.
d) Software and systems development - Software and systems development costs
are amortized on a product by product basis at the greater of (i) the
ratio of gross revenues over aggregate anticipated gross revenues or
(ii) straight-line over the remaining estimated economic life of the
related products. The estimated economic life of the company's products
does not exceed three years.
e) Capital assets - Capital assets are recorded at cost and amortized at
the following annual rates:
Computer equipment - 30% declining balance
Furniture and equipment - 20% declining balance
f) Future income taxes - The company follows the liability method of
accounting for income taxes. Under this method, current income taxes
are recognized for the estimated income taxes payable for the current
year. Future income tax assets and liabilities are recognized for
temporary differences between the tax and accounting bases of assets
and liabilities. In addition, the benefit of losses available to be
carried forward to future years for tax purposes that are likely to be
realized are recognized.
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 2002
----------------
2. Significant accounting policies - continued
g) Software and subscription sales - Revenue arising from software and
subscription sales is recognized at the time of the sale unless the
company is obligated to provide services in the future in which case
a portion of the revenue is deferred until the services have been
performed.
h) Stock option plan - 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.
i) Foreign currency translation - Foreign currency transactions are
translated using the temporal method, whereby:
i) monetary items are translated at the rate of exchange in effect at
the balance sheet date;
ii) non-monetary items are translated at historical exchange rates; and
iii) revenue and expense items are translated at the average rate of
exchange for the year.
j) Use of estimates - The preparation of financial statements in conformity
with 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. Actual results could differ
from those estimates.
k) Cash and cash equivalents - Cash and cash equivalents includes highly
liquid investments that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value.
Investments with an original maturity of more than three months are not
included in cash and cash equivalents.
3. Software and systems development
2002 2001
---- ----
Cost $ 947,877 $ 947,877
Accumulated amortization (947,877) (723,627)
------------------------------
$ --- $ 224,250
==============================
Software and systems development cost is comprised of:
Computer services $ 103,018
Contract services 728,095
Other 79,539
Rent 12,510
Salaries 24,715
----------
$ 947,877
==========
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 2002
----------------
4. Capital assets
- -----------------------------------------------------------------------------------------
2002
---------------------------------------
Accumulated
Cost Amortization Net
---------------------------------------
Computer equipment $ 12,000 $ 7,000 $ 5,000
Furniture and equipment --- --- ---
---------------------------------------
$ 12,000 $ 7,000 $ 5,000
=======================================
2001
---------------------------------------
Accumulated
Cost Amortization Net
---------------------------------------
Computer equipment $ 87,377 $ 52,970 $ 34,407
Furniture and equipment 17,777 9,694 8,083
---------------------------------------
$ 105,154 $ 62,664 $ 42,490
=======================================
- -----------------------------------------------------------------------------------------
5. Share capital
- -----------------------------------------------------------------------------------------
Number
of Shares Amount
- -----------------------------------------------------------------------------------------
Authorized
100,000,000 common shares, without par value
Issued
Issued for cash during the period ended October 31, 1994 1 $ 1
Issued for cash 4,114,000 1,314,900
--------------------------
Balance, October 31, 1995 4,114,001 1,314,901
Issued for cash 4,302,000 1,055,500
Share issue costs --- (141,089)
--------------------------
Balance, October 31, 1996 8,416,001 2,229,312
Issued for cash 316,000 442,400
--------------------------
Balance, October 31, 1997 8,732,001 2,671,712
Issued for cash 125,000 131,250
--------------------------
Balance, October 31, 1998 and 1999 8,857,001 2,802,962
Issued for cash 275,965 572,976
--------------------------
Balance, October 31, 2000 9,132,966 3,375,938
Issued for cash 680,000 340,000
--------------------------
Balance, October 31, 2001 and 2002 9,812,966 $ 3,715,938
==========================
- -----------------------------------------------------------------------------------------
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 2002
----------------
5. Share capital - continued
2,850,000 of the common shares issued during 1996 are held in escrow.
The release from escrow is based upon the policies of the British Columbia
Securities Commission and is based upon the passage of time.
The company amended its stock option plan in 2001 to provide options to
directors, officers and employees for up to 1,936,593 common shares.
Directors, Officers and Common Share
Employee Stock Options Purchase Warrants
----------------------- -----------------
Outstanding, November 1, 2000
Number 825,000 250,067
Exercise price $0.90 to July 2001 $2.55 to May 2001
$3.00 to September 2001
Number 72,852
Exercise price $0.85 to January 2004
Number 431,250
Exercise price $1.00 to April 2004 ---
Amended during 2001
Number 1,250,000 ---
Exercise price 825,000 from $0.90 to $0.61
to January 2006
425,000 from $1.00 to $0.61
to January 2006
Issued during 2001
Number 255,000 vesting over 18 months 550,000
Exercise price $0.61 to January 2006 $0.61 to February 2003
Number 250,000 vesting over 18 months 130,000
Exercise price $0.50 to May 2006 $0.61 to March 2003
Expired during 2001
Number (79,102) (250,067)
Exercise price 72,852 at $0.85 to January 2001 $3.00 to September 2001
6,250 at $1.00 to April 2004
Amended during 2002
Number 1,235,000 ---
Exercise price from $0.61 to $0.25
to January 2006
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 2002
----------------
5. Share capital - continued
Directors, Officers and Common Share
Employee Stock Options Purchase Warrants
----------------------- -----------------
Issued during 2002
Number 570,000 vesting over 24 months ---
Exercise price $0.25 to January 2006
Retracted during 2002
Number (270,000)
Exercise price $0.61 to January 2006 ---
---------------------------------------------------------
Outstanding, October 31, 2002 2,055,000 680,000
========= =======
See note 9.
6. Future income taxes
The tax effect of significant temporary differences is as follows:
2002 2001
---- ----
Future income tax liabilities related to Software
and Systems development costs $ --- $ 100,000
--------------------------
Operating loss carryforwards 1,307,000 1,485,000
Other 15,000 41,000
--------------------------
Future income tax assets before valuation allowance 1,322,000 1,526,000
Valuation allowance (1,322,000) (1,426,000)
--------------------------
Future income tax assets --- 100,000
--------------------------
Net future income tax liabilities $ --- $ ---
===========================
The company has determined that realization is not more likely than not
and therefore a valuation allowance against the future income tax assets
has been recorded.
A reconciliation between the company's statutory and effective tax rates
is as follows:
2002 2001
---- ----
Statutory rate 38% 45%
Unrecognized benefit of current year's tax loss (38%) (45%)
--------------------------
Effective tax rate --- ---
==========================
The financial statements do not reflect the potential tax reductions which
may be available through the application of losses of approximately
$3,440,000 carried forward against future years' earnings otherwise subject
to income taxes.
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 2002
----------------
6. Future income taxes - continued
The losses expire as follows:
2003 $ 373,000
2004 248,000
2005 470,000
2006 598,000
2007 725,000
2008 586,000
2009 440,000
------------
$ 3,440,000
============
7. Other information
a) Related party transactions
Included in the consolidated statement of operations and deficit are the
following transactions with officers and directors and related
individuals:
2002 2001 2000
---- ---- ----
Management fees $ 59,456 $ 64,938 $ 114,322
Rent $ 5,100 $ 5,100 $ 5,100
Research and development $ 65,409 $ 83,554 $ ---
Software and systems development costs incurred during 2002 includes $NIL
(2001 - $97,793) paid to officers and directors.
At October 31, 2002, $31,103 (2001 - $10,159) due to officers and
directors is included in accounts payable and accrued liabilities.
Share issue costs for 1996 include $18,000 paid to an officer and
director.
The related party transactions are in the normal course of operations and
are recorded at the amount paid.
b) Financial instruments
The company's financial instruments consist of cash, due from brokers,
and short-term investments, accounts receivable, and accounts payable.
It is management's opinion that the company is not exposed to significant
interest, currency or credit risks arising from these financial
instruments. The fair values of these financial instruments approximate
their carrying values, unless otherwise noted.
c) Geographic information
Substantially all of the company's software and subscription sales are to
customers in the United States.
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 2002
----------------
7. Other information - continued
d) Foreign exchange gains and losses
Foreign exchange gains and losses arising from changes in the exchange
rate between Canadian and United States currency arose because of holding
cash and short-term investments.
e) Loss per share
The net loss per share is calculated on the basis of the weighted average
number of shares outstanding during the year which for 2002 was 9,812,966
(2001 - 9,592,473; 2000 - 8,895,091).
f) Cash used in operating activities includes:
2002 2001 2000
---- ---- ----
Bank charges and interest paid $ 2,758 $ (2,479) $ (2,850)
Interest received $ 581 $ 11,802 $ 15,604
8. United States accounting principles
a) Balance sheet
There are no differences between United States generally accepted
accounting principles and Canadian generally accepted accounting
principles that would result in material changes to the balance sheet.
b) Short-term investments
Under United States generally accepted accounting principles, short-term
investments are recorded at market value. At October 31, 2002 and 2001,
there were no differences between the cost and the market value of the
short-term investments.
c) Escrow shares
Under United States generally accepted accounting principles, the
2,850,000 common shares held in escrow were considered contingent shares
until 2002 when the release from escrow became based upon the passage of
time. When these shares are released from escrow, to the extent their
fair market value exceeds their issuance price, compensation expense
would be recognized by the company.
d) Share issue costs
Under United States generally accepted accounting principles, share issue
costs paid to employees are required to be expensed. Accordingly, share
issue costs of $18,000 paid to an officer and director in 1996 would
result in an increase in management fees expense in 1996.
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 2002
----------------
8. United States accounting principles - continued
e) Cost of sales
Under United States generally accepted accounting principles, cost of
sales is required to be separately disclosed. The cost of sales for
software and subscription sales included in expenses is comprised of:
2002 2001 2000
---- ---- ----
Amortization of software and
systems development $ 224,250 $ 173,334 $ 174,417
Delivery 1,077 877 1,866
---------------------------------------
$ 225,327 $ 174,211 $ 176,283
f) Foreign currency translation
The application of the temporal method of foreign currency translation
has not resulted in material differences from United States generally
accepted accounting principles.
g) Loss per share
Under United States generally accepted accounting principles, the loss
per share is calculated on the basis that the weighted average number of
shares outstanding during the year excludes shares which are considered
contingent shares. On that basis:
2002 2001 2000
---- ---- ----
Weighted average number of shares
outstanding 6,818,308 6,592,473 5,895,091
===================================
Net loss per share $(.10) $(.10) $(.11)
===================================
h) Stock options
Under United States generally accepted accounting principles, granting of
stock options to directors, officers and employees or repricing stock
options may give rise to a charge to income for compensation. The
company has prepared its financial statements in accordance with APB 25
under which stock options are measured by the intrinsic value method
whereby directors, officers and employee compensation cost is limited to
the excess of the quoted market price at date of grant or repricing over
the option exercise price and the excess of the quoted market price at
October 31st over the quoted market price at the date of repricing.
Since the exercise price equalled or exceeded the quoted market price at
the dates the stock options were granted or repriced and immediately prior
to October 31st, there was no compensation cost to be recognized. Had the
company fully adopted the recommendations of SFAS 123 and valued the
options using a fair market value method such as the Black-Scholes option
pricing model, there would be an increase in employee and director
compensation costs charged to income of $132,000 in 2002 and $146,360 in
2001. The weighted average grant date fair market value of options
granted in 2002 and 2001 was determined using the Black-Scholes option
pricing model assuming a risk-free interest rate of 2.0% and 6.50%; an
option life of 3.75 years and 5 years; an expected volatility of 30% and
97% and that no dividends would be paid until after the expiry date of the
options.
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 2002
----------------
8. United States accounting principles - continued
h) Stock options - continued
For purposes of these calculations, the estimated fair value of the
options were amortized to expense over the vesting periods.
2002 2001 2000
---- ---- ----
Net loss under United States generally
accepted accounting principles $ (661,643) $ (666,291) $ (659,069)
Increase in directors', officers', and
employees' compensation (132,000) (146,360) ---
---------------------------------------------
Net loss if SFAS 123 adopted $ (793,643) $ (812,651) $ (659,069)
=============================================
Net loss per share if SFAS 123 adopted $ (.12) $ (.12) $ (.11)
=============================================
9. Subsequent event
Subsequent to October 31, 2002, the company entered into private placement
subscription agreements to issue 1,000,000 units at $.10 per unit. Each
unit will consist of one common share and one two-year non-transferable
share purchase warrant which will entitle the holder to purchase another
common share of the company for $.10. The company has not yet received
the funds related to the subscriptions nor regulatory approval.