EX-99.1 2 filing_411-1.htm PTLS AUDITED FINANCIAL STATEMENTS AND NOTES AS OF MARCH 31, 2006 AND FOR THE YEAR THEN ENDED TOGETHER WITH RECONCILIATION TO US GAAP.

PTL ELECTRONICS LTD.

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006


CONTENTS


INDEPENDENT AUDITOR’S REPORT


CONSOLIDATED FINANCIAL STATEMENTS:


Consolidated Balance Sheets

2 

 

 

Consolidated Statements of Operations

3 

 

 

Consolidated Statements of Cash Flows

4 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5-13 





LAWRENCE WOOD LTD.

 

1800 – 1177 West Hastings Street.

Chartered Accountants

 

Vancouver, British Columbia

Canada V6E 2K3

Tel: 604 688 6191

Fax: 604 688 2052

Lawrence Woo CA Principal

 

 




PTL ELECTRONICS LTD.


AUDITORS’ REPORT


To the Shareholders of PTL Electronics Ltd:


We have audited the Balance Sheet of PTL Electronics Ltd. As at March 31, 2006 and the Statements of Operations and Profit and Cash Flows for the year then ended.  These financial statements are the responsibility of the company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.


We conducted our audit in accordance with Canadian 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 assessing the overall financial statements presentation.  


We were appointed auditor of the company during the current year and all opening balances of the financial statements are prepared by the company’s management without audit.  Since all the opening balances entered into the determination of the current year’s figures, financial ratios and cash flows, we were unable to determine whether adjustments to the opening balance might be necessary.


Except for the effect of the unaudited opening balances, as described in the preceding paragraph, in our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at March 31, 2006 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.  Accounting principles generally accepted in Canada can differ in certain significant respects from accounting principles generally accepted in the United States of America and are discussed in note 13 to these financial statements.


/s/ Lawrence Woo




Vancouver, British Columbia

June 28, 2006, except as to note 13

which is as of January 31, 2007





COMMENTS BY AUDITORS FOR US READERS


In the United States, reporting standards of the Public Company Accounting Oversight Board 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’ ability to continue as a going-concern, such as described in note 1 to the financial statements.  Our report to the shareholders dated June 28, 2006, 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.


/s/ Lawrence Woo


Vancouver, British Columbia

June 28, 2006, except as to note 13

which is as of January 31, 2007





PTL ELECTRONICS LTD

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEETS

 

 

 

 

 

(Audited- See Auditor's Report)

 

 

 

 

 

As at March 31, 2006

 

 

 

 

 

 

 

 

 

2006

 

 

2005

 

 

 

 

 

 

 

(Unaudited- see

ASSETS

 

 

 

 

Note 11)

 

Current

 

 

 

 

 

 

 

Accounts Receivable

$ 

       1,288,100 

 

$ 

           313,276 

 

 

Inventories (Note 4)

 

       1,732,847 

 

 

         1,590,799 

 

 

Other receivable (Note 6)

 

         349,762 

 

 

           288,350 

 

 

Prepaid expenses and deposits

 

           18,590 

 

 

               6,195 

 

 

 

 

       3,389,299 

 

 

         2,198,620 

 

 

 

 

 

 

 

 

 

Capital assets, net (Note 5)

 

         752,414 

 

 

           725,433 

 

Goodwill from purchase, net

 

       1,113,805 

 

 

         1,113,805 

 

Minority interest investment (Note 6)

 

22260 

 

 

238236 

 

 

 

 

 

 

 

 

 

 

 

$ 

       5,277,778 

 

$ 

         4,276,094 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDER'S EQUITY

 

 

 

 

 

Current

 

 

 

 

 

 

 

Bank overdraft (Note 7)

$ 

         449,930 

 

$ 

           113,641 

 

 

Accounts payable and accrued liabilities

 

       1,104,140 

 

 

         1,487,817 

 

 

Income taxes payable

 

         177,505 

 

 

                      - 

 

 

Other payables

 

         186,710 

 

 

             99,000 

 

 

Demand Loan (Note 8)

 

         400,668 

 

 

           288,350 

 

 

 

 

       2,318,953 

 

 

         1,988,808 

 

 

 

 

 

 

 

 

 

Shareholder's loan account

 

       2,288,224 

 

 

         2,291,753 

 

 

 

 

 

 

 

 

 

 

 

 

       4,607,177 

 

 

         4,280,561 

 

 

 

 

 

 

 

 

SHAREHOLDER'S EQUITY

 

 

 

 

 

 

Capital Stock (Note 9)

 

                100 

 

 

100 

 

Retained earnings (deficit)

 

         670,501 

 

 

(4,567)

 

 

 

 

         670,601 

 

 

(4,467)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 

       5,277,778 

 

$ 

         4,276,094 

 

 

 

 

 

 

 

 

 

The accompanying notes form an integral part of these financial statements.





PTL ELECTRONICS LTD

 

 

 

 

 

Statements of Operations and Profit

 

 

 

 

 

(Audited- See Auditor's Report)

 

 

 

 

 

For the period ended March 31, 2006

 

 

 

 

 

 

 

 

 

2006

 

 

2005

 

 

 

 

 

 

 

(Unaudited- see

 

 

 

 

 

 

 

Note 11)

Revenue

 

 

 

 

 

 

 

Manufacturing Revenue

$ 

     10,239,236 

 

$ 

                    - 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

 

 

 

 

 

Direct material and associated costs

 

       5,958,033 

 

 

                    - 

 

 

Direct labor costs

 

       1,403,610 

 

 

                    - 

 

 

 

 

       7,361,643 

 

 

                    - 

 

 

 

 

 

 

 

 

 

 

 

 

       2,877,593 

 

 

                    - 

 

 

 

 

 

 

 

 

 

Sales and marketing expenditures

 

 

 

 

 

 

 

Advertising and promotion

 

             3,791 

 

 

                    - 

 

 

Meals and entertainment

 

           12,612 

 

 

                    - 

 

 

Wages and benefits

 

         146,043 

 

 

                    - 

 

 

 

 

         162,446 

 

 

                    - 

 

 

 

 

 

 

 

 

 

Gross Margin

 

       2,715,147 

 

 

                    - 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

 

 

 

 

 

Automobile

 

           12,394 

 

 

                    - 

 

 

Bad debts

 

           20,969 

 

 

                    - 

 

 

Bank charges

 

           10,830 

 

 

                    - 

 

 

Equipment lease

 

           71,255 

 

 

                    - 

 

 

Foreign exchange loss

 

           84,747 

 

 

                    - 

 

 

Insurance

 

           32,389 

 

 

                    - 

 

 

Repairs and maintenance

 

           35,249 

 

 

                    - 

 

 

Office and miscellaneous

 

           31,385 

 

 

                    - 

 

 

Professional fees

 

           65,155 

 

 

                    - 

 

 

Rent and utilities

 

         176,757 

 

 

                    - 

 

 

Production supplies

 

             6,692 

 

 

                    - 

 

 

Telephone

 

           21,248 

 

 

                    - 

 

 

Travel

 

           22,966 

 

 

                    - 

 

 

Wages and benefits

 

         728,061 

 

 

                    - 

 

 

 

 

       1,320,097 

 

 

                    - 

 

 

 

 

 

 

 

 

 

Net Profit/(loss) before interest, depreciation

 

 

 

 

 

 

 

and income taxes

 

       1,395,050 

 

 

                    - 

 

 

Corporate income taxes

 

(174,644)

 

 

                    - 

 

 

Depreciation

 

(264,195)

 

 

(4,567)

 

 

Interest on shareholder's loan

 

(90,881)

 

 

                    - 

 

 

Interest on debt and finance charges

 

(85,589)

 

 

                    - 

 

 

 

 

779,741 

 

 

(4,567)

 

 

 

 

 

 

 

 

 

 

Loss on investments (Note 6)

 

(104,673)

 

 

                    - 

 

Net Profit/(loss) for the year

 

675,068 

 

 

(4,567)

 

Retained earnings/(deficit), beginning of the year

 

(4,567)

 

 

                    - 

 

 

 

 

 

 

 

 

 

Retained earnings/(deficit), end of year

$ 

         670,501 

 

$ 

(4,567)

 

Basic earnings/(loss) per share

 

 

 

 

 

 

 

Weighted average 1,000,000 common shares

$ 

0.67 

 

$ 

0 

 

 

 

 

 

 

 

 

 

The accompanying notes form an integral part of these financial statements.





PTL ELECTRONICS LTD

 

 

 

 

 

 

 

 

 

 

 

 

 

Statements of Cash Flows

 

 

 

 

 

(Audited- See Auditor's Report)

 

 

 

 

 

For the period ended March 31, 2006

 

 

 

 

 

 

 

 

 

2006

 

 

2005

 

 

 

 

 

 

 

(Unaudited- see

 

 

 

 

 

 

 

Note 11)

Operating Activities

 

 

 

 

 

 

Net Income (loss) for the year

$ 

         675,068 

 

$ 

(4,567)

 

Adjustments to reconcile net income to cash

 

 

 

 

 

 

  provided by operating activities:

 

 

 

 

 

 

 

Amortization

 

         264,195 

 

 

               4,567 

 

 

 

 

 

 

 

 

 

(Increase) decrease in:

 

 

 

 

 

 

 

Accounts receivable

 

(1,036,236)

 

 

                    - 

 

 

Inventories

 

(142,048)

 

 

                    - 

 

 

Prepaid expenses and deposits

 

(12,395)

 

 

                    - 

 

 

 

 

 

 

 

 

 

Increase (decrease) in:

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

(295,967)

 

 

                    - 

 

 

Income tax payable

 

177,505 

 

 

                    - 

 

 

 

 

 

 

 

 

 

Cash used in operating activities

 

(369,878)

 

 

                    - 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

Purchase of capital assets

 

(291,176)

 

 

(730,000)

 

 

Decrease (increase) in goodwill

 

                  - 

 

 

(1,113,805)

 

 

Purchase of Net current Assets

 

                  - 

 

 

(611,803)

 

 

Decrease (increase) in investment

 

215,976 

 

 

(238,236)

 

 

Cash used in investing activities

 

(75,200)

 

 

(2,693,844)

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

Increase (decrease) in demand loan

 

112,318 

 

 

288,350 

 

 

Increase (decrease) in shareholder loan

 

(3,529)

 

 

2,291,753 

 

 

Increase (decrease) in share capital

 

                  - 

 

 

100 

 

 

Cash provided by financing activities

 

108,789 

 

 

2,580,203 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

(336,289)

 

 

(113,641)

 

 

 

 

 

 

 

 

 

Cash (deficiency), beginning of year

 

(113,641)

 

 

                    - 

 

 

 

 

 

 

 

 

 

Cash (deficiency), end of year

 

(449,930)

 

 

(113,641)

 

 

 

 

 

 

 

 

 

Represented by:

 

 

 

 

 

 

 

Bank overdraft

 

(449,930)

 

 

(113,641)

 

 

 

 

 

 

 

 

 

The accompanying notes form an integral part of these financial statements.




1.

Nature of Operations


The company was incorporated under the laws of British Columbia, Canada, on March 17, 2005.  The company is engaged in contract manufacturing of electronic circuit boards and related products.  Business is conducted principally in Canada.


Going Concern


These financial statements have been prepared on the assumption that the company is a going concern, meaning that it 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 business.


2.

Significant accounting policies


a)

Foreign exchange


The company’s functional currency and financial statement presentation is the Canadian dollar.  Foreign denominated monetary assets and liabilities are translated to their Canadian dollar equivalents using foreign exchange rated that prevailed at the balance sheet date.  Non-monetary items are translated at historical exchange, except for items carried at market value, which are translated at the rate of exchange in effect at the balance sheet date.  Exchange gains or losses arising on foreign currency translation are included in the determination of net profit (loss) for the year.


b)

Inventories


Inventories are recorded at the lower of cost or net realizable value.  Cost includes direct costs and applicable overhead for finished goods and work in progress.


c)

Amortization of property plant and equipment


Amortization of assets with fixed or determinable lives is provided at the following annual rates.  (Except in the year of purchase in which the Company uses ½ the normal rate).


Production equipment

- 30% declining balance

Furniture and fixtures

- 20% declining balance

Computer equipment

- 45% declining balance

Leasehold improvements

- straight line over five years


d)

Long-lived assets


The carrying value of long-lived assets, which includes property, plant and equipment is reviewed for impairment whenever events or circumstances indicate the recoverable value may be less than the carrying amount.  Recoverable value is based on estimates of undiscounted future net cash flows expected to be recovered from specific assets or groups of assets through use of future disposition.


Impairment charges are recorded in the period in which determination of impairment is made by management.

Assets with indefinite or indeterminable lives which includes goodwill, are not amortized and are reviewed for impairment on a reporting period basis using fair value determinations by management’s estimate of recoverable value.


e)

Costs of sales


Cost of sales includes materials, labor and overhead costs associated with the Contract Manufacturing.




f)

Earning (loss) per share


Basis earnings per share figures have been calculated using the weighted monthly average number of shares outstanding during the year.


g)

Measurement uncertainty


The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimated and assumption that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities to 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 allocation of overhead and other indirect costs to cost of sales and inventory, the determination of impairment of assets and useful lives for depreciation and amortization.  Financial results as determined by actual events could differ form those estimates.


h)

Risk management


Currency risk

Although the company conducts its business principally in Canada, the majority of its purchases are from sources in the United States and the Peoples Republic of China.  The company does not hedge its foreign currency exposure and accordingly may be at risk for foreign currency exchange fluctuations.


Credit risk

Credit risk is managed by dealing only with customers whose credit standing meet internally approved policies, and by ongoing monitoring of credit risk.  As at the year end, the company did not have significant concentrations of credit exposure to individual customers or related groups of customers.


Interest rate risk

The company currently has potential exposure to interest rate risk due to an operating line of credit and two demand non-revolving loans with floating interest rates.  The current maximum line of credit is $1,050,000 CND at the year end.


i)

Revenue recognition


Revenue is recognized upon shipment to the customers and customer acceptance.


3.

Financial instruments


The fair values of the Company’s cash, accounts receivable, bank indebtedness and accounts payable approximate their carrying amounts due to their immediate or short-term maturity.


The carrying amounts for long-term debts approximate fair values based on financing terms currently available to the Company on the measurement dates.




4.

Inventories


 

 

2006

 

2005

 

 

 

 

(Unaudited - see

 

 

 

 

Note 11)

 

 

 

 

 

Raw materials

$ 

     1,098,190 

$ 

       958,845 

Work in progress

 

       444,259 

 

       189,586 

Finished goods

 

       190,398 

 

       442,368 

Balance, June 30

$ 

     1,732,847 

$ 

    1,590,799 




5.

Capital assets



 

 

 

 

Accumulated

 

Net Book Value

 

 

Cost

 

Amortization

 

2006

 

2005

 

 

 

 

 

 

 

 

(Unaudited -

 

 

 

 

 

 

 

 

see Note 11)

Production equipment

$ 

       921,361 

 $ 

        238,509 

$ 

    682,852 

 $ 

          645,993 

Furniture and fixtures

 

        39,459 

 

           6,528 

 

      32,931 

 

            24,897 

Computer equipment

 

        50,356 

 

          21,684 

 

      28,672 

 

            44,584 

Leasehold improvements

 

        10,000 

 

           2,041 

 

        7,959 

 

              9,959 

 

$ 

    1,021,176 

 $ 

        268,762 

 $ 

    752,414 

 $ 

          725,433 



6.

Minority interest investment


The company has written down its minority interest investment held in Peripheron Technologies Ltd. from $238,236 CND to $22,260 CND due to decrease in market value of shares.  As per agreement, a portion of this loss is to be reimbursed by the shareholders who used these shares as their contribution to the shareholder’s loan account.  Amount receivable is $111,303.



7.

Bank Operating credit line


 

 

2006

 

2005

 

 

 

 

(Unaudited - see

 

 

 

 

Note 11)

 

 

 

 

 

Bank operating credit line

$ 

     1,050,000 

$ 

       850,000 







Under the terms of a bank overdraft agreement with the Hongkong Bank of Canada (“HSBC” or the “Bank”) the company has operating loan in the amount of $850,000 CAD which bears interest at the prime bank rate plus 1.25% per annum.


By the letter agreement dated July 12, 2005, the bank increased the overdraft facility above to a maximum principal amount of CAD $1,050,000.  Credit available as of March 31, 2006 was $600,000 ($1,050,000 - $449,930).


Security


The Bank indebtedness is secured as follows:

a)

By personal guarantees provided by the company’s shareholders

b)

General Security Agreement creating a first fixed charge over all present and after acquired property

c)

Security under Section 427 of the Bank Act (Canada)

d)

Assignment/endorsement to the Bank of all risk insurance, showing the Bank as first loss payee

e)

Assignment of key man life insurance in the amount of $250,000 CAD for each of two key executive


Financial covenants


The banking agreement provides that at all times while the Bank indebtedness is outstanding, the company will not, without the prior written consent of the Bank permit its:


1.

Ratio of total debt to tangible net worth to exceed 2.75 prior March 31, 2006 and 2.5 commencing March 31, 2006 and thereafter

2.

Current ratio at any time to be less than 1.0 prior to March 31, 2006 and 1.25 commencing March 31, 2006 and thereafter

3.

Tangible net worth to be reduced to less than the sum of CAD $750,000 at any time prior March 31, 2006 and thereafter

4.

Debt service coverage to fall below 125% at any time commencing March 31, 2006

5.

Made capital expenditures in any fiscal year in the amount exceeding the aggregate $100,000 CAD.


Based on this audited financial statement, the debt/equity ratio for year of 2006 is 8.23, exceeding 2.75 as required in the financial covenants by bank.



8.

Demand loan


Part of this balance ($235,668) was a result of the take over of the predecessor company’s business.  The company agreed to assume a financial obligation relating to the purchase of equipment.  This obligation is financed by the demand loan.  The vendor has agreed to repay the company within a three-year period.


9.

Share capital


A.

Authorized:

The authorized capital of the company consists of an unlimited number of shares divided into:

a)  Class A common voting shares without par value

b)  Class B common non-voting shares without par value

c)  Class C preferred non-voting shares

d)  Class D preferred non-voting shares


B.

Issued

a)  1,000,000 Class A common voting shares for the total consideration of $100 CAD





10.

Commitments


The Company has an operating lease commitment for plant and office premises, requiring payments in each of the next 2 years as follows:


2006

$156,014

2007

$  78,007


11.

Comparative figures


These are unaudited figures prepared by management.


12.

Subsequent events


a)

The company entered into a definitive agreement to sell all outstanding shares of PTL Electronics Ltd. on May 8, 2006.


b)

The company is named as a defendant in a writ filed on May 24, 2006 in the Supreme Court of B.C. by Peripheron Technologies Ltd.  Peripheron Technologies has named all current shareholders and the Corporation in a lawsuit regarding the original sale of the EMS division of Peripheron Technologies Ltd.



13.

Differences between Canadian and United States generally accepted accounting principles (Canadian GAAP and US GAAP)


(a)

Significant accounting policies


(i)

Revenue recognition


The Company recognizes revenue from the sale of product once the Company has fully complied with its obligations to customers through shipment.


The Company has no obligation to customers in terms of parts since the warranty remains with the vendors that manufacture the parts.  The Company does have an obligation for the term of one year for workmanship performed in assembling the product.  Warranty costs are included as part of Cost of Goods Sold expense.


(ii)

Inventory


Inventory consists of unassembled parts and work in progress and is recorded at the lower of cost or net realizable value.  Cost of unassembled parts is determined using the weighted-average method.  The labour component of work in progress is determined based on the time spent per project.


(iii)

Recent US accounting pronouncements


(a)

July 13, 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.  109”  (“FIN 48”).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statement in accordance with Statement No.. 109 and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return.  FIN 48 is effective for fiscal years beginning after December 15, 2006.  The Company does not believe there will be any impact on Company’s operations.


(b)

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”), which replaced Accounting Principles Board



(“APB”) Opinion No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”..  SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principles.  It requires retrospective application to prior periods’ financial statements of changes in accounting principles, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.  This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  The Company does not believe there will be any impact on Company’s operations.



13.

Differences between Canadian and United States generally accepted accounting principles (Canadian GAAP and US GAAP).(Cont’d)


(a)

Significant accounting policies (Cont’d)


(iii)

Recent US accounting pronouncements (Cont’d)


(c)

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-Monetary Assets - An Amendment of APB Opinion No. 29” (“SFAS No. 153”).  SFAS No. 153 is the result of an effort to eliminate differences between US GAAP and International GAAP.  SFAS No. 153 states that the exchange value of non-monetary assets should be measured based on the fair value of the assets exchanged.  This statement is effective for non-monetary assets exchanges beginning June 15, 2005.  The Company does not believe there will be any impact on Company’s operations.


(d)

In December 2004, the FASB issued SFAS No. 151, “Inventory costs - An Amendment of ARB No. 43, Chapter 4” (“SFAS No. 151”).  SFAS No. 151 is the result of an effort to eliminate differences between US GAAP and International GAAP.  SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and spoilage should be expensed as incurred and included in inventory.  Further, SFAS No. 151 requires that allocation of fixed production overheads to conversion costs should be based on normal capacity of the production facilities.  The Company does not believe there will be any impact on Company’s operations.


(e)

Interpretation No. 46(R) “Consolidation of Variable Interest Entities” (“FIN 46(R)”) applies at different dates to different types of enterprises and entities, and special provisions apply to enterprises that have fully or partially applied Interpretation No. 46.  Application of Interpretation No. 46 or FIN 46(R) is required in financial statements of public entities that have interests in variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003.  Application by public entities (other than small business issuers) for all other types of entities is required in financial statements for periods ending after March 15, 2004.  Application by small business issuers to entities other than special-purpose entities and by non-public entities to all types of entities is required at various dates in 2004 and 2005.  In some instances, enterprises have the option of applying or continuing to apply Interpretation No. 46 for a short period of time before applying FIN 46(R).  The Company does not believe there will be any impact on Company’s operations.




13.

Differences between Canadian and United States generally accepted accounting principles (Canadian GAAP and US GAAP)…(Cont’d)


(b)

Differences in Accounting Principles


(i)

Statement of Cash Flows


Under Canadian GAAP, certain types of bank indebtedness is shown as ending cash and cash equivalents on the Statement of Cash Flows.  Under US GAAP, bank indebtedness is shown as a financing activity.


(ii)

Investments


Under Canadian GAAP, investments where the Company does not exert significant influence, and classified as available for sale, are carried at the lower of cost and net realizable value..  Under US GAAP, these types of investments are carried at fair value at the date of the Balance Sheet with any gains or losses recognized through other comprehensive income.


(iii)

Other Comprehensive Income


Under US GAAP, comprehensive income must be reported, which is defined as all changes in equity other than those resulting from investments by owners and distributions to owners.  Other comprehensive income includes the unrealized holding gains and losses on available-for-sale securities.

(c )

Reconciliation

(i)

Reconciliation of total assets, liabilities and equity in accordance with Canadian and US GAAP:

 


2006


2005





(unaudited)

Total assets per Canadian and US GAAP

$ 

 5,277,778 

$ 

 4,276,094 

 

 

 

 

 

Total liabilities per Canadian and US GAAP

$ 

 4,607,177 

$ 

 4,280,561 

 

 

 

 

 

Capital stock per Canadian and US GAAP

$ 

 100 

$ 

 100 

 

 

 

 

 

Retained earnings (deficit) per Canadian GAAP

$ 

 670,501 

$ 

 (4,567)

Adjustment of write down on investment

 

 

 

 

  recorded as other comprehensive income

 

 

 

 

  for US GAAP

 

 104,673 

 

 - 

 

 

 

 

 

Retained earnings (deficit) per US GAAP

$ 

 775,174 

$ 

 (4,567)

Other comprehensive income

 

 

 

 

  per Canadian GAAP

$ 

 - 

$ 

 - 

Adjustment of write down on investment

 

 

 

 

  recorded as other comprehensive income

 

 

 

 

  for US GAAP

 

 (104,673)

 

 - 

Other comprehensive income per

 

 

 

 

  US GAAP

$ 

 (104,673)

$ 

 - 

 

 

 

 

 

Total shareholder’s equity per Canadian and

 

 

 

 

  US GAAP

$ 

 670,601 

$ 

 (4,467)

 

 

 

 

 

Total liabilities and shareholder’s equity

 

 

 

 

per Canadian and US GAAP

$ 

 5,277,778 

$ 

 4,276,094 






(ii)

Reconciliation of net income (loss) reported in accordance with Canadian and US GAAP:

 


2006


2005

 

 


 

(unaudited)

Net income (loss) per Canadian GAAP

$

 675,068 

$

 (4,567)

Write down on investment recorded as

 

 

 

 

  other comprehensive income under

 

 

 

 

  US GAAP

 

 104,673 

 

 - 

 

 

 

 

 

Net income (loss) per US GAAP

$

 779,741 

$

 (4,567)

Write down of investment

 

 (104,673)

 

 - 

 

 

 

 

 

Other comprehensive income

$

 675,068 

$

 (4,567)

 

 

 

 

 

(iii)

Reconciliation of cash flow in accordance with Canadian and US GAAP:


 


2006


2005





(unaudited)

Cash used in operating activities in

 


 


  accordance with Canadian and US GAAP

$

 (369,878)

$

 - 

 

 

 

 

 

Cash used in investing activities of in

 

 

 

 

  accordance with Canadian and US GAAP

$

 (75,200)

$

 (2,693,844)

 

 

 

 

 

Cash provided by financing activities in

 

 

 

 

accordance with Canadian GAAP

$

 108,789 

$

 2,580,203 

Reclassification of bank indebtedness

 

 449,930 

 

 113,641 

 

 

 

 

 

Cash provided by financing activities in

 

 

 

 

accordance with Canadian and US GAAP

$

 558,719 

$

 2,693,844 

 

 

 

 

 

Cash end of year in accordance with

 

 

 

 

Canadian GAAP

$

 (449,930)

$

 (113,641)

 

 

 

 

 

Reclassification of bank indebtedness

 

 449,930 

 

 113,641 

 

 

 

 

 

Cash, end of year in accordance with

 

 

 

 

US GAAP

$

 - 

$

 -