EX-99.1 2 statements.htm AUDITED STATEMENTS  Stream Communications Network & Media Inc


        
        
        
        
        
        
        
        
        
        
        

 Stream Communications Network & Media Inc.

 (formerly Stream Communications Network, Inc.)

 
        

Consolidated Financial Statements

        
        
        
        

For the year ended December 31, 2004

        
        
 
        
  
        
        
        









Auditors' Report


To the Shareholders of

Stream Communications Network & Media Inc.

(formerly Stream Communications Network, Inc.)


We have audited the consolidated balance sheets of Stream Communications Network & Media Inc. (formerly Stream Communications Network, Inc.) as at December 31, 2004 and 2003 and the consolidated statements of operations and deficit, and cash flows for the years 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 audits.


We conducted our audits in accordance with generally accepted auditing standards in Canada.  These standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.


In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at December 31, 2004 and 2003 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.  










“MacKay LLP”

Vancouver,  Canada.

Chartered Accountants

April 25, 2005








        
        
        
        

 Stream Communications Network & Media Inc.

 Consolidated Balance Sheets

 (in Canadian dollars)

        

 

 

 

 

 

 

December 31, 2004

December 31, 2003

ASSETS

     
 

Current Assets

     
  

Cash and cash equivalents

   

 $           640,308

 $           207,358

  

Accounts receivable - net (note 4)

   

              267,020

              154,792

  

Inventory

   

                  6,781

                  8,315

  

Prepaid expenses and advances

   

                56,552

                83,902

  

 

 

 

 

              970,661

              454,367

        
 

Deposits

   

                         -   

              155,017

 

Property, plant and equipment (note 5)

   

         10,243,982

           7,232,779

 

Intangibles - (note 6)

   

           2,916,444

           2,361,995

        

 

 

 

 

 

 

 $      14,131,087

 $      10,204,158

LIABILITIES

     
 

Current Liabilities

     
  

Trade accounts payable and accrued liabilities

  

 $        2,062,001

 $        3,032,652

  

Accounts payable pertaining to financing costs

  

           1,002,709

           1,079,815

  

Due to related party (note 9)

   

                         -   

              337,867

  

Loan payable (note 7)

   

              650,000

                         -   

  

Current portion of long-term debt (note 8)

  

             101,530

                64,512

  

 

 

 

 

           3,816,240

           4,514,846

 

Long-term Liabilities

     
  

Due to related party (note 9)

   

           4,236,302

                         -   

  

Long-term debt (note 8)

 

 

 

              814,707

                67,997

      

           8,867,249

           4,582,843

 

Non-controlling interest

   

              710,445

              687,225

 

 

 

 

 

 

           9,577,694

           5,270,068

SHAREHOLDERS' EQUITY

     
 

Capital stock

     
 

  Authorized

     
 

  150,000,000 common shares of no par value

    
 

  Issued and fully paid (note 11)

   

         36,005,421

         33,209,455

 

Contributed surplus

   

           2,167,551

                96,041

 

Warrants (note 11)

   

           2,025,447

           2,025,447

 

Cumulative translation account (note 10)

   

              944,701

           (371,841)

 

Deficit

   

      (36,589,727)

      (30,025,012)

 

 

 

 

 

 

           4,553,393

           4,934,090

 

 

 

 

 

 

 $      14,131,087

 $      10,204,158

        
 

Nature of operations and going concern (note 1)

    
 

Commitments (note 15)

     
 

Contingency (note 16)

     
 

Subsequent events (note 18)

     
        
        
  

"Stan Lis"

  

"Casey Forward"

 

 
  

President and Chief Executive Officer

  

Chief Financial Officer

 





 Stream Communications Network & Media Inc.

 Consolidated Statements of Operations and Deficit

 For the year ended December 31

 (in Canadian dollars)

 

 

 

 

 

 

For the year ended December 31, 2004

For the year ended December 31, 2003

        

Revenues

   

 $        4,415,461

 $        3,700,160

Expenses

 

 

 

 

 

 

Administration and services

   

              917,989

           1,045,244

 

Occupancy costs

   

              342,202

              328,348

 

Professional fees

   

              305,967

              357,636

 

Programming

   

              899,438

              887,157

 

Sales and marketing

   

              345,709

              180,145

 

Stock-based compensation (note 11)

   

           2,071,510

                         -   

 

Travel and automotive

   

              217,483

              260,677

 

Wages

   

           1,613,005

           1,501,308

 

 

 

 

 

 

           6,713,303

           4,560,515

Loss before undernoted items

   

        (2,297,842)

           (860,355)

        

Amortization of property, plant and equipment

   

              719,171

              730,616

Amortization of intangibles

   

              678,933

              243,023

 

 

 

 

 

 

           1,398,104

              973,639

Loss before other items

 

 

 

        (3,695,946)

        (1,833,994)

Other items

     
 

Content development

   

           1,481,904

                        -   

 

Financing expenses

   

           1,817,353

              275,428

 

Foreign exchange

   

           (415,411)

                       -   

 

Impairment of intangibles and goodwill

   

                      -   

           1,960,000

 

Interest income

   

             (18,446)

             (94,829)

 

Write off of deferred charges

   

                      -   

           2,400,713

 

 

 

 

 

 

           2,865,400

           4,541,312

Loss before non-controlling interest

  

        (6,561,346)

        (6,375,306)

        

Non-controlling interest

   

               (3,369)

              120,686

Net loss for the year

 

 

 

        (6,564,715)

        (6,254,620)

        

Deficit, beginning of year

   

      (30,025,012)

      (23,770,392)

        

Deficit, end of year

 

 

 

 $  (36,589,727)

 $   (30,025,012)

        

Loss per share, basic and diluted

     
 

Loss per share

 

 

 

 $              (0.22)

 $              (0.21)

        

Weighted average number of shares

     

 

 

Basic and diluted

 

 

 

         30,027,489

         29,333,427

        
        





 Stream Communications Network & Media Inc.

 Consolidated Statements of Cash Flows

 For the year ended December 31

 (in Canadian dollars)

 

 

 

 

 

 

For the year ended December 31, 2004

For the year ended December 31, 2003

        

Operating Activities

     
 

Net loss for the year

   

 $     (6,564,715)

 $     (6,254,620)

 

Items not involving cash

     
  

Amortization

   

           1,398,104

              973,639

  

Unrealized foreign exchange

   

           (267,616)

                      -   

  

Stock-based compensation

   

           2,071,510

                      -   

  

Impairment of intangibles and goodwill

   

                      -   

           1,960,000

  

Write off of deferred charges

   

                      -   

           2,400,713

  

Issuance of shares for business development and debt

  

           2,795,966

                       -   

  

Non-controlling interest

   

                20,405

             (57,892)

 

Change in non-cash working capital

 

 

 

 

           (546,346)

           (978,160)

  

Accounts receivable

   

            (26,913)

                35,055

  

Inventory

   

                 2,914

                  3,742

  

Prepaid expenses and advances

   

                31,407

             (19,150)

  

Accounts payable and accrued liabilities

  

        (1,652,247)

           (170,100)

 

Net cash used by operating activities

 

 

 

        (2,191,185)

        (1,128,613)

        

Financing Activities

     
 

Loans from related parties

   

           4,166,051

              337,867

 

Issuance of shares for cash

   

                     -   

           1,264,553

 

Loans payable

   

              650,000

                     -   

 

Long-term debt

   

              752,709

               (3,217)

 

Net cash provided by financing activities

 

 

 

           5,568,760

          1,599,203

        

Investing Activities

     
 

Purchase of property, plant and equipment

   

        (2,226,804)

           (192,714)

 

Acquisition of subsidiaries, net of cash acquired

  

        (1,000,050)

                      -   

 

Deferred charges

   

                      -   

           (381,452)

 

Net cash used in investing activities

 

 

 

        (3,226,854)

           (574,166)

        

Foreign exchange effect on cash (note 10)

 

  

             282,229

             (83,300)

    

 

 

 

 

Change in cash and cash equivalents

 

 

 

             432,950

           (186,876)

        

Cash and cash equivalents at beginning of year

  

              207,358

              394,234

        

Cash and cash equivalents at end of year

 

 

 

 $           640,308

 $           207,358

        
 

Supplemental cash flow information (note 17)

    









Stream Communications Network & Media Inc.

Notes to Consolidated Financial Statements

December 31, 2004

(in Canadian dollars)

     

 

 

 

 

 

 

 

 

 

1.

NATURE OF OPERATIONS & GOING CONCERN

    
 

Stream Communications Network & Media Inc. (“Stream” or the “Company”) mainly provides cable television services and high-speed internet access.

 

The Company was incorporated on March 28, 1979  by registration of its Memorandum and Articles under the Company Act of British Columbia, Canada.  On October 19, 2001 the Company changed its name from Trooper Technologies Inc. to Stream Communications Network, Inc. and on August 9, 2004 to Stream Communications Network & Media Inc.

 

These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.  The continuing operations of the Company are dependent upon its ability to continue to raise adequate financing and to commence profitable operations in the future.

 

The Company is actively pursuing additional funding to continue its current projects (note 18). Management continues to develop the Company’s operating capabilities in order to improve cash flow from operations.

 

Although there is no assurance that the Company will be successful in these actions, management is confident that it will be able to continue as a going concern. Accordingly, these financial statements do not reflect adjustments to the carrying value of assets and liabilities, the reported revenues and expenses and balance sheet classifications used that would be necessary if the going concern assumption were not appropriate. Such adjustments could be material.

2.

SIGNIFICANT ACCOUNTING POLICIES

     
 

Basis of presentation

      
 

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. A summary of the significant accounting policies are as follows:

 

Consolidation

      
 

These consolidated financial statements include the accounts of the Company and the following subsidiaries. All intercompany transactions and balances have been eliminated.

  

 

 

 

 

Country of Incorporation

Percentage ownership December 31, 2004

Percentage ownership December 31, 2003

  

EES Waste solutions Limited

 

Cyprus

100.00%

100.00%

  

International Eco-Waste Systems S.A. ("Eco-Waste")

 

Poland

100.00%

100.00%

  

Stream Communications Sp. z o.o. ("Stream")

 

Poland

100.00%

100.00%

  

Gimsat Sp. z o.o. ("Gimsat")

 

Poland

100.00%

100.00%

  

Polvoice.com Sp. z o.o. ("PolVoice")

 

Poland

100.00%

95.50%

  

Bielsat.com Sp. z o.o. ("Bielsat")

 

Poland

51.00%

51.00%

  

ASK Stream ("ASK", note 3)

 

Poland

60.00%

0.00%

  

Vega Sp. z o.o. ("Vega")

 

Poland

98.00%

0.00%

 

Use of estimates

      
 

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and expenses for the periods reported. Actual results could differ from those estimates.

 

Cash and cash equivalents

     
 

Cash and cash equivalents consist of cash and highly liquid investments with maturities of less than three months.

 

Property, plant and equipment

     
 

Property, plant and equipment are stated at cost less accumulated amortization. Amortization is provided for using the declining-balance method at the following rates per annum:

  

Automobiles

    

20% - 30%

 
  

Buildings, offices

    

3%

 
  

Computer software

    

20% - 100%

 
  

Cable television network equipment

   

5% - 45%

 
  

Furniture, fixtures and equipment

   

20% - 30%

 
 

Plant construction-in-progress consists of assets not yet in use and accordingly no amortization is recorded.






2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

    
 

Revenue recognition

      
 

Substantially all revenues are derived from cable TV subscriber fees. Subscriber fees are recorded as revenue in the period the service is provided. Funds received in advance are deferred. At present initial hook-up fees are minimal. If this policy should change the Company will limit initial hook-up revenue to the extent of direct selling costs and amortize the remainder over the estimated period that subscribers are expected to remain connected to the network.

 

Foreign currency translation

     
 

The Company’s significant assets, revenues and expenses are in Poland; accordingly, the Company’s functional currency is the Polish Zloty. The Company follows the current rate method of translation which translates foreign assets and liabilities, into Canadian dollar equivalents, at the rate of exchange at the balance sheet date.  Revenues and expenses are translated into Canadian dollar equivalents at the average rate of exchange throughout the period.  Gains and losses arising from translation of the financial statements are disclosed as a separate component of shareholders' equity.

 

Transactions that are denominated in foreign currency are initially recorded at the rate of exchange prevailing at the date of the transaction.  Thereafter, monetary assets and liabilities are adjusted to reflect the exchange rate in effect at the balance sheet dates.  Gains and losses resulting from the adjustment are included in earnings.

 

Loss per share

      
 

The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments.  Under this method the dilutive effect on loss per share is recognized on the use of the proceeds that could be obtained upon exercise of options, warrants and similar instruments.  It assumes that the proceeds would be used to purchase common shares at the average market price during the period. For all periods presented, the effect of the assumed conversion of stock options and warrants was anti-dilutive.

 

Basic loss per share is calculated using the weighted-average number of shares outstanding during the period.

 

Income taxes

      
 

The Company follows the asset and liability method of accounting for income taxes whereby future income taxes are recognized for the future income tax consequences attributable to differences between the financial statement carrying values and their respective income tax bases (temporary differences).  Future income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled.  The effect on future income tax assets and liabilities of a change in tax rates is included in income in the period in which the change occurs.  The amount of future income tax assets recognized is limited to the amount that is more likely than not to be realized.

 

Acquisitions, intangible assets and goodwill

     
 

All business combinations use the purchase method of accounting.  Also,  the Company follows an impairment-only approach for the accounting for goodwill and other intangible assets that have an indefinite life.  The Company performed an initial benchmark test of impairment within six months of adoption, and annual tests of impairment at the reporting unit level.  If the carrying value of goodwill and other intangible assets of a reporting unit exceeds the fair value of the reporting unit, the carrying value of the asset must be written down to fair value.  

 

For the year ended December 31, 2004, the Company has reported an impairment charge of $NIL (2003 - $1,960,000) to reflect the decrease in the carrying value of its goodwill and other intangibles.

 

The Company has determined that the cable TV licences have an indefinite life.  The Company has evaluated its existing intangible assets  and concluded that no provisions for impairment were required. Subscriber base is amortized using the straight-line method at a rate of 20% for the current year. Previously a rate of 5% was used.

 

Stock-based Compensation

     
 

The Company uses the fair value method for accounting for stock-based compensation as defined by accounting principles generally accepted in Canada. Stock-based compensation awards expense is calculated using the Black-Scholes option pricing model and is charged to operations with an offsetting credit to contributed surplus.

 

Option pricing models require the input of highly subjective assumptions including the expected price volatility.  Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.






3.

ACQUISITIONS

      
 

The Company has completed the acquisition of 60% of ASK. The acquisition was accounted for by the purchase method.  The effective date of the acquisition was May 5, 2004,  after which the operations of ASK are included in these consolidated financial statements. ASK has cable TV networks in Sosnowiec, Poland.

 

At the time of acquisition the fair value of the assets and liabilities of ASK were:

  
  

Cash and cash equivalents

    

 $          122,027

  

Accounts receivable

     

               36,543

  

Property, plant and equipment

    

             113,740

  

Intangible assets (subscriber base)

    

               92,622

  

Accounts payable and accrued liabilities

   

            (94,856)

  

Minority interest

     

            (67,768)

  

Purchase price

 

 

 

 

 

 $          202,308

         
  

Consideration paid in cash

 

 

 

 

 $          202,308

         
 

The Company has completed the acquisition of 98% of Vega. The acquisition was accounted for by the purchase method.  The effective date of the acquisition was October 2, 2004,  after which the operations of Vega are included in these consolidated financial statements. Vega has cable TV networks in Sosnowiec, Poland.

 

At the time of acquisition the fair value of the assets and liabilities of Vega were:

  
  

Cash and cash equivalents

    

 $              3,273

  

Accounts receivable

     

               25,505

  

Property, plant and equipment

    

               51,165

  

Intangible assets (subscriber base)

    

             913,377

  

Accounts payable and accrued liabilities

   

            (52,736)

  

Current portion of long term debt

    

              (6,748)

  

Long term debt

     

              (9,033)

  

Minority interest

     

              (1,762)

  

Purchase price

 

 

 

 

 

 $          923,041

         
  

Consideration paid in cash

 

 

 

 

 $          923,041

        

4.

ACCOUNTS RECEIVABLE

      
  

 

 

 

 

 

December 31, 2004

December 31, 2003

  

Accounts receivable

    

 $          464,012

 $          310,176

  

Allowance for doubtful accounts

   

          (196,992)

          (155,384)

  

Accounts receivable - net

 

 

 

 $          267,020

 $         154,792






5.

PROPERTY, PLANT AND EQUIPMENT

     
  

December 31, 2004

 

 

Cost

Accumulated amortization

Net book value

  

 Automobiles

   

 $          444,227

 $          188,622

 $          255,605

  

 Buildings, offices

   

             298,630

               96,835

             201,795

  

 Cable television network equipment

  

        13,454,046

          3,711,930

          9,742,116

  

 Furniture and fixtures

  

             412,360

             377,992

               34,368

  

 Computer software

   

               82,288

               74,116

                 8,172

  

 Plant construction-in-progress

  

                 1,926

                        -   

                 1,926

  

 

 

 

 

 $     14,693,477

 $       4,449,495

 $     10,243,982

         
  

December 31, 2003

 

 

Cost

Accumulated amortization

Net book value

  

 Automobiles

   

 $          294,435

 $          124,898

 $          169,537

  

 Buildings, offices

   

             209,983

               62,034

             147,949

  

 Cable television network equipment

  

          9,354,130

          2,646,339

          6,707,791

  

 Furniture and fixtures

  

             350,298

             278,466

               71,832

  

 Computer software

   

               72,291

               57,417

               14,874

  

 Plant construction-in-progress

  

             120,796

                        -   

             120,796

  

 

 

 

 

 $     10,401,933

 $       3,169,154

 $       7,232,779

        

6.

INTANGIBLE ASSETS

      
  

December 31, 2004

 

Cost

Accumulated amortization

Impairment

Net book value

  

Cable TV licences

  

 $          148,781

 $            78,774

 $                     -   

 $            70,007

  

Subscriber base

  

          6,436,897

          1,470,666

          2,119,794

          2,846,437

  

 

 

 

 $       6,585,678

 $       1,549,440

 $       2,119,794

 $       2,916,444

  

December 31, 2003

 

Cost

Accumulated amortization

Impairment

Net book value

  

Cable TV licences

  

 $            95,625

 $            49,520

 $                     -   

 $            46,105

  

Subscriber base

  

          4,670,366

             536,341

          1,818,135

          2,315,890

  

 

 

 

 $       4,765,991

 $          585,861

 $       1,818,135

 $       2,361,995

        

7.

LOAN PAYABLE

      
 

Loan from Quest Capital Corp. in the amount of $650,000 repayable on or before June 30, 2005, interest bearing at 12% per annum, compounded monthly, payable monthly on the last day of each month. In consideration of the loan, the Company granted a security interest in favour of the lender over all of the Company's present and after-acquired personal property preceded by bank loans and due to related party amount. The lender received a non-refundable bonus payment of 175,000 free-trading common shares of the Company. The loan was jointly and personally guaranteed by three directors/officers ("Guarantors") of the Company. In addition, one of the Guarantors pledged and granted the lender 3,000,000 free trading shares in the capital of the Company. The Company has issued replacement shares to that Guarantor - see note 11. When the loan is repaid 3,000,000 shares will be returned to treasury.






8.

LONG-TERM DEBT

      
  

 

 

 

 

 

December 31, 2004

December 31, 2003

  

Loan balances, current portion

   

 $          101,530

 $            64,512

  

Loan balances, long term portion

   

             814,707

               67,997

  

Total

 

 

 

 

 $          916,237

 $          132,509

 

Bank loans are secured by the fixed assets of the Company repayable monthly at a rate of $5,376 per month. Interest is charged at the prime rate in Poland plus ½% per annum.

 

Principal repayments due in the next five years are:

    

2005

 $       101,530

   
    

2006

 $         86,827

   
    

2007

 $         69,744

   
    

2008

 $         61,129

   
    

2009

 $         45,847

   

9.

DUE TO RELATED PARTY

      
 

The amount due to related party, a former director, bears interest at 5%, compounded annually. The lender agreed in writing that the loan will not be repaid before December 31, 2005.  The total amount due (including accrued interest) is $3,516,054 USD (equivalent to $4,236,302 CAD) of which $2,000,000 USD  was secured by various cable TV networks, with  the remaining debt being unsecured. The Company accrued $113,333 interest in USD (equivalent to $136,544 CAD) at December 31, 2004.

10.

CUMULATIVE TRANSLATION ACCOUNT

     
 

The operations of the Company are situated in the country of Poland along with most of its assets. The foreign exchange rates for the Canadian dollar and the Polish zloty are as follows:

  

 

 

 

Rate at the end of the year

Average rate for the year

  

2004

   

2.4898

 

2.8049

  

2003

   

2.9029

 

2.7850

 

The following table shows the effect of the change in exchange rates and the resulting change in the cumulative translation account for the year ended December 31, 2004, and the foreign exchange effect on cash and cash equivalents:

         
  

 

 

 

December 31, 2003 balance (Polish zloty)

December 31, 2003 balance ($CDN) at 2003 exchange rate

December 31, 2003 balance ($CDN) at 2004 exchange rate

Exchange loss (gain) on translation into 2004

  

Rate: Polish zloty to Canadian dollars

 

 

2.9029

2.4898

 

  

Accounts receivable

  

 zl         407,082

 $          140,233

 $          163,500

 $         (23,267)

  

Inventory

  

               24,138

                 8,315

                 9,695

              (1,380)

  

Prepaid expenses and advances

 

               70,982

               24,452

               28,509

              (4,057)

  

Deposits

  

             449,999

             155,017

             180,737

            (25,720)

  

Property, plant and equipment

 

        20,954,915

          7,218,614

          8,416,305

       (1,197,691)

  

Intangibles

  

          6,444,815

          2,220,130

          2,588,487

          (368,357)

  

Accounts payable and accrued liabilities

       (7,875,886)

       (2,713,110)

       (3,163,261)

             450,151

  

Current portion of long-term debt

 

          (187,272)

            (64,512)

            (75,216)

               10,704

  

Long-term debt

  

          (197,388)

            (67,997)

            (79,279)

               11,282

  

Non-controlling interest

 

       (1,994,945)

          (687,225)

          (801,247)

             114,022

  

Total exchange gain on translation

  

 

 

 $    (1,034,313)

  

Deduct: Cumulative translation account, beginning of year

  

             371,841

  

Cumulative translation account, end of year

   

             944,701

  

Foreign exchange effect

 

 

 

 

 $          282,229






11.

CAPITAL STOCK

      
 

(a) Authorized

      
  

 150,000,000 common shares of no par value

    
 

(b) Issued

      
  

 

  

 

Number of Shares

 Price

 Share Capital

  

Balance - December 31, 2002

  

       29,003,149

                        -   

 $     31,229,685

  

Warrants exercised

             702,526

 $                1.80

         1,264,542

  

Fair value of warrants expired

  

                        -   

                        -   

             228,323

  

Fair value of warrants exercised

 

 

 

                        -   

                        -   

             486,905

  

Balance - December 31, 2003

  

        29,705,675

 

        33,209,455

  

Shares issued for business development

 

             500,000

                   0.98

             487,557

  

Shares issued for loan security

  

          3,000,000

                        -   

                        -   

  

Financial expenses

   

          1,275,000

                   0.49

             629,809

  

Issued for services

   

               78,125

                   0.78

               60,855

  

Issued for services

   

             275,000

                   0.49

             135,841

  

TV programming and content development

 

          3,000,000

                   0.49

          1,481,904

  

Balance - December 31, 2004

 

 

        37,833,800

 

 $     36,005,421

  

3,000,000 shares were issued to a director and guarantor to replace shares pledged  to Quest Capital Corp. - note 7.

 

(c) Options

      
 

In the Annual General Meeting held on June 30, 2004,  the shareholders approved the amendment to the stock option plan whereby the directors  are  authorized  to  issue  stock  options from time to time to employees,  officers, consultants and directors of the Company up to 5,941,135 common shares of the Company at the time of such issue,  at a minimum price allowed under the applicable securities laws.

 

Common share purchase options are issued to directors, officers, employees and non-employees of the company with exercise prices which approximate market values at the time the option is granted.

 

Summary of directors' and employees' stock options, warrants and convertible securities outstanding:

 
  

 

 

 

 

Shares

Weighted average

 exercise  price $

  

Balance of options at December 31, 2003

 

          4,370,000

 $                1.88

 
  

Granted

   

          2,490,000

                   0.60

USD

  

Cancelled

   

       (4,370,000)

                   1.88

 
  

Balance of options at December 31, 2004

 

 

 

          2,490,000

 $                0.60

USD

 

The following table summarizes information about fixed stock options outstanding at December 31, 2004:

 
    

Options Outstanding

 

Options Exercisable

  

Range of exercise prices (USD$)

Number outstanding at December 31, 2004

Weighted average remaining contractual life (years)

Weighted average    exercise        price (USD$)

Number exercisable at December 31,      2004

Weighted average    exercise        price (USD$)

  

 $                        0.60

 

         2,490,000

                     4.8

 $                0.60

          2,490,000

 $                0.60

 

Stock-based compensation expense

     
 

Pursuant to the granting the options in the current period, stock-based compensation expenses has been determined using a Black-Scholes option pricing model assuming no dividends were paid, a weighted average volatility of 56.6% over an expected life of five years and a weighted average annual risk free rate of 3.93%.






11.

CAPITAL STOCK (continued)

     
 

 Based on the above assumptions the average fair value for each option is $0.83193 ; accordingly $2,071,510 of stock-based compensation has been recorded in the statement of operations.

 

(d) Warrants

      
  

The changes in warrants were as follows:

Number of common shares permitted to be purchased

   
  

 

 

Number of warrants

Weighted average price per share

Expiry date

Fair value of Warrants

  

Outstanding December 31, 2003

3,126,579

2,976,579

$                1.84

28-Dec-05

$       2,025,447

  

Expired

 

-

-

-

 

-

  

Exercised

 

-

-

-

 

-

  

Total Balance December 31, 2004

3,126,579

2,976,579

$                1.84

 

$       2,025,447

  

Outstanding December 31, 2004:

     
    

300,000

150,000

$                 1.80

28-Dec-05

$          103,962

    

2,701,579

2,701,579

1.80

28-Dec-05

1,872,405

    

125,000

125,000

2.25 USD

28-Dec-05

49,080

  

Total Balance December 31, 2004

3,126,579

2,976,579

  

$       2,025,447

  

The expiry date of the warrants has been extended to December 28, 2005.

  

12.

SEGMENTED INFORMATION

     
 

The Company operates primarily in one segment, being cable TV services and in two geographic locations, being Canada and Poland.

 

Geographic information

      
  

Revenues are attributed to countries based on location of customer.

   

For the year ended December 31, 2004

For the year ended December 31, 2003

  

Revenues

 

 

 

 

    

Canada

  

$                     -

$                     -

    

Poland

  

4,415,461

3,700,160

  

 

 

 

 

 

$       4,415,461

$       3,700,160

  

Interest expense

 

 

 

 

  
    

Canada

  

$          148,777

$            11,631

    

Poland

  

176,914

127,132

  

 

 

 

 

 

$          325,691

$          138,763

  

Amortization of property, plant and equipment

 

 

  
    

Canada

  

$              4,015

$              4,983

    

Poland

  

715,156

725,633

  

 

 

 

 

 

$          719,171

$          730,616

  

Amortization of intangibles

 

 

 

  
    

Canada

  

$                     -

$                     -

    

Poland

  

678,933

243,023

  

 

 

 

 

 

$          678,933

$          243,023

  

Total expenditures for property, plant and equipment

 

 

  
    

Canada

  

$              2,295

$                 430

    

Poland

  

2,576,228

145,508

  

 

 

 

 

 

$       2,578,523

$          145,938







12.

SEGMENTED INFORMATION (continued)

   

For the year ended December 31, 2004

For the year ended December 31, 2003

  

Total expenditures for intangibles

 

 

 

    

Canada

  

$                     -

$                     -

    

Poland

  

1,028,928

28,022

  

 

 

 

 

 

$       1,028,928

$            28,022

         
  

Property, plant, equipment and intangibles

 

 

December 31, 2004

December 31, 2003

    

Canada

  

$            12,446

$            14,165

    

Poland

  

13,147,980

9,580,609

  

 

 

 

 

 

$     13,160,426

$       9,594,774

13.

INCOME TAXES

    

 

 

The Company has tax losses in Canadian dollars available for offset against future taxable income in various jurisdictions for the following approximate amounts:

   

Canada

    

 $     13,326,000

   

Poland

    

          2,515,000

 

The income tax losses in Poland can be carried forward and deducted from taxable income for the next five years, but not exceeding 50% of the loss in any of these years. The non-capital losses in Canada begin to expire from 2006 to 2014.  The potential tax benefits of the losses in Canada and Poland have not been recognized in the financial statements and have been offset by a valuation allowance.

 

The following is a reconciliation of income taxes:

 

 

 

 

 

 

 

For the year ended December 31, 2004

For the year ended December 31, 2003

 

Statutory rates in Canada

    

35.62%

37.62%

  

Recovery (income taxes) at Canadian statutory rates

  

 $       2,338,351

 $       1,916,229

  

Difference in tax rates in other jurisdictions

  

          (525,609)

          (155,211)

  

Difference due to decrease in statutory rates

  

                        -   

          (139,210)

 

 

Non-deductible expenses for tax purposes

  

             753,431

               21,495

 

 

 

 

 

 

 

 $       2,566,173

 $       1,643,303

 

Tax effect of tax losses not recognized

   

       (2,566,173)

       (1,643,303)

 

Current and future tax expense (recovery)

 

 

 

 $                     -   

 $                     -   

 

Future income taxes

      
 

  Future income tax assets

     
  

Tax losses

    

 $       4,746,721

 $       4,286,910

  

Property, plant and equipment

   

            (28,716)

               28,818

  

Intangible assets

    

          (752,980)

                        -   

  

Share issuance costs

   

             243,940

             483,754

 

Future income tax assets

 

 

 

 

 $       4,208,965

 $       4,799,482

 

Valuation allowance

    

       (4,208,965)

       (4,799,482)

 

Net future income tax assets

 

 

 

 $                     -   

 $                     -   






14.

FINANCIAL INSTRUMENTS

     
 

(a) Fair Value

      
 

Financial instruments consist of cash and cash equivalents, accounts receivable, deposits, accounts payable and accrued liabilities, the fair value of which are considered to approximate their carrying value due to their short-term maturities or ability of prompt liquidation.

 

(b) Credit Risk

      
 

The Company is exposed to credit risk only with respect to uncertainties as the timing and amount of collectibility of accounts receivable.  The Company mitigates credit risk through standard credit and reference checks.

 

(c) Currency Risk

      
 

The Company is exposed to financial risk arising from fluctuations in foreign exchange rates and the degree of volatility of these rates.  The Company does not use derivative instruments to reduce its exposure to foreign currency risk.

 

The Company had the following financial assets and liabilities in foreign currencies:

  

 

 

 

December 31, 2004

December 31, 2003

  

 

 

 

Polish zlotys

$USD

Polish zlotys

$USD

  

Exchange rates to the Canadian dollar

 

2.4898

0.8300

2.9029

0.7724

  

Cash

  

871,011

-

555,311

1,029

  

Accounts receivable

  

630,975

-

407,082

-

  

Accounts payable

  

3,781,290

507,313

8,063,201

368,943

  

Due to related parties

 

-

3,516,187

-

-

  

Long term debt

 

 

2,028,457

-

197,388

-

15.

COMMITMENTS

      
 

As at December 31, 2004, the company is committed under leases for cable networks, office space and automobiles in the following amounts for the next five years:

   

2005

   

 $          208,145

 
   

2006

   

 $          205,145

 
   

2007

   

 $          179,410

 
  

 

2008

   

 $          173,139

 
   

2009

   

 $          170,256

 

16.

CONTINGENCY

      
 

The company has received invoices from  a creditor for amounts due for work performed in regards to an IPO on the Warsaw exchange in 2003.  The amount claimed is US$3,145,885 of which $NIL has been accrued at December 31, 2004 (2003 - $NIL). The Company is of the opinion that these amounts are due if the IPO on the Warsaw Exchange is completed.

  

17.

SUPPLEMENTAL CASH FLOW INFORMATION

    
 

The following non-cash transactions were recorded during the year ended December 31:

 

 

 

 

 

 

 

2004

2003

 

Financing

      
  

TV programming and content development

  

 $       1,481,904

 $                     -   

  

Shares for services

    

             196,696

                        -   

  

Business development

   

             487,557

 
  

Financial expenses

    

             629,809

                        -   

  

 

 

 

 

 

 $       2,795,966

 $                     -   






18.

SUBSEQUENT EVENTS

      

 

        

 

Subsequent to year-end:

      

 

The Company issued 850,000 common shares to settle debts owed to the employees and directors.

 

 

The Company has announced  a private placement of up to 1,500,000 units ("Unit") at a price of $0.75 USD per unit. Each Unit will be comprised of one common share and one half non-transferable share purchase warrant, with each two warrants entitling the holder to purchase an additional common share of the Company at a purchase price of $1.00 USD per common share for a period of two years.

 

The Company has acquired an Internet network in Southern Poland with 2,100 subscribers. The network is located in close proximity to the Company's existing operations.

 

The Company has announced an intention to purchase an additional 1,400 cable subscribers in close proximity to the Company's existing network in Southern Poland from the issuance of 260,000 shares from treasury.