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UV Systems Technology Inc.
Financial Statements
For the Period from August 31, 1994
(Inception)
to August 31, 1996
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Independent Auditors' Report
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To the Directors
UV Systems Technology Inc.
We have audited the accompanying balance sheets of UV Systems Technology Inc.
(A Development Stage Company) as of August 31, 1996 and 1995 and the related
statements of operations and cash flows accumulated from August 31, 1994
(Inception) to August 31, 1996 and the years ended August 31, 1996 and 1995.
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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of UV Systems Technology Inc. (A Development
Stage Company) as of August 31, 1996 and 1995 and the results of its
operations and its cash flows accumulated from August 31, 1994 (Inception) to
August 31, 1996 and the years ended August 31, 1996 and 1995 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has not generated profitable operations since
inception. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Management's plan in regard to these matters
are also discussed in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
CHARTERED ACCOUNTANTS
Vancouver, B.C.
November 22, 1996
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UV Systems Technology Inc.
(A Development Stage Company)
Balance Sheets
As of August 31, 1996 and 1995
(Expressed in U.S. Dollars)
1996 1995
$ $
Assets
Current Assets
Cash 6,469 725,125
Short-term investment (Note 6) 219,854 -
Accounts receivable 286,455 71,004
Inventory 205,299 11,250
Prepaid expenses 13,054 16,042
Investment tax credit receivable 196,000 33,643
927,131 857,064
Capital Assets (Note 5) 158,544 54,285
Intangible Assets (Note 5) 28,976 10,792
1,114,651 922,141
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 127,850 171,970
Accrued liabilities 12,117 -
Vacation pay payable 6,171 -
Customer deposits 117,226 113,576
Loans payable (Note 7) 126,166 -
Loans from related parties (Note 8) 297,079 -
686,609 285,546
Stockholders' Equity
Preferred Stock (Note 9), 5,000,000 Class "A" non-voting
preferred shares authorized, par value Cnd$1,000
per share, 2,000 and 1,300 shares issued and
outstanding respectively 1,459,854 948,905
Common Stock (Note 9), 100,000,000 voting common
shares authorized, no par value, 12,845,308 and
10,592,824 shares issued and outstanding respectively 4,768 4,727
1,464,622 953,632
Deficit Accumulated During the Development Stage (1,036,580) (317,037)
428,042 636,595
1,114,651 922,141
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Commitments (Note 10)
Contingency (Note 2)
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UV Systems Technology Inc.
(A Development Stage Company)
Statements of Operations
Accumulated from August 31, 1994 (Inception) to August 31, 1996
and the years ended August 31, 1996 and 1995
(Expressed in U.S. Dollars)
Accumulated 1996 1995
$ $ $
Project Revenue 397,100 397,100 -
Project Costs (Schedule) 292,311 286,408 5,903
Gross Profit 104,789 110,692 (5,903)
Expenses (Schedule)
General and administrative 262,403 184,764 77,639
Research and development 317,190 317,190 -
Selling 356,667 346,349 10,318
936,260 848,303 87,957
Net Loss From Operations Before Other Items (831,471) (737,611) (93,860)
Other Items
Goodwill expensed (Note 4) (223,460) - (223,460)
Interest income 18,351 18,068 283
Net Loss (1,036,580) (719,543) (317,037)
Net Loss Per Share (.06) (.03)
Weighted Average Shares Outstanding 11,970,849 10,592,824
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UV Systems Technology Inc.
(A Development Stage Company)
Statements of Cash Flows
Accumulated from August 31, 1994 (Inception) to August 31, 1996
(Expressed in U.S. Dollars)
Accumulated 1996 1995
$ $ $
Cash Flow From Operating Activities:
Net loss (1,036,580) (719,543) (317,037)
Adjustments to reconcile net loss to
operating cash flows:
Depreciation 20,123 20,123 -
Goodwill expensed 223,460 - 223,460
Net (increase) decrease in accounts receivable (211,582) (215,451) 3,869
Net (increase) decrease in inventory (196,908) (194,049) (2,859)
Net (increase) decrease in prepaid expenses (660) 2,988 (3,648)
Net (increase) decrease in investment tax credits (162,357) (162,357)
Net (decrease) in accounts payable, accruals and
vacation pay (37,516) (25,832) (11,684)
Net increase in customer deposits 113,576 3,650 109,926
Net Cash Provided From (Used By) Operating Activities (1,288,444) 2,027 (1,290,471)
Cash Flow From Investing Activities:
Additions to capital assets (129,676) (124,382) (5,294)
Additions to intangible assets (18,184) (18,184) -
Cash received in UVWS acquisition 30,234 - 30,234
Acquisition of short-term investment (219,854) (219,854) -
Net Cash Provided From (Used By) Investing Activities (337,480) (362,420) 24,940
Cash Flow From Financing Activities:
Issuance of common stock 4,768 41 4,727
Issuance of preferred stock 1,459,854 510,949 948,905
Proceeds from (reduction of) borrowings (129,308) 126,166 (255,474)
Proceeds from related party borrowings 297,079 297,079 -
Net Cash Provided From Financing Activities 1,632,393 934,235 698,158
Net Increase (Decrease) in Cash 6,469 (718,656) 725,125
Cash - Beginning of Year - 725,125 -
Cash - End of Year 6,469 6,469 725,125
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
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Interest - 11,795 -
Income taxes - - -
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The Company purchased all of the assets of UVWS (See Note 4)
during fiscal 1995. In conjunction with the acquisition, liabilities
were assumed as follows:
Fair value of non-cash assets acquired 189,084
Goodwill expensed 223,460
Cash received 30,234
Liabilities assumed 442,778
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UV Systems Technology Inc.
(A Development Stage Company)
Statement of Stockholders' Equity
Accumulated from August 31, 1994 (Inception) to August 31, 1996
(Expressed in U.S. Dollars)
Deficit
Accumulated
Common Preferred During the
Shares Common Shares Preferred Development
Issued Stock Issued Stock Stage
# $ # $ $
Issued at inception 1 - - - -
Xxxxxxx, Xxxxxx 00, 0000 0 - - - -
Xxxxxxxx of common shares
on August 17, 1995 10,592,823 4,727 - - -
Issuance of preferred shares
on August 17, 1995 - - 1,300 948,905 -
Loss for the year - - - - (317,037)
Balance, August 31, 1995 10,592,824 4,727 1,300 948,905 (317,037)
Issuance of common shares on:
December 11, 1995 1,258,562 3 - - -
February 21, 1995 943,922 2 - - -
May 16, 1996 50,000 36 - - -
Issuance of preferred shares on:
December 11, 1995 - - 400 291,971 -
February 21, 1995 - - 300 218,978 -
Loss for the year - - - - (719,543)
Balance, August 31, 1996 12,845,308 4,768 2,000 1,459,854 (1,036,580)
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UV Systems Technology Inc.
(A Development Stage Company)
Notes to the Financial Statements
For the Years Ended August 31, 1996 and 1995
(Expressed in U.S. Dollars)
1. Date of Incorporation
The Company is a development stage company which was incorporated as 479393
B.C. Ltd. pursuant to the laws of the Company Act of British Columbia,
Canada. On August 14, 1995 the Company's name was changed to UV Systems
Technology Inc.
2. Nature and Continuance of Business
Until August 17, 1995 the Company was inactive. On August 17, 1995 the
Company acquired the business assets of UV-Waterguard Systems Inc. (UVWS)
(See Note 4). UVWS developed and patented an ultraviolet disinfection system
called the Ultra Guard System ("the System"). The Company has further
developed the System and has manufactured, marketed and sold the System to
two pilot projects in Canada and New Zealand.
These financial statements have been prepared on the basis of a going
concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has suffered
start-up losses and has not generated profitable operations since inception.
The Company's activities are in the development stage and additional costs
for the development of the System must be incurred. There is substantial
doubt as to the Company's ability to continue as a going concern, as the
continuation of the Company as a going concern is dependent on its ability
to obtain financing for the further development of the System and/or the
attainment of profitable operations. Management plans to raise capital
through a merger with a U.S. public company that will raise capital through
private and public offerings of its shares.
3. Summary of Significant Accounting Policies
(a) Inventory
Inventory is made up of work in progress and parts supplies and is
carried at the lower of cost and net realizable value on the first-
in-first-out basis.
(b) Depreciation
Depreciation, on all capital asset categories, is recorded
utilizing the straight-line method over their estimated useful
lives which have been determined as five years for all asset
categories.
(c) Foreign currency translation
Gains or losses arising from transactions denominated in a
currency other than the U.S. are recognized in the statement of
operations. The functional currency used by the Company is the
Canadian dollar.
Balance sheet items denominated in Canadian dollars are translated
using the
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rate of exchange on the balance sheet date, statement of
operation items are translated using the average yearly rate of
exchange. A rate of Cnd$1.37 to US$1.00 has been used for both 1995 and
1996 for balance sheet items and statement of operations items.
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3. Summary of Significant Accounting Policies (continued)
(d) Revenue Recognition
Revenue is recognized on the percentage of completion basis.
(e) Cash and cash equivalents
The Company considers all highly liquid investments with a
maturity of three months or less at the time of issuance to be cash
equivalents.
(f) Tax accounting
The Company has adopted SFAS 109 as of its inception. The Company
has incurred Canadian non-capital losses as scheduled below:
Year of Loss Amount Expiration Date
$
1995 94,000 2002
1996 2003
390,000
Pursuant to SFAS 109 the Company is required to compute tax asset
benefits for non-capital loss carryforwards. Potential benefit of
losses have not been recognized in the financial statements because the
Company cannot be assured that it is more likely than not that it will
utilize the non-capital loss carryforwards in future years.
The components of the net deferred tax asset at the end of August
31, 1996 and 1995 the statutory tax rate, the effective tax rate and
the elected amount of the valuation allowance are scheduled below:
1996 1995
$ $
Non-capital Loss in Canada 390,000 94,000
Statutory Tax Rate 48.5% 48.5%
Effective Tax Rate - -
Deferred Tax Asset 189,150 45,590
Valuation Allowance (189,150) (45,590)
Net Deferred Tax Asset
--------- --------
- -
--------- --------
--------- --------
4. Business Acquisition (See Note 2 for business description)
The Company acquired, effective August 17, 1995, the business assets of UV-
Waterguard Systems Inc. ("UVWS") for $442,778 (Cnd$606,606). Consideration
was the assumption of liabilities. UVWS is majority owned by two
shareholders each owning 45% of the Company at the time.
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4. Business Acquisition (See Note 2 for business description) (continued)
The acquisition was accounted for using the purchase method of accounting
for business combinations. The purchase price of $442,778 was allocated as
follows:
$
Current assets 159,535
Capital assets 48,991
Patents and trademarks 10,792
Goodwill 223,460
Liabilities assumed 442,778
The goodwill was expensed to operations.
5. Capital Assets
Capital assets are stated at cost less accumulated depreciation.
1996 1995
Accumulated Net Book Net Book
Cost Depreciation Value Value
$ $ $ $
Computer equipment 23,796 2,380 21,416 -
Computer software 3,042 304 2,738 -
Display equipment 32,249 3,225 29,024 17,558
Office furniture and equipment 25,792 2,579 23,213 10,082
Plant jigs, dies, moulds and tools 66,716 6,672 60,044 26,645
Leasehold improvements 27,072 4,963 22,109 -
178,667 20,123 158,544 54,285
Depreciation per class of asset:
1996 1995
$ $
Computer equipment 2,380 -
Computer software 304 -
Display equipment 3,225 -
Office furniture and equipment 2,579 -
Plant jigs, dies, moulds and tools 6,672 -
Leasehold improvements 4,963 -
20,123 -
Intangible assets represent legal costs associated with registering and
protecting certain patents and trademarks associated with the System. These
assets will be amortized when the Company completes its pilot plant testing.
Components of the System were patented in the United States on April 12,
1996. Applications have been made for patent protection under the
International Patent Protection Treaty covering up to 40 countries.
6. Short-Term Investment
The short-term investment has been pledged as security in favour of the
District of Chilliwack, B.C., Canada until final approval is received on its
pilot plant facility.
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7. Loans Payable
A total of Cnd$170,000 was loaned by Service Systems International Ltd.
("SSI") by way of promissory notes with interest accruing daily at 20% per
annum. Accrued interest to August 31, 1996 was Cnd$2,847. All funds will be
waived if SSI fails to complete financing and acquisition of shares held by
all shareholders of the Company.
8. Loans from Related Parties
$
(i) Due to an officer and director (Cnd$49,497) - unsecured,
non-interest bearing and due on demand 36,130
(ii) MDS Discovery Venture Management Inc. ("MDS") (Cnd$171,000)
- interest accrues at 20% per annum and is due on demand
and is secured by a general security agreement 129,332
(iii) Working Opportunity Fund (EVCC) Ltd. ("WOF") (Cnd$174,000)
- interest accrues at 20% per annum and is due on demand
and is secured by a general security agreement 131,617
297,079
9. (a) Preferred Stock
MDS and WOF each own 1,000 (650 as at August 31, 1995) Class "A"
preferred shares. These shares are retractable once sales reach
Cnd$10,000,000 and net income reaches Cnd$1,000,000. All preferred
shares are to be redeemed by June 30, 1999.
(b) Common Stock
Two directors were granted stock options to acquire 500,000 shares
at $0.23 per share expiring August 17, 2000.
(c) Rights Offering (See Subsequent Events - Note 12).
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10. Commitments
The Company has long term premises lease commitments as follows:
$
1997 61,500
1998 63,500
1999 65,500
2,000 68,000
The lease expires August 31, 2000.
11. Related Party Transaction
On August 17, 1995 the Company acquired the business assets of UVWS; which
is majority owned by two shareholders each owning 45% of the Company at the
time. (See Note 4)
12. Subsequent Events
Subsequent to August 31, 1996 the Company has:
(i) continued to receive funding from its shareholders pursuant to the
same terms as previous loans, as follows:
$
SSI 158,000
MDS 21,000
WOF 80,000
259,000
(ii) offered all common shareholders the right to participate in the
issue of 300,000 units of the Company at Cnd$1.00 per unit. Each
unit consists of Cnd$1.00 of debt and 287 common shares. If all
units are subscribed for a total of 86,100,000 common shares will
be issued along with debt of Cnd$300,000 represented by notes
secured by a second charge on the Company's assets and undertaking
subject to prior registered charges, bearing interest at 20% per
annum and due on demand.
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UV Systems Technology Inc.
(A Development Stage Company)
Expense Schedules
Accumulated from August 31, 1994 (Inception) to August 31, 1996
and the years ended August 31, 1996 and 1995
(Expressed in U.S. Dollars)
Accumulated 1996 1995
$ $ $
Project Costs
Materials 257,127 252,391 4,736
Manufacturing overhead 27,694 26,527 1,167
Depreciation 7,490 7,490 -
292,311 286,408 5,903
General and Administrative Expenses
Accounting and legal 82,961 16,079 66,882
Bank charges and interest 15,041 14,904 137
Consulting 20,633 20,025 608
Depreciation 2,282 2,282 -
Office 18,674 14,468 4,206
Rent and utilities 5,041 5,041 -
Salaries and benefits 107,888 102,082 5,806
Travel and promotion 9,883 9,883 -
262,403 184,764 77,639
Research and Development Expenses
Depreciation 1,000 1,000 -
Overhead 8,461 8,461 -
Materials 417,112 417,112 -
Salaries and benefits 86,602 86,602 -
Less investment tax credit recoverable (195,985) (195,985) -
317,190 317,190 -
Sales and Marketing Expenses
Advertising 27,701 27,293 408
Brochures and videos 52,313 52,196 117
Consulting 82,737 79,762 2,975
Depreciation 9,351 9,351 -
Demonstrations 23,111 23,111 -
Office and telephone 32,863 32,816 47
Rent and utilities 8,278 8,278 -
Salaries and benefits 99,078 92,619 6,459
Travel and promotion 21,235 20,923 312
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356,667 346,349 10,318
