SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
PURSUANT to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
Filing No. 1 for the month of May, 1999
Talisman Enterprises Inc.
--------------------------
(Exact name of Registrant)
2330 Southfield Road, Mississauga, Ontario, Canada L5N 2W8
-------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F
Form 20-F X Form 40-F __
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes __ No X
<PAGE>
TALISMAN ENTERPRISES INC.
On May 19, 1999, the Company filed its audited financial statements for the
period ended December 31, 1998 with the Ontario Securities Commission. The
financiasl statements are filed as an exhibit to this Form 6-K.
Exhibit 1. Financial Statements for the Year Ended December 31, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TALISMAN ENTERPRISES INC.
By:/s/James Ogle
Date: May __, 1999 James Ogle, President
<PAGE>
Exhibit 1. Financial Statements for the Year Ended December 31, 1998.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
TALISMAN ENTERPRISES INC.
December 31, 1998 and 1997
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Talisman Enterprises Inc.
We have audited the consolidated balance sheets of Talisman Enterprises
Inc. as at December 31, 1998 and 1997 and the consolidated statements of loss
and deficit and cash flows for the year ended December 31, 1998 and the 7 months
ended December 1997. 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. 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 financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1998 and 1997
and the results of its operations and the changes in its financial position for
the year ended December 31, 1998 and the 7 months ended December 31, 1997 in
accordance with accounting principles generally accepted in Canada.
Hamilton, Canada, /s/ ERNST & YOUNG LLP
March 29, 1999. Chartered Accountants
<PAGE>
Talisman Enterprises Inc.
Incorporated under the laws of Ontario
CONSOLIDATED BALANCE SHEETS
[in Canadian dollars]
As at December 31
<TABLE>
<CAPTION>
1998 1997
$ $
ASSETS
Current
<S> <C> <C>
Cash ........................................... 25,561 38,250
Accounts receivable ............................ 553,774 78,720
Inventories [note 3] ........................... 626,252 370,124
Prepaid expenses ............................... 79,513 20,148
Total current assets ........................... 1,285,100 507,242
Capital assets [note 4] ........................ 3,414,591 3,249,988
Other assets [note 5] .......................... 900,000 1,000,000
Goodwill ....................................... 178,000 198,000
5,777,691 4,955,230
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank operating line ............................ 648,406 --
Accounts payable and accrued liabilities ....... 1,385,361 422,815
Note payable [note 6] .......................... -- 114,545
Current portion of long-term debt [note 7] ..... 878,846 99,996
Total current liabilities ...................... 2,912,613 637,356
Long-term debt [note 7] ........................ -- 358,337
Shareholders' equity
Share capital [note 8] ......................... 7,198,369 5,341,321
Contributed surplus ............................ 458,623 --
Deficit ........................................ (4,791,914) (1,381,784)
Total shareholders' equity ..................... 2,865,078 3,959,537
5,777,691 4,955,230
</TABLE>
Commitments and contingencies [note 11]
See accompanying notes
On behalf of the Board:
"James A. Ogle" "Norman R. Proulx"
Director Director
<PAGE>
Talisman Enterprises Inc.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
[in Canadian dollars]
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
<S> <C> <C>
Revenues ....................................... 1,109,736 194,806
Operating expenses [exclusive of
amortization shown separately below] ........ 2,205,447 251,913
Gross profit ................................... (1,095,711) (57,107)
Expenses
Selling, general and administrative ............ 1,685,567 833,593
Amortization ................................... 481,592 33,100
Interest and bank charges [note 7] ............. 147,260 15,674
2,314,419 882,367
Loss for the period ............................ (3,410,130) (939,474)
Deficit, beginning of period ................... (1,381,784) (442,310)
Deficit, end of period ......................... (4,791,914) (1,381,784)
Loss per share ................................. (5.54) (1.98)
</TABLE>
See accompanying notes
<PAGE>
Talisman Enterprises Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[in Canadian dollars]
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
OPERATING ACTIVITIES
<S> <C> <C>
Loss for the period ............................ (3,410,130) (939,474)
Charges to income not affecting cash
Amortization of capital assets .............. 361,592 31,100
Amortization of other assets ................ 100,000 --
Amortization of goodwill .................... 20,000 2,000
Change in non-cash working capital items
Accounts receivable ......................... (475,054) (22,545)
Inventories ................................. (256,128) (293,958)
Prepaid expenses ............................ (59,365) (9,312)
Accounts payable and accrued liabilities .... 962,546 231,113
Cash used in operating activities .............. (2,756,539) (1,001,076)
INVESTING ACTIVITY
Purchase of capital assets ..................... (526,195) 18,586
FINANCING ACTIVITIES
Issuance of long-term debt ..................... 903,846 500,000
Repayment of long-term debt .................... (483,333) (41,667)
Repayment of note payable ...................... -- (85,000)
Reduction in note payable ...................... (114,545) (145,455)
Contribution of capital ........................ 458,623 --
Issue of common shares ......................... 1,857,048 721,140
Bank operating line ............................ 648,406 --
Cash provided by financing activities .......... 3,270,045 949,018
Decrease in cash during the period ............. (12,689) (33,472)
Cash, beginning of period ...................... 38,250 71,722
Cash, end of period ............................ 25,561 38,250
</TABLE>
See accompanying notes
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Talisman Enterprises Inc. is a company incorporated to primarily produce
premium private label alkaline batteries. The company is in the early stages of
its operations and has, therefore, not generated revenues on a consistent basis.
The recoverability of the company's assets is, therefore, dependent on the
continued support of its lenders and shareholders and the generation of
profitable operations.
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada and include certain estimates
based on management's judgments. These estimates affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the period. Actual results may differ
from those estimates. The accounting policies followed by the company also
conform in all material respects with accounting principles generally accepted
in the United States except as described in note 15.
Principles of consolidation
The consolidated financial statements include the accounts of the company
and its wholly-owned subsidiary, Talisman International Inc.
Inventories
Inventories are valued at the lower of average cost and net realizable
value.
Capital assets
Capital assets are stated at cost. Amortization is provided at rates
designed to write-off the assets over their estimated useful lives at the
following rates:
Production and warehouse equipment 10 years straight-line basis
Dies and molds 5 years straight-line basis
Furniture and fixtures 5 years straight-line basis
Computer equipment 3 years straight-line basis
Leasehold improvements Straight-line basis over the
term of the lease
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
Goodwill
Goodwill is being amortized over a period of 10 years. On an ongoing basis,
management reviews the valuation and amortization of goodwill, taking into
consideration any events or circumstances which might have impaired the carrying
value. The amount of goodwill impairment, if any, is measured on undiscounted
projected future cash flows.
Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated
using the temporal method, whereby monetary assets are converted into Canadian
dollars at exchange rates in effect at the balance sheet date. Non-monetary
assets are translated at historical rates. Revenue and expenses are translated
at the exchange rate in effect on the date of the transaction except for
amortization which is translated at historical rates. Any gains or losses during
the period have been included in the consolidated statements of loss.
Revenue recognition
Revenue from the sales of products is recognized at the time title
transfers, which is generally when the goods are shipped.
Loss per share
The calculation of loss per common share is based on the reported net loss
divided by the weighted average number of shares outstanding during the period.
The weighted average number of common shares outstanding for the year ended
December 31, 1998 was 615,581 and 474,446 for the 7 months ended December 31,
1997.
Financial instruments
The carrying amount of cash, accounts receivable, inventories, bank
operating line and accounts payable and accrued liabilities are considered to be
representative of their respective fair values.
The company has no derivative financial instruments or any financial
instruments that potentially subject the company to concentrations of credit
risk. The company is exposed to credit risk on the accounts receivable from its
customers. Management has adopted credit policies in an effort to minimize those
risks. The company does not have a significant exposure to any individual
customer or counter-party.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
2. ACQUISITION
On September 26, 1997, Firesand Resources Ltd. ["Firesand"] which was a
public company with a year-end of December 31, trading on the Canadian Dealer
Network, acquired 100% of Talisman International Inc., which was incorporated on
September 26, 1996 and had a year-end of May 31, through the issuance of 478,371
common shares. The transaction was accounted for as a reverse takeover, with the
results of Firesand being included from the date of acquisition. For periods
prior to the date of acquisition, the information presented is that of Talisman
International Inc. The following is a summary of the net assets acquired and
values assigned thereto based on an allocation of the purchase price to
Firesand's assets and liabilities:
$
Working capital 28,057
Goodwill 200,000
Common shares issued (228,057)
Contemporaneously with the transaction, Firesand changed its name to
Talisman Enterprises Inc. ["Talisman"].
3. INVENTORIES
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Raw materials and packaging .................. 373,138 288,915
Finished goods ............................... 253,114 81,209
-------- --------
626,252 370,124
-------- --------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998
Accumulated Net book
Cost amortization value
$ $ $
<S> <C> <C> <C>
Production equipment 3,300,966 351,258 2,949,708
Warehouse equipment 49,846 4,891 44,955
Computer equipment 18,003 6,165 11,838
Dies and molds 39,965 4,543 35,422
Furniture and fixtures 31,615 6,926 24,689
Leasehold improvements 91,399 18,910 72,489
Construction in progress 275,490 -- 275,490
--------- ------- ---------
3,807,284 392,693 3,414,591
--------- ------- ---------
1997
Accumulated Net book
Cost amortization value
$ $ $
Production equipment 3,105,404 27,700 3,077,704
Warehouse equipment 36,564 300 36,264
Computer equipment 14,439 400 14,039
Dies and molds 13,440 200 13,240
Furniture and fixtures 30,541 800 29,741
Leasehold improvements 80,700 1,700 79,000
--------- ------- ---------
3,281,088 31,100 3,249,988
--------- ------- ---------
</TABLE>
Certain of the above production equipment was acquired pursuant to a s.85
rollover. Although the equipment was recorded in the financial statements based
on its fair value, it has no tax basis to the company.
In total, the above capital assets have an estimated tax value at December
31, 1998 of $1,064,000.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
5. OTHER ASSETS
Other assets, consisting of technology and intellectual property, are
recorded at cost. The assets are being amortized to income on an annual basis in
proportion to actual revenues derived from licensing arrangements and revenue on
turn-key production facilities over projected revenues derived from these
sources, or on a straight-line basis over 10 years, whichever is greater.
On an ongoing basis, management reviews the valuation and amortization of
other assets taking into consideration any events or circumstances which might
have impaired the carrying value. The amount of impairment, if any, is measured
based on non-discounted projected future cash flows.
The other assets have a tax basis of $1.
6. NOTE PAYABLE
The non-interest bearing note payable to a shareholder was repaid during
1998.
7. LONG-TERM DEBT AND LINES OF CREDIT
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Demand loan, bearing interest at prime plus 1 1/4%
[8% at December 31, 1998]
with monthly principal repayments of $12,500, maturing
October 23, 2003 725,000 --
Term demand loan, bearing interest at prime plus 1 1/4%
[8% at December 31,
1998] with monthly principal repayments of $8,333, maturing
March 31, 2001, repaid during 1998 -- 458,333
Convertible promissory note [$100,000 U.S.], bearing interest
at 8%, interest and principal on the note shall be paid in
cash on the earlier of [i] one year from the date of issuance
of the note, or [ii] the conversion of the note into securities
of the company 153,846 --
------- --------
878,846 458,333
Less current portion 878,846 99,996
------- --------
Long-term debt -- 358,337
------- --------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
7. LONG-TERM DEBT AND LINES OF CREDIT [continued]
The company has available an operating line of $750,000 [$101,594 was
available at December 31, 1998] which bears interest at prime plus 1 1/4%. In
addition, the company may draw down an additional $1,000,000 term facility, for
the purchase of battery manufacturing equipment up to 75% of cost, payable over
5 years, at prime plus 1 1/4% provided the company has an additional equity
injection of a minimum of $4,500,000. All indebtedness of the company is
collaterialized by the company's assets.
Under the operating line of credit and term loan facility, the company has
undertaken to maintain certain financial covenants. As at December 31, 1998, the
company was not in compliance with certain of the financial covenants and
accordingly, the demand loan has been reflected as a current liability.
Pursuant to a confidential private placement memorandum prepared by the
company dated January 28, 1999, a minimum of 25 units and a maximum of 50 units
may be sold to accredited investors for net proceeds, after deducting agents fee
and placement allowance but before the expenses of the offering, of $2,118,500
U.S. and $4,337,000 U.S. The units will be offered for a period of 90 days,
which period may be extended for up to an additional 90 days. Each unit consists
of an 8% convertible subordinated promissory note in the principal amount of
$100,000 U.S. and 20,000 Class "A" common stock purchase warrants to purchase
common shares of the company until 2004. The notes are convertible into common
shares at a conversion rate of one common share for every $5 U.S. in principal
amount of note, and the warrants are exercisable at a price of $7.50 U.S. per
share, subject to adjustments in certain events. In addition, the notes shall be
automatically converted into common shares of the company upon the company's
common shares becoming traded on the OTC Bulletin Board in the United States or
any other U.S. based securities exchange.
Subsequent to the year-end, the company completed a first closing in which
it sold an aggregate of 26 units for net proceeds of $2,345,384 U.S., after
deducting agents fee and placement allowance [such proceeds being inclusive of
the $100,000 U.S. convertible debenture outstanding at December 31, 1998].
The fair value of the long-term debt has been calculated on the contractual
cash flows of the financial instruments discounted using market rates currently
available to the company. At December 31, 1998, the fair value of the long-term
debt approximated the carrying value. During the year, interest on long-term
debt amounted to $39,200 [$12,200 for the 7 months ended December 31, 1997].
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
8. SHARE CAPITAL
Authorized
Unlimited 6% non-cumulative, non-voting Class "A" special shares,
redeemable at the company's option, with a redemption value of $1,000 each.
Unlimited common shares without nominal par value
Details of shares issued
<TABLE>
<CAPTION>
Number Value
$
<S> <C> <C>
Class "A" special shares ................................. 3,300 3,300,000
--------- ---------
Common shares
Balance May 31, 1997 ..................................... 452,600 1,092,124
Issuance of Firesand shares on the acquisition of Talisman 478,371 228,057
Elimination of prior number of shares of Talisman ........ (478,371) --
Prior common shares of Firesand .......................... 34,970 --
Issued for cash and exercise of warrants ................. 28,386 721,140
--------- ---------
Balance December 31, 1997 ................................ 515,956 2,041,321
Issued for exercise of warrants .......................... 10,893 177,068
Issued for cash, net of expenses ......................... 505,504 1,679,980
--------- ---------
Balance December 31, 1998 ................................ 1,032,353 3,898,369
--------- ---------
Class "A" special shares ................................. 3,300,000 3,300,000
Common shares ............................................ 3,898,369 2,041,321
--------- ---------
Total share capital ...................................... 7,198,369 5,341,321
--------- ---------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
8. SHARE CAPITAL [continued]
On January 27, 1999, the company implemented a consolidation of the
outstanding common shares on the basis of exchanging 1 new common share for each
25 common shares previously held.
Reverse takeover accounting requires that the amount shown as the issued
capital in the consolidated balance sheet be calculated by adding to the issued
capital of the legal subsidiary company, Talisman International Inc., the amount
of the cost of the purchase. However, the number of common shares reflect that
of the legal parent company, Talisman Enterprises Inc.
During 1998, shareholders transferred 45,000 common shares to individuals
in exchange for machinery and professional services [in connection with the
issuance of shares], the value of which [$458,623] was contributed to capital.
The company has in place a stock option plan [the "Stock Option Plan"] as
an incentive for directors, officers and key employees and other persons who
provide ongoing services to the company and its subsidiaries. Under the Stock
Option Plan, non-assignable options may be granted by the board of directors of
the company, to directors, officers, key employees and other persons who provide
ongoing services to the company to purchase common shares of the company for a
term not exceeding 5 years [subject to earlier termination of the optionee's
employment, upon the optionee ceasing to be a director, officer of other service
provider, as applicable, or upon the optionee retiring, becoming disabled or
dying] at an exercise price not less than the market price for common shares of
the company. The granting of options is subject to the further conditions under
the Stock Option Plan that: [i] not more than 10% of the number of shares issued
and outstanding from time to time [the "Outstanding Issue"] may be reserved for
the granting of options to insiders at any time or to insiders in any one-year
period; [ii] that no more than 5% of the outstanding issue may be issued to any
one insider of the company in a one-year period; and, [iii] the maximum number
of common shares issuable under the Stock Option Plan is 31,200 shares. The
options are non-transferrable.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
8. SHARE CAPITAL [continued]
In connection with the private placements during the year, the company
granted warrants of 263,504 and 240,000 to acquire common shares of the company.
In connection with its financing activities, the company issued warrants to
acquire a total of 114,502 common shares of the company.
The company options and warrants to acquire common shares at various
exercise prices are summarized below:
<TABLE>
<CAPTION>
Exercise Expiration
Number price date
$
<S> <C> <C> <C>
Options 10,000 16.25 Nov. 13, 2001
760 31.25 Nov. 13, 2001
Warrants 4,600 62.50 Sept. 15, 1999
2,000 12.50 Apr. 15, 2000
2,000 20.00 Apr. 15, 2000
93,902 16.25 Aug. 15, 2000
12,000 12.50 June 7, 2001
263,504 7.50 July 31, 2001
240,000 5.00 Oct. 14, 2001
-------
Total options and warrants 628,766
-------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
9. SHAREHOLDERS RIGHTS PLAN
On September 26, 1997, the shareholders approved a shareholders rights
protection plan [the "Plan"]. The Plan applies to all common shares and all
future issues of common shares. The term of the Plan is for 5 years, subject to
reconfirmation by the shareholders at the first annual meeting of shareholders
called after September 26, 2000. The Plan is intended to ensure that, in the
event of a bid which could affect control of the company, holders of common
shares will receive full and fair value for their shares and that there will be
sufficient time for the fairness of the bid to be properly assessed, to
negotiate with the bidder and to explore, develop and evaluate alternatives to
maximize shareholder value.
Under the terms of the Plan, one Right has been granted for each common
share. Each Right entitles the registered holder to purchase additional shares
of common stock for $1,500 but is not exercisable until certain events occur. If
a person or group wishes to acquire 20% or more of the company's common shares
[an "acquiring person"], the Plan effectively requires the acquiring person to
[i] negotiate terms which the Directors approve as being fair to the
shareholders or, alternatively, [ii] without Board approval, make a "permitted
bid" which must contain certain provisions and which must be accepted by more
than 50% of the common shares not held by the acquiring person.
In the event that an acquiring person acquires 20% or more of the company's
voting shares other than as described in [i] and [ii] above, then the Rights
become exercisable and will automatically change to allow all holders except the
acquiring person to purchase, upon payment of exercise price, shares of common
stock with a total market value of two times the exercise price [ie. at a 50%
discount from the then current market price of the common stock].
10. INCOME TAXES
The operating company has a tax year-end of May 31st which differs from its
reporting year of December 31st. As at May 31, 1998, the company has available
non-capital loss carryovers of approximately $2,285,000 available to offset
future taxable income. These non-capital loss carryovers expire as follows:
$
May 31, 2004 522,000
May 31, 2005 1,733,000
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
11. COMMITMENTS AND CONTINGENCIES
The minimum lease payments for building and equipment leases over the next
5 years are as follows:
$
1999 134,603
2000 128,542
2001 111,815
2002 53,837
2003 --
-------
428,797
-------
In the ordinary course of business activities, the company may be
contingently liable for litigation and claims with third parties. Management
believes that adequate provisions have been recorded in the accounts where
required. Although it is not possible to estimate the potential costs and
losses, if any, management believes that the ultimate resolution of such
contingencies will not have a material adverse effect on the consolidated
financial statements or financial position of the company.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
12. SEGMENTED INFORMATION
In addition to the production of batteries, the company has the capacity of
designing "turn-key" battery manufacturing systems for customers in developing
countries. The company's turn-key business has, to date, incurred minimal
expenses and generated nominal revenues.
The geographic sources of the company's revenues is as follows:
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
<S> <C> <C>
Canada 255,239 187,014
United States 854,497 7,792
--------- -------
1,109,736 194,806
--------- -------
</TABLE>
13. RELATED PARTY TRANSACTIONS
During the year, the company had $185,000 of loans due from a former senior
executive officer bearing interest at 8% per annum. The amount was repaid by
December 31, 1998.
14. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
Year 2000 as 1900 or some other date, resulting in errors when information using
Year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
effect the company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 issue affecting the
company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada [Canadian GAAP] which conform
in all material respects with accounting principles generally accepted in the
United States [U.S. GAAP] except as set forth below:
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
Income adjustments
Loss for the period in accordance
<S> <C> <C>
with Canadian GAAP ....................... (3,410,130) (939,474)
Amortization of goodwill and other assets [1] 120,000 2,000
Additional amortization of assets [3] ....... (89,540) (7,500)
Income tax provision [2] .................... 6,800 51,700
----------- ---------
Loss for the period in accordance with
U.S. GAAP ................................ (3,372,870) (893,274)
----------- ---------
Loss per share in accordance
with U.S. GAAP ........................... (5.48) (1.88)
----------- ---------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
Balance sheet adjustments
<S> <C> <C>
Total assets under Canadian GAAP ........... 5,777,691 4,955,230
Adjustment to assets [3] ................... 798,360 887,900
Elimination of goodwill and other assets [1] (1,081,620) (1,198,000)
----------- -----------
Total assets under U.S. GAAP ............... 5,494,431 4,645,130
----------- -----------
Total liabilities under Canadian GAAP ...... 2,912,613 995,693
Deferred income tax liability [2 and 3] .... 837,000 843,800
----------- -----------
Total liabilities under U.S. GAAP .......... 3,749,613 1,839,493
----------- -----------
Shareholders' equity under
Canadian GAAP ........................... 2,865,078 3,959,537
Adjustment to assets ....................... 798,360 887,900
Elimination of goodwill and other assets ... (1,081,620) (1,198,000)
Deferred income tax ........................ (837,000) (843,800)
----------- -----------
Shareholders' equity under U.S. GAAP ....... 1,744,818 2,805,637
----------- -----------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
Statements of cash flow adjustments
<S> <C> <C>
Investing activities under Canadian GAAP (526,195) 18,586
Reduction of capital asset purchases
to eliminate contributions of capital 100,750 --
--------- --------
Investing activities under U.S. GAAP ... (425,445) 18,586
--------- --------
Financing activities under
Canadian GAAP ....................... 3,270,045 949,018
To eliminate contribution of capital ... (458,623) --
To reflect contribution by shareholders
of professional services as issuance
of common shares .................... 357,873 --
--------- --------
Financing activities under U.S. GAAP 3,169,295 949,018
--------- --------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
(1) Under Canadian GAAP, the acquisition of Talisman International Inc.
gave rise to $200,000 of goodwill. Under U.S. GAAP, no goodwill would have been
recorded.
In addition, under U.S. GAAP, no value would have been ascribed to the
other assets on the tax free rollover as the transferor is a substantial
shareholder of the company and the transferor's historical cost basis of the
asset was nil. These transactions would be treated as a dividend under U.S.
GAAP.
(2) The company follows the deferral method of income tax allocation. Under
U.S. GAAP, the company is required to use the liability method. Under the
liability method, deferred income taxes are recognized for the future income tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis.
The tax effects of significant temporary differences are as follows:
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
Deferred tax assets
Income tax losses available for
<S> <C> <C>
carryforward ............. 1,643,400 570,300
Share issue costs ............ 293,000 45,900
--------- ---------
1,936,400 616,200
Less valuation allowance ..... 1,936,400 616,200
--------- ---------
Net deferred tax assets ...... -- --
--------- ---------
Deferred tax liabilities
Temporary differences on
capital assets ........... 837,000 843,800
--------- ---------
Total deferred tax liabilities 837,000 843,800
--------- ---------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
(3) Under U.S. GAAP, capital assets would be increased by $895,400 and to
provide for deferred income taxes on the differences between the book values and
tax values of certain capital assets acquired by the company in a tax-free
rollover. This amount represents the deferred taxes that arose at the time of
the s.85 rollover. As a result, amortization of such assets increased by a total
of $7,500 for the 7 months ended December 31, 1997 and $89,540 for the year
ended December 31, 1998. U.S. GAAP requires that capital assets be recorded at
acquisition costs which is the fair market value of the assets, whereas under
Canadian GAAP, capital assets are recorded at acquisition cost less associated
deferred income taxes.
(4) Consolidated statements of cash flows
During the year ended December 31, 1998, shareholders transferred common
shares to individuals in exchange for capital assets and professional services
relating to the issue of common shares. Under U.S. GAAP non-cash transactions
are excluded from the consolidated statements of cash flows. Accordingly, cash
used by investing activities and cash provided by financing activities were each
decreased by a net $100,750.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
(5) The following additional disclosures are required under U.S. GAAP.
Stock-based compensation
Pro-forma information regarding net loss and loss per share is required by
FAS123, and has been determined as if the company had accounted for its employee
stock options and warrants under the fair value method. The fair value was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1998 and 1997, respectively;
risk-free interest rates of 6%, dividend yields of 0%, volatility factors of the
expected market price of the company's common stock of 30% and weighted average
expected life per option and warrant of 4 years.
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option pricing models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the company's employee stock options and warrants have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's options, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options and warrants.
For purposes of the pro-forma disclosures, the estimated fair value of the
options and warrants is amortized to expense over their vesting period. The
company's pro-forma net loss under U.S. GAAP would be increased by $694,300 for
the 7 months ended December 31, 1997. The company's pro-forma loss per share
under U.S. GAAP would be [$3.35] for the 7 months ended December 31, 1997. There
were no employee stock options and warrants issued or which vested during 1998.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
A summary of the company's stock option and warrant activity and related
information is as follows:
<TABLE>
<CAPTION>
Year ended 7 months ended Weighted Weighted
December 31, December 31, -average -average
1998 1997 exercise exercise
$ $ price price
Employee options
<S> <C> <C> <C> <C>
Outstanding, beginning of period ......... 10,760 17.25 -- --
Granted .................................. -- -- 10,760 17.25
------- ----- ------- -----
Outstanding and exercisable, end of period 10,760 17.25 10,760 17.25
------- ----- ------- -----
Employee warrants
Outstanding, beginning of period ......... 44,798 16.25 -- --
Granted .................................. -- -- 50,000 16.25
Exercised ................................ 10,896 16.25 5,202 16.25
------- ----- ------- -----
Outstanding and exercisable, end of period 33,902 16.25 44,798 16.25
------- ----- ------- -----
Total employee options and
warrants outstanding and
exercisable, end of period ............ 44,662 16.50 55,558 16.50
------- ----- ------- -----
Weighted - average fair value
of employee options and warrants
granted during the period ............. -- -- 10,760 12.25
------- ----- ------- -----
Other warrants
Outstanding, beginning of period ......... 68,600 -- 68,600 --
Granted .................................. 515,504 -- -- --
------- ----- ------- -----
584,104 -- 68,600 --
------- ----- ------- -----
Total options and warrants, end of period 628,766 -- 124,158 --
------- ----- ------- -----
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
(6) Comprehensive income
The Financial Accounting Standards Board has issued FAS130, Reporting
Comprehensive Income, which establishes new standards for the reporting and
display of comprehensive income. Under the provisions of this standard, the
company is required to display items of other comprehensive income in the
financial statements for each year in which a statement of earnings is presented
and to disclose the accumulated balance of other comprehensive income separately
from retained earnings and additional paid in capital in the equity section of
the balance sheet. The company has no comprehensive income items other than its
loss for the year.
Year ended 7 Months ended
December 31, December 31,
1998 1997
$ $
Cash interest paid 39,200 12,200
Cash income taxes paid -- --
Rental expense 186,100 80,900
[d] Recent Developments
The Financial Accounting Standards Board has issued FAS129, Disclosure of
Information About Capital Structure. The company must adopt this standard in the
first quarter of fiscal 1999. Implementation of this disclosure standard will
not affect the company's financial position, results of operations or future
disclosures.
The Financial Accounting Standards Board has issued FAS132, Empoyers'
Disclosures about Pensions and Other Post-retirement Benefits. The company must
adopt this standard in the first quarter of fiscal 1999. Implementation of this
disclosure standard will not affect the company's financial position, results of
operations or future disclosures.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
The Financial Accounting Standards Board has issued FAS133, Accounting for
Derivative Instruments and Hedging Activities which introduces revised standards
for the recognition and measurement of derivatives and hedging activities. The
company must adopt this standard in the first quarter of fiscal 2000.
Implementation of this standard is currently expected to have no impact on the
company's financial position or results of operation since the company has no
derivative financial instruments or hedging activities.
[e] Related party transactions
FAS 57 requires disclosure of the following transactions with a company
that is a shareholder, key supplier and whose president is also a director and
officer of the company:
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31
1998 1997
$ $
<S> <C> <C>
Acquisition of raw materials 50,790 --
</TABLE>
In addition, in 1996 the company purchased capital assets [$100,000] which
remain in the possession of the related party who uses them to produce raw
materials for the company.
