EXHIBIT 99.2
MERILUS TECHNOLOGIES, INC.
Audited Financial Statements
September 30, 2000 and 1999
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Financial Statements of
Merilus Technologies Inc.
(formerly Netmaster Networking Solutions, Inc.)
Years Ended September 30, 2000
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AUDITORS' REPORT TO THE DIRECTORS
We have audited the balance sheet of Merilus Technologies Inc. (formerly
Netmaster Networking Solutions, Inc.) as at September 30, 2000 and 1999 and the
statements of loss and deficit and cash flows for the years ended September 30,
2000 and 1999 and the eleven months ended September 30, 1998. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as 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 September 30, 2000 and
1999 and the results of its operations and the cash flows for the years ended
September 30, 2000 and 1999 and the eleven months ended September 30, 1998 in
accordance with Canadian generally accepted accounting principles.
/s/KPMG LLP /s/
Chartered Accountants
Chilliwack, British Columbia
October 13, 2000, except for Note 10 which is at October 23, 2000.
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<TABLE>
<CAPTION>
Merilus Technologies Inc.
(formerly Netmaster Networking Solutions, Inc.)
Balance Sheet
September 30, 2000 and 1999
2000 1999
------------------------------------------------------------------------------------------------ ------------ ------------
Assets
<S> <C> <C>
Current assets:
Cash $ 6,694 $ -
Accounts receivable 22,580 21,601
Prepaid Expenses 177,396 -
------------------------------------------------------------------------------------------------ ----------- -----------
206,672 21,601
Capital assets (Note 3) 66,259 4,054
------------------------------------------------------------------------------------------------ ----------- -----------
$ 272,931 $ 25,655
------------------------------------------------------------------------------------------------ ----------- -----------
Liabilities and Capital Deficiency
Current liabilities:
Bank Indebtedness (Note 4) $ - $ 14,866
-----------
Accounts payable and accrued liabilities 369,395 52,115
Notes payable (Note 5) 720,650 -
Due to shareholders 14,823 55,525
------------------------------------------------------------------------------------------------ ----------- -----------
1,131,868 122,506
Capital deficiency:
Share capital (Note 6) 9,561 9,561
Deficit (868,498) (106,412)
------------------------------------------------------------------------------------------------ ----------- -----------
(858,937) (96,851)
Commitments (Note 9)
Subsequent event (Note 10)
------------------------------------------------------------------------------------------------ ----------- -----------
$ 272,931 $ 25,655
------------------------------------------------------------------------------------------------ ----------- -----------
Approved by the Directors:
------------------------------------
------------------------------------
See accompanying notes to financials
</TABLE>
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<TABLE>
<CAPTION>
Merilus Technologies Inc.
(formerly Netmaster Networking Solutions, Inc.)
Statement of Loss and Deficit
Years ended September 30, 2000 and 1999 and eleven months ended September 30,
1998
Year ended Year ended Eleven months
September 30, 2000 September 30, 1999 ended
September 30, 1998
--------- --------- ---------
<S> <C> <C> <C>
Sales $ 409,821 $ 164,816 $ 14,780
Cost of goods sold 101,327 33,757 6,829
--------- --------- ---------
Gross margin 308,494 131,058 7,951
Expenses:
Advertising 39,692 741 1,069
Automotive 19,660 - -
Bad debts (recovery) (342) 400 -
Bank charges and interest 2,772 9,291 1,919
Communications 17,493 10,298 1,371
Equipment rental 11,539 - -
Insurance and licenses 1,940 - 100
Office and miscellaneous 36,809 3,348 3,507
Product development 1,394 - 933
Professional fees 149,413 4,309 3,459
Promotion and entertainment 155,057 5,324 1,485
Rent 16,149 7,257 -
Repairs and maintenance 4,155 - -
Travel 47,668 7,506 1,917
Wages and employee benefits 331,674 55,871 26,235
--------- --------- ---------
835,073 104,347 41,995
--------- --------- ---------
(Loss) income before the undemoted (529,579) 26,712 (34,044)
Amortization (20,552) (1,626) (1,291)
Management salaries (214,955) (56,963) (39,200)
--------- --------- ---------
(235,507) (56,589) (40,491)
--------- --------- ---------
Loss (762,086) (31,877) (74,535)
Deficit, beginning of period (106,412) (74,535) -
--------- --------- ---------
Deficit, end of period $(868,498) $(106,412) $ (74,535)
--------- --------- ---------
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Merilus Technologies Inc.
(formerly Netmaster Networking Solutions, Inc.)
Statement of Cash Flows
Year ended September 30, 2000 and 1999, and eleven months ended September 30,
1998
Year ended Year Eleven
September ended months
30, 2000 September ended
30, 1999 September
30, 1998
------------------------------------------------------------------------ -------------- ----------- ------------
<S> <C> <C> <C>
Cash provided by (used in):
Operating:
Net loss $(762,086) $ (31,877) $ (74,535)
Item not involving cash:
Amortization 20,552 1,626 1,291
Net changes in non-cash working capital
balances related to operations:
Accounts receivable (10,479) (6,986) (5,106)
Prepaid expenses (177,398) - -
Accounts payable and accrued liabilities 344,280 29,765 22,350
--------- --------- ---------
(585,131) (7,472) (56,000)
Financing:
(Decrease) increase in operating line of
credit (14,866) (14,264) 29,130
Advances (to) from shareholders (40,702) 22,253 33,124
Increase in notes payable 720,650 - -
Share subscription proceeds 9,500 - -
Proceeds on issuance of share capital - - 200
--------- --------- ---------
674,582 7,989 62,454
Investing:
Purchase of capital assets (82,757) (517) (6,454)
--------- --------- ---------
Increase in cash position 6,694 - -
--------- --------- ---------
Change in cash and cash position, end of period $ 6,694 $ - $ -
--------- --------- ---------
Supplementary cash flow information:
Interest paid $ 783 $ 8,871 $ 1,534
--------- --------- ---------
See accompanying notes to financial statements.
</TABLE>
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Merilus Technologies Inc.
(formerly Netmaster Networking Solutions, Inc.)
Notes to Financial Statements
Year ended September 30, 2000 and 1999, and eleven months ended September 30,
1998
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1. General:
Merilus Technologies Inc. is in the business of providing computer
networking and communication solutions to organizations.
The company was incorporated on November 4, 1997 and commenced operations
on that date. Effective September 8, 2000 the company changed its name to
Merilus Technologies Inc.
2. Significant accounting policies:
(a) Capital assets:
Capital assets are recorded at cost.
Amortization of capital assets has been provided in the amounts on a
declining balance basis at the following annual rates, calculated on
the unamortized balances at the end of the year.
Office equipment 20%
Computer equipment 30%
(b) Income taxes:
The company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, future tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Future tax assets and liabilities are measured using enacted or
substantively enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. The effect on future tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the date of enactment or substantive enactment.
(c) Revenue recognition:
Revenues from product sales are recognized when shipped or installed.
Revenue from services contracts or phased product installation are
recognized when the service or phased portion of the sale is complete.
(d) Use of estimates:
The preparation of the financial statements in conformity with
Canadian generally accepted accounting principles requires management
to make estimates an assumptions that effect the reported amounts of
assets and liabilities at the dates of the financial statements and
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
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Merilus Technologies Inc.
(formerly Netmaster Networking Solutions, Inc.)
Notes to Financial Statements (Continued)
Year ended September 30, 2000 and 1999, and eleven months ended September 30,
---------- ---------------------------- ----------------------- -------------
1998
----
3. Capital assets:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------- ------------------- -------------------- ------------------- ----------------- ------------------
Accumulated amortization Net book Net book Net book
Cost value value value
------------------------- ------------------- -------------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Office equipment $ 55,109 $ 11,196 $ 43,913 $ 624 $ 264
Computer equipment 34,618 12,272 22,346 3,430 4,899
------------------------- ------------------- -------------------- ------------------- ----------------- ------------------
$ 89,727 $ 23,468 $ 66,259 $ 4,054 $ 5,163
------------------------- ------------------- -------------------- ------------------- ----------------- ------------------
</TABLE>
4. Bank Indebtedness:
The Company has an operating line of credit of $nil (1999 - $30,000; 1998 -
$30,000). Interest is payable on the amount at nil% (1999 - 8.25%; 1998 -
9.50%) per annum. The line of credit is secured by personal guarantees of
$15,000 each by two of the company's shareholders and a general security
agreement over all of the assets of the company.
5. Notes payable:
On February 23, 2000, the company entered into an agreement to be acquired
by a public company ('pubco'). In accordance with the terms of the original
agreement, two loans of $250,000 each were received by the company (the
"original loans"). These two loans are without interest and were repayable
upon being acquired by pubco.
During the year, the company and pubco mutually agreed to terminate their
original agreement and amend the terms of repayment on the original loans.
Concurrent with terminating the original agreement with pubco, the company
entered into a letter of intent agreement to be acquired by an unrelated
public company, Golden Soil, Inc ("Golden Soil"). The terms of the Golden
Soil agreement allowed the previously advanced $500,000 to remain
outstanding until such time as the Golden Soil agreement is concluded at
which time certain funds will be made available to repay the original
loans. In the event the Golden Soil agreement is not concluded, a
shareholder of Golden Soil has agreed to assume the full $500,000 original
loan obligations as a break-up fee.
As part of the Golden Soil agreement, Golden Soil advanced $150,000 US to
the company (see also Note 10).
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Merilus Technologies Inc.
(formerly Netmaster Networking Solutions, Inc.)
Notes to Financial Statements (Continued)
Year ended September 30, 2000 and 1999, and eleven months ended September 30,
--------------------------------------------------------------------------------
1998
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5. Notes payable (continued):
The notes payable are due to the following:
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Clyde Resources Ltd. $ 250,000 $ - $ -
Bank Sal Oppenheim Jr. & CIE (Schwelz) AG 250,000 - -
Golden Soil, Inc.; secured by $150,000 term
note repayable in US funds with interest of 8%
per annum after October 31, 20000 220,650 - -
$ 720,650 $ - $ -
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6. Share capital:
-------------------------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------------------------------------
Authorized:
30,000 Common shares without par value
Issued:
6,400 Common shares (1999 - 6,400;
1998 - 20,000) $ 9,561 $ 9,561 $ 200
-------------------------------------------------------------------------------------------------------------
</TABLE>
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Merilus Technologies Inc.
(formerly Netmaster Networking Solutions, Inc.)
Notes to Financial Statements (Continued)
Year ended September 30, 2000 and 1999, and eleven months ended September 30,
1998
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6. Share capital (continued):
The continuity of the number of shares is as follows:
<TABLE>
<CAPTION>
Number
of shares $
---------------------------------------------------------------------------------------- ------------------
<S> <C> <C>
Balance upon incorporation 20,000 -
Issued for cash at incorporation - 200
---------------------------------------------------------------------------------------- ------------------
Balance outstanding at September 30, 1998 20,000 200
Valuation allowance for future tax assets (14,800) (148)
Issued for cash consideration 900 9
Issued for note receivable 300 9,500
---------------------------------------------------------------------------------------- ------------------
Balance at September 30, 1999 and September 30, 2000 6,400 9,561
---------------------------------------------------------------------------------------- ------------------
</TABLE>
During 2000 the company collected $9,500 on the note receivable. All shares
are fully paid.
7. Income taxes:
The company has income tax loss carryforwards of approximately $723,000 which
are available to reduce future taxable income. The benefit of the losses has
not been recognized in the financial statements. The losses will expire as
follows:
2005 $ 73,000
2006 30,000
2007 620,000
In addition, the company has applied for research and development credits for
1998 and 1999 totaling $56,944. The credits relate to research and
development expenditures of $58,187 (1998 - $40,631) included in expenses of
the company. As these applications have not been processed and are subject to
audit by Canada Customs and Revenue Agency, the benefit of these credits has
not been recognized in the financial statements. The benefits, if any, will
be recognized on a prospective basis in the year received.
Significant components of the company's future tax assets and liabilities are
shown below. A valuation allowance has been recognized to fully offset the
net future tax assets as realization of such net assets is uncertain.
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Merilus Technologies Inc.
(formerly Netmaster Networking Solutions, Inc.)
Notes to Financial Statements (Continued)
Year ended September 30, 2000 and 1999, and eleven months ended September 30,
1998
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2000 1999 1998
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Operating loss carryforwards $ 322,000 $ 45,000 $ 33,000
Capital assets 4,600 500 500
Restructuring costs 42,000 - -
Net future tax assets 368,600 46,500 33,500
Valuation allowance for future (368,600) (46,500) (33,500)
tax assets
$ - $ - $ -
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8. Related party transactions:
During 2000 the company incurred nil (1999 - $4,222; 1998 - nil) fees for
accounting and financial services from a partnership controlled by three
shareholders of the company. During 2000 the company incurred $100,000 (1999
- nil; 1998 - nil) in fees for legal services related to the proposed
transactions with pubco and Golden Soil, from a law office of which a
shareholder in the company is a partner.
The accounts receivable balance includes$2,814 receivable from a law office
(1999 - nil; 1998 - nil) which employs one of the shareholders of the
company. The accounts payable balance includes $20,648 due to three
shareholders of the company, as well as an accrual of $100,000 (1999 - nil;
1998 - nil) due to the law office.
In all cases, the related party transactions were recorded at the exchange
amount, which is the consideration established and agreed to by the related
parties.
9. Commitments:
The company has committed to rental of premises, equipment and automotive
equipment until March 31, 2003. Minimum annual lease payments are as follows:
Automotive
Premises Equipment Equipment Total
------------------------------ ------------ ------------ ----------------
2001 $ 6,480 $ 3,840 $ 12,000 $ 22,320
2002 $ 7,800 $ 3,840 $ 9,270 $ 20,910
2003 $ - $ - $ 3,270 $ 3,270
------------------------------ ------------ ------------ ----------------
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Merilus Technologies Inc.
(formerly Netmaster Networking Solutions, Inc.)
Notes to Financial Statements (Continued)
Year ended September 30, 2000 and 1999, and eleven months ended September 30,
--------------------------------------------------------------------------------
1998
----
The company has further committed to an increase of office space of 8,075
square feet effective November 15, 2000, for a three-year period. Total lease
costs are charged at $11 per square foot. Renovations totaling $35,000 will also
be made and amortized over the three year lease term. Total additional premises
minimum lease payments and leasehold improvements are as follows:
2001 $ 92,116
2002 100,491
2003 100,491
2004 8,375
10. Subsequent events:
Subsequent to September 30, 2000, the company received two new loans under
the Golden Soil agreement (see Note 5) for $150,000 US each. These loans are
also repayable in US funds with interest at 8% per annum after November 30,
2000.
On October 23, the company signed a definitive agreement (subject to
shareholder and regulatory approval) to be acquired by Golden Soil, effective
on November 30, 2000. As part of this agreement, a shareholder of Golden Soil
will be injecting $2,000,000 US in operating funds to the company less any
previous amounts advanced by Golden Soil.
11. Financial instruments:
The carrying values of cash, accounts receivable, accounts payable, accrued
liabilits, notes payable and due to shareholders approximate their fair value
due to the relatively short periods to maturity of the instruments.
12. Segmented information:
Management has determined that the company operates in one dominant industry
segment which involves the development and sale of computer networking and
communication solutions. Substantially all of the company's operations,
assets and employees are located in Canada.
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