EARTHWORKS INDUSTRIES INC.
(A Company in the Development Stage)
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
YEARS ENDED NOVEMBER 30, 1999, 1998, and 1997
<PAGE>
EARTHWORKS INDUSTRIES INC.
(A Company in the Development Stage)
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
YEARS ENDED NOVEMBER 30, 1999, 1998, and 1997
AUDITORS' REPORT AND COMMENTS BY AUDITORS
FOR U.S. READERS ON CANADA - U.S. REPORTING CONFLICT
CONSOLIDATED BALANCE SHEETS ................................... Exhibit A
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
ACCUMULATED DURING THE DEVELOPMENT STAGE ...................... Exhibit B
CONSOLIDATED STATEMENTS OF CASH FLOWS ......................... Exhibit C
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ............... Exhibit D
CONSOLIDATED SCHEDULES OF ADMINISTRATION COSTS ................ Schedule I
CONSOLIDATED SCHEDULES OF DEFERRED LANDFILL PROJECT COSTS ..... Schedule II
CONSOLIDATED SCHEDULES OF DEFERRED POWER PROJECT COSTS ........ Schedule III
CONSOLIDATED SCHEDULES OF DEFERRED EXPLORATION
EXPENDITURES................................................... Schedule IV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
JONES RICHARDS & COMPANY
Jack W. Lozorett Deborah E. Graystone
Keon J. Kwan Jindra Casperson
AUDITORS' REPORT
To the Shareholders of Earthworks Industries Inc.
(a Company in the development stage)
We have audited the consolidated balance sheets of Earthworks Industries Inc. as
at November 30, 1999 and November 30, 1998, the consolidated statements of
operations and deficit accumulated during the development stage, the
consolidated statements of cash flows, the consolidated statements of
shareholders' equity, the consolidated schedules of administration costs,
deferred landfill project costs, deferred power project costs and deferred
exploration expenditures for the years ended November 30, 1999, November 30,
1998, and November 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at November 30, 1999
and November 30, 1998, and the results of its operations and its cash flows for
the years ended November 30, 1999, November 30, 1998, and November 30, 1997, in
accordance with generally accepted accounting principles. As required by the
Company Act of the Province of British Columbia, we report that, in our opinion,
these principles have been applied on a consistent basis.
/s/ Jones Richards & Company
-------------------------------
CERTIFIED GENERAL ACCOUNTANTS
Vancouver, British Columbia.
March 23, 2000
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the consolidated
financial statements are affected by significant uncertainties, related to
continuing operations, such as those referred to in the attached consolidated
balance sheets as to November 30, 1999 and November 30, 1998, and as described
in Note 1 to the consolidated financial statements. Our report to the
shareholders dated March 23, 2000 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such uncertainties in the
auditors' report when the uncertainties are adequately disclosed in the
consolidated financial statements.
/s/ Jones Richards & Company
-------------------------------
CERTIFIED GENERAL ACCOUNTANTS
Vancouver, British Columbia.
March 23, 2000
600-509 Richards Street, Vancouver B.C. V68 2Z6
Tel: 604.688.1910 Fax: 682.2368 Web: www.jonesrichards.com
<PAGE>
<TABLE>
<CAPTION>
Exhibit A
EARTHWORKS INDUSTRIES INC.
(A Company in the Development Stage)
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian Dollars)
ASSETS
<S> <C> <C>
Current Assets
Cash ................................................. $ 1,620 $ 552
Cash in trust ........................................ 6,989 5,010
Accounts receivable .................................. 12,408 13,572
Due from related parties ............................. -- 216
Prepaid expenses ..................................... 4,305 672
Share subscription receivable (Note 12e) ............. 6,000 87,630
----------- -----------
31,322 107,652
Capital Assets (Notes 2e and 4) ............................ 4,491 5,912
Cortina Landfill Project (Notes 2b and 5) .................. 2,252,189 1,894,915
Other Assets:
Incorporation costs .................................. 700 700
Royalty and Marketing Agreement (Notes 2d and 6) ..... 30,000 32,000
Deposits ............................................. 1,679 1,679
----------- -----------
$ 2,320,381 $ 2,042,858
=========== ===========
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities ............. $ 215,769 $ 288,290
Due to related parties ............................... 24,553 21,000
----------- -----------
240,322 309,290
Convertible Loan Payable (Note 7) .......................... 604,243 499,482
Long-Term Account Payable (Note 8) ......................... 378,508 298,756
Private Placement Advances (Note 12a) ...................... 136,949 --
----------- -----------
1,360,022 1,107,528
----------- -----------
SHAREHOLDERS' EQUITY
Share Capital (Note 9)
Authorized: 20,000,000 common shares without par value
Issued and outstanding:
7,062,091 common shares - 1999 .................. 5,279,516 --
6,246,640 common shares - 1998 .................. -- 4,986,546
Deficit Accumulated During the Development Stage ........... (4,319,157) (4,051,216)
----------- -----------
960,359 935,330
----------- -----------
$ 2,320,381 $ 2,042,858
=========== ===========
Approved on Behalf of the Board:
/s/ David Atkinson /s/ Deidre Lydon
------------------------------- --------------------------------
Director Director
The accompanying notes are an integralpart of these financial statements.
<PAGE>
<CAPTION>
Exhibit B
EARTHWORKS INDUSTRIES INC.
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
ACCUMULATED DURING THE DEVELOPMENT STAGE
(Expressed in Canadian Dollars)
Inception to Year Ended November 30,
November 30, -----------------------------------------
1999 1999 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
TOTAL ADMINISTRATION COSTS
INCURRED DURING THE YEAR (Schedule I) .................... $ 3,336,171 $ 342,908 $ 357,801 $ 343,765
OTHER ITEMS:
Royalty revenue, net of amortized Royalty and ......... (98,275) (32,803) (27,421) (21,058)
Marketing Agreement cost ($2,000)
Consulting revenue .................................... (46,000) -- -- --
Gain on debt settlement ............................... (14,520) -- (7,645) --
Interest and miscellaneous income ..................... (10,833) (8,206) (5) (1,510)
Gain on sale of capital assets ........................ (8,723) -- -- --
Bad debts (recovery) .................................. 6,846 -- 8,161 (1,315)
Write-off of investment in Bewilder Games ............. 7,750 -- -- --
Loss (Gain) on conversion of foreign currencies ....... 55,310 (38,458) 51,097 35,430
Write-off advances regarding Cortina Project .......... 60,000 -- -- --
Loss on write-off of investments ...................... 63,300 -- -- --
Landfill project feasibility costs .................... 233,925 -- 88,434 92,786
Write-down and write-off of deferred CPC .............. 288,616 -- 1 288,615
Cascade Power Project costs
Write-off of capitalized costs related to the ......... 376,927 -- -- --
abandoned mineral properties
----------- ----------- ----------- -----------
LOSS BEFORE DISCONTINUED OPERATIONS ........................ 4,250,494 263,441 470,423 736,713
Loss from discontinued operations (Note 3b) ................ 12,269 -- 6,315 5,954
Loss on disposal of CPC Cascade Power Corporation (Note 3b). 3,126 -- 3,126 --
NET LOSS FOR THE YEAR ...................................... $ 4,265,889 $ 263,441 $ 479,864 $ 742,667
=========== =========== =========== ===========
Basic Loss per Share ....................................... $ -- $ (0.04) $ (0.88) $ (0.15)
=========== =========== =========== ===========
Weighted Average Shares Outstanding ........................ -- 6,841,823 5,693,752 4,796,206
=========== =========== =========== ===========
Increase in Deficit ........................................ $(4,265,889) $ (263,441) $ (479,864) $ (742,667)
Deficit at Beginning of Year ............................... -- (4,051,216) (3,571,352) (2,828,685)
Share Issue Costs .......................................... (53,268) (4,500) -- --
----------- ----------- ----------- -----------
$(4,319,157) $(4,319,157) $(4,051,216) $(3,571,352)
=========== =========== =========== ===========
The accompanying notes are an integralpart of these financial statements.
<PAGE>
<CAPTION>
Exhibit C
EARTHWORKS INDUSTRIES INC.
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
Inception to Year Ended November 30,
November 30, -----------------------------------------
1999 1999 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss for the year .......................... $(4,265,889) $ (263,441) $ (479,864) $ (742,667)
Adjustments:
Amortization .................................. 27,520 1,421 1,862 3,434
Amortized royalty and marketing agreement cost 10,000 2,000 2,000 2,000
Gain on sale of capital assets ................ (8,723) -- -- --
Write-off of investment in Bewilder Games ..... 7,750 -- -- --
Loss (gain) on conversion of foreign currencies 55,310 (38,458) 51,097 35,430
Loss on write-off of investments .............. 63,300 -- -- --
Write-down and write-off of deferred CPC ...... 288,616 -- 1 288,615
Cascade Power Project costs
Write-off of costs related to abandoned mineral 376,927 -- -- --
properties
Loss on disposal of CPC Cascade Power ......... 3,098 -- 3,098 --
Corporation
Interest on convertible loan payable .......... 299,531 81,781 113,710 56,116
----------- ----------- ----------- -----------
(3,142,560) (216,697) (308,096) (357,072)
Increase (Decrease) in non-cash working capital items 1,470,686 113,629 352,462 (4,034)
----------- ----------- ----------- -----------
(1,671,874) (103,068) 44,366 (361,106)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Issue of share capital for cash ................. 3,738,171 185,250 164,251 162,800
Proceeds on sale of mineral property for cash ... 20,000 -- -- --
Proceeds on sale of capital assets .............. 30,000 -- -- --
Disposal of CPC Cascade Power Corporation ....... (75) -- (75) --
Private placement advances ...................... 136,949 136,949 -- 282,060
Convertible loan payable ........................ 304,712 22,980 (15,588) 15,588
Long term account payable ....................... 311,235 42,867 102,895 --
4,540,992 388,046 251,483 460,448
----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Acquisition cost of mineral properties .......... (133,000) -- -- --
Deferred exploration and development costs ...... (88,927) -- -- --
Investment in Bewilder Games Inc. ............... (7,750) -- -- --
Acquisition cost of capital assets .............. (56,311) -- (336) (2,138)
Incorporation costs ............................. (700) -- -- --
Investment in ESM Management (Canada) Ltd. ...... (43,300) -- -- --
Investment in Cortina Project ................... (34,210) -- -- --
Cortina Landfill Project deferred costs ......... (2,150,706) (320,389) (263,715) (53,261)
CPC Cascade Power Project deferred costs ........ (288,616) -- -- --
Deposits ........................................ (1,679) -- -- 9,460
----------- ----------- ----------- -----------
(2,805,199) (320,389) (264,051) (45,939)
----------- ----------- ----------- -----------
Gain (Loss) on conversion of foreign currencies ...... (55,310) 38,458 (51,097) (35,430)
----------- ----------- ----------- -----------
Increase (Decrease) in Cash ......................... 8,609 3,047 (19,299) 17,973
Cash at Beginning of Year ........................... -- 5,562 24,861 6,888
----------- ----------- ----------- -----------
Cash at End of Year .................................. $ 8,609 $ 8,609 $ 5,562 $ 24,861
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<CAPTION>
Exhibit D
EARTHWORKS INDUSTRIES INC.
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in Canadian Dollars)
Issued Share Capital Total
------------------------ Retained Shareholders'
Number of Amount Earnings Equity
Shares $ (Deficit) (Deficiency)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at November 30, 1996 4,706,289 $ 3,986,917 $(2,828,685) $ 1,158,232
----------- ----------- ----------- -----------
Additions During the Year:
- Exercise of stock options at $1.40 per share 57,500 80,500 - 80,500
- Exercise of stock options at $0.78 per share 35,000 27,300 - 27,300
- Exercise of share purchase warrants at $1.25 per share 44,000 55,000 - 55,000
- Increase in deficit - - (742,667) (742,667)
----------- ----------- ----------- -----------
136,500 162,800 (742,667) (579,867)
----------- ----------- ----------- -----------
Balance at November 30, 1997 4,842,789 4,149,717 (3,571,352) 578,365
----------- ----------- ----------- -----------
Additions During the Year:
- Private placement financing at $0.60 per unit
(unit - one share and one warrant), net of
share issue costs of $66,059 1,000,000 533,941 - 533,941
- Settlement of debt at $0.75 per share 403,851 302,888 - 302,888
- Increase in deficit - - (479,864) (479,864)
----------- ----------- ----------- -----------
1,403,851 836,829 (479,864) 356,965
----------- ----------- ----------- -----------
Balance at November 30, 1998 6,246,640 4,986,546 (4,051,216) 935,330
----------- ----------- ----------- -----------
Additions During the Year:
- Private placement financing at $0.30 per unit
(unit - one share and one warrant),
net of share issue costs of $3,750 400,000 116,250 - 116,250
- Finders fee at $0.30 per share 15,000 4,500 - 4,500
- Settlement of debt at $0.40 per share 321,500 128,600 - 128,600
- Settlement of debt at $0.75 per share 75,000 56,250 - 56,250
- Private placement financing at $0.50 per share 150,000 75,000 - 75,000
- Cancel shares previously issued at $0.60 per share (146,049) (87,630) - (87,630)
- Share issue costs - - (4,500) (4,500)
- Increase in deficit - - (263,441) (263,441)
----------- ----------- ----------- -----------
815,451 292,970 (267,941) 25,029
----------- ----------- ----------- -----------
Balance at November 30, 1999 7,062,091 $ 5,279,516 $ (4,319,157) $ 960,359
=========== =========== ============ ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<CAPTION>
Schedule I
EARTHWORKS INDUSTRIES INC.
(A Company in the Development Stage)
CONSOLIDATED SCHEDULES OF ADMINISTRATION COSTS
(Expressed in Canadian Dollars)
Inception to Year Ended November 30,
November 30, ------------------------------------
1999 1999 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Amortization .................. $ 26,287 $ 1,421 $ 1,862 $ 2,201
Bad debts ..................... 281,515 -- -- --
Bank charges and interest ..... 335,688 92,068 65,703 97,035
Consulting .................... 831,991 55,010 85,554 71,000
Insurance ..................... 12,349 1,788 1,788 1,788
Licenses, taxes and fees ...... 9,224 1,208 1,179 1,117
Management fees ............... 498,466 68,948 68,843 36,000
Office and administration ..... 159,651 8,938 10,299 10,208
Printing and graphics ......... 39,055 1,287 1,426 1,410
Professional fees ............. 557,349 48,212 40,253 42,792
Promotion ..................... 44,792 504 810 1,859
Rent .......................... 194,808 34,619 46,780 33,828
Stock exchange fees ........... 69,567 5,080 5,208 6,040
Telephone ..................... 116,216 13,513 14,930 26,766
Transfer agent ................ 65,351 6,569 4,801 6,351
Travel ........................ 93,862 3,743 8,365 5,370
---------- ---------- ---------- ----------
TOTAL ADMINISTRATION COSTS INCURRED
DURING THE YEAR ............... $3,336,171 $ 342,908 $ 357,801 $ 343,765
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<CAPTION>
Schedule II
EARTHWORKS INDUSTRIES INC.
(A Company in the Development Stage)
CONSOLIDATED SCHEDULES OF DEFERRED LANDFILL PROJECT COSTS
(Expressed in Canadian Dollars)
Inception to Year Ended November 30,
November 30, ---------------------------------------
1999 1999 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Deferred Landfill Project Costs:
Consulting ...................... $ 745,795 $ 164,625 $ 232,139 $ 94,658
Drilling ........................ 220,765 -- -- --
Environmental study ............. 39,071 -- -- --
Geologist ....................... 187,456 -- -- --
Legal ........................... 252,967 46,742 39,913 854
Mapping and surveys ............. 14,191 -- -- --
Marketing study ................. 101,297 -- -- --
Project engineering ............. 720,920 96,928 100,365 87,445
Public relations ................ 76,148 41,628 -- 197
Seismic logistics ............... 21,731 -- -- --
Travel .......................... 71,563 7,351 10,120 7,774
---------- ---------- ---------- ----------
Total costs incurred during the year 2,451,904 357,274 382,537 190,928
Balance of costs at beginning of year -- 1,860,705 1,566,602 1,468,460
Landfill project feasibility costs .. (233,925) -- (88,434) (92,786)
---------- ---------- ---------- ----------
Balance of costs at end of year ..... $2,217,979 $2,217,979 $1,860,705 $1,566,602
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<CAPTION>
Schedule III
EARTHWORKS INDUSTRIES INC.
(A Company in the Development Stage)
CONSOLIDATED SCHEDULES OF DEFERRED POWER PROJECT COSTS
(Expressed in Canadian Dollars)
Inception to Year Ended November 30,
November 30, ---------------------------------------
1999 1999 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Deferred Power Project Costs:
Consulting ...................... $ 202,500 $ -- $ -- $ --
Staking costs ................... 2,437 -- -- --
Travel .......................... 1,911 -- -- --
---------- ---------- ---------- ----------
Total costs incurred during the year 206,848 -- -- --
Expense recovery .................... (3,232) -- -- --
Cost of feasibility studies acquired 85,000 -- -- --
Balance of costs at beginning of year -- -- 1 288,616
Write-down of costs ................. (288,616) -- (1) (288,615)
---------- ---------- ---------- ----------
Balance of costs at end of year ..... $ -- $ -- $ -- $ 1
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<CAPTION>
Schedule IV
EARTHWORKS INDUSTRIES INC.
(A Company in the Development Stage)
CONSOLIDATED SCHEDULES OF DEFERRED EXPLORATION EXPENDITURES
(Expressed in Canadian Dollars)
Year Ended
Inception to Year Ended November 30,
November 30, ---------------------------------------
1999 1999 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Deferred Exploration Expenditures:
Accommodation and meals ................... $ 393 $ -- $ -- $ --
Assays .................................... 4,817 -- -- --
Drafting .................................. 525 -- -- --
Engineer and supervision .................. 11,810 -- -- --
Equipment rental .......................... 2,910 -- -- --
Geologist and staking costs ............... 11,419 -- -- --
Gridlines and sampling .................... 13,500 -- -- --
Labour .................................... 1,608 -- -- --
Magnetometer survey ....................... 3,800 -- -- --
Recording fees ............................ 3,986 -- -- --
Supplies .................................. 521 -- -- --
Travel .................................... 138 -- -- --
Trenching ................................. 33,500 -- -- --
---------- ---------- ---------- ----------
Total costs incurred during the year .......... 88,927 -- -- --
Balance at beginning of year .................. -- -- -- --
Write-off of costs related to abandoned mineral (88,927) -- -- --
properties
---------- ---------- ---------- ----------
Balance at end of year ........................ $ -- $ -- $ -- $ --
========== =========== ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
EARTHWORKS INDUSTRIES INC.
(A Company in the Development Stage)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
(NOVEMBER 30, 1998)
1. OPERATIONS, GOING CONCERN
Earthworks Industries Inc. (the "Company") is in the process of
investigating the environmental impact of a landfill project through its
wholly-owned subsidiary, Cortina Integrated Waste Management, Inc. These
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles with the assumption that the
Company will be able to realize its assets and discharge its liabilities in
the normal course of business rather than through a process of forced
liquidation. The continued operations of the Company and the recoverability
of the amount shown for the landfill project is dependent upon the ability
of the Company to successfully complete an environmental impact study,
obtain necessary financing to complete the development of the landfill
operation and commence future profitable operations. The Company had the
following deficits and working capital deficiencies as at the following
dates:
Working capital
Date Deficit (deficiency)
----------------- ----------- ------------
November 30, 1999 $ 4,319,157 $ (209,000)
November 30, 1998 $ 4,051,216 $ (201,638)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Basis of Presentation
The consolidated financial statements have been prepared in accordance
with accounting principles and practices generally accepted in Canada,
and except as disclosed in Note 13 below, are also in accordance in all
material respects with those in the United States. For United States
accounting and reporting purposes, the Company is considered to be in the
development stage and the accompanying consolidated financial statements
are those of an development stage enterprise.
b. Deferred Costs
The Company is in the environmental impact statement stage with respect
to its investment in a landfill project and accordingly follows the
practice of capitalizing all costs related to the project, until such
time as the project is put into commercial use, sold or abandoned. If
commercial use commences, the capitalized costs will be amortized over
the projects estimated years of useful life. If the project is abandoned,
the related capitalized costs will be written-off to deficit.
c. Values
The amounts shown for the Cortina Landfill Project represent costs to
date and are not intended to reflect present or future values.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
d. Royalty and Marketing Agreement
The Royalty and Marketing Agreement, described in Note 6 below,
represents the right of the Company to receive royalties from a
contaminated materials remediation process and is valued at the lower of
cost or estimated recoverable amount. The related acquisition costs were
being amortized on a straight-line basis over their remaining life to
August 15, 2014.
e. Capital Assets and Amortization
Capital assets are carried at cost less accumulated amortization.
Amortization is calculated using the declining balance method at the
following annual rates:
Computer equipment 30%
Equipment and office furniture 20%
f. Translation of Foreign Currencies
Foreign currencies have been translated into Canadian funds using the
temporal method, as follows:
i. Monetary items, at the rate of exchange prevailing as at the
consolidated balance sheet date.
ii. Non-monetary items, at the historical rate of exchange.
iii. Revenue and costs, at the period average within which the
transaction occurred.
g. Incentive Stock Option Plan
The Company has not adopted a formal incentive stock option plan, but
has granted stock options as described in Note 9 below. No
compensation expense is recognized when shares are issued or stock
options are granted. Any consideration paid by individuals on exercise
of stock options or purchase of shares is credited to share capital.
h. Financial Instruments
The Company's consolidated financial instruments consist of cash, cash
in trust, accounts receivable, share subscriptions receivable, amounts
due from and to related parties and accounts payable and accrued
liabilities. Unless otherwise noted, it is management's opinion that
the Company is not exposed to significant interest, currency, or
credit risks arising from these consolidated financial instruments.
The fair values of these consolidated financial instruments
approximate their carrying value, unless otherwise noted.
i. Use of Estimates
The preparation of consolidated financial statements, in conformity
with generally accepted accounting principles, requires the Company's
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and related notes to
the consolidated financial statements. Actual results may differ from
those estimates.
<PAGE>
3. CONSOLIDATION OF FINANCIAL STATEMENTS
a. The consolidated financial statements include the accounts of Cortina
Integrated Waste Management, Inc., a wholly-owned subsidiary
incorporated in the State of California on July 20, 1994.
b. Inaddition, the comparative consolidated financial statements dated to
November 30, 1998 include the accounts of CPC Cascade Power Corporation
("CPC"), a former wholly-owned subsidiary incorporated in the Province
of British Columbia on October 15, 1991, acquired by the Company
effective October 17, 1994, for the period to April 16, 1998, the
effective date of disposition.
By an Agreement dated April 16, 1998, the Company disposed of it 100%
interest in CPC for consideration of being released and discharged
from any claims, other obligations or liabilities pursuant to the
original Purchase Agreement dated September 27, 1994 (effective
October 17, 1994). At April 16, 1998, the effective date of
disposition, the net assets of CPC and the loss on disposition were as
follows:
Cash ................................ $ 75
Other current assets ................ 28
Other capital assets ................ 3,023
3,126
Proceeds on disposition ............. --
Loss on disposal of CPC ............. $3,126
======
The loss from discontinued operations consists of:
Bank charges ........................ $ 38
Consulting fees ..................... 4,500
Professional fees ................... 196
Telephone ........................... 121
Travel .............................. 1,460
$6,315
======
4. CAPITAL ASSETS
Accumulate 1999 Net 1998 Net
Amorti- Book Book
Cost zation Value Value
------- ------- ------- --------
Computer equipment ...................... $16,187 $14,516 $ 1,671 $ 2,387
Equipment and office furniture .......... 8,060 5,240 2,820 3,525
$24,247 $19,756 $ 4,491 $ 5,912
<PAGE>
5. CORTINA LANDFILL PROJECT
By a Memorandum of Agreement dated June 13, 1993 (amended and extended
November 30, 1993, March 4, 1994, and August 23, 1994), and a Solid Waste
Management Development Agreement dated March 31, 1995 (amended October 31,
1995), the Company completed a feasibility study for a landfill project,
negotiated the Business Lease dated October 31, 1995 (described below) and
is currently in the process of preparing an environmental impact statement
for its landfill project located on the Cortina Indian Rancheria in Colusa
County, California. Total consideration consists of:
- Cash paid to date (US$25,000).............. $ 34,210 $ 34,210
- Deferred project costs incurred
by the Company........................... 2,217,979 1,860,705
$ 2,252,189 $ 1,894,915
=========== ===========
By a Business Lease dated October 31, 1995 ("the lease"), with the Cortina
Band of Wintun Indians of Sacramento, California, the Company acquired
lands located within the Cortina Indian Rancheria in Colusa County,
California, for the purpose of developing and operating a sanitary
landfill and a materials recovery facility for an initial term of
twenty-five (25) years (with a renewal term of an additional twenty-five
(25) years), commencing on the date the lease is approved by the Secretary
of State for the Interior ("the Secretary"), for consideration of:
(i) US$10,000 payable within 21 days of the lease being approved
by the Secretary.
(ii) US$15,000 per month commencing the first month following the
month in which commercial production commences, with monthly
payments being indexed on an annual basis according to
increases in the Cost of Living Index as published by the
United States Government.
(iii) Fees equal to 3% of gross revenue on the first 150,000 tonnes
of waste received in a fiscal year, and 5% of gross revenue
for waste in excess of 150,000 tonnes received in a fiscal
year, to be calculated and paid monthly.
As consideration for entering into the Memorandum of Agreement dated
August 23, 1994, with the Cortina Indian Rancheria ("the Tribe") with
regard to the Cortina Landfill Project, described above, the Company
agrees to pay all the Tribe's reasonable attorney fees and costs incurred
by Tribal officials and attorneys in carrying out their obligations under
this Agreement.
This Agreement and the project are subject to the approval of an
environmental impact study by the Bureau of Indian Affairs and approval of
the Business Lease by the Secretary of the Interior of the United States.
<PAGE>
6. ROYALTY AND MARKETING AGREEMENT
Accumulate 1999 Net 1998 Net
Amorti- Book Book
Cost zation Value Value
------- ------- ------- --------
Capitalized acquisition costs $ 40,000 $10,000 $30,000 $ 32,000
By a Memorandum of Understanding dated August 15, 1994 (amended March 13,
1995), (effective August 1, 1994 through August 15, 2014), with Solucorp
Industries Ltd. ("Solucorp") and E.S.M. Industries (Canada) Inc., the
Company acquired the right to receive royalties from a contaminated
materials remediation process totalling Can$1.00 or US$1.00, as the case
may be, for each tonne of contaminated material treated in Canada or the
United States using the remediation process. In addition, the Company
received the non-exclusive right to market the process in Canada and the
United States with any new Agreements arising from such marketing efforts
resulting in an additional royalty of Can$1.00 or US$1.00 as is applicable
(for a total royalty of Can$2.00 or US) for each tonne of material
processed under the new Agreements.
Total consideration for this Memorandum of Understanding consists of:
- The parties agree to cancel all previous Agreements and the
Company cancels its right to recover $63,000 paid as part of
those Agreements.
- 50,000 shares of the Company's capital stock issued at a
deemed price of $0.80 per share to Solucorp on receipt of
regulatory approval of the Agreement (issued).
- 200,000 shares of the Company's capital stock is to be issued
to Solucorp, in minimum blocks of 50,000 shares, on an
earn-out basis of one (1) share for each Can$1.00 or
equivalent of royalty received. To date, none of these shares
have been issued.
Twenty-five percent (25%) of royalty revenue may be applied to reduce the
Convertible Loan Payable, as described in Note 7 below.
7. CONVERTIBLE LOAN PAYABLE
Can $ US $
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Loan advances.............. $ 304,712 $ 281,732 $ 238,025 $ 208,821
Accrued interest........... 299,531 217,750 171,770 116,935
--------- --------- --------- ---------
$ 604,243 $ 499,482 $ 409,795 $ 325,756
========= ========= ========= =========
The Company entered into a Convertible Loan Agreement dated September 5,
1995 (amended October 20, 1995), for the provision of a maximum
US$1,000,000 funding towards the Company's Cortina Landfill Project as
described in Note 5 above. The convertible loan, secured by a General
Security Agreement dated October 12, 1995, is due October 20, 2000, bears
interest at the rate of 15% per annum, compounded semi-annually, with
payment in US dollars limited to 25% of royalties received under the
Memorandum of Understanding described in Note 6 above. (To date none of
the royalties have been applied by the creditor to reduce the loan
balance.) The obligation to pay interest was to be cancelled if the loan
was converted as described below.
<PAGE>
7. CONVERTIBLE LOAN PAYABLE (CONT'D)
All or a portion of the outstanding principal amount could have been
converted into shares of the Company or an ownership interest in the
Landfill Project on the following basis:
a. For each amount which was advanced on or before September 20,
1996 (US$208,821), and which if converted within one (1) year
of its payment date, into shares of the Company at a price of
$2.02 per share, and for each year thereafter, measured from
its payment date, the conversion price would have escalated
$0.25 per share.
For each amount which was advanced after September 26, 1996
and if converted within one (1) year after its payment date,
into shares of the Company at an amount equal to the closing
price of the Company's shares on the Canadian Venture Exchange
one (1) trading day immediately prior to the payment date.
Each year thereafter, measured from the payment date, the
conversion price would have escalated $0.25 per share.
b. Provided not less than US$400,000 was loaned, into an
ownership interest in the Landfill Project on the basis of a
1% interest for each US$40,000 loaned.
Effective November 10, 1998, the Company issued a Notice of
Default to the lender for failure to loan or advance funds to
the Company on or before the due dates required by the
Convertible Loan Agreement, thereby terminating the lender's
right to advance further funds under the existing Agreement
described above.
Due to the inability of management to reasonably estimate the
amount and timing of future royalty revenues, as described in
Note 6 above, no estimate of a current portion has been made.
8. LONG-TERM ACCOUNT PAYABLE
The Company entered into a Memorandum of Understanding ("MOU") with
Pacific Waste Services Inc.("P.W.S.") (formerly James A. Wyse, Inc.), of
San Ramon, California, whereby P.W.S. has been granted an option to
acquire a maximum 25% equity interest in the Company's subsidiary, Cortina
Integrated Waste Management, Inc. ("Cortina"). The option is exercisable
upon Cortina obtaining a permit to build and operate facilities on the
landfill site for total consideration to be established at the time
initial site construction is completed. Under the terms of the MOU, P.W.S.
agrees to allocate 50% of its direct labour amounts billed to Cortina, in
addition to cash advances made to the project on behalf of Cortina, to the
purchase of this equity position. To November 30, 1999, $378,508
(US$256,703)(1998- $298,756 (US$194,845)) of amounts owing to P.W.S. are
available for the purchase of equity in Cortina. As it cannot be
established that the permit to build and operate a facility on the
landfill site will be received within the next fiscal year, this portion
of amounts owing to P.W.S. has been classified as a long-term liability.
<PAGE>
9. SHARE CAPITAL
The authorized share capital of the Company is 20,000,000 shares without
par value. The Company has issued shares of its capital stock as follows:
<TABLE>
Number of Amount
Fiscal Period Consideration Shares $
---------------------------------------------- ----------------------------- ----------- ----------
<S> <C> <C> <C>
1984 Cash 493,850 $ 88,940
1984 Cash (escrow) 750,000 7,500
----------- ----------
Balance Dec. 31, 1984 and Nov. 30, 1985 1,243,850 96,440
1986 Cash 485,500 133,925
----------- ----------
Balance November 30, 1986 1,729,350 230,365
1987 Cash 226,500 103,455
1987 Mineral Property 200,000 140,000
----------- ----------
Balance November 30, 1987 2,155,850 473,820
1988 Cash 706,000 134,200
1988 Mineral Property 100,000 17,000
----------- ----------
Balance November 30, 1988 2,961,850 625,020
1989 Cash 621,000 101,650
----------- ----------
Balance November 30, 1989 3,582,850 726,670
----------- ----------
1990 Share Consolidation 2.5:1 1,433,140 -
----------- ----------
Balance November 30, 1990 1,433,140 726,670
1991 Cash 1,458,767 229,600
1991 Cash (escrow) 309,375 7,734
1991 Debt 237,334 48,915
1991 Mineral Property 100,000 18,000
1991 Agency Fee 100,000 18,000
----------- ----------
Balance November 30, 1991 3,638,616 1,048,919
1992 Cash 1,113,340 282,770
1992 Subscriptions Receivable 829,280 233,873
1992 Equipment Lease 100,000 20,000
----------- ----------
Balance November 30, 1992 5,681,236 1,585,562
----------- ----------
1993 Share Consolidation 5:1 1,136,247 -
1993 Cash 96,500 85,015
----------- ----------
Balance November 30, 1993 1,232,747 1,670,577
1994 Cash 1,219,000 340,150
1994 Debt 330,340 127,745
1994 Finders Fee 115,000 31,050
----------- ----------
Balance November 30, 1994 2,897,087 2,169,522
1995 Cash 717,400 674,865
1995 Cash (escrow) 253,125 12,656
1995 Debt 97,327 107,060
1995 Investment 50,000 40,000
----------- ----------
Balance November 30, 1995 4,014,939 3,004,103
1996 Cash 527,000 653,720
1996 Debt 152,000 311,376
1996 Share Issue Costs 12,350 17,718
----------- ----------
Balance November 30, 1996 4,706,289 3,986,917
1997 Cash 136,500 162,800
----------- ----------
Balance November 30, 1997 4,842,789 4,149,717
1998 Cash 1,000,000 533,941
1998 Debt 403,851 302,888
----------- ----------
Balance November 30, 1998 6,246,640 4,986,546
1999 Cash 530,000 185,250
1999 Debt 396,500 184,850
1999 Finders Fee 15,000 4,500
1999 Subscriptions Cancelled (126,049) (81,630)
----------- ----------
Balance November 30, 1999 7,062,091 $ 5,279,516
=========== ==========
</TABLE>
<PAGE>
9. SHARE CAPITAL (CONT'D)
Stock Options:
The Company currently has no formal long-term incentive plans other than
incentive stock options granted from time to time by the Board of
Directors.
A summary of the status of the Company's stock options as of November 30,
1999 and 1998, and changes during the years then ended is as follows:
1999 1998
------------------ ----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- ------- -------
Options Outstanding, beginning of year 575,500 $ 0.74 400,500 $ 0.74
Granted ............................. -- -- 175,000 0.72
Exercised ............................ -- -- -- --
Forfeited/cancelled .................. -- -- -- --
------- -------- ------- -------
Options Outstanding, end of year ..... 575,500 $ 0.40 575,500 $ 0.74
======= ======== ======= =======
By a Directors resolution dated January 7, 1999, the exercise price of all
outstanding stock options was reduced to $0.40 per share.
The Company has outstanding stock options to acquire 575,500 shares of the
Company's capital stock as follows:
Number Exercise Price Expiry Date
------- -------------- ---------------
131,500 $0.40 August 10, 2000
100,000 $0.40 March 6, 2002
169,000 $0.40 August 7, 2002
175,000 $0.40 March 5, 2004
-------
575,500
=======
Warrants:
The Company has outstanding 400,000 share purchase warrants exercisable to
acquire 400,000 shares of the Company's capital stock at a price of $0.40
per share on or before January 11, 2000 (subsequently expired).
10. REMUNERATION OF DIRECTORS AND SENIOR OFFICERS
a. Directors fees totalling $9,000 (1998 - $15,750) were incurred with a
Director for services rendered. At November 30, 1999, an amount
totalling $8,250 remains as due to related parties.
b. Consulting fees totalling $1,500 (1998 - $15,000) were incurred with
a Director for services rendered. At November 30, 1999 an amount
totalling $Nil (1998 - $10,500) remains as due to related parties.
<PAGE>
11. RELATED PARTY TRANSACTIONS
a. Management fees totalling $68,948 (1998 - $ 68,843) and consulting
fees totalling $12,000 (1998 - Nil) were paid to a corporation
controlled by the President of the Company. At November 30, 1999, an
amount totalling $4,264 (1998 - $216) remains as due to/from related
parties for net advances made.
b. Consulting fees totalling $9,000 (1998 -$5,250) were incurred with a
corporation controlled by a Director of the Company. At November 30,
1999 an amount totalling $7,930 (1998 - $5,250) remains as due to
related parties.
c. The Agreement dated April 16, 1998 with regard to the sale of CPC
Cascade Power Corporation, described in note 3b above, is with a
Director of the Company.
12. SUBSEQUENT EVENTS
a. The Company issued 600,000 units at a price of $0.25 per unit to
complete a private placement financing. Each unit consists of one (1)
share and one (1) non-transferable share purchase warrant exercisable
to acquire one (1) additional share at a price of $0.30 per share for
one (1) year.
2. The Company issued 217,000 shares at a price of $0.40 per share for a
total consideration of $86,800 for the exercise of stock options.
3. The Company issued 288,000 shares for the exercise of share purchase
warrants as follows: 155,000 shares at a price of $0.40 per share for
a total consideration of $62,000; and 133,000 shares at a price of
$0.30 per share for a total consideration of $39,900.
4. By a Settlement and Release Agreement dated November 1, 1999, the
Company received and cancelled, effective January 5, 2000, a total of
60,000 shares of the Company's capital stock in settlement of amounts
receivable totalling $90,000, which had been previously reserved as a
doubtful account. The amount recovered is to be recorded as a
reductions of share capital and a bad debt recovery for the year
ended November 30, 2000. The shares have been returned to treasury.
e. Share subscriptions receivable totalling $6,000 were received
subsequent to the year end.
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
As disclosed in Note 2a, these consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting
principles, which conform in all material respects with those of the
United States, except as follows:
<PAGE>
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONT'D)
a. Escrow Shares
Three hundred and seventy-five thousand (375,000) contingently
cancellable escrow shares are excluded from the weighted average
number of shares for the calculation of earnings (loss) per share
under U.S. G.A.A.P.:
<TABLE>
CAN. G.A.A.P. U.S. G.A.A.P.
---------------------- ----------------------
Weighted Weighted
Average Basic Average Basic
Number of Loss Number of Loss
Shares per Shares per
Outstanding Share Outstanding Share
--------- ------- --------- -------
<S> <C> <C> <C> <C>
November 30, 1999 6,841,823 $(0.04) 6,466,823 $(0.04)
November 30, 1998 5,693,752 $(0.08) 5,318,752 $(0.09)
November 30, 1997 4,796,206 $(0.15) 4,421,206 $(0.17)
</TABLE>
b. Landfill Project Costs
Under U.S. G.A.A.P., development expenditures are not capitalized and
are recorded as an expense as incurred on the Company's consolidated
financial statements of operations and deficit accumulated during the
development stage.
The application of U.S. G.A.A.P., as described above, would have the
following approximate effect on net loss, loss per share.
<TABLE>
November 30, November 30, November 30,
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Net loss as reported on the consolidated statements of
operations and deficit accumulated during the development
stage..................................................... $(263,441) $(470,423) $(736,713)
Item increasing reported net loss:
Landfill development expenditures................... (357,274) (294,103) (98,142)
-------- -------- --------
Approximate net loss - U.S. G.A.A.P....................... $(620,715) $(764,526) $(834,855)
======== ======== ========
Weighted average shares outstanding - U.S. G.A.A.P........ 6,466,823 5,318,752 4,421,206
======== ======== ========
Approximate net loss per share U.S. G.A.A.P............... $ (0.10) $ (0.14) $ (0.19)
======== ======== ========
<CAPTION>
November 30, November 30,
1999 1998
---------- -----------
<S> <C> <C>
Total assets as reported in the balance sheet............. $2,320,381 $ 2,042,858
Items increasing (decreasing) reported total assets:
Cortina Landfill Projects Costs..................... (2,252,189) (1,894,915)
---------- -----------
Approximate total assets - U.S. G.A.A.P................... $ 68,192 $ 147,943
========== ==========
<PAGE>
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONT'D)
November 30, November 30,
1999 1998
------------- -----------
<S> <C> <C>
Shareholders' Equity as reported in the balance sheet $ 960,359 $ 935,330
Items increasing (decreasing) reported shareholders equity:
Cortina Landfill Projects Costs (2,252,189) (1,894,915)
------------ ----------
Approximate shareholders' equity (deficiency)
- U.S. G.A.A.P. $ (1,291,830) $ (959,585)
============ ==========
</TABLE>
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. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
