SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
----------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
October 31, 2000
--------------
(Date of report)
GLOBUS WIRELESS LTD.
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
NEVADA 0-25614 88-0228274
---------------------- ---------------------- ---------------
(State of Incorporation) (Commission File Number) (IRS Employer ID)
1955 Moss Court, Kelowna, British Columbia, Canada V1Y 9L3
--------------------------------------
(Address of principle executive offices)
250-860-3130
--------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. Acquisition or Disposition of Assets.
On October 31, 2000, Globus Wireless Ltd., a Nevada corporation ("Globus"),
and Victor Abuharoon and Randolph Ryan Aquino (together, the "Vendors"),
executed a Share Purchase Agreement that is effective September 1, 2000.
Pursuant to the Share Purchase Agreement and subject to the terms and conditions
set forth therein, Globus acquired 100% of all of the issued and outstanding
shares in the capital of Edge Continental Inc., a corporation incorporated under
the laws of Ontario, for Cdn.$1,000,000 and 300,000 shares of restricted common
stock of Globus. In addition, the shares issued have an eleven-month bleed-out
provision. The Cdn.$1,000,000 purchase price will be paid in 4 equal
installments, the first Cdn.$250,000 payment was made on October 31, 2000 and
will be followed by similar payments on January 1, 2000, March 31, 2001, and
June 30, 2001.
The foregoing description of the terms of the transaction is qualified in
its entirety by reference to the Share Purchase Agreement. A copy of the Share
Purchase Agreement is filed as Exhibit 2.1 and is incorporated herein by
reference.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
See Financial Statement Index
Exhibit 2.1 Share Purchase Agreement dated as of October 31, 2000, effective
as of September 1, 2000, among Globus Wireless Ltd., and Victor
Abuharoon and Randolph Ryan Aquino.*
*Incorporated by reference to Globus's Form 8-K filed on November 14, 2000
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION
Pro Forma Condensed Consolidated Financial Statements............... F-1
Pro Forma Consolidated Balance Sheet................................ F-2
Pro Forma Consolidated Statement of Operations
(Nine-months ended July 31, 2000).................................. F-3
Pro Forma Consolidated Statement of Operations
(Year ended October 31, 1999)...................................... F-4
GLOBUS WIRELESS, LTD.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(July 31, 2000 and 1999)
Consolidated Balance Sheets......................................... F-7
Consolidated Statements of Operations............................... F-8 - F-9
Consolidated Statements of Stockholders' Equity .................... F-10
Consolidated Statement of Cash Flows................................ F-11
Notes to Consolidated Financial Statements.......................... F-12
GLOBUS WIRELESS, LTD
CONSOLIDATED FINANCIAL STATEMENTS
(October 31, 1999 and 1998)
Report of James E. Schiefley & Associates, P.C., Certified
Public Accountant ................................................. F-15
Consolidated Balance Sheets ........................................ F-16
Consolidated Statements of Operations .............................. F-17
Consolidated Statements of Stockholders' Equity..................... F-18
Consolidated Statement of Cash Flows................................ F-19 - F-20
Notes to Consolidated Financial Statements.......................... F-21
EDGE CONTINENTAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
Report of KPMG LLP, Independent Auditors ........................... F-28
Consolidated Balance Sheets ........................................ F-29
Consolidated Statements of Operations and Deficit................... F-30
Consolidated Statement of Cash Flows................................ F-31
Notes to Consolidated Financial Statements.......................... F-32
<PAGE>
GLOBUS WIRELESS LTD.
And subsidiaries
Unaudited pro forma consolidated and combined financial information
The following unaudited pro forma consolidated and combined financial
information gives effect to the acquisition of Edge Continental Inc. ("Edge") by
Globus Wireless Ltd. ("Globus"), which acquisition occurred on September 1,
2000. The acquisition of Edge will be accounted for under the purchase method in
accordance with APB Opinion No. 16.
Under the purchase method of accounting, the purchase price is allocated to the
assets acquired and liabilities assumed based on their estimated fair values.
Management has estimated that there is no material difference between the book
values and the fair values of Edge's net assets and, accordingly, the
transaction has been recorded at the net book values of Edge's net assets at
September 1, 2000. Goodwill will be amortized on a straight line basis over five
years.
The unaudited pro forma consolidated balance sheet as at July 31, 2000 gives
effect to the acquisition as if it occurred on July 31, 2000. The Globus balance
sheet information was derived from its unaudited July 31, 2000 balance sheet.
The Edge balance sheet information was derived from its audited July 31, 2000
balance sheet. The unaudited pro forma combined statements of operations give
pro forma effect to the acquisition as if the transaction was consummated as of
November 1, 1998. The Globus and Edge fiscal year statement of operations was
derived from their audited statements of operations for the years ended October
31, 1999 and July 31, 1999, respectively. The Globus and Edge statement of
operations for the nine month period ended July 31, 2000 was derived from their
unaudited statements of operations.
The unaudited pro forma consolidated and combined financial information has been
prepared by management and is not necessarily indicative of the consolidated
financial position or combined results of operations in future periods or the
results that actually would have been realized had Globus and Edge been a
combined company during the specified periods. The unaudited pro forma
consolidated and combined financial information, including the notes thereto,
should be read in conjunction with the historical consolidated financial
statements of Globus included in its October 31, 1999 Form 10-KSB and September
30, 2000 Form 10-QSB filed April 20, 2000 and September 14, 2000, respectively,
with the Securities and Exchange Commission and the historical financial
statements of Edge included in this SB-2 registration statement.
F-1
<PAGE>
<TABLE>
<CAPTION>
GLOBUS WIRELESS LTD.
Unaudited Pro Forma Consolidated Balance Sheet
July 31, 2000
$ United States
---------------------------------------------------------------------------------------------------------------
Historical Pro Forma
Globus Edge Adjustments Consolidated
(note 2)
---------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C>
Current assets
Cash $ 429,739 $ 38,070 $ 806,994)(a) $ (339,185)
Marketable security 199,012 -- -- 199,012
Accounts receivable 54,291 399,878 -- 454,169
Loans and other advances 26,725 -- -- 26,725
Advances to shareholders -- 74,731 -- 74,731
Inventory 34,868 303,870 -- 338,738
Prepaid expenses and deposits 6,966 266,234 -- 273,200
----------- ----------- ----------- -----------
751,601 1,082,783 (806,994) 1,027,390
Capital assets 397,705 85,446 -- 483,151
Other assets 14,847 -- -- 14,847
Goodwill -- -- 1,758,052 (b) 1,758,052
----------- ----------- ----------- -----------
$ 1,164,153 $ 1,168,229 $ 951,058 $ 3,283,440
=========== =========== =========== ===========
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities
Accounts payable and
accrued liabilities $ 28,499 $ 609,494 $ -- $ 637,993
Due to shareholder 51,843 -- -- 51,843
Advances from related parties -- 38,726 -- 38,726
Loans payable to related parties -- 697,667 -- 697,667
----------- ----------- ----------- -----------
80,342 1,345,887 -- 1,426,229
Stockholders' Equity (Deficiency)
Capital stock 12,224 13 300 (a) 12,524
(13)(c)
Additional paid in capital 6,490,465 -- 773,100 (a) 7,263,565
Deficit (5,398,815) (179,338) 179,338 (c) (5,398,815)
Cumulative translation adjustment (20,063) 1,667 (1,667)(c) (20,063)
----------- ----------- ----------- -----------
1,083,811 (177,658) 951,058 1,857,211
----------- ----------- ---------- -----------
$ 1,164,153 $ 1,168,229 $ 951,058 $ 3,283,440
=========== =========== ========== ===========
See accompanying notes to financial information.
On behalf of the Board:
-------------------------- Director
-------------------------- Director
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBUS WIRELESS LTD.
Unaudited Pro Forma Combined Statement of Operations
Nine months ended July 31, 2000
$ United States
------------------------------------------------------------------------------------------------
Historical Pro Forma
Globus Edge Adjustments Combined
(Note 4) (Note 2)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 20,185 $ 4,000,229 $ -- $ 4,020,414
Cost of sales 11,656 3,580,753 -- 3,592,409
------------ ------------ ------------ ------------
8,529 419,476 -- 428,005
Engineering revenue 59,247 -- -- 59,247
------------ ------------ ------------ ------------
67,776 419,476 -- 487,252
Expenses
Amortization -- 15,292 87,902(d) 103,194
General and administrative 967,568 459,677 -- 1,427,245
Interest -- 96,284 -- 96,284
Research and development 154,132 -- -- 154,132
------------ ------------ ------------ ------------
1,121,700 571,253 87,902 1,780,855
------------ ------------ ------------ ------------
Loss $ (1,053,924) $ (151,777) $ (87,902) $ (1,243,603)
============ ============ ============ ============
Weighted average number of shares 11,815,206 12,115,206
Loss per share (note 3) $ (0.09) $ (0.11)
============ ============ ============ ============
See accompanying notes to financial information.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBUS WIRELESS LTD.
Unaudited Pro Forma Combined Statement of Operations
$ United States
============================================================================================
Historical Pro Forma
Globus Edge Adjustments Combined
Year ended Year ended
October 31, July 31,
1999 1999 (Note 2)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ -- $ 5,983,435 $ -- $ 5,983,435
Cost of sales -- 5,551,492 -- 5,551,492
------------ ----------- ----------- -----------
-- 431,943 -- 431,943
Other revenue 3,171 -- -- 3,171
------------ ----------- ----------- -----------
3,171 431,943 -- 435,114
Expenses
Amortization -- 2,601 117,203 (d) 119,804
General and administrative 795,204 386,561 -- 1,181,765
Interest 3,709 42,963 -- 46,672
Research and development 70,745 -- -- 70,745
------------ ----------- ----------- -----------
869,658 432,125 117,203 1,418,986
------------ ----------- ----------- -----------
Loss before other income (866,487) (182) (117,203) (983,872)
Other income 22,150 -- -- 22,150
------------ ----------- ----------- -----------
Loss $ (844,337) $ (182) $ (117,203) $ (961,722)
============ =========== =========== ===========
Weighted average number of shares 8,742,127 -- -- 9,042,127
Loss per share (note 3) $ (0.10) -- -- $ (0.11)
============ =========== =========== ===========
See accompanying notes to financial information.
F-4
</TABLE>
<PAGE>
GLOBUS WIRELESS LTD.
Notes to Unaudited Pro Forma Consolidated and Combined Financial Statements
$ United States
================================================================================
1. Basis of presentation:
These pro forma consolidated and combined financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States.
Globus acquired Edge effective September 1, 2000 for a total purchase price
of $1,580,394 in a transaction accounted for as a purchase. Globus issued
300,000 shares of its common stock with a fair value of $773,400 and paid
cash consideration of $672,495 and direct acquisition costs of $134,499 for
all of the outstanding common stock of Edge. The common stock issued by
Globus was valued using Globus' average stock price on the date the
transaction was announced and the prices of the stock two days before and
after the announcement. The cash consideration is payable in increments of
$168,124 on October 31, 2000, December 31, 2000, March 31, 2001 and June
30, 2001. The cash consideration has not been discounted as any outstanding
consideration bears interest at 6% per annum.
The acquisition will be accounted for under the purchase method of
accounting in accordance with APB Opinion No. 16. Management has estimated
that there is no material difference between the book values and the fair
values of Edge's net assets. Accordingly, the book values of Edge's assets
and liabilities have been combined with the historical values of the assets
and liabilities of Globus in the unaudited pro forma consolidated financial
information.
The actual measurement and allocation of the purchase price will depend on
Edge's net assets on the closing date. Consequently, the actual measurement
and allocation of the purchase price could differ from that presented in
the unaudited pro forma consolidated balance sheet.
2. Pro forma adjustments:
The pro forma consolidated balance sheet gives effect to the following
transactions as if they had occurred on July 31, 2000:
(a) To reflect the issuance of 300,000 Globus common shares, cash
consideration of $672,495 and acquisition costs of $134,499 for an
aggregate purchase price of $1,580,394.
(b) To reflect the purchase price allocation. The purchase price
allocation is based on management's estimates of fair values of Edge's
tangible assets and liabilities. Management has determined that there
is no material difference between the book values and fair values of
Edge's net assets. Goodwill will be amortized on a straight-line basis
over fifteen years.
Purchase price is summarized as follows:
Common stock $ 773,400
Cash consideration 672,495
Acquisition costs 134,499
------------------------------------------------------------------
Total purchase price $ 1,580,394
==================================================================
F-5
<PAGE>
GLOBUS WIRELESS LTD.
Notes to Unaudited Pro Forma Combined Financial Statements (continued)
$ United States
================================================================================
2. Pro forma adjustments (continued):
Preliminary allocation of the purchase price is as follows:
Cash $ 38,070
Accounts receivable 399,878
Advances to shareholders 74,731
Inventory 303,870
Prepaid expenses and deposits 266,234
Capital assets 85,446
Accounts payable and accrued liabilities (609,494)
Due to related parties (38,726)
Loans payable to related parties (697,667)
Goodwill 1,758,052
------------------------------------------------------------------
Net assets acquired $ 1,580,394
==================================================================
(c) To reflect the elimination of the stockholders' deficiency of Edge
upon consummation of the transaction.
(d) To reflect amortization of goodwill.
3. Pro forma loss per share:
The unaudited pro forma combined loss per share is based upon the weighted
average number of outstanding shares of common stock of Globus during the
periods presented, plus the number of shares issued to consummate the
acquisition of Edge as if the acquisition occurred at the beginning of the
period presented.
4. Adjustments made to historical information:
The Edge statement of operations for the nine month period ended July 31,
2000 was derived from the statement of operations for the year ended July
31, 2000. The adjustments were as follows:
================================================================================
August 1,
Year ended 1999 to Nine months
July 31, October 31, ended July 31,
2000 1999 2000
--------------------------------------------------------------------------------
Sales $ 5,851,634 $(1,851,405) $ 4,000,229
Cost of sales (5,313,103) 1,732,350 (3,580,753)
Expenses (717,687) 146,434 (571,253)
---------------------------------------------------------------------------
Loss (179,156) $ 27,379 $ (151,777)
===========================================================================
F-6
<PAGE>
<TABLE>
<CAPTION>
GLOBUS WIRELESS LTD.
Consolidated Balance Sheets
$ United States
July 31, 2000 and October 31, 1999
====================================================================================
July 31, October 31,
2000 1999
(Unaudited - Prepared
by Management)
------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current Assets
Cash $ 429,739 $ 487,562
Marketable Security 199,012 --
Accounts receivable 54,291 35,197
Loans and other advances 26,725 --
Inventories 34,868 --
Prepaid expenses 6,966 62,432
----------- -----------
751,601 585,191
Property and equipment, net of accumulated depreciation 397,705 290,351
Other assets 14,847 16,111
----------- -----------
$ 1,164,153 $ 891,653
----------- -----------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 28,499 $ 88,262
Note payable -- 1,121
Due to shareholder 51,843 51,843
----------- -----------
80,342 141,226
Subscriptions for common stock -- 382,627
Stockholders' equity
Common stock 12,224 11,080
Additional paid in capital 6,490,465 4,714,212
Accumulated other comprehensive income (20,063) (12,601)
Deficit (5,398,815) (4,344,891)
----------- -----------
1,083,811 367,800
----------- -----------
$ 1,164,153 $ 891,653
----------- -----------
See accompanying notes to consolidated financial statements.
F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBUS WIRELESS LTD.
Consolidated Statements of Operations
$ United States
Three month periods ended July 31, 2000 and 1999
(Unaudited - Prepared by Management)
======================================================================================
2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
Engineering revenue $ 19,684 $ --
Sale of accessories 9,473 --
Cost of sales 5,684 --
------------ ------------
3,789 --
------------ ------------
23,473 --
Expenses
Research and development 60,273 15,191
General and administrative 397,783 138,101
------------ ------------
458,056 153,292
------------ ------------
Loss from continuing operations, before income taxes (434,583) (153,292)
Income taxes -- 2,099
------------ ------------
Loss from continuing operations (434,583) (151,193)
Income from discontinued operation, net of income taxes -- 4,075
------------ ------------
Loss $ (434,583) $ (147,118)
============ ============
Weighted average number of shares 12,071,066 7,877,747
Basic loss per share $ (0.04) $ (0.02)
============ ============
Comprehensive loss
Loss $ (434,583) $ (147,118)
Foreign Currency Translation Adjustment (2,442) (24,325)
------------ ------------
Comprehensive loss $ (437,025) $ (171,443)
============ ============
See accompanying notes to consolidated financial statements.
F-8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBUS WIRELESS LTD.
Consolidated Statements of Operations
$ United States
Nine month periods ended July 31, 2000 and 1999
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Engineering revenue $ 59,247 $ --
Sale of accessories 20,185 --
Cost of sales 11,656 --
------------ ------------
8,529 --
------------ ------------
Expenses 67,776 --
Research and development 154,132 36,932
General and administrative 967,568 617,728
------------ ------------
1,121,700 654,700
------------ ------------
Loss from continuing operations, before income taxes (1,053,924) (654,700)
Income taxes -- 11,279
------------ ------------
Loss from continuing operations (1,053,924) (643,700)
Income from discontinued operation, net of income taxes -- 21,895
------------ ------------
Loss $ (1,053,924) $ (621,526)
Weighted average number of shares 11,815,206 7,344,342
Basic loss per share $ (0.09) $ (0.09)
============ ============
Comprehensive loss
Loss $ (1,053,924) $ (621,526)
Foreign currency translation adjustment (7,462) 19,290
------------ ------------
Comprehensive loss $ (1,061,386) $ (602,236)
============ ============
See accompanying notes to consolidated financial statements.
F-9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBUS WIRELESS LTD.
Consolidated Statement of Stockholders' Equity
$ United States
Nine month period ended July 31, 2000
(Unaudited - Prepared by Management)
------------------------------------------------------------------------------------------------------------------
Additional Other Total
Capital Stock Paid -in Accumulated Comprehensive Shockholders
Shares Amount Capital Deficit Income Equity
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1999 11,079,930 $ 11,080 $ 4,714,212 $(4,344,891) $ (12,601) $ 367,800
Issued for cash
(note 2) 712,358 712 1,325,905 -- -- 1,326,617
Issued for subscriptions
for common stock (note 2) 431,500 432 382,195 -- -- 382,627
Compensation cost of
options issued to
employees (note 3) -- -- 29,153 -- -- 29,153
Compensation cost of
warrants issued to non-
employees (note 4) -- -- 39,000 -- -- 39,000
Loss for the nine month
period ended July 31, 2000 -- -- -- (1,053,924) -- (1,053,924)
Foreign currency translation
adjustment -- -- -- -- (7,462) (7,462)
----------- ----------- ----------- ----------- ----------- -----------
Balance, July 31, 2000
(Unaudited) 12,223,788 $ 12,224 $ 6,490,465 $(5,398,815) $ (20,063) $ 1,083,811
=========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-10
</TABLE>
<PAGE>
GLOBUS WIRELESS LTD.
Consolidated Statements of Cash Flows
$ United States
Nine month periods ended July 31, 2000 and 1999
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
2000 1999
----------- -----------
Net cash flows used in operating activities $ (992,888) $ (303,405)
Cash flows from investing activities:
Purchase of equipment (157,232) (156,742)
Loans and other advances (26,725) --
Purchase of marketable security (199,012) --
----------- -----------
(382,969) (156,742)
Cash flows from financing activities:
Common stock issued for cash 1,326,617 872,955
Repayment of note payable (1,121) (833)
Increase in due to shareholder -- (143,830)
----------- -----------
1,325,496 728,292
Effect of exchange rate changes on cash balances (7,462) 19,290
----------- -----------
Increase (decrease) in cash (57,823) 287,435
Cash, beginning of period 487,562 31,673
----------- -----------
Cash, end of period $ 429,739 $ 319,108
=========== ===========
Supplementary information
Interest paid $ -- $ --
Income taxes paid -- --
=========== ===========
Non-cash financing activities (note 2)
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
GLOBUS WIRELESS LTD.
Notes to Consolidated Financial Statements
$ United States
Nine month period ended July 31, 2000
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
1. Significant accounting policies:
a) The accompanying financial statements as at July 31, 2000 and for the
three and nine month periods ended July 31, 2000 are unaudited;
however, in the opinion of management, all adjustments (consisting of
normal recurring items) necessary for the fair presentation of these
unaudited financial statements in conformity with generally accepted
accounting principles have been made.
b) The Company's subsidiary Celltech Research Inc., operates in Canada
and its operations are conducted in Canadian currency. However, the
functional currency has been determined to be United States dollars.
The method of translation applied is as follows:
i. Monetary assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date, being US $1.00 per
Cdn $1.477 at July 31, 2000;
ii. Non-monetary assets and liabilities are translated at the
exchange rate in effect at the transaction date;
iii. Revenues and expenses are translated at the exchange rate in
effect at the transaction date; and
iv. The net adjustment arising from the translation is recorded as a
separate component of stockholders' equity called "Accumulated
other comprehensive income."
c) Basic loss per share
Basic loss per share has been calculated using the weighted average
number of common shares outstanding during the period. The effect of
stock options outstanding during the period have not been included in
the computation because to do so would be anti-dilutive.
2. Issuance of common stock:
During the nine month period ended July 31, 2000, the Company issued the
following common stock:
712,358 shares for cash proceeds of $1,326,647.
431,500 shares for $382,627 in share subscriptions received prior to
October 31, 1999.
As both the 431,500 shares referred to above, the stock options referred to
in note 3 and the notes referred to in note 4 b) were non-cash transactions
for the period ended July 31, 2000, they are not reflected in the statement
of cash flows.
F-12
<PAGE>
GLOBUS WIRELESS LTD.
Notes to Consolidated Financial Statements
$ United States
Nine month period ended July 31, 2000
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
3. Stock options:
The Company applies APB Opinion No. 25 in accounting for employee stock
options whereby compensation cost is recorded only to the extent that the
market price exceeds the exercise price at the date of grant. Options
granted to non-employees are accounted for at their fair value at the date
of grant.
During the nine month period ended July 31, 2000, the Company granted
119,000 common share options with exercise prices fixed at 85% of the
market value of the Company's common shares at the grant date. Accordingly,
compensation cost of $29,153, representing the excess of the market price
over the exercise price of the options granted, has been included in the
determination of the loss for the period.
4. Contingencies:
a) Pursuant to a technology licensing agreement, the Company was required
to make periodic payments to an individual who is the Company's
founder, major stockholder and former President. Technology license
payments owing under the agreement have amounted to approximately
$240,000 at October 31, 1999 and $330,000 at July 31, 2000.
During 1999, the Company launched a lawsuit against its former
President for breach of his fiduciary duties. As part of its claims
against its former President, the Company contends that its
obligations under the agreement have been eliminated. Consequently, no
accrual for technology license payments has been made as at October
31, 1999 and July 31, 2000.
b) On May 8, 2000, the Company signed a letter of agreement with Coleman
and Company Securities Inc. to secure investors for the Company. In
consideration for these services, the Company is required to:
i. pay a monthly cash fee of $5,000;
ii. issue, within 30 days, 100,000 share purchase warrants with an
exercise price of $4.00 per share, exercisable for a period of 5
years; and
iii. issue, within 30 days, an additional 100,000 share purchase
warrants with an exercise price of $5.00 per share, exercisable
for a period of 5 years, vesting 20,000 warrants every 30 days
from the execution of the letter.
The fair value of $39,000 of these warrants has been determined using
the Black Scholes Method using an expected life of six months,
volatility factor of 25%, risk free rate of 5.5% and no assumed
dividend rate and has been included in the determination of the loss
for the period.
F-13
<PAGE>
GLOBUS WIRELESS LTD.
Notes to Consolidated Financial Statements
$ United States
Nine month period ended July 31, 2000
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
5. Depreciation:
Depreciation for the nine month period ended July 31, 2000 was $51,142.
6. Subsequent Events:
a) Subsequent to July 31, 2000, the Company issued 40,000 common shares
for investor relations consulting services. The shares vest in
increments of 10,000 on August 1, 2000, November 1, 2000, February 1,
2001 and May 1, 2001. The fair value of the services to be received,
aggregating $120,000 is equivalent to the fair market value of the
shares issued.
b) Subsequent to July 31, 2000, the Company issued 93,833 common shares
for notes receivable, aggregating $184,854 from the exercise of
employee stock options. The notes receivable do not bear interest, are
due within 364 days and are secured by the common shares issued.
F-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Globus Wireless Ltd.
We have audited the accompanying balance sheet of Globus Wireless Ltd. as of
October 31, 1999, and the related statements of operations, stockholders'
equity, and cash flows for the years ended October 31, 1999 and 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 generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Globus Wireless Ltd. as of
October 31, 1999, and the results of its operations, and its cash flows for the
years ended October 31, 1999 and 1998, in conformity with generally accepted
accounting principles.
/s/ James E. Scheifley & Associates, P.C.
-----------------------------------------
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Denver, Colorado
April 4, 2000
F-15
<PAGE>
Globus Wireless Ltd.
Balance Sheet
October 31, 1999
ASSETS
Current assets:
Cash $ 487,562
Accounts receivable, other 35,197
Prepaid expenses 62,432
-----------
Total current assets 585,191
Property and equipment, at cost, less
accumulated depreciation of $91,236 290,351
Other assets 16,111
-----------
$ 891,653
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 76,869
Accrued expenses 11,393
Note payable 1,121
Accrued expenses - related party 51,843
-----------
Total current liabilities 141,226
Stockholders' equity:
Preferred stock, $.001 par value, 20,000,000 shares authorized, --
Common stock, $.001 par value, 100,000,000 shares authorized,
11,079,930 shares issued and outstanding 11,080
Additional paid-in capital 4,721,710
Subscriptions to common stock 382,627
Foreign exchange adjustment (12,601)
(Deficit) (4,352,391)
-----------
750,427
-----------
$ 891,653
===========
See accompanying notes to financial statements.
F-16
<PAGE>
Globus Wireless Ltd.
Statements of Operations
Years Ended October 31, 1999 and 1998
1999 1998
Revenue: ----------- -----------
Sales $ -- $ --
Other income 3,171 10,129
----------- -----------
3,171 10,129
Other costs and expenses:
General and administrative 802,704 687,003
Research and development 70,745 67,685
----------- -----------
873,449 754,689
----------- -----------
Income (loss) from continuing operations (870,278) (744,560)
Other income and (expense):
Other income & expense 22,150 --
Interest expense (3,709) (8,868)
----------- -----------
18,441 (8,868)
----------- -----------
Income (loss) from continuing operations
before income taxes (851,837) (753,428)
Provision for income taxes -- 2,340
----------- -----------
Income (loss) from continuing operations (851,837) (751,088)
Income (loss) from discontinued operation
net of income taxes of $2,340 -- 13,252
----------- -----------
Net income (loss) $ (844,337) $ (737,836)
=========== ===========
Basic earnings (loss) per share:
Net income (loss) from continuing operations $ (0.10) $ (0.10)
Net income (loss) from discontinued operation -- 0.01
----------- -----------
$ (0.10) $ (0.09)
=========== ===========
Weighted average shares outstanding 8,742,127 7,224,437
=========== ===========
Net income (loss) $ (851,837) $ (737,836)
Foreign exchange gain (loss) net of
income taxes (24,259) 26,058
----------- -----------
Comprehensive income (loss) $ (876,096) $ (711,778)
=========== ===========
See accompanying notes to financial statements.
F-17
<PAGE>
<TABLE>
<CAPTION>
Globus Wireless Ltd.
Statement of Changes in Stockholders' Equity
For the Periods Indicated
Additional Foreign
Common Stock Paid -in Stock Accumulated Exchange
ACTIVITY Shares Amount Capital Subscriptions Deficit Adjustment
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1997 6,960,813 $ 6,960 $ 3,243,115 $ (97,276) $(2,762,718) $ (15,327)
Exercise of warrants and options
for cash 156,343 157 47,794 -- --
Stock issued for services or
equipment 310,055 310 152,605 -- --
Stock sold for cash by private
placement 72,500 73 50,876
Shares returned by officer (755,000) (755) (169,120) --
Amortization of unpaid
subscriptions 97,276
Foreign exchange (loss) -- -- -- -- 39,482
Net (loss) for the year ended
October 31, 1998 -- -- -- (737,836) --
----------- ----------- ----------- ----------- ----------- -----------
Balance, October 31, 1998 6,744,711 6,745 3,325,270 -- (3,500,554) 24,155
Exercise of warrants and options
for cash 3,081,813 3,082 964,209 -- --
Compensation value of options -- 28,100
Stock issued for services or
equipment 291,927 292 125,849 -- --
Stock issued for debt conversion 238,055 238 128,312
Options exercised for notes
receivable 723,424 723 149,975 (150,698)
Common stock subscribed for cash -- -- -- 435,475
Stock subscribed for lawsuit
settlement 97,850
Foreign exchange (loss) -- -- -- -- (36,756)
Net (loss) for the year ended
October 31, 1999 -- -- -- (851,837) --
----------- ----------- ----------- ----------- ----------- -----------
Balance, October 31, 1999 11,079,930 $ 11,080 $ 4,721,712 $ 382,627 $(4,344,891) $ (12,601)
=========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
F-18
</TABLE>
<PAGE>
Globus Wireless Ltd.
Statements of Cash Flows
Years Ended October 31, 1999 and 1998
1999 1998
----------- -----------
Net income (loss) $ (851,837) $ (737,836)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 49,133 16,446
Stock and options issued for services 126,141 150,630
Stock subscribed for lawsuit settlement 97,850
Conpensation value of options issued 20,600 4,520
Salary and license costs and expenses
converted to officer loans (56,624) 210,000
Amortization of unpaid stock subscriptions -- 97,276
Foreign exchange translation adjustment 39,483 (36,756)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (29,635) 90,512
(Increase) decrease in net assets of
discontinued operation 56,647 1,075
(Increase) decrease in prepaid expenses (60,606) 646
Increase (Decrease) in accounts payable 68,664 (7,033)
----------- -----------
Total adjustments 319,151 527,317
----------- -----------
Net cash provided by (used in)
operating activities 532,686 (210,519)
----------- -----------
Cash flows from investing activities:
Purchase of equipment (277,582) (41,193)
----------- -----------
Net cash provided by (used in)
financing activities (277,582) (41,193)
Cash flows from financing activities:
Common stock sold for cash 1,402,763 98,900
Repayment of notes payable (769) (142)
Advances from officer 14,975 2,714
Repayment of officer loans (150,812) (167,221)
----------- -----------
Net cash provided by (used in)
financing activities 1,266,157 (65,749)
----------- -----------
Increase (decrease) in cash 455,889 (317,461)
Cash and cash equivalents,
beginning of period 31,673 349,133
----------- -----------
Cash and cash equivalents,
end of period 487,562 $ 31,673
=========== ===========
See accompanying notes to financial statements.
F-19
<PAGE>
Globus Cellular Ltd.
Statements of Cash Flows
Years Ended October 31, 1999 and 1998
1999 1998
-------- --------
Supplemental cash flow information:
Cash paid for interest $ 3,709 $ 8,868
Cash paid for income taxes $ -- $ --
Non-cash investing and financing activities:
Equipment finaqnced by note payable $ -- $ 1,984
Abandonment of leasehold improvements $ -- $ 4,518
Return of common stock by officer $ -- $169,875
Converstion of officer loan to stock $128,550 --
See accompanying notes to financial statements.
F-20
<PAGE>
Globus Wireless Ltd.
Notes to Financial Statements
Note 1. Business and Significant Accounting Policies
Business
The Company manufactures and distributes a cellular telephone radiation
shielding product which universally fits most cellular phones and formerly
distributed other radiation shielding products, X-ray film and film development
products manufactured by others to customers in the medical and veterinary
fields. During the year ended October 31, 1999, the Company disposed of the net
assets and operations of its X-ray products division. The Company is also
developing advanced antenna designs that incorporate the Company's proprietary
shielding technology. Prior to 1999, the Company was known as Globus Cellular
Ltd.
The Company was incorporated in the State of Nevada on June 10, 1987.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, in banks and all highly liquid
investments with maturity of three months or less when purchased. Cash
equivalents are stated at cost that approximates market.
Inventories
Inventories, which consist primarily of finished goods, are valued at the lower
of cost or market. Cost is determined using the first in, first-out (FIFO)
method.
Prepaid Expenses
Prepaid expenses consist primarily of prepayments relating to advertising and
marketing.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. When assets
are retired or otherwise disposed of, the cost and the related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized in operations for the period. The cost of repairs and maintenance is
charged to operations as incurred and significant renewals or betterments are
capitalized. Depreciation has been provided using both straight-line and
accelerated methods over the useful lives of the assets, ranging from three to
ten years.
Foreign Currency Translation
The financial statements are presented in United States dollars. The Company has
significant Canadian operations, however United States dollars are considered
its functional currency.
F-21
<PAGE>
Monetary assets and liabilities are translated into United States dollars at the
balance sheet date rate of exchange and non-monetary assets and liabilities at
historical rates. Revenues and expenses are translated at appropriate
transaction date rates. Net gains or losses arising on translation are reflected
a separate component of stockholders' equity
Loss Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share." The statement is effective for financial
statements issued for periods ending after December 15, 1997. Among other
changes, SFAS No. 128 eliminates the presentation of primary earnings per share
and replaces it with basic earnings per share for which common stock equivalents
are not considered in the computation. It also revises the computation of
diluted earnings per share. The Company has adopted SFAS No. 128 and there is no
material impact to the Company's earnings per share, financial condition, or
results of operations. The Company's earnings per share have been restated for
all periods presented to be consistent with SFAS No. 128.
Basic loss per share for periods presented has been computed using the weighted
average number of shares of common stock outstanding during the periods
presented. Common stock equivalents are excluded from the computation as their
effect would be anti-dilutive.
Revenue Recognition
Sales are recognized at the time goods are shipped. Revenue from the sale of
license distribution rights is recorded when the licensee commences product
operations.
Advertising Expenses
Advertising expenses are charged to expense upon first showing. Amounts charged
to expense were $5,422 and $679 for the periods ended October 31, 1999 and 1998,
respectively.
Income Taxes
Effective July 1, 1993, the Company adopted the provisions of Financial
Accounting Standards Board Statement No.109 (Statement No.109), Accounting for
Income Taxes. Statement No.109 requires that deferred taxes reflect the tax
consequences on future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts. At the date of adoption of
Statement No. 109, there was no material effect on the Company's financial
statements.
Prior to July 1, 1993, the Company accounted for income taxes using the deferred
method. As of October 31, 1999 the Company has accumulated net operating losses
available to offset future taxable income of approximately $4,341,000, expiring
$72,000 in 2008, $370,000 in 2009, $700,000 in 2010, $734,000 in 2011, $884,000
in 2012, $740,000 in 2013 and $851,000 in 2014. The Company has fully reserved
the deferred tax asset that would arise from the loss carryforward
(approximately $1,476,000) since the Company believes that it is more likely
than not that future income from operations will not be available to utilize the
deferred tax asset. The increase in the deferred tax asset and related reserve
applicable to the 1999 operating loss was approximately $290,000.
F-22
<PAGE>
Estimates
Management of the Company uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that management uses.
Fair value of financial instruments
The Company's short-term financial instruments consist of cash and cash
equivalents, accounts and loans receivable, and accounts payable and accruals.
The carrying amounts of these financial instruments approximate fair value
because of their short-term maturities. Financial instruments that potentially
subject the Company to a concentration of credit risk consist principally of
cash and accounts receivable, trade.
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123 (FAS
123), Accounting for Stock-Based Compensation beginning with the Company's first
quarter of 1996. Upon adoption of FAS 123, the Company continued to measure
compensation expense for its stock-based employee compensation plans using the
intrinsic value method prescribed by APB No. 25, Accounting for Stock Issued to
Employees, and has provided in Note 6 pro forma disclosures of the effect on net
income and earnings per share as if the fair value-based method prescribed by
FAS 123 had been applied in measuring compensation expense.
New Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines for all
items that are to be recognized under accounting standards as components of
comprehensive income to be reported in the financial statements. The statement
is effective for all periods beginning after December 15, 1997 and
reclassification of financial statements of financial statements for earlier
periods will be required for comparative purposes. To date, the Company has
engaged in transactions that would result in any significant difference between
its reported net loss and comprehensive net loss as defined in the statement.
The Company's accounting for foreign currency translation adjustments may be
affected by SFAS No. 130.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Cost of Start-up
Activities". This SOP requires that the cost of start-up activities, or one-time
activities that relate to the opening of a new facility and organizational cost
be expensed as incurred instead of being capitalized. This SOP must be
implemented by no later than the first quarter of 1999 at which time the
write-off of any unamortized pre-opening costs or organization cost will be
reported as a cumulative effect of a change in accounting principle in the
statement of operations. The Company adopted the statement upon its issuance,
however, the Companies organization costs had been fully amortized in prior
years.
F-23
<PAGE>
Note 2. Property and Equipment
At October 31, 1999 Property and equipment consists of:
Machinery and office equipment $ 54,483
Leasehold improvements 78,863
Computer software 8,363
Research and development equipment 239,878
--------
381,587
Less accumulated depreciation 91,236
--------
$290,351
Depreciation charged to expense was $40,255 and $16,687 for the years ended
October 31, 1999 and 1998, respectively.
Note 3. Commitments and Contingencies
The Company has an agreement with Dr. Paul F. Bickert (its founder, major
stockholder and former President) to pay Dr. Bickert lease of technology
payments of $10,000 (US) monthly for the technology utilized in the Company's
products. This agreement expires in 2002, with an option to renew.
The Company commenced a lawsuit against Paul F. Bickert in the British Columbia
Supreme Court in December of 1999, claiming, among other things, that he
breached his legal duties by improperly asserting his inventorship and ownership
of a certain technology that rightfully belongs to the Company. The Company
seeks, among other things, a declaration that that certain technology belongs to
the Company and corollary relief (in particular, that the license technology
license agreements, based on Bickert's asserted ownership of that certain
technology, are void accordingly). Bickert filed a Defense and Counterclaim.
Therein, he denied the Company's claims, and counterclaimed to seek a
declaration that certain technology license agreements are valid and subsisting,
and that he be paid compensation being the issuance of 755,000 shares of the
Company to him or equitable damages in lieu, and "judgment for monies due and
owing in an amount to be determined by this Honourable Court" that he estimates
to be in excess of $600,000, plus unspecified damages and interest.
Based only on the information received from the Company to date, and relying on
its accuracy, the Company's attorney's are of the opinion that the Company's
claims are more likely to succeed than not.
F-24
<PAGE>
In connection with the lawsuit the Company has ceased all accruals of technology
lease payments for the year ended October 31, 1999 amounting to $120,000 per
year and had reversed accruals of unpaid technology lease accruals for the year
ended October 31, 1998 amounting to $120,000. The reversal of the accrual for
1998 has been accounted for as a change in accounting estimate and therefore no
adjustment to the prior year financial statements has been made. Additionally,
the Company suspended all unexercised options to purchase its common stock held
by the stockholder.
The Company entered into one to three year employment contracts with three of
its officers that provide aggregate monthly compensation of $12,500. The
contracts provide for unspecified periodic bonus payments and options to
purchase common stock of the Company at $.85 to $3.00 per share. An aggregate of
300,000 options to purchase stock at $.85 per share of which 83,334 were fully
vested at the respective contract dates were awarded and 33,334 were exercised
during the year.
The vested shares included an aggregate of $28,100 of compensation expense as a
result of an exercise price that was less than the fair value of the options at
the grant date. Vesting of the remaining $.85 options is contingent upon
attainment of specified corporate goals contained in the agreements and may
include additional compensation expense that will be recorded as the goals are
realized. An aggregate of 350,000 options exercisable at $3.00 per share were
awarded. Vesting of the remaining $3.00 options is contingent upon attainment of
specified and unspecified corporate goals contained in the agreements and may
include additional compensation expense that will be recorded as the goals are
realized.
During 1996, the Company began selling distribution rights to products included
in its line of X-ray film and developer catalogue. The distribution rights
covered certain eastern provinces in Canada and other territories outside of
Canada. The Company had been purchasing developer products exclusively from Idex
International Corp., a company now in bankruptcy. The Company has substituted
developer chemicals purchased from a new supplier to its distributors.
A successor company to Idex, 2834332 Canada Inc., has filed an action in the
Supreme Court of the State of New York claiming that the Company has
fraudulently misrepresented that it was the worldwide licensee or holder of
worldwide rights to distribute the X-ray developing technology belonging to
Idex. The claim seeks the return of $200,000 of distribution rights income plus
interest and unspecified punitive damages. The Company settled the lawsuit by
way of a settlement agreement dated September 27, 1999 whereby the Company will
issue 47,500 shares of its restricted common stock. The Company has recorded
$97,850 of expense related to the settlement based upon the closing bid price of
the common stock at the settlement date. The shares remained unissued at October
31, 1999 and the value thereof is included in subscriptions to common stock.
F-25
<PAGE>
Notes 4. Related Party Transactions
The former President and General Manager of the Company, Dr. Paul Bickert is the
founder of the Company. Dr. Bickert and his wife jointly is the Company's
largest stockholder.
The Company has an exclusive four-year lease on the cellular phone user
protection technology from Dr. Bickert. The Company possesses the exclusive
right to sublease or sell this technology to others. The technology lease is the
subject of a lawsuit described in Note 3.
The Company leases its office and research facility from the stockholder on a
month-to-month basis at a rate of $2,267 per month.
Dr. Bickert had net loan balances due from the Company for cash advances and
unpaid salary and technology lease payments totaling $51 843 and $372,885 at
October 31, 1999 and 1998 respectively.
During the year ended October 31, 1998, the Company received cash advances from
the stockholder amounting to $2,714 and repaid advances in the amount of
$167,221. Additionally, the Company cancelled 755,000 shares of common stock,
which had been authorized by the Company and issued by its transfer agent in
prior years as repayment of amounts due the stockholder. The shares returned had
a fair value of $169,875 and such amount has been added to the officer loan
account. The loan account was also increased by $210,000 during 1998 due to
technology lease and salary payments due to the stockholder. The amount due for
technology payments ($120,000) was reversed in 1999 due to the lawsuit disclosed
in Note 3. The reversal is included in other income and expense in the
accompanying financial statements.
During the year ended October 31, 1999, the Company incurred salary expense of
$45,000 and other expenses including rent of $18,143 in favor of the former
officer and received cash advances of $10,287. During the year ended October 31,
1999, the Company made cash payments of $150,812 to the officer and issued to
him 238,055 shares of common stock valued at $128,550 based upon the bid price
of the Company's common stock at the date the issuance was approved.
Note 5. Stockholders' Equity
During the year ended October 31, 1999, the Company issued 3,081,813 shares of
its common stock pursuant to the exercise of warrants and options for cash
aggregating $697,288. The warrants were issued in connection with a 1997 private
placement as described. No outstanding warrants remain outstanding at October
31, 1999.
Additionally during 1999, the Company issued an aggregate of 291,927 shares of
its common stock to individuals or entities that had provided goods or services
to the Company during the year. The shares were valued at the fair value of the
common stock issued at the date the issuance was authorized by the board of
directors. The aggregate value of the goods and services provided to the Company
was $126,141.
F-26
<PAGE>
Additionally during 1999, the Company accepted subscriptions for the issuance of
843,250 shares of its common stock for cash aggregating $435,475. The shares
remained unissued at October 31, 1999 and the fair value thereof is included in
subscriptions to common stock.
During the year ended October 31, 1998, the Company issued 156,343 shares of its
common stock pursuant to the exercise of warrants for cash aggregating $47,951.
The "A" warrants were issued in connection with a 1997 private placement of the
Company's common stock and had an original exercise price of $.87 per share.
During August, 1998 the Company's board of directors authorized a limited time
discount of the exercise price to warrant holders wishing to exercise all or
part of their outstanding warrants. The exercise price was discounted to $.31
per share due to the Company's need for additional equity capital and a decline
in the fair value of its common stock. Warrant holders who exercised during the
discount period were awarded "B" warrants exercisable at $.53 per share for one
year on a one warrant for one share purchased basis.
Additionally during 1998, the Company issued an aggregate of 310,055 shares of
its common stock to individuals or entities that had provided goods or services
to the Company during the year. The shares were valued at the fair value of the
common stock issued at the date the issuance was authorized by the board of
directors. The aggregate value of the goods and services provided to the Company
was $264,967.
No dividends have been declared since the inception of the Company nor does the
Company anticipate that dividends will be declared in the ensuing fiscal year.
As of October 31, 1999, the Company had outstanding options to purchase and
aggregate of 12,121 shares of its common stock by officers and directors at an
exercise price of $.165. The options were granted during the years ended October
31, 1995 and 1996.
Also at October 31, 1999 the Company had options to purchase an aggregate of
250,000 shares of common stock at $.85 per share and 300,000 shares of common
stock at $3.00 per share that were granted in connection with the employment
contracts described in Note 3. Additionally, the Company awarded two members of
its Board of Directors options to purchase an aggregate of 43,332 shares of
common stock at $1.0625 per share.
During the year ended October 31, 1997 the Company established a non-statutory
stock option plan to benefit employees, officers, directors, consultants and
others providing services to the Company. The Company has reserved 500,000
shares of common stock for issuance in connection with option grants made
pursuant to the plan.
The purchase price for shares granted under the plan shall not be less than 85%
of the fair market value of the stock on the grant date. No shares have been
granted under the plan as of the date of these financial statements.
The weighted average fair value at the date of grant for warrants and options
granted during 1999 and 1998 was $.12 and $ .12 per option. The fair value of
the options at the date of grant was estimated using the Black-Scholes model
with assumptions as follows:
Stock based compensation costs would have increased pretax losses by
approximately $113,800 and $28,000 in 1999 and 1998 ($.01 and $.00 per share) if
the fair value of the warrants granted had been recognized as compensation
expense.
F-27
<PAGE>
Auditors' Report to the stockholders
We have audited the accompanying balance sheets of Edge Continental Inc. as at
July 31, 2000 and 1999, and the statements of operations and deficit and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of the Company as at July 31, 2000
and 1999 and the results of its operations and its cash flows for the years then
ended, in accordance with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company, to date, has cumulative losses since inception of $179,338. This
factor, among others, as discussed in Note 1 a), raises substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
signed "KPMG LLP"
Kelowna, Canada
November 24, 2000
F-28
<PAGE>
Edge Continental Inc.
Balance Sheets
$ United States
July 31, 2000 and 1999
Assets
2000 1999
----------- -----------
Current
Cash $ 38,070 $ 40,994
Accounts receivable (net of allowance
of $21,582, 1999 - $nil) 399,878 312,695
Advances to shareholders (note 2) 74,731 33,874
Inventory 303,870 427,538
Prepaid expenses and deposits on inventory 266,234 23,657
----------- -----------
1,082,783 838,758
Capital assets (note 3) 85,446 17,761
----------- -----------
$ 1,168,229 $ 856,519
=========== ===========
Liabilities and Shareholders' Deficiency
Current
Accounts payable and accrued liabilities $ 609,494 $ 328,413
Advances from related parties (note 4) 38,726 38,957
Loans payable to related parties (note 5) 697,667 489,278
----------- -----------
1,345,887 856,648
Shareholders' deficiency
Share capital (note 6) 13 13
Deficit (179,338) (182)
Cumulative translation adjustment 1,667 40
----------- -----------
(177,658) (129)
----------- -----------
Commitments (note 8)
$ 1,168,229 $ 856,519
=========== ===========
See accompanying notes to financial statements.
Approved by the Board:
, Director
-----------------------------------
, Director
-----------------------------------
F-29
<PAGE>
Edge Continental Inc.
Statements of Operations and Deficit
$ United States
Years ended July 31, 2000 and 1999
2000 1999
----------- -----------
Sales $ 5,851,634 $ 5,983,435
Cost of sales (5,313,103) (5,551,492)
----------- -----------
538,531 431,943
Expenses
Amortization 15,451 2,601
General and administrative 580,625 386,561
Interest 121,611 42,963
----------- -----------
717,687 432,125
----------- -----------
Loss (179,156) (182)
Shareholders' deficiency, beginning of year (182) --
----------- -----------
Shareholders' deficiency, end of year $ (179,338) $ (182)
=========== ===========
See accompanying notes to financial statements.
F-30
<PAGE>
Edge Continental Inc.
Statements of Cash Flows
$ United States
Years ended July 31, 2000 and 1999
2000 1999
--------- ---------
Cash provided by (used in):
Operating activities
Loss $(179,156) $ (182)
Item not involving cash:
Amortization 15,451 2,601
Changes in non-cash operating working capital
Accounts receivable (87,183) (312,695)
Inventory 123,668 (427,538)
Prepaid expenses and deposits on inventory (242,577) (23,657)
Accounts payable and accrued liabilities 281,081 328,413
--------- ---------
(88,716) (433,058)
Financing activities
Advances from (to) related parties (231) 38,957
Advances to shareholders (40,857) (33,874)
Shares issued for cash -- 13
Loans payable 208,389 489,278
--------- ---------
167,301 494,374
Investing activities
Purchase of capital assets (83,136) (20,362)
Translation adjustment 1,627 40
--------- ---------
(Decrease) increase in cash (2,924) 40,994
Cash, beginning of year 40,994 --
--------- ---------
Cash, end of year $ 38,070 $ 40,994
========= =========
Supplementary information
Interest paid $ 116,816 $ 40,078
Income taxes paid -- --
========= =========
See accompanying notes to financial statements.
F-31
<PAGE>
Edge Continental Inc.
Notes to Financial Statements
$ United States
Years ended July 31, 2000 and 1999
--------------------------------------------------------------------------------
The Company was incorporated under the laws of the Province of Ontario on April
7, 1998 and was inactive until October 1, 1998. The major activity of the
Company is the wholesale distribution of cellular phones and related accessories
in North America.
1. Accounting Policies:
(a) Basis of Presentation
These financial statements have been prepared on the going concern
basis, which assumes the realization of assets and liquidation of
liabilities in the normal course of business. As shown in the
financial statements, to date, the Company has an accumulated deficit
of $179,338. This factor, among others, raises substantial doubt about
the Company's ability to continue as a going concern. The Company's
ability to continue as a going concern is dependent on its ability to
generate future profitable operations and to receive continued
financial support from its shareholders and other investors. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty. Management of the company in
pursuing additional sources of financing (see note 9) and plans to
achieve profitable operations through increased future sales.
(b) Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(c) Inventory
Inventory is recorded at the lower of cost, determined on an average
cost basis, and net realizable value.
(d) Capital assets
Capital assets are recorded at cost. Amortization is provided annually
on a straight-line basis over the assets' estimated useful lives as
follows:
Computer equipment 5 years
Computer software 3 years
Furniture and fixtures 5 years
Leasehold improvements 3 years
F-32
<PAGE>
Edge Continental Inc.
Notes to Financial Statements
$ United States
Years ended July 31, 2000 and 1999
--------------------------------------------------------------------------------
1. Accounting Policies (continued):
(e) Revenue recognition
Revenue is recognized at the time of shipment of inventory when the
risks and rewards of ownership have transferred to the customer.
(f) 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 enactment date. Although the Company has loss
carryforwards available, no amount has been reflected on the balance
sheet for deferred income taxes as any deferred income tax asset has
been fully offset by a valuation allowance.
(g) Translation of financial statements
These statements have been translated into United States dollars. The
method of translation applied is as follows:
i) Assets and liabilities are translated at the rate of exchange in
effect at the balance sheet date, being US $1.00 per Cdn $1.4870
at July 31, 2000 and US $1.00 per Cdn $1.5063 at July 31, 1999.
ii) Revenues and expenses are translated at the exchange rate in
effect at the transaction date.
iii) The net adjustment arising from the translation is recorded in a
separate component of shareholders' deficiency called "Cumulative
translation adjustment".
(h) Financial instruments
The fair values of cash, accounts receivable and accounts payable and
accrued liabilities approximate their carrying values due to the
relatively short period to maturity of these instruments. The fair
values of advances to/from shareholders and related parties and loans
payable to related parties are not determinable due to the related
party nature of the amounts and the absence of a trading market for
such instruments. The maximum credit risk exposure for all financial
assets is the carrying amount of that asset.
F-33
<PAGE>
Edge Continental Inc.
Notes to Financial Statements
$ United States
Years ended July 31, 2000 and 1999
--------------------------------------------------------------------------------
2. Advances to shareholders:
Advances to shareholders are non-interest bearing, have no stated terms of
repayment and are unsecured.
3. Capital assets:
2000 Accumulated Net Book
---- Cost Amortization Value
-------- ------------ --------
Computer equipment $ 35,478 $ 8,085 $ 27,393
Computer software 28,193 4,228 23,965
Furniture and fixtures 33,102 5,067 28,035
Leasehold improvements 6,725 672 6,053
-------- -------- --------
$103,498 $ 18,052 $ 85,446
======== ======== ========
1999 Accumulated Net Book
---- Cost Amortization Value
------- ------------ --------
Computer equipment $ 9,652 $ 976 $ 8,676
Furniture and fixtures 10,710 1,625 9,085
------- ------- -------
$20,362 $ 2,601 $17,761
======= ======= =======
4. Advances from related parties:
Advances from related parties are non-interest bearing, have no stated
terms of repayment and are secured by a general security agreement over the
assets of the Company. The related parties are the spouses of the
shareholders.
F-34
<PAGE>
Edge Continental Inc.
Notes to Financial Statements
$ United States
Years ended July 31, 2000 and 1999
--------------------------------------------------------------------------------
5. Loans payable to related parties:
The Company has loans payable at the following rates and terms:
2000 1999
-------- --------
Note payable, due on demand, interest payable
monthly at prime less 1%, secured by a general
security agreement over the assets of the Company $ 23,357 $ --
Note payable, due on demand, non-interest bearing,
secured by a general security agreement over the
assets of the Company 235,373 132,775
Note payable, due on demand, interest
payable monthly at 13.5%, unsecured -- 33,194
Notes payable, due on demand,
interest payable monthly at 20%, unsecured 127,572 26,555
Notes payable, due on demand, interest payable
monthly at 20%, secured by a general security
agreement over the assets of the Company 297,915 260,240
Notes payable, due on demand, interest payable
monthly at 11%, secured by a general security
agreement over the assets of the Company 13,450 13,278
Note payable, due on demand, interest payable
monthly at 12%, secured by a general security
agreement over the assets of the Company -- 23,236
-------- --------
$697,667 $489,278
======== ========
All of the above amounts are payable to related parties who are immediate
family members of the shareholders except for $67,048 (1999 - $nil) of the
unsecured loans payable bearing interest at 20%.
During the year ended July 31, 2000, the Company paid interest of $79,348
(1999 - $40,078) on the loans payable to related parties.
F-35
<PAGE>
Edge Continental Inc.
Notes to Financial Statements
$ United States
Years ended July 31, 2000 and 1999
--------------------------------------------------------------------------------
6. Share capital:
Shares Amount
------ ------
Authorized:
Unlimited number of common shares
Issued:
Common shares issued for cash at
CDN $0.10 per share 2,000 $ 13
----- -----
Balance, July 31, 2000 and 1999 2,000 $ 13
===== =====
7. Income taxes:
As at July 31, 2000, the Company has the following amounts available to
reduce future years' income for Canadian income tax purposes, the tax
effect of which has not been recorded in the accounts:
Non-capital losses carried forward available until the year:
2006 $ 144
2007 185,907
Amounts deducted for accounting purposes in
excess of those deducted for income tax purposes 10,288
--------
$196,339
========
No amount has been recorded for the above amounts as any tax asset has been
fully offset by a valuation allowance.
8. Commitments:
The Company is committed to payments under operating leases for equipment,
vehicles and buildings over the next five years as follows:
2001 - $103,976; 2002 - $97,594; 2003 - $38,866; 2004 - $2,422; 2005 -
$2,169.
9. Subsequent Events:
(a) On September 1, 2000 the Company's shareholders entered into a share
purchase agreement under which all of the shareholders will exchange
all of their shares of the Company for 300,000 common shares of Globus
Wireless Ltd., the shares of which are listed and posted for trading
on the NASD OTC bulletin board, and cash consideration totaling
$672,495. This proposed transaction is subject to both shareholder and
regulatory approval.
F-36
<PAGE>
Edge Continental Inc.
Notes to Financial Statements
$ United States
Years ended July 31, 2000 and 1999
--------------------------------------------------------------------------------
(b) Subsequent to July 31, 2000, the Company received $81,196 from a
related party in exchange for a promissory note. The note bears
interest at 36% per annum, is demand in nature and is secured by a
general security agreement over the assets of the Company.
(c) On August 31, 2000, the Company received $33,625 from a related party
in exchange for a non-interest bearing promissory note and
subsequently renegotiated this note and the $235,373 non-interest
bearing note outstanding at July 31, 2000. The new note, aggregating
$268,998, bears interest at 37.34% and is secured by a general
security agreement over the assets of the Company.
10. Related party transactions:
General and administrative expense includes commissions of $47,603 (1999 -
$10,763) paid to related parties.
11. Differences between Canadian and United States generally accepted
accounting principles:
In accordance with Statement of Financial Accounting Standards No. 130, the
Company is required to disclose comprehensive income. Comprehensive income
for each of the years ended July 31, 2000 and 1999 is:
2000 1999
--------- ---------
Loss $(179,156) $ (182)
Translation adjustment 1,627 40
--------- ---------
Comprehensive loss $(177,529) $ (142)
========= =========
F-37
