 Q3 Report 2001
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Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies
Note 2 - Long Term Debt
Note 3 - Future Income Taxes
Note 4 - Related Party Transactions
Note 5 - Share Capital
Note 6 - Earnings per Share
Note 7 - Geographic Segmented Information
Note 8 - December 31, 2000 Financial Statement Notes
Note 1
Significant Accounting Policies
Basis of Presentation
These consolidated financial statements include the accounts of Xentel DM Incorporated (the Company) and its wholly owned subsidiaries Xentel, Inc., GWE Consulting Group (USA) Inc. and Advanced Technology Concepts Inc.
There has been no change in the accounting policies of the Company from those reported on in the December 31, 2000 Annual Report.
Management Estimates
The preparation of the consolidated financial statements requires management to make estimates based on currently available information. Actual results could differ from estimates and assumptions used. The most significant estimates made by management in the preparation of these consolidated financial statements relate to the estimates used to determine the valuation of the Work in Progress and the valuation of the benefits to be recognized from the application of non capital income tax losses available to reduce future years’ income taxes payable.
Note 2
Long Term Debt
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September 30, 2001
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December 31, 2000
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$5,250,000 secured subordinated notes bearing interest at 12% per annum, maturing May 31, 2004 with payments of interest only until maturity. The notes can be repaid in whole or in part any time prior to maturity.
$450,000 of the funds received from financing have been classified as equity and will be amortized as interest expense over 5 years until maturity, bringing the total debt repayable to $5,250,000, resulting in an effective interest rate of 14.5%. As part of the financing, warrants to purchase an aggregate of 2,200,000 Class A common shares having an initial exercise price of $1.48 per share were issued.
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$ 5,010
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$ 4,943
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Loan repayable in monthly payments of principal and interest of $8,700, due December 31, 2001,with interest at prime plus 2.5% per annum (September 30, 2001 – 8.5%, December 31, 2000 – 8.5%), secured by assets under lease
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78
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99
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US Dollar loan, repayable in annual installments of US $50,000, due June 23, 2002 with interest at US prime plus 2.75% per annum (September 30, 2001 –10.0%, December 31, 2000 – 8.5%) ,secured by assets under lease
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76
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145
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Capital lease repayable in monthly payments of $7,774 with interest at 9.35% per annum, due August 10, 2002 and secured by assets under lease
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84
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148
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Capital lease repayable in quarterly payments of $3,704 with interest at 13.87% per annum, due January 1, 2005 and secured by assets under lease
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40
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53
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Capital lease repayable in monthly payments of US $8,343 with interest at 7.22% per annum, due November 30, 2002 and secured by assets under lease
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129
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274
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Capital lease repayable in monthly payments of US $8,657 with interest at 11.51% per annum, due August 2004 and secured by assets under lease
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405
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-
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_____
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______
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5,822
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5,662
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Less portion included in current liabilities
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(439)
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(417)
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______
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_____
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$ 5,383
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$ 5,245
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=====
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====
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The subordinated notes are secured by a general security agreement over the assets of the Company, a securities pledge agreement of the Company relating to all securities issued by each subsidiary, an assignment of all intellectual property of the Company, a postponement of shareholder loans and an assignment of insurance on the assets of the Company. The security is subordinated to a $2,100,000 line of credit with a Canadian chartered bank. Additional covenants include providing regular reporting and restrictions on the payment of dividends by the Company.
Bank indebtedness and long term loans are due to a Canadian chartered bank and are secured by the assignment of all risks insurance, a general assignment of book debts of the Canadian operation and a general securities agreement over the assets of the Company. The Company is not within certain technical covenants, but within the accounts receivable margin limits and has met all its principal and interest payments. The lender has not indicated an intention to change any repayment terms of the loans and has continued to maintain its relationship with the Company.
Note 3
Future income taxes
The net future income tax liability is comprised of:
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September 30,
2001
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December 31,
2000
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Future Income Tax Liabilities — Current
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Deferred revenue for income tax purposes
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$ 1,394
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$ 1,257
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Less non capital income tax losses carried forward
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-
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915
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_____
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_____
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Net Future Income Tax Liability — Current
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$ 1,394
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$ 342
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Future Income Tax Liabilities — Long Term
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Capital assets in excess of income tax values
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$ 265
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$ 265
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| Less share issue costs deferred for income tax purposes |
220
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220
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_____
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_____
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| Net Future Income Tax Liability — Long Term |
$ 45
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$ 45
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At September 30, 2001 the Canadian non capital income tax losses available for carry forward for application against future years’ incomes were substantially utilized by current year’s income (December 31, 2000 - $2,000,000). These non capital income tax losses in Canada are subject to change of control rules applicable to each jurisdiction. In the opinion of management, the successor businesses meet the income tax definitions for similar businesses and such losses will be available for application against future years’ incomes.
At September 30, 2001, the Company had United States non capital income tax losses available for carry forward for application against future years’ incomes of approximately $ 6,400,000 (December 31, 2000 - $8,900,000) which expire during the years 2006 to 2017. No recognition has been given in the financial statements to the possible future benefit of these tax losses.
Note 4
Related Party Transactions
During the first quarter of 2001, the Company and 354401 Alberta Ltd. agreed to postpone repayment of the $500,000 in favour of the bank indebtedness.
Note 5
Share Capital
Authorized
Unlimited number of:
Class A common voting shares
Class B non voting convertible preferred shares
Issued
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Nine months ended
September 30, 2001
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Year ended
December 31, 2000
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# of shares |
$ |
# of shares |
$ |
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| Class A common shares |
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| Opening balance |
21,296,656 |
$ 3,924,887 |
16,713,459 |
$ 1,370,899 |
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| Conversion of Class B convertible non voting shares |
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- |
1,873,140 |
1 |
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| Conversion of warrants on March 7, 2000 |
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- |
2,950,000 |
2,079,770 |
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| Issued by private placement on April 25, 2000 |
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- |
784,500 |
474,217 |
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| Issued for The Gehl Corporation and Advanced Technology Concepts Inc. |
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- Cancellation of Escrow Shares
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(674,833) |
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(1,025,167) |
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_________ |
__________ |
_________ |
_________ |
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| Closing balance |
20,621,823 |
$ 3,924,887 |
21,296,656 |
$ 3,924,887 |
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The Escrow Shares are subject to hold back provisions that allow the Company to retain, each year, the shares equal to 150% of any indemnification claims pending or settled by the Company during that previous year. An indemnification claim is any claim against the previous owner of The Gehl Corporation or Advanced Technology Concepts Inc. as a consequence of any incorrect representations and warranties contained in the agreements. Escrow Shares equal to the value of the indemnification claim will be cancelled upon resolution of the claim. During the year a Partial Settlement and Release Agreement was executed whereby 674,833 Class A common shares of the Escrow Shares were cancelled, leaving a balance of 1,600,000 Class A common shares subject to the terms of Escrow.
Weighted Average Shares
The weighted average number of shares outstanding for the three and nine months ended September 30, 2001 were 19,022,000. The weighted average number of shares outstanding for the three and nine months ended September 30, 2000 was 19,022,000 and 17,968,000 respectively. The weighted average number of shares for the respective dates excludes the escrowed shares outstanding at that time.
Stock Options
The Board of Directors has received shareholder approval to set a maximum of 10% of the Company’s outstanding Class A common shares for option issuance under the stock option plan. Each option granted under the plan expires in November, 2003.
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September 30, 2001
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December 31, 2000
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# of shares |
Weighted Average Exercise Price |
# of shares |
Weighted Average Exercise Price |
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| Opening balance |
856,343 |
$ 2.50 |
856,343 |
$ 2.50 |
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| Granted |
500,000 |
$ 1.00 |
- |
- |
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| Expired/cancelled |
(856,343) |
$ 2.50 |
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- |
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_______ |
______ |
_______ |
______ |
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| Closing balance |
500,000 |
$ 1.00 |
856,343 |
$ 2.50 |
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| Exercisable at period end |
500,000 |
$ 1.00 |
295,353 |
$ 2.50 |
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In the Spring of 2001, The Company instituted an employee stock option plan, whereby designated employees shall be granted options in the Company. Subject to the Canadian Venture Exchange approval, which is in the process of application, 50% of such options shall vest immediately upon grant, while the remaining 50% shall vest 1 year after grant. Upon Canadian Venture Exchange approval there will approximately 1.2 million share options with an option price of $1.00 per share expiring 2 years from the final date of issue.
Note 6
Earnings per Share
The Company adopted the recommendation of the CICA Handbook Section 3500, relating to Earnings Per Share (EPS), effective January 1, 2001. The revised section requires the presentation of both basic and diluted EPS on the income statement regardless of the materiality of the difference between them and requires the use of the treasury stock method to compute the dilutive effect of the options as opposed to the former imputed earnings method.
For the three and nine months ended September 30, 2001 and September 30, 2000, outstanding stock options do not have a dilutive effect on EPS. For the abovenoted periods, there is no difference between the average number of shares outstanding for the Basic earnings per share calculation and the Diluted earnings per share calculation.
Note 7
Geographic Segmented Information
The Company operates in one business segment producing and marketing benefit and sports entertainment events with partnership host organizations assisting not for profit and fund raising organizations in conducting fund raising activities. The Company operates in two geographic areas, Canada and the United States of America.
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Three months ending
September 30 |
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Nine months ending
September 30 |
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2001 |
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2000 |
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2001 |
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2000 |
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| Revenues |
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| Canada |
$ |
10,974 |
$ |
11,551 |
$ |
34,499 |
$ |
34,323 |
| United States |
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12,505 |
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12,520 |
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36,924 |
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36,990 |
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| Total revenues |
$ |
23,479 |
$ |
24,071 |
$ |
71,423 |
$ |
71,313 |
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| Net earnings |
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| Canada |
$ |
532 |
$ |
423 |
$ |
1,356 |
$ |
869 |
| United States |
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1,128 |
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615 |
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2,521 |
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(1,856) |
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| Total net earnings |
$ |
1,660 |
$ |
1,038 |
$ |
3,877 |
$ |
(987) |
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| EBITDA |
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| Canada |
$ |
1,174 |
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937 |
$ |
3,023 |
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2,241 |
| United States |
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1,715 |
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1,303 |
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4,258 |
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(34) |
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| Total EBITDA |
$ |
2,889 |
$ |
2,240 |
$ |
7,281 |
$ |
2,207 |
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| Interest |
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| Canada |
$ |
76 |
$ |
70 |
$ |
176 |
$ |
212 |
| United States |
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192 |
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280 |
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568 |
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635 |
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| Total interest |
$ |
268 |
$ |
350 |
$ |
744 |
$ |
847 |
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| Depreciation and Amortization |
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| Canada |
$ |
133 |
$ |
147 |
$ |
410 |
$ |
451 |
| United States |
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395 |
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384 |
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1,169 |
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1,145 |
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| Total depreciation and amortization |
$ |
528 |
$ |
531 |
$ |
1,578 |
$ |
1,596 |
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September 30, 2001 |
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September 30, 2001 |
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December 31, 2000 |
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| Total Assets |
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| Canada |
$ |
12,013 |
$ |
10,395 |
$ |
9,550 |
| United States |
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12,599 |
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11,341 |
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11,329 |
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| Total assets |
$ |
24,612 |
$ |
21,736 |
$ |
20,879 |
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| Customer contracts and capital assets |
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| Canada |
$ |
2,838 |
$ |
2,942 |
$ |
2,883 |
| United States |
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4,696 |
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5,681 |
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5,456 |
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| Total customer contracts and capital assets |
$ |
7,534 |
$ |
8,623 |
$ |
8,339 |
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Note 8
December 31, 2000 Financial Statement Notes
These interim financial statements for the period ending September 30, 2001 should be read in conjunction with the Notes to Consolidated Financial Statements of December 31, 2000 as presented in the Company’s Annual Report.
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