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CHEMCRAFT SADOLIN INC

By Emma Moore,2014-06-27 23:08
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CHEMCRAFT SADOLIN INC ...

Cencotech Inc.

Interim Consolidated Financial Statements

    July 31, 2006 and 2005

    (Unaudited)

Notice of No Auditor Review of Interim Financial Statements

Under National Instrument 51-502 “Continuous Disclosure Obligations”, Subsection 4.3(3)(a), if an auditor

    has not performed a review of the interim financial statements, they must be accompanied by a notice

    indicating that the financial statements have not been reviewed by the auditor.

The accompanying unaudited interim financial statements of the Company have been prepared by and are

    the responsibility of the Company’s management.

    The Company’s independent auditor, Smith, Nixon & Co. LLP, has not performed a review of these financial statements in accordance with the standards established by the Institute of Chartered Accountants for a

    review of interim financial statements by the company’s auditor.

Cencotech Inc,

    September 27, 2006

Cencotech Inc.

    CONSOLIDATED BALANCE SHEETS (unaudited)

     July 31 October 31

     2006 2005

     $ $

    ASSETS

    CURRENT ASSETS

     Cash 219,877 3,587

     Accounts receivable 256,636 179,411

     Inventory (Note 3) 209,502 136,319

     Prepaid expenses 8,095 5,995

     694,110 325,312

    INTELLECTUAL ASSETS AND PROPERTY AND EQUIPMENT (Note 4) 111,378 168,756

    494,068 805,488

    LIABILITIES

    CURRENT LIABILITIES

     Accounts payable and accrued liabilities (Note 12) 388,176 323,410

     Deferred revenue 619,356 216,209

     1,007,532 539,619

    OTHER LIABILITIES

     Convertible debenture (Note 5) 1,000,000 1,000,000

     Secured debt (Note 10) 1,556,712 1,300,000

    2,839,619 3,564,244

SHAREHOLDERS’ DEFICIT

    5,387,600 Share capital (Note 7) 5,365,800

    (8,146,356) Deficit (7,711,351)

    (2,345,551) (2,758,756)

    494,068 805,488

Approved on behalf of the Board:

     , Director

     , Director

    The accompanying notes are an integral part of these consolidated financial statements. 1

Cencotech Inc.

    CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICITS (unaudited)

    For the nine months ended July 31 2006 2005

     $ $

    REVENUE 658,974 1,625,703

    COST OF SALES 205,585 623,898

    GROSS PROFIT 453,389 1,001,805

    EXPENSES

     Selling 100,638 95,088

     General and administration 546,080 302,867

     Loss (gain) on foreign exchange 29,727 29,856

     Amortization 74,538 76,005

     Interest on convertible debenture 89,753 89,753

     Interest on secured debt 154,233 153,356

     994,969 746,925

    OTHER INCOME

     Expense recovery (Note 12) 106,575 -

    NET INCOME (LOSS) (435,005) 254,880

    DEFICIT, beginning of period (7,711,351) (7,817,457)

    DEFICIT, end of period (8,146,356) (7,562,577)

    INCOME (LOSS) PER SHARE (Note 8) 0.02 (0.02)

The accompanying notes are an integral part of these consolidated financial statements. 2

Cencotech Inc.

    CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICITS (unaudited)

    For the three months ended July 31 2006 2005

     $ $

    REVENUE 270,549 578,761

    COST OF SALES 96,722 303,926

    GROSS PROFIT 173,827 274,835

    EXPENSES

     Selling 30,000 7,848

     General and administration 145,175 80,523

     Loss (gain) on foreign exchange 1,489 2,754

     Amortization 26,463 25,533

     Interest on convertible debenture 30,247 30,247

     Interest on secured debt 56,712 53,597

     290,086 200,502

    OTHER INCOME

     Expense recovery (Note 12) - -

    NET INCOME (LOSS) (116,259) 74,333

    DEFICIT, beginning of period (8,030,097) (7,636,910)

    DEFICIT, end of period (8,146,356) (7,562,577)

    INCOME (LOSS) PER SHARE (Note 8) (0.01) 0.00

The accompanying notes are an integral part of these consolidated financial statements. 3

The accompanying notes are an integral part of these consolidated financial statements. 4

Cencotech Inc.

    CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

    For the nine months ended July 31 2006 2005

     $ $

CASH FLOWS FROM OPERATING ACTIVITIES

     Net income (loss) (435,005) 254,880

     Non-cash items:

     Amortization 74,538 76,005

     (360,467) 330,885

    Changes in:

     Accounts receivable (77,225) (332,540)

     Inventory (80,683 ) (21,313)

     Prepaid expenses (2,100) 5,276

     Accounts payable and accrued liabilities 64,766 123,525

     Deferred revenue 403,147 (221,380)

    (115,547) (52,562)

INVESTING ACTIVITY

     Purchase of intellectual assets and property and equipment (9,660) (37,175)

    FINANCING ACTIVITIES

     Increase in share capital (Note 7) 21,800 -

     Increase in secured debt (Note 10) 256,712 153,169

     278,512 153,169

    447 NET INCREASE IN CASH DURING THE PERIOD 216,290

    CASH, beginning of period 11,334 3,587

    11,781 CASH, end of period 219,877

    Cash flows from operating activities include: Interest paid: 177,083 -

The accompanying notes are an integral part of these consolidated financial statements. 5

Cencotech Inc.

    CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

    For the three months ended July 31 2006 2005

     $ $

CASH FLOWS FROM OPERATING ACTIVITIES

     Net income (loss) (116,259) 74,333

     Non-cash items:

     Amortization 26,463 25,533

     (89,796) 99,866

    Changes in:

     Accounts receivable (89,990) (256,251)

     Inventory (48,827 ) 2,290

     Prepaid expenses (230) (995)

     Accounts payable and accrued liabilities 6,044 52,253

     Deferred revenue 407,740 2,793

    (100,044) 184,941

INVESTING ACTIVITY

     Purchase of intellectual assets and property and equipment (3,815) (3,860)

    FINANCING ACTIVITIES

     Increase in share capital (Note 7)

     Increase (decrease) in short term debt (Note 10(e)) -

     Increase in secured debt (Note 10) 25,191 53,601

     25,191 53,601

    (50,303) NET DECREASE IN CASH DURING THE PERIOD 206,317

    CASH, beginning of period 62,084 13,560

    11,871 CASH, end of period 219,877

    Cash flows from operating activities include: Interest paid: 71,631 -

The accompanying notes are an integral part of these consolidated financial statements. 6

    Cencotech Inc.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    Nine months ended July 31, 2006 and 2005

    1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

    Cencotech Inc. (the “Company”) was formed under the provisions of the Business Corporations Act of Alberta on January 29, 1997 and continued under the provisions of the Business Corporations Act of Ontario on October 31, 1999.

    The Company was formed to acquire and manage emerging high technology enterprises with sound business solutions for their customers. The Company’s wholly-owned subsidiary, NamSys Inc.

    (“NamSys”), provides software and hardware systems solutions for currency management and processing

    for the banking and merchant industries principally in North America.

    These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern. The ability of the Company to continue as a going concern and the recoverability of the amounts shown for assets is dependant on the ability of the Company to achieve profitable operations, to raise additional debt or equity financing or curtail operations. Failure to continue as a going concern would require restatement of assets and liabilities on a liquidation basis, which could differ materially from the going concern basis.

    2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

    These interim financial statements are prepared in accordance with Section 1751 of the Canadian Institute of Chartered Accountants Handbook. Not all disclosures required by generally accepted accounting principles for annual financial statements are presented herein, and accordingly, these statements should be read in conjunction with the audited financial statements of October 31, 2005 to which the reader is assumed to have access.

    These interim financial statements follow the same accounting policies and methods of application as the October 31, 2005 financial statements.

Principles of consolidation

    These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary and have been prepared in accordance with Canadian generally accepted accounting principles.

All significant intercompany transactions and balances have been eliminated.

Revenue recognition and deferred revenue

    Software License fees are recognized when: the products and services to be provided are contained in a contractual agreement signed by the customer; delivery of the software has occurred; all significant vendor obligations have been completed; fees are fixed and determinable; and collectibility of fees is reasonably assured.

    Self-Service Systems and Peripheral sales are recognized when title passes, which coincides with shipment to the customer.

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    Systems maintenance fees relate to a defined period of time and are paid in advance. Deferred revenue is comprised of systems maintenance fees for which services have not yet been provided and customer

    Cencotech Inc.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    Nine months ended July 31, 2006 and 2005

    2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

    deposits on purchase orders where the product is yet to be delivered. Revenue is recognized on a straight line basis over the term of the maintenance contract. Associated costs are recognized as incurred.

Foreign currencies

    Foreign currency transactions are translated into Canadian dollars at the rates prevailing on the dates of the transactions. Monetary assets and liabilities in foreign currencies are translated into Canadian dollars at the current period-end rates of exchange and non-monetary assets and liabilities at historical exchange rates. Revenues and expenses are translated at average rates in the month they occurred except for amortization, which is translated using the same rates as the related assets. Translation gains and losses are recorded in the statement of operations.

Inventory

    Inventory is stated at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. Inventory is reviewed on an ongoing basis for impairment of its value. When events and circumstances indicate that the carrying amounts may not be recoverable, a write-down to estimated net realizable value is charged to income in the period such that a determination is made and disclosed as a provision until such time as the inventory is disposed of or sold.

Intellectual assets and property and equipment

    Intellectual assets and property and equipment are recorded at cost less accumulated amortization and are amortized over their estimated useful lives as follows:

Recognition technology - Hardware 30% declining balance

    Trademarks and patents 20% straight-line

    Office equipment 20% declining balance

    Showroom equipment three years straight-line

    Leasehold improvements 20% straight-line or over term of lease

Long-lived assets

    Long-lived assets, which comprise intellectual assets and property and equipment, are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recovered. If the sum of the undiscounted future cash flows expected from use and residual value is less than the carrying amount, the long-lived asset is considered impaired. An impairment loss is measured as the amount by which the carrying value of the long-lived asset exceeds its fair value.

Development expenses

    Development expenses related to both hardware and software are deferred when they meet specific criteria related to technical, market and financial feasibility; otherwise they are expensed when incurred.

Use of estimates

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    The preparation of financial statements in accordance with Canadian generally accepted accounting

    principles requires management to make estimates and assumptions that affect the reported amounts of

    assets and liabilities and disclosure of contingencies at the date of the financial statements and the

Cencotech Inc.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    Nine months ended July 31, 2006 and 2005

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

    reported amounts of revenues and expenses during the reporting period. Actual results could differ from

    those estimates.

    Accounting for income taxes

    The Company uses the asset and liability method for accounting for income taxes. Under the asset and

    liability method, assets or liabilities are recognized for the future income tax consequences attributable to

    differences between the financial statement carrying values and their respective income tax bases

    (temporary differences).

    Future income tax assets and liabilities are measured using enacted or substantially enacted tax laws

    and rates expected to apply to taxable income in the years in which temporary differences are expected to

    be recovered or settled.

    The effect of changes in tax rates on future income tax assets and liabilities are included in income in the

    period of the enactment date. Future income tax assets are evaluated annually and if realization is not

    considered more likely than not, the value of the future tax asset is adjusted by a charge to income.

    Earnings per share

    The Company uses the treasury method to compute the dilutive effect of options.

     Stock-based compensation plans

     The Company has a stock option plan, which is described in Note 7. Compensation cost of options

    granted under the stock option plan are measured at the grant date based on a fair value of the award

    and are recognized over the related service period.

3. INVENTORY

     2006 2005

     $ $

    Raw materials and parts 269,754 252,044

    Finished goods 279,122 449,889

     548,876 701,933

    Less: Provision 339,374 565,614

     209,502 136,319

Raw material and parts inventory consists of electronic, electrical, and mechanical components used in

    the assembly of the self-service product lines. The finished goods inventory includes completed self-

    service products and peripheral items for resale to complement the self-service products.

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