8-K/A 1 telemax8ka2.txt CURRENT REPORT - AMENDMENT 2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K/A (Amendment No. 2) CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): February 16, 2002 TELEMAX GLOBAL COMMUNICATIONS, INC. (Formerly known as Organik Technologies, Inc. --------------------------------------------- (Exact name of registrant as specified in its charter) Washington 0-26351 81-0440517 ------------------------------- ------------------------ -------------------- (State or other jurisdiction of (Commission File Number) (IRS Employer incorporation Identification Number) 736 Dundas Street East Toronto, Ontario, Canada M5A 2C3 (Address of principal executive offices) (416) 703-0334 --------------------------------------------------- (Registrant's telephone number, including area code) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS This Form 8-K/A is filed to submit the financial statements and pro forma financial information for the business acquired pursuant to the acquisition reported on the Form 8-K previously filed on February 25, 2002. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of business acquired. The audited financial statements of Telemax Communications, Inc. and Parsecom, Inc. for the fiscal year ended June 30, 2001. Also enclosed are the unaudited financial statements for Telemax Global Communications, Inc., an Ontario corporation, Telemax Communications, Inc. and Parsecom, Inc. for the period ended December 31, 2001. All three companies are Canadian, and the financial statements included are presented in Canadian currency and in accordance with Canadian Generally Accepted Accounting Principles. In addition, schedules are included reconciling the financial statements of these entities from Canadian currency and Canadian Generally Accepted Accounting Principles to US currency and US Generally Accepted Accounting Principles. (b) Pro Forma Financial Information Telemax Global Communications, Inc. (Organik Technologies, Inc.) amended Proforma combining financial statements as of June 30, 2001 and December 31, 2001 are filed herewith. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. TELEMAX GLOBAL COMMUNICATIONS, INC. Dated: May 28, 2002 /s/ Evan Karras ---------------------------------------------------- Evan Karras, President (Authorized Officer and Principal Financial Officer) TELEMAX COMMUNICATIONS INC. FINANCIAL STATEMENTS JUNE 30, 2001 1-i. TELEMAX COMMUNICATIONS INC. JUNE 30, 2001 CONTENTS Page ---- AUDITORS' REPORT 1 FINANCIAL STATEMENTS Balance Sheet 2 Statement of Income and (Deficit) 3 Statement of Cash Flows 4 Notes to Financial Statements 5-9 1-ii. [GRAPHIC OMITTED] QUICK, GREENSPAN ---------------------------------- & RADVANY LLP CHARTERED ACCOUNTANTS TERENCE O. ANDERSON, CA RETIRED/COUNSEL 90 EGLINTON AVENUE EAST, SUITE 610 DAVID F. QUICK, B.Sc., CA TORONTO, ONTARIO M4P 2Y3 JERROLD P. GREENSPAN B.Comm, CA TELEPHONE (416) 487-2000 CLARA M. RADVANY C.M.A. CA FACSIMILE (416) 487-5225 R. CHARLES FURNIVALL CA TOLL FREE 1-800 387-9282 www.quick-greenspan.com AUDITORS' REPORT Stockholders and Board of Directors Telemax Communications Inc.: We have audited the accompanying balance sheet of Telemax Communications Inc. as of June 30, 2001, and the statements of income and (deficit), and cash flows for the year then ended. 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 an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, these financial statements referred to above present fairly, in all material respects, the financial position of Telemax Communications Inc. as of June 30, 2001, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Quick, Greenspan & Radvany LLP TORONTO, Ontario September 26, 2001 CHARTERED ACCOUNTANTS 1-1. TELEMAX COMMUNICATIONS INC. BALANCE SHEET AS AT JUNE 30, 2001 ASSETS 2001 2000 ---- ---- CURRENT Cash and cash equivalents (Note 3(a)) $ 77,170 $ - Short-term investments (Note 3(b)) 450,000 - Accounts receivable (Note 3(c)) 1,208,947 554,639 Inventory (Note 3(d)) 24,600 72,376 Prepaid expenses 324,927 35,000 Amounts due from parent company (Note 4) 3,750,000 - ------------ ------------ 5,835,644 662,015 FIXED ASSETS (Note 5) 189,768 192,070 ------------ ------------ $ 6,025,412 $ 854,085 ============ ============ LIABILITIES CURRENT Bank indebtedness $ - $ 75,396 Bank loans payable (Note 6) 450,000 295,000 Accounts payable (Note 2) 1,592,474 813,482 Accrued liabilities 7,499 - Deferred revenue 190,494 - Current portion of capital lease obligations (Note7) 18,574 18,574 Current portion of loans payable (Note 8) 104,156 50,000 ------------ ------------ 2,363,197 1,252,452 CAPITAL LEASE OBLIGATIONS (Note 7) 25,301 42,176 LOANS PAYABLE (Note 8) 166,680 14,753 DIRECTORS' LOANS (Note 9) 1,471,606 807,617 ------------ ------------ 4,026,784 2,116,998 ------------ ------------ STOCKHOLDERS' EQUITY (DEFICIENCY) CAPITAL STOCK (Note 10) 4,001,000 1,000 DEFICIT (2,002,372) (1,263,913) ------------ ------------ 1,998,628 (1,262,913) ------------ ------------ $ 6,025,412 $ 854,085 ============ ============ APPROVED ON BEHALF OF THE BOARD: _________________________ Director ____________________________ Director SEE ACCOMPANYING NOTES 1-2. TELEMAX COMMUNICATIONS INC. STATEMENT OF INCOME AND (DEFICIT) FOR THE YEAR ENDED JUNE 30, 2001 2001 2000 ---- ---- SALES $ 12,152,410 $ 9,541,716 COST OF SALES (Note 2) 10,815,015 8,284,597 ------------ ------------- GROSS PROFIT 1,337,395 1,257,119 EXPENSES Salaries and benefits 641,246 465,944 Bad debts 226,491 17,122 Sales commissions 221,588 280,964 Research and development 206,841 447,602 General and administrative 164,689 107,532 Legal and accounting 112,669 15,054 Rent 85,382 118,150 Automotive expenses 78,216 46,256 Interest and bank charges 77,548 56,399 Depreciation 58,183 33,525 Telephone 55,753 38,531 Advertising and promotion 48,794 66,318 Penalties and interest 40,830 - Consulting fees 23,354 54,932 Repairs and maintenance 11,568 3,104 Travel 10,872 21,903 Equipment rental 7,664 33,193 Foreign exchange loss 4,446 32,372 Insurance 1,632 3,449 ------------ ------------- 2,077,766 1,842,350 ------------ ------------- LOSS FROM OPERATIONS (740,371) (585,231) OTHER INCOME Other income 1,912 17,516 ------------ ------------- NET LOSS (738,459) (567,715) DEFICIT, beginning of year (1,263,913) (696,198) ------------ ------------- DEFICIT, end of year $ (2,002,372) $ (1,263,913) ============ ============= SEE ACCOMPANYING NOTES 1-3. TELEMAX COMMUNICATIONS INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2001 2001 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (788,459) $ (567,715) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 58,183 33,525 ----------- ----------- Cash flow (used in) operations (730,276) (534,190) CHANGE IN ASSETS AND LIABILITIES: (Increase ) decrease in short-term investments (450,000) 150,000 (Increase) in accounts receivable (654,308) (278,071) Decrease (increase) in inventories 47,776 (51,276) (Increase) decrease in prepaid expenses (289,927) 10,000 Increase in accounts payable 828,992 179,222 Increase (decrease) in accrued liabilities 7,500 (77,402) Decrease in deferred revenue 190,494 - Increase in current portion of long-term loans payable 54,156 - Increase in current portion of capital lease obligations - 18,574 ----------- ----------- Net cash provided by operating activities (995,593) (583,143) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in share capital 250,000 - Increase in bank loans 155,000 295,000 Increase in long-term loans payable, less current portion 166,680 - Repayment of long-term loans payable (14,753) (185,247) Increase in capital lease obligations, less current portion - 42,176 (Repayment) of capital lease obligations (16,875) - Increase in directors' loans 663,989 380,717 ----------- ----------- Net cash provided by financing activities 1,204,041 532,646 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (55,882) (140,634) ----------- ----------- Net cash used in investing activities (55,882) (140,634) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 152,566 (191,131) NET CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR (75,396) 115,735 ----------- ----------- NET CASH AND CASH EQUIVALENTS, END OF YEAR $ 77,170 $ (75,396) =========== =========== SEE ACCOMPANYING NOTES 1-4. TELEMAX COMMUNICATIONS INC. NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2001 1. ORGANIZATION The Company was incorporated under the laws of the province of Ontario on May 12, 1997. It manufactures and is a distributor of prepaid telephone cards operating under the trade name Telemax Communications Inc. 2. GOING CONCERN Comtel Communications Inc. (formerly Symphony Telecom Inc.), the Company's parent company, owes the Company $3,750,000 at June 30, 2001, which is the balance of a $4,000,000 promissory note issued on July 31, 2000 in exchange for common shares. Comtel Communications Inc. has not met its payments under the terms of the promissory note, and is unlikely to meet its obligations to the Company. Negotiations are continuing, which may result in the Company acquiring its shares issued to Comtel Communications Inc. In November 2000 the Company changed its relationship with its primary service provider from a joint venture partnership to one of customer/supplier. The Company has identified errors in billings from its primary service provider in the period from July through September 2001, by analyzing Call Detail Reports supplied by its service provider. Because Call Detail Reports have not been made available for the period November 2000 through June 2001, management is not able to quantify the amount of over-billings in this period. However, based upon its current studies and discussions with its primary service provider, management has estimated that over-billings booked to cost of sales approximates $1,800,000. As the final amount has to be negotiated with its service provider, management has reduced cost of sales and trade accounts payable by $1,200,000. Management further believes that, together with its primary service provider, it now controls its telephone services costs, so that gross margins will be restored, and the Company's operations should generate a positive cash flow. As a result of failure of Comtel Communications Inc. to meet its obligations under the promissory note, the Company was unable to implement its strategic plan which was designed to expand its sales and marketing activities, implement a switching facility to reduce cost of carrier and service bureau, diversify its product line, improve its profit margin and stabilize its sales. Futhermore, projects undertaken and started, assuming availability of funds, to implement its strategic plan such as hiring sales staff, negotiating with carriers, purchasing switch, signing lease agreement for a switching facility had to be cancelled or reversed. These resulted in a major loss and drain in the capital available to the Company to service its operation. As a result, the Company was not able to meet its projected sales and profit estimates. The Company has taken action to pursue other sources of capital such as additional equity financing, debt financing or make arrangements with its primary service provider to allow time for operations to recover. The financial statements do not include any adjustments that might result from the outcome of this going concern uncertainty. Management's 1-5. TELEMAX COMMUNICATIONS INC. NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2001 plans over the next twelve-month period are to vigorously control its telephone services costs/gross margins, and further develop its revenue growth through strategic alliances. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with generally accepted accounting principles in Canada. Outlined below are those policies considered particularly significant for the Company. (a) Cash and cash equivalents For purposes of the statement of cash flows, cash and cash equivalents consist of money market funds and demand deposits in banks, purchased with a maturity of three months or less. The Company has no such items at June 30, 2001 and June 30, 2000. (b) Short-term investments The Company holds guaranteed investment certificates, with interest at 5.0% and maturing in December 2001, as security for letters of credit issued to its primary service provider. In August 2001, the primary service provider presented $250,000 of letters of credit for payment. (c) Accounts receivable. The Company sells prepaid phonecards both wholesale and retail. Deposits received from new wholesale accounts substantially protected the Company from bad debts, therefore no provision was considered necessary in prior years. As the Company continues to grow, it now considers it necessary to provide for bad debts. Accordingly, a provision of $237,382 has been charged to income in the year ended June 30, 2001. (d) Inventory Inventory of activated and unactivated prepaid telephone cards is valued at the lower of cost and market. (e) Fair value of financial instruments The Company estimates that the fair value of all financial instruments at June 30, 2001 and June 30, 2000 does not differ materially from the aggregate carrying values of its financial instruments recorded in the balance sheet. The estimated fair value of amounts of receivables, accounts payable and accrued liabilities approximate fair value due to their short-term nature. Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. (d) Fixed Assets Fixed assets are recorded at cost. Expenditures for normal maintenance 1-6. TELEMAX COMMUNICATIONS INC. NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2001 and repairs are charged to expense as incurred. Depreciation is provided annually at rates calculated to write-off the assets over the estimated useful lives of the related assets. The basis of calculations has been adjusted to reflect those reported in the parent company, and such changes have no material difference to accumulated depreciation. Depreciation expense was $58,183 for the year ended June 30, 2001 and $33,525 for the year ended June 30, 2000. Computer hardware - 13 years 30%per annum on reducing balance Computer software - 5 years 20%per annum on straight line Furniture and fixtures - 20 years 20%per annum on reducing balance Office equipment under capital lease - 20 years 20%per annum on reducing balance Telephone equipment - 16 years 25%per annum on reducing balance (e) Income taxes The Company has filed corporate federal and provincial income tax returns through April 30, 2001, and has net operating loss carryforwards of $1,862,741available to offset financial statement or tax return taxable income in future periods: Year Loss Expires ---- ---- ------- 2001 $ 909,819 2008 2000 $ 621,244 2007 1999 $ 163,923 2006 1998 $ 167,755 2005 (f) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. (g) Reclassifications Certain amounts in the accompanying financial statements have been reclassified to better reflect the Company's operations, in the opinion of management. These reclassifications have been reflected in all amounts shown in the accompanying financial statements. 4. AMOUNTS DUE FROM PARENT COMPANY Comtel Communications Inc., formerly Symphony Telecom Inc., parent company with 61.5% interest, owes the Company $3,750,000 under a promissory note dated July 31, 2000, which was issued as consideration for 307,500 common shares issued from treasury. Comtel Communications Inc. is delinquent in its payments under the promissory note, and there is no indication that payment will be made, see Going Concern - Note 2, and Capital Stock - Note 10. 1-7. TELEMAX COMMUNICATIONS INC. NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2001 5. FIXED ASSETS Accumulated Net Net Cost Depreciation 2001 2000 ---- ------------ ---- ---- Computer Hardware $ 140,006 $ 44,328 $ 95,678 $ 77,635 Computer Software 28,576 28,219 357 2,116 Furniture and Fixtures 11,957 4,276 7,681 8,763 Equipment under Capital Lease 67,500 18,900 48,600 60,750 Telephone Equipment 54,261 16,809 37,452 42,806 ---------- ------------ --------- ---------- $ 302,300 $ 112,532 $ 189,768 $ 192,070 ========== ============ ========= ========== 6. BANK LOANS PAYABLE The Company's bankers have provided the Company with a line of credit facility of $450,000 (2000 - $300,000), with interest at the bank's prime plus 1.25% on the first $230,000 and 1.55% on the balance, secured by a general security agreement over the Company's assets. 7. CAPITAL LEASE OBLIGATIONS The Company has leased office equipment for a 5 year-term maturing October 27, 2004 and repayable quarterly at $4,644 plus interest at 6%. The Company has the option to buy the equipment after 20 months, June 28, 2001, for 48% of purchase price, $34,992. The option to buy has not been exercised. 8. LOANS PAYABLE 2001 2000 ---- ---- The Company was provided with a Small Business Loan by its bankers in the amount $ 20,836 $ 64,753 of $250,000, with interest at bank's prime plus 2.5%, which is secured by capital assets. Repayment is $4,167 monthly, maturing September 30, 2001. The Business Development Bank of Canada 250,000 - advanced the Company $250,000 in the year to purchase telephone equipment. The loan is at the bank's floating rate plus 2.0% and secured by telephone equipment totaling $488,000. Principal repayment of the loan is scheduled as 1-8. TELEMAX COMMUNICATIONS INC. NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2001 one payment of $6,925 on July 31, 2001, plus 35 equal monthly payments of $6,945 plus interest on the outstanding balance. The balance of the telephone equipments' purchase price $238,000 is being contributed from working capital. --------- --------- Total loans payable 270,836 64,753 Less: current portion due within one year 104,156 50,000 --------- --------- $ 166,680 $ 14,753 ========= ========= 9. DIRECTORS' LOANS Directors have advanced non-interest bearing loans of $1,471,606 (2000 - $807,617), which are without terms of repayment, and therefore are reported as long-term. Of these loans from directors $500,000 is postponed to bank loans. 10. CAPITAL STOCK Authorized Unlimited number of no par value common shares Unlimited number of no par value Class "A" shares Stated Capital 2001 2000 ---- ---- 1,000,000 common shares $ 4,001,000 $ 1,000 ============= ============== On July 31, 2001 the Company increased its issued share capital to 1,000,000 common shares by issuing 999,000 common shares from treasury, of which 691,500 common shares were issued to existing shareholders and 307,500 common shares were issued to Comtel Comunications Inc. in exchange for a promissory note in amount of $4,000,000. The issuance of these shares to Comtel Communications Inc. together with sales of 307,500 common shares from existing shareholders in exchange for cash and shares of Comtel Communications Inc. gave Comtel Communications Inc. 61.5% interest and control. However as noted above, payments under the promissory note are in default, which has resulted in negotiations between shareholders to resolve share ownership. 1-9. PARSECOM INC. ------------- FINANCIAL STATEMENTS -------------------- JUNE 30, 2001 ------------- 2-1. ______________________ ______________________ PARTRIDGE o SKRYPNYK LLP CHARTERED ACCOUNTANTS AUDITORS'REPORT To the Shareholder of Parsecom Inc.: We have audited the balance sheet of Parsecom Inc. as at June 30, 2001 and the statements of retained earnings, loss and changes in financial position for the period then ended. These financial statements are the responsibility of the corporation'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 an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as ,evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at June 30, 2001 and the results of its operations and the changes in its financial position for the period then ended in accordance with generally accepted accounting principles. /S/ PARTRIDGE SKRYPNYK LLP London, Ontario Chartered Accountants May 1, 2002 145 WHARNCLIFFE ROAD, S., LONDON, ONTARIO N6J 2K4 TEL: (519) 672-3154 o E-Mail: psc@wwdc.com o FAX: (519) 672-7983 2-2. STATEMENT 1 PARSECOM INC. ------------- BALANCE SHEET ------------- JUNE 30, 2001 ------------- ASSETS ------ Current: Cash $ 14,278 Accounts receivable 53,557 --------------- 67,835 --------------- Capital assets (note 2, 3 and 4) 408,045 --------------- Investment in Logictel Inc. (note 4 and 6) 372,400 --------------- $ 848,280 =============== LIABILITIES AND OWNERS' EQUITY Current: Accounts payable and accrued liabilities $ 43,455 --------------- Shareholder's equity: Share capital (note 5) 811,465 Retained earnings (statement 2) (6,640) --------------- 804,825 --------------- $ 848,280 =============== (See accompanying notes) 2-3. STATEMENT 2 PARSECOM INC. ------------- STATEMENT OF RETAINED EARNINGS ------------------------------ FROM DATE OF INCORPORATION TO JUNE 30, 2001 ------------------------------------------- Retained earnings, beginning of period $ Net loss for the period (statement 3) (6,640) ------------ Retained earnings, end of period $ (6,640) ============ (See accompanying notes) 2-4. STATEMENT 3 PARSECOM INC. ------------- STATEMENT OF LOSS ----------------- FROM DATE OF INCORPORATION TO JUNE 30, 2001 ------------------------------------------- Revenue: Sales $ 38,161 Other 25,768 ------------ 63,929 ------------ Expenses: Amortization 22,732 Rent 17,000 Consulting fees 9,295 Telephone 7,034 Utilities 6,800 Long distance carrier costs 4,538 Office 3,151 Bank charges and interest 19 ------------ 70,569 ------------ Net loss for the period $ (6,640) ============ (See accompanying notes) 2-5. STATEMENT 4 PARSECOM INC. ------------- STATEMENT OF CHANGES IN FINANCIAL POSITION ------------------------------------------ FROM DATE OF INCORPORATION TO JUNE 30, 2001 ------------------------------------------- Operating activities: Net loss for the year (statement 3) $ (6,640) Add: Amortization 22,732 ------------- 16,092 ------------- Changes in non-cash working capital balances: Accounts receivable (53,557) Accounts payable 43,455 Common shares 811,465 ------------- 801,363 ------------- Investing activities: Purchase of capital assets (430,777) Investment in Logictel Inc. (372,400) ------------- (803,177) ------------- Increase (decrease) in cash during the year 14,278 Cash, beginning of year ------------- Cash, end of year $ 14,278 ============= (See accompanying notes) 2-6. PARSECOM INC. ------------- NOTES TO THE FINANCIAL STATEMENTS --------------------------------- JUNE 30, 2001 ------------- 1. Incorporation ------------- The company was incorporated October 31, 2000 and commenced active operations in May, 2001. During the period the company acquired certain assets of a local re-seller of long distance telecommunication services in consideration for outstanding technical support and services provided by the company. These financial statements reflect the company's transactions from date of incorporation to June 30, 2001. 2. Significant accounting principles --------------------------------- The financial statements of the company have been prepared in accordance with generally accepted accounting principles. The following are those principles which are considered to be of particular significance: a) Capital assets -------------- Capital assets are recorded in the accounts at cost. They are amortized over their estimated useful life using the declining balance method at the following rates: Computer equipment 3 year straight line Furniture and fixtures 20% Leasehold improvements 10 years straight line Computer software 100% b) Income taxes ------------ The company records income taxes on a tax allocation basis. Under this method, the provision for income taxes is determined based on earnings calculated for financial statement purposes regardless of the fact that the actual payment of tax may be deferred to future periods as a result of allowable deductions which can be claimed for income tax purposes. 3. Capital assets -------------- The details of capital assets are as follows: 2001 ------------------------------------------- Accumulated Net Book Cost Amortization Value ---- ------------ ----- Computer $ 180,641 $ (10,035) $ 170,606 Furniture and fixtures 65,000 (2,167) 62,833 Leasehold improvements 135,507 (2,258) 133,249 Computer software 49,629 (8,272) 41,357 ----------- ------------ ----------- $ 430,777 $ (22,732) $ 408,045 =========== ============ =========== 2-7. 4. Transactions with sole shareholder ---------------------------------- Capital assets -------------- The capital assets of the company were acquired throughout the period by way of capital contributions from the shareholder of the company. Investment in Logictel Inc. --------------------------- Funds to acquire the company's 50% interest in Logictel Inc. were provided by a capital contribution by the shareholder of the company. 5. Share capital ------------- Authorized: Unlimited number of common shares Unlimited number of class A special shares Unlimited number of class B special shares Unlimited number of class C special shares Issued: 100 common shares $ 100 811,365 class A special shares 811,365 -------------- $ 811,465 ============== 6. Investment in Logictel Inc. --------------------------- During the period the company acquired a 50% interest in Logictel Inc. a company which holds an internet service provider license in Sudan. The investment has been recorded at cost. Logictel Inc. is currently in the pre-operational stage awaiting progressive approvals of the technical build out plan by the National Telecommunications Authority of Sudan. 7. Subsequent event ---------------- On February 8, 2002 the company was acquired by Telemax Global Communications Inc. 2-8. TELEMAX COMMUNICATIONS INC. FINANCIAL STATEMENTS (Unaudited) DECEMBER 31, 2001 3-i. TELEMAX COMMUNICATIONS INC. DECEMBER 31, 2001 CONTENTS Page ---- REVIEW ENGAGEMENT REPORT 1 FINANCIAL STATEMENTS Balance Sheet 2 Statement of Income and (Deficit) 3 Statement of Cash Flows 4 Notes to Financial Statements 5-10 3-ii. [GRAPHIC OMITTED] QUICK, GREENSPAN ---------------------------------- & RADVANY LLP CHARTERED ACCOUNTANTS TERENCE O. ANDERSON, CA RETIRED/COUNSEL 90 EGLINTON AVENUE EAST, SUITE 610 DAVID F. QUICK, B.Sc., CA TORONTO, ONTARIO M4P 2Y3 JERROLD P. GREENSPAN B.Comm, CA TELEPHONE (416) 487-2000 CLARA M. RADVANY C.M.A. CA FACSIMILE (416) 487-5225 R. CHARLES FURNIVALL CA TOLL FREE 1-800 387-9282 www.quick-greenspan.com REVIEW ENGAGEMENT REPORT To the Directors of Telemax Communications Inc. We have reviewed the balance sheet of Telemax Communications Inc. as at December 31, 2001 and the statements of income, retained earnings and cash flows for the six-month period then ended. Our review was made in accordance with generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information supplied to us by the Company. A review does not constitute an audit and consequently we do not express an audit opinion on these financial statements. Based on our review, nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with generally accepted accounting principles. /s/ Quick, Greenspan & Radvany LLP Toronto, Ontario March 6, 2002 April 27, 2002 CHARTERED ACCOUNTANTS 3-1. TELEMAX COMMUNICATIONS INC. BALANCE SHEET AS AT DECEMBER 31, 2001 ASSETS December 31, June 30, 2001 2001 ---- ---- (Unaudited) (Audited) CURRENT Cash and cash equivalents (Note 3(a)) $ 66,463 $ 77,170 Short-term investments - 450,000 Accounts receivable (Note 3(b)) 2,219,598 1,208,947 Inventory (Note 3(c)) 390,168 24,600 Deposits and prepaid expenses 15,000 324,927 Advances to Telemax Global Communications Inc. 30,600 - Loan receivable - 3,750,000 ------------ ------------ 2,721,829 5,835,644 FIXED ASSETS (Note 4) 772,110 189,768 ------------ ------------ $ 3,493,939 $ 6,025,412 ============ ============ LIABILITIES CURRENT Bank loans payable (Note 5) $ 205,000 $ 450,000 Accounts payable (Note 2) 2,090,886 1,592,473 Accrued liabilities 87,848 7,500 Deferred revenue (Note 3(h)) 464,333 190,494 Current portion of capital lease obligations (Note6) 50,114 18,574 Current portion of loans payable (Note 7) 83,340 104,156 ------------ ------------ 2,981,521 2,363,197 CAPITAL LEASE OBLIGATIONS (Note 6) 44,319 25,301 LOANS PAYABLE (Note 7) 118,185 166,680 DIRECTORS' LOANS (Note 8) 1,571,606 1,471,606 ------------ ------------ 4,715,631 4,026,784 STOCKHOLDERS' EQUITY (DEFICIENCY) CAPITAL STOCK (Note 9) 251,000 4,001,000 DEFICIT (1,472,692) (2,002,372) ------------ ------------ (1,221,692) 1,998,628 ------------ ------------ $3,493,939 $6,025,412 ============ ============ APPROVED ON BEHALF OF THE BOARD: ___________________ Director ____________________ Director SUBJECT TO REVIEW ENGAGEMENT REPORT SEE ACCOMPANYING NOTES 3-2. TELEMAX COMMUNICATIONS INC. STATEMENT OF INCOME AND (DEFICIT) FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED DECEMBER 31, 2001 AND YEAR ENDED JUNE 30, 2001 Three months Six months Year Ended Ended Ended December 31 December 31, June 30, 2001 2001 2001 ---- ---- ---- (Unaudited) (Unaudited) (Audited) SALES $ 4,309,129 $ 8,888,276 $ 12,152,410 COST OF SALES (Note 2) 3,171,219 7,161,620 10,815,015 ------------ ------------ ------------ GROSS PROFIT 1,137,910 1,726,656 1,337,395 EXPENSES Administrative salaries and benefits 194,864 375,294 437,500 Sales salaries and commissions 183,937 360,498 425,334 General and administrative 57,499 98,988 164,689 Depreciation 77,311 92,066 58,183 Rent 32,835 56,835 85,382 Automotive expenses 26,989 50,945 78,216 Legal and accounting 38,179 70,685 112,669 Interest and bank charges 19,752 43,656 77,548 Consulting fees 10,323 18,233 23,354 Research and development 43,093 43,093 206,841 Bad debts 24,550 24,650 226,491 Telephone 8,323 22,750 55,753 Advertising and promotion 8,388 21,863 48,794 Foreign exchange loss (gain) (8,581) 12,913 4,446 Repairs and maintenance - 5,749 11,568 Travel 2,094 3,919 10,872 Insurance - 2,447 1,632 Equipment rental 1,600 1,600 7,664 Penalties and interest - - 40,830 ------------ ------------ ------------ 721,156 1,306,184 2,077,766 ------------ ------------ ------------ INCOME (LOSS) FROM OPERATIONS 416,754 420,472 (740,371) OTHER INCOME Other income 101,518 109,208 1,912 ------------ ------------ ------------ NET INCOME (LOSS) 518,272 529,680 (738,459) DEFICIT, beginning of period (1,990,964) (2,002,372) (1,263,913) ------------ ------------ ------------ DEFICIT, end of period $ (1,472,692) $ (1,472,692) $ (2,002,372) ============= ============ ============ SUBJECT TO REVIEW ENGAGEMENT REPORT SEE ACCOMPANYING NOTES 3-3. TELEMAX COMMUNICATIONS INC. STATEMENT OF CASH FLOWS FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2001 AND YEAR ENDED JUNE 30, 2001 Six months Year Ended Ended December 31, June 30, 2001 2001 ---- ---- (Unaudited) (Audited) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 529,680 $ (738,459) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 92,066 58,183 Assets revaluation (94,200) - ------------ ------------ Cash flow from (used in) operations 527,546 (680,276) CHANGE IN ASSETS AND LIABILITIES: Decrease (increase) in marketable securities 450,000 (450,000) (Increase) in accounts receivable (1,010,651) (654,308) (Increase) decrease in inventories (365,568) 47,776 Decrease (increase) in prepaid expenses 309,927 (289,927) (Increase)in advances to Telemax Communications Inc. (30,600) - Increase in accounts payable 498,413 778,991 Increase in accrued liabilities 80,349 7,500 Increase in deferred revenue 273,839 190,494 (Decrease) increase in current portion of long-term loans payable (20,816) 54,156 Increase in current portion of capital lease obligations 31,540 - ------------ ------------ Net cash provided by operating activities 743,979 (995,594) CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in share capital - 250,000 (Repayment) increase in bank lines of credit (245,000) 155,000 (Repayment) of bank loans (48,495) - Repayment of long-term loans payable - 151,927 Increase (decrease) in capital lease obligations, less current portion 19,018 (16,875) Increase in directors' loans 100,000 663,989 ------------ ------------ Net cash provided by financing activities (174,477) 1,204,041 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (580,209) (55,882) ------------ ------------ Net cash used in investing activities (580,209) (55,882) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,707) 152,565 NET CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 77,170 (75,395) ------------ ------------ NET CASH AND CASH EQUIVALENTS, END OF PERIOD $ 66,463 $ 77,170 ============ ============ SUBJECT TO REVIEW ENGAGEMENT REPORT SEE ACCOMPANYING NOTES 3-4. TELEMAX COMMUNICATIONS INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) DECEMBER 31, 2001 1. ORGANIZATION The Company was incorporated under the laws of the province of Ontario on May 12, 1997. It manufactures and is a distributor of prepaid telephone cards operating under the trade name Telemax Communications Inc. 2. GOING CONCERN AND MANAGEMENT PLAN In November 2000, the Company changed its relationship with its primary service provider from a joint venture partnership to one of customer/supplier. The Company has identified errors in billings from its primary service provider in the period from July through September 2001, by analyzing Call Detail Reports supplied by its service provider. Because Call Detail Reports have not been made available for the period November 2000 through June 2001, management is not able to quantify the amount of over-billings in this period. However, based upon its current studies and discussions with its primary service provider, management has estimated that over-billings booked to cost of sales for the year ended June 30, 2001 approximates $1,800,000. The final amount has to be negotiated with its service provider, therefore management has reduced cost of sales and trade accounts payable for the year ended June 30, 2001 by $1,250,000. As negotiations with its service provider is likely going to independent arbitration and the Company is still experiencing service billing problems, management has made reductions to cost of sales and accounts payable in the six-month period ended December 31, 2001 of 22%, $2,058,297. Further, management believes that it now controls its telephone services costs, so that gross margins are now restored, and the Company's operations should generate a positive cash flow. As a result of failure of the Company's former parent company, Comtel Communications Inc., to meet its obligations under its promissory note, the Company was unable to implement its strategic plan which was designed to expand its sales and marketing activities, implement a switching facility to reduce cost of carrier and service bureau, diversify its product line, improve its profit margin and stabilize its sales. Futhermore, projects undertaken and started, assuming availability of funds, to implement its strategic plan such as hiring sales staff, negotiating with carriers, purchasing switch, signing lease agreement for a switching facility had to be cancelled or reversed. These resulted in a major loss and drain in the capital available to the Company to service its operation. As a result, the Company was not able to meet its projected sales and profit estimates. Over the last six months, management has taken the following actions, which has improved profitability: 3-5. TELEMAX COMMUNICATIONS INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) DECEMBER 31, 2001 a) Access Cost Reduction: a new network has been implemented in September 2001, which reduces cost, by as much as 70%, of access to switch from major population centers. The average access cost has been reduced from $0.0240 to $0.0089, and in high volume areas, such as British Columbia, from $0.0380 to $0.0100. In the four-month period September to December 2001, the Company had a total of 67,672,000 access minutes from these population centers for a total cost of $717,820. The cost of this volume of access minutes prior to the implementation of the new network would have been $1,879,194 resulting in a net saving of $1,161,374, in the four-month period. b) Implementaion of VOIP (Voice Over Internet Protcol) Gateways: the Company has phased in its implementation of VOIP gateways to Argentina, Brazil, China, Iran and Mexico from September to December 31, 2001. Cost savings to these countries range from 4 cents to 8 cents per minute. The VOIP gateway to China was implemented first in September 2001, which has totalled 1,200,000 minutes in the four-month ended December 31, 2001 for a cost savings of $48,000. Cost savings to Mexico for the two- month period ended December 31, 2001 approximates $30,000. The full benefits of VOIP gateways will be reflected in bottom line improvements of ongoing operations. c) Better Program Management: management has put extensive effort on profit analysis of its programs, and has taken action to eliminate losses, and once losses are discovered, immediately increasing gross margins. Management now has procedures in place to ensure profitability of all its routes by daily monitoring of profit and loss to all destinations for all programs. d) Elimination of Errors: management has taken action to discover and eliminate any errors which may occur in program set up or carrier cost setting. This has been the major area where the Company paid significant large amount of carrier cost in the past. Apart from the foregoing, management has taken action to pursue other sources of capital such as additional equity financing, debt financing or make arrangements with its primary service provider to allow time for operations to recover. The financial statements do not include any adjustments that might result from the outcome of this going concern uncertainty. Management's plans over the next twelve-month period are to vigorously control its telephone services costs/gross margins, and further develop its revenue growth through strategic alliances. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with generally accepted accounting principles in Canada. Outlined below are those policies considered particularly significant for the Company. 3-6. TELEMAX COMMUNICATIONS INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) DECEMBER 31, 2001 (a) Cash and cash equivalents For purposes of the statement of cash flows, cash and cash equivalents consist of money market funds and demand deposits in banks, purchased with a maturity of three months or less. The Company has no such items at December 31, 2001 and June 30, 2001. (b) Accounts receivable. The Company sells prepaid phonecards both wholesale and retail. Deposits received from new wholesale accounts substantially protected the Company from bad debts, therefore no provision was considered necessary in prior years. As the Company continues to grow, it now considers it necessary to provide for bad debts. Provisions for bad debts are $250,361 at December 31, 2001 and $237,382 at June 30, 2001. (c) Inventory Inventory of activated and unactivated prepaid telephone cards is valued at the lower of cost and market. (d) Fair value of financial instruments The Company estimates that the fair value of all financial instruments at December 31, 2001 and June 30, 2001 does not differ materially from the aggregate carrying values of its financial instruments recorded in the balance sheet. The estimated fair value of amounts of receivables, accounts payable and accrued liabilities approximate fair value due to their short-term nature. Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. (f) Fixed Assets Fixed assets are recorded at cost. Expenditures for normal maintenance and repairs are charged to expense as incurred. Depreciation is provided annually at rates calculated to write-off the assets over the estimated useful lives of the related assets. The basis of calculations has been adjusted to reflect those reported in the parent company and such changes have no material difference to accumulated depreciation. Depreciation expense was $92,066 for the six-month period ended December 31, 2001 and $58,183 for the year ended June 30, 2001. Computer hardware - 13 years 30%per annum on reducing balance Computer software - 5 years 20%per annum on straight line Furniture and fixtures - 20 years 20%per annum on reducing balance Office equipment under capital lease - 20 years 20%per annum on reducing balance Telephone equipment, switches and gateways - 16 years 25%per annum on reducing balance 3-7. TELEMAX COMMUNICATIONS INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) DECEMBER 31, 2001 (g) Income taxes The Company has filed corporate federal and provincial income tax returns through April 30, 2001, and has net operating loss carryforwards of $1,862,741available to offset financial statement or tax return taxable income in future periods: Year Loss Expires ---- ---- ------- 2001 $ 909,819 2008 2000 $ 621,244 2007 1999 $ 163,923 2006 1998 $ 167,755 2005 (h) Deferred revenue The Company has estimated the amount of revenue it has collected from prepaid phonecards that relates to use of telephone services after December 31, 2001 is $464,333, and the estimated amount collected at June 30, 2001 is $190,494. 4. FIXED ASSETS Net Net Accumulated December 31, June 30, Cost Depreciation 2001 2001 ---- ------------ ---- ---- Computer Hardware, Switches and Gateways $ 734,534 $ 117,677 $ 616,857 $ 95,678 Computer Software 31,421 31,077 344 356 Equipment 73,484 21,490 51,994 37,453 Equipment under Capital Lease 125,312 29,310 96,002 48,600 Furniture and Fixtures 11,957 5,044 6,913 7,681 --------- ------------ ----------- ---------- $ 976,708 $ 204,598 $ 772,110 $ 189,768 ========= ============ =========== ==========

5. BANK LOANS PAYABLE The Company's bankers have provided the Company with a line of credit facility of $300,000 (2001 - $450,000), with interest at the bank's prime plus 1.25%. 6. CAPITAL LEASE OBLIGATIONS The Company has leased office equipment for a five-year term maturing October 27, 2004 and repayable quarterly at $4,644 plus interest at 6%. The Company has the option to buy the equipment after 20 months, June 28, 2001, for 48% of purchase price, $34,992. The option to buy has not been exercised. The Company has leased telephone equipment for a two-year term maturing October 31, 2003 and repayable $2,580 monthly. 3-8. TELEMAX COMMUNICATIONS INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) DECEMBER 31, 2001 7. LOANS PAYABLE December 31, June 30, 2001 2001 ---- ---- The Company was provided with a Small $ - $ 20,836 Business Loan by its bankers in the amount of $250,000, with interest at bank's prime plus 2.5%, which is secured by capital assets. Repayment is $4,167 monthly, maturing September 30, 2001. The Business Development Bank of Canada 201,525 250,000 advanced the Company $250,000 in the year to purchase telephone equipment. The loan is at the bank's floating rate plus 2.0% and secured by telephone equipment totaling $488,000. Principal repayment of the loan is scheduled as one payment of $6,925 on July 31, 2001, plus 35 equal monthly payments of $6,945 plus interest on the outstanding balance. The balance of the telephone equipments' purchase price $238,000 is being contributed from working capital. ----------- ----------- Total loans payable 201,525 270,836 Less: current portion due within one year 83,340 104,156 ----------- ----------- $ 118,185 $ 166,680 =========== =========== 8. DIRECTORS' LOANS Directors have advanced non-interest bearing loans of $1,571,606 (2001 - $1,471,606), which are without terms of repayment, and therefore are reported as long-term. Of these loans from directors $500,000 is postponed to bank loans. 9. CAPITAL STOCK Authorized Unlimited number of no par value common shares Unlimited number of no par value Class "A" shares Stated Capital December 31, June 30, 2001 2001 ---- ---- 692,500 common shares $ 251,000 $ 4,001,000 ============= ============ 3-9. TELEMAX COMMUNICATIONS INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) DECEMBER 31, 2001 On July 31, 2001 the Company increased its issued share capital to 1,000,000 common shares by issuing 999,000 common shares from treasury, of which 691,500 common shares were issued to existing shareholders and 307,500 common shares were issued to Comtel Comunications Inc. in exchange for a promissory note in amount of $4,000,000. The issuance of these shares to Comtel Communications Inc. together with sales of 307,500 common shares from existing shareholders in exchange for cash and shares of Comtel Communications Inc. gave Comtel Communications Inc. 61.5% interest and control. In October 2001 an agreement was reached with Comtel Communications Inc. to surrender all its shares in the Company, of which 307,500 common shares were cancelled, in exchange for cancelling its promissory note. The Company has agreed that should it obtain new funding in excess of $1,000,000 it will pay Comtel Communications Inc. $125,000, maturing in two years. 3-10. PARSECOM INC. FINANCIAL STATEMENTS (Unaudited) DECEMBER 31, 2001 4-i. PARSECOM INC. DECEMBER 31, 2001 CONTENTS Page ---- FINANCIAL STATEMENTS Balance Sheet 1 Statement of Income and (Deficit) 2 Statement of Cash Flows 3 Notes to Financial Statements 4-5 4-ii. PARSECOM INC. BALANCE SHEET AS AT DECEMBER 31, 2001 ASSETS December 31, June 30, 2001 2001 ---- ---- (Unaudited) (Audited) CURRENT Cash and cash equivalents $ 55,482 $ 14,278 Accounts receivable 798,627 53,557 Deposits and prepaid expenses 6,184 - ------------ ------------ 860,293 67,835 CAPITAL ASSETS ASSETS (Notes 2 and 3) 340,294 408,045 INVESTMENTS (Note 5) 421,510 372,400 ------------ ------------ $ 1,622,097 $ 848,280 ============ ============ LIABILITIES CURRENT Accounts payable (Note 2) $ 357,233 $ 4,538 Accrued liabilities 76,381 38,917 ------------ ------------ 433,614 43,455 ------------ ------------ 433,614 43,455 ------------ ------------ SHAREHOLDERS' EQUITY SHARE CAPITAL (Note 4) 811,465 811,465 RETAINED EARNINGS (DEFICIT) 377,018 (6,640) 1,188,483 804,825 ------------ ------------ $ 1,622,097 $ 848,280 ============ ============ APPROVED ON BEHALF OF THE BOARD: ________________________ Director _________________________ Director SEE ACCOMPANYING NOTES 4-1. PARSECOM INC. STATEMENT OF INCOME AND (DEFICIT) FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2001 AND YEAR ENDED JUNE 30, 2001 Six months Year Ended Ended December 31, June 30, 2001 2001 ---- ---- (Unaudited) (Audited) SALES $ 1,660,262 $ 38,161 COST OF SALES 1,046,721 4,538 ------------ ------------ GROSS PROFIT 613,541 33,623 EXPENSES General and administrative 112,964 3,151 Sales salaries and commissions 43,284 - Rent 30,791 23,800 Depreciation 24,000 22,732 Consulting fees 18,844 9,295 Telephone - 7,034 Interest and bank charges - 19 ------------ ------------ 229,883 66,031 ------------ ------------ INCOME (LOSS) FROM OPERATIONS 383,658 (32,408) OTHER INCOME Other income - 25,768 ------------ ------------ NET INCOME (LOSS) 383,658 (6,640) (DEFICIT) RETAINED EARNINGS, beginning of period (6,640) - ------------ ------------ DEFICIT, end of period $ 377,018 $ (6,640) ============ ============ SEE ACCOMPANYING NOTES 4-2. PARSECOM INC. STATEMENT OF CASH FLOWS FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2001 AND YEAR ENDED JUNE 30, 2001 Six months Year Ended Ended December 31, June 30, 2001 2001 ---- ---- (Unaudited) (Audited) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 383,658 $ (6,640) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 24,000 22,732 ------------ ------------ Cash flow from (used in) operations 407,658 16,092 CHANGE IN ASSETS AND LIABILITIES: (Increase) in accounts receivable (745,070) (53,557) (Increase) decrease in prepaid expenses (6,184) - Increase in accounts payable 352,694 4,538 Increase in accrued liabilities 37,465 38,917 ------------ ------------ Net cash provided by operating activities 46,563 5,990 CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in share capital - 811,465 Net cash provided by financing activities - 811,465 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures 43,751 (430,777) Decrease (increase) in investments (49,110) (372,400) ------------ ------------ Net cash used in investing activities (5,359) (803,177) NET INCREASE IN CASH AND CASH EQUIVALENTS 41,204 14,278 NET CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,278 - ------------ ------------ NET CASH AND CASH EQUIVALENTS, END OF PERIOD $ 55,482 $ 14,278 ============ ============ SEE ACCOMPANYING NOTES 4-3. PARSECOM INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) DECEMBER 31, 2001 1. Incorporation ------------- The Company was incorporated October 31, 2000 and commenced active operations in May, 2001. 2. Significant accounting principles --------------------------------- The financial statements of the company have been prepared in accordance with generally accepted accounting principles. The following are those principles which are considered to be of particular significance. (a) Capital Assets -------------- Capital assets are recorded in the accounts at costs. They are amortized over their estimated useful life using the declining balance method at the following rates. Computer equipment 3 years straight line Furniture and fixtures 20 % Leashold improvements 10 years straight line Computer software 100% (b) Income taxes ------------ The company records income taxes on a tax allocation basis. Under this method, the provision for income taxes is determined based on earnings calculated for financial statements purposes regardless of the fact that the actual payment of tax be deferred to future periods as a result of allowable deductions which can be claimed for income tax purposes. 3. Capital assets -------------- Net Net Accumulated December 31, June 30, Cost Amortization 2001 2001 ---- ------------- ---- ---- Computer $ 131,721 $ 14,745 $ 116,976 $ 170,606 Furniture and Fixtures 68,293 8,450 59,843 62,833 Leasehold Improvements 135,507 9,033 126,474 133,249 Computer Software 49,629 12,628 37,001 41,357 --------- ------------- ----------- --------- $ 385,150 $ 44,856 $ 340,294 $ 408,045 ========= ============= =========== ========= 4-4. 4. Share capital ------------- Authorized: Unlimited number of common shares Unlimited number of class "A" special shares Unlimited number of class "B" special shares Unlimited number of class "C" special shares Issued: December 31, June 30, 2001 2001 ---- ---- 100 common shares 100 100 811,365 class A special shares 811,365 811,365 --------- --------- $ 811,465 $ 811,465 ========= ========= 5. Investment in Logictel Inc. --------------------------- During the period ended June 30, 2001, the company acquired a 50% interest in Logictel Inc. a company which holds an internet service provider licence in Sudan. The investment has been recorded at cost. 4-5. TELEMAX GLOBAL COMMUNICATIONS INC. BALANCE SHEET (Unaudited) DECEMBER 31, 2001 5-i. TELEMAX GLOBAL COMMUNICATIONS INC. DECEMBER 31, 2001 CONTENTS Page ---- REVIEW ENGAGEMENT REPORT 1 Balance Sheet 2 Notes to Balance Sheet 3 5-ii. [GRAPHIC OMITTED] QUICK, GREENSPAN ---------------------------------- & RADVANY LLP CHARTERED ACCOUNTANTS TERENCE O. ANDERSON, CA RETIRED/COUNSEL 90 EGLINTON AVENUE EAST, SUITE 610 DAVID F. QUICK, B.Sc., CA TORONTO, ONTARIO M4P 2Y3 JERROLD P. GREENSPAN B.Comm, CA TELEPHONE (416) 487-2000 CLARA M. RADVANY C.M.A. CA FACSIMILE (416) 487-5225 R. CHARLES FURNIVALL CA TOLL FREE 1-800 387-9282 www.quick-greenspan.com REVIEW ENGAGEMENT REPORT To the Directors of Telemax Global Communications Inc. We have reviewed the balance sheet of Telemax Global Communications Inc. as at December 31, 2001 . Our review was made in accordance with generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information supplied to us by the Company. A review does not constitute an audit and consequently we do not express an audit opinion on these financial statements. Based on our review, nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with generally accepted accounting principles. /s/ Quick, Greenspan & Radvany LLP Toronto, Ontario April 19, 2002 CHARTERED ACCOUNTANTS 5-1. TELEMAX GLOBAL COMMUNICATIONS INC. BALANCE SHEET AS AT DECEMBER 31, 2001 ASSETS December 31, 2001 ---- (Unaudited) CURRENT Accounts receivable $ 1,000 ----------- $ 1,000 =========== STOCKHOLDERS' EQUITY CAPITAL STOCK (Note 2) $ 1,000 ----------- $ 1,000 =========== APPROVED ON BEHALF OF THE BOARD: __________________________ Director ______________________ Director 5-2. TELEMAX GLOBAL COMMUNICATIONS INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2001 1. ORGANIZATION The Company was incorporated under the laws of the province of Ontario on October 30, 2001. It has remained inactive since incorporation. 2. CAPITAL STOCK Authorized Unlimited number of no par value common shares Unlimited number of no par value preference shares Stated Capital December 31, 2001 ------------- 1,000,000 common shares $ 1,000 ============= 5-3. RECONCILIATION SCHEDULES OF CANADIAN CURRENCY AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO US CURRENCY AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR THE FINANCIAL STATEMENTS OF TELEMAX COMMUNICATIONS, INC. PARSECOM, INC. TELEMAX GLOBAL COMMUNICATIONS, INC. - ONTARIO R-1. TELEMAX COMMUNICATIONS INC. BALANCE SHEETS AS AT DECEMBER 31, 2001 AND JUNE 30, 2001 RECONCILIATION FROM CANADIAN DOLLAR AND CANADIAN GAAP TO US DOLLAR AND US GAAP

Notes: 1) Differences between Canadian and US GAAP. At June 30, 2001, Canadian GAAP reports the unpaid balance of the promissory for issuance of stock in current assets CDN$3,750,000 and capital stock at the grossed-up amount. US GAAP requires the unpaid balance of the promissory note to be reported as a reduction of capital stock, thereby reporting increases in capital stock on a cash basis. 2) Foreign currency translation: The Company is presently Canadian based, and as such carries out its operations in Canada, maintaining its books using Canadian dollars. The Company's books have been translated into U.S. dollars using the current rate method. Gains and losses on foreign currency transactions are included in the balance sheets and statements of cash flows as Foreign Exchange. R-2. TELEMAX COMMUNICATIONS INC. INCOME STATEMENTS FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2001 AND YEAR ENDED JUNE 30, 2001 RECONCILIATION FROM CANADIAN DOLLAR AND CANADIAN GAAP TO US DOLLAR AND US GAAP

Notes: 1) There are no differences between Canadian and US GAAP in the Income Statements. 2) Foreign currency translation: The Company is presently Canadian based, and as such carries out its operations in Canada, maintaining its books using Canadian dollars. The Company's books have been translated into U.S. dollars using the current rate method. Gains and losses on foreign currency transactions are included in the balance sheets and statements of cash flows as Foreign Exchange. R-3. PARSECOM INC. BALANCE SHEETS AS AT DECEMBER 31, 2001 AND JUNE 30, 2001 RECONCILIATION FROM CANADIAN DOLLAR AND CANADIAN GAAP TO US DOLLAR AND US GAAP

Notes: 1) There are no differences between Canadian and US GAAP. 2) Foreign currency translation: The Company is presently Canadian based, and as such carries out its operations in Canada, maintaining its books using Canadian dollars. The Company's books have been translated into U.S. dollars using the current rate method. Gains and losses on foreign currency transactions are included in the balance sheets and statements of cash flows as Foreign Exchange. R-4. PARSECOM INC. INCOME STATEMENTS FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2001 AND EIGHT-MONTH PERIOD ENDED JUNE 30, 2001 RECONCILIATION FROM CANADIAN DOLLAR AND CANADIAN GAAP TO US DOLLAR AND US GAAP

Notes: 1) There are no differences between Canadian and US GAAP. 2) Foreign currency translation: The Company is presently Canadian based, and as such carries out its operations in Canada, maintaining its books using Canadian dollars. The Company's books have been translated into U.S. dollars using the current rate method. Gains and losses on foreign currency transactions are included in the balance sheets and statements of cash flows as Foreign Exchange. R-5. TELEMAX GLOBAL COMMUNICATIONS INC. BALANCE SHEET AS AT DECEMBER 31, 2001 RECONCILIATION FROM CANADIAN DOLLAR AND CANADIAN GAAP TO US DOLLAR AND US GAAP

Notes: 1) There are no differences between Canadian and US GAAP. 2) Foreign currency translation: The Company is presently Canadian based and, although it is inactive, maintains its books using Canadian dollars. The Company's books have been translated into U.S. dollars using the current rate method. Gains and losses on foreign currency transactions are included in the balance sheet as Foreign Exchange. R-6. PROFORMA FINANCIAL INFORMATION PF-i. TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.) UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS INTRODUCTION The following unaudited condensed combining pro forma financial statements ("the pro forma combining financial statements") and explanatory notes have been prepared and give effect to the Plan and Agreement of Reorganization ("Reorganization Agreement") between Organik Technologies, Inc. and Telemax Global Communications, Inc.-Ontario as a reverse acquistion and has been accounted for as a recapitalization of Telemax Global Communications, Inc. - Ontario. Telemax Global Communications, Inc. - Ontario is the acquiring enterprise for purposes of accounting for the reverse acquisition, with Organik Technologies, Inc. as the legal entity for reporting purposes. The Reorganization Agreement was entered into as of November 16, 2001 and was subsequently amended on February 16, 2002. Telemax Global Communications, Inc.-Ontario is a Canadian company and on February 8, 2002, acquired 100% of two Canadian operating subsidiaries, Telemax Communications, Inc. and Parsecom, Inc. In addition, and in conjuction with the amendment to the Reorganization Agreement, effective February 16, 2002, Organik Technologies, Inc. changed its name to Telemax Global Communications, Inc. Since none of the acquisition transactions had taken place as of the dates of the combining proforma financial statements, each of the respective entities has been shown separately. Currently, the year ends for Telemax Global Communications, Inc.-Ontario, Telemax Communications, Inc. and Parsecom, Inc. are June 30 with July 31 being the year end for Telemax Global Communications, Inc. (formerly Organik Technologies, Inc.). No amounts have been reflected in the June 30, 2001, pro forma combining financial statements for Telemax Global Communications, Inc.-Ontario since it was not incorporated until October 30, 2001. The accompanying pro forma combining financial statements are presented with the respective year ends of each entity and the six month period thereafter. The difference in the year ends and periods presented do not have a material impact on the accompanying unaudited pro forma combining financial statements. In accordance with Article 11 of Regulation S-X under the Securities Act, unaudited condensed pro forma combining balance sheets (the "pro forma combining balance sheets") as of December 31, 2001 and June 30, 2001, and unaudited condensed combining pro forma statements of operations (the "pro forma combining statements of operations") for the six months ended December 31, 2001, and year ended June 30, 2001 have been prepared to reflect, for accounting purposes, the acquisition by Telemax Global Communications, Inc. (formerly Organik Technologies, Inc.) of Telemax Global Communications, Inc.-Ontario and its subsequently acquired wholly owned subsidiaries, Telemax Communications, Inc. and Parsecom, Inc. For both the pro forma combining balance sheets and the pro forma combining statements of operations, the number of common shares gives effect to the exchange ratio of 9.23 shares of Telemax Global Communications, Inc. (formerly Organik Technologies, Inc.) for one share of Telemax Global Communication, Inc.-Ontario as if the reorganization had taken place at the beginning of the periods presented. PF-1. TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.) UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS INTRODUCTION (continued) The accompanying pro forma combining financial statements have been prepared based upon the historical financial statements of the entities. The pro forma combining financial statements should be read in conjunction with the historical financial statements and related notes thereto of each entity as of December 31, 2001 and June 30, 2001, and for the years and periods then ended (January 31, 2002 and July 31, 2001 for Telemax Global Communications, Inc. (formerly Organik Technologies, Inc.), along with the schedules reconciling the Canadian entities from Canadian currency and Canadian Generally Accepted Accounting Principals to US currency and US Generally Accepted Accounting Principles, all included elsewhere in this Form 8-K/A and/or in previous periodic filings with the US Securities and Exchange Commission. The pro forma combining financial statements assume that the reorganization involving all of the companies had been completed for the periods presented. The only intercompany activity between the entities during the periods presented consisted of advances from Telemax Communications, Inc. to Telemax Global Communications, Inc. (formerly Organik Technologies, Inc.) and have been eliminated in the presentation of the pro forma combining financial statements. During the period January 1, 2002 through January 31, 2002, Telemax Communications, Inc. advanced a total of $35,055 to Telemax Global Communications, Inc. (formerly Organik Technologies, Inc.). These additional advances have not been eliminated in the accompanying proforma combining financial statements at December 31, 2001. The pro forma combining financial statements are provided for illustrative purposes only, and are not necessarily indicative of the operating results or financial position that would have occurred if the reorganization had been consummated at the beginning of the periods or on the dates indicated, nor are they necessarily indicative of any future operating results or financial position of the combined entities. The pro forma combining financial statements do not include any adjustments related to any restructuring charges or one-time charges which may result from the reorganization or the final result of valuations of inventories, property, plant and equipment, intangible assets, debt, and other obligations. PF-2. TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.) UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET (In US Dollars)

PF-3. TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.) UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET December 31, 2001 (In US Dollars)

PF-4. TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.) UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED (In US Dollars)

PF-5. TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.) UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET (In US Dollars)

PF-6. TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.) UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET June 30, 2001 (In US Dollars)

PF-7. TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.) UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEARS ENDED (In US Dollars)

PF-8.

TELEMAX GLOBAL COMMUNICATIONS INC 8-K/A