OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) CONSOLIDATED BALANCE SHEETS December 31, December 31, 2002 2001 ------------ ------------ ASSETS CURRENT ASSETS Cash $ 637 $ 508 Accounts receivable 15,793 68,904 Loan receivable, related party 867 2,735 Prepaid expenses 30,949 35,732 ------------ ------------ Total Current Assets 48,246 107,879 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT Office equipment 18,615 14,998 Accumulated depreciation (10,692) (4,731) ------------ ------------ Total Property, Plant and Equipment 7,923 10,267 ------------ ------------ OTHER ASSETS Software license, net of amortization -- -- Software 952 405,342 ------------ ------------ Total Other Assets 952 405,342 ------------ ------------ TOTAL ASSETS $ 57,121 $ 523,488 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable $ 289,191 $ 228,411 Payroll liabilities 47,813 -- Checks written in excess of bank funds 8,478 3,673 Deferred revenue 3,130 13,312 Customer deposits -- 53,760 Note payable 15,860 15,718 Loans payable, related party 415,894 210,900 ------------ ------------ Total Current Liabilities 780,366 525,774 ------------ ------------ COMMITMENTS AND CONTINGENCIES -- -- ------------ ------------ STOCKHOLDERS' EQUITY (DEFICIT) Common stock, no par value; unlimited shares authorized, 19,770,100 and 19,753,100 shares issued and outstanding, respectively 2,321,614 2,304,614 Subscriptions receivable -- (7,759) Accumulated deficit (2,967,592) (2,218,796) Accumulated other comprehensive loss (77,267) (80,345) ------------ ------------ Total Stockholders' Equity (Deficit) (723,245) (2,286) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 57,121 $ 523,488 ============ ============ The accompanying notes are an integral part of these financial statements. F-2 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended Year Ended December 31, December 31, 2002 2001 ------------ ------------ REVENUES Revenues Licenses $ 177,551 $ 76,773 Services 120,999 255,970 ------------ ------------ Total Revenues 298,550 332,743 Revenues from related party Services -- 69,050 ------------ ------------ Total revenues from related party -- 69,050 ------------ ------------ Total Revenues 298,550 401,793 ------------ ------------ COST OF REVENUES Licenses 42,077 105,298 Services 28,675 397,442 ------------ ------------ Total Cost of Revenues 70,752 502,740 ------------ ------------ GROSS PROFIT (LOSS) 227,798 (100,947) ------------ ------------ SELLING EXPENSES Advertising and marketing 16,642 29,104 Consulting 9,765 128,480 Communications 16,111 20,578 Travel 4,245 13,713 ------------ ------------ Total Selling Expenses 46,763 191,875 ------------ ------------ GENERAL AND ADMINISTRATIVE EXPENSES Bad Debt 40,033 Consulting 152,413 1,498,287 Depreciation 5,945 4,548 Rent 15,217 12,205 Office expenses 12,669 17,947 Legal fees 159,066 153,225 Payroll 131,276 67,744 Taxes 36,716 24,761 Other administrative 8,474 11,861 Professional expense 32,677 34,500 ------------ ------------ Total General and Administrative Expenses 594,486 1,825,078 ------------ ------------ LOSS FROM OPERATIONS (413,451) (2,117,900) OTHER INCOME (EXPENSES) Interest (5,433) -- Loss on impairment of software (409,886) -- Debt forgiveness 79,974 -- ------------ ------------ Total Other Income (Expenses) (335,345) -- ------------ ------------ LOSS BEFORE INCOME TAXES (748,796) (2,117,900) PROVISION FOR INCOME TAXES -- -- ------------ ------------ NET LOSS (748,796) (2,117,900) OTHER COMPREHENSIVE GAIN (LOSS) Foreign currency translation gain (loss) 3,078 (80,345) ------------ ------------ COMPREHENSIVE LOSS $ (745,718) $ (2,198,245) ============ ============ BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.04) $ (0.12) ============ ============ WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED COMMON SHARES OUTSTANDING 19,756,999 17,152,915 ============ ============ The accompanying notes are an integral part of these financial statements. F-3
OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) Common Stock Accumulated ------------------------- Other Number Subscriptions Comprehensive Accumulated of Shares Amount Receivable Income/Loss (Deficit) Total ----------- ----------- ----------- ----------- ----------- ----------- Balance, January 1, 2001 13,300,000 111,609 -- -- (100,896) 10,713 Stock issued in May 2001 for cash and subscription receivable at an average price of $0.1622 per share 1,724,666 279,744 (97,759) -- -- 181,985 Stock issued in May 2001 in payment of expenses at an average price of $0.42 per share 3,728,434 1,552,665 -- -- -- 1,552,665 Stock issued in May 2001 in exchange for assets at an average price of $0.34 per share 1,000,000 336,596 -- -- -- 336,596 Payment of subscriptions receivable -- -- 70,000 -- -- 70,000 Payment of subscriptions receivable via customers' deposits at a price of $0.50 per share -- -- 20,000 -- -- 20,000 Transfer of shares by an officer directly to a third party for conversion of an outstanding liability at a price of $0.50 per share -- 24,000 -- -- -- 24,000 Other comprehensive loss -- -- -- (80,345) -- (80,345) Net loss for the year ending December 31, 2001 -- -- -- -- (2,117,900) (2,117,900) ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2001 19,753,100 2,304,614 (7,759) (80,345) (2,218,796) (2,286) Stock issued for $1.00 per share 17,000 17,000 -- -- -- 17,000 Payment of subscriptions receivable -- -- 7,759 -- -- 7,759 Other comprehensive gain -- -- -- 3,078 -- 3,078 Net loss for the year ending December 31, 2002 -- -- -- -- (748,796) (748,796) ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2002 19,770,100 $ 2,321,614 $ -- $ (77,267) $(2,967,592) $ (723,245) =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-4
OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended Year Ended December 31, December 31, 2001 2001 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (748,796) $ (2,117,900) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization expense 5,945 60,179 Loss on impairment of software 409,886 -- Debt forgiveness (79,974) -- Stock issued in payment of expenses -- 1,552,665 Conversion of a liability to equity due to transfer of shares from an officer -- 24,000 Stock issued in payment of expenses -- 20,000 Change in assets and liabilities: Accounts receivable 53,111 (52,558) Related party loan 1,868 (652) Prepaid license 4,783 67,719 Accounts payable 140,754 185,095 Payroll liabilities 47,813 -- Notes payable 142 (40,506) Payable to related party 37,952 135,149 Deferred revenue (10,182) (9,147) Checks written in excess of bank funds 4,805 (3,606) Customer deposits (53,760) 53,760 ------------ ------------ Net cash used by operating activities (185,653) (125,802) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment (3,617) (1,588) Purchase of software -- (71,906) ------------ ------------ Net cash used by investing activities (3,617) (73,494) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sales of common stock 17,000 181,985 Proceeds from stock subscriptions 7,759 70,000 Proceeds from related party loans 198,524 118,051 Payments on related party loans (34,983) (89,887) ------------ ------------ Net cash provided by financing activities 188,300 280,149 ------------ ------------ Net decrease in cash and cash equivalents (970) 80,853 Foreign currency translation gain (loss) 1,099 (80,345) Cash and cash equivalents beginning of period 508 -- ------------ ------------ Cash and cash equivalents at end of period $ 637 $ 508 ============ ============ SUPPLEMENTAL CASH FLOW DISCLOSURES: Income taxes paid $ -- $ -- ============ ============ Interest paid $ -- $ 5,169 ============ ============ NON-CASH INVESTING AND FINANCING ACTIVITIES: Stock issued in exchange for assets $ -- $ 336,596 Stock issued in payment of expenses $ -- $ 1,552,665 Stock subscriptions paid by customer deposits $ -- $ 20,000 Stock issued for subscriptions $ -- $ 97,759
The accompanying notes are an integral part of these financial statements. F-5 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS International E Gaming Developers Ltd. (hereinafter "the Company") was originally incorporated October 13, 2000 under the laws of the Province of Ontario, Canada. On May 17, 2001, the Company changed its name to Oxford Software Developers Inc. The Company and its wholly owned subsidiary, International E-Gaming Developers Inc., intend to develop software applications in the future. The Company's fiscal year-end is December 31. On November 3, 2000, the Company incorporated its wholly owned subsidiary, International E-Gaming Developers Inc. (hereinafter "E-Gaming Inc.") under the laws of Antigua and Barbuda. E-Gaming is primarily engaged in the operation and marketing of internet gaming sites. On November 8, 2001, the Company incorporated a wholly owned subsidiary, International E-Gaming Developers NV (hereinafter "E-Gaming NV), a limited liability company, under the laws of Curacao, Netherlands Antilles to engage in the operation of games of chance on the international market via service lines. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of Oxford Software Developers Inc. is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements. Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation. See Note 3. Accounting Method ----------------- The Company's financial statements are prepared using the accrual method of accounting. Cash and Cash Equivalents ------------------------- For purposes of its statement of cash flows, the Company considers all bank accounts, certificates of deposit, money market accounts and short-term debt securities purchased with a maturity of three months or less to be cash equivalents. Advertising and Marketing Expenses ---------------------------------- Advertising and marketing fees are charged to operations in the year incurred. Advertising and marketing expenses were $16,642 for year ended December 31, 2002. F-6 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates ---------------- The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. Going Concern ------------- The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company incurred a net loss of $748,796 for the year ended December 31, 2002 and has recurring losses from operations. The Company is currently putting licenses and technology in place that will, if successful, mitigate these factors that raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. Management plans to seek new capital from new equity securities issuances that will provide funds needed to increase liquidity, fund internal growth and fully implement its business plan. Management also believes that new opportunities in the lifestyles consumables market for bottled water an UV-free tanning booths and supplies will provide positive cash flow in the future. See note 15. Provision for Doubtful Accounts and Bad Debt Expense ---------------------------------------------------- Provision for losses on trade accounts receivable is made in amounts required to maintain an adequate allowance to cover anticipated bad debts. Accounts receivable are charged against the allowance when it is determined by the Company that payment will not be received. Receivables are shown net of an allowance for bad debts as of December 31, 2002 and 2001. During the year ended December 31, 2002, the Company determined that an impairment of accounts receivable had occurred and therefore recognized a bad debt expense of $40,033 in the accompanying financial statements. F-7 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Provision for Taxes ------------------- Income taxes are provided based upon the liability method of accounting pursuant to SFAS No. 109 "Accounting for Income Taxes." Under this approach, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the "more likely than not" standard imposed by SFAS No. 109 to allow recognition of such an asset. At December 31, 2002, the Company had net deferred tax assets of approximately $600,000, principally arising from net operating loss carryforwards and non-deductible expenses for tax purposes. The expected combined tax rates in Canada for federal and provincial income taxes are approximately 44%, which is used in the calculation of the deferred tax assets. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset has been established at December 31, 2002. At December 31, 2002, the Company has a net operating loss carryforward of approximately $1,460,000. The Company had approximately $1,458,000 of services and professional fees paid through the issuance of common stock, which are not deductible in Canada for tax purposes. Impaired Asset Policy --------------------- In complying with the Financial Accounting Standards Board Statement titled "Accounting for Impairment of Long-lived Assets," the Company reviews its long-lived assets quarterly to determine if any events or changes in circumstances have transpired which indicate that the carrying value of its assets may not be recoverable. The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by its assets to their respective carrying amounts. During the year ended December 31, 2002, the Company determined its software, which had a book value of $405,342, was fully impaired. Compensated Absences -------------------- Employees of the Company are entitled to paid vacation. The vacation pay is equal to 4% of an employees gross payroll. The Company's policy will be to recognize the costs of compensated absences when actually paid to employees. This departure from generally accepted accounting policies is deemed immaterial. Fair Value of Financial Instruments ----------------------------------- The carrying amounts for cash, prepaid expenses, receivables, payables, and notes payable approximate their fair value. F-8 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition and Deferred Revenue ---------------------------------------- Revenue is recognized when there is persuasive evidence of an arrangement, when delivery has occurred, when there is a fixed or determinable fee and when collectiblility is probable. When the fee is not fixed or determinable or when collectibility is not assured, the revenue is recognized when received. As amounts are collected, the appropriate revenue is recognized and deferred revenue is recorded for the annual amortizable portion as described below. When contracts contain multiple elements, the fee is allocated to the various components based on objective evidence of fair value, which includes the price charged as if the element was sold separately. Accordingly, contracts may contain customization, web hosting, licensing and marketing fees as described and valued below. One of the Company's original contracts was a premium contract which included $25,000 for annual marketing and support offered to the original premium holders. That amount is considered by the Company to be a deferred revenue and was recorded as such and the amount will be amortized over the service period of one year. This level of service is no longer available. Revenues from the customization fees, less $1,400, are recognized as sold to third parties. The $1,400 web hosting and annual licensing fees are deferred and recognized throughout the first year of operation. Revenue from the sale of software sub-licenses to the Company's related reseller is recognized upon sell through to the unrelated third parties. Revenue from casino operations, advertising and royalties is recognized monthly as earned. At December 31, 2001, the Company had contracts in place totaling approximately $827,000 which are not reflected in the financial statements because the contract fee was not considered fixed and determinable due to payment terms based on revenue generated by the customer. A total of $497,000 of these contracts in place are attributable to a related party. See Note 7. Contracts in place represent affiliate sub-license contracts with payment terms linked to the activity generated on the virtual casinos. As these contracts are collected, revenue will be reflected in the financial statements. During the year ended December 31, 2002, the majority of the casinos related to these contracts were no longer operating or had been taken over by the Company and are available for resale and have no balance owing to the Company. Functional Currency/Reporting Currency -------------------------------------- Although the parent company's functional currency is the Canadian dollar, the Company's operating subsidiary conducts business in United States dollars. Therefore, the Company's reporting currency is the United States dollar. F-9 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Foreign Currency Translation Policy ----------------------------------- All transactions in currencies other than the United States dollar during the year are translated at average exchange rates for the period. Monetary assets and liabilities denominated in a foreign currency are translated at the prevailing year-end rates of exchange. Exchange gains or losses are included in the consolidated statements of income (loss) and retained earnings. For foreign subsidiaries whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the period and income statement accounts are translated at average exchange rates for the period. Translation gains and losses are included in accumulated other comprehensive income (loss), a component of stockholders' equity. Accounting Pronouncements ------------------------- In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (hereinafter "SFAS No. 148"). SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of the statement are effective for financial statements for fiscal years ending after December 15, 2002. The Company currently reports stock issued to employees under the rules of SFAS 123. Accordingly there is no change is disclosure requirements due to SFAS 148. In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (hereinafter "SFAS No. 146"). SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS No. 146 also addresses recognition of certain costs related to terminating a contract that is not a capital lease, costs to consolidate facilities or relocate employees, and termination benefits provided to employees that are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS No. 146 was issued in June 2002 and is effective for activities after December 31, 2002. There has been no impact on the Company's financial position or results of operations from adopting SFAS No. 146. F-10 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounting Pronouncements (continued) ------------------------------------- In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" (hereinafter "SFAS No. 145"), which updates, clarifies and simplifies existing accounting pronouncements. FASB No. 4, which required all gains and losses from the extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related tax effect was rescinded. As a result, FASB No. 64, which amended FASB No. 4, was rescinded, as it was no longer necessary. FASB No. 44, Accounting for Intangible Assets of Motor Carriers, established the accounting requirements for the effects of transition to the provisions of the Motor Carrier Act of 1980. Since the transition has been completed, FASB No. 44 is no longer necessary and has been rescinded. SFAS No. 145 amended FASB No. 13 to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The Company adopted SFAS No. 145 and does not believe that the adoption will have a material effect on the financial statements of the Company at December 31, 2002. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (hereinafter "SFAS No. 144"). SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This standard establishes a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations. SFAS No. 144 requires that these long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. This statement is effective beginning for fiscal years after December 15, 2001, with earlier application encouraged. The Company's adoption of SFAS No. 144 caused the Company to write down the remaining value of its software, totaling $409,886. See note 5. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (hereinafter "SFAS No. 143"). SFAS No. 143 establishes guidelines related to the retirement of tangible long-lived assets of the Company and the associated retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived assets. This statement is effective for financial statements issued for the fiscal years beginning after June 15, 2002 and with earlier application encouraged. The Company adopted SFAS No. 143 and does not believe that the adoption will have a material impact on the financial statements of the Company at December 31, 2002. F-11 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounting Pronouncements (continued) ------------------------------------- In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (hereinafter "SFAS No. 141") and Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" (hereinafter "SFAS No. 142"). SFAS No. 141 provides for the elimination of the pooling-of-interests method of accounting for business combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142 prohibits the amortization of goodwill and other intangible assets with indefinite lives and requires periodic reassessment of the underlying value of such assets for impairment. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. An early adoption provision exists for companies with fiscal years beginning after March 15, 2001. On January 1, 2002, the Company adopted SFAS No. 142. Application of the nonamortization provision of SFAS No. 142 is expected to result in no change to the Company's results of operations, as the Company does not have assets with indeterminate lives. In September 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" (hereinafter "SFAS No. 140"). This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities and also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No. 140 is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000, and is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Company believes that the adoption of this standard will not have a material effect on the Company's results of operations or financial position. In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others" (hereinafter "FIN 45"). FIN 45 requires a company, at the time it issues a guarantee, to recognize an initial liability for the fair value of obligations assumed under the guarantee and elaborates on existing disclosure requirements related to guarantees and warranties. The initial recognition requirements of FIN 45 are effective for guarantees issued or modified after December 31, 2002 and do not have an impact on the financial statements of the Company. The Company does not anticipate issuing any guarantees which would be required to be recognized as a liability under the provisions of FIN 45 and thus does not expect the adoption of this interpretation to have an impact on its results of operations or financial position. F-12 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Derivative Instruments ---------------------- The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133", and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", which is effective for the Company as of January 1, 2001. These standards establishe accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. Historically, the Company has not entered into derivatives contracts to hedge existing risks or for speculative purposes. December 31, 2002, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities. Segment Information ------------------- The Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," ("SFAS No. 131") during the fiscal year ended December 31, 2000. SFAS No. 131 also requires disclosures about products and services, geographic areas and major customers. The adoption of SFAS No. 131 did not affect the Company's results of operations or financial position, but did affect the disclosure of segment information as illustrated in Note 14. As described in Note 3, the Company's subsidiaries have turned over all their operations to Oxford Software Developers Inc. and are no longer operating, making segment reporting unnecessary. F-13 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 3 - SUBSIDIARIES International E-Gaming Developers Inc. -------------------------------------- On November 3, 2000, the Company incorporated a wholly owned subsidiary, International E-Gaming Developers, Inc. under the laws of Antigua and Barbuda as an International Business Corporation. E-Gaming Inc. was incorporated to engage in Internet gaming, including international betting, gaming, sports betting and bookmaking activities along with wagers on sporting events taking place outside the Caribbean Community region from residents of countries outside the Caribbean Community region. E-Gaming Inc. was primarily engaged in the operation and marketing of Internet gaming sites. During the year ended December 31, 2002, the Company took over all operations of E-Gaming, Inc. International E-Gaming Developers NV ------------------------------------ On November 8, 2001, the Company incorporated a wholly owned subsidiary, International E-Gaming Developers NV, a limited liability company, under the laws of Curacao, Netherlands Antilles. E-Gaming NV was incorporated to engage in the operation of games of chance on the international market via service lines. E-Gaming NV is primarily engaged in the operation and marketing of Internet gaming sites. During the year ended December 31. 2002 the Company took over all operations of International E-Gaming Developers NV. NOTE 4 - OFFICE EQUIPMENT Office equipment is stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets ranging from three to five years. The following is a summary of office equipment and accumulated depreciation at December 31, 2002: Accumulated Cost Depreciation ------------ ------------ Office equipment $ 18,465 $ 10,692 ============ ============ Depreciation expense for the year ended December 31, 2002 was $5,945. NOTE 5 - INTANGIBLE ASSETS During the year ended December 31, 2002 the Company reached an agreement with World Gaming to discontinue their relationship and seek other avenues for processing the casino revenues and payments. As a result, outstanding amounts F-14 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 5 - INTANGIBLE ASSETS (continued) owing to or from World Gaming were written off with a residual $12,688 to be paid to World Gaming in monthly installments. At December 31, 2002, the Company had not begun payments. The amount owing to World Gaming is including in accounts payable in the financial statements. The net amount owing to World Gaming that was written off as a forgiveness of debt is $28,995 and is included in other income and expenses in the financial statements. Gaming License -------------- On November 20, 2001, the Company's subsidiary, E-Gaming NV, acquired a five-year sublicense from World Gaming to engage in the operation of games of chance in the international market via service lines in the territory of Curacao. The first year fee of $40,000 was paid in 2001 and will be amortized at a rate of approximately $667 per month as a cost of revenues over the life of the sublicense. Software License ---------------- On January 1, 2001, E-Gaming Inc. entered into a software licensing agreement with Starnet Systems International Inc. ("Starnet"). E-Gaming Inc. paid a one-time, non-refundable software development fee for its own virtual casino. E-Gaming Inc. is also required to pay a decreasing monthly royalty fee based on net monthly revenues. According to the agreement, 15% of the net monthly casino revenues must be spent on advertising and marketing per month. In addition, the Company is required to pay other operating charges. The license allows for E-Gaming Inc. to assign sub-licenses, given certain provisions. The term of the license agreement is one year with automatic one-year extensions. This license is included in Other Assets on the financial statement and is being amortized over one year. Amortization for the year ended December 31, 2001 amounted to $55,785 and is included in cost of revenues. During the year ended December 31, 2002, the Company and Suchow came to an agreement Starnet reserves 10% of the total winning payout on all games as a rolling reserve for a total of six months. This rolling reserve is used for charge backs when necessary. At December 31, 2002, the rolling reserve amounted to $29,416 and is included in the accounts receivable as an amount receivable from Starnet. Additionally, it is included in the accounts payable as an amount due to affiliates. Software -------- On April 26, 2001, the Company entered into an asset purchase agreement with Suchow Holdings, Ltd., a Bahamian-based company. According to the terms of the agreement, the Company agreed to pay a total of $103,000 over five months and issued 1,000,000 shares of common stock. In return, the Company acquired an Internet gaming and management software program and copyright, hardware, and several existing casino contracts. The Company expects to customize the gaming and management software and sell it to another vendor. The total value of F-15 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 5 - INTANGIBLE ASSETS (continued) Software (continued) -------------------- the assets, which amounted to $405,342, were deemed to be impaired and written off during 2002. Also during the year ended December 31, 2002 the remaining un paid balance of $54,490 was forgiven and is included in the "Other Income and Expense" section of the Statements of Operations. NOTE 6 - NOTES AND LOANS PAYABLE On November 29, 2000, the Company's subsidiary, E-Gaming Inc., signed a short-term note to purchase an Antiguan gaming license. The non-interest bearing note was paid in full during the three months ending June 30, 2001. On December 11, 2000, the Company signed a promissory note in the amount of $25,000 (CDN) in connection with a letter of intent. See Note 11. The note is non-interest bearing, uncollateralized and is due on demand. As of December 31, 2002 and 2001, this loan was recorded at $15,860 and $15,718, respectively. For information on the related party debt, see Note 7. NOTE 7 - RELATED PARTY TRANSACTIONS On December 31, 2002, the Company owed officers, directors and stockholders $415,027 for cash advances, consulting fees and expenses paid on behalf of the Company. These related aprty lonas are uncollateralized, non-interest bearing and due on demand. Approximately 33% of the Company's customers are represented by one entity, which is owned and operated by a stockholder of the Company. See Note 8. This related party currently has no accounts receivables included in these financial statements but had $497,000 of the contracts in place in 2001. In 2002, the majority of the casino websites were closed down or taken over by the Company. See Note 2. On December 31, 2002, a stockholder owed the Company $867. This loan is non-interest bearing, uncollateralized and due on demand. F-16 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 8 - CONCENTRATIONS Bank Accounts ------------- The Company maintains two cash accounts at a Canadian bank and one cash account in Antigua. The Canadian dollar account is insured up to a maximum of $60,000, and the United States dollar account and the Antiguan account are not insured. At December 31, 2002, approximately $600 was exposed to risk. Customers --------- Approximately 33% of the Company's sublicense agreements are represented by one entity, which, in turn, resold the agreements to unrelated third parties. This entity is owned and operated by a stockholder of the Company. See Note 7. NOTE 9 - COMMON STOCK The Company is authorized to issue an unlimited number of common shares according to its original charter. The Company's shares have no stated par value. Each share of common stock is entitled to one vote at the shareholders' meetings. Shares may be transferred with the consent of a majority of the directors or the shareholders through resolution or by a signed instrument. In its original articles of incorporation, the Company limited the number of shareholders to not more than fifty non-employee individuals and any invitation to the public to subscribe for or purchase securities of the Company was prohibited. On September 13, 2001, the Company amended its articles of incorporation to lift the shareholder and invitation restrictions. During October 2000, the Company issued 8,400,000 shares of common stock at $0.0009 per share in exchange for office equipment with a historical cost of $3,472, and expenses valued at $3,992, which represents the historical cost. The Company also issued 2,800,000 shares of common stock at $0.0124 per share in settlement of $34,715 of expenses paid on behalf of the Company by its chairman. The Company also issued to certain foreign individuals 2,100,000 shares of common stock at $0.0331 per share for $69,430 cash. During the year ended December 31, 2001, the Company issued 1,724,666 shares of common stock for $279,744 in cash and subscriptions, at an average of $0.1622 per share and issued 48,000 shares of common stock for cash at $0.50 per share for a total of $24,000. The Company also issued 3,728,434 shares of common stock in exchange for consulting expenses valued at $1,552,665 or an average of $0.4164 per share. In addition, the Company issued 1,000,000 shares of common stock in exchange for assets valued at $336,596, or $0.3366 per share. See Note 13. During the year ended December 31, 2002, the Company issued $17,000 shares of stock for cash for $1.00 per share. Subsequent to 2002, during May 2003, the Company issued 108,000 shares of common stock at $1.00 Canadian per share ($0.64 U.S.) for $108,000 Canadian (approximately $64,000 U.S.) F-17 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 10 - INCOME (LOSS) PER SHARE Basic earnings (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares outstanding during the period. The weighted average number of shares is calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. Diluted earnings per share is computed by dividing the net income (loss) adjusted for interest expense on convertible debt by the weighted average number of basic shares outstanding increased by the number of shares that would be outstanding assuming conversion of any stock options, warrants, and convertible debt. Diluted net income (loss) per share is the same as basic net income (loss) per share as there are no common stock equivalents outstanding. NOTE 11 - LETTER OF INTENT On December 4, 2000, the Company signed a letter of intent with a company listed on the Canadian Exchange. As a result of this agreement, the Company received $25,000 Canadian ($15,860 U.S.) and issued an uncollateralized demand promissory note for the sum received. While the companies mutually withdrew from the letter of intent during March 2001, the related note remains unpaid at December 31, 2002. See Note 6. NOTE 12 - COMMITMENTS AND CONTINGENCIES Potential Lawsuit ----------------- During the year ended December 31 ,2002 the Company took over the operations of one of the Casinos due to failure to pay fee owing. The casino in question has begun proceedings regarding breach of agreement against the Company. At December 31, 2002 there was no financial impact and no potential financial impact could be determined. Uncertainty as to the Legal Status of Internet Gaming ----------------------------------------------------- The Company, its software licensees and its sub-licensees are subject to applicable laws in the jurisdictions in which they operate. Due to the relatively recent development of casino gaming over the Internet, there are limited direct regulations that deal with this application and there is uncertainty in certain jurisdictions as to the legal status of gaming over the Internet. Currently, the United States does not have federal legislation against Internet gambling, however, there have been several bills introduced to prohibit or restrict Internet gaming. There can be no assurance whether any such bill will become law in the future, the effects of which are uncertain. F-18 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 12 - COMMITMENTS AND CONTINGENCIES (continued) Uncertainty as to the Legal Status of Internet Gaming (continued) ----------------------------------------------------------------- Subsequent to December 31, 2002 the United States House of Representatives Financial Services committee introduced two resolutions regarding Internet gambling and the Unites States Senate Banking, Housing, and Urban Affairs committee introduce one bill of the same nature. One of the House resolutions and the Senate bill both call for the prohibition of monetary banking transactions over the internet to gaming sites. This would make any payments to an online casino that take place through wires, credit cards, or debit cards illegal in the United States. The second House resolution calls for the formation of commission to study Internet gambling licensing and regulation. As of the date of these financial statements, none of the proposals has come out of committee and it is uncertain as to the date of any voting on the matter. Computer Security ----------------- The Company operates in an industry, which is vulnerable to attacks upon its computer operating security. The risks to the Company's operations are significant and will require continued monitoring to minimize the effects of any possible attacks from outside. Foreign Operations ------------------ The accompanying balance sheet includes $57,000 relating to the Company's assets in Canada and Antigua. Although these countries are considered politically and economically stable, it is always possible that unanticipated events in foreign countries could disrupt the Company's operations. Dependence on Key Licensor and Licensees ---------------------------------------- The Company's license to gaming software is issued by World Gaming pursuant to a gaming license issued by Antigua during 2001 and Curacao beginning in November 2001. World Gaming is one of the few primary developers and operators of casino and other gaming software in the world. During the year ended December 31, 2002, 100% of the Company's revenue from Internet gaming software was attributable to the World Gaming relationship. As part of the licensing agreement with World Gaming, the Company has the right to sublicense its software. Because World Gaming is the Company's sole licensor, the loss of the World Gaming relationship could have a material adverse effect on the Company's revenues, operating results and financial condition. Although the Company expects to diversify risks associated with dependence on World Gaming by entering into arrangements with additional licensors or developing and licensing its own software to various licensees, there can be no assurance that such diversification will be successful or that the Company will be able to reduce its dependence on one or a small group of licensors. F-19 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 12 - COMMITMENTS AND CONTINGENCIES (continued) Dependence On Key Licensor And Licensees (continued) ---------------------------------------------------- The original term of the Company's license agreement with World Gaming was for one year. In November 2001, the Company signed a five-year license agreement with World Gaming. The terms of the underlying license or sublicense agreements vary, although averaging ten-year terms and providing for automatic renewal periods of ten years. There is a risk that the Company's license agreement with World Gaming or the license or sublicense agreements with licensees (or sub-licensees, as the case may be) will not be renewed or will otherwise be terminated in accordance with the terms of such agreements. In addition, in the event that a licensee or sub-licensee chooses to operate a different casino, there can be no assurances that such new casino will be operated using the Company's software. The trademarks or trade names under which all of the Company's licensees operate are the property of the respective licensees. Although the Company is generally entitled to continued operation of a casino on termination of a license or sublicense agreement, in certain cases this entitlement is limited and it generally does not include the operation of the casino under the existing name. A change in the name of the casino may lead to a loss of goodwill various methods needed to direct a customer to the new site cannot be completely relied upon. Office Lease ------------ The Company signed a lease for office space in Calgary, Alberta. This one-year lease is in effect from April 1, 2001 through March 31, 2002. The lease calls for minimum monthly rent payments of approximately $560 Candian with a deposit of $560 Canadian. During the year ended December 31, 2001, the Company assumed a three-year office lease in Oshawa, Ontario. The lease runs through December 31, 2003. The lease calls for a minimum monthly rent payment of approximately $1,040 Canadian. During the year ended December 31, 2002 the Company decided to close the Oshawa office as it had no need for the additional space and the Company was not satisfied that the rental corporation was upholding the lease agreement. The rental corporation has not approached the Company for breaking the lease. The company has rented new space in Toronto, Ontario with a month to month agreement for rent for $3,500 Canadian (approximately $2,200 U.S.) F-20 OXFORD SOFTWARE DEVELOPERS INC. (Formerly International E Gaming Developers Ltd.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 NOTE 13 - PURCHASE OF SOFTWARE AND OTHER ASSETS On April 26, 2001, the Company entered into an asset purchase agreement with Suchow Holdings, Ltd., a Bahzamian-based company. According to the terms of the agreement, the Company will pay a total of $103,000 and issue 1,000,000 shares of common stock. In return, the Company acquired an Internet gaming and management software program and copyright, hardware, and several existing casino contracts. The Company expects to fully market, license and operate the gaming software. The total value of the assets amounted to $405,342. During the year ended December 31, 2002 the Company reviewed the software and determined that it would not utilized in the near future. The Company further determined that the remaining value of the software was impaired and that impairment was included in operations during 2002 of $409,886. NOTE 14 - SEGMENT INFORMATION As described in Note 2, the Company adopted SFAS No. 131 in its fiscal year 2000. The Company's operations are classified into two principal reporting segments that provide different products or services. Separate management of each section is required because each business unit is subject to different marketing, production, and technology strategies. During 2002, the Company determined the marketing, production and technology strategies were no longer different and consolidated the management of the two segments into one. NOTE 15 - SUBSEQUENT EVENTS New Business Activities ----------------------- Subsequent to 2002 the Company decided to diversify the Company's interests into the lifestyles consumables market and entered into the following two agreements: In May 2003 the Company entered a letter of intent with Andalusian Artesian Springs, Ltd., a spring water bottler to acquire the right to distribute bottled spring water and the option to acquire up to 49% of Andalusian common stock. Management intends to approach corporate and retail entities who wish to insert their own label and use the water as promotional or marketing tools. Additionally, the Company intends to market its own line of bottled spring water to sell at concerts, sporting events, and other venues. The Company has created a subsidiary, Ontario Private Water Labelling Limited, to operate this business. The Company has also acquired the rights to be the authorized Canadian distributor for sales of MegaSun spay tanning booths. These stand-up tanning booths spray a mist of sunless tanning spray. In addition to the booths, the Company intends on marketing its own line of UV-free tanning products. The Company has created a subsidiary, Celebrity Tan, Inc., to operate this business. Common Stock Issuances ---------------------- During May 2003, the Company sold 108,000 shares of common stock for $1.00 Canadian per share ($0.64 U.S.) for $108,000 Canadian (approximately $64,000 U.S.) See Note 9.