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					Working Draft — Proposed Private Enterprise Standards                 page 1 of 16




Enterprises in the Development Stage, AcG-11



TABLE OF CONTENTS                                                        Paragraph
Purpose and scope                                                                1
Development stage                                                                2
Financial accounting and reporting                                               7
   Financial statements                                                          7
   Classification of current and non-current assets and liabilities              8
   Costs incurred                                                                9
   Impairment                                                                   12
   Shares issued for non-monetary consideration                                 22
   Share issue costs                                                            26
   Going concern                                                                27
Disclosure during the development stage                                         29
   General disclosure                                                           29
   Disclosure about projects under development                                  31
   Disclosure of "cumulative from inception" information                        33
An example of disclosure during the development stage                     Appendix

       PURPOSE AND SCOPE
1      This Guideline presents the views of the Accounting Standards Board on
       recognition, measurement, presentation and disclosure by enterprises in the
       development stage. The Accounting Standards Board believes that accounting
       treatment should be governed by the nature of a transaction rather than the degree
       of maturity of an enterprise. Consequently, concurrently with the publication of
       this Guideline, it removed exemptions for accounting for research and
       development costs and disclosure of current assets and liabilities for enterprises in
       the development stage. Removal of these exemptions results in enterprises in the
       development stage being subject to the same accounting standards of recognition,
       measurement, presentation and disclosure as enterprises in the operating stage.
       This Guideline covers only selected items and does not deal comprehensively
       with all aspects of accounting for enterprises in the development stage. It requires
       certain specific disclosures needed for fair presentation in accordance with
       generally accepted accounting principles of the financial position, results of
       operations and cash flows of these enterprises and encourages other disclosures
       that will help users to evaluate their performance.
       DEVELOPMENT STAGE
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2    An enterprise in the development stage typically will be devoting most of its
     efforts to activities such as financial planning, raising capital, exploring for
     natural resources, developing natural resources, research and development,
     establishing sources of supply, acquiring property, plant and equipment or other
     operating assets, such as mineral rights, recruiting and training personnel,
     developing markets and starting up production.
3    For purposes of this Guideline, an enterprise is in the development stage when it
     is devoting substantially all of its efforts to establishing a new business and
     planned principal operations have not commenced. Various factors indicate that
     planned principal operations have commenced. These would include, for example,
     one or more of the following:
      (a) significant revenue has been earned;
      (b) a significant portion of available funding is directed towards operating
          activities;
      (c) a significant percentage of employees is involved in operating activities;
      (d) a pre-determined, specified level of activity has been achieved;
      (e) a pre-determined, reasonable period of time has passed; or
      (f) a development project significant to the primary business objective of the
          enterprise has been completed.
     The determination of whether any of these factors is present is made in light of
     characteristics of the enterprise and its industry.
4    The following factors would not necessarily indicate that an enterprise is in the
     development stage:
      (a) lack of profitability;
      (b) uncertainty of cost recovery; or
      (c) difficulty in valuing the consideration received in exchange for share capital.
     These factors may be experienced by any enterprise regardless of whether it is an
     enterprise in the development stage.
5    Professional judgment is required in assessing whether an enterprise is in the
     development stage. It is not possible to classify an enterprise as being in the
     development stage solely by reference to the nature of activities undertaken by the
     enterprise. For example, the principal operations of some enterprises are the
     development of products, services or technologies.
6    The length of the development stage will vary significantly from enterprise to
     enterprise, depending on the nature of its business and the industry in which it
     operates. Some enterprises may become operational within weeks or months of
     inception, for example, an enterprise established to open a single retail store.
     Other enterprises may require several years of development activity before
     becoming operational, for example, an enterprise established to produce new and
     commercial applications of a bio-medical process.
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      FINANCIAL ACCOUNTING AND REPORTING
      Financial statements
7     Financial statements for an enterprise in the development stage normally include:
      (a) a balance sheet;
      (b) an income statement;
      (c) a statement of retained earnings;
      (d) a cash flow statement; and
      (e) notes to financial statements (see paragraphs 29-35).
      Classification of current and non-current assets and liabilities
8     The balance sheet of an enterprise in the development stage normally segregates
      assets and liabilities between current and non-current in accordance with
      CURRENT ASSETS AND CURRENT LIABILITIES, Section 1510. Information
      about short-term liquidity has particular relevance for an enterprise in the
      development stage, because it is useful in judging an enterprise's ability to meet
      its obligations without the need for access or further access to outside sources of
      funds.
      Costs incurred
9     The kinds of transactions undertaken by enterprises in the development stage are
      common to other enterprises. Accounting treatment should be governed by the
      nature of the transaction rather than the degree of maturity of the enterprise. Costs
      incurred by an enterprise in the development stage are charged to income or
      capitalized on the same basis as costs incurred by an enterprise not in the
      development stage. For example, costs incurred for capital assets are accounted
      for in accordance with PROPERTY, PLANT AND EQUIPMENT, Section 3061,
      and GOODWILL AND INTANGIBLE ASSETS, Section 3064.
10    An intangible asset may only be recognized in accordance with GOODWILL
      AND INTANGIBLE ASSETS, Section 3064, if:
      (a) the asset is identifiable;
      (b) the entity controls the asset;
      (c) it is probable that the entity will receive future economic benefits from the
          asset; and
      (d) the cost of the asset is reliably measurable.
      Guidance on these criteria is provided in Section 3064.
10A   GOODWILL AND INTANGIBLE ASSETS, Section 3064, specifies that
      development costs might qualify for recognition as intangible assets if, in addition
      to meeting the definition and recognition criteria, the entity can demonstrate all of
      the following:
      (a) The technical feasibility of completing the intangible asset so that it will be
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          available for use or sale.
      (b) Its intention to complete the intangible asset and use or sell it.
      (c) Its ability to use or sell the intangible asset.
      (d) How the intangible asset will generate probable future economic benefits.
          Among other things, the entity can demonstrate the existence of a market for
          the output of the intangible asset or the intangible asset itself or, if it is to be
          used internally, the usefulness of the intangible asset.
      (e) The availability of adequate technical, financial and other resources to
          complete the development and to use or sell the intangible asset.
      (f) Its ability to measure reliably the expenditure attributable to the intangible
          asset during its development.
11    The cost of an intangible asset includes costs directly attributable to preparing it
      for its intended use. General and administrative costs, such as salaries for
      executive activities, office rent and supplies and general legal and accounting
      costs are not considered directly related to any of the enterprise's assets and
      therefore are not capitalized.
11A   Costs incurred for research are not recognized as intangible assets because it is
      not possible to determine the probability that future economic benefits will flow
      from the research.
      Impairment
12    When development costs have been recognized as an intangible asset, an
      enterprise in the development stage should assess at the end of each accounting
      period whether the recovery of the unamortized balance of these costs from the
      future operations can continue to be regarded as probable. When the expected
      amount of recovery through future related revenues, less relevant costs, is
      exceeded by the unamortized balance of such costs and the carrying amount of the
      asset exceeds its fair value, the asset is impaired and should be written down to
      fair value in accordance with IMPAIRMENT OF LONG-LIVED ASSETS,
      Section 3063. (Where the enterprise has other long-lived assets, capitalized
      development costs will normally be tested for impairment as part of an asset
      group that includes some or all of these other long-lived assets.)


      (paragraphs 13-14 deleted)


15    IMPAIRMENT OF LONG-LIVED ASSETS, Section 3063, provides some
      examples of conditions that may indicate a write-down of a capital asset is
      required. Of these conditions, the following may be of particular relevance to
      enterprises in the development stage:
      (a) a significant decrease in its market price;
      (b) a significant adverse change in legal factors or in the business climate that
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          could affect its value, including an adverse action or assessment by a
          regulator; and
      (c) an accumulation of costs significantly in excess of the amount originally
          expected for its acquisition or construction.
16   Other factors that may indicate the need for a write-down of a capital asset held
     by enterprises in the development stage engaged in extractive operations include:
      (a) unfavourable changes in the property or project economics;
      (b) an inability to access the site;
      (c) environmental restrictions on development;
      (d) an inability to create an efficient distribution mechanism; and
      (e) political instability of the region in which the property is located.
17   The enterprise's progress in its development activities towards its planned
     principal operations is a key factor to be considered as part of the ongoing
     assessment of the recoverability of the carrying amount of capital assets and
     capitalized development costs. Brief interruptions in activities, interruptions that
     are externally imposed and interruptions that are inherent in the asset acquisition
     process would not necessarily signal a need for a write-down. However, when
     there has been a delay in development activity that extends beyond three years,
     there is a presumption that a write-down of capitalized costs is necessary. This
     presumption can be rebutted only by persuasive evidence to the contrary.
     Property, plant and equipment and intangible assets are assessed for impairment
     and written down in accordance with IMPAIRMENT OF LONG-LIVED
     ASSETS, Section 3063, and GOODWILL AND INTANGIBLE ASSETS,
     Section 3064.
18   In addition to the above general presumption, there should be a presumption of
     impairment in the carrying amount of property, plant and equipment and
     intangible assets of enterprises in the development stage engaged in extractive
     operations when any of the following conditions exist:
      (a) the enterprise's work program on a property has significantly changed so that
          previously identified resource targets or work programs are no longer being
          pursued;
      (b) exploration results are not promising and no more work is being planned in
          the foreseeable future; or
      (c) remaining lease terms are insufficient to conduct necessary studies or
          exploration work.
19   The assessment of the recoverability and need for a write-down of the carrying
     amount of capitalized development costs from future operations requires the
     preparation of a projection. The lack of an operating track record for an enterprise
     in the development stage may make it difficult to prepare this projection.
     Information that may assist in the preparation of a projection includes:
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      (a) initial feasibility studies adjusted for any known changes;
      (b) the performance of other entities engaged in similar activities;
      (c) marketing studies; and
      (d) other sources that provide objective corroboration of the assumptions used.
     In cases where the capitalized development costs are related to a new technology
     or product, it may be appropriate to prepare the projection on the basis of an
     existing technology or product that is considered most similar in nature to the one
     under development.
20   The existence of uncertainties during the development stage may make it difficult
     to estimate the amount of any necessary write-down, and therefore may
     necessitate disclosure of measurement uncertainty in accordance with
     MEASUREMENT UNCERTAINTY, Section 1508. However, note disclosure of
     the contingent or uncertain nature of the asset's carrying value should not be used
     as a substitute for proper accounting treatment.


     (paragraph 21 deleted)


     Shares issued for non-monetary consideration
22   The general principle is that transactions should be measured at the fair value of
     the consideration given (i.e., the shares) except where the fair value of the
     consideration given is not clearly evident. During the development stage, because
     of the lack of cash flow from operations and the difficulty in obtaining credit
     financing, an enterprise will often issue share capital in exchange for capital
     assets, services or as settlement of debt. Judgment is needed in determining the
     value to be attributed to the consideration given in such transactions.
23   If the shares of an enterprise in the development stage are traded in a public stock
     exchange or an over-the-counter market, the quoted value of the shares may be
     used as the basis for determining the value to be used in recording the transaction.
     BUSINESS COMBINATIONS, Section 1581, provides guidance on using the
     quoted market price for shares. Fair value of the shares is determined by
     establishing an average of quoted market prices for shares of the same class over a
     reasonable period before and after the date the terms of the business combination
     are agreed to and announced, and then adjusting the average to recognize the
     possible effects of price fluctuations, quantities traded, issue costs and similar
     items.
24   In some cases the quoted value of shares may not be an appropriate basis for
     recording the transaction because the market for the class of shares issued is
     inactive or illiquid, or the shares being issued are subject to significant restrictions
     preventing them from being traded for some time following their issuance. In
     such cases, and also when shares are not traded in a public stock exchange or in
     an over-the-counter market,The fair value of the assets acquired, the services
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     received or the debt settled should be used in recording the value of the
     consideration given. BUSINESS COMBINATIONS, Section 1581, provides
     guidance on determining the fair value of assets and liabilities. Related party
     transactions should be measured in accordance with RELATED PARTY
     TRANSACTIONS, Section 3840.
25   The method for determining the value of the shares issued should be disclosed.
     Depending on the circumstances, it may also be necessary to disclose the
     existence of measurement uncertainty in accordance with MEASUREMENT
     UNCERTAINTY, Section 1508.
     Share issue costs
26   CAPITAL TRANSACTIONS, Section 3610, states that changes in capital,
     including expenses related to the issue of capital, are excluded from the
     determination of net income and shown separately in the statement to which they
     relate. Therefore, all costs relating to the issue of share capital for enterprises in
     the development stage should be either deducted from the proceeds of the share
     capital issued or included in the statement of retained earnings (deficit) in the year
     incurred, since such costs are capital transactions.
     Going concern
27   FINANCIAL STATEMENT CONCEPTS, Section 1000, states that financial
     statements are prepared on the assumption that the entity is a going concern and
     that different bases of measurement may be appropriate when the entity is not
     expected to continue in operation for the foreseeable future. When assessing
     whether an enterprise in the development stage is a going concern, it is important
     to consider the enterprise's ability to continue in the process of development and
     to achieve planned principal operations, as pre-defined by management. Where
     the going concern assumption appears questionable or invalid, the effect on the
     financial statements will depend on the degree of uncertainty regarding the
     enterprise's ability to realize assets and discharge liabilities in the normal course.
     When the going concern assumption is not appropriate, it may be necessary to use
     a different basis of measurement.
28   In certain situations, the going concern assumption may be dependent upon a
     party advancing funds or converting debt to equity. Such economic dependence
     should be disclosed in accordance with ECONOMIC DEPENDENCE, Section
     3841.
     DISCLOSURE DURING THE DEVELOPMENT STAGE
     General disclosure
29   The fact that the enterprise is in the development stage should be disclosed. This
     disclosure should identify the nature of development activities and the planned
     principal operations of the enterprise. The factors management has evaluated in
     determining that the enterprise is in the development stage should be disclosed.
30   The financial statements prepared at the end of the first period in which the
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     enterprise is no longer considered to be in the development stage should disclose
     that in prior periods it was in the development stage.
     Disclosure about projects under development
31   Whether an enterprise is in the development stage or already operating, users of
     financial statements want information that helps predict the enterprise's ability to
     earn income and generate cash flows in the future to meet its obligations and to
     generate a return on investment. They are interested in both past performance and
     expected future performance. Enterprises in the development stage, however,
     have, by their nature, only limited information on past performance. The absence
     of a track record for these enterprises removes one important means of predicting
     how well the enterprise will do in the future. In order to make these assessments,
     users of financial statements of enterprises in the development stage are interested
     in information regarding the significant projects being undertaken.
32   Enterprises in the development stage should provide the following disclosure,
     where applicable, about each significant project under development, including
     those abandoned, during the reporting period:
     (a)    identification and description of the project;
     (b)    amounts capitalized on the project to date for capital assets, separately for
     property, plant and equipment (see PROPERTY, PLANT AND EQUIPMENT,
     Section 3061) and intangible assets (see GOODWILL AND INTANGIBLE
     ASSETS, Section 3064);
     (c)    amounts expensed on the project to date;
     (d)    revenue earned from the project; and
     (e)    details of contractual rights and obligations related to the project (see
     CONTRACTUAL OBLIGATIONS, Section 3280).
            This information may be provided in the notes or on the face of the
     financial statements.
     Disclosure of "cumulative from inception" information
33   In addition to traditional comparative information, enterprises in the development
     stage are encouraged to disclose in the income statement and in the cash flow
     statement cumulative balances from the inception of the development stage. The
     disclosure of cumulative information provides users with useful information about
     the activities of enterprises in the development stage without sacrificing the
     advantages of retaining the familiar format and content of basic financial
     statements of enterprises which are not in the development stage.
34   Enterprises in the development stage are also encouraged to disclose in the notes
     to the financial statements details of issuance of shares, warrants, rights or other
     equity securities from the date of inception of the enterprise.
35   When a dormant enterprise is reactivated to undertake development activities, the
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     cumulative balances to be disclosed are those from the inception of the
     development stage.
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     APPENDIX
     AN EXAMPLE OF DISCLOSURE DURING THE DEVELOPMENT
     STAGE
     This appendix provides a specific example to illustrate only the disclosures that
     are required or encouraged by this Guideline. It does not purport to show all of the
     disclosures required by generally accepted accounting principles. The format used
     is not a required format and may not be the best format for all enterprises. For
     example, the following illustrations are for a hypothetical enterprise in the
     development stage in a specific industry. Another format might be more
     meaningful for another industry. Disclosures should be made using a format that
     displays the enterprise's information in a clear and understandable manner.
     Securities regulators may require additional disclosures by publicly traded
     enterprises in the development stage.
     General disclosure (paragraph 29)
     Nature of operations
     Technologies Inc. is engaged in the business of developing anti-pollution
     technologies. Since inception, the efforts of the Company have been devoted to
     the development of a new anti-pollution technology for diesel engines. To date,
     the Company has not earned significant revenues and is considered to be in the
     development stage.
     Disclosure about projects under development (paragraph 32)
     For the purposes of this example, assume that management has determined that all
     projects meet the requirements of GOODWILL AND INTANGIBLE ASSETS,
     paragraph 3064.40, for recognition as an intangible asset.
     Project A — Diesel engine device (automotive industry)
     Emissions from heavy duty diesel engines are coming under more stringent
     regulation throughout the world. Technologies Inc.'s electronic charger aims at
     reducing pollution by preventing it in the first place through enhanced
     combustion. It increases airflow to the engine with an associated increase in
     power and reduction in pollutants which has been considered to be a major
     technological breakthrough. The company has the exclusive right and license to
     all applications of this technology. Technologies Inc.'s diesel engine device is
     currently undergoing final evaluation trials by major automotive and trucks
     engine manufacturers.
     Project B — Diesel engine (marine industry)
     For two years, Technologies Inc. research staff has been working on a new
     application of its electronic charger system for the marine industry. In this
     prototype phase, efforts have concentrated on a 5000 horse power marine engine.
     Initial testing has proved to be satisfactory. Performance enhancements are
     currently being conducted.
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     Project C — Other applications (recreational area)
     Various other anti-pollution applications are in the development stage with
     potentially breakthrough benefits in global pollution reduction in the recreational
     industry (notably for all-terrain vehicles). However upon review of the
     recoverability of capitalized development costs undertaken at the end of Year
     20X1, management determined that a write-down of $ 500 was necessary.


                         Costs Incurred for Projects under Development (a)
            ($ thousands)                          20X1            20X0             To
                                                                                    Date
            PROJECT A
            Research costs expensed                 $      —          $    —        $ 400
            Development costs
            Balance at the beginning of                 2,600             600              —
            the period
            Additions                                   2,970          2,000          5,570
            Balance at the end of the                   5,570          2,600          5,570
            period
            Capital assets
            Balance at the beginning of                  500               —               —
            the period
            Additions                                    600              500         1,100
            Balance at the end of the                   1,100             500         1,100
            period
            Total Project A costs for the              $3,570        $2,500         $7,070
            period
                                                   ====            ====             ====
            PROJECT B
            Research costs expensed                $      —        $ 600            $ 800
            Development costs
            Balance at the beginning of            1,200           —                —
            the period
            Additions                               2,500            1,200           3,700
            Balance at the end of the               3,700            1,200           3,700
            period
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            Total Project B costs for the        $2,500         $1,800          $4,500
            period
                                                 =====          =====           =====
            PROJECT C
            Research costs expensed              $        —     $ 500           $ 500
            Development costs
            Balance at the beginning of          700            —               —
            the period
            Additions                            1,400          700             2,100
            Write-down                             (500)              —          (500)
            Balance at the end of the              1,600            700          1,600
            period
            Total Project C costs for the        $1,400         $1,200          $2,600
            period (before write-down)
                                                 =====          =====           =====
            TOTAL PROJECT COSTS
            FOR THE PERIOD
            Research costs expensed              $       —      $1,100          $1,700
            Development costs incurred           6,870          3,900           11,370
            Write-down of development            (500)          —               (500)
            costs
            Capital assets                              600         500
                                                                                1,100
            Total                                $7,470         $5,500          $14,17
                                                                                0
                                                 =====          =====           =====
                                                                                =


     (a)   Disclosed in the accounting policies note:
           Research costs are expensed as incurred. Development costs which meet
           generally accepted criteria, including reasonable assurance regarding
           recoverability, are capitalized and amortized from the beginning of
           commercial production. Annually, the Company reviews the
           recoverability of development costs through an evaluation of the expected
           future cash flows from commercialization of the associated products to
           determine if there has been an impairment in the recoverable amount.
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     Disclosure of "cumulative from inception" information (paragraphs 33 and
     34)
                                       Techonologies Inc.
                                       Income Statement
                                                                           Cumulative
     For the year ended December 31,                                          from
     20X1                                     20X1          20X0          inception on
     ($ thousands)                                                        April 1, 1999
     Revenue
     Interest                                   $     2      $      1           $     4
     Expenses
     Research costs                                  —        1,100              1,700
     Advertising and trade shows                     29            40               111
     Travel and business development                160          336                741
     Finders' fees                                   —             42                42
     Filing fees                                     —             30                37
     Investors relations                             57          103                235
     Office rent, administration and                177          167                419
     sundry
     Printing                                        52          103                155
     Consulting fees                                163          156                410
     Bank charges and interest on long-               9          105                154
     term debt
     Salaries and employee benefits                 210          127                423
     Amortization                                    15             7                22
     Write-down of development costs                500            —                500
     Net loss                                  (1,370)       (2,315)          $(4,945)
                                                                              ======
     Deficit, beginning of year                (3,575)       (1,260)
     Deficit, end of year                     $(4,945)      $(3,575)
                                              ======        ======
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                                      Technologies Inc.
                                     Cash Flow Statement
                                                                             Cumulative
     For the year ended December 31,                                            from
     20X1                                     20X1             20X0         inception on
     ($ thousands)                                                          April 1, 1999
     Operating activities
     Loss for the period                       $(1,37      $(2,315)             $(4,945)
                                                   0)
     Amortization and write-down                                      7               522
                                                 515
                                               (855)           (2,308)           (4,423)
     Change in non-cash components of                             188                 333
     working capital                             105
                                                               (2,120)           (4,090)
                                               (750)
     Financing activities
     Proceeds from the issuance of             6,800            4,200               12,700
     shares
     Proceeds from long-term debt              2,000            2,700                5,200
     Repayment on long-term debt                                                     (800)
                                               (550)            (200)
                                               8,250            6,700               17,100
     Investing activities
     Acquisition of capital assets             (700)            (650)            (1,650)
     Project development costs                (6,870)          (3,900)          (11,370)
                                              (7,570)          (4,550)          (13,020)
     Change in cash                              (70)              30                 (10)
     Cash, beginning of year                                       30                  —
                                                  60
     Cash, end of year                        $ (10)       $       60           $     (10)
                                             ======        ======               ======
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     Note X: Share capital
     (a)    The changes in the issued common shares of the Company are as follows:
                                                                            Consideration
                                                Number                          (net of
                                                of shares                   selling costs)
     Balance April 1, 1999                               2,000,000                 $1,322,445
     Cash                                                   700,000                  377,555
     Balance, December 31, 1999                          2,700,000                  1,700,000
     Services                                               150,000                  100,000
     Cash                                                5,600,000                  4,200,000
     Debt settlement                                     1,120,000                   800,000
     Balance, December 31, 20X0                          9,570,000                  6,800,000
     Exercise of options                                     65,000                   43,000
     Cash                                                8,700,000                  6,757,000
     Payment of consulting fees                             140,000                  105,000
     Balance, December 31, 20X1                        18,475,000                 $13,705,000
                                                       ========                   =========


     The fair value of shares issued for non-monetary consideration was determined on
     the basis of the average of quoted market prices.
     (b)    Common shares have been reserved for warrants and stock options on the
            following basis:
                                                     Number
                                                     of shares              Exercise price
     Warrants
     Balance December 31, 20X1
     Granted                                             1,500,000                      $0.80
     The warrants expire between June 30 to December 31, 20X2
     Options
     Balance, December 31, 20X0
     Granted                                                400,000                     $0.70
     Exercised in 20X1                                      (65,000)
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     Balance, December 31, 20X1                         335,000
                                                      =======


     Outstanding options expire between January and December 20X2 and were issued
     to directors and employees. See Accounting Policies Note 17.

				
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