UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2009 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 000-29320 |
GAMECORP LTD.
(Exact name of Registrant as specified in its charter)
Ontario, Canada | 3565 King Road, Suite 102 King City, Ontario L7B 1M3 | |
(Jurisdiction of incorporation or organization) | (Address of principal executive offices) |
John Simmonds jgs@gamecorp.com 905-833-5844
3565 King Road, Suite 102 King City, Ontario L7B 1M3
(Name, telephone, email, and address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act: None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of September 30, 2009: 9,207,017 Common Shares without par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes | x No |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes | o No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act
Large accelerated filer o | Accelerated filer o | Non-accelerated filer x |
Indicate by check mark which basis of accounting the registrant has used to prepare financial statements included in this filing:
U.S. GAAP o | International Reporting Standards as issued by the International Accounting Standards Board o | Other x |
If “Other” has been checked in response to the previous questions, indicate by check mark which financial statement item the registrant has elected to follow.
o Item 17 | x Item 18 |
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
o Yes | x No |
FORWARD LOOKING STATEMENTS
Forward-Looking Information is Subject to Risk and Uncertainty. This report contains certain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. When used in this report, the words "estimate," "project," "intend," "expect," “anticipate” and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Such risks and uncertainties include, but are not limited to, those identified under the subheading “Risk Factors” in Item 3 hereof.
GLOSSARY
The following is a glossary of some terms that appear in the discussion of the business of Gamecorp Ltd. (“the Company”) as contained in this Annual Report.
“Interamerican” | Interamerican Gaming, Inc. an entity in which the Company has an investment. Interamerican is developing Latin American gaming opportunities through its subsidiaries Interamerican Operations, Inc. and IAG Peru S.A.C. |
“Gate To Wire” | Gate To Wire Solutions Inc. an entity in which the Company has an investment. Gate To Wire’s focus is on distributing live horseracing signals in Latin America. |
“Baymount” | Baymount Inc., an entity in which the Company has an investment. Baymount is redeveloping a horseracing entity in Canada. |
“Newlook” | Newlook Industries Corp., an entity in which the Company has an investment. Newlook invests in wireless ventures. |
“Wireless Age” | Wireless Age Communications, Inc., a majority owned subsidiary of Newlook. |
TABLE OF CONTENTS
PART I | ||
Item 1. | Identity of Directors, Senior Management and Advisers | 4 |
Item 2. | Offer Statistics and Expected Timetable | 4 |
Item 3. | Key Information | 4 |
Item 4. | Information on the Company | 6 |
Item 5. | Operating and Financial Review and Prospects | 9 |
Item 6. | Directors, Senior Management and Employees | 13 |
Item 7. | Major Shareholders and Related Party Transactions | 17 |
Item 8. | Financial Information | 18 |
Item 9. | The Offer and Listing. | 19 |
Item 10. | Additional Information. | 20 |
Item 11. | Quantitative and Qualitative Disclosures About Market Risk. | 24 |
Item 12. | Description of Securities other than Equity Securities. | 24 |
PART II | ||
Item 13. | Defaults, Dividend Arrearages and Delinquencies. | 25 |
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds. | 25 |
Item 15T. | Controls and Procedures. | 25 |
Item 16. | [Reserved] | 26 |
Item 16A. | Audit committee financial expert. | 26 |
Item 16B. | Code of Ethics. | 26 |
Item 16C. | Principal Accountant Fees and Services Item 16.D.Exemptions from the Listing Standards for Audit Committees | 26 |
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 26 |
Item 16F. | Change in Registrant’s Certifying Accountant | 26 |
PART III | ||
Item 17. | Financial Statements. | 27 |
Item 18. | Financial Statements. | 27 |
Item 19. | Exhibits. | 27 |
SIGNATURES | 28 |
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PART I
Item 1. Identity of Directors, Senior Management and Advisers
A. | Directors and Senior Management |
Not Applicable. |
B. | Advisers |
Not applicable |
C. | Auditors |
SF Partnership LLP |
4950 Yonge Street 4th Floor |
Toronto, Ontario M2N 6K1 |
Item 2. Offer Statistics and Expected Timetable |
Not Applicable. |
Item 3. Key Information |
A. | Selected Financial data |
The selected consolidated financial information set out below has been obtained from financial statements that reflect the Company’s business operations. The financial statements have been prepared in accordance with accounting principles generally accepted in Canada. For reconciliation to US GAAP refer to Note 18 of the attached audited statements. The following table summarizes information pertaining to operations of the Company for the last five years ended September 30, 2009.
2009 | 2008** | 2007 | 2006* | 2005* Restated | ||||||||||||||||
Working Capital | $ | (1,562,000) | $ | (614,000 | ) | $ | (2,193,000 | ) | $ | (1,829,000 | ) | $ | (1,751,000 | ) | ||||||
Revenue | $ | 242,000 | $ | 311,000 | $ | 47,000 | $ | 130,000 | $ | - | ||||||||||
Earnings (Loss) from | ||||||||||||||||||||
Continuing Operations: | $ | (2,718,000) | $ | 2,383,000 | $ | (877,000 | ) | $ | 506,000 | $ | (703,000 | ) | ||||||||
Earnings (Loss) from | ||||||||||||||||||||
Discontinued Operations: | $ | (234,000) | $ | 445,000 | $ | (979,000 | ) | $ | (414,000 | ) | $ | 453,000 | ||||||||
Net Earnings (Loss): | $ | (2,952,000) | $ | 2,828,000 | $ | (1,856,000 | ) | $ | 92,000 | $ | (250,000 | ) | ||||||||
Earnings (Loss) per share from | ||||||||||||||||||||
Continuing Operations: | $ | (0.34) | $ | 0.56 | $ | (0.022 | ) | $ | 0.013 | $ | (0.018 | ) | ||||||||
Earnings (Loss) per share from | ||||||||||||||||||||
Discontinued Operations: | $ | (0.03) | $ | 0.11 | $ | (0.024 | ) | $ | (0.011 | ) | $ | 0.012 | ||||||||
Earnings (Loss) per Share: | $ | (0.37) | $ | 0.67 | $ | (0.046 | ) | $ | 0.002 | $ | (0.006 | ) | ||||||||
Total Assets: | $ | 383,000 | $ | 2,801,000 | $ | 3,869,000 | $ | 2,901,000 | $ | 1,932,000 | ||||||||||
Shareholders’ Equity (Deficit) | $ | (1,235,000) | $ | 1,951,000 | $ | (1,864,000 | ) | $ | (28,000 | ) | $ | (492,000 | ) | |||||||
Long Term Debt: | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Total Liabilities: | $ | (1,618,000) | $ | 850,000 | $ | 2,853,000 | $ | 2,234,000 | $ | 2,424,000 | ||||||||||
Share Capital: | $ | 45,407,000 | $ | 44,286,000 | $ | 44,286,000 | $ | 43,839,000 | $ | 43,839,000 | ||||||||||
Retained Earnings (Deficit): | $ | (47,552,000 | ) | $ | (44,600,000 | ) | $ | (47,428,000 | ) | $ | (45,572,000 | ) | $ | (45,664,000 | ) | |||||
Number of Shares:** | 9,207,017 | 4,226,093 | 42,389,054 | 38,860,174 | 38,860,174 | |||||||||||||||
*Reclassified to reflect discontinued operations of Newlook Industries Corp. **On June 24, 2008 the Company completed a share consolidation on a one post-consolidation common share for ten pre consolidation common shares. | ||||||||||||||||||||
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CURRENCY EXCHANGE INFORMATION
The Company’s accounts are maintained in Canadian dollars. In this Annual Report, all dollar amounts are expressed in Canadian dollars except where otherwise indicated.
The following table sets forth, for the periods indicated, the high and low rates of exchange of Canadian dollars into United States dollars, the average of such exchange rates for each day during the periods, and the end of period rates. Such rates are shown as, or are derived from, the reciprocals of the Bank of Canada nominal noon exchange rates in Canadian dollars.
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Fiscal Year Ended
September 30
2009 | 2008 | 2007 | 2006 | 2005 | |
High | 0.9435 | 1.0905 | 1.0069 | 0.9099 | 0.8613 |
Low | 0.7692 | 0.9263 | 0.8437 | 0.8361 | 0.7859 |
Average | 0.8475 | 0.9909 | 0.8983 | 0.8753 | 0.8176 |
Period End | 0.9327 | 0.9435 | 1.0037 | 0.8966 | 0.8613 |
On March 26, 2010 the exchange rate of Canadian dollars into United States dollars, based upon the Bank of Canada nominal noon exchange rate was Cdn. $1.00 equals U.S. $0.9723
The following table sets forth, for the most recent previous six months, the high and low closing rates of exchange of Canadian dollars into United States dollars. The latest practicable date for March was on March 26, 2009.
Mar | Feb | Jan | Dec | Nov | Oct | |
2010 | 2010 | 2010 | 2009 | 2009 | 2009 | |
High | 0.9938 | 0.9611 | 0.9771 | 0.9580 | 0.9565 | 0.9748 |
Low | 0.9470 | 0.9307 | 0.9352 | 0.9343 | 0.9243 | 0.9221 |
B. Capitalization and indebtedness.
Not Applicable.
C. Reasons for the offer and use of proceeds.
Not Applicable.
D. Risk factors.
The Company’s operations are subject to a variety of risks and uncertainties. The following factors are to be considered a list of known material risks that are specific to the Company or its industries.
Going Concern
The Company’s continued existence as a going concern is dependent upon the Company’s ability to raise additional capital and sustain profitable operations. There is doubt about the Company's ability to continue as a going concern as the Company has a working capital deficiency of $1,562,000 and an accumulated deficit of $47,552,000 as at September 30, 2009. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.
The Company believes that future share issuances and certain related party efforts will provide sufficient cash flow for it to continue as a going concern in its present form, however there can be no assurances that the Company will achieve such results.
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Accordingly, the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.
Management of the Growth of the Company
The implementation of the Company’s investment strategy could result in a period of rapid growth. This growth could place a strain on the Company’s managerial and financial resources. Future operating results will depend on the ability of senior management to manage rapidly changing business conditions, and to implement and improve the Company’s investee’s technical, administrative, financial control and reporting systems. No assurance can be given that the Company will succeed in these efforts. The failure to effectively manage and improve these systems could increase the Company’s costs and devalue the Company’s investments.
Competition
The Company faces competition in each of its markets with many competitors that may be larger and have greater financial resources. There can be no assurance that the Company’s investments will be able to continue to compete successfully in its markets. Because the investee’s compete, in part, on the technical advantages and cost of their products, significant technical advances by competitors or the achievement by such competitors of improved operating effectiveness that enable them to reduce prices could reduce the investee’s competitive advantage in these products and thereby adversely affect the Company’s financial results and the value of its investments.
Intellectual Property
The Company’s investees have not obtained patent protection nor registered trademarks or copyrights for all of their proprietary technology or products. As the investees have not protected all of their intellectual property, their business may be adversely affected by competitors’ copying or otherwise exploiting features of their technology, products, information or services, which could damage the value of the Company’s investments.
Dependence on Key Personnel and Skilled Employees
The success of the Company is dependent, in large part, on certain key personnel and on the ability to motivate, retain executive level strategic leadership. There can be no assurance that the Company will be able to attract and retain employees with the necessary technical, technological and specialized skills given the competitive state of the employment market for these individuals. The loss of such services or the failure by the Company to continue to attract and retain other key personnel may have a material adverse effect on the Company, including its ability to make key strategic investments, its ability to grow earnings and its ability to realize on its investments.
Uncertain Operating Results
The Company’s financial operating results may vary and significantly depend on such factors as the timing of new product announcements, increases in supply costs and changes in pricing policies of the Company’s investments and its competitors. The market price of the Shares may be highly volatile in response to such fluctuations.
New Investment Development
There can be no assurance that the Company will be able to identify, develop and invest in new entities or ventures that it currently does not participate in.
Foreign Exchange Rate
Material depreciation of the Canadian dollar against the U.S. dollar and/or other foreign currencies may increase certain costs impacting the Company’s profitability and cash flow.
Item 4. Information on the Company
A. History and development of the company.
Gamecorp Ltd. (the "Company" or "Gamecorp") was originally incorporated as Alexa Ventures Inc. on September 8, 1986 under the laws of British Columbia. Currently, the Company is in good standing, operating under the laws of Ontario. On May 28, 2008, the Company changed its name from Eiger Technology, Inc. to Gamecorp Ltd. The Company is listed as an issuer on the CNSX and a foreign issuer on the NASD Over-the-Counter Bulletin Board.
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The Company is an investment and merchant banking enterprise focused on the development of its investments. The Company’s current primary investments are in the Gaming and Technology sectors. InterAmerican Gaming, Inc. (“InterAmerican”) (formerly Racino Royale, Inc.), and Gate To Wire Solutions, Inc. (“Gate To Wire”) (formerly TrackPower, Inc.) are development stage enterprises involved in international gaming ventures. The Company previously invested in Baymount Incorporated (“Baymount”) (TSX Venture: BYM), which is developing a gaming entertainment centre in Belleville, Ontario and disposed of its investment during the year ended September 30, 2009. Gamecorp has a legacy investment stake in Newlook Industries Corp. (“Newlook”) (TSX Venture Exchange: NLI), an enterprise with techno logy investments. During the year ended September 30, 2009, the Company disposed of non-strategic investments in Copernic Inc. (“Copernic”) and Gametech International Inc. (“Gametech”).
In general, the Company participates in the early-stage development of gaming projects. Gamecorp provides management, administration, early funding and other assistance to its investees. Strategic leadership of the Company is provided by the Company’s Chief Executive Officer, John G. Simmonds. Mr. Simmonds has extensive business experience in sourcing, reorganizing and operating businesses in various operating segments.
Gamecorp is a public company listed as symbol “GGG” on the Canadian National Stock Exchange (CNSX) and as “GAIMF” on the OTCBB.
Gamecorp’s corporate office is located at 3565 King Road, Suite 102, King City, Ontario L7B 1M3 and has four executive staff members being the officers of the Company. As of September 30, 2009, there were 9,207,017 common shares outstanding.
As of September 30, 2009, the Company held a 45.2% ownership position in InterAmerican, and a 16.9% ownership position in Gate To Wire. The Company’s ownership interest in Newlook was 14.2% at September 30, 2009.
The Company plans to participate in the development of various gaming initiatives through its investments in Interamerican, Baymount and Gate To Wire. The Company also plans to realize gains through disposing of its legacy investment in Newlook.
The Issuer is an investment and merchant banking enterprise and accordingly its primary assets are its equity stake in its investees. Occasionally, the Issuer purchases and/or sells the common shares of its investees in the open market.
During the year ended September 30, 2009, the Issuer sold 1,194,500 Newlook common shares for net proceeds of $296,000.
Recent Financings
On July 1, 2009, the company issued an additional 1,000,000 common shares pursuant to a private placement at $0.10 per share.
Other Recent Developments
On September 23, 2009, the Company entered into an agreement with Function Mobile Inc. (“FMI”) to acquire the irrevocable world-wide exclusive right to participate in any pending and future mobile lottery, gaming or sweepstakes projects, proposals, services and products that FMI and its subsidiaries and affiliates has or will undertake.
B. Business Overview
Gamecorp is an investment and merchant banking enterprise focused on the development of its investments in the Gaming and Technology sectors. InterAmerican and Gate To Wire are development stage enterprises involved in international gaming ventures. Newlook, a legacy investment, is a merchant banking entity assembling investments in renewable energy and technology opportunities in Canada.
In general, the Issuer participates in the early-stage development of gaming projects. The Issuer provides management, administration, early funding and other assistance to its investees.
Description of Current Business Plan
The Company plans to focus on participating in international mobile lottery, gaming and sweepstakes opportunities, pursuant to recent agreement with Function Mobile Inc. The first project expected to take form in the first quarter of fiscal 2010 is in Panama and will require an investment of approximately $116,000 prior to the venture obtaining break-even operations.
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InterAmerican
InterAmerican is a development stage entity whose business objective is to invest in international gaming development opportunities. InterAmerican acquired InterAmerican Gaming, Corp. which is involved in Latin American and Caribbean gaming opportunities.
On April 22, 2009, InterAmerican announced it had entered into a non-binding Letter of Intent (“LOI”) with Signature Gaming Management Peru, S.A.C.("SGM").
SGM, a private entity formed to pursue gaming opportunities in Peru, has entered into certain agreements with the Jockey Club of Arequipa ("JCA") located in Arequipa, Peru, including management of the newly constructed Carro Colorado Racetrack and leasing space in the JCA-owned Social Club, located in the historical city center of Arequipa.
In December 2009, as a result of due diligence on the proposed transaction, the Company and SGM mutually agreed to terminate the letter of intent. The parties continue to discuss the involvement of the Company in the project.
Gate To Wire
Gate To Wire is a development stage entity whose business strategy and direction is to develop and operate a horseracing video distribution venture in international markets.
Gate To Wire and InterAmerican often market their business opportunities in a coordinated manner.
Baymount
Baymount is a development stage entity that is seeking and developing opportunities within the Canadian horseracing industry. Baymount’s objective is to create entertainment destinations for consumers while providing investors an opportunity to participate in the growth of Canadian gaming at racetracks.
Baymount has an agreement with the Belleville Agricultural Society to build a facility to relocate Quinte Exhibition and Raceway in Belleville, Ontario.
The Company disposed of its investment in Baymount during the year ended September 30, 2009.
Newlook
Newlook is a merchant banking entity assembling investments in renewable energy and technology opportunities in Canada. The operations of Newlook have been categorized as discontinued operations. The Company intends to dispose of its investment in Newlook in order to generate capital for investment in gaming opportunities.
During June 2007, Newlook acquired a 53% ownership interest in Wireless Age Communications, Inc. (“Wireless Age”), a public entity trading on the OTCBB under the symbol “WLSA”. Wireless Age operated retail cellular stores in Western Canada and distributed two-way radio products and other ancillary communications products in Canada. On January 9, 2009, operating subsidiaries (Wireless Age Communications Ltd. and Wireless Source Distribution Ltd.) of Newlook’s majority owned subsidiary Wireless Age Communications, Inc. were placed into receivership.
Newlook also sold a portfolio of products and services through its wholly-owned subsidiary, Onlinetel Corp. (“Onlinetel”), in Canada. Newlook has disposed of all of its Onlinetel businesses and currently reflects those operations as discontinued operations. Newlook has also provided loans to development stage entities in the photo luminescent signage and safety way guidance systems sector and in the mobile marketing solutions business arena.
Newlook recently entered into an agreement with PowerPlay Energy Corp. pursuant to which it will potentially acquire the exclusive rights to participate in plasma gasification and renewable energy projects within Canada. Closing is subject to various consents and approvals including shareholders and security regulators.
C. Organizational structure.
The following is a list of each material subsidiary of the Company and the jurisdiction of incorporation and the direct or indirect percentage ownership by the Company of each subsidiary at the fiscal year ended September 30, 2009:
Name of Subsidiary | Jurisdiction of Organization | Percentage of Voting Securities Owned of Controlled |
Interamerican Gaming Inc. | Nevada | 45.2% |
Gate To Wire Solutions, Inc. | Nevada | 16.9% |
Newlook Industries Corp. | Ontario | 14.2% |
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The following is an organizational chart showing the Company’s material subsidiaries:
![orgchart](https://capedge.com/proxy/20-F/0001414905-10-000030/orgchart.jpg)
D. Property, plants and equipment.
The Company’s current property, plants and equipment are comprised primarily of furniture, fixtures and computer equipment located in Ontario, Canada. The Company currently owns no real estate.
Item 5. Operating and Financial Review and Prospects
The information provided in this section endeavors to summarize the company’s financial condition and results of operations for the periods specified, including the causes for material changes to provide an understanding of the company’s business as a whole. The information also attempts to relate all separate segments of the company. The discussion provided therein should be read in conjunction with the Company’s consolidated financial statements and related notes.
A. Operating results.
Comparative Analysis Between Fiscal 2009 and 2008
CONTINUING OPERATIONS
The Company recorded a loss from continuing operations of $2,718,000 during the year ended September 30, 2009 compared to earnings of $2,383,000 during the year ended September 30, 2008. The primary reasons for the loss in fiscal 2009 was a significant increase in the share of loss of an equity accounted investee and impairments in amounts due from related parties. The significant earnings in fiscal 2008 is attributed to the Company recording a gain of $3,410,000 arising from fair value adjustments to financial instruments.
Revenues of continuing operations during fiscal 2009 were $242,000 compared to $311,000 during fiscal 2008. The revenues of the Company during fiscal 2009 are management fees charged to its investees and miscellaneous interest income. During fiscal 2009, the Company earned $240,000 in management fees ($180,000 charged to InterAmerican and $60,000 to Gate To Wire). During fiscal 2008 interest income arose from amounts loaned to Newlook and other related entities. Management expects as some of its investees achieve revenue generating stage, management fees will be increased to levels where they would be sufficient to fully offset cash operating expenses.
General and administrative expenses were $1,101,000 during the year ended September 30, 2009 up from $1,052,000 during the year ended September 30, 2008. The marginal increase in general and administrative costs is attributable to rising levels of consulting, travel and legal costs associated with new gaming initiatives. The Company is intimately involved in the development of its investments. The Company compensates its officers for strategic leadership and hires consultants, either directly in the investee or at the Gamecorp level, to assist in the development of investee projects.
General and administrative expenses during the year ended September 30, 2009 included; management fees of $468,000 paid and/or accrued to officers, consulting fees and/or accrued (including administrative salaries) of $294,000, corporate filing fees (including director fees) of $83,000, legal and accounting costs of $80,000, marketing and promotional costs of $52,000, $70,000
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in travel expenses, rent of $27,000, and miscellaneous costs of $27,000. General and administrative expenses for the year ended September 30, 2008 included; management fees of $472,000 paid to officers, consulting fees (including administrative salaries) of $242,000, corporate filing fees (including directors fees) of $125,000, legal and accounting costs of $83,000, marketing and promotional costs of $61,000, $40,000 in travel expenses and rent of $29,000. Management expects the general and administrative expenses to trend higher during fiscal 2010 as projects of investees become more material.
Amortization of equipment totaled $8,000 in the current year and $11,000 in 2008. The Company’s equipment primarily represents furniture, fixtures and data processing equipment at the corporate office. As the Company is an investment and merchant banking undertaking, management does not expect significant investment in capital equipment.
The Company recorded foreign exchange gains of $44,000, during the year ended September 30, 2009 and $71,000 during the comparative period in the prior year. Foreign exchange gains and losses arise from the translation of US dollar assets and liabilities translated into Canadian dollars during a period of Canadian dollar increasing vis-à-vis the US dollar. The Company does not hedge this translation risk.
As a result of the costs incurred partially offset by management fee and interest income, the Company incurred a loss from operations of $823,000 during fiscal 2009, compared to $681,000 in the prior year. As described above management is hopeful that the gap between costs incurred that are not recovered from charges to investees will decrease in the future. Operating costs that are not recovered are paid from the proceeds of the sale of investments and from related party loans; however the business of the Company is to develop new investments rather than cover operatings costs from the proceeds of the sale of its investments.
The Company recorded other expense items totaling $1,895,000 in fiscal 2009 compared to other income items totaling $3,064,000 in 2008.
Interest expense during fiscal 2009 was $15,000 compared to $41,000 during fiscal 2008. Interest expense during fiscal 2009 arose from amounts loaned to the Company by Newlook and an officer of the Company. Amounts due to Newlook bear interest at the Bank of Canada’s prime rate plus 2%, are unsecured and have no specific repayment dates. The loan provided by the officer bears an interest rate of 12% per annum. Management anticipates higher levels of interest expense in 2010 due to comparatively higher levels of utilization of loans to fund day to day expenses rather than the sale of investments.
During fiscal 2007, the Company opted to dispose of its investment in Newlook. The Company sold 14,263,000 common shares and also granted options to various investors to acquire 14,000,000 additional shares. The Company recorded an expense of $4,567,000 representing the fair value of the grant of the options and the adjustment to its fair value as of September 30, 2007. During fiscal 2008, options to acquire 1,970,000 shares were exercised in March 2008. Also in March 2008, certain optionees agreed to acquire 3,702,000 Newlook common shares formerly under option and the Company agreed to pay a $0.30 cancellation fee on 4,178,000 options. These transactions effectively cancelled all remaining options. Accordingly, during fiscal 2008, the Company recorded a $3,405,000 adjustment to the fair value of the (option) financial instrument. In addition, the Company recorded a $5,000 loss associated with the fair value of a non-interest bearing note receivable issued by the former optioness and a $10,000 gain associated with the fair value of a non-interest bearing note payable issued to certain other former optionees (note 14).
During fiscal 2009, the Company recorded a $4,000 loss associated with the fair value of a non-interest bearing note receivable issued by the former optionees and a $1,000 loss associated with the fair value of a non-interest bearing note payable issued to certain other former optionees (note 14).
The Company recorded a $1,021,000 equity share of InterAmerican losses during fiscal 2009. The Company holds approximately 45.2 % of InterAmerican at September 30, 2009. Equity losses are expected to continue as a result of InterAmerican pursuing various international gaming opportunities.
During the twelve months ended September 30, 2009 the Company advanced InterAmerican $396,000 and advanced Gate To Wire $300,000. There is doubt about InterAmerican and Gate To Wire’s ability to continue as a going concern as they have significant working capital deficiencies and are largely reliant upon the Company to finance current operations. InterAmerican and Gate To Wire have not been able to successfully execute profitable operations and are not expected to in the immediate future. As such the Company has determined the collection of the amounts due from InterAmerican and Gate To Wire is doubtful and has therefore recorded a charge to income of $696,000 at fiscal yearend 2009.
During the year ended September 30, 2009 and 2008, the Company recorded losses of $5,000 and $9,000, respectively, on the write down of an advance to a corporation.
During the twelve month period ended September 30, 2009, the Company recorded $130,000 as a loss from disposal of investments. The Company sold; 1) 1,516,000 Baymount common shares for net proceeds of $22,000 and recorded a loss of $128,000 on disposal, and 2) 2,300 Gametech common shares for net proceeds of $3,000 and recorded a loss of $2,000 on the transaction. Lastly, the Company sold 19,300 Copernic common shares at cost (for proceeds of $4,000) and recorded no gain or loss on the sale.
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During the fiscal year ended September 30, 2009, the Company relocated its offices and disposed of all furniture, fixtures and computer equipment for $Nil proceeds. For the period, the Company recorded a $33,000 loss on disposition.
Loss per share from continuing operations during the year ended September 30, 2009 were $(0.34) compared to earnings per share of $0.56 in the previous year. Management anticipates continuing losses due to all of its investments being in the development stage.
Discontinued Operations
As described earlier in this report, during fiscal 2007, management made the decision to dispose of its investment in Newlook. For this reason, the operating results of Newlook have been regarded as discontinued operations in the consolidated statement of operating results. The Company recorded a $234,000 loss from discontinued operations during the fiscal period ended September 30, 2009. The Company recorded $530,000 as its equity share of Newlook loss during the fiscal year ended September 30, 2009, offset by the sale of 1,194,500 Newlook common shares for net proceeds of $296,000. The Newlook shares were carried at $Nil and therefore the full amount of the proceeds received represented a gain on disposal.
Loss per share from discontinued operations during the year ended September 30, 2009 was $0.03.
During fiscal 2008, the Company recorded $59,000 of its share of equity earnings of Newlook and recognized a $212,000 impairment loss in its investment in Newlook during fiscal 2008. The Company also received proceeds of $269,000 from the exercise of 1,970,000 options by former optionees and recorded a gain of $189,000 and lastly as a result of the sale of 3,702,000 Newlook shares to former optionees in March 2008 the Company recorded a $409,000 gain representing overall earnings per share from discontinued operations of $0.11. The impairment loss arose from substantially all of Newlook’s majority owned subsidiary Wireless Age Communications, Inc. operating subsidiaries being placed into receivership.
B. Liquidity and capital resources.
The most significant assets of the Company are its investments in InterAmerican, Gate To Wire and Newlook. The carrying amount of these investments at September 30, 2009 were $327,000. In addition the Company holds notes receivable, valued at $23,000 from former optionees and sundry receivables (GST) of $25,000.
On September 30, 2009, the Company held 30,662,600 InterAmerican common shares carried at $176,000, representing a 45.2% interest.
During fiscal 2009, the Company acquired 90,000 shares of Gate To Wire for a cash payment of $11,000. On September 30, 2009, the Company held 4,690,000 Gate To Wire common shares carried at $151,000 representing an 16.9% interest.
At September 30, 2008, the Company held investments in Baymount, Copernic and Gametech, all of which were disposed of in Fiscal 2009.
As of September 30, 2009, the Newlook investment balance was $Nil.
Management is in the process of liquidating the Newlook investment in order to generate capital to reinvest in InterAmerican and Gate To Wire. These entities are development stage enterprises requiring additional cash investment.
Total liabilities were $1,618,000 at September 30, 2009 up substantially from $850,000 at September 30, 2008. The increase is primarily attributable to a $715,000 increase in amounts due to related parties and increases in accounts payable and accrued charges.
Accounts payable and accrued charges increased to $790,000 at September 30, 2009 from $205,000 at September 30, 2008. The increase arose from a higher levels of business activity associated with the development of business gaming investment opportunities and certain related party services remaining unpaid.
Amounts due to related parties at September 30, 2009 were $266,000 up from $10,000 on September 30, 2008. Amounts due to Newlook bear interest at the Canadian Revenue Agency’s prescribed rate, are unsecured and have no specific repayment date. An officer of the Company provided a loan in exchange for an unsecured promissory note at an annual interest rate of 12%. As at September 30,2009, the value of the promissory note was $97,000.
On March 31, 2008, the Company agreed to issue non-interest bearing promissory notes to certain former Newlook option holders (parties formerly holding a right to acquire Newlook common shares from the Company) totaling $1,253,000 representing a cancellation fee of $0.30 per option on 4,178,000 cancelled Newlook options. The Company did not make payments as originally contemplated, however as of September 30, 2008, the Company reduced the promissory notes with cash payments totaling $398,000 and a credit of $240,000, to a note holder who agreed to subscribe for common shares. On September 30, 2009, the Company remains in default and $573,000 is unpaid under these promissory notes. At September 30, 2009, the fair value of the notes payable was $562,000.
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During fiscal 2008, the Company received approval to issue up to 4,000,000 additional common shares at $0.25 per share for total proceeds of $1,000,000 under a non-brokered private placement. At September 30, 2008, the Company received subscriptions totaling $800,000 and recorded such amount as unissued share liability within shareholders’ equity. On November 10, 2008, the Company closed the full $1,000,000 private placement.
During fiscal 2009 the Company closed a private placement of 1,000,000 common shares at $0.10 per share.
The Company’s consolidated financial statements for the year ended September 30, 2009 have been prepared on a going concern basis, in accordance with Canadian generally accepted accounting principles and accounting principles generally accepted in the United States of America. The going concern basis of presentation assumes that the Company will continue in operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and contingencies in the normal course of operations.
There is doubt about the Company's ability to continue as a going concern as the Company has a working capital deficit of $1,562,000 and an accumulated deficit of $47,552,000 as at September 30, 2009. The Company's ability to continue as a going concern is dependent upon the Company's ability to raise additional capital, to realize on its agreements to dispose of investments and sustain profitable operations. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.
The Company believes that future shares issuance and proceeds received from the divestiture of its investments will provide sufficient cash flow for it to continue as a going concern in its present form, however, there can be no assurances that the Company will achieve such results. Accordingly, the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.
CAPITAL RESOURCES
The Company financed operations during fiscal 2009 primarily from the following sources:
1. | The Company received approval for an equity financing during fiscal 2009 and generated $300,000. |
2. | The Company also disposed of shares of Newlook, Baymount, Copernic and Gametech and received cash proceeds of $326,000. |
3. | The Company collected $151,000 from a note receivable. |
Cash from the above sources were primarily used to make advances to its investees, repay notes payable and fund the cash operating shortfall.
The business objective of the Company is fund early stage development of gaming opportunities by participating in the management of the investees. The philosophy is to dispose of mature investments at a gain and utilize the cash proceeds in the development of future operations within an investee. At this point in time, the Company is slowly disposing of its investment in Newlook, organizing additional equity private placements and obtaining loans primarily from related parties to fund the development of the gaming ventures. The Company occasionally disposes of a portion of its gaming investments in order to generate investment capital also.
However, none of potential sources for capital are certain and management although confident of the potential, cannot assure shareholders and interested parties that they will in fact be able to finance the Company going forward.
C. Research and development, patents and licenses, etc.
Research and development expenses were $Nil ($Nil: 2008; $Nil: 2007) for the year ended September 30, 2009.
On September 23, 2009, the Company entered into an agreement with Function Mobile Inc. to acquire the irrevocable world-wide exclusive right to participate in any pending and future mobile lottery, gaming or sweepstakes projects, proposals, services and products that FMI and its subsidiaries and affiliates has or will undertake.
D. Trend information.
The Issuer does not have any direct operations; however Gamecorp’s investments are subject to a variety of risks and uncertainties. The following factors are not to be considered a definitive list of all risks associated with the Issuer’s investments.
The Company has exposure to credit risk, foreign exchange risk and liquidity risk. The Company has established policies and procedures to manage these risks, with the objective of minimizing any adverse effect that changes in these variables could have on the consolidated financial statements.
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Management believes the Company is well positioned with its gaming and technology investments to generate strong returns for its shareholders. The Company believes that prudent gaming investments will generate substantial gains. However, the gaming investments are capital intensive and will require incremental financing to ensure success. The Company continues to fund the development of its gaining investee’s businesses; primarily from additional related party loans and equity private placements. The Company plans to dispose of certain legacy technology investment over the medium term. However, the recent bankruptcy proceedings within Newlook may have an affect on the proceeds realized from the disposal of this investment in the near term. The Company also contemplates raising funds through debt and/or equity instruments to fund the initial development of the gaming ventures. Management has observed a significant tightening of availability of credit for gaming ventures. Multiples of forecasted earnings before interest, taxes, depreciation and amortization have fallen and only smaller transactions at extremely low multiples appear to be being completed. A substantial and material risk exists that debt markets will not provide funding for the Company’s investee projects and the Company will be pressured to contribute more to these projects.
Factors that could change the outlook for the Company include changes in regulatory restrictions in which the Company plans to make investments or general economic and financial market conditions. Some acquisition opportunities have recently been declined due to a perceived declining value in acquisition assets that has caused management to adopt a wait and see approach.
The implementation of the Issuer’s investment strategy could result in a period of rapid growth. This growth could place a strain on the Issuer’s managerial and financial resources. Future operating results will depend on the ability of senior management to manage rapidly changing business conditions, and to implement and improve the investee’s technical and administrative systems.
The investee’s face competition in each of its markets and has competitors, many of which are larger and have greater financial resources.
There can be no assurance that the Issuer will be able to identify, develop and invest in new entities or ventures that it currently does not participate in.
There is doubt about the Company's ability to continue as a going concern as the Company has a working capital deficiency of $1,562,000 as at September 30, 2009 (2008 - $614,000) and an accumulated deficit of $47,552,000 as at September 30, 2009. The Company's ability to continue as a going concern is dependent upon the Company's ability to raise additional capital, to increase management fees and interest income, and sustain profitable operations. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.
The Company believes that future share issuance and increased management fees to existing and future investees will provide sufficient cash flow for it to continue as a going concern in its present form, however, there can be no assurances that the Company will achieve such results. Accordingly, the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.
E. Off-balance sheet arrangements.
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
F. Tabular disclosure of contractual obligations.
The Company has no contractual obligations at this time.
Item 6. Directors, Senior Management and Employees
A. Directors and senior management.
The following is a list of the current directors and senior officers of the Company, their municipalities of residence, their current position with the Company and their principal occupations:
John G. Simmonds, 59 | King City ON | CEO and Chairman of Board |
Mr. Simmonds has served as a director of Gamecorp since September 2005 and as CEO since April 2007. . Mr. Simmonds has over 40 years experience in the communications sector. Mr. Simmonds currently also serves as Chief Executive Officer of Wireless Age Communications, Inc. Mr. Simmonds was appointed Chief Executive Officer of InterAmerican Gaming Corp., formerly Racino Royale Inc. in June 2006. Mr. Simmonds was appointed CEO of Newlook Industries Corp. (NLI:TXSV) in September 2005. He resigned as an officer of Newlook Industries Corp. in February 2007 and was reappointed in July 2007. In September 2004, Mr. Simmonds was appointed as Chief Executive Officer and Director of Lumonall Inc. and resigned as Chief Executive Officer in March 2008. Mr. Simmo nds was re appointed Chief Executive Officer in April 2009. Mr. Simmonds served as the Chief Executive Officer, of Gate to Wire Solutions, Inc. (OTCBB: GWIR) from 1998 to May 2004. In February 2007 Mr.
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Simmonds was reappointed CEO of Gate to Wire Solutions Inc. Mr. Simmonds has also been involved with several other companies. Mr. Simmonds served as Chief Executive Officer, Chairman and Director of Phantom Fiber Corporation (OTCBB: PHMF), formerly Pivotal Self-Service Technologies, Inc. and resigned in June of 2004. Mr. Simmonds is the father of J. Graham Simmonds, a Director of the Company.
Jason R. Moretto, 40 | Vaughan ON | President, COO and Director |
Mr. Moretto has been a director of Gamecorp since January 5, 2004, Newlook Industries Corp. since January 5, 2004 and InterAmerican since June 13, 2006. Mr. Moretto has been a director of Wireless Age since June 29, 2007. Mr. Moretto previously served in equity research within the institutional equity group of BMO Nesbitt Burns (now BMO Capital Markets), a full service investment dealer based in Toronto, Canada from September 1997 to February of 2003. From 1995 to 1997, Mr. Moretto was National Accounting Manager for Universal Concerts Canada (now Live Nation), Canada’s largest promoter of live music and entertainment and operator of the Molson Amphitheatre in Toronto. Prior to that, he practiced as an accountant in public practice. He also recently served a two year term as a Member of the Ontari o Securities Commission's Small Business Advisory Committee from 2005 to 2007. Mr. Moretto holds a Bachelor of Commerce degree from the University of Toronto, and is a Certified General Accountant and Chartered Financial Analyst.
J. Graham Simmonds, 36 | Toronto ON | Director |
Mr. Simmonds has been a director of the Company since June 5, 2008. In addition to his role at Gamecorp, Graham Simmonds is President, Chief Executive Officer and Director of Baymount Incorporated (TSXV: BYM). Baymount (www.bym.ca) is focused on developing horseracing properties and innovative wagering products. Baymount has successfully positioned itself in strong racing-related investments that include real estate assets and significant racetrack development opportunities and provides investors with a unique vehicle for participating in the rapid growth of the revitalized racing and gaming market. Mr. Simmonds has built upon a strong family background in horseracing, having spent most of his life involved in the industry. He has over ten years expe rience as a successful owner and breeder of race horses, and over a decade of experience in public company management and business development projects. Mr. Simmonds also sits on the Board of InterAmerican Gaming, Inc. (OTCBB: IAGM) (www.interamericangaming.com), an organization focused on developing gaming opportunities in Latin America. Mr. Simmonds is the son of John G. Simmonds, the Company’s CEO and Chairman of the Board.
Neal Romanchych, 45 | Aurora ON | Director |
Mr. Romanchych has served as a director of the Company since March 21, 2006, in addition to his role at Gamecorp he is a Vice President of 411.ca. Mr. Romanchych has over twenty years of experience in the telecommunications sector. Over that period, he has been involved with several successful start-ups and has held senior positions with large telecom companies. His past postings include ten years with Call Net/Sprint Canada (where he was appointed to the Board of Directors of CNE Fiber Development Corp., its U.S. operating subsidiary), Vice President of Primus, Vice President of Riptide Inc. and President of Newlook Industries Corp. Mr. Romanchych holds an Honors Bachelor of Administrative Studies from Trent University.
Gary Hokkanen, 54 | Thornhill ON | Chief Financial Officer |
Mr. Hokkanen has served as CFO of Gamecorp since July 2007. He has served as Wireless Age’s CFO since May 29, 2003. Mr. Hokkanen is an executive level financial manager with over 10 years experience in public company financial management. Mr. Hokkanen holds a Bachelor of Arts degree from the University of Toronto and is a CMA (Certified Management Accountant) and a member of the Society of Management Accountants, Ontario. From January 2001 to April 2003 Mr. Hokkanen was CFO of IRMG Inc., a Toronto based financial management consulting firm. Mr. Hokkanen served as CFO of Simmonds Capital Limited from July 1998 to January 2001 and served as CFO of Gate To Wire from February 1998 to June 2001. In May of 2005 Mr. Hokkanen was reappointed CFO of Gate To Wire, resigned in August 20 06 and was reappointed in June 2007. For the period April 1996 to July 1998, Mr. Hokkanen served as Treasurer of Simmonds Capital Limited. In November 2007, Mr. Hokkanen was appointed a director and officer of Sagittarius Capital Corporation (a TSX Venture Exchange capital pool company). He has also served as CFO for Newlook Industries Corp. (TSX Venture Exchange), Lumonall, Inc. (OTCBB) and InterAmerican (OTCBB) since July 2007 and as a director and officer of Sagittarius Capital Corp. (Capital pool company on the TSX Venture Exchange) since April 20, 2007.
Carrie Weiler, 51 | Nobleton ON | Corporate Secretary |
Ms. Weiler was appointed Corporate Secretary on July 1, 2007. She was appointed Corporate Secretary of Wireless Age Communications, Inc. on May 29, 2003 and was appointed Director in February 2007. Ms. Weiler provides professional public company corporate secretarial services to various entities. Ms. Weiler is a member of the Canadian Society of Corporate Secretaries. Ms. Weiler was appointed Corporate Secretary of InterAmerican in September 2006. She has served as Corporate Secretary of Gate To Wire since 1998. On October 15, 2004 Ms. Weiler was appointed Corporate Secretary of Lumonall and continues to serve in such capacity. Ms. Weiler has served as Corporate Secretary of Newlook Industries Corp. and as a director since July 2007.
.
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B. Compensation.
For the year ended September 30, 2009, John G. Simmonds was compensated with a salary of $180,000 for his role as Chief Executive Officer of the Company. For the same period, Jason Moretto received a salary of $180,000 for his role as President. Gary Hokkanen received $30,000 for his role as CFO of the Company.
A total of 3 persons served as members of the administrative, supervisory or management bodies of the subsidiaries of the Company during fiscal 2009. The aggregate remuneration paid to such persons was approximately $428,000.
There were no options granted during fiscal 2009.
No options were exercised during the Company’s most recently completed financial year.
There are no other arrangements under which directors or members of the Company’s administrative, supervisory or management body, were compensated by the Company, during the most recently completed financial year for their services.
C. Board practices.
The directors of the Company are elected annually and hold office until the next annual general meeting of the Company’s shareholders or until their successors in office are duly elected or appointed. All of the Company’s directors were elected at the Company’s most recent annual general meeting, which took place on August 7, 2009. Under the Company Act (Ontario) the Company is required to hold an annual general meeting no more than 15 months after its most recent annual general meeting.
There are no service contracts with the Company or any of its subsidiaries for the directors providing benefits upon termination of their service.
The Corporate Governance and Compensation committee is currently comprised of John Simmonds, Jason Moretto, and Neal Romanchych. The audit committee is currently comprised of J. Graham Simmonds and Neal Romanchych who are independent directors. The committee operates within the guidelines of the Toronto Stock Exchange.
D. Employees.
The Company and its subsidiaries employed approximately 3 staff during the last fiscal year, the same number as employed in the previous fiscal year. In April 2007, Mr. Gerry Racicot retired as the Chief Executive Officer, President and Director of the Company after founding the Company 16 years ago. Mr. John G. Simmonds has assumed the responsibility of the Chief Executive Officer. Mr. Jason Moretto, who had been the Chief Financial Officer of the Company, has been replaced by Mr. Gary Hokkanen. Mr. Moretto has assumed the responsibility of the President of the Company.
The Company and its subsidiaries have no involvement with labour unions. The Company and its subsidiaries do not employ a significant number of temporary employees.
E. Share ownership.
Directors and officers
The following table indicates the names and municipalities of residence for each director and officer of the Company. The table further indicates the date on which the following persons began acting as directors or officers of the Company, as the case may be, and states the number of voting shares of the Company which are beneficially owned by each of them or over which they have direct or indirect control as of September 30, 2009.
Name and Address | Occupation | Director or Officer Since | Number of Voting Shares Beneficially Owned or Controlled Directly or Indirectly (1) | % of Voting Shares Beneficially Owned or Controlled Directly or Indirectly (1) |
John G. Simmonds King City, ON | CEO and Director of the Company | September 20, 2005 | 389,200 (3)(4) | 4.2% |
Jason R. Moretto Vaughan, ON | President, Chief Operating Officer and Director of the Company | January 5, 2004 | 246,450 (2)(3)(5) | 2.7% |
Neal Romanchych Aurora, ON | Director of the Company; VP Sales/Service, 411.ca | March 21, 2006 | Nil (2)(3) | 0% |
J. Graham Simmonds Toronto, ON | Director of the Company, President and CEO of Baymount Inc. | May 28, 2008 | Nil (2)(6) | 0% |
Gary N. Hokkanen Thornhill, ON | Chief Financial Officer | July 17, 2007 | 40,000 | 0.4% |
Carrie J. Weiler Nobleton, ON | Corporate Secretary | July 17, 2007 | 415,500 | 4.5% |
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Notes: |
(1) | Includes Shares over which control or direction is exercised. The information as to Shares beneficially owned or controlled, not being within the knowledge of the Company, has been provided by the nominees. |
(2) | Member of the Audit Committee. |
(3) | Member of the Corporate Governance and Compensation Committee |
(4) | Mr. Simmonds holds warrants to purchase 30,000 shares. |
(5) | Mr. Moretto holds options to purchase 25,000 shares and warrants to purchase 90,000 shares. |
(6) | Mr. Graham Simmonds owns approximately 40% of PowerPlay Energy which owns 10.86% of the Company. |
The following table indicates the total number of voting shares of the Company held by its directors and officers as a group, and the percentage that such shares form of the total number of voting shares of the Company issued and outstanding.
Name | Number of Shares Beneficially Owned or Controlled Directly or Indirectly | Percentage of Total Shares Issued(1) |
Directors and Officers as a Group | 1,090,650 | 11.8% |
In the fiscal year ended September 30, 2009, there were no grants of options to purchase Shares to the Named Executive Officers, pursuant to the Stock Option Plan.
The following table sets out the number of options to purchase Shares exercised during the Company’s most recently completed fiscal year, if any, by the Named Executive Officers, and the number of unexercised options and the value of unexercised “in the money” options held as at September 30, 2009, if any, by such persons:
Name | Shares Acquired on Exercise (#) | Aggregate Value Realized ($) | Unexercised Options at September 30, 2008 (Exercisable/ Unexercisable) (#) | Value of Unexercised In-The-Money Options at September 30, 2008(Exercisable/ Unexercisable)(1) ($) |
Jason R. Moretto | Nil | Nil | 25,000/Nil | Nil/Nil |
John G. Simmonds | Nil | Nil | Nil/Nil | Nil/Nil |
Gary Hokkanen | Nil | Nil | Nil/Nil | Nil/Nil |
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Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders.
Major Shareholders as of September 30, 2009:
Name and Address | Ownership | Number of Shares | % of Common Shares Owned or Controlled | |||
PowerPlay Energy Corp. 330 University Ave. Suite 504Toronto, On M5G 1R7 | Direct | 1,000,000 | 10.86% |
(1) | Mr. Graham Simmonds owns approximately 40% of PowerPlay Energy and is a director of Gamecorp Ltd. |
All common shareholders have identical voting rights.
The following table indicates the approximate number of record holders of common shares with U.S. addresses and portion and percentage of common shares so held in the U.S. The calculation is based on the total issued and outstanding as stated in item 6.E.
Number of U.S. Holders | Number of Common shares held in U.S. | % of Common shares held in U.S. |
112 | 354,780 | 4% |
The computation of the number and percentage of common shares held in the United States is based upon the number of common shares held by record holders with United States addresses and by trusts, estates or accounts with United States addresses as disclosed to the Company following inquiry to all record holders known to the trustees, executors, guardians, custodians or the fiduciaries holding common shares for one or more trusts, estates, or accounts. United States residents may beneficially own common shares held of record by non-United States residents.
A substantial number of common shares are held in “Street Name” by trustees, executors, guardians, custodians or other fiduciaries, including depositories, brokerage firms and financial institutions. Management is unable to determine the total number of individual shareholders that this represents.
To the Company’s knowledge, the Company is not directly or indirectly owned or controlled by another corporation(s) or by any foreign government.
The Management does not anticipate any change in the control of the Company.
B. Related party transactions.
Officers, directors and related parties of the Company were paid $468,000 in consulting fees during the year ended September 30, 2009. Accrued or paid fees for the year for officers of the Company were for the services of John Simmonds, our CEO, Gary Hokkanen, our CFO and Carrie Weiler our Corporate Secretary. Accrued or paid director fees were for the services of Jason Moretto, Neal Romanchych, Paul Duffy, Stephen Dulmage and Graham Simmonds. In addition, fees were paid to Wireless Age Communications, Inc., a related party due to certain common officers, directors and ownership for services of managerial level accounting.
Management fees earned from investees during the period totaled $240,000 (2008 - $195,000) and interest income earned from investees during the current period was $Nil (2008 - $116,000). The Company earned management fees of $180,000 from InterAmerican, a related party by virtue of certain common directors and officers and $60,000 from Gate To Wire, also an entity with certain common officers and directors.
Included in accounts payable are payables to directors, officers or corporations owned by management personnel of $556,000 (2008 - $105,000).
Interest incurred to related parties during the period totaled $15,000 (2008-$29,000).
During the year ended September 30, 2009, Newlook, a related party by virtue of certain common directors and officers loaned the Company $169,000.
All transactions within the corporate group listed in note 16 of the consolidated financial statements are in the normal course of business and are recorded at the exchange value agreed to by the related parties. Inter-company transactions and balances are eliminated upon consolidation.
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C. Interests of Experts and Counsel.
Not Applicable
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information.
The following financial statements have been audited by an independent auditor, are accompanied by an audit report, and are attached and incorporated herein:
(a) balance sheet;
(b) income statement;
(c) statement showing changes in equity
(d) cash flow statement;
(e) related notes and schedules required by the comprehensive body of accounting standards pursuant to which the financial statements are prepared; and
(f) a note analyzing the changes in each caption of shareholders’ equity presented in the balance sheet.
Incorporated herewith are the comparative financial statements covering the latest three financial years, audited in accordance with a comprehensive body of auditing standards.
Export Sales
Total Sales | Export Sales | Export Sales as % of Total Sales |
$Nil | $Nil | 0% |
Legal Proceedings
The Company was a party to a claim by a former employee for wrongful dismissal, alleged breach of contract, punitive and aggravated damages and costs. The Company was released from the claim pursuant to a settlement by a subsidiary of the Company’s investee, Newlook, which was sold to a third party. The Company will record a loss, if any, to the extent the third party defaults under the settlement agreement in the period that it occurs.
Dividend Policy
The Company has not paid dividends on the common shares in any of its last five fiscal years. The directors of the Company will determine if and when dividends should be declared and paid in the future based on the Company’s financial position at the relevant time. All of the common shares of the Company are entitled to an equal share in any dividends declared and paid.
B. Significant Changes.
On December 31, 2009, Mr. Stephen Dulmage resigned as a member of the Board of Directors and Chairman of the Audit Committee of the Company. Mr. Dulmage’s resignation was voluntary and did not involve a disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
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Item 9. The Offer and Listing.
A. Offer and listing details.
Information regarding the price history of the stock.
The following stock price ranges are from the CNSX under the symbol GGG The Company also trades on the NASD Over-the-Counter Bulletin Board under the symbol GAIMF but at substantially lower volumes.
Calendar Period | High (Cdn$) | Low (Cdn$) |
Month Ended | ||
February 2010 | 0.035 | 0.005 |
January 2010 | 0.040 | 0.030 |
December 2009 | 0.050 | 0.030 |
November 2009 | 0.050 | 0.030 |
October 2009 | 0.050 | 0.050 |
September 2009 | 0.050 | 0.050 |
Quarter Ended | High (Cdn$) | Low (Cdn$) |
December 2009 | 0.05 | 0.03 |
September 2009 | 0.08 | 0.05 |
June 2009 | 0.08 | 0.07 |
March 2009 | 0.11 | 0.08 |
December 2008 | 0.40 | 0.05 |
September 2008 | 0.50 | 0.20 |
June 2008* | 0.25 | 0.02 |
March 2008 | 0.08 | 0.05 |
December 2007 | 0.08 | 0.05 |
Year Ended
September 30, 2009 | 0.11 | 0.03 |
September 30, 2008 | 0.50 | 0.02 |
September 20, 2007 | 0.20 | 0.07 |
September 30, 2006 | 0.53 | 0.12 |
September 30, 2005 | 0.42 | 0.11 |
* Consolidation- On June 26, 2008, the Company completed a share consolidation on a one post-consolidation common share for ten pre-consolidation common shares.
B. Plan of Distribution.
Not Applicable.
C. Markets.
The common shares of the Company were listed for trading on the Toronto Stock Exchange (the “TSX”) on October 11, 1996 and previous to this, on the TSX-Venture Exchange (formerly the Vancouver Stock Exchange) (the “TSX-V”) on April 3, 1991 under the symbol “AXA”.
The common shares of the Company were listed on the Canadian National Stock Exchange (the “CNSX”) on April 28, 2008 and currently trade under the symbol “GGG”.
The common shares were listed on the NASD OTC Bulletin Board on October 8, 1997 and trade under the symbol “GAIMF”.
D. Selling shareholders.
Not Applicable.
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E. Dilution.
Not Applicable.
F. Expenses of the issue.
Not Applicable.
Item 10. Additional Information.
A. Share capital.
Not Applicable.
B. Memorandum and articles of association.
The information required by Item 10.B. is hereby incorporated by reference from the Company's previous Report on Form 20-F filed in March of 2008 on the EDGAR system.
C. Material contracts.
The Company entered into a Settlement Agreement with its former President and CEO, Gerry Racicot, on August 24, 2007. Mr. Racicot retired as an officer and director of the Company on April 18, 2007. The Settlement Agreement and associated documents have been filed on SEDAR (www.sedar.com).
Details: The Company agreed to pay Mr. Racicot a retirement payment valued at $500,000. In respect of back pay owing by the Company to 1040614 Ontario Ltd., the Company agreed to pay 1040614 Ontario Ltd. a total sum of $538,325.37. Additionally, the Company paid Mr. Racicot $5,000, representing reimbursement of outstanding expenses incurred by Mr. Racicot prior to the Retirement Date in the course of his duties to the Company.
D. Exchange controls.
Canada has no system of currency exchange controls. There are no exchange restrictions on borrowing from foreign countries nor on the remittance of dividends, interest, royalties and similar payments, management fees, loan repayments, settlements of trade debts or the repatriation of capital.
The Investment Canada Act (the “ICA”), enacted on June 20, 1985, requires prior notification to the Government of Canada on the “acquisition of control” of Canadian businesses by a non-Canadian, as defined by the ICA. Certain acquisitions of control, discussed below, are reviewed by the Government of Canada. The term “acquisition of control” is defined as one or more non-Canadian persons acquiring all or substantially all of the assets used in the Canadian business, or the acquisition of the voting shares of a Canadian corporation carrying on the Canadian business, or the acquisition of the voting interests of an entity controlling or carrying on the Canadian business. The acquisition of the majority of the outstanding shares is deemed to be an “acquisition of c ontrol” of a corporation. The acquisition of less than a majority, but one-third or more, of the voting shares of a corporation is presumed to be an “acquisition of control” of a corporation unless it can be established that the purchaser will not control the corporation.
Investments requiring notification and review are all direct acquisitions of Canadian business with assets of Cdn. $5,000,000 or more (subject to the comments below on WTO investors) and all indirect acquisitions of Canadian businesses (subject to the comments below on WTO investors) with assets of more than Cdn. $50,000,000 or with assets of between $5,000,000 and Cdn. $50,000,000 which represent more than 50% of the value of the total international transactions. In addition, specific acquisitions or new business in designated types of business activities related to Canada’s cultural heritage or national identity could be reviewed if the government of Canada considers that it is in the public interest to do so.
The ICA was amended with the implementation of the agreement establishing the World Trade Organization (“WTO”) to provide for special review of thresholds for “WTO investors”, as defined in the ICA. “WTO investors” generally means:
(a) an individual, other than a Canadian, who is a member of a WTO member (such as, for example, the United States), or who has the right of permanent residence in relation to that WTO member.
(b) governments of WTO members; and
20
(c) entities that are not Canadian controlled, but which are WTO investor controlled as determined by the rules specified in the ICA.
The special review thresholds for WTO investors do not apply, and general rules described above do not apply, to the acquisition of control of certain types of businesses specified in the ICA, including business that is a “cultural business”. If the WTO investor rules apply, an investment in the shares of the Company by or from a WTO investor will be reviewable only if it is an investment to acquire control of the Company and the value of the assets of the Company is equal to or greater than a specified amount (the “WTO Review Threshold”). The WTO Review Threshold is adjusted annually by using a formula relating to increases in the nominal gross domestic product of Canada. The 1996 WTO Review Threshold is Cdn. $168,000,000.
If any non-Canadian, whether or not a WTO investor, acquires control of the Company by the acquisition of shares, but the transaction is not reviewable as described above, the non-Canadian is required to notify the Canadian government and to provide certain basic information relating to the investment. A non-Canadian, or non-WTO investor, is required to provide a notice to the government on the establishment of a new Canadian business. If the business of the Company is then a prescribed type of business activity related to Canada’s cultural heritage or national identity, and if the Canadian government considers it in the public interest to do so, then the Canadian government may give a notice in writing within 21 days requiring the investment to be reviewed.
For non-Canadian (other than WTO investors), and indirect acquisition of control, by the acquisition of voting interests of an entity that directly or indirectly controls the Company, is reviewable if the value of the assets of the Company is then Cdn. $50,000,000 or more. If the WTO investor rules apply, then this requirement does not apply to a WTO investor, or to a person acquiring the entity from a WTO investor. Special rules specified in the ICA apply if the assets of the Company is more than 50% of the value of the assets of the entity so acquired. By these special rules, if the non-Canadian (whether or not a WTO investor) is acquiring control of an entity that directly or indirectly controls the Company, and the value of the assets of the company and all other entities carrying on business in Canada, calculated in the manner provided by the ICA and the regulations under the ICA, of the assets of all entities, the control of which is acquired, directly or indirectly, in the transaction of which the acquisition of control of the Company forms a part, then the threshold for a direct acquisition of control as discussed above will apply, that is, a WTO Review Threshold of Cdn. $168,000,000 (n 1996) for a WTO investor or a threshold of CDN. $5,000,000 for non-Canadian other than a WTO investor. If the value exceeds that level the transaction must be reviewed in the same manner as a direct acquisition of control by the purchase of shares by the Company.
If an investment is renewable, an application for review in the form prescribed by the regulations is normally required to be filed with the Director appointed under the ICA (the “Director”) prior to the investment taking place and the investment may not be consummated until the review has been completed. There are, however, certain exceptions. Applications concerning indirect acquisitions may be filed up to 30 days after the investment is consummated and applications concerning reviewable investments in culture-sensitive sectors are required upon receipt of a notice for review. In addition, the Minister (a person designated as such under the ICA) may permit an investment to be consummated prior to completion of the review, if he is satisfied that the delay would cause undue hardship to the acquirer or jeopardize the operations of the Canadian business that is being acquired. The Director will submit the application to the Minister, together with any other information or written undertakings given by the acquirer and any representation submitted to the Director by a province that is likely to be of net benefit to Canada, taking into account the information provided and having regard to certain factors of assessment where they are relevant. Some of the factors to be considered are:
(a)the effect of the investment on the legal economic activity in Canada, including the effect on employment, on resource processing, and on the utilization of parts, components and services produced in Canada;
(b)the effect of the investment on exports from Canada;
(c)the degree and significance of participation by Canadians in the Canadian business and in any industry in Canada of which it forms a part;
(d)the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada;
(e)the effect of the investment on competition within any industry or industries in Canada;
(f)the compatibility of the investment with national, industrial, economic, and cultural policies;
(g)the compatibility of the investment with national, industrial, economic, and cultural policies taking into consideration industrial, economic, and cultural objectives enunciated by the government of legislature of any province likely to be significantly affected by the investment; and
(h) the contribution of the investment to Canada’s ability to compete in world markets.
21
To ensure prompt review, the ICA set certain time limits for the Director and the Minister. Within 45 days after a completed application has been received, the Minister must notify the acquirer that he is satisfied that the investment is likely to be of net benefit to Canada, or that he is unable to complete his review, in which case he shall have 30 additional days to complete his review (unless the acquirer agrees to longer period), or he is not satisfied that the investment is likely to be of net benefit to Canada.
Where the Minister has advised the acquirer that he is not satisfied that the investment is likely to be of net benefit to Canada, the acquirer has the right to make representations and submit undertakings within 30 days of the date of notice (or any period that is agreed upon between the acquirer and the Minister). On the expiration of the 30 day period (or the agreed-upon extension), the Minister must quickly notify the acquirer that he is not satisfied that the investment is likely to be of net benefit to Canada. In the latter case, the acquirer my not proceed with the investment or, if the investment has already been consummated, must divest itself of control of the Canadian business.
The ICA provides civil remedies for non-compliance with any provision. There are also criminal penalties for breach of confidentiality or providing false information.
Except as provided in the ICA, there are no limitations under the laws of Canada, the Province of British Columbia, or in any constituent documents of the Company on the right of non-Canadians to hold or vote the common shares of the Company.
E. Taxation.
Certain United States Federal Income Tax Consequences
The following is a general discussion of the material United States Federal income tax law for U.S. holders that hold such common shares as a capital asset, as defined under United States Federal income tax law and is limited to discussion of U.S. Holders that own less than 10% of the common stock. This discussion does not address all potentially relevant Federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences.
The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), Treasury Regulations, published Internal Revenue Service ("IRS") rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any future legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. The following discussion is for general information only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of common shares of the Company and no opinion or representation with respect to the United States Federal income tax consequences toany such holder or prospective holder is made. Accordingly, holders and prospective holders of common shares of the Company should consult their own tax advisors about the Federal, state, local, and foreign tax consequences of purchasing, owning and disposing of common shares of the Company.
U.S. Holders
As used herein, a "U.S. Holder" is a holder of common shares of the Company who or which is a citizen or individual resident (or is treated as a citizen or individual resident) of the United States for federal income tax purposes, a corporation or partnership created or organized (or treated as created or organized for federal income tax purposes) in the United States, including only the States and District of Columbia, or under the law of the United States or any State or Territory or any political subdivision thereof, or a trust or estate the income of which is includable in its gross income for federal income tax purposes without regard to its source, if, (i) a court within the United States is able to exercise primary supervision ov er the administration of the trust and (ii) one or more United States trustees have the authority to control all substantial decisions of the trust. For purposes of this discussion, a U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers and Holders who acquired their stock through the exercise of employee stock options or otherwise as compensation.
Distributions on common shares of the Company
U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of the Company are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder's United States Federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder's United
22
States Federal taxable income by those who itemize deductions. (See more detailed discussion at "Foreign Tax Credit" below). To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a return of capital up to the U.S. Holder's adjusted basis in the common shares and thereafter as gain from the sale or exchange of the common shares. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.
Dividends paid on the common shares of the Company will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation may, under certain circumstances, be entitled to a 70% deduction of the United States source portion of dividends received from the Company if such U.S. Holder owns shares representing at least 10% of the voting power and value of the Company. The availability of this deduction is subject to several complex limitations, which are beyond the scope of this discussion. There is, at present, legislation before the US Congress which would affect the taxation of foreign, and in particular, Canadian dividend income accruing to US residents. Individual share holders should consult their tax and legal advisers as to their particular, individual tax situation.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of the Company may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income subject to tax. This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations, which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate shares of the U.S. Holder 's United States income tax liability that the U.S. Holder's foreign source income bears to his or its world-wide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. There are further limitations on the foreign tax credit for certain types of income such as "passive income," "high withholding tax interest," "financial services income," "shipping income" and certain other classifications of income. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and holders and prospective holders of common shares of the Company should consult their own tax advisors regarding their individual circumstances.
Disposition of common shares of the Company
A U.S. Holder will recognize gain or loss upon the sale of common shares of the Company equal to the difference, if any, between the amount of cash plus the fair market value of any property received, and the Holder's tax basis in the common shares of the Company. This gain or loss will be capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder. Any capital gain will be a short-term or long-term capital gain or loss depending upon the holding period of the U.S. Holder. Gains and losses are netted and combined according to special rules in arriving at the overall capital gain or loss for a particular tax year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders which are individuals, any unused portion of s uch net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For U.S. Holders which are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.
Canadian Federal Income Taxation
The following discussion summarizes the principal Canadian federal income tax considerations generally applicable to a person who owns one or more common shares of the Company (the “Shareholder”), and who at all material times for the purposes of the Income Tax Act (Canada) (the "Canadian Act") deals at arm's length with the Company, holds all common shares solely as capital property, is a non-resident of Canada, and does not, and is not deemed to, use or hold any Common share in or in the course of carrying on business in Canada. It is assumed that the common shares will at all material times be listed on a stock exchange that is prescribed for the purposes of the Canadian Act.
This summary is based on the current provisions of the Canadian Act, including the regulations thereunder, and the Canada-United States Income Tax Convention (1980) (the "Treaty") as amended. This summary takes into account all specific proposals to amend the Canadian Act and the regulations thereunder publicly announced by the government of Canada to the date hereof and the Company's understanding of the current published administrative and assessing practices of Canada Customs and Revenue Agency. It is assumed that all such amendments will be enacted substantially as currently proposed, and that there will be no other material change to any such law or practice, although no assurances can be given in these respects. Except to the extent otherwise expressly set out herein, this summary does not take into account any provincial, territorial or foreign income tax law or treaty.
23
This summary is not, and is not to be construed as, tax advice to any particular Shareholder. Each prospective and current Shareholder is urged to obtain independent advice as to the Canadian income tax consequences of an investment in common shares applicable to the Shareholder’s particular circumstances.
A Shareholder generally will not be subject to tax pursuant to the Canadian Act on any capital gain realized by the Shareholder on a disposition of a Common share unless the Common share constitutes "taxable Canadian property" to the Shareholder for purposes of the Canadian Act and the Shareholder is not eligible for relief pursuant to an applicable bilateral tax treaty. A Common share that is disposed of by a Shareholder will not constitute taxable Canadian property of the Shareholder provided that the Common share is listed on a stock exchange that is prescribed for the purposes of the Canadian Act (the Toronto Stock Exchange is so prescribed), and that neither the Shareholder, nor one or more persons with whom the Shareholder did not deal at arm's length, alone or together at any time in the five years immediately precedi ng the disposition owned, or owned any right to acquire, 25% or more of the issued shares of any class of the capital stock of the Company. In addition, the Treaty generally will exempt a Shareholder who is a resident of the United States for the purposes of the Treaty, and who would otherwise be liable to pay Canadian income tax in respect of any capital gain realized by the Shareholder on the disposition of a Common share, from such liability provided that the value of the Common share is not derived principally from real property (including resource property) situated in Canada or that the Shareholder does not have, and has not had within the 12-month period preceding the disposition, a "permanent establishment" or "fixed base," as those terms are defined for the purposes of the Treaty, available to the Shareholder in Canada. The Treaty may not be available to a non-resident Shareholder that is a U.S. LLC, which is not subject to tax in the U.S.
Any dividend on a Common share, including a stock dividend, paid or credited, or deemed to be paid or credited, by the Company to a Shareholder will be subject to Canadian withholding tax at the rate of 25% on the gross amount of the dividend, or such lesser rate as may be available under an applicable income tax treaty. Pursuant to the Treaty, the rate of withholding tax applicable to a dividend paid on a Common share to a Shareholder who is a resident of the United States for the purposes of the Treaty will be reduced to 5% if the beneficial owner of the dividend is a company that owns at least 10% of the voting stock of the Company, and in any other case will be reduced to 15%, of the gross amount of the dividend. It is Canada Customs and Revenue Agency‘s
position that the Treaty reductions are not available to a Shareholder that is a "limited liability company" resident in the United States. The Company will be required to withhold any such tax from the dividend, and remit the tax directly to Canada Customs and Revenue Agency for the account of the Shareholder.
F. Dividends and paying agents.
Not Applicable.
G. Statement by experts.
Not Applicable.
H. Documents on display.
The documents concerning the Company which are referred to in the document are located at its principal executive office inking City, Ontario, at the address stated at the beginning of this document.
I. Subsidiary Information.
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 12. Description of Securities other than Equity Securities.
Not Applicable.
24
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
Not Applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.
Not Applicable.
Item 15T. Controls and Procedures.
Disclosure controls and procedures
Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 20-F. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of such period, are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
There have been no significant changes in our internal controls over financial reporting during the fiscal period ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2009. In making this assessment, our management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on an assessment carried out during this period, management believes that, as of September 30, 2009, our internal control over financial reporting was effective
25
Changes in Internal Control Over Financial Reporting
There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date our Chief Executive Officer and our Chief Accounting Officer completed their evaluation, nor were there any significant deficiencies or material weaknesses in the Company’s internal controls requiring corrective actions.
Item 16. [Reserved]
Item 16A. Audit committee financial expert.
The Company’s Board of Directors has determined that the Company has at least one audit committee financial expert serving on its audit committee. The Company’s audit committee financial expert is Jason Moretto, interim CFO.
Item 16B. Code of Ethics.
The Company has adopted a code of ethics that applies to its Chief Executive Officer and Chief Financial Officer.
Item 16C. Principal Accountant Fees and Services
(a) Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the Company’s principal accountant for the audit of the Company’s annual financial statements, together with services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were approximately $40,000 for the year ending September 30, 2009 and $50,000 for the year ending September 30, 2008.
(b) Audit-Related Fees
The aggregate fees billed for each of the last two fiscal years for assurance and related services by the principal accountant that were reasonably related to the performance of the audit or review of the Company’s financial statements but are not reported under paragraph (a) of this Item were zero ($nil).
(c) Tax Fees
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning were $1,000 for the year ended September 30, 2009 and $1,000 for the year ended September 30, 2008 for preparation of the Company’s tax returns.
(d) All Other Fees
The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant other than services disclosed in paragraphs (a) through (c) of this Item were $nil in the year ending September 30, 2009 and $nil in the year ending September 30, 2008.
Item 16.D Exemptions from the Listing Standards for Audit Committees
The disclosure required under Exchange Act Rule 10A-3(d) is not applicable to the Company.
Item 16.E Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Company made no issuer repurchases, including any made pursuant to a publicly announced plan or program or made pursuant to a plan or program that was not announced publicly, in the last two fiscal years. The Company made no open market issuer repurchases.
Item 16.F Change in Registrant’s Certifying Accountant
There has been no change in the Company’s Certifying Accountant.
26
PART III
Item 17. Financial Statements.
See Item 18.
Item 18. Financial Statements.
The following financial statements are attached to and form part of this Annual Report:
(a) balance sheet;
(b) income statement;
(c) statement showing changes in equity
(d) cash flow statement;
(e) related notes and schedules required by the comprehensive body of accounting standards pursuant to which the financial statements are prepared; and
(f) a note analyzing the changes in each caption of shareholders’ equity presented in the balance sheet.
Audit Report
Audited Consolidated Financial Statements of the Company for the years ended September 30, 2009, September 30, 2008 and September 30, 2007.
Item 19. Exhibits.
Exhibit Number | Page | |
1.1 | Certificate of Incorporation dated September 8, 1986. | * |
1.2 | Certificate of Name Change dated November 26, 1999. | * |
1.3 | Articles (Bylaws) of the Corporation. | * |
1.4 | Company Stock Option Plan | * |
4.a.1 | Plan of Exchange dated as of August 3, 2001 between Onlinetel and Eiger Technology, Inc. | * |
* | ||
4.a.2 | Share Purchase Agreement dated as of November 8, 2001 among ETIFF Holdings Inc., K-Tronik International Corp., and LMC Capital Corp. | * |
* | ||
4.a.3 | Share Purchase Agreement dated as of December 19, 2001 among Vision Unlimited Equipment Inc., ADH Custom Metal Fabricators Inc., and Newlook Capital Corp | * |
31 | Section 302 Certifications | |
32 | Section 906 Certifications | |
* Incorporated by reference, as previously filed with the Commission.
27
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
Gamecorp Ltd. | |||
Date: April 13, 2010 | By: | /s/ John G Simmonds | |
Name: John G. Simmonds | |||
Title: Chief Executive Officer and Chief Financial Officer | |||
28
GAMECORP LTD.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
CONTENTS
Auditors' Report | 1 |
Comments by Auditors on Canada - United States Reporting Differences | 2 |
Consolidated Balance Sheets | 3 |
Consolidated Statements of Operations | 4 |
Consolidated Statements of Comprehensive (Loss) Income | 5 |
Consolidated Statements of Deficit | 6 |
Consolidated Statements of Cash Flows | 7 |
Notes to Consolidated Financial Statements | 8-34 |
AUDITORS' REPORT
To the Shareholders of Gamecorp Ltd.
We have audited the consolidated balance sheets of Gamecorp Ltd. as at September 30, 2009 and 2008 and the consolidated statements of operations, comprehensive (loss) income, deficit and cash flows for each of the years ended September 30, 2009 and 2008. The financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at September 30, 2009 and 2008 and the results of its operations and its cash flows for the years in the two-year period ended September 30, 2009 in accordance with Canadian generally accepted accounting principles.
| SF Partnership, LLP | |
Toronto, Canada | LICENSED PUBLIC ACCOUNTANTS | |
January 28, 2010 |
F1
COMMENTS BY AUDITORS ON CANADA - UNITED STATES
REPORTING DIFFERENCES
The standards of the Public Company Accounting Oversight Board {United States) require the addition of an explanatory paragraph when the financial statements are affected by conditions and events that cast substantial doubt on the company's ability to continue as a going concern, such as those described in note 2 to the consolidated financial statements. Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), our report to the shareholders dated January 28, 2010 is expressed in accordance with Canadian reporting standards which do not permit a reference to such conditions and events in the auditors' report when these are adequately disclosed in the financial statements.
| SF Partnership, LLP | |
Toronto, Canada | LICENSED PUBLIC ACCOUNTANTS | |
January 28, 2010 |
;
F2
GAMECORP LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2009 and 2008
ASSETS | 2009 | 2008 | ||||||
Current | ||||||||
Cash | $ | 3,000 | $ | - | ||||
Short term investments | 5,000 | 15,000 | ||||||
Accounts receivable | 25,000 | 57,000 | ||||||
Prepaid expenses and sundry assets | - | 8,000 | ||||||
Notes receivable (note 4) | 23,000 | 156,000 | ||||||
Total Current Assets | 56,000 | 236,000 | ||||||
Equipment (note 6) | - | 41,000 | ||||||
Advance to Corporation (note 7) | - | 7,000 | ||||||
Investments (note 8) | 327,000 | 1,976,000 | ||||||
Assets of Discontinued Operations (note 5) | - | 527,000 | ||||||
Notes Receivable (note 4) | - | 14,000 | ||||||
Total Long-Term Assets | 327,000 | 2,565,000 | ||||||
Total Assets | $ | 383,000 | $ | 2,801,000 | ||||
LIABILITIES | ||||||||
Current | ||||||||
Bank indebtedness | $ | - | $ | 30,000 | ||||
Accounts payable and accrued charges (note 16) | 790,000 | 205,000 | ||||||
Due to related parties (note 9) | 266,000 | 10,000 | ||||||
Notes payable (note 11) | 562,000 | 605,000 | ||||||
Total Current Liabilities | 1,618,000 | 850,000 | ||||||
Total Liabilities | 1,618,000 | 850,000 | ||||||
Commitments and Contingencies (note 13) | ||||||||
SHAREHOLDERS’ (DEFICIENCY) EQUITY | ||||||||
Share Capital (note 15) | 45,407,000 | 44,286,000 | ||||||
Contributed Surplus (note 15c) | 1,257,000 | 1,278,000 | ||||||
Unissued Share Liability (note 10) | - | 800,000 | ||||||
Deficit | (47,552,000 | ) | (44,600,000 | ) | ||||
Accumulated Other Comprehensive (Loss) Income | (347,000 | ) | 187,000 | |||||
Total Shareholders’ (Deficit) Equity | (1,235,000 | ) | 1,951,000 | |||||
Total Liabilities and Shareholders’ (Deficit) Equity | $ | 383,000 | $ | 2,801,000 |
APPROVED ON BEHALF OF THE BOARD | |||||
“JOHN G. SIMMONDS” (Director) | “GRAHAM SIMMONDS” (Director) |
(The accompanying notes are an integral part of these consolidated financial statements.)
F3
GAMECORP LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended September 30, 2009 and 2008
2009 | 2008 | |||||||
Revenues | ||||||||
Management fees (notes 16 and 22) | $ | 240,000 | $ | 195,000 | ||||
Interest income (note 16) | 2,000 | 116,000 | ||||||
242,000 | 311,000 | |||||||
Expenses | ||||||||
General and administrative | 1,101,000 | 1,052,000 | ||||||
Amortization of equipment | 8,000 | 11,000 | ||||||
Foreign exchange gain | (44,000 | ) | (71,000 | ) | ||||
Total Expenses | 1,065,000 | 992,000 | ||||||
Loss from Operations | (823,000 | ) | (681,000 | ) | ||||
Other Income (Expenses) | ||||||||
Interest and bank charges | (15,000 | ) | (41,000 | ) | ||||
Fair value adjustment to financial instruments (note 14) | 5,000 | 3,410,000 | ||||||
Share of losses of equity accounted investee (note 8f) | (1,021,000 | ) | (361,000 | ) | ||||
Impairment of due from related parties (note 9) | (696,000 | ) | - | |||||
Write down of advance to corporation (note 7) | (5,000 | ) | (9,000 | ) | ||||
Gain/(loss) on disposal of investments (note 8f) | (130,000 | ) | 65,000 | |||||
Loss on disposal of equipment (note 6) | (33,000 | ) | - | |||||
Total Other Income (Expenses) | (1,895,000 | ) | 3,064,000 | |||||
(Loss) Earnings from Continuing Operations | ||||||||
Before Income Taxes - Current | (2,718,000 | ) | 2,383,000 | |||||
Provision for income taxes – future (note 17) | - | - | ||||||
(Loss) Earnings from Continuing Operations | (2,718,000 | ) | 2,383,000 | |||||
(Loss) Earnings from Discontinued Operations (no tax effect) (note 5) | (234,000 | ) | 445,000 | |||||
Net (Loss) Earnings | $ | (2,952,000 | ) | $ | 2,828,000 | |||
(Loss) Earnings Per Weighted Average Number of Shares Outstanding – Basic and Diluted | ||||||||
Continuing Operations | $ | (0.34 | ) | $ | 0.56 | |||
Net (Loss) Earnings | $ | (0.37 | ) | $ | 0.67 | |||
Weighted Average Number of Shares Outstanding – Basic and Diluted | 7,924,045 | 4,232,874 |
(The accompanying notes are an integral part of these consolidated financial statements.)
F4
GAMECORP LTD. AND SUBSIDIARIES
Consolidated Statements of Comprehensive (Loss) Income
Years Ended September 30, 2009 and 2008
2009 | 2008 | |||||||
Net (Loss) Earnings | $ | (2,952,000 | ) | $ | 2,828,000 | |||
Unrealized (loss) gain on available-for-sale investments (note 8f) | (534,000 | ) | 187,000 | |||||
Comprehensive (Loss) Income | $ | (3,486,000 | ) | $ | 3,015,000 |
(The accompanying notes are an integral part of these consolidated financial statements.)
F5
GAMECORP LTD. AND SUBSIDIARIES
Consolidated Statements of Deficit
Years Ended September 30, 2009 and 2008
2009 | 2008 | |||||||
Beginning of Year | $ | (44,600,000 | ) | $ | (47,428,000 | ) | ||
Net (Loss) Earnings | (2,952,000 | ) | 2,828,000 | |||||
End of Year | $ | (47,552,000 | ) | $ | (44,600,000 | ) |
(The accompanying notes are an integral part of these consolidated financial statements.)
F6
GAMECORP LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended September 30, 2009 and 2008
2009 | 2008 | |||||||
Cash Flows from Operating Activities | ||||||||
Net (loss) earnings from continuing operations | $ | (2,718,000 | ) | $ | 2,383,000 | |||
Adjustments for: | ||||||||
Amortization of equipment | 8,000 | 11,000 | ||||||
Loss on disposition of equipment | 33,000 | - | ||||||
Foreign exchange gain | (44,000 | ) | - | |||||
Fair value adjustments on financial instruments | (5,000 | ) | (3,410,000 | ) | ||||
Impairment of due from related parties | 696,000 | - | ||||||
Share of losses of equity accounted investee | 1,021,000 | 361,000 | ||||||
Write down of advance to corporation | 5,000 | 9,000 | ||||||
Loss (gain) on disposal of investments | 130,000 | (65,000 | ) | |||||
Funds used in continuing operating activities | (874,000 | ) | (711,000 | ) | ||||
Changes in non-cash working capital: | ||||||||
Accounts receivable | 32,000 | (24,000 | ) | |||||
Prepaid expenses and sundry assets | 8,000 | (5,000 | ) | |||||
Accounts payable and accrued charges | 572,000 | (162,000 | ) | |||||
Net funds provided by (used in) continuing operating activities | (262,000 | ) | (902,000 | ) | ||||
Net (loss) earnings from discontinued operations | (234,000 | ) | 445,000 | |||||
Adjustments for: | ||||||||
Non-cash earnings | - | (59,000 | ) | |||||
Gain on disposal of investments | 296,000 | (598,000 | ) | |||||
Proceeds from sale of investments | - | 655,000 | ||||||
Write down of investment | - | 212,000 | ||||||
Assets and liabilities of discontinued operations | 234,000 | (702,000 | ) | |||||
Net funds provided by (used in) discontinued operations | 296,000 | (47,000 | ) | |||||
Cash Flows from Investing Activities: | ||||||||
Increase in investments | (11,000 | ) | (2,388,000 | ) | ||||
Advance to corporation | 1,000 | - | ||||||
Due from related parties | (696,000 | ) | 2,936,000 | |||||
Acquisition of property and equipment | - | (2,000 | ) | |||||
Repurchase short term investments | - | (15,000 | ) | |||||
Proceeds from short term investments | 10,000 | - | ||||||
Proceeds from sale of investment | 30,000 | 91,000 | ||||||
Proceeds from collection of note receivables | 151,000 | 131,000 | ||||||
Net funds (used in) provided by investing activities | (515,000 | ) | 753,000 | |||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from common stock private placement | 300,000 | - | ||||||
Proceeds from common stock subscriptions | - | 560,000 | ||||||
Due to related parties | 256,000 | 10,000 | ||||||
Repayment of notes payable | (42,000 | ) | (398,000 | ) | ||||
Bank indebtedness | (30,000 | ) | 24,000 | |||||
Net funds provided by financing activities | 484,000 | 196,000 | ||||||
Net Increase in Cash | 3,000 | - | ||||||
Cash – Beginning of Year | - | - | ||||||
Cash – End of Year | $ | 3,000 | $ | - |
Supplemental information provided in note 20.
F7
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
1. Organization and Nature of Business
Gamecorp Ltd. (the "Company" or "Gamecorp") was originally incorporated as Alexa Ventures Inc. on September 8, 1986 under the laws of British Columbia. Currently, the Company is in good standing, operating under the laws of Ontario. On May 28, 2008, the Company changed its name from Eiger Technology, Inc. to Gamecorp Ltd. The Company is listed as an issuer on the CNSX and a foreign issuer on the NASD Over-the-Counter Bulletin Board.
The Company is an investment and merchant banking enterprise focused on the development of its investments. The Company’s current primary investments are in the Gaming and Technology sectors. InterAmerican Gaming, Inc. (“InterAmerican”) (formerly Racino Royale, Inc.), and Gate To Wire Solutions, Inc. (“Gate To Wire”) (formerly TrackPower, Inc.) are development stage enterprises involved in international gaming ventures. The Company previously invested in Baymount Incorporated (“Baymount”) (TSX Venture: BYM), which is developing a gaming entertainment centre in Belleville, Ontario and disposed of its investment during the year ended September 30, 2009. Gamecorp has a legacy investment stake in Newlook Industries Corp. (“Newlook”) (TSX Venture Exchange: NLI), an enterprise with technology investments. During the year ended September 30, 2009, the Com pany disposed of non-strategic investments in Copernic Inc. (“Copernic”) and Gametech International Inc. (“Gametech”). |
On September 23, 2009, the Company entered into an agreement with Function Mobile Inc. (“FMI”) to acquire the irrevocable world-wide exclusive right to participate in any pending and future mobile lottery, gaming or sweepstakes projects, proposals, services and products that FMI and its subsidiaries and affiliates has or will undertake.
2. | Going Concern |
The accompanying consolidated financial statements have been prepared on a going concern basis, in accordance with Canadian generally accepted accounting principles ("GAAP") and accounting principles generally accepted in the United States of America.
The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and contingencies in the normal course of operations.
There is doubt about the Company's ability to continue as a going concern as the Company has a working capital deficiency of $1,562,000 as at September 30, 2009 (2008 - $614,000) and an accumulated deficit of $47,552,000 as at September 30, 2009. The Company's ability to continue as a going concern is dependent upon the Company's ability to raise additional capital, to increase management fees and interest income, and sustain profitable operations. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.
F8
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
The Company believes that future share issuance and increased management fees to existing and future investees will provide sufficient cash flow for it to continue as a going concern in its present form, however, there can be no assurances that the Company will achieve such results. Accordingly, the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.
3. | Significant Accounting Policies |
These consolidated financial statements have been prepared in accordance with Canadian GAAP which, except as noted in note 18, is consistent in all material respects with accounting principles generally accepted in the United States of America. The principal accounting policies followed by the Company are as follows:
a) | Basis of Presentation |
The accompanying consolidated financial statements include the accounts of Gamecorp and its subsidiaries are presented in Canadian dollars under the accrual method of accounting. All significant intercompany transactions and balances have been eliminated upon consolidation.
The Company has the following subsidiaries:
Name of Corporation | % Ownership |
Alexa Properties Inc.* | 100% |
ETIFF Holdings (BC) Ltd.* | 100% |
Club Connects Corp.* | 100% |
EigerNet Inc.* | 58.4% |
Applied Lighting Technologies Inc.* | 75% |
Energy Products International Ltd.* | 75% |
International Balast Corp.* | 75% |
Call Zone Canada Inc.* | 100% |
990422 Ontario Ltd.* | 100% |
* Inactive or holding company only |
b) | Discontinued Operations |
The Company has recognized the results of its investment in Newlook as discontinued operations. During fiscal 2007 the Company made a decision to dispose of its investment over time to focus on other gaming based opportunities. |
c) | Short Term Investments |
Short term investments are carried at the lower of cost or fair value and consist of guaranteed investment certificates. |
F9
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
d) | Equipment |
Equipment is stated at cost. Amortization, based on the estimated useful lives of the assets, is provided using the under noted annual rates and methods:
Furniture and fixtures | 20% | Declining balance |
Computer equipment | 30% | Declining balance |
e) | Investments |
Investments in other entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company's ability to exercise significant influence over the operating and financial policies of the investee.
Equity Investments
Equity investments are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment. When net losses from an equity accounted for investment exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity method when the entity subsequently reports net income and the Company's share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred. When an equity accounted for investee issues its own shares, the subsequent reduction in the Company's proportionate interest in the investee is reflected in income as a proportionate interest deemed dilution gain or proportionate interest loss on disposition.
Cost Investments
Investments are recorded at original cost and written down only when clear evidence that a decline in value, other than temporary, has occurred.
f) | Advertising Costs |
The Company expenses advertising costs as incurred.
g) | Long-lived Asset Impairment |
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability is assessed based on the carrying amount of a long-lived asset compared to the sum of the future undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
F10
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
h) | Revenue Recognition |
Operating revenues are recognized when they are earned, specifically, when services are provided, products are delivered to customers, persuasive evidence of an arrangement exists, amounts are fixed or determinable, and collectibility is reasonably assured. The Company's principal sources of revenue are management fees from investees and interest income from loans provided recognized on an accrual basis.
Revenues are recognized upon approval by regulatory authority as a result grant income is recognized subsequent to the race date; whereas wagering revenues are recognized on the race date.
i) | Income Taxes |
The Company accounts for and measures future tax assets and liabilities in accordance with the asset and liability method. Under this method, future tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment of the change. When the future realization of income tax assets does not meet the test of being more likely than not to occur, a valuation allowance in the amount of t he potential future benefit is taken and no net asset is recognized. |
j) | Earnings (Loss) Per Share |
Basic earnings (loss) per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings (loss) per share, according to the treasury stock method, assumes that any proceeds from the exercise of dilutive stock options and warrants would be used to repurchase common shares at the average market price during the period, with the incremental number of shares being included in the denominator of the diluted earnings (loss) per share calculation. The diluted earnings (loss) per share calculation assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on earnings (loss) per share. Stock options and share purchase warrants outstanding are not included in the computation of diluted loss per share if their inclus ion would be anti-dilutive. |
k) Use of Estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
F11
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known. Examples of estimates include accrued charges and the composition of future income tax asset and future income tax liability.
l) | Stock Based Compensation |
The Company accounts for stock based compensation which includes the issuance of options of equity instruments using the fair value method. The estimated fair value is amortized to expense over the period in which the related services are rendered, which is usually the vesting period of the options. All outstanding options are classified as contributed surplus within shareholders’ equity and carried at their fair value.
m) | Foreign Currency Translation |
Monetary items denominated in foreign currencies are translated into Canadian dollars at the foreign currency exchange rate in effect at each balance sheet date. Non-monetary items in foreign currencies are translated into Canadian dollars at historical rates of exchange except for those carried at market which are translated at the foreign currency exchange rate in effect at each balance sheet date. Revenues and expenses denominated in foreign currencies are translated into Canadian dollars at the weighted average foreign current exchange rate for the year. Translation gains and losses are included in determining net earnings.
n) | Recent Accounting Pronouncements |
In December 2008, the CICA issued Handbook Section 1582, “Business Combinations”, Section 1601, “Consolidated Financial Statements” and Section 1602, “Non-Controlling Interests”. Section 1582 establishes standards for accounting for business combinations and is equivalent to the International Financial Reporting Standards (“IFRS”) standard, IFRS 3 (Revised). The new standards apply to business combinations with an acquisition date on or after January 1, 2011, however earlier adoption is permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
Sections 1601 and 1602, together, replace Section 1600, “Consolidated Financial Statements”. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for non-controlling interest in a subsidiary subsequent to a business combination. It is equivalent to the provisions in IFRS standard, IAS 27 (Revised), “Consolidated and Separate Financial Statements”. The new standards apply to interim and annual consolidated financial statements with fiscal years beginning on or after January 1, 2011. Early adoption is permitted as of the beginning of the fiscal year. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, will be adopted as Canadian GAAP effective January 1, 2011 and will require restatement of the comparative 2010 figures. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
F12
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
4. Notes Receivable
2009 | 2008 | |||||||
Former optionees | $ | 23,000 | $ | 170,000 | ||||
Less : current portion | (23,000 | ) | (156,000 | ) | ||||
Long term | $ | - | $ | 14,000 |
On March 31, 2008, the Company sold 3,702,000 Newlook common shares to former optionees who had previously held an option to acquire the Newlook securities (Note 5). The purchase price was $586,000 being the same price per share as the cancelled option exercise price. In payment, the third parties provided non-interest bearing promissory notes totaling $586,000 with varying repayment dates between March 8, 2009 and March 8, 2010. On September 30, 2009 there remained $23,000 outstanding under the notes receivable. The notes receivable are secured by 234,000 Newlook common shares which had a fair value of $59,000 on September 30, 2009.
5. | Discontinued Operations |
The Company regards its investment in Newlook as discontinued operations and has done so since fiscal 2007.
During fiscal 2008, options to acquire 1,970,000 Newlook common shares were exercised in March 2008, for proceeds of $269,000 resulting in a gain of $189,000 being recorded. Also in March 2008, the optionees agreed to acquire 3,702,000 Newlook common shares formerly under option (note 4) and the Company agreed to pay a $0.30 cancellation fee on 4,178,000 options (note 11), which effectively cancelled all remaining options granted. The Company recorded a gain of $409,000 as a result of the disposal of 3,702,000 Newlook common shares. The Company acquired a further 1,105,500 Newlook common shares for cash of $731,000.
The Company recorded $530,000 as its share of Newlook losses during the year ended September 30, 2009 effectively reducing the Company’s investment to $nil.
During the year ended September 30, 2009, the Company sold 1,194,500 Newlook common shares for net proceeds of $296,000. As the Newlook common shares were reduced to $nil the Company recognized a gain to the full extent of the proceeds received.
On September 30, 2009, the Company held 4,339,000 Newlook common shares representing a 14.2% (2008 – 18.5%) interest.
F13
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
The operations of Newlook are presented in the consolidated financial statements as discontinued operations as follows:
2009 | 2008 | |||||||
Share of (loss) earnings of equity accounted investee | $ | (530,000 | ) | $ | 59,000 | |||
Write down of investment to do impairment | - | (212,000 | ) | |||||
Gain on disposal of investment | 296,000 | 598,000 | ||||||
(Loss) earnings from discontinued operations | $ | (234,000 | ) | $ | 445,000 |
Assets presented in the consolidated balance sheets include the following assets of discontinued operations:
2009 | 2008 | |||||||
Investments | $ | - | $ | 527,000 | ||||
Assets of discontinued operations | $ | - | $ | 527,000 |
6. | Equipment |
Cost | Accumulated Amortization | Loss on Disposition | 2009 Net Book Value | 2008 Net Book Value | ||||||||||||||||
Furniture and fixtures | $ | 144,000 | $ | 113,000 | $ | 31,000 | $ | - | $ | 38,000 | ||||||||||
Computer equipment | 5,000 | 3,000 | 2,000 | - | 3,000 | |||||||||||||||
$ | 149,000 | $ | 116,000 | $ | 33,000 | $ | - | $ | 41,000 |
During the fiscal year ended September 30, 2009, the Company relocated its offices and disposed of all furniture, fixtures and computer equipment for $nil proceeds.
7. Advance to Corporation
2009 | 2008 | |||||||
Advance to Lexatec VR Systems Inc. | $ | - | $ | 7,000 |
F14
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
he advance noted above was non-interest bearing, had no specific terms of repayment and was secured by a pledge of reciprocal shareholdings. During the year ended September 30, 2009 the Company recorded a $5,000 write down of the advance to the fair value of the security. The underlying security consisted of 23,190 shares of the Company’s common stock valued at $1,000 which were returned to the Company for cancellation in February 2009 (note 15).
8. Investments
a) | InterAmerican |
The Company recorded $1,021,000 (2009 - $361,000) as its share of InterAmerican losses during the year ended September 30, 2009.
On September 30, 2009, the Company held 30,662,600 (2008 – 30,662,600) InterAmerican common shares, representing a 45.2% (2008 – 46.9%) interest valued at $176,000 (2008 - $1,166,000).
b) | Gate To Wire |
The Company accounts for its investment in Gate To Wire as available-for-sale investment measured at fair value. Unrealized gains or losses are recorded in accumulated other comprehensive income.
During the year ended September 30, 2009, the Company acquired an additional 90,000 (2008 – 4,600,000) Gate To Wire common shares for cash payment totaling $11,000 (2008 - $473,000).
On September 30, 2009, the Company held 4,690,000 (2008 – 4,600,000) Gate To Wire common shares, representing a 16.9% (2008 – 18.3%) interest valued at $151,000 (2008 - $735,000).
c) | Baymount |
The Company accounted for its investment in Baymount as an available-for-sale investment measured at fair value. Unrealized gains or losses were recorded in accumulated other comprehensive income. |
During fiscal year 2008, the Company purchased 1,501,000 Baymount common shares representing a 1% ownership interest. The Company paid $150,000 in cash to acquire the shares. There were approximately 139,000,000 Baymount shares outstanding. |
During the year ended September 30, 2009, the Company disposed of its investment in Baymount for net proceeds of $22,000 and accordingly recorded a loss on disposal of $128,000. |
F15
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
On September 30, 2008, management determined that the fair value of the Baymount investment was $75,000 and accordingly recorded a $75,000 unrealized loss in accumulated other comprehensive income. As a result of the disposition the unrealized loss in accumulated other comprehensive income was reversed during the year ended September 30, 2009.
d) | Copernic |
The Company accounted for its investment in Copernic Inc. as an available-for-sale investment measured at fair value. Unrealized gains or losses were recorded in accumulated other comprehensive income. |
On April 6, 2009, the Company disposed of its investment in 19,300 Copernic common shares for net proceeds of $4,000. The Company paid $4,000 in cash to acquire the shares and accordingly no gain or loss was recorded on disposition. |
e) | Gametech |
The Company accounted for its investment in Gametech International Inc. as an available-for-sale investment measured at fair value. Unrealized gains or losses were recorded in accumulated other comprehensive income. |
On April 6, 2009, the Company disposed of its investment in 2,000 Gametech common shares for net proceeds of $3,000. The Company paid $5,000 in cash to acquire the shares and accordingly has recorded a loss on disposal of $2,000. |
f) | Investment activity during fiscal 2009 can be summarized as follows: |
2009 |
Net Investment | Equity share of loss | Loss on disposal of shares | Foreign Exchange Gain/Loss | Other Comprehensive Loss | Carrying value | 2008 Ending Carrying Value | ||||||||||||||||||||||
InterAmerican | $ | - | $ | (1,021,000 | ) | $ | - | $ | 31,000 | $ | - | $ | 176,000 | $ | 1,166,000 | |||||||||||||
Gate To Wire | 11,000 | - | - | 14,000 | (609,000 | ) | 151,000 | 735,000 | ||||||||||||||||||||
Baymount | - | - | (128,000 | ) | - | 75,000 | - | 75,000 | ||||||||||||||||||||
Copernic | 4,000 | - | - | - | - | - | - | |||||||||||||||||||||
Gametech | 5,000 | - | (2,000 | ) | - | - | - | - | ||||||||||||||||||||
Total | $ | 20,000 | $ | (1,021,000 | ) | $ | (130,000 | ) | $ | 45,000 | $ | (534,000 | ) | $ | 327,000 | $ | 1,976,000 |
F16
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
9. Due to Related Parties
Amounts due to related parties are as follows:
2009 | 2008 | |||||||
Newlook and subsidiaries | $ | 169,000 | $ | 10,000 | ||||
Officer | 97,000 | - | ||||||
$ | 266,000 | $ | 10,000 |
Amounts due to Newlook bear interest at the Bank of Canada’s prime rate plus 2%, are unsecured and have no specific repayment dates. Amounts due to an officer bear interest at 12%, are unsecured and have no specific terms of repayment.
During the year ended September 30, 2009 the Company advanced InterAmerican $396,000 and advanced Gate To Wire $300,000. There is doubt about InterAmerican and Gate To Wire’s ability to continue as a going concern as they have significant working capital deficiencies and are largely reliant upon the Company to finance current operations. InterAmerican and Gate To Wire’s ability to continue as going concerns is dependent upon their ability to raise additional capital. InterAmerican and Gate To Wire have not been able to successfully execute profitable operations and are not expected to in the immediate future. As such the Company has determined the collection of the amounts due from InterAmerican and Gate To Wire is doubtful and have recorded a charge to income of $696,000.
10. Unissued Share Liability
During fiscal 2008, the Company received $560,000 in cash from investors under a $0.25 per share common stock share subscriptions and agreed to issue common stock in lieu of a $240,000 promissory note. As of September 30, 2008, the private placement had not closed and accordingly the Company recorded a total of $800,000 unissued share liability. The Company was obligated to issue 3,200,000 common shares to settle this liability. On closing the liability was transferred to share capital.
On November 10, 2008, the Company closed the private placement by issuing 4,000,000 common shares at $0.25 per share.
F17
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
11. | Notes Payable |
On March 31, 2008, the Company agreed to issue non-interest bearing promissory notes to certain former Newlook option holders totaling $1,253,000 representing a cancellation fee of $0.30 per option on 4,178,000 cancelled Newlook options (note 5). Pursuant to the terms of the note, the Company is obligated to pay $251,000 on the first day of the month for 5 consecutive months beginning May 1, 2008. The Company did not make payments as originally contemplated, however as of September 30, 2008, the Company reduced the promissory notes with cash payments totaling $398,000 and a credit of $240,000, to a note holder who agreed to subscribe for common shares.
During the year ended September 30, 2009, $43,000 was credited to a note holder who agreed to subscribe for common shares. On September 30, 2009, the Company remains in default and $573,000 is unpaid under these promissory notes. At September 30, 2009, the fair value of the notes payable was $562,000 and accordingly the Company has recorded a $1,000 (2008 - $10,000) adjustment to income in the current period.
12. | Derivative Financial Instrument |
In March 2008, 1,970,000 options were exercised, 3,702,000 options were effectively cancelled by the sale of the underlying shares to the optionee (note 4) and 4,178,000 options were cancelled in exchange for a $0.30 fee per option (note 11). The derivative financial instrument was effectively cancelled and accordingly the Company recorded a $3,405,000 gain in the statement of operations in 2008, representing the final adjustment or extinguishment of the derivative financial instrument.
13. | Commitments and Contingencies |
Wrongful Dismissal Lawsuit:
The Company was a party to a claim by a former employee for wrongful dismissal, alleged breach of contract, punitive and aggravated damages and costs. The Company was released from the claim pursuant to a settlement by a subsidiary of the Company’s investee, Newlook, which was sold to a third party. The Company will record a loss, if any, to the extent the third party defaults under the settlement agreement in the period that it occurs.
Function Mobile Panamanian Project:
On November 19, 2009, Function Mobile Inc. assigned its rights under a letter of intent for a Panamanian project to Gamecorp pursuant to which the Company became obligated to fund approximately $116,000 of capital expenditure and pre breakeven operating costs.
F18
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
14. | Financial Instruments |
The Company has classified its financial instruments as follows:
2009 | 2008 | |||||||||||||||
Carrying amount | Fair value | Carrying amount | Fair Value | |||||||||||||
Financial assets | ||||||||||||||||
Cash | $ | 3,000 | $ | 3,000 | $ | - | $ | - | ||||||||
Short term investments, held for trading measured at fair value | 5,000 | 5,000 | 15,000 | 15,000 | ||||||||||||
Accounts receivable, held-for trading measured at fair value | 25,000 | 25,000 | 57,000 | 57,000 | ||||||||||||
Notes receivable, held-for-trading measured at fair value | 23,000 | 23,000 | 175,000 | 170,000 | ||||||||||||
Investments, available-for-sale measured at fair value | 498,000 | 151,000 | 624,000 | 810,000 | ||||||||||||
Advance to corporation, held-for-trading measured at fair value | - | - | 16,000 | 7,000 | ||||||||||||
$ | 554,000 | 207,000 | $ | 887,000 | $ | 1,059,000 | ||||||||||
Financial liabilities | ||||||||||||||||
Bank indebtedness, other financial liability measured at amortized cost | $ | - | $ | - | $ | 30,000 | $ | 30,000 | ||||||||
Accounts payable and accrued charges, other financial liability measured at amortized cost | 790,000 | 790,000 | 205,000 | 205,000 | ||||||||||||
Due to related parties, other financial liability measured at amortized cost | 226,000 | 226,000 | 10,000 | 10,000 | ||||||||||||
Notes payable, held-for-trading measured at fair value | 573,000 | 562,000 | 615,000 | 605,000 | ||||||||||||
$ | 1,589,000 | $ | 1,578,000 | $ | 860,000 | $ | 850,000 |
Held-for-trading assets and liabilities are carried at fair value. Loans and receivables assets and other financial liabilities are initially measured at fair value and subsequently measured at amortized cost using the effective interest method. For accounts receivable, due from or to related parties, bank indebtedness, accounts payable and accrued charges and liabilities of discontinued operations, the carrying amounts approximate fair value because of the short maturity of these instruments. Notes receivable and payables which are non-interest bearing are carried at fair value.
F19
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
Fair value adjustments to financial instruments are summarized as follows:
2009 | 2008 | |||||||
Derivative financial instrument – note 12 | $ | - | $ | 3,405,000 | ||||
Notes receivable – note 4 | 4,000 | (5,000 | ) | |||||
Notes payable – note 11 | 1,000 | 10,000 | ||||||
Total | $ | 5,000 | $ | 3,410,000 |
Financial Risk Management
The Company has exposure to credit risk, foreign exchange risk and liquidity risk. The Company has established policies and procedures to manage these risks, with the objective of minimizing any adverse effect that changes in these variables could have on the consolidated financial statements.
Credit Risk
The Company's financial assets that are exposed to credit risk consist primarily of accounts receivable and notes receivable. At September 30, 2009 and 2008, the balance of accounts receivable was $25,000 and $57,000, the balance of notes receivable at cost was $23,000 and $175,000. Accounts receivable represent GST refunds, the collection of which has typically spanned abnormal periods of time. Notes receivable are secured by common shares of Newlook which had a fair value of $59,000 on September 30, 2009.
Foreign Exchange Risk
Foreign exchange risk arises from the extent of assets invested in U.S. dollars. The Company’s investment in Gate To Wire and InterAmerican are in U.S. dollars. As at September 30, 2009, prior to adjustments for equity losses, the amount invested in InterAmerican at cost was US$1,082,000 (CAD $1,158,000) and the amount invested in Gate To Wire at cost was US$444,000 (CAD $475,000). A one cent change in the value of the U.S. dollar relative to the value of the Canadian dollar would result in a CAD$15,000 change in value of these investments. The Company monitors foreign exchange fluctuations and may execute hedges to counterbalance currency movements.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity risk is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company manages liquidity risk by closely monitoring changing conditions in its investees, participating in the day to day management and by forecasting cash flows from operations and anticipated investing and financing activities.
The Company has recently been reorganized and moved in a new business direction. At September 30, 2009, there is doubt about the Company’s ability to continue as a going concern primarily due to its history of losses and a $1,562,000 working capital deficit. Liquidity risk continues to be a key concern in the development of future operations and the success of its investments.
F20
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
15. | Share Capital |
Authorized: 100,000,000 Common Shares without par value.
On June 24, 2008, the Company completed a share consolidation on a one post-consolidation common share for ten pre-consolidation common shares.
On November 10, 2008, the Company issued 4,000,000 common shares pursuant to a private placement at $0.25 per share of which $800,000 was recorded as unissued share liability at September 30, 2008 (note 10).
On July 1, 2009, the company issued an additional 1,000,000 common shares pursuant to a private placement at $0.10 per share.
Issued:
2009 | 2008 | |||||||||||||||
No. of Shares | Amount | No. of Shares | Amount | |||||||||||||
Beginning of year | 4,226,093 | $ | 44,286,000 | 42,430,174 | $ | 44,308,000 | ||||||||||
Issued in private placement | 5,000,000 | 1,100,000 | - | - | ||||||||||||
Cancelled prior to consolidation | - | - | (128,125 | ) | - | |||||||||||
Cancelled due to consolidation | - | - | (42,302,049 | ) | - | |||||||||||
Issued due to consolidation | - | - | 4,230,205 | - | ||||||||||||
Cancelled | (23,190 | ) | (1,000 | ) | - | - | ||||||||||
Treasury shares | 4,112 | 22,000 | (4,112 | ) | (22,000 | ) | ||||||||||
End of year | 9,207,015 | $ | 45,407,000 | 4,226,093 | $ | 44,286,000 |
a) Stock Options
The Company awards unconditional stock options to employees, officers, directors and others at the recommendation of the Chief Executive Officer (“CEO”) under an incentive stock plan (the "Plan"). Options are granted at the fair market value of the shares on the day granted, and vest over various terms. Compensation expense is recognized when options are issued over the vesting term.
F21
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
Stock options outstanding on June 24, 2008 were adjusted for a common share consolidation based on one post-consolidation common share for each ten pre-consolidation common shares. Through the share consolidation 2,371,000 options with a weighted average exercise price (“WAEP”) price of $0.65 were cancelled and replaced by 237,100 with a WAEP of $6.46.
The following is a continuity schedule of outstanding options for the reporting periods:
No. of Options | 2009 WAEP | No. of Options | 2008 WAEP | |||||||||||||
Beginning of year | 237,100 | $ | 6.46 | 2,791,000 | $ | 0.63 | ||||||||||
Expired | (119,600 | ) | 8.87 | (420,000 | ) | 0.55 | ||||||||||
Cancelled due to consolidation | - | - | (2,371,000 | ) | (0.65 | ) | ||||||||||
Issued due to consolidation | - | - | 237,100 | 6.46 | ||||||||||||
End of year | 117,500 | $ | 4.00 | 237,100 | $ | 6.46 |
The following table summarizes stock option information outstanding at September 30, 2009, where “yrs” refers to years.
Exercise Prices of Options | Number Outstanding and Exercisable | Weighted-Average Remaining Contractual Life | Weighted-Average Exercise Price | |||
$ 4.00 | 117,500 | 0.53 yrs | $ 4.00 | |||
The following table summarizes stock option information outstanding at September 30, 2008:
Exercise Prices of Options | Number Outstanding and Exercisable | Weighted-Average Remaining Contractual Life | Weighted-Average Exercise Price | |||
$ 4.00 | 117,500 | 1.53 yrs | $ 1.98 | |||
$ 8.50 | 79,600 | 0.50 yrs | $ 2.85 | |||
$ 9.60 | 40,000 | 0.23 yrs | $ 1.62 | |||
$4.00-$9.60 | 237,100 | 0.98 yrs | $ 6.46 |
F22
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
In 2009 and 2008, the Company did not award any options to buy shares of the Company under the Plan.
No stock options were exercised during 2009 and 2008. In 2009 and 2008, the Company expensed $nil related to the fair value of the options granted in earlier periods.
Under the Plan, at September 30, 2009, the Company has authorized for issuance a maximum of 720,000 options to acquire common shares of the Company of which 602,500 options are available. The total proceeds that would be generated upon exercise of all issued and outstanding options is approximately $470,000.
b) Warrants
Warrants outstanding on June 24, 2008 were adjusted for a common share consolidation based on one post-consolidation common share for each ten pre-consolidation common shares. Through the share consolidation, warrants to acquire 7,140,000 common shares with a WAEP of $0.63 were cancelled and replaced with 714,000 warrants with a WAEP of $6.25.
The following is a continuity schedule of outstanding warrants for fiscal 2009:
Fiscal 2009 | Fiscal 2008 | |||||||||||||||
No. of Warrants | WAEP | No. of Warrants | WAEP | |||||||||||||
Beginning of year | 714,000 | 6.25 | 10,710,000 | 0.50 | ||||||||||||
Expired | (357,000 | ) | (5.00 | ) | (3,570,000 | ) | (0.25 | ) | ||||||||
Cancelled due to consolidation | - | - | (7,140,000 | ) | (0.63 | ) | ||||||||||
Issued due to consolidation | - | - | 714,000 | 6.25 | ||||||||||||
End of year | 357,000 | 7.50 | 714,000 | 6.25 |
The following table summarizes purchase warrants information outstanding as at September 30, 2009:
No. Outstanding | Expiry Date | Exercisable Date | WAEP |
357,000 | May 7, 2010 | May 7, 2009 | 7.50 |
(The accompanying notes are an integral part of these consolidated financial statements.)
F23
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
c) Contributed Surplus
Contributed surplus consisted of stock-based compensation of $1,189,000 and $89,000 representing the fair value of warrants as part of financing. During the year ended September 30, 2009, 4,112 treasury shares valued at $22,000, were issued and 23,190 shares valued at $1,000 were cancelled.
September 30, 2007 and 2008 | $ | 1,278,000 | |||
Treasury shares: | - issued (4,112) | (22,000 | ) | ||
- cancelled (23,190) | 1,000 | ||||
September 30, 2009 | $ | 1,257,000 |
16. Related Party Transactions
All transactions within the corporate group are in the normal course of business and are recorded at the exchange value agreed to by the related parties. Inter-company transactions and balances are eliminated upon consolidation.
Service fees charged by directors, officers or corporations owned by management personnel during the year totaled $468,000 (2008 - $686,000).
Management fees earned from investees during the period totaled $240,000 (2008 - $195,000) and interest income earned from investees during the current period was $Nil (2008 - $116,000).
Included in accounts payable are payables to directors, officers or corporations owned by management personnel of $586,000 (2008 - $105,000).
Interest incurred to related parties during the period totaled $15,000 (2008-$29,000).
17. Income Taxes
The Company accounts for income taxes using the asset and liability method. Tax asset and liability account balances are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rate. The effects of future changes in tax losses are not anticipated.
F24
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
The provision for income taxes has been computed as follows:
2009 | 2008 | |||||||
Expected income tax (recovery) expense at the statutory rate of 33.13% (2008 – 33.5%) | $ | (979,000 | ) | $ | 1,007,000 | |||
Increase (decrease) in taxes resulting from: | ||||||||
Non-taxable portion of losses (gains) | 37,000 | (110,000 | ) | |||||
Impairment of due from related parties | 231,000 | - | ||||||
Non-taxable gain on dilution | (2,000 | ) | (1,140,000 | ) | ||||
Non-taxable equity pick-up | 338,000 | 134,000 | ||||||
Tax rate changes | 23,000 | 177,000 | ||||||
Unrealized foreign exchange | 15,000 | - | ||||||
Discontinued operations: | ||||||||
Non-taxable portion of gains | (98,000 | ) | - | |||||
Non-taxable equity pick-up | 176,000 | - | ||||||
Valuation allowances | 259,000 | (68,000 | ) | |||||
Provision for income taxes | $ | - | $ | - |
The components of future income taxes are as follows:
2009 | 2008 | |||||||
Net operating losses carried forward | $ | 2,459,000 | $ | 2,177,000 | ||||
Difference between accounting and tax carrying – value of equipment | - | 23,000 | ||||||
Valuation allowance | (2,459,000 | ) | (2,200,000 | ) | ||||
$ | - | $ | - |
The Company has tax losses of $7,117,000 (2008 - $6,498,000) available to be applied against future years' taxable income. In order to record a future income tax benefit, it must be more likely than not that the future tax asset resulting from the tax losses available for carryforward will be realized. Given the Company's uncertainty regarding profitability, the Company has set up a 100% valuation allowance in respect of the future income tax asset and the current taxes. The tax losses expire in years ranging from 2009 through 2019.
F25
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
18. | Reconciliation between Canadian and United States Generally Accepted Accounting Principles |
These consolidated financial statements have been prepared in accordance with Canadian GAAP which differs in certain respects from U.S. GAAP. There were no material differences between Canadian and U.S. GAAP.
In September 2006, Financial Accounting Standards Board (“FASB”) issued Statement of Accounting Standards (“SFAS”) No. 158, “Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)” ("SFAS 158") . The Company has adopted SFAS 158 except for the requirement to measure plan assets and benefit obligations as of the date of the Company's fiscal year-end statement of financial position which is effective to fiscal years beginning after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS 158 could have on its consolidated financial statements.
In December 2007, FASB issued SFAS No. 141 (revised 2007), “Business Combinations” ("SFAS 141(R)"). This statement replaces SFAS No. 141, “Business Combinations” and requires an acquirer to recognize the assets acquired, the liabilities assumed, including those arising from contractual contingencies, any contingent consideration, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. SFAS 141(R) also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other am ounts determined in accordance with SFAS 141(R)). In addition, SFAS 141(R)'s requirement to measure the noncontrolling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the noncontrolling interest in addition to that attributable to the acquirer. SFAS 141(R) amends SFAS No. 109, “Accounting for Income Taxes”, to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. It also amends SFAS 142, “Goodwill and Other Intangible Assets”, to, among other things, provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. SFAS 141(R) applies prospectively to business combinations for which the acquisition dat e is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS 141(R) could have on its consolidated financial statements.
In December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” ("SFAS 160"). SFAS 160 amends Accounting Research Bulletin 51, “Consolidated Financial Statements”, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires
F26
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS 160(R) could have on its consolidated financial statements.
In February 2008, FASB issued FASB Staff Position (“FSP”) on SFAS No. 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (“FSP SFAS 140-3”). The objective of this FSP is to provide guidance on accounting for a transfer of a financial asset and a repurchase financing. This FSP presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement (linked transaction) under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” ("SFAS 140"). However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under SFAS No. 140.& #160; FSP SFAS 140-3 is effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within these fiscal years. Earlier application is not permitted. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In February 2008, FASB issued FSP on American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 07-1-1, “Effective Date of AICPA Statement of Position 07-1” (“FSP SOP 07-1-1”). FSP SOP 07-1-1 delays indefinitely the effective date of AICPA Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies'' ("SOP No. 07-1"). SOP No. 07-1 clarifies when an entity may apply the provisions of the Guide. Investment companies that are within the scope of the Guide report investments at fair value; consolidation or use of the equity method for inv estments is generally not appropriate. SOP No. 07-1 also addresses the retention of specialized investment company accounting by a parent company in consolidation or by an equity method investor. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In March 2008, FASB issued SFAS 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133" ("SFAS 161"). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS 161 could have on its consolida ted financial statements.
In April 2008, FASB issued FSP SFAS 142-3, "Determination of the Useful Life of Intangible
F27
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
Assets" ("FSP SFAS 142-3"). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (revised 2007), “Business Combinations”, and other US GAAP. FSP SFAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The requirement for determining useful lives must be applied pro spectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. Early adoption is prohibited. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In May, 2008, FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants." Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginn ing after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In May 2008, FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (the GAAP hierarchy). SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles". The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In June 2008, FASB issued FSP EITF Issue 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method described in paragraphs 60 and 61 of SFAS No. 128, “Earnings per Share”. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements .
F28
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
In September 2008, FASB issued FSP SFAS 133-1 and FIN 45-4, "Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161" (“FSP SFAS 133-1 and FIN 45-4”). FSP SFAS 133-1 and FIN 45-4 amends FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”, to require disclosures by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument. FSP SFAS 133-1 and FIN 45-4 also amends FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others̶ 1;, to require an additional disclosure about the current status of the payment/performance risk of a guarantee. Further, FSP SFAS 133-1 and FIN 45-4 clarifies the Board’s intent about the effective date of FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. FSP SFAS 133-1 and FIN 45-4 is effective for reporting periods (annual or interim) ending after November 15, 2008. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In October 2008, FASB issued FSP SFAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active"” (“FSP SFAS 157-3”). FSP SFAS 157-3 clarifies the application of FASB Statement No. 157, “Fair Value Measurements”, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP SFAS 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The adoption did not have a material impact on the Company’s financial position or results of operations.
In December 2008, FASB issued FSP SFAS 140-4 and FIN 46 (R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSP SFAS 140-4 and FIN 46 (R)”). FSP SFAS 140-4 and FIN 46 (R) amends FASB SFAS 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, to require public entities to provide additional disclosures about transfers of financial assets. It also amends FASB SFAS 46 (revised December 2003), “Consolidation of Variable Interest Entities”, to require public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities. Additionally, this FSP re quires certain disclosures to be provided by a public enterprise that is (a) a sponsor of a qualifying special purpose entity (“SPE”) that holds a variable interest in the qualifying SPE but was not the transferor (nontransferor) of financial assets to the qualifying SPE and (b) a servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor (nontransferor) of financial assets to the qualifying SPE. The disclosures required by FSP SFAS 140-4 and FIN 46 (R)” are intended to provide greater transparency to financial statement users about a transferor’s continuing involvement with transferred financial assets and an enterprise’s involvement with variable interest entities and qualifying SPEs. FSP SFAS 140-4 and FIN 46 (R) is effective for reporting periods (annual or interim) ending after December 15, 2008. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In December 2008, FASB issued FSP SFAS 132(R)-1, “Employers' Disclosures about Postretirement Benefit Plan Assets” (“FSP SFAS 132 (R)-1”). FSP SFAS 132(R)-1 amends SFAS132(R) to provide guidance on an employer's disclosures about plan assets of a defined benefit pension or other postretirement plan. It also includes a technical amendment to SFAS 132(R) that
F29
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
requires a non-public entity to disclose net periodic benefit cost for each annual period for which a statement of income is presented. FSP SFAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In April 2009, FASB issued FSP SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP SFAS 157-4”),which provides guidance for making fair value measurements more consistent with the principles presented in SFAS 157. FSP SFAS 157-4 provides additional authoritative guidance in determining whether a market is active or inactive, and whether a transaction is distressed. It is applicable to all assets and liabilities (e.g. financial and nonfinancial) and will require enhanced disclosures. It is effective for interim and annual reporting periods ending after June 15, 2009. The Company has adopted this standard for the period ended September 30, 2009 with no impact on its cons olidated financial statements.
In April 2009, FASB issued FSP SFAS 115-2 and SFAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”, (“FSP SFAS 115-2 and SFAS 124-2”) which provides additional guidance to provide greater clarity about the credit and noncredit component of any other-than-temporary impairment event related to debt securities and to more effectively communicate when an other-than-temporary impairment event has occurred. It is effective for interim and annual reporting periods ending after June 15, 2009. The adoption did not have a material impact on the Company’s financial position or results of operations.
In April 2009, FASB issued FSP SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”, (“FSP SFAS 107-1 and APB 28-1”) which amends SFAS 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. FSP SFAS 107-1 and APB 28-1 also amends APB Opinion 28, “Interim Financial Reporting”, to require those disclosures in all interim financial statements. It is effective for interim periods ending after December 31, 2009. The Company does not anticipate its adoption having a material impact on its consolidated financial statements.
In April 2009, FASB issued FSP SFAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”, (“FSP SFAS141(R)-1”), which amends and clarifies SFAS 141 (revised 2007), “Business Combinations”, to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. It is effective for assets and liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company has adopted this standard for the period ended September 30, 2009 with no impact on its consolidated financial statements.
In April 2009, the SEC released Staff Accounting Bulletin No. 11, “Other Than Temporary Impairment of Certain Investments in Equity Securities” (“SAB 111”), which amends SAB Topic 5-M, “Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities”. SAB
F30
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
111 notes that FSP SFAS 115-2 and SFAS 124-2 were scoped to debt securities only, and the FSP referred readers to SEC SAB Topic 5-M for factors to consider with respect to other-than-temporary impairments for equity securities. With the amendments in SAB 111, debt securities are excluded from the scope of Topic 5-M, but the SEC staff’s views on equity securities are still included within the topic. The Company currently does not have any financial assets that are other-than-temporary impaired.
In May 2009, FASB issued SFAS 165 “Subsequent Events”, (“SFAS 165”) , which establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statement are issued or available to be issued. In particular, SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements’ and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.It is effective for interim and annual periods ending after June 15, 2009. The Company has adopted this standard for the period ended September 30, 2009 with no impact on its consolidated financial statements.
In June 2009, the FASB issued SFAS 166 "Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140." This standard eliminates the concept of a qualifying special purpose entity ("QSPE") and modifies the derecognition provisions in SFAS 140. This statement is effective for financial asset transfers occurring after the beginning of an entity's first fiscal year that begins after November 15, 2009. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In June 2009, the FASB issued SFAS 167 "Amendments to FASB Interpretation No. 46(R)." This statement amends the consolidation guidance applicable to variable interest entities and is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2009. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In June 2009, the FASB issued SFAS 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (“SFAS 168”). SFAS 168 provides for the FASB Accounting Standards Codification (“ASC”) to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP). The ASC did not change GAAP but reorganizes the literature. SFAS 168 was effective for interim and annual periods ending after September 15, 2009. The adoption of this statement did not have a material impact on the Company’s consolidated financial statements.
In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, “Measuring Liabilities at Fair Value” (“ASU 2009-05”), which clarifies, among other things, that when a quoted price in an active market for the identical liability is not available, an entity must measure fair value using one or more specified techniques. ASU 2009-05 was effective for the first reporting period, including interim periods, beginning after issuance. The Company will adopt the update effective October 1, 2009 and expects the adoption will not have a material impact on its consolidated financial statements
F31
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
In September 2009, the FASB issued ASU 2009-12, “Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU 2009-12”). This update permits the measurement of fair value of an investment, within the scope of this update, on the basis of the net asset value per share of the investment if the net asset value of the investment is calculated in a manner consistent with the measurement principles of Topic 946 as of the measurement date, including measurement of all or substantially all of the underlying investments of the investee in accordance with Topic 820. ASU 2009-12 is effective for interim and annual periods ending after December 15, 2009. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial stat ements.
In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”). ASU 2009-13 applies to revenue arrangements currently in the scope of FASB ASC Subtopic 605-25, “Multiple Element Arrangements”, and provides principles and application guidance on whether arrangements with multiple deliverables exist, how the deliverables should be separated, and the consideration allocated to the deliverables. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
19. Capital Disclosures
The Company’s primary objectives with respect to its capital management is to maximize shareholder returns while ensuring that the Company is capitalized in a manner which appropriately supports regulatory requirements, working capital needs and the development of its investments. The Company’s capital management practices are focused on preserving the quality of its financial position by maintaining a solid capital base and strong balance sheet.
The Company’s capital is primarily utilized to support working capital requirements, fund the development of its investments and to identify and evaluate other development stage opportunities. The Company is not subject to externally imposed capital requirements and its investments have complied with all regulatory capital requirements.
To secure the additional capital necessary to pursue these plans, the Company may attempt to raise additional funds through the issuance of equity or debt instruments. The Company includes equity, comprised of issued common shares, and convertible debt or debentures, in the definition of capital.
Capital activities for the twelve months ended September 30, 2009 include: the issuance of 5,000,000 common shares pursuant to private placements (Note 15); the issuance of 4,112 treasury shares valued at $22,000 and the cancellation of 23,190 shares valued at $1,000.
F32
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
20. Supplemental Cash Flow Disclosure
During the year, the Company had cash flows arising from interest and income taxes paid as follows:
2009 | 2008 | |||||||
Interest paid | $ | - | $ | 29,000 | ||||
Income taxes paid | $ | - | $ | - |
During fiscal 2009 the Company had the following non-monetary transactions:
During the year ended September 30, 2009 the Company offset $43,000 of notes payable to notes receivable.
During fiscal 2008 the Company had the following non-monetary transactions:
a) | The Company acquired 11,401,600 InterAmerican common shares in exchange for the retirement of a $493,000 note receivable (notes 4 and 8a). |
b) | The Company extinguished a derivative financial instrument, valued at $4,657,000, by issuing notes payable of $1,253,000 (note 11) and receiving notes receivable of $586,000 (note 4). |
c) | The Company agreed to issue 2,400,000 common shares in exchange for notes payable liabilities of $240,000 (notes 10 and 11). |
21. | Economic Dependence |
A substantial portion of the Company's revenue is derived from management fees charged to investees. The following management fees are recorded in the consolidated financial statements:
2009 | 2008 | |||||||
InterAmerican | $ | 180,000 | $ | 150,000 | ||||
Gate to Wire | 60,000 | 45,000 | ||||||
$ | 240,000 | $ | 195,000 |
F33
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2009 and 2008
22. Segmented Information
In 2009 and 2008 the Company operated in only one segment known as corporate. All assets and liabilities in these financial statements belong to Gamecorp.
23. | Subsequent Events |
On December 31, 2009, Mr. Stephen Dulmage resigned as a member of the Board of Directors and Chairman of the Audit Committee of the Company. Mr. Dulmage’s resignation was voluntary and did not involve a disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
F34
GAMECORP LTD. (FORMERLY EIGER TECHNOLOGY, INC.)
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2008 AND 2007
(EXPRESSED IN CANADIAN DOLLARS)
F1
AUDITORS' REPORT
To the Shareholders of
Gamecorp Ltd.
We have audited the consolidated balance sheets of Gamecorp Ltd. as at September 30, 2008 and 2007 and the consolidated statements of operations, comprehensive income (loss), deficit and cash flows for each of the years ended September 30, 2008 and 2007. The financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). 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 belie ve that our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at September 30, 2008 and 2007 and the results of its operations and its cash flows for the years in the two-year period ended September 30, 2008 in accordance with Canadian generally accepted accounting principles.
“SF Partnership, LLP”
Toronto, Canada LICENSED PUBLIC AC COUNTANTS
January 22, 2009
F2
COMMENTS BY AUDITORS ON CANADA - UNITED STATES
REPORTING DIFFERENCES
The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph when the financial statements are affected by conditions and events that cast substantial doubt on the company's ability to continue as a going concern, such as those described in note 2 to the consolidated financial statements. Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), our report to the shareholders dated January 22, 2009 is expressed in accordance with Canadian reporting standards which do not permit a reference to such conditions and events in the auditors’ report when these are adequately disclosed in the financial statements.
“SF Partnership, LLP”
Toronto, Canada LICENSED PUBLIC ACCOUNTANTS
January 22, 2009
F3
GAMECORP LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2008 and 2007
ASSETS | 2008 | 2007 | ||||||
Current | ||||||||
Short term investments | $ | 15,000 | $ | - | ||||
Accounts receivable | 57,000 | 33,000 | ||||||
Prepaid expenses and sundry assets | 8,000 | 3,000 | ||||||
Notes receivable (note 4) | 156,000 | 624,000 | ||||||
Total Current Assets | 236,000 | 660,000 | ||||||
Equipment (note 6) | 41,000 | 50,000 | ||||||
Advance to Corporation (note 7) | 7,000 | 16,000 | ||||||
Investments (note 8) | 1,976,000 | - | ||||||
Assets of discontinued operations (note 5) | 527,000 | 207,000 | ||||||
Due from Related Parties (note 9) | - | 2,936,000 | ||||||
Notes Receivable (note 4) | 14,000 | - | ||||||
Total Long-Term Assets | 2,565,000 | 3,209,000 | ||||||
Total Assets | $ | 2,801,000 | $ | 3,869,000 | ||||
LIABILITIES | ||||||||
Current | ||||||||
Bank indebtedness | $ | 30,000 | $ | 6,000 | ||||
Accounts payable and accrued charges | 205,000 | 368,000 | ||||||
Due to related parties (note 9) | 10,000 | - | ||||||
Notes payable (note 11) | 605,000 | - | ||||||
Current portion of derivative financial instrument (note 12) | - | 1,777,000 | ||||||
Current liabilities of discontinued operations (note 5) | - | 702,000 | ||||||
Total Current Liabilities | 850,000 | 2,853,000 | ||||||
Derivative Financial Instrument (note 12) | - | 2,880,000 | ||||||
Total Long-Term Liabilities | - | 2,880,000 | ||||||
Total Liabilities | 850,000 | 5,733,000 | ||||||
Commitments and Contingencies (note 13) | ||||||||
SHAREHOLDERS’ EQUITY (DEFICIENCY) | ||||||||
Share Capital (note 15) | 44,286,000 | 44,286,000 | ||||||
Contributed Surplus (note 15c) | 1,278,000 | 1,278,000 | ||||||
Unissued Share Liability (note 10) | 800,000 | - | ||||||
Deficit | (44,600,000 | ) | (47,428,000 | ) | ||||
Accumulated Other Comprehensive Income | 187,000 | - | ||||||
Total Shareholders’ Equity (Deficit) | 1,951,000 | (1,864,000 | ) | |||||
Total Liabilities and Shareholders’ Equity (Deficit) | $ | 2,801,000 | $ | 3,869,000 |
APPROVED ON BEHALF OF THE BOARD | |||||
“JOHN G. SIMMONDS” (Director) | “STEPHEN DULMAGE” (Director) |
(The accompanying notes are an integral part of these consolidated financial statements.)
F4
GAMECORP LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended September 30, 2008 and 2007
2008 | 2007 | |||||||
Revenues | ||||||||
Management fees (note 16 and 22) | $ | 195,000 | $ | - | ||||
Interest income (note 16) | 116,000 | 47,000 | ||||||
311,000 | 47,000 | |||||||
Expenses | ||||||||
Selling, general and administrative | 1,052,000 | 636,000 | ||||||
Amortization of equipment | 11,000 | 12,000 | ||||||
Foreign exchange (gain) loss | (71,000 | ) | 40,000 | |||||
Total Expenses | 992,000 | 688,000 | ||||||
Loss from Operations | (681,000 | ) | (641,000 | ) | ||||
Other Income (Expenses) | ||||||||
Interest and bank charges | (41,000 | ) | (2,000 | ) | ||||
Fair value adjustment to financial instruments (note 14) | 3,410,000 | (4,567,000 | ) | |||||
Gain on dilution (note 5) | - | 4,525,000 | ||||||
Share of losses of equity accounted investee (note 8d) | (361,000 | ) | (80,000 | ) | ||||
Write down of advance to corporation (note 7) | (9,000 | ) | (15,000 | ) | ||||
Gain/(loss) on disposal of investments (note 8d) | 65,000 | (97,000 | ) | |||||
Total Other Income (Expenses) | 3,064,000 | (236,000 | ) | |||||
Earnings (Loss) from Continuing Operations | ||||||||
Before Income Taxes | 2,383,000 | (877,000 | ) | |||||
Provision for income taxes – future (note 17) | - | - | ||||||
Earnings (Loss) from Continuing Operations | 2,383,000 | (877,000 | ) | |||||
Earnings (Loss) from Discontinued Operations (no tax effect) (note 5) | 445,000 | (979,000 | ) | |||||
Net Earnings (Loss) | $ | 2,828,000 | $ | (1,856,000 | ) | |||
Deficit – Beginning of Year | (47,428,000 | ) | (45,572,000 | ) | ||||
Deficit – End of Year | $ | (44,600,000 | ) | $ | (47,428,000 | ) | ||
Earnings (Loss) Per Weighted Average Number of Shares Outstanding – Basic and Diluted | ||||||||
Continuing Operations | $ | 0.56 | $ | (0.22 | ) | |||
Net Earnings (Loss) | $ | 0.67 | $ | (0.46 | ) | |||
Weighted Average Number of Shares Outstanding – Basic and Diluted | 4,232,874 | 4,019,892 |
(The accompanying notes are an integral part of these consolidated financial statements.)
F5
GAMECORP LTD. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
Years Ended September 30, 2008 and 2007
2008 | 2007 | |||||||
Net Earnings (Loss) | $ | 2,828,000 | $ | (1,856,000 | ) | |||
Unrealized gain on available-for-sale investments (note 8d) | 187,000 | - | ||||||
Comprehensive Income (Loss) | $ | 3,015,000 | $ | (1,856,000 | ) |
(The accompanying notes are an integral part of these consolidated financial statements.)
F6
GAMECORP LTD. AND SUBSIDIARIES
Consolidated Statements of Deficit
Years Ended September 30, 2008 and 2007
2008 | 2007 | |||||||
Beginning of Year | $ | (47,428,000 | ) | $ | (45,572,000 | ) | ||
Net Earnings (Loss) | 2,828,000 | (1,856,000 | ) | |||||
End of Year | $ | (44,600,000 | ) | $ | (47,428,000 | ) |
(The accompanying notes are an integral part of these consolidated financial statements.)
F7
GAMECORP LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended September 30, 2008 and 2007
2008 | 2007 | |||||||
Cash Flows from Operating Activities | ||||||||
Net earnings (loss) from continuing operations | $ | 2,383,000 | $ | (877,000 | ) | |||
Adjustments for: | ||||||||
Amortization of property and equipment | 11,000 | 12,000 | ||||||
Foreign exchange | - | 40,000 | ||||||
Fair value adjustments on financial instruments | (3,410,000 | ) | 4,567,000 | |||||
Gain on dilution | - | (4,525,000 | ) | |||||
Share of losses of equity accounted investee | 361,000 | 80,000 | ||||||
Write down of advance to corporation | 9,000 | 15,000 | ||||||
(Gain)/loss on disposal of investments | (65,000 | ) | 97,000 | |||||
Funds used in continuing operating activities | (711,000 | ) | (591,000 | ) | ||||
Changes in Non-Cash Working Capital: | ||||||||
Accounts receivable | (24,000 | ) | (25,000 | ) | ||||
Prepaid expenses and sundry assets | (5,000 | ) | 7,000 | |||||
Accounts payable and accrued charges | (162,000 | ) | 142,000 | |||||
Net funds used in continuing operating activities | (902,000 | ) | (467,000 | ) | ||||
Net loss from discontinued operations | 445,000 | (979,000 | ) | |||||
Adjustments for: | ||||||||
Non-cash earnings | (59,000 | ) | (30,000 | ) | ||||
Gain on disposal of investments | (598,000 | ) | - | |||||
Proceeds from sale of investments | 655,000 | - | ||||||
Write down of investment | 212,000 | - | ||||||
Liabilities of discontinued operations | (702,000 | ) | 702,000 | |||||
Net funds used in discontinued operations | (47,000 | ) | (307,000 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Increase in investments | (2,388,000 | ) | - | |||||
Due from related parties | 2,936,000 | (1,314,000 | ) | |||||
Acquisition of property and equipment | (2,000 | ) | (5,000 | ) | ||||
Increase in short term investments | (15,000 | ) | ||||||
Proceeds from sale of investment | 91,000 | 1,476,000 | ||||||
Proceeds from collection of note receivable | 131,000 | - | ||||||
Net funds provided by investing activities | 753,000 | 157,000 | ||||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from common stock private placement | - | 536,000 | ||||||
Proceeds from common stock subscriptions | 560,000 | - | ||||||
Due to related parties | 10,000 | - | ||||||
Repayment of notes payable | (398,000 | ) | - | |||||
Bank indebtedness | 24,000 | 6,000 | ||||||
Net funds provided by financing activities | 196,000 | 542,000 | ||||||
Net Decrease in Cash | - | (75,000 | ) | |||||
Cash – Beginning of Year | - | 75,000 | ||||||
Cash – End of Year | $ | - | $ | - |
Supplemental information provided in note 21.
(The accompanying notes are an integral part of these consolidated financial statements.)
F8
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
1. Organization and Nature of Business
Gamecorp Ltd. (the "Company" or "Gamecorp") was originally incorporated as Alexa Ventures Inc. on September 8, 1986 under the laws of British Columbia. Currently, the Company is in good standing, operating under the laws of Ontario. On May 28, 2008, the Company changed its name from Eiger Technology, Inc. to Gamecorp Ltd. The Company is listed as an issuer on the CNSX.
The Company is an investment and merchant banking enterprise focused on the development of its investments. The Company’s current key investments are in the Gaming and Technology sectors. InterAmerican Gaming, Inc. (“InterAmerican”) (formerly Racino Royale, Inc.), and Gate To Wire Solutions, Inc. (“Gate To Wire”) (formerly TrackPower, Inc.) are development stage enterprises involved in international gaming ventures. The Company has also invested in Baymount Incorporated (“Baymount”), which is developing a gaming entertainment centre in Belleville, Ontario. The Company has a legacy investment stake in Newlook Industries Corp. (“Newlook”), an enterprise with technology and telecommunications investments.
InterAmerican
InterAmerican is developing Latin American gaming opportunities through its subsidiaries InterAmerican Operations, Inc. and IAG Peru S.A.C.
On October 1, 2007, the Company held a 50.4% ownership interest in InterAmerican. By September 30, 2007, the Company had reduced its interest in InterAmerican to approximately 10%. Prior to 2007 the Company consolidated the operating results and balance sheets of Newlook and InterAmerican with its financial statements. During fiscal 2007, due to a reduction in ownership percentage as described below, the investments in Newlook and InterAmerican have been deconsolidated. The effects of deconsolidation are described in notes 8 and 9. Through a series of c ash advances later converted into equity of InterAmerican, the Company increased its interest to 46.9% at September 30, 2008. InterAmerican and the Company have certain common officers and directors.
Gate To Wire
On October 1, 2007, the Company held an 8% interest in Gate To Wire and on September 30, 2008 it increased the interest to 18.3% through a conversion of cash advances to equity. Gate To Wire is being reorganized and will focus on distributing live horseracing signals in Latin America through a recently acquired license. Gate To Wire and the Company have certain common officers and directors.
Baymount
Baymount is redeveloping a horseracing and gaming facility in Canada and the Company holds a 1% ownership interest in Baymount. Baymount and the Company have a common director.
F9
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
1. Organization and Nature of Business, cont’d
Newlook
On October 1, 2006, the Company held a 78.5% ownership interest in Newlook. During fiscal 2007, the Company made a decision to dispose of its investment in order to focus on other business opportunities. On September 30, 2007 the Company held a 35% ownership position in Newlook. During fiscal 2008 the Company entered into agreements, with parties it had granted call options to acquire its investment in Newlook in fiscal 2007. The agreements had the effect of canceling or unwinding the previously issued options and resulted in increasing the Company’s interest in Newlook from zero to 18.5%. Newlook and the Company have certain common officers and directors.
2. | Going Concern |
The accompanying consolidated financial statements have been prepared on a going concern basis, in accordance with Canadian generally accepted accounting principles ("GAAP") and accounting principles generally accepted in the United States of America.
The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and contingencies in the normal course of operations.
There is doubt about the Company's ability to continue as a going concern as the Company has a working capital deficiency of $614,000 as at September 30, 2008 (2007 - $2,193,000) and an accumulated deficit of $44,600,000 as at September 30, 2008. The Company's ability to continue as a going concern is dependent upon the Company's ability to raise additional capital, to increase management fees and interest income, and sustain profitable operations. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.
The Company believes that future share issuance and increased management fees to existing and future investees will provide sufficient cash flow for it to continue as a going concern in its present form, however, there can be no assurances that the Company will achieve such results. Accordingly, the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.
3. Significant Accounting Policies |
These consolidated financial statements have been prepared in accordance with Canadian GAAP which, except as noted in note 18, is consistent in all material respects with accounting principles generally accepted in the United States of America. The principal accounting policies followed by the Company are as follows:
F10
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
3. Significant Accounting Policies, cont’d
a) | Basis of Presentation |
The accompanying consolidated financial statements include the accounts of Gamecorp and its subsidiaries are presented in Canadian dollars under the accrual method of accounting. All significant intercompany transactions and balances have been eliminated upon consolidation.
The Company has the following subsidiaries:
Name of Corporation | % Ownership |
Alexa Properties Inc.* | 100% |
ETIFF Holdings (BC) Ltd.* | 100% |
Club Connects Corp.* | 100% |
EigerNet Inc.* | 58.4% |
Applied Lighting Technologies Inc.* | 75% |
Energy Products International Ltd.* | 75% |
International Balast Corp.* | 75% |
Call Zone Canada Inc.* | 100% |
990422 Ontario Ltd.* | 100% |
* Inactive or holding company only
b) | Discontinued Operations |
The Company has recognized the results of its investment in Newlook as discontinued operations. During fiscal 2007 the Company made a decision to dispose of its investment over time to focus on other gaming based opportunities. |
c) | Short Term Investments |
Short term investments are carried at the lower of cost or fair value and consist of guaranteed investment certificates. |
d) | Equipment |
Equipment is stated at cost. Amortization, based on the estimated useful lives of the assets, is provided using the under noted annual rates and methods:
Furniture and fixtures | 20% | Declining balance |
Computer equipment | 30% | Declining balance |
F11
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
3. | Significant Accounting Policies, cont’d |
e) | Investments |
Investments in other entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company's ability to exercise significant influence over the operating and financial policies of the investee.
Equity Investments
Equity investments are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment. When net losses from an equity accounted for investment exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity method when the entity subsequently reports net income and the Company's share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred. When an equity accounted for investee issues its own shares, the subsequent reduction in the Company's proportionate interest in the investee is reflected in income as a proportionate interest deemed dilution gain or proportionate interest loss on disposition.
Cost Investments
Investments are recorded at original cost and written down only when clear evidence that a decline in value, other than temporary, has occurred.
f) | Advertising Costs |
The Company expenses advertising costs as incurred.
g) | Long-lived Asset Impairment |
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability is assessed based on the carrying amount of a long-lived asset compared to the sum of the future undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. No impairments have been recorded.
h) | Financial Risk Management |
The Company has exposure to credit risk, foreign exchange risk and liquidity risk. The Company has established policies and procedures to manage these risks, with the objective of minimizing any adverse effect that changes in these variables could have on the consolidated financial statements.
F12
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
3. | Significant Accounting Policies, cont’d |
Credit Risk |
The Company's financial assets that are exposed to credit risk consist primarily of accounts receivable and notes receivable. At September 30, 2008 and 2007, the balance of accounts receivable was $57,000 and $33,000, the balance of notes receivable at cost was $175,000 and $624,000. Accounts receivable represent GST refunds, the collection of which has typically spanned abnormal periods of time. Notes receivable are secured by common shares of Newlook which had a fair value of $1,047,000 on September 30, 2008.
Foreign Exchange Risk
Foreign exchange risk arises from the extent of assets invested in U.S. dollars. The Company’s investment in Gate To Wire and InterAmerican are in U.S. dollars. As at September 30, 2008 and 2007 the amount invested in InterAmerican at cost was $1,041,000 and $nil. As at September 30, 2008 the amount invested in Gate To Wire at cost was $444,000. A one cent change in the value of the U.S. dollar relative to the value of the Canadian dollar would result in a $15,000 change in value of these investments. The Company monitors foreign exchange fluctuat ions and may execute hedges to counterbalance currency movements.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity risk is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company manages liquidity risk by closely monitoring changing conditions in its investees, participating in the day to day management and by forecasting cash flows from operations and anticipated investing and financing activities.
The Company has recently been reorganized and moved in a new business direction. At September 30, 2008, there is doubt about the Company’s ability to continue as a going concern primarily due to its history of losses and a $614,000 working capital deficit. Liquidity risk continues to be a key concern in the development of future operations and the success of its investments.
i) | Revenue Recognition |
Operating revenues are recognized when they are earned, specifically, when services are provided, products are delivered to customers, persuasive evidence of an arrangement exists, amounts are fixed or determinable, and collectibility is reasonably assured. The Company's principal sources of revenue are management fees from investees and interest income from loans provided recognized on an accrual basis.
Revenues are recognized upon approval by regulatory authority as a result grant income is recognized subsequent to the race date; whereas, wagering revenues are recognized on the race date.
F13
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
3. | Significant Accounting Policies, cont’d |
j) | Income Taxes |
The Company accounts for and measures future tax assets and liabilities in accordance with the asset and liability method. Under this method, future tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment of the change. When the future realization of income tax assets does not meet the test of being mo re likely than not to occur, a valuation allowance in the amount of the potential future benefit is taken and no net asset is recognized. |
k) | Earnings (Loss) Per Share |
Basic earnings (loss) per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings (loss) per share, according to the treasury stock method, assumes that any proceeds from the exercise of dilutive stock options and warrants would be used to repurchase common shares at the average market price during the period, with the incremental number of shares being included in the denominator of the diluted earnings (loss) per share calculation. The diluted earnings (loss) per share calculation assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on earnings (loss) per share. Stock options and share purchase warrants outstanding are not included in the computation of diluted loss per share if their inclusion would be anti-dilutive. |
l) Use of Estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known.
m) | Stock Based Compensation |
The Company accounts for stock based compensation which includes the issuance of options of equity instruments using the fair value method. The estimated fair value is amortized to expense over the period in which the related services are rendered, which is usually the vesting period of the options. All outstanding options are classified as contributed surplus within shareholders’ equity and carried at their fair value.
F14
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
3. | Significant Accounting Policies, cont’d |
n) | Foreign Currency Translation |
Monetary items denominated in foreign currencies are translated into Canadian dollars at the foreign currency exchange rate in effect at each balance sheet date. Non-monetary items in foreign currencies are translated into Canadian dollars at historical rates of exchange except for those carried at market which are translated at the foreign currency exchange rate in effect at each balance sheet date. Revenues and expenses denominated in foreign currencies are translated into Canadian dollars at the weighted average foreign current exchange rate for the year. Translation gains and losses are included in determining net earnings.
4. Notes Receivable
2008 | 2007 | |||||||
Foundation Venture Leasing | $ | - | $ | 624,000 | ||||
Former optionees | 170,000 | - | ||||||
Total | 170,000 | 624,000 | ||||||
Less : current portion | (156,000 | ) | - | |||||
Long term | $ | 14,000 | $ | 624,000 |
Foundation Venture Leasing
On August 8, 2007, the Company disposed of 14,021,600 common shares of InterAmerican to Foundation Venture Leasing (“Foundation”) in exchange for $29,000 (US$30,000) cash and a secured note receivable of $667,000 (US$671,000). Foundation and the Company entered into a pledge agreement pursuant to which Foundation pledged 12,619,460 InterAmerican shares to the Company as security for the third party’s obligation under the note. As of September 30, 2007, the note receivable was reduced to $624,000 (US$627,000).
On January 8, 2008, the August 8, 2007 agreement was amended. The Company sold 2,620,000 shares of InterAmerican to Foundation for the amounts received under the note ($131,000) and Foundation returned the balance of the 11,4 01,600 InterAmerican shares to the Company in exchange for the remainder of the $624,000 note receivable. On September 30, 2008 there were no amounts outstanding under the note.
Former Optionees
On March 31, 2008, the Company sold 3,702,000 Newlook common shares to former optionees who had previously held an option to acquire the Newlook securities (note 5). The purchase price was $586,000 being the same price per share as the cancelled option exercise price. In payment, the third
F15
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
4. | Notes Receivable, cont’d |
Former Optionees, cont’d
parties provided non-interest bearing promissory notes totaling $586,000 with varying repayment dates between March 8, 2009 and March 8, 2010. On September 30, 2008 there remained $175,000 outstanding under the notes receivable. The notes receivable are secured by 1,745,000 Newlook common shares which had a fair value of $1,047,000 on Septe mber 30, 2008. The Company has determined the fair value of the notes receivable at September 30, 2008 to be $170,000 and has therefore recorded an adjustment to income of $5,000 in the current period.
5. | Discontinued Operations |
The Company reduced its ownership position in Newlook from 78.5% at the beginning of fiscal 2007 to 35% at September 30, 2007. In prior years the Company consolidated Newlook but during the second quarter of fiscal 2007 the Company deconsolidated Newlook and began to account for this investment using the equity method. During fiscal 2007 the Company recorded $4,525,000 as a gain on dilution arising from the deconsolidation of Newlook.
As of September 30, 2007, the Newlook investment balance was $207,000.
The consolidated loss prior to deconsolidation and the post deconsolidation equity earnings are classified as discontinued operations.
During fiscal 2007, the Company sold 14,263,000 Newlook shares for total cash proceeds of $1,866,000 and recorded a loss on disposal of $285,000. The Company also issued options to others to acquire its remaining investment in Newlook at $0.10 per share at specific dates in the future (note 12 ).
During fiscal 2008, options to acquire 1,970,000 Newlook shares were exercised in March 2008, for proceeds of $269,000 resulting in a gain of $189,000 being recorded. Also in March 2008, the optionees agreed to acquire 3,702,000 Newlook common shares formerly under option (note 4) and the Company agreed to pay a $0.30 cancellation fee on 4,178,000 options (note 11), which effectively cancelled all remaining options granted. The Company recorded a gain of $409,000 as a result of the disposal of 3,702,000 shares. The Company acquired a further 1,105,500 Newlook common shares for cash proceeds of $731,000.
The Company recorded $59,000 as its share of Newlook earnings during fiscal 2008.
Management has determined that its investment in Newlook is permanently impaired due to an interim receivership order served on certain of Newlook’s operating subsidiaries (note 25). The Company recorded a $212,000 write down of its investment due to the impairment at September 30, 2008. Such write down has been recorded in discontinued operations.
On September 30, 2008, the Company held 5,473,500 Newlook common shares, valued at $527,000, representing an 18.5% interest.
F16
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
5. | Discontinued Operations, cont’d |
The operations of Newlook are presented in the consolidated financial statements as discontinued operations as follows:
2008 | 2007 | |||||||
Revenue | $ | - | $ | 8,649,000 | ||||
Cost of revenue and expenses of discontinued operations | - | (9,628,000 | ) | |||||
Loss on discontinued operations | - | (979,000 | ) | |||||
Share of earnings of equity accounted investee | 59,000 | - | ||||||
Write down of investment due to impairment | (212,000 | ) | - | |||||
Gain on disposal of investment | 598,000 | - | ||||||
Income taxes | - | - | ||||||
Earnings (loss) from discontinued operations | $ | 445,000 | $ | (979,000 | ) |
Assets and liabilities presented in the consolidated balance sheets include the following assets and liabilities of discontinued operations:
2008 | 2007 | |||||||
Current assets | $ | - | $ | - | ||||
Investments | 527,000 | 207,000 | ||||||
Assets of discontinued operations | $ | 527,000 | $ | 207,000 | ||||
Current liabilities | $ | - | $ | 702,000 | ||||
Long-term debt | - | - | ||||||
Liabilities of discontinued operations | $ | - | $ | 702,000 |
6. Equipment |
Cost | Accumulated Amortization | 2008 Net Book Value | 2007 Net Book Value | |||||
Furniture and fixtures | $ | 144,000 | $ | 106,000 | $ | 38,000 | $ | 46,000 |
Computer equipment | 5,000 | 2,000 | 3,000 | 4,000 | ||||
$ | 149,000 | $ | 108,000 | $ | 41,000 | $ | 50,000 |
F17
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
7. Advance to Corporation
2008 | 2007 | |||
Advance to Lexatec VR Systems Inc. | $ | 7,000 | $ | 16,000 |
The advance noted above is non-interest bearing, has no specific terms of repayment and is secured by a pledge of reciprocal shareholdings. As at September 30, 2008, management recorded a $9,000 (2007 - $15,000) writedown of the advance to the fair value of the security.
8. Investments
a) | InterAmerican |
During fiscal 2007, the Company disposed of a sufficient number of common shares of InterAmerican to reduce the ownership interest to below 50%. Accordingly the Company changed accounting methods from consolidation to equity accounting. As of September 30, 2007, the Company’s carrying value of its investment in InterAmerican was $Nil. During the year ended September 30, 2007, the Company recorded its share of InterAmerican losses post deconsolidation of $80,000. During fiscal 2007, the Company disposed of 16,021,600
InterAmerican shares (which included the 14,021,600 shares as described in note 4) for total proceeds of $881,000 ($184,000 cash and $696,000 note receivable) and the Company recorded a gain of $187,000 from the sale transactions. On September 30, 2007, the Company held 2,013,000 InterAmerican common shares.
On January 8, 2008, the Company reacquired 11,401,600 InterAmerican shares from Foundation in exchange for the remainder of a $624,000 note receivable (note 4). During fiscal 2008, the Company converted cash advances totaling $919,000 made to InterAmerican into 17,758,000 InterAmerican common shares and disposed of 510,000 shares for proceeds of $91,000 and recorded a gain of $65,000.
The Company recorded $361,000 as its share of InterAmerican losses during fiscal 2008.
On September 30, 2008, the Company held 30,662,600 InterAmerican common shares valued at $1,146,000, representing a 46.9% interest.
b) Gate To Wire |
The Company accounts for its investment in Gate To Wire as an available-for-sale investment measured at fair value. Unrealized gains or losses are recorded in accumulated other comprehensive income within shareholders’ equity. |
In January 2008, the Company acquired 2,000,000 Gate To Wire common shares for $200,000 and on September 30, 2008, the Company converted cash advances made to Gate To Wire of $273,000 into 2,600,000 common shares.
F18
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
8. | Investments, cont’d |
b) Gate To Wire, cont’d |
On September 30, 2008, the Company held 4,600,000 Gate To Wire common shares carried at $473,000 representing an 18.3% interest. The Company has determined the fair value of its investment in Gate To Wire at September 30, 2008 was $735,000 and accordingly has recorded a $262,000 unrealized gain in accumulated other comprehensive income.
c) Baymount |
The Company accounts for its investment in Baymount as an available-for-sale investment measured at fair value. Unrealized gains or losses are recorded in accumulated other comprehensive income within shareholders’ equity. |
The Company purchased 1,501,000 Baymount common shares representing a 1% ownership interest. The Company paid $150,000 in cash to acquire the shares. There are approximately 139,000,000 Baymount shares outstanding. Management has determined that the fair value of the Baymount investment was $75,000 at September 30, 2008 and accordingly has recorded a $75,000 unrealized loss in accumulated other comprehensive income. |
d) | Investment activity during fiscal 2008 can be summarized as follows: |
Equity share of earnings (loss) | Gains on disposal of shares | Carrying value | Adjustment to accumulated other comprehensive income | |||||
InterAmerican | $ | (361,000) | $ | 65,000 | $ | 1,166,000 | $ | - |
Gate To Wire | - | 735,000 | 262,000 | |||||
Baymount | - | 75,000 | (75,000) | |||||
Total | $ | (361,000) | $ | 65,000 | $ | 1,976,000 | $ | 187,000 |
9. Due from/to Related Parties
Following the deconsolidation of Newlook and InterAmerican, the Company began to record amounts due from or to these related parties.
Amounts due from related parties were as follows:
2008 | 2007 | |||
Newlook and subsidiaries | $ | - | $ | 2,856,000 |
InterAmerican | - | 80,000 | ||
Total | $ | - | $ | 2,936,000 |
F19
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
9. Due from/to Related Parties, cont’d
Amounts due from related parties were unsecured and had no specific repayment dates. Interest accrued on the amounts from Newlook at Canada Revenue Agency’s prescribed annual interest rate plus 2% per annum. Amounts due from InterAmerican were non-interest bearing.
Amounts due to related parties are as follows:
2008 | 2007 | |||
Newlook and subsidiaries | $ | 10,000 | $ | - |
Amounts due to related parties bear interest at the Canadian Revenue Agency’s prescribed rate, are unsecured and have no specific repayment dates.
10. Unissued Share Liability
During fiscal 2008, the Company received $560,000 in cash from investors under $0.25 per share common stock share subscriptions and agreed to issue common stock in lieu of a $240,000 promissory note. As of September 30, 2008, the private placement had not yet closed and accordingly the Company recorded a total of $800,000 unissued share liability. The Company is obligated to issue 3,200,000 common shares to settle this liability. On closing the liability will be transferred to share capital.
On November 10, 2008, the Company closed the private placement by issuing 4,000,000 common shares at $0.25 per share (note 25).
11. Notes Payable |
On March 31, 2008, the Company agreed to issue non-interest bearing promissory notes to certain former Newlook option holders totaling $1,253,000 representing a cancellation fee of $0.30 per option on 4,178,000 cancelled Newlook options (note 5). Pursuant to the terms of the note, the Company is obligated to pay $251,000 on the first day of the month for 5 consecutive months beginning May 1, 2008. The Company did not make payments as originally contemplated, however as of September 30, 2008, the Company reduced the promissory notes with cash payments totaling $398,000 and a credit of $240,000, to a note holder who agreed to subscribe for common shares. On September 30, 2008, the Company remains in default and $615,000 is unpaid under these promissory notes. At September 30, 2008, the fair value of the notes payable was $605,000 and accordingly the Company has recorded a $10,000 adjustment to income in the current period.
F20
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
12. | Derivative Financial Instrument |
During fiscal 2007, the Company issued call options to third party investors to acquire 14,000,000 common shares of the Company’s investment in Newlook exercisable at $0.10 per share expiring in tranches of 2,000,000 shares on each of March 18, 2007, September 18, 2007, March 18, 2008, September 18, 2008, March 18, 2009, September 18, 2009 and March 18, 2010. The Company valued the options, using the Black-Scholes option pricing model, collect ively at $889,000 at issuance.
On September 28, 2007, the Company cancelled options to acquire 900,000 common shares issued in January 2007 and reissued the options to Wireless Age Communications, Inc., a majority owned subsidiary of Newlook at an exercise price of $0.40 per share.
Prior to the end of the 2007 fiscal year, 4,000,000 of the options were exercised and at September 30, 2007, options to purchase 10,000,000 Newlook common shares were outstanding. The fair value of the remaining options at September 30, 2007 was $4,657,000 of which $1,777,000 had been classified as a current portion of the derivative financial liability.
The Company recognized a $4,567,000 adjustment to income during 2007 representing changes in fair value during the year.
The estimated fair value of the options at September 30, 2007 was determined using the Black-Scholes option pricing model with the following weighted average assumptions:
Risk-free interest rate | 5.0% |
Dividend yield | 0% |
Volatility factor of expected market price of Newlook’s shares | 136.2% |
Average expected option life (in years) | 1.4 |
Weighted-average grant date fair value of options granted | $0.47 |
In March 2008, 1,970,000 options were exercised, 3,702,000 options were effectively cancelled by the sale of the underlying shares to the optionee (note 4) and 4,178,000 options were cancelled in exchange for a $0.30 fee per option (note 11). The derivative financial instrument was effectively cancelled and accordingly the Company recorded a $3,405,000 gain in the statement of operations in 2008, representing the final adjustment or extinguishment of the derivative financial instrument.
13. Commitments and Contingencies |
There is a claim outstanding against the Company by a former employee for wrongful dismissal, alleged breach of contract, punitive and aggravated damages and costs. It is the Company's opinion that there is no merit to the claim of breach of contract, punitive or aggravated damages. Management believes that damages resulting from this claim would be immaterial, if any.
F21
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
14. Financial Instruments |
The Company has classified its financial instruments as follows:
2008 | 2007 | |||||||
Carrying amount | Fair value | Carrying amount | Fair Value | |||||
Financial assets | ||||||||
Short term investments, held for trading measured at fair value | $ | 15,000 | $ | 15,000 | $ | - | $ | - |
Accounts receivable, held-for trading measured at fair value | 57,000 | 57,000 | 33,000 | 33,000 | ||||
Notes receivable, held-for-trading measured at fair value | 175,000 | 170,000 | 624,000 | 624,000 | ||||
Due from related parties, loans and receivables measured at amortized cost | - | - | 2,936,000 | 2,936,000 | ||||
Investments, available-for-sale measured at fair value | 624,000 | 810,000 | - | - | ||||
Advance to corporation, held-for-trading measured at fair value | 16,000 | 7,000 | 30,000 | 16,000 | ||||
$ | 887,000 | $ | 1,059,000 | $ | 3,623,000 | $ | 3,609,000 | |
Financial liabilities | ||||||||
Bank indebtedness, other financial liability measured at amortized cost | $ | 30,000 | $ | 30,000 | $ | 6,000 | $ | 6,000 |
Accounts payable and accrued charges, other financial liability measured at amortized cost | 205,000 | 205,000 | 368,000 | 368,000 | ||||
Due to related parties, other financial liability measured at amortized cost | 10,000 | 10,000 | - | - | ||||
Notes payable, held-for-trading measured at fair value | 615,000 | 605,000 | - | - | ||||
Derivative financial instrument, held-for-trading measured at fair value | - | - | 4,657,000 | 4,657,000 | ||||
Liabilities of discontinued operations, other financial liability measured at amortized cost | - | - | 702,000 | 702,000 | ||||
$ | 860,000 | $ | 850,000 | $ | 5,733,000 | $ | 5,733,000 |
F22
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
14. Financial Instruments, cont’d |
Held-for-trading assets and liabilities are carried at fair value. Loans and receivables assets and other financial liabilities are initially measured at fair value and subsequently measured at amortized cost using the effective interest method. For accounts receivable, due from or to related parties, bank indebtedness, accounts payable and accrued charges and liabilities of discontinued operations, the carrying amounts approximate fair value because of the short maturity of these instruments. Notes receivable and payables which are non-interest bearing are carried at fair value.
Fair value adjustments to financial instruments are summarized as follows:
2008 | 2007 | |||
Derivative financial instrument – note 12 | $ | 3,405,000 | $ | (4,567,000) |
Notes receivable – note 4 | (5,000) | - | ||
Notes payable – note 11 | 10,000 | - | ||
Total | $ | 3,410,000 | $ | (4,567,000) |
15. | Share Capital |
Authorized: 10,000,000 Common Shares without par value
On June 24, 2008, the Company completed a share consolidation on a one post-consolidation common share for ten pre-consolidation common shares.
Issued:
2008 | 2007 | ||||||||
No. of Shares | Amount | No. of Shares | Amount | ||||||
Beginning of year | 42,430,174 | $ | 44,397,000 | 38,860,174 | $ | 43,861,000 | |||
Issued in private placement | - | - | 3,570,000 | 536,000 | |||||
Cancelled prior to consolidation | (128,125) | - | - | - | |||||
Cancelled due to consolidation | (42,302,049) | - | - | - | |||||
Issued due to consolidation | 4,230,205 | - | - | - | |||||
End of year | 4,230,205 | 44,397,000 | 42,430,174 | 44,397,000 | |||||
Treasury shares | (4,112) | (22,000) | (41,120) | (22,000) | |||||
Warrants | - | (89,000) | - | (89,000) | |||||
4,226,093 | $ | 44,286,000 | 42,389,054 | $ | 44,286,000 |
F23
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
15. | Share Capital, cont’d |
On May 7 and 18, 2007, the Company issued 3,570,000 units at a purchase price of $0.15 per unit. Each unit consisted of 1 common share and three purchase warrants. One warrant is exercisable for one year from date of distribution at an exercise price of $0.25, one warrant is exercisable at $0.50 for a period of one year beginning one year after date of distribution and one warrant is exercisable at $0.75 for one year beginning two years after date of distribution.
a) Stock Options |
The Company awards unconditional stock options to employees, officers, directors and others at the recommendation of the Chief Executive Officer (“CEO”) under an incentive stock plan (the "Plan"). Options are granted at the fair market value of the shares on the day granted, and vest over various terms. Compensation expense is recognized when options are issued.
Stock options outstanding on June 24, 2008 were adjusted for a common share consolidation based on one post-consolidation common share for each ten pre-consolidation common shares. Through the share consolidation 2,371,000 options with a weighted average exercise price (“WAEP”) price of $0.65 were cancelled and replaced by 237,100 with a WAEP of $6.46.
The following is a continuity schedule of outstanding options for the reporting periods.
No. of Options | 2008 WAEP | No. of Options | 2008 WAEP | |||||
Beginning of year | 2,791,000 | $ | 0.63 | 3,556,000 | $ | 0.60 | ||
Expired | (420,000) | 0.55 | (765,000) | 0.55 | ||||
Cancelled due to consolidation | (2,371,000) | (0.65) | - | - | ||||
Issued due to consolidation | 237,100 | 6.46 | - | - | ||||
End of year | 237,100 | $ | 6.46 | 2,791,000 | $ | 0.63 |
The following table summarizes stock option information outstanding at September 30, 2008, where “yrs” refers to years.
Exercise Prices of Options | Number Outstanding and Exercisable | Weighted–Average Remaining Contractual Life | Weighted-Average Exercise Price | ||
$ 4.00 | 117,500 | 1.53 yrs | $ 1.98 | ||
$ 8.50 | 79,600 | 0.50 yrs | $ 2.85 | ||
$ 9.60 | 40,000 | 0.23 yrs | $ 1.62 | ||
$4.00-$9.60 | 237,100 | 0.98 yrs | $ 6.46 |
F24
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
15. Share Capital, cont’d
The following table summarizes stock option information outstanding at September 30, 2007.
Exercise Prices of Options | Number Outstanding and Exercisable | Weighted–Average Remaining Contractual Life | Weighted-Average Exercise Price |
$ 0.40 | 1,175,000 | 2.57 yrs | $ 0.40 |
$ 0.55 | 320,000 | 1.01 yrs | $ 0.55 |
$ 0.57 | 100,000 | 0.43 yrs | $ 0.57 |
$ 0.85 | 796,000 | 1.50 yrs | $ 0.85 |
$ 0.96 | 400,000 | 1.23 yrs | $ 0.96 |
$0.40-$.96 | 2,791,000 | 1.82 yrs | $ 0.63 |
In 2008 and 2007, the Company did not award any options to buy shares of the Company under the Plan.
No stock options were exercised during 2008 and 2007. In 2008 and 2007, the Company expensed $nil related to the fair value of the options granted in earlier periods.
Under the Plan, at September 30, 2008, the Company has authorized for issuance a maximum of 720,000 options to acquire common shares of the Company of which 482,900 options are available. The total proceeds that would be generated upon exercise of all issued and outstanding options is approximately $1,530,600.
b) Warrants
The Company issued warrants to acquire 10,710,000 common shares during fiscal 2007. The warrants were included in units issued of one common share and three purchase warrants.
Warrants outstanding on June 24, 2008 were adjusted for a common share consolidation based on one post-consolidation common share for each ten pre-consolidation common shares. Through the share consolidation, warrants to acquire 7,140,000 common shares with a WAEP of $0.63 were cancelled and replaced with 714,000 warrants with a WAEP of $6.25.
F25
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
15. Share Capital, cont’d
The following is a continuity schedule of outstanding warrants for fiscal 2008.
No. of Warrants | WAEP | |||||||
Beginning of year | 10,710,000 | $ | 0.50 | |||||
Expired | (3,570,000 | ) | (0.25 | ) | ||||
Cancelled due to consolidation | (7,140,000 | ) | (0.63 | ) | ||||
Issued due to consolidation | 714,000 | 6.25 | ||||||
End of year | 714,000 | $ | 6.25 |
The following table summarizes purchase warrants information outstanding as at September 30, 2008.
No. Outstanding | Expiry Date | Exercisable Date | WAEP | |||||
357,000 | May 7, 2009 | May 7, 2008 | 5.00 | |||||
357,000 | May 7, 2010 | May 7, 2009 | 7.50 | |||||
714,000 | $ | 6.25 |
During fiscal 2007 the estimated fair value of the warrants issued was determined using the Black-Scholes option pricing model with the following weighted average assumptions:
Risk-free interest rate | 5.0% |
Dividend yield | 0% |
Volatility factor of expected market price of the company's shares | 82% |
Average expected option life (in years) | 1.5 |
Weighted-average grant date fair value of options granted | $0.008 |
c) Contributed Surplus
Contributed surplus opening balance consisted of stock-based compensation only and the closing balance represents stock-based compensation of $1,189,000 and $89,000 representing the fair value of warrants issued during fiscal 2007 as part of financing.
F26
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
16. Related Party Transactions
All transactions within the corporate group are in the normal course of business and are recorded at the exchange value agreed to by the related parties. Inter-company transactions and balances are eliminated upon consolidation.
Service fees charged by directors, officers or corporations owned by management personnel during the year totaled $686,000 (2007 - $1,180,000). Included in the 2007 year is $1,000,000 as a severance/retirement settlement with the Company’s former CEO.
Management fees earned from investees during the period totaled $195,000 (2007 - $nil) and interest income earned from investees during the current period was $116,000 (2007 - $47,000).
Included in accounts payable are payables to directors, officers or corporations owned by management personnel of $105,000 (2007 - $1,006,000). $702,000 of the 2007 period amount was due to the Company’s former CEO pursuant to his severance/retirement settlement and has been classified as discontinued operations.
17. Income Taxes
The Company accounts for income taxes using the asset and liability method. Tax asset and liability account balances are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rate. The effects of future changes in tax losses are not anticipated.
The provision for income taxes has been computed as follows:
2008 | 2007 | |||||||
Expected income tax expense (recovery) at the statutory rate of 33.5% (2007 – 36.12%) | $ | 1,007,000 | $ | (670,000 | ) | |||
Increase (decrease) in taxes resulting from: | ||||||||
Non-taxable portion of (gains) losses | (110,000 | ) | 18,000 | |||||
Sale of loss carry forwards and tax assets of disposed of subsidiaries | - | 4,090,000 | ||||||
Non-deductible fair value adjustment | - | 1,650,000 | ||||||
Non-taxable gain on dilution | (1,140,000 | ) | (1,634,000 | ) | ||||
Non-taxable equity pick-up | 134,000 | 21,000 | ||||||
Tax rate changes | 177,000 | (106,000 | ) | |||||
Others | - | 4,000 | ||||||
Valuation allowances | (68,000 | ) | (3,373,000 | ) | ||||
Provision for income taxes | $ | - | $ | - |
F27
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
17. Income Taxes, cont’d
The components of future income taxes are as follows:
2008 | 2007 | |||
Net operating losses carried forward | $ | 2,177,000 | $ | 2,445,000 |
Difference between accounting and tax carrying - value of equipment | 23,000 | 22,000 | ||
Valuation allowance | (2,200,000) | (2,467,000) | ||
$ | - | $ | - |
The Company has tax losses of $6,498,000 (2007 - $6,769,000) available to be applied against future years' taxable income. In order to record a future income tax benefit, it must be more likely than not that the future tax asset resulting from the tax losses available for carryforward will be realized. Given the Company's uncertainty regarding profitability, the Company has set up a 100% valuation allowance in respect of the future income tax asset and the current taxes. The tax losses expire in years ranging from 2008 through to 2018.
18. | Reconciliation between Canadian and United States Generally Accepted Accounting Principles |
These consolidated financial statements have been prepared in accordance with Canadian GAAP which differs in certain respects from U.S. GAAP. There were no material differences between Canadian and U.S. GAAP.
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” ("SFAS No. 157"), which is effective for financial statements issued for fiscal years beginning after November 15, 2007. The statement defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The statement codifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an or derly transaction between market participants at the measurement date. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The Company is currently assessing the potential impacts of implementing this standard.
F28
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
18. | Reconciliation between Canadian and United States Generally Accepted Accounting Principles, cont’d |
In February 2007, FASB issued SFAS Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of SFAS Statement No. 115” (“SFAS 159”). The fair value option established by SFAS 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report unrealized gains or loses on items for which the fair value option has been elected in earnings (or another performance indication if the business entity does not report earnings) at each subsequent reporting date. T he fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. SFAS 159 is effective as of the beginning of the fiscal years beginning after November 15, 2007. The Company is currently evaluating what impact, if any, SFAS 159 will have on its consolidated financial position or results of operations.
In April 2007, the FASB issued a FASB Staff Position (“FSP”) on FASB Interpretation ("FIN") 39-1 ("FIN 39-1") which modifies FIN 39, “Offsetting of Amounts relating to Certain Contracts” (“FIN 39”). FIN 39-1 addresses whether a reporting entity that is party to a master netting arrangement can offset fair value amounts recognized for the right to reclaim cash collateral (a recei vable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments that have been offset under the same master netting arrangement in accordance with FIN 39. Upon adoption of this FSP, a reporting entity shall be permitted to change its accounting policy to offset or not offset fair value amounts recognized for derivative instruments under master netting arrangements. The guidance in this FSP is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the potential impact of implementing this standard.
In May 2007, FASB issued a FSP on FIN 46(R)-7, "Application of FASB Interpretation No. 46(R) to Investment Companies" ("FSP FIN 46 (R)-7"). FSP FIN 46(R)-7 addresses the application of FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities", by an entity that accounts for its investments in accordance with the specialized accounting guidance in the Audit and Accounting Guide for Investment Companies ("Guide"). The effective date for FSP FIN 46(R)-7 is the date that an entity initially adopts Statement of Position (“SOP”) 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting for Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). The Company is currently assessing the potential impact of implementing this standard.
F29
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
18. | Reconciliation between Canadian and United States Generally Accepted Accounting Principles, cont’d |
In December 2007, FASB issued SFAS No. 141 (revised 2007), “Business Combinations” ("SFAS 141(R)"). This statement replaces SFAS No. 141, “Business Combinations” and requires an acquirer to recognize the assets acquired, the liabilities assumed, including those arising from contractual contingencies, any contingent consideration, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. SFAS 141(R) also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of t heir fair values (or other amounts determined in accordance with SFAS 141(R)). In addition, SFAS 141(R)'s requirement to measure the noncontrolling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the noncontrolling interest in addition to that attributable to the acquirer. SFAS 141(R) amends SFAS No. 109, “Accounting for Income Taxes”, to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. It also amends SFAS 142, “Goodwill and Other Intangible Assets”, to, among other things, provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS 141(R) could have on its consolidated financial statements.
In December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” ("SFAS 160"). SFAS 160 amends Accounting Research Bulletin 51, “Consolidated Financial Statements”, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling i nterest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS 160(R) could have on its consolidated financial statements.
F30
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
18. | Reconciliation between Canadian and United States Generally Accepted Accounting Principles, cont’d |
In February 2008, FASB issued FSP on SFAS No. 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (“FSP SFAS 140-3”). The objective of this FSP is to provide guidance on accounting for a transfer of a financial asset and a repurchase financing. This FSP presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement (linked transaction) under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” ("SFAS 140"). However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be ev aluated separately under SFAS No. 140. FSP SFAS 140-3 is effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within these fiscal years. Earlier application is not permitted. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In February 2008, FASB issued FSP on American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 07-1-1, “Effective Date of AICPA Statement of Position 07-1” (“FSP SOP 07-1-1”). FSP SOP 07-1-1 delays indefinitely the effective date of AICPA Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies'' ("SOP No. 07-1"). SOP No. 07-1 clarifies when an entity may apply the provisions of the Guide. Investment companies that are within the scope of the Guide report investments at fair value; ; consolidation or use of the equity method for investments is generally not appropriate. SOP No. 07-1 also addresses the retention of specialized investment company accounting by a parent company in consolidation or by an equity method investor. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In March 2008, FASB issued SFAS 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133" ("SFAS 161"). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS 161 could have on its consolidated financial statements.
F31
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
18. | Reconciliation between Canadian and United States Generally Accepted Accounting Principles, cont’d |
In April 2008, FASB issued FSP SFAS 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP SFAS 142-3"). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (revised 2007), “Business Combinations”, and other US GAAP. FSP SFAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. Early adoption is prohibited. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In May, 2008, FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants." Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP AP B 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In May 2008, FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (the GAAP hierarchy). SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to
AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles". The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
F32
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
18. | Reconciliation between Canadian and United States Generally Accepted Accounting Principles, cont’d |
In June 2008, FASB issued FSP EITF Issue 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method described in paragraphs 60 and 61 of SFAS No. 128, “Earnings per Share”. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In September 2008, FASB issued FSP SFAS 133-1 and FIN 45-4, "Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161" (“FSP SFAS 133-1 and FIN 45-4”). FSP SFAS 133-1 and FIN 45-4 amends FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”, to require disclosures by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument. FSP SFAS 133-1 and FIN 45-4 also amends FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedn ess of Others”, to require an additional disclosure about the current status of the payment/performance risk of a guarantee. Further, FSP SFAS 133-1 and FIN 45-4 clarifies the Board’s intent about the effective date of FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. FSP SFAS 133-1 and FIN 45-4 is effective for reporting periods (annual or interim) ending after November 15, 2008. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
In October 2008, FASB issued FSP SFAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active"” (“FSP SFAS 157-3”). FSP SFAS 157-3 clarifies the application of FASB Statement No. 157, “Fair Value Measurements”, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP SFAS 157-3 is effective upon issuance, including prior periods for which financial statements have not been issued. The Company is currently reviewing the effect, if any; the proposed guidance will have on its c onsolidated financial statements.
F33
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
18. | Reconciliation between Canadian and United States Generally Accepted Accounting Principles, cont’d |
In December 2008, FASB issued FSP SFAS 140-4 and FIN 46 (R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSP SFAS 140-4 and FIN 46 (R)”). FSP SFAS 140-4 and FIN 46 (R) amends FASB SFAS 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, to require public entities to provide additional disclosures about transfers of financial assets. It also amends FASB SFAS 46 (revised December 2003), “Consolidation of Variable Interest Entities”, to require public enterprises, including spons ors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities. Additionally, this FSP requires certain disclosures to be provided by a public enterprise that is (a) a sponsor of a qualifying special purpose entity (“SPE”) that holds a variable interest in the qualifying SPE but was not the transferor (nontransferor) of financial assets to the qualifying SPE and (b) a servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor (nontransferor) of financial assets to the qualifying SPE. The disclosures required by FSP SFAS 140-4 and FIN 46 (R)” are intended to provide greater transparency to financial statement users about a transferor’s continuing involvement with transferred financial assets and an enterprise’s involvement with variable interest entities and qualifying SPEs. FSP SFAS 140-4 and FIN 46 (R) is effective for reporting periods (annual or interim) ending after December 15, 2008. The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.
19. Changes in Accounting Policies
Effective September 1, 2007, the Company adopted the recommendations of the Canadian Institute of Chartered Accountants (“CICA”) Handbook section 3855: Financial Instruments - Recognition and Measurement (“CICA 3855”). CICA 3855 establishes standards for recognizing and measuring financial instruments, including the accounting treatment for the changes in the fair value. As required by CICA 3855, and consistent with the accounting policy for the investments used to prepare the prior year’s consolidated financial statements, investments continue to be presented at fair value. As permitted by CICA 3855, the Company’s other financial assets and liabilities continue to be presented at amortized cost which approximates the adoption of CICA 3855. The adoption did not have an impact on the financial statements in the prior or current year.
On September 1, 2007, the Company adopted CICA Handbook Section 1506 “Accounting Changes” which prescribes the criteria for changing accounting policies, together with the accounting treatment and disclosure of changes in the accounting policies, changes in accounting estimates and the correction of errors. The standard did not affect the Company’s consolidated financial position, results of operations or cash flows.
F34
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
20. Recent Accounting Pronouncements
In December 2006, the CICA issued CICA Handbook Section 1535, “Capital Disclosures”, requires that an entity disclose information that enables users of its financial statements to evaluate the entity’s objectives, policies and processes for managing capital, quantitative data about what the entity regards as capital and disclosures of any externally imposed capital requirements and the consequences of non-compliance. The new standard applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007, specifically September 1, 2008 for the Company. This standard will impact the Company’s disclosures but will not affect its consolidated financial position, results of operations or cash flows.
In December 2006, the CICA issued Handbook Section 3862 “Financial Instruments – Disclosures” and Section 3863 “Financial Instruments – Presentation” replace Section 3861 “Financial Instruments – Disclosure and Presentation”, revising and enhancing its disclosure requirements and carrying forward its presentation requirements unchanged. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments, including a sensitivity analysis for each type of market risk to which an entity is exposed, and how the Company manages those risks. The new standard applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007, specifically Septembe r 1, 2008 for the Company. This standard will impact the Company’s disclosures but will not affect its consolidated financial position, results of operations or cash flows.
In March 2007, the CICA issued Handbook Section 3031, “Inventories”, which replaces the existing Handbook Section 3030, “Inventories”. This section is effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2008, with earlier application encouraged. The standard provides more guidance on the measurement and disclosure requirements for inventories. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
In June 2007, the CICA issued Handbook Section 1400, “General Standards on Financial Statement Presentation”, has been amended to include requirements to assess and disclose an entity’s ability to continue as a going concern. The changes are effective for interim and annual financial statements beginning on or after January 1, 2008, specifically September 1, 2008 for the Company. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
In November 2007, the CICA issued Handbook Section 3064 “Goodwill and Intangible Assets” which replaces CICA Handbook Section 3062 “Goodwill and Other Intangible Assets” has been issued and applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008. The objective of this new section is to reinforce the principle-based approach to recognition of assets only in accordance with the definition of an asset and the criteria for asset recognition and clarify the application of the concept of matching revenues and expenses, such that the current practice of recognizing assets that do not meet the definition and recognition criteria is eliminated. The Company is currently evaluating the impact of this new standard on its consolidated fin ancial statements.
F35
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
20. Recent Accounting Pronouncements, cont’d
International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, will be adopted as Canadian GAAP effective January 1, 2011 and will require restatement of the comparative 2010 figures. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
21. Supplemental Cash Flow Disclosure
During the year, the Company had cash flows arising from interest and income taxes paid as follows:
2008 | 2007 | |||
Interest paid | $ | 29,000 | $ | - |
Income taxes paid | $ | - | $ | - |
During fiscal 2008 the Company had the following non-monetary transactions:
a) | The Company acquired 11,401,600 InterAmerican common shares in exchange for the retirement of a $493,000 note receivable (notes 4 and 8a). |
b) | The Company extinguished a derivative financial instrument, valued at $4,657,000, by issuing notes payable of $1,253,000 (note 11) and receiving notes receivable of $586,000 (note 4). |
c) | The Company agreed to issue 2,400,000 common shares in exchange for notes payable liabilities of $240,000 (notes 10 and 11). |
During fiscal 2007 the Company did not have any non-monetary transactions.
22. Economic Dependence |
A substantial portion of the Company's revenue is derived from management fees charged to investees. The following management fees are recorded in the consolidated financial statements:
2008 | 2007 | |||
InterAmerican | $ | 150,000 | $ | - |
Gate to Wire | 45,000 | - | ||
$ | 195,000 | $ | - |
F36
GAMECORP LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2008 and 2007
23. Segmented Information
In 2008 and 2007 the Company operated in only one segment known as corporate. All assets and liabilities in these financial statements belong to Gamecorp.
24. Comparative Figures |
Interest income for the year ended September 30, 2007 has been reclassified as revenue in order to conform to the current year’s financial statement presentation. In addition, weighted average number of shares outstanding for the year ended September 30, 2007 has been restated to reflect the share consolidation (note 15).
25. Subsequent Events |
On November 6, 2008, the Company disposed of 4,112 treasury shares for cash consideration of $1,234.
On November 10, 2008, the Company closed a non-brokered $1,000,000 private placement of 4,000,000 common shares at a price of $0.25 per share (note 10).
On January 9, 2009, operating subsidiaries (Wireless Age Communications Ltd. and Wireless Source Distribution Ltd.) of Newlook’s majority owned subsidiary Wireless Age Communications, Inc. were served with a Notice of Intention to Enforce Security under the Bankruptcy and Insolvency Act and a Court Order to immediately appoint an interim receiver. On January 22, 2009, the Court of Queen’s Bench for Saskatchewan heard a challenge of the Court Order by Wireless Age Communications, Inc.