SUNGOLD ENTERTAINMENT CORP.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
LOEWEN, STRONACH & CO.
Chartered Accountants
AUDITORS' REPORT
To The Shareholders of Sungold Entertainment Corp.:
We have audited the consolidated balance sheet of Sungold Entertainment Corp. (a development stage company) as at August 31, 2003 and 2002 and the consolidated statements of loss and deficit and cash flows for the years ended August 31, 2003, 2002 and 2001 and for the cumulative period from April 7, 1986 (inception) to August 31, 2003. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at August 31, 2003 and 2002 and the results of its operations and cash flows for the years ended August 31, 2003, 2002 and 2001 and for the cumulative period from April 7, 1986 (inception) to August 31, 2003 in accordance with Canadian generally accepted accounting principles which differ in certain respects from United States generally accepted accounting principles (refer to Note 13). As required by the Company Act of British Columbia, we report that, in our opinion, these principles have been applied on a consistent basis.
| | “Loewen, Stronach & Co.” |
| | |
| | Chartered Accountants |
| | |
| Vancouver, BC | |
| December 4, 2003 | |
Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Conflict
In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion 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 described in Note 1 to the financial statements. Our report to the shareholders dated December 4, 2003 is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors’ report when these are adequately disclosed in the financial statements.
| | “Loewen, Stronach & Co.” |
| | |
| | Chartered Accountants |
| Vancouver, BC | |
| December 4, 2003 | |
SUNGOLD ENTERTAINMENT CORP.
CONSOLIDATED BALANCE SHEET
AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| 2003 | | 2002 | |
| $ | | $ | |
| ASSETS |
| | | | | |
| CURRENT ASSETS | | | | |
| Cash | 47,928 | | 23,772 | |
| Prepaid expenses and deposits | 4,154 | | 374,953 | |
| 52,082 | | 398,725 | |
| PRE-DEVELOPMENT COSTS (Note 3) | 762,042 | | 2,768,316 | |
| CAPITAL ASSETS (Note 4) | 604,282 | | 541,484 | |
| 1,418,406 | | 3,708,525 | |
| | | | | |
| LIABILITIES |
| | | | | |
| CURRENT LIABILITIES | | | | |
| Accounts payable and accrued liabilities | 175,238 | | 32,824 | |
| Loans payable (Note 7 a) | 17,390 | | 282,187 | |
| Obligation under capital leases (Note 5) | 17,253 | | 19,423 | |
| 209,881 | | 334,434 | |
| OBLIGATION UNDER CAPITAL LEASES (Note 5) | - | | 17,253 | |
| 209,881 | | 351,687 | |
| | | | | |
| SHAREHOLDERS’ EQUITY |
| | | | | |
| SHARE CAPITAL (Note 6) | 18,574,369 | | 16,156,646 | |
| CONTRIBUTED SURPLUS | 51,922 | | - | |
| DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE | (17,417,766 | ) | (12,799,808 | ) |
| 1,208,525 | | 3,356,838 | |
| 1,418,406 | | 3,708,525 | |
APPROVED BY THE DIRECTORS:
“Art Cowie” Director
“Anne Kennedy” Director
(See accompanying notes to consolidated financial statements)
SUNGOLD ENTERTAINMENT CORP.
CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| | April 7, 1986 | | | | | | | |
| | (inception) to | | | | | | | |
| | August 31, 2003 | | 2003 | | 2002 | | 2001 | |
| | $ | | $ | | $ | | $ | |
| | | | | | | | | |
| REVENUE | | | | | | | | |
| Sales | 33,179 | | 1,305 | | 19,446 | | 12,428 | |
| Interest income and miscellaneous | 43,336 | | 12 | | 11 | | 2 | |
| Gain on disposition of marketable securities | 838,947 | | - | | - | | - | |
| | 915,462 | | 1,317 | | 19,457 | | 12,430 | |
| | | | | | | | | |
| EXPENSES | | | | | | | | |
| Advertising and promotion | 3,139,255 | | 594,941 | | 808,511 | | 714,709 | |
| Management fees | 1,829,253 | | 286,603 | | 246,000 | | 246,000 | |
| Professional and consulting fees | 1,966,833 | | 547,829 | | 242,565 | | 118,716 | |
| Investor relations | 1,001,315 | | 214,843 | | 169,935 | | 93,927 | |
| Travel and conferences | 865,849 | | 201,229 | | 138,468 | | 77,504 | |
| Internet services | 746,184 | | 184,249 | | 410,144 | | 151,791 | |
| Office and miscellaneous | 733,970 | | 164,044 | | 60,936 | | 70,096 | |
| Amortization | 527,210 | | 144,616 | | 161,923 | | 142,669 | |
| Office rent and services | 456,467 | | 80,595 | | 69,017 | | 48,990 | |
| Transfer agent and filing fees | 292,320 | | 33,078 | | 34,902 | | 24,916 | |
| Insurance | 262,390 | | 61,470 | | 71,552 | | 51,449 | |
| Financing fees | 218,000 | | - | | - | | - | |
| Finder fees | 154,031 | | - | | - | | - | |
| Interest and bank charges | 139,221 | | 8,314 | | 4,923 | | 4,149 | |
| Stock based compensation | 51,922 | | 51,922 | | - | | - | |
| Settlement agreement | 40,000 | | - | | - | | - | |
| Prizes | 34,726 | | 5,641 | | 29,085 | | - | |
| Fees and commissions | 29,741 | | - | | - | | - | |
| Interest on capital leases | 25,623 | | 11,962 | | 10,543 | | 3,118 | |
| Corporate capital tax | 500 | | 250 | | 250 | | - | |
| Foreign exchange loss (gain) | (13,640 | ) | 10,269 | | 4,526 | | (12,098 | ) |
| | 12,501,170 | | 2,601,855 | | 2,463,280 | | 1,735,936 | |
| Impairment write-down of pre-development | | | | | | | | |
| costs and investment | 5,832,058 | | 2,017,420 | | 158,817 | | 460,574 | |
| | 18,333,228 | | 4,619,275 | | 2,662,097 | | 2,196,510 | |
| LOSS | 17,417,766 | | 4,617,958 | | 2,602,640 | | 2,184,080 | |
| DEFICIT ACCUMULATED DURING | | | | | | | | |
| DEVELOPMENT STAGE – beginning | - | | 12,799,808 | | 10,197,168 | | 8,013,088 | |
| DEFICIT ACCUMULATED DURING | | | | | | | | |
| DEVELOPMENT STAGE – ending | 17,417,766 | | 17,417,766 | | 12,799,808 | | 10,197,168 | |
| | | | | | | | | |
| Weight Average Number of Shares | | | 63,900,867 | | 42,409,898 | | 27,991,260 | |
| Adjusted for Sept 8, 2003, 21 for 20 stock split | | | | | | | | |
| (Note 10) | | | 3,993,531 | | 3,993,531 | | 3,993,531 | |
| | | | 67,894,398 | | 46,403,429 | | 31,984,791 | |
| | | | | | | | | |
| Loss per share | | | 0.0680 | | 0.0560 | | 0.0682 | |
(See accompanying notes to consolidated financial statements)
SUNGOLD ENTERTAINMENT CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| | April 7, 1986 | | | | | | | |
| | (inception) to | | | | | | | |
| | August 31 | | 2003 | | 2002 | | 2001 | |
| | 2003 | | $ | | $ | | $ | |
| | $ | | | | | | | |
| | | | | | | | | |
| OPERATING ACTIVITIES | | | | | | | | |
| Loss | (17,417,766 | ) | (4,617,958 | ) | (2,602,640 | ) | (2,184,080 | ) |
| Items not involving cash: | | | | | | | | |
| Amortization | 527,210 | | 144,616 | | 161,923 | | 142,669 | |
| Debt settled by issuance of private | | | | | | | | |
| placements units | 582,561 | | 582,561 | | - | | - | |
| Stock-based compensation | 51,922 | | 51,922 | | - | | - | |
| Write-down of pre-development costs and | | | | | | | | |
| investment | 5,832,057 | | 2,017,420 | | 158,817 | | 460,574 | |
| Gain on disposition of marketable securities | (838,947 | ) | - | | - | | - | |
| Loss on disposition of capital assets | 14,032 | | - | | - | | - | |
| | (11,248,931 | ) | (1,821,439 | ) | (2,281,900 | ) | (1,580,837 | ) |
| Cash provided by changes in non-cash | | | | | | | | |
| Working capital items: | | | | | | | | |
| Prepaid expenses and deposits | (4,154 | ) | 370,799 | | (329,186 | ) | (4,718 | ) |
| Accounts payable and accrued liabilities | 175,238 | | 142,414 | | (82,886 | ) | (20,977 | ) |
| Loans payable | 17,390 | | (264,797 | ) | 282,187 | | - | |
| | (11,060,457 | ) | (1,573,023 | ) | (2,411,785 | ) | (1,606,532 | ) |
| INVESTING ACTIVITIES | | | | | | | | |
| Pre-development costs | (5,206,715 | ) | (11,146 | ) | (32,908 | ) | (316,358 | ) |
| Acquisition of capital assets | (1,103,025 | ) | (207,414 | ) | (7,690 | ) | (416,489 | ) |
| | (6,309,740 | ) | (218,560 | ) | (40,598 | ) | (732,847 | ) |
| | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | |
| Repayment of obligation under capital leases | (39,776 | ) | (19,423 | ) | (16,049 | ) | (4,304 | ) |
| Issuance of shares | 15,717,808 | | 1,835,162 | | 2,388,010 | | 2,391,331 | |
| Proceed of disposition of marketable securities | 1,725,747 | | - | | - | | - | |
| Proceeds of disposition of capital assets | 14,346 | | - | | - | | - | |
| | 17,418,125 | | 1,815,739 | | 2,371,961 | | 2,387,027 | |
| | | | | | | | | |
| INCREASE (DECREASE) IN CASH | 47,928 | | 24,156 | | (80,422 | ) | 47,648 | |
| CASH – beginning | - | | 23,772 | | 104,194 | | 56,546 | |
| CASH – ending | 47,928 | | 47,928 | | 23,772 | | 104,194 | |
| Notes to statement of cash flows: | | | | | | | | |
| | | | | | | | | | |
| 1) | Cash consists of balances with banks | | | | | | | | |
| | | | | | | | | | |
| 2) | Interest and income taxes paid: | 164,844 | | 20,276 | | 15,466 | | 7,267 | |
| | Interest paid | | | | | | | | |
| | Income taxes paid | - | | - | | - | | - | |
| | | | | | | | | | |
| 3) | During the year, the Company issued 11,750,000 private placement units to settle $582,561of debts | | |
(See accompanying notes to consolidated financial statements)
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 1 | GOING CONCERN AND NATURE OF OPERATIONS |
| | | | |
| | Sungold Entertainment Corp. (the “Company”) is incorporated in the Province of British Columbia under the Company Act (British Columbia) (See Note 11 a), and its principal activity is developing and promoting horseracing, virtual horseracing, internet payment systems and other internet related products. To date, the Company has not earned significant revenues and is considered to be in a development stage. The recoverability of the amounts shown for pre-development costs is primarily dependent on the ability of the Company to put its pre-development projects into economically viable products in the future. The Company plans to meet anticipated financing needs in connection with its obligations by the exercise of stock options, share purchase warrants, and through private placements, public offerings or joint-venture participation by others. These consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s shares are trading in the United States on the O.T.C. bulletin board and on the Frankfurt Stock Exchange, Germany. |
| | |
| Note 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| | |
| | a) | Commitments and Contingencies The Company’s activities are subject to various governmental laws and regulations relating to horseracing, virtual horseracing, online jackpot wagering copyrights, trademarks and patents. These regulations are continually changing. The Company believes its activities comply in all material respects with all applicable laws and regulations. |
| | | |
| | b) | Use of estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities at the date of financial statements and revenue and expenses for the period reported. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. Actual results will likely differ from those estimates. |
| | | |
| | c) | Basis of Consolidation These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, SafeSpending Inc. (formerly Sungold Entertainment USA, Inc.), Horsepower Broadcasting Network Inc., Horsepower Broadcasting Network (HBN) International Ltd. and Racing Unified Network (R.U.N.) Inc. (incorporated June 26, 2003). All inter-company transactions and balances have been eliminated. |
| | | |
| | d) | Translation of Foreign Currencies: Accounts recorded in foreign currency have been converted to Canadian dollars as follows: |
| | | |
| | | • | Current assets and current liabilities at exchange rates at the end of the year; |
| | | • | Other assets at historical rates; |
| | | • | Revenues and expenses at the average rate of exchange for the month incurred. |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
| | | | |
| | d) | Translation of Foreign Currencies (continued): Gains and losses resulting from the fluctuation of foreign exchange rates are included in the determination of income. |
| | | |
| | e) | Pre-development costs The Company is in the development stage and capitalizes all costs related to its pre-development projects in accordance with Accounting Guideline No. 11, “Enterprises in the Development Stage”, issued by the Canadian Institute of Chartered Accountants. The management assess annually whether the recovery of the unamortized balance of these costs from the future operations can continue to be regarded as probable. When the unamortized balance is determined to exceed the expected amount of recovery through future related revenues, less relevant costs, the deferred pre-development costs are impaired and are written down to fair value. The costs deferred at any time do not necessarily reflect present or future values. The ultimate recovery of such amounts depends on the Company successfully developing and commencing the project. |
| | | |
| | f) | Capital Assets and Amortization Capital assets are recorded at cost with amortization provided on a declining balance as follows: |
| | | | Computer equipment | 30% | |
| | | | Computers under capital leases | 30% | |
| | | | Internet software | 20% | |
| | | | Furniture and fixtures | 20% | |
| | | | | | |
| | | The above rate has been utilized to reflect the anticipated life expectancy. In the year of acquisition only one-half the normal rate is applied. |
| | | |
| | g) | Income Taxes Income taxes are provided for in accordance with the liability method. Under this method of tax allocation, future income tax assets and liabilities are determined based on differences between the financial statements carrying values and their respective income tax bases (temporary differences). Future income tax assets and liabilities are measured using the enacted tax rates expected to be in effect when the temporary differences are likely to reverse. The effect on future income tax assets and liabilities of a change in rates is included in operations in the period in which the change is enacted or substantively enacted. The amount of future income tax assets recognized is limited to the amount that is more likely than not to be realized. |
| | | |
| | h) | Loss Per Share Loss per share is determined using the treasury stock method on the weighted average number of shares outstanding during the year. All outstanding options, purchase warrants and private placement units are anti-dilutive, and therefore have no effect on the determination of loss per share. |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
| | | |
| | i) | Stock-based Compensation Plans The Company has adopted prospectively the recommendations of the Canadian Institute of Chartered Accountants (the “CICA”) Section 3870 – stock-based compensation and other stock-based payments regarding accounting for stock-based compensation, which requires the use of fair value based method prospectively. Under this fair value based method, the value of stock-based compensation plan is the sum of two component parts: its intrinsic value and its time value. The intrinsic value reflects the extent to which it is “in the money” at any date; and the time value is the value of the potential increases to the plan holder at any given time. The estimated time value is added to the intrinsic value to determine the fair value of the plan at any time. The Company has a stock-based compensation plan, which is described in Note 6 b). |
| | | |
| NOTE 3 | PRE-DEVELOPMENT COSTS |
| | | |
| | a) | Gun Lake Indian Band project In 1994 the Company entered into an agreement with the Gun Lake Indian Band (“Band”) in Michigan, USA to develop and manage a full service casino and gaming operation. In 1999, the Band beached the agreement. As a consequent, the Company filed a comprehensive lawsuit in the Michigan courts against the Band. In 2002, the Michigan Court of Appeals court dismissed the appeal on the basis of the Defendants’ claim of sovereign immunity. During the current fiscal year, the Michigan Supreme Court denied the Company an application to appeal the Michigan Court of Appeals court decision and the Company decided not to appeal to the United States Supreme Court.. The management believes that the Company could receive compensation of damages from parties that caused the beach of agreement, but the likelihood for the success of a lawsuit cannot be determined. After assessing the Michigan courts decisions; and considering the project has been delayed for more than three years, the management decided to provide an impairment write-off on the Gun Lake project. |
| | | | | | Impairment | | |
| | | | 2002 | Additions | Write-off | | 2003 |
| | | | $ | $ | $ | | $ |
| | | | | | | | |
| | | Consulting and legal fees | 1,036,168 | - | (1,036,168 | ) | - |
| | | Contractual obligation | 520,117 | - | (520,117 | ) | - |
| | | Travel and lodging | 213,432 | - | (213,432 | ) | - |
| | | | 1,769,717 | - | (1,769,717 | ) | - |
| | | | | | | | |
| | b) | Vancouver Racecourse / Richmond Equine Training Centre project In November 2002, the option to purchase 227 acres in Richmond, British Columbia, Canada for the purpose of developing a horse training complex expired, and the Company did not obtain a new option to purchase 100 acres on the same property. Consequently, the Company wrote-off all deferred expenditure that were related directly to the option property. |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| | b) | Vancouver Racecourse / Richmond Equine Training Centre project (Continued) The Company is continuously lobbying with the regulatory authorities on its proposal to renovate the Hastings Park horse track facility in Vancouver, British Columbia, in conjunction with the construction of a one-mile thoroughbred training centre in Richmond. In September 2003, the Company renegotiated to extend the agreement with a party who is interested in both the Vancouver one-mile racecourse and the Richmond equine training centre project. The agreement set out the intention of both parties that upon the Company receiving the appropriate permission from the Cities of Vancouver and of Richmond, BC and from the Province of British Columbia to develop the project, the interested party would purchase 6 million common treasury shares of Sungold Entertainment Corp. at US$4.00 per share by way of a private placement. The agreement was extended to October 1, 2004. (See Related Party Transactions Note 7 a). |
| | | | | | Impairment | | |
| | | | 2002 | Additions | Write off | | 2003 |
| | | | $ | $ | $ | | $ |
| | | Consulting and legal fees | 807,626 | 1,680 | (195,507 | ) | 613,799 |
| | | Architectural fees | 32,752 | - | (32,752 | ) | - |
| | | Other direct costs | 20,972 | - | (19,444 | ) | 1,528 |
| | | | 861,350 | 1,680 | (247,703 | ) | 615,327 |
| | | | | | | | |
| | c) | HorsepowerTM Software Development project On September 15, 1999, the Company incorporated a wholly owned subsidiary, Horsepower.com Network Inc. in the Province of British Columbia under the Company Act (BC) to develop a virtual Horserace wagering system - HorsepowerTM. On March 22, 2000, the subsidiary name changed to Horsepower Network.com Inc., and on January 25, 2001, the subsidiary name changed to Horsepower Broadcasting Network Inc. (“HBNI”). Sungold reserves the rights to all intellectual property. HBNI acquired computer hardware for developing software and leased a hosting facility that enables HorsepowerTM to operate the $US based World wagering pool at licensed racetracks and licensed teletheatres worldwide. HBNI engaged it’s sister company Horsepower Broadcasting Network (HBN) International Ltd. to test run their US $ wagering program through the World Wide Web. The hardware and software development costs are capitalized under capital assets and amortized annually. |
| | | | | | Impairment | |
| | | | 2002 | Additions | Write off | 2003 |
| | | | $ | $ | $ | $ |
| | | Legal and consulting fees | 58,999 | - | - | 58,999 |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| NOTE 3 | PRE-DEVELOPMENT COSTS (continued) |
| | | |
| | d) | HorsepowerTM Operating project On February 20, 2001, the Company incorporated a wholly owned subsidiary, Horsepower Broadcasting Network (HBN) International Ltd. (“HBN”), in the Province of Quebec under the Canada Business Corporation Act. HBN operated under the Horsepower World Pool pari-mutual licensing system licensed by the Kahnawake Gaming Commission and operates on the Kahnawake Territory in Quebec. In March 2003, HBN made a strategic decision to offer Horsepower pari-mutual wagering and the Horsepower World Pool, exclusively through licensed, land based Racetrack and Teletheatres and to grant 20 year licenses for Horsepower Parimutual World Pool Wagering, to authorized racing affiliates worldwide. During the year no predevelopment costs were capitalized under HorsepowerTM operating project. The Company management believes the Company complies in all material respects with the governing laws and regulations. |
| | | |
| | e) | SafeSpending project In May 2001, the Company acquired the entire world wide right, title and interest to the internet payment system technology of SafeSpending from SafeSpending Services Inc. The SafeSpending internet payment system will be a prepaid spending system that uses a unique and personalized PIN number which can be used to make anonymous purchases online from merchants and individuals. The acquisition agreement includes all copyrights, trademarks, source codes and SafeSpending’s intellectual property. Under the terms of agreement the Company has agreed to pay a 7.5 percent royalty of net revenue of the Company upon the Company or it’s subsidiary Horsepower Broadcasting Network Inc. receiving $1,000,000 in net revenue from operation, sale or license of the technology. In May 2003, the Company changed the name of its US subsidiary, Sungold Entertainment USA Inc., to SafeSpending, Inc. and intends to set up a SafeSpending operation in USA. |
| | | | | | Impairment | | |
| | | | 2002 | Additions | Write off | | 2003 |
| | | | $ | $ | $ | | $ |
| | | Acquisition cost | 62,300 | - | - | | 62,300 |
| | | Legal and consulting fees | 15,950 | 9,466 | - | | 25,416 |
| | | | 78,250 | 9,466 | - | | 87,716 |
| | | | | | | | |
| | | | | | Impairment | | |
| | | | 2002 | Additions | Write off | | 2003 |
| | | | $ | $ | $ | | $ |
| | | | | | | | |
| | TOTAL PRE-DEVELOPMENT COSTS | 2,768,316 | 11,146 | (2,017,420 | ) | 762,042 |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| | | | | 2003 | | 2002 |
| | | | Cost | Less | Net Book | Net Book |
| | | | | Accumulated | Value | Value |
| | | | | Amortization | | |
| | | | $ | $ | $ | $ |
| | | Internet software – HorsepowerTM | 761,104 | 289,407 | 471,697 | 385,902 |
| | | Computer equipment | 266,340 | 180,721 | 85,619 | 118,463 |
| | | Computers under capital leases | 54,834 | 31,050 | 23,784 | 37,119 |
| | | Furniture and fixtures | 25,758 | 2,576 | 23,182 | - |
| | | | | | | |
| | | | 1,108,036 | 503,754 | 604,282 | 541,484 |
| | | |
| Note 5 | OBLIGATION UNDER CAPITAL LEASES The Company has two lease agreements for computers accounted for as capital leases. Current payments are $1,822 monthly, expiring April 2004 through June 2004. The following is a schedule of future lease payments |
| | | | 2003 | | 2002 | |
| | | | $ | | $ | |
| | | Total minimum lease payments | 18,252 | | 41,834 | |
| | | Less amount representing interest | (999 | ) | (5,158 | ) |
| | | Balance of obligations | 17,253 | | 36,676 | |
| | | Less current portion | (17,253 | ) | (19,423 | ) |
| | | Non-current portion | - | | 17,253 | |
| | | | | | | |
| | In August 2003, the Company exercised a buy option to purchase a computer under capital lease. |
| | |
| Note 6 | SHARE CAPITAL During the year, the Company received regulatory approval to increase its authorized share capital as approved in the Annual General Meeting held in February 2003. The authorized common shares were then increased to unlimited from 100,000,000 shares (See subsequent event note 11 c). |
| | | 2003 | 2002 |
| | | $ | $ |
| | | Authorized: | | |
| | | Unlimited common shares without par value | | |
| | | 100,000,000 Class “A” preference shares | | |
| | | with a par value of $10 each | | |
| | | 100,000,000 Class “B” preference shares | | |
| | | with a par value of $50 each | | |
| | | Issued and outstanding: | | |
| | | 79,871,209 common | | |
| | | (2002 – 50,121,209 common) | 18,574,369 | 16,156,646 |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 6 | SHARE CAPITAL (continued) |
| | | |
| | a) | Shares issued during the year: |
| | | 2003 | | 2002 | |
| | | # | | $ | | # | | $ | |
| | | For cash – private placements | 16,000,000 | | 1,673,938 | | 13,270,000 | | 2,028,381 | |
| | | – exercise of share | | | | | | | | |
| | | purchase warrants | 2,000,000 | | 161,224 | | 516,666 | | 48,162 | |
| | | – exercise of incentive share | | | | | | | | |
| | | purchase options | - | | - | | 1,880,000 | | 311,467 | |
| | | 18,000,000 | | 1,835,162 | | 15,666,666 | | 2,388,010 | |
| | | For debt – private placements | 11,750,000 | | 582,561 | | - | | - | |
| | | 29,750,000 | | 2,417,723 | | 15,666,666 | | 2,388,010 | |
| | | |
| | b) | Stock options and stock based compensation The Company has a fixed stock option plan on the issuance of options of up to 10% of the Company’s issued share capital. The following are outstanding incentive share purchase options: |
| Date of Grant | Price | Balance
Aug 31, 2002 | Granted | Exercised
/ Expired | Balance
Aug 31, 2003 | Expiration date |
| Feb. 16, 2001 | US$0.1500 | 100,000 | - | - | 100,000 | February 16, 2006 |
| Feb. 28, 2001 | US$0.0600 | 1,050,000 | - | - | 1,050,000 | February 28, 2006 |
| Mar. 5, 2001 | US$0.0850 | 79,900 | - | - | 79,900 | March 5, 2006 |
| Aug. 10, 2001 | US$0.1200 | 300,000 | - | - | 300,000 | August 10, 2006 |
| Oct. 22, 2001 | US$0.1000 | 100,000 | - | - | 100,000 | October 22, 2006 |
| Oct. 23, 2001 | US$0.1200 | 100,000 | - | - | 100,000 | October 23, 2006 |
| Dec. 20, 2001 | US$0.0900 | 100,000 | - | - | 100,000 | December 20, 2006 |
| Jan. 4, 2002 | US$0.0800 | 802,764 | - | - | 802,764 | January 4, 2007 |
| Jan. 24, 2002 | US$0.0725 | 400,000 | - | - | 400,000 | January 24, 2007 |
| Mar 26, 2002 | US$0.2300 | 136,000 | - | 136,000 | - | Cancelled |
| May 17, 2002 | US$0.0200 | 272,000 | - | - | 272,000 | May 17, 2007 |
| Oct. 11, 2002 | US$0.1500 | - | 200,000 | - | 200,000 | October 11, 2007 |
| Oct. 16, 2002 | US$0.1500 | - | 300,000 | - | 300,000 | October 16, 2007 |
| Jan. 23, 2003 | US$0.1100 | - | 136,000 | - | 136,000 | January 23, 2008 |
| Jan. 28, 2003 | US$0.1000 | - | 750,000 | 750,000 | - | Cancelled |
| May 27, 2003 | US$0.0500 | - | 64,000 | - | 64,000 | May 27, 2008 |
| May 28, 2003 | US$0.0500 | - | 150,000 | - | 150,000 | May 28, 2008 |
| | | | | | | |
| | | 3,440,664 | 1,600,000 | 886,000 | 4,154,664 | |
| | | In 2001, the Canadian Institute of Chartered Accountants issued Section 3870 for Stock-based Compensations, which requires the use of fair value based method for fiscal years beginning on or after January 1, 2002 and applied to awards granted on or after the date of adoption. The Company adopted the recommendations prospectively for the fiscal year starting September 1, 2002. Under this fair value based method, the value of stock-based compensation plan is the sum of two component parts: its intrinsic value and its time value. The intrinsic value reflects the extent to which it is “in the money” at any date; and the time value is the value of the potential increases to the plan holder at any given time. The estimated time value is added to the intrinsic value to determine the fair value of the plan at any time. |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 6 | SHARE CAPITAL (continued) |
| | | | |
| | b) | Stock options and stock based compensation (continued) |
| | | | |
| | | | Since September 1, 2002, the Company granted 850,000 share purchase options to employees and non-employees as follows: |
| Date of Grant | Price | Granted
# | Exercisable
# | Exercised
# | Compensation
$ | Expiration date |
| Oct. 11, 2002 | US$0.1500 | 200,000 | 200,000 | - | 16,600 | October 11, 2007 |
| Oct. 16, 2002 | US$0.1500 | 300,000 | 300,000 | - | 24,900 | October 16, 2007 |
| Jan. 23, 2003 | US$0.1100 | 136,000 | 136,000 | - | 8,282 | January 23, 2008 |
| May 27, 2003 | US$0.0500 | 64,000 | 64,000 | - | 640 | May 27, 2008 |
| May 28, 2003 | US$0.0500 | 150,000 | 150,000 | - | 1,500 | May 28, 2008 |
| | | | | | | |
| | | 850,000 | 850,000 | - | 51,922 | |
| | | | The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions: |
| | | | | | |
| | | | | | |
| | | | Risk-free interest rate | 3.00% | |
| | | | Dividend yield | 0 | |
| | | | Estimated hold period prior to exercise (years) | 3 | |
| | | | Volatility in the price of the Company’s common shares | 150% | |
| | | | | | |
| | | | Between January 1, 2002 and August 31, 2002, the Company granted 946,764 share purchase options to directors at US$0.08 per share until Jan 4, 2007, 136,000 share purchase options to a director at US$0.08 per share until Jan 15, 2007, 400,000 share purchase options to a director at US$0.0725 per share until Jan 24, 2007, 136,000 share purchase options to a director at US$0.23 per share until March 26, 2007 and 272,000 share purchase options to a director at US$0.20 per share until May 17, 2007. Had compensation cost of the stock based employee compensation been recorded, based upon the fair value of share options, additional compensation expense for the year ended August 31, 2002 would have been $111,430. The pro forma loss per share, assuming this additional compensation expense would have been ($0.0584). The Pro forma results may be materially different than actual results realized. The Black-Scholes valuation model was developed for use in estimating the fair value of traded options which are fully transferable and highly traded. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its director stock options. Outstanding share purchase options which were issued prior January 1, 2002 have neither been charged to income nor included in the calculation of pro forma loss, in accordance with Section 3870 of the CICA Handbook, which is to take effect prospectively. |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 6 | SHARE CAPITAL (continued) |
| | | |
| | c) | Share purchase warrants: |
| Date of Grant | Price | Balance
Aug 31, 2002 | Granted | Exercised | Cancelled
/ Expired | Balance
Aug 31, 2003 | Expiration date |
| Oct. 12, 1999 | US$0.250 | 136,000 | - | - | 136,000 | - | October 12, 2002 |
| Oct. 12, 1999 | US$0.320 | 150,000 | - | - | 150,000 | - | October 12, 2002 |
| Apr. 20, 2000 | US$0.330 | 500,000 | - | - | 500,000 | - | Voluntary request |
| May 24, 2000 | US$0.250 | 400,000 | - | - | 400,000 | - | Voluntary request |
| Jun. 28, 2000 | US$0.420 | 200,000 | - | - | 200,000 | - | Voluntary request |
| Jul. 31, 2000 | US$0.300 | 400,000 | - | - | 400,000 | - | Voluntary request |
| Aug.24, 2000 | US$0.300 | 240,000 | - | - | 240,000 | - | Voluntary request |
| Aug. 29, 2000 | US$0.250 | 100,000 | - | - | 100,000 | - | Voluntary request |
| Sep.6, 2000 | US$0.300 | 100,000 | - | - | 100,000 | - | Voluntary request |
| Sep.21, 2000 | US$0.200 | 800,000 | - | - | 800,000 | - | Voluntary request |
| Oct.12, 2000 | US$0.200 | 919,000 | - | - | 600,000 | 319,000 | (1)October 12, 2003 |
| Dec.22, 2000 | US$0.200 | 100,000 | - | - | 100,000 | - | Voluntary request |
| Mar.23, 2001 | US$0.200 | 900,000 | - | - | 900,000 | - | Voluntary request |
| Mar.19, 2001 | US$0.200 | 600,000 | - | - | 600,000 | - | Voluntary request |
| April 5, 2001 | US$0.200 | 550,000 | - | - | 550,000 | - | Voluntary request |
| May 8, 2001 | US$0.200 | 1,000,000 | - | - | 1,000,000 | - | Voluntary request |
| May 29, 2001 | US$0.200 | 1,000,000 | - | - | 1,000,000 | - | Voluntary request |
| Jun.27, 2001 | US$0.200 | 1,000,000 | - | - | 1,000,000 | - | Voluntary request |
| Sep.7, 2001 | US$0.200 | 1,000,000 | - | - | - | 1,000,000 | September 7, 2004 |
| Oct.24, 2001 | US$0.150 | 420,000 | - | - | - | 420,000 | October 24, 2004 |
| Nov.4, 2001 | US$0.150 | 1,000,000 | - | - | - | 1,000,000 | November 4, 2004 |
| Dec.14, 2001 | US$0.060 | 2,333,334 | - | - | - | 2,333,334 | December 14, 2004 |
| Jan.7, 2002 | US$0.060 | 1,700,000 | - | - | - | 1,700,000 | January 7, 2005 |
| Jan.30, 2002 | US$0.060 | 1,000,000 | - | - | - | 1,000,000 | January 30, 2005 |
| Mar.1, 2002 | US$0.110 | 300,000 | - | - | - | 300,000 | March 1, 2005 |
| Mar.26, 2002 | US$0.170 | 1,000,000 | - | - | - | 1,000,000 | March 26, 2005 |
| Apr. 4, 2002 | US$0.165 | 1,000,000 | - | - | - | 1,000,000 | April 4, 2005 |
| May 7, 2002 | US$0.160 | 400,000 | - | - | - | 400,000 | May 7, 2005 |
| May 30, 2002 | US$0.150 | 600,000 | - | - | - | 600,000 | May 30, 2005 |
| Jul. 10, 2002 | US$0.075 | 2,500,000 | - | - | - | 2,500,000 | July 10, 2005 |
| Jul. 24, 2002 | US$0.080 | 250,000 | - | - | - | 250,000 | July 24, 2005 |
| Aug. 21, 2002 | US$0.090 | 100,000 | - | - | - | 100,000 | August 21, 2005 |
| Jul. 23, 2002 | US$0.080 | - | 1,500,000 | - | - | 1,500,000 | July 23, 2005 |
| Sep. 27, 2002 | US$0.080 | - | 3,000,000 | - | - | 3,000,000 | September 27, 2005 |
| Nov. 1, 2002 | US$0.070 | - | 3,000,000 | - | - | 3,000,000 | November 1, 2005 |
| Dec. 12, 2002 | US$0.060 | - | 1,000,000 | 1,000,000 | - | - | December 12, 2005 |
| Dec. 18, 2002 | US$0.050 | - | 1,000,000 | 1,000,000 | - | - | December 18, 2005 |
| Jan. 24, 2003 | US$0.100 | - | 2,000,000 | - | - | 2,000,000 | January 24, 2006 |
| Mar. 26, 2003 | US$0.050 | - | 3,000,000 | - | - | 3,000,000 | March 26, 2006 |
| Apr. 10, 2003 | US$0.040 | - | 3,750,000 | - | - | 3,750,000 | April 10, 2006 |
| May 16, 2003 | US$0.030 | - | 3,000,000 | - | - | 3,000,000 | May 16, 2006 |
| Jun. 11, 2003 | US$0.030 | - | 3,000,000 | - | - | 3,000,000 | June 11, 2006 |
| Jul. 7, 2003 | US$0.031 | - | 2,500,000 | - | - | 2,500,000 | July 7, 2006 |
| Aug. 21, 2003 | US$0.075 | - | 1,000,000 | - | - | 1,000,000 | August 21, 2006 |
| | | | | | | | |
| | | 22,698,334 | 27,750,000 | 2,000,000 | 8,776,000 | 39,672,334 | |
(1)See Subsequent Events note 11 (d)
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 7 | RELATED PARTY TRANSACTIONS |
| | | |
| | a) | Loans payable of $17,390 (US$12,250) [2002 - $282,187 (US$181,028)] are from a director and officer of a subsidiary of the Company. |
| | | |
| | b) | The Company extended an intention agreement with a company with a common director, for its Richmond / Vancouver Horseracing project. (See Pre-development Costs Note 3 c). |
| | | |
| | c) | During the year management fees of $286,603 [2002 - $246,000] were paid to the directors and officers. |
| | | |
| | d) | During the year consulting fees of $286,645 [2002 - $76,102] were paid to the directors or companies with common directors. |
| | | |
| Note 8 | FINANCIAL INSTRUMENTS The Company’s financial instruments consist of cash, receivables, accounts payable and accrued liabilities, loans payable and obligation under capital leases. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial statements. The fair value of these financial instruments approximates their carrying value, unless otherwise noted. |
| | |
| Note 9 | ACCUMULATED LOSSES AND INCOME TAXES The company has accumulated non-capital losses for income tax purposes of $9,559,268 which may be carried forward and used to reduce taxable income in future years. Under present tax legislation, these losses will expire as follows: |
| | | Year | | Amount | |
| | | | | $ | |
| | | | | | |
| | | 2004 | | 543,932 | |
| | | 2005 | | 474,086 | |
| | | 2006 | | 653,279 | |
| | | 2007 | | 1,273,366 | |
| | | 2008 | | 1,714,246 | |
| | | 2009 | | 2,427,247 | |
| | | 2010 | | 2,473,112 | |
| | | | | 9,559,268 | |
| | |
| | The company has accumulated capital losses for income tax purposes of $3,143,556 that may be carried forward indefinitely and used to reduce capital gains in the future. The Company follows the asset and liability method of accounting for income taxes. Future income taxes assets and liabilities are determined based on temporary differences between the accounting and tax bases of existing assets and liabilities, and are measured using tax rates expected to apply when these differences reverse. A valuation allowance is recorded against any future tax asset if it is more likely than not that the asset will not be realized. |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 9 | ACCUMULATED LOSSES AND INCOME TAXES (continued) In assessing the realizability of future tax assets, management considers whether it is more likely than not that some portion of all of the future tax assets will not be realized. The ultimate realization of future tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of future tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The amount of future tax asset considered realizable could change materially in the near term based on future taxable income during the carry forward period. |
| | | |
| Note 10 | EARNINGS PER SHARE A 21 for 20 stock split occurred after the August 31, 2003 year-end but before the completion of the financial statements, CICA handbook section 3500 –Earning perShare requires the computations of earning per share should be based on the new number of shares and adjusted retroactively for all periods presented to reflect that change. (See also subsequent events note 11c). |
| | |
| Note 11 | SUBSEQUENT EVENTS |
| | |
| | a) | The Company is in the process of changing its name to Sungold International Holdings Corp. and continuing under the Canada Business Corporate Act from the British Columbia Company Acts. In connection with the Company’s name change and continuation, the Company will change its trading symbol from “SGGNF” to “SGIHF” on the OTC Bulletin Board. The change is subject to government agency and regulatory approval. |
| | | |
| | b) | On September 5, 2003, the Company announced a private placement of 2,000,000 units at US$0.06 each and subsequently issued the units for a total of $161,100 (US$120,000) for debt in September and October. |
| | | |
| | c) | On September 8, 2003, the Company issued 3,993,531 shares to its shareholders, record date September 1, 2003, pursuant to a 21 for 20 stock split approved by the Board of Directors on July 28, 2003. |
| | | |
| | d) | On October 12, 2003, 319,000 share purchase warrants expired after the year end. |
| | | |
| | e) | On October 31, 2003, the Company announced a private placement of 2,000,000 units at US$0.06 each and subsequently issued the units for a total of $158,064 (US$120,000) for debt in October and November. |
| | | |
| Note 12 | COMPARATIVE FIGURES The comparative figures have been reclassified where applicable in order to conform to the presentation used in the current year. |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 13 | UNITED STATES ACCOUNTING PRINCIPLES These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“CDN GAAP”) which differ in certain respects from those principles that the Company would have followed had its consolidated financial statements been prepared in accordance with generally accepted accounting principles in United States (“US GAAP”). The Company is considered to be a pre-operational Company under US GAAP. The significant differences related principally to the following items and the adjustments necessary to restate the loss and shareholders’ equity in accordance with US GAAP are outlined as follows: |
| | | |
| | a) | Pre-Development Costs Under CDN GAAP, pre-development expenditures are capitalized and amortized over the benefit period of the deferred expenditures once operations commence or written off if abandoned or impaired. US GAAP requires that pre-development expenditures be expensed as incurred until it is determined that commercially viable operations exist and the expenses then incurred are recoverable. |
| | | |
| | b) | Foreign Currency Translation Under US GAAP, all asset and liability accounts are translated at the exchange rates in effect at the balance sheet dates. Income statement amounts are translated at the average rate of exchange for the year. The resulting differences are accumulated in a separate component of shareholders’ equity. |
| | | |
| | c) | Share Options In December 2002, Financial Accounting Standards Board issued FASB No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB No. 123 “Accounting for stock-based Compensation””. FASB No. 148 allows a change to the fair value based method of accounting for stock-based employee compensation prospectively. The Company adopted the new FASB No. 148 for the year-end August 31, 2003. There are no differences between CDN GAAP and US GAAP on stock-based compensation presentation.. |
| | | |
| | d) | Loss per share For all years indicated, the options and warrants outstanding during the year are anti-dilutive and therefore fully diluted loss per share has not been disclosed. |
| | | |
| | e) | Comprehensive Income Under US GAAP, SFAS No. 130 requires that companies report comprehensive income as a measure of overall performance. Comprehensive income includes all changes in equity during a year except those resulting from investments by owners and distribution to owners. There is no similar concept under Canadian GAAP. The Company has determined that it had no comprehensive income other than the loss in any of the years presented. |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 13 | UNITED STATES ACCOUNTING PRINCIPLES (Continued) |
| | | |
| | f) | The following are balance sheet items under US GAAP that differ from Canadian GAAP: |
| | | | 2003 | | 2002 | | 2001 | |
| | | | $ | | $ | | $ | |
| | | | | | | | | |
| | | Pre-development costs | - | | - | | - | |
| | | Share capital | 23,285,107 | | 20,867,384 | | 18,479,374 | |
| | | Foreign currency adjustments | 13,640 | | 23,909 | | 28,435 | |
| | | Deficit | (22,904,186 | ) | (20,302,771 | ) | (17,830,566 | ) |
| | | |
| | g) | The following table summarizes the effect on Deficit of differences between CDN GAAP and US GAAP: |
| | | 2003 | | 2002 | | 2001 | |
| | | $ | | $ | | $ | |
| | | Deficit - CDN GAAP | (17,417,766 | ) | (12,799,808 | ) | (10,197,168 | ) |
| | | Cumulative effect of previous | | | | | | |
| | | years’ adjustments | (7,502,963 | ) | (7,633,398 | ) | (7,765,516 | ) |
| | | (24,920,729 | ) | (20,433,206 | ) | (17,962,684 | ) |
| | | US GAAP material adjustments: | | | | | | |
| | | · Effect of the write-off of pre- | | | | | | |
| | | development costs on net loss | 2,006,274 | | 125,909 | | 144,216 | |
| | | · Foreign currency adjustments | 10,269 | | 4,526 | | (12,098 | ) |
| | | 2,016,543 | | 130,435 | | 132,118 | |
| | | Deficit - US GAAP | (22,904,186 | ) | (20,302,771 | ) | (17,830,566 | ) |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 13 | UNITED STATES ACCOUNTING PRINCIPLES (continued) |
| | | |
| | h) | The following table summarizes the effect on shareholders’ equity after considering the US GAAP adjustments: |
| | | | | Foreign | | Total | |
| Common | | Accumulated | | Currency | | Shareholders’ | |
| Shares | | Deficit | | Translation | | Equity | |
| Amount | | | | Adjustments | | | |
| $ | | $ | | $ | | $ | |
| Common Shares issued /net loss: | | | | | | | | |
| August 31, 1986 | | | | | | | | |
| • Shares for cash | 107,501 | | - | | - | | 107,501 | |
| • Net loss under US GAAP | - | | - | | - | | - | |
| August 31, 1987 | 107,501 | | - | | - | | 107,501 | |
| • Shares for cash | 166,971 | | - | | - | | 166,971 | |
| • Net loss under US GAAP | - | | - | | - | | - | |
| August 31, 1988 | 274,472 | | - | | - | | 274,472 | |
| • Shares for cash | 401,667 | | - | | - | | 401,667 | |
| • Shares for property | 227,000 | | - | | - | | 227,000 | |
| • Net loss under US GAAP | - | | (753,962 | ) | - | | (753,962 | ) |
| August 31, 1989 | 903,139 | | (753,962 | ) | - | | 149,177 | |
| • Shares for cash | 622,215 | | - | | - | | 622,215 | |
| • Shares for property | 1,897,000 | | - | | - | | 1,897,000 | |
| • Net loss under US GAAP | - | | (575,612 | ) | - | | (575,612 | ) |
| August 31, 1990 | 3,422,354 | | (1,329,574 | ) | - | | 2,092,780 | |
| • Shares for cash | 100,250 | | - | | - | | 100,250 | |
| • Net loss under US GAAP | - | | (350,482 | ) | - | | (350,482 | ) |
| August 31, 1991 | 3,522,604 | | (1,680,056 | ) | - | | 1,842,548 | |
| • Shares for cash | 402,900 | | - | | - | | 402,900 | |
| • Net loss under US GAAP | - | | (1,420,584 | ) | - | | (1,420,584 | ) |
| August 31, 1992 | 3,925,504 | | (3,100,640 | ) | - | | 824,864 | |
| • Shares for cash | 465,875 | | - | | - | | 465,875 | |
| • Shares for property | 150,000 | | - | | - | | 150,000 | |
| • Net loss under US GAAP | - | | (289,189 | ) | - | | (289,189 | ) |
| August 31, 1993 | 4,541,379 | | (3,389,829 | ) | - | | 1,151,550 | |
| • Shares for cash | 576,500 | | - | | - | | 576,500 | |
| • Net loss under US GAAP | - | | (836,050 | ) | - | | (836,050 | ) |
| August 31, 1994 | 5,117,879 | | (4,225,879 | ) | - | | 892,000 | |
| • Shares for cash | 175,000 | | - | | - | | 175,000 | |
| • Foreign currency | - | | - | | 3,448 | | 3,448 | |
| • Net loss under US GAAP | - | | (738,384 | ) | - | | (738,384 | ) |
| August 31, 1995 | 5,292,879 | | (4,964,263 | ) | 3,448 | | 332,064 | |
| • Shares for cash | 255,750 | | - | | - | | 255,750 | |
| • Foreign currency | - | | - | | 3,329 | | 3,329 | |
| • Net loss under US GAAP | - | | (501,749 | ) | - | | (501,749 | ) |
| August 31, 1996 | 5,548,629 | | (5,466,012 | ) | 6,777 | | 89,394 | |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 13 | UNITED STATES ACCOUNTING PRINCIPLES (continued) |
| | | | | Foreign | | Total | |
| Common | | Accumulated | | Currency | | Shareholders’ | |
| Shares | | Deficit | | Translation | | Equity | |
| Amount | | | | Adjustments | | | |
| $ | | $ | | $ | | $ | |
| August 31, 1996 – balance forward | 5,548,629 | | (5,466,012 | ) | 6,777 | | 89,394 | |
| • Shares for cash | 1,250,000 | | - | | - | | 1,250,000 | |
| • Share-based compensation | 1,345,680 | | (1,345,680 | ) | - | | - | |
| • Foreign currency | - | | - | | (1,646 | ) | (1,646 | ) |
| • Net loss under US GAAP | - | | (1,046,798 | ) | - | | (1,046,798 | ) |
| August 31, 1997 | 8,144,309 | | (7,858,490 | ) | 5,131 | | 290,950 | |
| • Shares for cash | 1,351,967 | | - | | - | | 1,351,967 | |
| • Share-based compensation | 2,078,946 | | (2,078,946 | ) | - | | - | |
| • Foreign currency | - | | - | | 11,140 | | 11,140 | |
| • Net loss under US GAAP | - | | (1,297,719 | ) | - | | (1,297,719 | ) |
| August 31, 1998 | 11,575,222 | | (11,235,155 | ) | 16,271 | | 356,338 | |
| • Shares for cash | 1,044,358 | | - | | - | | 1,044,358 | |
| • Share-based compensation | 1,286,112 | | (1,286,112 | ) | - | | - | |
| • Foreign currency | - | | - | | (18,372 | ) | (18,372 | ) |
| • Net loss under US GAAP | - | | (1,300,904 | ) | - | | (1,300,904 | ) |
| August 31, 1999 | 13,905,692 | | (13,822,171 | ) | (2,101 | ) | 81,420 | |
| • Shares for cash | 2,182,351 | | - | | - | | 2,182,351 | |
| • Foreign currency | - | | - | | 18,438 | | 18,438 | |
| • Net loss under US GAAP | - | | (1,956,433 | ) | - | | (1,956,433 | ) |
| August 31, 2000 | 16,088,043 | | (15,778,604 | ) | 16,337 | | 325,776 | |
| • Shares for cash | 2,391,331 | | - | | - | | 2,391,331 | |
| • Foreign currency | - | | - | | 12,098 | | 12,098 | |
| • Net loss under US GAAP | - | | (2,051,962 | ) | - | | (2,051,962 | ) |
| August 31, 2001 | 18,479,374 | | (17,830,566 | ) | 28,435 | | 677,243 | |
| • Shares for cash | 2,388,010 | | - | | - | | 2,388,010 | |
| • Foreign currency | - | | - | | (4,526 | ) | (4,526 | ) |
| • Net loss under US GAAP | - | | (2,472,205 | ) | - | | (2,472,205 | ) |
| August 31, 2002 | 20,867,384 | | (20,302,771 | ) | 23,909 | | 588,522 | |
| • Shares for cash | 2,417,723 | | | | | | 2,417,723 | |
| • Foreign currency | | | | | (10,269 | ) | (10,269 | ) |
| • Net loss under US GAAP | | | (2,601,415 | ) | | | (2,601,415 | ) |
| August 31, 2003 | 23,285,107 | | (22,904,186 | ) | 13,640 | | 394,561 | |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 13 | UNITED STATES ACCOUNTING PRINCIPLES (continued) |
| | | |
| | i) | The following table summarizes the effect on Net Loss of differences between CDN GAAP and US GAAP: |
| | | Cumulative | | 2003 | | 2002 | | 2001 | |
| | | Amounts | | | | | | | |
| | | From | | | | | | | |
| | | Apr 7/86 to | | | | | | | |
| | | Aug 31/02 | | | | | | | |
| | | $ | | $ | | $ | | $ | |
| | | Net loss under CDN GAAP | (17,417,766 | ) | (4,617,958 | ) | (2,602,640 | ) | (2,184,080 | ) |
| | | US GAAP material adjustments: | | | | | | | | |
| | | • Effect of the write-off of pre- | | | | | | | | |
| | | development costs on net loss | (762,042 | ) | 2,006,274 | | 125,909 | | 144,216 | |
| | | • Share-based compensation | (4,710,738 | ) | - | | - | | - | |
| | | • Foreign currency adjustments | (13,640 | ) | 10,269 | | 4,526 | | (12,098 | ) |
| | | Net loss under US GAAP | (22,904,186 | ) | (2,601,415 | ) | (2,472,205 | ) | (2,051,962 | ) |
| | | Loss per share under US GAAP | | | 0.0383 | | 0.0533 | | 0.0642 | |
| | | | | | | ` | | | |
| | | Weighted average number of shares | | | 67,894,398 | | 46,403,429 | | 31,984,791 | |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 13 | UNITED STATES ACCOUNTING PRINCIPLES (continued) |
| | | |
| | k) | New Accounting Standards Under the Securities and Exchange Commission’s Staff Accounting Bulletin No.74, the Company is required to disclose certain information related to recently issued accounting standards. The recently issued accounting standards are summarized as follows: U.S. Standards In June 2001, Financial Accounting Standards Board (“the FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 143Accounting for Asset Retirement Obligations(SFAS 143). SFAS 143 addresses financial accounting and reporting for obligations and costs associated with the retirement of tangible long-lived assets and the associated asset retirement costs, and is effective for fiscal years beginning after June 15, 2002. The Company does not expect that adoption of SFAS No. 143 will have a material impact on its results from operations or financial position. In April 2002, the FASB issued Statement No. 145Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections(SFAS 145). Among other things, SFAS 145 rescinds both SFAS No. 4Reporting Gains and Losses from Extinguishment of Debtand the amendment of SFAS No. 4, and SFAS No. 64Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. Through these rescission, SFAS 145 eliminates the requirement (in both SFAS No. 4 and SFAS No. 64) that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. Generally, SFAS 145 is effective for financial statements issued after May 15, 2002. The Company does not expect that adoption of SFAS 145 will have a material impact on its results from operations or financial position. In June 2002, the FASB issued Statement No. 146Accounting for Costs Associated with Exit or Disposal Activities(SFAS 146), which is effective for exit or disposal activities after December 31, 2002. Under SFAS 146, liabilities arising from exit or disposal activities are recognized only when incurred, and measured at their fair value. The Company does not expect that adoption of SFAS 146 will have a material impact on its results from operations or financial position. In November 2002, the FASB issued FASB Interpretation No. 45Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34(FIN 45). FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. Initial recognition and measurement provisions are effective for guarantees issued or modified after December 31, 2002. The Company does not expect that adoption of FIN 45 will have a material impact on its results from operations or financial position. In December 2002, the FASB issued SFAS No. 148Accounting for Stock-Based Compensation – Transition and Disclosure – an Amendment of FASB Statement No. 123(SFAS 148). This amendment provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation, and amends disclosure requirements to require prominent disclosure in both annual and interim financial statements about the method adopted for stock compensation accounting and its effect on reported results. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements. The Company has adopted the recommendation for current year. |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 13 | UNITED STATES ACCOUNTING PRINCIPLES (continued) |
| | | |
| | k) | New Accounting Standards (continued) In January 2003, the FASB issued Interpretation No. (‘‘FIN’’) 46 – ‘‘Consolidation of Variable Interest Entities’’ (‘‘FIN 46’’). FIN 46 clarifies the application of Accounting Research Bulletin No. 51 – Consolidated Financial Statements to those entities defined as ‘‘Variable Interest Entities’’ (more commonly referred to as special purpose entities) in which equity investors do not have the characteristics of a ‘‘controlling financial interest’’ or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies immediately to all Variable Interest Entities created after January 31, 2003, and by the beginning of the first interim or annual reporting period commencing after June 15, 2003 for Variable Interest Entities created prior to February 1, 2003. The Company does not expect that adoption of FIN 46 will have a material impact on its results from operations or financial position. In April 2003, the FASB issued SFAS 149, which amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities under SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities. The amendments are intended to improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, this Statement clarifies the circumstances under which a contract with an initial net investment meets the characteristics of a derivative as discussed in SFAS 133. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, except as stated below, and for hedging relationships designated after June 30, 2003. The guidance should be applied prospectively. The Company does not expect that adoption of SFAS 149 will have a material impact on its results from operations or financial position. On May 15, 2003, the FASB issued SFAS 150, which aims to eliminate diversity in practice by requiring that mandatorily redeemable instruments, forward purchase contracts, and certain financial instruments that include an obligation that (1) the issuer may or must settle by issuing a variable number of its equity shares and (2) has a "monetary value" at inception that (a) is fixed, (b) is tied to a market index or other benchmark (something other than the fair value of the issuer's equity shares), or (c) varies inversely with the fair value of the equity shares (e.g., a written put option) be reported as liabilities. The provisions of SFAS 150, which also include a number of new disclosure requirements, are effective for (1) instruments entered into or modified after May 31, 2003 and (2) pre-existing instruments as of the beginning of the first interim period that commences after June 15, 2003. The Company does not expect that adoption of SFAS 150 will have a material impact on its results from operations or financial position. Canadian Standards In 2002, the Canadian Institute of Chartered Accountants (CICA) issued Accounting Guideline 13Hedging Relationships(AcG-13), which requires that in order to apply hedge accounting, all hedging relationships must be identified, designated, documented, and effective. Where hedging relationships cannot meet these requirements, hedge accounting must be discontinued. AcG-13 is applicable for fiscal years beginning on or after July 1, 2003. The Company does not expect that adoption of AcG-13 will have a material impact on its results from operations or financial position. |
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2003
(A Development Stage Company)
(Presented in Canadian Dollars)
| Note 13 | UNITED STATES ACCOUNTING PRINCIPLES (continued) |
| | | |
| | k) | New Accounting Standards (continued) Canadian Standards In 2002, the CICA issued revised Handbook section 3475Disposal of Long-Lived Assets and Discontinued Operations. The revised standard establishes criteria for the classification of long-lived assets as “held for sale” and requires that long-lived assets that are to be disposed of by sale be measured at the lower of carrying value or fair value less cost to sell. It eliminates the previous recommendation that companies include under “discontinued operations” in the financial statements amounts for operating losses that have not yet occurred. Additionally, the revised standard expands the scope of discontinued operations to include all components of a company with operations that can be distinguished from the rest of the company and will be eliminated from the ongoing operations of the company in a disposal transaction. Section 3475 is effective for disposal activities initiated by the Company’s commitment to a plan on or after May 1, 2003. The Company does not expect the adoption of CICA section 3475 to have a material impact on its results from operations or financial position. In 2002, the CICA issued Handbook section 3063Impairment of Long-Lived Assets, harmonizes with the impairment provisions of FASB Statement No. 144 –Accounting for Impairment or Disposal of Long-Lived Assets, which requires that impairment of long-lived assets held for use be determined by a two-step process, with the first step determining when an impairment is recognized and the second step measuring the amount of the impairment. Under Handbook Section 3063 an impairment loss is recognized when the carrying amount of a long-lived asset exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition and is measured as the amount by which the long-lived asset’s carrying amount exceeds its fair value. Section 3063 is effective for fiscal years beginning on or after April 1, 2003. The Company does not expect the adoption of CICA section 3063 to have a material impact on its results from operations or financial position. In 2003, the Canadian Institute of Chartered Accountants (CICA) issued Accounting Guideline 14Disclosure of Guarantees(AcG-14), which is generally consistent with the disclosure requirements in FASB Interpretation No. 45Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,except it does not apply to product warranties. It requires entities to disclose key information about certain types of guarantee contracts that require payments contingent on specified types of future events. The Guideline is applicable to annual and interim periods beginning on or after January 1,2003. The Company does not expect that adoption of AcG-14 will have a material impact on its results from operations or financial position. In 2003, the Canadian Institute of Chartered Accountants (CICA) issued Accounting Guideline 15Consolidation of Variable Interest Entities(AcG-15), in harmony with FASB Interpretation No. 46, with the same title, to provide guidance for applying the principles in Subsidiaries, Section 1590, to certain special-purpose entities. The consolidation requirement in the Guideline will be effective for all annual and interim periods beginning on or after November 1, 2004. The Company does not expect that adoption of AcG-15 will have a material impact on its results from operations or financial position. |
