SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
LOEWEN, STRONACH & CO.
Chartered Accountants
AUDITORS' REPORT
To The Shareholders of Sungold International Holdings Corp.
We have audited the consolidated balance sheet of Sungold International Holdings Corp. (a development stage company) (formerly Sungold Entertainment Corp.) as at August 31, 2004 and 2003 and the consolidated statements of loss and deficit and cash flows for the years ended August 31, 2004, 2003 and 2002 and for the cumulative period from April 7, 1986 (inception) to August 31, 2004. 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 with 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.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at August 31, 2004 and 2003 and the results of its operations and cash flows for the years ended August 31, 2004, 2003 and 2002 and for the cumulative period from April 7, 1986 (inception) to August 31, 2004 in accordance with Canadian generally accepted accounting principles which differ in certain respects from United States generally accepted accounting principles (refer to Note 10). 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 14, 2004 |
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 14, 2004 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 14, 2004 |
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
CONSOLIDATED BALANCE SHEET
AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
2004 | 2003 | |||
$ | $ | |||
ASSETS | ||||
CURRENT ASSETS | ||||
Cash | 185,657 | 47,928 | ||
Prepaid expenses and deposits | 58,768 | 4,154 | ||
244,425 | 52,082 | |||
PRE-DEVELOPMENT COSTS (Note 3) | 825,154 | 762,042 | ||
EQUIPMENT (Note 4) | 522,455 | 604,282 | ||
1,592,034 | 1,418,406 | |||
LIABILITIES | ||||
CURRENT LIABILITIES | ||||
Accounts payable and accrued liabilities | 200,334 | 175,238 | ||
Loans payable (Note 6 a) | 9,696 | 17,390 | ||
Obligation under capital leases | - | 17,253 | ||
210,030 | 209,881 | |||
SHAREHOLDERS’ EQUITY | ||||
SHARE CAPITAL (Note 5) | 19,959,566 | 18,574,369 | ||
CONTRIBUTED SURPLUS | 51,922 | 51,922 | ||
DEFICIT | (18,629,484 | ) | (17,417,766 | ) |
1,382,004 | 1,208,525 | |||
1,592,034 | 1,418,406 |
APPROVED BY THE DIRECTORS: | |
“Art Cowie” | Director |
“Walter Wolff” | Director |
(See accompanying notes to consolidated financial statements)
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
April 7, 1986 | ||||||||
(inception) to | ||||||||
August 31, 2004 | 2004 | 2003 | 2002 | |||||
$ | $ | $ | $ | |||||
REVENUE | ||||||||
Gain on disposition of marketable securities | 838,947 | - | - | - | ||||
Interest income and miscellaneous | 43,336 | - | 12 | 11 | ||||
Sales | 33,179 | - | 1,305 | 19,446 | ||||
915,462 | - | 1,317 | 19,457 | |||||
EXPENSES | ||||||||
Advertising and promotion | 3,261,763 | 122,508 | 594,941 | 808,511 | ||||
Professional and consulting fees | 2,455,333 | 488,500 | 547,829 | 242,565 | ||||
Management fees | 1,887,606 | 58,353 | 286,603 | 246,000 | ||||
Investor relations | 1,036,507 | 35,192 | 214,843 | 169,935 | ||||
Travel and conferences | 1,033,965 | 168,116 | 201,229 | 138,468 | ||||
Office and miscellaneous | 793,643 | 59,673 | 164,044 | 60,936 | ||||
Internet services | 770,015 | 23,831 | 184,249 | 410,144 | ||||
Amortization | 654,109 | 126,899 | 144,616 | 161,923 | ||||
Office rent and services | 519,919 | 63,452 | 80,595 | 69,017 | ||||
Transfer agent and filing fees | 342,607 | 50,287 | 33,078 | 34,902 | ||||
Insurance | 262,953 | 563 | 61,470 | 71,552 | ||||
Financing fees | 218,000 | - | - | - | ||||
Finder fees | 154,031 | - | - | - | ||||
Interest and bank charges | 151,782 | 12,561 | 8,314 | 4,923 | ||||
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 | 26,628 | 1,005 | 11,962 | 10,543 | ||||
Loss on disposition of equipment | 826 | 826 | - | - | ||||
Quebec capital tax | 500 | - | 250 | 250 | ||||
Foreign exchange loss (gain) | (13,688 | ) | (48 | ) | 10,269 | 4,526 | ||
13,712,888 | 1,211,718 | 2,601,855 | 2,463,280 | |||||
Impairment write-down of pre-development | ||||||||
costs and investment | 5,832,058 | - | 2,017,420 | 158,817 | ||||
19,544,946 | 1,211,718 | 4,619,275 | 2,662,097 | |||||
LOSS | 18,629,484 | 1,211,718 | 4,617,958 | 2,602,640 | ||||
DEFICIT– beginning | - | 17,417,766 | 12,799,808 | 10,197,168 | ||||
DEFICIT – ending | 18,629,484 | 18,629,484 | 17,417,766 | 12,799,808 | ||||
Weight Average Number of Shares | 92,239,057 | 63,900,867 | 42,409,898 | |||||
Adjusted for Sept 8, 2003, 21 for 20 stock split | - | 3,993,531 | 3,993,531 | |||||
92,239,057 | 67,894,398 | 46,403,429 | ||||||
Loss per share | 0.0131 | 0.0680 | 0.0560 |
(See accompanying notes to consolidated financial statements)
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
April 7, 1986 | ||||||||
(inception) to | ||||||||
August 31 2004 | 2004 | 2003 | 2002 | |||||
$ | $ | $ | $ | |||||
OPERATING ACTIVITIES | ||||||||
Loss | (18,629,484 | ) | (1,211,718 | ) | (4,617,958 | ) | (2,602,640 | ) |
Items not involving cash: | ||||||||
Amortization | 654,109 | 126,899 | 144,616 | 161,923 | ||||
Stock-based compensation | 51,922 | - | 51,922 | - | ||||
Write-down of pre-development costs and | ||||||||
investment | 5,832,057 | - | 2,017,420 | 158,817 | ||||
Gain on disposition of marketable securities | (838,947 | ) | - | - | - | |||
Loss on disposition of equipment | 14,858 | 826 | - | - | ||||
(12,915,485 | ) | (1,083,993 | ) | (2,404,000 | ) | (2,281,900 | ) | |
Cash provided by changes in non-cash | ||||||||
working capital items: | ||||||||
Prepaid expenses and deposits | (58,768 | ) | (54,614 | ) | 370,799 | (329,186 | ) | |
Accounts payable and accrued liabilities | 200,334 | 25,096 | 142,414 | (82,886 | ) | |||
Loans payable (See note 3 to statement of | ||||||||
cash flows below) | 1,977,454 | 1,377,503 | 317,764 | 282,187 | ||||
(10,796,465 | ) | 263,992 | (1,573,023 | ) | (2,411,785 | ) | ||
INVESTING ACTIVITIES | ||||||||
Pre-development costs | (5,269,827 | ) | (63,112 | ) | (11,146 | ) | (32,908 | ) |
Proceeds of disposition of equipment | 38,028 | 23,682 | - | - | ||||
Acquisition of equipment | (1,172,605 | ) | (69,580 | ) | (207,414 | ) | (7,690 | ) |
(6,404,404 | ) | (109,010 | ) | (218,560 | ) | (40,598 | ) | |
FINANCING ACTIVITIES | ||||||||
Repayment of obligation under capital leases | (57,029 | ) | (17,253 | ) | (19,423 | ) | (16,049 | ) |
Issuance of shares | 15,717,808 | - | 1,835,162 | 2,388,010 | ||||
Proceed of disposition of marketable securities | 1,725,747 | - | - | - | ||||
17,386,526 | (17,253 | ) | 1,815,739 | 2,371,961 | ||||
INCREASE (DECREASE) IN CASH | 185,657 | 137,729 | 24,156 | (80,422 | ) | |||
CASH – beginning | - | 47,928 | 23,772 | 104,194 | ||||
CASH – ending | 185,657 | 185,657 | 47,928 | 23,772 |
Notes to statement of cash flows: | |||||
1) | Cash consists of balances with banks | ||||
2) | Interest and income taxes paid: | ||||
Interest paid | 178,410 | 13,566 | 20,276 | 15,466 | |
Income taxes paid | - | - | - | - |
3) | During the year the Company issued 19,500,000 private placement units to settle $1,385,197 of debts. Since April 7, 1986 (inception) to August 31, 2004, the Company issued 31,250,000 private placement units to settle $1,967,758 of debts. |
(See accompanying notes to consolidated financial statements)
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
Note 1 | GOING CONCERN AND NATURE OF OPERATIONS | |
On December 12, 2003, Sungold Entertainment Corp. changed its name to Sungold International Holdings Corp. (“the Company”) and continued under the Canada Business Corporate Act from the British Columbia Company Act. In connection with the Company’s name change the Company changed its trading symbol from “SGGNF” to “SGIHF” on the OTC Bulletin Board. The 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. | ||
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, 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 year 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 years 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., Horsepower Broadcasting Network Inc. – in the process of being wound up, Horsepower Broadcasting Network (HBN) International Ltd. and Racing Unified Network (R.U.N.) Inc. All inter-company transactions and balances have been eliminated. |
..../2
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 2 –
Note 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
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. | ||
Gains and losses resulting from the fluctuation of foreign exchange rates are included in thedetermination of income. | ||
d) | 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. These costs will be amortized on the basis of revenue generated in relation to the project following commencement of operations. When management decides a project is to be abandoned, costs of the abandoned project are written off to operations. | ||
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 the project. | ||
e) | Equipments and Amortization | |
Equipment is recorded at cost with amortization provided on a declining balance as follows: | ||
Computer equipment 30% | ||
Software – Horsepower ™ 20% | ||
The above rates have been utilized to reflect the anticipated life expectancy. In the year acquired and put in use, only one-half the normal rate is applied. | ||
f) | 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 year 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. |
..../3
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 3–
Note 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
g) | 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. | ||
h) | Stock-based Compensation Plans | |
The Company uses the value based method. Under this 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 5 b). | ||
Note 3 | PRE-DEVELOPMENT COSTS | |
a) | Vancouver Racecourse / Richmond Equine Training Centre project | |
In July 2004, the Company obtained an option to purchase 126 acres of land southwest of No. 8 Road and Westminster Highway in Richmond, BC, Canada (“Land”) for the purpose of developing a horse training complex, subject to approval of all zoning and regulatory authorities. The agreement gave the Company the option to purchase the Land for $10,500,000 until January 2, 2005. | ||
The Company is currently in discussions with various parties to determine if the stakeholders will support a renovation of Hastings Park horse track facility in Vancouver, British Columbia to a regulation sized one mile facility in conjunction with its Richmond project. | ||
In September 2004, 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 International Holdings Corp. at US$4.00 per share by way of a private placement. The agreement was extended to October 1, 2005. (See Related Party Transactions Note 6 b). |
Impairment | ||||||
2003 | Additions | Write off | 2004 | |||
$ | $ | $ | $ | |||
Consulting and legal fees | 613,799 | 2,919 | - | 616,718 | ||
Options | - | 10,000 | - | 10,000 | ||
Other direct costs | 1,528 | - | - | 1,528 | ||
615,327 | 12,919 | - | 628,246 |
..../4
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 4–
Note 3 | PRE-DEVELOPMENT COSTS (Continued) | |
b) | HorsepowerTMproject (formerly Horsepower™ Software Development project and Horsepower™ Operating 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 HorsepowerTMintellectual property. | ||
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. Initially, HBN operated the Horsepower World Pool pari-mutual wagering system licensed by the Kahnawake Gaming Commission and operated 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 virtual simulcast racing system, exclusively through licensed Authorized Racing Affiliates (ARA) land based Racetrack and Teletheatres worldwide. | ||
As a result of the proposed wind up of HBNI, the Company combined Horsepower™ Software Development project and Horsepower™ Operating project into one project, named Horsepower™ project. The Company’s management mandated Horsepower Broadcasting International (HBN) Ltd. to assume 100% control of all proposed Horsepower Development and Pari-mutuel Wagering Operations. The Horsepower Racetrack Affiliated Marketing program will be assigned in 2005 to the new subsidiary -Racing Unified Network (R.U.N.) Inc. | ||
During the year, the Company signed a software development agreement (See related parties transactions note) to develop and integrate the existing Horsepower™ program with Inter Tote System Protocol, a common interface between various Tote systems existing with Authorized Racetrack Affiliates (ARA). The hardware and software development costs are capitalized under equipment and amortized annually when put in use. In addition, the Company incurred legal fees for numerous trademark applications for its Horsepower™ project, and those application costs were deferred under its HorsepowerTMproject. |
Impairment | ||||||
2003 | Additions | Write off | 2004 | |||
$ | $ | $ | $ | |||
Legal and consulting fees | 58,999 | 20,120 | - | 79,119 |
..../5
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 5–
Note 3 | PRE-DEVELOPMENT COSTS (Continued) | |
c) | 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 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 subsidiary, Sungold Entertainment USA, Inc., an Arizona Corporation, to SafeSpending Inc. During the year, the Company incurred legal costs for SafeSpending’s patent and trademark applications, and deferred those costs under the SafeSpending project. |
Impairment | ||||||
2003 | Additions | Write off | 2004 | |||
$ | $ | $ | $ | |||
Acquisition cost | 62,300 | - | - | 62,300 | ||
Legal and consulting fees | 25,416 | 30,073 | - | 55,489 | ||
87,716 | 30,073 | - | 117,789 | |||
Impairment | ||||||
2003 | Additions | Write off | 2004 | |||
$ | $ | $ | $ | |||
TOTAL PRE-DEVELOPMENT COSTS | 762,042 | 63,112 | - | 825,154 |
..../6
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 6–
Note 4 | EQUIPMENT |
2004 | 2003 | |||||
Cost | Less | Net Book | Net Book | |||
Accumulated | Value | Value | ||||
Amortization | ||||||
$ | $ | $ | $ | |||
Software – HorsepowerTM(1) | 830,684 | 383,746 | 446,938 | 471,697 | ||
Computer equipment(2), (3) | 313,057 | 237,540 | 75,517 | 85,619 | ||
Computers under capital leases(2) | - | - | - | 23,784 | ||
Furniture and fixtures(3) | - | - | - | 23,182 | ||
1,143,741 | 621,286 | 522,455 | 604,282 |
(1) | During the year, the Company incurred $69,580 software development costs to modify its existence Horsepower ™ software program utilizing Inter Tote System Protocol. As the modification portion is still under development and has not been put in use, no amortization has been provided on the current cost. | ||
(2) | During the year, the Company paid out its capital leases and all computers under capital leases were reclassified to computer equipment. | ||
(3) | During the year, furniture and fixtures, and a computer were sold to a management consultant of the Company at market value. | ||
Note 5 | SHARE CAPITAL |
2004 | 2003 | |||
$ | $ | |||
Authorized: | ||||
Unlimited common shares without par value | ||||
100,000,000 Class “A” preference shares | ||||
without par value(1) | ||||
100,000,000 Class “B” preference shares | ||||
without par value(2) | ||||
Issued and outstanding: | ||||
103,364,740 common | ||||
(2003 – 79,871,209 common) | 19,959,566 | 18,574,369 |
(1) | On December 12, 2003, 100,000,000 authorized Class “A” Preference shares with a par value of $10 each were amended to be without par value. | ||
(2) | On December 12, 2003, 100,000,000 authorized Class “B” Preference shares with a par value of $50 each were amended to be without par value. |
..../7
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 7–
Note 5 | SHARE CAPITAL (continued) | |
a) | Shares issued during the year: |
2004 | 2003 | ||||||
# | $ | # | $ | ||||
For debt – private placements | 19,500,000 | 1,385,197 | 11,750,000 | 582,561 | |||
21 for 20 stock split – Sept 8, 2003 | 3,993,531 | - | - | - | |||
23,493,531 | 1,385,197 | 11,750,000 | 582,561 | ||||
For cash – private placements | - | - | 16,000,000 | 1,673,938 | |||
– exercise of share | |||||||
purchase warrants | - | - | 2,000,000 | 161,224 | |||
- | - | 18,000,000 | 1,835,162 | ||||
23,493,531 | 1,385,197 | 29,750,000 | 2,417,723 |
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, 2003 | Granted | Exercised / Expired / Cancelled | Balance August 31, 2004 | Expiration date |
February 16, 2001 | US$0.1500 | 100,000 | - | - | 100,000 | February 16, 2006 |
February 28, 2001 | US$0.0600 | 1,050,000 | - | - | 1,050,000 | February 28, 2006 |
March 5, 2001 | US$0.0850 | 79,900 | - | - | 79,900 | March 5, 2006 |
August 10, 2001 | US$0.1200 | 300,000 | - | - | 300,000 | August 10, 2006 |
October 22, 2001 | US$0.1000 | 100,000 | - | 100,000 | - | Cancelled |
October 23, 2001 | US$0.1200 | 100,000 | - | 100,000 | - | Cancelled |
December 20, 2001 | US$0.0900 | 100,000 | - | - | 100,000 | December 20, 2006 |
January 4, 2002 | US$0.0800 | 802,764 | - | 72,000 | 730,764 | January 4, 2007 |
January 24, 2002 | US$0.0725 | 400,000 | - | - | 400,000 | January 24, 2007 |
May 17, 2002 | US$0.0200 | 272,000 | - | 272,000 | - | Cancelled |
October 11, 2002 | US$0.1500 | 200,000 | - | - | 200,000 | October 11, 2007 |
October 16, 2002 | US$0.1500 | 300,000 | - | - | 300,000 | October 16, 2007 |
January 23, 2003 | US$0.1100 | 136,000 | - | - | 136,000 | January 23, 2008 |
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 |
4,154,664 | - | 544,000 | 3,610,664 |
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. |
... /8
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 8 –
Note 5 | SHARE CAPITAL (continued) | |
b) | Stock options and stock based compensation (continued) | |
During the year no options were granted. In fiscal 2003, the Company granted 850,000 share purchase options, all to 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. |
... /9
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 9 –
Note 5 | SHARE CAPITAL (continued) | |
c) | Share purchase warrants: |
Date of Grant | Price | Balance Aug 31, 2003 | Granted | Exercised | Expired / Cancelled | Balance May 31, 2004 | Expiration date |
October 12, 2000 | US$0.200 | 319,000 | - | - | 319,000 | - | Cancelled |
September 7, 2001 | US$0.200 | 1,000,000 | - | - | - | (1) 1,000,000 | September 7, 2004 |
October 24, 2001 | US$0.150 | 420,000 | - | - | - | (1) 420,000 | October 24, 2004 |
November 4, 2001 | US$0.150 | 1,000,000 | - | - | - | (1) 1,000,000 | November 4, 2004 |
December 14, 2001 | US$0.060 | 2,333,334 | - | - | - | (1) 2,333,334 | December 14, 2004 |
January 7, 2002 | US$0.060 | 1,700,000 | - | - | - | 1,700,000 | January 7, 2005 |
January 30, 2002 | US$0.060 | 1,000,000 | - | - | - | 1,000,000 | January 30, 2005 |
March 1, 2002 | US$0.110 | 300,000 | - | - | - | 300,000 | March 1, 2005 |
March 26, 2002 | US$0.170 | 1,000,000 | - | - | - | 1,000,000 | March 26, 2005 |
April 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 |
July 10, 2002 | US$0.075 | 2,500,000 | - | - | - | 2,500,000 | July 10, 2005 |
July 24, 2002 | US$0.080 | 250,000 | - | - | - | 250,000 | July 24, 2005 |
July 23, 2002 | US$0.080 | 1,500,000 | - | - | - | 1,500,000 | July 23, 2005 |
August 21, 2002 | US$0.090 | 100,000 | - | - | - | 100,000 | August 21, 2005 |
September 27, 2002 | US$0.080 | 3,000,000 | - | - | - | 3,000,000 | September 27, 2005 |
November 1, 2002 | US$0.070 | 3,000,000 | - | - | - | 3,000,000 | November 1, 2005 |
January 24, 2003 | US$0.100 | 2,000,000 | - | - | 2,000,000 | - | Cancelled |
March 26, 2003 | US$0.050 | 3,000,000 | - | - | - | 3,000,000 | March 26, 2006 |
April 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 |
June 11, 2003 | US$0.030 | 3,000,000 | - | - | - | 3,000,000 | June 11, 2006 |
July 7, 2003 | US$0.031 | 2,500,000 | - | - | - | 2,500,000 | July 7, 2006 |
August 21, 2003 | US$0.075 | 1,000,000 | - | - | - | 1,000,000 | August 21, 2006 |
September 5, 2003 | US$0.060 | - | 2,000,000 | - | - | 2,000,000 | September 5, 2006 |
October 31, 2003 | US$0.060 | - | 2,000,000 | - | - | 2,000,000 | October 31, 2006 |
February 10, 2004 | US$0.040 | - | 4,000,000 | - | - | 4,000,000 | February 10, 2007 |
February 18, 2004 | US$0.045 | - | 2,500,000 | - | - | 2,500,000 | February 18, 2007 |
March 30, 2004 | US$0.0525 | - | 1,500,000 | - | - | 1,500,000 | March 20, 2007 |
June 04, 2004 | US$0.060 | - | 3,000,000 | - | - | 3,000,000 | June 04, 2007 |
August 20, 2004 | US$0.060 | - | 4,500,000 | - | - | 4,500,000 | August 20, 2007 |
39,672,334 | 19,500,000 | - | 2,319,000 | 56,853,334 |
(1)See Subsequent Events note 9
... /10
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 10–
Note 6 | RELATED PARTY TRANSACTIONS | |
a) | Loans payable of $9,696 (US$7,384) [2003 - $17,390 (US$12,250)] 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 a). | |
c) | During the year management fees of $58,353 [2003 - $286,603] were paid to a director and officer. The fees are in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related party. | |
d) | During the year consulting fees of $392,386 [2003 - $286,645] were paid to a director, a company with common director, an officer, and a director and officer of a subsidiary of the Company. The fees are in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. | |
e) | During the year the Company signed a $275,825 software development agreement with a consulting company for its Horsepower™ program. As of August 31, 2004, the Company paid $69,580 as progress payments. The owner of the consulting company is also the Chief Technical Officer of a subsidiary - Horsepower Broadcasting Network (HBN) International Ltd. The fees are in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. | |
Note 7 | FINANCIAL INSTRUMENTS | |
The Company’s financial instruments consist of cash, accounts payable and accrued liabilities and loans payable. The loans payable are repayable in US dollars and subject to Canadian and United States currency exchange rate fluctuation. 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 8 | ACCUMULATED LOSSES AND INCOME TAXES | |
The company has accumulated non-capital losses for income tax purposes of $10,204,294 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 |
$ | |
2005 | 474,086 |
2006 | 653,279 |
2007 | 1,273,366 |
2008 | 1,714,246 |
2009 | 2,427,247 |
2010 | 2,473,112 |
2014 | 1,188,958 |
10,204,294 |
..../11
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 11–
Note 8 | ACCUMULATED LOSSES AND INCOME TAXES (continued) | |
The company also 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. | ||
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 9 | SUBSEQUENT EVENTS | |
a) | On September 7, 2004, 1,000,000 US$0.20 share purchase warrants expired. | |
b) | On October 1, 2004, the Company announced a private placement of 2,500,000 units at US$0.06 each and subsequently issued the units as shares for debts of US$150,000. | |
c) | On October 24, 2004, 420,000 US$0.15 share purchase warrants expired. | |
d) | On November 4, 2004, 1,000,000 US$0.15 share purchase warrants expired. | |
e) | On December 14, 2004, 2,333,334 US$0.06 share purchase warrants expired. |
... /12
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 12 –
Note 10 | 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) | 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. |
.... /13
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 13 –
Note 10 | UNITED STATES ACCOUNTING PRINCIPLES (Continued) | |
d) | The following are balance sheet items under US GAAP that differ from Canadian GAAP: |
2004 | 2003 | 2002 | ||||
$ | $ | $ | ||||
Pre-development costs | - | - | - | |||
Share capital | 24,670,304 | 23,285,107 | 20,867,384 | |||
Foreign currency adjustments | 13,688 | 13,640 | 23,909 | |||
Accumulated Deficit During Development Stage | (24,179,064 | ) | (22,904,186 | ) | (20,302,771 | ) |
e) | The following table summarizes the effect on Deficit of differences between CDN GAAP and US GAAP: |
2004 | 2003 | 2002 | ||||||
$ | $ | $ | ||||||
Deficit - CDN GAAP | (18,629,484 | ) | (17,417,766 | ) | (12,799,808 | ) | ||
Cumulative effect of previous | ||||||||
years’ adjustments | (5,486,420 | ) | (7,502,963 | ) | (7,633,398 | ) | ||
(24,115,904 | ) | (24,920,729 | ) | (20,433,206 | ) | |||
US GAAP material adjustments: | ||||||||
• Effect of the write-off of pre- | ||||||||
development costs on net loss | (63,112 | ) | 2,006,274 | 125,909 | ||||
• Foreign currency adjustments | (48 | ) | 10,269 | 4,526 | ||||
(63,160 | ) | 2,016,543 | 130,435 | |||||
Deficit - US GAAP | (24,179,064 | ) | (22,904,186 | ) | (20,302,771 | ) |
..../14
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 14 –
Note 10 | UNITED STATES ACCOUNTING PRINCIPLES (continued) | |
f) | The following table summarizes the effect on shareholders’ equity after considering the US GAAP | |
adjustments: |
Deficit | Foreign | ||||||
Common | Additional | Accumulated | Currency | Total | |||
Shares | Paid-in | During | Translation | Shareholders’ | |||
Amount | Capital | Development | Adjustments | Equity | |||
Stage | |||||||
$ | $ | $ | $ | $ | |||
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 |
..../15
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 15 –
Note 10 | UNITED STATES ACCOUNTING PRINCIPLES (continued) |
Deficit | Foreign | |||||||
Common | Additional | Accumulated | Currency | Total | ||||
Shares | Paid in | During | Translation | Shareholders’ | ||||
Amount | Capital | Development | Adjustments | Equity | ||||
Stage | ||||||||
$ | $ | $ | $ | $ | ||||
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 issuance | 2,417,723 | - | - | - | 2,417,723 | |||
• Share-based compensation | - | 51,922 | - | - | 51,922 | |||
• Foreign currency | - | - | - | (10,269 | ) | (10,269 | ) | |
• Net loss under US GAAP | - | - | (2,601,415 | ) | - | (2,601,415 | ) | |
August 31, 2003 | 23,285,107 | 51,922 | (22,904,186 | ) | 13,640 | 446,483 | ||
• Shares issuance | 1,385,197 | - | - | - | 1,385,197 | |||
• Foreign currency | - | - | - | 48 | 48 | |||
• Net loss under US GAAP | - | - | (1,274,878 | ) | - | (1,274,878 | ) | |
August 31, 2004 | 24,670,304 | 51,922 | (24,179,064 | ) | 13,688 | 556,850 |
..../16
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 16 –
Note 10 | UNITED STATES ACCOUNTING PRINCIPLES (continued) | |
g) | The following table summarizes the effect on Net Loss of differences between CDN GAAP and US GAAP: |
Cumulative | 2004 | 2003 | 2002 | ||||||
Amounts | |||||||||
From | |||||||||
Apr 7/86 to | |||||||||
Aug 31/04 | |||||||||
$ | $ | $ | $ | ||||||
Net loss under CDN GAAP | (18,629,484 | ) | (1,211,718 | ) | (4,617,958 | ) | (2,602,640 | ) | |
US GAAP material adjustments: | |||||||||
• Effect of the write-off of pre- | |||||||||
development costs on net loss | (825,154 | ) | (63,112 | ) | 2,006,274 | 125,909 | |||
• Share-based compensation | (4,710,738 | ) | - | - | - | ||||
• Foreign currency adjustments | (13,688 | ) | (48 | ) | 10,269 | 4,526 | |||
Net loss under US GAAP | (24,179,064 | ) | (1,274,878 | ) | (2,601,415 | ) | (2,472,205 | ) | |
Loss per share under US GAAP | 0.0138 | 0.0383 | 0.0533 | ||||||
Weighted average number of shares | 92,239,057 | 67,894,398 | 46,403,429 |
... /17
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 17 –
Note 10 | 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 December 2003, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (SAB) No. 104 “ Revenue Recognition”, which codifies, revises and rescinds certain sections of SAB 101, “revenue Recognition”, in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The Company does not expect that adoption of SAB 104 will have a material impact on its results from operations or financial position. | ||
In March 2004, the SEC issued Staff Accounting Bulletin (SAB) No. 105 “Loan Commitments Accounted for as Derivative Instruments”, which summarizes the views of the SEC staff regarding the application of generally accepted accounting principles to loan commitments accounted for as derivative instruments. SAB 105 must be applied to loan commitments entered into after March 31, 2004. The Company does not expect that adoption of SAB 105 will have a material impact on its results from operations or financial position. | ||
In March 2004, the Public Company Accounting Oversight Board (United States) (“PCAOB”) approved an auditing standard that addresses both the work required to audit internal controls over financial reporting and the relationship between that audit and the audit of financial statements. Auditing standard No. 1 is effective for audits of companies on May 15, 2004. | ||
Canadian Standards | ||
In March 2003, the Canadian Institute of Chartered Accountants (“CICA”) issued new Section 3110,AssetRetirement Obligationseffective for financial years beginning on or after January 1, 2004. The new standard focuses on the recognition and measurement of liabilities for obligations associated with the retirement of property, plant and equipment when those obligations result from the acquisition, construction, development or normal operation of the assets. The standard requires the recognition of any statutory, contractual or other legal obligation, normally when incurred. The obligations are measured initially at fair value and the resulting costs capitalized into the carrying amount of the related asset. In subsequent periods, the liability is adjusted for the accretion of discount and any changes in the amount or timing of the underlying future cash flows. The asset retirement cost is amortized to income on a systematic and rational basis. The Company does not expect that adoption of Section 3110 will have a material impact on its results from operations or financial position. | ||
In June 2003 and amended in September 2004, the CICA issued Accounting Guideline 15Consolidation ofVariable Interest Entities(AcG-15), is harmonized 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. |
..../18
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 18 –
NOTE 10 | UNITED STATES ACCOUNTING PRINCIPLES (continued) | |
k) | New Accounting Standards (continued) | |
Canadian Standards (Continued) | ||
In July 2003, the CICA issued new Handbook Sections 1100,Generally Accepted Accounting Principles, and 1400General Standards of Financial Statement Presentation. Section 1100 describes what constitutes Canadian GAAP and its sources, and provides guidance on sources to consult when selecting accounting policies and appropriate disclosure when a matter is not dealt with explicitly in the primary sources of GAAP, thereby recodifying the Canadian GAAP hierarchy. Section 1400 clarifies what is fair presentation in accordance with GAAP and provides general guidance on financial presentation. These sections apply to fiscal years beginning on or after October 1, 2003. The Company adopted the standards for current year and does not expect the adoption has a material impact of its results from operations or financial position. | ||
In December 2003, the CICA issued Emerging Issues Committee Abstract, EIC-141Revenue Recognition, EIC-142,Revenue Arrangements with Multiple Deliverables, and EIC-143Accounting for Separately PricedExtended Warranty and Product Maintenance Contracts, which highlight broad principles that are considered when determining the appropriate application of revenue recognition policies. EIC-141, 142 and 143 are effective in the first interim or annual fiscal period beginning December 17, 2003. As the Company is still in pre-operating stage with no revenue, the Company does not expect that adoption of EIC-141, EIC-142 and EIC-143 will have a material impact on its results from operations or financial position. | ||
In January 2004, the CICA issued Emerging Issues Committee Abstract, EIC-144Accounting by a Customer(Including a Reseller) for Certain Consideration Received From a Vendor, which provides guidance on how a customer (including a reseller) of a vendor’s products should account for cash consideration received from a vendor. EIC-144 should be applied retroactively to all financial statements for the first interim or annual fiscal period ending after August 15, 2004. As the Company is still in pre-operating stage with no revenue, the Company does not expect that adoption of EIC-144 will have a material impact on its results from operations or financial position. | ||
In January 2004, the CICA issued Accounting Guideline 15Investment companies(AcG-18). The guideline provides guidance regarding an investment company’s measurement of its investments, determining whether an entity is an investment company; and when an investor in an investment company should account for the investment company’s investments in the same manner as the investment company accounts for those investments. AcG-18 is effective for fiscal year beginning on or after July 1, 2004. The Company does not expect that adoption of AcG-18 will have a material impact on its results from operations or financial position. | ||
In March 2004, the CICA issued Emerging Issues Committee Abstract, EIC-145Accounting for AssetsAcquired upon the Formation of an Income Trust. EIC-145 should be applied to transactions that are initiated on or after January 1, 2004. As the Company does not anticipate the formation of income trusts, the Company does not expect that adoption of EIC-145 will have a material impact on its results from operations or financial position. |
..../19
SUNGOLD INTERNATIONAL HOLDINGS CORP.
(Formerly Sungold Entertainment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2004
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE – 19 –
NOTE 10 | UNITED STATES ACCOUNTING PRINCIPLES (continued) | |
k) | New Accounting Standards (continued) | |
Canadian Standards (Continued) | ||
In March 2004, the CICA issued Emerging Issues Committee Abstract, EIC-146Flow-Through Shares, which required that the future income tax liability should be recognized, and the shareholders’ equity reduced, on the date that the company renounces the flow-through shares tax credits associated with the expenditures. In addition, the Committee noted that the benefits of the loss carryforward to be recognized would have been recognized as a reduction of income tax expense included in the determination of net income or loss in the period incurred, except for the failure to meet the requirement of the “more likely than not” test. EIC-146 should be applied to transactions that are initiated on or after March 19, 2004. As the Company does anticipate issuing any flow-through shares, the Company does not expect that adoption of EIC-146 will have a material impact on its results from operations or financial position. | ||
In March 2004, the CICA amended Section 3461,Employee Future Benefitsfor financial years beginning on or after June 30, 2004, with earlier adoption encouraged. The amendments improve and expand the disclosure requirements, including clarifying the nature of accounting policy disclosures that should be made. As the Company does not have any employee pension plans, the Company does not expect that adoption of Section 3461 will have a material impact on its results from operations or financial position. | ||
In April 2004, the CICA issued Emerging Issues Committee Abstract, EIC-147Implementation of AccountingChanges Resulting from the Application of CICA 1100 Generally Accepted Accounting Principles. The abstract discussed a change involving in the basis of measurement of a recognized asset or liability between cost and fair value, a change involving in the accounting method for an investment between the cost, equity and consideration methods and adjustment to net income arising from the implementation of CICA 1100. EIC-147 should be applied to transactions that are initiated on or after April 19, 2004. The Company adopted the standards for current year and did not expect the adoption has a material impact of its results from operations or financial position. | ||
In July 2004, the CICA issued Emerging Issues Committee Abstract, EIC-148Accounting for Shares thatProvide Investors with a Sale Right. EIC-148 should be applied to transactions that are initiated on or after July 30, 2004. As the Company does not have any shares that provide investors with a sale right, the Company does not expect that adoption of EIC-148 will have a material impact on its results from operations or financial position. |