Exhibit 99.1
Black Diamond Holdings Corporation
December 31, 2005 and 2004
(Expressed in Canadian Dollars)
Consolidated Financial Statements
| Page | |
| Management’s Responsibility for Financial Reporting | 2 |
| Auditors’ Report | 3 |
| Comments by Auditors for U.S. Readers on Canada- | |
| U.S. Reporting Difference | 4 |
| Consolidated Balance Sheets | 5 |
| Consolidated Statements of Operations and Deficit | 6 |
| Consolidated Statements of Cash Flows | 7 |
| Notes to the Consolidated Financial Statements | 8-18 |
1
Management’s Responsibility for Financial
Reporting
The consolidated financial statements have been prepared by and are the responsibility of the management of the Company. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada, using management’s best estimates and judgments based on currently available information. When alternative accounting methods exist, management has chosen those it considers most appropriate in the circumstances.
The Company maintains an appropriate system of internal controls to provide reasonable assurance that financial information is accurate and reliable and that the Company’s assets are appropriately accounted for and adequately safeguarded.
The Company’s independent auditors, Watson Dauphinee & Masuch, Chartered Accountants, were appointed by the shareholders to conduct an audit in accordance with generally accepted auditing standards in Canada and the Public Company Accounting Oversight Board (United States), and their report follows.
| “Bradley Moynes” |
| Bradley J. Moynes |
| President and Chief Executive Officer |
| “Brian Cameron” |
| Brian Cameron |
| Chief Financial Officer |
2
Auditors’ Report
To the Shareholders of:
Black Diamond Holdings Corporation
We have audited the Consolidated Balance Sheets of Black Diamond Holdings Corporation as at December 31, 2005 and 2004 and the Consolidated Statements of Operations and Deficit and Cash Flows for each of the years in the three-year period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and 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 December 31, 2005 and 2004 and the results of its operations and the changes in its cash flows for each of the years in the three-year period ended December 31, 2005 in accordance with Canadian generally accepted accounting principles.
“Watson Dauphinee & Masuch”
Chartered Accountants
Vancouver, B.C.
September 20, 2006
3
Comments by Auditors for U.S. Readers on
Canada-U.S. Reporting Difference
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 those described in Note 1 to the consolidated financial statements. Our report to the shareholders dated September 20, 2006 is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors’ report when they are adequately disclosed in the consolidated financial statements.
“Watson Dauphinee & Masuch”
Chartered Accountants
Vancouver, B.C.
September 20, 2006
4
BLACK DIAMOND HOLDINGS CORPORATION
Consolidated Balance Sheets
As at December 31, 2005 and 2004
(Expressed in Canadian Dollars)
| 2005 | 2004 | |
| $ | $ | |
| ASSETS | ||
| CURRENT | ||
| Cash | 20,347 | 22,182 |
| Accounts Receivable | ||
| (Allowance for Doubtful Accounts: 2005 and 2004 – Nil) | 10,418 | 3,553 |
| Inventory | 15,115 | 144,680 |
| Due from Related Party - Black Diamond Trading Ltd. (Note 3) | 6,883 | 6,883 |
| Due from Shareholders (Note 4) | - | 11,270 |
| Prepaid Expenses | 270 | - |
| 53,033 | 188,568 | |
| Property and Equipment (Note 5) | 2,484 | 1,897 |
| 55,517 | 190,465 | |
| LIABILITIES | ||
| CURRENT | ||
| Accounts Payable and Accrued Liabilities | 147,752 | 212,894 |
| Current Portion of Promissory Notes Payable (Note 6) | 29,075 | - |
| Due to Shareholders (Note 4) | 17,548 | - |
| 194,375 | 212,894 | |
| Promissory Notes Payable (Note 6) | 149,914 | 222,804 |
| Due to Related Party - Paseo Investments Ltd. (Note 7) | 62,342 | 62,342 |
| 406,631 | 498,040 | |
| Commitment (Note 11) | ||
| SHAREHOLDERS’ DEFICIENCY | ||
| Share Capital (Note 8) | 599,198 | 369,170 |
| Deficit | (950,312) | (676,745) |
| (351,114) | (307,575) | |
| 55,517 | 190,465 | |
| Nature and Continuance of Operations (Note 1) | ||
| Subsequent Events (Note 14) | ||
| Approved on Behalf of the Board: | ||
| “Bradley Moynes” | “Brian Cameron” | |
| Bradley J. Moynes, Director | Brian Cameron, Director | |
5
BLACK DIAMOND HOLDINGS CORPORATION
Consolidated Statements of Operations and Deficit
For the Years Ended December 31, 2005, 2004 and 2003
(Expressed in Canadian Dollars)
| 2005 | 2004 | 2003 | |
| $ | $ | $ | |
| SALES | 124,847 | 291,091 | 204,661 |
| COST OF SALES | 88,671 | 167,575 | 154,309 |
| GROSS PROFIT | 36,176 | 123,516 | 50,352 |
| EXPENSES | |||
| Accounting and Legal | 18,923 | 30,100 | 36,564 |
| Advertising and Promotion | 44,236 | 12,934 | 16,606 |
| Amortization | 692 | 677 | 933 |
| Automobile | 3,991 | 3,121 | 2,403 |
| Consulting Fees (Note 10(b)) | 41,086 | 61,197 | 25,782 |
| Distributor Fees | 22,368 | 38,330 | 30,968 |
| Financing Fees | - | - | 9,914 |
| Interest and Bank Charges (Note 10(c)) | 21,808 | 18,228 | 8,210 |
| Inventory Write-Down | 31,800 | - | - |
| Management Fees (Note 10(a)) | 69,360 | 40,000 | - |
| Office | 19,125 | 29,964 | 5,037 |
| Office Rent | 8,378 | 12,846 | 15,290 |
| Telephone | 8,281 | 5,377 | 3,737 |
| Travel | 11,977 | 5,482 | 3,555 |
| Warehouse Rent | 14,535 | 11,623 | 25,581 |
| 316,560 | 269,879 | 184,580 | |
| LOSS BEFORE OTHER ITEM | (280,384) | (146,363) | (134,228) |
| Foreign Exchange Gain (Loss) | 6,817 | 27,931 | (14,163) |
| NET LOSS FOR THE YEAR | (273,567) | (118,432) | (148,391) |
| Deficit, Beginning of the Year | (676,745) | (558,313) | (409,922) |
| DEFICIT, END OF THE YEAR | (950,312) | (676,745) | (558,313) |
| WEIGHTED AVERAGE NUMBER OF SHARES | |||
| OUTSTANDING | 9,629,693 | 9,168,780 | 9,160,247 |
| BASIC AND DILUTED LOSS PER SHARE | (0.03) | (0.01) | (0.02) |
6
BLACK DIAMOND HOLDINGS CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2005, 2004 and 2003
(Expressed in Canadian Dollars)
| 2005 | 2004 | 2003 | |
| $ | $ | $ | |
| CASH PROVIDED FROM (UTILIZED FOR): | |||
| OPERATING ACTIVITIES | |||
| Net Loss for the Year | (273,567) | (118,432) | (148,391) |
| Non-Cash Items: | |||
| Amortization | 692 | 677 | 933 |
| Management Fees | 69,360 | 40,000 | - |
| Office | - | - | (5,000) |
| Unrealized Foreign Exchange Gain | (2,370) | - | - |
| Inventory Write-Down | 31,800 | - | - |
| Changes in Non-Cash Working Capital Accounts | |||
| (Note 13(a)) | 34,312 | 18,219 | (2,218) |
| (139,773) | (59,536) | (154,676) | |
| FINANCING ACTIVITIES | |||
| Shares Issued for Cash, Net of Issuance Costs | 189,759 | - | 29,368 |
| (Repayments to) Advances from Black Diamond | |||
| Trading Ltd. | - | (983) | 20,000 |
| Advances from Paseo Investments Ltd. | - | - | 30,142 |
| Repayments to Shareholders | (40,542) | (13,288) | (52,319) |
| (Repayments of) Proceeds from Promissory Notes | (10,000) | 71,890 | 150,914 |
| 139,217 | 57,619 | 178,105 | |
| INVESTING ACTIVITY | |||
| Acquisition of Property and Equipment | (1,279) | - | - |
| (DECREASE) INCREASE IN CASH | (1,835) | (1,917) | 23,429 |
| Cash, Beginning of the Year | 22,182 | 24,099 | 670 |
| CASH, END OF THE YEAR | 20,347 | 22,182 | 24,099 |
| Supplemental Cash Flow Information (Note 13) | |||
7
BLACK DIAMOND HOLDINGS CORPORATION
Notes to the Consolidated Financial Statements
December 31, 2005, 2004 and 2003 (Expressed in Canadian Dollars)
NOTE 1 – NATURE AND CONTINUANCE OF OPERATIONS
Black Diamond Holdings Corporation (“the Company”) was incorporated on December 28, 2000 under the Company Act of the Province of British Columbia. The Company is a distributor of liquor and wine products in the Province of British Columbia, Canada, and in the State of New York, United States.
These accompanying financial statements have been prepared using Canadian generally accepted accounting principles applicable to a going concern.
While these accompanying financial statements have been prepared on the assumption that the Company is a going concern and will be able to realize its assets and discharge its liabilities in the normal course of business, certain events and conditions cast substantial doubt on this assumption. The Company had a loss of $273,567 for the year ended December 31, 2005, and a working capital deficit of $141,342, an accumulated deficit of $950,312 and a shareholders’ deficiency of $351,114 at December 31, 2005. Operations for the year ended December 31, 2005 have been funded primarily from the issuance of share capital, the continued support of creditors and net changes in working capital balances.
The Company’s ability to continue operations is uncertain and is dependent upon its ability to achieve profitability and obtain new sources of financing. The outcome of these matters cannot be predicted at this time. These consolidated financial statements do not reflect any adjustments to the amounts and classifications of assets and liabilities, which would be necessary should the Company be unable to continue operations.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements are prepared using Canadian Generally Accepted Accounting Principles (“Cdn GAAP”). The significant accounting policies followed by the Company and its subsidiaries are summarized below:
| a) | Basis of Presentation |
| The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Black Diamond Importers Inc. and Liberty Valley Wines, LLC. All inter-company transactions and balances have been eliminated. | |
| b) | Accounts Receivable |
| The Company records an allowance for doubtful accounts to reflect management’s best estimate of losses that may occur on sales during the year. The allowance is recorded through a charge to earnings and takes into consideration the financial condition and recent payment patterns of customers. | |
| c) | Inventory |
| Inventory consists of liquor products and is valued at the lower of cost and net realizable value. Cost of sales is determined on a weighted average cost basis. Warehousing, shipping and related costs are excluded from cost of sales, and are expensed as incurred. | |
| d) | Revenue Recognition |
| Revenue is recognized upon shipment of products to the purchaser and when reasonable assurance exists regarding the collectibility of the consideration that will be derived from the sale of the products. | |
8
BLACK DIAMOND HOLDINGS CORPORATION
Notes to the Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
| e) | Property and Equipment |
| Property and equipment are recorded at cost. Amortization is calculated using the following methods and annual rates, except in the year of acquisition when one-half the rate is used: | |
| Computer Equipment | 30% Per Annum, Declining Balance Basis | |
| Furniture and Equipment | 20% Per Annum, Declining Balance Basis |
| Improvements, repairs and maintenance costs are expensed as incurred. | |
| f) | Share Capital and Stock-Based Compensation |
| The Company records proceeds from share issuances net of commissions and issuance costs. | |
| Employee stock options and other types of stock-based compensation are accounted for using the fair value based method. Under the fair value based method, compensation cost is measured using the Black-Scholes option pricing model at the date of grant of the option and is expensed over the vesting period. The Company has not awarded any stock options for each of the years in the three-year period ended December 31, 2005. | |
| g) | Income Taxes |
| The Company uses the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Changes to these balances are recognized in income in the period in which they occur. 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 calculated using the weighted average number of common shares outstanding during the year. Diluted loss per share is the same as basic loss per share as the issuance of shares on the exercise of share purchase warrants would be anti-dilutive. | |
| i) | Advertising Costs |
| The Company expenses the cost of advertising in the period in which the advertising space or airtime is used. | |
| j) | Impairment of Long-Lived Assets |
| Long-lived assets are assessed for impairment when events and circumstances warrant. The carrying value of a long-lived asset is impaired when the carrying amount exceeds the estimated undiscounted net cash flow from use and fair value. In that event, the amount by which the carrying value of an impaired long-lived asset exceeds its fair value is charged to earnings. | |
9
BLACK DIAMOND HOLDINGS CORPORATION
Notes to the Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
| k) | Foreign Currency Translation |
| The functional currency of the Company is the Canadian dollar. Transactions in foreign currencies are translated to Canadian dollars at the rates in effect on the transaction date. Exchange gains or losses arising on translation or settlement of foreign currency denominated monetary items are charged to earnings in the period they arise. | |
| The accounts of integrated foreign operations, which are recorded in United States dollars, have been translated into Canadian dollars as follows: | |
| Monetary Items | At the exchange rate prevailing at the balance sheet date | |
| Non-Monetary Items | At historical exchange rates | |
| Revenue and Expense Items | At the average exchange rate for the year |
| l) | Financial Instruments |
| Financial instruments include cash, accounts receivable, amounts due from Black Diamond Trading Inc., accounts payable and accrued liabilities, promissory notes payable and amounts due to Paseo Investments Ltd. and shareholders. The Company is not exposed to significant interest, credit or exchange risk arising from these financial statements. The estimated fair value of these financial instruments approximates their carrying values because of the short term to maturity of these instruments. | |
| The carrying value of the promissory notes payable approximates their fair values due to the interest rate implicit in these instruments. | |
| m) | Use of Estimates |
| The preparation of financial statements in conformity with Cdn GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates include the determination of net recoverable amount of assets, the determination of the amortization period of property and equipment, the realization of future tax assets and the estimated amount of accrued liabilities. Actual results could differ from those estimates. | |
| n) | Comparative Figures |
| Certain items in the prior years’ financial statements have been reclassified to conform with current year’s financial statements presentation. | |
NOTE 3 – DUE FROM RELATED PARTY - BLACK DIAMOND TRADING LTD.
Amounts due from Black Diamond Trading Ltd., a company controlled by the controlling shareholders of the Company, are unsecured, non-interest bearing and have no specific terms of repayment.
NOTE 4 – DUE TO/FROM SHAREHOLDERS
Amounts due to/from shareholders are unsecured, non-interest bearing and have no specific terms of repayment.
10
BLACK DIAMOND HOLDINGS CORPORATION
Notes to the Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Expressed in Canadian Dollars)
NOTE 5 – PROPERTY AND EQUIPMENT
| Accumulated | Net Book | ||
| Cost | Amortization | Value | |
| $ | $ | $ | |
| 2005 | |||
| Computer Equipment | 3,889 | 3,096 | 793 |
| Furniture and Equipment | 2,935 | 1,244 | 1,691 |
| 6,824 | 4,340 | 2,484 | |
| 2004 | |||
| Computer Equipment | 3,889 | 2,756 | 1,133 |
| Furniture and Equipment | 1,656 | 892 | 764 |
| 5,545 | 3,648 | 1,897 | |
| NOTE 6 – PROMISSORY NOTES PAYABLE | |||
| $ | $ | ||
| a) | On August 22, 2003, the Company issued a promissory note | ||
| payable to a relative of the controlling shareholders of the | |||
| Company for cash advanced to the Company in the amount of | |||
| $159,914. The note is unsecured, bears interest at 12% per annum, | |||
| payable monthly, and is due on January 31, 2007. | 149,914 | 159,914 | |
| b) | On October 14, 2004, the Company issued a promissory note | ||
| payable to an arm’s length party for cash advanced to the | |||
| Company in the amount of $62,890 (US$50,000). The note is | |||
| secured by inventory and personal guarantees of the controlling | |||
| shareholders of the Company and is due on January 14, 2006. The | |||
| Company is required to pay interest to the lender in the amount of | |||
| the greater of US$4.50 per case of La Joya wine sold or US$6,750. | |||
| During the year ended December 31, 2005, the Company issued | |||
| 250,000 common shares in settlement of $31,445 (US$25,000) of | |||
| the outstanding amount and paid $4,281 in interest to the lender. | |||
| As at the auditors’ report date, the remaining balance of the debt | |||
| has not been repaid. | 29,075 | 62,890 | |
| 178,989 | 222,804 | ||
| Less: Current Portion | (29,075) | - | |
| 149,914 | 222,804 | ||
11
BLACK DIAMOND HOLDINGS CORPORATION
Notes to the Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Expressed in Canadian Dollars)
NOTE 7 – DUE TO RELATED PARTY - PASEO INVESTMENTS LTD.
Amounts due to Paseo Investments Ltd., a company controlled by relatives of the controlling shareholders of the Company, are unsecured, non-interest bearing and are due on December 31, 2007.
NOTE 8 – SHARE CAPITAL
| 100,000,000 common shares without par value | |
| b) | Issued and Outstanding |
| Number of | Amount | |
| Common Shares | $ | |
| Balance, December 31, 2003 | 9,168,780 | 369,170 |
| No Change in the Year | - | - |
| Balance, December 31, 2004 | 9,168,780 | 369,170 |
| Issued During the Year | ||
| For Cash – Private Placement, Net of Issuance Costs (i) | 1,266,667 | 189,759 |
| For Accounts Payable (ii) | 50,000 | 8,824 |
| For Promissory Note (iii) | 250,000 | 31,445 |
| Balance, December 31, 2005 | 10,735,447 | 599,198 |
| (i) | The Company issued 1,266,667 units at US$0.15 per unit for total gross proceeds of $230,962 (US$190,000). Each unit consists of one common share and one share purchase warrant. Each warrant entitles the holder to purchase one additional common share of the Company exercisable at a price of US$0.30 per share until July 31, 2007. Share issuance costs totalling $41,203 have been charged against share capital. |
| (ii) | The Company issued 50,000 common shares at $0.176 per share for settlement of accounts payable in the amount of $8,824. |
| (iii) | The Company issued 250,000 common shares at US$0.10 per share for partial settlement of a promissory note in the amount of $31,455 (US$25,000) (Note 6(b)). |
12
BLACK DIAMOND HOLDINGS CORPORATION
Notes to the Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Expressed in Canadian Dollars)
NOTE 8 – SHARE CAPITAL (Continued)
| c) | Share Purchase Warrants | |||
| The Company has the following warrants outstanding: | Number of | Exercise Price | ||
| Warrants | Per Share | |||
| US$ | ||||
| Balance, December 31, 2003 | - | - | ||
| No Change in the Year | - | - | ||
| Balance, December 31, 2004 | - | - | ||
| Issued During the Year (Note 8(b)(i)) | 1,266,667 | 0.30 | ||
| Balance, December 31, 2005 | 1,266,667 | 0.30 | ||
Each warrant entitles the holder to purchase one additional common share of the Company at a price of US$0.30 per share until July 31, 2007.
NOTE 9 – ACQUISITION
On May 23, 2005, the Company acquired all of the issued and outstanding shares of Liberty Valley Wines, LLC (“Liberty Valley”) from an officer (also a shareholder) of the Company for cash consideration of $1.00. Liberty Valley is a corporation incorporated in the State of Delaware, United States.
Liberty Valley is an inactive corporation with no assets, liabilities, income or expenses. The acquisition has been accounted for by the purchase method and the operating results are included in the consolidated financial statements commencing from the date of the acquisition.
NOTE 10 – RELATED PARTY TRANSACTIONS
In addition to those transactions disclosed elsewhere in these financial statements (Notes 6(a) and 9), the Company had the following transactions with related parties:
| 2005 | 2004 | 2003 | ||
| $ | $ | $ | ||
| a) | Management fees charged by the President and | |||
| the Vice-President, both major shareholders of | ||||
| the Company, for management, administration, | ||||
| supervision and company development | ||||
| services. | 69,360 | 40,000 | - | |
| b) | Consulting fees charged by a company | |||
| controlled by a Director of the Company for | ||||
| management and administration services. | 30,526 | - | - | |
| c) | Interest paid to a relative of the controlling | |||
| shareholders of the Company for cash advanced | ||||
| to the Company (Note 6(a)) | 17,911 | 18,000 | 6,000 | |
All related party transactions were in the normal course of operations and were measured at their fair value.
13
BLACK DIAMOND HOLDINGS CORPORATION
Notes to the Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Expressed in Canadian Dollars)
NOTE 11 - COMMITMENT
On January 01, 2003, the Company entered into management agreements with the President and the Vice-President of the Company for general management and operational services. Under the terms of the agreements, which are for terms of ten years, the Company is required to pay combined management fees of US$72,000 per annum. Actual management fees accrued to the Officers totalled $69,360 in 2005 (2004 - $40,000). The Company has not accrued the balance of the management fees as the Officers have waived receipt of the non-accrued portion of the management fees.
On January 01, 2006, the Company revised the January 01, 2003 management agreements and entered into one-year management agreements with the President and the Vice-President of the Company for general management and operational services. Under the terms of the new agreements, the Company is required to pay combined management fees of US$120,000 per annum. The Company and the Officers may terminate the agreements on one-year written notices.
NOTE 12 – INCOME TAXES
| a) | Provision for Income Taxes |
| A reconciliation of the statutory tax rates with the Company’s income tax expense is as follows: | |
| 2005 | 2004 | 2003 | ||
| Combined Canadian federal and provincial | ||||
| income tax rates | 17.6% | 17.6% | 17.6% | |
| $ | $ | $ | ||
| Loss before income taxes | (273,567) | (118,432) | (148,391) | |
| Expected income tax recovery | (48,203) | (20,868) | (26,146) | |
| Item not deductible for tax purposes | 451 | 396 | 64 | |
| Unrecognized tax benefits | 47,752 | 20,472 | 26,082 | |
| Total income tax expense (recovery) | - | - | - | |
| b) | Future Income Taxes |
| The tax effects of significant temporary differences that give rise to future income tax assets are: | |
| 2005 | 2004 | ||
| Combined Canadian federal and provincial income tax rates | 17.6% | 17.6% | |
| Future income tax assets resulting from: | $ | $ | |
| Non-capital losses carry-forward | 167,635 | 118,853 | |
| Share issuance costs | 5,808 | - | |
| Tax value of assets in excess of net book values | 122 | - | |
| Valuation allowance | (173,565) | (118,853) | |
| Net future income tax assets | - | - | |
14
BLACK DIAMOND HOLDINGS CORPORATION
Notes to the Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Expressed in Canadian Dollars)
NOTE 12 – INCOME TAXES (Continued)
| b) | Future Income Taxes (Continued) |
| As at December 31, 2005, the Company and its subsidiaries have non-capital losses of approximately $951,390 which may be applied to reduce taxable income of future years. The non-capital losses expire as follows: | |
| Year | $ | |
| 2006 | 1,186 | |
| 2007 | 15,622 | |
| 2008 | 205,445 | |
| 2009 | 186,429 | |
| 2010 | 148,025 | |
| 2014 | 116,183 | |
| 2015 | 278,500 | |
| 951,390 | ||
Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements.
NOTE 13 – SUPPLEMENTAL CASH FLOW INFORMATION
| a) | Change in Non-Cash Working Capital Accounts: | |||
| 2005 | 2004 | 2003 | ||
| $ | $ | $ | ||
| Accounts Receivable | (6,865) | 1,773 | (5,327) | |
| Inventory | 97,765 | (13,376) | (104,626) | |
| Prepaid Expenses | (270) | - | - | |
| Accounts Payable and Accrued Liabilities | (56,318) | 29,822 | 107,735 | |
| 34,312 | 18,219 | (2,218) | ||
| b) | Significant Non-Cash Financing Activities: | |||
| Issuance of Shares for Settlement of Accounts | ||||
| Payable | 8,824 | - | - | |
| Issuance of Shares for Settlement of Promissory | ||||
| Notes Payable | 31,445 | - | - | |
| 40,269 | - | - | ||
| c) | Other Information: | |||
| Interest Paid | 21,008 | 16,819 | 5,213 | |
15
BLACK DIAMOND HOLDINGS CORPORATION
Notes to the Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Expressed in Canadian Dollars)
NOTE 14 – SUBSEQUENT EVENTS
| a) | On April 28, 2006, the Company completed a brokered private placement of 1,591,776 units at a price of US$0.15 per unit, raising gross proceeds of US$238,766. Each unit consists of one common share and one share purchase warrant. Each warrant entitles the holder to purchase one additional common share of the Company exercisable at a price of US$0.30 per share until December 31, 2007. The Company paid finders’ fees in the amount of US$15,000. The Company also issued 100,000 share purchase warrants exercisable at a price of US$0.30 per share until December 31, 2007 to the agent. |
| b) | On April 20, 2006, the Company issued 50,000 common shares at US$0.15 per share for settlement of accounts payable to an officer of the Company in the amount of US$7,500. |
NOTE 15 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“GAAP”)
The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in Canada which would not differ in all material respects from those principles that the Company would have followed had its consolidated financial statements been prepared in accordance with accounting principles generally accepted in the United States and from practices prescribed by the Securities and Exchange Commission. Accordingly, there were no reported differences for the Company for each of the years in the three-year period ended December 31, 2005 which would require reconciliation from Cdn GAAP to US GAAP.
| a) | Income Taxes |
| The Company uses the asset and liability method to account for income taxes pursuant to Section 3465 of the Canadian CICA Handbook which is substantially consistent with Statement of Financial Accounting Standards (“SFAS”) No. 109 “Accounting for Income Taxes”. | |
| As described in note 12, the Company has future income tax assets related to its Canadian operations calculated at the substantively enacted rates in Canada at December 31, 2005 and 2004 of 17.6%. For US GAAP purposes, SFAS No. 109 requires deferred tax assets to be measured at only enacted tax rates. These assets would have been reduced to $nil by a valuation allowance, which is consistent with the accounting treatment under Cdn GAAP. Accordingly, there is no difference in the consolidated financial position or results of operations reported under Cdn GAAP and US GAAP for the years ended December 31, 2005 and 2004. | |
| b) | Comprehensive Income |
| SFAS No. 130 “Reporting Comprehensive Income”, establishes standards for the reporting and display of comprehensive income and loss and its components in the financial statements. As at December 31, 2005, the Company has no items that represent comprehensive income or loss in the financial statements. | |
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BLACK DIAMOND HOLDINGS CORPORATION
Notes to the Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Expressed in Canadian Dollars)
NOTE 15 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
| c) | Recent United States Accounting Pronouncements | |
| (i) | Stock-Based Compensation | |
| In 2004, the US Financial Accounting Standards Board (“FASB”) issued revised SFAS No. 123R “Accounting for Stock-Based Compensation”. This statement supersedes APB Opinion No. 25 “Accounting for Stock Issued to Employees” and its related implementation guidance. This revised pronouncement requires that all stock options and warrants be accounted for using the fair value method, effective for fiscal period beginning after June 15, 2005. As disclosed in note 2(f), the Company’s accounting for its stock-based compensation is already in substantial compliance with the provision of this pronouncement; accordingly, the adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements. | ||
| (ii) | Exchanges of Non-Monetary Assets | |
| In 2004, the FASB issued SFAS No. 153 “Exchanges of Non-Monetary Assets – an Amendment of APB Opinion No. 29, Accounting for Non-Monetary Transactions” to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges on non-monetary assets that do not have commercial substance. SFAS 153 specifies that a non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The standard is effective for fiscal periods beginning after June 15, 2005. The Company does not expect the adoption of this statement to have a material impact on the Company’s consolidated financial statements. | ||
| (iii) | Variable Interest Entities | |
| In 2005, the FASB issued Interpretation No. 46R “Consolidation of Variable Interest Entities” to provide guidance on the consolidation of variable interest entities (“VIE”) where the Company is the entity’s Primary Beneficiary. A VIE is an entity in which equity investors do not have the characteristics of a controlling financial interest nor have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Primary Beneficiary is the party that has exposure to a majority of the expected losses and/or expected residual returns of the VIE. The Company does not expect the adoption of this standard to have a material effect on the Company’s consolidated financial statements, as it does not have any VIE’s which will require consolidation. | ||
| (iv) | Asset Retirement Obligation | |
| In 2005, the FASB issued Interpretation No. 47 “Accounting for Conditional Retirement Obligation” to clarify the intended meanings of the term “Asset Retirement Obligation” in SFAS No. 143 “Accounting for Asset Retirement Obligations”. The interpretation clarifies that the entities are expected to record asset retirement obligations even though uncertainty may exist regarding the timing or method of settlement so long as the obligation is reasonably estimable. The Company has determined that the application of this standard will not have a material effect on its consolidated financial statements. | ||
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BLACK DIAMOND HOLDINGS CORPORATION
Notes to the Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Expressed in Canadian Dollars)
NOTE 15 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
| (c) | Recent United States Accounting Pronouncements (Continued) | |
| (v) | Accounting Changes and Error Corrections | |
On June 1, 2005, the FASB issued SFAS No. 154 “Accounting Changes and Error Corrections”, a replacement of APB Opinion No. 20 “Accounting Changes” and SFAS No. 3 “Reporting Accounting Changes in Interim Financial Statements”. SFAS 154 requires retrospective application to prior periods’ financial statements of a change in accounting principle unless it is impracticable to do so. This is a change from the existing practice that requires most accounting changes to be accounted for by including in net income in the period of the change the cumulative effect of changing to the new accounting principle. The standard will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The impact of SFAS 154 cannot be determined until such time as the Company makes a change in accounting policy.
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