SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 6-K
Report of Foreign Issuer
FOR PERIOD ENDED January 15, 2003
COMMISSION FILE NUMBER: (SEC File No: 0-30006)
SUNGOLD ENTERTAINMENT CORP.
---------------------------
(Translation of registrant's name into English)
#500 - 666 Burrard Street
Vancouver, British Columbia
Canada, V6C 3P6
---------------------------------------
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F __
-
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ____ No _X_
-
SUNGOLD ENTERTAINMENT CORP.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
LOEWEN, STRONACH & CO.
Chartered Accountants
L
S
LOEWEN, STRONACH & CO.
Chartered Accountants
A partnership of incorporated professionals
7th Floor, 2695 Granville Street, Vancouver, BC V6H 3H4
* Fax (604) 736-1225 * Telephone (604) 736-1221 * E-mail lsco@telus.net
- --------------------------------------------------------------------------------
AUDITORS' REPORT
To The Shareholders of Sungold Entertainment Corp.:
We have audited the consolidated balance sheet of Sungold Entertainment Corp. as
at August 31, 2002 and August 31, 2001 and the consolidated statements of loss
and deficit and cash flows for the years ended August 31, 2002, 2001 and 2000.
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.
With respect to the financial statements for the year ended August 31, 2002 and
2001, we conducted our audits in accordance with Canadian generally accepted
auditing standards and United States generally accepted auditing standards. With
respect to the financial statements for the year ended August 31, 2000, we
conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at August 31, 2002
and 2001 and the results of its operations and cash flows for the years ended
August 31, 2002, 2001 and 2000 in accordance with Canadian generally accepted
accounting principles which differ in certain respects from United States
generally accepted accounting principles (refer to Note 12). As required by the
Company Act of British Columbia, we report that, in our opinion, these
principles have been applied on a consistent basis.
/s/ Loewen Stronach & Co.
Chartered Accountants
Vancouver, BC
December 2, 2002
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 2,
2002 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.
/s/ Loewen Stronach & Co.
Chartered Accountants
Vancouver, BC, Canada
December 2, 2002
MEMBERS OF
INSTITUTE OF CHARTERED ACCOUNTANTS OF BRITISH COLUMBIA
SUNGOLD ENTERTAINMENT CORP.
CONSOLIDATED BALANCE SHEET
AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
2002 2001
$ $
------------- ------------
ASSETS
CURRENT ASSETS
Cash 23,772 104,194
Prepaid expenses and deposits 374,953 45,767
------------- ------------
398,725 149,961
PRE-DEVELOPMENT COSTS (Note 4) 2,768,316 2,894,225
CAPITAL ASSETS (Note 5) 541,484 695,716
------------- ------------
3,708,525 3,739,902
============= ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 32,824 115,710
Loans payable (Note 8 a) 282,187 -
Obligation under capital leases (Note 6) 19,423 16,037
------------- ------------
334,434 131,747
OBLIGATION UNDER CAPITAL LEASES (Note 6) 17,253 36,687
------------- ------------
351,687 168,434
------------- ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 7) 16,156,646 13,768,636
DEFICIT (12,799,808) (10,197,168)
------------- ------------
3,356,838 3,571,468
------------- ------------
3,708,525 3,739,902
============= ============
APPROVED BY THE DIRECTORS:
/s/ Kim Hart Director
- ---------------------
/s/ Anne Kennedy Director
- ---------------------
(See accompanying notes to financial statements)
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
2002 2001 2000
$ $ $
----------------------------------
REVENUE
Sales 19,446 12,428 -
Foreign exchange gain
(loss) (4,526) 12,098 18,438
Interest income 11 2 6
----------- ---------- ---------
14,931 24,528 18,444
----------- ---------- ---------
EXPENSES
Advertising and promotion 808,511 714,709 701,109
Internet services 410,144 151,791 -
Management fees 246,000 246,000 186,500
Professional and consulting
fees 242,565 118,716 98,061
Investor relations 169,935 93,927 18,405
Amortization 161,923 142,669 52,388
Travel and conferences 138,468 77,504 114,240
Insurance 71,552 51,449 42,086
Office rent and services 69,017 48,990 49,248
Office and miscellaneous 60,936 70,096 45,753
Transfer agent and filing fees 34,902 24,916 23,789
Prizes 29,085 - -
Interest on capital leases 10,543 3,118 -
Interest and bank charges 4,923 4,149 988
Corporate capital tax 250 - -
----------- ---------- ---------
2,458,754 1,748,034 1,332,567
Write-down of pre-
development costs
and investment 158,817 460,574 -
----------- ---------- ---------
2,617,571 2,208,608 1,332,567
----------- ---------- ---------
LOSS 2,602,640 2,184,080 1,314,123
DEFICIT - beginning 10,197,168 8,013,088 6,698,965
----------- ---------- ---------
DEFICIT - ending 12,799,808 10,197,168 8,013,088
----------- ---------- ---------
Loss per share 0.0614 0.0780 0.0664
=========== ========== =========
(See accompanying notes to financial statements)
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
2002 2001 2000
$ $ $
--------------------------------------
OPERATING ACTIVITIES
Loss (2,602,640) (2,184,080) (1,314,123)
Items not involving cash:
Amortization 161,923 142,669 52,388
Write-down of pre-
development costs
and investment 158,817 460,574 -
----------- ----------- -----------
(2,281,900) (1,580,837) (1,261,735)
Cash provided by
changes in non-cash
working capital items:
Prepaid expenses and deposits (329,186) (4,718) (5,362)
Accounts payable and
accrued liabilities (82,886) (20,977) 58,852
Loans payable 282,187 - -
----------- ----------- -----------
(2,411,785) (1,606,532) (1,208,245)
INVESTING ACTIVITIES
Pre-development costs (32,908) (316,358) (623,872)
Acquisition of capital assets (7,690) (416,489) (409,936)
----------- ----------- -----------
(40,598) (732,847) (1,033,808)
----------- ----------- -----------
FINANCING ACTIVITIES
Repayment of capital
leases liability (16,049) (4,304) -
Issuance of shares 2,388,010 2,391,331 2,182,351
----------- ----------- -----------
2,371,961 2,387,027 2,182,351
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (80,422) 47,648 (59,702)
CASH - beginning 104,194 56,546 116,248
----------- ----------- -----------
CASH - ending 23,772 104,194 56,546
Notes to statement of cash flows:
1) Cash consists of
balances with banks
2) Interest and income
taxes paid:
Interest paid 15,466 7,267 988
Income taxes paid - - -
(See accompanying notes to financial statements)
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
Note 1 GOING CONCERN AND NATURE OF OPERATIONS
Sungold Entertainment Corp. (the "Company") is incorporated in the Province
of British Columbia under the Company Act (British Columbia), and its
principal activity is developing and promoting horseracing, virtual
horseracing 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 operate the Horsepower
World Pool profitably 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.
Currently the Company's shares are trading in the United States on the
O.T.C. bulletin board and on the Frankfurt Stock Exchange, Germany.
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Commitments and Contingencies
The Company's activities are subject to various governmental laws and
regulations relating to horseracing, virtual horseracing and online jackpot
wagering. These regulations are continually changing. The Company believes
its operations comply in all material respects with all applicable laws and
regulations.
b) Basis of Consolidation
These consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Sungold Entertainment USA, Inc.,
Horsepower Broadcasting Network Inc. and Horsepower Broadcasting Network
(HBN) International Ltd. All inter-company transactions and balances have
been eliminated.
c) 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 the determination of income.
.. /2
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 2 -
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
d) Pre-development costs
The cost of each pre-development project is capitalized until commercial
production is established. If management determines that a project is not
economically viable, the property and related deferred expenditures are
written off.
The costs deferred at any time do not necessarily reflect present or future
values. The ultimate recovery of such amounts depends on the Company
successfully developing and commencing the project.
e) Capital Assets and Amortization
Capital assets are recorded at cost with amortization provided on a
declining balance as follows:
Computer equipment 30%
Computers under capital leases 30%
Internet software 20%
The above rate has been utilized to reflect the anticipated life
expectancy. In the year of acquisition only one-half the normal rate is
applied.
f) Income Taxes
The Company has adopted the new recommendations of the Canadian Institute
of Chartered Accountants (the "CICA") regarding accounting for income
taxes, which requires the use of asset and liability method.
Under this method of tax allocation, future income tax assets and
liabilities are determined based on differences between the financial
statements carrying values and their respective income tax bases (temporary
differences). Future income tax assets and liabilities are measured using
the enacted tax rates expected to be in effect when the temporary
differences are likely to reverse. The effect on future income tax assets
and liabilities of a change in rates is included in operations in the
period in which the change is enacted or substantively enacted. The amount
of future income tax assets recognized is limited to the amount that is
more likely than not to be realized.
g) Stock-based Compensation Plans
The Company has a stock-based compensation plan, which is described in Note 7 b)
i). No compensation expense is recognized for these plans when stock options are
issued to members of the Board of Directors. Any consideration paid by members
of the Board of Directors upon exercise of stock options is recorded as an
increase to share capital.
.. /3
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 3 -
NOTE 3 PRE-DEVELOPMENT COSTS
a) Gun Lake Indian Band project
In 1994 the Company entered into an agreement with the Gun Lake Indian Band
("Band") in Michigan, USA to develop and manage a full service casino and
gaming operation.
The Company had filed a comprehensive lawsuit in the Michigan courts
against the Band. The litigation arose out of notification that the Band
would not honour its agreement with the Company. The Company sued for
specific performance and is seeking damages. The Michigan Court of Appeals
court dismissed the appeal on the basis of the Defendants' claim of
sovereign immunity. The Company applied for permission for a review of
these issues with the Michigan Supreme Court. Recently, the Michigan Court
ruled that the State of Michigan is required to issue a gaming compact to
the Gun Lake Tribe.
During the year, no pre-development costs were capitalized under Gun Lake
Indian Band project; legal fees incurred for the Band appeals were expensed
through income statement.
2001 Additions Write off 2002
$ $ $ $
Consulting and legal fees 1,036,168 - - 1,036,168
Contractual obligation 520,117 - - 520,117
Travel and lodging 213,432 - - 213,432
1,769,717 - - 1,769,717
.. /4
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 4 -
NOTE 3 PRE-DEVELOPMENT COSTS (continued)
b) Vancouver Racecourse / Richmond Equine Training Centre project
In Vancouver, British Columbia, the Company has presented a proposal to
renovate the Hastings Park horse track facility in conjunction with the
construction of a one-mile thoroughbred training centre in Richmond.
The Company had an option to purchase 227 acres in Richmond, British
Columbia, Canada for the purpose of developing a horse training complex,
subject to approval of all zoning and regulatory authorities. The extension
agreement gave the Company the option to purchase 100% of the shares of
A.C. Gilmore & Sons Ltd., the owner of the property, for CDN $20,992,490
until November 30, 2002 (lapsed). (See Subsequent Events Note 11 a).
In September 2002, 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 City of Richmond, BC and from the province of British
Columbia to develop the project, the interested party would purchase 6
million common treasury shares of Sungold Entertainment Corp. at US$4.00
per share by way of a private placement. The agreement was extended to
October 1, 2003. (See Related Party Transactions Note 8 a).
2001 Additions Write off 2002
$ $ $ $
--------- ------ --------- -------
Consulting and legal fees 801,214 6,412 - 807,626
Option fee 146,447 12,370 (158,817) -
Architectural fees 32,752 - - 32,752
Other direct costs 19,933 1,039 - 20,972
--------- ------ --------- -------
1,000,346 19,821 (158,817) 861,350
--------- ------ --------- -------
.. /5
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 5 -
NOTE 3 PRE-DEVELOPMENT COSTS (continued)
c) HorsepowerTM Software Development project
On September 15, 1999, the Company incorporated a wholly owned subsidiary,
Horsepower.com Network Inc. in the Province of British Columbia under the
Company Act (British Columbia), and its principal activity is developing
internet wagering and payment processing software. 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.
("HBN").
Since 1999 the Company has developed the HorsepowerTM parimutal, random,
world wagering pool which is based on a virtual Horserace system.
Sungold owns the exclusive proprietary rights to operate the Horsepower
World Pool (HPWP), market the Horsepower system, license the system, sell
commercial sponsorships, sell advertising and any other promotion
associated with the system. Sungold reserves the rights to all intellectual
property.
HBN acquired computer hardware, developed software and leased a hosting
facility that enables HorsepowerTM to operate on the world wide web 24 / 7
as a $US based World wagering pool. HBN has engaged its' sister company
Horsepower Broadcasting Network (HBN) International Ltd. to operate their
US $ Internet wagering site.
A major expansion of the Horsepower World Pool is expected in 2003 with
many racetracks in North America and internationally wagering into the
Horsepower World Pool Pick 1 and Pick 6 parimutal pools.
2001 Additions Write off 2002
$ $ $ $
-------------------------------------
Legal and consulting fees 58,999 - - 58,999
-------------------------------------
.. /6
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 6 -
NOTE 4 PRE-DEVELOPMENT COSTS (continued)
d) HorsepowerTM Operating project
On February 20, 2001, the Company incorporated a wholly owned subsidiary,
Horsepower Broadcasting Network (HBN) International Ltd. ("HBN Int'l"), in
the Province of Quebec under the Canada Business Corporation Act. HBN Int'l
licensed by the Kahnawake Gaming Commission and operates on the Kahnawake
Territory in Quebec. It's main activity is operating the Horsepower World
Pool parimutal wagering system. All players have an equal chance to win,
wagering in real time 24 / 7 on common parimutuel pools. HorsepowerTM has
been tested to international lottery standards. During the year no
predevelopment costs were capitalized under Horsepower operating project.
The Company operates under the permanent license of the Kahnawake Gaming
Commission in Quebec, Canada and the Company management believes the
Company complies in all material respects with the governing laws and
regulations.
e) SafeSpending project
In May 2001, the Company signed an agreement for the acquisition of the
entire world wide right, title and interest to the internet payment system
technology of SafeSpending Services Inc. ("SafeSpending"). The SafeSpending
internet payment system is 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 with SafeSpending includes all copyrights,
trademarks, source codes and SafeSpending's intellectual property. Under
the terms of agreement the Company has agreed to pay a 7.5 percent royalty
of net revenue of the Company upon the Company or it's subsidiary
Horsepower Broadcasting Network Inc. receiving $1,000,000 in net revenue
from operation, sale or license of the technology.
(See Subsequent Events Note 11 b.)
2001 Additions Write off 2002
$ $ $ $
------------------------------------
- - - -
Acquisition cost 62,300 - - 62,300
Legal and consulting fees 2,863 13,087 - 15,950
------------------------------------
65,163 13,087 - 78,250
------------------------------------
2001 Additions Write off 2002
$ $ $ $
-----------------------------------------
TOTAL PRE-DEVELOPMENT COSTS 2,894,225 32,908 (158,817) 2,768,316
.. /7
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 7-
Note 5 CAPITAL ASSETS
2002 2001
--------------------------------------
Cost Less Net Book Net Book
Accumulated Value Value
Amortization
$ $ $ $
------- ------- ------- -------
Internet software 580,020 194,118 385,902 477,224
Computer equipment 258,223 139,760 118,463 165,465
Computers under capital leases 62,378 25,259 37,119 53,027
------- ------- ------- -------
900,621 359,137 541,484 695,716
======= ======= ======= =======
Note 6 OBLIGATION UNDER CAPITAL LEASES
The Company has three lease agreements for computers accounted for as
capital leases. Current payments are $2,094 monthly including applicable
taxes, expiring November 2003 through June 2004.
The following is a schedule of future lease payments
2002 2001
$ $
------------------
Total minimum lease payments 41,834 65,429
------------------
Less amount representing interest (5,158) (12,705)
Balance of obligations 36,676 52,724
------------------
Less current portion (19,423) (16,037)
Non-current portion 17,253 36,687
------------------
For next two years:
- 2002 - 16,037
- 2003 19,423 16,037
- 2004 17,253 20,650
------------------
36,676 52,724
------------------
.. /8
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 8-
Note 7 SHARE CAPITAL
During the year, the Company received regulatory approval to increase its
authorized share capital as approved in the Annual General Meeting held in
February 2002. The authorized common shares were then increased to
100,000,000 shares from 58,875,000 shares, and two classes of preference
shares were created.
2002 2001
$ $
----------------------------
Authorized:
100,000,000 common shares without par value
100,000,000 Class "A" Preference
shares with a par value of $10 each
100,000,000 Class "B" Preference shares
with a par value of $50 each
Issued and outstanding:
50,121,209 shares
(2001 - 34,454,543 shares) 16,156,646 13,768,636
============================
a) Shares issued during the year:
2002 2001
# $ # $
----------------------------------------------
For cash - exercise of
share purchase
warrants 516,666 48,162 - -
For cash - exercise of
incentive share
purchase options 1,880,000 311,467 4,259,800 576,410
For cash - private placements 13,270,000 2,028,381 7,409,000 1,801,328
---------- ---------- ---------- ----------
15,666,666 2,388,010 11,668,800 2,377,738
---------- ---------- ---------- ----------
For debt settlements - - 610,000 72,883
---------- ---------- ---------- ----------
15,666,666 2,388,010 12,278,800 2,450,621
========== ========== ========== ==========
.. /9
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 9-
Note 7 SHARE CAPITAL (continued)
b) i) The Company has a fixed stock option plan which permits the issurance
of options of up
to 10% of the Company's issued share capital. The following are outstanding
incentive share purchase options:
#
---------
100,000 @ US $0.15 each to February 16, 2006
1,050,000 @ US $0.06 each to February 28, 2006
79,900 @ US $0.085 each to March 5, 2006
300,000 @ US $0.12 each to August 10, 2006
100,000 @ US $0.10 each to October 22, 2006
100,000 @ US $0.12 each to October 23, 2006
100,000 @ US $0.09 each to December 20, 2006
802,764 @ US $0.08 each to January 4, 2007
400,000 @ US $0.0725 each to January 24, 2007
136,000 @ US $0.23 each to March 26, 2007
272,000 @ US $0.20 each to May 17, 2007
---------
3,440,664
=========
In 2001, the Canadian Institute of Chartered Accountants issued
Handbook 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 will adopt the recommendations for the
year ended August 31, 2003.
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.
Since January 1, 2002, the Company has 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
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 of 3%, dividend yield of 0%,
volatility factor of 150%, and an expected life of 1 year.
.. /10
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 10 -
Note 7 SHARE CAPITAL (continued)
b) i) Incentive share purchase options (continued)
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 be as follows:
2002 2001
$ $
-------- -----
Pro forma loss (0.0026) N/A
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.
.. /11
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 11 -
Note 7 SHARE CAPITAL (continued)
ii) The following are outstanding share purchase warrants:
#
- --------
136,000 @ US $0.25 each to October 12, 2002 (1)
150,000 @ US $0.32 each to October 12, 2002 (1)
500,000 @ US $0.33 each to April 20, 2003
400,000 @ US $0.25 each to May 24, 2003
200,000 @ US $0.42 each to June 28, 2003
400,000 @ US $0.30 each to July 31, 2003
240,000 @ US $0.30 each to August 24, 2003
100,000 @ US $0.25 each to August 29, 2003
100,000 @ US $0.30 each to September 6, 2003
800,000 @ US $0.20 each to September 21, 2003
919,000 @ US $0.20 each to October 12, 2003
100,000 @ US $0.20 each to December 22, 2003
900,000 @ US $0.20 each to March 23, 2004
600,000 @ US $0.20 each to March 19, 2004
550,000 @ US $0.20 each to April 5, 2004
1,000,000 @ US $0.20 each to May 8, 2004
1,000,000 @ US $0.20 each to May 29, 2004
1,000,000 @ US $0.20 each to June 27, 2004
1,000,000 @ US $0.20 each to September 7, 2004
420,000 @ US $0.15 each to October 24, 2004
1,000,000 @ US $0.15 each to November 4, 2004
2,333,334 @ US $0.06 each to December 14, 2004
1,700,000 @ US $0.06 each to January 7, 2005
1,000,000 @ US $0.06 each to January 30, 2005
300,000 @ US $0.11 each to March 1, 2005
1,000,000 @ US $0.17 each to March 26, 2005
1,000,000 @ US $0.165 each to April 4, 2005
400,000 @ US $0.16 each to May 7, 2005
600,000 @ US $0.15 each to May 30, 2005
2,500,000 @ US $0.075 each to July 10, 2005
250,000 @ US $0.08 each to July 24, 2005
100,000 @ US $0.09 each to August 21, 2005
- -----------
22,698,334
===========
(1) See Subsequent Events note 11 (g)
.. /12
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 12 -
Note 8 RELATED PARTY TRANSACTIONS
a) Loans payable of $282,187 (US$181,028) is from a director and officer
of the Company.
b) The Company entered into an intention agreement, on December 8, 1997,
to an entity with a common director, for its Richmond/Vancouver
Horseracing project. The agreement was re-extended to October 1, 2003.
In the agreement, the interested party would purchase 6 million common
treasury shares of Sungold Entertainment Corp. at US$4 per share by
way of a private placement upon the Company receiving the appropriate
permission from the government agencies. (See Pre-development Costs
Note 3 c).
c) During the year management fees of $246,000 were paid to the directors
and officers.
d) During the year consulting fees of $76,102 were paid to the directors
or entity with a common director.
Note 9 FINANCIAL INSTRUMENTS
The carrying value of cash and accounts payable and accrued liabilities
reflected in the balance sheet approximate their respective fair value.
Note 10 ACCUMULATED LOSSES
The company has accumulated non-capital losses for income tax purposes of
$7,715,493 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
$
-----------------------
2003 629,337
2004 543,932
2005 474,086
2006 653,279
2007 1,306,106
2008 1,714,246
2009 2,394,507
----------
7,715,493
----------
The company has accumulated capital losses for income tax purposes of
$1,126,136 that may be carried forward indefinitely and used to reduce
capital gains in the future.
.. /13
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 13 -
Note 11 SUBSEQUENT EVENTS
a) The Company is in a process of renegotiating the extension of the
option to purchase 227 acres in Richmond, British Columbia. (See
Pre-development Costs Note 3 b)
b) The Company is in the process to incorporating a new subsidiary,
SafeSpending Limited, in the Channel Islands for its SafeSpending
Project.
c) In September 2002, the Company received $185,388 (US$120,000) from a
subscriber for 1,500,000 July 23, 2002 private placement units at
US$0.08 each.
d) On September 27, 2002, the Company announced a private placement of
3,000,000 units at US$0.08 each. The Company received $373,848
(US$240,000) from a subscriber for 3,000,000 units in October.
e) On October 11, 2002, the Company granted 200,000 stock options to a
director at an exercise price of US$0.15 each.
f) On October 16, 2002, the Company granted 300,000 stock options to a
director at an exercise price of US$0.15 each.
g) 136,000 October 12, 2002 share purchase warrants at US$0.25 each and
150,000 October 12, 2002 share purchase warrants at US$0.32 each
expired after the year-end.
h) On November 1, 2002, the Company announced a private placement of
1,000,000 units at US$0.075 each. The Company received $115,672
(US$75,000) from a subscriber for 1,000,000 units in November 2002.
i) On November 12, 2002, the Company announced a private placement of
1,000,000 units at US$0.08 each. The Company received $123,800
(US$80,000) from a subscriber for 1,000,000 units in November 2002.
j) On November 28, 2002, the Company announced a private placement of
1,000,000 units at US$0.06 each. The Company received $92,850
(US$60,000) from subscribers for 1,000,000 units in November 2002.
.. /14
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 14 -
Note 12 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. US GAAP requires that pre-development
expenditures be expensed as incurred until it is determined that
commercially viable operations exist and the expenses then incurred are
recoverable.
b) Foreign Currency Translation
Under US GAAP, all asset and liability accounts are translated at the
exchange rates in effect at the balance sheet dates. Income statement
amounts are translated at the average rate of exchange for the year. The
resulting differences are accumulated in a separate component of
shareholders' equity.
c) Share Options
Under US GAAP, granting of share options to employees and directors may
give rise to a charge to income for compensation. For the purposes of this
reconciliation from CDN GAAP to US GAAP, the Company has prepared its
financial statements in accordance with Accounting Principles Board (APB)
25 under which share options are measured by the intrinsic value method
whereby employee and director compensation cost is limited to the excess of
the quoted market price at date of grant over the option exercise price.
Since the exercise price equalled the quoted market price at the dates the
share options were granted, there were no compensation costs to be
recognized.
d) Loss per share
For all years indicated, the options and warrants outstanding during the
year are anti-dilutive and therefore fully diluted loss per share has not
been disclosed.
.. /15
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 15 -
Note 12 UNITED STATES ACCOUNTING PRINCIPLES (continued)
e) Comprehensive Income
Under US GAAP, SFAS No. 130 requires that companies report comprehensive
income as a measure of overall performance. Comprehensive income includes
all changes in equity during a period expect 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.
f) The following are balance sheet items under US GAAP:
2002 2001 2000
$ $ $
--------------------------------------------
Pre-development costs - - -
Share capital 20,867,384 18,479,374 16,088,043
Foreign currency adjustments 23,909 28,435 16,337
Deficit (20,302,771) (17,830,566) (15,778,604)
g) The following table summarizes the effect on Deficit of differences between
CDN GAAP and US GAAP:
2002 2001 2000
$ $ $
------------------------------------------
Deficit - CDN GAAP (12,799,808) (10,197,168) (8,013,088)
Cumulative effect of prior
years' adjustments (7,633,398) (7,765,516) (7,123,206)
------------------------------------------
(20,433,206) (17,962,684) (15,136,294)
US GAAP material adjustments:
* Effect of the
write-off of pre-
development costs
on net loss 125,909 144,216 (623,872)
* Foreign currency
adjustments 4,526 (12,098) (18,438)
------------------------------------------
130,435 132,118 (642,310)
------------------------------------------
Deficit - US GAAP (20,302,771) (17,830,566) (15,778,604)
==========================================
.. /16
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 16 -
Note 12 UNITED STATES ACCOUNTING PRINCIPLES (continued)
h) The following table summarizes the effect on shareholders' equity after
considering the US GAAP adjustments:
Foreign Total
Common Accumulated Currency Shareholders'
Shares Deficit Translation Equity
Amount Adjustments
$ $ $ $
-----------------------------------------------
Common Shares issued /net loss:
August 31, 1986
* Shares for cash 107,501 - - 107,501
* Net loss under US GAAP - - - -
---------- ------------- ------ ------------
August 31, 1987 107,501 - - 107,501
* Shares for cash 166,971 - - 166,971
* Net loss under US GAAP - - - -
---------- ------------- ------ ------------
August 31, 1988 274,472 - - 274,472
* Shares for cash 401,667 - - 401,667
* Shares for property 227,000 - - 227,000
* Net loss under US GAAP - (753,962) - (753,962)
---------- ------------- ------ ------------
August 31, 1989 903,139 (753,962) - 149,177
* Shares for cash 622,215 - - 622,215
* Shares for property 1,897,000 - - 1,897,000
* Net loss under US GAAP - (575,612) - (575,612)
---------- ------------- ------ ------------
August 31, 1990 3,422,354 (1,329,574) - 2,092,780
* Shares for cash 100,250 - - 100,250
* Net loss under US GAAP - (350,482) - (350,482)
---------- ------------- ------ ------------
August 31, 1991 3,522,604 (1,680,056) - 1,842,548
* Shares for cash 402,900 - - 402,900
* Net loss under US GAAP - (1,420,584) - (1,420,584)
---------- ------------- ------ ------------
August 31, 1992 3,925,504 (3,100,640) - 824,864
* Shares for cash 465,875 - - 465,875
* Shares for property 150,000 - - 150,000
* Net loss under US GAAP - (289,189) - (289,189)
August 31, 1993 4,541,379 (3,389,829) - 1,151,550
* Shares for cash 576,500 - - 576,500
* Net loss under US GAAP - (836,050) - (836,050)
---------- ------------- ------ ------------
August 31, 1994 5,117,879 (4,225,879) - 892,000
* Shares for cash 175,000 - - 175,000
* Foreign currency - - 3,448 3,448
* Net loss under US GAAP - (738,384) - (738,384)
---------- ------------- ------ ------------
August 31, 1995 5,292,879 (4,964,263) 3,448 332,064
.. /17
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 17 -
Note 12 UNITED STATES ACCOUNTING PRINCIPLES (continued)
Foreign Total
Common Accumulated Currency Shareholders'
Shares Deficit Translation Equity
Amount Adjustments
$ $ $ $
---------------------------------------------------
August 31, 1995 - balance forward 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
* 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
=========== ============= ========= ============
.. /18
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 18 -
Note 12 UNITED STATES ACCOUNTING PRINCIPLES (continued)
i) The following table summarizes the effect on Net Loss of differences
between CDN GAAP and US GAAP:
Cumulative 2002 2001 2000
Amounts
From
Apr 7/86 to
Aug 31/02
$ $ $ $
---------------------------------------------------
Net loss under CDN GAAP (12,799,808) (2,602,640) (2,184,080) (1,314,123)
US GAAP material adjustments:
* Effect of the write-off of pre-
development costs on net loss (2,768,316) 125,909 144,216 (623,872)
* Share-based compensation (4,710,738) - - -
* Foreign currency adjustments (23,909) 4,526 (12,098) (18,438)
---------------------------------------------------
Net loss under US GAAP (20,302,771) (2,472,205) (2,051,962) (1,956,433)
===================================================
Loss per share under US GAAP 0.06 0.07 .10
------------ ----------- -----------
Weighted average number of shares 42,409,898 27,991,260 19,785,894
------------ ----------- -----------
.. /19
Loewen Stronach & Co. Chartered Accountants
SUNGOLD ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2002
(A Development Stage Company)
(Presented in Canadian Dollars)
PAGE - 19 -
Note 12 UNITED STATES ACCOUNTING PRINCIPLES (continued)
j) The following income statement shows cumulative amounts from the Company's
inception after considering the U.S. GAAP adjustments:
Cumulative
Amounts
From
Apr 7/86 to
Aug 31/02
$
----------
REVENUE
Gain on disposition of marketable securities 838,947
Interest income and miscellaneous 43,324
Foreign exchange gain (loss) 23,909
Sales 31,874
----------
938,054
----------
EXPENSES
Advertising and promotion 2,544,314
Management fees 1,542,650
Professional and consulting 1,419,004
Investor relations 786,472
Automotive, travel and conference 664,620
Office and miscellaneous 569,926
Office rent and services 375,872
Transfer agent and filing fees 259,242
Amortization 382,594
Financing fees 218,000
Finders fees 154,031
Internet services 561,935
Insurance 200,920
Interest and bank charges 130,907
Settlement of agreement 40,000
Prizes 29,085
Fees and commissions 29,741
Interest on capital leases 13,661
Quebec capital tax 250
----------
9,923,224
Write-down of investments 3,814,638
----------
13,737,862
----------
LOSS AND DEFICIT UNDER CDN GAAP 12,799,808
US GAAP material adjustments:
Effect of the write-off of
pre-development costs 2,768,316
Share-based compensation 4,710,738
Foreign currency adjustments 23,909
LOSS AND DEFICIT UNDER US GAAP 20,302,771
==========
Loewen Stronach & Co. Chartered Accountants
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 6-K for the period ended January
15, 2003 to be signed on its behalf by the undersigned, thereunto duly
authorized.
SUNGOLD ENTERTAINMENT CORP.
-----------------------------
(the Registrant)
Date: January 21, 2003 By:* /s/ Kim N. Hart
- --------------------------- -----------------------------
Kim N. Hart - President & CEO
*Print name and title under the signature of the signing officer