CONSOLIDATED FINANCIAL STATEMENTS
HALL TRAIN ENTERTAINMENT INC.
December 31, 1997 and 1996
AUDITORS' REPORT
To the Shareholders of
Hall Train Entertainment Inc.
We have audited the consolidated balance sheets of Hall Train
Entertainment Inc. as at December 31, 1997 and 1996 and the
consolidated statements of operations and deficit and cash flows for
the years then ended. 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 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 December 31, 1997 and 1996 and the results of its
operations and the changes in its financial position for the years
then ended in accordance with generally accepted accounting
principles.
Toronto, Canada,
Ernst & Young
May 19, 1998. Chartered Accountants
Hall Train Entertainment Inc.
CONSOLIDATED BALANCE SHEETS
As at December 31
1997 1996
$ $
ASSETS
Current
Cash 51,047 --
Accounts receivable 524,539 84,221
Loan receivable from shareholder 2,119 --
Prepaid expenses 8,239 5,588
Total current assets 585,944 89,809
Capital assets, net [note 3] 118,902 70,356
704,846 160,165
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current
Bank indebtedness - 1,805
Accounts payable and accrued liabilities 291,849 342,893
Deferred revenue 373,931 15,253
Total current liabilities 665,780 359,951
Loans payable to shareholders [note 4] - 45,396
Commitments and contingencies [notes 1 and 9]
Shareholders' equity (deficiency)
Share capital [note 5] 1,096,744 938,577
Deficit (1,057,678) (1,183,759)
Total shareholders' equity (deficiency) 39,066 (245,182)
704,846 160,165
See accompanying notes
On behalf of the Board:
Matteo Bossio Lawrence Keller
Director Director
Hall Train Entertainment Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND DEFICIT
Years ended December 31
1997 1996
$ $
Revenue 1,814,092 882,860
Expenses
Production costs 811,891 499,978
Contractor fees [note 6[a]] 347,206 358,148
General and administration 347,519 351,517
Salaries and benefits 83,952 102,943
Professional fees 66,807 88,652
Depreciation 30,636 22,795
1,688,011 1,424,033
Net income (loss) for the year 126,081 (541,173)
Deficit, beginning of year (1,183,759) (642,586)
Deficit, end of year (1,057,678) (1,183,759)
Earnings (loss) per common share [note 7] 0.01 (0.05)
See accompanying notes
Hall Train Entertainment Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
1997 1996
$ $
OPERATING ACTIVITIES
Net income (loss) for the year 126,081 (541,173)
Add item not involving cash
Depreciation 30,636 22,795
156,717 (518,378)
Net change in non-cash working capital
balances related to operations (137,454) 44,459
Cash provided by (used in) operating activities 19,263 (473,919)
INVESTING ACTIVITIES
Purchase of capital assets (79,182) (21,986)
Cash used in investing activities (79,182) (21,986)
FINANCING ACTIVITIES
Loans payable to shareholders (45,396) (52,583)
Issuance of share capital 158,167 521,073
Cash provided by financing activities 112,771 468,490
Net increase (decrease) in cash during the year 52,852 (27,415)
Cash (bank indebtedness), beginning of year (1,805) 25,610
Cash (bank indebtedness), end of year 51,047 (1,805)
See accompanying notes
1. BASIS OF PRESENTATION
Hall Train Entertainment Inc. [the "Company"] provides animation,
graphics and other special effects services for the entertainment
industry.
[a] Accounting for the business combination
Hall Train Moving Pictures Ltd. ["Hall Train"] was incorporated under
the Ontario Business Corporations Act on July 11, 1994. The business
of the company was formerly carried out on an unincorporated basis by
one of the present shareholders.
On November 4, 1994, International Maggie Mines Ltd., a company whose
common shares trade on the unlisted or over-the-counter market in
Canada, issued 3,600,000 common shares and 1,800,000 warrants in
exchange for 100% of the issued and outstanding common shares of Hall
Train.
On March 31, 1996, under the provisions of the Canada Business
Corporations Act, International Maggie Mines Ltd. changed its legal
name to Hall Train Entertainment Inc.
Going concern assumption
The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles on a going
concern basis which presumes the realization of assets and the
discharge of liabilities at current carrying values in the normal
course of business for the foreseeable future.
Since its inception, the Company has incurred accumulated losses from
operations totalling $1,057,678 [1996 - $1,183,759], a working
capital deficiency of $130,886 [1996 - $268,337], and shareholders'
equity (deficiency) of $39,066 [1996 - $(245,182)]. The Company's
ability to continue as a going concern is dependent upon its ability
to obtain financing and successfully conclude contractual
arrangements with its customers.
These consolidated financial statements do not include any
adjustments to the amounts and classification of assets and
liabilities that might be necessary should the Company be unable to
continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared by
management in accordance with generally accepted accounting
principles within reasonable limits of materiality and within the
framework of the significant accounting policies as summarized below:
Basis of consolidation
These consolidated financial statements include the accounts of the
Company and Hall Train.
Capital assets
Capital assets are recorded at cost. Depreciation is provided using
the declining balance method at the following annual rates:
Production equipment 30%
Office furniture and equipment 20%
Revenue recognition
Revenue is recognized using the percentage-of-completion method.
Foreign currency translation
Assets and liabilities denominated in foreign currencies are
translated at exchange rates prevailing at the consolidated balance
sheet date. Revenues and expenses denominated in foreign currencies
are translated at rates which approximate the exchange rates at the
transaction date. Gains and losses on the translation of foreign
currencies are included in income.
Income taxes
The Company follows the deferral method of income tax allocation.
Under this method deferred taxes result from claiming deductions for
income tax purposes in amounts which differ from those charged in the
accounts.
3. CAPITAL ASSETS
Capital assets consist of the following:
1997 1996
Net Net
Accumulated book Accumulated book
Cost depreciation value Cost depreciation value
$ $ $ $ $ $
Production equipment 176,708 78,253 98,455 100,521 52,384 48,137
Office furniture and
equipment 30,894 10,447 20,447 27,899 5,680 22,219
207,602 88,700 118,902 128,420 58,064 70,356
4. LOANS PAYABLE TO SHAREHOLDERS
These loans are payable to related parties, are non-interest bearing,
due on demand and have no set terms of repayment. The loans payable
were classified in 1996 as long-term since the shareholders had
waived their right to demand repayment during 1997. These loans were
paid in full during 1997 [note 6].
5. SHARE CAPITAL
The Company's authorized share capital consists of the following:
Unlimited common shares
Unlimited preference shares, the designation, rights,
privileges, restrictions and conditions attaching thereto are to be
determined by the Board of Directors prior to issue.
COMMON SHARES
1997 1996
# $ # $
Balance, beginning of year 12,776,755 938,577 9,274,632 417,504
Issued for services 1,860,500 95,025 1,863,105 249,390
Issued for cash and cancellation
of loans payable [note 6] 1,242,830 63,142 1,639,018 271,683
Balance, end of year 15,880,085 1,096,744 12,776,755 938,577
Issuance of shares [note 6]
During the year, 1,505,500 common shares were issued with a value of
$158,167 at a share price of $0.05 per share for promotional services
rendered.
During the year, 355,000 common shares were issued with a value of
$19,750 at share prices ranging from $0.05 to $0.06 per share for
contractor services rendered.
During the year, 1,242,830 common shares were issued with a value of
$63,142 at share prices ranging from $0.05 to $0.06 per share for
cancellation of loans payable.
Subsequent to year end 100,000 shares were issued at a share price of
$0.10 per share for contractor services rendered.
6. RELATED PARTY TRANSACTIONS
During 1997, the following transactions took place with directors,
officers or persons related to directors or officers of the Company:
[a] Consulting fees of approximately $12,000 are included in
contractor fees.
The Company issued 200,000 common shares with a value of
approximately $13,750 in consideration for services provided by the
directors.
[c] The Company issued 1,242,830 common shares in exchange for the
cancellation of loans payable totalling $63,142.
7. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share has been calculated based on the
weighted average number of common shares outstanding during the year
of 14,311,469 [1996 - 11,239,678].
8. TAX LOSS CARRYFORWARDS
The Company has non-capital loss carryforwards of approximately
$490,000 [1996 - $1,200,000] expiring in 2001, 2002 and 2003,
available to reduce future years' income taxes payable. The benefit
of these loss carryforwards will be recognized in the accounts when
utilized.
9. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
The comparative consolidated financial statements have been
reclassified from statements previously presented to conform to the
presentation of the 1997 consolidated financial statements. |
