IDG Holdings Inc.
Listed on the TSX Venture Exchange - "IDH"
Annual Report for the year ended June 30, 2002
Highlights
*Sales up marginally to $2,252,000 from $2,217,000 in fiscal 2001
*Exports to the USA, UK and Europe account for 37% of sales
*Net income before tax and amortization of $112,000 compared with $150,000 for fiscal 2001
*10,127,000 shares outstanding.
Table of Contents
Corporate Profile...... 2
Management's Discussion and Analysis...... 3
Auditor’s Report and Consolidated Financial Statements...... 5
CORPORATE PROFILE
IDG Holdings Inc. is listed on the TSX Venture Exchange under the symbol "IDH".
Its focus is on the outdoor leisure industry:
- manufacturing and distributing INTEGRAL DESIGNS innovative outdoor gear
- publishing TEE-OFF golf guide books
INTEGRAL DESIGNS
Integral Designs products include tents, sleeping bags, bivvy bags and outerwear designed for use in extreme conditions. The business was founded in Calgary in 1986 and has an excellent reputation for quality and innovative equipment in the outdoor recreation field.
Integral products are distributed through selected outdoor-product retailers in Canada, the United States and Europe, by mail-order or through E-mail inquiries from its web-site integraldesigns.com, and directly to military, protective-service and other institutional customers.
Integral products receive regular reviews by high-profile outdoor experts, and are continually being refined and improved to meet or exceed customer specifications.
TEE-OFF
TEE-OFF has been in business since 1991 and publishes the TEE-OFF series of golf guides, which contain green fee discounts and other incentives for regular golfers, as well as providing an excellent promotional vehicle for golf courses and other advertisers.
TEE-OFF golf guides are currently published for Alberta, British Columbia, Manitoba, Saskatchewan, and Ontario. Research continues for possible expansion into several other regions in Canada and the United States.
The TEE-OFF golf guides are popular because of their comprehensive and colourful presentation of golf course information, and for the substantial savings TEE-OFF users enjoy at golf courses and accommodation establishments featured in the guides. TEE-OFF golf guides are distributed through major retail chains, bookstores, golf speciality stores and pro-shops and are also published online at tee-off.ca.
Contact Information
IDG Holdings Inc.
202B - 1012 Douglas Street,Telephone: (250) 385-0057
Victoria B.C. V8W 2C3Fax: (250) 598-6629
Web site:
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Results
Consolidated results were below expectations, primarily due to minimal growth in sales from $2,217,000 to $2,252,000, of which 37% was in exports, compared with 28% in 2001. Gross margin dropped from 37% to 34% due to the tight market conditions, and operating expenses increased by a modest 2%, resulting in net income of $112,000 before tax and amortization, compared with $150,000 in the previous fiscal year.
Integral Designs
Integral Designs experienced a slight drop in orders from major retailers after September 11. This was more than compensated for in sales, but at a reduced margin, by considerable growth in institutional business, particularly with units of the Royal Canadian Mounted Police. 47% of sales were exports to the USA and Europe, up from 40% in 2001. Integral products continue to receive excellent reviews at trade shows and in outdoor magazines, and the level of inquiries is steadily increasing. We anticipate continuing strong demand for security-related outerwear and equipment during 2003, as well as a recovery in sales of leisure goods.
Tee-Off
TEE-OFF sales were down due to a substantial drop in pre-Christmas orders from large customers after September 11. An expected recovery in Spring sales did not materialize due to poor weather conditions in Ontario and the Prairies. Fortunately operating costs were reduced, even after expensing one-time website development costs, leaving a satisfactory bottom line. Sales are expected to recover during 2003 to at least 2001 levels.
Shares and Share Capital
During the year share options for 90,000 shares expired, and no new options were granted, leaving a total of 300,000 options outstanding at 12 cents each. No new shares were issued, but 338,000 shares were re-purchased by the company for cancellation, at between 10 and 16 cents, leaving 10,127,000 shares outstanding.
Debt
Loans from Directors totalled $63,615 at year-end, of which $43,109 has since been repaid.
The company has lines of credit of $150,000 from its bankers to fund working capital needs in the valleys between the peaks of its seasonal business, but was not using these credit facilities at the year end.
Management and Staff
The Board of Directors remains unchanged, and combines many years of experience and skills in marketing, financial, and general management, consisting of:
*Donald Dixon, an experienced business and risk management executive
*Timothy Holdsworth, an experienced businessman and outdoor sports enthusiast
*Evan Jones, President of Integral
*Glynn Jones, President, Secretary and Chief Financial Officer
The company also has several skilled staff with many years experience at its Integral Designs factory in Calgary. TEE-OFF has a national Sales Manager based in Vancouver, and all of the rest of its operations are contracted out to specialists and independent distributors.
Prospects
The combined group continues to operate profitably, and is expected to continue to grow and provide increasing returns to shareholders hereafter. With its existing cash resources and increasing cash flow, the board is committed to pursuing acquisitions, mergers or a reverse takeover that will increase shareholder value.
On behalf of the Board of Directors
Glynn O. Jones C.A., President
Timothy R. Holdsworth, Director
IDG HOLDINGS INC.
AUDITORS' REPORT AND CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2002
kpmg
KPMGLLP
Chartered Accountants
St. Andrew’s Square IITelephone (250) 480-3500
800-730 View StreetTelefax (250) 480-3539
Victoria BC V8W 3Y7
Auditors' Report to the Shareholders
We have audited the consolidatedbalance sheetof IDG Holdings Inc.as at June 30, 2002 and the consolidated statements of earnings, deficit and cash flows for the year 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 audit.
We conducted our audit 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 June 30, 2002 and the results of its operations and its cash flows for the yearthen ended in accordance with Canadian generally accepted accounting principles.
The comparative figures for June 30, 2001were audited by another firm of chartered accountants.
SIGNED “KPMG LLP”
Chartered Accountants
Victoria, Canada
September 27, 2002
IDG HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30
2002 / 2001ASSETS $$
CURRENTCash and cash equivalents / (Note 4) / 292,515 / 269,030
Accounts receivable / 470,522 / 416,878
Inventory / 390,739 / 370,816
Prepaid expenses / 27,518 / 47,373
1,181,294 / 1,104,097
PLANT AND EQUIPMENT / (Note2) / 27,828 / 30,729
OTHER ASSETS / (Note 3) / 415,680 / 442,570
1,624,802 / 1,577,396
LIABILITIES
CURRENTAccounts payable and accrued liabilities / 216,427 / 162,636
Payable to directors / (Note 5) / 63,615 / 105,006
Taxes payable / 23,185 / 9,130
Deferred revenue / 55,348 / 58,059
358,575 / 334,831
SHAREHOLDERS' EQUITY
SHARE CAPITAL / (Note 6) / 1,442,648 / 1,490,798CONTRIBUTED SURPLUS / (Note 6) / 19,143 / 15,095
ACCUMULATED DEFICIT / -195,564 / -263,328
1,266,227 / 1,242,565
1,624,802 / 1,577,396
Commitment (Note 8)
Contingency (Note 9)
SIGNED ON BEHALF OF THE BOARD:
Director Director
IDG HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME AND DEFICIT
FOR THE YEARS ENDED JUNE 30
2002 / 2001$ / $
SALES / 2,251,806 / 2,217,361
COST OF SALES
Materials / -1,015,380 / -958,372
Labour and subcontracts / -460,571 / -434,728
-1,475,951 / -1,393,100
GROSS MARGIN / 775,855 / 824,261
Interest income / 3,191 / 4,217
Other income / 32,462 / 10,000
811,508 / 838,478
OPERATING EXPENSES
Marketing and selling / -299,980 / -302,134
Rent and office / -117,972 / -114,720
Management compensation / -140,000 / -107,000
Other / -141,875 / -164,192
-699,827 / -688,046
INCOME BEFORE TAX AND AMORTIZATION / 111,681 / 150,432
AMORTIZATION / -37,079 / -38,888
INCOME TAX / (Note 7) / -6,838 / -12,029
GOODWILL WRITTEN OFF / (Note 3) / - / -17,514
NET INCOME FOR THE YEAR / 67,764 / 82,001
DEFICIT,beginning of year / -263,328 / -345,329
DEFICIT, end of year / -195,564 / -263,328
EARNINGS PER SHARE, basic and fully diluted / 0.01 / 0.01
IDG HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED JUNE 30
2002 / 2001Increase/Decrease in cash and cash equivalents: / $ / $
OPERATING ACTIVITIES
Net income for the year / 67,764 / 82,001
Adjustment for items not affecting cash:
Amortization / 37,079 / 38,888
Goodwill written off / - / 17,514
104,843 / 138,403
Increase/decrease in non-cash operating working capital / 11,423 / -39,790
116,266 / 98,613
INVESTING ACTIVITIES
Investment sold / - / 100,000
Goodwill and other assets purchased / -754 / -1,236
Plant and equipment purchased / -6,534 / -3,323
-7,288 / 95,441
FINANCING ACTIVITIES
Own shares purchased / -44,102 / -56,175
Advances from directors / -41,391 / 34,298
-85,493 / -21,877
NET CHANGE IN CASH / 23,485 / 172,177
CASH AND CASH EQUIVALENTS, beginning of year / 269,030 / 96,852
CASH AND CASH EQUIVALENTS, end of year (Note 4) / 292,515 / 269,030
IDG HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
Nature of Business
IDG Holdings Inc (the Company) is incorporated under the Business Corporations Act (Alberta) and its primary activities are the manufacturing and sale of outdoor products, and the publishing and sale of golf guide books.
The company’s shares have been listed on the TSX Venture Exchange and its predecessor the Alberta Stock Exchange since June 21, 1996.
NOTE 1SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These consolidated financial statements include the financial statements of the company’s wholly-owned subsidiary companies Integral Manufacturing Inc, Tee-Off International Corporation and C.J. Financial Services Ltd and of 803803 Alberta Ltd which is 50% owned but controlled through a majority of directors as provided for in a shareholders agreement, and through a security interest in all of its assets.
Revenue Recognition
The company recognizes revenue in the period when goods are delivered and ownership transferred or services provided. Allowance is made for estimated losses for doubtful debts, returns or other credits.
Plant and Equipment
Plant and equipment are stated at cost less amortization on the declining balance basis at the following annual rates:
Computer equipment / 30%Office furniture and equipment / 20%
Plant and machinery / 30%
One half the rate of amortization is used in the year of acquisition of an asset.
Intangible Assets
Goodwill consists of the excess of amounts paid over the fair value of net assets acquired, and is stated at cost less amortization at 5% per annum on the straight line basis. Goodwill is assessed for impairment in value on an annual basis, based on an estimation of fair value.
Digital Database consists of golf course information and is stated at cost less amortization at 5% per annum on the straight line basis.
Inventory
Inventory consists of raw materials stated at cost, goods in production and finished goods stated at production cost which includes labour and a portion of overhead expenses, less allowance for reduction in net realizable value.
IDG HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 1SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
The company uses the asset and liability method of accounting for income taxes, under which future tax assets or liabilities are recognized if there are future tax consequences attributable to differences between the financial statement carrying values of assets and liabilities, and their respective tax values.
Stock Based Compensation
The company does not recognize a compensation expense when stock options are issued to employees or directors. Any consideration received on the exercise of stock options is credited to common shares.
Use of estimates
In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the period. Actual results could differ from these estimates.
Earnings per Share
Diluted earnings per share are calculated according to the treasury stock method, whereunder the weighted average number of common shares outstanding, assumes that the proceeds of dilutive options exercised, are applied to repurchase common shares at the average market price for the period. Stock options are dilutive when the company has income from continuing operations and the average market price of the common shares during the period exceeds the exercise price of the options.
NOTE 2PLANT AND EQUIPMENT
2002 / 2001Cost / Accumulated Amortization / Net Book
Value / Net Book Value
$ / $ / $ / $
Computer Equipment / 11,738 / -4,434 / 7,304 / 6,093
Furniture / 10,732 / -4,785 / 5,947 / 6,696
Plant & Machinery / 30,102 / -15,525 / 14,577 / 17,940
52,572 / -24,744 / 27,828 / 30,729
IDG HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 3OTHER ASSETS
2002 / 2001Accumulated / Net Book / Net Book
Cost / Amortization / Value / Value
$ / $ / $ / $
Digital Database / 418,373 / -115,845 / 302,528 / 323,447
Goodwill and Trade Marks / 134,489 / -21,337 / 113,152 / 119,123
552,860 / -137,182 / 415,680 / 442,570
The unamortized balance of goodwill of $17,514 relating to C.J. Financial Services Ltd was written off during 2001, as that subsidiary is no longer carrying on its former business of consumer financing.
NOTE 4CASH AND CASH EQUIVALENTS
2002 / 2001$ / $
Cash and cash equivalents / 292,515 / 279,030
Bank debt / - / -10,000
292,515 / 269,030
Cash and cash equivalents includes balances in bank chequing accounts and short-term investments.
The company has arranged lines of credit with its bankers totalling $150,000 in order to finance seasonal working capital needs. The $50,000 and $100,000 lines of credit bear interest at prime plus 1 and 1/4% and are secured by general security agreements over the assets of 803803 Alberta Ltd. and of C.J. Financial Services Ltd. and by personal guarantees of certain directors.
NOTE 5RELATED PARTY TRANSACTIONS AND BALANCES
2002 / 2001$ / $
a) The company paid directors fees totalling / 5,000 / 5,000
b) The company paid directors, officers and a member of the immediate family of a director, for professional and managerial services / 135,000 / 102,000
c) The company paid interest at 10% on demand loans from Directors, totalling / 8,899 / 9,898
d) Amounts payable to directors comprises demand loans at 10% interest, secured in second position behind the bankers referred to in Note 4, by general security agreements over the assets of 803803 Alberta Ltd and IDG Holdings Inc. / 63,615 / 105,006
IDG HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 6SHARE CAPITAL
AuthorizedUnlimited number of common shares.
Unlimited number of preferred shares.
Issued common shares
2002 / 2001
Number / Number
of / Of
Shares / $ / Shares / $
Balance at beginning of year / 10,465,000 / 1,490,798 / 10,465,000 / 1,490,798
Re-purchased during the year for cancellation / -338,000 / -48,151 / - / -
Cancelled during the year / - / - / -500,000 / -71,270
Balance at end of year / 10,127,000 / 1,442,647 / 10,465,000 / 1,490,798
During the year the company re-purchased 338,000 of its own shares on the open market at a cost of $44,102, with the intention of cancelling them in the next fiscal year. The amount of share capital was reduced by the average carrying value of these shares of $48,151. The excess of average carrying value over cost of purchase of $4,049 has been added to the amount shown on the balance sheet as contributed surplus.
In the previous year the company re-purchased at a cost of $56,175 and cancelled 500,000 of its own shares. The amount of share capital was reduced by the average carrying value of those shares of $71,270. The excess of average carrying value over cost of purchase of $15,095 is shown on the balance sheet as contributed surplus.
Options
The following share options were outstanding and exercisable at year end:
Exercise / ExpiryNumber / Price $ / Date
200,000 / 0.12 / August 3, 2005
100,000 / 0.12 / December 14, 2005
300,000
IDG HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 7INCOME TAXES
Income tax expenses differs from the amount that would be computed by applying the Federal and Provincial statutory income tax rates to net income, as follows:
2002 / 2001$ / $
Estimated taxes on net income / 24,139 / 49,224
Tax on excess of amortization over tax allowances / 9,175 / 5,751
Tax reduction on prior year share issue expenses / - / -2,591
Tax reduction on utilization of prior year tax losses / -22,895 / -43,807
Tax on disallowance of prior year deductions / - / 3,452
Tax over-provided in prior year / -3,581 / -
Income tax provided / 6,838 / 12,029
No provision has been made for future income taxes, as timing differences between financial statement carrying amounts of assets and liabilities and their tax values are negligible.
The Company has accumulated tax losses of approximately $24,000 which expire in 2006, which can be used to reduce future taxable income. The potential benefit of these losses has not been recognized in the financial statements.
NOTE 8COMMITMENT
The company is committed to a lease on factory premises which expires at the end of May 2003, for which the total rental payable is approximately $40,000. The company is also committed to a lease on office premises which expires at the end of July, 2005, for which the fixed annual rent is $6,000.
NOTE 9CONTINGENCY
The company and its insurers filed a defence in 1998 in Connecticut, USA, against a claim which alleged that a death occurred as a result of use of a product manufactured by Integral Manufacturing Inc. The claim is covered by the company’s liability insurance, and the company’s insurers are defending it on behalf of the company. No date has yet been set for a hearing, and the likely outcome is unknown, but the company does not believe any amount will be payable by the company.
NOTE 10FINANCIAL INSTRUMENTS
The fair values of the company’s assets and liabilities which are in the nature of financial instruments, are estimated to approximate their carrying values due to their immediate or short term to maturity. The company is exposed to financial risk that can arise from fluctuations in foreign exchange and interest rates. The company is also exposed to credit risk in outstanding receivables, but the risk is not concentrated in any major customer or customers.
IDG HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 11SEGMENT INFORMATION
The company presently operates the following businesses:
Production and distribution of tents, sleeping bags, clothing, and other outdoor equipment
Publication of golf guide books
All of these activities are conducted and assets located in Canada.