Filed by Automated Filing Services Inc. (604) 609-0244 - Sungold International Holdings Corp.

We have audited the consolidated balance sheet of Sungold International Holdings Corp. (a Development Stage Company) as at August 31, 2007 and the consolidated statements of loss and deficit and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards and with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about 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. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at August 31, 2007 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles, which differ in certain respects from United States generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in Note 16 to the consolidated financial statements.

The consolidated financial statements as at August 31, 2006 and the year then ended were audited by other auditors who expressed an opinion without reservation on those statements in their reported dated February 13, 2007.

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) where there are 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 April 11, 2008 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 properly accounted for and adequately disclosed in the consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

Sungold International Holdings Corp. (the “Company” or “Sungold”) was incorporated under the Canada Business Corporations Act and is a publicly traded company on the OTC bulletin board. The principal activities are developing and promoting a proprietary pari-mutuel wagering virtual horseracing product, commercial advertising time on the product, and an internet payment system. To date, the Company has not earned significant revenues and is considered to be in a development stage.

These consolidated financial statements have been prepared on a going concern basis in accordance with Canadian generally accepted accounting principles. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

The recoverability of the amounts shown for pre-development costs is primarily dependant on the ability of the Company to put its pre-development projects into economically viable products in the future. The Company plans to meet anticipated financing needs in connection with its obligations by the exercise of stock options, share purchase warrants, and through private placements, public offerings or joint-venture participation by others.

There is significant doubt about the appropriateness of the use of the going concern assumption because the Company experienced significant recurring losses from operations and has experienced significant negative cash flows from operations over a number of years.

The ability of the Company to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities when due is dependent on the successful completion of the actions taken or planned, which management believes will mitigate the adverse conditions and events which raise doubt about the validity of the going concern assumption used in preparing these consolidated financial statements. There is no assurance that the Company will be successful in its efforts.

These consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis did not prove to be appropriate for these consolidated financial statements, then adjustments would be necessary in the carrying value of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.

The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) and are presented in Canadian dollars. These policies are consistent with accounting principles generally accepted in the United States (“US GAAP”) in all material respects except as outlined in note 16.

The above rates have been utilized to reflect the anticipated life expectancy. In the year acquired and put in use, only one-half the normal rate is applied.

Financial Instruments - Recognition and Measurement and Comprehensive Income and Equity

In January 2005, the CICA released new Handbook Section 3855, “Financial Instruments - Recognition and Measurement”, Handbook Section 3861, “Financial Instruments – Disclosure and Presentation”, Handbook Section 1530, “Comprehensive Income”, and Section 3251, “Equity”, effective for annual and interim periods beginning on or after October 1, 2006. The Company will adopt these standards on September 1, 2007.

As a result of adopting these standards, a new category, accumulated other comprehensive income, will be added to the shareholders’ equity and certain unrealized gains and losses will be reported in other comprehensive income until realization. Effective September 1, 2007, certain financial assets and liabilities will be measured at fair value and others at amortized cost. Any adjustment of the previous carrying amounts will be recognized as an adjustment to either accumulated other comprehensive income or deficit at September 1, 2007, and prior period consolidated financial statements will not be restated. The adoption of these standards is not expected to have a material impact on the consolidated financial statements of the Company.

In December 2006, the CICA issued Handbook Section 1535, “Capital Disclosures”. This new section requires disclosure of an entity's objectives, policies and processes for managing capital, quantitative data about what the entity regards as capital and whether the entity has complied with any capital requirements and, if it has not complied, the consequences of such non-compliance. This standard is effective for annual and interim periods beginning on or after October 1, 2007 and will be adopted on September 1, 2008. The adoption of this section is not expected to have a material impact on the Company's consolidated financial statements.

In December 2006, the CICA released new Handbook Sections 3862, “Financial Instruments – Disclosures” and 3863, “Financial Instruments – Presentation”, which will replace Section 3861, “Financial Instruments – Disclosure and Presentation”. These standards are effective for annual and interim periods beginning on or after October 1, 2007 and will be adopted on September 1, 2008. The adoption of these sections is not expected to have a material impact on the Company’s consolidated financial statements.

During the year, the Company acquired a 37.5% interest in a US-based private company, Silks Media Corporation (“Silks Media”) valued at $8,765. The Company also made advances valued at $156,734 to Silks Media, which are unsecured, non-interest bearing with no specific term of repayment.

Silks Media is related to the Company by common directors. The investment in Silks Media is accounted for using the equity method. At August 31, 2007, the Company recorded equity loss of $60,099 in Silks Media, which reduced the carrying value of its investment and advances made during the year to $105,400.

The Company has a lease agreement for computers accounted for as capital leases. Current payments are $640 monthly, expiring July 2008. The following is a schedule of future lease payments:

Date of Grant	Exercise Price	Balance August 31, 2006	Granted	Exercised / Expired / Cancelled	Balance August 31, 2007	Expiration date
Aug 10, 2001	US$0.12	300,000	-	-	300,000	Aug 10, 2008
Dec 20, 2001	US$0.09	100,000	-	100,000	-	Dec 20, 2006
Jan 4, 2002	US$0.08	36,000	-	36,000	-	Jan 4, 2007
Oct 11, 2002	US$0.15	200,000	-	-	200,000	Oct 11, 2007
Jan 15, 2003	US$0.11	136,000	-	-	136,000	Jan 15, 2008
May 27, 2003	US$0.05	64,000	-	-	64,000	May 27, 2008
Apr 14, 2005	US$0.12	1,000,000	-	1,000,000	-	Mar 31, 2007
May 27, 2005	US$0.12	750,000	-	750,000	-	Mar 31, 2007
Jun 1, 2005	US$0.12	500,000	-	500,000	-	Mar 31, 2007
Jun 1, 2005	US$0.12	500,000	-	500,000	-	Mar 31, 2007
Jun 6, 2005	US$0.12	500,000	-	500,000	-	Mar 31, 2007
Jul 1, 2005	US$0.12	500,000	-	500,000	-	Mar 31, 2007
Jul 20, 2005	US$0.12	500,000	-	500,000	-	Mar 31, 2007
Jan 16, 2006	US$0.65	500,000	-	500,000	-	Mar 31, 2007
Mar 1, 2006	US$0.50	200,000	-	-	200,000	Feb 28, 2008
Mar 10, 2006	US$0.15	250,000	-	250,000		Mar 31, 2007
Mar 10, 2006	US$0.15	495,000	-	-	495,000	Mar 31, 2008
Sep 1, 2006	US$0.50	-	200,000	-	200,000	Jul 31, 2008
Sep 5, 2006	US$0.20	-	2,800,000	-	2,800,000	Sep 30, 2008
Oct 31, 2006	US$0.50	-	100,000	-	100,000	Oct 31, 2009
Feb 14, 2007	US$0.75	-	175,000	-	175,000	Feb 28, 2009
Feb 14, 2007	US$0.30	-	500,000	-	500,000	Feb 28, 2009
Mar 15, 2007	US$0.50	-	300,000	-	300,000	Mar 31, 2009

		6,531,000	4,075,000	5,136,000	5,470,000

At August 31, 2007, 5,470,000 options are outstanding and exercisable. The weighted-average price of these options is $0.29 and the weighted-average remaining contractual life is 1.03 years.

In 2007, the Company recognized $432,292 (2006 - $64,130) in stock-based compensation expense using the Black-Scholes option pricing model with the following assumptions:

Date of Grant	Price	Balance August 31, 2006	Granted	Exercised	Expired / Cancelled	Balance August 31, 2007	Expiration date
May 2, 2005	US$0.15	250,000	-	-	250,000	-	May 31, 2007
May 31, 2005	US$0.05	300,000	-	-	300,000	-	May 31, 2007
May 31, 2005	US$0.05	300,000	-	-	300,000	-	May 31, 2007
May 31, 2005	US$0.05	793,260	-	-	793,260	-	May 31, 2007
May 31, 2005	US$0.15	152,500	-	-	152,500	-	May 31, 2007
Jun 17, 2005	US$0.15	52,250	-	-	52,250	-	Jun 30, 2007
Jun 22, 2005	US$0.15	147,500	-	-	147,500	-	Jun 30, 2007
Jul 27, 2005	US$0.15	50,650	-	-	50,650	-	Jul 31, 2007
Jul 30, 2005	US$0.15	51,000	-	-	51,000	-	Jul 31, 2007
Aug 5, 2005	US$0.15	51,000	-	-	51,000	-	Jul 31, 2007
Oct 3, 2005	US$0.15	35,750	-	-	-	35,750	Sep 30, 2007
Oct 3, 2005	US$0.15	35,750	-	-	-	35,750	Sep 30, 2007
Oct 3, 2005	US$0.15	53,750	-	-	-	53,750	Oct 31, 2007
Nov 15, 2005	US$0.15	30,150	-	-	-	30,150	Nov 30, 2007
Nov 29, 2005	US$0.15	53,500	-	-	-	53,500	Nov 30, 2007
Dec 2, 2005	US$0.15	608,333	-	-	-	608,333	Nov 30, 2007
Dec 8, 2005	US$0.15	25,000	-	-	-	25,000	Dec 31, 2007
Dec 20, 2005	US$0.35	11,400	-	-	-	11,400	Dec 31, 2007
Dec 29, 2005	US$0.50	195,750	-	-	-	195,750	Dec 31, 2007
Jan 2, 2006	US$0.45	110,000	-	-	-	110,000	Dec 31, 2007
Jan 3, 2006	US$0.50	7,250	-	-	-	7,250	Jan 31, 2008
Jan 4, 2006	US$0.42	50,000	-	-	-	50,000	Dec 31, 2007
Jan 12, 2006	US$0.60	14,750	-	-	-	14,750	Jan 31, 2008
Jan 31, 2006	US$0.55	8,000	-	-	-	8,000	May 31, 2008
Apr 25, 2006	US$0.30	29,300	-	-	29,300	-	Apr 30, 2007
May 10, 2006	US$0.30	32,250	-	-	-	32,250	May 31, 2008
May 31, 2006	US$0.26	35,000	-	-	-	35,000	May 31, 2008
Jul 7, 2006	US$0.25	21,000	-	-	-	21,000	Jul 31, 2008
Aug 11, 2006	US$0.18	50,000	-	-	-	50,000	Aug 15, 2008
Aug 18, 2006	US$0.20	62,500		-	-	62,500	Aug 31, 2008
Sep 17, 2006	US$0.15	-	75,000	-	-	75,000	Sep 30, 2008
Sep 14, 2006	US$0.20	-	62,500	-	-	62,500	Sep 30, 2008
Sep 14, 2006	US$0.20	-	62,500	-	-	62,500	Sep 15, 2008
Oct 19, 2006	US$0.10	-	400,000	-	-	400,000	Oct 31, 2008
Nov 20, 2006	US$0.10	-	150,000	-	-	150,000	Nov 30, 2008
Nov 30, 2006	US$0.11	-	250,000	-	-	250,000	Nov 30, 2008
Dec 28, 2006	US$0.11	-	934,091	-	-	934,091	Dec 31, 2008
Dec 15, 2006	US$0.10	-	400,000	-	-	400,000	Dec 31, 2008
Jan 22, 2007	US$0.14	-	285,715	-	-	285,715	Jan 23, 2009
Feb 27, 2007	US$0.11	-	650,000	-	-	650,000	Feb 28, 2009
Feb 27, 2007	US$0.16	-	412,500	-	-	412,500	Feb 28, 2009
Feb 27, 2007	US$0.13	-	538,460	-	-	538,460	Feb 28, 2009
Mar 5, 2007	US$0.13	-	1,015,385	-	-	1,015,385	Mar 31, 2009
Mar 7, 2007	US$0.13	-	153,846	-	-	153,846	Mar 31, 2009
Mar 9, 2007	US$0.12	-	500,000	-	-	500,000	Mar 31, 2009
Mar 15, 2007	US$0.11	-	200,000	-	-	200,000	Mar 31, 2009
Mar 25, 2007	US$0.14	-	75,000	-	-	75,000	Mar 31, 2009
May 24, 2007	US$0.14	-	345,150	-	-	345,150	May 31, 2009
May 25, 2007	US$0.14	-	100,000	-	-	100,000	May 31, 2009
Jun 6, 2007	US$0.16	-	30,490	-	-	30,490	Jun 30, 2009
Aug 3, 2007	US$0.16	-	62,500	-	-	62,500	Jul 31, 2009
Aug 14, 2007	US$0.16	-	31,250	-	-	31,250	Jul 31, 2009
		3,617,593	6,734,387	-	2,177,460	8,174,520

The Company’s financial instruments consist of sundry receivables, bank overdraft, accounts payable and accrued liabilities, loans payable, and obligations under capital leases. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial statements. The fair value of these financial instruments approximates their carrying value, unless otherwise noted.

The Company has accumulated non-capital losses for income tax purposes of $12,020,532 which may be carried forward and used to reduce taxable income in future years. Under present tax legislation, these losses will expire as follows:

The Company also has accumulated capital losses from the pre-development projects written off, for income tax purposes of $3,771,802 that may be carried forward indefinitely and used to reduce capital gains in the future.

The Company’s effective income tax rate differs from the combined Canadian federal and provincial income tax rate. The difference results from the following:

Future income tax assets and liabilities result from the differences between the carrying amount and the tax basis of the following:

The timing of the utilization of the future tax assets is undeterminable. Consequently, a full valuation allowance has been provided against the future value of these assets.

Subsequent to the year end, the Company received $519,422 from the issuance of 9,181,805 private placement shares, for an average share price of $0.057 per share.

Subsequent to the year end, the Company issued 2,672,893 shares for services in lieu of payments of $205,870.

Canadian GAAP (CDN GAAP) differs in certain respects from the principles and practices generally accepted in the United States (US GAAP) as outlined:

	Page

Auditors' Report	1
Consolidated Financial Statements
Balance Sheets	2
Statements of Loss and Deficit	3
Statements of Cash Flows	4
Notes to Financial Statements	5-23

	“MSCM LLP”

Toronto, Ontario	Chartered Accountants
April 11, 2008	Licensed Public Accountants

	“MSCM LLP”

Toronto, Ontario	Chartered Accountants
April 11, 2008	Licensed Public Accountants

		2007			2006
Assets
Current assets
Sundry receivables	$	38,073		$	17,853
Prepaid expenses and deposits		640			640
		38,713			18,493
Pre-development costs (note 4)		270,288			270,288
Equipment (note 5)		387,588			483,776
Investment and advances to related company (note 6)		105,400			-
Marketing rights (note 7)		12,870			-
	$	814,859		$	772,557
Liabilities
Current liabilities
Bank overdraft	$	17,152		$	2,919
Accounts payable and accrued liabilities (note 8(c))		875,291			639,532
Loans payable (note 8(d))		92,974			7,500
Current obligation under capital leases (note 9)		6,518			6,128
		991,935			656,079
Long-term liabilities
Obligation under capital leases (note 9)		-			6,518
		991,935			662,597
Shareholders’ (deficiency) equity
Share capital (note 10)		22,639,945			22,045,688
Contributed surplus (note 11)		941,722			254,587
Deficit		(23,758,743	)		(22,190,315	)
		(177,076	)		109,960
	$	814,859		$	772,557

“Art Cowie”	Director

“Donald Harris”	Director

Consolidated Statements of Loss And Deficit
for the years ended August 31
		April 7, 1986
		(inception) to
		August
		31, 2007			2007		2006		2005
Revenue
Gain on disposition of marketable securities	$	838,947		$	-	$	-	$	-
Expenses
Impairment write-down
pre-development costs		6,460,304			-		-		628,246
Professional and consulting fees (note 8(a))		3,803,849			264,802		516,911		566,803
Advertising and promotion		3,458,577			66,126		75,245		55,443
Management fees and salaries (note 8(a))		2,629,213			300,613		394,306		46,688
Investor relations		1,442,976			87,100		186,063		133,306
Travel and conference		1,180,484			33,592		50,989		75,970
Amortization		1,043,884			114,021		135,305		140,449
Office and miscellaneous		903,475			30,559		33,470		43,756
Internet services		847,367			20,726		27,067		29,559
Stock-based compensation (note 10(b))		686,879			432,292		64,130		138,535
Office rent and services (note 8(b))		675,507			64,246		30,446		60,896
Transfer agent and filing fees		437,079			37,384		26,430		30,658
Insurance		263,953			-		167		833
Financing fees		237,433			10,000		9,433		-
Interest and bank charges		154,913			23,507		17,738		5,222
Finder fees		154,031			-		-		-
Settlement agreements		71,178			-		-		31,178
Equity loss on investment (note 6)		60,099			60,099		-		-
Interest on capital leases		33,947			1,550		3,169		2,600
Fees and commissions		39,943			10,202		-		-
Loss on disposition of equipment		16,402			1,544		-		-
Foreign exchange (gain) loss		(3,803	)		10,065		1,065		(1,245	)
		24,597,690			1,568,428		1,571,934		1,988,897
Net loss		23,758,743			1,568,428		1,571,934		1,988,897
Deficit, beginning of year		-			22,190,315		20,618,381		18,629,484
Deficit, end of year	$	23,758,743		$	23,758,743	$	22,190,315	$	20,618,381

Weighted average number pf shares					132,171,236		123,834,644		111,579,338

Loss per share					0.0119		0.0127		0.0178

			April 7, 1986
			(inception) to
			August 31,
			2007			2007			2006			2005
Operating activities
	Net loss	$	(23,758,743	)	$	(1,568,428	)	$	(1,571,934	)		(1,988,897	)
	Items not involving cash
	Write-down of pre-development costs		6,460,304			-			-			628,246
	Amortization		1,043,884			114,021			135,305			140,449
	Stock-based compensation		686,879			432,292			64,130			138,535
	Issuance of common shares for services
	provided		711,475			85,986			391,712			233,777
	Gain on disposition of marketable securities		(838,947	)		-			-			-
	Acquisition of marketing rights		(25,740	)		(25,740	)		-			-
	Equity loss		60,099			60,099			-			-
	Loss on disposition of equipment		16,402			1,544			-			-
			(15,644,387	)		(900,226	)		(980,787	)		(847,890	)
	Cash provided (used) by changes in non-
	cash operating items
	Sundry receivables		(38,073	)		(20,220	)		25,212			49,181
	Prepaid expenses and deposits		(640	)		-			21,447			36,681
	Accounts payable and accrued liabilities		886,624			235,759			406,790			43,739,
			(14,769,476	)		(684,687	)		(527,338	)		(718,289	)
Investing activities
	Pre-development costs		(5,321,213	)		-			(45,390	)		(5,996	)
	Proceeds of disposition of equipment		43,134			5,106			-			-
	Investment and advances to related company (i)		(35,853	)		(35,853	)		-			-
	Acquisition of equipment		(1,406,844	)		(11,613	)		(2,402	)		(220,221	)
			(6, 720,776	)		(42,360	)		(47,792	)		(226,217	)
Financing activities
	Loans payable (ii)		2,668,702			85,474			(5,000	)		610,774
	Repayment of obligation under capital leases		(76,285	)		(6,128	)		(8,993	)		(4,135	)
	Issuance of shares		17,181,936			633,468			575,328			255,332
	Proceeds of disposition of marketable securities		1,725,747			-			-			-
			21,500,100			712,814			561,335			861,971
Change in (bank overdraft) cash			(17,152	)		(14,233	)		(13,795	)		(82,535	)
Cash (bank overdraft), beginning of year			-			(2,919	)		10,876			93,411
Bank overdraft, ending of year		$	(17,152	)	$	(17,152	)	$	(2,919	)	$	10,876
(i)	1,000,000 common shares valued at $129,646 were issued during the year and are included in advances to related company.
(ii)	Interest paid:
		$	188,860			25,057			20,907
(iii)	During 2007, the Company did not issue any shares to settle loans payable. In 2006, the Company issued 179,624 shares to settle $12,500 in loans payable. Since April 7, 1986 (inception) to August 31, 2007, the Company issued 41,129,264 shares to settle $2,588,237 of debts.

	a)	Basis of Consolidation

		These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Horsepower Broadcasting Network (HBN) International Ltd., SafeSpending Inc. and Racing Unified Network (R.U.N.) Inc. All inter-company transactions and balances have been eliminated upon consolidation.

b)	Translation of Foreign Currencies

	The Company has determined that all of its Subsidiaries’ operations are integrated, as such, the Company translates foreign currencies into U.S. dollars using the temporal method. Under this method, accounts recorded in foreign currency have been converted to Canadian dollars as follows:

		Monetary assets and liabilities at the exchange rate in effect at the balance sheet date;
		Other assets at historical rates;
		Revenues and expenses at the average rate of exchange for the month incurred except amortization which is translated at the same rates as those used in the translation of the corresponding assets. Gains and losses resulting from the fluctuation of foreign exchange rates are included in the determination of net loss.

c)	Pre-development costs

	The Company is in the development stage and capitalizes all costs related to its pre-development projects in accordance with Accounting Guideline No. 11, “Enterprises in the Development Stage”, issued by the Canadian Institute of Chartered Accountants. These costs will be amortized on the basis of revenue generated in relation to the project following commencement of operations. When management decides a project is to be abandoned, costs of the abandoned project are written off to operations. Costs related to regular maintenance of the pre-development projects are expensed as incurred.

	The costs deferred at any time do not necessarily reflect present or future values. The ultimate recovery of such amounts depends on the Company successfully developing the project.

d)	Equipment

	Equipment is recorded at cost with amortization provided on a declining balance as follows:

	Software – Horsepower®	20%
	Computer hardware	30%
	Leased computer equipment	30%
	Office equipment	20%
	Computer software	100%

	e)	Long-lived and Intangible Assets

		The Company reviews the recoverability of long-lived and intangible assets with definite lives whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The assessment of possible impairment is based upon the Company’s ability to recover the carrying value of the asset or asset group from the expected pre-tax cash flows, undiscounted and without interest charges, of the related operations. If these cash-flows are less than the carrying value of such asset or asset group, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to estimate future cash-flows and the fair value of long-lived assets. The Company’s intangible assets are amortized using the straight-line method over the following estimated useful lives:

	f)	Income Taxes

		The Company accounts for income taxes using the asset and liability method of accounting. Under this method, future income tax assets and future income tax liabilities are recorded based on temporary differences between the financial reporting basis of the Company's assets and liabilities and their corresponding tax basis. The future benefits of income tax assets, including unused tax losses, are recognized subject to a valuation allowance, to the extent that it is more likely than not that such losses will be ultimately utilized. These future income tax assets and liabilities are measured using substantively enacted tax rates and laws that are expected to apply when the tax assets or liabilities are to be settled or realized.

	g)	Loss Per Share

		Loss per share is calculated using the weighted-average number of shares outstanding during the period. Diluted loss per share is calculated using the treasury stock method whereby all options, warrants and equivalents are assumed to have been exercised at the beginning of the period and the proceeds from the exercise are assumed to have been used to purchase common shares at the average market price during the period. Stock options and warrants outstanding are not included in the computation of diluted loss per share if their inclusion would be anti-dilutive.

	h)	Long-term investment

		The Company uses the equity method of accounting for its investment in shares of a company over which it has significant influence. Under the equity method of accounting, investments are carried at the original cost plus the Company’s cumulative share of earnings (loss), less any dividends received, netted with advances made to the company.

	i)	Stock-based Compensation

		The Company has in effect a Stock Option Plan (“the Plan”), which is described in note 10(b). Stock options are accounted for using the fair value-based method. Fair value is calculated using the Black- Scholes model with the assumptions described in note 10(b). On the exercise of stock options, consideration received and the accumulated contributed surplus amount is credited to share capital.

	j)	Measurement uncertainty

		The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those reported.

		The Black-Scholes pricing model, used by the Company to determine fair values, was developed for use in estimating the fair value of freely traded options. This model requires the input of highly subjective assumptions including future stock price volatility and expected time until exercise. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing model does not necessarily provide a reliable single measure of the fair value of the Company's stock options granted during the year.

	k)	Reclassifications

		Certain amounts from prior years have been reclassified to conform to the current year’s presentation.

a)	SafeSpending™ project

	In May 2001, a subsidiary of the Company, SafeSpending Inc., acquired all the rights to an internet payment system technology which is a spending system that can be used to make anonymous purchases online from merchants and individuals. The agreement provides SafeSpending Inc. with all copyrights, trademarks, source codes and intellectual property and the Company has patents pending in 105 countries for the SafeSpending™ anonymous payment system.

		August 31,				Impairment		August 31,
		2006		Additions		Write off		2007
Acquisition cost	$	62,300	$	-	$	-	$	62,300
Legal and consulting fees		83,191		-		-		83,191
	$	145,491	$	-	$	-	$	145,491
		August 31,				Impairment		August 31,
		2005		Additions		Write off		2006
Acquisition cost	$	62,300	$	-	$	-	$	62,300
Legal and consulting fees		79,644		3,547		-		83,191
	$	141,944	$	3,547	$	-	$	145,491

	(b)	Horsepower® project

		Horsepower® World Pool Virtual Horse Racing System is a proprietary, pari-mutuel wagering product operated by Horsepower Broadcasting Network (HBN) International Ltd., a subsidiary of the Company. The product is being offered to Licensed facilities and Authorized Racetrack Affiliates. Development of this project is largely complete but there are no operating installations as of August 31, 2007.

		The hardware and software development costs are capitalized under equipment and amortized annually at 20%.

		2007
				Accumulated		Net Book
		Costs		Amortization		Value
Software – Horsepower®	$	1,033,216	$	687,726	$	345,490
Computer hardware		314,755		287,572		27,183
Leased computer equipment		10,488		5,136		5,352
Office equipment		10,723		1,160		9,563
	$	1,369,182		981,594	$	387,588

	a)	During the year, consulting fees, bookkeeping, and salaries of $290,937 (2006 - $579,030) were paid to directors and officers of the Company and subsidiaries of the Company, of which $133,130 (2006 - $387,349) was paid by cash and $NIL (2006 – $191,681) was paid by shares, valued at the closing price before the date of settlement. The fees are in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

	b)	During the year, the Company paid $6,280 to an officer for rent of office space provided (2006 – $18,840). This expenditure was measured at the exchange amount which is the amount agreed upon by the transacting parties.

	c)	Accounts payable include $157,767 owed to directors, officers and management for management and consulting services rendered (2006 – $193,464). The amounts are unsecured, non-interest bearing and have no repayment terms.

	d)	The loans payable of $92,974 are unsecured, non-interest bearing advances from shareholders and directors and have no specified repayment terms (2006 – $7,500).

		2007			2006
Total minimum lease payments	$	7,038		$	14,717
Less amount representing interest		(520	)		(2,071	)
Balance of obligations		6,518			12,646
Less current portion		(6,518	)		(6,128	)
Non-current portion	$	-		$	6,518

		2007		2006
Authorized:
Unlimited common shares without par value
100,000,000 Class “A” preference shares
without par value
100,000,000 Class “B” preference shares
without par value

Issued and outstanding:
136,926,215 common
(August 31, 2006 – 126,375,535 common)	$	22,639,945	$	22,045,688

	2007			2006
For cash	9,553,773	$	508,271	4,525,516	$	575,328
Non-cash transactions:
- for services provided	996,907		85,986	2,242,219		391,712
	10,550,680	$	594,257	6,767,735	$	967,040

	b)	Stock options and stock-based compensation

		The Company has a fixed stock option plan for the granting of options to directors, officers and employees of up to 10% of the Company’s issued share capital. The terms of the awards under the Plan are determined by the Board of Directors. The following is a summary of outstanding options:

	2007	2006
Risk-free interest rate	3.92% - 4.5%	2.82% to 3.00%
Dividend yield	NIL	NIL
Expected life	2 - 3 years	2 - 3 years
Volatility	160% - 172%	120% - 150%

	c)	Share purchase warrants – continued

		The fair value of the 6,734,387 warrants issued in 2007 has been determined to be $254,842 using the Black-Scholes pricing model. The following assumptions were used:

		2007		2006
Contributed surplus, beginning of year	$	254,587	$	190,457
Stock-based compensation (note 10(b))		432,293		64,130
Fair value of warrants (note 10(c))		254,842		-
Contributed surplus, end of year	$	941,722	$	254,587

	a)	Lease commitments

		The Company has a five year lease ending December 31, 2011 for its office space. Minimum annual lease payments for the next five years are as follows:

2008	-	$102,431
2009	-	$107,666
2010	-	$112,901
2011	-	$118,136
2012	-	$ 39,960

	b)	Share commitment

		The Company is committed to issue in fiscal 2008, a sufficient number of its common shares to equal $90,000 as determined by the market price on the issue date to satisfy a commitment related to Silks Media.

	c)	Regulations

		The Company’s activities are subject to various governmental laws and regulations relating to horseracing, virtual horseracing, copyrights, trademarks and patents. These regulations are continually changing. The Company will require approval under all applicable laws and regulations.

2008	$	1,714,246
2009		2,427,247
2010		2,473,112
2014		1,188,958
2015		1,213,730
2026		1,623,646
2027		1,379,593
	$	12,020,532

		2007			2006
Combined federal and provincial tax rate		36.12%			36.12%

Income tax recoverable at statutory rate	$	(566,516	)	$	(567,783	)
Decrease resulting from:
Stock-based compensation		156,144			23,164
Permanent differences for tax and accounting income		1,318			1,778
Valuation allowance		409,054			542,841
	$	-		$	-

		2007			2006
Non-capital losses	$	3,734,000		$	4,335,853
Capital assets		(116,000	)		(32,406	)
Marketing rights		3,300			-
Future income tax assets, before valuation allowance		3,621,300			4,303,447
Valuation allowance		(3,621,300	)		(4,303,447	)
Net future income tax assets	$	-		$	-

	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 are written off if abandoned or impaired. US GAAP requires that pre-development expenditures be expensed as incurred until it is determined that commercially viable operations exist and the expenses then incurred are recoverable.

	b)	Comprehensive Income

		Under US GAAP, SFAS No. 130 requires that companies report comprehensive income as a measure of overall performance. Comprehensive income includes all changes in equity during a year except those resulting from investments by owners and distribution to owners. Under Canadian GAAP, the Company will present comprehensive income starting with fiscal 2008. The Company has determined that it had no comprehensive income other than the loss in any of the years presented.

	c)	Stock-based compensation

		For fiscal 2002, the Company adopted SFAS 123 which requires that all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value. For fiscal 2001 and prior years, the Company measured compensation expense relating to employee stock option plan for US GAAP purposes using the intrinsic value method specified by APB Opinion No. 25. In the Company’s circumstances stock-based compensation was not materially different under Canadian GAAP as compared to US GAAP.

	d)	The following are balance sheet items under US GAAP that differ from Canadian GAAP:

		2007			2006
Deficit - CDN GAAP	$	(23,758,743	)	$	(22,190,315	)
Cumulative effect of previous years’ adjustments		(4,981,026	)		(4,935,636	)
		(28,739,769	)		(27,125,951	)
US GAAP material adjustments:
• Effect of the write-off of pre-development costs
on net loss		-			(45,390	)
Deficit, US GAAP	$	(28,739,769	)	$	(27,171,341	)

						Deficit
						Accumulated
		Common		Additional		During			Total
		Shares		Paid-in		Development			Shareholders’
		Amount		Capital		Stage			Equity(Deficit)
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, 1991	$	3,522,604	$	-	$	(1,680,056	)	$	1,842,548

		Cumulative from
		April 7, 1986 to
		August 31, 2007			2007			2006			2005
Net loss under CDN GAAP	$	(23,758,743	)	$	(1,568,428	)	$	(1,571,934	)	$	(1,988,897	)
US GAAP material adjustments:
• Effect of the write-off of pre-
development costs on net loss		(270,288	)		-			(45,390	)		600,256
• Share-based compensation		(4,710,738	)		-			-			-
Net loss under US GAAP	$	(28,739,769	)	$	(1,568,428	)	$	(1,616,259	)	$	(1,389,886	)

Loss per share under US GAAP					0.0119			0.0131			0.0125
Weighted average number of shares					132,171,236			123,834,644			111,579,338