-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JpoJ1IS7o9SlCXghyN/mqPNvlKbAxv2xaQwQUNzkVBVLhAIv5k/x3xBMch44nC91 Av/FQiGNaO2RwVZaaSxRhw== 0000950123-98-008218.txt : 19980914 0000950123-98-008218.hdr.sgml : 19980914 ACCESSION NUMBER: 0000950123-98-008218 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 ITEM INFORMATION: FILED AS OF DATE: 19980911 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WYANT CORP CENTRAL INDEX KEY: 0000048569 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 112236837 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-08410 FILM NUMBER: 98708004 BUSINESS ADDRESS: STREET 1: P.O. BOX 8609 STREET 2: P O BOX 8609 CITY: SOMERVILLE STATE: NJ ZIP: 08876 BUSINESS PHONE: 9087071800 MAIL ADDRESS: STREET 1: 100 READINGTON ROAD STREET 2: P O BOX 8609 CITY: SOMERVILLE STATE: NJ ZIP: 08876 FORMER COMPANY: FORMER CONFORMED NAME: HOSPOSABLE PRODUCTS INC DATE OF NAME CHANGE: 19920703 8-K/A 1 WYANT CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date earliest event reported): June 30, 1998
Registrant, State of Incorporation, I.R.S. Employer Commission File Number Address and Telephone Number Identification No. - ---------------------- ----------------------------------- ------------------ 0-8410 WYANT CORPORATION 11-2236837 (a New York corporation) 100 Readington Road Somerville, New Jersey 08876 Telephone (908) 707-1800
2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED Included after the signature page of this report are the financial statements of the following related companies (referred to hereafter as the "Midway - Purnel Group of Companies"), all of which are expressed in Canadian dollars:
Page ---- - -- Midway Supply Ltd. for the year ended May 31, 1998 and for the one month ended June 30, 1998 5 - -- Midway Purnel Sanitary Supply Ltd. for the year ended March 31, 1998 and for the three months ended June 30, 1998 29 - -- 430639 B.C. Ltd. (now Fraser Valley Industrial Chemicals Inc.) for the nine months ended June 30, 1998 51 - -- Purnel Distributors Ltd. for the year ended February 28, 1998 and for the four months ended June 30, 1998 60
(b) PRO FORMA FINANCIAL INFORMATION Included after the signature page of this report are the following:
Page ---- - -- Unaudited Pro Forma Combined Statements of Operations for the year ended December 31, 1997 and for the six months ended June 30, 1998 81 - -- Notes to Unaudited Pro Forma Combined Financial Information 83
(c) EXHIBITS [Item 7(c) is not amended hereby] 2 3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to the Current Report on Form 8-K to be signed on its behalf by the undersigned thereunto duly authorized. WYANT CORPORATION By:/s/ Marc D'Amour --------------------------------------------- Name: Marc D'Amour Title: Vice President, Chief Financial Officer and Treasurer Dated: September 11, 1998 3 4 FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED 4 5 MIDWAY SUPPLY LTD. Coquitlam, BC FINANCIAL STATEMENTS For the Year Ended May 31, 1998 (LOGO) Cinnamon Jang Willoughby & Company A Partnership of Incorporated Professionals 5 6 MIDWAY SUPPLY LTD. INDEX TO FINANCIAL STATEMENTS AUDITORS' REPORT Balance Sheet Exhibit "A" Statement of Retained Earnings Exhibit "B" Statement of Income Exhibit "C" Statement of Changes in Financial Position Exhibit "D" Notes to Financial Statements Exhibit "E"
------------------------------- 6 7 (LOGO) Cinnamon Jang Willoughby & Company Chartered Accountants A Partnership of Incorporated Professionals AUDITORS' REPORT To The Shareholders of MIDWAY SUPPLY LTD.: We have audited the balance sheet of Midway Supply Ltd. as at May 31, 1998 and the statements of income and retained earnings and changes in financial position 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 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 financial statements present fairly, in all material respects, the financial position of the company as at May 31, 1998 and the results of its operations and the changes in its financial position for the year then ended in accordance with generally accepted accounting principles. As required by the Company Act of British Columbia, we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding year. The 1997 financial statements were reviewed by us and our report thereon, dated July 8, 1997 stated that nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with generally accepted accounting principles. We have not examined, and we do not express an opinion on, the financial statements of the preceding year. Cinnamon Jang Willoughby & Company Chartered Accountants Burnaby, BC July 20, 1998 7 8 MIDWAY SUPPLY LTD. BALANCE SHEET MAY 31, 1998
ASSETS 1998 1997 (unaudited) ---------- ----------- Current: Cash $ 300,025 $ 227,297 Accounts receivable 1,073,120 994,180 Income taxes recoverable 1,560 2,512 Inventory 726,217 749,917 Prepaid expenses 40,425 28,605 ---------- ---------- 2,141,347 2,002,511 ---------- ---------- Due from related companies (Note 2) 175,804 291,518 Loan receivable 10,000 10,000 ---------- ---------- 185,804 301,518 ---------- ---------- Capital: Automotive equipment 318,032 325,204 Computer hardware 164,417 150,309 Computer software 34,717 34,717 Office equipment 135,542 135,542 Warehouse equipment 61,807 61,358 Leasehold improvements 40,777 40,777 ---------- ---------- 755,292 762,015 Less: Accumulated amortization 540,898 515,153 ---------- ---------- 214,384 246,862 ---------- ---------- Other: Cash surrender value of life insurance policies 139,417 109,180 Investment in shares 100 - Goodwill, net of accumulated amortization 1,050 1,400 ---------- ---------- 140,567 110,680 ---------- ---------- $2,682,102 $2,661,571 ========== ==========
Approved by the Director: - ------------------------ - - See accompanying notes - 8 9 Exhibit "A" MIDWAY SUPPLY LTD. BALANCE SHEET MAY 31, 1998
LIABILITIES 1998 1997 (unaudited) ---------- ----------- Current: Bank indebtedness (Note 3) $ 574,507 $ 771,626 Accounts payable and accrued liabilities 537,625 320,455 Wages payable 167,408 171,630 Due to shareholder 380 380 Current portion of long-term debt 15,000 10,493 ---------- ---------- 1,294,920 1,274,584 Long-term debt (Note 4) 23,750 -- ---------- ---------- 1,318,670 1,274,584 ---------- ---------- SHAREHOLDERS' INTEREST (Note 5) Liabilities to shareholders: Redeemable preferred shares (Note 6) 1,246,848 1,246,848 ---------- ---------- Shareholders' Equity: Share Capital: Authorized - 20,000 Class "A" voting common shares with a par value of $1 each 50,000 Class "B" voting common shares with a par value of $0.50 each 50,000 Class "C" non-voting common shares with a par value of $1 each 100,000 Class "D" non-voting preferred shares with a par value of $1 each 100,000 Class "E" non-voting preferred shares with a par value of $0.50 each Issued and Fully Paid - 24 Class "B" common shares 12 12 100 Class "C" common shares 100 100 ---------- ---------- 112 112 Retained Earnings (Note 7), per Exhibit "B" 116,472 140,027 ---------- ---------- 116,584 140,139 Commitments (Note 9) Contingencies (Note 10) ---------- ---------- 1,363,432 1,386,987 ---------- ---------- $2,682,102 $2,661,571 ========== ==========
- - See accompanying notes - 9 10 Exhibit "B" MIDWAY SUPPLY LTD. STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED MAY 31, 1998
1998 1997 (unaudited) ---------- ---------- Retained Earnings, as previously stated $1,377,707 $1,230,333 Adjustment for excess of redemption amount over the issue price of redeemable preferred shares issued in prior years (Note 6) (1,237,680) (1,237,680) ---------- ---------- Retained Earnings (Deficit), as restated 140,027 (7,347) Add: Net Income, per Exhibit "C" 4,201 147,374 Dividend tax recovered 2,244 -- Less: Dividends 30,000 -- ---------- ---------- Retained Earnings, ending, to Exhibit "A" $ 116,472 $ 140,027 ========== ==========
- -See accompanying notes- 10 11 Exhibit "C" MIDWAY SUPPLY LTD. STATEMENT OF INCOME FOR THE YEAR ENDED MAY 31, 1998
1998 1997 (unaudited) ----------- ----------- Sales $ 8,323,223 $ 8,265,049 ----------- ----------- Cost of Sales: Inventory, beginning 749,917 853,699 Purchases 5,778,792 5,474,813 ----------- ----------- 6,528,709 6,328,512 Less: Inventory, ending 726,217 749,917 ----------- ----------- 5,802,492 5,578,595 ----------- ----------- Gross Income 2,520,731 2,686,454 ----------- ----------- Expenses: Advertising 22,197 16,733 Amortization 74,350 89,434 Automotive and truck 61,081 64,181 Bad debts 4,954 368 Consulting fees -- 2,451 Employee benefits 117,120 121,030 Insurance and licences 37,828 40,477 Office and miscellaneous 170,359 144,378 Professional fees 33,025 31,387 Promotion, travel and seminars 64,348 59,926 Rent 206,087 203,239 Salaries and commissions 1,465,395 1,640,281 Telephone 52,600 55,909 Utilities 26,176 27,951 Warehouse supplies 16,357 12,451 ----------- ----------- 2,351,877 2,510,196 Administration and overhead expenses recovered 11,400 11,400 ----------- ----------- 2,340,477 2,498,796 ----------- ----------- Income before other items 180,254 187,658 ----------- ----------- Other items: Interest 6,882 4,294 Gain on disposal of capital assets 30 946 Loan to related company written-off 136,965 -- ----------- ----------- (130,053) 5,240 ----------- ----------- Income before income taxes 50,201 192,898 Income taxes 46,000 45,524 ----------- ----------- Net Income, to Exhibit "B" $ 4,201 $ 147,374 =========== ===========
- -See accompanying notes- 11 12 Exhibit "D" MIDWAY SUPPLY LTD. STATEMENT OF CHANGES IN FINANCIAL POSITION FOR THE YEAR ENDED MAY 31, 1998
1998 1997 (unaudited) ---------- ----------- Operating Activities: Cash from Operations - Net Income, per Exhibit "C" $ 4,201 $ 147,374 Charges (Credit) to income not involving cash - Amortization 74,350 89,434 Gain on disposal of capital assets (30) (946) Loan to related company written-off 136,965 -- ---------- ---------- 215,486 235,862 Net change in non-cash working capital balances - (Increase) Decrease in accounts receivable (78,940) (42,197) (Increase) Decrease in inventory 23,700 103,782 (Increase) Decrease in prepaid expenses (11,820) (2,680) (Increase) Decrease in income taxes recoverable 952 (58) Increase (Decrease) in accounts payable and accrued liabilities 217,170 (231,875) Increase (Decrease) in wages payable (4,222) (12,881) ---------- ---------- 362,326 49,953 ---------- ---------- Financing Activity: Proceeds from (repayment of) obligations under capital lease 28,257 (4,068) ---------- ---------- Investing Activities: Advances to related companies (21,251) (55,000) Proceeds from disposal of capital assets 8,020 20,378 Acquisition of capital assets (49,512) (37,240) Cash surrender value of life insurance policies (30,237) (27,672) Investment in shares -- (100) ---------- ---------- (92,980) (99,634) ---------- ---------- Shareholder's Distributions: Dividends (30,000) -- Refundable dividend tax recovered 2,244 -- ---------- ---------- (27,756) -- ---------- ---------- Change in Cash and Equivalents 269,847 (53,749) Cash and Equivalents, beginning (544,329) (490,580) ---------- ---------- Cash and Equivalents, ending $(274,482) $(544,329) ========== ========== Represented by: Cash $ 300,025 $ 227,297 Cheques issued in excess of funds on deposit (39,507) (166,626) Bank demand loan (535,000) (605,000) ---------- ---------- $(274,482) $(544,329) ========== ==========
- - See accompanying notes - 12 13 Exhibit "E" MIDWAY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS MAY 31, 1998 1. ACCOUNTING POLICIES: a) Inventory - Inventory is valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. b) Capital Assets - Capital assets are recorded at cost. Amortization is provided on the declining balance basis at the following annual rates: Automotive equipment 30% Computer hardware 30% Office equipment 20% Warehouse equipment 20%
For the year of acquisition, the rate used is one-half of that indicated above. Amortization of leasehold improvements is provided on a straight-line basis over five years. Amortization of computer software is provided on a straight-line basis over five years. c) Goodwill - Amortization of goodwill is provided on a straight-line basis over ten years. d) Translation of Foreign Currency - Amounts in U.S. dollars are translated into Canadian dollars as follows: Inventory, sales and purchases at the exchange rates prevailing on the transaction date at the bank; and Current liabilities at the exchange rate prevailing at the end of the year. e) Investment in Shares - The company has a 16.7% interest in Procurcorp Support Services Ltd. This investment is recorded using the cost method. f) Fair Values of Financial Instruments - Unless otherwise noted, cash, accounts receivable, amounts due from related companies, loan receivable, cash surrender value of life insurance policies, bank indebtedness, accounts payable and accrued liabilities, wages payable, income taxes payable, amount due to shareholder, long-term debt and redeemable preferred shares are stated at amounts that approximate their book value. 13 14 Exhibit "E" Continued MIDWAY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS MAY 31, 1998 1. ACCOUNTING POLICIES: (Continued) g) Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on management's best knowledge of current events and actions the company may undertake in the future, actual results may differ from the estimates. 2. DUE FROM RELATED COMPANIES: The amounts due from Fraser Valley Industrial Chemicals Ltd., 430639 B.C. Ltd. and Midway Purnel Sanitary Supply Ltd. are non-interest bearing and have no specific terms of repayment. As repayment is not anticipated during the next fiscal period, these amounts have been classified as long-term in the financial statements. 3. BANK INDEBTEDNESS:
1997 1998 (unaudited) ---------- ---------- Cheques issued in excess of funds on deposit $ 39,507 $166,626 Bank demand loans 535,000 605,000 -------- -------- $574,507 $771,626 ======== ========
The bank demand loan bears interest at the bank's prime rate plus 0.5% per annum. The loan is secured under Section 427 of the Bank Act, by inventory, by a general assignment of book debts, by replacement fire insurance over inventory and related equipment. 4. LONG-TERM DEBT:
1997 1998 (unaudited) -------- ----------- Bank of Nova Scotia - Term loan repayable in monthly payments of $1,250 excluding interest until December 31, 2000. Interest rate is prime rate plus 1% per annum. Secured by a company vehicle $38,750 $ -- Less: Current portion 15,000 -- -------- --------- $23,750 $ -- ======== =========
14 15 Exhibit "E" Continued MIDWAY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS MAY 31, 1998 5. SHAREHOLDERS' INTERESTS: Amounts presented as shareholders' interest include shareholders' equity and liabilities to shareholders other than current and long-term liabilities. 6. REDEEMABLE PREFERRED SHARES: The company's authorized and issued share capital includes 4,222 Class "D" preferred shares with a paid-up capital of $1 each and 9,892 Class "E" preferred shares with a paid-up capital of $0.50 each. The preferred shares are non-voting, redeemable by the company or the holders on demand. The Class "D" preferred shares are redeemable at $136 each and the Class "E" preferred shares are redeemable at $68 each. The Class "D" preferred shares carry a cumulative annual dividend of 6% on the redemption amounts. The shares were issued on December 30, 1992 as part of an estate planning arrangement involving holders of the company's common shares. The aggregate redemption amount of the preferred shares represents the fair value of the company's net assets on that date. The aggregate redemption amount of the preferred shares in excess of the amount paid in, amounting to $1,237,680 has been charged to retained earnings. During the year, the opening balances of the preferred shares were restated to reflect the excess of the redemption value over the issue price of the preferred shares issued at May 31, 1996. See also Note 7.
1998 1997 (unaudited) --------- ----------- Redeemable preferred shares issued and outstanding, beginning, as previously reported $ - $ - Add: Adjustment to present the redemption amount of the preferred shares 1,246,848 1,246,848 ---------- ---------- Redeemable preferred shares issued and outstanding, as restated $1,246,848 $1,246,848 ========== ==========
7. RETAINED EARNINGS: The prior year's opening retained earnings has been restated to reflect the redemption amount of the preferred shares issued and outstanding at May 31, 1996. Retained earnings has been charged with $1,237,680 to give effect to the redemption amount of 4,222 Class "D" preferred shares (redemption amount $574,192) and 9,892 Class "E" preferred shares (redemption amount $672,656) issued and outstanding on that date. See also note 6. 15 16 Exhibit "E" Continued MIDWAY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS MAY 31, 1998 8. RELATED PARTY TRANSACTIONS: Midway Supply Ltd. is related to Midway Purnel Sanitary Supply (Kelowna) Ltd., Midway Purnel Sanitary Supply (PG) Ltd., Fraser Valley Industrial Chemicals Inc. and 430639 B.C. Ltd. The company had the following transactions in the normal course of operations with these related parties: 1998 1997 (unaudited) --------- ----------- Transactions during the year: Sales to - Midway Purnel Sanitary Supply Ltd. $262,088 $240,400 Fraser Valley Industrial Chemicals Inc. 1,086 954 Midway Purnel Sanitary Supply (PG) Ltd. 147,018 105,871 Purchases from - Midway Purnel Sanitary Supply Ltd. 1,522 9,533 Fraser Valley Industrial Chemicals Inc. 480,694 427,182 Midway Purnel Sanitary Supply (PG) Ltd. 2,436 - Administration and overhead costs recovered - From Fraser Valley Industrial Chemicals Inc. 11,400 11,400 These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Balances at year-end: Receivable from included in accounts receivable - Midway Purnel Sanitary Supply Ltd. $ 79,685 $ 71,287 Fraser Valley Industrial Chemicals Inc. - 67 Midway Purnel Sanitary Supply (PG) Ltd. 45,387 20,817 Payable to included in accounts payable - Midway Purnel Sanitary Supply Ltd. 3,631 8,298 Fraser Valley Industrial Chemicals Inc. 39,444 12,803 Midway Purnel Sanitary Supply (PG) Ltd. 369 115 Stewart Smith 420 77
These balances are payable on demand and have arisen from providing services or recovery of expenses. See also Note 2. 9. COMMITMENTS: The company is committed to leasing its Coquitlam premises until December 31, 1999 for $111,853 per annum. The company is committed to leasing its Vancouver premises until August 31, 1998 for $13,005, being the balance of the lease commitment. The company also has an annual commitment of approximately $13,000 for various office equipment leases and maintenance contracts. 10. CONTINGENCIES: The company has provided letters of credit for payroll and a supplier in the amounts of $45,000 and $20,000, respectively. 16 17 MIDWAY SUPPLY LTD. Coquitlam, BC FINANCIAL STATEMENTS For the One Month Ended June 30, 1998 (HLB LOGO) Cinnamon Jang Willoughby & Company A Partnership of Incorporated Professionals 17 18 MIDWAY SUPPLY LTD. INDEX TO FINANCIAL STATEMENTS REVIEW ENGAGEMENT REPORT Balance Sheet Exhibit "A" Statement of Retained Earnings Exhibit "B" Statement of Income Exhibit "C" Statement of Changes in Financial Position Exhibit "D" Notes to Financial Statements Exhibit "E"
______________________ 18 19 (LOGO) Cinnamon Jang Willoughby & Company A Partnership of Incorporated Professionals Chartered Accountants REVIEW ENGAGEMENT REPORT To The Director of MIDWAY SUPPLY LTD.: We have reviewed the balance sheet of Midway Supply Ltd. as at June 30, 1998 and the statements of income and retained earnings and changes in financial position for the one month then ended. Our review was made in accordance with generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information supplied to us by the company. A review does not constitute an audit and consequently we do not express an audit opinion on these financial statements. Based on our review, nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with generally accepted accounting principles. Cinnamon Jang Willoughby & Company Chartered Accountants Burnaby, BC July 30, 1998 19 20 MIDWAY SUPPLY LTD. BALANCE SHEET (UNAUDITED) JUNE 30, 1998
June 30, May 31, ASSETS 1998 1998 (audited) ---------- ---------- Current Cash $ 317,925 $ 300,025 Accounts receivable 1,346,121 1,073,120 Income taxes recoverable -- 1,560 Inventory 764,762 726,217 Prepaid expenses 40,190 40,425 Loan receivable 22,220 -- ---------- ---------- 2,491,218 2,141,347 ---------- ---------- Due from related companies (Note 2) 175,804 175,804 Loan receivable 10,000 10,000 ---------- ---------- 185,804 185,804 ---------- ---------- Capital: Automotive equipment 318,032 318,032 Computer hardware 166,993 164,417 Computer software 34,717 34,717 Office equipment 135,986 135,542 Warehouse equipment 61,807 61,807 Leasehold improvements 40,777 40,777 ---------- ---------- 758,312 755,292 Less: Accumulated amortization 546,111 540,898 ---------- ---------- 212,201 214,384 ---------- ---------- Other: Cash surrender value of life insurance policies 36,247 139,417 Investment in shares 100 100 Goodwill, net of accumulated amortization 1,020 1,050 ---------- ---------- 37,367 140,567 ---------- ---------- $2,926,590 $2,682,102 ========== ==========
Approved by the Director: ____________________________ - - See accompanying notes - 20 21 Exhibit "A" MIDWAY SUPPLY LTD. BALANCE SHEET (UNAUDITED) JUNE 30, 1998
June 30, May 31, 1998 1998 (audited) ---------- ---------- LIABILITIES Current: Bank indebtedness (Note 3) $ 459,977 $ 574,507 Accounts payable and accrued liabilities 940,268 537,625 Wages payable 155,733 167,408 Income taxes payable 25,502 - Due to shareholder - 380 Current portion of long-term debt 15,000 15,000 ---------- ---------- 1,596,480 1,294,920 Long-term debt (Note 4) 22,500 23,750 ---------- ---------- 1,618,980 1,318,670 ---------- ---------- SHAREHOLDERS' INTEREST (Note 5) Liabilities to shareholders: Redeemable preferred shares (Note 6) 1,246,848 1,246,848 ---------- ---------- Shareholders' Equity: Share Capital: Authorized -- 20,000 Class "A" voting common shares with a par value of $1 each 50,000 Class "B" voting common shares with a par value of $0.50 each 50,000 Class "C" non-voting common shares with a par value of $1 each 100,000 Class "D" non-voting preferred shares with a par value of $1 each 100,000 Class "E" non-voting preferred shares with a par value of $0.50 each Issued and Fully Paid -- 24 Class "B" common shares 12 12 100 Class "C" common shares 100 100 ---------- ---------- 112 112 Retained Earnings (Note 7), per Exhibit "B" 60,650 116,472 ---------- ---------- 60,762 116,584 Commitments (Note 9) Contingencies (Note 10) Subsequent Event (Note 11) ---------- ---------- 1,307,610 1,363,432 ---------- ---------- $2,926,590 $2,682,102 ========== ==========
See accompanying notes 21 22 Exhibit "B" MIDWAY SUPPLY LTD. STATEMENT OF RETAINED EARNINGS (UNAUDITED) FOR THE ONE MONTH ENDED JUNE 30, 1998
One Month Year Ended Ended May 31, June 30, 1998 1998 (audited) --------- ----------- Retained Earnings, as previously stated $ 116,472 $ 1,377,707 Adjustment for excess of redemption amount over the issue price of redeemable preferred shares issued in prior years (Note 6) - (1,237,680) --------- ----------- Retained Earnings, as restated 116,472 140,027 Add: Net Income, per Exhibit "C" 43,971 4,201 Dividend tax recovered 207 2,244 Less: Dividends 100,000 30,000 --------- ----------- Retained Earnings, ending, to Exhibit "A" $ 60,650 $ 116,472 ========= ===========
- - See accompanying notes - 22 23 Exhibit "C" MIDWAY SUPPLY LTD. STATEMENT OF INCOME (UNAUDITED) FOR THE ONE MONTH ENDED JUNE 30, 1998
One Month Ended Year Ended June 30, May 31, 1998 1998 (audited) ---------- ---------- Sales $ 954,007 $8,323,223 ---------- ---------- Cost of Sales: Inventory, beginning 726,217 749,917 Purchases 723,258 5,778,792 ---------- ---------- 1,449,475 6,528,709 Less: Inventory, ending 764,762 726,217 ---------- ---------- 684,713 5,802,492 ---------- ---------- Gross Income 269,294 2,520,731 ---------- ---------- Expenses: Advertising 360 22,197 Amortization 5,234 74,350 Automotive and truck 1,982 61,081 Bad debts (recovery) (3,342) 4,954 Employee benefits 11,622 117,120 Insurance and licences 3,283 37,828 Office and miscellaneous 11,218 170,359 Professional fees 14,876 33,025 Promotion, travel and seminars 2,380 64,348 Rent 17,554 206,087 Salaries and commissions 124,609 1,465,395 Telephone 3,808 52,600 Utilities 1,826 26,176 Warehouse supplies 639 16,357 ---------- ---------- 196,049 2,351,877 Administration and overhead expenses recovered 950 11,400 ---------- ---------- 195,099 2,340,477 ---------- ---------- Income before other items 74,195 180,254 ---------- ---------- Other Items: Interest 776 6,882 Gain on disposal of capital assets -- 30 Loan to related company written-off -- 136,965 ---------- ---------- 776 (130,053) ---------- ---------- Income before income taxes 74,971 50,201 Income taxes 31,000 46,000 ---------- ---------- Net Income, to Exhibit "B" $ 43,971 $ 4,201 ========== ==========
- -See accompanying notes- 23 24 Exhibit "D" MIDWAY SUPPLY LTD. STATEMENT OF CHANGES IN FINANCIAL POSITION (unaudited) FOR THE ONE MONTH ENDED JUNE 30, 1998
One Month Ended Year Ended June 30, May 31, 1998 1998 (audited) ---------- ---------- Operating Activities: Cash from Operations - Net Income, per Exhibit "C" $ 43,971 $ 4,201 Charges (Credit) to income not involving cash - Amortization 5,234 74,350 Gain on disposal of capital assets -- (30) Loan to related company written-off -- 136,965 ---------- ---------- 49,205 215,486 Net change in non-cash working capital balances - (Increase) Decrease in accounts receivable (273,001) (78,940) (Increase) Decrease in inventory (38,545) 23,700 (Increase) Decrease in prepaid expenses 235 (11,820) (Increase) Decrease in loan receivable (22,220) -- (Increase) Decrease in income taxes recoverable 1,560 952 Increase (Decrease) in accounts payable and accrued liabilities 402,643 217,170 Increase (Decrease) in wages payable (11,675) (4,222) Increase (Decrease) in income taxes payable 25,502 -- Increase (Decrease) in amount due to shareholder (380) -- ---------- ---------- 133,324 362,326 ---------- ---------- Financing Activity: Proceeds from (repayment of) long-term debt (1,250) 28,257 ---------- ---------- Investing Activities: Advances to related companies -- (21,251) Proceeds from disposal of capital assets -- 8,020 Acquisition of capital assets (3,021) (49,512) Cash surrender value of life insurance policies 103,170 (30,237) ---------- ---------- 100,149 (92,980) ---------- ---------- Shareholder's Distributions: Dividends (100,000) (30,000) Refundable dividend tax recovered 207 2,244 ---------- ---------- (99,793) (27,756) ---------- ---------- Change in Cash and Equivalents 132,430 269,847 Cash and Equivalents, beginning (274,482) (544,329) ---------- ---------- Cash and Equivalents, ending $(142,052) $(274,482) ========== ========== Represented by: Cash $ 317,925 $ 300,025 Cheques issued in excess of funds on deposit (24,977) (39,507) Bank demand loan (435,000) (535,000) ---------- ---------- $(142,052) $(274,482) ========== ==========
- - See accompanying notes - 24 25 Exhibit "E" MIDWAY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 1. ACCOUNTING POLICIES: a) Inventory - Inventory is valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. b) Capital Assets - Capital assets are recorded at cost. Amortization is provided on the declining balance basis at the following annual rates: Automotive equipment 30% Computer hardware 30% Office equipment 20% Warehouse equipment 20% For the year of acquisition, the rate used is one-half of that indicated above. Amortization of leasehold improvements is provided on a straight- line basis over five years. Amortization of computer software is provided on a straight-line basis over five years. c) Goodwill - Amortization of goodwill is provided on a straight-line basis over ten years. d) Translation of Foreign Currency - Amounts in U.S. dollars are translated into Canadian dollars as follows: Inventory, sales and purchases at the exchange rates prevailing on the transaction date at the bank; and Current liabilities at the exchange rate prevailing at the end of the year. e) Investment in Shares - The company has a 16.7% interest in Procurcorp Support Services Ltd. This investment is recorded using the cost method. f) Fair Values of Financial Instruments - Unless otherwise noted, cash, accounts receivable, amounts due from related companies, loan receivable, cash surrender value of life insurance policies, bank indebtedness, accounts payable and accrued liabilities, wages payable, income taxes payable, long-term debt and redeemable preferred shares are stated at amounts that approximate their book value. 25 26 Exhibit "E" Continued MIDWAY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 1. ACCOUNTING POLICIES: (CONTINUED) g) Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on management's best knowledge of current events and actions the company may undertake in the future, actual results may differ from the estimates. 2. DUE FROM RELATED COMPANIES: The amounts due from Fraser Valley Industrial Chemicals Ltd., 430639 B.C. Ltd. and Midway Purnel Sanitary Supply Ltd. are non-interest bearing and have no specific terms of repayment. As repayment is not anticipated during the next fiscal period, these amounts have been classified as long-term in the financial statements. 3. BANK INDEBTEDNESS:
June 30, May 31, 1998 1998 (audited) -------- -------- Cheques issued in excess of funds on deposit $ 24,977 $ 39,507 Bank demand loans 435,000 535,000 -------- -------- $459,977 $574,507 ======== ========
The bank demand loan bears interest at the bank's prime rate plus 0.5% per annum. The loan is secured under Section 427 of the Bank Act, by inventory, by a general assignment of book debts, by replacement fire insurance over inventory and related equipment. 4. LONG-TERM DEBT:
June 30, May 31, 1998 1998 (audited) -------- -------- Bank of Nova Scotia - Term loan repayable in monthly payments of $1,250 excluding interest until December 31, 2000. Interest rate is prime rate plus 1% per annum. Secured by a company vehicle. $ 37,500 $ 38,750 Less: Current portion 15,000 15,000 -------- -------- $22,500 $ 23,750 ======== ========
26 27 Exhibit "E" Continued MIDWAY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 5. SHAREHOLDERS' INTERESTS: Amounts presented as shareholders' interest include shareholders' equity and liabilities to shareholders other than current and long-term liabilities. 6. REDEEMABLE PREFERRED SHARES: The company's authorized and issued share capital includes 4,222 Class "D" preferred shares with a paid-up capital of $1 each and 9,892 Class "E" preferred shares with a paid-up capital of $0.50 each. The preferred shares are non-voting, redeemable by the company or the holders on demand. The Class "D" preferred shares are redeemable at $136 each and the Class "E" preferred shares are redeemable at $68 each. The Class "D" preferred shares carry a cumulative annual dividend of 6% on the redemption amounts. The shares were issued on December 30, 1992 as part of an estate planning arrangement involving holders of the company's common shares. The aggregate redemption amount of the preferred shares represents the fair value of the company's net assets on that date. The aggregate redemption amount of the preferred shares in excess of the amount paid in, amounting to $1,237,680 has been charged to retained earnings. 7. RETAINED EARNINGS: The prior year's opening retained earnings has been restated to reflect the redemption amount of the preferred shares issued and outstanding at May 31, 1996. Retained earnings has been charged with $1,237,680 to give effect to the redemption amount of 4,222 Class "D" preferred shares (redemption amount $574,192) and 9,892 Class "E" preferred shares (redemption amount $672,656) issued and outstanding on that date. See also Note 6. 8. RELATED PARTY TRANSACTIONS: Midway Supply Ltd. is related to Midway Purnel Sanitary Supply (Kelowna) Ltd., Midway Purnel Sanitary Supply (PG) Ltd., Fraser Valley Industrial Chemicals Inc. and 430639 B.C. Ltd. by virtue of common ownership. The company had the following transactions with these related parties:
June 30, May 31, 1998 1998 (audited) ---------- ---------- Transactions during the period: Sales to - Midway Purnel Sanitary Supply Ltd. $28,164 $262,088 Fraser Valley Industrial Chemicals Inc. 530 1,086 Midway Purnel Sanitary Supply (PG) Ltd. 14,790 147,018 Purchases from - Midway Purnel Sanitary Supply Ltd. -- 1,522 Fraser Valley Industrial Chemicals Inc. 52,694 480,694 Midway Purnel Sanitary Supply (PG) Ltd. 518 2,436 Administration and overhead costs recovered - From Fraser Valley Industrial Chemicals Inc. 950 11,400
These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. 27 28 Exhibit "E" Continued MIDWAY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 8. RELATED PARTY TRANSACTIONS: (Continued)
June 30, May 31, 1998 1998 (audited) -------- ----------- Balances at period-end: Receivable from included in accounts receivable - Midway Purnel Sanitary Supply Ltd. $94,946 $79,685 Fraser Valley Industrial Chemicals Inc. 531 - Midway Purnel Sanitary Supply (PG) Ltd. 60,189 45,387 Payable to included in accounts payable - Midway Purnel Sanitary Supply Ltd. 518 3,631 Fraser Valley Industrial Chemicals Inc. 52,694 39,444 Midway Purnel Sanitary Supply (PG) Ltd. - 369 Stewart Smith 50 420
These balances are payable on demand and have arisen from providing services or recovery of expenses. See also Note 2. 9. COMMITMENTS: The company is committed to leasing its Coquitlam premises until December 31, 1999 for $111,853 per annum. The company is committed to leasing its Vancouver premises until August 31, 1998 for $8,670, being the balance of the lease commitment. The company also has an annual commitment of approximately $13,000 for various office equipment leases and maintenance contracts. 10. CONTINGENCIES: The company has provided letters of credit for payroll and a supplier in the amounts of $45,000 and $20,000, respectively. 11. SUBSEQUENT EVENT: Only July 29, 1998, the company entered into an agreement to sell the investment in Procurcorp Support System Inc. for $14,500. 28 29 MIDWAY PURNEL SANITARY SUPPLY LTD. Kelowna, BC FINANCIAL STATEMENTS For the Year Ended March 31, 1998 (LOGO) Cinnamon Jang Willoughby & Company A Partnership of Incorporated Professionals 29 30 MIDWAY PURNEL SANITARY SUPPLY LTD. INDEX TO FINANCIAL STATEMENTS Auditors' Report Balance Sheet Exhibit "A" Statement of Loss and Deficit Exhibit "B" Statement of Changes in Financial Position Exhibit "C" Notes to Financial Statements Exhibit "D" Capital Assets and Accumulated Amortization Schedule "1"
-------------------------------- 30 31 (HLB LOGO) CINNAMON JANG WILLOUGHBY & COMPANY Chartered Accountants A Partnership of Incorporated Professionals AUDITORS' REPORT To The Shareholders of MIDWAY PURNEL SANITARY SUPPLY LTD.: We have audited the balance sheet of Midway Purnel Sanitary Supply Ltd. as at March 31, 1998 and the statements of loss and deficit and changes in financial position 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 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 financial statements present fairly, in all material respects, the financial position of the company as at March 31, 1998 and the results of its operations and the changes in its financial position for the year then ended in accordance with generally accepted accounting principles. As required by the Company Act of British Columbia, we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding year. The 1997 financial statements were reviewed by us and our report thereon, dated June 11, 1997 stated that nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with generally accepted accounting principles. We have not audited, and we do not express an opinion on, the financial statements of the preceding year. Cinnamon Jang Willoughby & Company Chartered Accountants Burnaby, BC July 27, 1998 31 32 Exhibit "A" MIDWAY PURNEL SANITARY SUPPLY LTD. BALANCE SHEET MARCH 31, 1998
1998 1997 (unaudited) ----------- ----------- ASSETS Current: Accounts receivable $ 67,834 $ 69,250 Inventory 88,233 78,962 Prepaid expenses 4,598 4,550 ---------- ---------- 160,665 152,762 Due from related company (Note 2) 5,356 4,674 Capital, per Schedule "1" 27,151 39,870 ---------- ---------- $ 193,172 $ 197,306 ========== ========== LIABILITIES Current: Bank indebtedness (Note 3) $ 93,599 $ 109,360 Accounts payable and accrued liabilities 92,098 33,873 Wages payable -- 202 Current portion of term loan 15,000 15,000 ---------- ---------- 200,697 158,435 ---------- ---------- Long-term: Loans payable (Note 4) 294,186 294,186 Term loan (Note 5) 32,500 22,500 ---------- ---------- 326,686 316,686 ---------- ---------- 527,383 475,121 ---------- ---------- SHAREHOLDERS' DEFICIENCY Share Capital: Authorized -- 1,000 Class "A" voting common shares with a par value of $1 each 49,000 Class "B" non-voting common shares without par value 100,000 Class "C" non-voting preferred shares without par value Issued and Fully Paid -- 2 Class "A" voting common shares 2 2 Deficit, per Exhibit "B" 334,213 277,817 ---------- ---------- (334,211) (277,815) Future Operations (Note 8) ---------- ---------- $ 193,172 $ 197,306 ========== ==========
Approved by the Directors: ___________________________________ ___________________________________ - - See accompanying notes - 32 33 Exhibit "B" MIDWAY PURNEL SANITARY SUPPLY LTD. STATEMENT OF LOSS AND DEFICIT FOR THE YEAR ENDED MARCH 31, 1998
1998 1997 (unaudited) -------- -------- Sales $684,391 $589,732 -------- -------- Cost of Sales: Inventory, beginning 78,962 56,608 Purchases 540,679 455,106 -------- -------- 619,641 511,714 Less: Inventory, ending 88,233 78,962 -------- -------- 531,408 432,752 -------- -------- Gross Income 152,983 156,980 -------- -------- Expenses: Advertising 1,985 3,733 Amortization 12,719 14,877 Automotive 17,839 12,703 Bad debts 90 4,283 Bank charges and interest 6,799 6,969 Insurance and licences 988 1,555 Office and miscellaneous 12,150 14,322 Professional fees 8,381 2,727 Promotion, travel and seminars 1,653 1,833 Rent 25,513 25,702 Salaries and commissions 116,635 109,208 Telephone 9,090 10,516 Utilities 1,965 2,798 Warehouse supplies 86 140 -------- -------- 215,893 211,366 -------- -------- Loss before other item 62,910 54,386 Other item: Miscellaneous income 6,514 3,971 -------- -------- Net Loss 56,396 50,415 Deficit, beginning 277,817 227,402 -------- -------- Deficit, ending, to Exhibit "A" $334,213 $277,817 ======== ========
- - See accompanying notes - 33 34 Exhibit "C" MIDWAY PURNEL SANITARY SUPPLY LTD. STATEMENT OF CHANGES IN FINANCIAL POSITION FOR THE YEAR ENDED MARCH 31, 1998
1997 1998 (unaudited) ---------- ----------- Operating Activities: Cash from Operations - Net Loss, per Exhibit "B" $ (56,396) $ (50,415) Charge to income not involving cash - Amortization 12,719 14,877 ---------- ---------- (43,677) (35,538) Net change in non-cash working capital balances - (Increase) Decrease in accounts receivable 1,416 (10,066) (Increase) Decrease in inventory (9,271) (22,354) (Increase) Decrease in prepaid expenses (48) 1,825 Increase (Decrease) in accounts payable and accrued liabilities 58,225 (8,521) Increase (Decrease) in wages payable (202) 202 ---------- ---------- 6,443 (74,452) ---------- ---------- Financing Activities: Proceeds from loans -- 40,000 Proceeds from term loan 25,000 -- Repayment of bank loan (15,000) (15,000) ---------- ---------- 10,000 25,000 ---------- ---------- Investing Activities: Acquisition of capital assets -- (5,645) Due from related companies (682) (567) ---------- ---------- (682) (6,212) ---------- ---------- Change in Cash and Equivalents 15,761 (55,664) Cash and Equivalents, beginning (109,360) (53,696) ---------- ---------- Cash and Equivalents, ending $ (93,599) $(109,360) ========== ========== Represented by: Cheques issued in excess of funds on deposit $ (43,599) $ (59,360) Demand loan (50,000) (50,000) ---------- ---------- $ (93,599) $(109,360) ========== ==========
- - See accompanying notes - 34 35 Exhibit "D" MIDWAY PURNEL SANITARY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 1. ACCOUNTING POLICIES: a) Inventory - Inventory is valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. b) Capital Assets - Capital assets are recorded at cost. Amortization is provided on the declining balance basis at the following annual rates: Computer hardware 30% Computer software 100% Office equipment 20% Warehouse equipment 20% For the year of acquisition, the rate used is one-half of that shown above. c) Translation of Foreign Currency - Inventory, sales and purchases at the exchange rates prevailing on the transaction date of the bank; and Current liabilities at the exchange rate prevailing at the end of the year. d) Fair Values of Financial Instruments - Unless otherwise noted, accounts receivable, amount due from related company, bank indebtedness, accounts payable and accrued liabilities, loans payable and term loan are stated at amounts that approximate their book value. e) Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on management's best knowledge of current events and actions the company may undertake in the future, actual results may differ from the estimates. 2. DUE FROM RELATED COMPANY: The amount due from 466926 B.C. Ltd. is non-interest bearing and has no specific terms of repayment. As repayment will not be requested during the next fiscal period, this amount has been classified as long-term in the financial statements. 35 36 Exhibit "D" Continued MIDWAY PURNEL SANITARY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998
3. BANK INDEBTEDNESS: 1998 1997 (unaudited) -------- ----------- Cheques issued in excess of funds on deposit $43,599 $ 59,360 Demand loan 50,000 50,000 -------- ----------- $93,599 $109,360 ======== =========== The demand loan bears interest at the prime rate plus 1.25% per annum and is secured by a general assignment of book debts, general security agreement, Section 427 over inventory, assignment of fire insurance and personal guarantees of shareholders. 4. LOANS PAYABLE: The loans payable due to related parties, Midway Supply Ltd., Purnel Distributors Ltd. and John Kazakoff are non-interest bearing and without specific terms of repayment. As repayments are not expected to be made during the next fiscal period, this amount has been classified as long-term in the financial statements. 1998 1997 (unaudited) -------- ----------- Midway Supply Ltd. $147,094 $147,094 Purnel Distributors Ltd. 88,750 88,750 John Kazakoff 58,342 58,342 -------- ----------- $294,186 $294,186 ======== =========== 5. TERM LOAN: 1998 1997 (unaudited) -------- ----------- Bank of Nova Scotia - Loan payable in monthly payments of $1,250 plus interest at the prime rate plus 1.5% per annum until May 31, 2001. Secured by chattel mortgage over equipment and the personal guarantees of the shareholders $47,500 $37,500 Less: Current portion 15,000 15,000 -------- ----------- $32,500 $22,500 ======== =========== Future Principal payments are as follows: 1999 $15,000 2000 15,000 2001 2,500 -------- $32,500 ========
36 37 Exhibit "D" Continued MIDWAY PURNEL SANITARY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 6. RELATED PARTY TRANSACTIONS: Midway Purnel Sanitary Supply Ltd. is related to Midway Supply Ltd., Purnel Distributors Ltd., Midway Purnel Sanitary Supply (PG) Ltd. and 466926 B.C. Ltd. by virtue of common ownership. The following summarizes the company's related party transactions for the year:
1998 1997 (unaudited) --------- ----------- Transactions during the year: Sales to - Midway Supply Ltd. $ 4,220 $ 6,635 Purnel Distributors Ltd. 5,216 4,459 Midway Purnel Sanitary Supply (PG) Ltd. 165 1,567 Purchases from - Midway Supply Ltd. 267,214 223,288 Purnel Distributors Ltd. 55,000 96,091 Midway Purnel Sanitary Supply (PG) Ltd. 20 57 Rent paid to 466926 B.C. Ltd. 25,513 25,702 Capital assets purchased from - Midway Supply Ltd. -- 4,473
These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. At the end of the year, the amounts due to (from) related parties are as follows:
1998 1997 (unaudited) --------- ----------- Receivable from included in accounts receivable - Midway Supply Ltd. $ (23) $ (683) Purnel Distributors Ltd. (253) (339) Payable to included in accounts payable - Midway Supply Ltd. 42,532 15,698 Purnel Distributors Ltd. 907 2,288
These balances are payable on demand and have arisen from the sale of product and provision of services referred to above. See also Notes 2 and 4. 37 38 Exhibit "D" Continued MIDWAY PURNEL SANITARY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 7. INCOME TAXES: At March 31, 1998, the company has a loss of $328,374 for tax purposes which may be available to reduce future years' taxable income. The benefits of this loss carried forward have not been booked in the accounts. The losses expire as follows: 2002 $121,383 2003 100,887 2004 50,002 2005 56,102 -------- $328,374 ======== 8. FUTURE OPERATIONS: The continued operations of the company is dependent on the company achieving profitable operations or receiving additional funding from shareholders or others to satisfy all of its liabilities as they become due. 38 39 Schedule "1" MIDWAY PURNEL SANITARY SUPPLY LTD. CAPITAL ASSETS AND ACCUMULATED AMORTIZATION FOR THE YEAR ENDED MARCH 31, 1998
ACCUMULATED NET BOOK CURRENT COST AMORTIZATION VALUE PROVISION ------- ------------ -------- --------- COMPUTER HARDWARE Balance, March 31, 1997 $43,726 $22,678 $21,048 Current provision - 6,314 (6,314) $ 6,314 ------- ------- ------- ------- Balance, March 31, 1998 43,726 28,992 14,734 6,314 ------- ------- ------- ------- COMPUTER SOFTWARE Balance, March 31, 1997 227 113 114 Current provision - 114 (114) 114 ------- ------- ------- ------- Balance, March 31, 1998 227 227 - 114 ------- ------- ------- ------- OFFICE EQUIPMENT Balance, March 31, 1997 8,775 3,433 5,342 Current provision - 1,068 (1,068) 1,068 ------- ------- ------- ------- Balance, March 31, 1998 8,775 4,501 4,274 1,068 ------- ------- ------- ------- WAREHOUSE EQUIPMENT Balance, March 31, 1997 8,008 3,142 4,866 Current provision - 973 (973) 973 ------- ------- ------- ------- Balance, March 31, 1998 8,008 4,115 3,893 973 ------- ------- ------- ------- LEASEHOLD IMPROVEMENTS Balance, March 31, 1997 21,283 12,783 8,500 Current provision - 4,250 (4,250) 4,250 ------- ------- ------- ------- Balance, March 31, 1998 21,283 17,033 4,250 4,250 ------- ------- ------- ------- TOTALS, TO EXHIBIT "A" $82,019 $54,868 $27,151 $12,719 ======= ======= ======= =======
- - See accompanying notes - 39 40 MIDWAY PURNEL SANITARY SUPPLY LTD. Kelowna, BC FINANCIAL STATEMENTS For the Period Ended June 30, 1998 LOGO (Cinnamon Jang Willoughby & Company) A Partnership of Incorporated Professionals 40 41 MIDWAY PURNEL SANITARY SUPPLY LTD. INDEX TO FINANCIAL STATEMENTS REVIEW ENGAGEMENT REPORT Balance Sheet Exhibit "A" Statement of Loss and Deficit Exhibit "B" Statement of Changes in Financial Position Exhibit "C" Notes to Financial Statements Exhibit "D" Capital Assets and Accumulated Amortization Schedule "I"
-------------------------------- 41 42 (HLB LOGO) CINNAMON JANG WILLOUGHBY & COMPANY Chartered Accountants A Partnership of Incorporated Professionals REVIEW ENGAGEMENT REPORT To The Directors of MIDWAY PURNEL SANITARY SUPPLY LTD.: We have reviewed the balance sheet of Midway Purnel Sanitary Supply Ltd. as at June 30, 1998 and the statements of loss and deficit and changes in financial position for the period then ended. Our review was made in accordance with generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information supplied to us by the company. A review does not constitute an audit and consequently we do not express an audit opinion on these financial statements. Based on our review, nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with generally accepted accounting principles. Cinnamon Jang Willoughby & Company Chartered Accountants Burnaby, BC July 31, 1998 42 43 Exhibit "A" MIDWAY PURNEL SANITARY SUPPLY LTD. BALANCE SHEET (UNAUDITED) JUNE 30, 1998
June 30, March 31 1998 1998 (audited) ------------ ----------- ASSETS Current: Accounts receivable $ 75,139 $ 67,834 Inventory 89,138 88,233 Prepaid expenses 3,737 4,598 ---------- ---------- 168,014 160,665 Due from related company -- 5,356 Capital, per Schedule "1" 24,575 27,151 ---------- ---------- $ 192,589 $ 193,172 ========== ========== LIABILITIES Current: Bank indebtedness (Note 2) $ 75,367 $ 93,599 Accounts payable and accrued liabilities 120,803 92,098 Wages payable 1,329 -- Current portion of term loan 15,000 15,000 Unearned revenue 1,082 -- ---------- ---------- 213,581 200,697 ---------- ---------- Long-term: Loans payable (Note 3) 294,186 294,186 Term loan (Note 4) 28,750 32,500 ---------- ---------- 322,936 326,686 ---------- ---------- 536,517 527,383 ---------- ---------- SHAREHOLDERS' DEFICIENCY Share Capital: Authorized -- 1,000 Class "A" voting common shares with a par value of $1 each 49,000 Class "B" non-voting common shares without par value 100,000 Class "C" non-voting preferred shares without par value Issued and Fully Paid -- 2 Class "A" voting common shares 2 2 Deficit, per Exhibit "B" 343,930 334,213 ---------- ---------- (343,928) (334,211) Commitment (Note 7) Future Operations (Note 8) ---------- ---------- $ 192,589 $ 193,172 ========== ==========
Approved by the Directors: ___________________________________ ___________________________________ - - See accompanying notes - 43 44 Exhibit "B" MIDWAY PURNEL SANITARY SUPPLY LTD. STATEMENT OF LOSS AND DEFICIT (UNAUDITED) FOR THE PERIOD ENDED JUNE 30, 1998
Period Year Ended Ended June 30, March 31, 1998 1998 (audited) ----------- ----------- Sales $ 174,822 $ 684,391 ----------- ----------- Cost of Sales: Inventory, beginning 88,233 78,962 Purchases 128,555 540,679 ----------- ----------- 216,788 619,641 Less: Inventory, ending 89,138 88,233 ----------- ----------- 127,650 531,408 ----------- ----------- Gross Income 47,172 152,983 ----------- ----------- Expenses: Advertising (recovery) (150) 1,985 Amortization 2,576 12,719 Automotive 2,737 17,839 Bad debts 7,403 90 Bank charges and interest 2,598 6,799 Insurance and licences 182 988 Office and miscellaneous 3,274 12,150 Professional fees 7,594 8,381 Promotion, travel and seminars 492 1,653 Rent 6,595 25,513 Salaries and commissions 23,373 116,635 Telephone 2,749 9,090 Utilities 507 1,965 Warehouse supplies 48 86 ----------- ----------- 59,978 215,893 ----------- ----------- Loss before other item 12,806 62,910 Other item: Miscellaneous income 3,089 6,514 ----------- ----------- Net Loss 9,717 56,396 Deficit, beginning 334,213 277,817 ----------- ----------- Deficit, ending, to Exhibit "A" $ 343,930 $ 334,213 =========== ===========
- - See accompanying notes - 44 45 Exhibit "C" MIDWAY PURNEL SANITARY SUPPLY LTD. STATEMENT OF CHANGES IN FINANCIAL POSITION (UNAUDITED) FOR THE PERIOD ENDED JUNE 30, 1998
Period Ended Year Ended June 30, March 31, 1998 1998 (audited) ---------- ---------- Operating Activities: Cash from Operations - Net Loss, per Exhibit "B" $ (9,717) $ (56,396) Charge to income not involving cash - Amortization 2,576 12,719 ---------- ---------- (7,141) (43,677) Net change in non-cash working capital balances - (Increase) Decrease in accounts receivable (7,305) 1,416 (Increase) Decrease in inventory (905) (9,271) (Increase) Decrease in prepaid expenses 861 (48) Increase (Decrease) in accounts payable and accrued liabilities 28,705 58,225 Increase (Decrease) in wages payable 1,329 (202) Increase (Decrease) in unearned revenue 1,082 -- ----------- ----------- 16,626 6,443 ----------- ----------- Financing Activities: Proceeds from term loan -- 25,000 Repayment of bank loan (3,750) (15,000) ----------- ----------- (3,750) 10,000 ----------- ----------- Investing Activities: Acquisition of capital assets -- -- Due from related companies 5,356 (682) ---------- ---------- 5,356 (682) ---------- ---------- Change in Cash and Equivalents 18,232 15,761 Cash and Equivalents, beginning (93,599) (109,360) ---------- ---------- Cash and Equivalents, ending $ (75,367) $ (93,599) ========== ========== Represented by: Cheques issued in excess of funds on deposit $ (25,367) $ (43,599) Demand loan (50,000) (50,000) ---------- ---------- $ (75,367) $ (93,599) ========== ==========
- - See accompanying notes - 45 46 Exhibit "D" MIDWAY PURNEL SANITARY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 1. ACCOUNTING POLICIES: a) Inventory - Inventory is valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. b) Capital Assets - Capital assets are recorded at cost. Amortization is provided on the declining balance basis at the following annual rates: Computer hardware 30% Computer software 100% Office equipment 20% Warehouse equipment 20% For the period of acquisition, the rate used is one-half of that shown above. c) Translation of Foreign Currency - Inventory, sales and purchases at the exchange rates prevailing on the transaction date of the bank; and Current liabilities at the exchange rate prevailing at the end of the period. d) Fair Values of Financial Instruments - Unless otherwise noted, accounts receivable, bank indebtedness, accounts payable and accrued liabilities, wages payable, loans payable and term loan are stated at amounts that approximate their book value. e) Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on management's best knowledge of current events and actions the company may undertake in the future, actual results may differ from the estimates. 46 47 Exhibit "D" Continued MIDWAY PURNEL SANITARY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998
2. BANK INDEBTEDNESS: June 30, March 31, 1998 1998 (audited) -------- --------- Cheques issued in excess of funds on deposit $25,367 $43,599 Demand loan 50,000 50,000 -------- --------- $75,367 $93,599 ======== ========= The demand loan bears interest at the prime rate plus 1.25% per annum and is secured by a general assignment of book debts, general security agreement, Section 427 over inventory, assignment of fire insurance and personal guarantees of shareholders. 3. LOANS PAYABLE: The loans payable due to related parties, Midway Supply Ltd., Purnel Distributors Ltd. and John Kazakoff are non-interest bearing and without specific terms of repayment. As repayments are not expected to be made during the next fiscal period, this amount has been classified as long-term in the financial statements. June 30, March 31, 1998 1998 (audited) -------- --------- Midway Supply Ltd. $147,094 $147,094 Purnel Distributors Ltd. 88,750 88,750 John Kazakoff 58,342 58,342 -------- --------- $294,186 $294,186 ======== ========= 4. TERM LOAN: June 30, March 31, 1998 1998 (audited) -------- --------- Bank of Nova Scotia - Loan payable in monthly payments of $1,250 plus interest at the prime rate plus 1.5% per annum until May 31, 2001. Secured by chattel mortgage over equipment and the personal guarantees of the shareholders $43,750 $47,500 Less: Current portion 15,000 15,000 -------- -------- $28,750 $32,500 ======== ======== Future principal payments are as follows: 1999 $15,000 2000 13,750 -------- $28,750 ========
47 48 Exhibit "D" Continued MIDWAY PURNEL SANITARY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS (unaudited) JUNE 30, 1998 5. RELATED PARTY TRANSACTIONS: Midway Purnel Sanitary Supply Ltd. is related to Midway Supply Ltd., Purnel Distributors Ltd., Midway Purnel Sanitary Supply (PG) Ltd. and 466926 B.C. Ltd. by virtue of common ownership. The following summarizes the company's related party transactions for the period:
June 30, March 31, 1998 1998 (audited) ------- -------- Transactions during the period: Sales to - Midway Supply Ltd. $ 1,205 $ 4,220 Purnel Distributors Ltd. 344 5,216 Midway Purnel Sanitary Supply (PG) Ltd. -- 165 Purchases from - Midway Supply Ltd. 79,807 267,214 Purnel Distributors Ltd. 22,476 55,000 Midway Purnel Sanitary Supply (PG) Ltd. -- 20 Rent paid to 466926 B.C. Ltd. 6,595 25,513
These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. At the end of the period, the amounts due to (from) related parties are as follows: Receivable from included in accounts receivable - Midway Supply Ltd. $ -- $ (23) Purnel Distributors Ltd. -- (253) Payable to included in accounts payable - Midway Supply Ltd. 94,946 42,532 Purnel Distributors Ltd. 22,619 907
These balances are payable on demand and have arisen from the sale of product and provision of services referred to above. See also Notes 3. 48 49 Exhibit "D" Continued MIDWAY PURNEL SANITARY SUPPLY LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 6. INCOME TAXES: At June 30, 1998, the company has a loss of $338,119 for tax purposes which may be available to reduce future years' taxable income. The benefits of this loss carried forward have not been booked in the accounts. The losses expire as follows: 2001 $121,383 2002 100,887 2003 50,002 2004 56,102 2005 9,745 -------- $338,119 ========
7. COMMITMENT: The company has been assigned the lease on its premises, which expires on January 31, 1999. Under the terms of the lease, the company is committed to make monthly rental payments of $1,997 plus common area costs. The common area costs have not been determined as of the current date. 8. FUTURE OPERATIONS: The continued operations of the company is dependent on the company achieving profitable operations or receiving additional funding from shareholders or others to satisfy all of its liabilities as they become due. 49 50 Schedule "1" MIDWAY PURNEL SANITARY SUPPLY LTD. CAPITAL ASSETS AND ACCUMULATED AMORTIZATION (UNAUDITED) FOR THE PERIOD ENDED JUNE 30, 1998
ACCUMULATED NET BOOK CURRENT COST AMORTIZATION VALUE PROVISION ------- ------------ -------- --------- COMPUTER HARDWARE Balance, March 31, 1998 $43,726 $28,992 $14,734 Current provision -- 1,105 (1,105) $ 1,105 ------- ------- ------- ------- Balance, June 30, 1998 43,726 30,097 13,629 1,105 ------- ------- ------- ------- COMPUTER SOFTWARE Balance, March 31 and June 30, 1998 227 227 -- -- ------- ------- ------- ------- OFFICE EQUIPMENT Balance, March 31, 1998 8,775 4,501 4,274 Current provision -- 214 (214) 214 ------- ------- ------- ------- Balance, June 30, 1998 8,775 4,715 4,060 214 ------- ------- ------- ------- WAREHOUSE EQUIPMENT Balance, March 31, 1998 8,008 4,115 3,893 Current provision -- 195 (195) 195 ------- ------- ------- ------- Balance, June 30, 1998 8,008 4,310 3,698 195 ------- ------- ------- ------- LEASEHOLD IMPROVEMENTS Balance, March 31, 1998 21,283 17,033 4,250 Current provision -- 1,062 (1,062) 1,062 ------- ------- ------- ------- Balance, June 30, 1998 21,283 18,095 3,188 1,062 ------- ------- ------- ------- TOTALS, to Exhibit "A" $82,019 $57,444 $24,575 $ 2,576 ======= ======= ======= =======
- - See accompanying notes - 50 51 430639 B.C. LTD. Abbotsford, BC CONSOLIDATED FINANCIAL STATEMENTS For the Nine Months Ended June 30, 1998 LOGO (Cinnamon Jang Willoughby & Company) A Partnership of Incorporated Professionals 51 52 430639 B.C. LTD. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AUDITORS' REPORT Consolidated Balance Sheet Exhibit "A" Consolidated Statement of Income and Retained Earnings Exhibit "B" Consolidated Statement of Changes in Financial Position Exhibit "C" Notes to Consolidated Financial Statements Exhibit "D" Capital Assets and Accumulated Amortization Schedule "1"
-------------------------------- 52 53 LOGO Cinnamon Jang Willoughby & Company Chartered Accountants A Partnership of Incorporated Professionals AUDITORS' REPORT To The Shareholders of 430639 B.C. LTD.: We have audited the consolidated balance sheet of 430639 B.C. Ltd. as at June 30, 1998 and the consolidated statements of income and retained earnings and changes in financial position for the period 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 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, 1998 and the results of its operations and the changes in its financial position for the period then ended in accordance with generally accepted accounting principles. As required by the Company Act of British Columbia, we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding year. The 1997 financial statements of Fraser Valley Industrial Chemicals Inc. were reviewed by us and our report thereon, dated December 22, 1997 stated that nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with generally accepted accounting principles. We have not examined, and we do not express an opinion on, the financial statements of the preceding year. The 1997 financial statements of 430639 B.C. Ltd. were compiled by us and our report thereon was dated December 17, 1997. We have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of such information of the preceding year. Cinnamon Jang Willoughby & Company Chartered Accountants Burnaby, BC July 25, 1998 53 54 Exhibit "A" 430639 B.C. LTD. CONSOLIDATED BALANCE SHEET JUNE 30, 1998
June 30, September 30, 1998 1997 (unaudited) ------------ ----------- ASSETS Current: Cash $116,764 $ 61,114 Marketable securities -- 152,519 Accounts receivable 56,112 68,863 Income taxes recoverable 3,221 1,602 Inventory 83,278 97,823 Prepaid expenses 3,982 -- -------- -------- 263,357 381,921 Capital, per Schedule "1" 7,655 9,869 -------- -------- $271,012 $391,790 ======== ======== LIABILITIES Current: Accounts payable $ 29,023 $ 21,257 Wages payable 961 -- -------- -------- 29,984 21,257 Loan payable (Note 2) 24,190 24,190 -------- -------- 54,174 45,447 -------- -------- SHAREHOLDERS' EQUITY Share Capital: Authorized -- 10,000 Class "A" voting common shares without par value 90,000 Class "B" non-voting common shares without par value Issued and Fully Paid -- 240 Class "A" shares at $1 each 240 240 Retained Earnings, per Exhibit "B" 216,598 346,103 -------- -------- 216,838 346,343 Commitments (Note 4) Subsequent Event (Note 6) -------- -------- $271,012 $391,790 ======== ========
Approved by the Directors: ___________________________________ ___________________________________ - - See accompanying notes - 54 55 Exhibit "B" 430639 B.C. LTD. CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE NINE MONTHS ENDED JUNE 30, 1998
Nine Months Year Ended Ended September 30, June 30, 1997 1998 (unaudited) ----------- ------------- Sales $ 354,213 $ 474,606 Cost of sales 175,900 242,183 --------- --------- Gross income 178,313 232,423 --------- --------- Expenses: Accounting and legal 10,536 2,868 Administration fees 4,590 6,000 Advertising and promotion 1,187 827 Amortization 2,489 3,817 Automobile 8,958 3,668 Bad debts 268 -- Bank charges and interest 74 207 Consulting fees 855 5,090 Equipment rental 416 238 Insurance 6,277 7,476 Office and miscellaneous 72 1,296 Rent 4,050 5,400 Repairs 2,285 1,337 Telephone 810 1,109 Wages and benefits 43,024 50,127 Warehouse 5,311 3,042 --------- --------- 91,202 92,502 --------- --------- Income before other items 87,111 139,921 --------- --------- Other items: Interest income 4,535 5,286 Loss on disposal of capital asset 524 -- --------- --------- 4,011 5,286 --------- --------- Income before income taxes 91,122 145,207 Income taxes 21,836 34,020 --------- --------- Net Income 69,286 111,187 Retained Earnings, beginning 346,103 333,024 Dividends 200,000 100,000 Refundable dividend tax 475 422 Recovery of refundable dividend tax 1,684 2,314 --------- --------- Retained Earnings, ending, to Exhibit "A" $ 216,598 $ 346,103 ========= =========
- - See accompanying notes - 55 56 Exhibit "C" 430639 B.C. LTD. CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION FOR THE NINE MONTHS ENDED JUNE 30, 1998
Nine Months Year Ended Ended September 30, June 30, 1997 1998 (unaudited) ---------- ------------- Operating Activities: Cash from Operations - Net Income, per Exhibit "B" $ 69,286 $ 111,187 Charges to income not involving cash - Amortization 2,489 3,817 Loss on disposal of capital assets 524 -- ---------- ---------- 72,299 115,004 Net change in non-cash working capital balances - (Increase) Decrease in marketable securities 152,519 (52,519) (Increase) Decrease in accounts receivable 12,751 3,094 (Increase) Decrease in income taxes recoverable (1,619) (1,602) (Increase) Decrease in inventory 14,545 (10,161) (Increase) Decrease in prepaid expenses (3,982) -- Increase (Decrease) in accounts payable 7,766 270 Increase (Decrease) in wages payable 961 -- Increase (Decrease) in income taxes payable -- (5,226) ----------- ----------- 255,240 48,860 ----------- ----------- Investing Activity: Acquisition of capital assets (799) (1,241) ----------- ----------- Shareholder's Distributions: Dividends (200,000) (100,000) Refundable dividend tax (475) (422) Recovery of refundable dividend tax 1,684 2,314 ---------- ---------- (198,791) (98,108) ---------- ---------- Change in Cash 55,650 (50,489) Cash, beginning 61,114 111,603 ---------- ---------- Cash, ending $ 116,764 $ 61,114 ========== ==========
- - See accompanying notes - 56 57 Exhibit "D" 430639 B.C. LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 1. ACCOUNTING POLICIES: a) Consolidation - The Company follows the purchase method to consolidate its accounts. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Fraser Valley Industrial Chemicals Inc. b) Inventory - Inventory is recorded at the lower of cost and net realizable value. Cost is determined from the last invoice cost. c) Capital Assets - Capital assets are recorded at cost. Amortization is provided on the declining balance basis at the following annual rates: Computer Equipment 30% Equipment 20% Warehouse Equipment 20% For the period of acquisition, the rate used is one-half of that shown above. Leasehold improvements are amortized on a straight-line basis over five years. d) Translation of Foreign Currencies - Amounts in foreign currencies are translated into Canadian Dollars as follows: i) Current assets and liabilities at the exchange rates prevailing at the end of the period; ii) Operating income and expenses at the average exchange rate for the period. e) Fair Values of Financial Instruments - Unless otherwise noted, cash, accounts receivable, income taxes recoverable, accounts payable, wages payable and loan payable are stated at amounts that approximate their book value. f) Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on management's best knowledge of current events and actions the company may undertake in the future, actual results may differ from the estimates. 2. LOAN PAYABLE: The loan payable to Midway Supply Ltd. (which is controlled by a relative of the shareholders of the Company and is, therefore, a related party) is non-interest bearing and without specific terms of repayment. 57 58 Exhibit "D" Continued 430639 B.C. LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 3. RELATED PARTY TRANSACTIONS: The Company is related to Midway Supply Ltd. which is controlled by a relative of the shareholders of the company. The following summarizes the company's related party transactions for the period:
June 30, September 30, 1998 1997 (unaudited) ------------- ------------- Transactions during the period -- Sales to Midway Supply Ltd. $ 345,867 $ 460,915 Purchases from Midway Supply Ltd. 10,933 1,109
These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. At the end of the year, the amounts due to (from) related entities are as follows: Balances at period-end - Due from Midway Supply Ltd. included in accounts receivable $ 52,694 $ 56,552 Due to Midway Supply Ltd. included in accounts payable 531 88
These balances are payable on demand and have arisen from the sales of product and purchases referred to above. See also Note 2. 4. COMMITMENTS: The Company has entered into an agreement to lease an automobile which expires between June 30, 1999 and June 30, 2000. The minimum annual lease payments under this agreement are as follows: 1999 $ 9,852 2000 6,568 ------- $16,420 =======
5. ECONOMIC DEPENDENCE: The Company is economically dependent on Midway Supply Ltd., which is controlled by a relative of the shareholders of the Company. 6. SUBSEQUENT EVENT: Effective June 30, 1998, the Company amalgamated with its subsidiary, Fraser Valley Industrial Chemicals Ltd. The amalgamated entity commenced operations on July 1, 1998 under the name Fraser Valley Industrial Chemicals Inc. 58 59 Schedule "1" 430639 B.C. LTD. CAPITAL ASSETS AND ACCUMULATED AMORTIZATION FOR THE NINE MONTHS ENDED JUNE 30, 1998
ACCUMULATED NET BOOK CURRENT COST AMORTIZATION VALUE PROVISION ------- ------------ -------- --------- COMPUTER EQUIPMENT Balance, September 30, 1997 $ 3,063 $ 1,787 $ 1,276 Current provision - 287 (287) $ 287 ------- ------- ------- ------- Balance, June 30, 1998 3,063 2,074 989 287 ------- ------- ------- ------- EQUIPMENT Balance, September 30, 1997 4,118 2,600 1,518 Current provision - 228 (228) 228 ------- ------- ------- ------- Balance, June 30, 1998 4,118 2,828 1,290 228 ------- ------- ------- ------- LEASEHOLD IMPROVEMENTS Balance, September 30, 1997 7,294 6,564 730 Current provision - 730 (730) 730 ------- ------- ------- ------- Balance, June 30, 1998 7,294 7,294 - 730 ------- ------- ------- ------- WAREHOUSE Balance, September 30, 1997 13,951 7,606 6,345 Additions 799 - 799 Disposals (909) (385) (524) ------- ------- ------- ------- 13,841 7,221 6,620 Current provision - 1,244 (1,244) 1,244 ------- ------- ------- ------- Balance, June 30, 1998 13,841 8,465 5,376 1,244 ------- ------- ------- ------- TOTALS, to Exhibit "A" $28,316 $20,661 $ 7,655 $ 2,489 ======= ======= ======= =======
59 60 PURNEL DISTRIBUTORS LTD. FINANCIAL STATEMENTS FEBRUARY 28, 1998 60 61 LOGO YULE & ASSOCIATES* Geoff W. Yule, CA, Partner CHARTERED ACCOUNTANTS Doug Johnstone, CA, Partner *Incorporated as Geoff Yule & Associates Inc. Katarina Yule, CA Pam Gerrand, CA August 17, 1998 AUDITORS' REPORT To the Shareholder of Purnel Distributors Ltd. We have audited the balance sheet of Purnel Distributors Ltd. as at February 28, 1998, and the statements of income, retained earnings and changes in financial position 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 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 financial statements present fairly, in all material respects, the financial position of the Company as at February 28, 1998 and the results of operations and changes in financial position of the Company for the year then ended, in accordance with generally accepted accounting principles. Yule & Associates Chartered Accountants 61 62 PURNEL DISTRIBUTORS LTD. BALANCE SHEET
February 28, -------------------------- 1998 1997 (Note 10) ASSETS Current Assets Cash $ 6,599 $ 2,562 Accounts receivable 254,312 219,030 Inventory 234,055 234,511 ---------- ---------- 494,966 456,103 Capital Assets (Note 2) 167,855 77,016 Loans to Related Companies (Note 3) 108,750 87,500 ---------- ---------- $ 771,571 $ 620,619 ========== ========== LIABILITIES: Current Liabilities Cheques issued in excess of funds on deposit (Note 4) $ 91,340 $ 76,430 Accounts payable 89,286 103,797 Bonuses payable 90,000 90,000 Income taxes payable 2,119 2,198 Current portion of long-term debt (Note 5) 37,580 60,298 ---------- ---------- 310,325 332,723 Deferred Income Taxes 6,500 - Long-Term Debt (Note 5) 141,769 16,111 Shareholder Loans (Note 7) 510 69 ---------- ---------- 459,104 348,903 ---------- ---------- SHAREHOLDERS' EQUITY Share Capital (Note 9) 165 165 Retained Earnings 312,302 271,551 ---------- ---------- 312,467 271,716 ---------- ---------- $ 771,571 $ 620,619 ========== ==========
Approved by the Director: - ------------------------ Director 62 63 PURNEL DISTRIBUTORS LTD. STATEMENT RETAINED EARNINGS
For the Year Ended February 28, --------------------- 1998 1997 (Note 10) -------- -------- RETAINED EARNINGS, BEGINNING OF YEAR $271,551 $247,106 NET INCOME 54,751 41,445 DIVIDENDS PAID 14,000 17,000 -------- -------- RETAINED EARNINGS, END OF YEAR $312,302 $271,551 ======== ========
63 64 PURNEL DISTRIBUTORS LTD. STATEMENT OF INCOME
For the year ended February 28, ----------------------- 1998 1997 (Note 10) ---------- ---------- SALES $2,279,534 $2,146,199 COST OF SALES 1,493,572 1,424,979 ---------- ---------- GROSS PROFIT 785,962 721,220 OTHER INCOME 9,762 3,535 ---------- ---------- 795,724 724,755 ---------- ---------- EXPENSES Advertising 11,321 11,880 Amortization 45,418 32,623 Bad debts 2,898 863 Bank charges and interest 6,920 4,553 Insurance 12,546 11,454 Interest on long-term debt 10,085 9,384 Legal and accounting 9,143 3,833 Office and miscellaneous 24,252 27,338 Repairs and maintenance 4,661 4,322 Telephone and utilities 27,774 21,548 Travel and automotive 78,749 72,678 Wages and employee benefits 473,746 434,393 Warehouse rent (Note 8) 35,292 35,407 ---------- ---------- 742,805 670,276 ---------- ---------- INCOME BEFORE GAIN ON SALE OF CAPITAL ASSETS AND INCOME TAXES 52,919 54,479 GAIN ON SALE OF CAPITAL ASSETS 22,470 -- ---------- ---------- INCOME BEFORE INCOME TAXES 75,389 54,479 ---------- ---------- INCOME TAXES - deferred 6,500 -- - current 14,138 13,034 ---------- ---------- 20,638 13,034 ---------- ---------- NET INCOME $ 54,751 $ 41,445 ========== ==========
64 65 PURNEL DISTRIBUTORS LTD. STATEMENT OF CHANGES IN FINANCIAL POSITION
For the year ended February 28, ------------------------- 1998 1997 (Note 10) ----------- ---------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Operations Net income $ 54,751 $ 41,445 Items not affecting cash Amortization 45,418 32,623 Gain on sale of capital assets (22,470) -- ---------- ---------- 77,699 74,068 ---------- ---------- Changes in non-cash working capital Accounts receivable (35,282) (19,856) Inventory 456 42,916 Accounts payable (14,511) (9,527) Income taxes (79) (1,436) Deferred income taxes 6,500 -- ---------- ---------- (42,916) 12,097 ---------- ---------- 34,783 86,165 ---------- ---------- CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES Issuance of long-term debt 206,866 -- Repayment of long-term debt (103,926) (33,561) Advances to (from) shareholders 441 (1,331) Dividends (14,000) (17,000) ---------- ---------- 89,381 (51,892) ---------- ---------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES Purchase of capital assets (147,287) (20,322) Proceeds from disposal of capital assets 33,500 -- Loans to related Companies (21,250) (45,000) Repayment of share capital -- (10) Issuance of share capital -- 165 ---------- ---------- (135,037) (65,167) ---------- ---------- DECREASE IN CASH (10,873) (30,894) BANK INDEBTEDNESS, BEGINNING OF YEAR (73,868) (42,974) ---------- ---------- BANK INDEBTEDNESS, END OF YEAR $ (84,741) $ (73,868) ========== ========== REPRESENTED BY: Cash $ 6,599 $ 2,562 Cheques issued in excess of funds on deposit (91,340) (76,430) ---------- ---------- $ (84,741) $ (73,868) ========== ==========
65 66 PURNEL DISTRIBUTORS LTD. NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORY Inventory is stated at the lower of cost and net realizable value. CAPITAL ASSETS Capital assets are stated at cost. Amortization is calculated on the declining balance basis at the following annual rates: Store and office equipment 20% Automotive equipment 30% Computer 30% Software 100% Leasehold improvements are amortized on a straight-line basis over a period of five years. The provision for amortization is reduced by one-half in the year of acquisition. RELATED COMPANIES Shareholders of the Company have the following investments in other Companies: Midway Purnel Sanitary Supply Ltd. 50.0% Midway Purnel Sanitary Supply (PG) Ltd. 42.5% 537394 B.C. Ltd. 100.0% 2. CAPITAL ASSETS
Accumulated 1997 Cost Amortization 1998 (Note 10) -------- ------------ -------- -------- Store and office equipment $ 29,866 $ 26,056 $ 3,810 $ 4,763 Automotive equipment 184,948 53,218 131,730 45,995 Computer 75,414 46,350 29,064 23,786 Software 33,150 29,899 3,251 1,453 Leasehold improvements 24,444 24,444 -- 1,019 -------- -------- -------- ------- $347,822 $179,967 $167,855 $77,016 ======== ======== ======== =======
66 67 PURNEL DISTRIBUTORS LTD. NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998
3. LOANS TO RELATED COMPANIES 1998 1997 (Note 10) -------- --------- Loan to Midway Purnel Sanitary Supply (PG) Ltd. bearing interest at 4% per annum and without specified terms of repayment $ 20,000 $ 20,000 Loan to Midway Purnel Sanitary Supply Ltd. without specified terms of repayment 88,750 67,500 -------- -------- $108,750 $ 87,500 ======== ========
4. BANK OVERDRAFT The bank overdraft bears interest at the Bank prime plus 1/4 and is secured by accounts receivable and a personal guarantee of a shareholder.
5. LONG-TERM DEBT 1998 1997 (Note 10) -------- --------- Bank of Montreal, demand loan secured by a shareholder's personal guarantee. Monthly payments of $1,068 including interest at 10.25% $ - $ 41,182 Bank of Montreal, demand loan secured by automotive equipment. Monthly payments of $1,101 including interest at 10.25% - 21,650 Bank of Montreal, demand loan secured by automotive equipment. Monthly payments of $718 including interest at 10.75% - 13,577 Bank of Montreal, demand loan secured by a general security agreement over the assets of the Company and personal guarantees of a shareholder, monthly payments of $4,000 including interest at Bank prime plus 1.5% 179,349 - -------- -------- 179,349 76,409 Less: current portion of long-term debt 37,580 60,298 -------- -------- $141,769 $ 16,111 ======== ========
67 68 PURNEL DISTRIBUTORS LTD. NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998 6. FINANCIAL INSTRUMENTS CURRENT ASSETS & LIABILITIES The carrying values reported in the balance sheet for cash, accounts receivable, and current liabilities are reasonable estimates of fair values. CREDIT RISK Credit risk arises from the potential that a counterparty will fail to perform its obligations. The Company performs ongoing credit evaluations of its customers' financial conditions and limits the amount of credit extended when deemed necessary. LONG TERM DEBT The interest rates applicable to long term debt were generally equivalent to the interest rates that would have applied had the Company incurred such debt as at February 28, 1998. The fair value of long term debt is approximately the same as book value at February 28, 1998. 7. SHAREHOLDER LOANS Shareholder loans are non-interest bearing and have no fixed terms of repayment. 8. RELATED PARTY TRANSACTIONS Purnel Distributors Ltd. is related to Midway Purnel Sanitary Supply Ltd. and Midway Purnel Sanitary Supply (PG) Ltd. due to common shareholders. The Company had the following transactions with these related parties:
1998 1997 (Note 10) --------- --------- Balances at year end: Receivable from Midway Purnel Sanitary Supply Ltd. $ 12,959 $ 3,072 Receivable from Midway Purnel Sanitary Supply (PG) Ltd. 6,697 3,182 These balances are receivable on demand and have arisen from the sale of products and provision of services. Transactions during the year: Sales to: Midway Purnel Sanitary Supply Ltd. 48,930 114,555 Midway Purnel Sanitary Supply (PG) Ltd. 33,362 41,052 Warehouse rent is paid to John Kazakoff, a shareholder, at $2,400 per month. - 28,800 Warehouse rent is paid to 537394 B.C. Ltd., a related company, at $2,400 per month. 28,800 -
These transactions are in the normal course of operations and are unsecured. 68 69 PURNEL DISTRIBUTORS LTD. NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998
9. SHARE CAPITAL 1998 1997 (Note 10) --------- --------- Authorized 10,000 Class "A" common shares, voting, no par value 100,000 Class "B" common shares, non- voting, par value $0.01 per share 100,000 Class "C" common shares, non- voting, par value $0.01 per share 100,000 Class "D" preferred shares, non-voting, redeemable and retractable at $100 per share, par value $0.01 per share Issued 100 Class "A" shares $ 10 $ 10 100 Class "B" shares 100 100 5480 Class "D" shares 55 55 --------- --------- $ 165 $ 165 ========= =========
10. COMPARATIVE FIGURES The comparative financial statements have not been audited, and consequently, the auditors do not express an opinion on the financial statements of the preceding year. 69 70 PURNEL DISTRIBUTORS LTD. FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 70 71 LOGO YULE & ASSOCIATES Geoff W. Yule, CA, Partner CHARTERED ACCOUNTANTS Doug Johnstone, CA, Partner *Incorporated as Geoff Yule & Associates Inc. Katarina Yule, CA Pam Gerrand, CA August 17, 1998 REVIEW ENGAGEMENT REPORT To the Shareholders of Purnel Distributors Ltd. We have reviewed the balance sheet of Purnel Distributors Ltd. as at June 30, 1998 and the statements of income, retained earnings and changes in financial position for the year then ended. Our review was made in accordance with generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information supplied to us by the Company. A review does not constitute an audit and consequently we do not express an audit opinion on these financial statements. Based on our review, nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with generally accepted accounting principles. Yule & Associates Chartered Accountants 71 72 PURNEL DISTRIBUTORS LTD. BALANCE SHEET (unaudited)
June 30, February 28, 1998 1998 ---------- ----------- ASSETS Current Assets Cash $ 1,121 $ 6,599 Accounts receivable 287,247 254,312 Inventory 253,857 234,055 Prepaid expenses 7,468 -- --------- --------- 549,693 494,966 Capital Assets (Note 2) 140,611 167,855 Loans to Related Companies (Note 3) 88,750 108,750 --------- --------- $ 779,054 $ 771,571 ========= ========= LIABILITIES Current Liabilities Cheques issued in excess of funds on deposit (Note 4) $ 143,353 $ 91,340 Accounts payable 126,410 89,286 Bonuses payable -- 90,000 Income taxes payable 6,109 2,119 Current portion of long-term debt (Note 5) 38,400 37,580 --------- --------- 314,272 310,325 Deferred Income Taxes 6,500 6,500 Long-Term Debt (Note 5) 129,627 141,769 Shareholder Loans (Note 7) -- 510 --------- --------- 450,399 459,104 --------- --------- SHAREHOLDERS' EQUITY Share Capital (Note 9) 165 165 Retained Earnings 328,490 312,302 --------- --------- 328,655 312,467 --------- --------- $ 779,054 $ 771,571 ========= =========
Approved by the Director _______________________________ Director 72 73 PURNEL DISTRIBUTORS LTD. STATEMENT RETAINED EARNINGS (unaudited)
For the Four For the Year Months Ended Ended June 30, February 28, 1998 1998 ------------- ------------ RETAINED EARNINGS, BEGINNING OF YEAR $312,302 $271,551 NET INCOME 26,688 54,751 DIVIDENDS PAID (10,500) (14,000) -------- -------- RETAINED EARNINGS, END OF YEAR $328,490 $312,302 ======== ========
73 74 PURNEL DISTRIBUTORS LTD. STATEMENT OF INCOME (unaudited)
For the Four For the Year Months Ended Ended June 30, February 28, 1998 1998 ------------- ------------ SALES $ 763,174 $2,279,534 COST OF SALES 460,147 1,493,572 ---------- ---------- GROSS PROFIT 303,027 785,962 OTHER INCOME 839 9,762 ---------- ---------- 303,866 795,724 ---------- ---------- EXPENSES Advertising 3,945 11,321 Amortization 17,039 45,418 Bad debts 26,961 2,898 Bank charges and interest 2,306 6,920 Insurance (4,236) 12,546 Interest on long-term debt 4,678 10,085 Legal and accounting 5,400 9,143 Office and miscellaneous 7,177 24,252 Repairs and maintenance 1,906 4,661 Telephone and utilities 10,649 27,774 Travel and automotive 26,061 78,749 Wages and employee benefits 153,835 473,746 Warehouse rent (Note 8) 12,832 35,292 ---------- ---------- 268,553 742,805 ---------- ---------- INCOME BEFORE GAIN ON SALE OF CAPITAL ASSETS AND INCOME TAXES 35,313 52,919 GAIN ON SALE OF CAPITAL ASSETS -- 22,470 ---------- ---------- INCOME BEFORE INCOME TAXES 35,313 75,389 ---------- ---------- INCOME TAXES - deferred -- 6,500 - current 8,625 14,138 ---------- ---------- 8,625 20,638 ---------- ---------- NET INCOME $ 26,688 $ 54,751 ========== ==========
74 75 PURNEL DISTRIBUTORS LTD. STATEMENT OF CHANGES IN FINANCIAL POSITION (unaudited)
For the Four For the Year Months Ended Ended June 30, February 28, 1998 1998 ------------ ------------ CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Operations Net income $ 26,688 $ 54,751 Items not affecting cash Amortization 17,039 45,418 Gain on sale of capital assets - (22,470) --------- --------- 43,727 77,699 --------- --------- Changes in non-cash working capital Accounts receivable (32,935) (35,282) Inventory (19,802) 456 Prepaid expenses (7,468) - Accounts payable 37,124 (14,511) Bonuses payable (90,000) - Income taxes 3,990 (79) Deferred income taxes - 6,500 --------- --------- (109,091) (42,916) --------- --------- (65,364) 34,783 --------- --------- CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES Issuance of long-term debt - 206,866 Repayment of long-term debt (11,322) (103,926) Advances (from) to shareholders (510) 441 Dividends (10,500) (14,000) --------- --------- (22,332) 89,381 --------- --------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES Purchase of capital assets - (147,287) Proceeds from disposal of capital assets 10,205 33,500 Loans to related Companies 20,000 (21,250) --------- --------- 30,205 (135,037) --------- --------- DECREASE IN CASH (57,491) (10,873) BANK INDEBTEDNESS, BEGINNING OF PERIOD (84,741) (73,868) --------- --------- BANK INDEBTEDNESS, END OF PERIOD $(142,232) $ (84,741) ========= ========= REPRESENTED BY: Cash $ 1,121 $ 6,599 Cheques issued in excess of funds on deposit (143,353) (91,340) --------- --------- $(142,232) $ (84,741) ========= =========
75 76 PURNEL DISTRIBUTORS LTD. NOTES TO FINANCIAL STATEMENTS (unaudited) June 30, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORY Inventory is stated at the lower of cost and net realizable value. CAPITAL ASSETS Capital assets are stated at cost. Amortization is calculated on the declining balance basis at the following annual rates: Store and office equipment 20% Automotive equipment 30% Computer 30% Software 100%
Leasehold improvements are amortized on a straight-line basis over a period of five years. The provision for amortization is reduced by one-half in the year of acquisition. RELATED COMPANIES Shareholders of the Company have the following investments in other Companies: Midway Purnel Sanitary Supply Ltd. 50.0% Midway Purnel Sanitary Supply (PG) Ltd. 42.5% 537394 B.C. Ltd. 100.0%
2. CAPITAL ASSETS
ACCUMULATED JUNE 30, FEBRUARY 28, COST AMORTIZATION 1998 1998 -------- ------------ -------- ----------- Store and office equipment $ 29,866 $ 26,310 $ 3,556 $ 3,810 Automotive equipment 158,733 50,003 108,730 131,730 Computer 75,414 49,256 26,158 29,064 Software 33,150 30,983 2,167 3,251 Leasehold improvements 24,444 24,444 -- -- -------- -------- -------- -------- $321,607 $180,996 $140,611 $167,855 ======== ======== ======== ========
76 77 PURNEL DISTRIBUTORS LTD. NOTES TO FINANCIAL STATEMENTS (unaudited) June 30, 1998
3. LOANS TO RELATED COMPANIES June 30, February 28, 1998 1998 ---------- ------------ Loan to Midway Purnel Sanitary Supply (PG) Ltd. bearing interest at 4% per annum and without specified terms of repayment. $ - $ 20,000 Loan to Midway Purnel Sanitary Supply Ltd. without specified terms of repayment. 88,750 88,750 -------- -------- $ 88,750 $108,750 ======== ========
4. BANK OVERDRAFT The bank overdraft bears interest at the Bank prime plus 1/4 and is secured by accounts receivable and a personal guarantee of a shareholder.
5. LONG-TERM DEBT June 30, February 28, 1998 1998 ---------- ------------ Bank of Montreal, demand loan, secured by a general security agreement over the assets of the Company and personal guarantees of a shareholder, monthly payments of $4,000 including interest at Bank prime plus 1.5% $168,027 $179,349 -------- -------- 168,027 179,349 Less: current portion of long-term debt 38,400 37,580 -------- -------- $129,627 $141,769 ======== ========
77 78 PURNEL DISTRIBUTORS LTD. NOTES TO FINANCIAL STATEMENTS (unaudited) JUNE 30, 1998 6. FINANCIAL INSTRUMENTS CURRENT ASSETS AND LIABILITIES The carrying values reported in the balance sheet for cash, accounts receivable, and current liabilities are reasonable estimates of fair values. CREDIT RISK Credit risk arises from the potential that a counterparty will fail to perform its obligations. The Company performs ongoing credit evaluations of its customers' financial conditions and limits the amount of credit extended when deemed necessary. LONG TERM DEBT The interest rates applicable to long term debt were generally equivalent to the interest rates that would have applied had the company incurred such debt as at June 30, 1998. The fair value of the long term debt is approximately the same as the book value at June 30, 1998. 7. SHAREHOLDER LOANS Shareholder loans were non-interest bearing and had no fixed terms of repayment. 8. RELATED PARTY TRANSACTIONS Purnel Distributors Ltd. is related to Midway Purnel Sanitary Supply Ltd. and Midway Purnel Sanitary Supply (PG) Ltd. due to common shareholders. The Company had the following transactions with these related parties:
June 30, February 28, 1998 1998 -------- ------------ Balances at year end: Receivable from Midway Purnel Sanitary Supply Ltd. $22,619 $12,959 Receivable from Midway Purnel Sanitary Supply (PG) Ltd. 25,879 6,697 These balances are receivable on demand and have arisen from the sale of products and provision of services. Transactions during the period: Sales to: Midway Purnel Sanitary Supply Ltd. 42,726 48,930 Midway Purnel Sanitary Supply (PG) Ltd. 25,745 33,362 Warehouse rent is paid to 537394 B.C. Ltd, a related Company, at $2,400 per month. 9,600 28,800
These transactions are in the normal course of operations and are unsecured. 78 79 PURNEL DISTRIBUTORS LTD. NOTES TO FINANCIAL STATEMENTS (unaudited) June 30, 1998 9. SHARE CAPITAL
June 30, February 28, 1998 1998 -------- ------------ Authorized 10,000 Class "A" common shares, voting, no par value 100,000 Class "B" common shares, non-voting, par value $0.01 per share 100,000 Class "C" common shares, non-voting, par value $0.01 per share 100,000 Class "D" preferred shares, non-voting, redeemable and retractable at $100 per share, par value $0.01 per share Issued 100 Class "A" shares $ 10 $ 10 100 Class "B" shares 100 100 5480 Class "D" shares 55 55 ------- ----------- $165 $165 ======= ===========
79 80 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION 80 81 WYANT CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (dollars in thousands, except per share data)
Wyant Midway-Purnel Other Acquisition Total Corporation Group of Acquired Adjustments Pro Forma & Subsidiaries Companies Companies --------------- --------- --------- ------------- ----------- Net sales $ 91,220 $ 8,192 $ 5,741 $ $ 105,153 Cost of sales 62,200 5,422 3,459 71,081 ---------- -------- ------- ---------- Gross profit 29,020 2,770 2,282 34,072 Selling, general and administration expenses 26,850 2,375 2,108 31,333 Amortization 567 108 66 100(a) 841 Interest expense 968 15 18 237(b) 1,238 Other income (295) (19) (37) (351) ---------- -------- ------- ---- ---------- 28,090 2,479 2,155 337 33,061 ---------- -------- ------- ---- ---------- Income before income taxes and extraordinary gain 930 291 127 (337) 1,011 Income tax expense 511 79 35 (126)(c) 499 ---------- -------- ------- ---- ---------- Income before extraordinary gain 419 212 92 (211) 512 Extraordinary gain, net of income taxes 92 - - 92 ---------- -------- ------- ---- ---------- Net income 511 212 92 (211) 604 Dividends and accretion of mandatorily redeemable preferred stock 192 - - 116(d) 308 ---------- -------- --------- ---- ---------- Net income attributable to common shares $ 319 $ 212 $ 92 $(327) $ 296 ========== ======== ========= ===== ========== Per common share Basic Income before extraordinary gain $ 0.06 $ 0.05 Extraordinary gain $ 0.03 $ 0.03 Net income $ 0.09 $ 0.08 Diluted Income before extraordinary gain $ 0.06 $ 0.05 Extraordinary gain $ 0.03 $ 0.03 Net income $ 0.09 $ 0.08 Weighted-average shares outstanding Basic 3,597,125 3,597,125 Diluted 3,603,793 3,886,904
81 82 WYANT CORPORATION AUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1998 (dollars in thousands, except per share data)
Wyant Midway-Purnel Other Corporation Group of Acquired Acquisition Total & Subsidiaries Companies Companies Adjustments Pro Forma -------------- ------------- ---------- ------------- --------- Net sales $48,179 $4,056 $2,211 $ $54,446 Cost of sales 32,907 2,632 1,268 36,807 ------- ------ ------ ------- Gross profit 15,272 1,424 943 17,639 Selling, general and administration expenses 12,348 1,208 853 14,409 Amortization 260 41 46 41 (a) 388 Interest expense 706 12 6 81 (b) 805 Other income (93) 72 (6) (27) ------- ------ ------ ---- ------- 13,221 1,333 899 122 15,575 ------- ------ ------ ---- ------- Income before income taxes 2,051 91 44 (122) 2,064 Income tax expense 810 59 11 (49)(c) 831 ------- ------ ------ ---- ------- Net income 1,241 32 33 (73) 1,233 Dividends and accretion of mandatorily redeemable preferred stock 161 62 (d) 223 ------- ------ ------ ----- -------- Net income attributable to common shares $ 1,080 $ 32 $ 33 $(136) $ 1,010 ======= ====== ====== ===== ======== Per common share Basic $ 0.30 $ 0.28 Diluted $ 0.29 $ 0.25 Weighted-average shares outstanding Basic 3,605,329 3,605,329 Diluted 3,771,229 4,009,110
82 83 NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION 1. Pro Forma Combined Balance Sheet No Pro Forma Combined Balance Sheet at June 30, 1998 is provided, as his information would be identical to the Consolidated Balance Sheet of Wyant Corporation included in the Quarterly Report on Form 10-Q filed for the period ended June 30, 1998 which is incorporated by reference hereto. 2. Pro Forma Combined Statements of Operations The Pro Forma adjustments result from: a) Amortization of goodwill arising on the acquisition of the Midway-Purnel Group of Companies and on the acquisition of two other companies which are individually not material. b) Interest expense on bank financing obtained to finance the cash portion of the cost of acquisitions referred to in note a) above. c) The income tax effect of notes a) and b) above. d) Accretion of the excess of the redemption value over the fair value at the respective dates of acquisition of the Class "F" Preferred shares of Wood Wyant Inc. issued as the non-cash consideration for the acquisitions referred to in note a) above. The operating results of the acquired companies have been translated into United States dollars from Canadian dollars at the following average rates of exchange: Six months ended June 30, 1998 - $1.00 U.S. equals $1.4385 Cdn. Year ended December 31, 1997 - $1.00 U.S. equals $1.3844 Cdn. 83 -----END PRIVACY-ENHANCED MESSAGE-----