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As Filed with the Securities and Exchange Commission on July , 1997 -
Registration No. 0-22541
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Amendment No. 1
to
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
MERCRISTO DEVELOPMENTS, INC.
(Formerly [email protected] Inc., formerly MAC Systems Inc.)
DELAWARE 98-0166912
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
240 Argyle Avenue,
Ottawa, Ontario, Canada K2P 1B9
(Address of Principal Executive Offices) (Zip Code)
Company's telephone number, including area code is (613)-230-9803,
(800)-565-6671
Copies to:
Jeffrey H. Bowen, Esq.
HARTER, SECREST & EMERY
700 Midtown Tower
Rochester, New York 14604
(716) 232-6500
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
None None
---- ----
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
(Title of Class)
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TABLE OF CONTENTS
ITEM Page No.
1. BUSINESS................................................................. 1
2. FINANCIAL INFORMATION....................................................13
3. PROPERTIES...............................................................21
4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........22
5. DIRECTORS AND EXECUTIVE OFFICERS.........................................23
6. EXECUTIVE COMPENSATION...................................................25
7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................26
8. LEGAL PROCEEDINGS........................................................27
9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS..........................................28
10. RECENT SALES OF UNREGISTERED SECURITIES..................................30
11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED..................31
12. INDEMNIFICATION OF DIRECTORS AND OFFICERS................................32
13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................33
14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................................35
15. FINANCIAL STATEMENTS AND EXHIBITS........................................36
SIGNATURE PAGE................................................................37
INDEX TO EXHIBITS.............................................................38
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ITEM 1. BUSINESS
General Organizational History of the Company
---------------------------------------------
The Company was incorporated in the State of Delaware on January 4, 1996 as
MAC Systems Inc. ("MAC") and was initially capitalized with the issuance of
4,090,448 shares of common stock. On or about January 19, 1996, approximately
90% of the 4,090,448 then outstanding shares of common stock of the Company was
acquired by Janmur Investments Inc. ("Janmur") on behalf of 84133 Investments
Inc. ("84133"), both Janmur and 84133 being owned by a non-citizen and non-
resident of the United States. Prior officers and directors of MAC were replaced
by persons who had no past relationships with the stockholders, and prior
directors and officers of MAC. On January 22, 1996, MAC effected a 20-for-1
reverse split which resulted in 204,719 shares of common stock being
outstanding, with approximately 10% continuing to be held by the original
stockholders of MAC.
On or about February 4, 1996, in exchange for 6,000,000 shares of legended
common stock of MAC, 84133 transferred to MAC all of the outstanding shares of
common stock of 84133's wholly-owned subsidiary, ComputerLink Online Inc.
("ComputerLink"), at exactly the same cash value for which 84133 acquired
ComputerLink from the unrelated original founders of ComputerLink on January 1,
1996. ComputerLink, a private Canadian corporation providing Internet access,
software, and World Wide Web services thereby became a wholly-owned subsidiary
of MAC. The original founders of ComputerLink, in recognition of their
technical experience and familiarity with ComputerLink's operations, were
retained under management contracts as the senior executive management team and
members of the Board of Directors of MAC. In March 1996, MAC changed its name
to Internet @ iDirect.com Inc. ("Internet") to reflect more accurately the
consolidated operations of MAC and ComputerLink. In June 1996, in exchange for
1,000,000 shares of legended common stock of Internet, Internet acquired Tucows
Ltd. ("Tucows"), one of the world's top 5 providers of World Wide Web services,
from 84133.
By agreements executed January 15, 1997, Internet and 84133 rescinded the
transactions pursuant to which the Company acquired ComputerLink and Tucows.
Contemporaneously with this rescission transaction, all ComputerLink affiliates
resigned from Internet's Board of Directors and any offices that they may have
held with Internet. There are no ongoing relationships or affiliations between
the Company and ComputerLink, Tucows and their shareholders, directors, officers
and management. As the acquisition transactions were rescinded, so were the
issuances of the 7,000,000 shares of the Company's Common Stock. As a result of
these rescission transactions, the Company had no operations and no operating
assets.
The Company - Mercristo Developments, Inc.
------------------------------------------
On or about January 27, 1997, David G. Edwards, principal shareholder and
owner of 622291 Ontario Limited ("622291"), a private Canadian company with
diversified financial investment/operational interests located in Ottawa,
Ontario, Canada, purchased 200,000 shares of the Company's Common Stock from
Janmur. By Board of Directors and stockholder action on February 10, 1997, Mr.
Edwards, his wife and his brother became the Company's Directors and officers.
The new stockholders, officers and Directors have no past relationship with the
Company's prior management.
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The Company changed its name from Internet @ iDirect.com Inc. to Mercristo
Developments, Inc. on February 10, 1997.
Effective January 31, 1997, David G. Edwards effected a reorganization of
622291 pursuant to which operations of 622291 other than the Blue Moon Farms
breeding and care operations and operations of 622291's wholly-owned subsidiary,
Edwards Arabians Inc., were spun off from 622291. Also effective January 31,
1997, 622291 became a wholly-owned subsidiary of a newly-formed Canadian holding
company known as Egyptian Arabians Inc. and acquired title to certain real
property at 240 Argyle Avenue, Ottawa, Canada. Simultaneous with those
transactions, Egyptian Arabians Inc. became a wholly-owned subsidiary of the
Company pursuant to the terms and conditions of an Agreement and Plan of
Reorganization by and among the Company, Egyptian Arabians Inc. and Egyptian
Arabians' sole stockholder. In consideration of the acquisition of Egyptian
Arabians, the Company issued to Resi Corp., the sole stockholder of Egyptian
Arabians, 8,450,000 shares of the Company's Common Stock.
The Company has an authorized capitalization of 100,000,000 shares of
Common Stock, par value of $.001 US, of which 16,560,519 shares of common stock
are issued and outstanding, giving effect to the transactions contemplated by
the Agreement and Plan of Reorganization. See "Security Ownership of Certain
Beneficial Owners and Management," "Recent Sales of Unregistered Securities" and
"Description of Registrant's Securities to be Registered."
Unless otherwise indicated herein, the information set forth herein assumes
the closing of the transactions contemplated by the Agreement and Plan of
Reorganization, and all references to the "Registrant" or the "Company" herein
include Mercristo Developments, Inc., the Company's wholly-owned subsidiary,
Egyptian Arabians Inc., and the direct and indirect wholly-owned subsidiaries of
Egyptian Arabians Inc., 622291 Ontario Limited and Edwards Arabians Inc.,
respectively.
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Corporate Structure
-------------------
The Company's corporate structure is as follows:
Company:
a Delaware Corporation Mercristo Developments, Inc.
Canadian Subsidiary:
an Ontario Corporation Egyptian Arabians Inc.
(100% Subsidiary of
Mercristo Developments)
Original Holding Company:
Includes Blue Moon Farms 622291 Ontario Limited
operations, and the corporate
offices at 240 Argyle Avenue,
Ottawa
(100% Subsidiary of
Egyptian Arabians)
Marketing & Sales:
(100% Subsidiary of 622291) Edwards Arabians Inc.
Overview - Company's Operations
-------------------------------
The Company, through its wholly-owned subsidiary, Egyptian Arabians Inc.,
is a private breeder of Straight Egyptian Arabian horses. Straight Egyptian
Arabian horses are the finest and rarest of Arabian horses in the world. Out of
an estimated 100 million world general horse population, approximately 6,000 are
Straight Egyptian Arabian horses. An Egyptian Arabian horse is a pure-bred
Arabian horse that has been bred or that is descended from horses that were bred
in Egypt. A Straight Egyptian Arabian horse is an Egyptian Arabian horse whose
pedigree is unmixed with other blood-line groups. The characterization
"Straight Egyptian" is officially recognized in the Arabian horse arena.
North America is the world's foremost repository of these highly prized and
rare creatures. Egyptian Arabians Inc. is one of five large Canadian farms which
are solely dedicated to the breeding of Straight Egyptian Arabian horses. Each
of these five farms is independently owned and operates strictly on an arms
length basis from one another. The five farms utilize and access semen from a
major international organization which currently controls the largest collection
of senior, world class Straight Egyptian Arabian stallions available today. In
addition, subsidiaries of Egyptian Arabians Inc. have
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previously purchased semen from other senior stallions which are owned by other
independent North American breeders of Straight Egyptian Arabian horses.
Egyptian Arabians Inc. manages a large private breeding facility for
Straight Egyptian Arabian horses, with more than 325 Straight Egyptian Arabian
horses under its care and management with approximately 95 mares which will
produce foals in 1997. There are a total of 125 mares which are eligible and
will be bred in 1997 as well. As a result of the 1997 foaling and breeding
activities, it is expected that, by the summer of 1998, Egyptian Arabians Inc.
will provide care and management for approximately 380 Straight Egyptian Arabian
mares and fillies at its present facilities.
The Company operates through two subsidiaries of its main Canadian
subsidiary - Egyptian Arabians Inc. The two subsidiaries are:
(a) 622291 Ontario Limited, an Ontario company, located in Addison,
Ontario. The Company's Blue Moon Farms operations reside within
622291. Blue Moon Farms is the farm operating facility for the
breeding and care of the Straight Egyptian Arabian horses tenanted
there.
(b) Edwards Arabians Inc., an Ontario company, with its head office
located at 240 Argyle Avenue, Ottawa, Ontario. Edwards Arabians Inc.
is the marketing and sales arm for the Company's Straight Egyptian
Arabian horse business.
The Company, since the inception of its equine business in 1991, has
enjoyed strong revenue growth, solid operating margins, and high levels of
profitability. See "Financial Information" and "Financial Statements".
Management anticipates continued revenue growth. Except for commercial mortgages
on its 240 Argyle Avenue, Ottawa, Ontario corporate headquarters, and the Blue
Moon Farms facilities, it has no institutional debt or commercial lines of
credit.
In the past five years, the Company has generated revenue principally by
(a) selling Straight Egyptian Arabian horses to investment limited partnerships,
other breeders and to individual clients and (b) operating the breeding and care
facilities at Blue Moon Farms for the Straight Egyptian Arabian horse assets of
the limited partnerships and other individual owners.
These limited partnerships center around shared ownership by individual
clients of world class Straight Egyptian Arabian horses, and utilize various
Canadian legislation that exists in the area of farm-loss write-offs,
registered savings plans deductions through share ownership in private client
owned Canadian corporations, income splitting, and the deductibility of loan
servicing interest on investments loans. Additionally, individual clients have
also purchased Straight Egyptian Arabian mares in order to take advantage of
their breeding potential and the premium prices commanded by Straight Egyptian
Arabian horse fillies borne by these mares over an average 15 years breeding
life.
The Company believes that its techniques for artificial insemination,
pregnancy care, foaling care, medical care and training are technologically
superior to those of other breeders and boarders of Straight Egyptian Arabian
horses. Coupled with a work force of approximately 25 highly trained staff and
management, these techniques have contributed to the Company's profitability.
Continued growth in revenues, tightly engineered cost optimization, and top
quality Straight Egyptian Arabian horse breeding rates exceeding 85% (compared
to the worldwide industry average of approximately 65% -
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70%) have allowed the Company to become a major player in the Straight Egyptian
Arabian horse business in the short span of five years.
The Company, through its subsidiary, Edwards Arabians Inc., is
participating in an extensive R&D program with one of North America's leading
equine research centers - Guelph University, Guelph, Ontario. This research
program will investigate one of the leading causes of death among new born
foals, Rhodococcus Equi. The Company hopes that its sponsorship of this program
will provide it with access to technology that will reduce the death rate of new
born foals and thereby improve the Company's prospects for greater volumes of
annual foal production.
The Blue Moon Farms operation employs approximately 25 staff members and
has several local veterinarians on 24 hour call. The actual number of staff at
Blue Moon Farms varies with seasonal aspects of the business from 20 to 30
individuals. Staffing at the Company's Blue Moon Farms operations is heaviest
during the months of January through September, which months represent a full
breeding season, the entire foaling season and the time of year when weather-
related work such as fencing, pasture management and haying activities are most
commonly undertaken. The months of October, November and December see fewer
staff in that the major work load of the operations would have been completed by
the end of September. In addition, due to greater operating efficiencies over
the past two years, the Company's staff count has remained relatively constant
despite annual increases in the number of horses under management or ownership.
The entire Straight Egyptian Arabian horse breeding and care system is
continuously and carefully monitored, electronically and physically, to ensure
maximum productivity of Straight Egyptian Arabian foalings. Leading edge medical
and electronic equipment and highly trained staff enable minimization of costs
and optimization of Straight Egyptian Arabian horse production output.
The Company's marketing and sales organization, housed within Edwards
Arabians Inc., employs five individuals at its Ottawa, Canada facility.
It is the Company's objective to become the world's largest private breeder
of Straight Egyptian Arabian horses. Management intends to do this through both
external growth through acquisitions, primarily in the United States, and
internal growth through increased revenue generation and profitability. It has
its executive, financial, and marketing offices at 240 Argyle Avenue in Ottawa,
Canada, and operates its breeding and equine care facilities at and adjacent to
its Blue Moon Farms location in Addison, Ontario, Canada covering 220 acres,
currently housing over 325 Straight Egyptian Arabian horses.
Company's Mission and Strategy
------------------------------
The Company has a primary mission to profitably carry on the business of
breeding, raising, showing, exhibiting, and selling Straight Egyptian Arabian
horses for the purpose of supporting external and internal growth and returning
value to the Company's stockholders. The Company's ultimate goal is to become
the largest private breeder of Straight Egyptian Arabian horses in the world.
To accomplish this goal, the Company has made major investments in re-
engineering the Straight Egyptian Arabian horse breeding and care operations at
the Company's Blue Moon Farms facilities in Addison, Ontario, using the most
advanced technologies for breeding, maternity care and monitoring, physical
security, safety, and medical care.
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Short-Term and Medium-Term Strategies
-------------------------------------
The Company's strategy is to improve the Company's position in the
Straight-Egyptian Arabian marketplace. In the short term, the Company intends to
pursue the following core strategies:
Complete the re-engineering and modernization of the Company's facilities
at Blue Moon Farms.
Identify potential acquisition targets of North American Straight-Egyptian
Arabian horse breeders.
Establish North American market awareness of the Company and its business.
Establish market awareness of the Company and its business in select
international markets.
In the medium term, the Company intends to pursue the additional following
strategies:
Fuel external growth by U.S. acquisitions of Straight-Egyptian Arabian
horse breeders whose operations will be compatible with those of the
Company.
Establish a Straight Egyptian Arabian horse export market from North
America to select international markets.
Create a niche lifestyle awareness in North America as to the benefits,
both social and economic, of participation in the ownership of Straight-
Egyptian Arabian horses.
Although the Company intends to grow through external acquisitions, the
Company has no understanding or agreements to make any specific acquisition at
this time. In any event, the terms and conditions of any such acquisition would
be subject solely to management's discretion.
The Arabian Horse
-----------------
The Arabian horse has the distinction of being the oldest living breed of
horse. "Equus Arabicus", one of the four original species of horse, has been
identified in modern times as the Arabian horse. While other breeds disappeared
or mixed with different breeds, the Arabian remained essentially the same.
Although the first recorded history of the Arabian horse was 3,000 years ago,
some archaeologists believe the breed existed as long as 40,000 years ago.
Raised originally in Arabia and adjacent countries and noted for its
intelligence, grace and stamina, Arabians have the longest bloodline record of
any horse breed and have been bred by the Bedouins in the Near East for three
millennia, primarily for use in war because of their endurance. Tomb paintings
indicated that Egyptians raised Arabian horses as early as 1580 BC. The Muslim
conquests of the sixth and seventh centuries introduced Arabian horses to Europe
and many parts of Asia.
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Many of the Arabian horse's characteristics (such as stamina, hardiness and
agility) were developed due to the careful breeding practices and harsh
lifestyle of the desert Bedouin tribes. The natural culling that occurred
because of the strenuous life in the desert was enhanced by careful breeding
practices of owners. Because of these breeding practices the Arabian horse is
considered to be the most prepotent of all breeds of horses, for its ability in
passing on its characteristics to foals.
For thousands of years, owners bred Arabian horses to own more stock and to
pick up the famous Arabian qualities. In fact, the Arabian horse is the genetic
predecessor of every light horse breed in existence today. Arabians have been
bred with other horses to produce new breeds, including thoroughbreds,
standardbreds, quarter horses, lippizaners and national show horses.
Straight Egyptian Arabian Horses
--------------------------------
Straight Egyptian Arabians, which account for approximately 1.0% of all
purebred Arabian horses, trace their heritage exclusively to the Arabians which
were bred in, or whose bloodline was used as part of, the established breeding
programs in Egypt, referred to below. Many Arabian horses in North America and
Europe today are Egyptian-related in recognition of the superior qualities of
the Straight Egyptian Arabian.
Straight Egyptian Arabians are considered by breeders to be very prepotent
in passing their characteristics on to their foals because of their intense line
breeding. The Straight Egyptian Arabian is known for its elegant features. Its
dished head, large eyes, arched neck and high tail carriage justify its
reputation as the most beautiful of all breeds. Straight Egyptian Arabian horses
have a body which is shorter than other breeds, usually a rib and one vertebrae
less than a Thoroughbred and two vertebrae in the tail. Colourings are primarily
grey, bay and chestnut.
The Straight Egyptian Arabian horse's natural physical characteristics have
contributed to its outstanding performance in today's equine activities. The
short, dished head and wide flaring nostrils allow for maximum oxygen intake.
The arched neck keeps the windpipe defined and clear to carry air to the lungs.
Through careful breeding, strong resilient legs, free of most lameness problems,
are more common than in other breeds. Such qualities give the Straight Egyptian
Arabian horse superior athleticism and versatility.
International Markets
---------------------
As the demand for Straight Egyptian Arabian horses has increased, markets
have opened up in many parts of the world to meet this demand. Out of the
general Arabian horse population of 1 million, and a general world horse
population of an estimated 100 million, only approximately 6,000 horses are
registered Straight Egyptian Arabians. This exclusivity has helped to support
the market value of these horses. See "BUSINESS - The Industry."
Outside of North America, countries with well developed markets and
businesses leading in the breeding and growth of the Straight Egyptian Arabian
horse industry include: Sweden, Norway, Germany, Netherlands, Belgium, Spain,
Portugal, France, Switzerland, Austria, Hungary, Russia, Poland, Morocco, Egypt,
South Africa, Australia, Argentina, Chile, Uruguay, and Brazil.
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North American Markets
----------------------
Arabian horses made their debut in North America during the 1893 Chicago
World's Fair, where Bedouins exhibited 29 horses. The breed gradually grew, but
it was not until the 1940's that the Arabian horses gained widespread popularity
through the advent of horse shows. Some of the best Arabian horses bred
throughout the world have been exported to North American breeders over the last
40 years. North American breeders have achieved a reputation as leaders in the
preservation, through selective breeding, of purebred Arabian bloodlines.
After countless centuries, and only in the last 30 to 40 years, North
America has achieved the undisputed status as the world guardian and protector
of Straight Egyptian Arabian horses in terms of both quality and quantity.
North American interest in Straight Egyptian Arabian horses has soared after
major wins in the show ring, and consequently as a better understanding was
achieved of the pure, refined type and elegance for which these horses were
prepotently line-bred. The Pyramid Society was formed in the United States to
ensure the strictly controlled perpetuation of this rare genetic pool and to
provide valuable outcross bloodlines to other Arabian breeders.
Several countries maintain their own registration systems for Arabian
horses. Registration of Arabians in North America began in 1908, although
Arabian horses were imported occasionally to North America during the 18th and
19th centuries. Up to the end of December 1991, all Arabian horses owned in
Canada could be registered with either or both the Arabian Horse Registry of
America, Inc. (the "AHRA") or the Canadian Arabian Horse Registry (the "CAHR").
Effective January 1992, all Canadian Arabian horses must be registered only with
the CAHR as, at the request of the CAHR, the AHRA has ceased to offer its
registration services to Canadian owners for foals born in Canada. A breeder
usually registers a foal within six months of its birth. The CAHR rules limit
registration to one foal per year per mare. Effective January 1, 1991, all foals
must be blood-typed as they approach breeding age. The CAHR also maintains
records of the blood-type of every Arabian breeding stallion. The particular
markings of the horse, including hair whorl location, are recorded on the
Certificate of Registration.
Since neither the CAHR nor the AHRA registers specific bloodlines, the
Pyramid Society was formed to establish standards for and act as a record keeper
of Straight Egyptian genealogy. An extensive reference handbook of Straight
Egyptian Arabian horses is published every four years by the Pyramid Society.
The latest reference handbook was published in 1994. The Pyramid Society also
holds an annual World Egyptian Event in Lexington, Kentucky. The Egyptian Event
includes a stallion exhibition, lectures, halter, performance and futurity
competitions for Straight Egyptian Arabian horses and Egyptian-related horses.
Horses which are nominated en utero to compete at a future date, usually for a
period of three years after nomination, participate in various futurity
competitions.
Canadian breeders of Straight Egyptian Arabian horses consider it desirable
that their horses be registered with the CAHR and be confirmed by the Pyramid
Society to be Straight Egyptians to ensure recognition and adequate protection
of the bloodline. Breeders also seek membership with the International Arabian
horse Association located in Westminster, Colorado. This association organizes
and operates various Arabian horse shows throughout the year and prescribes
ethical standards to be followed by its members.
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The Industry
------------
The major criteria for determining the value of Straight Egyptian Arabian
horses are substantially similar to those utilized to determine the value of
race horses: pedigree, performance in competition, and the ability to produce
marketable foals. The owner of a Straight Egyptian Arabian horse need not bear
the costs of training for, or risk the many health hazards involved with, racing
in order to derive value. The show arena is equivalent to the race track for a
racehorse since the Straight Egyptian Arabian accumulates honors by winning show
competitions as opposed to winning races. However, professional Arabian and
Straight Egyptian Arabian horse racing is rapidly becoming quite popular.
Straight Egyptian Arabian horses have become increasingly popular in the
last three decades in North America and interest has increased following not
only major competitive wins by these horses in the show ring, but also a growing
public appreciation of the refinement and elegance of the Straight Egyptian. As
previously noted, Straight Egyptian Arabian horses represent approximately 1% of
the entire Arabian horse population, and yet Straight Egyptian Arabian horses
consistently win 20%-30% of the North American show events. These performance
results have generated increased interest in the breeding of Straight Egyptian
Arabian horses.
Arabians are considered to be the one of the fastest growing breeds of all
of the major light horse breeds on the North American continent. The American
Horse Council of Washington, D.C. has published registration figures indicating
that the number of Arabian foals registered in North America has increased from
1,610 in 1960 to 24,578 in 1988, which is approximately four times the rate of
growth of the total number of registrations during these years for the major
North American light horse breeds. Purebred Arabian horse registrations have
declined, however, from their highest levels in the mid-1980's to approximately
13,000 registrations in each of 1994 and 1995.
Arabians are generally sold either by private agreement or at public
auction, often by a sales agent. Due to their rarity and aesthetic qualities,
Straight Egyptian Arabian horse foals will normally fetch considerably higher
prices than Egyptian-related foals. Also, a filly is usually much more valuable
than a colt because of her potential value for breeding. In general, the
percentage of live foals born in a group of mares confirmed by a veterinarian as
"checked to be in foal" is normally approximately 90% and the usual ratio of
colts to fillies is one to one. Generally, breeders evaluate a breeding program
on the basis of the number of foals one may expect to be produced by a mare, the
reproductive capabilities of fillies so produced and the anticipated selling
price of each foal. The anticipated breeding life of an Arabian mare under good
management conditions is approximately 15 years. Because the gestation period
for horses is eleven months, a mare can carry only one foal a year, assuming
that a breeder is utilizing only a direct breeding program for his mares.
The rarity of Arabians is preserved by the CAHR rules providing for only
one foal per year per mare. Subsequent to the 1990 breeding season, the CAHR
rules permit the transportation of semen for artificial insemination and the
storage of semen. To reduce the risk associated with breeding, some breeders
have in recent years employed embryo transfers and artificial insemination.
Unlike the standards applicable to the thoroughbred horse industry, regulations
regarding Arabian horses permit immediate artificial insemination and embryo
transfers, thus reducing the risk of injury to the stallions and reducing the
risks for mares associated with breeding, carrying and delivery of foals.
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Company's Primary Sources of Revenues and Income
------------------------------------------------
The Company's primary sources of revenue are:
(a) Sales of Straight Egyptian Arabian horses to various limited
partnerships, offered by Edwards Securities Inc. ("ESI"), acting as
the General Partner. ESI is a corporation incorporated under the laws
of Ontario and licensed by the Ontario Securities Commission to
create, promote, and sell securities. David G. Edwards is indirectly
the sole controlling shareholder, Director, and president of ESI. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(b) Sales of Straight Egyptian Arabian horses to individual owners.
(c) Sales of Straight Egyptian Arabian horses to other breeders.
(d) Services related to the breeding and care of Straight Egyptian Arabian
horses for the limited partnerships, and for other individuals who
choose to utilize the Company's services.
See "FINANCIAL INFORMATION - Management's Discussion and Analysis."
In order to maximize the net income that results from these revenue-
generating sources, the Company increases margins by optimizing the use of in-
house re-engineered processes, which are designed to achieve the maximum
breeding rates and foaling rates in the shortest time frames and to minimize the
costs related to the breeding and care services provided by the Company at its
Blue Moon farm facilities.
The Company's facilities at Blue Moon Farms have been customized to
accommodate the breeding, caring and delivery procedures used at every stage of
the Straight Egyptian Arabian horse's productive life. For example, pregnant
Straight Egyptian Arabian mares move through a staged sequence and live in
different facilities as their pregnancy progresses. At the final stages, the
pregnant Straight Egyptian Arabian mare has moved into facilities adjacent to
the birthing center and breeding laboratories, so that expert help is at hand.
Here, the Straight Egyptian Arabian mare is internally monitored by remote
electronics and by wireless alert systems, 24 hours a day, including up to the
precise moment that her "water breaks". Use of in-house expertise and state of
the art equipment makes the above possible while cutting industry standard costs
substantially.
Competition
-----------
Competition is very limited, given the infancy of the modern Straight
Egyptian Arabian horse business. There are only a handful of operators who are
willing and able to structure and run the Straight Egyptian Arabian horse
breeding business like any other high-technology business, using state-of-the-
art management and production-line techniques. Although there are numerous
horse farms throughout North America that breed and raise Egyptian Arabian
horses, only a handfull of farms are devoted exclusively to the breeding and
raising of Straight Egyptian Arabian horses. The competitive success of any
breeding operation will depend on its ability to produce on a consistent basis
Straight
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Egyptian Arabian horses that fare well in competitions and on its ability to
control costs associated with the breeding of and caring for the horses.
The Company believes that, by applying to the Straight Egyptian Arabian
horse business all the techniques and tools applied to any other high technology
business, it has achieved a competitive advantage. The focus has been to
achieve a world class quality product (top bred Straight Egyptian Arabian
mares), with the highest productivity rates (successful births of Straight
Egyptian Arabian fillies), and lowest defects rate (failed inseminations and
aborted pregnancies). This combined with Mr. Edwards' successful track record,
via ESI, in successfully packaging and marketing the Straight Egyptian Arabian
horse product into affordable investment units which clients could buy, has
given the Company a competitive advantage.
The North American and international markets are so large and in such an
embryonic growth stage, that there is room for any number of companies engaged
in the same business as the Company. The Company anticipates that, as the
demand for Straight Egyptian Arabian horses grows, existing horse farms as well
as potential new farms will enter the market and place greater emphasis on the
breeding and development of Straight Egyptian Arabian horses. As additional
farms enter this marketplace, competition will increase, and the Company will
need to continue to devote resources to the development and maintenance of
facilities and systems that are designed to reduce the costs of breeding and
maintaining horses without sacrificing the quality of the horses that are
produced through the Company's efforts.
Risk Factors
------------
The major risk factors that could directly impact the Company's business
are as follows:
. Future, potential infestation of the Company's Straight Egyptian
Arabian horses by a yet unknown but assumed deadly equine illness. The
Straight Egyptian Arabian horses that are boarded at the Company's
Blue Moon Farms facility are fully insured by Lloyds of London, and
their immediate value would be recoverable. However, to rebuild the
Straight Egyptian Arabian horse herd would take time and, in the
interim, ongoing revenue streams from sales of horses would be
curtailed, as sales to the limited partnerships and individual
purchasers would be interrupted.
. Future, potential unplanned death or departure of key personnel,
specifically David G. Edwards, Patricia L. Edwards, Kenneth A.
Edwards, and Stephane Robillard, would adversely impact the business
in the near-term. There can be no assurance that the Company would be
able to replace any of these individuals. Furthermore, the Company
does not carry key man insurance on any of these individuals. See
"DIRECTORS AND EXECUTIVE OFFICERS."
. Future, potential, unanticipated changes in governmental tax laws and
tax rulings on individual client's affairs disallowing the farming tax
status and associated investment costs/losses deductions for clients
of the limited partnerships that purchase the horses
11
<PAGE>
from the Company and the deductibility of Straight Egyptian Arabian
horse investment interest expense. These changes could make investing
by individual clients in the limited partnerships less attractive, and
could adversely impact the demand for the Company's horses.
. Termination of the Company's close association with its four
associated Canadian farms could temporarily hamper, in the near-term,
the Company's sales. Specifically, if Egyptian Arabians Inc. was ever
unable to access semen from senior Straight Egyptian Arabian stallions
owned by its current major supplier, it would have to make
arrangements to purchase semen from other sources. Semen would then
have to be purchased from the owners of other world class senior
stallions and any unplanned changes in the supply of semen would be
viewed as disruptive but only temporary.
. A sudden, unforeseen, glut in production of quality Straight Egyptian
Arabian horses into the North American markets would drive unit prices
down and thus adversely affect gross revenues and net margins.
. There has been no public market for the Company's Common Stock. There
can be no assurance that an active public market will develop or be
sustained or that the market price of the Common Stock will not
decline below that which is originally quoted by any broker-dealer.
Future announcements concerning the Company or its competitors,
quarterly variations in operating results, announcements of litigation
or changes in earnings estimates by analysts could cause the market
price of the Company's Common Stock to fluctuate substantially. These
fluctuations, as well as general economic, political and market
conditions such as recessions, international instabilities or military
conflicts, may materially and adversely affect the market price of the
Company's Common Stock.
12
<PAGE>
ITEM 2. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Selected Financial Data/1/
- ------------------------------------
Year Ended January 31,
--------------------------------------
1997 1996 1995 1994 1993
---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues
Farm/2/ $1,844,777 $1,359,411 $1,170,748 $ 755,755 $ 195,041
Horses/3/ 7,193,258 4,972,268 3,008,893 2,588,228 1,473,231
Interest and Other 228,930 260,119 316,111 374,329 91,511
---------- ---------- ---------- ----------- ----------
Total Revenues $9,266,965 $6,591,798 $4,495,752 $ 3,718,312 $1,759,783
---------- ---------- ---------- ----------- ----------
Costs and Expenses
Farm/2/ 829,609 836,444 691,790 362,109 230,097
Horses/3/ 7,021,527 5,096,700 2,979,873 2,422,143 1,370,180
Marketing and Sales 53,385 83,163 13,255 19,070 38,841
General and Administrative 335,513 293,925 261,557 130,589 145,117
Depreciation and Amortization 42,915 40,275 32,728 69,028 14,203
Interest Expense 40,277 47,940 52,414 35,396 8,063
---------- ---------- ---------- ----------- ----------
Total Costs and Expenses $8,323,226 $6,398,442 $4,031,617 $ 3,038,335 $1,806,501
---------- ---------- ---------- ----------- ----------
Income (Loss) before Taxes $ 943,739 $ 193,356 $ 464,135 $ 679,977 $ (46,718)
Provision for Income Taxes 378,573 64,715 172,652 284,415 6,785
---------- ---------- ---------- ----------- ----------
Net Income (Loss) $ 565,166 $ 128,641 $ 291,483 $ 395,562 $ (53,503)
========== ========== ========== =========== ==========
<CAPTION>
January 31,
-----------
1997 1996 1995 1994 1993
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working Capital $ 480,123 $ (602,979) $ (394,275) $(1,208,502) $ (881,467)
Total Assets 6,658,075 5,833,319 7,865,378 4,118,051 4,509,772
Long-Term Debt, less current
portion 319,208 281,716 298,609 165,550 102,414
Stockholders' Equity $ 920,243 $ 430,562 $ 317,080 $ 37,831 $ (357,731)
- -------------------------
</TABLE>
/1/The Selected Financial Data presented is the historical data of 622291
Ontario Ltd. for the years ended January 31, 1993 through 1997 which will be the
historical data of the Company upon consummation of the reorganization of 622291
with Mercristo Developments, Inc. Factors that affect the comparability of
financial data from year to year and for comparable interim periods include
timing of the foaling season, demand for investment limited partnerships,
unusual horse mortality and illness rates and non-recurring marketing expenses.
See "Management's Discussion and Analysis."
/2/Farm revenues and costs and expenses relate to the Company's breeding
operations and care of the horses.
/3/Horse revenues and costs and expenses relate to the Company's sale of horses.
13
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data (cont.)
- ------------------------------------
Three Months Ended April 30,
------------------------------
1997 1996
-------------- --------------
(unaudited)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues
Farm $ 381,148 $ 427,034
Horses 203,918 1,448,040
Interest and Other 27,674 64,588
---------- ----------
Total Revenues $ 612,740 $1,939,662
---------- ----------
Costs and Expenses
Farm $ 202,464 $ 199,334
Horses 400,680 1,600,774
Marketing and Sales 34,030 27,584
General and Administrative 182,093 150,282
Depreciation and Amortization 11,963 10,614
Interest Expense 11,960 4,750
---------- ----------
Total Costs and Expenses $ 843,190 $1,993,338
---------- ----------
Income (Loss) before Taxes $ (230,450) $ (53,676)
Provision for Income Taxes (92,180) (21,470)
---------- ----------
Net Income (Loss) $ (138,270) $ (32,206)
========== ==========
April 30,
----------
1997
----------
BALANCE SHEET DATA
Working Capital $ (162,817)
Total Assets 4,884,659
Long-Term Debt, less current
portion 593,231
Stockholders' Equity 751,751
</TABLE>
14
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Introduction
As noted elsewhere in this Registration Statement, effective January 31, 1997,
David G. Edwards effected a reorganization of 622291 pursuant to which
operations of 622291 other than the Blue Moon Farms breeding and care
operations and operations of 622291's wholly-owned subsidiary, Edwards
Arabians Inc., were spun-off from 622291. Also, pursuant to the terms and
conditions of the Agreement and Plan of Reorganization by and among the
Company, Egyptian Arabians Inc. and Egyptian Arabians' sole stockholder,
Egyptian Arabians Inc. became a wholly-owned subsidiary of the Company
effective January 31, 1997. Simultaneous with that transaction, 622291 became
a wholly-owned subsidiary of Egyptian Arabians. Accordingly, the following
discussion and analysis of financial condition and results of operations is a
discussion of the historical financial performance of 622291's operations
relating to the Blue Moon Farms operations and the operations of 622291's
wholly-owned subsidiary, Edwards Arabians Inc.
Since the inception of the Company's Canadian operations in 1991, the Company
has generated revenue primarily by selling Straight Egyptian Arabian horses to
investment limited partnerships and individual investors and by operating the
breeding and care facilities at its Blue Moon Farms facilities. Revenues
generated by these two activities have remained fairly constant as a
percentage of the Company's overall revenues, with sales representing
approximately 78% and management fees for the breeding and care of the horses
representing approximately 20%. The Company has increased sales primarily as
a result of increased levels of investing activities promoted by Edwards
Securities Inc. which, in turn, results in a greater number of horses being
boarded at the Company's Blue Moon Farms facilities. Sales to limited
partnerships have traditionally accounted for approximately 50% of the
Company's sales while the balance consists of sales to other farms and
individual owners. Revenues from the Company's Blue Moon Farms operations, as
those operations relate to the care and maintenance of the horses boarded
there, are generated almost entirely (98%) from services rendered to the
various limited partnerships that purchase Straight Egyptian Arabians from the
Company. The Company continues to believe that the markets outside of Canada
represent significant opportunities for the Company. Management intends to
allocate greater resources on expanding sales channels and establishing
marketing alliances in non-Canadian and international markets.
The Company recognizes the need to continue to apply technology in a manner
that will increase its operating margins. In furtherance of those goals, the
Company expects to allocate a greater percentage of its overall revenues to
research and development and sales and marketing activities over the next
several years.
The following discussion and analysis of the Company's financial condition and
results of operations focuses on the Company's operations and does not include
any discussion or analysis with respect to the operations that were spun-off
from 622291.
15
<PAGE>
Results of Operations
The following table sets forth for the periods indicated the percentages which
the selected items in the Company's Consolidated Statements of Operations bear
to total revenues:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended January 31, April 30
---------------------- --------------------
1997 1996 1995 1997 1996
------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues
Farm/1/ 19.9% 20.6% 26.0% 62.2% 22.0%
Horses/2/ 77.6% 75.4% 67.0% 33.3% 74.7%
Interest and Other 2.5% 4.0% 7.0% 4.5% 3.3%
Total Revenues 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Costs and Expenses
Farm/1/ 9.0% 12.7% 15.4% 33.0% 10.3%
Horses/2/ 75.8% 77.3% 66.3% 65.4% 82.5%
Marketing and Sales 0.6% 1.3% 0.3% 5.6% 1.4%
General and Administrative 3.6% 4.5% 5.8% 29.7% 7.8%
Depreciation and Amortization 0.4% 0.6% 0.7% 2.0% 0.6%
Interest Expense 0.4% 0.7% 1.2% 2.0% 0.2%
----- ----- ----- ----- -----
Total Costs and Expenses 89.8% 97.1% 89.7% 137.7% 102.8%
----- ----- ----- ----- -----
Income Before Taxes 10.2% 2.9% 10.3% (37.7%) (2.8%)
Provision for Income Taxes 4.1% 1.0% 3.8% (15.0%) (1.1%)
----- ----- ----- ----- -----
Net Income 6.1% 1.9% 6.5% (20.7%) (1.7%)
===== ===== ===== ===== =====
- ---------------------
</TABLE>
/1/ - Farm revenues and costs and expenses relate to the Company's breeding
operations and care of the horses.
/2/ - Horse revenues and costs and expenses relate to the Company's sale of
horses.
The following table sets forth for the periods indicated the number of horses
in the Company's inventory and the changes in that inventory. The number of
horses in the Company's inventory is significantly less than the number of
horses under the Company's care and supervision.
16
<PAGE>
<TABLE>
<CAPTION>
Three Months
Year Ended January 31 Ended April 30
--------------------- --------------
Number of Horses 1997 1996 1995 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning Inventory 16 10 5 12 10
Horses Acquired 115 97 59 3 38
Horses Sold or Exchanged 119 91 54 7 28
---- ---- ---- -- --
Ending Inventory 12 16 10 8 20
==== ==== ==== == ==
</TABLE>
The range of sales and purchase prices and the average sale and purchase price
of horses for all periods were as follows:
<TABLE>
<CAPTION>
Range Average
--------------- ------------
<S> <C> <C>
Mares $50,000-$70,000 $68,000
Fillies $35,000-$45,000 $40,000
Colts:
Purchase $ 7,500
Sale $500 or less
</TABLE>
Three Months Ended April 30, 1997 Compared With Three Months Ended April 30,
1996
Revenues. Total Revenues for the three months ended April 30, 1997 decreased
by $1,326,922 (68.4%) to $612,740 from $1,939,662 for the three months ended
April 30, 1996. Revenues from breeding and care of horses accounted for
$45,886, and the sale of horses accounted for $1,244,122, and interest and
other revenues accounted for the remaining $36,914 decrease in revenues. The
primary reason for the decrease in revenues from breeding and care of horses
was that in 1997, the Company did not care for the horses of one of the farms
in Cabreah, the contract for which in the first quarter of 1996 generated
approximately $70,000. There were two primary reasons for the large decrease
in the revenues generated by the sale of horses. The Company offered an early
sales incentive plan with its salesmen to sell horses during the three months
ended April 30, 1996. Also, the foaling activity started approximately 30
days later than usual in the three months ended April 30, 1997 due to a
decision to use frozen semen which also resulted in a substantially reduced
fertilization rate. The Company, in response to this delay, quickly reverted
to using fresh semen which has resulted in a much higher fertilization rate.
Management expects that this higher fertilization rate will substantially
increase the foaling activity for the remainder of the 1997 operating year
when compared to the results of the three months ended April 30, 1997.
Costs and Expenses. Total costs and expenses for the three months ended April
30, 1997 decreased by $1,150,148 (57.7%) to $843,190 from $1,993,338 for the
three months ended April 30, 1996. As the Company's horse sales and foaling
activity decreased significantly during the three months ended April 30, 1997
as compared to the three months ended April 30, 1996, the Company was able to
control the incurring of expenses associated with those activities.
Marketing and Sales. Marketing and sales expenses for the three months ended
April 30, 1997 increased by $6,446 (23.4%) to $34,030 from $27,584 for the
three months ended April 30, 1996, which reflects the Company's increased
emphasis on marketing activities for the 1997 Operating Year.
17
<PAGE>
General and Administrative. General and administrative expenses for the three
months ended April 30, 1997 increased by $31,811 (21.2%) to $182,093 from
$150,282 for the three months ended April 30, 1996. The primary reason for
the increase was professional and consulting fees incurred in connection with
the recapitalization of the Company.
Income Taxes. The provision for taxes for the three months ended April 30,
1997 and 1996 is based upon an effective Canadian tax rate of 40.0%.
Year Ended January 31, 1997 ("1996 Operating Year") Compared With Year Ended
January 31, 1996 ("1995 Operating Year")
Revenues. Total revenues for the 1996 Operating Year increased by $2,675,167
(40.6%) to $9,266,965 from $6,591,798 for the 1995 Operating Year. Revenues
from breeding and care of horses accounted for $485,366, and the sale of
horses accounted for $2,220,990 of the increase in total revenues during the
1996 Operating Year. The increase in revenues was primarily attributed to the
increased level of investment in Straight Egyptian Arabian horses and the
corresponding increase in the Company's foaling and breeding activities.
These increases were offset, in part, by a decrease in interest and other
revenue. Interest income and other revenues decreased by $31,189 during the
1996 Operating Year as a result of the continued decline in the use of the
Company's resources to support secondary financing of the investment
partnerships.
Costs and Expenses. Total costs and expenses for the 1996 Operating Year
increased by $1,924,784 (30.1%) to $8,323,226 from $6,398,442 for the 1995
Operating Year. Nonetheless, as a percentage of total revenues, costs and
expenses decreased to 89.8% in the 1996 Operating Year from 97.1% in the 1995
Operating Year. In the 1996 Operating Year, the Company was beset by several
unusual and non-recurring events which contributed to the increase in overall
costs and expenses. The Company lost an average of one horse each month
during the year due to various causes of death and replacement costs for those
horses approximated $300,000. In addition, normal veterinary costs quadrupled
due to prolonged illnesses with the Company's colts and fillies. Despite the
occurrence of these events, which the Company believes are not indicative of
any adverse trends, the Company was able to tightly control its other
operating expenses. In response to and in partial resolution of the prolonged
illnesses resulting from Rhodococcus Equi, the Company engaged in extensive
consultations with veterinarians and professors at the University of Guelph.
As previously noted, the Company, through its subsidiary, Edwards Arabians
Inc., is currently participating in an extensive research and development
study with the University of Guelph to aid in the prevention of Rhodococcus
Equi in young foals. The program consists of administering Guelph Plasma and
Polymune R and monitoring the foals' fibrinogen levels every two weeks as well
as obtaining nasal swabs and trachial aspirations as needed. The Company
believes that this will allow the Company to monitor much more closely the
impact of this disease on young foals.
Marketing and Sales. Marketing and sales expenses for the 1996 Operating Year
decreased by $29,778 (35.8%) to $53,385 from $83,163 in the 1995 Operating
Year. Marketing and sales expenses as a percentage of total revenues were .6%
in the 1996 Operating Year as compared to 1.3% in the 1995 Operating Year.
The primary reasons for the decrease were the incurrence
18
<PAGE>
in the 1995 Operating Year of costs for new advertising materials promoting
sales to limited partnerships and a special one-time sales commission.
General and Administrative. General and administrative expenses for the 1996
Operating Year increased by $41,588 (14.1%) to $335,513 from $293,925 in the
1995 Operating Year. As a percentage of total revenues, general and
administrative expenses were 3.6% in the 1996 Operating Year as compared to
4.5% in the 1995 Operating Year. These expenses increased primarily as the
result of salary increases, greater than normal professional fees and office
expenses incurred in connection with expanding the business.
Income Taxes. The provision for income taxes for the 1996 Operating Year is
based upon an effective Canadian tax rate of 40.1% as compared with a rate of
33.5% in the 1995 Operating Year. The primary reason for the increase in the
effective tax rate was the effect of the Canadian tax brackets based on income
levels.
Year Ended January 31, 1996 ("1995 Operating Year") Compared with Year Ended
January 31, 1995 ("1994 Operating Year")
Revenues. Total revenues for the 1995 Operating Year increased by $2,096,046
(46.6%) to $6,591,798 from $4,495,752 for the 1994 Operating Year. Revenues
from breeding and care of horses accounted for $188,663 and the sale of horses
accounted for $1,963,375 of the increase in total revenues during the 1995
Operating Year. The increase in revenues was primarily attributed to the
increases in the foaling and breeding activities generated by increased
investment demand for Straight Egyptian Arabian horses. These increases were
offset, in part, by a decrease in interest and other revenue. Interest income
and other revenues declined by $55,992 during the 1995 Operating Year as the
Company reduced the extent to which it would support secondary financing of
the investment partnerships.
Costs and Expenses. Total costs and expenses for the 1995 Operating Year
increased by $2,366,825 (58.7%) to $6,398,442 from $4,031,617 for the 1994
Operating Year. As a percentage of total revenues, costs and expenses
increased to 97.1% in the 1995 Operating Year from 89.7% in the 1994 Operating
Year. The increases in the costs and expenses as a percentage of sales were
primarily attributable to an unusually large horse purchase in December 1995
in connection with investment partnership demand for horses to take advantage
of favorable tax situations, cost associated with the rollover of six
investment partnerships and the replacement of certain horses for some of
those partnerships and the incurrence of higher than normal insurance
replacement costs.
Marketing and Sales. Marketing and sales expenses for the 1995 Operating Year
increased by $69,908 (527.4%) to $83,163 from $13,255 in the 1994 Operating
Year. Marketing and sales expenses as a percentage of total revenues were
1.3% in the 1995 Operating Year as compared to .3% in the 1994 Operating Year.
The primary reasons for the increase were the incurrence in the 1995 Operating
Year of costs for new advertising materials promoting sales to limited
partnerships and a special one-time sales commission.
General and Administrative. General and administrative expenses for the 1995
Operating Year increased by $32,368 (12.4%) to $293,925 from $261,557 in the
1994 Operating Year. As a percentage of total revenues, general and
administrative expenses were 4.5% in the 1995
19
<PAGE>
Operating Year as compared to 5.8% in the 1994 Operating Year. The Company
continued to expand its business in the 1995 Operating Year and accordingly
spent more on salaries, professional fees and office expenses.
Income Taxes. The provision for income taxes for the 1995 Operating Year is
based upon an effective Canadian tax rate of 33.5% as compared with a rate of
37.2% in the 1994 Operating Year. The primary reason for the increase in the
effective tax rate was the effect of the Canadian tax brackets based on income
levels.
Liquidity and Capital Resources
At January 31, 1997, the Company's primary source of liquidity included cash
and cash equivalents of $39,462 and open trade credit with vendors of
$2,977,875. The Company has not borrowed any moneys from financial
institutions for working capital needs with the exception of its commercial
mortgages on the construction and improvements to its facilities. The Company
improved its working capital during the 1996 Operating Year by $1,083,102 to
$480,123 at January 31, 1997 from a negative $602,979 working capital at
January 31, 1996. Cash flows from operating activities during the 1996
Operating Year were a negative $1,089,645 which resulted primarily from a
significant increase in accounts receivable and a decrease in deferred
revenues. Cash flows from investing activities during the 1996 Operating Year
were $989,581 which resulted primarily from cash collected from limited
partnerships in satisfaction of amounts owed the Company. Also during the
1996 Operating Year, the Company acquired $122,637 in property and equipment.
Cash flows from financing activities during the 1996 Operating Year included
borrowings on new commercial property of $126,191, repayment of $81,768 on a
commercial mortgage and dividend distribution of $83,880.
The balance sheet at April 30, 1997 shows a decrease in current assets for the
three months from $3,536,934 to $1,441,379 and a corresponding decrease in
current liabilities from $3,056,811 to $1,604,196 and a decrease in deferred
revenues from $1,744,962 to $1,433,081, all compared with those figures at
January 31, 1997.
The Company acquired a building from Resi Corp., a related company, in April,
1997 which is used as corporate offices in Ottawa, Ontario, Canada for
$408,265, including the assumption of mortgages with an unpaid principal
balance of $327,592.
Company's Financing Requirements
The Company has no current need for any externally generated financing to fund
its continued operations or to fund continued internal growth. As the
Financial Statements show, the Company's business has been profitable, is
self-financing, and does not depend on any institutional debt or commercial
lines of credit (except for commercial mortgages on the Company's properties).
20
<PAGE>
ITEM 3. PROPERTIES
The Company's principal properties consist of its owned corporate offices
in Ottawa, Ontario and its operating farm facilities in Addison, Ontario.
The Company owns its corporate offices at 240 Argyle Avenue, Ottawa,
which offices are encumbered by mortgages with Sun Life Trust Company and a
private mortgagee having a total outstanding indebtedness of approximately
$328,000 as of January 31, 1997. These facilities house the operations of
Edwards Arabians, a wholly-owned subsidiary of 622291, which is a Canadian
subsidiary of the Company's subsidiary Egyptian Arabians Inc. The Company's
operations with respect to marketing and sales, finance and accounting, as
well as its executive offices, are located within this facility.
The Company's farm operating facilities are located at Addison, Ontario
and come under the Blue Moon Farms umbrella of 622291. These facilities cover
approximately 220 acres of land, of which 130 acres, including buildings, are
owned by the Company and encumbered by a mortgage with the Business
Development Bank of Canada having a total outstanding indebtedness of $356,000
as of January 31, 1997, and the remaining 90 acres are adjacent leased farm
land.
The Blue Moon Farms facilities include over 50,000 square feet of
building space, covering buildings for vehicles and equipment, the reception
center, lodge, meeting facilities for sales staff, brokers, potential
investors, agricultural and equine specialists, farm administration offices,
farm hospital, quarantine center, breeding center, reproductive and R&D
laboratories, R&D barns, main and subsidiary barns with 62 stalls, "in-utero"
stalls, foaling stalls, nursery center, training ring, run-in buildings, food
storage facilities, exhibition facilities and exercise facilities. The entire
complex is protected by high voltage, low amperage electrical fencing. The
Blue Moon Farms operations are staffed 24 hours a day with three shifts of
trained personnel, and protected from fire hazard by advanced sensor and
extinguishing systems.
21
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock with respect to (i) each
person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's Directors and
executive officers, and (iii) all Directors and executive officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
Shares Beneficially Owned
Name and Address -------------------------
of Beneficial Owner Number Percentage (1)
------------------- ------------------- --------------
<S> <C> <C>
David G. Edwards, 8,650,000 shares(2) 52.23%
Director, Officer
240 Argyle Avenue,
Ottawa, Ontario K2P 1B9
Patricia L. Edwards, None -
Director, Officer
240 Argyle Avenue,
Ottawa, Ontario K2P 1B9
Kenneth A. Edwards None -
Director, Officer
240 Argyle Avenue,
Ottawa, Ontario K2P 1B9
All Directors and executive 8,650,000 52.23%
officers as a group
(3 persons)
</TABLE>
(1) Based on 16,560,519 shares of Common Stock issued and outstanding, which
assumes the consummation of the transactions described under "BUSINESS -
The Company - Mercristo Developments, Inc."
(2) Includes 8,450,000 shares of Common Stock owned of record by Resi Corp., a
Canadian company of which Mr. Edwards is the sole shareholder and
Director, and over which Mr. Edwards has voting and investment power.
22
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the Directors, executive officers and certain
other key employees of the Company is set forth below:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David G. Edwards 49 President; Chief Executive Officer;
Chief Financial Officer,
Vice-President (Marketing & Sales);
Director.
Patricia L. Edwards 49 Secretary - Treasurer;
Vice-President (Administration); Director.
Kenneth A. Edwards 50 Vice-President (Operations); Director.
Stephane Robillard 25 Breeding Manager
Tina E. Onstein 26 Farm Manager
</TABLE>
David G. Edwards, the Company's President, is a 1971 graduate of St.
Lawrence College, Cornwall, Ontario, Canada, and received his degree in
Business Administration, majoring in Marketing. He has 26 years of experience
in the Ottawa area as a financial planner, and, since 1988, as a securities
broker licensed by the Ontario Securities Commission. As Chairman, President
and CEO and director of the ESI Group of companies ("ESI Group" since 1984),
Mr. Edwards provides a full range of non-banking investment services.
The ESI Group includes ESI Financial Planners Inc., ESI Sheltered
Investments Corporation, Edwards Securities Inc., ESI Mortgage Brokers Inc.,
Argyle Insurance Brokers Inc., ESI Investment Funds Ltd., and until recently
the Company's Canadian equine Straight Egyptian Arabian horse subsidiaries:
622291 (including Blue Moon Farms operations), and Edwards Arabians.
Patricia L. Edwards, the Company's Secretary - Treasurer, is the wife of
David G. Edwards. She has had many years of experience in various departments
of the Canadian federal and provincial governments such as Transportation,
Communications, Finance, Treasury Board, and lastly the Deputy Prime
Minister's Office in Ottawa. She is a registered Insurance Broker and
President of Argyle Insurance Brokers, one of the companies in the ESI Group.
Argyle Insurance concentrates on managing the insurance policies (from Lloyds
of London) for several large Canadian equine breeding operations, including
the Company's operations, covering multi-million dollar herds of Straight
Egyptian Arabian horses. In addition, Argyle Insurance provides insurance for
the boating and marine industry throughout Eastern Ontario.
23
<PAGE>
As Vice President (Administration) for the Company, she is responsible for
supervising the strictly controlled Straight Egyptian Arabian horse blood-
typing, accurate registration, documentation, liasing with registries in both
the United States and Canada, coordinating the presentation of the Company's
Straight Egyptian Arabian horses at premier shows across North America, and
public and investor relations.
Kenneth A. Edwards, the brother of David G. Edwards, has had 32 years of
extensive experience in all aspects of the Canadian construction business,
starting as a licensed electrician, establishing an electrical contracting
business, and finally establishing several full service construction
companies. In 1989, he joined the ESI Group and managed ESI Developments,
completing real estate projects covering commercial office, retail, and
industrial projects for local governments.
As Vice President (Operations), he has been responsible for all
construction and property development and management at the Company's Blue
Moon Farms facility at Addison, Ontario since its purchase in September 1992.
He has been instrumental in constructing one of the world's premier equine
breeding and care facility at the Company's Addison location, and continues to
oversee all the re-engineering and leading edge improvements in the Company's
breeding and care operations.
Stephane Robillard, the Company's Breeding Manager, has had 8 years of
experience in the Straight Egyptian Arabian horse breeding area starting at
one of the Company's five Canadian associate farms, where he managed all day
to day operations for 50 Straight Egyptian Arabian horses. He was hired as
Breeding Manager when the Company's Blue Moon Farms facility opened in 1992.
He has successfully completed Straight Egyptian Arabian horse specialized
training and education programs at CABREAH International Farms in Texas,
Equine Science Program at Colorado State University, Select Breeders Southwest
Inc. in Texas, Kemptville College, and private training at the Haines
Institute.
Mr. Robillard is primarily responsible for all aspects of the Company's
mission-critical Straight Egyptian Arabian horse breeding operations. He
manages a staff of 12, and through the use of leading edge artificial
insemination techniques, foaling management and monitoring processes has
consistently achieved a conception and delivery rate of over 85% versus the
industry average of 65% - 70%. Management believes that this performance
leads most farms worldwide and has helped make the Company what management
believes is the world's second largest private breeder in the short span of
five years.
Tina E. Onstein, the Company's Farm Manger, has had, since early childhood,
significant experience in the equine care business in Europe and Canada. She
has won many awards in show competition and trained extensively at facilities
in Europe and North America. She is responsible for all farm-management
activities at the Company's Blue Moon Farms facility at Addison.
The Company's Restated Certificate of Incorporation and By-laws provide for
limitation of the liability of Directors to the Company and its stockholders,
and for indemnification of Directors, officers, employees and agents of the
Company, respectively, to the maximum extent permitted by the Delaware General
Corporation Law. See "INDEMNIFICATION OF DIRECTORS AND OFFICERS."
24
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
Management expects that, commencing February 1, 1997 and through the fiscal
year ending January 31, 1998, none of the officers or directors of the Company
will receive cash and cash equivalent remuneration in excess of $60,000. For
the salaries paid by the Company during its three most recent fiscal years
ended January 31, 1997, see Summary Compensation Table as follows:
Summary Compensation Table
<TABLE>
<CAPTION>
Name Operating Annual Long-Term All Other
& Position Year Compensation Compensation Compensation
- ------------------------------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
David G. Edwards 1996 None None None
President, Chief Executive Officer 1995 None None None
Chief Financial Officer, 1994 None None None
Vice President (Marketing & Sales)
Director
Patricia L. Edwards 1996 $29,700 None None
Secretary - Treasurer, 1995 $29,100 None None
Vice President (Admin.) 1994 $28,400 None None
Director
Kenneth A. Edwards 1996 $44,500 None None
Vice President (Operations) 1995 $43,700 None None
Director 1994 $42,600 None None
</TABLE>
No employee of the Company has a written employment contract with the
Company.
All of the officers and Directors are reimbursed for out-of-pocket
expenses incurred in connection with the Company's business. So long as the
expenses that are incurred in connection with the Company's business are
reasonable in amount and accounted for to the satisfaction of the Board of
Directors, there is no set limitation on the amount of expenses which may be
incurred.
At the present time, the Company has no retirement, pension, profit
sharing, or similar programs for the benefit of its employees. The Company
expects to adopt a stock option plan pursuant to which options can be granted
to key employees, officers, directors and consultants of the Company. There
are currently no issued or outstanding options, warrants or rights granted to
any Director or officer or employee of the Company.
25
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As noted under Item 1 "BUSINESS", one of the Company's primary sources of
revenue is the sale of Straight Egyptian Arabian horses to various limited
partnerships offered by Edwards Securities Inc. ("ESI"), which also acts as
General Partner of those limited partnerships. ESI is an Ontario corporation
of which David G. Edwards is a Director and President and of which he is
indirectly the sole controlling shareholder. As General Partner of the limited
partnerships, ESI is entitled to participate in the profits and losses of each
partnership. Generally, ESI's participation percentage is 1.5% of assets under
administration. In addition, ESI receives a 10% marketing commission as
compensation in connection with its services as the promoter of the various
limited partnerships.
Since 1990, Mr. Edwards has operated under regulatory approval from the
Ontario Securities Commission and Revenue Canada, to develop and deliver, to
over 1,000 individual clients, a total of 52 equine-based limited
partnerships. All of the eligible horses owned by each of the 52 equine-based
limited partnerships have been subsequently managed, cared for and bred at the
Company's Blue Moon Farms facilities.
The Company's revenues from the sale of Straight Egyptian Arabian horses
to the limited partnerships developed by ESI are supplemented by the
subsequent breeding and care of the Straight Egyptian Arabian horses at the
Company's Blue Moon Farms facilities. The Company enters into management
agreements with each of the limited partnerships pursuant to which the
Company, through its Blue Moon Farms operations, oversees the continual
management, care and breeding of the horses owned by the limited partnerships.
Approximately 98% of the Company's revenues from the care and maintenance of
the horses boarded at the Company's Blue Moon Farms facilities is generated
from services rendered to these limited partnerships.
Resi Corp. ("Resi"), all of the issued and outstanding shares of Common
Stock of which are owned by David G. Edwards, owes approximately $600,000 to
622291 as of January 31, 1997. The amount of this debt represents advances
that 622291 made to Resi to underwrite operating cash flow shortfalls of Resi.
Resi and 622291 have agreed that the aggregate amount of such advances,
including any that may be made in the future, will not exceed $1,000,000 and
will bear interest at Canadian prime. There is no set repayment schedule, but
all unpaid principal and interest will be due and payable on January 31, 2002.
Resi has the ability to prepay at any time without penalty.
The Company purchases its insurance through Argyle Insurance Brokers, one
of the companies in the ESI Group. Management believes that the terms and
conditions of these insurance purchases are no less favorable to the Company
than would have been obtained from unaffiliated third parties.
Other than as reported in this Item 7, there are no transactions or series
of transactions since the beginning of the Company's last fiscal year or any
currently proposed transaction or series of similar transactions to which the
Company or any of its subsidiaries was or is to be
26
<PAGE>
a party in which the amount involved exceeded $60,000 and in which any of the
---
following persons had or will have a direct or indirect material interest:
Directors, officers, employees, owners of 5% or more of the Company's
outstanding securities, promoters, family members.
There is no indebtedness owed by any of the Company's officers, Directors,
or employees to the Company.
ITEM 8. LEGAL PROCEEDINGS
Neither the Company, nor any of its direct and indirect subsidiaries, is a
party to any material pending legal proceedings, nor is any of them a party to
any routine litigation incidental to the business.
27
<PAGE>
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information
------------------
As of date hereof, there is no established public trading market for the
Company's Common Stock, the only class of equity securities that the Company
has authorized and issued and outstanding. The Company anticipates that its
securities will be traded on the NASDAQ Bulletin Board.
Holders
-------
There are approximately 343 stockholders of record of the Common Stock of
the Company as of April 15, 1997 per the records of the Company's transfer
agent, Olde Monmouth Stock Transfer Company of Atlantic Highlands, New Jersey.
Dividends
---------
The Company has not declared or paid dividends on its Common Stock during
the existence of the Company and its direct and indirect subsidiaries or
predecessor companies.
The Company intends to declare and pay dividends in the future, subject to
the Company achieving certain net income levels as established by the
Company's Board of Directors. The actual dividend policy applied at the
discretion of the Board of Directors will depend on a number of factors
including future earnings, working capital requirements, and the cashflow of
the Company.
Outstanding Stock
-----------------
Giving effect to the Agreement and Plan of Reorganization, the Company
currently has outstanding 16,560,519 shares of Common Stock of which:
(1) 8,450,000 shares were issued in connection with the Agreement and
Plan of Reorganization pursuant to which Egyptian Arabians Inc.
became a wholly-owned subsidiary of the Company. The holders of
these shares will be entitled to resell them only pursuant to a
registration statement under the Securities Act of 1933, as amended
(the "Securities Act") or an applicable exemption from registration
thereunder such as an exemption provided by Rule 144. In general,
under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned "restricted
securities" for at least one
28
<PAGE>
year may, under certain circumstances, resell in any three-month
period such number of shares as does not exceed the greater of one
percent of the then-outstanding shares or the average weekly trading
volume during the four calendar weeks prior to such resale. Rule 144
also permits, under certain circumstances, the resale of shares
without any quantity limitation by a person who has satisfied a
three-year holding period and who is not, and has not been for the
preceding three months, an affiliate of the Company. In addition,
holding periods of successive non-affiliated owners are aggregated
for purposes of determining compliance with these one- and three-
year holding period requirements. In addition, the Securities and
Exchange Commission has proposed changes to Rule 144 with respect to
the volume limitations of Rule 144.
(2) 204,719 shares of Common Stock are freely transferable and may be
resold without further registration under the Securities Act, as
such shares were issued in compliance with Rule 504 promulgated
under Securities Act and are not "restricted" securities.
(3) 4,240,000 shares of Common Stock were previously issued to non-U.S.
residents in a transaction exempt from the registration requirements
of the Securities Act in reliance on Regulation S. The holders of
these shares will be entitled to resell them only pursuant to a
registration statement under the Securities Act or an applicable
exemption from registration thereunder such as that provided by Rule
144. As these shares were issued in January of 1996, holders of
these shares will be entitled to sell them in compliance with Rule
144 once the Company has been subject to the reporting requirements
of the Exchange Act for a period of 90 days.
(4) 3,665,800 shares of Common Stock previously issued are subject to
the provisions of Rule 701. Under Rule 701 of the Securities Act,
certain persons who are issued shares of Common Stock pursuant to
employee benefit plans or consulting or advisory contracts relating
to compensation prior to the Company's registration of its Common
Stock are entitled to sell such shares 90 days after the effective
date of that registration in reliance on Rule 144, without
compliance with the public information, volume limitation or notice
provisions of Rule 144.
The availability of shares for sale or actual sales under Rule 144 may have
an adverse effect on the market price of the Company's Common Stock. Sales
under Rule 144 also could impair the Company's ability to market additional
equity securities.
Although the Company is unable to predict when or to what extent any such
securities will be sold or otherwise, the public sale of large blocks of the
Company's Common Stock could have a significant effect upon the market price
of the Common Stock and upon the Company's ability to sell additional
securities publicly.
29
<PAGE>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Since January 4, 1996, the date of its incorporation, the Company has sold
the following securities which were not registered under the Securities Act:
On or about January 4, 1996, as part of the initial capitalization of the
Company, 204,719 shares of Common Stock were issued in consideration of
the organization expenses of forming the Company, which organization
expenses had a value of $4,090. This number of shares reflects the
reverse split effective January 26,1996.
On or about January 26, 1996, 4,240,000 shares of the Company's Common
Stock were sold for cash at their par value $0.001 per share, an
aggregate of $4,240, to non-U.S. residents in a transaction exempt from
the registration requirements of the Securities Act in accordance with
Rule 904 of Regulation S promulgated under the Securities Act.
On or about June 21, 1996, the Company issued an aggregate of 3,665,800
shares of Common Stock to six consultants and an accountant for services
valued at an aggregate of $733,160.
Effective January 31, 1997, the Company issued 8,450,000 shares to Resi
Corp. as the consideration for the transaction pursuant to which Egyptian
Arabians Inc. will become a wholly-owned subsidiary of the Company.
The issuances of the securities described above were made in reliance on
exemptions from the registration requirements of the Securities Act provided
by Section 4(2) of the Securities Act, or by Rules 504, 904 and 701 or by
Regulation D promulgated by the Securities and Exchange Commission pursuant to
the Securities Act.
30
<PAGE>
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
General.
The Company's authorized capitalization is 100,000,000 shares of Common
Stock, $.001 par value per share, of which 16,560,519 shares are currently
issued and outstanding. Holders of shares of Common Stock are entitled to one
vote per share on matters to be voted upon by the stockholders, to receive
dividends when and if declared by the Board of Directors of the Company, and
to share ratably in the assets of the Company legally available for
distribution to stockholders in the event of liquidation or dissolution of the
Company.
The Common Stock has no preemptive rights and no subscription, redemption
or conversion privileges, nor does it have cumulative voting rights, which
mean that the holders of more than one-half of the shares voting for the
election of Directors can elect all of the Directors. All of the outstanding
shares are fully paid and not liable for further call or assessment. There are
no outstanding warrants or options for the purchase of any shares of the
Company's Common Stock.
Olde Monmouth Stock Transfer Company, Inc. at 77 Memorial Parkway, Suite
101, Atlantic Highlands, New Jersey 07716 is the Registrar and Transfer Agent
for the Company's Common Stock.
Certain provisions of the Delaware General Corporation Law ("Delaware Law")
and of the Company's Certificate of Incorporation and By-laws, summarized in
the following paragraphs, may be considered to have an anti-takeover effect
and may delay, deter or prevent a tender offer, proxy contest or other
takeover attempt that a stockholder might consider to be such stockholder's
best interest, including such an attempt as might result in payment of a
premium over the market price of shares held by stockholders.
Delaware Anti-takeover Law. The Company, as a Delaware corporation, is
subject to the provisions of Delaware Law, including Section 203. In general,
Section 203 prohibits a public Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of transaction in which such person became an interested
stockholder unless: (i) prior to such date, the Board of Directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; or (ii) upon becoming an
interested stockholder, the stockholder then owned at least 85% of the voting
stock, as defined in Section 203; or (iii) subsequent to such date, the
business combination is approved by both the Board of Directors and holders of
at least 66 2/3% of the corporation's outstanding voting stock, excluding
shares owned by the interested stockholder. For these purposes, the term
"business combination" includes mergers, asset sales and other similar
transactions with an "interested stockholder." An "interested stockholder" is
a person who, together with affiliates and associates, owns (or within the
prior three years did own) 15% or more of the corporation's voting stock.
Although Section 203
31
<PAGE>
permits a corporation to elect not to be governed by its provisions, the
Company to date has not made this election.
Special Meetings of Stockholders. The Company's By-laws provide that
special meetings of stockholders may be called only by the President, by
request of a majority of the Board of Directors, or by the Secretary upon the
written request of the holders of not less than 25% of the shares of stock
outstanding and entitled to vote at the meeting. These provisions may make it
more difficult for stockholders to take action opposed by the Board of
Directors.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") and By-laws as amended (the "By-laws") provide for limitation
of the liability of the Directors to the Company and its stockholders and for
indemnification of Directors, officers, employees and agents of the Company,
respectively, to the maximum extent permitted by the Delaware General
Corporation Law ("Delaware Law").
The Certificate of Incorporation provides that the Directors are not liable
to the Company or its stockholders for monetary damages for breaches of
fiduciary duty as a Director, except for liability (i) for any breach of the
Director's duty of loyalty to the Company or its stockholders; (ii) for acts
or omissions not in good faith or which involved intentional misconduct or a
knowing violation of law; (iii) for dividend payments or stock repurchases in
violation of Delaware Law; (iv) for any transaction from which the Director
derived any improper personal benefit.
The By-laws include provisions by which the Company will indemnify its
officers and Directors and other persons against expenses, judgments, fines
and amounts paid in settlement with respect to threatened, pending or
completed suits or proceedings against such persons by reason of serving or
having served the Company as officers, Directors or in other capacities,
except in relation to matters with respect to which such persons shall be
determined not to have acted in good faith, lawfully or in the best interests
of the Company. With respect to matters to which the Company's officers,
Directors, employees, agents or other representatives are determined to be
liable for misconduct or negligence in the performance of their duties, the
By-laws provide for indemnification only to the extent that the Company
determines that such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company.
32
<PAGE>
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
33
<PAGE>
================================================================================
Mercristo Developments, Inc.
(A Delaware Corporation)
and
622291 Ontario Ltd.
Ottawa, Ontario - Canada
______________
Table of Contents
Independent Auditors' Report.............................................. F-1
Historical Balance Sheets at January 31, 1997 and
1996 and Consolidated Balance Sheet at April 30, 1997..................... F-3
Historical Statements of Changes in Stockholders'
Equity for the Years Ended January 31, 1997,
1996 and 1995 and Consolidated Statement of Changes
in Stockholders' Equity for the Three Months Ended
April 30, 1997............................................................ F-5
Historical Statements of Operations for the Years
Ended January 31, 1997, 1996 and 1995 and Consolidated
Statements of Operations for the Three Months Ended
April 30, 1997 and 1996................................................... F-7
Historical Statements of Cash Flows for the Years
Ended January 31, 1997, 1996 and 1995 and Consolidated
Statements of Cash Flows for the Three Months Ended
April 30, 1997 and 1996................................................... F-9
Notes to the Financial Statements......................................... F-11
================================================================================
34
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
35
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements and Supplementary Data
See Item 13.
(b) Exhibits
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Reorganization by and among Mercristo
Developments, Inc., Egyptian Arabians Inc. and Resi Corp.
2.2 Agreements relating to the Reorganization of 622291 Ontario Limited
3.1 Restated Certificate of Incorporation
3.2 Amended and Restated By-laws
10.1 Mortgage from E.S.I. Holdings Limited to Michael Nurse
10.2 Mortgage from E.S.I. Holdings Limited to Sun Life Trust Company
10.3 Loan Agreement from 622291 Ontario Limited to Business Development
Bank of Canada
10.4 Lease between Peter Vanderkloet and Edwards Arabians Inc.
10.4.1 Addendum to Lease between Peter Vanderkloet and Edwards Arabians
Inc.
11 Statement re Computation of Per Share Earnings
21 Subsidiaries of Mercristo Developments, Inc.
27 Financial Data Schedule
36
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Company has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized
MERCRISTO DEVELOPMENTS, INC.
----------------------------
(Company)
Date: July 11, 1997 By: /s/David G. Edwards
-----------------------------
DAVID G. EDWARDS, President
37
<PAGE>
Independent Auditors' Report
To the Board of Directors
and Stockholders
Mercristo Developments, Inc.
(A Delaware Corporation) and
622291 Ontario Ltd.
Ottawa, Ontario - Canada
We have audited the accompanying historical balance sheets of
Mercristo Developments, Inc. and 622291 Ontario Ltd. as of January 31, 1997
and 1996, and the related historical statements of changes in stockholders'
equity, operations and cash flows for each of the three years in the period
ended January 31, 1997. These financial statements are the responsibility of
the companies' management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the historical financial statements referred to
above present fairly, in all material respects, the financial position of
Mercristo Developments, Inc. and 622291 Ontario Ltd. as of January 31, 1997
and 1996, and the results of each of their operations and each of their cash
flows for each of the three years in the period ended January 31, 1997, in
conformity with generally accepted accounting principles.
Rochester, New York
April 11, 1997
F-1
<PAGE>
Mercristo Developments, Inc.
(A Delaware Corporation) and
622291 Ontario Ltd.
Ottawa, Ontario - Canada
Balance Sheets as of January 31, 1997 and 1996 and April 30, 1997
<TABLE>
<CAPTION>
Assets
Historical Historical
------------------------------- ------------------------------
Mercristo 622291 Mercristo 622291
Developments Ontario Ltd. Developments Ontario Ltd.
1997 1997 1996 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current Assets
- --------------
Cash and Cash Equivalents $ --- $ 39,462 $ --- $ 175,557
Accounts Receivable --- 2,797,618 --- 1,153,193
Inventories --- 686,810 --- 464,528
Prepaid Expenses --- 13,044 --- 4,369
------------- ------------ ------------ ------------
Total Current Assets $ --- $ 3,536,934 $ --- $ 1,797,647
Due from Partnership --- 1,485,275 --- 2,711,824
Due from Related Companies --- 629,800 --- 415,224
Property and Equipment - Net of --- 1,006,066 --- 908,624
Accumulated Depreciation
Organizational Expense - Net of
Accumulated Amortization 3,204 --- 4,022 ---
------------- ------------ ------------ ------------
Total Assets $ 3,204 $ 6,658,075 $ 4,022 $ 5,833,319
------------ ============= ============ ============ ============
Liabilities and Stockholders' Equity
Current Liabilities
- -------------------
Accounts Payable and Accrued
Expenses $ 2,575 $ 3,019,622 $ --- $ 2,364,773
Income Taxes Payable --- --- --- 11,564
Current Portion of Long Term Debt 37,189 --- 24,289
------------- ------------ ------------ ------------
Total Current Liabilities $ 2,575 $ 3,056,811 $ --- $ 2,400,626
Deferred Revenue --- 1,744,962 --- 2,525,203
Long Term Debt --- 319,208 --- 281,716
Deferred Income Taxes --- 616,851 --- 195,212
------------- ------------ ------------ ------------
Total Liabilities $ 2,575 $ 5,737,832 $ --- $ 5,402,757
----------------- ============= ============ ============ ============
Stockholders' Equity
- --------------------
Common Stock:
$.001 Par; 20,000,000 Shares
Authorized, 16,560,519 Shares
Issued and Outstanding $ 8,110 $ 2,212 $ 204 $ 2,212
Additional Paid in Capital 733,380 --- 3,886 ---
Retained Earnings (Deficit) (740,861) 903,532 (68) 422,246
Foreign Currency Translation
Adjustment --- 14,499 --- 6,104
------------- ------------ ------------ ------------
Total Stockholders' Equity $ 629 $ 920,243 $ 4,022 $ 430,562
-------------------------- ------------- ------------ ------------ ------------
Total Liabilities and
---------------------
Stockholders' Equity $ 3,204 $ 6,658,075 $ 4,022 $ 5,833,319
-------------------- ============= ============ ============ ============
</TABLE>
F-2
<PAGE>
Consolidated
April 30, 1997
(unaudited)
- ---------------
$ 72,593
718,622
379,391
270,773
- ---------------
$1,441,379
1,466,652
576,814
1,396,814
3,000
- ---------------
$4,884,659
===============
$1,548,656
---
55,540
- ---------------
$1,604,196
1,433,081
593,231
502,400
- ---------------
$4,132,908
- ---------------
$ 16,560
---
751,928
(16,737)
- ---------------
$ 751,751
- ---------------
$4,884,659
===============
The accompanying notes are an integral part of this financial statement and
should be read in conjunction therewith.
F-3
<PAGE>
Mercristo Developments, Inc.
(A Delaware Corporation) and
622291 Ontario Ltd.
Ottawa, Ontario - Canada
Statements of Changes in Stockholders' Equity for the
Years Ended January 31, 1997, 1996 and 1995
And the Three Months Ended April 30, 1997
<TABLE>
<CAPTION>
Mercristo 622291
Developments Ontario
Shares 1997 Ltd. 1997
---------- ------------ ---------
<S> <C> <C> <C>
Preferred Stock - No Par;
- -------------------------
Issued at January 31:
First - Unlimited Shares Authorized 20,000 $ --- $ 1
Second - Unlimited Shares Authorized 380,000 --- 1,911
Third - Unlimited Shares Authorized 10,000 --- 75
Common Stock - No Par;
- ----------------------
1,000 Shares Authorized; Issued at January 31:
Class A, Non-Voting 180 --- 135
Class B, Voting at 7 Votes Per Share 40 --- 30
Class C, Voting at 6 Votes Per Share 40 --- 30
Class D, Voting at 5 Votes Per Share 40 --- 30
----------- ----------
Total Capital Stock $ --- $ 2,212
Recapitalization --- (2,212)
----------- ----------
Consolidated Balance - April 30 $ --- $ ---
=========== ==========
Common Stock - $.001 Par Value;
- -------------------------------
100,000,000 Shares Authorized; Issued:
Balance - February 1 7,204,719 $ 7,204 $ ---
Issuance of Shares in Connection with:
Initial Capitalization --- --- ---
20 for 1 Reverse Split --- --- ---
Adjustment for Fractional Shares --- --- ---
Acquisition (Rescission) of 7,000,000 7,000
ComputerLink Online, Inc.
Tucows Ltd. (7,000,000) (7,000)
Private Placement - Reg S 4,240,000 4,240 ---
Compensation - Rule 701 3,665,800 3,666 ---
---------- ----------- ----------
Balance - January 31 8,110,519 $ 8,110 $ ---
Recapitalization 8,450,000 8,450 ---
---------- ----------- ----------
Consolidated Balance - April 30 16,560,519 $ 16,560 $ ---
========== =========== ==========
Additional Paid in Capital
- --------------------------
Balance - February 1, $ 1,288,886 $ ---
Changes Due to:
Initial Capitalization --- ---
20 for 1 Reverse Split --- ---
Adjustment for Fractional Shares --- ---
Acquisition (Rescission) of
ComputerLink Online, Inc. 1,285,000
Tucows Ltd. (1,285,000)
Private Placement - Reg S --- ---
Compensation - Rule 701 729,494 ---
----------- ----------
Balance - January 31 $ 733,380 $ ---
Recapitalization (733,380) ---
----------- ----------
Consolidated Balance - April 30 $ --- $ ---
=========== ==========
Retained Earnings (Deficit)
- ---------------------------
Balance - February 1 $ (68) $ 422,246
Net Income (Loss) (740,793) 565,166
Dividends --- (83,880)
----------- ----------
Balance - January 31 $ (740,861) $ 903,532
Recapitalization 1,631,059 (903,532)
Net Income (Loss) for the
Three Months Ended April 30, 1997 (138,270)
----------- ----------
Consolidated Balance - April 30 $ 751,928 $ ---
=========== ==========
Foreign Currency Translation Adjustment
- ---------------------------------------
Balance - February 1 $ --- $ 6,104
Translation Adjustment During the Year --- 8,395
----------- ----------
Balance - January 31 --- $ 14,499
Recapitalization 14,499 (14,499)
Translation Adjustments (31,236)
----------- ----------
Consolidated Balance - April 30 $ (16,737) $ ---
=========== ==========
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Mercristo 622291 Mercristo 622291
Developments Ontario Ltd. Developments Ontario Ltd.
Shares 1996 1996 Shares 1995 1995
- ---------- ------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
20,000 $ --- $ 1 20,000 $ --- $ 1
380,000 --- 1,911 380,000 --- 1,911
10,000 --- 75 10,000 --- 75
180 --- 135 180 --- 135
40 --- 30 40 --- 30
40 --- 30 40 --- 30
40 --- 30 40 --- 30
-------- -------- -------- --------
$ --- $ 2,212 $ --- $ 2,212
--- (2,212) --- (2,212)
-------- -------- -------- --------
$ --- $ --- $ --- $ ---
======== ======== ======== ========
--- $ --- $ --- --- --- $ ---
4,090,448 4,090 --- --- --- ---
(3,885,925) (3,886) --- --- --- ---
196 --- --- --- --- ---
--- --- --- --- --- ---
--- --- --- --- --- ---
- ---------- -------- -------- -------- -------- --------
204,719 $ 204 $ --- --- $ --- $ ---
--- --- --- --- --- ---
- ---------- -------- -------- -------- -------- --------
204,719 $ 204 $ --- --- --- $ ---
========== ======== ======== ======== ======== ========
$ --- $ --- $ --- $ ---
--- --- --- ---
3,886 --- --- ---
--- --- --- ---
--- --- --- ---
--- --- --- ---
-------- -------- -------- --------
$ --- $ --- $ --- $ ---
-------- -------- -------- --------
$ 3,886 $ --- $ --- $ ---
======== ======== ======== ========
$ --- $303,798 $ --- $ 23,612
(68) 128,641 --- 291,483
--- (10,193) --- (11,297)
-------- -------- -------- --------
$ (68) $422,246 $ --- $303,798
--- --- --- ---
-------- -------- -------- --------
$ (68) $422,246 $ --- $303,298
======== ======== ======== ========
$ --- $ 11,070 $ --- $ 12,007
--- (4,966) --- (937)
-------- -------- -------- --------
$ --- $ 6,104 $ --- $ 11,070
--- --- --- ---
-------- -------- -------- --------
$ --- $ --- $ --- $ ---
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement
and should be read in conjunction therewith.
F-5
<PAGE>
Mercristo Developments, Inc.
(A Delaware Corporation) and
622291 Ontario Ltd.
Ottawa, Ontario - Canada
Statements of Operations for the
Years Ended January 31, 1997, 1996 and 1995 and for the
Three Months Ended April 30, 1997 and 1996
<TABLE>
<CAPTION>
Historical Historical
------------------------------- ------------------------------
Mercristo 622291 Mercristo 622291
Developments Ontario Ltd. Developments Ontario Ltd.
1997 1997 1996 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
- --------
Farm
Limited Partnerships $ 1,807,900 $ 1,328,145
Other 36,877 31,266
Horses --- ---
Limited Partnerships 3,229,773 2,053,547
Other 3,963,485 2,918,721
Interest --- 224,564 --- 258,254
Other --- 4,366 --- 1,865
------------- ------------ ------------ ------------
Total Revenues $ --- $ 9,266,965 $ --- $ 6,591,798
------------- ------------ ------------ ------------
Costs and Expenses
- ------------------
Farm $ --- $ 829,609 $ --- $ 836,444
Horses --- 7,021,527 --- 5,096,700
Marketing and Sales --- 53,385 --- 83,163
General and Administrative 739,975 335,513 --- 293,925
Depreciation and Amortization 818 42,915 68 40,270
Interest Expense --- 40,277 --- 47,940
------------- ------------ ------------ ------------
Costs and Expenses $ 740,793 $ 8,323,226 $ 68 $ 6,398,442
------------- ------------ ------------ ------------
Income (Loss) Before Provision for
Taxes $ (740,793) $ 943,739 $ (68) $ 193,356
Provision for Taxes $ --- 378,573 --- 64,715
- ------------------- ------------- ------------ ------------ ------------
Net Income (Loss) $ (740,793) $ 565,166 $ (68) $ 128,641
============= ============ ============ ============
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Historical Consolidated
- ------------------------------- ------------------------
Mercristo 622291 (unaudited)
Developments Ontario Ltd. April 30, April 30,
1995 1995 1997 1996
- ------------ ------------ ---------- ----------
<S> <C> <C> <C>
$ --- $ 1,141,479 $ 372,763 $ 349,180
--- 29,269 8,385 77,854
1,293,824 91,763 637,138
1,715,069 112,155 810,902
--- 310,567 27,048 56,920
--- 5,544 626 7,668
- ------------ ------------ ---------- ----------
$ --- $ 4,495,752 $ 612,740 $1,939,662
- ------------ ------------ ---------- ----------
$ --- $ 691,790 $ 202,464 $ 199,334
--- 2,979,873 400,680 1,600,774
--- 13,255 34,030 27,584
--- 261,557 182,093 150,282
--- 32,728 11,963 10,614
--- 52,414 11,960 4,750
- ------------ ------------ ---------- ----------
$ --- $ 4,031,617 $ 843,190 $1,993,338
- ------------ ------------ ---------- ----------
$ --- $ 464,135 $ (230,450) $ (53,676)
--- 172,652 (92,180) (21,470)
- ------------ ------------ ---------- ----------
$ --- $ 291,483 $ (138,270) $ (32,206)
============ ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement and
should be read in conjunction therewith.
F-7
<PAGE>
Mercristo Developments, Inc.
(A Delaware Corporation) and
622291 Ontario Ltd.
Ottawa, Ontario - Canada
Statements of Cash Flows for the
Years Ended January 31, 1997, 1996 and 1995
and for the Three Months Ended
April 30, 1997 and 1996
<TABLE>
<CAPTION>
Historical Historical
------------------------------- ------------------------------
Mercristo 622291 Mercristo 622291
Developments Ontario Ltd. Developments Ontario Ltd.
1997 1997 1996 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Activities
- --------------------
Net Income (Loss) $ (740,793) $ 565,166 $ (68) $ 128,641
Non-Cash Adjustments:
Stock Issued for Compensation for Services 737,400 --- --- ---
Depreciation/Amortization 818 42,915 68 40,270
Deferred Revenue --- (829,490) --- (472,860)
Deferred Income Taxes --- 378,573 --- ---
Changes:
Accounts Receivable --- (1,333,185) --- 526,367
Inventory --- (213,223) 8,737
Prepaid Expenses --- (2,227) (2,184)
Accounts Payable 2,525 319,980 (254,056)
Income Taxes Payable 50 (18,154) --- (12,046)
------------- ------------ ------------ ------------
Net Cash Flows from Operating Activities $ --- $ (1,089,645) $ --- $ (37,131)
------------- ------------ ------------ ------------
Investing Activities
- --------------------
Acquisition of Fixed Assets $ --- $ (122,637) $ --- $ (302,495)
Due from Partnership --- 1,279,437 --- 425,876
Due to/from Related Companies --- (167,219) --- 16,114
------------- ------------ ------------ ------------
Net Cash Flows from Investing Activities $ --- $ 989,581 $ --- $ 139,495
------------- ------------ ------------ ------------
Financing Activities
- --------------------
Dividends $ --- $ (83,880) $ $ (10,193)
Increase in Long-Term Debt --- 126,191 --- (24,289)
Decrease in Long-Term Debt --- (81,768) --- ---
------------- ------------ ------------ ------------
Net Cash Flows from Financing Activities $ --- $ (39,457) $ --- $ (34,482)
------------- ------------ ------------ ------------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents $ --- $ 3,426 $ --- $ 2,601
------------- ------------ ------------ ------------
Increase (Decrease) in Cash and Cash
Equivalents $ --- $ (136,095) $ $ 70,483
Cash and Cash Equivalents - Beginning of Year --- 175,557 --- 105,074
------------- ------------ ------------ ------------
Cash and Cash Equivalents - End of Year $ --- $ 39,462 $ --- $ 175,557
============= ============ ============ ============
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
Historical Consolidated
- ------------------------------- ------------------------
Mercristo 622291 (unaudited)
Developments Ontario Ltd. April 30, April 30,
1995 1995 1997 1996
- ------------ ------------ ----------- -----------
<S> <C> <C> <C>
$ --- $ 291,483 $ (138,270) $ (32,206)
--- --- --- ---
--- 32,728 11,963 10,614
--- (69,866) (248,880) (339,233)
--- 172,652 (92,180) 17,365
--- (1,070,012) 1,977,990 782,133
--- (272,335) 282,623 (767,344)
--- (2,132) (258,200) (161,913)
--- 653,483 (1,361,945) (511,038)
--- (8,706) --- (5,986)
- ------------ ------------ ----------- -----------
$ --- $ (272,705) $ 173,101 $(1,007,608)
- ------------ ------------ ----------- -----------
$ --- $ (149,793) $ (439,034) $ (24,404)
--- 269,429 (35,001) 763,644
--- 69,212 30,248 316,544
- ------------ ------------ ----------- -----------
$ --- $ 188,848 $ (443,787) $ 1,055,784
- ------------ ------------ ----------- -----------
$ --- $ (11,297) $ --- $ (17,623)
--- 166,001 305,242 ---
--- --- --- (6,124)
- ------------ ------------ ----------- -----------
$ --- $ 154,704 $ 305,242 $ (23,747)
- ------------ ------------ ----------- -----------
$ --- $ (2,022) $ (1,425) $ 1,495
- ------------ ------------ ----------- -----------
$ --- $ 68,825 $ 33,131 $ 25,924
--- 36,249 39,462 175,557
- ------------ ------------ ----------- -----------
$ --- $ 105,074 $ 72,593 $ 201,481
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement and
should be read in conjunction therewith.
F-9
<PAGE>
Mercristo Developments, Inc.
(A Delaware Corporation)
and
622291 Ontario Ltd.
Ottawa, Ontario - Canada
Notes to Financial Statements
Note A - Summary of Transaction
- -------------------------------
The consolidated financial statements at April 30, 1997 reflect the Plan
of Reorganization, which was effected as of January 31, 1997, pursuant to
which Egyptian Arabians Inc. (including directly and indirectly its
wholly-owned subsidiaries 622291 Ontario Ltd. and Edwards Arabians Inc.)
became a wholly-owned subsidiary of the Company. The business combination
is accounted for as a recapitalization.
Factors that affect the comparability of financial data from year to
year and for comparable interim periods include timing of the foaling
season, demand for investment limited partnerships, unusual horse
mortality and illness rates and non-recurring marketing expenses.
All references to the "Company" herein include Mercristo Developments,
Inc., Egyptian Arabians Inc., and its direct and indirect, wholly-owned
subsidiaries 622291 Ontario Ltd. and Edwards Arabians Inc., individually
or collectively.
Note B - Nature of Operations and Summary of Significant Accounting Policies
- ----------------------------------------------------------------------------
Mercristo Developments, Inc.
----------------------------
The Company was formed on January 4, 1996 as MAC Systems Inc. under the
laws of the State of Delaware and began investigating the potential
acquisition of another company doing business in the Internet service
business. In February 1996, the Company acquired in exchange for
6,000,000 shares of its common stock, ComputerLink Online Inc., a private
Canadian corporation providing Internet access, software, and World Wide
Web services. In March 1996, the Company changed its name to Internet @
iDirect.com Inc.. In June 1996, the Company acquired in exchange for
1,000,000 shares of its common stock Tucows Ltd., a provider of World Wide
Web services. The acquisitions were rescinded on January 15, 1997. As a
result of the rescission of these transactions, the Company had no
operations and no operating assets as of January 31, 1997. The Company
changed its name to Mercristo Developments, Inc. on February 10, 1997. In
April 1997, the Company increased its authorized shares of Common Stock
from 20,000,000 shares to 100,000,000 shares.
622291 Ontario Ltd.
-------------------
622291 Ontario Ltd. is a private Canadian corporation with diversified
financial investment and operational interests located in Ottawa, Ontario,
Canada. Effective January 31, 1997, a reorganization was effected
pursuant to which all operations of 622291 other than the Blue Moon Farms
breeding and care operations and its wholly-owned subsidiary, Edwards
Arabians Inc., were spun off from 622291 and 622291 became a wholly-owned
subsidiary for a newly formed Canadian corporation named Egyptians
Arabians Inc. Egyptian Arabians Inc. is a holding company with no assets
or operations. The reorganized company is primarily involved in the
breeding and care of Straight Egyptian Arabian horses. Accordingly, the
F-10
<PAGE>
accompanying historical financial statements of 622291 Ontario Ltd. have
been restated to reflect the financial position, results of operations and
cash flows for all years presented as if the reorganization had occurred
at the beginning of the earliest period presented. All significant
intercompany transactions have been eliminated.
Segment Data, Geographic Information and Significant Customers
--------------------------------------------------------------
The Company operates in one industry segment and generates revenues
primarily in Canada. For all years presented, approximately 50% of the
sales of horses are to investment partnerships and 50% to other breeders
and individuals. Approximately 98% of the revenues from care and breeding
of horses are from investment partnerships and 2% from individuals. The
Company has been purchasing and selling the majority of its horses from
and to a non-related horse farm. However, the economic dependence on the
use of this horse farm has been lessening since the Company has begun
purchasing and selling horses to other non-related horse farms.
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 reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Concentrations of Credit Risk
-----------------------------
Financial instruments which potentially expose the Company to
significant concentrations of credit risk consist principally of bank
deposits and accounts receivable. Cash is placed primarily in high
quality short-term interest bearing financial instruments. The company
performs ongoing credit evaluations of its customers' financial condition
and the accounts receivable are secured by the horses.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include all highly liquid investments
purchased with an original maturity of three months or less.
Receivables
-----------
Receivables from horse sales and breeding and care services are based on
contracted prices. The Company performs ongoing credit evaluation of its
customers' financial condition and evaluates the collectibility of all
receivables maintained. Amounts considered uncollectible are written off
when such determination is made and an allowance for accounts doubtful of
collection is maintained based upon the expected collectibility.
Inventories
-----------
Horse inventories are stated at the lower of cost (specific
identification) or market. Costs of raised horses include proportionate
costs of breeding plus the costs of maintenance to maturity. Purchased
horses are carried at purchase cost plus costs of maintenance to maturity.
F-11
<PAGE>
Property, Equipment and Depreciation
------------------------------------
Property and equipment are stated at cost, less accumulated depreciation
computed on the declining balance method over the estimated useful lives
as follows:
Buildings 25 Years
Machinery and Equipment 5 Years
Automobiles and Trucks 3 - 5 Years
Furniture and Fixtures 5 Years
Renewals and improvements are charged to property accounts. Costs of
maintenance and repairs that do not improve or extend asset lives are
charged to expense. The cost of property and equipment retired or
otherwise disposed of and the related accumulated depreciation are removed
from the accounts.
Long-Lived Assets
-----------------
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the related
carrying amount may not be recoverable. In performing the review for
recoverability, the Company estimates the future cash flows expected to
result from the use of the asset and its eventual disposition in
determining its fair value. When required, impairment losses on assets to
be held and used are recognized based on the difference between the fair
value and the carrying amount of the asset and long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value
less cost to sell.
Deferred Revenues
-----------------
Deferred revenues represent amounts received in advance from investment
partnerships for horse care services such as boarding, feeding and
breeding to be rendered over several years (generally one to three years
depending on the partnership). The deferred revenues are recognized as
earned and included in income as the services are rendered.
Income Taxes
------------
The Company accounts for income taxes using the asset and liability
approach which requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between
the carrying amounts and the tax basis of such assets and liabilities.
This method utilizes enacted statutory tax rates in effect for the year in
which the temporary differences are expected to reverse and gives
immediate effect to changes in income tax rates upon enactment. Deferred
tax assets are recognized, net of any valuation allowance, for temporary
differences and net operating loss and tax credit carry-forwards.
Deferred income tax expense represents the change in net deferred asset
and liability balances.
Foreign Currency Translation
----------------------------
Assets and liabilities of the Company's foreign operations are generally
translated into U.S. dollars at current exchange rates, and revenues and
expenses are translated at average exchange rates for the year. Resulting
translation adjustments are reflected as a separate component of
stockholders' equity. Transaction gains and losses that arise from
exchange rate fluctuations on transactions denominated in a currency other
than the functional currency are included in the results of operations as
incurred.
F-12
<PAGE>
Interim Results (Unaudited)
---------------------------
The accompanying balance sheet as of April 30, 1997 and the related
statements of changes in stockholders' equity, operations and cash flows
for the three months ended April 30, 1997 and 1996 are unaudited. In the
opinion of management, these financial statements have been prepared on
the same basis as the annual audited financial statements and include all
adjustments, consisting of only normal recurring adjustments, necessary
for the fair presentation of the results of the interim periods.
Note C - Accounts Receivable
- ----------------------------
Accounts receivable consisted of the following at January 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Due from Investors $ 875,924 $ 828,443
Partnerships 1,752,090 3,036,574
Horses 1,366,129 _
Breeding 288,750 _
---------- ----------
Total Accounts Receivable $4,282,893 $3,865,017
Less: Amounts - Due Within One Year 2,797,618 1,153,193
----- ---------- ----------
Amounts - Due After One Year $1,485,275 $2,711,824
========== ==========
</TABLE>
The amounts due from the partnerships represent secondary financing
supplied by Edwards Arabians Inc. to allow the partnerships to prepay
board and care for those horses. Deferred revenues are amortized monthly
as the services are rendered over a period of one to three years depending
on the partnership. Interest rates ranging from 8.5% to 10.5% are charged
to the partnerships. There are no fixed terms of repayment. The loans
are collateralized by the horses purchased by the partnerships. The
amounts owed by the partnerships will be fully collected at the date all
of their horses have been sold and the partnerships are rolled over into
corporations. The anticipated wind-up dates vary between partnerships but
are generally one to three years. Prior to the occurrence of these
rollovers, the Company evaluates the holdings of a given partnership,
focusing on the number of horses and the mix of colts to fillies, in order
to support and maintain the investment value of those partnerships. The
Company will often take fillies or mares from its existing inventory and
exchange them for colts owned by the various investment partnerships.
Fillies and mares are much more valuable than colts, and the price
differential between the fillies and mares surrendered by the Company and
the colts received in exchange is expensed as part of the cost of horses
sold.
Note D - Due From Related Companies and Related Party Transactions
- ------------------------------------------------------------------
The amounts due from related companies are non-interest bearing advances
due from Resi, Corp. and have no fixed repayment schedule as of the date
of the financial statements. The terms of related company loans are being
renegotiated.
The Company's primary source of revenue is the sale of Straight Egyptian
Arabian horses to various limited partnerships offered by Edwards
Securities Inc. which acts as general partner of those limited
partnerships. Edwards Securities Inc. is owned by Resi Corp., which is
100% owned by David G. Edwards, the Company's President and Chief
Executive Officer. Resi Corp., together with David G. Edwards, owns 52%
of the Company's issued and outstanding shares of Common Stock.
F-13
<PAGE>
The Company purchases its insurance through Argyle Insurance Brokers,
one of the companies owned by Resi Corp. Argyle Insurance Brokers
received commissions on the sale of commercial insurance from unrelated
insurers.
Note E - Property and Equipment
- -------------------------------
Property and equipment consisted of the following at January 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Farmland and Buildings $1,091,882 $ 957,093
Machinery and Equipment 62,127 51,727
Automobiles and Trucks 2,876 5,643
Furniture and Fixtures 5,779 5,668
---------- ----------
Total Property and Equipment $1,162,664 $1,020,131
Less: Amounts - Accumulated Depreciation 156,598 111,507
----- ---------- ----------
Net Property and Equipment $1,006,066 $ 908,624
========== ==========
</TABLE>
Depreciation expense for the years ended January 31, 1997, 1996 and 1995
was $42,915, $40,270 and $32,728 respectively.
Note F - Accounts Payable and Accrued Expenses
- ----------------------------------------------
Accounts payable and accrued expenses consisted of the following at
January 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Horses $2,977,875 $2,246,913
Other 41,747 117,860
---------- ----------
Total Accounts Payable and Accrued Expenses $3,019,622 $2,364,773
========== ==========
</TABLE>
Note G - Long Term Debt
- -----------------------
Long term debt consisted of the following at January 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Mortgage payable on farmland and buildings bearing $356,397 $255,038
interest at 0.70% above the Canadian FBDB's floating
base rate (7.45% at January 31, 1997), with monthly
principal payments of $3,100 plus interest, expiring in
2006.
Second mortgage payable on farmland and buildings --- 50,967
bearing interest at 17.15% with monthly interest -------- --------
payments only.
Total 356,397 306,005
Less: Current Portion 37,189 24,289
----- -------- --------
Long Term Portion $319,208 $281,716
======== ========
</TABLE>
F-14
<PAGE>
As of January 31, 1997, the aggregate maturities of long term debt are as
follows:
1998 $ 37,189
1999 37,189
2000 37,189
2001 37,189
2002 37,189
Thereafter 170,452
--------
Total $356,397
========
F-15
<PAGE>
Note H - Income Taxes
- ---------------------
The provision for income taxes from continuing operations for the years
ended January 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Current income taxes payable $ $ $
--- --- ---
Federal --- --- ---
State --- --- ---
Canadian --- 11,564 ---
-------- --------- ---------
Total Current Provision $ --- $ 11,564 $ ---
Deferred provision
Canadian 378,573 53,151 172,652
-------- ---------- ---------
Total Provision $378,573 $ 64,715 $ 172,652
======== ========== ==========
</TABLE>
The provision for deferred income taxes for the years ended January 31,
1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Revenue Recognition Methods $191,404 $110,009 $(179,159)
Inventory Items 81,025 (1,747) 103,487
Payable and Accrued Items 121,592 (50,811) 248,324
Other (15,448) (4,300) ---
-------- -------- ---------
Total Deferred Provision $378,573 $ 53,151 $ 172,652
======== ======== =========
</TABLE>
The provisions for income taxes from continuing operations differ from
those computed using statutory tax rates as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Statutory Tax Rate 44.6% 44.6% 44.6%
Effect of Tax Brackets (4.7%) (11.2%) (7.7%)
Nondeductible and Other .2% .1% .3%
-------- -------- --------
Total Provision for Taxes 40.1% 33.5% 37.2%
======== ======== ========
</TABLE>
The Company's net deferred income tax liability as of January 31, 1997
and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred Tax Liabilities
Revenue Recognition Methods $1,489,582 $ 908,015
Inventory Items 274,725 185,811
Deferrred Tax Assets Payable
and Accrued Items and Other ($1,147,456) (898,614)
----------- ----------
Net Deferred Tax Liability $ 616,851 $ 195,212
=========== ==========
</TABLE>
F-16
<PAGE>
Note I - Other Matters
- ----------------------
The Canadian income tax authorities are presently reviewing the farming
tax status and associated investment losses for some of the individuals in
limited investment partnerships which previously purchased horses from the
company. Denial of some of these losses by the tax authorities might make
investing in the limited partnership less attractive and could adversely
impact the demand for the company's horses. Should an adverse condition
result from this, management would work vigorously to restructure the
limited partnerships in accordance with any revisions to the tax code
and/or would seek other sources for the sale of its horses.
The Canadian sales tax authorities are currently reviewing certain input
tax credits claimed by some of the investment limited partnerships and the
corporations that acquired partnership assets in roll-up transactions
which allowed the Company to offset the sales tax it collected against the
sales tax paid by those entities. Management is of the opinion that the
outcome of this review is presently not determinable. However, if an
adverse decision is rendered, there would be no economic impact on the
Company's financial position, since any liability is that of the
investment limited partnerships and corporations.
F-17
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
*2.1 Agreement and Plan of Reorganization by and among
Mercristo Developments, Inc., Egyptian Arabians Inc.
and Resi Corp.
*2.2 Agreements relating to the Reorganization of 622291
Ontario Limited
*3.1 Restated Certificate of Incorporation
*3.2 Amended and Restated By-laws
10.1 Mortgage from E.S.I. Holdings Limited to Michael
Nurse
10.2 Mortgage from E.S.I. Holdings Limited to Sun Life
Trust Company
10.3 Loan Agreement from 622291 Ontario Limited to
Business Development Bank of Canada
10.4 Lease between Peter Vanderkloet and Edwards
Arabians Inc.
10.4.1 Addendum to Lease between Peter Vanderkloet and
Edwards Arabians Inc.
*11 Statement re Computation of Per Share Earnings
21 Subsidiaries of Mercristo Developments, Inc.
27 Financial Data Schedule
- -----------------
* Previously filed.
38
<PAGE>
EXHIBIT 10.1
MORTGAGE INFORMATION SHEET
Copy: 1. File ________ File No.: 3604
2. Client ________ Lawyer: Thomas J. Windle
3. Records _________
CLIENT INFORMATION
NAME AND ADDRESS:
E.S.I. Holdings Limited,
240 Argyle Avenue,
Ottawa, Ontario.
K2P 1B9
Attention: Mr. David Edwards
- -----------------------------
ADDRESS OF MORTGAGED PROPERTY:
240 Argyle Avenue, Ottawa, Ontario
MORTGAGE INFORMATION
Payments on your SECOND mortgage are to be made as follows:
MORTGAGE COMPANY: Michael Nurse
ADDRESS: 21 Belmont Avenue, Ottawa, Ontario, KIS 0T9
REFERENCE NO.: not applicable
PRINCIPAL AMOUNT: $85,000.00
INTEREST RATE: 12.0%
MONTHLY PAYMENT: $850.00 as to interest only
TAX PORTION: not applicable
FIRST PAYMENT DATE: July 1, 1996
MATURITY DATE: June 1, 1998
<PAGE>
Transaction No.: 3073
FORM 2
MORTGAGE BROKERS ACT
--------------------
STATEMENT OF MORTGAGE
THIS STATEMENT OF MORTGAGE MUST BE COMPLETED BY THE MORTGAGE BROKER IN
ACCORDANCE WITH THE REGULATIONS UNDER THE MORTGAGE BROKERS ACT AND A COPY SIGNED
BY THE MORTGAGE BROKER MUST BE GIVEN TO YOU AT LEAST 72 HOURS (EXCLUDING SUNDAYS
AND HOLIDAYS) BEFORE YOU ARE ASKED TO SIGN THE MORTGAGE INSTRUMENT OR A
COMMITMENT TO ENTER INTO THE MORTGAGE. YOU MAY REDUCE THE 72 HOUR PERIOD TO 24
HOURS, BUT ONLY IF YOU OBTAIN INDEPENDENT LEGAL ADVICE.
YOU ARE STRONGLY ADVISED TO OBTAIN INDEPENDENT LEGAL ADVICE CONCERNING THIS
MORTGAGE LOAN BEFORE YOU SIGN THE MORTGAGE INSTRUMENT.
AN AMORTIZATION SCHEDULE FOR THE MORTGAGE MUST BE ATTACHED TO THIS STATEMENT OF
MORTGAGE.
IF THE PRINCIPAL AMOUNT OF THE MORTGAGE IS $200,00 OR LESS, THE MORTGAGE BROKER
CANNOT REQUIRE YOU TO MAKE, AND CANNOT ACCEPT, AN ADVANCE PAYMENT OR DEPOSIT FOR
SERVICES TO BE RENDERED OR EXPENSES TO BE INCURRED BY THE MORTGAGE BROKER OR ANY
OTHER PERSON.
1. Property to be mortgage (legal description, municipal address and
description of buildings):
Lot 14, Plan 30 South side of Argyle Ave.
----------------------------------------------------------------------------
240 Argyle Street, Ottawa
----------------------------------------------------------------------------
2. Is the mortgage broker, or any party with other than an arm's length
business relationship to the mortgage broker, acting as lender for this
mortgage loan?
No [X]
Yes [_] If "yes, describe nature of relationship, and name and address of
lender:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
<PAGE>
A signed commitment to fund the mortgage described below was obtained on
May , 1996.
--------
date
3. Principal amount of regular , 2nd mortgage to
-------------------------- ---------------
[regular or collateral] [1st, 2nd, 3rd]
be repaid by the borrower $85,000.00 .
----------------
4. The principal amount of the mortgage will bear interest at 12% per
------
year or at the variable interest rate of _____________, and will be
[description]
repayable in monthly installments of $850.00,
----------------------- -------
[weekly, monthly, etc.]
only interest
-------------------
[plus or including]
4(a). The broker may receive the sum of$ 0 from the lender as a
-------------
finders fee.
5. The Mortgage will be amortized over 0 years and interest is to be
---------
compounded monthly .
------------------------------------------
[monthly, semi-annually, annually, etc.]
6. Fees and costs payable by the borrower: Check if amount is to be
deducted from principal.
i) Mortgage Brokers fee or commission: $1400.00 X
ii) Bonus:
iii) Other lenders fees:
iv) Lender's legal fees and estimated disbursements of not more than:
v) Inspection and appraisal fees:
vi) Other costs of fees payable to persons other than broker or lender
(itemize: e.g. registration fees, mortgage fees, insurance fees):
(1)
(2)
(3)
(4)
vii) Any other amount payable by borrower regarding this mortgage: (itemize):
(1) Disbursements: copies, courier, faxes $75.00 X
TOTAL: $1,475.00 X
NET ADVANCE OF FUNDS: $ 83,525.00
----------
(i.e. amount to be paid to borrower or to be disbursed at borrower's direction
after fees and other costs are deducted)
TOTAL COST OF BORROWING: 13,79829%
--------
<PAGE>
(i.e. costs, including rate of interest shown on mortgage and all costs
itemized in paragraph 6, expressed as a percentage accurate to within one
eighty of 1 percent).
7. The mortgage will become due and payable in 2 years
----------- -------------------
[Number] [months, years]
at which time the borrower, if all payments are made on the due date and any
prepayment privilege is not used, will owe $85,000.00.
---------
8. The mortgage is not renewable on the same terms as described in Items 4 and
5 above and does not contain any privileges or penalties (including charges
for NSF checks), except as follows:
$100 NSF charge
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
9. Other terms and conditions of the mortgage:
----------------------------------------------------------------------------
3 month pre-payment penalty.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10. This mortgage shall be arranged on or before the 31st day of May
------ -------------
, 1996.
------
11. Kasuco Mortgages and Investment, Inc., 1921
---------------------------------------------------------- ---------------
[Name of mortgage broker] [Registration no.]
Is presently registered and in good standing as a mortgage broker under the
Mortgage Brokers Act.
--------------------
12. The mortgage broker has not requested or required the borrower to sign the
mortgage instrument (whether completed or blank) or any commitment to enter
into the mortgage, and will not do so until permitted to do so by the
regulations made under the Mortgage Brokers Act.
--------------------
13. I have fully completed the above Statement of Mortgage in accordance with
the Mortgage Brokers Act and regulations.
May , 1996
-------------------- ------------------------------------------------
Date Signature of Mortgage Broker, or of a person
authorized to sign on behalf of the mortgage
broker
CYNTHIA KASEM
------------------------------------------------
Print name of person signing
<PAGE>
ACKNOWLEDGEMENT
I, David Edward/Patricia Edwards, of 240 Argyle St., Ottawa,
------------------------------- -------------------------
Print name Address
the borrower under the proposed mortgage, have read and fully understand the
above Statement of Mortgage furnished to me by:
Kasuco Mortgages & Investment Inc., 157 Gilmour Street, Ottawa, Ontario, K2P 0N8
- --------------------------------------------------------------------------------
Name and address of mortgage broker
I have not yet signed the mortgage instrument (whether completed or blank) or a
commitment to enter into the mortgage.
I acknowledge receipt of a fully completed copy of this Statement of mortgage,
signed by the mortgage broker.
- ----------------- ----------------------------------------------------
Date Signature of borrower
----------------------------------------------------
David Edwards, personally and on behalf of E.S.I.
Holdings Limited
One copy of this form must be provided to the prospective borrower,
and one copy must be retained by the mortgage broker.
<PAGE>
Charge/Mortgage of Land
-----------------------
Form 2 - Land Registration Reform Act
(1) Registry X Land Titles
(2) Page 1 of 6 pages
(3) Property Block Property
Identifier(s) Additional See Schedule
(4) Principal Amount
----------------Eighty-Five Thousand----------- Dollars $85,000.00-------
(5) Description
Lot 14, south side of Argyle Avenue, Plan 30, in the City of Ottawa, in the
Regional Municipality of Ottawa-Carleton
Registry Division of Ottawa-Carleton (No. 4)
(6) This Documents Contains
(a) Redescription New Easement, Plan/Sketch
(b) Schedule for Description Additional Parties Other X
(7) Interest/Estate Charged
(Fee Simple)
(8) Standard Charge Terms - The parties agree to be bound by the provisions in
Standard Charge Terms filed as number 911 and the Chargor(s) hereby
acknowledge(s) receipt of a copy of these terms.
(9) Payment Provisions
***
(a) Principal Amount $85,000.00
(b) Interest Rate 12.0% per annum
(c) Calculation period: Monthly not in advance
(d) Interest Adjustment Date: 1996/06/01
(e) Payment Date and Period: First day of each month
(f) First Payment Date: 1996/07/01
(g) Last Payment Date: 1998/06/01
(h) Amount of Each Payment: Eight Hundred and Fifty ($850.00)
(i) Balance Due Date: 1998/06/01
(j) Insurance: Full insurable value
<PAGE>
10. Additional Provisions: See schedule(s) attached hereto.
Continued on Schedule X
11. Chargor(s) The chargor hereby charges the land to the chargee
The chargor(s) acknowledge(s) receipt of a true copy of this charge.
Name(s): E.S.I. Holdings Limited
Signature(s): Per: David Edwards, Its President (I have authority to
bind the Corporation)
Date of Signature 1996/05/00
12. (Guarantors)
Name(s): Signatures: Date of Siganture:
Edwards, David X 1996/05/00
Edwards, Patricia X 1996/05/00
13. Chargor(s) Address for Service: 240 Argyle Avenue, Ottawa,
Ontario K2P 1B9
14 Chargee(s): Nurse, Michael
15. Chargee(s) Address for Service: 21 Belmont Avenue, Ottawa,
Ontario K1S 0T9
16. Assessment Roll Number of Property: Cty: Mun: Map: Sub: Par:
06 14 042 201 24600
17. Municipal Address of Property: 240 Argyle Avenue, Ottawa,
Ontario K2P 1B9
18. Document Prepared by: Mr. Thomas J. Windle, Windle & Hoyt, 157 Gilmour
Street, Ottawa, Ontario K2P 0N8 TJW:lc Box 350 ESI 3604
<PAGE>
ADDITIONAL PROVISIONS
---------------------
1. The Chargor covenants and agrees to give the Chargee, annually on the
anniversary date of this charge, or any renewal thereof, a series of 12
post-dated cheques for the immediate next 12 installments payable under this
charge.
2. The chargor covenants and agrees to provide to the chargee, on or before the
28th day of December in each and every year of this charge or any renewal
thereof, a receipted realty tax bill evidencing payment in full of all
realty taxes assessed against the charged property.
3. The Chargor covenants and agrees as follows:
(i) that all costs, charges and expenses which may be incurred in
investigating title and registering this charge, or in taking,
recovering and keeping possession of the land described or referred
to in Box 5 of Page 1 hereof (hereinafter referred to as the "charged
property") and all collection, management and legal fees (on a
solicitor and client basis) generally incurred in any proceeding
taken in connection with or to realize upon this security shall be
payable by the Chargor with interest at the charge rate aforesaid,
and shall form a charge upon the charged property in favour of the
chargee;
(ii) that if collection or other legal proceedings are taken in connection
with or to realize upon this security, an administration fee of
$500.00 shall be added to the charge debt on each occasion such
proceedings are so taken and said fee or fees, shall form a charge
upon the charged property in favour of the chargee;
(iii) that if any of the cheques tendered by the chargee in satisfaction of
any amount payable hereunder is dishonoured by the bank upon which
same has been drawn, the sum of $100.00 per cheque dishonoured shall
be added to the charge debt and shall form a charge upon the charged
property in favour of the chargee.
4. If default is made by the chargor in the payment of an installment of
principal and/or interest payable under any mortgage or other charge ranking
in priority or subsequent to this charge or in observance of any of the
covenants, terms or conditions of such mortgage or other charge, same shall
be deemed a default under this charge and the principal and accrued interest
hereby secured shall at the option of the chargee herein, become due and
payable forthwith, and, all the powers of the chargee herein contained may,
at the option of said Chargee, be forthwith exercised.
5. (i) The Chargor covenants, warrants and represents that the funds
advanced pursuant to this charge are not being utilized for the
purpose of financing any improvements whatsoever with regard to the
charged property, nor for the purpose of repaying any financing of
any improvement with regard to the charged property within the
ninety (90) day period next preceding the registration of this
charge.
<PAGE>
(ii) In the event that this representation, covenant and warranty is
breached, or in default either before or after execution and
registration of this charge, or either before or after any advance
is made, the whole of the principal balance hereby secured together
with all interest accrued thereon in addition to three (3) months'
interest by way of bonus, shall immediately become due and payable
at the option of the chargee.
(iii) If the chargee is required to take any action whatsoever with
respect to construction liens arising against the charged property,
all legal fees and disbursements (on a solicitor and client basis)
incurred as a result of the Chargee so acting shall be added to the
charge debt and shall form a charge upon the charged property in
favour of the chargee.
6. The Chargor covenants and agrees to maintain fire insurance coverage on the
charged property naming the chargee as loss payee, for it's full insurable
value and to pay the premiums therefore as and when same fall due and to
forward the receipted invoice for such premiums to the chargee within 15
days of such premium falling due.
7. Upon repayment of this charge, funds will be required before 1:00 p.m. on
the date of repayment, failing which, interest shall be accrued and be
payable to the next banking day.
8. The Chargor agrees that upon discharge of the within charge, a discharge fee
of $125.00 per charge, will be payable by the chargor in addition to all
other sums otherwise payable and forming the discharge balance of the said
charge; and interest at the Interest Rate shall continue to run and accrue
until actual payment in full has been received by the chargee. The chargee
shall have a reasonable time after payment of the sums due under this charge
in full within which to prepare and execute a discharge of the charge.
9. Provided also that if the charged property is transferred or sold, the
principal sum secured hereunder together with accrued interest and
prepayment bonus, if any, shall (at the option of the chargee) immediately
become due and payable in full. In the event that the chargor is an
incorporated entity, the transfer of control of such incorporated entity
shall be deemed to be a transfer for the purposes of this paragraph.
10. All amounts secured by this charge shall, at the option of the chargee,
become immediately due and payable in each of the following events:
(a) there is a breach of any of the chargor's covenants and other
obligations contained herein;
(b) the chargor or any guarantor become bankrupt or insolvent or is
subjected to the provisions of The Bankruptcy Act or any other act for
the benefit of creditor or goes into voluntary or compulsory liquidation
or makes an assignment for the benefit of creditors or makes a proposal
under The Bankruptcy Act or if any
<PAGE>
petition in bankruptcy is filed against either the chargor or any
guarantor or if a creditor enters judgment against any of them by reason
of it's financial inability to pay debt or debts, or if any of them
otherwise acknowledges it's insolvency;
(c) any representation or warranty made in connection with the chargor's
application for this charge is or becomes untrue;
(d) failure by the chargor to observe or perform any of the terms,
conditions, provisions, covenants, stipulations, undertaking or
obligations set forth in any loan agreement or commitment pursuant to
which the principal secured by this charge or any part hereof was
advanced; and
(e) should any construction client or certificate of pending litigation or
execution be registered against the charged property.
11. If any covenant or provision of this charge is illegal or unenforceable, it
shall be considered separate and severable from the remaining covenants and
provisions shall remain in force and be binding as though such first
mentioned covenants or provisions had never been included.
12. By the execution of this charge, it is the intention of the chargor to
charge the charged property including all appurtenances, buildings and
fixtures, now or hereafter situated thereon, in favour of the chargee.
ADDITIONAL PAYMENT PROVISIONS
- -----------------------------
CHARGE OF LAND
- --------------
The Chargor hereby charges the land described in Box (5) of Form 2 as security
for the payment to the chargee of the principal; amount as set out in Form 2
with the interest thereon at the rate set out on Form 2 payable as hereinafter
provided.
VOID ON PAYMENT
- ---------------
This charge shall be void upon the observance and performance of all warranties,
covenants, provisions, conditions, agreements and obligations set out in this
charge and the payment to the chargee of the principal amount as set out in Form
2 with interest thereon calculated not in advance and at the range set out on
Form 2 as well after as before maturity, default, and judgment, until paid as
follows: Interest at the rate set out on Form 2 on the amounts from time to
time advanced until the Interest Adjustment Date, shall become due and be paid
on Interests Adjustment Date set out on Form 2 (provided that at the option of
the Chargee interest so due and payable may be deducted from any or all of such
advanced) and thereafter the amounts set out on Form 2 shall become due and be
paid on the date set out on Form 2. When the chargor is not in default
hereunder, the payments shall be applied firstly to interest calculated as set
out on Form 2 on the principal amount outstanding from time to time and
<PAGE>
the balance, if any, will be applied on account of and in reduction of the said
principal amount.
OPEN UPON PAYMENT OF THREE (3) MONTHS' INTEREST
- -----------------------------------------------
This mortgage is open as at prepayment upon the payment of three (3) months'
interest by way of bonus on the balance of the principal amount then
outstanding.
DISCHARGE OF MORTGAGE
- ---------------------
The chargee shall have a reasonable time after payment of the charge monies in
full within which to prepare and execute the discharge of the within mortgage,
and interest as aforesaid shall continue to run and accrue until actual payment
in full has been received by the chargee and all legal and administrative
expenses for the preparation and execution of such discharge shall be borne by
the chargor.
ADDITIONAL PROVISIONS - CONTINUATION OF BOX 10
- ----------------------------------------------
IN CONSIDERATION of the advance of the mortgage monies hereby secured, the
Mortgagor both hereby assigns, transfers and set over unto the Mortgagee all
rents reserved and payable under all leases current and future in respect of all
or part of the premises herein described and all benefit and advantage to be
derived therefrom, to hold and receive the said rents unto the Mortgagee, his
successors and assigns.
Provided that nothing herein shall be deemed to have the effect of making the
Mortgagee responsible for the collection of the said rents or any part thereof,
or for the performance of any covenant, term or condition either by the Lessor
or Lessee contained in the said leases and that the Mortgagee shall not by
virtue of this indenture be deemed a Mortgagee in possession of the said
premises.
And provided that the Mortgagee shall be liable to account for only such monies
as may actually come into his hands by virtue of this indenture, less proper
collection charges, and such monies when so received by him shall be applied on
account of the monies due under this mortgage.
Provided also that this assignment of rents shall only be effective in the event
that the Mortgagor is in default of repayments of the monies hereby secured, or
is in breach of any of the conditions, covenants, terms or provisos herein
contained.
And the Mortgagor covenants with the Mortgagee to execute in a form satisfactory
to the Mortgagee, as additional security for this loan, specific assignments of
all such current and future leases and to execute such further assurances as may
be required of him in order to effectually assigning to the Mortgagee the said
leases.
And the Mortgagor hereby authorizes the Mortgagee, by his employees or agents,
at his option, after the occurrence of a default as aforesaid, to enter upon the
mortgaged premises
<PAGE>
and to collect, in the name of the Mortgagor or in his own name as assignee, the
rents accrued but unpaid and in arrears at the date of such default, as well as
the rents thereafter accruing and becoming payable during the period of the
continuance of the said or any other default; and to this end, the Mortgagor
further agrees to facilitate in all reasonable ways the Mortgagee's collection
of said rents, and will, upon request by the Mortgagee, execute a written notice
to each tenant directing the tenant to pay rent to the Mortgagee.
And the Mortgagor covenants with the Mortgagee that it will not accept any
prepayment of rents in advance from any of its tenants other than one month's
rent on the 1st day of each and every month throughout the term of each Lease.
ADDITIONAL PROVISIONS - CONTINUATION OF BOX 10:
AND THE GUARANTOR/GUARANTORS OF THE THIRD PART herein, in consideration of the
Mortgagee making the mortgage loan hereunder to the Mortgagor and of the sum of
(TWO ($2.00) DOLLARS) of the lawful money of Canada paid to him/them by the
Mortgagee (the receipt whereof is hereby by him/them acknowledged) for
himself/themselves, and each of his/their heirs, executors, administrators,
successors and assigns, does/do hereby jointly and severally covenant with the
Mortgagee to guarantee, as primary debtor/debtors and not as surety/sureties,
that the Mortgagor will pay all monies payable hereunder when due and will duly
observe, perform and keep all the covenants herein contained and does/do hereby
jointly and severally covenant to indemnify and save harmless the Mortgagee from
any loss, costs or damages arising from non-payment of the said monies or breach
or non-performance of any of the said covenants, and does/do further jointly and
severally agree that the Mortgagee may arrange with the Mortgagor, its
successors and assigns, to alter the terms hereof in any manner whatsoever
including the interest rate and/or allow the mortgage monies to be in arrears
and/or may extend the time for payment of any mortgage monies and/or deal with
the mortgage security however it may deem fit, and all without releasing the
Guarantor/Guarantors, his/their heirs executors, administrators, successors and
assigns from his/their obligations hereunder and without notice to him/them and
the Mortgagee shall not be bound to exercise its remedies against the Mortgagor
or any other person or against the mortgaged premises before requiring payment
of monies or performance of covenants from the Guarantor/Guarantors.
Initials of Guarantor(s)_________ ________
<PAGE>
EXHIBIT 10.2
Sun Life Trust Company
225 King St W
Toronto, ON M5V 3C5
December 5, 1996
ESI Holdings Ltd.
240 Argyle Avenue
Ottawa, Ontario
K2P 1B9
Attention: Mr. David Edwards
Dear Sir:
Re: Renewal and Amendment of Mortgage No.: 768-522l7.1
Mortgagor(s): E.S.I. Holdings, Ltd.
Property: 240 Argyle Avenue, Ottawa, Ontario
We are pleased to offer to renew the Mortgage based on and subject to the
following terms and conditions:
1. The principal balance of the mortgage at the maturity date of
October 1, 1996, will be approximately $366,569, assuming receipt of
all payments up to and including the maturity date. (Please note
that this figure is an estimate only, and is not to be used for
payout purposes.)
2. The term, interest rate (calculated semi-annually not in advance),
and amortization shall be effective from the maturity date.
<TABLE>
<CAPTION>
Interest Amortization New Monthly
Term Rate Period Payment Initial
<S> <C> <C> <C> <C>
1 Yr. 6.20% 10 Yrs. $4,100
2 Yrs. 7.25% 12 Yrs. $3,798
3 Yrs. 7.875% 12 Yrs. $3,918
5 Yrs. 8.65% 12 Yrs. $4,069
</TABLE>
3. All monthly payments and other amounts due under the Mortgage have
been made and shall continue to be made up to and including the
maturity date of the Mortgage.
<PAGE>
4. All terms and conditions of the Mortgage shall remain in effect
during the renewal period, save and except as amended herein, and
there shall be no right of premature repayment except as specified
herein.
5. A certified copy of your fire insurance policy, showing Sun Life
Trust Company as first mortgagee and containing our requirements as
set out in Schedule "A" must accompany the signed renewal and is a
condition of this agreement. (received)
6. Receipted property tax bills for 1996, showing the payment of all
taxes billed must accompany the signed copy of this offer which you
return to us. (received)
7. Payment of our renewal fee in the amount of $500.00.
8. Your agreement to provide any other information relative to this
offer as may be requested.
9. All legal fees related to the renewal of the Mortgage (if any) are
your sole responsibility and are payable at the time of renewal.
10. This offer, if accepted by you as provided herein, shall constitute
a mortgage extension agreement and not a novation of the Mortgage.
This mortgage extension agreements shall in no way release or
discharge the Mortgage which shall remain in full force and effect
except as modified herein and which shall continue to secure all
interest and other obligations under the Mortgage, as modified
herein, as a charge on the Property.
11. Nothing in this offer shall release or waive any personal covenants
contained in the Mortgage or elsewhere, or release or discharge the
original mortgagor named in the Mortgage or any successor in title
to such original Mortgagor or any surety under the Mortgage and
nothing herein shall affect the priority of the Mortgage.
12. You agree not to sell, transfer, assign, convey or otherwise dispose
of or encumber the Property, or any part thereof, or interest
therein, without first notifying Sun Life Trust in writing and
obtaining the approval of Sun Life Trust Company as to the
purchaser, transferee or assignee and the terms and conditions of
the sale, transfer, assignment, conveyance or disposition, provided
further that the purchaser, transferee or assignee shall sign an
assumption agreement, consenting to be bound by all of the terms and
conditions of the Mortgage, as amended and by all collateral
agreements, and in the event that any of the terms of this condition
are not complied with, the Mortgage shall become immediately due and
payable together with all accrued interest and other monies owing
thereunder.
13. The date of the Mortgage shall be amended to be the maturity date of
the Mortgage.
<PAGE>
14. The Mortgagor is the sole owner of the property.
15. If the property consists of a matrimonial home, the Mortgagor's
spouse consents to the terms and conditions stated herein and shall
sign the enclosed copy of this letter.
16. The Statutory Declaration as to Environmental Matters, attached as
Schedule 1, shall be signed by you and must accompany the signed
copy of this offer.
This offer to renew the Mortgage is conditional upon your returning to us, on or
before December 19, 1996, (which date may be extended at the option of Sun Life
Trust Company), the attached copy of this offer, signed by you, and indicating
term selection, together with the fire insurance policy, tax bills and a cheque
for the renewal fee, all referred to above. If the signed copy of the offer is
not returned by the above date, Sun Life Trust Company will issue a payout
statement for the Mortgage for discharge purposes and may, at its option,
require payment in full of the principal, interest and all other amounts owing
under the Mortgage on the Maturity date or at any time thereafter.
Yours, truly,
SUN LIFE TRUST COMPANY
Laura Pasquale
Account Manager
Business Lending
<PAGE>
The undersigned consent to the foregoing terms and conditions of this offer to
renew and agree to be bound by them.
12/13/96 /s/ David G. Edwards
- -------- --------------------
Date E.S.I. Holdings Limited
Borrower
12/13/96 /s/ David G. Edwards
- -------- --------------------
Date David G. Edwards
Guarantor
12/13/96 /s/ Patricia Edwards
- -------- --------------------
Date Patricia Edwards
Guarantor
12/13/96 /s/ David G. Edwards
- -------- --------------------
Date E.S.I. Sheltered Inv. Corp.
Guarantor
<PAGE>
Schedule 1
Statutory Declaration as to Environmental Matters
CANADA ) In the matter of the title to 240 ARGYLE AVENUE
)
PROVINCE OF ONTARIO ) OTTAWA, ONTARIO (the "Property").
)
JUDICIAL DISTRICT OF ) And in the matter of an extension of the
)
OTTAWA ) mortgage granted by E.S.I. HOLDINGS, LTD.
)
) (the "Mortgagor") in favour of Sun Life Trust
)
TO WIT: ) Company and dated DECEMBER 31, 1996.
I, David Edwards, of the City of Ottawa, in the Province of Ontario do solemnly
declare that:
1. I am the Mortgagor of the above-noted property and as such have knowledge of
the matters hereinafter deposed to.
2. There are not in, on, under or about the Property or any buildings or
improvements thereon, or any part thereof, any substances or conditions that
are prohibited, controlled or otherwise regulated or are otherwise hazardous
in fact (collectively the "Hazardous Substances") such as contaminants,
pollutants, toxic, dangerous or hazardous substances, toxic, dangerous or
hazardous materials, designated substances, controlled products, including,
without limitation, radioactive substances, wastes, subject wastes, urea
formaldehyde foam type of insulation, asbestos or asbestos containing
materials, polychlorinated byphenyls (PCBs) or PCB contaminated fluids or
equipment, explosives, radioactive materials, petroleum and associated
products, underground storage tanks or surface impoundments, and neither the
Property nor, to the best of my knowledge, any adjacent lands have ever been
used as or for a waste disposal or coal tar gasification site, nor have they
ever contained any underground storage tanks and the use of the Property has
not involved and will not involve, during the Renewal Term, the storing,
handling, processing, manufacturing or disposing of Hazardous Substances in
on, under or from the Property nor will such use result in nor has there
ever been any environmental damage, and there are not convictions (or
settled prosecutions short to conviction) or outstanding or threatened
investigations, claims, work order, notices, directive or the like against
the Property or the Mortgagor relating to environmental or occupational
health and safety matters.
And I make this solemn declaration believing it to be true and knowing that
it is of the same force and effect as if made under oath and by virtue of
the Canada Evidence Act.
<PAGE>
Declare before me at
the City of Ottawa
in the Province
of Ontario,
this 13 day of December, 1996. /s/ David G. Edwards
--------------------
A Commissioner, etc.
David Frederick Johnson,
a Commissioner, etc.
Regional Municipality of Ottawa-Carleton,
for Edwards Securities, Inc.
Expires August 10, 1999.
<PAGE>
SCHEDULE A
INSURANCE
The Borrower shall place and keep in force throughout the Term of the Loan the
insurance coverage required by the Mortgage including, without limitation, the
following insurance coverage, in respect of the Property and all such insurance
coverage shall be placed and kept in force with a company or companies
satisfactory to the Lender and the Lender shall receive the original policies of
insurance signed by the insurer or insurers which policies are to be in form and
content satisfactory to the Lender. Where, under the insurance policies
described below, loss is payable to the Lender, such insurance policies shall
show the loss payable to the Lender as first mortgagee.
---------------------------------------------
Sun Life Trust Company
225 King Street West, 10th Floor
Toronto, Ontario
M5V 3C5
Permanent Coverage
------------------
i) Fire and extended coverage and malicious damage, including leakage
from fire protection equipment on a stated amount replacement cost
------------------------------
basis (as per IAO wording) with loss payable to the Lender by way of
-----
an IAO approved mortgage clause. Permission should be granted for the
Improvements to be completed and to be vacant or unoccupied for a
period of at least thirty (30) days and shall provide for partial
occupancy.
ii) Comprehensive broad form boiler insurance including unfired pressure
vessels insurance and air-conditioning equipment, if any, including
repair and replacement and including Use and Occupancy coverage, for
an amount satisfactory to the Lender with loss payable to the Lender
by way of a Boiler and Machinery Insurance Association mortgage
clause.
iii) Comprehensive general liability insurance for bodily injury and/or
death and damage to property of others for a minimum of $2,000,000 per
occurrence, written on an inclusive basis.
iv) Rental insurance coverage sufficient to cover 100% of the gross annual
rentals from the Property for a period of twelve (12) months, based on
the greater of actual or projected rentals.
All cancellation and alteration clauses in the above-referenced policies,
including those contained in the mortgage clause insurance endorsement, are to
provide for at least thirty (30) days prior notice to the Lender of such
cancellation or of any material alternation. The Lender shall be entitled to
require coverage of such other risks and perils as the Lender may from time to
time consider advisable or desirable and in respect of which insurance coverage
may be available.
<PAGE>
Restatement Policy Declaration
Office Plus
Policy Number: 8324281
Name of Insured: E.S.I. Holding Limited
Mailing Address: 240 Argyle Avenue
Ottawa, Ontario
K2P 1B9
Policy Period: From: 30 August 1996 To: 30 August 1997
12:01 a.m. Standard Time at the Mailing Address of the Named
Insured as stated here
Total Premium Payable: $0 Additional Premium
Broker: Trigon Insurance Brokers Ltd.,
203-1355 Bank Street
Ottawa, Ontario
K1H 8K7
By acceptance of this policy the insured acknowledges the cancellation from the
effective date of this Policy, of any previous Policy (or the renewal thereof)
which is stated in the Declaration as replaced.
In witness whereof, the GORE MUTUAL INSURANCE COMPANY has caused this Policy to
be signed by its President and Secretary Treasurer but the same shall not be
binding unless countersigned by a duly authorized representative of the insurer.
COUNTER SIGNED
Senior Vice President/ Vice President
Secretary Treasurer Underwriting Administration
Authorized Representative
THIS POLICY CONTAINS A CLAUSE(S) THAT MAY LIMIT THE AMOUNT PAYABLE
LA PRESENTE POLICE CONTIENT UNE CLAUSE POUVANT LIMITER LES INDEMITIES
<PAGE>
Restatement Policy Declaration
Policy Number: 8324281 Office Plus
ACCOUNT NUMBER:
00144725
THE NAMED INSURED: ENTITY:
E.S.I. Holding, Ltd. Corporation
LOCATION OF THE PREMISES (LOCATION 1) CONSTRUCTION
240 Argyle Avenue Two Storey Brick/Wood Joist Roof
Ottawa Ontario K2F 1B9
INSURED'S OCCUPANCY/OPERATIONS OCCUPANCY BY OTHERS
Financial and Insurance Office
LOSS, IF ANY, IS PAYABLE TO:
SUN LIFE TRUST COMPANY, First Mortgagee
P.O. Box 375 SFN A
Toronto, Ontario, M5W 1C2
Policy Period: From: 30 August 1996 To: 30 August 1997
12:01 a.m. Standard Time at the Mailing Address of the Named Insured as stated
herein.
This policy insures only the overages specifically indicated below.
Reference should be made to the applicable forms or rider for details.
SUMMARY OF COVERAGE AND LIMITS OF INSURANCE
<TABLE>
<CAPTION>
Applicable Forms Coverage Deductible Co-Insurance Limits of Premium
($) Insurance ($)
<S> <C> <C> <C> <C> <C>
Property Mtpl
G01000 Office Contents 500 80% 210,000
Building 500 80% 589,000
Rent or Rental Value 500 80% 112,000
G19030 General Purpose Endorsement Included
G0100X Accounts Receivable 500 5,000
Valuable Papers and Records 500 5,000
Leasehold Interests - Per Month 500 500
Blanket Earnings and Extra Expenses 500 100,000
Office Plus 7-Point Crime 0 5,000
Office Plus Liability 0 2,000,000
Medical Payments ($2,500 per person) 0 25,000
Tenants Legal Liability 500 300,000
G39029 Professional Liability Exclusion Included
G01004 Electronic Data Processing Equipment 500 80% 150,000
G01904 Mechanical Breakdown Included
Boiler
G91346 Option #1 - Equipment Breakdown 500 800,000
Location
Premium 0
</TABLE>
THIS POLICY CONTAINS A CLAUSE(S) THAT MAY LIMIT THE AMOUNT PAYABLE
LA PRESENTE POLICE CONTIENT UNE CLAUSE POUVANT LIMITER LES INDEMITIES
<PAGE>
EXHIBIT 10.3
LOAN AGREEMENT
THIS AGREEMENT dated June 20, 1996,
BETWEEN:
622291 Ontario Limited, a Company duly incorporated under the laws of the
Province of Ontario, Of Ottawa, Ontario,
(the "Company 1")
AND:
Edward Arabians Inc., a Company duly incorporated under the laws of the
Province of Ontario of Ottawa, Ontario,
(the "Company 2")
AND:
David Edwards, Business Person, of c/o 240 Argyle Avenue, Ottawa, Ontario,
(the "Individual 1")
AND:
, Business Person, of
, Ontario
(the "Individual 2")
(the above described are individually and collectively called the "Borrower")
OF THE FIRST PART
AND:
BUSINESS DEVELOPMENT BANK OF CANADA, incorporated by Special Act of the
Parliament of Canada and having its Head Office in the City of Montreal, in
the Province of Quebec, with a branch at Ottawa, Ontario
("BDC") OF THE SECOND PART
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C> <C> <C> <C> <C>
1. Interpretation 6. Other Payment Provisions 11. Financial Reporting
2. The Loan 7. Security 12. Inspections
3. Repayment Terms 8. Business and Assets 13. Default
4. Other Terms 9. Environment 14. Remedies and Powers
5. Prepayment 10. Insurance 15. General
</TABLE>
The Borrower covenants and agrees with BDC as follows:
1. INTERPRETATION
1.01 Definitions
-----------
"Application for Financing" means the form of application for the Loan
-------------------------
executed by the Borrower and dated prior to the Commitment Letter.
"BDC's Operational Rate" means the annual rate of interest announced by
----------------------
BDC from time to time as its operational rate then in effect for
determining the floating interest rates on Canadian dollar commercial
and industrial loans.
"Base Rate" means the annual rate of interest announced by BDC from
---------
time to time as its base rate applicable to each of BDC's Fixed
Interest Rate Plans then in effect for determining the fixed interest
rates on Canadian dollar commercial and industrial loans.
"Commitment Letter" means the letter of offer of the Loan dated June 3,
-----------------
1996 and subsequent modifications.
"Corresponding Fixed Interest Rate Plan" means in relation to the
--------------------------------------
prepayment of a fixed interest rate loan, the Fixed Interest Rate Plan
equal to the number of years, rounded to the nearest year (minimum of
one year), from the date the prepayment is received to the next
scheduled Interest Adjustment Date (or the Maturity Date if earlier).
"Fixed Interest Rate Plan" means at any time a fixed interest rate plan
------------------------
offered by BDC to its customers generally at such time.
"Floating Interest Rate Plan" means the floating interest rate plan set
---------------------------
out herein.
"Interest Adjustment Date" means the dates established in this
------------------------
agreement for the adjustment or further adjustment of the interest
rate.
"Loan" means the loan offered in the Commitment Letter in the amount of
----
$509,160.00.
<PAGE>
"Loan Rate" means the floating interest rate applicable to this Loan
---------
which is an annual rate of 0.70% above BDC's Operational Rate
calculated as set out herein.
"Maturity Date" is 2006, August, 23 on which date any monies then
-------------
unpaid will be due.
"Month of Loan Authorization" is June 1996.
---------------------------
"Permitted Encumbrance" means financial or other charges permitted to
---------------------
rank in priority to the Security under the terms of the Commitment
Letter.
"Security" means the security described in Schedule "A" attached and
--------
all additions, replacements or modifications thereto.
1.02 Governing Law
-------------
This agreement and the Security and the rights and obligations of the
parties under this agreement and the Security will be governed by and
construed and interpreted in accordance with the laws of Ontario.
2. THE LOAN
BDC has agreed to lend to the Borrower and the Borrower has agreed to borrow
from BDC, the Loan pursuant to the Commitment Letter and the Borrower has
agreed to give the Security to secure the Loan.
3. REPAYMENT TERMS
The Borrower will repay to BDC at its head office in the City of Montreal,
in the Province of Quebec, or at such other place in Canada as BDC may in
writing from time to time direct, the Loan with interest thereon as follows:
PRINCIPAL AMOUNT $509,160.00
INTEREST RATE
The interest rate shall vary automatically without notice to the Borrower
upon change in BDC's Operational Rate. AT the date of he Commitment Letter,
BDC's Operational Rate as 7.80% per annum, the Loan Rate was 0.70% per annum
above BDC's Operational Rate and the interest rate was therefore 8.50% per
annum.
<PAGE>
FIRST PAYMENT DATE
a) Interest
The 23rd day of the month following the first disbursement of
principal.
b) Principal
AMOUNT OF EACH PERIODIC PAYMENT
a) Interest
Interest is calculated daily not in advance on the principal
outstanding from time to time commencing on the date of the first
disbursement of principal. Interest is paid monthly on the 23rd day of
each month commencing as provided above and continuing until all
amounts required to be paid under the Loan are paid. Where the parties
have agreed, BDC may retain a portion of the Principal Amount and
deduct, from time to time from such portion regular payments of
interest as provided for herein.
b) Principal
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 payment of $3,985.00 commencing July 23, 1996 ,followed by
121 payments of $4,175.00 commencing August 23, 1996 ,followed by
payments of $commencing ,followed by
payments of $commencing ,followed by
</TABLE>
with the balance of the principal and any other monies owing to be paid
on August 23, 2006 the Maturity Date.
4. OTHER TERMS
4.01 Switching Plans
---------------
The Borrower may, at any time, elect to change to any Fixed Interest
Rate Plan offered by BDC at the time of such election upon giving BDC
30 days notice of such election and upon payment of BDC's standard
switching fee then in effect and upon other terms and conditions agreed
upon with BDC at the time.
4.02 Interest Adjustments
--------------------
Any underlying conditions in the Commitment Letter allowing other
adjustments by BDC to the Loan Rate, if any, apply to the Loan.
<PAGE>
5. PREPAYMENT
5.01 Fixed Interest Rate Plan
------------------------
If the Borrower is on a Fixed Interest Rate Plan, the following
provisions will apply:
The Borrower shall have the privilege of prepaying at any time, without
notice, the whole or any part of the outstanding principal upon payment
of the accrued interest, and any other sums due at the date of the
prepayment provided that an indemnity is paid to BDC which is equal to:
a) three months' interest on the principal prepaid, such interest to
be computed in the same manner and at the same rate as a monthly
installment of interest herein would, at time of prepayment, be
calculated; and
b) an interest differential charge which is only applicable if, on the
date prepayment is received, BDC's Base Rate for the Corresponding
Fixed Interest Rate Plan is lower than the Base Rate in effect when
the Borrower either entered or renewed the Fixed Interest Rate Plan
being prepaid, whichever is the most recent. The interest
differential is the difference between these two rates. The
interest differential is multiplied by the principal that would
have been outstanding at the 23rd of each month until the next
Interest Adjustment Date (or the maturity of the principal if
earlier). Then the present value of the amount or amounts obtained
by such multiplication is then calculated by discounting such
amount or amounts using the Base Rate for the Corresponding Fixed
Interest Rate Plan as the discount factor. The total of the
present values is the interest differential charge.
PROVIDED THAT the said indemnity shall not exceed the amount chargeable
upon prepayment according to the terms of the Interest Act of Canada
In the case of partial prepayment, the interest differential charge
will be reduced in the same proportion as the amount prepaid bears to
the principal outstanding at the time prepayment is received.
5.02 Floating Interest Rate Plan
---------------------------
If the Borrower is on the Floating Interest Rate Plan, the Borrower
shall have the privilege of prepaying at any time, without notice, the
whole or any part of the outstanding principal upon payment of the
accrued interest, and any other sums due at the date of prepayment
provided that an indemnity is paid to BDC which is equal to three
months' interest, at the Loan Rate, on the amount prepaid.
<PAGE>
5.03 Annual Privilege
----------------
In addition to the foregoing prepayment provisions, the Borrower shall
have the privilege of prepaying annually, on the anniversary of the
24th day of the Month of Loan Authorization, an amount not exceeding
15% (non-cumulative from one year to another) of the outstanding
principal without indemnity.
5.04 General
-------
Partial prepayments shall be applied regressively on the then last
maturing installments of principal.
6. OTHER PAYMENT PROVISIONS
6.01 Payment Date
------------
Although it is stated above that payments of principal and interest are
to be made on the 23rd day of the month, it is agreed that BDC has the
right, exercisable at any time, to designate any other day of the month
for payments in place of the 23rd.
6.02 Interest Calculations
---------------------
Interest is calculated as provided in this Agreement as well after as
before maturity, both before and after default and both before and
after judgment.
6.03 Arrears of Interest
-------------------
Arrears of interest bear interest at the rate from time to time
chargeable on principal calculate and paid at the same times and in the
same manner as interest on principal and is secured by the Security.
6.04 Expenses and Fees
-----------------
The Borrower covenants to pay on demand:
a) all legal fees and disbursements on a solicitor and own client
basis in respect of the Loan, the preparation, issue and
registration of the Security and all legal, receiver's, bailiff's
or other fees and disbursement in respect of the enforcement or
preservation of BDC's rights and remedies under the Loan, or the
Security. In addition, the Borrower covenants to pay the costs of
any appraiser and any environmental investigator engaged by BDC to
effect any inspection, appraisal, investigation or environmental
audit of the secured assets and the cost of any environmental
rehabilitation, removal, or repair necessary to protect, preserve
or remediate the secured assets, including any cost, fine or
penalty BDC is
<PAGE>
obliged to incur by reason of any statute, order or direction by
competent authority. The Borrower's obligations to indemnify BDC
under this paragraph continue before and after default and
notwithstanding repayment of the Loan or discharge of any part or
all of the Security;
b) an allowance for the time, work and expense of BDC or of any agent,
solicitor or servant of BDC for any purpose herein provided for and
whether such time, work or expense is advanced or incurred with the
consent of the Borrower or otherwise; and
c) all fees from time to time chargeable by BDC arising out of any
term of the Commitment Letter or any of the Security including
inspection, administration, discharge and returned cheque handling
fees.
6.05 Interest on Unpaid Amounts
--------------------------
Any amounts required to be paid herein, if not paid when due, will bear
interest until paid in the same manner as arrears of interest and are
secured by the Security.
7. SECURITY
7.01 Form of Security
----------------
All Security shall be in form and substance satisfactory to BDC and its
counsel and shall be in form sufficient for registration or filing
under all applicable laws.
7.02 Further Assurances
------------------
The Borrower shall, at its sole cost, execute and deliver or cause to
be executed and delivered to BDC such further deeds or other
instruments of conveyance, assignment, transfer, mortgage, pledge,
charge, guarantee or acknowledgement or such additional instruments or
other assurances as BDC may from time to time reasonable require to
carry out the intent of this agreement.
7.03 Multiple Security
-----------------
Notwithstanding anything else contained in any part of the Security,
each part is given as additional, concurrent and collateral security to
the remainder of the Security, and BDC shall not be obliged to realize
or enforce its rights under any part of the Security before enforcing
or realizing on the remainder of the Security, but may enforce or
realize on any part of the Security as it sees fit, in whichever order
it sees fit, and may abstain from enforcing any part of the Security as
it sees fit, any rule of law or equity to the contrary notwithstanding.
<PAGE>
8. BUSINESS AND ASSETS
8.01 Title to Assets
---------------
The Borrower represents and warrants the Borrower's good and marketable
title to its assets that are subject to the Security, in each case free
and clear of any encumbrance other than Permitted Encumbrances.
8.02 Material Contracts
------------------
The Borrower represents and warrants that all material contracts to
which the Borrower is a party or which affect the Borrower's business
or its assets that are subject to the Security are not in default and
will remain in good standing.
8.03 Claims and Litigation
---------------------
The Borrower represents and warrants that there are no actions, suits,
or claims pending or threatened against the Borrower by any person or
governmental authority which could, if an adverse decision is made,
affect the ability of the Borrower to perform its obligations under
this agreement.
8.04 Conduct of Business
-------------------
The Borrower will agree to carry on its business in a proper business-
like manner, will keep proper books of account and records covering all
its business and affairs, will maintain in good standing all necessary
licenses, permits, approvals and consents and will comply with all
laws, ordinances and regulations applicable to it.
8.05 Reorganization
--------------
The Borrower agrees not to amalgamate, merge, consolidate or enter into
any business combination with any other person without the prior
written consent of BDC.
8.06 Corporate Undertakings
----------------------
Where the Borrower is a corporation, it shall not, without BDC's prior
written consent:
a) issue, purchase or redeem its shares;
b) permit any of its shareholders to sell, transfer or dispose of its
shares;
c) declare or pay any dividends on any of its issued shares.
<PAGE>
8.07 Maintenance
-----------
The Borrower will keep and maintain all of its assets used in the
conduct of its business in good order, repair and condition (reasonable
wear and tear excepted).
8.08 Security and Liens
------------------
The Borrower will not give, grant, assume or permit to exist, any
encumbrance on any of its assets that are subject to the Security other
than Permitted Encumbrances.
8.09 Nature of Business
------------------
The Borrower will not:
a) engage in any business or permit the use of its premises whether by
a tenant or other person for any purpose that would constitute an
ineligible activity under the Commitment Letter;
b) change its name or the location of the assets that are subject to
the Security without BDC's prior written consent.
c) change the nature or type of its business without BDC's prior
written consent; and
d) sell, transfer or dispose of the assets that are subject to the
Security without BDC's prior written consent except in the ordinary
course of business.
9. ENVIRONMENT
The Borrower represents and agrees that:
a) it operates and will continue to operate in conformity with all
environmental laws and will ensure its staff is trained as required for
that purpose;
b) it has an environmental emergency response plan and all officers and
employees are familiar with that plan and their duties under it;
c) it possesses and will maintain all environmental licenses, permits and
other governmental approvals as may be necessary for the conduct of its
business;
d) its assets are and will remain free of environmental damage or
contamination;
<PAGE>
e) there has been no complaint, prosecution, investigation or proceeding,
environmental or otherwise, with respect to the Borrower's business or
assets;
f) it will advise BDC immediately upon becoming aware of any environmental
problem relating to its business or its assets that are subject to the
Security;
g) it will provide BDC with copies of all communications with
environmental officials and all environmental studies or assessments
prepared for the Borrower and it consents to BDC contacting and making
enquiries of environmental officials or assessors;
h) it will not install on or under any land mortgaged to BDC storage tanks
for petroleum products or any hazardous substance without BDC's prior
written consent and only upon full compliance with the Bank's
requirements and local ordinances or regulations.
10. INSURANCE
During the continuance of this Loan, the Borrower shall insure and keep
insured all property provided as security hereunder to their full insurable
value against loss or damage, however caused. The insurance policy(ies)
shall record BDC as loss payee and contain the standard mortgage clause as
approved by the Insurance Bureau of Canada, or a mortgage endorsement or a
Breach of Warranty Clause, as appropriate. The Borrower shall provide
evidence of the insurance coverage and pertinent clauses to BDC, if an when
requested.
If the Borrower does not maintain insurance as required, BDC may purchase
insurance to protect its own interest and the premiums shall be payable by
the Borrower.
The Borrower shall notify BDC of the occurrence of any damage or loss and
furnish any necessary proof to enable BDC to obtain payment of the insurance
money.
Receipt of insurance proceeds by BDC does not constitute a payment on the
Loan unless BDC chooses to apply the funds to the Loan and any release of
insurance proceeds not so applied does not constitute a readvance under the
Loan.
If any insurance proceeds become payable, BDC may, in its absolute
discretion, apply such proceeds to the Loan and such other obligations of
the Borrower to it in whatever order or manner it sees fit and may release
such proceeds or part of them.
The Borrower hereby authorizes and directs the insurer under any policy of
insurance called for above to include the name of BDC as a loss payee in any
cheque or draft which may be issued with respect to a claim settlement under
such insurance and the production by BDC of a copy of this agreement shall
be the insurer's full and complete authority for so doing.
<PAGE>
11. FINANCIAL REPORTING
The Borrower shall deliver to BDC its annual financial statements within 90
days of fiscal year end and interim financial statements within 30 days
after the end of statement date.
12. INSPECTIONS
BDC may, by its officers or authorized agents, enter upon the Borrower's
premises at any time, from time to time, to inspect or to appraise the
Borrower's assets that are subject to the Security and to inspect the books
and records of the Borrower and make extracts therefrom.
13. DEFAULT
13.01 Events of Default
-----------------
The Borrower shall be in default under this agreement in the event of a
default pursuant to any of the Security, or in any of the following
events:
a) the Borrower makes default in the payment of the Loan or any money
secured by the Security, at the time and in the amounts provided;
or
b) the Borrower is in breach of any term, condition, obligation or
covenant to BDC, or any representation or warranty to BDC is
untrue, whether or not contained in the Security, the Commitment
Letter or this agreement; or
c) the Borrower declares itself to be insolvent or admits in writing
is inability to pay its debts generally as they become due, or
makes an assignment for the benefit of its creditors, is declared
bankrupt, makes a proposal or otherwise takes advantage of
provisions for relief under the Bankruptcy and Insolvency Act, the
Companies Creditors' Arrangement Act or similar legislation in any
jurisdiction, or makes an authorized assignment; or
d) a receiver, receiver and manager or receiver manager of all or any
part of the Borrower's assets is appointed; or
e) an order is made or an effective resolution is passed for winding
up the Borrower; or
f) the Borrower ceases or threatens to cease to carry on all or a
substantial part of its business; or
g) an order of execution against the Borrower's assets or any part
thereof remains unsatisfied for a period of 10 days; or
<PAGE>
h) BDC in good faith believes and has commercially reasonable grounds
to believe that the prospect of payment or performance of any of
the Borrower's obligations is impaired; or that the property
provided as security hereunder is in danger of loss, damage,
misuse, seizure or confiscation; or
i) the lessor under any lease to the Borrower of any real or personal
property takes any steps to or threatens to terminate such lease,
or otherwise exercise any of its remedies under such lease as a
result of any default thereunder by the Borrower; or
j) the Borrower causes or allows hazardous materials to be brought
upon any lands or premises occupied by the Borrower or incorporated
into any of its assets without BDC's prior consent, or if the
Borrower causes, permits or fails to remedy any environmental
contamination upon, in or under any of its lands or assets, or
fails to comply with any abatement or remediation order given by a
responsible authority; or
k) the Borrower is in default under any loan agreement or security
given by the Borrower to BDC or to any other lender in relation to
any indebtedness other than the Loan or the Borrower accelerates or
permits the acceleration of the maturity of any material
indebtedness to any creditor other than BDC.
l) if any representation or statement made or furnished to BDC by the
Borrower or on the Borrower's behalf is false or misleading in any
material respect; or
m) if any of the events described in this default section occurs with
respect to any guarantor of the Loan.
Default under this agreement or any of the Security constitutes default
under all of the Security and this agreement.
Any default or non-compliance with any terms of the Commitment Letter
not at variance with this agreement shall constitute an event of
default under this agreement.
13.02 Consequences of Default
-----------------------
In the event of default hereunder, the Loan and any other money secured
by the Security shall, at the option of BDC, immediately become due and
payable and the Security enforceable.
<PAGE>
14. REMEDIES AND POWERS
14.01 Obligation to Advance
---------------------
Neither the execution and delivery of this agreement or the Security
nor the advance of money thereunder binds BDC to make any advance or
further advance of the Loan.
14.02 Dealings by BDC
---------------
BDC may grant extensions of time and other indulgences, take and give
up securities including the Security, accept compositions, grant
releases and discharges and otherwise deal with the Borrower, debtors
of the Borrower, sureties and others and with the Security or any other
security from time to time given to BDC by the Borrower or any other
person all as BDC may see fit without prejudice to any of the
Borrower's indebtedness, liabilities and obligations to BDC or BDC's
right to hold and realize on any security. The Borrower further agrees
that it shall not be released nor shall its liability be in any way
reduced by reason that BDC has done or concurred in the doing of
anything whereby a surety would be released in whole or in part.
14.03 Remedies Cumulative
-------------------
BDC may in its sole discretion realize upon any security including the
Security held by it in any order or concurrently whether such security
is held by it at the date hereof or is provided at any time hereafter.
No realization or exercise by BDC of any power or right hereunder or
under any security shall in any way prejudice any further realization
or exercise until all obligations are fully satisfied. All rights and
remedies of BDC under this agreement are cumulative and not in
substitution for its rights under the Security or at law.
14.04 Waiver
------
BDC may at any time waive any default which may have occurred. No such
waiver shall extend to or affect any other default or BDC's rights or
remedies in respect thereof.
14.05 Appropriation
-------------
BDC may, after default, appropriate any moneys received by it from the
Borrower or any other person, to payment of such of the obligations of
the Borrower hereunder or under any other agreement between BDC and the
Borrower as BDC in its sole discretion may see fit, and any such
appropriations may be changed or varied from time to time.
<PAGE>
14.06 Non-Merger
----------
Neither this agreement nor the Security shall operate so as to create
any merger or discharge of any warranties, obligations, covenants or
representations of the Borrower under the Application for Financing,
Commitment Letter, any amendment to them, or other document delivered
by or on behalf of the Borrower, all of which survive the execution and
delivery of the Security, the perfection of the Security interests
created thereby, and the advance of money by BDC.
The taking of a judgment or judgments or any other action or dealing
whatsoever by BDC in respect of any security from time to time given to
BDC by the Borrower or any other person shall not operate as a merger
or release of any of the Borrower's indebtedness, liabilities or
obligations hereunder or in any way affect or prejudice the rights and
remedies of BDC with respect to such indebtedness, liabilities and
obligations.
15. GENERAL
15.01 Conflicts with other Documents
------------------------------
Except for the Application for Financing, the Commitment Letter, the
Security and any other instrument delivered hereunder or pursuant
hereto, this agreement constitutes the entire agreement between BDC and
the Borrower with respect to the subject matter hereof.
Except as hereinafter expressly provided, to the extent that any
provision of the Application for Financing, the Commitment Letter or
any of the Security or any other instrument delivered hereunder or
pursuant hereto is inconsistent with or in conflict with the provisions
of this agreement, the provisions of this agreement shall govern.
15.02 Limits on Interest, Royalties and Fees
--------------------------------------
If, at any time during the term of this Loan, the aggregate amount of
interest, royalties (including additional interest, commissions,
premiums or other similar charges on sales, budgeted revenues or net
revenues of the Borrower) and fees paid or payable in connection with
the advancing of the credit pursuant to the provisions of this
agreement or any deed or agreement relating thereto (collectively, the
"Charges") would, except for this Section, constitute an amount that
might be considered as being the result of the application of an
effective annual rate of interest on the credit advanced that is
prohibited under any law, then such Charges shall be reduced such that
the Charges paid or payable at any such time be the result of the
application of an effective annual rate of interest (the "Reduced Rate
of Return") on the credit advanced equal to a rate that is one percent
(1%) pe annum less than the minimum rate which would
<PAGE>
be prohibited under such law, the whole as calculated in accordance
with generally accepted actuarial practices and principles. Any such
reduction shall be effected by BDC, as it shall deem appropriate, by
either reducing the obligation of the Borrower to pay any portion of
the Charges which would be in excess of the amount resulting from the
application of the Reduced rate of Return (the "Excess Portion"), or,
as the case may be, by refunding to the Borrower the Excess Portion
paid by the Borrower, the whole as determined by BDC in accordance with
generally accepted actuarial practices and principles. Any such
repayment shall be made by BDC by no later than the fifth (5th)
business day following the date upon which BDC, acting reasonably and
in good faith, shall have determined that any amount received from the
Borrower constitutes an Excess Portion.
15.03 Notice
------
Any demand or notice herein referred to may be effectively given by BDC
by personal delivery thereof or by mailing such demand or notice by
prepaid post to the Borrower at the address set out above, or at such
other address as may be given in writing by the Borrower to BDC.
Delivery by Fax transmission is deemed to be personal service and is
deemed to be received on the next business day following transmission.
Delivery by prepaid mail is deemed to be received three business days
after mailing.
15.04 Severability
------------
Any provision of this agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
15.05 Time of the Essence
-------------------
Time is of the essence of this agreement.
15.06 Multiple Borrowers
------------------
Whenever the term "Borrower" includes more than one party:
a) all covenants, liabilities, and obligations entered into by or
imposed on the Borrower herein are deemed to be joint and several;
b) each of the parties constituting the Borrower is, as between them,
in the position of principal debtor in respect of the Loan and all
monies payable under the Security and notwithstanding any
subsequent change in their position inter se or notice thereof for
all purposes of this agreement
<PAGE>
remain in the position of principal debtor and BDC is not bound by
or obliged to recognize any such change or notice.
15.07 No Assignment
-------------
The Borrower may not assign any of its rights or obligations under this
agreement, and no such purported assignment shall be effective, without
the prior written consent of BDC, which consent may be arbitrarily
withheld.
15.08 Discharges
----------
The Borrower shall pay a fee, to be fixed by BDC, for the preparation
or execution of any full or partial release or discharge of any of the
Security, any Borrower, or any guarantor of the Loan.
15.09 Preincorporation Advances
-------------------------
In the event any of the Borrowers were not yet incorporated or did not
have legal status at the time of execution of the Commitment Letter or
at the time of any advance of principal under the Loan such Borrower
ratifies and approves all such actions, confirms that such advance was
applied for its benefit and assumes liability for such advance, such
contract and any expenditure made or cost incurred by BDC hereunder.
15.10 Successors and Assigns
----------------------
This agreement shall enure to the benefit of and be binding on the
parties hereto and their respective heirs, executors, successors and
permitted assigns as the case may be.
15.11 Captions
--------
The division of this agreement into sections and the insertions of
headings are for convenience of reference only and do not affect the
interpretation of this agreement.
15.12 Interpretation
--------------
Whenever in this agreement the singular or neuter pronoun is used the
same shall be respectively construed as the plural, masculine or
feminine where the context or the parties hereto require.
15.13 Counterparts
------------
This agreement may be executed in any number of counterparts and by
different persons in separate counterparts, each of which when so
executed shall be
<PAGE>
deemed to be an original all of which taken together shall constitute
one and the same agreement.
15.14 Receipt by the Borrower
-----------------------
The Borrower acknowledges receipt of an executed copy of this
agreement.
15.15 Schedules
---------
All schedules annexed hereto shall be incorporated into and form an
integral part of this agreement.
EXECUTION
The Borrower has executed this agreement personally or by its authorized
signatories as the case may be.
EXECUTION DATE
Officer Y M D
Signature(s)
1996 06 20 Borrower(s) Signature(s)
622291 Ontario Limited
Per:
/s/ David Edwards
-----------------
David Edwards - President
Edwards Arabian Inc.
Per:
/s/ David Edwards
-----------------
David Edwards - President
/s/ David Edwards
-----------------
David Edwards
<PAGE>
SCHEDULE "A" TO LOAN AGREEMENT
BETWEEN
AS BORROWER
AND
BUSINESS DEVELOPMENT BANK OF CANADA
DATED June 20, 1996
SECURITY
1. A first mortgage from 622291 Ontario Limited for $509,160.00 on premises
described as Part of Lot 30, Concession 9, Township of Elizabethtown, County
of Leeds.
2. A security agreement from 622291 Ontario Limited providing a first charge on
all its present and after acquired personal property.
3. An assignment of Shareholder Loan of $836,328.00 owing by 622291 Ontario
Limited to David Edwards.
4. An Assignment of Rents from 622291 Ontario Limited and acknowledgment from
all tenants.
<PAGE>
EXHIBIT 10.4
LEASE
(COMMERCIAL)
Made the 26th day of August 1994.
BETWEEN:
Peter Vanderkloet (the "Landlord")
-and-
Edwards Arabians Inc. (the "Tenant")
In consideration of the rents, covenants and obligations stipulated herein
the Landlord and the Tenant have agreed to enter into a Lease of the premises
known municipally as:
R.R. #2, Addison Road, Addison, Ontario.
and more particularly described in: Schedule A attached (the "Premises").
Schedule B attached (the "Premises").
Schedule C attached (the "Premises").
1. GRANT OF LEASE
(1) The Landlord leases the Premises to the Tenant:
(a) at the Rent set forth in Section 2;
(b) for the Term set forth in Section 3; and
(c) subject to the conditions and in accordance with the covenants,
obligations and agreements herein.
2. RENT
(1) Rent means the amounts payable by the Tenant to the Landlord pursuant to
this Section and includes Additional Rent.
(2) The Tenant covenants to pay to the Landlord, during the Term of this
Lease rent as follows:
(a) during the first five years of the Term, the sum of $4,500.00 per
annum, (all inclusive) payable quarterly, three months in advance, in
equal installments of $1,125.00 on the first day of each and every
quarter, commencing on the day of the Term;
<PAGE>
(3) The Landlord shall provide the Tenant with the option to Lease
approximately 6 acres of land as described in Schedule C located in the
south-west corner of the Landlord's property;
(a) and the Tenant can exercise this option at any time after April 01,
1995 upon 90 days written Notice for any specific period, but not
exceeding the final expiration date of the Lease
(4) The Additional Rent for the land as described in 3.(3) shall increase
the Rent to the Landlord at a rate of $50.00 per month and shall be paid to
the Landlord as set out in 2.(7)
(5) The Tenant further covenants to pay all other sums required by this
Lease to be paid by him and agrees that all amounts payable by the Tenant to
the Landlord pursuant to the provisions of this Lease shall be deemed to be
additional rent ("Additional Rent")
(6) The Landlord and the Tenant agree that it is their mutual intention that
this Lease shall be a completely carefree net Lease for the Landlord and
that the Landlord shall not, during the Term of this Lease, be required to
make any payments in respect of the Premises other than charges of a kind
personal to the Landlord (such as income and estate taxes, mortgage
payments, hydro charges, etc.)
(a) and to effect the said intention of the parties, the Landlord
promises to pay the following expenses related to the Premises;
(i) property taxes and licenses;
(ii) utilities including electricity and water;
(iii) property taxes and rates, duties and assessments;
(iv) maintenance;
(v) insurance premiums on the buildings;
(vi) sales tax and any other taxes imposed on the Landlord
respecting the Rent;
(vii) all other charges, impositions, costs and expenses of every
nature and kind whatsoever;
(b) the Landlord agrees to maintain and pay for all costs associated
with the supply of water and electricity from his house to the point of
distribution in the barn.
(7) Additional Rent shall be payable in monthly installments in advance on
the same dates stipulated for payment of Rent in Section 2(2)(a).
<PAGE>
3. TERM
(1) The tenant shall have possession of the Premises for a period of five
years, commencing on first day of October 1994. (the "Term").
(a) and the Landlord agrees to provide a 30 day Fit-Up Period prior to
the commencement of the Lease at no extra cost to the Tenant.
4. USE
(1) During the Term of this Lease, the Landlord agrees to allow the Tenant
full and unrestricted use of all areas within the barn as described in
Schedule A and the Tenant agrees that such usage shall be solely for all
activities related to the board and care of horses;
(a) and usage for any purpose other than above shall not be without the
express consent of the Landlord given in writing.
(2) The Landlord and Tenant shall have joint use of the area located in
southern portion of the barn as described in Schedule B;
(a) and the Tenant shall cooperate with the Landlord with the movement
of the Landlord's machinery and equipment in and out of the area
described in 4.(1)
(3) The Landlord agrees to provide, upgrade and maintain at his own expense
a 15 foot wide gravel driveway which will provide 15 feet of clear access
for the Tenant from the Addison Road to the gate which leads to the Tenant's
leased land;
(a) and the driveway which is described in 4.(3) shall be adequate to
support typical farm-type vehicular traffic. i.e. tractors, hay wagons,
dump trucks, horse trailers, etc.
5. REPAIR AND MAINTENANCE
(1) The Tenant covenants that during the term of this Lease and any renewal
thereof, the Tenant shall keep in good condition the Premises including all
alterations and additions made thereto, and shall, with or without notice,
promptly make all needed repairs and all necessary replacements as would a
prudent owner:
(a) but the Tenant shall not be liable to effect repairs attributable to
reasonable wear and tear, or to damage caused by fire, lightning or
storm.
(2) The Landlord agrees to allow the Tenant to fertilize and seed any and
all lands leased by the Tenant and at the Tenant's sole discretion.
<PAGE>
(3) The tenant agrees to provide snow blowing service to the Landlord's
driveway as required and at the Tenant's sole discretion from the Addison
Road to the gate leading to the leased land. (see Schedule A) This service
will be provided by the Tenant at no cost to the Landlord throughout the
Term of the Lease;
(a) and the Landlord agrees to cooperate with the Tenant with the moving
of vehicles to facilitate the snow blowing service as described in 5.(3)
(b) the Tenant further agrees that he will maintain the snow blowing
duties on his leased land at no cost to the Landlord throughout the Term
of the Lease.
6. ALTERATIONS AND ADDITIONS
(1) If the Tenant, during the Term of this Lease or any renewal of it,
desires to make any alterations or additions to the Premises, including but
not limited to: erecting partitions, attaching equipment, and installing
necessary furnishings or additional equipment of the Tenant's business, the
Tenant may do so at his own expense, at any time.
(2) The Tenant agrees to provide all labor, materials and equipment
necessary for the installation of the water and electrical services from the
Landlord's house to the barn;
(a) the cold water supply shall originate in the Landlord's laundry room
and terminate at a yard hydrant inside the man-door at the south end of
the barn;
(b) and the 30 AMP electrical supply shall originate from the Landlord's
main electrical panel at the south-east corner of his basement and exit
his house at the north-east corner of his laundry room;
(c) the ducts for the water and electrical shall be of 3/4" black poly
pipe and shall be buried in a trench provided at the Tenant's cost.
(i) the trenching for the water and electrical services as described
in 6. (2)(a), (b), and (c) shall be executed prior to the Landlord's
driveway improvements as described in 4.(3)
(ii) and the Tenant agrees to re-instate the Landlord's lawn to its
original condition after the trench for the water and electrical
services described in 6. (2)(c)(i) is back-filled.
(3) During the Term of this Lease, the Landlord agrees to allow the Tenant
to erect new electric or wood fencing and/or repair any existing fencing at
the Tenant's discretion and without any restrictions from the Landlord in
the areas described on Schedule A.
<PAGE>
7. INSURANCE
(1) During the Term of this Lease and any renewal thereof the Landlord shall
maintain with respect to the Premises, insurance coverage insuring against:
(a) loss or damage by fire, lightning, storm an other perils that may
cause damage to the Premises or the property of the Landlord in which
the Premises are located as are commonly provided for as extended perils
coverage or as may be reasonably required and obtained by the Landlord;
(i) and the insurance policy shall provide coverage on a replacement
cost basis in an amount sufficient to cover the cost of all signs
and leasehold improvements;
(b) liability for bodily injury or death or property damage sustained by
third parties.
(2) The Landlord may choose to include on his policy rental income
protection insurance with respect to fire and other perils normally to the
extent of one year's Rent payable under this Lease.
(3) The Tenant covenants to keep the Landlord indemnified against all claims
and demands whatsoever by any person, whither in respect of damage to person
or property, arising out of or occasioned by the maintenance, use or
occupancy of the Premises or the subletting or assignment of same or any
part thereof.
(4) The Tenant shall carry insurance in his own name insuring against the
risk of damage to the Tenant's property with the Premises caused by fire or
other perils and the policy shall provide for coverage to protect the
Tenant's stock-in-trade, equipment, Trade Fixtures, decorations and
improvements.
8. TERMINATION UPON NOTICE AND AT END OF TERM
(1) The Landlord shall provide the Tenant the option to terminate the Lease
on any anniversary date upon 90 days written notice from the Tenant to the
Landlord prior to the anniversary date.
(2) At the Termination of the Lease, the Landlord shall have the option of
purchasing from the Tenant certain specified improvements as follows;
(a) all interior perimeter wall framing and plywood for the sum of
$1,500.00.
(b) and if the Landlord does not exercise this option, the Tenant will
then remove these improvements at his own cost.
<PAGE>
(3) If the Lease is terminated between the 12th and the 24th month, the
owner shall reimburse the Tenant the sum of $2,000.00 to cover the capital
costs of the water and electrical services from the house to the barn;
(4) If the Lease is terminated between the 24th and the 36th month, the
owner shall reimburse the Tenant the sum of $1,500.00 to cover the capital
costs of the water and electrical services from the house to the barn;
(a) and it is understood that the aforementioned water and electrical
services shall become the property of the Landlord after the 36th month
of this Lease.
(b) upon Termination, all manure is to be removed from the barn and from
the property unless the Landlord agrees to have it moved to a site
elsewhere on the Landlord's property.
(c) upon Termination of the Lease, the Tenant agrees to return the
property to the Landlord in its original condition.
9. NOTICE
(1) Any Notice required or permitted to be given by one party to the other
pursuant to the terms of this Lease may be given to:
(a) the Landlord at: (b) the Tenant at the Premises or at:
Peter Vanderkloet, Edwards Arabians Inc.
R.R. #2, Addison Road 240 Argyle Avenue
Addison, Ontario Ottawa, Ontario
KOE 1AO K2P 1B9
1-613-924-2955 1-613-230-9803
1-613-230-8276 (Fax)
(2) The above addresses may be changed at any time by giving ten (10) days
written Notice.
(3) Any Notice given by one party to the other in accordance with the
provisions of this Lease shall be deemed conclusively to have been received
on the date delivered if the Notice is served personally or seventy-two (72)
hours after mailing if the Notice is mailed.
<PAGE>
In Witness of the foregoing covenants, the Landlord and the Tenant have
executed this Lease.
Witness
____________________________________ _________________________________
Landlord
Witness
____________________________________ _________________________________
Tenant
Dated at ___________________ this_____day of___________________1994
<PAGE>
SCHEDULE A
to Lease made between
Edwards Arabians Inc. the Landlord
and
Peter Vanderkloet the Tenant
See attached sheet. (Map of property on Addison Road)
<PAGE>
SCHEDULE B
to Lease made between
Edwards Arabians Inc. the Landlord
and
Peter Vanderkloet the Tenant
See attached sheet. (Map)
<PAGE>
SCHEDULE C
to Lease made between
Edwards Arabians Inc. the Landlord
and
Peter Vanderkloet the Tenant
See attached sheet. (Map of property on Addison Road)
<PAGE>
EXHIBIT 10.4.1
ADDENDUM TO LEASE
(COMMERCIAL)
Made the 1st day of May, 1995
BETWEEN:
Peter Vanderkloet (the Landlord)
- and -
Edward Arabians Inc. (the Tenant)
In consideration of the rents, covenants and obligations stipulated herein,
the Landlord and the Tenant have agreed to enter into a Lease of the premises
known municipally as:
R.R. #2, Addison Road, Addison, Ontario.
and more particularly described in: Schedule "A" (original Lease)
Schedule "D" (attached aerial photograph)
1. Grant of Lease
(1) The Landlord leases the Premises to the Tenant:
(a) pursuant to point 2.(3) of the Commercial Lease dated August 26,
1994 between the above parties, it is mutually agreed that the six acres
of land as described in Schedule "C" of the original Lease plus all
remaining lands and fields as noted on the attached Aerial Photograph
will be leased to the Tenant by the Landlord. (approximately 70 acres)
(b) the Term of the Lease on these additional lands shall run for a
period of five years ending on the last day of September, 1999 to
coincide with the Term as set out in the original Lease dated August 26,
1994.
(c) the annual Rent for all leased lands as described herein and noted
on Schedule "C" of the original Lease and the attached Schedule "D"
(Aerial Photograph) shall be set at a total of $2,000.00 per annum
payable quarterly in addition to the Rents and Terms of Payment as set
out in the original Lease and
<PAGE>
more particularly described in section 2.(2). The initial payment of
$333.34 for these additional lands shall be due and payable May 01, 1995
and will cover the months of May and June, 1995. Further payments for
these additional lands of $500.00 per quarter shall be due and payable
with the first full quarterly payment to be made July 1, 1995.
(d) all Terms and Conditions as set out in the original Lease of August
26, 1994 shall also apply to this "Addendum of Lease".
In witness of the foregoing covenants, the Landlord and the Tenant have
executed this Lease.
Dated at Addison, Ontario this 24th day of April, 1995
_________________________________ ___________________________
Witness Landlord
Dated at Addison, Ontario this 24th day of April, 1995
_________________________________ ___________________________
Witness Tenant
<PAGE>
SCHEDULE D
To Lease Between:
Peter Vanderkloet (the Landlord)
-and-
Edwards Arabians Inc. (the Tenant)
See attached Sheet:
<PAGE>
In witness of the foregoing covenants, the landlord and the Tenant have
executed this Lease.
Dated at Addison, Ontario this 30th day of April, 1994
_________________________________ ___________________________
Witness Landlord
Dated at Addison, Ontario this 30th day of April, 1994
_________________________________ ___________________________
Witness Tenant
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Egyptian Arabians Inc. Wholly-owned subsidiary of Registrant
622291 Ontario Limited Wholly-owned subsidiary of Egyptian Arabians Inc.
Edwards Arabians Inc. Wholly-owned subsidiary of 622291 Ontario Limited
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MERCRISTO DEVELOPMENTS, INC. FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION
STATEMENT ON FORM 10 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,204
<CURRENT-LIABILITIES> 2,575
<BONDS> 0
0
0
<COMMON> 8,110
<OTHER-SE> (7,481)
<TOTAL-LIABILITY-AND-EQUITY> 629
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (740,793)
<INCOME-TAX> 0
<INCOME-CONTINUING> (740,793)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (740,793)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MERCRISTO DEVELOPMENTS, INC. FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION
STATEMENT ON FORM 10 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 39,462
<SECURITIES> 0
<RECEIVABLES> 2,979,618
<ALLOWANCES> 0
<INVENTORY> 686,810
<CURRENT-ASSETS> 3,536,934
<PP&E> 1,162,664
<DEPRECIATION> 156,598
<TOTAL-ASSETS> 6,658,075
<CURRENT-LIABILITIES> 3,056,811
<BONDS> 319,208
0
0
<COMMON> 2,212
<OTHER-SE> 918,031
<TOTAL-LIABILITY-AND-EQUITY> 6,658,075
<SALES> 7,193,258
<TOTAL-REVENUES> 9,266,965
<CGS> 7,021,527
<TOTAL-COSTS> 7,851,136
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,277
<INCOME-PRETAX> 943,739
<INCOME-TAX> 378,573
<INCOME-CONTINUING> 565,166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 565,166
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MERCRISTO DEVELOPMENTS, INC. FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION
STATEMENT ON FORM 10 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,022
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 204
<OTHER-SE> 3,818
<TOTAL-LIABILITY-AND-EQUITY> 4,022
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (68)
<INCOME-TAX> 0
<INCOME-CONTINUING> (68)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (68)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MERCRISTO DEVELOPMENTS, INC. FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION
STATEMENT ON FORM 10 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 175,557
<SECURITIES> 0
<RECEIVABLES> 1,153,193
<ALLOWANCES> 0
<INVENTORY> 464,528
<CURRENT-ASSETS> 1,797,647
<PP&E> 1,020,131
<DEPRECIATION> 111,507
<TOTAL-ASSETS> 5,833,319
<CURRENT-LIABILITIES> 2,400,626
<BONDS> 281,716
0
0
<COMMON> 2,212
<OTHER-SE> 428,350
<TOTAL-LIABILITY-AND-EQUITY> 5,833,319
<SALES> 4,972,264
<TOTAL-REVENUES> 6,591,798
<CGS> 5,096,700
<TOTAL-COSTS> 5,933,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,940
<INCOME-PRETAX> 193,356
<INCOME-TAX> 64,715
<INCOME-CONTINUING> 128,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,641
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MERCRISTO DEVELOPMENTS, INC. FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION
STATEMENT ON FORM 10 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MERCRISTO DEVELOPMENTS, INC. FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION
STATEMENT ON FORM 10 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
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<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
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<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 3,008,893
<TOTAL-REVENUES> 4,495,752
<CGS> 2,979,873
<TOTAL-COSTS> 3,671,663
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<INTEREST-EXPENSE> 52,414
<INCOME-PRETAX> 464,135
<INCOME-TAX> 172,652
<INCOME-CONTINUING> 291,483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 291,483
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MERCRISTO DEVELOPMENTS, INC. FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION
STATEMENT ON FORM 10 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 72,593
<SECURITIES> 0
<RECEIVABLES> 718,622
<ALLOWANCES> 0
<INVENTORY> 379,391
<CURRENT-ASSETS> 1,441,379
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,884,659
<CURRENT-LIABILITIES> 1,604,196
<BONDS> 593,231
0
0
<COMMON> 16,560
<OTHER-SE> 735,191
<TOTAL-LIABILITY-AND-EQUITY> 4,884,659
<SALES> 203,918
<TOTAL-REVENUES> 612,740
<CGS> 400,680
<TOTAL-COSTS> 603,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,960
<INCOME-PRETAX> (230,450)
<INCOME-TAX> (92,180)
<INCOME-CONTINUING> (138,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (138,270)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MERCRISTO DEVELOPMENTS, INC. FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION
STATEMENT ON FORM 10 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> APR-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 1,448,040
<TOTAL-REVENUES> 1,939,662
<CGS> 1,600,774
<TOTAL-COSTS> 1,800,108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,750
<INCOME-PRETAX> (53,676)
<INCOME-TAX> (21,470)
<INCOME-CONTINUING> (32,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,206)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
