Exhibit 99.1
Consolidated financial statements of
GENDOW CONSULTING SERVICES LTD.
(prepared using Canadian generally accepted accounting principles)
(in Canadian dollars)
August 31, 1999
<PAGE>
GENDOW CONSULTING SERVICES LTD.
Table of contents
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Auditors' report ........................................................ 1
Consolidated statement of earnings and retained earnings ................ 2
Consolidated balance sheet .............................................. 3
Consolidated statement of cash flows .................................... 4
Notes to the consolidated financial statements .......................... 5-9
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[Letterhead of Deloitte & Touche LLP]
Auditors' report
To the Directors of
Gendow Consulting Services Ltd.
We have audited the consolidated balance sheet of Gendow Consulting Services
Ltd. as at August 31, 1999 and the consolidated statements of earnings and
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at August 31, 1999
and the results of its operations and its cash flows for the year then ended in
accordance with generally accepted accounting principles in Canada.
(signed) Deloitte & Touche LLP
Chartered Accountants
September 28, 1999
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GENDOW CONSULTING SERVICES LTD.
Consolidated statement of earnings and retained earnings
year ended August 31, 1999
(in Canadian dollars)
================================================================================
$
Sales 14,744,696
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Cost of sales 8,023,678
Selling, general and administrative expenses 1,719,592
Interest expense 136,179
Other income (52,081)
--------------------------------------------------------------------------------
9,827,368
--------------------------------------------------------------------------------
Earnings before income taxes 4,917,328
--------------------------------------------------------------------------------
Income taxes
Current 1,534,117
Deferred 34,373
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1,568,490
--------------------------------------------------------------------------------
Net earnings 3,348,838
Retained earnings, beginning of year 3,683,785
Dividends (3,068,000)
--------------------------------------------------------------------------------
Retained earnings, end of year 3,964,623
================================================================================
Page 2 of 9
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GENDOW CONSULTING SERVICES LTD.
Consolidated balance sheet
as at August 31, 1999
(in Canadian dollars)
================================================================================
<TABLE>
<CAPTION>
$
<S> <C>
Assets
Current assets
Cash 52,123
Accounts receivable (net of allowance for doubtful accounts of $ nil) 1,719,527
Receivable from parent company 147,912
Inventories (Note 3) 4,091,311
Prepaid expenses 30,520
------------------------------------------------------------------------------------
6,041,393
Fixed assets (Note 4) 3,892,049
------------------------------------------------------------------------------------
9,933,442
====================================================================================
Liabilities
Current liabilities
Trade accounts payable and accrued liabilities 697,040
Bonus payable 910,000
Dividends payable 110,000
Income taxes 356,645
Current portion of long-term debt (Note 5) 641,699
------------------------------------------------------------------------------------
2,715,384
Long-term debt (Note 5) 1,243,125
Deferred income taxes 508,939
------------------------------------------------------------------------------------
4,467,448
------------------------------------------------------------------------------------
Shareholders' equity
Share capital (Note 6) 1,501,371
Retained earnings 3,964,623
------------------------------------------------------------------------------------
5,465,994
------------------------------------------------------------------------------------
9,933,442
====================================================================================
</TABLE>
Approved by the Board
....................................Director
....................................Director
Page 3 of 9
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GENDOW CONSULTING SERVICES LTD.
Consolidated statement of cash flows
year ended August 31, 1999
(in Canadian dollars)
================================================================================
$
Operating activities
Net earnings 3,348,838
Adjustments for:
Gain on disposal of fixed assets (2,348)
Depreciation of fixed assets 733,261
Deferred income taxes 34,373
--------------------------------------------------------------------------------
4,114,124
Changes in non-cash operating working capital items (Note 8) (523,590)
--------------------------------------------------------------------------------
3,590,534
--------------------------------------------------------------------------------
Investing activities
Reimbursement of note receivable 10,833
Acquisition of fixed assets (764,719)
Proceeds from sale of fixed assets 3,300
--------------------------------------------------------------------------------
(750,586)
--------------------------------------------------------------------------------
Financing activities
Proceeds from long-term borrowings 566,500
Repayment of long-term debt (569,640)
Dividends paid (2,958,000)
--------------------------------------------------------------------------------
(2,961,140)
--------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (121,192)
Cash and cash equivalents at beginning of year 173,315
--------------------------------------------------------------------------------
Cash and cash equivalents at end of year 52,123
================================================================================
Cash and cash equivalents consist of cash.
Supplementary Information (Note 8)
Page 4 of 9
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GENDOW CONSULTING SERVICES LTD.
Notes to the consolidated financial statements
year ended August 31, 1999
(in Canadian dollars)
================================================================================
1. Status and nature of activities
The Company, incorporated under the Canada Business Corporations Act, is a
holding company that through its wholly-owned subsidiary Airborne Gear
Mach. Ltd. operates a machine shop in St. Leonard, Quebec.
2. Accounting policies
Basis of presentation
These consolidated financial statements have been prepared specifically to
meet the regulations of the Securities Exchange Commission in the United
States in connection with a transaction that the company is involved in.
These regulations require the presentation of most recently completed
fiscal year only. As a result, comparative figures have not been
presented.
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada. Significant
differences between Canadian and United States generally accepted
accounting principles are discussed in Note 9.
Inventories
Raw materials are valued at the lower of cost and replacement cost. Cost
is determined on the first in, first out basis. Work in process and
finished goods are valued at the net realizable value less normal profit
margin.
Fixed assets
Fixed assets are recorded at cost. Depreciation is computed using the
diminishing balance basis at the following annual rates:
Building 5%
Furniture and fixtures,
machinery and equipment 20%
Computer 30%
Computer software 100%
Pavement 8%
Fences 10%
Deferred income taxes
The Company follows the tax allocation method in providing for income
taxes. Deferred income taxes result from timing differences between
depreciation of fixed assets charged to operations and capital cost
allowance claimed for income tax purposes.
Page 5 of 9
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GENDOW CONSULTING SERVICES LTD.
Notes to the consolidated financial statements
year ended August 31, 1999
(in Canadian dollars)
================================================================================
3. Inventories
$
Raw materials 218,539
Work in process 2,111,339
Finished goods 1,761,433
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4,091,311
==========================================================================
4. Fixed assets
Accumulated Net Book
Cost Depreciation Value
---- ------------ --------
$ $ $
Land 213,300 -- 213,300
Building 994,780 445,440 549,340
Furniture and fixtures 100,582 82,487 18,095
Machinery 6,473,327 3,619,052 2,854,275
Equipment 249,523 168,809 80,714
Computer 283,493 211,362 72,131
Computer software 210,311 209,085 1,226
Pavement 37,839 23,384 14,455
Fences 5,690 4,102 1,588
Machinery under
capital leases 188,640 101,715 86,925
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8,757,485 4,865,436 3,892,049
==========================================================================
5. Long-term debt
$
Notes payable, prime rate plus 0.25%, secured by a
movable hypothec without delivery on machinery
with a net book value of $2,397,961, payable to
2004 in maximum monthly instalments of $51,319,
excluding interest 1,839,554
Obligations under capital leases, 9%, until 2001 45,270
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1,884,824
Current portion 641,699
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1,243,125
==========================================================================
Page 6 of 9
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GENDOW CONSULTING SERVICES LTD.
Notes to the consolidated financial statements
year ended August 31, 1999
(in Canadian dollars)
================================================================================
5. Long-term debt (cont'd)
Principal payments due in each of the next years for notes payable are as
follows:
$
2000 610,519
2001 455,468
2002 392,900
2003 296,650
2004 84,017
Minimum lease payments required under capital leases are $48,495; this
amount includes interest charges of $3,225. Minimum payments due within
each of the next years under this capital leases are as follows:
$
2000 33,009
2001 15,486
6. Share capital
Authorized, unlimited number of shares without par value
Class A shares, participating, non-voting, discretionary
non-cumulative dividend
Class B shares, non-participating, voting
Class C shares, non-participating, non-voting, maximum
non-cumulative annual dividend of 5% on the redemption value,
redeemable at the option of the holder or the Company for $884,800
Class D shares, non-participating, non-voting, maximum
non-cumulative annual dividend of 5% on the redemption value,
redeemable at the option of the holder or the Company for $4,966,200
Class E shares, non-participating, non-voting, maximum
non-cumulative annual dividend of 5% on the redemption value,
redeemable at the option of the holder or the Company for $1,500,000
$
Issued
100 Class A shares 100
1,000 Class B shares 1,000
884,800 Class C shares 40
4,966,200 Class D shares 231
1,500,000 Class E shares 1,500,000
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1,501,371
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Page 7 of 9
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GENDOW CONSULTING SERVICES LTD.
Notes to the consolidated financial statements
year ended August 31, 1999
(in Canadian dollars)
================================================================================
7. Economic dependence
Approximately 95% of sales were made to a single customer.
8. Supplementary information on cash flows
$
Changes in non-cash operating working capital items
Accounts receivable (95,542)
Receivable from parent company (147,912)
Inventories (183,826)
Prepaid expenses (11,454)
Trade accounts payable and accrued liabilities 125,525
Bonus payable (68,000)
Income taxes (142,381)
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(523,590)
==========================================================================
Interest and income taxes paid
Interest paid 125,620
Income taxes paid 1,686,734
9. Reconciliation of consolidated financial statements prepared under
Canadian generally accepted accounting principles (<<GAAP>>) and United
States GAAP
Items where significant differences between Canadian and United States
GAAP exist, and their impact on the consolidated financial statements are
explained below:
(i) Net income reconciliation
$
Net income, as reported under Canadian GAAP 3,348,838
Income taxes (a) 12,909
--------------------------------------------------------------------------
Net income - as reported under United States GAAP 3,361,747
==========================================================================
Net income reported under United States GAAP is equal to the company's
comprehensive income. Earnings per share are not presented since the
company is not a public entity.
Page 8 of 9
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GENDOW CONSULTING SERVICES LTD.
Notes to the consolidated financial statements
year ended August 31, 1999
(in Canadian dollars)
================================================================================
9. Reconciliation of consolidated financial statements prepared under
Canadian generally accepted accounting principles (<<GAAP>>) and United
States GAAP (cont'd)
(ii) Balance sheet reconcialiation
<TABLE>
<CAPTION>
United
Canadian States
GAAP Adjustment GAAP
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$ $
Assets 9,933,442 9,933,442
================================================================================
Current liabilities 2,715,384 2,715,384
Long term debt 1,243,125 1,243,125
Redeemable shares -- 1,507,271 (b) 1,507,271
Deferred income taxes 508,939 (23,013) (a) 485,926
Shareholders' equity 5,465,994 (1,484,258) (a)(b) 3,981,736
--------------------------------------------------------------------------------
9,933,442 9,933,442
================================================================================
</TABLE>
(iii) Statement of cash flows
The statement of cash flows, as presented, conforms to United States GAAP.
(a) Income taxes
United States GAAP requires that impact of all temporary differences
between the carrying amounts and the tax bases of assets and liabilities
be accounted for, and adjusted each year for changes to the statutory
income tax rates. Under Canadian GAAP, the annual income tax provision
results from accounting income for tax purposes calculating using income
tax rates in effect for each year, without adjustment for subsequent
changes in statutory income tax rates.
(b) Redeemable shares
United States GAAP requires that issues of shares capital that provide for
redemption at the option of the holder be presented on the balance sheet
outside of shareholders' equity, with the redemption price disclosed.
Canadian GAAP allows shares that are redeemable at the option of the
holder to be disclosed within the shareholders' equity section of the
balance sheet if the shares are issued between related parties under
certain conditions.
10. Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved
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