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Previous: HENRY CO, S-4/A, 1998-09-11 |
Next: NAVISTAR FINANCIAL CORP, 10-Q, 1998-09-11 |
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date earliest event reported): June 30, 1998
<TABLE>
<CAPTION>
Registrant, State of Incorporation, I.R.S. Employer
Commission File Number Address and Telephone Number Identification No.
- ---------------------- ----------------------------------- ------------------
<S> <C> <C>
0-8410 WYANT CORPORATION 11-2236837
(a New York corporation)
100 Readington Road
Somerville, New Jersey 08876
Telephone (908) 707-1800
</TABLE>
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Included after the signature page of this report are the financial
statements of the following related companies (referred to hereafter as the
"Midway - Purnel Group of Companies"), all of which are expressed in Canadian
dollars:
<TABLE>
<CAPTION>
Page
----
<S> <C>
- -- Midway Supply Ltd. for the year ended May 31, 1998 and
for the one month ended June 30, 1998 5
- -- Midway Purnel Sanitary Supply Ltd. for the year ended March 31, 1998 and
for the three months ended June 30, 1998 29
- -- 430639 B.C. Ltd. (now Fraser Valley Industrial Chemicals Inc.)
for the nine months ended June 30, 1998 51
- -- Purnel Distributors Ltd. for the year ended February 28, 1998 and
for the four months ended June 30, 1998 60
</TABLE>
(b) PRO FORMA FINANCIAL INFORMATION
Included after the signature page of this report are the following:
<TABLE>
<CAPTION>
Page
----
<S> <C>
- -- Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1997 and for the six months ended June 30, 1998 81
- -- Notes to Unaudited Pro Forma Combined Financial Information 83
</TABLE>
(c) EXHIBITS
[Item 7(c) is not amended hereby]
2
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 to the Current Report on Form
8-K to be signed on its behalf by the undersigned thereunto duly authorized.
WYANT CORPORATION
By:/s/ Marc D'Amour
---------------------------------------------
Name: Marc D'Amour
Title: Vice President,
Chief Financial Officer and Treasurer
Dated: September 11, 1998
3
<PAGE> 4
FINANCIAL STATEMENTS
OF BUSINESSES ACQUIRED
4
<PAGE> 5
MIDWAY SUPPLY LTD.
Coquitlam, BC
FINANCIAL STATEMENTS
For the Year Ended May 31, 1998
(LOGO)
Cinnamon
Jang Willoughby
& Company A Partnership of Incorporated Professionals
5
<PAGE> 6
MIDWAY SUPPLY LTD.
INDEX TO FINANCIAL STATEMENTS
AUDITORS' REPORT
<TABLE>
<S> <C>
Balance Sheet Exhibit "A"
Statement of Retained Earnings Exhibit "B"
Statement of Income Exhibit "C"
Statement of Changes in Financial Position Exhibit "D"
Notes to Financial Statements Exhibit "E"
</TABLE>
-------------------------------
6
<PAGE> 7
(LOGO) Cinnamon Jang Willoughby & Company
Chartered Accountants
A Partnership of Incorporated Professionals
AUDITORS' REPORT
To The Shareholders of MIDWAY SUPPLY LTD.:
We have audited the balance sheet of Midway Supply Ltd. as at May 31, 1998
and the statements of income and retained earnings and changes in financial
position for the year then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at May 31, 1998 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles. As
required by the Company Act of British Columbia, we report that, in our opinion,
these principles have been applied on a basis consistent with that of the
preceding year.
The 1997 financial statements were reviewed by us and our report thereon,
dated July 8, 1997 stated that nothing has come to our attention that causes us
to believe that these financial statements are not, in all material respects, in
accordance with generally accepted accounting principles. We have not examined,
and we do not express an opinion on, the financial statements of the preceding
year.
Cinnamon Jang Willoughby
& Company
Chartered Accountants
Burnaby, BC
July 20, 1998
7
<PAGE> 8
MIDWAY SUPPLY LTD.
BALANCE SHEET
MAY 31, 1998
<TABLE>
<CAPTION>
ASSETS 1998 1997
(unaudited)
---------- -----------
<S> <C> <C>
Current:
Cash $ 300,025 $ 227,297
Accounts receivable 1,073,120 994,180
Income taxes recoverable 1,560 2,512
Inventory 726,217 749,917
Prepaid expenses 40,425 28,605
---------- ----------
2,141,347 2,002,511
---------- ----------
Due from related companies (Note 2) 175,804 291,518
Loan receivable 10,000 10,000
---------- ----------
185,804 301,518
---------- ----------
Capital:
Automotive equipment 318,032 325,204
Computer hardware 164,417 150,309
Computer software 34,717 34,717
Office equipment 135,542 135,542
Warehouse equipment 61,807 61,358
Leasehold improvements 40,777 40,777
---------- ----------
755,292 762,015
Less: Accumulated amortization 540,898 515,153
---------- ----------
214,384 246,862
---------- ----------
Other:
Cash surrender value of life insurance policies 139,417 109,180
Investment in shares 100 -
Goodwill, net of accumulated amortization 1,050 1,400
---------- ----------
140,567 110,680
---------- ----------
$2,682,102 $2,661,571
========== ==========
</TABLE>
Approved by the Director:
- ------------------------
- - See accompanying notes -
8
<PAGE> 9
Exhibit "A"
MIDWAY SUPPLY LTD.
BALANCE SHEET
MAY 31, 1998
<TABLE>
<CAPTION>
LIABILITIES 1998 1997
(unaudited)
---------- -----------
<S> <C> <C>
Current:
Bank indebtedness (Note 3) $ 574,507 $ 771,626
Accounts payable and accrued liabilities 537,625 320,455
Wages payable 167,408 171,630
Due to shareholder 380 380
Current portion of long-term debt 15,000 10,493
---------- ----------
1,294,920 1,274,584
Long-term debt (Note 4) 23,750 --
---------- ----------
1,318,670 1,274,584
---------- ----------
SHAREHOLDERS' INTEREST (Note 5)
Liabilities to shareholders:
Redeemable preferred shares (Note 6) 1,246,848 1,246,848
---------- ----------
Shareholders' Equity:
Share Capital:
Authorized -
20,000 Class "A" voting common shares with
a par value of $1 each
50,000 Class "B" voting common shares with
a par value of $0.50 each
50,000 Class "C" non-voting common shares with
a par value of $1 each
100,000 Class "D" non-voting preferred shares with
a par value of $1 each
100,000 Class "E" non-voting preferred shares with
a par value of $0.50 each
Issued and Fully Paid -
24 Class "B" common shares 12 12
100 Class "C" common shares 100 100
---------- ----------
112 112
Retained Earnings (Note 7), per Exhibit "B" 116,472 140,027
---------- ----------
116,584 140,139
Commitments (Note 9)
Contingencies (Note 10)
---------- ----------
1,363,432 1,386,987
---------- ----------
$2,682,102 $2,661,571
========== ==========
</TABLE>
- - See accompanying notes -
9
<PAGE> 10
Exhibit "B"
MIDWAY SUPPLY LTD.
STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED MAY 31, 1998
<TABLE>
<CAPTION>
1998 1997
(unaudited)
<S> <C> <C>
---------- ----------
Retained Earnings, as previously stated $1,377,707 $1,230,333
Adjustment for excess of redemption amount over
the issue price of redeemable preferred shares
issued in prior years (Note 6) (1,237,680) (1,237,680)
---------- ----------
Retained Earnings (Deficit), as restated 140,027 (7,347)
Add:
Net Income, per Exhibit "C" 4,201 147,374
Dividend tax recovered 2,244 --
Less:
Dividends 30,000 --
---------- ----------
Retained Earnings, ending, to Exhibit "A" $ 116,472 $ 140,027
========== ==========
</TABLE>
- -See accompanying notes-
10
<PAGE> 11
Exhibit "C"
MIDWAY SUPPLY LTD.
STATEMENT OF INCOME
FOR THE YEAR ENDED MAY 31, 1998
<TABLE>
<CAPTION>
1998 1997
(unaudited)
----------- -----------
<S> <C> <C>
Sales $ 8,323,223 $ 8,265,049
----------- -----------
Cost of Sales:
Inventory, beginning 749,917 853,699
Purchases 5,778,792 5,474,813
----------- -----------
6,528,709 6,328,512
Less: Inventory, ending 726,217 749,917
----------- -----------
5,802,492 5,578,595
----------- -----------
Gross Income 2,520,731 2,686,454
----------- -----------
Expenses:
Advertising 22,197 16,733
Amortization 74,350 89,434
Automotive and truck 61,081 64,181
Bad debts 4,954 368
Consulting fees -- 2,451
Employee benefits 117,120 121,030
Insurance and licences 37,828 40,477
Office and miscellaneous 170,359 144,378
Professional fees 33,025 31,387
Promotion, travel and seminars 64,348 59,926
Rent 206,087 203,239
Salaries and commissions 1,465,395 1,640,281
Telephone 52,600 55,909
Utilities 26,176 27,951
Warehouse supplies 16,357 12,451
----------- -----------
2,351,877 2,510,196
Administration and overhead expenses recovered 11,400 11,400
----------- -----------
2,340,477 2,498,796
----------- -----------
Income before other items 180,254 187,658
----------- -----------
Other items:
Interest 6,882 4,294
Gain on disposal of capital assets 30 946
Loan to related company written-off 136,965 --
----------- -----------
(130,053) 5,240
----------- -----------
Income before income taxes 50,201 192,898
Income taxes 46,000 45,524
----------- -----------
Net Income, to Exhibit "B" $ 4,201 $ 147,374
=========== ===========
</TABLE>
- -See accompanying notes-
11
<PAGE> 12
Exhibit "D"
MIDWAY SUPPLY LTD.
STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED MAY 31, 1998
<TABLE>
<CAPTION>
1998 1997
(unaudited)
---------- -----------
<S> <C> <C>
Operating Activities:
Cash from Operations -
Net Income, per Exhibit "C" $ 4,201 $ 147,374
Charges (Credit) to income not involving cash -
Amortization 74,350 89,434
Gain on disposal of capital assets (30) (946)
Loan to related company written-off 136,965 --
---------- ----------
215,486 235,862
Net change in non-cash working capital balances -
(Increase) Decrease in accounts receivable (78,940) (42,197)
(Increase) Decrease in inventory 23,700 103,782
(Increase) Decrease in prepaid expenses (11,820) (2,680)
(Increase) Decrease in income taxes recoverable 952 (58)
Increase (Decrease) in accounts payable
and accrued liabilities 217,170 (231,875)
Increase (Decrease) in wages payable (4,222) (12,881)
---------- ----------
362,326 49,953
---------- ----------
Financing Activity:
Proceeds from (repayment of) obligations
under capital lease 28,257 (4,068)
---------- ----------
Investing Activities:
Advances to related companies (21,251) (55,000)
Proceeds from disposal of capital assets 8,020 20,378
Acquisition of capital assets (49,512) (37,240)
Cash surrender value of life insurance policies (30,237) (27,672)
Investment in shares -- (100)
---------- ----------
(92,980) (99,634)
---------- ----------
Shareholder's Distributions:
Dividends (30,000) --
Refundable dividend tax recovered 2,244 --
---------- ----------
(27,756) --
---------- ----------
Change in Cash and Equivalents 269,847 (53,749)
Cash and Equivalents, beginning (544,329) (490,580)
---------- ----------
Cash and Equivalents, ending $(274,482) $(544,329)
========== ==========
Represented by:
Cash $ 300,025 $ 227,297
Cheques issued in excess of funds on deposit (39,507) (166,626)
Bank demand loan (535,000) (605,000)
---------- ----------
$(274,482) $(544,329)
========== ==========
</TABLE>
- - See accompanying notes -
12
<PAGE> 13
Exhibit "E"
MIDWAY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
1. ACCOUNTING POLICIES:
a) Inventory -
Inventory is valued at the lower of cost and net realizable value.
Cost is determined on a first-in, first-out basis.
b) Capital Assets -
Capital assets are recorded at cost. Amortization is provided on the
declining balance basis at the following annual rates:
<TABLE>
<S> <C>
Automotive equipment 30%
Computer hardware 30%
Office equipment 20%
Warehouse equipment 20%
</TABLE>
For the year of acquisition, the rate used is one-half of that
indicated above.
Amortization of leasehold improvements is provided on a straight-line
basis over five years.
Amortization of computer software is provided on a straight-line basis
over five years.
c) Goodwill -
Amortization of goodwill is provided on a straight-line basis over ten
years.
d) Translation of Foreign Currency -
Amounts in U.S. dollars are translated into Canadian dollars as
follows:
Inventory, sales and purchases at the exchange rates prevailing on
the transaction date at the bank; and
Current liabilities at the exchange rate prevailing at the end of
the year.
e) Investment in Shares -
The company has a 16.7% interest in Procurcorp Support Services Ltd.
This investment is recorded using the cost method.
f) Fair Values of Financial Instruments -
Unless otherwise noted, cash, accounts receivable, amounts due from
related companies, loan receivable, cash surrender value of life
insurance policies, bank indebtedness, accounts payable and accrued
liabilities, wages payable, income taxes payable, amount due to
shareholder, long-term debt and redeemable preferred shares are stated
at amounts that approximate their book value.
13
<PAGE> 14
Exhibit "E"
Continued
MIDWAY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
1. ACCOUNTING POLICIES: (Continued)
g) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying disclosures. Although these
estimates are based on management's best knowledge of current events
and actions the company may undertake in the future, actual results
may differ from the estimates.
2. DUE FROM RELATED COMPANIES:
The amounts due from Fraser Valley Industrial Chemicals Ltd., 430639 B.C.
Ltd. and Midway Purnel Sanitary Supply Ltd. are non-interest bearing and
have no specific terms of repayment. As repayment is not anticipated
during the next fiscal period, these amounts have been classified as
long-term in the financial statements.
3. BANK INDEBTEDNESS:
<TABLE>
<CAPTION>
1997
1998 (unaudited)
---------- ----------
<S> <C> <C>
Cheques issued in excess of funds on deposit $ 39,507 $166,626
Bank demand loans 535,000 605,000
-------- --------
$574,507 $771,626
======== ========
</TABLE>
The bank demand loan bears interest at the bank's prime rate plus 0.5% per
annum. The loan is secured under Section 427 of the Bank Act, by
inventory, by a general assignment of book debts, by replacement fire
insurance over inventory and related equipment.
4. LONG-TERM DEBT:
<TABLE>
<CAPTION>
1997
1998 (unaudited)
-------- -----------
<S> <C> <C>
Bank of Nova Scotia - Term loan repayable in
monthly payments of $1,250 excluding interest
until December 31, 2000. Interest rate is
prime rate plus 1% per annum. Secured by a
company vehicle $38,750 $ --
Less: Current portion 15,000 --
-------- ---------
$23,750 $ --
======== =========
</TABLE>
14
<PAGE> 15
Exhibit "E"
Continued
MIDWAY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
5. SHAREHOLDERS' INTERESTS:
Amounts presented as shareholders' interest include shareholders' equity
and liabilities to shareholders other than current and long-term
liabilities.
6. REDEEMABLE PREFERRED SHARES:
The company's authorized and issued share capital includes 4,222 Class "D"
preferred shares with a paid-up capital of $1 each and 9,892 Class "E"
preferred shares with a paid-up capital of $0.50 each. The preferred
shares are non-voting, redeemable by the company or the holders on demand.
The Class "D" preferred shares are redeemable at $136 each and the Class
"E" preferred shares are redeemable at $68 each. The Class "D" preferred
shares carry a cumulative annual dividend of 6% on the redemption amounts.
The shares were issued on December 30, 1992 as part of an estate planning
arrangement involving holders of the company's common shares. The
aggregate redemption amount of the preferred shares represents the fair
value of the company's net assets on that date. The aggregate redemption
amount of the preferred shares in excess of the amount paid in, amounting
to $1,237,680 has been charged to retained earnings.
During the year, the opening balances of the preferred shares were
restated to reflect the excess of the redemption value over the issue
price of the preferred shares issued at May 31, 1996.
See also Note 7.
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
(unaudited)
--------- -----------
Redeemable preferred shares issued and
outstanding, beginning, as
previously reported $ - $ -
Add: Adjustment to present the redemption
amount of the preferred shares 1,246,848 1,246,848
---------- ----------
Redeemable preferred shares issued and
outstanding, as restated $1,246,848 $1,246,848
========== ==========
</TABLE>
7. RETAINED EARNINGS:
The prior year's opening retained earnings has been restated to reflect
the redemption amount of the preferred shares issued and outstanding at
May 31, 1996. Retained earnings has been charged with $1,237,680 to give
effect to the redemption amount of 4,222 Class "D" preferred shares
(redemption amount $574,192) and 9,892 Class "E" preferred shares
(redemption amount $672,656) issued and outstanding on that date.
See also note 6.
15
<PAGE> 16
Exhibit "E"
Continued
MIDWAY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
8. RELATED PARTY TRANSACTIONS:
Midway Supply Ltd. is related to Midway Purnel Sanitary Supply (Kelowna)
Ltd., Midway Purnel Sanitary Supply (PG) Ltd., Fraser Valley Industrial
Chemicals Inc. and 430639 B.C. Ltd. The company had the following
transactions in the normal course of operations with these related parties:
<TABLE>
<S> <C> <C>
1998 1997
(unaudited)
--------- -----------
Transactions during the year:
Sales to -
Midway Purnel Sanitary Supply Ltd. $262,088 $240,400
Fraser Valley Industrial Chemicals Inc. 1,086 954
Midway Purnel Sanitary Supply (PG) Ltd. 147,018 105,871
Purchases from -
Midway Purnel Sanitary Supply Ltd. 1,522 9,533
Fraser Valley Industrial Chemicals Inc. 480,694 427,182
Midway Purnel Sanitary Supply (PG) Ltd. 2,436 -
Administration and overhead costs recovered -
From Fraser Valley Industrial Chemicals Inc. 11,400 11,400
These transactions are in the normal course of operations and are measured at the exchange
amount, which is the amount of consideration established and agreed to by the related
parties.
Balances at year-end:
Receivable from included in accounts receivable -
Midway Purnel Sanitary Supply Ltd. $ 79,685 $ 71,287
Fraser Valley Industrial Chemicals Inc. - 67
Midway Purnel Sanitary Supply (PG) Ltd. 45,387 20,817
Payable to included in accounts payable -
Midway Purnel Sanitary Supply Ltd. 3,631 8,298
Fraser Valley Industrial Chemicals Inc. 39,444 12,803
Midway Purnel Sanitary Supply (PG) Ltd. 369 115
Stewart Smith 420 77
</TABLE>
These balances are payable on demand and have arisen from providing services
or recovery of expenses.
See also Note 2.
9. COMMITMENTS:
The company is committed to leasing its Coquitlam premises until
December 31, 1999 for $111,853 per annum.
The company is committed to leasing its Vancouver premises until
August 31, 1998 for $13,005, being the balance of the lease commitment.
The company also has an annual commitment of approximately $13,000 for
various office equipment leases and maintenance contracts.
10. CONTINGENCIES:
The company has provided letters of credit for payroll and a supplier in
the amounts of $45,000 and $20,000, respectively.
16
<PAGE> 17
MIDWAY SUPPLY LTD.
Coquitlam, BC
FINANCIAL STATEMENTS
For the One Month Ended June 30, 1998
(HLB LOGO)
Cinnamon
Jang Willoughby
& Company A Partnership of Incorporated Professionals
17
<PAGE> 18
MIDWAY SUPPLY LTD.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REVIEW ENGAGEMENT REPORT
Balance Sheet Exhibit "A"
Statement of Retained Earnings Exhibit "B"
Statement of Income Exhibit "C"
Statement of Changes in Financial Position Exhibit "D"
Notes to Financial Statements Exhibit "E"
</TABLE>
______________________
18
<PAGE> 19
(LOGO)
Cinnamon
Jang Willoughby
& Company A Partnership of Incorporated Professionals
Chartered Accountants
REVIEW ENGAGEMENT REPORT
To The Director of MIDWAY SUPPLY LTD.:
We have reviewed the balance sheet of Midway Supply Ltd. as at
June 30, 1998 and the statements of income and retained earnings and
changes in financial position for the one month then ended. Our review was
made in accordance with generally accepted standards for review engagements
and accordingly consisted primarily of enquiry, analytical procedures and
discussion related to information supplied to us by the company.
A review does not constitute an audit and consequently we do not
express an audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us
to believe that these financial statements are not, in all material respects,
in accordance with generally accepted accounting principles.
Cinnamon Jang Willoughby & Company
Chartered Accountants
Burnaby, BC
July 30, 1998
19
<PAGE> 20
MIDWAY SUPPLY LTD.
BALANCE SHEET
(UNAUDITED)
JUNE 30, 1998
<TABLE>
<CAPTION>
June 30, May 31,
ASSETS 1998 1998
(audited)
---------- ----------
<S> <C> <C>
Current
Cash $ 317,925 $ 300,025
Accounts receivable 1,346,121 1,073,120
Income taxes recoverable -- 1,560
Inventory 764,762 726,217
Prepaid expenses 40,190 40,425
Loan receivable 22,220 --
---------- ----------
2,491,218 2,141,347
---------- ----------
Due from related companies (Note 2) 175,804 175,804
Loan receivable 10,000 10,000
---------- ----------
185,804 185,804
---------- ----------
Capital:
Automotive equipment 318,032 318,032
Computer hardware 166,993 164,417
Computer software 34,717 34,717
Office equipment 135,986 135,542
Warehouse equipment 61,807 61,807
Leasehold improvements 40,777 40,777
---------- ----------
758,312 755,292
Less: Accumulated amortization 546,111 540,898
---------- ----------
212,201 214,384
---------- ----------
Other:
Cash surrender value of life insurance policies 36,247 139,417
Investment in shares 100 100
Goodwill, net of accumulated amortization 1,020 1,050
---------- ----------
37,367 140,567
---------- ----------
$2,926,590 $2,682,102
========== ==========
</TABLE>
Approved by the Director:
____________________________
- - See accompanying notes -
20
<PAGE> 21
Exhibit "A"
MIDWAY SUPPLY LTD.
BALANCE SHEET
(UNAUDITED)
JUNE 30, 1998
<TABLE>
<CAPTION>
June 30, May 31,
1998 1998
(audited)
---------- ----------
<S> <C> <C>
LIABILITIES
Current:
Bank indebtedness (Note 3) $ 459,977 $ 574,507
Accounts payable and accrued liabilities 940,268 537,625
Wages payable 155,733 167,408
Income taxes payable 25,502 -
Due to shareholder - 380
Current portion of long-term debt 15,000 15,000
---------- ----------
1,596,480 1,294,920
Long-term debt (Note 4) 22,500 23,750
---------- ----------
1,618,980 1,318,670
---------- ----------
SHAREHOLDERS' INTEREST (Note 5)
Liabilities to shareholders:
Redeemable preferred shares (Note 6) 1,246,848 1,246,848
---------- ----------
Shareholders' Equity:
Share Capital:
Authorized --
20,000 Class "A" voting common shares with
a par value of $1 each
50,000 Class "B" voting common shares with
a par value of $0.50 each
50,000 Class "C" non-voting common shares with
a par value of $1 each
100,000 Class "D" non-voting preferred shares
with a par value of $1 each
100,000 Class "E" non-voting preferred shares
with a par value of $0.50 each
Issued and Fully Paid --
24 Class "B" common shares 12 12
100 Class "C" common shares 100 100
---------- ----------
112 112
Retained Earnings (Note 7), per Exhibit "B" 60,650 116,472
---------- ----------
60,762 116,584
Commitments (Note 9)
Contingencies (Note 10)
Subsequent Event (Note 11)
---------- ----------
1,307,610 1,363,432
---------- ----------
$2,926,590 $2,682,102
========== ==========
</TABLE>
See accompanying notes
21
<PAGE> 22
Exhibit "B"
MIDWAY SUPPLY LTD.
STATEMENT OF RETAINED EARNINGS
(UNAUDITED)
FOR THE ONE MONTH ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
One Month Year Ended
Ended May 31,
June 30, 1998
1998 (audited)
--------- -----------
<S> <C> <C>
Retained Earnings, as previously stated $ 116,472 $ 1,377,707
Adjustment for excess of redemption amount
over the issue price of redeemable
preferred shares issued in prior years (Note 6) - (1,237,680)
--------- -----------
Retained Earnings, as restated 116,472 140,027
Add:
Net Income, per Exhibit "C" 43,971 4,201
Dividend tax recovered 207 2,244
Less:
Dividends 100,000 30,000
--------- -----------
Retained Earnings, ending, to Exhibit "A" $ 60,650 $ 116,472
========= ===========
</TABLE>
- - See accompanying notes -
22
<PAGE> 23
Exhibit "C"
MIDWAY SUPPLY LTD.
STATEMENT OF INCOME
(UNAUDITED)
FOR THE ONE MONTH ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
One Month
Ended Year Ended
June 30, May 31,
1998 1998
(audited)
---------- ----------
<S> <C> <C>
Sales $ 954,007 $8,323,223
---------- ----------
Cost of Sales:
Inventory, beginning 726,217 749,917
Purchases 723,258 5,778,792
---------- ----------
1,449,475 6,528,709
Less: Inventory, ending 764,762 726,217
---------- ----------
684,713 5,802,492
---------- ----------
Gross Income 269,294 2,520,731
---------- ----------
Expenses:
Advertising 360 22,197
Amortization 5,234 74,350
Automotive and truck 1,982 61,081
Bad debts (recovery) (3,342) 4,954
Employee benefits 11,622 117,120
Insurance and licences 3,283 37,828
Office and miscellaneous 11,218 170,359
Professional fees 14,876 33,025
Promotion, travel and seminars 2,380 64,348
Rent 17,554 206,087
Salaries and commissions 124,609 1,465,395
Telephone 3,808 52,600
Utilities 1,826 26,176
Warehouse supplies 639 16,357
---------- ----------
196,049 2,351,877
Administration and overhead expenses recovered 950 11,400
---------- ----------
195,099 2,340,477
---------- ----------
Income before other items 74,195 180,254
---------- ----------
Other Items:
Interest 776 6,882
Gain on disposal of capital assets -- 30
Loan to related company written-off -- 136,965
---------- ----------
776 (130,053)
---------- ----------
Income before income taxes 74,971 50,201
Income taxes 31,000 46,000
---------- ----------
Net Income, to Exhibit "B" $ 43,971 $ 4,201
========== ==========
</TABLE>
- -See accompanying notes-
23
<PAGE> 24
Exhibit "D"
MIDWAY SUPPLY LTD.
STATEMENT OF CHANGES IN FINANCIAL POSITION
(unaudited)
FOR THE ONE MONTH ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
One Month
Ended Year Ended
June 30, May 31,
1998 1998
(audited)
---------- ----------
<S> <C> <C>
Operating Activities:
Cash from Operations -
Net Income, per Exhibit "C" $ 43,971 $ 4,201
Charges (Credit) to income not involving cash -
Amortization 5,234 74,350
Gain on disposal of capital assets -- (30)
Loan to related company written-off -- 136,965
---------- ----------
49,205 215,486
Net change in non-cash working capital balances -
(Increase) Decrease in accounts receivable (273,001) (78,940)
(Increase) Decrease in inventory (38,545) 23,700
(Increase) Decrease in prepaid expenses 235 (11,820)
(Increase) Decrease in loan receivable (22,220) --
(Increase) Decrease in income taxes recoverable 1,560 952
Increase (Decrease) in accounts payable
and accrued liabilities 402,643 217,170
Increase (Decrease) in wages payable (11,675) (4,222)
Increase (Decrease) in income taxes payable 25,502 --
Increase (Decrease) in amount due to shareholder (380) --
---------- ----------
133,324 362,326
---------- ----------
Financing Activity:
Proceeds from (repayment of) long-term debt (1,250) 28,257
---------- ----------
Investing Activities:
Advances to related companies -- (21,251)
Proceeds from disposal of capital assets -- 8,020
Acquisition of capital assets (3,021) (49,512)
Cash surrender value of life insurance policies 103,170 (30,237)
---------- ----------
100,149 (92,980)
---------- ----------
Shareholder's Distributions:
Dividends (100,000) (30,000)
Refundable dividend tax recovered 207 2,244
---------- ----------
(99,793) (27,756)
---------- ----------
Change in Cash and Equivalents 132,430 269,847
Cash and Equivalents, beginning (274,482) (544,329)
---------- ----------
Cash and Equivalents, ending $(142,052) $(274,482)
========== ==========
Represented by:
Cash $ 317,925 $ 300,025
Cheques issued in excess of funds on deposit (24,977) (39,507)
Bank demand loan (435,000) (535,000)
---------- ----------
$(142,052) $(274,482)
========== ==========
</TABLE>
- - See accompanying notes -
24
<PAGE> 25
Exhibit "E"
MIDWAY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
1. ACCOUNTING POLICIES:
a) Inventory -
Inventory is valued at the lower of cost and net realizable value.
Cost is determined on a first-in, first-out basis.
b) Capital Assets -
Capital assets are recorded at cost. Amortization is provided on the
declining balance basis at the following annual rates:
Automotive equipment 30%
Computer hardware 30%
Office equipment 20%
Warehouse equipment 20%
For the year of acquisition, the rate used is one-half of that
indicated above.
Amortization of leasehold improvements is provided on a straight-
line basis over five years.
Amortization of computer software is provided on a straight-line
basis over five years.
c) Goodwill -
Amortization of goodwill is provided on a straight-line basis over
ten years.
d) Translation of Foreign Currency -
Amounts in U.S. dollars are translated into Canadian dollars as
follows:
Inventory, sales and purchases at the exchange rates prevailing
on the transaction date at the bank; and
Current liabilities at the exchange rate prevailing at the end
of the year.
e) Investment in Shares -
The company has a 16.7% interest in Procurcorp Support Services Ltd.
This investment is recorded using the cost method.
f) Fair Values of Financial Instruments -
Unless otherwise noted, cash, accounts receivable, amounts due from
related companies, loan receivable, cash surrender value of life
insurance policies, bank indebtedness, accounts payable and accrued
liabilities, wages payable, income taxes payable, long-term debt and
redeemable preferred shares are stated at amounts that approximate
their book value.
25
<PAGE> 26
Exhibit "E"
Continued
MIDWAY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
1. ACCOUNTING POLICIES: (CONTINUED)
g) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying disclosures. Although these estimates are based on
management's best knowledge of current events and actions the company
may undertake in the future, actual results may differ from the
estimates.
2. DUE FROM RELATED COMPANIES:
The amounts due from Fraser Valley Industrial Chemicals Ltd., 430639 B.C.
Ltd. and Midway Purnel Sanitary Supply Ltd. are non-interest bearing and
have no specific terms of repayment. As repayment is not anticipated during
the next fiscal period, these amounts have been classified as long-term in
the financial statements.
3. BANK INDEBTEDNESS:
<TABLE>
<CAPTION>
June 30, May 31,
1998 1998
(audited)
-------- --------
<S> <C> <C>
Cheques issued in excess of funds on deposit $ 24,977 $ 39,507
Bank demand loans 435,000 535,000
-------- --------
$459,977 $574,507
======== ========
</TABLE>
The bank demand loan bears interest at the bank's prime rate plus 0.5% per
annum. The loan is secured under Section 427 of the Bank Act, by inventory,
by a general assignment of book debts, by replacement fire insurance over
inventory and related equipment.
4. LONG-TERM DEBT:
<TABLE>
<CAPTION>
June 30, May 31,
1998 1998
(audited)
-------- --------
<S> <C> <C>
Bank of Nova Scotia - Term loan repayable in monthly payments
of $1,250 excluding interest until December 31, 2000. Interest rate
is prime rate plus 1% per annum. Secured by a company vehicle. $ 37,500 $ 38,750
Less: Current portion 15,000 15,000
-------- --------
$22,500 $ 23,750
======== ========
</TABLE>
26
<PAGE> 27
Exhibit "E"
Continued
MIDWAY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
5. SHAREHOLDERS' INTERESTS:
Amounts presented as shareholders' interest include shareholders' equity
and liabilities to shareholders other than current and long-term
liabilities.
6. REDEEMABLE PREFERRED SHARES:
The company's authorized and issued share capital includes 4,222 Class
"D" preferred shares with a paid-up capital of $1 each and 9,892 Class "E"
preferred shares with a paid-up capital of $0.50 each. The preferred
shares are non-voting, redeemable by the company or the holders on demand.
The Class "D" preferred shares are redeemable at $136 each and the Class
"E" preferred shares are redeemable at $68 each. The Class "D" preferred
shares carry a cumulative annual dividend of 6% on the redemption amounts.
The shares were issued on December 30, 1992 as part of an estate planning
arrangement involving holders of the company's common shares. The
aggregate redemption amount of the preferred shares represents the fair
value of the company's net assets on that date. The aggregate redemption
amount of the preferred shares in excess of the amount paid in, amounting
to $1,237,680 has been charged to retained earnings.
7. RETAINED EARNINGS:
The prior year's opening retained earnings has been restated to reflect
the redemption amount of the preferred shares issued and outstanding at
May 31, 1996. Retained earnings has been charged with $1,237,680 to give
effect to the redemption amount of 4,222 Class "D" preferred shares
(redemption amount $574,192) and 9,892 Class "E" preferred shares
(redemption amount $672,656) issued and outstanding on that date.
See also Note 6.
8. RELATED PARTY TRANSACTIONS:
Midway Supply Ltd. is related to Midway Purnel Sanitary Supply (Kelowna)
Ltd., Midway Purnel Sanitary Supply (PG) Ltd., Fraser Valley Industrial
Chemicals Inc. and 430639 B.C. Ltd. by virtue of common ownership. The
company had the following transactions with these related parties:
<TABLE>
<CAPTION>
June 30, May 31,
1998 1998
(audited)
---------- ----------
<S> <C> <C>
Transactions during the period:
Sales to -
Midway Purnel Sanitary Supply Ltd. $28,164 $262,088
Fraser Valley Industrial Chemicals Inc. 530 1,086
Midway Purnel Sanitary Supply (PG) Ltd. 14,790 147,018
Purchases from -
Midway Purnel Sanitary Supply Ltd. -- 1,522
Fraser Valley Industrial Chemicals Inc. 52,694 480,694
Midway Purnel Sanitary Supply (PG) Ltd. 518 2,436
Administration and overhead costs recovered -
From Fraser Valley Industrial Chemicals Inc. 950 11,400
</TABLE>
These transactions are in the normal course of operations
and are measured at the exchange amount, which is the
amount of consideration established and agreed to by
the related parties.
27
<PAGE> 28
Exhibit "E"
Continued
MIDWAY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
8. RELATED PARTY TRANSACTIONS: (Continued)
<TABLE>
<CAPTION>
June 30, May 31,
1998 1998
(audited)
-------- -----------
<S> <C> <C>
Balances at period-end:
Receivable from included in accounts receivable -
Midway Purnel Sanitary Supply Ltd. $94,946 $79,685
Fraser Valley Industrial Chemicals Inc. 531 -
Midway Purnel Sanitary Supply (PG) Ltd. 60,189 45,387
Payable to included in accounts payable -
Midway Purnel Sanitary Supply Ltd. 518 3,631
Fraser Valley Industrial Chemicals Inc. 52,694 39,444
Midway Purnel Sanitary Supply (PG) Ltd. - 369
Stewart Smith 50 420
</TABLE>
These balances are payable on demand and have arisen from providing
services or recovery of expenses.
See also Note 2.
9. COMMITMENTS:
The company is committed to leasing its Coquitlam premises until
December 31, 1999 for $111,853 per annum.
The company is committed to leasing its Vancouver premises until
August 31, 1998 for $8,670, being the balance of the lease commitment.
The company also has an annual commitment of approximately $13,000 for
various office equipment leases and maintenance contracts.
10. CONTINGENCIES:
The company has provided letters of credit for payroll and a supplier in
the amounts of $45,000 and $20,000, respectively.
11. SUBSEQUENT EVENT:
Only July 29, 1998, the company entered into an agreement to sell the
investment in Procurcorp Support System Inc. for $14,500.
28
<PAGE> 29
MIDWAY PURNEL SANITARY SUPPLY LTD.
Kelowna, BC
FINANCIAL STATEMENTS
For the Year Ended March 31, 1998
(LOGO)
Cinnamon
Jang Willoughby
& Company A Partnership of Incorporated Professionals
29
<PAGE> 30
MIDWAY PURNEL SANITARY SUPPLY LTD.
INDEX TO FINANCIAL STATEMENTS
Auditors' Report
<TABLE>
<S> <C>
Balance Sheet Exhibit "A"
Statement of Loss and Deficit Exhibit "B"
Statement of Changes in Financial Position Exhibit "C"
Notes to Financial Statements Exhibit "D"
Capital Assets and Accumulated Amortization Schedule "1"
</TABLE>
--------------------------------
30
<PAGE> 31
(HLB LOGO) CINNAMON JANG WILLOUGHBY & COMPANY
Chartered Accountants
A Partnership of Incorporated Professionals
AUDITORS' REPORT
To The Shareholders of MIDWAY PURNEL SANITARY SUPPLY LTD.:
We have audited the balance sheet of Midway Purnel Sanitary Supply Ltd. as at
March 31, 1998 and the statements of loss and deficit and changes in financial
position for the year then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at March 31, 1998 and the
results of its operations and the changes in its financial position for the
year then ended in accordance with generally accepted accounting principles.
As required by the Company Act of British Columbia, we report that, in our
opinion, these principles have been applied on a basis consistent with that of
the preceding year.
The 1997 financial statements were reviewed by us and our report thereon,
dated June 11, 1997 stated that nothing has come to our attention that causes
us to believe that these financial statements are not, in all material
respects, in accordance with generally accepted accounting principles. We have
not audited, and we do not express an opinion on, the financial statements of
the preceding year.
Cinnamon Jang Willoughby & Company
Chartered Accountants
Burnaby, BC
July 27, 1998
31
<PAGE> 32
Exhibit "A"
MIDWAY PURNEL SANITARY SUPPLY LTD.
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
1998 1997
(unaudited)
----------- -----------
<S> <C> <C>
ASSETS
Current:
Accounts receivable $ 67,834 $ 69,250
Inventory 88,233 78,962
Prepaid expenses 4,598 4,550
---------- ----------
160,665 152,762
Due from related company (Note 2) 5,356 4,674
Capital, per Schedule "1" 27,151 39,870
---------- ----------
$ 193,172 $ 197,306
========== ==========
LIABILITIES
Current:
Bank indebtedness (Note 3) $ 93,599 $ 109,360
Accounts payable and accrued liabilities 92,098 33,873
Wages payable -- 202
Current portion of term loan 15,000 15,000
---------- ----------
200,697 158,435
---------- ----------
Long-term:
Loans payable (Note 4) 294,186 294,186
Term loan (Note 5) 32,500 22,500
---------- ----------
326,686 316,686
---------- ----------
527,383 475,121
---------- ----------
SHAREHOLDERS' DEFICIENCY
Share Capital:
Authorized --
1,000 Class "A" voting common shares
with a par value of $1 each
49,000 Class "B" non-voting common shares
without par value
100,000 Class "C" non-voting preferred shares
without par value
Issued and Fully Paid --
2 Class "A" voting common shares 2 2
Deficit, per Exhibit "B" 334,213 277,817
---------- ----------
(334,211) (277,815)
Future Operations (Note 8) ---------- ----------
$ 193,172 $ 197,306
========== ==========
</TABLE>
Approved by the Directors:
___________________________________
___________________________________
- - See accompanying notes -
32
<PAGE> 33
Exhibit "B"
MIDWAY PURNEL SANITARY SUPPLY LTD.
STATEMENT OF LOSS AND DEFICIT
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
1998 1997
(unaudited)
-------- --------
<S> <C> <C>
Sales $684,391 $589,732
-------- --------
Cost of Sales:
Inventory, beginning 78,962 56,608
Purchases 540,679 455,106
-------- --------
619,641 511,714
Less: Inventory, ending 88,233 78,962
-------- --------
531,408 432,752
-------- --------
Gross Income 152,983 156,980
-------- --------
Expenses:
Advertising 1,985 3,733
Amortization 12,719 14,877
Automotive 17,839 12,703
Bad debts 90 4,283
Bank charges and interest 6,799 6,969
Insurance and licences 988 1,555
Office and miscellaneous 12,150 14,322
Professional fees 8,381 2,727
Promotion, travel and seminars 1,653 1,833
Rent 25,513 25,702
Salaries and commissions 116,635 109,208
Telephone 9,090 10,516
Utilities 1,965 2,798
Warehouse supplies 86 140
-------- --------
215,893 211,366
-------- --------
Loss before other item 62,910 54,386
Other item:
Miscellaneous income 6,514 3,971
-------- --------
Net Loss 56,396 50,415
Deficit, beginning 277,817 227,402
-------- --------
Deficit, ending, to Exhibit "A" $334,213 $277,817
======== ========
</TABLE>
- - See accompanying notes -
33
<PAGE> 34
Exhibit "C"
MIDWAY PURNEL SANITARY SUPPLY LTD.
STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
1997
1998 (unaudited)
---------- -----------
<S> <C> <C>
Operating Activities:
Cash from Operations -
Net Loss, per Exhibit "B" $ (56,396) $ (50,415)
Charge to income not involving cash -
Amortization 12,719 14,877
---------- ----------
(43,677) (35,538)
Net change in non-cash working capital balances -
(Increase) Decrease in accounts receivable 1,416 (10,066)
(Increase) Decrease in inventory (9,271) (22,354)
(Increase) Decrease in prepaid expenses (48) 1,825
Increase (Decrease) in accounts payable
and accrued liabilities 58,225 (8,521)
Increase (Decrease) in wages payable (202) 202
---------- ----------
6,443 (74,452)
---------- ----------
Financing Activities:
Proceeds from loans -- 40,000
Proceeds from term loan 25,000 --
Repayment of bank loan (15,000) (15,000)
---------- ----------
10,000 25,000
---------- ----------
Investing Activities:
Acquisition of capital assets -- (5,645)
Due from related companies (682) (567)
---------- ----------
(682) (6,212)
---------- ----------
Change in Cash and Equivalents 15,761 (55,664)
Cash and Equivalents, beginning (109,360) (53,696)
---------- ----------
Cash and Equivalents, ending $ (93,599) $(109,360)
========== ==========
Represented by:
Cheques issued in excess of funds on deposit $ (43,599) $ (59,360)
Demand loan (50,000) (50,000)
---------- ----------
$ (93,599) $(109,360)
========== ==========
</TABLE>
- - See accompanying notes -
34
<PAGE> 35
Exhibit "D"
MIDWAY PURNEL SANITARY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
1. ACCOUNTING POLICIES:
a) Inventory -
Inventory is valued at the lower of cost and net realizable value. Cost
is determined on a first-in, first-out basis.
b) Capital Assets -
Capital assets are recorded at cost. Amortization is provided on the
declining balance basis at the following annual rates:
Computer hardware 30%
Computer software 100%
Office equipment 20%
Warehouse equipment 20%
For the year of acquisition, the rate used is one-half of that shown
above.
c) Translation of Foreign Currency -
Inventory, sales and purchases at the exchange rates prevailing on the
transaction date of the bank; and
Current liabilities at the exchange rate prevailing at the end of the
year.
d) Fair Values of Financial Instruments -
Unless otherwise noted, accounts receivable, amount due from related
company, bank indebtedness, accounts payable and accrued liabilities,
loans payable and term loan are stated at amounts that approximate
their book value.
e) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying disclosures. Although these estimates are
based on management's best knowledge of current events and actions the
company may undertake in the future, actual results may differ from the
estimates.
2. DUE FROM RELATED COMPANY:
The amount due from 466926 B.C. Ltd. is non-interest bearing and has no
specific terms of repayment. As repayment will not be requested during the
next fiscal period, this amount has been classified as long-term in the
financial statements.
35
<PAGE> 36
Exhibit "D"
Continued
MIDWAY PURNEL SANITARY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
3. BANK INDEBTEDNESS: 1998 1997
(unaudited)
-------- -----------
Cheques issued in excess of funds on deposit $43,599 $ 59,360
Demand loan 50,000 50,000
-------- -----------
$93,599 $109,360
======== ===========
The demand loan bears interest at the prime rate plus 1.25% per annum and
is secured by a general assignment of book debts, general security
agreement, Section 427 over inventory, assignment of fire insurance and
personal guarantees of shareholders.
4. LOANS PAYABLE:
The loans payable due to related parties, Midway Supply Ltd., Purnel
Distributors Ltd. and John Kazakoff are non-interest bearing and without
specific terms of repayment. As repayments are not expected to be made
during the next fiscal period, this amount has been classified as long-term
in the financial statements.
1998 1997
(unaudited)
-------- -----------
Midway Supply Ltd. $147,094 $147,094
Purnel Distributors Ltd. 88,750 88,750
John Kazakoff 58,342 58,342
-------- -----------
$294,186 $294,186
======== ===========
5. TERM LOAN: 1998 1997
(unaudited)
-------- -----------
Bank of Nova Scotia - Loan payable in monthly
payments of $1,250 plus interest at the prime
rate plus 1.5% per annum until May 31, 2001.
Secured by chattel mortgage over equipment and
the personal guarantees of the shareholders $47,500 $37,500
Less: Current portion 15,000 15,000
-------- -----------
$32,500 $22,500
======== ===========
Future Principal payments are as follows:
1999 $15,000
2000 15,000
2001 2,500
--------
$32,500
========
</TABLE>
36
<PAGE> 37
Exhibit "D"
Continued
MIDWAY PURNEL SANITARY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
6. RELATED PARTY TRANSACTIONS:
Midway Purnel Sanitary Supply Ltd. is related to Midway Supply Ltd.,
Purnel Distributors Ltd., Midway Purnel Sanitary Supply (PG) Ltd. and
466926 B.C. Ltd. by virtue of common ownership. The following summarizes
the company's related party transactions for the year:
<TABLE>
<CAPTION>
1998 1997
(unaudited)
--------- -----------
<S> <C> <C>
Transactions during the year:
Sales to -
Midway Supply Ltd. $ 4,220 $ 6,635
Purnel Distributors Ltd. 5,216 4,459
Midway Purnel Sanitary Supply (PG) Ltd. 165 1,567
Purchases from -
Midway Supply Ltd. 267,214 223,288
Purnel Distributors Ltd. 55,000 96,091
Midway Purnel Sanitary Supply (PG) Ltd. 20 57
Rent paid to 466926 B.C. Ltd. 25,513 25,702
Capital assets purchased from -
Midway Supply Ltd. -- 4,473
</TABLE>
These transactions are in the normal course of operations and are measured
at the exchange amount, which is the amount of consideration established
and agreed to by the related parties.
At the end of the year, the amounts due to (from) related parties are as
follows:
<TABLE>
<CAPTION>
1998 1997
(unaudited)
--------- -----------
<S> <C> <C>
Receivable from included in accounts receivable -
Midway Supply Ltd. $ (23) $ (683)
Purnel Distributors Ltd. (253) (339)
Payable to included in accounts payable -
Midway Supply Ltd. 42,532 15,698
Purnel Distributors Ltd. 907 2,288
</TABLE>
These balances are payable on demand and have arisen from the sale of
product and provision of services referred to above.
See also Notes 2 and 4.
37
<PAGE> 38
Exhibit "D"
Continued
MIDWAY PURNEL SANITARY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
7. INCOME TAXES:
At March 31, 1998, the company has a loss of $328,374 for tax purposes
which may be available to reduce future years' taxable income. The benefits
of this loss carried forward have not been booked in the accounts. The
losses expire as follows:
2002 $121,383
2003 100,887
2004 50,002
2005 56,102
--------
$328,374
========
8. FUTURE OPERATIONS:
The continued operations of the company is dependent on the company
achieving profitable operations or receiving additional funding from
shareholders or others to satisfy all of its liabilities as they become
due.
38
<PAGE> 39
Schedule "1"
MIDWAY PURNEL SANITARY SUPPLY LTD.
CAPITAL ASSETS AND ACCUMULATED AMORTIZATION
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK CURRENT
COST AMORTIZATION VALUE PROVISION
------- ------------ -------- ---------
<S> <C> <C> <C> <C>
COMPUTER HARDWARE
Balance, March 31, 1997 $43,726 $22,678 $21,048
Current provision - 6,314 (6,314) $ 6,314
------- ------- ------- -------
Balance, March 31, 1998 43,726 28,992 14,734 6,314
------- ------- ------- -------
COMPUTER SOFTWARE
Balance, March 31, 1997 227 113 114
Current provision - 114 (114) 114
------- ------- ------- -------
Balance, March 31, 1998 227 227 - 114
------- ------- ------- -------
OFFICE EQUIPMENT
Balance, March 31, 1997 8,775 3,433 5,342
Current provision - 1,068 (1,068) 1,068
------- ------- ------- -------
Balance, March 31, 1998 8,775 4,501 4,274 1,068
------- ------- ------- -------
WAREHOUSE EQUIPMENT
Balance, March 31, 1997 8,008 3,142 4,866
Current provision - 973 (973) 973
------- ------- ------- -------
Balance, March 31, 1998 8,008 4,115 3,893 973
------- ------- ------- -------
LEASEHOLD IMPROVEMENTS
Balance, March 31, 1997 21,283 12,783 8,500
Current provision - 4,250 (4,250) 4,250
------- ------- ------- -------
Balance, March 31, 1998 21,283 17,033 4,250 4,250
------- ------- ------- -------
TOTALS, TO EXHIBIT "A" $82,019 $54,868 $27,151 $12,719
======= ======= ======= =======
</TABLE>
- - See accompanying notes -
39
<PAGE> 40
MIDWAY PURNEL SANITARY SUPPLY LTD.
Kelowna, BC
FINANCIAL STATEMENTS
For the Period Ended June 30, 1998
LOGO (Cinnamon Jang Willoughby & Company)
A Partnership of Incorporated Professionals
40
<PAGE> 41
MIDWAY PURNEL SANITARY SUPPLY LTD.
INDEX TO FINANCIAL STATEMENTS
REVIEW ENGAGEMENT REPORT
<TABLE>
<S> <C>
Balance Sheet Exhibit "A"
Statement of Loss and Deficit Exhibit "B"
Statement of Changes in Financial Position Exhibit "C"
Notes to Financial Statements Exhibit "D"
Capital Assets and Accumulated Amortization Schedule "I"
</TABLE>
--------------------------------
41
<PAGE> 42
(HLB LOGO) CINNAMON JANG WILLOUGHBY & COMPANY
Chartered Accountants
A Partnership of Incorporated Professionals
REVIEW ENGAGEMENT REPORT
To The Directors of MIDWAY PURNEL SANITARY SUPPLY LTD.:
We have reviewed the balance sheet of Midway Purnel Sanitary Supply Ltd.
as at June 30, 1998 and the statements of loss and deficit and changes in
financial position for the period then ended. Our review was made in accordance
with generally accepted standards for review engagements and accordingly
consisted primarily of enquiry, analytical procedures and discussion related to
information supplied to us by the company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that these financial statements are not, in all material respects, in
accordance with generally accepted accounting principles.
Cinnamon Jang Willoughby & Company
Chartered Accountants
Burnaby, BC
July 31, 1998
42
<PAGE> 43
Exhibit "A"
MIDWAY PURNEL SANITARY SUPPLY LTD.
BALANCE SHEET
(UNAUDITED)
JUNE 30, 1998
<TABLE>
<CAPTION>
June 30, March 31
1998 1998
(audited)
------------ -----------
<S> <C> <C>
ASSETS
Current:
Accounts receivable $ 75,139 $ 67,834
Inventory 89,138 88,233
Prepaid expenses 3,737 4,598
---------- ----------
168,014 160,665
Due from related company -- 5,356
Capital, per Schedule "1" 24,575 27,151
---------- ----------
$ 192,589 $ 193,172
========== ==========
LIABILITIES
Current:
Bank indebtedness (Note 2) $ 75,367 $ 93,599
Accounts payable and accrued liabilities 120,803 92,098
Wages payable 1,329 --
Current portion of term loan 15,000 15,000
Unearned revenue 1,082 --
---------- ----------
213,581 200,697
---------- ----------
Long-term:
Loans payable (Note 3) 294,186 294,186
Term loan (Note 4) 28,750 32,500
---------- ----------
322,936 326,686
---------- ----------
536,517 527,383
---------- ----------
SHAREHOLDERS' DEFICIENCY
Share Capital:
Authorized --
1,000 Class "A" voting common shares with
a par value of $1 each
49,000 Class "B" non-voting common shares
without par value
100,000 Class "C" non-voting preferred shares
without par value
Issued and Fully Paid --
2 Class "A" voting common shares 2 2
Deficit, per Exhibit "B" 343,930 334,213
---------- ----------
(343,928) (334,211)
Commitment (Note 7)
Future Operations (Note 8)
---------- ----------
$ 192,589 $ 193,172
========== ==========
</TABLE>
Approved by the Directors:
___________________________________
___________________________________
- - See accompanying notes -
43
<PAGE> 44
Exhibit "B"
MIDWAY PURNEL SANITARY SUPPLY LTD.
STATEMENT OF LOSS AND DEFICIT
(UNAUDITED)
FOR THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Period Year
Ended Ended
June 30, March 31,
1998 1998
(audited)
----------- -----------
<S> <C> <C>
Sales $ 174,822 $ 684,391
----------- -----------
Cost of Sales:
Inventory, beginning 88,233 78,962
Purchases 128,555 540,679
----------- -----------
216,788 619,641
Less: Inventory, ending 89,138 88,233
----------- -----------
127,650 531,408
----------- -----------
Gross Income 47,172 152,983
----------- -----------
Expenses:
Advertising (recovery) (150) 1,985
Amortization 2,576 12,719
Automotive 2,737 17,839
Bad debts 7,403 90
Bank charges and interest 2,598 6,799
Insurance and licences 182 988
Office and miscellaneous 3,274 12,150
Professional fees 7,594 8,381
Promotion, travel and seminars 492 1,653
Rent 6,595 25,513
Salaries and commissions 23,373 116,635
Telephone 2,749 9,090
Utilities 507 1,965
Warehouse supplies 48 86
----------- -----------
59,978 215,893
----------- -----------
Loss before other item 12,806 62,910
Other item:
Miscellaneous income 3,089 6,514
----------- -----------
Net Loss 9,717 56,396
Deficit, beginning 334,213 277,817
----------- -----------
Deficit, ending, to Exhibit "A" $ 343,930 $ 334,213
=========== ===========
</TABLE>
- - See accompanying notes -
44
<PAGE> 45
Exhibit "C"
MIDWAY PURNEL SANITARY SUPPLY LTD.
STATEMENT OF CHANGES IN FINANCIAL POSITION
(UNAUDITED)
FOR THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Period Ended Year Ended
June 30, March 31,
1998 1998
(audited)
---------- ----------
<S> <C> <C>
Operating Activities:
Cash from Operations -
Net Loss, per Exhibit "B" $ (9,717) $ (56,396)
Charge to income not involving cash -
Amortization 2,576 12,719
---------- ----------
(7,141) (43,677)
Net change in non-cash working capital balances -
(Increase) Decrease in accounts receivable (7,305) 1,416
(Increase) Decrease in inventory (905) (9,271)
(Increase) Decrease in prepaid expenses 861 (48)
Increase (Decrease) in accounts payable
and accrued liabilities 28,705 58,225
Increase (Decrease) in wages payable 1,329 (202)
Increase (Decrease) in unearned revenue 1,082 --
----------- -----------
16,626 6,443
----------- -----------
Financing Activities:
Proceeds from term loan -- 25,000
Repayment of bank loan (3,750) (15,000)
----------- -----------
(3,750) 10,000
----------- -----------
Investing Activities:
Acquisition of capital assets -- --
Due from related companies 5,356 (682)
---------- ----------
5,356 (682)
---------- ----------
Change in Cash and Equivalents 18,232 15,761
Cash and Equivalents, beginning (93,599) (109,360)
---------- ----------
Cash and Equivalents, ending $ (75,367) $ (93,599)
========== ==========
Represented by:
Cheques issued in excess of funds on deposit $ (25,367) $ (43,599)
Demand loan (50,000) (50,000)
---------- ----------
$ (75,367) $ (93,599)
========== ==========
</TABLE>
- - See accompanying notes -
45
<PAGE> 46
Exhibit "D"
MIDWAY PURNEL SANITARY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
1. ACCOUNTING POLICIES:
a) Inventory -
Inventory is valued at the lower of cost and net realizable value. Cost
is determined on a first-in, first-out basis.
b) Capital Assets -
Capital assets are recorded at cost. Amortization is provided on the
declining balance basis at the following annual rates:
Computer hardware 30%
Computer software 100%
Office equipment 20%
Warehouse equipment 20%
For the period of acquisition, the rate used is one-half of that shown
above.
c) Translation of Foreign Currency -
Inventory, sales and purchases at the exchange rates prevailing on the
transaction date of the bank; and
Current liabilities at the exchange rate prevailing at the end of the
period.
d) Fair Values of Financial Instruments -
Unless otherwise noted, accounts receivable, bank indebtedness, accounts
payable and accrued liabilities, wages payable, loans payable and term
loan are stated at amounts that approximate their book value.
e) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying disclosures. Although these estimates are
based on management's best knowledge of current events and actions the
company may undertake in the future, actual results may differ from the
estimates.
46
<PAGE> 47
Exhibit "D"
Continued
MIDWAY PURNEL SANITARY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2. BANK INDEBTEDNESS: June 30, March 31,
1998 1998
(audited)
-------- ---------
Cheques issued in excess of funds on deposit $25,367 $43,599
Demand loan 50,000 50,000
-------- ---------
$75,367 $93,599
======== =========
The demand loan bears interest at the prime rate plus 1.25% per annum and
is secured by a general assignment of book debts, general security
agreement, Section 427 over inventory, assignment of fire insurance and
personal guarantees of shareholders.
3. LOANS PAYABLE:
The loans payable due to related parties, Midway Supply Ltd., Purnel
Distributors Ltd. and John Kazakoff are non-interest bearing and without
specific terms of repayment. As repayments are not expected to be made
during the next fiscal period, this amount has been classified as long-term
in the financial statements.
June 30, March 31,
1998 1998
(audited)
-------- ---------
Midway Supply Ltd. $147,094 $147,094
Purnel Distributors Ltd. 88,750 88,750
John Kazakoff 58,342 58,342
-------- ---------
$294,186 $294,186
======== =========
4. TERM LOAN: June 30, March 31,
1998 1998
(audited)
-------- ---------
Bank of Nova Scotia - Loan payable in monthly
payments of $1,250 plus interest at the prime
rate plus 1.5% per annum until May 31, 2001.
Secured by chattel mortgage over equipment and
the personal guarantees of the shareholders $43,750 $47,500
Less: Current portion 15,000 15,000
-------- --------
$28,750 $32,500
======== ========
Future principal payments are as follows:
1999 $15,000
2000 13,750
--------
$28,750
========
</TABLE>
47
<PAGE> 48
Exhibit "D"
Continued
MIDWAY PURNEL SANITARY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
JUNE 30, 1998
5. RELATED PARTY TRANSACTIONS:
Midway Purnel Sanitary Supply Ltd. is related to Midway Supply Ltd.,
Purnel Distributors Ltd., Midway Purnel Sanitary Supply (PG) Ltd. and
466926 B.C. Ltd. by virtue of common ownership. The following summarizes
the company's related party transactions for the period:
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(audited)
------- --------
<S> <C> <C>
Transactions during the period:
Sales to -
Midway Supply Ltd. $ 1,205 $ 4,220
Purnel Distributors Ltd. 344 5,216
Midway Purnel Sanitary Supply (PG) Ltd. -- 165
Purchases from -
Midway Supply Ltd. 79,807 267,214
Purnel Distributors Ltd. 22,476 55,000
Midway Purnel Sanitary Supply (PG) Ltd. -- 20
Rent paid to 466926 B.C. Ltd. 6,595 25,513
</TABLE>
These transactions are in the normal course of operations and are measured
at the exchange amount, which is the amount of consideration established
and agreed to by the related parties.
At the end of the period, the amounts due to (from) related parties are as
follows:
<TABLE>
<S> <C> <C>
Receivable from included in accounts receivable -
Midway Supply Ltd. $ -- $ (23)
Purnel Distributors Ltd. -- (253)
Payable to included in accounts payable -
Midway Supply Ltd. 94,946 42,532
Purnel Distributors Ltd. 22,619 907
</TABLE>
These balances are payable on demand and have arisen from the sale of
product and provision of services referred to above.
See also Notes 3.
48
<PAGE> 49
Exhibit "D"
Continued
MIDWAY PURNEL SANITARY SUPPLY LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
6. INCOME TAXES:
At June 30, 1998, the company has a loss of $338,119 for tax purposes
which may be available to reduce future years' taxable income. The
benefits of this loss carried forward have not been booked in the
accounts. The losses expire as follows:
<TABLE>
<S> <C>
2001 $121,383
2002 100,887
2003 50,002
2004 56,102
2005 9,745
--------
$338,119
========
</TABLE>
7. COMMITMENT:
The company has been assigned the lease on its premises, which expires on
January 31, 1999. Under the terms of the lease, the company is committed
to make monthly rental payments of $1,997 plus common area costs. The
common area costs have not been determined as of the current date.
8. FUTURE OPERATIONS:
The continued operations of the company is dependent on the company
achieving profitable operations or receiving additional funding from
shareholders or others to satisfy all of its liabilities as they become
due.
49
<PAGE> 50
Schedule "1"
MIDWAY PURNEL SANITARY SUPPLY LTD.
CAPITAL ASSETS AND ACCUMULATED AMORTIZATION
(UNAUDITED)
FOR THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK CURRENT
COST AMORTIZATION VALUE PROVISION
------- ------------ -------- ---------
<S> <C> <C> <C> <C>
COMPUTER HARDWARE
Balance, March 31, 1998 $43,726 $28,992 $14,734
Current provision -- 1,105 (1,105) $ 1,105
------- ------- ------- -------
Balance, June 30, 1998 43,726 30,097 13,629 1,105
------- ------- ------- -------
COMPUTER SOFTWARE
Balance, March 31 and
June 30, 1998 227 227 -- --
------- ------- ------- -------
OFFICE EQUIPMENT
Balance, March 31, 1998 8,775 4,501 4,274
Current provision -- 214 (214) 214
------- ------- ------- -------
Balance, June 30, 1998 8,775 4,715 4,060 214
------- ------- ------- -------
WAREHOUSE EQUIPMENT
Balance, March 31, 1998 8,008 4,115 3,893
Current provision -- 195 (195) 195
------- ------- ------- -------
Balance, June 30, 1998 8,008 4,310 3,698 195
------- ------- ------- -------
LEASEHOLD IMPROVEMENTS
Balance, March 31, 1998 21,283 17,033 4,250
Current provision -- 1,062 (1,062) 1,062
------- ------- ------- -------
Balance, June 30, 1998 21,283 18,095 3,188 1,062
------- ------- ------- -------
TOTALS, to Exhibit "A" $82,019 $57,444 $24,575 $ 2,576
======= ======= ======= =======
</TABLE>
- - See accompanying notes -
50
<PAGE> 51
430639 B.C. LTD.
Abbotsford, BC
CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended June 30, 1998
LOGO (Cinnamon Jang Willoughby & Company)
A Partnership of Incorporated Professionals
51
<PAGE> 52
430639 B.C. LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AUDITORS' REPORT
<TABLE>
<S> <C>
Consolidated Balance Sheet Exhibit "A"
Consolidated Statement of Income and Retained Earnings Exhibit "B"
Consolidated Statement of Changes in Financial Position Exhibit "C"
Notes to Consolidated Financial Statements Exhibit "D"
Capital Assets and Accumulated Amortization Schedule "1"
</TABLE>
--------------------------------
52
<PAGE> 53
LOGO Cinnamon Jang Willoughby & Company
Chartered Accountants
A Partnership of Incorporated Professionals
AUDITORS' REPORT
To The Shareholders of 430639 B.C. LTD.:
We have audited the consolidated balance sheet of 430639 B.C. Ltd. as at June
30, 1998 and the consolidated statements of income and retained earnings and
changes in financial position for the period then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at June 30,
1998 and the results of its operations and the changes in its financial
position for the period then ended in accordance with generally accepted
accounting principles. As required by the Company Act of British Columbia, we
report that, in our opinion, these principles have been applied on a basis
consistent with that of the preceding year.
The 1997 financial statements of Fraser Valley Industrial Chemicals Inc. were
reviewed by us and our report thereon, dated December 22, 1997 stated that
nothing has come to our attention that causes us to believe that these
financial statements are not, in all material respects, in accordance with
generally accepted accounting principles. We have not examined, and we do not
express an opinion on, the financial statements of the preceding year.
The 1997 financial statements of 430639 B.C. Ltd. were compiled by us and our
report thereon was dated December 17, 1997. We have not audited, reviewed or
otherwise attempted to verify the accuracy or completeness of such information
of the preceding year.
Cinnamon Jang Willoughby & Company
Chartered Accountants
Burnaby, BC
July 25, 1998
53
<PAGE> 54
Exhibit "A"
430639 B.C. LTD.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(unaudited)
------------ -----------
<S> <C> <C>
ASSETS
Current:
Cash $116,764 $ 61,114
Marketable securities -- 152,519
Accounts receivable 56,112 68,863
Income taxes recoverable 3,221 1,602
Inventory 83,278 97,823
Prepaid expenses 3,982 --
-------- --------
263,357 381,921
Capital, per Schedule "1" 7,655 9,869
-------- --------
$271,012 $391,790
======== ========
LIABILITIES
Current:
Accounts payable $ 29,023 $ 21,257
Wages payable 961 --
-------- --------
29,984 21,257
Loan payable (Note 2) 24,190 24,190
-------- --------
54,174 45,447
-------- --------
SHAREHOLDERS' EQUITY
Share Capital:
Authorized --
10,000 Class "A" voting common shares without par value
90,000 Class "B" non-voting common shares
without par value
Issued and Fully Paid --
240 Class "A" shares at $1 each 240 240
Retained Earnings, per Exhibit "B" 216,598 346,103
-------- --------
216,838 346,343
Commitments (Note 4)
Subsequent Event (Note 6)
-------- --------
$271,012 $391,790
======== ========
</TABLE>
Approved by the Directors:
___________________________________
___________________________________
- - See accompanying notes -
54
<PAGE> 55
Exhibit "B"
430639 B.C. LTD.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended September 30,
June 30, 1997
1998 (unaudited)
----------- -------------
<S> <C> <C>
Sales $ 354,213 $ 474,606
Cost of sales 175,900 242,183
--------- ---------
Gross income 178,313 232,423
--------- ---------
Expenses:
Accounting and legal 10,536 2,868
Administration fees 4,590 6,000
Advertising and promotion 1,187 827
Amortization 2,489 3,817
Automobile 8,958 3,668
Bad debts 268 --
Bank charges and interest 74 207
Consulting fees 855 5,090
Equipment rental 416 238
Insurance 6,277 7,476
Office and miscellaneous 72 1,296
Rent 4,050 5,400
Repairs 2,285 1,337
Telephone 810 1,109
Wages and benefits 43,024 50,127
Warehouse 5,311 3,042
--------- ---------
91,202 92,502
--------- ---------
Income before other items 87,111 139,921
--------- ---------
Other items:
Interest income 4,535 5,286
Loss on disposal of capital asset 524 --
--------- ---------
4,011 5,286
--------- ---------
Income before income taxes 91,122 145,207
Income taxes 21,836 34,020
--------- ---------
Net Income 69,286 111,187
Retained Earnings, beginning 346,103 333,024
Dividends 200,000 100,000
Refundable dividend tax 475 422
Recovery of refundable dividend tax 1,684 2,314
--------- ---------
Retained Earnings, ending, to Exhibit "A" $ 216,598 $ 346,103
========= =========
</TABLE>
- - See accompanying notes -
55
<PAGE> 56
Exhibit "C"
430639 B.C. LTD.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE NINE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended September 30,
June 30, 1997
1998 (unaudited)
---------- -------------
<S> <C> <C>
Operating Activities:
Cash from Operations -
Net Income, per Exhibit "B" $ 69,286 $ 111,187
Charges to income not involving cash -
Amortization 2,489 3,817
Loss on disposal of capital assets 524 --
---------- ----------
72,299 115,004
Net change in non-cash working capital balances -
(Increase) Decrease in marketable securities 152,519 (52,519)
(Increase) Decrease in accounts receivable 12,751 3,094
(Increase) Decrease in income taxes recoverable (1,619) (1,602)
(Increase) Decrease in inventory 14,545 (10,161)
(Increase) Decrease in prepaid expenses (3,982) --
Increase (Decrease) in accounts payable 7,766 270
Increase (Decrease) in wages payable 961 --
Increase (Decrease) in income taxes payable -- (5,226)
----------- -----------
255,240 48,860
----------- -----------
Investing Activity:
Acquisition of capital assets (799) (1,241)
----------- -----------
Shareholder's Distributions:
Dividends (200,000) (100,000)
Refundable dividend tax (475) (422)
Recovery of refundable dividend tax 1,684 2,314
---------- ----------
(198,791) (98,108)
---------- ----------
Change in Cash 55,650 (50,489)
Cash, beginning 61,114 111,603
---------- ----------
Cash, ending $ 116,764 $ 61,114
========== ==========
</TABLE>
- - See accompanying notes -
56
<PAGE> 57
Exhibit "D"
430639 B.C. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. ACCOUNTING POLICIES:
a) Consolidation -
The Company follows the purchase method to consolidate its accounts.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Fraser Valley Industrial
Chemicals Inc.
b) Inventory -
Inventory is recorded at the lower of cost and net realizable value.
Cost is determined from the last invoice cost.
c) Capital Assets -
Capital assets are recorded at cost. Amortization is provided on the
declining balance basis at the following annual rates:
Computer Equipment 30%
Equipment 20%
Warehouse Equipment 20%
For the period of acquisition, the rate used is one-half of that
shown above.
Leasehold improvements are amortized on a straight-line basis over
five years.
d) Translation of Foreign Currencies -
Amounts in foreign currencies are translated into Canadian Dollars as
follows:
i) Current assets and liabilities at the exchange rates prevailing
at the end of the period;
ii) Operating income and expenses at the average exchange rate for
the period.
e) Fair Values of Financial Instruments -
Unless otherwise noted, cash, accounts receivable, income taxes
recoverable, accounts payable, wages payable and loan payable are
stated at amounts that approximate their book value.
f) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying disclosures. Although these estimates are
based on management's best knowledge of current events and actions
the company may undertake in the future, actual results may differ
from the estimates.
2. LOAN PAYABLE:
The loan payable to Midway Supply Ltd. (which is controlled by a relative
of the shareholders of the Company and is, therefore, a related party) is
non-interest bearing and without specific terms of repayment.
57
<PAGE> 58
Exhibit "D"
Continued
430639 B.C. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
3. RELATED PARTY TRANSACTIONS:
The Company is related to Midway Supply Ltd. which is controlled by a
relative of the shareholders of the company.
The following summarizes the company's related party transactions for the
period:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(unaudited)
------------- -------------
<S> <C> <C>
Transactions during the period --
Sales to Midway Supply Ltd. $ 345,867 $ 460,915
Purchases from Midway Supply Ltd. 10,933 1,109
</TABLE>
These transactions are in the normal course of operations and are measured
at the exchange amount, which is the amount of consideration established
and agreed to by the related parties.
At the end of the year, the amounts due to (from) related entities are as
follows:
<TABLE>
<S> <C> <C>
Balances at period-end -
Due from Midway Supply Ltd. included
in accounts receivable $ 52,694 $ 56,552
Due to Midway Supply Ltd. included
in accounts payable 531 88
</TABLE>
These balances are payable on demand and have arisen from the sales of
product and purchases referred to above.
See also Note 2.
4. COMMITMENTS:
The Company has entered into an agreement to lease an automobile which
expires between June 30, 1999 and June 30, 2000. The minimum annual lease
payments under this agreement are as follows:
<TABLE>
<S> <C>
1999 $ 9,852
2000 6,568
-------
$16,420
=======
</TABLE>
5. ECONOMIC DEPENDENCE:
The Company is economically dependent on Midway Supply Ltd., which is
controlled by a relative of the shareholders of the Company.
6. SUBSEQUENT EVENT:
Effective June 30, 1998, the Company amalgamated with its subsidiary,
Fraser Valley Industrial Chemicals Ltd. The amalgamated entity commenced
operations on July 1, 1998 under the name Fraser Valley Industrial
Chemicals Inc.
58
<PAGE> 59
Schedule "1"
430639 B.C. LTD.
CAPITAL ASSETS AND ACCUMULATED AMORTIZATION
FOR THE NINE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK CURRENT
COST AMORTIZATION VALUE PROVISION
------- ------------ -------- ---------
<S> <C> <C> <C> <C>
COMPUTER EQUIPMENT
Balance, September 30, 1997 $ 3,063 $ 1,787 $ 1,276
Current provision - 287 (287) $ 287
------- ------- ------- -------
Balance, June 30, 1998 3,063 2,074 989 287
------- ------- ------- -------
EQUIPMENT
Balance, September 30, 1997 4,118 2,600 1,518
Current provision - 228 (228) 228
------- ------- ------- -------
Balance, June 30, 1998 4,118 2,828 1,290 228
------- ------- ------- -------
LEASEHOLD IMPROVEMENTS
Balance, September 30, 1997 7,294 6,564 730
Current provision - 730 (730) 730
------- ------- ------- -------
Balance, June 30, 1998 7,294 7,294 - 730
------- ------- ------- -------
WAREHOUSE
Balance, September 30, 1997 13,951 7,606 6,345
Additions 799 - 799
Disposals (909) (385) (524)
------- ------- ------- -------
13,841 7,221 6,620
Current provision - 1,244 (1,244) 1,244
------- ------- ------- -------
Balance, June 30, 1998 13,841 8,465 5,376 1,244
------- ------- ------- -------
TOTALS, to Exhibit "A" $28,316 $20,661 $ 7,655 $ 2,489
======= ======= ======= =======
</TABLE>
59
<PAGE> 60
PURNEL DISTRIBUTORS LTD.
FINANCIAL STATEMENTS
FEBRUARY 28, 1998
60
<PAGE> 61
LOGO YULE & ASSOCIATES* Geoff W. Yule, CA, Partner
CHARTERED ACCOUNTANTS Doug Johnstone, CA, Partner
*Incorporated as Geoff Yule & Associates Inc. Katarina Yule, CA
Pam Gerrand, CA
August 17, 1998
AUDITORS' REPORT
To the Shareholder of
Purnel Distributors Ltd.
We have audited the balance sheet of Purnel Distributors Ltd. as at
February 28, 1998, and the statements of income, retained earnings and changes
in financial position for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at February 28, 1998 and the
results of operations and changes in financial position of the Company for the
year then ended, in accordance with generally accepted accounting principles.
Yule & Associates
Chartered Accountants
61
<PAGE> 62
PURNEL DISTRIBUTORS LTD.
BALANCE SHEET
<TABLE>
<CAPTION>
February 28,
--------------------------
1998 1997
(Note 10)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 6,599 $ 2,562
Accounts receivable 254,312 219,030
Inventory 234,055 234,511
---------- ----------
494,966 456,103
Capital Assets (Note 2) 167,855 77,016
Loans to Related Companies (Note 3) 108,750 87,500
---------- ----------
$ 771,571 $ 620,619
========== ==========
LIABILITIES:
Current Liabilities
Cheques issued in excess
of funds on deposit (Note 4) $ 91,340 $ 76,430
Accounts payable 89,286 103,797
Bonuses payable 90,000 90,000
Income taxes payable 2,119 2,198
Current portion of long-term debt (Note 5) 37,580 60,298
---------- ----------
310,325 332,723
Deferred Income Taxes 6,500 -
Long-Term Debt (Note 5) 141,769 16,111
Shareholder Loans (Note 7) 510 69
---------- ----------
459,104 348,903
---------- ----------
SHAREHOLDERS' EQUITY
Share Capital (Note 9) 165 165
Retained Earnings 312,302 271,551
---------- ----------
312,467 271,716
---------- ----------
$ 771,571 $ 620,619
========== ==========
</TABLE>
Approved by the Director:
- ------------------------ Director
62
<PAGE> 63
PURNEL DISTRIBUTORS LTD.
STATEMENT RETAINED EARNINGS
<TABLE>
<CAPTION>
For the Year Ended
February 28,
---------------------
1998 1997
(Note 10)
-------- --------
<S> <C> <C>
RETAINED EARNINGS, BEGINNING OF YEAR $271,551 $247,106
NET INCOME 54,751 41,445
DIVIDENDS PAID 14,000 17,000
-------- --------
RETAINED EARNINGS, END OF YEAR $312,302 $271,551
======== ========
</TABLE>
63
<PAGE> 64
PURNEL DISTRIBUTORS LTD.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the year ended
February 28,
-----------------------
1998 1997
(Note 10)
---------- ----------
<S> <C> <C>
SALES $2,279,534 $2,146,199
COST OF SALES 1,493,572 1,424,979
---------- ----------
GROSS PROFIT 785,962 721,220
OTHER INCOME 9,762 3,535
---------- ----------
795,724 724,755
---------- ----------
EXPENSES
Advertising 11,321 11,880
Amortization 45,418 32,623
Bad debts 2,898 863
Bank charges and interest 6,920 4,553
Insurance 12,546 11,454
Interest on long-term debt 10,085 9,384
Legal and accounting 9,143 3,833
Office and miscellaneous 24,252 27,338
Repairs and maintenance 4,661 4,322
Telephone and utilities 27,774 21,548
Travel and automotive 78,749 72,678
Wages and employee benefits 473,746 434,393
Warehouse rent (Note 8) 35,292 35,407
---------- ----------
742,805 670,276
---------- ----------
INCOME BEFORE GAIN ON SALE OF CAPITAL
ASSETS AND INCOME TAXES 52,919 54,479
GAIN ON SALE OF CAPITAL ASSETS 22,470 --
---------- ----------
INCOME BEFORE INCOME TAXES 75,389 54,479
---------- ----------
INCOME TAXES
- deferred 6,500 --
- current 14,138 13,034
---------- ----------
20,638 13,034
---------- ----------
NET INCOME $ 54,751 $ 41,445
========== ==========
</TABLE>
64
<PAGE> 65
PURNEL DISTRIBUTORS LTD.
STATEMENT OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
For the year ended
February 28,
-------------------------
1998 1997
(Note 10)
----------- ----------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Operations
Net income $ 54,751 $ 41,445
Items not affecting cash
Amortization 45,418 32,623
Gain on sale of capital assets (22,470) --
---------- ----------
77,699 74,068
---------- ----------
Changes in non-cash working capital
Accounts receivable (35,282) (19,856)
Inventory 456 42,916
Accounts payable (14,511) (9,527)
Income taxes (79) (1,436)
Deferred income taxes 6,500 --
---------- ----------
(42,916) 12,097
---------- ----------
34,783 86,165
---------- ----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issuance of long-term debt 206,866 --
Repayment of long-term debt (103,926) (33,561)
Advances to (from) shareholders 441 (1,331)
Dividends (14,000) (17,000)
---------- ----------
89,381 (51,892)
---------- ----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of capital assets (147,287) (20,322)
Proceeds from disposal of capital assets 33,500 --
Loans to related Companies (21,250) (45,000)
Repayment of share capital -- (10)
Issuance of share capital -- 165
---------- ----------
(135,037) (65,167)
---------- ----------
DECREASE IN CASH (10,873) (30,894)
BANK INDEBTEDNESS, BEGINNING OF YEAR (73,868) (42,974)
---------- ----------
BANK INDEBTEDNESS, END OF YEAR $ (84,741) $ (73,868)
========== ==========
REPRESENTED BY:
Cash $ 6,599 $ 2,562
Cheques issued in excess of funds on deposit (91,340) (76,430)
---------- ----------
$ (84,741) $ (73,868)
========== ==========
</TABLE>
65
<PAGE> 66
PURNEL DISTRIBUTORS LTD.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORY
Inventory is stated at the lower of cost and net realizable value.
CAPITAL ASSETS
Capital assets are stated at cost. Amortization is calculated on the
declining balance basis at the following annual rates:
Store and office equipment 20%
Automotive equipment 30%
Computer 30%
Software 100%
Leasehold improvements are amortized on a straight-line basis over a
period of five years.
The provision for amortization is reduced by one-half in the year of
acquisition.
RELATED COMPANIES
Shareholders of the Company have the following investments in other
Companies:
Midway Purnel Sanitary Supply Ltd. 50.0%
Midway Purnel Sanitary Supply (PG) Ltd. 42.5%
537394 B.C. Ltd. 100.0%
2. CAPITAL ASSETS
<TABLE>
<CAPTION>
Accumulated 1997
Cost Amortization 1998 (Note 10)
-------- ------------ -------- --------
<S> <C> <C> <C> <C>
Store and office equipment $ 29,866 $ 26,056 $ 3,810 $ 4,763
Automotive equipment 184,948 53,218 131,730 45,995
Computer 75,414 46,350 29,064 23,786
Software 33,150 29,899 3,251 1,453
Leasehold improvements 24,444 24,444 -- 1,019
-------- -------- -------- -------
$347,822 $179,967 $167,855 $77,016
======== ======== ======== =======
</TABLE>
66
<PAGE> 67
PURNEL DISTRIBUTORS LTD.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998
<TABLE>
<CAPTION>
3. LOANS TO RELATED COMPANIES 1998 1997
(Note 10)
-------- ---------
<S> <C> <C>
Loan to Midway Purnel Sanitary Supply (PG) Ltd.
bearing interest at 4% per annum and without
specified terms of repayment $ 20,000 $ 20,000
Loan to Midway Purnel Sanitary Supply Ltd.
without specified terms of repayment 88,750 67,500
-------- --------
$108,750 $ 87,500
======== ========
</TABLE>
4. BANK OVERDRAFT
The bank overdraft bears interest at the Bank prime plus 1/4 and is
secured by accounts receivable and a personal guarantee of a shareholder.
<TABLE>
<CAPTION>
5. LONG-TERM DEBT 1998 1997
(Note 10)
-------- ---------
<S> <C> <C>
Bank of Montreal, demand loan secured by a
shareholder's personal guarantee. Monthly
payments of $1,068 including interest
at 10.25% $ - $ 41,182
Bank of Montreal, demand loan secured by
automotive equipment. Monthly payments of
$1,101 including interest at 10.25% - 21,650
Bank of Montreal, demand loan secured by
automotive equipment. Monthly payments of
$718 including interest at 10.75% - 13,577
Bank of Montreal, demand loan secured by a
general security agreement over the assets of
the Company and personal guarantees of a
shareholder, monthly payments of $4,000
including interest at Bank prime plus 1.5% 179,349 -
-------- --------
179,349 76,409
Less: current portion of long-term debt 37,580 60,298
-------- --------
$141,769 $ 16,111
======== ========
</TABLE>
67
<PAGE> 68
PURNEL DISTRIBUTORS LTD.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998
6. FINANCIAL INSTRUMENTS
CURRENT ASSETS & LIABILITIES
The carrying values reported in the balance sheet for cash, accounts
receivable, and current liabilities are reasonable estimates of fair
values.
CREDIT RISK
Credit risk arises from the potential that a counterparty will fail to
perform its obligations. The Company performs ongoing credit evaluations
of its customers' financial conditions and limits the amount of credit
extended when deemed necessary.
LONG TERM DEBT
The interest rates applicable to long term debt were generally equivalent
to the interest rates that would have applied had the Company incurred such
debt as at February 28, 1998. The fair value of long term debt is
approximately the same as book value at February 28, 1998.
7. SHAREHOLDER LOANS
Shareholder loans are non-interest bearing and have no fixed terms of
repayment.
8. RELATED PARTY TRANSACTIONS
Purnel Distributors Ltd. is related to Midway Purnel Sanitary Supply Ltd.
and Midway Purnel Sanitary Supply (PG) Ltd. due to common shareholders.
The Company had the following transactions with these related parties:
<TABLE>
<CAPTION>
1998 1997
(Note 10)
--------- ---------
<S> <C> <C>
Balances at year end:
Receivable from Midway Purnel Sanitary
Supply Ltd. $ 12,959 $ 3,072
Receivable from Midway Purnel Sanitary
Supply (PG) Ltd. 6,697 3,182
These balances are receivable on demand and have
arisen from the sale of products and provision
of services.
Transactions during the year:
Sales to:
Midway Purnel Sanitary Supply Ltd. 48,930 114,555
Midway Purnel Sanitary Supply (PG) Ltd. 33,362 41,052
Warehouse rent is paid to John Kazakoff,
a shareholder, at $2,400 per month. - 28,800
Warehouse rent is paid to 537394 B.C. Ltd.,
a related company, at $2,400 per month. 28,800 -
</TABLE>
These transactions are in the normal course of operations and are
unsecured.
68
<PAGE> 69
PURNEL DISTRIBUTORS LTD.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998
<TABLE>
<CAPTION>
9. SHARE CAPITAL 1998 1997
(Note 10)
--------- ---------
<S> <C> <C>
Authorized
10,000 Class "A" common shares, voting,
no par value
100,000 Class "B" common shares, non-
voting, par value $0.01 per share
100,000 Class "C" common shares, non-
voting, par value $0.01 per share
100,000 Class "D" preferred shares,
non-voting, redeemable and
retractable at $100 per share,
par value $0.01 per share
Issued
100 Class "A" shares $ 10 $ 10
100 Class "B" shares 100 100
5480 Class "D" shares 55 55
--------- ---------
$ 165 $ 165
========= =========
</TABLE>
10. COMPARATIVE FIGURES
The comparative financial statements have not been audited, and
consequently, the auditors do not express an opinion on the financial
statements of the preceding year.
69
<PAGE> 70
PURNEL DISTRIBUTORS LTD.
FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
70
<PAGE> 71
LOGO YULE & ASSOCIATES Geoff W. Yule, CA, Partner
CHARTERED ACCOUNTANTS Doug Johnstone, CA, Partner
*Incorporated as Geoff Yule & Associates Inc. Katarina Yule, CA
Pam Gerrand, CA
August 17, 1998
REVIEW ENGAGEMENT REPORT
To the Shareholders of
Purnel Distributors Ltd.
We have reviewed the balance sheet of Purnel Distributors Ltd. as at June 30,
1998 and the statements of income, retained earnings and changes in financial
position for the year then ended. Our review was made in accordance with
generally accepted standards for review engagements and accordingly consisted
primarily of enquiry, analytical procedures and discussion related to
information supplied to us by the Company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that these financial statements are not, in all material respects, in
accordance with generally accepted accounting principles.
Yule & Associates
Chartered Accountants
71
<PAGE> 72
PURNEL DISTRIBUTORS LTD.
BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
June 30, February 28,
1998 1998
---------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 1,121 $ 6,599
Accounts receivable 287,247 254,312
Inventory 253,857 234,055
Prepaid expenses 7,468 --
--------- ---------
549,693 494,966
Capital Assets (Note 2) 140,611 167,855
Loans to Related Companies (Note 3) 88,750 108,750
--------- ---------
$ 779,054 $ 771,571
========= =========
LIABILITIES
Current Liabilities
Cheques issued in excess of
funds on deposit (Note 4) $ 143,353 $ 91,340
Accounts payable 126,410 89,286
Bonuses payable -- 90,000
Income taxes payable 6,109 2,119
Current portion of long-term debt (Note 5) 38,400 37,580
--------- ---------
314,272 310,325
Deferred Income Taxes 6,500 6,500
Long-Term Debt (Note 5) 129,627 141,769
Shareholder Loans (Note 7) -- 510
--------- ---------
450,399 459,104
--------- ---------
SHAREHOLDERS' EQUITY
Share Capital (Note 9) 165 165
Retained Earnings 328,490 312,302
--------- ---------
328,655 312,467
--------- ---------
$ 779,054 $ 771,571
========= =========
</TABLE>
Approved by the Director
_______________________________ Director
72
<PAGE> 73
PURNEL DISTRIBUTORS LTD.
STATEMENT RETAINED EARNINGS
(unaudited)
<TABLE>
<CAPTION>
For the Four For the Year
Months Ended Ended
June 30, February 28,
1998 1998
------------- ------------
<S> <C> <C>
RETAINED EARNINGS, BEGINNING OF YEAR $312,302 $271,551
NET INCOME 26,688 54,751
DIVIDENDS PAID (10,500) (14,000)
-------- --------
RETAINED EARNINGS, END OF YEAR $328,490 $312,302
======== ========
</TABLE>
73
<PAGE> 74
PURNEL DISTRIBUTORS LTD.
STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
For the Four For the Year
Months Ended Ended
June 30, February 28,
1998 1998
------------- ------------
<S> <C> <C>
SALES $ 763,174 $2,279,534
COST OF SALES 460,147 1,493,572
---------- ----------
GROSS PROFIT 303,027 785,962
OTHER INCOME 839 9,762
---------- ----------
303,866 795,724
---------- ----------
EXPENSES
Advertising 3,945 11,321
Amortization 17,039 45,418
Bad debts 26,961 2,898
Bank charges and interest 2,306 6,920
Insurance (4,236) 12,546
Interest on long-term debt 4,678 10,085
Legal and accounting 5,400 9,143
Office and miscellaneous 7,177 24,252
Repairs and maintenance 1,906 4,661
Telephone and utilities 10,649 27,774
Travel and automotive 26,061 78,749
Wages and employee benefits 153,835 473,746
Warehouse rent (Note 8) 12,832 35,292
---------- ----------
268,553 742,805
---------- ----------
INCOME BEFORE GAIN ON SALE OF CAPITAL
ASSETS AND INCOME TAXES 35,313 52,919
GAIN ON SALE OF CAPITAL ASSETS -- 22,470
---------- ----------
INCOME BEFORE INCOME TAXES 35,313 75,389
---------- ----------
INCOME TAXES
- deferred -- 6,500
- current 8,625 14,138
---------- ----------
8,625 20,638
---------- ----------
NET INCOME $ 26,688 $ 54,751
========== ==========
</TABLE>
74
<PAGE> 75
PURNEL DISTRIBUTORS LTD.
STATEMENT OF CHANGES IN FINANCIAL POSITION
(unaudited)
<TABLE>
<CAPTION>
For the Four For the Year
Months Ended Ended
June 30, February 28,
1998 1998
------------ ------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Operations
Net income $ 26,688 $ 54,751
Items not affecting cash
Amortization 17,039 45,418
Gain on sale of capital assets - (22,470)
--------- ---------
43,727 77,699
--------- ---------
Changes in non-cash working capital
Accounts receivable (32,935) (35,282)
Inventory (19,802) 456
Prepaid expenses (7,468) -
Accounts payable 37,124 (14,511)
Bonuses payable (90,000) -
Income taxes 3,990 (79)
Deferred income taxes - 6,500
--------- ---------
(109,091) (42,916)
--------- ---------
(65,364) 34,783
--------- ---------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issuance of long-term debt - 206,866
Repayment of long-term debt (11,322) (103,926)
Advances (from) to shareholders (510) 441
Dividends (10,500) (14,000)
--------- ---------
(22,332) 89,381
--------- ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of capital assets - (147,287)
Proceeds from disposal of capital assets 10,205 33,500
Loans to related Companies 20,000 (21,250)
--------- ---------
30,205 (135,037)
--------- ---------
DECREASE IN CASH (57,491) (10,873)
BANK INDEBTEDNESS, BEGINNING OF PERIOD (84,741) (73,868)
--------- ---------
BANK INDEBTEDNESS, END OF PERIOD $(142,232) $ (84,741)
========= =========
REPRESENTED BY:
Cash $ 1,121 $ 6,599
Cheques issued in excess of funds on deposit (143,353) (91,340)
--------- ---------
$(142,232) $ (84,741)
========= =========
</TABLE>
75
<PAGE> 76
PURNEL DISTRIBUTORS LTD.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
June 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORY
Inventory is stated at the lower of cost and net realizable value.
CAPITAL ASSETS
Capital assets are stated at cost. Amortization is calculated on the
declining balance basis at the following annual rates:
<TABLE>
<S> <C>
Store and office equipment 20%
Automotive equipment 30%
Computer 30%
Software 100%
</TABLE>
Leasehold improvements are amortized on a straight-line basis over a
period of five years.
The provision for amortization is reduced by one-half in the year of
acquisition.
RELATED COMPANIES
Shareholders of the Company have the following investments in other
Companies:
<TABLE>
<S> <C>
Midway Purnel Sanitary Supply Ltd. 50.0%
Midway Purnel Sanitary Supply (PG) Ltd. 42.5%
537394 B.C. Ltd. 100.0%
</TABLE>
2. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED JUNE 30, FEBRUARY 28,
COST AMORTIZATION 1998 1998
-------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Store and office
equipment $ 29,866 $ 26,310 $ 3,556 $ 3,810
Automotive equipment 158,733 50,003 108,730 131,730
Computer 75,414 49,256 26,158 29,064
Software 33,150 30,983 2,167 3,251
Leasehold improvements 24,444 24,444 -- --
-------- -------- -------- --------
$321,607 $180,996 $140,611 $167,855
======== ======== ======== ========
</TABLE>
76
<PAGE> 77
PURNEL DISTRIBUTORS LTD.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
June 30, 1998
<TABLE>
<CAPTION>
3. LOANS TO RELATED COMPANIES June 30, February 28,
1998 1998
---------- ------------
<S> <C> <C>
Loan to Midway Purnel Sanitary Supply (PG) Ltd.
bearing interest at 4% per annum and
without specified terms of repayment. $ - $ 20,000
Loan to Midway Purnel Sanitary Supply Ltd.
without specified terms of repayment. 88,750 88,750
-------- --------
$ 88,750 $108,750
======== ========
</TABLE>
4. BANK OVERDRAFT
The bank overdraft bears interest at the Bank prime plus 1/4 and is
secured by accounts receivable and a personal guarantee of a shareholder.
<TABLE>
<CAPTION>
5. LONG-TERM DEBT June 30, February 28,
1998 1998
---------- ------------
<S> <C> <C>
Bank of Montreal, demand loan, secured by
a general security agreement over the
assets of the Company and personal
guarantees of a shareholder, monthly
payments of $4,000 including interest
at Bank prime plus 1.5% $168,027 $179,349
-------- --------
168,027 179,349
Less: current portion of long-term debt 38,400 37,580
-------- --------
$129,627 $141,769
======== ========
</TABLE>
77
<PAGE> 78
PURNEL DISTRIBUTORS LTD.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
JUNE 30, 1998
6. FINANCIAL INSTRUMENTS
CURRENT ASSETS AND LIABILITIES
The carrying values reported in the balance sheet for cash, accounts
receivable, and current liabilities are reasonable estimates of fair
values.
CREDIT RISK
Credit risk arises from the potential that a counterparty will fail to
perform its obligations. The Company performs ongoing credit evaluations
of its customers' financial conditions and limits the amount of credit
extended when deemed necessary.
LONG TERM DEBT
The interest rates applicable to long term debt were generally equivalent
to the interest rates that would have applied had the company incurred
such debt as at June 30, 1998. The fair value of the long term debt is
approximately the same as the book value at June 30, 1998.
7. SHAREHOLDER LOANS
Shareholder loans were non-interest bearing and had no fixed terms of
repayment.
8. RELATED PARTY TRANSACTIONS
Purnel Distributors Ltd. is related to Midway Purnel Sanitary Supply Ltd.
and Midway Purnel Sanitary Supply (PG) Ltd. due to common shareholders.
The Company had the following transactions with these related parties:
<TABLE>
<CAPTION>
June 30, February 28,
1998 1998
-------- ------------
<S> <C> <C>
Balances at year end:
Receivable from Midway Purnel Sanitary
Supply Ltd. $22,619 $12,959
Receivable from Midway Purnel Sanitary
Supply (PG) Ltd. 25,879 6,697
These balances are receivable on demand and
have arisen from the sale of products and
provision of services.
Transactions during the period:
Sales to:
Midway Purnel Sanitary Supply Ltd. 42,726 48,930
Midway Purnel Sanitary Supply (PG) Ltd. 25,745 33,362
Warehouse rent is paid to 537394 B.C.
Ltd, a related Company, at $2,400
per month. 9,600 28,800
</TABLE>
These transactions are in the normal course of operations and are
unsecured.
78
<PAGE> 79
PURNEL DISTRIBUTORS LTD.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
June 30, 1998
9. SHARE CAPITAL
<TABLE>
<CAPTION>
June 30, February 28,
1998 1998
-------- ------------
<S> <C> <C>
Authorized
10,000 Class "A" common shares, voting,
no par value
100,000 Class "B" common shares, non-voting,
par value $0.01 per share
100,000 Class "C" common shares, non-voting,
par value $0.01 per share
100,000 Class "D" preferred shares, non-voting,
redeemable and retractable at $100 per share,
par value $0.01 per share
Issued
100 Class "A" shares $ 10 $ 10
100 Class "B" shares 100 100
5480 Class "D" shares 55 55
------- -----------
$165 $165
======= ===========
</TABLE>
79
<PAGE> 80
UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
80
<PAGE> 81
WYANT CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Wyant Midway-Purnel Other Acquisition Total
Corporation Group of Acquired Adjustments Pro Forma
& Subsidiaries Companies Companies
--------------- --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 91,220 $ 8,192 $ 5,741 $ $ 105,153
Cost of sales 62,200 5,422 3,459 71,081
---------- -------- ------- ----------
Gross profit 29,020 2,770 2,282 34,072
Selling, general and
administration expenses 26,850 2,375 2,108 31,333
Amortization 567 108 66 100(a) 841
Interest expense 968 15 18 237(b) 1,238
Other income (295) (19) (37) (351)
---------- -------- ------- ---- ----------
28,090 2,479 2,155 337 33,061
---------- -------- ------- ---- ----------
Income before income taxes
and extraordinary gain 930 291 127 (337) 1,011
Income tax expense 511 79 35 (126)(c) 499
---------- -------- ------- ---- ----------
Income before extraordinary gain 419 212 92 (211) 512
Extraordinary gain, net
of income taxes 92 - - 92
---------- -------- ------- ---- ----------
Net income 511 212 92 (211) 604
Dividends and accretion
of mandatorily redeemable
preferred stock 192 - - 116(d) 308
---------- -------- --------- ---- ----------
Net income attributable to
common shares $ 319 $ 212 $ 92 $(327) $ 296
========== ======== ========= ===== ==========
Per common share
Basic
Income before extraordinary gain $ 0.06 $ 0.05
Extraordinary gain $ 0.03 $ 0.03
Net income $ 0.09 $ 0.08
Diluted
Income before extraordinary gain $ 0.06 $ 0.05
Extraordinary gain $ 0.03 $ 0.03
Net income $ 0.09 $ 0.08
Weighted-average shares outstanding
Basic 3,597,125 3,597,125
Diluted 3,603,793 3,886,904
</TABLE>
81
<PAGE> 82
WYANT CORPORATION
AUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Wyant Midway-Purnel Other
Corporation Group of Acquired Acquisition Total
& Subsidiaries Companies Companies Adjustments Pro Forma
-------------- ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $48,179 $4,056 $2,211 $ $54,446
Cost of sales 32,907 2,632 1,268 36,807
------- ------ ------ -------
Gross profit 15,272 1,424 943 17,639
Selling, general and administration expenses 12,348 1,208 853 14,409
Amortization 260 41 46 41 (a) 388
Interest expense 706 12 6 81 (b) 805
Other income (93) 72 (6) (27)
------- ------ ------ ---- -------
13,221 1,333 899 122 15,575
------- ------ ------ ---- -------
Income before income taxes 2,051 91 44 (122) 2,064
Income tax expense 810 59 11 (49)(c) 831
------- ------ ------ ---- -------
Net income 1,241 32 33 (73) 1,233
Dividends and accretion of mandatorily
redeemable preferred stock 161 62 (d) 223
------- ------ ------ ----- --------
Net income attributable to common shares $ 1,080 $ 32 $ 33 $(136) $ 1,010
======= ====== ====== ===== ========
Per common share
Basic $ 0.30 $ 0.28
Diluted $ 0.29 $ 0.25
Weighted-average shares outstanding
Basic 3,605,329 3,605,329
Diluted 3,771,229 4,009,110
</TABLE>
82
<PAGE> 83
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
1. Pro Forma Combined Balance Sheet
No Pro Forma Combined Balance Sheet at June 30, 1998 is provided, as his
information would be identical to the Consolidated Balance Sheet of Wyant
Corporation included in the Quarterly Report on Form 10-Q filed for the
period ended June 30, 1998 which is incorporated by reference hereto.
2. Pro Forma Combined Statements of Operations
The Pro Forma adjustments result from:
a) Amortization of goodwill arising on the acquisition of the Midway-Purnel
Group of Companies and on the acquisition of two other companies which
are individually not material.
b) Interest expense on bank financing obtained to finance the cash portion
of the cost of acquisitions referred to in note a) above.
c) The income tax effect of notes a) and b) above.
d) Accretion of the excess of the redemption value over the fair value at
the respective dates of acquisition of the Class "F" Preferred shares
of Wood Wyant Inc. issued as the non-cash consideration for the
acquisitions referred to in note a) above.
The operating results of the acquired companies have been translated into
United States dollars from Canadian dollars at the following average rates
of exchange:
Six months ended June 30, 1998 - $1.00 U.S. equals $1.4385 Cdn.
Year ended December 31, 1997 - $1.00 U.S. equals $1.3844 Cdn.
83
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