<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2000
Commission file number 0-15179
OFFICELAND INC.
(exact name of registrant as specified in its charter)
Ontario, Canada 10397 6668
(State or other jurisdiction of (Canadian Federal Tax Account No.)
incorporation or organization)
312 Dolomite Drive, Downsview, Ontario, Canada M3J 2N2
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (416) 736-4000
Check whether the issuer (1) filed all reports required to be filed by Section
13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes (X) No ( )
The number of Common Shares of the registrant outstanding as at October 17, 2000
is 5,980,257.
1
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PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations and Deficit -
Fiscal quarters and three fiscal quarters ended August 31, 2000
and August 31, 1999 3
Consolidated Balance Sheets -
August 31, 2000 and November 30, 1999 4
Consolidated Statement of Cash Flows -
Three fiscal quarters ended August 31, 2000 and August 31, 1999 5
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8-9
PART II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES
2
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ITEM 1. FINANCIAL STATEMENTS
Officeland Inc.
Consolidated Statement of Operations and Deficit
<TABLE>
<CAPTION>
(Expressed in U. S. dollars)
(Unaudited)
Fiscal quarters ended Three fiscal quarters ended
August 31 August 31 August 31 August 31
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Equipment Sales $ 6,271,356 $ 7,002,361 $ 20,305,606 $ 21,247,608
Cost of equipment sales 4,388,460 4,744,586 13,609,856 14,009,727
------------- ------------ ------------ ------------
Gross profit on equipment sales 1,882,896 2,257,775 6,695,750 7,237,881
Commission income 88,375 - 88,375 -
------------- ------------ ------------ ------------
1,971,271 2,257,775 6,784,125 7,237,881
Expenses
General and administrative 1,437,464 1,500,896 4,106,909 4,562,875
Selling 582,956 1,171,276 2,420,150 3,028,979
Depreciation and amortization 111,870 94,199 337,800 287,826
------------- ------------ ------------ ------------
2,132,290 2,766,371 6,864,859 7,879,680
------------- ------------ ------------ ------------
Loss from continuing operations
before the following (161,019) (508,596) ( 80,734) (641,799)
------------- ------------ ------------ ------------
Foreign exchange loss (gain) 7,145 84,302 (2,223) 96,807
Interest on debt 141,697 125,558 364,281 211,229
Interest income - - - (11,909)
------------- ------------ ------------ ------------
148,842 209,860 362,058 296,127
------------- ------------ ------------ ------------
Net loss from continuing operations
before income taxes (309,861) (718,456) (442,791) (937,926)
Income taxes (recovery) - (118,868) - (212,893)
------------- ------------ ------------ ------------
Net loss from continuing operations (309,861) (599,588) (442,791) (725,033)
Discontinued operations - (21,867) - ( 69,831)
------------- ------------ ------------ ------------
Net loss $ (309,861) $ (621,455) $ (442,791) $ (794,864)
============= ============ ============ ============
--------------------------------------------------------------------------------------------------------------------------
Net loss per common share before
discontinued operations ($ 0.032) $ (0.106) $ (0.048) $ (0.130)
Discontinued operations - (0.004) - (0.010)
============= ============ ============ ============
Net loss per common share ($ 0.032) $ (0.110) $ (0.048) $ (0.140)
============= ============ ============ ============
Fully diluted net loss per common share
before discontinued operations ($ 0.032) $ (0.106) $ (0.048) $ (0.130)
Discontinued operations - (0.004) - (0.010)
============= ============ ============ ============
Fully diluted net loss per common share ($ 0.032) $ (0.110) $ (0.048) $ (0.140)
============= ============ ============ ============
---------------------------------------------------------------------------------------------------------------------------
Deficit, beginning of the period $ (10,878,143) $ (4,246,376) $(10,745,213) $(4, 072,967)
Net loss (309,861) (621,455) (442,791) (794,864)
------------- ------------ ------------ ------------
Deficit, end of the period $ (11,188,004) $ (4,867,831) $(11,188,004) $(4,867,831)
============= ============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
3
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Officeland Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(Expressed in U.S. dollars) August 31 November 30
(Unaudited) 2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current
Cash $ 1,379,957 $ 580,145
Receivables 3,856,250 3,445,849
Income tax receivable 119,208 119,208
Inventory of goods for resale 5,802,524 4,505,114
Prepaid and other charges 347,657 232,114
Future income taxes 166,520 166,520
------------ ------------
11,672,116 9,048,950
Investments 99,558 99,558
Capital assets 529,945 467,924
Future income taxes 235,799 358,700
Goodwill 6,442,140 6,712,761
------------ ------------
$ 18,979,558 $ 16,687,893
============ ============
-----------------------------------------------------------------------------------------------------
Liabilities
Current
Bank credit facilities $ 4,432,192 $ 4,477,803
Accounts payable and accrued liabilities 5,500,994 4,116,472
Current portion of long term debt 1,047,811 1,250,000
------------ ------------
10,980,997 9,844,275
Long term debt - 579,167
------------ ------------
10,980,997 10,423,442
------------ ------------
Shareholders' Equity
Convertible debt 2,109,325 2,719,567
Capital stock (Note 3) 17,077,240 14,290,097
Deficit (11,188,004) (10,745,213)
------------ ------------
7,998,561 6,264,451
------------ ------------
$ 18,979,558 $ 16,687,893
============ ============
</TABLE>
See accompanying notes to the financial statements
4
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Officeland Inc.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(Expressed in U. S. dollars) August 31 August 31
Fiscal Quarter Ended 2000 1999
(unaudited)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in cash equivalents
Operating
Net loss from continuing operations $ (442,790) $ (725,033)
Depreciation and amortization 337,800 289,457
---------- -----------
(104,990) (435,576)
Changes in non-cash operating working
capital related to continuing operations
Receivables (410,401) 802,459
Inventory (1,297,410) (1,411,396)
Prepaids (115,543) (349,352)
Other assets - (57,835)
Accounts payable and accruals 1,344,643 (1,036,737)
Future income taxes 122,900 612,456
Income taxes - (533,001)
---------- -----------
Cash used before discontinued operations (460,801) (2,408,982)
Cash used in discontinued operations - (75,266)
---------- -----------
(460,801) (2,484,248)
---------- -----------
Financing
Increase in bank credit facilities (45,611) 1,774,683
Repayment of long term debt (741,478) (404,058)
Issuance of term note - 2,000,000
Convertible debentures - 1,125,000
Issuance of class C shares 2,176,900 -
Issuance of common shares - 2,702
Repurchase of common shares - (35,005)
---------- -----------
Cash provided before discontinued operations 1,389,811 4,463,322
---------- -----------
Investing
Acquisition of Eastern Equipment Brokers Inc. - (1,454,575)
Acquisition of Digital Document Solutions - (469,092)
Repayment of investment - 14,048
Purchase of capital assets (90,828) (96,556)
---------- -----------
Cash used before discontinued operations (90,828) (2,006,175)
---------- -----------
Effect of foreign exchange remeasurement (38,370) (45,547)
---------- -----------
Net increase (decrease) in cash 799,812 (72,649)
Cash and cash equivalents
Beginning of period 580,145 72,649
---------- -----------
End of period $1,379,957 $ -
========== ===========
</TABLE>
See accompanying notes to the financial statements.
5
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Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
--------------------------------------------------------------------------------
Nature of operations
Officeland Inc. (the Company) is a Canadian corporation. The Company, and
certain of its subsidiaries are engaged in the business of the purchasing,
refurbishing and selling of used photocopiers and fax machines. Those
subsidiaries are located in the United States. The primary activity of the
Company and those subsidiaries is within the United States. The Company also has
another subsidiary which is located in Canada which provides agency and
collection services in the Province of Ontario. This Canadian subsidiary has
discontinued its operations effective October 1999 .
--------------------------------------------------------------------------------
1. General
The unaudited condensed consolidated financial statements have been prepared on
the same basis as the audited consolidated financial statements and, in the
opinion of the management, reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation for each of the periods
presented. The results of operations for interim periods are not necessarily
indicative of results to be achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01
of Regulation S-X, the accompanying consolidated financial statements and
related footnotes have been condensed and do not contain certain information
that will be included in the Company's annual consolidated financial statements
and footnotes thereto. For further information, refer to the consolidated
financial statements and related footnotes for the year ended November 30, 1999
included in the Company's Annual Report on Form 10-KSB.
2. Summary of significant accounting policies
Accounting Principles
The Company's accounting and reporting policies conform to generally accepted
accounting principles and industry practice in Canada. No reconciliation to
accounting principles generally accepted in the United States is provided for
the period ending August 31, 2000 as the difference are all related to Balance
Sheet reclassifications. The financial statements are prepared in United States
dollars.
Principles of consolidation
The consolidated financial statements include the accounts of all companies in
which the Company has a controlling interest, after elimination of inter-company
transactions and balances.
Income taxes
Income taxes for the interim periods were computed using the effective tax rate
estimated to be applicable for the full fiscal year, which subject to ongoing
review and evaluation by management.
--------------------------------------------------------------------------------
6
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Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
--------------------------------------------------------------------------------
2. Earnings per share
The Company reports earnings per share in accordance with the provisions of SFAS
No. 128, Earnings per Share. SFAS No. 128 requires presentation of basic and
diluted earnings per share in conjunction with the disclosure of the methodology
used in computing such earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common shares by the
weighted average common shares outstanding during the period. Diluted earnings
per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock.
Basic and diluted weighted average shares outstanding for the periods were
9,533,107 and 16,909,066 (1999 - 5,540,886 and 7,672,801).
--------------------------------------------------------------------------------
3. Capital Stock
On April 12, 2000 the Company issued for cash 4,358,000 Class C special shares.
The amount added to share capital was $2,176,900. As part of the transaction,
the Company also issued 4,358,000 of Class C warrants. The warrants are
exercisable at $0.875 per share and expire on April 21, 2005. The Class C stock
purchase agreement provided for any existing Class A or Class B shareholder an
amendment to the terms of their existing warrants, if they participated in this
new financing. Each Class A or Class B investor that participated, had the
exercise price of their series A and B warrants reduced by 50% and term of these
warrants extended by one year.
--------------------------------------------------------------------------------
4. Commission Income
Pursuant to the Company's asset disposition contract with Danka Office Imaging
dated May 10, 2000, the Company has earned $88,375 in commissions for the
quarter ended August 31, 2000.
The Company has sold a consignment basis $416,945 in used surplus office
equipment, accessories and supplies to earn $88,375 in commissions for the
quarter ended August 31, 2000
The following table illustrates the Company's commission income.
<TABLE>
<CAPTION>
Fiscal Quarters Ended Three Fiscal Quarters Ended
August 31, 2000 August 31, 1999 August 31, 2000 August 31, 2000
<S> <C> <C> <C> <C>
Commission Sales $ 416,875 $ - $ 416,875 $ -
Commission Income 88,375 - 88,375 -
Ratio 21.2% - 21.2% -
</TABLE>
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained herein are not based on historical facts, but are
forward-looking statements that are based upon numerous assumptions about future
conditions that could prove not to be accurate. Actual events, transactions and
results may materially differ from the anticipated events, transactions or
results described in such statements. The Company's ability to consummate such
transactions and achieve such events or results is subject to certain risks and
uncertainties. Such risks and uncertainties include, but are not limited to, the
existence of demand for and acceptance of the Company's products and services,
regulatory approvals and developments, economic conditions, the impact of
competition and pricing results of financing efforts and other factors affecting
the Company's business that are beyond the Company's control. The Company
undertakes no obligation and does not intend to update, revise or otherwise
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect future events or circumstances.
The information contained herein is presented in United States dollars in
accordance with Canadian GAAP except where specifically noted.
RESULTS OF OPERATIONS
Sales were $6,271,356 for the third quarter of fiscal 2000 compared to
$7,002,361 for the third quarter of fiscal 1999. Contribution by each subsidiary
is as follows; core operations, $1,592,965, The Wholesale Group, Inc.,
$1,282,139, Telecom Corporation of Chicago, $1,634,394 and Eastern Equipment
Brokers, Inc., $1,761,859.
Commission income was $88,375 for the third quarter of fiscal 2000 compared to
$0 for the third quarter of fiscal 1999. Commission income earned during the
third quarter of fiscal 2000 represents the commission earned on consignment
sales of used and surplus office equipment pursuant to the Asset Disposition
Contract with Danka Office Imaging dated May 10, 2000.
Cost of sales were $4,388,460 or 70% for the third quarter of 2000 compared to
$4,744,586 or 68% for the third quarter of 1999. Contribution by each subsidiary
to cost of sales is as follows; core operations, $1,214,478, The Wholesale
Group, Inc., $918,190, Telecom Corporation of Chicago, $975,031 and Eastern
Equipment Brokers, Inc., $1,280,761.
Gross profit on equipment sales for the third quarter of 2000 was $1,882,896 or
30% compared to $2,257,775 or 32% for the third quarter of 1999 reflecting a
decrease of $286,504. The Company's gross profit as a percentage of sales has
remained relatively constant from the third three months of 2000 compared to the
third three months of 1999, and managements expects to continue to realize
similar gross profit percentages for the remainder of fiscal 2000. Contribution
by each subsidiary to gross profit is as follows; core operations, $378,487, The
Wholesale Group, Inc., $363,469, Telecom Corporation of Chicago, $659,363, and
Eastern Equipment Brokers, Inc., $481,098.
General and Administrative Expenses incurred during the third quarter of 2000
were $1,437,464 compared to $1,500,896 for the third quarter of fiscal 1999
reflecting a decrease of $63,432. This decrease is a result of management's cost
saving program, which was implemented for fiscal 2000 to enable the Company to
become more efficient while reducing corporate overheads. The total decrease in
general and administrative expenses has been partially offset by new costs
incurred in the third quarter of fiscal 2000 which relate to start up costs of
the Company's new e-commerce initiatives. The Company has incurred approximately
$140,000 in costs in the third quarter of fiscal 2000 in preparation of
launching it's own business to business and business to consumer websites.
Selling expenses for the third quarter 2000 were $582,956 compared to $1,171,276
for the third quarter 1999 representing a decrease of $588,320.
The depreciation and amortization expenses, including amortization of goodwill
from the acquisitions, were $111,870 for the third quarter 2000 compared to
$94,199 for the third quarter 1999.
The Company recorded a loss from continuing operations before interest and taxes
for the third quarter 2000 of $161,019 compared to a loss of $508,596 for the
third quarter 1999.
The Company recorded a foreign exchange remeasurement loss for the third quarter
2000 in the amount of $7,145, compared to a remeasurement loss of $84,302 for
the third quarter 1999.
The Company recorded a net loss of $309,861 or $0.032 per common share ($0.032
fully diluted) compared to a net loss of $621,455 or ($0.11) per common share
(($0.11) fully diluted).
8
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The foregoing operations have impacted the Balance Sheet as at August 31, 2000
from November 30, 1999 as follows:
Cash at August 31, 2000 was $1,379,957 compared to $580,145 at November 30,
1999. At August 31, 2000 the Company's trade receivables were $3,856,250
compared to $3,445,849 at November 30, 1999 an increase of $410,401. Inventory
was $5,802,524 at August 31 2000 compared to $4,505,114 at November 30, 1999
increasing $1,297,410. The Company's total assets have increased to $18,979,558
at August 31, 2000 from $16,687,893 at November 30, 1999, due mainly to an
increase in receivables and inventory.
The Company had a bank credit facility utilized at August 31, 2000 in the amount
of $4,432,192 compared to $4,477,803 at November 30, 1999. The Company's
accounts payable and accrued liabilities are $5,500,994 at August 31, 2000
compared to $4,116,472 at November 30, 1999. The Company had Long Term Debt of
$1,047,811 compared to $1,829,167 at November 30, 1999.
Liquidity and Capital Resources
The Company currently has approximately $1,379,957 in available cash at August
31, 2000. On April 12, 2000 the Company received $2.1 million through the sale
of Class C special shares and Class C warrants.
The Company presently has sufficient cash on hand to sustain it's operations at
current levels and will be able to sustain its operations for the next twelve
months through internally generated funds and from it's revolving credit note.
On June 22, 2000, the Company renewed its existing credit facilities with its
corporate banker. The renewal is for a one year term and provides for a 1/4%
increase in the interest rate on the Company's revolving credit note, however,
the renewal also provides for a 1/4% decrease in the interest rate at the end of
the Company's third quarter if the Company achieves certain performance
criteria.
At August 31, 2000 the Company had working capital of approximately $700,000.
The Company does not believe inflation has materially affected its past
operations nor does it anticipate inflation to materially affect future
operations.
9
<PAGE>
ITEM 5 - OTHER INFORMATION
The "Cautionary Statement Regarding Forward-Looking Information" contained in
"Market for Registrant's Common Equity and Related Stockholder Matters" in the
Company's Annual Report on Form 10-KSB for the fiscal year ended November 30,
1999 is incorporated herein by reference and made a part hereof.
CHANGES IN MANAGEMENT
Strategic and operational actions that were taken in October 2000 included
several changes to the Company's executive officers. These changes included the
following appointments and related departures from the Company.
John O'Connor was appointed President, Chief Operating Officer effective
December 1, 2000, replacing Marvyn A. Budd. Mr O'Connor was most recently
Vice-President of Eastern Equipment Brokers Inc. a wholly owned subsidiary of
Officeland Inc. Prior to joining the Company, from July 1988 to December 1998,
Mr. O'Connor founded and operated Eastern Equipment Brokers, Inc., an office
equipment wholesaler. Before founding Eastern Equipment Brokers Inc., Mr.
O'Connor spent 5 years with Xerox Corporation in various sales and marketing
positions.
David Debyl was appointed Vice President Finance, replacing Christopher D.
Walker. Mr Debyl joined the Company in December 1997 as Corporate Controller.
Prior to joining the Company, Mr. Debyl served as a senior staff accountant at
Grant Thornton LLP.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27 - Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OFFICELAND
(Registrant)
Date: October 19, 2000 By: /s/ Marvyn A. Budd
-----------------------------------
Marvyn A. Budd
Chief Executive Officer/President
Date: October 19, 2000 By: /s/ David A. Debyl
-----------------------------------
Vice President Finance
10
