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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended November 30, 1999
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ______ to ______
Commission file number 0-15179
OFFICELAND INC.
(Name of small business issuer in its charter)
Ontario, Canada 10397 6668
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(State of incorporation or organization) (Canadian Federal Tax Account No.)
312 Dolomite Drive, Downsview, Ontario, Canada M3J 2N2
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (416) 736-4000
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value (Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 of 15(d) of the Exchange Act during the past 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 ( )
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (X)
Issuer's revenues for its fiscal year ended November 30, 1999 were $26.8
million.
The aggregate market value of the voting stock held by non-affiliates
approximated $1.6 million as of November 30, 1999 computed by reference to the
average of the bid and asked prices for such stock as reported by the National
Association of Securities Dealers ("NASD") OTC Bulletin Board.
5,695,257 shares of issuer's common stock were outstanding at November 30, 1999.
(Balance of this page left blank intentionally)
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OFFICELAND INC.
TABLE OF CONTENTS
Page
Part I
Item 1. Business 3
General 3
Migration 3
E-commerce 4
Competition 7
Employees 7
Metropolitan Collection Service, Inc. 7
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Registrant's Common Equity 9
and Related Stockholder Matters
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 7. Financial Statements 17
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 17
Part III
Item 9. Directors and Executive Officers of the Registrant 18
Item 10. Executive Compensation 20
Item 11. Security Ownership of Certain Beneficial Owners 23
Item 12. Certain Relationships and Related Transactions 25
Part IV
Item 13. Exhibits and Reports on Form 8-K. 26
SIGNATURES 28
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Part I
Item 1. DESCRIPTION OF BUSINESS
General
Officeland Inc., (the "Company") and its subsidiaries are engaged in the
business of the purchasing and selling of used photocopiers. The Company obtains
a majority of its inventory from original equipment manufacturers ("OEM's") of
photocopiers and leasing companies, who obtain used photocopiers, as "trade-ins"
when selling or leasing new equipment. The balance of the Company's inventory is
obtained from bulk to single purchases of equipment that is advertised for sale
by individual vendors or sold at auctions. The Company markets its inventory to
dealers and brokers of used photocopiers and directly to end users through
telemarketing, direct sales, and the Internet.
During fiscal 1999, the Company acquired all of the capital stock of Eastern
Equipment Brokers, Inc. ("EEB") of Bridgeport, Connecticut and purchased
substantially all of the net assets of Digital Document Solutions, Inc.,
including the trade name ("Digital Document Solutions"). EEB is a wholesaler of
used photocopiers that operates from a 28,000 square foot facility in
Bridgeport. DDS is in the business of selling copier supplies, as well as,
renting, leasing, selling and servicing re-manufactured photocopiers to end
users. DDS operates as a division of EEB out of the same location as EEB.
During fiscal 1998, the Company acquired The Wholesale Group, Inc. of Anaheim,
California ("TWG") and Telecom Corporation of Chicago ("Telecom") of Wauconda,
Illinois, as part of an industry consolidation strategy initiated by the Company
in 1998. TWG is a wholesaler and exporter of used photocopiers that operates
from a 44,000 square foot facility in Anaheim. Telecom is a re-manufacturer and
marketer of small capacity used photocopiers, printers, facsimile machines and
multi-functional office machines generally intended for use by small and home
based offices. Telecom operates from re-manufacturing and warehouse facilities
in Wauconda comprising more than 75,000 square feet.
Overview
The Company believes that the demand for used office equipment has been growing
rapidly. Factors contributing to this growth are:
(i) The durability and increased useful life of the equipment.
(ii) Used equipment with the same or similar performance features
as new equipment sells at a substantially lower price.
(iii) The sale of used equipment benefit from service contracts
that are offered by national service organizations including
Xerox and Danka.
(iv) As manufacturers introduce and actively market new models,
especially "digital" models, the supply of diverse "analog"
models of used equipment increases, giving potential
customers a broader choice of used equipment.
(v) Medium and small sized businesses can purchase many more
units of used equipment with reliable service than they can
purchase new equipment for the same amount of budgeted
dollars.
(vi) The proliferation of personal computers in private residences
has increased the demand for ancillary office equipment.
These factors are also expected to continue to favorably impact the demand for
the Company's products and services.
Migration
Management has proposed to change its jurisdiction of incorporation through a
"continuance" under the relevant Provincial and Federal Canadian statutes, and a
domestication under Section 338 of the State of Delaware Code. The proposed
change in corporate venue is being considered in order to provide strategic
long-term advantages to the Company through a stronger US identity and
simplified capital structure. The proposed change in jurisdiction is subject to
shareholder approval and no assurances can be made that it will occur.
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E-commerce
Management has determined that e-commerce should be pursued as a channel of
distribution. Office equipment is currently being sold on the Internet through a
number of e-commerce sites. The Company intends to launch its own e-commerce
sites for both business-to-consumer and business-to-business customers. In
addition, the Company is also designing an e-commerce site targeted to copier
dealers, wholesalers and export customers who currently purchase "as is"
equipment The Company is using both internal and external resources to create
its sites. In addition, new accounting and inventory management software is
being acquired that will be compatible with both our e-commerce and operations.
Officeland Inc.
Officeland participates in trade-in programs with Xerox, Oce, Canon, Sharp,
Pitney Bowes, Konica Business Machines USA., Inc. ("Konica") and Minolta
Corporation ("Minolta"), and several office equipment leasing companies.
Officeland provides a guaranteed purchase price list to these suppliers for
their sales representatives use to value the photocopiers accepted as trade-ins.
Officeland derived approximately 20% of its total revenue and inventory
attributable to the programs with these suppliers. Officeland has no written
agreements with regards to trade-in programs with the above named suppliers
except that each has designated Officeland as a "Preferred Trade-in Partner".
Officeland also obtains inventory of used photocopiers by successfully bidding
at auctions or on requests for proposals ("RFPs") published by large
organizations such as school districts, large corporations and other entities
where multiples of photocopiers are being offered for sale after new
photocopiers have been installed. Further, Officeland advertises in trade
journals and attends trade shows seeking individual sellers of used equipment.
Officeland derives approximately 20% of its inventory and revenues from
participation in trade shows, RFPs, auctions and trade journal advertising.
High volume photocopiers ("HVP") (100 copies or more per minute) are marketed by
Officeland primarily to end users. Prior to offering an HVP, Officeland has the
HVP inspected, and if necessary, brought up to a standard which qualifies the
HVP for a service contract by either Xerox, Kodak or other independent service
organizations.
Subsidiaries
Telecom Corporation of Chicago
Effective October 9, 1998, Officeland purchased all of the outstanding capital
stock of Telecom Corporation of Chicago, a closely-held corporation. Telecom is
a re-manufacturer and marketer of used: i) small, low volume photocopiers; ii)
facsimile machines; iii) printers; and iv) multifunction machines. Telecom
obtains its supply of products primarily from Xerox Corporation. Xerox sells to
Telecom, at pre-agreed prices, Xerox's inventories of "retail store returns."
Retail store returns are those products received by Xerox from retailers or
customers as a result of "buyer's remorse," claimed malfunction, or
mis-performance. The balance of Telecom's inventories are obtained from other
dealers, wholesalers, and OEMs. The products are purchased by Telecom in "as is
condition." Xerox ships the products to Telecom in truckload quantities. Telecom
inspects the products upon receipt to determine the product's condition. The
products are then re-manufactured (non-working parts are replaced with new
parts), or refurbished, and re-boxed at Telecom's facility. The products are
then offered for sale under both the Telecom and Xerox trade names as
"Re-Manufactured" or "Refurbished."
On October 26, 1998 Telecom entered into a one year agreement with Xerox
pursuant to which Xerox would agree to sell and Telecom would agree to purchase
on a non-exclusive basis inventories of retailer returns of the models of Xerox
products.
o Telecom would accept full responsibility for replenishing, at its
expense, any dysfunctional missing items in order to make the products fully
functional and saleable.
o Xerox would agree to allow Telecom to purchase spare parts from Xerox
35% below the prices charged end user customers.
o Xerox would grant to Telecom the non-exclusive right to use, in
accordance with Xerox guidelines, the trademark "Xerox" and the "Xerox" logo.
o Telecom would sell refurbished Xerox products through viable used
market channels in the United States.
o The Agreement provides for an automatic one year renewal upon the
anniversary date of the original agreement and it is subject to cancellation by
either party at any time without cause upon 75 days written notice. In the event
of such termination, all amounts then due Xerox shall be immediately paid by
Telecom.
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Telecom also obtains mid-volume photocopiers (20 to 60 copies per minute) from
independent re-manufacturers at negotiated rates.
Telecom markets its products to re-sellers and individuals through advertising
in in-flight airline magazines, Home Computing, Wired, Automobile and other
magazines and publications, as well as by telemarketing. Telecom also utilizes
Internet merchants such as Onsale.com Ubid.com, Ebay.com, Bid.com,
Allcopiers.com and Ebizmart.com and Egghead.com, to offer Telecom's products to
end users. As a result, Telecom intends to enhance its marketing activities on
the Internet in Fiscal 1999. In addition, Telecom sells its products to Barter
Exchange companies in exchange for "barter credits." Telecom uses the barter
credits to obtain advertising space at a substantial discount to published
rates.
(i) If Telecom's unaudited earnings before taxes ("EBT") for the fiscal
year ending November 30, 1999 ("1999 EBT") exceeds U.S.$1,300,000, (the
exceeded amount hereinafter referred to as the "1999 Excess Amount"),
then Einarsen will be entitled to an Earn-Out Amount. Officeland shall
pay the Earn-Out Amount, as follows: (i) an amount of Earn-Out Cash
equal to the 1999 Excess Amount or (ii) a number of Earn-Out Shares
determined by dividing the 1999 Excess Amount by the average of the
closing bid and ask prices as reported on the Nasdaq SmallCap Market
(the "Nasdaq Share Price") for the 15 trading days prior to the date
upon which Telecom's unaudited financial statements for the fiscal year
ending November 30, 1999 are delivered to Officeland.
(ii) If Telecom's EBT for the fiscal year ending November 30, 2000
("2000 EBT") exceeds the greater of U.S.$1,500,000 or the 1999 EBT,
(the exceeded amount hereinafter referred to as the "2000 Excess
Amount"), then Einarsen will be entitled to an Earn-Out Amount.
Officeland shall pay the Earn-Out Amount as follows: (i) an amount of
Earn-Out Cash equal to the 2000 Excess Amount; or (ii) a number of
Earn-Out Shares determined by dividing the 2000 Excess Amount by the
Nasdaq Share Price for the 15 trading days prior to the date upon which
Telecom's audited financial statements for the fiscal year ending
November 30, 2000 are delivered to Officeland.
(iii) If Telecom's EBT for the fiscal year ending November 30, 2001
("2001 EBT") exceeds the greater of U.S.$1,700,000, 1999 EBT or 2000
EBT (the exceeded amount hereinafter referred to as the "2001 Excess
Amount"), then Einarsen will be entitled to an Earn-Out Amount.
Officeland shall pay the Earn-Out Amount, as follows: (i) an amount of
Earn-Out Cash equal to the 2001 Excess Amount; or (ii) a number of
Earn-Out Shares determined by dividing the 2001 Excess Amount by the
Nasdaq Share Price for the 15 trading days prior to the date upon which
Telecom's audited financial statements for the fiscal year ending
November 30, 2001 are delivered to Officeland.
However, the maximum Earn-Out Amount Einarsen may earn during the Earn-Out
Period is limited to a maximum of: (i) 350,000 Earn-Out Shares; (ii) the
equivalent value of 350,000 Earn-Out Shares in Earn-Out Cash; or (iii) a number
of Earn-Out Shares and an amount of Earn-Out Cash, which together equal the
value of 350,000 Earn-Out Shares. The cash portion of the purchase price was
provided by the sale of a total of $3,555,000 in Senior Subordinated Unsecured
Convertible Notes.
Based on the financial results of the operations of Telecom Corporation of
Chicago, no earn out amounts are payable based on the above formulas.
The Wholesale Group
TWG is in the business of purchasing and reselling used photocopiers and fax
machines to customers located in United States and in foreign markets. TWG
purchases its equipment inventory from brokers and dealers of used photocopiers
and fax machines, and sells the equipment through its staff of five salespeople
to domestic and foreign dealers and wholesalers. TWG occupies a 44,000 square
foot facility located in Anaheim, California pursuant to a lease that expires on
December 31, 2007. Marlin Stammer and Gloria Stammer, the former owners of TWG
are the owners of the facility. As part of the transaction, Officeland
guaranteed the lease payments of TWG to the Stammers. Marlin Stammer has entered
into a three year employment agreement with TWG and is now a Vice President of
TWG.
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Eastern Equipment Brokers, Inc.
Effective January 1, 1999 Officeland purchased all of the outstanding capital
stock of Eastern Equipment Brokers, Inc. ("EEB") for the aggregate consideration
of US $1,400,000 in cash and 675,000 common shares of Officeland Inc. EEB is in
the business of purchasing and reselling used photocopiers, re-manufacturing
used Xerox and Cannon copiers for resale, and selling copier supplies. EEB
obtains its supplies and inventory from trade-in programs from OEMs and office
equipment leasing companies. EEB sells its equipment to wholesale equipment
brokers, and also to end users through a retail sales facility leased from an
unaffiliated party. As additional consideration, Officeland will issue up to an
additional 350,000 Common Shares (the "EEB Earn Out Shares") to O'Connor,
provided certain earnings goals are met by EEB during the three year period (the
"EEB Earn Out Period") following the closing of the EEB Agreement as follows:
(i) For each U.S.$5.00 of EEB's audited earnings before income taxes,
depreciation and amortization, excluding inter-company administration and
management charges ("EBITDA") for the fiscal year commencing December 1, 1998
("1998 EBITDA") in excess of U.S.$700,000, O'Connor will receive one EEB
Earn-Out Share;
(ii) For each U.S.$5.00 of Company EBITDA for the fiscal year commencing
December 1, 1999 ("1999 EBITDA") in excess of U.S.$800,000 or 1998 EBITDA,
whichever is greater, O'Connor will receive one EEB Earn-Out Share;
(iii) For each U.S.$5.00 of Company EBITDA for the fiscal year commencing
December 1, 2000 in excess of U.S. $900,000, 1998 EBITDA or 1999 EBITDA,
whichever is greater, O'Connor will receive one EEB Earn-Out Share;
(iv) In the event that during the EEB Earn-Out Period, the Company, with the
consent of the Officeland, acquires or merges with another business (the
"Target"), the Company's EBITDA may be adjusted for the purposes of determining
the amount of EEB Earn-Out Shares earned by O'Connor. Accordingly:
(a) If Target's EBITDA for the fiscal year immediately preceding the merger or
acquisition ("Target's Initial EBITDA") is exceeded in Target's fiscal year
subsequent to the acquisition or merger (the "Target's First Excess EBITDA"),
then Target's First Excess EBITDA will be credited to EEB's EBITDA for the year
in which it is earned;
(b) If Target's Initial EBITDA plus Target's First Excess EBITDA is exceeded in
Target's second fiscal year subsequent to the acquisition or merger (the
"Target's Second Excess EBITDA"), then Target's Second Excess EBITDA will be
credited to EEB's EBITDA for the year in which it is earned; and
(c) If Target's Initial EBITDA plus Target's First Excess EBITDA plus Target's
Second Excess EBITDA is exceeded in Target's third fiscal year subsequent to the
acquisition or merger (the "Target's Third Excess EBITDA") the Target's Third
Excess EBITDA will be credited to EEB's EBITDA for the year in which it is
earned.
Inventory
Prior to the Company's acquisitions of EEB, DDS, TWG and Telecom, all
inventories were maintained in public warehouses throughout the United States
and Canada. Currently, the Company maintains its inventory at the facilities
operated by its wholly owned subsidiaries in Bridgeport, Connecticut, Anaheim,
California, Wauconda, Illinois, and in public warehouses.
The Company has developed customized computer software programs, which provide
current information on the equipment. (i.e., manufacturer name, equipment model
number, age, location, client code, etc.) The Company believes that its
computerized inventory system, and the information it provides to manufacturers
and dealers, provides a significant incentive to the manufacturers and dealers
to utilize the Company's services in that the manufacturers and dealers are able
to more readily determine the value of the used photocopiers that they are
considering accepting as trade-ins.
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Customers and Marketing
The Company's customers are primarily OEM dealer networks, and commercial,
professional and institutional users of photocopiers. The Company attracts these
customers, which are located throughout the United States and Canada, through
telemarketing and retail advertising in trade journals and at trade shows. An
increasing portion of the Company's sales is also made by direct sales to end
users throughout the United States.
The Company's policy is to sell equipment outright. However, the Company offers
to assist its customers in obtaining credit or lease financing from independent
leasing companies and financial institutions to facilitate the customer's
purchase of equipment. Upon a sale the Company receives full payment for the
equipment either from the customer or from the customer's financing source.
The Company sells used photocopiers to their original manufacturers and dealers,
who may re-manufacture and/or resell the equipment through their own facilities.
The Company 's marketing activities are currently conducted at its Downsview
(Metropolitan Toronto) offices. The Company also intends to expand its marketing
and sales activities, and is geared to initiatives for the benefit of each
subsidiary.
Competition
The used photocopier industry is made up of a small number of resellers of used
equipment comparable in size to the Company, and a much larger number of
independent small dealers whose inventory, in most cases, is limited. By
obtaining large inventories, the Company offers potential purchasers a variety
of choices of equipment to meet their needs. The Company, however, does not in
most cases choose the models of photocopier, which are obtained as trade-ins and
accordingly, is subject to the risk that some photocopiers may have little
market value.
The Company's competition consists primarily of dealers in new and used office
equipment as well as liquidators and, to some extent, manufacturers offering
new, refurbished, remanufactured and/or used photocopiers and other office
equipment. In general the Company competes on the basis of availability,
quantity, variety of merchandise, service availability and price.
As the Company grows into the retail market selling used photocopiers to end
users directly it may encounter competition from some of the major OEMs for used
equipment of their own brand. Such OEMs have substantially greater resources,
sources of supply and name recognition than the Company.
Employees
Officeland and its subsidiaries presently employ 170 persons, including: 26
officers and senior managers; 33 clerical personnel; 28 salespersons; 88
production/shipping warehouse personnel; Officeland and its subsidiaries are not
party to any collective bargaining agreement and believes relations with its
employees are good.
Metropolitan Collection Service Inc.
In October 1999 the Company's Board adapted a formal plan to discontinue the
operations of its wholly owned subsidiary, Metropolitan Collection Service Inc.
("MCSI"). The Company is currently in negotiations with several interested
purchasers. It is the Company's interest to sell all of the outstanding capital
stock of MCSI. No assurances can be made that this sale will occur.
Total revenues from MCSI represent less than 1% of the total revenues of the
Company for fiscal 1999 and fiscal 1998.
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ITEM 2 - DESCRIPTION OF PROPERTY
The Company maintains its principal offices, consisting of 6,971 square feet at
312 Dolomite Drive, Downsview, Ontario, Canada under a net lease with an
unaffiliated party, which expires in December 2004. The Lease Agreement may be
terminated with 12 month notification. On January 1, 2000 Officeland gave
written notification to terminate its existing lease agreement and on December
31, 2000 Officeland intends to maintain it's executive offices in the Toronto
area.
The Wholesale Group, Inc. maintains its principal place of business in a 44,000
square foot facility located in Anaheim, California, pursuant to a ten-year
lease expiring in December 2007. A corporation controlled by Marlin Stammer, is
the owner of facility. As part of the transaction, Officeland has guaranteed the
lease payments of the Wholesale Group to this corporation.
Telecom occupies a 33,500 square foot facility located in Wauconda, Illinois (a
suburb of Chicago) pursuant to a lease that expires on October 31, 2003.
However, Telecom has the option to renew the lease for two consecutive option
periods of five years. John Einarsen is the owner of the facility. As part of
the transaction, Officeland guaranteed the lease payments of Telecom to Mr.
Einarsen.
Eastern Equipment Brokers, Inc and Digital Document Solutions maintain their
principal place of business in a 28,000 square foot facility located in
Bridgeport, Connecticut pursuant to a lease with an unaffiliated party that
expires on October 31, 2003.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not presently a party to any material litigation nor is any such
proceedings pending or threatened.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On March 25, 1997 the Company's Common Shares and Units became listed on the
Nasdaq Small Cap Market ("Nasdaq") market under symbol "OFLDF" and "OFLDU". Each
Unit consists of one Common Share and one Redeemable Warrant, which expire on
March 24, 2000 having an exercise price of $3.30 per share. The Company's Common
Shares and Units were de-listed from the Nasdaq Small Cap Market on October 31,
1999 for failure to comply with certain Nasdaq Small Cap Marketplace Rules. The
Company's Common Shares and Units currently are traded on the NASD OTC Bulletin
Board under the symbol "OFLD" and "OFLDU", respectively. The following table
sets forth high and low bid prices of the Common Shares and Units as reported by
the Nasdaq or the OTC Bulletin Board, as applicable, for each quarterly fiscal
period commencing with the 1997 fiscal year. Quotations do not include retail
markups, markdowns or commissions and may not represent actual transactions.
U.S.$ U.S.$
OFLD OFLDU(unit)
Bid Bid
--- ---
High Low High Low
---- --- ---- ---
Fiscal year 1999
3 Months ended 02/28/99 2.938 0.625 2.625 0.75
3 Months ended 05/31/99 1.594 0.875 1.438 0.75
3 Months ended 08/31/99 1.000 0.516 1.000 0.5
3 Months ended 11/30/99 0.688 0.438 0.75 0.406
Fiscal year 1998
3 Months ended 02/28/98 4.00 3.313 5.75 5.00
3 Months ended 05/31/98 3.469 1.18 5.875 2.25
3 Months ended 08/31/98 1.75 .625 2.50 .50
3 Months ended 11/30/98 1.75 .625 2.50 .75
Fiscal Year 1997
3 Months ended 02/28/97 3.3125 2.00 -- --
3 Months ended 05/31/97 4.25 2.50 6.00 4.625
3 Months ended 08/31/97 3.625 2.29 6.50 5.25
3 Months ended 11/30/97 4.9375 3.00 6.50 5.25
As of March 10, 1999, there are approximately 725 holders of record of the
Company's Common Shares. Including those shares held in "street name," the
Company believes that it has in excess of 3000 beneficial holders.
On March 10, 2000, the high and low bid prices of the Common Shares were U.S.
$.46 and U.S. $.53, respectively.
On March 10, 2000, the high and low bid prices of the Units were U.S. $.44 and
U.S. $.56 respectively.
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1998 Private Placement of Securities.
On June 4, 1998, the Company entered into a Senior Subordinated Unsecured
Convertible Note Purchase Agreement (the "Note Agreement") with (i) each of
seven purchasers (the "June Purchasers") of the Senior Subordinated Unsecured
Convertible Notes (the "June Convertible Notes") and (ii) International Capital
Partners, Inc. ("ICP") a Connecticut corporation, the "Representative" of the
June Purchasers. Pursuant to the Note Agreement, the Company sold $2,000,000
principal amount of June Convertible Notes to the June Purchasers. The June
Convertible Notes were payable on June 4, 2001 and were to bear interest at the
rate of 12% per annum, with interest payable in arrears on June 4, 1999 and June
4, 2000, except that if the June Convertible Notes were converted, no interest
was to be accrued or payable.
The June Convertible Notes were converted into Class A Units upon the acceptance
by the Company's Board of Directors of the Company's audited financial
statements for the fiscal year ended November 30, 1998 automatically at $3.40
per Class A Unit, which converted into 420,169 Class A Units on March 27, 1999.
If the June Purchasers were to convert the 420,168 Class "A" Shares into Common
Shares and exercise 420,169 June Note Warrants, they would own 840,338 Common
Shares of the Company, or 7.6% of the total Common Shares outstanding.
On November 10,1998, the Company entered into a Restructured Purchase Agreement
with Ardara Investment Inc. (one of the June Purchasers) ("Ardara"), ICP, four
of the Company's Directors, (James F. Kay, Marvyn Budd, Ronald Faust, and Edwin
Lax) and Jack McSorley Vice-President of the Company (collectively the "November
Purchasers"). Pursuant to Restructured Purchase Agreement, the Company sold
$1,550,000 in principal amount of new Senior Subordinated Unsecured Convertible
Notes (the "November Convertible Notes"). The November Convertible Notes were
payable on November 10, 2001 and were to bear interest at the rate of 12% per
annum.
The November Convertible Notes were converted into Class B Units (the "Class B
Units") upon acceptance by the Company's Board of Directors of the Company's
audited financial statements for the fiscal year ended November 30, 1998
automatically at $3.40 per Class B Unit, each Class B Unit being comprised of
one Class "B" Special Share (the "Class "B" Shares"), one $1.50 Warrant and one
$2.00 Warrant, which converted into 623,950 Class B Units on March 27, 1999. If
the November Purchasers were to convert the 623,950 Class "B" Shares into Common
Shares and exercise 623,950 of the $1.50 Warrants, and exercise 623,950 of the
$2.00 Warrants, they would own 1,871,850 Common Shares of the Company, or 17% of
the total Common Shares outstanding.
On April 21, 1999 the Company sold an additional $1,175,000 of November
Convertible Notes to four purchasers; Ardara , ICP, one of the Company's
Directors, (James F. Kay) and Jon Orban (collectively known as the "April
Purchasers"). The additional November Convertible Notes automatically converted
into 345,588 Class B Units based on the terms of the Restructured Note Purchase
Agreement. If the April Purchasers were to convert the 345,588 Class "B" Shares
into Common Shares and exercise 345,588 of the $1.50 Warrants, and exercise
345,588 of the $2.00 Warrants, they would own 1,036,764 Common Shares of the
Company, or 9.4% of the total Common Shares outstanding.
Use of Proceeds of Sale of Convertible Notes
The $4,725,000 of gross proceeds received by the Company from the June 4, 1998,
November 10, 1998 and April 22, 1999 sale of convertible notes have been used as
follows:
<TABLE>
<S> <C>
Advisory Fees paid to ICP $162,975
Cash paid pursuant to acquisitions
of The Wholesale Group ("TWG")
Telecom Corporation of
Chicago, Eastern Equipment Brokers, Inc.
and Digital Document Solutions $4,094,875
Legal Fees for acquisitions $154,150
Travel costs for the acquisitions $13,000
Legal Fees for June and
November Financing $300,000
========
Total $4,725,000
==========
</TABLE>
10
<PAGE>
ITEM 6 - 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.
Officeland Inc. acquired Eastern Equipment Brokers Inc. and Digital Document
Solutions Inc. on January 1, 1999, the Wholesale Group on May 12, 1998 and
Telecom Corporation on October 9, 1998. These businesses have been accounted for
under the purchase method of accounting. As a result, the income and expenses
have been included in the consolidated financial statements from the dates of
acquisition.
Telecom Corporation
Effective October 9, 1998 the Company acquired Telecom Corporation of Chicago.
Telecom's revenues for 1999 were approximately $11 million as compared to $9
million in 1998 of with $1.9 million were recognized by the Company in fiscal
1998 since the date of acquisition. Cost of Sales for 1999 were approximately
$8.1 million or 71% compared to 71% in 1998 of which the Company recognized $1.2
million since the date of acquisitions. Gross Profit was $3.3 million or 29% for
1999 compared to $2.5 million or 29% in 1998 of which the Company recognized
$700,000 since the date of acquisition. General and Administrative expenses for
1999 were approximately $2.1 million compared to $1.8 million in 1998 of which
the $285,000 was attributed to the Company since the date of acquisition.
Selling expenses for 1999 were approximately $1.8 million compared to $1.1
million in 1998 of which $191,000 was attributed to the Company since the date
of acquisition. Selling expenses increased as a percentage of sales in 1999
compared to 1998 due to stronger marketing efforts in fiscal 1999. Telecom
reported a net loss before interest and taxes of $632,208 compared to net
earnings before interest and taxes of $235,166 in 1998 since the date of
acquisition. The net loss for Telecom for 1999 was $515,769 compared to net
earnings of $141,166 in 1998 since the date of acquisition.
The Wholesale Group, Inc.
The Company acquired the Wholesale Group ("TWG") on May 12, 1998. TWG's revenue
for 1999 was approximately $5.9 million compared to $4.8 million in 1998 of
which the Company recognized $2.5 million since the date of acquisition. The
Cost of Sales for 1999 was approximately $3.7 million or 63% compared to $3.6
million or 76% in 1998 of which the Company recorded $1.6 million or 64% since
the date of acquisition.
Gross Profit for 1999 was approximately $2.2 million or 37% compared to $1.2
million or 25% in 1998 of which the Company recognized $923,000 or 36% since the
date of acquisition. General and Administrative Expenses for 1999 were
approximately $1.4 million or 24% compared to $1.4 million in 1998 of which the
Company recognized $643,000 since the date of acquisition. Selling expenses for
1999 were approximately $645,000 compared to $425,000 in 1998 of which the
Company recorded $272,000 since the date of acquisition. TWG recorded net
earnings before interest and taxes of $132,130 in 1999 compared to a net loss
before interest and taxes of $5,667 in 1998. The Company has recorded, upon
consolidation, net earnings of $17,017 from TWG compared to a net loss of $3,874
in 1998.
11
<PAGE>
Eastern Equipment Brokers
Effective January 1, 1999 the Company acquired both Eastern Equipment Brokers,
Inc. ("EEB") and Digital Document Solutions Inc. ("DDS"). The Company acquired
the net assets of DDS, which it assigned to EEB subsequent to the sale; all
revenues and expenses generated by the net assets of DDS have been recorded in
the financial results of EEB. EEB's revenues for 1999 were approximately $5.4
million with revenues of $5.0 recognized by the Company in fiscal 1999. Cost of
Sales for 1999 were approximately $3.5 million or 65% with the Company
recognizing $3.2 million or 65%. Gross Profit for 1999 was $1.9 million or 35%
with the Company recognizing $1.7 million or 35%. General and Administrative
expenses for 1999 were approximately $1.1 million with $990,000 attributed to
the Company. Selling expenses for 1999 were approximately $595,000 with $545,000
attributed to the Company. EEB would have recorded a pro-forma net income in
1999 of approximately $110,000. The Company has recorded, upon consolidation,
net earnings of approximately $101,650 from EEB.
Core Operations Fiscal 1999 Compared to Fiscal 1998
"Core Operations" (the Company's continuing business without the acquisitions of
EEB, DDS, Telecom and TWG) revenues were $4,282,290 for the year ending November
30, 1999 compared to $12,039,728 for the year ending November 30, 1998. The
decrease in sales is attributable to management's decision to transition all
wholesale sales activity in the core operations to the newly acquired wholly
owned subsidiary's; EEB and TWG.
Cost of Sales for the fiscal year 1999 were $3,844,807 or 90.% compared to
$9,457,244 or 78.5% for the fiscal year 1998. The increase is due primarily to a
writedown on the core's existing wholesale inventory.
Total Core Operations Gross Profit was $437,483 for fiscal 1999 compared to
$2,617,251 for fiscal 1998. The decrease is due to a decrease in equipment sales
being generated from the core operations.
General and administrative expenses incurred during fiscal 1999 were $1,480,052
compared to $1,352,582 for fiscal 1998 reflecting an increase of $127,470. This
increase is a result of additional management and staff to support the
administration of the acquisitions that were added during fiscal 1999.
The Core Operations recorded selling expenses for fiscal 1999 in the amount of
$943,881 compared to $759,738 for fiscal 1998.
The depreciation and amortization expenses excluding amortization of goodwill
from the acquisitions incurred during fiscal 1999 were $46,222 compared to
$30,656 for fiscal 1998.
The Core Operations recorded a net loss for fiscal 1999 of $2,458,831 compared
to net earnings of $600,281 during fiscal 1998. The decrease was due to the
decrease in sales and increase in support costs incurred during 1999 to provide
a management and staffing structure that can sustain the expected growth from
acquisitions.
Consolidated Results
For the year ending November 30, 1999 ("fiscal 1999") the Company recorded total
sales in the amount of $26,828,819 compared to $16,479,770 for the year ending
November 30, 1998 ("fiscal 1998") reflecting an increase of $ 10,349,049. Cost
of Sales for the fiscal year 1999 were $19,054,776 or 71% compared to
$12,265,537 or 75% for the fiscal year 1998. The decrease in Cost of Sales as a
percentage of sales is attributable to increased gross margins on units sold to
end-users.
Total Operations Gross Profit was $7,774,043 for fiscal 1999 compared to
$4,214,233 for fiscal 1998 due primarily to an increase in equipment sales.
Total Company General and Administrative Expenses incurred during fiscal 1999
were $6,050,653 compared to $2,165,405 for fiscal 1998 reflecting an increase of
$ 3,885,248. This increase is a result of additional management and staff to
support integration of the acquisitions.
Total Company selling expenses for fiscal 1999 were $3,951,120 compared to
$1,208,792 for fiscal 1998 representing an increase of $2,742,328. The increase
was due to an increase in expenses incurred as a result of the acquisitions of
EEB and DDS as well as the addition of a marketing department in fiscal 1999.
The depreciation and amortization expenses including amortization of goodwill
from the acquisitions incurred during fiscal 1999 were $575,917 compared to
$104,786 for fiscal 1998.
Total Company interest income was $0 for fiscal 1999 compared to $39,563 for
fiscal 1998.
The Company recorded a loss from continuing operations of $2,803,647 for fiscal
1999 compared to earnings from continuing operations of $735,250 for fiscal
1998. The decrease was due to increase in support costs incurred during 1999 to
provide a management and staffing structure that can sustain the growth expected
from acquisitions as well as costs of integrating the newly acquired businesses.
For the year ended November 30, 1999 the consolidated Company recorded a foreign
exchange loss in the amount of $79,785 compared to a foreign exchange loss
recorded in fiscal 1998 of $245,162.
12
<PAGE>
The Company recorded interest expense in the amount of $316,039 in fiscal 1999
compared to $30,951 in fiscal 1998. The increase was due to increased borrowings
from it's primary lender American National Bank as well as a new $2 million term
loan taken out in fiscal 1999.
The Company in fiscal 1999 recorded a one time charge to it's goodwill in the
amount of $2 million to recognize an impairment in the value of the Company's
wholly owned subsidiary Telecom. This one time charge is a result of the
Company's policy to review the measurement of it's goodwill for possible
impairment based mainly on the ability to recover the balance of goodwill from
expected future operating cash flows.
The Company had a net loss from continuing operations before income taxes in
1999 of $5,199,471 compared to net earnings from continuing operations before
income taxes of $498,700 in 1998.
For fiscal 1999 the Consolidated Company has recorded income taxes of $197,495
compared to income taxes of $48,832 for fiscal 1998.
The Company recorded a loss from operations of discontinued operations in fiscal
1999 of $65,438 as a result of management's discussion to discontinue operating
it's wholly owned subsidiary MCSI. In 1998 the Company recorded a loss of
$68,437 from MCSI. As a result of management's decision to discontinue operating
MCSI the Company recorded a loss on the disposal of discontinued operations of
$606,480 in 1999, which was primarily, the net investment value at November 30,
1998 related to the MCSI investment. (see Note 15 to the Consolidated Financial
Statements)
The Consolidated Company recorded net loss of $6,068,884 or ($0.90) per share
(($0.90) fully diluted) compared to net earnings of $381,431 or $0.07 per share
($0.06 fully diluted).
13
<PAGE>
The foregoing has impacted the balance sheet as at November 30, 1999 from
November 30, 1998 as follows:
Cash at November 30, 1999 was $580,145 compared to $72,649. At November 30, 1999
the Company's trade receivables were $3,445,849 compared to $4,768,790 at
November 30, 1998 a decrease of $1,322,941. Inventory was $4,505,114 at November
30, 1999 compared to $3,413,157 at November 30, 1998 increasing $1,091,957. The
Company has recorded income taxes receivable of $119,208 during fiscal 1999.
Capital assets have increased $211,332 mainly as a result of the acquisitions.
The Company has a future income tax benefit in the amount of $525,220 for fiscal
1999 compared to $602,380 fiscal 1998. The Company has acquired goodwill as a
result of the acquisition of Telecom, TWG and EEB in the amount of $6,712,761.
The Company's total assets have decreased to $16,687,893 at November 30, 1999
from $16,829,031 at November 30, 1998.
The Company has a bank credit facility utilized at November 30, 1999 in the
amount of $4,477,803 compared to $1,346,349 at November 30, 1998. The Company's
accounts payable and accrued liabilities are $4,116,472 at November 30, 1999
compared to $4,242,498 at November 30, 1998. The Company has long term debt of
$1,829,167 in fiscal 1999 compared to $504,207 in fiscal 1998. The Company's
long term debt is comprised of a note payable to the former principal of Telecom
bearing interest at 5% repayable in quarterly installments of $62,500 plus
accrued interest and a 2 year term loan with American National Bank bearing
interest the Prime Rate + 1/2% in year one and the Prime Rate in year two.(see
Note 8 to the Consolidated Financial Statements).
The Company's capital stock has increased to $14,290,097 at November 30, 1999
from $9,442,747, due to additional financing through issuance of Class B Special
Shares in April of fiscal 1999, and the conversion of all the June and November
Convertible Notes. (see 1998 Private Placement of Securities)
Historical Fiscal 1998 Compared to Fiscal 1997
Telecom Corporation
Effective October 9, 1998 the Company acquired Telecom Corporation of Chicago.
Telecom's revenues for 1998 were approximately $9 million with revenues of $1.9
million recognized by the Company in fiscal 1998. Cost of Sales for 1998 were
approximately $6.3 million or 71% with the Company recognizing $1.2 million or
63%. Gross Profit for 1998 was approximately $2.5 million or 29% with the
Company recognizing $700,000 or 37%. General and Administrative expenses for
1998 were approximately $1.79 million with $285,000 attributed to the Company.
Selling expenses for 1998 were approximately $1.1 million with $191,000
attributed to the Company. Telecom had a pro-forma net income in 1998 of
approximately $26,770 with $141,166 in net earnings attributed to the Company.
The Wholesale Group, Inc.
The Company acquired the Wholesale Group ("TWG") on May 12, 1998. TWG's revenue
for 1998 was approximately $4.8 million with $2.5 million in revenue, on
consolidation, recognized by the Company in fiscal 1998. The Cost of Sales for
1998 was approximately $3.6 million or 76% with $1.6 million or 64%, on
consolidation, attributed to the Company. Gross Profit for 1998 was
approximately $1.2 million or 25% with $923,000 or 36% on consolidation,
attributed to the Company. General and Administrative Expenses for 1998 were
approximately $1.4 million or 30%, with $643,000, on consolidation, attributed
to the Company Selling expenses for were approximately $425,000 with $272,000,
on consolidation, attributed to the Company. TWG would have reported a 1998
pro-forma net loss of approximately $311,000. The Company has recorded, upon
consolidation, a net loss of approximately $3,874 from TWG.
Core Operations Fiscal 1998 Compared to Fiscal 1997
"Core Operations" (the Company's continuing business without the acquisitions of
Telecom and TWG) revenues were $12,491,055 for the year ending November 30, 1998
compared to $13,848,996 for the year ending November 30, 1997.
Equipment Sales for fiscal 1998 were $12,039,729 compared to $13,445,126 for
fiscal year 1997 representing a decrease of $1,405,397. The decrease in sales
was comprised of: (i) an increase in retail sales to end users of high volume
Xerox copiers of approximately $800,000; (ii) an increase in trade-in equipment
sold through the Canon trade-in program of $1.4 million, (iii) a decrease in
revenues of $1.7 million due to the cancellation of the Danka repurchase and
trade-in programs, and, (iv) a decrease in sales through the normal wholesale
channels. Cost of Equipment Sales for the fiscal year 1998 were $9,457,244 or
78.5% compared to $10,883,429 or 81% for the fiscal year 1997. The decrease is
attributable to increased margins on units sold to end-users. Equipment Sales
primarily consist of sales of used photocopier equipment.
Collection revenues for the fiscal year 1998 were $451,326 compared to $403,870
in fiscal year 1997 reflecting an increase of $47,456. The Collection activities
cost of sales was $416,560 compared to $313,258 resulting in gross profit of
$34,766 for fiscal year 1998 compared to $90,612 for fiscal year 1997. The
decrease was due to a decrease in revenues from its legal process business.
Total Core Operations Gross Profit was $2,617,251 for fiscal 1998 compared to
$2,652,309 for fiscal 1997 due primarily to a decrease in equipment sales for
the core operations.
General and administrative expenses incurred during fiscal 1998 were $1,352,582
compared to $945,130 for fiscal 1997 reflecting an increase of $407,452. This
increase is a result of additional management and staff to support the
administration of the acquisitions that were added during fiscal 1998.
The Core Operations recorded selling expenses for fiscal 1998 in the amount of
$759,738 compared to $641,476 for fiscal 1997 representing an increase of
$118,262. The increase was primarily due to increased costs as a result of the
acquisitions of Telecom and TWG.
The depreciation and amortization expenses excluding amortization of goodwill
from the acquisitions incurred during fiscal 1998 were $52,970 compared to
$49,280 for fiscal 1997.
The Core Operations had earnings before income taxes and remeasurement loss for
fiscal 1998 of $488,469 compared to $1,074,232 during fiscal 1997. The decrease
was due to the decrease in sales and increase in support costs incurred during
1998 to provide a management and staffing structure that can sustain the
expected growth from acquisitions. The Wholesale Group has recorded a Net Loss
before income taxes recovery for the period since acquisition of $5,667 and
Telecom Corporation recorded Net Earnings before income taxes of $235,166
resulting in a combined Net Earnings before Income Taxes and remeasurement loss
of $675,425.
The Core Operations recorded net earnings of $236,371. The Wholesale Group
recorded a Net Loss for the period since acquisition of $3,874 and Telecom
Corporation has recorded Net Earnings of $141,186 resulting in combined Net
Earnings after Income Taxes of $381,431.
Consolidated Results
For the year ending November 30, 1998 ("fiscal 1998") the Company recorded total
sales in the amount of $16,931,096 compared to $13,848,996 for the year ending
November 30, 1997 ("fiscal 1997") reflecting an increase of $ 3,082,100.
14
<PAGE>
Equipment Sales for fiscal 1998 were $16,479,770 compared to $13,445,126 for
fiscal year 1997, representing an increase of $3,034,644. Cost of Equipment
Sales for the fiscal year 1998 were $12,265,537 or 74% compared to $10,883,429
or 81% for the fiscal year 1997. The increase is attributable to increased
margins on units sold to end-users. Equipment Sales primarily consist of sales
of used photocopier equipment.
Collection revenues for the fiscal year 1998 were $451,326 compared to $403,870
in fiscal year 1997 reflecting an increase of $34,766. The Collection activities
cost of sales was $416,560 compared to $313,258 resulting in gross profit of
$47,456 for fiscal year 1998 compared to $90,612 for fiscal year 1997. The
decrease was due to a decrease in revenues from its legal process business.
Total Operations Gross Profit was $4,428,999 for fiscal 1998 compared to
$2,247,804 for fiscal 1997 due primarily to an increase in equipment sales.
Total Company General and Administrative Expenses incurred during fiscal 1998
were $2,247,804 compared to $945,130 for fiscal 1997 reflecting an increase of
$1,333,625. This increase is a result of additional management and staff to
support the acquisitions that were added during fiscal 1998.
Total Company selling expenses for fiscal 1998 were $1,222,869 compared to
$641,476 for fiscal 1997 representing an increase of $581,393. The increase was
primarily due to an increase in expenses incurred as a result of the
acquisitions of Telecom and TWG.
The depreciation and amortization expenses including amortization of goodwill
from the acquisitions incurred during fiscal 1998 were $111,513 compared to
$49,280 for fiscal 1997.
Total Company interest income was $39,563 for fiscal 1998 compared to $57,809
for fiscal 1997.
Total Company earnings before income taxes and remeasurement loss for fiscal
1998 was $675,425 compared to $1,074,232 for fiscal 1997. The decrease was due
to the decrease in sales and increase in support costs incurred during 1998 to
provide a management and staffing structure that can sustain the growth expected
from acquisitions.
For the year ended November 30, 1998 the consolidated Company recorded a
remeasurement loss in the amount of $245,162, compared to a remeasurement gain
recorded in fiscal 1997 of $249,648.
For the current year the Company has been able to utilize approximately $400,000
of tax loss carryforwards reducing its corporate income taxes by $177,000. The
Company has approximately $2.1 million of federal tax loss carryforwards to
reduce future federal taxable income and $1.3 million of provincial and state
tax loss carryforwards to reduce future provincial and state taxable income. For
fiscal 1998 the Consolidated Company has recorded income taxes of $48,832
compared to $280,102 for fiscal 1997.
The Consolidated Company recorded net earnings of $381,431 or $.07 per share
($.06 fully diluted) compared to $1,043,778 or $.20 per share ($.16 fully
diluted).
15
<PAGE>
Liquidity and Capital Resources
The Company currently has approximately $580,000 available cash at November 30,
1999. Management has deemed it necessary to seek additional working capital in
the amount of $1.5 million to $2.0 million from existing investors. The Company
raised about $2 million less than it had planned to in the Series A and B
financings. In addition, integration of acquisitions has been more complex and
costly, and the Company needs capital to finance its existing and planned
e-commerce activities.
The additional working capital will enable the Company to pursue its objectives
in developing an e-commerce strategy and promote its existing channels of
distribution.
At November 30, 1999 the Company had short-term bank facilities consisting of
operating lines of credit in the aggregate amount of $5,650,000 with American
National Bank. At November 30, 1999 $4,477,803 has been utilized. The Company
has provided a charge over accounts receivable and other assets. In addition,
the Company has a Term Loan facility of $2.0m bearing interest at prime + 1/2%
in the first year and at prime in the second year repayable in equal
installments of $83,333 plus interest commencing May 1, 1999.
At November 30, 1999 the Company had working capital deficiency of approximately
$795,000.
16
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
CURRENCY PRESENTATION
Effective for the fiscal year ending November 30, 1998 the Company has changed
its functional currency to that of the United States. Except as otherwise
specifically indicated, all dollar amounts in the Report are expressed in United
States ($). The Company has adjusted the comparative numbers to conform to that
of the United States. The Company's Canadian operations have translated
historical information based on historical rates. For the convenience of the
reader certain of these dollar amounts have been translated into United States
dollars (U.S.$) at the currency noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank in New York in effect at the applicable dates. The following table
sets forth, for the periods and dates indicated, certain information concerning
the exchange rate of the Canadian dollar for United States dollars.
Year at November 30 Average Rate High Low
- ---- -------------- ------------ ---- ---
1995 .7349 .7294 .7512 .7105
1996 .7399 .7336 .7472 .7274
1997 .7020 .7226 .7423 .7020
1998 .6564 .6779 .7105 .6341
1999 .6793 .6704 .68943 .6440
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE
17
<PAGE>
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The executive officers and directors of the Company are as follows:
Name Age Office
Marvyn A. Budd 47 President, Chief Executive Officer
and Director
Edwin S. Lax 50 Executive Vice-President
and Director
Christopher D. Walker 39 Chief Financial Officer
Vice-President Finance
Jack McSorley 39 Vice-President of Sales
Ajit G Hutheesing 63 Director
Allan Lyons 59 Director
James F. Kay 72 Director
Larry Lunt 38 Director
Ronald J. Faust 51 Director
Marvyn A. Budd has been a Director and President /CEO of the Company since
December 1983.
Ronald J. Faust has been a Director and Secretary of the Company since December
1983. .Mr. Faust has been Executive Vice President for the Company since
December 1983 until July 1999. Currently Mr. Faust is Chief Executive Officer of
Gamma North Peel Laboratories.
Edwin S. Lax has been a Director and Executive Vice-President of the Company
since 1983.
Christopher D. Walker, C.M.A, has been Chief Financial Officer of the Company
since August 1988. Prior to joining Officeland Inc. Mr. Walker was principal
accounting manager for Sketchley Cleaning Services Limited, a retail dry
cleaning chain from 1985-1988. Prior to this Mr. Walker was a staff accountant
for Chartered Accountant Firm.
Jack McSorley has been employed with the Company since December 1995. Prior to
joining the Company Mr. McSorley spent approximately seven years with Xerox
Canada in Sales and Management Support positions winning numerous National
awards for his business results. Upon leaving Xerox, he went to Citibank to help
launch the newly created Canadian Credit Card Facility that amalgamated the
credit card portfolios of Citibank, EnRoute and Diners Club. Here again he
achieved substantial year over year increases in business providing a strong
foothold for the Diners Club Card in Canada. As Vice President of Sales, Mr.
McSorley has been instrumental in managing the Company's revenue growth.
18
<PAGE>
Ajit G. Hutheesing, age 63, is has been Chairman of the Board and Chief
Executive Officer of International Capital Partners, Inc. since 1992 and a
director and Chief Executive Officer of ICP Investments, Inc. since 1994. He is
a director of Shared Technologies Cellular and Counsel Corporation, both public
companies. He received his M.A. degree from Cambridge University and his M.B.A.
degree from Columbia University.
Allan R. Lyons, age 59, has been a Director of the Company since 1998. He is a
member of the Audit Committee of the Board. Mr. Lyons is a senior member of the
firm Piaker and Lyons CPAs in Vestal, New York, which he joined in 1964. Mr.
Lyons is an active investor and has served on a number of Boards of public and
private companies. He is currently a member of the Board of Directors of
Franklin Credit Management Corporation, Organic Food Products, Inc., STARlog
Franchise Corporation and Scoreboard, Inc., all publicly traded companies.
Scoreboard, Inc. filed for Chapter XI bankruptcy in March 1998. Mr. Lyons is a
member of the American Institute of CPAs, the New York State Society of CPA's
and the International Association for Financial Planning. Mr. Lyons was the
Comptroller and Finance Director of the Town of Vestal from 1970 to 1997 and is
on the Board of Advisor - School of Management - Binghamton University.
James F. Kay has been a Director of the Company since 1998. He is a member of
the Audit Committee of the Board. He is currently and for the past five years
been an officer and director of CME Capital Inc., a Canadian public company
engaged in the business of merchant banking. Mr. Kay has been involved in a wide
range of successful businesses, engaged in the industrial and home furnishing
manufacturing, specialty retailing, real estate ownership and management, and
oil and gas industries. He is sole shareholder of Keren Management Limited, the
General Partner of Keren Limited Partnership ("Keren"), an owner, operator, and
developer of a research facility located in Westchester County, New York. Mr.
Kay received his B.Comm. and B.A. in Economics from the University of Manitoba
in 1942.
Larry Lunt has been a Director of the Company since 1998. Mr. Lunt is a Belgian
national who received his MBA from Sophia University in Tokyo, Japan. He began
his career with EDS in Europe in 1985, with the mission to develop the European
market. In 1990, Mr. Lunt started developing his own private equity investment
portfolio, primarily in Europe and Asia. From that time, he also became more
involved in the ARTAL Group, of which he is director. ARTAL is a private holding
Company with extensive investments around the world, with total assets of $2
billion.
19
<PAGE>
ITEM 10 - EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the aggregate cash compensation paid for services
rendered to the Company during the last three fiscal years for the Company's
Executive Officers and Board of Directors.
<TABLE>
<CAPTION>
Long-Term Compensation
U.S. Annual Compensation Awards
Executive Officers ------------------------ Restricted Securities
Fiscal Share Underlying *
Name and Position Year Salary Bonus Award(s) Options/SARs #
----------------- ---- ------ ----- -------- --------------
<S> <C> <C> <C> <C> <C>
Marvyn Budd, President & CEO 1999 $ 137,857 -0- -0- -0-
1998 137,857 -0- -0- 148,536
1997 97,910 -0- -0- 107,059
Ronald J. Faust, Director (1) 1999 $ 80,500 -0- -0- -0-
1998 137,857 -0- -0- 148,536
1997 97,910 -0- -0- 107,059
Edwin S. Lax, Executive V.P. 1999 $ 137,857 -0- -0- -0-
1998 137,857 -0- -0- 148,536
1997 97,910 -0- -0- 107,059
Christopher D. Walker 1999 $ 90,714 -0- -0- -0-
1998 90,714 -0- -0- 22,852
1997 60,000 -0- -0- 16,724
Jack McSorley 1999 $ 90,714 -0- -0- -0-
1998 90,714 -0- -0- 22,852
1997 60,000 -0- -0- 16,724
</TABLE>
In addition to the above Messrs. Budd and Lax received an annual auto allowance
in the amount of U.S. $9,600 (1999) plus an annual club allowance of U.S.
$7,500. Mr. Ronald J. Faust received auto allowance of US $5600.
* Options to acquire shares of common stock.
In addition to the above, Messrs. Walker and McSorley received an annual auto
allowance in the amount of $6,500.
(1) Mr. Ronald J. Faust resigned effective July 1, 1999 as Vice President of the
Company but remains as a Company Director.
20
<PAGE>
<TABLE>
<CAPTION>
Long-Term Compensation
U.S. Annual Compensation Awards
Board of Directors ------------------------ Restricted Securities
Fiscal Share Underlying *
Name and Position Year Salary Bonus Award(s) Options/SARs #
----------------- ---- ------ ----- -------- --------------
<S> <C> <C> <C> <C> <C>
Ajit Hutheesing, Chariman 1999 $10,000 -0- -0- 100,000 (2)
Jimmy Kay , Director 1999 $ 6,000 -0- -0- 70,000 (2)
Larry Lunt, Director 1999 $ 6,000 -0- -0- 70,000 (2)
Allan Lyons, Director 1999 $6,000 -0- -0- 70,000 (2)
</TABLE>
(2) Options to purchase shares of common stock at US.$ (0.625).
21
<PAGE>
EMPLOYEE STOCK OPTION PLAN
In 1995, the Shareholders of the Company adopted an Employee Stock Option Plan
(the "Plan"), pursuant to which the Company reserved a total of 1,150,000 Common
Shares for the exercise of options to purchase Common Shares (the "Options")
that may be granted under the Plan. The Plan commenced on December 1, 1995 and
terminates on November 30, 2001. The Company has since canceled all further
grants that may be made available under the Plan.
On October 16, 1997 the Company granted 410,610 options at U.S. $0.40 per common
share.
On July 15, 1998 the Company granted 571,292 options at U.S. $3.00 per common
share.
22
<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS and MANAGEMENT
The following table sets forth certain information as of November 30, 1999 with
respect to the beneficial ownership of Common Shares by (i) each person who owns
beneficially more than 5% of the outstanding Common Shares, (ii) each director
and executive officer of the Company, and (iii) all officers and directors of
the Company as a group.
<TABLE>
<CAPTION>
Name & Address of(6) (2) Amount and Nature Percent of
Title of Class Beneficial Owner of Beneficial Ownership Class
- -------------- ---------------- ----------------------- -----
<S> <C> <C> <C>
Common Marvyn A. Budd (1) (3) (13) 807,771 6%
Common Edwin S. Lax (1) (4) 749,856 5%
Common Ronald J. Faust (1) (5) 832,517 6%
Common Christopher Walker (1) (91) 178,909 1%
Common James Kay (10) (14) 202,351 1%
c/o CME Capital 7 Clarence Square
Toronto, Ontario, M5V 1H1
Common Allan R. Lyons (14) 448,196 3%
2521 Vestal Pkwy,
Vestal, New York 13851
Common Jack McSorley (1) (8) 162,225 1%
Common Stammer Limited Partnership (7) 381,000 3%
5375 East Hunter Ave.,
Anaheim Ca. 92807
Common John Einarsen (7) 690,589 5%
285 Industrial Drive,
Wauconda, Ill 60084
Common Larry Lunt (11)
c/o Ardara Investments 2,342,269 17%
300 First Stamford Place,
Common Ajit Hutheesing 705,882 5%
c/o International Capital Partners (12)
300 First Stamford Place, Stamford
Connecticut, 06902
Officers and Directors as 8,216,565 58%
A Group
Common John O'Connor 675,000 5%
c/o Eastern Equipment Brokers
101 Island Brook Avenue
Bridge Port, Connecticut, 06606
</TABLE>
23
<PAGE>
(1) Address is c/o the Company, 312 Dolomite Drive, Suite #212, Downsview,
Ontario M3J 2N2
(2) For the purpose of the above table and the following notes, the Company's
Common Shares shown as "beneficially owned" includes all securities which
pursuant to Rule 13d-3 under the Exchange Act may be deemed to be
"beneficially owned" including, without limitation, all securities which
the "beneficial owner has the right to acquire within 60 days, as, for
example through the exercise of any option, warrant or right, the
conversion of convertible securities or pursuant to the power to revoke a
trust discretionary account or similar arrangement, including Common Stock
Options issued October 16, 1997 and July 15, 1998.
(3) Includes 102,054 shares owned by Susan Budd, the wife of Marvyn Budd,
107,059 common share purchase options exercisable at $.40 per share,
148,536 common share purchase options exercisable at $3.00 per share, 2,647
Class B Shares convertible into common share, 2,647 common share purchase
warrants exercisable at $1.50 and 2,647 common share purchase warrants
exercisable at $2.00 per share obtained when Class B shares converted.
(4) Includes 50,017 shares owned by Bonnie Lax, the wife of Edwin Lax, 107,059
common share purchase options exercisable at $.40 per share, 148,536 common
share purchase options exercisable at $3.00 per share, 1,177 Class B Shares
convertible into common shares 1,177 common share purchase warrants
exercisable at$1.50 per share and 1,177 common share purchase warrants
exercisable at $2.00 per share obtained when Class B shares converted.
(5) Includes 267,714 shares owned by Gail Faust, the wife of Ronald Faust.
Includes 246,667 shares owned by R.J. Faust Family Trust. 107,059 common
share purchase options exercisable at $.40 per share, 148,536 common share
purchase options exercisable at $3.00 per share, 2,647 Class B Shares
convertible into common shares 2,647 common share purchase warrants
exercisable at $1.50 per share and 2,647 common share purchase warrants
exercisable at $2.00 per share obtained when Class B shares converted.
(6) The percentage of ownership of the class of voting securities in the above
table has been calculating by dividing (I) the aggregate number of shares
of such class actually owned plus all shares of such class, which may be
deemed to be "beneficially owned", by (ii) the number of shares of such
class actually outstanding plus the number of shares of such class such
"beneficial owner" may be deemed to be "beneficially owned" assuming the
other acquisitions of shares of such class through the exercise of any
option, warrant or right by any other person.
(7) Common Stock reserved for issuance pursuant to the Terms and Conditions of
the acquisition agreements of The Wholesale Group and Telecom corporation.
(8) Includes 16,724 Common share purchase options exercisable at $.40 per
share, 22,852 common share purchase options exercisable at $3.00 per share,
883 Class B Shares convertible into common shares within sixty days, 883
common share purchase warrants exercisable at $1.50 per share and 883
common share purchase warrants exercisable at $2.00 per share obtained when
Class B shares converted. Includes 41,535 common share purchase options
exercisable at $.01.
(9) Includes 16,724 Common share purchase options exercisable at $.40 per
share, 22,852 common share purchase options exercisable at $3.00 per share.
(10) Includes 44,117 Class B Shares convertible into common shares 44,117 common
share purchase warrants exercisable at $1.50 per share and 44,117 common
share purchase warrants exercisable at $2.00 per share obtained when Class
B shares converted.
(11) Larry Lunt is a Director of Ardara Investments. Includes 873,949 Class B
Shares convertible into common shares, 699,160 common share purchase
warrants exercisable at $1.50 per share and 699,160 common share purchase
warrants exercisable at $2.00 per share obtained when Class B shares
converted.
(12) Includes 29,412 Class B Shares convertible into common shares, 288,235
common share purchase warrants exercisable at $1.50 per share and 288,235
common share purchase warrants exercisable at $2.00 per share obtained when
Class B shares are converted.
(13) Includes 41,067 common share purchase options exercisable at $.40 per
share, 57,129 common share purchase options exercisable at $3.00 per share.
Includes 100,000 common share purchase options exercisable at $.687.
(14) Includes 70,000 common share purchase options exercisable at $.687.
24
<PAGE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable
25
<PAGE>
ITEM 13 - EXHIBITS, LISTS AND REPORTS ON FORM 8-K
Exhibit
Numbers Description of Exhibits
- ------- -----------------------
3.1 Certificate of Incorporation and Amended Certificate of
Incorporation of the Company. (1)
3.1.1 Articles of Amendment to the Certificate of Incorporation of
the Company, filed on May 12, 1998 and again June 4, 1998.
(2)
3.1.2 Articles of Amendment to the Certificate of Incorporation of
the Company, filed on November 1998. (3)
3.2 Amended Bylaws of the Company. (1)
4.1 Form of Representative's Warrant. (1)
4.1.1 Form of Note Warrant. (2)
4.1.2 Form of Senior Subordinated Unsecured Convertible Note. (2)
4.1.3 Form of Senior Subordinated Unsecured Convertible Note dated
November 10, 1998. (3)
4.1.4 Specimen of Common Share Certificate. (1)
4.1.5 Specimen of Redeemable Warrant Certificate. (1)
4.1.5(a) Specimen of amended Redeemable Warrant Certificate. (6)
4.1.6 Form of Common Share ($1.50) Warrant. (3)
4.1.7 Form of Common Share ($2.00) Warrant. (3)
4.1.8 Specimen of March Warrant. (7)
4.1.9 Specimen of Unit Certificate. (7)
9.1 Voting Trust Agreement, dated as of June 4, 1998. (2)
9.1.1 Amending Agreement dated as of November 10, 1998 to Voting
Trust Agreement of June 4, 1998. (3)
10.1 Lease between the Company and Dolomite Manor Corporation.
(5)
10.1.1 Agreement between the Company and Kodak. (4)
10.1.2 Agreement between the Company and Danka. (4)
10.1.3 Stock Purchase Agreement By and Among Officeland Inc., the
Stammer Family Limited Partnership and Marlin R. Stammer,
dated May 12, 1998. (2)
10.1.4 Stock Purchase Agreement between Officeland Inc. and John
Einarsen, effective as of October 9, 1998. (8)
10.1.5 Lease Agreement between The Wholesale Group, Inc. and Marlin
and Gloria Stammer, dated December 13, 1997. (2)
10.1.6 Lease Agreement by and between John Einarsen, as Landlord,
and Telecom Corporation of Chicago, as tenant. (8)
10.1.7 Officeland Inc. Guaranty of Lease Agreement (8)
10.1.8 Loan Agreements, dated as of June 4, 1998, between the
Company and each of Marvyn Budd, Edwin S. Lax and Ronald J.
Faust. (2)
10.1.8(a) Loan Amending Agreements, dated as of November 9, 1998,
between the Company and each of Marvyn Budd, Ronald J.
Faust, and Edwin S. Lax. (3)
10.1.9 Loan and Security Agreement by and between Telecom
Corporation of Chicago and American National Bank and Trust
Company of Chicago, a National Banking Association. (8)
10.1.10 Officeland's Continuing Guaranty of Loan and Security
Agreement. (8)
10.1.11 Revolving Credit Note pursuant to and in accordance with
Loan and Security Agreement. (8)
10.1.12 Stock Purchase Agreement By and Between Officeland Inc., and
John O'Connor, effective as of January 1, 1999 (10)
10.1.13 Asset Purchase Agreement By and Among Officeland Inc.,
Digital Document Solutions, Inc. and John O'Connor, made
effective as January 1, 1999 (10)
10.2.1 Employment Agreement with Marvyn Budd, Edwin S. Lax, Ronald
J. Faust and Christopher D. Walker. (1)
10.2.2 Employment Agreement with Marvyn Budd, Edwin S. Lax, Jack
McSorley and Christopher D. Walker. (2)
10.2.3 Agreement with Atlantis Capital Partners, Ltd. (6)
10.2.4 Employment Agreement by and among John Einarsen, Telecom
Corporation of Chicago and Officeland Inc. (8)
10.2.5 Senior Subordinated Unsecured Convertible Notes Purchase
Agreement, dated as of June 4, 1998. (2)
10.2.6 Amending Agreement dated October 23, 1998 to Senior
Subordinated Unsecured Convertible Notes Purchase Agreement
of June 4, 1998. (3)
10.2.7 Senior Subordinated Unsecured Convertible Notes Purchase
Agreement of November 10, 1998 ("The Restructured Purchase
Agreement"). (3)
11.1 Statement re: computation of per share earnings. (10)
13.1 Annual Report For the Fiscal Year Ended November 30, 1997.
(9)
21.1 Subsidiaries of the Company. (6)
23.1 Consent of Moskowitz Altman & Hughes LLP. (6)
23.3 Consent of Robins Appleby and Taub. (2) (6)
24.1 Powers of Attorneys. (4)
27.1 Financial Data Schedule. (11)
26
<PAGE>
Notes
(1) Incorporated by reference from the Company's Registration Statement on Form
S-18 declared effective December 17, 1986.
(2) Incorporated by reference from the Company's filing of a Report of Foreign
Issuer on Form 6-K and Form 6-K/A filed on June 23, 1998 .
(3) Incorporated by reference from the Company's Report on 8-K/A filed on
February 9, 1999.
(4) Incorporated by reference from the Company's Registration Statement on Form
SB-2 filed on December 23, 1996.
(5) Incorporated by reference from the Company's Registration Statement on
Amendment No.1 to Form SB-2 filed on January 16, 1997.
(6) Incorporated by reference from the Company's Registration Statement on
Amendment No.2 to Form SB-2 filed on March 13, 1997.
(7) Incorporated by reference from the Company's Registration Statement on
Amendment No.3 to Form SB-2 filed on March 21, 1997.
(8) Incorporated by reference from the Company's Report on 8-K/A filed on
January 29, 1999.
(9) Incorporated by reference from the Company's Annual Report on Form 20-F
filed on February 20, 1998 and on Form 20-F/A filed on June 19, 1998.
(10) Incorporated by reference from the Company's Report on 8-K filed on April
7, 1999.
(11) Filed herewith.
27
<PAGE>
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 thereto duly authorized.
OFFICELAND INC.
(Registrant)
Date: March 14, 2000 By: /s/ Marvyn A. Budd
------------------
Marvyn A. Budd
Chief Executive Office/President
Date: March 14, 2000 By: /s/ Christopher Walker
----------------------
Christopher Walker
Vice President Finance
28
<PAGE>
ITEM 14. SELECTED FINANCIAL DATA US GAAP
The following Selected Financial Data of the Company as of and for the years
ended, November 30, 1999, 1998, 1997, 1996 and 1995 have been derived from the
financial statements that have been examined by Grant Thornton LLP, Independent
Chartered Accountants, whose report with respect to such financial statements
and the notes thereto and Management's Discussion and Analysis of Financial
Condition and Result of Operations appearing elsewhere in this report, and is
reported in accordance with US, GAAP and reported in US Dollars. For a
reconciliation to U.S. GAAP see "Notes to Consolidated Financial Statements
#19". The 1995 information was previously reported on by Grant Thornton LLP in
Canadian dollars, US GAAP.
Statement of Income Data FISCAL YEAR ENDED NOVEMBER 30
- ------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $ 26,828,819 $ 16,479,770 $ 13,465,890 $10,544,546 $4,410,726
Income (Loss) from Continued Operations, $ (5,209,109) $ 384,189 $ (563,021) $ 292,994 $ 337,164
before Extraordinary Items, and Income Taxes
Discontinued Operations $ (487,680) $ (46,157) $ (41,212) $ 0 $ 0
Net Income (Loss) before Income Taxes $ (5,696,789) $ 338,032 $ (604,228) $ 292,994 $ 337,164
Income Taxes (recovery) $ 395,542 $ 9,991 $ 184,124 $ (54,573) $ 0
Net Income (Loss) $ (6,092,331) $ 328,041 $ (788,347) $ 238,421 $ 337,164
Net Income (Loss) Earnings per Share $ (0.91) $ 0.06 $ (0.15) $ 0.10 $ 0.15
Balance Sheet Data
- ------------------
Working Capital (Deficiency) $ (795,325) $ 2,953,159 $ 3,665,554 $ 238,421 $ 697,539
Total Assets $ 16,684,536 $ 16,833,742 $ 6,051,465 $ 4,027,263 $1,832,188
Long Term Debt $ 579,167 $ 216,751 $ 1,126 $ 6,327 $ 0
Dividends $ 0 $ 0 $ 0 $ 0 $ 0
Shareholders Equity $ 6,264,451 $ 10,734,807 $ 4,792,660 $ 1,998,472 $1,161,805
</TABLE>
29
<PAGE>
Contents
Page
----
Auditors' Report F-1
Consolidated Statement of Operations and Deficit F-2
Consolidated Balance Sheets F-3
Consolidated Statement of Cash Flows F-4
Notes to the Consolidated Financial Statements F-5 - 29
<PAGE>
Auditors' Report
To the Shareholders of
Officeland Inc.
We have audited the consolidated balance sheets of Officeland Inc. as at
November 30, 1999 and 1998 and the consolidated statements of operations and
deficit, and cash flows for each of the three years ended November 30, 1999,
1998, and 1997. These consolidated financial statements are the responsibility
of the company's management. Our responsibility is to express an opinion on
these consolidated 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 consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at November 30, 1999
and 1998 and the results of its operations and cash flows for each of the three
years ended November 30, 1999, 1998 and 1997 in accordance with generally
accepted accounting principles in Canada.
Generally accepted accounting principles in Canada differ in some respects from
those applicable in the United States (See Note 19).
GRANT THORNTON
Markham, Canada /s/ Grant Thornton
February 25, 2000 Chartered Accountants
F-1
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Consolidated Statement of Operations and Deficit
(Expressed in U. S. dollars)
Year Ended November 30 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Equipment sales $ 26,828,819 $ 16,479,770 $ 13,465,890
Cost of sales 19,054,776 12,265,537 10,883,429
-------------- -------------- --------------
Gross profit 7,774,043 4,214,233 2,582,461
-------------- -------------- --------------
Expenses
General and administrative 6,050,653 2,165,405 861,085
Selling 3,951,120 1,208,792 606,754
Depreciation and amortization 575,917 104,786 42,086
-------------- -------------- --------------
10,577,690 3,478,983 1,509,925
-------------- -------------- --------------
Earnings (loss) from continuing operations
before the following (2,803,647) 735,250 1,072,536
-------------- -------------- --------------
Foreign exchange loss (gain) 79,785 245,162 (249,648)
Interest on debt 316,039 30,951 -
Interest income - (39,563) (55,136)
Goodwill writedown (Note 1) 2,000,000 - -
-------------- -------------- --------------
2,395,824 236,550 (304,784)
-------------- -------------- --------------
Net Earnings (loss) from continuing operations
before income taxes (5,199,471) 498,700 1,377,320
Income taxes (Note 13) 197,495 48,832 280,102
-------------- -------------- --------------
Net Earnings (loss) from continuing operations (5,396,966) 449,868 1,097,218
Discontinued operations (Note 15) (671,918) (68,437) (53,440)
-------------- -------------- --------------
Net Earnings (loss) $ (6,068,884) $ 381,431 $ 1,043,778
============== ============== ==============
- -------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share before
discontinued operations $ (0.80) $ 0.08 $ 0.21
Discontinued operations (0.10) (0.01) (0.01)
-------------- -------------- --------------
Net earnings (loss) per common share
(Note 14) $ (0.90) $ 0.07 $ 0.20
============== ============== ==============
Fully diluted net earnings (loss) per common
share before discontinued operations $ (0.80) $ 0.07 $ 0.17
Discontinued operations (0.10) (0.01) (0.01)
-------------- -------------- --------------
Fully diluted net earnings (loss) per
common share (Note 14) $ (0.90) $ 0.06 $ 0.16
============== ============== ==============
- -------------------------------------------------------------------------------------------------------------------
Deficit, beginning of year $ (4,072,967) $ (4,454,398) $ (5,233,363)
Net earnings (loss) (6,068,884) 381,431 1,043,778
Share issue costs (603,362) - (264,813)
-------------- -------------- --------------
Deficit, end of year $ (10,745,213) $ (4,072,967) $ (4,454,398)
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
- ------------------------------------------------------------------------------
Officeland Inc.
Consolidated Balance Sheet
(Expressed in U.S. dollars)
November 30 1999 1998
- ------------------------------------------------------------------------------
Assets
Current
Cash (Note 3) $ 580,145 $ 72,649
Receivables 3,445,849 4,768,790
Income tax receivable 119,208 234,730
Inventory of goods for resale 4,505,114 3,413,157
Prepaid and other charges 232,114 218,077
Future income taxes 166,520 360,229
------------ ------------
9,048,950 9,067,632
Investments (Note 4) 99,558 118,521
Capital assets (Note 5) 467,924 256,592
Future income taxes 358,700 242,151
Other assets (Note 6) - 504,284
Goodwill 6,712,761 6,639,851
------------ ------------
$ 16,687,893 $ 16,829,031
============ ============
- -------------------------------------------------------------------------------
Liabilities
Current
Bank credit facilities (Note 7) $ 4,477,803 $ 1,346,349
Accounts payable and accrued liabilities 4,116,472 4,242,498
Current portion of long term debt (Note 8) 1,250,000 302,435
------------ ------------
9,844,275 5,891,282
Long term debt (Note 8) 579,167 216,751
------------ ------------
10,423,442 6,108,033
------------ ------------
Shareholders' Equity
Convertible debt (Note 9) 2,719,567 5,351,218
Capital stock (Note 10) 14,290,097 9,442,747
Deficit (10,745,213) (4,072,967)
------------ ------------
6,264,451 10,720,998
------------ ------------
$ 16,687,893 $ 16,829,031
============ ============
- -------------------------------------------------------------------------------
Commitments and contingencies (Note 11 & 12)
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Officeland Inc.
Consolidated Statement of Cash Flows
(Expressed in U.S. dollars)
Year Ended November 30 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in cash equivalents
Operating
Net earnings (loss) before discontinued
operation $ (5,396,966) $ 449,868 $ 1,097,218
Depreciation and amortization 575,916 104,786 42,086
Goodwill writedown 2,000,000 - -
Future income taxes 122,000 48,832 (47,067)
-------------- ------------ -------------
(2,699,050) 603,486 1,092,237
Changes in non-cash operating working
capital related to continuing operations
Receivables 1,711,964 (1,591,485) 83,543
Inventory (158,907) (478,894) (831,879)
Prepaids 28,392 16,403 (12,748)
Other assets 504,287 (504,287) -
Accounts payable and accruals (1,293,185) 988,278 (966,818)
Income taxes 115,522 (328,870) 213,760
Future income taxes (25,840) (45,508) (278,900)
-------------- ------------ -------------
Cash used before discontinued
operations (1,816,817) (1,340,877) (700,805)
Cash used in discontinued operations (61,691) (45,223) (87,579)
-------------- ------------ -------------
(1,878,508) (1,386,100) (788,384)
-------------- ------------ -------------
Financing
Increase in bank credit facilities 2,781,453 25,000 -
Issuance of long term debt 2,000,000 - -
Repayment of long term debt (675,040) (4,400) (8,362)
Convertible debentures - 3,241,790 -
Issuance of common shares 2,702 784 11,378
Issuance of warrants - - 66
Repurchase of common shares (34,629) - (47,408)
Issuance of units - - 2,385,232
Share issue costs (581,001) - (264,813)
Issuance of Class B shares 1,118,266 - -
-------------- ------------ -------------
Cash provided before discontinued operations 4,611,751 3,263,174 2,076,093
-------------- ------------ -------------
Investing
Purchase of investments - - (89,143)
Acquisition (Note 2a) (1,516,391) - -
Acquisition (Note 2b) (471,461) - -
Acquisition (Note 2c) - (306,975) -
Acquisition (Note 2d) - (2,456,423) -
Purchase of capital assets (278,223) (93,233) (48,899)
Repayment of advance from investment 18,963 - -
-------------- ------------ -------------
Cash used before discontinued operations (2,247,112) (2,856,631) (138,042)
-------------- ------------ -------------
Effect of foreign exchange remeasurement 21,365 11,003 (350,295)
-------------- ------------ -------------
Net increase (decrease) in cash 507,496 (968,554) 799,372
Cash and cash equivalents
Beginning of year 72,649 1,041,203 241,831
-------------- ------------ -------------
End of year $ 580,145 $ 72,649 $ 1,041,203
============== ============ =============
Interest paid $ 316,039 $ 30,951 $ -
============== ============ =============
Taxes paid $ 20,106 $ 234,730 $ -
============== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
- --------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- --------------------------------------------------------------------------------
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. (see Discontinued Operations
Note 15)
- --------------------------------------------------------------------------------
1. 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. 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.
Use of estimates
In preparing the Company's financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories, consisting of equipment for resale, are valued at the lower of cost
and net realizable value. Cost is determined on a specific item basis for
certain equipment and on the first-in, first-out method for other categories of
inventory.
Depreciation
Rates of depreciation are applied to write off the cost of capital assets less
estimated salvage value over their estimated useful lives. Furniture and
equipment are depreciated on the diminishing balance basis at 20% per year.
Automotive equipment is depreciated on the diminishing balance basis at 20% per
year. Computer equipment is depreciated on the diminishing balance basis at 30%
per year.
F-5
<PAGE>
- --------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- --------------------------------------------------------------------------------
1. Accounting policies (continued)
Amortization of intangibles
Goodwill is amortized on a straight line basis over its estimated life of 20
years. On an ongoing basis, the Company reviews the measurement of goodwill for
possible impairment based primarily on the ability to recover the balance of
goodwill from expected future operating cash flows on an undiscounted basis.
During 1999 based upon an independent valuation prepared using a cash flow model
the value of Goodwill was reassessed and management determined that the
amortization period should change from 40 years to 20 years. Accordingly, 1999
goodwill amortization has been provided on a straight-line basis using this
revised estimated remaining life. For the year ended November 30, 1999 this
change in estimate has resulted in an increase in amortization expense and a
decrease in goodwill resulting in a decrease in earnings from continuing
operations for the year of $237,452.
Functional currency
During 1998 the Company determined that the functional currency was the United
States dollar, not the Canadian dollar. This change was adopted because of the
Company's new strategic focus and organization structure. During 1998 the
Company acquired two subsidiaries located in the United States resulting in
substantial increased activity therein, accordingly, the financial statements
are presented in US dollars. Non-monetary assets and liabilities are remeasured
using the historical exchange rates. Monetary assets and liabilities are
remeasured based on the rate in effect at the balance sheet date. Revenues and
expenses related to non-monetary items are remeasured using the historical
exchange rate that apply to the related assets while those related to monetary
items are remeasured using the average exchange rate for the period. For 1998,
the historical rate applied to non-monetary items is the exchange rate as at
November 30, 1997. Exchange gains and losses resulting from the remeasuring are
charged to income in the year. The comparative numbers for 1997 have been
remeasured using the relevant balance sheet rate for assets and liabilities and
the average rate for the year for the revenues and expenses.
Revenue recognition
Equipment revenue is recognized at the time of sale of the equipment.
Commissions on the sale of consignment office equipment are recorded at the time
of sale. Commissions for auction services are recorded when the services are
rendered.
F-6
<PAGE>
- --------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- --------------------------------------------------------------------------------
1. Accounting policies (continued)
Agency and collection fees revenue is recognized when a client receivable is
collected from the debtor and remitted to the client. Legal expenses are
expensed at the same time as revenue is recognized. Prior to collection, legal
expenses are identified on a debtor by debtor basis and are deferred. The
deferred amounts, net of estimated allowance for non-recovery, are included in
prepaid expenses until expensed. Amounts which are considered non-recoverable
are expensed and included in cost of sales.
Income taxes
The Company has recorded tax benefits of the net operating losses that are
available to offset future income taxes because it is the Company's belief,
beyond a reasonable doubt, that these benefits will be realized in future
periods.
The Company has provided for the tax benefits of temporary timing differences
related primarily to differing bases of certain assets and liabilities for
financial statement and income tax reporting purposes.
Barter transactions
The Company engages in barter sales and purchases, whereby it exchanges for
goods and services the right to acquire other goods and services. For income tax
purposes, the transactions are recorded in the accounts at the notional amounts
reflected in the respective transaction documents. Under generally accepted
accounting principles, these amounts are discounted to fair values.
2. Business acquisitions
a) Acquisition of Eastern Equipment Brokers Inc.
On January 1, 1999, the Company acquired a 100% equity interest in Eastern
Equipment Brokers Inc., a wholesaler and re-manufacturer of used photocopiers
located in Bridgeport, Connecticut, for consideration of $1,400,000 cash and
675,000 common shares of Officeland Inc. (market value at the date of
acquisition $1,107,000) for total consideration of $2,665,701 including costs to
effect the acquisition, plus additional earn out consideration to be paid by the
issue of shares. The 675,000 common shares are placed in escrow and will be
delivered on January 1, 2001.
The vendor shall be paid an additional earn out amount of shares for the three
year period commencing December 1, 1998. The additional earn out consideration
will be one share for a specified amount of profits in excess of predefined base
amounts. The additional consideration is subject to a maximum of 350,000 earn
out shares. The additional consideration for the twelve months ended December
31, 1999 cannot be reasonably determined at this time.
The acquisition was accounted for by the purchase method of accounting. The
purchase price included professional fees and other direct costs of the
acquisition. Goodwill is being amortized on a straight line basis over it's
estimated useful life of 20 years.
F-7
<PAGE>
- --------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- --------------------------------------------------------------------------------
2. Business acquisitions (continued)
b) Acquisition of Digital Document Solutions, Inc.
On January 1, 1999 the Company acquired all of the assets of Digital Document
Solutions, Inc. a closely held Connecticut corporation. Digital Document
Solutions, Inc. is in the business of selling, leasing and servicing
re-manufactured photocopiers. The assets of Digital Document Solutions, Inc.
were purchased for consideration of $665,000 in cash and for total consideration
of $692,675 including costs to effect the acquisition.
The acquisition was accounted for by the purchase method of accounting. The
purchase price included professional fees and other direct costs of the
acquisition.
c) Acquisition of The Wholesale Group Inc.
On May 12, 1998, the Company acquired a 100% equity interest in The Wholesale
Group Inc. a used photocopier wholesaler and exporter located in Anaheim,
California, for consideration of $361,000 cash and 425,000 common shares of
Officeland Inc. (market value at the date of acquisition $1,408,025) for total
consideration of $1,817,174, including costs to effect the acquisition. As at
November 30, 1999, 219,000 of the total 425,000 shares have been issued with the
balance placed in escrow to be issued as follows: May 12, 2000, 100,000 shares;
and May 12, 2001, 106,000 shares.
The acquisition was accounted for by the purchase method of accounting. The
purchase price included professional fees and other direct costs of the
acquisition. Goodwill is being amortized on a straight line basis over its
estimated useful life of 20 years.
d) Acquisition of The Telecom Corporation of Chicago
On October 9, 1998, the Company acquired a 100% equity interest in The Telecom
Corporation of Chicago Inc. a re-manufacturer and marketer of used fax machines,
small copiers and printers located in Wauconda, Illinois, for consideration of
$2,600,000 cash, 750,000 common shares of Officeland Inc. (market value at the
date of acquisition $930,000) and a $500,000 note for total consideration of
$4,142,146, including costs to effect the acquisition, plus additional earn out
consideration to be paid in cash or by the issue of shares. The 750,000 common
shares are placed in escrow and will be issued as follows: January 1, 2000,
225,000 shares; January 1, 2001, 300,000 shares; and January 1, 2002, 225,000
shares. The note bears interest at the rate of 5% per annum and is repayable in
equal quarterly instalments of $62,500 plus accrued interest commencing April 1,
1999.
The vendor shall be paid an additional amount of cash or shares for the three
year period commencing December 1, 1998. The Company shall have the discretion,
on a year to year basis, in determining whether to pay cash or shares, subject
to the vendor requesting up to a maximum of 40% of the additional consideration
in cash. The additional consideration is based on annual profits in excess of
predefined base amounts. The additional consideration is
F-8
<PAGE>
- --------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- --------------------------------------------------------------------------------
2. Business acquisitions (continued)
subject to a maximum amount of 350,000 earn out shares in value. The additional
consideration cannot be reasonably determined at this time. For the twelve month
period ended November 30, 1999, the predefined base amount was not achieved and
no additional consideration is payable as at November 30, 1999.
The acquisition was accounted for by the purchase method of accounting. The
purchase price included professional fees and other direct costs of the
acquisition. Goodwill is being amortized on a straight line basis over it's
estimated useful life of 20 years.
e) The allocation, on the acquisition date, of the Company's investments is
as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------ ---------------------------
Eastern Digital The Telecom
Equipment Document Wholesale Corporation
Brokers Inc. Solutions Inc. Group Inc. of Chicago
------------ -------------- ---------- -----------
<S> <C> <C> <C> <C>
Cash (net of bank indebtedness) $ - $ 221,214 $ - $ -
Non-cash current assets 807,852 578,863 662,363 1,971,631
Capital assets 51,768 9,314 19,620 123,962
Other assets - - 76,236 259,000
Goodwill arising from acquisition 3,176,448 - 1,668,085 4,372,019
------------ ----------- ----------- -----------
Total assets 4,036,068 809,391 2,426,304 6,726,612
------------ ----------- ----------- -----------
Bank indebtedness (net of cash)
assumed 307,690 - 2,826 960,626
Long term debt - - 21,965 -
Accounts payable and other liabilities 1,062,677 116,716 584,339 1,623,840
------------ ----------- ----------- -----------
1,370,367 116,716 609,130 2,584,466
------------ ----------- ----------- -----------
Total purchase price $ 2,665,701 $ 692,675 $ 1,817,174 $ 4,142,146
============ =========== =========== ===========
Consideration
Cash paid, incl. costs to effect
acquisition $ 1,558,701 $ 692,675 $ 409,149 $ 2,712,146
Note payable - - - 500,000
Shares issued - - 228,597 -
Shares issued in escrow 1,107,000 - 1,179,428 930,000
------------ ----------- ----------- -----------
Total consideration $ 2,665,701 $ 692,675 $ 1,817,174 $ 4,142,146
============ =========== =========== ===========
Net cash paid
Cash, per above $ 1,558,701 $ 692,675 $ 409,149 $ 2,712,146
Less: Cash acquired (42,310) (221,214) (102,174) (255,723)
------------ ----------- ----------- -----------
Net cash paid $ 1,516,391 $ 471,461 $ 306,975 $ 2,456,423
============ =========== =========== ===========
</TABLE>
F-9
<PAGE>
- --------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- --------------------------------------------------------------------------------
2. Business combinations (continued)
The proforma summary financial information for 1999 and 1998 which reflects the
purchases as if they occurred at December 1, 1997 is as follows:
(Unaudited) (Unaudited)
1999 1998
---- ----
Revenues $27,426,858 $33,315,914
Net income (loss) $(6,041,075) $ 335,926
Earnings (loss) per share, basic $ (0.90) $ 0.06
Earnings (loss) per share, fully diluted $ (0.90) $ 0.05
- --------------------------------------------------------------------------------
3. Cash
Cash includes a trust bank account in which monies collected on behalf of agency
and collection clients are deposited until transferred to the clients. The trust
funds at the year end were $5,474 (1999) and $3,809 (1998).
- --------------------------------------------------------------------------------
4. Investments
Investments are recorded at cost and represent the Company's investment in two
companies which are in the developmental stage of operation. The companies are
not publicly traded, and hence there is no substantive market value information.
The Company's investment does not represent significant influence in the
entities. The investment consists of:
1999 1998
---- ----
Common shares $ 71,113 $ 71,113
Advances 28,445 47,408
---------- ----------
$ 99,558 $ 118,521
========== ==========
F-10
<PAGE>
- --------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- --------------------------------------------------------------------------------
5. Capital assets 1999 1998
---- ----
Cost
Furniture and equipment $ 692,930 $ 576,529
Automotive equipment 111,386 120,670
Computer equipment 324,751 186,300
------------ ----------
$ 1,129,067 $ 883,499
============ ==========
Accumulated depreciation
Furniture and equipment $ 430,160 $ 384,915
Automotive equipment 47,272 87,926
Computer equipment 183,711 154,066
------------ ----------
$ 661,143 $ 626,907
============ ==========
Net book value
Furniture and equipment $ 262,770 $ 191,614
Automotive equipment 64,114 32,744
Computer equipment 141,040 32,234
------------ ----------
$ 467,924 $ 256,592
============ ==========
- --------------------------------------------------------------------------------
6. Other assets
Other assets in 1998 include:
(i) Costs related to the issuance of the convertible debenture $452,661 (see
Note 9) which will be charged to equity when the debentures are
converted. The amount has been capitalized as share issue costs in 1999.
(ii) Costs of $51,623 related to acquisition of EEB. Amount has been recorded
as part of the purchase price of the acquisition in 1999.
- --------------------------------------------------------------------------------
7. Bank credit facilities
At November 30, 1999 short term bank facilities consisted of operating lines of
credit in the aggregate amount of $5,650,000 with banks in the United States and
Canada. At November 30, 1999 $4,477,803 (1998: $1,346,349) has been utilized.
The Company has provided a charge over all of the tangible and intangible
property of the Company.
The agreements covering the bank loans contain a number of covenants. The
covenants require the Company to maintain certain financial ratios as defined
under the loan agreements.
F-11
<PAGE>
- --------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- --------------------------------------------------------------------------------
8. Long term debt 1999 1998
---- ----
Various equipment loans. $ - $ 14,979
Two year Term Note bearing interest
equal to the prime rate plus 1/2% in the
first year and at the prime rate in the
second year repayable in equal monthly
instalments of $83,333 plus
accrued interest commencing May 1, 1999. 1,516,667 -
Unsecured note payable bearing interest
at 5% per annum, repayable in equal
quarterly instalments of $62,500 plus
accrued interest, maturing January 1, 2001. 312,500 504,207
----------- -----------
1,829,167 519,186
Less: current portion 1,250,000 302,435
----------- -----------
$ 579,167 $ 216,751
=========== ===========
Interest paid on long term debt $ 107,230 $ 3,542
=========== ===========
- --------------------------------------------------------------------------------
9. Convertible debt 1999 1998
---- ----
Acquisition consideration payable in
common shares based on the market value
of the shares at the date of acquisition
(206,000 shares @ $3.313); shares to be
issued as described in Note 2(c). $ 682,567 $ 1,179,428
Acquisition consideration payable in
common shares based on the market value
of the shares at the date of acquisition
(750,000 shares @ $1.240); shares to be
issued as described in Note 2(d). 930,000 930,000
F-12
<PAGE>
- --------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- --------------------------------------------------------------------------------
9. Convertible debt (continued) 1999 1998
---- ----
Acquisition consideration payable in
common shares Based on the market value
of the shares at the date of acquisition
(675,000 shares @ $1.64); shares to be
issued as described in Note 2 (a). 1,107,000 -
Convertible notes issued June 1998, due
June 4, 2001, bearing interest at 12%
per annum. If the notes are converted no
interest shall be payable. The notes are
convertible into units, each unit being
comprised of one Class A special share
and one warrant to purchase one common
share. The warrants have an exercise
price of $3.75 and expire June 4, 2003.
The notes are automatically converted
into units at $3.40 if the Company
achieves certain audited results for
fiscal 1998. The Company has achieved
these results and has accordingly, not
recorded any interest expense. - 1,304,539
Convertible notes issued November 1998,
due November 10, 2001, bearing interest
at 12% per annum. If the notes are
converted no interest shall be payable.
The notes are convertible into units,
each unit being comprised of one Class B
special share plus one $1.50 warrant and
one $2.00 warrant. The $1.50 warrants
expire on November 10, 2003 and the
$2.00 warrants expire on November 10,
2003. The notes are automatically
converted into units at $3.40 if the
Company achieves certain audited results
for fiscal 1998. The Company has
achieved these results and has
accordingly, not recorded any interest expense. - 1,937,251
----------- -----------
$ 2,719,567 $ 5,351,218
=========== ===========
Convertible Note
During the year, all the convertible notes were converted to 420,169 Class A
special shares and 455,882 Class B special shares based on the pre-established
conversion price of $3.40 per share.
F-13
<PAGE>
- --------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- --------------------------------------------------------------------------------
10. Capital stock
Authorized:
Unlimited number common shares
Unlimited number of Class A special shares
Unlimited number of Class B special shares
Unlimited number of Class C special shares
Unlimited number of Class D special shares
Unlimited number of Class E special shares
Unlimited number of Class F special shares
Unlimited number of restricted voting class shares
<TABLE>
<CAPTION>
1999 1998
---- ----
Issued:
<S> <C> <C>
5,695,257 common shares (1998 - 5,538,798) $ 9,840,163 $ 9,340,600
420,169 Class A special shares (1998-0) 1,304,539 -
969,538 Class B special shares (1998-0) 3,077,877 -
9,500,000 restricted voting class shares (1998-9,500,000) 6,672 6,672
1,375,000 warrants (1998 - 1,375,000) 95,475 95,475
------------ -----------
14,324,726 9,442,747
Common shares in treasury (34,629) -
------------ -----------
$ 14,290,097 $ 9,442,747
============ ===========
</TABLE>
i) During 1999, the convertible notes issued on June 4, 1998 were
automatically converted to share capital under the terms of the note
indenture. They were exchanged for 420,169 Class A special shares. The
amount added to the share capital was $1,304,539, based on the
pre-established conversion rate. At the balance sheet date, 218,488
Class A special shares, in the amount of $678,365, remained to be
delivered.
ii) During 1999 14,706 Class B special shares with a market value of $22,358
were issued in settlement for services rendered pursuant to service
agreements. The shares have been recorded at $22,358.
iii) On February 2, 1999 the Company issued 6,459 common shares pursuant to
the exercise of options under the 1996 Employee Stock Option Plan. The
shares have been recorded at $2,702, being the cash received. For US
GAAP purposes the fair market value consideration, if any, was recorded
in the year the options were granted.
iv) During 1999, the convertible notes issued on November 10, 1998 were
automatically converted to share capital under the terms of the note
indenture. They were exchanged for 623,950 Class B special shares. The
amount added to the share capital was $1,937,251, based on the
pre-established conversion rate.
F-14
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
10. Capital stock (continued)
v) On April 20, 1999 the Company issued for cash 330,882 Class B special
shares. The amount added to the share capital was $1,118,266.
vi) On May 12, 1999 the Company issued 150,000 common shares as partial
consideration for the acquisition of The Wholesale Group Inc. as
disclosed in Note 2 (c). This is the second share entitlement issued by
the Company under the purchase agreement. These shares have been
recorded at $496,861, the value ascribed to them at the date of the
acquisition.
vii) The Company entered into a share repurchase plan in 1999 to repurchase
its common shares. During 1999 the Company repurchased 40,000 common
shares at prices ranging from $0.92 to $0.84 per share. The total
consideration paid was $34,629.
viii) On April 3, 1998, 5,000 common shares with a market value of $17,190
were issued in settlement for services rendered pursuant to consulting
agreements. The shares have been recorded at $0. For US GAAP purposes
the shares have been recorded at $17,190.
ix) On May 12, 1998 the Company issued 69,000 common shares with a market
value of $228,597 as partial consideration for the acquisition of The
Wholesale Group, Inc. The shares have been recorded at $228,597.
x) On September 23, 1998, 73,465 common shares with a market value of
$91,830 were issued for a combination of $784 cash. The shares have been
recorded at $784. For US GAAP purposes the shares are recorded at
$91,830. For US GAAP purposes the market value adjustment disclosures
($91,046) are included in Note 19 (a)(iii).
xi) The Company has reserved 5,331,714 common shares to meet the Company's
obligations outstanding related to warrants, employee stock option plan
and other arrangements.
xii) On July 15, 1998 the Company granted 571,292 options to employees
pursuant to the Employee Stock Option Plan. The plan enables the Company
to issue a total of 1,150,000 options under certain conditions until
November 30, 2001. This is the second grant entitlement issued by the
Company under the plan. This issue is exercisable at $3.00 and expires
July 15, 2003. In December 1998, the Company cancelled the plan. The
options granted prior to this date are exercisable until the expiry date
as stated when issued.
xiii) On March 15, 1999 the Company granted 10,000 options to one of its
executives pursuant to a plan under which a maximum of 41,535 options
may be granted. The issue is exercisable at $0.01 per share and expires
January 2003. For US GAAP the excess of the market value over the
exercise price has been recorded as compensation expense (see Note 19(a)
(iii)).
F-15
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
10. Capital stock (continued)
xiv) On December 2, 1998 the Company granted 310,000 options to its board of
directors pursuant to a plan. The issue is exercisable at $0.625 per
share and expires December 2003. The options vest as to one third on the
anniversary of the grant date, until fully vested (December 2001).
Outstanding options and warrants as at the balance sheet date are as follows:
<TABLE>
<CAPTION>
Number Exercise Number
Identification Outstanding Price Expiry Date Authorized
- -------------- ----------- ----- ----------- ----------
<S> <C> <C> <C> <C>
March warrants 500,000 $ 3.63 August 12, 2001 500,000
Unit warrants 805,000 $ 3.30 March 25, 2000 805,000
Underwriter warrants 70,000 $ 3.75 March 25, 2002 70,000
Units underlying
underwriter warrants 70,000 $ 3.30 March 25, 2000 70,000
Bridge warrants 60,000 $ 3.00 March 25, 2000 60,000
Coffins warrants 50,000 $ 3.30 March 25, 2000 50,000
Executive options 10,000 $ 0.01 January 2003 41,535
Board options 310,000 $ 0.62 December 2, 2003 310,000
Employee stock options 404,151 $ 0.40 October 1,2002 410,610
Employee stock options 571,292 $ 3.00 July 15, 2003 571,292
Class A Warrants 336,135 $ 3.75 June 2003 336,135
Class B Warrants 707,983 $ 2.00 November 2003 707,983
Class B Warrants 707,983 $ 1.50 November 2003 707,983
Class B Warrants 345,588 $ 2.00 April 2004 345,588
Class B Warrants 345,588 $ 1.50 April 2004 345,588
------------- ---------
5,293,720 5,331,714
============= =========
</TABLE>
- --------------------------------------------------------------------------------
11. Commitments
i) Lease arrangements
The Company has entered into agreements to rent premises with expiry
dates ranging from 2004 to 2008. Minimum rent payable for premises for
each of the next five years are as follows:
2000 $ 725,046
2001 734,208
2002 743,294
2003 742,788
2004 643,384
Thereafter 1,321,077
-------------
$ 4,909,797
=============
F-16
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
11. Commitments (continued)
ii) Employment contracts
The Company and its subsidiaries have employment contracts with its key
employees for terms expiring from 2000 to 2001.
- -------------------------------------------------------------------------------
12. Contingencies
The Company has an outstanding letter of guarantee for $16,984 as required by
the Collection Agencies Act of Ontario. The letter of guarantee is secured by a
cash deposit of equal value. The letter of guarantee is required to secure the
proper handling of trust funds.
- -------------------------------------------------------------------------------
13. Income taxes
The following table reconciles the statutory federal and provincial incomes
taxes to the effective income tax on earnings before taxes.
<TABLE>
<CAPTION>
1998 1998 1997
---- ---- ----
<S> <C> <C> <C>
Combined basic income tax $ (2,261,770) $ 216,934 $ 599,134
Goodwill writedown 870,000 - -
Lower effective tax rate on loss
(earnings) of U.S. subsidiaries 33,652 (4,940) -
Other adjustments (90,278) 149,068 (115,361)
Valuation allowance 1,645,891 - -
------------- ----------- ------------
197,495 361,062 483,773
Tax benefit realized on tax loss carryforward - (312,230) (203,671)
------------- ----------- ------------
$ 197,495 $ 48,832 $ 280,102
============= =========== ============
</TABLE>
The components of the Company's income tax expense are as follows:
1999 1998 1997
---- ---- ----
Current $ 75,495 $ - $ 327,169
Future income taxes 122,000 48,832 (47,067)
------------- ----------- ------------
$ 197,495 $ 48,832 $ 280,102
============= =========== ============
F-17
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
13. Income taxes (continued)
Future income taxes result primarily from the difference between claiming
capital cost allowance on the Company's equipment for income tax purposes and
depreciation expense for accounting purposes, and income taxes related to
expenses of the common share offerings and net operating losses carryforward.
The components of the Company's future income taxes are as follows:
1999 1998
---- ----
Share issue costs $ 317,365 $ 209,735
Loss carryforward benefit 1,948,906 586,502
Capital assets 54,679 66,975
Other 85,900 -
-------------- -------------
2,406,850 863,212
Valuation allowance (1,881,630) (260,832)
-------------- -------------
$ 525,220 $ 602,380
============== =============
The loss carryforward for income tax purposes amounts to approximately
$4,596,000. The loss carryforward expires as follows:
2005 $ 661,000
2006 3,733,000
2018 202,000
- -------------------------------------------------------------------------------
14. Earnings per share
Under Canadian GAAP earnings per share are based on the weighted average common
shares outstanding. Weighted average common shares used in the computation of
earnings per share are 6,715,661, 5,446,507, and 5,115,673 in 1999,1998, and
1997 respectively. The weighted average common shares plus dilutive shares used
in the computation of fully diluted earnings per share are 6,715,661, 6,701,073,
and 6,379,350 in 1999, 1998, and 1997 respectively.
F-18
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
14. Earnings per share (continued)
Under US GAAP basic earnings per share excludes dilution and is computed by
dividing income available to common shareholders by the weighted average common
shares outstanding during the period. Diluted earnings per share takes into
account the potential dilution that occur if securities or other contracts to
issue common shares were exercised and converted into common shares. The
weighted average common shares used in the computation of earnings per share are
6,715,661, 5,446,507, and 5,115,673 in 1999, 1998, and 1997 respectively. The
weighted average common shares plus dilutive shares used in the computation of
fully diluted earnings per share are 6,715,661, 5,718,585, and 5,565,641 in
1999, 1998, and 1997 respectively.
- --------------------------------------------------------------------------------
15. Discontinued Operations
In October 1999 the Company elected to enter into a formal plan to discontinue
the operations of its wholly owned subsidiary, Metropolitan Collection Service
Inc. ("MCSI"). The Company is currently in negotiations with several interested
purchasers. It is the Company's intent to sell all of the outstanding capital
stock of MCSI. Summary operating results of the discontinued business segment
follows:
1999 1998 1997
---- ---- ----
Revenues $ 282,524 $ 451,327 $ 383,106
--------- --------- ---------
Loss before income taxes $ (65,438) $ (68,437) $ (53,440)
Income tax benefit (provision) - - -
--------- --------- ---------
Loss from discontinued operations (65,438) (68,437) (53,440)
Estimated loss on disposal (606,480) - -
--------- --------- ---------
Loss from discontinued operation $(671,918) $ (68,437) $ (53,440)
========= ========= =========
Summary of carrying values of remaining assets
and liabilities of discontinued operation included
in the balance sheet
1999 1998
---- ----
Cash $ 45,455 $ 71,731
Accounts receivable 63,845 64,298
Prepaids - 96,260
Goodwill - 642,290
---------- ---------
109,300 874,579
Current Liabilities 3,357 9,098
---------- ---------
Net assets $ 105,943 $ 865,481
========== =========
F-19
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
16. Concentrations
During 1999 the Company had one major supplier; purchases from that supplier
approximate 20% (20% - 1998, 0% - 1997), in 1998 the Company had another which
approximated 30% (40% - 1997) of inventory purchases. In the event procurement
from the first one of these vendors were to be interrupted, the effect on the
Company could be adverse. The company has other suppliers for product similar to
the second mentioned supplier.
The Company derives approximately 90% (90% - 1998, 95% - 1997) of its revenues
within the United States. During 1998 the Company derived approximately 28%
(0% - 1997) of its revenue from one customer.
- -------------------------------------------------------------------------------
17. Related party transactions
The subsidiary companies lease facilities in the United States from companies
controlled by the previous shareholders under terms and conditions reflecting
prevailing market conditions at the time the leases were entered into.
Approximately 78,500 square feet has been leased for various terms expiring
between October 31, 2003 and December 31, 2007. Amounts paid for leased space to
the previous shareholders during 1999 were $496,000 ($190,000, 1998).
- -------------------------------------------------------------------------------
18. Financial instruments
Credit risk
Concentrations of credit risk with respect to receivables are limited due to the
large number of customers and their dispersion across both geographical areas
and industry segments.
Foreign currency risk
The Company operates primarily in U.S dollars.
Interest risk
The Company is exposed to interest rate risk because the interest on all of its
debt is based on the lender prime, which may vary from time to time.
Fair values
The estimated fair value of cash and cash equivalents, receivables, income tax
receivable, inventory of goods for resale, bank credit facilities, accounts
payables and accrued liabilities approximates carrying value due to the
relatively short term nature of the instruments and/or floating interest rates
on the instruments. The estimated fair value of long term debt also approximates
carrying value due to the relatively short term to maturity and/or effective
interest rates that are not significantly different from market rates.
F-20
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
19. Reconciliation to accounting principles generally accepted in the United
States of America
In certain respects, Canadian generally accepted accounting principles
("Canadian GAAP") differ from United States generally accepted accounting
principles ("US GAAP").
(a) Statement of earnings
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss) from continuing operations
according to Canadian GAAP $ (5,396,966) $ 449,868 $ 1,097,218
------------ ------------ ------------
Consulting fees (i) -- (17,190) (38,875)
Interest expense (ii) -- -- (97,385)
Employee compensation (iii) (9,638) (91,046) (1,554,423)
Foreign exchange loss (gain) (iv) -- (6,275) (249,648)
Income tax loss benefit (v) (198,047) 38,841 95,978
------------ ------------ ------------
(207,685) (75,670) (1,844,353)
------------ ------------ ------------
Net (loss) earnings from continuing operations
According to US GAAP (5,604,651) 374,198 (747,135)
------------ ------------ ------------
Discontinued operations (671,918) (68,437) (53,440)
Goodwill adjustment (vi) 89,705 3,092 3,306
Legal expenses (vii) 94,533 19,188 8,922
------------ ------------ ------------
(487,680) (46,157) (41,212)
------------ ------------ ------------
Net income (loss) according to US GAAP (6,092,331) 328,041 (788,347)
Deficit, beginning of year (6,184,918) (6,512,959) (5,724,612)
------------ ------------ ------------
Deficit, end of year $(12,277,249) $ (6,184,918) $ (6,512,959)
============ ============ ============
Basic earnings (loss) per share before
discontinued operations $ (0.84) $ 0.07 $ (0.15)
Discontinued operations (0.07) (0.01) --
------------ ------------ ------------
$ (0.91) $ 0.06 $ (0.15)
============ ============ ============
Fully diluted earnings (loss) per share before
discontinued operations $ (0.84) $ 0.07 $ (0.15)
Discontinued operations (0.07) (0.01) --
------------ ------------ ------------
$ (0.91) $ 0.06 $ (0.15)
============ ============ ============
</TABLE>
F-21
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
19. Reconciliation to accounting principles generally accepted in the United
States of America (continued)
(i) Under US GAAP where shares are issued in settlement of services received
the shares issued must be recorded at the market value of the shares
issued. During 1998, the Company issued 5,000 shares which had a market
value of $17,190. Under Canadian GAAP these shares have been recorded
for proceeds of $nil. During 1997, the Company issued 16,000 shares with
a market value of $50,253. Under Canadian GAAP these shares have been
recorded for proceeds of $11,378. The differences are reflected here as
additional consulting fees expenses.
(ii) In December 1996 the Company issued 120,000 common shares (the "bridge
shares"), 120,000 bridge warrants and promissory notes for proceeds of
$240,000. In March 1997 the Company restructured the financing and
issued 60,000 private placement warrants with an exercise price of
$3.00, in exchange for the investors returning 71,667 bridge shares and
all the bridge warrants. The proceeds of $240,000 were allocated to
share capital in the amount of $97,385 and the balance ($142,615) to
notes payable. When the Company repaid the notes the difference of the
book value ($142,615) and the face value ($240,000) of the notes (the
repayment amount) is reflected as interest expense.
(iii) Under US GAAP where stock options are issued to directors or employees
for services, any excess of the market price of the shares at the time
of issue of the options over the exercise price must be recorded as
compensation expense. Upon exercise of the options, the cash received is
added to the recorded share capital. Under Canadian GAAP the shares are
recorded when exercised, at which time they will be recorded at the
value of the cash received. On January 22, 1999, the Company issued
10,000 options for shares with a market value, which exceeded the
exercise price by $9,638. This amount is reflected as additional
compensation expense in 1999.
On September 23, 1998, 73,465 options were issued and exercised which
had a market value of $91,830. Under Canadian GAAP these shares have
been recorded for proceeds of $784. The difference of $91,046 is
reflected as additional compensation expense.
In October 1997, the Company issued 410,612 options for shares with a
market value, which exceeded the exercise price by $1,554,423. This
amount is reflected as additional compensation expense in 1997.
(iv) As discussed in Note 1 under Functional Currency, exchange gains or
losses resulting from the remeasurement of the financial statements to
the functional currency are charged to income in the year. Under US GAAP
translation adjustments are reported separately and accumulated in a
separate component of equity for the prior periods.
F-22
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
19. Reconciliation to accounting principles generally accepted in the United
States of America (continued)
(v) Under US GAAP deferred income tax benefits are recognized for the future
tax benefits of net tax loss carryforward when it is more likely than
not that the tax benefit will be realized. Under Canadian GAAP the
benefit is recognized when there is reasonable assurance of realization
during the carryforward period. The income tax expense adjustment
reflects this difference in benefit valuation. The US GAAP reconciling
items in the reconciliation of net income are of a permanent nature, and
have no income tax effect.
(vi) Goodwill has been adjusted at each balance sheet date for the effect of
goodwill valuation adjustment at the date of acquisition, less the
adjustment to the goodwill amortization thereon.
(vii) As discussed in Note 1 under Revenue Recognition the Company defers
certain legal expenditures. Under US GAAP these expenditures must be
expensed as incurred.
<TABLE>
<CAPTION>
(b) Balance sheets November 30, 1999
----------------------------
Canadian US
GAAP Adjustment GAAP
---- ---------- ----
<S> <C> <C> <C>
Current assets $ 9,048,950 (109,300) $ 8,939,650
Net assets held for resale -- 105,943 105,943
Capital assets 467,924 467,924
Other assets 99,558 99,558
Deferred income tax benefit 358,700 358,700
Goodwill 6,712,761 6,712,761
------------ ------------
$ 16,687,893 $ 16,684,536
============ ============
Current liabilities $ 9,844,275 (3,357) $ 9,840,918
Long term debt 579,167 579,167
Convertible debenture 2,719,567 2,719,567
Capital stock (iii) 14,290,097 1,588,197 15,878,294
Cumulative translation adjustment -- (56,161) (56,161)
Retained earnings (10,745,213) (1,532,036) (12,277,249)
------------ ------------
$ 16,687,893 $ 16,684,536
============ ============
</TABLE>
F-23
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
19. Reconciliation to accounting principles generally accepted in the United
States of America (continued)
November 30, 1998
------------------------------
Canadian US
GAAP Adjustment GAAP
---- ---------- ----
Current assets (i) $ 9,067,632 $ (232,289) $ 8,835,343
Net assets held for resale -- 681,243 681,243
Capital assets 256,592 -- 256,592
Other assets 622,805 -- 622,805
Deferred income tax benefit (i) 242,151 198,047 440,198
Goodwill (ii) 6,639,851 (642,290) 5,997,561
------------ ------------
$ 16,829,031 $ 16,833,742
============ ============
Current liabilities $ 5,891,282 (9,098) $ 5,882,184
Long term debt 216,751 216,751
Convertible debenture 5,351,218 5,351,218
Capital stock (iii) 9,442,747 2,181,921 11,624,668
Cumulative translation adjustment -- (56,161) (56,161)
Retained earnings (4,072,967) (2,111,951) (6,184,918)
------------ ------------
$ 16,829,031 $ 16,833,742
============ ============
(i) Legal expenses and deferred income tax benefit has been adjusted at each
balance sheet date to reflect their treatment under US GAAP.
The components of the Company's deferred income tax benefit are as
follows:
1999 1998
---- ----
Current (included in current assets)
Share issue costs $ -- $ 30,410
Loss carry forward benefit 80,620 329,819
Other 85,900 --
----------- -----------
166,520 360,229
----------- -----------
Long term deferred benefit
Capital assets 54,679 66,975
Share issue costs 317,365 179,325
Loss carryforward benefit 1,868,286 513,001
----------- -----------
2,240,330 759,301
Valuation allowance (1,881,630) (319,103)
----------- -----------
358,700 440,198
----------- -----------
Total deferred tax asset $ 525,220 $ 800,427
=========== ===========
F-24
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
19. Reconciliation to accounting principles generally accepted in the United
States of America (continued)
(ii) Goodwill has been adjusted at each balance sheet date for the effect of
goodwill valuation adjustment at the date of acquisition, less the
adjustment to the goodwill amortization thereon, as discussed in Note
19(a)(vi).
(iii) The Capital Stock adjustment primarily reflects the cumulative effect of
the fair market value adjustments related to stock issuance and the
reclassification of share issue costs from retained earnings to share
capital as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 11,624,668 $ 11,361,780 $ 7,705,101
Issued cash and services 22,358 17,190 50,253
Issued financing arrangements -- -- 97,385
Issue of units for cash 1,120,968 784 2,289,823
Issue of stock options 9,638 91,046 1,554,423
Issue of warrants for cash -- -- 95,475
Redeem warrants -- -- (47,408)
Share issue costs (603,362) (74,729) (383,272)
Shares issued for acquisition 496,862 228,597 --
Repurchase of shares (34,629) -- --
Issued on conversion on notes 3,241,791 -- --
------------ ------------ -----------
Balance, end of year $ 15,878,294 $ 11,624,668 $ 11,361,780
============ ============ ============
</TABLE>
(c) Stock options
The Company has a stock option plan accounted for under APB Opinion 25 and
related interpretations. The plan allows the Company to grant options to
employees up to an aggregate of 1,150,000 common shares. The plan provides that
no options are available for grant if the Company does not achieve a base amount
of pre-tax profits in any fiscal year. The number of options which are available
for grant would be one option for each dollar of pre-tax income in excess of the
base amount. The options, which have a term expiring November 30, 2001 vest
immediately. The exercise price for each option is no less than US$0.20 per
share for the first two years in which options may be granted and US$0.30 per
share thereafter. The exercise price is below the market price and accordingly a
compensation expense is recognized.
F-25
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
19. Reconciliation to accounting principles generally accepted in the United
States of America (continued)
The Company adopted SFAS no. 123 "Accounting for Stock-Based Compensation, on
December 1, 1996. The standard contains a fair value based method for valuing
stock-based compensation that entities may use, and measures compensation cost
at the grant date based on the fair value of the award. Compensation is then
recognized over the service period, which is usually the vesting period.
Alternatively, the standard permits entities to continue accounting for employee
stock options and similar equity instruments under Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Entities that
continue to account for stock options using APB Opinion No. 25 are required to
make pro forma disclosures of net income and earnings per share, as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied. The
Company's stock option plans are accounted for under APB Opinion no. 25.
Had compensation cost for the above stock option plan been determined based on
the fair value of the options at the grant dates consistent with the method of
SFAS No. 123, the Company's net income and diluted earnings per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net income (loss), US GAAP As reported $(6,092,331) $ 328,041
Pro forma $(6,161,172) $ (968,792)
Net income (loss) per share,
US GAAP, Basic As reported $ (0.91) $ 0.06
Pro forma $ (0.92) $ (0.17)
Net income (loss) per share,
US GAAP, Diluted As reported $ (0.91) $ 0.06
Pro forma $ (0.92) $ (0.17)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options pricing model with the following weighted average
assumptions used for grants in 1999 and 1998, respectively. Expected volatility
of 100% in 1999 and 96.9% in 1998; risk free interest rate of 4.38% and
5.51% in 1999 and 1998, respectively; and expected lives of 5 years.
F-26
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
19. Reconciliation to accounting principles generally accepted in the United
States of America (continued)
A summary of the status of the Company's option plans as of November 30, 1999
and 1998 and changes during the years ending on those date is represented below:
<TABLE>
<CAPTION>
1999 1998
--------------------------- --------------------------
Shares Weighted Avg. Shares Weighted Avg.
Exercise Price Exercise Price
<S> <C> <C> <C> <C>
Outstanding, beginning of year 981,902 $ 1.91 410,610 $ 0.40
Granted 320,000 0.61 571,292 3.00
Exercised (6,459) 0.40 -- --
--------- -------
Outstanding, end of year 1,295,443 $ 1.59 981,902 $ 1.91
========= =======
Options exercisable at year-end 1,295,433 -- 981,902 --
========= =======
Weighted average fair value of options
granted during the year $ 0.58 $ 2.27
======== ========
</TABLE>
The following table summarizes information about options outstanding and
exercisable at November 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Range of Weighted Avg.
Exercise Number Remaining Weighted Avg. Number
Prices Outstanding Contractual Life Exercise Price Exercisable
<S> <C> <C> <C> <C>
$0.01 to $0.02 10,000 4.3 years $0.01 10,000
$0.40 to $0.60 404,451 2.9 years $0.40 404,151
$0.62 to $0.93 310,000 4.0 years $0.625 --
$3.00 to $4.50 571,292 3.6 years $3.00 571,292
-------------- -------------
1,295,443 985,443
============== =============
</TABLE>
F-27
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
19. Reconciliation to accounting principles generally accepted in the United
States of America (continued)
(d) Financial Accounting Standard Board Pronouncements
There are no current pronouncements which affect the company's reporting
practices.
- -------------------------------------------------------------------------------
20. Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change has occurred, it is not possible to be certain that
all aspects of the Year 2000 Issue affecting the company, including those
related to the efforts of customers, suppliers, or other third parties will be
fully resolved.
- -------------------------------------------------------------------------------
21. Comparative numbers
Certain of the comparative figures for 1998 and 1997 have been reclassified to
conform with the financial statements presentation adopted for 1998.
F-28
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
22. Industry segments
The Company operates primarily in one industry. Operations in the office
equipment industry comprise the sale and service of purchased and consignment
office equipment. Management monitors operations within this one industry
segment by geographic segment as follows:
<TABLE>
<CAPTION>
1999
------------------------------------------------------------------------------------
N.E. Telecom Mid U.S.
The Wholesale Corporation Eastern Equipment
Core Group Inc. of Chicago Brokers, Inc. Total
---- ------------- --------------- ------------------ -----
<S> <C> <C> <C> <C> <C>
Revenue from customers
outside the enterprise $ 4,282,290 $ 5,963,622 $ 11,547,012 $ 5,036,895 $ 26,828,819
Segment operating gross
profit $ (2,458,831) $ 17,017 $ (515,769) $ 101,650 (2,855,933)
Discontinued operations (671,918)
Goodwill writedown $ (2,000,000) (2,000,000)
Goodwill amortization (461,248)
Foreign exchange gain (loss) (79,785)
-------------
Net earnings $ (6,068,884)
=============
Identifiable assets $ 3,226,624 $ 2,537,021 $ 6,032,596 $ 4,891,652 $ 17,027,893
Capital expenditures $ 35,813 $ 17,991 $ 126,339 $ 98,080 $ 278,223
Depreciation $ 46,220 $ 8,956 $ 37,553 $ 21,939 $ 114,668
1998
-------------------------------------------------------------------------------------
N.E. Telecom Mid U.S.
The Wholesale Corporation Eastern Equipment
Core Group Inc. of Chicago Brokers, Inc. Total
---- ------------- --------------- ------------------ -----
Revenue from customers
outside the enterprise $ 12,039,728 $ 2,524,043 $ 1,915,999 $ - $ 16,479,770
Segment profit $ 600,281 $ (3,874) $ 141,166 - 737,572
Discontinued operation (68,437)
Goodwill amortization (42,543)
Foreign exchange gain(loss) (245,162)
-------------
Net earnings $ 381,431
=============
Identifiable assets $ 7,030,947 $ 2,914,543 $ 6,883,541 $ - $ 16,829,031
Capital expenditures $ 70,253 $ - $ 22,980 $ - $ 93,233
Depreciation and amortization $ 30,656 $ 5,693 $ - $ - $ 36,349
</TABLE>
The 1997 results represent the Core segment only.
F-29
<PAGE>
- -------------------------------------------------------------------------------
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Year Ended November 30, 1999
- -------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the consolidated
statement of earnings and deficit, consolidated balance sheet and consolidated
statement of cash flows included in the Company's Form 10-KSB for the fiscal
year ended November 30, 1999, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1998
<PERIOD-END> NOV-30-1999
<CASH> 580
<SECURITIES> 0
<RECEIVABLES> 3,445
<ALLOWANCES> 0
<INVENTORY> 4,505
<CURRENT-ASSETS> 9,048
<PP&E> 467
<DEPRECIATION> 575
<TOTAL-ASSETS> 16,687
<CURRENT-LIABILITIES> 9,884
<BONDS> 0
0
0
<COMMON> 14,290
<OTHER-SE> 2,719
<TOTAL-LIABILITY-AND-EQUITY> 16,687
<SALES> 26,828
<TOTAL-REVENUES> 26,828
<CGS> 19,054
<TOTAL-COSTS> 12,577
<OTHER-EXPENSES> 79
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 316
<INCOME-PRETAX> (5,199)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,396)
<DISCONTINUED> 671
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,068)
<EPS-BASIC> (0.90)
<EPS-DILUTED> (0.90)
</TABLE>
