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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________________to______________________
Commission file number 0-21418
TREATS INTERNATIONAL ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3495199
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
418 Preston St., Ottawa, Ontario, Canada K1S 4N2
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(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code (613) 563-4073
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- -------------------------- ------------------------------------------------
- -------------------------- ------------------------------------------------
Securities registered pursuant to section 12(g) of the Act:
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(Title of class)
Common Stock $.001 par value
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(Title of class)
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Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]Yes [ ]No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part 111 of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is U.S. $619,510. The aggregate market value was computed by
reference to the average bid and asked prices as of September 12, 1996.
(U.S.$0.125)
It was assumed for determination of affiliates, that all principal shareholders
over 10% and officers are affiliated.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock $.001 par value 19,024,598
----------------------------- --------------------------------------
Title of Class Shares outstanding at June 30, 1996
DOCUMENTS INCORPORATED BY REFERENCE
2
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TREATS INTERNATIONAL ENTERPRISES, INC.
FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1996
INDEX PAGE
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PART 1
Item 1 Business 4 - 5
Item 2 Properties 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 6
PART 11
Item 5 Market for the Registrant's Securities
and Related Stockholder Matters 7 - 8
Item 6 Selected Consolidated Financial Data 9 - 10
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 16
Item 8 Financial Statements and Supplementary Data 17 - 57
Item 9 Changes In and Disagreements with Accountant
on Accounting and Financial Disclosure 58
PART 111
Item 10 Directors and Executive Officers of the Registrant 59 - 60
Item 11 Executive Compensation 61
Item 12 Security Ownership of Certain Beneficial Owners and
Management 62 - 63
Item 13 Certain Relationships and Related Transactions 64 - 65
PART 1V
Item 14 Schedules 66 - 69
SIGNATURES 70
3
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PART 1
ITEM 1 BUSINESS
Treats International Enterprises, Inc. (the "Company") was incorporated
under the laws of Delaware on October 28, 1988 under the name S.L. Resources,
Inc. ("SLR"). The Company was formed as a blank check company to participate in
business opportunities which the founding shareholder of S.L. Resources believed
would arise from time to time. On July 21, 1989, SLR completed an initial
public offering of 7,000,000 Units, Common Stock and Warrants with net proceeds
of (US) $528,000.
On January 31, 1992, the Company acquired all of the issued and outstanding
shares of Triadon Capital Corporation ("TCC") in exchange for 29,999,998
(9,999,999 post 1 for 3 reverse split) shares of common stock of the Company.
Subsequently, the Company changed its name to Treats International Enterprises,
Inc. and operated its business through its wholly-owned subsidiary Treats Inc.
Treats Inc. is the parent company to a number of other entities, specifically:
CHOCOLATE GOURMET TREATS LIMITED ("CGTL")
TREATS ONTARIO INC.
TREATS INTERNATIONAL INC.
TRIADON INVESTMENT GROUP INC. ("TIG")
ACCOUNTING AND CONSULTING INC.
Treats International Enterprises, Inc. is an international franchisor
carrying on the business of selling the right to market the Treats System. The
Treats System entails the preparation and sale of cookies, muffins, gourmet
specialty coffees, and related food and beverage products in retail stores using
a system and methodology of marketing developed and designed by the Company and
identified by the trademark TREATS.
As at September 30, 1996 there were 169 retail units in North America
utilizing the Treats System. 167 of these units are owned and operated by
franchisees, while 2 are at present corporately managed. 163 units are located
in Canada and 6 are located in the United States.
The Company grants both single unit franchises and area development
franchises throughout Canada and the United States. While there are currently
no operations outside of North America, it is the Company's intention to sell
National Licenses in the future. The Company is currently able to sell
franchises in most States of the United States with the exception of North
Dakota. The Company has taken no steps to comply with any other International
government franchise regulatory agencies.
4
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ITEM 1 BUSINESS (CONT'D)
The Company markets essentially three variations on the Treats concept.
The Treats Bakery, normally 250 - 500 square feet in size with no seating area
of its own, the Treats Bakery Cafe, normally 500 - 2,500 square feet in size
with its own seating arrangement, and Treats International Coffee Emporium
varies normally 500 - 2,000 square feet with its own seating arrangements.
Treats franchise stores are found in a variety of locations including office
complexes, shopping malls, mixed use properties (commercial location with a
shopping area), street front locations, transportation terminals, and
universities. The Company seeks locations or sites in high pedestrian traffic
areas, where high visibility prevails.
For substantially all single store franchises in Canada, the Company or one
of its subsidiaries has entered into a lease (the "Head Lease") with the
relevant landlord and the location is sub-leased at the same cost to the
franchisee. The Head Lease is the lease agreement between the landlord and the
entity which signs it ("Tenant"). The Tenant is bound by the terms and
conditions thereof. Generally for stores opened by an Area Franchisee, the
franchisee enters into the head lease directly and the head lease is
collaterally assigned to the Company. The collateral assignment means the
Company does not have all the rights and obligations associated with entering
into the head lease. It gives the Company the right, but not the obligation, to
assume the franchisee's position under the Head Lease if the franchisee defaults
under its obligations under the Area Franchise Agreement with the Company.
Franchisee in this context means the person who enters into the Franchise
Agreement in a location covered under an Area Franchise Agreement.
Treats' franchisees prepare their baked goods on site daily in order to
ensure wholesomeness and to attract customers with provocative fresh baked
smells. The Company's principal products are prepared according to proprietary
recipes in many cases using dry mixes which have been manufactured to the
Company's specifications by the Quaker Oats Company of Canada.
5
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ITEM 2 PROPERTIES
The Company at present owns no real properties.
LEASED PREMISES
The Company currently leases space for its head office in Ottawa, Canada.
The Company has a lease commitment until April 30, 2001. (See Related Party
Transactions Part 111 Item 13)
ITEM 3 LEGAL PROCEEDINGS
The Company is a defendant in the following civil litigation:
(i) Triadon Investment Group Inc., a subsidiary company, is named in
an action by the Royal Bank of Canada the largest common shareholder
of the Company, and judgement was awarded against the subsidiary for
$119,353. As the subsidiary company is inactive and without assets,
no provision has been recorded in respect of this judgement.
(ii) The Company is also a defendant in several actions arising in the
normal course of business, for example; lease disputes and dispute
with franchisee, the final outcome of which cannot be determined at
this time.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Security Holders.
6
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PART 11
ITEM 5 MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS
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The Company's securities, primarily the Units, Common Stock and Warrants,
have been quoted in the over-the-counter market since August 1989. The number
of record holders of the Company's Common Stock at June 30, 1996, was 1,161.
Management does not know the number of beneficial holders of the shares of
Common Stock. Commencing in January 1992, the Common Stock has been quoted
separately. Management has no knowledge whether the volume of trading since
January 31, 1992 constitutes an active market or whether an active market will
develop.
Through December 31, 1991, the high and low bid and asked prices for the
Company's Units were reported in the NASDAQ pink sheets.
Starting February 1992 to June 21, 1993, the Common Stock was quoted on the
computerized bulletin board of NASDAQ under the symbol TRTN.
On June 10, 1993, the Company approved a 1 for 3 reverse split, effective
on June 21, 1993 and all prices set forth after June 21, 1993, are adjusted for
the reverse split.
As of June 21, 1993, the Common Stock has been quoted on the computerized
bulletin board of NASDAQ under the symbol TIEI.
The following table set forth the high and low bid and asked prices for the
Company's stock. Prices represent quotations between dealers without adjustment
for retail mark-ups, markdowns or commissions, and may not represent actual
transactions.
7
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ITEM 5 MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS
(CONT'D)
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Quarter Ended High Bid Low Bid High Asked Low Asked
- ------------- -------- ------- ---------- ---------
(US $) (US $) (US $) (US $)
As of June 21, 1993, the Common Stock has been quoted on the computerized
bulletin board of NASDAQ under the symbol TIEI. Quotations are as follows:
June 30, 1993 3.000 2.500 4.500 4.000
September 30, 1993 1.500 1.000 5.000 4.500
December 31, 1993 0.750 1.000 4.250 2.000
June 30, 1994 0.5625 0.5625 3.000 2.000
September 30, 1994 0.625 0.250 1.250 0.500
December 31, 1994 0.125 0.125 0.250 0.250
March 31, 1995 0.21875 0.21875 0.40625 0.40625
June 30, 1995 0.1875 0.1875 0.3125 0.3125
September 30, 1995 0.1875 0.1875 0.3125 0.3125
December 31, 1995 0.125 0.125 0.3125 0.3125
March 31, 1996 0.1875 0.1875 0.3125 0.3125
June 30, 1996 0.1875 0.1875 0.3125 0.3125
September 30, 1996 0.0625 0.0625 0.1875 0.1875
8
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ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA
The following chart of selected consolidated financial data of the Company
for five fiscal years ended June 30, 1996, are derived from the consolidated
financial statements of the Company. The Company presents its financial results
in Canadian dollars. For the convenience of the reader, the results for the
year ended June 30, 1996, have been converted into U.S. dollars, at the
prevailing rate of exchange.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
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Treats International Enterprises, Inc.
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For the Year Ended June 30
---------------------------------------------------------------------------------
1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(US) $ (1) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA :
Cash $60 $243 $5
Current Assets $921 1,256 1,069 990 907 541
Franchise Rights $7,532 10,275 10,984 11,692 11,462 12,126
Total Assets $9,914 13,525 13,435 13,808 13,149 13,711
Current Liabilities $1,354 1,847 2,254 2,257 2,552 3,257
Working Capital (Deficit) ($433) (591) (1,185) (1,267) (1,645) (2,716)
Long Term Liabilities $1,671 2,279 1,758 2,234 4,819 5,772
Non-Controlling Interest 232 232 1,397 1,772
Stockholders' Equity (Deficit) $6,889 9,399 9,192 9,084 4,382 2,959
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</TABLE>
(1) The Company's financial results are expressed in Canadian Dollars. For the
convenience of the reader only, the results for the last fiscal year have
been converted into United States Dollars at the Bank of Canada rate on :
June 30,1996
Conversion rate : One (1) (US) Dollar equals : $1.3643
9
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ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA (CONT'D)
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
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Treats International Enterprises, Inc.
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For the Year Ended June 30
------------------------------------------------------------------------------------
1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(US) $ (1) (in thousands, except for per share and restaurant data)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA :
Revenues
Royalties $1,352 $1,842 $1,947 $2,001 $1,989 $1,921
Supplier incentives
commissions and other $876 1,194 1,001 1,024 966 866
Sales of managed franchise stores $1,545 2,106 1,579 812 523 1,164
Proprietary products 250 341
Franchise fees 104 142 351 272 341 438
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Total 4,127 5,625 4,878 4,109 3,819 4,389
Expenses
Head office administration $1,495 2,037 1,850 1,878 1,796 1,875
Managed franchise stores $1,525 2,079 1,687 832 587 1,287
Amortization $616 839 789 767 755 743
Franchising 89 121 168 230 284 258
Interest 183 249 276 215 339 983
Proprietary products 216 294
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Total 4,123 5,619 4,771 3,922 3,761 5,146
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Income (Losses) before income taxes 4 6 107 187 58 (757)
Income taxes
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Net Income (Loss) 4 6 107 187 58 (757)
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Avg No. of Shares Outstanding (2) 19,996 19,996 20,742 18,507 12,273 18,443
Earnings (Loss) per Share (0.01) (0.02) 0.00 0.01 0.00 (0.04)
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Number of Treats units in Chain 166 166 171 164 160 159
Other concept (closed) 0 0 0 0 1 2
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</TABLE>
(1) The Company's financial results are expressed in Canadian Dollars. For the
convenience of the reader only, the results for the last fiscal year have
been converted into United States Dollars at the Bank of Canada rate on :
June 30,1996
Conversion rate : One (1) (US) Dollar equals : 1.363017
(2) The Company has 19,024,598 shares outstanding. Net profit (loss) per share
is calculated based on the weighted average number of shares oustanding for
the period. (see Note 13, June 30,1996, Note 13, June 30,1995/1994)
10
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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(All numbers are in Canadian $ unless otherwise noted)
GENERAL
* THE YEAR ENDED JUNE 30, 1996 COMPARED TO THE YEAR ENDED JUNE 30, 1995.
The system-wide retail sales for the twelve months ended June 30, 1996 were
$30,269,836, a 2.0% decrease over sales of $30,893,698 for the previous fiscal
year.
While the Company has opened 9 new franchise locations during the past
fiscal year, the number of units has remained relatively static for a number of
reasons. The lack of working capital for development and marketing support has
had significant impact on the Company's plans for growth.
In response to the success of concepts such as Starbucks, the Company has
developed a Treats concept with a strong focus on gourmet and specialty
coffees. To date the Company has opened and, or converted 11 locations of
this concept variation which have generally been very well received. Concept
development is complete as at June 30, 1996. The Company intends to actively
pursue new locations featuring the coffee Emporium concept.
RESULTS OF OPERATIONS
* THE YEAR ENDED JUNE 30, 1996 COMPARED TO THE YEAR ENDED JUNE 30, 1995.
Total revenue for the year ended June 30, 1996 was $5,625,000 compared to
$4,878,000 for the previous fiscal year. This increase of $747,000, or 15.3%
resulted from:
* Sales of managed restaurants increased $527,000 or 33.4% to $2,106,000
for the year ended June 30, 1996 compared to $1,579,000 for the 12
months last year.
* Revenue from royalties for the year decreased $105,000 to $1,842,000
compared to $1,947,000 last year.
* Revenue from supplier incentives increased 19.25% in the twelve months
to $1,193,000 from $1,001,000 last year.
* Revenue from franchising has decreased 59.5% in the year to $142,000
compared to $352,000 last year.
* The Company in this year commenced purchasing certain proprietary
products directly from manufacturers, selling those products to
distributors for delivery to the Companies owned and franchised
stores. Revenues from those sales were $341,000.
11
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ITEM 7 MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
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RESULTS OF OPERATIONS (CONT'D)
Expenses for the year ended June 30, 1996 increased $848,000 to $5,619,000
compared to $4,771,000 for the twelve months ended June 30, 1995. The net
increase in cost and expenses relate to the following:
* Franchising costs, which are marketing related, were 28.2% lower at
$121,000 compared to $168,000 for last year.
* Administration cost increased by 10.1% to $2,037,000 compared to $1,850,000
for last year.
* Costs associated with managed restaurants' operations increased by $393,000
or 23.3% from $1,687,000 to $2,080,000 year to year, a direct result of the
increase in the number of managed stores.
* Interest expense decreased by $27,000, or 9.8%, to $249,000 from $276,000
for the 12 months last year.
* The cost of purchasing certain proprietary products for resale to
distributors introduced in this fiscal year was $294,000.
Net Income for the year ended June 30, 1996 was $6,000 compared to a net
income of $107,000 for the year ended June 30, 1995.
CAPITAL RESOURCES - June 30, 1996
The Company's capital asset requirements, as stated in the past, are not
very demanding. Funds are needed to upgrade the reporting system from
franchisees. The present system is adequate for the time being but new
electronic sales recording equipment will improve the royalty collection through
improved control and more efficient collection.
LIQUIDITY AND CASH FLOW - June 30, 1996
The working capital deficit at the year end improved by $593,000 to
$(591,000) at June 30, 1996 compared to $(1,184,000) at June 30, 1995. The June
30, 1995 working capital deficit position had also improved by $82,000 over the
June 30, 1994 position.
The cash flow from operations during fiscal 1996 was $657,000 compared to
$585,000 in fiscal 1995.
12
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ITEM 7 MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
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LIQUIDITY AND CASH FLOW (CONT'D)
DEBT TO EQUITY:
The ratio of debt to equity is constant at the end of the current financial
year. The ratio at June 30, 1996 was .28 to 1 compared to .3 to 1 as at June
30, 1995.
IN THE YEAR:
The term loan facility of $673,500 with Standard Chartered Bank of Canada
which became due on January 1, 1996 was acquired by 3193853 Canada Inc., the
president of which is a family member of the Chief Executive Officer of the
Company. The principal amount of $660,000, repayable in monthly instalments of
$10,000 plus interest at prime plus 2.5% is due in March 2001. The term loan
balance at year end was $608,000.
The Company negotiated a term loan with the Business Development Bank of
Canada repayable in 50 monthly instalments of $2,000 plus interest at prime plus
4%. The term loan balance at year end was $96,000, it is due on June 23, 2000.
On February 29, 1996 the Company arranged new banking facilities with the
Bank of Nova Scotia.
Effective January 31, 1996 a debenture held by the Royal Bank of Canada
which was due on October 31, 1996 was renegotiated to a due date of June 30,
2001. Principal payments in the fiscal year ending June 30, 1997 are $10,000
per month plus interest at 8%. The balance of the debenture as at June 30, 1996
was $1,129,562.
13
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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(All numbers are in Canadian $ unless otherwise noted)
GENERAL
* THE YEAR ENDED JUNE 30, 1995 COMPARED TO THE YEAR ENDED JUNE 30, 1994.
The system-wide retail sales for the twelve months ended June 30, 1995 were
$30,893,698 a 2.3% increase over sales of $30,191,710 for the previous fiscal
year.
While the Company has opened 21 new franchise locations during the past
fiscal year, the number of units has remained relatively static for a number of
reasons. The lack of working capital for development and marketing support has
had significant impact on the Company's plans for growth.
In response to the success of concepts such as Starbucks, Barneys and
Gloria Jean's, the Company has developed a "hybrid" Treats concept with a very
strong focus on gourmet coffees. The Coffee Emporium concept in the Orlando,
Florida market area has been under development in co-operation with the area
developer. Two different size locations have been opened on a test basis and
development is expected to be complete by June 30, 1996. Other locations are
under negotiation.
RESULTS OF OPERATIONS
* THE YEAR ENDED JUNE 30, 1995 COMPARED TO THE YEAR ENDED JUNE 30, 1994.
Total revenue for the year ended June 30, 1995 was $4,878,000 compared to
$4,109,000 for the previous fiscal year. This increase of $769,000, or 18.7%
resulted primarily from the increased numbers of managed restaurants, from nine
to fifteen at June 30, 1995. Sales of managed restaurants increased $767,000 or
94.5% to $1,579,000 for the year ended June 30, 1995 compared to $812,000 for
the 12 months last year. Revenue from royalties for the year decreased $54,000
to $1,947,000 compared to $2,001,000 last year. Revenues from supplier
incentive declined 2.3% in the twelve months to $1,001,000 from $1,024,000 last
year. The revenues from franchising have improved 29.0% in the year to $351,000
compared to $272,000 last year.
14
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ITEM 7 MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONT'D)
Expenses for the year ended June 30, 1995 increased $849,000 to $4,771,000
compared to $3,922,000 for the twelve months ended June 30, 1994. The net
increase in cost and expenses relate to the following:
* Franchising costs, which are marketing related, were 27.0% lower at
$168,000 compared to $230,000 for last year.
* Administration cost decreased by 1.5% to $1,850,000 compared to $1,878,000
for last year.
* Costs associated with managed restaurants' operations increased by $855,000
or 102.8% from $832,000 to $1,687,000 year to year, a direct result of the
increase in the number of managed stores.
* Interest expense increased by $61,000, or 28.4%, to $276,000 from $215,000
for the 12 months last year as a result of the Royal Bank of Canada
converting their special shares and a subordinated interest free debenture
into preference shares and a 8% debenture as of June 30, 1994.
Net Income for the year ended June 30, 1995 was $107,000 compared to a net
income of $187,000 for the year ended June 30, 1994. The decrease in
profitability is a result of the higher interest charges and the negative impact
from the increase in managed stores.
CAPITAL RESOURCES - June 30, 1995
The Company's capital asset requirements, as stated in the past, are not
very demanding. Funds are needed to upgrade the reporting system from
franchisees. The present system is adequate for the time being but new
electronic sales recording equipment will improve the royalty collection through
better control and faster collection.
LIQUIDITY AND CASH FLOW - June 30, 1995
The working capital deficit at the year end was improved by $82,000 to
$(1,185,000) at June 30, 1995 compared to $(1,267,000) at June 30, 1994. The
June 30, 1994 working capital deficit position had also been improved by
$378,000 over the June 30, 1993 position.
The cash flow from operations during fiscal 1995 was $585,000 compared to
$1,140.000 in fiscal 1994. The operational cash flow was lower due to the
reduced net profit combined with higher use of cash to fund the increase in
accounts receivable and paydown of trade accounts over the twelve month period
ended June 30, 1995.
15
<PAGE>
ITEM 7 MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
- -------------------------------------------------------------------------------
LIQUIDITY AND CASH FLOW (CONT'D)
DEBT TO EQUITY:
The ratio of debt to equity is constant at the end of the current financial
year. The ratio at June 30, 1995 was .3 to 1 compared to .3 to 1 as at June 30,
1994.
The Company has been advised by their principal bankers that the term loan
which is due in January 1996, will not be extended. The Company is currently
seeking new bankers with the objective of obtaining more favourable repayment
terms for the outstanding balance of $673,500.
The Royal Bank has agreed to extend its debenture to a longer pay back in
conjunction with the revised terms of the new banking arrangement. Management
is confident that the new banking arrangement will be in place before the loan
is due in January 1996.
Subsequent to the June 1994 debt restructure, the Company reserved 350,000
common shares for the Royal Bank of Canada, to be issued at nominal
consideration, in the event the Company was unsuccessful in raising U.S. $4
Million in new equity by June 30, 1995. New equity was not raised by June 30,
1995 and subsequent to year end, the Royal Bank was issued 350,000 common
shares.
16
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TREATS INTERNATIONAL ENTERPRISES, INC.
Consolidated Financial Statements 1996 compared to 1995 Pages 18 to 36
Consolidated Financial Statements 1995 compared to 1994 Pages 37 to 57
17
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CONSOLIDATED FINANCIAL STATEMENTS
TREATS
INTERNATIONAL
ENTERPRISES,
INC.
June 30, 1996 and 1995
--------
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[LOGO]
ORENSTEIN & PARTNERS
CHARTERED ACCOUNTANTS
A MEMBER OF HORWATH INTERNATIONAL
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
INDEX
Page
1 Auditors' Report
2 - 3 Consolidated Balance Sheets
4 Consolidated Statements of Income and Deficit
5 Consolidated Statements of Cash Flow
6 Consolidated Statements of Stockholders' Equity
7 - 17 Notes to the Consolidated Financial Statements
<PAGE>
AUDITORS' REPORT
TO THE SHAREHOLDERS OF
TREATS INTERNATIONAL ENTERPRISES, INC.
We have audited the consolidated balance sheets of TREATS INTERNATIONAL
ENTERPRISES, INC. as at June 30, 1996 and 1995 and the consolidated statements
of income and deficit, cash flow and of stockholders' equity for the years ended
June 30, 1996, 1995 and 1994. 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 financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 1996 and
1995 and the results of its operations and its cash flow for the years ended
June 30, 1996, 1995 and 1994 in accordance with accounting principles generally
accepted in Canada (which also conform in all material respects with accounting
principles generally accepted in the United States).
ORENSTEIN & PARTNERS
Chartered Accountants
Toronto, Canada
August 14, 1996
- 1 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NOTE 1996 1995
- -----------------------------------------------------------------------------------------------
$ $
ASSETS
<S> <C> <C> <C>
CURRENT
Cash - 59,764
Accounts receivable 384,570 461,647
Prepaid expenses 206,826 186,838
Construction work in process 352,198 58,721
Current portion of notes receivable 312,633 302,499
--------------------------------
1,256,227 1,069,469
FRANCHISE STORES HELD FOR RESALE 660,373 546,217
DEFERRED EMPORIUM COSTS 228,113 162,354
NOTES RECEIVABLE 3 892,517 338,133
CAPITAL ASSETS 4 193,836 268,293
ADVERTISING COMMITMENT 5 19,310 66,768
FRANCHISE RIGHTS 6 10,274,780 10,983,561
--------------------------------
13,525,156 13,434,795
--------------------------------
--------------------------------
</TABLE>
Approved on behalf of the Board:
Director
---------------------------------
Director
---------------------------------
See the accompanying notes
- 2 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
(Canadian dollars)
<TABLE>
<CAPTION>
Note 1996 1995
- --------------------------------------------------------------------------------------------------------
$ $
LIABILITIES
<S> <C> <C> <C>
CURRENT
Accounts payable and accrued liabilities 1,479,357 1,520,083
Current portion of long-term debt 180,371 733,500
Bank indebtedness 187,218 -
--------------------------
1,846,946 2,253,583
LONG-TERM DEBT 7 2,044,364 1,517,927
LEASE SECURITY DEPOSITS 234,989 221,589
DEFERRED REVENUE - 18,079
--------------------------
4,126,299 4,011,178
NON-CONTROLLING INTEREST IN
SUBSIDIARY 8 - 232,000
--------------------------
4,126,299 4,243,178
--------------------------
COMMITMENTS AND CONTINGENCIES 9
STOCKHOLDERS' EQUITY
CAPITAL STOCK 10
Preferred
Authorized, 10,000,000 non-voting, cumulative
shares, dividends at U.S.$.028 per share (Cdn. $.038
per share), redeemable at option of company at
U.S. $1 per share, par value U.S.$0.50
Issued, 5,409,825 series A shares 3,732,779 3,732,779
Common
Authorized, 33,333,333 shares, par value
U.S.$0.001
Issued, 19,024,598 shares (1995 - 20,741,942) 19,025 20,742
Additional paid-in capital 10,757,739 10,555,028
--------------------------
14,509,543 14,308,549
DEFICIT (5,110,686) (5,116,932)
--------------------------
9,398,857 9,191,617
--------------------------
13,525,156 13,434,795
--------------------------
--------------------------
</TABLE>
See the accompanying notes
- 3 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND DEFICIT
YEAR ENDED JUNE 30, 1996, 1995 AND 1994
(Canadian dollars)
<TABLE>
<CAPTION>
Note 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
$ $ $
<S> <C> <C> <C> <C>
REVENUES
Sales of managed franchise stores 2,106,368 1,579,323 811,928
Royalties 1,841,848 1,946,830 2,000,840
Supplier incentives, commissions and other 1,193,382 1,000,781 1,024,032
Proprietary products 341,229 - -
Franchising 142,275 351,532 272,210
-----------------------------------------
5,625,102 4,878,466 4,109,010
-----------------------------------------
EXPENSES
Managed franchise stores 2,079,390 1,687,363 831,853
Head office and administration 2,036,743 1,850,134 1,877,625
Proprietary products 293,743 - -
Interest 248,793 276,045 214,615
Franchising 120,936 168,366 230,759
Amortization 839,251 789,347 766,726
-----------------------------------------
5,618,856 4,771,255 3,921,578
-----------------------------------------
NET INCOME FOR THE YEAR 12 6,246 107,211 187,432
DEFICIT, BEGINNING OF YEAR (5,116,932) (5,224,143) (5,411,575)
-----------------------------------------
DEFICIT, END OF YEAR (5,110,686) (5,116,932) (5,224,143)
-----------------------------------------
-----------------------------------------
EARNINGS PER SHARE 13 (0.01) 0.00 0.01
-----------------------------------------
-----------------------------------------
</TABLE>
See the accompanying notes
- 4 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED JUNE 30, 1996, 1995 AND 1994
(Canadian dollars)
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
$ $ $
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES
<S> <C> <C> <C>
OPERATING
Net income for the year 6,246 107,211 187,432
Items not affecting cash
Amortization 839,251 789,347 766,726
Interest expense related to annual accretion of
Royal Bank of Canada subordinated debenture 75,000 75,000 75,000
Changes in non-cash operating working capital items (263,714) (386,541) 110,657
--------------------------------------------------
656,783 585,017 1,139,815
--------------------------------------------------
FINANCING
Issue of preference shares - - 3,732,779
Issue of common shares 350 - 894,108
Warrants exercised - - 270,077
Cancellation of common shares (2,067) - -
Bank indebtedness 187,218 - -
Long-term debt (101,692) (317,977) (3,330,403)
Deferred revenue (18,079) (94,406) 25,842
Due to related parties accretion adjustment - - 325,050
Share issue costs (29,289) - (381,597)
Redemption of non-controlling interest in subsidiary 232,000 - -
--------------------------------------------------
268,441 (412,383) 1,535,856
--------------------------------------------------
INVESTING
Franchise rights - - (894,108)
Non-controlling interest in subsidiaries (232,000) - (840,055)
Non-controlling interest accretion adjustment - - (325,050)
Notes receivable (564,518) (26,659) 211,120
Purchase of capital assets (56,013) (140,059) (24,077)
Advertising commitment 47,458 51,118 (162,940)
Franchise stores held for resale (114,156) (77,921) (403,070)
Deferred emporium costs (65,759) (162,354) -
--------------------------------------------------
(984,988) (355,875) (2,438,180)
--------------------------------------------------
NET CASH INFLOW (OUTFLOW) (59,764) (183,241) 237,491
CASH POSITION, BEGINNING OF YEAR 59,764 243,005 5,514
--------------------------------------------------
CASH POSITION, END OF YEAR - 59,764 243,005
--------------------------------------------------
--------------------------------------------------
</TABLE>
See the accompanying notes
- 5 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 10)
YEAR ENDED JUNE 30, 1996, 1995 AND 1994
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
REDEEMABLE, CONVERTIBLE
---- PREFERRED SHARES ---- -------COMMON SHARES-------
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
$ $ $
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 - - 18,500,887 9,793,182 (5,411,575) 4,381,607
Common shares issued on conversion
of minority interest special shares - - 1,619,760 894,108 - 894,108
Conversion of Royal Bank of Canada
subordinated debenture to preferred shares 5,409,825 3,732,779 - - - 3,732,779
Warrants exercised - - 621,295 270,077 - 270,077
Share issue costs - - - (381,597) - (381,597)
Net income for the year - - - - 187,432 187,432
--------------------------------------------------------------------------------------
Balance, June 30, 1994 5,409,825 3,732,779 20,741,942 10,575,770 (5,224,143) 9,084,406
Net income for the year - - - - 107,211 107,211
--------------------------------------------------------------------------------------
Balance, June 30, 1995 5,409,825 3,732,779 20,741,942 10,575,770 (5,116,932) 9,191,617
Common shares issued - - 350,000 350 - 350
Cancellation of common shares - - (2,067,344) (2,067) - (2,067)
Share issue costs (29,289) - (29,289)
Redemption of non-controlling interest
in subsidiary 232,000 - 232,000
Net income for the year - - - - 6,246 6,246
--------------------------------------------------------------------------------------
5,409,825 3,732,779 19,024,598 10,776,764 (5,110,686) 9,398,857
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
See the accompanying notes
- 6 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
These consolidated financial statements comprise the accounts of the
Company and its wholly-owned subsidiaries. All intercompany transactions
and balances have been eliminated in these consolidated financial
statements, which include the accounts of the Company and its subsidiaries
from the date of acquisition as follows:
- Treats Inc.
- Treats Ontario Inc.
- Chocolate Gourmet Treats Limited
- Accounting & Consulting Inc.
- Treats International Inc.
- Triadon Investment Group Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada (which also conform in
all material respects with accounting principles generally accepted in the
United States) and include the following significant accounting policies:
ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
- 7 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
REVENUE RECOGNITION
Franchise revenue arises on the sale of national, area and store
franchises. Franchise store revenue is recognized as income when the
respective purchase and sale agreements have been signed, the funds have
been received, all material conditions relating to the sale have been
substantially completed by the Company and the franchise store has
commenced operations. Revenue from national and area franchise agreements
is recognized when the area development agreement has been signed and all
substantial obligations of the Company have been completed.
When payment for the sale of a national or area franchise is based on a
contract over a period longer than twelve months, the Company recognizes
revenue based on the assessment of collectibility. The total contract is
recorded as deferred revenue, and revenue recognition commences when
payments in excess of 25% of the total contract have been received and
management has ascertained that there is a sufficient level of certainty
that the balance of the contract is collectible.
Deposits that are non-refundable under the franchising agreement are
recognized as franchising revenue when received.
Royalties are recognized when they are earned, based on a percentage of the
franchisees' sales on a weekly basis.
Supplier incentives are recognized in the period to which they apply.
- 8 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FRANCHISE STORES HELD FOR RESALE
Franchise stores held for resale are valued at the lower of cost and net
realizable value.
CAPITAL ASSETS AND AMORTIZATION
Capital assets are recorded at cost less accumulated amortization.
Amortization is provided for at rates intended to write off the assets over
their estimated economic lives, as follows:
Furniture and fixtures - 5 years straight-line
Machinery and equipment - 5 years straight-line
Reference books - 5 years straight-line
FRANCHISE RIGHTS
Franchise rights are carried at cost less accumulated amortization.
Amortization is provided for on the straight-line basis over 20 years.
DEFERRED ISSUE COSTS
Deferred issue costs represent fees incurred in connection with the
preparation of regulatory filings for the issue of capital stock. These
costs are charged to capital stock in the period the stock is issued.
DEFERRED DEVELOPMENT COSTS
Deferred development costs are amortized on the straight-line basis over 3
years.
DEFERRED EMPORIUM COSTS
The Coffee Emporium project was completed on June 30, 1996 and the costs
are being amortized on a straight-line basis over three years commencing
July 1, 1996.
- 9 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
1996 1995
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FOREIGN CURRENCY TRANSLATION
Foreign currency transactions are translated using the temporal method.
Under this method, monetary assets and liabilities as well as non-monetary
items carried at market value are translated at year-end exchange rates.
Other non-monetary assets and liabilities are translated at exchange rates
prevailing at the transaction dates. Revenues and expenses are translated
at average rates prevailing during the year.
Gains or losses resulting from exchange translation are included in income.
EARNINGS PER SHARE
Net earnings per share are calculated using the daily weighted average
number of common shares outstanding during the fiscal year plus the net
additional number of shares which would be issuable upon the exercise of
stock options, assuming that the Company used the proceeds received to
purchase additional shares at market value.
3. NOTES RECEIVABLE
Notes receivable are due from franchisees with interest at varying rates
and repayable in scheduled instalments.
$ $
Notes receivable, net of allowance for doubtful
accounts of nil (1995 - nil) 1,205,150 640,632
Less current portion (312,633) (302,499)
--------------------------
892,517 338,133
--------------------------
--------------------------
- 10 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
1996 1995
- --------------------------------------------------------------------------------
4. CAPITAL ASSETS
ACCUMULATED
COST AMORTIZATION -----NET BOOK VALUE-----
$ $ $ $
Furniture and fixtures 198,370 198,133 237 4,956
Machinery and equipment 474,637 286,834 187,803 256,867
Reference books 25,966 20,170 5,796 6,470
-------------------------------------------------
698,973 505,137 193,836 268,293
-------------------------------------------------
-------------------------------------------------
5. ADVERTISING COMMITMENT
The Company received prescribed amounts from franchisees to fund and
develop advertising and promotion campaigns regionally and nationally. The
funds collected, net of costs incurred, are recorded as a liability for
future advertising and promotion. During fiscal 1996 advertising and
promotion costs incurred exceeded funds collected.
6. FRANCHISE RIGHTS
$ $
Franchise rights 14,175,609 14,175,609
Accumulated amortization (3,900,829) (3,192,048)
----------------------------
10,274,780 10,983,561
----------------------------
----------------------------
The Company obtained an independent appraisal dated August 28, 1996 from
Scott, Rankin, Gordon & Gardiner, Chartered Accountants, substantiating a
valuation of franchise rights in excess of $10,000,000 as at June 30,
1996.
- 11 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
7. LONG-TERM DEBT
$ $
<S> <C> <C>
Standard Chartered Bank of Canada
Term loan, repayable in increasing monthly
instalments plus interest at prime plus 2.5%, due
January 1, 1996, secured by a general security
agreement, general assignment of book debts
and franchise rights, pledge of all the shares
in subsidiary and associated companies - 673,500
3193853 Canada Inc.
Term loan, repayable in 66 monthly instalments
of $10,000 plus interest at prime plus 2.5%, due
March 2001, secured by a general security
agreement, general assignment of book debts
and franchise rights, pledge of all the shares in
subsidiary and associated companies 608,000 -
Royal Bank of Canada subordinated debenture,
Subordinated debenture, bearing interest at 8%
per annum, payable in 60 monthly instalments, due
June 30, 2001 1,129,562 925,000
Business Development Bank of Canada
Term loan, repayable in 50 monthly instalments
of $2,000 plus interest at prime plus 4%, due
June 23, 2000 96,000 -
Other long-term debt - non-interest bearing,
without specific terms of repayment 391,173 652,927
---------------------------
2,224,735 2,251,427
Less current portion (180,371) (733,500)
---------------------------
2,044,364 1,517,927
---------------------------
---------------------------
</TABLE>
- 12 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
1996 1995
- --------------------------------------------------------------------------------
7. LONG-TERM DEBT (CONT'D)
Interest expense for the year related to long-term debt was $248,793 (1995
- $276,045).
The minimum future principal repayments required over the next five years
are as follows:
$
1997 180,371
1998 618,906
1999 340,371
2000 447,525
2001 637,562
-----------
2,224,735
-----------
-----------
8. NON-CONTROLLING INTEREST IN SUBSIDIARY
$ $
200,000 authorized and issued preferred shares
of Treats International Inc. - 232,000
--------------------------
--------------------------
The preferred shares of Treats International Inc., a U.S. subsidiary, were
issued during the 1991 fiscal year in connection with the acquisition of
the U.S. franchise rights. The preferred shares are convertible into 5% of
the common shares of Treats International Inc. on a fully diluted basis at
any time prior to November 2, 1995. On June 26, 1996 by resolution of the
Board of Directors of Treats International Inc., the 200,000 preferred
shares of Treats International Inc. were cancelled and returned to
treasury. The shares were cancelled due to non-compliance of agreements
with the non-controlling stockholder.
- 13 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
1996 1995
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES
(a) The Company is a defendant in the following civil litigation:
(i) Triadon Investment Group Inc., a subsidiary company, was named in
an action by the Royal Bank of Canada, the largest common
shareholder of the Company, and judgement was awarded against the
subsidiary for $119,353. As the subsidiary company is inactive
and without assets, no provision has been recorded in respect of
this judgement.
(ii) The Company is also a defendant in several actions arising in the
normal course of business, the final outcome of which cannot be
determined at this time. Any settlement in regard of these
actions will be recorded in the statement of income in the fiscal
year the settlement occurs.
(b) Certain franchise stores occupy their premises under lease
arrangements wherein the Company is primarily responsible for
performance under the lease. These leases are assigned to the
franchisee, which becomes directly responsible for the contractual
obligations under the lease. The aggregate rental obligations under
these leases and various leases for office space over the next five
years are as follows:
LEASES
ASSIGNED TO LEASES
FRANCHISE STORES ASSIGNED TO LEASES FOR
HELD FOR RESALE FRANCHISEES OFFICE SPACE
$ $ $
1997 70,313 3,260,086 96,174
1998 70,313 2,770,986 96,174
1999 54,000 2,260,763 96,174
2000 54,000 2,082,315 96,174
2001 - 1,437,131 32,058
The total rental obligation subsequent to year 2001, based on current
leases assigned to franchisees amounts to $4,160,000.
- 14 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
10. CAPITAL STOCK
RESERVED SHARES - JUNE 30, 1994
On June 30, 1994 Tricapital Management Limited exercised its outstanding
warrants and reserved shares to acquire 621,295 common shares for
consideration of $270,077 (U.S.$195,708).
STOCK ISSUE - DEBT RESTRUCTURING - JUNE 30, 1994
The Company concluded its negotiations under a private placement offering
to restructure its debt and capital, effective June 30, 1994, as follows:
Royal Bank of Canada, in consideration for retiring the outstanding
debenture of $4,732,779, issued a subordinated debenture of $1,000,000
adjusted for $150,000 accretion to $850,000 and was issued 5,409,825
non-voting series A preference shares for the balance. These shares are
redeemable at the option of the Company at a price of U.S.$1 per share at
any time. The shares carry a cumulative 5.5% cash dividend payable
quarterly in arrears. At the option of the holder the dividend may be paid
in the form of common shares of the Company. The shares are convertible at
the option of the holder at U.S.$0.60 per share.
SPECIAL SHARES CONVERTED TO COMMON SHARES
As part of the restructuring, effective June 30, 1994, the 4,500,000
special shares of Treats Inc. held by the Royal Bank of Canada were
accreted back to the $45 aggregate issue price. The Royal Bank of Canada
converted its special shares into 1,619,760 common shares of the Company.
ISSUANCE OF SHARES
The Company has issued 350,000 Common Shares pursuant to the debt
restructuring on June 30, 1994. The Royal Bank Capital Corporation
received an additional 350,000 common shares at nominal consideration as
the Company was unsuccessful in raising U.S.$4 million in new equity by
June 30, 1995.
- 15 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
10. CAPITAL STOCK (CONT'D)
CANCELLATION OF COMMON SHARES - JANUARY 4, 1996
Pursuant to a resolution of the Board of Directors, the Transfer Agent of
record was instructed to cancel and return to treasury 2,067,344 of the
common shares held by Tricapital Management Limited. The shares were
originally issued pursuant to a debt restructuring with Tricapital
Management Limited. The restructuring did not proceed as outlined and
accordingly these shares were cancelled.
11. RELATED PARTY TRANSACTIONS
(a) The Royal Bank of Canada and its subsidiary, Royal Bank Capital
Corporation, are registered holders of 37.9% of the issued stock. The
Royal Bank of Canada hold a subordinated debenture (see note 7).
Interest expense related to the debenture was $84,484 (1995 -
$80,000).
Undeclared dividends for July 1, 1994 to June 30, 1996 on the
preferred shares owned by the Royal Bank are $410,606.
(b) Accounts and notes receivable include nil (1995 - $45,374) due from a
franchisee related to the President of the Company.
(c) The Company leases its office premises at an annual cost of
approximately $100,000 from a company which is 100% owned by the
family of the President. The family owns approximately 32.6% of the
common stock of the Company.
(d) Under a loan agreement, the Company has advanced $160,000 to certain
officers to fund the purchase of company stock.
(e) During the year, the term debt owed to the Standard Chartered Bank was
acquired by 3193853 Canada Inc. the President of which, is a family
member of the Chief Executive Officer of the Company.
- 16 -
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CANADIAN DOLLARS)
1996 1995
- --------------------------------------------------------------------------------
12. INCOME TAXES
Income taxes have not been provided for as the consolidated group of
companies have tax losses of $3,868,776 available to offset taxable income.
These losses expire as follows:
$
1998 2,097,008
1999 910,753
2000 799,837
2001 61,178
-------------
3,868,776
-------------
-------------
13. EARNINGS PER SHARE
Primary earnings per share (0.01) 0.00
---------------------------
---------------------------
Weighted average number of shares outstanding 19,996,498 20,741,942
---------------------------
---------------------------
The calculation of fully diluted earnings per share assumes that, if a
dilutive effect is produced, all convertible securities have been
converted, all shares to be issued under contractual commitments have been
issued and all outstanding options have been exercised at the later of the
beginning of the fiscal period and the option issue date. The calculation
includes an allowance for imputed earnings derived from the investment of
funds which are assumed to have been received. Fully diluted earnings per
share are not presented as they are anti-dilutive.
- 17 -
<PAGE>
[GRAPHIC]
TREATS
INTERNATIONAL
ENTERPRISES,
INC.
JUNE 30, 1995 AND 1994
______
- --------------------------------------------------------------------------------
[LOGO]
ORENSTEIN & PARTNERS
CHARTERED ACCOUNTANTS
A MEMBER OF HORWATH INTERNATIONAL
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(CANADIAN DOLLARS)
INDEX
Page
1 Auditors' Report
2 - 3 Consolidated Balance Sheets
4 Consolidated Statements of Income and Deficit
5 Consolidated Statements of Cash Flow
6 Consolidated Statements of Stockholders' Equity
7 - 19 Notes to the Consolidated Financial Statements
<PAGE>
AUDITOR'S REPORT
TO THE SHAREHOLDERS OF
TREATS INTERNATIONAL ENTERPRISES, INC.
We have audited the consolidated balance sheets of Treats International
Enterprises, Inc. as at June 30, 1995 and 1994 and the consolidated statements
of income and deficit, cash flow and of stockholders' equity for the years then
ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 1995 and
1994 and the results of its operations and its cash flow for the years then
ended in accordance with accounting principles generally accepted in Canada
(which also conform in all material respects with accounting principles
generally accepted in the United States).
/s/ Orenstein & Partners
Orenstein & Partners
Chartered Accountants
August 24, 1995
-1-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NOTE 1995 1994
- ------------------------------------------------------------------------------------------------------
$ $
ASSETS
<S> <C> <C> <C>
CURRENT
Cash 59,764 243,005
Accounts receivable 461,647 261,675
Prepaid expenses 186,838 130,192
Construction work in process 58,721 72,014
Current portion of notes receivable 302,499 283,607
----------------------------
1,069,469 990,493
RESTAURANTS HELD FOR RESALE 546,217 468,296
DEFERRED EMPORIUM COSTS 162,354
NOTES RECEIVABLE 3 338,133 330,366
CAPITAL ASSETS 4 268,293 209,501
ADVERTISING COMMITMENT 5 66,768 117,886
FRANCHISE RIGHTS 6 10,983,561 11,691,641
----------------------------
13,434,795 13,808,183
----------------------------
----------------------------
</TABLE>
Approved on behalf of the Board:
/s/ Paul J. Gibson Director
-------------------------------------------
/s/ John A. Deknatel Director
-------------------------------------------
See the accompanying notes
-2-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NOTE 1995 1994
- ------------------------------------------------------------------------------------------------------
$ $
LIABILITIES
<S> <C> <C> <C>
CURRENT
Accounts payable and accrued liabilities 1,520,083 1,665,581
Current portion of long-term debt 733,500 590,924
----------------------------
2,253,583 2,256,505
LONG-TERM DEBT 7 1,517,927 1,903,480
LEASE SECURITY DEPOSITS 221,589 219,307
DEFERRED REVENUE 18,079 112,485
----------------------------
4,011,178 4,491,777
NON-CONTROLLING INTEREST IN
SUBSIDIARIES 8 232,000 232,000
----------------------------
4,243,178 4,723,777
----------------------------
COMMITMENTS AND CONTINGENCIES 9
STOCKHOLDERS' EQUITY
CAPITAL STOCK 10
Preferred
Authorized, 10,000,000 non-voting, cumulative
shares, dividends at U.S.$.028 per share, redeemable
at option of company at U.S. $1 per share, par
value U.S. $.050
Issued, 5,409,825 series A shares 3,732,779 3,732,779
Common
Authorized, 33,333,333 shares, par value
U.S.$0.001
Issued, 20,741,942 shares 20,742 20,742
Additional paid-in capital 10,555,028 10,555,028
----------------------------
14,308,549 14,308,549
DEFICIT (5,116,932) (5,224,143)
----------------------------
9,191,617 9,084,406
----------------------------
13,434,795 13,808,183
----------------------------
----------------------------
</TABLE>
See the accompanying notes
-3-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NOTE 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
$ $ $
<S> <C> <C> <C> <C>
REVENUES
Royalties 1,946,830 2,000,840 1,989,413
Supplier incentives, commissions and other 1,000,781 1,024,032 965,757
Sales of managed restaurants 1,579,323 811,928 522,863
Franchising 351,532 272,210 340,936
------------------------------------------------
4,878,466 4,109,010 3,818,969
------------------------------------------------
EXPENSES
Head office and administration 1,850,134 1,877,625 1,795,604
Managed restaurants 1,687,363 831,853 587,401
Interest 276,045 214,615 338,973
Franchising 168,366 230,759 284,038
Amortization 789,347 766,726 754,841
------------------------------------------------
4,771,255 3,921,578 3,760,857
------------------------------------------------
NET INCOME FOR THE YEAR 12 107,211 187,432 58,112
DEFICIT, BEGINNING OF YEAR (5,224,143) (5,411,575) (5,469,687)
------------------------------------------------
DEFICIT, END OF YEAR (5,116,932) (5,224,143) (5,411,575)
------------------------------------------------
EARNINGS PER SHARE 13 0.01 0.01 0.00
------------------------------------------------
------------------------------------------------
</TABLE>
See the accompanying notes
-4-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------
$ $ $
<S> <C> <C> <C>
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES
OPERATING
Net income for the year 107,211 187,432 58,112
items not affecting cash
Amortization 789,347 766,726 754,841
interest expense related to annual accretion of
Royal Bank of Canada subordinated debenture 75,000 75,000 75,000
Changes in non-cash operating working capital items (386,541) 110,657 (831,901)
-----------------------------------------
585,017 1,139,815 56,052
-----------------------------------------
FINANCING
Issue of preference shares - 3,732,779 -
Issue of convertible debt - - 1,488,000
Issue of common shares - 894,108 373,920
Class A warrants exercised - - 781,313
Class B warrants exercised - - 1,041,750
Warrants exercised - 270,077 -
Options exercised - - 180,579
Repayment of convertible debt - - (1,488,000)
Bank indebtedness - - (148,025)
Long-term debt (317,977) (3,330,403) (915,230)
Deferred revenue (94,406) 25,842 (155,692)
Due to related parties accretion adjustment - 325,050 325,050
Share issue costs - (381,597) (1,013,075)
-----------------------------------------
(412,383) 1,535,856 470,590
-----------------------------------------
INVESTING
Franchise rights - (894,108) -
Non-controlling interest in subsidiaries - (840,055) -
Non-controlling interest accretion adjustment - (325,050) (325,050)
Notes receivable (26,659) 211,120 (147,111)
Purchase of capital assets (140,059) (24,077) (262,116)
Deferred issue costs - - 295,034
Advertising commitment 51,118 (162,940) (139,764)
Restaurants held for resale (77,921) (403,070) 57,879
Deferred emporium costs (162,354) - -
-----------------------------------------
(355,875) (2,438,180) (521,128)
-----------------------------------------
NET CASH INFLOW (OUTFLOW) (183,241) 237,491 5,514
CASH POSITION, BEGINNING OF YEAR 243,005 5,514 -
-----------------------------------------
CASH POSITION, END OF YEAR 59,764 243,005 5,514
-----------------------------------------
-----------------------------------------
</TABLE>
See the accompanying notes
-5-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 10)
YEAR ENDED JUNE 30, 1995 AND 1994
(CANADIAN DOLLARS
<TABLE>
<CAPTION>
- - - - - - - COMMON SHARES - - - - - - -
REDEEMABLE, CONVERTIBLE SHARES
--PREFERRED SHARES-- (1 FOR 3
SHARES AMOUNT SHARES AMOUNT REVERSE SPLIT) DEFICIT
- -----------------------------------------------------------------------------------------------------------------------------------
$ $ $
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1992 - - 39,552,796 8,428,695 13,184,265 (5,469,687)
Issue for cash - - 100,000 373,920 33,333 -
Warrants exercised - - 13,890,000 1,823,063 4,630,000 -
Options exercised - - 1,959,869 180,579 653,289 -
Share issue costs - - - (1,013,075) - -
Net Income for the year - - - - - 58,112
-------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1993 - - 55,502,665 9,793,173 18,500,887 (5,411,575)
Common shares issued on conversion
of minority interest special shares - - - 894,108 1,619,760 -
Conversion of Royal Bank of Canada
subordinated debenture to preferred shares 5,409,825 3,732,779 - - - -
Warrants exercised - - - 270,077 621,295 -
Share issue costs - - - (381,597) - -
Net income for the year - - - - - 187,432
-------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1994 5,409,825 3,732,779 55,502,665 10,575,770 20,741,942 (5,224,143)
Net income for the year - - - - - 107,211
-------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1995 5,409,825 3,732,779 55,502,665 10,575,770 20,741,942 (5,116,932)
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
See the accompanying notes
-6-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
These consolidated financial statements comprise the accounts of the
Company and its wholly-owned subsidiaries. All intercompany transactions
and balances have been eliminated in these consolidated financial
statements, which include the accounts of the Company and its subsidiaries
from the date of acquisition as follows:
- Treats Inc.
- Treats Ontario Inc.
- Chocolate Gourmet Treats Limited
- Accounting & Consulting Inc.
- Treats International Inc.
- Triadon Investment Group Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada (which also conform in
all material respects with generally accepted accounting principles in the
United States) and include the following significant accounting policies:
REVENUE RECOGNITION
Franchise revenue arises on the sale of national, area and restaurant
franchises. Restaurant franchise revenue is recognized as income when the
respective purchase and sale agreements have been signed, the funds have
been received, all material conditions relating to the sale have been
substantially completed by the Company and the restaurant has commenced
operations.
Revenue from national and area franchise agreements is recognized when the
area development agreement has been signed and all substantial obligations
of the Company have been completed.
-7-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
REVENUE RECOGNITION (CONT'D)
When payment for the sale of a national or area franchise is based on a
contract over a period longer than twelve months, the Company recognizes
revenue based on the assessment of collectability. The total contract is
recorded as deferred revenue, and revenue recognition commences when
payments in excess of 25% of the total contract have been received and
management has ascertained that there is a sufficient level of certainty
that the balance of the contract is collectible.
Deposits that are non-refundable under the franchising agreement are
recognized as franchising revenue when received.
Royalties are recognized when they are earned, based on a percentage of the
franchisees' sales on a weekly basis.
Supplier incentives are recognized in the period to which they apply.
RESTAURANTS HELD FOR RESALE
Restaurants held for resale are valued at the lower of cost and net
realizable value.
CAPITAL ASSETS AND AMORTIZATION
Capital assets are recorded at cost less accumulated amortization.
Amortization is provided for at rates intended to write off the assets over
their estimated economic lives, as follows:
Furniture and fixtures - 5 years straight-line
Machinery and equipment - 5 years straight-line
Reference books - 5 years straight-line
FRANCHISE RIGHTS
Franchise rights are being carried at cost less accumulated amortization.
Amortization is provided for on the straight-line basis over 20 years.
-8-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(CANADIAN DOLLARS)
1995 1994
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
DEFERRED ISSUE COSTS
Deferred issue costs represent fees incurred in connection with the
preparation of regulatory filings for the issue of capital stock. These
costs are charged to capital stock in the period the stock is issued.
DEFERRED EMPORIUM COSTS
As the project the Coffee Emporium was substantially completed as at June
30, 1995, the costs are being amortized on a straight-line basis over three
years commencing July 1, 1995.
FOREIGN CURRENCY TRANSLATION
Foreign currency transactions are translated using the temporal method.
Under this method, monetary assets and liabilities as well as non-monetary
items carried at market value are translated at year-end exchange rates.
Other non-monetary assets and liabilities are translated at exchange rates
prevailing at the transaction dates. Revenues and expenses are translated
at average rates prevailing during the year.
Gains or losses resulting from exchange translation are included in income.
EARNINGS PER SHARE
Net earnings per share are calculated using the daily weighted average
number of common shares outstanding during the fiscal year plus the net
additional number of shares which would be issuable upon the exercise of
stock options, assuming that the Company used the proceeds received to
purchase additional shares at market value.
3. NOTES RECEIVABLE
Notes receivable are due from franchisees with interest at varying rates
and repayable in scheduled instalments.
$ $
Notes receivable, net of allowance for doubtful
accounts of nil (1994 - nil) 640,632 613,973
Less current portion (302,499) (283,607)
--------- ---------
338,133 330,366
--------- ---------
--------- ---------
-9-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(CANADIAN DOLLARS)
1995 1994
- --------------------------------------------------------------------------------
4. CAPITAL ASSETS
ACCUMULATED
COST AMORTIZATION -- NET BOOK VALUE --
$ $ $ $
Furniture and fixtures 198,370 193,414 4,956 6,896
Machinery and equipment 462,334 205,467 256,867 196,336
Reference books 25,966 19,496 6,470 6,269
--------------------------------------------------
686,670 418,377 268,293 209,501
--------------------------------------------------
--------------------------------------------------
5. ADVERTISING COMMITMENT
The Company receives prescribed amounts from franchisees to fund and
develop advertising and promotion campaigns regionally and nationally. The
funds collected, net of costs incurred, are recorded as a liability for
future advertising and promotion. During fiscal 1995 advertising costs
incurred exceeded funds collected. The funds are expected to be received
within the next fiscal year.
6. FRANCHISE RIGHTS
$ $
Franchise rights
14,177,565 14,175,609
Accumulated amortization (3,194,004) (2,483,968)
----------- -----------
10,451,976 10,983,561
----------- -----------
----------- -----------
As part of the stock-issue and restructuring on June 30, 1994, the Company
acquired the minority interest of Treats Inc. Franchise rights include
$894,108 representing the excess consideration paid over the stated value
of the shares.
-10-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(CANADIAN DOLLARS)
1995 1994
- --------------------------------------------------------------------------------
7. LONG - TERM DEBT
$ $
Standard Chartered Bank of Canada
term loan, repayable in increasing monthly
instalments plus interest at prime plus 2.5%, due
January 1, 1996, secured by a general security
agreement, general assignment of book debts
and franchise rights, pledge of all the shares
in subsidiary and associated companies. 673,500 1,103,500
Royal Bank of Canada Subordinate debenture,
bearing interest at 8% per annum, payable
quarterly in arrears, due and payable on the
earlier of October 31, 1996 and the date of
closing of an equity issue in the Company
(see note 10 stock issues - debt restructuring-
June 30, 1994) 925,000 850,000
Other long-term debt, non-interest bearing,
without specific terms of repayment 652,927 540,904
---------- -----------
2,251,427 2,494,404
Less current portion (733,500) (590,924)
---------- -----------
1,517,927 1,903,480
---------- -----------
---------- -----------
Interest expense for the year related to long-term debt
was $276,045 (1994 - $214,615).
-11-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1004
(CANADIAN DOLLARS)
1995 1994
- --------------------------------------------------------------------------------
7. LONG-TERM DEBT (CONT'D)
The minimum future principle repayments required over the next five years
are as follows:
$
1996 733,500
1997 1,094,535
1998 73,019
1999 60,873
2000 289,500
----------
2,251,427
----------
----------
8. NON-CONTROLLING INTEREST IN SUBSIDIARIES
$ $
200,000 authorized and issued preferred shares
of Treats International Inc. 232,000 232,000
-------- --------
-------- --------
The preferred shares of Treats International Inc., a U.S. subsidiary, were
issued during the 1991 fiscal year in connection with the acquisition of
the U.S. franchise rights. The preferred shares are convertible into 5% of
the common shares of Treats International Inc. on a fully diluted basis at
any time prior to November 2, 1995. Treats International Inc. may redeem
the preferred shares for U.S. $250,000 any time after November 2, 1992.
-12-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1004
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES
(a) The Company is a defendant in the following civil litigation:
(i) Triadon Investment Group Inc., a subsidiary company, was named
in an action by a bank and judgement was awarded against the
subsidiary for $119,353. As the subsidiary company is inactive
and without assets, no provision has been recorded in respect
of this judgement.
(ii) The Company is also a defendant in several actions arising in
the normal course of business, the final outcome of which cannot
be determined at this time. An aggregate provision of
approximately $436,000 has been recorded.
Any settlement in regard of the above actions in excess of amounts
provided will be recorded in the statement of income in the fiscal
year the settlement occurs.
(b) Certain franchised restaurants occupy their premises under lease
arrangements wherein the Company is primarily responsible for
performance under the lease. These leases are assigned to the
franchisee, which becomes directly responsible for the contractual
obligations under the lease. The aggregate rental obligations under
these leases and various leases for office space over the next five
years are as follows:
LEASES
ASSIGNED TO LEASES
RESTAURANTS ASSIGNED TO LEASES FOR
HELD FOR RESALE FRANCHISEES OFFICE SPACE
$ $ $
1996 287,048 3,419,557 96,175
1997 242,498 2,990,445 96,174
1998 196,913 2,416,493 96,174
1999 180,599 1,914,607 96,174
2000 180,599 1,914,607 32,058
-13-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1004
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
10. CAPITAL STOCK
REVERSE STOCK SPLIT - JUNE 10, 1993
On June 10, 1993, by consent of the holders of the majority of the
outstanding shares of the common stock, the Company filed an amendment to
its Certificate of Incorporation to reverse split the common stock 1 for 3
effective June 21, 1993.
STOCK ISSUE - SEPTEMBER 30, 1992
On September 30, 1992 the Company issued 33,333 common shares for cash
consideration of $373,920 (U.S. $300,000). This equity was provided by
Austin Bernet, Inc., a related party at that time.
STOCK ISSUE - FEBRUARY 5, 1993
On February 5, 1993, Treats International Enterprises, Inc. concluded a
private sale transaction with Austin Bernet Inc. and other entities which
may be affiliated with the latter, pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These holders of 2,315,000 Class A
warrants and 2,315,000 Class B warrants (issued with the initial public
offering), exercised those warrants for a cash consideration of $1,823,063.
On the close of business February 5, 1993 unexercised warrants expired.
The above private sale allowed all Class A warrant holders to exercise
their Class A warrants at $0.27 for one share of the Company's common stock
and all Class B warrant holders to exercise their Class B warrants at $0.36
for one share of the Company's common stock. This resulted in the issue of
4,630,000 common shares for net proceeds of $1,823,063 (U.S.$1,458,450).
Each share bears a restrictive legend prohibiting the resale of the share
of common stock, except where the resale is pursuant to the registration
under the Securities Act or an applicable exemption therefrom: such as,
compliance with the requirements of Rule 144 promulgated by the Securities
Exchange Commission under the U.S. Securities Act.
These same shares were sold on June 10, 1994 by Austin Bernet Inc. to a
company controlled by the President and Chief Executive Officer.
-14-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1004
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
10. CAPITAL STOCK (CONT'D)
STOCK ISSUE - JUNE 8, 1993
On June 8, 1993 the following shares were issued to Tricapital Management
Limited from reserved shares:
NUMBER
OF SHARES
Common shares with a fair value of U.S. $29,764 were issued
at nominal cost of U.S. $1 as part of the Tricapital success
fees related to the February 5, 1993 warrant exercise. 94,490
171,300 shares were issued pursuant to the Tricapital interim
financing agreement as follows:
January 31, 1992 1% of 12,500,000
acquisition of at U.S. $0.20
Treats Inc. 125,000
February 5, 1993 1% of 4,630,000
warrant exercise at U.S. $0.20 46,300
In addition, 387,500 common shares were issued for fair
value of U.S. $77,539 and nominal consideration of U.S. $1
pursuant to the Tricapital interim financing agreement of
January 31, 1992. The agreement called for 1 share to be
issued for every $1 of debt outstanding July 3, 1992 when
the Tricapital loan became subordinated to the RBCC debenture. 387,500
-------
Total shares issued 653,290
-------
-------
Total fair value consideration recorded is U.S. $141,579.
-15-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1004
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
10. CAPITAL STOCK (CONT'D)
RESERVED SHARES - JUNE 30, 1993
In connection with the January 31, 1992 acquisition of Treats Inc., the
following was reserved for Tricapital Management Limited:
CONSIDERATION NO. OF SHARES
(U.S.$)
Share purchase warrants at
U.S. $.315 expiring
January 31, 1995 142,811 453,368
In connection with the
February 5, 1993 warrant
exercise, shares were
reserved for Tricapital
Management Limited 52,897 167,927
------- -------
195,708 621,295
------- -------
------- -------
In connection with the January 31, 1992 acquisition of Treats Inc., 333,333
common share purchase warrants (for U.S. $.45 expired February 15, 1994)
were allotted to Tricapital Management Limited. These warrants were
allowed to expire.
On June 30, 1994 Tricapital Management Limited exercised its warrants
expiring January 31, 1995, and its warrants reserved in connection with the
February 5, 1993 warrant exercise for a total of 621,295 common shares for
consideration of $270,077 (U.S.$195,708). All other warrants expired.
-16-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1004
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
10. CAPITAL STOCK (CONT'D)
STOCK ISSUE - DEBT RESTRUCTURING - JUNE 30, 1994
The Company concluded its negotiations under a private placement offering
to restructure its debt and capital, effective June 30, 1994, as follows:
Royal Bank of Canada, in consideration for retiring the outstanding
debenture of $4,732,779, issued a subordinated debenture of $1,000,000
adjusted for $150,000 accretion to $850,000 (see note 7) and was issued
5,409,825 non-voting series A preference shares for the balance. These
shares are redeemable at the option of the Company at a price of U.S. $1
per share at any time. The shares carry a cumulative 5.5% cash dividend
payable quarterly in arrears. At the option of the holder the dividend may
be paid in the form of common shares of the Company. The shares are
convertible at the option of the holder at U.S. $.60 per share unless a new
investor invests a minimum of U.S. $4 million in common equity prior to
June 30, 1995, where the conversion price will be equal to the price set by
the new investor. In the event that the debenture is repaid in full prior
to August 31, 1995 and 50% of the preferred shares are redeemed by the
Company by August 31, 1995, then the issuer can cause the Royal Bank of
Canada to convert the remaining series A preference shares into common
shares.
SPECIAL SHARES CONVERTED TO COMMON SHARES
As part of the restructuring, effective June 30, 1994, the 4,500,000
special shares of Treats Inc. held by the Royal Bank of Canada were
accreted back to the $45 aggregate issue price. The Royal Bank of Canada
converted its special shares into 1,619,760 common shares of the Company.
RESERVED SHARES
The Company has issued 350,000 common shares pursuant to the debt
restructuring on June 30, 1994. The Royal Bank Capital Corporation
received an additional 350,000 common shares at nominal consideration as
the Company has been unsuccessful in raising U.S. $4 million in new equity
by June 30, 1995. These shares have been issued subsequent to year end.
-17-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1004
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
11. RELATED PARTY TRANSACTIONS
(a) The Royal Bank of Canada and its subsidiary, Royal Bank Capital
Corporation, are registered holders of 34.1% of the issued stock. As
part of the restructuring effective June 30, 1994 (see note 7) the
Royal Bank of Canada converted its existing subordinated debenture
into preference shares and issued a debenture (see note 7). The
carrying value of the debenture was discounted to reflect the relative
fair value of the debt and the shares. The discount of $150,000 is
being amortized on a straight-line basis over the life of the debt and
results in an annual charge to interest expense of $75,000.
(b) Interest expense related to the previous debenture referred to in (a)
was $75,000 (1994 - $75,000).
(c) Accounts and notes receivable include $45,374 (1994 - $43,591) due
from a franchisee related to the President and Chief Executive Officer
of the Company.
(d) The Company leases its office premises at an annual cost of
approximately $100,000 from a company which is 100% owned by the
family of the President. The family owns approximately 34.2% of the
common stock of the Company.
(e) The Company has advanced $160,000 to certain officers, under a loan
agreement, to fund the purchase of company stock.
-18-
<PAGE>
TREATS INTERNATIONAL ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1004
(CANADIAN DOLLARS)
1995 1994
- --------------------------------------------------------------------------------
12. INCOME TAXES
Income taxes have not been provided for as the consolidated group of
companies have tax losses of $3,916,774 available to offset taxable income.
These losses expire as follows:
$
1997 47,998
1998 2,097,008
1999 910,753
2000 799,837
2001 1,178
----------
3,916,774
----------
----------
13. EARNINGS PER SHARE
Primary earnings (loss) per share 0.01 0.01
-------------------------
-------------------------
Weighted average number of shares outstanding 20,741,942 18,507,028
-------------------------
-------------------------
The calculation of fully diluted earnings per share assumes that, if a
dilutive effect is produced, all convertible securities have been
converted, all shares to be issued under contractual commitments have been
issued and all outstanding options have been exercised at the later of the
beginning of the fiscal period and the option issue date. The calculation
includes an allowance for imputed earnings derived from the investment of
funds which are assumed to have been received. Fully diluted earnings per
share are not presented as they are anti-dilutive.
14. COMPARATIVE FIGURES
Certain 1994 and 1993 comparative figures have been reclassified to conform
with the current year's financial statements presentation.
-19-
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
- -------------------------------------------------------------------
- No Disagreements or changes.
58
<PAGE>
PART 111
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the names of the Company's Directors and Officers
since the acquisition in January 1992. The Directors of the Company are elected
annually by the shareholders and the Officers are appointed annually by the
Board of Directors. The Company intends to expand the Board to five Directors.
NAME AGE POSITION
Paul J. Gibson 41 President, C.E.O. and Director
John A. Deknatel 49 Chief Operating Officer and Director
Peter-Mark Bennett 39 Director
David M. Dean 57 Chief Financial Officer
Erhard M. Sommer 58 Vice President, Operations
Francois Turcot 36 Comptroller
PAUL J. GIBSON
Mr. Gibson is President, C.E.O. Chairman of the Board of the Company. Mr.
Gibson has served as President and C.E.O. of TCC since its formation in 1988 and
of Treats Inc. since July 1990. Mr. Gibson also serves in various capacities of
The Company's wholly owned subsidiaries. From its formation in 1986 until the
present, he has been President and C.E.O. of TMG, now a wholly owned subsidiary
of Treats Inc.
JOHN A. DEKNATEL
Mr. Deknatel is C.O.O. and Director of the Company. He also serves in
various capacities for The Company's wholly owned subsidiaries. Prior to
joining the Company in 1991, Mr. Deknatel served as Vice President and General
Manager of Manchu Wok U.S.A., a division of Scott's Hospitality, of Toronto,
Ontario. From 1985 to 1987, he was Director of Food Services for Canada's
Wonderland, a major theme park.
59
<PAGE>
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D)
PETER-MARK BENNETT
Mr. Bennett was appointed Director December 16, 1994. Mr. Bennett has been
Director of Operations of Network Xcellence Ltd. in Ottawa from July 1994 to
present. From July 1990 to June 1992 he was Vice-President of Treats Inc.
Prior to July 1990 he was Managing Director of Widely Held Northern Investments
Ltd.
DAVID M. DEAN
Mr. Dean is C.F.O. of the Company. He also serves in various capacities
for The Company's wholly owned subsidiaries. Prior to joining the Company in
1990, he served as Vice President of Finance for Leigh Instruments Ltd. in
Ottawa, Ontario, Canada since 1978. Mr. Dean left the Company on August 11,
1996 to pursue other interests.
ERHARD M. SOMMER
Mr. Sommer is Vice President of Operations of the Company. He has been the
Vice President of Operations of Treats International Enterprises, Inc., since
its formation in 1990. He was the Director of Operations of U.S.A. Treats, the
former National Licensor for the (US) in Somerset, New Jersey from January 1990
to October 1990. from March 1985 to January 1990, he was self-employed as a
Consultant in the food and hospitality industries. From August 1979 to February
1985, he served as President of Fruzen Gladje Ice Cream, Ltd., in Lindenhurst,
New York.
FRANCOIS TURCOT
Mr. Turcot has been comptroller of the Company since May 1991. Prior to
joining the Company Mr. Turcot held the position of Comptroller with a Transport
Company in Paul's Transfer, in Hull, Quebec. From October 1986 to November
1989, Mr. Turcot was Comptroller at the Ramada Hotel in Hull, Quebec.
60
<PAGE>
ITEM 11 EXECUTIVE COMPENSATION
Set forth in the table below, is the cash compensation paid to all officers
of the Company receiving in excess of (US) $100,000 per annum and the total to
all Executive Officers as a group:
U.S. $
CAPACITIES IN CASH
NAME OF INDIVIDUAL WHICH SERVED COMPENSATION
- ------------------ ------------ ------------
Paul J. Gibson Chairman and Chief
Executive Officer $115,000
John Deknatel Director and
Chief Operating Officer $100,000
David M. Dean Chief Financial Officer $100,000
Executive officers as a group (5 people) $394,000
- - There are no options or warrants granted to the present officers.
EMPLOYMENT AGREEMENT
By resolution of the Board of Directors, on May 15, 1995, compensation
agreements were approved for the Chairman and Chief Executive Officer, Chief
Operating Officer and the Chief Financial Officer. Effective July 3, 1995, the
resolution confirms the above listed remuneration and sets compensation in the
event of severance as twenty four (24) months salary.
61
<PAGE>
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth as of the date of filing, the number and
percentage owned of record and beneficially, by each Officer and Director of the
Company and by any other person owning 5% or more of the outstanding shares.
Principal Shareholders & Officers Effective October 10,1996
- ----------------------------------- -------------------------
# Shares of %
Common stock Ownership
Registered
------------ ----------
Paul Gibson Intrust (1) 960,049 5.05%
418 Preston Street
Ottawa,Ontario (K1S 4N2)
John Deknatel 131,121 0.69%
418 Preston Street
Ottawa,Ontario (K1S 4N2)
David & Carole Dean 71,881 0.38%
418 Preston Street
Ottawa,Ontario (K1S 4N2)
Access Investment Group Ltd (2) 5,060,285 26.60%
Sassoon House
Nassau,Bahamas
Buffalo International Ltd (3) 398,288 2.09%
Sassoon House
Nassau,Bahamas
Erhard Sommer 26,667 0.14%
418 Preston Street
Ottawa,Ontario (K1S 4N2)
Francois Turcot 36,458 0.19%
418 Preston Street
Ottawa,Ontario (K1S 4N2)
----------- --------
Officers & Directors as a group 6,684,749 35.14%
----------- --------
Owners in excess of 5%
- ----------------------
Royal Bank / RBCC (4) 7,207,760 37.89%
200 Bay Street,13 th Floor
Toronto,Ontario (M5J 2J5)
62
<PAGE>
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS (CONT'D)
NOTES
- -----
1. Paul J. Gibson may be deemed to be a promoter as such terms are defined
under the Securities Act of 1933.
2. Access Investment Group Ltd. is a company controlled by Mr. P. Gibson and
his immediate family.
3. Buffalo International Ltd. is a company controlled by David Dean and his
immediate family.
4. RBCC is a wholly owned subsidiary of the Royal Bank of Canada. The Royal
Bank of Canada is a widely held Canadian Chartered Bank. To the best of
the Company's knowledge, no one entity controls more than 10% of all
outstanding shares of the Royal Bank of Canada.
The Royal Bank holds all the issued Series A preferred shares which are
convertible, at their option, at $.8185 Cdn.per share. The undeclared
cumulative dividend may also be converted at $.8185 Cdn.
SHARES
------
Current Holdings RBCC/Royal Bank 7,207,760
POTENTIAL CONVERSION OF PREFERRED SHARES
AND DIVIDEND.
Preferred Shares $ 3,732,774 @ $.8185 4,560,213
Dividend to June 30, 1996 $ 410,606 @ $.8185 501,624
Dividend July 01, 1996 to
September 30, 1996 $ 51,326 @ $.8185 62,703
------
Fully diluted ownership of RBCC/Royal Bank (51.07%) 12,332,300
----------
----------
63
<PAGE>
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CAPITAL STOCK
RESERVED SHARES - JUNE 30, 1994
On June 30, 1994 Tricapital Management Limited exercised its outstanding
warrants and reserved shares to acquire 621,295 common shares for
consideration of $270,077 (U.S.$195,708).
STOCK ISSUE - DEBT RESTRUCTURING - JUNE 30, 1994
The Company concluded its negotiations under a private placement offering
to restructure its debt and capital, effective June 30, 1994, as follows:
Royal Bank of Canada, in consideration for retiring the outstanding
debenture of $4,732,779, issued a subordinated debenture of $1,000,000
adjusted for $150,000 accretion to $850,000 and was issued 5,409,825
non-voting series A preference shares for the balance. These shares are
redeemable at the option of the Company at a price of U.S. $1 per share at
any time. The shares carry a cumulative 5.5% cash dividend payable
quarterly in arrears. At the option of the holder the dividend may be paid
in the form of common shares of the Company. The shares are convertible at
the option of the holder at U.S. $.60 per share.
SPECIAL SHARES CONVERTED TO COMMON SHARES
As part of the restructuring, effective June 30, 1994, the 4,500,000
special shares of Treats Inc. held by the Royal Bank of Canada were
accreted back to the $45 aggregate issue price. The Royal Bank of Canada
converted its special shares into 1,619,760 common shares of the Company.
ISSUANCE OF SHARES
The Company has issued 350,000 common shares pursuant to the debt
restructuring on June 30, 1994. The Royal Bank Capital Corporation
received an additional 350,000 common shares at nominal consideration as
the Company has been unsuccessful in raising U.S. $4 million in new equity
by June 30, 1995.
CANCELLATION OF COMMON SHARES - JANUARY 4, 1996
Pursuant to a resolution of the Board of Directors, the Transfer Agent of
record was instructed to cancel and return to treasury 2,067,344 common
shares held by Tricapital Management Limited. The shares were originally
issued pursuant to a debt restructuring with Tricapital Management Limited.
The restructuring did not proceed as outlined and accordingly these shares
were cancelled.
64
<PAGE>
RELATED PARTY TRANSACTIONS
(a) The Royal Bank of Canada and its subsidiary, Royal Bank Capital
Corporation, are registered holders of 37.9% of the issued stock. The
Royal Bank of Canada holds a subordinated debenture (see note 7).
Interest expense related to the debenture was $84,484 (1995 - $80,000).
(b) Accounts and notes receivable include nil (1995 - $45,374) due from a
franchisee related to the President of the Company.
(c) The Company leases its office premises at an annual cost of approximately
$100,000 from a company which is 100% owned by the family of the President.
The family owns approximately 32.6% of the common stock of the Company.
(d) Under a loan agreement, the Company has advanced $160,000 to certain
officers to fund the purchase of company stock.
(e) During the year, the term debt owed to the Standard Chartered Bank was
acquired by 3193853 Canada Inc. the President of which, is a family member
of the Chief Executive Officer of the Company.
65
<PAGE>
PART 1V
ITEM 14 SCHEDULES
INDEX
- -----
- - Auditors Opinion Page 67
- - Computation of Earnings Per Share - US GAAP
Treasury Share Method Page 68
- - Computation of Treasury Share Method Page 69
66
<PAGE>
AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
TO THE BOARD OF DIRECTORS OF
TREATS INTERNATIONAL ENTERPRISES INC.
We have audited the consolidated balance sheet of Treats International
Enterprises Inc. as at June 30, 1996, 1995 and 1994 and the consolidated
statements of income and deficit, cash flow and stockholders' equity for the
years then ended and have issued our report thereon dated August 14, 1996; such
consolidated financial statements and our report thereon are included elsewhere
herein. Our examinations also comprehended the financial statement schedules of
Treats International Enterprises Inc. listed in item 14 in its Report on Form
10-K. In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements, present fairly in all
material respects the information shown therein.
Orenstein & Partners
Chartered Accountants
August 14, 1996
67
<PAGE>
ITEM 14 SCHEDULES
TREATS INTERNATIONAL ENTERPRISES, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the fiscal quarter ended For the fiscal year ended
----------------------------------------------------- --------------------------
September December March June June June
1995 1995 1996 1996 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
PRIMARY EARNINGS PER SHARE - U.S.GAAP
- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net earnings $15,927 ($14,387) ($112,944) $117,650 $6,246 $107,211
Cumulative dividends (51,325) (51,326) (51,326) (51,326) (205,303) (205,303)
---------- ----------- ----------- ----------- ----------- -----------
Net earnings after cumulative dividends ($35,398) ($65,713) ($164,270) $66,324 ($199,057) ($98,092)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
Common Shares oustanding at the
beginning of the period 21,091,942 21,091,942 19,024,598 19,024,598 20,741,942 20,741,942
Weighted average number of Common
Shares issued during the period. 0 262,740 (1,008,184) 0 (745,444)
---------- ----------- ----------- ----------- ----------- -----------
Weighted average number of Common
Shares oustanding at the end of the period. 21,091,942 21,354,682 18,016,414 19,024,598 19,996,498 20,741,942
---------- ----------- ----------- ----------- ----------- -----------
Treasury Common Shares assumed purchased
from proceeds of issue 0 0 0 0 0 (1,000)
Basic earnings per Share ($0.0017) ($0.0031) ($0.0091) $0.0035 ($0.0100) ($0.0047)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
FULLY DILUTED EARNINGS PER SHARE - U.S.GAAP
- -------------------------------------------
Net earnings as reported
Less: Cumulative dividends $15,927 ($14,387) ($112,944) $117,650 ($199,057) ($98,092)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
After tax imputed earnings from the
investment of funds received through
dilution $0 $0 $0 $0 $0 $30
Adjusted net earnings $15,927 ($14,387) ($112,944) $117,650 ($199,057) ($98,062)
Weighted average number of Common
Shares oustanding at the end of the period. 21,091,942 21,354,682 18,016,414 19,024,598 19,996,498 20,741,942
Weighted average Common Stock
equivalents based on conversion of
Warrants and Stock Options. 4,560,213 4,560,213 4,560,213 4,560,213 5,061,837 4,866,664
---------- ----------- ----------- ----------- ----------- -----------
Weighted average number of Common
Shares oustanding at the end of the period. 25,652,155 25,914,895 22,576,627 23,584,811 25,058,335 25,608,606
---------- ----------- ----------- ----------- ----------- -----------
Fully diluted earnings per Share $0.0006 ($0.0006) ($0.0050) $0.0050 ($0.0079) ($0.0038)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
</TABLE>
68
<PAGE>
ITEM 14 SCHEDULES
TREATS INTERNATIONAL ENTERPRISES, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the fiscal quarter ended For the fiscal year ended
---------------------------------------------------- --------------------------
September December March June June June
1995 1995 1996 1996 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Net earnings $15,927 ($14,387) ($112,944) $117,650 $6,246 $107,211
Cumulative dividends (51,325) (51,326) (51,326) (51,326) ($205,303) (205,303)
---------- ----------- ----------- ----------- ----------- -----------
Net earnings after cumulative dividends ($35,398) ($65,713) ($164,270) $66,324 ($199,057) ($98,092)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
Common Shares oustanding at the
beginning of the period 20,741,942 20,741,942 21,091,942 21,091,942 20,741,942 20,741,942
Weighted average number of Common
Shares issued (cancelled) during the period. 0 262,740 (1,008,184) 0 (745,444) 0
---------- ----------- ----------- ----------- ----------- -----------
Weighted average number of Common
Shares oustanding at the end of the period. 20,741,942 21,004,682 20,083,758 21,091,942 19,996,498 20,741,942
---------- ----------- ----------- ----------- ----------- -----------
Basic earnings per Share ($0.0017) ($0.0031) ($0.0082) $0.0031 ($0.0100) ($0.0047)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
FULLY DILUTED EARNINGS PER SHARE
- --------------------------------
Net earnings before imputed earnings
Less: Cumulative dividends ($35,398) ($65,713) ($164,270) $66,324 ($199,057) ($98,092)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
After tax imputed earnings from the
investment of funds received through dilution $0 $0 $0 $0 $0 $30
Adjusted net earnings
Less: Cumulative dividends ($35,398) ($65,713) ($164,270) $66,324 ($199,057) ($98,062)
Weighted average number of Common
Shares oustanding at the end of the period. 20,741,942 21,004,682 20,083,758 21,091,942 19,996,498 20,741,942
Weighted average Common Stock
equivalents based on conversion of
Warrants and Stock Options. 4,560,213 4,560,213 4,560,213 4,560,213 5,061,837 4,866,664
---------- ----------- ----------- ----------- ----------- -----------
Weighted average number of Common
Shares oustanding at the end of the period. 25,302,155 25,564,895 24,643,971 25,652,155 25,058,335 25,608,606
---------- ----------- ----------- ----------- ----------- -----------
Fully diluted earnings per Share ($0.00) ($0.00) ($0.01) $0.00 ($0.0079) ($0.0038)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
</TABLE>
69
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TREATS INTERNATIONAL ENTERPRISES, INC.
November 15, 1996 By: /s/ Paul J. Gibson
-----------------------------------
PAUL J. GIBSON
Chairman of the Board
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
November 15, 1996 By: /s/ Paul J. Gibson
-----------------------------------
PAUL J. GIBSON
Chairman of the Board
President & Chief Executive Officer
November 15, 1996 By: /s/ John Deknatel
-----------------------------------
JOHN DEKNATEL
Chief Operating Officer
70
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,165
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 921
<PP&E> 8,324
<DEPRECIATION> 3,229
<TOTAL-ASSETS> 9,914
<CURRENT-LIABILITIES> 1,354
<BONDS> 1,671
0
2,736
<COMMON> 14
<OTHER-SE> 7,885
<TOTAL-LIABILITY-AND-EQUITY> 6,889
<SALES> 1,795
<TOTAL-REVENUES> 4,127
<CGS> 1,741
<TOTAL-COSTS> 1,584
<OTHER-EXPENSES> 616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183
<INCOME-PRETAX> 4
<INCOME-TAX> 0
<INCOME-CONTINUING> 4
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4
<EPS-PRIMARY> (0.010)
<EPS-DILUTED> (0.008)
</TABLE>
