UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FIRST AMENDMENT TO
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-22952
CRYOPAK INDUSTRIES INC.
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(Exact name of Registrant as specified in its charter)
CRYOPAK INDUSTRIES INC.
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(Translation of Registrant's name into English)
BRITISH COLUMBIA, CANADA
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(Jurisdiction of incorporation or organization)
1120-625 HOWE STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6C 2T6
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act
Title of Class
COMMON STOCK, NO PAR VALUE
CLASS A PREFERRED STOCK, SERIES 1, NO PAR VALUE
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act
Title of Class
NONE
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report: 17,255,740 common; 530 preferred as of March 31, 1999.
Indicate 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
registrants was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [ X ]
Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17 [ X ] Item 18 [ ]
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court Yes [ ] No [ ]
<PAGE>
PART I
Item 1. Description of Business
Cryopak Industries Inc.
- -----------------------
Overview of Business
The Company's business is the manufacturing and sale of thermal packaging
solutions. The Company's Cryomat product is a patented, flexible, re-useable
refrigerant product, which is sold as a standalone product or as part of a
system (both corrugated and styrofoam). This product is typically an ice
replacement. Cryomat is primarily shipped directly to the customers in response
to purchase orders. The principal markets are seafood shipping, medical wraps
and general thermal packaging. Over the last five years, the Company has
experienced low but stable sales, largely to the seafood industry, and has
suffered recurring losses from operations. The Company has focused on
identifying key markets where the opportunity for significant sales volumes may
exist or be created and has established certain key relationships with several
groups that provide broader North American distribution. The Company has
purchased a machine which Northland Gel-Ice Products Inc. operates the machine
in Vancouver, British Columbia. The Company's current major focus is on the food
service and catering applications for the major airlines in Canada and the
United States.
The Company relies upon the protection offered by certain patents and
trademarks. The patents are expected to be in effect until 2008. The right to
exploit the patents has been licensed to the Company for an indefinite term, and
is critical to Cryopak's business. A gross royalty is payable to the licensor.
Company History
Cryopak Industries Inc. ("Cryopak", the "Company") was incorporated in the
province of British Columbia, Canada, on February 13, 1981 as 226896 B.C. Ltd.
On March 30, 1981 the Company changed its name to Consort Energy Corp. The
Company changed its name again, to International Consort Industries Inc., on
April 30, 1990 and amended its name to Cryopak Industries Inc. on November 12,
1993. On January 3, 1996, Cryopak increased its authorized stock to a total of
two hundred million (200,000,000) shares, consisting of one hundred million
(100,000,000) shares of common stock with no par value and one hundred million
(100,000,000) shares of Class A Preferred Stock, no par value, of which one
thousand five hundred (1,500) were designated Class A Convertible Voting
Preference Shares, Series I. Cryopak has two subsidiaries. Cryopak (Canada)
Corporation, a British Columbia, Canada, corporation, was incorporated on June
6, 1986 as 310302 B.C. Ltd. and changed its name to Cryopak (Canada) Corporation
on September 22, 1987. Cryopak (International) Inc. is a Barbados corporation
incorporated on August 29, 1995, which is currently inactive. Additionally,
Cryopak (Canada) Corporation has a wholly-owned subsidiary, Cryopak Corporation,
a Nevada corporation formed on March 20, 1987 and has a fifty percent (50%)
interest in Cryopak (Alberta) Corporation, a dissolved Alberta, Canada
corporation.
On February 28, 1995, the Company signed an agreement in principle to
acquire one hundred percent interest in Rogell Enterprises Ltd. ("Rogell") of
Vancouver, British Columbia, Canada. Rogell is a private corporation formed in
1979 that was originally a picture product supplier and developed into a trade
showroom display center carrying design furniture, accessories, framed
decorative art, limited editions and original imagery. The proposed acquisition
was terminated on July 27, 1995.
This acquisition had required a Cdn$2,000,000 financing package and Cryopak
had entered into an agreement with Discovery Capital Corporation of Vancouver to
arrange this financing via a venture capital corporation, Cryopak Industries
(VCC) Inc., ("VCC"). An Investment Agreement was entered into between the
Company and VCC on March 13, 1995, which was approved by the provincial
government and the Vancouver Stock Exchange. The Investment Agreement allowed a
120 day period for fund raising and contemplated five initial closings of
Cdn$100,000 each. Initially, VCC invested $500,000 in common shares of the
Company at prices escalating with each $100,000 raised, starting at Cdn$0.40 per
share and going up to Cdn$0.50, Cdn$0.60, Cdn$0.70 and finally Cdn$0.80 per
share. Each share was accompanied by a non-transferable warrant exercisable at
$0.10 per share premium to the purchase prices and expiring one year from the
issuance date. VCC has 105 shareholders with all being Canadian except for one
being European. The Investment Agreement also provided that VCC would invest in
Cryopak's Class A Preferred Shares at an offering price of $1,000 per share.
Douglas Reid, a member of the Board of Directors of the Company, is the
President of VCC and abstained from voting when the board voted to accept this
Investment Agreement. Of the Cdn$2,000,000, $1,100,000 was received and the
financing was closed on February 25, 1997. After the proposed acquisition was
abandoned, the funds from this financing were designated for the construction of
manufacturing facilities for Cryopak products and to finance marketing programs.
Shareholders own VCC.
<PAGE>
John McEwen, President and co-founder of Discovery Capital Corporation, was
appointed to the board of directors on August 17, 1995. The board consisted of
Harry Bygdnes, Robert Leigh Jeffs, and Douglas Reid.
In September 1995, the Company entered into a joint distribution agreement
with Unisource Worldwide, Inc. ("Unisource") to introduce Cryopak's products
regionally to each of ten Unisource divisions throughout the United States and
Canada. Unisource is a large marketer and distributor of paper and imaging
products and supply systems, disposable paper and plastic products, janitorial
supplies and packaging systems and is owned by Alco Standard Corporation, a
distribution company headquartered in Valley Forge, PA, with revenues of US$8
billion in 1994. The focus of this agreement was the marketing of the Company's
ice substitute product targeting food processors, shippers of perishables and
wholesale and retail food distribution companies with Unisource acting as
Cryopak's marketing partner. Under the terms of the agreement, Unisource was to
sell, stock and distribute all Cryopak products used in food processing and
distribution within each Unisource marketing region as distribution rights were
allocated. Internal problems at Unisource and a lack of positive response at the
divisional level impeded the rate of growth within the terms of the distribution
agreement. As a result, promised purchases were not completed and plans for
national distribution with Unisource were abandoned by the fiscal year end of
March 31, 1996. Instead, the Company's management began working with Unisource
regionally by offering educational programs and training in market segments that
demonstrate a high interest in marketing the Cryopak products. The effect was to
focus the Company's marketing efforts towards those distributors that serve
potential customers directly.
On July 14, 1995, the Company also signed an agreement with Cavanaugh
Communications Inc. ("Cavanaugh") of Bryn Mawr, Pennsylvania, to provide
advertising and marketing expertise to fulfill the obligations of the Unisource
agreement. The agency's focus was positioning Cryopak ice substitute as the
preferred refrigerant for packaging, shipping, storing and displaying a wide
variety of foods, beverages and other perishables, targeting food processors,
direct marketers and wholesale and retail food distribution companies. Cavanaugh
is the exclusive advertising and marketing company for Unisource. This contract
was terminated when the Unisource deal was abandoned.
Harley D. Sinclair joined the Company as its Secretary on November 23,
1995. At this time the officers were Harry Bygdnes, Robert Leigh Jeffs, Douglas
Reid, and John McEwen.
On January 1, 1996, the Company extended its Financial Management Agreement
with Strategic Investments Inc. ("Strategic") of Springfield, Ilinois, to
December 1996, rescindable by either party with 30 days' notice. Strategic had
been receiving US$5,000 per month under the terms of the Agreement but this was
amended to $500 per month plus certain out-of-pocket expenses, for the last
twelve months of the agreement. The agreement was not extended after its
termination in December 1996.
During the fiscal year ended March 31, 1996, the Company began working
directly with several pharmaceutical companies in the United States and Canada.
These companies provided Cryopak with existing packaging and protocols used in
present shipping situations by the Company's competitors so that Cryopak could
perform comparison testing. The graphic comparisons of these independent tests
were then submitted to the pharmaceutical companies.
Comparison testing similar to that done in the pharmaceutical industry was
also conducted in the seafood industry. Several large seafood distributors
tested the Companys product Cryomat.
Also during the fiscal year ended March 31, 1996 the Company entered into a
Memorandum of Understanding with SCA Packaging of Sweden, the largest packaging
supplier in Europe, which began distributing the Cryomat product into EEC
countries in the fall of 1996. Similar agreements were negotiated in Mexico and
Indonesia. These agreements were never finalized.
During the fiscal year ended March 31, 1997, the Company focused on growth
in the pharmaceuticals, seafood, meat and poultry and airline and hotel catering
industries. Cryopak devoted much of its energies during this time to providing
test data in each of these industries which compared Cryopak and its products to
existing refrigerants and conducted onground and inflight testing with several
airlines. The Company also sold small amounts of product to companies in Brazil,
Chile, Taiwan and Israel during this year. Information regarding Freshnex is
available through the Internet to connect commercial producers and suppliers to
retail suppliers by ensuring orders are delivered within 24 hours by Federal
Express in specially designed packages using Cryomat.
<PAGE>
K. Barry Sparks joined the Board of Directors of the Company on April 25,
1996. The board had the following members: Harry Bygdnes, Robert Leigh Jeffs,
Douglas Reid, and John McEwen.
On April 1, 1997, the Company signed an exclusive distribution agreement
with Seafish Systems Ltd. of New Zealand ("Seafish"). The agreement provided
that Seafish would market, sell and distribute products made by Cryopak in New
Zealand, provide marketing information including levels of interest and
potential sales in the market area and to assist in the development of new
market territories as may be determined over time. In exchange, Seafish
committed to buying twelve containers of products over the following twelve
months, to be distributed in New Zealand, Australia and other markets jointly
agreed between the parties.
James M. Fletcher was appointed to the Board of Directors on August 12,
1997. The board consisted of 6 members: Harry Bygdnes, Robert Leigh Jeffs,
Douglas Reid, John McEwen, K. Barry Sparks, and James Fletcher.
On August 13, 1997, the Company commenced a placement of 250,000 shares at
Cdn$0.50 per share for a total of Cdn$125,000, plus warrants for up to 250,000
additional shares at Cdn$0.60 per share exercisable for up to two years. The
proceeds from this offering, which was approved by the Vancouver Stock Exchange,
were used to reduce payables and for working capital. The offering was sold to
two investors: a Canadian individual and a Canadian corporation and was closed
on August 25, 1997 with all shares sold.
The Company began testing its refrigerant systems on all Vancouver to Los
Angeles flights operated by Canadian Airlines on September 10, 1997. This test
was considered as a logistics trial period to determine the most effective
methods for handling the product. The test lasted 60 days. The product worked
but Canadian Airlines did not purchase any product.
The requisite 12% cumulative dividend on Class A Convertible Voting
Preferred Shares, Series I, was declared on September 24, 1997 for the year
ended March 31, 1997. The dividend was paid in common shares totaling 96,908
common shares at a deemed price of Cdn$0.495 per share ($47,969.84 total). Of
these shares, 88,980 were subject to a hold period in British Columbia which
expired March 31, 1998.
On February 2, 1998 K. Barry Sparks resigned from the Board of Directors
for personal reasons and due to other business demands. The board consisted of 5
members: Harry Bygdnes, Robert Leigh Jeffs, Douglas Reid, John McEwen, and James
Fletcher.
The Company began a placement of 777,777 common shares at Cdn$0.45 each for
a total of Cdn$350,000 on February 24, 1998. This offering was approved by the
Vancouver Stock Exchange. The proceeds were used to repay debt. The private
placement was completed with one Canadian shareholder.
On March 27, 1998, the Company agreed to pay a bonus to David Patriquin,
the guarantor on the Company's US$167,285 equipment lease on a Model L-18 Pouch
Machine. Part of the bonus was paid in cash at 1% per month (Cdn$2,392) over a
maximum of 10 months, ceasing immediately if the guarantor was released during
the 10 month period. The remainder was paid in 119,608 non-transferable common
stock warrants, all issued, exercisable for two years at Cdn$0.40 in the first
year and Cdn$0.46 in the second year. The Vancouver Stock Exchange approved this
transaction.
The Company entered into an agreement whereby a machine was purchased and
placed in the manufacturing facility of Northland Gel-Ice Inc. Manufacturing,
with this machine, began during the fiscal year ended March 31, 1999. This
facility manufactures product to be delivered to the United States, Canada and
the Pacific Rim. Sugar Foods produced the product from April, 1987 until April,
1999 under a contractual arrangement.
The Company commenced a placement of 1,000,000 shares at Cdn$0.40 per share
for a total of Cdn$400,000 on April 23, 1998. The offering included
non-transferable warrants to purchase up to 1,000,000 additional shares for two
years at Cdn$0.40 per share for the first year and Cdn$0.46 during the second
year. The proceeds from this offering were used to reduce payables and for
unallocated working capital and the offering was closed on June 26, 1998 with
all shares sold. All shares were sold to Canadian and European individuals and
entities.
<PAGE>
On November 1, 1998, Cryopak declared the requisite 12% cumulative dividend
on its Class "A" Convertible Voting Preference Shares, Series I, held by VCC on
the record date of March 31, 1998. The Company elected to pay the dividend in
common shares and issued 159,199 common shares at a price of Cdn$0.3995 per
share for a total of Cdn$63,600. The shares were subject to a hold period in
British Columbia which expired after March 31, 1999.
Cryopak finalized a Cdn$3.6 million purchase order from Northwest Airlines
on December 1, 1998 for the refrigerant products of its subsidiary, Cryopak
(Canada) Corporation. This purchase order is for three years. Northwest Airlines
uses the Cryopak product in interior catering and inflight food and beverage
service. Northwest currently is not using the product. They are borrowing the
purchase order and first use should occur during the first half of 2000.
An offering was commenced on February 3, 1999 of 1,280,000 common shares at
Cdn$0.75 per share for net proceeds of Cdn$924,900. The offering was approved by
the Vancouver Stock Exchange and was closed on March 19, 1999 with all shares
sold to European corporations. Finder's fees were paid to two European
corporations.
On February 8, 1999 Cryopak retained the services of European Investor
Services ("EIS") to coordinate investor relations with a growing group of
shareholders across Europe. EIS is an integrated investor relations company
headquartered in London and operating in all major financial centers of Europe
and specializing in the high tech, new media and biotechnology sectors. EIS
represents small and medium North American companies wishing to expand their
European shareholder bases and will provide corporate information to a
developing shareholder base and ensure a flow of information to industry and
financial analysts advising the European financial community as to the progress
and key developments of the Company. The contract is for six months at two
thousand pounds per month, subject to review after three months. Currently, the
contract has been extended to a month to month basis and all parties are
complying with its terms.
Nick Fuller was appointed Vice President of Public Relations of the Company
on February 11, 1999.
John Morgan was appointed President and CEO of Cryopak's subsidiary,
Cryopak Corporation, on March 19, 1999. He was also appointed a director of the
Company at this time. Mr. Morgan's signing incentive was a forgivable
interest-free loan which was used to acquire 125,000 common shares of the
Company at Cdn$0.776 per share, including 125,000 warrants exercisable after six
months' employment. The stock purchase was approved by the Vancouver Stock
Exchange. Also on March 19, 1999, Leigh Jeffs, a long-time member of the Board
of Directors, was appointed Chief Financial Officer of the Company.
On April 1, 1999 the Company retained the services of CCRI Corporation
("CCRI"), a Phoenix, Arizona, based corporation, to provide investor relations
and corporate finance services to the Company, especially in the United States.
CCRI will provide corporate information to a developing shareholder base, as
well as ensure a flow of information to industry and financial analysts advising
the American financial community as to the progress and key developments of the
Company. The initial agreement is for twelve months at US$6,000 per month, plus
$20,000 for preparation and mailing of a Corporate Profile.
Cryopak sold 72,000 shares of its common stock to CCRI at Cdn$0.75 per
share for total proceeds of Cdn$54,000 on April 8, 1999. Each share came with
one warrant exercisable for up to two years at Cdn$1.00 per share. The proceeds
from this offering were used for working capital.
On April 22, 1999 Ross G. Morrison was elected to the Company's Board of
Directors. The board is now comprised of 6 members: Harry Bygdnes, Robert Leigh
Jeffs, Douglas Reid, John McEwen, John Morgan, and Ross Morrison
Products
Cryopak markets Cryomat, a refrigerant product that maintains a temperature
range of 32-46 degrees Fahrenheit for longer than conventional cooling products
such as ice, dry ice and gel packs. The product keeps foods fresh and cold
without freezing, unpleasant odor or watery mess. Cryopak can be handled without
risk of burning skin and does not produce carbon dioxide. Cryomat was tested and
independently evaluated for over twelve months by the North American airline and
food catering industry (eg. Northwest Airlines, Dobbs Catering, and LSG Sky
Chefs) and the results of these tests showed that it possesses superior
temperature control capabilities over competing products, while meeting or
exceeding the HACCP requirements established by the FDA.
<PAGE>
The Company has conducted tests comparing the effects of its products with
dry ice and gel packs. The Company's product, Cryopak, was shown to maintain a
temperature within a prescribed range of temperatures for a longer period of
time as per graphs below, an attribute which is not generally available with
competing products. Additionally, Cryopak doesn't have the disadvantage of dry
ice which produces carbon dioxide during the sublimation process thereby
displaces oxygen in enclosed environments such as aircrafts. Gel packs do not
provide flexibility and/or coverage of cold for area coverage for consistent
temperature.
Cryomat consists of reusable sheets of liquid-filled laminate pouches that
provide refrigeration and insulation when frozen. The sheets can be custom cut
to various sizes or into individual cubes for use in a wide range of
applications and has been U.S.D.A approved for use with food products, including
fish, meat and poultry. The Company markets its Cryomat product to the airline,
pharmaceutical and seafood shipping industries and has begun to investigate
marketing the product to the sports/healthcare industry. Additionally, Cryomat
is sold commercially in Canada under the name Cooler Mat.
All of the Company's sales are to third-party customers. Sales to the
United States for the years 1997, 1998, and 1999 are 73%, 67% and 88%
respectively. International sales are 24%, 29% and 7% for 1997, 1998 and 1999
with the majority to one customer, Seafish Systems. Sales within Canada are 3%,
4% and 5% for 1997, 1998 and 1999.
Three customers accounted for approximately 70%, 74% and 71% of total sales
for the financial years 1997, 1998 and 1999. They are Dura*Kold Corp., Polyfoam
Packers, and Seafish Systems for 1997 and 1998 and Dura*Kold Corp., Polyfoam
Packers, and Wyeth-Ayerst Labs for 1999.
There is no new product or service being offered.
The Company conducts research and development activities of a minimal
nature at this time but the activities are not separately accounted for nor are
there allocated funds for these activities.
The "perishable" packaging industry is being faced with several pressures,
which have forced corporations within the industry to reevaluate traditional
methods of packing, transporting and storing temperature sensitive goods. These
pressures include the market and customer driven need for higher quality, more
timely and fresher products, a cost driven need to reduce the amount of waste
and spending on less effective products and regulation driven requirements of
new food safety and health standards and the United States' Food and Drug
Administration's ("FDA") regulations for the transport of pharmaceuticals and
general handling and catering of perishable meals for public consumption.
In December 1997, the FDA introduced the HACCP ("Hazard Analysis Critical
Control Point") program, a food handling guideline system endorsed by the FDA
which was put into effect in December 1998. One portion of this program requires
that airline food be stored at temperatures below 41 degrees Fahrenheit. Because
the Company's testing in the airline industry have shown that food stored using
its products remain below this level, this new regulation will have a positive
impact on the Company's sales.
The "perishable" packaging industry must also follow U.S.D.A. regulations
in the United States and Agriculture Canada regulations in Canada. Cryomat has
been U.S.D.A. approved and Agriculture Canada accepted for use with food
products, including fish, meat and poultry.
The Company's Cryomat product has been registered with the U.S. Patent and
Trademark Office as "Thermal Packaging Assembly" and received patent number
4,931,333 on June 5, 1990. The product was also patented in Canada on October
22, 1991 with patent number 1,291,073. The patent expires in Canada on October
22, 2008 and in the United States on June 5, 2007. Both patents are held by D.
Lindley Henry. Lin Henry is a consultant for the company. A copy of the Canadian
patent is attached as an exhibit to this registration statement; the United
States patent is available from the U.S. Patent and Trademark Office. Because
these expiration dates are so far in the future, the Company feels that the
patent expirations will not make a significant impact upon the Company's
business.
The Company's subsidiary Cryopak Corporation has also trademarked the words
"Cryomat" and "Cryopak" with the United States Patent and Trademark Office. The
"Cryomat" trademark is registration number 1,420,052 dated December 9, 1986 and
the "Cryopak" trademark is registration number 1,576,371 registered January 9,
1990. These trademarks expire December 9, 2006 and January 9, 2001,
respectively. Additionally, Cryopak Corporation has trademarked "Super Cool
System" with the Canadian Trademark Office, registration number 441,439 and
registration date March 31, 1995, as well as "Cooler Cube" with registration
number 441,438 and registration date March 31, 1995. The Canadian subsidiary
registered these trademarks.
Cryopak (Canada) Corporation
Cryopak (Canada) Corporation, ("CCC") a British Columbia, Canada,
corporation, was incorporated on June 6, 1986 as 310302 B.C. Ltd. and changed
its name to Cryopak (Canada) Corporation on September 22, 1987. CCC has a wholly
owned subsidiary, Cryopak Corporation, a Nevada corporation formed on March 20,
1987. Additionally, CCC had a fifty percent (50%) interest in Cryopak (Alberta)
Corporation, an Alberta, Canada corporation formed in November 17, 1992, which
was dissolved in 1998. From inception until 1998, CCC has been handling all
sales activities up to the point when the Company started manufacturing in
Vancouver. From July 1998 onwards, CCC has been in charge of all sales to the
United States and worldwide while the Company is responsible for all sales
within Canada.
Cryopak (International) Inc.
Cryopak (International) Inc. is a Barbados corporation incorporated on
August 29, 1995. On March 19, 1996 Cryopak (International) Inc., reached an
agreement in principle with Erik Petersson & Company, Inc. ("EPC") of Miami,
Florida, to secure sales and distribution contracts for the Company's products
outside North America. Under the terms of this agreement, EPC would be paid
Cdn$2,500 per month until contracts with customers were signed, plus five
percent commission on total gross sales generated by EPC and warrants issued to
EPC's principal, Bertil I. Petersson, based upon gross sales. These warrants
were to be issued at a rate of 60,000 warrants for the first US$1,000,000 in
gross sales and 30,000 warrants for every additional US$500,000 in sales to a
maximum of 600,000 warrants. All warrants were exercisable for one year from the
date of issuance. The agreement stipulated a maximum of $10,000,000 gross sales,
which must be generated within five years. EPC has provided Cdn$680,000 in sales
and the Company has not issued any warrants. As part of this agreement, EPC's
principal, Bertil I. Pertersson, was to have been appointed to the Company's
board of directors. However, Cryopak International, Inc. did not ratify the
appointment and Mr. Petersson did not become a director. Cryopak (International)
Inc. has not had any activities to date.
Item 2. Description of Property
Cryopak's principal executive offices are located at 1120-625 Howe Street,
Vancouver, British Columbia, Canada V6C2T6. Cryopak leases office space for its
corporate headquarters totaling 2,039 square feet at a rate of Cdn$2,378.83 per
month. The current lease expires on October 31, 2000. The Company is reaching
maximum office capacity and will likely be seeking additional space prior to the
expiry of the existing lease. The Company is finalizing a purchase of Northland
Gel-Ice Inc./Northland Custom Packaging, Inc. manufacturers of gel packs and
related products. The Company's manufacturing activities are currently carried
out in that manufacturer's facility under the control of the Company. In
addition, the Company contracts with that company to provide supervision and
labor in the manufacturing activities. There is no written agreement between
Cryopak and Northland Gel-Ice, Inc./Northland Custom Packaging, Inc. This
provides adequate additional office space, product testing facilities, and allow
complete monitoring and direct control of all manufacturing and production
functions. The additional space acquired would be 10,000 square feet.
Item 3. Legal Proceedings
Neither the Company nor any of its subsidiaries is a party to any legal
proceeding at this time.
Item 4. Control of Registrant
Cryopak is not directly or indirectly owned or controlled by any other
corporation or by any foreign government. The following table sets forth, as of
May 31, 1999, the beneficial ownership of the Company's Common Stock by each
person known by the Company to beneficially own more than 5% of the Company's
Common Stock outstanding as of such date and by the officers and directors of
the Company as a group. Except as otherwise indicated, all shares are owned
directly.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Name and address of Amount and Nature Percent of
Title of Class beneficial owner Of Beneficial Ownership Class
- -------------- ---------------- ----------------------- -----
<S> <C> <C> <C>
Common Shares Exceptional Technologies Funds 3 977,777 5.7%
2011 - 1177 W. Hastings St.
Common Shares Cryopak Industries (VCC) Inc. 1,043,722 6.0%
Common Shares Directors/Officers 1,461,241 8.5%
Harry Bygdnes
Robert Leigh Jeffs
Douglas Reid
John McEwen
John Morgan
Ross Morrison
</TABLE>
Item 5. Nature of Trading Market
The Company's common stock trades in Canada on the Canadian Venture
Exchange. Non-Canadian investors are also able to trade the Company's stock on
this Exchange. As of March 31, 1999, the Company's stock was held by 388
American shareholders, which consisted of 34% of its total outstanding shares.
The high and low sales prices for the Company's common stock on the Canadian
Venture Exchange over the past two fiscal years are as follows:
<TABLE>
<CAPTION>
Fiscal Quarter High (Cdn$) Low (Cdn$)
- -------------- ----------- ----------
<S> <C> <C>
April - June 1999 $1.15 $0.98
January - March 1999 $0.84 $0.74
October - December 1999 $0.89 $0.55
July - September 1998 $0.62 $0.39
April - June 1998 $0.46 $0.36
January - March 1998 $0.43 $0.36
October - December 1997 $0.42 $0.26
July - September 1997 $0.52 $0.41
April - June 1997 $0.60 $0.45
</TABLE>
Item 6. Exchange Controls and Other Limitations Affecting Security Holders
Except as discussed in Item 7 below, the Company is not aware of any
Canadian federal or provincial laws, decrees, or regulations that restrict the
export or import of capital, including foreign exchange controls, or that affect
the remittance of dividends, interest or other payments to nonCanadian holders
of Common Shares. The Company is not aware of any limitations on the right of
nonCanadian owners to hold or vote Common Shares imposed by Canadian federal or
provincial law or by the Company.
The Investment Canada Act (the "Act") governs acquisitions of Canadian
business by a nonCanadian person or entity. The Act provides, among other
things, for a review of an investment in the event of acquisition of control in
certain Canadian businesses in the following circumstances:
(1) if the investor is a non-Canadian and is not a resident of a World
Trade Organization ("WTO") country, any direct acquisition having an
asset value exceeding $5,000,000 and any indirect acquisition having
an asset value exceeding $50,000,000;
(2) if the investor is a non-Canadian and is a resident of a WTO member,
any direct acquisition having an asset value exceeding $168,000,000
unless the business is involved in uranium production, financial
services, transportation services or a cultural business.
<PAGE>
An indirect acquisition of control by an investor who is a resident of a
WTO country is not reviewable unless the value of the assets of the business
located in Canada represents more than 50% of the asset value of the
transaction, or the business is involved in uranium production, financial
services, transportation services or a cultural business.
The Act provides that a non-Canadian investor can hold up to 1/3 of the
issued and outstanding capital of a Canadian corporation without being deemed a
"control person", and that a non-Canadian investor holding greater than 1/3 but
less than 1/2 of the issued and outstanding capital of a Canadian corporation is
deemed to be a control person subject to a rebuttable presumption to the
contrary (i.e. providing evidence of another control person or control group
holding greater number of shares).
The Act requires notification where a non-Canadian acquires control,
directly or indirectly, of a Canadian business with assets under the thresholds
for reviewable transaction. The notification process consists of filing a
notification within 30 days following the implementation of an investment.
Item 7. Taxation
The Income Tax Act (Canada) provides that interest and/or dividends paid to
persons who are not resident in Canada are subject to taxation in Canada at a
rate of 25% of the amount so paid. The tax is withheld by the payor at the time
of payment. The 25% withholding rate may be reduced where Canada and the country
of residence of the recipient have enacted a treaty with respect to taxes on
income and on capital. The Canada United States Income Tax Convention of 1980
provides that the withholding rate on dividends and interest will be 15% of any
paid. There are no other taxes eligible for persons not resident in Canada.
Item 8. Selected Financial Data (Stated in Canadian Dollars)
Year Year
Ended Ended
March 31, March 31,
1999 1998
Net Sales or Operating Revenues $1,295,159 $1,161,442
Income (Loss) from Continuing
Operations ( 912,068) ( 638,553)
Income (Loss) from Continuing
Operations per common share ( 0.06) ( 0.05)
Total Assets 2,036,700 1,364,297
Long-Term Obligations and
Redeemable Preferred Stock
Capital Leases 249,057 320,015
Redeemable Preferred Stock 0 0
Cash Dividends Declared per
Common Share N/A N/A
The Company prepares its financial statements in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP"). In addition the
Company provides supplementary description of significant differences between
Canadian GAAP and those in the United States ("U.S. GAAP") as follows:
A. Under U.S. GAAP development costs are expensed as incurred. Under
Canadian GAAP development costs subject to certain criteria are
deferred and amortized.
B. The Company has elected to follow Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issues to Employees" (APB25) in
accounting for its stock options. Under APB25, because the exercise
price of the Company's options for common shares granted to employees
is not less than the fair market value of the underlying stock on the
date of grant, no compensation expense has been recognized.
C. Under U.S. GAAP, stock based compensation to non-employees must be
recorded at the fair market value of the options and warrants granted.
This compensation, determined using a Black-Scholes pricing model, is
expensed over the vesting periods of each option and warrant granted.
The impact of significant variations to U.S. GAAP on the Consolidated
Statements of Loss are as follows:
<TABLE>
<CAPTION>
Year Ended March 31
1999 1998 1997
<S> <C> <C> <C>
Loss for the year, Canadian GAAP $( 912,068) $( 638,553) $( 675,133)
Amortization of deferred development costs 14,822 14,822 14,822
Adjustment for stock based compensation -
Non employees ( 574,868) ( 123,226) ( 190,351)
Loss for the year, U.S. GAAP ( 1,472,114) ( 746,957) ( 850,662)
Loss per share, U.S. GAAP $( 0.10) $( 0.06) $( 0.07)
</TABLE>
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standard No. 123 "Accounting for
Stock Based Compensation" (SFA123), which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted in fiscal periods beginning subsequent to December 1994 under the fair
value method of that statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes pricing model with the following
weighted average assumptions for the years ended March 31, 1999, 1998 and 1997,
respectively: risk free interest rates of 5.2%, 5.8% and 6.8%; dividend yields
of 0%; volatility factors of the expected market price of the Company's common
stock of 1.23; and a weighted average expected life of the options of four, one
and .65 years.
The Black Scholes options valuation model was developed for use in
estimating the fair value of trade options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because of the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Supplemental disclosure of pro forma loss and loss per share is as follows:
<TABLE>
<CAPTION>
Year ended March 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma loss, U.S. GAAP $( 1,785,577) $( 784,485) $( 875,991)
Pro forma loss per share, U.S. GAAP $( 0.12) $( 0.06) $( 0.07)
</TABLE>
The impact of significant variations to U.S. GAAP on the Consolidated Balance
Sheets items are as follows:
<TABLE>
<CAPTION>
Year Ended March 31
1999 1998
---- ----
<S> <C> <C>
Assets $ 2,018,172 $ 1,330,947
Share Capital 10,257,319 7,485,544
Deficit ( 9,400,181) ( 7,987,693)
</TABLE>
<PAGE>
As of September 13, 1999, the exchange rate between the United States and
Canada was US$1.00 per Cdn$1.4703. Over the Company's past five fiscal years,
the exchange rate per US$1.00 has varied as follows:
<TABLE>
<CAPTION>
Rate at Average Low High
Fiscal Year Ended Year End Rate Rate Rate
<S> <C> <C> <C> <C>
March 31, 1999 $1.5092 $1.5033 $1.4173 $1.5765
March 31, 1998 $1.4166 $1.4023 $1.3669 $1.4639
March 31, 1997 $1.3843 $1.3609 $1.3306 $1.3843
March 31, 1996 $1.3632 $1.3629 $1.3282 $1.3987
March 31, 1995 $1.3990 $1.3824 $1.3408 $1.4235
</TABLE>
Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the financial
statements and notes thereto included with this Form 20-F. Except for the
historical information contained herein, the discussion in this Registration
Statement contains certain forward-looking statements that involve risk and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this document
should be read as being applicable to all related forward-looking statements
wherever they appear in this document. The Company's actual results could differ
materially from those discussed here.
The Company's operating history makes the prediction of future operating
results difficult or impossible.
Sales
- -----
Sales to date have been largely to a limited number of long term customers.
Sales have been limited as the Company attempts to position itself as the
premier supplier of temperature sensitive packing solutions.
The following table summarizes the sales to its three largest customers the
latest three years and sales denominated in U.S. currency.
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Total sales 100% $1,295,159 100% $1,161,442 100% $1,140,242
Sales:
Three largest customers 71% 931,004 74% 861,523 70% 793,279
Others 29% 364,155 26% 305,860 30% 346,279
Sales denominated in:
US dollars 95% 1,230,402 96% 1,114,985 97% 1,106,035
Cdn dollars 5% 64,757 4% 46,457 3% 34,207
</TABLE>
Cost of Sales
In September 1998, the Company commenced manufacturing activities in
Canada. Prior to September 1998, manufacturing was subcontracted to Sugar Foods
Corp. of Los Angeles, California and was denominated in US dollars. The finished
product was supplied on a turn key basis upon shipment to customers. Production
by Sugar Foods was phased out during the period April 1999 when it ceased.
Effective September 1998, the Company had installed its manufacturing
facility and commenced production of its own product. Labor is supplied by
Northland Gel-Ice, Inc./Northland Custom Packaging, Inc. who oversees
production. The Company purchases its own raw materials, the cost of which is
denominated in Canadian dollars. Effective May 1999, all manufacturing is
processed at the Company's Canadian manufacturing facility in Vancouver, British
Columbia.
Administrative and Marketing Expenses
- -------------------------------------
The Company has incurred significant marketing and administrative costs
related to the introduction of products to prospective customers. Because of the
lengthy sales cycle (see risk factors under Item 1) these related costs
including personnel and travel costs are charged to operations in periods where
they are incurred.
During this cycle, the Company assists prospective customers in utilizing
its products in the design and development of a temperature sensitive packing
solution to meet the customers' and related regulatory requirements.
Liquidity
- ---------
The Company has financed its operating requirements by the issuance of
equity capital (primarily private placement and the exercise of stock options by
employees and directors) and its capital requirements through obtaining of lease
financing.
The Company anticipates continuing to obtain such financing until
profitable levels of operation have been attained.
Results of Operations
- ---------------------
The Company has incurred operating losses throughout its history and
expects to incur a further loss in the current year. Such losses arose as the
Company explored opportunities to exploit its products by the identification of
appropriate markets and the introduction thereto.
Effective in March of 1999, the Company engaged John Morgan, a key senior
executive with experience in marketing products, to head up its market
operations.
As a result of its investment in product and market development and in
human resources during the prior years, the Company expects sales will increase
significantly in fiscal 2001 and later years resulting in profitable operations.
Item 9A. Quantitative and Qualitative Disclosures About Market Risk
Disclosures About Market Risk
- -----------------------------
In the courses of carrying on its business, the Company is subjected to a
variety of business risks, including market risk associated with fluctuation in
interest rates, currency exchange rates as well as the collectibility of
accounts.
Collectibility of Accounts
- --------------------------
The Company carefully monitors the collection of all accounts and the
granting of credit. As the result of this policy, the Company has experienced no
material credit losses and does not anticipate future losses to be material. The
Company will continue its close monitoring of credit.
Currency Fluctuation Risk
- -------------------------
Approximately 95% of the Company's sales revenue is in US Dollars and
substantially all of its costs of sales and administrative costs are in Canadian
dollars. Its marketing costs including travel and consulting costs are incurred
in the county of origin. The Company monitors exchange rates but had not taken
action to date to reduce its exposure to significant savings in currency
exchange rates. Management will review its exposure and will take such remedial
steps as it considers necessary.
Interest Rate Risk
- ------------------
The Company's interest expenses and income are subject to changes in
interest rates. Management has determined that fluctuation of up to 10% in
interest rates would not materially affect its financial position or results of
operations.
As at March 31, 1999, the capitalized amount owing under long term lease
contracts was $333,601 with fixed interest until maturity. See Note 10 of
financial statements.
Item 10. Directors and Officers of Registrant
Cryopak Industries Inc.
<TABLE>
<CAPTION>
Arrangements Material
Name Title(s) Term of Office to Appointment
<S> <C> <C> <C>
Harry Bygdnes President, 1981 to Present None
Director 1981 to Present None
Robert Leigh Jeffs CFO, March 1999 to Present None
Director June 1990 to Present None
Harley D. Sinclair Secretary November 1995 to Present None
Ross G. Morrison Director April 1999 to Present None
John F. Morgan Director March 1999 to Present None
John A. McEwen Director August 1995 to Present None
</TABLE>
Cryopak (Canada) Corporation
<TABLE>
<CAPTION>
Arrangements Material
Name Title(s) Term of Office to Appointment
<S> <C> <C> <C>
Harry Bygdnes Secretary, 1987 - Present None
Director
Robert Leigh Jeffs President, March 1987 to March 1999 None
Director March 1987 to Present None
John F. Morgan President, March 1999 to Present None
CEO, and March 1999 to Present None
Director March 1999 to Present None
</TABLE>
Cryopak (International) Inc.
<TABLE>
<CAPTION>
Arrangements Material
Name Title(s) Term of Office to Appointment
<S> <C> <C> <C>
Harry Bygdnes Director August 1995 to Present None
Robert Leigh Jeffs Director August 1995 to Present None
</TABLE>
All directors have a term of one year. Directors are elected at each annual
meeting of the Company. The terms for President, CFO and Secretary are
indefinite.
Item 11. Compensation of Directors and Officers
During the Company's last fiscal year ended March 31, 1999, the Company
paid an aggregate of Cdn$151,146 to its officers. The Company's directors do not
receive a salary, but are paid for out-of-pocket expenses incurred as directors
of the Company. Both the Company's officers and its directors have received
options for the Company's common stock at various exercise prices based upon the
average trading price for the ten trading days prior to the grant date. There
are no amounts set aside or accrued during the last fiscal year to provide
pension, retirement or similar benefits for the directors and officers pursuant
to any existing plan provided or contributed to by the Company or its
subsidiaries.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries
As of March 31, 1999, the following stock options of the Company were
outstanding: Group Received Number of Shares Exercise Price Expiration Date
Directors 170,000 $0.50 June 13, 1999 390,000 $0.52 August 17, 2000 343,000
$0.50 January 7, 2001 75,000 $0.52 June 19, 1999 200,000 $0.50 September 2, 1999
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Officers 100,000 $0.40 June 26, 2000
136,300 $0.82 August 17, 2000
Employees 20,000 $0.52 June 16, 1999
100,000 $0.82 February 11, 2001
750,000* $0.76 March 19, 2004
Directors, Officers, 2,164,300
Employees (as a group of
three)
</TABLE>
* These options will vest at a rate of 50,000 at the end of each calendar
quarter commencing March 31, 1999 and are subject to shareholder approval.
<PAGE>
Item 13. Interest of Management in Certain Transactions
Over the past five fiscal years, the Company has given unsecured cash
advances to NCK Holdings, Inc. ("NCK"), which is owned by Harry Bygdnes and
Leigh Jeffs, directors of Cryopak. These advances have included Cdn$56,972
during the fiscal year ended March 31, 1995, Cdn$109,339 during the fiscal year
ended March 31, 1996, Cdn$ 90,668 during the fiscal year ended March 31, 1997,
Cdn$70,572 during the fiscal year ended March 31, 1998 and Cdn$48,868 during the
fiscal year ended March 31, 1999. These amounts were not repaid during the
fiscal year ended March 31, 1995; however, commencing in the fiscal year ended
March 31, 1996 NCK began repaying the advances at a rate of Cdn$2,200 per month,
which amount includes eight percent annual interest. The unsecured cash advances
were paid against royalties, which were less than anticipated.
The Company has also paid management fees and royalties to NCK. The
management fees were paid in exchange for management services and the royalties
were in exchange for the rights to the patent for the Cryomat product. Over the
past five fiscal years, these fees and royalties have been paid as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended Management Fees Royalties
<S> <C> <C>
March 31, 1995 Cdn$210,000 Cdn$17,722
March 31, 1996 Cdn$220,000 Cdn$20,159
March 31, 1997 Cdn$220,000 Cdn$22,934
March 31, 1998 Cdn$220,000 Cdn$26,289
March 31, 1999 Cdn$220,000 Cdn$26,261
</TABLE>
During the fiscal year ended March 31, 1996, the Company paid commissions
to Discovery Capital Corporation, the president and non-controlling shareholder
is John McEwen, who is also a member of Cryopak's board of directors. Mr. McEwen
provides assistance in market research, preparation of documents and plannig of
offering of shares under private placements. These commissions were paid in
exchange for sales of the Company's stock as part of the Cdn$2,000,000 venture
capital Investment Agreement entered into between the Company and Discovery
Capital Corporation in March 1995 and totaled Cdn$56,560. The Company paid an
additional Cdn$15,540 in professional fees and Cdn$23,500 in consulting fees to
Discovery Capital Corporation during the fiscal year ended March 31, 1997, also
as a part of the terms of the Investment Agreement.
Other amounts paid to affiliated corporations during the past five fiscal
years include Cdn$10,000 in professional fees paid to a company owned by a
director during the fiscal years ended March 31, 1996 and March 31, 1998 and
professional fees of Cdn$22,200 paid in the fiscal year ended March 31, 1999.
The fees were paid to Reid & Company for advisory services. Douglas R. Reid is
president of Reid & Company. He provides general corporate consulting,
accounting advice and related assistance on financial matters including leases.
The Company had accounts receivable of Cdn$12,446 owed to NCK Holdings Inc.
and Cdn$3,278 to Fulcrum Development Ltd., a company related by Harry Bygdnes
and Leigh Jeff, directors in common, during the fiscal year ended March 31,
1997. In the fiscal year ended March 31, 1998 the accounts receivable were
Cdn$7,658 to NCK Holdings Inc. and Cdn$3,278 to Fulcrum Development Ltd., whose
accounts receivable balance was also at Cdn$3,278 during the fiscal year ended
March 31, 1999. The amount owing by Fulcrum Development is in respect to
recoverable office services and costs incurred by the Company on behalf of
Fulcrum Development. The amount owing by NCK Holdings were excess payments of
royalties and are recoverable out of future royalty payments. The payments made
were due to the actual royalty being less than anticipated.
PART II
Item 14. Description of Securities to be Registered
Common Stock
Holders of the Common Stock are entitled to one vote for each share held by
them of record on the books of the Company in all matters to be voted on by the
stockholders. Holders of Common Stock are entitled to receive such dividends as
may be declared from time to time by the Board of Directors out of funds legally
available, and in the event of liquidation, dissolution or winding up of the
Company, to share ratably in all assets remaining after payment of liabilities.
Declaration of dividends on Common Stock is subject to the discretion of the
Board of Directors and will depend upon a number of factors, including the
future earnings, capital requirements and financial condition of the Company.
The Company has not declared dividends on its Common Stock in the past and the
management currently anticipates that retained earnings, if any, in the future
will be applied to the expansion and development of the Company rather than the
payment of dividends.
<PAGE>
The holders of Common Stock have no preemptive or conversion rights and are
not subject to further calls or assessments by the Company. There are no
redemption or sinking fund provisions applicable to the Common Stock. The Common
Stock currently outstanding is, and the Common Stock offered by the Company
hereby will, when issued, be validly issued, fully paid and nonassessable.
Class A Preferred Stock, Series 1
Holders of the Class A Preferred Stock, Series I, shall be entitled to
receive notice of and attend all meetings of the shareholders of the Company and
shall have the right to vote at any such meetings on the basis of one vote for
each Series 1 Preferred Share held. The consideration for the issue of each
Class A Preferred Share, Series 1, shall be Cdn$1,000.
Each Class A Preferred Share, Series I, carry a 12% annual, cumulative
dividend, payable at the end of the Company's most recent fixed fiscal year end,
at the option of the Company, in either cash or Common Shares, the value of the
Common Shares being calculated on the basis of the Current Trading Price. No
dividends shall be declared or paid on any other class of shares unless and
until all unpaid dividends on the Series 1 Preferred Shares have been paid.
At any time after December 31, 1996, each Class A Preferred Share, Series
I, shall be convertible into Common Shares on the basis of a Common Share price
of Cdn$3.00 each, or at such lower price as may be provided below as follows:
1. Cdn$2.50 at any time after December 31, 1997, provided that the
Current Trading Price shall never have exceeded Cdn$2.99 after
December 31, 1996;
2. Cdn$2.00 at any time after December 31, 1998, provided that the
Current Trading Price shall never have exceeded Cdn$2.99 after
December 31, 1996 or Cdn$2.49 after December 31, 1997;
3. At any time after December 31, 1999, provided that the Current Trading
Price shall never have exceeded Cdn$2.99 after December 31, 1996 or
Cdn$2.49 after December 31, 1997 or Cdn$1.99 after December 31, 1998,
at a Common Share Price equal to that price which represents a 15%
discount to the then Current Trading Price, which Common Share price
in no event shall be less than $0.95.
Any shares not converted prior to May 12, 2000 shall be deemed to have been
converted on May 12, 2000 at the applicable conversion price described above. If
there is a subdivision or consolidation of the Class A Preferred Shares prior to
conversion of the Series I Preferred Shares into Common Shares, then the
applicable conversion formula shall be proportionally adjusted.
In the event of a dissolution, winding up or other return of capital of the
Company, registered holders of the Class A Preferred Shares, Series I, shall be
entitled to receive the amount paid up on such shares and all unpaid dividends
before any amount shall be paid or any property or asset of the Company is
distributed to the registered holders of any other classes of shares. After
payment to the registered holders of the Series I Preferred Shares of the amount
so payable to them as provided above, they shall not be entitled to share in any
future distribution for the property or assets of the Company.
PART IV
Item 17. Financial Statements
INDEPENDANT AUDITORS' REPORT
To the Shareholders
Cryopak Industries Inc.
We have audited the consolidated balance sheets of Cryopak industries Inc., as
at March 31, 1999 and 1998 and the consolidated statements of loss and deficit
and changes in financial position for each of the years in the three year period
ended March 31, 1999. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express as
opinion on theses financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance wheather the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial positions of the company as at March 31, 1999
and 1998 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended March 31, 1999 in
accordance with accounting principles generally accepted in Canada. As required
by the Company Act (British Columbia), we report that, in our opinion, these
principles have been applied on a consistent basis.
Signed "Hay & Watson"
Chartered Accountants
Vancouver, BC
June 11, 1999
COMMENTS BY INDEPENDANT AUDITORS FOR U.S. READERS ON
CANADA-U.S. REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 1 to the financial statements. Our report to the shareholders dated June
11, 1999 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the Auitors' Report when
these are adequately disclosed in the financial statements.
Signed "Hay & Watson"
Chartered Accountants
<PAGE>
CRYOPAK INDUSTRIES INC.
Consolidated Balance Sheets
March 31
(Stated in Canadian Dollars)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Current
Cash $ 640,299 $ 3,417
Accounts receivable, net of allowancol for uncollectible
accounts of $74,684 (1998 - $21,155) 360,783 217,677
Inventory (Note 3) 20,608 36,757
Prepaid expenses 14,075 12,196
Due from employees 24,448 32,117
--------------------------------------------------------------------------------------------------------------------------
1,060,213 421,773
Term deposit - Restricted (Note 4) 125,649 119,609
Investments (Note 5) 75 25,442
Capital Assets (Note 6) 429,652 416,945
Advance to Related Company (Note 7) 48,868 70,572
Intangibles (Note 8) 372,243 429,565
--------------------------------------------------------------------------------------------------------------------------
$ 2,036,700 $ 1,364,297
LIABILITIES
Current
Accounts payable and accrued liabilities $ 276,966 $ 532,440
Note payable (Note 9) - 350,000
Current portion of capital lease obligation 84,544 80,174
-------------------------------------------------------------------------------------------------------------------------
361,510 962,614
Capital Lease Obligation (Note 10) 249,057 320,015
Deferred Income Taxes 20,467 20,467
--------------------------------------------------------------------------------------------------------------------------
631,034 1,303,096
SHAREHOLDERS'EQUITY
Share Capital (Note 11)
Issued and outstanding
Common shares 9,682,451 7,362,318
Class A preferred shares, Series 1 530,000 530,000
Deficit (8,806,785) (7,831,117)
- -----------------------------------------------------------------------------------------------------------------------------
1,405,666 61,201
$ 2,036,700 $ 1,364,297
APPROVED BY THE BOARD:
"Harry Bygdnes"
_____________________ Director
"R. Leigh Jeffs"
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
Consolidated Statements of Loss and Deficit
Year Ended March 31
(Stated in Canadian Dollars)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Sales $ 1,295,159 $ 1,161,442 $ 1,140,242
Cost of goods sold 746,285 763,018 675,706
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 548,874 398,424 464,536
Operating expenses (Schedule 1) 1,448,456 1,023,556 1,130,823
- -------------------------------------------------------------------------------------------------------------------------------
Operating loss (899,582) (625,132) (666,287)
- --------------------------------------------------------------------------------------------------------------------------------
Other (Income) Expenses
Filing, listing and transfer agent fees 25,289 20,321 17,006
Other income (12,803) (6,900) (8,160)
-------------------------------------------------------------------------------------------------------------------------------
(12,486) (13,421) (8,846)
Loss before income taxes (912,068) (638,553) (675,133)
- --------------------------------------------------------------------------------------------------------------------------------
Net loss for the year (912,068) (638,553) (675,133)
Dividends (63,600) (47,970) -
- -------------------------------------------------------------------------------------------------------------------------------
Net loss for the year attributable to common
Shareholders (975,668) (686,523) (675,133)
Deficit, begining of year (7,831,117) (7,144,594) (6,469,461)
- -------------------------------------------------------------------------------------------------------------------------------
Deficit, end of year $(8,806,785) $(7,831,117) $(7,144,594)
- --------------------------------------------------------------------------------------------------------------------------------
Loss per share $ 0.07 $ 0.05 $ 0.06
- -------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 14,937,561 12,597,083 11,691,097
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
Consolidated Statements of Changes in Financial Position
Year Ended March 31
(Stated in Canadian Dollars)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Operating Activities
Net loss for the year $ (912,068) $ (638,553) $ (675,133)
Adjustment for:
Depreciation and amortization 114,730 77,783 79,564
Loss from short term investment 25 - -
----------------------------------------------------------------------------------------------------------------------------
(797,313) (560,770) (595,569)
Changes in non-cash working capital
Proceeds from (repayment of)advances-related - 4,789 (15,815)
Companies
(Increase) decrease in accounts receivable (143,106) (75,603) 3,290
Decrease (increase) in amount due from employees 7,669 8,001 (29,900)
Decrease in inventory 16,149 22 15,404
(Increase) decrease in prepaid expenses (1,879) 3,466 (6,186)
(Decrease) increase in accounts payable (255,474) 156,853 (40,587)
- -------------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (1,173,954) (463,242) (669,363)
- -------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Issue of shares 2,392,733 291,890 586,870
Share issue costs (72,600)
Shares returned to treasury - (8,000) -
Liabilities settled by issue of company shares - - 56,560
(Repayment of) proceeds from note payable and capital (416,588) 718,313 (5,806)
lease obligation
Payment of dividend (63,600) (47,970) -
----------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 1,839,945 954,233 637,624
- ------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Acquisition of capital assets (44,773) (387,227) (20,811)
Advances from related company 21,704 20,096 18,671
Term deposit - restricted (6,040) (119,609) -
----------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (29,109) (486,740) (2,140)
------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash 636,882 4,251 (33,879)
Cash (Bank indebtedness), Beginning of Year 3,417 (834) 33,045
Cash (Bank indebtedness), End of Year $ 640,299 $ 3,417 $ (834)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Stated in Canadian Dollars)
1. GOING-CONCERN
These financial statements are prepared on the basis of accounting principles
applicable to a going concern, which assumes the Company will continue in
operation for the foreseeable future and be able to realize its assets and
satisfy liabilities in the normal course of business. The ability of the Company
to continue as a going concern is primarily dependent upon its ability to
continue to obtain the financing necessary to continue operations and,
ultimately, profitable operations. Management is of the opinion sufficient
working capital will be obtained from injections of capital and from operations
to meet the Company's liabilities and commitments as they become due.
These consolidated financial statements do not give effect to adjustments that
would be necessary should the Company not be able to continue as a going concern
and therefore be required to realize its assets and liquidate its liabilities in
other than the normal course of business and at amounts different from those
recorded in these consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cryopak Industries Inc.(the "Company"), incorporated under the laws of British
Columbia, is in the business of the manufacturing and sale of thermal packaging
solutions. The Company produces a patented, flexible, re-usable refrigerant
product.
The Company prepares its accounts in accordance with accounting principles
generally accepted in Canada. A reconciliation of amounts presented in
accordance with United States accounting principles is detailed in Note 18.
The following is a summary of significant accounting policies used in the
preparation of these consolidated financial statements:
Basis of Consolidation
These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Cryopak (International) Inc. (inactive), a
Barbados corporation, Cryopak (Canada) Corporation and its wholly-owned
subsidiary Cryopak Corporation, a Nevada corporation.
Measurement Uncertainty
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period.
Significant areas requiring the use of management estimates relate to the
determination or impairment of intangible asset ( deferred charges, goodwill and
pre-opening costs). Financial results as determined by actual events could
differ from those estimates
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Stated in Canadian Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is
determined by the first-in first-out (FIFO) method of valuation.
Investments
Current investments are recorded at the lower of cost and market value.
Long-term investments are recorded at cost unless there has been a loss in value
that is other than a temporary decline, in which case the investment is written
down to fair market value.
Depreciation
Capital assets are recorded at cost and are depreciated on the following basis
at the rates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Computer Hardware 3 years straight-line
Computer Software 2 years straight-line
Furniture & Fixture, Office Equipment 5 years straight-line
Machinery 5 years straight-line
Motor Vehicle 30% declining balance
</TABLE>
Patent Licence
The patent licence is recorded at cost and is amortized on a straight-line basis
over seventeen years.
Deferred Development Costs
The deferred development costs are recorded at cost and are amortized on a
straight-line basis over ten years.
Foreign Currency Translation
Monetary items denominated in foreign currencies are translated into Canadian
dollars using exchange rates in effect at the balance sheet date. All other
assets and liabilities are translated at rates pervailing when the asset was
acquired or liabilities incurred. Income and expense items are translated at the
exchange rates in effect on the date of the transaction. Resulting exchange
gains and losses are included in the determination of loss for the year.
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Stated in Canadian Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Goodwill
The excess of cost of the purchase of a subsidiary company over the fair value
of assets acquired (disclosed in these consolidated financial statements as
goodwill) is amortized on a straight-line basis over seventeen years.
Financial Instruments
The fair values of the Company's cash, investments, accounts receivable, amounts
due from employees, advance to related company, accounts payable and accrued
liabilities, bank indebtedness, and capital lease obligation were estimated to
approximate their carrying value.
Revenue Recognition
Sales are recognized upon shipment of products.
3. INVENTORIES
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Raw material $ 5,348 $
-
Finished goods 15,260 36,757
$ 20,608 $ 36,757
</TABLE>
4. TERM DEPOSIT
The term deposit is held by the Canadian Western Bank as security on lease
financing for a machine acquired in 1998 (Note 10).
<TABLE>
<CAPTION>
5. INVESTMENTS
1999 1998
<S> <C> <C>
Marketable securities - market value at March 31, 1999 - $75
(1998 - $200) $ 75 $ 100
Artwork - 25,342
$ 75 $ 25,442
During the year the Comapny changed its intended use of the Artwork and decided
to keep it as office furnishings. As a result the artwork has been reclassified
to capital assets.
</TABLE>
During the yeax the Company changed its intended use of
the artwork and decided to keep it as office fin-nishings. As a result the
artwork has been reclassified to capital assets.
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Stated in Canadian Dollars)
6. CAPITAL ASSETS
<TABLE>
<CAPTION>
1999
Accumulated Net Book
Cost Depreciation Value
<S> <C> <C> <C>
Artwork $ 25,342 $ - $ 25,342
Computer Hardware 36,698 27,478 9,220
Computer Software 2,215 1,084 1,131
Furniture and Fixtures 59,696 56,907 2,789
Motor Vehicle under Capital Lease 40,594 28,759 11,835
Machinery under Capital Lease 399,279 39,928 359,351
Machinery 18,445 1,844 16,601
Office Equipment 4,113 730 3,383
$ 586,382 $ 156,730 $ 429,652
</TABLE>
<TABLE>
<CAPTION>
1998
Accumulated Net Book
Cost Depreciation Value
<S> <C> <C> <C>
Computer Hardware $ 45,852 $ 34,168 $ 11,684
Computer Software 2,544 2,419 125
Furniture and Fixtures 80,967 78,252 2,715
Motor Vehicle under Capital Lease 40,594 23,686 16,908
Machinery under Capital Lease 383,943 - 383,943
Office Equipment 2,099 529 1,570
$ 555,999 $ 139,054 $ 416,945
</TABLE>
ADVANCE TO RELATED COMPANY
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balance, beginning of year $ 70,572 $ 90,668 $ 109,339
Interest charge for the year 4,696 6,304 7,729
Payments received (26,400) (26,400) (26,400)
Advance to N.C.K. Holdings Inc. $ 48,868 $ 70,572 $ 90,668
</TABLE>
The related company, N.C.K. Holdings Inc., is owned by two directors. The
advance is unsecured and is repayable in monthly installments of $2,200
including interest of 8% per annum. During the year the Company paid management
fees of $220,000 (1998 - $220,000) and royalties of $26,261 (1998 - $26,289) to
N.C.K. Holdings Inc.
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Stated in Canadian Dollars)
8. INTANGIBLES
<TABLE>
<CAPTION>
1999 1998
Accumulated Net Book Net Book
Cost Depreciation Value Value
<S> <C> <C> <C> <C>
Incorporation Cost $ 3,111 $ - $ 3,111 $ 3,111
Deferred Development Costs 114,017 95,489 18,528 33,350
Patent Licence 566,323 291,497 274,826 308,140
Goodwill 156,155 80,377 75,778 84,964
$ 839,606 $ 467,363 $ 372,243 $ 429,565
</TABLE>
NOTE PAYABLE
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Note payable to a company related by two directors in common, bearing interest
at the rate of 12% per annum, secured by a general security agreement on all the
Coinpany's assets, fully repaid during the year. $ - $ 350,000
</TABLE>
10. CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Capital lease obligation with interest at 10.25%, maturing November 1,
1999 $ 17,990 $ 25,231
Capital lease obligation with interest at 10.6%, maturing July 20, 2002
(Note 4) 302,689 374,958
Capital lease obligation with interest at 17%, maturing October 20,
2001 12,922 -
333,601 400,189
Less: current portion 84,544 80,174
$ 249,057 $ 320,015
</TABLE>
The future minimum lease payments required are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 $ 158,775
2001 121,449
2002 118,711
2003 38,293
2004 -
</TABLE>
Included in these amounts is imputed interest of $62,148.
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Stated in Canadian Dollars)
11. SHARE CAPITAL
<TABLE>
Authorized
<CAPTION>
<S> <C>
100,000,000 common shares without par value
100,000,000 Class A preferred shares without par value, of which
1,500 are designated Class A convertible, voting
preferred shares, Series I
</TABLE>
The following changes occurred in share capital:
<TABLE>
<CAPTION>
Common shares
Issued and outstanding
1999
Number of
Shares Amount
<S> <C> <C>
Balance, beginning of year 12,815,064 $7,362,318
Issued during the year
For cash, pursuant to the exercise of stock options 1,173,700 581,633
For cash, pursuant to private placements 3,057,777 1,710,000
For finder's fee 50,000 37,500
For payment of dividend on Class A preferred
Shares, Series 1 159,199 63,600
Share issue costs - (72,600)
4,440,676 2,320,133
Balance, end of year 17,255,740 $9,682,451
</TABLE>
<TABLE>
<CAPTION>
1998
Number of
Shares Amount
<S> <C> <C>
Balance, beginning of year 12,245,156 $7,078,428
Issued during the year
For cash, pursuant to the exercise of stock options 243,000 118,920
For cash, pursuant to private placements 250,000 125,000
For payment of dividend on Class A preferred
Shares, Series 1 96,908 47,970
589,908 291,890
Acquired during the year (20,000) (8,000)
Balance, end of year 12,815,064 $7,362,318
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Stated in Canadian Dollars)
11. Share Capital (Cont'd)
<TABLE>
<CAPTION>
1997
Number of
Shares Amount
<S> <C> <C>
Balance, beginning of year 11,229,065 $6,699,998
Issued during the year
For cash, pursuant to the exercise of stock options 647,255 242,070
For cash, pursuant to the exercise of warrants 116,000 34,800
For cash, pursuant to private placements 150,000 45,000
For settlement of debt 102,836 56,560
1,016,091 378,430
Balance, end of year 12,245,156 $7,078,428
</TABLE>
<TABLE>
Class A preferred shares, Series I
<CAPTION>
1999
Number of
Shares Amount
<S> <C> <C>
Balance, beginning and end of Year 530 $ 530,000
</TABLE>
<TABLE>
<CAPTION>
1998
Number of
Shares Amount
<S> <C> <C>
Balance, beginning and end of year 530 $ 530,000
</TABLE>
<TABLE>
<CAPTION>
1997
Number of
Shares Amount
<S> <C> <C>
Balance, beginning of year 265 $ 265,000
issued during the year for cash 265 265,000
Balance, end of year 530 $ 530,000
</TABLE>
Each Class A preferred share Series I carries a 12%, cumulative dividend payable
at $120 per share at the company's fiscal year end, in either cash or common
shares at the option of the Company. Dividends in arrears at March 31, 1999
amounted to $64,039.
The Series I preferred shares are convertible into common shares at the rate of
one common share for each $3 of paid up capital or the rate provided below:
(i) $2.00 at any time after December 3 1, 1998, provided that the Current
Trading Price shall never have exceeded $2.99 after December 31, 1996
or $2.49 after December 31, 1997.
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial
Statements March 31, 1999 and 1998
(Stated in Canadian Dollars)
11. Share Capital (Cont'd)
(ii) at any time after December 1, 1999, provided that the Current Trading
Price shall never have exceeded $2.99 after December 31, 1996 or $2.49
after December 1, 1997 or $1.99 after December 31, 1998, at a; common
share price equal to that price which represents a 15% discount to the
then Current Trading Price, which common share price in no event shall
be less than $0.95;
But if not so converted prior to May 12, 2000, such Series I preferred shares
shall be deemed to have been converted on May 12, 2000 at the applicable
conversion price described above. The Current Trading Price means the average
trading price of the common shares on a recognized public stock exchange for the
preceding 20 business days.
On March 31, 1999, the following stock options were outstanding:
<TABLE>
<CAPTION>
No. of Shares Exercise Price Expiry Date
<S> <C> <C> <C>
Directors 170,000 $0.50 June 13, 1999
390,000 0.52 August 17, 2000
343,000 0.50 January 7, 2001
75,000 0.52 June 19, 1999
100,000 0.50 September 2, 1999
150,000 0.50 September 2, 1999
Officer 100,000 0.40 June 26, 2000
136,300 0.82 August 17, 2000
Employee 20,000 0.52 June 16, 1999
100,000 0.82 February 11, 2001
*750,000 0.76 March 19, 2004
</TABLE>
* These options will vest at a rate of 50,000 at the end of each calendar
quarter commencing March 31, 1999 and are subject to shareholder approval.
On March 31, 1999, the following share purchase warrants were outstanding:
<TABLE>
<CAPTION>
No. of Warrants Exercise Price Expiry Date
<S> <C> <C>
250,000 $0.60 August 18, 1999
250,000 0.46 April 29, 2000
225,000 0.46 May 13, 2000
135,000 0.46 May 29, 2000
265,000 0.46 June 3, 2000
125,000 0.46 June 17, 2000
119,608 0.46 March 20, 2000
1,369,608
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Stated in Canadian Dollars)
11. Share Capital (Cont'd)
Share purchase warrant transactions for the respective years were as follows:
<TABLE>
<CAPTION>
No. of Warrants
<S> <C>
Balance, August 31, 1996 116,000
Warrants exercised during the year at $0.30 per share (116,000)
Balance, August 31, 1997 -
Issued pursuant to a private placement of common shares
exercisable at $0.60 per share 250,000
Balance, August 31, 1998 250,000
Issued pursuant to a loan guarantee exercisable at $0.40 - $0.46
per share 119,608
Issued pursuant to a private placement of common shares
exercisable at $0.40 - $0.46 per share 1,000,000
Balance, August 31, 1999 1,369,608
</TABLE>
12. INCOME TAXES
The Company has estimated losses available for utilization against future years'
taxable incomes which, if unused, will expire as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 296,801
2001 1,089,726
2002 658,014
2003 710,475
2004 599,008
2005 649,840
2006 882,657
</TABLE>
13. LEASES
The minimum annual rental commitments for operating leases in effect at March
31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 47,790
2001 27,456
2002 1,627
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Stated in Canadian Dollars)
14. RELATED PARTY TRANSACTIONS
Related party transactions not otherwise disclosed in these consolidated
financial statements are as follows:
(a) Professional fees include $22,200 paid to a company owned by a
director of the Company.
(b) As of March 31, 1999, accounts receivable include $28,316 (1998:
$7,658) receivable from N.C.K. Holdings Inc., a company owned by two
directors, and $3,278 (1998: $7,658) receivable from Fulcrum
Developments Ltd., a company related by two directors in common.
15. SUBSEQUENT EVENTS
The following share transactions took place subsequent to the year end:
(a) Issued 72,000 units for gross proceeds of $54,000. Each unit consists
of one common share and one non-transferable share purchase warrant.
Each warrant entitles the holder to purchase one common share at $1.00
on or before May 4, 2001.
(b) Issued 125,000 units to a director of the Company for gross proceeds
of $97,000. The Company provided an interest-free loan, forgivable
under certain conditions, for the purchase of these units. Each unit
consists of one common share and one non-transferable share purchase
warrant. Each warrant entitles the holder to purchase one common share
at $0.776 on or before September 20,1999.
(c) Granted 290,000 stock options to directors and officers of the
Company, exercisable on or before April 21, 2001 at $0.86 per share.
(d) Issued 326,300 common shares for gross proceeds of $175,166 pursuant
to the exercise of stock options.
16. CONTRACTUAL OBLIGATIONS
Pursuant to an agreement dated December 20, 1989 with N.C.K. Holdings Inc., as
part of the consideration for a license, the Company has made a commitment to
issue up to 3,000,000 common shares of its capital (the "performance shares")
based upon certain performance criteria.
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Stated in Canadian Dollars)
17. CONTINGENT LIABILITIES
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
Year 2000 as 1900 or some other date, resulting in errors when information using
Year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems fi4lure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties will be fully resolved.
18. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
The Company prepares the consolidated financial statements in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). In
addition the Company provides supplementary description of significant
differences between Canadian GAAP and those in the United States ("U.S. GAAP")
as follows:
(a) Under U.S. GAAP development costs are expensed as incurred. Under
Canadian GAAP development costs subject to certain criteria are
deferred and amortized.
(b) Under U.S. GAAP, non-cash items such as liabilities, dividends and
finder's fee paid by issue of company shares are excluded from. the
statement of changes in financial position. Under Canadian GAAP, the
gross amount of non-cash items are included in the respective
operating, investing, or financing activities as applicable.
(c) The Company has elected to follow Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issues to Employees" (APB25) in
accounting for its stock options. Under APB25, because the exercise
price of the Company's options for common shares granted to employees
is not less than the fair market value of the underlying stock on the
date of grant, no compensation expense has been recognized.
(d) Under U.S. GAAP, stock based compensation to non-employees must be
recorded at the fair market value of the options and warrants granted.
This compensation, determined using a Black-Scholes pricing model, is
expensed over the vesting periods of each option and warrant granted.
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Stated in Canadian Dollars)
18. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES (Cont'd)
The impact of significant variations to U.S. GAAP on the Consolidated Statements
of Loss are as follows:
<TABLE>
<CAPTION>
Year Ended March 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Loss for the year, Canadian GAAP $( 912,068) $( 638,553) $( 675,133)
Amortization of deferred development costs 14,822 14,822 14,822
Adjustment for stock based compensation -
non employees ( 574,868) ( 123,226) ( 190,351)
(1,472,114) ( 746,957) ( 850,662)
Loss per share, U.S. GAAP $( 0.10) $( 0.06) $( 0.07)
</TABLE>
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standard No. 123 "Accounting for Stock Based
Compensation" (SFAI 23), which also requires that the information be determined
as if the Company has accounted for its employee stock options granted in fiscal
periods beginning subsequent to December 1994 under the fair value method of
that statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes pricing model with the following weighted average
assumptions for the years ended March 31, 1999, 1998 and 1997, respectively:
risk free interest rates of 5.2%, 5.8% and 6.8%; dividend yields of 0%;
volatility factors of the expected market price of the Company's common stock of
1.23; and a weighted average expected life of the options of four, one and .65
years.
The Black Scholes options valuation model was developed for use in estimating
the fair value of trade options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because of
the Company's employee stock options have characteristics significantly
different from those of traded options, and because, changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Supplemental disclosure of pro forma loss and loss per share is as follows:
<TABLE>
<CAPTION>
Year ended March 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma loss, U.S. GAAP $( 1,785,577) $( 784,485) $(875,991)
Pro forma loss per share, U.S. GAAP $( 0.12) $( 0.06) $( 0.07)
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Stated in Canadian Dollars)
18. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES (Cont'd)
The impact of significant variations to U.S. GAAP on the Consolidated Balance
Sheets items are as follows:
<TABLE>
<CAPTION>
Year Ended March 31
1999 1998
---- ----
<S> <C> <C>
Assets $ 2,018,172 $ 1,330,947
Share Capital 10,257,319 7,485,544
Deficit (9,400,181) (7,987,693)
</TABLE>
The impact of significant variations to U.S. GAAP on the Consolidated Statements
of Changes in Financial Position items are as follows:
<TABLE>
<CAPTION>
Year Ended March 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash used in operating activities
- Canadian and US GAAP $( 1,173,954) $( 463,242) $(669,363)
Cash provided by financing activities
- Canadian GAAP 1,839,945 954,233 637,624
Issue of shares (101,000) (47,970) (56,560)
Liabilities settled by issue of company shares - - 56,560
Dividends paid by issue of company' shares 63,600 47,970 -
Finders fee paid by issue of common shares 37,500 - -
Cash provided by financing activities
- US GAAP 1,839,945 954,233 637,624
Cash used in investing activities
- Canadian GAAP and US GAAP $ (29,109) $ (486,740) $ (2,140)
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC. ~
Consolidated Schedules of Operating Expenses
Year Ended March 31
(Stated in Canadian Dollars)
Schedule 1
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Bad debts $ 53,529 $ 29,125 $ 7,245
Commissions 4,144 520 884
Corporate printing, financial and public relations 117,043 85,181 138,150
Depreciation and amortization 72,958 77,783 79,564
Foreign exchange 20,640 10,876 1,355
Interest and bank charges 41,746 15,301 16,549
Interest on capital lease obligation 38,912 2,595 3,434
Management fees 220,000 220,000 220,000
Marketing 201,347 57,944 87,337
Office supplies and stationery 80,250 68,798 58,197
Professional fees 98,867 56,291 74,399
Rent 53,915 52,861 52,459
Royalties 53,328 51,258 44,903
Salaries and benefits 151,146 126,769 117,960
Storage 4,507 10,459 9,899
Telephone 37,790 41,994 50,748
Travel and entertainment 180,770 97,769 155,138
Vehicle 17,564 18,032 12,602
$ 1,448,456 $ 1,023,556 $ 1,130,823
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
Consolidated Schedule of Allowance for Uncollectible Accounts
Year Ended March 31
(Stated in Canadian Dollars)
Schedule 2
<TABLE>
<CAPTION>
<S> <C>
Balance, March 31, 1996 $ 56,026
Accounts receivable written off during the year 37,836
Additional allowance provided 6,720
Balance, March 31, 1997 24,910
Accounts receivable written off during the year (24,910)
Additional allowance provided 21,155
Balance March 31, 1998 21,155
Additional allowance provided 53,529
Balance, March 31, 1999 $ 74,684
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1998
AND AUDITORS' REPORT
Hay & Watson CHARTERED ACCOUNTANTS
August 06, 1998
Messrs. Harry Bydgnes and Leigh Jeffs
Cryopak Industries Inc.
1125 - 625 Howe Street
Vancouver, B.C. V6C 2T6
Dear Sirs:
During our examination of the consolidated financial statements of Cryopak
Industries Inc. for the year ended March 31, 1998, we reviewed the existing
system of accounting procedures and internal control and such review indicated
certain areas which we believe should be brought to your attention. We have also
recommended certain changes to achieve consistent application of accounting
policies adopted by the company.
1. INVENTORY
During our examination we found that there were only limited records of the
inventory kept at the various locations. The lack of proper records has caused
the company to run out of inventory and to buy back inventory from customers in
order to fill other customers' orders. This causes the company to lose its
profit margin on the sale as well as showing the company at a disadvantage. On
an ongoing basis, sales staff and the receptionist have to call the storage
companies to know if they can fill orders, causing delays and poor customer
relations.
The value of inventory at year-end is essential to the preparation of financial
statements, and deficiencies in that area may result in a qualified audit
report. A proper recording system for inventory is essential and must be updated
periodically. All shipments in and out of the outside warehouses must be
supported by a written confirmation from the warehouses confirming the date of
shipment.
The company's inventory records should be compared with the quantities reported
by the storage companies periodically. A count at year-end must be performed and
reconciled to your record.
The overall responsibility for the inventory needs to be given to a responsible
and knowledgeable staff member. During the course of the audit, we have
discussed the implementation of an adequate temporary system on a computer
spreadsheet with Laila. However the company would benefit from the full
integration of its invoicing and inventory systems with its accounting system.
We are available to further discuss and help with the implementation of such a
system.
2. SAMPLES
During our testing, we also found there is no system to account for samples sent
to customers. Since the company is trying to develop new markets for the
product, the cost for samples may be significant. In order to prevent customers
from getting products without paying, to follow up on new customers and to
maintain better internal control, samples that are given away should be properly
recorded, and periodically reviewed by management. Large shipments of free
samples should be authorized and approved by management. Completed records will
also facilitate the reconciliation of inventory on hand between your records and
the records from the warehouses.
3. EXPENSE ALLOCATION AND TAX PLANNING
Various expenses such as rent, telephone, promotion and advertising, salaries,
office expenses, insurance, and professional fees, are common to Cryopak
Industry, Cryopak Canada, and Cryopak International. Currently, the bulk of
these expenses is carried by Cryopak Industries. However, the operations of the
group are recorded in Cryopak Canada and will eventually result in taxable
income. To ensure that full advantage is taken of all expenses and that no
losses carried forward are lost due to expiry, management should start to review
the allocation of expenses. In addition, we recommend that the tax implications
of U.S. and worldwide operations be reviewed periodically.
4. EXERCISE OF STOCK OPTIONS
During our review of share capital transactions, it was noted that when stock
options are exercised by members of management, cash is not always received
prior to the issue of the shares. It is a contravention of the B.C. Company Act
to issue shares prior to receiving payment in fall.
5. MANAGEMENT FEES
Currently there are no contracts or invoices which indicate what management
remuneration is.. We recommend that management remuneration be properly
documented.
6. PETTY CASH
Currently, no control is in place over the petty cash. The company does not
record the detail of expenditures included in each petty cash disbursement.
Therefore, even though the company keeps all its petty cash receipts, we are
unable to trace the receipts back to the petty cash expenses in the general
ledger.
7. CREDIT CARD EXPENSES
During our tests of expenses, we found that both personal and business credit
cards were used to pay for business expenses and that personal expenses were
charged to the business credit cards as well as personal credit cards. In
addition, some of the credit card payments made by the company and applied to
the personal credit cards were not properly supported by expense reports and
invoices. We recommend that business expenses be paid with business credit cards
only so as to be easily distinguished from the personal expenses. If some
business expenses have to be paid by personal credit card, then those expenses
should be documented on an expense report supported by proper receipts. We also
recommend that personal expenses be charged to personal credit cards only.
<PAGE>
8. SUPPORTING DOCUMENTATION
During the course of the audit, our analyses sometimes proved difficult due to
the lack of supporting documentation such as invoices.
Management should ensure that supporting documentation be obtained and retained
for all company expenditures. The supporting documentation is required to
provide sufficient audit evidence for the audit and for future reference.
We recommend that cheques only be issued when there is adequate supporting
documentation. If invoices are unavailable, then a memo providing details of the
expenditure, approved by management should be used as supporting documentation.
9. YEAR 2000
The Year 2000 date change could have a significant impact on any of the
Company's equipment that operates with some form of micro-processor system. Some
of the computer systems and other systems such as telephone systems may be
susceptible to the Year 2000 issue.
We are taking this opportunity to stress the importance of the Year 2000 issue
and the significant operational and financial risk it poses for the Company. We
encourage management to consider the Year 2000 issue as equipment, facilities
and computer software programs are acquired. This should also include taking in
consideration the impact on those systems that may be critical to the business
but may be managed by third parties such as service bureaus.
We have noted improvements during the year in the recording of transactions and
performing accounting routines. The most significant matter which we believe
still needs to be addressed is the recording of and controls over inventory.
We would be pleased to discuss any of these comments and recommendations with
you in greater detail. We would, at this time, like to thank you and your staff
for their assistance and cooperation extended during the audit. Please do not
hesitate to contact this office if we may be of further assistance.
Yours very truly,
Chartered Accountants
<PAGE>
CRYOPAK INDUSTRIES INC.
Consolidated Balance Sheets
March 31
(Stated in Canadian Dollars)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
Current
Cash $ 3,417 $ -
Accounts receivable 217,677 146,863
Inventory 36,757 36,779
Term deposit - Restricted (Note 3) 119,609 -
Prepaid expenses 12,196 15,662
Due from employees 32,117 40,118
__________ _________
421,773 239,422
Investments (Note 4) 25,442 25,442
Capital Assets (Note 5) 416,945 50,179
Advance to Related Company (Note 6) 70,572 90,668
Intangibles (Note 7) 429,565 486,887
__________ __________
$1,364,297 $ 892,598
LIABILITIES
Current
Bank indebtedness $ - $ 834
Accounts payable and
accrued liabilities 532,440 375,587
Note payable (Note 8) 350,000 -
Current portion of
capital lease obligation 80,174 6,345
__________ __________
962,614 382,766
Capital Lease Obligation (Note 9) 320,015 25,531
Deferred Income Taxes 20,467 20,467 20,467
__________ ___________
1,303,096 428,764
SHAREHOLDERS' EQUITY
Share Capital (Note 10)
Issued and outstanding
Common shares 7,362,318 7,078,428
Class A preferred shares, Series 1 530,000 530,000
Deficit (7,831,117) (7,144,594)
___________ ___________
61,201 463,834
$1,364,297 $ 892,598
</TABLE>
APPROVED BY THE BOARD:
Director
Director
<PAGE>
CRYOPAK INDUSTRIES INC
Consolidated Statements of loss and Deficit
Year Ended March 31
(Stated in Candian Dollars)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Sales $1,161,442 $1,140,242 $ 965,912
Cost of Sales 763,018 675,706 557,611
Gross Profit 398,424 464,536 408,301
Operating Expenses
(Schedule 1) 938,375 992,673 1,158,036
Operating Loss ( 539,951) ( 528,137) ( 749,735)
Other (Income) Expenses
Filing, listing and
transfer agent fees 20,321 17,006 26,870
Corporate printing, financial
and public relations 85,181 138,150 129,994
Loan payment as guarantor - - -
Other income ( 6,900) ( 8,160) ( 384)
___________ ___________ ___________
98,602 146,996 162,998
Loss before income taxes ( 638,553) ( 675,133) ( 912,390)
Income taxes (recovery) - - ( 343)
Net loss for the year ( 638,553) ( 675,133) ( 912,390)
Dividends ( 47,970) - -
Deficit, beginning of the year (7,144,594) (6,469,461) (5,557,071)
Deficit, end of year $(7,831,117) $(7,144,594) $(6,469,461)
Loss per share $ 0.05 $ 0.06 $ 0.09
Weighted average common
shares outstanding 12,597,083 11,691,097 10,637,948
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
Consolidated Statements of Changes in Financial Position
Year Ended March 31
(Stated in Canadian Dollars)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash Flow from Operating Activities
Operations
Net loss $( 638,553) $( 675,133) $( 912,390)
Depreciation and amortization 77,783 79,564 72,984
( 560,770) ( 595,569) ( 839,406)
Changes in other operating items
Advance to related companies 4,789 ( 15,815) -
Accounts receivable ( 75,603) 3,290 ( 51,134)
Due from employees 8,001 ( 29,900) ( 10,218)
Intangibles - - ( 3,113)
Inventory 22 15,404 ( 22,270)
Investments - - ( 25,342)
Prepaid expenses 3,466 ( 6,186) ( 5,867)
Accounts payable 156,853 ( 40,587) 69,541
Cash used for operating activities ( 463,242) ( 669,363) (887,809)
Cash Flow from Financing Activities
Issue of shares 291,890 586,870 992,070
Shares returned to treasury ( 8,000) - -
Liabilities settled by issue
of company shares - 56,560 -
Note payable and capital
lease obligation 718,313 ( 5,806) 37,682
Payment of dividend ( 47,970) - -
Cash provided by financing activities 954,233 637,624 1,029,752
Cash Flow from Investing Activities
Acquisition of capital assets ( 387,227) ( 20,811) ( 51,867)
Advances(to)from related company 20,096 18,671 ( 52,367)
Cash used for investing activities ( 367,131) ( 2,140) (104,234)
Increase (Decrease) in cash during year 123,860 ( 33,879) 37,709
Cash (Bank indebtedness),
beginning of year ( 834) 33,045 ( 4,664)
Cash (Bank indebtedness), end of year $ 123,026 $( 834) $ 33,045
Cash is comprised of
Cash (indebtedness) $ 3,417 $( 834) $ 33,045
Tenn deposit 119,609 - -
$ 123,026 $( 834) $ 33,045
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
Notes to Consolidated Financial Statements
March 31, 1998 amd 1997
(Stated in Canadian Dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada and reflect the
following policies:
Basis of Presentation
- ---------------------
These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, CRYOPAK ( International ) Inc., a Barbados
corporation, CRYOPAK ( Canada ) Corporation and its wholly-owned subsidiary
CRYOPAK Corporation, a Nevada corporation, and its proportionate interest (50%)
in a joint venture, CRYOPAK (Alberta) Corporation.
Inventories
- -----------
Inventories are valued at the lower of cost or net realizable value. Cost is
determined by the first-in first-out (FIFO) method of valuation.
Investments
- -----------
Current investments are recorded at the lower of cost and market value.
Long-term investments are recorded as cost unless there has been a loss in value
that is other than a temporary decline, in which case the investment is written
down to fair market value.
Depreciation
- ------------
Capital assets are recorded at cost.
The Company records depreciation on its capital assets using the straight-line
method over five years, except for motor vehicles where the declining balance
method is used at the rate of 30% per annum.
Patent Licence
- --------------
The patent licence is recorded at cost and is amortized on a straight-line basis
over seventeen years.
Deferred Development Costs
- --------------------------
The deferred development costs are recorded at cost and are amortized on a
straight-line basis over ten years.
Foreign Currency
- ----------------
Foreign currency accounts are translated using the temporal method whereby
current assets and current liabilities are translated to Canadian dollars at
year end exchange rates, other assets and liabilities at exchange rates
prevailing at the dates of transactions, and revenue and expenses at the average
rate during the year. Gains and losses from foreign currency translation are
included in the consolidated statements of loss and deficit.
Goodwill
- --------
The excess of cost of the purchase of a subsidiary company over the fair value
of assets acquired (disclosed in these consolidated financial statements as
goodwill) is amortized on a straight-line basis over seventeen years.
<PAGE>
Financial Instruments
- ---------------------
The fair values of the Company's cash, investments, accounts receivable, amounts
due from employees, advance to related company, accounts payable and accrued
liabilities, bank indebtedness, and capital lease obligation were estimated to
approximate their carrying value.
2. OPERATIONS
These financial statements have been prepared on the assumption that the Company
is a going concern.
The ability of the Company to continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities and commitments in
the normal course of business, is dependent on obtaining the financing necessary
to continue operations and, ultimately, profitable operations.
3. TERM DEPOSIT
The term deposit is held by the Canadian Western Bank as security on lease
financing for a machine acquired during the year (Note 9).
4. INVESTMENTS
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Marketable securities -
market value at March 31,
1998 - $200
1997 - $325 $ 100 $ 100
Artwork 25,342 25,342
________ _______
$25,442 $25,442
</TABLE>
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998 1997
Cost Accumulated Net Book Net Book
Depreciation Value Value
<S> <C> <C> <C> <C>
Computer $ 48,396 $ 36,586 $ 11,810 $ 26,607
Furniture
and Fixtures 83,066 78,781 4,285 5,344
Motor Vehicle
under Capital
Lease 40,594 23,687 16,907 18,228
Machinery under
Capital Lease 383,943 - 383,943 -
________ ________ ________ ________
$555,999 $139,054 $416,945 $ 50,179
</TABLE>
6. ADVANCE TO RELATED COMPANY
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Advance to N.C.K. Holdings Inc. $70,572 $90,668
</TABLE>
The related company is owned by two directors. The advance is unsecured and
is repayable in monthly installments of $2,200 including interest of 8% per
annum. During the year the Company paid management fees of $220,000 (1997 -
$220,000) and royalties of $26,289 (1997 - $22,934) to N.C.K. Holdings Inc.
<PAGE>
7. INTANGIBLES
<TABLE>
<CAPTION>
1998 1997
Accumulated NetBook NetBook
Cost Depreciation Value Value
<S> <C> <C> <C> <C>
Incorporation Cost $ 3,111 $ - $ 3,111 $ 3,111
Deferred Development
Costs 114,017 80,667 33,350 48,172
Patent Licence 566,323 258,183 308,140 341,454
Goodwill 156,155 71,191 84,964 94,150
________ ________ ________ ________
$839,606 $410,041 $429,565 $486,887
</TABLE>
8. NOTE PAYABLE
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Note payable to a company related
by two directors in common, bearing
interest at the rate of 12% per annum
repayable April 30, 1998, and
secured by a general security agreement
on all the Company's assets. The loan
was converted to share capital
subsequent to the year end (Note 14(a)).
The interest accrued on the loan was
forgiven. $350,000 -
</TABLE>
9. CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Capital lease obligation with interest
at 10.25%, maturing November 1,
1999 $ 25,231 $ 31,876
Capital lease obligation with interest
at 10.6%, maturing July 20, 2002
(Note 3) 374,958 -
________ ________
400,189 31,876
Less: current portion 80,174 6,345
________ ________
$320,015 $ 25,531
</TABLE>
The future minimum lease payments required are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $117,064
2000 126,487
2001 107,824
2002 107,824
2003 35,941
</TABLE>
Included in these amounts is imputed interest of $94,951.
<PAGE>
10. SHARE CAPITAL
<TABLE>
<CAPTION>
Authorized
<S> <C>
100,000,000 common share's without par value
100,000,000 Class A preferred shares without par value, of which 1,500
are designated Class A convertible voting preferred shares,
Series I
</TABLE>
The following changes occurred in share capital:
<TABLE>
Common shares
Issued and outstanding
<CAPTION>
1998 1997
Number of Number of
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balance, beginning of year 12,245,156 $7,078,428 11,229,065 $6,699,998
Issued during the year
For cash, pursuant to the
exercise of stock options 243,000 118,920 647,255 242,070
For cash, pursuant to the
exercise of warrants - - 116,000 34,800
For cash, pursuant to
private placement 250,000 125,000 150,000 45,000
For settlement of debt - - 102,836 56,560
For payment of dividend
on Class A preferred
shares, Series 1 96,908 47,970 - -
__________ _______ _________ _______
589,908 291,890 1,016,091 378,430
Acquired during the year (20,000) (8,000) - -
Balance, end of year 12,815,064 $7,362,318 12,245,156 $7,078,428
Balance, beginning of year 530 $ 530,000 265 $ 265,000
Issued during the year for cash - - 265 265,000
Balance, end of year 530 530,000 530 530,000
</TABLE>
Each class A preferred share Series I carries a 12%, cumulative dividend payable
at the company's fiscal year end, in either cash or common shares at the option
of the Company. Dividends in arrears at March 31, 1998 amounted to $64,039.
The Series I preferred shares are covertible into common shares at the rate of
one common share for each $3 of paid up capital or the rate provided below:
(i) $2.50 at any time after December 31, 1997, provided that the Current Trading
Price shall never have exceeded $2.99 after December 31, 1996;
(ii) $2.00 at any time after December 31, 1998, provided that the Current
Trading Price shall never exceeded $2.99 after December 31, 1996 or $2.49
after December 31, 1997;
(iii) at any time after December 1, 1999, provided that the Current Trading
Price shall never have exceeded $2.99 after December 31, 1996 or $2.49
after December 1, 1997 or $1.99 after December 31, 1998, at a common share
price equal to that price which represents a 15% discount to the then
Current Trading Price, which common share price in no event shall be less
than $0.95;
But if not so coverted prior to May 12, 2000, such Series I preferred shares
shall be deemed to have been converted on May 12, 2000 at the applicable
conversion price described above. The Current Trading Price means the average
trading price of the common shares on a recognized public stock exchange for the
preceeding 20 business days.
On March 31, 1998, the following stock options were outstanding:
<TABLE>
<CAPTION>
No. Of Shares Exercise Price Expiry Date
<S> <C> <C> <C>
Directors 145,000 $0.50 June 13, 1999
152,500 0.52 June 16, 1999
145,000 0.50 June 13, 1999
77,500 0.52 June 16, 1999
100,000 0.50 September 2, 1999
150,000 0.50 September 2, 1999
Officers 240,000 0.50 April 10, 1999
Employees 20,000 0.52 June 16, 1999
</TABLE>
On March 31, 1998, 250,000 warrants were outstanding. The warrants entitle the
holder to purchase 250,000 common shares at an exercise price of $0.60 per share
and expire August 18, 1998.
<PAGE>
11. INCOME TAXES
The Company has losses available for utilization against future years' taxable
incomes which, if unused, will expire as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 276,415
2000 296,801
2001 1,089,726
2002 658,014
2003 710,475
2004 599,008
2005 649,840
</TABLE>
12. LEASES
The minimum annual rental commitments for operating leases in effect at March
31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 47,832
2000 47,832
2001 27,480
2002 1,627
</TABLE>
13. RELATED PARTY TRANSACTIONS
Related party transactions not otherwise disclosed in these consolidated
financial statements are:
(a) Professional fees include $10,000 paid to a company owned by a director of
the Company.
(b) As of March 31, 1998, accounts receivable include $7,658 receivable from
N.C.K. Holdings Inc., a company owned by two directors and $3,278
receivable from Fulcrum Developments Ltd., a company related by two
directors in common.
14. SUBSEQUENT EVENTS
The following share transactions took place subsequent to the year end:
(a) Issued 777,777 common shares for gross proceeds of $350,000 pursuant to the
conversion of debt (Note 8).
(b) Issued 1,000,000 units for gross proceeds of $400,000. Each unit consists
of one common share and one non-transferable share purchase warrant. Each
warrant entitles the holder to purchase one common share at $0.40 on or
before April 23, 1999, or at $0.46 on or before April 23, 2000.
(c) Issued 119,608 warrants to the person acting as guarantor on a capital
lease. Each warrant entitles the holder to purchase one common share at
$0.40 on or before March 20, 1999, or at $0.46 on or before March 20, 2000.
15. CONTRACTUAL OBLIGATIONS
(a) Pursuant to an agreement dated March 20, 1998, which is subject to
regulatory approval, the Company committed to pay a bonus to a third party
for a guarantee of a capital lease. The capital lease is $374,958 (Note 9).
The bonus is payable in monthly installments of $2,392 commencing April 20,
1998 up to a maximum of $23,920 and can be canceled if the Company can
obtain a release of the guarantee. In addition the Company must issue
119,608 share purchase warrants (Note 14(c)). The warrants will expire
within 30 days of the Company obtaining a release of the guarantee.
(b) Pursuant to an agreement dated December 20, 1989 with N.C.K. Holdings Inc.,
as part of the consideration for a licence, the Company has made a
commitment to issue up to 3,000,000 common shares of its capital (the
"performance shares") based upon certain performance criteria.
16. CONTINGENT LIABILITIES
Should sales of racks not meet expectations, the Company is liable for the cost
of the molds, the balance of which was approximately $30,000 at March 31, 1998.
17. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(a) Generally accepted accounting principles ("GAAP") used in the United States
of America differ in certain respects from GAAP used in Canada. A
difference that materially affects these consolidated financial statements
is that United States GAAP require deferred development costs be expensed
as incurred whereas Canadian GAAP allows these expenses to be deferred and
amoritzed. Had the consolidated financial statements been prepared in
accordance with United States GAAP as described above, the following
changes would have been made:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Total assets-Canadian GAAP $1,364,297 $ 892,598 $ 969,860
Deferred Development costs 33,350 48,172 62,994
Total assets-United States GAAP 1,330,947 884,426 906,866
Shareholders' equity-Candaian GAAP 61,201 463,834 495,537
Deferred development costs 33,350 48,172 62,994
Shareholders' equity-United States GAAP 27,851 415,662 432,543
Net loss-Canadian GAAP 638,553 675,133 912,390
Amortization of deferred development costs 14,822 14,822 14,822
Net loss-United States GAAp 623,731 660,311 897,568
</TABLE>
<PAGE>
(b) United States GAAP require non-cash investing and financing activities to be
excluded from the consolidated statements of changes in financial position,
whereas Canadian GAAP require these activities to be included in the
statement. Had the consolidated statement of changes in financial
position been prepared in accordance with U.S. GAAP the following
transactions would have been excluded:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Liabilities settled by issue of company shares $ - $56,560 $ -
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Basic loss per share calculated in accordance
with U.S. GAAP is: $(0.05) $(0.06) $(0.09)
</TABLE>
<PAGE>
Hay & Watson Chartered Accountants
Auditors' Report
To the Shareholders
Cryopak Industries Inc.
We have audited the consolidated balance sheets of Cryopak Industries Inc. as at
March 31, 1998 and 1997 and the consolidated statements of loss and deficit and
of changes in financial position for each of the years in the three year period
ended March 31, 1998. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial positions of the company as at March 31, 1998
and 1997 and the results of its operations and the changes in its cash flows;
for each of the years in the three year period ended March 31, 1998 in
accordance with accounting principles generally accepted in Canada. As required
by the Company Act of British Columbia, we report that, in our opinion, these
principles have been applied on a consistent basis with that of the preceding
year.
Chartered Accountants
Vancouver, BC
June 25, 1998
<PAGE>
Hay & Watson CHARTERED ACCOUNTANTS
26 August 1997
Messrs. Harry Bydgnes and Leigh Jeffs
Cryopak Industries Inc.
1120 - 625 Howe Street
Vancouver, B.C. V6C 2T6
Dear Sirs:
During our examination of the consolidated financial statements of Cryopak
Industries Inc. for the year ended March 31, 1997, we reviewed the existing
system of accounting procedures and internal control and such review indicated
certain areas which we believe should be brought to your attention. We have also
recommended certain changes to achieve consistent application of accounting
policies adopted by the company.
1. INVENTORY
During our examination we found that there were no records of the inventory kept
at the various locations. In addition, no one had arranged for inventory counts
to be done at year-end although previously advised by us to do so. The lack of
proper records has caused the company to run out of inventory and to buy back
inventory from customers in order to fill other customers' orders. This causes
the company to lose its profit margin on the sale as well as showing the company
at a disadvantage. On an ongoing basis, sales staff and the receptionist should
call the storage companies to know if they can fill orders and therefore avoid
delays and poor customer relations.
The value of inventory at year-end is essential to the preparation of financial
statements, and deficiencies in that area may result in a qualified audit
report. A proper recording system for inventory is essential and must be
established immediately. All shipments in and out of the out of the outside
warehouses must be supported by a written confirmation including the date of the
shipment.
The company's inventory records should be compared with the quantities reported
by the storage companies periodically. A count at year-end must be performed and
reconciled to your record.
1822 West 2nd Avenue, Vancouver, B.C. V6J 1H9 e(604) 732-1466 Fax (604) 732-3133
The overall responsibility for the inventory should be assigned to a responsible
and knowledgable staff member. It should not be given to staff with no
accounting training or experience.
During the course of the audit, we have discussed the implementation of an
adequate temporary system on a computer spreadsheet with Laila. However the
company would benefit from the full integration of its invoicing and inventory
systems with its accounting system. We are available to further discuss and help
with the implementation of such a system.
2. EXPENSE ALLOCATION AND TAX PLANNING
Various expenses such as rent, telephone, promotion and advertising, salaries,
office expenses, insurance, and professional fees, are common to Cryopak
Industries Inc., Cryopak (Canada) Corporation and Cryopak (International) Ltd.
Currently, the majority of the expenses are allocated to Cyropak Industries Inc.
However, the operations of the group are recorded in Cyropak (Canada)
Corporation and will eventually result in taxable income. To ensure that full
advantage is taken of all expenses and that no losses carried forward are lost
due to expiry, management should start to review the allocation of expenses. In
addition, we recommend that the tax implications of U.S. and worldwide
operations be reviewed periodically.
3. PRICE LISTING
During our testing of sales invoices, except for the agreement with Unisource,
no official price list for the company's products was kept in the office. As a
result we were unable to trace whether the unit prices on the sales invoices
were accurate. A current price list should be kept in the office to ensure
standard and accurate pricing was given to customers. Special pricing and
discounts should be approved and initialed by an authorized person.
4. EXERCISE OF STOCK OPTIONS
During our review of share capital transactions, it was noted that when stock
options are exercised by members of management cash is not always received prior
to the issue of the shares. It is a contravention of the Company Act of British
Columbia to issue shares prior to receiving payment in full. In addition, stock
options exercised by employees were paid by way of loans advanced to the
employees. These loans were not secured by promissory notes or other such
documents.
5. MANAGEMENT FEES
Currently there are no contracts or invoices which indicate what management
remuneration is. We recommend that management remuneration be properly
documented.
<PAGE>
6. PETTY CASH
Currently, no control is in place over the petty cash. The company does not
record the detail expenditure included in each petty cash disbursement.
Therefor, even though the company keeps all its petty cash receipts, we are
unable to trace the receipts back to the petty cash expenses in the general
ledger.
7. EXPENSES PAID BY CREDIT CARD
During our tests of expenses, we found that both personal and business credit
cards were used to pay for business expenses and that personal expenses were
charged to the business credit cards as well as personal credit cards. In
addition, some of the credit card payments made by the company and applied to
the personal credit card were not properly supported by expense reports and
invoices.
We recommend that business expenses be paid with business credit card only so as
to be easily distinguished from the personal expenses. If some business expenses
have to be paid by personal credit card, then those expenses should be
documented on an expense report supported by proper receipts. We also recommend
that personal expenses be charged to personal credit cards only.
8. GST
In our sales test, we found some invoices to Canadian customers did not include
GST. Therefore, the GST collected and payable are understated, and the company
may be liable for the tax on those sales. GST is applied to all eligible goods
sold to Canadian companies even though invoices are billed in a foreign
currency.
9. SUPPORTING DOCUMENTATION
During the course of the audit, our analyses sometimes proved difficult due to
the lack of supporting documentation (e.g., invoices).
Management should ensure that supporting documentation be obtained and retained
for all company expenditures. The supporting documentation is required to
provide sufficient evidence for the audit and for future references. We
recommend that cheques only be issued when there is adequate supporting
documentation. If invoices are unavailable, then a memo providing details of the
expenditure, approved by management should be used as supporting documentation.
10. SUGAR FOOD CORPORATION INVOICES
It was noted that Sugar Food Corporation is no longer providing a detailed
listing of goods shipped out and billed to customers. They send a monthly
statement which only shows the total purchases and administration fee for the
month. As a result, we are unable to check if the unit cost billed is accurate
and what types of products are being sold.
We strongly recommend that the company require Sugar Food Corporation to report
in the same detailed manner as in the past.
We have noted improvements during the year in the recording of transactions and
performing accounting routines raised by us last year. The most significant
matter which we believe still needs to be addressed is the recording of and
control over inventory.
We would be pleased to discuss any of these comments and recommendations with
you in greater detail. We would like to thank you and your staff for your
assistance and cooperation extended during the audit. Please do not hesitate to
contact us if we may be of further assistance.
Yours very truly,
HAY & WATSON
Bruce S. Hay
<PAGE>
CRYOPAK INDUSTRIES INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1997
AND AUDITORS' REPORT
CRYOPAK INDUSTRIES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,1997 AND 1996
Auditors, Report
Balance Sheets
Consolidated Statements of Loss and Deficit
Consolidated Statements of Changes in Financial Position
Notes to Consolidated Financial Statements
Consolidated Schedules of Operating Expenses
Hay & Watson CHARTERED ACCOUNTANTS
AUDITORS' REPORT
To the Shareholders of
Cryopak Industries Inc.
We have audited the consolidated balance sheets of Cryopak Industries Inc. as at
March 31, 1997 and 1996 and the consolidated statements of loss and deficit and
of changes in financial position for each of the years in the three year period
ended March 31, 1997. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at March 31, 1997
and 1996 and the results of its operations and the changes in its cash flows for
each of the years in the three year period ended March 31, 1997 in accordance
with accounting principles generally accepted in Canada, As required by the
Company Act of British Columbia. we report that, in our opinion, these
principles have been applied on a basis consistent with that of the preceding
year.
CHARTERED ACCOUNTANTS
Vancouver, B.C.
June 27, 1997
1822 West 2nd Avenue, Vancouver, B.C. V6J IH9 (604) 732-1466 Fax (604) 732-3133
<PAGE>
Hay & Watson CHARTERED ACCOUNTANTS
COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA - U.S. REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 2 to the financial statements. Our report to the shareholders dated June
27, 1997 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the Auditors' Report
when these are adequately disclosed in the financial statements.
CHARTERED ACCOUNTANTS
Vancouver, B.C.
June 27, 1997
1822 West 2nd Avenue, Vancouver, B.C. V6J IH9 (604) 732-1466 Fax (6041 732-3133
<PAGE>
CRYOPAK INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31 (Stated in Canadian Dollars)
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
Current
Cash $ - $ 33,045
Accounts receivable 146,863 134,338
Inventory 36,779 52,183
Investments (Notes I and 3) 25,442 25,442
Prepaid expenses 15,662 9,476
Due from employees 40,118 10,218
__________ ____________
264,864 264,702
Capital assets (Notes I and 4) 50,179 51,610
Advance to related company (Note 5) 90,668 109,339
Intangibles (Notes I and 6) 486,887 544,209
__________ ___________
$ 892,598 $ 969,860
LIABILITIES
Current
Bank indebtedness 834 -
Accounts payable and accrued liabilities 375,587 416,174
Current portion of capital lease obligation 6,345 5,874
__________ ___________
$ 382,766 $ 422,048
Capital lease obligation (Note 7) 25,531 31,808
Deferred income taxes 20,467 20,467
___________ ___________
$ 428,764 $ 474,323
SHAREHOLDERS' EQUITY
Share capital (Note 8)
Issued and outstanding
12,245,156 (1996 - 11,229,065)
common shares 7,078,428 6,699,998
530 (1996 - 265) class "A"
preferred shares, Series 1 530,000 265,000
(Deficit) (7,144,594) (6,469,461)
463,834 495,537
__________ _________
$ 892,598 $ 969,860
</TABLE>
APPROVED BY THE BOARD:
DIRECTOR
DIRECTOR
<PAGE>
CRYOPAK INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
YEAR ENDED MARCH 31
(Stated in Canadian Dollars)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Sales $1,140,242 $ 965,912 $1,053,456
Cost of sales 675,706 557,611 637,545
Gross profit 464,536 408,301 415,911
Operating expenses, Schedule 1 992,673 1,158,036 1,062,998
Operating (loss) 528,137 749,735 647,087
Other (income) expenses
Filing, listing and transfer
agent fees 17,006 26,870 21,157
Corporate printing, financial
and public relations 138,150 129,994 142,617
Loan payment as guarantor - 6,518 -
Write off of loans payable - - (11,295)
Other income ( 8,160) ( 384) ( 138)
___________ _________ _________
$ 146,996 $162,998 $ 152,341
(Loss) before income taxes ( 675,133) (912,733) (799,428)
Income taxes (recovery) - ( 343) ( 340)
Net (loss) for the year ( 675,133) (912,390) (799,768)
(Deficit), beginning of year (6,469,461) (5,557,071) (4,757,303)
(Deficit), end of year (7,144,594) (6,469,461) (5,557,071)
(Loss) per share ( 0.06) ( 0.09) ( 0.09)
Weighted average common shares
outstanding 11,691,097 10,637,948 9,280,487
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
YEAR ENDED MARCH 31
(Stated in Canadian Dollars)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flow from operating activities
Operations
Net (loss) $( 675,133) $( 912,390) $( 799,768)
Depreciation and amortization 79,564 72,984 236,623
Write off of loans payable 11,295
_____________ ____________ ____________
( 595,569) ( 839,406) ( 574,440)
Changes in other operating items
Advances to related companies ( 15,815) - -
Accounts receivable 3,290 ( 51,134) 69,278
Due from employees ( 29,900) ( 10,218) 5,240
Intangibles - ( 3,113) -
Inventory 15,404 ( 22,270) 63,364
Investments - ( 25,342) -
Prepaid expenses ( 6,186) ( 5,867) -
Accounts payable ( 40,587) 69,541 89,492
Cash used for operating activities (669,363,887) ( 887,809) (347,066)
Cash flow from financing activities
Issue of shares 586,870 992,070 315,260
Liabilities settled by issue of company
shares 56,560 - 34,000
Loans payable and capital lease obligation ( 5,806) 37,682 -
Cash provided by financing activities 637,624 1,029,752 349,260
Cash flow from investing activities
Acquisition of capital assets ( 20,811) ( 51,867) ( 14,287)
Advances (to) from related company 189,671 ( 52,367) 5,587
Cash used for investing activities ( 2,140) ( 104,234) ( 8,700)
Increase (decrease) in cash during the year ( 33,879) 37,709 ( 6,506)
Cash (bank indebtedness), beginning of the year33,045 ( 4,664) 1,842
Cash (bank indebtedness), end of year $( 834) $ 33,045 $(4,664)
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1"7 AND 19%
(Stated in Canadian Dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada and reflect the following policies:
Basis of Presentation
- ---------------------
These consolidated financial statements include the accounts of the Company an
and its wholly-owned subsidiaries, Cryopak (International) Inc., a Barbados
corporation, Cryopak F(Mada) Corporation and its wholly-owned subsidiary Cryopak
Corporation, a Nevada corporation, and its proportionate interest (50%) in a
joint venture, Cryopak (Alberta) Corporation.
Inventories
- -----------
Inventories are valued at the lower of cost or net realizable value. Cost is
determined by the first-in first-out (FIFO) method of valuation.
Investments
- -----------
Investments are recorded at the lower of cost and market value.
Depreciation
- ------------
Capital assets are recorded at cost.
The Company records depreciation on its capital assets using the straight-line
method over five years, except for motor vehicles where the declining balance
method is used at the rate of 30% per anum.
Patent Licence
- --------------
The patent4icence is recorded at cost and is amortized on a straight-line basis
over seventeen years.
Deferred Development Costs
- --------------------------
The deferred development costs are recorded at cost and are amortized on a
straight-line basis over ten years.
Foreign Currency
- ----------------
Foreign currency accounts are translated using the temporal method whereby
current assets and current liabilities are translated to Canadian dollars at
year end exchange rates, other assets and liabilities at exchange rates
prevailing at the dates of transactions, and revenue and expenses at the average
rate during the year. Gains and losses from foreign currency translation are
included in the consolidated statement of loss and deficit.
Goodwill
- --------
The excess of cost of the purchase of a subsidiary company over the fair value
of assets acquired (disclosed in these consolidated financial statements as
goodwill) is amortized on a straight-line basis over seventeen years.
CRYOPAK INDUSTRIES INC.
<PAGE>
2. OPERATIONS
These financial statements have been prepared on the assumption that the Company
is a going concern.
The ability of the Company to continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities and commitments in
the normal course of business, is dependent on obtaining the financing necessary
to continue operations and, ultimately, profitable operations.
3. INVESTMENTS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Marketable securities -
market value at March 31,
1997 - $325
1996 - $475 $ 100 $ 100
Artwork 25,342 25,342
________ ________
$25,442 $25,442
</TABLE>
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
1997 1996
Accumulated Net Book Net Book
Cost Depreciation Value Value
<S> <C> <C> <C> <C>
Computer $ 45,617 $ 19,010 $ 26,607 $ 14,137
Furniture and fixtures 82,562 77,218 5,344 2,968
Motor vehicle under
capital lease 40,594 22,366 18,228 34,505
________ ________ ________ ________
$168,773 $118,594 $ 50,179 $ 51,610
</TABLE>
5. ADVANCE TO RELATED COMPANY
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Advance to N.C.K. Holdings Inc. $ 90,668 $109,339
</TABLE>
The related company is owned by two directors. The advance is unsecured, and is
repayable in monthly installments of $2,200 including interest of 8% per annum.
During the year the Company paid management fees of $220,000 (1996 - $220,000)
and royalties of $22,934 (1996 - $20,159) to N.C.K. Holdings Inc.
6. INTANGIBLES
<TABLE>
<CAPTION>
1997 1996
Accumulated Net Book Net Book
Cost Amortization Value Value
<S> <C> <C> <C> <C>
Incorporation costs $ 3,111 $ - $ 3,111 $ 3,111
Deferred development costs 114,017 65,845 48,172 62,994
Patent licence 566,323 224,869 341,454 374,768
Goodwill 156,155 62,005 94,150 103,336
________ ________ _________ ________
$839,606 $352,719 $486,887 $544,209
</TABLE>
7. CAPITAL LEASE OBLIGATION
<TABLE>
<CAPTION>
<S> <C> <C>
Capital lease payable,
with interest of 10.25%,
due November 1, 1999 $31,876 $37,682
Less: current portion 6,345 5,874
_______ _______
$25,531 $31,808
</TABLE>
The future minimum lease payments required are $37,143 payable as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 9,240
1999 9,240
2000 18,663
</TABLE>
Included in these amounts is imputed interest of $5,267.
<PAGE>
8. SHARE CAPITAL
<TABLE>
<CAPTION>
Authorized
<S> <C>
100,000,000 common shares without par value
100,000,000 Class "A" preferred shares without par value, of which 1,500 are
designated class "A" convertible voting preferred shares, Series I.
</TABLE>
The following changes occurred in share capital:
<TABLE>
Common shares
Issued and outstanding
<CAPTION>
1997 1996 1995
Number Number Number
of of of
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning
year 11,229,065 $6,699,998 9,677,542 $5,972,928 8,966,542 $5,623,668
Issued during the year
For cash 913,255 321,870 1,551,523 727,070 661,000 315,260
For settlement
of debt 102,836 56,560 - - 50,000 34,000
_________ _______ _________ ________ _______ _______
1,016,091 378,430 1,551,523 727,070 711,000 349,260
Balance, end
of year 12,245,156 $7,078,42 11,229,065 $6,699,998 9,677,542 $5,972,928
</TABLE>
Class A preferred shares, Series I
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Balance, beginning of year 265 $265,000 - $ -
Issued during the year for cash 265 265,000 265 265,000
Balance, end of year 530 $530,000 265 $ 265,000
</TABLE>
<PAGE>
Each class "A" preferred share Series I carries a 12%, cumulative dividend
payable at the company's fiscal year end, in either cash or common shares at the
option of the Company. Dividends in arrears at March 31, 1997 amounted to
$48,048.
The Series I preferred shares are convertible into common shares at the rate of
one common share for each $3.00 of paid up capital or the rate provided below:
(1) $2.50 at any time after December 31, 1997, provided that the Current Trading
Price shall never have exceeded $2.99 after December 31, 1996;
(ii) $2.00 at any time after December 31, 1998, provided that the Current
Trading Price shall never have exceeded $2.99 after December 31, 1996 or $2.49
after December 31, 1997.
(iii) at any time after December 31, 1999, provided that the Current Trading
Price shall never have exceeded $2.99 after December 31, 1996 or $2.49 after
Decemb~r 31, 1997 or $1.99 after December 31, 1998, at a common share price
equal to that price which represents a 15% discount to the then Current Trading
Price, which common share price in no event shall be less than $0.95;
but if not so converted prior to May 12, 2000, such Series I preferred shares
shall be deemed to have been converted on May 12, 2000 at the applicable
conversion price described above. The Current Trading Price means the average
trading price of the common shares on a recognized public stock exchange for the
preceding 20 business days.
On March 31, 1997, the following stock options were outstanding:
<TABLE>
<CAPTION>
Number of Exercise Expiry
Shares Price Date
<S> <C> <C> <C>
Directors 38,000 $0.44 November 7,1997
490,000 0.50 June 13, 1999
75,000 0.45 May 27,1997
96,909 0.55 August 22, 1997
100,000 0.42 April 26,1998
Officers 35,000 0.44 November 7,1997
Employees 20,000 0.45 May 27, 1997
80,000 0.40 January 12,1999
</TABLE>
9. INCOME TAXES
The Company has losses available for utilization against future years' taxable
incomes which, if unused, will expire as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 274,933
1999 276,415
2000 296,801
2001 1,089,726
2002 658,014
2003 710,475
2004 599,008
</TABLE>
10. LEASES
The minimum annual rental commitments for operating leases in effect at March
31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $17,570
1999 10,570
2000 10,570
2001 1,627
2002 1,627
</TABLE>
11. RELATED PARTY TRANSACTIONS
Related party transactions not otherwise disclosed in these consolidated
financial statements are:
(a) Professional and consulting fees include $15,540 and $23,500, respectively,
paid to Discovery Capital Corporation, the president and non-controlling
shareholder of which is a director of the Company. As of March 31, 1997, $14,142
was payable to Discovery Capital Corporation.
(b) As of March 31, 1997, accounts receivable include $12,446 receivable from
N.C.K. Holdings Inc., a company owned by two directors, and $3,278 receivable
from Fulcrum Developments. Ltd., a company related by two directors in common.
12. SUBSEQUENT EVENTS
The following events occurred subsequent to the year end:
(a) The following common shares were issued pursuant to the exercise by
directors of share purchase options:
<TABLE>
<CAPTION>
Date of exercise Number of Exercise Total
Shares Price Proceeds
<S> <C> <C> <C>
April 30, 1997 38,000 $0.44 $ 16,720
June 16, 1997 60,000 0.50 30,000
</TABLE>
<PAGE>
(b) The following share options were issued after the end of the year:
<TABLE>
<CAPTION>
Number of Exercise Expiry
Shares Price Date
<S> <C> <C> <C>
Employee 240,000 $0.50 April 10, 1999
Directors (1) 230,000 0.52 June 16, 1999
Employee (1) 20,000 0.52 June 16, 1999
</TABLE>
(1) subject to regulatory approval
13. CONTRACTUAL OBLIGATIONS
Pursuant to an agreement dated December 20, 1989 with N.C.K. Holdings Inc., as
part of the consideration for a licence, the Company has made a commitment to
issue up to 3,000,000 common shares of its capital (the "performance shares")
based upon certain performance criteria.
The issue of the shares is subject to regulatory approval which to date has not
been sought.
14. CONTINGENT LIABILITIES
(a) Should sales of racks not meet expectations, the Company is liable for the
cost of the moulds, the balance of which was approximately $30,000 at March 31,
1997.
(b) A company has filed a complaint against the Company in respect of the use of
a registered trademark. The outcome of the claim is not determinable.
<PAGE>
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Generally accepted accounting principles ("GAAP") used in the United States of
America differ in certain respects from GAAP used in Canada. A difference that
materially affects these consolidated financial statements is that United States
GAAP require deferred development costs be expensed as incurred whereas Canadian
GAAP allows these expenses to be deferred and amortized. Had the consolidated
financial statements been prepared in accordance with United States GAAP as
described above, the following changes would hive been made:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Total Assets - Canadian GAAP $892,598 $969,860 $789,332
Deferred development costs ( 48,172) ( 62,994) ( 77,816)
Total Assets - United States GAAP $844,426 $906,866 $711,516
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Shareholders' equity -
Canadian GAAP $463,834 $495,537 $415,857
Deferred development costs ( 48,172) ( 62,994) ( 77,816)
Shareholders' equity -
United States GAAP $415,662 $432,543 $338,041
1997 1996 1995
Net Loss - Canadian GAAP $675,133) (912,390) (799,768)
Amortization of deferred
development costs 14,822 14,822 187,045
Net Loss - United States GAAP $(660,311) $(897,568)$(612,723)
</TABLE>
(b) United States GAAP require non-cash investing and financing activities to
be excluded from the Consolidated Statements of Changes in Financial Position,
whereas Canadian GAAP require these activities to be included in the Statement.
Had the Consolidated Statement of Changes - in Financial Position been prepared
in accordance with U.S.GAAP the following transactions would have been excluded:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Liabilities settled by issue of company shares $56,560 $ - $34,000
</TABLE>
(c) Basic loss per share calculated in accordance with U.S. GAAP is:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
0.06 0.09 0.07
</TABLE>
<PAGE>
CRYOPAK INDUSTRIES INC.
CONSOLIDATED SCHEDULES OF OPERATING EXPENSES
YEAR ENDED MARCH 31
(Stated in Canadian Dollars)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Bad debts 7,245 $ 32,668 $ 28,731
Commissions 884 3,681 9,110
Depreciation and amortization 79,564 72,984 236,623
Foreign exchange 1,355 2,867 33,228
Interest and bank charges 16,549 11,435 16,178
Interest on capital lease
obligation 3,434 1,156 -
Management fees and commissions 220,000 220,000 210,000
Marketing 87,337 173,157 46,222
Office supplies and stationery 58,197 54,587 49,781
Professional fees 74,399 155,698 75,088
Rent 52,459 48,576 47,838
Royalties 44,903 30,239 26,584
Salaries and benefits 117,960 122,610 146,677
Storage 9,899 8,362 16,751
Telephone 50,748 41,899 46,662
Travel 155,138 167,284 64,460
Vehicle 12,602 10,833 9,065
________ __________ __________
$992,673 $1,158,036 $1,062,998
</TABLE>
<PAGE>
Item 18. Financial Statements
The Registrant has chosen to file Financial Statements under Item 17,
above.
Item 19. Financial Statements and Exhibits
EXHIBIT INDEX
Exhibit 1 Private Placement Memorandum*
Exhibit 3
Exhibit 3.1 Articles of Incorporation -
Cryopak Industries Inc.*
Exhibit 3.2 Articles of Amendment*
Exhibit 3.3 Articles of Incorporation -
B.C., Ltd.*
Exhibit 3.4 Articles of Incorporation -
Consort Energy Corp.*
Exhibit 10
Exhibit 10.1 Consulting Agreement*
Exhibit 10.2 Client Agreement*
Exhibit 10.3 Lease Agreement*
Exhibit 23
Exhibit 23.1 Consent of Independent Auditor
Exhibit 27 Financial Data Schedule
Exhibit 99
Exhibit 99.1 Patent*
Exhibit 99.2 Certificate of Name Change*
*Indicates previously filed exhibit
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this registration statement annual
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CRYOPAK INDUSTRIES INC.
/s/ Harry Bygdnes
-----------------
Harry Bygdnes, President
This offering statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Harry Bygdnes 1-18-00
- ----------------- -------
Harry Bygdnes, Director Date
/s/ Robert Leigh Jeffs 1-18-00
- ---------------------- -------
Robert Leigh Jeffs, Director Date
/s/ Douglas R. Reid 1-18-00
- ------------------- -------
Douglas R. Reid, Director Date
/s/ Ross G. Morrison 1-18-00
- -------------------- -------
Ross G. Morrison, Director Date
/s/ John F. Morgan 1-18-00
- ------------------ -------
John F. Morgan, Director Date
/s/ John A. McEwen 1-18-00
- ------------------ -------
John A. McEwen, Director Date
HAY & WATSON
CHARTERED PUBLIC ACCOUNTANT
January 18, 1999
CONSENT OF INDEPENDENT AUDITOR
As the independent auditor for Cryopak Industries, Incorporated, I hereby
consent to the incorporation by reference in this Form 20F Statement and any
amendments thereto of my report, relating to the financial statements and
financial statement schedules of Cyropak Industries, Incorporated for the years
ended Narch 31, 1999, 1998 and 1997 included on Form 20F and amendments. Reports
are dated June 11, 1999 for the year ended March 31, 1998.
I further consent to the incorporation of my review report and financial
statements by reference in the Form 20F and amendments thereto. These statements
cover the period for March 31, 1999 and 1998 (report date of June 11, 1999).
/s/ Hay & Watson
----------------
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<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 640,299 3,417
<SECURITIES> 75 25,442
<RECEIVABLES> 360,783 217,677
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 429,652 416,945
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 2,036,700 1,364,297
<CURRENT-LIABILITIES> 276,966 532,440
<BONDS> 0 0
0 0
530,000 530,000
<COMMON> 9,682,451 7,362,318
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 2,036,700 1,364,297
<SALES> 1,295,159 1,161,442
<TOTAL-REVENUES> 0 0
<CGS> 746,285 763,018
<TOTAL-COSTS> (782,539) (539,951)
<OTHER-EXPENSES> 129,529 98,602
<LOSS-PROVISION> (912,068) (638,553)
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (912,068) (638,553)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
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