SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended April 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 0-26454
PL BRANDS, INC.
(Exact name of small business issuer in its charter)
Delaware 98-0142664
(State or other jurisdiction of incorporation(I.R.S.Employer Identification No.)
or organization)
10 Planchet Road, Unit 6
Concord, Ontario, Canada L4K 2C8
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (905) 761-0888
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $.001 par value
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
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X
NO
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K
or any amendment to this Form 10-K. [X]
State issuer's revenues for its most recent fiscal year:
$2,460,306.
The aggregate market value of the voting stock held by non-
<PAGE>
affiliates of the registrant was indeterminable since the Common
Stock was quoted unpriced.
The number of shares outstanding of the issuer's classes of Common
Stock as of April 30, 1997:
Common Stock, $.001 Par Value 9,143,279 shares
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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Item 1. Description of Business
Background
PL Brands, Inc. (the "Company") was originally incorporated under the
name "Malone Road Investments, Ltd." on August 6, 1990 in the Isle of Man. The
Company was redomesticated in the Turks and Caicos Islands on April 21, 1992,
and subsequently domesticated as a Delaware corporation on May 12, 1994.
Pursuant to Delaware law the Company is deemed to have been incorporated in
Delaware as of August 6, 1990. The Company changed its name to PL Brands, Inc.
on June 6, 1994 to conform to the name under which it had been doing business.
The Company's principal business is in development, production and
marketing of private label prepared foods. Prior to January 1, 1994 the
Company's activities were primarily limited to research and development of its
business plan and recruitment of personnel. Full-time operations began in March
1994. On August 19, 1994 the Company purchased 100% of the outstanding shares of
Alma Pack Bottling Corporation. Alma Pack's bottling business has comprised the
Company's principal operation since August 1994. Unless otherwise noted, all
information herein is given in U.S. dollars.
The Private Label Food Industry
All major North American grocery chains have introduced private label
house brands in recent years as a method of improving gross margins. In
recessionary economic periods, these chains typically increase emphasis on house
brands for two principal reasons. First, the house brand is typically priced
less expensively than national brands, which in a recessionary economy is
usually important for consumers. Second, in the observation of management,
during the current economic conditions most grocery chains have been obliged to
maintain low prices, leading to low margins, to maintain market share.
Management believes that house brands contribute an increasing percentage of a
grocery chain's grocery profits.
The grocery chains develop many house brands internally, but have
always involved outside suppliers to assist them in developing new house brands.
Management believes that the grocery chains are currently experiencing
historically low profitability, which in order to maintain levels of
profitability (or avoid increasing losses, as the case may be) management
believes that these chains are relying more and more on outside contractors
(such as the Company) to develop their house brands.
The Private Label Food Business
The process of developing and distributing a private label food product
requires the coordination of efforts in a variety of
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business areas.
In the commencement of each project, market research is critical in
determining not only those products which are purchased in high volumes by
consumers, but also those products within this group which are most likely to be
accepted as private label products. The Company, working with a major
supermarket chain, is focusing on new products to introduce in the near future.
The Company intends to concentrate on products with higher margins that have all
natural ingredients and are low in artificial flavorings and colorings, and more
economical in price.
Labeling and packaging must not only be attractive and appropriate for
the specific product, but must meet applicable governmental regulations. These
regulations are subject to change by the governments of North America and even
by individual provinces and states, and primarily involve disclosure of nutrient
content and ingredients.
Products must be formulated to appeal to a broad range of consumer
tastes. The formulation must be economically and practically feasible, and
appropriate sources of supply must be secured.
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Products
The Company's principal products are concentrated on spring water
products. Spring-water based products including drinking water, flavored or
unflavored, and spring water teas. Projects under development include specialty
snack lines. The Company has brokered snack products and expects to continue to
engage in food brokerage activities in the future.
In August 1994, the Company acquired bottling equipment and related
assets for a total consideration of cash and debt of $825,000 (Canadian) to use
for bottling spring water products.
The raw materials for the Company's products are readily available from
a wide source of suppliers, and the Company is not dependant upon any one
supplier or group of suppliers. The Company's current customers include
Flemming, Co., Winn-Dixie, A & P, Bi-Lo, Red Food Stores, Wakefern Food Company,
Topco, Health For Life Brands of Arizona, Inc, and Public Supermarkets. The
Company is negotiating additional contracts with other supermarket chains.
Products are intended to be of high, upscale quality, equal or better
in quality than competing national brands.
Plan of Operation
The Company has acquired, in August 1994, additional production
equipment which has enabled the Company to produce additional products. The
Company intends to seek out contracts for additional products concentrating on
major U.S. and Canadian grocery chains.
Competition
The market for the Company's products is highly competitive, and the
Company expects competition to become more intense. The Company faces
competition from a multitude of different companies in the private label food
industry and also competes with branded products. Almost all of the Company's
existing and potential competitors have greater name recognition, more extensive
marketing capabilities and substantially greater financial, technological and
personal resources than those available to the Company. There can be no
assurance that the Company will be able to compete successfully in the future or
that competitive pressures will not result in price reductions or delays or
cancellations of customer orders which would adversely affect the Company's
results of operations.
Many of the Company's customers are food retailers who have in-house
private label organizations. These retailers are often not able to develop new
products as timely as the Company or as cost effectively. Management believes
that the Company's
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competitive advantage lies in its expertise in market research and in its
relationships with suppliers and potential suppliers.
Employees
As of April 30, 1997, the Company had 16 employees other than its
officers.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion regarding the financial statements of the
Company should be read in conjunction with the financial statements and notes
thereto.
Operations
Net sales for the year ended April 30, 1997 ("Fiscal 1997") were
$2,460,306, or higher than sales in the year ended April 30, 1996 ("Fiscal
1996") of $2,218,219, primarly due to increased sales but also for higher prices
on flavored spring water products. Gross margin increased to 10.7% of gross
sales in Fiscal 1997 compared to 7.5% of net sales in Fiscal 1997. The reason
for the increase was better margins on water products.
Operating expenses decreased from $681,309 to $474,525 in Fiscal 1997,
primarily or as a result of cost cutting measures implemented by management.
Loss from operations decreased from $514,344 in Fiscal 1996 to $211,316
in Fiscal 1997 primarily as the result of the decrease in operating expenses. In
1996 the Company wrote off investments in two proposed acquisitions and wrote
off acquisition good will in 1995, resulting in net losses of $800,009 in fiscal
1996 and $1,113,287 in fiscal 1995.
Liquidity
As of April 30, 1997, the Company's working capital deficit was $97,778
and its shareholder's deficit was $10,189. The Company converted $296,650 in
debentures into shares of common stock and converted shareholder loans of
$88,325 into common stock. The Company intends to sell additional debentures or
preferred stock in the future.
The Company anticipates its need for cash over the next 12 months for
general and administrative expenses to be $25,000 per month. This amount is
expected to be funded almost entirely from operations and suplemented by private
placements of debt or equity. The Company also desires to purchase additional
manufacturing and packaging equipment to manufacture and package food products,
up to approximately $5,000,000 in value, over the next twelve months. Although
the Company's business does not require the purchase of
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this equipment since it can contract with other parties for these services,
Management believes that the ownership of its own equipment will result in
better profit margins. The Company has no specific plans for any placement of
its securities.
Item 2. Description of Property
The Company rented office space in downtown Mississauga, in Ontario,
Canada until December 1995.
The Company acquired certain bottling equipment in Toronto in August
1994. The equipment is operated at a location with 24,000 square feet, at
$11,400 Canadian per month. The lease expires on January 31, 1999. The current
executive officers were moved to this location in January 1996.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
(a) Market Information
The Common Stock has traded infrequently and sporadically on
the Electronic Bulletin Board under the symbol "PLBC" from October 28, 1994 to
September 15, 1995 and thereafter under the symbol "PLCB." As of October 31,
1997, the Common Stock was unpriced under the symbol "PLBI".
(b) Holders
As of August 1, 1997, there were approximately 524 holders of
Company common stock.
(c) Dividends
The Company has not paid any dividends on its common stock.
The Company currently intends to retain any earnings for use in its business,
and therefore does not anticipate paying cash dividends in the foreseeable
future. The Company is under no contractual restrictions on the payment of
dividends.
Item 7. Financial Statements and Supplementary Data
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Financial Statements
The following financial statements are included herein.
Report of Independent Auditors--Deloitte & Touche Chartered
Accountants
Report of Independent Auditors--Armando Ibarra CPA Balance Sheet at
April 30, 1997 and 1996 Statement of Income for the years ended April
30, 1997, 1996 and 1995 Statement of Stockholders' Equity Statement of
Cash Flows for the years ended April 30, 1997, 1996 and 1995 Notes to
Financial Statements
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
1. (i) The Registrant's former independent accountant
Armando C. Ibarra ("Ibarra") resigned from that capacity on July 3,
1996.
(ii) The report by Ibarra on the financial statements of the
Registrant dated September 9, 1995, including balance sheets as of April 30,
1995 and 1994 and the statements of income, cash flows and statement of
stockholders' equity for the years ended April 30, 1995 and 1994 did not contain
an adverse opinion or a disclaimer of opinion, or was qualified or modified as
to uncertainty, audit scope or accounting principles.
(iii) During the period covered by the financial statements
through the date of resignation of the former accountant, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
A letter from the former independent accountant for the
Registrant will be filed by amendment as Exhibit 16.1 to this annual report in
which the resignation of Ibarra was reported.
2. On July 3, 1996 the Registrant engaged Deloitte & Touche,
Chartered Accountants, as its new independent accountants.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act.
The members of the Board of Directors of the Company serve until the
next annual meeting of stockholders, or until their successors have been
elected. The officers serve at the pleasure of the Board of Directors.
Information as to the directors and executive officers of the Company is as
follows:
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Name Age Office
Andre Corbeil 53 President and Director
Robert Brown 37 Vice President - Finance
Secretary,
Treasurer and Director
John W. Martin 53 Director
Edward I. Willis 73 Director
Fred Procopio 41 Vice President - Operations and
Director
Andre Corbeil, has been Chief Executive Officer of the Company since
September 1995. Mr. Corbeil has over 20 years experience as a business executive
for various entities. Since 1978, Mr. Corbeil has been President/Owner of A.
Corbeil and Associates Ltd., providing business consulting services. From 1989
to 1991, Mr. Corbeil was the Co-founder and Chief Executive Officer of the
Canadian Arctic Beverage Corporation, the producer of the beverage "Arctic
Twist". As CEO, Mr. Corbeil was responsible for generating the initial start-up
financing and also negotiated the sale of the corporation. He was the co-founder
and Chief Executive Officer from 1991 to 1992 of Spring Cola Beverage
Corporation which provides private label products to supermarket chains.
Robert Brown, has been Secretary, Treasurer and Director of the
Company since May 1994. Mr. Brown was controller of Trafficon Holdings, Inc., a
transportation company, from 1986 to 1990. Mr. Brown was Vice President of
Finance of Colonial Export Corporation from 1990 to 1991, of Resource Food and
Beverage Corporation from 1991 to 1994, and of Spring Cola Beverage Corporation
from 1991 to 1994.
John W. Martin, Director - Mr. Martin has been president of
Mann Testing Laboratories, Ltd. since 1984 and was employed by that
Company as Vice President and Operations Manager from 1975 to 1984.
He has been Director and Chief Executive Officer of Equitest, Inc.
since 1986, and of Acres Analytical Limited since 1989. He is also
a director of Spring Cola Beverage Corp. In 1988 Mr. Martin was
President of the International Association of Official Racing
Chemists. Mr. Martin is a published author, as well as a guest
lecturer. He has published numerous scientific and technical
articles. Mr. Martin is a member of the Association of Chemical
Professionals of Ontario and the Association of Professional
Engineers of Ontario.
Edward I. Willis, Director - Mr. Willis is a retired business
executive. He has been President and Chief Executive Officer of
Ireton International Barter since 1982. Ireton is engaged in the
export of Canadian products to Southeast Asia, with offices in Hong
Kong, Beijing, Manila, Singapore, Bangkok and Kuala Lumpor. Mr.
Willis is a former naval officer in the Royal Canadian Navy.
Fred Procopio, has been Vice President - Operations and
Director of the Company since July 1995. Prior to that time he was
employed by Alma Pack Bottling Corporation, acquired by the Company
in August 1994. In April 1989, Mr. Procopio and a partner
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incorporated Alma Pack Bottling Corporation. Alma Pack Customers
were first local and then expanded over the years to the U.S. Over
the last year sales have expanded to Asia and Africa.
Item 10. Executive Compensation
No compensation was paid by the Company to any executive officer prior
to April 30, 1994. Directors are reimbursed for expenses incurred in connection
with performance of their duties as directors. In fiscal 1997 and 1996,
respectively, Andre Corbeil, Chief Executive Officer, was paid $55,000 and $0,
Mr. Fred Procopio, Vice-President Operations was paid $52,000 and $52,000 and
Robert Brown, Chief Financial Officer was paid $30,000 and $30,000. In Fiscal
1997 there are no other forms of long term or other compensation.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information relating to the beneficial
ownership of Company common stock by those persons beneficially holding more
than 5% of the Company common stock, by the Company's directors and executive
officers, and by all of the Company's directors and executive officers as a
group. The address of each person is care of the Company unless noted.
<TABLE>
<CAPTION>
Percentage
Name of Number of of Outstanding
Stockholder Shares Owned Common Stock
<S> <C>
Andre Corbeil 0 *
Fred Procopio 600 *
Rob Brown 5 *
John W. Martin 3 *
Edward I. Willis 3 *
All officers and directors
as a group (5 persons) 611 *
</TABLE>
* less than 1%
Item 12. Certain Relationships and Related Transactions
Not Applicable.
PART IV
Item 13. Exhibits
Exhibit No. Document Description
The following exhibits required by Item 601 of Regulation S-B are
filed herewith:
Exhibit No. Document Description
3. Certificate of Incorporation and Bylaws
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3.1. Certificate of Incorporation(1)
3.2 Amendment to Certificate of Incorporation(1)
3.3 Bylaws(1)
4. Instruments Defining Rights of Security holders
4.1 Form of Convertible Debenture(1)
16. Change in Auditors. Incorporated by reference tothe
Company's 1996 10-KSB/A.
21. Subsidiaries of the Registrant - PL Brands Canada,
Alma Pack Bottling Corporation and PLBC (NRO), Inc. are
incorporated in Ontario.
(1) Incorporated by reference to the exhibits filed with the
Company's Registration Statement on Form 10-SB, File No. 0-
24888.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized.
Dated: December 5, 1997
PL BRANDS, INC.
By:
Andre Corbeil
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on December 5, 1997.
By:
Andre Corbeil
Chief Executive Officer (principal executive officer) and
Director
By:
Robert Brown
Vice President - Finance, Secretary, Treasurer (principal
accounting and financial officer) and Director
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Deloitte & Touche
Chartered Accountants
5140 Yonge Street, Suite 1700
North York, Ontario M2N 6L7
Auditor's Report
To the Shareholders of
PL Brands, Inc.
We have audited the consolidated balance sheets of PL Brands, Inc. and
subsidiaries as at April 30, 1997 and April 31, 1996 and the related
consolidated statements of earnings, stockholders' equity and cash flows for the
years ended April 30, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements of the Company for the year ended April 30, 1995 were audited by
other auditors whose report, dated September 9, 1995 contained a reservation
pertaining to opening inventories.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of PL Brands, Inc. and subsidiaries as
at April 30, 1997 and April 30, 1996 and the results of their operations and
their cash flows for the years ended April 30, 1997 and 1996 in conformity with
generally accepted accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statement, the company's recurring losses from operations and
stockholders' capital deficiency raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Deloitte & Touche
Chartered Accountants
North York, Ontario
July 31, 1997
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<TABLE>
<CAPTION>
PL BRANDS, INC.
Consolidated Balance Sheets
As of April 30, 1997 and April 30, 1996
1997 1996
ASSETS
CURRENT
<S> <C> <C>
Cash $ 1,638 $ 4,047
Accounts receivable (less allowance for doubtful
accounts of $nil (1996 $13,800) 431,053 386,811
Inventory 241,543 143,907
Prepaids 7,070 8,429
681,304 543,194
FIXED ASSETS (Note 3) 215,408 255,996
$ 896,712 $ 799,190
LIABILITIES
CURRENT
Bank Indebtedness (Note 4) $ 151,212 $ 146,843
Accounts payable 520,363 564,332
Note payable (Note 5) 64,576 --
Shareholders' loan (Note 6) -- 702,978
Current portion of long-term debt (Note 4) 42,931 41,128
Amounts received for the issuance of convertible
debentures and capital stock (Note 7) -- 203,850
779,082 1,659,131
NET LONG-TERM DEBT (Note 4) 127,819 173,729
906,901 1,832,860
STOCKHOLDERS' EQUITY
CAPITAL STOCK (Note 8) 9,143 4,120
ADDITIONAL PAID-IN CAPITAL 2,128,906 889,066
ACCUMULATED DEFICIT (2,224,603) (1,957,998)
CUMULATIVE TRANSLATION ADJUSTMENT 76,365 31,142
(10,189) (1,033,670)
$ 896,712 $ 799,190
</TABLE>
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<TABLE>
<CAPTION>
PL BRANDS, INC.
Consolidated Statement of Earnings For
the years ended April 30, 1997, April 30, 1996, and
April 30, 1995
1997 1996 1995
<S> <C> <C> <C>
NET SALES $ 2,460,306 $ 2,218,219 $ 2,221,726
COST OF SALES 2,197,097 2,051,254 1,970,237
GROSS PROFIT 263,209 166,965 251,489
OPERATING EXPENSES
Consulting fees and commissions 89,708 228,459 174,933
Salaries 101,628 107,239 200,308
Office expense 46,768 88,902 160,187
Accounting and legal 109,357 60,271 160,077
Automobile 23,730 39,168 28,254
Interest -- 34,549 75,525
Bank charges 29,178 34,410 5,793
Telephone 28,660 28,390 19,727
Travel 18,036 25,028 14,344
Insurance 7,391 17,516 6,909
Business taxes 5,128 10,936 6,113
Entertainment 1,891 3,904 5,506
Marketing 13,050 2,537 125,398
474,525 681,309 983,074
LOSS FROM OPERATIONS (211,316) (514,344) (731,585)
OTHER INCOME (EXPENSES)
Interest income 6 546 3,156
Gain on foreign exchange transactions (45,821) 4,098 3,046
Depreciation and amortization (9,474) (11,068) (9,309)
(55,289) (6,424) (3,107)
LOSS BEFORE INVESTMENT
WRITEOFF AND TAXES (266,605) (520,768) (734,692)
INVESTMENT WRITEOFF (Note 9) -- 167,126 --
GOODWILL ON ACQUISITION
WRITEOFF (Note 10) -- -- (482,983)
LOSS BEFORE TAXES (266,605) (687,894) (1,217,675)
INCOME TAX BENEFIT (NOTE 11) -- (112,115) 104,388
NET LOSS FOR THE YEAR $ (266,605) $ (800,009) $ (1,113,287)
NET LOSS PER SHARE OF
COMMON STOCK $ (3.99) $ (53.84) $ (695.80)
WEIGHTED AVERAGE SHARES
OUTSTANDING (Note 8) 66,736 14,860 1,600
</TABLE>
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<TABLE>
<CAPTION>
PL BRANDS, INC.
Consolidated Statements of Cash Flows For
the years ended April 30, 1997, April 30, 1996 and April
30, 1995
1997 1996 1995
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss for the year $ (266,605) $ (800,009) $ (1,113,287)
Items not requiring the use of cash
Adjustment to reconcile:
Depreciation and Amortization 62,729 51,766 60,045
Investment writeoff -- 167,126 --
Goodwill on acquisition writeoff -- -- 482,983
Loss (gain) in foreign transactions 45,821 (4,098) (3,046)
Change in assets and liabilities affecting cash flows:
Accounts receivable (44,242) (168,235) (218,576)
Inventory (97,636) (11,852) (132,055)
Prepaids 1,359 (4,704) (3,304)
Deferred taxes -- 112,115 (104,388)
Accounts payable (43,969) 245,462 306,144
Bank Indebtedness 4,369 36,360 110,483
Payroll taxes -- (1,744) --
Net cash used for operating activities (338,174) (377,813) (615,001)
INVESTING ACTIVITIES
Purchase of fixed assets (22,141) (56,849) (18,315)
Deposits on companies -- -- (167,126)
Net cash used for investing activities (22,141) (56,849) (185,441)
FINANCING ACTIVITIES
Stock issuance 60 48,000 1,000
Amounts received for the issuance of
convertible debentures and capital stock 249,650 203,850 --
Foreign exchange gain (Loss) (45,821) 4,098 3,046
Decrease in tax benefit -- -- 104,388
Proceeds from shareholders' loan -- 356,925 161,620
Payments to former shareholders -- (233,123) --
Payments of bank loans payable (44,107) (16,832) (399,776)
Proceeds from debentures -- -- 829,186
Proceeds from note payable 64,576 -- --
Conversion of shareholder loan interest88,325 -- --
Net cash provided by financing activities 312,683 362,918 699,464
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 45,223 34,232 19,852
NET DECREASE IN CASH (2,409) (37,512) (81,126)
CASH AT BEGINNING OF YEAR 4,047 41,559 122,685
CASH AT END OF YEAR $ 1,638 $ 4,047 $ 41,559
</TABLE>
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<TABLE>
<CAPTION>
PL BRANDS, INC.
Consolidated Statement of Stockholders' Equity
For the period April 30, 1994 to April 30, 1997
Common Stock Additional Cumulative
Number Paid-In Accumulated Translation
of Shares Amount Capital Deficit Adjustment Total
(see Note 8)
<S> <C> <C> <C> <C> <C> <C>
BALANCE - April 30, 1994 1,500 $ 15,000 $ - $(44,702) $ -- $ (29,702)
Stock Issuance 100 1,000 -- -- --
1,000
Foreign currency translation
effect -- -- -- -- (3,090) (3,090)
Net loss for the year ended
April 30, 1995 -- -- -- (1,113,287) -- (1,113,287)
BALANCE - April 30, 1995 1,600 16,000 -- (1,157,989) (3,090) (1,145,079)
1-100 reverse stock split (Note 8) -- (15,840) 15,840 -- -- --
Debenture Conversion 30,000 3,000 826,186 -- -- 829,186
Stock issuance 9,600 960 47,040 -- -- 48,000
Foreign currency translation
effect -- -- -- -- 34,232 34,232
Net loss for the year ended
April 30, 1996 -- -- -- (800,900) -- (800,009)
BALANCE - April 30, 1996 41,200 4,120 889,066 (1,957,998) 31,142 (1,033,670)
Stock Issuance 600 60 -- -- -- 60
1-100 reverse stock split (Note 8) -- (4,138) 4,138 -- -- --
Debenture conversion 2,118,956 2,119 294,531 -- -- 296,650
Shareholder loan conversion 6,982,523 6,982 941,171 -- -- 948,153
Foreign currency translation
effect -- -- -- -- 45,223 45,223
Net loss for the year ended
April 30, 1997 -- -- -- (266,605) -- (266,605)
BALANCE - April 30, 1997 9,143,279 $9,143 $2,128,906 $ (2,224,603)$ 76,365 $ (10,189)
</TABLE>
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PL BRANDS, INC.
Notes to Consolidate Financial Statements
April 30, 1997
(Expressed in US$)
1. FUTURE OPERATIONS
The Company incurred a significant net less for the years ended April
30, 1997, April 30, 1996 and April 30, 1995, and the continued stockholders'
deficiency raises substantial doubt about its ability to continue as a going
concern.
Management has instituted a plan to obtain financing to purchase other
companies and feels this will contribute toward achieving profitability and
positive cash flows. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
PL Brands, Inc. (the "Company") was incorporated under the laws of the
State of Delaware on May 12, 1994 concurrently with the filing of a Certificate
of Domestication by its predecessor, Malone Road Investments, Ltd., which was
incorporated in the Isle of Man on August 6, 1990. Pursuant to Delaware
corporate law, the Company is declared to have to have been incorporated in
Delaware as of August 6, 1990.
The Company is a holding company that owns and operates a bottling
company in the greater Toronto area, Canada.
Segment information
The business operations of the Company are concentrated in one segment.
Major customers
The Company's largest customer in 1997 accounted for 23% of 1997
revenues, 20% of 1996 revenues and 20% of 1995 revenues. One customer accounted
for more than 10% of total revenues in 1997.
Basis of consolidation
These consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Private Label Brands Inc., Alma Pack
Bottling Corporation and PLBC (NRO), Inc. All significant intercompany
transactions and accounts have been eliminated on consolidation.
PL BRANDS, INC.
Notes to Consolidate Financial Statements
April 30, 1997
(Expressed in US$)
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<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income taxes
The Company and its subsidiaries file separate tax returns. Deferred
income taxes are provided for the tax effects of differences between the
financial and tax basis of assets and liabilities and for operating losses that
are available to offset taxable income.
Inventory
Inventory is valued at the lower of cost and market. Cost is determined
using the average cost method. Market for raw materials and finished goods is
defined as net realizable value.
Fixed assets
Fixed assets are stated at cost and depreciation is provided as
follows:
Machinery and equipment 20% declining balance
Office equipment 20% declining balance
Leasehold improvements 20% straight line
Fixed assets are not depreciated in the year of acquisition.
Depreciation amounted to $62,729, $51,766 and $60,045 for the years ended April
30, 1997, 1996, and 1995 respectively.
Functional currency
The functional currency of the subsidiaries is the Canadian dollar. All
amounts in the balance sheet have been converted to U.S. dollars using the
exchange rates as of the end of period and using a weighted average rate of
exchange for income statement accounts. The translation gain from foreign
currency transactions is recorded on a separate line item of income.
Furthermore, the translation gain or loss is reflected in the equity section.
Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues, expenses, assets,
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements during the reported period. Actual results could
differ from those estimates.
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<PAGE>
PL BRANDS, INC.
Notes to Consolidate Financial Statements
April 30, 1997
(Expressed in US$)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss per share
Loss per share has been calculated using the weighted average number of
shares of common stock outstanding during the respective years after giving
effect to the consolidation of the Company's shares (Note 8). Outstanding stock
options have been considered in the loss per share calculation when their effect
is dilutive.
3. FIXED ASSETS
<TABLE>
<CAPTION>
1997
Accumulated
Depreciation
and Net Book
Cost Amortization Value
<S> <C> <C> <C>
Machinery and equipment $ 713,442 $ 503,462 $ 209,980
Office equipment 34,968 32,467 2,501
Leasehold improvements 57,081 54,154 2,927
$ 805,491 $ 590,083 $ 215,408
</TABLE>
<TABLE>
<CAPTION>
1996
Accumulated
Depreciation
and Net Book
Cost Amortization Value
<S> <C> <C> <C>
Machinery and equipment $ 709,369 $ 468,428 $ 240,941
Office equipment 35,882 24,578 11,304
Leasehold improvements 58,572 54,821 3,751
$ 803,823 $ 547,827 $ 255,996
</TABLE>
20
<PAGE>
PL BRANDS, INC.
Notes to Consolidate Financial Statements
April 30, 1997
(Expressed in US$)
4. BANK INDEBTEDNESS AND LONG-TERM DEBT
The Company has the following credit facilities (translated into US$
using year end exchange rate):
$223,240 - floating rate term loan
$178,878 - demand revolving loan
A general assignment of accounts receivable, inventory and certain
fixed assets have been provided as security for the borrowings under these
credit facilities.
Long-term debt
1997 1996
Floating rate term loan due August 15,
2000 payable $40,000 annually plus
interest (6%
at April 30, 1997) at 1.25% over prime $ 170,750 $ 214,857
Less: current portion of bank loan 42,931 41,128
Net long-term debt $ 127,819 $ 173,729
Certain of the Company's fixed assets have been pledged as security for
the long-term debt.
Long-term debt under the new banking agreement matures as follows:
Year ending April 30, 1998 $ 42,931
1999 42,929
2000 42,930
2001 41,960
$ 170,750
Bank indebtedness
Included in the bank indebtedness is $172,000 (1996 - $147,000) of the
demand revolving loan. This loan bears interest at prime plus 1.25%.
21
<PAGE>
PL BRANDS, INC.
Notes to Consolidate Financial Statements
April 30, 1997
(Expressed in US$)
4. BANK INDEBTEDNESS AND LONG-TERM DEBT (Contd.)
Under the banking agreement dated August 15, 1995 there were specific
covenants which have to be met annually. Certain of these covenants were not met
for the year ended April 30, 1997.
On April 30, 1997 effective May 2, 1997, the company entered into a new
banking agreement. Under the agreement the demand revolving loan was increased
to $214,654 and the term loan has decreased to $135,232.
5. NOTES PAYABLE
The note payable of $64,576 (1996 - nil) is unsecured and bears no
interest. It is repayable at $21,400 per month.
6. SHAREHOLDER'S LOAN
The amount of $702,978 due to shareholders, is non-interest bearing and
payable on demand. During the year the loan was converted into common shares of
the Company (Note 8).
7. AMOUNTS RECEIVED FOR THE ISSUANCE OF CONVERTIBLE DEBENTURES
AND CAPITAL STOCK
Shortly before April 30, 1996, the Company received $52,000 for the
issuance of convertible debentures, and $151,850 for the issuance of 3,037,000
common shares. The issuance of these convertible debentures and common shares is
reflected on these financial statements (Note 8).
8. CAPITAL STOCK
Common Stock
The Company is authorized to issue 20,000,000 shares of $.001 par value
common stock. At April 30, 1997 and April 30, 1996 there were 9,143,279 and
41,200 shares issued and outstanding respectively. When voting share equals one
vote.
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<PAGE>
PL BRANDS, INC.
Notes to Consolidate Financial Statements
April 30, 1997
(Expressed in US$)
Preferred stock
The Company is authorized to issue 1,000,000 shares of preferred stock
of $.001 par value. Currently the Company has no shares outstanding. The
Company's Board of Directors has authority to issue all or any of the authorized
but unissued preferred stock in one or more series and to determine voting
rights, preferences as to dividends and liquidation, conversion rights, and
other rights of such series.
Reverse stock split/earnings per share
On September 15, 1995, the Company effected a 1 for 100 reverse stock
split of the common stock which reduced the number of shares outstanding from
16,000,000 to 160,000 (15,000,000 to 150,000 as at April 30, 1995).
On April 4, 1997, the Company effected a 1 for 100 reverse stock split
of the common stock which reduced the number of common shares outstanding from
4,180,000 to 41,800, 4,120,000 to 41,200, 160,000 to 1,600 as at April 30, 1996
and April 30, 1995 respectively. All share and per share information has been
restated to reflect the consolidation.
Stock issuance
Effective December 12, 1996, the Company issued 60,000 common shares
for $60.
Debenture conversion
Pursuant to the Resolution of the Board of Directors on April 24, 1997
and in connection with the Debt Restructuring Agreement with the holders of the
debentures, the outstanding convertible debentures amounting to $296,650 were
converted into 2,118,956 common shares as reflected in these financial
statements. The actual share certificates were issued on May 15, 1997.
Shareholder loan conversion
Pursuant to the Resolution of the Board of Directors on April 24, 1997
the outstanding shareholder loans amounting to $948,153 were converted into
6,982,523 common shares as reflected in these financial statements. The common
shares were issued on May 15, 1997.
9. DEPOSITS
The Company had deposited $73,421 and $93,705 with Graphic Workshop
Studios Ltd. and Golden Mayan Foods Ltd., respectively, for the purpose of
acquiring these companies. During 1996, the Company abandoned its plans to
acquire these companies and wrote
23
<PAGE>
off the deposits.
PL BRANDS, INC.
Notes to Consolidate Financial Statements
April 30, 1997
(Expressed in US$)
10. ACQUISITION
On August 19, 1994, a subsidiary of the Company purchased 100% of the
outstanding shares of Alma Pack Bottling Corporation for $220 in cash.
The acquisition was accounted for using the purchased method. The
purchase price was allocated to assets and liabilities based on the following
estimated fair values at the date of acquisition as determined by management:
Net tangible assets $ 681,075
Liabilities (1,163,838)
Goodwill 482,983
$ 220
For the year ended April 30, 1995, the writeoff of goodwill was not
reflected in the Consolidated Statement of Earnings. The net income for the year
ended April 30, 1995 has been restated to retroactively recognize the writeoff
of the $482,982 of goodwill resulting from the above acquisition. The earnings
per share calculation has also been restated.
11. INCOME TAXES
In 1995, the company had recorded a net deferred tax asset of $112,115.
In 1996, this deferred tax asset was fully provided for on the basis that the
Company's history of losses indicate that the benefit arising from these losses
may not be realized. In 1997, a deferred tax benefit has not been reflected in
the financial statements. The Company's effective tax rate is approximately 40%.
The Company has incurred losses which will be used to offset taxable income. As
a result, the Company is not liable for income taxes at the present time.
12. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
Interest rate risk
The Company has significant financing in the form of a demand revolving
loan, and floating rate term loan which have floating exchange rates. The
Company has not undertaken any interest rate hedging arrangements to manage
these risks.
Foreign exchange risk
The Company has part of its sale is US dollars and purchases its raw
material in Canadian dollars. The Company has not undertaken any foreign
exchange hedging arrangements to manage
24
<PAGE>
these risks.
PL BRANDS, INC.
Notes to Consolidate Financial Statements
April 30, 1997
(Expressed in US$)
12. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (Contd.)
Fair value of financial instruments
The carrying amounts of cash, accounts receivable, bank indebtedness,
accounts payable and accrued liabilities approximate their fair value because of
the short maturity of these instruments. The Company estimates that the fair
value of other financial instruments which include long-term debt and preference
shares approximates their carrying value.
25
<PAGE>
