SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
(Amendment No. 1)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended APRIL 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-26454
PL BRANDS, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 98-0142664
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) Number)
260 Bartley Drive
Toronto, Ontario, Canada M4A 1G5
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number, including area code: (416) 750-9656
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock ($.001 par value)
Check whether the Issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B not contained in this form,
and no disclosure will be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: $0
The aggregate market value of the Common Stock held by non-affiliates
of the Issuer was indeterminable insofar that there has been
no available bid price since September 21, 1998 and no available
asked price since January 11, 1999. The number of shares outstanding
of the Common Stock ($.001 par value) of the Issuer as of the
close of business on August 31, 2000 was 16,899,279.
Documents Incorporated by Reference: None
EXPLANATORY NOTE
PL Brands, Inc. is filing this Amendment No. 1 on Form 10-KSB/A to
its Annual Report of Form 10-KSB for the fiscal year ended April 30, 1999
to reflect the restatement of its 1999 and 1998 financial statements. See
Part II, Item 6 and the Consolidated Financial Statements included
elsewhere herein.
PART I
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.
Unless the context otherwise requires, all references herein to the
"Company" refer to PL Brands, Inc. and its consolidated subsidiaries.
The Company's principal business was initially 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"). Until January 1998, Alma Pack's bottling business comprised the
Company's principal operation. Under this strategy, the Company was never
able to attain profitability and the continued stockholder's deficiency
raised doubt about the Company's ability to continue as a going concern.
In 1998 the Company revised its strategy and sold all of the shares
of Alma Pack and acquired all of the issued and outstanding shares (the
"Gandalf Shares") of Gandalf Graphics Limited ("Gandalf") from Marcella
Downey ("Downey") for Canadian $400,000 which was paid by issuing a
promissory note to Downey for Canadian $400,000 (the "Note") with the
principal due and payable on January 1, 2000. Gandalf provides digital
pre-press services and digital print services. Pursuant to an agreement
made as of May 1, 1999 wherein the Company acknowledged that it has not and
shall not repay the principal amount of the Note and any accrued and unpaid
interest to Downey on January 1, 2000, the parties decided to resolve any
controversy that would result from the inability of the Company to pay, and
agreed that Downey return the Note to the Company in exchange for the
return of the Gandalf Shares. The effect of these transactions are
appropriately reflected in the accompanying financial statements.
From January 1998 through the end of the fiscal year covered by
this report, the business of Gandalf comprised the Company's principal
operation. See, however, "Recent Developments" below.
Unless otherwise noted all information herein is given in U.S.
dollars.
Prior Business in the Printing Industry
The information described in the following generalized discussion
is intended only to provide a background against which the previous
business of the Company may be evaluated. As indicated above, from January
1998 through the end of the fiscal 1999, the business of Gandalf comprised
the Company's principal operation.
Over the last several years, the printing industry has been changed
considerably due to technological advancements. Technology has led to the
streamlining of processing steps, more efficient and effective material
and labour usage which has resulted in increased productivity and output.
Another effect of technological advancement on the print industry
involves the smaller print businesses. The smaller print businesses are
consolidating in order to accommodate the high capital cost of equipment
necessary for economic survival in the evolving print industry.
Print companies have changed from performing parts of the print
process such as: pre-press activities, printing production or post-press
operations to performing a greater percentage of the overall process.
Customers are demanding these increased services from their print
providers.
Gandalf provides on-demand, short run, and digital color pre-press
and printing services. Full service capabilities, which are demanded in
today's market, of high quality products are provided. The print business
is going through dramatic technological changes. The traditional process
remains unchanged but the computerization of the pre-press stage has added
significantly to the profitability of the companies that have invested in
the technology. Film, which had been used for proofing and finished
product, has been eliminated.
Gandalf provides digital pre-press services including high-
resolution scanning, color separations and proofing, electronic imposition,
film output, copy dot scanning, computer to plate, customized programming,
on-line computer systems, photo/job archiving, database management, and
large format proofing. Gandalf also provides digital print services
including E-Print 1000-four-color offset printing, direct from digital
file, personalization, digital proofing, and complete finishing
capabilities.
The materials for Gandalf's products are readily available from a
wide source of suppliers, and Gandalf is not dependant upon any one
supplier or group of suppliers. Gandalf utilizes unique and proprietary
software and has over 150 active customers none of whom Gandalf has a
dependence on.
Employees
As of April 30, 1999, Gandalf had 31 employees other than its
officers.
Recent Developments
In May 2000, the Company entered into an agreement to acquire
substantially all of the assets of Oth.net, Inc., a Florida corporation, as
well as the Oth.net domain name, in exchange for 4,500,000 shares of the
Company's Common Stock and $500,000, which funds were paid on June 30,
2000. Oth.net, Inc. is an internet based search engine for music on the
world wide web. Such transaction was completed as of July 21, 2000. As a
result, it is contemplated that there will be a change in management of the
Company. In addition, subsequent to the end of fiscal 2000, the Company
sold an aggregate of 1,756,000 restricted shares of Common Stock to nine
investors for an aggregate consideration of $2,768,000 and issued an
aggregate of 1,500,000 restricted shares of Common Stock to certain persons
in connection with employment arrangements and other services and cash in
the aggregate amount of $1,500. Such funds will be used for operations and
development of the business resulting from the acquisition of substantially
all of the assets of Oth.net, Inc.
Item 2. Description of Property.
The Company currently maintains its principal executive offices at
260 Bartley Drive, Toronto, Ontario, Canada, M4A 1G5. Its telephone number
is (416) 750-9656. Such space is provided by Gandalf on a rent-free
month-to-month basis. As a result of the completion of the transaction to
acquire substantially all of the assets of Oth.net, Inc., the Company plans
to obtain other office space.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which the
Company is a party or to which any of its property is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders.
PART II
Item 5. Market for Common Equity
and Related Stockholder Matters.
(a) Market Information.
The Common Stock has traded infrequently and sporadically in the
over-the-counter market and has been but is not currently listed on the OTC
Bulletin Board. In addition, the Common Stock has been quoted in the "pink
sheets" promulgated by the National Quotation Bureau, LLC. Since May 1997,
the symbol for the Common Stock has been "PLBI". Prior thereto, the
Common Stock was listed under the symbol "PLCB" and before then "PLBC".
According to the records of the National Quotation Bureau, LLC, the last
available bid price of the Common Stock was $5.00 on September 21, 1998 and
the last available asked price was $5.50 on January 11, 1999.
The following chart sets forth the range of the high and low bid
quotations for the Company's Common Stock for each period indicated. The
quotations represent prices between dealers and do not include retail
markups, markdowns, commissions or other adjustments and may not represent
actual transactions.
Period
Fiscal year ended April 30, 1998: High Low
May 1, 1997 to July 31, 1997 $5 $4
Aug. 1, 1997 to Oct. 31, 1997 $5 $5
Nov. 1, 1997 to Jan. 31, 1997 $5 $5
Feb. 1, 1998 to April 30, 1998 $5 $5
Fiscal year ended April 30, 1999: High Low
May 1, 1998 to July 31, 1998 $5 $5
Aug. 1, 1998 to Oct. 31, 1998 $5 $5
Nov. 1, 1998 to Jan. 31, 1999 None None
Feb. 1, 1999 to April 30, 1999 None None
(b) Holders.
As of the end of the fiscal year covered by this report, there
were approximately 550 record holders of the Company's Common Stock.
(c) Dividends.
The Company has never declared any cash dividends on its Common
Stock and does not anticipate declaring cash dividends in the foreseeable
future.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion of the Company's financial condition and
results of operations is based on the Company's Consolidated Financial
Statements and the related notes thereto.
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.
Unless the context otherwise requires, all references herein to the
"Company" refer to PL Brands, Inc. and its consolidated subsidiaries.
The Company's principal business was initially 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"). Until January 1998, Alma Pack's bottling business comprised the
Company's principal operation. Under this strategy, the Company was never
able to attain profitability and the continued stockholder's deficiency
raised doubt about the Company's ability to continue as a going concern.
In 1998 the Company revised its strategy and sold all of the shares
of Alma Pack and acquired all of the issued and outstanding shares (the
"Gandalf Shares") of Gandalf Graphics Limited ("Gandalf") from Marcella
Downey ("Downey") for Canadian $400,000 which was paid by issuing a
promissory note to Downey for Canadian $400,000 (the "Note") with the
principal due and payable on January 1, 2000. Gandalf provides digital
pre-press services and digital print services. Pursuant to an agreement
made as of May 1, 1999 wherein the Company acknowledged that it has not and
shall not repay the principal amount of the Note and any accrued and unpaid
interest to Downey on January 1, 2000, the parties decided to resolve any
controversy that would result from the inability of the Company to pay, and
agreed that Downey return the Note to the Company in exchange for the
return of the Gandalf Shares. The effect of these transactions are
appropriately reflected in the accompanying financial statements.
As a result of the transactions discussed above with Alma Pack and
Gandalf, the net assets (liabilities) of each have been segregated from
continuing operations in the consolidated balance sheets included within
the accompanying financial statements, and operating results of each are
segregated and reported as discontinued operations in the consolidated
statements of earnings and consolidated statements of cash flows included
within the accompanying financial statements. See Note 3 to the
Consolidated Financial Statements included elsewhere herein for further
discussion of discontinued operations.
From January 1998 through the end of the fiscal year covered by
this report, the business of Gandalf comprised the Company's principal
operation. See, however, "Recent Developments" under Part I, Item 1.
Unless otherwise noted all information herein is given in U.S.
dollars.
Restatement of Financial Statements
Subsequent to the issuance of the Company's 1999 financial
statements, the Company's management determined that the disposal of
Gandalf effective as of May 1, 1999 was indicative of conditions existing
at the balance sheet date and, therefore, the April 30, 1999 financial
statements should reflect such disposal as a discontinued operation and the
April 30, 1998 financial statements should be recast accordingly. As a
result, the 1999 and 1998 financial statements have been restated from
amounts previously reported.
Results of Operations/Plan of Operation
The Company reported net sales from continuing operations of $0 for
each of the years ended April 30, 1999 and April 30, 1998. Operating
expenses from continuing operations were approximately $70,000 in fiscal
1999 compared to approximately $136,000 in fiscal 1998. The Company had a
loss from continuing operations of approximately $70,000 during fiscal 1999
compared to a loss from continuing operations of approximately $101,000
during fiscal 1998. During fiscal 1999, the Company reported net earnings
of approximately $43,000 compared to net earnings of approximately $97,000
during fiscal 1998. The change is primarily due to income from operations
of Gandalf being reported of approximately $191,000 in fiscal 1999 compared
to income from operations of Alma Pack and Gandalf of approximately $72,000
and $96,000, respectively, being reported in fiscal 1998, along with a loss
on disposal of Gandalf of $78,000 in fiscal 1998 compared to a gain on
disposal of Alma Pack of approximately $31,000. The increase in income
from operations of Gandalf is primarily attributable the inclusion of
operating results of Gandalf for the full 1999 fiscal year as compared to
the inclusion of operating results of Gandalf for four months in fiscal
1998 during which period Gandalf was acquired.
In May 2000, the Company entered into an agreement to acquire
substantially all of the assets of Oth.net, Inc., a Florida corporation, as
well as the Oth.net domain name, in exchange for 4,500,000 shares of the
Company's Common Stock and $500,000, which funds were paid on June 30,
2000. Oth.net, Inc. is an internet based search engine for music on the
world wide web. Such transaction was completed as of July 21, 2000. As a
result, it is contemplated that there will be a change in management of the
Company. In addition, subsequent to the end of fiscal 2000, the Company
sold an aggregate of 1,756,000 restricted shares of Common Stock to nine
investors for an aggregate consideration of $2,768,000 and issued an
aggregate of 1,500,000 restricted shares of Common Stock to certain persons
in connection with employment arrangements and other services and cash in
the aggregate amount of $1,500. Such funds will be used for operations and
development of the business resulting from the acquisition of substantially
all of the assets of Oth.net, Inc.
Liquidity and Capital Resources
On April 30, 1999, the Company had a working capital deficit of
approximately $1,394,000 and stockholders' equity of approximately $67,000.
The financial statements included herein have been prepared on a going
concern basis that assumes the realization of assets and the discharge of
liabilities in the normal course of operations for the foreseeable future.
As at April 30, 1999, the Company is in default on two of the covenants
required under its banking agreement. The Company's ability to continue as
a going concern is dependent on the continued support of its lenders and
its ability to maintain profitability and positive cash flows.
Additionally, as discussed above, the Company has disposed of its
operations in Gandalf as of April 30, 1999. The consolidated financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern. See "Results of
Operations/Plan of Operation" above for information on the funds received
from investors subsequent to the end of fiscal 2000.
Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using Year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. 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 failure which could affect the 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 Company,
including those related to the efforts of customers, suppliers or other
service providers, will be fully resolved.
Prior to the year 2000, the Company determined that its critical
software (primarily widely-used software packages) and all of its critical
business systems were already year 2000 compliant, and as of the date of
this report, no significant problems had been encountered. However, there
can be no assurance that this will continue to be the case, and there are
also continuing risks to the Company's operations from year 2000 failures
by third parties, such as suppliers. In this regard, the Company continues
to monitor the situation.
Item 7. Financial Statements.
See the Consolidated Financial Statements annexed to this report.
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Set forth below are the present directors and executive officers of
the Company. Note that there are no other persons who have been nominated
or chosen to become directors nor are there any other persons who have been
chosen to become executive officers. There are no arrangements or
understandings between any of the directors, officers and other persons
pursuant to which such person was selected as a director or an officer.
See, however, "Recent Developments" under Part I, Item 1. Directors are
elected to serve until the next annual meeting of stockholders and until
their successors have been elected and have qualified. Officers serve at
the discretion of the Board of Directors.
Present Position Has Served As
Name Age and Offices Director Since
Robert Brown 38 Vice President - Finance, 1994
Secretary, Treasurer and
Director
Larry Downey 54 Chief Operating Officer 1998
None of the directors and officers is related to any other director
or officer of the Company.
Set forth below are brief accounts of the business experience
during the past five years of each director and executive officer of the
Company and each significant employee of the Company.
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.
LARRY DOWNEY has been a Director of the Company since 1998 and
Chief Operating Officer since 1998. Mr. Downey has over 35 years
experience in the print industry. His career began in sales and management
positions. In 1979, Mr. Downey and two partners began a pre-press house.
In 1990, Mr. Downey bought out his two partners . In 1995, Mr. Downey
expanded Gandalf Graphics into digital printing.
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 the performance of their duties as directors. In fiscal
1999 and 1998, respectively, Andre Corbeil, formerly the Chief Executive
Officer of the Company, was paid $50,000 and $50,000, Robert Brown, Chief
Financial Officer was paid $33,000 and $33,000, Larry Downey was paid
$28,000 and $18,000. In fiscal 1999, 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, as of the end of the fiscal year
covered by this report, certain information with regard to the record and
beneficial ownership of the Company's Common Stock by (i) each stockholder
owning of record or beneficially 5% or more of the Company's Common Stock,
(ii) each director individually, (iii) all officers and directors of the
Company as a group:
Amount and Nature of Percent
Name Beneficial Ownership of
Class
Paramount Securities & Trust SA(1) 1,931,561 21.1%
NZ Capital Markets Ltd.(2) 1,539,200 16.8%
CBFE & SA(3) 693,761 7.6%
West Side Nominees Ltd.(4) 680,224 7.4%
Larry Downey(5) 0 -
Robert Brown(5) 5 *
All Officers and Directors
as a Group (2 persons) 5 *
(1) Its address is Rue De La Servette 67, 1202 Geneva, Switzerland.
(2) Its address is 11 Manners Street, Wellington, New Zealand.
(3) Its address is PO Box N-4975, Nassau, Bahamas.
(4) Its address is Mandara North Ridge, Grand Turk, Turks & Caicos
Island.
(5) Indicates a Director of the Company. The address for each is 260
Bartley Drive, Toronto, Ontario, Canada.
Item 12. Certain Relationships and Related Transactions.
In 1998, the advances from related parties which were due to
directors, were non-interest bearing, unsecured and had no fixed terms of
repayment. During 1999, the advances were repaid. During 1999, the
Company paid rent of $33,145 (1998 - $17,470; 1997 - nil) to a related
company. During the 1999 fiscal year, the Company purchased capital assets
in the amount of $390,490 from a company that is 100% owned by one of the
Company's directors and chief operating officer. The transactions are
measured under normal trade terms and conditions.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Certificate of Incorporation (1)
3.2 Amendment to Certificate of Incorporation(1)
3.3 Bylaws(1)
21.0 Subsidiaries of the Registrant - PL Brands
Canada, Gandalf Graphics Limited 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.
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during the last quarter
of the period covered by this report:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
PL BRANDS, INC.
(Registrant)
By:/s/Robert Brown
Robert Brown,
Vice President - Finance
Dated: October 18, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant, and in the capacities and on the dates indicated:
Signature Title Date
/s/Robert Brown Vice President - Finance, 10/18/00
Robert Brown Secretary, Treasurer
and Director (Principal
Executive Officer and
Principal Accounting and
Financial Officer)
/s/Larry Downey Chief Operating Officer 10/18/00
Larry Downey and Director
<PAGE>
Consolidated Financial Statements of
PL BRANDS, INC.
April 30, 1999 and 1998
(Expressed in U.S. Dollars)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
PL Brands, Inc.
We have audited the accompanying consolidated balance sheets of PL Brands, Inc.
and subsidiaries as of April 30, 1999 and 1998 and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the two
years in the period ended April 30, 1999. 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.
We conducted our audits in accordance with auditing standards generally accepted
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 the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of PL Brands, Inc. and subsidiaries as
of April 30, 1999 and 1998, and the results of their operations and their cash
flows for each of the two years in the period ended April 30, 1999, in
conformity with accounting principles generally accepted 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 statements the Company's default on the bank covenants raise doubt
about its ability to continue as a going concern. Management's plans are also
described in Note 1, the financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
As discussed in Note 16, the accompanying financial statements have been
restated.
(signed) DELOITTE & TOUCHE LLP
Chartered Accountants
Toronto, Ontario
July 2, 1999 (except as to Note 16 which is as of July 21, 2000)
<PAGE>
<TABLE>
<CAPTION>
PL BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
1999 1998
------------- -------------
(As restated- (As restated-
see Note 16) see Note 16)
ASSETS
<S> <C> <C>
CURRENT
Cash $ 415 $ 217
Accounts receivable -- 69,881
Net assets of discontinued operations (Note 3) -- 198,890
------------------------------------------------------------------------------------
415 268,988
NET ASSETS OF DISCONTINUED
OPERATIONS (Note 3) 1,525,056 --
------------------------------------------------------------------------------------
$ 1,525,471 $ 268,988
====================================================================================
LIABILITIES
CURRENT
Accounts payable $ 97,828 $ 97,970
Net liabilities of discontinued operations (Note 3) 1,374,750 --
------------------------------------------------------------------------------------
1,472,578 97,970
NET LIABILITIES OF DISCONTINUED
OPERATIONS (Note 3) -- 103,639
------------------------------------------------------------------------------------
1,472,578 201,609
------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (Note 9) 9,143 9,143
ADDITIONAL PAID-IN CAPITAL 2,128,906 2,128,906
ACCUMULATED DEFICIT (2,085,156) (2,128,090)
ACCUMULATED OTHER
COMPREHENSIVE INCOME -- 57,420
------------------------------------------------------------------------------------
52,893 67,379
------------------------------------------------------------------------------------
$ 1,525,471 $ 268,988
====================================================================================
</TABLE>
Page 1 of 16
<PAGE>
PL BRANDS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
1999 1998
------------ -------------
(As restated- (As restated-
see Note 16) see Note 16)
NET SALES $ -- $ --
OPERATING EXPENSES 70,277 136,382
--------------------------------------------------------------------------------
LOSS BEFORE UNDERNOTED ITEMS (70,277) (136,382)
OTHER INCOME -- 35,505
--------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (70,277) (100,877)
--------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (Note 3)
Income from operations of
Alma Pack Bottling Corporation -- 71,581
Gandalf Graphics Limited 191,172 95,259
Gain (loss) on disposal of
Alma Pack Bottling Corporation -- 30,550
Gandalf Graphics Limited (77,961) --
--------------------------------------------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS 113,211 197,390
--------------------------------------------------------------------------------
NET EARNINGS $ 42,934 $ 96,513
================================================================================
LOSS FROM CONTINUING OPERATIONS
PER BASIC AND DILUTED SHARE $ (0.01) $ (0.01)
================================================================================
EARNINGS FROM DISCONTINUED
OPERATIONS PER BASIC AND
DILUTED SHARE $ 0.01 $ 0.02
================================================================================
NET EARNINGS PER BASIC AND DILUTED SHARE $ -- $ 0.01
================================================================================
Page 2 of 16
<PAGE>
<TABLE>
<CAPTION>
PL BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
Accumulated
Capital Additional Other
Stock Paid-in Accumulated Comprehensive
Amount Capital Deficit Income (Loss)
Total
----------- ----------- ----------- -----------
-----------
<S> <C> <C> <C> <C> <C>
BALANCE - APRIL 30, 1997 $ 9,143 $ 2,128,906 $(2,224,603) $ 76,365 $(10,189)
COMPREHENSIVE EARNINGS
Foreign currency translation
adjustments -- -- -- (18,945) (18,945)
Net earnings -- -- 96,513 -- 96,513
-------------------------------------------------------------------------------------------------
--------
BALANCE - APRIL 30, 1998 9,143 2,128,906 (2,128,090) 57,420 67,379
COMPREHENSIVE EARNINGS
Foreign currency translation
adjustments -- -- -- 48,493 48,493
Transfer foreign currency
translation adjustments to
discontinued operations -- -- -- (105,913) (105,913)
Net earnings -- -- 42,934 -- 42,934
-------------------------------------------------------------------------------------------------
--------
BALANCE - APRIL 30, 1999 $ 9,143 $ 2,128,906 $(2,085,156) $ -- $ 52,893
=================================================================================================
========
</TABLE>
Page 3 of 16
<PAGE>
<TABLE>
<CAPTION>
PL BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
1999 1998
------------ ------------
(As restated- (As restated-
see Note 16) see Note 16)
CASH PROVIDED BY (USED FOR)
<S> <C> <C>
OPERATING ACTIVITIES
Loss from continuing operations $ (70,277) $ (100,877)
Changes in assets and liabilities affecting cash flows
Accounts receivable 69,881 (69,881)
Accounts payable (142) (34,138)
-------------------------------------------------------------------------------------
Net cash used for operating activities (538) (204,896)
Net cash flows from discontinued operations 854,269 (7,864)
-------------------------------------------------------------------------------------
853,731 (212,760)
INVESTING ACTIVITIES
Acquisition of Gandalf Graphics Limited -- (279,525)
Net cash flows from discontinued operations (763,487) 281,998
-------------------------------------------------------------------------------------
(763,487) 2,473
-------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net cash flows from discontinued operations (138,539) 85,816
-------------------------------------------------------------------------------------
CASH USED FOR CONTINUING AND
DISCONTINUED OPERATIONS (48,295) (124,471)
PROCEEDS FROM DISPOSAL OF ALMA PACK -- 142,496
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 48,493 (18,945)
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 198 (920)
CASH, BEGINNING OF YEAR 217 1,137
-------------------------------------------------------------------------------------
CASH, END OF YEAR $ 415 $ 217
=====================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid on continuing operations $ 37,000 $ 16,000
Income taxes paid on continuing operations $ -- $ --
Interest paid on discontinued operations $ -- $ 19,000
Income taxes paid on discontinued operations $ -- $ --
</TABLE>
Page 4 of 16
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
1. BASIS OF PRESENTATION
The Company has disposed of all of its business operations and the
following relate to balances and transactions generally reflected within
discontinued operations.
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 been
incorporated in Delaware as of August 6, 1990.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries.
Until January 1998, the Company's traditional line of business had been
bottling water through its principal subsidiary Alma Pack Bottling
Corporation ("Alma Pack'). Under this strategy the Company was not able
to attain profitability and the continued stockholder's deficiency raised
doubt about the Company's ability to continue as a going concern. In 1998
the Company revised its strategy and sold all of the shares of Alma Pack
and acquired all of the issued and outstanding shares (the "Gandalf
Shares") of Gandalf Graphics Limited ("Gandalf") from Marcella Downey
("Downey") for Canadian $400,000 which was paid by issuing a promissory
note to Downey for Canadian $400,000 (the "Note") with the principal due
and payable on January 1, 2000. Gandalf provides digital pre-press
services and digital print services. Pursuant to an agreement made as of
May 1, 1999 wherein the Company acknowledged that it has not and shall
not repay the principal amount of the Note and any accrued and unpaid
interest to Downey on January 1, 2000, the parties decided to resolve any
controversy that would result from the inability of the Company to pay,
and agreed that Downey return the Note to the Company in exchange for the
return of the Gandalf Shares.
As a result of the transactions discussed above with Alma Pack and
Gandalf, the net assets (liabilities) of each have been segregated from
continuing operations and reported as discontinued operations. See Note 3
for further discussion of discontinued operations.
These financial statements have been prepared on a going concern basis
that assumes the realization of assets and the discharge of liabilities
in the normal course of operations for the foreseeable future. As at
April 30, 1999, the Company is in default on two of the covenants
required under its banking agreement. The Company's ability to continue
as a going concern is dependent on the continued support of its lenders
and its ability to maintain profitability and positive cash flows.
Additionally as discussed above, the Company has disposed of its
operations in Gandalf as of April 30, 1999. The consolidated financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
Page 5 of 16
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income taxes
Deferred taxes are provided for the income tax effects of temporary
differences in reporting transactions for financial reporting and tax
reporting purposes. The Company records income taxes under the liability
method as required by Statement of Financial Accounting Standards (SFAS)
No. 109 "Accounting for Income Taxes". Under the liability method,
deferred tax assets and liabilities are determined based on the
differences between the financial accounting and tax basis of assets and
liabilities. Deferred tax assets or liabilities at the end of each period
are determined using the currently enacted tax rate.
Inventory
Inventory is stated at the lower of cost, on a first-in first-out basis,
or net realizable value.
Capital assets
Capital assets are recorded at cost. Amortization of capital assets other
than leasehold improvements is provided on the declining balance basis
using the following annual rates:
Production equipment 12.5%
Computer software 50%
Computer equipment 12.5%
Office equipment 10%
Leasehold improvements are amortized on a straight-line basis over the
lesser of the term of the lease and 10 years.
Management reassesses the value of the capital assets on a periodic basis
and, where applicable writes such amounts down to an amount not in excess
of its estimated net recoverable amount.
Goodwill
The excess of purchase consideration over market value of net
identifiable assets acquired is recorded as goodwill. Goodwill is being
amortized on a straight-line basis over fifteen years commencing in the
month of acquisition.
Management reassesses the recoverability of the goodwill on a periodic
basis and, where applicable writes such amounts down to an amount not in
excess of its estimated net realizable value determined based on future
cash flows calculated on a non-discounted basis.
Page 6 of 16
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition
Revenue is recognized at the time of delivery of goods and services.
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 rate as of the end of period and using a weighted average
rate of exchange for income statement accounts. A significant portion of
the amounts reported on the balance sheet are either realized or settled
in Canadian dollars.
Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
In the first quarter of 1998, the Company adopted SFAS No. 130 Reporting
Comprehensive Income, and made certain reclassifications to prior years'
consolidated financial statements to conform to the new reporting
standard. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income includes all changes in
stockholders' equity during a period except those resulting from
investments by owners and distributions to owners. The adoption of SFAS
No. 130, resulted in revised and additional disclosures but had no effect
on the consolidated financial position, results of operations, or cash
flows of the Company.
In 1998, the Company also adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, which specifies the
presentations and disclosure of operating segment information. SFAS No.
131 requires that segment information of earlier years be restated to
conform to the new standard. The adoption of SFAS No. 131 resulted in
revised and additional disclosures but had no effect on the consolidated
financial position, results of operations, or cash flows of the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS No
133, Accounting for Derivative Instruments and Hedging Activities, which
as amended is required to be adopted by the Company in the year ending
April 30, 2002. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Management has not yet
determined the effect SFAS No. 133 will have, if any, on the Company's
consolidated financial position, results of operations or cash flows.
Page 7 of 16
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
3. DISCONTINUED OPERATIONS
Acquisition
On January 1, 1998, the Company purchased its interest in Gandalf from an
individual whose spouse subsequently became a director and Chief
Operating Officer of the Company. The Company issued a note as
consideration for the purchase price.
The acquisition was accounted for under the purchase method of
accounting. A summary of the fair values of the assets acquired and
liabilities assumed is as follows:
Assets
Non-cash current assets $ 841,614
Capital assets 1,282,626
------------------------------------------------------------------------
2,124,240
------------------------------------------------------------------------
Liabilities
Bank indebtedness 510,476
Other current liabilities 369,488
Long term liabilities 1,095,810
------------------------------------------------------------------------
1,975,774
------------------------------------------------------------------------
Net assets 148,466
Consideration paid
Promissory note 279,622
------------------------------------------------------------------------
Goodwill $ 131,156
========================================================================
Disposition
Effective May 1, 1999, the Company disposed of its interest in Gandalf
and returned the Gandalf shares to the spouse of this director in
satisfaction of the aforementioned note. The disposal of Gandalf,
effective as of May 1, 1999, was indicative of conditions existing at the
April 30, 1999 balance sheet date. Accordingly, the financial statements
as of and for the period ended April 30, 1999 and the prior period
financial statements and related notes thereto present Gandalf as a
discontinued operation. The resulting loss on disposition of $77,961 has
been recorded within discontinued operations.
On January 20, 1998, the Company sold all the shares of its wholly owned
subsidiary, Alma Pack for $550,000 resulting in a net gain on disposition
of $30,550.
Page 8 of 16
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
3. DISCONTINUED OPERATIONS (CONTINUED)
Disposition (continued)
The results of the discontinued operations are summarized as follows:
1999 1998
------------ --------------
Revenues
Gandalf $ 2,685,163 $ 1,219,612
Alma Pack -- 1,688,249
--------------------------------------------------------------------------
$ 2,685,163 $ 2,907,861
==========================================================================
Earnings from discontinued operations
net of interest and income taxes
Gandalf $ 191,172 $ 95,259
Alma Pack -- 71,581
--------------------------------------------------------------------------
Total $ 191,172 $ 166,840
==========================================================================
Assets and liabilities of discontinued operations are as follows:
1999 1998
------------ --------------
Current assets $ 857,152 $ 1,216,234
Current liabilities (2,153,941) (1,017,344)
Provision for loss on disposal (77,961) --
--------------------------------------------------------------------------
Net current assets (liabilities) $ (1,374,750) $ 198,890
==========================================================================
Non-current assets $ 1,696,694 $ 1,089,041
Long-term liabilities (171,638) (1,192,680)
--------------------------------------------------------------------------
Net non-current assets (liabilities) $ 1,525,056 $ (103,639)
==========================================================================
Page 9 of 16
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
4. CAPITAL ASSETS
1999
-------------------------------------------
Accumulated Net Book
Cost Amortization Value
------------ ------------ ------------
Production equipment $ 1,396,122 $ 365,656 $ 1,030,466
Computer software 28,012 14,184 13,828
Compute equipment 594,724 199,349 395,375
Office equipment 9,011 2,314 6,697
Leasehold improvements 163,034 30,038 132,996
------------------------------------------------------------------------
$ 2,190,903 $ 611,541 $ 1,579,362
========================================================================
1998
-------------------------------------------
Accumulated Net Book
Cost Amortization Value
------------ ------------ ------------
Production equipment $ 787,713 $ 285,755 $ 501,958
Computer software 15,910 11,864 4,046
Compute equipment 535,895 148,932 386,963
Office equipment 34,224 30,881 3,343
Leasehold improvements 83,324 18,792 64,532
------------------------------------------------------------------------
$ 1,457,066 $ 496,224 $ 960,842
========================================================================
Included in the computer equipment (1998 - production and computer
equipment) are assets under capital lease which have a cost of $105,826
(1998 - $483,000) and accumulated amortization of $33,031 (1998 -
$159,000).
5. BANK INDEBTEDNESS
The bank indebtedness represents an operating line that bears interest of
the bank's prime rate plus 1%, and is due on demand. All credit
facilities covered in the banking agreement dated November 19, 1998,
which includes both the operating line and the demand installment loan,
are secured by a general security agreement with a specific interest in
certain equipment, a personal guarantee of a former shareholder and
limited postponement of claim from a former shareholder. The banking
agreement includes certain covenants which must be met by the Company. As
at April 30, 1999 the Company is in default on two of these covenants.
Page 10 of 16
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
6. LONG-TERM DEBT
1999 1998
----------- ----------
Promissory notes payable, with interest
calculated beginning January 1, 1998,
at an annual rate equal to prime plus
1%, compounded monthly, principal due
on January 1, 2000 $ 776,939 $ 791,055
Demand instalment loan, secured as
described in Note 5, repayable in
monthly payments of $5,833 plus
interest at U.S. Base Rate plus
1.6% per year 324,687 --
Bank term loan, repayable
in principal payments of $3,334
Canadian dollars per month, plus
interest at prime plus 1.5% -- 48,899
--------------------------------------------------------------------------
1,101,626 839,954
Less current portion 1,101,626 27,958
--------------------------------------------------------------------------
$ -- $ 811,996
==========================================================================
As described in Notes 1 and 5 the Company is in default on two of its
banking covenants. The bank has not signed a waiver indicating its
intention not to force repayment of the instalment loan. Management does
not expect the bank to force repayment of the loan in which case the
principal payments over the next five years are expected to be as
follows:
Year ending April 30, 2000 $ 847,780
2001 70,841
2002 70,841
2003 70,841
2004 41,323
-----------------------------------------------------
$ 1,101,626
=====================================================
Page 11 of 16
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
7. OBLIGATION UNDER CAPITAL LEASE
As at April 30, 1999, the Company is committed under various capital
lease agreements for production equipment. Future minimum lease payments
together with the balance of the obligation under capital leases are as
follows:
2000 $ 25,724
2001 25,724
2002 25,724
2003 2,151
-------------------------------------------------
79,323
Less amounts representing interest 9,425
-------------------------------------------------
69,898
Less current portion 20,772
-------------------------------------------------
$ 49,126
=================================================
8. RELATED PARTY TRANSACTIONS AND BALANCES
In 1998, the advances from related parties which were due to directors,
were non-interest bearing, unsecured and had no fixed terms of repayment.
During 1999, the advances were repaid. During the year the Company paid
rent of $33,145 (1998 - $17,470) to a company owned by the spouse of a
director of the Company. During the year ended April 30, 1999, the
Company purchased capital assets in the amount of $390,490 from a company
that is 100% owned by one of the Company's directors and chief operating
officer. The transactions are measured under normal trade terms and
conditions.
9. CAPITAL STOCK
Common stock
The Company is authorized to issue 20,000,000 common shares with a $.001
par value each. At April 30, 1999 and 1998 there were 9,143,279 shares
issued and outstanding. When voting, each share equals one vote.
Preferred stock
The Company is authorized to issue 1,000,000 preferred shares with a
$.001 par value each. 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.
Page 12 of 16
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
10. INCOME TAXES
As at April 30, 1999, the Company had a deferred tax asset of $576,000
(1998 - $550,000) resulting from cumulative of approximately $1,440,000
(1998 - $1,377,000). A full valuation allowance has been provided for the
deferred tax asset in 1999 and 1998 since the Company's history of losses
indicate that the benefit arising from these losses may not be realized.
As of April 30, 1999 the Company has net operating losses available to
apply against future taxable income, that expire in the following years:
Canada United States Total
------------ ------------- ------------
2002 $ 624,000 $ -- $ 624,000
2003 309,000 -- 309,000
2004 156,000 -- 156,000
2005 43,000 -- 43,000
2011 -- 110,000 110,000
2012 -- 100,000 100,000
2018 -- 108,000 108,000
------------------------------------------------------------
$ 1,132,000 $ 308,000 $ 1,440,000
============================================================
The Company's combined federal and provincial/state tax rates is
approximately 40%.
A reconciliation of the Company's effective tax rate is as follows:
Statutory rate 34.0%
State taxes (net of federal benefit) 3.3
Impact of permanent differences 2.7
Impact of valuation allowance (40.0)
--------------------------------------------------------------
Effective tax rate 0.0%
==============================================================
11. SEGMENT INFORMATION
The Company operated and managed its operations in one reportable
segment, the prepress industry and in one geographical area being Canada.
The Company received 64% of its revenue in 1999 (1998 - 73%) from four
customers with one of the four accounting for 34% of revenues (1998 -
34%).
Page 13 of 16
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
12. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share has been calculated using the weighted average
number of shares of common stock outstanding during the respective years.
Because there are no outstanding stock options, warrants or other items
that would have a dilutive effect, basic and diluted earnings (loss) per
share amounts are the same in all periods presented.
13. COMMITMENTS AND RENT EXPENSE
The Company rents premises under an operating lease that has an initial
lease term in excess of one year. Future minimum lease payments are as
follows:
2000 $ 102,954
2001 102,954
2002 45,759
----------------------------------------------------------
$ 251,667
==========================================================
The Company has ten-year term operating lease for the rental of
production equipment. The annual lease payments are as follows:
2000 $ 104,000
2001 $ 111,000
2002 $ 118,000
2003 $ 126,000
2004 $ 132,000
Thereafter $ 145,000
The Company incurred rent expense during the past two years as follows:
1999 $ 98,000
1998 $ 80,000
14. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
Credit risk
The Company is exposed to credit risk to the extent that its customers
fail to meet their obligations. As at April 30, 1999, three customers
accounted for approximately 41% of the outstanding accounts receivable.
Interest rate risk
The Company has significant financing with interest rates that are
affected by changes in the prime rate. The Company is subject to interest
rate risk to the extent that there are fluctuations in the US base rate.
Page 14 of 16
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
14. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
Foreign exchange risk
The Company has part of its sales in US dollars and purchases its raw
materials in Canadian dollars. The Company has not undertaken any foreign
exchange hedging arrangements to manage these risks.
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 approximates their carrying value because the amounts are
either due on demand or have short terms to maturity.
15. YEAR 2000 ISSUE (UNAUDITED)
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 failure which could affect the
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 Company, including those related to the efforts of customers,
suppliers or other service providers, will be fully resolved.
16. RESTATEMENT
Subsequent to the issuance of the Company's 1999 financial statements,
the Company's management determined that the disposal of Gandalf
effective as of May 1, 1999 was indicative of conditions existing at the
April 30, 1999 balance sheet date and, therefore, the financial
statements for April 30, 1999 should reflect such disposal as a
discontinued operation and the April 30, 1998 financial statements should
be recast accordingly. As a result, the 1999, and 1998 financial
statements have been restated from amounts previously reported. See Note
3 for further discussion of discontinued operations.
Page 15 of 16
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
16. RESTATEMENT (CONTINUED)
A summary of the significant effects of the restatement is as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
As previously As previously
Reported As Restated Reported As Restated
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
As of:
Accumulated deficit $(2,113,108) $(2,085,156) $(2,128,090) $(2,128,090)
Accumulated other
comprehensive income 105,913 -- 57,420 57,420
For the year ended:
Income (loss) from
continuing operations 14,982 (70,277) (5,618) (100,877)
Income from
discontinued operations -- 113,211 102,131 197,390
Net earnings 14,982 42,934 96,513 96,513
Basic and diluted loss per
share from continuing
operations -- (0.01) -- (0.01)
</TABLE>
Page 16 of 16
<PAGE>
