SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[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 No X
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: $2,685,163
As of June 8, 2000, the aggregate market value of the Common Stock held by
non-affiliates of the Issuer (5,672,513 shares) was indeterminable insofar
that there has been no available bid price since September 21, 1998 and no
available asked price since January 11, 1999. The number of shares
outstanding of the Common Stock ($.001 par value) of the Issuer as of the
close of business on June 8, 2000 was 9,143,279.
Documents Incorporated by Reference: None
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. As a result of this change in strategy, the Company
sold all of the shares of Alma Pack and purchased all of the issued and
outstanding shares of Gandalf Graphics Limited ("Gandalf"), a company which
provides digital pre-press services and digital print services. 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.
The Print Industry
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.
The Print Business
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.
Products
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 has over 150 active customers none of whom Gandalf has a
dependence on.
Gandalf's Plan of Operation
Gandalf utilizes unique and proprietary software that it intends to
further develop and create as per customers' demands and technological
changes. Gandalf intends to expand its product and service base in
conjunction with further customer base expansion to the eastern seaboard of
the United States.
Competition
In North America, the print market is highly fragmented, with
approximately 55,000 companies employing over one million people. Gandalf
possesses technological capabilities that it intends to further develop and
enjoys customer loyalty. Many of Gandalf's existing and potential competitors
have more extensive marketing capabilities and greater financial resources.
There can be no assurance that Gandalf will be able to compete successfully
in the future or that competitive pressures will not result in price
reductions, which may adversely affect Gandalf.
Management believes that Gandalf's competitive advantage lies in its
expertise in computer software research and development to enhance its pre-
press service to customers.
Employees
As at April 30, 1999, Gandalf had 31 employees other than its officers.
Recent Developments
In 1998, and pursuant to an agreement, the Company acquired all of the
issued and outstanding shares (the "Gandalf Shares") of Gandalf from Marcella
Downey ("Downey") for $400,000 which was paid by issuing a promissory note to
Downey for $400,000 (the "Note") with the principal due and payable on January
1, 2000. 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.
In May 2000, the Company entered into an agreement to acquire all of
the assets of Oth.net, Inc., a Florida corporation, in exchange for 4.5
million shares of the Company's Common Stock. Oth.net, Inc. is an internet
based search engine for music on the world wide web. Upon completion of the
transaction, it is contemplated that there will be a change in management of
the Company.
Item 2. Description of Property.
Gandalf rents plant and office space in Toronto, Ontario, Canada. The
location is 11,000 square feet, at $4,167 Canadian per month. The lease
expires on June 15, 2008.
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 on September 21, 1998 and the last available
asked price was 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 Bid Prices
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 June 8, 2000, 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. As a result of this change in strategy, the Company
sold all of the shares of Alma Pack and purchased all of the issued and
outstanding shares of Gandalf Graphics Limited ("Gandalf"), a company which
provides digital pre-press services and digital print services. 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" under Part I, Item 1.
Unless otherwise noted all information herein is given in U.S. dollars.
Results of Operations
During the year ended April 30, 1999, the Company reported net sales of
approximately $2,685,000 as compared to net sales of approximately $1,220,000
during the year ended April 30, 1998. This increase in net sales was primarily
attributable to the inclusion of operating results of Gandalf for the full
1999 fiscal year as compared to fiscal 1998 during which period Gandalf was
acquired.
Cost of sales in fiscal 1999 was approximately $1,540,000 compared to
cost of sales in fiscal 1998 of approximately $773,000. Operating expenses
increased to approximately $915,000 in fiscal 1999 from approximately $433,000
in fiscal 1998. The foregoing changes are primarily due to the acquisition of
Gandalf and its additional operating expenses, and inclusion of Gandalf's
operations for a full year in fiscal 1999 as compared to fiscal 1998.
During the fiscal year ended April 30, 1999, the Company reported
income before taxes of approximately $74,000 as compared to income before
taxes of approximately $6,300 for the fiscal year ended April 30, 1998.
Income from continuing operations was approximately $15,000 for fiscal 1999 as
compared to a net loss from continuing operations, before discontinued
operations and gain on disposal of Alma Pack, of approximately $(5,600) for
fiscal 1998. The foregoing change is primarily due to the Company having a
full year of sales revenue in fiscal 1999 to offset operating expenses.
Liquidity and Capital Resources
On April 30, 1999, the Company had a working capital deficit of
approximately $(2,166,000) and stockholders' equity of approximately $131,000.
As at April 30, 1999, the Company is in default on two of the covenants
required under its banking agreement. 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. 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. The consolidated
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
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 200 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
Andre Corbeil 55 President and Director 1994
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.
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.
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, Chief Executive Officer, 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 June 8, 2000, 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%
Andre Corbeil(5) 0 -
Larry Downey(5) 0 -
Robert Brown(5) 5 *
All Officers and Directors
as a Group (3 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 the period 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. As at April 30, 1999, $135,357 (1998 - nil) of this
amount is included in accounts payable.
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
PL BRANDS, INC.
(Registrant)
By:/s/Andre Corbeil
Andre Corbeil,
Chief Executive Officer
Dated: June 29, 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/Andre Corbeil Chief Executive Officer 6/29/00
Andre Corbeil and Director (Principal
Executive Officer)
/s/Robert Brown Vice President - Finance, 6/29/00
Robert Brown Secretary, Treasurer
and Director (Principal
Accounting and Financial
Officer)
/s/Larry Downey Chief Operating Officer 6/29/00
Larry Downey and Director
Consolidated Financial Statements of
PL BRANDS, INC.
April 30, 1999 and 1998
(Expressed in U.S. Dollars)
<PAGE>
DELOITTE & TOUCHE
[LOGO OMITTED]
--------------------- ----------------------------------------------------
DELOITTE & TOUCHE LLP Telephone: (416) 601-6150
5140 Yonge Street Facsimile: (416) 229-2524
Suite 1700 www.deloitte.ca
Toronto, Ontario M2N 6L7
AUDITORS' REPORT
To the Shareholders of
PL Brands, Inc.
We have audited the consolidated balance sheets of PL Brands, Inc. and
subsidiaries as April 30, 1999 and 1998 and the related consolidated statements
of earnings, stockholders' equity and cash flows for the years ended April 30,
1999, 1998 and 1997. 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 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 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, these consolidated financial statements present fairly, in all
material respects, the financial position of PL Brands, Inc. and subsidiaries as
at April 30, 1999 and 1998 and the results of their operations and their cash
flows for the years ended April 30, 1999, 1998 and 1997 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 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.
/s/ DELOITTE & TOUCHE LLP
---------------------------
Deloitte & Touche LLP
Chartered Accountants
Toronto, Ontario
July 2, 1999
---------------
Deloitte Touche
Tohmatsu
---------------
<PAGE>
<TABLE>
<CAPTION>
PL BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
==========================================================================================
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
CURRENT
Cash $ 415 $ 217
Accounts receivable - trade (less allowance for
doubtful accounts of $6,100 (1998 - $nil) 533,895 1,113,778
Accounts receivable - other -- 69,881
Inventory 282,325 70,592
Prepaids 40,932 31,864
------------------------------------------------------------------------------------------
857,567 1,286,332
CAPITAL ASSETS (Note 5) 1,579,362 960,842
GOODWILL (Note 3) 117,332 128,199
------------------------------------------------------------------------------------------
$ 2,554,261 $ 2,375,373
==========================================================================================
LIABILITIES
CURRENT
Bank indebtedness (Note 6) $ 273,977 $ 480,848
Accounts payable 855,394 454,889
Current portion of long-term debt (Note 7) 1,101,626 27,958
Current portion of obligation under capital lease (Note 8) 20,772 151,619
------------------------------------------------------------------------------------------
2,251,769 1,115,314
LONG-TERM DEBT (Note 7) -- 811,996
OBLIGATION UNDER CAPITAL LEASE (Note 8) 49,126 171,739
DEFERRED INCOME TAXES (Note 11) 122,512 62,194
ADVANCES TO RELATED PARTY (Note 9) -- 146,751
------------------------------------------------------------------------------------------
2,423,407 2,307,994
------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (Note 10) 9,143 9,143
ADDITIONAL PAID-IN CAPITAL 2,128,906 2,128,906
ACCUMULATED DEFICIT (2,113,108) (2,128,090)
ACCUMULATED OTHER COMPREHENSIVE INCOME 105,913 57,420
------------------------------------------------------------------------------------------
130,854 67,379
------------------------------------------------------------------------------------------
$ 2,554,261 $ 2,375,373
==========================================================================================
</TABLE>
Page 1 of 14
<PAGE>
PL BRANDS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED APRIL 30, 1999, 1998 AND 1997
(EXPRESSED IN U.S. DOLLARS)
================================================================================
1999 1998 1997
----------- ----------- -----------
NET SALES $ 2,685,163 $ 1,219,612 $ --
COST OF SALES 1,540,427 772,859 --
--------------------------------------------------------------------------------
GROSS PROFIT 1,144,736 446,753 --
OPERATING EXPENSES 914,591 433,230 267,220
--------------------------------------------------------------------------------
INCOME (LOSS) BEFORE UNDERNOTED
ITEMS 230,145 13,523 (267,220)
OTHER INCOME (EXPENSES) -- 35,505 (45,815)
AMORTIZATION - CAPITAL ASSETS (147,350) (39,803) --
AMORTIZATION - GOODWILL (8,484) (2,957) (8,083)
--------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 74,311 6,268 (321,118)
DEFERRED INCOME TAX EXPENSE 59,329 11,886 --
--------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 14,982 (5,618) (321,118)
DISCONTINUED OPERATIONS
INCOME FROM OPERATIONS OF ALMA
PACK BOTTLING CORPORATION (Note 4) -- 71,581 54,513
GAIN ON DISPOSAL OF ALMA PACK
BOTTLING CORPORATION (Note 4) -- 30,550 --
--------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 14,982 $ 96,513 $ (266,605)
================================================================================
NET EARNINGS (LOSS) PER SHARE OF
COMMON STOCK $ -- $ 0.01 $ (3.99)
================================================================================
NET LOSS FROM CONTINUING
OPERATIONS PER SHARE OF
COMMON STOCK $ -- $ -- $ (4.81)
================================================================================
NET EARNINGS FROM
DISCONTINUED OPERATIONS PER
SHARE OF COMMON STOCK $ -- $ 0.01 $ 0.82
================================================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 9,143,279 9,143,279 66,736
================================================================================
Page 2 of 14
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<TABLE>
<CAPTION>
PL BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS FROM APRIL 30, 1997 TO APRIL 30, 1999
(EXPRESSED IN U.S. DOLLARS)
=================================================================================================
Common Stock
------------------------- Additional
Number Paid-in
of Shares Amount Capital
---------- ----------- -----------
<S> <C> <C> <C>
BALANCE - APRIL 30, 1996 41,200 $ 4,120 $ 889,066
STOCK ISSUANCE 600 60 --
1-100 REVERSE STOCK SPLIT -- (4,138) 4,138
DEBENTURE CONVERSION 2,118,956 2,119 294,531
SHAREHOLDER LOAN
CONVERSION 6,982,523 6,982 941,171
COMPREHENSIVE EARNINGS
Foreign currency translation
adjustments -- -- --
Net loss
TOTAL COMPREHENSIVE LOSS
-------------------------------------------------------------------------------------------------
-------------------------
BALANCE - APRIL 30, 1997 9,143,279 9,143 2,128,906
COMPREHENSIVE EARNINGS
Foreign currency translation
adjustments -- -- --
Net earnings
TOTAL COMPREHENSIVE
EARNINGS
--------------------------------------------------------------------------------
BALANCE - APRIL 30, 1998 9,143,279 9,143 2,128,906
COMPREHENSIVE EARNINGS
Foreign currency translation
adjustments -- -- --
Net earnings
TOTAL COMPREHENSIVE
EARNINGS
--------------------------------------------------------------------------------
BALANCE - APRIL 30, 1999 9,143,279 $ 9,143 $ 2,128,906
================================================================================
</TABLE>
Page 3 of 14
<PAGE>
<TABLE>
<CAPTION>
PL BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS FROM APRIL 30, 1997 TO APRIL 30, 1999
(EXPRESSED IN U.S. DOLLARS)
==================================================================================
Accumulated Other
Accumulated Comprehensive
Deficit Income (Loss) Total
---------- ----------- -----------
<S> <C> <C> <C>
BALANCE - APRIL 30, 1996 $(1,957,998) $ 31,142 $(1,033,670)
STOCK ISSUANCE -- -- 60
1-100 REVERSE STOCK SPLIT -- -- --
DEBENTURE CONVERSION -- -- 296,650
SHAREHOLDER LOAN
CONVERSION -- -- 948,153
COMPREHENSIVE EARNINGS
Foreign currency translation
adjustments -- 45,223 45,223
Net loss (266,605) (266,605)
-----------
TOTAL COMPREHENSIVE LOSS (221,382)
-------------------------------------------------------------------------------
BALANCE - APRIL 30, 1997 (2,224,603) 76,365 $ (10,189)
COMPREHENSIVE EARNINGS
Foreign currency translation
adjustments -- (18,945) (18,945)
Net earnings 96,513 96,513
-----------
TOTAL COMPREHENSIVE
EARNINGS 77,568
-------------------------------------------------------------------------------
BALANCE - APRIL 30, 1998 (2,128,090) 57,420 $ 67,379
COMPREHENSIVE EARNINGS
Foreign currency translation
adjustments -- 48,493 48,493
Net earnings 14,982 14,982
-----------
TOTAL COMPREHENSIVE
EARNINGS 63,475
--------------------------------------------------------------------------------
BALANCE - APRIL 30, 1999 $(2,113,108) $ 105,913 $ 130,854
================================================================================
</TABLE>
Page 3 of 14
<PAGE>
<TABLE>
<CAPTION>
PL BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
(EXPRESSED IN U.S. DOLLARS)
==========================================================================
1999 1998 1997
----------- ----------- -----------
CASH PROVIDED BY (USED FOR)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations $ 14,982 $ (5,618) $ (321,118)
Items not requiring the use of cash:
Amortization - capital assets 147,350 39,803 --
Amortization - goodwill 8,484 2,957 8,083
Deferred income taxes 60,318 -- --
Changes in assets and liabilities affecting cash flows:
Accounts receivable 579,883 (453,142) 2,669
Accounts receivable - other 69,881 (69,881) --
Inventory (211,733) 90,123 --
Prepaids (9,068) (11,621) 966
Accounts payable 400,505 210,821 (100,457)
--------------------------------------------------------------------------------------------
Net cash provided by (used for)
operating activities 1,081,698 (196,558) (409,857)
--------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of Gandalf Graphics Limited (consideration
paid including bank indebtedness assumed) -- (790,098) --
Acquisition of capital assets (763,487) (23,505) --
Disposition of capital assets -- 305,503 --
--------------------------------------------------------------------------------------------
Net cash provided by (used for)
investing activities (763,487) (508,100) --
--------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Stock issuance -- -- 60
Repayment of advances to related party (146,751) - --
Long-term debt 261,672 (193,709) --
Note payable -- 279,525 --
Obligation under capital lease (253,460) -- --
Amounts received for the issuance of convertible
debentures and capital stock -- -- 249,650
Conversion of shareholder loan interest -- -- 88,325
----------------------------------------------------------------------------------------------
Net cash provided by (used for)
financing activities (138,539) 85,816 338,035
----------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) CONTINUING OPERATIONS 179,672 (618,842) (71,822)
DISCONTINUED OPERATIONS -- 13,521 20,242
PROCEEDS ON DISPOSAL OF ALMA PACK -- 142,496 --
EFFECT OF EXCHANGE RATE CHANGES ON CASH 27,397 (18,945) 45,223
--------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 207,069 (481,770) (6,357)
CASH, BEGINNING OF YEAR (480,631) 1,139 7,496
--------------------------------------------------------------------------------------------
CASH, END OF YEAR $ (273,562) $ (480,631) $ 1,139
=============================================================================================
REPRESENTED BY:
Cash $ 415 $ 217 $ 1,139
Bank indebtedness (273,977) (480,848) --
---------------------------------------------------------------------------------------------
$ (273,562) $ (480,631) $ 1,139
==============================================================================================
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 $ 28,000
Income taxes paid on discontinued operations $ -- $ -- $ --
</TABLE>
Page 4 of 14
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
1. BASIS OF PRESENTATION
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 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. As a result of this change in strategy,
the Company sold all of the shares of Alma Pack and purchased all of the
issued and outstanding shares of Gandalf Graphics Limited ("Gandalf"), a
pre-press house, as described in Note 3. The effect of these transactions
are appropriately reflected in the accompanying financial statements
Management believes that Gandalf will contribute toward achieving
profitability and positive cash flows. As at April 30, 1999, however, the
Company is in default on two of the covenants required under its banking
agreement. 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. 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. The consolidated 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
Income taxes
The Company and its subsidiaries file separate tax returns. The Company's
provision for income taxes is based primarily on reported earnings before
income taxes and includes an appropriate provision for deferred income
taxes resulting from timing differences. Timing differences result from
items whose amounts recorded for accounting purposes do not coincide with
those recorded for income tax purposes, and consist principally of
goodwill and amortization.
Inventory
Inventory is valued at the lower of cost, on a first-in first-out basis,
and net realizable value.
Page 5 of 14
<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)
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 fair 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.
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 will be either realized or
settled in Canadian dollars. The translation gain or loss from foreign
currency translation is recorded on the consolidated statements of
earnings. The translation gain or loss from intercompany foreign currency
transactions that are of a long-term investment nature are reported
within the statements of stockholders' equity as a component of
comprehensive earnings. Translation adjustments that result from the
process of translating that entity's financial statements into the
reporting currency are not included in net income and are also reported
within the statements of stockholders' equity as a component of
comprehensive earnings.
Page 6 of 14
<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)
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.
In the first quarter of 1998, the Company adopted SFAS No. 130 Reporting
Comprehensive Income, and restated 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 Activity, which is
required to be adopted by the Company in 2001. The Statement will require
the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges of underlying transactions must be
adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of the derivative's
change in fair value will be immediately recognized in earnings.
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 14
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
3. BUSINESS ACQUISITION
Gandalf Graphics Limited
Effective January 1, 1998, the Company acquired all of the issued and
outstanding shares of Gandalf. 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
=======================================================================
4. DISCONTINUED OPERATIONS
During 1998, the Company disposed of its wholly owned subsidiary, Alma
Pack. The net gain on the sale of these operations totaled $30,550.
Aggregate operating profits for 1988 in these discontinued operations was
$71,581, (1997 - $54,313). Revenues from discontinued operations prior to
the measurement date were as follows: 1998 - $1,688,000, 1997 -
$2,460,000.
Page 8 of 14
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
5. 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
Computer 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 $ 501,598
Computer software 15,910 11,864 4,046
Computer 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).
6. 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 9 of 14
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
7. 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 6, 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 6 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. Therefore, the
instalment loan has been classified as current for financial statement
purposes. 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 10 of 14
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
8. OBLIGATION UNDER CAPITAL LEASE
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
======================================================
9. 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 period 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. As at April 30, 1999, $135,357
(1998- nil) of this amount is included in accounts payable.
10. 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, 1998 and 1997 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 11 of 14
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
11. INCOME TAXES
As at April 30, 1999, the Company had a deferred tax asset of $576,000
(1998 - $550,000) resulting from cumulative losses of approximately
$1,440,000 (1998 - $1,377,000; 1997 - $1,570,000). A full valuation
allowance has been provided for the deferred tax asset in 1999, 1998 and
1997 since the Company's history of losses indicate that the benefit
arising from these losses may not be realized.
The losses available to apply to future taxable income expire in the
following years:
2001 $ 46,000
2002 $ 540,000
2003 $ 220,000
2004 $ 111,000
2005 $ 460,000
2006 $ 63,000
The Company's effective tax rate is approximately 40%. Some of the
subsidiaries have incurred losses that will be used to offset future
taxable income. One of the subsidiaries has taxable income and the
related tax expense has been reported in these financial statements. The
deferred tax liability of $122,512 (1998 - $62,194) represents the future
tax liability resulting from the timing differences with respect to the
recognition of amortization on capital assets for accounting purposes and
that which is allowable for tax purposes.
12. SEGMENT INFORMATION
The Company operated and manages its operations in one reportable
segment, the prepress industry and in one geographical area being Canada.
The Company had four customers in 1999 and 1998 that accounted for 64%
(1998 - 73%) of revenues. One of these customers accounted for 23% (1998
- 34%) of revenues.
13. 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.
Diluted earnings (loss) per share have not been calculated because there
are no outstanding stock options, warrants or other items that would have
a diluted effect.
Page 12 of 14
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
14. COMMITMENTS
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 a ten-year 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 three years as follows:
1999 $ 98,000
1998 $ 80,000
1997 $ 85,000
15. 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 13 of 14
<PAGE>
PL BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
================================================================================
15. 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.
16. 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.
Page 14 of 14
