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OF THE WESTAIM CORPORATION
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Chairman
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(1) | to consider and, if thought advisable, to pass by way of ordinary resolution a resolution (the “Share Issuance Resolution”) approving the business combination (the “Reorganization”) involving the Corporation, Plumb-Line Income Trust, Plumb-Line Masonry Group Inc., F&D Management Services Ltd., Four Star Gravel Contractors Ltd., Asty Concrete & Construction Ltd. and Nascor Ltd., a wholly owned subsidiary of Arcticor Structures Limited Partnership, all as more particularly set forth and described in the accompanying Information Circular of the Corporation (the “Circular”); | ||
(2) | conditional upon the approval of the Share Issuance Resolution, to consider and, if thought advisable, to pass by way of special resolution, if required and as the case may be, a resolution approving the filing of articles of amendment in order to effect either a consolidation or split of the outstanding common shares of the Corporation, all as more particularly set forth and described in the Circular; | ||
(3) | conditional upon the approval of the Share Issuance Resolution, to consider and, if thought advisable, to pass by way of special resolution, a resolution approving the filing of articles of amendment in order to effect a consolidation of the outstanding common shares of the Corporation on a one-for-twenty basis, all as more particularly set forth and described in the Circular; | ||
(4) | conditional upon the approval of the Share Issuance Resolution, to consider and, if thought advisable, to pass by way of special resolution, a resolution approving the filing of articles of amendment in order to effect the change of the name of the Corporation from “The Westaim Corporation” to ���Peer Construction Group Inc.”, all as more particularly set forth and described in the Circular; | ||
(5) | conditional upon the approval of the Share Issuance Resolution, to consider and, if thought advisable, to pass by way of ordinary resolution, a resolution approving a new stock option plan of the Corporation, all as more particularly set forth and described in the Circular; | ||
(6) | conditional upon the approval of the Share Issuance Resolution, to consider and, if thought advisable, to pass by way of ordinary resolution, a resolution approving a new restricted share unit plan of the Corporation, all as more particularly set forth and described in the Information Circular; and | ||
(7) | such other matters determined to be necessary or advisable by the parties. |
Brian D. Heck, Vice President, General Counsel and Corporate Secretary
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Nine Months Ended | Year Ended December 31 | |||||||||||||||||||||||
September 30, 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||
High | 1.029 | 1.091 | 0.910 | 0.869 | 0.849 | 0.774 | ||||||||||||||||||
Low | 0.926 | 0.844 | 0.853 | 0.787 | 0.716 | 0.635 | ||||||||||||||||||
Average | 0.982 | 0.931 | 0.882 | 0.825 | 0.768 | 0.714 | ||||||||||||||||||
Closing | 0.944 | 1.012 | 0.858 | 0.858 | 0.831 | 0.724 |
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THE MEETING: | The Meeting will be held at 10:00 a.m. (Toronto Time) on November 21, 2008 at the Fairmont Royal York Hotel, British Columbia Room, 100 Front Street West, Toronto, Ontario, for the following purposes: | |
(a) to consider and, if thought advisable, to pass by way of ordinary resolution a resolution approving the business combination involving Westaim and Plumb-Line, PLMG, F&D, Four Star, Asty and Nascor all as more particularly set forth and described herein; | ||
(b) to consider and, if thought advisable, to pass by way of special resolution, a resolution, if required, approving the Westaim Shares Combination or the Westaim Shares Split, as applicable, all as more particularly set forth and described herein; | ||
(c) to consider and, if thought advisable, to pass by way of special resolution, a resolution approving the filing of the Articles of Amendment in order to effect the Consolidation all as more particularly set forth and described herein; | ||
(d) to consider and, if thought advisable, to pass by way of special resolution, a resolution approving the filing of the Articles of Amendment in order to effect the Name Change all as more particularly set forth and described herein; | ||
(e) to consider and, if thought advisable, to pass by way of ordinary resolution, a resolution approving the New Westaim Stock Option Plan all as more particularly set forth and described herein; | ||
(f) to consider and, if thought advisable, to pass by way of ordinary resolution, a resolution approving the New Westaim RSU Plan all as more particularly set forth and described herein; and | ||
(g) such other matters determined to be necessary or advisable by the parties. | ||
THE REORGANIZATION: | On October 3, 2008, Westaim, Arcticor, Plumb-Line and PLMG entered into the Reorganization Agreement. The Reorganization Agreement sets forth, among other matters, the terms and conditions pursuant to which Westaim will make the Plumb-Line Offer, PLMG Share Purchase, Four Star Security Purchase and Nascor Share Purchase. Upon the completion of the Reorganization, Westaim will own, directly or indirectly, all of the securities or assets of Plumb-Line, PLMG, Nascor, F&D, Four Star and Asty. The completion of the Reorganization is subject to the satisfaction of certain conditions. See “The Reorganization”. | |
BACKGROUND TO AND REASONS FOR THE REORGANIZATION: | The Westaim Board believes that the Transactions are in the best interests of Westaim and the Westaim Shareholders and that the Transactions provide a number of benefits to the Westaim Shareholders, as compared to Westaim’s current situation, including the following: (a) it is expected that completion of the Transactions will result in increased |
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liquidity for the Westaim Shareholders based upon the consolidated market capitalization of New Westaim and the listing/trading of the New Westaim Shares; | ||
(b) New Westaim will participate in the combined business plan of Plumb-Line, PLMG, F&D, Asty, Four Star and Nascor; | ||
(c) New Westaim will have greater access to capital and therefore a greater ability to exploit potential business opportunities; and | ||
(d) New Westaim will have greater resources and will be stronger financially. | ||
See “The Reorganization – Background to and Reasons for the Reorganization” and “The Reorganization – Benefits of the Reorganization”. | ||
PROCEDURE FOR THE REORGANIZATION TO BECOME EFFECTIVE: | The following procedural steps must occur in order for the Reorganization to become effective: (a) the Reorganization Resolutions must be approved by the Westaim Shareholders voting in person or by proxy at the Meeting; | |
(b) Plumb-Line must complete the Asty Acquisition and Four Star Acquisition and PLMG must complete the F&D Acquisition; | ||
(c) all conditions precedent to the Reorganization, including the conditions of the Plumb-Line Offer as set forth in the Reorganization Agreement, including completion of the Equity Financing, must be satisfied or waived by the appropriate Party; | ||
(d) if adjustment is required, articles of amendment must be filed with the Registrar effecting the Westaim Shares Combination or Westaim Shares Split, as the case may be; | ||
(e) Westaim must take up and pay for all Plumb-Line Securities validly deposited pursuant to the Plumb-Line Offer; | ||
(f) the PLMG Share Purchase, the Four Star Security Purchase and the Nascor Share Purchase must be completed pursuant to the terms and conditions of the Reorganization Agreement; and | ||
(g) the Articles of Amendment must be filed with the Registrar. | ||
See “The Reorganization – Details of the Reorganization”. | ||
RECOMMENDATION OF THE WESTAIM BOARD: | The Westaim Board, after considering relevant matters, has unanimously determined that the Reorganization is in the best interests of Westaim and the Westaim Shareholders and unanimously recommends that Westaim Shareholders vote in favour of the Reorganization Resolutions. See “The Reorganization – Recommendation of the Westaim Board”. | |
WESTAIM: | Westaim is a holding company with investments in technology businesses including Nucryst, a company that develops, manufactures and commercializes innovative medical products that fight infection and inflammation, and iFire, a company that until late 2007 was developing a novel flat panel display technology. Westaim is incorporated pursuant to the provisions of the ABCA. The Westaim Shares trade on the |
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PLUMB-LINE, ASTY, FOUR STAR, F&D AND NASCOR | TSX under the symbol “WED”. See “Information Concerning Westaim”. Overview of the Combined Businesses Following the Reorganization Following the completion of the Reorganization, New Westaim will operate five construction services businesses, Con-Forte, Asty, Four Star, Sas-Can and Nascor, which will provide a variety of products and services to the construction industries in Alberta and parts of British Columbia and Saskatchewan. These products and services include concrete flatwork and formwork services, ready-mix concrete, brick and masonry services, and the manufacture and supply of engineered and pre-fabricated wood frame components for the residential and multi-family construction industries. The acquired businesses have a history of profitability and strong management, each company having been in business for more than 25 years. | |
The pro forma adjusted net income for the combined construction services businesses was approximately $20.9 million for the year ended December 31, 2007 and approximately $6.1 million for the six months ended June 30, 2008. Pro forma adjusted EBITDA was approximately $29.8 million for the year ended December 31, 2007 and approximately $9.5 million for the six months ended June 30, 2008. See “Information Concerning New Westaim After Giving Effect to the Transactions – Selected Adjusted Pro Forma Financial Information”. Management believes these results demonstrate the earnings potential of New Westaim and that they will continue and be enhanced through the competitive strengths and growth strategies of New Westaim discussed below. For a more detailed description of the businesses that Westaim will acquire, see “Information Concerning New Westaim After Giving Effect to the Transactions – Business of New Westaim”. | ||
Overview of the Construction Industry in Alberta | ||
According to Statistics Canada, over the past five years, Alberta has had the strongest overall economy of any Canadian province, with gross domestic product growth consistently among the top two provinces in the country. Growth in the oil and natural gas sector and its associated capital investments, population growth fueled by migration to Alberta, increasing government infrastructure spending, growth of other industries such as manufacturing, and comparatively low taxes have all contributed to creating and maintaining a climate favourable to business growth and a strong construction industry. Employment growth has also been strong over this period and the unemployment rate has remained low. | ||
Challenges associated with this economic boom that have affected the Alberta construction industry (including rising costs, shortages of labour and shortages of service providers) have, in some cases, resulted in cost overruns and delayed project completions. These challenges have not halted Alberta’s overall economic expansion and Management believes that the Alberta economy will continue to grow in both the near and long term, resulting in the continued creation of quality construction projects and demand for New Westaim’s products and services. See “Information Concerning New Westaim After Giving Effect to the Transactions – Risk Factors – Economy and Cyclicality”. This belief is based on, among other things, the economic indicators described below. | ||
Gross Domestic Product. Gross domestic product (“GDP”) growth is an indicator of the strength of an economy which in turn is a good indicator of the demand for construction services. Alberta has shown consistently strong growth in GDP, ahead of the Canadian average as noted below. | ||
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Real Gross Domestic Product (based on 2002 dollars) |
GDP | % GDP Growth | |||||||||||||||
($ millions) | Year-Over-Year | |||||||||||||||
Year | Canada | Alberta | Canada | Alberta | ||||||||||||
2004 | $ | 1,210,656 | $ | 163,457 | 3.1 | % | 5.2 | % | ||||||||
2005 | 1,247,780 | 172,047 | 3.1 | % | 5.3 | % | ||||||||||
2006 | 1,282,204 | 183,372 | 2.8 | % | 6.6 | % | ||||||||||
2007 | 1,316,219 | 189,470 | 2.7 | % | 3.3 | % | ||||||||||
While the GDP growth rate is expected to slow in 2008, it is still expected to continue to grow. According to the Alberta government’s 2008 mid-year update, the average real GDP growth forecasts for Alberta are 2.6% for 2008, 3.2% for 2009 and 3.2% for 2010. | ||
Population Growth. Demand for new infrastructure, housing starts and other construction projects is fueled by population growth. According to Statistics Canada, Alberta’s population growth has consistently exceeded the Canadian national average in the past three years. This growth is primarily the result of a net migration of individuals to Alberta. For the most part, this migration is the result of individuals and families relocating for employment opportunities. This strong Alberta population growth is summarized below. | ||
Population Growth Rates – Canada and Alberta |
Population | Year-Over-Year | |||||||||||||||
(000) | Population Growth | |||||||||||||||
Year | Canada | Alberta | Canada | Alberta | ||||||||||||
2005 | 33,206 | 3,257 | 1.0 | % | 1.9 | % | ||||||||||
2006 | 32,453 | 3,348 | 1.1 | % | 2.8 | % | ||||||||||
2007 | 32,871 | 3,450 | 1.0 | % | 3.0 | % | ||||||||||
2008 (est.) | 33,224 | 3,512 | 1.1 | % | 1.8 | % | ||||||||||
According to the “Alberta Population Report, First Quarter 2008”, net migration into Alberta was 74,523 people in 2006, 27,048 people in 2007 and 5,111 people in the first three months of 2008. Population growth by migration results in an increased demand for housing and infrastructure. Even with a slowdown in net migration to Alberta expected for 2009, Management believes that there remains an infrastructure deficit which will create a demand for construction services as related infrastructure requirements catch up to the prior years’ population growth. | ||
Value of Building Permits. A strong indicator of construction activity levels is the value of building permits issued by municipal authorities. According to Statistics Canada, the value of Alberta building permits were consistently the second highest province in Canada (in absolute dollar terms only behind Ontario, which has a significantly larger population). Alberta has consistently been the leader in year-over-year increases in the value of building permits as noted in the table below. |
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Value of Building Permits | Year-Over-Year | |||||||||||||||
($ millions) | Value of Building Permits Growth | |||||||||||||||
Year | Canada | Alberta | Canada | Alberta | ||||||||||||
2003 | $ | 50,772 | $ | 6,667 | — | — | ||||||||||
2004 | 55,579 | 7,327 | 9.5 | % | 9.9 | % | ||||||||||
2005 | 60,751 | 10,202 | 9.3 | % | 39.2 | % | ||||||||||
2006 | 66,266 | 13,876 | 9.1 | % | 36.0 | % | ||||||||||
2007 | 74,380 | 15,730 | 12.2 | % | 13.4 | % | ||||||||||
Management expects the value of building permits issued in 2008 for Canada and Alberta to decline compared to 2007 reflecting the general slowdown in the Canadian economy. However, Management also expects the decline in the value of building permits in Alberta to be less relative to Canada as a whole. In addition, Management expects the value of building permits in 2009 and beyond to be bolstered by increased infrastructure spending discussed below. | ||
Government Infrastructure Spending. A significant volume of construction activity is generated by government and government funded projects. The Alberta government announced in its 2008 budget over $22 billion of infrastructure spending for the years 2008 to 2011. This is an increase of 21.4% over the Alberta government’s 2007 Budget and, amongst other allocations, includes health, schools and post-secondary education projects with a value of $6.5 billion and municipal infrastructure projects of $5.0 billion. These projects are necessary to address the infrastructure deficit that has resulted from the province’s recent rapid economic and population growth after a long period of government spending restraint. In addition, the Alberta government announced in January 2008 a 20-year strategic capital plan committing an average of $6 billion per year on infrastructure projects. These projects are another factor in the province’s forecast economic growth that Management expects will provide long term stability to both commercial and residential construction activity in the province. | ||
Competitive Strengths of New Westaim | ||
The Reorganization will create a construction services company with a significantly broader scope of operations and services than any of the constituent companies being acquired would be able to attain on its own. New Westaim will be a vertically integrated company that will service the commercial, industrial and residential markets of the construction industry. Management believes that the combination of Con-Forte, Nascor, Four Star, Asty and Sas-Can provides an attractive means of enhancing the value of the individual companies. | ||
Diversified Operations in the Growing Western Canada Economy. New Westaim will offer a diverse range of products and services to both the commercial and residential sectors of the western Canada construction industry. Management believes that the Reorganization will create a construction services company that is well positioned to profit from increased activity in specific markets and from increased demand for particular products and services. Management also believes that New Westaim’s diversification between the commercial and residential sectors will allow it to reallocate resources between sectors as necessary and position it to weather periods of slower growth in either sector. |
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Experienced Entrepreneurial Management Team with a Significant Retained Equity Interest. The management teams of all constituent companies have agreed to continue with the combined company, including Con-Forte’s Chief Executive Officer, Marco DeDominicis, who will serve as New Westaim’s President and Chief Executive Officer. New Westaim’s management team, including the senior management of its operating divisions, have decades of individual experience in the construction industry and, assuming an Equity Financing Offering Price of $12.00, will own approximately 7.2 million New Westaim Shares, representing approximately 38.3% of the outstanding New Westaim Shares (95.6% of which will be owned, controlled or directed by Mr. DeDominicis). Accordingly, following the completion of the Reorganization, New Westaim will be led by a dynamic and entrepreneurial management team that is well regarded within the construction industry, has a track record of success, and has a vested interest in the success of New Westaim. | ||
Loyal and Committed Employees. The constituent companies have a proven record of attracting and retaining skilled employees even in the context of a very tight Western Canadian labour market. Management believes that New Westaim’s size, financial strength, experienced and well regarded management team and diversified operations will further strengthen its ability to attract and retain skilled employees. New Westaim will have an experienced labour force of over 800 employees in its construction services business segment. | ||
Financial Strength. Management believes that following the completion of the Reorganization, New Westaim will be a financially strong company, with considerable cash-generating capacity, a solid balance sheet, ample working capital and modest debt levels (see “Information Concerning New Westaim After Giving Effect to the Transactions – Selected Adjusted Pro Forma Financial Information”). In addition, New Westaim will have access to the public equity markets should it choose to raise additional capital to fund growth or acquisition opportunities. Management believes that New Westaim’s ability to generate cash flow will also be enhanced by the anticipated utilization of tax pools available to New Westaim. | ||
Cross-Marketing of Combined Client Base and Labour Mobilization. Management believes that the Reorganization will provide New Westaim Shareholders with the opportunity to benefit from the anticipated synergies created by the Reorganization, including cross-marketing and product integration opportunities. Management believes that the cross-marketing of New Westaim’s products and services to its combined customer base and the packaging of its various products and services as a single product or service will provide New Westaim with a strong competitive advantage over its competitors that provide only a single type of product or service. In addition, the Reorganization creates opportunities for the cross-divisional mobilization of labour, technical and management resources. New Westaim will be able to deploy these resources where they are most needed and can be put to the most profitable use. | ||
Growth Opportunities. Management believes that New Westaim’s experienced management team, strong financial position and access to the public equity markets will position it to take advantage of a number of growth opportunities, including organic growth opportunities (by performing more of the same core functions in the same areas), geographical growth opportunities (by offering its core functions in new locations), and acquisition-driven growth opportunities (by acquiring other businesses). See “Growth Strategies” below. |
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Growth Strategies | ||
Management’s strategy is to continue to grow a dynamic construction services company in the Alberta market and, over the longer term, British Columbia and other Canadian provinces, by pursuing the following growth strategies: | ||
Acquisition Growth Opportunities. Management believes the current Alberta construction market offers opportunities for growth by capitalizing on accretive acquisition opportunities. These opportunities are available as a result of the limited number of viable exit strategies for owners of smaller private construction companies and also because of the continuing need for small businesses to demonstrate a strong balance sheet in a competitive marketplace. Smaller and/or under-capitalized construction companies that otherwise have strong cash flowing operations present excellent acquisition opportunities for New Westaim. Management believes New Westaim will be well positioned to take advantage of these acquisition opportunities. | ||
Geographic Growth Opportunities. The success of Con-Forte’s recent expansion into the Okanagan region of British Columbia, during which Con-Forte progressed from a market entry company to a major formworks provider in only three years, demonstrates the potential for profitable growth in new geographic regions. Management believes that New Westaim’s experienced and entrepreneurial management team, strong reputation and strong financial condition will position it for expansion into new geographic regions in Western Canada. | ||
Organic Growth Opportunities. Management believes that the strong reputation of each of the constituent companies and their strong customer relationships provide New Westaim with a solid foundation on which to continue to organically grow the company. In addition, the cross-marketing of the combined companies’ full suite of products and services to New Westaim’s combined customer base, and the bundling of its various products and services as a single product or service, will provide New Westaim with an opportunity to grow revenues within the existing customer bases of the constituent companies. The increased financial and human resources of the combined companies will also give New Westaim the capacity to expand its operations beyond the existing customer base of the individual constituent companies. | ||
See “Information Concerning New Westaim After Giving Effect to the Transactions”. | ||
RESULTING ISSUER: | Upon completion of the Transactions, Westaim will carry on the business of Plumb-Line, PLMG, F&D, Four Star, Asty and Nascor. See “Information Concerning New Westaim After Giving Effect to the Transactions – Business of New Westaim”. | |
CHANGE OF MANAGEMENT: | Upon completion of the Reorganization, the Westaim Board will be reconstituted such that it is comprised of the Company Nominees and Frank King, an incumbent director of Westaim who will remain on the Westaim Board. Management of New Westaim is expected to be reconstituted as follows: |
Name | Title | |
Marco DeDominicis | Chairman, President and Chief Executive Officer | |
G.A. (Drew) Fitch | Interim Executive Vice President and Chief Financial Officer | |
Philip R. Greer | Interim Vice President and Corporate Controller | |
Cristina Nunes | Interim Vice President, Corporate Finance and Tax |
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Senior management of Plumb-Line, PLMG, F&D, Four Star, Asty and Nascor will continue with New Westaim following completion of the Reorganization. See “Information Concerning New Westaim After Giving Effect to the Transactions – Directors and Officers”. | ||
EQUITY FINANCING, WESTAIM SHARES COMBINATION AND WESTAIM SHARES SPLIT: | Completion of the Equity Financing is a condition to closing of the Reorganization. The Equity Financing is an offering of Equity Financing Shares on a private placement basis for gross proceeds of $15 million. The proceeds of the Equity Financing will be used by New Westaim to partially fund the Four Star Acquisition, F&D Acquisition and Asty Acquisition and for working capital purposes. Pursuant to the terms of the Reorganization Agreement, Westaim will acquire, directly or indirectly, all of the issued and outstanding securities or assets of Plumb-Line, PLMG, F&D, Asty, Four Star and Nascor in exchange for an aggregate of approximately 12.87 million New Westaim Shares and will issue 1.25 million New Westaim Shares under the Equity Financing, in each case assuming an offering price of $12.00 per New Westaim Share, such that following completion of the Reorganization the current Westaim Shareholders will hold approximately 25.1% of the total number of issued New Westaim Shares. The percentage of New Westaim Shares held by current Westaim Shareholders following completion of the Reorganization will vary inversely with the Equity Financing Offering Price. For example, if the Equity Financing Offering Price is not $12.00 but rather is $10.00 per New Westaim Share, current Westaim Shareholders will hold approximately 30.1% of the New Westaim Shares outstanding and conversely if the Equity Financing Offering Price is $14.00 per New Westaim Share, current Westaim Shareholders will hold approximately 21.5% of the New Westaim Shares outstanding. Following implementation of the Reorganization and giving effect to the Consolidation, New Westaim will have approximately 18.85 million New Westaim Shares outstanding. Under the terms of the Reorganization Agreement, the number of New Westaim Shares to be outstanding upon completion of the Reorganization is not variable. As such, prior to effecting the Consolidation, currently outstanding Westaim Shares will have to be consolidated (the Westaim Shares Combination), if the Equity Financing is priced at greater than $12.00 per New Westaim Share, or split (the Westaim Shares Split), if the Equity Financing is priced at less than $12.00 per New Westaim Share, in order to appropriately adjust the holdings of current Westaim Shareholders upon completion of the Reorganization. | |
The effect of different Equity Financing Offering Prices under the Equity Financing is illustrated in the following tables. |
Equity | Adjusted | Plumb- | ||||||||||||||||||||||||||
Financing | Westaim | Equity | Four Star | Nascor | PLMG | Line | Total New | |||||||||||||||||||||
Offering | Shares (post | Financing | Purchase | Purchase | Purchase | Purchase | Westaim | |||||||||||||||||||||
Price | Consolidation) | Shares | Price | Price | Price | Price | Shares | |||||||||||||||||||||
$10.00 | 5,674,366 | 1,500,000 | 420,000 | 3,228,700 | 1,779,800 | 6,247,134 | 18,850,000 | |||||||||||||||||||||
$11.00 | 5,158,515 | 1,363,636 | 381,818 | 2,935,182 | 1,618,000 | 7,392,849 | 18,850,000 | |||||||||||||||||||||
$12.00 | 4,728,638 | 1,250,000 | 350,000 | 2,690,583 | 1,483,167 | 8,347,612 | 18,850,000 | |||||||||||||||||||||
$13.00 | 4,364,897 | 1,153,846 | 323,077 | 2,483,615 | 1,369,077 | 9,155,488 | 18,850,000 | |||||||||||||||||||||
$14.00 | 4,053,119 | 1,071,429 | 300,000 | 2,306,214 | 1,271,286 | 9,847,952 | 18,850,000 | |||||||||||||||||||||
Note: | ||
(1) | Amounts represent the number of New Westaim Shares issued, except for the Equity Financing Offering Price, which is expressed in dollars. |
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Equity | Adjusted | |||||||||||||||||||||||||||
Financing | Westaim | Equity | Four Star | Nascor | PLMG | Plumb-Line | Total New | |||||||||||||||||||||
Offering | Shares (post | Financing | Purchase | Purchase | Purchase | Purchase | Westaim | |||||||||||||||||||||
Price | Consolidation) | Shares | Price | Price | Price | Price | Shares | |||||||||||||||||||||
$10.00 | 30.10 | % | 7.96 | % | 2.23 | % | 17.13 | % | 9.44 | % | 33.14 | % | 100 | % | ||||||||||||||
$11.00 | 27.37 | % | 7.23 | % | 2.03 | % | 15.57 | % | 8.58 | % | 39.22 | % | 100 | % | ||||||||||||||
$12.00 | 25.09 | % | 6.63 | % | 1.86 | % | 14.27 | % | 7.86 | % | 44.29 | % | 100 | % | ||||||||||||||
$13.00 | 23.16 | % | 6.12 | % | 1.71 | % | 13.18 | % | 7.26 | % | 48.57 | % | 100 | % | ||||||||||||||
$14.00 | 21.50 | % | 5.69 | % | 1.59 | % | 12.23 | % | 6.75 | % | 52.24 | % | 100 | % | ||||||||||||||
Note: | ||
(1) | Numbers represent the percentage of New Westaim Shares outstanding, except for the Equity Financing Offering Price, which is expressed in dollars. |
Prior to the Meeting, Westaim will announce the price per share to be paid under the Equity Financing and the resulting percentage ownership of current Westaim Shareholders of New Westaim Shares following completion of the Reorganization. | ||
SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION: | The following table sets out certain financial information in respect of Westaim after giving effect to the Transactions. The following information should be read in conjunction with the Pro Forma Financial Statements attached hereto as Appendix ”H”. See also “Information Concerning New Westaim After Giving Effect to the Transactions – Selected Pro Forma Financial Information”and “– Selected Adjusted Pro Forma Financial Information”. |
Pro Forma Six Months Ended | Pro Forma Year Ended | |||||||||||||||||||||||||
June 30, 2008 | December 31, 2007 | |||||||||||||||||||||||||
Construction | Construction | |||||||||||||||||||||||||
Services(1) | Other(2) | Total | Services(1) | Other(2) | Total | |||||||||||||||||||||
($000’s except share and per share data) | ($000’s except share and per share data) | |||||||||||||||||||||||||
Revenues | 62,500 | 9,962 | 72,462 | 163,904 | 31,830 | 195,734 | ||||||||||||||||||||
Gross Margin(3) | 19,469 | 3,515 | 22,984 | 52,079 | 17,213 | 69,292 | ||||||||||||||||||||
Gross Margin % | 31 | % | 35 | % | 32 | % | 32 | % | 54 | % | 35 | % | ||||||||||||||
Adjusted Net Income(4) | 6,138 | 3,781 | 9,919 | 20,917 | 8,026 | 28,943 | ||||||||||||||||||||
Adjusted EBITDA(5) | 9,470 | (2,198 | ) | 7,272 | 29,831 | (1,136 | ) | 28,695 | ||||||||||||||||||
Weighted Average Number of New Westaim Shares Outstanding | 18,850,000 | 18,850,000 | ||||||||||||||||||||||||
Adjusted Net Income per New Westaim Share | 0.53 | 1.54 |
Pro Forma | ||||
As at June 30, 2008(6) | ||||
Total Assets | 167,621 | |||
Working Capital | 60,205 | |||
Net Debt(7) | 29,934 |
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Notes: | ||
(1) | Construction Services represents the pro forma financial results of Plumb-Line, F&D, Four Star, Asty and Nascor. The pro forma financial results of Plumb-Line exclude A&K, the assets of which are contemplated under the Reorganization Agreement to be disposed of in the fourth quarter of 2008. | |
(2) | Other represents the pro forma financial results of Westaim which is primarily attributable to its 74.5% owned subsidiary, Nucryst, and excludes the discontinued operations of iFire, the assets of which are expected to be sold in the fourth quarter of 2008. | |
(3) | Gross Margin is calculated by subtracting all direct costs from total revenues and is used by management to measure the profitability of operations before overhead costs and other income and expenses. | |
(4) | Pro forma adjusted net income represents pro forma net income adjusted to reflect a reduction of owner-manager salaries and bonuses, additional facility lease costs and future public company costs. | |
(5) | EBITDA represents net income before net interest expense, income taxes, depreciation and amortization and non-recurring items, and is a non-GAAP measure used by Management to measure cash flow before changes in non-cash working capital, taxes and financing costs. Non-recurring items are generally the results of one-time events that distort the financial results that are used by Management to measure financial performance. Pro forma adjusted EBITDA represents EBITDA adjusted to reflect a reduction of owner-manager salaries and bonuses, additional facility lease costs and future public company costs. | |
(6) | These pro forma balance sheet items have been adjusted to reflect an expected sale of the assets of iFire and A&K in the fourth quarter of 2008. | |
(7) | Pro forma net debt includes current and long term portions of bank indebtedness, debt, capital lease obligations and due to related parties, net of cash and cash equivalents. Cash and cash equivalents excludes the cash and cash equivalents of Nucryst of $27.5 million which is not accessible to fund New Westaim’s operations. |
MARKET TRADING PRICE: | The Westaim Shares are listed and posted for trading on the TSX under the stock symbol “WED”. On October 3, 2008 (the last trading day prior to announcement of the Reorganization), the last price at which a trade in the Westaim Shares was executed was $0.23. There is currently no public market for the securities of Plumb-Line, PLMG, F&D, Four Star, Asty or Nascor. See “Information Concerning New Westaim After Giving Effect to the Transaction – Price Range and Volume of Trading of Westaim Shares”. | |
TREATMENT OF FRACTIONAL WESTAIM SHARES | No fractional New Westaim Shares will be issued pursuant to the Westaim Shares Combination, Westaim Shares Split or the Consolidation. In the event that a Westaim Shareholder would otherwise be entitled to a fractional New Westaim Share hereunder, the number of New Westaim Shares issued to such Westaim Shareholder shall be rounded up to the next greater whole number of New Westaim Shares, if the fractional entitlement is equal to or greater than 0.5 and shall, without any additional compensation, be rounded down to the next lesser whole number of New Westaim Shares if the fractional entitlement is less than 0.5. In calculating such fractional interests, all Westaim Shares registered in the name of or beneficially held by such Westaim Shareholder or their nominee shall be aggregated. | |
STOCK EXCHANGE LISTING: | The Reorganization is classified as a “backdoor listing” pursuant to the rules of the TSX. New Westaim must therefore satisfy the original listing requirements of the TSX. There can be no assurance that New Westaim will be able to satisfy the listing requirements of the TSX or any other stock exchange. | |
EFFECT OF THE REORGANIZATION ON INCENTIVE SECURITIES: | In connection with the Reorganization, all outstanding Westaim Options and restricted share units of Westaim will be cancelled or exercised and all deferred share units will be settled. | |
TIMING: | If the Meeting is held as scheduled and the Reorganization Resolutions are approved and the other conditions to the Reorganization becoming effective are waived or satisfied, it is anticipated that the Effective Date of the Reorganization will be on or about December 1, 2008. See“The Reorganization – Timing”. | |
RISK FACTORS: | Westaim, and thus the securities of Westaim, should be considered highly speculative investments and the transactions contemplated herein should be considered to be of a high-risk nature. Westaim Shareholders should carefully consider all of the information disclosed in this Circular prior to voting on matters being put before them pursuant to this Circular. |
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The following is a list of certain risk factors relating to the activities of Westaim, after giving effect to the Reorganization, and the ownership of New Westaim Shares which prospective investors should carefully consider before making an investment decision relating to New Westaim Shares: | ||
• ability of New Westaim to secure contracts for its services and products; | ||
• cyclical and seasonal nature of the business of New Westaim; | ||
• effects of commodity prices on the business of New Westaim; | ||
• failure of suppliers to deliver on contractual commitments; | ||
• reliance on New Westaim’s ability to attract and retain qualified and capable personnel; | ||
• inability to collect on accounts receivable; | ||
• failure of subcontractors to perform their contractual commitments in a satisfactory manner; | ||
• additional costs associated with failing to meet performance obligations; | ||
• industry competition; | ||
• not maintaining sufficient working capital to fund operations; | ||
• failure to realize the anticipated benefit of the Reorganization or other acquisitions and failure to integrate newly acquired businesses into the business of New Westaim | ||
• failing to correctly estimate costs and risks associated with new contracts; | ||
• significant non-recurring revenue; | ||
• inability to access surety bonds or letters of credit as required; | ||
• failure to obtain necessary permits or licenses; | ||
• potential litigation; | ||
• potential of liability in excess of insurance coverage; | ||
• costs associated with failure to meet quality standards; | ||
• health and safety claims; | ||
• labour strife; | ||
• potential fluctuations in quarterly results; | ||
• environmental risks; | ||
• changes in regulation and excessive costs of complying with regulations; | ||
• no present intention to pay dividends; | ||
• potential for dilutive future transactions; | ||
• inability of New Westaim to satisfy the listing requirements of the TSX or any other stock exchange; | ||
• volatility of the price of New Westaim Shares; | ||
• costs associated with complying with financial reporting requirements; | ||
• effects of significant ownership of New Westaim Shares by several Holders | ||
• absence of operating history of the acquired business as a public company; | ||
• ability to sustain and manage growth; and | ||
• costs and availability of insurance coverage. |
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(a) | it is expected that completion of the Transactions will result in increased liquidity for the Westaim Shareholders based upon the consolidated market capitalization of New Westaim and the listing/trading of the New Westaim Shares; | ||
(b) | New Westaim will participate in the combined business plan of Plumb-Line, PLMG, F&D, Asty, Four Star and Nascor; | ||
(c) | New Westaim will have greater access to capital and therefore a greater ability to exploit potential business opportunities; and | ||
(d) | New Westaim will have greater resources and will be stronger financially. |
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Equity | Adjusted | Plumb- | ||||||||||||||||||||||||||
Financing | Westaim | Equity | Four Star | Nascor | PLMG | Line | Total New | |||||||||||||||||||||
Offering | Shares (post | Financing | Purchase | Purchase | Purchase | Purchase | Westaim | |||||||||||||||||||||
Price | Consolidation) | Shares | Price | Price | Price | Price | Shares | |||||||||||||||||||||
$10.00 | 5,674,366 | 1,500,000 | 420,000 | 3,228,700 | 1,779,800 | 6,247,134 | 18,850,000 | |||||||||||||||||||||
$11.00 | 5,158,515 | 1,363,636 | 381,818 | 2,935,182 | 1,618,000 | 7,392,849 | 18,850,000 | |||||||||||||||||||||
$12.00 | 4,728,638 | 1,250,000 | 350,000 | 2,690,583 | 1,483,167 | 8,347,612 | 18,850,000 | |||||||||||||||||||||
$13.00 | 4,364,897 | 1,153,846 | 323,077 | 2,483,615 | 1,369,077 | 9,155,488 | 18,850,000 | |||||||||||||||||||||
$14.00 | 4,053,119 | 1,071,429 | 300,000 | 2,306,214 | 1,271,286 | 9,847,952 | 18,850,000 |
Note: | ||
(1) | Amounts represent the number of New Westaim Shares issued, except for the Equity Financing Offering Price, which is expressed in dollars. |
Equity | Adjusted | Plumb- | ||||||||||||||||||||||||||
Financing | Westaim | Equity | Four Star | Nascor | PLMG | Line | Total New | |||||||||||||||||||||
Offering | Shares (post | Financing | Purchase | Purchase | Purchase | Purchase | Westaim | |||||||||||||||||||||
Price | Consolidation) | Shares | Price | Price | Price | Price | Shares | |||||||||||||||||||||
$10.00 | 30.10 | % | 7.96 | % | 2.23 | % | 17.13 | % | 9.44 | % | 33.14 | % | 100 | % | ||||||||||||||
$11.00 | 27.37 | % | 7.23 | % | 2.03 | % | 15.57 | % | 8.58 | % | 39.22 | % | 100 | % | ||||||||||||||
$12.00 | 25.09 | % | 6.63 | % | 1.86 | % | 14.27 | % | 7.86 | % | 44.29 | % | 100 | % | ||||||||||||||
$13.00 | 23.16 | % | 6.12 | % | 1.71 | % | 13.18 | % | 7.26 | % | 48.57 | % | 100 | % | ||||||||||||||
$14.00 | 21.50 | % | 5.69 | % | 1.59 | % | 12.23 | % | 6.75 | % | 52.24 | % | 100 | % |
Note: | ||
(1) | Amounts represent the percentage of New Westaim Shares outstanding, except for the Equity Financing Offering Price, which is expressed in dollars. |
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(a) | Westaim shall, subject to the terms and conditions set forth in the Reorganization Agreement, lawfully convene and hold the Meeting as soon as reasonably practicable for the purpose of considering the Reorganization Resolutions. | ||
(b) | Westaim shall, subject to the terms and conditions set forth in the Reorganization Agreement, make the Plumb-Line Offer and shall, subject to certain conditions contained in the Reorganization Agreement including, without limitation, a condition that the Plumb-Line Board shall have prepared and approved in final form, printed for distribution to Plumb-Line Securityholders and delivered to Westaim for mailing with the Plumb-Line Bid Circular to all registered Plumb-Line Securityholders, the Plumb-Line Directors’ Circular, which circular shall contain the unanimous recommendation of the Plumb-Line Board that securityholders accept the Plumb-Line Offer, mail the Plumb-Line Bid Circular in accordance with applicable Laws to each registered Plumb-Line Securityholder as soon as reasonably practicable and in any event not later than 11:59 p.m. (Calgary time) on the Latest Mailing Date the Plumb-Line Offer is to be made in accordance with applicable Laws and shall expire no earlier than the Initial Expiry Time, subject to the right of Westaim to extend the period during which securities may be deposited under the Plumb-Line Offer and shall be subject only to the conditions set out in Schedule “A” to the Reorganization Agreement. Westaim shall use all reasonable commercial efforts to consummate the Plumb-Line Offer, subject to the terms and conditions of the Reorganization Agreement and the Plumb-Line Offer and subject to no other conditions; | ||
(c) | Westaim shall use reasonable commercial efforts, subject to the terms and conditions set forth in the Reorganization Agreement, to complete the Equity Financing for Equity Financing Gross Proceeds of $15 million and, if requested by the Companies, shall retain an Agent and enter into an Agency Agreement | ||
(d) | Arcticor, Plumb-Line and PLMG shall take all actions in connection with the Equity Financing as may be reasonably requested by Westaim, from time to time, and shall, without limitation to the foregoing: (i) advance and market the Equity Financing in compliance with Securities Laws; (ii) identify and secure with the assistance of the Agent (if any) subscriptions from Arms Length Purchasers for Equity Financing Shares such that the Equity Financing Gross Proceeds are $15 million and present to Westaim Equity Financing Subscription Agreements executed by the relevant purchaser evidencing all such subscriptions on or prior to 5:00 p.m. (Calgary time) on the date that is 14 days after the date that this Circular is mailed to Westaim Shareholders; (iii) assist Westaim in obtaining such information from proposed purchasers under the Equity Financing as may be necessary, acting reasonably, to demonstrate that such purchaser is an Arms-Length Purchaser; (iv) cooperate with Westaim and all participating third parties and negotiate in good faith all necessary or appropriate agreements, including any Agency Agreement (if required), it |
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being understood that the Companies will be party to the Agency Agreement (if any); and (iv) cause the attendance by their respective directors and officers, as necessary, at due diligence sessions held by the Agent or other advisors in respect of the Equity Financing; | |||
(e) | if the Westaim Shares Adjustment is a number other than zero then Westaim shall: (i) if the Westaim Shares Adjustment is a negative number, file articles of amendment with the Registrar whereby the Westaim Shares Combination is effected; or (ii) if the Westaim Shares Adjustment is a positive number, file articles of amendment with the Registrar whereby the Westaim Shares Split is effected; | ||
(f) | Westaim shall file the Articles of Amendment; | ||
(g) | Plumb-Line shall complete the Asty Acquisition and the Four Star Acquisition and PLMG shall complete the F&D Acquisition; | ||
(h) | subject to the provisions of the Reorganization Agreement, Arcticor and Westaim shall enter into the Nascor Share Purchase Agreement at the Time of Closing and Arcticor shall sell to Westaim the Nascor Securities and Arcticor Warrant in consideration for the Nascor Purchase Price; | ||
(i) | subject to the provisions of the Reorganization Agreement, Westaim and the PLMG Shareholders shall enter into the PLMG Share Purchase Agreement at the Time of Closing and the PLMG Shareholders shall sell to Westaim all of the PLMG Securities in consideration for the PLMG Purchase Price; | ||
(j) | subject to the provisions of the Reorganization Agreement, Westaim and the Four Star Securityholders shall enter into the Four Star Security Purchase Agreement at the Time of Closing and the Four Star Securityholders shall sell to Westaim all of the Plumb-Line Holdings LP Securities held by the Four Star Securityholders in consideration for the Four Star Purchase Price; and | ||
(k) | Upon all of the conditions of the Plumb-Line Offer having been satisfied or, in the sole discretion of Westaim, waived (to the extent permitted under the Reorganization Agreement), Westaim will take up and pay for the securities deposited under the Plumb-Line Offer in accordance with the terms of the applicable Plumb-Line Offer as soon as reasonably practicable. Subject to the satisfaction or waiver of the conditions to the Plumb-Line Offer, Westaim shall as soon as possible and in any event within three Business Days of the Expiry Time, take-up and pay for all securities validly deposited (and not properly withdrawn) pursuant to the Plumb-Line Offer. |
(a) | the Reorganization Resolutions must be approved by the Westaim Shareholders voting in person or by proxy at the Meeting; | ||
(b) | all conditions precedent to the Reorganization, including the conditions of the Plumb-Line Offer, as set forth in the Reorganization Agreement, must be satisfied or waived by the appropriate Party; | ||
(c) | if adjustment is required, Westaim shall file articles of amendment with the Registrar giving effect to the Westaim Shares Combination or Westaim Shares Split, as applicable; | ||
(d) | the Articles of Amendment must be filed with the Registrar; |
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(e) | the Equity Financing shall be completed and the Equity Financing Gross Proceeds shall be released from trust and the Equity Financing Shares shall be issued to the subscribers under the Equity Financing; | ||
(f) | Plumb-Line must complete the Asty Acquisition and the Four Star Acquisition and PLMG must complete the F&D Acquisition; | ||
(g) | the PLMG Share Purchase, the Four Star Security Purchase and the Nascor Share Purchase must be completed pursuant to the terms and conditions of the Reorganization Agreement; | ||
(h) | Westaim must take up and pay for all Plumb-Line Securities validly deposited pursuant to the Plumb-Line Offer; and | ||
(i) | Westaim shall deliver an executed copy of a resignation and mutual release of all of the officers and directors of Westaim and resolutions of the Westaim Board appointing the Company Nominees to the Westaim Board. |
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(a) | the Share Issuance Resolution shall have been approved by not less than 50% of the votes cast by Westaim Shareholders at the Meeting in accordance with applicable Laws; | ||
(b) | the TSX shall have conditionally approved the Reorganization and the listing of the New Westaim Shares to be issued pursuant to the Equity Financing, the Plumb-Line Offer, the PLMG Share Purchase, the Four Star Security Purchase and the Nascor Share Purchase, the New Westaim Stock Option Plan and the New Westaim RSU Plan; | ||
(c) | all other Appropriate Regulatory Approvals shall have been obtained or received from the Persons having jurisdiction in the circumstances; | ||
(d) | closing of the Transactions shall have occurred on or before the Outside Date, provided that all Parties shall act in good faith and in a timely manner in so closing the Transactions; | ||
(e) | there shall not be in force any order or decree restraining or enjoining the consummation of the transactions contemplated under the Reorganization Agreement and there shall be no proceeding, whether of a judicial or administrative nature or otherwise, in progress that relates to or results from the transactions contemplated under the Reorganization Agreement that would, if successful, result in an order or ruling that would preclude completion of the transactions contemplated under the Reorganization Agreement in accordance with the terms and conditions hereof or thereof; | ||
(f) | there shall not exist any prohibition at Law against the completion of the Transactions; | ||
(g) | the Asty Acquisition, the F&D Acquisition and the Four Star Acquisition shall each be completed prior to or contemporaneous with the completion of the Transactions provided that the Companies shall act in good faith and in timely manner in so closing such acquisitions; | ||
(h) | Equity Financing Gross Proceeds of $15 million shall be held in trust with the only condition to the release of such proceeds and the consummation of the Equity Financing at the Equity Financing Offering Price being the approval of Westaim Shareholders of the Reorganization Resolutions and filing of the Articles of Amendment; and | ||
(i) | the Reorganization Agreement shall not have been terminated in accordance with its terms. |
(a) | Arcticor, Plumb-Line and PLMG shall have performed or complied with, in all material respects, each of their obligations, covenants and agreements in the Reorganization Agreement to be performed and complied with by them on or before the Time of Closing and Arcticor, Plumb-Line |
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and PLMG shall provide to Westaim a certificate certifying such compliance and Westaim shall have no knowledge to the contrary; | |||
(b) | each of the representations and warranties of Arcticor, Plumb-Line and PLMG under the Reorganization Agreement (which for purposes of this condition are to be read as though none of them contained any Material Adverse Effect or other materiality qualification), shall be true and correct in all respects on the date of the Reorganization Agreement and as of the Effective Date as if made on and as of such date except: (i) for such representations and warranties made as of a specified date, which shall be true and correct as of such specified date, (ii) as affected by transactions contemplated or permitted by the Reorganization Agreement; or (iii) where the failure of such representations and warranties in the aggregate to be true and correct in all respects would not be reasonably expected to have a Material Adverse Effect on Nascor, Plumb-Line and PLMG, taken as a whole and giving effect to the completion of the Asty Acquisition, the Four Star Acquisition and the F&D Acquisition; | ||
(c) | since the date of the Reorganization Agreement, there shall have been no Material Adverse Change with respect to Nascor; | ||
(d) | since the date of the Reorganization Agreement, there shall have been no Material Adverse Change with respect to Plumb-Line, the Plumb-Line Subsidiaries, Four Star and the Asty Assets (taken as a whole); | ||
(e) | since the date of this Agreement, there shall have been no Material Adverse Change with respect to PLMG, F&D and Sas-Can (taken as a whole); | ||
(f) | Westaim shall have received a certificate of each of Arcticor, Plumb-Line and PLMG addressed to Westaim and dated the Effective Date certifying that the conditions described in paragraphs (a), (b), (c), (d) and (e) above with respect to Arcticor, Plumb-Line and PLMG, respectively, have been satisfied; | ||
(g) | the Arcticor GP Board and the partners of Arcticor shall have adopted all necessary resolutions, and all other necessary partnership action shall have been taken by Arcticor, to permit the consummation of the Transactions; | ||
(h) | the Plumb-Line Board or the Plumb-Line Trustees shall have adopted all necessary resolutions, and all other necessary trust action shall have been taken by Plumb-Line, to permit the consummation of the Transactions; | ||
(i) | the PLMG Board shall have adopted all necessary resolutions, and all other necessary corporate action shall have been taken by PLMG, to permit the consummation of the Transactions; | ||
(j) | Westaim shall be satisfied, acting reasonably, that the aggregate of Westaim’s consolidated bank indebtedness, current portion of long-term debt and long-term debt including, for greater certainty, the current portion and long-term portion of debts due to related parties, upon closing of the Transactions, excluding any bank indebtedness, current portion of long-term debt and long-term debt of Westaim, the Westaim Subsidiaries and Nucryst immediately prior to the Time of Closing, will not exceed $49 million plus the operating line of credit of Con-Forte in the amount of $2.4 million and plus the operating line of credit of Nascor in the amount of $5 million; | ||
(k) | Westaim shall have received evidence satisfactory to it, acting reasonably, that the terms and conditions respecting Arcticor’s credit facilities and loans with HSBC Bank Canada pursuant to the facility letter between Arcticor and HSBC Bank Canada dated January 8, 2008, or otherwise, shall be amended such that HSBC Bank Canada’s recourse to the assets of Nascor shall be limited solely to the amount of debt owing by Nascor to Arcticor, which debt at the Time of Closing will not exceed $18.6 million; and |
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(l) | the conditions to the Plumb-Line Offer shall have been satisfied or waived. |
(a) | Arcticor, Plumb-Line and PLMG shall be satisfied, acting reasonably, with any escrow provisions imposed by the TSX on any of the New Westaim Shares issued pursuant to the Transactions; | ||
(b) | all outstanding Westaim Options, restricted share units and other rights to acquire common shares or other equity of Westaim or any of the Westaim Subsidiaries, other than share purchase warrants to acquire common shares of iFire, shall be cancelled or exercised; | ||
(c) | the Reorganization Resolutions in respect of the: (i) approval of the New Westaim Stock Option Plan; and (ii) approval of the New Westaim RSU Plan; shall have been approved by not less than 50% of the votes cast by Westaim Shareholders at the Meeting in accordance with applicable Laws; | ||
(d) | Westaim shall have performed or complied with, in all material respects, each of its obligations, covenants and agreements contained in the Reorganization Agreement to be performed and complied with by it on or before the Effective Time and Westaim shall provide to Arcticor, Plumb-Line and PLMG a certificate certifying such compliance and Arcticor, Plumb-Line and PLMG shall have no knowledge to the contrary; | ||
(e) | each of the representations and warranties of Westaim under the Reorganization Agreement (which for purposes of this condition shall be read as though none of them contained any Material Adverse Effect or other materiality qualification), shall be true and correct in all respects on the date of the Reorganization Agreement and as of the Effective Date as if made on and as of such date except: (i) for such representations and warranties made as of a specified date, which shall be true and correct as of such specified date; (ii) as affected by transactions contemplated or permitted by the Reorganization Agreement; or (iii) where the failure of such representations and warranties in the aggregate to be true and correct in all respects would not be reasonably expected to have a Material Adverse Effect on Westaim; | ||
(f) | since the date of the Reorganization Agreement, there shall have been no Material Adverse Change with respect to Westaim and the Westaim Subsidiaries (taken as a whole), and since June 30, 2008 there shall have been no Material Adverse Change with respect to Nucryst; | ||
(g) | since June 30, 2008, there shall have been no material change with respect to Nucryst in relation to: (i) the issuance of common shares of Nucryst (provided that the issuance of an aggregate of no more than 400,000 common shares of Nucryst shall not constitute a material change for purposes hereof); (ii) capital spending or capital spending commitments by Nucryst; and (iii) the assumption of debt by Nucryst; | ||
(h) | as at November 30, 2008, Westaim and the Westaim Subsidiaries shall have no consolidated debt and consolidated net working capital determined, except as otherwise set forth in this paragraph (h), in accordance with Canadian GAAP, plus asset backed commercial paper (provided that for purposes of this paragraph (h) the asset backed commercial paper held by Westaim shall be valued at $6 million and changes in the fair value of such asset backed commercial paper which occur after the date of the Reorganization Agreement shall not decrease the working capital of Westaim |
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for purposes hereof), plus assets of iFire (provided that for purposes of this paragraph (h) the assets of iFire shall be valued at $4 million and changes in the fair value of such assets which occur after the date of the Reorganization Agreement shall not decrease the working capital of Westaim for purposes hereof) of not less than $16.1 million (but before taking into account the proceeds from the Equity Financing or from any dispositions of shares of Nucryst, all of which shall be retained for the benefit of Westaim and under the terms and conditions indicated in the Reorganization Agreement), and provided that the consolidated net working capital of Westaim and the Westaim Subsidiaries of $16.1 million for purposes of this paragraph (h) is computed before the following items: |
(i) | Transaction costs to be paid by Westaim as provided for in the Reorganization Agreement; | ||
(ii) | legal, accounting and other transaction costs related to the iFire Disposition; | ||
(iii) | meeting and travel fees, deferred share unit costs and out-of-pocket expenses of the Westaim Board or committees of the Westaim Board (as such expenses have been historically accrued and accounted for) in respect of the Transactions and the iFire Disposition and any incremental liability relating to deferred share units outstanding immediately prior to the Time of Closing resulting from marked-to-market changes to the deferred share unit liability; and | ||
(iv) | normal operating expenses of iFire during October, 2008 and November, 2008, including payroll, patent prosecution and maintenance, facility overheads such as rent, utilities, repairs and maintenance, security and operating supplies, and administrative expenses; |
(i) | Arcticor, Plumb-Line and PLMG shall have received: (i) a certificate of Westaim addressed to Arcticor, Plumb-Line and PLMG and dated the Effective Date confirming that the conditions in paragraphs (b), (d), (e) and (f) (as it relates to Westaim and the Westaim Subsidiaries) have been satisfied; and (ii) a certificate of Westaim addressed to Arcticor, Plumb-Line and PLMG and dated the Effective Date confirming that, to the knowledge of Westaim, the conditions in paragraphs (f) (as it relates to Nucryst), (g), (h) and (j) have been satisfied; | ||
(j) | there shall not have been a material adverse change in the working capital of Nucryst from June 30, 2008 other than changes in such working capital which are consistent with Nucryst’s historical operations and changes which are attributable to Nucryst’s ordinary course business operations; and | ||
(k) | the Westaim Board shall have adopted all necessary resolutions, and all other necessary corporate action shall have been taken by Westaim to permit the consummation of the transactions contemplated in the Reorganization Agreement. |
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(a) | solicit, initiate, invite, knowingly facilitate or knowingly encourage (including by way of furnishing confidential information or entering into any form of agreement, arrangement or understanding) the initiation of or participation in, any inquiries or proposals regarding an Acquisition Proposal; | ||
(b) | participate in any discussions or negotiations regarding an Acquisition Proposal; | ||
(c) | withdraw or modify or propose publicly to withdraw or modify, in any manner adverse to the Companies, the approval of its board of directors of the Reorganization or the recommendation of its board of directors to vote in favour of the Westaim Reorganization Resolutions; | ||
(d) | furnish or provide access to any information concerning it, its Subsidiaries or their respective businesses, properties or assets to any Person in connection with, or that could reasonably be expected to lead to or facilitate, an Acquisition Proposal; | ||
(e) | waive any provisions of or release or terminate any confidentiality or standstill agreement between it and any Person relating to an actual or potential Acquisition Proposal, or amend any such agreement or consent to the making of an Acquisition Proposal in accordance with the terms of such agreement; or | ||
(f) | accept, recommend, approve or enter into or propose publicly to accept, recommend, approve or enter into any agreement, arrangement or understanding (other than a confidentiality agreement as permitted hereunder) related to any Acquisition Proposal. |
(a) | such Person has first made an unsolicited bona fide Acquisition Proposal which the Westaim Board determines in good faith (after consultation with its financial advisors) would, if consummated in accordance with its terms, be reasonably likely to result in, a Superior Proposal; | ||
(b) | the Westaim Board, after receiving the advice of outside legal counsel, has determined in good faith that the failure to take such action would be inconsistent with its fiduciary duties; and | ||
(c) | it has provided to the Companies the information required to be provided under the Reorganization Agreement in respect of such Acquisition Proposal and has promptly notified the Companies in writing of the determinations in paragraphs (a) and (b) above. |
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(a) | the Westaim Board fails to make or withdraws, qualifies or changes any of its recommendations, approvals or determinations referred to in the Reorganization Agreement or publicly proposes to do any of the foregoing, in a manner adverse to the Companies or resolves to do so prior to the Time of Closing; |
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(b) | Westaim recommends, approves or enters into or proposes publicly to accept, recommend, approve or enter into any agreement with any Person to implement a Superior Proposal subject to compliance with Westaim’s obligations described above under “Right to Match”; | ||
(c) | an Acquisition Proposal is publicly announced, proposed, offered or made to the Westaim Shareholders prior to the date of the Meeting and (i) such Acquisition Proposal has not expired or been withdrawn at the time of the Meeting and (ii) the Westaim Shareholders do not approve the Westaim Reorganization Resolutions and (iii) such Acquisition Proposal is completed within six months of the termination of the Reorganization Agreement; or | ||
(d) | Westaim shall have taken any action or have failed to take any action that results in Westaim being in breach of any of its covenants, agreements, representations or warranties made in the Reorganization Agreement (without giving effect to any materiality qualifiers contained therein) which breach individually or in the aggregate causes or would reasonably be expected to cause a Material Adverse Change in respect of Westaim and the Westaim Subsidiaries (taken as a whole) or materially impede the completion of the Reorganization, and Westaim fails to cure such breach within five Business Days after receipt of written notice thereof from the Companies (except that no cure period shall be provided for a breach which by its nature cannot be cured and, in no event, shall any cure period extend beyond the Outside Date); |
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(a) | by the mutual written consent of Westaim, Arcticor, Plumb-Line and PLMG (without further action on the part of the Westaim Shareholders if terminated after the Meeting); | ||
(b) | by Westaim, Arcticor, Plumb-Line or PLMG, if there shall be any Law that makes consummation of the Transactions illegal or otherwise prohibited, or if any judgment, injunction, order or decree of a competent Governmental Entity enjoining Westaim, Arcticor, Plumb-Line or PLMG from consummating the Transactions shall be entered and such judgment, injunction, order or decree shall have become final and non-appealable; | ||
(c) | by Westaim, Arcticor, Plumb-Line or PLMG, if the Effective Date does not occur on or prior to the Outside Date or such other date as Westaim, Arcticor, Plumb-Line and PLMG may agree; provided, however, that the right to terminate this Agreement pursuant to the right described in this paragraph shall not be available to any Party whose failure or whose affiliate’s failure to perform any material covenant, agreement or obligation under the Reorganization Agreement has been the cause of, or resulted in, the failure of the Effective Date to occur on or before such date; | ||
(d) | by Westaim, Arcticor, Plumb-Line or PLMG, if at the Meeting, the requisite vote of the Westaim Shareholders to approve the Reorganization Resolutions in respect of the Plumb-Line Offer, Nascor Share Purchase, Four Star Security Purchase and PLMG Share Purchase shall not be obtained; | ||
(e) | by Westaim, Arcticor, Plumb-Line or PLMG, by written notice to the other parties, if any of the mutual conditions precedent described above under “Mutual Conditions Precedent” have not been complied with or waived on or before the date required for performance thereof; provided, however, that no Party may rely on the failure to satisfy any of the conditions set out under “Mutual Conditions Precedent” if the condition would have been satisfied but for a material failure by such Party in complying with its obligations under the Reorganization Agreement; | ||
(f) | by Arcticor, Plumb-Line or PLMG, by written notice to Westaim, if any of the conditions precedent set out under “Conditions to the Obligations of Arcticor, Plumb-Line and PLMG” have not been complied with or waived on or before the date required for performance thereof; provided, however, that Arcticor, Plumb-Line and PLMG may not rely on the failure to satisfy any of the conditions set out under “Conditions to the Obligations of Arcticor, Plumb-Line and PLMG” if the condition would have been satisfied but for a material failure by Arcticor, Plumb-Line or PLMG in complying with their obligations under the Reorganization Agreement; | ||
(g) | by Arcticor, Plumb-Line or PLMG, if Westaim has breached any of its representations, warranties, agreements or obligations in the Reorganization Agreement which breach would result in the failure to satisfy one or more conditions set forth in paragraphs (d) or (e) under “Conditions to the Obligations of Arcticor, Plumb-Line and PLMG” and such breach is not curable or if curable, is not cured within 10 days after notice thereof has been received by Westaim; | ||
(h) | by Westaim, by written notice to the Companies, if any of the conditions precedent set out under “Conditions to the Obligations of Westaim” above have not been complied with or waived on or before the date required for performance thereof; provided, however, that Westaim may not rely on the failure to satisfy any of the conditions set out under “Conditions to the Obligations of Westaim” above if the condition would have been satisfied but for a material failure by Westaim in complying with its obligations under the Reorganization Agreement; | ||
(i) | by Westaim, if any of the Companies has breached any of its representations, warranties, agreements or obligations in the Reorganization Agreement which breach would result in the failure to satisfy one or more conditions set forth in paragraphs (a) or (b) under “Conditions to the |
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Obligations of Westaim” above and such breach is not curable or if curable, is not cured within 10 days after notice thereof has been received by the Party alleged to be in breach; | |||
(j) | by Westaim upon the occurrence of a Westaim Payment Event, provided that Westaim has paid to the Companies the Westaim non-completion fee as described herein; | ||
(k) | by Arcticor, Plumb-Line or PLMG upon the occurrence of a Westaim Payment Event; | ||
(l) | by the Companies upon the occurrence of a Company Payment Event, provided that the Companies have paid to Westaim the Company non-completion fee as described herein; or | ||
(m) | by Westaim upon the occurrence of a Company Payment Event. |
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(a) | of any change in the New Westaim Shares through subdivision, consolidation, reclassification, amalgamation, merger or otherwise; or | ||
(b) | that any rights are granted to shareholders to purchase New Westaim Shares at prices substantially below fair market value; or | ||
(c) | that, as a result of any recapitalization, merger, consolidation or other transactions, the New Westaim Shares are converted into or exchangeable for any other securities; |
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(a) | the annual information form of Westaim for the year ended December 31, 2007 (the “Westaim AIF”); | ||
(b) | the information circular and proxy statement of Westaim relating to the annual meeting of shareholders of Westaim held on May 13, 2008; | ||
(c) | the audited consolidated financial statements of Westaim as at and for the years ended December 31, 2007 and 2006 together with the notes thereto and the auditors’ report thereon; | ||
(d) | management’s discussion and analysis of the financial condition and operations of Westaim for the year ended December 31, 2007; | ||
(e) | the interim unaudited comparative consolidated financial statements as at and for the six months ended June 30, 2008 and the notes thereto; | ||
(f) | management’s discussion and analysis of the financial condition and operations of Westaim for the six months ended June 30, 2008; and | ||
(g) | the material change report of Westaim in respect of the Reorganization dated October 9, 2008. |
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![(FLOW CHART)](https://capedge.com/proxy/6-K/0001130319-08-000748/o42155o4215501.gif)
(1) | All entities are wholly-owned except for Nucryst Pharmaceuticals Corp. At June 30, 2008, Westaim owned 74.5% of Nucryst Pharmaceuticals Corp. | ||
(2) | Denotes operating entity. |
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Three Months Ended | ||||||||||||||||||||||||||||||||
($000) | June 30, 2008 | June 30, 2007 | ||||||||||||||||||||||||||||||
Concrete | Millwork | Other | Total | Concrete | Millwork | Other | Total | |||||||||||||||||||||||||
Revenues | $ | 8,145 | $ | 2,831 | $ | — | $ | 10,976 | $ | 8,188 | $ | 2,679 | $ | — | $ | 10,867 | ||||||||||||||||
Direct costs | 6,358 | 2,264 | — | 8,622 | 5,444 | 2,698 | — | 8,142 | ||||||||||||||||||||||||
Gross margin | $ | 1,787 | $ | 567 | $ | — | $ | 2,354 | $ | 2,744 | $ | (19 | ) | $ | — | $ | 2,725 | |||||||||||||||
Gross margin % | 21.9 | % | 20.0 | % | — | 21.4 | % | 33.5 | % | (0.7 | )% | — | 25.1 | % | ||||||||||||||||||
Net income | $ | 1,372 | $ | (117 | ) | $ | (143 | ) | $ | 1,112 | $ | 2,402 | $ | (758 | ) | $ | (12 | ) | $ | 1,632 | ||||||||||||
Depreciation and amortization | $ | 29 | $ | 13 | $ | — | $ | 42 | $ | 12 | $ | 9 | $ | — | $ | 20 | ||||||||||||||||
Interest (net) | 30 | 12 | — | 42 | 42 | — | — | 43 | ||||||||||||||||||||||||
EBITDA and Normalized EBITDA | $ | 1,431 | $ | (92 | ) | $ | (143 | ) | $ | 1,196 | $ | 2,456 | $ | (749 | ) | $ | (12 | ) | $ | 1,695 | ||||||||||||
Cash flow from operations | $ | 595 | $ | (24 | ) | |||||||||||||||||||||||||||
Capital expenditures | $ | 57 | $ | 242 | ||||||||||||||||||||||||||||
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Six Months Ended | ||||||||||||||||||||||||||||||||
($000) | June 30, 2008 | June 30, 2007 | ||||||||||||||||||||||||||||||
Concrete | Millwork | Other | Total | Concrete | Millwork | Other | Total | |||||||||||||||||||||||||
Revenues | $ | 17,832 | $ | 6,063 | $ | — | $ | 23,895 | $ | 14,735 | $ | 2,679 | $ | — | $ | 17,414 | ||||||||||||||||
Direct costs | 12,067 | 5,195 | — | 17,262 | 11,261 | 2,698 | — | 13,959 | ||||||||||||||||||||||||
Gross margin | $ | 5,765 | $ | 868 | $ | — | $ | 6,633 | $ | 3,474 | $ | (19 | ) | $ | — | $ | 3,455 | |||||||||||||||
Gross margin % | 32.3 | % | 14.3 | % | — | 27.8 | % | 23.6 | % | (0.7 | )% | — | 19.8 | % | ||||||||||||||||||
Net income | $ | 4,814 | $ | (505 | ) | $ | (238 | ) | $ | 4,071 | $ | 2,886 | $ | (759 | ) | $ | (15 | ) | $ | 2,112 | ||||||||||||
Depreciation and amortization | $ | 58 | $ | 22 | $ | — | $ | 80 | $ | 23 | $ | 9 | $ | — | $ | 32 | ||||||||||||||||
Interest (net) | 41 | 40 | — | 81 | 44 | 1 | — | 45 | ||||||||||||||||||||||||
EBITDA | $ | 4,913 | $ | (443 | ) | $ | (238 | ) | $ | 4,232 | $ | 2,953 | $ | (749 | ) | $ | (15 | ) | $ | 2,189 | ||||||||||||
Gain on sale of assets | $ | (1 | ) | $ | — | $ | — | $ | (1 | ) | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Normalized EBITDA | $ | 4,912 | $ | (443 | ) | $ | (238 | ) | $ | 4,231 | $ | 2,953 | $ | (749 | ) | $ | (15 | ) | $ | 2,189 | ||||||||||||
Cash flow from operations | $ | 6 | $ | 331 | ||||||||||||||||||||||||||||
Capital expenditures | $ | 1,018 | $ | 257 | ||||||||||||||||||||||||||||
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Fifteen Months Ended | Sixteen Months Ended | |||||||||||||||||||||||||||||||
($000) | December 31, 2007 | September 30, 2006(1) | ||||||||||||||||||||||||||||||
Concrete | Millwork | Other | Total | Concrete | Millwork | Other | Total | |||||||||||||||||||||||||
Revenues | $ | 37,833 | $ | 7,998 | $ | — | $ | 45,831 | $ | 25,149 | $ | — | $ | — | $ | 25,149 | ||||||||||||||||
Direct costs | 28,446 | 8,371 | — | 36,817 | 20,004 | — | — | 20,004 | ||||||||||||||||||||||||
Gross margin | $ | 9,387 | $ | (373 | ) | $ | — | $ | 9,014 | $ | 5,145 | $ | — | $ | — | $ | 5,145 | |||||||||||||||
Gross margin % | 24.8 | % | (4.7 | )% | — | 19.7 | % | 20.4 | % | — | — | 20.4 | % | |||||||||||||||||||
Net income | $ | 7,126 | $ | (3,500 | ) | $ | (57 | ) | $ | 3,569 | $ | 1,597 | $ | — | $ | — | $ | 1,597 | ||||||||||||||
Depreciation and amortization | $ | 51 | $ | 40 | $ | — | $ | 91 | $ | 235 | $ | — | $ | — | $ | 235 | ||||||||||||||||
Interest (net) | — | 183 | 172 | — | — | 172 | ||||||||||||||||||||||||||
Income taxes | — | 105 | 500 | — | — | 500 | ||||||||||||||||||||||||||
EBITDA | $ | 7,418 | $ | (3,413 | ) | $ | (57 | ) | $ | 3,948 | $ | 2,504 | $ | — | $ | — | $ | 2,504 | ||||||||||||||
Loss on sale of assets | $ | — | $ | — | $ | — | $ | — | $ | 132 | $ | — | $ | — | $ | 132 | ||||||||||||||||
Takeover costs | 778 | — | — | — | — | |||||||||||||||||||||||||||
Normalized EBITDA | $ | 7,418 | $ | (2,635 | ) | $ | (57 | ) | $ | 4,726 | $ | 2,636 | $ | — | $ | — | $ | 2,636 | ||||||||||||||
Cash flow from operations | $ | (967 | ) | $ | 1,855 | |||||||||||||||||||||||||||
Capital expenditures | $ | 131 | $ | 63 | ||||||||||||||||||||||||||||
Note: | ||
(1) | Sixteen months ended September 30, 2006 information is constructed from the audited financial statements for Plumb-Line for the four months ended September 30, 2006 and the audited financial statements for Plumb-Line for the twelve months ended May 31, 2006 found elsewhere in this Information Circular. |
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($000) | ||||
Six months ended June 30, 2008 | 6 | |||
Six months ended June 30, 2007 | 331 | |||
15 months ended December 31, 2007 | (967 | ) | ||
16 months ended September 30, 2006 | 1,855 |
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Four | ||||||||||||||||||||||||||||
15 Months | Months | 12 Months | ||||||||||||||||||||||||||
Three Months Ended | Six Months Ended | Ended | Ended | Ended | ||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | December | September | May 31, | ||||||||||||||||||||||
($000) | 2008 | 2007 | 2008 | 2007 | 31, 2007 | 30, 2006 | 2006 | |||||||||||||||||||||
Revenues | $ | 10,976 | $ | 10,867 | $ | 23,895 | $ | 17,414 | $ | 45,831 | $ | 8,213 | $ | 16,936 | ||||||||||||||
Net income | 1,112 | 1,632 | 4,071 | 2,112 | 3,569 | 1,244 | 352 | |||||||||||||||||||||
Distributions to unitholders | $ | 760 | $ | 1,322 | $ | 1,508 | $ | 1,322 | $ | 2,798 | — | — |
June 30, | June 30, | December | September | May 31, | ||||||||||||||||
($000) | 2008 | 2007 | 31, 2007 | 30, 2006 | 2006 | |||||||||||||||
Total assets | $ | 19,900 | $ | 16,041 | $ | 15,682 | $ | 10,751 | $ | 9,154 | ||||||||||
Long-term financial liabilities | $ | 302 | — | $ | 160 | $ | 2,257 | $ | 233 |
Payments due by Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
($000) | Total | 1 Year | 1 - 3 Years | 3 - 5 Years | 5 Years | |||||||||||||||
Operating lease obligations | $ | 2,234 | $ | 597 | $ | 1,058 | $ | 579 | $ | — | ||||||||||
Capital leases | 478 | 176 | 166 | 136 | — | |||||||||||||||
Supplier purchase obligations | — | — | — | — | — | |||||||||||||||
$ | 2,712 | $ | 773 | $ | 1,224 | $ | 715 | $ | — | |||||||||||
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Units | $000 | |||||||
Authorized | ||||||||
Unlimited number of units | ||||||||
Issued | ||||||||
Issued upon indenture, September 29, 2006 | 1 | — | ||||||
Balance, September 30, 2006 | 1 | — | ||||||
Canceled during the period | (1 | ) | — | |||||
Issued during the period (1) | 3,787,604 | 4,834 | ||||||
Balance, December 31, 2007 | 3,787,604 | 4,834 | ||||||
Issued during the period(2) | 120,966 | 1,210 | ||||||
Balance, June 30, 2008 | 3,908,570 | 6,044 | ||||||
Notes: | ||
(1) | On December 24, 2006, 3,304,500 units were issued at $0.001/unit for total proceeds of $3,305. During the first three months of 2007, 281,893 units were issued at $10/unit for total proceeds of $2,818,930. During the three months ended June 30, 2007, 102,300 units were issued at $10/unit for total proceeds of $1,023,000. During the six months ended December 31, 2007, 98,911 units were issued at $10/unit for total proceeds of $989,110. | |
(2) | During the three months ended March 31, 2008, 50,557 units were issued at $10/unit for total proceeds of $505,570 and during the three months ended June 30, 2008, 70,409 units were issued at $10/unit for total proceeds of $704,090. |
($000) | ||||
15 months ended December 31, 2007 | 2,798 | |||
Six months ended June 30, 2008 | 1,508 | |||
Total Distributions | 4,306 | |||
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Forming equipment | 20 years | straight-line | ||||
Heavy equipment | 20 years | straight-line | ||||
Construction equipment | 20% | declining-balance | ||||
Office equipment | 20% | declining-balance | ||||
Automotive equipment | 30% | declining-balance | ||||
Computer equipment | 30% | declining-balance |
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• | the significance of financial instruments for the entity’s financial position and performance; | ||
• | the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date; and | ||
• | how the entity manages those risks. |
• | Its objectives, policies and processes for managing capital; | ||
• | Summary quantitative data about what it manages as capital; | ||
• | Whether during the period it complied with any externally imposed capital requirements to which it is subject; and | ||
• | When the entity has not complied with such requirements, the consequences of such non-compliance. |
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Pro Forma Six months ended June 30, 2008 | Pro Forma Year ended December 31, 2007 | |||||||||||||||||||||||
($000’s except share and per share data) | ($000’s except share and per share data) | |||||||||||||||||||||||
Construction | Construction | |||||||||||||||||||||||
Pro Forma Statement of operations | Services (note 1) | Other (note 2) | Total | Services (note 1) | Other (note 2) | Total | ||||||||||||||||||
Revenues | $ | 62,500 | $ | 9,962 | $ | 72,462 | $ | 163,904 | $ | 31,830 | $ | 195,734 | ||||||||||||
Direct costs | 43,031 | 6,447 | 49,478 | 111,825 | 14,617 | 126,442 | ||||||||||||||||||
Gross margin | 19,469 | 3,515 | 22,984 | 52,079 | 17,213 | 69,292 | ||||||||||||||||||
Gross margin % | 31 | % | 35 | % | 32 | % | 32 | % | 54 | % | 35 | % | ||||||||||||
Expenses | ||||||||||||||||||||||||
General and administrative | 6,852 | 4,668 | 11,520 | 14,916 | 9,348 | 24,264 | ||||||||||||||||||
Contributions to Employee Profit Sharing Plan | — | — | — | 307 | — | 307 | ||||||||||||||||||
Construction management salaries and bonus | 9,653 | — | 9,653 | 18,141 | — | 18,141 | ||||||||||||||||||
Research and development | — | 2,570 | 2,570 | — | 6,356 | 6,356 | ||||||||||||||||||
Depreciation and amortization | 1,386 | 939 | 2,325 | 2,659 | 2,093 | 4,752 | ||||||||||||||||||
Corporate costs | — | 2,441 | 2,441 | — | 10,856 | 10,856 | ||||||||||||||||||
Income (loss) before undernoted items | 1,578 | (7,103 | ) | (5,525 | ) | 16,056 | (11,440 | ) | 4,616 | |||||||||||||||
Dilution gain | — | 6,000 | 6,000 | — | 4,525 | 4,525 | ||||||||||||||||||
Gain on sale of investment | — | 534 | 534 | — | — | — | ||||||||||||||||||
Change in fair value of third party asset-backed commercial paper | — | — | — | — | (4,048 | ) | (4,048 | ) | ||||||||||||||||
Loss on sale of third party asset-backed commercial paper | — | — | — | — | (1,067 | ) | (1,067 | ) | ||||||||||||||||
Write down of capital assets an intangible assets | — | — | — | — | (1,203 | ) | (1,203 | ) | ||||||||||||||||
Gain on sale of investment | — | — | — | — | 2,648 | 2,648 | ||||||||||||||||||
Gain on sale of capital assets | — | — | — | — | 8,722 | 8,722 | ||||||||||||||||||
Loss on issuance of shares of subsidiary | — | (25 | ) | (25 | ) | — | (134 | ) | (134 | ) | ||||||||||||||
Non-controlling interest | — | 1,042 | 1,042 | — | 1,293 | 1,293 | ||||||||||||||||||
Net interest (expense) income | (1,733 | ) | 387 | (1,346 | ) | (3,484 | ) | 1,822 | (1,662 | ) | ||||||||||||||
Foreign exchange gain (loss) | — | 508 | 508 | (15 | ) | (3,804 | ) | (3,819 | ) | |||||||||||||||
Other income | 5 | — | 5 | 2 | 2 | |||||||||||||||||||
Pro forma net (loss) income before income taxes | (150 | ) | 1,343 | 1,193 | 12,559 | (2,686 | ) | 9,873 | ||||||||||||||||
Income taxes | ||||||||||||||||||||||||
Current | 130 | 3 | 133 | 2,673 | 144 | 2,817 | ||||||||||||||||||
Future | 83 | — | 83 | 98 | — | 98 | ||||||||||||||||||
213 | 3 | 216 | 2,771 | 144 | 2,915 | |||||||||||||||||||
Pro forma net (loss) income | $ | (363 | ) | $ | 1,340 | $ | 977 | $ | 9,788 | $ | (2,830 | ) | $ | 6,958 | ||||||||||
Pro forma net (loss) income per common share - basic and fully-diluted | $ | (0.02 | ) | $ | 0.07 | $ | 0.05 | $ | 0.52 | $ | (0.15 | ) | $ | 0.37 | ||||||||||
Weighted average number of shares outstanding | 18,850,000 | 18,850,000 | 18,850,000 | 18,850,000 | 18,850,000 | 18,850,000 | ||||||||||||||||||
Notes: | ||
(1) | Construction Services represents the pro forma financial results of Plumb-Line, F&D, Four Star, Asty, and Nascor. The financial statements of Plumb-Line exclude A&K, the assets of which are contemplated under the Reorganization Agreement to be disposed of in the fourth quarter of 2008. | |
(2) | Other represents the pro forma financial results of Westaim which is primarily the results of its 74.5% owned subsidiary, Nucryst, and excludes the discontinued operations of iFire, the assets of which are expected to be sold in the fourth quarter of 2008. |
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Pro Forma Six months ended June 30, 2008 | Pro Forma Year ended December 31, 2007 | |||||||||||||||||||||||
($000’s except share and per share data) | ($000’s except share and per share data) | |||||||||||||||||||||||
Construction | Construction | |||||||||||||||||||||||
Additional Pro Forma Financial Information | Services (note 1) | Other (note 2) | Total | Services (note 1) | Other (note 2) | Total | ||||||||||||||||||
Pro Forma EBITDA (note 3) | ||||||||||||||||||||||||
Pro forma net (loss) income | $ | (363 | ) | $ | 1,340 | $ | 977 | $ | 9,788 | $ | (2,830 | ) | $ | 6,958 | ||||||||||
Income taxes | 213 | 3 | 216 | 2,771 | 144 | 2,915 | ||||||||||||||||||
Net interest | 1,733 | (387 | ) | 1,346 | 3,484 | (1,822 | ) | 1,662 | ||||||||||||||||
Depreciation and amortization | 1,386 | 939 | 2,325 | 2,659 | 2,093 | 4,752 | ||||||||||||||||||
Dilution gain | — | (6,000 | ) | (6,000 | ) | — | (4,525 | ) | (4,525 | ) | ||||||||||||||
Gain on sale of investment | — | (534 | ) | (534 | ) | — | — | — | ||||||||||||||||
Change in fair value of third party asset-backed commercial paper | — | — | — | — | 4,048 | 4,048 | ||||||||||||||||||
Loss on sale of third party asset-backed commercial paper | — | — | — | — | 1,067 | 1,067 | ||||||||||||||||||
Write down of capital assets and intangible assets | — | — | — | — | 1,203 | 1,203 | ||||||||||||||||||
Gain on sale of investment | — | — | — | — | (2,648 | ) | (2,648 | ) | ||||||||||||||||
Gain on sale of capital assets | — | — | — | — | (8,722 | ) | (8,722 | ) | ||||||||||||||||
Pro forma EBITDA | $ | 2,969 | $ | (4,639 | ) | $ | (1,670 | ) | $ | 18,702 | $ | (11,992 | ) | $ | 6,710 | |||||||||
Pro Forma Adjusted Net Income (note 4) | ||||||||||||||||||||||||
Pro forma net (loss) income | $ | (363 | ) | $ | 1,340 | $ | 977 | $ | 9,788 | $ | (2,830 | ) | $ | 6,958 | ||||||||||
Lease expense (note 5) | (354 | ) | — | (354 | ) | (1,416 | ) | — | (1,416 | ) | ||||||||||||||
Construction management salaries and bonus (note 6) | 8,355 | — | 8,355 | 15,545 | — | 15,545 | ||||||||||||||||||
Corporate costs (note 7) | (1,500 | ) | 2,441 | 941 | (3,000 | ) | 10,856 | 7,856 | ||||||||||||||||
Total adjustments | 6,501 | 2,441 | 8,942 | 11,129 | 10,856 | 21,985 | ||||||||||||||||||
Pro forma adjusted net income | $ | 6,138 | $ | 3,781 | $ | 9,919 | $ | 20,917 | $ | 8,026 | $ | 28,943 | ||||||||||||
Pro forma adjusted net income per common share - basic and fully-diluted | $ | 0.33 | $ | 0.20 | $ | 0.53 | $ | 1.11 | $ | 0.43 | $ | 1.54 | ||||||||||||
Weighted average number of shares outstanding | 18,850,000 | 18,850,000 | 18,850,000 | 18,850,000 | 18,850,000 | 18,850,000 | ||||||||||||||||||
Pro Forma Adjusted EBITDA (note 3) | ||||||||||||||||||||||||
Pro forma EBITDA | $ | 2,969 | $ | (4,639 | ) | $ | (1,670 | ) | $ | 18,702 | $ | (11,992 | ) | $ | 6,710 | |||||||||
Lease expense (note 5) | (354 | ) | — | (354 | ) | (1,416 | ) | — | (1,416 | ) | ||||||||||||||
Construction management salaries and bonus (note 6) | 8,355 | — | 8,355 | 15,545 | — | 15,545 | ||||||||||||||||||
Corporate costs (note 7) | (1,500 | ) | 2,441 | 941 | (3,000 | ) | 10,856 | 7,856 | ||||||||||||||||
Total adjustments | 6,501 | 2,441 | 8,942 | 11,129 | 10,856 | 21,985 | ||||||||||||||||||
Pro forma adjusted EBITDA | $ | 9,470 | $ | (2,198 | ) | $ | 7,272 | $ | 29,831 | $ | (1,136 | ) | $ | 28,695 | ||||||||||
Notes: | ||
(1) | Construction Services represents the pro forma financial results of Plumb-Line, F&D, Four Star, Asty, and Nascor. The financial statements of Plumb-Line exclude A&K, the assets of which are contemplated under the Reorganization Agreement to be disposed of in the fourth quarter of 2008. | |
(2) | Other represents the pro forma financial results of Westaim which is primarily the results of its 74.5% owned subsidiary, Nucryst, and excludes the discontinued operations of iFire, the assets of which are expected to be sold in the fourth quarter of 2008. | |
(3) | EBITDA represents net income before net interest expense, income taxes, depreciation and amortization and non-recurring items, and is a non-GAAP measure used by Management to measure cash flow before changes in non-cash working capital, taxes and financing costs. Non-recurring items are generally the results of one-time events that distort the financial results that are used by Management to measure financial performance. Pro forma adjusted EBITDA represents EBITDA adjusted to reflect a reduction of owner-manager salaries and bonuses, additional facility lease costs and future public company costs. | |
(4) | Pro forma adjusted net income represents pro forma net income adjusted to reflect a reduction of owner-manager salaries and bonuses, additional facility lease costs and future public company costs. | |
(5) | On March 31, 2008, Nascor sold land and buildings to a related party and leased these assets back at lease rates that approximate market rates. The total annual minimum rent amounts to $1.4 million and has been added to operating expenses on an annualized basis. | |
(6) | Management bonuses were paid historically to the owners of the construction services businesses based on tax planning strategies. These bonuses will not be paid after completion of the Reorganization, and will be replaced with annual compensation as agreed to in the purchase agreements for each individual business. This adjustment reflects the annualized difference between actual bonuses paid and expected future salaries and bonuses. | |
(7) | Corporate costs in Other are the administrative costs of Westaim. These costs include one time Reorganization costs, including severance costs amounting to $4.9 million for the 12 months ended December 31, 2007 and $0.3 million for the six months ended June 30, 2008. In addition, these costs include costs relating to stock-based compensation of Westaim, including stock-based compensation plans amounting to $1.9 million for the year ended December 31, 2007 and $0.2 million for the six months ended June 30, 2008 that will be discontinued and replaced with new stock-based compensation plans subsequent to the Reorganization that have not been finalized. The corporate costs relating to Westaim have therefore been replaced with the estimated incremental public company costs that the restructured organization will incur. |
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Outstanding as at | Outstanding as at | Outstanding as at | ||||||
December 31, 2007 | June 30, 2008 before | June 30, 2008 after giving | ||||||
before giving effect to | giving effect to the | effect to the Transactions | ||||||
the Transactions | Transactions | (Pro Forma) | ||||||
(000’s) | (000’s) | (000’s) (1) | ||||||
Long Term Debt and Bank Debt | $Nil | $Nil | $55,022 | |||||
Westaim Shares | $426,262 (94,136 Westaim Shares) | $426,280 (94,215 Westaim Shares) | $57,223(2) (18,850 New Westaim Shares)(2) |
Notes: | ||
(1) | Long Term Debt and Bank Debt of $55.0 million include (i) current bank indebtedness of $0.7 million, (ii) current and non-current portions of long-term debt of $32.7 million, (iii) current and non-current portions of obligations under capital leases of $0.5 million, and (iv) current and non-current indebtedness to related parties of $21.1 million. Included in the current and non-current portions of long-term debt of $32.7 million is an acquisition term loan of $30.0 million committed by a major bank, and included in current and non-current indebtedness to related parties of $21.1 million is $18.6 million owing to Arcticor, the former parent of Nascor. For a description of the acquisition term loan and the debt owed to Arcticor, see Note 4(i) to the unaudited pro forma consolidated financial statements attached hereto as Appendix H. | |
(2) | For purposes of arriving at the share capital and the post-Consolidation number of New Westaim Shares outstanding following completion of the Transactions, it is assumed that the Equity Financing is completed at an Equity Financing Offering Price of $12.00. |
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Name and Municipality | Director of New | Principal Occupations for the | ||||||
of Residence | Westaim Since | Position(s) with New Westaim | Past Five Years | |||||
Marco DeDominicis Calgary, Alberta | N/A | Chairman, President and Chief Executive Officer | President of Plumb-Line Holdings Inc., the administrator of Plumb-Line. Prior thereto was President of Con-Forte Contracting Co. Ltd., predecessor to the business of Plumb-Line. | |||||
Gerald Berkhold Calgary, Alberta | N/A | Director | President of Atlas Concrete Inc., a personal holding company. | |||||
David Hall Calgary, Alberta | N/A | Director | President and Chief Operating Officer of Marble Point Energy Ltd. since 2005; prior thereto was President and Chief Operating Officer of Argo Energy Ltd. Marble Point Energy Ltd. is a private oil and gas company. | |||||
Frank King Calgary, Alberta | 1996 | Director | President of Metropolitan Investment Corporation, a private capital investment and management services company. | |||||
Jack Lee Calgary, Alberta | N/A | Vice Chairman | President of Facet Resources Ltd., a private investment company. | |||||
Gerald Romanzin Calgary, Alberta | N/A | Director | Independent businessman. | |||||
G.A. (Drew) Fitch Calgary, Alberta | N/A | Interim Executive Vice President and Chief Financial Officer | President and Chief Executive Officer of Westaim since May 2007; prior thereto was Senior Vice President and Chief Financial Officer of Westaim. | |||||
Philip R. Greer Calgary, Alberta | N/A | Interim Vice President and Corporate Controller | Controller of Westaim. | |||||
Cristina Nunes Calgary, Alberta | N/A | Interim Vice President, Corporate Finance and Tax | Director, Corporate Taxation of Westaim. |
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Number of New | % of Outstanding New | |||||||||
Westaim Shares | Westaim Shares | |||||||||
Shareholder | Type of Ownership | Owned(3) | Owned(3) | |||||||
Marco DeDominicis(2) | See Note 1 | 7,720,159(1) | 40.96 | % | ||||||
Arcticor Structures Limited Partnership | Beneficially and of Record | 2,690,583 | 14.27 | % |
Notes: | ||
(1) | Includes (i) 3,294,409 New Westaim Shares which will be owned by Mr. DeDominicis personally, (ii) 2,525,618 New Westaim Shares that will be owned by Mr. DeDominicis’ spouse, and (iii) 1,902,631 New Westaim Shares that will be held by Mr. DeDominicis and his spouse in trust for his children. | |
(2) | Mr. DeDominicis beneficially owns, or controls or directs, directly or indirectly, approximately 22% of the outstanding voting limited partnership units of Arcticor. | |
(3) | Assumes an Equity Financing Offering Price of $12.00. |
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Date | Securities | Price per Security | Number of Securities | |||||||
December 5, 2007 | Westaim Options(1) | N/A | 257,200 | |||||||
January 8, 2008 | Westaim Options(2) | N/A | 10,000 | |||||||
January 15, 2008 | Westaim Shares(3) | $ | 0.22 | 60,334 | ||||||
March 3, 2008 | Westaim Shares(3) | $ | 0.24 | 18,763 |
Notes: | ||
(1) | The Westaim Options were issued to a director and an officer of Westaim and have an exercise price of $0.22. | |
(2) | The Westaim Options were issued to a director of Westaim and have an exercise price of $0.28. | |
(3) | The Westaim Shares were issued in settlement of Westaim RSUs. |
Date | High ($) | Low ($) | Trading Volume | |||||||||
2007 | ||||||||||||
October | 0.50 | 0.36 | 3,831,067 | |||||||||
November | 0.42 | 0.17 | 5,720,286 | |||||||||
December | 0.30 | 0.21 | 5,009,655 | |||||||||
2008 | ||||||||||||
January | 0.30 | 0.23 | 2,087,199 | |||||||||
February | 0.30 | 0.24 | 9,692,557 | |||||||||
March | 0.28 | 0.23 | 1,452,106 | |||||||||
April | 0.32 | 0.22 | 9,535,462 | |||||||||
May | 0.28 | 0.22 | 5,017,004 | |||||||||
June | 0.28 | 0.23 | 1,533,015 | |||||||||
July | 0.26 | 0.21 | 1,762,787 | |||||||||
August | 0.28 | 0.23 | 2,164,667 | |||||||||
September | 0.27 | 0.21 | 7,227,583 | |||||||||
October (1 - 7) | 0.27 | 0.19 | 1,827,204 |
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(a) | the Reorganization Agreement; | ||
(b) | the credit facility of New Westaim described under note 4(i) to the unaudited pro forma consolidated financial statements included as Appendix H hereto; | ||
(c) | the Asty Asset Purchase Agreement; | ||
(d) | the Four Star Share Purchase Agreement; and | ||
(e) | the F&D Share Purchase Agreement. |
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(a) | audited consolidated financial statements of Plumb-Line for the initial 15 month year ended December 31, 2007; | ||
(b) | audited consolidated financial statements of Con-Forte Contracting Co. Ltd. (“Con-Forte Co.”) (as the predecessor to the business of Plumb-Line) for the four month period ended September 30, 2006; and | ||
(c) | audited consolidated financial statements of Con-Forte Co. (as the predecessor to the business of Plumb-Line) for the 12 month period ended May 31, 2006; |
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(d) | this Circular include annual financial statements of Plumb-Line consisting of (i) an income statement, a statement of retained earnings, and a cash flow statement for each of the three most recently completed financial years ended more than 120 days before the date of the Information Circular, (ii) a balance sheet as at the end of the two most recently completed financial years described in paragraph (i), and (iii) notes to the financial statements. |
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(a) | typically, be provided with a computerized form (often called a “voting instruction form”) which is not signed by the Intermediary and which, when duly completed and signed by the Non-Registered Holder and returned to the Intermediary or its service company, will constitute voting instructions which the Intermediary must follow. The Non-Registered Holder will generally be given a page of instructions which contains a removable label containing a bar-code and other information. In order for the applicable computerized form to validly constitute a voting instruction form, the Non-Registered Holder must remove the label from the instructions and affix it to the computerized form, duly complete and sign the form and submit it to the Intermediary or its service company in accordance with the instructions of the Intermediary or service company. In certain cases, the Non-Registered Holder may provide such voting instructions to the Intermediary or its service company through the Internet or through a toll-free telephone number; or | ||
(b) | less commonly, be given a proxy form which has already been signed by the Intermediary (typically by a facsimile, stamped signature), which is restricted to the number of common shares beneficially owned by the Non-Registered Holder but which is otherwise not completed. In this case, the Non-Registered Holder who wishes to submit a proxy should properly complete the proxy form and submit it to Computershare Trust Company of Canada (attn: Proxy Department), 9th Floor, 100 University Ave, Toronto, ON, M5J 2Y1, or by facsimile at 1-866-249-7775. |
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(1) | Westaim be and is hereby authorized to acquire all of the Nascor Securities at the Nascor Purchase Price to be paid by the issuance, on a post-Consolidation basis, of New Westaim Shares; | ||
(2) | Westaim, be and is hereby authorized to acquire all of the Plumb-Line Securities at the Plumb-Line Offer Price to be paid by the issuance, on a post-Consolidation basis, of New Westaim Shares; | ||
(3) | Westaim, be and is hereby authorized to acquire all of the PLMG Securities at the PLMG Purchase Price to be paid by the issuance, on a post-Consolidation basis, of New Westaim Shares; | ||
(4) | Westaim, be and is hereby authorized to acquire all of the Plumb-Line Holding LP Securities held by the Four Star Securityholders at the Four Star Purchase Price to be paid by the issuance, on a post-Consolidation basis, of New Westaim Shares; | ||
(5) | Any director or officer of Westaim is hereby authorized and directed, for and on behalf of Westaim, to execute and deliver all documents and do all such other acts or things as he or she may determine to be necessary or advisable to give effect to this resolution, provided that the board of directors of Westaim may, at its discretion, revoke this resolution before it is acted upon without further approval or authorization of the Westaim Shareholders; and | ||
(6) | All acts, proceedings, deeds, instruments, documents, agreements, writings, or filings connected with or pertaining to those matters resolved herein and which may heretofore have been executed, made, done or performed by or on behalf of Westaim or by any agent or agents, or by any officer or officers, or by any director or directors, of Westaim are hereby approved, ratified and confirmed. |
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(1) | Pursuant to Section 173(1)(f) of theBusiness Corporations Act(Alberta), the articles of the Corporation be amended to change the number of issued and outstanding Westaim Shares on the basis that every twenty (20) Westaim Shares currently outstanding be consolidated into one (1) New Westaim Share (the “Consolidation”); | ||
(2) | No fractional shares shall be issued upon the Consolidation and in the case where the Consolidation results in a shareholder of Westaim otherwise becoming entitled to a fraction of a common share, the number of New Westaim Shares issued to such Westaim Shareholder shall be rounded up to the next greater whole number of New Westaim Shares, if the fractional entitlement is equal to or greater than 0.5 and shall, without any additional compensation, be rounded down to the next lesser whole number of New Westaim Shares if the fractional entitlement is less than 0.5. In calculating such fractional interests, all Westaim Shares registered in the name of or beneficially held by such Westaim Shareholder or their nominee shall be aggregated; | ||
(3) | The effective date of such Consolidation shall be the date shown in the certificate of amendment; | ||
(4) | Any director or officer of Westaim is hereby authorized and directed, for and on behalf of Westaim, to execute and deliver all documents, including Articles of Amendment, and do all such other acts or things as he or she may determine to be necessary or advisable to give effect to this resolution, provided that the board of directors of Westaim may, at its discretion, revoke this resolution before it is acted upon without further approval or authorization of the Westaim Shareholders. |
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(1) | pursuant to section 173(1)(a) of theBusiness Corporations Act(Alberta) the name of the Corporation be changed to “Peer Construction Group Inc.”; | ||
(2) | Any director or officer of Westaim is hereby authorized and directed, for and on behalf of Westaim, to execute and deliver all documents, including Articles of Amendment, and do all such other acts or things as he or she may determine to be necessary or advisable to give effect to this resolution, provided that the board of directors of Westaim may, at its discretion, revoke this resolution before it is acted upon without further approval or authorization of the Westaim Shareholders. |
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(1) | Westaim’s stock option plan in the form attached as Appendix I to this Circular is hereby approved; | ||
(2) | Any one director or officer of Westaim be and is hereby authorized and directed, upon the board of directors resolving to give effect to this resolution, to take all necessary steps and proceedings, and to execute, deliver and file any and all applications, declarations, documents and other instruments and do all such other acts or things (whether under corporate seal of Westaim or otherwise) that may be necessary or desirable to give effect to the provisions of this resolution. |
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(1) | Westaim’s restricted share unit plan in the form attached as Appendix J to this Circular is hereby approved; | ||
(2) | Any one director or officer of Westaim be and is hereby authorized and directed, upon the board of directors resolving to give effect to this resolution, to take all necessary steps and proceedings, and to execute, deliver and file any and all applications, declarations, documents and other instruments and do all such other acts or things (whether under corporate seal of Westaim or otherwise) that may be necessary or desirable to give effect to the provisions of this resolution. |
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(1) | Pursuant to Section 173(1)(f) of theBusiness Corporations Act(Alberta), the articles of the Corporation be amended to effect the Westaim Shares Combination as further described in the Circular; | ||
(2) | No fractional shares shall be issued upon the Westaim Shares Combination and in the case where the Westaim Shares Combination results in a shareholder of Westaim otherwise becoming entitled to a fraction of a common share, the number of New Westaim Shares issued to such Westaim Shareholder shall be rounded up to the next greater whole number of New Westaim Shares, if the fractional entitlement is equal to or greater than 0.5 and shall, without any additional compensation, be rounded down to the next lesser whole number of New Westaim Shares if the fractional entitlement is less than 0.5. In calculating such fractional interests, all Westaim Shares registered in the name of or beneficially held by such Westaim Shareholder or their nominee shall be aggregated; | ||
(3) | The effective date of the Westaim Shares Combination shall be the date shown in the certificate of amendment; and | ||
(4) | Any director or officer of Westaim is hereby authorized and directed, for and on behalf of Westaim, to execute and deliver all documents, including Articles of Amendment, and do all such other acts or things as he or she may determine to be necessary or advisable to give effect to this resolution, provided that the board of directors of Westaim may, at its discretion, revoke this resolution before it is acted upon without further approval or authorization of the Westaim Shareholders. | ||
OR | |||
(1) | Pursuant to Section 173(1)(f) of theBusiness Corporations Act(Alberta), the articles of the Corporation be amended to effect the Westaim Shares Split as further described in the Circular; | ||
(2) | No fractional shares shall be issued upon the Westaim Shares Split and in the case where the Westaim Shares Split results in a shareholder of Westaim otherwise becoming entitled to a fraction of a common share, the number of New Westaim Shares issued to such Westaim Shareholder shall be rounded up to the next greater whole number of New Westaim Shares, if the fractional entitlement is equal to or greater than 0.5 and shall, without any additional compensation, be rounded down to the next lesser whole number of New Westaim Shares if the fractional entitlement is less than 0.5. In calculating such fractional interests, all Westaim Shares registered in the name of or beneficially held by such Westaim Shareholder or their nominee shall be aggregated; | ||
(3) | The effective date of the Westaim Shares Split shall be the date shown in the certificate of amendment; | ||
(4) | Any one director or officer of Westaim be and is hereby authorized and directed for and on behalf of Westaim (whether under its corporate seal or otherwise) to execute and deliver articles of amendment to effect the foregoing resolutions and all other documents and instruments and to take all such other actions as such officer or director may deem necessary or desirable to implement the foregoing resolutions and the matters authorized hereby, such determinations to be conclusively evidenced by the execution and delivery of such documents and other instruments or the taking of any such action. |
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Edmonton, Alberta
October 9, 2008
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- | our report to the trustees of Plumb-Line Income Trust (“Plumb-Line”) on the consolidated balance sheets of Plumb-Line as at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006 and the consolidated statements of income, comprehensive income and retained earnings and cash flows for the six month period ended June 30, 2008, fifteen month period ended December 31, 2007, four month period ended September 30, 2006 and twelve month period ended May 31, 2006 . Our report is dated August 29, 2008 (except for note 25 which is dated October 6 , 2008). | |
- | our report to the directors of Asty Concrete & Construction Ltd. (“Asty”) on the balance sheets of Asty as at April 30, 2008 and 2007 and the statements of operations, comprehensive income and retained earnings and cash flows for the years then ended. Our report is dated July 4, 2008 (except as to note 11 which is dated October 8, 2008). | |
- | our report to the directors of F&D Management Services Ltd. (“F&D”) on the consolidated balance sheet of F&D as at February 29, 2008 and the consolidated statements of operations, comprehensive income and deficit and cash flows for the year then ended. Our report is dated August 15, 2008 (except as to note 15 which is dated October 8, 2008). | |
- | our report to the directors of Four Star Gravel Contractors Ltd. (“Four Star”) on the balance sheets of Four Star as at December 28, 2007 and 2006 and the statements of operations, comprehensive income and retained earnings and cash flows for the years then ended. Our report is dated July 3, 2008 (except as to note 10 which is dated October 8, 2008). | |
- | our report to the directors of Plumb-Line Masonry Group Inc. (“PLMG”) on the balance sheet of PLMG as at September 30, 2008. Our report is dated October 8, 2008. |
Calgary, Alberta
October 9, 2008
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Calgary, Canada | (Signed)“MacKay LLP” | |
October 9, 2008 | Chartered Accountants |
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Burlington, Ontario | (Signed) “Bell & Company LLP” | |
October 9, 2008 | Chartered Accountants |
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September 30, 2006 and May 31, 2006
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1 | ||||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
6 |
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Marco DeDominicis
President
Calgary, Canada
October 6, 2008
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![]() | Deloitte & Touche LLP 3000 Scotia Centre 700 Second Street S.W. Calgary AB T2P 0S7 Canada | |
Tel: 403-267-1700 | ||
Fax: 403-264-2871 | ||
www.deloitte.ca |
Plumb-Line Income Trust:
Calgary, Alberta | (signed) “Deloitte & Touche LLP” | |
August 29, 2008 (except for Note 25 which is dated October 6, 2008) | Chartered Accountants |
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Fifteen Month | Four Month | Twelve Month | ||||||||||||||||||||||||||
Three Month Period Ended | Six Month Period Ended | Period Ended | Period Ended | Period Ended | ||||||||||||||||||||||||
June 30, | June 30, | December 31, | September 30, | May 31, | ||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2007 | 2006 | 2006 | ||||||||||||||||||||||
(Unaudited) | (Audited) | (Unaudited) | (Audited) | (Audited) | (Audited) | |||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
(Notes 1 and 4) | (Notes 1 and 4) | |||||||||||||||||||||||||||
REVENUE | 10,975,984 | 10,866,827 | 23,894,422 | 17,413,879 | 45,831,212 | 8,212,698 | 16,936,441 | |||||||||||||||||||||
DIRECT COSTS | 8,622,007 | 8,142,276 | 17,261,471 | 13,959,173 | 36,817,305 | 6,058,604 | 13,945,541 | |||||||||||||||||||||
GROSS MARGIN | 2,353,977 | 2,724,551 | 6,632,951 | 3,454,706 | 9,013,907 | 2,154,094 | 2,990,900 | |||||||||||||||||||||
EXPENSES | ||||||||||||||||||||||||||||
General and administrative | 1,032,778 | 937,541 | 2,219,024 | 1,189,174 | 3,666,836 | 388,588 | 1,168,507 | |||||||||||||||||||||
Depreciation | 42,194 | 20,494 | 79,847 | 32,086 | 90,669 | 80,772 | 153,821 | |||||||||||||||||||||
Interest | 42,024 | 43,089 | 80,971 | 45,165 | 183,481 | 57,359 | 115,081 | |||||||||||||||||||||
Employee profit sharing plan | — | — | — | — | 307,000 | — | 1,100,000 | |||||||||||||||||||||
1,116,996 | 1,001,124 | 2,379,842 | 1,266,425 | 4,247,986 | 526,719 | 2,537,409 | ||||||||||||||||||||||
INCOME FROM OPERATIONS | 1,236,981 | 1,723,427 | 4,253,109 | 2,188,281 | 4,765,921 | 1,627,375 | 453,491 | |||||||||||||||||||||
OTHER (INCOME) EXPENSES | ||||||||||||||||||||||||||||
Management fees | 52,295 | 30,000 | 84,678 | 60,000 | 215,585 | — | — | |||||||||||||||||||||
Takeover costs | — | — | — | — | 778,197 | — | — | |||||||||||||||||||||
Rental income from revenue producing property | — | — | — | — | — | (43,111 | ) | (87,709 | ) | |||||||||||||||||||
(Gain) loss on disposal of assets | (1,362 | ) | — | (1,362 | ) | — | — | (9,300 | ) | 141,076 | ||||||||||||||||||
Loss on foreign exchange | 81,308 | 9,705 | 102,766 | 9,705 | 49,146 | — | — | |||||||||||||||||||||
Other (income) expense | (7,465 | ) | 51,629 | (3,615 | ) | 6,878 | 48,714 | — | (16,299 | ) | ||||||||||||||||||
124,776 | 91,334 | 182,467 | 76,583 | 1,091,642 | (52,411 | ) | 37,068 | |||||||||||||||||||||
INCOME BEFORE INCOME TAXES | 1,112,205 | 1,632,093 | 4,070,642 | 2,111,698 | 3,674,279 | 1,679,786 | 416,423 | |||||||||||||||||||||
INCOME TAXES (Note 19) | ||||||||||||||||||||||||||||
Current | — | — | — | — | 105,355 | 347,194 | 30,140 | |||||||||||||||||||||
Future | — | — | — | — | — | 88,164 | 34,176 | |||||||||||||||||||||
— | — | — | — | 105,355 | 435,358 | 64,316 | ||||||||||||||||||||||
NET INCOME AND COMPREHENSIVE INCOME | 1,112,205 | 1,632,093 | 4,070,642 | 2,111,698 | 3,568,924 | 1,244,428 | 352,107 | |||||||||||||||||||||
RETAINED EARNINGS, BEGINNING OF PERIOD | 2,981,497 | 1,393,829 | 770,647 | 914,224 | — | 1,890,278 | 1,538,171 | |||||||||||||||||||||
DISTRIBUTIONS | (760,014 | ) | (1,322,000 | ) | (1,507,601 | ) | (1,322,000 | ) | (2,798,277 | ) | — | — | ||||||||||||||||
RETAINED EARNINGS, END OF PERIOD | 3,333,688 | 1,703,922 | 3,333,688 | 1,703,922 | 770,647 | 3,134,706 | 1,890,278 | |||||||||||||||||||||
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June 30, | December 31, | September 30, | May 31, | |||||||||||||||||
2008 | 2007 | 2007 | 2006 | 2006 | ||||||||||||||||
(Audited) | (Unaudited) | (Audited) | (Audited) | (Audited) | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
(Notes 1 and 4) | (Notes 1 and 4) | |||||||||||||||||||
ASSETS | ||||||||||||||||||||
CURRENT | ||||||||||||||||||||
Cash and cash equivalents | 1,291,784 | 3,546,464 | 2,256,107 | 411,223 | 257,202 | |||||||||||||||
Accounts receivable (Note 16) | 11,785,209 | 7,417,462 | 8,626,749 | 4,491,830 | 3,317,506 | |||||||||||||||
Inventory (Note 5) | 2,213,170 | 1,861,211 | 1,899,494 | 618,110 | 863,143 | |||||||||||||||
Prepaid expenses | 82,974 | 146,342 | 34,841 | 129,572 | 32,863 | |||||||||||||||
Income taxes receivable | 50,000 | 50,000 | — | — | 30,700 | |||||||||||||||
Due from director (Note 6) | — | — | — | 168,808 | 168,808 | |||||||||||||||
Due from parent corporation (Note 7) | — | — | 1,254,899 | 804,899 | ||||||||||||||||
Due from related parties (Note 15) | 1,901,270 | 2,617,334 | 1,795,601 | 123,339 | 44,245 | |||||||||||||||
17,324,407 | 15,638,813 | 14,612,792 | 7,197,781 | 5,519,366 | ||||||||||||||||
Deposit on acquisition | 300,000 | — | — | — | — | |||||||||||||||
Capital assets (Note 8) | 2,275,296 | 402,559 | 1,069,685 | 1,354,354 | 1,405,780 | |||||||||||||||
Revenue producing property (Note 9) | — | — | — | 2,199,029 | 2,228,746 | |||||||||||||||
19,899,703 | 16,041,372 | 15,682,477 | 10,751,164 | 9,153,892 | ||||||||||||||||
LIABILITIES | ||||||||||||||||||||
CURRENT | ||||||||||||||||||||
Bank indebtedness (Note 12) | 2,933,079 | 3,215,546 | 3,693,467 | 1,859,176 | 1,292,727 | |||||||||||||||
Accounts payable and accrued liabilities (Note 16) | 3,740,508 | 3,330,993 | 4,196,992 | 1,398,512 | 1,646,504 | |||||||||||||||
Income tax payable | 58,820 | 5,790 | 61,672 | 349,008 | 32,973 | |||||||||||||||
Profit sharing plan payable | — | — | — | 1,100,000 | 1,100,000 | |||||||||||||||
Deferred revenue | — | 1,835,055 | 76,914 | 10,425 | — | |||||||||||||||
Current obligations under capital lease (Note 13) | 175,846 | — | 39,313 | 130,275 | 123,769 | |||||||||||||||
Current portion of long-term debt (Note 14) | — | — | — | 105,226 | 110,000 | |||||||||||||||
Due to related parties (Note 15) | 3,121,697 | 925,705 | 1,659,432 | 33,795 | 341,339 | |||||||||||||||
Future income taxes (Note 19) | — | — | — | 99,814 | 18,414 | |||||||||||||||
10,029,950 | 9,313,089 | 9,727,790 | 5,086,231 | 4,665,726 | ||||||||||||||||
Obligations under capital leases (Note 13) | 302,044 | — | 159,679 | 186,651 | 232,844 | |||||||||||||||
Long-term debt (Note 14) | — | — | — | 2,070,267 | 2,098,499 | |||||||||||||||
Future income taxes (Note 19) | — | — | — | 57,860 | 51,096 | |||||||||||||||
10,331,994 | 9,313,089 | 9,887,469 | 7,401,009 | 7,048,165 | ||||||||||||||||
COMMITMENTS (Note 20) | ||||||||||||||||||||
GUARANTEES (Note 21) | ||||||||||||||||||||
SUBSEQUENT EVENTS (Note 25) | ||||||||||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Share capital (Note 17) | — | — | — | 40 | 40 | |||||||||||||||
Contributed surplus | 215,409 | 215,409 | ||||||||||||||||||
Retained earnings | — | — | — | 3,134,706 | 1,890,278 | |||||||||||||||
UNITHOLDERS’ EQUITY | ||||||||||||||||||||
Unitholders’ contributions (Note 18) | 6,044,005 | 4,834,345 | 4,834,345 | — | — | |||||||||||||||
Contributed surplus | 190,016 | 190,016 | 190,016 | — | — | |||||||||||||||
Retained earnings | 3,333,688 | 1,703,922 | 770,647 | — | — | |||||||||||||||
9,567,709 | 6,728,283 | 5,795,008 | 3,350,155 | 2,105,727 | ||||||||||||||||
APPROVED BY BOARD OF DIRECTORS | 19,899,703 | 16,041,372 | 15,682,477 | 10,751,164 | 9,153,892 | |||||||||||||||
(Signed) Director | (Signed) Director |
Table of Contents
Fifteen Month | Four Month | Twelve Month | ||||||||||||||||||||||||||
Three Month Period Ended | Six Month Period Ended | Period Ended | Period Ended | Period Ended | ||||||||||||||||||||||||
June 30, | June 30, | December 31, | September 30, | May 31, | ||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2007 | 2006 | 2006 | ||||||||||||||||||||||
(Unaudited) | (Audited) | (Unaudited) | (Audited) | (Audited) | (Audited) | |||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
(Notes 1 and 4) | (Notes 1 and 4) | |||||||||||||||||||||||||||
CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES: | ||||||||||||||||||||||||||||
OPERATING | ||||||||||||||||||||||||||||
Net income | 1,112,205 | 1,632,093 | 4,070,642 | 2,111,698 | 3,568,924 | 1,244,428 | 352,107 | |||||||||||||||||||||
Items not affecting cash: | ||||||||||||||||||||||||||||
Depreciation | 42,194 | 20,494 | 79,847 | 32,086 | 90,669 | 80,772 | 153,821 | |||||||||||||||||||||
Future income taxes | — | — | — | — | — | 88,164 | 34,176 | |||||||||||||||||||||
(Gain) loss on sale of capital assets | (1,362 | ) | — | (1,362 | ) | — | — | (9,300 | ) | 141,076 | ||||||||||||||||||
1,153,037 | 1,652,587 | 4,149,127 | 2,143,784 | 3,659,593 | 1,404,064 | 681,180 | ||||||||||||||||||||||
Decrease (increase) in non-cash working capital items: | ||||||||||||||||||||||||||||
Accounts receivable | 374,577 | (2,333,683 | ) | (3,230,663 | ) | (4,298,404 | ) | (8,626,749 | ) | (1,541,825 | ) | (10,571 | ) | |||||||||||||||
Inventory | (318,649 | ) | (1,104,132 | ) | (313,676 | ) | (1,234,117 | ) | (124,174 | ) | 253,251 | (328,172 | ) | |||||||||||||||
Prepaid expenses | (107,584 | ) | (112,903 | ) | (98,134 | ) | (144,526 | ) | (34,841 | ) | (96,707 | ) | (32,863 | ) | ||||||||||||||
Income taxes payable (receivable) | 50,000 | 79,992 | 55,148 | (72,330 | ) | 61,672 | 346,735 | 48,053 | ||||||||||||||||||||
Accounts payable and accrued liabilities | (556,534 | ) | 843,548 | (478,924 | ) | 2,101,823 | 4,020,554 | (22,499 | ) | 43,827 | ||||||||||||||||||
Deferred revenue | — | 950,765 | (76,914 | ) | 1,835,054 | 76,914 | 10,425 | — | ||||||||||||||||||||
Profit sharing plan payable | — | — | — | — | — | — | 1,100,000 | |||||||||||||||||||||
594,847 | (23,826 | ) | 5,964 | 331,284 | (967,031 | ) | 353,444 | 1,501,454 | ||||||||||||||||||||
FINANCING | ||||||||||||||||||||||||||||
Repayment of obligations under capital leases | (45,094 | ) | — | (89,262 | ) | — | (198,993 | ) | (39,686 | ) | (229,230 | ) | ||||||||||||||||
Repayment of long-term debt | — | — | — | — | — | (33,006 | ) | (166,184 | ) | |||||||||||||||||||
Proceeds of commercial loan | — | — | — | — | — | — | — | |||||||||||||||||||||
Advances from related parties | (341,681 | ) | 3,130,592 | 2,411,492 | 4,811,051 | 443,425 | (165,539 | ) | 32,029 | |||||||||||||||||||
Advances to related parties | 157,186 | (5,409,340 | ) | (1,585,408 | ) | (7,805,525 | ) | (1,795,601 | ) | (79,094 | ) | (39,447 | ) | |||||||||||||||
Bank indebtedness | 62,676 | 3,215,546 | (760,388 | ) | 3,215,546 | 3,693,467 | 566,449 | (350,560 | ) | |||||||||||||||||||
Issuance of units | 189,000 | — | 189,000 | 2,822,235 | 2,822,235 | — | — | |||||||||||||||||||||
Distributions | (244,924 | ) | (299,000 | ) | (486,941 | ) | (545,149 | ) | (787,167 | ) | — | — | ||||||||||||||||
(222,837 | ) | 637,798 | (321,507 | ) | 2,498,158 | 4,177,366 | 249,124 | (753,392 | ) | |||||||||||||||||||
INVESTING | ||||||||||||||||||||||||||||
Acquisition of capital assets | (57,485 | ) | (241,647 | ) | (451,028 | ) | (256,787 | ) | (130,666 | ) | (63,047 | ) | — | |||||||||||||||
Acquisition of A&K | — | — | — | — | (823,562 | ) | — | — | ||||||||||||||||||||
Proceeds on disposal of capital assets | — | — | 102,248 | — | — | 64,500 | — | |||||||||||||||||||||
Advances to directors | — | — | — | — | — | — | (150,908 | ) | ||||||||||||||||||||
Advances to parent corporation | — | — | — | — | — | (450,000 | ) | (339,952 | ) | |||||||||||||||||||
Deposit on acquisition | (300,000 | ) | — | (300,000 | ) | — | — | — | — | |||||||||||||||||||
(357,485 | ) | (241,647 | ) | (648,780 | ) | (256,787 | ) | (954,228 | ) | (448,547 | ) | (490,860 | ) | |||||||||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 14,525 | 372,325 | (964,323 | ) | 2,572,655 | 2,256,107 | 154,021 | 257,202 | ||||||||||||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 1,277,259 | 3,174,139 | 2,256,107 | 973,809 | — | 257,202 | — | |||||||||||||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | 1,291,784 | 3,546,464 | 1,291,784 | 3,546,464 | 2,256,107 | 411,223 | 257,202 | |||||||||||||||||||||
Represented by: | ||||||||||||||||||||||||||||
Cash | 1,104,728 | 1,327,994 | 1,104,728 | 1,327,994 | 720,482 | 411,223 | 257,202 | |||||||||||||||||||||
Term deposits | 1,001,990 | 2,218,470 | 1,001,990 | 2,218,470 | 1,535,625 | — | — | |||||||||||||||||||||
Cheques issued in excess of funds on deposit | (814,934 | ) | — | (814,934 | ) | — | — | — | — | |||||||||||||||||||
1,291,784 | 3,546,464 | 1,291,784 | 3,546,464 | 2,256,107 | 411,223 | 257,202 | ||||||||||||||||||||||
SUPPLEMENTARY INFORMATION | ||||||||||||||||||||||||||||
Interest paid | 21,374 | 10,096 | 69,778 | 29,673 | 159,574 | 81,616 | 39,357 | |||||||||||||||||||||
Income taxes paid | — | — | 50,000 | 50,000 | — | 50,000 | 30,700 | |||||||||||||||||||||
Table of Contents
PLUMB-LINE INCOME TRUST | 6 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
1. | STRUCTURE OF THE TRUST AND BASIS OF PRESENTATION | |
Plumb-Line Income Trust (the “Trust”) was indentured on September 29, 2006 as an open-end, unincorporated, limited purpose investment trust. The Trust was established for the purposes of acquiring, investing in, holding, transferring, and disposing of the debt and equity securities of consolidated entities. On October 1, 2006 Con-Forte Contracting Limited Partnership (“Con-Forte”) a controlled entity of the Trust, acquired the contracting business of Con-Forte Co. Contracting Ltd. (“Contracting Ltd.”) excluding certain revenue producing properties and related party balances as detailed in Note 4. As the Trust, Con-Forte and Contracting Ltd. were entities under common management and control, this acquisition has been accounted for as an internal reorganization and as such the assets and liabilities of the business acquired (Note 4) were recorded at the net book value as of the acquisition date. The comparative financial statements presented herein for the periods ended May 31, 2006 and September 30, 2006 are those of Con-Forte Co. Contracting Ltd., the predecessor entity. As part of the reorganization, the Trust recorded $190,016 as contributed surplus. | ||
Prior to September 29, 2006, the consolidated entity includes Contracting Ltd., a 50% interest in the joint venture Stuart Olson/Con-Forte Inc. (“Joint Venture”) and a variable interest entity 1045729 Alberta Ltd. (“104 VIE”). The Joint Venture commenced operations on March 1, 2006 and provides construction services in Alberta and British Columbia. The activities of the Joint Venture have been proportionately consolidated into these financial statements. The 104 VIE commenced operations on May 4, 2003 and provides labor services to the Trust. The activities of the 104 VIE have been consolidated into these financial statements pursuant to Accounting Guideline 15,Consolidation of Variable Interest entities (“AcG-15”). | ||
There were no subsidiaries for the periods prior to September 29, 2006. After September 29, 2006, Contracting Ltd. operated as a related party to the Trust while the 50% interest in the Joint Venture and the 104 VIE continued in the consolidated financial statements of the Trust. | ||
The consolidated financial statements include the accounts of the Trust and all of its subsidiaries, 104 VIE and partnerships, as well as its pro rata share of assets, liabilities, revenues, expenses, net income and cash flows of its joint ventures. | ||
The consolidated financial statements include the accounts of the Trust and its subsidiaries as follows: |
• | Plumb-Line Commercial Trust (“Commercial”), owned 100% by the Trust, was formed on September 29, 2006 pursuant to the Income Tax Act to hold the 99.99% interest in Plumb-Line Holdings Limited Partnership (“Partnership”). |
Table of Contents
PLUMB-LINE INCOME TRUST | 7 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
1. | STRUCTURE OF THE TRUST AND BASIS OF PRESENTATION (Continued) |
• | The Partnership, owned 99.99% by Commercial, was formed on October 11, 2006 pursuant to the provisions of the Partnership Act of Alberta to hold 99.99 % of Con-Forte and 99.99% A&K Millwork Limited Partnership (“A&K”) and Plumb-Line Investments Limited Partnership (“Investment LP”). | ||
• | Con-Forte was formed on September 29, 2006 pursuant to the Partnership Act of Alberta and provides commercial concrete formwork and residential basement cribbing services in Alberta and British Columbia. On October 1, 2006, Contracting Ltd. assigned its 50% interest in the Joint Venture to Con-Forte for nominal consideration. | ||
• | A&K was formed on October 11, 2006 pursuant to the Partnership Act of Alberta and supplies and installs architectural millwork. A&K was an inactive partnership until it acquired assets from an unrelated third party on April 1, 2007 (Note 4). All the operations of A&K are included in the consolidated statements of the Trust as of April 1, 2007. |
2. | SIGNIFICANT ACCOUNTING POLICIES | |
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). The significant accounting principles used in these consolidated financial statements are as follows: | ||
Use of estimates | ||
Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Accounts receivable are stated after evaluation as to their collectability and an appropriate allowance for doubtful accounts is provided where considered necessary. Provisions are made for slow moving and obsolete inventory as well as warranty costs. Amortization is based on the estimated useful lives of property, equipment and revenue producing properties. Actual results could differ from these estimates. | ||
Estimates primarily arise in the calculation of estimated useful lives of the capital assets and the determination of the percentage of completion basis. | ||
Cash and cash equivalents | ||
Cash and cash equivalents include cash, term deposits and marketable securities with original maturities of three months or less. |
Table of Contents
PLUMB-LINE INCOME TRUST | 8 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) | |
Inventory | ||
Millwork material is comprised of lumber, moulding, hardware and sundry materials valued at the lower of cost, computed on a first-in first-out basis, and net realizable value. Construction inventory is comprised of sundry materials valued at lower of cost, using the weighted average method, or net realizable value. | ||
Variable interest entities | ||
Pursuant to the requirements of AcG-15,Consolidation of Variable Interest Entitiesand EIC-157,Implicit Variable Interests under AcG-15, the Trust has consolidated those entities in which it has a variable interest, whether directly or implied through its relationships with other entities, and is the primary beneficiary. A variable interest entity (“VIE”) is one in which either the equity investment at risk is insufficient to permit the VIE to finance its activities without additional subordinated financial support, or the holders of the equity at risk lack the characteristics of a controlling financial interest. The primary beneficiary is defined as the party that will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both. | ||
Investments in joint ventures | ||
Investments in companies subject to joint control are accounted for using the proportionate consolidation method. The Trust’s pro-rata share of the assets, liabilities, revenues and expenses of the joint venture have been combined on a line-by-line basis with similar items of the Trust. | ||
Property, equipment and revenue producing property | ||
Property, equipment and the revenue producing property are initially recorded at cost. Depreciation is calculated using the following rates and methods intended to amortize the cost of assets over their estimated useful lives: |
Forming equipment | 20 years | straight-line | ||||
Heavy equipment | 20 years | straight-line | ||||
Construction equipment | 20% | declining-balance | ||||
Office equipment | 20% | declining-balance | ||||
Automotive equipment | 30% | declining-balance | ||||
Computer equipment | 30% | declining-balance |
Table of Contents
PLUMB-LINE INCOME TRUST | 9 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) | |
Property, equipment and revenue producing property (Continued) | ||
Depreciation on the revenue producing property included in the comparative consolidated financial statements is calculated over the assets estimated useful life using the declining-balance method at a rate of 4% per year. | ||
Depreciation on leasehold improvements included in the comparative consolidated financial statements is calculated over the assets estimated useful life using the straight-line method over the term of the lease. | ||
Long lived assets | ||
Long-lived assets consist of property, equipment and revenue producing property. Long-lived assets held for use are measured and amortized as described in the applicable accounting policies. | ||
The Trust performs impairment testing on long-lived assets held for use whenever events or changes in circumstances indicate that the carrying value of an asset, or group of assets, may not be recoverable. Impairment losses are recognized when undiscounted future cash flows from its use and disposal are less than the asset’s carrying amount. Impairment is measured as the amount by which the asset’s carrying value exceeds its fair value. Any impairment is included in earnings for the period. | ||
Discounted cash flows are used to measure fair value of long-lived assets. | ||
Leases | ||
A lease that transfers substantially all of the benefits and risks of ownership is classified as a capital lease. At the inception of a capital lease, an asset and a payment obligation are recorded at an amount equal to the lesser of the present value of the minimum lease payments and the property’s fair market value. Assets under capital leases are amortized as indicated in the above capital assets policy note, over their estimated useful lives. All other leases are accounted for as operating leases and rental payments are expensed as incurred. | ||
Revenue recognition | ||
The Trust recognizes revenue on the percentage-of-completion basis, whereby revenue is recognized proportionately with the degree of completion of services contracted. There is a 10% holdback on all jobs. This holdback can be collected 45 days after completion of the job. Holdbacks are recorded in accounts receivable on the balance sheets. |
Table of Contents
PLUMB-LINE INCOME TRUST | 10 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) | |
Future income taxes | ||
The Trust is an inter vivos trust for Canadian income tax purposes and is taxable only on income that is not distributed or distributable to unitholders. The Trust is required to distribute all of its income and capital gains that would otherwise be taxable in the Trust to unitholders. Should the Trust incur any income taxes in the future, the funds available for distribution would be reduced accordingly. As such, no future taxes have been recorded in the Trust. | ||
Contracting Ltd. followed the asset and liability method of accounting for future income taxes. This has been reflected in the comparative periods ended May 31, 2006 and September 30, 2006 presented in these consolidated financial statements. Under this method, future income tax assets and liabilities are recorded based on temporary differences between the carrying amount of balance sheet items and their corresponding tax bases. In addition, the future benefits of income tax assets, including unused tax losses, are recognized, subject to a valuation allowance, to the extent that it is more likely than not that such future benefits will ultimately be realized. Future income tax assets and liabilities are measured using substantively enacted tax rates and laws expected to apply when the tax liabilities or assets are to be either settled or realized. | ||
104 VIE also follows the asset and liability method of accounting for future income taxes. | ||
Foreign currency translation | ||
Transaction amounts denominated in foreign currencies are translated into their Canadian dollar equivalents at exchange rates prevailing at the transaction dates. Carrying values of monetary assets and liabilities reflect the exchange rates at the balance sheet date. Gains and losses on translation or settlement are included in the determination of net income for the current period. |
Table of Contents
PLUMB-LINE INCOME TRUST | 11 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) | |
Future accounting pronouncements | ||
In 2006, Canada’s Accounting Standards Board (“AcSB”) ratified a strategic plan that will result in Canadian GAAP, as used by public entities, being converged with International Financial Reporting Standards (“IFRS”) over a transitional period. In February 2008, the ACSB confirmed January 1, 2011 as the date that Canadian public entities will be required to start reporting under IFRS. Companies will be required to provide qualitative disclosure on the key elements and timing of their transition plan to IFRS no later than their 2008 annual Management Discussion and Analysis. Qualitative disclosure of the impact of the transition is required in companies’ 2009 interim and annual Management Discussion and Analysis. Comparative financial information for 2010 will be required when companies begin reporting 2011 results under IFRS. The impact of this transition on the Trust’s consolidated financial statements has not yet been determined; however, management continues to monitor these regulatory developments. | ||
In February 2008, the Canadian Institute of Chartered Accountants (“CICA”) issued new Handbook Section 3064 “Goodwill and Intangible Assets”, replacing Handbook Section 3062 “Goodwill and Other Intangible Assets” and Handbook Section 3450 “Research and Development Costs”. The new section will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Trust will adopt the new standards for its fiscal year beginning January 1, 2009. This section establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Handbook Section 3062. The Trust is currently evaluating the impact of the adoption of this new section on its consolidated financial statements. | ||
3. | CHANGES IN ACCOUNTING POLICIES | |
Effective October 1, 2006, the Trust adopted the following new accounting standards issued by the CICA: | ||
Financial instruments | ||
The Trust adopted CICA Handbook Sections 1530 — Comprehensive Income (“Section 1530”), 3251 — Equity (“Section 3251”), 3855, — Financial Instruments — Recognition and Measurement (“Section 3855”), and 3865 — Hedges (“Section 3865”). The Trust has adopted these standards retrospectively without restatement; accordingly, comparative amounts for prior periods have not been restated. |
Table of Contents
PLUMB-LINE INCOME TRUST | 12 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
3. | CHANGES IN ACCOUNTING POLICIES (Continued) | |
Financial Instruments (Continued) | ||
Section 1530 establishes standards for reporting and displaying certain gains and losses, such as unrealized gains and losses related to cash flow hedges or available-for-sale financial assets, outside of net income, in a statement of comprehensive income (loss). Comprehensive income (loss) is defined as the change in equity of the Trust arising from transactions and other events and circumstances, except those resulting from owner investment and distribution. Accumulated other comprehensive income (loss) is separately disclosed as a component of equity. | ||
Transitional provisions require that any cumulative gains and losses arising from translation of a self-sustaining foreign operation, appraisal increase credits and donations from non-owners, be reclassified as accumulated other comprehensive income, and that prior period comparative figures be restated. The Trust had no items requiring reclassification to accumulated other comprehensive income. | ||
Section 3251 establishes standards for the presentation of equity and changes in equity, including changes arising from those items recorded in comprehensive income. | ||
Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities and nonfinancial derivatives. It requires that all financial assets and financial liabilities be recognized on the consolidated balance sheet when the Trust becomes a party to the contractual provisions of the financial instrument. Under Section 3855, all financial assets and financial liabilities are initially recognized at fair value. Subsequent measurement depends on whether the financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities. | ||
Section 3865 specifies the criteria that must be satisfied in order for hedge accounting to be applied as well as the accounting for each of the permitted hedging strategies. Hedge accounting is discontinued prospectively when the derivative no longer qualifies as an effective hedge, when the derivative is terminated or sold, or upon the sale or early termination of the hedged item. |
Table of Contents
PLUMB-LINE INCOME TRUST | 13 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
3. | CHANGES IN ACCOUNTING POLICIES (Continued) | |
Financial Instruments (Continued) | ||
Effective October 1, 2006, the Trust has classified all of its financial assets as loans and receivables with the exception of cash and cash equivalents, which has been classified as held-for-trading by its nature, and all of its financial liabilities as other financial liabilities. Financial assets classified as loans and receivables and financial liabilities classified as other financial liabilities are measured at amortized cost using the effective interest method. The Trust has adopted a policy under the new standard of expensing all transaction costs as incurred. Regular way purchases and sales of financial assets are recognized on the settlement date, the date on which the Trust receives or delivers the asset. The Trust has reviewed contracts entered into or modified subsequent to June 1, 2002 and determined that the Trust does not currently have any significant embedded derivatives in these contracts that require separate accounting and disclosure. There were no transactions resulting in other comprehensive income for the periods ended December 31, 2007 and June 30, 2008. There were no transition adjustments resulting in an adjustment to either undistributed income or accumulated other comprehensive income as at October 1, 2006. The Trust does not have any transactions which qualify for hedge accounting. | ||
Accounting changes | ||
The Trust adopted CICA Handbook Section 1506 — Accounting Changes (“Section 1506”). Section 1506 requires that voluntary changes in accounting policies be made only if the changes result in financial statements that provide reliable and more relevant information. It also requires prior period errors to be corrected retrospectively. The adoption of Section 1506 did not have a material impact on the Trust’s financial statements. | ||
Effective January 1, 2008, the Trust adopted the following new accounting standards issued by the CICA: | ||
Section 3862 — Financial Instruments — Disclosures modifies the disclosure requirements for financial instruments that were included in Section 3861 Financial Instruments — Disclosure and Presentation. The new standards require entities to provide disclosures in their financial statements that enable users to evaluate: |
• | the significance of financial instruments for the entity’s financial position and performance, | ||
• | the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and | ||
• | how the entity manages those risks. |
Table of Contents
PLUMB-LINE INCOME TRUST | 14 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
3. | CHANGES IN ACCOUNTING POLICIES (Continued) | |
Accounting changes (Continued) | ||
Section 3863 — Financial Instruments — Presentation carries forward unchanged the presentation requirements of the old Section 3861 “Financial Instruments — Disclosure and Presentation”. | ||
Capital disclosures | ||
Section 1535 — Capital Disclosures establishes standards for disclosing information about an entity’s capital and how it is managed. These standards require an entity to disclose the following: |
• | Its objectives, policies and processes for managing capital; | ||
• | Summary quantitative data about what it manages as capital; | ||
• | Whether during the period it complied with any externally imposed capital requirements to which it is subject; and | ||
• | When the entity has not complied with such requirements, the consequences of such non-compliance. |
Inventory | ||
Section 3031 — Inventories provides guidance on the measurement and disclosure of inventories. The new recommendation establishes that inventories should be measured at the lower of cost and net realizable value and provides guidance on the determination of cost. There was no material impact on the financial statements from the adoption of the new accounting recommendations. |
Table of Contents
PLUMB-LINE INCOME TRUST | 15 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
4. | ACQUISITION AND REORGANIZATION |
a) | On October 1, 2006, Con-Forte, a controlled entity of the Trust, acquired the contracting business of Contracting Ltd. As the Trust, Con-Forte and Contracting Ltd. were entities under common management and control, this acquisition has therefore been accounted for as an internal reorganization and as such these assets and liabilities have been recorded at their respective book values. |
$ | ||||
Assets acquired | ||||
Inventory | 617,877 | |||
Forming inventory | 332,443 | |||
Forming equipment | 271,524 | |||
Computers | 44,592 | |||
Computer software | 21,931 | |||
Office furniture | 10,295 | |||
Trucks | 132,524 | |||
Heavy equipment | 374,648 | |||
1,805,834 | ||||
Liabilities assumed | ||||
Obligations under capital lease | 316,926 | |||
Funded by advance from Contracting Ltd. | 1,488,908 | |||
Working capital related to the business and certain non core assets and liabilities of Contracting Ltd. were not acquired by Con-Forte. These non core assets and liabilities included: |
$ | ||||
Due from director (Note 6) | 168,804 | |||
Due from parent corporation (Note 7) | 1,254,899 | |||
Revenue producing property (Note 9) | 2,199,029 | |||
Long-term debt (Note 14) | (2,175,493 | ) |
Certain capital leases on equipment used in the contracting business were left in Contracting Ltd. These leases were transferred to the Trust at carrying values effective January 1, 2008. During the fifteen month period ended December 31, 2007, the Trust paid Contracting Ltd. rent for the use of this equipment. (Note 16) |
Table of Contents
PLUMB-LINE INCOME TRUST | 16 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
4. | ACQUISITION AND REORGANIZATION |
b) | On April 1, 2007, the Trust (through A&K) acquired certain assets and assumed certain liabilities pursuant to an asset purchase agreement with A&K Millwork Ltd. and North American Caseline Inc., both unrelated third parties as follows: |
$ | |||
Assets acquired | |||
Inventory | 825,000 | ||
Computer equipment | 40,000 | ||
Machinery and equipment | 135,000 | ||
1,000,000 | |||
Liabilities assumed | |||
Accounts payable and accrued liabilities | 176,438 | ||
Funded by advance from the Partnership | 823,562 | ||
All the operations of A&K are included in the consolidated financial statements of the Trust as of April 1, 2007. | ||
5. | INVENTORY |
June 30, | December 31, | September 30, | May 31, | |||||||||||||
2008 | 2007 | 2006 | 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Construction raw materials | 1,253,253 | 1,239,611 | 607,729 | 513,634 | ||||||||||||
Construction work-in-progress | 816 | 2,271 | 10,381 | 349,509 | ||||||||||||
Millwork raw materials | 959,101 | 657,612 | — | — | ||||||||||||
2,213,170 | 1,899,494 | 618,110 | 863,143 | |||||||||||||
6. | DUE FROM DIRECTOR | |
As at May 31, 2006 and September 30, 2006, these amounts were due from a director, were unsecured, non-interest bearing with no fixed terms of repayments. |
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PLUMB-LINE INCOME TRUST | 17 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
7. | DUE FROM PARENT CORPORATION | |
As at May 31, 2006 and September 30, 2006, Contracting Ltd. was a wholly-owned subsidiary of Terra Vita Inc. Amounts owing to Terra Vita Inc. represent inter-company loans payable. All amounts are unsecured, non-interest bearing with no fixed terms of repayments. | ||
8. | CAPITAL ASSETS |
June 30, 2008 | December 31, 2007 | |||||||||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||||||||
Cost | Amortization | Value | Cost | Amortization | Value | |||||||||||||||||||
Equipment: | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Forming | 1,153,714 | 19,930 | 1,133,784 | 271,524 | 2,525 | 268,999 | ||||||||||||||||||
Heavy | 700,682 | 9,467 | 691,215 | 383,439 | 1,858 | 381,581 | ||||||||||||||||||
Construction | 373,671 | 94,539 | 279,132 | 393,195 | 63,752 | 329,443 | ||||||||||||||||||
Office | 14,334 | 1,254 | 13,080 | 3,156 | 345 | 2,811 | ||||||||||||||||||
Automotive | 72,748 | 11,075 | 61,673 | 51,273 | 2,723 | 48,550 | ||||||||||||||||||
Computer | 130,063 | 33,651 | 96,412 | 58,557 | 20,256 | 38,301 | ||||||||||||||||||
2,445,212 | 169,916 | 2,275,296 | 1,161,144 | 91,459 | 1,069,685 | |||||||||||||||||||
September 30, 2006 | May 31, 2006 | |||||||||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||||||||
Cost | Amortization | Value | Cost | Amortization | Value | |||||||||||||||||||
Equipment: | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Forming | 711,481 | 85,286 | 626,195 | 711,481 | 72,998 | 638,483 | ||||||||||||||||||
Heavy | 539,288 | 164,640 | 374,648 | 539,288 | 155,652 | 383,636 | ||||||||||||||||||
Construction | 7,587 | 126 | 7,461 | 110,914 | 102,696 | 8,218 | ||||||||||||||||||
Office | 30,271 | 19,977 | 10,294 | 30,271 | 19,241 | 11,030 | ||||||||||||||||||
Automotive | 372,918 | 240,394 | 132,524 | 372,918 | 222,602 | 150,316 | ||||||||||||||||||
Computer | 142,465 | 75,941 | 66,524 | 142,203 | 68,564 | 73,639 | ||||||||||||||||||
Leaseholds | 224,977 | 88,269 | 136,708 | 224,977 | 84,519 | 140,458 | ||||||||||||||||||
2,028,987 | 674,633 | 1,354,354 | 2,132,052 | 726,272 | 1,405,780 | |||||||||||||||||||
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PLUMB-LINE INCOME TRUST | 18 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
8. | CAPITAL ASSETS (Continued) | |
Included in property and equipment is various equipment held under capital leases with net book values as follows: |
June 30, | December 31, | September 30, | May 31, | |||||||||||||
2008 | 2007 | 2006 | 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Forming equipment | 190,327 | 69,653 | 127,273 | 111,827 | ||||||||||||
Heavy equipment | 275,735 | 137,454 | 156,902 | 228,134 | ||||||||||||
Automotive | 59,414 | — | — | 296,402 | ||||||||||||
Computers | — | — | — | 58,563 | ||||||||||||
Assets acquired under capital lease during the period | 368,160 | 198,993 | — | 624,188 |
9. | REVENUE PRODUCING PROPERTY |
September 30, 2006 | May 31, 2006 | |||||||||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||||||||
Cost | Amortization | Value | Cost | Amortization | Value | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Land | 894,480 | — | 894,480 | 894,480 | — | 894,480 | ||||||||||||||||||
Building | 1,341,720 | 37,171 | 1,304,549 | 1,341,720 | 7,454 | 1,334,266 | ||||||||||||||||||
2,236,200 | 37,171 | 2,199,029 | 2,236,200 | 7,454 | 2,228,746 | |||||||||||||||||||
Subsequent to September 30, 2006, the revenue producing property did not transfer into Con-Forte (see Note 4). |
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PLUMB-LINE INCOME TRUST | 19 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
10. | INVESTMENTS IN JOINT VENTURES | |
The following amounts represent the Trust’s proportionate interest relating to its Joint Venture: |
Three Month | Six Month | Fifteen Month | ||||||||||||||||||
Period Ended | Period Ended | Period Ended | ||||||||||||||||||
June 30, | June 30, | December 31, | ||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2007 | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||
Current assets | 26,772 | 2,480,572 | 26,772 | 2,480,572 | 28,208 | |||||||||||||||
Non-current assets | 25,707 | 28,079 | 25,707 | 28,079 | 26,610 | |||||||||||||||
Current liabilities | 56,583 | 2,512,755 | 56,583 | 2,512,756 | 58,923 | |||||||||||||||
Revenue | 67,365 | 919,180 | 805,251 | 1,869,648 | 5,296,754 | |||||||||||||||
Expenses | 8,856 | 803,315 | 112,166 | 1,622,854 | 3,273,347 | |||||||||||||||
Net income | 58,509 | 115,865 | 693,085 | 246,794 | 2,023,407 | |||||||||||||||
Cash provided by (used in) operating activities | 608,189 | 875,390 | (92,349 | ) | 1,531,924 | (186,010 | ) | |||||||||||||
Cash (used in) provided by financing activities | (720,289 | ) | 115,866 | (601,429 | ) | 138,990 | 1,495,819 | |||||||||||||
Cash used in investing activities | — | — | — | (405 | ) | (405 | ) |
Four Month | Twelve Month | |||||||
Period Ended | Period Ended | |||||||
September 30, | May 31, | |||||||
2006 | 2006 | |||||||
$ | $ | |||||||
Current assets | — | 390,153 | ||||||
Non-current assets | 29,689 | 22,605 | ||||||
Current liabilities | 33,794 | 416,864 | ||||||
Non-current liabilities | — | — | ||||||
Revenue | — | — | ||||||
Expenses | 1,037,958 | 4,105 | ||||||
Net income (loss) | 142,005 | (4,105 | ) | |||||
Cash provided by operating activities | 238,341 | 33,180 | ||||||
Cash provided by (used in) financing activities | 142,005 | — | ||||||
Cash used in investing activities | (7,547 | ) | (22,891 | ) |
Table of Contents
PLUMB-LINE INCOME TRUST | 20 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
11. | VARIABLE INTEREST ENTITY | |
On May 12, 2003 Contracting Ltd., the predecessor entity of the Trust, entered into a Labor Agreement with 104 VIE, which is owned by a relative of the principal shareholder of Contracting Ltd, who also served as a member of Contracting Ltd.’s management team. This Labor Agreement was terminated on September 29, 2006. | ||
On September 29, 2006 Con-Forte, an entity controlled by the Trust, entered into a Labor Agreement with 104 VIE. The sole shareholder of 104 VIE is both a unitholder and a member of the management team of the Trust, as well as a relative of the Trust’s controlling unitholder. | ||
The Labor Agreements stipulates that 104 VIE shall provide labor exclusively to Contracting Ltd. and subsequently Con-Forte at the work sites designated by Contracting Ltd. and Con-Forte. Contracting Ltd. and subsequently Con-Forte covered all costs and expenses incurred by 104 VIE, and are required to pay under payment terms that match 104 VIE’s payroll schedule. Substantially all of 104 VIE’s business is to supply labor to Contracting Ltd. and Con-Forte. 104 VIE’s equity is not sufficient to sustain its operations if operating under normal trade terms. | ||
In accordance with CICA Accounting Guideline No. 15Consolidation of variable interest entities(“AcG-15”), 104 VIE constitutes a variable interest entity of which the Trust and its predecessor entity is the primary beneficiary. Accordingly, the Trust consolidates the accounts of 104 VIE. | ||
The total assets of the 104 VIE are as follows: |
Total Assets | ||||
As at: | $ | |||
June 30, 2008 | 803,402 | |||
December 31, 2007 | 667,353 | |||
September 30, 2006 | 569,854 | |||
May 31, 2006 | 276,065 |
The assets consist of mainly cash, accounts receivables, and prepaid assets. |
Table of Contents
PLUMB-LINE INCOME TRUST | 21 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
12. | BANK INDEBTEDNESS | |
The Trust has available to it, two credit lines as follows: | ||
The operating credit line in Con-Forte is available to a maximum of $2,400,000, (December 31, 2007 - $2,400,000, September 30, 2006 - $2,400,000, and May 31, 2006 - $2,400,000) of which $ 1,632,726 (December 31, 2007 - $2,201,982, September 30, 2006 - $1,859,176, May 31, 2006 - $1,292,727) was drawn upon at period end. Interest is calculated at the bank’s prime rate plus 0.75% per annum and is secured by a general security agreement covering all assets of Con-Forte, by Corporate Guarantee of Contracting Ltd. and a related company and by Personal Guarantee of a majority unitholder of the Trust. The credit facility includes certain restrictive covenants including ratio of debt to equity not to at any time exceed 2.00 to 1.00 and ratio of current assets to current liabilities not to at any time be less than 1.10 to 1.00. Con-Forte is in compliance with these covenants. | ||
The operating credit line in A&K is available to a maximum of $1,500,000 (December 31, 2007 - $1,500,000) of which $1,300,353 (December 31, 2007 - $1,491,485) was drawn upon at period end. It bears interest at prime plus 0.75% per annum and is secured by a general security agreement over all present and future personal property of A&K and a limited guarantee in the amount of $1,500,000 by a majority unitholder of the Trust. This credit facility did not exist at September 30, 2006 and May 31, 2006. The credit facility includes certain restrictive covenants including ratio of debt to tangible net worth not to at any time exceed 3.00 to 1.00 and ratio of current assets to current liabilities not to at any time be less than 1.20 to 1.00. As at June 30, 2008 and December 31, 2007, A&K is in violation of these covenants. | ||
Subsequent to June 30, 2008 A&K renewed the facility and rectified the breach of covenants by depositing an additional $750,000 with the lender. |
Table of Contents
PLUMB-LINE INCOME TRUST | 22 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
13. | OBLIGATIONS UNDER CAPITAL LEASES |
June 30, | December 31, | September 30, | May 31, | |||||||||||||
2008 | 2007 | 2006 | 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Various vehicle finance contracts, secured by specified equipment, with interest charged at 6.24% to 6.738% per annum compounded monthly, payable in blended monthly installments of $1,034 to $1,037 over terms of 42 to 48 months, due June 2009 to September 2009 | 41,935 | — | 99,276 | 109,470 | ||||||||||||
Various leasing finance contracts, secured by specified equipment, with interest charged at 13.1% to 15.4% per annum compounded monthly, payable in blended monthly installments of $483 to $2,245 over a term of 36 months, due January 2009 to April 2009 | 47,535 | — | 113,643 | 124,522 | ||||||||||||
Various finance contracts, secured by specified equipment, with interest charged at 5.68% to 6.18% per annum compounded monthly, payable in blended monthly installments of $1,651 to $3,670 over a 24 to 36 month terms, due July 2007 to July 2008 | 13,237 | — | 104,007 | 122,621 | ||||||||||||
Various leasing finance contracts, secured by specified equipment, with interest charged at 6.78% to 13.2% per annum compounded monthly, payable in blended monthly installments of $2,175 to $3,892 over a 36 month term, due October 2010 to April 2012 | 375,183 | 198,992 | — | — | ||||||||||||
477,890 | 198,992 | 316,926 | 356,613 | |||||||||||||
Less current portion | 175,846 | 39,313 | 130,275 | 123,769 | ||||||||||||
302,044 | 159,679 | 186,651 | 232,844 | |||||||||||||
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PLUMB-LINE INCOME TRUST | 23 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
13. | OBLIGATIONS UNDER CAPITAL LEASES (Continued) | |
Estimated principal payments over the next five years are as follows: |
June 30, | December 31, | September 30, | May 31, | |||||||||||||
2008 | 2007 | 2006 | 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
2007 | N/A | N/A | 130,275 | 123,769 | ||||||||||||
2008 | N/A | 39,313 | 116,731 | 120,140 | ||||||||||||
2009 | 175,846 | 44,243 | 69,920 | 103,539 | ||||||||||||
2010 | 86,961 | 50,380 | — | 9,165 | ||||||||||||
2011 | 79,419 | 28,105 | — | — | ||||||||||||
2012 | 113,919 | 36,952 | — | — | ||||||||||||
2013 | 21,745 | — | — | — | ||||||||||||
477,890 | 198,993 | 316,926 | 356,613 | |||||||||||||
Interest expense for the six months ended June 30, 2008 includes interest on obligations under capital leases of $17,112 (2007 - $Nil; three months ended June 30, 2008 - $8,556; three months ended June 30, 2007 - $Nil; 15 months ended December 31, 2007 - $5,746; four months ended September 30, 2006 - $10,036; year ended May 31, 2006 - $15,158). | ||
14. | LONG-TERM DEBT |
June 30, | December 31, | September 30, | May 31, | |||||||||||||
2008 | 2007 | 2006 | 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Commercial loan, interest charged at the bank’s prime rate plus 1.25% per annum compounded monthly, calculated on a 164 month amortization, payable in monthly installments of $20,740, secured by a promissory note, assignment of rent and a first charge over the revenue producing property, guaranteed by a majority unitholder of the Trust | — | — | 2,175,493 | 2,208,499 | ||||||||||||
Less current portion | — | — | 105,226 | 110,000 | ||||||||||||
— | — | 2,070,267 | 2,098,499 | |||||||||||||
On the internal reorganization on October 1, 2006, the long-term debt and the revenue producing properties that were pledged as collateral did not transfer into Con-Forte (see Note 4). |
Table of Contents
PLUMB-LINE INCOME TRUST | 24 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
14. | LONG-TERM DEBT (Continued) | |
The estimated principal payments after May 31, 2006 were as follows: |
May 31, | ||||
2006 | ||||
$ | ||||
2007 | 110,000 | |||
2008 | 113,000 | |||
2009 | 117,976 | |||
2010 | 125,939 | |||
2011 | 134,707 | |||
Thereafter | 1,606,877 | |||
2,208,499 | ||||
15. | DUE FROM (TO) RELATED PARTIES |
June 30, | December 31, | September 30, | May 31, | |||||||||||||
2008 | 2007 | 2006 | 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Due from: | ||||||||||||||||
Companies with common shareholders and management. Amounts are unsecured, non-interest bearing with no set terms of repayment | 1,901,270 | 1,795,601 | 123,339 | 44,245 | ||||||||||||
Due to: | ||||||||||||||||
Companies with common shareholders and management. Amounts are unsecured, non-interest bearing with no set terms of repayment | 3,121,697 | 1,659,432 | 33,795 | 157,348 | ||||||||||||
A unitholder of the Trust and member of management. Amounts are unsecured, non-interest bearing with no set terms of repayment | — | — | — | 183,991 | ||||||||||||
3,121,697 | 1,659,432 | 33,795 | 341,339 | |||||||||||||
The amounts listed above will be repaid/collected within the next 12 months and therefore management believes carrying value approximates fair value due to the short term nature of the loans. |
Table of Contents
PLUMB-LINE INCOME TRUST | 25 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
16. | RELATED PARTY TRANSACTIONS | |
The following are included in direct costs and billed by various companies that are related by commonalities in shareholders and management for: |
Three Month | Six Month | Fifteen Month | Four Month | Twelve Month | ||||||||||||||||||||||||
Period Ended | Period Ended | Period Ended | Period Ended | Period Ended | ||||||||||||||||||||||||
June 30, | June 30, | December 31, | September 30, | May 31, | ||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2007 | 2006 | 2006 | ||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||
Labor expense | 1,852,014 | 1,143,580 | 3,939,519 | 2,036,829 | 5,573,627 | 481,432 | 1,852,760 | |||||||||||||||||||||
Rent expense | — | 1,500 | — | 23,605 | 64,766 | 19,595 | — | |||||||||||||||||||||
Engineering fees | — | 1,345 | — | 1,345 | 1,345 | — | 975 | |||||||||||||||||||||
1,852,014 | 1,146,425 | 3,939,519 | 2,061,779 | 5,639,738 | 501,027 | 1,853,735 | ||||||||||||||||||||||
The following are included in revenue and billed to various companies that are related by common control and common management: |
Three Month | Six Month | Fifteen Month | Four Month | Twelve Month | ||||||||
Period Ended | Period Ended | Period Ended | Period Ended | Period Ended | ||||||||
June 30, | June 30, | December 31, | September 30, | May 31, | ||||||||
2008 | 2007 | 2008 | 2007 | 2007 | 2006 | 2006 | ||||||
$ | $ | $ | $ | $ | $ | $ | ||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
1,793,051 | 1,094,944 | 1,953,857 | 2,119,005 | 2,532,834 | 617,238 | 896,751 | ||||||
The following are management fees billed by companies controlled by the immediate family of a unitholder of the Trust: |
Three Month | Six Month | Fifteen Month | Four Month | Twelve Month | ||||||||
Period Ended | Period Ended | Period Ended | Period Ended | Period Ended | ||||||||
June 30, | June 30, | December 31, | September 30, | May 31, | ||||||||
2008 | 2007 | 2008 | 2007 | 2007 | 2006 | 2006 | ||||||
$ | $ | $ | $ | $ | $ | $ | ||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
63,000 | 61,260 | 126,095 | 121,415 | 265,000 | 77,407 | 210,374 | ||||||
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PLUMB-LINE INCOME TRUST | 26 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
16. | RELATED PARTY TRANSACTIONS (Continued) | |
The following are amounts included in trade accounts payable and trade accounts receivable to various companies that are related by commonalities in shareholders and management, or companies controlled by the immediate family of a unitholder of the Trust: |
June 30, | December 31, | September 31, | May 31, | |||||||||||||||||||
2008 | 2007 | 2007 | 2006 | 2006 | ||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||
Accounts receivable | 2,376,286 | 1,048,088 | 408,204 | 283,547 | 126,659 | |||||||||||||||||
Accounts payable | 662,075 | 703,160 | 459,745 | 59,042 | 216,681 |
All transactions listed above have occurred at the exchange amount which is equivalent to fair value with the exception of the rent expense. The fair value of rent expense is $15,264 per month, net of operating costs. | ||
On February 1, 2006, Contracting Ltd. acquired the revenue producing property (Note 9) for $2,236,200 by the assumption of a mortgage on the property from a company with which Contracting Ltd. has common equity holders and management hereafter referred to as “Related Company”. | ||
In November 2005, Contracting Ltd. sold to the Related Company a condominium for $136,884 which was for the assumption of the related mortgage. The agreed to exchange amount on these real estate transactions approximated fair values. | ||
In November 2006, the Trust, through the Partnership, provided interim financing to the Related Company and in exchange earned a 25% net profit interest (“NPI”) in certain real estate development projects to be developed by the Related Company. The NPI was not assigned any value as it was a contingent asset. On January 1, 2008 the Partnership exchanged the NPI for 62,500 shares of a subsidiary of the Related Company on a tax deferred basis. The fair value of 625,000 shares at January 1, 2008 was $625,000. For accounting purposes, in accordance with GAAP, non-monetary transactions with related parties are recorded at their carrying value. Therefore, the 62,500 shares acquired by the Partnership was recorded at the carrying value of the NPI of $Nil. There has been no change in the fair value or the carrying value of the 62,500 shares between January 1, 2008 and June 30, 2008. |
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PLUMB-LINE INCOME TRUST | 27 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
17. | SHARE CAPITAL OF CONTRACTING LTD. |
September 30, | May 31, | |||||||
2006 | 2006 | |||||||
$ | $ | |||||||
Authorized | ||||||||
Unlimited number of Class A common voting shares | ||||||||
Unlimited number of Class B common voting shares | ||||||||
Unlimited number of Class C common non-voting shares | ||||||||
Unlimited number of Class D preferred non-voting, redeemable shares | ||||||||
Unlimited number of Class E preferred voting, redeemable shares | ||||||||
Issued | ||||||||
20 Class A common shares | 20 | 20 | ||||||
20 Class B common shares | 20 | 20 | ||||||
40 | 40 | |||||||
Subsequent to September 30, 2006, the share capital did not transfer into Con-Forte (see Note 4). | ||
18. | UNITHOLDERS’ CAPITAL |
Units | $ | |||||||
Authorized | ||||||||
Unlimited number of units | ||||||||
Issued | ||||||||
Issued upon indenture, September 29, 2006 | 1 | — | ||||||
Balance, September 30, 2006 | 1 | — | ||||||
Canceled during the period | (1 | ) | — | |||||
Issued during the period (i) | 3,787,604 | 4,834,345 | ||||||
Balance, December 3l, 2007 | 3,787,603 | 4,834,345 | ||||||
Issued during the period (ii) | 120,966 | 1,209,660 | ||||||
Balance, June 30, 2008 | 3,908,569 | 6,044,005 | ||||||
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PLUMB-LINE INCOME TRUST | 28 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
18. | UNITHOLDERS CAPITAL (Continued) |
(i) | On December 24, 2006, 3,304,500 units were issued at $0.001/unit for total proceeds of $3,305. Fair value of these units was nominal as these units were issued when the Trust had no operations and had nominal value. During the first three months of 2007, 281,893 units were issued at $10/unit for total proceeds of $2,818,930. The funds were used to finance the A&K Millwork Limited Partnership acquisition discussed in Note 4. During the three months ended June 30, 2007, 102,300 units were issued at $10/unit for $1,023,000 under a distribution reinvestment plan (“DRIP”). During the six months ended December 31, 2007, 98,911 units were issued at $10/unit for a total of $989,110 under the same plan. | ||
(ii) | During the three months ended March 31, 2008, 50,557 units were issued at $10/unit for $505,570 under the DRIP program, and during the three months ended June 30, 2008 51,509 units were issued at $10/unit under the DRIP program, and 18,900 units were issued for cash for a total proceeds of $704,090. |
19. | INCOME TAXES | |
The Trust is an inter vivos trust for Canadian income tax purposes and is taxable only on income that is not distributed or distributable to the unitholders. The tax deductibility of unitholder distributions provided under the Income Tax Act, in substance, represents an exemption from current income taxes related to current period income and future income taxes related to temporary differences between the bases of the Trust’s assets and liabilities used for accounting and income tax purposes. It is the Trust’s practice to distribute all income and capital gains to unitholders that would otherwise be taxable in the Trust; therefore, the Trust has not recorded any future tax liability. | ||
The Federal Government of Canada’s previously announced tax proposals pertaining to the taxation of specified investment flow-through entities received royal assent on June 22, 2007. As a result, publicly-traded income trusts and partnerships which are resident in Canada are now or will be subject to an entity-level federal tax designed to approximate the combined federal-provincial corporate tax rate. As the Trust is a private trust, it is excluded from the legislation and there is no direct impact on the results of the Trust for the periods presented. |
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PLUMB-LINE INCOME TRUST | 29 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
19. | INCOME TAXES (Continued) | |
The following is a reconciliation of income taxes, calculated at the statutory income tax rate, to the income tax provision included in the consolidated statements of income. |
Four Month | Twelve Month | |||||||
Period Ended | Period Ended | |||||||
September 30, | May 31, | |||||||
2006 | 2006 | |||||||
$ | $ | |||||||
Income before income taxes | 1,679,786 | 416,423 | ||||||
Statutory income tax rate | 16.12 | % | 16.12 | % | ||||
Expected income tax expense | 270,782 | 67,127 | ||||||
Non-deductible expenses | 2,938 | 3,161 | ||||||
Income not eligible for small business deduction | 163,722 | — | ||||||
Tax effect of recognition of previously unrecognized tax losses | — | (6,094 | ) | |||||
Other | (2,084 | ) | 122 | |||||
435,358 | 64,316 | |||||||
Classified as: | ||||||||
Current | 347,194 | 30,140 | ||||||
Future | 88,164 | 34,176 | ||||||
Income tax expense | 435,358 | 64,316 | ||||||
The Trust and its trust subsidiary entities are taxable only on income that is not distributed or distributable to the unitholders and as such the Trust does not account for future taxes. | ||
Income taxes were recognized for future income tax consequences attributed to estimated differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases in Contracting Ltd. |
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PLUMB-LINE INCOME TRUST | 30 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
19. | INCOME TAXES (Continued) | |
The net future income tax liability was comprised of: |
September 30, | May 31, | |||||||
2006 | 2006 | |||||||
$ | $ | |||||||
Future income tax assets: | ||||||||
Obligation under capital leases | 51,088 | 57,485 | ||||||
Other | — | 2,453 | ||||||
51,088 | 59,938 | |||||||
Future income tax liabilities: | ||||||||
Holdback receivables | (120,814 | ) | (40,818 | ) | ||||
Capital assets | (87,948 | ) | (88,630 | ) | ||||
(208,762 | ) | (129,448 | ) | |||||
Future income tax liabilities, net | (157,674 | ) | (69,510 | ) | ||||
Classified as: | ||||||||
Current liability | (99,814 | ) | (18,414 | ) | ||||
Long-term liability | (57,860 | ) | (51,096 | ) | ||||
Future income tax liabilities, net | (157,674 | ) | (69,510 | ) | ||||
20. | COMMITMENTS | |
The Trust is obligated under leases for equipment, buildings and vehicles as follows: |
Amount Due on | ||||||||
Total | Related Party Leases | |||||||
$ | $ | |||||||
2008 | 596,684 | 108,890 | ||||||
2009 | 559,426 | 35,021 | ||||||
2010 | 498,723 | 35,021 | ||||||
2011 | 464,465 | 35,021 | ||||||
2012 | 115,090 | 35,021 |
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PLUMB-LINE INCOME TRUST | 31 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
21. | GUARANTEE | |
As part of its ongoing operations, the Trust has provided an unlimited general application and indemnification to AXA Pacific Insurance Company for contract bonds. | ||
22. | FINANCIAL INSTRUMENTS | |
The Trust, as part of its operations, carries a number of financial instruments. It is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments except as otherwise disclosed. | ||
Foreign currency risk | ||
The Trust enters into transactions to sell products and purchase materials denominated in US currency for which the related revenues, expenses, accounts receivable and accounts payable balances are subject to exchange rate fluctuations. | ||
The following items are denominated in US currency: |
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
Cdn $ | $ | $ | ||||||
Bank overdraft | (105,485 | ) | (84,536 | ) | ||||
Accounts receivable | 608,255 | 1,549,131 | ||||||
Accounts payable | 10,234 | 242,386 |
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Trust manages foreign currency risk by holding U.S. dollar cash receipts in a U.S. bank account to support U.S. forecasted cash outflows. The Trust believes that the results of operations and cash flows would not be materially affected by a sudden change in foreign exchange rates. As at June 30, 2008, a 1% increase in the U.S. dollar to the Canadian dollar exchange rate would have increased income before income taxes by approximately $12,000. | ||
The Trust did not enter into any foreign exchange hedges due to the unpredictability of its cash flow denominated in US. As part of the Trust’s overall business strategy and management of Foreign Currency Risk, it has reduced significantly the volume of sales and purchases conducted in US. |
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PLUMB-LINE INCOME TRUST | 32 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
22. | FINANCIAL INSTRUMENTS (Continued) | |
Credit concentration | ||
The Trust’s financial instruments that are exposed to concentrations of credit risk consist primarily of accounts receivable. The Trust provides credit to its customers in the normal course of its operations and carries out credit checks when applicable. The Trust provides allowances for potentially uncollectible accounts receivables based on an assessment of collectability. The Trust has the following customers with account balances greater than 10% of the total accounts receivable balance: |
June 30, | December 31, | |||||||||||||||||||||||
2008 | 2007 | 2007 | ||||||||||||||||||||||
$ | % | $ | % | $ | % | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Customer A | 1,941,307 | 16 | — | — | — | — | ||||||||||||||||||
Customer B | 1,354,745 | 11 | — | — | — | — | ||||||||||||||||||
Customer C | — | — | — | — | 979,039 | 11 |
September 30, | May 31, | |||||||||||||||
2006 | 2006 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Customer D | 1,247,895 | 28 | 744,127 | 22 | ||||||||||||
Customer E | 598,209 | 13 | — | — | ||||||||||||
Customer F | 472,125 | 11 | — | — |
The Trust has the following customers with revenue during the period greater than 10% of the total revenue: |
Six Month | Fifteen Month | |||||||||||||||||||||||
Period Ended | Period Ended | |||||||||||||||||||||||
June 30, | December 31, | |||||||||||||||||||||||
2008 | 2007 | 2007 | ||||||||||||||||||||||
$ | % | $ | % | $ | % | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Customer C | 2,695,895 | 11 | — | — | — | — | ||||||||||||||||||
Customer F | — | — | 2,317,369 | 13 | — | — |
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PLUMB-LINE INCOME TRUST | 33 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
22. | FINANCIAL INSTRUMENTS (Continued) | |
Credit concentration (Continued) |
Three Month Period Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Customer A | 1,795,821 | 16 | — | — | ||||||||||||
Customer B | 1,233,930 | 11 | — | — | ||||||||||||
Customer F | — | — | 1,557,543 | 14 |
Four Month | Twelve Month | |||||||||||||||
Period Ended | Period Ended | |||||||||||||||
September 30, | May 31, | |||||||||||||||
2006 | 2006 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Customer D | 1,624,611 | 20 | 2,429,411 | 14 | ||||||||||||
Customer E | 1,326,810 | 16 | — | — | ||||||||||||
Customer G | — | — | 1,793,364 | 11 |
The Trust’s trade accounts receivable past due more than 60 days represented 19% or $2,196,353 of the total receivables at June 30, 2008. | ||
The balance in accounts receivable that are one year past due at June 30, 2008 is $353,090 or 3% or total accounts receivables. Holdbacks receivable represent 60% or $200,844 of the balance one year past due. Holdbacks receivable generally fall into the above past due balance given the nature of the receivable and work involved in the contract. The Trust’s allowance for doubtful accounts is $Nil at June 30, 2008 given that management believes that all of the Trust’s receivables are collectible. | ||
Interest rate risk | ||
Interest rate risk reflects the sensitivity of the Trust’s financial results and condition to movements in interest rates. As at June 30, 2008, a 1% increase in interest rate on the Trusts’ operating lines of credit would have decreased income before income taxes by approximately $19,500. |
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PLUMB-LINE INCOME TRUST | 34 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
22. | FINANCIAL INSTRUMENTS (Continued) | |
Liquidity risk | ||
Liquidity risk is the risk that the Trust will encounter difficulty in meeting obligations associated with financial liabilities. The Trust manages its liquidity risk through cash and debt management. | ||
In managing liquidity risk, the Trust has access to $3,900,000 in operating credit lines in its credit facility to draw upon. The Trust currently has $3,639,215 drawn on this facility at June 30, 2008. The Trust uses a combination of cash flow from the business and credit to meet its obligations. | ||
The timing of cash outflows relating to financial liabilities as at June 30, 2008 are outlined in the table below: |
Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Bank indebtedness | 2,933,079 | — | — | — | — | |||||||||||||||
Accounts payable | 3,740,508 | — | — | — | — | |||||||||||||||
Obligations under capital leases | 175,846 | 86,961 | 79,419 | 113,919 | 21,745 | |||||||||||||||
Due to related parties | 3,121,697 | — | — | — | — |
Risk management policy | ||
Management of the Trust plans that by January 2010 the Trust should have less than 3% of its revenue or purchases dominated in US. Management is also adopting risk management policies with the objective to have less than 1% of its revenue as bad or doubtful accounts. In seeking to meet these objectives, the Trust follows a risk management policy approved by its Board of Trustees which requires management not to enter into any new US dollar denominated sales or purchase contracts, to diversify its customer base, and to implement credit check procedures. | ||
Fair value | ||
The carrying amounts of the Trust’s financial assets and liabilities approximate their fair value due to the short-term maturities of these items. |
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PLUMB-LINE INCOME TRUST | 35 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
22. | FINANCIAL INSTRUMENTS (Continued) | |
Equity instruments | ||
As detailed in Note 16, Investment LP holds 62,500 shares of Related Company, a privately owned company, that are available for sale. This related party transaction has been recorded at carrying values with no adjustment to fair values as there is no readily available market for these shares. | ||
23. | CAPITAL DISCLOSURES | |
The Trust’s objectives when managing capital are to: (a) safeguard the Trust’s ability to continue as a going concern; and (b) maintain flexibility in order to preserve the Trust’s ability to meet financial obligations with a long-term view of maximizing return to unitholders. | ||
On an ongoing basis, the Trust reviews and assesses its capital structure. The Trust defines its capital as unitholders’ equity and bank indebtedness. | ||
The Trust’s capital at June 30, 2008 and December 31, 2007 is as follows: |
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
$ | $ | |||||||
Unitholders’ equity | 9,567,709 | 5,795,008 | ||||||
Bank indebtedness | 2,933,079 | 3,693,467 | ||||||
Total capital | 12,500,788 | 9,488,475 | ||||||
The Trust has certain financial covenants that must be met in regards to its credit facilities. The Trust has disclosed information regarding these covenants in Note 12. | ||
The Trust’s strategy is to ensure that it has sufficient capital to efficiently and effectively run the operations of the Trust while providing a return to shareholders and maintaining adequate liquidity. |
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PLUMB-LINE INCOME TRUST | 36 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
24. | SEGMENTED DISCLOSURE | |
The Trust is managed based on two operating segments which have been determined based on the products and services produced or provided: Concrete formwork and cribbing, and Millworks. Concrete formwork and cribbing includes the results of Con-Forte, the VIE (Note 11) and the Joint Venture (Note 10). Millwork includes the results of A&K. Con-Forte, based in Calgary, Alberta, provides commercial concrete formwork and residential basement cribbing services in Alberta and B.C. A&K, based in Winnipeg Manitoba, supplies and installs architectural millwork primarily in Manitoba. | ||
The accounting policies of the reportable segments are the same as those disclosed in Note 2. |
Three Month Period Ended | ||||||||||||||||||||
June 30, 2008 | ||||||||||||||||||||
Concrete | (Unaudited) | |||||||||||||||||||
Formwork | ||||||||||||||||||||
and | Inter- | Consolidated | ||||||||||||||||||
Cribbing | Millwork | Corporate | company | Total | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Revenue | ||||||||||||||||||||
Concrete formwork and cribbing | 8,145,249 | — | — | — | 8,145,249 | |||||||||||||||
Millwork | — | 2,830,735 | — | — | 2,830,735 | |||||||||||||||
Total revenue | 8,145,249 | 2,830,735 | — | — | 10,975,984 | |||||||||||||||
Direct costs | 6,357,433 | 2,264,574 | — | 8,622,007 | ||||||||||||||||
Gross margin | 1,787,816 | 566,161 | — | — | 2,353,977 | |||||||||||||||
Depreciation | 29,124 | 13,070 | — | — | 42,194 | |||||||||||||||
Interest expense | 30,019 | 12,005 | — | — | 42,024 | |||||||||||||||
General and administrative | 335,250 | 577,195 | 120,333 | — | 1,032,778 | |||||||||||||||
Operating income (loss) | 1,393,423 | (36,109 | ) | (120,333 | ) | — | 1,236,981 | |||||||||||||
Other income | 7,465 | — | — | — | 7,465 | |||||||||||||||
Management bonuses and fees | (30,000 | ) | — | (22,295 | ) | — | (52,295 | ) | ||||||||||||
Gain (loss) on foreign exchange | 1,362 | (81,308 | ) | — | — | (79,946 | ) | |||||||||||||
Income (loss) before income taxes | 1,372,250 | (117,417 | ) | (142,628 | ) | — | 1,112,205 | |||||||||||||
Income tax expense | — | — | — | — | — | |||||||||||||||
Net income (loss) | 1,372,250 | (117,417 | ) | (142,628 | ) | — | 1,112,205 | |||||||||||||
Total assets | 19,531,946 | 3,687,858 | 6,607,885 | (9,927,986 | ) | 19,899,703 | ||||||||||||||
Capital expenditures | 56,987 | 498 | — | — | 57,485 |
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PLUMB-LINE INCOME TRUST | 37 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
24. | SEGMENTED DISCLOSURE (Continued) |
Three Month Period Ended | ||||||||||||||||||||
June 30, 2007 | ||||||||||||||||||||
Concrete | (Unaudited) | |||||||||||||||||||
Formwork | ||||||||||||||||||||
and | Inter- | Consolidated | ||||||||||||||||||
Cribbing | Millwork | Corporate | company | Total | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Revenue | ||||||||||||||||||||
Concrete formwork and cribbing | 8,187,677 | — | — | — | 8,187,677 | |||||||||||||||
Millwork | — | 2,679,150 | — | — | 2,679,150 | |||||||||||||||
Total revenue | 8,187,677 | 2,679,150 | — | — | 10,866,827 | |||||||||||||||
Direct costs | 5,444,515 | 2,697,761 | — | 8,142,276 | ||||||||||||||||
Gross margin | 2,743,162 | (18,611 | ) | — | — | 2,724,551 | ||||||||||||||
Depreciation | 11,744 | 8,750 | — | — | 20,494 | |||||||||||||||
Interest expense | 42,844 | 245 | — | — | 43,089 | |||||||||||||||
General and administrative | 204,776 | 721,133 | 11,632 | — | 937,541 | |||||||||||||||
Operating income | 2,483,798 | (748,739 | ) | (11,632 | ) | — | 1,723,427 | |||||||||||||
Other income (expense) | (51,629 | ) | — | — | — | (51,629 | ) | |||||||||||||
Rental income (expense) | — | — | — | — | — | |||||||||||||||
Management bonuses and fees | (30,000 | ) | — | — | — | (30,000 | ) | |||||||||||||
Loss on foreign exchange | — | (9,705 | ) | — | — | (9,705 | ) | |||||||||||||
Income (loss) before income taxes | 2,402,169 | (758,444 | ) | (11,632 | ) | — | 1,632,093 | |||||||||||||
Income tax expense | — | — | — | — | — | |||||||||||||||
Net income (loss) | 2,402,169 | (758,444 | ) | (11,632 | ) | — | 1,632,093 | |||||||||||||
Total assets | 13,080,184 | 3,418,179 | 6,174,336 | (6,631,327 | ) | 16,041,372 | ||||||||||||||
Capital expenditures | 64,017 | 177,630 | — | — | 241,647 |
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PLUMB-LINE INCOME TRUST | 38 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
24. | SEGMENTED DISCLOSURE (Continued) |
Six Month Period Ended | ||||||||||||||||||||
June 30, 2008 | ||||||||||||||||||||
Concrete | ||||||||||||||||||||
Formwork | ||||||||||||||||||||
and | Inter- | Consolidated | ||||||||||||||||||
Cribbing | Millwork | Corporate | company | Total | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Revenue | ||||||||||||||||||||
Concrete formwork and cribbing | 17,831,680 | — | — | — | 17,831,680 | |||||||||||||||
Millwork | — | 6,062,742 | — | — | 6,062,742 | |||||||||||||||
Total revenue | 17,831,680 | 6,062,742 | — | — | 23,894,422 | |||||||||||||||
Direct costs | 12,066,340 | 5,195,131 | — | — | 17,261,471 | |||||||||||||||
Gross margin | 5,765,340 | 867,611 | — | — | 6,632,951 | |||||||||||||||
Depreciation | 58,000 | 21,847 | — | — | 79,847 | |||||||||||||||
Interest expense | 40,922 | 40,049 | — | — | 80,971 | |||||||||||||||
General and administrative | 772,804 | 1,310,896 | 135,324 | — | 2,219,024 | |||||||||||||||
Operating income | 4,893,614 | (505,181 | ) | (135,324 | ) | — | 4,253,109 | |||||||||||||
Other income (expense) | 3,615 | — | — | — | 3,615 | |||||||||||||||
Management bonuses and fees | (84,678 | ) | — | — | — | (84,678 | ) | |||||||||||||
Gain on disposal of capital assets | 1,362 | — | — | — | 1,362 | |||||||||||||||
Loss on foreign exchange | — | — | (102,766 | ) | — | (102,766 | ) | |||||||||||||
Income (loss) before income taxes | 4,813,913 | (505,181 | ) | (238,090 | ) | — | 4,070,642 | |||||||||||||
Income tax expense | — | — | — | — | — | |||||||||||||||
Net income (loss) | 4,813,913 | (505,181 | ) | (238,090 | ) | — | 4,070,642 | |||||||||||||
Total assets | 19,531,943 | 3,687,859 | 6,607,885 | (9,927,984 | ) | 19,899,703 | ||||||||||||||
Capital expenditures | 1,016,278 | 1,902 | — | — | 1,018,180 |
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PLUMB-LINE INCOME TRUST | 39 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
24. | SEGMENTED DISCLOSURE (Continued) |
Six Month Period Ended | ||||||||||||||||||||
June 30, 2007 | ||||||||||||||||||||
Concrete | (Unaudited) | |||||||||||||||||||
Formwork | ||||||||||||||||||||
and | Inter- | Consolidated | ||||||||||||||||||
Cribbing | Millwork | Corporate | company | Total | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Revenue | ||||||||||||||||||||
Concrete formwork and cribbing | 14,734,729 | — | — | — | 14,734,729 | |||||||||||||||
Millwork | — | 2,679,150 | — | — | 2,679,150 | |||||||||||||||
Total revenue | 14,734,729 | 2,679,150 | — | — | 17,413,879 | |||||||||||||||
Direct costs | 11,261,412 | 2,697,761 | — | — | 13,959,173 | |||||||||||||||
Gross margin | 3,473,317 | (18,611 | ) | — | — | 3,454,706 | ||||||||||||||
Depreciation | 23,336 | 8,750 | — | — | 32,086 | |||||||||||||||
Interest expense | 44,094 | 1,071 | — | — | 45,165 | |||||||||||||||
General and administrative | 453,686 | 720,307 | 15,181 | — | 1,189,174 | |||||||||||||||
Operating income | 2,952,201 | (748,739 | ) | (15,181 | ) | — | 2,188,281 | |||||||||||||
Other income (expense) | (6,878 | ) | — | — | — | (6,878 | ) | |||||||||||||
Management bonuses and fees | (60,000 | ) | — | — | — | (60,000 | ) | |||||||||||||
Loss on foreign exchange | — | (9,705 | ) | — | — | (9,705 | ) | |||||||||||||
Income (loss) before income taxes | 2,885,323 | (758,444 | ) | (15,181 | ) | — | 2,111,698 | |||||||||||||
Income tax expense | — | — | — | — | — | |||||||||||||||
Net income (loss) | 2,885,323 | (758,444 | ) | (15,181 | ) | — | 2,111,698 | |||||||||||||
Total assets | 13,080,185 | 3,418,179 | 6,174,336 | (6,631,328 | ) | 16,041,372 | ||||||||||||||
Capital expenditures | 79,157 | 177,630 | — | — | 256,787 |
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PLUMB-LINE INCOME TRUST | 40 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
24. | SEGMENTED DISCLOSURE (Continued) |
Fifteen Month Period Ended | ||||||||||||||||||||
December 31, 2007 | ||||||||||||||||||||
Concrete | ||||||||||||||||||||
Formwork | ||||||||||||||||||||
and | Inter- | Consolidated | ||||||||||||||||||
Cribbing | Millwork | Corporate | company | Total | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Revenue | ||||||||||||||||||||
Concrete formwork and cribbing | 37,832,717 | — | — | — | 37,832,717 | |||||||||||||||
Millwork | — | 7,998,495 | — | — | 7,998,495 | |||||||||||||||
Total revenue | 37,832,717 | 7,998,495 | — | — | 45,831,212 | |||||||||||||||
Direct costs | 28,446,155 | 8,371,150 | — | — | 36,817,305 | |||||||||||||||
Gross margin | 9,386,562 | (372,655 | ) | — | — | 9,013,907 | ||||||||||||||
Depreciation | 50,929 | 39,740 | — | — | 90,669 | |||||||||||||||
Interest expense | 136,306 | 47,175 | — | — | 183,481 | |||||||||||||||
General and administrative | 1,396,559 | 2,213,486 | 56,791 | — | 3,666,836 | |||||||||||||||
Employee profit sharing plan | 307,000 | — | — | — | 307,000 | |||||||||||||||
Operating income | 7,495,768 | (2,673,056 | ) | (56,791 | ) | — | 4,765,921 | |||||||||||||
Management bonuses and fees | (215,585 | ) | — | — | — | (215,585 | ) | |||||||||||||
Takeover costs | — | (778,197 | ) | — | — | (778,197 | ) | |||||||||||||
Loss on foreign exchange | — | (49,146 | ) | — | — | (49,146 | ) | |||||||||||||
Other income (expense) | (48,714 | ) | — | — | — | (48,714 | ) | |||||||||||||
Income (loss) before income taxes | 7,231,469 | (3,500,399 | ) | (56,791 | ) | — | 3,674,279 | |||||||||||||
Income tax expense | 105,355 | — | — | — | 105,355 | |||||||||||||||
Net income (loss) | 7,126,114 | (3,500,399 | ) | (56,791 | ) | — | 3,568,924 | |||||||||||||
Total assets | 15,150,265 | 3,067,207 | 6,408,199 | (8,943,194 | ) | 15,682,477 | ||||||||||||||
Capital expenditures | 929,649 | 201,017 | — | — | 1,130,666 |
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PLUMB-LINE INCOME TRUST | 41 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
24. | SEGMENTED DISCLOSURE (Continued) |
Four Month Period Ended | ||||||||||||
September 30, 2006 | ||||||||||||
Concrete | ||||||||||||
Formwork and | Consolidated | |||||||||||
Cribbing | Inter-company | Total | ||||||||||
$ | $ | $ | ||||||||||
Revenue | ||||||||||||
Concrete formwork and cribbing | 8,212,698 | — | 8,212,698 | |||||||||
Total revenue | 8,212,698 | — | 8,212,698 | |||||||||
Direct costs | 6,058,604 | — | 6,058,604 | |||||||||
Gross margin | 2,154,094 | — | 2,154,094 | |||||||||
Depreciation | 80,772 | — | 80,772 | |||||||||
Interest expense | 57,359 | — | 57,359 | |||||||||
General and administrative | 388,588 | — | 388,588 | |||||||||
Operating income | 1,627,375 | — | 1,627,375 | |||||||||
Rental income from revenue producing property | 43,111 | — | 43,111 | |||||||||
Gain on disposal of assets | 9,300 | — | 9,300 | |||||||||
Income before income taxes | 1,679,786 | — | 1,679,786 | |||||||||
Income tax expense | 435,358 | — | 435,358 | |||||||||
Net income | 1,244,428 | — | 1,244,428 | |||||||||
Total assets | 11,510,709 | (759,545 | ) | 10,751,164 | ||||||||
Capital expenditures | 63,047 | — | 63,047 |
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PLUMB-LINE INCOME TRUST | 42 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
24. | SEGMENTED DISCLOSURE (Continued) |
Twelve Month Period Ended | ||||||||||||
May 31, 2006 | ||||||||||||
Concrete | ||||||||||||
Formwork And | Consolidated | |||||||||||
Cribbing | Inter-company | Total | ||||||||||
$ | $ | $ | ||||||||||
Revenue | 16,936,441 | — | 16,936,441 | |||||||||
Direct costs | 13,945,541 | — | 13,945,541 | |||||||||
Gross margin | 2,990,900 | — | 2,990,900 | |||||||||
Depreciation | 153,821 | — | 153,821 | |||||||||
Interest expense | 115,081 | — | 115,081 | |||||||||
General and administrative | 1,168,507 | — | 1,168,507 | |||||||||
Employee profit sharing plan | 1,100,000 | — | 1,100,000 | |||||||||
Operating income | 453,491 | — | 453,491 | |||||||||
Other income (expense) | — | — | — | |||||||||
Rental income from revenue producing property | 87,709 | — | 87,709 | |||||||||
Miscellaneous income | 16,299 | — | 16,299 | |||||||||
Loss on disposal of assets | (141,076 | ) | — | (141,076 | ) | |||||||
Income before income taxes | 416,423 | — | 416,423 | |||||||||
Income tax expense | 64,316 | — | 64,316 | |||||||||
Net income | 352,107 | — | 352,107 | |||||||||
Total assets | 9,545,941 | (392,049 | ) | 9,153,892 | ||||||||
Capital expenditures | 593,428 | — | 593,428 |
25. | PROPOSED TRANSACTION AND SUBSEQUENT EVENTS | |
On October 3, 2008, the Trust entered into a reorganization agreement with The Westaim Corporation, Articor Structure Limited Partnership and Plumb-Line Masonry Group Inc. for a transaction whereby The Westaim Corporation will acquire 100% of the issued and outstanding units of the Trust. The closing date of the transaction is anticipated to be in the fourth quarter of 2008 and is subject to approval by the shareholders of The Westaim Corporation. This transaction is expected to be accounted for as a reverse takeover under GAAP, under which the Trust would be the deemed acquirer. | ||
On July 10, 2008, the Trust received a settlement payment in the amount of $500,000 pursuant to a claim made against the vendors of A&K Millwork Ltd. | ||
On July 21, 2008, the Trust entered into a share purchase agreement to acquire all common shares of Four Star Gravel Contractors Ltd. from unrelated parties for $16,800,000 million. The closing date of the transaction is anticipated to be in the fourth quarter of 2008. |
Table of Contents
PLUMB-LINE INCOME TRUST | 43 |
As at June 30, 2008, December 31, 2007, September 30, 2006 and May 31, 2006, and for the Six Month Period Ended June 30, 2008, Fifteen Month Period Ended December 31, 2007, Four Month Period Ended September 30, 2006 and Twelve Month Period Ended May 31, 2006
25. | PROPOSED TRANSACTION AND SUBSEQUENT EVENTS (Continued) | |
On July 30, 2008, the Trust entered into an asset purchase agreement to acquire substantially all of the assets of Asty Concrete & Construction Ltd. from unrelated parties for $21,000,000. The closing date of the transaction is anticipated to be in the fourth quarter of 2008. | ||
On July 31, 2008, the Trust signed a binding Letter of Commitment issued by a Canadian chartered bank to borrow $30,000,000 in an acquisition loan to fund the above acquisitions, and a $10,000,000 for an operating credit facility. |
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For the four month period ended June 30, | 2008 | |||
Sales | $ | 10,885,093 | ||
Cost of sales | 7,124,089 | |||
Gross margin | 3,761,004 | |||
Expenses | ||||
General and administrative | 3,148,261 | |||
Amortization | 141,764 | |||
Interest on long-term debt | 988,970 | |||
4,278,995 | ||||
Loss before income taxes | (517,991 | ) | ||
Income tax (recovery) (note 9) | (135,000 | ) | ||
Net loss and comprehensive loss | (382,991 | ) | ||
Deficit, beginning of period | — | |||
Deficit, end of period | $ | (382,991 | ) | |
See accompanying notes | 3 |
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June 30, | 2008 | |||
Assets | ||||
Current | ||||
Cash and cash equivalents | $ | 1,535,318 | ||
Accounts receivable | 7,018,954 | |||
Inventories (note 3) | 4,236,424 | |||
Prepaid expenses | 344,577 | |||
Assets held for sale (note 12) | 1,093,440 | |||
14,228,713 | ||||
Property and equipment (note 4) | 1,258,928 | |||
Goodwill (notes 1 and 5) | 23,366,269 | |||
Intangibles (notes 1 and 5) | 1,122,000 | |||
$ | 39,975,910 | |||
Liabilities | ||||
Current | ||||
Accounts payable and accrued liabilities | 1,991,321 | |||
Deferred revenue (note 6) | 290,484 | |||
Income taxes payable | 1,453,623 | |||
Advances from parent (note 7) | 11,567,587 | |||
15,303,015 | ||||
Deferred revenue (note 6) | 188,483 | |||
Advances from parent (note 7) | 21,597,392 | |||
Future income taxes (note 9) | 270,000 | |||
37,358,890 | ||||
Shareholders’ Equity | ||||
Share capital (note 8) | 3,000,011 | |||
Deficit | (382,991 | ) | ||
2,617,020 | ||||
$ | 39,975,910 | |||
Approved by the Board: |
“signed” Marco DeDomincis, | Director | “signed” David Hall, | Director |
See accompanying notes | 4 |
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For the four month period ended June 30, | 2008 | |||
Operating activities | ||||
Net loss for the period | $ | (382,991 | ) | |
Item not affecting cash: | ||||
Amortization of tangible assets | 103,764 | |||
Amortization of intangible assets | 38,000 | |||
(241,227 | ) | |||
Changes in non-cash working capital: | ||||
Accounts receivable | 2,354,107 | |||
Inventory | 148,994 | |||
Prepaid expenses | 26,179 | |||
Accounts payable and accrued liabilities | (427,511 | ) | ||
Income taxes payable | (334,600 | ) | ||
Deferred revenue | (141,252 | ) | ||
1,384,690 | ||||
Investing activities | ||||
Acquisition of Nascor Ltd. (note 1) | (18,905,482 | ) | ||
Purchase of property and equipment | (210,231 | ) | ||
(19,115,713 | ) | |||
Financing activities | ||||
Repayment of current and long-term debt | (7,683,555 | ) | ||
Repayment of bank revolving loan | (6,215,094 | ) | ||
Advances from parent | 33,164,979 | |||
19,266,330 | ||||
Increase in cash | 1,535,307 | |||
Cash equivalents, beginning of period | 11 | |||
Cash and cash equivalents, end of period | $ | 1,535,318 | ||
Supplemental cash flow information | ||||
Cash taxes paid | $ | 200,000 | ||
Cash interest paid | 37,138 | |||
Inter-company interest on advances | 951,832 | |||
Issue of preferred shares | 3,000,000 | |||
See accompanying notes | 5 |
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1. | Organization and nature of business | |
Arcticor Structures Limited Partnership (“ASLP” or “parent”) incorporated a wholly-owned subsidiary 1369774 Alberta Ltd. (“Company”) under the laws of Alberta on December 18, 2007. | ||
The Company was inactive until it acquired all of the shares of Nascor Ltd. on March 31, 2008 having only issued share capital for $11 to date. As a result, no comparative information has been included. The Company and Nascor Ltd. amalgamated as of April 1, 2008 and now carry on business as Nascor Ltd. | ||
Nascor Ltd. (“Company”) is engaged in the manufacturing of engineered wood products for residential and commercial building projects. The Company operates manufacturing facilities in both Calgary and Spruce Grove, Alberta and in these facilities produces roof trusses, floor trusses, I-joists, insulated wall panels and stick frame wall panels engineered to builder specifications. | ||
For accounting purposes, the acquisition of Nascor Ltd. is treated as a purchase. The amounts as at and for the four month period ended June 30, 2008 reflects the results of operations from April 1, 2008 and the preliminary purchase cost allocation as detailed below. The estimated valuation is preliminary, may differ from the final purchase price allocation based upon final assessment, and these differences could be material. |
2008 | ||||
Purchase cost | $ | 39,500,000 | ||
Less: Property sale proceeds | (17,700,000 | ) | ||
Net cost | 21,800,000 | |||
Acquisition costs | 105,482 | |||
Purchase cost | $ | 21,905,482 | ||
Allocated to: | ||||
Assets (liabilities): | ||||
Accounts receivable | $ | 9,373,061 | ||
Inventories | 4,385,418 | |||
Prepaid expenses | 370,756 | |||
Land | 1,093,440 | |||
Equipment | 1,152,450 | |||
Goodwill | 23,366,269 | |||
Intangibles | 1,160,000 | |||
Demand bank loan | (6,215,083 | ) | ||
Accounts payable and accrued liabilities | (2,418,832 | ) | ||
Income taxes payable | (1,788,223 | ) | ||
Future income tax liability | (270,000 | ) | ||
Long-term debt | (7,683,555 | ) | ||
Deferred revenue | (620,219 | ) | ||
$ | 21,905,482 | |||
Financed by | ||||
Advances from parent | $ | 18,905,482 | ||
Issue of preferred shares | 3,000,000 | |||
$ | 21,905,482 | |||
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2. | Summary of significant accounting policies and basis of presentation | |
The financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles which requires management to make estimates and assumptions that affect the reported amounts and presentation of assets, liabilities, revenues, expenses and disclosures of contingencies and commitments. Such estimates primarily relate to unsettled transactions and events at the balance sheets date which are based on information available to management at each financial statement date. | ||
By their nature, these estimates are subject to measurement uncertainty and the effect of changes in such estimates on the financial statements for current and future periods could be significant. |
a) | Measurement uncertainty | ||
The operations of the Company are complex, and regulations and legislation affecting the Company are continually changing. Although the ultimate impact of these matters on the net income or loss cannot be determined at this time, it could be material for any one quarter or year. Management makes estimates and assumptions that affect the reported amounts of assets and liabilities, including goodwill, intangibles, accrued liabilities and future income tax, at the date of the financial statements, and revenues, expenses, and amortization during the reporting year. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes of estimates in future years could be significant. | |||
b) | Revenue recognition | ||
Revenues associated with sales of completed units are deferred and recognized on a completed contract method when there is pervasive evidence of an arrangement, when the fee is fixed or determinable and when collection is reasonably certain. Revenue and profit from each contract are recognized only when the contract is substantially completed which often times is associated with customer approval. Anticipated losses are provided for when the estimate of total costs on a contract indicates a loss. Historically the Company has not experienced projects where sign-off or acceptance has been withheld by a customer resulting in a material loss on a project. | |||
c) | Equipment | ||
Property, plant and equipment are recorded at acquisition cost. Amortization is provided annually at rates calculated to write-off the assets over their estimated useful lives as follows: |
Office furniture and equipment | 20% declining balance | |||
Computer hardware | 30% declining balance | |||
Computer software | 100% declining balance | |||
Plant machinery and equipment | 30% declining balance | |||
Vehicles | 30% declining balance |
One-half of the normal rate is taken in the year of acquisition, and no amortization is taken in the year of disposal. |
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2. | Summary of significant accounting policies and basis of presentation (continued) |
d) | Capital disclosures | ||
On April 1, 2008 the Company adopted CICA Section 1535 provides guidance on disclosure of an entity’s objectives, policies and processes for managing capital. Disclosures include what is defined as capital, how it is managed, and whether externally imposed restrictions on capital are present. Refer to note 11 for further information regarding the Company’s management of capital. | |||
e) | Financial instruments – presentation and disclosure | ||
On April 1, 2008, the Company adopted CICA Handbook Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities, and non-financial derivatives. It requires that financial assets and financial liabilities, including derivatives, be recognized on the balance sheet when the Company becomes a party to the contractual provisions of the financial instrument or non-financial derivative contract. Under this standard, all financial instruments are required to be measured at fair value upon initial recognition except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as held-for-trading, available-for sale, held-to-maturity, loans or receivables, or other financial liabilities. Financial assets and financial liabilities held for-trading are measured at fair value with changes in those fair values recognized in net earnings. Financial assets held-to-maturity, loans and receivables, and other financial liabilities are measured at amortized cost using the effective interest method of amortization. Investments in equity instruments classified as available-for-sale that do not have a quoted market price in an active market are measured at cost. | |||
Cash is designated as “held-for-trading”. Accounts receivable are designated as “loans or receivables”. The accounts payable and accrued liabilities and advances from parent are designated as “other liabilities”. | |||
Derivative instruments are recorded on the balance sheet at fair value, including those derivatives that are embedded in financial or non-financial contracts that are not closely related to the host contracts. Changes in the fair values of derivative instruments are recognized in net earnings, with the exception of derivatives designated as effective cash flow hedges and hedges of the foreign currency exposure of a net investment in a self-sustaining foreign operation, which are recognized in other comprehensive income. In addition, Section 3855 requires that an entity must select an accounting policy of either expensing debt issue costs as incurred or applying them against the carrying value of the related asset or liability. | |||
On April 1, 2008, the Company also adopted the following two standards: |
• | CICA Section 3862, in addition to Section 3863 replaces Section 3861 – “Financial Instruments – Disclosure and Presentation”, and provides guidance on disclosing the significant of financial instruments and their associated risks to an entity’s financial position and performance. | ||
• | CICA Section 3863, in addition to Section 3862 replaces Section 3861 – “Financial Instruments – Disclosure and Presentation”, and provides guidance on presentation of financial instruments as liabilities vs. equity and when offsetting of financial assets and financial liabilities is appropriate. The adoption of this standard did not have a material impact on the Company’s presentation of its financial instruments. |
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2. | Summary of significant accounting policies and basis of presentation (continued) |
f) | Comprehensive income (loss) and accumulated other comprehensive income (loss) | ||
On April 1, 2008, the Company adopted CICA Handbook Section 1530 “Comprehensive Income” which consists of net earnings and other comprehensive income (“OCI”). OCI represents changes in shareholders equity during a period arising from transactions and changes in prices, markets, interest rates, and exchange rates. OCI includes unrealized gains and losses on financial assets classified as available-for-sale, unrealized translation gains and losses arising from self-sustaining foreign operations net of hedging activities and changes in the fair value of the effective portion of cash flow hedging instruments. The Company did not have any other comprehensive income for the period ended June 30, 2008. | |||
g) | Hedges | ||
On April 1, 2008, the Company adopted CICA Handbook Section 3865 which provides alternative treatments to Section 3855 for entities which choose to designate qualifying transactions as hedges for accounting purposes. It replaces and expands on Accounting Guideline 13 “Hedging Relationships”, and the hedging guidance in Section 1650 “Foreign Currency Translation” by specifying how hedge accounting is applied and what disclosures are necessary when it is applied. The Company has elected not to apply hedge accounting to its financial instruments which had no impact on the financial statements for the current period. | |||
h) | Accounting changes | ||
On April 1, 2008, the Company adopted CICA Handbook Section 1506 which provides expanded disclosures for changes in accounting policies, accounting estimates and corrections of errors. Under the new standard, accounting changes should be applied retrospectively unless otherwise permitted or where impracticable to determine. As well, voluntary changes in an accounting policy are to be made only when required by a primary source of GAAP or the change results in more relevant and reliable information. The adoption of this section had no impact on the financial statements for the current period. | |||
i) | Inventories | ||
Section 3031 “Inventories” requires inventory to be carried at the lower of cost and net realizable value using, in certain cases, the specific identification method or either of the first-in, first-out or average cost methods. Write-downs to net realizable value may be reversed, to the extent of the original write down, if there is clear evidence of an increase in value due to a change in circumstances. The adoption of this section had no impact on the financial statements. | |||
j) | Leases | ||
Leases are classified as either capital or operating leases. Leases that transfer substantially all of the benefits and inherent risks of ownership of property to the Company are accounted for as capital leases. At the time a capital lease is entered into, an asset is recorded together with its related long-term obligation to reflect the acquisition and financing. Equipment recorded under capital leases is amortized on the same basis as described above. Payments under operating leases are expensed as incurred. |
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2. | Summary of significant accounting policies and basis of presentation (continued) |
k) | Goodwill and intangible assets | ||
Goodwill is the residual amount that results when the purchase price of an acquired business exceed the fair values ascribed to the identifiable assets acquired, less liabilities assumed. Goodwill is not amortized but is tested for impairment at least annually during the fourth quarter and or when circumstances indicate that the carrying value of the reporting unit exceeds its fair value. Impairment of goodwill is deemed to occur when the value of the reporting unit exceeds the fair value of the identifiable net assets of the unit. The amount of impairment, if any, is charged to income in the period in which it occurs. | |||
Intangible assets are being amortized over the expected life of each identifiable intangible asset, being five to ten years. Intangible assets are tested for impairment as necessary whenever circumstances arise that indicate that the carrying value of the assets exceed their fair value. | |||
l) | Future income taxes | ||
Future income taxes are determined using the differences in the accounting cost base and the tax cost base of all assets and liabilities. A temporary difference occurs when the cost base of an asset or liability is different for accounting and tax purposes due to timing differences between recognition for accounting and recognition for tax. Where the accounting values of assets or liabilities are different from the tax bases due to temporary differences due to timing, a future income tax asset or liability results. The future income tax asset or liability is determined using the tax rate expected to apply when the temporary difference is settled or realized. | |||
m) | Cash and cash equivalents | ||
Cash and cash equivalents include cash and other highly liquid investments with maturities of three months or less at the date of acquisition. Cash equivalents are stated at cost which approximates market value. | |||
n) | Future accounting changes |
i) | The Canadian Accounting Standards Board (AcSB) has confirmed that the use of International Financial Reporting Standards (“IFRS”) will be required in 2011 for publicly accountable profit-oriented enterprises. IFRS will replace Canada’s current GAAP for those enterprises. These include listed companies and other profit-oriented enterprises that are responsible to large or diverse groups of stakeholders. The official changeover date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Companies will be required to provide comparative IFRS information for the previous fiscal year. The Company is currently evaluating the impact of adopting IFRS. | ||
ii) | Section 3064 “Goodwill and intangibles” requires the Company effective January 1, 2009, to adopt this standard which replaces GAAP section 3062 and 3450 and provides guidance relating to the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The Company is current assessing the impact of this standard. |
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(formerly 1369774 Alberta Ltd.)
(Unaudited)
3. | Inventory |
2008 | ||||
Raw materials | $ | 3,666,753 | ||
Finished goods | 569,671 | |||
$ | 4,236,424 | |||
4. | Property and equipment |
2008 | ||||||||||||
Accumulated | Net book | |||||||||||
Cost | amortization | value | ||||||||||
Office furniture and equipment | $ | 277,899 | $ | 247,837 | $ | 30,062 | ||||||
Computer hardware | 277,714 | 182,347 | 95,367 | |||||||||
Plant machinery and equipment | 2,904,640 | 1,832,686 | 1,071,954 | |||||||||
Vehicles | 106,077 | 44,532 | 61,545 | |||||||||
$ | 3,566,330 | $ | 2,307,402 | $ | 1,258,928 | |||||||
The land and buildings were sold in fiscal 2008 to Octagon’s Property Group Ltd. a related party for $17,700,000 as part of the purchase of the Company. See note 1 for further details on the transaction. Octagon Property Group Ltd. is related via common shareholders and directors with the purchase price agreed to in an arms length transaction based upon an independent appraised valuation. | ||
5. | Goodwill and intangibles |
2008 | ||||||||||||
Accumulated | Net book | |||||||||||
Cost | amortization | value | ||||||||||
Goodwill | $ | 23,366,269 | $ | — | $ | 23,366,269 | ||||||
Patents | 60,000 | 3,000 | 57,000 | |||||||||
Customer relationships | 800,000 | 20,000 | 780,000 | |||||||||
Trademarks | 200,000 | 10,000 | 190,000 | |||||||||
Non-compete agreement | 100,000 | 5,000 | 95,000 | |||||||||
1,160,000 | 38,000 | 1,122,000 | ||||||||||
$ | 24,526,269 | $ | 38,000 | $ | 24,488,269 | |||||||
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(formerly 1369774 Alberta Ltd.)
(Unaudited)
6. | Deferred revenue |
2008 | ||||
The Company has amended certain royalty agreements with licensees whereby the Company received prepaid royalty fees in consideration for the reduction of royalty rates over the term of the existing agreements | $ | 478,967 | ||
Less: estimated current portion | (290,484 | ) | ||
$ | 188,483 | |||
7. | Advances from parent | |
Advances from parent represent funds used by Arcticor Stuctures Limited Partnership (“ASLP”) in connection with the purchase of the Company. The interest rates and repayment terms as outlined below are applicable and the responsibility of the parent of the Company. Interest is charged through to the Company from the parent at the same rates as outlined below plus an additional 2%. Financing arrangement is with ASLP, and the Company has guaranteed the bank debt of ASLP which is $28,503,940 at June 30, 2008. | ||
Full details of the obligation are as follows: |
June 30, | ||||
2008 | ||||
Subordinated term loan, principal repayable at $625,000 per quarter commencing May 2009, interest payable at 15% with 11% payable in cash monthly and 4% deferred and payable | $ | 13,000,000 | ||
Deferred interest | 129,719 | |||
13,129,719 | ||||
Bridge loan, due September 30, 2008, interest at 12% | 1,000,000 | |||
Term loan, repayable at $197,500 per month including interest at prime plus 1.25% maturing March 2013 | 9,685,796 | |||
23,815,515 | ||||
Operating demand bank loan, interest at prime plus 1% | 4,688,425 | |||
28,503,940 | ||||
Interest bearing portion with no fixed terms of repayment, interest at prime plus 1% | 4,661,039 | |||
33,164,979 | ||||
Less amounts due in one year: | ||||
Operating loan | (4,688,425 | ) | ||
Bridge loan | (1,000,000 | ) | ||
Term loan | (1,754,162 | ) | ||
Subordinated loan | (4,125,000 | ) | ||
Current portion | (11,567,587 | ) | ||
Long-term portion | $ | 21,597,392 | ||
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(formerly 1369774 Alberta Ltd.)
(Unaudited)
8. | Share capital | |
The share capital of the Company is as follows: | ||
Authorized: | ||
Unlimited number of: |
Class C common non-voting shares
Class D non-voting preferred shares, redeemable or retractable upon 30 days notice
Class E and F voting preferred shares, redeemable or retractable upon 30 days notice
June 30, | February 29, | |||||||||||
2008 | 2008 | |||||||||||
Issued: | ||||||||||||
100 | Class A common shares | $ | 10 | $ | 10 | |||||||
1,000 | Class D preferred shares (redemption value $3,000,000) | 3,000,000 | — | |||||||||
1 | Class F preferred shares (redemption value $1) | 1 | 1 | |||||||||
$ | 3,000,011 | $ | 11 | |||||||||
All classes of preferred shares are entitled to non-cumulative annual dividends in such amount as the Board of Directors in its absolute discretion may determine, and the directors may declare dividends in any financial year on any class of shares at different times or at the same time in different amounts. | ||
All classes of preferred shares are retractable at a price per share equal to that amount being the fair market value of any property received by the Company for the issuance of such share. |
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(formerly 1369774 Alberta Ltd.)
(Unaudited)
9. | Income taxes | |
The provision for income tax reflects an effective income tax rate which differs from federal and provincial statutory income tax rates. The main differences are as follows: |
2008 | ||||
Income (loss) before income taxes | $ | (517,991 | ) | |
Enacted income tax rate | 29.50 | % | ||
Expected income tax recovery | (153,000 | ) | ||
Increase (decrease) in income taxes resulting from: | ||||
Non-deductible expenses | 18,000 | |||
Income tax expense (recovery) | $ | (135,000 | ) | |
Temporary differences and carry forwards that give rise to future income tax assets (liabilities) as at June 30, 2008 are as follows: |
2008 | ||||
Property, plant and equipment | $ | (100,000 | ) | |
Intangible assets | (170,000 | ) | ||
Net future income tax liability | $ | (270,000 | ) | |
10. | Lease commitments | |
Future minimum lease payments required under operating leases for equipment used by the Company in the normal course of business are as follows: |
2009 | $ | 475,386 | ||
2010 | 320,357 | |||
2011 | 245,657 | |||
2012 | 135,753 | |||
2013 | 4,130 | |||
$ | 1,181,283 | |||
The property sale transaction, referred to in note 1, requires lease payments for a period of ten years commencing April 1, 2008, with total annual minimum rent of $1,416,000. The lease is with Octagon Property Group Ltd., a related party. Octagon Property Group Ltd. is related via common shareholders and directors with the minimum lease payments agreed to in an arms length transaction based upon an independent appraised valuation. |
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(formerly 1369774 Alberta Ltd.)
(Unaudited)
11. | Financial risk management | |
Capital management | ||
The Company defines its capital as shareholder’s equity and advances from parent. The Company’s objective is to maintain a strong capital position in order to execute its business plan and maximize overall value. The Company actively manages the amounts outstanding to the parent to ensure that the adequate cash flows are available for day to day management and to reduce amounts outstanding into the future. | ||
The Company has guaranteed the bank debt held by the parent of a balance of $28,503,940 as of June 30, 2008 as outlined in note 7. The Company is not subject to any covenants with respect to the advances to parent. | ||
Credit risk | ||
Credit risk refers to the possibility that the counterparty to a financial asset will fail to fulfill its obligations and as a result, create a financial loss for the Company. The Company assesses the credit worthiness of its customers on an ongoing basis as well as monitoring the amount and age of balances outstanding. The Company views the credit risks on these amounts as normal for the industry. The carrying amount of accounts receivable represents the maximum credit exposure on this balance. Management periodically assesses the credit worthiness of its customers and views the credit risk on its accounts receivable as normal for its industry. | ||
As at June 30, 2008, 23% of the accounts receivable balance outstanding was from two customers. | ||
Liquidity risk | ||
Liquidity risk is the risk that the Company will encounter difficulties in meeting its financial liability obligations. The Company manages its liquidity risk through cash and debt management. In managing liquidity risk, the Company has primarily accessed funds advanced by its parent. Through a working capital excess of $9,399,845 not including advances to parent, the Company believes it has sufficient funding through the use of its working capital to meet foreseeable borrowing requirements. | ||
Interest rate risk | ||
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is currently not exposed to interest rate fluctuations on its advances to parent, as all advances or subject to fixed interest rates for the term of the obligation. | ||
12. | Subsequent events | |
On July 5, 2008, the Company sold all of its remaining land for $1,093,440, which was its fair value, to the former shareholder of the acquired company. |
15
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CHARTERED | Elveden House | |||
ACCOUNTANTS | 1700, 717 - 7th Avenue SW | ![]() | ||
Calgary, AB T2P 0Z3 | ||||
MacKayllp | ||||
Phone: (403) 294-9292 | ||||
Fax: (403) 294-9262 | ||||
www.MacKay.ca |
of 1369774 Alberta Ltd.:
Calgary, Canada | ||
September 4, 2008 | Chartered Accountants |
Table of Contents
February 29, | 2008 | |||
Assets | ||||
Current | ||||
Cash | $ | 11 | ||
$ | 11 | |||
Sub sequent events (note 5) | ||||
Shareholders’ Equity |
Share capital (note 4) | $ | 11 | ||
Table of Contents
1. | Incorporation and nature of business | |
1369774 Alberta Ltd. (the “Corporation”) was incorporated by articles of incorporation under theBusiness Corporation Act(Alberta) on December 18, 2007. | ||
The Corporation has not commenced operations as at February 29, 2008. On March 31, 2008 the Corporation acquired all of the shares of Nascor Ltd. with whom it amalgamated effective April 1, 2008. The Corporation will continue its operations as Nascor Ltd. See note 5 for additional details. | ||
The Corporation has not commenced operations at the balance sheet date. Accordingly, statements of earnings, comprehensive earnings, retained earnings and cash flows have not been prepared. | ||
2. | Summary of significant accounting policies and basis of presentation | |
The financial statements of the Corporation have been prepared by management in accordance with Canadian generally accepted accounting principles which requires management to make estimates and assumptions that affect the reported amounts and presentation of assets, liabilities, revenues, expenses and disclosures of contingencies and commitments. Such estimates primarily relate to unsettled transactions and events at the balance sheets date which are based on information available to management at each financial statement date. | ||
By their nature, these estimates are subject to measurement uncertainty and the effect of changes in such estimates on the financial statements for current and future periods could be significant. |
(a) | Cash | ||
Cash consists of an amount on deposit with a bank. The full balance is held in trust by the Corporation’s solicitors as of the balance sheet date. | |||
(b) | Financial Instrument | ||
The Corporation’s only financial instrument consists of cash and is classified as held for trading. It is management’s opinion that the Corporation is not exposed to significant interest, currency or credit risk arising from this financial instrument. The fair value of this financial instrument approximates its carrying value. |
3. | Capital management | |
The Corporation’s objective when managing capital is to safeguard its ability to continue as a going concern, so that it can provide adequate returns for shareholders. The Corporation defines capital as total equity. |
Table of Contents
4. | Share capital | |
The share capital of the Company is as follows: | ||
Authorized: | ||
Unlimited number of: |
Class C common non-voting shares
Class D non-voting preferred shares, redeemable or retractable upon 30 days notice
Class E and F voting preferred shares, redeemable or retractable upon 30 days notice
Issued: |
2008 | ||||||||
100 | Class A common shares | $ | 10 | |||||
1 | �� | Class F preferred shares (redemption value $1) | 1 | |||||
$ | 11 | |||||||
All classes of preferred shares are entitled to non-cumulative annual dividends in such amount as the Board of Directors in its absolute discretion may determine, and the directors may declare dividends in any financial year on any class of shares at different times or at the same time in different amounts. | ||
All classes of preferred shares are retractable at a price per share equal to that amount being the fair market value of any property received by the Company for the issuance of such share. | ||
5. | Subsequent events | |
On March 31, 2008, the Corporation, wholly-owned subsidiary of Arcticor Structures Limited Partnership, acquired all of the issued and outstanding shares of Nascor Ltd. for a total purchase cost of $39,500,000 plus estimated closing costs of $100,000. The Corporation and Nascor Ltd. amalgamated as of April 1, 2008 and now carry on business as Nascor Ltd. | ||
As part of the acquisition and amalgamation, 1,000 Class D non-voting preferred shares were issued for $3,000,000 at a redemption value of $3,000 per Class D Preferred share. |
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FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2008
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![(LOGO)](https://capedge.com/proxy/6-K/0001130319-08-000748/o42155o4215505.gif)
CHARTERED ACCOUNTANTS
Tel: 905-333-6699 Fax: 905-333-4950
E-Mail: info@bellcas.ca
Nascor Ltd.:
![]() | ||
Burlington, Ontario | BELL & COMPANY LLP | |
August 18, 2008 | CHARTERED ACCOUNTANTS | |
LICENSED PUBLIC ACCOUNTANTS |
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BALANCE SHEET
AS AT MARCH 31, 2008
March 31, | July 28, | |||||||
2008 | 2007 | |||||||
$ | $ | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Accounts receivable | 8,554,979 | 11,954,894 | ||||||
Loan receivable | — | 50,000 | ||||||
Notes receivable — Cano Coatings Inc. | 10,467 | 304.757 | ||||||
Inventories (Notes 2 & 3) | 4,385,418 | 5,369,394 | ||||||
Prepaid expenses | 796,299 | 534,430 | ||||||
13,747,163 | 18,213,475 | |||||||
INVESTMENT IN AND ADVANCES TO RELATED PARTIES(Note 4) | 807,615 | 1,182,546 | ||||||
PROPERTY, PLANT&EQUIPMENT(Notes 2 & 5) | 8,698,230 | 8,607,394 | ||||||
PATENTS(Notes 2&6) | 23,052 | 34,578 | ||||||
INTANGIBLE ASSETS(Notes 2 & 7) | 38,681 | 38,681 | ||||||
23,314,741 | 28,076,674 | |||||||
LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Bank indebtedness (Note 8) | 6,215,083 | 4,388,237 | ||||||
Accounts payable and accrued liabilities | 2,260,026 | 4,459,573 | ||||||
Bonus payable | — | 2,000,000 | ||||||
Customer deposits | 52,461 | 250,341 | ||||||
Deferred revenue (Note 9) | 396,779 | 496,127 | ||||||
Income taxes payable | 1,157,623 | 1,978,386 | ||||||
Current portion of long term debt (Note 10) | 908,450 | 908,450 | ||||||
Current portion of obligations under capital lease (Note 11) | 6,345 | 39,334 | ||||||
10,996,767 | 14,520,448 | |||||||
DEFERRED REVENUE(Note 9) | 223,440 | 557,592 | ||||||
BANK LOANS(Note 10) | 6,775,105 | 7,208,627 | ||||||
OBLIGATIONS UNDER CAPITAL LEASE(Note 11) | — | 100 | ||||||
FUTURE INCOME TAXES(Note 2) | 575,076 | 575,076 | ||||||
SHAREHOLDER’S EQUITY | ||||||||
Share capital (Note 12) | 100 | 100 | ||||||
Retained earnings | 4,744,253 | 5,214,731 | ||||||
4,744,353 | 5,214,831 | |||||||
23,314,741 | 28,076,674 | |||||||
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STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE PERIOD ENDED MARCH 31, 2008
247 days | Year | |||||||
ended | ended | |||||||
March 31 | July 28 | |||||||
2008 | 2007 | |||||||
$ | $ | |||||||
SALES | 43,787,128 | 71,176,455 | ||||||
COST OF SALES | ||||||||
Purchases | 18,376,343 | 31,247,242 | ||||||
Wages and employee benefits | 7,239,985 | 10,618,291 | ||||||
Other manufacturing overhead | 3,821,942 | 5,908,949 | ||||||
29,438,270 | 47,774,482 | |||||||
GROSS MARGIN | 14,348,858 | 23,401,973 | ||||||
OPERATING EXPENSES | ||||||||
Wages and employee benefits | 4,626,009 | 7,186,676 | ||||||
Office and general | 1,358,595 | 1,029,409 | ||||||
Commissions and profit share | 1,128,159 | 2,310,723 | ||||||
Interest and bank charges | 724,932 | 1,235,899 | ||||||
Travel and insurance | 419,056 | 611,695 | ||||||
Layout services | 320,353 | 518,142 | ||||||
Meals and entertainment | 229,299 | 335,131 | ||||||
Consulting fees | 228,352 | 375,775 | ||||||
Director’s salary | 225,000 | 2,360,000 | ||||||
Bad debts | 223,461 | 25,066 | ||||||
Amortization | 124,758 | 194,626 | ||||||
Telephone | 77,411 | 101,258 | ||||||
Professional fees | 64,872 | 151,500 | ||||||
Advertising and promotion | 64,390 | 110,978 | ||||||
(Gain) loss on foreign exchange | 29,632 | (7,244 | ) | |||||
Dues and memberships | 8,915 | 31,200 | ||||||
Interest charge on payout of convertible debenture | — | 605,000 | ||||||
9,853,194 | 17,175,834 | |||||||
INCOME BEFORE PROVISION FOR INCOME TAXES | 4,495,664 | 6,226,139 | ||||||
PROVISION FOR INCOME TAXES | ||||||||
Current | 1,466,142 | 2,076,024 | ||||||
1,466,142 | 2,076,024 | |||||||
NET INCOME FOR THE PERIOD | 3,029,522 | 4,150,115 | ||||||
RETAINED EARNINGS — BEGINNING OF PERIOD | 5,214,731 | 1,064,616 | ||||||
DIVIDENDS | (3,500,000 | ) | — | |||||
RETAINED EARNINGS — END OF PERIOD | 4,744,253 | 5,214,731 | ||||||
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CASH FLOW STATEMENT
FOR THE PERIOD ENDED MARCH 31, 2008
247 days | Year | |||||||
ended | ended | |||||||
March 31 | July 28 | |||||||
2008 | 2007 | |||||||
$ | $ | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Cash provided from (used in) operations | ||||||||
Net income for the period | 3,029,522 | 4,150,115 | ||||||
Charges to income not involving cash | ||||||||
Amortization | 351,238 | 609,887 | ||||||
3,380,760 | 4,760,002 | |||||||
Net changes in non-cash working capital balances (Note 13) | (1,046,170 | ) | (96,938 | ) | ||||
2,334,590 | 4,663,064 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Dividends paid | (3,500,000 | ) | — | |||||
Advances from (to) associated or related companies | 669,221 | (1,350,252 | ) | |||||
Increase (decrease) in deferred revenue | (433,500 | ) | (668,578 | ) | ||||
Net advances from (repayment of) bank loans | 2,755,783 | 1,577,011 | ||||||
Repayment of convertible debentures | — | (3,300,000 | ) | |||||
Net advances from repayment to shareholder | — | (571,041 | ) | |||||
Increase (decrease) in obligations under capital lease | (33,089 | ) | (58,683 | ) | ||||
(541,585 | ) | (4,371,543 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Additions to property, plant & equipment | (430,546 | ) | (1,047,654 | ) | ||||
CHANGE IN CASH AND EQUIVALENTS DURING THE PERIOD | 1,362,459 | (756,133 | ) | |||||
CASH AND EQUIVALENTS — BEGINNING OF PERIOD | (1,837,288 | ) | (1,081,155 | ) | ||||
CASH AND EQUIVALENTS — END OF PERIOD | (474,829 | ) | (1,837,288 | ) | ||||
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2008
1 | NATURE OF OPERATIONS | |
Nascor Ltd. is engaged in the manufacturing of engineered wood products for residential and commercial building projects. The company operates manufacturing facilities in both Calgary and Spruce Grove, Alberta and in these facilities produces roof trusses, floor trusses, I-joists, insulated wall panels and stick frame wall panels engineered to builder specifications. | ||
2 | ACCOUNTING POLICIES | |
Outlined below are policies considered particularly significant. |
Buildings | - | 4% declining balance | ||||
Office furniture & equipment | - | 20% declining balance | ||||
Computer hardware | - | 30% declining balance | ||||
Computer software | - | 100% declining balance | ||||
Plant machinery & equipment | - | 30% declining balance | ||||
Vehicles | - | 30% declining balance |
Page 1 of 8
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2008
Page 2 of 8
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2008
3 INVENTORY |
2008 | 2007 | |||||||
$ | $ | |||||||
Raw materials | 2,663,465 | 3,556,383 | ||||||
Work-in-process | 115,701 | 160,002 | ||||||
Finished goods | 1,606,252 | 1,653,009 | ||||||
4,385,418 | 5,369,394 | |||||||
4 INVESTMENT IN AND ADVANCES TO RELATED PARTIES |
2008 | 2007 | |||||||
$ | $ | |||||||
ADVANCES — NASCOR INTERNATIONAL LTD. | ||||||||
These advances are non-interest bearing with no specific terms of repayment. | 12,580 | 166,960 | ||||||
ADVANCES — BACKYARD DRIVE-IN INCORPORATED | ||||||||
These advances are non-interest bearing with no specific terms of repayment. | 35 | 515,216 | ||||||
ADVANCES — NASCOR HOLDINGS INC. | ||||||||
These advances are non-interest bearing with no specific terms of repayment. | 795,000 | 270 | ||||||
OFFICER LOAN | ||||||||
The officer loan was made pursuant to Subsection 15(2) of the Income Tax Act to enable the president of the company to purchase a dwelling for his own occupancy. The loan is non-interest bearing and is secured by a promissory note repayable in equal annual installments over a period of 15 years. | — | 500,000 | ||||||
INVESTMENT — BACKYARD DRIVE-IN INCORPORATED | ||||||||
33 1/3 % of the issued and outstanding common shares | — | 100 | ||||||
807,615 | 1,182,546 | |||||||
Accumulated | Net | Net | ||||||||||||||
Cost | Amortization | 2008 | 2007 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Land | 5,275,076 | — | 5,275,076 | 5,275,076 | ||||||||||||
Buildings | 2,575,030 | 165,948 | 2,409,082 | 2,121,850 | ||||||||||||
Office furniture & equipment | 277,899 | �� | 240,322 | 37,577 | 70,007 | |||||||||||
Computer hardware | 277,714 | 174,615 | 103,099 | 117,116 | ||||||||||||
Plant machinery & equipment | 2,356,052 | 1,639,834 | 716,218 | 849,430 | ||||||||||||
Vehicles | 106,077 | 39,542 | 66,535 | 59,385 | ||||||||||||
Capital lease equipment | 333,908 | 243,265 | 90,643 | 114,530 | ||||||||||||
11,201,756 | 2,503,526 | 8,698,230 | 8,607,394 | |||||||||||||
Page 3 of 8
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2008
6 PATENTS |
Accumulated | Net | Net | ||||||||||||||
Cost | Amortization | 2008 | 2007 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Patents | 86,446 | 63,394 | 23,052 | 34,578 | ||||||||||||
7 INTANGIBLE ASSETS |
Accumulated | Net | Net | ||||||||||||||
Cost | Amortization | 2008 | 2007 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Trademarks and intellectual property | 38,681 | — | 38,681 | 38,681 | ||||||||||||
8 BANK INDEBTEDNESS |
2008 | 2007 | |||||||
$ | $ | |||||||
BANK OVERDRAFT | 474,829 | 1,837,288 | ||||||
BANKERS ACCEPTANCE | — | 1,000,000 | ||||||
BANK REVOLVING LOAN | 5,740,254 | 1,550,949 | ||||||
The company has a $6,500,000 operating line of credit which bears interest at the bank’s prime lending rate plus 1.25% per annum. The operating line limit includes the bankers acceptance noted above. For security on this bank loan and on the remaining debt, see Note 9 below. | ||||||||
6,215,083 | 4,388,237 | |||||||
9 DEFERRED REVENUE |
2008 | 2007 | |||||||
$ | $ | |||||||
The company has amended certain royalty agreements with licensees whereby the company received prepaid royalty fees in consideration for the reduction of royalty rates over the term of the existing agreements. | 620,219 | 1,053,719 | ||||||
Less: estimated current portion | 396,779 | 496,127 | ||||||
223,440 | 557,592 | |||||||
Page 4 of 8
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2008
10 | BANK LOANS |
2008 | 2007 | |||||||
$ | $ | |||||||
TERM BANK LOAN | 2,459,000 | 2,513,000 | ||||||
The company has entered into an interest swap agreement whereby the company finances this loan through the issuance of revolving bankers acceptances on a monthly basis with the principal amount declining by a range of $5,000 to $10,000 per month during the the duration of the term which ends on March 5, 2012. The swap agreement guarantees the company an effective interest rate of 7.16% during the term of the agreement | ||||||||
TERM BANK LOAN | 1,263,000 | 1,306,000 | ||||||
The company has entered into an interest swap agreement whereby the company finances this loan through the issuance of revolving bankers acceptances on a monthly basis with the principal amount declining by a range of $4,000 to $8,000 per month during the the duration of the term which ends on March 5, 2012. The swap agreement guarantees the company an effective interest rate of 7.16% during the term of the agreement | ||||||||
TERM BANK LOAN | ||||||||
This loan is due October 15, 2011, interest is at the bank floating rate of bank prime plus 1.25% and is repayable monthly in payments of $9.315 principal plus interest. | 400,555 | 475,077 | ||||||
TERM BANK LOAN | ||||||||
The company has entered into an interest swap agreement whereby the company finances this loan through the issuance of revolving bankers acceptances on a monthly basis with the principal amount declining by a range of $30,000 to $45,000 per month during the the duration of the term which ends on March 5, 2012. The swap agreement guarantees the company an effective interest rate of 7.16% during the term of the agreement | 3,561,000 | 3,823,000 | ||||||
7,683,555 | 8,117,077 | |||||||
Less: current portion | 908,450 | 908,450 | ||||||
6,775,105 | 7,208,627 | |||||||
Page 5 of 8
Table of Contents
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2008
a) | General Security Agreement representing a first security interest in all present and future property registered in British Columbia, Alberta, Ontario and Quebec; | ||
b) | Section 427 Bank Act Security; | ||
c) | Demand First All Purpose Collateral Mortgage in the amount of $6,600,000 registered on the following 3 properties: |
1. | 1212 — 34 Ave. S.E., Calgary, Alberta | ||
2. | 1201 — 34 Ave. S.E. Calgary, Alberta | ||
3. | 4001 — 11A St. S.E. Calgary, Alberta; |
d) | Demand First All Purpose Collateral Mortgage in the amount of $1,800,000 registered on the following 2 properties: |
1. | 45 Diamond Avenue, Spruce Grove, Alberta | ||
2. | 90 and 100 Madison Crescent, Spruce Grove, Alberta; |
e) | Assignment of various insurance policies including fire insurance on the above real estate. |
Principal repayments are as follows: |
$ | ||||
2009 | 686,783 | |||
2010 | 728,783 | |||
2011 | 621,783 | |||
2012 | 5,646,207 | |||
2013 | — |
11 | OBLIGATIONS UNDER CAPITAL LEASE | |
The company has obligations under capital lease for equipment with an implicit interest of 8.00%. The repayments are as follows: |
Payments | Interest | Net | ||||||||||
$ | $ | $ | ||||||||||
2009 | 6,444 | 99 | 6,345 | |||||||||
2010 | — | |||||||||||
2011 | — | — | — | |||||||||
2012 | — | — | — | |||||||||
2013 | — | — | — | |||||||||
6,444 | 99 | 6,345 | ||||||||||
Less: current portion | 6,345 | |||||||||||
— | ||||||||||||
Page 6 of 8
Table of Contents
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2008
2008 | 2007 | |||||||
$ | $ | |||||||
Authorized: | ||||||||
Unlimited number of common shares | ||||||||
Unlimited number of voting, retractable Class A preference shares | ||||||||
Unlimited number of non-voting, retractable Class B preference shares | ||||||||
Unlimited number of non-voting, retractable Class C preference shares | ||||||||
Issued: | ||||||||
100 common shares | 100 | 100 | ||||||
$ | ||||
2009 | 469,732 | |||
2010 | 314,105 | |||
2011 | 242,531 | |||
2012 | 135,753 | |||
2013 | 4,130 |
Page 7 of 8
Table of Contents
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2008
2008 | 2007 | |||||||
$ | $ | |||||||
Change in non-cash working capital items: | ||||||||
Accounts receivable | 3,399,915 | (2,799,749 | ) | |||||
Loan receivable | 50,000 | (50,000 | ) | |||||
Income taxes | (820,763 | ) | 1,158,782 | |||||
Inventory | 983,976 | 113,512 | ||||||
Prepaid expenses | (261,869 | ) | (263,480 | ) | ||||
Accounts payable | (2,199,549 | ) | 52,819 | |||||
Bonus payable | (2,000,000 | ) | 1,600,000 | |||||
Customer deposits | (197,880 | ) | 91,178 | |||||
(1,046,170 | ) | (96,938 | ) | |||||
Page 8 of 8
Table of Contents
FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 28, 2007
Table of Contents
![(LOGO)](https://capedge.com/proxy/6-K/0001130319-08-000748/o42155o4215505.gif)
Tel: 905-333-6699 Fax: 905-333-4950
E-Mail: info@bellcas.ca
Nascor Ltd.:
![]() | ||
Burlington, Ontario | Bell & Company LLP | |
September 15, 2007, except as to Note 2 | Chartered Accountants | |
which is as of August 18, 2008 | Licensed Public Accountants |
Table of Contents
BALANCE SHEET
AS AT JULY 28, 2007
2007 | 2006 | |||||||
$ | $ | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Accounts receivable | 11,954,894 | 9,155,145 | ||||||
Loan receivable | 50,000 | — | ||||||
Notes receivable — Cano Coatings Inc. | 304,757 | 190,365 | ||||||
Inventories (Notes 3 & 4) | 5,369,394 | 5,482,906 | ||||||
Prepaid expenses | 534,430 | 270,950 | ||||||
18,213,475 | 15,099,366 | |||||||
INVESTMENT IN AND ADVANCES TO RELATED PARTIES (Note 4) | 1,182,546 | 75,000 | ||||||
PROPERTY, PLANT & EQUIPMENT (Notes 3 & 6) | 8,607,394 | 8,152,337 | ||||||
PATENTS (Notes 3 & 7) | 34,578 | 51,868 | ||||||
INTANGIBLE ASSETS (Notes 3 & 8) | 38,681 | 38,681 | ||||||
28,076,674 | 23,417,252 | |||||||
LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Bank indebtedness (Note 9) | 4,388,237 | 5,260,167 | ||||||
Accounts payable and accrued liabilities | 4,459,573 | 4,406,754 | ||||||
Bonus payable | 2,000,000 | 400,000 | ||||||
Customer deposits | 250,341 | 159,163 | ||||||
Deferred revenue (Note 10) | 496,127 | 602,836 | ||||||
Income taxes payable | 1,978,386 | 819,604 | ||||||
Current portion of long term debt (Note 11) | 908,450 | 768,823 | ||||||
Current portion of obligations under capital lease (Note 12) | 39,334 | 57,799 | ||||||
14,520,448 | 12,475,146 | |||||||
DEFERRED REVENUE (Note 10) | 557,592 | 1,119,461 | ||||||
BANK LOANS (Note 11) | 7,208,627 | 4,143,180 | ||||||
DUE TO ASSOCIATED COMPANY | — | 128,314 | ||||||
DUE TO SHAREHOLDER | — | 571,041 | ||||||
CONVERTIBLE SUBORDINATED DEBENTURES | — | 3,300,000 | ||||||
OBLIGATIONS UNDER CAPITAL LEASE (Note 12) | 100 | 40,318 | ||||||
FUTURE INCOME TAXES (Note 3) | 575,076 | 575,076 | ||||||
SHAREHOLDER’S EQUITY | ||||||||
Share capital (Note 13) | 100 | 100 | ||||||
Retained earnings | 5,214,731 | 1,064,616 | ||||||
5,214,831 | 1,064,716 | |||||||
28,076,674 | 23,417,252 | |||||||
Table of Contents
CASH FLOW STATEMENT
FOR THE YEAR ENDED JULY 28, 2007
2007 | 2006 | |||||||
$ | $ | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Cash provided from (used in) operations | ||||||||
Net income for the year | 4,150,115 | 1,745,996 | ||||||
Charges to income not involving cash | ||||||||
Writedown of finger joining machine | — | 82,897 | ||||||
Amortization | 609,887 | 787,724 | ||||||
4,760,002 | 2,616,617 | |||||||
Net changes in non-cash working capital balances (Note 15) | (96,938 | ) | (1,935,434 | ) | ||||
4,663,064 | 681,183 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Advances from (to) associated or related companies | (1,350,252 | ) | 83,553 | |||||
Increase (decrease) in deferred revenue | (668,578 | ) | (630,351 | ) | ||||
Net advances from (repayment of) bank loans | 1,577,011 | (321,283 | ) | |||||
Repayment of convertible debentures | (3,300,000 | ) | — | |||||
Net advances from repayment to shareholder | (571,041 | ) | 373,622 | |||||
Increase (decrease) in obligations under capital lease | (58,683 | ) | (141,926 | ) | ||||
(4,371,543 | ) | (636,385 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Additions to property, plant & equipment | (1,047,654 | ) | (367,349 | ) | ||||
CHANGE IN CASH AND EQUIVALENTS DURING THE YEAR | (756,133 | ) | (322,551 | ) | ||||
CASH AND EQUIVALENTS — BEGINNING OF YEAR | (1,081,155 | ) | (758,604 | ) | ||||
CASH AND EQUIVALENTS — END OF YEAR | (1,837,288 | ) | (1,081,155 | ) | ||||
Table of Contents
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED JULY 28, 2007
2007 | 2006 | |||||||
$ | $ | |||||||
SALES | 71,176,455 | 64,614,342 | ||||||
COST OF SALES | ||||||||
Purchases | 31,247,242 | 34,074,129 | ||||||
Wages and employee benefits | 10,618,291 | 8,720,126 | ||||||
Other manufacturing overhead | 5,908,949 | 5,667,682 | ||||||
47,774,482 | 48,461,937 | |||||||
GROSS MARGIN | 23,401,973 | 16,152,405 | ||||||
OPERATING EXPENSES | ||||||||
Wages and employee benefits | 7,186,676 | 5,612,302 | ||||||
Director’s salary | 2,360,000 | 1,360,000 | ||||||
Commissions and profit share | 2,310,723 | 1,356,569 | ||||||
Interest and bank charges | 1,235,899 | 1,317,369 | ||||||
Office and general | 1,029,409 | 1,138,832 | ||||||
Travel and insurance | 611,695 | 516,262 | ||||||
Interest charge on payout of convertible debenture | 605,000 | — | ||||||
Layout services | 518,142 | 536,298 | ||||||
Consulting fees | 375,775 | 522,077 | ||||||
Meals and entertainment | 335,131 | 291,223 | ||||||
Amortization | 194,626 | 210,683 | ||||||
Professional fees | 151,500 | 98,010 | ||||||
Advertising and promotion | 110,978 | 117,868 | ||||||
Telephone | 101,258 | 99,993 | ||||||
Dues and memberships | 31,200 | 62,111 | ||||||
Bad debts (recovered) | 25,066 | 204,557 | ||||||
Writedown of finger joining machine | — | 82,897 | ||||||
Gain from cash surrender value of life insurance | — | (56,098 | ) | |||||
(Gain) loss on foreign exchange | (7,244 | ) | 14,630 | |||||
17,175,834 | 13,485,583 | |||||||
INCOME BEFORE PROVISION FOR INCOME TAXES | 6,226,139 | 2,666,822 | ||||||
PROVISION FOR INCOME TAXES (Note 3) | 2,076,024 | 920,826 | ||||||
NET INCOME FOR THE YEAR | 4,150,115 | 1,745,996 | ||||||
RETAINED EARNINGS (DEFICIT) — BEGINNING OF YEAR | 1,064,616 | (681,380 | ) | |||||
RETAINED EARNINGS — END OF YEAR | 5,214,731 | 1,064,616 | ||||||
Table of Contents
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 28, 2007
Buildings | - | 4% declining balance | ||
Office furniture & equipment | - | 20% declining balance | ||
Computer hardware | - | 30% declining balance | ||
Computer software | - | 100% declining balance | ||
Plant machinery & equipment | - | 30% declining balance | ||
Vehicles | - | 30% declining balance |
Page 1 of 8
Table of Contents
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 28, 2007
2007 | 2006 | |||||||
$ | $ | |||||||
Raw materials | 3,556,383 | 2,998,637 | ||||||
Work-in-process | 160,002 | 231,885 | ||||||
Finished goods | 1,653,009 | 2,252,384 | ||||||
5,369,394 | 5,482,906 | |||||||
Page 2 of 8
Table of Contents
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 28, 2007
2007 | 2006 | |||||||
$ | $ | |||||||
ADVANCES — NASCOR INTERNATIONAL LTD. | ||||||||
These advances are non-interest bearing with no specific terms of repayment. | 166,960 | — | ||||||
ADVANCES — BACKYARD DRIVE-IN INCORPORATED | ||||||||
These advances are non-interest bearing with no specific terms of repayment. | 515,216 | 75,000 | ||||||
ADVANCES — NASCOR HOLDINGS INC. | ||||||||
These advances are non-interest bearing with no specific terms of repayment. | 270 | — | ||||||
OFFICER LOAN | ||||||||
The officer loan was made pursuant to Subsection 15(2) of the Income Tax Act to enable the president of the company to purchase a dwelling for his own occupancy. The loan is non-interest bearing and is secured by a promissory note repayable in equal annual installments over a period of 15 years. | 500,000 | — | ||||||
INVESTMENT — BACKYARD DRIVE-IN INCORPORATED | ||||||||
33 1/3 % of the issued and outstanding common shares | 100 | — | ||||||
1,182,546 | 75,000 | |||||||
Accumulated | Net | Net | ||||||||||||||
Cost | Amortization | 2007 | 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Land | 4,475,076 | — | 4,475,076 | 4,475,076 | ||||||||||||
Option to purchase land | 800,000 | — | 800,000 | — | ||||||||||||
Buildings | 2,255,655 | 133,805 | 2,121,850 | 2,098,531 | ||||||||||||
Office furniture & equipment | 271,130 | 201,123 | 70,007 | 135,290 | ||||||||||||
Computer hardware | 267,589 | 150,473 | 117,116 | 133,893 | ||||||||||||
Plant machinery & equipment | 2,288,373 | 1,438,943 | 849,430 | 1,116,050 | ||||||||||||
Vehicles | 83,577 | 24,192 | 59,385 | 29,882 | ||||||||||||
Capital lease equipment | 333,908 | 219,378 | 114,530 | 163,615 | ||||||||||||
10,775,308 | 2,167,914 | 8,607,394 | 8,152,337 | |||||||||||||
Accumulated | Net | Net | ||||||||||||||
Cost | Amortization | 2007 | 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Patents | 86,446 | 51,868 | 34,578 | 51,868 | ||||||||||||
Page 3 of 8
Table of Contents
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 28, 2007
Accumulated | Net | Net | ||||||||||||||
Cost | Amortization | 2007 | 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Trademarks and intellectual property | 38,681 | — | 38,681 | 38,681 | ||||||||||||
2007 | 2006 | |||||||
$ | $ | |||||||
BANK OVERDRAFT | 1,837,288 | 1,081,155 | ||||||
BANKERS ACCEPTANCE | 1,000,000 | |||||||
BANK REVOLVING LOAN | 1,550,949 | 4,179,012 | ||||||
The company has a $7,000,000 operating line of credit which bears interest at the bank’s prime lending rate plus 1.25% per annum. The operating line limit includes the bankers acceptance noted above. For security on this bank loan and on the remaining debt, see Note 9 below. | ||||||||
4,388,237 | 5,260,167 | |||||||
2007 | 2006 | |||||||
$ | $ | |||||||
The company has amended certain royalty agreements with licensees whereby the company received prepaid royalty fees in consideration for the reduction of royalty rates over the term of the existing agreements. | 1,053,719 | 1,722,297 | ||||||
Less: estimated current portion | 496,127 | 602,836 | ||||||
557,592 | 1,119,461 | |||||||
Page 4 of 8
Table of Contents
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 28, 2007
2007 | 2006 | |||||||
$ | $ | |||||||
TERM BANK LOAN | 2,513,000 | 2,637,500 | ||||||
The company has entered into an interest swap agreement whereby the company finances this loan through the issuance of revolving bankers acceptances on a monthly basis with the principal amount declining by a range of $5,000 to $10,000 per month during the the duration of the term which ends on March 5, 2012. The swap agreement guarantees the company an effective interest rate of 7.16% during the term of the agreement | ||||||||
TERM BANK LOAN | 1,306,000 | 1,389,444 | ||||||
The company has entered into an interest swap agreement whereby the company finances this loan through the issuance of revolving bankers acceptances on a monthly basis with the principal amount declining by a range of $4,000 to $8,000 per month during the the duration of the term which ends on March 5, 2012. The swap agreement guarantees the company an effective interest rate of 7.16% during the term of the agreement | ||||||||
TERM BANK LOAN | ||||||||
This loan is due October 15, 2011, interest is at the bank floating rate of bank prime plus 1.25% and is repayable monthly in payments of $9,315 principal plus interest. | 475,077 | — | ||||||
TERM BANK LOAN | ||||||||
The company has entered into an interest swap agreement whereby the company finances this loan through the issuance of revolving bankers acceptances on a monthly basis with the principal amount declining by a range of $30,000 to $45,000 per month during the the duration of the term which ends on March 5, 2012. The swap agreement guarantees the company an effective interest rate of 7.16% during the term of the agreement | 3,823,000 | — | ||||||
TERM BANK LOAN | — | 432,829 | ||||||
TERM BANK LOAN | — | 452,230 | ||||||
8,117,077 | 4,912,003 | |||||||
Less: current portion | 908,450 | 768,823 | ||||||
7,208,627 | 4,143,180 | |||||||
Page 5 of 8
Table of Contents
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 28, 2007
a) | General Security Agreement representing a first security interest in all present and future property registered in British Columbia, Alberta, Ontario and Quebec; | ||
b) | Section 427 Bank Act Security: | ||
c) | Demand First All Purpose Collateral Mortgage in the amount of $6,600,000 registered on the following 3 properties: |
1. | 1212 – 34 Ave. S.E., Calgary, Alberta | ||
2. | 1201 – 34 Ave. S.E. Calgary, Alberta | ||
3. | 4001 – 11A St. S.E. Calgary, Alberta; |
d) | Demand First All Purpose Collateral Mortgage in the amount of $1,800,000 registered on the following 2 properties: |
1. | 45 Diamond Avenue, Spruce Grove, Alberta | ||
2. | 90 and 100 Madison Crescent, Spruce Grove, Alberta: |
e) | Assignment of various insurance policies including fire insurance on the above real estate. |
$ | ||||
2008 | 654,783 | |||
2009 | 702,783 | |||
2010 | 745,783 | |||
2011 | 789,783 | |||
2012 | 5,223,945 |
Payments | Interest | Net | ||||||||||
$ | $ | $ | ||||||||||
2008 | 40,830 | 1,496 | 39,334 | |||||||||
2009 | 100 | — | 100 | |||||||||
2010 | — | — | — | |||||||||
2011 | — | — | — | |||||||||
2012 | — | — | — | |||||||||
40,930 | 1,496 | 39,434 | ||||||||||
Less: current portion | 39,334 | |||||||||||
100 | ||||||||||||
Page 6 of 8
Table of Contents
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 28, 2007
2007 | 2006 | |||||||
$ | $ | |||||||
Authorized: | ||||||||
Unlimited number of common shares | ||||||||
Unlimited number of voting, retractable Class A preference shares | ||||||||
Unlimited numher of non-voting, retractable Class B preference shares | ||||||||
Unlimited number of non-voting, retractable Class C preference shares | ||||||||
Issued: | ||||||||
100 common shares | 100 | 100 | ||||||
$ | ||||
2008 | 412,122 | |||
2009 | 322,970 | |||
2010 | 168,682 | |||
2011 | 128,627 | |||
2012 | 48,502 |
Page 7 of 8
Table of Contents
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 28, 2007
2007 | 2006 | |||||||
$ | $ | |||||||
Change in non-cash working capital items: | ||||||||
Accounts receivable | (2,799,749 | ) | (1,880,981 | ) | ||||
Loan receivable | (50,000 | ) | — | |||||
Income taxes | 1,158,782 | 796,624 | ||||||
Inventory | 113,512 | (1,928,638 | ) | |||||
Prepaid expenses | (263,480 | ) | 13,942 | |||||
Accounts payable | 52,819 | 556,150 | ||||||
Bonus payable | 1,600,000 | 400,000 | ||||||
Customer deposits | 91,178 | 107,468 | ||||||
(96,938 | ) | (1,935,435 | ) | |||||
Page 8 of 8
Table of Contents
Table of Contents
As at July 31, 2008 and for the three month periods ended
July 31, 2008 and 2007 (unaudited)
Table of Contents
![]() | Deloitte & Touche LLP 3000 Scotia Centre | |
700 Second Street S.W. | ||
Calgary AB T2P 0S7 | ||
Canada | ||
Tel: 403-267-1700 | ||
Fax: 403-264-2871 | ||
www.deloitte.ca |
Asty Concrete & Construction Ltd.:
Calgary, Alberta | ||
July 4, 2008, | (signed) “Deloitte & Touche LLP” | |
(except as to Note 11 which is dated October 8, 2008) | Chartered Accountants |
Table of Contents
Years Ended April 30, 2008 and 2007 and
Three Month Periods Ended July 31, 2008 and 2007 (Unaudited)
Three Months Ended July 31, | Year Ended April 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
REVENUE | 9,876,086 | 10,583,547 | 29,442,148 | 23,184,257 | ||||||||||||
Direct costs | 7,022,606 | 7,786,803 | 20,600,245 | 16,296,675 | ||||||||||||
2,853,480 | 2,796,744 | 8,841,903 | 6,887,582 | |||||||||||||
EXPENSES | ||||||||||||||||
General and administrative | 207,203 | 208,600 | 1,089,908 | 877,942 | ||||||||||||
Management wages and bonuses (Note 9) | 2,134,000 | 2,104,000 | 6,474,000 | 5,154,000 | ||||||||||||
Depreciation and amortization | 102,300 | 76,734 | 387,232 | 306,931 | ||||||||||||
Interest expense | 8,525 | 7,637 | 37,194 | 27,349 | ||||||||||||
Interest income | (1,637 | ) | (2,678 | ) | (11,939 | ) | (8,939 | ) | ||||||||
2,450,391 | 2,394,293 | 7,976,395 | 6,357,283 | |||||||||||||
INCOME BEFORE INCOME TAXES | 403,089 | 402,451 | 865,508 | 530,299 | ||||||||||||
INCOME TAXES (Note 5) | ||||||||||||||||
Current | 27,912 | 27,868 | 59,932 | 47,635 | ||||||||||||
Future | 26,463 | 26,421 | 56,822 | 97,657 | ||||||||||||
54,375 | 54,289 | 116,754 | 145,292 | |||||||||||||
NET INCOME AND COMPREHENSIVE INCOME | 348,714 | 348,162 | 748,754 | 385,007 | ||||||||||||
RETAINED EARNINGS, BEGINNING OF PERIOD | 2,461,309 | 1,751,840 | 1,751,840 | 1,406,118 | ||||||||||||
DIVIDENDS | — | — | (39,285 | ) | (39,285 | ) | ||||||||||
RETAINED EARNINGS, END OF PERIOD | 2,810,023 | 2,100,002 | 2,461,309 | 1,751,840 | ||||||||||||
Table of Contents
July 31, | April 30, | |||||||||||
2008 | 2008 | 2007 | ||||||||||
$ | $ | $ | ||||||||||
(Unaudited) | ||||||||||||
ASSETS | ||||||||||||
CURRENT | ||||||||||||
Cash | — | 2,005,567 | 3,243,770 | |||||||||
Accounts receivable | 9,365,969 | 1,635,286 | 1,485,571 | |||||||||
Work in progress (Note 2(b)) | 60,396 | 127,000 | 143,000 | |||||||||
Other | 66,604 | 102,791 | 117,224 | |||||||||
9,492,969 | 3,870,644 | 4,989,565 | ||||||||||
Capital assets (Note 3) | 1,189,147 | 1,277,948 | 992,864 | |||||||||
10,682,116 | 5,148,592 | 5,982,429 | ||||||||||
LIABILITIES | ||||||||||||
CURRENT | ||||||||||||
Bank indebtedness | 544,149 | — | — | |||||||||
Accounts payable and accrued liabilities (Note 9) | 6,811,561 | 2,156,632 | 3,921,789 | |||||||||
Income taxes payable | 12,500 | 26,633 | 15,683 | |||||||||
Future income taxes (Note 5) | 180,942 | 154,479 | 97,657 | |||||||||
Promissory notes payable (Note 4) | 322,416 | 349,014 | 194,935 | |||||||||
7,871,568 | 2,686,758 | 4,230,064 | ||||||||||
COMMITMENTS (Note 10) | ||||||||||||
SUBSEQUENT EVENT (Note 11) | ||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||
Share capital (Note 6) | 525 | 525 | 525 | |||||||||
Retained earnings | 2,810,023 | 2,461,309 | 1,751,840 | |||||||||
2,810,548 | 2,461,834 | 1,752,365 | ||||||||||
10,682,116 | 5,148,592 | 5,982,429 | ||||||||||
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Years Ended April 30, 2008 and 2007 and
Three Month Periods Ended July 31, 2008 and 2007 (Unaudited)
Three Months Ended July 31, | Year Ended April 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES: | ||||||||||||||||
OPERATING | ||||||||||||||||
Net income and comprehensive income | 348,714 | 348,162 | 748,754 | 385,007 | ||||||||||||
Adjustments for | ||||||||||||||||
Depreciation and amortization | 102,300 | 76,734 | 387,232 | 306,931 | ||||||||||||
Future income taxes | 26,463 | 26,421 | 56,822 | 97,657 | ||||||||||||
477,477 | 451,317 | 1,192,808 | 789,595 | |||||||||||||
Changes in non-cash working capital: | ||||||||||||||||
Accounts receivable | (7,730,682 | ) | (8,260,299 | ) | (149,715 | ) | (94,706 | ) | ||||||||
Work-in-progress | 66,604 | 83,000 | 16,000 | (83,000 | ) | |||||||||||
Other | 36,187 | 42,799 | 14,433 | (10,269 | ) | |||||||||||
Accounts payable and accrued liabilities | 4,654,929 | 3,339,405 | (1,765,157 | ) | 1,609,089 | |||||||||||
Income taxes payable | (14,133 | ) | 3,185 | 10,950 | 5,969 | |||||||||||
(2,509,618 | ) | (4,340,593 | ) | (680,681 | ) | 2,216,678 | ||||||||||
FINANCING | ||||||||||||||||
Dividends paid | — | — | (39,285 | ) | (39,285 | ) | ||||||||||
Proceeds from long-term debt | — | 250,000 | 250,000 | — | ||||||||||||
Repayment of long-term debt | (26,598 | ) | (18,688 | ) | (95,921 | ) | (124,074 | ) | ||||||||
(26,598 | ) | 231,312 | 114,794 | (163,359 | ) | |||||||||||
INVESTING | ||||||||||||||||
Proceeds from sale of capital assets | — | — | 7,000 | — | ||||||||||||
Purchase of capital assets | (13,500 | ) | (65,437 | ) | (679,316 | ) | (498,300 | ) | ||||||||
(13,500 | ) | (65,437 | ) | (672,316 | ) | (498,300 | ) | |||||||||
NET (DECREASE) INCREASE IN CASH | (2,549,716 | ) | (4,174,718 | ) | (1,238,203 | ) | 1,555,019 | |||||||||
CASH, BEGINNING OF PERIOD | 2,005,567 | 3,243,770 | 3,243,770 | 1,688,751 | ||||||||||||
(BANK INDEBTEDNESS) CASH, END OF PERIOD | (544,149 | ) | (930,948 | ) | 2,005,567 | 3,243,770 | ||||||||||
SUPPLEMENTARY INFORMATION | ||||||||||||||||
Interest paid | 8,525 | 7,637 | 37,194 | 27,349 | ||||||||||||
Income taxes paid | 15,412 | 9,000 | 59,932 | 47,635 | ||||||||||||
Table of Contents
ASTY CONCRETE & CONSTRUCTION LTD. | 1 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
1. | DESCRIPTION OF BUSINESS | |
Asty Concrete & Construction Ltd. (the “Company”) is a privately owned company incorporated on January 13, 1978 under the Business Corporations Act of Alberta. The Company’s principal business is concrete flatwork, paving and finishing sidewalks, curbs, gutters and other concrete infrastructure. The Company’s business is seasonal and the majority of its work is conducted between April and October. During this period the bulk of the Company’s revenue is earned and expenses are incurred. | ||
2. | SIGNIFICANT ACCOUNTING PRINCIPLES | |
These financial statements have been prepared in accordance with accounting principles generally accepted in Canada. The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accounts receivable are stated after evaluation as to their collectability and an appropriate allowance for doubtful accounts is provided where considered necessary. Depreciation is based on the estimated useful lives of property and equipment. Estimates primarily arise in the calculation of estimated useful lives of capital assets and may arise in the determination of the percentage of completion basis for recognizing revenue. Actual results could differ from those estimates. | ||
a) Revenue recognition | ||
Revenue is recognized using the percentage of completion method. Each job is measured at month-end to determine the status of the job and then billed to each customer based on the percentage completed. There is a 10% holdback on all jobs. This holdback can be collected 45 days after completion of the job. Holdbacks are recorded in accounts receivable on the balance sheets. Any potential losses on long-term contracts are reflected in the billing process. | ||
b) Work-in-progress | ||
Work-in-progress contains all costs incurred to prepare job sites. |
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ASTY CONCRETE & CONSTRUCTION LTD. | 2 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES | |
c) Capital assets | ||
Capital assets are recorded at cost. Depreciation is calculated using the declining-balance method whereby the depreciation is based on the net book value of the asset applying the following rates: |
Automotive equipment | 30% | |||
Construction equipment | 20% to 30% | |||
Office furniture and equipment | 20% | |||
Other equipment | 20% to 45% | |||
Leasehold improvements | 20% or over term of lease |
The Company evaluates the carrying value of capital assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable, and recognizes an impairment charge when it is probable that estimated future non-discounted cash flows of the underlying assets will be less than the carrying value of the assets. Measurement of an impairment loss related to capital assets that management intends to hold and use is based on the fair value of the assets, whereas assets to be disposed of are reported at the lower of the carrying amount or fair value less estimated costs to sell. | ||
d) Income taxes | ||
Income taxes are accounted for using the liability method of income tax allocation. Under the liability method, income tax assets and liabilities are recorded to recognize future income tax inflows and outflows arising from the settlement or recovery of assets and liabilities at their carrying values. Valuation allowances are established when necessary to reduce future tax assets to the amount that, in the opinion of management, is more likely than not to be realized. Future income tax assets and liabilities are determined based on the substantively enacted tax laws and rates that are anticipated to apply in the period of realization. |
Table of Contents
ASTY CONCRETE & CONSTRUCTION LTD. | 3 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
e) | Recently adopted and pending accounting pronouncements |
i) | In 2005, the Canadian Institute of Chartered Accountants (“CICA”) issued three new standards: Comprehensive Income; Financial Instruments — Recognition and Measurement; and Hedges. These sections became effective for the Company on May 1, 2007 and require the following: |
a) | In Section 1530 “Comprehensive Income”, certain gains and losses arising from changes in fair value are temporarily recorded outside the statements of operations in accumulated other comprehensive income as a separate component of shareholders’ equity. Comprehensive income is comprised of the Company’s net income and other comprehensive income. At April 30, 2008 and 2007 and July 31, 2008 and 2007, the balance of accumulated other comprehensive income was $Nil. | ||
b) | In Section 3855 “Financial Instruments — Recognition and Measurement” and Section 3865 “Hedges”, all financial instruments including derivatives are to be included on a company’s balance sheets and measured either at their fair value or, in limited circumstances, when fair value may not be considered most relevant, at cost or amortized cost. These sections specify when gains and losses, as a result of changes in fair value, are to be recognized in the statements of operations. Section 3855 requires that all financial assets and liabilities be accounted for using one of five available accounting models being: held-to-maturity, available-for-sale, held-for-trading, loans and receivables, and other liabilities. All financial instruments classified as available-for-sale, held-for-trading, and derivative financial instruments meeting certain recognition criteria, are carried at fair value. Changes in the fair value of financial instruments designated as held-for-trading and recognized derivative financial instruments are charged or credited to the statements of operations for the current period, while changes in the fair value of financial instruments designated as available-for- sale are charged or credited to other comprehensive income and charged or credited to the statements of operations when the instrument is sold. All other financial assets and liabilities are accounted for at amortized cost depending upon the nature of the instrument. Financial assets and liabilities designated as held-to-maturity are initially recognized at their fair values, with any resulting premium or discount from the fair value being amortized to income or expense using the effective interest method. After their initial fair value measurement, they are measured at amortized cost using the effective interest method. |
Table of Contents
ASTY CONCRETE & CONSTRUCTION LTD. | 4 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
e) | Recently adopted and pending accounting pronouncements (Continued) |
Section 3855 requires the Company to make certain elections, upon initial adoption of the new rules, regarding the accounting model to be used to classify and measure each financial instrument. Section 3855 also requires that transaction costs incurred by the Company in connection with the acquisition of various financial assets or liabilities be recorded as a reduction of the carrying value of the related financial instrument and amortized using the effective interest method or expensed as incurred. Transaction costs related to the acquisition of financial instruments held-for-trading are expensed as incurred. Transaction costs with respect to instruments not classified as held-for-trading are recognized as an adjustment to the cost of the underlying instruments, when they are recognized, and amortized using the effective interest method. | |||
The following is a summary of the accounting model the Company has elected to apply to each of its significant categories of financial instruments on implementation at May 1, 2007 and for the year ended April 30, 2008: |
Cash (bank indebtedness) | held-for-trading | |
Accounts receivable | loans and receivables | |
Accounts payable and accrued liabilities | other liabilities | |
Promissory notes payable | other liabilities |
The implementation of these sections did not have a material impact on the Company’s financial statements. |
c) | Derivative instruments are recorded at fair value unless exempted from derivative treatment as normal purchases and sales. All changes in their fair value are recorded in income unless cash flow hedge accounting is used, in which case, changes in fair value are recorded in other comprehensive income. The Company has elected to apply this accounting treatment for embedded derivatives on transactions entered into after May 1, 2003. The change in these accounting policies did not have any impact on the financial statements as the Company does not have any derivatives. | ||
For cash (bank indebtedness), accounts receivable, accounts payable and accrued liabilities, income taxes payable, and promissory notes, the carrying value approximates fair value due to their short-term nature. |
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ASTY CONCRETE & CONSTRUCTION LTD. | 5 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
e) | Recently adopted and pending accounting pronouncements (Continued) |
ii) | In January 2005, the CICA issued a new Section to the CICA Handbook, Section 3251 “Equity” which became effective for the Company on May 1, 2007. This Section establishes standards for the presentation of equity during a reporting period. The implementation of this Section did not have a material impact on the Company’s financial statements. | ||
iii) | Effective January 1, 2007, the Company adopted CICA Handbook Section 1506 “Accounting Changes” which establishes criteria for changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies and estimates, and correction of errors. Under the new standard, accounting changes should be applied retroactively unless otherwise permitted or where impracticable to determine. As well, voluntary changes in accounting policies are made only when required by a primary source of Canadian GAAP or the change results in more relevant and reliable information. The Company has determined that the application of this section did not have any impact on its financial statements. | ||
iv) | Effective May 1, 2008, the Company adopted two new CICA standards, Section 3862 “Financial Instruments — Disclosures” and Section 3863 “Financial Instruments - Presentation” which will replace Section 3861 “Financial Instruments — Disclosure and Presentation”. The new disclosure standard increases the emphasis on the risks associated with both recognized and unrecognized financial instruments and how these risks are managed. The new standard requires additional disclosures in the Company’s financial statements. | ||
v) | In November 2006, the CICA issued new Handbook Section 1535 “Capital Disclosures”, effective for annual and interim periods beginning on or after October 1, 2007. This Section establishes standards for disclosing information about an entity’s capital and how it is managed in order that a user of the financial statements may evaluate the entity’s objectives, policies and processes for managing capital. This new standard requires additional disclosures in the Company’s financial statements. | ||
vi) | Effective May 1, 2008, the Company adopted CICA Section 3031 “Inventories”. This Section relates to the accounting for inventories and revises and enhances the requirements for assigning costs to inventories. The new standard had no effect on the Company’s financial statements as the Company’s existing policies complied with the new standard. |
Table of Contents
ASTY CONCRETE & CONSTRUCTION LTD. | 6 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
f) | Future accounting pronouncements |
In February 2008, the CICA issued new Handbook Section 3064 “Goodwill and Intangible Assets”, replacing Handbook Section 3062 “Goodwill and Other Intangible Assets” and Handbook Section 3450 “Research and Development Costs”. The new section will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company will adopt the new standards for its fiscal year beginning May 1, 2009. This Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Handbook Section 3062. This new standard is not expected to have a material effect on the Company’s financial statements. |
3. | CAPITAL ASSETS |
July 31, 2008 | ||||||||||||
Accumulated | ||||||||||||
Depreciation | ||||||||||||
and | ||||||||||||
Cost | Amortization | Net Book Value | ||||||||||
$ | $ | $ | ||||||||||
Automotive equipment | 1,477,174 | 1,026,444 | 450,730 | |||||||||
Construction equipment | 2,463,245 | 1,760,504 | 702,741 | |||||||||
Office furniture and equipment | 87,521 | 70,309 | 17,212 | |||||||||
Other equipment | 123,665 | 106,895 | 16,770 | |||||||||
Leasehold improvements | 25,636 | 23,942 | 1,694 | |||||||||
4,177,241 | 2,988,094 | 1,189,147 | ||||||||||
April 30, 2008 | ||||||||||||
Accumulated | ||||||||||||
Depreciation | ||||||||||||
and | Net | |||||||||||
Cost | Amortization | Book Value | ||||||||||
$ | $ | $ | ||||||||||
Automotive equipment | 1,463,675 | 993,771 | 469,904 | |||||||||
Construction equipment | 2,463,245 | 1,693,856 | 769,389 | |||||||||
Office furniture and equipment | 87,521 | 68,524 | 18,997 | |||||||||
Other equipment | 123,665 | 105,749 | 17,916 | |||||||||
Leasehold improvements | 25,636 | 23,894 | 1,742 | |||||||||
4,163,742 | 2,885,794 | 1,277,948 | ||||||||||
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ASTY CONCRETE & CONSTRUCTION LTD. | 7 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
3. | CAPITAL ASSETS (Continued) |
April 30, 2007 | ||||||||||||
Accumulated | ||||||||||||
Depreciation | ||||||||||||
and | Net | |||||||||||
Cost | Amortization | Book Value | ||||||||||
$ | $ | $ | ||||||||||
Automotive equipment | 1,133,748 | 863,072 | 270,676 | |||||||||
Construction equipment | 2,127,895 | 1,449,219 | 678,676 | |||||||||
Office furniture and equipment | 80,482 | 61,439 | 19,043 | |||||||||
Other equipment | 123,665 | 101,130 | 22,535 | |||||||||
Leasehold improvements | 25,636 | 23,702 | 1,934 | |||||||||
3,491,426 | 2,498,562 | 992,864 | ||||||||||
4. | PROMISSORY NOTES PAYABLE |
April 30, | ||||||||
2008 | 2007 | |||||||
$ | $ | |||||||
Promissory note unsecured, repayable in equal monthly installments of $4,939 including interest at 7.0%, due June 2012. Note is payable on demand | 213,585 | — | ||||||
Promissory note unsecured, repayable in equal monthly installments of $5,765 including interest at 5.75%, due May 2010. Note is payable on demand | 135,429 | 194,935 | ||||||
349,014 | 194,935 | |||||||
$ | ||||
2009 | 128,448 | |||
2010 | 128,448 | |||
2011 | 64,384 | |||
2012 | 8,903 |
Table of Contents
ASTY CONCRETE & CONSTRUCTION LTD. | 8 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
4. | PROMISSORY NOTES PAYABLE (Continued) | |
The Company has an authorized overdraft credit facility of $2,000,000. As security for the overall credit facility, the Company has provided a general security agreement over all the assets of the Company as well as an assignment of accounts receivable and a fixed and floating charge debenture in the amount of $750,000. The shareholders have also provided personal guarantees. There are no financial covenant restrictions. The overdraft facility is currently being renegotiated. There are no material changes anticipated. | ||
The Company has two promissory notes available for $125,000 and $75,000 for its Indemnity Agreement as discussed in Note 10. | ||
5. | INCOME TAXES | |
The following is a reconciliation of income taxes, calculated at the statutory income tax rate, to the income taxes provision included in the statements of operations. |
April 30, | ||||||||
2008 | 2007 | |||||||
$ | $ | |||||||
Income before income taxes | 865,508 | 530,299 | ||||||
Statutory income tax rate | 15.42 | % | 16.12 | % | ||||
Expected income taxes expense | 133,461 | 85,484 | ||||||
Non-deductible expenses | 3,384 | 3,013 | ||||||
Recognition of previously unrecognized temporary difference | — | 61,072 | ||||||
Change in expected tax rates | (19,909 | ) | — | |||||
Other | (182 | ) | (4,277 | ) | ||||
Income taxes expense | 116,754 | 145,292 | ||||||
Classified as: | ||||||||
Current | 59,932 | 47,635 | ||||||
Future | 56,822 | 97,657 | ||||||
Income tax expense | 116,754 | 145,292 | ||||||
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ASTY CONCRETE & CONSTRUCTION LTD. | 9 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
5. | INCOME TAXES (Continued) | |
Income taxes are recognized for future income tax consequences attributed to estimated differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases. | ||
The current future income taxes liability is comprised of: |
April 30, | ||||||||
2008 | 2007 | |||||||
$ | $ | |||||||
Holdbacks receivable | 154,479 | 97,657 | ||||||
6. | SHARE CAPITAL | |
Authorized |
Issued |
April 30, | ||||||||||||||||||||||||
July 31, 2008 | 2008 | 2007 | ||||||||||||||||||||||
Stated | Stated | Stated | ||||||||||||||||||||||
Capital | Capital | Capital | ||||||||||||||||||||||
Number | $ | Number | $ | Number | $ | |||||||||||||||||||
Common shares | 525 | 525 | 525 | 525 | 525 | 525 | ||||||||||||||||||
During the year ended April 30, 2008, the Company paid dividends to its common shareholders amounting to $39,285 (2007 — $39,285). |
7. | CAPITAL DISCLOSURES | |
The Company’s objectives when managing capital are to: (a) safeguard the Company’s ability to continue as a going concern; and (b) maintain flexibility in order to preserve the Company’s ability to meet financial obligations with a long-term view of maximizing return to shareholders. | ||
On an ongoing basis, the Company reviews and assesses its capital structure. The Company defines its capital as shareholders’ equity, and cash (bank indebtedness). |
Table of Contents
ASTY CONCRETE & CONSTRUCTION LTD. | 10 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
7. | CAPITAL DISCLOSURES (Continued) | |
The Company’s capital is as follows: |
July 31, 2008 | April 30, 2008 | |||||||
$ | $ | |||||||
Shareholders’ equity | 2,810,548 | 2,461,834 | ||||||
Cash (bank indebtedness) | 544,149 | (2,005,567 | ) | |||||
Promissory notes payable | 322,416 | 349,014 | ||||||
3,677,113 | 805,281 | |||||||
The Company’s strategy has been to ensure that it has sufficient capital to efficiently and effectively run the operations of the Company while providing a return to shareholders and maintaining adequate liquidity. |
8. | FINANCIAL INSTRUMENTS | |
a) Financial instruments | ||
The carrying value of the Company’s interest in financial instruments approximates their fair value due to their short-term nature. The estimated fair value approximates the amount for which the financial instruments could currently be exchanged in an arm’s length transaction between willing parties who are under no compulsion to act. | ||
The Company has classified its financial instruments as follows: |
July 31, 2008 | April 30, 2008 | |||||||
$ | $ | |||||||
Financial assets | ||||||||
Cash, measured at fair value (held-for-trading) | — | 2,005,567 | ||||||
Accounts receivable, measured at cost | 9,365,969 | 1,635,286 | ||||||
Financial liabilities | ||||||||
Bank indebtedness | 544,149 | — | ||||||
Accounts payable and accrued liabilities, measured at cost | 6,811,561 | 2,156,632 | ||||||
Promissory notes payable, measured at cost, approximating fair value | 322,416 | 349,014 |
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ASTY CONCRETE & CONSTRUCTION LTD. | 11 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
8. | FINANCIAL INSTRUMENTS (Continued) |
a) | Financial instruments (Continued) |
The Company is required to identify and measure embedded derivatives that require separation from the related host contract and measure those embedded derivatives at fair value. Subsequent changes in fair value of embedded derivatives are recognized in the statement of operations in the period the change occurs. The Company did not have any embedded derivatives during the three months ended July 31, 2008 or 2007 or April 30, 2008 and 2007. |
b) | Financial risk management | ||
The Company has exposure to credit risk, interest rate risk, foreign currency risk, liquidity risk, and customer concentration risk. The Company’s Management has the overall responsibility for the oversight of these risks and reviews the Company’s policies on an ongoing basis to ensure that these risks are appropriately managed. |
i) | Credit risk |
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of accounts receivable. The Company provides credit to its customers in the normal course of its operations and carries out credit checks when applicable. The Company maintains provisions for contingent credit losses based on an assessment of collectability, if and when applicable. Trade accounts receivable past due more than 60 days represented 10% or $974,588 of the total trade accounts receivables at July 31, 2008 (94% or $1,531,311 at April 30, 2008). The amounts past due more than 60 days at April 30, 2008 are primarily holdbacks that were subsequently collected. | |||
The balance in trade accounts receivable that are one year past due at July 31, 2008 is $100,622 of which substantially all are company holdbacks. The Company has clients where the contracts are long-term (one year) and therefore the holdbacks receivable fall into the above past due balance. The Company does not currently have an allowance for doubtful accounts as it feels all of its receivables are collectible. |
ii) | Interest rate risk |
Interest rate risk reflects the sensitivity of the Company’s financial results and condition to movements in interest rates. The Company holds no variable interest rate debt and therefore the Company’s exposure to interest rate changes is limited to cash and bank indebtedness. For the three month periods ended July 31, 2008, a 1% increase in interest rates on bank indebtedness would have decreased earnings before income taxes by approximately $2,700. |
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ASTY CONCRETE & CONSTRUCTION LTD. | 12 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
8. | FINANCIAL INSTRUMENTS (Continued) |
b) | Financial risk management (Continued) |
iii) | Foreign currency risk |
Foreign currency risk reflects the Company’s exposure to fluctuations in foreign currency rates. The Company does not engage in any material transactions not denominated in Canadian dollars and does not have any financial assets or liabilities denominated in foreign currencies. As a result at July 31, 2008, the Company’s foreign currency risk is insignificant. |
iv) | Liquidity risk |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity risk through cash and debt management. | |||
In managing liquidity risk, the Company has access to an overdraft credit facility of $2.0 million. As at July 31, 2008 the Company has $1,455,851 available in this overdraft facility as only $544,149 has been drawn. The Company uses the overdraft facility through the slower winter season and then uses the cash flow from its operations in the remaining seasons to meet its obligations. | |||
The timing of cash outflows relating to financial liabilities as at July 31, 2008 are outlined in the table below: |
One Year | ||||
$ | ||||
Bank indebtedness | 544,149 | |||
Accounts payable and accrued liabilities | 6,811,561 | |||
Promissory notes payable | 322,416 | |||
7,678,126 | ||||
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ASTY CONCRETE & CONSTRUCTION LTD. | 13 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
8. | FINANCIAL INSTRUMENTS (Continued) |
b) | Financial risk management (Continued) |
v) | Customer concentration risk |
Customer concentration risk is the risk that the Company is dependent upon any one party for a significant portion of its revenue. The Company has two customers that make up a large portion of revenue. |
Year Ended | ||||||||||||||||
April 30, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Customer A | 6,577,981 | 22 | 2,993,086 | 13 | ||||||||||||
Customer B | 5,616,246 | 19 | 5,138,210 | 22 | ||||||||||||
12,194,227 | 41 | 8,131,296 | 35 | |||||||||||||
Three Month Period Ended | ||||||||||||||||
July 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Customer A | 2,718,760 | 28 | 2,107,302 | 22 | ||||||||||||
Customer B | 804,388 | 8 | 2,784,947 | 30 | ||||||||||||
3,523,148 | 36 | 4,892,249 | 52 | |||||||||||||
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ASTY CONCRETE & CONSTRUCTION LTD. | 14 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
8. | FINANCIAL INSTRUMENTS (Continued) |
b) | Financial risk management (Continued) |
v) | Customer concentration risk (Continued) |
For accounts receivable, customer concentration risk is represented by: |
Year Ended | ||||||||||||||||
April 30, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Customer A | 465,956 | 29 | 318,142 | 22 | ||||||||||||
Customer B | 68,711 | 4 | — | — | ||||||||||||
Customer C | 165,939 | 10 | — | — | ||||||||||||
Customer D | 198,267 | 12 | — | — | ||||||||||||
Customer E | 174,038 | 11 | — | — | ||||||||||||
Customer F | — | — | 418,477 | 28 | ||||||||||||
1,072,911 | 66 | 736,619 | 50 | |||||||||||||
Three Month Period Ended | ||||||||||||||||
July 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Customer A | 1,745,318 | 19 | 2,376,770 | 24 | ||||||||||||
Customer B | 1,692,519 | 18 | 2,111,133 | 22 | ||||||||||||
3,437,837 | 37 | 4,487,903 | 46 | |||||||||||||
9. | RELATED PARTY TRANSACTIONS | |
During the year, the Company accrued management fees in the amounts of $808,000 (2007 - $1,470,000) to two companies related by virtue of common shareholders. These amounts were included in accounts payable and accrued liabilities at year end. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties, which is equal to fair value. |
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ASTY CONCRETE & CONSTRUCTION LTD. | 15 |
As at and for the years ended April 30, 2008 and 2007
As at July 31, 2008 and for the three month periods ended July 31, 2008 and 2007 (unaudited)
10. | COMMITMENTS | |
The Company entered into a lease agreement for its operating facilities (includes the office and operations yard) which requires payments of $49,872 annually. The lease agreement is for a five year term ending on May 31, 2009. The Company intends to renew this lease agreement for another five year term. The Company has provided an unlimited general application and indemnification to The Sovereign General Insurance Company for contract bonds. | ||
11. | SUBSEQUENT EVENT | |
On July 30, 2008, the Company entered into an Asset Purchase Agreement to sell the majority of the assets of the Company to an unrelated party, Plumb-Line Income Trust, an unrelated party for $21,000,000. The closing date of the transaction is anticipated to be in the Company’s third quarter of 2008. |
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3000 Scotia Centre
700 Second Street S.W.
Calgary AB T2P 0S7
Canada
Fax: 403-264-2871
www.deloitte.ca
Plumb-Line Masonry Group Inc.
Calgary, Alberta | (signed) “Deloitte & Touche LLP” | |
October 8, 2008 | Chartered Accountants |
Table of Contents
September 30, 2008
$ | ||||
ASSETS | ||||
CURRENT | ||||
Petty Cash | 10 | |||
SHAREHOLDERS’ EQUITY | ||||
Share capital (Note 4) | 10 | |||
(Signed) | Director | |
(Signed) | Director | |
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PLUMB-LINE MASONRY GROUP INC. | 1 |
As at September 30, 2008
1. | INCORPORATION AND NATURE OF BUSINESS | |
Plumb-Line Masonry Group Inc. (the “Corporation”) was incorporated by articles of incorporation under the Business Corporation Act (Alberta) on August 19, 2008. | ||
The Corporation has not commenced operations at the balance sheet date. Accordingly, statements of earnings, comprehensive earnings, retained earnings and cash flows have not been prepared. | ||
2. | SIGNIFICANT ACCOUNTING POLICIES | |
Cash | ||
Cash is held in trust by the Corporation’s solicitors as of the balance sheet date. | ||
Use of estimates | ||
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the balance sheet. Actual amounts could differ from these estimates. | ||
Financial instrument | ||
The Corporation’s only financial instrument consists of cash. It is management’s opinion that the Corporation is not exposed to significant interest, currency or credit risk arising from this financial instrument. The fair value of this financial instrument approximates its carrying value. | ||
3. | CAPITAL MANAGEMENT | |
The Company’s objective when managing capital is to safeguard its ability to continue as a going concern, so that it can provide adequate returns for shareholders. The Company defines capital as total equity. |
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PLUMB-LINE MASONRY GROUP INC. | 2 |
As at September 30, 2008
4. | SHARE CAPITAL | |
Authorized | ||
The authorized share capital of the Corporation consists of an unlimited number of common shares without nominal or par value and an unlimited number of preferred shares, issuable in series, none of which are issued or outstanding as of September 30, 2008. | ||
Issued common shares |
Number of | Amount | |||||||
Shares | $ | |||||||
| | | | |||||||
Issued for cash | 100 | 10 | ||||||
Balance as at September 30, 2008 | 100 | 10 | ||||||
On September 30, 2008, the Corporation issued 100 common shares to its directors and officers for cash consideration of $10. | ||
Stock options | ||
The Corporation has not adopted an incentive stock option plan. |
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As at and for the year ended February 28, 2007 (unaudited)
As at May 31, 2008 and for the three month periods ended
May 31, 2008 and 2007 (unaudited)
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3000 Scotia Centre
700 Second Street S.W.
Calgary AB T2P 0S7
Canada
Fax: 403-264-2871
www.deloitte.ca
F & D Management Services Ltd.:
August 15, 2008, | (signed) “Deloitte & Touche LLP” | |
(Except as to Note 15 which is dated October 8, 2008) | Chartered Accountants |
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Consolidated Balance Sheets
May 31, | February 29, | February 28, | ||||||||||
As at, | 2008 | 2008 | 2007 | |||||||||
(unaudited) | (unaudited) | |||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 1,567,400 | $ | 2,004,334 | $ | 2,304,838 | ||||||
Guaranteed investment certificate (Note 3) | 1,883,829 | 1,261,729 | 1,520,183 | |||||||||
Accounts receivable (Note 4) | 2,878,527 | 2,338,187 | 2,142,302 | |||||||||
Income taxes receivable | — | — | 28,071 | |||||||||
Prepaid expenses and other assets | 45,572 | 13,134 | 23,438 | |||||||||
6,375,328 | 5,617,384 | 6,018,832 | ||||||||||
Property and equipment (Note 5) | 643,831 | 669,583 | 673,625 | |||||||||
$ | 7,019,159 | $ | 6,286,967 | $ | 6,692,457 | |||||||
Liabilities and Shareholder’ Equity (Deficiency) | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable and accrued liabilities | $ | 470,673 | $ | 363,469 | $ | 408,456 | ||||||
Income taxes payable | 2,535 | 28,536 | — | |||||||||
Management salaries payable | 2,758,233 | 2,104,733 | 2,782,957 | |||||||||
Due to shareholders (Note 6) | 1,173,001 | 1,277,937 | 1,399,575 | |||||||||
4,404,442 | 3,774,675 | 4,590,988 | ||||||||||
Redeemable preferred shares (Note 7) | 3,276,364 | 3,276,364 | 2,857,029 | |||||||||
7,680,806 | 7,051,039 | 7,448,017 | ||||||||||
Shareholder’ equity (deficiency) | ||||||||||||
Share capital (Note 8) | 10 | 10 | 10 | |||||||||
Deficit | (661,657 | ) | (764,082 | ) | (755,570 | ) | ||||||
(661,647 | ) | (764,072 | ) | (755,560 | ) | |||||||
$ | 7,019,159 | $ | 6,286,967 | $ | 6,692,457 | |||||||
Subsequent events (Note 15)
(signed) “Julius Klepak” | Director | (signed) “Theresa Klepak” | Director | |||
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Consolidated Statements of Operations, Comprehensive Income and Deficit
Three months ended, | Year ended, | |||||||||||||||
May 31, | May 31, | February 29, | February 28, | |||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||
Contract revenue | $ | 2,858,260 | $ | 1,881,323 | $ | 8,935,021 | $ | 9,423,649 | ||||||||
Contract costs | 1,771,370 | 1,288,569 | 5,867,239 | 5,986,737 | ||||||||||||
1,086,890 | 592,754 | 3,067,782 | 3,436,912 | |||||||||||||
Expenses | ||||||||||||||||
Management salaries | 853,500 | 403,500 | 2,251,496 | 2,788,354 | ||||||||||||
General and administrative | 90,506 | 45,281 | 138,208 | 122,068 | ||||||||||||
Amortization | 35,000 | 39,188 | 147,481 | 139,468 | ||||||||||||
Interest and bank charges | 559 | 546 | 3,007 | 7,558 | ||||||||||||
979,565 | 488,515 | 2,540,192 | 3,057,448 | |||||||||||||
107,325 | 104,239 | 527,590 | 379,464 | |||||||||||||
Interest income | 22,100 | 28,584 | 152,877 | 52,608 | ||||||||||||
Income before income taxes | 129,425 | 132,823 | 680,467 | 432,072 | ||||||||||||
Current income taxes (Note 9) | 27,000 | 30,700 | 99,644 | 81,312 | ||||||||||||
Net income and comprehensive income | 102,425 | 102,123 | 580,823 | 350,760 | ||||||||||||
Deficit, beginning of period | (764,082 | ) | (755,570 | ) | (755,570 | ) | (516,995 | ) | ||||||||
Dividends | — | — | (589,335 | ) | (589,335 | ) | ||||||||||
Deficit, end of period | $ | (661,657 | ) | $ | (653,447 | ) | $ | (764,082 | ) | $ | (755,570 | ) | ||||
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Consolidated Statements of Cash Flows
Three months ended, | Year ended, | |||||||||||||||
May 31, | May 31, | February 29, | February 28, | |||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||
Operating activities | ||||||||||||||||
Net income | $ | 102,425 | $ | 102,123 | $ | 580,823 | $ | 350,760 | ||||||||
Item not affecting cash: | ||||||||||||||||
Amortization | 35,000 | 39,188 | 147,481 | 139,468 | ||||||||||||
137,425 | 141,311 | 728,304 | 490,228 | |||||||||||||
Change in non-cash working capital items | ||||||||||||||||
Accounts receivable | (540,341 | ) | 87,973 | (195,884 | ) | (115,889 | ) | |||||||||
Income taxes | (26,000 | ) | 75,656 | 56,607 | (28,071 | ) | ||||||||||
Prepaid expenses and other assets | (32,438 | ) | (76,265 | ) | 10,304 | (7,052 | ) | |||||||||
Accounts payable and accrued liabilities | 107,204 | (53,129 | ) | (44,988 | ) | (150,045 | ) | |||||||||
Advances to shareholders | (104,936 | ) | (313,698 | ) | (121,638 | ) | 441,570 | |||||||||
Management salaries payable | 653,500 | 288,500 | (678,224 | ) | 1,471,753 | |||||||||||
194,414 | 150,348 | (245,519 | ) | 2,102,494 | ||||||||||||
Investing activities | ||||||||||||||||
Purchase of property and equipment | (9,248 | ) | (113,170 | ) | (143,439 | ) | (234,112 | ) | ||||||||
Disposal of property and equipment | 34,616 | |||||||||||||||
Purchase of guaranteed investment certificates | (1,837,524 | ) | (2,020,182 | ) | (4,772,582 | ) | (1,216,943 | ) | ||||||||
Redemption of guaranteed investment certificates | 1,215,424 | 1,500,432 | 5,031,036 | — | ||||||||||||
(631,348 | ) | (632,920 | ) | 115,015 | (1,416,439 | ) | ||||||||||
Financing activities | ||||||||||||||||
Preferred shares redeemed | — | — | (170,000 | ) | (170,000 | ) | ||||||||||
(Decrease) increase in cash and cash equivalents | (436,934 | ) | (482,572 | ) | (300,504 | ) | 516,055 | |||||||||
Cash and cash equivalents, beginning of period | 2,004,334 | 2,304,838 | 2,304,838 | 1,788,783 | ||||||||||||
Cash and cash equivalents, end of period | $ | 1,567,400 | $ | 1,822,266 | $ | 2,004,334 | $ | 2,304,838 | ||||||||
Cash and cash equivalents consist of: | ||||||||||||||||
Cash | $ | 498,831 | $ | 786,500 | $ | 936,975 | $ | 1,280,538 | ||||||||
Money market funds | 1,068,569 | 1,035,766 | 1,067,359 | 1,024,300 | ||||||||||||
$ | 1,567,400 | $ | 1,822,266 | $ | 2,004,334 | $ | 2,304,838 | |||||||||
Supplemental cash flow information | ||||||||||||||||
Interest received | $ | — | $ | — | $ | 93,548 | $ | 37,761 | ||||||||
Income taxes paid | $ | 53,001 | $ | 44,956 | $ | 71,108 | $ | 150,239 | ||||||||
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F & D Management Services Ltd. | 1 |
All balances as at and for the year ended February 28, 2007 are unaudited
As at May 31, 2008 and for the three month periods ended May 31, 2008 and 2007 (unaudited)
1. | NATURE OF OPERATIONS | |
F & D Management Services Ltd. (the “Company”) was incorporated under the Business Corporations Act of the Province of Alberta on November 27, 1978. The Company provides masonry construction services in Southern Alberta. | ||
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Basis of presentation | ||
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Sas-Can Masonry Ltd. (“Sas-Can”), and Sask-Alta Masonry Ltd. (“Sask-Alta”) a variable interest entity for which the Company is considered the primary beneficiary. | |||
The Company has identified Sask-Alta as a variable interest entity as Sask-Alta relies exclusively on Sas-Can for its revenue and is expected to absorb the majority of Sask-Alta’s losses and receive a majority of its residual returns. No assets of Sask-Alta have been pledged as collateral for its liabilities. Sask-Alta’s assets are primarily comprised of receivables from Sas-Can. The shareholders of Sask-Alta are also shareholders of the Company. Accordingly, the Company has consolidated this entity. | |||
All material inter-corporate balances and transactions have been eliminated. | |||
(b) | Use of estimates | ||
The preparation of financial statements in conformity with Canadian generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Significant areas requiring the use of estimates include the determination of useful lives of property and equipment of fixed assets for the calculation of amortization, total expected costs of specific projects for the calculation of the percentage of completion for revenue recognition and estimated balances of accruals, including warranty work. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. | |||
(c) | Cash and cash equivalents | ||
Cash and cash equivalents consist of cash and deposits and investments with maturities of ninety days or less. |
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F & D Management Services Ltd. | 2 |
All balances as at and for the year ended February 28, 2007 are unaudited
As at May 31, 2008 and for the three month periods ended May 31, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(d) | Property and equipment | ||
Property and equipment are recorded at cost. The Company provides for amortization using the following methods at rates designed to amortize the cost of the property and equipment over their estimated useful lives. The annual amortization rates and methods are as follows: |
Building | 4 | % | Declining balance | |||
Forklifts | 30 | % | Declining balance | |||
Equipment | 30 | % | Declining balance | |||
Vehicles | 10 | % | Declining balance | |||
Computer | 30-55 | % | Declining balance |
(e) | Impairment of long lived assets | ||
The Company tests for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability is assessed by comparing the carrying amount to the projected future undiscounted cash flows the long-lived assets are expected to generate through their direct use and eventual disposition. When a test for impairment indicates that the carrying amount of an asset is not recoverable, an impairment loss is recognized to the extent its carrying value exceeds its fair value. | |||
(f) | Warranty costs | ||
The Company provides a one year performance guarantee on all work performed. Warranty provisions are based on Management’s best estimate of expected costs on a job by job basis. Differences in the provision amount and the actual costs are recorded in the period the warranty work is done. | |||
(g) | Future income taxes | ||
Income taxes are calculated using the liability method of tax allocation accounting. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying value on the balance sheet are used to calculate future income tax liabilities or assets. Future income tax liabilities or assets are calculated using tax rates anticipated to apply in the periods that the temporary differences are expected to reverse. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment occurs. To the extent that the Company does not consider it to be more likely than not that a future tax asset will be recovered, it provides a valuation allowance against the excess. |
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F & D Management Services Ltd. | 3 |
All balances as at and for the year ended February 28, 2007 are unaudited
As at May 31, 2008 and for the three month periods ended May 31, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(h) | Revenue recognition | ||
Revenue from contracts is recognized on the percentage of completion basis. Percentage of completion is determined on a project by project basis based on the costs incurred in relation to total costs expected. Any revenue recognized but not yet billed has been recorded as unbilled receivable in the financial statements if any. Deposits received from customers in excess of billing of a job or for jobs billed in advance of their stage of percentage of completion are accrued as a liability. Any anticipated loss is provided for in its entirety when the estimated loss is identified and changed to income during the period. | |||
(i) | Accounting changes | ||
On March 1, 2007, the Company adopted the revised recommendations of the Canadian Institute of Chartered Accountants (“CICA”) section 1506 “Accounting Changes.” The new recommendations permit voluntary changes in accounting policy only if they result in financial statements which provide more reliable and relevant information. Accounting policy changes are applied retrospectively unless it is impractical to determine the period or cumulative impact of the change. Corrections of prior period errors are applied retrospectively and changes in accounting estimates are applied prospectively by including these changes in earnings. The recommendations require the Company to provide disclosure when it has not applied a new source of Generally Accepted Accounting Principles (“GAAP”) that has been issued but is not yet effective, as disclosed in note 16. | |||
(j) | Financial instruments, hedges and other comprehensive income | ||
Effective March 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Sections 3855 “Financial Instruments — Recognition and Measurement”, 3865 “Hedges”, 1530 “Comprehensive Income”, 3861 “Financial Instruments — Disclosure and Presentation”. The standards require the classification of all financial instruments by category; loans and receivables, held-to maturity investments, available for sale financial assets, financial assets and financial liabilities held for trading, or other liabilities. The standards prescribe criteria for the recognition of certain derivative financial instruments. As well, the standards prescribe: the measurement basis; either amortized cost or fair value, of the specified classes of financial instruments subsequent to their initial recognition; the timing and recognition of realized and unrealized gains and losses on financial instruments; and disclosures, including a new category of shareholders’ equity — accumulated other comprehensive income. The accounting policies were adopted on a retroactive basis with no restatement of prior period financial statements. |
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F & D Management Services Ltd. | 4 |
All balances as at and for the year ended February 28, 2007 are unaudited
As at May 31, 2008 and for the three month periods ended May 31, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(j) | Financial instruments, hedges and other comprehensive income (continued) | ||
Effective March 1, 2008, the Company adopted the CICA Handbook Sections 3862 “Financial Instruments — Disclosure” and 3863 “Financial Instruments — Presentation”, which replaced 3861 “Financial Instruments — Disclosure and Presentation”. The standard requires the Company to disclose information about the significance of financial instruments for its exposure to risks arising from financial instruments and management’s objectives, policies and processes for managing such risks. | |||
The Company has not identified any embedded derivatives that are required to be accounted for separately from the host contract. | |||
The Company’s financial assets and financial liabilities are classified and measured as follows: |
• | Cash and cash equivalents and guaranteed investment certificate are classified as held for trading and are measured at fair value. Gains and losses are recorded in net income. | ||
• | Accounts receivable are classified as loans and receivables and are initially measured at fair value and subsequently at amortized cost using the effective interest method. | ||
• | Accounts payable and accrued liabilities, management salaries payable, due to shareholders and redeemable preferred shares are classified as other liabilities and are initially measured at fair value and subsequently measured at amortized cost using the effective interest method. |
The implementation of these standards did not have a material impact on the Company’s financial statements. The Company did not recognize any items of other comprehensive income (loss) or accumulated other comprehensive income on adoption of the standards. | |||
(k) | Transaction costs | ||
Transaction costs attributable to financial instruments are expensed in net income as incurred. | |||
(1) | Capital disclosures | ||
Effective March 1, 2008, the Company adopted the CICA Handbook Section 1535 “Capital Disclosures”. Under the requirements of the new standard, the Company is required to disclose information about its objectives, policies and processes for managing capital, quantitative information about what the Company regards as capital and information regarding its compliance with any externally imposed capital requirements and the consequences of any non-compliance, as disclosed in note 10. The main impact in the Company’s consolidated financial statements was in terms of additional disclosures required. |
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F & D Management Services Ltd. | 5 |
All balances as at and for the year ended February 28, 2007 are unaudited
As at May 31, 2008 and for the three month periods ended May 31, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(m) | Going concern | ||
Effective March 1, 2008, the Company adopted the additional requirements of the CICA Handbook Section 1400 “General Standards of Financial Statements.” The additional requirements required management to make an assessment of the Company’s ability to continue as a going concern, and to disclose any material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern. The adoption of the accounting pronouncement did not have any impact on the Company’s consolidated financial statements. |
3. | GUARANTEED INVESTMENT CERTIFICATE | |
The guaranteed investment certificate as at May 31, 2008 bears interest at 3.25% and matures on April 22, 2009. The guaranteed investment certificate as at February 29, 2008 bears interest at 4.25% and matures on July 28, 2008. The guaranteed investment certificate at February 28, 2007 bears interest at 4.00% and matured on December 3, 2007. | ||
4. | ACCOUNTS RECEIVABLE |
May 31, | February 29, | February 28, | ||||||||||
2008 | 2008 | 2007 | ||||||||||
Billings on construction contracts | $ | 1,884,145 | $ | 1,549,779 | $ | 1,445,555 | ||||||
Holdbacks receivable | 994,382 | 788,408 | 696,747 | |||||||||
$ | 2,878,527 | $ | 2,338,187 | $ | 2,142,302 | |||||||
Holdbacks receivable represent amounts billed as services are rendered on construction contracts which are not due until the contract work is substantially completed and the applicable lien period has expired. | ||
5. | PROPERTY AND EQUIPMENT |
May 31, | ||||||||||||
2008 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
Land | $ | 174,341 | $ | — | $ | 174,341 | ||||||
Forklifts | 883,563 | 648,026 | 235,537 | |||||||||
Equipment | 389,756 | 250,089 | 139,667 | |||||||||
Vehicles | 434,891 | 373,437 | 61,454 | |||||||||
Building | 31,757 | 3,707 | 28,050 | |||||||||
Computer | 19,214 | 14,432 | 4,782 | |||||||||
$ | 1.933.522 | $ | 1.289.691 | $ | 643.831 | |||||||
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F & D Management Services Ltd. | 6 |
All balances as at and for the year ended February 28, 2007 are unaudited
As at May 31, 2008 and for the three month periods ended May 31, 2008 and 2007 (unaudited)
5. | PROPERTY AND EQUIPMENT (Continued) |
February 29, | ||||||||||||
2008 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
Land | $ | 174,341 | $ | — | $ | 174,341 | ||||||
Forklifts | 883,563 | 625,486 | 258,077 | |||||||||
Equipment | 381,756 | 242,949 | 138,807 | |||||||||
Vehicles | 434,891 | 368,454 | 66,437 | |||||||||
Building | 31,757 | 3,707 | 28,050 | |||||||||
Computer | 17,966 | 14,095 | 3,871 | |||||||||
$ | 1,924,274 | $ | 1,254,691 | $ | 669,583 | |||||||
February 28, | ||||||||||||
2007 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
Land | $ | 174,341 | $ | — | $ | 174,341 | ||||||
Forklifts | 802,391 | 532,275 | 270,116 | |||||||||
Equipment | 347,708 | 212,504 | 135,204 | |||||||||
Vehicles | 407,892 | 345,766 | 62,126 | |||||||||
Building | 31,757 | 3,707 | 28,050 | |||||||||
Computer | 16,747 | 12,959 | 3,788 | |||||||||
$ | 1,780,836 | $ | 1,107,211 | $ | 673,625 | |||||||
6. | DUE TO SHAREHOLDERS | |
The amount due to the shareholders is unsecured, non-interest bearing and is payable on demand. |
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F & D Management Services Ltd. | 7 |
All balances as at and for the year ended February 28, 2007 are unaudited
As at May 31, 2008 and for the three month periods ended May 31, 2008 and 2007 (unaudited)
7. | REDEEMABLE PREFERRED SHARES | |
Issued |
May 31, | February 29, | February 28, | ||||||||||
2008 | 2008 | 2007 | ||||||||||
Class “I” preferred shares redeemable at $500/share | ||||||||||||
Balance, beginning of period | ||||||||||||
5,781.9692 shares | $ | 2,890,984 | ||||||||||
4,943.2992 shares | $ | 2,471,649 | ||||||||||
4,104.6292 shares | $ | 2,052,314 | ||||||||||
Stock dividends | ||||||||||||
December 21, 2007 | 589,335 | |||||||||||
December 19, 2006 | 589,335 | |||||||||||
Redemptions | ||||||||||||
December 21, 2007 | (170,000 | ) | ||||||||||
December 19, 2006 | (170,000 | ) | ||||||||||
Balance, end of period | ||||||||||||
5,781.9692 shares | 2,890,984 | 2,890,984 | ||||||||||
4,943.2992 shares | 2,471,649 | |||||||||||
Class “J” preferred shares redeemable at $10.00/share | 385,380 | 385,380 | 385,380 | |||||||||
Balance, beginning and end of period 38,538 shares | $ | 3,276,364 | $ | 3,276,364 | $ | 2,857,029 | ||||||
The class “I” and “J” shares are financial instruments that are in substance a liability because they are retractable by the holder. The shareholders have waived their right to request redemption of these shares during the next fiscal year. Consequently, this amount has been classified as a non-current liability. | ||
8. | SHARE CAPITAL | |
Authorized |
Class A voting common shares
Class B voting common shares
Class C voting common shares
Class D non-voting common shares
Class E non-voting common shares
Class F non-voting common shares
Class G non-voting common shares
Class H non-voting common shares
Class I non-voting, redeemable, retractable, no stated dividend preferred shares
Class J non-voting, redeemable, retractable, no stated dividend preferred shares
Class K voting, redeemable, retractable, no stated dividend preferred shares
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F & D Management Services Ltd. | 8 |
All balances as at and for the year ended February 28, 2007 are unaudited
As at May 31, 2008 and for the three month periods ended May 31, 2008 and 2007 (unaudited)
8. | SHARE CAPITAL (Continued) | |
Issued |
May 31, | February 29, | February 28, | ||||||||||
2008 | 2008 | 2007 | ||||||||||
37 Class A common shares | $ | 4 | $ | 4 | $ | 4 | ||||||
37 Class B common shares | 4 | 4 | 4 | |||||||||
26 Class D common shares | 2 | 2 | 2 | |||||||||
Balance, end of period | $ | 10 | $ | 10 | $ | 10 | ||||||
9. | INCOME TAXES | |
Reconciliation of net income for accounting purposes with the net income for income tax purposes is as follows: |
Three months ended, | Year ended, | |||||||||||||||
May 31, | May 31, | February 29, | February 28, | |||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Net income for accounting before income taxes | $ | 129,425 | $ | 132,823 | $ | 680,467 | $ | 432,072 | ||||||||
Statutory tax rate | 31.03 | % | 32.12 | % | 31.68 | % | 32.12 | % | ||||||||
Expected income tax | 40,161 | 42,663 | 215,572 | 138,782 | ||||||||||||
Increase (decrease) resulting from: | ||||||||||||||||
Small business deduction | (18,953 | ) | (21,163 | ) | (114,486 | ) | (62,362 | ) | ||||||||
Non-deductible and other items | 5,792 | 9,200 | (1,442 | ) | 4,892 | |||||||||||
Current income taxes | $ | 27,000 | $ | 30,700 | $ | 99,644 | $ | 81,312 | ||||||||
Future taxes have not been recorded for 2008 and 2007 as the amount is immaterial. | ||
10. | MANAGEMENT OF CAPITAL | |
The Company has two objectives for managing capital, the first is to maintain sufficient cash and cash equivalents for operations and secondly to maintain adequate financial leverage and manage financial risks. | ||
In the management of capital, the Company includes redeemable preferred shares, net of shareholders equity (deficiency), in the definition of capital. | ||
In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue debt, issue new shares, buy back shares or adjust the amount of cash, cash equivalents and short-term investment balances. |
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F & D Management Services Ltd. | 9 |
All balances as at and for the year ended February 28, 2007 are unaudited
As at May 31, 2008 and for the three month periods ended May 31, 2008 and 2007 (unaudited)
11. | ECONOMIC DEPENDENCE | |
The Company earned revenue from specific customers as follows: |
Year ended February 29, 2008 | ||||||||
Customer A | $ | 1,317,758 | 15 | % | ||||
Customer B | 1,917,229 | 21 | % | |||||
Customer C | 910,544 | 10 | % | |||||
$ | 4,145,531 | 46 | % | |||||
Year ended February 28, 2007 | ||||||||
Customer D | $ | 1,344,089 | 14 | % | ||||
Customer E | 1,367,391 | 15 | % | |||||
Customer F | 1,353,785 | 14 | % | |||||
$ | 4,065,265 | 43 | % | |||||
Three months ended May 31, 2008 | ||||||||
Customer D | $ | 505,166 | 18 | % | ||||
Customer G | 407,362 | 14 | % | |||||
Customer H | 455,906 | 16 | % | |||||
$ | 1,368,434 | 48 | % | |||||
Three months ended May 31, 2007 | ||||||||
Customer A | $ | 414,063 | 22 | % | ||||
Customer B | 481,647 | 26 | % | |||||
Customer F | 194,008 | 10 | % | |||||
$ | 1,089,718 | 58 | % | |||||
12. | FINANCIAL INSTRUMENTS | |
Fair Value | ||
The Company’s carrying values of cash and cash equivalents, guaranteed investment certificate, accounts receivable, accounts payable and accrued liabilities, management salaries payable, and due to shareholders approximates their fair value due to the immediate or short-term maturity of these instruments. | ||
The fair value of the Company’s preferred shares are estimated as $2,448,290 as at May 31, 2008 and February 29, 2008 and as $2,134,938 as at February 28, 2007. These preferred shares are not traded in an active market, therefore, have been valued using the following estimates: interest rate of 6% and a term of five years. |
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F & D Management Services Ltd. | 10 |
All balances as at and for the year ended February 28, 2007 are unaudited
As at May 31, 2008 and for the three month periods ended May 31, 2008 and 2007 (unaudited)
12. | FINANCIAL INSTRUMENTS (Continued) | |
Credit Risk | ||
Credit risk arises from the potential that a counter party will fail to perform its obligations. The Company is exposed to credit risk from customers. The company performs a continual evaluation of its customers’ credit and records an allowance for doubtful accounts as required. In performing its evaluation, the company analyzes the aging of accounts receivable, concentration of receivables by customer, customer creditworthiness and current economic trends. As of May 31, 2008, there were no past due accounts receivable that were at risk of non-collection. | ||
The Company had accounts receivable from specific customers as follows: |
As at February 29, 2008 | ||||||||
Customer B | $ | 416,835 | 18 | % | ||||
Customer C | 451,568 | 19 | % | |||||
Customer D | 312,637 | 13 | % | |||||
Customer H | 279,347 | 12 | % | |||||
$ | 1,460,387 | 62 | % | |||||
As at February 28, 2007 | ||||||||
Customer A | $ | 362,413 | 17 | % | ||||
Customer B | 228,586 | 11 | % | |||||
Customer C | 240,394 | 11 | % | |||||
Customer D | 218,867 | 10 | % | |||||
Customer E | 381,057 | 18 | % | |||||
$ | 1,431,317 | 67 | % | |||||
As at May 31, 2008 | ||||||||
Customer C | $ | 290,584 | 10 | % | ||||
Customer D | 500,752 | 17 | % | |||||
Customer H | 438,016 | 15 | % | |||||
$ | 1,229,352 | 43 | % | |||||
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F & D Management Services Ltd. | 11 |
All balances as at and for the year ended February 28, 2007 are unaudited
As at May 31, 2008 and for the three month periods ended May 31, 2008 and 2007 (unaudited)
12. | FINANCIAL INSTRUMENTS (Continued) | |
Liquidity Risk | ||
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due or can do so only at excessive cost. The Company has significant financial liabilities outstanding including accounts payable and accrued liabilities, management salaries payable, amounts due to shareholders debt and redeemable preferred shares. | ||
The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to meet its liabilities when due. The Company continuously monitors forecast and actual cash flows, and has negotiated waivers in terms of the timing of the redemption of the preferred shares. | ||
Management believes that current cash and cash equivalents and future cash flows from operations will be adequate to support these financial liabilities. Accounts payable are generally due 30 days from month end date, management salaries payable are due 179 days from the year end date, and amounts due to shareholders are expected to be paid within 12 months of the balance sheet date. | ||
13. | COMMITMENTS | |
The Company has entered in to a three year term lease for office premises ending April 30, 2009. The lease payment for the period beginning June 1, 2008 and ending April 30, 2009 is $14,667. | ||
14. | GUARANTEE | |
The Company has entered into bonding arrangements in order to provide an unlimited indemnity for Sas-Can related to construction contracts with third parties. | ||
15. | SUBSEQUENT EVENTS | |
On October 1, 2008, the Company entered into a Purchase and Sale Agreement to sell the Company to Plumb-Line Income Trust. The closing date of the transaction is anticipated to be October 31, 2008. Under the terms of the Agreement, all income earned by the Company from March 1, 2008 up to closing will be bonused to the existing shareholders. | ||
16. | FUTURE ACCOUNTING CHANGES | |
Goodwill and intangible assets | ||
Effective March 1, 2009, the Company will be required to adopt the CICA Handbook Section 3064 “Goodwill and Intangible Assets”. The new Section is a replacement of the CICA Handbook Section 3062 and 3450. The new Section does not substantively change the requirement pertaining to goodwill. The change in requirements pertaining to intangible assets primarily relate to recognition criteria for purchased and internally developed assets. The recognition criteria include that the asset is identifiable separate from goodwill, the entity has the power to obtain, and it is probable that it will receive, the future economic benefits flowing from it and the cost of the asset can be measured reliably. The Company does not anticipate any material impact to its financial statements arising from the adoption of the accounting pronouncement. |
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At June 28, 2008 and for six month periods ended
June 28, 2008 and 2007 (unaudited)
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![]() | Deloitte & Touche LLP 3000 Scotia Centre 700 Second Street S.W. Calgary AB T2P 0S7 Canada | |
Tel: 403-267-1700 Fax: 403-264-2871 www.deloitte.ca |
Four Star Gravel Contractors Ltd.:
Calgary, Alberta | ||
July 3, 2008 | (signed) “Deloitte&Touche LLP” | |
(except as to Note 10 which is dated October 8, 2008) | Chartered Accountants |
Table of Contents
Years Ended December 28, 2007 and 2006 and
Six Month Periods Ended June 28, 2008 and 2007 (Unaudited)
Six Months Ended June 28, | Year Ended December 28, | |||||||||||||||
2008 | 2007 | 2007 | 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
REVENUE | 7,192,745 | 9,296,001 | 19,244,443 | 18,725,244 | ||||||||||||
Direct costs | 5,136,255 | 6,002,169 | 13,116,929 | 12,339,016 | ||||||||||||
2,056,490 | 3,293,832 | 6,127,514 | 6,386,228 | |||||||||||||
EXPENSES | ||||||||||||||||
General and administrative | 617,103 | 646,193 | 781,289 | 686,939 | ||||||||||||
Management bonus | 994,000 | 2,212,000 | 4,109,992 | 4,634,909 | ||||||||||||
Depreciation and amortization | 342,000 | 342,000 | 725,713 | 642,958 | ||||||||||||
Interest expense | 97,807 | 64,212 | 220,110 | 173,576 | ||||||||||||
Interest income | (15,105 | ) | (21,891 | ) | (56,499 | ) | (52,115 | ) | ||||||||
2,035,805 | 3,242,514 | 5,780,605 | 6,086,267 | |||||||||||||
INCOME BEFORE THE UNDERNOTED | 20,685 | 51,318 | 346,909 | 299,961 | ||||||||||||
GAIN ON DISPOSAL OF ASSETS | — | — | — | 14,636 | ||||||||||||
INCOME BEFORE INCOME TAXES | 20,685 | 51,318 | 346,909 | 314,597 | ||||||||||||
INCOME TAXES (Note 5) | 6,565 | 8,272 | 63,939 | 57,057 | ||||||||||||
NET INCOME AND COMPREHENSIVE INCOME | 14,120 | 43,046 | 282,970 | 257,540 | ||||||||||||
RETAINED EARNINGS, BEGINNING OF PERIOD | 2,354,047 | 2,071,077 | 2,071,077 | 1,813,537 | ||||||||||||
RETAINED EARNINGS, END OF PERIOD | 2,368,167 | 2,114,123 | 2,354,047 | 2,071,077 | ||||||||||||
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As at
June 28, | December 28, | |||||||||||
2008 | 2007 | 2006 | ||||||||||
$ | $ | $ | ||||||||||
(Unaudited) | ||||||||||||
ASSETS | ||||||||||||
CURRENT | ||||||||||||
Cash | 812,237 | 1,159,086 | 1,633,777 | |||||||||
Accounts receivable | 2,213,215 | 1,237,001 | 1,518,762 | |||||||||
Consumables (Note 2(b)) | 162,488 | 162,488 | 163,081 | |||||||||
Other | 36,115 | 2,000 | 90,680 | |||||||||
3,224,055 | 2,560,575 | 3,406,300 | ||||||||||
Capital assets (Note 3) | 2,880,098 | 3,119,569 | 2,484,347 | |||||||||
Due from related party (Note 7) | 258,058 | 227,996 | 204,918 | |||||||||
6,362,211 | 5,908,140 | 6,095,565 | ||||||||||
LIABILITIES | ||||||||||||
CURRENT | ||||||||||||
Accounts payable and accrued liabilities | 1,271,075 | 462,657 | 1,542,980 | |||||||||
Income taxes payable | 4,454 | 4,454 | 2,393 | |||||||||
Current portion long-term debt (Note 4) | 603,370 | 672,952 | 534,353 | |||||||||
1,878,899 | 1,140,063 | 2,079,726 | ||||||||||
Long-term debt (Note 4) | 2,114,945 | 2,413,830 | 1,944,562 | |||||||||
3,993,844 | 3,553,893 | 4,024,288 | ||||||||||
SUBSEQUENT EVENT (Note 10) | ||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||
Share capital (Note 6) | 200 | 200 | 200 | |||||||||
Retained earnings | 2,368,167 | 2,354,047 | 2,071,077 | |||||||||
2,368,367 | 2,354,247 | 2,071,277 | ||||||||||
6,362,211 | 5,908,140 | 6,095,565 | ||||||||||
(Signed) | Director | |
(Signed) | Director |
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Years Ended December 28, 2007 and 2006 and
Six Month Periods Ended June 28, 2008 and 2007 (Unaudited)
Six Months Ended June 28, | Year Ended December 28, | |||||||||||||||
2008 | 2007 | 2007 | 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES: | ||||||||||||||||
OPERATING | ||||||||||||||||
Net income and comprehensive income | 14,120 | 43,046 | 282,970 | 257,540 | ||||||||||||
Adjustments for: | ||||||||||||||||
Depreciation and amortization | 342,000 | 342,000 | 725,713 | 642,958 | ||||||||||||
Gain on sale of capital assets | — | — | — | (14,636 | ) | |||||||||||
356,120 | 385,046 | 1,008,683 | 885,862 | |||||||||||||
Changes in non-cash working capital: | ||||||||||||||||
Accounts receivable | (976,214 | ) | (959,926 | ) | 281,761 | (307,784 | ) | |||||||||
Consumables | — | — | 593 | (62,502 | ) | |||||||||||
Other | (34,115 | ) | 66,802 | 88,680 | (84,680 | ) | ||||||||||
Accounts payable and accrued liabilities | 808,418 | 1,488,879 | (1,080,323 | ) | (128,457 | ) | ||||||||||
Income taxes payable | — | — | 2,061 | 41,602 | ||||||||||||
154,209 | 980,801 | 301,455 | 344,041 | |||||||||||||
FINANCING | ||||||||||||||||
(Repayment of) proceeds from long-term debt | (368,467 | ) | 411,243 | 607,867 | 260,218 | |||||||||||
Advances to related party | (30,062 | ) | (20,705 | ) | (23,078 | ) | (204,918 | ) | ||||||||
(398,529 | ) | 390,538 | 584,789 | 55,300 | ||||||||||||
INVESTING | ||||||||||||||||
Proceeds from sale of capital assets | — | — | — | 50,765 | ||||||||||||
Purchase of capital assets | (102,529 | ) | (859,102 | ) | (1,360,935 | ) | (850,759 | ) | ||||||||
(102,529 | ) | (859,102 | ) | (1,360,935 | ) | (799,994 | ) | |||||||||
NET (DECREASE) INCREASE IN CASH | (346,849 | ) | 512,237 | (474,691 | ) | (400,653 | ) | |||||||||
CASH, BEGINNING OF PERIOD | 1,159,086 | 1,633,777 | 1,633,777 | 2,034,430 | ||||||||||||
CASH, END OF PERIOD | 812,237 | 2,146,014 | 1,159,086 | 1,633,777 | ||||||||||||
SUPPLEMENTARY INFORMATION | ||||||||||||||||
Interest paid | 97,807 | 64,212 | 220,110 | 173,576 | ||||||||||||
Income taxes paid | 40,680 | 28,150 | 63,939 | 56,077 | ||||||||||||
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FOUR STAR GRAVEL CONTRACTORS LTD. | 1 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
1. | THE COMPANY | |
Four Star Gravel Contractors Ltd. (the “Company”) is a privately owned company incorporated on May 20, 1982 under the Business Corporations Act of Alberta. It is in the business of manufacturing and supplying ready-mix concrete and gravel to the construction industry. | ||
2. | SIGNIFICANT ACCOUNTING POLICIES | |
These financial statements have been prepared in accordance with accounting principles generally accepted in Canada. The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accounts receivable are stated after evaluation as to their collectability and an appropriate allowance for doubtful accounts is provided where considered necessary. Depreciation is based on the estimated useful lives of capital assets. Actual results could differ from those estimates. | ||
a)Revenue recognition | ||
Revenue is recognized using the completed-contract method whereby revenue is recorded once performance is complete, all risks and rewards have been transferred to the customer, and collectability is reasonably assured. | ||
Revenue is generated from the supply of cement and gravel to various builders and development companies. | ||
b) Consumables | ||
Consumables consists of the components required to make cement and are valued at the lower of cost and net realizable value. |
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FOUR STAR GRAVEL CONTRACTORS LTD. | 2 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) | |
c)Capital assets | ||
Capital assets are recorded at cost. Depreciation is calculated using the diminishing-balance method whereby the depreciation is based on the opening net book value of the asset applying the following rates: |
Building | 4 | % | ||
Paving equipment | 8 | % | ||
Office and field equipment | 20 | % | ||
Trucks | 30 | % | ||
Equipment | 20 | % | ||
Concrete plant | 30 | % |
The Company evaluates the carrying value of capital assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable, and recognizes an impairment charge when it is probable that estimated future non-discounted cash flows of the underlying assets will be less than the carrying value of the assets. Measurement of an impairment loss related to capital assets that management intends to hold and use is based on the fair value of the assets, whereas assets to be disposed of are reported at the lower of the carrying amount or fair value less estimated costs to sell. | ||
d)Income taxes | ||
Income taxes are accounted for using the liability method of income tax allocation. Under the liability method, income tax assets and liabilities are recorded to recognize future income tax inflows and outflows arising from the settlement or recovery of assets and liabilities at their carrying values. Valuation allowances are established when necessary to reduce future tax assets to the amount that, in the opinion of management, is more likely than not to be realized. Future income tax assets and liabilities are determined based on the substantively enacted tax laws and rates that are anticipated to apply in the period of realization. |
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FOUR STAR GRAVEL CONTRACTORS LTD. | 3 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
e) | Recently adopted and pending accounting pronouncements |
i) | In 2005, the Canadian Institute of Chartered Accountants (“CICA”) issued three new standards: Comprehensive Income; Financial Instruments — Recognition and Measurement; and Hedges. These Sections became effective for the Company on January 1, 2007 and require the following: |
a) | In Section 1530 “Comprehensive Income”, certain gains and losses arising from changes in fair value are temporarily recorded outside the statements of operations in accumulated other comprehensive income as a separate component of shareholders’ equity. Comprehensive income is comprised of the Company’s net income and other comprehensive income. At June 28, 2008 and 2007 and December 28, 2007 and 2006, the balance of accumulated other comprehensive income was $Nil. | ||
b) | In Section 3855 “Financial Instruments — Recognition and Measurement” and Section 3865 “Hedges”, all financial instruments including derivatives are to be included on a company’s balance sheets and measured either at their fair value or, in limited circumstances, when fair value may not be considered most relevant, at cost or amortized cost. These Sections specify when gains and losses, as a result of changes in fair value, are to be recognized in the statements of operations. Section 3855 requires that all financial assets and liabilities be accounted for using one of five available accounting models being: held-to-maturity, available-for-sale, held-for-trading, loans and receivables, and other liabilities. All financial instruments classified as available-for-sale, held-for-trading, and derivative financial instruments meeting certain recognition criteria, are carried at fair value. Changes in the fair value of financial instruments designated as held-for-trading and recognized derivative financial instruments are charged or credited to the statements of operations for the current period, while changes in the fair value of financial instruments designated as available-for-sale are charged or credited to other comprehensive income and charged or credited to the statements of operations when the instrument is sold. All other financial assets and liabilities are accounted for at amortized cost depending upon the nature of the instrument. Financial assets and liabilities designated as held-to-maturity are initially recognized at their fair values, with any resulting premium or discount from the fair value being amortized to income or expenses using the effective interest method. |
Table of Contents
FOUR STAR GRAVEL CONTRACTORS LTD. | 4 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
e) | Recently adopted and pending accounting pronouncements (Continued) |
After their initial fair value measurement, they are measured at amortized cost using the effective interest method. Section 3855 requires the Company to make certain elections, upon initial adoption of the new rules, regarding the accounting model to be used to classify and measure each financial instrument. Section 3855 also requires that transaction costs incurred by the Company in connection with the acquisition of various financial assets or liabilities be recorded as a reduction of the carrying value of the related financial instrument and amortized using the effective interest method or expensed as incurred. Transaction costs related to the acquisition of financial instruments held-for-trading are expensed as incurred. Transaction costs with respect to instruments not classified as held-for-trading are recognized as an adjustment to the cost of the underlying instruments, when they are recognized, and amortized using the effective interest method. | |||
The following is a summary of the accounting model the Company has elected to apply to each of its significant categories of financial instruments on implementation at December 29, 2006 and for the year ended December 28, 2007: |
Cash and cash equivalents | held-for-trading | ||
Accounts receivable | loans and receivables | ||
Due from related party | loans and receivables | ||
Accounts payable and accrued liabilities | other liabilities | ||
Long-term debt | other liabilities |
The implementation of these Sections did not have a material impact on the Company’s financial statements. |
c) | Derivative instruments are recorded at fair value unless exempted from derivative treatment as normal purchases and sales. All changes in their fair value are recorded in income unless cash flow hedge accounting is used, in which case, changes in fair value are recorded in other comprehensive income. The Company has elected to apply this accounting treatment for embedded derivatives on transactions entered into after January 1, 2003. The change in these accounting policies did not have any impact on the financial statements as the Company does not have any derivatives. |
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FOUR STAR GRAVEL CONTRACTORS LTD. | 5 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
e) | Recently adopted and pending accounting pronouncements (Continued) |
For cash, accounts receivable, accounts payable and accrued liabilities, and long-term debt, the carrying value approximates fair value due to their short-term nature. | |||
ii) | In January 2005, the CICA issued a new Section to the CICA Handbook, Section 3251 “Equity” which became effective for the Company on January 1, 2007. This Section establishes standards for the presentation of equity during a reporting period. The implementation of this Section did not have a material impact on the Company’s financial statements. | ||
iii) | Effective January 1, 2007, the Company adopted CICA Handbook Section 1506 “Accounting Changes” which establishes criteria for changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies and estimates, and correction of errors. Under the new standard, accounting changes should be applied retroactively unless otherwise permitted or where impracticable to determine. As well, voluntary changes in accounting policies are made only when required by a primary source of Canadian GAAP or the change results in more relevant and reliable information. The Company has determined that the application of this Section did not have any impact on its financial statements. | ||
iv) | Effective December 29, 2007, the Company adopted two new CICA standards, Section 3862 “Financial Instruments — Disclosures” and Section 3863 “Financial Instruments — Presentation” which replaced Section 3861 “Financial Instruments -Disclosure and Presentation”. The new Disclosure standard increases the emphasis on the risks associated with both recognized and unrecognized financial instruments and how these risks are managed. The new Presentation standard carries forward the former presentation requirements. The new standard requires additional disclosures in the Company’s financial statements. | ||
v) | In November 2006, the CICA issued new Handbook Section 1535 “Capital Disclosures”, effective for annual and interim periods beginning on or after October 1, 2007. This Section establishes standards for disclosing information about an entity’s capital and how it is managed in order that a user of the financial statements may evaluate the entity’s objectives, policies and processes for managing capital. This new Standard requires additional disclosures in the Company’s financial statements. |
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FOUR STAR GRAVEL CONTRACTORS LTD. | 6 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
e) | Recently adopted and pending accounting pronouncements (Continued) |
vi) | Effective December 29, 2007, the Company adopted CICA Section 3031 “Inventories”. This Section relates to the accounting for inventories and revises and enhances the requirements for assigning costs to inventories. The new standard had no effect on the Company’s financial statements as the Company’s existing policies complied with the standard. |
f) | Future accounting pronouncements |
In February 2008, the CICA issued new Handbook Section 3064 “Goodwill and Intangible Assets”, replacing Handbook Section 3062 “Goodwill and Other Intangible Assets” and Handbook Section 3450 “Research and Development Costs”. The new section will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company will adopt the new standards for its fiscal year beginning December 29, 2008. This section establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Handbook Section 3062. This new standard is not expected to have a material effect on the Company’s financial statements. |
3. | CAPITAL ASSETS |
June 28, 2008 | ||||||||||||
Accumulated | ||||||||||||
Depreciation | ||||||||||||
and | Net | |||||||||||
Cost | Amortization | Book Value | ||||||||||
$ | $ | $ | ||||||||||
Land | 177,189 | — | 177,189 | |||||||||
Paving equipment | 70,956 | 27,856 | 43,100 | |||||||||
Building | 384,845 | 145,918 | 238,927 | |||||||||
Office and field equipment | 50,087 | 32,687 | 17,400 | |||||||||
Trucks | 4,386,350 | 3,459,848 | 926,502 | |||||||||
Concrete plant | 1,976,610 | 1,394,682 | 581,928 | |||||||||
Equipment | 1,493,703 | 598,651 | 895,052 | |||||||||
8,539,740 | 5,659,642 | 2,880,098 | ||||||||||
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FOUR STAR GRAVEL CONTRACTORS LTD. | 7 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
3. | CAPITAL ASSETS (Continued) |
December 28, 2007 | ||||||||||||||||
Accumulated | ||||||||||||||||
Depreciation | ||||||||||||||||
and | ||||||||||||||||
Cost | Amortization | Net Book Value | ||||||||||||||
$ | $ | $ | ||||||||||||||
Land | 177,189 | — | 177,189 | |||||||||||||
Paving equipment | 70,956 | 26,060 | 44,896 | |||||||||||||
Building | 384,845 | 141,042 | 243,803 | |||||||||||||
Office and field equipment | 45,092 | 31,309 | 13,783 | |||||||||||||
Trucks | 4,288,815 | 3,290,006 | 998,809 | |||||||||||||
Concrete plant | 1,976,610 | 1,330,023 | 646,587 | |||||||||||||
Equipment | 1,493,703 | 499,201 | 994,502 | |||||||||||||
8,437,210 | 5,317,641 | 3,119,569 | ||||||||||||||
December 28, 2006 | ||||||||||||||||
Accumulated | ||||||||||||||||
Depreciation | ||||||||||||||||
and | ||||||||||||||||
Cost | Amortization | Net Book Value | ||||||||||||||
$ | $ | $ | ||||||||||||||
Land | 177,189 | — | 177,189 | |||||||||||||
Paving equipment | 70,956 | 22,156 | 48,800 | |||||||||||||
Building | 384,845 | 130,884 | 253,961 | |||||||||||||
Office and field equipment | 41,482 | 28,315 | 13,167 | |||||||||||||
Trucks | 4,034,090 | 2,916,522 | 1,117,568 | |||||||||||||
Concrete plant | 1,385,938 | 1,179,487 | 206,451 | |||||||||||||
Equipment | 981,776 | 314,565 | 667,211 | |||||||||||||
7,076,276 | 4,591,929 | 2,484,347 | ||||||||||||||
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FOUR STAR GRAVEL CONTRACTORS LTD. | 8 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
4. | LONG-TERM DEBT |
December 28, | ||||||||
2007 | 2006 | |||||||
$ | $ | |||||||
Bank loans | ||||||||
Alberta Treasury Branch bank loans repayable at $77,356 per month including principal and interest at prime plus 1.5%. The loans are secured by a general security agreement covering property and equipment owned by the Company. The loans are amortized over various periods ranging from 3 to 20 years and are due between April 2009 and October 2011 | 3,086,782 | 2,474,844 | ||||||
Other loans | — | 4,071 | ||||||
3,086,782 | 2,478,915 | |||||||
Less current portion of long-term debt | (672,952 | ) | (534,353 | ) | ||||
2,413,830 | 1,944,562 | |||||||
The principal repayment schedule as at December 28, 2007 over the next five years and thereafter based on the amortization periods established for the long-term debt, is as follows: |
$ | ||||
2008 | 672,952 | |||
2009 | 542,079 | |||
2010 | 358,472 | |||
2011 | 328,582 | |||
2012 and thereafter | 1,184,697 |
Credit facility | ||
The Company has a $200,000 revolving line of credit bearing interest at prime plus 1.25%. There were no draws on this facility as of December 28, 2007 and December 28, 2006. | ||
The Company’s credit facility is secured by a general security agreement which includes accounts receivables, equipment, and inventory. It has certain financial covenants which must be met: a working capital ratio of not less than 1.4; a debt to equity ratio of not less than 2.5; and a debt service coverage ratio of not less than 1.3, as defined in the facility agreement. The Company is in compliance with these covenants. |
Table of Contents
FOUR STAR GRAVEL CONTRACTORS LTD. | 9 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
5. | INCOME TAXES | |
The following is a reconciliation of income taxes, calculated at the statutory income tax rate, to the income tax provision included in the statements of operations. |
December 28, | ||||||||
2007 | 2006 | |||||||
$ | $ | |||||||
Income before income taxes | 346,909 | 314,597 | ||||||
Statutory income tax rate | 16.12 | % | 16.12 | % | ||||
Expected income taxes expense | 55,922 | 50,713 | ||||||
Non-deductible expenses | 4,905 | 1,785 | ||||||
Unrecognized temporary differences | 2,076 | 1,443 | ||||||
Income not eligible for small business deduction | — | 3,116 | ||||||
Other | 1,036 | — | ||||||
Income tax expense | 63,939 | 57,057 | ||||||
Income taxes are recognized for future income tax consequences attributed to estimated differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases. There were no significant differences between accounting and tax related items which resulted in any future tax assets or liabilities for the periods. |
6. | SHARE CAPITAL |
Authorized 10,000 Class A Common Voting Shares, and 5,000 Class B Non-Voting Common Shares |
Issued |
December 28, | ||||||||||||||||||||||||
June 28, 2008 | 2007 | 2006 | ||||||||||||||||||||||
Stated | Stated | Stated | ||||||||||||||||||||||
Capital | Capital | Capital | ||||||||||||||||||||||
Number | $ | Number | $ | Number | $ | |||||||||||||||||||
Class A common shares | 200 | 200 | 200 | 200 | 200 | 200 | ||||||||||||||||||
Table of Contents
FOUR STAR GRAVEL CONTRACTORS LTD. | 10 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
7. | DUE FROM RELATED PARTY | |
Advances to a related company are recorded at the amounts advanced. The advances are non-interest bearing, have no fixed terms of repayment and are unsecured. The companies are related through common ownership. Management has determined that the fair value approximates carrying values. | ||
The Company has guaranteed a demand loan in the amount of $174,514 (2006 — $194,592) to a related company which is secured by a parcel of land held by that related company. The companies are related through common ownership. |
8. | CAPITAL DISCLOSURES | |
The Company’ s objectives when managing capital are to: (a) safeguard the Company’ s ability to continue as a going concern; and (b) maintain flexibility in order to preserve the Company’ s ability to meet financial obligations with a long-term view of maximizing return to shareholders. | ||
On an ongoing basis, the Company reviews and assesses its capital structure. The Company defines its capital as shareholders’ equity, cash and cash equivalents and long-term debt. | ||
The Company’ s capital is as follows: |
June 28, 2008 | December 28, 2007 | |||||||
$ | $ | |||||||
Shareholders’ equity | 2,368,367 | 2,354,247 | ||||||
Cash and cash equivalents | (812,237 | ) | (1,159,086 | ) | ||||
Long-term debt | 2,718,315 | 3,086,782 | ||||||
Net capital | 4,274,445 | 4,281,943 | ||||||
The Company has certain financial covenants that must be met in regards to its credit facilities. The Company has ensured that these covenants have been met. | ||
The Company’ s strategy has been to ensure that it has sufficient capital to efficiently and effectively run the operations of the Company while providing a return to shareholders and maintaining adequate liquidity. |
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FOUR STAR GRAVEL CONTRACTORS LTD. | 11 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
9. | FINANCIAL INSTRUMENTS |
a) | Financial instruments | ||
The Company, as part of its operations, carries a number of financial instruments. It is management’s opinion that the Company is not exposed to significant credit, interest rate, foreign currency or liquidity risk. | |||
The carrying value of the Company’s interest in financial instruments approximates their fair value. The estimated fair value approximates the amount for which the financial instruments could currently be exchanged in an arm’s length transaction between willing parties who are under no compulsion to act. | |||
The Company has classified its financial instruments as follows: |
June 28, 2008 | December 28, 2007 | |||||||
$ | $ | |||||||
Financial assets: | ||||||||
Cash and cash equivalents, measured at fair value (held-for-trading) | 812,237 | 1,159,086 | ||||||
Accounts receivable, measured at cost | 2,213,215 | 1,237,001 | ||||||
Due from related party, measured at cost | 258,058 | 227,996 | ||||||
Financial liabilities: | ||||||||
Accounts payable and accrued liabilities, measured at cost | 1,271,075 | 462,657 | ||||||
Long-term debt, measured at cost which approximates fair value | 2,718,315 | 3,086,782 |
The Company is required to identify and measure embedded derivatives that require separation from the related host contract and measure those embedded derivatives at fair value. Subsequent changes in fair value of embedded derivatives are recognized in the statements of operations in the period the change occurs. The Company did not have any embedded derivatives during the six month periods ended June 28, 2008 or 2007 or at December 28, 2007 or 2006. |
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FOUR STAR GRAVEL CONTRACTORS LTD. | 12 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
9. | FINANCIAL INSTRUMENTS (Continued) |
b) | Financial risk management | ||
The Company has exposure to credit risk, interest rate risk, foreign currency risk, and liquidity risk. The Company’s management has the overall responsibility for the oversight of these risks and reviews the Company’s policies on an ongoing basis to ensure that these risks are appropriately managed. | |||
i) Credit risk | |||
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, accounts receivable, and due from related party. The Company provides credit to its customers in the normal course of its operations and carries out credit checks when applicable. The Company maintains provisions for contingent credit losses based on an assessment of collectability. The Company has not had any material losses related to uncollectible accounts. Trade accounts receivable past due more than 60 days represented 5% or $107,398 of the total receivables at June 28, 2008 (17% or $206,731 at December 28, 2007). | |||
The balance in trade accounts receivable that are one year past due at June 30, 2007 is $27,200. The Company is currently in discussions with this customer regarding collectability of this balance. | |||
The Company does not currently have an allowance for doubtful accounts as it feels all of its receivables are collectible. | |||
ii)Interest rate risk | |||
Interest rate risk reflects the sensitivity of the Company’s financial results and condition to movements in interest rates. For the six month periods ended June 28, 2008, a 1% increase in interest rates on long term debt would have decreased earnings before income taxes by approximately $29,000. |
Table of Contents
FOUR STAR GRAVEL CONTRACTORS LTD. | 13 |
Asat and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
Year 5 | ||||||||||||||||||||
and | ||||||||||||||||||||
Year 1 | Year 2 | Year 3 | Year 4 | thereafter | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Accounts payable and accrued liabilities | 1,271,075 | — | — | — | — | |||||||||||||||
Current and long-term debt | 672,952 | 542,079 | 358,472 | 328,582 | 1,184,697 |
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FOUR STAR GRAVEL CONTRACTORS LTD. | 14 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
Year Ended | ||||||||||||||||
December 28, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Customer A | 2,218,297 | 12 | — | — | ||||||||||||
Customer E | — | — | 2,628,745 | 14 | ||||||||||||
2,218,297 | 12 | 2,628,745 | 14 | |||||||||||||
Six Month Period Ended | ||||||||||||||||
June 28, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Customer A | 1,329,820 | 19 | 943,142 | 10 | ||||||||||||
Customer D | — | — | 1,112,249 | 12 | ||||||||||||
1,329,820 | 19 | 2,055,391 | 22 | |||||||||||||
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FOUR STAR GRAVEL CONTRACTORS LTD. | 15 |
As at and for the years ended December 28, 2007 and 2006
As at June 28, 2008 and for the six month periods ended June 28, 2008 and 2007 (unaudited)
Year Ended | ||||||||||||||||
December 28, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Customer A | 150,192 | 12.1 | — | — | ||||||||||||
Customer C | 208,452 | 16.9 | — | — | ||||||||||||
Customer E | — | — | 345,478 | 22.6 | ||||||||||||
358,644 | 29.0 | 345,478 | 22.6 | |||||||||||||
Six Month Period Ended | ||||||||||||||||
June 28, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Customer A | 338,929 | 15.3 | 337,520 | 13.6 | ||||||||||||
Customer B | 235,102 | 10.6 | — | — | ||||||||||||
Customer C | 226,666 | 10.2 | — | — | ||||||||||||
Customer D | — | — | 258,860 | 10.4 | ||||||||||||
800,697 | 36.2 | 596,380 | 24.0 | |||||||||||||
Table of Contents
Table of Contents
Pro Forma Consolidated Balance Sheet
(unaudited)
F&D | Four Star | Asty | ||||||||||||||||||||||||||||||||||||||||
Plumb-Line | Plumb-Line | Management | Gravel | Concrete & | The | |||||||||||||||||||||||||||||||||||||
Income | Masonry | Services | Contractors | Construction | Nascor | Westaim | Pro Forma | Consolidated | ||||||||||||||||||||||||||||||||||
Trust | Group Inc. | Ltd. | Ltd. | Ltd. | Ltd. | Corporation | Sub-total | Adjustments | Note 4 | Pro Forma | ||||||||||||||||||||||||||||||||
As at June 30, 2008 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||
Current | ||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 1,291,784 | 10 | 1,567,400 | 812,237 | — | 1,535,318 | 40,121,751 | 45,328,500 | 5,307,942 | (a) | 52,613,776 | |||||||||||||||||||||||||||||||
14,000,000 | (c) | |||||||||||||||||||||||||||||||||||||||||
(6,000,000 | ) | (d)(i) & (g) | ||||||||||||||||||||||||||||||||||||||||
(3,600,000 | ) | (d)(ii) & (g) | ||||||||||||||||||||||||||||||||||||||||
77,334 | (e) & (g) | |||||||||||||||||||||||||||||||||||||||||
(2,500,000 | ) | (f) | ||||||||||||||||||||||||||||||||||||||||
Accounts receivable | 11,785,209 | — | 2,878,527 | 2,213,215 | 9,365,969 | 7,018,954 | 3,750,136 | 37,012,010 | (2,510,873 | ) | (b) | 25,135,168 | ||||||||||||||||||||||||||||||
(9,365,969 | ) | (d)(ii) & (g) | ||||||||||||||||||||||||||||||||||||||||
Inventories and consumables | 2,213,170 | — | — | 162,488 | 60,396 | 4,236,424 | 4,031,786 | 10,704,264 | (959,101 | ) | (b) | 9,745,163 | ||||||||||||||||||||||||||||||
Short-term investments | — | — | 1,883,829 | — | — | — | — | 1,883,829 | 1,883,829 | |||||||||||||||||||||||||||||||||
Other assets | 132,974 | — | 45,572 | 36,115 | 66,604 | 344,577 | 376,490 | 1,002,332 | (76,552 | ) | (b) | 925,780 | ||||||||||||||||||||||||||||||
Current assets held for sale | — | — | — | — | — | 1,093,440 | 71,188 | 1,164,628 | (71,188 | ) | (a) | 1,093,440 | ||||||||||||||||||||||||||||||
Due from related parties | 1,901,270 | — | — | — | — | — | — | 1,901,270 | 1,901,270 | |||||||||||||||||||||||||||||||||
17,324,407 | 10 | 6,375,328 | 3,224,055 | 9,492,969 | 14,228,713 | 48,351,351 | 98,996,833 | 93,298,426 | ||||||||||||||||||||||||||||||||||
Due from related parties | — | — | — | 258,058 | — | — | — | 258,058 | 258,058 | |||||||||||||||||||||||||||||||||
Deposit on acquisition | 300,000 | — | — | — | — | — | — | 300,000 | (300,000 | ) | (d)(ii) & (g) | — | ||||||||||||||||||||||||||||||
Capital assets | 2,275,296 | — | 643,831 | 2,880,098 | 1,189,147 | 1,258,928 | 12,236,491 | 20,483,791 | (141,333 | ) | (b) | 12,987,460 | ||||||||||||||||||||||||||||||
1,297,609 | (d)(i) & (g) | |||||||||||||||||||||||||||||||||||||||||
3,583,884 | (d)(ii) & (g) | |||||||||||||||||||||||||||||||||||||||||
(12,236,491 | ) | (g) | ||||||||||||||||||||||||||||||||||||||||
Capital assets held for sale | — | — | — | — | — | — | 3,998,716 | 3,998,716 | (2,950,716 | ) | (a) | 1,048,000 | ||||||||||||||||||||||||||||||
Intangible assets | — | — | — | — | — | 1,122,000 | 727,483 | 1,849,483 | 2,000,000 | (d)(ii) & (g) | 3,122,000 | |||||||||||||||||||||||||||||||
(727,483 | ) | (g) | ||||||||||||||||||||||||||||||||||||||||
Intangible assets held for sale | — | — | — | — | — | — | 1,392,062 | 1,392,062 | (1,392,062 | ) | (a) | — | ||||||||||||||||||||||||||||||
Investments | — | — | — | — | — | — | 5,967,500 | 5,967,500 | 5,967,500 | |||||||||||||||||||||||||||||||||
Goodwill | — | — | — | — | — | 23,366,269 | — | 23,366,269 | (3,729,082 | ) | (d)(iii) & (g) | 19,637,187 | ||||||||||||||||||||||||||||||
Unallocated excess of purchase price over book values | — | — | — | — | — | — | — | — | 2,920,997 | (d)(i) & (g) | 31,302,599 | |||||||||||||||||||||||||||||||
300,000 | (d)(ii) & (g) | |||||||||||||||||||||||||||||||||||||||||
8,397,749 | (d)(ii) & (g) | |||||||||||||||||||||||||||||||||||||||||
19,683,853 | (d)(ii) & (g) | |||||||||||||||||||||||||||||||||||||||||
19,899,703 | 10 | 7,019,159 | 6,362,211 | 10,682,116 | 39,975,910 | 72,673,603 | 156,612,712 | 167,621,230 | ||||||||||||||||||||||||||||||||||
Table of Contents
Pro Forma Consolidated Balance Sheet
(unaudited)
F&D | Four Star | Asty | ||||||||||||||||||||||||||||||||||||||||
Plumb-Line | Plumb-Line | Management | Gravel | Concrete & | The | |||||||||||||||||||||||||||||||||||||
Income | Masonry | Services | Contractors | Construction | Nascor | Westaim | Pro Forma | Consolidated | ||||||||||||||||||||||||||||||||||
Trust | Group Inc. | Ltd. | Ltd. | Ltd. | Ltd. | Corporation | Sub-total | Adjustments | Note 4 | Pro Forma | ||||||||||||||||||||||||||||||||
As at June 30, 2008 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Liabilities and Shareholders’ Equity (Deficiency) | ||||||||||||||||||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||||||||||||||||
Bank indebtedness | 2,933,079 | — | — | — | 544,149 | — | — | 3,477,228 | (2,218,738 | ) | (b) | 714,341 | ||||||||||||||||||||||||||||||
(544,149 | ) | (d)(ii) & (g) | ||||||||||||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities | 3,740,508 | — | 3,228,906 | 1,271,075 | 6,811,561 | 1,991,321 | 7,229,274 | 24,272,645 | (856,708 | ) | (b) | 20,471,757 | ||||||||||||||||||||||||||||||
1,173,001 | (d)(i) & (g) | |||||||||||||||||||||||||||||||||||||||||
(6,811,561 | ) | (d)(ii) & (g) | ||||||||||||||||||||||||||||||||||||||||
2,000,000 | (d)(ii) & (g) | |||||||||||||||||||||||||||||||||||||||||
694,380 | (e) & (g) | |||||||||||||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities held for sale | — | — | — | — | — | — | 763,246 | 763,246 | (763,246 | ) | (a) | — | ||||||||||||||||||||||||||||||
Income taxes payable | 58,820 | — | 2,535 | 4,454 | 12,500 | 1,453,623 | — | 1,531,932 | (12,500 | ) | (d)(ii) & (g) | 1,519,432 | ||||||||||||||||||||||||||||||
Current portion of long-term debt | — | — | — | 603,370 | — | — | — | 603,370 | 932,662 | (d)(ii) & (g) | 3,712,243 | |||||||||||||||||||||||||||||||
2,176,211 | (d)(ii) & (g) | |||||||||||||||||||||||||||||||||||||||||
Current portion of obligations under capital leases | 175,846 | — | — | — | — | — | — | 175,846 | 175,846 | |||||||||||||||||||||||||||||||||
Promissory notes payable | — | — | — | — | 322,416 | — | — | 322,416 | (322,416 | ) | (d)(ii) & (g) | — | ||||||||||||||||||||||||||||||
Deferred revenue | — | — | — | — | — | 290,484 | — | 290,484 | 290,484 | |||||||||||||||||||||||||||||||||
Due to related parties | 3,121,697 | — | — | — | — | — | — | 3,121,697 | (609,492 | ) | (b) | 6,208,945 | ||||||||||||||||||||||||||||||
3,696,740 | (d)(iii) & (g) | |||||||||||||||||||||||||||||||||||||||||
Due to shareholders | — | — | 1,173,001 | — | — | 11,567,587 | — | 12,740,588 | (1,173,001 | ) | (d)(i) & (g) | — | ||||||||||||||||||||||||||||||
(11,567,587 | ) | (d)(iii) & (g) | ||||||||||||||||||||||||||||||||||||||||
Future income taxes | — | — | — | — | 180,942 | — | — | 180,942 | (180,942 | ) | (d)(ii) & (g) | — | ||||||||||||||||||||||||||||||
10,029,950 | — | 4,404,442 | 1,878,899 | 7,871,568 | 15,303,015 | 7,992,520 | 47,480,394 | 33,093,048 | ||||||||||||||||||||||||||||||||||
Long-term debt | — | — | — | 2,114,945 | — | — | — | 2,114,945 | 8,067,338 | (d)(ii) & (g) | 29,006,072 | |||||||||||||||||||||||||||||||
18,823,789 | (d)(ii) & (g) | |||||||||||||||||||||||||||||||||||||||||
Obligations under capital leases | 302,044 | — | — | — | — | — | — | 302,044 | 302,044 | |||||||||||||||||||||||||||||||||
Deferred revenue | — | — | — | — | — | 188,483 | — | 188,483 | 188,483 | |||||||||||||||||||||||||||||||||
Due to related parties | — | — | — | — | — | — | — | — | 14,903,260 | (d)(iii) & (g) | 14,903,260 | |||||||||||||||||||||||||||||||
Due to shareholders | — | — | — | — | — | 21,597,392 | — | 21,597,392 | (21,597,392 | ) | (d)(iii) & (g) | — | ||||||||||||||||||||||||||||||
Redeemable preferred shares | — | — | 3,276,364 | — | — | — | — | 3,276,364 | (3,276,364 | ) | 4(d)(i) & (g) | — | ||||||||||||||||||||||||||||||
Provision for site restoration | — | — | — | — | — | — | 6,579,680 | 6,579,680 | 6,579,680 | |||||||||||||||||||||||||||||||||
Future income taxes | — | — | — | — | — | 270,000 | — | 270,000 | 270,000 | |||||||||||||||||||||||||||||||||
10,331,994 | — | 7,680,806 | 3,993,844 | 7,871,568 | 37,358,890 | 14,572,200 | 81,809,302 | 84,342,587 | ||||||||||||||||||||||||||||||||||
Non-controlling interest | — | — | — | — | — | — | 10,771,904 | 10,771,904 | 10,771,904 | |||||||||||||||||||||||||||||||||
Shareholders’ equity (deficiency) | ||||||||||||||||||||||||||||||||||||||||||
Share capital | 6,044,005 | 10 | 10 | 200 | 525 | 3,000,011 | 426,280,100 | 435,324,861 | 14,000,000 | (c) | 57,223,448 Note 4(h) | |||||||||||||||||||||||||||||||
833,313 | (d)(i) & (g) | |||||||||||||||||||||||||||||||||||||||||
1,749,800 | (d)(ii) & (g) | |||||||||||||||||||||||||||||||||||||||||
(525 | ) | (d)(ii) & (g) | ||||||||||||||||||||||||||||||||||||||||
10,452,906 | (d)(iii) & (g) | |||||||||||||||||||||||||||||||||||||||||
(402,636,907 | ) | (e) & (g) | ||||||||||||||||||||||||||||||||||||||||
(2,500,000 | ) | (f) | ||||||||||||||||||||||||||||||||||||||||
Contributed surplus | 190,016 | — | — | — | — | — | 8,193,398 | 8,383,414 | (8,193,398 | ) | (e) & (g) | 190,016 | ||||||||||||||||||||||||||||||
Accumulated other comprehensive income (loss) | — | — | — | — | — | — | (1,402,990 | ) | (1,402,990 | ) | 1,402,990 | (e) & (g) | — | |||||||||||||||||||||||||||||
Retained earnings (deficit) | 3,333,688 | (661,657 | ) | 2,368,167 | 2,810,023 | (382,991 | ) | (385,741,009 | ) | (378,273,779 | ) | 1,657,222 | (a) | 15,093,275 | ||||||||||||||||||||||||||||
(2,921 | ) | (b) | ||||||||||||||||||||||||||||||||||||||||
661,657 | (d)(i) & (g) | |||||||||||||||||||||||||||||||||||||||||
�� | (2,368,167 | ) | (d)(ii) & (g) | |||||||||||||||||||||||||||||||||||||||
(2,810,023 | ) | (d)(ii) & (g) | ||||||||||||||||||||||||||||||||||||||||
382,991 | (d)(iii) & (g) | |||||||||||||||||||||||||||||||||||||||||
384,083,787 | (a) & (g) | |||||||||||||||||||||||||||||||||||||||||
11,762,508 | (g) | |||||||||||||||||||||||||||||||||||||||||
9,567,709 | 10 | (661,647 | ) | 2,368,367 | 2,810,548 | 2,617,020 | 47,329,499 | 64,031,506 | 72,506,739 | |||||||||||||||||||||||||||||||||
19,899,703 | 10 | 7,019,159 | 6,362,211 | 10,682,116 | 39,975,910 | 72,673,603 | 156,612,712 | 167,621,230 | ||||||||||||||||||||||||||||||||||
Table of Contents
Pro Forma Consolidated Statement of Operations
(unaudited)
F&D | Four Star | Asty | ||||||||||||||||||||||||||||||||||||
Plumb-Line | Management | Gravel | Concrete & | The | ||||||||||||||||||||||||||||||||||
Income | Services | Contractors | Construction | Nascor | Westaim | Pro Forma | Consolidated | |||||||||||||||||||||||||||||||
For the six month period | Trust | Ltd. | Ltd. | Ltd. | Ltd. | Corporation | Sub-total | Adjustments | Note 4 | Pro Forma | ||||||||||||||||||||||||||||
ended June 30, 2008 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Note 4(j) | Note 4(k) | Note 4(l) | ||||||||||||||||||||||||||||||||||||
Revenue | 23,894,422 | 5,212,704 | 7,192,745 | 9,940,533 | 22,338,055 | 9,962,474 | 78,540,933 | (6,062,742 | ) | (q) | 72,462,322 | |||||||||||||||||||||||||||
(15,869 | ) | (r) | ||||||||||||||||||||||||||||||||||||
Direct costs | 17,261,471 | 3,317,580 | 5,136,255 | 7,851,879 | 14,674,403 | 6,447,818 | 54,689,406 | (5,195,131 | ) | (q) | 49,478,406 | |||||||||||||||||||||||||||
(15,869 | ) | (r) | ||||||||||||||||||||||||||||||||||||
6,632,951 | 1,895,124 | 2,056,490 | 2,088,654 | 7,663,652 | 3,514,656 | 23,851,527 | 22,983,916 | |||||||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||
General and adminstrative | 2,219,024 | 105,240 | 617,103 | 702,889 | 4,518,246 | 4,668,095 | 12,830,597 | (1,310,896 | ) | (q) | 11,519,701 | |||||||||||||||||||||||||||
Management salaries and bonuses | 84,678 | 1,359,526 | 994,000 | 5,606,000 | 1,608,609 | — | 9,652,813 | 9,652,813 | ||||||||||||||||||||||||||||||
Research and development | — | — | — | — | — | 2,571,099 | 2,571,099 | 2,571,099 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 79,847 | 72,231 | 342,000 | 259,330 | 264,195 | 939,001 | 1,956,604 | (21,847 | ) | (q) | 2,325,551 | |||||||||||||||||||||||||||
390,794 | (s) | |||||||||||||||||||||||||||||||||||||
Corporate costs | — | — | — | — | — | 2,440,558 | 2,440,558 | 2,440,558 | ||||||||||||||||||||||||||||||
Income (loss) before the undernoted | 4,249,402 | 358,127 | 103,387 | (4,479,565 | ) | 1,272,602 | (7,104,097 | ) | (5,600,144 | ) | (5,525,806 | ) | ||||||||||||||||||||||||||
Dilution gain | — | — | — | — | — | 6,000,000 | 6,000,000 | 6,000,000 | ||||||||||||||||||||||||||||||
Gain on sale of investment | — | — | — | — | — | 533,865 | 533,865 | 533,865 | ||||||||||||||||||||||||||||||
Loss on issuance of shares of subsidiary | — | — | — | — | — | (24,529 | ) | (24,529 | ) | (24,529 | ) | |||||||||||||||||||||||||||
Non-controlling interest | — | — | — | — | — | 1,041,529 | 1,041,529 | 1,041,529 | ||||||||||||||||||||||||||||||
Net interest (expense) income | (80,971 | ) | 69,247 | (82,702 | ) | (8,004 | ) | (1,271,863 | ) | 387,623 | (986,670 | ) | 40,049 | (q) | (1,344,980 | ) | ||||||||||||||||||||||
(398,359 | ) | (t) | ||||||||||||||||||||||||||||||||||||
Foreign exchange (loss) gain | (102,766 | ) | — | — | — | — | 508,435 | 405,669 | 102,766 | (q) | 508,435 | |||||||||||||||||||||||||||
Other income | 4,977 | — | — | — | — | — | 4,977 | 4,977 | ||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 4,070,642 | 427,374 | 20,685 | (4,487,569 | ) | 739 | 1,342,826 | 1,374,697 | 1,193,492 | |||||||||||||||||||||||||||||
Income taxes | ||||||||||||||||||||||||||||||||||||||
Current | — | 89,210 | 6,565 | 27,912 | 6,174 | 2,954 | 132,815 | 132,815 | ||||||||||||||||||||||||||||||
Future | — | — | — | 83,285 | — | — | 83,285 | 83,285 | ||||||||||||||||||||||||||||||
— | 89,210 | 6,565 | 111,197 | 6,174 | 2,954 | 216,100 | 216,100 | |||||||||||||||||||||||||||||||
Income (loss) from continuing operations | 4,070,642 | 338,164 | 14,120 | (4,598,766 | ) | (5,435 | ) | 1,339,872 | 1,158,597 | 977,392 | ||||||||||||||||||||||||||||
Loss from discontinued operations net of income taxes | — | — | — | — | — | (11,198,849 | ) | (11,198,849 | ) | 11,198,849 | (p) | — | ||||||||||||||||||||||||||
Net income (loss) for the period | 4,070,642 | 338,164 | 14,120 | (4,598,766 | ) | (5,435 | ) | (9,858,977 | ) | (10,040,252 | ) | 977,392 | ||||||||||||||||||||||||||
Income (loss) per common share | ||||||||||||||||||||||||||||||||||||||
Continuing operations — basic and diluted | $ | 0.05 | ||||||||||||||||||||||||||||||||||||
Net income (loss) — basic and diluted | $ | 0.05 | ||||||||||||||||||||||||||||||||||||
Weighted average number of common shares outstanding | ||||||||||||||||||||||||||||||||||||||
Basic | 18,850,000 | |||||||||||||||||||||||||||||||||||||
Diluted | 18,850,000 |
Table of Contents
Pro Forma Consolidated Statement of Operations
(unaudited)
F&D | Four Star | Asty | ||||||||||||||||||||||||||||||||||||
Plumb-Line | Management | Gravel | Concrete & | The | ||||||||||||||||||||||||||||||||||
Income | Services | Contractors | Construction | Nascor | Westaim | Pro Forma | Consolidated | |||||||||||||||||||||||||||||||
For the year | Trust | Ltd. | Ltd. | Ltd. | Ltd. | Corporation | Sub-total | Adjustments | Note 4 | Pro Forma | ||||||||||||||||||||||||||||
ended December 31, 2007 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Note 4(m) | Note 4(n) | Note 4(o) | ||||||||||||||||||||||||||||||||||||
Revenue | 39,321,235 | 8,935,021 | 19,244,443 | 29,931,995 | 74,667,229 | 31,830,329 | 203,930,252 | (7,998,495 | ) | (q) | 195,734,524 | |||||||||||||||||||||||||||
(197,233 | ) | (r) | ||||||||||||||||||||||||||||||||||||
Direct costs | 31,975,742 | 5,867,239 | 13,116,929 | 20,710,655 | 48,723,168 | 14,617,525 | 135,011,258 | (8,371,150 | ) | (q) | 126,442,875 | |||||||||||||||||||||||||||
(197,233 | ) | (r) | ||||||||||||||||||||||||||||||||||||
7,345,493 | 3,067,782 | 6,127,514 | 9,221,340 | 25,944,061 | 17,212,804 | 68,918,994 | 69,291,649 | |||||||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||
General and adminstrative | 3,393,049 | 138,208 | 781,289 | 850,544 | 11,966,074 | 9,348,207 | 26,477,371 | (2,213,486 | ) | (q) | 24,263,885 | |||||||||||||||||||||||||||
Management salaries and bonuses | 120,000 | 2,251,496 | 4,109,992 | 7,175,000 | 4,484,139 | — | 18,140,627 | 18,140,627 | ||||||||||||||||||||||||||||||
Contribution to employee profit sharing plan | 307,000 | — | — | — | — | — | 307,000 | 307,000 | ||||||||||||||||||||||||||||||
Research and development | — | — | — | — | — | 6,356,110 | 6,356,110 | 6,356,110 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 85,661 | 147,481 | 725,713 | 363,136 | 595,026 | 2,093,177 | 4,010,194 | (39,740 | ) | (q) | 4,752,042 | |||||||||||||||||||||||||||
781,588 | (s) | |||||||||||||||||||||||||||||||||||||
Corporate costs | — | — | — | — | — | 10,856,206 | 10,856,206 | 10,856,206 | ||||||||||||||||||||||||||||||
Income (loss) before the undernoted | 3,439,783 | 530,597 | 510,520 | 832,660 | 8,898,822 | (11,440,896 | ) | 2,771,486 | 4,615,779 | |||||||||||||||||||||||||||||
Change in fair value of third party asset-backed commercial paper | — | — | — | — | — | (4,048,000 | ) | (4,048,000 | ) | (4,048,000 | ) | |||||||||||||||||||||||||||
Loss on sale of third party asset-backed commercial paper | — | — | — | — | — | (1,067,000 | ) | (1,067,000 | ) | (1,067,000 | ) | |||||||||||||||||||||||||||
Write down of capital assets and intangible assets | — | — | — | — | — | (1,203,460 | ) | (1,203,460 | ) | (1,203,460 | ) | |||||||||||||||||||||||||||
Gain on sale of investment | — | — | — | — | — | 2,648,250 | 2,648,250 | 2,648,250 | ||||||||||||||||||||||||||||||
Gain on sale of capital assets | — | — | — | — | — | 8,721,948 | 8,721,948 | 8,721,948 | ||||||||||||||||||||||||||||||
Dilution gain | — | — | — | — | — | 4,525,498 | 4,525,498 | 4,525,498 | ||||||||||||||||||||||||||||||
Loss on issuance of shares of subsidiary | — | — | — | — | — | (134,195 | ) | (134,195 | ) | (134,195 | ) | |||||||||||||||||||||||||||
Non-controlling interest | — | — | — | — | — | 1,293,195 | 1,293,195 | 1,293,195 | ||||||||||||||||||||||||||||||
Net interest (expense) income | (155,168 | ) | 149,870 | (163,611 | ) | (21,864 | ) | (1,748,151 | ) | 1,821,939 | (116,985 | ) | 47,175 | (q) | (1,662,102 | ) | ||||||||||||||||||||||
(1,592,292 | ) | (t) | ||||||||||||||||||||||||||||||||||||
Foreign exchange loss | (49,146 | ) | — | — | — | (15,311 | ) | (3,804,432 | ) | (3,868,889 | ) | 49,146 | (q) | (3,819,743 | ) | |||||||||||||||||||||||
Other income | 1,711 | — | — | — | — | — | 1,711 | 1,711 | ||||||||||||||||||||||||||||||
Takeover costs | (778,197 | ) | — | — | — | — | — | (778,197 | ) | 778,196 | (q) | (1 | ) | |||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 2,458,983 | 680,467 | 346,909 | 810,796 | 7,135,360 | (2,687,153 | ) | 8,745,362 | 9,871,880 | |||||||||||||||||||||||||||||
Income taxes | ||||||||||||||||||||||||||||||||||||||
Current | 70,838 | 99,644 | 63,939 | 59,932 | 2,378,103 | 143,610 | 2,816,066 | 2,816,066 | ||||||||||||||||||||||||||||||
Future | — | — | — | 97,657 | — | — | 97,657 | 97,657 | ||||||||||||||||||||||||||||||
70,838 | 99,644 | 63,939 | 157,589 | 2,378,103 | 143,610 | 2,913,723 | 2,913,723 | |||||||||||||||||||||||||||||||
Income (loss) from continuing operations | 2,388,145 | 580,823 | 282,970 | 653,207 | 4,757,257 | (2,830,763 | ) | 5,831,639 | 6,958,157 | |||||||||||||||||||||||||||||
Loss from discontinued operations net of income taxes | — | — | — | — | — | (55,203,049 | ) | (55,203,049 | ) | 55,203,049 | (p) | — | ||||||||||||||||||||||||||
Net income (loss) for the year | 2,388,145 | 580,823 | 282,970 | 653,207 | 4,757,257 | (58,033,812 | ) | (49,371,410 | ) | 6,958,157 | ||||||||||||||||||||||||||||
Income (loss) per common share | ||||||||||||||||||||||||||||||||||||||
Continuing operations — basic and diluted | $ | 0.37 | ||||||||||||||||||||||||||||||||||||
Net income (loss) — basic and diluted | $ | 0.37 | ||||||||||||||||||||||||||||||||||||
Weighted average number of common shares outstanding | ||||||||||||||||||||||||||||||||||||||
Basic | 18,850,000 | |||||||||||||||||||||||||||||||||||||
Diluted | 18,850,000 |
Table of Contents
THE WESTAIM CORPORATION | 1 |
and for the Year Ended December 31, 2007
(Unaudited)
1. | THE COMPANY | |
The Westaim Corporation (“Westaim” or the “Company”) was incorporated on May 7, 1996 by articles of incorporation under the Business Corporations Act (Alberta). The operations of the Company include those of its subsidiaries, iFire Technology Ltd. (“iFire”) and Nucryst Pharmaceuticals Corp. (“Nucryst”). The common shares of the Company are listed on The Toronto Stock Exchange under the symbol“WED”. | ||
Pursuant to a reorganization agreement (the “Reorganization Agreement”) entered into between the Company, Arcticor Structures Limited Partnership (“Arcticor”), Plumb-Line Income Trust (“PLIT”), and Plumb-Line Masonry Group Inc. (“PLMG”) on October 3, 2008, and an information circular dated October 9, 2008 (the “Circular”), upon approval by the shareholders of the Company at a special meeting of the shareholders to be held on November 21, 2008, the Company will acquire (i) PLIT, including its wholly-owned operating partnership Con-Forte Contracting Limited Partnership (“Con-Forte”), (collectively, “Plumb-Line”); (ii) PLMG and F&D Management Services Ltd. and its wholly-owned subsidiary Sas-Can Masonry Ltd., (collectively, “F&D”); and (iii) Nascor Ltd. (“Nascor”). In conjunction with these acquisitions, the Company will complete a private placement (the “Private Placement”) to raise $15,000,000 in common share equity, at an expected offering price of $12.00 per common share, after giving effect to a consolidation of the common shares on a one for twenty basis pursuant to the Circular (the post-consolidation shares hereinafter referred to as “New Common Shares” (see Note 4(h)). Assuming that the equity offering is completed at $12.00 per New Common Share, the Company will issue 1,250,000 New Common Shares to subscribers under the Private Placement. The acquisitions will be funded with a combination of net proceeds from the Private Placement, debt, cash and issuance of New Common Shares of the Company. | ||
Immediately prior to the Company’s acquisitions, Plumb-Line will acquire Four Star Gravel Contractors Ltd. (“Four Star”) and the assets and operations of Asty Concrete & Construction Ltd. (“Asty”). The acquisition of the Asty business will be funded with an acquisition term loan from a major financial institution and the purchase of Four Star will be funded in part with the same acquisition term loan and in part with cash and through the issuance of units of Plumb-Line Holdings Limited Partnership, a partnership wholly owned by PLIT. These partnership units will subsequently be exchanged into New Common Shares of the Company. | ||
The proposed acquisitions are hereinafter collectively referred to as the “Acquisitions”. | ||
The above transactions are anticipated to close on or around December 1, 2008. In the event that approval by the shareholders of the Company is not obtained, it is intended that the Private Placement and Acquisitions will not be completed. |
Table of Contents
THE WESTAIM CORPORATION | 2 |
and for the Year Ended December 31, 2007
(Unaudited)
2. | BASIS OF PRESENTATION | |
The accompanying unaudited pro forma consolidated balance sheet of the Company as at June 30, 2008 and unaudited pro forma consolidated statements of operations for the six month period then ended and for the year ended December 31, 2007 (the “Pro Forma Statements”) have been prepared by the management of the Company in accordance with Canadian generally accepted accounting principles (“GAAP”) for inclusion in the Circular. | ||
The Pro Forma Statements give effect to the Private Placement completed at an assumed offering price of $12.00 per New Common Share, the Acquisitions, and other adjustments necessary to appropriately reflect the Company’s consolidated balance sheet and consolidated statements of operations on a pro forma basis. Such adjustments are described more fully in Note 4 to the Pro Forma Statements. In the proposed business combination of the Company and the acquired businesses, Westaim is accounted for as a reverse take over as Plumb-Line is deemed to be the acquirer for accounting purposes in accordance with GAAP. Accordingly, the Pro Forma Statements reflect the business combination on that basis. | ||
In the opinion of management, the Pro Forma Statements include all adjustments necessary for fair presentation in accordance with GAAP. The Pro Forma Statements are not necessarily indicative of the financial position or results of operations that would have occurred if the events reflected therein had been in effect on the dates indicated or of the results that may be obtained in the future. The accounting policies used in the Pro Forma Statements are consistent with those used in the consolidated financial statements of Westaim, Plumb-Line, F&D, Four Star, Asty and Nascor. | ||
For purposes of the unaudited pro forma consolidated balance sheet at June 30, 2008, the transactions have been assumed to occur on June 30, 2008. The unaudited pro forma consolidated balance sheet is based on the following balance sheets included elsewhere in the Circular (except where noted): |
• | audited consolidated balance sheet of Plumb-Line as at June 30, 2008 | ||
• | audited consolidated balance sheet of Masonry as at September 5, 2008 | ||
• | unaudited consolidated balance sheet of F&D as at May 31, 2008 | ||
• | unaudited balance sheet of Four Star as at June 28, 2008 | ||
• | unaudited balance sheet of Asty as at July 31, 2008 | ||
• | unaudited balance sheet of Nascor as at June 30, 2008 | ||
• | unaudited consolidated balance sheet of Westaim as at June 30, 2008 (incorporated by reference) |
For purposes of the unaudited pro forma consolidated statements of operations for the six months ended June 30, 2008 and for the twelve months ended December 31, 2007, the transactions have been assumed to occur on January 1, 2007. |
Table of Contents
THE WESTAIM CORPORATION | 3 |
and for the Year Ended December 31, 2007
(Unaudited)
2. | BASIS OF PRESENTATION (Continued) | |
The unaudited pro forma consolidated statement of operations for the six months ended June 30, 2008 has been prepared using the following statements of operations included elsewhere in the Circular (except where noted): |
• | audited consolidated statement of operations of Plumb-Line for the six months ended June 30, 2008 | ||
• | constructed unaudited consolidated statement of operations of F&D for the six months ended May 31, 2008 (see Note 4(j)) | ||
• | unaudited statement of operations of Four Star for the six months ended June 28, 2008 | ||
• | constructed unaudited statement of operations of Asty for the six months ended July 31, 2008 (see Note 4(k)) | ||
• | constructed unaudited statement of operations of Nascor for the six months ended June 30, 2008 (see Note 4(l)) | ||
• | unaudited consolidated statement of operations of Westaim for the six months ended June 30, 2008 (incorporated by reference) |
The unaudited pro forma consolidated statement of operations for the twelve months ended December 31, 2007 has been prepared using the following statements of operations included elsewhere in the Circular (except where noted): |
• | constructed unaudited consolidated statement of operations of Plumb-Line for the twelve months ended December 31, 2007 (see Note 4(m)) | ||
• | audited consolidated statement of operations of F&D for the twelve months ended February 29, 2008 | ||
• | audited statement of operations of Four Star for the twelve months ended December 28, 2007 | ||
• | constructed unaudited statement of operations of Asty for the twelve months ended January 31, 2008 (see Note 4(n)) | ||
• | constructed unaudited statement of operations of Nascor for the twelve months ended December 22, 2007 (see Note 4(o)) | ||
• | audited consolidated statement of operations of Westaim for the twelve months ended December 31, 2007 (incorporated by reference) |
The Pro Forma Statements should be read in conjunction with the audited and unaudited financial statements located elsewhere in the Circular. |
Table of Contents
THE WESTAIM CORPORATION | 4 |
and for the Year Ended December 31, 2007
(Unaudited)
3. | SIGNIFICANT ACCOUNTING POLICIES | |
Purchase price in excess of book values | ||
The purchase price in excess of the net equity of the acquired businesses has been classified as unallocated excess of purchase price over book values. Upon completion of a fair value analysis supporting the final purchase price allocation associated with the amounts currently recorded in the unaudited pro forma consolidated balance sheet as excess of purchase price over book values, the calculation and allocation of the consideration paid could result in allocations to assets subject to amortization and future income tax balances. (see Note 4(g)) | ||
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS | |
The Pro Forma Statements give effect to the following transactions, assumptions and adjustments: | ||
Balance Sheet Adjustments |
(a) | Under the Reorganization Agreement, it is contemplated that the equipment and intellectual property of iFire will be disposed of in the fourth quarter of 2008. Proceeds, net of transaction costs, are estimated to be approximately $6,000,000 for these assets, which were recorded as capital assets and intangible assets held for sale. In conjunction with the expected sale, this pro forma adjustment assumes the realization of current assets held for sale of $71,000 and the settlement of accounts payable and accrued liabilities held for sale for $763,000. The operations of iFire have been accounted for on a discontinued basis, following the termination of research and development of its flat panel display technology in November, 2007. | ||
(b) | Under the Reorganization Agreement, it is contemplated that the business and related operating assets and liabilities of A&K Millwork Limited Partnership (“A&K”), a partnership wholly-owned by PLIT, will be transferred to a newly incorporated company owned by the unitholders of PLIT at net book value in the fourth quarter of 2008. Consideration for the transfer is estimated to be nominal as the fair value of the assets is not expected to exceed the liabilities to be assumed by the purchaser. | ||
(c) | In conjunction with the Acquisitions, the Company is expected to issue 1,250,000 New Common Shares at $12.00 per New Common Share under the Private Placement for gross subscription proceeds of $15,000,000, before issuance costs of $1,000,000, consisting of $900,000 of agent’s commission and approximately $100,000 of professional fees. |
Table of Contents
THE WESTAIM CORPORATION | 5 |
and for the Year Ended December 31, 2007
(Unaudited)
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS (Continued) | |
Balance Sheet Adjustments (Continued) | ||
(d) The following proposed business combination transactions are expected to take effect following approval by the Company’s shareholders: |
(i) | The Company will acquire F&D Management Services Ltd., including all of its outstanding redeemable preferred shares. The purchase price will be funded by payment of $6,000,000 in cash and the issuance of 166,667 New Common Shares of the Company. | ||
Real property included in the capital assets of F&D Management Services Ltd. has been adjusted to its estimated fair value of $1,500,000 in the pro forma consolidated balance sheet. | |||
(ii) | Plumb-Line will acquire Four Star, and the operations and assets, excluding accounts receivable, of Asty. The purchase price for the Asty business in the amount of $21,000,000 will be funded with a partial drawdown of a $30,000,000 acquisition term loan with a major financial institution. The acquisition cost of Four Star, amounting to $16,800,000, will be funded with a drawdown of the balance of the same acquisition term loan of $9,000,000, the issuance of partnership units of Plumb-Line Holdings Limited Partnership exchangeable into 350,000 New Common Shares of the Company, and a cash payment of $3,600,000. | ||
Real property included in the capital assets of Four Star has been adjusted to its estimated fair value of $4,000,000 in the pro forma consolidated balance sheet. | |||
In connection with the acquisition of the business of Asty, non-compete fees of $2,000,000 payable to former shareholders of Asty will be made over a three year period. | |||
(iii) | Pursuant to the Reorganization Agreement, the Company will acquire Nascor from its parent, Arcticor. The cost of the acquisition in the amount of $32,287,000 will be funded with the issuance of 2,690,583 New Common Shares of the Company. In conjunction with the acquisition, Arcticor will grant to the Company a warrant with a three year term to acquire from Arcticor up to 5% of the fully diluted partnership units of Arcticor for a nominal amount. After the Company finalizes the fair value analysis supporting the final purchase price allocation, an asset may be recorded in relation to the warrant. | ||
(iv) | Pursuant to the Reorganization Agreement, the Company will acquire all the outstanding units of PLIT by way of a take-over bid and all the outstanding shares of PLMG. As consideration, the Company will issue to the unitholders of PLIT 8,347,612 New Common Shares and to the shareholders of PLMG 1,316,500 New Common Shares. |
See Note 4(i) for a description of the Company’s pro forma indebtedness. |
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THE WESTAIM CORPORATION | 6 |
and for the Year Ended December 31, 2007
(Unaudited)
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS (Continued) | |
Balance Sheet Adjustments (Continued) |
(e) | Immediately prior to the business combination, all outstanding Westaim stock options and restricted share units will be exercised or cancelled. This will result in the issuance of an additional 358,138 common shares for estimated cash proceeds of $77,334. Accrued liabilities have also been increased by $694,380 to reflect the incremental liability in respect of stock based compensation which will be settled in cash. | ||
At June 30, 2008, Westaim had approximately $100 million in tax pools which may be used to offset future taxable income of the Acquisitions following the business combination. After the Company finalizes the fair value analysis supporting the final purchase price allocation, it may conclude that it is more likely than not that a portion of the future income tax asset which is currently offset by a valuation allowance may be realized, at which time a future income tax asset will be recorded accordingly. | |||
(f) | The transaction costs of the business combination are estimated to be approximately $2,500,000, consisting of consulting fees, legal fees, accounting fees, regulatory filing fees, printing and mailing costs of the Circular, and costs of the Special Meeting of the shareholders of the Company. |
Table of Contents
THE WESTAIM CORPORATION | 7 | |
Notes to Pro Forma Consolidated Financial Statements |
and for the Year Ended December 31, 2007
(Unaudited)
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS (Continued) | |
Balance Sheet Adjustments (Continued) |
(g) | In accordance with GAAP, Plumb-Line is deemed to be the acquirer for accounting purposes. The Acquisitions will be accounted for using the purchase method with the purchase price being allocated to the pro forma fair value of the acquired assets and liabilities as follows: |
F&D | Four Star | Asty | ||||||||||||||||||||||
Management | Gravel | Concrete & | The | |||||||||||||||||||||
Services | Contractors | Construction | Nascor | Westaim | ||||||||||||||||||||
Ltd. (1) | Ltd. | Ltd. | Ltd. | Corporation | Total | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Note 4(d)(i) | Note 4(d)(ii) | Note 4(d)(ii) | Note 4(d)(iii) | Note 4(a) & (e) | ||||||||||||||||||||
Cash and cash equivalents | 1,567,410 | 812,237 | — | 1,535,318 | 45,507,027 | 49,421,992 | ||||||||||||||||||
Accounts receivable | 2,878,527 | 2,213,215 | — | 7,018,954 | 3,750,136 | 15,860,832 | ||||||||||||||||||
Inventories and consumables | — | 162,488 | 60,396 | 4,236,424 | 4,031,786 | 8,491,094 | ||||||||||||||||||
Short-term investments | 1,883,829 | — | — | — | — | 1,883,829 | ||||||||||||||||||
Other assets | 45,572 | 36,115 | 66,604 | 344,577 | 376,490 | 869,358 | ||||||||||||||||||
Current assets held for sale | — | — | — | 1,093,440 | — | 1,093,440 | ||||||||||||||||||
Current assets | 6,375,338 | 3,224,055 | 127,000 | 14,228,713 | 53,665,439 | 77,620,545 | ||||||||||||||||||
Accounts payable and accrued liabilities | (3,228,906 | ) | (1,271,075 | ) | (2,000,000 | ) | (1,991,321 | ) | (7,923,654 | ) | (16,414,956 | ) | ||||||||||||
Income taxes payable | (2,535 | ) | (4,454 | ) | — | (1,453,623 | ) | — | (1,460,612 | ) | ||||||||||||||
Current portion of long-term debt | — | (603,370 | ) | — | — | — | (603,370 | ) | ||||||||||||||||
Deferred revenue | — | — | — | (290,484 | ) | — | (290,484 | ) | ||||||||||||||||
Due to related parties | — | — | — | (3,696,740 | ) | — | (3,696,740 | ) | ||||||||||||||||
Due to shareholders | (1,173,001 | ) | — | — | — | — | (1,173,001 | ) | ||||||||||||||||
Current liabilities | (4,404,442 | ) | (1,878,899 | ) | (2,000,000 | ) | (7,432,168 | ) | (7,923,654 | ) | (23,639,163 | ) | ||||||||||||
Working capital acquired | 1,970,896 | 1,345,156 | (1,873,000 | ) | 6,796,545 | 45,741,785 | 53,981,382 | |||||||||||||||||
Due from related parties | — | 258,058 | — | — | — | 258,058 | ||||||||||||||||||
Capital assets | 1,941,440 | 6,463,982 | 1,189,147 | 1,258,928 | 12,236,491 | 23,089,988 | ||||||||||||||||||
Capital assets held for sale | — | — | — | — | 1,048,000 | 1,048,000 | ||||||||||||||||||
Intangible assets | — | — | 2,000,000 | 1,122,000 | 727,483 | 3,849,483 | ||||||||||||||||||
Investments | — | — | — | — | 5,967,500 | 5,967,500 | ||||||||||||||||||
Goodwill | — | — | — | 19,637,187 | — | 19,637,187 | ||||||||||||||||||
Unallocated excess of purchase price over book values | 2,920,997 | 8,397,749 | 19,683,853 | — | — | 31,002,599 | ||||||||||||||||||
Non-current assets | 4,862,437 | 15,119,789 | 22,873,000 | 22,018,115 | 19,979,474 | 84,852,815 | ||||||||||||||||||
Long-term debt | — | (2,114,945 | ) | — | — | — | (2,114,945 | ) | ||||||||||||||||
Deferred revenue | — | — | — | (188,483 | ) | — | (188,483 | ) | ||||||||||||||||
Due to related parties | — | — | — | (14,903,260 | ) | — | (14,903,260 | ) | ||||||||||||||||
Provision for site restoration | — | — | — | — | (6,579,680 | ) | (6,579,680 | ) | ||||||||||||||||
Future income taxes | — | — | — | (270,000 | ) | — | (270,000 | ) | ||||||||||||||||
Non-current liabilities | — | (2,114,945 | ) | — | (15,361,743 | ) | (6,579,680 | ) | (24,056,368 | ) | ||||||||||||||
Non-controlling interest | — | — | — | — | (10,771,904 | ) | (10,771,904 | ) | ||||||||||||||||
Fair value of net assets acquired | 6,833,333 | 14,350,000 | 21,000,000 | 13,452,917 | 48,369,675 | 104,005,925 | ||||||||||||||||||
Purchase price paid: | ||||||||||||||||||||||||
Common shares | 833,333 | 1,750,000 | — | 13,452,917 | 23,643,193 | 39,679,443 | ||||||||||||||||||
Debt | — | 9,000,000 | 21,000,000 | — | — | 30,000,000 | ||||||||||||||||||
Cash | 6,000,000 | 3,600,000 | — | — | — | 9,600,000 | ||||||||||||||||||
Excess of fair value over purchase price | — | — | — | — | 24,726,482 | 24,726,482 | ||||||||||||||||||
Purchase consideration | 6,833,333 | 14,350,000 | 21,000,000 | 13,452,917 | 48,369,675 | 104,005,925 | ||||||||||||||||||
(1) | includes PLMG |
Table of Contents
THE WESTAIM CORPORATION | 8 | |
Notes to Pro Forma Consolidated Financial Statements |
and for the Year Ended December 31, 2007
(Unaudited)
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS (Continued) | |
Balance Sheet Adjustments (Continued) |
(h) | The following table shows a continuity of the common share capital of the Company on a pro forma basis: |
Number | Stated capital | |||||||
Balance at June 30, 2008, unadjusted | 94,214,632 | $ | 426,280,100 | |||||
Stock options and restricted share units exercised (Note 4(e)) | 358,138 | 107,334 | ||||||
Share consolidation | (89,844,132 | ) | — | |||||
Adjustment for reverse take over | — | (426,387,434 | ) | |||||
Share offering, net of issuance costs (Note 4(c)) | 1,250,000 | 14,000,000 | ||||||
Pro forma adjustments for business combination relating to: | ||||||||
Plumb-Line and PLMG (Note 4(d)(iv)) | 9,664,112 | 6,044,005 | ||||||
F&D (Note 4(d)(i)) | 166,667 | 833,333 | ||||||
Four Star (Note 4(d)(ii)) | 350,000 | 1,750,000 | ||||||
Nascor (Note 4(d)(iii)) | 2,690,583 | 13,452,917 | ||||||
Westaim | — | 23,643,193 | ||||||
Other share issuance costs (Note 4(f)) | — | (2,500,000 | ) | |||||
Pro forma balance at June 30, 2008 | 18,850,000 | $ | 57,223,448 | |||||
Table of Contents
THE WESTAIM CORPORATION | 9 | |
Notes to Pro Forma Consolidated Financial Statements |
and for the Year Ended December 31, 2007
(Unaudited)
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS (Continued) | |
Balance Sheet Adjustments (Continued) |
(i) | On July 25, 2008, PLIT entered into a letter agreement with a major financial institution whereby the financial institution has made a commitment to provide credit facilities to Plumb-Line. Pursuant to the terms of the agreement, Plumb-Line may borrow up to $30,000,000 under an acquisition term loan to finance the acquisitions of Four Star and Asty. Monthly repayment of principal, based on a five-year amortization period, commences on April 1, 2009. Any outstanding principal is due at the end of the three year term. The agreement also provides for a revolving operating loan with a $10,000,000 limit and a maturity term of one year. Both loans bear interest at prime plus a margin of between 0.5% to 1.0%. The agreement contains covenants, including financial covenants, and the loans are secured by a general security agreement with the assets of Con-Forte, Four Star and Asty. | ||
Prior to the acquisition of Nascor, Arcticor converted certain indebtedness owed by Nascor to Arcticor into additional share capital of Nascor. Following the Company’s acquisition of Nascor, Nascor will continue to owe $18,600,000 to Arcticor. The debt matures in March 2013, bears interest at a blended rate of 10.5% and is secured by the assets of Nascor. Principal repayment is approximately $450,000 per quarter and will increase to approximately $1,075,000 per quarter commencing March, 2009. |
Table of Contents
THE WESTAIM CORPORATION | 10 | |
Notes to Pro Forma Consolidated Financial Statements |
and for the Year Ended December 31, 2007
(Unaudited)
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS (Continued) | |
Statement of Operations Adjustments for the six months ended June 30, 2008 |
(j) | The following reflects the constructed unaudited consolidated statement of operations of F&D for the six months ended May 31, 2008: |
Three months | Three months | Six months | ||||||||||||||
ended | ended | ended | ||||||||||||||
February 29, 2008 | May 31, 2008 | May 31, 2008 | ||||||||||||||
(1) | (2) | (1) + (2) | ||||||||||||||
$ | $ | $ | ||||||||||||||
Revenue | 2,354,444 | 2,858,260 | 5,212,704 | |||||||||||||
Direct costs | 1,546,210 | 1,771,370 | 3,317,580 | |||||||||||||
808,234 | 1,086,890 | 1,895,124 | ||||||||||||||
Expenses | ||||||||||||||||
General and adminstrative | 14,734 | 90,506 | 105,240 | |||||||||||||
Management salaries and bonuses | 506,026 | 853,500 | 1,359,526 | |||||||||||||
Depreciation and amortization | 37,231 | 35,000 | 72,231 | |||||||||||||
Net interest income | (47,706 | ) | (21,541 | ) | (69,247 | ) | ||||||||||
Income before income taxes | 297,949 | 129,425 | 427,374 | |||||||||||||
Income taxes | ||||||||||||||||
Current | 62,210 | 27,000 | 89,210 | |||||||||||||
Future | — | — | — | |||||||||||||
62,210 | 27,000 | 89,210 | ||||||||||||||
Net income for the period | 235,739 | 102,425 | 338,164 | |||||||||||||
Table of Contents
THE WESTAIM CORPORATION | 11 | |
Notes to Pro Forma Consolidated Financial Statements |
and for the Year Ended December 31, 2007
(Unaudited)
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS (Continued) | |
Statement of Operations Adjustments for the six months ended June 30, 2008 (Continued) |
(k) | The following reflects the constructed unaudited statement of operations of Asty for the six months ended July 31, 2008: |
Three months | Three months | Six months | ||||||||||||||
ended | ended | ended | ||||||||||||||
April 30, 2008 | July 31, 2008 | July 31, 2008 | ||||||||||||||
(1) | (2) | (1) + (2) | ||||||||||||||
$ | $ | $ | ||||||||||||||
Revenue | 64,447 | 9,876,086 | 9,940,533 | |||||||||||||
Direct costs | 829,273 | 7,022,606 | 7,851,879 | |||||||||||||
(764,826 | ) | 2,853,480 | 2,088,654 | |||||||||||||
Expenses | ||||||||||||||||
General and adminstrative | 495,686 | 207,203 | 702,889 | |||||||||||||
Management salaries and bonuses | 3,472,000 | 2,134,000 | 5,606,000 | |||||||||||||
Depreciation and amortization | 157,030 | 102,300 | 259,330 | |||||||||||||
Net interest expense | 1,116 | 6,888 | 8,004 | |||||||||||||
(Loss) income before income taxes | (4,890,658 | ) | 403,089 | (4,487,569 | ) | |||||||||||
Income taxes | ||||||||||||||||
Current | — | 27,912 | 27,912 | |||||||||||||
Future | 56,822 | 26,463 | 83,285 | |||||||||||||
56,822 | 54,375 | 111,197 | ||||||||||||||
Net (loss) income for the period | (4,947,480 | ) | 348,714 | (4,598,766 | ) | |||||||||||
Table of Contents
THE WESTAIM CORPORATION | 12 | |
Notes to Pro Forma Consolidated Financial Statements |
and for the Year Ended December 31, 2007
(Unaudited)
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS (Continued) | |
Statement of Operations Adjustments for the six months ended June 30, 2008 (Continued) |
(l) | The following reflects the constructed unaudited statement of operations of Nascor for the six months ended June 30, 2008: |
Eigth months | Five months | Three months | Six months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
March 31, 2008 | December 22, 2007 | June 30, 2008 | June 30, 2008 | |||||||||||||
(1) | (2) | (3) | (1) - (2) + (3) | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenue | 43,787,128 | 32,334,166 | 10,885,093 | 22,338,055 | ||||||||||||
Direct costs | 29,211,790 | 21,661,476 | 7,124,089 | 14,674,403 | ||||||||||||
14,575,338 | 10,672,690 | 3,761,004 | 7,663,652 | |||||||||||||
Expenses | ||||||||||||||||
General and adminstrative | 7,620,713 | 5,032,569 | 1,930,102 | 4,518,246 | ||||||||||||
Management salaries and bonuses | 1,353,159 | 962,709 | 1,218,159 | 1,608,609 | ||||||||||||
Depreciation and amortization | 351,238 | 228,807 | 141,764 | 264,195 | ||||||||||||
Net interest expense | 724,932 | 442,039 | 988,970 | 1,271,863 | ||||||||||||
Foreign exchange loss | 29,632 | 29,632 | — | — | ||||||||||||
Income (loss) before income taxes | 4,495,664 | 3,976,934 | (517,991 | ) | 739 | |||||||||||
Income taxes | ||||||||||||||||
Current | 1,466,142 | 1,324,968 | (135,000 | ) | 6,174 | |||||||||||
Future | — | — | — | — | ||||||||||||
1,466,142 | 1,324,968 | (135,000 | ) | 6,174 | ||||||||||||
Net income (loss) for the period | 3,029,522 | 2,651,966 | (382,991 | ) | (5,435 | ) | ||||||||||
Table of Contents
THE WESTAIM CORPORATION | 13 | |
Notes to Pro Forma Consolidated Financial Statements |
and for the Year Ended December 31, 2007
(Unaudited)
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS (Continued) | |
Statement of Operations Adjustments for the twelve months ended December 31, 2007 |
(m) | The following reflects the constructed unaudited consolidated statement of operations of Plumb-Line for the twelve months ended December 31, 2007: |
Fifteen months | Three months | Twelve months | ||||||||||||||
ended | ended | ended | ||||||||||||||
December 31, 2007 | December 31, 2006 | December 31, 2007 | ||||||||||||||
(1) | (2) | (1) - (2) | ||||||||||||||
$ | $ | $ | ||||||||||||||
Revenue | 45,831,212 | 6,509,977 | 39,321,235 | |||||||||||||
Direct costs | 36,817,305 | 4,841,563 | 31,975,742 | |||||||||||||
9,013,907 | 1,668,414 | 7,345,493 | ||||||||||||||
Expenses | ||||||||||||||||
General and adminstrative | 3,666,836 | 273,787 | 3,393,049 | |||||||||||||
Management salaries and bonuses | 215,585 | 95,585 | 120,000 | |||||||||||||
Contribution to employee profit sharing plan | 307,000 | — | 307,000 | |||||||||||||
Depreciation and amortization | 90,669 | 5,008 | 85,661 | |||||||||||||
Net interest expense | 183,481 | 28,313 | 155,168 | |||||||||||||
Foreign exchange loss | 49,146 | — | 49,146 | |||||||||||||
Other expense (income) | 48,714 | 50,425 | (1,711 | ) | ||||||||||||
Takeover costs | 778,197 | — | 778,197 | |||||||||||||
Income before income taxes | 3,674,279 | 1,215,296 | 2,458,983 | |||||||||||||
Income taxes | ||||||||||||||||
Current | 105,355 | 34,517 | 70,838 | |||||||||||||
Future | — | — | — | |||||||||||||
105,355 | 34,517 | 70,838 | ||||||||||||||
Net income for the period | 3,568,924 | 1,180,779 | 2,388,145 | |||||||||||||
Table of Contents
THE WESTAIM CORPORATION | 14 | |
Notes to Pro Forma Consolidated Financial Statements |
and for the Year Ended December 31, 2007
(Unaudited)
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS (Continued) | |
Statement of Operations Adjustments for the twelve months ended December 31, 2007 (Continued) |
(n) | The following reflects the constructed unaudited statement of operations of Asty for the twelve months ended January 31, 2008: |
Twelve months | Three months | Three months | Twelve months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
April 30, 2008 | April 30, 2008 | April 30, 2007 | January 31, 2008 | |||||||||||||
(1) | (2) | (3) | (1) - (2) + (3) | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenue | 29,442,148 | 64,447 | 554,294 | 29,931,995 | ||||||||||||
Direct costs | 20,600,245 | 829,273 | 939,683 | 20,710,655 | ||||||||||||
8,841,903 | (764,826 | ) | (385,389 | ) | 9,221,340 | |||||||||||
Expenses | ||||||||||||||||
General and adminstrative | 1,089,908 | 495,686 | 256,322 | 850,544 | ||||||||||||
Management salaries and bonuses | 6,474,000 | 3,472,000 | 4,173,000 | 7,175,000 | ||||||||||||
Depreciation and amortization | 387,232 | 157,030 | 132,934 | 363,136 | ||||||||||||
Net interest expense (income) | 25,255 | 1,116 | (2,275 | ) | 21,864 | |||||||||||
Income (loss) before income taxes | 865,508 | (4,890,658 | ) | (4,945,370 | ) | 810,796 | ||||||||||
Income taxes | ||||||||||||||||
Current | 59,932 | — | — | 59,932 | ||||||||||||
Future | 56,822 | 56,822 | 97,657 | 97,657 | ||||||||||||
116,754 | 56,822 | 97,657 | 157,589 | |||||||||||||
Net income (loss) for the period | 748,754 | (4,947,480 | ) | (5,043,027 | ) | 653,207 | ||||||||||
Table of Contents
THE WESTAIM CORPORATION | 15 | |
Notes to Pro Forma Consolidated Financial Statements |
and for the Year Ended December 31, 2007
(Unaudited)
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS (Continued) | |
Statement of Operations Adjustments for the twelve months ended December 31, 2007 (Continued) |
(o) | The following reflects the constructed unaudited statement of operations of Nascor for the twelve months ended December 31, 2007: |
Twelve months | Five months | Five months | Twelve months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
July 28, 2007 | December 23, 2006 | December 22, 2007 | December 22, 2007 | |||||||||||||
(1) | (2) | (3) | (1) - (2) + (3) | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenue | 71,176,455 | 28,843,392 | 32,334,166 | 74,667,229 | ||||||||||||
Direct costs | 47,359,221 | 20,297,529 | 21,661,476 | 48,723,168 | ||||||||||||
23,817,234 | 8,545,863 | 10,672,690 | 25,944,061 | |||||||||||||
Expenses | ||||||||||||||||
General and adminstrative | 10,476,830 | 3,543,325 | 5,032,569 | 11,966,074 | ||||||||||||
Management salaries and bonuses | 4,670,723 | 1,149,293 | 962,709 | 4,484,139 | ||||||||||||
Depreciation and amortization | 609,887 | 243,668 | 228,807 | 595,026 | ||||||||||||
Net interest expense | 1,840,899 | 534,787 | 442,039 | 1,748,151 | ||||||||||||
Foreign exchange (gain) loss | (7,244 | ) | 7,077 | 29,632 | 15,311 | |||||||||||
Income before income taxes | 6,226,139 | 3,067,713 | 3,976,934 | 7,135,360 | ||||||||||||
Income taxes | ||||||||||||||||
Current | 2,076,024 | 1,022,889 | 1,324,968 | 2,378,103 | ||||||||||||
Future | — | — | — | — | ||||||||||||
2,076,024 | 1,022,889 | 1,324,968 | 2,378,103 | |||||||||||||
Net income for the period | 4,150,115 | 2,044,824 | 2,651,966 | 4,757,257 | ||||||||||||
Table of Contents
THE WESTAIM CORPORATION | 16 | |
Notes to Pro Forma Consolidated Financial Statements |
and for the Year Ended December 31, 2007
(Unaudited)
4. | PRO FORMA TRANSACTIONS AND ASSUMPTIONS (Continued) | |
Statement of Operations Adjustments for the twelve months ended December 31, 2007 (Continued) |
(p) | The operations of iFire, which have been accounted for on a discontinued basis, have been eliminated as a pro forma adjustment as a result of the expected sale of its assets in the fourth quarter of 2008 (see Note 4(a)). | ||
(q) | The operations of A&K have been removed as a pro forma adjustment as a result of the spin-out of A&K as contemplated in the Reorganization Agreement (see Note 4(b)). | ||
(r) | Intercompany transactions among the acquired businesses have been eliminated. | ||
(s) | Real property included in the capital assets of F&D and Four Star has been adjusted to estimated fair value (see Notes 4(d)(i) and (ii)). The incremental depreciation expense associated with the adjustment of $57,461 and $114,921 has been provided for in the pro forma consolidated statements of operations for the six months ended June 30, 2008 and for the twelve months ended December 31, 2007, respectively. | ||
Amortization expense of the intangible asset associated with the non-compete covenant of former shareholders of Asty (see Note 4(d)(ii)) of $333,333 and $666,667 has been provided for in the pro forma consolidated statements of operations for the six months ended June 30, 2008 and for the twelve months ended December 31, 2007, respectively. | |||
(t) | The estimated additional interest expense with respect to the financing of the Acquisitions, including the ongoing interest obligations to the former parent of Nascor, has been adjusted in the pro forma consolidated statements of operations. |
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SHARE OPTION PLAN
(a) | “Black-Out Period”means the period of time when, pursuant to any policies of the Corporation, any securities of the Corporation may not be traded by certain persons as designated by the Corporation, including any holder of an Option; | ||
(b) | “Board”means the board of directors of the Corporation as constituted from time to time; | ||
(c) | “business day”means a day other than a Saturday, Sunday or other day when banks in the City of Calgary, Alberta are generally not open for business; | ||
(d) | “Change of Control” means: |
(i) | a successful takeover bid; or | ||
(ii) | (A) any change in the beneficial ownership or control of the outstanding securities or other interests of the Corporation which results in: |
(I) | a person or group of persons “acting jointly or in concert” (as defined in MI 62-104, as amended from time to time); or | ||
(II) | an affiliate or associate of such person or group of persons; |
holding, owning or controlling, directly or indirectly, more than 30% of the outstanding voting securities or interests of the Corporation; and | |||
(B) | members of the Board who are members of the Board immediately prior to the earlier of such change and the first public announcement of such change cease to constitute a majority of the Board at any time within sixty days of such change; or |
(iii) | Incumbent Directors no longer constituting a majority of the Board; or | ||
(iv) | the winding up of the Corporation or the sale, lease or transfer of all or substantially all of the directly or indirectly held assets of the Corporation to any other person or persons (other than pursuant to an internal reorganization or in circumstances where the business of the Corporation is continued and where the shareholdings or other securityholdings, as the case may be, in the continuing entity and the constitution of the board of directors or similar body of the continuing entity is such that the transaction would not be considered a “Change of Control” if paragraph (d)(ii) above was applicable to the transaction); or |
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(v) | any determination by a majority of the Board that a Change of Control has occurred or is about to occur and any such determination shall be binding and conclusive for all purposes of the Plan; |
(e) | “Common Shares”means the common shares of the Corporation or, in the event of an adjustment contemplated by Article 11 hereof, such other Common Shares to which an Optionee may be entitled upon the exercise of an Option as a result of such adjustment; | ||
(f) | “Committee”means a special committee of the Board appointed from time to time by the Board to administer the Plan or, if no such committee is appointed, the Board; | ||
(g) | “Corporation”means Peer Construction Group Inc., and includes any successor corporation thereof; | ||
(h) | “Exchange”means the TSX or, if the Common Shares are not then listed and posted for trading on the TSX, such stock exchange on which such Common Shares are listed and posted for trading as may be selected for such purpose by the Board; | ||
(i) | “Fair Market Value”with respect to a Common Share, as at any date, means the weighted average of the prices at which the Common Shares traded on the TSX (or, if the Common Shares are not then listed and posted for trading on the TSX or are then listed and posted for trading on more than one stock exchange, on such stock exchange on which the majority of the trading volume and value of the Common Shares occurs) for the five (5) trading days on which the Common Shares traded on the said exchange immediately preceding such date. In the event that the Common Shares are not listed and posted for trading on any stock exchange, the Fair Market Value shall be the fair market value of the Common Shares as determined by the Board in its sole discretion, acting reasonably and in good faith; | ||
(j) | “Incumbent Directors”means any member of the Board who was a member of the Board at the effective date of the Plan and any successor to an Incumbent Director who was recommended or elected or appointed to succeed any Incumbent Director by the affirmative vote of the Board, including a majority of the Incumbent Directors then on the Board, prior to the occurrence of the transaction, transactions, elections or appointments giving rise to a Change of Control; | ||
(k) | “Insider”, “associate”and“affiliate”each have the meaning ascribed thereto in Part VI of the Company Manual of the TSX, as amended from time to time; | ||
(1) | “Market Price”means the last closing price of the Common Shares on the TSX preceding the time of grant; | ||
(m) | “MI 62-104”meansMultilateral Instrument 62-104 Take-Over Bids and Issuer Bids; | ||
(n) | “Option”means an option to purchase Common Shares granted pursuant to the provisions hereof; | ||
(o) | “Option Agreement”has the meaning ascribed thereto in Article 17 hereof; | ||
(p) | “Optionees”means persons to whom Options are granted and which Options, or a portion thereof, remain unexercised; | ||
(q) | “Plan”means this share option plan of the Corporation, as the same may be amended or varied from time to time; | ||
(r) | “Security Based Compensation Arrangements”has the meaning ascribed thereto in Part VI of the Company Manual of the TSX, as amended from time to time; | ||
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(s) | “Service Provider”means a director, officer, employee and a person or company engaged by the Corporation to provide services for an initial, renewable or extended period of twelve months or more; | ||
(t) | “takeover bid” means a “take-over bid” as defined in MI 62-104, as amended from time to time, pursuant to which the “offeror” would as a result of such takeover bid, if successful, beneficially own, directly or indirectly, in excess of 50% of the outstanding Common Shares; and | ||
(u) | “TSX” means the Toronto Stock Exchange. |
(a) | the maximum number of Common Shares issuable on exercise of outstanding Options at any time shall be limited to 10.0% of the aggregate number of issued and outstanding Common Shares, less the number of Common Shares issuable pursuant to all other Security Based Compensation Arrangements; | ||
(b) | the number of Common Shares reserved for issuance to any one Optionee will not exceed 5% of the issued and outstanding Common Shares; | ||
(c) | the number of Common Shares issuable to Insiders, at any time, under all Security Based Compensation Arrangements, shall not exceed 10% of the issued and outstanding Common Shares; | ||
(d) | the number of Common Shares issued to Insiders, within any one year period, under all Security Based Compensation Arrangements, shall not exceed 10% of the issued and outstanding Common Shares; and | ||
(e) | the maximum number of Common Shares issuable on exercise of Options outstanding at any time held by directors of the Corporation who are not officers or employees of the Corporation shall be limited to 1% of the issued and outstanding Common Shares. |
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(a) | upon the death of the Optionee, the Option shall terminate on the date determined by the Committee which shall not be more than twelve (12) months from the date of death and, in the absence of any determination to the contrary, will be six (6) months from the date of death; | ||
(b) | if the Optionee shall no longer be a director or officer of or be in the employ of, or consultant or other Service Provider to, either the Corporation or a subsidiary of the Corporation (other than by reason of death or termination for cause), the Option shall terminate on the expiry of the period not in excess of six (6) months as prescribed by the Committee at the time of grant, following the date that the Optionee ceases to be a director or officer of, or an employee of or a consultant or other Service Provider to, either the Corporation or a subsidiary of the Corporation and, in the absence of any determination to the contrary, will terminate ninety (90) days following the date that the Optionee ceases to be a director or officer of, or an employee of or a consultant or other Service Provider to, the Corporation or any subsidiary of the Corporation; and | ||
(c) | if the Optionee shall no longer be a director or officer of or be in the employ of, or consultant or other Service Provider to, either the Corporation or a subsidiary of the Corporation by reason of termination for cause, the Option shall terminate immediately on such termination for cause (whether notice of such termination occurs verbally or in writing); |
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(a) | of any change in the Common Shares through subdivision, consolidation, reclassification, amalgamation, merger or otherwise; or | ||
(b) | that any rights are granted to shareholders to purchase Common Shares at prices substantially below Fair Market Value; or | ||
(c) | that, as a result of any recapitalization, merger, consolidation or other transaction, the Common Shares are converted into or exchangeable for any other securities; |
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(a) | one year from the date hereof the right to purchase one-quarter (1/4) of the Optioned Shares (rounded to the nearest full share) or• common shares shall vest in the Optionee and shall be exercisable thereafter on the terms and conditions set forth herein; | ||
(b) | two years from the date hereof the right to purchase an additional one-quarter (1/4) of the Optioned Shares (rounded to the nearest full share) or an additional• common shares shall vest in the Optionee and shall be exercisable thereafter on the terms and conditions set forth herein; | ||
(c) | three years from the date hereof the right to purchase an additional one-quarter (1/4) of the Optioned Shares (rounded to the nearest full share) or an additional• common shares shall vest in the Optionee and shall be exercisable thereafter on the terms and conditions set forth herein; and | ||
(d) | four years from the date hereof the right to purchase the balance of the Optioned Shares or an additional• common shares shall vest in the Optionee and shall be exercisable thereafter on the terms and conditions set forth herein. |
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Peer Construction Group Inc. | ||||
Per: | ||||
SIGNED, SEALED AND DELIVERED in the | ||||
presence of: | ||||
Witness | • |
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EFFECTIVE DECEMBER 1, 2008
DEFINITIONS AND INTERPRETATION
(a) | “Account”means an account maintained by the Plan Administrator for each Participant and which will be credited with RSUs in accordance with the terms of the Plans; |
(b) | “Award Date”means the date or dates on which an award of RSUs is made to a Participant in accordance with section 4.2 or 5.2; |
(c) | “Basic Administration Expenses”, as determined in the Board’s sole discretion, may include, but shall not be limited to, expenses incurred in connection with the establishment and tracking of Accounts and the preparation and distribution of Account statements, ancillary administration costs, fees and expenses payable pursuant to the terms of any agreement or agreements executed from time to time between the Corporation and either the Trustee or the Plan Administrator, any brokerage fees or commissions applicable to the purchase of Shares to be delivered to Participants following the vesting of RSUs granted under the Market Plan, and any fees of the Corporation’s transfer agent incurred in connection with the issuance or transfer of Shares under the Plans; |
(d) | “Board”means the board of directors of the Corporation as constituted from time to time; | |
(e) | “Change of Control” means: |
(i) | a successful takeover bid; or | ||
(ii) | (A) any change in the beneficial ownership or control of the outstanding securities or other interests of the Corporation which results in: |
(I) | a person or group of persons “acting jointly or in concert” (as defined in MI 62-104); or | ||
(II) | an affiliate or associate of such person or group of persons; |
holding, owning or controlling, directly or indirectly, more than 30% of the outstanding voting securities or interests of the Corporation; and | |||
(B) | members of the Board who are members of the Board immediately prior to the earlier of such change and the first public announcement of such change cease to constitute a majority of the Board at any time within sixty days of such change; or |
(iii) | Incumbent Directors no longer constituting a majority of the Board; or | ||
(iv) | the winding up of the Corporation or the sale, lease or transfer of all or substantially all of the directly or indirectly held assets of the Corporation to any other person or persons (other than pursuant to an internal reorganization or in circumstances where the business of the Corporation is continued and where the shareholdings or other securityholdings, as the case may be, in the continuing entity and the constitution of the board of directors or similar body of the continuing |
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entity is such that the transaction would not be considered a “Change of Control” if paragraph (e)(ii) above was applicable to the transaction); or | |||
(v) | any determination by a majority of the Board that a Change of Control has occurred or is about to occur and any such determination shall be binding and conclusive for all purposes of the Plans; |
(f) | “Committee”has the meaning ascribed thereto in section 2.4; |
(g) | “Company Contributions”means the cash contributions made to the Trustee from time to time by the Corporation for purposes of allowing the Trustee to purchase Shares through the facilities of an Exchange, as contemplated in section 4.5; | |
(h) | “Corporation”means Peer Construction Group Inc., and includes any successor entity thereto; | |
(i) | “Director”means a person who is a director of the Corporation; | |
(j) | “Dividend Equivalent”means a bookkeeping entry whereby each RSU is credited with the equivalent amount of the dividend paid on a Share in accordance with section 4.3 or 5.3, as applicable; | |
(k) | “Dividend Market Value”means the Fair Market Value per Share on the dividend record date; | |
(1) | “Employee” means an employee of the Corporation, other than seasonal and contract employees and independent contractors, and who is not a Director of the Corporation; | |
(m) | “Exchange”means the TSX or any other stock exchange on which Shares are listed and posted for trading, as applicable; | |
(n) | “Fair Market Value”with respect to a Share, as at any date, means the weighted average of the prices at which the Shares traded on the TSX (or, if the Shares are not then listed and posted for trading on the TSX or are then listed and posted for trading on more than one stock exchange, on such stock exchange on which the majority of the trading volume and value of the Shares occurs) for the five (5) trading days on which the Shares traded on the said exchange immediately preceding such date. In the event that the Shares are not listed and posted for trading on any stock exchange, the Fair Market Value shall be the fair market value of the Shares as determined by the Board in its sole discretion, acting reasonably and in good faith. | |
(o) | “Forfeited RSU” means a RSU that relates to an award of RSUs that does not vest and is forfeited by a Participant pursuant to section 6.4 or 6.6, as applicable; | |
(p) | “Forfeiture Date”means the date, as determined by the Board, on which a Participant: |
(i) | resigns from employment with the Corporation as contemplated in section 6.4 and“Forfeiture Date”in such circumstances specifically does not mean the date on which any period of reasonable notice that the Corporation may be required at law to provide to the Participant, would expire; or | ||
(ii) | is terminated as contemplated in section 6.6 and, except as specifically provided in section 6.6,“Forfeiture Date”specifically does not mean the date on which any statutory or common law severance period or any period of reasonable notice that the Corporation may be required at law to provide to the Participant, would expire; |
(q) | “Incumbent Directors”means any member of the Board who was a member of the Board at the effective date of the Plans and any successor to an Incumbent Director who was recommended or elected or appointed to succeed any Incumbent Director by the affirmative vote of the Board, including a majority of |
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the Incumbent Directors then on the Board, prior to the occurrence of the transaction, transactions, elections or appointments giving rise to a Change of Control; | ||
(r) | “Insider”, “associate”and“affiliate”each have the meaning ascribed thereto in Part VI of the Company Manual of the TSX, as amended from time to time; | |
(s) | “Market Plan”means the Restricted Share Unit Plan established by the Corporation under Article 4 and pursuant to which Shares are purchased by the Trustee through the facilities of an Exchange and held by the Trustee in the Market Plan Trust Fund pending delivery to Participants following the vesting of corresponding RSUs; | |
(t) | “Market Plan Trust Fund”means the assets held by the Trustee pursuant to the Market Plan, as more fully set out in section 4.7; | |
(u) | “MI 62-104”meansMultilateral Instrument 62-104 Take-Over Bids and Issuer Bids,as amended from time to time; | |
(v) | “Options”means options to purchase Shares granted under the Corporation’s Share Option Plan, as amended from time to time; | |
(w) | “Participant”means a Service Provider determined to be eligible to participate in the Plans in accordance with section 3.1 and, where applicable, a former Service Provider deemed eligible to continue to participate in the Plans in accordance with section 6.5 or 6.6; | |
(x) | “Plans”means the Market Plan and the Treasury Plan; | |
(y) | “Plan Administrator”means the Corporation acting in its capacity as administrator of the Plans or any third party service provider, if any, retained from time to time by the Corporation to perform certain of the administrative functions of the Plans as delegated by the Board in accordance with section 2.4; | |
(z) | “Retirement”means the retirement of a Participant at normal retirement age or earlier in accordance with the then policies and practices of the Corporation or as otherwise approved by the Board, and“Retire”has a corresponding meaning; | |
(aa) | “RSU”means a unit equivalent in value to a Share credited by means of a bookkeeping entry in the Participants’ Accounts; | |
(bb) | “RSU Agreement”has the meaning set forth in section 3.2; | |
(cc) | “Security Based Compensation Arrangements”has the meaning ascribed thereto in Part VI of the Company Manual of the TSX, as amended from time to time; | |
(dd) | “Service Provider”means a director, officer, employee (including an Employee) of the Corporation or its subsidiaries and a person or company engaged by the Corporation or a subsidiary to provide services for an initial, renewable or extended period of twelve months or more; | |
(ee) | “Share”means a common share of the Corporation; | |
(ff) | “takeover bid”means a “take-over bid” as defined in MI 62-104 pursuant to which the “offeror” would as a result of such takeover bid, if successful, beneficially own, directly or indirectly, in excess of 50% of the outstanding Shares; | |
(gg) | “Treasury Plan”means the Restricted Share Unit Plan established by the Corporation under Article 5 and pursuant to which Shares are issued to Participants by the Corporation from treasury following the vesting of corresponding RSUs; |
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(hh) | “Trustee”means such trustee or trustees from time to time appointed for purposes of the Market Plan pursuant to section 4.11; and |
(ii) | “TSX” means the Toronto Stock Exchange. |
PURPOSE AND ADMINISTRATION OF THE PLANS
2.1 | Purpose |
(a) | interpret and construe any provision hereof and decide all questions of fact arising in their interpretation; | |
(b) | adopt, amend, suspend and rescind such rules and regulations for administration of the Plans as the Board may deem necessary in order to comply with the requirements of the Plans, or in order to conform to any law or regulation or to any change in any laws or regulations applicable thereto; | |
(c) | determine the individuals to whom RSUs may be awarded; | |
(d) | award such RSUs on such terms and conditions as it determines including, without limitation: the time or times at which RSUs may be awarded; the time or times when each RSU becomes exercisable and the term of the RSU; whether restrictions or limitations are to be imposed on the Shares issued pursuant to an RSU and the nature of such restrictions or limitations, if any; any acceleration or waiver of termination or forfeiture regarding any RSU, based on such factors as the Board may determine; | |
(e) | take any and all actions permitted by the Plans; and | |
(f) | make any other determinations and take such other action in connection with the administration of the Plans that it deems necessary or advisable. |
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(a) | The Board may, from time to time, amend the terms set out herein or suspend the Plans in whole or in part and may at any time terminate the Plans without prior notice. However, except as expressly set forth herein, no such amendment, suspension, or termination may adversely affect RSUs credited to the Participants’ Accounts at the time of such amendment, suspension, or termination without the consent of the affected Participant(s). In addition, the Board may, by resolution, amend the Plans and any RSU, without shareholder approval, provided however, that the Board will not be entitled to amend the Treasury Plan without Exchange and shareholder approval: (i) to increase the maximum number of Shares issuable pursuant to the Treasury Plan; (ii) to extend the term of an RSU under the Treasury Plan held by an Insider; or (iii) in any other circumstances where Exchange and shareholder approval is required by the Exchange. |
(b) | Without limitation of paragraph 2.6(a), the Board may correct any defect or supply any omission or reconcile any inconsistency in the Plans in the manner and to the extent deemed necessary or desirable, may establish, amend, and rescind any rules and regulations relating to the Plans, and may make such determinations as it deems necessary or desirable for the administration of the Plans. |
(c) | No amendment, change or modification shall be made to the Market Plan that will alter the duties of the Trustee without the Trustee’s written consent. |
(d) | On termination of a Plan, any outstanding awards of RSUs under such Plan shall immediately vest and the number of Shares corresponding to the RSUs that have been awarded shall be delivered to the Participant in accordance with sections 4.9 and 5.7, as applicable. The Plans will finally cease to operate for all purposes when the last remaining Participant receives delivery of all Shares corresponding to RSUs credited to the Participant’s Account and any Shares held in the Market Plan Trust Fund corresponding to any Forfeited RSUs are sold by the Trustee in accordance with section 6.8. |
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ELIGIBILITY AND PARTICIPATION IN THE PLANS
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THE MARKET PLAN
(a) | Subject to Article 6, an award of RSUs under the Market Plan shall vest in accordance with the terms specified in the Participant’s RSU Agreement. The vesting provisions in any RSU Agreement will be determined either by the Board, or the Committee if delegated by the Board to do so, each in its sole discretion; provided that unless forfeited prior to such date, all awards of RSUs under the Market Plan shall vest no later than December 15 of the third calendar year following the Award Date of the corresponding RSU, or such later date as may be permitted by applicable income tax laws. |
(b) | For greater certainty, the vesting of RSUs may be determined from time to time by the Board, or the Committee if so delegated by the Board, to include criteria such as, but not limited to: |
(i) | time vesting, in which a Share is not delivered to a Participant until the Participant has held the corresponding RSU for a specified period of time; and | ||
(ii) | performance vesting, in which the number of Shares to be delivered to a Participant for each RSU that vests may fluctuate based upon the Corporation’s performance and/or the market price of the Shares, in such manner as determined by the Board or, if so delegated, the Committee, in their sole discretion. |
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THE TREASURY PLAN
(a) | Subject to Article 6, an award of RSUs under the Treasury Plan shall vest in accordance with the terms specified in the Participant’s RSU Agreement. The vesting provisions in any RSU Agreement will be determined by the Board, or the Committee if delegated by the Board to do so, each in its sole discretion. |
(b) | For greater certainty, the vesting of RSUs may be determined from time to time by the Board or the Committee if so delegated by the Board, to include criteria such as, but not limited to: |
(i) | time vesting, in which a Share is not delivered to a Participant until the Participant has held the corresponding RSU for a specified period of time; and | ||
(ii) | performance vesting, in which the number of Shares to be delivered to a Participant for each RSU that vests may fluctuate based upon the Corporation’s performance and/or the market price of the |
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Shares, in such manner as determined by the Board or, if so delegated, the Committee, in their sole discretion. |
(a) | the number of Shares reserved for issuance to any one individual shall not exceed 5% of the issued and outstanding Shares; |
(b) | the number of Shares reserved for issuance under all Security Based Compensation Arrangements granted to Insiders shall not exceed 10% of the issued and outstanding Shares; and |
(c) | the number of Shares that may be issued to Insiders within any one-year period under all Security Based Compensation Arrangements shall not exceed 10% of the issued and outstanding Shares. |
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ACCELERATED VESTING AND FORFEITURE
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(a) | In the event that a divestiture of a business unit (including a divestiture by sale, closure or outsourcing) of the Corporation results in the termination of a Participant’s term as an officer, director or employee of the Corporation and such Participant becomes a director, officer or employee of the person acquiring or operating such business unit, the Board may: |
(i) | accelerate the vesting of all or any portion of a Participant’s RSUs; or | ||
(ii) | determine that such Participant shall continue to be a Participant for the purposes of the Plan, but subject to such terms and conditions (including vesting), if any, established by the Board in its sole discretion. |
(b) | In the event that a divestiture of a business unit (including a divestiture by sale, closure or outsourcing) of the Corporation results in the termination of employment of a Participant and such Participant is not offered another directorship, office or employment with the Corporation or a subsidiary of the Corporation, or with |
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the entity to whom the divestiture is made (or any affiliate thereof), then the provisions of section 6.6 shall apply. |
(a) | Upon the Corporation entering into an agreement relating to, or otherwise becoming aware of, a transaction which, if completed, would result in a Change of Control, the Corporation shall give written notice of the proposed transaction to the Participants not less than ten days prior to the closing of the transaction resulting in the Change of Control. |
(b) | Upon the occurrence of a Change of Control, all outstanding RSUs shall vest and become conditionally exercisable upon (or immediately prior to) the completion of the transaction resulting in the Change of Control. If any of such RSUs are not exercised on or prior to completion of the transaction resulting in the Change of Control, such unexercised RSUs shall terminate and expire upon the completion of the transaction resulting in the Change of Control. If, for any reason, the transaction, which would result in the Change of Control, is not completed, the acceleration of the vesting of the RSUs shall be retracted and vesting shall instead revert to the manner provided in the Plan and the RSU Agreement. |
GENERAL
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(a) | Nothing in this document or in the opportunity to participate in the Plans shall confer upon any Participant any right to continued employment with the Corporation nor shall interfere in any way with the right of the Corporation to terminate the Participant’s employment at any time. |
(b) | Nothing in this document or in the opportunity to participate in the Plans shall be construed to provide the Participant with any rights whatsoever to participate or to continue participation in the Plans, or to compensation or damages in lieu of participation or the right to participate in the Plans upon the termination of the Participant’s employment for any reason whatsoever. |
(c) | A Participant shall not be entitled to any right to participate or to continue to participate in the Plans or to compensation or damages in lieu of participation or the right to participate in the Plans in consequence of the termination of his employment with the Corporation for any reason (including, without limitation, any breach of contract by the Corporation or in consequence of any other circumstances whatsoever). |
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