DMR FOOD CORPORATION |
(O/A SWEET SELECTION) |
Balance Sheets |
As of December 31, 2006 |
(Expressed in Canadian dollars) |
December 31, 2006 | September 30, 2006 | |||||
(Unaudited) | (Audited) | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | - | $ | - | ||
Accounts receivable | 647,166 | 431,273 | ||||
Inventories | 562,737 | 525,793 | ||||
Prepaid expenses and sundry assets | 47,405 | 47,068 | ||||
Advance to related corporation | 26,916 | 40,744 | ||||
1,284,224 | 1,044,878 | |||||
Property, plant and equipment (note 8) | 337,361 | 121,946 | ||||
$ | 1,621,585 | $ | 1,166,824 | |||
Liabilities and Shareholders’ Equity | ||||||
Liabilities | ||||||
Current | ||||||
Bank indebtedness | $ | 258,347 | $ | 197,795 | ||
Accounts payable and accrued liabilities | 734,520 | 621,203 | ||||
Current portion of long-term debt | 35,977 | 32,317 | ||||
Income taxes payable | 54,788 | 25,487 | ||||
Advances from shareholder | 167 | 167 | ||||
1,083,799 | 876,969 | |||||
Long-term | ||||||
Obligations under capital lease | 204,868 | 24,367 | ||||
Advances from related corporation | 6,793 | 13,816 | ||||
211,661 | 38,183 | |||||
Shareholders’ equity: | ||||||
Share capital | 160 | 160 | ||||
Retained earnings | 325,965 | 251,512 | ||||
326,125 | 251,672 | |||||
$ | 1,621,585 | $ | 1,166,824 |
Approved on behalf of the Board:
Director | ||
Director |
The accompanying Financial Statements for the three months ended December 31, 2006 have not been reviewed or audited by the Company’s Auditor
DMR FOOD CORPORATION |
(O/A SWEET SELECTION) |
Statement of Income and Retained Earnings |
(Unaudited) |
(Expressed in Canadian dollars) |
Unaudited | Unaudited | |||||
For the 3 months ended | For the 3 months ended | |||||
December 31 | December 31, | |||||
2006 | 2005 | |||||
$ | $ | |||||
Sales | 1,554,865 | 1,274,254 | ||||
Cost of sales | 1,175,559 | 928,651 | ||||
Gross profit | 379,306 | 345,603 | ||||
Delivery | 63,406 | 47,723 | ||||
Salaries and benefits | 25,491 | 14,710 | ||||
Occupancy cost | 23,982 | 25,607 | ||||
Advertising and promotion | 31,935 | 32,143 | ||||
Sales salaries and commission | 18,128 | 19,505 | ||||
Travel | 15,200 | 12,252 | ||||
Office and general | 9,935 | 6,668 | ||||
Amortization | 3,406 | 3,480 | ||||
Insurance | 7,124 | 8,172 | ||||
Bad debts | 2,400 | 8,400 | ||||
Interest and bank charges | 3,706 | 2,411 | ||||
Professional fees | 76,140 | 800 | ||||
280,853 | 181,871 | |||||
Income before Income taxes | 98,453 | 163,732 | ||||
Income taxes | 24,000 | - | ||||
Net Income | 74,453 | 163,732 | ||||
Retained earnings, beginning of year | 251,512 | 192,876 | ||||
Retained earnings, end of period | 325,965 | 356,608 |
DMR FOOD CORPORATION
(o/a Sweet Selections)
Statement of Cash Flows
For the three months ended December 31, 2006
Cash flows from (used in): | Three months | Three months | ||||
ended | ended | |||||
Dec. 31, 2006 | Dec. 31, 2005 | |||||
Operating activities | ||||||
Net income | $ | 74,453 | $ | 94,193 | ||
Adjustment for: | ||||||
- amortization | 3,406 | 3,480 | ||||
77,859 | 97,673 | |||||
Changes in non-cash working capital | ||||||
- accounts receivable | (215,893 | ) | 120,117 | |||
- inventories | (36,944 | ) | (49,753 | ) | ||
- prepaid expenses and sundry assets | (337 | ) | 11,445 | |||
- accounts payable and accrued liabilities | 113,317 | (134,462 | ) | |||
- income taxes payable | 29,301 | (4,477 | ) | |||
(110,556 | ) | (57,130 | ) | |||
(32,697 | ) | 40,543 | ||||
Investing activities | ||||||
Property and equipment | (218,821 | ) | (44,513 | ) | ||
Financing activities | ||||||
Obligations under capital lease | 184,161 | - | ||||
Bank indebtedness | 60,552 | (10,000 | ) | |||
Advances to related corporation | 13,828 | 65,620 | ||||
Advances from related corporation | (7,023 | ) | (59,650 | ) | ||
Advances from shareholders | - | 167 | ||||
Long term debt | - | (14,398 | ) | |||
251,518 | (18,261 | ) | ||||
Change in cash | - | (22,231 | ) | |||
Cash, beginning of period | - | 46,279 | ||||
Cash, end of period | $ | - | $ | 24,048 | ||
Other cash flows information | ||||||
Interest paid | $ | 2,424 | $ | 861 | ||
Taxes paid | 24,000 | - |
DMR FOOD CORPORATION
(o/a Sweet Selections)
Notes to Financial Statements
For the three months ended December 31, 2006
General
The Company was incorporated under the Ontario Business Corporations Act and its major business activity includes packaging and distribution of snack food products.
1. | Significant Accounting Policies | |
a) | Revenue recognition | |
The Company recognizes its revenue at the time when goods are shipped and invoiced to customers and when all significant obligations have been satisfied and collectibility is reasonably assured. | ||
b) | Inventories | |
Inventories are valued at the lower of cost and net realizable value on a first-in, first-out basis. | ||
c) | Property and equipment | |
Property and equipment is recorded at cost and amortized annually over their estimated useful lives at the following rates: |
Packaging equipment under capital lease lease | - straight line over the term of the |
Display units | - 10 years straight line |
Packaging equipment | - 10 years straight line |
Office equipment | - 10 years straight line |
Computer equipment | - 4 years straight line |
Vehicle | - 30% declining balance |
Leasehold improvements lease | - straight line over the term of the |
If it is determined that the carrying amount of a property or equipment exceeds its net recoverable amount, which represents the undiscounted estimated future net cash flow expected to be received from the ongoing use and residual worth of the property, it is reduced to its estimated fair value.
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DMR FOOD CORPORATION
(o/a Sweet Selections)
Notes to Financial Statements
For the three months ended December 31, 2006
1. | Significant Accounting Policies (continued) | |
d) | Income taxes | |
The Company uses the asset and liability method of accounting for income taxes. Under this method, future tax assets and liabilities are determined according to differences between the carrying amounts and tax bases of the assets and liabilities. The change in the net future tax asset or liability is included in income. Future tax assets and liabilities are measured using tax rates and laws expected to apply in the years in which assets and liabilities are expected to be recovered or settled. Future income tax assets are recorded in the financial statements if realization is considered more likely than not. | ||
e) | 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 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. Actual results could differ. | ||
f) | Leases | |
Leases are classified as capital or operating depending upon the terms and conditions of the contracts. Asset values recorded under capital leases are amortized on a straight-line basis over the period of expected use. Obligations recorded under capital leases are reduced by lease payments net of imputed interest. | ||
g) | Foreign currency translation | |
Monetary assets and liabilities have been converted to Canadian funds at the rate of exchange applicable at the balance sheet date and non-monetary assets have been converted at historic rates. Revenue and expenses in foreign currencies have been converted at the rates prevailing at the time they were incurred. |
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DMR FOOD CORPORATION
(o/a Sweet Selections)
Notes to Financial Statements
For the three months ended December 31, 2006
2. | Inventories |
2006 | 2005 | ||||||
(unaudited) | |||||||
Raw materials | $ | 184,265 | $ | 417,210 | |||
Finished goods | 378,472 | 122,699 | |||||
$ | 562,737 | $ | 539,909 |
3. | Advances to Related Corporation |
The advances are receivable from a corporation controlled by one of the shareholders and are non-interest bearing, secured, and due on demand. | |
4. | Property and Equipment |
2006 | |||||||||||||
Accumulated | 2006 Net | (audited) | |||||||||||
Cost | amortization | book value | Net book value | ||||||||||
Packaging equipment under capital | |||||||||||||
lease | $ | 244,758 | $ | 4,610 | $ | 240,148 | $ | 29,201 | |||||
Display units | 97,647 | 84,012 | 13,635 | 13,905 | |||||||||
Packaging equipment | 87,800 | 39,522 | 48,278 | 43,405 | |||||||||
Office equipment | 26,469 | 6,027 | 20,442 | 20,577 | |||||||||
Computer equipment | 25,513 | 19,157 | 6,356 | 6,356 | |||||||||
Vehicle | 24,339 | 18,506 | 5,833 | 5,833 | |||||||||
Leasehold improvements | 5,869 | 3,200 | 2,669 | 2,669 | |||||||||
$ | 512,395 | $ | 175,034 | $ | 337,361 | $ | 121,946 |
5. | Bank Indebtedness |
The Company has a demand operating loan facility of $250,000, bearing interest at the Royal Bank prime lending rate plus 1.25% per annum. The facility is secured by a general security agreement covering all assets of the Company as well as guarantee and postponement of claims in the amount of $250,000 by each of the shareholders of the Company. |
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DMR FOOD CORPORATION
(o/a Sweet Selections)
Notes to Financial Statements
For the three months ended December 31, 2006
6. | Advances from Related Corporation |
The advances are payable to a corporation significantly influenced by one of the shareholders, bear interest at 4.25% per annum and are repayable in monthly blended payments of $2,341. | $ | 33,579 | ||
Less: current portion | 26,786 | |||
$ | 6,793 |
7. | Share Capital |
2006 | 2005 | ||||||
(unaudited) | |||||||
Authorized: | |||||||
Unlimited number of Common shares | |||||||
Issued: | |||||||
300 Common shares | $ | 160 | $ | 160 |
8. | Economic Dependence |
Approximately 75% of the Company’s sales were to three customers. | |
9. | Commitments and Contingencies |
In addition to the commitments on the capital lease (note 6), the Company is committed to various operating leases for premises, vehicles and equipment used in its operations. The approximate future minimum annual lease payments are as follows: |
2007 | $ | 142,000 | |
2008 | 140,000 | ||
2009 | 70,000 | ||
2010 | 60,000 | ||
2011 | 68,000 |
The Company has guaranteed residual values totaling approximately $62,000 on certain leases.
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DMR FOOD CORPORATION
(o/a Sweet Selections)
Notes to Financial Statements
For the three months ended December 31, 2006
10. | Financial Instruments |
Fair value estimates are made at the balance sheet date, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates. | |
The carrying amounts for accounts receivable, advances to related corporation, bank indebtedness, accounts payable and accrued liabilities and obligations under capital lease on the balance sheet approximate fair value because of the limited term of these instruments. The estimated fair value of advances from shareholders and advances to and from related corporation could not be determined as there is no comparable market data. | |
Credit risk | |
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of accounts receivable. The Company performs periodic credit evaluations of the financial condition of its customers. If necessary, allowances are maintained for potential credit losses consistent with the credit risk of specific customers. | |
As at year-end, four customers accounted for approximately 62% of accounts receivable. | |
Interest rate risk: | |
Bank indebtedness bears interest at a variable rate. Consequently, there is risk of cash flow exposure. | |
Currency risk: | |
A portion of the Company’s inventory related purchases are denominated in US dollars. Consequently, bank indebtedness, cost of goods sold and accounts payable were exposed to foreign exchange fluctuations. | |
11. | Comparative Figures |
The Company changed its year-end from October 31 to September 30 in the prior year. As a result, prior year’s figures are for an eleven-month period and were neither audited nor reviewed. | |
Certain prior year’s figures have been reclassified to conform with the current year’s presentation. |
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