UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000
Commission file number 0-15179
OFFICELAND INC.
(exact name of registrant as specified in its charter)
Ontario, Canada 10397 6668
(State or other jurisdiction of incorporation or (Canadian Federal
organization) Tax Account No.)
312 Dolomite Drive, Downsview, Ontario, Canada M3J 2N2
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (416) 736-4000
Check whether the issuer (1) filed all reports required to be filed by Section
13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes (X) No ( )
The number of Common Shares of the registrant outstanding as at April 14, 2000
is 5,695,257.
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Earnings and Deficit
for the three months February 29, 2000 and February 28, 1999 3
Consolidated Balance Sheets -
February 29, 2000 and November 30, 1999 4
Consolidated Statement of Cash Flows -
for the three months ended February 29, 2000 and February 28, 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PART II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
ITEM 1. FINANCIAL STATEMENTS
Officeland Inc.
Consolidated Statement of Earnings and Deficit
(Expressed in U. S. dollars)
(Unaudited) February 29 February 28
Fiscal Quarter Ended 2000 1999
- --------------------------------------------------------------------------------
Revenue
Equipment Sales $ 7,029,872 $ 6,838,734
Cost of sales 4,469,073 4,445,858
------------ ------------
Gross profit 2,560,799 2,392,876
------------ ------------
Expenses
General and administrative 1,383,123 1,400,143
Selling 1,148,826 873,735
Depreciation and amortization 109,279 92,649
------------ ------------
2,641,228 2,366,527
------------ ------------
Earnings (loss) from continuing operations
before the following (80,429) 26,349
------------ ------------
Foreign exchange loss (gain) (15,272) 32,187
Interest on debt 104,354 26,809
Interest income -- (11,909)
------------ ------------
89,082 47,087
------------ ------------
Loss from continuing operations
before income taxes (169,511) (20,738)
Income taxes (recovery) -- (2,810)
------------ ------------
Loss from continuing operations $ (169,511) $ (17,928)
Discontinued operations -- (33,399)
------------ ------------
Net loss $ (169,511) $ (51,327)
------------ ------------
- --------------------------------------------------------------------------------
Net loss per common share before
discontinued operations $ (0.024) $ (0.003)
Discontinued operations $ -- $ (0.005)
------------ ------------
Net loss per common share $ (0.024) $ (0.008)
------------ ------------
Fully diluted net loss per common share
before discontinued operations $ (0.024) $ (0.003)
Discontinued operations $ -- $ (0.005)
------------ ------------
Fully diluted net loss per
common share $ (0.024) $ (0.008)
------------ ------------
- --------------------------------------------------------------------------------
Deficit, beginning of period $(10,745,213) $ (4,072,967)
Net loss (169,511) (51,327)
------------ ------------
Deficit, end of period $(10,914,724) $ (4,124,294)
============ ============
3
See accompanying notes to the financial statements.
Officeland Inc.
Consolidated Balance Sheet
(Expressed in U.S. dollars) February 29 November 30
("Unaudited") 2000 1999
- --------------------------------------------------------------------------------
Assets
Current
Cash $ 203,039 $ 580,145
Receivables 3,605,624 3,445,849
Income tax receivable 119,208 119,208
Inventory of goods for resale 5,423,680 4,505,114
Prepaid and other charges 346,738 232,114
Future income taxes 166,520 166,520
------------ ------------
9,864,809 9,048,950
Investments 99,558 99,558
Capital assets 512,122 467,924
Future income taxes 363,662 358,700
Goodwill 6,622,554 6,712,761
------------ ------------
$ 17,462,705 $ 16,687,893
------------ ------------
- --------------------------------------------------------------------------------
Liabilities
Current
Bank credit facilities $ 4,732,729 $ 4,477,803
Accounts payable and accrued liabilities 4,937,854 4,116,472
Current portion of long term debt 1,291,624 1,250,000
------------ ------------
10,962,207 9,844,275
Long term debt 405,558 579,167
------------ ------------
11,367,765 10,423,442
Shareholders' Equity
Convertible debt 2,719,567 2,719,567
Capital stock 14,290,097 14,290,097
Deficit (10,914,724) (10,745,213)
------------ ------------
6,094,940 6,264,451
------------ ------------
$ 17,462,705 $ 16,687,893
------------ ------------
- --------------------------------------------------------------------------------
See accompanying notes to the financial statements
4
Officeland Inc.
Consolidated Statement of Cash Flows
(Expressed in U. S. dollars) February 29 February 28
Fiscal Quarter Ended 2000 1999
("Unaudited")
- ----------------------------------------------------------------------------------------
Increase (decrease) in cash equivalents
Operating
Net loss from continuing operations $ (169,511) $ (17,928)
Depreciation and amortization 109,279 92,649
----------- -----------
(60,232) 74,721
Changes in non-cash operating working
capital related to continuing operations
Receivables (159,775) 192,764
Inventory (918,566) 377,067
Prepaids (114,624) (92,899)
Other assets -- (65,283)
Accounts payable and accruals 821,382 1,731,540
Future income taxes (4,963) --
Income taxes -- (5,136)
----------- -----------
Cash used before discontinued operations (436,778) 2,212,774
Cash used in discontinued operations -- (21,108)
----------- -----------
(436,778) 2,191,666
----------- -----------
Financing
Increase in bank credit facilities 254,926 (130,000)
Repayment of long term debt (131,985) 25,682
----------- -----------
Cash provided before discontinued operations 122,941 (104,318)
----------- -----------
Investing
Acquisition of Eastern Equipment Brokers Inc. -- (1,451,535)
Acquisition of Digital Document Solutions -- (469,092)
Purchase of capital assets (64,040) --
Proceeds from sale of capital assets -- 15,329
----------- -----------
Cash used before discontinued operations (64,040) (1,905,298)
----------- -----------
Effect of foreign exchange remeasurement 771 (116,404)
Net increase (decrease) in cash (377,106) 65,646
Cash and cash equivalents
Beginning of period 580,145 72,649
----------- -----------
End of period $ 203,039 $ 138,295
----------- -----------
See accompanying notes to the financial statements
5
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
- --------------------------------------------------------------------------------
Nature of operations
Officeland Inc. (the Company) is a Canadian corporation. The Company, and
certain of its subsidiaries are engaged in the business of the purchasing,
refurbishing and selling of used photocopiers and fax machines primarily in the
United States. Those subsidiaries are located in the United States. The Company
also has another subsidiary which is located in Canada which provides agency and
collection services in the Province of Ontario. This Canadian subsidiary has
discontinued its operations effective October 1999.
1. Summary of significant accounting policies
1. General
The unaudited condensed consolidated financial statements have been prepared on
the same basis as the audited consolidated financial statements and, in the
opinion of management, reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation for each of the periods
presented. The results of operations for interim periods are not necessarily
indicative of results to be achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01
of Regulation S-X, the accompanying consolidated financial statements and
related footnotes have been condensed and do not contain certain information
that will be included in the Company's annual consolidated financial statements
and footnotes thereto. For further information, refer to the consolidated
financial statements and related footnotes for the year ended November 30, 1999
included in the Company's Annual Report on Form 10-KSB.
Accounting Principles
The Company's accounting and reporting policies conform to generally accepted
accounting principles and industry practice in Canada. No reconciliation to
accounting principles generally accepted in the United States is provided for
the period ending February 29, 2000 as the difference are all related to Balance
Sheet reclassifications as disclosed in the Company's 10-KSB filed March 14,
2000. The financial statements are prepared in United States dollars.
Principles of consolidation
The consolidated financial statements include the accounts of all companies in
which the Company has a controlling interest, after elimination of inter-company
transactions and balances.
Use of estimates
In preparing the Company's financial statements, management is required 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 financial statements, and the reported revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories, consisting of equipment for resale, are valued at the lower of cost
and net realizable value. Cost is determined on a specific item basis for
certain equipment and on the first-in, first-out method for other categories of
inventory.
6
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
1. Accounting policies (continued)
Depreciation
Rates of depreciation are applied to write off the cost of capital assets less
estimated salvage value over their estimated useful lives. Furniture and
equipment are depreciated on the diminishing balance basis at 20% per year.
Automotive equipment is depreciated on the diminishing balance basis at 20% per
year. Computer equipment is depreciated on the diminishing balance basis at 30%
per year.
Amortization of Intangibles
Goodwill is amortized on a straight line basis over its estimated life of 20
years. On an ongoing basis, the Company reviews the measurement of goodwill for
possible impairment based primarily on the ability to recover the balance of
goodwill from expected future operating cash flows on an undiscounted basis.
Revenue recognition
Equipment revenue is recognized at the time of sale of the equipment.
Commissions on the sale of consignment office equipment are recorded at the time
of sale. Commissions for auction services are recorded when the services are
rendered.
Agency and collection fees revenue is recognized when a client receivable is
collected from the debtor and remitted to the client. Legal expenses are
expensed at the same time as revenue is recognized. Prior to collection, legal
expenses are identified on a debtor by debtor basis and are deferred. The
deferred amounts, net of estimated allowance for non-recovery, are included in
prepaid expenses until expensed. Amounts which are considered non-recoverable
are expensed and included in cost of sales.
Income taxes
The Company has recorded tax benefits of the net operating losses that are
available to offset future income taxes because it is the Company's belief,
beyond a reasonable doubt, that these benefits will be realized in future
periods.
The Company has provided for the tax benefits of temporary timing differences
related primarily to differing bases of certain assets and liabilities for
financial statement and income tax reporting purposes.
Barter transactions
The Company engages in barter sales and purchases, whereby it exchanges for
goods and services the right to acquire other goods and services. For income tax
purposes, the transactions are recorded in the accounts at the notional amounts
reflected in the respective transaction documents. Under generally accepted
accounting principles, these amounts are discounted to fair values.
- --------------------------------------------------------------------------------
7
Officeland Inc.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
2. Earnings per share
Under Canadian GAAP earnings per share are based on the weighted average common
shares outstanding. Weighted average common shares used in the computation of
earnings per share are 7,044,963 and 5,540,164 in 2000 and 1999 respectively.
The weighted average common shares plus dilutive shares used in the computation
of fully diluted earnings per share are 7,044,963 and 5,540,664 in 2000 and 1999
respectively.
The Company reports earnings per share in accordance with the provisions of SFAS
No.128, Earnings Per Share. SFAS No.128 requires presentation of basic and
diluted earnings per share in conjunction with the disclsoure of the methodology
used in computing such earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common shareholders by
the weighted average common shares outstanding during the period. Diluted
earnings per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock. The weighted average common shares used in the computation of
earnings per share are 7,044,963 and 5,540,664 in 2000 and 1999 respectively.
The weighted average common shares plus dilutive shares used in the computation
of fully diluted earnings per share are 7,044,963 and 5,540,664 in 2000 and 1999
respectively.
- --------------------------------------------------------------------------------
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained herein are not based on historical facts, but are
forward-looking statements that are based upon numerous assumptions about future
conditions that could prove not to be accurate. Actual events, transactions and
results may materially differ from the anticipated events, transactions or
results described in such statements. The Company's ability to consummate such
transactions and achieve such events or results is subject to certain risks and
uncertainties. Such risks and uncertainties include, but are not limited to, the
existence of demand for and acceptance of the Company's products and services,
regulatory approvals and developments, economic conditions, the impact of
competition and pricing results of financing efforts and other factors affecting
the Company's business that are beyond the Company's control. The Company
undertakes no obligation and does not intend to update, revise or otherwise
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect future events or circumstances.
The information contained herein is presented in United States dollars in
accordance with Canadian GAAP except where specifically noted.
RESULTS OF OPERATIONS
Sales were $7,029,872 for the first quarter of fiscal 2000 compared to
$6,838,734 for the first quarter of fiscal 1999. Contribution by each subsidiary
was as follows; core operations, $1,114,712, The Wholesale Group, Inc.,
$1,302,117, Telecom Corporation of Chicago, $2,514,362 and Eastern Equipment
Brokers, Inc., $2,098,682.
Cost of sales were $4,469,073 or 64% for the first quarter of 2000 compared to
$4,445,858 or 65% for the first quarter of 1999. Contribution by each subsidiary
to cost of sales was as follows; core operations, $776,200, The Wholesale Group,
Inc., $856,003, Telecom Corporation of Chicago, $1,355,812 and Eastern Equipment
Brokers, Inc., $1,481,057.
Gross profit for the first quarter of 2000 was $2,560,799 or 36% compared to
$2,392,876 or 35% for the first quarter of 1999 reflecting an increase of
$167,923. The Company's gross profit as a percentage of sales has remained
relatively constant from the first three months of 2000 compared to the first
three months of 1999, and managements expects to continue to realize similar
gross profit percentages for the remainder of fiscal 2000. Contribution by each
subsidiary to gross profit was as follows; core operations, $338,512, The
Wholesale Group, Inc., $446,113, Telecom Corporation of Chicago, $1,158,550, and
Eastern Equipment Brokers, Inc., $617,624.
General and Administrative Expenses incurred during the first quarter of 2000
were $1,383,123 compared to $1,400,143 for the first quarter of fiscal 1999
reflecting a decrease of $17,020. This decrease is a result of management's cost
saving program, which was implemented for fiscal 2000 to enable the Company to
become more efficient while reducing corporate overheads. The total decrease in
general and administrative expenses has been partially offset by new costs
incurred in the first quarter of fiscal 2000 which relate to start up costs of
the Company's new e-commerce initiatives. The Company has incurred approximately
$175,000 in costs in the first quarter of fiscal 2000 in preparation of
launching it's own business to business and business to consumer websites.
Selling expenses for the first quarter 2000 were $1,148,826 compared to $873,735
for the first quarter 1999 representing an increase of $275,091.
The depreciation and amortization expenses, including amortization of goodwill
from the acquisitions, were $109,279 for the first quarter 2000 compared to
$92,649 for the first quarter 1999.
The Company recorded a loss from continuing operations before interest and taxes
for the first quarter 2000 of $80,429 compared to earnings of $26,349 for the
first quarter 1999.
The Company recorded a foreign exchange remeasurement gain for the first quarter
2000 in the amount of $15,272, compared to a remeasurement loss of $32,187 for
the first quarter 1999.
The Company recorded a net loss of $169,511 or ($0.024) per common share (
($0.024) fully diluted) compared to a net loss of $51,327 or ($0.008) per common
share (($0.008) fully diluted).
The foregoing operations have impacted the Balance Sheet as at February 29, 2000
from November 30, 1999 as follows:
Cash at February 29, 2000 was $203,039 compared to $580,145 at November 30,
1999. At May 31, 1999 the Company's trade receivables were $3,605,624 compared
to $3,445,849 at November 30, 1999 an increase of $159,775. Inventory was
$5,423,680 at February 29 2000 compared to $4,505,114 at November 30, 1999
increasing $918,566. The Company's total assets have increased to
9
$17,462,705 at February 29, 2000 from $16,687,893 at November 30, 1999, due
mainly to an increase in receivables and inventory.
The Company had a bank credit facility utilized at February 29, 2000 in the
amount of $4,732,729 compared to $4,477,803 at November 30, 1999. The Company's
accounts payable and accrued liabilities are $4,937,854 at February 29, 2000
compared to $4,116,472 at November 30, 1999. The Company had Long Term Debt of
$1,697,182 compared to $1,829,167 at November 30, 1999.
Liquidity and Capital Resources
The Company currently has approximately $203,000 in available cash at February
28, 2000. At April 17, 2000 the Company has sold between $2.0 and $2.2 million
of a new series of Class "C" Special Shares to a number of existing and new
private equity investors. Participating investors purchased Series C preferred
shares for $0.50 per share and received a warrant for each share purchased
exercisable at $0.875 per share. Existing investors who participated in the
financing also had the exercise price of their Series A and B warrants reduced
by 50% and the term of these warrants extended by one year. The proceeds of the
financing are to be used for working capital needs, the implementation of the
Company's e-commerce strategy and promotion of its existing channels of
distribution.
The Company has extended its renewal date for its credit facility to June
30, 2000, with its primarily lending bank.
At February 29, 2000 the Company had a working capital deficiency of
approximately $1.5 million, prior to its recent financing.
The Company does not believe inflation has materially affected its past
operations nor does it anticipate inflation to materially affect future
operations.
10
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OFFICELAND
(Registrant)
Date: April 17, 2000 By: /s/ Marvyn A. Budd
------------------------------
Marvyn A. Budd
Chief Executive Officer/President
Date: April 17, 2000 By: /s/ Christopher D. Walker
------------------------------
Vice President Finance
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