SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 1, 2008
Gray Creek Mining, Inc.
(Exact Name of Registrant as Specified in Charter)
Nevada 333-145471 N/A
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
313-6688 Willington Ave., Burnaby, BC V5H 2V8
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone number, including area code: (604) 434-8539
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On October 1, 2008, certain shareholders of Issuer entered into an Agreement to
sell 100% of the outstanding shares of common stock of Issuer to certain
purchasers for a cash price of $275,000. A copy of the Stock Purchase Agreement
is attached hereto as Exhibit 2.1. The Closing of the Purchase occurred on
October 4, 2008.
Immediately following the closing, Jim Can, Kendall Dilling, and Robert Baker
were added as new members of the Board of Directors of Issuer, and all existing
directors resigned. Jim Can, who was appointed as the new CEO and Chairman of
the Board of Issuer, controls through 346419 Alberta Ltd. dba Can Holdings,
Ltd., an affiliate of Mr. Can, 3,000,000 shares or approximately 57% of the
outstanding shares of Issuer following this stock purchase.
ITEM 2.01 ACQUISITION OF MATERIAL ASSETS
On November 10, 2008, Issuer acquired 100% of the outstanding shares of common
stock of Budget Waste Inc., an Alberta Canada corporation ("Budget Alberta")
from Budget Waste, Inc., a Nevada corporation ("Budget Nevada"). A copy of the
Stock Exchange Agreement is attached hereto as Exhibit 2.2.
The purchase price for the stock of Budget Alberta was 5,496,054 newly issued
and restricted shares of Issuer's common stock, and representing approximately
52% of the outstanding shares of Issuer post acquisition. Issuer is in the
process of changing its corporate name in Nevada to "BWI Holdings, Inc" and
applying for a new trading symbol.
As part of the transaction, Budget Nevada will be distributing all of the Issuer
shares acquired in this transaction to its shareholders, with Issuer remaining
as an independent corporation and not as a subsidiary or controlled entity of
Budget Nevada.
Following the distribution by Budget Nevada of the Issuer shares to the Budget
Nevada stockholders, Jim Can, CEO and chairman of the Board of Budget Nevada and
Issuer, will own or control directly and indirectly approximately 7,104,581
shares of common stock of Issuer, representing approximately 67% of all
outstanding shares of common stock.
On November 10, 2008, Issuer acquired 100% of the outstanding shares of common
stock of Budget Alberta, which became a wholly-owned, consolidated subsidiary
corporation of Issuer.
Please see additional information below on the combined, consolidated entity.
ITEM 5.01 CHANGES IN CONTROL OF REGISTRANT
Control of the Registrant was transferred on November 4, 2008, pursuant to the
Stock Purchase Agreement attached hereto as Exhibit 2.1, and described above in
Item 1.01.
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ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF CERTAIN OFFICERS
On November 4, 2008, the Board of Directors appointed Jim Can to the Board of
Directors.
On November 4, 2008, the Board of Directors accepted the resignation of Alan Cox
as President, CEO, CFO, Treasurer and Director, and Todd Halfnight as Secretary
and Director. Jim Can was appointed as President and CEO of the Issuer.
On November 6, 2008, the Board of Directors appointed Kendall Dilling and Robert
Baker to the Board of Directors.
Biographies of all new directors are set forth below.
ITEM 5.03 AMENDMENT TO ARTICLES OF INCORPORATION
On November 7, 2008, a Certificate of Amendment was filed with the Nevada
Secretary of State changing the name of the Issuer to BWI Holdings, Inc. and
also increased the Authorized Stock to 100,000,000 Common Shares and 20,000,000
Preferred Shares. The Amendment is attached hereto as Exhibit 3.1.1
The following information is provided on the combined, consolidated entity.
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GRAY CREEK MINING INC.
TABLE OF CONTENTS
Part I
Item 1. Business 5
Item 1A. Risk Factors 7
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Securities Holders 13
Part II
Item 5. Market for Registrant's Common Equity & Related Stockholder
Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 8. Financial Statements 23
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 77
Item 9A. Controls and Procedures 77
Part III
Item 10. Directors and Executive Officers 78
Item 11. Executive Compensation 79
Item 12. Security Ownership of Certain Beneficial Owners and Management 80
Item 13. Description of Registrant's Securities to be Registered 81
Item 14. Indemnification of Directors and Officers 82
Item 15. Certain Relationships and Related Transactions 83
Item.16. Principal Accounting Fees and Services 84
Part IV
Item 17. Exhibits 86
Signatures 87
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PART I
ITEM 1. BUSINESS
ORGANIZATION WITHIN LAST FIVE YEARS
We were incorporated on August 10, 2006 under the laws of the state of Nevada.
On November 10, 2008, we acquired 100% of the outstanding shares of stock of
Budget Waste Inc., an Alberta company ("Budget Alberta") and changed our name to
"BWI Holdings, Inc."
IN GENERAL
OUR BUSINESS UNITS
PRIOR OPERATIONS OF GRAY CREEK MINING INC. (MINING EXPLORIATION)
We have been enagaged in mining exploration. We engaged in the acquisition and
exploration of mineral properties with a view to exploiting any mineral deposits
we discover that demonstrate economic feasibility. We have a 100% interest, held
in trust by David Heyman, in three mineral claims known as the Swakum Mountain
property. There is no assurance that a commercially viable mineral deposit
exists on the property.
CURRENT OPERATIONS OF GRAY CREEK MINING INC.(WASTE MANAGEMENT SERVICES)
Our wholly-owned subsidiary, Budget Alberta (also referred to as "BWI"),
conducts various waste management operations in Edson, Calgary, Edmonton, Red
Deer, and surrounding areas in the Province of Alberta Canada, and uses
approximately 2,500 containers of various sizes and purposes, approximately 120
trucks, plus it has operations in water reclamation, portable lavatories, and
industrial fencing. By 2004, BWI's fleet was 3 trucks and 120 large roll-off
containers. Realizing the growth potential in the waste industry in Western
Canada, BWI began to explore several financing alternatives to acquire the
capital needed to continue expanding, both internally and via acquisition of
smaller competing businesses.
A strategy of growth through acquisition was adopted in 2005, and BWI proceeded
to expand its existing base of large roll-off containers by becoming a complete
waste solutions provider, incorporating all facets of waste disposal and
recycling into its business model. By the last quarter of 2005, several sectors
in the waste industry had been identified as target areas: large roll-off, small
roll-off, front load container service, rural waste collection, vacuum truck
service, hydrovac service, portable toilets, oilfield waste services, portable
fencing, waste recycling operations, and municipal waste contracts. Several
companies had been approached and negotiations were underway with multiple
targets. By early 2006, several acquisitions had been completed.
The businesses acquired by BWI provided new and additional products and services
to offer to all customers serviced by the expanded BWI network. The synergies
created were effective to generate higher revenues and eventually led to
profitability in 2008.
RECENT BWI ACQUISITIONS
1. AllWaste Systems Ltd., leaders in construction, renovation and
demolition recycling for the construction industry on March 1, 2006.
With a fleet of over 1300 bins and 15 trucks and the majority share of
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the rapidly growing Calgary homebuilders market, Allwaste has been the
leading provider and innovator for waste hauling and recycling
services in the Calgary area for over 15 years.
2. Rocky Mountain Waste Inc. (RMW), a leading residential waste hauling
company, acquired on March 1, 2006. In operation for over 9 years, RMW
has grown to provide weekly residential waste collection to over 9,000
homes, front load services to surrounding communities. RMW also
manages a Provincial Government Contract to provide waste collection
and hauling from.
3. Kosland Waste Removal Ltd. (KOSLAND), one of the largest rural
residential waste collection companies in the Calgary area, acquired
on February 15, 2006. Kosland has specialized in rural residential
collection and led the Calgary market area for over 12 years.
4. DB Waste Disposal Inc., 593250 Ltd, d/b/a DB Port-a-Podi, and
Strathmore Septic Services Ltd, acquired on March 1, 2006. This
acquisition increased the BWI fleet of roll-off bins currently offered
as well as expanded BWI's services to include front-end bins, portable
toilet rentals and septic services.
5. Strathmore Septic Services Ltd, acquired on March 1, 2006. This
acquisition increased the BWI fleet of roll-off bins currently
offered; as well as expanded BWI's services to include front-end bins,
portable toilet rentals and septic services.
6. Provac, a leading liquid waste hauling company in the Calgary area,
acquired on April 30, 2006. With a reputation as leaders in liquid
waste hauling, Provac operates a fleet of 7 late model vehicles
providing hydrovac, vacuum, line flushing and pressure washing
services to the municipal and oil field markets in Alberta. Over the
past seven years, Provac has firmly positioned itself as the second
largest liquid waste hauling company in the Calgary area providing
services to the City of Calgary and the surrounding municipalities of
Cochrane, Strathmore, Okotoks and Black Diamond. In addition to
municipal service, Provac services major oil field companies such as
PetroCanada and Compton Petroleum as well as positioning themselves in
the Northern Alberta oil sands market with a multiple month service
contract.
7. A&R Waste, acquired on November 30, 2006. A leading south/central
Alberta rural waste disposal company. Serving clients for over 20
years in industrial, front load, curbside and rural residential
operation.
8. HydroVac Alberta, Inc., acquired on December 1, 2006.
9. 4M Water Hauling Ltd., acquired on February 16, 2007.
10. P.J.'s Waste and Recycling Services, Ltd., acquired on February 14,
2007.
11. Finnie Water Hauling Ltd., acquired on June 30, 2006. Finnie has been
in operation for over 10 years, established itself as oil field and
construction water service specialists based on attention to
professionalism and safety. With a fleet of eleven water trucks and
one hydro-vac truck, Finnie Water Hauling derives 80% of its revenue
from oil field and oil sands service in the provinces of Alberta,
Saskatchewan and British Columbia. Their remaining revenues come from
servicing major construction companies including Standard General and
Volker Stevin.
12. Wehaul Waste, leaders in construction, renovation and demolition
recycling for the construction industry on March 1, 2006. With a fleet
of over 1300 bins and 15 trucks and the majority share of the rapidly
growing Calgary homebuilders market, Allwaste has been the leading
provider and innovator for waste hauling and recycling services in the
Calgary area for over 15 years.
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COMPETITION. BWI encounters intense competition from governmental,
quasi-governmental and private sources in all aspects of our operations. In
North America, the industry consists of several large, multinational, waste
management companies and local and regional companies of varying sizes and
financial resources. We compete with these companies as well as with
municipalities that maintain their own waste collection and disposal operations.
These municipalities may have financial competitive advantages because tax
revenues and tax-exempt financing are available to them. Also, such governmental
units may attempt to impose flow control or other restrictions that would give
them a competitive advantage. In addition, competitors may reduce their prices
to expand sales volume or to win competitively bid municipal contracts.
GOVERNMENT REGULATIONS. BWI handles all Materials under the Canada
Transportation Dangerous Regulations Act (TDG).The waste material to be
collected and disposed of by BWI is non-hazardous solid waste and recyclable
waste generated by our BWI customers and specifically excludes radioactive,
volatile, highly flammable, explosive, biomedical, toxic or hazardous material
(these materials are classified as "Prohibited Waste").
BANKRUPTCY OR SIMILAR PROCEEDINGS
There has been no bankruptcy, receivership or similar proceeding.
REORGANIZATIONS, PURCHASE OR SALE OF ASSETS
On October 4, 2008, we underwent a change in control when 100% of the
outstanding shares of our common stock were purchased by a group of independent
purchasers. At the same time, our board of directors was changed entirely.
On November 10, 2008, we acquired 100% of the outstanding shares of common stock
of Budget Alberta, which is now a wholly owned, consolidated, subsidiary
corporation.
EMPLOYEES
Our Mining unit currently has no employees.
BWI currently has approximately 120 full time employees and enjoys good employee
relations.
RESEARCH AND DEVELOPMENT EXPENDITURES
We have not incurred any research or development expenditures since our
incorporation.
SUBSIDIARIES
Budget Waste Inc., an Alberta company, is wholly owned by the Issuer and is
included in the financial statements of the Issuer.
PATENTS AND TRADEMARKS
Other than the tradename "Budge Waste," we do not own, either legally or
beneficially, any patents or trademarks.
ITEM 1A. RISK FACTORS
In an effort to keep our shareholders and the public informed about our
business, we may make "forward-looking statements." Forward-looking statements
usually relate to future events and anticipated revenues, earnings, cash flows
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or other aspects of our operations or operating results. Forward-looking
statements generally include statements containing:
* projections about accounting and finances;
* plans and objectives for the future;
* projections or estimates about assumptions relating to our
performance; and
* our opinions, views or beliefs about the effects of current or future
events, circumstances or performance.
You should view these statements with caution. These statements are not
guarantees of future performance, circumstances or events. They are based on
facts and circumstances known to us as of the date the statements are made. All
phases of our business are subject to uncertainties, risks and other influences,
many of which we do not control. Any of these factors, either alone or taken
together, could have a material adverse effect on us and could change whether
any forward-looking statement ultimately turns out to be true. Additionally, we
assume no obligation to update any forward-looking statement as a result of
future events, circumstances or developments. The following discussion should be
read together with the Consolidated Financial Statements and the notes thereto.
Outlined below are some of the risks that we believe could affect our business
and financial statements for 2008 and beyond. These are not the only risks that
we face. There may be other risks that we do not presently know or that we
currently believe are immaterial that could also impair our business and
financial position.
THE WASTE INDUSTRY IS HIGHLY COMPETITIVE, AND IF WE CANNOT SUCCESSFULLY COMPETE
IN THE MARKETPLACE, OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS MAY
BE MATERIALLY ADVERSELY AFFECTED.
We encounter intense competition from governmental, quasi-governmental and
private sources in all aspects of our operations. In North America, the industry
consists of large national waste management companies, and local and regional
companies of varying sizes and financial resources. We compete with these
companies as well as with local governments that maintain their own waste
collection and disposal operations. These counties and municipalities may have
financial competitive advantages because tax revenues are available to them and
tax-exempt financing is more readily available to them. Also, such governmental
units may attempt to impose flow control or other restrictions that would give
them a competitive advantage.
In addition, competitors may reduce their prices to expand sales volume or to
win competitively bid contracts. When this happens, we may rollback prices or
offer lower pricing to attract or retain our customers, resulting in a negative
impact to our revenue growth from yield on base business.
IF WE DO NOT SUCCESSFULLY MANAGE OUR COSTS, OUR INCOME FROM OPERATIONS COULD BE
LOWER THAN EXPECTED.
In recent years, we have implemented several profit improvement initiatives
aimed at lowering our costs and enhancing our revenues, and we continue to seek
ways to reduce our selling, general and administrative and operating expenses.
While generally we have been successful in managing our costs, including
subcontractor costs and the effect of fuel price increases, our initiatives may
not be sufficient. Even as our revenues increase, if we are unable to control
variable costs or increases to our fixed costs in the future, we will be unable
to maintain or expand our margins.
WE CANNOT GUARANTEE THAT WE WILL BE ABLE TO SUCCESSFULLY IMPLEMENT OUR PLANS AND
STRATEGIES TO IMPROVE MARGINS AND INCREASE OUR INCOME FROM OPERATIONS.
We have announced several programs and strategies that we have implemented or
planned to improve our margins and operating results. For example, except when
prohibited by contract, we have implemented price increases and environmental
fees, and we continue our fuel surcharge programs, all of which have increased
our internal revenue growth. The loss of volumes as a result of price increases
may negatively affect our cash flows or results of operations. Additionally, we
continue to seek to divest under-performing and non-strategic assets if we
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cannot improve their profitability. We may not be able to successfully negotiate
the divestiture of under-performing and non-strategic operations, which could
result in asset impairments or the continued operation of low-margin businesses.
If we are not able to fully implement our plans for any reason, many of which
are out of our control, we may not see the expected improvements in our income
from operations or our operating margins.
THE SEASONAL NATURE OF OUR BUSINESS AND CHANGES IN GENERAL AND LOCAL ECONOMIC
CONDITIONS CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE, AND PRIOR PERFORMANCE IS
NOT NECESSARILY INDICATIVE OF OUR FUTURE RESULTS.
Our operating revenues tend to be somewhat higher in summer months, primarily
due to the higher volume of construction and demolition waste. The volumes of
industrial and residential waste in certain regions where we operate also tend
to increase during the summer months. Our second and third quarter revenues and
results of operations typically reflect these seasonal trends. However, for
several reasons, including significant start-up costs, such revenue often
generates comparatively lower margins. Certain weather conditions may result in
the temporary suspension of our operations, which can significantly affect the
operating results of the affected regions. The operating results of our first
quarter also often reflect higher repair and maintenance expenses because we
rely on the slower winter months, when waste flows are generally lower, to
perform scheduled maintenance at our waste-to-energy facilities.
Our business is affected by changes in national and general economic factors
that are also outside of our control, including interest rates and consumer
confidence. We have debt as of March 31, 2008 that is exposed to changes in
market interest rates because of the combined impact of our variable rate
tax-exempt bonds and our interest rate swap agreements. Therefore, any increase
in interest rates can significantly increase our expenses. Additionally,
although our services are of an essential nature, a weak economy generally
results in decreases in volumes of waste generated, which decreases our
revenues. We also face risks related to other adverse external factors, such as
the ability of our insurers to meet their commitments in a timely manner and the
effect that significant claims or litigation against insurance companies may
have on such ability.
Any of the factors described above could materially adversely affect our results
of operations and cash flows. Additionally, due to these and other factors,
operating results in any interim period are not necessarily indicative of
operating results for an entire year, and operating results for any historical
period are not necessarily indicative of operating results for a future period.
WE CANNOT PREDICT WITH CERTAINTY THE EXTENT OF FUTURE COSTS UNDER ENVIRONMENTAL,
HEALTH AND SAFETY LAWS, AND CANNOT GUARANTEE THAT THEY WILL NOT BE MATERIAL.
We could be liable if our operations cause environmental damage to our
properties or to the property of other landowners, particularly as a result of
the contamination of air, drinking water or soil. Under current law, we could
even be held liable for damage caused by conditions that existed before we
acquired the assets or operations involved. Also, we could be liable if we
arrange for the transportation, disposal or treatment of hazardous substances
that cause environmental contamination, or if a predecessor owner made such
arrangements and under applicable law we are treated as a successor to the prior
owner. Any substantial liability for environmental damage could have a material
adverse effect on our financial condition, results of operations and cash flows.
In the ordinary course of our business, we have in the past, and may in the
future, become involved in a variety of legal and administrative proceedings
relating to land use and environmental laws and regulations. These include
proceedings in which:
* agencies of federal, state, local or foreign governments seek to
impose liability on us under applicable statutes, sometimes involving
civil or criminal penalties for violations, or to revoke or deny
renewal of a permit we need; and
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* local communities and citizen groups, adjacent landowners or
governmental agencies oppose the issuance of a permit or approval we
need, allege violations of the permits under which we operate or laws
or regulations to which we are subject, or seek to impose liability on
us for environmental damage.
We generally seek to work with the authorities or other persons involved in
these proceedings to resolve any issues raised. If we are not successful, the
adverse outcome of one or more of these proceedings could result in, among other
things, material increases in our costs or liabilities as well as material
charges for asset impairments.
THE WASTE INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, AND EXISTING
OR FUTURE REGULATIONS MAY RESTRICT OUR OPERATIONS, INCREASE OUR COSTS OF
OPERATIONS OR REQUIRE US TO MAKE ADDITIONAL CAPITAL EXPENDITURES.
Stringent government regulations at the federal, provincial, and local level in
Canada have a substantial impact on our business. A large number of complex
laws, rules, orders and interpretations govern environmental protection, health,
safety, land use, zoning, transportation and related matters. Among other
things, they may restrict our operations and adversely affect our financial
condition, results of operations and cash flows by imposing conditions such as:
* limitations on siting and constructing new waste disposal, transfer or
processing facilities or expanding existing facilities;
* limitations, regulations or levies on collection and disposal prices,
rates and volumes;
* limitations or bans on disposal or transportation of out-of-state
waste or certain categories of waste; or
* mandates regarding the disposal of solid waste
Regulations affecting the siting, design and closure of landfills could require
us to undertake investigatory or remedial activities, curtail operations or
close landfills temporarily or permanently. Future changes in these regulations
may require us to modify, supplement or replace equipment or facilities. The
costs of complying with these regulations could be substantial.
In order to develop, expand or operate a landfill or other waste management
facility, we must have various facility permits and other governmental
approvals, including those relating to zoning, environmental protection and land
use. The permits and approvals are often difficult, time consuming and costly to
obtain and could contain conditions that limit our operations.
GOVERNMENTAL AUTHORITIES MAY ENACT CLIMATE CHANGE REGULATIONS THAT COULD
INCREASE OUR COSTS TO OPERATE.
Environmental advocacy groups and regulatory agencies in Canada have been
focusing considerable attention on the emissions of greenhouse gases and their
potential role in climate change. The adoption of laws and regulations to
implement controls of greenhouse gases, including the imposition of fees or
taxes, could adversely affect our collection and disposal operations.
Additionally, certain of the provinces in which we operate are contemplating air
pollution control regulations that are more stringent than existing and proposed
federal regulations. Changing environmental regulations could require us to take
any number of actions, including the purchase of emission allowances or
installation of additional pollution control technology, and could make some
operations less profitable, which could adversely affect our results of
operations.
SIGNIFICANT SHORTAGES IN FUEL SUPPLY OR INCREASES IN FUEL PRICES WILL INCREASE
OUR OPERATING EXPENSES.
The price and supply of fuel are unpredictable, and can fluctuate significantly
based on international, political and economic circumstances, as well as other
factors outside our control, such as actions by the Organization of the
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Petroleum Exporting Countries, or OPEC, and other oil and gas producers,
regional production patterns, weather conditions and environmental concerns. In
the past two years, the year-over-year changes in the average quarterly fuel
prices have varied considerably. We need fuel to run our collection and transfer
trucks and other equipment. Supply shortages could substantially increase our
operating expenses. Additionally, as fuel prices increase, our direct operating
expenses increase and many of our vendors raise their prices as a means to
offset their own rising costs. We have in place a fuel surcharge program,
designed to offset increased fuel expenses; however, we may not be able to pass
through all of our increased costs and some customers' contracts prohibit any
pass through of the increased costs. We may initiate other programs or means to
guard against the rising costs of fuel, although there can be no assurances that
we will be able to do so or that such programs will be successful. Regardless of
any offsetting surcharge programs, the increased operating costs will decrease
our operating margins.
WE HAVE SUBSTANTIAL INSURANCE REQUIREMENTS, AND INCREASES IN THE COSTS OF
OBTAINING ADEQUATE INSURANCE, OR THE INADEQUACY OF OUR INSURANCE COVERAGE, COULD
NEGATIVELY IMPACT OUR LIQUIDITY AND INCREASE OUR LIABILITIES.
The amount of insurance we are required to maintain for environmental liability
is governed by statutory requirements. We believe that the cost for such
insurance is high relative to the coverage it would provide, and therefore, our
coverages are generally maintained at the minimum statutorily required levels.
We face the risk of incurring liabilities for environmental damage if our
insurance coverage is ultimately inadequate to cover those damages. We also
carry a broad range of insurance coverages that are customary for a company our
size. We use these programs to mitigate risk of loss, thereby allowing us to
manage our self-insurance exposure associated with claims. To the extent our
insurers were unable to meet their obligations, or our own obligations for
claims were more than we estimated, there could be a material adverse effect to
our financial results.
THE POSSIBILITY OF DEVELOPMENT AND EXPANSION PROJECTS OR PENDING ACQUISITIONS
NOT BEING COMPLETED OR CERTAIN OTHER EVENTS COULD RESULT IN A MATERIAL CHARGE
AGAINST OUR EARNINGS.
In accordance with generally accepted accounting principles, we capitalize
certain expenditures and advances relating to disposal site development,
expansion projects, acquisitions, software development costs and other projects.
If a facility or operation is permanently shut down or determined to be
impaired, a pending acquisition is not completed, a development or expansion
project is not completed or is determined to be impaired, we will charge against
earnings any unamortized capitalized expenditures and advances relating to such
facility, acquisition or project. We reduce the charge against earnings by any
portion of the capitalized costs that we estimate will be recoverable, through
sale or otherwise.
In future periods, we may be required to incur charges against earnings in
accordance with this policy, or due to other events that cause impairments. Any
such charges could have a material adverse effect on our results of operations.
CURRENTLY PENDING OR FUTURE LITIGATION OR GOVERNMENTAL PROCEEDINGS COULD RESULT
IN MATERIAL ADVERSE CONSEQUENCES, INCLUDING JUDGMENTS OR SETTLEMENTS.
We are involved in civil litigation in the ordinary course of our business and
from time-to-time are involved in governmental proceedings relating to the
conduct of our business. The timing of the final resolutions to these types of
matters is often uncertain. Additionally, the possible outcomes or resolutions
to these matters could include adverse judgments or settlements, either of which
could require substantial payments, adversely affecting our liquidity.
WE MAY EXPERIENCE ADVERSE IMPACTS ON OUR REPORTED RESULTS OF OPERATIONS AS A
RESULT OF ADOPTING NEW ACCOUNTING STANDARDS OR INTERPRETATIONS.
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Our implementation of and compliance with changes in accounting rules, including
new accounting rules and interpretations, could adversely affect our reported
operating results or cause unanticipated fluctuations in our reported operating
results in future periods. Canada will adopt International Financial Reporting
Standards (IFRS) for fiscal years commencing after January 1, 2011. The United
States Securities Exchange Commission (SEC) and Federal Accounting Standards
Board (FASB) have commenced studies on adopting IFRS but have not yet issued a
definitive position.
ADDITIONAL FINANCING MAY BE REQUIRED IN ORDER TO MANAGE OUR GROWTH PLANS.
We may be dependent upon our ability to obtain additional significant financing
if we want to continue to grow via acquisitions. We also will need additional
funding to expand internal growth in market segments we deem to be most
profitable. Obtaining such financing may require additional private or public
offerings, the success of which efforts cannot be assured. If we do not secure
additional equity or debt financing, our ability to grow could be hampered.
THE LIQUIDITY OF OUR STOCK IS SEVERELY REDUCED BECAUSE WE ARE CLASSIFIED AS A
"PENNY STOCK"
The Securities and Exchange Commission (SEC) has adopted regulations which
generally define a "penny stock" to be any non-Nasdaq equity security that has a
market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share. Our securities are subject to the
existing rules on penny stocks and, accordingly, the market liquidity for our
securities could be severely adversely affected. For any transaction involving a
penny stock, unless exempt, the rules require substantial additional disclosure
obligations and sales practice obligations on broker-dealers where the sale is
to persons other than established customers and accredited investors (generally,
those persons with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of the common stock and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated by
the SEC relating to the penny stock market. The broker-dealer also must disclose
the commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Consequently, the
"penny stock" rules may restrict the ability of broker-dealers to sell our
common stock and accordingly the market for our common stock.
IF WE DO NOT OBTAIN ADDITIONAL FINANCING, OUR MINING BUSINESS WILL FAIL.
Our business plan for mining exploration calls for significant expenses in
connection with the exploration of the Swakum Mountain property. We do not have
sufficient funds to conduct the exploration on the property, and we will require
additional financing in order to determine whether the property contains
economic mineralization. We will also require additional financing if the costs
of the exploration of the Swakum Mountain property are greater than anticipated.
We will also require additional financing to sustain our business operations if
we are not successful in earning revenues once exploration is complete. We do
not currently have any arrangements for financing and may not be able to find
such financing if required. Obtaining additional financing would be subject to a
number of factors, including the market price for gold and silver, and investor
acceptance of our property and general market conditions. These factors may make
the timing, amount, terms or conditions of additional financing unavailable to
us.
12
BECAUSE OF THE SPECULATIVE NATURE OF EXPLORATION OF MINING PROPERTIES, THERE IS
A SUBSTANTIAL RISK THAT OUR MINING BUSINESS WILL FAIL.
The search for valuable minerals as a business is extremely risky. The
likelihood of our mineral claims containing economic mineralization or reserves
is extremely remote. Exploration for minerals is a speculative venture
necessarily involving substantial risk. In all probability, the Swakum Mountain
property does not contain any reserves and funds that we spend on exploration
will be lost. As well, problems such as unusual or unexpected formations and
other conditions are involved in mineral exploration and often result in
unsuccessful exploration efforts. In such a case, we would be unable to complete
our business plan.
BECAUSE OF THE INHERENT DANGERS INVOLVED IN MINERAL EXPLORATION, THERE IS A RISK
THAT WE MAY INCUR LIABILITY OR DAMAGES AS WE CONDUCT OUR BUSINESS.
The search for valuable minerals involves numerous hazards. As a result, we may
become subject to liability for such hazards, including pollution, cave-ins and
other hazards against which we cannot insure or against which we may elect not
to insure. The payment of such liabilities may have a material adverse effect on
our financial position.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
We have a 100% interest, held in trust by David Heyman, in the mineral claim
comprising the Swakum Mountain property.
BWI leases the following:
* 29,000 sq ft for its principal executive offices and warehouse located
at 3915 61st Avenue, S.E., Calgary, AB T2C 1V5 in Canada. 5 Year lease
beginning June 15, 2006, and expiring on June 15th, 2011. One option
to renew for 5 years. Monthly rental of approximately $24,000. Company
has option to buy land and building.
* 25,000 sq ft warehouse in Edson, AB, on a 5 year term, beginning in
October 2007 and expiring in 2012. Box 7014 Station Main, Edson AB
T7E1V4. The rent is $10,000 per month.
* approximately 20 acres of land for storage in Balzac, AB. The term of
the lease is month to month at a rate of $1,400 per month.
ITEM 3. LEGAL PROCEEDINGS
The following claims are outstanding:
(a) Corey Finnie and Virginia Finnie v. Budget Waste, Inc., an Alberta company,
et al. in Alberta civil court. This claim relates to the acquisition of Finnie
Water Hauling Ltd. by BWI. The claim is for damages of approximately $1,000,000
and the value of 15 million shares of common stock in Budget Waste, Inc.
(Nevada.). BWI has defended the claim and counterclaimed for damages. There have
been no discoveries, the file is in the preliminary stages and no definitive
assessment of possible quantum is possible at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during the
year ended April 30, 2008.
13
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our shares are quoted on the Over-the-Counter Bulletin Board (OTCBB) under the
symbol "GYCK". The OTCBB is a regulated quotation service that displays
real-time quotes, last sale prices and volume information in over-the-counter
securities. To be eligible for quotation on the OTCBB issuers must remain
current in their filings with the SEC or applicable regulatory authority.
Securities quoted on the OTCBB that become delinquent in their required filings
will be removed following a grace period if they do not make their required
filing during that time. We cannot guarantee that we will continue to have the
funds required to remain in compliance with our reporting obligations.
There has been no active trading of our securities, and, therefore, no high and
low bid pricing. As of the date of this report, we had approximately 32
shareholders of record. We have paid no cash dividends and have no outstanding
options.
PENNY STOCK RULES
The Securities and Exchange Commission has also adopted rules that regulate
broker-dealer practices in connection with transactions in penny stocks. Penny
stocks are generally equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the FINRA system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system).
A purchaser is purchasing penny stock which limits the ability to sell the
stock. Our shares constitute penny stock under the Securities and Exchange Act.
The shares will remain penny stocks for the foreseeable future. The
classification of penny stock makes it more difficult for a broker-dealer to
sell the stock into a secondary market, which makes it more difficult for a
purchaser to liquidate his/her investment. Any broker-dealer engaged by the
purchaser for the purpose of selling his or her shares in us will be subject to
Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than
creating a need to comply with those rules, some broker-dealers will refuse to
attempt to sell penny stock.
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from those rules, to deliver a standardized risk
disclosure document, which:
- contains a description of the nature and level of risk in the market
for penny stock in both public offerings and secondary trading;
- contains a description of the broker's or dealer's duties to the
customer and of the rights and remedies available to the customer with
respect to a violation of such duties or other requirements of the
Securities Act of 1934, as amended;
- contains a brief, clear, narrative description of a dealer market,
including "bid" and "ask" price for the penny stock and the
significance of the spread between the bid and ask price;
- contains a toll-free telephone number for inquiries on disciplinary
actions;
- defines significant terms in the disclosure document or in the conduct
of trading penny stocks; and
14
- contains such other information and is in such form (including
language, type, size and format) as the Securities and Exchange
Commission shall require by rule or regulation;
The broker-dealer also must provide, prior to effecting any transaction in a
penny stock, to the customer:
- the bid and offer quotations for the penny stock;
- the compensation of the broker-dealer and its salesperson in the
transaction;
- the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the
market for such stock; and
- monthly account statements showing the market value of each penny
stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a
penny stock not otherwise exempt from those rules; the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements will have the effect of reducing the trading
activity in the secondary market for our stock because it will be subject to
these penny stock rules. Therefore, stockholders may have difficulty selling
their securities.
ITEM 6. SELECTED FINANCIAL DATA
The information below was derived from the audited Consolidated Financial
Statements of Budget Waste Inc. and Gray Creek Mining, Inc., and Pro Formas
included in this report and in previous annual reports we filed with the SEC.
This information should be read together with those Consolidated Financial
Statements and the notes thereto. The adoption of new accounting pronouncements,
changes in certain accounting policies and certain reclassifications impact the
comparability of the financial information presented below. These historical
results are not necessarily indicative of the results to be expected in the
future.
15
Years Ended March 31,
-----------------------------------
2008 2007 2006
------ ------ ------
(In thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Operating revenues(c) 16,154 10,441 1,573
Costs and expenses:
Operating(c) 11,642 8,643 1,273
Selling, general and administrative 4,748 3,963 1,095
Depreciation and amortization 1,800 1,287 202
Restructuring -- -- --
(Income) expense from divestitures, asset
impairments and unusual items 127 (749) --
Income from operations (2,035) (3,452) (997)
Other expense, net -- -- --
Income before income taxes and accounting changes (1,909) (4,202) (997)
Provision for (benefit from) income taxes -- 1 3
Income before accounting changes (1,909) (4,203) (1,000)
Accounting changes, net of taxes
Net income (1,909) (4,203) (1,000)
Basic earnings per common share:
Income before accounting changes (0.03) (0.10) (0.06)
Accounting changes, net of taxes -- -- --
Net income (0.03) (0.10) (0.06)
Diluted earnings per common share:
Income before accounting changes (0.03) (0.10) (0.06)
Accounting changes, net of taxes -- -- --
Net income (0.03) (0.10) (0.06)
Cash dividends declared per common share -- -- --
Cash dividends paid -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit) (6,205) (4,537) (3,046)
Goodwill and other intangible assets, net 3,286 3,008 2,737
Total assets 13,312 12,316 6,292
Debt, including current portion (71) (679) (623)
Stockholders' equity 1,639 487 1,537
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPANY OVERVIEW
We have been engaged in mining exploration since the inception of our business.
We engaged in the acquisition and exploration of mineral properties with a view
to exploiting any mineral deposits we discover that demonstrate economic
feasibility. With the acquisition of Budget Waste Inc. we have changed our
business focus to regional and solid/liquid waste management services.
BWI is a regional solid and liquid waste services company that provides
collection, disposal, fencing and recycling services to residential and
commercial customers in the province of Alberta, Canada. Budget Waste Inc. was
16
founded in 2001 in Alberta Canada (prior to acquisition by Budget Waste, Inc., a
Nevada company) with one truck and 10 large roll off containers. BWI has
expanded steadily since February 2006 when began the acquisition of the first of
ten companies through the next year.
SOURCES OF REVENUE
Our revenue consists primarily of fees charged to customers for solid and liquid
waste collection, landfill disposal and recycling services. We derive our
collection revenue from services provided to governmental, commercial and
residential customers. Service to commercial customers are generally performed
under service agreements or pursuant to contracts with municipalities. We
recognize revenue when services are rendered. Amounts billed to customers prior
to providing the related services are reflected as deferred revenue and reported
as revenue in the periods in which the services are rendered.
We determine the fees we charge our customers based on a variety of factors,
including collection frequency, level of service, route density, the type,
volume and weight of the waste collected, type of equipment and containers
furnished, the distance to the disposal, the cost of disposal and prices charged
by competitors for similar services. Our contracts with commercial customers
typically allow us to pass on increased costs resulting from variable items such
as disposal and fuel costs and surcharges. Our ability to pass on cost increases
is however, sometime limited by the terms of our contracts.
EXPENSE STRUCTURE
Our cost of operations primarily includes tipping fees and related disposal
costs, labor and related benefit costs, equipment maintenance, fuel, liability
and workers compensation insurance and related leasing costs.
Selling, general and administrative expenses include managerial costs,
information systems, administrative expenses and professional fees.
Depreciation and amortization includes depreciation of fixed and intangible
assets over their estimated useful lives using the declining balance method.
OPERATING RESULTS FOR THE FISCAL YEAR ENDED MARCH 31, 2008
Before acquiring Budget Alberta, Gray Creek Mining Inc. has been an exploration
stage company and has generated no revenues.
For the fiscal year ended March 31, 2008, BWI reported revenues of 16,154M ("M"
representing thousands), an increase of $5,713M, or 547%, from $10,441M in
fiscal year 2007. While BWI instituted a price increase during the year which
included fuel surcharges, the greatest growth was from the effect of the
acquisition of three additional companies during the year.
The gross margin for the year ended March 31, 2008 of $4,512M represented 27.9%
of revenue as compared to $1,798M for the year ended March 31, 2007 or 17.2%.
Efficiencies resulted from successfully integrating the operations of the
acquired companies with those of BWI.
Gray Creek Mining Inc. incurred operating expenses in the amount of $23,838 and
$174 for the years ended April 30, 2008 and 2007. The operating expenses were
comprised primarily of general and administrative expenses.
For BWI, selling, general and administrative expenses increased from $5,250M for
the year ended March 31, 2007 to $6,548M for the year ended March 31, 2008. This
is as a result of BWI's growth. Additionally, the companies acquired were
17
primarily owner managed and some operating efficiencies were not a priority. In
consultation with our auditors it was necessary to write off $752M of accounts
receivable relating to these acquisitions.
Amortization of capital assets increased significantly from $1,287M for the year
ended March 31, 2007 to $1,800M for the same period ended March 31, 2008. This
is as a result of acquisitions as well as additions to capital assets totaling
$2,713M.
Our net loss from inception through to April 30, 2008 was $24,012. BWI
experienced a loss of $1,908M for the year ended March 31, 2008.The comparative
loss for the year ended March 31, 2007 was $4,202M. BWI achieved significant
growth and achieved greater efficiency through integrating the operations of the
acquisitions into BWI. The company is implementing improved systems of internal
control to achieve more efficient operations and to lower costs to reverse these
losses.
LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED APRIL 30, 2008
The Company had cash in the bank at April 30, 2008 of $8,488.
BWI generated cash from operations during its year ended March 31, 2008 of
$1,059M as compared to $(1,124)M for its year ended March 31, 2007. Capital
expenditures in fiscal year 2008 were $2,713M. The excess cash used over cash
from operations was provided by increases in loans from shareholders of BWI and
related parties of $1,180M, and the remainder from issuing stock and borrowing
through capital leases.
OPERATING RESULTS FOR THE THREE MONTHS ENDED JULY 31, 2008
Before acquiring Budget Alberta, Gray Creek Mining Inc. has been an exploration
stage company and has generated no revenues.
BWI generated revenues for its three month period ended June 30, 2008 of
$3,377M, compared with $3,384Mfor the three months ended June 30, 2007. While
the Company continues to include fuel surcharges, sales decreased by 2.1%
compared to the June 30, 2007 quarter. This was due to unusually cold weather in
April and May, causing some builders to postpone projects until later in the
year.
The gross margin for the three months ended June 30, 2008 of $718M represented
21.3% of revenue as compared to $652M for the three months ended June 30, 2007
or 19.3%. 21.3% is below the March 31, 2008 year end margins as the company was
unable to fully pass on to customers the large increase in fuel costs incurred
during the quarter. The company was still more efficient in this quarter
compared to the quarter ended June 30, 2007.
Selling, general and administrative expenses decreased from $1,338M or 31.2% of
revenue for the three months ended June 30, 2007 to $663M or 19.6% of revenue
for the three months ended June 30, 2008. This was as a result of implementing
improved systems of internal control to monitor and reduce costs and gains on
disposal of surplus assets.
Amortization of capital assets increased from $316M for the three months ended
June 30, 2007 to $350M for the same period ended June 30, 2008. This increase is
primarily due to the amortization of customer lists from company's acquisition
of PJ's waste and A&R Waste.
BWI experienced net income of $55M for the three months ended June 30, 2008.
This included penalties assessed by Canada Revenue Agency and increases in fuel
costs that could not be passed on to customers. The comparative loss for the
three months ended June 30, 2007 was $686M. The company expects to continue to
improve performance.
18
LIQUIDITY AND CAPITAL RESOURCES FOR THE THREE MONTHS ENDED JULY 31, 2008
The Company had cash in the bank at July 31, 2008 of $2,616.
Cash generated by operations of BWI during its three month period ended June 30,
2008 was $73M as compared to using $381M for the three months ended June 30,
2007. Capital expenditures for the three months ended June 30, 2008 were $85M as
compared to $233M for the same period ended June 30, 2007. This cash used was
provided by sale of surplus assets for $67M and in loans from shareholders and
related parties of $282M. Repayments of loans and debt were $164M.
We believe our operations can generate sufficient cash to repay debt obligations
as they come due, however, the Company will require additional financing through
either debt or issuances of capital to finance growth. The Company anticipates
increased performance from operations and has decreased costs in a number of
operating areas.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
USE OF ESTIMATES -
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying disclosures. Significant areas requiring the use of management
estimates relate to revenue recognition, the determination of impairment of
long-lived assets, the estimation of useful lives, rates and methods of
depreciation, income taxes, recognition of bad debts allowances, accounts
payable and accrued liabilities, recognition of capital leases and
contingencies. Management believes the estimates are reasonable. Actual results
could differ from these estimates and assumptions.
CASH AND CASH EQUIVALENTS -
Cash consists of cash and funds in bank accounts.
ACCOUNTS RECEIVABLE -
Receivables are recorded when invoiced or advanced and represent claims against
third parties that will be settled in cash. The carrying value of receivables,
net of the allowance for doubtful accounts, represents the estimated net
realizable value. The estimate for the allowance for doubtful accounts is based
upon historic collection trends, type of customer and age of receivables. If
events indicate that specific receivable balances may be impaired, further
consideration is given to those balances and the allowance is adjusted
accordingly. Accounts are written off when the Company's efforts to collect are
unsuccessful.
INCOME TAXES -
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Uncertainty in Income
Taxes". Under SFAS No. 109, deferred income tax assets and liabilities are
determined based on differences between the financial statement reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws in effect when the differences are expected to reverse. The measurement
of deferred income tax assets is reduced, if necessary, by a valuation allowance
for any tax assets and liabilities of a change in tax rates realized. The effect
on deferred income tax assets and liabilities of a change in tax rates is
recognized in the period that such tax rate changes are enacted. FIN No.48
prescribes a recognition threshold and measurement attribute for financial
statement recognition ad measurement of tax positions taken into in tax returns.
19
To the extent interest and penalties may be assessed by taxing authorities on
any underpayment of income tax, such amounts have been accrued and are
classified as a component of income tax expense in our Consolidated Statements
of Operations. The Company elected this accounting policy, which is a
continuation of our historical policy, in connection with our adoption of FIN
48.
PROPERTY AND EQUIPMENT -
Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized while major maintenance expenditures are
expensed as incurred. In accordance with SFAS 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets". The Company reviews its assets annually for
impairment. Depreciation is provided over the estimated useful lives of the
assets on a declining balance basis at the following annual rates:
Equipment 20%
Waste bins 20%
Automotive 30%
Port-a-Potties 20%
Trailers 30%
Assets under capital lease 30%
Office 20%
Heavy trucks and equipment 20%
Computer equipment 30%
Tools and equipment 20%
Leasehold developments 20%
Buildings 4%
Depreciation for property and equipment purchased during the year is calculated
at one-half of the above rates.
LEASES -
The Company leases property and equipment in the ordinary course of business.
Significant lease obligations relate to trucks, waste bins, and compactors.
These leases have varying terms and may or may not include purchase or buyout
options and guaranteed residuals. The terms of these leases are considered when
determining whether a lease is classified as operating or capital.
The majority of the Company's leases are capital leases. Assets under capital
lease are capitalized using interest rates appropriate at the inception of each
lease and are amortized over their estimated useful lives, using the same method
as similar assets that the Company owns. The present value of the lease payments
is recorded as a debt obligation as disclosed in Note 11.
Other leases are classified as operating when lease terms are significantly
shorter than the assets' economic useful lives, or relatively low fixed minimum
lease payments. Management expects that in the normal course of business, these
leases will be renewed, replaced with new leases or replaced with fixed asset
expenditures. Minimum lease payments for the next five years are disclosed in
Note 11.
GOODWILL AND INTANGIBLE ASSETS -
Through expansion by acquisition, the Company has acquired goodwill and
intangible assets - mainly customer lists. In accordance with SFAS 142
"Accounting for Goodwill and Intangible Assets", goodwill is recorded at cost
and is not subject to amortization. Customer lists are recorded at cost and
amortized over their estimate useful lives on a straight-line basis. The useful
lives of customer lists are estimated to be three years. These assets are
reviewed annually for impairment, more frequently if management has reason to
believe that conditions exist that may lead to impairment.
20
IMPAIRMENT OF LONG-LIVED ASSETS -
As described above, the Company assesses the recoverability of its long-lived
tangible and intangible assets at least annually. Management assesses if there
have been significant events or changes in circumstances that indicate an asset
or group of assets may have become impaired. A test of recoverability is
performed comparing the carrying value of a group of assets to its undiscounted
future cash flows. If carrying values are in excess undiscounted future cash
flows, impairment is measured by comparing the internal discounted cash flow
analysis or a third party valuation. Estimating future cash flows required
significant judgment and projections may vary from cash flows eventually
realized.
FOREIGN CURRENCY TRANSLATION -
The functional currency for BWI Budget Waste Inc. (Alta) is the Canadian dollar.
The reporting currency of Budget Waste Inc. is the US dollar.
TRANSLATION OF FOREIGN CURRENCY DENOMINATED TRANSACTIONS -
Translation undertaken in foreign currencies is translated into the functional
currency at the actual exchange rates prevailing at the time of the transaction.
Exchange gains or losses are a result of exchange rate changes between the time
the transaction is recognized and the collection of funds and are included as a
component of net income.
TRANSLATION OF ACCOUNT BALANCES DENOMINATE IN FOREIGN CURRENCY ON CONSOLIDATION-
The Company follows FAS 52 "Foreign Currency Translation" and uses the current
rate method whereby assets and liabilities are translated at the rate of
exchange at the Balance Sheet date. Revenues and expenses are translated at the
weighted average rate of exchange for the period. Components of stockholders'
deficiency are translated at the appropriate historic rate of exchange. Exchange
gains or losses on transaction of foreign currency are included as component of
comprehensive income.
COMPREHENSIVE INCOME -
Other comprehensive income refers to revenues, expenses, gains and losses that
under generally accepted accounting principles are included in comprehensive
income but are excluded from net income as these amounts are recorded directly
as an adjustment to stockholders' deficiency. The Company's other comprehensive
income is primarily comprised of unrealized foreign exchange gains and losses.
REVENUE RECOGNITION -
In accordance with SEC Staff Accounting Bulletin 104, the Company recognizes
revenue when there is persuasive evidence of an arrangement, delivery has
occurred, the fee is fixed or determinable, collectibility is reasonable assured
and there are no significant remaining performing obligations. For providing
services and short-term rentals, revenue is recognized when services or rental
has been completed. For long-term rentals, revenue is recognized monthly over
the term other contract. For special events, fencing, porta potties and other
assets that can be rented on a per diem basis, revenue is recognized when the
equipment is collected or returned.
ADVERTISING -
Advertising costs are expensed as incurred and amounted to $239,555 and $141,909
for the years ended March 31, 2008 and 2007.
SHARE-BASED PAYMENT -
The Company has not issued any warrants or stock options, nor has it established
any compensation plan under which options or warrants may be issued. The Company
21
has adopted SFAS No. 123(r) "Share Based Payment" but it does not have any
effect on the financial statements. From time to time, employees and suppliers
have been issued stock as compensation for goods and services rendered to the
Company. These issuances of stock were valued at the value of goods and services
received in accordance with pre-established rates of pay and contractual
amounts.
CONTINGENCIES -
The potential exposure the Company has with respect to claims, assessments and
litigation has been estimated in accordance with SFAS No. 5. It is not always
possible to predict the outcome of litigation as it is subject to many
uncertainties. It is also not always possible for management to make a
meaningful estimate of the protection loss or range of loss associated with such
litigation.
SUPPLEMENTAL CASH FLOW INFORMATION -
Non-cash investing and financing activities are excluded from the statement of
cash flows. Non-cash transactions are disclosed throughout the notes to the
consolidated financial statements. Total amounts paid for income taxes and
interest are disclosed on the consolidated statement of cash flows.
NET LOSS PER SHARE BEFORE COMPREHENSIVE INCOME -
The Company computes net income (loss) per share in accordance with SFAS No.
128, "EARNINGS PER SHARE". SFAS No. 128 requires presentation of both basic and
diluted earnings per share (EPS) on the face of the income statement. Basic EPS
is computed by dividing net income (loss) available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period using the treasury stock method. In
computing diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options or warrants. Diluted EPS excludes all dilutive potential shares if
their effect is anti dilutive. The basic and diluted EPS has been retroactively
restated to take into effect the 1:30 reverse split on October 31, 2006, the
1.5:1 split on January 5, 2007 and the 1:1 split on March 9, 2007.
The company is exposed to various types of risks owing to the nature of the
business activities it carries on, including those related to the use of
financial instruments. In order to manage the risks associated with using
financial instruments, such as loan, deposit and securities, controls have been
implemented, such as risk management policies and various risk limits. These
measures aim to optimize the return/risk ratio in all its operations. The main
risks to which the company is exposed are set out below.
FAIR VALUE -
In accordance with SFAS 107 "Disclosures About Fair Values of Financial
Instruments", the Company's financial instruments include accounts receivable,
performance bonds, bank overdraft, revolving bank loan, accounts payable and
accrued liabilities notes payable, amounts due to related parties, amounts due
to shareholders, long-term debt, and obligations under capital leases. The fair
value of financial instruments recognized in the balance sheet approximate their
carrying amounts.
MARKET RISK -
Market risk corresponds to the financial losses that the company could incur
because of unfavourable fluctuations in the value of financial instruments,
following variations in the parameters underlying their evaluation, such as
interest rates. The policies and limits implemented are designed to mitigate
exposure to market risk arising from asset and liability management activities.
22
CREDIT RISK -
Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash and accounts receivable. The Company deposits cash
with financial institutions it believes to be creditworthy. Cash balances at
these financial institutions may exceed the federally guaranteed amount.
The Company's accounts receivable are primarily derived from trade. The Company
will maintain an allowance for doubtful accounts receivable in those cases for
which the expected collectability of accounts receivable is in question.
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on our operations.
Consistent with industry practice, most of our contracts provide for a
pass-through of certain costs, including increases in landfill tipping fees and,
in some cases, fuel costs. We have implemented a fuel surcharge program, which
is designed to recover fuel price fluctuations. We therefore believe we should
be able to implement price increases sufficient to offset most cost increases
resulting from inflation. However, competitive factors may require us to absorb
at least a portion of these cost increases, particularly during periods of high
inflation.
LIQUIDITY AND CAPITAL RESOURCES AS AT JULY 31, 2008
Our cash in the bank at July 31, 2008 was $2,616.
Our directors have agreed to advance funds to pay for operating costs and the
cost of reclamation of the property should exploitable minerals not be found and
we abandon our exploration program and there are no remaining funds in the
company. While they have agreed to advance the funds, the agreement is verbal
and is unenforceable as a matter of law. During the period ended July 31, 2008
the directors loaned the company $5,000 ($2,500 each). The total amount of the
loan is $20,000.
ITEM 8. FINANCIAL STATEMENTS
BUDGET WASTE INC.
Calgary, Alberta
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended March 31, 2008 and 2007
23
BUDGET WASTE INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Consolidated Balance Sheets STATEMENT "A"
Consolidated Statements of Loss and Comprehensive Loss STATEMENT "B"
Consolidated Statements of Stockholders' Deficiency STATEMENT "C"
Consolidated Statements of Cash Flows STATEMENT "D"
Notes to Consolidated Financial Statements STATEMENT "E"
24
[LETTERHEAD OF CINNAMON JANG WILLOUGHBY & COMPANY]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Budget Waste Inc.:
We have audited the accompanying consolidated balance sheets of Budget Waste
Inc. and subsidiaries (the "Company") as of March 31, 2008 and March 31, 2007,
and the related consolidated statements of loss and comprehensive loss,
statements of changes in stockholders' deficiency, and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Budget Waste Inc.
and subsidiaries as of March 31, 2008 and 2007, and the results of its
operations and its cash flows for the years then ended in conformity with US
generally accepted accounting principles .
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and a net stockholders' deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ "Cinnamon Jang Willoughby & Company"
----------------------------------------
Chartered Accountants
Burnaby, Canada
July 15, 2008
25
STATEMENT "A"
BUDGET WASTE INC.
Consolidated Balance Sheets
(US Dollars)
March 31, 2008
2008 2007
----------- -----------
ASSETS
Current:
Accounts receivable (Note 4) $ 2,190,912 $ 2,315,456
Prepaid expenses 110,940 129,928
----------- -----------
2,301,852 2,445,384
----------- -----------
Performance bonds 48,645 65,197
Property and equipment, net (Note 5) 7,674,767 6,797,074
Goodwill (Note 6) 3,107,397 2,769,157
Customer lists (Note 6) 179,339 239,725
----------- -----------
11,010,148 9,871,154
----------- -----------
$13,312,000 $12,316,537
=========== ===========
26
STATEMENT "A"
CONTINUED
BUDGET WASTE INC.
Consolidated Balance Sheets
(US Dollars)
March 31, 2008
2008 2007
----------- -----------
LIABILITIES
Current:
Bank overdraft $ 39,009 $ 42
Revolving bank loan (Note 7) 56,743 135,441
Accounts payables and accrued liabilities 4,380,479 3,209,444
Notes payable 47,068 --
Due to related parties (Note 8) 811,289 1,283,942
Corporate taxes payable 23,825 30,571
Due to shareholders (Note 9) 1,738,755 1,115,854
Current portion of long-term debt (Note 10) 35,433 149,043
Current portion of obligations under capital lease (Note 11) 1,374,549 1,058,871
----------- -----------
8,507,150 6,983,208
----------- -----------
Long-term debt (Note 10) 36,572 530,120
Obligations under capital lease (Note 11) 3,100,043 2,343,356
Non-controlling interest (Note 12) 3,307,861 2,947,113
----------- -----------
6,444,476 5,820,589
----------- -----------
14,951,626 12,803,797
----------- -----------
STOCKHOLDERS' DEFICIENCY
Common stock
Authorized
500,000,000 common voting stock with a par value of $0.001 each
20,000,000 preferred non-voting stock with a par value of $0.001 each
Issued and outstanding
95,733,966 (48,757,882 - 2007) common stock par value 95,734 48,755
Stock to be issued -- 413,713
Contributed surplus 5,905,201 4,726,275
Cumulative other comprehensive income (loss) 150,319 206,279
Accumulated deficit 7,790,880 5,882,282
----------- -----------
1,639,626 487,260
----------- -----------
Nature of operations (Note 1)
Commitments, contingencies, and subsequent events (Note 16)
$13,312,000 $12,316,537
=========== ===========
- - See accompanying notes -
27
STATEMENT "B"
BUDGET WASTE INC.
Consolidated Statements of Loss and Comprehensive Loss
(US Dollars)
For the Year Ended March 31, 2008
2008 2007
------------ ------------
Revenue $ 16,154,523 $ 10,441,008
Cost of sales 11,642,000 8,642,748
------------ ------------
Gross earnings before general and administrative expenses 4,512,523 1,798,260
------------ ------------
General and Administrative Expenses:
Advertising and promotion 239,555 141,909
Automotive 15,075 --
Bad debts 752,298 438,518
Depreciation 1,800,142 1,287,205
Insurance 56,059 --
Interest and bank charges 167,764 149,089
Interest on long-term debt 427,130 532,324
Office 268,429 517,083
Professional fees 617,706 389,354
Rent 470,045 198,211
Repairs and maintenance 52,921
Salaries and benefits 1,403,755 1,421,909
Telephone 187,660 174,991
Travel 89,456 --
------------ ------------
6,547,997 5,250,593
------------ ------------
Loss before other items and income taxes 2,035,474 3,452,333
------------ ------------
Other (Income)
Expenses:
Contingency accrual (Note 16) (385,000) --
Impairment of goodwill (Note 6) -- 749,482
Gain on sale of assets (Note 17) 511,876 --
------------ ------------
Loss before income taxes 1,908,598 4,201,815
Income taxes -- 761
------------ ------------
Loss for the year 1,908,598 4,202,576
Other comprehensive income (loss)
Foreign currency translation adjustment (55,960) 244,362
------------ ------------
Total comprehensive loss for the year $ 1,964,558 $ 3,958,214
============ ============
Basic and diluted loss per common stock $ 0.03 $ 0.10
Weighted average stock outstanding 69,934,745 41,412,198
============ ============
- - See accompanying notes -
28
STATEMENT "C"
BUDGET WASTE INC.
Consolidated Statements of Stockholders' Deficiency
(US Dollars)
For the Year Ended March 31, 2008
Retained
Common Stock Stock to Contributed Comprehensive Earnings
Number Par Value be Issued Surplus Income (Deficit) Total
------ --------- --------- ------- ------ --------- -----
Balance 3/31/06 18,268,743 $18,268 $ -- $ 162,215 $(38,083) $(1,679,706) $(1,537,306)
Recapitalization of
the company (Note 1) 5,313,300 5,313 -- 638,241 -- -- 643,554
Acquisitions 1,971,070 1,971 -- 2,367,118 -- -- 2,369,089
Debt conversion 9,363,552 9,363 -- 837,306 -- -- 846,669
Issued for cash 13,319,369 13,319 -- 671,620 -- -- 684,939
For services 321,848 321 -- 49,975 -- -- 50,296
Subscription receivable 200,000 200 -- (200) -- -- --
Other comprehensive
income -- -- -- -- 244,362 -- 244,362
Net loss -- -- -- -- -- (4,202,576) (4,202,576)
To be issued -- -- 413,713 -- -- -- 413,713
---------- ------- --------- ---------- -------- ----------- -----------
Balance 3/31/07 48,757,882 48,755 413,713 4,726,275 206,279 (5,882,282) (487,260)
Acquisitions 298,000 298 (118,850) 290,552 -- -- 172,000
Debt conversion 46,378,406 46,378 (126,075) 543,446 -- -- 463,749
For services 327,331 287 -- 121,094 -- -- 121,381
For cash 370,109 370 (168,788) 223,480 -- -- 55,062
Cancelled (397,762) (354) -- 354 -- -- --
Other comprehensive
loss -- -- -- -- (55,960) -- (55,960)
Net loss -- -- -- -- -- (1,908,598) (1,908,598)
---------- ------- --------- ---------- -------- ----------- -----------
Balance 3/31/08 95,733,966 $95,734 $ -- $5,905,201 $150,319 $(7,790,880) $(1,639,626)
========== ======= ========= ========== ======== =========== ===========
- - See accompanying notes -
29
STATEMENT "D"
BUDGET WASTE INC.
Consolidated Statements of Cash Flows
(US Dollars)
For the Year Ended March 31, 2008
2008 2007
----------- -----------
Operating Activities:
Net Loss, per Statement "B" $(1,908,598) $(4,201,815)
Adjustments for non-cash items -
Depreciation 1,800,142 1,287,205
Bad debts 752,298 438,518
Shares issued for services 121,381 50,296
Goodwill impairment -- 749,482
Gain on sale of asset (511,876) --
Contingency accrual 385,000 --
Changes in non-cash working capital -
(Increase) Decrease in accounts receivable (627,754) (89,588)
(Increase) Decrease in term deposit -- 34,429
(Increase) Decrease prepaid expenses 18,988 779
Increase (Decrease) in corporate taxes payable (6,746) (2,145)
Increase (Decrease) in unearned revenue -- (12,064)
Increase (Decrease) in accounts payable and accrued liabilities 1,036,033 620,909
----------- -----------
Cash flows from (used in) operating activities 1,058,868 (1,123,994)
----------- -----------
Investing Activities:
(Increase) Decrease in performance bonds 16,553 (12,064)
Additions to property and equipment (434,939) (522,839)
Acquisitions of business assets, net of cash acquired -- 34,861
----------- -----------
Cash flows from (used in) investing activities (418,386) (500,222)
----------- -----------
Financing Activities:
Increase (Decrease) in revolving bank loans (78,698) (285,403)
Increase (Decrease) in bank overdraft 38,967 (211,760)
Proceeds on issuance of capital stock 55,062 684,939
Repayment of long-term debt (245,592) (585,839)
Repayment of obligations under capital lease (1,273,171) (369,260)
Proceed from related parties 622,901 198,283
Proceed from shareholders 557,401 1,513,978
----------- -----------
Cash flows from (used in) financing activities (323,130) 944,938
----------- -----------
Effect of exchange rate changes on cash (317,352) 621,088
Net Increase (Decrease) in Cash and Cash Equivalents -- (58,190)
Cash and cash equivalents, beginning -- 58,190
----------- -----------
Cash and cash equivalents, ending $ -- $ --
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 427,130 $ 681,413
Income taxes paid 6,746 --
Acquisitions (Note 14)
- - See accompanying notes -
30
STATEMENT "E"
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008 and 2007
1. NATURE OF OPERATIONS:
a) Company Description -
These financial statements include the accounts of Budget Waste Inc. (A Nevada
Corporation) (the "Company") and its wholly owned subsidiary Budget Waste Inc.
(an Alberta Corporation) "Alta". Alta is the successor corporation following the
July 1, 2006 amalgamation of Alta and its wholly owned subsidiaries Kosland
Waste Removal Ltd. Acquired February 15, 2006; DB Waste Disposal 2005 Ltd.
(acquired March 1, 2006); Strathmore Septic Services (1980) Ltd. (acquired March
1, 2006), 593250 Alberta Ltd. (operating as DB Port-a-Pod acquired March 1,
2006) All Waste Systems Ltd. (acquired March 1, 2006); Rocky Mountain Waste
Services Inc. (acquired March 1, 2006); 882880 Alberta Ltd. (acquired April 30,
2006) and Finnie Water Hauling Ltd. (acquired June 30, 2006). Subsequent to the
amalgamation, the Company also acquired Hydrovac Alberta Inc. (acquired December
1, 2006) and 4M Water Hauling Ltd. (acquired February 16, 2007). The Company
also acquired the assets only of 202287 Construction Services Ltd. (acquired
November 30, 2006), Muldowney Holdings Ltd. (acquired December 1, 2006) and
P.J.S. Waste and Recycling Services Ltd. (acquired February 14, 2007).
The Company provides non-hazardous waste collection, transfer, recycling and
disposal services. Additionally, the Company provides support to the
construction industry such as fence rentals, sanitary facility rentals, bin
rentals, hydrovac and water hauling. The Company operates primarily, but not
exclusively, in Alberta, Canada. The Company evaluates principal operations
through three functional departments: Solid Waste, Liquid Waste and Water
Hauling.
b) Consolidated Statements -
Effective July 1, 2006 the Company completed the acquisition of Budget Waste
Inc. (Alta). According to accounting principles generally accepted in the United
States, the above noted acquisition is considered to be a capital transaction in
substance, rather than a business combination. That is, the acquisition is
equivalent to the issuance of stock by Budget Waste Inc. (Alta) for the net
monetary assets of Budget Waste Inc. accompanied by a recapitalization and is
accounted for as a change in capital structure. Accordingly, the accounting for
the acquisition is identical to that resulting from a reverse acquisition. All
material inter-company balances and transaction have been eliminated in
consolidation.
c) Going Concern -
The Company's ability to continue as a going concern is dependant upon achieving
profitable operations and upon the continued financial support of its lenders
and investors. The outcome of these matters cannot be predicted at this time.
Due to the recurring losses of the Company, the Company must continue to obtain
external investment capital and financing. on going operations will be dependant
upon the execution of the Company's business plan including achieving more
efficient operations and marketing initiatives and the successful listing of the
Company on a public market.
31
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
1. NATURE OF OPERATIONS: CONTINUED
d) Going Concern - Continued
These financial statements do not include any adjustments to the amounts and
classification of assets and liabilities that might be necessary should the
Company be unable to continue as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES:
a) Cash and Cash Equivalents -
Cash and cash equivalents consist of cash and deposit instruments with an
initial maturity of three months or less.
b) Accounts Receivable -
Receivables are recorded when invoiced or advanced and represent claims against
third parties that will be settled in cash. The carrying value of receivables,
net of the allowance for doubtful accounts, represents the estimated net
realizable value. The estimate for the allowance for doubtful accounts is based
upon historic collection trends, type of customer and age of receivables. If
events indicate that specific receivable balances may be impaired, further
consideration is given to those balances and the allowance is adjusted
accordingly. Accounts are written off when the Company's efforts to collect are
unsuccessful.
c) Income Taxes -
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Uncertainty in Income
Taxes". Under SFAS No. 109, deferred income tax assets and liabilities are
determined based on differences between the financial statement reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws in effect when the differences are expected to reverse. The measurement
of deferred income tax assets is reduced, if necessary, by a valuation allowance
for any tax assets and liabilities of a change in tax rates realized. The effect
on deferred income tax assets and liabilities of a change in tax rates is
recognized in the period that such tax rate changes are enacted. FIN No.48
prescribes a recognition threshold and measurement attribute for financial
statement recognition ad measurement of tax positions taken into in tax returns.
To the extent interest and penalties may be assessed by taxing authorities on
any underpayment of income tax, such amounts have been accrued and are
classified as a component of income tax expense in our Consolidated Statements
of Operations. The Company elected this accounting policy, which is a
continuation of our historical policy, in connection with our adoption of FIN
48.
32
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
2. SIGNIFICANT ACCOUNTING POLICIES: CONTINUED
d) Property and Equipment -
Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized while major maintenance expenditures are
expensed as incurred. In accordance with SFAS 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets", the Company reviews its assets annually for
impairment. Depreciation is provided over the estimated useful lives of the
assets on a declining balance basis at the following annual rates:
Equipment 20%
Waste bins 20%
Automotive 30%
Port-a-Potties 20%
Trailers 30%
Assets under capital lease 30%
Office 20%
Heavy trucks and equipment 20%
Computer equipment 30%
Tools and equipment 20%
Leasehold developments 20%
Buildings 4%
Depreciation for property and equipment purchased during the year is calculated
at one-half of the above rates.
e) Leases -
The Company leases property and equipment in the ordinary course of business.
Significant lease obligations relate to trucks, waste bins, and compactors.
These leases have varying terms and may or may not include purchase or buyout
options and guaranteed residuals. The terms of these leases are considered when
determining whether a lease is classified as operating or capital.
The majority of the Company's leases are capital leases. Assets under capital
lease are capitalized using interest rates appropriate at the inception of each
lease and are amortized over their estimated useful lives, using the same method
as similar assets that the Company owns. The present value of the lease payments
is recorded as a debt obligation as disclosed in Note 11.
Other leases are classified as operating when lease terms are significantly
shorter than the assets' economic useful lives, or relatively low fixed minimum
lease payments. Management expects that in the normal course of business, these
leases will be renewed, replaced with new leases or replaced with fixed asset
expenditures. Minimum lease payments for the next five years are disclosed in
Note 11.
33
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
2. SIGNIFICANT ACCOUNTING POLICIES: CONTINUED
f) Goodwill and Intangible Assets -
Through expansion by acquisition, the Company has acquired goodwill and
intangible assets - mainly customer lists. In accordance with SFAS 142
"Accounting for Goodwill and Intangible Assets", goodwill is recorded at cost
and is not subject to amortization. Customer lists are recorded at cost and
amortized over their estimate useful lives on a straight-line basis. The useful
lives of customer lists are estimated to be three years. These assets are
reviewed annually for impairment, more frequently if management has reason to
believe that conditions exist that may lead to impairment.
g) Impairment of Long-Lived Assets -
As described above, the Company assesses the recoverability of its long-lived
tangible and intangible assets at least annually. Management assesses if there
have been significant events or changes in circumstances that indicate an asset
or group of assets may have become impaired. A test of recoverability is
performed comparing the carrying value of a group of assets to its undiscounted
future cash flows. If carrying values are in excess undiscounted future cash
flows, impairment is measured by comparing the internal discounted cash flow
analysis or a third party valuation. Estimating future cash flows required
significant judgment and projections may vary from cash flows eventually
realized.
h) Foreign Currency Translation -
The functional currency for BWI Budget Waste Inc. (Alta) is the Canadian dollar.
The reporting currency of Budget Waste Inc. is the US dollar.
Translation of foreign currency denominated transactions -
Translation undertaken in foreign currencies is translated into the functional
currency at the actual exchange rates prevailing at the time of the transaction.
Exchange gains or losses are a result of exchange rate changes between the time
the transaction is recognized and the collection of funds and are included as a
component of net income.
Translation of account balances denominate in foreign currency on consolidation-
The Company follows FAS 52 "Foreign Currency Translation" and uses the current
rate method whereby assets and liabilities are translated at the rate of
exchange at the Balance Sheet date. Revenues and expenses are translated at the
weighted average rate of exchange for the period. Components of stockholders'
deficiency are translated at the appropriate historic rate of exchange. Exchange
gains or losses on transaction of foreign currency are included as component of
comprehensive income.
34
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
2. SIGNIFICANT ACCOUNTING POLICIES: CONTINUED
i) Comprehensive Income -
Other comprehensive income refers to revenues, expenses, gains and losses that
under generally accepted accounting principles are included in comprehensive
income but are excluded from net income as these amounts are recorded directly
as an adjustment to stockholders' deficiency. The Company's other comprehensive
income is primarily comprised of unrealized foreign exchange gains and losses.
j) Revenue Recognition -
In accordance with SEC Staff Accounting Bulletin 104, the Company recognizes
revenue when there is persuasive evidence of an arrangement, delivery has
occurred, the fee is fixed or determinable, collectibility is reasonable assured
and there are no significant remaining performing obligations. For providing
services and short-term rentals, revenue is recognized when services or rental
has been completed. For long-term rentals, revenue is recognized monthly over
the term other contract. For special events, fencing, porta potties and other
assets that can be rented on a per diem basis, revenue is recognized when the
equipment is collected or returned.
k) Advertising -
Advertising costs are expensed as incurred and amounted to $239,555 and $141,909
for the years ended March 31, 2008 and 2007.
l) Share-Based Payment -
The Company has not issued any warrants or stock options, nor has it established
any compensation plan under which options or warrants may be issued. The Company
has adopted SFAS No. 123(r) "Share Based Payment" but it does not have any
effect on the financial statements. From time to time, employees and suppliers
have been issued stock as compensation for goods and services rendered to the
Company. These issuances of stock were valued at the value of goods and services
received in accordance with pre-established rates of pay and contractual
amounts.
m) Contingencies -
The potential exposure the Company has with respect to claims, assessments and
litigation has been estimated in accordance with SFAS No. 5. It is not always
possible to predict the outcome of litigation as it is subject to many
uncertainties. It is also not always possible for management to make a
meaningful estimate of the protection loss or range of loss associated with such
litigation.
35
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
2. SIGNIFICANT ACCOUNTING POLICIES: CONTINUED
n) Use of Estimates -
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying disclosures. Significant areas requiring the use of management
estimates relate to revenue recognition, the determination of impairment of
long-lived assets, the estimation of useful lives, rates and methods of
depreciation, income taxes, recognition of bad debts allowances, accounts
payable and accrued liabilities, recognition of capital leases and
contingencies. Management believes the estimates are reasonable. Actual results
could differ from these estimates and assumptions.
o) Supplemental Cash Flow Information -
Non-cash investing and financing activities are excluded from the statement of
cash flows. Non-cash transactions are disclosed throughout the notes to the
consolidated financial statements. Total amounts paid for income taxes and
interest are disclosed on the consolidated statement of cash flows.
p) Net loss per share before comprehensive income -
The Company computes net income (loss) per share in accordance with SFAS No.
128, "EARNINGS PER Share". SFAS No. 128 requires presentation of both basic and
diluted earnings per share (EPS) on the face of the income statement. Basic EPS
is computed by dividing net income (loss) available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period using the treasury stock method. In
computing diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options or warrants. Diluted EPS excludes all dilutive potential shares if
their effect is anti dilutive (i.e. reducing loss per share). The basic and
diluted EPS has been retroactively restated to take into effect the 1:30 reverse
split on October 31, 2006, the 1.5:1 split on January 5, 2007 and the 1:1 split
on March 9, 2007.
3. RISK MANAGEMENT RELATED TO FINANCIAL INSTRUMENTS:
The company is exposed to various types of risks owing to the nature of the
business activities it carries on, including those related to the use of
financial instruments. In order to manage the risks associated with using
financial instruments, such as loan, deposit and securities, controls have been
implemented, such as risk management policies and various risk limits. These
measures aim to optimize the return/risk ratio in all its operations. The main
risks to which the company is exposed are set out below.
Fair Value -
In accordance with SFAS 107 "Disclosures About Fair Values of Financial
Instruments", the Company's financial instruments include accounts receivable,
performance bonds, bank overdraft, revolving bank loan, accounts payable and
accrued liabilities notes payable, amounts due to related parties, amounts due
to shareholders, long-term debt, and obligations under capital leases. The fair
value of financial instruments recognized in the balance sheet approximate their
carrying amounts.
36
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
3. RISK MANAGEMENT RELATED TO FINANCIAL INSTRUMENTS: CONTINUED
Market Risk -
Market risk corresponds to the financial losses that the company could incur
because of unfavourable fluctuations in the value of financial instruments,
following variations in the parameters underlying their evaluation, such as
interest rates. The policies and limits implemented are designed to mitigate
exposure to market risk arising from asset and liability management activities.
Credit Risk -
Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash and accounts receivable. The Company deposits cash
with financial institutions it believes to be creditworthy. Cash balances at
these financial institutions may exceed the federally guaranteed amount.
The Company's accounts receivable are primarily derived from trade. The Company
will maintain an allowance for doubtful accounts receivable in those cases for
which the expected collectability of accounts receivable is in question.
Liquidity Risk -
Liquidity risk represents the possibility that the company may not be able to
gather sufficient cash resources, when required and under reasonable conditions,
to meet its financial obligations. The company's overall liquidity risk is
managed by the chief financial officer and supervised by the Board of Directors.
The company monitors cash resources daily and makes sure the liquidity
indicators are in compliance with limits established in the policies set by the
company.
Interest Risk -
The Company finances its property and equipment assets through short-term
borrowing, long-term borrowing and capital and operating leases. The Company's
greatest exposure to interest risk is from its short-term borrowings, as
long-term borrowings and leases have fixed interest rates or fixed minimum lease
payments.
4. PROVISION FOR DOUBTFUL ACCOUNTS:
The Company determines its provision for doubtful accounts based upon the
accounting policy described in Note 2(b). The Company's allowance for doubtful
accounts for the year ended March 31, 2008 and 2007 are $962,865 and $577,152.
37
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
5. PROPERTY AND EQUIPMENT:
2008 2007
----------- -----------
Owned:
Equipment $ 375,712 $ 314,795
Waste bins 2,184,060 1,900,808
Automotive 2,478,032 2,225,363
Port a Potties 17,220 3,641
Office 43,808 37,896
Heavy trucks and equipment 516,123 516,123
Computer equipment 71,558 57,526
Leasehold improvements 266,989 245,000
Buildings 176,393 557,386
Land 86,588 215,883
----------- -----------
6,216,482 6,074,421
Less: accumulated depreciation (2,008,902) (1,168,407)
----------- -----------
4,207,580 4,906,014
----------- -----------
Leased:
Equipment $ 33,478 $ 5,557
Waste bins 605,284 170,243
Automotive 3,641,774 1,809,205
Port a Potties 308,698 275,096
Fencing 406,580 165,129
----------- -----------
4,995,813 2,425,230
Less: Accumulated depreciation (1,528,626) (534,170)
----------- -----------
3,467,187 1,891,060
----------- -----------
$ 7,674,767 $ 6,797,074
=========== ===========
The provision for depreciation is as follows:
2008 2007
----------- -----------
Depreciation of owned property
and equipment $ 840,495 $ 903,100
Depreciation of leased property
and equipment 994,456 384,105
38
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
6. GOODWILL AND INTANGIBLE ASSETS:
2008 2007
----------- -----------
GOODWILL:
Balance, beginning $ 2,769,157 2,737,200
Addition of 4M, Muldowney and Hydrovac -- 781,768
Provision for impairment -- (749,482)
Foreign currency translation 338,240 --
----------- -----------
BALANCE, ENDING $ 3,107,397 $ 2,769,157
----------- -----------
CUSTOMER LISTS:
Balance, beginning $ 239,725 --
Additions -- 239,725
Depreciation (92,166) --
Foreign currency translation 31,780 --
----------- -----------
BALANCE, ENDING $ 179,339 $ 239,725
=========== ===========
In accordance with the accounting policy in Note 2(g), goodwill and intangible
assets were analyzed for impairment. During the year ended March 31, 2007 it was
determined that goodwill assigned to the water hauling and liquid services
divisions could not be supported and was accordingly written down.
7. REVOLVING BANK LOAN:
The revolving bank loan bears interest at prime plus 2 percent per annum and is
secured by a fixed and floating charge against the Company's assets. The maximum
amount available is $58,374.
8. DUE TO RELATED PARTIES:
Amounts due to related parties have no specific terms of repayment, are
non-interest bearing and are unsecured. $213,750 was converted to common stock
during the year.
9. DUE TO SHAREHOLDERS:
Amounts due to shareholders are unsecured, non-interest bearing with no specific
terms of repayment.
39
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
10. LONG-TERM DEBT:
March 31, March 31,
2008 2007
-------- --------
Business Development Corp; interest at 7.5% per annum;
repayable at $787 ($840 CAD) per month plus interest
The loan matures on August 23rd, 2008 $ 4,086 $ 12,381
Business Development Corp. interest at 8.25% per annum;
repayable at $2,610 ($2,685 CAD) per month plus interest
The loan matures on July 23rd, 2010 67,919 88,460
Edson Credit Union; interest at prime plus 2.25%;
repayable at $2,551 per month; secured by a general
security agreement -- 33,227
Ford Credit; interest at 3.9% per annum; repayable at
$1,080 per month; secured by an automobile -- 18,050
Tulchem Mortgage; interest at 5.75% per annum; repayable
at $4,741 per month; secured by land and a building -- 348,438
CIT Financial; interest at 11.5% per annum,; repayable
at $1,700 per month; secured by a camp trailer -- 40,731
CIT Financial; interest at 7.7% per annum; repayable
at $3,714 per month, secured by a vehicle -- 137,876
-------- --------
72,005 679,163
Less: Current portion 35,433 149,043
-------- --------
Long-term portion $ 36,572 $530,120
======== ========
Principal repayment over the next two years is as follows:
2009 $ 35,433
2010 36,572
Interest expenses incurred during the year was $427,130 (2007 - $532,324).
40
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
11. OBLIGATIONS UNDER CAPITAL LEASE:
March 31, March 31,
2008 2007
---------- ----------
Obligations under capital lease $4,474,592 $3,402,227
Less:
Current portion 1,374,549 1,058,871
---------- ----------
Long-term portion $3,100,043 $2,343,356
========== ==========
Minimum lease payments over the next five years are as follows:
2009 $1,374,549
2010 1,295,512
2011 832,044
2012 364,423
2013 128,227
The company has entered into 64 capital leases to finance its capital assets
with various financial institutions. These leases bear interest at interest
rates ranging from 10% to 15% per annum.
12. NON-CONTROLLING INTEREST:
Non-controlling interest consists of non-voting redeemable preferred shares
issued by Alta. The preferred shares have a redemption value of $CDN 3,400,000
($3,307,861 US at March 31, 2008) and are redeemable at the option of the
holders. Holders of the preferred shares are entitled to a non-cumulative
dividend at a rate per month, to be determined by the Board of the Directors, on
the redemption amount per share payable monthly. As stated in Note 16, these
preferred shares were redeemed for $1.
13. STOCKHOLDERS' DEFICIENCY:
a) Preferred Stock/Non-Controlling Interest -
In consideration for acquiring Allwaste on March 1, 2006, Budget Alberta issued
3,719,765 preferred shares. These shares are redeemable by the holders for $CDN
3,400,000 and have been classified as a minority interest in these consolidated
financial statements.
b) Warrants -
There are no warrants outstanding at March 31, 2008 or March 31, 2007.
c) Stock Options -
There are no stock options outstanding at March 31, 2008 or March 31, 2007.
41
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
14. ACQUISITIONS:
The Company completed a series of acquisitions during the years ended March 31,
2008 and 2007. The general purpose of these transactions is to be able to
provide a complete range of waste removal and ancillary services to its
customers. The Company also wished to increase brand awareness by acquiring
market share in its chosen markets. Additionally, the Company wishes to achieve
economies of scale through expansion
a) We Haul Waste Inc.
In order to expand its small roll-off operations, the Company acquired the
assets only of We Haul Waste Inc. on November 30, 2007 in exchange for 198,000
shares of the Company, valued at $172,000. The assets of We haul are as follows:
Capital assets $ 339,908
Long-term debt (167,908)
---------
$ 172,000
=========
b) 4M Water Hauling Ltd. by Budget Waste, Inc.
In order to expand its water hauling services and to complement its acquisition
of Finnie Water Hauling, effective February 16, 2007, the Company acquired 100%
of the outstanding common stock of 4M Water Hauling Ltd. in exchange for 200,000
shares of the Company valued at $1,000,000. This has been accounted for using
the purchase method. The assets of 4M acquired are as follows:
Current assets $ 839,769
Capital assets 1,123,778
Goodwill 313,429
Current liabilities (1,034,479)
Long-term debt (242,497)
-----------
$ 1,000,000
===========
42
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
14. ACQUISITIONS: CONTINUED
c) PJ's Waste and Recycling Services Ltd. by Budget Waste Inc. (assets only)
In order to expand its small roll-off operations and to provide recycling
services, effective February 14, 2007, the Company acquired 100% of the assets
of PJ's Waste and Recycling Services Ltd. (PJ's) in exchange for 130,000 shares
of the Company valued at $563,550. This has been accounted for as a purchase.
The assets of PJ's acquired are as follows:
Capital assets $335,963
Customer lists 227,587
--------
$563,000
========
d) 202287 Construction Services Ltd. by Budget Waste, Inc. (assets only)
In order to expand its small roll-off operations, effective November 30, 2006,
the Company acquired 100% of the assets of 202287 Construction Services Ltd.
(dba A&R Waste) in exchange for $112,710 and 100,000 shares of the Company
valued at $86,700. This has been accounted for as a purchase. The assets of A&R
acquired are as follows:
Capital assets $187,272
Customer lists 12,138
--------
$199,410
========
e) Muldowney Holdings Ltd. by Budget Waste, Inc.
In order to expand its hydrovac operations, effective December 1, 2006, the
Company acquired 100% of Muldowney Holdings Ltd (Muldowney) in exchange for
47,430 shares of the Company valued at $173,400. This company owned the
operating assets used by Hydrovac Alberta, so the two companies were acquired at
the same time. This has been accounted for using the purchase method. The
purchase price has been allocated to the assets of Muldowney as follows:
Capital assets $ 327,726
Goodwill 21,675
Current liabilities (176,001)
---------
$ 173,400
=========
f) HydroVac Alberta Inc. by Budget Waste, Inc.
Effective December 1, 2006, the Company acquired 100% of HydroVac Alberta Inc.
(HydroVac) in exchange for 130,535 shares of the Company valued at $478,260. As
explained above, Hydrovac and Muldowney were acquired as part of the same
acquisition. This has been accounted for using the purchase method. The purchase
price has been allocated to the assets of HydroVac as follows:
Goodwill $476,260
========
43
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
14. ACQUISITIONS: CONTINUED
g) Finney Water Hauling Ltd. by Budget Waste, Inc.
In order to expand its operation into water hauling, to more completely meet the
needs of its customers effective June 30, 2006, the Company acquired 100% of
Finney Water Hauling Ltd. (Finney) in exchange for $10. The Company and the
vendors are disputing the nature and amount of the other compensation. This has
been accounted for using the purchase method. The purchase price has been
allocated to the assets of Finney as follows:
Current assets $ 436,399
Capital assets 702,096
Goodwill 48,278
Current liabilities (748,488)
Long-term debt (438,275)
---------
$ 10
=========
h) 882880 Alberta Ltd. by Budget Waste, Inc.
In order to expand its operations into hydrovac effective April 30, 2006, the
Company acquired 100% of 882880 Alberta operating as Provac in exchange for $10.
This has been accounted for using the purchase method. The assets of Provac
acquired are as follows:
Current assets $ 253,618
Capital assets 679,610
Current liabilities (150,786)
Long-term debt (782,432)
---------
$ 10
=========
44
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
15. INCOME TAXES:
Income taxes vary from the amount that would be computed by applying the
estimated combined statutory income tax rate (34%) for the following reasons:
March 31, March 31,
2008 2007
----------- -----------
Loss before income taxes $(1,908,598) $(4,202,576)
Income tax rate 34% 34%
----------- -----------
Expected income tax expense (recovery) based on above rates (648,923) (1,428,876)
Impact of lower statutory tax rates on foreign subsidiaries (7,316) 39,613
Non-deductible expenses 54,771 27,876
Permanent difference 22,685 257,247
Effect of expiry of operating loss carry forward -- 20,079
Realization of loss carryforward 80,806 --
Change in valuation allowance 497,977 1,076,823
----------- -----------
Income tax expense (recovery) $ -- $ 761
=========== ===========
Deferred income taxes reflect the tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The Company's deferred tax asset
(liability) calculated at a 34% tax rate consists of the following:
March 31, March 31,
2008 2007
----------- -----------
Operating losses carryforward $ 1,459,890 $ 1,189,503
Property and equipment 679,121 451,531
Valuation allowance (2,139,011) (1,641,034)
----------- -----------
Net deferred tax asset (liability) $ -- $ --
=========== ===========
45
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
15. INCOME TAXES: CONTINUED
The Company's losses carried forward for income tax purposes are $4,293,793
(2007 - $3,498,458), which may be carried forward to apply against future income
tax, expiring between 2010 and 2028. The potential benefit of these loss carry
forwards has not been recognized in the financial statements, nor has it been
recognized as a deferred tax asset. Instead, as it is more likely than not, that
this benefit will expire, a valuation allowance has been taken against the
entire amount. These losses expire as follows:
2010 $ 35,742
2014 224,129
2015 203,786
2026 792,085
2027 2,415,569
2028 622,482
----------
$4,293,793
==========
As at March 31, 2008 the Company is in arrears filing its statutory income tax
returns and the operating losses noted above are based on estimates. The actual
operating losses could differ from these estimates.
46
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
16. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS:
a) The Company has entered into various operating leases for equipment and
premises. Minimum payments over the next five years are as follows:
2009 $ 408,555
2010 361,891
2011 314,537
2012 26,177
2013 400
b) The Company is involved in the following litigation -
William Gordon Southern, Strathmore Septic Services (1980) Ltd. DB Waste
Disposal 2005 Inc. and 593250 Alberta Ltd. are disputing the acquisition of the
above mentioned companies by Budget and are requesting restitution of $Cdn
500,000 ($US 434,000). This suit was resolved in May 2008 with the Company
issuing 500,000 common shares and paying legal costs. The company has accrued
$385,000 included in accounts payable and accrued liabilities related to this
settlement.
47
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
16. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS: CONTINUED
Corey Finnie and Virginia Finnie are disputing the acquisition of Finnie Water
Hauling Ltd. by Budget and are requesting damages of $Cdn 1,000,000 ($US
867,000) and 10,000,000 shares of the Company. Approximately $948,000 of the
$Cdn 1,000,000 was purportedly related to the assumption of liabilities related
to capital leases. The plaintiff is claiming that these obligations were not
assumed by the company. The company has assumed these obligations. The outcome
of this lawsuit is indeterminable at this time.
Vern Lynde, Sonya Lynde, Lester Lynde and Craig Swayne are disputing for monies
owing pursuant to accounts receivable factoring agreements which with the
Company. The total amount of the claim is approximately $58,000. The outcome of
this lawsuit is indeterminable at this time.
The Company and its affiliate 349416 Alberta Ltd sought against Roche Group Pty
Limited, a declaration confirming an interest in certain leased lands, as well
as various corollary relief including judgment in the amount of $220,000
together with costs. Roche Group denied the existence of the claim and
counterclaimed for damages for trespass and wrongful occupation of the subject
lands in an unspecified amount. The outcome of this lawsuit is indeterminable at
this time.
c) Environmental -
The Company's operations are subject to federal, provincial and municipal laws
and regulations over the collection, transport, transfer and disposal of waste
products. The Company does not maintain its own landfill sites, so is not
subject to any remediation costs with respect to contaminated sites. The Company
does not transport hazardous wastes. The Company is not exposed to significant
environmental risk.
d) Subsequent events -
Subsequent to March 31, 2008, the Company issued the following shares as
follows:
48
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
Number of Shares Amount
---------------- ------
Debt conversion 150,000 $136,206
Subsequent to March 31, 2008, preferred shares in the amount of $3,370,861, as
discussed in Note 12, were redeemed for $1.
17. RELATED PARTY TRANSACTIONS:
The Company has transactions with various related parties, including the
Company's officers, directors and significant shareholders and companies
controlled by shareholders, directors or family members, and a company
controlled by the spouse of a shareholder. These transactions are in the normal
course of operations and are transacted at the exchange amount agreed to by the
related parties.
March 31, March 31,
2008 2007
---------- ----------
Included in accounts receivable $ 50,625 $ 15,790
Included in accounts payable 131,122 58,622
Included in accrued liabilities -- 238,425
Included in obligations under capital lease 1,166,274 451,710
Transactions during the year
Management fees $ -- $ 130,050
Equipment purchases 356,514 112,710
Supplies 35,594 62,055
Lease payments 162,077 89,996
Rent 21,598 6,235
Repairs 207,273 60,300
Loan interest 74,702 21,393
During the year ended March 31, 2008 the company issued 25,000,000 common shares
to a director and officer of the Company in order to settle $250,000 of accounts
payable for management fees recorded in 2006 and 2007.
Additionally, the Company sold property to a related Company for proceed of $CAD
1,200,000. The property was independently appraised at $1,167,000. The proceeds
were used to repay a mortgage and to reduce debt owing to the related company.
The company recognized a gain of $511,876 on this sale.
49
STATEMENT E
CONTINUED
BUDGET WASTE INC.
Notes to Consolidated Financial Statements
March 31, 2008
18. SEGMENTED INFORMATION:
The Company provides non-hazardous waste collection, transfer, recycling and
disposal services. Additionally, the Company provides support to the
construction industry such as fence rentals, sanitary facility rentals, bin
rentals, hydrovac and water hauling. The Company operates primarily, but not
exclusively, in Alberta, Canada. The Company evaluates principal operations
through three functional departments: Solid Waste, Liquid Waste and Water
Hauling. The results of operations for the year ended March 31, 2008 by
functional department is as follows:
Cost of Gross Goodwill
Revenue Sales Profit Depreciation Administration Impairment Net Loss
------- ----- ------ ------------ -------------- ---------- --------
Solid Waste 12,675,787 8,325,384 4,350,403 1,206,784 3,555,507 0 (411,888)
Liquid Services 1,780,849 1,539,674 241,175 377,685 449,351 0 (585,861)
Water Hauling 1,697,887 1,776,942 (79,055) 215,673 616,121 0 (910,849)
---------- ---------- ---------- ---------- ---------- ---------- ----------
16,154,523 11,642,000 4,512,523 1,800,142 4,620,979 0 (1,908,598)
========== ========== ========== ========== ========== ========== ==========
The results of operations for the year ended March 31, 2007 by department is as
follows:
Cost of Gross Goodwill
Revenue Sales Profit Depreciation Administration Impairment Net Loss
------- ----- ------ ------------ -------------- ---------- --------
Solid Waste 7,464,645 6,012,442 1,452,203 923,243 2,440,197 88,886 (2,000,123)
Liquid Services 2,223,755 1,819,164 404,590 266,540 875,634 338,130 (1,075,714)
Water Hauling 752,609 811,141 (58,533) 97,422 648,318 322,466 (1,126,739)
---------- ---------- ---------- ---------- ---------- ---------- ----------
10,441,008 8,642,748 1,798,260 1,287,205 3,964,149 749,482 (4,202,576)
========== ========== ========== ========== ========== ========== ==========
50
BUDGET WASTE, INC.
Calgary, Alberta
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
For the Three months Ended June 30, 2008 and 2007
51
BUDGET WASTE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - PREPARED BY MANAGEMENT)
Consolidated Balance Sheets STATEMENT "A"
Consolidated Statements of Income and Comprehensive Income STATEMENT "B"
Consolidated Statements of Stockholders' Equity STATEMENT "C"
Consolidated Statements of Cash Flows STATEMENT "D"
Notes to Consolidated Financial Statements STATEMENT "E"
52
STATEMENT "A"
BUDGET WASTE, INC.
Consolidated Balance Sheets
(Unaudited - Prepared by Management)
(US Dollars)
June 30, 2008
June 30, March 31,
2008 2008
----------- -----------
ASSETS
Current:
Accounts receivable $ 2,266,303 $ 2,190,912
Prepaid expenses 111,755 110,940
----------- -----------
2,378,058 2,301,852
----------- -----------
Performance bonds 30,558 48,645
Property and equipment, net 7,445,268 7,674,767
Goodwill 3,253,360 3,107,397
Customer lists 164,292 179,339
----------- -----------
10,893,478 11,010,148
----------- -----------
$13,271,536 $13,312,000
=========== ===========
Approved on Behalf of the Board:
_______"Jim Can", Director
_______"Kendall Dilling", Director
______ "Robert Baker" , Director
- - See accompanying notes -
53
STATEMENT "A"
CONTINUED
BUDGET WASTE, INC.
Consolidated Balance Sheets
(Unaudited - Prepared by Management)
(US Dollars)
June 30, 2008
June 30, March 31
2008 2008
------------ ------------
LIABILITIES
Current:
Bank overdraft $ 205,131 $ 39,009
Revolving bank loan 28,633 56,743
Accounts payables and accrued liabilities 4,257,812 4,380,479
Notes payable 49,279 47,068
Due to related parties 966,292 811,289
Corporate taxes payable 24,944 23,825
Due to shareholders 1,244,531 1,738,755
Current portion of long-term debt 37,097 34,433
Current portion of obligations under capital lease 1,526,107 1,374,549
------------ ------------
8,339,627 8,507,150
------------ ------------
Long-term debt 27,517 36,572
Obligations under capital lease 2,791,745 3,100,043
Non-controlling interest -- 3,307,861
------------ ------------
2,819,263 6,444,476
------------ ------------
11,158,890 14,951,626
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock
Authorized
500,000,000 common voting stocks with a par value of $0.001
each 20,000,000 preferred non-voting stock with a par value
of $0.001 each
Issued and outstanding
89,189,783 (48,757,882 - 2007) common stock Par value 89,690 95,734
Contributed surplus 9,633,068 5,905,201
Cumulative other comprehensive income (loss) 125,780 150,319
Accumulated deficit (7,735,892) (7,790,880)
------------ ------------
2,112,646 (1,639,626)
------------ ------------
Nature of operations (Note 1)
Commitments, contingencies, and subsequent events (Note 16)
$ 13,271,536 $ 13,312,000
============ ============
- - See accompanying notes -
54
STATEMENT "B"
BUDGET WASTE, INC.
Consolidated Statements of Income and Comprehensive Income
(Unaudited - Prepared by Management)
(US Dollars)
For the Three Months Ended June 30
2008 2007
------------ ------------
Revenue $ 3,376,988 $ 3,384,667
Cost of sales 2,659,323 2,732,214
------------ ------------
Gross earnings before general and administrative expenses 717,664 652,453
------------ ------------
General and Administrative Expenses:
Advertising and promotion 101,082 77,344
Automotive 4,101 --
Bad debts 369 --
Depreciation 350,435 315,583
Gain on sale of assets (416,135) --
Insurance 26,619 83,805
Interest and bank charges 17,431 34,931
Interest on long-term debt 118,377 111,967
Office 45,232 204,581
Professional fees 45,702 74,498
Rent 103,904 96,411
Repairs and maintenance 57,624
Salaries and benefits 157,372 300,382
Telephone 42,842 38,906
Travel 7,720 --
------------ ------------
662,676 1,338,408
------------ ------------
Net income (Loss) 54,988 (685,955)
------------ ------------
Other comprehensive income
Foreign currency translation adjustment (24,538) (39,815)
------------ ------------
Total comprehensive income (loss) for the year $ 30,450 $ (725,770)
============ ============
Basic and diluted Income (Loss) per share $ 0.00 $ 0.02
Weighted average stock outstanding 95,803,966 41,412,198
============ ============
- - See accompanying notes -
55
STATEMENT "C"
BUDGET WASTE, INC.
Consolidated Statements of Stockholders' Deficiency
(Unaudited - Prepared by Management)
(US Dollars)
For the Three Months Ended June 30, 2008
Retained
Common Stock Stock to Contributed Comprehensive Earnings
Number Par Value be Issued Surplus Income (Deficit) Total
------ --------- --------- ------- ------ --------- -----
Balance 3/31/06 18,268,743 $18,268 $ -- $ 162,215 $(38,083) $(1,679,706) $(1,537,306)
Recapitalization of
the company (Note 1) 5,313,300 5,313 -- 638,241 -- -- 643,554
Acquisitions 1,971,070 1,971 -- 2,367,118 -- -- 2,369,089
Debt conversion 9,363,552 9,363 -- 837,306 -- -- 846,669
Issued for cash 13,319,369 13,319 -- 671,620 -- -- 684,939
For services 321,848 321 -- 49,975 -- -- 50,296
Subscription receivable 200,000 200 -- (200) -- -- --
Other comprehensive
income -- -- -- -- 244,362 -- 244,362
Net loss -- -- -- -- -- (4,202,576) (4,202,576)
To be issued -- -- 413,713 -- -- -- 413,713
---------- ------- --------- ---------- -------- ----------- -----------
Balance 3/31/07 48,757,882 48,755 413,713 4,726,275 206,279 (5,882,282) (487,260)
Acquisitions 298,000 298 (118,850) 290,552 -- -- 172,000
Debt conversion 46,378,406 46,378 (126,075) 543,446 -- -- 463,749
For services 327,331 287 -- 121,094 -- -- 121,381
For cash 370,109 370 (168,788) 223,480 -- -- 55,062
Cancelled (397,762) (354) -- 354 -- -- --
Other comprehensive
loss -- -- -- -- (55,960) -- (55,960)
Net loss -- -- -- -- -- (1,908,598) (1,908,598)
---------- ------- --------- ---------- -------- ----------- -----------
Balance 3/31/08 95,733,966 95,734 -- 5,905,201 150,319 (7,790,880) (1,639,626)
Issued for services 250,000 250 -- 24,750 -- -- 25,000
Redemption of
minority interest -- -- -- 3,441,823 -- -- 3,441,823
Settlement of lawsuit -- 500 -- 254,500 -- -- 255,000
Cancellation of
common stock (6,794,183) (6,794) -- 6,794 -- -- --
Other
Comprehensive Income -- -- -- -- (24,538) -- (24,538)
Net Income -- -- -- -- -- 54,988 54,988
---------- ------- --------- ---------- -------- ----------- -----------
Balance 6/30/08 89,189,783 $89,690 $ -- $9,633,068 $125,780 $(7,735,892) $ 2,112,646
========== ======= ========= ========== ======== =========== ===========
- - See accompanying notes -
56
STATEMENT "D"
BUDGET WASTE, INC.
Consolidated Statements of Cash Flows
(Unaudited - Prepared by Management)
(US Dollars)
For the Three Months Ended June 30
2008 2007
--------- ---------
Operating Activities:
Net Income (Loss), per Statement "B" $ 54,988 $(685,955)
Adjustments for non-cash items -
Depreciation 350,435 315,583
Shares issued for services 25,000 --
Goodwill impairment -- --
Loss (Gain) on sale of asset (416,135) --
Changes in non-cash working capital -
(Increase) Decrease in accounts receivable (75,391) (14,608)
(Increase) Decrease prepaid expenses (815) --
Increase (Decrease) in corporate taxes payable 1,119 --
Increase (Decrease) in accounts payable and accrued liabilities 130,022 3,875
--------- ---------
Cash flows from (used in) operating activities 73,098 (381,105)
--------- ---------
Investing Activities:
(Increase) Decrease in performance bonds 18,087 --
Additions to property and equipment (84,780) (232,565)
Proceeds on sale of property and equipment 67,229
Acquisitions of business assets, net of cash acquired -- --
--------- ---------
Cash flows from (used in) investing activities 536 (232,565)
--------- ---------
Financing Activities:
Increase (Decrease) in revolving bank loans (28,110) --
Increase (Decrease) in bank overdraft 166,122 --
Proceeds on issuance of capital stock -- --
Repayment of long-term debt (7,390) (9,945)
Repayment of obligations under capital lease (156,739) (267,889)
Proceeds from related parties 155,003 78,840
Proceeds from shareholders 127,122 614,659
--------- ---------
Cash flows from (used in) financing activities 256,008 415,665
--------- ---------
Effect of exchange rate changes on cash (329,642) 198,005
Net Increase (Decrease) in Cash and Cash Equivalents -- --
Cash and cash equivalents, beginning -- --
--------- ---------
Cash and cash equivalents, ending $ -- $ --
========= =========
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 118,377 $ 111,967
Income taxes paid -- --
- - See accompanying notes -
57
STATEMENT E
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
1. NATURE OF OPERATIONS:
e) Condensed Financial Statements -
These financial statements do not include all of the disclosure contained in the
Company's March 31, 2008 year end financial statements, but only descriptions of
significant and material changes that have incurred in this interim period.
Readers are requested to read these financial statements in conjunction with the
financial statements prepared for the year ended March 31, 2008.
f) Company Description -
These financial statements include the accounts of Budget Waste, Inc. (A Nevada
Corporation) (the "Company") and its wholly owned subsidiary Budget Waste Inc.
(an Alberta Corporation) "Alta". Alta is the successor corporation following the
July 1, 2006 amalgamation of Alta and its wholly owned subsidiaries: Kosland
Waste Removal Ltd. (acquired February 15, 2006); DB Waste Disposal 2005 Ltd.
(acquired March 1, 2006); Strathmore Septic Services (1980) Ltd. (acquired March
1, 2006), 593250 Alberta Ltd. (operating as DB Port-a-Pod acquired March 1,
2006); All Waste Systems Ltd. (acquired March 1, 2006); Rocky Mountain Waste
Services Inc. (acquired March 1, 2006); 882880 Alberta Ltd. (acquired April 30,
2006) and Finnie Water Hauling Ltd. (acquired June 30, 2006). Subsequent to the
amalgamation, the Company also acquired Hydrovac Alberta Inc. (acquired December
1, 2006) and 4M Water Hauling Ltd. (acquired February 16, 2007). The Company
also acquired the assets only of 202287 Construction Services Ltd. (acquired
November 30, 2006), Muldowney Holdings Ltd. (acquired December 1, 2006) and PJ.s
Waste and Recycling Services Ltd. (acquired February 14, 2007).
The Company provides non-hazardous waste collection, transfer, recycling and
disposal services. Additionally, the Company provides support to the
construction industry such as fence rentals, sanitary facility rentals, bin
rentals, hydrovac and water hauling. The Company operates primarily, but not
exclusively, in Alberta, Canada. The Company evaluates principal operations
through three functional departments: Solid Waste, Liquid Waste and Water
Hauling.
g) Consolidated Statements -
Effective July 1, 2006 the Company completed the acquisition of Budget Waste
Inc. (Alta). According to accounting principles generally accepted in the United
States, the above noted acquisition is considered to be a capital transaction in
substance, rather than a business combination. That is, the acquisition is
equivalent to the issuance of stock by Budget Waste Inc. (Alta) for the net
monetary assets of Budget Waste, Inc. accompanied by a recapitalization and is
accounted for as a change in capital structure. Accordingly, the accounting for
the acquisition is identical to that resulting from a reverse acquisition. All
material inter-company balances and transaction have been eliminated in
consolidation.
h) Comparative Figures -
The June 30, 2007 comparative figures have been reclassified, where applicable,
to conform to the presentation used in the current quarter.
i) Going Concern -
The Company's ability to continue as a going concern is dependant upon achieving
profitable operations and upon the continued financial support of its lenders
and investors. The outcome of these matters cannot be predicted at this time.
58
STATEMENT E
CONTINUED
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
1. NATURE OF OPERATIONS: CONTINUED
j) Going Concern - Continued
Due to the recurring losses of the Company, the Company must continue to obtain
external investment capital and financing. On going operations will be dependant
upon the execution of the Company's business plan including achieving more
efficient operations and marketing initiatives and the successful listing of the
Company on a public market.
These financial statements do not include any adjustments to the amounts and
classification of assets and liabilities that might be necessary should the
Company be unable to continue as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES:
a) Cash and Cash Equivalents -
Cash and cash equivalents consist of cash and deposit instruments with an
initial maturity of three months or less.
b) Accounts Receivable -
Receivables are recorded when invoiced or advanced and represent claims against
third parties that will be settled in cash. The carrying value of receivables,
net of the allowance for doubtful accounts, represents the estimated net
realizable value. The estimate for the allowance for doubtful accounts is based
upon historic collection trends, type of customer and age of receivables. If
events indicate that specific receivable balances may be impaired, further
consideration is given to those balances and the allowance is adjusted
accordingly. Accounts are written off when the Company's efforts to collect are
unsuccessful.
c) Income Taxes -
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Uncertainty in Income
Taxes". Under SFAS No. 109, deferred income tax assets and liabilities are
determined based on differences between the financial statement reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws in effect when the differences are expected to reverse. The measurement
of deferred income tax assets is reduced, if necessary, by a valuation allowance
for any tax assets and liabilities of a change in tax rates realized. The effect
on deferred income tax assets and liabilities of a change in tax rates is
recognized in the period that such tax rate changes are enacted. FIN No.48
prescribes a recognition threshold and measurement attribute for financial
statement recognition ad measurement of tax positions taken into in tax returns.
To the extent interest and penalties may be assessed by taxing authorities on
any underpayment of income tax, such amounts have been accrued and are
classified as a component of income tax expense in our Consolidated Statements
of Operations. The Company elected this accounting policy, which is a
continuation of our historical policy, in connection with our adoption of FIN
48.
59
STATEMENT E
CONTINUED
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
2. SIGNIFICANT ACCOUNTING POLICIES: CONTINUED
d) Property and Equipment -
Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized while major maintenance expenditures are
expensed as incurred. In accordance with SFAS 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets", the Company reviews its assets annually for
impairment. Depreciation is provided over the estimated useful lives of the
assets on a declining balance basis at the following annual rates:
Equipment 20%
Waste bins 10%
Automotive 20%
Port-a-Potties 20%
Trailers 20%
Assets under capital lease 20%
Office 20%
Heavy trucks and equipment 20%
Computer equipment 30%
Tools and equipment 20%
Leasehold developments 20%
Buildings 4%
Depreciation for property and equipment purchased during the year is calculated
at one-half of the above rates.
e) Leases -
The Company leases property and equipment in the ordinary course of business.
Significant lease obligations relate to trucks, waste bins, and compactors.
These leases have varying terms and may or may not include purchase or buyout
options and guaranteed residuals. The terms of these leases are considered when
determining whether a lease is classified as operating or capital.
The majority of the Company's leases are capital leases. Assets under capital
lease are capitalized using interest rates appropriate at the inception of each
lease and are amortized over their estimated useful lives, using the same method
as similar assets that the Company owns. The present value of the lease payments
is recorded as a debt obligation as disclosed in Note 11.
Other leases are classified as operating when lease terms are significantly
shorter than the assets' economic useful lives, or relatively low fixed minimum
lease payments. Management expects that in the normal course of business, these
leases will be renewed, replaced with new leases or replaced with fixed asset
expenditures.
60
STATEMENT E
CONTINUED
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
2. SIGNIFICANT ACCOUNTING POLICIES: CONTINUED
n) Goodwill and Intangible Assets -
Through expansion by acquisition, the Company has acquired goodwill and
intangible assets - mainly customer lists. In accordance with SFAS 142
"Accounting for Goodwill and Intangible Assets", goodwill is recorded at cost
and is not subject to amortization. Customer lists are recorded at cost and
amortized over their estimate useful lives on a straight-line basis. The useful
lives of customer lists are estimated to be three years. These assets are
reviewed annually for impairment; more frequently if management has reason to
believe that conditions exist that may lead to impairment.
o) Impairment of Long-Lived Assets -
As described above, the Company assesses the recoverability of its long-lived
tangible and intangible assets at least annually. Management assesses if there
have been significant events or changes in circumstances that indicate an asset
or group of assets may have become impaired. A test of recoverability is
performed comparing the carrying value of a group of assets to its undiscounted
future cash flows. If carrying values are in excess undiscounted future cash
flows, impairment is measured by comparing the internal discounted cash flow
analysis or a third party valuation. Estimating future cash flows required
significant judgment and projections may vary from cash flows eventually
realized.
p) Foreign Currency Translation -
The functional currency for Budget Waste Inc. (Alta) is the Canadian dollar. The
reporting currency of Budget Waste, Inc. is the US dollar.
Translation of foreign currency denominated transactions -
Transactions undertaken in foreign currencies are translated into the functional
currency at the actual exchange rates prevailing at the time of the transaction.
Exchange gains or losses are a result of exchange rate changes between the time
the transaction is recognized and the collection of funds and are included as a
component of net income.
Translation of account balances denominated in foreign currencies on
consolidation -
The Company follows FAS 52 "Foreign Currency Translation" and uses the current
rate method whereby assets and liabilities are translated at the rate of
exchange at the Balance Sheet date. Revenues and expenses are translated at the
weighted average rate of exchange for the period. Components of stockholders'
deficiency are translated at the appropriate historic rate of exchange. Exchange
gains or losses on transaction of foreign currency are included as a component
of comprehensive income.
61
STATEMENT E
CONTINUED
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
2. SIGNIFICANT ACCOUNTING POLICIES: CONTINUED
q) Comprehensive Income -
Other comprehensive income refers to revenues, expenses, gains and losses that
under generally accepted accounting principles are included in comprehensive
income but are excluded from net income as these amounts are recorded directly
as an adjustment to stockholders' deficiency. The Company's other comprehensive
income is primarily comprised of unrealized foreign exchange gains and losses.
r) Revenue Recognition -
In accordance with SEC Staff Accounting Bulletin 104, the Company recognizes
revenue when there is persuasive evidence of an arrangement, delivery has
occurred, the fee is fixed or determinable, collectibility is reasonably assured
and there are no significant remaining performance obligations. For providing
services and short-term rentals, revenue is recognized when services or rentals
have been completed. For long-term rentals, revenue is recognized monthly over
the term of the contract. For special events, fencing, port-a-potties and other
assets that can be rented on a per diem basis, revenue is recognized when the
equipment is collected or returned.
s) Advertising -
Advertising costs are expensed as incurred and amounted to $101,162 for the
three months ended June 30, 2008 and $77,344 for the three months ended June 30,
2007.
t) Share-Based Payment -
The Company has not issued any warrants or stock options, nor has it established
any compensation plan under which options or warrants may be issued. The Company
has adopted SFAS No. 123(r) "Share Based Payment" but it does not have any
effect on the financial statements. From time to time, employees and suppliers
have been issued stock as compensation for goods and services rendered to the
Company. These issuances of stock were valued at the value of goods and services
received in accordance with pre-established rates of pay and contractual
amounts.
u) Contingencies -
The potential exposure the Company has with respect to claims, assessments and
litigation has been estimated in accordance with SFAS No. 5. It is not always
possible to predict the outcome of litigation as it is subject to many
uncertainties. It is also not always possible for management to make a
meaningful estimate of the protection loss or range of loss associated with such
litigation.
n) Use of Estimates -
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying disclosures. Significant areas requiring the use of management
estimates relate to revenue recognition, the determination of impairment of
long-lived assets, the estimation of useful lives, rates and methods of
depreciation, income taxes, recognition of bad debts allowances, accounts
payable and accrued liabilities, recognition of capital leases and
contingencies. Management believes the estimates are reasonable. Actual results
could differ from these estimates and assumptions.
62
STATEMENT E
CONTINUED
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
2. SIGNIFICANT ACCOUNTING POLICIES: CONTINUED
p) Supplemental Cash Flow Information -
Non-cash investing and financing activities are excluded from the statement of
cash flows. Non-cash transactions are disclosed throughout the notes to the
consolidated financial statements. Total amounts paid for income taxes and
interest are disclosed on the consolidated statement of cash flows.
p) Net loss per share before comprehensive income -
The Company computes net income (loss) per share in accordance with SFAS No.
128, "EARNINGS PER Share". SFAS No. 128 requires presentation of both basic and
diluted earnings per share (EPS) on the face of the income statement. Basic EPS
is computed by dividing net income (loss) available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period using the treasury stock method. In
computing diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options or warrants. Diluted EPS excludes all dilutive potential shares if
their effect is anti dilutive (i.e. reducing loss per share). The basic and
diluted EPS has been retroactively restated to take into effect the 1:30 reverse
split on October 31, 2006, the 1.5:1 split on January 5, 2007 and the 1:1 split
on March 9, 2007.
3. RISK MANAGEMENT RELATED TO FINANCIAL INSTRUMENTS:
The company is exposed to various types of risks owing to the nature of the
business activities it carries on, including those related to the use of
financial instruments. In order to manage the risks associated with using
financial instruments, such as loan, deposit and securities, controls have been
implemented, such as risk management policies and various risk limits. These
measures aim to optimize the return/risk ratio in all its operations. The main
risks to which the company is exposed are set out below.
Fair Value -
In accordance with SFAS 107 "Disclosures About Fair Values of Financial
Instruments", the Company's financial instruments include accounts receivable,
performance bonds, bank overdraft, revolving bank loan, accounts payable and
accrued liabilities notes payable, amounts due to related parties, amounts due
to shareholders, long-term debt, and obligations under capital leases. The fair
value of financial instruments recognized in the balance sheet approximate their
carrying amounts.
Market Risk -
Market risk corresponds to the financial losses that the company could incur
because of unfavourable fluctuations in the value of financial instruments
following variations in the parameters underlying their evaluation, such as
interest rates. The policies and limits implemented are designed to mitigate
exposure to market risk arising from asset and liability management activities.
63
STATEMENT E
CONTINUED
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
3. RISK MANAGEMENT RELATED TO FINANCIAL INSTRUMENTS: CONTINUED
Credit Risk -
Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash and accounts receivable. The Company deposits cash
with financial institutions it believes to be creditworthy. Cash balances at
these financial institutions may exceed the federally guaranteed amount.
The Company's accounts receivable are primarily derived from trade. The Company
will maintain an allowance for doubtful accounts receivable in those cases for
which the expected collectability of accounts receivable is in question.
Liquidity Risk -
Liquidity risk represents the possibility that the company may not be able to
gather sufficient cash resources, when required and under reasonable conditions,
to meet its financial obligations. The company's overall liquidity risk is
managed by the chief financial officer and supervised by the Board of Directors.
The company monitors cash resources daily and makes sure the liquidity
indicators are in compliance with limits established in the policies set by the
company.
Interest Risk -
The Company finances its property and equipment assets through short-term
borrowing, long-term borrowing and capital and operating leases. The Company's
greatest exposure to interest risk is from its short-term borrowings, as
long-term borrowings and leases have fixed interest rates or fixed minimum lease
payments.
4. PROVISION FOR DOUBTFUL ACCOUNTS:
The Company determines its provision for doubtful accounts based upon the
accounting policy described in Note 2(b). The Company's allowance for doubtful
accounts at June 30, 2008 and March 31, 2008 is $989,686.
5. REVOLVING BANK LOAN:
The revolving bank loan bears interest at prime plus 2 percent per annum and is
secured by a fixed and floating charge against the Company's assets. The maximum
amount available is $58,374.
6. DUE TO RELATED PARTIES:
Amounts due to related parties have no specific terms of repayment, are
non-interest bearing and are unsecured.
7. DUE TO SHAREHOLDERS:
Amounts due to shareholders are unsecured, non-interest bearing with no specific
terms of repayment.
64
STATEMENT E
CONTINUED
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
8. NON-CONTROLLING INTEREST:
Non-controlling interest consisted of non-voting redeemable preferred shares
issued by Alta. The preferred shares are redeemable at the option of the
holders. On May 20, 2008, all of these preferred shares were redeemed for $1.
This was recorded as a capital transaction.
9. STOCKHOLDERS' EQUITY (DEFICIENCY):
a) Preferred Stock/Non-Controlling Interest -
In consideration for acquiring Allwaste on March 1, 2006, Budget Alberta issued
3,719,765 preferred shares. These shares were redeemed on May 20, 2008 for $1.
b) Warrants -
There are no warrants outstanding at June 30, 2008 or March 31, 2008.
c) Stock Options -
There are no stock options outstanding at June 30, 2008 or March 31, 2008.
10. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS:
a) Operating Leases -
The Company has entered into various operating leases for equipment and
premises. Minimum payments over the next five years are as follows:
2009 $408,555
2010 361,891
2011 314,537
2012 26,177
2013 400
b) The Company is involved in the following litigation -
William Gordon Southern, Strathmore Septic Services (1980) Ltd. DB Waste
Disposal 2005 Inc. and 593250 Alberta Ltd. are disputing the acquisition of the
above mentioned companies by Budget and are requesting restitution of $Cdn
500,000 ($US 434,000). This suit was settled in May 2008 with a director of the
company transferring 500,000 free trading common shares with value of US
$255,000 to William Southern on behalf of the Company.
Corey Finnie and Virginia Finnie are disputing the acquisition of Finnie Water
Hauling Ltd. by Budget and are requesting damages of $Cdn 1,000,000 ($US
867,000) and 1,000,000 (after adjusting for stock splits) shares of the Company.
Approximately $948,000 of the $Cdn 1,000,000 was purportedly related to the
assumption of liabilities related to capital leases. The plaintiff is claiming
that these obligations were not assumed by the company. The company has assumed
these obligations. The outcome of this lawsuit is indeterminable at this time.
65
STATEMENT E
CONTINUED
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
10. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS: CONTINUED
c) Environmental -
The Company's operations are subject to federal, provincial and municipal laws
and regulations over the collection, transport, transfer and disposal of waste
products. The Company does not maintain its own landfill sites, so is not
subject to any remediation costs with respect to contaminated sites. The Company
does not transport hazardous wastes. The Company is not exposed to significant
environmental risk.
11. RELATED PARTY TRANSACTIONS:
The Company has transactions with various related parties, including the
Company's officers, directors and significant shareholders and companies
controlled by shareholders, directors or family members, and a company
controlled by the spouse of a shareholder. These transactions are in the normal
course of operations and are transacted at the exchange amount agreed to by the
related parties.
June 30, 2008 March 31, 2008
------------- --------------
Included in accounts receivable $ 50,625 $ 50,625
Included in accounts payable 131,122 131,122
Transactions during the three months ended June 30, 2008 and 2007:
June 30, 2008 March 31, 2008
------------- --------------
Rent $ 8,000 $ --
Repairs and supplies 35,339 38,225
Loan interest 47,066 52,415
During the period ended June 30, 2008 the Company transferred property to a
company related by way of directors in common for in settlement of debt owing to
the related party. The property was independently appraised at CAD $610,000. The
company recognized a gain of CAD $356,079 on this sale.
During the year ended March 31, 2008 the Company issued 25,000,000 common shares
to a director and officer of the Company in order to settle $250,000 of accounts
payable for management fees recorded in 2006 and 2007.
During the year ended March 31, 2008 the Company sold property to a company
related by way of directors in common for proceeds of CAD $1,200,000. The
property was independently appraised at $1,167,000. The proceeds were used to
repay a mortgage and to reduce debt owing to the related company. The company
recognized a gain of $511,876 on this sale.
66
STATEMENT E
CONTINUED
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
12. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") 141(R). In December 2007,
the Financial Accounting Standards Board (the "FASB") issued SFAS No. 141(R),
Business Combinations ("SFAS 141(R)"). SFAS 141(R) will have a material impact
on the Company as it establishes principles and requirements for how the
Company: (a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; (b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase; and (c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS
141(R) requires contingent consideration to be recognized at its fair value on
the acquisition date and, for certain arrangements, changes in fair value to be
recognized in earnings until settled. SFAS 141(R) also requires
acquisition-related transaction and restructuring costs to be expensed rather
than treated as part of the cost of the acquisition. SFAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.
SFAS 157. In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements ("SFAS 157"), which defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands disclosures about fair
value measurements. SFAS 157 applies under other existing accounting
pronouncements that require or permit fair value measurements, as the FASB
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, SFAS 157 does not require any new
fair value measurements. Effective April 1, 2008, the Company adopted SFAS 157
as it relates to financial assets and liabilities.
FSP 157-2. In February 2008, the FASB issued FASB Staff Position No. 157-2,
Effective Date of FASB Statement No. 157 ("FSP 157-2"), which delays the
effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities.
Therefore, the Company has delayed application of SFAS 157 to its nonfinancial
assets and nonfinancial liabilities, which include assets and liabilities
acquired in connection with a business combination, goodwill, and intangible
assets until April 1, 2009. The Company is currently evaluating the impact of
SFAS 157 for nonfinancial assets and liabilities on the Company's financial
position and results of operations.
SFAS 159. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115 ("SFAS 159"). SFAS 159 permits entities to choose to measure
many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. SFAS 159 permits all entities
to choose, at specified election dates, to measure eligible items at fair value
(the "fair value option"). A business entity shall report unrealized gains and
losses on items for which the fair value option has been elected in earnings at
each subsequent reporting date. Upfront costs and fees related to items for
which the fair value option is elected are recognized in earnings as incurred
and not deferred. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and liabilities.
67
STATEMENT E
CONTINUED
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
12. NEW ACCOUNTING STANDARDS: CONTINUED
SFAS 159 is effective as of the beginning of an entity's first fiscal year that
begins after November 15, 2007. The Company did not adopt the fair value option
permitted under this statement.
SFAS 160. In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements - an Amendment of ARB No. 51
("SFAS 160"), which establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. SFAS 160 also requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. It also
requires disclosure, on the face of the consolidated statement of income, of the
amounts of consolidated net income attributable to the parent and to the
noncontrolling interest. SFAS 160 also provides guidance when a subsidiary is
deconsolidated and requires expanded disclosures in the consolidated financial
statements that clearly identify and distinguish between the interests of the
parent's owners and the interests of the noncontrolling owners of a subsidiary.
SFAS 160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. The Company is currently
evaluating the impact this statement will have on its financial position and
results of operations.
SFAS 161. In March 2008, the FASB issued SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities - an amendment of FASB Statement
No. 133 ("SFAS 161"), which amends and expands the disclosure requirements of
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"), with the intent to provide users of financial
statements with an enhanced understanding of: (a) how and why an entity uses
derivative instruments; (b) how derivative instruments and related hedged items
are accounted for under SFAS 133 and its related interpretations; and (c) how
derivative instruments and related hedged items affect an entity's financial
position, financial performance and cash flows. SFAS 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments and disclosures about credit-risk-related contingent features in
derivative instruments. This statement applies to all entities and all
derivative instruments. SFAS 161 is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008.
FSP No. APB 14-1. In May 2008, the FASB issued FASB Staff Position No. APB 14-1,
Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon
Conversion (Including Partial Cash Settlement) ("FSP No. APB 14-1"). FSP No. APB
14-1 applies to convertible debt instruments that, by their stated terms, may be
settled in cash (or other assets) upon conversion, including partial cash
settlement, unless the embedded conversion option is required to be separately
accounted for as a derivative under SFAS 133. FSP No. APB 14-1 specifies that
issuers of convertible debt instruments should separately account for the
liability and equity components in a manner that will reflect the entity's
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. FSP No. APB 14-1 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. FSP No. APB 14-1 shall be applied retrospectively to
all periods presented. The cumulative effect of the change in accounting
principle on periods prior to those presented shall be recognized as of the
beginning of the first period presented. An offsetting adjustment shall be made
to the opening balance of retained earnings for that period, presented
separately. The Company is currently evaluating the impact of FSP No. APB 14-1.
68
STATEMENT E
CONTINUED
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
12. NEW ACCOUNTING STANDARDS: CONTINUED
FSP No. FAS 142-3. In April 2008, the FASB issued FSP No. 142-3, Determination
of the Useful Life of Intangible Assets ("FSP FAS 142-3"), which amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under FASB
Statement No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). The intent
of FSP FAS 142-3 is to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142 and the period of expected cash flows
used to measure the fair value of the asset under SFAS 141(R) and other U.S.
generally accepted accounting principles. FSP FAS 142-3 requires an entity to
disclose information for a recognized intangible asset that enables users of the
financial statements to assess the extent to which the expected future cash
flows associated with the asset are affected by the entity's intent and/or
ability to renew or extend the arrangement. FSP FAS 142-3 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The Company does not expect the
adoption of FSP FAS 142-3 to have a material impact on the Company's financial
position or results of operations.
13. SEGMENTED INFORMATION:
The Company provides non-hazardous waste collection, transfer, recycling and
disposal services. Additionally, the Company provides support to the
construction industry such as fence rentals, sanitary facility rentals, bin
rentals, hydrovac and water hauling. The Company operates primarily, but not
exclusively, in Alberta, Canada. The Company evaluates principal operations
through three functional departments: Solid Waste, Liquid Waste and Water
Hauling.
The results of operations for the period ended June 30, 2008 by functional
department is as follows:
Cost of Gross
Revenue Sales Profit Depreciation Administration Net Loss
------- ----- ------ ------------ -------------- --------
Solid Waste 2,693,292 2,141,087 552,205 279,466 167,765 104,974
LiquidServices 447,529 311,531 135,997 46,454 94,570 (5,027)
Water Hauling 236,168 206,705 29,463 24,515 49,906 (44,958)
--------- --------- -------- --------- --------- --------
3,376,988 2,659,323 717,665 350,435 312,241 54,989
========= ========= ======== ========= ========= ========
69
STATEMENT E
CONTINUED
BUDGET WASTE, INC.
(Unaudited - Prepared by Management)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007
13. SEGMENTED INFORMATION: CONTINUED
The results of operations for the period ended June 30, 2007 by functional
department is as follows:
Cost of Gross
Revenue Sales Profit Depreciation Administration Net Loss
------- ----- ------ ------------ -------------- --------
Solid Waste 2,731,444 2,204,909 526,533 254,677 825,424 (553,568)
Liquid
Services 437,655 353,290 84,366 40,807 132,257 (88,698)
Water Hauling 215,571 174,016 41,555 20,100 65,144 (43,689)
--------- --------- -------- --------- ---------- ---------
3,384,668 2,732,214 652,454 315,583 1,022,825 (685,954)
========= ========= ======== ========= ========== =========
70
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements are
presented to illustrate the estimated effects of the acquisition by Gray Creek
Mining Inc. ("Gray") of Budget Waste, Inc. ("Budget Waste"), Gray's historical
financial position and results of operations. The historical financial data of
Gray for the year ended April 30, 2008 and three months ended July 31, 2008 were
derived from Gray's audited financial statements contained on Form 10-KSB and
unaudited financial statements contained on Form 10-QSB as filed with the
Securities and Exchange Commission. Budget Waste's audited consolidated
financial statements for the year ended March 31, 2008 and unaudited
consolidated financial statements for the three months ended 30, 2008 were
derived from those information contained elsewhere in this Form 8-K.
On November 7, 2008, Gray entered into a Share Exchange Agreement (the "Exchange
Agreement") with the stockholders of Budget Waste. As a result of the share
exchange, Gray acquired 100 % of the issued and outstanding common stock of
Budget Waste in exchange for 5,496,054 (52%) shares of Gray's common stock. Upon
consummation of the Share Exchange there were 10,746,054 shares of Gray's common
stock issued and outstanding.
The unaudited pro forma condensed combined statements of operations for the year
ended April 30, 2008 and three months ended July 31, 2008 assume that the Share
Exchange Transaction was consummated on May 1, 2007 and May 1, 2008
respectively. The unaudited pro forma condensed combined balance sheet as of
April 30, 2008 assumes the Share Exchange Transaction was consummated on that
date. The information presented in the unaudited pro forma condensed combined
financial statements does not purport to represent what our financial position
or results of operations would have been had the Share Exchange Transaction
occurred as of the dates indicated, nor is it indicative of our future financial
position or results of operations for any period. You should not rely on this
information as being indicative of the historical results that would have been
achieved had the companies always been consolidated or the future results that
the consolidated company will experience after the Share Exchange Transaction.
The pro forma adjustments are based upon available information and certain
assumptions that we believe are reasonable under the circumstances. These
unaudited pro forma consolidated financial statements should be read in
conjunction with the accompanying notes and assumptions and the historical
financial statements and related notes of Gray and Budget Waste.
71
GRAY CREEK MINING, INC.
Unaudited Pro Forma Consolidated Balance Sheet
As at June 30, 2008
Gray Budget Waste
As at As at Pro Forma Pro Forma
July 31, 2008 June 30, 2008 Adjustments Consolidated
------------- ------------- ----------- ------------
ASSETS
Current:
Cash 2,616 -- -- 2,616
Interest and other receivables -- 2,266,303 -- 2,266,303
Prepaid expenses and deposits -- 111,755 -- 111,755
----------- ----------- ----------- -----------
2,616 2,378,058 -- 2,380,674
Performance bond -- 30,558 -- 30,558
Property, plant and equipment -- 7,445,268 -- 7,445,268
Customer lists -- 164,292 -- 164,292
Goodwill -- 3,253,360 -- 3,253,360
Mineral properties 8,000 -- -- 8,000
----------- ----------- ----------- -----------
10,616 13,271,536 -- 13,282,152
=========== =========== =========== ===========
LIABILITIES
Current:
Bank overdraft -- 205,131 -- 205,131
Revolving bank loan -- 28,633 -- 28,633
Accounts payable and
accrued liabilities 1,350 4,257,612 -- 4,258,962
Notes payable -- 49,279 -- 49,279
Corporate taxes payable -- 24,944 -- 24,944
Due to shareholders -- 1,244,531 (d) (1,882,479) (637,948)
Due to related parties -- 966,292 -- 966,292
Due to parent company -- 4,890,431 -- 4,890,431
Current portion of obligations
under capital lease -- 1,526,107 -- 1,526,107
Current portion of long-term debt 20,000 37,097 -- 57,097
----------- ----------- ----------- -----------
21,350 13,230,057 (d) (1,882,479) 11,368,928
Obligations under capital lease -- 2,791,745 -- 2,791,745
Long-term debt -- 27,517 -- 27,517
----------- ----------- ----------- -----------
21,350 16,049,319 -- 14,188,190
----------- ----------- ----------- -----------
STOCKHOLDERS' DEFICIENCY
Common stock 5,250 180,484 (a) (d) 7,688 193,422
Additional paid-in capital 20,250 3,441,821 (a) (d) 1,849,291 5,311,362
Cumulative other comprehensive
income -- 125,780 -- 125,780
Deficit (36,234) (6,525,868) (a) 25,500 (6,536,602)
(10,734) (2,777,783) 1,882,479 (906,038)
----------- ----------- ----------- -----------
10,616 13,271,536 13,282,152
=========== =========== =========== ===========
72
GRAY CREEK MINING, INC.
Unaudited Pro Forma Consolidated Statement of Operations
Three Months Ended June 30, 2008
Gray Budget Waste
Three Months Three Months
Ended Ended Pro Forma Pro Forma
July 31, 2008 June 30, 2008 Adjustments Consolidated
------------- ------------- ----------- ------------
Revenue -- 3,376,988 -- 3,376,988
Cost of goods sold -- 2,659,323 -- 2,659,323
---------- ---------- ---------- ----------
-- 717,665 -- 717,665
---------- ---------- ---------- ----------
Expenses
Advertising and promotion -- 101,082 -- 101,082
Amortization -- 350,435 -- 350,435
Automotive -- 4,101 -- 4,101
Bad debts -- 369 -- 369
Gain on sale of assets -- (416,135) -- (416,135)
Insurance -- 26,619 -- 26,619
Interest and bank charges -- 17,431 -- 17,431
Interest on long-term debt -- 118,377 -- 118,377
Professional fees -- 45,703 -- 45,703
Office and miscellaneous 12,222 45,232 -- 57,454
Rent -- 103,904 -- 103,904
Repairs and maintenance -- 57,624 -- 57,624
Salaries -- 157,382 -- 157,372
Telephone and utilities -- 42,842 -- 42,842
Travel and promotion -- 7,720 -- 7,720
---------- ---------- ---------- ----------
Total expenses 12,222 662,676 -- 674,529
---------- ---------- ---------- ----------
Income (Loss) for the period (12,222) 54,989 -- 43,136
Comprehensive Income (Loss)
Foreign exchange translation -- (24,538) -- (24,538)
---------- ---------- ---------- ----------
Comprehensive Income (Loss)
for the period (12,222) 30,451 -- 18,598
========== ========== ========== ==========
Weighted average common
shares outstanding 5,250,000 10,746,054
Pro forma earnings (loss) per share (0.002) 0.001
========== ==========
73
GRAY CREEK MINING, INC.
Unaudited Pro Forma Consolidated Statement of Operations
Year Ended March 31, 2008
Gray Budget Waste
Year Ended Year Ended Pro Forma Pro Forma
April 30, 2008 March 31, 2008 Adjustments Consolidated
-------------- -------------- ----------- ------------
Revenue -- 16,154,523 -- 16,154,523
Cost of goods sold -- 11,642,000 -- 11,642,000
----------- ----------- -- -----------
-- 4,512,523 -- 4,512,523
----------- ----------- -- -----------
Expenses
Advertising and promotion -- 239,555 -- 239,555
Amortization -- 1,800,142 -- 1,800,142
Automotive -- 15,075 -- 15,075
Bad debts -- 752,298 -- 752,298
Insurance -- 56,059 -- 56,059
Interest and bank charges -- 167,764 -- 167,764
Interest on long-term debt -- 427,130 -- 427,130
Professional fees -- 617,706 -- 617,706
Office and miscellaneous 23,838 268,429 -- 292,267
Rent -- 470,045 -- 470,045
Repairs and maintenance -- 52,921 -- 52,921
Salaries -- 1,403,755 -- 1,403,755
Telephone and utilities -- 187,660 -- 187,660
Travel and promotion -- 89,456 -- 89,456
----------- ----------- ------- -----------
Total expenses 23,838 662,676 -- 674,529
----------- ----------- ------- -----------
Income (Loss) for the year
before other items (23,838) (2,035,472) -- (2,059,310)
Other items
Contingency accrual -- (385,000) -- (385,000)
Gain on sale of assets -- 511,876 -- 511,876
----------- ----------- -- -----------
Income (Loss) for the year (23,838) (1,908,596) -- (1,932,434)
Comprehensive Income (Loss)
Foreign exchange translation -- (55,960) -- (55,960)
----------- ----------- ------- -----------
Comprehensive Income (Loss)
for the period (23,838) (1,964,556) -- (1,988,394)
=========== =========== ======= ===========
Weighted average common
shares outstanding 5,250,000 10,746,054
Pro forma earnings (loss) per share (0.01) (0.18)
=========== ===========
74
Gray Creek Mining Inc.
Notes to Pro Forma Financial Statements
1. BASIS OF PRESENTATION
On November 10, 2008, pursuant to a Share Exchange Agreement between Gray Creek
Mining, Inc. ("Gray") and Budget Waste Inc., a Nevada corporation ("Budget"),
Gray acquired 100% of the issued and outstanding common shares of Budget Waste,
Inc., an Alberta Canada corporation ("Budget Alberta") in exchange for 5,496,054
common shares of Gray (the "Acquisition").
These unaudited pro forma consolidated financial statements ("pro forma
financial statements") have been prepared in accordance with accounting
principles generally accepted in the United States of America and are expressed
in US dollars. These pro forma financial statements do not contain all of the
information required for annual financial statements. Accordingly, they should
be read in conjunction with the most recent annual and interim financial
statements of Gray and Budget
These pro forma financial statements have been compiled from and include:
(a) an unaudited proforma consolidated balance sheet combining the unaudited
balance sheet of Gray as at July 31, 2008 with the unaudited interim balance
sheet of Budget as at June 30, 2008, giving effect to the transaction as if it
occurred on July 31, 2008.
(b) an unaudited pro forma consolidated statement of operations combining the
unaudited statement of operations of Gray for the three month period ended July
31, 2008 with the unaudited interim statement of operations of Budget for the
three month period ended June 30, 2008, giving effect to the transaction as if
it occurred on May 1, 2008.
(c) an unaudited pro forma consolidated statement of operations combining the
audited statement of operations of Gray for the year ended April 30, 2008 with
the unaudited statement of operations of Budget for the year ended March 31,
2008.
The acquisition by Gray of Budget Alberta is deemed to be a reverse acquisition.
In accordance with the Accounting and Financial Reporting Interpretations and
Guidance prepared by the staff of the U.S. Securities and Exchange Commission,
Gray (the legal acquirer) is considered the accounting acquiree and Budget
Alberta (the legal acquiree) is considered the accounting acquirer. The combined
financial statements of the combined entity will in substance be those of
Budget, with the assets and liabilities, and revenues and expenses, of Gray
being included effective from the date of consummation of Share Exchange
Transaction. Gray is deemed to be a continuation of business of Budget. The
outstanding common stock of Gray prior to the Share Exchange Transaction will be
accounted for at their net book value and no goodwill will be recognized.
The unaudited pro forma consolidated financial statements have been compiled
using the significant accounting policies as set out in the audited consolidated
financial statements of Budget for the year ended March 31, 2008. Based on the
review of the accounting policies of Gray, it is Gray managements' opinion that
there are no material accounting differences between the accounting policies of
Budget and Gray. The unaudited pro forma consolidated financial statements
should be read in conjunction with the historical financial statements and notes
thereto of Budget.
It is management's opinion that these pro forma financial statements include all
adjustments necessary for the fair presentation, in all material respects, of
the proposed transaction described above in accordance with US GAAP applied on a
75
Gray Creek Mining Inc.
Notes to Pro Forma Financial Statements
1. BASIS OF PRESENTATION (CONTINUED)
basis consistent with Budget's accounting policies. No adjustments have been
made to reflect potential cost savings that may occur subsequent to completion
of the transaction. The pro forma statements of operations do not reflect
non-recurring charges or credits directly attributable to the transaction, of
which non are currently anticipated.
The unaudited pro forma consolidated financial statements are not intended to
reflect the results of operations or the financial position of Budget which
would have actually resulted had the proposed transaction been effected on the
dates indicated. Further, the unaudited pro forma financial information is not
necessarily indicative of the results of operations that may be obtained in the
future.
2. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
The unaudited pro forma consolidated financial statements incorporate the
following pro forma assumptions:
(a) To eliminate the pre-acquisition retained earnings of Gray under reverse
acquisition and record a charge to retained earnings for the remaining net
liability of Gray.
(b) Gray has not provided for any income tax benefit related to operating losses
due to insufficient evidence to indicate on a more likely than not basis such
benefits could be realized.
(c) There were no inter-company transactions and balances between Gray and
Budget during the periods covered by the pro forma condensed combined financial
statements.
(d) Prior to acquisition, Budget converted $1,882,479 of debt owing to
shareholders and related parties to 19,815,564 common shares of Budget.
76
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES & CHANGES TO INTERNAL CONTROLS
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we have
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities and Exchange Act of 1934, as of the end of the period
covered by this report. Based on this evaluation, our principal executive
officer and principal financial officer concluded as of the Evaluation Date that
our disclosure controls and procedures were effective such that the material
information required to be included in our Securities and Exchange Commission
reports is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms relating to our company, particularly during
the period when this report was being prepared.
Additionally, there were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
evaluation date.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act, for the Company.
Internal control over financial reporting includes those policies and procedures
that: (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of its management and directors; and (3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
Management recognizes that there are inherent limitations in the effectiveness
of any system of internal control, and accordingly, even effective internal
control can provide only reasonable assurance with respect to financial
statement preparation and may not prevent or detect material misstatements. In
addition, effective internal control at a point in time may become ineffective
in future periods because of changes in conditions or due to deterioration in
the degree of compliance with our established policies and procedures.
A material weakness is a significant deficiency, or combination of significant
deficiencies, that results in there being a more than remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected.
Under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, management conducted an evaluation of the
effectiveness of our internal control over financial reporting, as of the
Evaluation Date, based on the framework set forth in Internal Control-Integrated
77
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on its evaluation under this framework, management
concluded that our internal control over financial reporting was not effective
as of the Evaluation Date.
Management assessed the effectiveness of the Company's internal control over
financial reporting as of Evaluation Date and identified the following material
weaknesses:
INSUFFICIENT RESOURCES: We have an inadequate number of personnel with requisite
expertise in the key functional areas of finance and accounting.
INADEQUATE SEGREGATION OF DUTIES: We have an inadequate number of personnel to
properly implement control procedures.
LACK OF AUDIT COMMITTEE & OUTSIDE DIRECTORS: We do not have a functioning audit
committee and we have no outside directors serving on the Company's Board of
Directors, resulting in ineffective oversight in the establishment and
monitoring of required internal controls and procedures.
Management is committed to improving its internal controls and will (1) continue
to use third party specialists to address shortfalls in staffing and to assist
the Company with accounting and finance responsibilities, (2) increase the
frequency of independent reconciliations of significant accounts which will
mitigate the lack of segregation of duties until there are sufficient personnel
and (3) may consider appointing outside directors and audit committee members in
the future.
Management, including our Chief Executive Officer and Chief Financial Officer,
has discussed the material weakness noted above with our independent registered
public accounting firm. Due to the nature of this material weakness, there is a
more than remote likelihood that misstatements which could be material to the
annual or interim financial statements could occur that would not be prevented
or detected.
This Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors and their respective ages as of the date of
this report are as follows:
Name Age Position
---- --- --------
Jim Can 36 CEO, President, Director
Kendall Dilling 37 Secretary, Treasurer, Director
Robert Baker 37 Director
Branislav Jovanovic 40 COO
Bruce Milroy 46 CFO
The directors of the Company are elected annually by the shareholders for a term
of one year, or until their successors are elected and qualified. The Officers
are appointed by the Board of Directors at the annual meeting of directors
immediately following each annual meeting of shareholders of the Company and
serve at the pleasure of the Board of Directors.
78
BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS
JIM CAN, PRESIDENT, CEO, AND DIRECTOR. Mr. Can became involved with Budget Waste
on October 15, 2004. As an accomplished strategist and marketer, he understood
and recognized an opportunity to create a diversified Waste Solutions/Hauling
company. His strategic approach to building a business includes a philosophy of
growth through acquisition with an emphasis on enhancing value for Budget Waste
business partners, shareholders and employees. His vision and expertise in
business performance is apparent in his past endeavors, where he created
significant impact on profitability and growth and acquired a strong
understanding of both U.S. and Canadian Tax and Securities Law while working
with Carswell Thompson Professional Publishing Corporation from 1997-2000.Mr.
Can has aided in the financial restructuring of numerous companies from 2000
till 2007, in the form of reverse take over, private financing and assistance in
achieving a public listing on the NASD-OTCBB and PINK sheets. Jim was raised in
Germany, where he received most of his formal education. He is fluent in
English, German and Turkish. He now resides just outside the Calgary, Canada,
with his wife and two children.
KENDALL DILLING, SECRETARY, TREASURER AND DIRECTOR. Mr. Dilling is one of the
founding owners of Budget Waste and a member of the Board of Directors. Kendall
holds BSC, BA and MBA degrees from the University of Calgary and has 15 years of
experience in the oil and gas industry. Kendall is currently a General Manager
with Synenco Energy, a public oil sands company where he started in May 2006.
During the period from 2004 to 2006, he was a Business Development Analyst for
ConocoPhilips Canada. He was Senior Environmental Advisor with EnCana
Corporation during the years from 2001-2004. Kendall brings a wealth of industry
knowledge and business acumen to Budget Waste.
BRANISLAV JOVANOVIC, COO, DIRECTOR. Mr. Jovanovic has worked for the company
since May 2006. For the past five years, he has owned and operated a restaurant
in Calgary.
BRUCE MILROY, CFO. Mr. Milroy holds BASc and MBA degrees from the University of
British Columbia and is a Chartered Accountant in Canada and has served as our
CFO since March, 2008. He has extensive accounting and audit experience with
respect to publicly reporting companies. From 1987 to 2006, he was employed by
Cinnamon Jang Willoughby & Company, Chartered Accountants, rising to the
position of senior audit manager.
ROBERT BAKER, DIRECTOR. Mr. Baker has owned and operated Baker Plumbing &
Heating Ltd. for the past 12 years in Calgary.
TERM OF OFFICE
Our directors are appointed for a one-year term to hold office until the next
annual general meeting of our shareholders or until removed from office in
accordance with our bylaws. Our officers are appointed by our board of directors
and hold office until removed by the board.
SIGNIFICANT EMPLOYEES
We have no significant employees other than the officers and directors described
above.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long-term
compensation of our Chief Executive Officer, and the most highly compensated
employees and/or executive officers who served at the end of the fiscal year
2007, and whose salary and bonus exceeded $100,000 for the fiscal years ended
2007, for services rendered in all capacities to us. The listed individuals
shall be hereinafter referred to as the "Named Executive Officers."
79
Annual Compensation
Name and Other Annual
principal position Year Salary ($) Bonus ($) Compensation($)
- ------------------ ---- ---------- --------- ---------------
Jim Can, CEO 2008 60,000 -- --
Branislav Jovanovic, COO 2008 60,000 -- --
Bruce Milroy, CFO 2008 72,000 -- --
STOCK OPTION GRANTS
We have not granted any stock options to the executive officers since our
inception.
CONSULTING AGREEMENTS
We do not have any employment or consulting agreements.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides the names and addresses of each person known to us
to own more than 5% of our outstanding common stock as of the date of this
annual report, and by the officers and directors, individually and as a group.
Except as otherwise indicated, all shares are owned directly.
The percent of class is based on 10,746,054 shares of common stock issued and
outstanding as of the date of this report.
The following table sets forth as of the date hereof, the number of shares of
common stock beneficially owned by each director, officer and others holding of
record and or beneficially 5% or more of our common stock.
Name of Beneficial Owner Shares Owned %
------------------------ ------------ -----
Jim Can, CEO, Director 7,104,581(1) 66.11
Kendall Dilling, Director 2,700 .03
Robert Baker, Director 3,844 .04
All Officers and Directors
as a Group, 3 persons 7,111,125 66.17
- ----------
(1) Can Holdings, Ltd, and American International Investments, Ltd, entities
controlled by Mr. Can, hold 5,438,311 and 650 shares respectively.
80
ITEM 13. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
AUTHORIZED STOCK. This corporation is authorized to issue the following shares
of capital stock:
(a) COMMON STOCK. The aggregate number of shares of Common Stock which the
corporation shall have the authority to issue is One Hundred Million
(100,000,000) shares of common stock, par value $0.0001 per share.
DESCRIPTION OF COMMON STOCK. Holders of Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of stockholders
and may not cumulate their votes for the election of directors. Shares of Common
Stock are not redeemable, do not have any conversion or preemptive rights, and
are not subject to further calls or assessments once fully paid.
Holders of Common Stock will be entitled to share pro rata in such dividends and
other distributions as may be declared from time to time by the board of
Directors out of funds legally available therefore, subject to any prior rights
accruing to any holders of preferred stock of the Company. Upon liquidation or
dissolution of the Company, holders of shares of Common Stock will be entitled
to share proportionally in all assets available for distribution to such
holders.
(b) PREFERRED STOCK. The aggregate number of shares of Preferred Stock
which the corporation shall have the authority to issue is Twenty Million
(20,000,000) shares, par value $0.0001 per share.
DESCRIPTION OF PREFERRED STOCK. The terms, preferences, limitations and relative
rights of the Preferred Stock are as follows:
The Board of Directors is expressly authorized at any time and from time to time
to provide for the issuance of shares of Preferred Stock in one or more series,
with such voting powers, full or limited, but not to exceed one vote per share,
or without voting powers, and with such designations, preferences and relative
participating, optional or other special rights and qualifications, limitations
or restrictions, as shall be fixed and determined in the resolution or
resolutions providing for the issuance thereof adopted by the Board of
Directors, and as are not stated and expressed in this Certificate of
Incorporation or any amendment hereto, including (but without limiting the
generality of the foregoing) the following:
(i) the distinctive designation of such series and the number of shares
which shall constitute such series, which number may be increased (but not above
the total number of authorized shares of Preferred Stock and, except where
otherwise provided by the Board of Directors in creating such series) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by resolution by the Board of Directors;
(ii) the rate of dividends payable on shares of such series, the times of
payment, whether dividends shall be cumulative, the conditions upon which and
the date from which such dividends shall be cumulative;
(iii) whether shares of such series can be redeemed, the time or times
when, and the price or prices at which shares of such series shall be
redeemable, the redemption price, terms and conditions of redemption, and the
sinking fund provisions, if any, for the purchase or redemption of such shares;
(iv) the amount payable on shares of such series and the rights of holders
of such shares in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the corporation;
81
(v) the rights, if any, of the holders of shares of such series to convert
such shares into, or exchange such shares for, shares of Common Stock or shares
of any other class or series of Preferred Stock and the terms and conditions of
such conversion or exchange; and
(vi) the rights, if any, of the holders of shares of such series to vote.
Except in respect of the relative rights and preferences that may be provided by
the Board of Directors as hereinbefore provided, all shares of Preferred Stock
shall be of equal rank and shall be identical, and each share of a series shall
be identical in all respects with the other shares of the same series.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. DEFINITIONS. For purposes of this Item 12, the following terms shall
have the meanings hereafter ascribed to them:
(a) "Corporation" includes, as the context may require, Gray Creek Mining,
Inc., any resulting corporation and any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger, so that any
person who is or was a director or officer of a constituent corporation, or is
or was serving at the request of a constituent corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, is in the same position with respect to the resulting or surviving
corporation as he would have been with respect to such constituent corporation
if its separate existence had continued.
(b) "Expenses" include, without limitation, all costs, expenses, attorneys'
fees, and paralegal expenses incurred by the director or officer in, for or
related to the Proceeding or in connection with investigating, preparing to
defend, defending, being a witness in or participating in the Proceeding,
including such costs, expenses, attorneys' fees and paralegal expenses incurred
on appeal. Such attorneys' fees shall include without limitation, (i) attorneys'
fees incurred by the director or officer in any and all judicial or
administrative proceedings, including appellate proceedings, arising out of or
related to the Proceedings; (ii) attorney's fees incurred in order to interpret,
analyze or evaluate that person's rights and remedies in the Proceedings or
under any contracts or obligations which are the subject of such Proceeding; and
(iii) attorneys' fees to negotiate with counsel for any claimant, regardless of
whether formal legal action is taken against him.
(c) "Liability" includes obligations to pay a judgment, settlement,
penalty, fine (including an excise tax assessed to any employee benefit plan),
and Expenses actually and reasonably incurred with respect to a Proceeding.
(d) "Not Opposed to the Best Interest of the Corporation" describes the
actions of a person who acts in good faith and in a manner he reasonably
believes to be in the best interest of the Corporation or the participants and
beneficiaries of an employee benefit plan, as the case may be.
(e) "Other Enterprises" include employee benefit plans.
(f) "Proceeding" includes any threatened, pending, or complete action,
suit, or other type of proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal to which the person is a party by
reason of the fact the he is or was a director or officer of the Corporation or
is now or was Serving at the Request of the Corporation as a director or officer
of another corporation, partnership, joint venture, trust or Other Enterprise.
(g) "Serving at the Request of the Corporation" includes any service as a
director or officer of the Corporation that imposes duties on such persons,
including duties relating to an employee benefit plan and its participants or
beneficiaries.
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Section 2. INDEMNIFICATION. The Corporation shall indemnify to the fullest
extent permitted by law and shall advance Expenses therefore to any director or
officer who was or is a party to any Proceeding, against Liability incurred in
connection with such Proceeding, including any appeal thereof; provided,
however, that no indemnification under this Section 2 shall be made:
(a) If a judgment or other final adjudication established that the person's
actions or omissions to act were material to the cause of action adjudicated and
such actions or omissions constitute either:
(1) A violation of the criminal law, unless the director or officer had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful;
(2) A transaction from which the director or officer derived an improper
personal benefit;
(3) In the case of a director, a circumstance under which the Liability
provisions of the Nevada Statutes are applicable; or
(4) Willful misconduct or a conscious disregard for the best interest of the
Corporation in a Proceeding by or in the right of the Corporation to procure a
judgment in its favor in a Proceeding by or in the right of a shareholder.
(b) Unless authorized in the specific case by either:
(1) The board of directors by a majority vote of a quorum consisting of
directors who were not parties to such Proceeding;
(2) If such a quorum is not obtained or, even if obtained, a majority vote of a
committee duly designated by the board of directors (in which directors who are
parties may participate) consisting solely of two or more directors not at the
time parties to the Proceeding;
(3) Independent legal counsel:
(i) Selected by the board of directors prescribed in paragraph (b)(1) or
the committee prescribed in paragraph (b)(2);
(ii) If a quorum of the directors cannot be obtained for paragraph (b)(1)
and the committee cannot be designated under paragraph (b)(2) selected
by majority vote of the full board of directors (in which directors
who are parties may participate); or
(4) The shareholders by a majority vote of a quorum consisting of shareholders
who were not parties to such Proceeding or, if no such quorum is obtainable, a
majority vote of shareholders who were not parties to such Proceeding.
(c) Upon determination that:
(1) In a Proceeding other than an action by, or in the right of, the
Corporation, the person did not act in good faith and in a manner he reasonably
believed to be in, or Not Opposed to, the Best Interests of the Corporation and,
with respect to any criminal action or Proceeding, had reasonable cause to
believe his conduct was unlawful;
(2) In a Proceeding by, or in the right of, the Corporation to procure a
judgment in its favor, the person did not act in good faith and in a manner he
reasonably believed to be in, or Not Opposed to, the Best Interests of the
Corporation; provided, further, that the parties described in Sections
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2(b)(l)-(4) shall not authorize any indemnification in such a Proceeding if the
person has been adjudged to be liable therein. The foregoing provision shall not
preclude or limit indemnification under the mandatory indemnification provision
of Section 3 or as directed by the court pursuant to Section 4;
(3) For purposes of making the determinations set forth in (c)(1) and (c)(2)
above, the fact that a Proceeding was terminated by a judgment, order,
settlement or conviction or upon plea of nolo contenders or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in, or Not Opposed to, the
Best Interests of the Corporation or, with respect to any criminal action or
Proceeding, that the person has reasonable cause to believe that his conduct was
unlawful.
Section 3. SUCCESSFUL DEFENSE. In all events, and notwithstanding the conditions
and qualifications set forth in Section 2 above, the Corporation shall indemnify
a director or officer who has been successful on the merits or otherwise in
defense of any Proceeding or in defense of any claim, issue, or matter therein,
against Expenses actually and reasonably incurred by him in connection therein.
Section 4. COURT ORDERED INDEMNIFICATION. Notwithstanding the failure of the
Corporation to provide indemnification due to a failure to satisfy the
conditions of Section 2(a)(l)-(4) and despite any contrary determination of the
board or of the shareholders in the specific case, a director or officer of the
Corporation who is or was a party to a Proceeding may apply for indemnification
or advancement of Expenses, or both, to the court conducting the Proceeding, to
the circuit court, or to another court of competent jurisdiction, and such court
may order indemnification and advancement of Expenses, including Expenses
incurred in seeking court-ordered indemnification or advancement of Expenses, if
it determines that:
(a) The director or officer is entitled to mandatory indemnification under
Section 3, in which case the court shall also order the Corporation to pay such
person reasonable Expenses incurred in obtaining court-ordered indemnification
or advancement of Expenses;
(b) The director or officer is entitled to indemnification or advancement of
Expenses, or both, under Section 2; or
(c) The directors or officer is fairly and reasonably entitled to
indemnification or advancement of Expenses, or both, in view of all the relevant
circumstances, regardless of whether such person met the standards of conduct
set forth in Section 2(a)(l)-(4) or Section 2(b)(l)-(4).
Section 5. AUTHORIZATION. If a judgment or other final adjudication establishes
that the person's actions or omissions to act were material to the cause of
action adjudicated and such actions or omission constitute a violation of the
standards set forth in Section 2(a)(l)-(4), then the Corporation shall cause one
or more of the meetings described in Section 2(b)(l)-(4) to be held for the
purpose of determining and authorizing indemnification.
Section 6. ADVANCEMENT OF EXPENSES. Expenses incurred by an officer or director
in defending a Proceeding may be paid by the Corporation in advance of the final
disposition of such Proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if he is ultimately found not to
be entitled to indemnification by the Corporation pursuant to this Item 12.
Expenses incurred by other employees or Agents may be paid in advance upon such
terms or consideration that the board of directors deems appropriate.
Section 7. CONTINUING INDEMNIFICATION. Indemnification and advancement of
Expenses as provided in this Article shall continue as, unless otherwise
provided when such indemnification and advancement of Expenses was authorized or
ratified, to a person who has ceased to be a director or officer and shall inure
to the benefit of the heirs, executors and administrators of such person.
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Section 8. LIABILITY INSURANCE. The Corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Item 12.
Section 9. STATEMENT TO SHAREHOLDERS. If any Expenses or other amounts are paid
by way of indemnification other than by court order or action by the
shareholders or by an insurance carrier pursuant to insurance maintained by the
Corporation, the Corporation shall, not later than the time of delivery to the
shareholders of written notice of the next annual meeting of shareholders,
unless such meeting is held within three (3) months from the date of such
payment, and, in any event within fifteen (15) months from the date of such
payment, deliver either personally or by mail to each shareholder of record at
the time entitled to vote for the election , on of directors a statement
specifying the persons paid, the amounts paid, and the nature and status at the
time of such payment of the litigation or threatened litigation.
Section 10. EMPLOYEE AND AGENTS. The board of directors may authorize
indemnification or advancement of expenses in favor of other employees or agents
upon such terms or conditions as the board of directors may deem appropriate
under the circumstances, and may enter into agreement thereof with such
employees and agents.
Section 11. INDEMNIFICATION HEREUNDER IN ADDITION TO OTHER RIGHTS. The rights of
an officer or director hereunder shall be in addition to any other rights such
person may have under the Corporation's Articles of Incorporation or otherwise,
and nothing herein shall be deemed to diminish or otherwise restrict such
person's right to indemnification under any such other provision. It is the
intent of this Bylaw to provide the maximum indemnification possible under the
applicable law. To the extent applicable law or the Articles of Incorporation of
the Corporation, as in effect on the date hereof or at any time in the future,
permit greater indemnification than is provided for in this Bylaw, the parties
hereto agree that Indemnitee shall enjoy by this agreement the greater benefits
so afforded by such law or provision of the Articles of Incorporation, and this
Bylaw and the exceptions to indemnification set forth in Section 2(a), to the
extent applicable, shall be deemed amended without any further action by the
Corporation to grant such greater benefits.
Section 12. INDEMNIFICATION TO FULLEST EXTENT OF LAW. This Item 12 shall be
interpreted to permit indemnification to the fullest extent permitted by law. If
any part of this Article shall be found to be invalid or ineffective in any
action, suit or proceeding, the validity and effect of the remaining part
thereof shall not be affected. The provisions of this Item 12 shall be
applicable to all Proceedings commenced after the adoption hereof, whether
arising from acts or omissions occurring before or after its adoption.
Section 13. LIMITATIONS. In no event shall the Corporation indemnify an officer
or director against any Liability or advance Expenses arising out of or relating
to a Proceeding brought by, on behalf of, or for the benefit of, such officer or
director against the Corporation.
ITEM 15. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than as stated below, none of the following parties has, since our date of
incorporation, had any material interest, direct or indirect, in any transaction
with us or in any presently proposed transaction that has or will materially
affect us:
* Any of our directors or officers;
* Any person proposed as a nominee for election as a director;
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* Any person who beneficially owns, directly or indirectly, shares
carrying more than 10% of the voting rights attached to our
outstanding shares of common stock;
* Any member of the immediate family of any of the foregoing persons.
Jim Can, our CEO and Chairman, individually and through affiliate entities he
controls, have loaned the following amounts to the Company.
Apic Holdings, Ltd. $ 45,000.00
Able Machine Shop $279,993.51
Jim Can $237,985.45
All loans are due on demand and carry 6% annual rate of interest.
ITEM 16. PRINCIPAL ACCOUNTING FEES AND SERVICES
The total fees charged to the company for audit services, including quarterly
reviews, were $8,200, for tax services were $Nil, and for other services were
$Nil during the year ended April 30, 2008.
There were no fees charged to the company for audit services, tax services or
other services during the year ended April 30, 2007.
PART IV
ITEM 17. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following exhibits are included with this filing:
Exhibit # Description
- --------- -----------
2.1 Stock Purchase Agreement
2.2 Stock Exchange Agreement
3.1 Articles of Incorporation*
3.1.1 Amendment to Articles of Incorporation
3.2 Corporate Bylaws*
31.1 Certification of CEO Pursuant to Rule 15d-14(a)
31.2 Certification of CFO Pursuant to Rule 15d-14(a)
32.1 Certification of CEO Pursuant to Section 1350
32.2 Certification of CFO Pursuant to Section 1350
- ----------
* Incorporated by reference and can be found in our original Form SB-2
Registration Statement, filed under SEC File Number 333-145471, at the SEC
website at www.sec.gov.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
November 10, 2008 Gray Creek Mining, Inc., Registrant
By: /s/ Jim Can
--------------------------------------------
Jim Can, President, Chief Executive Officer,
and Director
By: /s/Bruce Milroy
--------------------------------------------
Bruce Milroy, CFO, Principal Financial
Officer, Principal Accounting Officer
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