Filed On 8/2/01 4:29pm ET · SEC File 0-31110 · Accession Number 950144-1-505072
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
8/02/01 Commercial Consolidators Corp 20FR12G/A 2:172 Bowne of Atlanta Inc/FA
Amendment to Registration of Securities of a Foreign Private Issuer · Form 20-F
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 20FR12G/A Commercial Consolidators Corp. 168 1,001K
2: EX-4.36 Amending Agreement Dated June 18, 2001 4 18K
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 2001.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM 20-F
---------------------
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[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED ---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ---------- TO ----------
COMMISSION FILE NUMBER 0-31110
COMMERCIAL CONSOLIDATORS CORP.
formerly known as BALMORAL CAPITAL CORP.
(Exact Name of Registrant as Specified in its Charter)
NOT APPLICABLE
(Translation of Registrant's Name into English)
ALBERTA, CANADA
(Jurisdiction of Incorporation or Organization)
SUITE 1010, 5255 YONGE STREET, TORONTO, ONTARIO M2N 6P4, CANADA
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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NONE NONE
(Title of Each Class) (Name of Each Exchange on Which
Registered)
Securities registered or to be registered pursuant to Section 12(g) of the Act:
COMMON SHARES WITHOUT PAR VALUE ("COMMON SHARES")
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
NONE
(Title of Class)
Indicate the number of outstanding shares of each of the Company's classes
of capital or common stock as of the close of the period covered by the annual
report: NOT APPLICABLE.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ ] NO [X]
Indicate by check mark which financial statement item the registrant has
elected to follow. ITEM 17 [ ] ITEM 18 [X]
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. YES [ ] NO [ ]
Unless otherwise indicated, all references herein are expressed in Canadian
dollars and United States currency is stated as "U.S. $ ."
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TABLE OF CONTENTS
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PAGE
----
PART I.................................................................. 1
Item 1. Identity of Directors, Senior Management and Advisers....... 1
Item 2. Offer Statistics and Expected Timetable..................... 2
Item 3. Key Information............................................. 2
Item 4. Information on the Company.................................. 13
Item 5. Operating and Financial Review and Prospects................ 31
Item 6. Directors, Senior Management and Employees.................. 44
Item 7. Major Shareholders and Related Party Transactions........... 51
Item 8. Financial Information....................................... 53
Item 9. The Offer and Listing....................................... 54
Item 10. Additional Information...................................... 56
Item 11. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 72
Item 12. Description of Securities Other Than Equity Securities...... 72
PART II................................................................. 73
Item 13. Defaults, Dividend Arrearages and Delinquencies............. 73
Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds............................................. 73
Item 15. (Reserved).................................................. 73
Item 16. (Reserved).................................................. 73
PART III................................................................ 73
Item 17. Financial Statements........................................ 73
Item 18. Financial Statements........................................ 74
Item 19. Exhibits.................................................... 74
i
INTRODUCTION
Unless otherwise indicated, all references herein to (i) "we," "our," "our
company" or "the Company" are references to Commercial Consolidators Corp. and
its subsidiaries; (ii) "Common Shares" refer to our authorized and outstanding
common stock without par value; and (iii) "fiscal year," "financial year" or
"year" refers to our fiscal year ended February 28th/29th. Except as otherwise
noted, all financial information contained herein has been presented in Canadian
dollars, the official currency of Canada. Where applicable, financial
information expressed in United States dollars has been adjusted to reflect U.S.
generally accepted accounting principles, or U.S. GAAP. All references to "U.S.
dollars," or "U.S. $," are to United States dollars. On April 30, 2001, the
commercial exchange rate (buy) was Canadian dollar $1.5420 per U.S. $1.00.
We are an international distributor of business technologies and consumer
electronics.
Our Business Technologies Group sells, markets and distributes cellular
telephones and accessories, computer systems and components, and a proprietary,
integrated hardware and software system for the hospitality industry and other
business applications. We also distribute business supplies in support of
certain of our business technologies products. We currently distribute our
business technologies throughout North America, certain Latin and South American
countries and Israel.
Our Consumer Electronics Group sells, markets and distributes well-known
third party and private label brands of televisions and other household
appliances. We currently distribute our consumer electronics in certain Latin
American countries. We intend to expand and further develop these lines of
business.
Since our inception in 1998, we have grown internally and through
acquisitions. During the nine months ended November 30, 2000, we earned
approximately $5.4 million (U.S. $3.5 million) after taxes on revenues of
approximately $70.5 million (U.S. $45.7 million), compared to net income of
approximately $1.8 million (U.S. $1.2 million) on revenues of approximately
$30.5 million (U.S. $19.8 million) for the nine months ended November 30, 1999.
We intend to continue to grow both internally through cross-selling our products
within our various operating divisions, and externally by seeking opportunities
for appropriate strategic acquisitions.
Our world wide website is http://www.commercialconsolidators.com. The
information in our website is not incorporated by reference into this
registration statement.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A. DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth the names, business addresses and functions
of our current directors and senior management.
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NAME AND OFFICE HELD BUSINESS ADDRESS
FUNCTION
-------------------- ----------------
--------
Michael S. Weingarten 5255 Yonge Street, Suite 1010 Direct
and supervise our overall
Director, Chairman of the Board Toronto, Ontario, Canada M2N 6P4
business operations; develop and
formulate our business plan.
Guy P. Jarvis 5255 Yonge Street, Suite 1010 Direct
and supervise our overall
Director and Toronto, Ontario, Canada M2N 6P4
business operations; execute and
Chief Executive Officer
implement our business plan.
Leonard S. Black 39 Rivalda Road Direct
and supervise our overall
Director and President Toronto, Ontario, Canada M9M 2M4
business operations.
Tomas Carlos Gonzales-Anleo Suite 1010 -- 5255 Yonge Street Manage
our day to day operations.
Chief Operating Officer Toronto, ON M2N 6P4, Canada
Ricardo Jose Alvarez San Pedro Suite 1010 -- 5255 Yonge Street Manage
our financial resources and
Chief Financial Officer Toronto, ON M2N 6P4, Canada
accounts.
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NAME AND OFFICE HELD BUSINESS ADDRESS
FUNCTION
-------------------- ----------------
--------
Gregory C. Burnett 604 -- 750 West Pender Street Direct
and supervise our overall
Director and Secretary Vancouver, BC V6C 2T7, Canada
business operations; maintain all
records and effect all necessary
filings.
Frederick McLean 2626 Charlotte Court Direct
and supervise our overall
Director Mississauga, Ontario, Canada L5M 5E6
business operations.
Donald Lyons 106 Willingdon Blvd. Direct
and supervise our overall
Director Toronto, Ontario, Canada M8X 2H7
business operations.
Terry Amisano c/o Amisano Hanson Direct
and supervise our overall
Director 750 West Pender Street, Suite 604
business operations.
Vancouver, B.C., V6C 2T7
B. ADVISERS
Not Applicable
C. AUDITORS
Our current auditors are Mintz & Partners LLP, Chartered Accountants, whose
business address is at 1446 Don Mills, North York, Ontario M3B 3N6. From May 4,
1998 to May 10, 1999, our auditors were Davidson & Company, Chartered
Accountants, whose business address is at Suite 1200, Stock Exchange Tower, 609
Granville Street, P.O. Box 10372, Vancouver, British Columbia V7Y 1G6. The
change of our auditors was made in connection with our reverse acquisition of
100% of the issued and outstanding securities of 1058199 Ontario Inc. There have
been no qualified opinions or denials of opinions by Davidson & Company for any
of our fiscal years or for any period subsequent to the most recently completed
fiscal period for which Davidson & Company issued an auditors' report.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
The selected financial data presented below is for the interim period ended
November 30, 2000 and the three-year period ended February 28, 2001.
The selected financial data for the financial years ended February 28,
1999, February 29, 2000 and February 28, 2001 is derived from our consolidated
financial statements that were examined by our independent auditor. The selected
financial data for the interim period ended November 30, 2000 is derived from
our interim financial statements, which have not been examined by our
independent auditor. The selected financial data for the financial year ended
February 28, 1998 is derived from our predecessor's financial statements,
Business Supplies Are Us Inc., or BSRU. Our independent auditor examined these
financial statements. The information set forth below should be read in
conjunction with our consolidated financial statements, and the related notes,
in "Item 18 -- Financial Statements" and "Item 5 -- Operating and Financial
Review and Prospects." The data is presented in Canadian dollars.
In connection with our reverse acquisition of BSRU, the British Columbia
Securities Commission did not require the presentation of predecessor financial
data for the years ended February 28, 1996 and 1997. Thus,
2
we have not provided predecessor financial data herein, as such data could not
now be provided without unreasonable effort and expense.
SELECTED CONSOLIDATED FINANCIAL DATA
(STATED IN CANADIAN DOLLARS)
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NINE MONTHS ENDED
NOVEMBER 30,
(UNAUDITED) FISCAL YEAR ENDED
FEBRUARY 28(29)(1)
-------------------------
------------------------------------------------------
2000 1999 2001 2000
1999 1998
----------- ----------- ------------ -----------
----------- -----------
Sales................ $70,485,866 $30,482,378 $103,506,513 $45,127,064
$29,013,528 $19,073,043
Cost of goods sold... 56,036,132 24,982,878 83,114,778 37,337,755
24,394,735 16,874,994
Amortization......... 826,558 62,123 1,789,481 210,554
65,341 23,955
Other Operating
Expenses........... 5,601,412 2,464,956 7,653,299 3,469,693
2,170,586 1,749,374
Interest............. 1,969,939 1,165,136 3,961,937 1,558,808
1,064,310 314,244
Income -- before
foreign exchange
and income taxes... 6,517,825 1,807,285 7,949,978 2,550,254
1,318,556 110,476
Foreign exchange
(loss) gain........ 343,496 34,002 331,865 (89,732)
38,819 (12,376)
Income -- before
income taxes....... 6,395,321 1,841,287 7,318,883 2,460,522
1,357,375 98,100
Net Income under
Canadian GAAP...... 5,416,494 1,775,458 7,111,947 2,356,522
1,192,445 64,028
Net Income under U.S.
GAAP............... 2,051,837 59,999 2,293,162 895,236
1,007,555 n/a(1)
Total Assets under
Canadian GAAP...... 55,855,100 17,397,838 65,110,947 17,039,434
8,729,068 4,902,789
Total Assets under
U.S. GAAP.......... 50,599,186 14,859,686 58,800,124 14,631,721
8,582,997 n/a(1)
Net Assets under
Canadian GAAP...... 29,311,690 6,622,314 30,967,724 7,094,526
1,432,332 239,887
Net Assets under U.S.
GAAP............... 24,399,611 4,084,162 24,927,105 4,686,813
1,286,261 n/a(1)
Capital Stock
(excluding long
term debt and
redeemable
preferred stock)... 20,215,494 3,414,824 20,176,075 3,414,824
300 300
Number of Common
Shares (adjusted to
reflect changes in
capital)........... 17,183,034 12,601,666 17,263,034 12,601,666
7,000,000(2) 7,000,000(2)
Basic earnings per
share under CDN
GAAP............... 0.35 0.20 0.43 0.26
0.17 0.01
Basic earnings per
share under U.S.
GAAP............... 0.13 0.01 0.14 0.10
0.14 n/a(1)
3
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NINE MONTHS ENDED
NOVEMBER 30,
(UNAUDITED) FISCAL YEAR ENDED
FEBRUARY 28(29)(1)
-------------------------
------------------------------------------------------
2000 1999 2001 2000
1999 1998
----------- ----------- ------------ -----------
----------- -----------
Fully diluted
earnings per
share -- CDN
GAAP............... 0.31 0.20 0.39 0.23
0.16 0.01
Fully diluted
earnings per
share -- U.S.
GAAP............... 0.12 0.01 0.12 0.09
0.14 n/a(1)
Dividends per Common
Share.............. -- -- -- --
-- --
Dividends per Common
Share in U.S.$..... -- -- -- --
-- --
---------------
(1) As disclosed in note 22(t) to our consolidated financial statements,
reconciliation to U.S. GAAP for our 1998 fiscal year has not been provided
as it is not required.
(2) Reflects the share split on May 17, 1999, pursuant to which the 300 shares
were reclassified into 7,000,000 shares.
Reconciliation to United States Generally Accepted Accounting Principles
Except as noted, the selected financial data above was prepared in
accordance with accounting principles generally accepted in Canada, or Canadian
GAAP. The following adjustments have been utilized to present certain of the
selected financial data in accordance with generally accepted accounting
principles generally accepted in the United States, or U.S. GAAP, as shown
above. Specific details of the adjustments are included in note 22 to our
consolidated financial statements.
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NOVEMBER 30, (UNAUDITED)
FEBRUARY 28,
-------------------------
--------------------------------------
2000 1999 2001
2000 1999
----------- ----------- -----------
----------- ----------
Total Assets Under Canadian
GAAP........................... $55,855,100 $17,397,838 $65,110,947
$17,039,434 $8,729,068
Adjustments.................... (5,255,914) (2,538,152) (6,310,823)
(2,407,713) (146,071)
----------- ----------- -----------
----------- ----------
Total Assets Under U.S. GAAP..... $50,599,186 $14,859,686 $58,800,124
$14,631,721 $8,582,997
=========== =========== ===========
=========== ==========
Shareholders' Equity Under U.S.
GAAP........................... $24,399,611 $ 4,086,162 $24,927,105 $
4,686,813 $1,286,261
=========== =========== ===========
=========== ==========
Net Income Under Canadian GAAP... $ 5,416,494 $ 1,775,458 $ 7,111,947 $
2,356,522 $1,192,445
Adjustments.................... (3,364,657) (1,715,659) (4,818,285)
(1,461,286) (184,890)
----------- ----------- -----------
----------- ----------
Net Income Under U.S. GAAP....... $ 2,051,837 $ 59,999 $ 2,293,162 $
895,236 $1,007,555
=========== =========== ===========
=========== ==========
4
Since June 1, 1970, the Canadian government has permitted a floating
exchange rate to determine the value of the Canadian dollar as compared to the
U.S. dollar. On April 30, 2001, the exchange rate in effect for Canadian dollars
exchanged for U.S. dollars, expressed in terms of Canadian dollars, was $1.5420
per U.S. $1.00. For the past five fiscal years ended February 28(29), 1997-2001,
and each of the last six months, the following exchange rates were in effect for
Canadian dollars exchanged for U.S. dollars, expressed in terms of Canadian
dollars:
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YEAR END/
YEAR/MONTH END AVERAGE LOW-HIGH
PERIOD END
-------------- ------- --------------------------
----------
(BASED ON THE NOON BUYING RATES IN NEW YORK CITY, FOR CABLE TRANSFERS IN
CANADIAN DOLLARS,
AS CERTIFIED FOR CUSTOMS PURPOSES BY THE FEDERAL RESERVE BANK OF NEW
YORK)
02/28/1997......................... $1.3617 Low $1.3310 - High $1.3775
$1.3670
02/28/1998......................... $1.4032 Low $1.3649 - High $1.4637
$1.4236
02/28/1999......................... $1.5010 Low $1.4075 - High $1.5770
$1.5090
02/29/2000......................... $1.4767 Low $1.4350 - High $1.5286
$1.4504
02/28/2001......................... $1.4955 Low $1.4432 - High $1.5625
$1.5299
November 30, 2000.................. $1.5426 Low $1.5263 - High $1.5600
$1.5355
December 31, 2000.................. $1.5219 Low $1.4995 - High $1.5458
$1.4995
January 31, 2001................... $1.5029 Low $1.4966 - High $1.5040
$1.5039
February 28, 2001.................. $1.5289 Low $1.5244 - High $1.5312
$1.5299
March 31, 2001..................... $1.5757 Low $1.5698 - High $1.5791
$1.5767
April 30, 2001..................... $1.5410 Low $1.5404 - High $1.5425
$1.5420
B. CAPITALIZATION AND INDEBTEDNESS
The following table shows our capitalization as of April 30, 2001. You
should read this table in conjunction with our consolidated financial
statements, and related notes, provided in "Item 18 -- Financial Statements."
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AS OF
APRIL 30, 2001
--------------
Secured debt................................................ $23,051,998
Unsecured debt.............................................. 1,649,966
Total debt........................................ 24,701,964
Shareholders' equity (capital deficit):
Preferred Stock: no par value, unlimited shares
authorized; none issued(1)............................. 0
Common Stock: no par value; unlimited shares authorized;
17,273,034 shares issued and outstanding(2)............ 20,196,075
Accumulated earnings...................................... 12,099,438
-----------
Total shareholders' equity........................ $32,295,513
Total capitalization.............................. $56,997,477
===========
---------------
(1) We currently have an unlimited number of authorized non-cumulative,
non-voting, redeemable, retractable and non-participating Class A preference
shares. As of April 30, 2001, none have been issued.
(2) Does not include, as of April 30, 2001, approximately 2.0 million shares of
common stock issuable upon the exercise of outstanding warrants and
approximately 3.5 million shares issuable upon the exercise of outstanding
stock options.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not Applicable.
5
D. RISK FACTORS
Much of the information included in this registration statement includes or
is based upon estimates, projections or other "forward looking statements." Such
forward-looking statements include any projections or estimates made by us and
our management in connection with our business operations. While these forward-
looking statements, and any assumptions upon which they are based, are made in
good faith and reflect our current judgment regarding the direction of our
business, actual results will almost always vary, sometimes materially, from any
estimates, predictions, projections, assumptions or other future performance
suggested herein.
Such estimates, projections or other "forward looking statements" involve
various risks and uncertainties, as outlined below. We caution the reader that,
in some cases, important factors have affected, and in the future could
materially affect, actual results and may cause actual results to differ
materially from the results expressed in any such estimates, projections or
other "forward looking statements." Factors that may affect our future
performance are set forth in this section and in the discussion in Item 5
"Operating and Financial Review and Prospects" beginning on page 31 of this
registration statement. See also our discussion of "forward-looking statements"
set forth on page 43 of this registration statement.
Our Common Shares may be considered speculative and prospective investors
should consider carefully the risk factors set out below.
General Risk Factors
Risks Inherent in Multinational Business Operations. Our multinational
operations expose us to certain financial and operational risks. Our revenues
are dependent upon our operations in a number of countries throughout the world
and we receive a material amount of revenue and incur expenses in Canadian
dollars, U.S. dollars and other foreign currencies. Operations in several
different countries expose us to a number of risks, such as:
- Currency fluctuations;
- Unexpected changes in regulatory requirements;
- Longer payment cycles;
- Ability to secure and maintain the necessary physical and
telecommunications infrastructure;
- Export and import restrictions, tariffs and other trade barriers;
- Potentially adverse tax consequences;
- Challenges in staffing and managing foreign operations;
- Employment laws and practices in foreign countries; and
- Political and economic instability.
Any of these factors could have a material adverse effect on our business,
financial condition and results of operations.
Uncertain Ability to Manage Growth. Our business has experienced
significant growth recently and we anticipate future growth. Our ability to
achieve our planned growth is dependent upon a number of factors including, but
not limited to, our ability to hire, train and assimilate management and other
employees and the adequacy of our financial resources. The future growth may
strain our existing management resources and operational, financial, human and
management information systems and controls, which may not be adequate to
support our operations. There can be no assurance that such controls or
procedures will be developed effectively on a timely basis, and the failure to
do so may have a material adverse effect on our business, operating results and
financial condition. In short, there can be no assurance that we will be able to
achieve our planned expansion or that we will be able to successfully manage
such expanded operations. Failure to manage anticipated growth effectively and
efficiently could materially adversely affect us.
6
Risk of Enforceability of Civil Liabilities Against Foreign Persons. Our
company and our officers, directors and auditors are residents of Canada and
substantially all of our assets are or may be located outside the United States.
As a result, it may be difficult for investors to effect service of process
within the United States upon non-resident officers and directors, or to enforce
against them judgments obtained in the United States courts predicated upon the
civil liability provisions of the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, or state securities laws. We
believe that a judgment of a United States court predicated solely upon civil
liability under the Securities Act and/or Exchange Act would probably be
enforceable in Canada if the United States court in which the judgment was
obtained had a basis for jurisdiction in the matter that was recognized by a
Canadian court for such purposes. We cannot assure you that this will be the
case. There is substantial doubt, however, whether an action could be brought in
Canada in the first instance on the basis of liability predicated solely upon
such laws.
Adverse Effect of Goodwill on Future Earnings. We recorded goodwill
charges of approximately $963,000 (U.S. $624,514) and $466,000 (U.S. $302,000)
for the fiscal year ended February 28, 2001 and the nine months ended November
30, 2000, respectively. Current U.S. GAAP accounting regulations require us to
write off this goodwill against our earnings over a period of up to 20 years. We
expect this to adversely impact the amount of our reportable earnings during the
20-year period by approximately $1.2 million per year (U.S. $778,210),
representing our annual goodwill deduction. To the extent we acquire other
companies in the future, the duration and magnitude of our annual goodwill
deduction from earnings may be increased.
Potential Inability to Integrate New Businesses. The integration of our
newly acquired businesses, YAM International Communications Inc., La Societe
Desig Inc., MAX Systems Group Inc. and Tri-Vu Interactive Corporation, into our
operations will be critical to our ongoing success. Our integration strategy
includes marketing of the products sold by our Business Technologies Group in
Cuba and other Latin and South American countries serviced by our Consumer
Electronics Group; building the Commercial Consolidator's brand; cross-selling
products among the various distribution channels within our Business
Technologies Group; and eliminating certain duplicative accounting and
administrative functions. We will not export goods of our U.S. subsidiaries to
Cuba. We cannot assure you that we will be able to successfully integrate YAM,
Desig, MAX and Tri-Vu into our operations or achieve our strategic objectives,
cost savings and other benefits. Prior to our acquisition of YAM, Desig, MAX and
Tri-Vu, we were not involved in the cellular/wireless communication industry,
hospitality technology solutions industry, or the systems solution provider
industry. In view of the limited experience of our executive management in these
diverse industries, we are relying heavily upon the expertise of the former
owners and executive management of YAM, Desig, MAX and Tri-Vu. However, we may
find it necessary to employ additional experienced professionals in order to
implement our integration plans. We cannot assure you that we will be able to
find suitable professionals to help us achieve these objectives.
Dependence Upon Key Personnel. We consider that any member of our
management team and other key personnel, including Gregory Burnett, Michael
Weingarten, Leonard Black, Frederick McLean, Donald Lyons, Terry Amisano, Guy
Jarvis, Tomas Carlos Gonzales-Anleo, Ricardo Jose Alvarez San Pedro, Victor
Noce, Robert Marcoux, Bertrand Bolduc, Joe Franklin, Yossi Vanon, Shani Sasson,
Ron Bothwell, Bryn Meredith and William Krahule, are vital to our continued
operations. The loss of the services of any of them or other key employees, for
any reason, may materially adversely affect our prospects. To the extent that
the services of our key personnel become unavailable, we will be required to
retain other qualified persons. We cannot assure you that we will be able to
find a suitable replacement for any such person. Furthermore, due to the intense
competition for qualified executive, technical, marketing and support personnel
in the Latin and South American markets in which we do substantial business,
recruiting and retaining such qualified personnel in the future will be critical
to our success and there can be no assurance that we will be able to do so. We,
or our subsidiaries, have entered into employment agreements with Messrs.
Franklin, Noce, Marcoux, Bolduc, Sasson and Vanon. We maintain $1.0 million of
"key-man" life insurance on each such executive, with the exception of Mr.
Franklin who has a "key-man" life insurance policy of U.S. $750,000 and Messrs.
Vanon, Bothwell, Meredith and Krahule for whom we do not have "key-man" policies
in place.
Dependence on Key Suppliers. We do not have any written agreements that
ensure continuity of supply from our suppliers. We currently use a few key
suppliers and depend on them for timely delivery of goods and
7
materials. There can be no guarantee as to the ongoing maintenance of existing
key supplier relationships, including certain exclusive distribution rights for
products in export markets. We believe that the majority of our relationships
with suppliers are non-exclusive. Although we also believe that there are many
other suppliers in the marketplace that could be used for most of the products
that we distribute, we cannot assure you that other suppliers will be willing to
sell us supplies upon terms and conditions acceptable to us, or at all. Although
we believe it is not likely, the inability to obtain supplies from other
suppliers in a sufficient amount when needed, and upon acceptable terms and
conditions, could materially adversely affect us. Inadequate sources of supplies
would likely cause delays in, or disruption to, our business, and could also
impair our ability to compete in the marketplace.
Regulatory Requirements. Current or future operations may require permits
from various federal, state and local governmental authorities. Such operations
are and will be governed by laws and regulations relating to export, taxes,
labour standards, occupational health, waste disposal, toxic substances, land
use, environmental protection and other matters. To our knowledge, we are in
substantial compliance with all material laws and regulations which currently
apply to our activities and have all the required permits for our current
operations. We cannot assure you that all permits required for the operation of
our business will be obtainable on reasonable terms and that such laws and
regulations would not have an adverse effect on any activity we might undertake.
Failure to comply with applicable laws, regulations and permit requirements
may result in enforcement actions, including orders issued by regulatory or
judicial authorities causing operations to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
equipment or remedial actions.
Amendments to current laws, regulations and permits governing our
operations and activities, or more stringent implementation thereof, could have
a material adverse impact on us and cause increases in capital expenditures or
sales costs, or reduction in levels of sales.
Need for Additional Financing. Although we intend to expand our business
primarily through acquisitions, we also intend to exploit the cross selling
opportunities between our different business units. These endeavours will
require additional capital. Our plans for the fiscal year 2002 anticipate that
we will be required to secure additional debt and equity-type financing of
approximately U.S. $20 million from various sources, including one or more
private placements of our Common Shares. This additional financing will also
allow us to continue to expand our business operations in North, Central and
South America.
We cannot assure you that any such financing will be available upon terms
and conditions acceptable to us, if at all. The inability to obtain additional
financing in a sufficient amount when needed and upon acceptable terms and
conditions could materially adversely affect us. Although we believe that we can
raise financing sufficient to meet our immediate needs, we will likely require
funds to finance our development and marketing activities in the future. If
additional funds are raised by issuing equity securities, further dilution to
existing or future shareholders is likely to result. If adequate funds are not
available on acceptable terms when needed, we may be required to delay, scale
back or eliminate our promotional and marketing campaign or our development
programs. Inadequate funding could also impair our ability to compete in the
marketplace, which may result in our dissolution.
Insider Control of Common Stock. As of February 28, 2001, our directors
and senior management beneficially owned approximately 43% of our outstanding
Common Shares. Therefore, these persons may have the power to influence our
business policies and affairs and determine the outcome of any matter submitted
to a vote of our shareholders, including the election of members of our board of
directors, mergers, sales of substantially all of our assets and changes in
control.
Future Dilution. Our articles of incorporation, or charter documents,
authorize the issuance of an unlimited number of Common Shares and an unlimited
number of Preferred Shares. In the event that we are required to issue
additional Common Shares or enter into private placements to raise financing
through the sale of equity securities, investors' interests will be diluted and
they may suffer dilution in their net book value per share depending on the
price at which such securities are sold. If we do issue any such additional
shares,
8
such issuances also will cause a reduction in the proportionate ownership and
voting power of all other shareholders. Further, any such issuance may result in
a change of control.
Blue Sky Considerations. Because the securities registered under this
registration statement have not been registered for resale under the blue sky
laws of any state, holders of these shares and persons who desire to purchase
them in any trading market that might develop in the future should be aware that
there may be significant state blue sky restrictions upon the ability of new
investors to purchase the securities. These restrictions could reduce the size
of any potential market. As a result of recent changes in federal law, non-
issuer trading or resale of our securities is exempt from state registration or
qualification requirements in most states. Nevertheless, investors should
consider any potential secondary market for our securities to be a limited one.
"Penny Stock" Rules May Restrict the Market for our Common Shares. Our
Common Shares are subject to rules promulgated by the Securities and Exchange
Commission relating to "penny stocks" which apply to companies whose shares are
not traded on a national stock exchange or on the NASDAQ system, trade at less
than U.S. $5.00 per share, or who do not meet certain other financial
requirements specified by the Securities and Exchange Commission. These rules
require brokers who sell "penny stocks" to persons other than established
customers and "accredited investors" to complete certain documentation, make
suitability inquiries of investors, and provide investors with certain
information concerning the risks of trading in such penny stocks. These rules
may discourage or restrict the ability of brokers to sell our Common Shares and
may affect the secondary market for our Common Shares. These rules could also
hamper our ability to raise funds in the primary market for our Common Shares.
Possible Volatility of Share Prices. The trading price of our Common
Shares has been and may continue to be subject to wide fluctuations. The stock
market has generally experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of the
companies. We cannot assure you that trading prices and price earnings ratios
previously experienced by our Common Shares will be matched or maintained. These
broad market and industry factors may adversely affect the market price of our
Common Shares, regardless of our operating performance. In the past, following
periods of volatility in the market price of a company's securities, securities
class-action litigation has often been instituted. Such litigation, if
instituted, could result in substantial costs and a diversion of management's
attention and resources.
Anti-Takeover Provisions. At the present time, our board of directors has
not adopted any shareholder rights plan or any anti-takeover provisions in our
articles of incorporation. Without any anti-takeover provisions, there is no
deterrent for a take-over of our company, which may result in a change of
management and directors.
No Foreseeable Dividends. We do not anticipate paying further dividends on
our securities in the near future. The payment of any future dividends will be
at the sole discretion of our board of directors. We currently intend to retain
earnings to finance the expansion of our business and do not anticipate paying
additional dividends in the foreseeable future.
Risk Factors Related to our Business Technologies Group
We May Not Be Able to Respond Effectively to the Significant Competition in
the Cellular/Wireless Communication Industry. Approximately 38% and 41% of our
sales during the nine months ended November 30, 2000 and the year ended February
28, 2001, respectively, were derived from our wireless products division.
Competition in the cellular/wireless communication industry is intense. We
anticipate that competition will cause the market prices for two-way wireless
products and services to remain competitive in the future. Our ability to
compete will depend, in part, on our ability to anticipate and respond to
various competitive factors affecting the telecommunications industry. One
example of these competitive factors is the changes in consumer preferences,
demographic trends or economic conditions. Some of our competitors have
substantially greater financial, technological, marketing and sales and
distribution resources than us. Accordingly, such competitors have the ability
to take advantage of economies of scale that we cannot, such as the negotiation
and procurement of volume discounts we are not able to negotiate and access due
to our relatively
9
smaller size and capabilities. Further, when these competitors buy in larger
volumes, they establish stronger relationships with suppliers and can further
leverage their strong supplier relationships to achieve more competitive pricing
terms. Moreover, these larger competitors are also able to negotiate more
favorable trade credit terms. Therefore, we may be unable to compete
successfully with larger competitors who have substantially greater resources
than we do.
Use of Cellular/Wireless Handsets May Pose Health Risks. Media reports
have suggested that radio frequency emissions from wireless handsets may:
- be linked to various health problems, including cancer;
- interfere with various electronic medical devices, including hearing aids
and pacemakers; and
- cause explosions if used while fuelling an automobile.
Concerns over radio frequency emissions may discourage use of wireless
handsets or expose us to potential litigation.
Political Uncertainties in Israel. We have, through our wireless products
division, a significant presence in the State of Israel. Approximately 10% and
13% of our total sales during the nine months ended November 30, 2000 and the
year ended February 28, 2001, respectively, were derived from our sales in
Israel. Such sales accounted for approximately 25% and 32% of our wireless
products division's revenues for the nine months ended November 30, 2000 and
fiscal 2001, respectively. As a result, operation of our wireless products
division may be affected in varying degrees by political instability in that
region. Any unexpected eruption of terrorist activities or military
confrontations between Palestinians and Israelis are beyond our control and may
adversely affect our business. Our operations in Israel may be affected in
varying degrees by political demonstrations, civil unrest or terrorist attacks.
We cannot assure you that further political or economic instability will not
occur in Israel in the future.
Uncertainties Inherent in Expansion in Latin/South America. Approximately
54% and 48% of our sales were derived from our operations in Latin/South America
during the nine months ended November 30, 2000 and the year ended February 28,
2001, respectively. We are currently expanding our activities and operations in
Latin/South America. To the extent that some Latin/South American countries may
have commercial and contractual regimes that are not as contemplated and as
experienced in North America, we will have to take steps to ensure that we do
not suffer losses from our ability to conduct business activities, such as
collections for sales, in those countries. While we are confident that, based on
our experience in other divisions, we will take the appropriate steps to
appropriately protect us, we cannot assure you that such losses will not occur.
Lack of Uniform Technical Standard. An important element of our business
is the fact our wireless products division has the ability to sell cellular
phones and related products that are compatible with the various cellular
operating systems used throughout the world. North, Latin and South America do
not presently have a standard phone system, such as GSM in Europe. Should any of
these major markets move to adopt one standard phone system, overall demand for
our cellular products could weaken. While there is no evidence at this time to
indicate that this may occur, we cannot assure you that such standardization
will not occur.
Significant Competition. During the nine months ended November 30, 2000
and the year ended February 28, 2001, our revenues from our integrated
applications division accounted for approximately 4% and 3%, respectively, of
our sales and were an insignificant factor in this industry. Many of our
integrated applications division's competitors, which are either part of or have
alliances with large software makers, systems integrators or telecom suppliers,
can, if they desire, devote substantially more resources to developing a market
than our integrated applications division can. Accordingly, it is possible that
a large competitor could attack a market aggressively. While there are no
indications of this at the present time, we cannot assure you that one or more
large competitors will not choose to attack our market niche.
10
Research and Development Requirements. At present, our integrated
applications division spends somewhat less than $1.0 million (U.S. $648,508) per
year, before recovery of tax credits and other governmental assistance, on
research and development for products and applications. For the fiscal year
ended October 31, 1999, gross research and development expenses were $735,290,
and investment tax credits were $544,212, for a net expense of $191,078. For the
fiscal year ended October 31, 1998, gross research and development expenses were
$609,864, and investment tax credits were $383,288, for a net expense of
$216,576. We feel that this is an appropriate and affordable level to remain
competitive and to produce products that are attractive and saleable in our
market niches. Accordingly, our integrated applications division will have the
continuous need for free working capital of approximately $1.0 million (U.S.
$648,508) per year to continue to fund research and development. While we are
committed to continue to fund research and development, we cannot assure you
that the necessary amount of working capital will be available.
Dependence on Certain Staff. As with all technology companies, our
integrated applications division is dependent on the intellectual capabilities
of its development staff, in particular the work of Victor Noce, Robert Marcoux,
Bertrand Bolduc, Ron Bothwell and Bryn Meredith. These individuals have executed
employment agreements with Desig and Tri-Vu, which operate our integrated
applications division. We carry $1.0 million (U.S. $648,508) of key-man life
insurance on Messrs. Noce, Marcoux and Bolduc. A mass defection of development
staff could cause delays or diminution in the quality of our development
efforts. While we believe that this is unlikely, we cannot assure you that key
development personnel will choose to remain with us for a significant period of
time.
Hospitality Industry. At present, our hospitality sales efforts are
supported by very strong performance and expansion in the hospitality industry.
If there is any sort of worldwide economic slow down and/or recession, the
hospitality industry could slow down or even stop its expansion. To the extent
that the property management solutions segment of our integrated applications
division develops a major niche in activities in this area, it could face a slow
down in sales and be forced to more aggressively target other markets such as
residential facilities and apartment/condominium managers. Accordingly, we
cannot assure you that a major slow down in economic activities will not
significantly impact our business.
Our Intellectual Property Rights. Our ability to compete effectively will
depend on our ability to maintain the proprietary nature of certain of our
technologies, including our proprietary property management system software and
our proprietary interactive television software. We hold no patents and have no
patent applications pending in Canada, the United States or elsewhere. We rely
on a combination of trade secrets and copyright laws, nondisclosure and other
contractual agreements and technical measures to protect our rights in our
technological know-how and proprietary services. We depend upon confidentiality
agreements with our officers, directors, employees, consultants and
subcontractors to maintain the proprietary nature of our technology. These
measures may not afford us sufficient or complete protection, and others may
independently develop know-how and services similar to ours, otherwise avoid our
confidentiality agreements, or produce patents and copyrights that would
materially and adversely affect our business, prospects, financial condition and
results of operations.
We believe that our software systems are not subject to any infringement
actions based upon the patents or copyrights of any third parties; however, our
know-how and technology may in the future be found to infringe upon the rights
of others. Others may assert infringement claims against us, and if we should be
found to infringe upon their patents or copyrights or otherwise impermissibly
utilize their intellectual property, our ability to continue to use our
technology could be materially restricted or prohibited. If this event occurs,
we may be required to obtain licenses from the holders of this intellectual
property, enter into royalty agreements, or redesign our products and services
so as not to utilize this intellectual property, each of which may prove to be
uneconomical or otherwise impossible. Licenses or royalty agreements required in
order for us to use this technology may not be available on terms acceptable to
us, or at all. These claims could result in litigation, which could materially
adversely affect our business, prospects, financial condition and results of
operations.
Dependence on Certain Key Contracts. Our ability to compete effectively
and grow depends on our ability to negotiate and implement supply contracts.
Currently, our computer products division holds licenses from Compaq, Hewlett
Packard, IBM and Microsoft to serve as a value-added reseller and distributor of
their
11
computers, software and related products and applications. These agreements do
not have a specific duration, are generally renewed annually and may be
cancelled upon 30 days notice. Our ability to sell these hardware and software
products is dependent on the continuation of our OEM licenses. Our other
operating divisions are not dependent on contracts to compete effectively in
their respective markets.
Dependence of Certain Large Customers. Our computer products division is
dependent on a relatively small number of large customers. Overall, the top five
customers account for approximately 25% of our computer products division's
annual sales. We cannot assure you that we can retain these customers going
forward. The loss of any one of these customers could be materially adverse to
our computer products division's operational results.
Risk Factors Related to our Consumer Electronics Group
Proprietary Products. Our Consumer Electronics Group and the business
supplies division of our Business Technologies Group do not offer proprietary
products, except for our General Vision and LEC product lines that only
comprised approximately 15% of our consumer product sales during both the nine
months ended November 30, 2000 and the year ended February 28, 2001. Most
products in our Consumer Electronics Group and business supplies division are
supplied to us on a non-exclusive basis and we occasionally may be subject to
supply restrictions and price fluctuations that we cannot directly control.
Competition. The markets for the products that we distribute are, for the
most part, highly competitive. We face competition from a number of sources,
including several international trading companies that offer competitive
products in our export and domestic markets. Such competitors may also have
greater financial, marketing, technological and manufacturing resources than us.
We expect that we will face additional competition from new entrants into the
Latin American marketplace as the economic and political climate evolves in the
coming years. New competition could have a negative impact on future sales
performance and cause a reduction in margins should pricing become increasingly
competitive. We cannot assure you that existing or future competitors will not
develop or offer new products and services that have advantages over our
products and services.
Dependence on Key Customers. Approximately 90% of our sales in our
Consumer Electronics Group during both the nine months ended November 30, 2000
and the year ended February 28, 2001 were derived from approximately four
customers. The loss of these significant customers would materially adversely
affect our business, financial condition and operating results. In addition, we
cannot assure you that we will be successful in marketing our products to
potential customers. There is a limited number of companies in Latin America
that are involved in the retail distribution of our product line and that are
capable of purchasing products from us. Our sales growth in the short term will
depend significantly on maintaining existing relationships with key customers
and increasing sales to our existing customer base. The loss of any key customer
would have a material negative impact on sales.
Political and Economic Uncertainties in Cuba. Approximately 99% of the
total sales of our Consumer Electronics Group during the nine months ended
November 30, 2000 and the year ended February 28, 2001, respectively, resulted
from our sales to customers in Cuba. Such sales to customers in Cuba accounted
for approximately 54% and 48% of our total revenues for the nine months ended
November 30, 2000 and fiscal 2001, respectively. In addition, all transactions
completed in Cuba are concluded in U.S. dollars. These operations may be
affected in varying degrees by political instability and government regulations
relating to industry and foreign investors. Any changes in regulations or shifts
in political conditions are beyond our control and may adversely affect our
business. Operations may be affected in varying degrees by government
regulations with respect to restrictions on, for example, production,
repatriation of profits, price controls, export controls, income taxes and
expropriations of property.
The international financial community has viewed the economic performance
and political uncertainty of Cuba over the past number of years unfavourably. As
a result, project financing is more difficult and thus more costly to achieve in
view of the fact that the perceived risk of financing would demand greater
returns to satisfy higher risk expectations. Such a situation could render
projects less competitive compared to those located within more favourable
economic and political environments. Such instability could affect the
investors'
12
perception of risk and cause further equity financing to be more difficult. Our
operations could also be affected, which could reduce or interrupt cash flow.
The United States' Trade Embargo Against Cuba. Our operations may be
affected by the United States' continual trade embargo against Cuba. The trade
embargo applies to most transactions involving Cuba and Cuban enterprises. From
its inception in 1962 to 1996, the embargo only restricted the activities of
U.S. citizens, U.S. residents, businesses organized under U.S. law, and
businesses owned or controlled by U.S. citizens or residents. This changed with
the enactment of the Cuban Liberty and Democratic Solidarity Act, or
Helms-Burton Act, in March of 1996, which extended the reach of the U.S. embargo
by creating a private cause of action and authorizing U.S. nationals with claims
to property confiscated by the Cuban Government to file suit in U.S. courts
against persons that may be "trafficking" in that property. However, a 1992
Order issued by the Canadian government blocks the application of the U.S.
embargo to Canadian corporations. Further, the embargo does allow for U.S.
citizens and businesses to make secondary investments in a Canadian or other
foreign country corporation or other entity only if such company does not
subsequently receive a majority of its revenues directly from activity within
Cuba, and only if the investment is not a controlling interest.
Our activities in Cuba currently consist of furnishing components for
televisions to a government-controlled factory near Havana, and serving as an
authorized distributor of brand name televisions and other consumer electronics
in that country. Approximately 45%, 96% and 96% of our total revenues were
derived from our operations in Cuba for fiscal 2001, 2000 and 1999,
respectively. As we own little or no property in Cuba, and to our knowledge no
property confiscated by the Government of Cuba and no property subject to a
claim certified by the Foreign Claims Settlement Commission under the
International Claims Settlement Act of 1949, we believe the Helms-Burton Act
would not apply to us. Currently, our ownership of assets in Cuba is limited to
furniture and fixtures, computers and leasehold improvements in our Cuban
locations.
In the very unlikely event that it were determined that we were
"trafficking" in confiscated property, we could be subject to monetary damages
up to three times the amount of any claim by a United States national certified
by the Foreign Claims Settlement Commission plus interest, or three times the
fair market value of the property plus interest, which ever is greater, plus
court costs and reasonable attorney fees. Given the fact that the value of such
property, if any, owned by us would be minimal, the impact of such a suit on our
business or our shareholders would also be minimal.
In addition, as a result of recent acquisitions and other acquisitions we
are presently contemplating, we expect that the percentage of our assets,
revenues and profits located in and derived from our business operations in Cuba
will decrease significantly as a percentage of our consolidated assets, revenues
and profits. However, we cannot assure you that our existing or future United
States business operations, efforts to achieve financing in the United States or
the listing of our securities on United States securities exchanges will not be
adversely affected by political considerations, including the U.S. trade embargo
on Cuba.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
Original Incorporation and Reverse Acquisition
We were incorporated on May 4, 1998 in Alberta, Canada under the name
Balmoral Capital Corp. pursuant to the Business Corporation Act of Alberta.
Balmoral was extra-provincially registered in the Province of British Columbia,
Canada on May 7, 2000. Our principal office is located at Suite 1010, 5255 Yonge
Street, Toronto, Ontario Canada M2N 6P4, telephone number (416) 512-8299, and
our registered office is located at 1600, 407-2nd Street, S.W., Calgary,
Alberta, T2P 2Y3.
In September 1998, Balmoral completed an initial public offering of our
Common Shares with the Alberta Securities Commission. Balmoral did not carry on
any business other than identifying and evaluating opportunities for the
acquisition of an interest in assets or businesses.
13
On October 15, 1999, Balmoral completed its acquisition of 100% of the
issued and outstanding securities of 1058199 Ontario Inc. and changed its name
from Balmoral Capital Corp. to Commercial Consolidators Corp. In the reverse
acquisition, we issued 10,335,000 Common Shares at a deemed price of $1.00 per
share for 100% of the issued and outstanding shares of 1058199 Ontario Inc., and
335,000 Common Share Purchase Warrants entitling the holder to acquire one
Common Share for every two warrants at an exercise price of $2.00 per share
until the expiry of the warrants on October 8, 2001.
On October 15, 1999, we commenced trading on the Vancouver Stock Exchange,
which subsequently became the Canadian Venture Exchange (CDNX).
RECENT ACQUISITIONS
Effective April 1, 2000, we acquired a 100% interest in YAM Wireless Inc.,
formerly YAM International Communications Inc., or YAM. Located in Miami,
Florida, YAM is an international distributor of cellular telephones and
accessories. We issued 1.247 million Common Shares, at a fair value of $3.75 per
share, and U.S. $3.3 million in cash as consideration for 100% of the issued and
outstanding shares of YAM to its two owners Yossi Vanon and Shani Sasson.
Effective May 1, 2000, we acquired 100% of La Societe Desig Inc., or Desig.
Based in Montreal, Canada, Desig develops and markets proprietary property
management solutions software for the hospitality industry. We issued a total of
3.1 million Common Shares in consideration for 100% of the issued and
outstanding shares of Desig to its owners Victor Noce, Robert Marcoux, Bertrand
Bolduc and certain members of their families.
Effective December 1, 2000, we acquired 100% of MAX Systems Group Inc., or
MAX. Based in Calgary, Canada, MAX is a provider of notebook computers, computer
components and MIS solutions throughout Canada and the United States. We
acquired MAX for a purchase price equal to 2.5 times MAX's audited pre-tax
profit for the 12 months ending February 28, 2002. The minimum purchase price is
$750,000. We agreed to pay the purchase price to complete the acquisition in
cash and Common Shares. Specifically, we will pay a minimum of $750,000 in cash,
with the balance to be paid in Common Shares at $4.25 per share. Accordingly, we
escrowed 1.6 million Common Shares in order to provide for the stock component
of the purchase price and issued a promissory note to the MAX stockholders
evidencing our obligation to pay the $750,000 for the cash component of the
purchase price. The cash portion of the purchase price is payable following the
completion of the MAX audit for the 12 month period ending February 28, 2002.
Payment of the $750,000 cash portion of the purchase price will retire the
outstanding note payable.
However, if MAX does not have a minimum pre-tax profit of CDN $1 million
for the 12 month period ending February 28, 2002, then the acquisition agreement
will automatically terminate unless the parties mutually agree to continue the
transaction. During the three months ended May 31, 2001, which is the first
three months of the 12-month measurement period referenced above, MAX had
pre-tax operating income of approximately $85,000 before inter-corporate expense
allocations. Despite these results, and in light of positive discussions and
meetings with MAX's major suppliers, major customers, banker and senior
management, we believe that the $1.0 million targeted pre-tax amount will be
achieved.
Effective July 1, 2001, we acquired a 100% interest in Mississauga,
Ontario-based Tri-Vu Interactive Corporation, or Tri-Vu. Tri-Vu develops,
implements and services customized interactive entertainment and information
television-based content and Internet services to the global four/five star
hospitality industry. We agreed to purchase Tri-Vu for a purchase price equal to
4.5 times Tri-Vu's net income for the 12 months ending May 31, 2002. The entire
purchase price shall be paid in our Common Shares, at $3.74 per share, on or
before August 31, 2002.
However, if Tri-Vu does not have a minimum pre-tax profit of CDN $458,500
for the period ending May 31, 2002, then we may terminate the acquisition
agreement and unwind the transaction. If Tri-Vu's pre-tax profit for the twelve
month period ending May 31, 2002 is less than the minimum pre-tax requirement,
Tri-Vu is afforded a three month extension in which to achieve the forecast and,
if the minimum threshold is
14
not met during the entire 15 month period, then we may elect to put the Tri-Vu
shares back to the sellers, in which case all the Common Shares held in escrow
shall be surrendered to us for cancellation. If we elect to consummate the
transaction notwithstanding the fact that the minimum pre-tax profit forecast
target had not been met, we would multiply the actual pre-tax profit by 4.5 and
settle the transaction.
The following is a summary description, including the amounts invested, of
our principal acquisitions since the reverse merger that created our company on
October 15, 1999.
[Download Table]
DATE OF TRANSACTION DESCRIPTION OF TRANSACTION
AMOUNT OF TRANSACTION
------------------- --------------------------
---------------------
April 1, 2000............................ Acquisition of YAM $
11,124,737(1)
May 1, 2000.............................. Acquisition of Desig $
12,247,153(2)
December 1, 2000......................... Acquisition of MAX $
1,100,325(3)
July 1, 2001............................. Acquisition of Tri-Vu To
be determined
---------------
(1)Includes approximately $1,522,397 in transaction costs.
(2)Includes approximately $622,153 in transaction costs.
(3)Comprised of the $750,000 cash portion of the purchase price, plus
approximately $350,325 in transaction costs.
Capital assets are added in the normal course of business and consist
primarily of furniture, vehicles, computers and leasehold improvements. In the
fiscal year ended February 28, 2001, we developed a proprietary television
"chassis," which is the electronic circuitry inside the television. Our capital
expenditures in connection with our development of this technology were
approximately $2.4 million (U.S. $1.6 million), and were incurred during the
fiscal year ended February 28, 2001. Our total capital asset investment for the
nine months ended November 30, 2000 and the year ended February 28, 2001 was
approximately $2.4 million (U.S. $1.6 million) and $3.2 million (U.S. $2.1
million), respectively, compared with approximately $574,000 (U.S. $372,000) and
$656,000 (U.S. $425,000) for the nine months ended November 30, 1999 and the
year ended February 29, 2000, respectively.
Integration of Acquired Businesses
With respect to our recent acquisitions described above, we do not
anticipate any material difficulties in integrating the businesses of the
acquired companies into our business operations. We have accomplished what we
believe to be a successful transition and retention of key management personnel
from the acquired businesses, which we believe to be most beneficial to the
integration process. Most of the key personnel from the acquired businesses have
elected to retain their positions and each person has entered into a three-year
employment agreement with us which provides them with incentive stock options in
addition to their salaries. In addition, in order to help integrate the general
employee population of the acquired companies, we appointed our transfer agent
as agent for our employee stock purchase plan. We intend to implement the plan
in November 2001.
We had intended to introduce a new online service to our customers on or
about June 30, 2001, that would provide our customers access to all of the
additional products and services we now offer as a result of our acquisition of
these new businesses. The online service will provide links to the acquired
businesses, which are operated through separate divisions of our company,
through which customers can order products and obtain up-to-date information
regarding inventory, order status and account information. Although the online
service is ready for launch, we have decided to temporarily delay its
introduction due to the current downturn in demand for electronic commerce
services within the industries we service. We reassess these economic conditions
on a monthly basis, and are poised to launch our online service as soon as we
determine there is adequate demand.
From a financial accounting perspective, we expect our consolidated
financial reporting systems to be completely in place by the end of August 2001.
Common general ledger accounts have already been created in this regard.
15
Our primary strategic objective is to expand the markets in which our
business groups and divisions operate in South and Central America in order to
increase our sales by leveraging existing distribution channels and selling more
products/services to our existing customers. In this regard, we are not
experiencing the higher costs normally associated with a growing company
acquiring new business lines. Rather, our acquired businesses, operating through
our divisions, are able to enter these new markets through our established
relationships with existing customers and distributors thereby resulting in
lower integration costs. With the exception of MAX, each acquired business was a
profitable enterprise in its respective industry when we acquired it. These
lower costs associated with entering new markets have allowed the acquired
businesses to maintain, and in some cases increase, net profit levels.
Certain synergies currently in place consist of the following:
- We have utilized our corporate purchasing power to secure operating lines
for our computer products and wireless products divisions, which reduced
their costs with their major suppliers.
- We have co-located the Toronto operations of our business supplies and
computer products divisions, thereby reducing their combined costs of
maintaining premises by approximately 20%.
- We have cross-introduced our business supplies and computer products
divisions' suppliers.
B. BUSINESS OVERVIEW
We are an international distributor of business technologies and consumer
electronics. Our business consists of:
- A Business Technologies Group, comprised of:
- A wireless products division;
- A computer products division;
- An integrated applications division; and
- A business supplies division.
- A Consumer Electronics Group, that distributes:
- recognized third party brands and our private label brand of
televisions;
- refrigerators, stoves, washer-driers, toaster, blender, freezers and
other household appliances; and
- video cassette recorders, and audiovisual and entertainment
equipment.
We intend to grow our business through a combination of an expansion of our
existing business operations and through strategic acquisitions.
The following table sets forth our total revenues, by business group, for
the past three fiscal years:
[Download Table]
FYE FYE
FYE
BUSINESS GROUPS 2/28/99 2/29/00
2/28/01
--------------- ------- -------
-------
(IN THOUSANDS OF
DOLLARS)
Consumer Electronics Group................................ $18,208 $28,833
$31,273
Business Technologies Group............................... $10,896 $16,294
$72,234
16
The following table sets forth the revenues of our Business Technologies
Group, by division, for the past three fiscal years:
[Download Table]
FYE FYE
FYE
DIVISION OF BUSINESS TECHNOLOGIES GROUP 2/28/99 2/29/00
2/28/01
--------------------------------------- ------- -------
-------
(IN THOUSANDS OF
DOLLARS)
Wireless products division................................ $ -- $ --
$42,227
Computer products division................................ -- --
6,841
Integrated applications division.......................... -- --
2,984 