SAMPLE
KESPR Business Advisors
www.kespr.comFinancial Due Diligence Report
[ABC Limited]
Report Date: June 3, 2010
LogoAuthor's Note:
This report sample shows the detailed information typcialy gathered during due diligence fieldwork for a complex business/organization and the presentation of that information for our Clients.
SAMPLE [ABC Limited]
Date: June 3, 2010 NOTICE TO READER
KESPR has been engaged by [*] to perform [limited] financial due diligence on [ABC limited] and its subsidiaries.
Our report has been prepared solely for the use of the directors of [*]. This report should not be referred to, in whole or in part, or quoted by expertise or referenced in any manner, or distributed in whole or in part or copied to any third party without our prior written consent. The scope of the work has been limited to the purpose of our engagement detailed in the engagement letter dated [DATE]
Verification
All material herein was prepared by KESPR based upon information obtained by the company or other sources believed to be reliable. The information contained herein is not guaranteed by KESPR to be accurate, and should not be considered to be all-inclusive.
Projections
This report may contain statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E the Securities Exchange Act of 1934, as amended. The words "may" "would," "will," "expect," "estimate," "anticipate," "believe," "intend," and similar expressions and variations thereof are intended to identify forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond KESPR's ability to estimate, forecast or project, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors.
Disclaimer on Post-Dated Events
KESPR has no responsibility to update this report for events and circumstances occurring after the date of completion of our field work, which was completed on [DATE]. Limited Review report
Because the scope of our work has been limited by the time available and/or by the information made available to us, you should not rely on our work and our report as being comprehensive as we may not have become aware of all facts or information that you may regard as relevant. Accordingly, KESPR is not in a position to make a representation, and cannot make a representation as to the sufficiency of these due diligence procedures for your purposes.
Matters excluded
Areas that were excluded from this due diligence review includes: - issues of law
- fixed assets and work-in-progress valuation - intangible assset valuation
- regulatory issues
- other specialist area beyond the expertise of KESPR
You should consider whether to obtain expert advice in relation to these areas.
This report is issued on the understanding you have drawn our attention to all matters of which you are aware concerning the company’s financial position or the proposed transaction which may have an impact on our report up to the date of signature of the finalized report.
SAMPLE [ABC Limited]
Report Date: June 3, 2010 Report Contents
I Executive Summary Significant Findings II Background Information Company Description Industry and market trends
Survey of latest economic forecast and news III Financial Review
1 Cash 2 Working Capital 3 Inventory 4 Fixed Assets 5 Intangible Assets 6 Contingent Liabilities 7 Tax 8 Equity
9 Debt Instruments, bank lines, key terms and conditions 10 Revenue, Cost of Goods Sold, Operating Costs
Market Trends Customer Contracts 11 Human Resources
Summary of Work Force
Employee Wages, Benefits, Pensions Union Contracts 12 Insurance 12 Tax IV Subsequent Events V Financial Projections Management's Budget Appendices A Legal Entities B Management Bio C Organizational Structure
SAMPLE [ABC Limited] EXECUTIVE SUMMARY Significant Findings: 1. Going Concern 2. Banking Facilities
3. Outstanding Claims Against Company 4. Tax & Other Legal Disputes
Background Information COMPANY DESCRIPTION
INDUSTRY DESCRIPTION
Survey of Key Economic Forecasts
2007 2008 2009 2010 F 2011 F
Real GDP Growth Rates Canada
Royal Bank of Canada 0.5% -2.5% 3.6% 3.5%
Bank of Montreal 2.2% 0.5% -2.5% 3.3% 3.0% CIBC 2.5% 0.4% -2.5% 2.3% 3.0% Average 2.4% 0.5% -2.5% 3.1% 3.2% Median 2.4% 0.5% -2.5% 3.3% 3.0% Unemployment Canada
Royal Bank of Canada 6.1% 8.3% 8.0% 7.2%
Bank of Montreal 6.0% 6.2% 8.3% 8.0% 7.5% CIBC 6.0% 6.1% 8.3% 8.3% 8.1% Average 6.0% 6.1% 8.3% 8.1% 7.6% Median 6.0% 6.1% 8.3% 8.0% 7.5% Retail Sales Canada
Royal Bank of Canada 3.4% -3.0% 6.5% 5.0%
Bank of Montreal CIBC Average 3.4% -3.0% 6.5% 5.0% Median 3.4% -3.0% 6.5% 5.0% Housing Starts Canada
Royal Bank of Canada 212.0 149.0 189.0 185.0
Bank of Montreal 228.7 211.6 148.9 182.3 178.8 CIBC 228.0 211.0 145.0 180.0 185.0 Average 228.4 211.5 147.6 183.8 182.9 Median 228.4 211.6 148.9 182.3 185.0 CPI Canada
Royal Bank of Canada 2.4% 0.3% 1.9% 2.2%
Bank of Montreal 2.1% 2.4% 0.3% 1.8% 1.9% CIBC 2.1% 2.4% 0.3% 2.0% 2.1% Average 2.1% 2.4% 0.3% 1.9% 2.1% Median 2.1% 2.4% 0.3% 1.9% 2.1% 2007 2008 2009 2010 F 2011 F 2007 2008 2009 2010 F 2011 F 2007 2008 2009 2010 F 2007 2008 2009 2010 F 2007 2008 2009 2010 F 2011 F
Survey of Key Economic Forecasts Recent Major Events
Country Date Headlines
Canada
United States
Historical Financial Statements (Summarized)
Balance Sheet Oct 31, 2007 Oct 31, 2008 Oct 31, 2009 [DD Date]
Cash & cash equivalents Restricted cash
Prepaid expenses & deposits Accounts receivable Inventory
Other current assets Fixed assets, net book value
Land Buildings Equipment Intangible assets Other assets Total Assets Accounts receivable Other liabilities Debt, current portion
Debt, long-term portion Deferred items Future income tax Common shares Preferred shares Retained earnings
Total Liabilities & Shareholders' Equity
Historical Financial Statements (Summarized)
Income Statement Oct 31, 2007 Oct 31, 2008 Oct 31, 2009 [DD Date]
Revenue Cost of sales Gross margin Operating expenses Depreciation & amortization Operating profit
Interest expense, net Unrealized losses (gains) Foreign exchange losses (gains) Income before tax
Current taxes Deferred taxes Net Income (Loss)
Retained earnings, beginning Dividends
Adjustments
Retained earnings, ending Note(s):
Historical Financial Statements (Summarized)
Cash Flow Schedule Oct 31, 2007 Oct 31, 2008 Oct 31, 2009 [DD Date]
Revenue Cost of sales Gross margin Operating expenses Working capital
Realized foreign exchange losses (gains) Cash Flow from Operations
Cash taxes
After-tax cash flow from operations Cash used in investing:
Equipment purchased Equipment disposed Cash used in financing Principal repayment Debt borrowing Interest expense Interest income Equity issuance Dividend payment Cash surplus (deficit) Cash, beginning Cash, ending Note(s):
CASH & CASH EQUIVALENTS (C$ in thousands, unless otherwise indicated)
Date 10/31/2009 4/30/2010 Notes (1) Cash 1,000 1,254 Restricted Cash x 854 Marketable Securities 527 Total 1,000 2,636 Bank Accounts
Acct No. Institution Type Holder Location Denom Foreign Bal. C$ Bal Rates Term *
01-00545-120 BOM C ABC Limited Vancouver, BC CAD $1,000 0.75% N/A
01-00545-121 BOM S A Limited Richmond, BC CAD $150 1.25% N/A
01-00545-122 BOM S B Limited Victoria, BC USD $100 $104 1.25% N/A
$1,254
Short-term Investments
Certificate No. Institution Type Holder Location Denom Foreign Bal. C$ Bal Rates Term *
01-00545-120 RBC CD ABC Limited Vancouver, BC CAD $500 4.00% 12
01-00545-121 Merrill M A Limited Richmond, BC CAD $250 2.00% 15
01-00545-122 AIM GIC B Limited Victoria, BC USD $100 $104 3.75% 23
$854
Restricted Cash
Acct No. Institution Type Holder Location Denom Foreign Bal. C$ Bal Rates Term *
01-00545-120 RBC S A Limited Vancouver CAD $250 0.25% N/A
01-00545-121 Merrill S B Limited Vancouver CAD $150 0.25% N/A
01-00545-122 AIM S C Limited Vancouver EUR $100 $127 0.25% N/A
$527 * Term in months
Note(s):
1. As per audited financial statements 2 Balances as at DD field work date 3. Nature of restricted cash described here 4. Abbreviations:
C = Chequing S = Savings CP = Commercial Paper M = Mutual Fund
GIC = Guaranteed Investment Certificates CD = Certificate of Deposit
5. Bank Abbreviations
Abbrev Bank Name Bank Contact Telephone BOM Bank of Montreal
RBC Royal Bank of Canada
[ABC Limited] SAMPLE WORKING CAPITAL
(C$ in thousands, unless otherwise indicated)
Change ($)
Quarterly Period Ended 10/31/2009 1/31/2010 4/30/2010 7/31/2010 1/31/2010 4/30/2010 7/31/2010 Current Assets
Accounts Receivable Prepaid expenses & deposits Inventory
Total Current Assets Current Liabilities
Accounts Payable Total Current Liabilities Net Working Capital Financial Ratios Liquidity
Current Ratio x x x x
Acid Test Ratio x x x x
Net Sales / Working Capital x x x x
Average Inventory / Working Capital x x x x
Note(s): 1. Ratio formulas:
Current Ratio (Current Assets / Current Liabilities)
Acid Test Ratio: (Current Assets -Inventory/ Current Liabilities) Net Sales / Working Capital
[ABC Limited] SAMPLE WORKING CAPITAL
(C$ in thousands, unless otherwise indicated)
Working Capital Details
Accounts Receivable Details
Current (0-30 days) 100 100 100 100 49% 49% 49% 49%
31-60 days 30 30 30 30 15% 15% 15% 15%
61-90 days 25 25 25 25 12% 12% 12% 12%
90+ days 50 50 50 50 24% 24% 24% 24%
Total 205 205 205 205 100% 100% 100% 100%
Top Ten Customers
Customer 1 45 45 45 45 22% 22% 22% 22% Customer 2 42 42 42 42 20% 20% 20% 20% Customer 3 38 38 38 38 19% 19% 19% 19% Customer 4 20 20 20 20 10% 10% 10% 10% Customer 5 15 15 15 15 7% 7% 7% 7% Customer 6 10 10 10 10 5% 5% 5% 5% Customer 7 9 9 9 9 4% 4% 4% 4% Customer 8 8 8 8 8 4% 4% 4% 4% Customer 9 7 7 7 7 3% 3% 3% 3% Customer 10 6 6 6 6 3% 3% 3% 3% Others 5 5 5 5 2% 2% 2% 2% 205 205 205 205 100% 100% 100% 100%
Provision for Doubtful Accounts Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Accounts Payable Current (0-30 days) 100 100 100 100 49% 49% 49% 49% 31-60 days 30 30 30 30 15% 15% 15% 15% 61-90 days 25 25 25 25 12% 12% 12% 12% 90+ days 50 50 50 50 24% 24% 24% 24% Total 205 205 205 205 100% 100% 100% 100%
[ABC Limited] SAMPLE INVENTORY
(C$ in thousands, unless otherwise indicated) Inventory on Hand
Qty Unit Cost Cost Category 1 Item 1 Item 2 Category 2 Item 3 Item 4 Item 5 Category 3 Item 6 Item 7 Total
Top 10 Sellers, by Revenue This Month YTD Last Year Top 10 Sellers, by Volume This Month YTD Last Year
Item 1 $ $ $ Item 1 Item 2 $ $ $ Item 2 Item 3 $ $ $ Item 3 Item 4 $ $ $ Item 4 Item 5 $ $ $ Item 5 Item 6 $ $ $ Item 6 Item 7 $ $ $ Item 7 Item 8 $ $ $ Item 8 Item 9 $ $ $ Item 9 Item 10 $ $ $ Item 10
Top 10 Total Top 10 Total
[ABC Limited] SAMPLE FIXED ASSETS
(C$ in thousands, unless otherwise indicated) 1. Properties, Buildings, Leasehold
Description Cost Acc Amort NBV Account depreciation policy Current Appraised Value Land
Building Plant / Factory Leasehold Improvement
2. Equipment
Description Cost Acc Amort NBV Account depreciation policy Current Appraised Value Equipment
Machinery Tools Vehicles
3. Off Balance Sheet Assets
Description Cost Acc Amort NBV Account depreciation policy Current Appraised Value Office lease
Equipment lease Other lease / license etc.
Abbreviation(s): 1. NBV = Net book value
[ABC Limited] SAMPLE FIXED ASSETS
(C$ in thousands, unless otherwise indicated)
Listing Detail FA Category Description Year of Manufacture (if applicable) Year Acquired Acquisition
Cost Acc Amort NBV
Current Appraised Value Land [Address 1] [Address 2] Building [Address 1] [Address 2] Plant / Factory [Address 1] [Address 2] Leasehold Improvement [Address 1] [Address 2] Vehicles [Car 1] [Truck 2] Equipment [Item 1] [Item 2] [Item 3] Office lease [Address 1] Equipment lease [Lease 1]
[ABC Limited] SAMPLE INTANGIBLE ASSETS
(C$ in thousands, unless otherwise indicated) 1. Goodwill
[Description of Goodwill and relevant history/anaysis]
2. Customer Contract(s)
Reference Contract Name Start Date End Date Contract Rate Extensions Key Terms
[ABC Limited] SAMPLE CONTINGENT LIABILITIES
(C$ in thousands, unless otherwise indicated) 1. Pension Plan & Other Retirement Benefits [Plan Description]
2. Product Warranties
[ABC Limited] SAMPLE SHARE CAPITAL, INCLUDING OPTIONS
(C$ in thousands, unless otherwise indicated) 1. Share Capital
Common Shares
Class Par Value Voting Dividend Cumul Dvd Authorized Treasury Issued Outstanding A
B C Total
Preferred Shares
Class Par Value Voting Dividend Cumul Dvd Authorized Treasury Issued Outstanding A
B C Total
1. Description of Unusual shareholders' rights: > change in control provisions
2. Stock Options
Grant Date Expiry Date Year(s) Number Strike Price Option Rights
Total
3. Warrants
Grant Date Expiry Date Year(s) Number Strike Price Warrant Rights
[ABC Limited] SAMPLE DEBT OBLIGATIONS, INCLUDING NON-ARMS LENGTH TRANSACTIONS
(C$ in thousands, unless otherwise indicated)
1. Bank Revolvers / Line of Credits
No. Institution Facility Orig Bal Availability Fee (%)
Interest (%) Reduction Timing (mos) Available Facility
Covenants
001 RBC Revolver 1,000,000 0.25% 1.25% 50,000 6
002 RBC Line of Credits
2. Bank Term Loans
No. Institution Facility Original Terms Curr Bal Covenants
Orig. Bal. End Bal. Amort Period Interest Refinance Date
001 RBC Term Loan
002 RBC Term Loan
003 RBC Term Loan
Total
3. Lease Commitments
No. Institution Facility Original Terms Curr Bal Covenants
Orig. Bal. End Bal. Amort Period Interest Refinance Date
Total
4. Non-arms Length Debt
Due To / From Relationship Amount Interest Bearing
Terms
[ABC Limited] SAMPLE REVENUE
(C$ in thousands, unless otherwise indicated)
Period FY 2007 FY 2008 FY 2009 Q1 2010 Q2 2010 YTD 2010 CAGR
Total Sales Revenue Sales Revenue Breakdown:
Sales Category 1
Sales Category 1, % of Total Sales Category 2
Sales Category 2, % of Total Sales Discussion
Sales Details
Period FY 2007 FY 2008 FY 2009 Q1 2010 Q2 2010 YTD 2010 CAGR
Sales Category 1
Sales Revenue Sales Qty (units) Sales Unit Price
Qty Growth Unit Price Change Customers Customer 1 Customer 2 Customer 3 Others Country/Location/Branch Location 1 Location 2 Location 3 Others
[ABC Limited] SAMPLE COST OF GOODS SOLD
(C$ in thousands, unless otherwise indicated)
Period FY 2007 FY 2008 FY 2009 Q1 2010 Q2 2010 YTD 2010 CAGR
Total Cost of Goods Sold
% of Sales
Gross Margin (GM $)
GM %
Cost of Goods Sold Breakdown:
Sales Category 1
Sales Category 1, % of Total Sales Category 2
Sales Category 2, % of Total Cost of Goods Sold Discussion
Cost of Goods Sold Details
Period FY 2007 FY 2008 FY 2009 Q1 2010 Q2 2010 YTD 2010
Sales Category 1
Cost of Goods Sold Qty Sold (units) Unit Cost Freight, Insurance Brokerage Storage Total Unit Cost
Gross Margin Average Mark-up Suppliers Supplier 1 Supplier 2 Supplier 3 Others
[ABC Limited] SAMPLE OPERATING COSTS, EXCLUDING WAGES & BENEFITS
(C$ in thousands, unless otherwise indicated)
Period FY 2007 FY 2008 FY 2009 Q1 2010 Q2 2010 YTD 2010
Sales
Wages & Benefits Advertising & Promotion Meals & Entertainment Telephone & Communications Travel
Marketing
Wages & Benefits Advertising & Promotion Telephone & Communications Travel
Operations
Wages & Benefits Advertising & Promotion Telephone & Communications Travel
Administration
Wages & Benefits Office
Supplies General Insurance Rent
Telephone & Communications Utilities
Repair & Maintenance
[ABC Limited] SAMPLE Human Resources
Prior Year Current Year
Overview Overview
Department Head Count FTE Total Payroll Department Head Count FTE Total Payroll
Management Management
Operations Operations
Sales & Marketing Sales & Marketing
Administration Administration
Total Total
Total Revenue per Employee Total Revenue per Employee
Total Revenue per Sales & Marketing Employee Total Revenue per Sales & Marketing Employee
Details of Current Year Management
Name Title Status Ann Salary Hourly Wage Benefits Total Annual Bonus Other Remuneration
[Name] President FT
[Name] CFO FT
[Name] COO FT
Total
Sales & Marketing
Name Title Union [Y/N] Status Ann Salary Hourly Wage Benefits Total Annual Bonus Other Remuneration
[Name] Sales Manager FT
[Name] Sales Rep FT
[Name] Sales Rep FT
Total Operations
Name Title Union [Y/N] Status Ann Salary Hourly Wage Benefits Total Annual Bonus Other Remuneration [Name] General Manager FT
[Name] Supervisor FT
[Name] Specialist FT
[ABC Limited] SAMPLE INSURANCE
(C$ in thousands, unless otherwise indicated) Description of Insurance Plans
[ABC Limited] SAMPLE TAX
(C$ in thousands, unless otherwise indicated) 1. Corporate Income Tax
Tax Entity Country of Residence
Tax Number Corporate Relationship Tax Juridiction CCPC? Loss Carry Forward Taxes Unpaid Tax Dispute? Unpaid Penalties Unpaid Interest Prior Year Taxes
ABC Limited Canada 123 1 BC
A Limited Canada 123 2 Alberta
B Limited Canada 123 2 Manitoba
C Limited Canada 123 2 Ontario
Relationship Code: 1 = Parent 2 = Subsidiary 3 = Associated
3 = Related, but not associated
2. Other Taxes [HST] [Payroll]
[ABC Limited] SAMPLE Legal Entities
ABC Limited
[ABC Limited] SAMPLE Board / Management Bio
Board of Directors [Name] Chair [Name] Vice-Chair [Name] Director [Name] Director [Name] Director Management Team
[Name] President & CEO
[Name] Executive VP & CFO
[Name] VP & COO
[Name] VP & Chief Legal Counsel
[Name] VP Business Development
Bio Bio Bio Bio Bio Bio Bio Bio Bio Bio
[ABC Limited] SAMPLE Organizational Structure
President/CEO