due diligence report sample

SAMPLE

KESPR Business Advisorswww.kespr.com

Financial Due Diligence Report

[ABC Limited]

Report Date: June 3, 2010

STRICTLY PRIVATE AND CONFIDENTIAL

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Author'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.

Information gathered in this report serves many purposes, such as financial modeling, business valuation and post-transaction integration.

Financial Due Diligence Report STRICTLY PRIVATE AND CONFIDENTIAL

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.

KESPR Business AdvisorsRichmond, British Columbia

Canada


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

Prepared by KESPR Business Advisory


SAMPLE

[ABC Limited]

EXECUTIVE SUMMARY

Significant Findings:

1. Going Concern

2. Banking Facilities

3. Outstanding Claims Against Company

4. Tax & Other Legal Disputes

Prepared by KESPR Business Advisory

[ABC Limited] SAMPLE

Background Information

COMPANY DESCRIPTION

INDUSTRY DESCRIPTION

MARKET AND COMPETITION

Financial Due Diligence ReportPrepared by KESPR Business Advisory STRICTLY PRIVATE AND CONFIDENTIAL


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

Other



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

Abbrev: DD = Due dligence


Prepared by KESPR Business Advisory STRICTLY PRIVATE AND CONFIDENTIAL



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):

[Significant accounting policies]





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):

1. Cash flow presented on a Direct basis




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

Commentary:



WORKING CAPITAL


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

Average Inventory / Working Capital



WORKING CAPITAL


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%



INVENTORY


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

% of Total Sales % of Total Sales



FIXED ASSETS


1. Properties, Buildings, Leasehold

Description Cost Acc Amort NBV Account depreciation policy Current Appraised Value

Land

Building

Plant / Factory

Leasehold Improvement

2. Equipment


Equipment

Machinery

Tools

Vehicles

3. Off Balance Sheet Assets


Office lease

Equipment lease

Other lease / license etc.

Abbreviation(s):

1. NBV = Net book value



FIXED ASSETS


Listing Detail

FA Category Description

Year of

Manufacture

(if

applicable)

Year

Acquired

Acquisition

CostAcc 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]



INTANGIBLE ASSETS


1. Goodwill

[Description of Goodwill and relevant history/anaysis]

2. Customer Contract(s)

Reference Contract Name Start Date End DateContract

RateExtensions Key Terms

3. Lease Commitments



CONTINGENT LIABILITIES


1. Pension Plan & Other Retirement Benefits

[Plan Description]

2. Product Warranties

3. Pending Lawsuits



SHARE CAPITAL, INCLUDING OPTIONS


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

Total



DEBT OBLIGATIONS, INCLUDING NON-ARMS LENGTH TRANSACTIONS


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

[Name] Director 100000 3% Demand loan bearing interest of 3% p.a. paid annually.



REVENUE


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 Discussion

Sales Details


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



COST OF GOODS SOLD



Total Cost of Goods Sold

% of Sales

Gross Margin (GM $)

GM %

Cost of Goods Sold Breakdown:

Sales Category 1


Sales Category 2


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



OPERATING COSTS, EXCLUDING WAGES & BENEFITS


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



Travel

Operations

Wages & Benefits



Travel

Administration

Wages & Benefits

Office

Supplies

General Insurance

Rent


Utilities

Repair & Maintenance

Total Operating Costs



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] General Manager FT

[Name] Supervisor FT

[Name] Specialist FT

Total

Administration


[Name] Secretary FT

[Name] Secretary FT

[Name] Secretary PT

Total



INSURANCE


Description of Insurance Plans

Plan Coverage Details Broker Annual Premium Deductible



TAX


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 = Parent2 = Subsidiary3 = Associated3 = Related, but not associated

2. Other Taxes

[HST]

[Payroll]



Legal Entities

ABC Limited

A Limited B Limited C Limited



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

[Name] VP Human Resources

[Name] VP Marketing

Bio

Bio

Bio

Bio

Bio

Bio

Bio

Bio

Bio

Bio

Bio

Bio



Organizational Structure

President/CEO

CFO COO VP, General Counsel


About KESPR Business Advisory

KESPR specializes in the gathering and analysis of business and financial information to facilitate business acquisitions and divestitures. This process is called Due Diligence and is a core competency in KESPRs Transaction Services practice.

Our due diligence comprises both the commercial and financial aspects of a transaction and we participate in: - Pre-deal evaluation - Transaction evaluation - Deal structuring - Negotiations support - Due diligence field work and findings report

Our primary role is to produce a strong negotiating position and we will work closely with your staff, legal and other advisors, becoming an integral part of your transaction team. By helping you become aware of all the issues, you will gain the confidence to make decisions and take action.

Our commitment to the success of your acquisition extends beyond deal closing. Leveraging knowledge gained from the due diligence process, we can provide financial and accounting support and leadership as you embark on integrating business processes and people.

Contact Details:Phone: +1.604.723.1781Email: [email protected]

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