Prepare the memo requested by the partner.
Floral Impressions Ltd. (FIL), a small public company listed on a Canadian stock exchange, is a wholesaler of silk plants with three warehouses located in Ontario, Alberta, and British Columbia. It imports its inventory of silk flowers and accessories from Indonesia. FIL employees arrange bouquets, trees, wreaths, and decorative floral products for sale in Canada to flower shops, grocery stores, and other retailers.
The silk plant concept was novel when FIL was incorporated in 19X4. For the first three fiscal years, sales grew at approximately 40% per year, and FIL expanded to meet the demand. However, increased competition resulted in declining sales and operating losses over the next six years. Liz inherited the shares of the company in 20X3. She had just completed a marketing course and was very excited about becoming involved in the business and applying her new skills. The fiscal year ended December 31, 20X4, brought a return to higher sales levels and a modest net income. Liz management contract, which was negotiated in 20X4, provides for stock options to be granted to her each year based on the percentage increase of FIL™s revenue from one year to the next. On October 31, 20X5, Liz was granted stock options for the first time. She received 4,500 stock options at $ 2.50 each, the market price at that date.
On January 15, 20X5, when shares were trading at $ 4 each, FIL announced an agreement with the share-holders of Rest- EZE Wreath Corporation (RWC) whereby FIL would acquire 100% of the voting shares of RWC by issuing 200,000 FIL common shares. The acquisition of RWC was completed on October 31, 20X5. The market value of FIL shares has declined significantly since the announcement. RWC, a small private Canadian corporation, sells funeral wreaths, made with fresh flowers, on the internet. The suppliers, florists throughout Canada, advertise their wreath models on RWC website, which is targeted at funeral homes and their customers. These clients order their flowers through RWC website. RWC records 100% of the sales, invoices the client for the same amount, and remits 85% of the proceeds to the supplier. RWC absorbs any bad debts. RWC is in the process of installing a billing system on its website that would allow customers to pay by credit card, but is still working out some bugs. RWC assets (mainly accounts receivable and office equipment) less the liabilities have a fair market value of $ 150,000, as established by an independent evaluator. RWC has never been audited and its year- end is November 30.
Floral Impressions Ltd.
Non- Consolidated Statement of Financial Position
(In thousands of dollars)