Due Diligence Report Sample

SAMPLE
KESPR Business Advisors

www.kespr.com
Financial Due Diligence Report
Logo [ABC Limited]

Report Date: June 3, 2010
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.
STRICTLY PRIVATE AND CONFIDENTIAL

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 Advisors

Richmond, 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

Prepared 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%
2007 2008 2009 2010 F 2011 F
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%
2007 2008 2009 2010 F 2011 F
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%
2007 2008 2009 2010 F
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
2007 2008 2009 2010 F 2011 F
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

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

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)
Commentary:
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

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
Year of
Current
Manufacture Year Acquisition
FA Category Description Acc Amort NBV Appraised
(if Acquired Cost
Value
applicable)
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)
Contract
Reference Contract Name Start Date End Date Extensions Key Terms
Rate
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 Covenants
(%) Facility
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 Terms
Bearing
[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 Tax Number Corporate Tax CCPC? Loss Carry Taxes Tax Unpaid Unpaid Prior Year
Residence Relationship Juridiction Forward Unpaid Dispute? Penalties Interest 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]

Legal Entities
ABC Limited
A Limited B Limited C Limited

Board / Management Bio
Board of Directors
[Name] Chair Bio
[Name] Vice-Chair Bio
[Name] Director Bio
[Name] Director Bio
[Name] Director Bio
Management Team
[Name] President & CEO Bio
[Name] Executive VP & CFO Bio
[Name] VP & COO Bio
[Name] VP & Chief Legal Counsel Bio
[Name] VP Business Development Bio
[Name] VP Human Resources Bio
[Name] VP Marketing 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: +1.604.723.1781
Email: info@kespr.com
www.kespr.com

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SAMPLE

KESPR Business Advisors

Financial Due Diligence Report

Logo [ABC Limited]

STRICTLY PRIVATE AND CONFIDENTIAL

Date: June 3, 2010

Disclaimer on Post-Dated Events

Limited Review report

KESPR Business Advisors

Report Date: June 3, 2010

III Financial Review

Prepared by KESPR Business Advisory

3. Outstanding Claims Against Company

4. Tax & Other Legal Disputes

Prepared by KESPR Business Advisory

MARKET AND COMPETITION

Financial Due Diligence Report

Survey of Key Economic Forecasts

2007 2008 2009 2010 F 2011 F

Financial Due Diligence Report

Survey of Key Economic Forecasts

Recent Major Events

Country Date Headlines

Financial Due Diligence Report

Historical Financial Statements (Summarized)

Cash & cash equivalents

Fixed assets, net book value

Debt, long-term portion

Future income tax

Total Liabilities & Shareholders' Equity

Abbrev: DD = Due dligence

Financial Due Diligence Report

Historical Financial Statements (Summarized)

Interest expense, net

Income before tax

Net Income (Loss)

Retained earnings, beginning

Financial Due Diligence Report

Historical Financial Statements (Summarized)

Cash used in investing:

Cash used in financing

Cash surplus (deficit)

Financial Due Diligence Report

CASH & CASH EQUIVALENTS

Financial Due Diligence Report

Net Working Capital

Net Sales / Working Capital x x x x

Average Inventory / Working Capital x x x x

Financial Due Diligence Report

Working Capital Details

Accounts Receivable Details

Top Ten Customers

Provision for Doubtful Accounts

Financial Due Diligence Report

Financial Due Diligence Report

1. Properties, Buildings, Leasehold

3. Off Balance Sheet Assets

Financial Due Diligence Report

Plant / Factory [Address 1]

Leasehold Improvement [Address 1]

Office lease [Address 1]

Equipment lease [Lease 1]

Financial Due Diligence Report