Westbond Enterprises Corp V.WBE

Q1 Rev up %20 & net up %20

[The_brain]

WestBond Enterprises Corporation

Quarterly Report

June 30, 2009

Management Discussion and Analysis

dated August 31, 2009, to accompany the interim consolidated financial statements for the three

months ended June 30, 2009

Caution Regarding Forward Looking Statements – This discussion includes statements about our

expectations for the future. We believe that our expectations are reasonable; however, actual

outcomes may differ materially from our expectations due to changes in operating performance,

availability of and prices for raw materials, availability of trained labour, US$/Cdn$ exchange rate

fluctuations, unexpected competition, and other technical, market and economic factors.

Description of Our Business

We, WestBond Enterprises Corporation or the “Company,” are a paper converter that supplies disposable

paper products to many markets. A full description of our business and products is contained in the

Management Discussion and Analysis included in our 2009 Annual Report. A pdf version of the 2009

Annual Report may be downloaded from our web site at www.westbond.ca or from the SEDAR web site

at www.sedar.com. For a printed copy, please contact the Company. Additional information on the

Company is also available on our web site and on the SEDAR web-site.

Discussion of Operations and Financial Condition

You should refer to our interim consolidated financial statements for the three months ended June 30,

2009 and our consolidated financial statements for the year ended March 31, 2009 while you read this

discussion. Those financial statements provide significant, material information that is not meant to be,

nor is it, included in this discussion. This discussion is meant to provide information not included in the

financial statements and an explanation of some of the financial statement information. You should also

refer to the Management Discussion and Analysis that was included in our 2009 Annual Report.

Information included in that discussion is only up-dated in this discussion. Information that has not

changed materially since July 8, 2009, the date of the Management Discussion and Analysis in the 2009

Annual Report, is not repeated here.

Sales were $1,706,449 for the three months ended June 30, 2009, which is 19% more than for the same

period last year and 11% more than the three months ended March 31, 2009. Net income also increased

by 22% to $62,727 ($0.006 per share) for the period, compared to $51,326 ($0.005 per share) for the

three months ended June 30, 2008. This year’s results are more profitable than the same period last

year because of the increase in sales.

The graph on the next page shows the trends over the past eight quarters.

Summary of Quarterly Results

The following table summarises the results of operations for the past eight quarters. We have extracted

the data from our consolidated financial statements, which are prepared in Canadian dollars and in

accordance with Canadian generally accepted accounting principles.

Quarters ended

Cdn$ x 1,000 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30

2009 2009 2008 2008 2008 2008 2007 2007

Sales 1,706 1,543 1,572 1,455 1,434 1,364 1,462 1,574

Cost of sales 1,330 1,188 1,278 1,153 1,124 1,113 1,135 1,211

Gross profit 376 355 294 302 310 251 327 363

Selling and marketing expenses 133 120 120 129 118 119 125 154

General and administrative expenses 157 148 135 159 141 144 135 175

Net income (loss) before taxes 86 87 39 14 51 (12) 67 34

Income tax expense (recovery) 23 9 12 6 (1) (2) (26) 7

Net income (loss) 63 78 27 8 52 (10) 93 27

Earnings (loss) per share, basic and

diluted - Cdn$ 0.006 0.007 0.002 0.001 0.005 (0.001) 0.008 0.003

Sales - % change over previous

quarter 10.6 -1.8 8.1 1.5 5.1 -6.7 -7.1 17.5

Costs, expenses and net income

- % of Sales

Cost of sales 78.0 77.0 81.3 79.3 78.4 81.5 77.6 76.9

Selling and marketing expenses 7.8 7.8 7.6 8.9 8.2 8.7 8.5 9.8

General and administrative expenses 9.2 9.6 8.6 10.9 9.9 10.6 9.2 11.1

Income tax expense 1.3 0.6 0.8 0.4 -0.1 -0.1 -1.7 0.4

Net income 3.7 5.0 1.7 0.5 3.6 -0.7 6.4 1.8

Sales

Sales for the three months ended June 30, 2009 are 19.0% higher than for the same period last year.

The increase in sales is due to increased volumes from the personal hygiene and clinical and long-term

care product lines. The fluctuations in sales are from volume differences.

Sales

Three months ended

June 30 Change

over last

Product Line year

2009

$

2008

$

Personal hygiene 809,462 612,047 32.3%

Clinical and long-term care 847,271 769,059 10.2%

Other 49,716 52,567 -5.4%

1,706,449 1,433,673 19.0%

Cost of Sales

Total cost of sales, as a percentage of sales, was slightly better in 2009 compared to 2008. Higher

materials and labour costs were offset by savings on overhead.

Three months ended June 30

Cost of Sales 2009 2008

% of sales % of sales

Materials 54.4% 53.8%

Labour 8.3% 7.3%

Variable overhead 5.9% 6.1%

Fixed overhead 5.6% 6.8%

Depreciation 3.8% 4.4%

Gross Margin 22.0% 21.6%

Our normal operating range for materials has been 51% to 54% and the average for the year ended

March 31, 2009 was 54%. Materials cost fluctuations are due to variations in the yield factors (the

amount of product that a certain weight of paper will produce), paper prices and product mix.

The labour fluctuations, which are also subject to shifts in the product mix, are within our usual operating

ranges. We have increased our wage rates in order to retain the more efficient employees and to attract

good machine operators. The inability to hire or retain production employees can result in lost sales.

The decrease in overhead as a percentage of sales is due to the increased sales. Variable overhead is

higher in 2009 because of increased warehouse and supervisory wages, waste disposal costs and

utilities costs.

Selling Expenses

Selling expenses were lower during 2009, at 7.8% of sales, compared to 8.2% for 2008. The decrease is

caused by better freight rates.

General and Administrative Expenses

General and administrative expenses were higher in 2009 than in 2008 by $15,968. Administration and

office expense is higher because of foreign exchange losses of $15,339 realized in 2009. Professional

fees are higher because of increasing audit costs. Salaries and employee benefits increased due to a

temporary reduction in staffing levels during 2008. Interest is lower because of lower levels of bank

indebtedness and long-term debt and lower interest rates.

During the three months ended June 30, 2009 professional fees include $2,695 paid to DuMoulin Black

LLP, a law firm in which J. Douglas Seppala, one of our directors, is a partner. The payments represent

fees for legal services provided to the Company at rates normally charged to arm’s length parties.

Liquidity, Financial Position and Capital Resources

Our financial position improved during the three months ended June 30, 2009. We had working capital of

$623,079 at June 30, 2009 compared to $520,579 at March 31, 2009. Our operating cash flows were

$158,023 during the three months ended June 30, 2009, an average of $52,674 per month, compared to

an average of $39,755 per month during the year ended March 31, 2009, before accounting for

fluctuations in non-cash working capital.

We plan to re-invest our surplus cash flow in new equipment to continue to expand the Company's

product lines and improve efficiency and to pay off bank debt. The total principal outstanding on term

loans was $110,355 at June 30, 2009, compared to $133,998 at March 31, 2009. Principal repayments

are $7,881 per month.

We have a revolving bank loan facility of $1,000,000, of which $440,000 was used at June 30, 2009. The

loan outstanding at any time may not be greater than the total of 75% of Canadian accounts receivable,

50% of US accounts receivable and 50% of inventory, less accounts payable having priority over the

bank, such as to governments and employees. Accounts receivable older than 90 days and inventory in

excess of $700,000 are not included in the calculation. Additionally, earnings before interest, taxes and

depreciation, calculated on a rolling four quarter basis, must be maintained at 1.25 times the current

portion of long-term debt plus interest expense.

We use the revolving bank loan facility primarily to finance operating working capital. Inventory and

accounts receivable levels normally fluctuate by as much as $200,000 and accounts payable by an

additional $200,000. We purchase our paper supplies in relatively large quantities and often have large

shipments to customers on credit, which are the main reasons for these fluctuations.

We currently plan to spend approximately $200,000 on equipment expansions and improvements over

the next twelve months. We will finance these additions from operating cash flows. We may acquire

additional equipment, if worthy new product opportunities arise. Financing for additional equipment would

be available through operating cash flow and additional term loans.

New Accounting Policies

There are no new accounting policies that are effective for our current fiscal year that are expected to

have a material affect on our consolidated financial statements. International Financial Reporting

Standards will apply to our consolidated financial statements commencing with the year ending March 31,

2012. We have not yet determined the impact on our financial statements.

Share Capital

The Company has only one class of share capital, common shares without par value. The Company also

has a stock option plan and a shareholder rights plan and has issued warrants to purchase common

shares.

August 31, 2009

Authorized common shares without par value Unlimited

Issued common shares 11,063,800

Shares issuable on exercise of outstanding warrants 1,060,000

Shares issuable on exercise of outstanding stock options 800,000

Shares available for future stock option grants 1,200,000

The stock option plan permits the directors of the Company to grant incentive options to the employees,

directors, officers and consultants of the Company. The maximum number of shares issuable under the

stock option plan is 2,000,000.

The shareholder rights plan (the “Plan”) is meant to protect the Company’s shareholders from unfair,

abusive or coercive takeover strategies. The Plan will remain in effect until the Company’s annual

general meeting in 2012, subject to further renewal. The Plan, in effect, allows holders of common

shares to purchase additional common shares from the Company at a 50% discount to the prevailing

market price on the occurrence of certain triggering events, including acquisition by a person or group of

persons of 20% or more of the shares of the Company in a transaction that is not a Permitted Bid under

the Plan. The rights under the Plan are not exercisable by the acquiring person or group of persons. The

rights under the Plan are not triggered by purchases of shares made pursuant to a take-over bid that is

made to all shareholders on identical terms by way of a take-over bid circular prepared in compliance with

applicable securities laws, and certain other conditions set out in the agreement signed to implement the

Plan.

WestBond Enterprises Corporation

Interim Consolidated Financial Statements

June 30, 2009

Notice to Reader

The accompanying interim consolidated financial statements of WestBond Enterprises

Corporation for the three months ended June 30, 2009 have been prepared by and are the

responsibility of the company’s management. They are unaudited and have not been reviewed

by independent auditors.

March 31

2009

$ $

CURRENT ASSETS

Cash and cash equivalents 165,632 151,259

Accounts receivable 814,476 845,318

Inventory 931,859 830,080

Prepaid expenses 32,224 42,406

1,944,191 1,869,063

PLANT AND EQUIPMENT 2,640,249 2,675,836

4,584,440 4,544,899

CURRENT LIABILITIES

Bank indebtedness 440,000 585,000

Accounts payable and accrued liabilities 786,540 668,915

C rrent portion of term loans 94 572 94 572

WESTBOND ENTERPRISES CORPORATION

Consolidated Balance Sheets

(Canadian Dollars)

A S S E T S

L I A B I L I T I E S

(Unaudited - See Notice to Reader)

June 30

2009

The accompanying notes are an integral part of these consolidated financial statements.

Current 94,572 94,572

1,321,112 1,348,487

TERM LOANS 15,783 39,426

FUTURE INCOME TAX LIABILITIES 409,422 385,980

1,746,317 1,773,893

SHARE CAPITAL

Issued and outstanding - 11,063,800 shares 2,099,703 2,099,703

Warrants 32,364 32,364

STOCK OPTIONS 245,730 241,340

RETAINED EARNINGS 460,326 397,599

2,838,123 2,771,006

4,584,440 4,544,899

Authorized - unlimited common shares without par value

S H A R E H O L D E R S ' E Q U I T Y

APPROVED BY THE BOARD OF DIRECTORS:

Three months ended

June 30

2009 2008

$ $

Sales 1,706,449 1,433,673

Cost of Sales

Materials 928,293 771,260

Labour 140,900 104,678

Variable overhead 100,570 87,354

Fixed overhead 95,629 97,548

Depreciation 65,276 63,557

1,330,668 1,124,397

Gross Profit 375,781 309,276

Expenses

Selling and marketing

Shipping 96,163 85,863

Salaries, commissions and employee benefits 33,673 29,409

Other 2,789 2,320

(Canadian Dollars)

WESTBOND ENTERPRISES CORPORATION

Consolidated Statements of Operations, Comprehensive Income and Retained Earnings

(Unaudited - See Notice to Reader)

The accompanying notes are an integral part of these consolidated financial statements.

132,625 117,592

General and administrative

Administration and office 40,638 27,987

Corporate promotion - 336

Interest on term loans 941 3,296

Interest on other debt 3,957 7,694

Professional fees 13,711 10,579

Salaries and employee benefits 97,740 91,127

156,987 141,019

Income for the Period before Taxes 86,169 50,665

Future Income Tax Expense (Recovery) 23,442 (661)

Net Income and Comprehensive

Income for the Period 62,727 51,326

Retained Earnings

- Beginning of Period 397,599 233,991

- End of Period 460,326 285,317

Earnings per Share,

basic and diluted 0.006 0.005

Three months ended

June 30

2009 2008

$ $

Cash Flows from Operating Activities

Net income for the period 62,727 51,326

Adjustments to reconcile net income to cash

flows from operating activities

- depreciation 67,464 65,687

- stock option expense 4,390 4,390

- future income tax expense (recovery) 23,442 (661)

158,023 120,742

Net change in non-cash working capital

related to operating activities 69,264 95,564

227,287 216,306

Cash Flows from Investing Activities

(Canadian Dollars)

(Unaudited - See Notice to Reader)

Consolidated Statements of Cash Flows

WESTBOND ENTERPRISES CORPORATION

The accompanying notes are an integral part of these consolidated financial statements.

Purchase of plant and equipment (44,271) (36,803)

Cash Flows from Financing Activities

Repayment of term loans (23,643) (41,145)

Decrease in bank indebtedness (145,000) (91,902)

(168,643) (133,047)

Increase in Cash and Cash

Equivalents 14,373 46,456

Cash and Cash Equivalents

- Beginning of Period 151,259 43,658

- End of Period 165,632 90,114

Interest Paid 5,075 12,255

Non-Cash Investing Activities

(Decrease) increase in accounts payable

related to purchase of plant and equipment (12,394) 18,927

WESTBOND ENTERPRISES CORPORATION

Notes to the Interim Consolidated Financial Statements

June 30, 2009

(Unaudited – See Notice to Reader)

1. Interim Period Reporting

While the information presented in these interim consolidated financial statements is unaudited, it includes

all adjustments which are, in the opinion of management, necessary to the fair presentation of the interim

periods reported. These interim consolidated financial statements are prepared in Canadian dollars and in

accordance with Canadian generally accepted accounting principles. The accounting policies used and the

methods of their application are the same as for the consolidated financial statements for the year ended

March 31, 2009. As certain note information has been condensed or omitted, these financial statements

should only be read in conjunction with the audited consolidated financial statements for the year ended

March 31, 2009.

2. Share Capital

Stock Options - The following stock options are outstanding at June 30, 2009.

Expiry date

Total number of

shares under

option

Weighted

average

remaining

contractual life

Weighted

average

exercise

price

Number of

shares

under option

that are

vested

Weighted

average

exercise

price

July 7, 2009 560,000 0.0 years $0.270 560,000 $0.270

March 12, 2013 800,000 3.7 years $0.100 600,000 $0.100

1,360,000 2.2 years $0.170 1,160,000 $0.182

Subsequent to June 30, 2009 the options to purchase 560,000 common shares at $0.27 per share expired

without being exercised.

3. Related Party Transactions

During the three months ended June 30, 2009, the company incurred $2,695 (2008 – $1,929) in legal fees in

the normal course of operations with a firm in which a director of the company is a partner. The fees are

included in professional fees and are at rates comparable to those charged to un-related parties.