Business of XS cargo
XS Cargo is one of the largest broadline closeout retailers in Canada. XS Cargo opened its first store in Edmonton, Alberta in 1996 and currently operates 23 stores throughout Ontario and the four western provinces. During the 12 months ended January 31, 2005, XS Cargo generated $79.7 million in sales with over 2,000,000 customer purchases and average sales of $660 per square foot of net retail selling space ($467 per square foot on a gross basis).

The Company sells a broad range of quality brand name products including consumer electronics, small appliances, housewares, furniture, home décor, personal care, luggage and tools at a significant discount to regular retail prices. XS Cargo's merchandising philosophy is to offer "Nothing But Bargains" in its retail stores and to compete with general retailers on an item-by-item basis solely on price.

The Company's buyers are in the marketplace virtually every day, enabling them to source and take advantage of buying opportunities on an almost continuous basis. At the time potential purchases are evaluated, the Company compares published retail prices for the same or similar items and will generally only make the purchase if Company Management believes the item can be retailed at the appropriate discount to the published retail price while still allowing the Company to achieve an acceptable margin.

XS Cargo's merchandise is generally obtained at a substantial discount to regular wholesale prices. The primary sources from which XS Cargo derives its merchandise are closeouts, returns, excess inventory and business terminations.

Since inception in 1996, XS Cargo has not experienced any significant difficulty in obtaining quality, brand name closeout merchandise in adequate volumes and at attractive prices