Exhibit 7(a)2
FINANCIAL STATEMENTS
GLOBAL EXPANDED METALS, INC.
December 31, 1999
Financial Statements
GLOBAL EXPANDED METALS, INC.
December 31, 1999
CONTENTS:
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Page |
|
|---|---|---|
| Independent Auditors' Report | 1 | |
| Financial Statements: | ||
| Balance Sheet | 2 | |
| Statement of Income and Retained Earnings | 3 | |
| Statement of Cash Flows | 4 | |
| Notes to Financial Statements | 5 |
To
the Stockholders
Global Expanded Metals, Inc.
We have audited the balance sheet of Global Expanded Metals, Inc. as of December 31, 1999, and the related statements of income and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Global Expanded Metals, Inc. as of December 31, 1999, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles.
SMITH & RADIGAN
Atlanta,
Georgia
January 24, 2000
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Balance Sheet
GLOBAL EXPANDED METALS, INC.
December 31, 1999
| ASSETS | ||||
| CURRENT ASSETS | ||||
| Cash | $ | 136,192 | ||
| Accounts receivable | 408,829 | |||
| Inventory | 451,244 | |||
| Prepaid insurance | 14,286 | |||
| TOTAL CURRENT ASSETS | 1,010,551 | |||
| PROPERTY AND EQUIPMENT |
|
|
|
|
| Machinery and equipment | 2,480,767 | |||
| Building improvements | 109,928 | |||
| Computer equipment | 66,669 | |||
| Furniture and fixtures | 71,639 | |||
| 2,729,003 | ||||
| Less: allowance for depreciation | (1,889,502 | ) | ||
| 839,501 | ||||
| OTHER ASSETS | 3,600 | |||
| TOTAL ASSETS | $ | 1,853,652 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|||
| CURRENT LIABILITIES |
|
|
|
|
| Line of credit | $ | 210,000 | ||
| Accounts payable and accrued expenses | 392,603 | |||
| Payroll tax payable | 6,050 | |||
| Merchandise credits | 7,978 | |||
| Commissions payable | 22,210 | |||
| Current maturities of long-term debt | 53,328 | |||
| TOTAL CURRENT LIABILITIES | 692,169 | |||
| LONG-TERM DEBT, less current maturities |
|
|
44,828 |
|
| STOCKHOLDERS' EQUITY |
|
|
|
|
| Common stock, par value $1 per share: | ||||
| Authorized—100,000 shares | ||||
| Issued and outstanding—1,000 shares | 1,000 | |||
| Retained earnings | 1,115,655 | |||
| 1,116,655 | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,853,652 | ||
The Notes to Financial Statements are an integral part of these Statements.
2
Statement of Income and Retained Earnings
GLOBAL EXPANDED METALS, INC.
For the Year Ended December 31, 1999
| SALES | $ | 7,662,442 | ||
| LESS: freight and allowances | 64,334 | |||
| 7,598,108 | ||||
| COST OF GOODS SOLD |
|
|
5,769,570 |
|
| GROSS PROFIT | 1,828,538 | |||
| OPERATING EXPENSES | ||||
| General and administrative expenses | 833,790 | |||
| Marketing expenses | 206,461 | |||
| 1,040,251 | ||||
| INCOME FROM OPERATIONS | 788,287 | |||
| OTHER INCOME (EXPENSES) |
|
|
|
|
| Interest income | 466 | |||
| Interest expense | (41,824 | ) | ||
| Loss on sale of fixed assets | (12,391 | ) | ||
| Other expenses | (131,477 | ) | ||
| (185,226 | ) | |||
| NET INCOME | 603,061 | |||
| DISTRIBUTIONS |
|
|
(550,504 |
) |
| RETAINED EARNINGS AT THE BEGINNING OF THE YEAR |
|
|
1,063,098 |
|
| RETAINED EARNINGS AT THE END OF THE YEAR | $ | 1,115,655 | ||
The Notes to Financial Statements are an integral part of these Statements.
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Statement of Cash Flows
GLOBAL EXPANDED METALS, INC.
For the Year Ended December 31, 1999
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
| Net income | $ | 603,061 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Loss on sale of fixed assets | 12,391 | |||
| Depreciation | 176,471 | |||
| Decrease (increase) in: | ||||
| Accounts receivable | (182,703 | ) | ||
| Inventory | 55,071 | |||
| Other assets | (3,247 | ) | ||
| Increase (decrease) in: | ||||
| Accounts payable | (98,444 | ) | ||
| Other liabilities | (357 | ) | ||
| Commission and merchandise credits | (6,783 | ) | ||
| Total adjustments | (47,601 | ) | ||
| Net cash provided by operating activities | 555,460 | |||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| Proceeds from disposal of equipment | 67,359 | |||
| Purchase of equipment | (81,447 | ) | ||
| Net cash used by financing activities | (14,088 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
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|
|
|
| Net borrowings on line of credit | (40,000 | ) | ||
| Payments on long-term debt | (61,844 | ) | ||
| Distributions paid | (550,504 | ) | ||
| Net cash used by financing activities | (652,348 | ) | ||
| NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(110,976 |
) |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
|
|
247,168 |
|
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 136,192 | ||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
| Interest paid | $ | 41,824 | ||
The Notes to Financial Statements are an integral part of these Statements.
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Notes to Financial Statements
GLOBAL EXPANDED METALS, INC.
December 31, 1999
Note A—Summary of Significant Accounting Policies
Organization
Global Expanded Metals, Inc. ("the Company") was incorporated in 1988 in the State of Georgia. The Company manufactures expanded metal products. The Company's nationwide sales force sells throughout the United States and Mexico.
The Company has elected, with the consent of its stockholders, to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company is not subject to federal corporate income taxes. Instead, the stockholders include the Company's taxable income or loss in their respective individual income tax returns.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three months or less from the date of purchase. These amounts are stated at cost, which approximates fair value due to their short-term nature.
Inventories
Inventories are stated at the lower of cost or market using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Expenditures for normal maintenance and repairs are charged to expense when incurred, while expenditures for renewals and betterments are capitalized. Costs incurred with the development of software are capitalized when the determination is made that the software being developed will be used. Depreciation is computed using the straight-line method over the useful lives of the assets, which range from five to seven years for furniture, equipment and vehicles and thirty-nine years for real property improvements.
Depreciation expense was $176,471 for the year ended December 31, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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Note B—Inventories
A summary of inventory at December 31, 1999 is as follows:
| Raw materials | $ | 365,092 | |||||
| Work-in-process | 50,088 | ||||||
| Finished goods | 36,064 | ||||||
| Total | $ | 451,244 | |||||
Note C—Line of Credit
The Company has obtained a revolving line of credit from a bank. The line of credit provides for a credit commitment of $1,250,000 through May 31, 2000. Interest is payable monthly based on the bank's prime rate. The note is secured by substantially all of the assets of the Company. On December 31, 1999, the outstanding balance on the line of credit was $210,000. The bank's prime rate at December 31, 1999 was eight and one-half percent.
Note D—Long-term Notes Payable
A summary of long-term notes payable at December 31, 1999 is as follows:
| Note payable to a bank, secured by equipment. The note provides for monthly principal payments of $5,003 through December 14, 2001 including interest which accrues at 7.75% |
$ | 98,156 | |
| Less: current maturities |
|
|
53,328 |
| Long-term note payable |
|
$ |
44,828 |
Future maturities of long-term debt are as follows:
| Year Ending December 31, |
Amount |
||
|---|---|---|---|
| 2000 | $ | 53,328 | |
| 2001 | 44,828 | ||
| $ | 98,156 | ||
Note E—Related Party Transaction
For the year ended December 31, 1999, the Company sold finished goods in the approximate amounts of $2,700,000, to an affiliated company. During the year ended December 31, 1999, the Company paid management fees to the affiliated company of $89,200. The Company paid travel and transportation charges of $36,000 for the year ended December 31, 1999 to the affiliated company. The Company had a receivable from an affiliated company of $14,849 at December 31, 1999.
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The Company leases their production facility from a company owned by a stockholder of the Company for $252,000 per year. The Company has subleased a portion of the building to the affiliated company for $138,600 for the year ended December 31, 1999.
Note F—Contingencies and Commitments
Leases
The Company leases buildings and equipment under noncancelable operating leases. The future lease obligations are as follows:
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|
Building |
Equipment |
Total |
|
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2000 | $ | 252,000 | $ | 7,746 | $ | 259,746 | |||||||
| 2001 | -0- | 1,246 | 1,246 | ||||||||||
| $ | 252,000 | $ | 8,992 | $ | 260,992 | ||||||||
Rental expense was $259,746 before receiving rental income of $138,600 for the year ended December 31, 1999.
Concentration of Credit Risk
During 1999, approximately $7,662,000 (sixty-seven percent) of the Company's revenues were attributable to two major customers. At December 31, 1999, approximately $77,783 (twenty-one percent) of the accounts receivable balance was attributable to the two major customers.
The Company frequently maintains deposits with financial institutions in excess of FDIC insurance coverage limitations in the ordinary course of operations.
401(k) Retirement Plan
The Company has entered into a 401(k) retirement plan agreement. The plan covers all qualified employees as defined under the agreement. The Company can make discretionary contributions to the plan. Vesting for participants' contributions is immediate and Company's discretionary contributions are one-hundred percent vested after five years of service. The Company made no discretionary contributions for the years ended December 31, 1999.
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