EX-99.2(B) 4 d04578a2exv99w2xby.txt AUDITED COMBINED FINANCIAL STATEMENTS EXHIBIT 99.2(b) United Computer Supplies, Inc. and United Computer Supplies-East, Inc. Years Ended December 31, 2000 and 1999 Contents
Page ----- Independent Auditor's Report 1 Combined Balance Sheets 2 Combined Statements of Income and Retained Earnings 3 Combined Statements of Cash Flows 4 Notes to Combined Financial Statements 5-8 Independent Auditor's Report on Additional Information 9 Combined Schedules of Costs and Expenses 10-11
INDEPENDENT AUDITOR'S REPORT We have audited the accompanying combined balance sheet of United Computer Supplies, Inc. and United Computer Supplies-East, Inc. (both S corporations) as of December 31, 2000 and 1999 and the related combined statements of income, retained earnings and cash flows for the years 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of United Computer Supplies, Inc. and United Computer Supplies-East, Inc. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. WILLIAM J. BARNES & CO., LTD. March 12, 2001 Arlington Heights, Illinois UNITED COMPUTER SUPPLIES INC.. UNITED COMPUTER SUPPLIES-EAST, INC. Combined Balance Sheets December 31, 2000 and 1999
2000 1999 ----------- ----------- ASSETS Current Assets Cash $ 258,896 $ 214,224 Accounts receivable 3,535,154 2,385,021 Inventory 5,001,521 4,118,707 Prepaid expenses and deposits 305,736 42,673 ----------- ----------- Total current assets 9,101,307 6,760,625 ----------- ----------- Building and Equipment Building 3,446,601 -- Production equipment 8,229,251 6,560,998 Office equipment 332,377 231,796 Automobiles 85,880 85,880 Deposits on equipment -- 710,471 ----------- ----------- Total 12,094,109 7,589,145 Less accumulated depreciation 5,361,489 4,915,683 ----------- ----------- Building and equipment - net 6,732,620 2,673,462 ----------- ----------- Total Assets $15,833,927 $ 9,434,087 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 3,439,146 $ 978,856 Note payable - bank line of credit 3,679,415 2,175,000 Current portion of long-term debt 308,696 132,352 Accrued salaries 96,284 89,331 Accrued vacation pay 161,918 153,188 Other accrued liabilities 246,977 107,628 ----------- ----------- Total current liabilities 7,932,436 3,636,355 ----------- ----------- Other Liabilities Note payable - shareholder 340,000 -- Note payable - bank term loan 4,880,060 1,056,973 ----------- ----------- Total other liabilities 5,220,060 1,056,973 ----------- ----------- Shareholders' Equity Common stock: United Computer Supplies, Inc. 5,000 shares authorized, 844.44 issued and outstanding 141,000 141,000 United Computer Supplies-East, Inc. 1,055.55 shares issued and outstanding 111,000 111,000 Retained earnings 2,429,431 4,488,759 ----------- ----------- Total shareholders' equity 2,681,431 4,740,759 ----------- ----------- Total Liabilities and Shareholders' Equity $15,833.927 $ 9,434,087 =========== ===========
The accompanying notes and report on additional information are an integral part of and should be read in conjunction with the financial statements. -2- UNITED COMPUTER SUPPLIES, INC. UNITED COMPUTER SUPPLIES-EAST, INC. Combined Statements of Income and Retained Earnings For the Years Ended December 31,2000 and 1999
2000 1999 ------------ ------------ Sales $ 33,786,138 $ 33,130,128 ------------ ------------ Cost of Goods Sold Material 24,902,264 24,023,002 Direct labor 1,373,372 1,325,404 Manufacturing overhead 4,302,488 4,148,240 LIFO reserve adjustment 80,000 167,000 ------------ ------------ Total cost of goods sold 30,658,124 29,663,646 ------------ ------------ Gross Profit on Sales 3,128,014 3,466,482 ------------ ------------ Shipping, Sales and Administrative Expenses Shipping expense 437,941 438,474 Sales expenses 2,229,127 1,888,953 Administrative expense 1,295,243 1,169,631 ------------ ------------ Total shipping, sales and Administrative expenses 3,962,311 3,497,058 ------------ ------------ Net Operating Income (Loss) (834,297) (30,576) ------------ ------------ Other Income (Expense) Interest expense (572,120) (235,544) Interest income 260 -- Discounts allowed (573,975) (513,655) Purchase discounts 39,137 133,813 Moving expense (191,131) -- Sundry 72,798 29,458 ------------ ------------ Total other income (expense) (1,225,031) (585,928) ------------ ------------ Net Income (Loss) (2,059,328) (616,504) Retained Earnings - Beginning of Year 4,488,759 5,601,364 Distributions to Shareholders (See Note F) -- (496,101) ------------ ------------ Retained Earnings - End of Year $ 2,429,431 $ 4,488,759 ============ ============
The accompanying notes and report on additional information are an integral part of and should be read in conjunction with the financial statements. -3- UNITED COMPUTER SUPPLIES, INC. UNITED COMPUTER SUPPLIES-EAST, INC. Combined Statements of Cash Flows For the Years Ended December 31, 2000 and 1999 Cash Flows from Operating Activities - Net Income (loss) $(2,059,328) $ (616,503) Reconciling adjustments: Depreciation 493,870 374,165 LIFO reserve adjustment 80,000 167,000 Loss on disposal of assets 19,878 -- (Increase) decrease in assets - Accounts receivable (1,929,023) (624,921) Inventory (962,814) (579,982) Prepaid expenses and deposits (263,063) 2,170 Increase (decrease) in liabilities Accounts payable 3,239,180 798,747 Accrued liabilities 155,032 30,629 ----------- ----------- Net cash provided (used) by operating activities (1,226,268) (448,695) ----------- ----------- Cash Flows from Investing Activities - Purchase of building and equipment (4,572,906) (410,389) ----------- ----------- Net cash (used) by investing activities (4,572,906) (410,389) ----------- ----------- Cash Flows from Financing Activities - Distributions to shareholders (See note F) -- (496,101) Notes payable-line of credit - Increase (decrease) 5,503,846 2,589,325 Increase (decrease) shareholder loan 340,000 (1,250,000) ----------- ----------- Net cash provided (used) by financing activities 5,843,846 843,224 ----------- ----------- Net Increase (Decrease) in Cash 44,672 (15,860) Cash at Beginning of Year 214,224 230,084 ----------- ----------- Cash at End of Year $ 258,896 $ 214,224 =========== =========== * * * * * * * * * * * Supplemental Disclosure - Interest paid $ 572,120 $ 235,544
The accompanying notes and report on additional information are an integral part of and should be read in conjunction with the financial statements. -4- UNITED COMPUTER SUPPLIES, INC. UNITED COMPUTER SUPPLIES-EAST, INC. Notes to Combined Financial Statements December 31, 2000 Note A - Accounting Policies 1. Operations The Companies are in the paper conversion business. The products consist of standard computer paper and of paper rolls for recording retail transactions. The products are sold to distributors through the Midwest and eastern sections of the United States. 2. Combined Financial Statements The financial statements of the two companies are prepared on a combined basis because the Companies have common ownership and management. All intercompany transactions and intercompany account balances have been eliminated in preparation of the combined financial statements. 3. Accounts Receivable - Trade The Companies do not make a provision for uncollectible accounts. The direct charge-off method is used when an account is determined to be uncollectible. The management is of the opinion that the Accounts Receivable - Trade are substantially all collectible. 4. Inventories Inventories are stated at the lower of cost or market using the last in, first out method. Additional information concerning inventories is presented in Note B. 5. Building and Equipment Building and equipment purchases are recorded at cost at the time of acquisition. For financial reporting, depreciation is computed over the useful service lives of the assets, using the straight-line method. Depreciation is based on an estimated useful life of five to ten years for equipment and forty years for the building. 6. Income Taxes In 1987, the Companies made an election to be treated as S Corporations for income tax purposes. As such, the Corporations are not subject to Federal income taxes, the income is taxable to the shareholder. -5- Note B - Inventories Inventories are summarized as follows:
December 31 2000 1999 ----------- ----------- Raw materials $ 2,117,838 $ 1,946,570 Work-in-process 192,268 147,447 Finished goods 2,796,215 2,049,490 LIFO reserve (104,800) (24,800) ----------- ----------- Total $ 5,001,521 $ 4,118,707 =========== ===========
As indicated in Note A, the inventories are stated on the last-in, first-out method. Had the first-in, first-out method been used, inventories would have been $5,106,321 and $4,143,507 at December 31, 2000 and 1999, respectively, and net income (loss) would have been $(1,979,328) and $(449,504) respectively. Note C - Loans Payable Note Payable - bank line of credit: Interest is payable monthly at 9.5% and expires July 2001 $3,679,415 Note Payable - mortgage loan: Principal and interest paid monthly at 9% rate with balloon payment due July 2005 3,127,104 Note payable - equipment loan: Principal and interest paid monthly at 9% with balloon payment due July 2005 1,004,658 Note payable - equipment loan: Principal and interest paid monthly at 8.25% with balloon payment due November 2004 1,056,994 Shareholder loan: Interest paid monthly at 10%. No payback Schedule established on principal 340,000 ---------- $9,208,171 ==========
-6- Note C - Loans Payable (continued) The Company has pledged real estate, equipment, accounts receivable and inventory as collateral on loans payable. The Company has an interest rate "swap" agreement on the 9% term loans. Early payoff of these loans would result in a $280,305 penalty at December 31, 2000. The bank loans have various covenants which include maintaining net worth dollar amounts and various financial ratios. The Company is not in compliance with these covenants at December 31, 2000. Failure to maintain covenants can allow the bank to call the loans at a date earlier than stated above. Maturities of loans are as follows: 2001 $ 3,988,111 2002 336,434 2003 366,659 2004 800,257 2005 3,716,710 ------------- $ 9,208,171 =============
Note D - Lease Commitments The Companies occupy three buildings under separate operating leases. The leases provide for minimum monthly lease payments as scheduled throughout the lease term. In addition, the Companies have agreed to pay certain maintenance and tax costs as set forth in the leases. The following is a schedule of future minimum lease payments required under the leases: 2001 $ 725,835 2002 $ 487,100 2003 $ 479,362 2004 $ 221,960 2005 $ 227,101 2006 $ 95,518
The leases contain renewal options which are not assured of being exercised and are therefore not included in the above schedule. Rental payments for the year 2000 amounted to $720,515. During July 2000, the Company purchased a building and moved a significant part of its operation to the new facility. The leased space that the Company moved from has been subleased to another tenant. -7- Note E - Related Party Transactions The Companies made payments of interest to the major shareholder in the amount of $24,408 in 2000 and $114,385 in 1999. Note F - Distributions to Shareholders The Companies made distributions to the shareholders of nothing in 2000 and $496,101 in 1999. As indicated in Note A-6 Companies are S Corporations and as such are not subject to Federal income taxes, the income being taxable to the shareholders. The Companies have adopted a policy throughout the years of making distributions only to meet the shareholders' needs in funding these tax payments. -8- INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION Our report on our audits of the basis combined financial statements of United Computer Supplies, Inc. and United Computer Supplies-East, Inc. for 2000 and 1999 appears on the first page. The audits were conducted for the purpose of forming an opinion on the financial statements taken as a whole. The schedules of costs and expenses for 2000 and 1999 are presented for purposes of analysis and are not a required part of the financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic combined financial statements and, in our opinion, is fairly stated in all material respects in relation to the basis combined financial statements taken as a whole. WILLIAM J. BARNES & CO., LTD March 12, 2001 Arlington Heights, Illinois -9- UNITED COMPUTER SUPPLIES, INC. UNITED COMPUTER SUPPLIES-EAST, INC. Combined Schedules of Costs and Expenses For the Years Ended December 31, 2000 and 1999
2000 1999 ---------- ---------- Manufacturing Overhead Supervision and administrative salaries $ 309,252 $ 358,727 Indirect labor 954,058 933,056 Maintenance wages 107,190 103,632 Vacation and holiday pay 157,574 155,997 Overtime premium 215,912 167,809 Ink and tape 52,342 63,841 Plates 16,694 15,238 Other operating supplies and expense 269,563 265,075 Depreciation 428,407 327,790 Equipment repairs and maintenance 322,969 337,794 Building rent 561,556 635,167 Building maintenance 54,665 26,026 Utilities 302,723 254,585 Taxes 233,384 225,096 Insurance 229,189 210,563 Auto and travel 33,826 36,443 Other 53,184 31,401 ---------- ---------- Total $4,302,488 $4,148,240 ========== ========== Shipping Expense Wages $ 313,772 $ 310,067 Supplies 13,374 13,983 Depreciation 6,848 7,341 Building rent and utilities 34,268 38,836 Taxes 23,417 29,389 Insurance 31,701 26,291 Sundry 14,561 12,567 ---------- ---------- Total $ 437,941 $ 438.474 ========== ==========
The accompanying notes and report on additional information are an integral part of and should be read in conjunction with the financial statements. -10- UNITED COMPUTER SUPPLIES, INC. UNITED COMPUTER SUPPLIES-EAST, INC. Combined Schedules of Costs and Expenses For the Years Ended December 31, 2000 and 1999
2000 1999 ---------- ---------- Sales Expense Salaries $ 564,631 $ 512,590 Commissions 61,953 63,752 Marketing supplies 35,049 21,457 Auto expense 49,838 51,524 Travel and entertainment 91,115 74,122 Conventions 21,742 7,860 Depreciation 18,438 16,228 Building rent and utilities 30,050 42,117 Telephone 51,188 71,544 Taxes 36,796 34,696 Insurance 26,447 19,349 Freight 1,088,694 885,586 Postage 22,539 22,632 Interest expenses 50,271 11,128 Dues and subscriptions 3,248 4,365 Sundry 77,128 50,003 ---------- ---------- Total $2,229,127 $1,888,953 ========== ========== Administrative Expenses Administrative salaries $ 225,000 $ 259,466 Office salaries 466,426 429,655 Outside services 28,690 20,727 Taxes 49,652 52,006 Insurance 42,927 48,731 Office supplies 19,188 19,912 Maintenance 16,106 13,657 Telephone 19,496 29,002 Building rent and utilities 53,755 63,244 Professional fees 85,695 38,330 Computer expense 34,822 91,717 Depreciation 33,861 22,806 Equipment expense 21,095 18,602 Dues and subscriptions 4,797 3,623 Sundry 49,611 56,880 Bad debt expense 144,121 1,273 ---------- ---------- Total $1,295,243 $1,169,631 ========== ==========
The accompanying notes and report on additional information are an integral part of and should be read in conjunction with the financial statements. -11-