EX-99.1 3 v123180_ex99-1.htm Unassociated Document
EXHIBIT 99.1

Audited Financial Statements
Val-U-Tech Corp
 
Years ended December 31, 2006 and December 31, 2007 with Report of Independent Auditors
 
Contents

Report of Independent Auditors
1
 
                 
Audited Financial Statements:
 
 
 
Balance Sheets
2
 
 
Statements of Operations
3
       
 
Notes to Consolidated Financial Statements
5
 
 
ROTENBERG &Co. LLP
Certified Public Accountants
 
585.295.2400 • 585.295.2150 (fax)
1870 Winton Road South • Rochester, NY 14618 • www.rotenbergllp.com
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of
Val-U-Tech
 
We have audited the accompanying balance sheets of Val-U-Tech as of December 31, 2007 and 2006, and the related statements of income and cash flows for each of the years in the two-year period ended December 31, 2007. Val-U-Tech’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements referred to above present fairly, in all material respects, the financial position of Val-U-Tech as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.
 
Rochester, New York
April 18, 2008
 
1
 
VAL-U-TECH
Victor, New York
 
 AUDITED FINANCIAL REPORTS
 
BALANCE SHEETS AS OF DECEMBER 31
 
   
2007
 
2006
 
ASSETS 
          
           
Current Assets
          
 
          
Cash and Cash Equivalents
  
$
-
  
$
394,577
  
Accounts Receivable (NET)
    
1,853,893
    
932,783
  
Inventory(Net)
    
1,701,342
    
795,072
  
 
    
3,555,235
      2,122,432  
               
Property and Equipment
              
               
Machinery and Equipment
   
315,745
    
315,745
  
Autos and Trucks
    
19,606
    
19,606
  
Computer Equipment and Software
    
28,071
    
28,071
  
Leasehold Improvements
    
10,106
    
10,106
  
Furniture and Fixtures
    
41,977
    
41,977
  
     
415,505
    
415,505
  
Less: Accumulated Depreciation
    
408,127
    
406,922
  
     
7,378
    
8,583
  
               
   
$
3,562,613
    
2,131,015
  
               
 
    
2007
 
 
2006
  
LIABILITIES AND STOCKHOLDERS’ EQUITY               
Current Liabilities
              
 
              
Accounts Payable
  
$
656,630
  
$
350,285
  
Short Term Cash Deficiency
    
352,516
    
-
  
Accrued Payroll and Payroll Taxes
    
36,422
    
20,397
  
Accrued Vacation
    
28,249
    
18,833
  
 
    
1,073,817
      389,515  
Stockholders Equity
              
               
Common Stock, no par, 100 shares authorized, issued, outstanding
    
5,000
    
5,000
  
Additional Paid in Capital
    
60,888
    
60,888
  
Retained Earnings
    
2,422,908
    
1,675,612
  
     
2,488,796
    
1,741,500
  
               
   
$
3,562,613
  
$
2,131,015
  
 
The accompanying notes are an integral part of these financial statements.
 
2
 
INCOME STATEMENTS - YEARS ENDED DECEMBER 31
 
   
2007
  
2006
  
           
Revenue
  
$
11,022,580
  
$
7,635,451
  
               
Cost of Sales
              
               
Inventory Beginning
    
795,072
    
732,282
  
Purchases
    
7,273,057
    
4,133,723
  
Labor
    
2,083,515
    
1,772,842
  
Utilities/Maint
    
33,751
    
34,652
  
Shop supplies
    
49,755
    
55,135
  
Building Lease
    
149,608
    
145,358
  
Equipment rental
    
51,356
    
46,050
  
Obsolescence
    
23,758
    
4,415
  
Bad Debts
    
23,618
    
3,296
  
Depreciation
    
1,205
    
1,080
  
Freight
    
32,735
    
37,945
  
               
Inventory Ending
    
(1,701,342
)
  
(795,072
)
               
Total Cost of Goods Sold
    
8,816,088
    
6,171,706
  
               
Gross Profit
   
2,206,492
    
1,463,745
  
               
Officer Compensation
   
592,580
    
317,713
  
               
Selling, General and Administrative
    
465,540
    
352,877
  
               
Income from Operations
    
1,148,372
    
793,155
  
               
Other income (expense)
             
Other income
    
11,424
    
9,861
  
Interest expense
    
-
    
(3,416
)
     
11,424
    
6,445
  
               
Net Income
    
1,159,796
    
799,600
  
               
Retained Earnings, beginning
    
1,675,612
    
1,176,012
  
               
Distributions
    
(412,500
)
  
(300,000
)
               
Retained Earnings, ending
  
$
2,422,908
  
$
1,675,612
  
 
The accompanying notes are an integral part of these financial statements.
 
3
 
CASH FLOW STATEMENTS - YEARS ENDED DECEMBER 31

   
2007
 
2006
  
CASH PROVIDED FROM OPERATIONS
          
               
Net income
  
$
1,159,796
  
$
799,600
  
Adjustments to reconcile net income to net cash
              
provided by operating activities
              
Bad Debts
    
23,618
    
3,296
  
Depreciation
    
1,205
    
1,723
  
     
1,184,619
    
804,619
  
               
Increase (decrease) in cash due to changes
              
in operating assets and liabilities
              
Accounts Receivable
    
(944,728
)
  
(131,812
)
Inventory
    
(906,270
)
  
(62,790
)
Accounts Payable
    
306,345
    
1,510
  
Short Term Cash Deficiency
    
352,516
    
-
  
Accrued Payroll and Payroll Taxes
    
16,025
    
5,860
  
Accrued Vacation
    
9,416
    
(262
)
     
17,923
    
617,125
  
               
CASH USED IN FINANCING ACTIVITIES
              
               
Distributions
    
(412,500
)
  
(300,000
)
Loan from shareholder
    
-
    
(110,000
)
     
(412,500
)
  
(410,000
)
               
Change in Cash and Cash Equivalents
    
(394,577
)
  
207,125
  
               
Cash and Cash Equivalents, beginning
    
394,577
    
187,452
  
               
Cash and Cash Equivalents, ending
  
$
-
  
$
394,577
  
               
Supplemental disclosure
              
 
              
Cash paid for interest
  
$
-
  
$
3,416
  
 
The accompanying notes are an integral part of these financial statements.
 
4
 
VAL-U-TECH
 
Notes to Financial Statements
December 31, 2007 and December 31, 2006
 
1.
Description of Business
 
Val-U-Tech (Company) is a contract manufacturer of cable and harness assemblies and various other electrical components. The Company offers specialized services such as project management and engineering to its customers. Markets serviced include the military, industrial and medical markets. The Company grants credit to its customers in the ordinary course of business.
 
2. 
Summary of Significant Accounting Policies
 
 Use of Estimates
 
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Cash and Cash Equivalents
 
The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents.
 
Accounts Receivable
 
The Company utilizes a 2.5% reserve for doubtful accounts on accounts receivable. The Company has little to no history of write-offs.
 
Inventory
 
Inventory is stated at the lower of cost, on a first-in, first-out basis, or market. The company also utilizes an obsolescence reserve for inventory which is 4% of raw material and 3% as a percent to total inventory.
 
Property and Equipment
 
Property and equipment are stated at cost. Depreciation is computed using the straight-line method based on the useful lives of the related assets, which range from 3 to 10 years. Repairs and maintenance of relatively minor items are expensed as incurred. Renewals or betterments of significant items are capitalized. The costs of assets sold or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts and any gain or loss is included as a component of other income or loss.
 
5
 
VAL-U-TECH
 
Notes to Financial Statements
December 31, 2007 and December 31, 2006
 
2.
Summary of Significant Accounting Policies (Continued)
 
Income taxes
 
The Company has elected Subchapter “S” status under the Internal Revenue Code. This election results in direct taxation to the individual shareholders on their proportionate share of taxable income in lieu of corporate federal income and New York State franchise tax.
Accordingly, no current provision for income taxes has been included in the accompanying financial statements.
 
Revenue Recognition
 
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability of the selling price is reasonably assured.
 
Shipping and Handling Costs
 
Shipping and handling costs are included as a component of cost of sales in the accompanying statements of operations.
 
Advertising
 
Advertising costs are expensed as incurred.
 
Concentration of credit risk
 
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and trade accounts receivable. The Company places cash with high credit quality institutions. At times, such investments may exceed the FDIC insurance limit. The Company routinely assesses the financial strength of its customers, and as a consequence believes that its credit risk exposure related to trade accounts receivable is limited. A 2.5% reserve is kept against the open receivables to cover risk of uncollectible accounts. The company has little to no experience of writing off uncollectible accounts.
 
3.
Accounts Receivable 
 
Accounts receivable consists of the following:
 
December 31,
 
2007
 
2006
  
           
 
              
Trade Accounts Receivable  
   $
1,901,429
  
$
956,701
 
Allowance for Doubtful Accounts
    
(47,536
)
  
(23,918
)
   
$
1,853,893
  
$
932,783
  

6
 
VAL-U-TECH
 
Notes to Financial Statements
December 31, 2007 and December 31, 2006
 
4.
Inventory
 
Inventory consists of the following:
 
   
2007
 
2006
  
Raw materials
  
$
705,083
  
$
481 ,265
  
Work in process
    
923,271
    
324,448
  
Finished goods
    
124,288
    
16,901
  
Obsolescence Reserve
    
(51,300
)
  
(27,542
)
   
$
1,701,342
  
$
795,072
  
 
5.
Operating Leases 
 
 
The Company leases its building and an automobile under the terms of non-cancelable operating leases. The building lease expires in December 2012. The Company also leases several pieces of equipment on a month-to-month basis. Lease expense for all leases for the years ended December 31, 2007 and 2006 totaled $200,964 and $191,408, respectively.
 
Annual minimum lease obligations are as follows:
 
 
Amount
  
       
2008
 
$
176,857
  
2009
    
176,857
  
2010
    
176,857
  
2011
    
187,150
  
2012
    
187,150
  
         
 
$
904,871
  
 
6.
Major Customers
 
The top customer of the company accounted for 49% of sales for the year ended December 31, 2007. The same customer accounted for 37% of the sales for the year ended December 31, 2006. The Company had four customers who accounted for 82% and 83% of sales for the years ended December 31, 2007 and 2006, respectively. The Company had three customers who accounted for 74% and 61% of accounts receivable at December 31, 2007 and December 31, 2006, respectively.

7
 
VAL-U-TECH
 
Notes to Financial Statements
December 31, 2007 and December 31, 2006
 
7.
Retirement Plan
 
The Company maintains a 401(k) profit sharing plan for their employees. Under the plan, eligible participants who meet certain age and length of service requirements may contribute any percentage up to 15% of their compensation. Employer discretionary matching contributions are provided for in the plan up to 50% of employee contributions, not to exceed 4% of gross wages. The plan also allows for a discretionary profit-sharing contribution by the Company.
 
Pension and profit sharing plan expense was $9,817 and $9,450 for the years ended December 31, 2007 and 2006, respectively.

8