EX-99.2 3 a08-27030_1ex99d2.htm EX-99.2

Exhibit 99.2

 

Unaudited Condensed Consolidated Financial Statements

 

CUSTOM COMPONENTS, INC. AND SUBSIDIARY

Unaudited Condensed Consolidated Balance Sheet

June 30, 2008

 

Assets

 

 

 

Current assets

 

 

 

Cash

 

$

935,908

 

Accounts receivable

 

2,234,043

 

Inventories

 

1,813,673

 

Income taxes receivable

 

141,405

 

Deferred tax asset

 

340,584

 

Prepaid expenses and other current assets

 

28,784

 

Total Current Assets

 

5,494,397

 

 

 

 

 

Property and equipment, net

 

939,759

 

 

 

 

 

Security Deposits

 

37,276

 

 

 

 

 

 

 

$

6,471,432

 

Liabilities and Stockholder’s Equity

 

 

 

Current liabilities

 

 

 

Borrowings under line of credit

 

$

286,025

 

Current maturities of long term debt

 

4,743

 

Current maturities of capital lease obligations

 

158,102

 

Accounts payable

 

592,150

 

Accrued expenses

 

1,308,499

 

Due to stockholder

 

22,798

 

Total Current Liabilities

 

2,372,317

 

 

 

 

 

Long-term debt, net of current maturities

 

2,931

 

Capital lease obligations, net of current maturities

 

240,232

 

Deferred tax liability

 

119,176

 

Total Liabilities

 

2,734,656

 

 

 

 

 

Minority interest

 

738,279

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholder’s equity

 

 

 

Common Stock, no par value, 1,000 shares authorized 50 shares issued and outstanding

 

12,446

 

Retained earnings

 

2,986,051

 

Total stockholder’s equity

 

2,998,497

 

 

 

 

 

 

 

$

6,471,432

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 


 

Unaudited Condensed Consolidated Financial Statements

 

CUSTOM COMPONENTS, INC. AND SUBSIDIARY

Unaudited Condensed Consolidated Statement of Operations

For the three months ended June 30, 2008

 

Net sales

 

$

3,207,044

 

 

 

 

 

Cost of goods sold

 

2,504,827

 

 

 

 

 

Gross profit

 

702,217

 

 

 

 

 

Selling, general and administrative expenses

 

1,024,115

 

 

 

 

 

Operating loss

 

(321,898

)

 

 

 

 

Other income (expense)

 

 

 

Interest income

 

8,173

 

Interest expense

 

(17,054

)

 

 

 

 

Loss before income taxes and minority interest

 

(330,779

)

 

 

 

 

Benefit from income taxes

 

200,638

 

 

 

 

 

Loss before minority interest

 

(130,141

)

 

 

 

 

Minority interest, net of tax

 

34,532

 

 

 

 

 

Net Loss

 

$

(95,609

)

 

See accompanying notes to unaudited condensed consolidated financial statements

 


 

Unaudited Condensed Consolidated Financial Statements

 

CUSTOM COMPONENTS, INC. AND SUBSIDIARY

Unaudited Condensed Consolidated Statement of Cash Flow

For the three months ended June 30, 2008

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

Net loss

 

$

(95,609

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

Depreciation and amortization

 

39,332

 

Minority Interest

 

(34,534

)

Changes in assets and liabilities:

 

 

 

Accounts receivable

 

(598,917

)

Inventories

 

(228,858

)

Prepaid expenses and other assets

 

29,331

 

Accounts payable and accrued expenses

 

267,952

 

Total adjustments

 

(525,694

)

Net cash used in operating activities

 

(621,303

)

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

Purchases of property and equipment

 

(25,568

)

Net cash used in investing activities

 

(25,568

)

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

Principal payments on long-term debt

 

(46,574

)

Repayment of loans from related parties

 

(123,764

)

Net cash used in financing activities

 

(170,338

)

Net change in cash

 

(817,209

)

Cash at beginning of period

 

1,753,117

 

Cash at end of period

 

$

935,908

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 


 

Unaudited Condensed Consolidated Financial Statements

 

CUSTOM COMPONENTS, INC. AND SUBSIDIARY

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 1 – Business Description and Summary of Significant Accounting Policies

 

Business Description

 

Custom Components, Inc. (“Custom”) and its subsidiary, Advanced Control Components, Inc. (“Advanced”), (collectively the “Company”), was founded in 1975 and 1982, respectively, by engineers and entrepreneurs.  The Company is a supplier of high performance solid-state radio frequency (“RF”) and microwave components and sub-systems serving military, aerospace, commercial and instrumentation markets.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Custom and its 80% owned subsidiary, Advanced, after elimination of all significant intercompany transactions and balances.

 

Use of Estimates

 

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of 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.

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation and amortization.  Depreciation and amortization are provided on the straight-line method over the estimated useful lives as follows:

 

Machinery and equipment

 

5 – 10 years

Furniture and fixtures

 

5 – 7 years

Computers and software

 

3 years

Leasehold improvements

 

lesser of lease term or estimated useful life

 

Certain equipment held under capital leases is classified as property and equipment and amortized using the straight-line method over its estimated life and the related obligations are recorded as liabilities.  Maintenance and repairs are charged to expense as incurred.  Expenditures for betterments and major renewals are capitalized.  Upon sale or retirement, the costs and related accumulated depreciation are eliminated from the accounts and any gain or loss on such disposal is reflected in operations.

 


 

Unaudited Condensed Consolidated Financial Statements

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method as prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 109 Accounting for Income Taxes.  Under the asset and liability method, deferred tax assets and liabilities are recognized based upon differences arising from the carrying amounts of the Company’s assets and liabilities for tax and financial reporting purposes using enacted tax rates in effect for the year in which the differences are expected to reverse.  The Company files a consolidated tax return.

 

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change in tax rates is enacted.  A valuation allowance is established when it is determined that it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

Revenue Recognition

 

The Company recognizes revenue when the persuasive evidence of an arrangement exists, title and the risks and rewards of ownership of the products have been transferred to the customer, the sales price is fixed or determinable, and collectibility of the relevant receivable is reasonably assured.  For arrangements requiring multiple shipments of products over a period of time, revenue is recognized for each shipment when all of the aforementioned criteria have been met and the Company has met all of its relevant obligations contained in the sales contract.

 

Concentration of Cash Balance

 

At times during the year, the Company maintains balances in banks, which exceed the federally insured limit of $100,000.  These balances fluctuate during the year and the uninsured portion can vary greatly.  Management monitors regularly the financial condition of the banking institution, along with their balance of cash and cash equivalents in order to minimize this risk.

 

Fair Value of Financial Instruments

 

The carrying value of cash, accounts receivable, accounts payable, accrued liabilities and customer advances approximates their fair value because of the short-term maturities of these items.  The carrying value of borrowings under the line of credit agreement approximate their fair value because the related interest rate represents the market rate for comparable agreements.

 


 

Unaudited Condensed Consolidated Financial Statements

 

NOTE 2 – Inventories

 

Inventories are stated at the lower of cost (first-in, first-out method) or market (net realizable value) and consisted of the following (in thousands):

 

 

 

June 30,

 

 

 

2008

 

 

 

 

 

Raw materials

 

$

1,022,430

 

Work-in-process

 

791,243

 

Total inventories

 

$

1,813,673

 

 

NOTE 3 – Property and Equipment

 

Property and equipment are summarized as follows:

 

 

 

June 30,

 

 

 

2008

 

 

 

 

 

Machinery and equipment

 

$

1,953,536

 

Furniture and fixtures

 

57,714

 

Computers and software

 

284,535

 

Leasehold improvements

 

102,491

 

 

 

2,398,276

 

Less accumulated depreciation

 

1,458,517

 

Net property and equipment

 

$

939,759

 

 

NOTE 4 – Lines of Credit

 

The Company is party to an agreement with a bank for a line of credit, which expires on May 4, 2009, whereby it may borrow up to $1,500,000 at the bank’s prime rate, which was 5.25% at June 30, 2008 and is personally guaranteed by the stockholder of the Company.  The line is collateralized by inventory, accounts receivable, equipment and fixtures of the Company.  The agreement provides for certain financial covenants.

 

NOTE 5 – Related Parties

 

The Company has a note payable, with no repayment terms, due to the stockholder of Custom.  The note is unsecured and had a balance of $22,798 at June 30, 2008.  Interest on the note is set at a fixed rate of 9%.