Exhibit 99.2
BRAD FOOTE GEAR WORKS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30,
ASSETS
| | 2007 | | 2006 | |
CURRENT ASSETS: | | | | | |
Cash | | — | | — | |
Accounts receivable (net of allowance for doubtful accounts) | | $ | 8,971,293 | | $ | 6,635,703 | |
Inventory | | 12,308,877 | | 10,630,643 | |
Other current assets | | 1,007,729 | | 357,534 | |
| | | | | |
Total current assets | | 22,287,899 | | 17,623,880 | |
| | | | | |
PROPERTY AND EQUIPMENT, at cost: | | | | | |
Land and buildings | | 2,898,574 | | 450,548 | |
Machinery and equipment | | 38,352,848 | | 23,212,883 | |
| | | | | |
| | 41,251,422 | | 23,663,431 | |
| | | | | |
Less — Accumulated depreciation | | 13,864,029 | | 11,136,370 | |
| | | | | |
Net property and equipment | | 27,387,393 | | 12,527,061 | |
| | | | | |
| | $ | 49,675,292 | | $ | 30,150,941 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY
| | 2007 | | 2006 | |
CURRENT LIABILITIES: | | | | | |
Checks written in excess of bank balance | | $ | 5,657,116 | | $ | 5,018,113 | |
Note payable-line of credit | | 5,581,683 | | 2,225,000 | |
Trade accounts payable | | 6,198,470 | | 3,468,126 | |
Accrued liabilities: | | | | | |
Wages and related expenses | | 944,804 | | 756,195 | |
Other | | 684,174 | | 1,117,998 | |
Current portion of long term notes payable | | 3,224,289 | | 2,446,869 | |
| | | | | |
Total current liabilities | | 22,290,536 | | 15,032,301 | |
| | | | | |
LONG-TERM DEBT: | | | | | |
Interest rate swap | | 233,897 | | 39,273 | |
Notes payable | | 18,687,412 | | 10,069,301 | |
| | | | | |
Total long-term debt | | 18,921,309 | | 10,108,574 | |
| | | | | |
SHAREHOLDERS’ EQUITY: | | | | | |
Common stock no par value; 100,000 shares authorized; 1,000 shares issued and outstanding | | 1,000 | | 1,000 | |
Additional paid-in capital | | 824,000 | | 499,000 | |
Other comprehensive loss | | (233,897 | ) | (39,273 | ) |
Retained earnings | | 7,872,344 | | 4,549,339 | |
| | | | | |
Total shareholders’ equity | | 8,463,447 | | 5,010,066 | |
| | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 49,675,292 | | $ | 30,150,941 | |
BRAD FOOTE GEAR WORKS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine-Months Ended September 30, 2006 and 2007
| | 2007 | | 2006 | |
| | | | | |
Operating Activities | | | | | |
Net Income | | $ | 2,993,854 | | $ | 1,937,439 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | |
Depreciation | | 2,246,947 | | 1,621,169 | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | | (255,758 | ) | (409,584 | ) |
Inventory | | 755,201 | | (4,088,554 | ) |
Other current assets | | (597,481 | ) | (26,386 | ) |
Accounts payable | | 125,421 | | 38,980 | |
Accrued liabilities | | (2,331,847 | ) | 569,340 | |
| | | | | |
Net cash provided by operating activities | | 2,936,337 | | (357,596 | ) |
| | | | | |
Investing Activities | | | | | |
Capital Expenditures | | (11,051,142 | ) | (5,108,741 | ) |
| | | | | |
Net cash used in investing activities | | (11,051,142 | ) | (5,108,741 | ) |
| | | | | |
Financing Activities | | | | | |
Checks written in excess of bank balance | | 527,742 | | 2,916,889 | |
Payments on notes payable | | (2,101,569 | ) | (1,256,474 | ) |
Proceeds from notes payable | | 8,706,949 | | 5,855,922 | |
Proceeds from credit line | | 2,256,683 | | 1,000,000 | |
Contributions from shareholder | | 325,000 | | — | |
Distribution paid | | (1,600,000 | ) | (3,050,000 | ) |
| | | | | |
Net cash provided by financing activities | | 8,114,805 | | 5,466,337 | |
| | | | | |
Cash | | | | | |
Net change | | — | | — | |
Beginning of period | | — | | — | |
| | | | | |
End of period | | $ | — | | $ | — | |
BRAD FOOTE GEAR WORKS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Nine-Months Ended September 30, 2006 and 2007
| | 2007 | | 2006 | |
| | | | | |
NET SALES | | $ | 56,568,197 | | $ | 40,626,883 | |
| | | | | |
COST OF GOODS SOLD | | 43,736,777 | | 31,986,499 | |
| | | | | |
Gross profit | | 12,831,420 | | 8,640,384 | |
| | | | | |
SELLING AND ADMINISTRATIVE EXPENSES | | 8,759,992 | | 6,127,507 | |
| | | | | |
Income from operations | | 4,071,428 | | 2,512,877 | |
| | | | | |
OTHER INCOME (EXPENSE): | | | | | |
Interest expense | | (1,077,574 | ) | (575,438 | ) |
| | | | | |
Total other income (expense) | | (1,077,574 | ) | (575,438 | ) |
| | | | | |
Net income | | $ | 2,993,854 | | $ | 1,937,439 | |
BRAD FOOTE GEAR WORKS, INC.
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2007 and 2006
Nature of Business
Brad Foote Gear Works, Inc. (the Company) is incorporated under the laws of the State of Illinois. The Company is engaged in the business of manufacturing large industrial transmission gears. The Company’s principal customers are in the wind energy, petroleum production, mining and other heavy manufacturing industries. The gears are manufactured to meet customers’ engineering specifications. The Company has operating facilities in Cicero, Illinois and Pittsburgh, Pennsylvania.
Basis of Presentation
The accompanying unaudited consolidated financial information has been prepared by in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of this financial information have been included. Financial results for the interim nine-month period ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred, the selling price is fixed and determinable, and collectiblity is reasonably assured. This generally occurs upon shipment to the customer. Customer deposits are deferred and recognized as revenue when earned.
Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a regular basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition and credit history, as well as current economic conditions. Balances still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to accounts receivable. The Company deems accounts past due based upon their contractual terms, and interest is not charged on accounts past due.
Inventories
Inventories are stated at the lower of first-in, first-out cost or market. Market value encompasses consideration of all business factors including price, contract terms and usefulness.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are calculated over the estimated useful lives of the assets using accelerated and straight-line methods. The estimated useful lives used are as follows:
Asset Description | | Asset Life |
Buildings and improvements | | 40 years |
Machinery and equipment | | 5 - 10 years |
Computer software | | 3 - 5 years |
Income Taxes
The Company has elected to be treated as an S Corporation under the Internal Revenue Code. Accordingly, there is no provision for income taxes since such taxes are the liability of the individual shareholders.
BRAD FOOTE GEAR WORKS, INC.
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2007 and 2006
Operating Leases
The Company leased two buildings under lease agreements which expired in June 2006. One building is located in Cicero, Illinois and serves as the Company’s principal offices and a manufacturing facility. The second building is located in Pittsburgh, Pennsylvania and serves as a manufacturing facility. The lease agreement for the two buildings contains an option whereas at May 2006, the Company may either extend the lease agreement through June 2008 or purchase the buildings at the greater of the stated option price contained in the agreement or the fair market value as of June 2006. Subsequent to May 2006 the lease continued on a month to month basis until the sale of the buildings discussed below under the heading “Related Party Transactions”.
As discussed below under the heading “Related Party Transactions”, the buildings were purchased by related parties of the Company. The Company has executed new leases with the related parties which commenced upon the closing of the Stock Purchase Agreement among Tower Tech Holdings Inc., the Company and its stockholder buildings in August and October, 2007 and conclude after 96 months.
Related Party Transactions
These new leases also contain an option to extend the lease agreement for two successive sixty month periods on purchase the properties for a price set forth in the lease agreement.
Subsequent Events
On August 22, 2007, the Company and its stockholders entered into a Stock Purchase Agreement (the “Agreement”) with Tower Tech Holdings Inc. (Tower Tech). Under this Agreement, Tower Tech agreed to purchase all of the outstanding capital stock of the Company. The acquisition was completed on October 19, 2007. The purchase price for the Company’s stock consisted of cash and stock of Tower Tech. The cash portion of the purchase price was approximately $64 million plus an amount equal to the tax cost of the Company’s shareholders making an election under Section 338(h)(10) of the Internal Revenue Code. The stock portion of the purchase price was fixed at 16,036,450 shares of Tower Tech common stock, which was calculated based on a price per share of $4.00, which represented a discount to the market price as of the signing date of the Agreement. In connection with the acquisition of Brad Foote, Tower Tech also assumed approximately $22 million of the Company’s senior debt.
On December 13, 2007, the Company exercised its options to purchase the properties described above under the headings “Operating leases” and “Related Party Transactions.” Signing of definitive purchase agreements for the acquisition of the properties is subject to completion of a final property inspection. The anticipated closing date of this transaction is January, 2008.
Variable Interest Entitites
In August 2007 a shareholder purchased land and a building which is being leased back to the Company. The land and building is being reported in the consolidated condensed financial statements under FASB Interpretation (FIN) 46(R), Consolidation of Variable Interest Entities.
