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
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 | |
| | | | | | | 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 | |
| | | | | | | 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.
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.
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.
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.
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.
Accounts receivable consists of the following:
| December 31, | | 2007 | | 2006 | |
| | | | | | |
| | | | | | | | |
| Trade Accounts Receivable | | $ | 1,901,429 | | $ | | |
| Allowance for Doubtful Accounts | | | (47,536 | ) | | (23,918 | ) |
| | | $ | 1,853,893 | | $ | 932,783 | |
VAL-U-TECH
Notes to Financial Statements
December 31, 2007 and December 31, 2006
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 | |
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 | |
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.
VAL-U-TECH
Notes to Financial Statements
December 31, 2007 and December 31, 2006
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.
