Exhibit 99.1
TWINCRAFT, INC., AND AFFILIATES
DECEMBER 31, 2006 AND 2005
CONTENTS
| | Pages |
| | |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS | | 2 |
| | |
CONSOLIDATED FINANCIAL STATEMENTS | | |
| | |
BALANCE SHEETS | | 3 |
| | |
STATEMENTS OF EARNINGS | | 4 |
| | |
STATEMENTS OF STOCKHOLDERS’ EQUITY | | 5 |
| | |
STATEMENTS OF CASH FLOWS | | 6 |
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | | 7-12 |
| | |
SUPPLEMENTAL INFORMATION | | |
| | |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SUPPLEMENTAL INFORMATION | | 13 |
| | |
CONSOLIDATING BALANCE SHEETS | | 14-15 |
| | |
CONSOLIDATING STATEMENTS OF EARNINGS | | 16-17 |
INDEPENDENT AUDITOR'S REPORT
Report of Independent Certified Public Accountants
To the Stockholders
and Board of Directors of
Twincraft, Inc., and Affiliates
We have audited the accompanying consolidated balance sheets of Twincraft, Inc., and Affiliates, as of December 31, 2006 and 2005, and the related consolidated statements of earnings, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Twincraft, Inc., and Affiliates, as of December 31, 2006 and 2005, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
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/s/ Gallagher, Flynn & Company, LLP | | | |
| | | |
| | | |
| | | |
February 28, 2007 | | | |
TWINCRAFT, INC., AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
| | 2006 | | 2005 | |
ASSETS | | | | | |
CURRENT ASSETS | | | | | |
Cash and cash equivalents | | $ | 93,405 | | $ | 508,981 | |
Accounts receivable, less allowance for doubtful accounts of approximately $318,000 in 2006 and $286,000 in 2005 | | | 5,275,583 | | | 4,790,179 | |
Inventories | | | 3,897,922 | | | 2,839,289 | |
Investments | | | — | | | 173,947 | |
Prepaid expenses | | | 46,141 | | | 43,626 | |
Total current assets | | | 9,313,051 | | | 8,356,022 | |
| | | | | | | |
PROPERTY, PLANT AND EQUIPMENT, at cost | | | | | | | |
Land, building, and leasehold improvements | | | 3,805,167 | | | 3,760,057 | |
Machinery and equipment | | | 9,637,929 | | | 8,950,760 | |
Furniture, office equipment and software | | | 1,519,983 | | | 1,492,010 | |
| | | 14,963,079 | | | 14,202,827 | |
Less accumulated depreciation and amortization | | | 9,113,713 | | | 8,357,837 | |
| | | 5,849,366 | | | 5,844,990 | |
| | $ | 15,162,417 | | $ | 14,201,012 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
CURRENT LIABILITIES | | | | | | | |
Note payable - bank | | $ | 2,246,868 | | $ | 3,500,000 | |
Current maturities of capital lease obligations | | | 141,387 | | | 136,259 | |
Current maturities of long-term debt | | | 333,653 | | | 512,659 | |
Accounts payable | | | 2,221,829 | | | 1,547,828 | |
Accrued liabilities | | | 1,202,613 | | | 1,204,415 | |
Total current liabilities | | | 6,146,350 | | | 6,901,161 | |
CAPITAL LEASE OBLIGATIONS, less current maturities | | | 188,353 | | | 329,740 | |
LONG-TERM DEBT, less current maturities | | | 683,728 | | | 967,280 | |
NON-CONTROLLING INTEREST IN CONSOLIDATED AFFILIATES | | | 553,344 | | | 689,610 | |
STOCKHOLDERS’ EQUITY | | | | | | | |
Common stock - no par value, 100,000 shares authorized; 39,200 shares issued and outstanding | | | 392 | | | 392 | |
Additional paid-in capital | | | 681,232 | | | 681,232 | |
Retained Earnings | | | 6,909,018 | | | 4,631,597 | |
| | | 7,590,642 | | | 5,313,221 | |
| | $ | 15,162,417 | | $ | 14,201,012 | |
The accompanying notes are an integral part of these statements.
TWINCRAFT, INC., AND AFFILIATES
CONSOLIDATED STATEMENTS OF EARNINGS
| | 2006 | | 2005 | |
NET SALES | | $ | 30,972,552 | | $ | 27,116,204 | |
COST OF SALES | | | 22,065,385 | | | 20,817,777 | |
GROSS PROFIT | | | 8,907,167 | | | 6,298,427 | |
OPERATING EXPENSES | | | | | | | |
Selling and shipping expenses | | | 2,717,290 | | | 2,282,795 | |
Administrative expenses | | | 2,292,922 | | | 2,196,110 | |
Lab and research and development expenses | | | 453,960 | | | 460,140 | |
| | | 5,464,172 | | | 4,939,045 | |
EARNINGS FROM OPERATIONS | | | 3,442,995 | | | 1,359,382 | |
OTHER (INCOME) EXPENSE | | | | | | | |
Interest expense | | | 287,052 | | | 364,674 | |
Other, net | | | (112,313 | ) | | (1,553 | ) |
| | | 174,739 | | | 363,121 | |
EARNINGS BEFORE NON-CONTROLLING INTEREST IN EARNINGS OF CONSOLIDATED AFFILIATES | | | 3,268,256 | | | 996,261 | |
NON-CONTROLLING INTEREST IN EARNINGS OF CONSOLIDATED AFFILIATES | | | (197,475 | ) | | (246,000 | ) |
NET EARNINGS | | $ | 3,070,781 | | $ | 750,261 | |
The accompanying notes are an integral part of these statements.
TWINCRAFT, INC., AND AFFILIATES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2006 AND 2005
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Member’s Equity | | Total | |
BALANCE, January 1, 2005, as previously reported | | $ | 392 | | $ | 681,232 | | $ | 4,240,955 | | $ | 19,255 | | $ | 4,941,834 | |
Adjustment to prior period (Note B) | | | — | | | — | | | — | | | (19,255 | ) | | (19,255 | ) |
| | | | | | | | | | | | | | | | |
BALANCE, January 1, 2005, as restated | | | 392 | | | 681,232 | | | 4,240,955 | | | — | | | 4,922,579 | |
Distributions to S corporation stockholders | | | — | | | — | | | (359,619 | ) | | — | | | (359,619 | ) |
Net earnings for the year, as restated (Note B) | | | — | | | — | | | 750,261 | | | — | | | 750,261 | |
| | | | | | | | | | | | | | | | |
BALANCE, December 31, 2005 | | | 392 | | | 681,232 | | | 4,631,597 | | | — | | | 5,313,221 | |
Distributions to S corporation stockholders | | | — | | | — | | | (793,360 | ) | | — | | | (793,360 | ) |
Net earnings for the year | | | — | | | — | | | 3,070,781 | | | — | | | 3,070,781 | |
| | | | | | | | | | | | | | | | |
BALANCE, December 31, 2006 | | $ | 392 | | $ | 681,232 | | $ | 6,909,018 | | $ | — | | $ | 7,590,642 | |
The accompanying notes are an integral part of these statements.
TWINCRAFT, INC., AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
| | 2006 | | 2005 | |
INCREASE IN CASH AND CASH EQUIVALENTS | | | | | |
| | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net earnings | | $ | 3,070,781 | | $ | 750,261 | |
Non cash items included in net earnings: | | | | | | | |
Net provision for bad debts | | | 28,682 | | | 28,682 | |
Depreciation and amortization | | | 755,876 | | | 690,202 | |
Inventory reserves | | | 48,405 | | | 48,405 | |
Gain on sale of investments | | | (39,678 | ) | | — | |
Earnings in non-controlling interest of consolidated affiliates | | | 197,475 | | | 246,000 | |
Changes in assets and liabilities: | | | | | | | |
Accounts receivable | | | (514,086 | ) | | (1,602,821 | ) |
Inventories | | | (1,107,038 | ) | | 563,865 | |
Investments | | | — | | | (68,363 | ) |
Prepaid expenses and other assets | | | (2,515 | ) | | 195,146 | |
Accounts payable and accrued expenses | | | 772,199 | | | 528,882 | |
| | | 139,320 | | | 629,998 | |
Net cash provided by operating activities | | | 3,210,101 | | | 1,380,259 | |
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | |
Proceeds from sale of investments | | | 339,323 | | | — | |
Acquisition of property and equipment | | | (885,950 | ) | | (422,619 | ) |
Net cash used in investing activities | | | (546,627 | ) | �� | (422,619 | ) |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | |
Net payments on short-term borrowings | | | (1,253,132 | ) | | (50,000 | ) |
Principal payments on long-term borrowings | | | (462,558 | ) | | (326,461 | ) |
Principal payments on capital lease obligations | | | (136,259 | ) | | (127,549 | ) |
Distributions to S corporation stockholders | | | (893,360 | ) | | (774 | ) |
Distribution paid by affiliated entities to members and partners of non-controlling interests | | | (333,741 | ) | | (139,179 | ) |
Net cash used in financing activities | | | (3,079,050 | ) | | (643,963 | ) |
Net increase (decrease) in cash | | | (415,576 | ) | | 313,677 | |
CASH AND CASH EQUIVALENTS, beginning of year | | | 508,981 | | | 195,304 | |
CASH AND CASH EQUIVALENTS, end of year | | $ | 93,405 | | $ | 508,981 | |
| | | | | | | |
Supplemental Disclosures of Cash Flows Information | | | | | | | |
Cash paid during the year for: | | | | | | | |
Interest expense | | $ | 406,072 | | $ | 459,600 | |
Income taxes | | $ | 500 | | $ | 250 | |
Noncash investing and financing activities:
The following activities occurred during 2005:
| · | The Companies reduced notes receivable from stockholders by applying S corporation distributions totaling $258,845. |
| · | Twincraft, Inc. declared a distribution to S corporation stockholders of $100,000 that is included in accounts payable at December 31, 2005. |
The accompanying notes are an integral part of these statements.
TWINCRAFT, INC., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
A) SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES
Operations:
Twincraft, Inc. (“Twincraft”), a Vermont corporation, manufactures and distributes soap for sale to wholesalers throughout the United States and Canada.
Affiliates included in the financial statements include: TWC Export, Inc., a domestic international-sales corporation that is under the same ownership as Twincraft, and that was dissolved effective December 31, 2006; Asch Brothers Partnership, whose partners are related parties to the majority stockholders of Twincraft, and which owns buildings and property that it leases to Twincraft; and Asch Enterprises, LLC, a limited liability company whose sole member is the majority stockholder of Twincraft, and which leases warehouse facilities to Twincraft.
Accounting policies:
A summary of the Companies’ significant accounting policies applied in the preparation of the accompanying financial statements follows:
1. Principles of consolidation and combination
The consolidated financial statements include the accounts of Twincraft, TWC Export, Inc., Asch Brothers Partnership, and Asch Enterprises, LLC, (collectively the “Companies”), all of which are required to be consolidated under provisions of the Financial Accounting Standards Board Interpretation No. 46R (FIN46R), Consolidation of Variable Interest Entities. All material intercompany accounts and transactions have been eliminated in consolidation (see Note B).
2. Cash and cash equivalents
The Companies consider all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.
3. Accounts receivable
Trade accounts receivable are stated at the amount the Companies expect to collect. The Companies maintain allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectibility of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If the financial condition of the Companies’ customers was to deteriorate, adversely affecting their ability to make payments, additional allowances would be required.
Based on management’s assessment, the Companies provide for estimated uncollectible amounts through a charge to earnings and a credit to the valuation allowance. Balances that remain outstanding after the Companies have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
4. Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method.
5. Depreciation and amortization
Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Leased property under capital leases is amortized over the lives of the respective leases or over the service lives of the assets for those leases that substantially transfer ownership. The straight-line and declining-balance methods of depreciation are followed for substantially all assets for financial reporting purposes.
A) SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES (continued)
6. Investments
The Companies’ securities investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are recorded at fair value on the balance sheet in current assets, with the change in fair value during the period included in earnings.
7. 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 and the disclosure of contingent 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.
8. Income taxes
Income taxes on net earnings of Twincraft, Inc., are payable personally by the stockholders pursuant to an election under subchapter S of the Internal Revenue Code not to have the Company taxed as a corporation.
TWC Export, Inc.’s net earnings are not taxed at the corporate level, but rather to its stockholders upon distribution.
Asch Brothers Partnership is a partnership. Income taxes on net earnings are payable personally by the stockholders.
Asch Enterprises, LLC, is a limited liability company. The sole member has elected not to have the company taxed as a corporation. Income taxes on net earnings are payable personally by the member.
Accordingly, no provision has been made for income taxes other than state minimum income taxes.
B) CHANGE IN ACCOUNTING PRINCIPLE/ADJUSTMENT TO PRIOR PERIOD
In December 2003, the Financial Accounting Standards Board issued Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest Entities. FIN 46R establishes standards for identifying a variable-interest entity and for determining under which circumstances a variable-interest entity should be consolidated with its primary beneficiary. FIN 46R requires a variable-interest entity to be combined by a company if that company is the primary beneficiary, as evidenced by being subject to a majority of the risk of loss from the variable-interest entity’s activities, or entitled to receive a majority of the entity’s residual returns, or both. Twincraft, Inc., and its affiliated entities have adopted FIN 46R as of January 1, 2005.
The 2005 financial statements have been restated to correct an error in the application of FIN46R. Whereas the stockholders’ equity of TWC Export, Inc., and the member’s equity of Asch Enterprises, LLC, should have been treated as “Non-controlling Interest of Consolidated Affiliate” as of December 31, 2005, and the net earnings of TWC Export, Inc., and Asch Enterprises, LLC, as increases in “Non-controlling Interest in Earnings of Consolidated Affiliate” during the year then ended, the equity was included in the Company’s consolidated equity as of December 31, 2005, and the net earnings included in the Company’s consolidated net earnings for 2005. The effect of the restatement was to decrease stockholders’ equity as of December 31, 2005 by $169,124, and decrease consolidated net earnings for 2005 by $149,869, from those previously reported.
C) CONCENTRATIONS OF CREDIT RISK
The Companies maintain bank account balances which, at times, may exceed federally insured limits. The Companies have not experienced any losses with these accounts. Management believes the Companies are not exposed to any significant credit risk on cash.
D) INVENTORIES
Inventories consist of the following at December 31:
| | 2006 | | 2005 | |
Raw materials and components | | $ | 2,834,035 | | $ | 2,004,610 | |
Inventory in transit | | | 177,650 | | | 124,384 | |
Finished and semi-finished goods | | | 1,132,609 | | | 963,253 | |
| | | 4,144,294 | | | 3,092,247 | |
Less reserve for obsolete and slow moving inventory | | | 246,372 | | | 252,958 | |
| | $ | 3,897,922 | | $ | 2,839,289 | |
E) INVESTMENTS
Investments in trading securities are measured at fair value, with net unrealized gains or losses included in the determination of net earnings. As of December 31, 2006 and 2005, net unrealized holding gain on trading securities of $0 and $5,806, respectively, is included in net earnings, as indicated in the following table:
| | | 2006 | | | 2005 | |
Net unrealized gain on trading securities at beginning of year | | $ | — | | $ | 7,997 | |
Increase in unrealized gain included in earnings during the year | | | — | | | 5,806 | |
Net unrealized gain on trading securities at end of year | | $ | — | | $ | 13,803 | |
Sales proceeds and realized gains were $339,323 and $39,678, respectively, in 2006.
F) NOTE PAYABLE
Note payable consists of the amount due to the KeyBank National Association (“KeyBank National”) under a $5,000,000 revolving line of credit expiring June 2007, and subject to annual renewal thereafter. Borrowings are subject to borrowing base requirements as defined in the agreement. Interest is payable monthly at the bank’s prime rate (8.25% at December 31, 2006), or LIBOR, as defined (5.3% at December 31, 2006), plus 1.85%. The line of credit is secured by substantially all assets of Twincraft. Provisions of the loan agreement include, among other things, restrictions on borrowing and various financial ratios, as defined in the agreement.
Twincraft has established letters of credit with KeyBank National related to purchases of inventory. These commitments were $261,000 at December 31, 2006, and $208,800 at December 31, 2005.
G) LONG-TERM DEBT
| | 2006 | | 2005 | |
Long-term debt consists of the following at December 31: | | | | | |
KeyBank National Association - | | | | | |
| | | | | | | |
Payable in varying monthly principal installments. Interest payable monthly at the 30-day LIBOR rate (5.35% at December 31, 2006), plus 2.5%. Due June 1, 2014. Secured by substantially all assets of Asch Brothers Partnership, and guaranteed by Twincraft, Inc. Subsequent to December 31, 2006, the guarantee by Twincraft, Inc. was removed by the bank. | | $ | 756,261 | | $ | 829,813 | |
| | | | | | | |
The following notes are collateralized by substantially all assets of Twincraft, Inc., and were repaid subsequent to December 31, 2006 (Note K): | | | | | | | |
| | | | | | | |
Payable in quarterly principal installments of $62,500. Interest payable monthly at the 90-day LIBOR rate (5.35313% at December 31, 2006), plus 2%. Due May 1, 2007. | | | 125,000 | | | 375,000 | |
| | | | | | | |
Payable in quarterly principal installments of $15,000. Interest payable monthly at the 30-day LIBOR rate (5.35% at December 31, 2006), plus 2.25%. Due July 1, 2007. | | | 45,000 | | | 105,000 | |
| | | | | | | |
Payable in quarterly principal installments of $10,000. Interest payable monthly at the 30-day LIBOR rate (5.35% at December 31, 2006), plus 2.25%. Due December 1, 2007. | | | 40,000 | | | 80,000 | |
| | | | | | | |
Stockholder - unsecured note payable upon demand. | | | 51,120 | | | 90,126 | |
| | | 1,017,381 | | | 1,479,939 | |
Principal payments due within one year | | | 333,653 | | | 512,659 | |
| | $ | 683,728 | | $ | 967,280 | |
G) LONG-TERM DEBT (continued)
As of December 31, 2006, long-term debt matures as follows:
Years ending December 31, | | Amount | |
2007 | | $ | 338,906 | |
2008 | | | 83,950 | |
2009 | | | 90,602 | |
2010 | | | 97,782 | |
2011 | | | 105,530 | |
Thereafter | | | 300,611 | |
| | $ | 1,017,381 | |
H) CAPITAL LEASE OBLIGATIONS
Twincraft leases equipment under a master lease agreement with Key Equipment Finance, a division of Key Corporate Capital, Inc., for the lease of machinery and equipment under agreements that qualify for treatment as capital leases. The leases expire in July 2009 and November 2008. Subsequent to December 31, 2006, the leases were paid off (see Note K).
Leases that meet the criteria of capital leases have been capitalized and the related assets are included in property, plant and equipment in the following amounts:
| | 2006 | | 2005 | |
Machinery and equipment | | $ | 752,078 | | $ | 752,078 | |
Less accumulated amortization | | | 282,590 | | | 177,505 | |
| | $ | 469,488 | | $ | 574,573 | |
The following is a schedule by years of future minimum lease payments, together with the present value of the net minimum lease payments, as of December 31, 2006:
Years ending December 31, | | Amount | |
2007 | | $ | 151,304 | |
2008 | | | 145,554 | |
2009 | | | 48,010 | |
Total minimum lease payments | | | 344,868 | |
Amount representing interest | | | 15,128 | |
| | | 329,740 | |
Current obligation under capital leases | | | 141,387 | |
Present value of long-term obligation under capital leases | | $ | 188,353 | |
I) DEFINED CONTRIBUTION RETIREMENT PLAN
The Companies have a 401(k) plan (the Plan) that covers substantially all employees. Contributions to the Plan are at the discretion of the board of directors. Contributions to the Plan charged to operations were $38,700 in 2006 and $34,900 in 2005.
J) MAJOR CUSTOMERS
During 2005, the Companies sold a substantial portion of their products to two customers. Sales to these customers were approximately $2,838,400 (10.5% of net sales) and $2,831,600 (10.5% of net sales). Amounts due from these customers at December 31, 2005, included in trade accounts receivable, were approximately $278,600 and $531,700. There were no customers to whom the Company sold more than 10% of its total sales during 2006.
K) SUBSEQUENT EVENTS
On January 23, 2007, the stockholders of Twincraft, Inc., sold 100% of their common stock to another company for an amount that exceeds the total stockholders’ equity at December 31, 2006. Concurrently, Twincraft, Inc., took the following actions:
| · | Repaid all existing debt owed to KeyBank by Twincraft, Inc. (Notes F and G), and all leases with Key Equipment Finance (Note H). |
| · | Renegotiated its lease agreements with Asch Partnership, effective January 23, 2007, whereby Twincraft will pay rent of $362,000 during 2007, and $452,500 per year for the remainder of the revised lease term, which expires December 31, 2013. The lease contains an option to renew the lease for an additional seven years at a rate that includes an increase of 3%. The lease also includes a purchase option as defined in the agreement. |
Report of Independent Certified Public Accountants
on Supplemental Information
To the Stockholders and
Board of Directors of
Twincraft, Inc., and Affiliates
Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole of Twincraft, Inc., and Affiliates, as of and for the years ended December 31, 2006 and 2005, which are presented in the preceding section of this report. The consolidating supplemental information presented hereinafter is presented for purposes of additional analysis of the basic consolidated financial statements rather than to present the financial position, results of operations, and cash flows of the individual companies. The consolidating information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements, and, in our opinion, is fairly stated in all material respects, in relation to the basic consolidated financial statements taken as a whole.
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/s/ Gallagher, Flynn & Company, LLP | | | |
| | | |
| | | |
February 28, 2007 | | | |
TWINCRAFT, INC., AND AFFILIATES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2006
| | Twincraft, Inc. | | TWC Export, Inc. | | Asch Brothers Partnership | | Asch Enterprises, LLC | | Subtotal | | Eliminating Entries | | Consolidated | |
ASSETS | | | | | | | | | | | | | | | |
CURRENT ASSETS | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | $ | — | | $ | 67,116 | | $ | 26,289 | | $ | 93,405 | | $ | — | | $ | 93,405 | |
Accounts receivable, less allowance for doubtful accounts of approximately $318,000 | | | 5,275,583 | | | — | | | — | | | — | | | 5,275,583 | | | — | | | 5,275,583 | |
Inventories | | | 3,897,922 | | | — | | | — | | | — | | | 3,897,922 | | | — | | | 3,897,922 | |
Notes receivable - current portion | | | — | | | — | | | 117,159 | | | — | | | 117,159 | | | (117,159 | ) | | — | |
Prepaid expenses | | | 46,141 | | | — | | | — | | | — | | | 46,141 | | | — | | | 46,141 | |
Total current assets | | | 9,219,646 | | | — | | | 184,275 | | | 26,289 | | | 9,430,210 | | | (117,159 | ) | | 9,313,051 | |
PROPERTY, PLANT AND EQUIPMENT, at cost | | | | | | | | | | | | | | | | | | | | | | |
Land, building, and leasehold improvements | | | 3,753,140 | | | — | | | — | | | — | | | 3,753,140 | | | 52,027 | | | 3,805,167 | |
Machinery and equipment | | | 9,637,929 | | | — | | | — | | | — | | | 9,637,929 | | | — | | | 9,637,929 | |
Furniture, office equipment and software | | | 1,519,983 | | | — | | | — | | | — | | | 1,519,983 | | | — | | | 1,519,983 | |
| | | 14,911,052 | | | — | | | — | | | — | | | 14,911,052 | | | 52,027 | | | 14,963,079 | |
Less accumulated depreciation and amortization | | | 9,014,319 | | | — | | | — | | | — | | | 9,014,319 | | | 99,394 | | | 9,113,713 | |
| | | 5,896,733 | | | — | | | — | | | — | | | 5,896,733 | | | (47,367 | ) | | 5,849,366 | |
OTHER ASSETS - Notes Receivable | | | — | | | — | | | 1,104,083 | | | — | | | 1,104,083 | | | (1,104,083 | ) | | — | |
| | $ | 15,116,379 | | $ | — | | $ | 1,288,358 | | $ | 26,289 | | $ | 16,431,026 | | $ | (1,268,609 | ) | $ | 15,162,417 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | | | |
Note payable - bank | | $ | 2,246,868 | | $ | — | | $ | — | | $ | — | | $ | 2,246,868 | | $ | — | | $ | 2,246,868 | |
Current maturities of capital lease obligations | | | 258,546 | | | — | | | — | | | — | | | 258,546 | | | (117,159 | ) | | 141,387 | |
Current maturities of long-term debt | | | 261,120 | | | — | | | 72,533 | | | — | | | 333,653 | | | — | | | 333,653 | |
Accounts payable | | | 2,221,829 | | | — | | | — | | | — | | | 2,221,829 | | | — | | | 2,221,829 | |
Accrued liabilities | | | 1,197,571 | | | — | | | 5,042 | | | — | | | 1,202,613 | | | — | | | 1,202,613 | |
Total current liabilities | | | 6,185,934 | | | — | | | 77,575 | | | — | | | 6,263,509 | | | (117,159 | ) | | 6,146,350 | |
CAPITAL LEASE OBLIGATIONS, less current maturities | | | 1,292,436 | | | — | | | — | | | — | | | 1,292,436 | | | (1,104,083 | ) | | 188,353 | |
LONG-TERM DEBT, less current maturities | | | — | | | — | | | 683,728 | | | — | | | 683,728 | | | — | | | 683,728 | |
NON-CONTROLLING INTEREST IN CONSOLIDATED AFFILIATES | | | — | | | — | | | — | | | — | | | — | | | 553,344 | | | 553,344 | |
STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | 392 | | | — | | | — | | | — | | | 392 | | | — | | | 392 | |
Additional paid-in capital | | | 681,232 | | | — | | | — | | | — | | | 681,232 | | | — | | | 681,232 | |
Retained earnings | | | 6,956,385 | | | — | | | — | | | — | | | 6,956,385 | | | (47,367 | ) | | 6,909,018 | |
Total stockholders’ equity | | | 7,638,009 | | | — | | | — | | | — | | | 7,638,009 | | | (47,367 | ) | | 7,590,642 | |
Members’ equity and Partners’ capital | | | — | | | — | | | 527,055 | | | 26,289 | | | 553,344 | | | (553,344 | ) | | — | |
| | | 7,638,009 | | | — | | | 527,055 | | | 26,289 | | | 8,191,353 | | | (600,711 | ) | | 7,590,642 | |
| | $ | 15,116,379 | | $ | — | | $ | 1,288,358 | | $ | 26,289 | | $ | 16,431,026 | | $ | (1,268,609 | ) | $ | 15,162,417 | |
TWINCRAFT, INC., AND AFFILIATES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2005
| | Twincraft, Inc. | | TWC Export, Inc. | | Asch Brothers Partnership | | Asch Enterprises, LLC | | Subtotal | | Eliminating Entries | | Consolidated | |
ASSETS | | | | | | | | | | | | | | | | | | | | | | |
CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 391,815 | | $ | — | | $ | 35,143 | | $ | 82,023 | | $ | 508,981 | | $ | — | | $ | 508,981 | |
Accounts receivable, less allowance for doubtful accounts of approximately $286,000 | | | 4,790,179 | | | 106,076 | | | — | | | — | | | 4,896,255 | | | (106,076 | ) | | 4,790,179 | |
Inventories | | | 2,839,289 | | | — | | | — | | | — | | | 2,839,289 | | | — | | | 2,839,289 | |
Investments | | | 173,947 | | | — | | | — | | | — | | | 173,947 | | | — | | | 173,947 | |
Notes receivable - current portion | | | — | | | — | | | 104,094 | | | — | | | 104,094 | | | (104,094 | ) | | — | |
Prepaid expenses | | | 62,486 | | | — | | | 115 | | | — | | | 62,601 | | | (18,975 | ) | | 43,626 | |
Total current assets | | | 8,257,716 | | | 106,076 | | | 139,352 | | | 82,023 | | | 8,585,167 | | | (229,145 | ) | | 8,356,022 | |
PROPERTY, PLANT AND EQUIPMENT, at cost | | | | | | | | | | | | | | | | | | | | | | |
Land, building, and leasehold improvements | | | 3,708,030 | | | — | | | — | | | — | | | 3,708,030 | | | 52,027 | | | 3,760,057 | |
Machinery and equipment | | | 8,950,760 | | | — | | | — | | | — | | | 8,950,760 | | | — | | | 8,950,760 | |
Furniture, office equipment and software | | | 1,492,010 | | | — | | | — | | | — | | | 1,492,010 | | | — | | | 1,492,010 | |
| | | 14,150,800 | | | — | | | — | | | — | | | 14,150,800 | | | 52,027 | | | 14,202,827 | |
Less accumulated depreciation and amortization | | | 8,258,443 | | | — | | | — | | | — | | | 8,258,443 | | | 99,394 | | | 8,357,837 | |
| | | 5,892,357 | | | — | | | — | | | — | | | 5,892,357 | | | (47,367 | ) | | 5,844,990 | |
OTHER ASSETS - Notes Receivable | | | — | | | — | | | 1,221,242 | | | — | | | 1,221,242 | | | (1,221,242 | ) | | — | |
| | $ | 14,150,073 | | $ | 106,076 | | $ | 1,360,594 | | $ | 82,023 | | $ | 15,698,766 | | $ | (1,497,754 | ) | $ | 14,201,012 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | | | |
Note payable - bank | | $ | 3,500,000 | | $ | — | | $ | — | | $ | — | | $ | 3,500,000 | | $ | — | | $ | 3,500,000 | |
Current maturities of capital lease obligations | | | 240,353 | | | — | | | — | | | — | | | 240,353 | | | (104,094 | ) | | 136,259 | |
Current maturities of long-term debt | | | 440,126 | | | — | | | 72,533 | | | — | | | 512,659 | | | — | | | 512,659 | |
Accounts payable | | | 1,547,828 | | | — | | | — | | | — | | | 1,547,828 | | | — | | | 1,547,828 | |
Accrued liabilities | | | 1,300,196 | | | — | | | 10,295 | | | 18,975 | | | 1,329,466 | | | (125,051 | ) | | 1,204,415 | |
Total current liabilities | | | 7,028,503 | | | — | | | 82,828 | | | 18,975 | | | 7,130,306 | | | (229,145 | ) | | 6,901,161 | |
CAPITAL LEASE OBLIGATIONS, less current maturities | | | 1,550,982 | | | — | | | — | | | — | | | 1,550,982 | | | (1,221,242 | ) | | 329,740 | |
LONG-TERM DEBT, less current maturities | | | 210,000 | | | — | | | 757,280 | | | — | | | 967,280 | | | — | | | 967,280 | |
NON-CONTROLLING INTEREST IN CONSOLIDATED AFFILIATES | | | — | | | — | | | — | | | — | | | — | | | 689,610 | | | 689,610 | |
STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | 392 | | | 2,500 | | | — | | | — | | | 2,892 | | | (2,500 | ) | | 392 | |
Additional paid-in capital | | | 681,232 | | | — | | | — | | | — | | | 681,232 | | | — | | | 681,232 | |
Retained earnings | | | 4,678,964 | | | 106,076 | | | — | | | — | | | 4,785,040 | | | (153,443 | ) | | 4,631,597 | |
Note receivable for the purchase of common stock | | | — | | | (2,500 | ) | | — | | | — | | | (2,500 | ) | | 2,500 | | | — | |
Total stockholders’ equity | | | 5,360,588 | | | 106,076 | | | — | | | — | | | 5,466,664 | | | (153,443 | ) | | 5,313,221 | |
Members’ equity and Partners’ capital | | | — | | | — | | | 520,486 | | | 63,048 | | | 583,534 | | | (583,534 | ) | | — | |
| | | 5,360,588 | | | 106,076 | | | 520,486 | | | 63,048 | | | 6,050,198 | | | (736,977 | ) | | 5,313,221 | |
| | $ | 14,150,073 | | $ | 106,076 | | $ | 1,360,594 | | $ | 82,023 | | $ | 15,698,766 | | $ | (1,497,754 | ) | $ | 14,201,012 | |
TWINCRAFT, INC., AND AFFILIATES
CONSOLIDATING STATEMENT OF EARNINGS
YEARS ENDED DECEMBER 31, 2006
| | Twincraft, Inc. | | TWC Export, Inc. | | Asch Brothers Partnership | | Asch Enterprises, LLC | | Subtotal | | Eliminating Entries | | Consolidated | |
Administrative expenses | | | | | | | | | | | | | | | |
NET SALES | | $ | 30,972,552 | | $ | — | | $ | — | | $ | 383,024 | | $ | 31,355,576 | | $ | (383,024 | ) | $ | 30,972,552 | |
| | | | | | | | | | | | | | | | | | | | | | |
COST OF SALES | | | 22,065,385 | | | — | | | — | | | 289,782 | | | 22,355,167 | | | (289,782 | ) | | 22,065,385 | |
| | | | | | | | | | | | | | | | | | | | | | |
GROSS PROFIT | | | 8,907,167 | | | — | | | — | | | 93,242 | | | 9,000,409 | | | (93,242 | ) | | 8,907,167 | |
| | | | | | | | | | | | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | | | | | | | | | | | |
Selling and shipping expenses | | | 2,717,290 | | | — | | | — | | | — | | | 2,717,290 | | | — | | | 2,717,290 | |
Administrative expenses | | | 2,386,164 | | | — | | | — | | | — | | | 2,386,164 | | | (93,242 | ) | | 2,292,922 | |
Lab and research and development expenses | | | 453,960 | | | — | | | — | | | — | | | 453,960 | | | — | | | 453,960 | |
| | | 5,557,414 | | | — | | | — | | | — | | | 5,557,414 | | | (93,242 | ) | | 5,464,172 | |
EARNINGS FROM OPERATIONS | | | 3,349,753 | | | — | | | — | | | 93,242 | | | 3,442,995 | | | — | | | 3,442,995 | |
OTHER (INCOME) EXPENSE | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | 391,285 | | | — | | | 55,745 | | | — | | | 447,030 | | | (159,978 | ) | | 287,052 | |
Interest income | | | — | | | — | | | (159,978 | ) | | — | | | (159,978 | ) | | 159,978 | | | — | |
Other, net | | | (112,313 | ) | | — | | | — | | | — | | | (112,313 | ) | | — | | | (112,313 | ) |
| | | 278,972 | | | — | | | (104,233 | ) | | — | | | 174,739 | | | — | | | 174,739 | |
EARNINGS BEFORE NON-CONTROLLING INTEREST IN EARNINGS OF CONSOLIDATED AFFILIATES | | | 3,070,781 | | | — | | | 104,233 | | | 93,242 | | | 3,268,256 | | | — | | | 3,268,256 | |
NON-CONTROLLING INTEREST IN EARNINGS OF CONSOLIDATED AFFILIATES | | | — | | | — | | | — | | | — | | | — | | | (197,475 | ) | | (197,475 | ) |
NET EARNINGS | | $ | 3,070,781 | | $ | — | | $ | 104,233 | | $ | 93,242 | | $ | 3,268,256 | | $ | (197,475 | ) | $ | 3,070,781 | |
TWINCRAFT, INC., AND AFFILIATES
CONSOLIDATING STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 2005
| | Twincraft, Inc. | | TWC Export, Inc. | | Asch Brothers Partnership | | Asch Enterprises, LLC | | Subtotal | | Eliminating Entries | | Consolidated | |
NET SALES | | $ | 27,116,204 | | $ | 106,076 | | $ | — | | $ | 330,406 | | $ | 27,552,686 | | $ | (436,482 | ) | $ | 27,116,204 | |
| | | | | | | | | | | | | | | | | | | | | | |
COST OF SALES | | | 20,817,777 | | | — | | | — | | | 286,613 | | | 21,104,390 | | | (286,613 | ) | | 20,817,777 | |
| | | | | | | | | | | | | | | | | | | | | | |
GROSS PROFIT | | | 6,298,427 | | | 106,076 | | | — | | | 43,793 | | | 6,448,296 | | | (149,869 | ) | | 6,298,427 | |
| | | | | | | | | | | | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | | | | | | | | | | | |
Selling and shipping expenses | | | 2,388,871 | | | — | | | — | | | — | | | 2,388,871 | | | (106,076 | ) | | 2,282,795 | |
Administrative expenses | | | 2,270,341 | | | — | | | 4,455 | | | — | | | 2,274,796 | | | (78,686 | ) | | 2,196,110 | |
Lab and research and development expenses | | | 460,140 | | | — | | | — | | | — | | | 460,140 | | | — | | | 460,140 | |
| | | 5,119,352 | | | — | | | 4,455 | | | �� | | | 5,123,807 | | | (184,762 | ) | | 4,939,045 | |
EARNINGS FROM OPERATIONS | | | 1,179,075 | | | 106,076 | | | (4,455 | ) | | 43,793 | | | 1,324,489 | | | 34,893 | | | 1,359,382 | |
OTHER (INCOME) EXPENSE | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | 465,260 | | | — | | | 70,961 | | | — | | | 536,221 | | | (171,547 | ) | | 364,674 | |
Interest income | | | — | | | — | | | (171,547 | ) | | — | | | (171,547 | ) | | 171,547 | | | — | |
Other, net | | | (1,553 | ) | | — | | | — | | | — | | | (1,553 | ) | | — | | | (1,553 | ) |
| | | 463,707 | | | — | | | (100,586 | ) | | — | | | 363,121 | | | — | | | 363,121 | |
EARNINGS BEFORE NON-CONTROLLING INTEREST IN EARNINGS OF CONSOLIDATED AFFILIATES | | | 715,368 | | | 106,076 | | | 96,131 | | | 43,793 | | | 961,368 | | | 34,893 | | | 996,261 | |
NON-CONTROLLING INTEREST IN EARNINGS OF CONSOLIDATED AFFILIATES | | | — | | | — | | | — | | | — | | | — | | | (246,000 | ) | | (246,000 | ) |
NET EARNINGS | | $ | 715,368 | | $ | 106,076 | | $ | 96,131 | | $ | 43,793 | | $ | 961,368 | | $ | (211,107 | ) | $ | 750,261 | |