Exhibit 99.2
Unaudited Condensed Consolidated Financial Statements
CUSTOM COMPONENTS, INC. AND SUBSIDIARY
Unaudited Condensed Consolidated Balance Sheet
June 30, 2008
Assets |
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|
| |
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 |
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| |
Current liabilities |
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| |
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 |
| |
|
|
|
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Commitments and contingencies |
|
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| |
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Stockholder’s equity |
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|
| |
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 |
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|
|
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Cost of goods sold |
| 2,504,827 |
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|
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Gross profit |
| 702,217 |
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|
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| |
Selling, general and administrative expenses |
| 1,024,115 |
| |
|
|
|
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Operating loss |
| (321,898 | ) | |
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|
|
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Other income (expense) |
|
|
| |
Interest income |
| 8,173 |
| |
Interest expense |
| (17,054 | ) | |
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|
|
| |
Loss before income taxes and minority interest |
| (330,779 | ) | |
|
|
|
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Benefit from income taxes |
| 200,638 |
| |
|
|
|
| |
Loss before minority interest |
| (130,141 | ) | |
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|
|
| |
Minority interest, net of tax |
| 34,532 |
| |
|
|
|
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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 |
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Net loss |
| $ | (95,609 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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|
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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: |
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| |
Purchases of property and equipment |
| (25,568 | ) | |
Net cash used in investing activities |
| (25,568 | ) | |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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|
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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):
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| 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:
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| 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%.