Exhibit (a)(1)(H)
AMAZING SAVINGS HOLDING LLC AND SUBSIDIARIES
CONTENTS
DECEMBER 31, 2002
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AMAZING SAVINGS HOLDING LLC
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
AMAZING SAVINGS HOLDING LLC AND SUBSIDIARIES
CONTENTS
DECEMBER 31, 2002
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INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet 2
Statement of Income 3
Statement of Owners' Equity 4
Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 11
INDEPENDENT AUDITOR'S REPORT
To the Members of
Amazing Savings Holding LLC
We have audited the accompanying consolidated balance sheet of Amazing Savings
Holding LLC and Subsidiaries as of December 31, 2002, and the related
consolidated statements of income, owners' equity, and cash flows for the year
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit 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 consolidated
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
audit provides 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 Amazing Savings
Holding LLC and Subsidiaries as of December 31, 2002, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ GOLDSTEIN GOLUB KESSLER LLP
GOLDSTEIN GOLUB KESSLER LLP
March 12, 2003
1
AMAZING SAVINGS HOLDING LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
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DECEMBER 31, 2002
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ASSETS
Current Assets:
Cash $ 744,426
Accounts receivable 171,085
Inventories 8,804,488
Prepaid expenses and other current assets 300,403
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TOTAL CURRENT ASSETS 10,020,402
Property and Equipment - net 4,811,363
Investment 141,392
Security Deposits 266,056
Goodwill 261,363
Deferred Financing Fees, net of accumulated amortization of $24,048 58,402
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TOTAL ASSETS $15,558,978
============================================================================================================
LIABILITIES AND OWNERS' EQUITY
Current Liabilities:
Accounts payable $ 2,821,154
Accrued expenses and other current liabilities 1,123,836
Current maturities of long-term debt 236,130
Current portion of capital lease obligation 85,287
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TOTAL CURRENT LIABILITIES 4,266,407
Long-term Debt, net of current maturities 2,688,740
Capital Lease Obligation, net of current portion 401,342
Other Liability 416,182
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TOTAL LIABILITIES 7,772,671
Commitments
Owners' Equity 7,786,307
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TOTAL LIABILITIES AND OWNERS' EQUITY $15,558,978
============================================================================================================
See Notes to Consolidated Financial Statements
2
AMAZING SAVINGS HOLDING LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
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YEAR ENDED DECEMBER 31, 2002
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Net sales $40,899,900
Cost of sales 25,080,583
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Gross profit 15,819,317
Selling, general and administrative expenses 13,074,458
Other expenses 235,580
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Income from operations 2,509,279
Interest expense (net of interest income of $5,541) (438,836)
Equity in earnings of investment 19,173
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Income before provision for income taxes 2,089,616
Provision for income taxes 25,000
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Net income $ 2,064,616
============================================================================
See Notes to Consolidated Financial Statements
3
AMAZING SAVINGS HOLDING LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OWNERS' EQUITY
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YEAR ENDED DECEMBER 31, 2002
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TOTAL ADDITIONAL
OWNERS' COMMON PAID-IN RETAINED MEMBERS' TREASURY
EQUITY STOCK CAPITAL EARNINGS EQUITY STOCK
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Balance at January 1, 2002 $ 5,387,315 $ 100 $ 2,804,367 $ 3,100,587 $784,261 $(1,302,000)
Acquisition of treasury stock (121,800) (121,800)
Net income 2,064,616 2,064,616
Members' contribution, net of expenses 3,013,081 3,013,081
Distributions (2,556,905) (2,453,425) (103,480)
Conversion of common stock of
Amazing Savings/J.B.S. Liquidators, Inc.
into membership equity of Amazing
Savings Holding LLC (100) (2,804,367) (647,162) 2,027,829 1,423,800
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Balance at December 31, 2002 $ 7,786,307 $- 0 - $ - 0 - $ - 0 - $7,786,307 $ - 0 -
===================================================================================================================================
See Notes to Consolidated Financial Statements
4
AMAZING SAVINGS HOLDING LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
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YEAR ENDED DECEMBER 31, 2002
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Cash flows from operating activities:
Net income $ 2,064,616
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 355,408
Deferred rent (238)
Equity in earnings of investment (19,173)
Changes in operating assets and liabilities:
Increase in accounts receivable (168,551)
Increase in inventories (2,871,514)
Increase in prepaid expenses and other current assets (110,823)
Increase in security deposits (33,423)
Increase in accounts payable 1,441,530
Increase in accrued expenses and other current liabilities 198,362
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NET CASH PROVIDED BY OPERATING ACTIVITIES 856,194
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Cash flows used in investing activity - purchase of property and equipment (643,879)
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Cash flows from financing activities:
Members' contribution, net of expenses 3,013,081
Distributions to members (2,556,905)
Acquisition of treasury stock (121,800)
Principal payments of long-term debt (428,011)
Principal payments on capital lease obligation (17,103)
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NET CASH USED IN FINANCING ACTIVITIES (110,738)
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Net increase in cash 101,577
Cash at beginning of year 642,849
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Cash at end of year $ 744,426
===============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 444,766
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Income taxes $ 26,270
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITY:
Capital lease obligation incurred $ 503,732
===============================================================================================================
See Notes to Consolidated Financial Statements
5
AMAZING SAVINGS HOLDING LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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1. PRINCIPAL BUSINESS
ACTIVITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES: The accompanying consolidated financial
statements include the accounts of Amazing
Savings Holding LLC and its wholly owned and
majority-owned subsidiaries. All significant
intercompany accounts and transactions have
been eliminated in consolidation.
Amazing Savings Holding LLC and Subsidiaries
(the "Company") is engaged primarily in the
retail sale of discount merchandise to the
general public. The Company's retail stores are
located in New York, New Jersey and Maryland.
During March 2002, Amazing Savings Holding LLC
was formed to acquire substantially all of the
net assets of the former Amazing Savings/J.B.S.
Liquidators, Inc. ("Amazing") and Affiliates.
The merger has been treated as a
recapitalization of entities under common
control resulting in a change in the reporting
entity with the net assets transferred to the
new entity at historical cost. The results of
operations of the new entity are shown as
having occurred at the beginning of the period.
In addition, both new and existing members made
additional capital contributions to the Company
in the amount of $3,194,288. Costs in the
amount of $181,207 were incurred in connection
with this transaction.
The preparation of financial statements in
conformity with accounting principles generally
accepted in the United States of America
requires the use of estimates by management.
Actual results could differ from these
estimates.
The Company maintains cash in bank deposit
accounts which, at times, may exceed federally
insured limits. The Company has not experienced
any losses in such accounts. The Company
believes it is not exposed to any significant
credit risk on cash.
Inventories, which consist of finished goods,
are stated at the lower of cost or market.
Warehouse inventories are valued at cost
determined by the first-in, first-out ("FIFO")
method. Inventories located at the retail
stores are determined by using a cost
conversion method.
Depreciation of property and equipment is
provided for based upon the provisions of the
Internal Revenue Code (the "Code"). Such
depreciation does not differ materially from
that which would be recorded under generally
accepted accounting principles. Amortization of
leasehold improvements is provided for by the
straight-line method over the term of the
lease.
Amortization of financing fees is being
provided for by the straight-line method over
the terms of the related debt.
The Company accounts for its investment by the
equity method of accounting. The equity method
of accounting is used for investments where the
Company has the ability to exert significant
influence but does not have the ability to
exercise control.
The Company expenses advertising costs in the
period incurred. Such costs are included in
selling, general and administrative expenses.
Advertising expenses approximated $454,000 for
the year ended December 31, 2002.
6
AMAZING SAVINGS HOLDING LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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Goodwill is carried at cost adjusted for
amortization prior to January 1, 2002.
Effective January 1, 2002, the Company has
adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets, which requires goodwill to
be tested for impairment under certain
circumstances, and written off when impaired,
rather than amortized as previous standards
required. No material impairment existed at
December 31, 2002 and, therefore, no reduction
in goodwill was needed at December 31, 2002.
For income tax purposes, the Company has
elected to be treated as a limited liability
company under the applicable sections of the
Code. Accordingly, the Company is not
responsible for payment of income taxes; all
income, gains, losses and credits retain their
character and pass through directly to the
individual members. The Company is, however,
subject to New York City Unincorporated
Business Tax which amounted to $25,000 for the
year ended December 31, 2002.
2. PROPERTY AND EQUIPMENT: Property and equipment, at cost, consists of
the following:
Depreciation/
Amortization Period
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Land $ 585,441
Building 2,675,687 39 years
Furniture, fixtures and equipment 2,038,095 5 to 7 years
Leasehold improvements 862,821 10 to 15 years
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6,162,044
Less accumulated depreciation
and amortization 1,350,681
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$4,811,363
==========================================================================================================
Included in furniture, fixtures and equipment
is $503,732 of assets acquired under a capital
lease with accumulated depreciation of $50,373
at December 31, 2002.
3. INVESTMENT (UNAUDITED): The Company's investment consists of a 25%
investment in Amazing Cedar LLC ("Cedar").
Cedar is the landlord of one of the Company's
retail stores.
7
AMAZING SAVINGS HOLDING LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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The following is a condensed balance sheet and
statement of income for Cedar, the
unconsolidated investee, at and for the year
ended December 31, 2002:
Balance Sheet
Current assets $ 48,498
Property and equipment, net 3,278,316
Other assets 17,680
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TOTAL ASSETS $3,344,494
===============================================================================================
Liabilities $2,420,550
Members' equity 923,944
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TOTAL LIABILITIES AND MEMBERS' EQUITY $3,344,494
===============================================================================================
Statement of Income
Revenue $ 363,786
Expenses 287,096
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NET INCOME $ 76,690
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4. LONG-TERM DEBT: The Company has a total $6,000,000 line of
credit (the "Line") with a bank based on the
amount of its inventory, which expires May 31,
2003. Of this total Line, $1,000,000 is
allocated for the purchase of equipment and
leasehold improvements by the Company for the
improvement of new stores. Borrowings under the
Line bear interest at the bank's alternate base
rate (4.25% at December 31, 2002). Borrowings
on this line amounted to $600,000 at December
31, 2002. The Line is collateralized by
substantially all the assets of the Company,
excluding the assets of the majority-owned
subsidiary, totaling approximately $3,185,000
at December 31, 2002, and has been guaranteed
by certain members of the Company.
Covenants under the line of credit agreement
require the Company to meet certain ratios and
place various restrictions on the Company.
8
AMAZING SAVINGS HOLDING LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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Long-term debt at December 31, 2002 consists of
the following:
Mortgage payable, due in monthly installments
of $22,693 through January 2010, and a
$1,818,192 balloon payment due February 2010.
The note bears interest at 9.41% and is secured
by the land and building with a net book value
of approximately $2,905,000 at December 31,
2002 and guaranteed by certain members of the
Company. $2,324,870
Borrowings under the Line (see above), due in
monthly principal installments of $16,667
commencing February 1, 2003 through January 1,
2006. 600,000
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2,924,870
Less current portion 236,130
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$2,688,740
===============================================================
Aggregate maturities of long-term debt are as
follows:
Year ending December 31,
2003 236,130
2004 257,425
2005 263,785
2006 86,811
2007 77,137
Thereafter 2,003,582
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$2,924,870
===============================================================
Interest expense on these loans amounted to
approximately $394,000 for the year ended
December 31, 2002.
5. CAPITAL LEASE OBLIGATION: The Company leases equipment under a capital
lease which expires during 2007. The lease
requires monthly payments of principal and
interest, imputed at an interest rate of 8% per
annum.
9
AMAZING SAVINGS HOLDING LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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Future minimum lease payments under the capital
lease are as follows:
Year ending December 31,
2003 $119,855
2004 124,180
2005 124,180
2006 124,180
2007 93,135
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585,530
Less amount representing interest (98,901)
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486,629
Less current maturities 85,287
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LONG-TERM PORTION OF CAPITAL LEASE OBLIGATION $401,342
==============================================================================
6. TREASURY STOCK: During 2002, the Company purchased shares of
common stock from certain of its former Amazing
stockholders in the amount of $121,800.
7. COMMITMENTS: The Company is obligated under various
noncancelable operating leases for warehouse,
office and retail store space expiring at
various dates through 2012. Certain leases are
subject to escalation for the Company's
proportionate share of real estate taxes and
other occupancy expenses. The aggregate minimum
future payments under these leases are payable
as follows:
Nonaffiliates Affiliate Total
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Year ending December 31,
2003 $ 2,130,000 $130,000 $ 2,260,000
2004 2,105,000 138,000 2,243,000
2005 2,009,000 146,000 2,155,000
2006 1,963,000 146,000 2,109,000
2007 1,570,000 146,000 1,716,000
Thereafter 2,568,000 219,000 2,787,000
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$12,345,000 $925,000 $13,270,000
========================================================================================================
Rent expense charged to operations, including
escalation charges for real estate taxes and
other expenses, amounted to approximately
$2,602,000 (of which approximately $162,000 was
paid to Cedar) for the year ended December 31,
2002.
10
AMAZING SAVINGS HOLDING LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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Certain of the leases provide for rent
abatements and scheduled increases in base
rent. Rent expense is charged to operations
ratably over the term of the leases, which
results in deferred rent payable, and
represents cumulative rent expense charged to
operations from inception of these leases in
excess of required lease payments. The
liability for deferred rent aggregates
approximately $416,000 at December 31, 2002.
As of December 31, 2002, the Company has
employment agreements with certain key
executives expiring at various dates through
April 2007. The agreements provide for annual
base salaries of varying amounts. Future
minimum annual payments are approximately as
follows:
Year ending December 31,
2003 $ 920,000
2004 966,000
2005 582,000
2006 395,000
2007 134,000
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$2,997,000
=======================================================================
8. OTHER EXPENSES: Other expenses consist of charitable
contributions for the year ended December 31,
2002.
9. MAJOR SUPPLIER: Approximately 13% of the Company's purchases
for the year ended December 31, 2002 was from
one vendor and approximately 10% of accounts
payable at December 31, 2002 was due to that
vendor.
10. SUBSEQUENT EVENT: During January 2003, the Company acquired the
net assets for a nominal amount of a company
that sells close-out merchandise over the
Internet.
11