Exhibit (a)(1)(I)
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Combined Financial Statements
December 31, 2001
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Index
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Page
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Independent Auditor's Report 1
Combined Balance Sheets as of December 31, 2001 and 2000 2
Combined Statements of Income for the Years Ended
December 31, 2001 and 2000 3
Combined Statements of Stockholders'/Members' Equity
for the Years Ended December 31, 2001 and 2000 4
Combined Statements of Cash Flows for the Years Ended
December 31, 2001 and 2000 5-6
Notes to Combined Financial Statements 7-13
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Amazing Savings/J.B.S. Liquidators, Inc.
and Subsidiaries and Affiliate
We have audited the accompanying combined balance sheets of
Amazing Savings/J.B.S. Liquidators, Inc. and Subsidiaries and Affiliate as of
December 31, 2001 and 2000, and the related combined statements of income,
stockholders'/members' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
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 audits 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 combined financial statements referred to
above present fairly, in all material respects, the financial position of
Amazing Savings/J.B.S. Liquidators, Inc. and Subsidiaries and Affiliate as of
December 31, 2001 and 2000, 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.
/s/ Mahoney Cohen & Company, CPA, P.C.
New York, New York
March 6, 2002
1
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Combined Balance Sheets
December 31, 2001 and 2000
ASSETS (Note 7)
2001 2000
------------------ ------------------
Current assets:
Cash and cash equivalents $ 642,849 $ 855,897
Accounts receivable 2,534 29,781
Inventories 5,932,974 5,670,112
Prepaid expenses and other current assets 189,580 109,625
------------------ ------------------
Total current assets 6,767,937 6,665,415
Property and equipment, net (Notes 4 and 6) 4,010,915 4,042,126
Other assets:
Investment in and receivables from uncombined
affiliates (Note 5) 122,219 57,417
Security deposits 232,633 197,502
Goodwill, net of accumulated amortization of $223,637
in 2001 and $191,304 in 2000 261,363 293,696
Deferred financing fees, net of accumulated amortization
of $15,803 in 2001 and $7,558 in 2000 66,647 74,892
------------------ ------------------
Total other assets 682,862 623,507
------------------ ------------------
$ 11,461,714 $ 11,331,048
================== ==================
LIABILITIES AND STOCKHOLDERS'/MEMBERS' EQUITY
Current liabilities:
Loan payable - bank (Note 7) $ 600,000 $ -
Current portion of long-term debt (Note 6) 428,011 258,139
Loans payable - stockholders (Note 8) - 93,675
Accounts payable 1,379,624 1,887,699
Sales taxes payable 471,526 415,930
Accrued expenses and other current liabilities 453,948 583,416
------------------ ------------------
Total current liabilities 3,333,109 3,238,859
Long-term debt (Note 6) 2,324,870 2,649,400
Deferred rent payable 416,420 284,849
Commitments (Note 10)
Stockholders'/members' equity:
Common stock, par value $.01 per share:
Authorized and issued - 10,000 shares 100 100
Additional paid-in capital 2,804,367 2,804,367
Retained earnings 3,100,587 2,968,395
Members' equity 784,261 687,078
Treasury stock - 1,682.61 shares, at cost (Note 9) (1,302,000) (1,302,000)
------------------ ------------------
Total stockholders'/members' equity 5,387,315 5,157,940
------------------ ------------------
$ 11,461,714 $ 11,331,048
================== ==================
See accompanying notes.
2
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Combined Statements of Income
For the Years Ended December 31, 2001 and 2000
2001 2000
------------------ ------------------
Net sales (Note 5) $ 37,003,510 $ 34,434,253
Cost of goods sold (Note 3) 22,846,576 22,127,802
------------------ ------------------
Gross profit 14,156,934 12,306,451
Selling, general and administrative expenses (Note 10) 11,959,246 10,442,893
------------------ ------------------
Income from operations 2,197,688 1,863,558
Other expense:
Interest expense, net of interest income of $17,484 in
2001 and $16,689 in 2000 483,175 488,766
Equity in loss of uncombined affiliate (Note 5) 128,448 -
------------------ ------------------
Total other expense 611,623 488,766
------------------ ------------------
Income before provision for income taxes 1,586,065 1,374,792
Provision for income taxes 44,554 51,902
------------------ ------------------
Net income $ 1,541,511 $ 1,322,890
================== ==================
See accompanying notes.
3
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Combined Statements of Stockholders'/Members' Equity
For the Years Ended December 31, 2001 and 2000
Additional
Common Paid-In Retained Members' Treasury
Stock Capital Earnings Equity Stock Total
----------- ------------ ------------ ------------- -------------- -------------
Balance at January 1, 2000 $ 100 $ 2,804,367 $ 2,122,582 $ - $ (1,115,000) $ 3,812,049
Acquisition of treasury stock - - - - (187,000) (187,000)
Net income - - 1,199,913 122,977 - 1,322,890
Members' contributions - - - 650,000 - 650,000
Distributions - - (354,100) (85,899) - (439,999)
--------- ------------ ------------ ------------- -------------- -------------
Balance at December 31, 2000 100 2,804,367 2,968,395 687,078 (1,302,000) 5,157,940
Net income - - 1,341,250 200,261 - 1,541,511
Distributions - - (1,209,058) (103,078) - (1,312,136)
--------- ------------ ------------ ------------- -------------- -------------
Balance at December 31, 2001 $ 100 $ 2,804,367 $ 3,100,587 $ 784,261 $ (1,302,000) $ 5,387,315
========= ============ ============ ============= ============== =============
See accompanying notes.
4
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Combined Statements of Cash Flows
For the Years Ended December 31, 2001 and 2000
2001 2000
------------------ ------------------
Cash flows from operating activities:
Net income $ 1,541,511 $ 1,322,890
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 301,526 265,636
Bad debt expense - 50,000
Equity in loss of uncombined affiliate 128,448 -
Deferred rent 131,571 32,244
Change in assets and liabilities:
Accounts receivable 27,247 150,515
Inventories (262,862) (120,174)
Security deposits (35,131) (11,823)
Prepaid expenses and other current assets (79,955) 71,322
Receivable from uncombined affiliate 57,417 110,687
Accounts payable (508,075) (890,666)
Accrued expenses and other current liabilities (73,872) 208,091
------------------ ------------------
Net cash provided by operating activities 1,227,825 1,188,722
------------------ ------------------
Cash flows from investing activities:
Investment in uncombined affiliate (250,667) -
Purchase of property and equipment (229,737) (3,412,109)
------------------ ------------------
Cash used in investing activities (480,404) (3,412,109)
------------------ ------------------
Cash flows from financing activities:
Proceeds from bank line of credit 4,650,000 3,750,000
Repayment of bank line of credit (4,050,000) (3,750,000)
Proceeds from long-term debt - 2,637,000
Members' contributions - 650,000
Repayment of long-term debt (154,658) (79,461)
Repayment of stockholders' loans (93,675) (90,000)
Distributions (1,312,136) (439,999)
Acquisition of treasury stock - (187,000)
Financing fees - (82,450)
------------------ ------------------
Net cash provided by (used in) financing
activities (960,469) 2,408,090
------------------ ------------------
Net increase (decrease) in cash and cash equivalents (213,048) 184,703
Cash and cash equivalents, beginning of year 855,897 671,194
------------------ ------------------
Cash and cash equivalents, end of year $ 642,849 $ 855,897
================== ==================
See accompanying notes.
5
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Combined Statements of Cash Flows (Concluded)
For the Years Ended December 31, 2001 and 2000
Supplemental Disclosures of Cash Flow Information
2001 2000
------------------ ------------------
Cash paid during the year for:
Interest $ 500,306 $ 485,904
Income taxes $ 65,125 $ 39,209
See accompanying notes.
6
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Notes to Combined Financial Statements
Note 1 - The Company
Amazing Savings/J.B.S. Liquidators, Inc. and Subsidiaries and
Affiliate (the "Company") operate principally retail stores in New York, New
Jersey and Maryland which sell primarily discount merchandise to the general
public.
The combined financial statements include the accounts of Amazing
Savings/J.B.S. Liquidators, Inc. and its wholly-owned subsidiaries and an entity
affiliated through common ownership. This affiliate began operations on January
31, 2000 for the purpose of owning the Company's warehouse space. All
significant intercompany accounts and transactions have been eliminated in
combination.
Note 2 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of 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 at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories consist of finished goods and 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 the first-in, first-out (FIFO) method under a retail inventory
method.
7
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Notes to Combined Financial Statements
Note 2 - Summary of Significant Accounting Policies (Continued)
Property and Equipment
Property and equipment is stated at cost. Furniture, fixtures and
equipment are depreciated by both the straight-line and accelerated methods over
estimated useful lives ranging from five to seven years. Leasehold improvements
are amortized by the straight-line method over the lesser of the lease terms or
estimated useful lives of the improvements. Buildings are depreciated on a
straight-line method over approximately thirty-nine years. At the time of
disposal of any property and equipment, the cost and accumulated depreciation or
amortization are removed from the accounts, and any resulting gain or loss is
reflected in operations. Expenditures for repairs and maintenance are charged to
operations as incurred and major additions and betterments are capitalized.
Investment in Uncombined Affiliate
The Company applies the equity method of accounting for its
investment in its uncombined affiliate.
Advertising Costs
Advertising costs are charged to operations during the period in
which they are incurred and were approximately $395,000 and $261,000 for the
years ended December 31, 2001 and 2000, respectively.
Income Taxes
The Company files a consolidated S corporation federal income tax
return, with the exception of its affiliate which is a limited liability company
that files a separate federal income tax return. Under the provisions for S
corporations and limited liability companies, corporate income or loss and any
tax credits earned are included in the stockholders'/members' individual income
tax returns. Accordingly, there is no provision for federal and state income
taxes. The Company is subject to various state and local corporation taxes.
8
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Notes to Combined Financial Statements
Note 2 - Summary of Significant Accounting Policies (Continued)
Goodwill
Goodwill represents the aggregate excess of the cost of companies
acquired over the fair value of their net assets at the date of acquisition and
is being amortized on the straight-line method over fifteen years. Amortization
expense for each of the years ended December 31, 2001 and 2000 was approximately
$32,000.
On June 29, 2001, Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"), was approved by the
Financial Accounting Standards Board. SFAS 142 changes the accounting for
goodwill and indefinite lived intangible assets from an amortization method to
an impairment-only approach. Amortization of goodwill, including goodwill
recorded in past business combinations and indefinite lived intangible assets,
will cease upon adoption of this statement. Identifiable intangible assets will
continue to be amortized over their useful lives and reviewed for impairment in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". If SFAS 142 had been in effect for the year ended December 31, 2001, net
income would have increased by approximately $32,000.
Note 3 - Concentration of Credit Risk and Major Supplier
Cash
The Company maintains cash balances at several banks. Accounts at
each institution are insured by the Federal Deposit Insurance Corporation up to
$100,000.
Major Supplier
Purchases from one supplier for the year ended December 31, 2001
represented approximately 15% of purchases. For the year ended December 31,
2000, purchases from two suppliers represented approximately 25% of purchases.
At December 31, 2001 and 2000, the amounts due to these suppliers were
approximately $326,000 and $351,000, respectively, and are included in accounts
payable. Management believes that other suppliers could provide the materials on
comparable terms.
9
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Notes to Combined Financial Statements
Note 4 - Property and Equipment
At December 31, property and equipment consists of:
2001 2000
---------------- ----------------
Land and buildings $ 3,261,128 $ 3,261,128
Furniture, fixtures and equipment 1,021,815 926,640
Leasehold improvements 737,288 677,865
---------------- ----------------
5,020,231 4,865,633
Less: Accumulated depreciation and
amortization 1,009,316 823,507
---------------- ----------------
$ 4,010,915 $ 4,042,126
================ ================
Note 5 - Investment in and Receivables from Uncombined Affiliates
As of January 1, 2001, the Company had a 50% interest in Amazing
Cedar LLC and in March 2001, the Company's interest changed to 25%. Amazing
Cedar LLC is the landlord of the Company's Teaneck, New Jersey store. The
Company's investment in Amazing Cedar LLC is being accounted for under the
equity method of accounting. A summary of unaudited financial information of the
investee company as of and for the year ended December 31, 2001 is as follows:
Current assets $ 19,700
Current liabilities 18,601
----------------
Working capital 1,099
Property and equipment, net 3,347,155
Other liabilities (2,501,000)
----------------
Members' equity $ 847,254
================
Rental income $ 264,645
================
Cumulative net loss since inception $ (278,490)
================
The Company had a 34% interest in an affiliated company, Amazing
Savings of Ohio, LLC. The Company's investment in this affiliate had been
written down to zero prior to January 1, 2000. This affiliated company ceased
operations in March 2001.
During the years ended December 31, 2001 and 2000, the Company
had sales of approximately $14,000 and $434,000, respectively, to Amazing
Savings of Ohio, LLC. At December 31, 2000, the balance due from the affiliate
was $57,000, which is net of a bad debt reserve of $50,000.
10
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Notes to Combined Financial Statements
Note 6 - Long-Term Debt
At December 31, long-term debt consists of:
2001 2000
---------------- ----------------
Mortgage payable in monthly installments of
$22,693, which includes interest at 9.41% through January 2010
and a $1,818,192 balloon payment due February 2010; secured by
the land and building with a net book value of approximately
$2,973,000 at December 31, 2001 and guaranteed by certain
members of the Company $ 2,372,881 $ 2,416,539
Note payable with interest payable monthly at
12% per year as of December 31, 2001, due on demand 100,000 100,000
Note payable with interest payable monthly at
10% per year as of December 31, 2001, with principal due on
December 31, 2002 250,000 250,000
Non-interest bearing note payable, with monthly
payments of $3,000 through October 2002 30,000 141,000
---------------- ----------------
2,752,881 2,907,539
Less: Current portion 428,011 258,139
---------------- ----------------
$ 2,324,870 $ 2,649,400
================ ================
At December 31, 2001, maturities of long-term debt are as
follows:
Year Ending
December 31,
------------
2002 $ 428,011
2003 52,797
2004 57,425
2005 63,785
2006 70,144
Thereafter 2,080,719
----------------
$ 2,752,881
11
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Notes to Combined Financial Statements
Note 7 - Line of Credit - Bank
The Company has a $5,000,000 line of credit (the "Line") with a
bank, based on the amount of inventory, which expires on May 31, 2002.
Borrowings under the Line bear interest at the bank's prime rate (4.75% at
December 31, 2001). The Line is collateralized by all the assets of the Company,
excluding the assets of the combined affiliate totaling $3,176,000 at December
31, 2001, and has been guaranteed by certain of the Company's stockholders.
Note 8 - Loans Payable - Stockholders
At December 31, 2000, the Company had loans payable to certain of
its stockholders amounting to $93,675, with interest at 8.5% per annum, which
was repaid on January 1, 2001. Interest expense for the year ended December 31,
2000 amounted to approximately $9,000.
Note 9 - Treasury Stock
In 2000, the Company purchased 96.36 shares of common stock from
one of its stockholders for $187,000.
Note 10 - Commitments
Operating Leases
The Company is obligated under lease agreements for office and
retail store space which expire at various dates through 2011. Real estate
leases are subject to certain rent increase and escalation clauses based upon
real estate taxes and other occupancy expenses.
At December 31, 2001, minimum annual rental commitments under
non-cancellable operating leases of more than one year are as follows:
Year Ending Amazing
December 31, Unaffiliated Cedar LLC Total
------------ ----------------- ---------------- ------------------
2002 $ 1,793,000 $ 130,000 $ 1,923,000
2003 1,721,000 130,000 1,851,000
2004 1,688,000 138,000 1,826,000
2005 1,563,000 146,000 1,709,000
2006 1,505,000 146,000 1,651,000
Thereafter 2,650,000 365,000 3,015,000
----------------- ---------------- ------------------
$ 10,920,000 $ 1,055,000 $ 11,975,000
================= ================ ==================
12
AMAZING SAVINGS/J.B.S. LIQUIDATORS, INC.
AND SUBSIDIARIES AND AFFILIATE
Notes to Combined Financial Statements
Note 10 - Commitments (Continued)
Operating Leases (Continued)
Rent expense, including escalation costs, common area maintenance
charges and real estate taxes, charged to operations for the years ended
December 31, 2001 and 2000 amounted to approximately $2,407,000 (of which
approximately $172,000 was paid to Amazing Cedar LLC, see Note 5) and
$2,002,000, respectively.
13