EXHIBIT 99.2
[H.S TRASK LOGO]
FINANCIAL REPORT
DECEMBER 31, 2002
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT ............................... 1
FINANCIAL STATEMENTS
Balance Sheets ........................................... 2 and 3
Statements of Operations ................................. 4
Statements of Stockholders' Equity ....................... 5
Statements of Cash Flows ................................. 6
Notes to Financial Statements ............................ 7 to 14
ACCOMPANYING INFORMATION ................................... 15
INDEPENDENT AUDITORS' REPORT ON
THE ACCOMPANYING INFORMATION ............................. 16
Department Expenses ...................................... 17
-1-
[COMAPNY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
H.S. Trask & Co.
685 Old Buffalo Trail
Bozeman, Montana 59715
We have audited the accompanying balance sheets of H.S. Trask & Co. as of
December 31, 2002 and 2001, and the related statements of operations,
stockholders' 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of H.S. Trask & Co. as of December
31, 2002 and 2001, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
/S/ Anderson ZurMuehlen & Co.,P.C.
Helena, Montana
February 12, 2003
FINANCIAL STATEMENTS
-2-
H.S. TRASK & CO.
BALANCE SHEETS
December 31, 2002 and 2001
ASSETS 2002 2001
- ----------------------------------------------------- ---------- ----------
CURRENT ASSETS
Cash $ 134,408 $ 84
Accounts receivable, net of allowance for doubtful
accounts of $88,227 and $73,000 in 2002 and 2001,
respectively 1,315,239 1,254,009
Inventories 2,049,466 2,895,594
Prepaid assets and deposits 107,415 95,477
Prepaid income taxes -- 2,100
Deferred tax asset 110,000 115,000
---------- ----------
Total current assets 3,716,528 4,362,264
---------- ----------
PROPERTY AND EQUIPMENT
Computer equipment 240,051 204,999
Furniture and fixtures 100,211 100,211
Equipment 722,928 695,282
Trade show booth 28,548 28,548
Leasehold improvements 76,732 76,732
---------- ----------
1,168,470 1,105,772
Less accumulated depreciation 1,076,995 954,250
---------- ----------
Total property and equipment 91,475 151,522
---------- ----------
OTHER ASSETS
Deferred tax asset, long-term 150,000 225,000
Trademark costs, net 3,966 6,737
---------- ----------
153,966 231,737
---------- ----------
Total assets $3,961,969 $4,745,523
========== ==========
The Notes to Financial Statements are an integral part of these statements.
-3-
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
- ---------------------------------------- ----------- -----------
CURRENT LIABILITIES
Checks written in advance of deposits $ -- $ 34,037
Accounts payable 280,769 431,261
Accrued expenses 187,648 121,580
Accrued income taxes payable 2,200 --
Note payable 728,000 1,503,000
----------- -----------
Total current liabilities 1,198,617 2,089,878
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 2,500,000 shares authorized:
Series A; 500,000 shares issued
and outstanding 500,000 500,000
Series B; 833,194 shares issued
and outstanding 1,249,791 1,249,791
Series C; 500,000 shares issued
and outstanding 1,503,599 1,503,599
Common stock, no par value; 5,000,000
authorized; 2,085,336 and 1,978,836
shares issued and outstanding at
December 31, 2002 and 2001,
respectively 233,871 223,071
Accumulated deficit (723,909) (820,816)
----------- -----------
Total stockholders' equity 2,763,352 2,655,645
----------- -----------
Total liabilities and stockholders'
equity $ 3,961,969 $ 4,745,523
=========== ===========
-4-
H.S. TRASK & CO.
STATEMENTS OF OPERATIONS
Years Ended December 31, 2002 and 2001
2002 2001
----------- -----------
Net sales $ 9,072,892 $ 9,489,504
Cost of goods sold 5,752,475 6,147,020
----------- -----------
Gross profit 3,320,417 3,342,484
----------- -----------
Operating expenses:
Selling 1,703,008 2,063,905
General and administrative 1,128,687 1,169,552
Product development 235,298 215,874
----------- -----------
Total operating expenses 3,066,993 3,449,331
----------- -----------
Income (loss) from operations 253,424 (106,847)
----------- -----------
Other income (expense):
Interest income -- 4
Interest expense (71,348) (172,811)
----------- -----------
(71,348) (172,807)
----------- -----------
Net income (loss) before tax 182,076 (279,654)
----------- -----------
Current state income tax benefit (expense) (5,169) 1,271
Deferred income tax benefit (expense) (80,000) 90,000
----------- -----------
Net income tax benefit (expense) (85,169) 91,271
----------- -----------
Net income (loss) $ 96,907 $ (188,383)
=========== ===========
SUPPLEMENTAL SCHEDULE:
Income (loss) from operations $ 253,424 $ (106,847)
Depreciation and amortization 125,957 159,450
----------- -----------
Earnings before depreciation, interest and taxes $ 379,381 $ 52,603
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
-5-
H.S. TRASK & CO.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2002 and 2001
PREFERRED STOCK
----------------------------------------
COMMON ACCUMULATED
SERIES A SERIES B SERIES C STOCK DEFICIT TOTAL
-------- -------- -------- ----- ------- -----
Balance,
January 1, 2001 $ 500,000 $ 1,249,791 $ 1,503,599 $ 222,441 $ (632,433) $ 2,843,398
Stock issued:
Common (3,075
shares) -- -- -- 630 -- 630
Net loss -- -- -- -- (188,383) (188,383)
----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 2001 $ 500,000 $ 1,249,791 $ 1,503,599 $ 223,071 $ (820,816) $ 2,655,645
Stock issued:
Common (106,500
shares) -- -- -- 10,800 -- 10,800
Net income -- -- -- -- 96,907 96,907
----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 2002 $ 500,000 $ 1,249,791 $ 1,503,599 $ 233,871 $ (723,909) $ 2,763,352
=========== =========== =========== =========== =========== ===========
The Notes to Financial Statements are an integral part of these statements.
-6-
H.S. TRASK & CO.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002 and 2001
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 96,907 $(188,383)
Adjustments to reconcile net income (loss) to net cash
used by operations:
Depreciation and amortization 125,956 159,450
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (61,230) 520,363
Inventory 846,127 (267,244)
Deferred taxes 80,000 (90,000)
Other assets (9,837) (13,221)
Increase (decrease) in liabilities:
Checks written in advance of deposits (34,037) 34,037
Accounts payable (150,492) 78,581
Accrued expenses 68,268 (49,340)
--------- ---------
Cash provided by operating activities 961,662 184,243
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (62,698) (108,441)
Trademark costs (440) (1,199)
--------- ---------
Cash used in investing activities (63,138) (109,640)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances (payments) on line of credit (775,000) (152,000)
Common stock issued 10,800 630
--------- ---------
Cash used in financing activities (764,200) (151,370)
--------- ---------
Net increase (decrease) in cash 134,324 (76,767)
Cash, beginning of period 84 76,851
--------- ---------
Cash, end of period $ 134,408 $ 84
========= =========
CASH PAID FOR:
Income taxes $ -- $ 5,742
========= =========
Interest $ 71,348 $ 172,811
========= =========
The Notes to Financial Statements are an integral part of these statements.
-7-
H.S. TRASK & CO.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
H.S. Trask & Co. (the Company) designs, markets and distributes men's shoes,
boots, and belts made of buffalo (American Bison), elk and cow leather. The
Company's headquarters is in Bozeman, Montana and its shoes are sold throughout
the United States and Canada.
ACCOUNTING ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) 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 revenues and expenses during the
reported period.
CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, the Company considers all checking,
savings and money market accounts to be cash equivalents.
CREDIT AND COLLECTION POLICIES:
Trade receivables are stated at face amount with an allowance for doubtful
accounts. The allowance is management's estimate of the uncollectible amounts
contained within the accounts receivable portfolio at December 31.
Accounts receivable are uncollateralized customer obligations normally due under
trade terms requiring payment within 30 days from the invoice date. However, the
Company has a variety of credit relationships with its customers and different
trade terms are not uncommon.
Payments of accounts receivable are allocated to the specific invoices
identified on the customer's remittance advice or, if unspecified, are applied
to the earliest unpaid invoices.
The Company's credit policies contain a provision to charge interest on past-due
accounts. However, this policy is only used in certain credit relationships.
A customer's account is considered delinquent when it has not been paid
according to its credit terms. At December 31, 2002, $235,994 in accounts
receivable were considered delinquent.
INVENTORIES:
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market. Inventories consist primarily of shoes, belts, and bison hides.
-8-
H.S. TRASK & CO.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION:
Property and equipment are depreciated using the straight-line method over the
following estimated useful lives:
Computer equipment 3 years
Furniture and fixtures 3 years
Equipment 3 years
Trade show booth 3 years
Leasehold improvements are depreciated over the term of the lease.
AMORTIZATION:
Trademark costs are amortized using the straight-line method over an estimated
useful life of five years.
ADVERTISING:
Advertising costs, which are included in selling expenses, are expensed as
incurred. Advertising expense was $448,036 and $464,122 in 2002 and 2001,
respectively.
SHIPPING AND HANDLING COSTS:
Shipping and handling costs are included in cost of goods sold. Amounts billed
to customers for shipping and handling are classified as a reduction of selling
expenses.
CREDIT RISK:
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash deposits. At December 31, 2002, the
Company had on deposit with a financial institution approximately $72,000 in
excess of FDIC insured limits.
POINT-OF-PURCHASE DISPLAYS:
The Company provides each retailer selling its shoes with a selling display. The
displays are treated as a prepaid expense until shipped to the retailer, at
which time they become a selling expense.
INCOME TAXES:
Deferred taxes are provided for the temporary differences between the tax basis
of assets and liabilities and their reported amounts.
-9-
H.S. TRASK & CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002 and 2001
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION:
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recorded. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (Statement 123).
RECLASSIFICATIONS:
Certain reclassifications were made to the 2001 financial statement presentation
in order to conform to the 2002 financial statement presentation. The
reclassifications had no effect on the net loss or accumulated deficit
previously reported.
NOTE 2. INVENTORY
Inventory at December 31, 2002 and 2001 consists of the following:
2002 2001
---------- ----------
Footwear $1,736,015 $2,552,640
Belts 42,286 46,594
Bison hides 250,855 284,032
Sundries 20,310 12,328
---------- ----------
$2,049,466 $2,895,594
========== ==========
NOTE 3. NOTE PAYABLE
The Company has a revolving line of credit agreement with American Bank of
Bozeman. The maximum available under the agreement is $3,000,000 and $4,000,000
at December 31, 2002 and 2001, respectively. Any balance outstanding as of
December 31 is due April 30 and bears interest at a variable rate of Wall Street
Journal Prime rate, plus 2.5% or 6.75% at December 31, 2002 and the High New
York Prime, plus 1.00% or 5.75% at December 31, 2001. At December 31, 2002 and
2001, the Company had drawn $728,000 and $1,503,000 on the line, respectively.
The line is secured by accounts receivable, inventory, equipment, furniture and
fixtures and general intangibles.
-10-
H.S. TRASK & CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002 and 2001
NOTE 4. INCOME TAXES
The following book-to-tax differences reconcile the pre-tax book income (loss)
to the estimated federal taxable income (loss):
2002 2001
--------- ---------
Pre-tax income (loss) $ 182,076 $(279,654)
Permanent differences:
Meals and entertainment 26,554 26,323
Officer's life insurance 14,314 12,120
Other 8 10
Temporary differences:
Allowance for sales returns 58,480 (79,610)
Bad debt expense 15,227 33,000
Inventory (92,713) 90,479
Depreciation and amortization (31,663) 24,692
Charitable contributions (4,948) 550
Compensated absences (499) 1,424
State income taxes (5,169) 2,208
--------- ---------
Estimated federal taxable income (loss)
before creation (utilization) of
net operating loss carryover 161,667 (168,458)
Net operating loss carryover created
(utilized) (161,667) 168,458
--------- ---------
Estimated federal taxable income $ -- $ --
========= =========
The components of deferred tax assets relate to the following:
2002 2001
-------- --------
Net operating loss carryover $ 12,000 $ 72,000
Contribution carryover -- 2,000
Allowance for sales returns 63,000 40,000
Allowance for bad debts 35,000 27,000
Inventory capitalization 6,000 42,000
Accumulated amortization 9,000 10,000
Accumulated depreciation 131,000 143,000
Compensated absences 4,000 4,000
-------- --------
Deferred tax asset 260,000 340,000
Valuation allowance -- --
-------- --------
Net deferred tax asset 260,000 340,000
Less current deferred tax asset 110,000 115,000
-------- --------
Non-current deferred tax asset $150,000 $225,000
======== ========
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H.S. TRASK & CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002 and 2001
NOTE 4. INCOME TAXES (CONTINUED)
The Company has assessed the need for establishing a valuation allowance for its
deferred income tax assets and has determined that such an allowance is
unnecessary.
Deferred tax assets in the balance sheet are classified in accordance with
Statement of Financial Accounting Standards No. 109, which generally requires
the classification be based upon the related asset or liability creating the
deferred tax. Deferred tax assets and liabilities are only netted together when
they fall within the same classification.
At December 31, 2002, the Company had an approximate federal net operating loss
carryover of $30,000, which expires in 2021.
NOTE 5. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS:
At December 31, 2002, the Company was committed to purchase approximately
$1,575,000 of inventory from its suppliers.
The Company has signed a letter of credit as of December 31, 2002 of $351,791
for shoes to be delivered in 2003.
The Company has a contract with a bison hide supplier committing to purchase all
hides this supplier can locate. As of December 31, 2002, this commitment totaled
$547,186.
LEASE COMMITMENTS:
The Company has two lease agreements. Total rent expense paid in 2002 and 2001
was $181,311 and $172,838, respectively. Minimum future lease commitments are:
Fiscal
Year Ending
2003 $192,947
2004 73,169
2005 11,480
2006 11,825
2007 6,000
--------
$295,421
========
-12-
H.S. TRASK & CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002 and 2001
NOTE 6. STOCK PLAN
The Company has adopted a stock plan (the Plan) which permits the issuance of
either incentive stock options or non-qualified stock purchase rights for common
stock. The maximum number of shares which may be optioned and sold under the
Plan is 800,000 shares of common stock. Through December 31, 2002, options and
rights had been granted on 756,550 shares. The majority of the options vest over
a four year period.
2002 2001
--------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ --------------
Options outstanding at
beginning of year 369,000 $ 0.29 298,300 $ 0.26
Granted 1,000 $ 0.40 99,000 $ 0.40
Exercised (106,500) $ 0.10 (3,075) $ 0.20
Forfeited -- -- (25,225) $ 0.34
-------- -------- ------ --------
Options outstanding at
end of year 263,500 $ 0.37 369,000 $ 0.29
======== =======
Options exercisable at
year end 168,250 $ 0.35 188,125 $ 0.19
======== =======
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
Expiration of options outstanding
at December 31, 2002
2003 11,000 $0.16
2004 60,000 $0.30
2005 25,000 $0.40
2006 55,000 $0.40
2007 12,500 $0.40
2008 99,000 $0.40
2009 1,000 $0.40
-------
263,500
=======
In 2002, stock warrants were granted on 75,000 shares of common stock. The
warrants were vested upon grant and have an exercise price of $0.01 per share.
Pro Forma information regarding net income is required by Statement 123, and has
been determined as if the Company accounted for its employees' stock options
under the fair value method of that Statement. The fair value for these options
is not considered significant for disclosure in either 2002 or 2001.
-13-
H.S. TRASK & CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002 and 2001
NOTE 7. RETIREMENT PLAN
Effective July 1, 2001, the Company adopted a 401(k) plan (the Plan) for all
full-time qualifying employees. At the discretion of the Company's board of
directors, the Company may match a portion of employees salary deferrals and/or
make a profit sharing contribution to the Plan. For the years ended December 31,
2002 and 2001, the Company did not make a matching or profit sharing
contribution to the Plan.
NOTE 8. STOCKHOLDERS' EQUITY
Under its Articles of Incorporation, the Company is authorized to issue
2,500,000 shares of preferred stock. The shareholders have designated 500,000
shares as Series A Preferred Stock, 833,334 shares as Series B Preferred Stock
and 500,000 shares as Series C Preferred Stock. All series are convertible
anytime after issuance, at the option of the holder, into common stock. The
conversion factor is determined by dividing the preferred stock original issue
price by the conversion price at the time of conversion. The conversion price at
December 31, 2002 and 2001 equals the original issuance price. The conversion
price is subject to adjustments.
Dividends on Series A Preferred Stock, when declared by the Board of Directors,
will be paid at the rate of $.06 per share or an amount equal to that paid on
any outstanding common stock, whichever is greater. Dividends on Series B
Preferred Stock, when declared by the Board of Directors, will be paid at the
rate of $.09 per share or an amount equal to that paid on any outstanding common
stock, whichever is greater. Dividends on Series C Preferred Stock, when
declared by the Board of Directors, will be paid at the rate of $.18 per share
or an amount equal to that paid on any outstanding common stock, whichever is
greater. Dividends on Series A, B and C Preferred Stock are not cumulative. As
of December 31, 2002, no dividends had been declared by the Board of Directors.
In the event of liquidation of the Company, shareholders of Series A, B and C
Preferred Stock are entitled to be paid from Company assets before any payments
are made to common stock shareholders. Liquidation preference value is $1.00 per
share for Series A Preferred Stock, $1.50 per share for Series B Preferred Stock
and $3.00 per share for Series C Preferred Stock.
-14-
H.S. TRASK & CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002 and 2001
NOTE 9. CUSTOMER CONCENTRATION
The Company has two department store customers who comprise a significant
portion of the Company's annual sales. Sales to these stores represented
approximately 32% of net sales in 2002 (17% and 15%, individually) and
approximately 39% of net sales in 2001 (23% and 16%, individually).
At December 31, 2002, these stores comprised 25% of accounts receivable (12% and
13%, individually). At December 31, 2001, these stores comprised 39% of accounts
receivable (12% and 27%, individually).
-15-
ACCOMPANYING INFORMATION
-16-
[COMPANY LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
ON THE ACCOMPANYING INFORMATION
To the Board of Directors
H.S. Trask & Co.
685 Old Buffalo Trail
Bozeman, Montana 59715
Our report on our audits of the basic financial statements of H.S. Trask & Co.
for the years ended December 31, 2002 and 2001, appears on page 1. Those audits
were made for the purpose of forming an opinion on such financial statements
taken as a whole. The accompanying information shown on pages 4 and 17 is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/S/ Anderson ZurMuehlen & Co.,P.C.
Helena, Montana
February 12, 2003
-17-
H.S. TRASK & CO.
DEPARTMENT EXPENSES
For the Year Ended December 31, 2002 with
Comparative Totals for the Year Ended December 31, 2001
ADMINISTRATION, SALES,
FINANCE AND DIRECT WEB PRODUCT MANAGEMENT CUSTOMER
MERCHANDISING EXPENSES DEVELOPMENT WAREHOUSE FIELD SALES SERVICE
------------- -------- ----------- --------- ----------- -------
COMMON DEPT. EXPENSES
Salaries $ 316,504 $ 60,483 $ 151,727 $ 47,880 $ 410,180 $ 87,342
Benefits 25,350 7,880 10,662 9,725 30,420 12,912
Payroll Taxes &
Worker's Compensation 24,597 5,136 10,361 5,484 37,648 8,273
Temporary Services -- 3,677 -- 23,866 -- --
Relocation Expense -- -- -- -- 2,633 --
Travel & Entertainment 37,854 2,921 29,423 312 224,614 382
Telephone 22,056 3,091 1,594 -- 22,114 --
Office Expense & Supplies 30,790 5,370 912 26,471 14,528 2,640
Postage, Freight & Fedex 13,805 239 100 232 5,484 354
Dues & Subscriptions 2,629 -- 574 -- 66 17
Conferences & Seminars 533 2,890 -- -- -- --
Outside Consulting 27,625 1,348 280 89 -- 1,698
----------- ----------- ----------- --------- ----------- ----------
TOTAL COMMON DEPT. EXPENSES 501,743 93,035 205,633 114,059 747,687 113,618
----------- ----------- ----------- --------- ----------- ----------
PRODUCT DEVELOPMENT -- -- 19,978 -- -- --
----------- ----------- ----------- --------- ----------- ----------
OTHER SELLING EXPENSES
Commission Exp & Car
Allowance -- -- -- -- 229,959 --
Sample Expense 138 -- 9,687 -- 34,926 --
Extended Wear Program -- -- -- -- -- (24,134)
Freight & Freight
Chargebacks -- 2,171 -- -- -- 18,769
EDI Expense -- -- -- -- -- 9,988
----------- ----------- ----------- --------- ----------- ----------
TOTAL OTHER SELLING EXPENSES 138 2,171 9,687 -- 264,885 4,623
----------- ----------- ----------- --------- ----------- ----------
ADVERTISING & PROMOTIONS
Trade Shows -- -- -- -- -- --
Advertising & Promotion -- 163,759 -- -- -- --
POP & POP Samples -- -- -- -- -- --
----------- ----------- ----------- --------- ----------- ----------
TOTAL ADVERTISING &
PROMOTIONS -- 163,759 -- -- -- --
----------- ----------- ----------- --------- ----------- ----------
BUILDING & ADMIN EXPENSES
Rent, Utilities &
Insurance 203,371 -- -- -- -- --
Legal Expense 40,725 -- -- -- -- --
Investor & Director
Relations 29,688 -- -- -- -- --
Internet Expense 1,538 3,993 -- -- -- --
Bank & Credit Card
Charges 13,095 28,866 -- -- -- --
Bad Debt & Collection
Expense 34,183 165 -- -- -- --
Donations 2,851 -- -- -- -- --
Taxes & Licenses 1,650 -- -- -- -- --
Miscellaneous 7 -- -- -- -- --
Depreciation &
Amortization 50,299 9,281 -- -- -- --
----------- ----------- ----------- --------- ----------- ----------
TOTAL BUILDING & ADMIN 377,407 42,305 -- -- -- --
----------- ----------- ----------- --------- ----------- ----------
TOTAL EXPENSES $ 879,288 $ 301,270 $ 235,298 $ 114,059 $ 1,012,572 $ 118,241
=========== =========== =========== ========= =========== ==========
Percent Net Sales 9.69% 3.32% 2.59% 1.26% 11.16% 1.30%
=========== =========== =========== ========= =========== ==========
2002 PERCENT 2001 PERCENT
MARKETING TOTAL NET SALES ACTUAL NET SALES
--------- ----- --------- ------ ---------
COMMON DEPT. EXPENSES
Salaries $ -- $ 1,074,116 11.84% $ 1,152,730 12.15%
Benefits -- 96,949 1.07% 108,859 1.15%
Payroll Taxes &
Worker's Compensation -- 91,499 1.01% 111,129 1.17%
Temporary Services -- 27,543 0.30% 22,549 0.24%
Relocation Expense -- 2,633 0.03% 2,682 0.03%
Travel & Entertainment -- 295,506 3.26% 309,555 3.26%
Telephone -- 48,855 0.54% 49,897 0.53%
Office Expense & Supplies 11 80,722 0.89% 102,120 1.08%
Postage, Freight & Fedex 3,492 23,706 0.26% 27,710 0.29%
Dues & Subscriptions -- 3,286 0.04% 3,783 0.04%
Conferences & Seminars -- 3,423 0.04% 1,105 0.01%
Outside Consulting -- 31,040 0.34% 26,736 0.28%
----------- ----------- ----- ----------- ------
TOTAL COMMON DEPT. EXPENSES 3,503 1,779,278 19.61% 1,918,855 20.22%
----------- ----------- ----- ----------- ------
PRODUCT DEVELOPMENT -- 19,978 0.22% 22,806 0.24%
----------- ----------- ----- ----------- ------
OTHER SELLING EXPENSES
Commission Exp & Car
Allowance -- 229,959 2.53% 394,244 4.15%
Sample Expense -- 44,751 0.49% 42,932 0.45%
Extended Wear Program -- (24,134) -0.27% (1,725) -0.02%
Freight & Freight
Chargebacks -- 20,940 0.23% 14,086 0.15%
EDI Expense -- 9,988 0.11% 10,743 0.11%
----------- ----------- ----- ----------- ------
TOTAL OTHER SELLING EXPENSES -- 281,504 3.10% 460,280 4.85%
----------- ----------- ----- ----------- ------
ADVERTISING & PROMOTIONS
Trade Shows 113,916 113,916 1.26% 115,353 1.22%
Advertising & Promotion 284,277 448,036 4.94% 464,122 4.89%
POP & POP Samples 4,569 4,569 0.05% 4,845 0.05%
----------- ----------- ----- ----------- ------
TOTAL ADVERTISING &
PROMOTIONS 402,762 566,521 6.24% 584,320 6.16%
----------- ----------- ----- ----------- ------
BUILDING & ADMIN EXPENSES
Rent, Utilities &
Insurance -- 203,371 2.24% 194,898 2.05%
Legal Expense -- 40,725 0.45% 7,500 0.08%
Investor & Director
Relations -- 29,688 0.33% 29,493 0.31%
Internet Expense -- 5,531 0.06% 6,117 0.06%
Bank & Credit Card
Charges -- 41,961 0.46% 38,793 0.41%
Bad Debt & Collection
Expense -- 34,348 0.38% 54,324 0.57%
Donations -- 2,851 0.03% 3,621 0.04%
Taxes & Licenses -- 1,650 0.02% 1,345 0.01%
Miscellaneous -- 7 0.00% -- 0.00%
Depreciation &
Amortization -- 59,580 0.66% 126,979 1.34%
----------- ----------- ----- ----------- ------
TOTAL BUILDING & ADMIN -- 419,712 4.63% 463,070 4.88%
----------- ----------- ----- ----------- ------
TOTAL EXPENSES $ 406,265 $ 3,066,993 33.80% $ 3,449,331 36.35%
=========== =========== ===== =========== ======
Percent Net Sales 4.48% 33.80%
=========== ===========
FINANCIAL STATEMENTS
H.S. TRASK & CO.
Balance Sheets as of June 30, 2003 and December 31, 2002.
Statements of Operations for the three and six months ended
June 30, 2003 and 2002.
Statements of Cash Flows for the six months ended
June 30, 2003 and 2002.
H.S. TRASK & CO.
BALANCE SHEETS
JUNE 30, DECEMBER 31,
2003 2002
---- ----
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash ........................................................................... $ -- $ 134,000
Accounts receivable (less allowances of $334,000 in 2003 and $88,000 in 2002) .. 996,000 1,315,000
Inventories -- net ............................................................. 2,427,000 2,050,000
Other current assets ........................................................... 104,000 107,000
Deferred income tax asset ...................................................... 110,000 110,000
----------- -----------
Total current assets ........................................................ 3,637,000 3,716,000
PLANT AND EQUIPMENT -- Net ........................................................ 72,000 92,000
OTHER ASSETS:
Deferred income tax asset, long-term ........................................... 150,000 150,000
Other assets -- net ............................................................ 3,000 4,000
----------- -----------
Total other assets .......................................................... 153,000 154,000
----------- -----------
TOTAL ASSETS ...................................................................... $ 3,862,000 $ 3,962,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................... $ 387,000 $ 280,000
Accrued expenses ............................................................... 321,000 188,000
Note payable, line of credit ................................................... 692,000 728,000
Income taxes payable ........................................................... (114,000) 2,000
----------- -----------
Total current liabilities ................................................... 1,286,000 1,198,000
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value -- 2,500,000 shares authorized;
Series A; 500,000 shares issued and outstanding ............................ 500,000 500,000
Series B; 833,194 shares issued and outstanding ............................ 1,250,000 1,250,000
Series C; 500,000 shares issued and outstanding ............................ 1,504,000 1,504,000
Common stock, no par value -- 5,000,000 shares authorized; 2,085,336 shares
issued in 2003 and 2002 .................................................... 234,000 234,000
Accumulated deficit ............................................................ (912,000) (724,000)
----------- -----------
Total stockholders' equity .................................................. 2,576,000 2,764,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................................ $ 3,862,000 $ 3,962,000
=========== ===========
H.S. TRASK & CO.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2003 2002 2003 2002
---- ---- ---- ----
NET SALES ........................................ $ 2,084,000 $ 1,724,000 $ 3,801,000 $ 3,574,000
COST OF GOODS SOLD ............................... 1,229,000 1,125,000 2,210,000 2,312,000
----------- ----------- ----------- -----------
GROSS PROFIT ..................................... 855,000 599,000 1,591,000 1,262,000
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and administrative expenses .. 1,023,000 697,000 1,877,000 1,521,000
Other expenses -- net ......................... -- -- -- --
----------- ----------- ----------- -----------
Total operating expenses ................... 1,023,000 697,000 1,877,000 1,521,000
----------- ----------- ----------- -----------
OPERATING LOSS ................................... (168,000) (98,000) (286,000) (259,000)
INTEREST EXPENSE ................................. 8,000 13,000 16,000 33,000
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES ......................... (176,000) (111,000) (302,000) (292,000)
INCOME TAX (BENEFIT) PROVISION ................... (66,000) (41,000) (114,000) (108,000)
----------- ----------- ----------- -----------
NET LOSS ......................................... $ (110,000) $ (70,000) $ (188,000) $ (184,000)
=========== =========== =========== ===========
H.S. TRASK & CO.
STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
----------------
JUNE 30, JUNE 30,
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) .......................................................................................... $(188,000) $(184,000)
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:
Depreciation and amortization ................................................................. 35,000 50,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable -- net .............................................................. 319,000 22,000
Inventories -- net ...................................................................... (377,000) 866,000
Other current assets .................................................................... 3,000 (9,000)
Increase (decrease) in:
Accounts payable ........................................................................ 107,000 75,000
Accrued expenses ........................................................................ 19,000 (26,000)
Income taxes payable .................................................................... (2,000) (109,000)
--------- ---------
Net cash (used) provided by operating activities ........................................ (84,000) 685,000
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Trademark costs .................................................................................. (1,000) --
Purchases of equipment ........................................................................... (13,000) (21,000)
--------- ---------
Net cash (used) by investing activities ................................................. (14,000) (21,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on note payable -- line of credit ...................................... (36,000) (664,000)
--------- ---------
Net cash (used) by financing activities ................................................. (36,000) (664,000)
--------- ---------
NET DECREASE IN CASH ................................................................................ (134,000) --
CASH -- Beginning of period ......................................................................... 134,000 --
--------- ---------
CASH -- End of period ............................................................................... $ -- $ --
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