EXHIBIT 99.2(a)
United Computer Supplies, Inc. and
United Computer Supplies-East, Inc.
Year Ended December 31, 2001
and the Six Months Ended February 28, 2002 (Unaudited)
================================================================================
Contents
<Table>
<Caption>
Page
----
Independent Auditor's Report 1
Combined Balance Sheets 2
Combined Statements of Income and Accumulated Deficit 3
Combined Statements of Cash Flows 4
Notes to Combined Financial Statements 5-9
</Table>
Independent Auditor's Report
Board of Directors
United Computer Supplies, Inc. and
United Computer Supplies-East, Inc.
Itasca, Illinois
We have audited the accompanying combined balance sheet of United Computer
Supplies, Inc. and United Computer Supplies-East, Inc. as of December 31, 2001
and the related combined statements of income and accumulated deficit and cash
flows for the year then ended. These financial statements are the responsibility
of the company's management. Our responsibility is to express an opinion on
these combined 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 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 2001 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of United
Computer Supplies, Inc. and United Computer Supplies-East, Inc. as of December
31, 2001 and the combined results of its operations and its combined cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 9, the Companies
have experienced significant net losses over the past two years, resulting in a
material deterioration in the Companies working capital position. In addition,
the Companies are not in compliance with certain covenants of their loan
agreements, causing them to be in technical default of these agreements. The
above-described conditions raise substantial doubt about the Companies' ability
to continue as a going concern. The financial statements do not include any
adjustments that might arise from the outcome of this uncertainty.
Blackman Kallick Bartelstein, LLP
Chicago, Illinois
May 6, 2002
United Computer Supplies, Inc. and
United Computer Supplies-East, Inc.
Combined Balance Sheets
December 31, 2001 and February 28, 2002 (Unaudited)
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Assets
<Table>
<Caption>
(Unaudited)
December 31, February 28,
2001 2002
------------ ------------
CURRENT ASSETS
Cash $ 361,193 $ 359,965
Customer receivables 2,914,505 3,257,053
Inventories 3,936,485 3,234,371
Prepaid expenses and deposits 200,074 468,365
------------ ------------
Total Current Assets 7,412,257 7,319,754
Property and Equipment (Net of accumulated
depreciation and amortization) 6,209,627 6,108,830
------------ ------------
$ 13,621,884 $ 13,428,584
============ ============
Liabilities and Stockholders' Deficit
Current Liabilities
Short-term borrowings $ 3,470,541 $ 2,880,909
Accounts payable - Trade 4,726,403 5,192,280
Long-term debt due within one year 4,861,766 4,713,664
Note payable -Stockholder 340,000 340,000
Accrued expenses
Salaries, wages and other compensation 90,003 90,003
Vacation 176,345 171,518
Other accrued liabilities 156,154 177,754
------------ ------------
Total Current Liabilities 13,821,212 13,566,128
------------ ------------
Stockholders' Deficit
Common stock
United Computer Supplies, Inc.; authorized
5,000 shares; issued and outstanding 844.44 shares 141,000 141,000
United Computer Supplies-East, Inc.
1,055.55 shares issued and outstanding 111,000 111,000
Accumulated deficit (Exhibit B) (451,328) (389,544)
------------ ------------
Total Stockholders' Deficit (199,328) (137,544)
------------ ------------
$ 13,621,884 $ 13,428,584
============ ============
</Table>
The accompanying notes are an integral
part of the combined financial statements.
-2-
United Computer Supplies, Inc. and
United Computer Supplies-East, Inc.
Combined Statements of Loss and Accumulated Deficit
Year Ended December 31, 2001
and the Six Months Ended February 28, 2002 (Unaudited)
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<Table>
<Caption>
(Unaudited)
Year Ended Six Months Ended
December 31, February 28,
2001 2002
------------ ----------------
Net Sales $ 33,620,759 $ 18,085,752
Cost of Goods Sold 31,086,567 16,146,538
------------ ------------
Gross Profit 2,534,192 1,939,214
------------ ------------
Operating Expenses
Selling expenses 2,645,486 1,316,499
General and administrative expenses 1,858,455 1,255,448
------------ ------------
Total Operating Expenses 4,503,941 2,571,947
------------ ------------
Net Operating Loss (1,969,749) (632,733)
------------ ------------
Other Expense (Income)
Interest expense 1,200,840 759,744
(Gain) loss on sale of property, plant and equipment (3,603) 4,906
Rental income (286,228) (138,728)
------------ ------------
Total Other Expense 911,009 625,922
------------ ------------
Net Loss (2,880,758) (1,258,655)
Retained Earnings, Beginning of Period 2,429,430 869,111
------------ ------------
Accumulated Deficit, End of Period (Exhibit A) $ (451,328) $ (389,544)
============ ============
</Table>
The accompanying notes are an integral
part of the combined financial statements.
-3-
United Computer Supplies, Inc. and
United Computer Supplies-East, Inc.
Combined Statements of Cash Flows
Year Ended December 31, 2001
and the Six Months Ended February 28, 2002 (Unaudited)
================================================================================
<Table>
<Caption>
(Unaudited)
Year Ended Six Months Ended
December 31, February 28,
2001 2002
------------ ----------------
Cash Flows from Operating Activities
Net loss $(2,880,758) $(1,258,655)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 597,293 315,050
Provision for losses on receivables 488,364 488,364
(Gain) loss on sale of assets (3,603) 4,906
(Increase) decrease in
Receivables 132,284 (282,258)
Inventories 1,065,036 1,142,898
Prepaid expenses and deposits 105,662 (63,849)
Increase (decrease) in
Accounts payable 1,287,257 368,888
Accrued expenses (82,677) 21,989
----------- -----------
Total Adjustments 3,589,616 1,995,988
----------- -----------
Net Cash Provided by Operating Activities 708,858 737,333
----------- -----------
Cash Flows from Investing Activities
Proceeds from sale of fixed assets 10,410 10,410
Capital expenditures (81,107) (96,744)
----------- -----------
Net Cash Used in Investing Activities (70,697) (86,334)
----------- -----------
Cash Flows from Financing Activities
Net repayments under line of credit (208,874) (407,156)
Principal payments on long-term debt (326,990) (263,608)
----------- -----------
Net Cash Used in Financing Activities (535,864) (670,764)
----------- -----------
Net Increase (Decrease) in Cash 102,297 (19,765)
Cash, Beginning of Period 258,896 379,730
----------- -----------
Cash, End of Period $ 361,193 $ 359,965
=========== ===========
</Table>
The accompanying notes are an integral
part of the combined financial statements.
-4-
United Computer Supplies, Inc. and
United Computer Supplies-East, Inc.
Notes to Combined Financial Statements
Year Ended December 31, 2001
and the Six Months Ended February 28, 2002 (Unaudited)
================================================================================
Note 1 - Nature of Operations
The Companies manufacture and distribute paper products and business forms to be
used with computers or computer-related applications. The Companies also
manufacture and distribute paper rolls and related products to be used in retail
applications, such as cash registers and gas station pumps. Products are sold
primarily to distributors located throughout the midwest and eastern sections of
the United States.
Note 2 - Summary of Significant Accounting Policies
Combined Financial Statements
The combined financial statements include the accounts of United Computer
Supplies, Inc. and United Computer Supplies-East, Inc. (collectively known as
UCS or the Company), which are both commonly controlled and managed.
All intercompany transactions and intercompany account balances have been
eliminated in preparation of the combined financial statements.
Inventories
Inventories are valued at the lower of cost or market using the last-in,
first-out method.
Depreciation and Amortization
The Company's policy is to depreciate or amortize the cost of property and
equipment over the estimated useful lives of the assets as indicated in the
following tabulation by use of the straight-line method. The cost of leasehold
improvements is amortized over their useful lives, or the applicable lease term,
if shorter.
<Table>
<Caption>
Years
-----
Building and improvements 40
Leasehold improvements 10
Production equipment 5-10
Office equipment 5-10
Automobiles 5
</Table>
Income Taxes
The Companies have elected to be taxed as S corporations under provisions of the
Internal Revenue Code. Therefore, the financial statements do not include a
provision for corporate income taxes.
-5-
United Computer Supplies, Inc. and
United Computer Supplies-East, Inc.
Notes to Combined Financial Statements
Year Ended December 31, 2001
and the Six Months Ended February 28, 2002 (Unaudited)
================================================================================
Note 2 - Summary of Significant Accounting Policies (Continued)
Management 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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Note 3 - Inventories
<Table>
<Caption>
(Unaudited)
2001 2002
----------- -----------
Raw materials $ 1,888,249 $ 1,308,658
Work in process 110,669 129,630
Finished goods 2,080,467 1,938,983
LIFO reserve (142,900) (142,900)
----------- -----------
$ 3,936,485 $ 3,234,371
=========== ===========
</Table>
If the first-in, first-out (FIFO) method of inventory accounting had been used
by UCS, inventories would have been $142,900 and $166,801 higher than reported
as of December 31, 2001 and February 28, 2002, respectively.
Note 4 - Property and Equipment
<Table>
<Caption>
(Unaudited)
2001 2002
------------ ------------
Building and improvements $ 3,446,601 $ 3,446,601
Leasehold improvements 102,959 102,959
Production equipment 8,184,964 8,188,827
Office equipment 354,810 349,614
------------ ------------
12,089,334 12,088,001
Accumulated depreciation
and amortization (5,879,707) (5,979,171)
------------ ------------
$ 6,209,627 $ 6,108,830
============ ============
</Table>
-6-
United Computer Supplies, Inc. and
United Computer Supplies-East, Inc.
Notes to Combined Financial Statements
Year Ended December 31, 2001
and the Six Months Ended February 28, 2002 (Unaudited)
================================================================================
Note 5 - Short-Term Borrowings
As of December 31, 2001, UCS was obligated under a line of credit agreement with
a bank for $3,470,541. Borrowings under this line of credit bear interest as
stated in the credit agreement (9.5% as of December 31, 2001) and are secured by
substantially all of the company's assets. As of December 31, 2001, there were
no additional available borrowings on this line of credit and UCS was in default
of loan and security agreement (Note 6).
Note 6 - Long-Term Debt
<Table>
<Caption>
(Unaudited)
2001 2002
----------- -----------
Mortgage loan payable, bank, principal and interest paid
monthly at 9.5% and expires in July 2001.* $ 3,065,998 $ 3,055,972
Note payable, bank, principal and interest paid monthly
at 9%, final balloon payment due June 2005.* 887,941 787,805
Note payable, bank, principal and interest paid monthly
at 8.25%, final balloon payment due November 2004.* 907,827 869,887
Note payable, stockholder, with interest payments
at 10% due in monthly installments. No payback schedule
established on principal 340,000 340,000
----------- -----------
Long-term debt, net 5,201,766 5,053,664
Less current maturities (5,201,766) (5,053,664)
----------- -----------
$ -- $ --
=========== ===========
</Table>
* The notes payable and line of credit (Note 5) contain certain covenants
relating to the indebtedness. In addition, the agreement requires UCS to
maintain compliance with a minimum tangible net worth target and other financial
ratios. UCS is not in compliance with these covenants as of December 31, 2001,
and therefore is in default on the loan and security agreement. Because of this
default, the long-term portion of the obligations covered by this agreement has
been reclassified as a current liability on the balance sheet.
Interest expense on the stockholder note payable was $34,000 for the year ended
December 31, 2001.
-7-
United Computer Supplies, Inc. and
United Computer Supplies-East, Inc.
Notes to Combined Financial Statements
Year Ended December 31, 2001
and the Six Months Ended February 28, 2002 (Unaudited)
================================================================================
Note 7 - Operating Leases
UCS occupies three buildings under separate operating leases. The leases provide
for minimum monthly lease payments ranging from $12,500 to $31,000 throughout
the lease terms and expire between August 2004 and May 2006. In addition, the
Company has agreed to pay for certain maintenance and taxes as defined in the
lease agreements. The leases contain renewal options, which are not assured of
being exercised and therefore are not included in the schedule below. Total
rental expenses for these leases amounted to $725,835 for the year ended
December 31, 2001.
The following is a schedule by year of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year, as of December 31, 2001:
<Table>
Fiscal Year Ending December 31:
2002 $ 736,067
2003 743,047
2004 572,777
2005 227,101
2006 95,518
-----------
Total Minimum Payments Required $ 2,374,510
===========
</Table>
Note 8 - Major Customer
For the year ended December 31, 2001, sales to a major customer amounted to more
than 10% of total sales. The amount of revenue from such customer amounted to
approximately $4,700,000. The receivable balance for this customer was $566,003
as of December 31, 2001.
-8-
United Computer Supplies, Inc. and
United Computer Supplies-East, Inc.
Notes to Combined Financial Statements
Year Ended December 31, 2001
and the Six Months Ended February 28, 2002 (Unaudited)
================================================================================
Note 9 - Going Concern and Subsequent Sale of Assets
UCS has experienced significant net losses for the past two years, resulting in
a material deterioration in the Company's working capital position. In addition,
as described in Note 6, the Company is not in compliance with certain covenants
of their loan agreements, causing them to be in technical default of these
agreements. The combination of the events described above raises substantial
doubt about the Company's ability to continue as a going concern.
On March 19, 2002, the company sold inventory and substantially all of its
machinery and office equipment to an unrelated party for $2,907,346.
Note 10 - Other Cash Flow Information
Cash payments for interest amounted to $1,200,541 for the year ended December
31, 2001.
-9-