EXHIBIT 99.2(b)
United Computer Supplies, Inc. and
United Computer Supplies-East, Inc.
Years Ended December 31, 2000 and 1999
Contents
<Table>
<Caption>
Page
-----
Independent Auditor's Report 1
Combined Balance Sheets 2
Combined Statements of Income and Retained Earnings 3
Combined Statements of Cash Flows 4
Notes to Combined Financial Statements 5-8
Independent Auditor's Report on Additional Information 9
Combined Schedules of Costs and Expenses 10-11
</Table>
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying combined balance sheet of United Computer
Supplies, Inc. and United Computer Supplies-East, Inc. (both S corporations) as
of December 31, 2000 and 1999 and the related combined statements of income,
retained earnings 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 generally accepted auditing
standards. 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 combined financial position of United
Computer Supplies, Inc. and United Computer Supplies-East, Inc. as of December
31, 2000 and 1999, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
WILLIAM J. BARNES & CO., LTD.
March 12, 2001
Arlington Heights, Illinois
UNITED COMPUTER SUPPLIES INC..
UNITED COMPUTER SUPPLIES-EAST, INC.
Combined Balance Sheets
December 31, 2000 and 1999
<Table>
<Caption>
2000 1999
----------- -----------
ASSETS
Current Assets
Cash $ 258,896 $ 214,224
Accounts receivable 3,535,154 2,385,021
Inventory 5,001,521 4,118,707
Prepaid expenses and deposits 305,736 42,673
----------- -----------
Total current assets 9,101,307 6,760,625
----------- -----------
Building and Equipment
Building 3,446,601 --
Production equipment 8,229,251 6,560,998
Office equipment 332,377 231,796
Automobiles 85,880 85,880
Deposits on equipment -- 710,471
----------- -----------
Total 12,094,109 7,589,145
Less accumulated depreciation 5,361,489 4,915,683
----------- -----------
Building and equipment - net 6,732,620 2,673,462
----------- -----------
Total Assets $15,833,927 $ 9,434,087
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 3,439,146 $ 978,856
Note payable - bank line of credit 3,679,415 2,175,000
Current portion of long-term debt 308,696 132,352
Accrued salaries 96,284 89,331
Accrued vacation pay 161,918 153,188
Other accrued liabilities 246,977 107,628
----------- -----------
Total current liabilities 7,932,436 3,636,355
----------- -----------
Other Liabilities
Note payable - shareholder 340,000 --
Note payable - bank term loan 4,880,060 1,056,973
----------- -----------
Total other liabilities 5,220,060 1,056,973
----------- -----------
Shareholders' Equity
Common stock:
United Computer Supplies, Inc.
5,000 shares authorized,
844.44 issued and outstanding 141,000 141,000
United Computer Supplies-East, Inc.
1,055.55 shares issued and outstanding 111,000 111,000
Retained earnings 2,429,431 4,488,759
----------- -----------
Total shareholders' equity 2,681,431 4,740,759
----------- -----------
Total Liabilities and Shareholders' Equity $15,833.927 $ 9,434,087
=========== ===========
</Table>
The accompanying notes and report on additional information are an integral part
of and should be read in conjunction with the financial statements.
-2-
UNITED COMPUTER SUPPLIES, INC.
UNITED COMPUTER SUPPLIES-EAST, INC.
Combined Statements of Income and Retained Earnings
For the Years Ended December 31,2000 and 1999
<Table>
<Caption>
2000 1999
------------ ------------
Sales $ 33,786,138 $ 33,130,128
------------ ------------
Cost of Goods Sold
Material 24,902,264 24,023,002
Direct labor 1,373,372 1,325,404
Manufacturing overhead 4,302,488 4,148,240
LIFO reserve adjustment 80,000 167,000
------------ ------------
Total cost of goods sold 30,658,124 29,663,646
------------ ------------
Gross Profit on Sales 3,128,014 3,466,482
------------ ------------
Shipping, Sales and Administrative Expenses
Shipping expense 437,941 438,474
Sales expenses 2,229,127 1,888,953
Administrative expense 1,295,243 1,169,631
------------ ------------
Total shipping, sales and
Administrative expenses 3,962,311 3,497,058
------------ ------------
Net Operating Income (Loss) (834,297) (30,576)
------------ ------------
Other Income (Expense)
Interest expense (572,120) (235,544)
Interest income 260 --
Discounts allowed (573,975) (513,655)
Purchase discounts 39,137 133,813
Moving expense (191,131) --
Sundry 72,798 29,458
------------ ------------
Total other income (expense) (1,225,031) (585,928)
------------ ------------
Net Income (Loss) (2,059,328) (616,504)
Retained Earnings - Beginning of Year 4,488,759 5,601,364
Distributions to Shareholders (See Note F) -- (496,101)
------------ ------------
Retained Earnings - End of Year $ 2,429,431 $ 4,488,759
============ ============
</Table>
The accompanying notes and report on additional information are an integral part
of and should be read in conjunction with the financial statements.
-3-
UNITED COMPUTER SUPPLIES, INC.
UNITED COMPUTER SUPPLIES-EAST, INC.
Combined Statements of Cash Flows
For the Years Ended December 31, 2000 and 1999
<Table>
Cash Flows from Operating Activities -
Net Income (loss) $(2,059,328) $ (616,503)
Reconciling adjustments:
Depreciation 493,870 374,165
LIFO reserve adjustment 80,000 167,000
Loss on disposal of assets 19,878 --
(Increase) decrease in assets -
Accounts receivable (1,929,023) (624,921)
Inventory (962,814) (579,982)
Prepaid expenses and deposits (263,063) 2,170
Increase (decrease) in liabilities
Accounts payable 3,239,180 798,747
Accrued liabilities 155,032 30,629
----------- -----------
Net cash provided (used) by operating activities (1,226,268) (448,695)
----------- -----------
Cash Flows from Investing Activities -
Purchase of building and equipment (4,572,906) (410,389)
----------- -----------
Net cash (used) by investing activities (4,572,906) (410,389)
----------- -----------
Cash Flows from Financing Activities -
Distributions to shareholders (See note F) -- (496,101)
Notes payable-line of credit -
Increase (decrease) 5,503,846 2,589,325
Increase (decrease) shareholder loan 340,000 (1,250,000)
----------- -----------
Net cash provided (used) by financing
activities 5,843,846 843,224
----------- -----------
Net Increase (Decrease) in Cash 44,672 (15,860)
Cash at Beginning of Year 214,224 230,084
----------- -----------
Cash at End of Year $ 258,896 $ 214,224
=========== ===========
* * * * * * * * * * *
Supplemental Disclosure -
Interest paid $ 572,120 $ 235,544
</Table>
The accompanying notes and report on additional information are an integral part
of and should be read in conjunction with the financial statements.
-4-
UNITED COMPUTER SUPPLIES, INC.
UNITED COMPUTER SUPPLIES-EAST, INC.
Notes to Combined Financial Statements
December 31, 2000
Note A - Accounting Policies
1. Operations
The Companies are in the paper conversion business. The
products consist of standard computer paper and of paper rolls
for recording retail transactions. The products are sold to
distributors through the Midwest and eastern sections of the
United States.
2. Combined Financial Statements
The financial statements of the two companies are prepared on
a combined basis because the Companies have common ownership
and management.
All intercompany transactions and intercompany account
balances have been eliminated in preparation of the combined
financial statements.
3. Accounts Receivable - Trade
The Companies do not make a provision for uncollectible
accounts. The direct charge-off method is used when an account
is determined to be uncollectible. The management is of the
opinion that the Accounts Receivable - Trade are substantially
all collectible.
4. Inventories
Inventories are stated at the lower of cost or market using
the last in, first out method. Additional information
concerning inventories is presented in Note B.
5. Building and Equipment
Building and equipment purchases are recorded at cost at the
time of acquisition. For financial reporting, depreciation is
computed over the useful service lives of the assets, using
the straight-line method. Depreciation is based on an
estimated useful life of five to ten years for equipment and
forty years for the building.
6. Income Taxes
In 1987, the Companies made an election to be treated as S
Corporations for income tax purposes. As such, the
Corporations are not subject to Federal income taxes, the
income is taxable to the shareholder.
-5-
Note B - Inventories
Inventories are summarized as follows:
<Table>
<Caption>
December 31
2000 1999
----------- -----------
Raw materials $ 2,117,838 $ 1,946,570
Work-in-process 192,268 147,447
Finished goods 2,796,215 2,049,490
LIFO reserve (104,800) (24,800)
----------- -----------
Total $ 5,001,521 $ 4,118,707
=========== ===========
</Table>
As indicated in Note A, the inventories are stated on the last-in, first-out
method. Had the first-in, first-out method been used, inventories would have
been $5,106,321 and $4,143,507 at December 31, 2000 and 1999, respectively, and
net income (loss) would have been $(1,979,328) and $(449,504) respectively.
Note C - Loans Payable
<Table>
Note Payable - bank line of credit:
Interest is payable monthly at 9.5% and expires July 2001 $3,679,415
Note Payable - mortgage loan:
Principal and interest paid monthly at 9% rate with balloon
payment due July 2005 3,127,104
Note payable - equipment loan:
Principal and interest paid monthly at 9% with balloon payment
due July 2005 1,004,658
Note payable - equipment loan:
Principal and interest paid monthly at 8.25% with balloon
payment due November 2004 1,056,994
Shareholder loan:
Interest paid monthly at 10%. No payback Schedule established
on principal 340,000
----------
$9,208,171
==========
</Table>
-6-
Note C - Loans Payable (continued)
The Company has pledged real estate, equipment, accounts receivable and
inventory as collateral on loans payable. The Company has an interest
rate "swap" agreement on the 9% term loans. Early payoff of these loans
would result in a $280,305 penalty at December 31, 2000. The bank loans
have various covenants which include maintaining net worth dollar
amounts and various financial ratios. The Company is not in compliance
with these covenants at December 31, 2000. Failure to maintain
covenants can allow the bank to call the loans at a date earlier than
stated above.
Maturities of loans are as follows:
<Table>
2001 $ 3,988,111
2002 336,434
2003 366,659
2004 800,257
2005 3,716,710
-------------
$ 9,208,171
=============
</Table>
Note D - Lease Commitments
The Companies occupy three buildings under separate operating leases.
The leases provide for minimum monthly lease payments as scheduled
throughout the lease term. In addition, the Companies have agreed to
pay certain maintenance and tax costs as set forth in the leases.
The following is a schedule of future minimum lease payments required
under the leases:
<Table>
2001 $ 725,835
2002 $ 487,100
2003 $ 479,362
2004 $ 221,960
2005 $ 227,101
2006 $ 95,518
</Table>
The leases contain renewal options which are not assured of being
exercised and are therefore not included in the above schedule. Rental
payments for the year 2000 amounted to $720,515. During July 2000, the
Company purchased a building and moved a significant part of its
operation to the new facility. The leased space that the Company moved
from has been subleased to another tenant.
-7-
Note E - Related Party Transactions
The Companies made payments of interest to the major shareholder in the
amount of $24,408 in 2000 and $114,385 in 1999.
Note F - Distributions to Shareholders
The Companies made distributions to the shareholders of nothing in 2000
and $496,101 in 1999. As indicated in Note A-6 Companies are S
Corporations and as such are not subject to Federal income taxes, the
income being taxable to the shareholders. The Companies have adopted a
policy throughout the years of making distributions only to meet the
shareholders' needs in funding these tax payments.
-8-
INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION
Our report on our audits of the basis combined financial statements of United
Computer Supplies, Inc. and United Computer Supplies-East, Inc. for 2000 and
1999 appears on the first page. The audits were conducted for the purpose of
forming an opinion on the financial statements taken as a whole. The schedules
of costs and expenses for 2000 and 1999 are presented for purposes of analysis
and are not a required part of the financial statements. Such information has
been subjected to the auditing procedures applied in the audits of the basic
combined financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basis combined financial statements taken
as a whole.
WILLIAM J. BARNES & CO., LTD
March 12, 2001
Arlington Heights, Illinois
-9-
UNITED COMPUTER SUPPLIES, INC.
UNITED COMPUTER SUPPLIES-EAST, INC.
Combined Schedules of Costs and Expenses
For the Years Ended December 31, 2000 and 1999
<Table>
<Caption>
2000 1999
---------- ----------
Manufacturing Overhead
Supervision and administrative salaries $ 309,252 $ 358,727
Indirect labor 954,058 933,056
Maintenance wages 107,190 103,632
Vacation and holiday pay 157,574 155,997
Overtime premium 215,912 167,809
Ink and tape 52,342 63,841
Plates 16,694 15,238
Other operating supplies and expense 269,563 265,075
Depreciation 428,407 327,790
Equipment repairs and maintenance 322,969 337,794
Building rent 561,556 635,167
Building maintenance 54,665 26,026
Utilities 302,723 254,585
Taxes 233,384 225,096
Insurance 229,189 210,563
Auto and travel 33,826 36,443
Other 53,184 31,401
---------- ----------
Total $4,302,488 $4,148,240
========== ==========
Shipping Expense
Wages $ 313,772 $ 310,067
Supplies 13,374 13,983
Depreciation 6,848 7,341
Building rent and utilities 34,268 38,836
Taxes 23,417 29,389
Insurance 31,701 26,291
Sundry 14,561 12,567
---------- ----------
Total $ 437,941 $ 438.474
========== ==========
</Table>
The accompanying notes and report on additional information are an integral part
of and should be read in conjunction with the financial statements.
-10-
UNITED COMPUTER SUPPLIES, INC.
UNITED COMPUTER SUPPLIES-EAST, INC.
Combined Schedules of Costs and Expenses
For the Years Ended December 31, 2000 and 1999
<Table>
<Caption>
2000 1999
---------- ----------
Sales Expense
Salaries $ 564,631 $ 512,590
Commissions 61,953 63,752
Marketing supplies 35,049 21,457
Auto expense 49,838 51,524
Travel and entertainment 91,115 74,122
Conventions 21,742 7,860
Depreciation 18,438 16,228
Building rent and utilities 30,050 42,117
Telephone 51,188 71,544
Taxes 36,796 34,696
Insurance 26,447 19,349
Freight 1,088,694 885,586
Postage 22,539 22,632
Interest expenses 50,271 11,128
Dues and subscriptions 3,248 4,365
Sundry 77,128 50,003
---------- ----------
Total $2,229,127 $1,888,953
========== ==========
Administrative Expenses
Administrative salaries $ 225,000 $ 259,466
Office salaries 466,426 429,655
Outside services 28,690 20,727
Taxes 49,652 52,006
Insurance 42,927 48,731
Office supplies 19,188 19,912
Maintenance 16,106 13,657
Telephone 19,496 29,002
Building rent and utilities 53,755 63,244
Professional fees 85,695 38,330
Computer expense 34,822 91,717
Depreciation 33,861 22,806
Equipment expense 21,095 18,602
Dues and subscriptions 4,797 3,623
Sundry 49,611 56,880
Bad debt expense 144,121 1,273
---------- ----------
Total $1,295,243 $1,169,631
========== ==========
</Table>
The accompanying notes and report on additional information are an integral part
of and should be read in conjunction with the financial statements.
-11-