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Exhibit 99.2
4279 INVESTMENTS LTD. AND AFFILIATE
INDEX
TABLE OF CONTENTS PAGE
- ----------------- ----
Condensed Combined Balance Sheet as of May 31, 2005 2
Condensed Combined Statements of Operations for the Six
Months Ended May 31, 2005 and May 31, 2004 3
Condensed Combined Statements of Cash Flows for the Six
Months Ended May 31, 2005 and May 31, 2004 4
Notes to Condensed Combined Financial Statements 5
4279 INVESTMENTS LTD. AND AFFILIATE
CONDENSED COMBINED BALANCE SHEET
(CANADIAN DOLLARS)
(UNAUDITED)
ASSETS: May 31, 2005
------- ------------
Cash and cash equivalents $ 497,463
Accounts receivable 983,029
Inventories 104,094
Advances to related parties 467,000
Prepaid expenses and other 201
----------
Total current assets 2,051,787
Property, plant and equipment, net 204,804
----------
Total assets $2,256,591
==========
LIABILITIES:
Accounts payable $ 821,373
Current maturities of capital lease obligation 19,841
Accrued salaries, benefits and commissions 89,403
Billings in excess of costs and estimated
earnings 23,785
Deferred revenue 454,694
Accrued and deferred income taxes 34,861
Other current liabilities 3,045
----------
Total current liabilities 1,447,002
Other noncurrent liabilities 8,908
----------
Total liabilities 1,455,910
Commitments and Contingencies
EQUITY:
Common stock: 10,000 shares, no par, authorized, issued and outstanding 104
Retained earnings 761,869
Affiliate net equity 38,708
----------
Total equity 800,681
----------
Total liabilities and equity $2,256,591
==========
The accompanying notes are an integral part of these
Condensed Combined Financial Statements.
2
4279 INVESTMENTS LTD. AND AFFILIATE
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(CANADIAN DOLLARS)
(UNAUDITED)
For the Six Months Ended
------------------------
May 31, 2005 May 31, 2004
------------ ------------
NET SALES $ 2,965,882 $ 1,514,392
COST OF SALES 2,021,661 1,011,767
----------- -----------
Gross profit 944,221 502,625
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 860,467 700,890
----------- -----------
Income (loss) from operations 83,754 (198,265)
OTHER INCOME (LOSS): 13,937 (5,569)
INCOME (LOSS) BEFORE TAXES 97,691 (203,834)
INCOME TAX (PROVISION) BENEFIT (17,213) 35,916
----------- -----------
NET INCOME (LOSS) $ 80,478 $ (167,918)
=========== ===========
The accompanying notes are an integral part of these
Condensed Combined Financial Statements.
3
4279 INVESTMENTS LTD. AND AFFILIATE
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(CANADIAN DOLLARS)
(UNAUDITED)
For the Six Months Ended
------------------------
May 31, 2005 May 31, 2004
------------ ------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ 80,478 $(167,918)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities -
Depreciation 20,441 10,325
Provision for doubtful accounts (3,000) --
Deferred tax benefit -- (6,522)
Net change in assets and liabilities-
Accounts receivable (316,510) 434,988
Inventories (9,038) (12,254)
Prepaid expenses and other 553 (18,696)
Accounts payable 558,881 52,796
Billings in excess of costs and
estimated earnings (150,786) (65,600)
Deferred revenue (79,929) (63,243)
Other liabilities (42,033) (68,865)
--------- ---------
Net cash provided by operating
activities 59,057 95,011
CASH FLOWS USED IN INVESTING ACTIVITIES:
Property and equipment additions (21,660) (23,483)
Payments (advances) to related parties (392,000) 80,000
--------- ---------
Net cash used in investing activities (413,660) 56,517
CASH FLOWS USED IN FINANCING
ACTIVITIES:
Affiliate net deficit 239,061 2,196
Principal payments under capital lease
obligations (15,694) (12,443)
--------- ---------
Net cash used in financing activities 223,367 (10,247)
NET INCREASE IN CASH
AND CASH EQUIVALENTS (131,236) 141,281
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 628,699 103,866
--------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 497,463 $ 245,147
========= =========
The accompanying notes are an integral part of these
Condensed Combined Financial Statements.
4
4279 INVESTMENTS LTD. AND AFFILIATE
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(CANADIAN DOLLARS)
(UNAUDITED)
1. NATURE OF BUSINESS
The accompanying combined financial statements include the accounts of
4279 Investments Ltd., a British Columbia corporation, and its
subsidiaries, CuraFlo Technologies Inc., Curalease Ltd., CuraFlo
Technologies (Canada) Inc., CuraFlo of BC Inc. (dba West Coast Pipe
Restoration Ltd.), and CuraFlo Technologies (USA) Inc., and a line of
business of Xpert Mechanical and J.K. Lillie Ltd (affiliated by common
ownership), (collectively the "CuraFlo Companies"). The CuraFlo Companies
are based in Vancouver, Canada.
CuraFlo licenses technology for the renewal and rehabilitation of small
diameter water pipes in apartment buildings, private homes and other
commercial, industrial and residential buildings. This proprietary
technology is known as the CuraFlo Engineered Flow Lining System ("CuraFlo
System").
The CuraFlo System consists of equipment and "know-how" necessary for
application of CuraPoxy to the interior of small-diameter plumbing lines.
CuraPoxy is a proprietary epoxy manufactured for the CuraFlo Companies
by the Raven Lining Systems subsidiary of Cohesant.
CuraFlo also uses the CuraFlo system and an alternative method of
small-diameter pipe rehabilitation known as repiping to perform renewal,
rehabilitation and replacement of plumbing lines in Western Canada and the
United States. The CuraFlo Companies acquired the repiping line of
business from the Affiliate just prior to the transaction with Cohesant.
CuraFlo currently has 15 independently owned licensees in North America
who have paid an initial license fee. CuraFlo has an Exclusive Purchasing
Agreement with each of these licensees which requires them to purchase the
equipment, epoxy and other consumables necessary for application of the
CuraFlo System, only from CuraFlo during the term of the license. In
addition, CuraFlo provides other fee-based services to many of its
licensees such as training, technical and marketing assistance.
Typically, the license agreement and the Exclusive Purchasing Agreement
have a 10-year term and provide the licensee with an exclusive right to
utilize the CuraFlo System within a specified geographical territory, as
well as access to technical assistance and operational support from the
CuraFlo Companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Combination
The combined financial statements include the accounts of 4279 Investments
Ltd. and its wholly owned subsidiaries and a product line of Xpert
Mechanical and J.K. Lillie Ltd., an affiliated company. Intercompany
accounts and transactions have been eliminated.
b. Revenue Recognition
The CuraFlo Companies recognize revenue in accordance with SEC Staff
Accounting Bulletin No. 104, "Revenue Recognition" ("SAB 104"). Under SAB
104 revenue is recognized when there is persuasive evidence of an
arrangement, delivery has occurred or services have been rendered, the
sales price is fixed or determinable, and collectibility is reasonably
assured.
For equipment, epoxy and other supplies revenue, the criteria of SAB 104
are generally met upon shipment to its licensees, at which time title and
risks of ownership are transferred to these customers. Therefore, revenue
is recognized at the time of shipment. The CuraFlo Companies do not have
any rights of return, customer acceptance, installation or other
post-shipment obligations with any of its products. The CuraFlo Companies'
pricing is fixed at the time of shipment.
Renewal, rehabilitation, and replacement revenues are recognized on the
percentage of completion method in the ratio that total incurred costs
bear to total estimated costs. The estimated total cost of a contract is
based on management's best estimate of the remaining costs that will be
required to complete a project.
5
4279 INVESTMENTS LTD. AND AFFILIATE
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(CANADIAN DOLLARS)
(UNAUDITED)
License fee revenue is recognized when all material services or conditions
relating to the sale have been substantially performed and collectibility
is assured. The CuraFlo Companies have deferred license fee revenue as of
the balance sheet for which the CuraFlo Companies remain obligated to
provide initial training to its licensees.
c. Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts consisted of the
following at May 31, 2005
Costs incurred on uncompleted
contracts 523,924
Estimated earnings to date 104,501
---------------
Subtotal 628,425
Less - Billings to date 652,210
---------------
Total (23,785)
===============
Included in the accompanying balance
sheet under the following caption:
Costs and estimated earnings in
excess of billings 0
Billings in excess of costs and
estimated earnings (23,785)
---------------
Total (23,785)
===============
d. Income Taxes
The CuraFlo Companies account for income taxes under the asset and
liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequence of events that
have been recognized in the CuraFlo Companies' financial statements or
income tax returns. Income taxes are recognized during the year in which
the underlying transactions are reflected in the Combined Statements of
Operations. Deferred taxes are provided for temporary differences between
amounts of assets and liabilities as recorded for financial reporting
purposes and amounts recorded for tax purposes.
The CuraFlo Companies have provided income taxes at a statutory rate of
17.62% and as they believe they qualified for the Small Business
Deduction. The Small Business Deduction results in a graduated tax of
17.62% for earnings up to $247,883 and $223,887 during 2004 and 2003,
respectively. If it were determined the CuraFlo Companies did not qualify
for the Small Business Deduction, the CuraFlo Companies would have
provided income taxes at the statutory rate of 35.62%.
Substantially all unbilled amounts are expected to be billed and collected
within one year.
3. RELATED PARTY TRANSACTIONS
The following companies, related through common ownership, were paid
management and support fees as follows:
2005 2004
---- ----
McNeill & Assoc. $ 208,000 $ 52,827
Momentum Consulting 30,000 --
The CuraFlo Companies paid $176,400 and $275,000 in 2005 and 2004,
respectively, to Cordova Management, a company related through common
ownership, for the provision of office space and other management support.
The CuraFlo Companies also paid Xpert Mechanical and J.K. Lillie Ltd.
$12,433 and $6,470 in 2005 and 2004, respectively for work performed for
the CuraFlo Companies. These entities are related through common
ownership.
As of May 31, 2005, the CuraFlo Companies had advances to several of the
shareholders in the amount of $467,000.
6
4279 INVESTMENTS LTD. AND AFFILIATE
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(CANADIAN DOLLARS)
(UNAUDITED)
4. CONTINGENCIES
The CuraFlo Companies are a party to certain other legal matters arising
in the ordinary course of business. Management believes the ultimate
disposition of these matters will not have a material adverse effect on
the CuraFlo Companies' financial position or results of operations.
5. SUBSEQUENT EVENT
On August 12, 2005, Cohesant Infrastructure Protection and Renewal of
Canada Ltd., a Canadian federal company, 0728487 BC Ltd., a British
Columbia corporation, and Cohesant Infrastructure Protection and Renewal
LLC, a Delaware limited liability company (collectively, the "Purchasers")
completed the purchase of substantially all of the assets of 4279
Investments Ltd., a British Columbia corporation, and its subsidiaries,
CuraFlo Technologies Inc., a Canadian federal company, Curalease Ltd., a
British Columbia corporation, CuraFlo Technologies (Canada) Inc., a
British Columbia corporation, CuraFlo of BC Inc. (dba West Coast Pipe
Restoration Ltd.), a British Columbia corporation, CuraFlo Technologies
(USA) Inc., a Nevada corporation, and CuraFlo of the Silicon Valley, Inc.,
a California corporation (collectively "Sellers"). The Purchasers also
assumed certain of the liabilities of Sellers. Each of the Purchasers is a
wholly-owned subsidiary of Cohesant Technologies Inc., a Delaware
corporation ("Cohesant"). The transaction was completed pursuant to an
Asset Purchase Agreement, dated August 12, 2005. The purchase price for
the assets consisted of $4,104,000 cash and 461,124 shares of
non-registered common stock of Cohesant, par value $.001 (the "Cohesant
Stock"). A portion of the purchase price was deposited into an escrow
account to secure customary indemnity and other obligations of Sellers
that may arise post-closing.
7