EXHIBIT 99.2
TRILECTRON INDUSTRIES, INC.
AUDITORS' REPORT,
FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Income 3
Statements of Stockholder's Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Trilectron Industries, Inc.
We have audited the balance sheet of Trilectron Industries, Inc. as of December
31, 1995, and the related statements of income, stockholder's equity, 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 financial statements based on our audit. The financial statements of
Trilectron Industries, Inc. as of December 31, 1994, were audited by other
auditors whose report dated April 6, 1995 expressed an unqualified opinion on
those statements.
We conducted our audit in accordance with generally accepted auditing standards.
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 1995 financial statements referred to above present fairly,
in all material respects, the financial position of Trilectron Industries, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Kerkering, Barberio & Co.
Bradenton, Florida
March 12, 1996
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TRILECTRON INDUSTRIES, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
---------- ----------
ASSETS
Current assets:
Cash $ 1,591 $ 367,239
Accounts receivable, net of allowance
of $33,000 and $35,000 in 1995 and
1994, respectively 2,009,028 1,299,535
Inventory 4,928,804 2,921,412
Costs and estimated earnings in excess
of billings on uncompleted contracts 490,616 1,232,679
Other 36,248 13,365
---------- ----------
Total current assets 7,466,287 5,834,230
Property, equipment and improvements, net 232,179 198,966
Prepaid royalty fees 70,000 25,000
Security deposits and other assets 2,856 9,268
---------- ----------
Total assets $7,771,322 $6,067,464
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Bank overdraft (Note 10) $ 242,943 --
Revolving line of credit 829,914 --
Current portion of term loan 156,996 $ 156,996
Accounts payable 1,273,486 886,859
Accrued payroll, vacation, pay and
related taxes 171,286 147,726
Accrued commissions 154,517 --
Accrued other expenses 138,974 126,528
Billings in excess of costs
and estimated earnings on
uncompleted contracts 183,591 414,293
Advances from customers 81,909 9,444
---------- ----------
Total current liabilities 3,233,616 1,741,846
Term loan, net of current portion 261,680 418,678
---------- ----------
Total liabilities 3,495,296 2,160,524
---------- ----------
Stockholder's equity:
Common stock no par value, authorized
200 shares, 100 shares issued and
outstanding at stated value 5,000 5,000
Additional paid-in capital 8,300 8,300
Retained earnings 4,262,726 3,893,640
---------- ----------
Total stockholder's equity 4,276,026 3,906,940
---------- ----------
Total liabilities and stockholder's equity $7,771,322 $6,067,464
========== ==========
The accompanying notes are an integral part of these financial statements.
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TRILECTRON INDUSTRIES, INC.
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- ----------
Net sales $13,931,177 $10,521,128
Cost of goods sold 10,894,857 8,036,830
----------- -----------
Gross profit 3,036,320 2,484,298
Selling and marketing expenses 1,152,660 924,778
General and administrative expenses 926,262 849,162
----------- -----------
Income from operations 957,398 710,358
----------- -----------
Other income (expense)
Interest expense (81,661) (51,543)
Interest income 11,844 15,200
Miscellaneous income, net 8,450 --
Gain, net of expenses, related to
Navy settlement -- 13,602
----------- -----------
Other income (expense), net (61,327) (22,741)
----------- -----------
Net income $ 896,031 $ 687,617
=========== ===========
The accompanying notes are an integral part of these financial statements.
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TRILECTRON INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, 1995 AND 1994
ADDITIONAL TOTAL
COMMON PAIN-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
--------- ---------- ---------- -------------
Balances, December 31, 1993 $ 5,000 $ 8,300 $3,694,043 $ 3,707,343
Net income 687,617 687,617
Dividends paid -- -- (488,020) (488,020)
------- ---------- ---------- ------------
Balances, December 31, 1994 5,000 8,300 3,893,640 3,906,940
Net income 896,031 896,031
Dividends paid -- -- (526,945) (526,945)
------- ----------- ---------- ------------
Balances, December 31, 1995 $ 5,000 $ 8,300 $4,262,726 $ 4,276,026
======= =========== ========== ============
The accompanying notes are an integral part of these financial statements.
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TRILECTRON INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---------- -----------
Cash flows from operating activities
Net income $ 896,031 $ 687,617
---------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 86,262 109,420
(Increase) decrease in operating assets
Restricted cash -- 27,350
Accounts receivable (709,493) (325,408)
Inventory (2,007,392) (94,465)
Costs and estimated earnings in excess
of billings on uncompleted contracts 742,063 (1,232,679)
Other current assets (22,883) 8,619
Prepaid royalty fees (45,000) (25,000)
Security deposits and other assets 6,412 48,797
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 577,150 442,389
Billings in excess of costs and estimated
earnings on uncompleted contracts (230,702) 414,293
Advances from customers 72,465 (60,019)
---------- -----------
Total adjustments (1,531,118) (686,703)
---------- -----------
Net cash provided by (used)
in operating activities (635,087) 914
---------- -----------
Cash flows from investing activities
Acquisition of property, equipment
and improvements (119,475) (68,008)
---------- -----------
Net cash used in investing activities (119,475) (68,008)
---------- -----------
Cash flows from financing activities
Proceeds from revolving line of credit 829,914 --
Principal payments on term loan (156,998) (156,994)
Dividends paid (526,945) (488,020)
---------- -----------
Net cash provided by (used in) financing
activities 145,971 (645,014)
---------- -----------
Net decrease in cash (608,591) (712,108)
Cash, beginning of year 367,239 1,079,347
---------- -----------
Cash/net bank overdraft, end of year $ (241,352) $ 367,239
========== ===========
Supplementary disclosure of cash flow information:
Interest paid $ 81,661 $ 51,540
========== ===========
The accompanying notes are an integral part of these financial statements.
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TRILECTRON INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Trilectron Industries, Inc. (Company), a new York corporation, is a manufacturer
of aircraft ground power and support equipment including jet engine air start
units, aircraft air conditioning units, engine driven electrical, air
conditioning and aircraft towing products, as well as electronic and rotary
power converters and uninterrupted power supplies. The Company markets its
products to a variety of customers engaged in commercial and military aerospace
applications and its products are sold in both international and domestic
markets.
The Company's manufacturing facility and corporate headquarters are located in
Palmetto, Florida.
FINANCIAL STATEMENTS
The financial statements and notes are representations of the Company's
management who is responsible for their integrity and objectivity. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
INVENTORY
Inventories are stated at a lower of cost (first-in, first-out) or market (net
realizable value). Inventories costs on long term contracts include direct
engineering, production and tooling costs, and applicable overhead, including
general and administrative expenses.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Purchases of property, equipment and improvements are recorded at cost.
Expenditures for maintenance and repairs which do not improve efficiency or
extend the useful life are charged to operations as incurred. Depreciation is
provided on straight-line and accelerated methods over the estimated useful
lives as follows: machinery and equipment - three to seven years, furniture and
fixtures - five years and leasehold improvements - ten years.
REVENUE RECOGNITION
Generally, sales are recorded when products are shipped or services are
rendered. For certain long-term contracts, revenues are recorded on the
percentage of completion (cost to cost) method. This method is used because
management considers costs incurred to be the best available measure of progress
on these contracts. Because of the inherent uncertainties in estimating costs,
it is at least reasonably possible that the Company's estimates of costs and
revenues will change in the near term.
INCOME TAXES
The Company has elected to be taxed under the S Corporation provisions of the
internal Revenue Code. Accordingly, the tax effect of the Company's activities
accrues to the stockholder and no provision for federal income taxes is included
in the accompanying financial statements.
The Company is subject to state income taxes in New York and New Jersey. A
provision for state income taxes is included in general and administrative
expenses in the accompanying statements of income.
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TRILECTRON INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MAJOR CUSTOMERS
Net sales during 1995 were made to four major customer types: commercial
domestic (41%), commercial foreign (33%), military domestic (17%) and foreign
military (9%). The Company made sales of approximately $1.6 million and $1.4
million in 1995 to customers representing 12% and 10%, respectively, of net
sales. In 1994, the Company made sales of approximately $1.9 million, $1.0
million and $.9 million to customers representing 20%, 10% and 10%,
respectively, of net sales in that year.
CONCENTRATION OF CREDIT RISK
The Company grants credit to domestic customers based upon an evaluation of
their credit standing. Sales to most foreign customers are secured by advance
payments or by international letters of credit received prior to shipment of the
finished product.
RECLASSIFICATIONS
In order to facilitate comparison of financial data, certain amounts in the 1994
financial statements have been reclassified to conform to the 1995 presentation.
NOTE 2 - INVENTORY
Inventory consists of the following at December 31:
1995 1994
----------- -----------
Raw materials and parts $ 3,237,021 $ 2,539,489
Work in process 1,070,751 22,604
Finished goods 621,032 359,319
----------- -----------
$ 4,928,804 $ 2,921,412
=========== ===========
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TRILECTRON INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 3 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts at December 31 are as
follows:
1995 1994
----------- -----------
Costs incurred on uncompleted contracts $ 2,514,464 $ 1,285,343
Estimated earnings 960,953 491,220
----------- -----------
3,475,417 1,776,563
Less billings 3,168,392 958,177
----------- -----------
Net costs and estimated earnings in
excess of billings $ 307,025 $ 818,386
=========== ===========
Such amounts are included in the accompanying balance sheets under the following
captions:
1995 1994
----------- -----------
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 490,616 $ 1,232,679
Billings in excess of costs and estimated
earnings on uncompleted contracts (183,591) (414,293)
----------- -----------
$ 307,025 $ 818,386
=========== ===========
NOTE 4 - PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consisted of the following at December 31:
1995 1994
----------- -----------
Land $ 75,000 --
Machinery and equipment 479,800 $ 456,406
Furniture and fixtures 396,403 375,322
Leasehold improvements 92,705 92,705
----------- -----------
1,043,908 924,433
Less accumulated depreciation and
amortization (811,729) (725,467)
----------- -----------
Property, equipment and improvements, net $ 232,179 $ 198,966
=========== ===========
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TRILECTRON INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 5 - REVOLVING LINE OF CREDIT
In July 1995, the Company renewed its existing $1,500,000 revolving line of
credit agreement to June 1997. At December 31, 1995 and 1994, there was $829,914
and $0, respectively, outstanding on the line of credit. Interest accrues on the
outstanding balance at the bank's prime lending rate (8.5% at December 31, 1995)
and is to be paid quarterly. The available amount of the line at December 31,
1995 was reduced by $533,519 due to outstanding performance letters of credit
secured by the line, of which $439,424 was relieved in January, 1996. The amount
available fluctuates according to a borrowing base formula included in the
agreement. Under the terms of the agreement, the Company is required to comply
with certain debt covenants which specify the maintenance of minimum levels of
net worth and the attainment of specific financial ratios. The line is secured
by inventory, accounts receivable, equipment and fixed assets and is guaranteed
by the Company's stockholder.
NOTE 6 - TERM LOAN
The term loan matures in August 1998 and required monthly principal installments
of $13,083 plus interest at prime, which was 8.5% at December 31, 1995. The
outstanding balances at December 31, 1995 and 1994, respectively were $418,676
and $575,674 of which $156,996 was due within one year. The term loan is secured
by inventory, fixed assets and accounts receivable and is guaranteed by the
Company's stockholder.
Scheduled maturities of the term loan at December 31, 1995 are as follows:
YEAR
1996 $ 156,996
1997 156,996
1998 104,684
---------
$ 418,676
=========
In July 1995, the Company obtained a commitment from a bank for a $500,000
equipment loan which is scheduled to mature in June 1999. Advances are based on
85% of submitted invoices, with interest accruing at prime. At December 31,
1995, nothing had been advanced to the Company under this commitment. Advances
on the loan will be secured by inventory, accounts receivable, equipment and
fixed assets and are guaranteed by the Company's stockholder.
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TRILECTRON INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company leases its premises and certain equipment under various operating
leases. The premises lease provides for renewals for up to three, five-year
terms with a 10% increase in the annual rental payment upon each renewal. In
July 1993, management renewed the lease for an additional five year period at
the rate of $11,011 per month. Annual minimum rentals of premises and certain
equipment are as follows:
YEAR
----
1996 $ 178,112
1997 161,672
1998 91,972
1999 5,998
2000 2,085
---------
$ 439,839
The premises lease also requires payments of real estate taxes, insurance and
repairs to the property. In addition, the premises lease provides a purchase
option in the amount of $1,109,106, adjusted for inflation, exercisable at any
time prior to expiration. Rent expenses charged to operations was $198,000 and
$183,000 in 1995 and 1994, respectively.
The Company is currently negotiating to expand its current facilities by
approximately 32,000 square feet, and has committed to pay up to $37,000 for
certain permits and licenses for such an addition.
At December 31, 1995, the company was committed under letters of credit securing
foreign sales contracts totaling $533,519, expiring in 1996, of which $439,434
was relieved in January, 1996.
In September 1994, the Company entered into a licensing agreement with a German
company which provided the Company the exclusive right to manufacture and market
certain products in non-German speaking countries. The Company agreed to pay a
fee of $10,000 upon signing of the agreement and $5,000 per month for twenty-two
months. Such advance payments are to be used to offset 5% royalty fees due to
the German company on future product sales. In September 1995, both companies
verbally agreed to postpone advance payments until September, 1996. The advance
royalty payments of $70,000 and $25,000 in 1995 and 1994, respectively, are
considered a non-current asset.
The Company had customer orders for product delivery of approximately
$12,100,000 and $5,700,000 at December 31, 1995 and 1994, respectively. Of these
amounts, customer orders of approximately $4,700,000 and $2,000,000 related to
long-term contracts at December 31, 1995 and 1994, respectively.
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TRILECTRON INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 8 - BENEFIT PLAN
The Company maintains a 401(k) savings plan which allows eligible employees to
defer a portion of their income through contributions to the plan. Under the
provisions of the plan, the Company contributes 15% of amounts contributed by
employees to a maximum of 10% of employee compensation. The plan also contains
an option to share in profits as directed by the sole stockholder. Company
contributions to the 401(k) plan amounted to $18,207 and $17,500 for 1995 and
1994, respectively.
NOTE 9 - SELF-INSURANCE
The Company is self-insured for group health insurance. In addition, insurance
is obtained for claims in excess of $25,000 in the aggregate per individual. The
reserve for claims at December 31, 1995 and 1994 was $50,000 and $47,900,
respectively, and is included in accrued liabilities.
NOTE 10 - BANK OVERDRAFT
The bank overdraft of $242,943 at December 31, 1995 was substantially relieved
by the receipt of two wire transfers from customers on the next business day
(January 2, 1996) totaling $201,000. The remainder was covered through an "auto
borrow" facility provided with the revolving line of credit (Note 5).
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