EXHIBIT 99.1
THERMAL STRUCTURES, INC.
Financial Statements for the Six Months Ended April 30, 1999
TABLE OF CONTENTS
PAGE
FINANCIAL STATEMENTS:
Balance sheet as of April 30, 1999 (unaudited) 2
Statement of income and retained earnings for the
six months ended April 30, 1999 (unaudited) 3
Statement of cash flows for the six months ended
April 30, 1999 (unaudited) 4
Notes to financial statements (unaudited) 5-8
THERMAL STRUCTURES, INC.
BALANCE SHEET
AS OF APRIL 30, 1999 (UNAUDITED)
ASSETS
Cash $ 412,000
Accounts receivable, net of allowance for doubtful accounts
of $45,000 3,296,000
Current portion of note receivable (Note 4) 145,000
Inventories (Note 2) 1,718,000
Prepaid expenses and other current assets 485,000
Deferred tax asset 149,000
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Total current assets 6,205,000
MACHINERY, EQUIPMENT, AND IMPROVEMENTS (Note 3) 780,000
OTHER ASSETS 104,000
NOTES RECEIVABLE, less current portion (Note 4) 418,000
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$ 7,507,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,308,000
Other 26,000
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Total current liabilities 1,334,000
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000,000 shares authorized;
2,460 shares issued and outstanding 221,000
Retained earnings 12,667,000
Due from affiliates (Note 5) (6,715,000)
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Total stockholders' equity 6,173,000
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$ 7,507,000
============
See accompanying notes to financial statements. 2
THERMAL STRUCTURES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
NET SALES $ 8,393,000
COST OF SALES 4,719,000
------------
GROSS PROFIT 3,674,000
OPERATING EXPENSES:
Selling, general, and administrative
expenses 1,524,000
Management fees (Note 6) 1,646,000
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Total operating expenses 3,170,000
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OPERATING INCOME 504,000
INTEREST EXPENSE, net (11,000)
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INCOME BEFORE PROVISION FOR
INCOME TAXES 493,000
PROVISION FOR INCOME TAXES 201,000
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NET INCOME 292,000
RETAINED EARNINGS, beginning of year 12,375,000
------------
RETAINED EARNINGS, end of year $ 12,667,000
============
See accompanying notes to financial statements. 3
THERMAL STRUCTURES, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 292,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 95,000
Changes in operating assets and liabilities:
Accounts receivable 618,000
Inventories (143,000)
Prepaid expenses and other current assets (411,000)
Other assets 16,000
Accounts payable and accrued expenses (403,000)
Other liabilities (2,000)
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Net cash provided by operating activities 62,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of machinery, equipment, and improvements (70,000)
Disposal of machinery, equipment, and improvements 125,000
Collection on notes receivable 71,000
---------
Net cash provided by investing activities 126,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from affiliates (379,000)
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NET DECREASE IN CASH (191,000)
CASH, beginning of year 603,000
---------
CASH, end of year $ 412,000
=========
See accompanying notes to financial statements. 4
THERMAL STRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Thermal Structures, Inc. (TSI or the Company) is a
majority-owned subsidiary of Thermal Holding, Inc., which is a wholly owned
subsidiary of California Manufacturing Enterprises, Inc. (CME or the
Parent). The Company manufactures thermal insulation devices primarily for
the aerospace industry, as well as the mass transit, automotive, and
construction industries.
FISCAL YEAR - The Company's fiscal year for financial reporting and income
tax purposes ends on the last Sunday in October.
CREDIT RISK - The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses.
INVENTORIES - Inventories are stated at the lower of cost or market; cost
is determined using the first-in, first-out method.
MACHINERY, EQUIPMENT, AND IMPROVEMENTS - Machinery, equipment, and
improvements are stated at cost less accumulated depreciation and
amortization. Property is depreciated or amortized over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
shorter of the estimated useful lives of improvements or the term of the
related lease. Assets are depreciated on a straight-line basis. The
estimated useful lives of the related assets range from five to ten years.
LONG-LIVED ASSETS - The Company accounts for impairment and disposition of
long-lived assets in accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. In accordance with SFAS
No. 121, long-lived assets to be held are reviewed for events or changes in
circumstances which indicate that their carrying value may not be
recoverable.
INCOME TAXES - The results of the operations of the Company are included in
the tax return of CME. The Company's provision in lieu of income taxes is
based on a tax-sharing agreement with CME, which, in general, allocates a
provision in lieu of income taxes to the Company as if it were calculated
on a stand-alone basis. Income taxes are accounted for in accordance with
SFAS No. 109, ACCOUNTING FOR INCOME TAXES. A valuation allowance related to
any net deferred tax assets is recorded when it is more likely than not
that some portion or all of the deferred tax asset will not be realized.
REVENUE RECOGNITION - Revenues are recognized upon shipment of products to
the customer.
RESEARCH AND DEVELOPMENT - Research and development costs consist of
expenditures incurred during the course of planned search and investigation
aimed at discovery of new knowledge which will be useful in developing new
products or processes, or significantly enhancing existing products or
production processes, and the implementation of such through design,
testing of product alternatives, or construction of prototypes. The Company
expenses all research and development costs as they are incurred.
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THERMAL STRUCTURES, INC.
2. INVENTORIES
Inventories consist of the following at April 30, 1999:
Raw materials and supplies $ 882,000
Work-in-process 437,000
Finished goods 399,000
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$1,718,000
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3. MACHINERY, EQUIPMENT, AND IMPROVEMENTS
Machinery, equipment, and improvements consist of the following at April
30, 1999:
Computer equipment $ 129,000
Machinery and equipment 1,697,000
Leasehold improvements 621,000
Office furniture and fixtures 182,000
Auto and truck 49,000
Construction-in-process 165,000
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2,843,000
Less accumulated depreciation and amortization (2,063,000)
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$ 780,000
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THERMAL STRUCTURES, INC.
4. NOTES RECEIVABLE
Notes receivable consists of the following at April 30, 1999:
8% note receivable from an individual, collateralized by
certain business assets and two deeds of trust on personal
residences, payable in monthly installments of $15,620
including interest through September 14, 2002 $ 563,000
Less current portion (145,000)
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$ 418,000
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5. DUE FROM AFFILIATES
A summary of significant balances with affiliated companies at April 30,
1999, is as follows:
Receivable from affiliates:
California Manufacturing Enterprises, Inc. $6,361,000
Quality Honeycomb, Inc. 293,000
R&R Stamping & Fourslide (dba CME Metalforming) 61,000
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$6,715,000
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The Company's parent, CME, receives substantially all cash flows resulting
from the operations of the Company. As such, the financial statements
include amounts due from affiliate within stockholders' equity representing
cash flows transferred from the Company to CME. The receivable from Quality
Honeycomb, Inc. resulted from charges for certain general management,
accounting, and administrative support provided by the Company to its
affiliate, Quality Honeycomb.
6. RELATED-PARTY TRANSACTIONS
Commencing on November 1, 1997, the Company entered into a professional
consulting agreement with a professional corporation whose shareholders are
related parties through ownership of CME. Terms of the agreement provide
for employment of the professional corporation whose duties include
management, litigation management, consulting, and marketing advice in
connection with the market position of the Company.
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THERMAL STRUCTURES, INC.
Commencing on November 1, 1997, the Company entered into a second
professional consulting agreement with a professional corporation whose
shareholder is a key member of management. Terms of the agreement provide
for employment of the professional corporation whose duties include
management, consulting, and marketing advice in connection with the market
position and sales activities of the Company.
Amounts incurred from the consulting agreements are recorded as management
fees in the Company's statement of income and retained earnings.
7. SUBSEQUENT EVENT
Effective June 30,1999, the Company consummated an agreement and plan of
merger whereby the Company's parent, Thermal Holdings, Inc., formerly a
subsidiary of California Manufacturing Enterprises, Inc. (CME), was merged
with the Company and CME. The Company continues as the surviving entity.
The Company has accounted for the merger as an exchange of common stock
between companies under common control, accordingly, assets and liabilities
transferred were accounted for at historical costs in a manner similar to
that in pooling-of-interests accounting. The accompanying financial
statements for the six months ended April 30, 1999 were not retroactively
restated to reflect this transaction due to immateriality.
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