Exhibit 99.2
SVPC PARTNERS, LLC
FINANCIAL STATEMENTS
PERIOD FROM JANUARY 12, 2001 (INCEPTION)
TO DECEMBER 31, 2001
WITH INDEPENDENT AUDITORS' REPORT
CONTENTS
Page
Independent Auditors' Report 1
Financial Statements:
Balance Sheet 2
Statement of Operations 3
Statement of Members' Equity 4
Statement of Cash Flows 5-6
Notes to Financial Statements 7-16
[LETTERHEAD OF STONEFIELD JOSEPHSON, INC.]
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
SVPC Partners, LLC
Santa Clara, California
We have audited the accompanying balance sheet of SVPC Partners, LLC as of
December 31, 2001, and the related statements of operations, stockholders'
equity, and cash flows for the period from January 12, 2001 (inception) to
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
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 financial statements referred to above present fairly, in
all material respects, the financial position of SVPC Partners, LLC as of
December 31, 2001, and the results of its operations and its cash flows for the
period from January 12, 2001 (Inception) to December 31, 2001, 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 1 to the
accompanying financial statements, the Company's significant working deficit
raises substantial doubt about its ability to continue as a going concern.
Management plans to continue its operations are disclosed in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Irvine, California
June 7, 2002 (except for Note 7, which is as of
July 16, 2002 and Note 13, which is as of
August 5, 2002)
SVPC PARTNERS, LLC
BALANCE SHEET - DECEMBER 31, 2001
ASSETS
Current assets:
Cash and cash equivalents $ 28,247
Factor receivable, net of allowance for
doubtful account of $10,000 648,543
Accounts receivable, net of allowance
for doubtful account of $10,000 339,794
Inventories 378,490
Other current assets 60,989
-----------
Total current assets 1,456,063
Property, plant and equipment, net of accumulated
depreciation and amortization 4,079,682
Intangible assets, net of accumulated amortization 58,645
Other assets 23,777
-----------
$ 5,618,167
===========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses 590,024
Loans and notes payable, including $10,000 to
related party 3,435,167
Current portion of long-term debt 116,914
Current portion of capital lease obligations 102,253
-----------
Total current liabilities 4,244,358
Long-term debt, less current portion 202,982
Capital lease obligations, less current portion 407,346
Members' capital 763,481
-----------
$ 5,618,167
-----------
See accompanying independent auditors' report and notes to financial statements.
2
SVPC PARTNERS, LLC
STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 12, 2001 (INCEPTION)
TO DECEMBER 31, 2001
Revenues $ 3,715,252
Cost of revenues 3,108,569
-----------
Gross profit 606,683
Operating expenses:
Sales and marketing 428,463
General and administrative expenses 584,750
-----------
Loss from operations (406,530)
-----------
Other income (expense):
Interest expense (149,779)
Miscellaneous 10,510
-----------
Total other income (expense) (139,269)
-----------
Loss before provision for income taxes (545,799)
Income taxes _
-----------
Net loss $ (545,799)
===========
See accompanying independent auditors' report and notes to financial statements.
3
SVPC PARTNERS, LLC
STATEMENT OF MEMBERS' EQUITY
PERIOD FROM JANUARY 12, 2001 (INCEPTION)
TO DECEMBER 31, 2001
Total
Contributed Accumulated members'
capital deficit equity
------- ------- ------
Balance at January 12, 2001 $ - $ - $ -
(inception)
Capital contributions 1,309,280 - 1,309,280
Net loss - (545,799) (545,799)
----------- ---------- ----------
Balance at December 31, 2001 $ 1,309,280 $ (545,799) $ 763,481
=========== ========== ==========
See accompanying independent auditors' report and notes to financial statements.
4
SVPC PARTNERS, LLC
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 12, 2001
(INCEPTION) TO DECEMBER 31, 2001
Cash flows provided by (used for) operating activities:
Net loss $ (545,799)
----------
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 207,765
Bad debt 20,000
Loan fees to lender 100,000
Changes in assets and liabilities:
(Increase) decrease in assets
Accounts receivable (82,428)
Inventories (42,645)
Other current assets 33,875
Other assets (8,552)
Increase (decrease) in liabilities
Accounts payable and accrued expenses 236,474
----------
Total adjustments 464,489
----------
Net cash used by operating activities (81,310)
----------
Cash flows provided by (used for) investing activities:
Purchases of assets pursuant to purchase agreement
dated June 19, 2001 (914,970)
Purchases of fixed assets (22,794)
----------
Net cash used by investing activities (937,764)
----------
Cash flows provided by (used for) financing activities:
Principal proceeds from loans, member 10,000
Payments on loans and notes payable (119,760)
Payments on long-term debt (46,604)
Payments on capital lease obligation (40,401)
Proceeds from contributions by members 1,244,086
----------
Net cash provided by financing activities 1,047,321
----------
Net increase (decrease) in cash 28,247
Cash, beginning of year -
----------
Cash, end of year $ 28,247
----------
See accompanying independent auditors' report and notes to financial statements.
5
SVPC PARTNERS, LLC
STATEMENT OF CASH FLOWS (CONTINUED)
PERIOD FROM JANUARY 12, 2001
(INCEPTION) TO DECEMBER 31, 2001
Supplemental disclosure of cash flow information:
Interest paid $ 130,194
==========
Income tax paid $ 800
==========
Non cash activities:
Loans and notes payable incurred for purchase of property
and equipment $ 175,000
==========
Long-term debt incurred for purchase of property
and equipment $ 366,500
==========
Capital lease obligations incurred for purchase of property
and equipment $ 550,000
==========
Loan payable incurred for purchase of assets $3,269,927
==========
Member contributions of intangible assets in exchange for
the Company's interest $ 65,194
==========
See accompanying independent auditors' report and notes to financial statements.
6
SVPC PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM JANUARY (INCEPTION)
TO DECEMBER 31, 2001
(1) Summary of Significant Accounting Policies:
Business Activity:
SVPC Partners, LLC (the "Company") was formed on January 12,
2001, as a Delaware limited liability company, with its
principal office in Santa Clara, California. On July 16, 2001,
the Company purchased a substantial amount of assets and
assumed liabilities of a business through the bankruptcy court
to commence its operations. Details are summarized in Note 2.
The Company manufactures printed circuited boards, with
emphasis on time critical production for both prototype and
low-to-medium volume orders, in its Santa Clara facilities.
Its customers are located throughout the United States with a
concentration in California.
Basis of Presentation:
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles,
which contemplate continuation of the Company as a going
concern. As of December 31, 2001, the Company has working
deficit of $2,788,295.
Management plans to take the following steps that it believes
will be sufficient to provide the Company with the ability to
continue in existence:
Management intends to merge with an affiliate and to raise
financing through the sale of its stock on the public market
through a reverse merger. Management believes that with this
financing, the Company will be able to generate additional
funding that will allow the Company to continue as a going
concern. The financial statements do not include any
adjustments that might result from the outcome of the
uncertainty.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles 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.
Revenue Recognition:
Revenues are recorded when products are shipped to customers.
Provisions for discounts to customers, estimated returns and
allowances, and other adjustments are provided for in the same
period the related revenues are recorded.
See accompanying independent auditors' report. 7
SVPC PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 12, 2001 (INCEPTION)
TO DECEMBER 31, 2001
(1) Summary of Significant Accounting Policies, Continued:
Cash and Cash Equivalents:
For purposes of the statement of cash flows, cash equivalents
include all highly liquid debt instruments with original
maturities of three months or less which are not securing any
corporate obligations. The Company had no cash equivalents at
December 31, 2001.
Factor and Accounts Receivable:
The Company provides an allowance for doubtful accounts equal
to the estimated uncollectible amounts. The Company's estimate
is based on historical collection experience and a review of
the current status of trade accounts receivable. It is
reasonably possible that the Company's estimate of the
allowance for doubtful accounts will change. Accounts
receivable are presented net of an allowance for doubtful
accounts of $20,000 at December 31, 2001.
Inventories:
Inventories are stated at the lower of cost (first-in,
first-out basis) or market (net realizable value).
Property, Plant and Equipment:
Property, plant, and equipment are valued at cost.
Depreciation and amortization are provided over the estimated
useful lives of three to fifteen years using the straight-line
method. Leasehold improvements are amortized on a
straight-line basis over the lease term.
The estimated service lives of property, plant and equipment
are as follows:
Automobile 5 years
Office equipment 7 years
Buildings 15 years
Production equipment 7 years
Leasehold improvement 3 years
Software 3 years
Intangible Assets:
Customer list represents the customer accounts acquired, which
is amortized on a straight-line basis over a period of five
years commencing on the date of the acquisition. Accumulated
amortization was $6,549 at December 31, 2001.
See accompanying independent auditors' report. 8
SVPC PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 12, 2001 (INCEPTION)
TO DECEMBER 31, 2001
(1) Summary of Significant Accounting Policies, Continued:
Long-Lived Assets:
In accordance with SFAS 121 "Accounting For The Impairment of
Long-Lived Assets and For Long-Lived Assets to Be Disposed
Of," long-lived assets to be held and used are analyzed for
impairment whenever events or changes in circumstances
indicate that the related carrying amounts may not be
recoverable. The Company evaluates at each balance sheet date
whether events and circumstances have occurred that indicate
possible impairment. If there are indications of impairment,
the Company uses future undiscounted cash flows of the related
asset or asset grouping over the remaining life in measuring
whether the assets are recoverable. In the event such cash
flows are not expected to be sufficient to recover the
recorded asset values, the assets are written down to their
estimated fair value. Long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value of the
asset less cost to sell.
Advertising:
The Company expenses advertising costs when incurred.
Advertising expense totaled $13,182 for the period ended
December 31, 2001.
Income Taxes:
The Company was formed as a limited liability company. Under
the Internal Revenue provisions, the members are liable for
income tax on their respective shares of the Company's taxable
income. In addition, the Company is subject to an $800 annual
tax for California and a fee based on the Company's annual
revenues. The fee ranges from $900 to $11,790, depending on
the revenues. The fee the Company is subject to pay is $6,000
for the period ended December 31, 2001.
Fair Value of Financial Instruments:
The carrying amount of the Company's cash and cash
equivalents, accounts receivable, notes payable, accounts
payable and accrued expenses, none of which is held for
trading, approximates their estimated fair values due to the
short-term maturities of those financial instruments.
Comprehensive Income:
SFAS No. 130, "Reporting Comprehensive Income," establishes
standards for the reporting and display of comprehensive
income and its components in the financial statements. As of
December 31, 2001, the Company has no items that represent
other comprehensive income and, therefore, has not included a
schedule of comprehensive income in the financial statements.
See accompanying independent auditors' report. 9
SVPC PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 12, 2001 (INCEPTION)
TO DECEMBER 31, 2001
(1) Summary of Significant Accounting Policies, Continued:
Segment Reporting:
Based on the Company's integration and management strategies,
the Company operated in a single business segment. For the
period ended December 31, 2001, all revenues have been derived
from domestic operations.
New Accounting Pronouncements:
In July 2001, the FASB issued SFAS No. 141 "Business
Combinations." SFAS No. 141 supersedes Accounting Principles
Board ("APB") No. 16 and requires that any business
combinations initiated after June 30, 2001 be accounted for as
a purchase, therefore, eliminating the pooling-of-interest
method defined in APB 16. The statement is effective for any
business combination initiated after June 30, 2001, and shall
apply to all business combinations accounted for by the
purchase method for which the date of acquisition is July 1,
2001 or later. The adoption of this statement did not have a
material impact to the Company's financial position or results
of operations since the Company has not participated in such
activities covered under this pronouncement.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and
Other Intangibles." SFAS No. 142 addresses the initial
recognition, measurement and amortization of intangible assets
acquired individually or with a group of other assets (but not
those acquired in a business combination), and addresses the
amortization provisions for excess cost over fair value of net
assets acquired or intangibles acquired in a business
combination. The statement is effective for fiscal years
beginning after December 15, 2001, and is effective July 1,
2001 for any intangibles acquired in a business combination
initiated after June 30, 2001. The Company does not expect the
adoption to have a material impact on the Company's financial
position or results of operations.
In October 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations," which requires companies to
record the fair value of a liability for asset retirement
obligations in the period in which they are incurred. The
statement applies to a company's legal obligations associated
with the retirement of a tangible long-lived asset that
results from the acquisition, construction, and development or
through the normal operation of a long-lived asset. When a
liability is initially recorded, the company would capitalize
the cost, thereby increasing the carrying amount of the
related asset. The capitalized asset retirement cost is
depreciated over the life of the respective asset while the
liability is accreted to its present value. Upon settlement of
the liability, the obligation is settled at its recorded
amount or the company incurs a gain or loss. The statement is
effective for fiscal years beginning after June 30, 2002. The
Company does not expect the adoption to have a material impact
to the Company's financial position or results of operations.
See accompanying independent auditors' report. 10
SVPC PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 12, 2001 (INCEPTION)
TO DECEMBER 31, 2001
(1) Summary of Significant Accounting Policies, Continued:
New Accounting Pronouncements, Continued:
In October 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." Statement
144 addresses the accounting and reporting for the impairment
or disposal of long-lived assets. The statement provides a
single accounting model for long-lived assets to be disposed
of. New criteria must be met to classify the asset as an asset
held-for-sale. This statement also focuses on reporting the
effects of a disposal of a segment of a business. This
statement is effective for fiscal years beginning after
December 15, 2001. The Company does not expect the adoption to
have a material impact to the Company's financial position or
results of operations.
(2) Business Purchase:
On July 16, 2001, the Company purchased a substantial amount of assets
and assumed liabilities of SVPC Circuit System, Inc. (Circuit System),
a manufacturer of printed circuited boards, through the bankruptcy
court. The Company continued Circuit System's core business after the
acquisition. The purchase constitutes a business acquisition and was
accounted for using the purchase method of accounting. Accordingly, the
operating results of this acquired business, SVPC Circuit System, Inc.,
have been included in the accompanying financial statements since the
date of the acquisition. The total purchase price of $5,786,397 was
allocated among assets acquired and liabilities assumed based on their
estimated fair values at the date of purchase.
The Company acquired Circuit System through cash payments of $914,970
and other short-term and long-term loans totaling $4,871,427.
Assets and liabilities are recorded at their fair values. Accounts
receivable, other current assets, other assets, accounts payable and
accrued expenses are recorded at the carrying values from Circuit
System, which approximate the fair values. Inventories were valued
based on the carrying values less the reduction of inventory values due
to obsolescence. Land and buildings are based on the amounts stated in
the appraisal. Remaining purchase price was assigned to property and
equipment, which approximates fair value based on the management's
assessment.
The following table presents the allocation of the purchase price to
the assets acquired and liabilities assumed:
Accounts receivable, net $ 1,435,909
Inventories 335,845
Other current assets 181,533
Land and buildings 1,900,000
Property and equipment 2,271,435
Other assets 15,225
Accounts payable and accrued expenses (353,550)
--------------
Purchase price $ 5,786,397
==============
See accompanying independent auditors' report. 11
SVPC PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 12, 2001 (INCEPTION)
TO DECEMBER 31, 2001
(3) Factor Accounts Receivable and Factoring Agreement:
Pursuant to a factoring agreement, Oxford Capital Illinois LLC acts as
the Company's factor for the majority of its receivables, which are
assigned on a pre-approved basis. Under the agreement, advances to the
Company are subject to recourse for accounts remain unpaid 90 days
after the assignment to Oxford. The advances for factored receivables
are limited to 85% of the factored receivable assigned. At December 31,
2001, the factoring charge amounted to 0.4% of the face amount of
receivables assigned.
A summary of the receivable at December 31, 2001 is as follows:
Receivables assigned to factor $ 1,065,075
Advances from factor (406,532)
-------------
Amounts due from factor 658,543
Allowance for doubtful account (10,000)
-------------
$ 648,543
=============
(4) Inventories:
Inventories consist of the following:
Raw materials $ 260,949
Work in process 117,541
-------------
$ 378,490
=============
(5) Property, Plant and Equipment:
A summary is as follows:
Automobile $ 10,984
Office equipment 16,421
Land and buildings 1,900,000
Production equipment 2,330,277
Leasehold improvement 17,280
Software 5,936
-------------
4,280,898
Less accumulated depreciation and amortization 201,216
-------------
$ 4,079,682
============
Depreciation and amortization expense for property, equipment, and
improvements amounted to $201,216 period ended December 31, 2001.
See accompanying independent auditors' report. 12
SVPC PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 12, 2001 (INCEPTION)
TO DECEMBER 31, 2001
(6) Intangible Assets:
A summary is as follows:
Customer list $ 65,194
Less accumulated amortization 6,549
-------------
$ 58,645
=============
Amortization expense for intangible assets amounted to $6,549 for the
year ended December 31, 2001.
(7) Loans and Notes Payable:
The Company has a term loan related to the acquisition of Circuit
System. The loan originally matured on November 15, 2001, and was
extended to January 14, 2002. In January 2002, this loan was extended
to July 15, 2002 and extended again to September 15, 2002. Beginning
January 15, 2002, the Company was required to make monthly payments of
$25,000. This term loan bears interest at 2% over prime and is secured
by (i) all intangible assets; (ii) equipment excluding those under
financing or lease arrangements; (iii) investment properties including
the shopping center owned by Ohio Investors of Wisconsin, an affiliate
of the Company; (iv) cash in bank; and (v) California real properties
including all property improvements. As of December 31, 2001, the
unpaid balance of this loan was $3,343,500.
The Company has an unsecured loan payable to a member of the Company.
The loan bears interest of 10% per annum and is due on demand. As of
December 31, 2001, the balance of this loan was $10,000.
The Company has an outstanding note payable related to an equipment
purchase. This note bears interest at 6.25% and is secured by
production equipment. The Company is required to make monthly payments
of $12,396, including interest, through July 2002. As of December 31,
2001, the remaining unpaid balance of this note was $81,667.
(8) Long-Term Debt:
A summary is as follows:
Unsecured 6.25% note payable to a
financing company, payable in monthly
installments of $11,133, including
interest, through May 2003 $ 319,896
Less current maturities 116,914
--------------
$ 202,982
==============
See accompanying independent auditors' report. 13
SVPC PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 12, 2001 (INCEPTION)
TO DECEMBER 31, 2001
(8) Long-Term Debt, Continued:
A summary of the maturities of long-term debt at December 31, 2001
follows:
Year ending December 31,
2002 $ 116,914
2003 124,434
2004 78,548
Thereafter -
-------------
$ 319,896
=============
(9) Obligations Under Capital Leases:
The following is a schedule by years of future minimum lease payments
required under capital lease obligations together with the present
value of the net minimum lease payments as of December 31, 2001:
Year ending December 31,
2002 $ 137,005
2003 137,005
2004 137,005
2005 137,005
2006 51,325
Thereafter -
-------------
Total minimum lease payments 599,345
Less amounts representing interest 89,746
-------------
Present value of net minimum lease payments 509,599
Less current portion 102,253
-------------
$ 407,346
=============
The cost of property and equipment under capitalized lease obligations
was $550,000 with related accumulated depreciation and amortization of
$39,286.
(10) Retirement Plan:
The Company sponsors a 401(k) plan for the benefits of employees who
have completed at least 12 months of service and are at least 21 years
of age. The Company's management determines, at its discretion, the
annual and matching contribution. The Company did not make any
contribution to the Plan for the period ended December 31, 2001.
See accompanying independent auditors' report. 14
SVPC PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 12, 2001 (INCEPTION)
TO DECEMBER 31, 2001
(11) Commitments:
The Company leases its facility from a leasing company. The following
is a schedule by years of future minimum rental payments required under
operating leases that have noncancellable lease terms in excess of one
year as of December 31, 2001:
Real estate Other Total
----------- ----- -----
Year ending December 31,
2002 $ 182,700 $ - $ 182,700
2003 182,700 - 182,700
2004 182,700 - 182,700
2005 76,125 - 76,125
Thereafter - - -
---------- ---------- ----------
Total $ 624,225 $ - $ 624,225
========== ========== ==========
All leases expire prior to June 2005. Real estate taxes, insurance, and
maintenance expenses are obligations of the Company. Rent expense for the period
ended December 31, 2001 totaled $92,915.
In May 2001, the Company entered into a consulting agreement with a
related party. Under the agreement, this related party will provide consulting
service to the Company and will receive $9,000 monthly consulting fees. The
agreement expires in April 2003. During 2001, the Company accrued and paid
$45,000 of consulting fees to this related party.
In July 2001, the Company entered into an employment agreement with an
employee. Under the agreement, the Company will pay this employee base salary
plus bonuses, which are based on monthly sales. In addition, the Company has
given 5% of the Company's interest for the customers this employee contributed
to the Company. This agreement expires in July 2006.
In July 2001, the Company entered an employment agreement with an
employee. Under the agreement, the Company will pay this employee base salary.
In addition, the Company has given 5% of the Company's interest as compensation.
This agreement expires in July 2006.
(12) Concentrations:
One customer accounted for approximately 10% of the Company's revenues
for 2001. At December 31, 2001, accounts receivable included outstanding balance
of $176,690 from this customer.
Three vendors accounted for approximately 66% of the Company's
purchases for 2001. At December 31, 2001, accounts payable included outstanding
balance of $95,237 owed to these three vendors.
See accompanying independent auditors' report. 15
SVPC PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 12, 2001 (INCEPTION)
TO DECEMBER 31, 2001
(13) Subsequent Events:
In August 2002, Titan EMS, Inc. (Titan), an affiliated company, entered
into discussions with the Company of acquiring substantially all assets and
assumed substantially all liabilities, except for the real estates with a cost
of $1.9 million and related secured loans of approximately $3.3 million at
December 31, 2001. In exchange for this, Titan will issue to SVPC partners of
800,000 shares of Titan's common stock. Ohio Investors, an affiliated company,
pledged as collateral, certain real estate assets to secure the loan and obtain
a release from the Bank's secured position in certain equipment. Additionally,
the Company paid down $250,000 of the loan as part of this agreement.
On July 3, 2002, Ventures-National, Inc. (Ventures) entered into a
Letter of Intent with Titan, to exchange its shares for Titan's common stock.
Under the agreement, Ventures will issue 6,780,490 shares in exchange for the
issued and outstanding common stock of Titan. The stockholders of Titan will
receive one share of the common stock of Ventures for each share of Titan's
common stock they owned immediately prior to the closing of the transaction.
This transaction will be treated as a reverse merger with the shareholders of
Titan as the controlling shareholders after the exchange of shares and
accordingly, Titan will be treated as the acquirer for accounting purposes.
See accompanying independent auditors' report. 16