INDEPENDENT AUDITORS' REPORT
TO: THE PARTNERS OF:
ARABIAN RECAB FOR TRADING CO. LTD.
(A Saudi limited Liability Company)
We have combined the accompanying balance sheet of ARABIAN RECAB FOR TRADING CO.
LTD. (A Saudi limited Liability Company) as of December 31, 2004 and combined
the related statements of income, changes in partners equity and cash flows for
the year then ended, and the notes from 1 to 18 which are an integral part of
these financial statements. These financial statements are the responsibility of
the Company's management, our responsibility is to convert the financial
statements which are issued by the other auditors from Saudi Riyals to U.S.
Dollars by the rate of convert 3.75 S.R / 1 U.S Dollars and the information and
explanations we obtained which we considered necessary for the purposes of our
combination. We did not audit the financial statements of ARABIAN RECAB FOR
TRADING CO. LTD. (A Saudi limited Liability Company) we did not issue any
opinion on this statement, those statement were audited by other auditors whose
report has been furnished to us by Hamad Al-Aufi (chartered accountants and
auditors) Saudi license No. 264 who issued a unqualified opinion in their report
dated May 25, 2005.
We conducted our combining in accordance with auditing standards generally
accepted in the United States of America. Those standards require evaluating the
overall financial statements presentation.
AlAzem, AlSudairy & AlNemer
Certified Public Accountants
Affiliate of Horwath International
Abdullah M. Alazem
License No. 335
4 Dhul-Qa'ada 1426H (December 6, 2005)
Riyadh, Saudi Arabia
ARABIAN RECAB FOR TRADING CO. LTD.
(A Saudi limited Liabilities Company)
COMBINED STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 2004
(U.S Dollars)
ASSETS
2004 2003
------------ ------------
Current Assets:
Cash and bank balances 166,293 536,195
Accounts receivable, net (Note 3) 15,364,298 17,056,807
Inventory (Note 2b) 2,039,390 1,816,169
Prepayments and other assets (Note 4) 4,207,365 3,473,111
------------ ------------
Total current assets 21,777,346 22,882,282
Due from Affiliates, net (Note 5) 4,968,906 3,264,522
Investment in Affiliated Companies (Notes 2c and 6) 176,267 176,267
Deferred Installment interest, net (Notes 2d and 7) 3,515,126 7,131,402
Property and Equipment, net (Notes 2e and 8a) 14,576,738 24,347,471
Preoperating Expenses, net (Notes 2f and 9) 1,243,021 1,106,731
Project Under Progress (Note 10) 514,892 534,159
Goodwill, net 508,398 554,643
------------ ------------
47,280,694 59,997,477
============ ============
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Short terms Note payable (Note 11) 1,186,906 6,665,896
Accounts payable 18,612,569 19,289,058
Revenue from Deferred Installment interest 581,501 1,609,124
Accrued expenses and other liabilities (Note 12) 2,845,021 1,561,309
------------ ------------
Total current liabilities 23,225,997 29,125,387
Long terms Note payable (Note 11) 8,386,518 1,068,724
End of Service Benefits (Note 2g) 400,518 499,290
------------ ------------
Total liabilities 32,013,033 30,693,401
------------ ------------
Partners' Equity:
Capital (Note 13) 213,333 213,333
Statutory reserve (Note 14) 106,667 106,667
Partners' current account 13,881,019 27,158,858
Retained earnings 1,066,642 1,825,218
------------ ------------
Total partners' equity 15,267,661 29,304,076
------------ ------------
47,280,694 59,997,477
============ ============
The accompanying notes are an integral part of these combined financial
statements
ARABIAN RECAB FOR TRADING CO. LTD.
(A Saudi limited Liabilities Company)
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2004
(U.S Dollars)
2004 2003
------------ ------------
Revenue (Notes 2h and 15) 29,802,899 41,216,309
Costs of revenue (24,521,038) (33,823,345)
------------ ------------
Gross income 5,281,861 7,392,964
Selling and marketing expenses (Notes 2i and 16) (1,518,258) (2,061,762)
General and administrative expenses (Notes 2i and 17) (2,616,752) (3,431,565)
Finance charges (99,840) (61,007)
Amortization of deferred installment (147,520) (873,306)
Other income, net (Note 2h) 81,626 221,973
------------ ------------
Net income before Zakat 981,117 1,187,297
Zakat (Note 2j) (24,528) (39,392)
------------ ------------
Net income for the year 956,589 1,147,905
============ ============
The accompanying notes are an integral part of these combined financial
statements
ARABIAN RECAB FOR TRADING CO. LTD.
(A Saudi limited Liabilities Company)
COMBINED STATEMENT OF CHANGES IN PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2004
(U.S Dollars)
2004 2003
----------- -----------
Capital (Note 13) 213,333 213,333
----------- -----------
Statutory reserve (Note 14) 106,667 106,667
----------- -----------
Partners' current account:
Beginning of the year 27,158,858 39,563,467
Net movement of the year (13,277,839) (12,404,609)
----------- -----------
End of the year 13,881,019 27,158,858
----------- -----------
Retained earnings:
Beginning of the year 1,825,363 2,810,363
Dividend distribution (1,715,310) (2,133,050)
Net income for the year 956,589 1,147,905
----------- -----------
End of the year 1,066,642 1,825,218
----------- -----------
Total Partners' Equity 15,267,661 29,304,076
=========== ===========
The accompanying notes are an integral part of these combined financial
statements
ARABIAN RECAB FOR TRADING CO. LTD.
(A Saudi limited Liabilities Company)
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2004
(U.S Dollars)
2004
-----------
Cash Flows from Operating Activities:
Net income for the year 956,589
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,679,764
Amortizing Preoperating expenses 121,247
Amortizing Installment interest 147,521
Amortizing Goodwill 46,245
Changes in assets and liabilities:
Accounts receivable, net 1,692,509
Inventory (223,221)
Prepayments and other assets (734,254)
Accounts payable (676,489)
Revenue from Deferred Installment interest (1,027,623)
Accrued expenses and other liabilities 1,283,712
End of service benefits (98,772)
-----------
Net cash provided by operating activities 4,167,228
-----------
Cash Flows from Investing Activities:
Purchases of property and equipment (2,337,052)
Net changes in Deferred Installment interest 3,468,755
Projects under Progress 19,267
Proceeds from sale of property and equipment 9,170,629
-----------
Net cash used in investing activities 10,321,599
-----------
Cash Flows from Financing Activities:
Net changes in Affiliates balances (1,704,384)
Net changes in Note payable 1,838,804
Dividend distribution (1,715,310)
Partners' Current Account (13,277,839)
-----------
Net cash used in financing activities (14,858,729)
-----------
Net Decrease in cash and bank balances (369,902)
Beginning cash and bank balances 536,195
-----------
Ending cash and bank balances 166,293
===========
The accompanying notes are an integral part of these combined financial
statements
ARABIAN RECAB FOR TRADING CO. LTD.
(A Saudi limited Liabilities Company)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2004
(U.S Dollars)
1. GENERAL
Arabian Recab for Trading Co. Ltd. is a limited liability company
operating in the Kingdom of Saudi Arabia under Commercial Registration No.
1010150978 issued in Riyadh and dated 18/5/1419H (Corresponding to
9/9/1998).
The accompanying financial statements represent the combined financial
statements as of December 31,2003 as follows:
o Building Materials Division operating under Commercial Registration
No. 1010150978 issued in Riyadh and dated 18/5/1419H (Corresponding
to 9/9/1998), to practice the whole sale and retail trading in motor
vehicles, spare parts, heavy equipment and its spare parts,
maintenance of the heavy equipment, buying land to construct up
buildings for investment purposes through selling or renting these
building, general construction activities of roads, water, sewage,
dams, electro-mechanical works, ornamentation, decoration and
general buildings constructions
o Transportation Division (Ministrial license No. 68 dated 28/3/1420H
Corresponding to 12/7/1999), to practice school transportation.
(Ministrial license No. 2532 dated 4/3/1421H Corresponding to
7/6/2000), to practice land transport of goods and belongings. And
operating under Sub Commercial Registration No. 1010150978/003
issued in Riyadh and dated 12/7/1421H (Corresponding to 10/10/2000).
o Trading Branch operating under Commercial Registration No.
1010150978/005 issued in Riyadh (Traffic department letter No.
7/2/7/5262 dated 28/10/1421H Corresponding to 23/1/2001), to
practice buying and selling of motor vehicles, trucks, and
equipment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in accordance with accounting
principles generally accepted in Saudi Arabia. The following is a summary
of Company's significant accounting policies:
a) Accounting Convention --
These accompanying financial statement have been prepared under the
historical cost convention using accrual basis and going concern
concept.
b) Inventory --
Inventories are stated at the lower of cost or estimated net
realizable value. Cost is arrived at using the weighted average
method. Appropriate provision is made for obsolete and slow moving
inventories, if any.
c) Investments in Affiliated Companies --
Investments in Affiliated Companies represent owner's investment of
50% and above for using equity method, accounted based on the last
financial statements for these companies.
d) Deferred Installment interest expenses-
Deferred Installment interest expenses are amortized using the
straight-line method with percentage 10 % annually.
e) Property and equipment --
Property and equipment are stated at cost net of accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets based on the
following annual percentage rates:
Transportation vehicles 10%
Heavy equipments 5 - 15%
Buses 10 - 25%
Decoration 3 - 15%
Motor vehicles 10 - 25%
Furniture and fixtures 2.5 - 20%
Electrical equipments and Computers 20%
Air conditions 10 - 20%
Prefabricated houses 10%
Office equipment 10 - 25%
Tools 25%
Advertising signs 20%
f) Preoperating expenses -
Preoperating expenses represent various costs incurred during the
period from the formation of the company until operation date.
Preoperating expenses are amortized using the straight-line method
with percentage between 6.67 - 20 % annually.
g) End of service benefits --
Benefits payable to the employees of the Company's at the end of
their services are provided for in accordance with the guidelines
set by the Saudi Arabian Labor Law.
h) Revenue recognition --
Revenue is recognized when freight policies are signed upon
satisfactory completion of contract services to customers. Other
income is recorded when earned.
i) Expenses --
Selling and distribution expenses comprise of the costs of selling
and distributing the products of the Company. Other expenses are
classified as General and administrative expenses, which include all
direct and indirect expenses that are not related to the cost of
sales in accordance to the generally accepted accounting principles.
Expenses are allocated to general and administrative expenses and
cost of sales, if any, using fixed basis.
j) Zakat -
Under the Zakat regulations of the Kingdom of Saudi Arabia, Zakat is
the obligation of the Company. Estimated Zakat is provided for in
the accompanying financial statements and charged to the statement
of income.
k) Translation of foreign currencies --
The accompanying financial statements are denominated in U.S
Dollars. Appropriate exchange rates have been used to translate
transactions or balances denominated in foreign currencies. There
were no material exchange gains or losses incurred during the year.
3. ACCOUNTS RECEIVABLE, NET
Accounts receivable comprised of the following as of December 31:
2004 2003
----------- -----------
Trade receivable 16,489,711 18,182,220
Allowances of doubtful receivable (1,125,413) (1,125,413)
----------- -----------
Net 15,364,298 17,056,807
=========== ===========
4. PREPAYMENTS AND OTHER ASSETS
a) Prepayments and other assets comprised of the following as of
December 31:
2004 2003
--------- ---------
Advance payments to suppliers 353,710 864,659
Employees receivables 341,274 476,513
Insurance 209,807 176,965
L/C & L/G margins 154,746 271,452
Rents 5,467 242,846
Unbilled revenue -- 95,281
Prepaid housing -- 34,934
Refundable deposits -- 31,338
Other debit balance (Note 5b) 3,142,361 1,279,123
--------- ---------
4,207,365 3,473,111
========= =========
b) This amount includes U.S Dollars 1,609,733 related to abandon
partner Mansour Algasim as of December 31, 2004.
5. DUE FROM (TO) RELATED PARTIES, NET
Following is a summary of related parties' balances as of December 31:
2004 2003
---------- ----------
Recab for Technology and
construction Co. 2,945,536 2,914,804
Lamion for restaurant 1,329,829 1,396,312
Granite Factory Branch 309,213 278,367
Freight and custom duty Branch 281,244 235,953
Maintenance and services Branch 65,233 72,646
Hydraulic Branch 37,018 8,841
Material Transportation Branch 833 833
Gulf Recab Co. -- 299,830
Abdullah Al-Bajady Establishment -- --
Abid Trading Company -- (1,690,796)
Dar Al-Mourabha Establishment -- (196,967)
Others -- (55,301)
---------- ----------
Net 4,968,906 3,264,522
========== ==========
6. INVESTMENTS IN AFFILIATED COMPANIES
Investments in Affiliated companies comprised of the following as of
December 31, 2004.
Ownership Rate
--------------
Recab for Technology and Construction Co. 82% 66,933
Lamion for Restaurant 50.2% 109,334
---------
176,267
=========
7. DEFERRED INSTALLMENT INTERESTS, NET
Deferred Installment Interests comprised of the following as of December
31:
2004 2003
----------- -----------
Preoperating expenses 8,788,724 10,266,030
Disposal and other adjustment (3,479,987) (1,488,538)
Accumulated amortization (1,793,611) (1,646,090)
----------- -----------
Net 3,515,126 7,131,402
=========== ===========
8. PROPERTY AND EQUIPMENT, NET
a) Property and equipment comprised of the following as of December 31:
2004 2003
-------------------------------------------- ------------
Accumulated Net Book Net Book
Cost Depreciation Value Value
------------ ------------ ------------ ------------
Land (Note 8b) 306,027 -- 306,027 306,027
Transportation vehicles 6,915,633 1,274,664 5,640,969 6,546,203
Heavy equipments 5,121,283 761,714 4,359,569 7,252,162
Buses 3,304,646 1,286,392 2,018,254 4,290,593
Decoration 2,088,465 1,039,354 1,049,111 4,199,898
Motor vehicles 1,618,678 1,035,420 583,258 1,054,412
Furniture and fixture 436,931 178,549 258,382 308,873
Electrical Eq. and Computers 159,201 68,808 90,393 105,398
Air conditions 130,217 70,968 59,249 80,809
Prefabricated houses 128,327 29,173 99,154 83,091
Office equipment 109,233 44,637 64,596 56,985
Tools 90,303 52,464 37,839 54,040
Advertising signs 20,100 10,163 9,937 8,980
------------ ------------ ------------ ------------
20,429,044 5,852,306 14,576,738 24,347,471
============ ============ ============ ============
Depreciation was amounted to U.S Dollars 2,679,764 for the year ended
December 31, 2004.
b) Land by the name of one of the Company's partners Mr. Mohammed
Albajady.
9. PREOPERATING EXPENSES, NET
Preoperating expenses comprised of the following as of December 31:
2004 2003
---------- ----------
Preoperating expenses 1,735,335 1,477,798
Accumulated amortization (492,314) (371,067)
---------- ----------
Net 1,243,021 1,106,731
========== ==========
10. PROJECT UNDER PROGRESS:
Project under progress represent advances to purchase land in Egypt for
investment purposes, where the title deed has not yet been issued until
this financial statements.
11. NOTE PAYABLE
Note payable (short and long term) represent financing letter of credit to
purchase motor vehicles from outside the Kingdom of Saudi Arabia with
different maturity dates until 2006.
12. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities comprised of the following as of
December 31:
2004 2003
--------- ---------
Salaries and benefits 921,022 761,273
Due to Employees 41,697 83,821
Zakat 24,528 39,392
Commission 10,316 71,658
Advances from customers 5,835 440,850
Rent -- 63,310
Others 1,841,623 101,005
--------- ---------
2,845,021 1,561,309
========= =========
13. CAPITAL
Capital consists of 800 shares of U.S Dollars 266.67 each fully paid and
held as of December 31, 2004 and 2003, as follows:
Number
% of Shares Amount
--------- --------- ---------
Abdullah Ayed Ali Albajady 60% 480 128,000
Ayed Ali Albajady Alshahrany 20% 160 42,667
Mohammed Ayed Ali Albajady 10% 80 21,333
Saif Ayed Ali Albajady 10% 80 21,333
--------- --------- ---------
100% 800 213,333
========= ========= =========
14. STATUTORY RESERVE
In accordance with Saudi Arabian Companies Law and the Company's Articles
of Association, 10% of the annual net income is required to be transferred
to a statutory reserve until this reserve equals 50% of the capital. This
limit was attained accordingly, no further transfer is required. This
reserve is not available for dividend distribution.
15. REVENUE
Revenue comprised of the following for the year ended December 31:
2004 2003
---------- ----------
Trading Branch 16,130,850 21,078,373
Transportation Division 11,201,915 15,551,733
Building Materials Division 2,470,134 4,586,203
---------- ----------
29,802,899 41,216,309
========== ==========
16. SELLING AND MARKETING EXPENSES
Selling and marketing expenses comprised of the following for the year
ended December 31:
2004 2003
--------- ---------
Salaries and benefits 704,788 762,220
Rent 399,739 426,618
Depreciation 171,433 307,643
Transportation 26,488 66,483
Maintenance -- 67,224
Others 215,810 431,574
--------- ---------
1,518,258 2,061,762
========= =========
17. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses comprised of the following for the
year ended December 31:
2004 2003
--------- ---------
Salaries and benefits 1,596,995 1,915,951
Rent 94,036 204,139
Depreciation 64,729 357,013
Professional fees 59,133 71,386
Bad debt -- 134,211
Others 801,859 748,865
--------- ---------
2,616,752 3,431,565
========= =========
18. RECLASSIFICATIONS
Certain reclassifications have been made to the 2003 financial statements
to conform to the classification used in 2004.