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Exhibit 99.1
Independent Auditor's Report
To the Stockholders
Uniflame, Inc.
(An Illinois Corporation)
1817 North Kenosha Road
Zion, Illinois 60099
We have audited the accompanying balance sheets of UNIFLAME, INC., (An Illinois
Corporation) as of December 31, 1999 and 1998, and the related statements of
income, stockholders' equity and cash flows for the years 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 audits.
We conducted our audits 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 audits provide 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 UNIFLAME, INC. as of December
31, 1999 and 1998, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Friduss, Lukee, Schiff & Co., P.C.
Certified Public Accountants
Chicago, Illinois
March 1, 2000
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Uniflame, Inc.
Balance Sheets
December 31, 1999 and 1998
Assets
1999 1998
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CURRENT ASSETS
Cash $ -- $ 79,413
Accounts receivable (net of estimated
uncollectible receivables of $90,000 in 1999
and $20,000 in 1998) (Notes 3 and 6) 1,763,345 1,556,177
Other receivables 18,391 36,620
Inventories (Notes 2 and 3) 1,956,850 2,417,071
Prepaid expenses 66,385 62,596
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TOTAL CURRENT ASSETS 3,804,971 4,151,877
PROPERTY AND EQUIPMENT
(Notes 2, 3, and 4)
Machinery and equipment 761,134 621,119
Furniture and fixtures 144,541 157,670
Vehicles 63,734 85,316
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969,409 864,105
Less: Accumulated depreciation (657,657) (563,007)
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NET PROPERTY AND EQUIPMENT 311,752 301,098
OTHER ASSETS
Security deposits 50,000 50,000
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TOTAL OTHER ASSETS 50,000 50,000
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TOTAL ASSETS $ 4,166,723 $ 4,502,975
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The accompanying notes are an integral part of the financial statements.
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Uniflame, Inc.
Balance Sheets
December 31, 1999 and 1998
LIABILITIES AND STOCKHOLDER'S EQUITY
1999 1998
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CURRENT LIABILITIES
Notes payable - line of credit (Note 3) $ -- $1,900,000
Current maturities of long-term debt (Note 4) 11,094 11,561
Bank overdraft 74,660 --
Accounts payable 668,345 217,885
Accrued expenses 171,285 131,013
Accrued income taxes 22,500 5,500
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TOTAL CURRENT LIABILITIES 947,884 2,265,959
LONG-TERM DEBT (Note 4) 10,746 21,822
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TOTAL LIABILITIES 958,630 2,287,781
STOCKHOLDERS' EQUITY
Common stock - par value - $1,000;
1,000 shares authorized; 49 shares
issued and outstanding 49,000 49,000
Retained earnings 3,159,093 2,166,194
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TOTAL STOCKHOLDERS' EQUITY 3,208,093 2,215,194
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,166,723 $4,502,975
========== ==========
The accompanying notes are an integral part of the financial statements.
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Uniflame, Inc.
Statements of Income
Years ended December 31, 1999 and 1998
1999 1998
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REVENUES
Net Sales $ 20,397,925 $ 16,655,424
Other Income 717,775 400,422
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TOTAL REVENUES 21,115,700 17,055,846
OPERATING EXPENSES
Cost of Sales 16,499,082 13,830,805
Selling, general and administrative expenses 3,131,355 2,674,252
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TOTAL OPERATING COSTS AND EXPENSES 19,630,437 16,505,057
OPERATING INCOME 1,485,263 550,789
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OTHER INCOME (EXPENSE)
Interest expense (103,110) (278,129)
Loss on the sale and disposal of property
and equipment (18,219) --
Interest income 9,854 --
Miscellaneous income 11,504 12,662
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TOTAL OTHER INCOME (EXPENSE) (99,971) (265,467)
INCOME BEFORE PROVISION FOR INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (Note 2) 1,385,292 285,322
PROVISION FOR INCOME TAXES 22,500 5,510
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INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (Note 2) 1,362,792 279,812
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 19,893 --
------------ ------------
NET INCOME $ 1,342,899 $ 279,812
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The accompanying notes are an integral part of the financial statements.
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Uniflame, Inc.
Statements of Stockholders' Equity
December 31, 1999 and 1998
COMMON RETAINED
STOCK EARNINGS TOTAL
------- ----------- -----------
Balance at December 31, 1997 $49,000 $ 2,636,382 $ 2,685,382
Net income -- 279,812 279,812
Distributions to stockholders -- (750,000) (750,000)
------- ----------- -----------
Balance at December 31, 1998 49,000 2,166,194 2,215,194
Net income -- 1,342,899 1,342,899
Distributions to stockholders -- (350,000) (350,000)
------- ----------- -----------
Balance at December 31, 1999 $49,000 $ 3,159,093 $ 3,208,093
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The accompanying notes are an integral part of the financial statements.
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Uniflame, Inc.
Statements of Cash Flows
Years ended December 31, 1999 and 1998
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,342,899 $ 279,812
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 183,340 195,108
Cumulative effect of change in accounting principle 19,893 --
Loss on sale of property and equipment 18,219 --
(Increase) decrease in accounts receivable (207,168) 625,802
Decrease (increase) in other receivables 18,229 (36,620)
Decrease (increase) in inventories 460,221 (496,891)
(Increase) decrease in prepaid expenses (3,789) 4,629
Increase in bank overdraft 74,660 --
Increase in accounts payable 450,460 20,509
(Decrease) in accrued expenses 40,272 (2,940)
Increase (decrease) in accrued income taxes 17,000 (6,923)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,414,236 582,486
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 5,257 --
Payments for property and equipment (237,363) (47,476)
Loan from stockholders -- 129,330
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NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (232,106) 81,854
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments to) proceeds from notes payable -
line of credit (1,900,000) 100,000
Payments on long-term debt (11,543) (6,155)
Distributions to stockholders (350,000) (750,000)
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NET CASH (USED IN) FINANCING ACTIVITIES (2,261,543) (656,155)
(DECREASE) INCREASE IN CASH (79,413) 8,185
CASH - BEGINNING OF YEAR 79,413 71,228
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CASH - END OF YEAR $ -- $ 79,413
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The accompanying notes are an integral part of the financial statements.
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Uniflame, Inc.
Statements of Cash Flows (Continued)
Years ended December 31, 1999 and 1998
1999 1998
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 103,110 $ 278,129
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Corporate income taxes $ 3,695 $ 12,433
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The accompanying notes are an integral part of the financial statements.
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Uniflame, Inc.
Notes to Financial Statements
Years ended December 31, 1999 and 1998
NOTE 1 - NATURE OF ACTIVITIES
Uniflame, Inc. is a wholesaler of fireplace accessories, garden
accessories and barbecues.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues and related expenses are recognized when products are shipped
to customers.
CASH
The Company maintains its cash in bank deposit accounts, which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk for cash.
INVENTORIES
For financial reporting, inventories are valued at the lower of cost
(first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are valued at cost. Depreciation is calculated
using accelerated methods of the estimated useful lives, which range
from 3 to 7 years. The assets and the related accumulated depreciation
are relieved for such assets retired or otherwise disposed of, and any
resulting profit or loss is included in income in the year of sale or
retirement.
Long-lived assets used in the Company's operations are reviewed for
impairment when changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
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Uniflame, Inc.
Notes to Financial Statements
Years ended December 31, 1999 and 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, Statement of Position (SOP) No. 98-5, "Reporting on the
Costs of Start-Up Activities" was issued. This SOP provides guidance on
the financial reporting of start-up costs and organization costs, and
requires that these costs be expensed as incurred effective for fiscal
years beginning after December 15, 1998. As of January 1, 1999, the
unamortized organization costs were written off and accounted for as a
cumulative effect of a change in accounting principle. The effect of
this change was to decrease the 1999 income by $19,893.
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.
INCOME TAXES
On January 1, 1991, the stockholders elected to have the Corporation
treated as an S Corporation. Under the S Corporation provisions of the
Internal Revenue Code, the income or losses of the corporation flow
directly through to the stockholders on their individual tax returns.
The Corporation is subject to replacement income tax under the laws of
the State of Illinois.
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Uniflame, Inc.
Notes to Financial Statements
Years ended December 31, 1999 and 1998
NOTE 3 - NOTES PAYABLE - LINE OF CREDIT 1999 1998
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The Company had a revolving line of
credit with a bank in the amount of
$8,500,000 due May 31, 1999 bearing
interest at .25% above the bank's
prime rate (7.75% at December 31, 1998).
The note was secured by all assets of
Uniflame, Inc. and personally guaranteed
by the stockholders up to $2,000,000. -- $ 1,900,000
The Company has a revolving line of
credit with a bank in the amount of
$8,500,000 due May 31, 2000 bearing
interest at .25% above the bank's
prime rate (8.50% at December 31, 1999).
The note is secured by all assets of
Uniflame, Inc. -- --
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TOTAL $ -- $ 1,900,000
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NOTE 4 - LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists of:
1999 1998
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Installment note payable in 48 monthly
installments of $677, bearing interest
at 7.75%. Secured by a vehicle. Final
payment due May 2002. 17,740 24,196
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Uniflame, Inc.
Notes to Financial Statements
Years ended December 31, 1999 and 1998
NOTE 4 - LONG-TERM DEBT - (Continued)
1999 1998
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Installment note payable in monthly
installments of $471, bearing interest
at 8.25%, final payment due September 2002.
Secured by a vehicle 4,100 9,187
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$ 21,840 $ 33,383
Less: current maturities (11,094) (11,561)
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TOTAL LONG-TERM DEBT $ 10,746 $ 21,822
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Following are maturities of long-term debt as of December 31, 1999:
Year Ended December 31 Amounts
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2000 $ 11,094
2001 7,556
2002 3,190
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Total $ 21,840
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NOTE 5 - LEASE COMMITMENTS
The Company leases their current warehouse space which is owned by
related parties through March 2005. Minimum future rental payments on
warehouse space as of December 31, 1999 are as follows:
Year Ended December 31 Amounts
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2000 $ 300,000
2001 300,000
2002 300,000
2003 300,000
2004 300,000
Thereafter 75,000
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TOTAL $ 1,575,000
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Total rental expense amounted to $300,000 for the years ended December
31, 1999 and 1998.
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Uniflame, Inc.
Notes to Financial Statements
Years ended December 31, 1999 and 1998
NOTE 6 - ACCOUNTS RECEIVABLE
Following is a summary of accounts receivable at December 31, 1999 and
1998.
1999 1998
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Accounts receivable (net of estimated
uncollectible receivables) $1,863,345 $1,636,177
Less: Estimated freight and return allowances (100,000) (80,000)
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Accounts receivable, net $1,763,345 $1,556,177
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NOTE 7 - MAJOR CUSTOMERS
For the year ended December 31, 1999, two customers accounted for
44.20% of the Company's total sales, whereas for the year ended
December 31, 1998, two customers accounted for 42.26% of the Company's
total sales. At December 31, 1999, one customer accounted for 28.20% of
the gross accounts receivable balance and at December 31, 1998, two
customers accounted for 36.5% of the gross accounts receivable balance.
NOTE 8 - CONTINGENT LIABILITIES
As of December 31, 1999, the Company had $696,715 in open letters of
credit.
As of December 31, 1998, the Company had $151,471 in open letters of
credit.
There is a declaratory judgement act under the trademark statutes, and
Uniflame, Inc. is requesting a judgment from the court that Uniflame,
Inc.'s line of charcoal barbecue grills do not infringe on any of
Weber's trademarks of trade dress. Weber has counter claimed that
Uniflame, Inc. breached a 1997 settlement agreement regarding similar
subject matter.
The case is in the discovery phase. The Company is contesting the case
vigorously with the ultimate goal of obtaining an out-of-court
settlement from Weber. In the event of an unfavorable outcome, Weber
has indicated that they would prefer Uniflame, Inc. not to sell the
accused goods any longer. If Weber proceeds for damages, it would
request Weber's loss profits for grills sold to date. At this time the
final outcome cannot be determined.
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Uniflame, Inc.
Notes to Financial Statements
Years ended December 31, 1999 and 1998
NOTE 9 - PROFIT SHARING PLAN
On January 1, 1998, the Company started a 401(k) plan in which the
Company may, at its discretion, match employees' contributions. The
Company made a contribution of $27,631 for the year ended December 31,
1999. No contributions were made in 1998.
NOTE 10 - ROYALTY AGREEMENT
Uniflame, Inc. has entered into a license agreement with an unrelated
party. The agreement expires on October 31, 2003. Uniflame, Inc. is to
pay .5% of gross sales on products that the agreement refers to. In
1999, the royalty expense was $30,980.
NOTE 11 - SUBSEQUENT EVENT
There is a Letter of Intent to sell the Company's assets to an
unrelated party. The transaction at this time has not been completed.
NOTE 12 - OTHER COMMITMENTS
The Company, with the unanimous consent of its board of directors, has
entered into employment agreements dated January 1, 2000 with key
personnel. The employment agreement terms vary from one to three years.
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