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EXHIBIT 99.2
Report of Independent Auditors
Sole Member
Bison Valve, LLC and International Propane Products, LLC
We have audited the accompanying combined balance sheets of as of December 31,
1999 and 1998, of Bison Valve, LLC and International Propane Products, LLC, and
the related combined statements of operations, changes in accumulated deficit
and cash flows for the year ended December 31, 1999 and the period from February
13, 1998 (date of inception) to December 31, 1998. These financial statements
are the responsibility of the companies' 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 combined financial position at December 31, 1999 and
1998, of Bison Valve, LLC and International Propane Products, LLC, and the
combined results of their operations and their cash flows for the year ended
December 31, 1999 and the period from February 13, 1998 (date of inception) to
December 31, 1998 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Winston-Salem, North Carolina
May 7, 2000
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Bison Valve, LLC
and International Propane Products, LLC
Combined Balance Sheets
DECEMBER 31
1999 1998
--------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 218,034 $ 99,025
Accounts receivable, less allowance of $5,000 5,950 28,218
Inventories 150,112 314,675
Prepaid expenses and other current assets 17,959 84,934
--------------------------
Total current assets 392,055 526,852
Property and equipment, net 56,471 94,000
--------------------------
$ 448,526 $ 620,852
==========================
LIABILITIES AND MEMBER'S DEFICIT
Current liabilities:
Accounts payable $ 463,543 $ 338,258
Accrued expenses 97,618 80,957
Amounts payable to Blue Rhino Corporation 274,650 1,046,003
Note payable to Blue Rhino Corporation -- 635,000
Notes payable - member 1,907,192 --
--------------------------
Total current liabilities 2,743,003 2,100,218
Member's Deficit:
Members equity contribution 2,000 2,000
Accumulated deficit (2,296,477) (1,481,366)
--------------------------
(2,294,477) (1,479,366)
--------------------------
$ 448,526 $ 620,852
==========================
See accompanying notes.
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Bison Valve, LLC
and International Propane Products, LLC
Combined Statements of Operations and
Changes in Accumulated Deficit
PERIOD FROM
YEAR ENDED FEBRUARY 13, 1998 TO
DECEMBER 31 DECEMBER 31
1999 1998
-----------------------------
Net sales $ 2,723,907 $ 275,909
Cost of sales 2,032,275 423,759
-----------------------------
691,632 (147,850)
Operating expenses:
Selling, general and administrative (1,468,098) (1,285,539)
Royalty and other expenses (32,359) --
-----------------------------
(1,500,457) (1,285,539)
Operating loss (808,825) (1,433,389)
Non-operating income (expense):
Interest expense, net (96,286) (47,977)
Gain on the sale of assets 1,833,147 --
-----------------------------
Net income (loss) 928,036 (1,481,366)
Accumulated deficit, beginning of
period (1,481,366) --
Distribution to member (1,743,147) --
-----------------------------
Accumulated deficit, end of period $(2,296,477) $(1,481,366)
=============================
See accompanying notes.
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Bison Valve, LLC and International Propane Products, LLC
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED FEBRUARY 13, 1998
DECEMBER 31 TO DECEMBER 31
1999 1998
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 928,036 $(1,481,366)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation 15,729 8,609
Gain on the sale of assets (1,833,147) --
Changes in operating assets and liabilities:
Accounts receivable 22,268 (28,218)
Inventories 164,563 (314,675)
Prepaid expenses and other current assets 66,975 (84,934)
Accounts payable 125,475 338,258
Accrued expenses 16,661 80,957
Amounts payable to Blue Rhino Corporation (771,353) 1,046,003
---------------------------
Net cash used in operating activities (1,264,793) (435,366)
INVESTING ACTIVITIES
Purchases of property and equipment (50,243) (102,609)
Proceeds from the sale of assets 1,905,000 --
---------------------------
Net cash provided by (used in) investing
activities 1,854,757 (102,609)
FINANCING ACTIVITIES
Proceeds from (payments on) note payable to
Blue Rhino Corporation (635,000) 635,000
Notes payable - member 1,907,192 --
Proceeds from the issuance of member units -- 2,000
Distribution to member (1,743,147) --
---------------------------
Net cash provided by (used in) financing
activities (470,955) 637,000
---------------------------
Increase in cash and cash equivalents 119,009 99,025
Cash and cash equivalents at beginning of year 99,025 --
---------------------------
Cash and cash equivalents at end of year $ 218,034 $ 99,025
===========================
</TABLE>
See accompanying notes.
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Bison Valve, LLC and International Propane Products, LLC
Notes to Combined Financial Statements
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Bison Valve, LLC ("Bison") designs and distributes overfill prevention devices
("OPD") for propane cylinders. International Propane Products, LLC ("IPP")
designs and distributes outdoor patio heaters and brass valves for propane
cylinders. The companies began operations on February 13, 1998.
PRINCIPLES OF CONSOLIDATION
The combined financial statements include the accounts of Bison and IPP,
hereafter referred to as the "Company", which are both owned and controlled by a
sole member. All significant intercompany transactions have been eliminated.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is computed on an
average cost method.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost less allowances for depreciation.
Depreciation is computed using accelerated methods over the estimated useful
lives ranging from five to seven years.
The Company periodically assesses the realizability of its long-lived assets and
evaluates such assets for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Impairment is
determined to exist if estimated future cash flows, undiscounted and without
interest charges, are less than the carrying amount or if the estimated net
realizable value is less than the carrying amount.
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Bison Valve, LLC and International Propane Products, LLC
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Companies are considered partnerships for federal and state income tax
reporting purposes. As a result, the Companies results of operations are
included in the income tax returns of its sole member. Accordingly, the combined
financial statements do not include a provision for income taxes.
CREDIT RISK
Financial investments that potentially subject the Company to concentrations of
credit risk consist primarily of customer receivables. As of December 31, 1999
and 1998, one customer, Blue Rhino Corporation, accounted for substantially all
sales.
REVENUE RECOGNITION
Revenue and associated costs are recognized when goods are shipped to customers.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
DECEMBER 31
1999 1998
-------------------------
Office furniture and equipment $ 33,519 $ 22,254
Machinery and equipment 25,000 68,562
Vehicles 11,390 11,390
-------------------------
69,909 102,206
Less accumulated depreciation and amortization (13,438) (8,206)
-------------------------
$ 56,471 $ 94,000
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Bison Valve, LLC and International Propane Products, LLC
Notes to Consolidated Financial Statements (continued)
3. NOTES PAYABLE
The Company had a $635,000 note payable plus $54,125 accrued interest due to
Blue Rhino Corporation outstanding as of December 31, 1998. Interest accrued at
the rate of 9.5% per annum. At the option of Blue Rhino, the note plus accrued
interest was convertible into 65% of the membership units of Bison Valve, LLC,
at $1 per unit. See Note 5.
Notes payable - member, in the amount of $1,907,192, consist of advances from
the sole member and President of the Company. Advances are due upon demand and
bear interest at 8.0%.
4. LEASES
The Company has an operating lease related to the office and warehouse
facility. The lease of the facility is for a period of one year beginning August
1, 1998, with an option to extend the agreement an additional three years. Rent
expense amounted to $65,460 and $43,415 for the years ended December 31, 1999
and 1998 respectively.
Future minimum commitments under the operating lease are summarized as follows
as of December 31, 2000:
2000 $27,545
-------
Total minimum lease payments $27,545
=======
The lease provides for the Company to pay minor maintenance, insurance and other
costs applicable to the leased premises.
5. SALE OF BISON VALVE ASSETS
On September 17, 1999, Blue Rhino Corporation contracted for the acquisition of
certain assets related to the overfill prevention device ("OPD") developed and
distributed by Bison Valve. The acquired assets included OPD molds, dies, and
all intellectual property relating to the OPD developed by Bison Valve and its
sole member, which included two patent applications on the OPD. The purchase
price included $1,905,000 in cash and a ten year warrant to purchase 100,000
shares of Blue Rhino Corporation's common stock at an exercise price equal to
$7.40 per share. Also included in the purchase agreement is a provision to pay
the sole member and President of Bison Valve between 2 1/2% and 12% of future
sales of OPDs based on gross margins for the life of the patents. The sale
resulted in a $1,833,147 gain for the Company.
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Bison Valve, LLC and International Propane Products, LLC
Notes to Consolidated Financial Statements (continued)
6. SALE OF ASSETS OF IPP
On March 31, 2000, Blue Rhino acquired certain assets and assumed certain
liabilities of IPP for a purchase price of approximately $4.1 million. The
acquired assets included all assets of IPP directly relating to the outdoor
patio heater and brass valves for propane cylinder businesses, including certain
intellectual properties. The purchase price included issuance of $1.1 million of
Blue Rhino Corporation's common stock, cash in the amount of $2.9 million, and a
minimum royalty payment of $130,000. The agreement provides for the sole member
and President of IPP to receive a deferred purchase price of 1% of the net sales
of patio heaters for a minimum of five years, with a minimum deferred payment of
$130,000.
With the consummation of the sale of assets of both Bison and IPP, the combined
entities have sold all operating assets.
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