LEWIS MECHANICAL & METALWORKS, INC.
INDUSTRIAL DIVISION
(A DIVISION OF LEWIS CONSTRUCTION CORPORATION)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999,
1998 AND 1997
<PAGE>
TABLE OF CONTENTS
Page
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INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENTS................................................ 3
FINANCIAL STATEMENTS
Balance Sheets......................................................... 4
Statements of Operations and Accumulated Deficit....................... 5
Statements of Cash Flows............................................... 6
Notes to Financial Statements.......................................... 7-9
2
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Independent Auditors' Report
----------------------------
To the Board of Directors
Lewis Mechanical & Metalworks, Inc.
We have audited the accompanying balance sheets of LEWIS MECHANICAL &
METALWORKS, INC. - INDUSTRIAL DIVISION (a division of Lewis Construction
Corporation) as of December 31, 1999 and 1998, and the related statements of
operations, retained earnings, and cash flows for the years ended December 31,
1999, 1998, and 1997. 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 audit.
We conducted our audit 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 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 Lewis Mechanical & Metalworks,
Inc. - Industrial Division as of December 31, 1999 and 1998, and the results of
its operations and its cash flows for the years ended December 31, 1999, 1998,
and 1997, in conformity with generally accepted accounting principles.
/s/Dance, Collins & Graham
--------------------------
Pocatello, Idaho
February 25, 2000
(except for Note 5, as to which
the date is October 5, 2000)
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LEWIS MECHANICAL & METALWORKS, INC.
INDUSTRIAL DIVISION
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
CURRENT ASSETS:
<S> <C> <C>
Accounts receivable $ 1,871,199 $ 1,181,771
Costs and estimated earnings in excess of
billings on uncompleted contracts 9,395 54,896
Inventory 60,277 -
Interdivision receivable - 332,700
----------- -----------
Total current assets 1,940,871 1,569,367
----------- -----------
FIXED ASSETS:
Building 3,062,080 1,267,756
Equipment 280,460 201,580
----------- -----------
3,342,540 1,469,336
Accumulated depreciation and amortization (335,881) (200,251)
----------- -----------
3,006,659 1,269,085
----------- -----------
$ 4,947,530 $ 2,838,452
=========== ===========
LIABILITIES
CURRENT LIABILITIES:
Current portion of long-term debt $ 165,336 $ 101,773
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,361,659 1,398,242
Interdivision payable 1,198,947 -
----------- -----------
Total current liabilities 2,725,942 1,500,015
----------- -----------
LONG-TERM DEBT 2,221,588 1,338,437
----------- -----------
CONTINGENCIES - -
----------- -----------
$ 4,947,530 $ 2,838,452
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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LEWIS MECHANICAL & METALWORKS, INC.
INDUSTRIAL DIVISION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
REVENUES $ 13,732,898 $ 19,794,996 $ 1,007,572
COST OF GOODS SOLD 11,518,563 13,624,559 875,784
------------ ------------ -----------
GROSS PROFIT 2,214,335 6,170,437 131,788
------------ ------------ -----------
OPERATING AND ADMINISTRATIVE
EXPENSES:
Selling, general and
administrative 446,676 415,305 66,220
Depreciation 55,383 26,823 2,286
------------ ------------ ------------
502,059 442,128 68,506
------------ ------------ ------------
LOSS FROM OPERATIONS 1,712,276 5,728,309 63,282
------------ ------------ ------------
OTHER INCOME (EXPENSES):
Other income - - -
Interest expense, net of
interest income (158,304) (77,586) (2,169)
------------ ------------ ------------
(158,304) (77,586) (2,169)
------------ ------------ ------------
NET INCOME 1,553,972 5,650,723 61,113
ADVANCES TO PARENT COMPANY (1,553,972) (5,650,723) (61,113)
------------ ------------ ------------
RETAINED EARNINGS $ - $ - $ -
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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LEWIS MECHANICAL & METALWORKS, INC.
INDUSTRIAL DIVISION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 1,553,972 $ 5,650,723 $ 61,113
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities -
Depreciation 135,630 119,831 16,178
(Increase) decrease in accounts
receivable (689,428) 17,365 (1,199,136)
(Increase) decrease in costs and
estimated earnings in excess
of billings on uncompleted
contracts 45,501 (32,849) (22,047)
(Increase) in inventory (60,277) - -
Increase (decrease) in billings
in excess of costs and
estimated earnings on
uncompleted contracts (36,583) 1,156,587 241,655
----------- ----------- -----------
Net cash used in operating activities 948,815 6,911,657 (902,237)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (1,873,204) (139,651) (1,329,685)
----------- ----------- -----------
Net cash used in investing activities (1,873,204) (139,651) (1,329,685)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
long-term debt 946,714 1,440,210 -
Advances (to) from parent company (22,325) (8,212,216) 2,231,922
----------- ----------- -----------
Net cash provided by (used in)
financing activities 924,389 (6,772,006) 2,231,922
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS - - -
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR - - -
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ - $ - $ -
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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LEWIS MECHANICAL & METALWORKS, INC.
INDUSTRIAL DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Lewis Mechanical & Metalworks, Inc.- Industrial Division
(the"Company") is a division of Lewis Mechanical & Metalworks, Inc. which
in turn is a wholly owned subsidiary of Lewis Construction Corporation, a
privately-held corporation based in Idaho. The Company performs industrial
fabrication and installation.
Revenue and Cost Recognition - Revenues from contracts are recognized on
the percentage-of-completion method, which is determined by the percentage
of total costs incurred to date to the estimated total cost for each
contract.
Contract costs include all direct material and labor costs. Selling and
general and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Changes in job performance,
job conditions, and estimated profitability may result in revisions to
costs and income and are recognized in the period in which the revisions
are determined.
Depreciation - The Company's property and equipment are depreciated over
their useful lives using the straight-line method.
Income Taxes - Lewis Construction Corporation has elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under
those proivisions, the company does not pay federal corporate income taxes
on its taxable income, instead the stockholders are liable for federal and
state income taxes on their respective shares of the company's taxable
income. Therefore, these financial statements do not reflect any provision
for income taxes.
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 and contingent
assets and liabilities disclosed in the financial statements and
accompanying notes. Actual results inevitably will differ from those
estimates and such differences may be material to the financial
statements.
(2) CONTRACTS IN PROGRESS
The following schedule summarizes information regarding construction
contracts in progress as of December 31, 1999 and 1998:
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<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Expenditures on uncompleted contracts $ 5,240,204 $ 2,117,160
Estimated earnings 1,137,185 205,347
------------ -----------
6,377,389 2,322,507
Billings to date (7,729,653) (3,665,853)
------------ -----------
$ (1,352,264) $(1,343,346)
============ ===========
1999 1998
------------ -----------
Included in the accompanying
balance sheets under the
following captions:
Costs and estimated earnings in
excess of billings on
uncompleted contracts $ 9,395 $ 54,896
Billings in excess of costs
and estimated earnings on
uncompleted contracts (1,361,659) (1,398,242)
----------- -----------
$(1,352,264) $(1,343,346)
=========== ===========
</TABLE>
(3) NOTE PAYABLE
The Division has a note payable to a financial institution, due in monthly
installments of $13,778, plus interest, through June 2004. At that time, a
balloon payment of the balance is due. The interest rate is the 30-day
commercial paper rate plus 2.65%. At December 31, 1999, the interest rate
was 7.95%. The note payable is secured by the building.
(4) LEASES
The Company leases equipment under noncancelable operating leases expiring
in various years through 2005.
Minimum future rental payments under noncancelable operating leases having
remaining terms in excess of one year as of December 31, 1999 for each of
the next five years and in the aggregate are:
<TABLE>
Year ended December 31,
<S> <C> <C>
2000 $ 424,536
2001 424,536
2002 424,536
2003 321,584
2004 270,108
------------
Total minimum future rental payments $ 1,865,300
============
</TABLE>
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Certain operating leases provide for renewal, and/or purchase options.
Generally, purchase options are at prices representing the expected fair
market value of the property at the expiration of the lease term. Renewal
options are for periods of one year at the rental rate specified in the
lease.
Rent expense for the fiscal years ended December 31, 1999, 1998, and 1997
was $424,536, $130,334, and $0 respectively.
(5) SUBSEQUENT EVENTS
On August 4, 2000, the Company's Industrial Division assets were purchased
by NextPath Environmental Services, Inc. (NESI), a wholly owned subsidiary
of NextPath Technologies, Inc. (NextPath), a Nevada corporation.
The acquisition was accomplished for $1,675,000 in cash, the assumption of
$2,400,000 in debt and $2,200,000 in equipment leases, and up to 2,439,025
shares of NextPath common stock based upon future performance of NESI
over the next two years.
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