FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
TVI CORPORATION
Years Ended December 31, 1999 and 1998
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT 1 - 2
FINANCIAL STATEMENTS
Balance Sheets 3 - 4
Statements of Income (Loss) and Accumulated Deficit 5
Statements of Shareholders' Equity 6
Statements of Cash Flows 7
NOTES TO FINANCIAL STATEMENTS 8 - 17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
TVI Corporation
7100 Holladay Tyler Road, Ste. 300
Glenn Dale, MD 20769
We have audited the accompanying balance sheets of TVI Corporation as of
December 31, 1999 and 1998, and the related statements of income (loss) and
accumulated deficit, shareholders' 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 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 TVI Corporation as of
December 31, 1999 and 1998, and the results of its operations, its changes
in shareholders' equity, and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
<PAGE>
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note O to the
financial statements, the Company has incurred substantial cumulative net
losses from operations from its inception through December 31, 1998, and
increased its accumulated deficit through that year. In 1999, the
operations resulted in net income of $352,982. However, the Company does
not have sufficient cash flow to meet the original terms of its debentures,
faces an economic environment of reduced military spending and operates
without a bank line of credit. The Company's financial position and
operating results raise substantial doubt about its ability to continue as
a going concern. Management's activities in regard to these matters are
also described in Note O. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Daniel G. Gilliland, CPA, P.C.
Falls Church, VA
May 19, 2000
<PAGE>
TVI CORPORATION
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
CURRENT ASSETS
Cash 47,027 18,617
Accounts receivable 417,251 139,139
Inventories (Note B) 696,767 548,792
Note receivable, plus accrued interest 110,437 -
Prepaid expenses and other (Note C) 4,887 6,377
TOTAL CURRENT ASSETS 1,276,369 712,925
PROPERTY AND EQUIPMENT (Note D)
Equipment 705,034 671,666
Furniture and fixtures 15,639 15,639
720,673 687,305
Less: Accumulated depreciation 570,809 518,345
NET PROPERTY AND EQUIPMENT 149,864 168,960
OTHER ASSETS
Taxes receivable - 2,468
Deposits and other 45,423 22,219
Intangible assets (net of
accumulated amortization)(See Note E) 18,504 13,290
TOTAL OTHER ASSETS 63,927 37,977
TOTAL ASSETS 1,490,160 919,862
<PAGE>
TVI CORPORATION
BALANCE SHEETS
December 31, 1999 and 1998
LIABILITY AND SHAREHOLDERS' EQUITY
1999 1998
CURRENT LIABILITIE
Loans payable - related parties(Note N)212,465 179,876
Current portion of long term debt 6,130 286,784
Accounts payable - trade 137,945 35,933
Accrued liabilities (Note F) 97,729 99,214
Sales deposits 98,721 5,874
TOTAL CURRENT LIABILITIES 552,990 607,681
LONG-TERM LIABILITIES (Note G)
State taxes payable - MD 14,429 16,629
Notes payable 16,163 41,973
Debentures 236,702 243,702
Less: Current portion (6,130) (286,784)
TOTAL LONG-TERM LIABILITIES 261,164 15,520
STOCKHOLDERS' EQUITY (Note K)
Preferred stock 60,911 60,911
$1 par value; authorized 1,200,000 shares:
issued and outstanding 60,911 shares
Common stock 234,430 229,780
$.01 par value; 35,000,000 shares authorized,
23,442,975 issued, 23,442,975, and 22,977,955
outstanding in 1999 and 1998, respectively
Additional paid-in-capital 12,044,000 12,022,250
Accumulated deficit (11,649,048) (12,002,030)
Treasury stock - at cost (238,025
and 237,500 in 1999 and 1998 ) (14,287) (14,250)
TOTAL STOCKHOLDERS' EQUITY 676,006 296,661
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,490,160 919,862
TVI CORPORATION
STATEMENTS OF INCOME (LOSS) AND ACCUMULATED DEFICIT
For The Years Ended December 31, 1999 and 1998
1999 1998
REVENUE
Sales 1,862,490 1,407,240
Rental income - equipment 72,000 66,000
Other income 20 205
Total Revenues 1,934,510 1,473,445
COST OF SALES 1,071,572 961,433
GROSS PROFIT 862,938 512,012
GENERAL AND ADMINISTRATIVE EXPENSES 602,045 588,084
OPERATING INCOME 260,893 (76,072)
OTHER INCOME (EXPENSES)
Interest income 275
Interest expense (33,974) (47,242)
Loss on disposal of assets (1,277)
Other income (expense) 11,642 (15,484)
Total Other Income (Expenses) (16,706) (63,728)
INCOME (LOSS) BEFORE INCOME TAXES 244,187 (139,800)
INCOME TAXES (TAX BENEFIT) (Note I)
-
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 244,187 (139,800)
Per common share 1999 0.0105
1998(0.0063)
EXTRAORDINARY ITEM (Note J ) 108,795 -
Per common share 1999 0.0047
1998 0.0000
NET INCOME 352,982 (139,800)
ACCUMULATED DEFICIT, BEGINNING OF THE YEAR (12,002,030) (11,862,230)
ACCUMULATED DEFICIT, END OF THE YEAR (11,649,048) (12,002,030)
Net income (loss) after extraordinary item
per common share 0.0152 (0.0063)
Weighted Average of Common Shares Outstanding 23,210,465 22,361,108
<page)
TVI CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
For The Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Preferred Common Capital Retained Treasury Total
Stock Stock Surplus Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1997 71,708 222,189 11,947,794 (11,862,230) (14,25) 365,211
37,500 restricted common shares
issued in exchange for
1.25 promissory notes 375 15,250 15,250
700,000 common shares issued
upon exercise of options 7,000 48,625 55,625
21,594 common shares
issued for 10,797
preferred shares(10,797) 216 10,581
Net Income (Loss) for 1998 (139,800) (139,800)
Balance
December 31, 1998 60,911 229,780 12,022,250 (12,002,030)(14,250) 296,661
450,000 of common shares
issued upon exercise of options
and related party
note conversion 4,500 21,000 25,500
15,000 common shares issued 150 750 900
in exchange for promissory note
Buy back of
525 shares of stock (37) (37)
Net Income (Loss) for 1999 352,982 352,982
Balance
December 31, 1999 60,911 234,430 12,044,000 (11,649,048) (14,287)676,006
Total Shares issued at 12-22,977,955
Total Shares issued at 12-23,442,975
<PAGE>
TVI CORPORATION
STATEMENT OF CASH FLOWS
For The Year Ended December 31, 1999 and 1998
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 352,98 (139,800)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Depreciation and amortization 55,866 82,729
(Increase) decrease in accounts receivable (278,112) (35,991)
(Increase) decrease in inventories (147,976) 77,903
(Increase) decrease in other assets (19,247) (23,928)
Increase (decrease) in accounts payable 102,012 (72,135)
Increase (decrease) in sales deposits 92,849 5,874
Increase (decrease) in accrued liabilities (1,485) (47,769)
Total adjustments (196,093) (13,317)
NET CASH PROVIDED BY OPERATING ACTIVITIES: 156,889 (153,117)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase)decrease in notes receivable
and accrued interest (110,437) -
Disposal (purchase) of intangible assets (7,813) (14,312)
Disposal (purchase) of capital equipment (34,171) (14,545)
NET CASH (USED IN) INVESTING ACTIVITIES: (152,421) (28,857)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes
payable - related parties 32,589 87,615
Issuance (purchase) of common stock 26,400 71,250
Increase in treasury stock (37) -
Principal payments on long-term obligations (25,810) (54,715)
Conversion of long term debt (9,200) 75,331
NET CASH PROVIDED BY FINANCING ACTIVITIES 23,942 179,481
NET INCREASE (DECREASE) IN CASH 28,410 (2,493)
CASH, BEGINNING OF YEAR 18,617 21,110
CASH, END OF YEAR 47,027 18,617
<PAGE>
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
TVI Corporation was incorporated as a for-profit corporation under
the laws of Maryland on January 28, 1977. It has since operated
continuously under the charter granted by Maryland. The Company
was formed primarily for the exploitation of a patent portfolio
acquired from one of the founders. The two principal patents of
the portfolio covered an "electrically conductive coating" and a
"light-weight cellular concrete".
The Company's business has historically been as a supplier of
thermal products to the Department of Defense and to military
agencies of other countries. The two principal products have been
thermal targets and tank decoys. Because of the substantial
downsizing of the Department of Defense, the market for the
Company's products has been drastically reduced, and its business
has suffered accordingly. Further, there has been a concomitant
reduction in foreign military aid and a military downsizing in
other countries, which has eliminated the Company's foreign market.
To replace this lost market the Company began the development and
sale of a lightweight, rugged, and rapidly deployable soft shelter
(tent) for military use that used a collapsible frame based upon
the design used for its tank decoy frame. During 1995 and 1996 it
began the development and sale of commercial versions of its
shelters in an effort to broaden its market and increase revenue.
The Company's principal product lines in 1999 and 1998 were
disposable thermal military targets and military, commercial, and
emergency response soft shelters. The targets consisted mainly of
targets simulating the thermal signature of military tanks and
related military assets. The shelters consisted mainly of one-
piece shelters with 150 to 400 square feet of floor space used for
applications such as communications, aid stations, and
decontamination tents.
A summary of TVI Corporation's significant accounting policies
consistently applied in the preparation of the accompanying
financial statements is as follows:
1. REVENUE RECOGNITION
Revenue is recognized on standard product sales using the unit-of-
delivery method whereby sales are recorded when title is
transferred.
Included in product sales for the years ended December 31, 1999 and 1998 is
approximately $1,432,000 and $1,358,000 respectively, in sales of products to the United States Government.
2. INVENTORIES
Inventories are valued at the lower of cost or market determined by
the first-in, first-out (FIFO) method.
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
3. TRADE ACCOUNTS RECEIVABLE
The company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts has been
recognized.
4. PROPERTY AND EQUIPMENT
Depreciation is provided for in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated
service lives, using the straight-line method.
5. ADVERTISING COSTS
The company expenses advertising costs as incurred. During 1999 and
1998, $50,464 and $15,939 respectively was expensed.
6. COMPENSATED ABSENCES
No accrual has been made for compensated absences because unused
amounts of leave do not vest and are not paid upon separation from
employment with the company.
7. RESEARCH AND PRODUCT DEVELOPMENT COSTS
Research and product development expenditures are charged to
operations as incurred.
8. NET INCOME/(LOSS) PER SHARE
Net income/(loss) per share of common stock is computed based upon
the weighted average number of shares outstanding. Stock options
granted by the Company are not considered in the per share
calculations as they are anti-dilutive.
9. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual amounts could differ from
these estimates.
NOTE B - INVENTORIES
Inventories at December 31, 1999 and 1998 are classified as follows:
1999 1998
Finished goods $96,807 $77,719
Work in progress 4,743 11,286
Raw materials 595,217 459,787
Total Inventories $696,767 $548,792
Included in finished goods at December 31, 1999 and 1998 are
$61,225, and $56,936, respectively, of field service, demonstration
and other sales support inventory.
NOTE C - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets
are comprised of the following:
1999 1998
Prepaid insurance 3,485 6,377
Loans to officer 1,402 -
4,887 6,377
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
1999 1998
Furniture and fixtures 15,639 15,639
Automobiles 19,650 -
Machinery and equipment 685,384 671,666
720,673 687,305
Less: accumulated
depreciation 570,809 518,345
$149,864 $168,960
NOTE E - INTANGIBLE ASSETS
Intangible assets are comprised of costs incurred filing patent applications.
The costs incurred for 1999
and 1998 are $7,818 and $14,312, respectively.
1999 1998
Patents 22,130 14,312
Less: amortization 3,624 1,022
$ 18,504 $13,290
The Company amortizes the patent costs over 84 months.
NOTE F - ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
1999 1998
Accrued salaries 13,836 8,736
Accrued interest - 9,854
Accrued accounting expense 16,500 12,000
Deferred compensation 54,999 54,999
Withholding taxes payable 11,834 11,774
Other 560 1,851
Total accrued liabilities $97,729 $99,214
NOTE G - LONG-TERM OBLIGATIONS
Long-term obligations are comprised of the following:
1999 1998
Debentures 236,702 243,702
Notes payable 16,163 41,973
Pre-petition taxes 14,429 16,629
Less current maturities (6,130) (286,784)
Total long-term obligations261,164 $15,520
Debentures consisted of promissory notes with interest at ten
percent (10%), payable semi-annually on December 15 and June 15.
The principal balance of the notes plus any accrued interest was
due and payable in full on December 15, 1998. At maturity the
principal was $172,500 and total interest accrued was $71,202. Two
settlement offers were made to holders of the Notes, neither of
which were accepted.
In January 1999, the combined amounts due were unilaterally converted
to new Notes, with no specified maturity, with interest at a rate of
5% per annum.
A liability to Capital Bank was collateralized by a blanket first
lien on certain accounts receivable, contract rights, inventories,
and property, plant and equipment. Interest was payable at the
bank's prime rate plus 2%. As of December 31, 1998, the Company was
in default because it had violated certain covenants specified
under the loan agreement. The lender waived its rights under the
default provisions. As of December 31, 1999, the loan was paid off.
On April 1, 1999, TVI purchased a van which it financed $18,650
through Ford Credit. The term of the loan is 60 months, at 5.9%
interest.
NOTE G - LONG-TERM OBLIGATIONS (CONTINUED)
The following is a table of estimated future debt maturities for
the next five years as of December 31, 1999:
YEAR ENDING DECEMBER 31,
2000 6,130
2001 6,130
2002 6,130
2003 4,627
2004 2,400
Total future debt maturities: $ 25,417
NOTE H - COMMITMENTS AND CONTINGENCIES
1. OPERATING LEASES
The Company is obligated under operating leases for office and
warehouse space and office equipment. Certain of these leases are
subject to escalation clauses. The following is a schedule by
years of the approximate future minimum rental payments required
under operating leases that have initial or remaining lease terms
of one year or more as of December 31, 1999:
YEAR ENDING DECEMBER 31,
2000 $72,141
2001 74,305
2002 76,534
2003 78,831
2004 -
Total minimum lease obligations $301,811
Total rental expense under all leases charged to operations for the
years ended December 31, 1999 and 1998 aggregated approximately
$70,279 and $66,736, respectively.
2. YEAR 2000 SYSTEMS CONTINGENCY
The Year 2000 present's problems for entities that are dependent on
computer hardware and software to perform date dependent
calculations. A great deal of software and microchip technology
that is still operational was developed in the past utilizing two
digit years rather than four digit years. Technology utilizing two
digit years most likely will not be able to distinguish the year
2000 from 1900, and therefore may shut down or perform date
sensitive calculations and comparisons as much as 100 years and
infinite dollar amounts in error. The problem may also affect non-
financial computer or chip dependent systems, such as security
systems, communication systems, elevators, time clocks, process
controls and the like.
The Company has been advised of this potential problem not only in
its own systems, but also the potential effects on the Company of
malfunctions in systems of its suppliers and vendors. The financial
impact of any potential problems related to the Year 2000 can not
be estimated at this time.
NOTE I - INCOME TAXES
The Company has reported net aggregate losses for Federal income
tax purposes from its inception through December 31, 1998 of
approximately $16,715,000. Current year taxable income before net
operating carryforwards is approximately $353,580. The current year
benefit of utilizing the net operating loss carryforwards is
approximately $144,968. The following is a summary of the net
operating loss (NOL) carryover available at December 31, 1999:
YEAR OF NET OPERATING LOSS
EXPIRATION CARRYFORWARD
2002 $ 195,105
2003 423,169
2004 388,200
2005 424,595
2006 1,153,109
2007 338,974
2008 911,381
2009 856,691
2010 2,630,062
2011 86,528
2012 3,634
$7,411,448
NOTE J - EXTRAORDINARY ITEM
The extraordinary income consists of the settlement of the
company's lawsuit with USA Access, Inc. where USA Access, Inc.
reaffirmed a five year note for $75,000 at 9% due on September 19,
1999. The note was not paid as of December 31, 1999. On March 30,
2000, TVI settled with USA Access where TVI received $50,000 and
82,833 shares of USA Access, Inc.'s common stock. $6,450 represents
gain on the conversion of a note payable for 15,000 shares of
common stock. Extraordinary item also includes a write off of
$2,468 of expected tax refunds.
NOTE K - STOCKHOLDERS' EQUITY
1. STOCK OPTION PLANS
In 1995, the Company approved a nonqualified stock option plan for
the officers and key employees. Options issued under this plan
were exercisable at prices ranging from $.05 to $.14 per share. In
1998, the Company adopted an incentive stock option plan for
employees of TVI. Options issued under this plan were exercisable
at $.075 per share.
In 1998, 1,225,000 options were granted to officer's and key
employees.
In 1999, 800,000 options were issued to Board members, 468,000 to
management and employees, and 100,000 to a consultant. Total
options granted to officers and key employees was 668,000 (468,000
as employees and 200,000 as Board members).
A summary of the activity under the plans are as follows:
</TABLE>
<TABLE>
<CAPTION>
YEAR NUMBER NUMBER STOCK
GRANTED EXPIRATION OF SHARES EXERCISED TRADING RANGE
<S> <C> <C> <C> <C>
1995 2000 850,000 450,000 $0.02 - 0.97
1996 1998 100,000 100,000 $0.04 - 0.18
1996 1999 250,000 250,000 $0.04 - 0.18
1997 2000 675,000 325,000 $0.04 - 0.18
1998 2003 1,300,000 25,000 $0.05 - 0.18
1999 2002 300,000 - $0.05 - 0.16
1999 2004 1,068,000 - $0.05 - 0.16
4,543,000 1,150,000
</TABLE>
NOTE K - STOCKHOLDERS' EQUITY (CONTINUED)
2. COMMON STOCK TRANSACTIONS
The Company issued Units in a private placement in early 1994,
which included a $10,000 Promissory Note with interest at 10%
payable semi-annually. Pursuant to a Board resolution at its April
1996 meeting, the company conducted a voluntary exchange offer in
which holders could exchange the Note and its accrued interest for
37,500 shares of restricted common stock. Under the offer, 1.25
Notes representing $12,500 face value and $3,125 accrued interest was
exchanged for a total of 30,000 shares of stock during 1998. During
1999, one of the re-issued Notes in the amount of $7,064 combined
face value and accrued interest, was exchanged for 15,000 shares.
Additionally, in 1998 a holder of 10,797 preferred shares exchanged
his stock for 21,594 shares of common stock. The Preferred has a
face value of $1 per share. Stock was exchanged at the rate of two
shares of common stock for each share of preferred stock.
In 1998 three directors of the Company were issued 700,000 shares
of restricted common stock upon the exercise of non-qualified stock
options. In 1999, one director was issued 450,000 shares of
restricted common stock upon the exercise of non-qualified stock
options.
In 1999, the Company offered to buy back small lots of shares from
shareholders. Two shareholders tendered shares which resulted in
525 additional shares of treasury stock.
NOTE L - LEGAL MATTERS
In June 1998, the Company filed suit in state court in Las Vegas,
Nevada seeking payment of promissory notes with a total face value
of $75,000 from USA Access, Inc. The notes had been purchased by a
prior employee with funds embezzled from the company. On March 30,
2000, the note was settled for $50,000 and 82,833 shares of stock.
In August 1998, the Federal District Court in Maryland awarded
ownership to the Company of 300,000 shares of USA Access, Inc.
common stock. In 1999, TVI received an additional 160,000 shares in
a compromise in the suit.
The Maryland Division of Labor and Industry has brought a suit
against TVI on behalf of a former TVI employee who alleges he is
due $8,621 in unpaid accrued vacation time. The Maryland Division
of Labor also seeks an award for additional damages and attorney
fees. Management believes this suit is without merit and that its
outcome is immaterial.
NOTE M - SUPPLEMENTAL CASH FLOWS INFORMATION
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company paid the following amounts for interest and income
taxes during the years ended December 31, 1999 and 1998:
1999 1998
Interest $33,974 $47,242
Income Taxes 0 0
NOTE N - RELATED PARTY TRANSACTIONS
The president of the company, who is also a shareholder, makes
periodic loans to the company for working capital purposes. As a
result, the company has various collateralized notes payable to the
president of the company with a total remaining balance of $127,202
and $129,500 as of December 31, 1999 and 1998, respectively. These
notes pay interest at rates of 10% to 13.5% per annum and are
secured by Senior Purchase Money Liens of like amounts.
Additionally, the president has obtained two charge cards which are
used by the company, but for which he is personally liable. Total
amount due at December 31, 1999 and 1998 was $11,567 and $1,852
respectively.
At December 31, 1999 and 1998, officers of the Company had unpaid
deferred compensation due in the aggregate sum of $54,999, and
$54,999, respectively.
A director is also a partner of a law firm that provides the
Company with general legal services. As of December 31, 1999 and
1998, the Company had an outstanding balance of $272 and $7,297,
respectively, in connection with services provided by the
director's law firm. Additionally, on June 30, 1998 the company
issued a one-year $55,000 convertible promissory note bearing
interest at ten percent per annum to the director for services
rendered. The note is convertible into common stock of the Company
at a conversion price of $.075 Note principal for each one share of
stock for a period of one year from the date of the issuance of the
note. On March 30, 2000 the note was converted to 733,333 shares of
common stock.
NOTE O - GOING CONCERN
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
assume continuation of the Company as a going concern. However,
the Company has incurred substantial losses from operations since
inception. The Company has continued to sustain losses from
operations through December 31, 1998. In addition, the Company is
in default with respect to certain provisions of the debenture
notes outstanding including nonpayment of certain amounts of
interest due on the notes. Further, recoverability of a major
portion of the recorded asset amounts in the accompanying balance
sheet is dependent upon the Company's ability to meet its financing
requirements on a continuing basis and the success of future
operations.
NOTE O - GOING CONCERN (CONTINUED)
Management is aware of the difficulty of its situation and is
pursuing various avenues that may improve or resolve the Company's
situation. Management's activities include efforts to reduce
expenses and increase revenue, attempts to obtain additional equity
financing, meetings with and offers to bondholders; and meetings
with possible prospective purchasers, especially those who may
benefit from the knowledge and access to the defense market.
Regardless of these activities, the Company may not be successful
and may be required to take more drastic steps. However, some
success has been achieved as reflected by the increase in sales in
1999 and profitable operations in all four quarters.
These financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
