BELL-HAUN SYSTEMS, INC.
REPORT ON AUDITS OF
FINANCIAL STATEMENTS
for the nine months ended September 30, 2007
and for the years ended
December 31, 2006, 2005, and 2004
[Logo] McCauley Nicolas
CONTENTS
--------
Independent Auditors' Report 2
Financial Statements:
Balance Sheets 3
Statements of Operations and Stockholders' Deficit 4
Statements of Cash Flows 5
Notes to Financial Statements 6-12
[Logo] McCauley, Nicolas & Company, LLC The Solution is One Good Move Away
Certified Public Accountants & Advisors
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders of
Bell-Haun Systems, Inc.
Westerville, Ohio
We have audited the accompanying balance sheets of Bell-Haun Systems, Inc. as of
September 30, 2007, December 31, 2006, 2005, and 2004, and the related
statements of operations and stockholders' deficit and cash flows for the nine
months and 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 auditing standards generally accepted
in the United States of America. 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 Bell-Haun Systems, Inc. as of
September 30, 2007, December 31, 2006, 2005, and 2004, and the results of its
operations and its cash flows for the nine months and the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ McCauley, Nicolas & Company, LLC
McCauley, Nicolas & Company, LLC
Certified Public Accountants
Jeffersonville, Indiana
November 26, 2007
702 North Shore Drive, Suite 500 Jeffersonville, IN 47130-3104
812-288-6621 fax 812-288-2885 www.mnccpa.com
Kenneth N. Nicolas, CPA Ronald F Barnes, CPA, PFS Lee E. Pieper, CPA
J. Patrick Byrne, CPA John C. Pieper, CPA Daniel K. McCauley, CPA, ABV
J. Michael Grinnan, CPA Kenneth W. Coyle, CPA R. Kenneth Adams, CPA
MEMBER
PKF North American Network American Institute of CPAs AICPA PCPS Division
Indiana CPA Society Kentucky Society of CPAs
BELL-HAUN SYSTEMS, INC.
BALANCE SHEETS
September 30, 2007 and December 31, 2006, 2005, and 2004
September 30, December 31, December 31, December 31,
2007 2006 2005 2004
------------- ------------ ------------ ------------
ASSETS
------
CURRENT ASSETS
Cash $ 33,294 $ -- $ 18,928 $ 18,885
Accounts receivable 146,027 106,410 185,342 175,914
Accounts receivable - officer -- -- 456 36,349
Inventory, current portion 144,819 102,011 93,951 58,361
Prepaid expenses 50 5,582 5,605 7,864
----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 324,190 214,003 304,282 297,373
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 316,753 432,983 431,629 427,349
Vehicles 17,485 43,155 43,155 51,512
Leasehold improvements 48,781 57,387 57,387 57,387
----------- ----------- ----------- -----------
383,019 533,525 532,171 536,248
Less accumulated depreciation (342,967) (483,319) (477,276) (486,806)
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT, NET 40,052 50,206 54,895 49,442
----------- ----------- ----------- -----------
OTHER ASSETS
Goodwill, net 35,076 35,076 35,076 35,076
Inventory, less current portion, net 41,102 41,623 41,642 40,162
----------- ----------- ----------- -----------
TOTAL OTHER ASSETS 76,178 76,699 76,718 75,238
----------- ----------- ----------- -----------
TOTAL ASSETS $ 440,420 $ 340,908 $ 435,895 $ 422,053
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Short-term bank borrowings $ 250,000 $ 170,000 $ -- $ 55,000
Current portion of long-term debt 49,478 50,057 46,399 74,795
Cash overdraft -- 3,053 -- --
Accounts payable 321,802 186,222 250,577 294,638
Accounts payable - officers 17,044 13,544 -- --
Accrued expenses 79,690 37,702 45,019 55,988
Accrued income taxes -- -- 384 50
Customer deposits 94,904 88,577 191,637 60,620
----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 812,918 549,155 534,016 541,091
Accounts payable - related parties 81,000 67,000 12,500 --
Long-term debt, less current portion 114,281 148,369 201,493 153,873
----------- ----------- ----------- -----------
TOTAL LIABILITIES 1,008,199 764,524 748,009 694,964
----------- ----------- ----------- -----------
STOCKHOLDERS' DEFICIT
Common stock, no par value, 500 shares
authorized, issued and outstanding 500 500 500 500
Paid-in capital 52,035 52,035 52,035 52,035
Accumulated deficit (620,314) (476,151) (364,649) (325,446)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (567,779) (423,616) (312,114) (272,911)
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 440,420 $ 340,908 $ 435,895 $ 422,053
=========== =========== =========== ===========
See notes to financial statements.
3
BELL-HAUN SYSTEMS, INC.
STATEMENTS OF OPERATIONS AND STOCKHOLDERS' DEFICIT
for the nine months ended September 30, 2007
and the years ended December 31, 2006, 2005, and 2004
September 30, December 31, December 31, December 31,
2007 2006 2005 2004
------------- ------------ ------------ ------------
NET SALES $ 1,343,015 $ 1,551,766 $ 1,768,355 $ 1,987,669
DIRECT MATERIAL COSTS 530,005 626,547 603,845 819,245
----------- ----------- ----------- -----------
GROSS PROFIT 813,010 925,219 1,164,510 1,168,424
----------- ----------- ----------- -----------
OPERATING EXPENSES
Salaries and wages 618,656 723,610 770,931 821,456
Contract labor 1,450 21,693 15,088 8,776
Employee benefits 39,274 48,997 46,289 48,550
Payroll taxes 45,526 59,205 41,207 50,688
Insurance 10,559 17,795 15,720 15,840
Rent 78,103 111,827 103,227 94,625
Professional fees 9,291 8,303 26,351 32,568
Other direct costs 22,291 87,048 43,352 43,110
Depreciation 3,623 6,043 9,454 29,360
Telephone 11,923 5,581 17,681 20,150
Utilities 8,100 10,800 10,800 9,200
Office and postage expense 7,387 10,063 16,269 20,192
Travel and lodging 7,868 6,395 5,996 17,157
Automobile expenses 12,201 16,518 24,656 17,268
Bank service charges 27,234 20,910 14,818 10,454
Miscellaneous expenses 5,355 1,344 4,518 8,780
Dues and subscriptions 2,330 2,356 3,987 7,119
Inventory, less current portion, net 2,932 5,790 7,461 9,636
Repairs and maintenance 96 -- 13,289 11,801
Advertising and marketing 4,069 3,299 5,366 7,288
Bad debt expense -- -- -- 587
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 918,288 1,167,577 1,196,460 1,284,605
----------- ----------- ----------- -----------
OPERATING LOSS (105,258) (242,358) (31,950) (116,181)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest income -- -- 9 7
Interest expense (37,876) (27,950) (26,875) (31,690)
Miscellaneous income -- 158,806 20,158 1,250
Loss on disposal of property and equipment (1,029) -- (545) --
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSES) (38,905) 130,856 (7,253) (30,433)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (144,163) (111,502) (39,203) (146,614)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS (144,163) (111,502) (39,203) (146,614)
STOCKHOLDERS' DEFICIT, beginning of year/period (476,151) (364,649) (325,446) (178,832)
----------- ----------- ----------- -----------
STOCKHOLDERS' DEFICIT, end of year/period $ (620,314) $ (476,151) $ (364,649) $ (325,446)
=========== =========== =========== ===========
See notes to financial statements.
4
BELL-HAUN SERVICES, INC.
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 2007
and the years ended December 31, 2006, 2005, and 2004
September 30, December 31, December 31, December 31,
2007 2006 2005 2004
------------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(144,163) $(111,502) $ (39,203) $(146,614)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation 3,623 6,043 9,454 29,360
Loss on disposal of property and equipment 1,029 -- 545 --
Bad debt expense -- -- -- 587
Forgiveness of accounts payable to related party -- -- (158,806) --
(increase) decrease in:
Accounts receivable (39,617) 78,932 (9,428) (26,125)
Accounts receivable - officer -- 456 35,893 (36,349)
Inventory (42,287) (8,041) (37,070) 161,586
Prepaid expenses 5,532 23 2,259 29,680
Increase (decrease) in:
Cash overdraft (3,053) 3,053 -- (12,547)
Accounts payable 135,580 (64,355) 114,745 115,272
Accounts payable -officer 3,500 13,544 -- (40,000)
Accrued expenses 41,988 (7,317) (10,969) (12,580)
Accrued income taxes -- (384) 334 50
Customer deposits 6,327 (103,060) 131,017 16,490
--------- --------- --------- ---------
Net cash provided (used) by operating activities (31,541) (192,608) 38,771 78,810
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment -- (1,354) (6,951) (810)
Inventory, less current portion, net 5,502 -- 700 --
--------- --------- --------- ---------
Net cash provided (used) by investing activities 5,502 (1,354) (6,251) (810)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term bank borrowings (payments), net 80,000 170,000 (55,000) 4,421
Proceeds from issuance of long-term debt -- -- 52,510 --
Principal payments on long-term debt (34,667) (49,466) (42,487) (63,536)
Accounts payable - related parties 14,000 54,500 12,500 --
--------- --------- --------- ---------
Net cash provided (used) by financing activities 59,333 175,034 (32,477) (59,115)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 33,294 (18,928) 43 18,885
CASH AT BEGINNING OF YEAR/PERIOD -- 18,928 18,885 --
--------- --------- --------- ---------
CASH AT END OF YEAR/PERIOD $ 33,294 $ -- $ 18,928 $ 18,885
========= ========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Acquisition of property and equipment:
Cost of property and equipment $ -- $ (1,354) $ (16,152) $ (810)
Property and equipment purchased with debt -- -- 9,201 --
--------- --------- --------- ---------
Net cash used to acquire property and equipment $ -- $ (1,354) $ (6,951) $ (810)
========= ========= ========= =========
SUPPLEMENTARY INFORMATION
Cash payments for:
Interest paid $ 37,876 $ 27,950 $ 26,875 $ 31,690
========= ========= ========= =========
See notes to financial statements.
5
BELL-HAUN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Bell-Haun Systems, Inc. (the
Company) is presented to assist in understanding the financial statements. The
financial statements and notes are representations of the Company's management,
who is responsible for its integrity and objectivity. These accounting policies
conform to accounting principles generally accepted in the United States of
America and have been consistently applied in the preparation of the financial
statements.
The more significant accounting policies are as follows:
Nature of Operations
- --------------------
The Company specializes in the sale, installation, maintenance, and ongoing
support of business telephone systems, wireless services, voice messaging
platforms and conference calling services to businesses throughout their region.
The Company began doing business in 1977 and is located in Westerville, Ohio.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities (and disclosure of contingent assets and liabilities, if any) 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.
Cash Equivalents
- ----------------
The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents. There were no cash equivalents at
September 30, 2007 and December 31, 2006, 2005, and 2004.
Accounts Receivable
- -------------------
The Company uses the allowance for bad debts method of valuing doubtful
receivables which is based on historical experience, coupled with a review of
the current status of existing receivables. Management has determined no
allowance for doubtful receivables was required at September 30, 2007, December
31, 2006, 2005, and 2004.
Inventory
- ---------
Inventory consists principally of purchased equipment and material used in the
installation of telephone systems and is stated at the lower of cost or market
on a first-in, first-out basis.
6
BELL-HAUN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Maintenance and repairs are charged
to expense as incurred; renewals or betterments are capitalized. Gain or loss on
retirements or disposition of assets is credited or charged to operations, and
the respective costs and accumulated depreciation are eliminated from the
accounts.
Depreciation is provided on the basis of estimated useful lives of the assets
using the straight-line and declining-balance methods. The estimated useful
lives are generally 3 to 10 years for furniture and equipment, 5 years for
vehicles, and 5 to 40 years for leasehold improvements.
Accounting for Goodwill
- -----------------------
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Standards (Statement) No. 142, "Goodwill and Other Intangible Assets."
This Statement changed the accounting for goodwill by requiring companies to
stop amortizing goodwill and certain intangible assets with an indefinite useful
life. Instead, goodwill and intangible assets deemed to have an indefinite
useful life will be subject to an annual review for impairment. Intangible
assets that are not deemed to have an indefinite life will continue to be
amortized over their useful lives.
The Company adopted Statement 142 effective January 1, 2002 and, accordingly,
ceased amortizing amounts related to goodwill beginning January 1, 2002. The
goodwill is related to the purchase of National Communications Systems, Inc. in
1998. Management has determined that none of the goodwill recorded was impaired
as of September 30, 2007, December 31, 2006, 2005 and 2004 and has a value of
$35,076.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" which requires the
use of the "liability method" of accounting for income taxes. Accordingly,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of the assets and liabilities,
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Current income taxes are based on the year's income taxable
for federal and state income tax reporting purposes. Revenue Recognition
Revenue is recognized under the accrual method as the services are rendered to
the customer.
Advertising
- -----------
The Company's policy is to expense advertising costs as incurred.
Sales Tax
- ---------
Sales tax is recognized net of revenues received.
7
BELL-HAUN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 2--INVENTORY
Inventory which is shown on the Balance Sheets consists of various telephone,
electrical and other supply parts used in the communication system. The
inventory listed as noncurrent represents that portion of inventory on hand that
is not expected to be immediately sold, but still has value. The total amount of
inventory on hand is as follows:
September 30, December 31, December 31, December 31,
2007 2006 2005 2004
------------- ------------ ------------ ------------
Current $144,819 $102,011 $ 93,951 $ 58,361
Non-current 41,102 41,623 41,642 40,162
------------- ------------ ------------ ------------
Total inventory $185,921 $143,634 $135,593 $ 98,523
============= ============ ============ ============
Due to changing market conditions in the communications industry, management has
conducted a review of the inventory in all of its product lines. As a result, a
provision for inventory losses totaling $61,653, $62,434, $62,463 and $60,244 as
of September 30, 2007 and December 31, 2006, 2005, and 2004 was recorded to
write down inventory to its net realizable value. This was based on the
Company's best estimates. It is at least reasonably possible that the estimates
used by the Company to determine its provision for inventory losses could be
different from the actual amounts.
NOTE 3--SHORT-TERM BANK BORROWINGS
During 2007, the Company had an open line of credit with Fifth Third Bank in the
amount of $250,000, due upon demand expiring March 31, 2008. Interest is
calculated at prime plus 1% (9.25% at September 30, 2007). The line of credit is
secured by all business assets. The outstanding line of credit at September, 30
2007 was $250,000.
During 2006, the Company had an open line of credit with Fifth Third Bank in the
amount of $250,000, due upon demand expiring March 31, 2007. Interest was
calculated at prime plus 1 (9.25% at December 31, 2006). The line of credit was
secured by all business assets. The outstanding line of credit at December 31,
2006 was $170,000.
During 2004, the Company had an open line of credit with The Huntington National
Bank in the amount of $55,000, due upon demand. Interest was calculated at prime
plus 1 % (5.75% at December 31, 2004). The line of credit was secured by all
business assets. The outstanding line of credit at December 31, 2004 was
$55,000. The line was paid off in 2005.
8
BELL-HAUN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS-Continued
NOTE 4--LONG-TERM DEBT
Long term debt is summarized as follows:
September 30, December 31, December 31, December 31,
2007 2006 2005 2004
------------- ------------ ------------ ------------
Note payable to The Huuntington
National Bank at 7.5%, due in
monthly installments of $4,979,
including interest, maturing
September 2010, secured by a
building owned by a related party $ 163,759 $ 194,316 $ 240,760 $ --
Note payable to The Huntington
National Bank at 9.24%, due in
monthly installments of $1,369
including interest, paid off
May 2007, secured by a vehicle -- 4,110 7,132 --
Note payable to The Huntington
National Bank at 6.75%, in monthly
installments of $7,291, including
interest, refinanced August 2005,
secured by a building -- -- -- 228,668
--------- --------- --------- ---------
Total long-term debt 163,759 196,426 247,892 228,668
Less current portion of long-term debt (49,478) (50,057) (46,399) (74,795)
--------- --------- --------- ---------
Total noncurrent portion of long-term debt $ 114,281 $ 148,369 $ 201,493 $ 153,873
========= ========= ========= =========
Long-term debt matures as follows:
September 30:
2008 $ 49,478
2009 52,977
2010 57,090
2011 4,214
--------
$163,759
========
NOTE 5--INCOME TAXES
The provision for income taxes consists of the following components:
September 30, December 31, December 31, December 31,
2007 2006 2005 2004
------------- ------------ ------------ ------------
Current tax provision:
Federal $ -- $ -- $ -- $ --
State -- -- -- --
Local -- -- -- --
-------- -------- -------- --------
Total current
tax provision -- -- -- --
Deferred tax benefit:
Federal (21,900) (18,100) (4,500) (22,853)
State (7,600) (6,300) (1,600) (7,577)
Local (200) (1,100) 1,500 (1,826)
Valuation allowance 29,700 25,500 4,600 32,256
-------- -------- -------- --------
Total deferred
tax benefit -- -- -- --
-------- -------- -------- --------
Provision for income
taxes $ -- $ -- $ -- $ --
======== ======== ======== ========
9
BELL-HAUN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 5--INCOME TAXES--Continued
The principal sources of timing differences relate to the use of depreciation
methods, the recognition of certain expenses for tax versus financial reporting
purposes and the net operating losses of the Company. Deferred taxes were
calculated using the lowest applicable tax rate.
The Company has a cumulative net deferred tax asset of approximately $206,800,
$177,100, $151,600 and $147,000 at September 30, 2007 and at December 31, 2006,
2005, and 2004, respectively. Realization of the deferred tax asset depends on
generating sufficient taxable income before expiration of the loss
carryforwards. Because of the historical trend of cumulative tax losses, the
realization of the deferred tax asset may not occur in the near term. Thus, a
valuation allowance for the full amount of the deferred tax asset has been
provided.
Components of the net operating loss at September 30, 2007 consist of the
following:
Year Ended: September 30, 2007 $147,040 Expires 12/31/2027
12/31/2006 129,734 Expires 12/31/2026
12/31/2005 40,112 Expires 12/31/2025
12/31/2004 147,676 Expires 12/31/2024
12/31/2002 453,719 Expires 12/31/2022
12/31/2000 50,826 Expires 12/31/2020
--------
$969,107
========
NOTE 6--RELATED PARTY TRANSACTIONS
The Company leases its office space from a partnership that is a related party
due to common ownership. The current monthly lease payment, including basic
common area maintenance charges, is $9,502. The lease expires September 30,
2008. Rent expense charged to operations under this lease totaled $78,103;
$111,827; $103,227; and $94,625 for the nine months ended September 30, 2007 and
the years ended December 31, 2006, 2005, and 2004, respectively. There were
$6,782; $0; $72,879 and $2,627 of payables to the partnership included in
Accounts Payable at September 30, 2007 and December 31, 2006, 2005, and 2004,
respectively. In addition, the partnership agreed to forgive the payable owed by
the Company at December 31, 2006. The amount forgiven totaled $158,806 and is
included in Miscellaneous Income for 2006.
The future minimum lease payments for the noncancelable leases at September 30,
2007 are:
September 30:
2008 $114,027
========
During the year ended December 31, 2004, the Company received certain services
from TBMH, Inc., a related party due to common ownership. There was $8,280 of
related party payables included in Accounts Payable at December 31, 2004.
10
BELL-HAUN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 6--RELATED PARTY TRANSACTIONS--Continued
During the nine months ended September 30, 2007 and the years ended December 31,
2006, and 2005, related parties advanced funds to the Company for various
operating expenses. Payables to related parties were as follows:
September 30, December 31, December 31,
2007 2006 2005
------------- ------------ ------------
935 Eastwind Partnership $74,500 $60,500 $ 8,500
TBMH, Inc. 6,500 6,500 4,000
------- ------- -------
Accounts payable - related parties $81,000 $67,000 $12,500
======= ======= =======
NOTE 7--RECEIVABLES AND PAYABLES FROM OFFICERS
During the nine months ended September 30, 2007 and the years ended December 31,
2006, 2005, and 2004, the officers have advanced funds and/or received advances
from the Company. These advances have no defined terms and are non-interest
bearing. The balances due to and from the officers have been netted for
financial statement purposes. The net amount payable to officers was $17,044 and
$13,544 at September 30, 2007 and December 31, 2006, respectively. The net
amount receivable from officers was $456 and $36,349 at December 31, 2005 and
2004, respectively.
NOTE 8--RETIREMENT PLAN
The Company has a 401 (k) profit sharing plan for the benefit of its employees.
The Plan provides that employees may defer percentages of their gross wages into
a Plan. Employees must meet certain criteria such as length of service, age, and
hours worked per year before they can(.) participate. Management has elected not
to contribute to the Plan during the nine months ended September 30, 2007 and
the years ended December 31, 2006, 2005, and 2004.
NOTE 9--CONCENTRATION OF CREDIT RISK
Cash Concentration Risk
- -----------------------
The Company maintains its cash balances at financial institutions, which at
times may be in excess of FDIC (Federal Deposit Insurance Corporation) insured
limits.
Major Customers
- ---------------
The Company has a long-standing relationship with a cellular communications
carrier. This customer accounted for approximately 14%, 16%, 17% and 20% of the
Company's sales for the period ended September 30, 2007 and years ended December
31, 2006, 2005 and 2004, respectively.
Major Suppliers
- ---------------
The Company had three suppliers that accounted for approximately 90%, 96%, 94%,
and 84% of the Company's. purchases for the period ended September 30, 2007 and
years ended December 31, 2006, 2005 and 2004, respectively.
11
BELL-HAUN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 10--WORKING CAPITAL
The Company has a working capital deficit at September 30, 2007 of $488,728
(current assets of $324,190 less current liabilities of $812,918). Management
recognizes the impact the operating losses have had and their effect of the
working capital deficit, but anticipates with the future sale of the Company, as
discussed further in Note 11, it should allow the Company to meet its working
capital needs.
NOTE 11--SALE OF BUSINESS UNDER AN OUTSTANDING LETTER OF INTENT
The Company has entered into a letter of intent to sell all outstanding shares
of the Company and all of the business assets (including but not limited to
equipment, inventory, furniture, fixtures, customers, customer lists, contracts,
business names, trademarks and intellectual property) and business obligations
to an unrelated party for a sales price estimated to be approximately
$1,500,000. This amount will be paid with a combination of stock, assumption of
debt and a promissory note. The transaction is scheduled to be completed in
December 2007.
12