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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 13, 2004
Commission File Number: 000-24459
ACCESSTEL, INC.
-----------------
(Exact name of registrant)
Utah 59-2159271
------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
66 Clinton Road, Fairfield, NJ 07004
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(Address of principal executive offices and zip code)
(973) 882-8861
(Registrant's telephone number)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
{ } Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
{ } Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a -12)
{ } Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d -2(b))
{ } Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e -4(c))
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Item 2.01. Completion of Acquisition or Disposition of Assets.
On October 13, 2004, Accesstel, Inc. ("we" or the "Company") completed
the acquisition of Global Invest Holdings, Inc., a New Jersey corporation. In
connection with the acquisition of Global Invest from its six stockholders, we
issued them an aggregate of 25,000,000 shares of our common stock.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
ASIATIC INDUSTRIES, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2003
ASIATIC INDUSTRIES, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2003
CONTENTS
Page
----
Accountant's Review Report 1
Balance Sheet 2
Statement of Income and Partners' Capital 3
Statement of Cash Flows 4
Notes to Financial Statements 5
ROBERT G. JEFFREY
CERTIFIED PUBLIC ACCOUNTANT
61 BERDAN AVENUE
WAYNE, NEW JERSEY 07470
LICENSED TO PRACTICE TEL: 973-628-0022
IN NEW YORK AND NEW JERSEY FAX: 973-696-9002
MEMBER OF AICPA E-MAIL: rgjcpa@optonline.net
PRIVATE COMPANIES PRACTICE SECTION
MEMBER CENTER FOR PUBLIC COMPANY AUDIT FIRMS
REGISTERED PUBLIC ACCOUNTING FIRM WITH
PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Board of Directors of Global Invest Holdings, Inc.
I have audited the accompanying balance sheet of Asiatic Industries, LLC (a
wholly owned subsidiary of Global Invest Holdings, Inc.) as of December 31,
2003, and the related statements of income and members' capital, and cash flows,
for the years ended December 31, 2003 and 2002. These financial statements are
the representation of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audits.
I conducted my audits in accordance with the Standards of Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audits 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. I believe that my
audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Asiatic Industries, LLC as of
December 31, 2003, and the results of its operations and its cash flows for each
of the two years ended December 31, 2003 and 2002 in conformity with U.S.
generally accepted accounting principles.
Wayne, New Jersey /s/ Robert G. Jeffrey Certified Public Accountant
December 22, 2004
ASIATIC INDUSTRIES, LLC
BALANCE SHEET
DECEMBER 31, 2003
ASSETS
------
Current Assets:
Cash $ 32,475
Accounts receivable, net of allowance for doubtful accounts 1,322,784
Inventories 1,151,726
Miscellaneous receivables 39,468
Prepaid expense 2,500
----------
Total current assets 2,548,953
Other Assets:
Deposit on investment 50,000
Security deposits 5,640
----------
Total other assets 55,640
----------
TOTAL ASSETS $2,604,593
==========
LIABILITIES AND MEMBERS' CAPITAL
--------------------------------
Current Liabilities:
Accounts payable $ 832,186
Notes payable under bank lines of credit 764,255
Notes payable - related parties 187,320
Accrued payroll and expenses 2,555
Payroll taxes payable 1,682
----------
Total current liabilities 1,787,998
Members' Capital 816,595
----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $2,604,593
==========
See accompanying notes and accountant's audit report.
- 2 -
ASIATIC INDUSTRIES, LLC
STATEMENT OF INCOME AND MEMBERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
---- ----
NET SALES $ 5,825,476 $ 4,425,358
COST OF GOODS SOLD 5,039,199 3,757,644
----------- -----------
GROSS PROFIT ON SALES 786,277 667,714
OPERATING EXPENSES: 559,527 366,258
----------- -----------
OPERATING INCOME 226,750 301,456
OTHER INCOME AND EXPENSE:
Interest expense (37,910) (30,409)
----------- -----------
NET INCOME FOR PERIOD 188,840 271,047
MEMBERS' CAPITAL, JANUARY 1, 2003 714,436 -
MEMBERS' CONTRIBUTIONS - CASH - 40,900
- OTHER - 484,760
DISTRIBUTIONS TO MEMBERS (86,681) (82,271)
----------- -----------
MEMBERS' CAPITAL, DECEMBER 31, 2003 $ 816,595 $ 714,436
=========== ===========
See accompanying notes and accountant's audit report.
- 3 -
ASIATIC INDUSTRIES, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 188,840 $ 271,047
Changes in assets and liabilities:
Increase in inventories (514,874) (20,021)
Increase in accounts receivable (196,902) (515,553)
Increase (decrease) in payroll taxes payable 594 (372)
Decrease (increase) in prepaid expenses (1,699) 612
Increase (decrease) in accounts payable 299,913 32,253
Increase in accrued expenses 2,555 -
Decrease (increase) miscellaneous receivables (36,314) 2,234
Decrease in security deposits - 911
Decrease in amount due from employees - 347
--------- ---------
Net cash consumed by operating activities (257,887) (228,542)
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposit for potential acquisition (50,000) -
--------- ---------
Net cash consumed by investing activities (50,000) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under lines of credit 373,055 169,564
Increase in borrowing from Members 39,831 114,506
Distributions to Members (86,681) (82,271)
Cash received upon formation of Company - 40,900
--------- ---------
Net cash provided by financing activities 326,205 242,699
--------- ---------
Increase in cash and cash equivalents 18,318 14,157
Cash balance, January 1, 2003 14,157 -
--------- ---------
Cash balance, December 31, 2003 $ 32,475 $ 14,157
========= =========
See accompanying notes and accountant's audit report.
-4-
ASIATIC INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Asiatic Industries, LLC (the Company) was organized in the State of New Jersey
during January 2002 to continue the business formerly conducted by a partnership
named Asiatic Industries. All of the assets of the partnership were contributed
by the Partners as their investment capital and the Company assumed all of the
liabilities of the partnership. In addition, a member which had not been a
partner in the partnership contributed as its capital contribution forgiveness
of a significant liability of the partnership.
The Company markets and sells apparel to a broad group of retailers and
wholesalers in the United States, with a concentration in the Northeast. Its
principle products are women's hosiery, socks, and underwear. The Company
obtains most of its hosiery, which is its principle product, from a factory
located in Lebanon, and most of its socks and underwear from a second factory in
Lebanon. All purchases are made in United States dollars. Management does not
consider this concentration to be a significant risk.
Cash
----
For purposes of the Statement of Cash Flows, the Company considers all short-
term debt securities purchased with maturity of three months or less to be cash
equivalents.
Inventories
-----------
Inventories consist principally of finished product held for sale to customers.
Inventories are valued at the lower of cost (determined on a weighted average
basis) or market.
Income Taxes
------------
There is no provision made for Federal or state income taxes because the income
or loss, of the Company will be reported on the individual tax returns of the
Members. Profits and losses are allocated in accordance with each member's
respective percentage interest in the Partnership.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of Company financial instruments, which include cash
equivalents, accounts receivable, accounts payable, accrued liabilities, and
notes payable, approximate their fair values at December 31, 2003.
-5-
ASIATIC INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
Revenue Recognition
-------------------
Revenue is realized from product sales. Recognition occurs upon shipment to
customers.
Use of Estimates
----------------
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that effect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Advertising Costs
-----------------
The Company expenses advertising costs when an advertisement occurs. Advertising
costs were $350 during the twelve months ended December 31, 2003 and $20 during
2002.
Segment Reporting
-----------------
Management treats the operations of the Company as one segment.
2. NOTES PAYABLE
Banks:
The Company has revolving lines of credit with five banks. It can borrow up to
$786,000 under its lines of credit at interest rates between the prime rate
charged by the banks and 7.9%. As of December 31, 2003, outstanding balances on
these lines totaled $764,255. Borrowings under one line with a balance at
December 31, 2003 of $500,000 are collateralized by all Company inventories and
80% of accounts receivable under 90 days old. Borrowings under the other lines
are unsecured.
Related Parties:
The Company is also obligated for advances made by two Members totaling
$187,320. Of this total, $32,984 is non-interest bearing. The remaining $154,336
bears interest at 12%.
- 6 -
ASIATIC INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
3. RENTALS UNDER OPERATING LEASES
The Company conducts its operations from leased facilities in New Jersey under a
non-cancelable operating lease, which expires in June 2005.
The following is a schedule of future minimum rental payments required under the
above operating leases as of December 31, 2002.
Year ending
December 31, Amount
------------ --------
2004 $34,800
2005 14,500
--------
$49,300
Rent expense amounted to $34,800 in 2003 and $34,400 in 2002.
4. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
There were no noncash investing or financing activities during the year ended
December 31, 2003. Cash paid for interest was $38,390 during 2003 and $30,416
during 2002; there was a $900 cash payment of income taxes during 2003 and none
paid during 2002. None of the interest paid was capitalized.
The Company was formed during January 2002 to takeover a business formerly
conducted by a partnership. The assets of the partnership were transferred to
the Company as capital contributions and the Company assumed all of the
liabilities of the partnership. The net amount of noncash capital contributed
was $484,760. A summary of the operating results of the predecessor (unaudited)
are as follows:
2001 2000
---------- ----------
Net sales $2,258,367 $1,444,897
Net income (loss) 30,786 (18,834)
5. RELATED PARTY TRANSACTIONS
One of the Members of the Company is the general manager of two vendors, which
supply the Company with its principal products. During the years ended December
31, 2003 and 2002, the Company purchased $3,028,144 and $3,051,245,
respectively, of product from one of their suppliers and during 2003 $968,155
from the other; there were no purchases during 2002 from the second supplier.
The balance due these suppliers at December 31, 2003 was $592,432.
The Company is obligated to two Members for advances made by them (see Note 2).
-7-
ASIATIC INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
6. EXPENSES
Expenses reported on the statement of operations for the years 2003 and 2002 are
detailed below:
Delivery $147,587 $ 69,383
Guaranteed payments to members 91,500 75,000
Office salaries 55,153 17,741
Other expenses 265,287 204,134
-------- --------
Total expenses $559,527 $366,258
======== ========
7. SUBSEQUENT EVENTS
In January 2004, the members of the Company contributed 100% of their ownership
interests to Global Invest Holdings, Inc. (Global Invest) in return for capital
stock of Global Invest. The equity interests of two other companies, Textile
Industries, S.A.L., and Authentic Garment Industries, S.A.L., companies
incorporated in Beirut, Lebanon which are the principle suppliers of products to
the Company, were also contributed to Global Invest in return for capital stock
of Global Invest. Global Invest there after has operated as a holding company
owning all the equity interests of its three subsidiaries.
In April 2004, the Company entered into an agreement with a factoring company
under which 85% of eligible accounts receivable are transferred on a continuing
basis to the factor. Fees for this service are 1% of the accounts receivable
transferred plus interest at prime plus 1% on accounts transferred to the
factor. Any accounts which become 90 days past due are returned to the Company.
The factor has obtained a lien to secure its advances against all Company
accounts receivable and inventories. At December 22, 2004, the balance
outstanding under this arrangement was $2,300,000. Part of the proceeds of the
advances from the factor were used to repay $500,000 of the balances due on the
bank lines of credit.
On October 13, 2004, Global Invest sold all of its assets, which included 100%
of the equity ownership of the Company, to Accesstel, Inc. (Accesstel), an
inactive publicly traded company. In return, Global Invest received 25,000,000
shares of the outstanding common stock of Accesstel. Since Global Invest thereby
acquired a majority interest in Accesstel, this transaction was accounted for as
a reverse merger, with Global Invest being treated as the accounting acquirer.
8. RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not anticipate the adoption of recently issued accounting
pronouncements to have a significant effect on the Company's results of
operation, financial position, or cash flows.
-8-
AUTHENTIC GARMENT INDUSTRIES S.A.L.
Beirut, Lebanon
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
December 31, 2003 and 2002
AUTHENTIC GARMENT INDUSTRIES S.A.L.
Beirut, Lebanon
FINANCIAL STATEMENTS
December 31, 2003 and 2002
CONTENTS
INDEPENDENT AUDITORS' REPORT........................................... 1
FINANCIAL STATEMENTS
BALANCE SHEETS.................................................... 2
STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)....... 3
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY..................... 4
STATEMENTS OF CASH FLOWS.......................................... 5
NOTES TO FINANCIAL STATEMENTS..................................... 6
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W BERCER BUREAU D'ETUDES ET DE RECHERCHES COMPTABLES D'EXPERTISES ET DE
REVISIONS
INDEPENDENT AUDITORS' REPORT
The Shareholders
Authentic Garment Industries, S.A.L.
Beirut, Lebanon
We have audited the accompanying balance sheets of Authentic Garment Industries,
S.A.L. ("the Company") as of December 31, 2003 and 2002 and the related
statements of income and comprehensive income, changes in shareholders' equity
and cash flows for the year ended December 31, 2003 and the period from June 6,
2002 (date of incorporation) to December 31, 2002. These financial statements
from page 2 to page 13 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 the Company as of December 31,
2003 and 2002, and the results of its operations, changes in shareholders'
equity and cash flows for the year ended December 31, 2003 and the period from
June 6, 2002 (date of incorporation) to December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.
/s/ W. Bercer
April 26, 2004
Beirut, Lebanon
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1.
AUTHENTIC GARMENT INDUSTRIES S.A.L.
BALANCE SHEETS
December 31, 2003 and 2002
--------------------------------------------------------------------------------
US $
2003 2002
---- ----
ASSETS
Cash and due from banks $ 6,645 $ 24,736
Accounts receivable 1,524,633 385,739
Due from shareholders 17,804 22,032
Inventories 490,301 12,000
----------- -----------
Total current assets 2,039,383 444,507
Machinery and equipment, net 276,333 106,549
Prepayments and other assets 26,861 11,606
----------- -----------
Total assets $ 2,342,577 $ 562,662
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to banks $ 348,869 $-
Accounts payable and other liabilities 661,107 98,517
Due to shareholders 361,986 304,376
----------- -----------
Total current liabilities 1,371,962 402,893
Long-term debt 958,642 215,486
----------- -----------
Total liabilities 2,330,604 618,379
Share capital (Note 13) 19,899 3,316
Accumulated deficit (7,926) (59,033)
----------- -----------
Total shareholders' equity 11,973 (55,717)
----------- -----------
Total liabilities and shareholders' equity $ 2,342,577 $ 562,662
=========== ===========
--------------------------------------------------------------------------------
2.
AUTHENTIC GARMENT INDUSTRIES S.A.L.
STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
Year ended December 31, 2003 and the period from June 6, 2002 (date of
incorporation) to December 31, 2002
--------------------------------------------------------------------------------
US $
2003 2002
---- ----
Sales $ 2,094,669 $ 463,866
Cost of goods sold 1,637,510 343,123
----------- -----------
Gross profit 457,159 120,743
Selling, general and administrative expenses 300,427 167,008
----------- -----------
Income (loss) from continuing operations before interest, other
(charges) income, and income taxes 156,732 (46,265)
Interest expense 47,901 12,737
Other net charges/income 39,457 31
----------- -----------
Income (loss) from continuing operations before income taxes
69,374 (59,033)
Income taxes 18,267 -
----------- -----------
Net income (loss) and comprehensive income (loss) $ 51,107 $ (59,033)
=========== ===========
Weighted average number of shares outstanding 2,167 500
Basic earnings (loss) per share $ 23.58 $ (118.07)
-------------------------------------------------------------------------------
(Continued)
3.
AUTHENTIC GARMENT INDUSTRIES S.A.L.
STATEMENTS OF SHAREHOLDERS' EQUITY
Year ended December 31, 2003 and the period from June 6, 2002 (date of
incorporation) to December 31, 2002
-------------------------------------------------------------------------------
Accumulated
Share Capital Legal Reserve Deficit Total
Shares US $ US $ US $ US $
-------------------------------------- ---------- -------------- - -------------- -- ------------------ -- --------------
Balance at June 6, 2002 (date of 500 $3,316 $- $- $3,316
incorporation)
Net loss - - (59,033) (59,033)
December 31, 2002 3,316 - (59,033) (55,717)
Net income - 51,107 51,107
Increase in share capital on April 2,500 16,583 - - 16,583
17, 2003
Balance at December 31, 2003 3,000 $19,899 $- $(7,926) $11,973
======= == ======= =======
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(Continued)
4.
AUTHENTIC GARMENT INDUSTRIES S.A.L.
STATEMENTS OF CASH FLOWS
Year ended December 31, 2003 and the period from June 6, 2002 (date of
incorporation) to December 31, 2002
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US $
2003 2002
---- ----
Cash flows from operating activities:
Net income (loss) $ 51,107 $ (59,033)
Adjustments to reconcile to net cash provided by
operating activities
Depreciation 22,679 4,152
Increase in receivables (1,138,894) (385,739)
Increase in inventories (478,301) (12,000)
Increase in prepayments and other assets (15,255) (11,606)
Increase in accounts payable and other liabilities
544,794 98,517
Increase in accrued interest payable 17,796 -
----------- -----------
Net cash used in operating activities (996,074) (365,709)
Cash flows from investing activities:
Purchase of machinery and equipment (192,463) (110,701)
----------- -----------
Net cash used in investing activities (192,463) (110,701)
Cash flow from financing activities:
Proceeds from shareholder loan 800,000 -
Proceeds from due to banks 348,869 -
Proceeds from subordinated loan (Kafalat) - 215,486
Payment of long-term debt (56,844) -
Proceeds from shareholders 57,610 304,376
Decrease (increase) in due from shareholders 20,811 (22,032)
Proceeds from issuance of share capital - 3,316
----------- -----------
Net cash from financing activities 1,170,446 501,146
Net change in cash, cash equivalents and due to banks (18,091) 24,736
Cash and cash equivalents, beginning of year 24,736 -
----------- -----------
Cash and cash equivalents and (due to banks), end of year
6,645 24,736
=========== ===========
Supplemental cash flow information:
Interest paid $ 65,697 $ 12,737
Income taxes paid $- $-
Supplemental noncash disclosures:
Increase of share capital (Note 4 and 13) $ 16,583 $-
-------------------------------------------------------------------------------
(Continued)
5.
AUTHENTIC GARMENT INDUSTRIES S.A.L.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
-------------------------------------------------------------------------------
NOTE 1 - NATURE OF OPERATIONS
Nature of Operations: Authentic Garment Industries, S.A.L. "the Company" was
registered at the Beirut Registry under the number 1000073 on June 6, 2002 as a
limited liability company (S.A.R.L.). On April 17, 2003, the Company was
converted legally into a corporation (S.A.L.); refer to Note 13.
The Company is a manufacturer, purchasing cotton garment used primarily for
underwear production for almost entirely selling to the United States of America
market. The Company utilizes labor and production in Lebanon to achieve
significant cost reductions for sale in the United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Use of estimates: To prepare financial statements in conformity with
generally accepted accounting principles in the United States of America,
management makes estimates and assumptions based on available information.
These estimates and assumptions affect the amounts reported in the
financial statements and the disclosures provided, and actual results could
differ. Significant areas requiring the use of estimates include
depreciation of equipment and furniture.
b) Cash equivalents: Cash and cash equivalents includes cash and term deposits
with maturities of ninety days or less when acquired.
c) Inventories: Inventories consist primarily of raw materials and are stated
at the lower of cost or net realizable value (or market). Cost is
determined using the average costing method.
d) Machinery and equipment: Machinery and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the asset useful
lives using the straight line method. The Company uses the following useful
lives for the following categories of fixed assets:
------------------------- -------------------------
Industrial machines 13 years
------------------------- -------------------------
Vehicles 7 years
------------------------- -------------------------
Furniture and fixtures 7 years
------------------------- -------------------------
Office equipment 7 years
------------------------- -------------------------
Industrial machinery and other long-term assets are reviewed for
impairment. If impaired, the assets are recorded at discounted amounts.
There is no impairment in value of these assets as of December 31, 2003 and
2002.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e) Staff end-of-service indemnity: The provision for staff end-of-service
indemnity is set up in accordance with the applicable labor law and social
security regulations in Lebanon.
Computation of indemnity is based on the latest average monthly
remunerations and the number of years of service of each employee.
Accrued staff end-of service indemnity also includes an accrual for
contingent extraordinary termination notice pay in an amount equivalent to
about four months' salaries.
-------------------------------------------------------------------------------
(Continued)
6.
AUTHENTIC GARMENT INDUSTRIES S.A.L.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
f) Revenue recognition: All income and expenses are accounted for on the
accrual basis. Prepaid expenses incurred during the year and relating to
the following years are recorded under prepayments and other assets. The
Company also provides for any accrued expenses relating to the current
period. The Company recognizes revenue when realized or realizable and
earned, which is when the following criteria are met: persuasive evidence
of an arrangement exists; delivery has occurred; the sales price is fixed
and determinable; and collectibility is reasonably assured.
g) Provisions: Provisions are recognized for present obligations resulting
from past events that are probable to result in an outflow of economic
benefits that can be reasonably estimated.
h) Statutory reserve: In accordance with the requirements of the Lebanese Code
of Commerce, the Company is required to transfer 10% from its annual net
profit to a statutory reserve account until the amount of the reserve
equals one third of the Company's capital. This reserve is not available
for distribution. There are no statutory reserves as of December 31, 2003
and 2002 as the Company has accumulated deficits.
i) Foreign currency translation: Foreign currencies transactions are
translated into U.S. dollars at the rate of exchange (published by the
Central Bank of Lebanon) at the time of the transaction. Assets and
liabilities expressed in foreign currencies are translated into the U.S.
dollars at the prevailing exchange rates (published by the Central Bank of
Lebanon) at the end of the financial year; except for fixed assets.
Differences on exchange are included in the income statements.
j) Financial instruments: The financial instruments stated in the Company's
financial statements include cash and cash equivalents, due to and from
banks, bank loans, accounts payable and accrued liabilities, and income and
other taxes payable. The carrying amounts of most of these instruments
approximate fair value due to their short-term or demand nature and/or
variable interest rates affecting these instruments which adjust based in
changes with major market indices; such as LIBOR.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k) Loss contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities
when the likelihood of loss is probable and an amount or range of loss can
be reasonably estimated. Management does not believe there now are such
matters that will have a material effect on the financial statements.
l) Income taxes: In accordance with the provision of income tax law in
Lebanon, the Company shall be subject to an income tax rate of 15% on its
taxable income and a rate of 10% on any dividend distributions to
shareholders.
m) Earnings (loss) per share: Basic earnings per share is net income (loss)
divided by the weighted average number of shares outstanding during the
period. There are no dilution effects from potential additional issuance
shares.
n) Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income.
-------------------------------------------------------------------------------
(Continued)
7.
AUTHENTIC GARMENT INDUSTRIES S.A.L.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE 3 - CASH AND DUE FROM BANKS
Cash and due from banks at year-end were as follows:
US $
2003 2002
---- ----
Cash on-hand $ 242 $ (1,213)
Banque du Liban (Central Bank of Lebanon) 6,227 2,712
Credit Bank:
LBP 176 139
US $ - 23,098
-------- --------
$ 6,645 $ 24,736
======== ========
NOTE 4 - DUE FROM SHAREHOLDERS
Due from shareholders consist of $17,804 and $22,032 as of December 31, 2003 and
2002, respectively. During June of 2003, the Company increased its capital from
LBP 5,000,000 ($3,317) to LBP 30,000,000 ($19,899) in order to convert the
Company from a limited liability (S.A.R.L.) to a corporation (S.A.L.), as per
minimum capital requirements for S.A.R.L. and S.A.L. companies in Lebanon. The
increase of LBP 25,000,000 ($16,583) was recorded as due from shareholders by
the Company, as the shareholders did not inject cash at the time of the
increase.
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable at year-end were as follows:
US $
2003 2002
---- ----
Ordinary clients $1,426,545 $ 375,700
Loans to personnel 449 6,317
Deductible value added tax 91,196 -
Other 6,443 3,722
---------- ----------
$1,524,633 $ 385,739
========== ==========
Ordinary clients accounts receivable consist of only two clients of the Company
located in Latin America and the United States of America, which are ALL TEX and
Asiatic Industries, respectively. Asiatic Industries is a related party of the
Company and the balance of accounts receivable as of December 31, 2003 and 2002
were $300,000 and $375,700, respectively.
Since most of the Company's sales are to related parties and there are no
delinquent payments, based on terms of payment, the Company did not take a
provision for bad debts during 2003 and 2002.
NOTE 6 - INVENTORIES
Year-end inventories were as follows:
US $
2003 2002
---- ----
Raw materials $474,825 $ 12,000
Finished goods 15,476 -
-------- --------
$490,301 $ 12,000
======== ========
-------------------------------------------------------------------------------
(Continued)
8.
AUTHENTIC GARMENT INDUSTRIES S.A.L.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE 7 - MACHINERY AND EQUIPMENT
Machinery and equipment at year-end was as follows:
US $
2003 2002
---- ----
Industrial machines $ 229,018 $ 99,091
Vehicles 18,046 -
Furniture, fixtures and office equipment 56,100 11,610
--------- ---------
303,164 110,701
Less: Accumulated depreciation (26,831) (4,152)
--------- ---------
$ 276,333 $ 106,549
========= =========
Depreciation expense was $22,679 and $4,152 for 2003 and 2002, respectively.
Rent expense was $13,300 and $1,950 for 2003 and 2002, respectively.
The Company leases premise for the use of its operations. Rent commitments under
noncancelable operating leases were as follows as of December 31, 2003, before
considering renewal options that generally are present.
US $
2004 $13,000
2005 9,500
2006 8,000
--------
$30,500
========
NOTE 8 - PREPAYMENTS AND OTHER ASSETS
Year-end prepayments and other assets were as follows:
US $
2003 2002
---- ----
Prepaid rent $24,100 $11,606
Other 2,761 -
------- -------
$26,861 $11,606
======= =======
The Company prepaid its rent through 2006 as of December 31, 2003.
NOTE 9 - DUE TO BANKS
Due to banks consisted of a revolving line-of-credit with Credit Bank in the
amount of $348,869 as of December 31, 2003. Interest is paid monthly at a
variable rate of 10%. Maturity is on demand and in agreement with the Bank as
specified in the line-of-credit agreement. Each year the Bank would evaluate the
credit position of the Company and accordingly would ask for a pay down on the
principle balance, if deemed necessary.
-------------------------------------------------------------------------------
(Continued)
9.
AUTHENTIC GARMENT INDUSTRIES S.A.L.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE 10 - ACCOUNTS PAYABLE AND OTHER LIABILITIES
Year-end accounts payable and other liabilities were as follows:
US $
2003 2002
---- ----
Accounts payable $169,295 $ 55,961
Accrued payroll, income and payroll taxes 106,304 18,809
Other payables 356,669 22,887
Accrued interest payable 17,796 -
Obligations under National Security Services Fund
11,043 860
-------- --------
$661,107 $ 98,517
======== ========
Other payables consisted of mainly $309,449 which is payment due to Textile
Industries, S.A.L. which is a related party as of December 31, 2003.
NOTE 11 - LONG-TERM DEBT
Long-term debt and related maturities and interest rates were as follows as of
December 31, 2003 and 2002:
US $
2003 2002
---- ----
Subordinated loan (Kafalat) $158,642 $215,486
Shareholder loans 800,000 -
-------- --------
$958,642 $215,486
======== ========
The subordinated debt from Kafalat is dated June 30, 2003, bears a variable
interest rate attached to LIBOR of 6.83% and is due in September 2008.
Three loans (executed by one loan agreement) were extended from one of the
shareholders of the Company, Mr. Arthur Nazarian for a total of $800,000 during
2003. The first loan for $250,000
NOTE 11 - LONG TERM DEBT (Continued)
is dated January 18, 2003, bears an interest rate of 2.5% and is due upon
request by Mr. Nazarian. While, the first loan is due upon request, the
shareholder stipulated that this loan will be paid in the future when the
Company has excess retained earnings and cash. The second loan for $350,000 is
dated January 18, 2003, bears an interest rate of 2.5% and is due on January 18,
2007. The third loan is for $200,000 is dated January 18, 2003, bears an
interest rate of 4.5% and is due on January 18, 2007. The agreement has a step
up clause related to the interest rate charged on the first two loans. The
interest rate can be increased after the first two years of these loans;
however, not to exceed 4.5%. The loans agreement states that during 2003 the
existing shareholders will give up 40% of the outstanding shares to Mr. Nazarian
and his two sons for making the loans. In fact during April of 2003, Mr.
Nazarian was admitted as a 36% shareholder of the Company and 4% for his two
sons, respectively. There are no annual principal payments due before maturity.
Maturities over the next five years are as follows:
US $
2007 $800,000
2008 158,642
---------
$958,642
=========
-------------------------------------------------------------------------------
(Continued)
10.
NOTE 12 - DUE TO SHAREHOLDERS
Due to shareholders were as follows:
US $
2003 2002
---- ----
Edy Sayad $361,553 $266,598
Ralph Sayad 433 37,778
-------- --------
$361,986 $304,376
======== ========
The above amounts consist of a cash infusion by two shareholders to support
working capital needs of the Company. The shareholders stipulated that these
amounts are long-term, considering that payment will be requested from the
Company when the Company accumulates excess retained earnings and cash.
--------------------------------------------------------------------------------
(Continued)
11.
NOTE 13 - SHARE CAPITAL
The Company was incorporated as a limited liability company (S.A.R.L.) on June
6, 2002 with a share capital of LBP 5,000,000 ($3,316). During 2003, a new
shareholder was admitted, and on April 17, 2003 a capital increase of LBP
25,000,000 ($16,583) was made to convert the legal structure of Authentic
Garment Industries from a limited liability to a corporation (S.A.L.). Thus
making the Company's share capital LBP 30,000,000 ($19,899) distributed over
3,000 shares.
Common shares, $6.63 par value, 3,000 authorized and issued.
NOTE 14 - RELATED PARTY TRANSACTIONS
a) As indicated in Note 4, the Company's due from shareholders or
directors consisted of $17,804 and $22,032 as of December 31, 2003 and
2002, respectively.
b) The Company has receivables from another related party in the United
States of America which is Asiatic Industries (refer to Note 5).
c) The Company has payables in the amount of $309,449 as of December 31,
2003 due to Textile Industries, S.A.L. which is a related party (refer
to Note 10).
d) A shareholder extended several loans to the Company executed by one
loan agreement for the total amount of $800,000 (refer to Note 11).
e) Two shareholders have supported the working capital needs of the
Company as indicated in Note 12.
NOTE 15 - RISK AND UNCERTAINTIES
Dependence on key customers: The Company is dependent on two customers for its
sales. Almost all the Company's sales are to two main companies (ALL TEX and
Asiatic Industries) outside of Lebanon (refer to Note 5). There are no
assurances that ALL TEX will continue to buy from the Company, thus
significantly affecting future sales which during 2003 comprised almost half of
total sales.
--------------------------------------------------------------------------------
TEXTILE INDUSTRIES S.A.L.
Beirut, Lebanon
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
December 31, 2003 and 2002
--------------------------------------------------------------------------------
TEXTILE INDUSTRIES S.A.L.
BEIRUT - LEBANON.
FINANCIAL STATEMENTS
December 31, 2003 and 2002
CONTENTS
INDEPENDENT AUDITORS' REPORT..................................................1
FINANCIAL STATEMENTS
BALANCE SHEETS...........................................................2
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME............................3
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY............................4
STATEMENTS OF CASH FLOWS.................................................5
NOTES TO FINANCIAL STATEMENTS............................................6
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
W BERCER
BUREAU D'ETUDES ET DE RECHERCHES COMPTABLES D'EXPERTISES ET DE REVISIONS
INDEPENDENT AUDITORS' REPORT
The Shareholders
Textile Industries, S.A.L.
Beirut, Lebanon
We have audited the accompanying balance sheets of Textile Industries, S.A.L.
("the Company") as of December 31, 2003 and 2002 and the related statements of
income and comprehensive income, changes in shareholders' equity and cash flows
for the years then ended. These financial statements from page 2 to page 13 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 the Company as of December 31,
2003 and 2002, and the results of its operations, changes in shareholders'
equity and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ W. Bercer
April 26, 2004
Beirut, Lebanon
--------------------------------------------------------------------------------
1.
TEXTILES INDUSTRIES S.A.L.
BALANCE SHEETS
December 31, 2003 and 2002
--------------------------------------------------------------------------------
US $
2003 2002
---- ----
ASSETS
Cash and due from banks $ 1,658 $ 588
Accounts receivable 608,271 970,819
Due from shareholders and related parties 311,453 19,525
Inventories 2,113,009 1,414,466
--------------- ---------------
Total current assets 3,034,391 2,405,398
Machinery and equipment, net 786,010 709,657
Prepayments and other assets 34,328 10,602
Total assets $ 3,854,729 $ 3,125,657
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to banks $ 1,890,477 $ 1,733,502
Accounts payable and other liabilities 1,111,722 687,175
Due to shareholders and related parties 84,112 74,003
--------------- ---------------
Total current liabilities 3,086,311 2,494,680
Long-term borrowings 403,750 453,124
--------------- ---------------
Total liabilities 3,490,061 2,947,804
Share capital
Common shares, $99.5 par value; 1,000 shares
authorized and issued 99,536 99,536
Retained earnings 265,132 78,317
--------------- ---------------
Total shareholders' equity 364,668 177,853
--------------- ---------------
Total liabilities and shareholders' equity $ 3,854,729 $ 3,125,657
=============== ===============
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
2.
TEXTILES INDUSTRIES S.A.L.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years ended December 31, 2003 and 2002
--------------------------------------------------------------------------------
U.S.$
2003 2002
---- ----
Sales $ 3,173,623 $ 3,215,602
Cost of sales 1,427,390 1,684,117
--------------- ---------------
Gross profit 1,746,233 1,531,485
Selling, general and administrative expenses 1,385,277 1,116,507
--------------- ---------------
Income from continuing operations before interest, other (charges)
income, and income taxes 360,956 414,978
Interest expense 187,560 194,606
Other net charges/income (13,419) (19,209)
--------------- ---------------
Income from continuing operations before income taxes 186,815 239,581
Income taxes -- --
--------------- ---------------
Net income and comprehensive income $ 186,815 $ 239,581
=============== ===============
Weighted average number of shares outstanding 1,000 1,000
Basic earnings per share $ 186.82 $ 239.58
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
3.
TEXTILE INDUSTRIES S.A.L.
STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 2003 and 2002
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Accumulated
Share Capital Legal Reserve Deficit Total
Shares US $ US $ US $ US $
-------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2002 1,000 $99,536 $- $(161,264)- (61,728)
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Net loss - - 239,581 239,581
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
December at 31, 2002 99,536 - 78,317 177,853
-------------------------------------- ---------- -------------- - -------------- -- ------------------ -- --------------
-------------------------------------------------------------------------------------------------------------------------
Net income - 186,815 186,815
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 1,000 $99,536 $- $265,132 $364,668
-------------------------------------------------------------------------------------------------------------------------
======= === ======== ========
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
4.
TEXTILE INDUSTRIES S.A.L.
STATEMENTS OF CASH FLOWS
Years ended December 31, 2003 and 2002
--------------------------------------------------------------------------------
US $
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 186,815 $ 239,581
Adjustments to reconcile to net cash provided by
operating activities
Depreciation 87,311 84,730
Decrease (increase) in receivables 362,548 (256,995)
Increase in inventories (698,543) (584,995)
Increase in prepayments and other assets (23,726) (10,602)
Increase in accounts payable and other liabilities
424,547 323,686
--------------- ---------------
Net cash from (used in) operating activities 338,952 (204,595)
Cash flows from investing activities:
Purchase of machinery and equipment (163,664) (23,195)
--------------- ---------------
Net cash used in investing activities (163,664) (23,195)
Cash flow from financing activities:
Payment of long-term debt (49,374) (37,755)
Net change in due to banks 156,975 239,240
Net change in due to/from shareholders (281,819) (261)
--------------- ---------------
Net cash used in financing activities (174,218) 201,224
Net change in cash and cash equivalents 1,070 (26,566)
Cash and cash equivalents, beginning of year 588 27,154
--------------- ---------------
Cash and cash equivalents end of year $ 1,658 $ 588
=============== ===============
Supplemental cash flow information:
Interest paid $ 24,754 $ 8,750
Income taxes paid $ - $ -
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
5.
TEXTILE INDUSTRIES S.A.L.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE 1 - NATURE OF OPERATIONS
Nature of Operations: Textile Industries S.A.L. "the Company" was registered at
the Beirut Registry under the number 68250 on September 27, 2000.
The Company is a manufacturer of female hosiery with production in Lebanon and
sales primarily in the United States of America. The Company utilizes labor and
production in Lebanon to achieve significant cost reductions for sale in the
United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
o) Use of estimates: To prepare financial statements in conformity with
generally accepted accounting principles in the United States of America,
management makes estimates and assumptions based on available information.
These estimates and assumptions affect the amounts reported in the
financial statements and the disclosures provided, and actual results could
differ. Significant areas requiring the use of estimates include
depreciation of equipment and furniture.
p) Cash equivalents: Cash and cash equivalents includes cash and term deposits
with maturities of ninety days or less when acquired.
q) Inventories: Inventories consist primarily of raw materials and are stated
at the lower of cost or net realizable value (or market). Cost is
determined using the average costing method.
r) Machinery and equipment: Machinery and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the asset useful
lives using the straight line method. The Company uses the following useful
lives for the following categories of fixed assets:
-----------------------------------------------------------------
Industrial machines 13 years
-----------------------------------------------------------------
Vehicles 7 years
-----------------------------------------------------------------
Furniture and fixtures 7 years
-----------------------------------------------------------------
Office equipment 7 years
-----------------------------------------------------------------
Industrial machinery and other long-term assets are reviewed for
impairment. If impaired, the assets are recorded at discounted amounts.
There is no impairment in value of these assets as of December 31, 2003 and
2002.
s) Staff end-of-service indemnity: The provision for staff end-of-service
indemnity is set up in accordance with the applicable labor law and social
security regulations in Lebanon.
Computation of indemnity is based on the latest average monthly
remunerations and the number of years of service of each employee.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accrued staff end-of service indemnity also includes an accrual for
contingent extraordinary termination notice pay in an amount equivalent to
about four months' salaries.
t) Revenue recognition: All income and expenses are accounted for on the
accrual basis. Prepaid expenses incurred during the year and relating to
the following years are recorded under prepayments and other assets. The
Company also provides for any accrued expenses relating to the current
period. The Company recognizes revenue when realized or realizable and
earned, which is when the following criteria are met: persuasive evidence
of an arrangement exists; delivery has occurred; the sales price is fixed
and determinable; and collectibility is reasonably assured.
--------------------------------------------------------------------------------
6.
TEXTILE INDUSTRIES S.A.L.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------
u) Provisions: Provisions are recognized for present obligations resulting
from past events that are probable to result in an outflow of economic
benefits that can be reasonably estimated.
v) Statutory reserve: In accordance with the requirements of the Lebanese Code
of Commerce, the Company is required to transfer 10% from its annual net
profit to a statutory reserve account until the amount of the reserve
equals one third of the Company's capital. This reserve is allocated in the
following year upon approval by the general assembly of the shareholders,
pending there are no accumulated deficits.
w) Foreign currency translation: Foreign currencies transactions are
translated into U.S. dollars at the rate of exchange (published by the
Central Bank of Lebanon) at the time of the transaction. Assets and
liabilities expressed in foreign currencies are translated into the U.S.
dollars at the prevailing exchange rates (published by the Central Bank of
Lebanon) at the end of the financial year; except for fixed assets.
Differences on exchange are included in the income statements.
x) Financial instruments: The financial instruments stated in the Company's
financial statements include cash and cash equivalents, due to and from
banks, bank loans, accounts payable and accrued liabilities, and income and
other taxes payable. The carrying amounts of most of these instruments
approximate fair value due to their short-term or demand nature and/or
variable interest rates affecting these instruments which adjust based in
changes with major market indices; such as LIBOR.
y) Loss contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities
when the likelihood of loss is probable and an amount or range of loss can
be reasonably estimated. Management does not believe there now are such
matters that will have a material effect on the financial statements.
z) Income taxes: In accordance with the provision of income tax law in
Lebanon, the Company shall be subject to an income tax rate of 15% on its
taxable income and a rate of 10% on any
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
dividend distributions to shareholders. Net operating losses can be used in
future years (3 years carry forward) to offset net operating income for tax
purposes.
aa) Earnings per share: Basic earnings per share is net income (loss) divided
by the weighted average number of shares outstanding during the period.
There are no dilution effects from potential additional issuance shares.
bb) Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income.
NOTE 3 - CASH AND DUE FROM BANKS
Cash and due from banks at year-end were as follows:
U.S.$
2003 2002
---- ----
Cash on-hand $ - $ 305
Bank of Beirut 663 29
Bank of Beirut - cash collateral 995 --
Credit Bank -- 254
------------ ------------
$ 1,658 $ 588
============ ============
--------------------------------------------------------------------------------
7.
TEXTILE INDUSTRIES S.A.L.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE 4 - ACCOUNTS RECEIVABLE, NET
Accounts receivable at year-end were as follows:
U.S.$
2003 2002
---- ----
Ordinary clients $ 458,759 $ 888,234
loans to personnel 1,375 3,488
Deductible value added tax 93,254 77,630
Other 54,883 1,467
------------ ------------
$ 608,271 $ 970,819
============ ============
Asiatic Industries is a related party of the Company and the balance of accounts
receivable as of December 31, 2003 and 2002 were $292,432 and $783,506,
respectively.
Since most of the Company's sales are to Asiatic Industries and there are no
delinquent payments, based on terms of payment, the Company did not take a
provision for bad debts during 2003 and 2002.
NOTE 5 - INVENTORIES
Year-end inventories were as follows:
U.S.$
2003 2002
---- ----
Raw materials $ 792,670 $ 510,078
Work in process 1,026,316 711,688
Spare parts 97,500 78,000
Finished goods 196,523 114,700
------------ ------------
$ 2,113,009 $ 1,414,466
============ ============
--------------------------------------------------------------------------------
8.
TEXTILE INDUSTRIES S.A.L.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE 6 - PREPAYMENTS AND OTHER ASSETS
Year-end prepayments and other assets were as follows:
U.S.$
2003 2002
---- ----
Prepaid expenses $ 1,521 $ 10,602
Other 32,807 --
------------ ------------
$ 34,328 $ 10,602
============ ============
NOTE 7 - MACHINERY AND EQUIPMENT
Machinery and equipment at year-end were as follows:
U.S.$
2003 2002
---- ----
Industrial machines $ 901,205 $ 770,463
Vehicles 8,240 --
Furniture, fixtures and office equipment 104,028 80,293
------------ ------------
Less: Accumulated depreciation (227,463) (141,099)
------------ ------------
$ 786,010 $ 709,657
============ ============
Depreciation expense was $87,311 and $ 84,730, for 2003 and 2002, respectively.
Rent expense was $63,393 and $52,400 for 2003 and 2002, respectively.
The Company leases premise for the use of its operations. Rent commitments under
noncancelable operating leases were as follows as of December 31, 2003, before
considering renewal options that generally are present.
U.S.$
2004 $44,000
2005 44,000
2006 22,000
----------------
$110,000
================
--------------------------------------------------------------------------------
9.
TEXTILE INDUSTRIES S.A.L.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE 9 - DUE TO BANKS
Due to banks were as follow as of December 31, 2003:
----------------------------------------------------------------------------------------------------------------------
U.S.$
----------------------------------------------------------------------------------------------------------------------
2003 2002
---- ----
----------------------------------------------------------------------------------------------------------------------
Banque Saradar (9.00% revolving line-of-credit) $301,149 $324,654
----------------------------------------------------------------------------------------------------------------------
ABN Amro Bank - 177,800
----------------------------------------------------------------------------------------------------------------------
Lebanese Canadian Bank (10.50% revolving line-of-credit) 118,173 91,965
----------------------------------------------------------------------------------------------------------------------
Credit Bank (8.14% revolving line-of-credit) 98,292 1,240
----------------------------------------------------------------------------------------------------------------------
Bank of Beirut (9.00% revolving line-of-credit) 318,152 206,931
----------------------------------------------------------------------------------------------------------------------
Byblos Bank (5.50% in US $ and 10.50% in LBP revolving 828,875 652,923
line-of-credit)
----------------------------------------------------------------------------------------------------------------------
Byblos Bank (5.50% letters of credit) 225,836 277,989
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
$1,890,477 $1,733,502
----------------------------------------------------------------------------------------------------------------------
========== ==========
To capture the credit rating of Lebanon, banks would charge a higher interest
rate on loans denominated in the local currency versus those made in the US $.
Maturity is on demand and in agreement with the banks as specified in the
line-of-credit agreement. Each year the bank(s) would evaluate the credit
position of the Company and accordingly would ask for a pay down on the
principle balance, if deemed necessary.
NOTE 10 - ACCOUNTS PAYABLE AND OTHER LIABILITIES
Year-end accounts payable and other liabilities were as follows:
U.S.$
2003 2002
---- ----
Accounts payable $ 973,878 $ 591,377
Accrued payroll 85,746 65,380
Accrued interest payable 31,034 20,788
Obligations under National Security Services Fund
18,973 (53)
Other accrued expenses 2,091 9,683
--------------- ---------------
$ 1,111,722 $ 687,175
=============== ===============
NOTE 11 - DUE TO SHAREHOLDERS AND RELATED PARTIES
Due to shareholders were as follows at December 31, 2003:
U.S.$
2003 2002
---- ----
MFZ Holding $ 1,300 $ 1,300
Ralph Sayad 44,377 28,164
Global Invest, S.A.L. Holding 38,435 44,539
------------ ------------
$ 84,112 $ 74,003
============ ============
The above amounts consist of a cash infusion by three shareholders to support
working capital needs of the Company. The shareholders stipulated that these
amounts are long-term, considering that payment will be requested from the
Company when the Company accumulates excess retained earnings and cash.
--------------------------------------------------------------------------------
10.
TEXTILE INDUSTRIES S.A.L.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE 12 - LONG-TERM DEBT
Long-term debts were as follows at year-end:
U.S.$
2003 2002
---- ----
Credit Bank $ 403,750 $ 453,124
------------ ------------
$ 403,750 $ 453,124
============ ============
The above loan was made during 2001 at a face value of $500,000, bears an
interest rate of around 7.00% and is due on September 30, 2008. All of the
principal payments on this loan are due in 2008.
NOTE 13 - SHARE CAPITAL
The Company was incorporated as a corporation (S.A.L.) on September 27, 2000
with a share capital of LBP 150,000,000 ($99,536) distributed over 1,000 shares.
Global Invest, S.A.L. Holding is the largest single shareholder with a total
capital ownership of 99.7%.
Common shares, $99.5 par value, 1,000 authorized and issued.
NOTE 14 - RELATED PARTY TRANSACTIONS
f) As indicated in Note 4, accounts receivable from Asiatic Industries
consisted of $292,432 and $783,506 as of December 31, 2003 and 2002,
respectively.
--------------------------------------------------------------------------------
11.
TEXTILE INDUSTRIES S.A.L.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------
g) The Company has receivables from shareholders in the amount of $311,453
and $19,525 as of December 31, 2003 and 2002, respectively. As
indicated in Note 11, due to shareholders represents amounts in support
of the Company's working capital in the amount of $84,112 and $74,003
as of December 31, 2003 and 2002, respectively.
NOTE 15 - RISK AND UNCERTAINTIES
Dependence on key customers: The Company is dependent on one main customer for
its sales. Almost 95% of the Company's sales are to Asiatic Industries outside
of Lebanon (refer to Note 14). This dependence could result in a significant
loss of sales to the Company should Asiatic Industries terminate any of its
arrangements with Textile Industries S.A.L.
--------------------------------------------------------------------------------
12.
--------------------------------------------------------------------------------
(b) Pro Forma Financial Information
ACCESSTEL, INC.
PROFORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
On October 13, 2004, Accesstel, Inc. (the Company) acquired all of the capital
stock of Global Invest Holdings, Inc. (Global Invest) in return for 25,000,000
shares of its common stock, which represented 73% of the number of shares of the
Company outstanding after this transaction. The acquisition will be accounted
for as a reverse merger with the Company being treated as the acquired company
and Global Invest being treated as the acquirer. After the completion of the
merger, historic financial and other information of Global Invest will be
presented in all public filings. Under the accounting for a reverse merger, the
liabilities of the Company will be recorded on the books of the continuing
company at their market value which approximates net realizable value, and the
stockholder's equity accounts of Global Invest will be reorganized to reflect
the shares issued in this transaction.
Global Invest is a New Jersey corporation organized November 19, 2003. In
January 2004, it acquired the ownership interests of three operating companies:
Asiatic Industries, LLC, a New Jersey limited liability company which markets
ladies hosiery, underwear, and socks; and two Lebanese companies which
manufacture the products sold by Asiatic Industries, LLC. Prior to 2004, the
three companies had diverse ownership.
The accompanying condensed financial statements illustrate the effect of the
acquisition (proforma) on the financial position of the Company and the results
of its operations. The condensed balance sheet as of September 30, 2004, is
based on the historical balance sheets of Global Invest and the assets and
liabilities of the Company as of that date and assumes the acquisition took
place on that date. The condensed statements of income for the year ended
December 31, 2003, and for the nine month period ended September 30, 2004, are
based on the historical statements of income of the Company and Global Invest
for those periods and assume the acquisition took place on January 1, 2003.
The proforma condensed financial statements may not be indicative of the actual
results of the acquisition. In particular, the proforma condensed financial
statements are based on management's current estimate of the allocation of the
purchase price; the actual allocation may differ.
The accompanying proforma financial statements should be read in conjunction
with the historical financial statements of the Company and of Global Invest.
A number of relatively small judgments were entered against the Company in the
year 2000, which total approximately $700,000. A former executive of the Company
has indemnified the Company for these liabilities and pledged 200,000 shares of
Company common stock to secure this indemnification. The indemnification calls
for release of the stock on October 12, 2005.
--------------------------------------------------------------------------------
1.
ACCESSTEL, INC.
PROFORMA CONDENSED STATEMENTS OF INCOME (Unaudited)
YEAR ENDED DECEMBER 31, 2003
Authentic
Asiatic Textile Garment
Accesstel Industries Industries Industries,
Inc. LLC S.A.L. S.A.L. Adjustments Pro-Forma
----------- ----------- ----------- ------------ -------------- -----------
Sales $ - $5,825,476 $3,173,623 $2,094,669 $(3,996,299)(1) $7,097,469
Cost of Goods Sold - 5,039,199 1,427,390 1,637,510 3,996,299 (1) 4,107,800
----------- ----------- ----------- ------------ -------------- -----------
Gross Profit - 786,277 1,746,233 457,159 - 2,989,669
Operating Expenses 908,492 559,527 1,385,277 300,427 800,000 (3) 2,353,723
----------- ----------- ----------- ------------ -------------- -----------
Operating Income (908,492) 226,750 360,956 156,732 800,000 635,946
Other Income and Expense:
Interest expense (2,493) (37,910) (187,560) (47,901) 2,493 (4) (273,371)
Other income (expense) (900,000) - 13,419 (39,457) 900,000 (3) (26,038)
----------- ----------- ----------- ------------ -------------- -----------
Income Before Income Taxes (1,810,985) 188,840 186,815 69,374 1,702,493 336,537
Income Taxes - - - 18,267 - 18,267
------------ ----------- ----------- ------------ -------------- -----------
Net Income $(1,810,985) $ 188,840 $ 186,815 $ 51,107 $ 1,702,493 $ 318,270
=========== =========== =========== =========== =========== ==========
Earnings Per Share $ .01
Weighted Average Number
of Shares Outstanding 34,236,340
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2.
--------------------------------------------------------------------------------
ACCESSTEL, INC.
PROFORMA CONDENSED STATEMENTS OF INCOME (Unaudited)
YEAR ENDED DECEMBER 31, 2003
Authentic
Asiatic Textile Garment
Accesstel Industries Industries Industries,
Inc. LLC S.A.L. S.A.L. Adjustments Pro-Forma
------------ ----------- ----------- ------------ ---------------- ------------
Sales $ - $ 5,825,476 $ 3,173,623 $ 2,094,669 $ (3,996,299)(1) $ 7,097,469
Cost of Goods Sold - 5,039,199 1,427,390 1,637,510 3,996,299(1) 4,107,800
------------ ------------ ------------ ------------ ------------ ------------
Gross Profit - 786,277 1,746,233 457,159 - 2,989,669
Operating Expenses 908,492 559,527 1,385,277 300,427 800,000(3) 2,353,723
------------ ------------ ------------ ------------ ------------ ------------
Operating Income (908,492) 226,750 360,956 156,732 800,000 635,946
Other Income and Expense:
Interest expense (2,493) (37,910) (187,560) (47,901) 2,493(4) (273,371)
Other income (expense) (900,000) - 13,419 (39,457) 900,000(3) (26,038)
------------ ------------ ------------ ------------ ------------ ------------
Income Before Income Taxes (1,810,985) 188,840 186,815 69,374 1,702,493 336,537
Income Taxes - - - 18,267 - 18,267
------------ ------------ ------------ ------------ ------------ ------------
Net Income $ (1,810,985) $ 188,840 $ 186,815 $ 51,107 $ 1,702,493 $ 318,270
============ ============ ============ ============ ============ ============
Earnings Per Share $ .01
============
Weighted Average Number
of Shares Outstanding 34,236,340
============
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3.
ACCESSTEL, INC.
PRO FORMA CONDENSED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 2004
Global Invest
Accesstel, Holdings,
Inc. Inc. Adjustments Pro Forma
----------- -------------- ----------- ---------
ASSETS
Cash $ - $ 28,572 $ 28,572
Accounts receivable, net of
bad debt provision - 3,894,712 3,894,712
Inventory - 3,053,912 3,053,912
Prepaid expenses and other assets - 55,382 55,382
----------- ----------- ----------- -----------
Total current assets - 7,032,578 7,032,578
Fixed assets, net - 1,194,426 1,194,426
----------- ----------- ----------- -----------
Total Assets $ - $ 8,227,004 $ - $ 8,227,004
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 34,393 672,561 $ (34,393)(2) $ 672,561
Due to shareholders 52,063 372,305 (52,063)(2) 372,305
Short term bank debt 4,435,609 4,435,609
----------- ----------- ----------- -----------
Total current liabilities 86,456 5,480,475 (86,456) 5,480,475
Long term bank debt - 1,295,115 1,295,115
Stockholders' equity:
Common stock: authorized shares of
$.001 par value; 34,236,340 shares
issued and outstanding 9,236 119,435 25,000 (5)
(119,435)(6) 34,236
Additional paid in capital 3,818,460 816,595 (25,000)(5)
119,435 (6)
(3,914,152)(7) 901,794
86,456 (2)
Retained earnings (deficit) (3,914,152) 515,384 3,914,152 (7) 515,384
----------- ----------- ----------- -----------
Total stockholders' equity (deficit) (86,456) 1,451,414 86,456 1,451,414
----------- ----------- ----------- -----------
Total Liabilities and Stockholders' Equity $ - $ 8,227,004 $ - $ 8,227,004
=========== =========== =========== ===========
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4.
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ACCESSTEL, INC.
NOTES TO PROFORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Adjustments to condensed proforma statements of income for the year ended
December 31, 2003:
(1) Elimination of intercompany sales.
(2) Conversion of related party debt to equity, coincident with the
acquisition.
(3) Elimination of selling, general and administrative expenses from
Accesstel, Inc. which would not be required subsequent to the merger
with Global Invest Holdings, Inc. The estimated portion of selling,
general and administrative expenses expected to be incurred are
professional fees relating to the Company being a public filer.
(4) Elimination of the interest expense on related party debt which was
converted to equity coincident with the merger.
(5) Issuance of 25,000,000 shares of $.001 par value in exchange for the
outstanding common stock of Global Invest Holdings, Inc.
(6) Elimination of common stock of Global Invest Holding, Inc.
(7) Elimination of retained deficit of Accesstel, Inc.
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5.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ACCESSTEL, INC.
Dated: December 30, 2004 By: /s/ Ralph Sayad
--------------------------------------
Ralph Sayad
Chief Executive Officer
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