IMPSA S.A. — Audit Report / Information 2001

Jul 30, 2001

IMPSA INTERNATIONAL, INC.

AND SUBSIDIARIES

Consolidated Financial Statements

January 31, 2001 and January 31, 2000

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors

IMPSA International, Inc.

Pittsburgh, Pennsylvania

We have audited the accompanying consolidated balance sheets of IMPSA International, Inc. and Subsidiaries as of January 31, 2001 and January 31, 2000 and the related consolidated statements of income, stockholder’s equity and cash flows for the years then ended. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimated made by management, as well as evaluating the overall financial presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IMPSA International, Inc. and Subsidiaries at January 31, 2001 and January 31, 2000 and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles.

Certified Public Accountants

Pittsburgh, Pennsylvania

February 14, 2001

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JANUARY 31, 2001 AND JANUARY 31, 2000

	NOTES		SCHEDULES		2001		2000
ASSETS:
Current Assets:
Cash	1				$ 179,699		$ 687,482
Trade receivables	1 and 3				3,775,834		4,658,598
Prepaid expenses					156,565		91,137
Total Current Assets					4,112,098		5,437,217
Non-Current Assets:
Fixed assets	1 and 2		A		6,747		11,268
Total Non-Current Assets					6,747		11,268
Total Assets					$ 4,118,845		$ 5,448,485
LIABILITIES:
Current Liabilities:
Accounts payable					$ 598,640		$ 2,064,570
Other liabilities					-		14,900
Total Current Liabilities					598,640		2,079,470
Stockholder’s Equity (as per corresponding statement)					3,520,205		3,369,015
Total Liabilities and Equity					$ 4,118,845		$ 5,448,485

The attached notes are an integral part of this statement.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE FISCAL YEARS ENDED JANUARY 31, 2001 AND JANUARY 31, 2000

	NOTES		SCHEDULES		2001		2000
Net sales of goods and services	1 and 3				$ 779,797		$ 1,233,484
Expenses:
Selling	1 and 5		B		409,699		467,360
Administrative	1 and 5		B		410,226		511,547
					819,925		879,907
Subtotal – Profit (Loss)					(40,128)		254,577
Other income and expenses	4				269,318		249,290
Profit before income taxes					229,190		503,867
Income taxes	1 and 6				78,000		195,000
Net Income For The Year					$ 151,190		$ 308,867

The attached notes are an integral part of this statement.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY
FOR THE FISCAL YEARS ENDED JANUARY 31, 2001 AND JANUARY 31, 2000

	Owner’s Contribution											Reserves
		Subscribed Capital Note		Adjustment to Capital		Capital Surplus		Irrevocable Contributions		Total		Statutory		Others		Total			Unappropriated Retained Earnings			Total of Shareholder’s Equity
Balance as of January 31, 1999		$ 250		$ -		$1, 534,750		$ -		$ 1,535,000		$ -		$ -		$ -			$ 2,825,148			$ 4,360,148
Net income for fiscal year as per statement of income		-		-		-		-		-		-		-		-			308,867			308,867
Return of capital to parent company		-		-		(1,300,000)		-		(1,300,000)		-		-		-			-			(1,300,000)
Balance as of January 31, 2000		$ 250		-		234,750		-		235,000		-		-		-			3,134,015			3,369,015
Net income for fiscal year as per statement of income		-		-		-		-		-		-		-		-			151,190			151,190
Balance as of January 31, 2001		$ 250		$ -		$ 234,750		$ -		$ 235,000		$ -		$ -		$ -			$ 3,285,205			$ 3,520,205
* Par Value - $1 per shareAuthorized – 1,000 sharesIssued – 250 shares

The attached notes are an integral part of this statement.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE FISCAL YEARS ENDED JANUARY 31, 2001 AND JANUARY 31, 2000

	2001		2000
OPERATING ACTIVITIES:
Net income for the year	$ 151,190		$ 308,867
Add:
Items not representing source of cash:
Depreciation and amortization	4,521		10,698
Gain on sale of fixed assets	-		(3,764)
Sources:
Decrease in trade receivables	882,764		-
Increase in accounts payable	-		732,022
Use:
Increase in trade receivables	-		(671,032)
Increase in prepaid expenses	(65,428)		(84,043)
Decrease in accounts payable	(1,465,930)		-
Decrease in other liabilities	(14,900)		-
Decrease in accrued taxes	-		(63,046)
Net Cash Provided (Used) By Operating Activities	(507,783)		229,702
INVESTING ACTIVITIES:
Sources:
Proceeds from sale of fixed assets	-		12,000
Net Cash Provided By Investing Activities	-		12,000
FINANCING ACTIVITIES:
Sources:
Proceeds from line of credit borrowings	-		350,000
Use:
Principal payments on line of credit borrowings	-		(700,000)
Net Cash Used By Financing Activities	-		(350,000)
Net Decrease In Cash	$ (507,783)		$ (108,298)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	$ 687,482		$ 795,780
NET CHANGE IN CASH FOR THE YEAR	(507,783)		(108,298)
CASH AND CASH EQUIVALENTS AT END OF YEAR	$ 179,699		$ 687,482

The attached notes are an integral part of this statement.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE FISCAL YEARS ENDED JANUARY 31, 2001 AND JANUARY 31, 2000

	2001		2000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid	$ 3,635		$ 38,604
Income Taxes Paid	$ 136,642		$ 345,113
Non-cash operating, investing and financing activity:
Increase in receivables with transfer of investments to parent	$ -		$ 2,155,177
Reduction in receivables with return of paid-in-capital to parent	$ -		$ 1,300,000

The attached notes are an integral part of this statement.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2001 AND JANUARY 31, 2000

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, IMPSA International of Delaware, Inc. and Henry LaGarde, Inc. Effective January 31, 2001 Henry LaGarde, Inc. was liquidated. This liquidation had no effect on the consolidated financial statements. All inter-company accounts and transactions have been eliminated in consolidation.

IMPSA International, Inc. is a wholly owned subsidiary of Industries Metalurgicas Pescarmona S.A.I.C.F., an Argentine based company. IMPSA International, Inc. acquires material requisitioned by the parent and affiliated companies on a commission basis. The Company also receives a commission from the parent company for sales of equipment manufactured in Argentina.

Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Concentrations of Credit Risk – Financial instruments potentially subject to concentrations of credit risk consist of cash in excess of federally insured limits and receivables. The Company maintains part of its cash in money market savings accounts and checking accounts, which at times exceeds federally insured limits. Receivables are due from the parent company and affiliates.

Cash Flows – The Company considers all temporary investments with maturity of six months or less to be cash equivalents.

Commission income is recognized at the time that a purchase order is placed for the parent company or affiliates or at the time cash is received for a sale when the Company successfully bids on a project for the parent company or affiliates.

Depreciation – Depreciation is computed under an accelerated method (MACRS) for both income tax and financial reporting purposes, except for certain fixed assets, which are being depreciated under IRC section 179 for income tax purposes and MACRS for financial reporting purposes. Depreciation expense amounted to $4,521 for 2001 and $10,698 for 2000.

Income Taxes – Income tax expense is based on reported income adjusted for differences of a permanent nature.

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NOTE 2 – FIXED ASSETS:

A summary of fixed assets follows:

	January 31,
	2001		2000
Office Equipment	$ 180,612		$ 180,612
Furniture and fixtures	27,486		27,486
Automobile	10,851		10,851
	218,949		218,949
Less: Accumulated depreciation	212,202		207,681
Total Fixed Assets	$ 6,747		$ 11,268

NOTE 3 – RELATED PARTY TRANSACTIONS:

All advances, as well as accounts receivable and notes receivable from the parent company and affiliates, are made in U.S. dollars, and the exchange rate costs are accounted for by the parent company and/or affiliates.

Commissions earned amounted to $779,797 and $1,233,484 for 2001 and 2000 respectively.

Trade receivables are as follows:

	January 31,
	2001		2000
Accounts receivable from parent company and affiliates	$ 1,375,834		$ 1,458,598
Notes receivable from parent company	2,400,000		3,200,000
	$ 3,775,834		$ 4,658,598

NOTE 4 – NOTE PAYABLE:

The Company had a revolving line of credit agreement with National City Bank of Pennsylvania, which provided for an overall borrowing limit not to exceed $750,000. This revolving line of credit arrangement expired June 30, 1999 and was not renewed. Interest expense on line of credit borrowings and various purchase orders amounted to $3,635 and $38,604 for 2001 and 2000 respectively.

NOTE 5 – LEASE COMMITMENT:

The Company has a long-term lease with HFT Holdings covering its present office space in Scott Township, Pennsylvania. The lease extends from September 1, 2000 thru August 31, 2005. The first 24 monthly lease payments are $3,496 and the next 36 payments are $3,605. The new lease can be terminated by the Company upon 180 days written notice. The Company also leases an automobile providing for monthly payments of $372 thru July 20, 2001.

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NOTE 5 – LEASE COMMITMENT (CONTINUED):

Minimum lease payments under the previously described operating leases are as follows:

Year Ending January 31,		Amount
2002		$ 44,184
2003		42,497
2004		43,260
2005		43,260
2006		25,235
		$ 198,436

Rent expense amounted to $59,232 for 2001 and $66,262 for 2000.

NOTE 6 – TAXES ON INCOME:

Taxes on income are as follows:

	January 31,
	2001		2000
CURRENTLY PAYABLE:
Federal income tax	$ 76,000		$ 165,200
State income tax	2,000		29,800
	$ 78,000		$ 195,000

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INDEPENDENT AUDITOR’S REPORT

ON ADDITIONAL INFORMATION

To the Board of Directors

IMPSA International, Inc.

Pittsburgh, Pennsylvania

Our report on our audit of the basic financial statements of IMPSA International, Inc. and Subsidiaries for 2001 and 2000 appears on page 1. Those audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information on pages 11 and 12 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic relation to the financial statements taken as a whole.

Certified Public Accountants

Pittsburgh, Pennsylvania

February 14, 2000

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARIES (SCHEDULE A)
FIXED ASSETS
JANUARY 31, 2001 AND JANUARY 31, 2000

												Depreciation											Net Residual Value
Account		Balance at Beginning of Year			Increases		Decreases		Balance at End of Year		Accumulated Balance at Beginning of Year			Retirements		Current Rate		Year Amount		Accumulated Balance at End of Year				2001		2000
Machinery and Equipment		$ 180,612			$ -		$ -		$ 180,612		$ 172,469			$ -		various		$ 3,271		$ 175,740				$ 4,872		$ 8,143
Furniture and Equipment		27,486			-		-		27,486		27,486			-		various		-		27,486				-		-
Vehicles		10,851			-		-		10,851		7,726			-		various		1,250		8,976				1,875		3,125
TOTALS OF PRESENT YEAR		$ 218,949			$ -		$ -		$ 218,949		$ 207,681			$ -				$ 4,521		$ 212,202				$ 6,747		$ 11,268
TOTALS OF PREVIOUS YEAR		$ 238,394			$ -		$ 19,445		$ 218,949		$ 208,192			$ 11,209				$ 10,698		$ 207,681				$ 11,268		$ 30,202

See Accountant’s Report on Additional Information.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARIES (SCHEDULE B) CONSOLIDATED SCHEDULE OF SELLING AND ADMINISTRATIVE EXPENSES FOR THE FISCAL YEARS ENDED JANUARY 31, 2001 AND JANUARY 31, 2000
Items		Total 01/31/00		Cost of Production Inventories		Cost of Fixed Assets Construction			Selling Expenses		Administrative Expenses		Total 01/31/01
Fees and remunerations for services		$ 19,255		$ -		$ -			$ 5,045		$ 20,177		$ 25,222
Salaries and wages		461,442		-		-			211,854		217,871		429,725
Payroll taxes		34,263		-		-			14,577		14,942		29,519
Royalties and technical services fees		59,000		-		-			29,000		-		29,000
Advertising expenses and credit publications		1,651		-		-			1,471		-		1,471
Other taxes		13,890		-		-			-		7,190		7,190
Insurance		9,983		-		-			-		9,360		9,360
Depreciation of fixed assets		10,698		-		-			-		4,521		4,521
Travel and entertainment		18,102		-		-			33,475		-		33,475
Rentals		66,262		-		-			29,616		29,616		59,232
Telephone		28,161		-		-			17,150		4,288		21,438
Dues and membership		8,942		-		-			6,657		1,664		8,321
Office expenses		45,581		-		-			29,933		7,483		37,416
Employee benefits		50,049		-		-			28,746		11,112		39,858
Bidding expense		713		-		-			345		-		345
Sales expense		-		-		-			517		-		517
Repairs and maintenance		3,685		-		-			-		468		468
Contributions		-		-		-			-		50		50
Moving expense		147		-		-			-		-		-
Bank Fees		520		-		-			-		230		230
Astra jet expense		126,000		-		-			-		76,000		76,000
Other expense		20,563		-		-			1,313		5,254		6,567
Totals as of 01/31/01		$ 978,907		$ -		$ -			$ 409,699		$ 410,226		$ 819,925
Totals as of 01/31/00		$ 978,907		$ -		$ -			$ 467,360		$ 511,547		$ 978,907

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