IMPSA S.A. — Audit Report / Information 2003

Apr 14, 2003

IMPSA INTERNATIONAL, INC.

AND SUBSIDIARY

Consolidated Financial Statements

January 31, 2003 and January 31, 2002

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, 2003, and January 31, 2002, 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 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 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, 2003 and January 31, 2002 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Certified Public Accountants

Pittsburgh, Pennsylvania

February 13, 2003

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

JANUARY 31, 2003 AND JANUARY 31, 2002

NOTES SCHEDULES 2003 2002

ASSETS:

Current Assets:

Cash 1 $ 275,884 $ 261,582

Trade receivables 1, 3 and 6 5,235,673 3,723,608

Prepaid expenses 2,043 9,660

Refundable federal income taxes - 259,000

Total Current Assets 5,513,600 4,253,850

Non-Current Assets:
Deferred income tax benefit 5 273,000 288,000

Fixed assets 1 and 2 A - 3,772

Total Non-Current Assets 273,000 291,772

Total Assets $ 5,786,600 $ 4,545,622

LIABILITIES:

Current Liabilities:

Accounts payable 6 $ 411,361 $ 812,532

Other 6 2,846,789 1,000,000

Total Current Liabilities 3,258,150 1,812,532

Stockholder’s Equity (as per corresponding statement) 2,528,450 2,733,090

Total Liabilities and Equity $ 5,786,600 $4,545,622

The attached notes are an integral part of this statement.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

FOR THE FISCAL YEARS ENDED JANUARY 31, 2003 AND JANUARY 31, 2002

NOTES SCHEDULES 2003 2002

Net sales of goods and services 1 and 3 $312,670 $385,246

Expenses:

Selling 1 and 4 B 153,659 273,593

Administrative 1 and 4 B 338,670 250,433

492,329 524,026

Subtotal – Loss (179,659) (138,780)

Other income (expenses) 1 and 6 (169,456) (1,176,335)

Loss Before Income Taxes (349,115) (1,315,115)

Income taxes (credit) 1 and 5 (144,475) (528,000)

Net Loss For The Year $ (204,640) $ (787,115)

The attached notes are an integral part of this statement.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

FOR THE FISCAL YEARS ENDED JANUARY 31, 2003 AND JANUARY 31, 2002

Owner’s Contribution Reserves Unappropriated Total of

*Subscribed Adjustment Capital Irrevocable Retained Stockholder’s

Capital Notes to Capital Surplus Contributions Total Statutory Others Total Earnings Equity

Balance as of January 31, 2001 $ 250 $ - $234,750 $ - $235,000 $ - $ - $ - $3,285,205 $3,520,205

Net loss for fiscal year as

per statement of income - - - - - - - - (787,115) (787,115)

Balance as of January 31, 2002 250 - 234,750 - 235,000 - - - 2,498,090 2,733,090

Net loss for fiscal year as per

statement of income - - - - - - - - (204,640) (204,640)

Balance as of January 31, 2003 $ 250 $ - $234,750 $ - $235,000 $ - $ - $ - $2,293,450 $2,528,450

*Par Value - $1 per share

Authorized - 1000 shares

Issued - 250 shares

The attached notes are an integral part of this statement.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE FISCAL YEARS ENDED JANUARY 31, 2003 AND JANUARY 31, 2002

2003 2002

OPERATING ACTIVITIES:

Net loss for the year $ (204,640) $ (787,115)

Add:

Items not representing source of cash:

Depreciation 3,772 2,200

Gain on sale of fixed assets - (925)

Deferred income taxes (144,475) (288,000)

Sources:

Decrease in trade receivables - 52,226

Decrease in prepaid expenses 7,617 146,905

Decrease in refundable income taxes 418,475 -

Increase in accounts payable - 213,892

Increase in other liabilities 1,846,789 1,000,000

Uses:

Increase in trade receivables (1,512,065) -

Decrease in accounts payable (401,171) -

Increase in refundable federal income taxes - (259,000)

Net Cash Provided By Operating Activities 14,302 80,183

INVESTING ACTIVITIES:

Sources:

Proceeds from sale of fixed assets - 1,700

Net Cash Provided By Investing Activities - 1,700

Net Increase In Cash $ 14,302 $ 81,883

CASH AND CASH EQUIVALENTS AT

BEGINNING OF YEAR 261,582 179,699

NET CHANGE IN CASH FOR THE YEAR 14,302 81,883

CASH AND CASH EQUIVALENTS AT

END OF YEAR $ 275,884 $ 261,582

SUPPLEMENTAL DISCLOSURE OF CASH

FLOW INFORMATION:

Interest Paid $ 5,162 $ 14,677

Income Taxes Paid (Refunded) $ (418,730) $(121,766)

The attached notes are an integral part of this statement.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2003 AND JANUARY 31, 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation – The January 31, 2002 consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, IMPSA International of Delaware, Inc. Effective January 31, 2002, IMPSA International of Delaware, Inc. was merged into its parent, IMPSA International, Inc. This merger and liquidation had no effect on the consolidated financial statements. All inter-company accounts and transactions have been eliminated in consolidation. The January 31, 2003 financial statements include only IMPSA International, Inc.

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 a 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 $3,772 for 2003 and $2,200 for 2002.

Interest – Interest expense consists of interest on accounts payable. Interest expense for 2003 also includes interest on the arbitration award described in Note 6. Interest expense amounted to $162,392 and $3,635 for 2003 and 2002 respectively.

Income Taxes - Income tax expense is based on reported income adjusted for differences of a permanent nature. Deferred income tax benefit relates to the temporary difference in the recognition of the Company’s net operating loss carryforward for financial and tax reporting purposes (See Note 5).

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NOTE 2 - FIXED ASSETS:

A summary of fixed assets follows:

January 31,

2003 2002

Office equipment $180,612 $180,612

Furniture and fixtures 27,486 27,486

208,098 208,098

Less: Accumulated depreciation 208,098 204,326

Total Fixed Assets $ - $ 3,772

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 $312,670 and $385,246 for 2003 and 2002, respectively.

Trade receivables consist of accounts receivable from parent and affiliates.

NOTE 4 - LEASE COMMITMENTS:

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 with an escalation provision for real estate tax increases. The new lease can be terminated by the Company upon 180 days written notice.

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

Year Ending January 31, Amount

2004 $ 44,553

2005 44,553

2006 25,990

$115,096

Rent expenses amounted to $47,029 for 2003 and $49,936 for 2002.

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NOTE 5 - TAXES ON INCOME:

Taxes (credits) on income are as follows:

January 31,

2003 2002

CURRENTLY PAYABLE (REFUNDABLE):

Federal income tax $ - $ (240,000)

State income tax         -            -

-    (240,000)

DEFERRED:

Federal income tax (104,000) (154,000)

State income tax (40,475) (134,000)

(144,475) (288,000)

Total $(144,475) $ (528,000)

The deferred income tax benefit results from the Company's available net operating loss carryforwards.

At January 31, 2003 the Company had federal and state net operating loss carryforwards of approximately $343,000 and $1,687,000, respectively, which will be available to reduce future taxable income. The federal and state net operating loss carryforwards expire in 2023 and 2013, respectively. Although realization is not assured, management believes it is more likely than not that the entire deferred income tax benefit relating to the net operating loss carryforwards will be realized. Accordingly, no valuation allowance is required.

On March 9, 2002, the Job Creation and Workers Assistance Act of 2002 (2002 Stimulus Act) became law. This legislation temporarily extended the carryback period from two to five years for net operating losses (NOL’S) arising in taxable years ending in 2001 and 2002. As a result of this change in the law, the Company was permitted to carryback its entire net operating loss for the year ended January 31, 2002 instead of carrying forward approximately $489,000 to reduce future federal taxable income. The tax effect of the loss carryforward at January 31, 2002 was recorded as a deferred tax benefit. The additional refundable federal income tax resulting from the previously described law change was reflected as a reclassification between currently refundable federal income taxes and deferred income tax benefit and has been refunded to the Company. This reclassification had no effect on the previously reported net income for the year ended January 31, 2002.

NOTE 6 - ARBITRATION AWARD:

An arbitration claim was filed against the Company by a subcontractor under a subcontract agreement with the Company for the erection of three container cranes at two United States Naval facilities. The claim ultimately sought $6,538,466 for various direct cost claims, delay and disruption and extra work. On December 12, 2001, a modified arbitration award allowed a claim against the Company of $3,096,314. The award also allowed the Company's counter claim of $286,550 leaving the net sum of $2,809,764 owed by the Company to the subcontractor.

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NOTE 6 - ARBITRATION AWARD (CONTINUED):

On December 20, 2001 the Company filed a Petition to Vacate and/or Modify the Arbitration Award in the United States District Court for the Western District of Pennsylvania. The Company previously recorded a liability totaling $325,968 for extra work performed under this subcontract. In January 2002, the Company recorded a liability of $1,000,000 relating to this claim, which at that time was management’s best estimate of the possible loss relating to this claim. Any further expenses relating to this claim excluding interest and legal fees would be charged to its parent Company. On February 13, 2003 all parties involved in this matter signed a final settlement agreement which would pay the subcontractor $2,460,000 plus interest of $386,789 totaling $2,846,789 at January 31, 2003, of which $1,689,559 of the settlement was charged to its parent Company. For 2003, the Company incurred $157,230 of interest costs and $86,147 of legal fees relating to this claim. For 2002, the Company recorded a $1,000,000 charge relating to this claim and incurred $268,971 of related legal fees. All expenses relating to the claim that were charged to the Company are included in Other Income (Expenses) in the Consolidated Statement of Income.

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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 audits of the basic financial statements of IMPSA International, Inc. and Subsidiary for 2003 and 2002 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 financial statements taken as a whole.

Certified Public Accountants

Pittsburgh, Pennsylvania

February 13, 2003

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

(SCHEDULE A)

FIXED ASSETS

JANUARY 31, 2003 AND JANUARY 31, 2002

Net Residual

Depreciation Value

Balance at Balance at Accumulated Current Year Accumulated

Beginning End of Balance at Balance at

Account of Year Increases Decreases Year Beginning of Year Retirements Rate Amount End of Year 2003 2002

Machinery and Equipment $180,612 $ - $ - $180,612 $176,840 $ - Various $ 3,772 $180,612 $ - $3,772

Furniture and Equipment 27,486 - - 27,486 27,486 - Various - 27,486 - -

TOTALS OF PRESENT YEAR $208,098 $ - $ - $208,098 $204,326 $ - $ 3,772 $208,098 $ - $3,772

TOTALS OF PREVIOUS YEAR $218,949 $ - $10,851 $208,098 $212,202 $10,076 $ 2,200 $204,326 $3,772 $6,747

See Accountant’s Report on Additional Information.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

(SCHEDULE B)

CONSOLIDATED SCHEDULE OF SELLING AND ADMINISTRATIVE EXPENSES

FOR THE FISCAL YEARS ENDED JANUARY 31, 2003 AND JANUARY 31, 2002

Cost of Cost of

Total Production Fixed Assets Selling Administrative Total

Items 01/31/02 Inventories Construction Expenses Expenses 01/31/03

Salaries and wages $312,172 $ - $ - $108,986 $202,402 $311,388

Rentals 49,936 - - 4,703 42,326 47,029

Telephone 13,772 - - 5,743 1,435 7,178

Travel and entertainment 14,901 - - 3,926 7,292 11,218

Dues and membership 3,711 - - - 750 750

Office expense 24,794 - - 3,741 14,965 18,706

Depreciation of fixed assets 2,200 - - - 3,772 3,772

Fees and renumerations services 23,725 - - 4,463 13,389 17,852

Advertising expenses and credit publication 940 - - 490 - 490

Payroll taxes 26,100 - - 7,168 13,313 20,481

Other taxes 4,074 - - - 6,000 6,000

Employee benefits 36,095 - - 14,155 26,288 40,443

Insurance 6,676 - - - 2,865 2,865

Bidding expense 414 - - - - -

Sales expense 430 - - - - -

Repairs and maintenance 1,048 - - - - -

Bank fees 274 - - - 1,700 1,700

Royalties and technical services fees - - - - 1,038 1,038

Other expense 2,764 - - 284 1,135 1,419

Totals as of 01/31/03 $ - $ - $ - $153,659 $338,670 $492,329

Totals as of 01/31/02 $524,026 $ -$ - $273,593 $250,433 $ -

See Accountant’s Report on Additional Information.

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