IMPSA S.A. — Interim / Quarterly Report 2002

Dec 13, 2002

IMPSA INTERNATIONAL, INC.

AND SUBSIDIARY

Consolidated Financial Statements

October 31, 2002 and October 31, 2001

To the Board of Directors

IMPSA International, Inc.

Pittsburgh, Pennsylvania

We have compiled the accompanying consolidated balance sheets of IMPSA International, Inc. and Subsidiary as of October 31, 2002, and October 31, 2001, and the related consolidated statements of income, stockholder’s equity and cash flows for the nine months then ended in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants.

A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them.

Certified Public Accountants

Pittsburgh, Pennsylvania

November 8, 2002

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

OCTOBER 31, 2002 AND OCTOBER 31, 2001

ASSETS:

NOTES 2002 2001

Current Assets:

Cash 1 $ 103,848 $ 372,386

Trade receivables 1 and 3 4,244,688 4,452,110

Prepaid expenses 5,337 13,400

Total Current Assets: 4,353,873 4,837,896

Non-Current Assets
Deferred income tax benefits 5 144,525 -

Fixed assets 1 and 2 946 4,947

Total Non-Current Assets 145,471 4,947

Total Assets $ 4,499,344 $ 4,842,843

LIABILITIES:

Current Liabilities:

Accounts payable 6 $ 819,060 $ 1,270,564

Other liabilities 6 1,000,000 10,368

Total Current Liabilities 1,819,060 1,280,932

Stockholder’s Equity (as per corresponding statement) 2,680,284 3,561,911

Total Liabilities and Equity $ 4,499,344 $4,842,843

See Accompanying Notes and Accountant’s Compilation Report.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED OCTOBER 31, 2002 AND OCTOBER 31, 2001

NOTES 2002 2001

Net sales of goods and services 1 and 3 $303,857 $371,190

Expenses:

Selling 1 and 4 124,485 206,507

Administrative 1 and 4 300,359 184,439

424,844 390,946

Subtotal – Profit (Loss) (120,987) (19,756)

Other income and expense 52,181 76,462

Profit (loss) before income taxes (68,806) 56,706

Income taxes (credit) 1 and 5 (16,000) 15,000

Net Income (Loss) for the Nine Month Period $ (52,806) $ 41,706

See Accompanying Notes and Accountant's Compilation Report.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

FOR THE NINE MONTHS ENDED OCTOBER 31, 2002 AND OCTOBER 31, 2001

2002 2001

Owner’s Contribution Reserves Unappropriated Total of Total of

*Subscribed Adjustment Capital Irrevocable Retained Stockholder’s Stockholder’s

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

Balance as of January 31 $ 250 $ - $234,750 $ - $235,000 $ - $ - $ - $2,498,090 $2,733,090 $3,520,205

Net income (loss) for the nine

month period as per statement

of income - - - - - - - - (52,806) (52,806) 41,706

Balance as of October 31 $ 250 $ - $234,750 $ - $235,000 $ - $ - $ - $2,445,284 $2,680,284 $3,561,911

*Par Value $1 per share

Authorized 1000 shares

Issued 250 shares

See Accompanying Notes and Accountant’s Compilation Report.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED OCTOBER 31, 2002 AND OCTOBER 31, 2001

2002 2001

OPERATING ACTIVITIES:

Net income (loss) for the nine month period $ (52,806) $ 41,706

Add: Items not representing source of cash:

Depreciation 2,826 1,800

Deferred income taxes (16,000) -

Sources:

Decrease in prepaid expenses 4,323 143,165

Decrease in refundable income taxes 418,475 -

Increase in accounts payable 6,528 671,924

Increase in other liabilities - 10,368

Uses:

Increase in trade receivables (521,080) (676,276)

Net Cash Provided (Used) By Operating Activities (157,734) 192,687

Net Increase (Decrease) In Cash $ (157,734) $ 192,687

Cash and Cash Equivalents - February 1 $ 261,582 $ 179,699

Net Increase (Decrease) in Cash for the Period (157,734) 192,687

Cash and Cash Equivalents - October 31 $ 103,848 $ 372,386

SUPPLEMENTAL DISCLOSURE OF CASH

FLOW INFORMATION:

Interest paid $ 5,117 $ 10,115

Income taxes paid (refunded) $ (418,730) $(121,766)

See Accompanying Notes and Accountant's Compilation Report.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 2002 AND OCTOBER 31, 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation - The October 31, 2001 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 had no effect on the consolidated financial statements. All inter-company accounts and transactions have been eliminated in consolidation. The October 31, 2002 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 primarily from parent 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 $2,826 for 2002 and $1,800 for 2001.

Income Taxes - Income tax expense (credit) is based on reported income (loss) adjusted for differences of a permanent nature.

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NOTE 2 - FIXED ASSETS:

A summary of fixed assets follows:

October 31,

2002 2001

Office equipment $180,612 $180,612

Furniture and fixtures 27,486 27,486

Automobiles - 10,851

208,098 218,949

Less: Accumulated depreciation 207,152 214,002

Total Fixed Assets $ 946 $ 4,947

NOTE 3 - RELATED PARTY TRANSACTIONS:

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

Commissions earned amounted to $303,857 and $371,190 for 2002 and 2001, 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.

Rent expense amounted to $35,011 for 2002 and $36,905 for 2001.

NOTE 5 - TAXES ON INCOME:

Taxes on income (credit) are as follows:

2002 2001

CURRENTLY PAYABLE (REFUNDABLE):

Federal income tax $ - $12,000

State income tax        -    3,000

-    15,000

DEFERRED:

Federal income tax (10,000) -

State income tax (6,000)       -

(16,000)       -

Total $(16,000) $15,000

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NOTE 5 - TAXES ON INCOME (CONTINUED):

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

At October 31, 2002 the Company had federal and state net operating loss carryforwards of approximately $63,000 and $1,406,000, 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 approximately $489,000 forward 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 or the net income for the nine months ended October 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 $286,555 leaving the net sum of $2,809,764 owed by the Company to the subcontractor. 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 Petition claims among other things that $990,680 of the award relating to extended overhead and loss of productivity is not permitted under the subcontract agreement and is in complete disregard of the law. The Petition also claims that the modification on December 12, 2001, increasing the original award by $396,464 was improper and should be vacated. 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. This amount represents management's best estimate of the probable loss relating to this claim. While it is not possible to predict with certainty the outcome of this matter; accordingly, if this matter is resolved in a manner different from the estimated liability recorded, it could have a material effect on the Company's future financial position, operating results and cash flows.

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