IMPSA S.A. — Interim / Quarterly Report 2002

Sep 18, 2002

IMPSA INTERNATIONAL, INC.

AND SUBSIDIARY

Consolidated Financial Statements

July 31, 2002 and July 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 July 31, 2002, and July 31, 2001, and the related consolidated statements of income, stockholders' equity and cash flows for the six 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

August 9, 2002

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

JULY 31, 2002 AND JULY 31, 2001

ASSETS:

NOTES 2002 2001

Current Assets:

Cash 1 $ 37,371 $ 71,389

Trade receivables 1 and 3 3,672,615 4,500,400

Prepaid expenses 6,693 109,299

Refundable federal income taxes 327,288 -

Total Current Assets 4,043,967 4,681,088

Non-Current Assets:

Deferred income tax benefit 5 189,525 -

Fixed assets 1 and 2 1,888 5,547

Total Non-Current Assets 191,413 5,547

Total Assets $4,235,380 $4,686,635

LIABILITIES:

Current Liabilities:

Accounts payable 6 $ 600,719 $1,222,445

Other liabilities 6 1,000,000 10,368

Total Current Liabilities 1,600,719 1,232,813

Stockholder's Equity (as per

corresponding statement) 2,634,661 3,453,822

Total Liabilities and Equity $4,235,380 $4,686,635

See Accompanying Notes and Accountant's Compilation Report.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JULY 31, 2002 AND JULY 31, 2001

NOTES 2002 2001

Net sales of goods and services 1 and 3 $ 71,492 $119,201

Expenses:

Selling 1 and 4 78,127 144,934

Administrative 1 and 4 180,693 130,709

258,820 275,643

Subtotal - Loss (187,328) (156,442)

Other income and expense 27,899 63,059

Loss before income taxes (159,429) (93,383)

Income taxes (credit) 1 and 5 (61,000) (27,000)

Net Loss For The Six Month Period $ (98,429) $ (66,383)

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 SIX MONTHS ENDED JULY 31, 2002 AND JULY 31, 2001

2002 2001

Owner’s Contribution Reserves Unappropriated Total of Total of

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

Capital Note 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 six month

period as per

statement of income   -      -        -        -        -        -    -     -  (98,429) (98,429) (66,383)

Balance as of July 31 $ 250 $ - $234,750 $ - $235,000 $ - $ - $ - $2,399,661 $2,634,661 $3,453,822

* Par Value $l per share

Authorized 1,000 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 SIX MONTHS ENDED JULY 31, 2002 AND JULY 31, 2001

2002 2001

OPERATING ACTIVITIES:

Net loss for the six month period $ (98,429) $ (66,383)

Add: Items not representing source or use of cash:

Depreciation 1,884 1,200

Deferred income taxes (61,000) -

Source:

Decrease in trade receivables 50,993 -

Decrease in prepaid expenses 2,967 47,266

Increase in accounts payable - 623,805

Increase in other liabilities - 10,368

Decrease in refundable income taxes 91,187 -

Use:

Increase in trade receivables - (724,566)

Decrease in accounts payable (211,813) -

Net Cash Used By Operating Activities (224,211) (108,310)

Net Decrease In Cash $(224,211) $(108,310)

Cash and Cash Equivalents - January 31 $ 261,582 $ 179,699

Net Change in Cash for the Six Month Period (224,211) (108,310)

Cash and Cash Equivalents - July 31 $ 37,371 $ 71,389

SUPPLEMENTAL DISCLOSURE OF

CASH FLOW INFORMATION:

Interest paid $ 5,093 $ 3,734

Income taxes refunded $ (91,442) $ (70,000)

See Accompanying Notes and Accountant's Compilation Report.

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IMPSA INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2002 AND JULY 31, 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation - The July 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 July 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 exceed 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 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 $1,884 for 2002 and $1,200 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:

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 206,210 213,402

Total Fixed Assets $ 1,888 $ 5,547

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 $71,492 and $119,201 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, to 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 $23,668 for 2002 and $24,586 for 2001.

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NOTE 5 - TAXES ON INCOME:

Taxes on income (credit) are as follows:

2001 2000

CURRENTLY PAYABLE (REFUNDABLE):

Federal income tax $ - $(27,000)

State income tax - -

• (27,000)

DEFERRED:

Federal income tax (46,000) -

State income tax (15,000) -

(61,000) -

Total $(61,000) $(27,000)

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

At July 31, 2002 the Company had federal and state net operating loss carryforwards of approximately $155,000 and $1,498,000, 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 Worker 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 currently refundable federal income tax resulting from the previously described law change is reflected as a reclassification between currently refundable federal income taxes and deferred income tax benefit. This reclassification had no effect on the previously reported net income for the year ended January 31, 2002 or the net income for the six months ended July 31, 2002.

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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 $2,809,759 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 modifications on December 12, 2001, increasing the original award by $396,464 were 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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