EXHIBIT 99.1






Lee-Var, Inc. dba Palmer of Texas
 

 



FINANCIAL STATEMENTS
 

 
AND
 

 
REPORT OF INDEPENDENT AUDITORS
 

 
FOR THE YEARS ENDED SEPTEMBER 30, 2011 AND 2010
 






 
 

 

Lee-Var, Inc. dba Palmer of Texas
 

CONTENTS


 


Page
Report of Independent Auditors
 
1
Financial Statements
 
 
 
Balance Sheets
 
2
 
Statements of Income
 
3
 
Statements of Cash Flows
 
 
Statements of Shareholders’ Equity
 
5
Notes to Financial Statements
 
6





 
 

 

 


INDEPENDENT AUDITOR’S REPORT


To the Board of Directors and Shareholders
of Lee-Var, Inc. dba Palmer of Texas:

We have audited the accompanying balance sheets of Lee-Var, Inc. dba Palmer of Texas (the Company) as of September 30, 2011 and 2010, and the related statements of income, shareholders’ equity, and cash flows for the years then ended.  These financial statements 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 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.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the 2011 and 2010 financial statements referred to above present fairly, in all material respects, the financial position of Lee-Var, Inc. dba Palmer of Texas as of September 30, 2011 and 2010, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Weaver and Tidwell, L.L.P.

WEAVER AND TIDWELL, L.L.P.

Houston, Texas
November 5, 2012




 

 
1

 



Lee-Var, Inc. dba Palmer of Texas
 
Balance Sheets  
September 30, 2011 and 2010
 
             
   
2011
   
2010
 
ASSETS
           
             
Current assets
           
Cash and cash equivalents
  $ 817,573     $ 701,843  
Accounts receivable, net of allowance for doubtful accounts
               
of $138,130 in 2011 and $131,000 in 2010
    4,794,864       2,997,317  
Inventory
    4,846,856       2,508,580  
Current deferred tax asset
    330,233       179,734  
Prepaid expenses
    86,120       57,481  
Total current assets
    10,875,646       6,444,955  
                 
Property, plant and equipment, net
    3,866,315       3,157,755  
                 
Total assets
  $ 14,741,961     $ 9,602,710  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
Current liabilities
               
Accounts payable
  $ 1,711,963     $ 1,407,229  
Current portion of long-term debt
    457,276       387,905  
Accrued liabilities
    1,363,428       663,067  
Federal income tax payable
    764,125       288,360  
Accrued sales and use tax payable
    955,961       471,749  
Customer deposits
    507,967       451,553  
Other liabilities
    93,167       51,229  
Total current liabilities
    5,853,887       3,721,092  
                 
Long-term liabilities
               
                 
Long-term deferred tax liability
    805,816       314,332  
Long-term debt, less current portion
    2,218,307       2,182,458  
                 
Total liabilities
    8,878,010       6,217,882  
                 
Shareholders' equity
               
Preferred Stock, Series A, $1 par value:
               
500,000 shares authorized; 0 shares issued and outstanding
               
in 2011 and 2010
    -       -  
Preferred Stock, Series B, $1 par value:
               
500,000 shares authorized; 0 shares issued and outstanding
               
in 2011 and 2010
    -       -  
Common stock, $1 par value: 500,000 shares authorized;
               
150,000 shares issued and outstanding
               
in 2011 and 2010
    150,000       150,000  
Capital surplus
    84,500       84,500  
Retained earnings
    5,629,451       3,150,328  
Total shareholders' equity
    5,863,951       3,384,828  
                 
Total liabilities and shareholders' equity
  $ 14,741,961     $ 9,602,710  
                 
The accompanying notes are an integral part of these financial statements.
               
                 



 
2

 

Lee-Var, Inc. dba Palmer of Texas
 
Statements of Income
 
Years Ended September 30, 2011 and 2010
 
             
             
             
   
2011
   
2010
 
             
Net sales
  $ 28,679,666     $ 16,695,925  
                 
Cost of sales
    21,595,594       12,732,290  
                 
Gross profit
    7,084,072       3,963,635  
                 
Selling, general and administrative expense
    3,147,014       1,848,382  
                 
Operating income
    3,937,058       2,115,253  
                 
Other income (expense)
               
Other income (expense)
    67,591       (69,258 )
Interest income
    859       408  
Interest expense
    (146,439 )     (166,896 )
Total other expense
    (77,989 )     (235,746 )
                 
Income before income taxes
    3,859,069       1,879,507  
                 
Provision for income taxes
    1,379,946       711,697  
                 
Net income
  $ 2,479,123     $ 1,167,810  
 
 
 
 

 
3

 



Lee-Var, Inc. dba Palmer of Texas  
Statements of Cash Flows  
Years Ended September 30, 2011 and 2010  
             
             
   
2011
   
2010
 
             
 Cash flows from operating activities            
Net income
  $ 2,479,123     $ 1,167,810  
Adjustments to reconcile net income
               
to cash provided by operating activities:
               
Depreciation
    612,051       480,099  
Provision for bad debts
    147,000       59,000  
Gain on sale of property, plant and equipment
    (33,119 )     (8,240 )
Deferred income taxes
    340,985       102,488  
Net change in:
               
Accounts receivable
    (1,944,547 )     (1,932,247 )
Inventory
    (2,338,276 )     (1,497,042 )
Prepaid expenses
    (28,639 )     82,858  
Accounts payable
    304,734       867,992  
Accrued liabilities
    700,361       200,377  
Federal income taxes payable
    475,765       409,498  
Customer deposits
    56,414       451,553  
Other liabilities
    41,938       7,896  
Accrued sales and use tax payable
    484,212       284,647  
Cash provided by operating activities
    1,298,002       676,689  
                 
Cash florws from investing activities                 
Purchases of property, plant and equipment
    (1,391,223 )     (1,081,134 )
Proceeds from sale of equipment
    103,731       28,550  
     Cash used in investing activities
    (1,287,492 )     (1,052,584 )
                 
 Cash flows from financing activities                
Proceeds from long-term debt
    1,818,924       2,781,056  
Payments to reduce long-term debt
    (1,713,704 )     (2,477,898 )
     Cash provided by financing activities
    105,220       303,158  
                 
 Net change in cash and cash equivalents     115,730       (72,737 )
                 
 Cash and cash equivalents at beginning of year     701,843       774,580  
                 
 Cash and cash equivalents at end of year   $ 817,573     $ 701,843  
 
The accompanying notes are an integral part of these financial statements.
           
 

 
4

 



Lee-Var, Inc. dba Palmer of Texas
 
Statements of Shareholders' Equity
 
Years Ended September 30, 2011 and 2010
 
                                     
                                     
                                     
    Preferred    
Preferred
                     
Total
 
   
Stock
   
Stock
   
Common
   
Capital
   
Retained
   
Shareholders'
 
   
Series A
   
Series B
   
Stock
   
Surplus
   
Earnings
   
Equity
 
                                     
Balance at September 30, 2009
  $ -     $ -     $ 150,000     $ 84,500     $ 1,982,518     $ 2,217,018  
                                                 
 Net income for 2010
    -       -       -       -       1,167,810       1,167,810  
                                                 
Balance at September 30, 2010
    -       -       150,000       84,500       3,150,328       3,384,828  
                                                 
 Net income for 2011
    -       -       -       -       2,479,123       2,479,123  
                                                 
Balance at September 30, 2011
  $ -     $ -     $ 150,000     $ 84,500     $ 5,629,451     $ 5,863,951  
 
The accompanying notes are an integral part of these financial statements.
                                   

 
5

 
LEE-VAR, Inc., dba PALMER OF TEXAS
Notes to Financial Statements
September 30, 2011
 
 
NOTE 1:                                Summary of Significant Accounting Policies

Nature of Operations
 
Lee-Var, Inc., doing business as Palmer of Texas (the Company), founded in 1989 from the purchase of the assets of a predecessor company, Andrews Fiberglass, is a manufacturer of fiberglass and steel tanks for the oil and gas, waste water treatment and municipal water industries.  The Company is based in Andrews, Texas.  Additionally, in 2011, the company opened a second, smaller production facility in Orange, Texas to produce specialized fiberglass tanks to meet a specific customer’s needs.

Basis of Accounting
 
The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles.  Accounting principles followed by the Company and the methods of applying those principles, which materially affect the determination of financial position, results of operations and cash flows are summarized below.

Use of Estimates
 
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for bad debts and inventory reserves.  Actual results could differ from those estimates.

Significant Group Concentrations of Credit Risk
 
The Company's activities are with customers located primarily in Texas and New Mexico.  All transactions are denominated in United States dollars.  The Company’s operations are primarily dependent on the level of activity in the petroleum industry in the West Texas region.  As such, local economic cycles may have an impact on the collectability of customer accounts. The Company considers this contingency when evaluating the allowance for doubtful accounts.

The Company places its cash and cash equivalents with high quality financial institutions, which at times may exceed federally insured limits. The Company has not experienced any losses on such accounts.

 

 
6

 
LEE-VAR, Inc., dba PALMER OF TEXAS
Notes to Financial Statements
September 30, 2011


NOTE 1:                                Summary of Significant Accounting Policies – continued

Significant Group Concentrations of Credit Risk – continued
 
During the year ended September 30, 2011, four customers accounted for approximately 51.0% of the Company’s sales.  During the year ended September 30, 2010 the same four customers accounted for approximately 29.9% of the Company’s sales.  As of September 30, 2011 and 2010, the same four customers accounted for approximately 50.6% and 27.0% of the Company’s accounts receivable, respectively.

Cash and Cash Equivalents
 
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.  The Company maintains cash balances at financial institutions with strong credit ratings.

Accounts Receivable and Related Allowances
 
Accounts receivable from the sale of products are recorded at net realizable value and the Company generally grants credit to customers on an unsecured basis.  Substantially all of the Company’s accounts receivables are due from companies located throughout the United States.  The Company provides an allowance for doubtful collections and for disputed claims and quality issues.  The allowance is based upon a review of outstanding receivables, historical collection information and existing economic conditions.  The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require a pledge of collateral. Receivables are usually due within 30 to 45 days. Delinquent receivables are written off based on individual credit evaluations and specific circumstances of the customer.

Activity in the allowance for doubtful accounts was as follows:
 
   
September 30,
 
             
   
2011
   
2010
 
             
Balance at beginning of year
  $ 131,000     $ 73,000  
Provision for bad debts
    147,000       59,000  
Net charge-offs and recoveries
    (139,870 )     (1,000 )
                 
Balance at end of year
  $ 138,130     $ 131,000  

Inventory is stated at the lower of cost or market value less allowance for inventory obsolescence, using the first-in, first-out (FIFO) method.  The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between cost of inventory and the estimated market value based upon assumptions about future demand and current market conditions.  For the years ended September 30, 2011 and 2010, inventory adjustments for obsolescence and market reserves were insignificant.

 
 
7

 
 
LEE-VAR, Inc., dba PALMER OF TEXAS
Notes to Financial Statements
September 30, 2011
 
 
NOTE 1:                                Summary of Significant Accounting Policies – continued

Property, Plant and Equipment
 
Property, plant and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives.  Land improvements and buildings are depreciated over a range of 15 to 40 years, and machinery, fixtures and equipment are depreciated over a range of three to seven years.

 
Revenue Recognition
 
Revenues are recognized when the following conditions are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.  Generally, these criteria are met at the time product is delivered to their destination or services are complete. Provisions are made upon sale for estimated product returns. Revenue recognition criteria are the same for all product lines.

Cost of Sales
 
Cost of sales includes the cost of inventory sold during the period, including costs for manufacturing, inbound freight, receiving, inspection, warehousing, and internal transfers less vendor rebates.  Costs associated with shipping and handling products are included in cost of sales.  Purchasing costs are included in cost of sales.

Advertising
 
Advertising costs are expensed as incurred.  Advertising expenses for the years ended September 30, 2011 and 2010 amounted to $42,002 and $25,569, respectively. Advertising costs are included in selling, general and administrative expense.

Fair Value of Financial Instruments
 
The carrying amounts of financial instruments including cash, accounts receivable, and accounts payable approximated fair value as of September 30, 2011 and 2010.

Preferred stock
 
The Company has authorized 500,000 shares each of Preferred Series A stock and Preferred Series B stock, both with a par value of $1.00, each preferred share is convertible into .1656 common shares, are not entitled to voting rights and there are none outstanding.
 
Common Stock
 
The Company has authorized 500,000 shares of common stock with a par value of $1.00 for which there are 150,000 shares outstanding as of September 30, 2011 and 2010.


 

 
8

 
LEE-VAR, Inc., dba PALMER OF TEXAS
Notes to Financial Statements
September 30, 2011


NOTE 1:                                Summary of Significant Accounting Policies – continued

Income Taxes

On January 1, 2009, the Company adopted the recent accounting guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions.

The Company’s income tax expense consists of the following components:  current and deferred.  Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.  The Company determines deferred income taxes using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rate and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.  Deferred tax assets are recognized if it is more-likely-than-not, based on the technical merits, that the tax position will be realized or sustained upon examination.  The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.

A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.  The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not some portion or all of a deferred tax asset will not be realized.

The Company recognizes interest accrued on and penalties related to unrecognized tax benefits in tax expense.

During the year ended September 30, 2011 the Company recognized no interest and penalties.  The Company has no unrecognized tax benefits at September 30, 2011 and 2010.

The Company files income tax returns in the U.S. federal jurisdiction. With few exceptions, the Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2007.

In May of 2006, the State of Texas implemented a new tax on taxable margin, effective for years ended after December 31, 2006.  For the Company, taxable margin is revenue less cost of goods sold.  The margin tax was insignificant for the years ended September 30, 2011 and 2010.

 

 
9

 
LEE-VAR, Inc., dba PALMER OF TEXAS
Notes to Financial Statements
September 30, 2011


NOTE 1:                                Summary of Significant Accounting Policies – continued

Sales and Use Taxes
 
Sales and use taxes collected for various states are regarded as a liability to the respective state and do not affect income or expense and are included in selling, general and administrative expense.  The liability as of September 30, 2011 and 2010 was $955,961 and $471,749, respectively.

NOTE 2:                                Inventory
 
 
Inventory consisted of the following:
   
September 30,
 
             
   
2011
   
2010
 
             
Raw materials
  $ 1,125,629     $ 662,864  
Work-in-process
    849,539       700,005  
Finished goods
    2,871,688       1,145,711  
                 
Total
  $ 4,846,856     $ 2,508,580  

 

NOTE 3:                                Accrued Liabilities

Accrued liabilities consist of the following:
 
   
September 30,
 
             
   
2011
   
2010
 
             
Interest
  $ 3,618     $ 3,173  
Payroll
    109,915       218,252  
Bonuses
    1,190,200       414,000  
Other taxes
    59,695       27,642  
                 
Total
  $ 1,363,428     $ 663,067  

 
 
10
 
LEE-VAR, Inc., dba PALMER OF TEXAS
Notes to Financial Statements
September 30, 2011



NOTE 4:                                Property, Plant and Equipment

Property, plant and equipment consist of the following:
 
   
September 30,
 
             
   
2011
   
2010
 
             
Land
  $ 31,116     $ 31,116  
Buildings
    2,111,599       2,089,182  
Machinery, fixtures and equiment
    4,849,903       3,817,018  
      6,992,618       5,937,316  
                 
Less accumulated depreciation
    (3,126,303 )     (2,779,561 )
                 
    $ 3,866,315     $ 3,157,755  

Depreciation expense for years ended September 30, 2011 and 2010 was $612,051 and $480,099 respectively.  All depreciation expense is included in cost of sales for the years ended September 30, 2011 and 2010.

NOTE 5:                                Related Party Transactions

During 2010, the Company entered into business transactions with Vessel Components which distributes a variety of products utilized by the tank and vessel industry.  Vessel Components is owned by a relative of a shareholder of the Company.  Purchases from Vessel Components for the years ended September 30, 2011 and 2010 totaled approximately $77,000 and $18,000, respectively.

Palmer Manufacturing and Tank Company (Palmer Mfg.) is a manufacturer of fiberglass and steel tanks and is located in Garden City, Kansas.  Palmer Mfg. is owned by a relative of a shareholder of the Company.  The Company primarily sells tanks to and purchases tanks from Palmer Mfg.  Tank sales to Palmer Mfg. totaled approximately $184,000 for the year ended September 30, 2011 and approximately $11,000 for the year ended September 30, 2010.  Purchases from Palmer Mfg. totaled approximately $356,000 for the year ended September 30, 2011 and approximately $448,000 for the year ended September 30, 2010.  As of September 30, 2011 and 2010, the Company owed Palmer Mfg. $22,740 and $191,982, respectively, for purchases made during the respective years.

 

 
 
11

 
LEE-VAR, Inc., dba PALMER OF TEXAS
Notes to Financial Statements
September 30, 2011


NOTE 6:                                Commitments and Contingent Liabilities

Litigation and Claims
 
Various legal claims also arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Company’s financial statements.

Product Performance
 
Estimated warranty costs and additional service actions are accrued for at the time the product is sold to the customer.  Included in the warranty cost accruals are costs for basic warranty coverage on products sold.  Estimates for warranty costs are made based primarily on historical warranty claim experience.  The required product warranty reserve amount was insignificant as of September 30, 2011 and 2010.
 
Other Off-Balance-Sheet Arrangements
 
The Company has no other off-balance-sheet arrangements not disclosed in the financial statements or transactions with unconsolidated special purpose entities that would expose the Company to liability that is not reflected on the face of the financial statements.

State taxes
 
The Company has determined it may be liable for state income tax and state sales and use tax in jurisdictions outside of the State of Texas.  The financial statements include an estimated liability for state income taxes as of September 30, 2011 and 2010 of $44,620 and $20,546, respectively, included in the caption “Accrued liabilities”.

In addition, the financial statements include an estimated liability for state sales and use tax as of September 30, 2011 and 2010 of $840,273 and $397,630, respectively, included in the caption “Sales and use tax payable”.

Commitments Under Operating Leases
 
During 2011, the Company entered into various operating leases for certain machinery and equipment.  Rental expense for the years ended September 30, 2011 was $82,754.  No lease expense was incurred for the year ended September 30, 2010.  Future minimum rent commitments under noncancelable lease agreements are:


2012
  $ 107,940  
2013
    107,940  
2014
    107,940  
2015
    25,186  
Thereafter
    -  
    $ 349,006  



 

 
12

 
LEE-VAR, Inc., dba PALMER OF TEXAS
Notes to Financial Statements
September 30, 2011


NOTE 7:                                Long-term Debt

Long-term notes payable at September 30, 2011 and 2010, consists of the following:

 
   
September 30,
 
   
2011
   
2010
 
Note payable - bearing interest at 5.00%:
           
  monthly principal and interest payments of $15,389
           
  due on demand or September 17, 2015; secured by inventory,
           
  accounts receivable and property, plant and equipment
  $ 620,065     $ 776,324  
                 
Note payable - bearing interest at 5.00%:
               
  monthly principal and interest payments of $12,794
               
  due on demand or September 23, 2015; secured by real estate
    1,478,978       1,581,188  
                 
Note payable - bearing interest at 5.00%:
               
  monthly principal and interest payments of $4,900
               
  due on demand or November 22, 2015; secured by equipment
    219,238       -  
                 
Note payable - bearing interest at 5.00%:
               
  monthly principal and interest payments of $3,882
               
  due on demand or February 7, 2016; secured by equipment
    183,162       -  
                 
Note payable - bearing interest at 6.79%:
               
  monthly principal and interest payments of $1,039
               
  through April 23, 2013; secured by a vehicle
    10,946       27,579  
                 
Note payable - bearing interest at 6.59%:
               
  monthly principal and interest payments of $892
               
  through November 11, 2013; secured by a vehicle
    19,547       29,000  
                 
Note payable - bearing interest at 4.59%:
               
  monthly principal and interest payments of $563
               
  through November 14, 2013; secured by a vehicle
    13,355       18,863  
                 
Note payable - bearing interest at 4.54%:
               
  monthly principal and interest payments of $1,242
               
  through August 19, 2014; secured by a vehicle
    39,553       -  
                 
Note payable - bearing interest at 4.59%:
               
  monthly principal and interest payments of $1,380
               
  through December 25, 2012; secured by a vehicle
    18,748       34,052  
                 
Note payable - bearing interest at 6.99%:
               
  monthly principal and interest payments of $875
               
  through February 26, 2013; secured by a vehicle
    11,498       22,260  
                 
Note payable - bearing interest at .90%:
               
  monthly principal and interest payments of $1,914
               
  through June 9, 2014; secured by a vehicle
    60,493       -  

 
13

 
 
LEE-VAR, Inc., dba PALMER OF TEXAS
Notes to Financial Statements
September 30, 2011

NOTE 7:                                Long-term Debt – continued


   
September 30,
 
   
2011
   
2010
 
             
Note payable - bearing interest at 0.0%:
           
  monthly principal and interest payments of $864
           
  through September 11, 2011; secured by a vehicle
  $ -     $ 864  
                 
Note payable - bearing interest at 0.0%:
               
  monthly principal and interest payments of $1,298
               
  through September 24, 2011; secured by a vehicle
    -       7,786  
                 
Note payable - bearing interest at 2.90%:
               
  monthly principal and interest payments of $1,073
               
  through September 22, 2011; secured by a vehicle
    -       23,978  
                 
Note payable - bearing interest at 5.30%:
               
  monthly principal and interest payments of $3,183
               
  through September 13, 2011; secured by equipment
    -       33,617  
                 
Note payable - bearing interest at 7.50%:
               
  monthly principal and interest payments of $1,903
               
  through September 13, 2011; secured by equipment
    -       5,637  
                 
Note payable - bearing interest at 7.50%:
               
  monthly principal and interest payments of $3,110
               
  through September 13, 2011; secured by equipment
    -       9,215  
                 
Line of credit - bearing interest at 3.25%:
               
  $1.0 mm borrowing base, expires July 17, 2015
    -       -  
                 
      2,675,583       2,570,363  
                 
Less:  current maturities
    (457,276 )     (387,905 )
                 
Long-term debt
  $ 2,218,307     $ 2,182,458  
                 
At September 30, 2011, the schedule of maturities of notes payable is as follows:
         
                 
2012
          $ 457,276  
2013
            361,907  
2014
            387,614  
2015
            1,350,450  
2016
            118,336  
Thereafter
            -  
            $ 2,675,583  
                 



 

 
14

 
LEE-VAR, Inc., dba PALMER OF TEXAS
Notes to Financial Statements
September 30, 2011


NOTE 8:                                Employee Benefit Plan

The Company has a 401(k) plan whereby employees with one year of service are offered a 50% matching contribution up to 6% (3% match) of the employee’s salary.  Contributions to the plan during the years ended September 30, 2011 and 2010 amounted to $48,009 and $42,730, respectively.

NOTE 9:                                Income Taxes

The provision for federal income taxes consists of current and deferred taxes and differs from amounts that would be calculated by applying federal statutory rates to income before taxes due to the effect of the domestic production activity deduction and nondeductible items such as entertainment limitations, as well as the effect of the provision for state income taxes.

The provision for income taxes consists of the following:
 
   
September 30,
 
   
2011
     
2010
 
Current
$
955,190
   
$
575,173
 
Deferred
 
340,985
     
102,488
 
State
 
83,771
     
34,036
 
               
Total provision
$
1,379,946
   
$
711,697
 
               
The following is a reconciliation of the effective income tax rate with the federal statutory income tax rate for the years ended:
               
   
September 30,
   
2011
     
2010
 
Income tax expense at federal statutory rate
$
1,312,083
34%
 
$
639,236
34%
Impact of state taxes
 
83,771
2%
   
34,036
2%
Permanent differences including domestic production activity deduction and nondeductible items
(15,908)
0%
   
38,425
2%
               
 
$
1,379,946
36%
 
$
711,697
38%


 

 
15

 
LEE-VAR, Inc., dba PALMER OF TEXAS
Notes to Financial Statements
September 30, 2011


NOTE 9:                                Income Taxes – continued

Deferred income tax assets and liabilities have been recognized for following temporary differences in tax and financial accounting for:
 
   
September 30,
 
   
2011
   
2010
 
Current deferred tax assets:
           
Allowance for doubtful accounts
  $ 44,540     $ 44,540  
Accrued liabilities
    285,693       135,194  
  Total current deferred tax assets
    330,233       179,734  
                 
Noncurrent deferred tax liabilities:
               
Depreciable assets
    (805,816 )     (314,332 )
  Total noncurrent deferred tax liabilities
    (805,816 )     (314,332 )
                 
Net deferred tax liabilities
  $ (475,583 )   $ (134,598 )
                 
 
NOTE 10:         Supplementary Cash Flow Information
               
                 
The following is a summary of supplemental cash flow information:
               
                 
   
For the year ended
 
   
September 30,
 
                 
      2011       2010  
                 
Interest paid
  $ 145,994     $ 168,708  
Income taxes paid
    904,181       302,199  

NOTE 11:      Subsequent Events

Synalloy Corporation (Synalloy) entered into a letter of intent (LOI) dated April 27, 2012 with the Company to acquire 100% of the outstanding stock of the Company for $25,575,000 in cash and subject to working capital and fixed assets adjustments at closing.  The adjustments at closing increased the purchase price at closing to $28,054,467.  The closing price is based on further adjustments after closing based on working capital, maintenance capital expenditure over the 18-month period following closing, and the actual cost of a production expansion capital project underway at the time of closing.  On August 21, 2012, Synalloy completed the announced purchase of all of the outstanding shares of capital stock of the Company.

The Company has evaluated all subsequent events through November 5, 2012, the date the financial statements were available to be issued.

 

 
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