EXHIBIT 99.3
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
FINANCIAL STATEMENTS
BALANCE SHEETS AT SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
AND
STATEMENTS OF OPERATIONS, COMPREHENSIVE
INCOME, AND CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
AND
ACCOUNTANT'S REPORT ON FINANCIAL STATEMENTS
Joel, Inc. d/b/a Simon Candy Company and Pharmaloz
Elizabethtown, Pennsylvania
We have reviewed the accompanying Balance Sheet of Joel Inc. d/b/a Simon Candy
Company and Pharmaloz (an S Corporation) as of September 30, 2004, and the
related Statements of Operations, Comprehensive Income, and Cash Flows for the
nine months ended September 30, 2004 and 2003, in accordance with STATEMENTS ON
STANDARDS FOR ACCOUNTING AND REVIEW SERVICES issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of the management of Joel, Inc. d/b/a Simon
Candy Company and Pharmaloz.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with auditing standards generally accepted in the United
States of America, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying interim financial statements in order for them to be
in conformity with accounting principles generally accepted in the United States
of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the Balance Sheet of Joel, Inc. as of
December 31, 2003, and the related Statements of Operation and Retained
Earnings, Comprehensive Income, and Cash Flows for the year then ended (not
presented herein); and in our report dated February 20, 2004, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying balance sheet as of December 31, 2003,
is fairly stated, in all material respects, in relation to the balance sheet
from which it has been derived.
/S/ McKONLY & ASBURY, LLP
- -----------------------------
McKONLY & ASBURY, LLP
Harrisburg, PA
February 28, 2005
2
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
BALANCE SHEETS
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
ASSETS
September 30, December 31,
2004 2003
(Unaudited) (1)
------------- ------------
Current assets
Cash and cash equivalents $ 44,940 $ 22,606
Investments 39,997 79,369
Accounts receivable, trade 584,546 234,761
Inventories 938,519 867,532
Prepaid expenses 62,881 54,822
------------ ------------
Total current assets 1,670,883 1,259,090
------------ ------------
Property, plant, and equipment, at cost 11,183,443 12,134,970
Accumulated depreciation (8,236,577) (8,901,591)
------------ ------------
Total property, plant, and equipment, net 2,946,866 3,233,379
------------ ------------
Other assets
Cash value of life insurance 1,126,916 1,067,168
Deposits 1,904 874
Art and development costs 60,253 82,227
------------ ------------
Total other assets 1,189,073 1,150,269
------------ ------------
Total assets $ 5,806,822 $ 5,642,738
============ ============
(1) Derived from the audited financial statements for the year ended December
31, 2003.
See accompanying notes and accountant's report.
3
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
BALANCE SHEETS
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2004 2003
(Unaudited) (1)
---------- -----------
Current liabilities
Line of credit $ 199,710 $ 287,012
Current maturities of long-term debt 81,080 73,576
Accounts payable, trade 401,416 215,198
Cash overdraft 248,884 --
Accrued liabilities
Payroll 38,662 45,923
Payroll taxes 8,483 3,776
Self-funded health insurance 37,677 34,829
Notes payable, stockholders 540,410 524,550
---------- ----------
Total current liabilities 1,556,322 1,184,864
---------- ----------
Long-term liabilities
Notes payable, long-term maturities 424,512 481,711
---------- ----------
Stockholders' equity
Common stock, par value $10 per share;
authorized 1,000 shares, issued
and outstanding 1,000 shares 10,000 10,000
Additional paid-in capital 8,000 8,000
Retained earnings 3,779,542 3,927,166
Accumulated other comprehensive income
Unrealized gain on investments 28,446 30,997
---------- ----------
Total stockholders' equity 3,825,988 3,976,163
---------- ----------
Total liabilities and stockholders' equity $5,806,822 $5,642,738
========== ==========
(1) Derived from the audited financial statements for the year ended December
31, 2003.
See accompanying notes and accountant's report.
4
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
STATEMENTS OF OPERATIONS - UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
------------ ------------
Net sales $ 4,704,703 $ 4,212,075
Cost of sales 3,757,315 3,538,151
----------- -----------
Gross Profit 947,388 673,924
----------- -----------
Operating expenses
Sales and marketing 99,160 110,064
Administrative 943,680 941,284
----------- -----------
Total operating expenses 1,042,840 1,051,348
----------- -----------
Operating loss (95,452) (377,424)
----------- -----------
Other income (expense)
Net miscellaneous income (expense) (776) (10,461)
Interest expense (51,396) (47,332)
----------- -----------
Total other income (expense) (52,172) (57,793)
----------- -----------
Net loss $ (147,624) $ (435,217)
=========== ===========
See accompanying notes and accountant's report.
5
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
----------- ----------
Net loss $(147,624) $(435,217)
Unrealized gain (loss) on securities
Unrealized holding gains (losses) on
securities arising during the period (2,551) 25,241
--------- ---------
Comprehensive loss $(150,175) $(409,976)
========= =========
See accompanying notes and accountant's report.
6
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
STATEMENTS OF CASH FLOWS - UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
----------- ----------
Cash flows from operating activities
Net loss $(147,624) $(435,217)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation 292,939 353,914
Amortization 76,054 45,000
(Gain) loss on sale of equipment 12,161 (8,146)
Interest accrued on stockholder notes 15,860 17,550
(Increase) decrease in
Accounts receivable, trade (349,785) (16,280)
Inventories (70,987) (289,429)
Prepaid expenses and other assets (8,059) 2,108
Increase (decrease) in
Accounts payable, trade 186,218 214,938
Accrued liabilities 294 2,932
--------- ---------
Net cash provided by (used in)
operating activities 7,071 (112,630)
--------- ---------
Cash flows from investing activities
Increase in cash value of life insurance (59,748) (62,958)
Purchase of equipment (21,587) (11,500)
Proceeds form sale of investments 36,820 --
Proceeds from sale of equipment 3,000 69,773
Purchase of art and development costs (54,080) (52,425)
Increase in deposits (1,030) --
--------- ---------
Net cash used in investing activities (96,625) (57,110)
--------- ---------
Cash flows from financing activities
Net advances (repayments) on line of credit (87,302) (193,875)
Proceeds from long-term debt -- 600,000
Payments on long-term debt (49,694) (27,086)
Cash overdraft 248,884 --
--------- ---------
Net cash provided by financing activities 111,888 379,039
--------- ---------
Net increase in cash and cash equivalents 22,334 209,299
Cash and cash equivalents - beginning 22,606 2,849
--------- ---------
Cash and cash equivalents - ending $ 44,940 $ 212,148
========= =========
(continued)
7
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
STATEMENTS OF CASH FLOWS - UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (Cont'd)
Supplemental disclosures of cash flow information
Cash paid during the year for interest $35,280 $29,782
======= =======
See accompanying notes and accountant's report.
8
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
1. SUMMARY OF ACCOUNTING POLICIES
INCORPORATION
Joel, Inc. d/b/a Simon Candy Company and Pharmaloz (the Company) was
incorporated on June 12, 1973 under the laws of the Commonwealth of
Pennsylvania for the purpose of manufacturing hard candy and cough
drops. The accompanying financial statements include the results of
operations of the Company's two divisions, Simon Candy and Pharmaloz,
which are considered to be one operating segment.
ESTIMATES
The preparation of 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 at the date of the
financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ
from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an
original maturity of three months or less to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. Bad debt
expense in the amount of zero and $75,874 for the nine months ending
September 30, 2004 and 2003 were determined and were expensed.
Trade accounts receivable potentially subjects the Company to credit
risk. The Company extends credit to its customers based upon an
evaluation of the customer's financial condition and credit history
and generally does not require collateral.
INVESTMENTS
The Company classifies its marketable debt and equity securities as
"available for sale." Securities classified as "available for sale"
are carried in the financial statements at fair value. Fair values of
equity securities are based on quoted market prices. Realized gains
and losses, determined using the specific identification method, are
included in earnings and unrealized holding gains and losses are
reported as a separate component of stockholders' equity.
(continued)
9
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
1. SUMMARY OF ACCOUNTING POLICIES (Cont'd)
INVENTORY
Inventory is valued at the lower of cost or market using the
first-in, first-out method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are carried at cost. Depreciation is
computed using the straight-line method. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is
reflected in income for the period. The cost of maintenance and
repairs is charged to income as incurred, whereas significant
renewals and betterments are capitalized and deductions are made for
retirements resulting from the renewals or betterments.
REVENUE RECOGNITION
Sales are recognized when the product is delivered and customer
acceptance is obtained. Sales returns and allowances are immaterial.
SHIPPING AND HANDLING
Shipping and handling are included as part of the price offered to
the customer. In all cases, costs related to this revenue are
recorded in cost of sales.
COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes reporting requirements of comprehensive income and
its components. Comprehensive income for the Company consists of net
loss and unrealized gains and losses on available for sale securities
and is presented in the statement of comprehensive income.
Accumulated other comprehensive income is presented as a separate
component of equity.
INCOME TAXES
Effective January 1, 1987, the Company elected by unanimous consent
of its stockholders to be taxed as an S Corporation under the
provisions of the Internal Revenue Code. Under these provisions, the
Company does not pay federal or state corporate income taxes on its
taxable income. Instead, the stockholders are liable for individual
federal and state income taxes on their respective shares of the
Company's taxable income.
(continued)
10
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
1. SUMMARY OF ACCOUNTING POLICIES (Cont'd)
ADVERTISING
Advertising costs are expensed within the period in which they are
utilized. For the nine months ended September 30, 2004 and 2003,
advertising expense in the amount of $4,924 and $3,064 is presented
as part of operating expenses.
ART AND DEVELOPMENT COSTS
Art and development costs are costs for printing dies, artwork
design, and cutting dies for the candy and cough drop wrappers. These
costs are amortized on a straight-line basis over a period of three
years.
IMPAIRMENT
The Company reviews its long-lived assets for impairment on an
exception basis whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable through
future cash flows. If it is determined that an impairment loss has
occurred based on the expected cash flows, a loss is recognized in
the statement of operations and retained earnings.
BASIS OF PRESENTATION
The financial statements have been prepared by management. In the
opinion of management, all adjustments necessary for a fair
presentation of the financial position, results of operations and
cash flows, for the periods indicated, have been made.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has considered new accounting pronouncements and has
determined that no new accounting pronouncements had a material
impact on the financial reporting process for the nine months ended
September 30, 2004 and 2003.
2. INVESTMENTS
Available for sale securities and their fair values at September 30,
2004 and December 31, 2003 are as follows:
Gross Gross
Unrealized Unrealized
September 30, 2004 Cost Gains Losses Fair Value
--------------------- ----------- -------------- ----------- -----------
Common stock $ 11,380 $ 34,977 $ (6,531) $ 39,826
Other 171 -- -- 171
----------- -------- -------- --------
$ 11,551 $ 34,977 $ (6,531) $ 39,997
=========== ======== ======== ========
(continued)
11
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
2. INVESTMENTS (Cont'd)
Gross Gross
Unrealized Unrealized
December 31, 2004 Cost Gains Losses Fair Value
--------------------- ----------- -------------- ----------- -----------
Common stock $ 48,143 $ 46,785 $(15,788) $ 79,140
Other 229 - - 229
----------- -------- -------- --------
Equity securities $ 48,372 $ 46,785 $(15,788) $ 79,369
=========== ======== ======== ========
3. INVENTORIES
Inventories at September 30, 2004 and December 31, 2003 consist of
the following:
2004 2003
---------- --------
Raw materials $687,662 $644,504
Finished goods 250,857 223,028
-------- --------
$938,519 $867,532
======== ========
4. CASH VALUE OF LIFE INSURANCE
The cash value of life insurance is recorded net of policy loans of
$71,785 and $61,598 at September 30, 2004 and December 31, 2003.
(continued)
12
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
5. PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment at September 30, 2004 and
December 31, 2003 as follows:
Estimated
Useful Lives 2004 2003
------------- -------------- ------------
Land -- $ 146,458 $ 146,458
Buildings 10-40 Years 3,530,898 3,571,612
Machinery and equipment 3-10 Years 7,112,736 7,655,527
Autos and trucks 3-5 Years 108,672 119,934
Furniture and fixtures 3-10 Years 284,679 635,788
Leasehold improvements 5 Years -- 5,651
------------ ------------
11,183,443 12,134,970
Accumulated depreciation (8,236,577) (8,901,591)
------------ ------------
$ 2,946,866 $ 3,233,379
============ ============
Depreciation expense totaled $292,939 and $353,914 for the nine
months ended September 30, 2004 and 2003.
6. LINE OF CREDIT
The Company has available for its use a line of credit with M&T Bank
in the amount of $700,000 at September 30, 2004 and December 31,
2003. Any amounts borrowed are payable on demand and bear interest at
the bank's prime rate plus 0.5% (5.25% at September 30, 2004 and 4.5%
at December 31, 2003). The amount advanced against this line of
credit totaled $199,710 and $287,012 as of September 30, 2004 and
December 31, 2003. This agreement is secured by various corporate
assets and four life insurance policies on the officers. The line of
credit agreement expires April 15, 2008.
7. NOTES PAYABLE - STOCKHOLDERS
Notes payable, in the amount of $540,410 at September 30, 2004 and
$524,550 at December 31, 2003 to stockholders Kristin Deck and Andrew
Deck were payable upon demand and bore interest at 5.43% per annum.
No annual principal repayments were required per the note agreement.
However, these notes are subordinate to the M&T Bank debt and no
payments shall be demanded or required until such time as repayment
is permitted under the terms of the Company's commercial financing
agreement. Interest continues to be accrued during the deferral
period until the notes were reclassified into accounts payable. For
the nine month periods ended September 30, 2004 and 2003, interest
expense was $15,860 and $17,550.
(continued)
13
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
8. LONG-TERM DEBT
Long-term debt at September 30, 2004 and December 31, 2003 consists
of the following:
2004 2003
----------- ----------
Capital Lease Payable - Susquehanna Commercial Leasing requires
monthly payments of $182 including interest at 11% through March
2007. $ 4,701 $ -
Note payable - M&T Bank, requires monthly payments of $8,863
including interest at 6.25% through April 2008. The note is
secured by virtually all assets of the Company. 500,891 555,287
----------- ----------
505,592 555,287
Less current portion 81,080 73,576
----------- ----------
Total notes payable - long-term $ 424,512 $ 481,711
=========== ==========
Maturities of long-term debt in each of the next four years are as
follows:
For the 12 Months Ended
---------------------------
September 30, 2005 $ 81,080
September 30, 2006 85,508
September 30, 2007 89,142
September 30, 2008 249,862
----------
$ 505,592
==========
9. LOAN COVENANTS
There are certain financial covenants applicable to the line of
credit and term loan agreement pertaining to current ratio, debt
coverage ratio, and tangible net worth. The Company met each of these
financial covenants as of September 30, 2004 and December 31, 2003.
(continued)
14
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
10. OPERATING LEASES
The Company leases computer equipment and lab equipment under
non-cancelable operating leases expiring through August 2007. Lease
expense under these operating leases for the nine months ended
September 30, 2004 and 2003 was $17,118 and $24,005.
Future minimum lease payments under all operating leases for years
ending September 30 are as follows:
2005 $ 22,031
2006 17,933
2007 10,848
-----------
$ 50,812
===========
11. SELF-FUNDING GROUP INSURANCE RESERVE
The Company administers a limited self-funding group insurance plan
for the medical and dental health benefits of its employees. Employee
medical claims are paid by the Company as incurred up to a maximum of
$25,000 per person per year. A "stop-loss" insurance policy is
carried by the Company to cover individual medical claims in excess
of $25,000. Employee dental claims are paid by the Company as
incurred up to a limit of $1,000 per person per year. At September
30, 2004 and December 31, 2003, a reserve of $37,677 and $34,829 has
been established by the Company to settle claims and for incurred but
not reported claims.
12. PENSION PLAN
In October 1987, the Company adopted a 401(k) plan. The Company
contributes $10 on the first $2 each employee contributes per week.
If the employee contributes greater than $2, the Company matches 50%
of employee contributions to the plan up to 5% of total compensation.
For the periods ended September 30, 2004 and 2003 pension expense was
$47,702 and $48,543.
(continued)
15
JOEL, INC.
D/B/A SIMON CANDY COMPANY
AND PHARMALOZ
(An S Corporation)
13. SIGNIFICANT CUSTOMERS
The Company made sales to the following company, which is considered
to be a significant customer. Revenues earned from all other
customers included those whose revenues earned during the year did
not constitute more than 10% of the total.
Percentage of Accounts Percentage of Net Sales,
Receivable at Nine Months Ended
----------------------- ------------------------
September 30, December 31, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- --------------
The Quigley
Corporation 42% 7% 58% 47%
14. SIGNIFICANT SUPPLIERS
The Company made purchases from the following companies, which are
considered to be significant suppliers. However, management believes
that alternative suppliers of equivalent products are available if
these vendors are unable to provide necessary products or services.
Total Purchases,
Nine Months Ended
--------------------------------------
September 30, September 30,
2004 2003
-------------------- -------------
The American Sugar Refining Co. 6% 9%
C-P Converters, Inc. 4% 6%
15. EXCLUSIVE SUPPLY AGREEMENT
On March 17, 1997, the Company entered into an exclusive supply
agreement with The Quigley Corporation. An amendment to the original
agreement was signed which is effective for an additional period of
two years from March 17, 2004.
16. ASSET SALE
Effective October 1, 2004, the Company sold substantially all assets,
exclusive of trade accounts receivable and life insurance policies,
to The Quigley Corporation for $5,100,000.
16