EX-99 6 f8kae9922-zenex.txt ADUDDELL ROOFING FINANCIAL STATEMENTS ADUDDELL ROOFING & SHEET METAL, INC. Financial Statements June 30, 2002 Together With Independent Accountant's Review Report

JERRY J. SAXON CPA, P.C. CERTIFIED PUBLIC ACCOUNTANT ================================================================================ To the Board of Directors Aduddell Roofing & Sheet Metal, Inc. We have audited the accompanying balance sheet of Aduddell Roofing & Sheet Metal, Inc. (an Oklahoma Corporation) as of December 31, 2001, and the related statements of income, stockholders' equity, and cash flows for the year 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 audit. We conducted our audit in accordance with generally accepted auditing standards. 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 statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Aduddell Roofing & Sheet Metal, Inc. as of December 31, 2001, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The information included in the accompanying Schedules 1 and 2 is presented for the 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. As more fully described in Note 14, subsequent to the issuance of the company's 2001 financial statements and our report thereon dated March 13, 2001, we became aware that those financial statements reflected marketable securities and the related unrealized holding loss which should have been a receivable. In our original report we expressed an unqualified opinion on the 2001 financial statements, and our opinion on the revised statements, as expressed herein, remains unqualified. Jerry J. Saxon, CPA, PC June 15, 2002 2601 N.W. Expressway Suite 405 West Oklahoma City, OK 73112 Telephone (405)810-1088 Fax (405)842-2492

9 ADUDDELL ROOFING & SHEET METAL, INC. NOTES TO THE FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 1: Summary of Significant Accounting Policies --------------------------------------------------- Aduddell Roofing & Sheet Metal, Inc. (the "Company") is engaged in the roofing and re-roofing of industrial and commercial buildings in the United States and its territories. The work is performed primarily under fixed price contracts. Its accounting policies are in accordance with generally accepted accounting principles and conform, in general, to the predominant practices of the construction industry. The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. Revenue Recognition ------------------- The Company recognizes fixed price contract revenues on the percentage-of- completion method of accounting, measured by the percentage of cost incurred to date to the estimated total cost for each contract. Management uses this method because total cost is considered to be the best available measure of progress on the contracts. Revenues from cost-plus-fee contracts are recognized on the basis of costs incurred during the period plus the fee earned, measured by the cost-to-cost method. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, interest, depreciation and supplies. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognized in the period in which the revisions are determined. The asset, "Costs and estimated earnings in excess of billings on uncompleted contracts", represents revenues recognized in excess of amounts billed. The liability, "Billings in excess of costs and estimated earnings on uncompleted contracts", represents billings in excess of revenues recognized. Statement of Cash Flows ----------------------- For purposes of the statement of cash flows, short-term investments which have a maturity of ninety days or less are considered cash equivalents. Property and Equipment ---------------------- Property and equipment are recorded at cost. Depreciation is computed for financial and income tax reporting purposes using straight-line and accelerated methods over the following estimated useful lives: 10 ADUDDELL ROOFING & SHEET METAL, INC. NOTES TO THE FINANCIAL STATEMENTS --------------------------------------------------------------------------------

Expenditures for repairs and maintenance are charged to operations when incurred. Major betterments and renewals that extend the useful life of the related asset are capitalized and depreciated over the remaining useful life. Depreciation for the six months ended was $130,386 of which $99,133 was charged to cost of contract revenues and the remainder to general and administrative. Income Taxes ------------ Income tax expense is recognized for income taxes currently payable or refundable combined with the amount required to adjust deferred tax assets and liabilities to their appropriate amounts as measured under the provision of Statement of Financial Accounting Standards No. 109 ("FAS-109"). Fair Value Disclosure --------------------- The Company's financial instruments include cash, receivables, notes receivable, marketable securities, short-term payables, and notes payable. The carrying amounts of cash, receivables, and short-term payables approximate fair value due to their short-term nature. Marketable equity securities fair values are estimates based on quoted market prices. The carrying amounts of notes receivable and payable approximate fair value based on interest rates currently available to the Company. Note 2: Contract Receivables -----------------------------

Note 3: Stockholder Receivable ------------------------------- Advances to the Company's sole stockholder totaled $585,323 as of June 30, 2002. The advances are unsecured and bear interest at 5%. Interest income earned on stockholder notes totaled $14,305 for the six months ended June 30, 2002. 11 ADUDDELL ROOFING & SHEET METAL, INC. NOTES TO THE FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 4: Uncompleted Contracts ------------------------------

Note 5: Related Party Receivable --------------------------------- Advances to a company 50% owned by the Company's sole stockholder totaled $1,590,102 as of June 30, 2002. The advances are secured by marketable securities, stockholder guaranty and bear interest at the federal mid-term rate. The note matures on January 1, 2007. Note 6: Marketable Equity Securities ------------------------------------- The Company's securities that are bought and held principally for the purpose of selling them in the near term and are classified as trading securities. Trading securities are recorded at fair value on the balance sheet in current assets, with the change in fair value during the period included in earnings. Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and recorded at amortized cost in investments. Securities not classified as held-to-maturity or trading are classified as available-for-sale. Available-for-sale securities are recorded at fair value on the balance sheet with the change in fair value during the period excluded from earnings and reported as a separate component of Stockholders' Equity. All of the company's securities are classified available-for-sale at June 30, 2002. Unrealized holding gains on these securities totaled $5,658 for the six months ended June 30, 2002. Note 7: Line of Credit ----------------------- The Company has a $2,000,000 revolving line of credit. The line bears interest at 1% over the Wall Street Journal prime rate and is secured by all accounts, property and equipment and stockholder guaranty. The line matures on September 15, 2002. Outstanding advances totaled $1,200,000 at June 30, 2002. 12 ADUDDELL ROOFING & SHEET METAL, INC. NOTES TO THE FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 8: Long-Term Debt -----------------------

Interest expense for the six months ended June 30, 2002 was $85,786 of which $62,196 was charged to cost of contract revenues and the remainder to general and administrative. Note 9: Income Taxes --------------------- The Company's effective income tax rate is higher than what would be expected if the federal statutory rates were applied to income primarily because of expenses deductible for financial reporting purposes that are not deductible for tax purposes and the dividends received deduction. The significant components of income tax expense for the six months ended June 30, 2002, are as follows: Current tax expense $ (216,062) Deferred tax expense (3,248) ---------- Valuation allowance $ (219,310) ==========

13 ADUDDELL ROOFING & SHEET METAL, INC. NOTES TO THE FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Under the provisions of FAS-109, Accounting for Income Taxes, deferred tax liabilities and assets are measured using the applicable tax rate based on the taxable and deductible temporary differences. Temporary differences giving rise to the deferred tax liability are the excess of depreciation for financial reporting purposes over tax purposes. Deferred tax liability on taxable temporary differences $ 35,881 --------- $ 35,881 =========

Note 10: Comprehensive Income: -------------------------------

Note 11: Backlog ----------------- The estimated gross revenue on work to be performed on signed contracts at June 30, 2002, was $1,976,586. Note 12: Commitments and Contingencies --------------------------------------- The Company warranties its work in the normal course of business. In management's opinion, there were no outstanding claims which would have a material effect on the Company's operations or financial position. The Company maintains cash balances at several banks. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. Any amounts in excess of this would not be insured if the institution should fail. Note 13: Concentration ----------------------- The Company's contract receivables are from a small number of companies in the same industry and geographic area, which are subject to business cycle variations. The concentration subjects the Company to a credit risk if the companies fail to perform. During 2002, approximately 58% of the Company's revenue was derived from three customers. The percentage of revenue for each was 34%, 12%, and 12%, respectively. These companies are unrelated and operate in different geographic areas throughout the United States and its territories. At June 30, 2002, contract receivables due from these companies totaled $1,510,157. 14 ADUDDELL ROOFING & SHEET METAL, INC. NOTES TO THE FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 14: Letter of Credit -------------------------- At June 30, 2002, the Company had a $175,000 letter of credit issued to the company's insurance carrier that matures on February 25, 2003.

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