Nathan P. and Geraldine V. Morton - Page 17

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             recruit experienced managers, petitioner was the only new                
             manager hired as of June 30, 1989.  SWI was generally                    
             financially healthy at this time, but it had some fiscal                 
             concerns, including the significant amount of debt assumed               
             to finance the buyout and expansion.  As of June 30, 1989,               
             SWI had long term debt of approximately $8.3 million and                 
             current liabilities of approximately $13.2 million.  SWI's               
             balance sheet as of June 30, 1989 was as follows:                        
             Assets                               Liabilities                         
                                                                                     
                                                 Current liabilities                 
                                                  Accounts payable      $11,290,720   
             Current assets                       Accrued liabilities   1,502,966     
             Cash and equivalents $1,745,901      Income taxes payable  259,550       
             Net accounts receivable6,730,874       Current portion of                  
             Inventory            9,554,926       capital lease obligations158,040      
             Prepaid Expenses     555,899         Total                 13,211,276    
             Total                18,587,600                                          
                                                  Capital lease obligations326,255       
             Property and equipment,                                                  
             at cost                              Bank credit agreement 3,070,462     
             Furniture, fixtures and                                                  
             equipment            738,733         Senior subordinated notes4,912,341    
             Leasehold improvements392,462                                             
             Property under capital               Total long-term                     
             lease                634,268         liabilities            8,309,058    
             Capital projects in                  Total liabilities  99.81%21,520,334   
             progress             35,633                                              
             Less accumulated depreciation     (367,558)                              
             Net property & equipment1,433,538                 Shareholders' Equity      
             Net intangible assets &                                                  
             deferred charges, net1,432,104       Warrants               125,526      
                                                  Common stock           71           
             Deposits and other   108,583         Additional paid in capital430,693      
             total assets         21,561,825      Retained Earnings        109,674    
                                                  Total                  666,054      
                                                  Carryover basis adjustment(624,563)    
                                                  Total shareholders' equity 0.19%    
                                                                         41,491       
                                                  Liabilities +          21,561,825   
                                                  Shareholders' equity                
                  In the 5-month period ending on June 30, 1989, SWI                  
             experienced total sales of $64 million, gross profit of                  
             $16.9 million, and net income of $125,526.  During this                  
             same period, SWI's gross profit margin decreased from 12.8               





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