EXHIBIT 99.1

SHENANDOAH FURNITURE, INC.

FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

December 31, 2016 and 2015

(With Independent Auditors' Reports Thereon)

SHENANDOAH FURNITURE, INC.

Table of Contents

December 31, 2016

 

	Page
Independent Auditors' Report on the Financial Statements	1
Financial Statements:
Balance Sheets	2 - 3
Statement of Operations	4
Statement of Stockholders' Equity	5
Statement of Cash Flows	6
Notes to Financial Statements	7 - 11
Supplementary Information:
Independent Auditors' Report on Supplementary Information	12
Cost of Goods Sold	13
Selling, General and Administrative Expenses	14

 

 

 

The Board of Directors

Shenandoah Furniture, Inc.:

We have audited the accompanying financial statements of Shenandoah Furniture, Inc. (a Virginia corporation), which comprise the balance sheets as of December 31, 2016 and 2015, and the related statements of operations, stockholders' equity, and cash flows for the year ended December 31, 2016, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Auditor's Responsibility

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shenandoah Furniture, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the year ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

Hickory, North Carolina

September 5, 2017

Balance Sheets

December 31, 2016 and 2015

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Balance Sheets

December 31, 2016 and 2015

 

Liabilities and Stockholders' Equity
		2016				2015
Current liabilities:
Accounts payable		$	493,619				684,125
Wages payable			213,769				224,444
Other accrued expenses			190,151				244,410
Total current liabilities			897,539				1,152,979
Stockholders' equity:
Common stock, par value $1 per share, 25,000 shares
authorized and outstanding in 2016 and 2015			25,000				25,000
Paid-in capital			25,000				25,000
Retained earnings			15,233,303				14,077,529
Total stockholders' equity			15,283,303				14,127,529
		$	16,180,842				15,280,508

 

 

 

SHENANDOAH FURNITURE, INC.

Statement of Operations

Year Ended December 31, 2016

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SHENANDOAH FURNITURE, INC.

Statement of Stockholders' Equity

Year Ended December 31, 2016

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SHENANDOAH FURNITURE, INC.

Statement of Cash Flows

Year Ended December 31, 2016

 

		2016
Net income		$	7,995,234
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation			507,665
Loss on sale of property and equipment			16,169
Increase in cash value of life insurance			(63,573	)
Increase in accounts receivable			(542,250	)
Decrease in inventories			318,430
Decrease in prepaids and other			117,332
Decrease in accounts payable			(190,506	)
Decrease in wages payable			(10,675	)
Decrease in other accrued expenses			(54,259	)
Net adjustments			98,333
Net cash provided by operating activities			8,093,567
Cash flows from investing activities:
Proceeds from sale of equipment			16,999
Purchases of property and equipment			(1,776,495	)
Net cash used by investing activities			(1,759,496	)
Cash flows from financing activities:
Cash dividends paid			(6,839,460	)
Redemption of common stock			-
Net cash used by financing activities			(6,839,460	)
Net decrease in cash and cash equivalents			(505,389	)
Beginning cash and cash equivalents			4,981,150
Ending cash and cash equivalents		$	4,475,761

 

SHENANDOAH FURNITURE, INC.

Notes to Financial Statements

December 31, 2016 and 2015

Shenandoah Furniture, Inc. ("Company") is a Virginia corporation engaged in the manufacture of furniture.  The Company's manufacturing plants and business operations are located in Martinsville, Virginia, Mt. Airy, North Carolina and Valdese, North Carolina.  Sales are on individual credit terms to customers located throughout the United States.

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash in banks, and highly liquid debt instruments with an original maturity date of three months or less.

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.  The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk relating to cash and cash equivalents.

Inventories are valued at the lower of cost, on the first-in, first-out basis, or market.

Accounts receivable are stated at the amount management expects to collect from outstanding balances.  Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable.  The Company's valuation allowance at December 31, 2016 and 2015, was $76,133 and $89,737, respectively.

 

(1)          Nature of Business and Significant Accounting Policies, Continued

Property and equipment is stated at cost.  The Company capitalizes property and equipment if its value is greater than $500 and its useful life is more than one year.    Depreciation is computed over the following estimated service lives of depreciable assets using principally the straight-line method:

The Company has elected to be taxed as a Small Business Corporation.  Accordingly, no provision has been made for Federal and state income taxes because these taxes are the responsibility of the individual shareholder.

The Company has implemented the accounting guidance for uncertainty in income taxes using the provisions of accounting principles generally accepted in the United States of America.  Using that guidance, tax positions initially need to be recognized in the financial statements when it is more-likely-than-not the position will be sustained upon examination by the tax authorities.  It also provides guidance for derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  As of December 31, 2016 and 2015, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements and recognized no such interest or penalties during the years ended December 31, 2016 and 2015.

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 and disclosure of contingent liabilities at the date of financial statements and revenue and expenses during the periods reported.  Estimates are used when accounting for allowance

for uncollectable accounts receivable, inventory obsolescence, depreciation, and contingencies, among others. Actual results could differ from these estimates.

Advertising costs are expensed when incurred.  Advertising costs totaled $148,338 for 2016.

It is the Company's policy to classify freight from sales as a selling expense.

Inventories at December 31, 2016 and 2015, consist of the following:

The Company is the owner and beneficiary of life insurance policies on key employees. These policies have an aggregate cash value of $496,580 and $433,007 at December 31, 2016 and 2015, respectively.

The Company maintains a profit-sharing bonus plan for the benefit of its employees.  All full-time employees with six months of service at the end the semi-annual period are eligible to receive payments based on profitability.  The payment is determined by a formula which gives credit for years of service and gross earnings.  Profit-sharing bonus plan expenses were $190,151 for the year end December 31, 2016.

During the year ended December 31, 2015, the Company implemented a contributory profit-sharing plan as defined under Section 401(k) of the U.S. Internal Revenue Code covering substantially all employees.  Employer contributions during the year ended December 31, 2016 were $54,737.

The Company has a partially self-insured medical benefits plan that covers all employees who meet eligibility requirements.  It has contracted with an administrative service company to supervise and administer the program and act as its representative.  Provisions for expected future payments are accrued based on the Company's experience and includes amounts for claims incurred but not reported.  The Company insures for excessive and unexpected health claims and is liable for claims not to exceed $125,000 for each employee per plan year and an aggregate annual amount of $1,301,160.  The estimated health plan claims incurred but not reported at December 31, 2016 and 2015, was approximately $136,000 and $100,000, respectively.

The Company leases certain manufacturing facilities and a showroom on a month to month basis from businesses related through common ownership.  Rental expense for 2016 on these facilities is as follows:

		2016
225 Beaver Creek Drive		$	231,916
Showroom Facilities			96,317
Valdese, North Carolina			240,000
Mt. Airy, North Carolina			204,100
		$	772,333

The Company also leases equipment under operating leases that expire at various times through 2020.  At December 31, 2016, the future minimum rental commitments for the non-cancelable long-term leases are as follows:

Fiscal Years Ending		Amount
2017		$	29,470
2018			32,579
2019			17,012
2020			2,182
		$	81,243

The total rent expense applicable to the leases described in the preceding paragraph for the year ended December 31, 2016, is $22,375.

Net sales for the year ended December 31, 2016, include sales to two major customers of $36,756,357. Outstanding accounts receivable from these customers was $2,728,665 at December 31, 2016

Effective June 30, 2017, the Company signed a letter of intent for the acquisition of substantially all of its assets and the assumption of substantially all of its liabilities.  The transaction will exclude cash and cash equivalents, investments, cash surrender value of life insurance policies and the Collinsville, Virginia plant and land.  Excluded liabilities will exclude any long-term or short-term debt.

The Company has evaluated subsequent events through September 5, 2017, the date which the financial statements were available to be issued. 

The Board of Directors

Shenandoah Furniture, Inc.:

We have audited the financial statements of Shenandoah Furniture, Inc. as of December 31, 2016 and 2015 and for the year ended December 31, 2016, and our report thereon dated September 5, 2017, which expressed an unmodified opinion on those financial statements, appears on page one. Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The cost of goods sold and selling, general and administrative expenses for the year ended December 31, 2016 is presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

September 5, 2017

						Percent of
		2016				Net Sales
Raw materials:
Inventory, beginning		$	1,884,723				4.45	%
Purchases, net			16,704,935				39.45
Freight-in			179,628				0.42
			18,769,286				44.32
Inventory, ending			(1,516,635	)			(3.58	)
Raw materials used			17,252,651				40.74
Labor expense:
Direct labor			8,762,197				20.69
Contract labor			23,319				0.06
Total labor expense			8,785,516				20.75
Manufacturing expenses:
Salaries - supervisors			789,951				1.86
Other indirect labor			178,370				0.42
Depreciation - machinery and equipment			343,167				0.81
Depreciation - building			100,514				0.24
Insurance - general			366,733				0.87
Insurance - group			901,715				2.13
Machine rental			78,403				0.18
Miscellaneous			290,950				0.68
Repairs and maintenance			483,781				1.14
Shop supplies			96,904				0.23
Taxes - payroll			811,961				1.92
Taxes and licenses			43,463				0.10
Utilities			497,938				1.18
Rent			676,016				1.60
Total manufacturing expense			5,659,866				13.36
Cost of goods manufactured			31,698,033				74.85
Finished goods and work-in-process variation
Inventory, beginning			646,374				1.53
Inventory, ending			(696,032	)			(1.64	)
Cost of goods sold		$	31,648,375				74.74	%