Based on the 2003 and adjusted 2004 income statements who do you believe should be considered the better CEO - Jeffery or Henry? How do you arrive at this conclusion? 9 13 EXHIBIT 1 ono il Grey Paints 950 Income Statements for the Years Ending December 31, 2002 and 2003 2002 2003 Powder Wall Powder Wall Coating Hangings Total Coating Hangings Total Gross Sales $250,000 $1,000,000 $1,250,000 $260,000 $1,040,000 $1,300,000 Less: Returns Net Sales 250,000 1,000,000 1,250,000 260,000 1,040,000 1,300,000 Cost of Goods Sold 90,000 395,000 485,000 95.000 423.0005 18.000 (Approximating 50% fixed, 50% variable) Gross Profit $160,000 $ 605,000 $ 765,000 $165,000 $ 617,000 $ 782,000 Operating Expenses ONS LOYle blood Executive Salaries $250,000 $250,000 Office Salaries 200,000 200,000 Depreciation Expense-Office Equipment 30,000 28,000 Office Expense 60,000 otroco 63,000 Advertising Expense 53,000 57,000 Bad Debt Expense 3,000 4,000 Interest Expense 16,000 Travel Expense 15,000 25,000 30,000 Total Operating Expense 637,000 647,000 Net Income $128,000 $135,000 (Continued on next page) EXHIBIT 1 (Continued) 2003 $ Grey Paints Balance Sheets December 31, 2002 and 2003 Assets 2002 Current Assets Cash $ 370,000 Securities Available for Sale (approx. market) 90,000 Accounts Receivable 92.000 Inventory 30,000 Prepaid Expenses 29,000 Total Current Assets 611,000 Property, Plant, and Equipment Land 600,000 Buildings 2,000,000 1,900,000 Equipment Total 4,500,000 2,200,000 Less: Accumulated Depreciation 2,300,000 Property. Plant, and Equipment, net $2,911,000 Total Assets 350,000 90,000 95,000 32,000 52,000 619,000 600,000 2,000,000 1,900,000 4,500,000 2,450,000 2,050,000 $2,669,000 2002 2003 50,000 9,000 16,000 6.000 81,000 35,000 7,000 13,000 6.000 61,000 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable Payroll Taxes Payable Salaries Payable Current Portion of Long-Term Debt Total Current Liabilities Long-Term Liabilities Notes Payable Bank (less current portion) Total Liabilities Stockholders' Equity Common Stock, $1 par, 400,000 shares authorized 200.000 shares issued and outstanding Paid-In Capital Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity 244,000 325.000 219,000 280,000 200,000 200,000 500,000 1,886,000 2,586,000 $2,911,000 500,000 1,689,000 2,389,000 $2,669,000 (Continued on next page EXHIBIT 1 (Continued) Grey Paints Statement of Stockholders' Equity for the Years Ending December 31, 2002 and 2003 Retained Earnings, 1/1 Net Income Cash Dividends Paid Retained Earnings, 12/31 2002 $2,038,000 128,000 (280,000) $1,886,000 2003 $1,886,000 135,000 (332,000) $1,689,000 2003 $135,000 Grey Paints Statements of Cash Flows for the Years Ending December 31, 2002 and 2003 2002 Cash Flow from Operating Activities Net Income $128,000 Adjustments to Net Income Depreciation Expense 257,000 Decrease (Increase) in Accounts Receivable 8,000 Decrease (Increase) in Prepaid Expense (5,000) Decrease (Increase) in Inventory (3,000) Increase (Decrease) in Accounts Payable 6.000 Increase (Decrease) in Taxes Payable (2,000) Increase (Decrease) in Salaries Payable (1,000) Cash Provided by Operating Activities 388,000 Cash Flow from Investing Activities Cash Flow from Financing Activities Cash Dividend Paid (280,000) Payment on Long-Term Note Payable (10,000) Increase in Cash 98,000 Beginning Cash 272,000 Ending Cash $370,000 250,000 (3,000) (23,000) (2,000) (15,000) (2,000) (3,000) 337,000 (332,000) (25,000) (20,000) 370,000 $350,000 EXHIBIT 2 Grey Paints Income Statement for the Year Ending December 31, 2004 Powder Wall Coating Hangings $260,000 $1,690,000 Total $1,950,000 Gross Sales Less: Returns Net Sales Cost of Goods Sold (Approximating 40% fixed, 60% variable) Gross Profit $260,000 100,000 1,690,000 840,000 $1,950,000 940,000 $160,000 $ 850,000 $1,010,000 Operating Expenses Executive Salaries Office Salaries Depreciation Expense Office Equipment Office Expense Rent Expense Advertising Expense Bad Debt Expense Interest Expense Travel Expense Total Operating Expenses Income from Continuing Operations Other Revenue: Gain on Sale of Land Net Income $ 250,000 200,000 26,000 108,000 50,000 49,000 4,000 35,000 138.000 860,000 150,000 50.000 $ 200,000 (Continued on next page) EXHIBIT 2 (Continued) $ Grey Paints Balance Sheet December 31, 2004 Assets Current Assets Cash Securities Available for Sale (approx, market) Accounts Receivable Inventory Prepaid Expenses Total Current Assets Property, Plant, and Equipment Land Buildings Equipment Total Less: Accumulated Depreciation Property. Plant, and Equipment (net) Total Assets 160,000 100,000 185.000 140,000 78,000 663,000 550,000 2,000,000 2,500,000 5,050,000 2,750,000 2.300.000 $2.963.000 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable Payroll Taxes Payable Salaries Payable Current Position of Long-Term Debt Total Current Liabilities Long-Term Liabilities Notes Payable-Bank (less current portion) Total Liabilities 38.000 8,000 19,000 10.000 75,000 415,000 490,000 Stockholders' Equity Common Stock, $1 par, 400,000 shares authorized 200.000 shares issued and outstanding Paid-in Capital-Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity 200,000 500,000 1,773,000 2,473,000 $2,963.000 (Continued on next page) EXHIBIT 2 (Continued) Grey Paints Statement of Stockholders' Equity for the Year Ending December 31, 2004 Retained Earnings, 1/1 Net Income Cash Dividends Paid Retained Earnings, 12/31 2004 $1,689,000 200,000 (116,000) $1,773,000 Grey Paints Statement of Cash Flows for the Year Ending December 31, 2004 Cash Flows from Operating Activities Net Income $200,000 Adjustments to Net Income Gain on Sale of Land (50,000) Depreciation Expense 300,000 Increase in Accounts Receivable (90,000) Increase in Prepaid Expenses (26,000) Increase in Inventory (108,000) Increase in Accounts Payable 3,000 Increase in Taxes Payable 1,000 Increase in Salary Payable 6,000 Cash Provided by Operating Activities 236,000 Cash Flows from Investing Activities Sale of Land 100,000 Purchase of Securities Available for Sale (10,000) Purchase of Equipment (600,000) Cash Used by Investing Activities (510,000) Cash Flows from Financing Activities Note Payable - Long-Term 200,000 Cash Dividends Paid (116,000) Cash Provided by financing activities 84,000 Decrease in Cash Beginning Cash Ending Cash (190,000) 350,000 $160,000