Narrative Summary of Financial Statements

Operation of Brudder from start-up in August of 1994 to date has been internally funded by the owners of Brudder from operations. Several points of clarification pertaining to the financial statements on the following pages should be noted:

* The $17,000 loss from operations that we incurred during 1994 was less than the $20,000 loss that we anticipated during our start-up phase.
* Our budget shortfall in revenue for the first quarter of 1995 was simply due to sales being less than anticipated. We also discovered that our cost of sales estimates as a percentage of sales were budgeted too high. This indicates that our profitability will be greater than anticipated at a lower level of sales.
* Based on first quarter sales, projections for the remainder of 1995 may seem to be optimistic, however, based on current purchase orders and work-in-progress, $25,000 in sales for the second quarter is likely. Indications from existing and prospective customers are that sales for the remainder of 1995 will continue to grow steadily.
* The attached balance sheet shows a positive net worth for Brudder by the end of 1995. We feel that this is also very attainable if sales remain constant through the second-half of the year.

Management

Management responsibility for Brudder will be divided between the two stockholders. A. Post will have primary responsibility for plant operations, production staffing and materials and equipment procurement. Jane Crew will have primary responsibility for sales, marketing and financial management.

Surface Preparation

Of the three steps, surface preparation is probably the most critical. Unlike wet painting with solvent based paints which are somewhat forgiving of scale, grime and forming and cutting oils, the surface to be powder coated must be free of contaminants and have a good phosphatized or conversion coat. Brudder uses a variety of cleaning methods including a high temperature, high pressure phosphate wash, or other cleaning chemicals as the job requires.

Additionally, we have identified a new metal finishing process that is an environmental alternative to clean chromate coating on aluminum. Clear chromate is used widely as a corrosion preventative for aluminum computer and electronic parts. It is also a very effective pre-treatment for aluminum before powder coating. We would like to begin offering the service within the next 12 months.

The cleaning and coating chemicals are monitored for strength. The rinse discharge is relatively low volume chemically inert substances which will be monitored and balanced for pH. Discharge samples have routinely met or exceeded all federal, state and municipal regulations. After cleaning, the part must be completely dried before powder application.

Types of Powder Coating Materials to be Offered

Brudder will offer its customers their choice of most types of thick-film, functional end use and thin-film decorative end use thermosetting powders which are currently available. These coatings are epoxy, polyester, new polyester, acrylic, silicone/epoxy, silicone acrylics and silicone. Each material or blend of materials offers unique properties of hardness, color acceptance, flexibility, durability, temperature resistance, ultraviolet light resistance and salt spray resistance. The material to be used in any given application will be determined by consultation with the powder supplier and the customer, using a “needs” checklist.

What Brudder is Powder Coating

Brudder provides powder coatings on conductive metallic surfaces, chiefly not-rolled steel, coldrolled steel, cast iron, stainless steel, rolled or extruded aluminum and cast aluminum. The pieces accepted will vary in size from a few square inches surface area, to 70″ × 54″ × 63″ which is the maximum size capacity of our current oven.

Technological advancements have allowed the expansion of powder coating to non-metal surfaces, such as ceramics, wood, plastic and glass. These applications generally require specialized equipment that we will not have initially. If market demand for these types of services is great enough to justify the expense of additional equipment, we will consider expanding our service to include them.