NOTES
TO THE FINANCIAL STATEMENTS
For
the year ended December 31, 2015 and
for
the period April 1, 2014 to December 31, 2014
NOTE
1 – Business
Periscope
GmbH i.I, Paderborn
Periscope
GmbH is a mid-size German Electronics Manufacturing company located in North-Rhine Westphalia
Paderborn
,
Germany
. Prior to April 1, 2014 Periscope was owned and operated by Flextronics GmbH.
Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”,
“registrant”, “Periscope” or “management” refer to Periscope GmbH.
Periscope
covers the entire contract manufacturing of electronic assemblies, devices and systems: from the assistance in product development,
product and process optimization, design for manufacturing, prototype, and test concepts through to after sales service .
Due
to its almost 35-year history, the Periscope GmbH is active in various market segments:
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Automotive
Industry
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Industry
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building
automation
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Communication
& Networks
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Battery
Management Systems
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Consumer
Electronics
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domestic
appliances
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Leisure
and sports equipment
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On
April 1, 2014 Flextronics GmbH was sold to the investor group 4K Invest. After reorganizing the operating subsidiary, the company
has been operating as Periscope GmbH since June 16, 2014.
Employees
The
average number of employees during the year ended December 31, 2015 was 346 and an average of 6 trainees. The period beginning
April 1, 2014 and ended December 31, 2014 had an average number of employees of 369 with an average of 5 trainees.
Management
board
Management
is carried out by:
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Markus
Roschel, Master of Business Administration, Sasbachwalden (from 16 June 2014 to 27 May 2015)
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Heinrich
Ollendiek, MBA-salesperson, Friedrichsdorf (5 August 2014)
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Dr.
Jasper Stahlschmidt, Lawyer, Dusseldorf (from 26 November 2015)
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As
solicitor the lawyer Mrs. Sandra Bitter was engaged on the 26th of November 2015.
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Note
2 - Basis of presentation and critical accounting policies Basis of Presentation and Use of Estimates
The
Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness
of accounting policies and their application. Critical accounting policies and practices are those that are both most important
to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective,
or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted
accounting principles.
Basis
of Presentation
The
accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”).
Foreign
Currency Translation Gain and Comprehensive Income (Loss)
For
the periods reported, the financial statement have been translated from Euros to US Dollars, assets and liabilities are translated
using published exchange rates in effect at the consolidated balance sheet date. Revenues and expenses and cash flows are translated
using an approximate weighted average exchange rate for the period. Resulting translation adjustments are recorded as a component
of accumulated other comprehensive income on the accompanying consolidated balance sheet. For the year ending December 31, 2015
and the period from April 1, 2014 to December 31, 2014, comprehensive income includes losses of $1,190,802 and $3,250,060, respectively,
which were entirely from foreign currency translation.
Fiscal
Year-End
The
financial year is the calendar year. The comparative information is a short fiscal year from April 1 to December 31, 2014.
Going
Concern
The
Consolidated Financial Statements of the Company have been prepared on a “going concern” basis, which means that the
continuation of the Company is presumed even though events and conditions exist that, when considered in the aggregate, raise
substantial doubt about the Company’s ability to continue as a going concern because it is probable that the Company will
be unable to meet its obligations as they become due within one year after the date that these financial statements were issued.
The
Company’s Evaluation of the Principal Conditions That Raise Substantial Doubt
During
the fiscal year ended December 31, 2015 and the period from April 1, 2014 to December 31, 2014 the Company incurred significant
financial losses. The Company’s management filed a request for insolvency on November 26, 2015 with the German government
after making the evaluation that it would not be able to meet its obligations for the next year.
Management’s
Plans to Mitigate Substantial Doubt
In
addition to the application for insolvency the Company will continue with restructuring efforts intended to reduce its expenses
in an attempt to achieve profitability. These restructuring efforts include but are not limited to reduction of staff, discontinuation
of operations either in a segment or liquidation of the affiliated company, and sale of assets.
Use
of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
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 assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses
during the reporting period(s).
Note
3 - Accounting and Valuation Methods
Following
accounting and valuation methods were influential for the preparation of annual financial statements.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts.. The Company performs on-going credit
evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness,
as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical
write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay.
Account
balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery
is considered remote. The Company determines when receivables are past due or delinquent based on how recently payments have been
received.
Outstanding
account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best
estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Bad debt expense is included
in general and administrative expenses, if any.
Receivables
in foreign currency, whose residual maturity is not more than one year, are evaluated with the spot exchange rate on the balance
sheet date.
Inventory
Valuation
The
Company values inventory, consisting of finished goods, at the lower of cost or market. Cost is determined on the first-in and
first- out (“FIFO”) method. The Company reduces inventory for the diminution of value, resulting from product obsolescence,
damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market
value. Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates,
(ii) estimates of future demand, and (iii) competitive pricing pressures.
Property
and Equipment
Property
and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are
charged to operations as incurred. Depreciation of property and equipment is computed by the straight-line method (after taking
into account their respective estimated residual values) over the estimated useful lives of the respective asset.
Liabilities
The
evaluation of the share capital and the capital reserve is carried out at the nominal value.
Other
provisions are assessed at the amount repayable, which is necessary according to sound business judgment in order to cover all
risks from uncertain liabilities already identifiable on the balance sheet date.
Other
provisions with a residual term of more than one year are discounted with adequate periodical interest rates, which have been
disclosed by the German Federal bank. Within exclusion of the “going concern” premise, provisions were recognized
for required structural measures, pending losses from ongoing obligations.
Liabilities
are recognized at the settlement amount.
Liabilities
in foreign currency, whose residual term is not more than one year, are evaluated with the spot exchange rate on the balance sheet
date. All other foreign currency liabilities are evaluated with their exchange rate at the time the invoice or the lower spot
exchange rate on the balance sheet date.
Accruals
and deferred income
Accruals
and deferred income the expenses are shown before the balance sheet date, insofar as they represent expenses for certain time
period after this date. Essentially, it is related to pay in advance insurance contributions
Affiliated
companies
Streifenbild
NTN GmbH i.L. is considered as affiliated company on the balance sheet date.
Note
5 - Inventories
Inventory,
net of reserves, consist of the following:
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December 31,
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2015
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2014
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Raw materials
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$
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7,808,566
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$
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10,580,577
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Work in progress
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1,931,372
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2,996,663
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Finished goods
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732,419
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585,943
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10,472,357
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14,163,183
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Less: Allowance for inventory obsolescence
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(200,892
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$
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(185,326
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Inventory –net of allowance for inventory obsolescence
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$
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10,271,465
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$
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13,977,857
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As
of December 31, 2015 and December 31, 2014, the Company had $1,143,462 and $0 in advanced payment for inventories, respectively.
Note
6 – Trade Accounts Receivable
Trade
accounts receivable consists of the following:
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December 31,
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2015
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2014
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Trade accounts receivable
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$
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2,387,639
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$
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436,493
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Allowance for doubtful accounts
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(57,200
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-
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$
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2,330,439
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$
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436,493
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Trade
accounts receivable include amounts due for shipped products and services rendered.
Allowance
for doubtful accounts include estimated losses resulting from the inability of our customers to make required payments.
Note
7 - Affiliated Companies
As
of December 31, 2015 and 2014, the company had $12,057 and $11,509 in receivables from affiliated companies. These receivables
are related to expenses paid by Periscope on behalf of the affiliated company.
Payables
due to affiliated companies were $118,424, and $131,599 and relate to a loan from the affiliated company Streifenbild NTN GmbH
i.L.. The loan is unsecured and carries an interest rate of 1.5% per annum.
Note
8 – Other Assets
As
of December 31, 2015 and 2014, the Company had other assets of $2,181,450, and $4,089,427, respectively. Other assets consisted
of various current deposits of $149,675 asset factoring of $1,959,806 and other miscellaneous assets of $71,969 at December 31,
2015. At December 31, 2014 other assets consisted of various current deposits of $777,234 asset factoring of $3,251,843 and other
miscellaneous assets of $60,350.
Note
9 – Prepaid Expenses
As
of December 31, 2015 and 2014, the Company had prepaid expenses of $84,386, and $75,337, respectively. Prepaid expenses consisted
primarily of prepaid insurance premiums.
Note
10 – Fixed Assets
Fixed
assets are summarized as follows:
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December 31,
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2015
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2014
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Purchased concessions, industrial and similar rights and assets and licences in such
rights and assets
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4,108,806
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4,256,986
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Customer base
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11,200,462
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12,483,185
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Technical equipment and machinery
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9,675,841
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10,674,188
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Other equipment, plant and office equipment
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7,656,316
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8,577,531
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Advance payments and assets under construction
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55,536
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113,395
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32,696,961
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36,105,285
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Less: Accumulated depreciation
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(16,991,214
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(17,559,436
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Property and equipment, net
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$
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15,705,747
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$
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18,545,849
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Note
11 – Other Liabilities
Other
liabilities were $4,741,772 at December 31, 2015 and consisted of VAT taxes payable of $202,225, payroll taxes and accrued payroll
of $3,597,665, and customer deposits of $941,882. At December 31, 2014 other liabilities were $6,165,138 and consisted of VAT
taxes payable of $769,217, payroll taxes and accrued payroll of $4,337,352, and customer deposits of $1,058,569.
Note
12 - Accruals for Pensions and Similar Obligations
Pension
accruals cover the pension obligations towards former and current employees. Obligations are secured partially by assets, which
are invested in Flextronics Trustee e.V. [registered association] on the basis of trust within the framework on Contractual Trust
Arrangements. The invested assets serve exclusively for fulfillment of pension obligations and are protected from access by other
creditors. They were offset with the underlying obligations. These mainly relate to shares in special funds, to a lesser extent
to balance at banks. The fair value of assets mentioned in the following table was derived from market prices of fun assets on
the reporting date.
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December 31,
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2015
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2014
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Settlement value of pensions
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$
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27,739,255
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$
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30,774,598
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Fair value of invested assets
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(15,551,517
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(18,369,489
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Net worth of pensions
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$
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12,187,738
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$
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12,405,109
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Note
13 – Accrued expenses
As
of December 31, 2015 the Company had other accrued expenses in the amount of $5,562,007. Accrued expenses consisted mainly of
expenses related to restructuring measures, outstanding vacation, time account balances of employees, warranties and accruals
for outstanding invoices. As of December 31, 2014 the Company had accrued expenses of $3,775,736 consisted mainly of accruals
for outstanding vacation, time account balances of employees, warranties and accruals for outstanding invoices.
Note
14 – Sales
Sales
by geographical market:
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January 1, 2015
to
December 31, 2015
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April 1, 2014
to
December 31, 2014
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Gerrmany
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$
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38,106,021
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$
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49,443,803
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Overseas
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48,878,282
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27,836,022
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$
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86,984,303
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$
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77,279,825
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Sales
by business activity:
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January 1, 2015
to
December 31, 2015
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April 1, 2014
to
December 31, 2014
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Automotive
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$
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26,217,182
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$
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26,942,216
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Industrial
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46,534,998
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37,968,324
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Infrastructure
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12,853,496
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11,188,759
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Other
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1,378,627
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1,180,526
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$
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86,984,303
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$
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77,279,825
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Note
15 – Operating Expenses
Operating
expenses for the year ended December 31, 2015 consisted of personnel expenses of $22,204,008, depreciation and amortization of
$1,318,724, other operating expenses consisting mainly of management levies, shipping costs, bad-debt expense, rents and leasing
installments, other taxes, and software expenses of $9,494,900, and $4,440,232 for provisions and current expenses for legal and
settlement costs relating to the application for insolvency proceedings.
Operating
expenses for the period beginning April 1, 2014 and ended December 31, 2014 consisted of personnel expenses of $20,588,463, depreciation
and amortization of $670,969, other operating expenses consisting mainly of management levies, shipping costs, bad-debt expense,
rents and leasing installments, other taxes, and software expenses of $9,391,067, and $18,350,131 relating to internal restructuring
and staff downsizing.
Note
16 – Interest and Other Income
For
the year ended December 31, 2015, interest and financing costs were comprised of accumulation of pensions and long-term personnel
provisions of $441,803, interest payable of $318,100, and currency options of $140,533. Other income was comprised mainly of gains
on foreign currency translations of $947,227, and other miscellaneous income of $746,843.
For
the period beginning April 1, 2014 and ended December 31, 2014, interest and financing costs were comprised of accumulation of
pensions and long-term personnel provisions of $92,084, interest payable of $139,441, and currency options of $114,743. Other
income was comprised mainly of gains on foreign currency translations of $538,032, and other miscellaneous income of $304,492.
Note
17 - Taxes on income
Taxes
on income and earnings were not incurred. Deferred taxes are not included in the tax expense.
Note
18 – Discontinued Operations
During
the period beginning April 1, 2014 and ended December 31, 2014 Periscope made changes to the legal structure of the company and
discontinued operations of a small subsidiary which at the time was considered the parent company. Restructuring expenses of $18,350,131
were recognized as operating expense and net losses of $4,735,735 were recognized as discontinued operations.
