Attached files
file | filename |
---|---|
8-K/A - BLONDER TONGUE LABORATORIES INC | blonder8ka041112.htm |
EX-2.1 - ASSET PURCHASE AGREEMENT - BLONDER TONGUE LABORATORIES INC | blonderex2-1to8ka041112.htm |
EX-2.2 - FIRST AMENDMENT TO PURCHASE AGREEMENT - BLONDER TONGUE LABORATORIES INC | blonderex2-2to8ka041112.htm |
EX-99.2 - NOTES TO PROFORMA DOCUMENT - BLONDER TONGUE LABORATORIES INC | blonderix99-2to8ka041112.htm |
EXHIBIT 99.1
R.L. Drake, LLC
Financial Statements
For the Years Ended December 31, 2011 and 2010
R.L. Drake, LLC
December 31, 2011 and 2010
Contents
Report of Independent Registered Public Accounting Firm
|
1
|
Financial Statements
|
||
Balance Sheets
|
2
|
|
Statements of Operations and Members’ Equity
|
3
|
|
Statements of Cash Flows
|
4
|
|
Notes to Financial Statements
|
5
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
R.L. Drake, LLC
Franklin, OH
We have audited the accompanying balance sheets of R.L. Drake, LLC (the “Company”) as of December 31, 2011 and 2010 and the related statements of operations, members’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of R.L. Drake, LLC as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/Marcum LLP
New York, NY
April 16, 2012
R.L. Drake, LLC
Balance Sheets
December 31, 2011 and 2010
Assets
|
||||||||
2011
|
2010
|
|||||||
Current Assets
|
||||||||
Cash
|
$
|
227,256
|
$
|
969,474
|
||||
Accounts receivable, net of allowance of $5,000 at December 31, 2010
|
895,186
|
633,415
|
||||||
Inventories, net
|
2,902,992
|
2,875,258
|
||||||
Prepaid expenses and other
|
141,539
|
91,442
|
||||||
Total current assets
|
4,166,973
|
4,569,589
|
||||||
Property and Equipment, net
|
242,364
|
255,198
|
||||||
Other Assets
|
||||||||
Goodwill
|
1,308,747
|
1,308,747
|
||||||
Other intangible assets, net
|
1,350,000
|
1,624,984
|
||||||
Deferred finance costs, net
|
-
|
6,913
|
||||||
2,658,747
|
2,940,644
|
|||||||
Total Assets
|
||||||||
$
|
7,068,084
|
$
|
7,765,431
|
|||||
Liabilities and Members’ Equity
|
||||||||
Current Liabilities
|
||||||||
Accounts payable
|
$
|
469,178
|
$
|
324,142
|
||||
Management fee – related party
|
465,618
|
253,122
|
||||||
Deferred rent expense, current portion
|
31,510
|
37,812
|
||||||
Accrued expenses
|
230,848
|
354,441
|
||||||
Total current liabilities
|
1,197,154
|
969,517
|
||||||
Deferred Rent Expense, net of current portion
|
-
|
31,510
|
||||||
Long-Term Debt
|
-
|
1,500,000
|
||||||
Total Liabilities
|
1,197,154
|
2,501,027
|
||||||
Commitments and Contingencies
|
||||||||
Members’ Equity
|
5,870,930
|
5,264,404
|
||||||
Total Liabilities and Members’ Equity
|
$
|
7,068,084
|
$
|
7,765,431
|
||||
See Accompanying Notes to Financial Statements
2
R.L. Drake, LLC
Statements of Operations and Members’ Equity
For the Years Ended December 31, 2011 and 2010
Statement of Operations
2011
|
2010
|
|||||||
Net Sales
|
$
|
10,158,911
|
$
|
8,142,663
|
||||
Cost of Goods Sold
|
6,058,265
|
4,341,869
|
||||||
|
||||||||
Gross Profit
|
4,100,646
|
3,800,794
|
||||||
Operating Expenses
|
||||||||
Selling, general and administrative
|
3,079,491
|
3,449,339
|
||||||
|
||||||||
Operating Income
|
1,021,155
|
351,455
|
||||||
Other Income (Expense)
|
||||||||
Interest expense
|
(180,563
|
)
|
(186,680
|
)
|
||||
Other
|
10,152
|
(9,280
|
)
|
|||||
(170,411
|
)
|
(195,960
|
)
|
|||||
Income Before Income Taxes
|
850,744
|
155,495
|
||||||
Provision for Income Taxes
|
61,513
|
30,103
|
||||||
Net Income
|
789,231
|
125,392
|
||||||
Members’ Equity
|
||||||||
Members’ Equity, Beginning of Year
|
5,264,404
|
4,023,180
|
||||||
Related party debt forgiveness
|
-
|
1,115,832
|
||||||
Distributions
|
(182,705
|
)
|
-
|
|||||
Members’ Equity, End of Year
|
$
|
5,870,930
|
$
|
5,264,404
|
See Accompanying Notes to Financial Statements
3
R.L. Drake, LLC
Statements of Cash Flows
For the Years Ended December 31, 2011 and 2010
2011
|
2010
|
||||||||
Cash Flows From Operating Activities:
|
|||||||||
Net income
|
$
|
789,231
|
$
|
125,392
|
|||||
Adjustments to reconcile net income to cash provided
|
|||||||||
by operating activities:
|
|||||||||
Depreciation and amortization
|
354,489
|
351,481
|
|||||||
Inventory reserve
|
189,714
|
(199,680
|
)
|
||||||
Deferred rent
|
(37,812
|
)
|
69,322
|
||||||
Changes in operating assets and liabilities:
|
|||||||||
Accounts receivable
|
(261,771
|
)
|
(49,265
|
)
|
|||||
Inventories
|
|
(217,448
|
) |
1,011,725
|
|||||
Prepaid expenses and other
|
(50,097
|
)
|
30,973
|
||||||
Accounts payable
|
145,036
|
(64,796
|
)
|
||||||
Management fee payable- related party
|
212,496
|
221,872
|
|||||||
Accrued expenses
|
(123,593
|
)
|
3,553
|
||||||
Net cash provided by operating activities
|
1,000,245
|
1,500,681
|
|||||||
Cash Flows From Investing Activities:
|
|||||||||
Purchase of property and equipment
|
(59,758
|
)
|
(4,735
|
)
|
|||||
|
|||||||||
Cash Flows From Financing Activities:
|
|||||||||
Net borrowings under line-of-credit agreement
|
-
|
413,472
|
|||||||
Repayment of note payable
|
(1,500,000
|
)
|
(1,000,000
|
)
|
|||||
Member distributions
|
(182,705
|
)
|
-
|
||||||
Net cash used in financing activities
|
(1,682,705
|
)
|
(586,278
|
)
|
|||||
Increase (Decrease) in Cash
|
(742,218
|
)
|
909,668
|
||||||
Cash, Beginning of Year
|
969,474
|
59,806
|
|||||||
Cash, End of Year
|
$
|
$227,256
|
$
|
969,474
|
|||||
Supplemental Cash Flows Information
|
|||||||||
Interest paid
|
$
|
208,196
|
$
|
169,650
|
|||||
Income tax paid
|
32,418
|
21,853
|
|||||||
Non cash Investing and Financing Activities
|
$
|
-
|
$
|
1,115,832
|
|||||
Debt contributed to capital
|
|||||||||
4
R.L. Drake, LLC
Notes to Financial Statements
December 31, 2011 and 2010
Note 1: Nature of Operations and summary of Significant Accounting Policies
Nature of Operations
The Company earns revenues predominately from the manufacturing and distribution of products to the private and franchised cable television markets and the cable system contractor market. Products are sold primarily to dealers and distributors in the United States and Canada.
The financial statements of R.L. Drake, LLC include a division located in Canada. The Canadian division is utilized by the Company to distribute the Company’s products throughout Canada. The Company operates in one segment and the net assets of the Canadian division were approximately $425,000 and $457,000 at December 31, 2011 and 2010, respectively. The net sales of the Canadian division were approximately $1,956,000 and $1,529,000 for the years ended December 31, 2011 and 2010, respectively. All significant divisional transactions have been eliminated.
Use of Estimates
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 of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates include reserves related to inventory and receivables as well as estimated useful lives of long-lived assets. Actual results could differ from those estimates.
Cash
Effective July 21, 2010, the FDIC’s insurance limits were permanently increased to $250,000. Pursuant to legislation enacted in 2010, the FDIC will fully insure all noninterest-bearing transaction accounts beginning December 21, 2010 through December 31, 2012, at all FDIC-insured institutions. At December 31, 2011, the Company’s cash accounts did not exceed federally insured limits. Periodically, the Company evaluates the credit worthiness of the financial institutions and has not experienced any losses in such accounts. However, approximately $142,000 and $139,000 of cash was held in Canadian banks as of December 31, 2011 and 2010, respectively which exceeded the $100,000 Canadian Deposit Insurance Corporation Insurance limit. The Company did not have any cash equivalents at December 31, 2011 and 2010.
Accounts Receivable
Accounts receivable are stated at the amount billed to customers. The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivable are ordinarily due 30 days after the issuance of the invoice. Accounts past due more than 120 days are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.
5
R.L. Drake, LLC
Notes to Financial Statements
December 31, 2011 and 2010
Inventories
Inventories consist of raw materials, work-in-process and finished goods. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. The Company continually analyzes its slow-moving, excess and obsolete inventories, excess and obsolete inventories. Based on historical and projected sales volumes and anticipated selling prices, if the Company does not meet its sales expectations, these reserves are increased. Products that are determined to be obsolete are written down to net realizable value. The Company believes reserves are adequate and inventories are reflected at net realizable value.
Property and Equipment
Property and equipment are recorded at cost. Property and equipment are depreciated over the estimated useful life of each asset. Annual depreciation is primarily computed using the straight-line depreciation method. Expenditures for maintenance and repairs, which do not extend the economic life of the related assets, are charged to operations as incurred. When assets are retired, or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gains or loss on disposal is recognized.
Goodwill and Other Intangible Assets
We account for goodwill and intangible assets in accordance with Accounting Standards Codification (“ASC”) 350 Intangibles - Goodwill and Other (“ASC 350”). ASC 350 requires that goodwill and other intangibles with indefinite lives should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value.
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations. GAAP requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgment is required to estimate the fair value of reporting units including estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment.
Our business includes one goodwill reporting unit. We annually review goodwill for possible impairment by comparing the fair value of the reporting unit to the carrying value of the assets. If the fair value exceeds the carrying value of net asset, no goodwill impairment is deemed to exist. If the fair value does not exceed the carrying value, goodwill is tested for impairment and written down to its implied fair value if it is determined to be impaired. We performed our annual goodwill impairment test on December 31, 2011 and 2010 using both the income approach and market approach with assumptions that our management believes are appropriate in the circumstances. Based upon the results, we determined that goodwill was not impaired as of December 31, 2011 and 2010.
6
R.L. Drake, LLC
Notes to Financial Statements
December 31, 2011 and 2010
Intangible assets are recorded at cost except for assets acquired using acquisition accounting, which are initially recorded at their estimated fair value. Intangible assets with finite lives include customer relationships and non-compete agreements are amortized on a straight-line basis over the estimated useful lives ranging from 5 to 10 years.
Impairment of Long-Lived Assets
The Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group, if any, exceeds its fair market value.
Amortization of Deferred financing Costs
The Company will amortize these costs to interest expense over the related term of the debt using the straight-line method which approximates the interest rate method.
Product Warranties
The Company provides limited warranties on certain of its products, for periods ranging from 1 to 3 years. Based on the nature of the products, most claims occur within the first few months of use and are satisfied prior to year end. Management does not consider the cost of its warranty obligations to be significant at December 31, 2011 and 2010.
Fair Value Disclosure
The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable and other debt obligations approximate fair value based on the short-term maturity of these instruments. The carrying amounts reported in the balance sheet for long-term obligations approximate fair value as such instruments feature contractual interest rates that are consistent with current market rates of interest or have effective yields that are consistent with instruments of similar risk.
Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The Company utilizes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Other inputs that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The adoption of this pronouncement did not have any material impact on the Company's financial position or results of operations.
7
R.L. Drake, LLC
Notes to Financial Statements
December 31, 2011 and 2010
Income Taxes
The Company’s members have elected to have the Company’s income taxed as a partnership under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual members for inclusion in their respective tax returns and no provision for federal and state income taxes is included in these statements. However, the Company is subject to certain local, state and foreign income taxes and a provision for these taxes has been reflected in the statements. The Company has concluded there are no uncertain tax positions that would require recognition in the financial statements. If the Company were to incur an income tax liability in the future, interest and penalties on any income tax liability would be reported as income taxes. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of tax laws, regulations and interpretations thereof as well as other factors. The Company files tax returns in U.S federal and various state and local jurisdictions and Canada and is subject to audit by tax authorities beginning with the year ended December 31, 2008.
Revenue Recognition
Revenue from the sale of the Company’s products is recognized typically when products are delivered to customers, provided that pervasive evidence of an arrangement exists, the fee is fixed or determinable and collection is reasonably assured. To the extent that one or more of these conditions are not met, revenue is deferred until such time as all four criteria are met. Any customer deposits relate to amounts received in advance from customers for unshipped orders.
Research and Development
Research and development cost are expensed as incurred. The Company recorded expenses of approximately $703,000 and $751,000 in 2011 and 2010, respectively.
Foreign Currency Translation
The Company uses the United States dollar as its functional and reporting currency since the majority of the Company’s business activities is based in the United States dollar. Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date. Revenues and expenses are translated at average rates of exchange during the year. Gains and losses from foreign currency transactions and translations for the years ended December 31, 2011 and 2010 and cumulative translation gains and losses as of December 31, 2011 and 2010 were not material.
Advertising Costs
Advertising costs are expensed as incurred. For the years ended December 31, 2011 and 2010, advertising expense was approximately $63,000 and $33,000, respectively, and is included in selling, general and administrative expenses.
8
R.L. Drake, LLC
Notes to Financial Statements
December 31, 2011 and 2010
Note 2: Inventories
2011
|
2010
|
||||||
Manufacturing inventories | |||||||
Raw materials
|
$
|
1,200,822
|
$
|
1,126,505
|
|||
Work-in-process
|
973,634
|
1,005,238
|
|||||
Finished goods
|
908,536
|
993,515
|
|||||
Inventory reserve |
(180,000)
|
(250,000)
|
|||||
|
$
|
2,902,992
|
$
|
2,875,258
|
The Company recorded an increase of $189,714 and a reduction of $199,680 in the provision for slow moving and obsolete inventory during the years ended December 31, 2011 and 2010, respectively. In 2011 and 2010, the Company wrote off fully reserved inventories of approximately $260,000 and $5,000, respectively.
Note 3: Property and Equipment
Property and equipment consist of the following:
2011
|
2010
|
Estimated
Range
Of Lives
|
|||||
Leasehold improvements
|
$
|
166,191
|
$
|
166,191
|
(A)
|
||
Machinery and equipment
|
303,480
|
243,722
|
4-10 Years
|
||||
Furniture and fixtures
|
34,431
|
34,431
|
6-10 Years
|
||||
Total cost
|
504,102
|
444,344
|
|||||
Accumulated depreciation
|
(261,738)
|
(189,146)
|
|||||
$
|
242,364
|
$
|
255,198
|
(A)
|
Leasehold improvements are amortized over the lesser of the useful life of the assets or the remaining period of the lease.
|
Depreciation expense for the years ended December 31, 2011 and 2010 was $72,592 and $73,101, respectively.
9
R.L. Drake, LLC
Notes to Financial Statements
December 31, 2011 and 2010
Note 4: Other Intangible Assets
The carrying basis and accumulated amortization of 2011 recognized intangible assets were:
2011
|
2010
|
||||||||||||
Average
|
Gross
|
Gross
|
|||||||||||
Amortization
|
Carrying
|
Accumulated
|
Carrying
|
Carrying
|
Accumulated
|
Carrying
|
|||||||
Period (yrs)
|
Amount
|
Amortization
|
Amount
|
Amount
|
Amortization
|
Amount
|
|||||||
Amortized intangible assets
|
|||||||||||||
Customer relationships
|
10
|
$2,700,000
|
$1,350,000
|
$1,350,000
|
$2,700,000
|
$1,080,000
|
$1,620,000
|
||||||
Non-compete arrangements
|
5
|
25,000
|
25,000
|
-
|
25,000
|
20,016
|
4,984
|
||||||
$2,725,000
|
$1,375,000
|
$1,350,000
|
$2,725,000
|
$1,100,016
|
$1,624,984
|
Amortization expense for the years ended December 31, 2011 and 2010 was $ 274,984 and $ 275,004, respectively.
Amortization expense for each of the following five years is:
2012
|
$ 270,000
|
2013
|
270,000
|
2014
|
270,000
|
2015
|
270,000
|
2016
|
270,000
|
Note 5: Debt
During 2010, the Company had a $4,000,000 revolving line of credit with an outstanding balance of $880,832. The Company also had a note payable to a bank with an outstanding balance of $1,735,000, net of a $1,000,000 repayment in 2010. In December 2010, the Bank sold the line of credit and note payable which had an aggregate outstanding balance of $2,615,832 at the time of the sale to Drake Debt, LLC, a related party through common ownership at a discount. At such time, Drake Debt, LLC, forgave $1,115,832 of the outstanding balance and the Company entered into a new loan agreement for $1,500,000 with Drake Debt, LLC. Such loan bore interest at 30%, was due on December 31, 2013 and was secured by substantially all of the Company’s assets. The Company recorded a $1,115,832 capital contribution for the portion of the loan that was forgiven. In May 2011, the Company repaid the $1,500,000 outstanding debt to Drake Debt, LLC.
In May 2011, the Company entered into a line of credit agreement with a financial institution. The line of credit matures during May 2012, bears interest payable monthly at the prime rate (3.25% at December 31, 2011) plus 1% subject to a 4.25% floor. In addition, the Company is required to maintain a certain minimum tangible net worth. During 2011, the Company borrowed $430,000 under the new line of credit and repaid the entire amount as of December 31, 2011.
10
R.L. Drake, LLC
Notes to Financial Statements
December 31, 2011 and 2010
Note 6: Income Taxes
The domestic and foreign components of income (loss) before income taxes from continuing operations for the years ended December 31, 2011 and 2010 are as follows:
2011
|
2010
|
||||||
Domestic
|
$658,279
|
$46,277
|
|||||
Foreign
|
192,465
|
109,268
|
|||||
Income from continuing operations before provision for income taxes
|
$850,744
|
$155,495
|
The Company’s income tax provision (benefit) consists of the following for the years ended December 31, 2011 and December 31, 2010:
2011
|
2010
|
||||||
Current:
Federal
|
$ --
|
$ --
|
|||||
State and local
|
--
|
--
|
|||||
Foreign
|
61,513
|
30,103
|
|||||
61,513
|
30,103
|
||||||
Deferred:
|
|||||||
Federal
|
--
|
--
|
|||||
State and local
|
--
|
--
|
|||||
Foreign
|
--
|
--
|
|||||
--
|
--
|
||||||
Provision for income taxes
|
$61,513
|
$30,103
|
11
R.L. Drake, LLC
Notes to Financial Statements
December 31, 2011 and 2010
The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective rate for the years ended December 31, 2011 and December 31, 2010 is as follows:
2011
|
2010
|
|||
U.S. federal statutory rate
|
34.0%
|
34%
|
||
Canadian federal statutory rate difference
|
(3.9)%
|
(10.3)%
|
||
Ontario tax rate
|
2.6%
|
8.4%
|
||
U.S. partnership income not taxed of entity level
|
(26.3)%
|
(10.1)%
|
||
Other permanent differences
|
.8%
|
(2.6)%
|
||
Income Tax provision
|
7.2%
|
19.4%
|
The Company files Canadian federal and provincial income tax returns and U.S. federal, state and local income tax returns, as applicable. The Company may be subject to audit of federal and provincial income taxes by Canadian tax authorities for a period of three to five years from the date of the original notice of assessment in respect of any particular taxation year. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period.
The Company’s U.S. federal and state tax returns are subject to audit by tax authorities beginning with the years ended December 31, 2008.
12
R.L. Drake, LLC
Notes to Financial Statements
December 31, 2011 and 2010
Note 7: Operating Leases
The Company leases its facilities under non-cancellable operating leases which expire in 2012. These leases generally contain renewal options for an additional five years and require the Company to pay all executor costs such as property taxes, maintenance and insurance. As a condition of the operating lease for one of the facilities, the Company was required to deposit approximately $140,000 into a restricted bank account to be released upon satisfaction of certain lease compliance tests. During 2010, the Company failed to meet the lease compliance test and the lease was amended to have escalating lease payments. At the time the lease was amended, the lessor seized the assets in escrow and will hold the assets until the end of the lease, at which time they will be paid in full. The Company’s portion of the escrow balance is recorded in other assets. Total lease expense amounted to $268,899 and $267,687 in 2011 and 2010, respectively.
Future minimum lease payments are as follows:
2012
|
$ 258,794
|
$ 258,794
|
Note 8: Related Party Transactions
In 2009, the Company has entered into a contract to pay management fees of $250,000 plus travel expenses per year to members of the LLC. Effective April 1, 2010, the management fees were reduced to $212,000 plus travel expenses per year. Management fees and other related party expenses for the years ended December 31, 2011 and 2010 were $277,636 and $229,684, respectively. At December 31, 2011 and 2010, the Company owed $465,618 and $253,122, respectively, for accrued and unpaid management fees to related parties. Interest expense on note payable related parties was $180,740 and $26,630 for the years ended December 31, 2011 and 2010, respectively.
Note 9: Concentrations, Commitments and Contingencies
Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following:
General Litigation
The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. At the date of this report, the Company does not have any claims or lawsuits outstanding.
Sales and Accounts Receivable Concentrations
Net sales to major customers (defined as a customer who provided in excess of 10% of total revenue) approximated 47% and 16% of net sales in 2011 and 2010, respectively. The Company had three such customers during 2011 and a single such customer in 2010. At December 31, 2011, the Company had 64% of its accounts receivable due from a single customer and three customers comprise 40% of total accounts receivable at December 31, 2010.
13
R.L. Drake, LLC
Notes to Financial Statements
December 31, 2011 and 2010
Note 10: Profit-Sharing Plan
The Company has a 401(k) profit-sharing plan covering substantially all employees. The Company’s matching contributions to the plan are determined quarterly by the Management Board. During 2009, the Company discontinued employer matching contributions.
Note 11: Limited Liability Company
The Company is a Delaware limited liability company. No member shall be liable for the liabilities of the Company, except to the extent of the member’s capital contributions less any distributions.
The Company has Preferred, Class A and Class B units (all members are voting members). The equity contributed by the preferred members was $3,420,000. Class A members contributed equity of $2,000,000. Class B units are preferred units which, as of any date of determination, are equal to a 10% per annum return on the Member’s Preferred Unreturned Contribution Amount. At December 31, 2011 and 2010, no Class B preferred units were issued.
Restricted Unit Award
On January 1, 2010 and March 1, 2010, the Company issued 9,800 and 2,500, respectively, Class B Common Units of the Company to a member of management. The units vest on a straight-line basis monthly over the two years following the grant date. At December 31, 2011 and 2010, the number of outstanding vested units was 4,492 and 938, respectively. The Company’s compensation expense related to these units was not material.
Liquidation Payments
The Preferred Members are entitled to distributions to the extent that Preferred Return Amounts exceed distributions previously made. Second, Preferred Members are entitled to distributions to the extent of Unreturned Contribution Amounts. Third, distributions are made to Members in proportion to the number of Units (of any class) if the amount the Class A Common Members would otherwise receive is less than the Unreturned Contribution Amounts, then the amounts would be distributed to Class A Common Members to the extent of Unreturned Contribution amounts and second to Preferred Members and Class B Common Members proportionate to the number of units held at the date of distribution.
Class A Cumulative Preferred Units
The Company issued cumulative preferred units to one of its members. The preferred units yield cumulative dividends at the rate of 10% per year. Unpaid dividends are added to the liquidation value of the preferred units on an annual basis. At December 31, 2011 and 2010, the accumulated but unpaid dividends were $1,710,000 and $1,368,000, respectively. The dividends are payable once declared by the Company’s Board of Managers. To date, these dividends have not been declared.
14
R.L. Drake, LLC
Notes to Financial Statements
December 31, 2011 and 2010
Members’ Equity by Class
Allocations of equity based on distribution priorities consist of the following:
2011
|
2010
|
|||||
Class A preferred units
|
$
|
4,109,591
|
$
|
3,629,954
|
||
Class A common units
|
1,734,872
|
1,618,468
|
||||
Class B common units
|
26,467
|
15,982
|
||||
Total members’ equity
|
$
|
5,870,930
|
$
|
5,264,404
|
||
Note 12: Subsequent Events
On February 1, 2012, the Company entered into an Asset Purchase Agreement by and among R.L. Drake Holdings, LLC (“RLD”), R. L. Drake Acquisition Corporation, a Delaware corporation, and WBMK Holding Company, an Ohio corporation, as amended by a certain First Amendment to the Asset Purchase Agreement dated February 3, 2012 (as so amended, the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, on February 1, 2012, RLD acquired substantially all of the assets and assumed certain specified liabilities of the Company. The purchase price of $7,199,000 was comprised of approximately $6,477,000 paid at closing, plus approximately $679,000 of closing working capital less target working capital, subject to certain adjustments based upon a post-closing audit of the balance sheet of the Company, plus contingent purchase price payments of up to $1,500,000 (with a current fair value of $43,000) in the aggregate that may be made over the next three years if certain financial results are realized. The assets acquired from the Company include assets used in manufacturing and delivering electronic communications solutions for cable television systems, digital television reception, video signal distribution and digital video encoding, including equipment, supplies and other tangible personal property, inventory, receivables, business records, trademarks and other intellectual property rights. In addition, the Company and certain members of the Company agreed, for a period of five (5) years, not to engage in any business that competes with the business formerly conducted by the Company and/or sold by the Company to RLD or the business presently conducted by RLD or any affiliate of RLD or to solicit employees or customers of the Company or RLD or any affiliate of RLD.
Subsequent events have been evaluated through April 16, 2012, which is the date the financial statements were available to be issued.
15