Attached files
| file | filename |
|---|---|
| 8-K/A - 8-K/A - LIQUIDITY SERVICES INC | a11-30325_18ka.htm |
| EX-23.1 - EX-23.1 - LIQUIDITY SERVICES INC | a11-30325_1ex23d1.htm |
| EX-99.4 - EX-99.4 - LIQUIDITY SERVICES INC | a11-30325_1ex99d4.htm |
| EX-99.3 - EX-99.3 - LIQUIDITY SERVICES INC | a11-30325_1ex99d3.htm |
Exhibit 99.2
Jacobs Trading LLC’s
Salvage Business
Financial Statements (Unaudited)
June 30, 2011 and 2010
Jacobs Trading LLC’s Salvage Business
Index
June 30, 2011 and 2010
|
|
Page(s) |
|
|
|
|
Unaudited Financial Statements |
|
|
|
|
|
Balance Sheets, at June 30, 2011 and December 31, 2010 (Unaudited) |
1 |
|
|
|
|
Statements of Operations, for the three and six-month periods ended June 30, 2011 and 2010 (Unaudited) |
2 |
|
|
|
|
Statement of Business Unit Equity, for the six-month period ended June 30, 2011 (Unaudited) |
3 |
|
|
|
|
Statements of Cash Flows, for the six-month periods ended June 30, 2011 and 2010 (Unaudited) |
4 |
|
|
|
|
Notes to Financial Statements (Unaudited) |
5–8 |
Jacobs Trading LLC’s Salvage Business
Balance Sheets (Unaudited)
June 30, 2011 and December 31, 2010
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Assets |
|
|
|
|
| ||
|
Current assets |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
543,198 |
|
$ |
859,256 |
|
|
Accounts receivable, net |
|
4,461,157 |
|
3,164,160 |
| ||
|
Inventories |
|
8,524,824 |
|
7,739,587 |
| ||
|
Prepaid expenses and other assets |
|
360,704 |
|
229,339 |
| ||
|
Total current assets |
|
13,889,883 |
|
11,992,342 |
| ||
|
Property and equipment, net |
|
995,019 |
|
1,030,840 |
| ||
|
Total assets |
|
$ |
14,884,902 |
|
$ |
13,023,182 |
|
|
Liabilities |
|
|
|
|
| ||
|
Current liabilities |
|
|
|
|
| ||
|
Line of credit |
|
$ |
— |
|
$ |
7,100,000 |
|
|
Accounts payable |
|
3,456,069 |
|
1,583,460 |
| ||
|
Accrued liabilities |
|
2,698,445 |
|
2,733,665 |
| ||
|
Total current liabilities |
|
6,154,514 |
|
11,417,125 |
| ||
|
Commitments and contingencies |
|
|
|
|
| ||
|
Business Unit Equity |
|
8,730,388 |
|
1,606,057 |
| ||
|
Total liabilities and business unit equity |
|
$ |
14,884,902 |
|
$ |
13,023,182 |
|
The accompanying notes are an integral part of these financial statements.
Jacobs Trading LLC’s Salvage Business
Statements of Operations (Unaudited)
Three and Six-Month Periods Ended June 30, 2011 and 2010
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net sales |
|
$ |
18,990,127 |
|
$ |
16,267,958 |
|
$ |
39,588,542 |
|
$ |
31,665,593 |
|
|
Cost of goods sold |
|
12,554,765 |
|
9,815,086 |
|
25,534,305 |
|
18,245,832 |
| ||||
|
Gross margin |
|
6,435,362 |
|
6,452,872 |
|
14,054,237 |
|
13,419,761 |
| ||||
|
Operating expenses |
|
|
|
|
|
|
|
|
| ||||
|
Technology and operations |
|
793,179 |
|
718,431 |
|
1,518,825 |
|
1,478,595 |
| ||||
|
Sales and marketing |
|
362,889 |
|
315,465 |
|
758,861 |
|
631,602 |
| ||||
|
General and administrative |
|
1,237,809 |
|
2,182,776 |
|
2,236,231 |
|
3,132,465 |
| ||||
|
Depreciation and amortization |
|
58,443 |
|
52,088 |
|
118,719 |
|
103,128 |
| ||||
|
Total operating expenses |
|
2,452,320 |
|
3,268,760 |
|
4,632,636 |
|
5,345,790 |
| ||||
|
Operating income |
|
3,983,042 |
|
3,184,112 |
|
9,421,601 |
|
8,073,971 |
| ||||
|
Interest expense |
|
(69,585 |
) |
(6,714 |
) |
(176,811 |
) |
(13,029 |
) | ||||
|
Net income |
|
$ |
3,913,457 |
|
$ |
3,177,398 |
|
$ |
9,244,790 |
|
$ |
8,060,942 |
|
The accompanying notes are an integral part of these financial statements.
Jacobs Trading LLC’s Salvage Business
Statement of Business Unit Equity (Unaudited)
Six-Month Period Ended June 30, 2011
|
|
|
Total |
| |
|
|
|
Business Unit |
| |
|
|
|
Equity |
| |
|
|
|
|
| |
|
Balance at December 31, 2010 |
|
$ |
1,606,057 |
|
|
Net income |
|
9,244,790 |
| |
|
Equity-based compensation expense |
|
115,000 |
| |
|
Distributions to members of Jacobs Trading LLC |
|
(4,971,230 |
) | |
|
Net transfers from Jacobs Trading LLC |
|
2,735,771 |
| |
|
Balance at June 30, 2011 |
|
$ |
8,730,388 |
|
The accompanying notes are an integral part of these financial statements.
Jacobs Trading LLC’s Salvage Business
Statements of Cash Flows (Unaudited)
Six-Month Periods Ended June 30, 2011 and 2010
|
|
|
Six Months Ended June 30, |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Cash flows from operating activities |
|
|
|
|
| ||
|
Net income |
|
$ |
9,244,790 |
|
$ |
8,060,942 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
| ||
|
Depreciation and amortization |
|
151,801 |
|
136,671 |
| ||
|
Noncash equity-based compensation expense |
|
115,000 |
|
1,308,000 |
| ||
|
Changes in operating assets and liabilities |
|
|
|
|
| ||
|
Accounts receivable |
|
(1,296,997 |
) |
(1,216,917 |
) | ||
|
Inventories |
|
(785,237 |
) |
(1,312,522 |
) | ||
|
Prepaid expenses and other assets |
|
(131,365 |
) |
113,441 |
| ||
|
Accounts payable |
|
1,872,609 |
|
423,223 |
| ||
|
Accrued liabilities |
|
(35,220 |
) |
(851,028 |
) | ||
|
Net cash provided by operating activities |
|
9,135,381 |
|
6,661,810 |
| ||
|
Cash flows from investing activities |
|
|
|
|
| ||
|
Purchase of property and equipment |
|
(115,980 |
) |
(24,039 |
) | ||
|
Net cash used in investing activities |
|
(115,980 |
) |
(24,039 |
) | ||
|
Cash flows from financing activities |
|
|
|
|
| ||
|
Distributions to members of Jacobs Trading LLC |
|
(4,971,230 |
) |
(4,227,779 |
) | ||
|
Net transfers from (to) Jacobs Trading LLC |
|
2,735,771 |
|
(1,665,169 |
) | ||
|
Payments on line of credit |
|
(23,550,000 |
) |
(10,265,556 |
) | ||
|
Borrowings on line of credit |
|
16,450,000 |
|
6,500,000 |
| ||
|
Retirement of member interest |
|
— |
|
(1,600,000 |
) | ||
|
Net cash used in financing activities |
|
(9,335,459 |
) |
(11,258,504 |
) | ||
|
Decrease in cash and cash equivalents |
|
(316,058 |
) |
(4,620,733 |
) | ||
|
Cash and cash equivalents |
|
|
|
|
| ||
|
Beginning of year |
|
859,256 |
|
5,088,556 |
| ||
|
End of year |
|
$ |
543,198 |
|
$ |
467,823 |
|
|
Supplemental information |
|
|
|
|
| ||
|
Cash paid for interest |
|
$ |
182,809 |
|
$ |
26,571 |
|
The accompanying notes are an integral part of these financial statements.
Jacobs Trading LLC’s Salvage Business
Notes to Financial Statements
Six-Month Periods Ended June 30, 2011 and 2010
1. Organization and Basis of Presentation
Jacobs Trading LLC (“Jacobs”) is a limited liability company with headquarters in Hopkins, Minnesota. On September 1, 2011, Jacobs Trading LLC entered into an agreement to sell its Salvage Business (the “Company”). The Company provides a single-source solution to retail, mail order and manufacturing entities with problem inventories resulting from closeouts, excess merchandise and customer returns. The Company sells to wholesalers, outlet stores and secondary retail stores located primarily in North America and sells directly to customers over the Internet. The Company also operates value-added processing centers in Appleton, Minnesota; Taft, Oklahoma; Las Vegas, Nevada; Sneads, Florida; Mexia, Texas; Marlin, Texas; East Flat Rock, North Carolina; Olean, New York; and Salamanca, New York. The processing facilities are used to inspect, sort, deface and repackage goods for sale.
These financial statements reflect the historical financial position, results of operations and cash flow of the Salvage Business to be transferred by Jacobs as if the carve out had occurred prior to the periods presented. Prior to the separation, Jacobs has not accounted for the Company as, and Company was not operated as, a stand-alone company for the periods presented. The Company’s historical financial statements have been carved out from Jacobs’ financial statements and reflect assumptions and allocations made by Jacobs. The financial statements do not fully reflect what the Company’s financial position, results of operations and cash flows would have been had the Company been a stand-alone company during the periods presented. As a result, historical financial information is not necessarily indicative of what results of operations, financial position and cash flow will be in the future.
Unaudited Interim Financial Information
The accompanying unaudited condensed financial statements have been prepared by the Company. Certain information and accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation have been included. The information disclosed in the notes to the financial statements for these periods is unaudited. Operating results for the three and six-months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 or any future period. These interim financial statements should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2010. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
2. Summary of Significant Accounting Policies
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. Actual results could differ from those estimates.
Subsequent Events
The Company evaluated events occurring between the end of the most recent fiscal year and September 23, 2011, the date the financial statements were available to be issued.
Jacobs Trading LLC’s Salvage Business
Notes to Financial Statements
Six-Month Periods Ended June 30, 2011 and 2010
3. Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2010-6, Improving Disclosures About Fair Value Measurements, that amends existing disclosure requirements under ASC 820 by adding required disclosures about items transferring into and out of levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchases, sales, issuances, and settlements relative to level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. For the Company, this ASU was effective for the first quarter of 2010, except for the requirement to provide level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which is effective beginning the first quarter of 2011. Since this standard impacts disclosure requirements only, its adoption did not have a material impact on the Company’s results of operations or financial condition.
4. Selected Financial Statement Information
Accounts Receivable, Net
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Accounts receivable |
|
$ |
4,651,465 |
|
$ |
3,354,469 |
|
|
Less: Allowance for doubtful accounts |
|
(190,308 |
) |
(190,309 |
) | ||
|
|
|
$ |
4,461,157 |
|
$ |
3,164,160 |
|
Inventories
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Inventory |
|
$ |
8,798,618 |
|
$ |
8,102,524 |
|
|
Less: Valuation reserves |
|
(273,794 |
) |
(362,937 |
) | ||
|
|
|
$ |
8,524,824 |
|
$ |
7,739,587 |
|
Property and Equipment, Net
|
|
|
Useful Life |
|
June 30, |
|
December 31, |
| ||
|
|
|
(Years) |
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Leasehold improvements |
|
Lessor of 7 or lease term |
|
$ |
808,756 |
|
$ |
800,217 |
|
|
Furniture and fixtures |
|
7 |
|
793,947 |
|
631,552 |
| ||
|
Office equipment |
|
3-7 |
|
310,783 |
|
347,724 |
| ||
|
Construction in process |
|
|
|
60,579 |
|
115,338 |
| ||
|
|
|
|
|
1,974,065 |
|
1,894,831 |
| ||
|
Less: Accumulated depreciation and amortization |
|
|
|
(979,046 |
) |
(863,991 |
) | ||
|
Property and equipment, net |
|
|
|
$ |
995,019 |
|
$ |
1,030,840 |
|
Jacobs Trading LLC’s Salvage Business
Notes to Financial Statements
Six-Month Periods Ended June 30, 2011 and 2010
Accrued Liabilities
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Payroll and incentive-related |
|
$ |
765,421 |
|
$ |
1,079,425 |
|
|
Management fees |
|
16,200 |
|
121,998 |
| ||
|
Freight |
|
428,000 |
|
316,582 |
| ||
|
In-transit inventory |
|
561,864 |
|
694,255 |
| ||
|
Other |
|
926,960 |
|
521,405 |
| ||
|
|
|
$ |
2,698,445 |
|
$ |
2,733,665 |
|
5. Line of credit
Jacobs has a Line of Credit Agreement (“Credit Agreement”) that provides for a revolving line of credit of up to $20,000,000, which expires on September 30, 2011. The Company periodically utilizes the line of credit for certain cash flow needs. The line of credit bears interest at a rate equal to 5.00% over the 30-day LIBOR rate. Jacobs had outstanding borrowings under this facility of $7,100,000 at December 31, 2010. There were no outstanding borrowings at June 30, 2011. Included within the line of credit is a commitment to provide a $6,000,000 letter of credit to support a related party.
Under the credit agreement, Jacobs is required to meet certain financial covenants including a minimum level of net worth; minimum cash flow leverage ratio; and a limit on investment in a consolidated subsidiary. Jacobs was in compliance with covenants for all periods presented. The agreement includes subjective acceleration clauses which permit the financial institution to accelerate the due date under certain circumstances, including, but not limited to, material adverse effects on the Jacobs’ financial status or otherwise.
6. Related Party Transactions
Management and Other Fees Paid to Related Parties
Pursuant to a Management Services Agreement, the Company paid Jacobs Management Corporation (“JMC”), an entity affiliated with the Company through common ownership, fees of $300,000 and $600,000 for the three and six-month periods ended June 30, 2011, respectively, and fees of $269,500 and $539,000 for the three and six-month periods ended June 30, 2010, respectively. All expenses recognized for JMC are general and administrative expenses on the accompanying statements of operations.
7. Commitments and Contingencies
Operating Leases
The Company leases property under operating leases with expiration dates through 2014. Rental expense under these leases was $442,977 and $426,177 for the six-month periods ended June 30, 2011 and 2010, respectively.
Jacobs Trading LLC’s Salvage Business
Notes to Financial Statements
Six-Month Periods Ended June 30, 2011 and 2010
The following is a schedule of future minimum lease payments required under all noncancelable operating leases at June 30, 2011:
|
2011 |
|
$ |
323,504 |
|
|
2012 |
|
647,008 |
| |
|
2013 |
|
647,008 |
| |
|
2014 |
|
215,369 |
| |
|
|
|
$ |
1,832,889 |
|
Purchase Contract with a Significant Vendor
The Company has an agreement with a third party supplier to purchase customer-returned merchandise, damaged merchandise and certain specified excess merchandise at stated prices. The agreement is subject to annual renewal by both parties. Purchases from this supplier aggregated approximately $19,748,000 and $13,941,000 for the six-month periods ended June 30, 2011 and 2010, respectively. The Company’s accounts payable balance with this vendor was $1,363,554 and $495,699 at June 30, 2011 and December 31, 2010, respectively.
Legal
The Company is a defendant in legal proceedings arising in the ordinary course of business. Although the outcome of these matters cannot be determined, in the opinion of management and outside counsel, disposition of these proceedings will not have a material effect on the Company’s financial position, results of operations or cash flows.