Attached files
file | filename |
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8-K/A - STEINER LEISURE Ltd | stnr8ka.htm |
EX-99 - STEINER LEISURE Ltd | stnrexhibit99_1.htm |
EX-23 - STEINER LEISURE Ltd | stnrexhibit23_1.htm |
EX-99 - STEINER LEISURE Ltd | stnrexhibit99_3.htm |
Exhibit 99.2
IDEAL IMAGE DEVELOPMENT, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
IDEAL IMAGE DEVELOPMENT, INC. AND SUBSIDIARIES
Tampa, Florida
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
CONTENTS
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
|
CONDENSED CONSOLIDATED BALANCE SHEETS |
3 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
4 |
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT |
5 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
6 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
8 |
IDEAL IMAGE DEVELOPMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2011 and December 31, 2010
September 30, |
December 31, |
||||||
2011 |
2010 |
||||||
(Unaudited) |
|||||||
ASSETS |
|||||||
Current Assets: |
|||||||
Cash |
$ |
13,573,586 |
$ |
11,743,452 |
|||
Accounts receivable, net |
5,320,370 |
6,386,049 |
|||||
Prepaid expenses and other current assets |
703,184 |
280,600 |
|||||
Note receivable |
27,950 |
28,292 |
|||||
Total current assets |
19,625,090 |
18,438,393 |
|||||
Property and equipment, net |
6,143,012 |
3,066,568 |
|||||
Intangible assets, net |
540,461 |
660,287 |
|||||
Goodwill |
21,787,350 |
21,787,350 |
|||||
Deferred customer acquisition costs |
8,607,439 |
7,211,116 |
|||||
Note receivable |
40,803 |
60,957 |
|||||
$ |
56,744,155 |
$ |
51,224,672 |
||||
LIABILITIES AND SHAREHOLDERS' DEFICIT |
|||||||
Current Liabilities: |
|||||||
Accounts payable |
$ |
1,621,653 |
$ |
2,302,076 |
|||
Current maturities of capital lease obligations |
1,261,252 |
1,009,905 |
|||||
Current maturities of long term debt |
6,874,304 |
5,025,367 |
|||||
Deferred revenue |
43,861,918 |
42,122,034 |
|||||
Deferred taxes |
117,060 |
117,060 |
|||||
Other current liabilities |
2,920,538 |
3,786,563 |
|||||
Total current liabilities |
56,656,725 |
54,363,005 |
|||||
Deferred revenue |
17,424,921 |
14,799,633 |
|||||
Deferred taxes |
749,499 |
319,476 |
|||||
Capital lease obligations |
516,083 |
746,985 |
|||||
Long-term debt |
2,993,566 |
7,449,843 |
|||||
Shareholders' Deficit |
|||||||
Common stock |
16,599 |
16,599 |
|||||
Preferred stock |
72,290 |
72,290 |
|||||
Additional paid in capital |
10,616,091 |
10,616,091 |
|||||
Treasury stock |
(1,466,000 |
) |
(16,000 |
) |
|||
Accumulated deficit |
(30,835,619 |
) |
(37,143,250 |
) |
|||
Total shareholders' deficit |
(21,596,639 |
) |
(26,454,270 |
) |
|||
$ |
56,744,155 |
$ |
51,224,672 |
IDEAL IMAGE DEVELOPMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Nine Months ended September 30, 2011 and 2010
2011 |
2010 |
||||||
(Unaudited) |
(Unaudited) |
||||||
Revenues |
|||||||
Clinic sales |
$ |
50,455,486 |
$ |
35,688,096 |
|||
Royalties |
1,839,393 |
1,341,455 |
|||||
Initial fees from franchisees |
-- |
200,000 |
|||||
Other revenue |
13,417 |
137,601 |
|||||
52,308,296 |
37,367,152 |
||||||
Cost of revenues |
34,456,519 |
32,923,401 |
|||||
Gross profit |
17,851,776 |
4,443,751 |
|||||
Operating expenses: |
|||||||
Administrative |
3,141,122 |
1,588,364 |
|||||
Salaries and payroll taxes |
6,975,574 |
3,088,343 |
|||||
10,116,696 |
4,676,707 |
||||||
Operating income |
7,735,080 |
(232,956 |
) |
||||
Other income (expense) |
|||||||
Interest income |
4,696 |
3,790 |
|||||
Interest expense |
(802,638 |
) |
(1,085,075 |
) |
|||
Other income (expense) |
24,971 |
28,594 |
|||||
Gain on sales of assets |
750 |
-- |
|||||
(772,221 |
) |
(1,052,691 |
) |
||||
Income (loss) before taxes |
6,962,859 |
(1,285,647 |
) |
||||
Income tax expense |
|||||||
Current |
225,205 |
103,050 |
|||||
Deferred |
430,023 |
293,960 |
|||||
655,228 |
397,010 |
||||||
Net income (loss) |
$ |
6,307,631 |
$ |
(1,682,657 |
) |
IDEAL IMAGE DEVELOPMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
Nine Months ended September 30, 2011
(Unaudited)
Common Stock |
Preferred Stock |
Treasury Stock |
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
BALANCE, December 31, 2010 |
10,196,377 |
$ |
16,599 |
72,290,152 |
$ |
72,290 |
6,402,218 |
$ |
(16,000 |
) |
$ |
10,616,091 |
$ |
(37,143,250 |
) |
$ |
(26,454,270 |
) |
|||||||||
Purchase of treasury stock |
-- |
-- |
-- |
-- |
1,610,028 |
(1,450,000 |
) |
-- |
-- |
(1,450,000 |
) |
||||||||||||||||
Net income |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
6,307,631 |
6,307,631 |
||||||||||||||||||
BALANCE, September 30, 2011 |
10,196,377 |
$ |
16,599 |
72,290,152 |
$ |
72,290 |
8,012,246 |
$ |
(1,466,000 |
) |
$ |
10,616,091 |
$ |
(30,835,619 |
) |
$ |
(21,596,639 |
) |
IDEAL IMAGE DEVELOPMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 2011 and Nine Months ended September 30, 2010
(Unaudited)
2011 |
2010 |
||||||
Cash flows from operating activities |
|||||||
Net income (loss) |
$ |
6,307,631 |
$ |
(1,682,657 |
) |
||
Adjustments to reconcile net income (loss) to net cash |
|||||||
from operating activities |
|||||||
Depreciation and amortization |
3,078,297 |
1,473,661 |
|||||
Deferred taxes |
430,023 |
293,960 |
|||||
Gain on sale of property and equipment |
(13,417 |
) |
-- |
||||
Change in operating assets and liabilities, net of acquired businesses |
|||||||
Accounts receivable |
1,065,679 |
(2,582,709 |
) |
||||
Other current assets |
-- |
(46,794 |
) |
||||
Prepaid expenses |
(422,584 |
) |
219,925 |
||||
Other assets |
-- |
(144,615 |
) |
||||
Deferred customer acquisition costs |
(1,396,323 |
) |
(983,638 |
) |
|||
Accounts payable and accrued expenses |
(1,546,447 |
) |
1,295,131 |
||||
Deferred revenue |
4,365,172 |
8,523,689 |
|||||
Net cash from operating activities |
11,868,031 |
6,365,953 |
|||||
Cash flows from investing activities |
|||||||
Purchase of property and equipment |
(6,021,498 |
) |
(389,669 |
) |
|||
Proceeds from repayment of note receivable |
20,496 |
115,373 |
|||||
Purchase of treasury stock |
(1,450,000 |
) |
-- |
||||
Advances to related party |
-- |
(27,581 |
) |
||||
Net cash from investing activities |
(7,451,002 |
) |
(301,877 |
) |
|||
Cash flows from financing activities |
|||||||
Payments on capital lease obligations |
20,445 |
(1,537,958 |
) |
||||
Payments of other long term payable |
-- |
(190,681 |
) |
||||
Proceeds from issuance of long-term debt |
2,520,516 |
284,385 |
|||||
Payment of long-term debt |
(5,127,856 |
) |
(1,212,989 |
) |
|||
Net cash from financing activities |
(2,586,895 |
) |
(2,657,243 |
) |
|||
Net change in cash |
1,830,134 |
3,406,833 |
|||||
Cash at beginning of year |
11,743,452 |
2,914,946 |
|||||
Cash at end of year |
$ |
13,573,586 |
$ |
6,321,779 |
IDEAL IMAGE DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 2011 and Nine Months ended September 30, 2010
2011 |
2010 |
||||||
Supplemental disclosures of cash flow activity |
|||||||
Cash paid for interest |
$ |
865,810 |
$ |
1,145,979 |
|||
Cash paid for taxes |
$ |
-- |
$ |
10,073 |
|||
Supplemental disclosures of non-cash flow activity |
|||||||
Accounts receivable acquired with franchise acquisition |
$ |
-- |
$ |
305,195 |
|||
Equipment acquired with franchise acquisition |
$ |
-- |
$ |
135,279 |
|||
Intangible assets acquired with franchise acquisition |
$ |
-- |
$ |
578,932 |
|||
Deferred revenue assumed with franchise acquisition |
$ |
-- |
$ |
900,538 |
|||
Capital lease obligations assumed with franchise acquisition |
$ |
-- |
$ |
118,868 |
|||
Debt and accrued interest converted to preferred stock |
$ |
-- |
$ |
2,139,633 |
IDEAL IMAGE DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature and Organization of Business: Ideal Image Development, Inc. ("IIDI") is involved in the development, management and operation of treatment centers utilizing the IDEAL IMAGE® laser therapy system for the cosmetic services industry.
At September 30, 2011, the Company had 16 franchised centers and 49 company-owned centers.
Principles of Consolidation: These consolidated financial statements include operating results of Ideal Image Development, Inc. and majority owned subsidiaries, Ideal Image Development, Corporation (100%), Ideal Image of Arizona, LLC (100%), Ideal Image of Georgia, LLC (100%), Ideal Image of Missouri, LLC (100%), Ideal Image Clinics of NC, LLC (75%), Ideal Ventures, Inc. (100%), Ideal Image of Wisconsin, LLC (100%), Ideal Image of Tennessee, LLC (100%), Ideal Image of FL, LLC (100%), Ideal Image of TX, LLC (100%), Ideal Image of NM, LLC (100%), Ideal Image of Idaho, LLC (100%), Ideal Image of Utah, LLC (100%), Ideal Image of Nevada, LLC (100%) and Ideal Image of NC, LLC (100%). All significant inter-company accounts and transactions have been eliminated. The non-controlling interest of Ideal Image Clinics of North Carolina LLC is immaterial and has not been separately presented in these financial statements.
In addition to the entities listed above, the consolidated financial statements include the operating results of Ideal Image Clinics, PLLC, Homansky Health Medical Group of Nevada, PC, Beyond Health Medical Group of North Carolina, Inc., Ideal Health Medical Group of Tennessee, LLC, and Ideal Health Medical Group of Wisconsin, LLC. The Company holds variable interests in, and is the primary beneficiary of expected gains and losses from, these entities. These entities were set up for licensing purposes. The Company bears the benefits and risks of loss from operating these entities. The assets and liabilities are not material to the financial statements.
Basis of Presentation of Interim Condensed Consolidated Financial Statements: The accompanying unaudited condensed consolidated financial statements for each period include the condensed consolidated balance sheets, statements of income and cash flows of the Company and its subsidiaries. All significant intercompany items and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to the SEC's rules and regulations. However, management believes that the disclosures contained herein are adequate to make the information presented not misleading. In the opinion of management, the unaudited condensed consolidated financial statements reflect all material adjustments (which include normal recurring adjustments) necessary to present fairly our unaudited financial position, results of operations and cash flows. The unaudited results of operations for the nine months ended September 30, 2011 and cash flows for the nine months ended September 30, 2011 are not necessarily indicative of the results of operations or cash flows that may be expected for the remainder of 2011. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto for the year ended December 31, 2010. The December 31, 2010 Consolidated Balance Sheet included herein was extracted from the December 31, 2010 audited Consolidated Balance Sheet.
IDEAL IMAGE DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Franchise Operations: The Company grants franchises to private operations in exchange for an initial franchise fee and receives royalties based on a percentage of net sales. Franchise fees are deferred and recognized as income when substantial performance of franchisor obligations is complete. The Company typically receives an initial franchise fee ranging from $35,000 to $50,000 and a comprehensive system fee ranging from $160,000 to $215,000 for each location. These initial fees are recognized as revenue, less any amounts associated with royalty holidays (see below), when substantially all the initial services required by the franchise agreement have been performed (typically when the location is opened).
Services provided by the Company under franchise agreements include providing standard construction plans, interior layouts, equipment, furnishings and signage specifications, site selection assistance and review of final construction plans, initial training and planning and developing pre-opening and promotional programs. The Company recognizes site equipment sales revenue upon delivery of the equipment to the franchisee.
Royalties, which are based on monthly sales, are recognized as income on the accrual basis. The Company recognizes ongoing franchise royalty fees under its 10-year franchise agreements of 9% of monthly franchisee sales. Estimates at the end of each period are made based on historical sales reported for each store.
Revenue Recognition - Clinic Operations: The Company recognizes clinic sales in relation to treatment packages sold at the company-owned clinic locations. The package provides for five initial treatments which occurs at ten week intervals, and allows for up to four additional treatments, as necessary, to obtain the desired results. Clinic sales revenue is recognized evenly over the average number of treatments provided. Remaining contractual revenue relating to unperformed services is included in Deferred Revenue on the balance sheet.
Deferred Revenue: Deferred revenue represents franchise fees and deposits of $500,000 at September 30, 2011, as well as remaining clinic contractual treatments of $66,002,106 for which payment has been received or a customer financing receivable recorded. Deferred revenues are net of deferred finance fees totaling $5,215,267. These fees will be recognized in income as services are performed.
Deferred Customer Acquisition Costs: Commission costs directly related to the acquisition of guest contracts are deferred and recognized over the five visits prescribed under the contract.
Concentration of Credit Risk: Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.
The Company maintains cash balances at several financial institutions in excess of the insurance limits provided by the Federal Deposit Insurance Corporation.
Funds in these institutions are federally-insured up to $250,000.Accountants Receivable: Accounts receivable consists of receivables due from franchisees for franchise and royalty fees and customer financing obligations for treatment contracts. Receivables related to customer financing obligations are typically less than the Company's related deferred revenue obligation with payments scheduled to occur in advance of the related treatments. Management performs ongoing credit evaluations of its franchisees and customer receivables and establishes an allowance for estimated bad debts when the potential for such uncollectible accounts becomes probable. Accounts receivable includes an allowance for doubtful accounts of approximately $490,000.
IDEAL IMAGE DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment: Property and equipment is recorded at cost. Depreciation is determined using the straight-line method over the estimated useful lives of the assets or the shorter of the lease term or useful life for leasehold improvements and assets subject to capital leases.
Goodwill: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment, and any such impairment is recognized in the period identified.
Intangibles: Intangibles represents reacquired rights to trade name under franchise agreements measured on the basis of remaining contractual terms of the related contracts and amortized over the remaining contractual period of the contract in which the right was granted.
Advertising: The Company expenses the costs of advertising as incurred. Advertising expense was approximately $9,135,000 for the period ended September 30, 2011.
Income Taxes: The Company files a consolidated federal income tax return that includes Ideal Image Development, Inc. and all of its subsidiaries. The Company's method for accounting for income taxes conforms to ASC Section 740, Accounting for Income Taxes. This method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting basis and tax basis of assets and liabilities. Valuation allowances, if any, are provided when a portion or all of a deferred tax asset may not be realized. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
The Company adopted guidance issued by the FASB with respect to accounting for uncertainty in income taxes as of January 1, 2009. A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The adoption had no effect on the Company's financial statements.
The Company and its subsidiaries are subject to U.S. federal income tax, as well as state income taxes in the respective states in which it operates in. The Company is no longer subject to examination by taxing authorities for years before December 31, 2007. The Company does not expect the total amount of unrecognized tax benefits to significantly change in the next 12 months.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company did not have any amounts accrued for interest and penalties at September 30, 2011.
Stock Based Compensation: The Company recognizes the cost of employee services received in exchange for awards of equity instruments based on the fair value of those awards. Compensation expense in future periods is based on managements' determination of the equity instruments' fair value at the grant date and allocated to expense ratably over the applicable vesting periods.
IDEAL IMAGE DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles 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 income and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates used in preparing these financial statements include those assumed in determining the allowance for doubtful accounts, the estimated useful lives of property and equipment, the deferred tax valuation allowance and the fair value assessment used for goodwill impairment testing.
In 2011, the Company centralized its call center operations in its corporate office. As a result, these costs, which approximate $2.8 million for the nine months ended September 30, 2011, have been recorded in operating expenses. In 2010, these costs were recorded in cost of revenues.
NOTE 2 - ACQUISITIONS
In order to facilitate the consistent operation and image of the Ideal Image brand, the Company has acquired a number of franchises from the franchisees. In 2010, the Company acquired three clinics due to defaults by the franchisees. As provided for in the applicable Franchise agreement, these clinics were acquired by the Company from the franchisee by assuming the franchisee's obligations for deferred revenue, debt, lease and other commitments while also taking ownership of the clinic's assets. Any unpaid royalties or other obligations of the franchisee to the Company were written-off and are included in bad debts expense in the accompanying Consolidated Statements of Income.
Each of these acquisitions has been accounted for as a purchase and, accordingly, the center's results of operations have been included in the accompanying consolidated financial statements since the respective acquisition dates. The purchase price for each acquisition was allocated to the fair value of assets acquired and liabilities assumed as follows:
The goodwill resulting from these acquisitions is associated primarily with the Company's market presence and leading position, growth opportunities in the markets which the Company operates, as well as the Company's experienced work forces and established operating infrastructures.
NOTE 3 - MANAGEMENTS' PLANS
The Company had net income for the period ended September 30, 2011 after incurring net losses in the previous three years which resulted in a shareholders' deficit position as of September 30, 2011. Losses were funded primarily through positive operating cash flow mainly from guest prepayments, as well as royalties from franchises. Management anticipates continued improvements in operations during fiscal year 2011 and beyond. Management acknowledges that improvement over the historical operating results is dependent upon the Company executing on their growth plan for additional clinic locations, as well as the Company owned clinics acquired in 2010 achieving expected sales volumes in 2011. Management currently expects that cash flows from operations will be sufficient to fund working capital required for operations and clinic expansions.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Operating Leases: The Company leases its corporate headquarters and office facilities under non-cancelable operating leases through 2016.
Total rent expense was approximately $2,640,000 for the period ended September 30, 2011.
Litigation: The Company is involved in various legal proceedings which are ordinary, routine proceedings incidental to the industry. Management believes that the ultimate resolution of the matters will not have a material effect on the Company's consolidated financial position, results of operations and cash flows.
IDEAL IMAGE DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
NOTE 5 - RELATED PARTY TRANSACTIONS
Several minority shareholders are clinic franchise owners. Royalty revenue and franchise fee revenue collected from shareholder owned clinics accounted for approximately 3% of total revenue for the period ended September 30, 2011. There were no receivables from shareholder owned clinics as of September 30, 2011.
NOTE 6 - SUBSEQUENT EVENTS
Management has performed an analysis of the activities and transactions subsequent to September 30, 2011 to determine the need for any adjustments to and/or disclosures within the financial statements for the period ended September 30, 2011. Management has performed their analysis through January 13, 2012, which is the date the financial statements were available to be issued.
On November 1, 2011, Steiner Leisure Limited (Acquirer) acquired of all of the issued and outstanding capital stock of the Company. The two Co-CEOs of the Company have agreed to continue in those roles.
The purchase price for this transaction was $175.0 million payable in cash at closing, and was paid from existing cash and through borrowings under the Acquirer's new Credit Facility. In addition, approximately $12.3 million in debt was repaid with proceeds from the acquisition transaction.