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8-K/A - 8-K/A - EPIQ SYSTEMS INCa12-5882_18ka.htm
EX-23.1 - EX-23.1 - EPIQ SYSTEMS INCa12-5882_1ex23d1.htm
EX-99.1 - EX-99.1 - EPIQ SYSTEMS INCa12-5882_1ex99d1.htm
EX-99.3 - EX-99.3 - EPIQ SYSTEMS INCa12-5882_1ex99d3.htm

Exhibit 99.2

 

DE NOVO LEGAL, LLC AND SUBSIDIARY

 

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

AND ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

 



 

DE NOVO LEGAL, LLC AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

AS OF SEPTEMBER 30, 2011 and 2010

(Dollars in thousands)

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

344

 

$

1,331

 

Accounts receivable

 

18,984

 

10,428

 

Prepaid expenses and other current assets

 

2,039

 

688

 

 

 

 

 

 

 

Total current assets

 

21,367

 

12,447

 

 

 

 

 

 

 

Equipment, furniture and improvements, net of accumulated depreciation

 

3,537

 

2,783

 

Due from members

 

7,363

 

3,488

 

Other assets

 

378

 

226

 

 

 

 

 

 

 

TOTAL

 

$

32,645

 

$

18,944

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

2,827

 

$

1,336

 

Notes payable - bank

 

7,770

 

5,605

 

Equipment leases payable (current portion)

 

1,223

 

815

 

 

 

 

 

 

 

Total current liabilities

 

11,820

 

7,756

 

 

 

 

 

 

 

Deferred rent payable

 

59

 

103

 

Deferred income taxes

 

532

 

362

 

Equipment leases payable (less current portion included above)

 

1,277

 

674

 

 

 

 

 

 

 

Total liabilities

 

13,688

 

8,895

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

MEMBERS’ CAPITAL

 

 

 

 

 

 

 

 

 

 

 

De Novo Legal, LLC

 

16,681

 

9,186

 

 

 

 

 

 

 

Noncontrolling interest in subsidiary

 

2,276

 

863

 

 

 

 

 

 

 

Total members’ capital

 

18,957

 

10,049

 

 

 

 

 

 

 

TOTAL

 

$

32,645

 

$

18,944

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

1



 

DE NOVO LEGAL, LLC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

(Dollars in thousands)

 

 

 

2011

 

2010

 

Net service revenues

 

 

 

$

47,369

 

 

 

$

30,776

 

 

 

 

 

 

 

 

 

 

 

Direct cost of services

 

 

 

24,333

 

 

 

19,146

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

23,036

 

 

 

11,630

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Payroll and payroll related

 

5,198

 

 

 

3,905

 

 

 

Rent, utilities, repairs and maintenance

 

1,485

 

 

 

1,371

 

 

 

Depreciation

 

1,270

 

 

 

562

 

 

 

Office expense

 

752

 

 

 

492

 

 

 

Insurance

 

432

 

 

 

385

 

 

 

Professional fees

 

398

 

 

 

338

 

 

 

Advertising, travel and entertainment

 

188

 

 

 

192

 

 

 

Other operating expenses

 

31

 

 

 

28

 

 

 

Bank fees

 

33

 

 

 

23

 

 

 

Interest

 

283

 

 

 

208

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

 

 

 

10,070

 

 

 

7,504

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and non controlling interest in subsidiary

 

 

 

12,966

 

 

 

4,126

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

511

 

 

 

240

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE NONCONTROLLING INTEREST IN SUBSIDIARY

 

 

 

12,455

 

 

 

3,886

 

 

 

 

 

 

 

 

 

 

 

Less: Net income attributable to noncontrolling interest in subsidiary

 

 

 

1,235

 

 

 

420

 

 

 

 

 

 

 

 

 

 

 

NET INCOME ATTRIBUTABLE TO DE NOVO LEGAL, LLC

 

 

 

$

11,220

 

 

 

$

3,466

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

2



 

DE NOVO LEGAL, LLC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 and 2010

 

(Dollars in thousands)

 

 

 

2011

 

2010

 

Cash flows from operating activities:

 

 

 

 

 

Income before noncontrolling interest in subsidiary

 

$

12,455

 

$

3,886

 

 

 

 

 

 

 

Adjustments to reconcile results of operations to net cash effect of operating activities:

 

 

 

 

 

Depreciation expense

 

1,270

 

562

 

Deferred income taxes

 

 

(105

)

Net change in asset and liability accounts:

 

 

 

 

 

Accounts receivable

 

(7,357

)

(2,069

)

Other assets

 

(149

)

(15

)

Prepaid expenses and other current assets

 

(940

)

155

 

Accounts payable and accrued expenses

 

1,375

 

760

 

Net Cash provided by operating activities

 

6,654

 

3,174

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Purchase of fixed assets

 

(10

)

(260

)

Net Cash used by investing activities

 

(10

)

(260

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Distributions to members

 

(7,466

)

(3,196

)

Payments under capital lease obligations

 

(1,076

)

(794

)

Proceeds from bank note payable, net

 

1,925

 

2,325

 

Net Cash used by Financiang activities

 

(6,617

)

(1,665

)

 

 

 

 

 

 

Net increase in cash

 

27

 

1,249

 

 

 

 

 

 

 

Cash, beginning balance

 

317

 

82

 

 

 

 

 

 

 

Cash, ending balance

 

$

344

 

$

1,331

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

3



 

DE NOVO LEGAL, LLC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS’ CAPITAL (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 and 2010

(Dollars in thousands)

 

 

 

 

 

 

 

Noncontrolling

 

 

 

 

 

De Novo

 

Interest in

 

 

 

Combined

 

Legal, LLC

 

Subsidiary

 

 

 

 

 

 

 

 

 

Members’ capital - January 1, 2010

 

$

13,968

 

$

12,927

 

$

1,041

 

 

 

 

 

 

 

 

 

Net income

 

12,455

 

11,220

 

1,235

 

 

 

 

 

 

 

 

 

Less: distributions

 

(7,466

)

(7,466

)

 

 

 

 

 

 

 

 

 

Members’ capital - September 30, 2011

 

$

18,957

 

$

16,681

 

$

2,276

 

 

 

 

 

 

 

 

Noncontrolling

 

 

 

 

 

De Novo

 

Interest in

 

 

 

Combined

 

Legal, LLC

 

Subsidiary

 

 

 

 

 

 

 

 

 

Members’ capital - January 1, 2009

 

$

9,359

 

$

8,916

 

$

443

 

 

 

 

 

 

 

 

 

Net income

 

3,886

 

3,466

 

420

 

 

 

 

 

 

 

 

 

Less: distributions

 

(3,196

)

(3,196

)

 

 

 

 

 

 

 

 

 

Members’ capital - September 30, 2010

 

$

10,049

 

$

9,186

 

$

863

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

4



 

De Novo Legal, LLC and Subsidiary

 

Notes to Condensed Consolidated Financial Statements

 

Unaudited

(Dollars in thousands)

 

Note A — Summary of Significant Accounting Policies

 

Operations

 

The condensed consolidated financial statements include the accounts of De Novo Legal, LLC and De Novo Legal Electronic Discovery, LLC, which is 85% owned by De Novo Legal, LLC and 15% owned by an individual member of De Novo Legal, LLC.  All significant intercompany transactions and balances have been eliminated in combination.  These unaudited financial statements should be read in conjunction with the consolidated financial statements and related notes included in the 2010 audited financial statements of De Novo Legal, LLC and Subsidiary.

 

De Novo Legal, LLC is in the business of providing temporary legal staffing to local and regional law firms and corporations in New York, Atlanta, Houston, San Francisco, Los Angeles, Boston and the District of Columbia.

 

De Novo Electronic Discovery, LLC is in the business of providing electronic discovery services which include processing and hosting legal data from two co-locations in Hawthorne, New York and San Jose, California.

 

Noncontrolling Interest in Subsidiary

 

The Company presents the 15% interest in De Novo Electronic Discovery, LLC, which is not directly owned by De Novo Legal, LLC, in accordance with the provisions of the Financial Accounting Standards Board’s Accounting Standards Codification Topic 810 — “Consolidation” which requires that the portion of net income attributable to noncontrolling interests for subsidiaries be presented separately as net income (loss) attributable to non controlling interests on the consolidated statement of operations, and the portion of the members’ equity of such subsidiaries be presented as noncontrolling interests on the consolidated balance sheet.

 

Revenue Recognition

 

Revenue is recognized when the services are performed and there are no significant uncertainties concerning collection of the related receivables.

 

5



 

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents.  The Company maintains its cash balances at one financial institution.

 

Accounts Receivable

 

The Company extends credit based on a valuation of its clients’ financial condition.  Management believes that all accounts as of September 30, 2011 and 2010 are fully collectable.  Therefore, no allowance for doubtful accounts was deemed required as of September 30, 2011 or 2010.

 

Depreciation

 

Depreciation of equipment, furniture and leasehold improvements is computed on a straight-line basis for financial accounting purposes.  Leasehold improvements are amortized over the remaining life of the lease and equipment and furniture are depreciated over their estimated useful life.

 

Advertising

 

Advertising costs are expensed as incurred.  For the nine months ended September 30, 2011 and 2010, advertising expense was approximately $93 and $66 , respectively.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States 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 revenue and expenses during the reporting period.  Actual results could differ from those estimates.

 

NOTE B — Commitments and Contingencies

 

Rent

 

The Company’s principle premises are sublet from an unrelated party to October 31, 2011, at an annual rental of approximately $415 plus overtime charges.

 

In addition, the Company sublets or leases space from unrelated parties in various other locations.  See Note A for further discussion of Company locations.

 

Certain of the above-mentioned leases have rentals which increase over their term.  The rentals under these leases are recorded for financial accounting purposes on a straight-line basis.  As of September 30, 2011 and 2010, future rentals of approximately $59 and $103, respectively, have been reflected as a noncurrent liability in the attached balance sheets.  This noncurrent liability

 

6



 

for rent payable will be reduced in future periods to the extent that the minimum rentals payable in those years exceeds the average net expense recorded on a straight-line basis.

 

Rent expense was approximately $1,311 and $1,239 for the nine months ended September 30, 2011 and 2010, respectively.

 

Software License Agreement

 

In December 2010, the Company entered into a software license agreement for a period of three years, commencing January 1, 2011, requiring a minimum annual payment of $680 plus monthly fees for usage in excess of stipulated amounts.  As of September 30, 2011, the Company has prepaid approximately $162 of the fee due under the license agreement.

 

NOTE C — Bank Loans Payable

 

Outstanding loans as of September 30, 2011 are comprised of borrowings under a $10,000 line of credit which expires in June 2012.  Borrowings are limited based on a defined borrowing base calculation.  The note bears interest at various interest rates linked to either the prime rate or LIBOR as defined at the dates of the various borrowings.  The weighted-average interest rate at September 30, 2011 was 3.78%.  The advances are collateralized by the Company’s assets not otherwise pledged.  The loans contain a subjective acceleration clause, which allows the bank to call the loans if a material adverse change occurs.

 

NOTE D — Equipment Leases Payable

 

The Company leases certain equipment under capital leases, with interest rates ranging from approximately 1.3% to 20.6% a year, payable in monthly install

 

7