Attached files
file | filename |
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8-K/A - 8-K/A - SYNALLOY CORP | a2013826138kacri.htm |
EX-99.3 - EXHIBIT 99.3 - SYNALLOY CORP | exhibit993.htm |
EX-23.2 - EXHIBIT 23.2 - SYNALLOY CORP | exhibit232.htm |
EX-23.1 - EXHIBIT 23.1 - SYNALLOY CORP | exhibit231.htm |
EX-99.4 - EXHIBIT 99.4 - SYNALLOY CORP | exhibit994.htm |
EX-99.2 - EXHIBIT 99.2 - SYNALLOY CORP | exhibit992.htm |
Exhibit 99.1
Color Resources, LLC Financial Statements and Supplementary Information Year Ended December 31, 2011 with Independent Auditors' Report |
COLOR RESOURCES, LLC
CONTENTS
December 31, 2011
Page | ||
INDPENDENT AUDITORS' REPORT | 1 | |
FINANCIAL STATEMENTS | ||
Balance Sheet | 2 | |
Statement of Operations | 3 | |
Statement of Changes in Redeemable Members' Equity | 4 | |
Statement of Cash Flows | 5 | |
Notes to Financial Statements | 6-13 | |
INDEPENDENT AUDITORS' REPORT ON | ||
SUPPLEMENTARY INFORMATION | 14 | |
SUPPLEMENTARY INFORMATION | ||
Statement of Income from Operations | 15 | |
Supporting Schedules: | ||
Cost of Goods Sold | 16 | |
Direct Labor | 16 | |
Selling Expenses | 17 | |
General and Administrative Expenses | 17 | |
Statement of Adjusted Earnings Before Interest, | ||
Income Taxes, Depreciation and Amortization | 18 |
Independent Auditors' Report on Supplementary Information
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Color Resources, LLC:
We have audited the accompanying balance sheet of Color Resources, LLC as of December 31, 2011, and the related statements of operations, changes in redeemable members' equity, and cash flows for the year 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 audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Color Resources, LLC as of December 31, 2011, and the results of its operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Other Matter Regarding Retrospective Reclassifications
As As discussed in Note 1 to the financial statements, certain retrospective reclassifications have been recorded to previously issued financial statements to classify members' equity (deficit) as redeemable members' equity (deficit) in accordance with the provisions of Securities and Exchange Commission Regulation S-X.
/s/ Rosen Seymour Shapss Martin & Company LLP
Rosen Seymour Shapss Martin & Company LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
February 23, 2012
(Except for Notes 1, 9 and 11 as to which the date is September 11, 2013)
Color Resources, LLC | ||||
Balance Sheet | ||||
December 31, 2011 | ||||
Assets | ||||
Current assets: | ||||
Cash | $ | 224,246 | ||
Accounts receivable | 1,019,985 | |||
Inventory | 594,146 | |||
Prepaid expenses and other current assets | 155,059 | |||
Total current assets | 1,993,436 | |||
Property and equipment, net | 854,347 | |||
Other assets: | ||||
Deferred financing costs, net | 181,200 | |||
Goodwill | 3,844,928 | |||
Intangible assets, net | 2,292,774 | |||
Total other assets | 6,318,902 | |||
Total assets | $ | 9,166,685 | ||
Liabilities and Redeemable Members’ Equity | ||||
Current liabilities: | ||||
Accounts payable | $ | 359,279 | ||
Accrued expenses and other current liabilities | 206,324 | |||
Current portion of long-term debt | 1,397,225 | |||
Total current liabilities | 1,962,828 | |||
Long-term liabilities: | ||||
Long-term debt, net of current portion | 4,935,457 | |||
Accrued management and board fees | 606,250 | |||
Deferred compensation payable | 52,407 | |||
Deferred rent payable | 341,452 | |||
Total long-term liabilities | 5,935,566 | |||
Total liabilities | 7,898,394 | |||
Commitments and contingencies | ||||
Redeemable members’ equity | 1,268,291 | |||
Total liabilities and redeemable members’ equity | $ | 9,166,685 |
The accompanying notes are an integral part of these financial statements.
2
Color Resources, LLC | |||
Statement of Operations | |||
Year Ended December 31, 2011 | |||
Net sales | $ | 7,200,215 | |
Cost of sales | 4,849,071 | ||
Gross profit | 2,351,144 | ||
Operating expenses: | |||
Selling | 113,521 | ||
General and administrative | 1,584,437 | ||
Depreciation and amortization | 371,172 | ||
Total operating expenses | 2,069,130 | ||
Income from operations | 282,014 | ||
Other expenses: | |||
Interest expense | 442,094 | ||
Management and board fees | 200,000 | ||
Total other expenses | 642,094 | ||
Net loss | $ | (360,080 | ) |
The accompanying notes are an integral part of these financial statements.
3
COLOR RESOURCES, LLC | |||
Statement of Changes in Redeemable Members' Equity* | |||
Year Ended December 31, 2011 | |||
Redeemable Members' Equity | |||
Balance at January 1, 2011 | $ | 1,128,371 | |
Issuance of membership units | 500,000 | ||
Net loss | (360,080 | ) | |
Balance at December 31, 2011 | $ | 1,268,291 |
* All members' equity is redeemable, therefore there is no non-redeemable members' equity.
The accompanying notes are an integral part of these financial statements.
4
Color Resources, LLC | |||
Statement of Cash Flows | |||
December 31, 2011 | |||
Cash flows from operating activities: | |||
Net loss | $ | (360,080 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||
Depreciation and amortization | 371,172 | ||
Deferred rent payable | 65,369 | ||
Changes in operating assets and liabilities: | |||
Accounts receivable | 294,580 | ||
Inventory | 284,771 | ||
Prepaid expenses and other current assets | (84,859 | ) | |
Accounts payable | (433,377 | ) | |
Accrued management and board fee | 200,000 | ||
Accrued expenses and other current liabilities | 42,554 | ||
Deferred compensation payable | (1,096 | ) | |
Net cash provided by operating activities | 379,034 | ||
Cash flows from investing activities: | |||
Purchases of property and equipment | (154,172 | ) | |
Net cash used in investing activities | (154,172 | ) | |
Cash flows from financing activities: | |||
Proceeds from issuance of senior series A preferred units | 500,000 | ||
Deferred financing costs | (134,089 | ) | |
Repayments of long-term debt | (513,422 | ) | |
Net cash used in financing activities | (147,511 | ) | |
Net increase in cash | 77,351 | ||
Cash: | |||
Beginning of year | 146,895 | ||
End of year | $ | 224,246 | |
Supplemental disclosure of cash flow information: | |||
Cash paid during the year for interest | $ | 444,377 | |
Non-cash investing activities: | |||
Equipment acquired under financing agreements | $ | 104,612 |
The accompanying notes are an integral part of these financial statements.
5
COLOR RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2011
1. | Summary of Significant Accounting Policies |
Nature of Operations
Color Resources, LLC (the “Company”) is a toll manufacturer and custom processor of dyes, pigments and chemicals for use in a wide range of specialty chemical industries. The Company sells its products and services primarily to multinational dyestuff and colorant companies. Most of the Company's products are sold in the United States.
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.
Concentration of Credit Risk
The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation up to $250,000. The bank balances, at times, exceed federal insured limits.
The Company has not experienced any losses to date on such accounts and management believes that there is very little risk of loss.
Accounts Receivable
Accounts receivable is reported net of an allowance for doubtful accounts. The allowance is based on management's estimate of the amount of receivables that will actually be collected after analyzing the credit worthiness of its customers and historical experience, as well as the prevailing business and economic environment. Accounts are written off when significantly past due and after exhaustive efforts at collection. There was no allowance of doubtful accounts recorded at December 31, 2011, based upon management's assessment of collectability.
Inventory
Inventory is valued at the lower of cost or market. Cost is determined on a first-in first-out basis by using moving weighted average cost.
Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, which range from five to fifteen years. Improvements to leased premises are amortized over the lesser of their estimated useful lives or the remaining lease terms. Expenditures for maintenance and repairs are charged to expense as incurred. When equipment is retired or otherwise disposed of, the cost and related accumulated depreciation is removed from the accounts and the resulting gain or loss is recognized.
Deferred Financing Costs
Deferred financing costs are being amortized ratably over the life of the respective debt.
Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite lives are not amortized, but instead are reviewed for impairment at least annually. Management determined that there has been no impairment of the carrying values after performing its most recent annual review.
6
COLOR RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2011
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the net carrying amount may not be recoverable. When such events occur, the Company measures impairment by comparing the carrying value of each group of assets that generates cash flows, with the estimated present value of the corresponding cash flows. If the expected present value of the future cash flows is less than the carrying amount of the asset group, the Company would recognize an impairment loss. Management has reviewed the Company's long-lived assets and believes that there has been no impairment.
Deferred Rent Payable
Deferred rent payable represents the excess of recognized rental expense over scheduled operating lease facility payments. This amount will be credited to future operations.
Revenue Recognition
The Company recognizes service based revenue in the period services are performed under tolling arrangements. The Company recognizes revenue on dye, pigment, and chemical products upon delivery to the customer in accordance with shipping terms.
Shipping and Handling
Shipping and handling expenses, included in general and administrative expenses, were approximately $8,000 for the year ended December 31, 2011.
Advertising Costs
Advertising costs are charged to expense as incurred. For the year ended December 31, 2011, advertising expense was approximately $26,000.
Research and Development Costs
Research and development expenditures, which are expensed as incurred, totaled approximately $1,000 during the year ended December 31, 2011.
Income Taxes
The Company is organized as a limited liability company and has elected to be treated as a partnership for federal and state income tax purposes. Accordingly, the results of operations of the Company are reported on the individual tax returns of the members.
Although the Company's income or loss is taxed directly to the members, the effects of an uncertain tax position, if any, may have an impact on the tax return of the member. Therefore, generally accepted accounting principles in the United States (“GAAP”) require that any such effects be recognized based on the outcome that is more likely than not to occur. Under this criterion the most likely resolution of an uncertain tax position should be analyzed based on technical merits and on the outcome that will likely be sustained under examination. As of December 31, 2011, the Company does not believe it has any uncertain tax positions that would qualify for either recognition or disclosure in the financial statements.
The Company's income tax returns for the years 2009 through 2011 are subject to federal and state income tax examination by the authorities.
Retrospective Reclassifications
Previously issued financial statements prepared in accordance with GAAP treated members' equity (deficit) as equity, however, the Securities and Exchange Commission Regulation S-X requires that equity with redemption features outside of the control of the Company be classified as redeemable equity. Changes to the financial statements have been made to retrospectively reclassify members' equity (deficit) as redeemable members' equity (deficit) in accordance with the provisions of Regulation S-X.
7
COLOR RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2011
2. | Inventory |
Inventory at December 31, 2011 is summarized as follows:
Raw materials | 412,240 | ||
Work in process | 13,935 | ||
Finished Goods | 167,971 | ||
$ | 594,146 |
3. | Property and Equipment |
Property and equipment at December 31, 2011 is summarized as follows:
Leasehold improvements | $ | 371,500 | |
Furniture and fixtures | 25,106 | ||
Equipment | 721,474 | ||
1,118,080 | |||
Less accumulated depreciation and amortization | 263,733 | ||
$ | 854,347 |
4. | Deferred Financing Costs |
Deferred financing costs related to the long-term debt at December 31, 2011 are being amortized over the terms of the loans and are as follows:
Deferred financing costs | $ | 413,790 | |
Less accumulated amortization | 232,590 | ||
$ | 181,200 |
5. | Intangible Assets |
Intangible assets and goodwill at December 31, 2011 are summarized as follows:
Intangible assets subject to amortization: | |||
Customer list | $ | 3,237,200 | |
Less accumulated amortization | 944,426 | ||
2,292,774 | |||
Intangible assets not subject to amortization: | |||
Goodwill | 3,844,928 | ||
$ | 6,137,702 |
8
COLOR RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2011
The Company has determined that its goodwill and customer list did not become impaired during the year ended December 31, 2011.
The useful life of the customer list is estimated to be fifteen years. Estimated amortization expense (based on existing intangible assets) for each of the years ending December 31, 2012, 2013, 2014, 2015, and 2016 amounts to $182,207.
6. | Long-Term Debt |
At December 31, 2011 long-term debt is summarized as follows:
Revolving credit facility (i) | $ | 655,000 | |
Term loan (i) | 5,583,316 | ||
Equipment note payable (ii) | 71,685 | ||
Term loan – related party (iii) | 22,681 | ||
6,332,682 | |||
Less current portion | 1,397,225 | ||
$ | 4,935,457 |
(i) | In July 2008, the Company entered into a five-year loan and security agreement with a financial institution. The agreement provided for (a) a three-year revolving line of credit of up to $1,000,000, and (b) a five-year term loan of $8,250,000. On September 30, 2011, the Company entered into a forbearance agreement with the same financial institution due to the failure to pay certain monthly installments under the term loan arrangement. The agreement, which specifies a forbearance period commencing on July 1, 2011 and ending on August 15, 2012, amends the loan and security agreement as follows: |
1. | The revolving credit commitment expired, effective July 23, 2011. The outstanding balance is to be paid on the last day of the forbearance period. Interest is charged at the annual rate of 6% during the forbearance period. Any unpaid balance at the end of the forbearance period is subject to an annual interest rate equal to the greater of (i) the Base Rate plus 1% percent, or (ii) 6%. |
If, at the end of the forbearance period, the Company is in compliance with all terms of the agreement, the revolving commitment will be automatically reinstated and be effective until July 24, 2013, whereupon any outstanding balance is to be repaid.
2. The outstanding term loan balance is to be repaid in installments, as follows:
a. Three installments of principal, paid on the first day of February, March and April 2012, in the amount of $25,000 each, plus unpaid interest.
b. | Two installments of principal, paid on the first day of May and June 2012, in the amount of $50,000 each, plus unpaid interest. |
c. | One installment of principal, paid on the first day of July 2012, in the amount of $75,000, plus unpaid interest. |
d. | Eleven consecutive monthly installments of principal and interest, paid on the first day of each month, commencing with August 2012, in the amount of $121,115. |
e. | A final installment, paid in June 2013 (the term loan maturity date) for the remaining principal balance, plus unpaid interest. |
Interest on the term loan is charged at the annual rate of 7%.
9
COLOR RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2011
3. | The Company is required to make an additional cash investment of at least $500,000, as either a capital contribution or a subordinated loan. |
4. | The forbearance agreement requires the Company to meet certain financial covenants, as defined. In addition, the Company is restricted from making payments related to member distributions, management and board fees and subordinated indebtedness. |
5. The members are required to pledge 100% of the voting capital stock to the financial institution, as collateral.
(ii) | In June 2011, the Company entered into an agreement with a finance company to purchase equipment. The note, which has a maturity date of June 2014, bears an annual interest rate of 13.6% and requires monthly principal and interest payments of $2,716. The note is collateralized by the purchased equipment. |
(iii) | In December 2011, the Company entered into a two year term loan with a related party in the amount of $22,681. The loan carries an interest rate of 6% per annum. Repayment consists of twenty four equal monthly payments of principal and interest of approximately $1,000. |
Future maturities of long-term debt are as follows for the years ending December 31:
2012 | $ | 1,397,225 | |
2013 | 4,935,457 | ||
$ | 6,332,682 |
Interest expense on long-term debt for the year ended December 31, 2011 amounted to $442,094.
7. | Commitments |
Operating Leases
The Company entered into a five year lease agreement in July 2008 for its manufacturing facility with a Company owned by a related party. The lease agreement provides for two optional extension terms of five years each, which renew automatically unless the Company gives at least 180 days' written notice prior to the expiration of the lease. The Company is required to pay a portion of the real estate taxes under the terms of the lease. The lease currently requires payments of approximately $400,000 per annum, payable monthly.
The following is a schedule of future minimum lease payments required under the Company's non-cancellable operating leases as of December 31, 2011:
Year Ending | |||
December 31, | Amount | ||
2012 | $ | 406,777 | |
2013 | 427,115 | ||
2014 | 448,471 | ||
2015 | 470,895 | ||
2016 | 494,439 | ||
Thereafter | 1,980,082 | ||
$ | 4,227,779 |
Rent expense amounted to $454,867 for the year ended December 31, 2011.
10
COLOR RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2011
8. | Related Party Transactions |
Employment Agreements
The Company entered into five-year employment agreements with two members of the Company. Agreements for the Company's Chief Executive Officer and Chief Financial Officer provide for annual base salaries, bonuses and certain benefits, perquisites, and expense reimbursements, as defined.
The Company owes deferred compensation totaling approximately $52,000 as of December 31, 2011, to the above two members of the Company. These members elected to defer payment of compensation earned for several periods during 2010 and 2009 until a future date yet to be determined by the Company.
Management and Board Fees
Compensation arrangements for management and Board of Directors services were entered into with several individuals who are also equity owners of the Company. The arrangements provide for aggregate annual compensation of $200,000 per year, to be paid on a quarterly basis. The Board elected to defer payment of compensation earned for 2011 until a future date yet to be determined by the Company. Management and board fee expense for the year ended December 31, 2011 was $200,000.
9. | Redeemable Members' Equity |
As of December 31, 2011, members' equity consisted of the following classes:
Units | Units | |||||
Class | Authorized | Issued | ||||
Class A Common Units | 9,500 | 9,500 | ||||
Class B Restricted Common Units | 500 | 30 | ||||
Series A Preferred Units | 4,250 | 4,250 | ||||
Senior Series A Preferred Units | 500 | 500 |
Class A Common Units
Class A Common Units have full voting rights.
Beginning July 23, 2013 and for a two year period thereafter, the previous owners may petition the Company to redeem Class A Common Units held by them, upon written notice to the Company (“Put Notice”). The “Put Price” to redeem the Class A Common Units is the numerator which is the difference between (i) the sum of (A) the product of five multiplied by the Company's adjusted EBITDA for the trailing 12-month period ending on such redemption date, and (ii) the sum of (A) all indebtedness of the Company as of the redemption date, and (B) all amounts owed on accounts of the Series A Preferred units and accrued Preferred Dividends on the redemption date; and the denominator of which is the aggregate number of Common Units outstanding.
Any redemption request that is approved by a majority of the Board of Directors is to be fulfilled within nine months of the delivery of the Put Notice to the Company. However, redemptions must also be approved by the lending institution. In the event of such a deferral the aggregate Put Price payable that is related to the redemption requested is to be accrued at an annual rate of 12%, compounded quarterly, for the period from nine months after delivery of the Put Notice until the related Class A Common Units are redeemed in full.
Class B Restricted Common Units
Class B Restricted Common Units have no voting rights and are reserved for issuance to managers, officers, directors, employees, consultants and advisors of the Company. Units are shown as issued when vested. Vesting is determined on an individual grant basis.
11
COLOR RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2011
Series A Preferred Units
Series A Preferred Units have no voting rights and its holders are entitled to preferential distributions. Dividends accrue cumulatively at an annual rate of 8% of each $1,000 Series A Preferred Unit with interest compounding annually. Series A Preferred Dividends shall be payable quarterly in arrears, when as declared by the Board of Managers, on the last business day of March, June, September and December (“Dividend Payment Date”). In the event that Series A Preferred Dividends are not paid, in whole or in part on a Dividend Payment Date and for 10 days thereafter, the dividend rate shall increase to an annual rate of 10%, until the defaulted dividends are paid in full.
Senior Series A Preferred Units
Senior Series A Preferred Units have no voting rights and its holders are entitled to preferential distributions over holders of the Series A Preferred Units and the Common Units. Dividends accrue cumulatively at an annual rate of 15% of each $1,000 Senior Series A Preferred Unit with interest compounding quarterly. Senior Series A Preferred Dividends shall be payable only when and as declared by the Board of Managers and when approved by the holders of a majority of the Senior Series A Preferred units.
Liquidation Preferences
In the event of any liquidation, dissolution or winding up of the Company, including, without limitation, a sale or recapitalization of the Company (a "Liquidation Event"), whether voluntary or involuntary, the holders of Senior Series A Preferred Units shall be entitled to receive, prior and in preference to any payment or distribution of any of the assets of the Company to the holders of Series A Preferred Units and Common Units, by reason of their ownership thereof, and without duplication of any redemption payments, an amount per Senior Series A Preferred Unit equal to (a) $1,000 plus (b) accrued and unpaid Senior Series A Preferred Dividends as of the date of the Liquidation Event (the "Senior Series A Liquidation Preference"). Upon the payment in full of the Senior Series A Liquidation Preference, the holders of Series A Preferred Units shall be entitled to receive, prior and in preference to any payment or distribution of any of the assets of the Company to the holders of Common Units, by reason of their ownership thereof, and without duplication of any redemption payments, an amount per Series A Preferred unit equal to (a) $1,000 plus (b) accrued and unpaid Series A Preferred Dividends as of the date of the Liquidation Event and (c) all accrued and unpaid Default Series A Preferred Dividends as of the date of the Liquidation Event (the "Series A Liquidation Preference") Upon the payment in full of the Senior Series A Liquidation Preference and the Series A Liquidation Preference, all remaining assets available for distribution shall be distributed to the holders of the Common Units based on their pro rata ownership of the issued and outstanding Common Units.
Redemption Rights
Beginning July 23, 2013 or upon a Liquidation Event, the Series A Preferred Units and Senior Series A Preferred Units may be redeemed at any time and from time to time, in whole or in part, by the Company without penalty, provided that an equal proportion of the outstanding Series A Preferred Units and Senior Series Preferred A Units is redeemed as between the members holding the Series A Preferred Units and Senior Series Preferred A Units. Such redemptions must also be approved by the lending institution. The redemption price payable to each holder of Series A Preferred Units and Senior Series Preferred A units shall be equal to the Series A Liquidation Preference.
At December 31, 2011 the amount of the unpaid cumulative dividend relating to Series A Preferred Units and Senior Series A Preferred Units totaled approximately $1,486,000. This amount will be recorded when declared by the Board of Managers.
10. | Economic Dependence |
Major Customers
For the year ended December 31, 2011, two customers accounted for approximately 61% of the Company's net sales. As of December 31, 2011, one customer accounted for approximately 48% of the Company's outstanding accounts receivable.
Major Vendors
For the year ended December 31, 2011, five vendors accounted for approximately 60% of the Company's purchases. As of December 31, 2011, three vendors accounted for approximately 67% of the Company's accounts payable.
12
COLOR RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2011
11. | Subsequent Events |
The Company has evaluated its subsequent events through February 23, 2012 (except for Notes 1 and 9 as to which the date is September 11, 2013) the date that the accompanying financial statements were available to be issued. The Company had no material subsequent events requiring disclosure.
13
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Color Resources, LLC:
Our report on the audit of the basic financial statements of Color Resources, LLC for the year ended December 31, 2011 appears on page 1. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
/s/ Rosen Seymour Shapss Martin & Company LLP
Rosen Seymour Shapss Martin & Company LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
February 23, 2012
14
COLOR RESOURCES, LLC | ||||||
SUPPLEMENTARY FINANCIAL DATA | ||||||
STATEMENT OF INCOME FROM OPERATIONS | ||||||
YEAR ENDED DECEMBER 31, 2011 | ||||||
Amount | % | |||||
Net sales | $ | 7,200,215 | 100.0 | |||
Cost of goods sold | 4,849,071 | 67.2 | ||||
Gross profit | 2,351,144 | 32.8 | ||||
Operating expenses: | ||||||
Selling | 113,521 | 1.6 | ||||
General and administrative | 1,584,437 | 22.0 | ||||
Depreciation and amortization | 371,172 | 5.1 | ||||
Total operating expenses | 2,069,130 | 28.7 | ||||
Income from operations | $ | 282,014 | 4.0 |
See independent auditors' report on supplementary information.
15
COLOR RESOURCES, LLC | |||||
SUPPLEMENTARY FINANCIAL DATA | |||||
SUPPORTING SCHEDULES | |||||
YEAR ENDED DECEMBER 31, 2011 | |||||
SCHEDULE OF COST OF GOODS SOLD | |||||
Amount | % | ||||
Inventory – beginning | $ | 878,917 | 12.2 | ||
Purchases | 3,551,849 | 49.3 | |||
Direct labor | 694,997 | 9.6 | |||
Insurance – liability and property | 74,514 | 1.0 | |||
Equipment repairs and maintenance | 95,211 | 1.3 | |||
Waste disposal/inceneration | 7,466 | 0.1 | |||
Equipment rental | 21,325 | 0.3 | |||
Uniform services | 7,219 | 0.1 | |||
Outside contractors | 18,221 | 0.3 | |||
Supplies | 73,053 | 1.0 | |||
Freight-in | 20,445 | 0.3 | |||
5,443,217 | 75.5 | ||||
Less inventory – ending | 594,146 | 8.3 | |||
$ | 4,849,071 | 67.2 | |||
SCHEDULE OF DIRECT LABOR | |||||
Salaries – grinding | $ | 186,402 | 2.6 | ||
Salaries – customer service | 129,763 | 1.8 | |||
Salaries – liquid mixing | 124,984 | 1.7 | |||
Salaries – lab | 60,946 | 0.8 | |||
Salaries – warehouse | 69,112 | 1.0 | |||
Salaries – maintenance | 78,000 | 1.1 | |||
Temporary services | 45,790 | 0.6 | |||
$ | 694,997 | 9.6 |
See independent auditors' report on supplementary information.
16
COLOR RESOURCES, LLC | ||||||
SUPPLEMENTARY FINANCIAL DATA | ||||||
SUPPORTING SCHEDULES | ||||||
YEAR ENDED DECEMBER 31, 2011 | ||||||
SCHEDULE OF SELLING EXPENSES | ||||||
Amount | % | |||||
Travel | $ | 44,582 | 0.6 | |||
Meals and entertainment | 11,846 | 0.2 | ||||
Commissions | 28,054 | 0.4 | ||||
Marketing and advertising | 26,376 | 0.4 | ||||
Freight-out | 2,663 | 0.0 | ||||
$ | 113,521 | 1.6 | ||||
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES | ||||||
Salaries – officers | $ | 154,798 | 2.2 | |||
Salaries – office | 282,058 | 3.9 | ||||
Payroll taxes | 87,872 | 1.2 | ||||
Employee insurance | 88,971 | 1.2 | ||||
Officers and employee life insurance | 10,394 | 0.1 | ||||
Professional fees | 161,262 | 2.2 | ||||
Security services | 15,200 | 0.2 | ||||
Rent | 454,867 | 6.4 | ||||
Education and career development | 2,518 | 0.0 | ||||
Repairs and maintenance | 5,953 | 0.1 | ||||
Utilities | 166,835 | 2.4 | ||||
Office expenses | 12,773 | 0.2 | ||||
Real estate taxes | 39,482 | 0.5 | ||||
Computer supplies | 5,022 | 0.1 | ||||
Safety/medical supplies | 1,050 | 0.0 | ||||
Telephone | 16,195 | 0.2 | ||||
Safety awards | 37,688 | 0.5 | ||||
Landscaping | 13,020 | 0.2 | ||||
Bank charges | 2,731 | 0.0 | ||||
Postage and freight | 8,107 | 0.1 | ||||
Dues and subscriptions | 11,642 | 0.2 | ||||
Licenses and taxes | 2,027 | 0.0 | ||||
Miscellaneous | 3,972 | 0.1 | ||||
$ | 1,584,437 | 22.0 |
See independent auditors' report on supplementary information.
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COLOR RESOURCES, LLC | |||
SUPPLEMENTARY FINANCIAL DATA | |||
STATEMENT OF ADJUSTED EARNINGS BEFORE INTEREST, INCOME TAXES, | |||
DEPRECIATION AND AMORTIZATION | |||
YEAR ENDED DECEMBER 31, 2011 | |||
Statement of Adjusted EBITDA | |||
Net loss | $ | (360,080 | ) |
Interest expense | 442,094 | ||
Depreciation and amortization | 371,172 | ||
Deferred (non-cash) rent | 65,369 | ||
Accrued management and board fees | 200,000 | ||
Capital contribution by members | 500,000 | ||
Adjusted EBITDA | $ | 1,218,555 |
See independent auditors' report on supplementary information.
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