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 |
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Current assets: |
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|
|
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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 |
| ||
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|
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TOTAL |
| $ | 32,645 |
| $ | 18,944 |
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LIABILITIES |
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Current liabilities: |
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Accounts payable and accrued expenses |
| $ | 2,827 |
| $ | 1,336 |
|
Notes payable - bank |
| 7,770 |
| 5,605 |
| ||
Equipment leases payable (current portion) |
| 1,223 |
| 815 |
| ||
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|
|
|
|
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Total current liabilities |
| 11,820 |
| 7,756 |
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Deferred rent payable |
| 59 |
| 103 |
| ||
Deferred income taxes |
| 532 |
| 362 |
| ||
Equipment leases payable (less current portion included above) |
| 1,277 |
| 674 |
| ||
|
|
|
|
|
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Total liabilities |
| 13,688 |
| 8,895 |
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Commitments and contingencies |
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MEMBERS’ CAPITAL |
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De Novo Legal, LLC |
| 16,681 |
| 9,186 |
| ||
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|
|
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Noncontrolling interest in subsidiary |
| 2,276 |
| 863 |
| ||
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|
|
|
|
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Total members’ capital |
| 18,957 |
| 10,049 |
| ||
|
|
|
|
|
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TOTAL |
| $ | 32,645 |
| $ | 18,944 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
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 |
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|
| $ | 47,369 |
|
|
| $ | 30,776 |
| |
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Direct cost of services |
|
|
| 24,333 |
|
|
| 19,146 |
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Gross profit |
|
|
| 23,036 |
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|
| 11,630 |
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Expenses: |
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Payroll and payroll related |
| 5,198 |
|
|
| 3,905 |
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Rent, utilities, repairs and maintenance |
| 1,485 |
|
|
| 1,371 |
|
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| |||
Depreciation |
| 1,270 |
|
|
| 562 |
|
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Office expense |
| 752 |
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|
| 492 |
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| |||
Insurance |
| 432 |
|
|
| 385 |
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| |||
Professional fees |
| 398 |
|
|
| 338 |
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Advertising, travel and entertainment |
| 188 |
|
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| 192 |
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Other operating expenses |
| 31 |
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|
| 28 |
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Bank fees |
| 33 |
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| 23 |
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Interest |
| 283 |
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|
| 208 |
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Total expenses |
|
|
| 10,070 |
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|
| 7,504 |
| |||
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Income before income taxes and non controlling interest in subsidiary |
|
|
| 12,966 |
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| 4,126 |
| |||
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Income tax expense |
|
|
| 511 |
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|
| 240 |
| |||
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INCOME BEFORE NONCONTROLLING INTEREST IN SUBSIDIARY |
|
|
| 12,455 |
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| 3,886 |
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Less: Net income attributable to noncontrolling interest in subsidiary |
|
|
| 1,235 |
|
|
| 420 |
| |||
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NET INCOME ATTRIBUTABLE TO DE NOVO LEGAL, LLC |
|
|
| $ | 11,220 |
|
|
| $ | 3,466 |
| |
See accompanying Notes to Condensed Consolidated Financial Statements.
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: |
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Income before noncontrolling interest in subsidiary |
| $ | 12,455 |
| $ | 3,886 |
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Adjustments to reconcile results of operations to net cash effect of operating activities: |
|
|
|
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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 | �� | ||
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Investing Activities |
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Purchase of fixed assets |
| (10 | ) | (260 | ) | ||
Net Cash used by investing activities |
| (10 | ) | (260 | ) | ||
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Financing Activities |
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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 | ) | ||
|
|
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Net increase in cash |
| 27 |
| 1,249 |
| ||
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Cash, beginning balance |
| 317 |
| 82 |
| ||
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|
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Cash, ending balance |
| $ | 344 |
| $ | 1,331 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
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 |
| |||
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Members’ capital - January 1, 2010 |
| $ | 13,968 |
| $ | 12,927 |
| $ | 1,041 |
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Net income |
| 12,455 |
| 11,220 |
| 1,235 |
| |||
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Less: distributions |
| (7,466 | ) | (7,466 | ) | — |
| |||
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Members’ capital - September 30, 2011 |
| $ | 18,957 |
| $ | 16,681 |
| $ | 2,276 |
|
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| Noncontrolling |
| |||
|
|
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| De Novo |
| Interest in |
| |||
|
| Combined |
| Legal, LLC |
| Subsidiary |
| |||
|
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| �� | |||
Members’ capital - January 1, 2009 |
| $ | 9,359 |
| $ | 8,916 |
| $ | 443 |
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Net income |
| 3,886 |
| 3,466 |
| 420 |
| |||
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| |||
Less: distributions |
| (3,196 | ) | (3,196 | ) | — |
| |||
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Members’ capital - September 30, 2010 |
| $ | 10,049 |
| $ | 9,186 |
| $ | 863 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
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.
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
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