Exhibit 99.3
Condensed Consolidated Financial Statements
EDIFICE INFORMATION MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
March 31, 2012 and 2011
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Condensed Consolidated Financial Statements | | | | |
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Condensed Consolidated Balance Sheets | | | 1 | |
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Condensed Consolidated Statements of Operations | | | 2 | |
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Condensed Consolidated Statements of Cash Flows | | | 3 | |
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Notes to Condensed Consolidated Financial Statements | | | 4 - 6 | |
EDIFICE INFORMATION MANAGEMENT SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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| | | March 31,
2012
(unaudited) | | | December 31,
2011 | |
ASSETS | | | | | | | | |
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Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 720,000 | | | $ | 775,000 | |
Accounts receivable, net of allowance for doubtful accounts of $12,000 and $8,000, respectively | | | 1,238,000 | | | | 1,108,000 | |
Prepaid expenses and other current assets | | | 202,000 | | | | 141,000 | |
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Total current assets | | | 2,160,000 | | | | 2,024,000 | |
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Property and equipment, net | | | 1,767,000 | | | | 1,642,000 | |
Security deposit | | | 116,000 | | | | 116,000 | |
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Total assets | | $ | 4,043,000 | | | $ | 3,782,000 | |
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LIABILITIES AND STOCKHOLDER’S DEFICIT | | | | | | | | |
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Current liabilities | | | | | | | | |
Capital lease obligations, current | | $ | 214,000 | | | $ | 224,000 | |
Accounts payable | | | 175,000 | | | | 219,000 | |
Accrued compensation and benefits | | | 559,000 | | | | 586,000 | |
Accrued expenses and other current liabilities | | | 108,000 | | | | 55,000 | |
Deferred revenue, current | | | 1,336,000 | | | | 1,278,000 | |
Deferred rent, current | | | 23,000 | | | | 23,000 | |
Due to related parties | | | 1,593,000 | | | | 1,684,000 | |
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Total current liabilities | | | 4,008,000 | | | | 4,069,000 | |
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Other liabilities | | | | | | | | |
Deferred revenue, less current portion | | | 249,000 | | | | 270,000 | |
Deferred rent, less current portion | | | 66,000 | | | | 72,000 | |
Capital lease obligations, less current portion | | | 185,000 | | | | 247,000 | |
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Total liabilities | | | 4,508,000 | | | | 4,658,000 | |
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Commitments and contingencies | | | — | | | | — | |
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Stockholder’s deficit | | | | | | | | |
Common stock, no par value, 2,500 shares authorized; 100 shares issued and outstanding at March 31, 2012 and December 31, 2011 | | | — | | | | — | |
Accumulated other comprehensive income | | | 12,000 | | | | 6,000 | |
Accumulated deficit | | | (477,000 | ) | | | (882,000 | ) |
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Total stockholder’s deficit | | | (465,000 | ) | | | (876,000 | ) |
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Total liabilities and stockholder’s deficit | | $ | 4,043,000 | | | $ | 3,782,000 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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EDIFICE INFORMATION MANAGEMENT SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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| | | Three Months Ended March 31, | |
| | | 2012 | | | 2011 | |
Revenues | | $ | 2,990,000 | | | $ | 2,343,000 | |
Cost of revenues | | | 1,212,000 | | | | 1,026,000 | |
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Gross profit | | | 1,778,000 | | | | 1,317,000 | |
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Operating expenses: | | | | | | | | |
Sales and marketing | | | 564,000 | | | | 585,000 | |
General and administrative | | | 803,000 | | | | 594,000 | |
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Total operating expenses | | | 1,367,000 | | | | 1,179,000 | |
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Income from operations | | | 411,000 | | | | 138,000 | |
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Interest expense | | | (6,000 | ) | | | (2,000 | ) |
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Net income | | $ | 405,000 | | | $ | 136,000 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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EDIFICE INFORMATION MANAGEMENT SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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| | | Three Months Ended March 31, | |
| | | 2012 | | | 2011 | |
Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 405,000 | | | $ | 136,000 | |
Reconciliation of net income to net cash provided by (used in) operating activities: | | | | | | | | |
Depreciation | | | 110,000 | | | | 86,000 | |
Bad debt expense | | | 4,000 | | | | 5,000 | |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | (134,000 | ) | | | (232,000 | ) |
Prepaid expenses and other current assets | | | (61,000 | ) | | | (115,000 | ) |
Accounts payable | | | (44,000 | ) | | | 119,000 | |
Accrued compensation and benefits | | | (27,000 | ) | | | 179,000 | |
Accrued expenses and other current liabilities | | | 53,000 | | | | 4,000 | |
Deferred revenue | | | 37,000 | | | | 168,000 | |
Deferred rent | | | (6,000 | ) | | | 74,000 | |
Due to related parties | | | (91,000 | ) | | | (364,000 | ) |
Security deposit | | | — | | | | (116,000 | ) |
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Net cash provided by (used in) operating activities | | | 246,000 | | | | (56,000 | ) |
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Cash flows from investing activities: | | | | | | | | |
Acquisition of property and equipment, including costs capitalized for development of internal use software | | | (235,000 | ) | | | (102,000 | ) |
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Net cash used in investing activities | | | (235,000 | ) | | | (102,000 | ) |
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Cash flows from financing activities: | | | | | | | | |
Payments of capital lease obligations | | | (72,000 | ) | | | (25,000 | ) |
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Net cash used in financing activities | | | (72,000 | ) | | | (25,000 | ) |
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Effects of exchange rates on cash | | | 6,000 | | | | 7,000 | |
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Net decrease in cash and cash equivalents | | | (55,000 | ) | | | (176,000 | ) |
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Cash and cash equivalents, beginning of period | | | 775,000 | | | | 378,000 | |
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Cash and cash equivalents, end of period | | $ | 720,000 | | | $ | 202,000 | |
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Supplemental disclosure of cash flow information: | | | | | | | | |
Cash paid for interest | | $ | 7,000 | | | $ | 2,000 | |
Non cash investing and financing activities | | | | | | | | |
Capital lease obligations incurred | | $ | — | | | $ | 315,000 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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EDIFICE INFORMATION MANAGEMENT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Company and its Business
Edifice Information Management Systems, Inc. (the “Company”) was incorporated as a New Jersey S Corporation and began operations on March 3, 1998. The Company is a wholly owned subsidiary of Cornwell Corporation (“Cornwell”).
Edifice is an information services company specializing in the collection, analysis and distribution of point-of-sale data used by retailers and suppliers to improve their supply chain efficiencies. The Company provides its solutions over the Internet through Edificeinfo.com, a hosted software suite. The majority of revenues are derived from hundreds of monthly subscriptions from businesses utilizing the Company’s solutions.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries, Edifice Europe (UK) Limited, a corporation organized under the laws of England and Wales, and Edifice Japan G.K. (Japan), a corporation organized under the laws of Tokyo, as well as those of Edifice R.D., S.R.L. (Dominican Republic), a company under common control, and organized under the laws of the municipality of de Salvaleon de Higuey and considered a variable interest entity due to the Company’s controlling financial interest. The accounts of Edifice R.D., S.R.L. are considered immaterial to the accompanying consolidated financial statements. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements as of March 31, 2012 and for the three months ended March 31, 2012 and 2011 have been prepared pursuant to the rules for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules. The financial information contained herein is unaudited; however, management believes all adjustments necessary to present fairly the Company’s financial position and the results of its operations for the interim periods have been made. All such adjustments are of a normal and recurring nature. The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the full fiscal year.
The condensed consolidated balance sheet data as of December 31, 2011 was derived from the audited consolidated financial statements but does not include all of the information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements are meant to be, and should be, read in conjunction with the historical consolidated financial statements and related footnotes of the Company as of and for the year ended December 31, 2011.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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 periods. Actual results could differ from those estimates.
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Significant Accounting Policies
During the three months ended March 31, 2012, there were no material changes in the Company’s significant accounting policies. See Note 2 to the consolidated financial statements for the year ended December 31, 2011 for additional information regarding our significant accounting policies.
New Accounting Guidance
In June 2011, the Financial Accounting Standards Board, or FASB, issued accounting guidance related to comprehensive income, ASC Topic 220, “Comprehensive Income,” that allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements The current option to report other comprehensive income and its components in the statement of stockholders’ equity will be eliminated. Although the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under existing guidance. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012 (that is, the fiscal year ending December 31, 2012 for calendar-year entities) and for interim and annual periods thereafter. The amended guidance must be applied retrospectively, and early adoption is permitted. We do not believe that adoption of ASC Topic 220 will have a significant impact on our consolidated financial statements.
3. Internal Use Software
For the three months ended March 31, 2012, the Company capitalized $150,000 of internal use software, which is included in property and equipment. There is no related accumulated amortization as the development was not completed as of March 31, 2012.
4. Related Parties
Due to related parties primarily consist of advances received by the Company from its parent company, Cornwell, for use in operations, as well as certain allocated expenses between the Company and Cornwell.
Allocated expenses primarily consist of payroll expense for certain Cornwell employees that provide services to the Company, and are allocated based upon headcount and employee time. The amount of expense allocated from Cornwell was $67,000 and $60,000 for the three months ended March 31, 2012 and 2011, respectively.
In addition, the Company’s office space leased for its headquarters is owned by Pond Partners LLC, which is under common control. Rent expense charged to operations was $110,000 and $90,000 for the three months ended March 31, 2012 and 2011, respectively.
5. Comprehensive Income
Comprehensive income includes net income and certain other items that are recorded directly to stockholders’ equity. The Company’s only source of other comprehensive income is foreign currency translation adjustments. The components of comprehensive income are as follows:
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| | | Three Months Ended
March 31, | |
| | | 2012 | | | 2011 | |
Net income | | $ | 405,000 | | | $ | 136,000 | |
Translation adjustments | | | 6,000 | | | | 7,000 | |
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Total comprehensive income | | $ | 411,000 | | | $ | 143,000 | |
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6. Significant Customers
For the three months ended March 31, 2012 and 2011, one customer accounted for 18% of revenue in each period. The same customer accounted for 27% and 25% of accounts receivable as of March 31, 2012 and December 31, 2011, respectively.
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7. Contingencies
From time to time, the Company may become involved in legal proceedings arising in the ordinary course of its business. The Company is not presently a party to any legal proceedings that, in its opinion, would have a material adverse effect on the Company’s business, results of operations or financial condition.
8. Risk and Uncertainties
The Company relies on hardware and software licensed from third parties to offer its on-demand solutions. Management believes alternate sources are available; however, disruption or termination of these relationships could adversely affect the Company’s operating results in the near term.
9. Income Taxes
The Company, with the consent of its shareholder, has elected, under the Internal Revenue Code, to be treated as an S Corporation. In lieu of federal income taxes, the shareholders of an S Corporation are taxed on their proportionate share of the Company’s taxable income. Therefore, no provision for income taxes has been included in the accompanying consolidated financial statements.
10. Subsequent Events
The Company has evaluated subsequent events through August 1, 2012, which is the date the financial statements are available to be issued.
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