EXHIBIT 99.2
CALLAWAY PARTNERS, LLC
FINANCIAL STATEMENTS
INDEX
Page | |
Balance Sheets at June 30, 2007 and December 31, 2006 | 1 |
Statements of Operations for the six months ended June 30, 2007 and June 30, 2006 | 2 |
Statement of Members' Equity for the six months ended June 30, 2007 | 3 |
Statements of Cash Flows for the six months ended June 30, 2007 and June 30, 2006 | 4 |
Notes to Financial Statements | 5 - 6 |
CALLAWAY PARTNERS, LLC
BALANCE SHEETS
UNAUDITED
June 30, 2007 | December 31, 2006 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 2,717,479 | $ | 1,909,156 | |||
Accounts receivables, net | 10,047,015 | 8,862,626 | |||||
Prepaid expenses | 401,541 | 213,813 | |||||
Total current assets | 13,166,035 | 10,985,595 | |||||
Property and equipment, net | 725,242 | 813,347 | |||||
Deposits | 40,737 | 41,427 | |||||
Total assets | $ | 13,932,014 | $ | 11,840,369 | |||
Liabilities and members’ equity | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 1,460,414 | $ | 2,091,575 | |||
Accrued distributions and compensation | 2,712,123 | 2,046,855 | |||||
Client payables | ¾ | 1,004,539 | |||||
Total current liabilities | 4,172,537 | 5,142,969 | |||||
Non-current liabilities: | |||||||
Deferred rent payable | 131,057 | 87,226 | |||||
Customer deposits | 73,828 | 95,000 | |||||
Total non-current liabilities | 204,885 | 182,226 | |||||
Commitments and contingencies | ¾ | ¾ | |||||
Members’ equity | 9,554,592 | 6,515,174 | |||||
Total liabilities and members’ equity | $ | 13,932,014 | $ | 11,840,369 |
The accompanying notes are an integral part of the financial statements.
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CALLAWAY PARTNERS, LLC
STATEMENTS OF OPERATIONS
UNAUDITED
Six Months Ended June 30, | |||||||
2007 | 2006 | ||||||
Revenues and reimbursable expenses: | |||||||
Revenues | $ | 30,329,857 | $ | 42,965,592 | |||
Reimbursable expenses | 4,135,441 | 6,923,375 | |||||
Total revenues and reimbursable expenses | 34,465,298 | 49,888,967 | |||||
Direct costs and reimbursable expenses(exclusive ofdepreciation shown in operating expenses): | |||||||
Direct costs | 19,554,640 | 31,530,967 | |||||
Reimbursable expenses | 4,135,441 | 6,923,375 | |||||
Total direct costs and reimbursable expenses | 23,690,081 | 38,454,342 | |||||
Operating expenses: | |||||||
Selling, general and administrative | 6,605,595 | 4,857,647 | |||||
Depreciation | 168,675 | 164,010 | |||||
Total operating expenses | 6,774,270 | 5,021,657 | |||||
Operating income | 4,000,947 | 6,412,968 | |||||
Interest income (expense), net | 38,394 | (27,101 | ) | ||||
Net income | $ | 4,039,341 | $ | 6,385,867 |
The accompanying notes are an integral part of the financial statements.
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CALLAWAY PARTNERS, LLC
STATEMENT OF MEMBERS’ EQUITY
UNAUDITED
Members’ Equity | ||||
Balance at December 31, 2006 | $ | 6,515,174 | ||
Net income | 4,039,341 | |||
Distributions to members | (999,923 | ) | ||
Balance at June 30, 2007 | $ | 9,554,592 |
The accompanying notes are an integral part of the financial statements.
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CALLAWAY PARTNERS, LLC
STATEMENTS OF CASH FLOWS
UNAUDITED
Six Months Ended June 30, | |||||||
2007 | 2006 | ||||||
Net income | $ | 4,039,341 | $ | 6,385,867 | |||
Adjustments to reconcile net income to net cash provided byoperating activities: | |||||||
Depreciation | 168,675 | 164,010 | |||||
Gain on disposal of property and equipment | (17,754 | ) | ¾ | ||||
Allowances for doubtful accounts | 270,540 | (350,000 | ) | ||||
Changes in operating assets and liabilities: | |||||||
Increase in accounts receivables | (1,454,929 | ) | (2,999,104 | ) | |||
Increase in prepaid expenses | (187,729 | ) | (109,025 | ) | |||
Decrease (increase) in deposits | 690 | (32,493 | ) | ||||
Decrease in accounts payable and accrued expenses | (631,161 | ) | (83,404 | ) | |||
Increase in accrued compensation | 1,633,569 | 781,927 | |||||
Decrease in client payables | (1,004,539 | ) | ¾ | ||||
Decrease in deferred revenues | ¾ | (214,059 | ) | ||||
Increase in deferred rent payable | 43,831 | ¾ | |||||
(Decrease) increase in customer deposits | (21,172 | ) | 57,500 | ||||
Net cash provided by operating activities | 2,839,362 | 3,601,219 | |||||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | (87,614 | ) | (151,131 | ) | |||
Proceeds from sale of property and equipment | 24,798 | ¾ | |||||
Net cash used in investing activities | (62,816 | ) | (151,131 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from borrowings under line of credit | ¾ | 1,500,000 | |||||
Distributions to members | (1,968,223 | ) | (7,218,390 | ) | |||
Net cash used in financing activities | (1,968,223 | ) | (5,718,390 | ) | |||
Net increase (decrease) in cash and cash equivalents | 808,323 | (2,268,302 | ) | ||||
Cash and cash equivalents: | |||||||
Beginning of the period | 1,909,156 | 2,357,319 | |||||
End of the period | $ | 2,717,479 | $ | 89,017 |
The accompanying notes are an integral part of the financial statements.
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CALLAWAY PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS
1. Description of Business
Callaway Partners, LLC (the “Company”), a Georgia limited liability company, was formed in March 2002 and began operations in September 2002. The Company hires experienced professionals who specialize in general accounting and finance, internal audit, bankruptcy support, and technical accounting services and provides their services to clients on a staff augmentation or project basis. The Company has offices in Atlanta, Georgia; Birmingham, Alabama; Reston, Virginia; and Southfield, Michigan.
2. Basis of Presentation
The accompanying interim financial statements as of June 30, 2007 and for the six months ended June 30, 2007 and 2006 are unaudited. In the opinion of management, these interim financial statements have been prepared on the same basis as the audited financial statements and reflect all adjustments of a normal, recurring nature necessary for the fair presentation of the Company’s financial position, results of operations and cash flows. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto for the years ended December 31, 2006 and 2005 included as Exhibit 99.1 in this Current Report on Form 8-K/A. The Company’s results for any interim period are not necessarily indicative of results for a full year or any other interim period.
3. Accounts Receivable
Accounts receivable consists of the following:
June 30, 2007 | December 31, 2006 | ||||||
Accounts receivable | $ | 10,310,509 | $ | 8,852,039 | |||
Unbilled accounts receivable | 298,320 | 301,861 | |||||
Total accounts receivable | 10,608,829 | 9,153,900 | |||||
Less: Allowance for doubtful accounts | (561,814 | ) | (291,274 | ) | |||
Total accounts receivable, net | $ | 10,047,015 | $ | 8,862,626 |
4. Property and Equipment
Property and equipment consists of the following:
June 30, 2007 | December 31, 2006 | ||||||
Computer equipment | $ | 908,467 | $ | 935,083 | |||
Office furniture and equipment | 307,657 | 275,023 | |||||
Leasehold improvements | 34,279 | 26,474 | |||||
Total property and equipment, at cost | 1,250,403 | 1,236,580 | |||||
Less: Accumulated depreciation | (525,161 | ) | (423,233 | ) | |||
Total property and equipment, net | $ | 725,242 | $ | 813,347 |
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CALLAWAY PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS
5. Line of Credit
The Company has available a $5,000,000 revolving line of credit that bears interest at the one month LIBOR plus 1.75%. Prior to September 8, 2008, the Company has a one time option to request an increase in its revolving line of credit up to $8,000,000, provided it meets certain covenants as defined in the line of credit loan agreement. On September 8, 2009, the line of credit will expire, upon which time any unpaid principal and interest are due. The Company will pay an availability fee equal to 0.20% per annum on the unused portion of the line of credit for each day during the preceding fiscal quarter. No availability fee will be due for any quarter in which the average line of credit balance outstanding is greater than $3,000,000. The line of credit requires annual audited financial statements to be submitted within 120 days after year end.
As of both June 30, 2007 and December 31, 2006, the Company’s total available credit was $5,000,000, with no outstanding balance. The line of credit is collateralized by all personal property of the Company (including a continuing perfected security interest in all accounts, documents, line of credit rights, chattel paper, accessions, inventory, equipment, general intangibles, deposit accounts, instruments, investment property, and financial assets). The Company is required to meet certain debt service coverage ratios as defined in the line of credit loan agreement, and maintain all operating and deposit cash accounts with the financial institution providing the line of credit. As of December 31, 2006, the Company was transitioning its operating and deposit cash accounts from the old financial institution to the new financial institution and has obtained a waiver for this debt covenant.
The revolving line of credit was subsequently closed upon the sale of the Company as described in note 7 below.
6. Concentrations
Concentration by revenue source - For the six months ended June 30, 2007, the three largest clients accounted for approximately 17%, 15% and 12% of the Company’s revenues. For the six months ended June 30, 2006, the two largest clients accounted for approximately 53% and 15% of the Company’s revenues.
Concentration by financial institution - At various times throughout the year, the Company maintains cash and cash equivalents in accounts with various financial institutions in excess of the amount insured by the Federal Deposit Insurance Corporation. The Company’s management regularly monitors the financial stability of these financial institutions and does not believe there is a significant credit risk associated with deposits in excess of federally insured amounts.
Concentration by financial instrument - Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of trade receivables. The Company monitors its exposure to credit losses and maintains an allowance for doubtful accounts.
As of June 30, 2007, two clients accounted for approximately 21% and 17% of trade receivables. As of December 31, 2006, three clients accounted for approximately 22%, 17%, and 10% of trade receivables.
7. Subsequent Event
On July 29, 2007, Huron Consulting Group Inc. (“Huron”) acquired the Company for $60,000,000 in cash paid at closing, subject to standard post-closing adjustments. Additional purchase consideration in cash may be payable by Huron if specific performance targets are met over the five-year period beginning on January 1, 2008 and ending on December 31, 2012.
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