UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 29, 2007
PARTNERS, INC.
(Exact name of registrant as specified in its charter)
| | | | | |
Delaware (State or other jurisdiction of incorporation) | | 0-52011 (Commission File Number) | | 20-4414490 (I.R.S. Employer Identification No.) |
Two International Place, 16th Floor
Boston, MA 02110
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (617) 235-7215
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.01 Completion of Acquisition or Disposition of Assets.
On June 13, 2007, Conihasset Capital Partners, Inc. (the “Company”) and Thomas Melina (the “Seller”), President and sole member of MRO Integrated Solutions, LLC (the “Subsidiary”), a Connecticut limited liability company that specializes in spares and consumable products, entered into a purchase agreement (the “Purchase Agreement”) for the purchase of all of the outstanding membership interests of the Subsidiary.
On June 29, 2007 (the “Closing Date”), the Company completed the purchase from the Seller of one hundred percent (100%) of the outstanding membership interests of the Subsidiary. In consideration for such purchase, the Company agreed, pursuant to arm’s length negotiations, to pay and deliver on the Closing Date a purchase price of $3 million in the form of the issuance to the Seller of 300,000 shares of the Company’s common stock at a price of $5.00 per share, and the conversion by the Subsidiary of a convertible subordinated promissory note in the amount of $1.5 million held by the Company. In addition, the Seller will remain the President of the Subsidiary.
The Purchase Agreement also contains representations, warranties, covenants and indemnities. The full text of the Purchase Agreement is attached as Exhibit 2.1 hereto and incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of the Business Acquired.
The Company has included below the following financial statements of the Subsidiary required as a result of the Purchase Agreement:
| · | MRO Integrated Solutions, LLC Financial Statements as of and for the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005; and |
| · | MRO Integrated Solutions, LLC Financial Statements as of and for the period ended June 29, 2007 (prior to its acquisition) and June 30, 2006. |
MRO INTEGRATED SOLUTIONS, LLC
INDEX OF FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2006 AND FOR THE PERIOD FROM INCEPTION (APRIL 18, 2005) TO DECEMBER 31, 2005
| | Page Number | |
| | | | | |
Independent Auditors’ Report | | 2 | | |
| | | | | |
Balance Sheet | | | | |
| • As of December 31, 2006 | 3 | |
| | | | | |
| | | | |
| • For the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005 | 4 | |
| | | | | |
Statement of Changes in Members’ Deficit | | | | |
| • For the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005 | 5 | |
| | | | | |
| | | | |
| • For the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005 | 6 | |
| | | | | | | |
| 7 | |
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Members
MRO Integrated Solutions, LLC
We have audited the accompanying balance sheet of MRO Integrated Solutions, LLC (the “Company”) as of December 31, 2006, and the related statements of operations, changes in members’ deficit and cash flows for the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2006, and the results of its operations and its cash flows for the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
MASSELLA & ASSOCIATES, CPA, PLLC
Syosset, New York
September 14, 2007
| MRO INTEGRATED SOLUTIONS, LLC |
| BALANCE SHEET |
| December 31, 2006 |
ASSETS |
CURRENT ASSETS | | | | |
| Cash | | $ | 300,228 | |
| Accounts receivable, net | | | 186,298 | |
| Inventory | | | 129,339 | |
| Prepaid expenses | | | 7,095 | |
| Total current assets | | | 622,960 | |
| | | | | |
| Property and equipment, net | | | 36,714 | |
| Deferred financing fees, net | | | 58,000 | |
| Security deposit | | | 11,713 | |
| | | | | |
| TOTAL ASSETS | | $ | 729,387 | |
LIABILITIES AND MEMBERS' DEFICIT |
CURRENT LIABILITIES | | | | |
| Convertible note payable-related party | | $ | 1,000,000 | |
| Accounts payable | | | 85,186 | |
| Accrued expenses | | | 66,782 | |
| Current portion of capital lease obligation | | | 3,715 | |
| | | | | |
| Total current liabilities | | | 1,155,683 | |
| | | | | |
| Long-term portion of capital lease obligation | | | 6,869 | |
| | | | | |
| TOTAL LIABILITIES | | | 1,162,552 | |
| | | | | |
COMMITMENTS AND CONTINGENCIES | | | | |
| | | | | |
MEMBERS' DEFICIT | | | (433,165 | ) |
| | | | | |
| TOTAL LIABILITIES AND MEMBERS' DEFICIT | | $ | 729,387 | |
The accompanying notes are an integral part of these financial statements. |
| MRO INTEGRATED SOLUTIONS, LLC |
| STATEMENTS OF OPERATIONS |
| | | | | | | For the Period | |
| | | | | | | from Inception | |
| | | For the Year | | | (April 18, 2005) | |
| | | Ended | | | to | |
| | | | December 31, | | | December 31, | |
| | | | 2006 | | | 2005 | |
| | | | | | | | |
| Net sales | | $ | 380,763 | | $ | 1,818 | |
| | | | | | | | |
| Cost of goods sold | | | 320,221 | | | 2,958 | |
| | | | | | | | |
| GROSS PROFIT (LOSS) | | | 60,542 | | | (1,140 | ) |
| | | | | | | | |
| Selling, general and administrative expenses | | | 412,703 | | | 168,601 | |
| | | | | | | | |
| LOSS FROM OPERATIONS | | | (352,161 | ) | | (169,741 | ) |
| | | | | | | | |
| Interest and financing expense | | | 152,149 | | | - | |
| | | | | | | | |
| NET LOSS | | $ | (504,310 | ) | $ | (169,741 | ) |
The accompanying notes are an integral part of these financial statements. |
| MRO INTEGRATED SOLUTIONS, LLC |
| STATEMENT OF CHANGES IN MEMBERS' DEFICIT |
| FOR THE YEAR ENDED DECEMBER 31, 2006 AND FOR THE PERIOD FROM INCEPTION (APRIL 18, 2005) TO DECEMBER 31, 2005 |
| | | Units | | | Amount | |
Balance - April 18, 2005 - inception | | | - | | $ | - | |
| | | | | | | | |
| Contributions (including purchase of 100 membership units) | | | 100 | | | 259,718 | |
| | | | | | | | |
| Distributions | | | - | | | (37,605 | ) |
| | | | | | | | |
| Net loss | | | - | | | (169,741 | ) |
| | | | | | | | |
Balance - December 31, 2005 | | | 100 | | $ | 52,372 | |
| | | | | | | | |
| Contributions | | | - | | | 214,174 | |
| | | | | | | | |
| Distributions | | | - | | | (195,401 | ) |
| | | | | | | | |
| Net loss | | | - | | | (504,310 | ) |
| | | | | | | | |
Balance - December 31, 2006 | | | 100 | | $ | (433,165 | ) |
The accompanying notes are an integral part of these financial statements. |
| MRO INTEGRATED SOLUTIONS, LLC |
| STATEMENTS OF CASH FLOWS |
.
| | | | | | | For the Period | |
| | | | | | from Inception | |
| | | | For the Year | | | (April 18, 2005) | |
| | | | Ended | | | to | |
| | | | December 31, | | | December 31, | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | 2006 | | | 2005 | |
| Net loss | | $ | (504,310 | ) | $ | (169,741 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | |
| Depreciation | | | 8,761 | | | 5,186 | |
| Amortization of deferred financing fees | | | 2,000 | | | - | |
| Changes in operating assets and liabilities: | | | | | | | |
| Accounts receivable | | | (186,157 | ) | | (141 | ) |
| Inventory | | | (125,790 | ) | | (3,549 | ) |
| Prepaid expenses | | | (1,353 | ) | | (5,742 | ) |
| Accounts payable | | | 83,685 | | | 1,501 | |
| Accrued expenses | | | 62,787 | | | 3,995 | |
| | | | | | | | |
| NET CASH USED IN OPERATING ACTIVITIES | | | (660,377 | ) | | (168,491 | ) |
| | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | |
| Purchase of property and equipment | | | - | | | (38,901 | ) |
| Payments of security deposits | | | - | | | (11,713 | ) |
| | | | | | | | |
| NET CASH USED IN INVESTING ACTIVITIES | | | - | | | (50,614 | ) |
| | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | |
| Gross proceeds from convertible notes payable - related party | | | 1,000,000 | | | - | |
| Deferred financing fee in connection with convertible notes payable | | | (60,000 | ) | | - | |
| Proceeds from note payable | | | 250,000 | | | - | |
| Principal payment of note payable | | | (250,000 | ) | | - | |
| Contributions by member | | | 214,174 | | | 259,718 | |
| Distributions to member | | | (195,401 | ) | | (37,605 | ) |
| Payments of capital lease obligations | | | (1,176 | ) | | - | |
| | | | | | | | |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | | | 957,597 | | | 222,113 | |
| | | | | | | | |
| NET INCREASE IN CASH | | | 297,220 | | | 3,008 | |
| | | | | | | | |
CASH - BEGINNING OF YEAR/PERIOD | | | 3,008 | | | - | |
| | | | | | | | |
CASH - END OF YEAR | | $ | 300,228 | | $ | 3,008 | |
| | | | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | | | | |
| Cash paid for interest | | $ | 100,294 | | $ | - | |
| | | | | | | | |
NON-CASH INVESTING AND FINANCING ACTIVITIES | | | | | | | |
| Purchase of equipment through capital lease obligation | | $ | 11,760 | | $ | - | |
The accompanying notes are an integral part of these financial statements. |
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2006
AND FOR THE PERIOD FROM INCEPTION (APRIL 18, 2005) TO DECEMBER 31, 2005
1. | ORGANIZATION AND NATURE OF BUSINESS |
MRO Integrated Solutions, LLC was incorporated as Logistics Supply Company, LLC in the State of Connecticut on April 18, 2005. On August 5, 2005, Logistics Supply Company, LLC legally changed its name to MRO Integrated Solutions, LLC. MRO Integrated Solutions, LLC merged into MRO Integrated Solutions of Delaware, LLC on August 28, 2007 and continues to operate under the name MRO Integrated Solutions, LLC (“MRO” or the “Company”). The purpose of this transaction was to effectuate a change in location of incorporation to Delaware (see note 12).
MRO is headquartered in Shrewsbury, Massachusetts (“MA”) and purchases spare, consumable maintenance and repair parts and resells them directly to semiconductor fabrication facilities.
On June 29, 2007, MRO became a wholly owned subsidiary of Conihasset Capital Partners, Inc. (“CCP”) (see note 12).
2. | LIQUIDITY AND FINANCIAL CONDITION |
The Company incurred net losses of $504,310 and $169,741 for the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005, respectively. At December 31, 2006, the Company's members’ deficit amounted to $433,165.
During the year ended December 31, 2006, the Company obtained $1,000,000 in gross proceeds from certain debt financing transactions with CCP (see note 7). On May 18, 2007, the Company obtained an additional $500,000 in gross proceeds from CCP, less $15,000 in financing costs (see note 12). On June 29, 2007, the Company was acquired by CCP (see note 12).
Management believes the funds the Company expects to generate from operations, and CCP’s ability to raise additional capital, will sustain the business through December 31, 2007. In the event that the Company is required to obtain additional capital subsequent to 2007, the Company cannot provide any assurance that it will secure any commitments for new financing on acceptable terms, if at all.
3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Cash
The Company places its cash with high quality financial institutions, which at times may exceed federal insured limits. The Company has not experienced any losses on these accounts and believes such risk is minimal.
Allowance for Doubtful Accounts
The Company sells its product throughout the United States of America. Credit is extended to customers only after an evaluation of the customer’s financial condition and generally collateral is not required. Since its inception, the Company has not had any write-offs of its trade accounts receivable. Based on historical collection activity, management determined it is not necessary to establish an allowance for doubtful accounts as of December 31, 2006.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Inventory consists of semiconductor spare and consumable parts.
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2006
AND FOR THE PERIOD FROM INCEPTION (APRIL 18, 2005) TO DECEMBER 31, 2005
Deferred Financing Costs
The Company incurred $60,000 in financing costs in connection with its entering into various convertible promissory notes during the year ended December 31, 2006. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases”, the Company has determined that even though the notes are due on demand, they will amortize these financing costs over the maximum life of the loans based on there being no understanding between the Company and the lender as to the length of time over which the loan would be outstanding. Any unamortized balance will be written-off in the event that the loans are repaid or converted prior to maturity. For the year ended December 31, 2006, the Company amortized $2,000 of deferred financing fees and had a remaining unamortized balance of $58,000.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation, and are depreciated over the estimated useful life of the related asset. Depreciation is computed by the straight line method. Equipment acquired under capital leases are depreciated over the estimated useful life of the asset. The estimated useful lives used in computing depreciation are summarized as follows:
| Years of |
| Useful Life |
| | |
| Office furniture | 5 |
| Computer equipment | 5 |
| Equipment acquired under capital lease | 5 |
Maintenance and repairs of property and equipment are charged to operations, and major improvements are capitalized. Upon retirement, sale, or other disposition of property and equipment, the costs and accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is included in results of operations.
Fair Value of Financial Instruments
The fair value of financial instruments is the amount for which the instrument could be exchanged in a current transaction between willing parties. At December 31, 2006, the carrying values of cash, accounts receivable, inventory, accounts payable, accrued expenses, and convertible note payable approximated their respective fair values because of the short duration of these instruments. Additionally, it is management’s opinion that the Company is not exposed to significant interest rate or credit risks arising from these instruments.
Revenue Recognition
The Company generates revenue from sales of its products to semiconductor fabrication facilities. The Company sells its products directly to third parties and to other distributors. The Company also provides warehousing services for other distributors. The Company applies the revenue recognition principles set forth in Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) 104 “Revenue Recognition” with respect to all of its revenue. Accordingly, the Company records revenue when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the sales price is fixed or determinable, and (iv) collectability of the sale is reasonably assured.
The Company recognizes revenue at the time in which it receives a confirmation that the goods were either tendered at their destination when shipped “FOB destination” or transferred to a shipping agent when shipped “FOB shipping point”. Delivery to the customer is deemed to have occurred when the customer takes title to the product. Generally, title passes to the customer upon shipment, but could occur when the customer receives the product based on the terms of the agreement with the customer.
Revenue from warehousing services is recognized when products are shipped from its warehouse at the request of its customer.
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2006
AND FOR THE PERIOD FROM INCEPTION (APRIL 18, 2005) TO DECEMBER 31, 2005
Revenue Reporting
On July 13, 2007, the Company entered into an agreement with a distributor whereby the Company agreed to provide warehousing services for inventory that the distributor requests the Company to buy on its behalf. In exchange for such services, the distributor has agreed to pay the Company its cost plus a fixed percentage of such cost. Further, the distributor has agreed to purchase back from the Company any inventory that it requests the Company to purchase on its behalf that the Company is unable to sell to the Company’s other customers within 12 months from the date of purchase. The term of the agreement is retroactive from January 1, 2007 to December 31, 2009. Prior to January 1, 2007, there was no formal written agreement between the Company and this distributor; however, these terms between the Company and the distributor were in effect during 2006.
The Company is recording the purchase of this inventory as its own inventory since title transfers to the Company at the time of purchase, and the Company has the right to sell the inventory to its customer base with no restrictions.
In accordance with Emerging Issues Task Force (“EITF”) 99-19, “Reporting Revenue Gross versus Net as an Agent”, the Company reports the sales to the distributor at the net amount retained because it has earned a fee rather than generating a sale of goods. During the year ended December 31, 2006, the Company transferred $102,455 of material at cost and recognized $6,491 in warehousing fees. The Company did not incur any such activity for the period from inception (April 18, 2005) to December 31, 2005. As of December 31, 2006, the Company had $18,224 of inventory on hand that the distributor had requested the Company to purchase.
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 the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. The Company evaluates all of its estimates on an on-going basis. Actual results could differ from these estimates.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”).
SFAS No. 133 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments in accordance with EITF 00-19. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of SFAS No. 133. SFAS No. 133 and EITF 00-19 also provide an exception to this rule when the host instrument is deemed to be conventional (as that term is described in the implementation guidance to SFAS No. 133 and further clarified in EITF 05-2, “The Meaning of “Conventional Convertible Debt Instrument” in Issue No. 00-19).
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2006
AND FOR THE PERIOD FROM INCEPTION (APRIL 18, 2005) TO DECEMBER 31, 2005
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with the provisions of EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features,” (“EITF 98-5”) and EITF 00-27, “Application of EITF 98-5 to Certain Convertible Instruments.” Accordingly, the Company records when necessary discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption.
The Company evaluated the conversion option embedded in its convertible instruments during each of the reporting periods presented and has determined, in accordance with the provisions of these statements, that it does not meet the criteria requiring bifurcation of these instruments. Additionally, the Company’s conversion options, if free standing, would not be considered derivatives subject to accounting guidelines prescribed under SFAS No. 133.
The Company has evaluated the provisions of EITF 00-19-2 "Accounting for Registration Payment Arrangements", which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with SFAS 5, "Accounting for Contingencies." Adoption of EITF 00-19-2 is required for fiscal years beginning after December 15, 2006. The Company has determined that the provisions of EITF 00-19-2 will not have an effect on its financial statements.
Concentrations of Credit Risk
The Company believes it is not exposed to any significant credit risk with cash. The Company maintains its cash with a high credit quality financial institution. Total deposits on account at the financial institution are secured by the Federal Deposit Insurance Corporation up to $100,000.
Shipping and Handling Fees and Costs
Shipping and handling fees billed to customers are classified in net sales in the statements of operations. Shipping and handling costs are classified in cost of goods sold in the statements of operations. These costs totaled $25,494 and $793 for the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005, respectively.
Income Taxes
The Company is not a tax paying entity for federal and state income tax purposes, and thus no income tax expense/benefit has been recorded in the financial statements. The income or loss of the Company is taxed to the members in their respective returns.
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2006
AND FOR THE PERIOD FROM INCEPTION (APRIL 18, 2005) TO DECEMBER 31, 2005
At December 31, 2006, property and equipment is comprised of the following:
| Office furniture | | $ | 2,260 | |
| Computer equipment | | | 36,641 | |
| Leased equipment | | | 11,760 | |
| Total property and equipment | | | 50,661 | |
| Less: accumulated depreciation | | | (13,947 | ) |
| Property and equipment, net | | $ | 36,714 | |
Depreciation expense on property and equipment amounted to $8,761 and $5,186 for the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005, respectively.
On January 31, 2006, the Company entered into a $250,000 note payable bearing interest at 60% per annum, payable on demand but in no event later than January 31, 2007. The note was personally guaranteed by the President of MRO. Interest was payable on a monthly basis. The $250,000 note was paid in full by the Company on September 30, 2006. Included in accrued expenses in the accompanying balance sheet at December 31, 2006 is $38,500 of accrued and unpaid interest on this note. There are no late fees or penalties accruing on this liability.
Per Accounting Principles Board Opinion No. 21, “Interest on Receivables and Payables”, if the interest rate is deemed unreasonable, an imputed interest rate must be used to determine the present value of the note, and any discount or premium must be recognized and amortized over the life of the note. Since the note was paid back within the year, no discount or premium was recognized on this note.
6. | CONVERTIBLE NOTES PAYABLE-RELATED PARTY |
On August 28, 2006, the Company entered into a 5% convertible promissory note with CCP in the amount of $150,000, payable on demand, but no later than August 28, 2011, and was convertible in whole into membership units representing 5% of the total outstanding membership units of the Company. The Company received $150,000 in gross proceeds, less $9,000 in financing costs.
On October 2, 2006, the Company received an additional $75,000 in gross proceeds from CCP, less $4,500 in financing costs. This 5% convertible promissory note was also due on demand but no later than October 2, 2011 and was convertible in whole into membership units representing 2.5% of the total outstanding membership units of the Company.
On November 15, 2006, the Company received an additional $775,000 in gross proceeds from CCP, less $46,500 in financing costs. The prior two notes were rescinded and consolidated into a new convertible note, including this borrowing, for $1,000,000. As a condition of this convertible note, the Company entered into a registration rights agreement with CCP. The agreement does not provide a liquidated damages clause.
This new convertible note payable to CCP in the amount of $1,000,000, bearing interest at 5% per annum, was payable on demand but in no event later than November 15, 2011. The note was secured by substantially all of the assets of the Company and is convertible in whole into membership units representing 33.33% of the total outstanding membership units of the Company. CCP, at its option, could convert the note at anytime on or before the maturity date. Interest is payable on a quarterly basis.
The Company has accrued and unpaid interest as of December 31, 2006 of $6,326 related to this note included in accrued expenses in the accompanying balance sheet. Interest expense related to this note was $6,326 for the year ended December 31, 2006.
On June 29, 2007, CCP converted this note, which at that time was $1,500,000 as a result of the Company borrowing an additional $500,000 from CCP on May 18, 2007, in conjunction with its acquisition of 100% of the membership units of the Company (see note 12).
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2006
AND FOR THE PERIOD FROM INCEPTION (APRIL 18, 2005) TO DECEMBER 31, 2005
Ownership rights in the Company are reflected in Membership Units as recorded by the Company. The Membership Units all have the same preferences, limitations and rights, including voting rights. Initially the Company had two members holding 80% and 20% of the Membership Units outstanding. Subsequently in a private transaction, a third member was added in August 2005. As a result of this transaction, the Company had three members owning 60%, 20% and 20%, respectively. As of December 31, 2006, there were three members and 100 Membership Units outstanding.
8. | COMMITMENTS AND CONTINGENCIES |
Lease Commitments
The Company has an operating facility in Shrewsbury, MA, under a four-year non-cancelable operating lease expiring on May 31, 2009. Base rent for the premises does not include real estate taxes and other operating expenses for which the Company is separately liable. Annual base rent on the premises is $56,820, payable in monthly installments of $4,735 each.
Future minimum operating lease payments at December 31, 2006 are as follows:
| Year ending December 31, | | | | |
| 2007 | | $ | 56,820 | |
| 2008 | | | 56,820 | |
| 2009 | | | 23,675 | |
| Total | | $ | 137,315 | |
Rent expense and related costs amounted to $70,277 and $41,923 for the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005, respectively.
Payroll Liabilities
As of December 31, 2006, the Company has accrued $21,956 for payroll taxes, including penalties and interest, that it may owe related to payments made to individuals who provided services to the Company during the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005.
For the year ended December 31, 2006, the Company had two customers, which comprised approximately 47% and 33% of net sales. Accounts receivable from these customers amounted to $107,342 and $0, respectively at December 31, 2006. For the period from inception (April 18, 2005) to December 31, 2005, the Company had three customers, which comprised approximately 35%, 22% and 13% of net sales.
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2006
AND FOR THE PERIOD FROM INCEPTION (APRIL 18, 2005) TO DECEMBER 31, 2005
10. | OBLIGATION UNDER CAPITAL LEASE |
The Company entered into a capital lease for warehouse equipment on July 26, 2006. The lease payments are $367 per month for a term of 36 months, with a bargain purchase option of $1 at the maturity of the lease, July 31, 2009. The lease carries an interest rate of 8% and is guaranteed by a member of the Company. The net carrying value of assets under this obligation was $10,584 at December 31, 2006.
As of December 31, 2006, the aggregate future minimum annual lease payments under this capital lease are as follows:
Years ending December 31, | | | | |
| 2007 | | $ | 4,408 | |
| 2008 | | | 4,408 | |
| 2009 | | | 2,939 | |
| Total minimum lease payments | | | 11,755 | |
| Less: amount representing interest | | | (1,171 | ) |
| Present value of minimum lease payments | | | 10,584 | |
| Less: current maturity | | | (3,715 | ) |
| Obligation under capital lease, non-current maturity | | $ | 6,869 | |
11. | RELATED PARTY TRANSACTIONS |
A relative of a member of the Company was paid $10,000 for warehouse services provided for the year ended December 31, 2006. For the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005, $125,300 and $41,390, respectively was recorded as compensation to the members, and is included in selling, general and administrative expenses.
On May 18, 2007, MRO received an additional $500,000 in gross proceeds from CCP, less $15,000 in financing costs. This borrowing was combined with the previously issued $1,000,000 convertible promissory note dated November 15, 2006. The result of this borrowing was the issuance of a new promissory convertible note by MRO dated May 18, 2007, in the amount of $1,500,000, at rate of 5%, payable on demand but in no event later than May 18, 2012. The Company incurred $15,000 in financing costs in connection with this additional borrowing and is amortizing such costs over the life of the note. The note was secured by substantially all of the assets of the Company and was convertible in whole into membership units representing 50% of the total outstanding membership units of the Company. CCP, at its option, could convert the note at anytime on or before the maturity date. Interest is payable on a quarterly basis.
On June 1, 2007, the President of MRO, in a private transaction, acquired the remaining outstanding member units from the other two membership owners, becoming the sole member of MRO.
On June 13, 2007, the President and sole member of MRO (the “Seller”), and CCP entered into a sale agreement (the “Sale Agreement”) for the sale of all of the outstanding membership interests of MRO to CCP.
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2006
AND FOR THE PERIOD FROM INCEPTION (APRIL 18, 2005) TO DECEMBER 31, 2005
On June 29, 2007 (the “Closing Date”), the Seller completed the sale of one hundred percent (100%) of his outstanding membership interest of MRO. In consideration for such sale, CCP agreed, pursuant to arm’s length negotiations, to pay and deliver on the Closing Date a purchase price of $3 million in the form of the issuance to the Seller of 300,000 shares of CCP’s common stock at a price of $5.00 per share, and the conversion by MRO of a convertible promissory note in the amount of $1.5 million held by CCP. The $7,083 of accrued and unpaid interest was forgiven by CCP and written off against interest expense by the Company. Additionally, unamortized deferred financing fees of $67,000 were written off by the Company. Upon completion of such transactions, the Company became a wholly owned subsidiary of CCP. In addition, the Seller will remain the President of MRO.
On July 13, 2007, the Company entered into an agreement with a distributor whereby the Company agreed to provide warehousing services for inventory that the distributor requests the Company to buy on its behalf. In exchange for such services, the distributor has agreed to pay the Company its cost plus a fixed percentage of such cost. Further, the distributor has agreed to purchase back from the Company any inventory that it requests the Company to purchase on its behalf that the Company is unable to sell to the Company’s other customers within 12 months from the date of purchase. The term of the agreement is retroactive from January 1, 2007 to December 31, 2009.
On July 19, 2007, the Company, CCP and Metron Technology, Inc. (“Metron”), a Delaware corporation that supports original equipment manufacturers, semiconductor manufacturers and suppliers, entered into a purchase agreement (the “Purchase Agreement”) whereby the Company would purchase certain assets of Metron’s North American Cleanroom Consumable Products Division (“NACCPD”).
On July 23, 2007 (the “Closing Date”), MRO completed the purchase from Metron of all of the NACCPD assets. In consideration for such purchase, the Purchaser agreed, pursuant to arm’s length negotiations, to pay and deliver on the Closing Date a purchase price of $1.1 million in cash allocable to the NACCPD assets acquired.
The Company merged into MRO Integrated Solutions of Delaware, LLC on August 28, 2007. The purpose of this transaction was to effectuate a change in location of incorporation to Delaware. The Company will continue to operate under the name MRO Integrated Solutions, LLC.
MRO INTEGRATED SOLUTIONS, LLC
INDEX OF FINANCIAL STATEMENTS
AS OF AND FOR THE PERIOD ENDED JUNE 29, 2007 AND JUNE 30, 2006
| | Page Number | |
| | | | | |
Balance Sheet | | | | |
| • As of June 29, 2007 (Unaudited) | 16 | |
| | | | | |
| | | | |
| • For the period ended June 29, 2007 and June 30, 2006 (Unaudited) | 17 | |
| | | | | |
Statement of Changes in Member's Deficit | | | | |
| • For the period ended June 29, 2007 (Unaudited) | 18 | |
| | | | | |
| | | | |
| • For the period ended June 29, 2007 and June 30, 2006 (Unaudited) | 19 | |
| | | | | | | |
| 20 | |
| MRO INTEGRATED SOLUTIONS, LLC |
| BALANCE SHEET (UNAUDITED) |
| June 29, 2007 |
ASSETS |
CURRENT ASSETS | | | | |
| Cash | | $ | 349,409 | |
| Accounts receivable, net | | | 210,711 | |
| Inventory | | | 305,614 | |
| Prepaid expenses | | | 5,005 | |
| Total current assets | | | 870,739 | |
| | | | | |
| Property and equipment, net | | | 31,648 | |
| Deferred financing fees, net | | | 67,000 | |
| Security deposit | | | 11,713 | |
| | | | | |
| TOTAL ASSETS | | $ | 981,100 | |
LIABILITIES AND MEMBER'S DEFICIT |
CURRENT LIABILITIES | | | | |
| Convertible note payable - related party | | $ | 1,500,000 | |
| Accounts payable | | | 169,493 | |
| Accrued expenses | | | 69,049 | |
| Current portion of capital lease obligation | | | 3,551 | |
| | | | | |
| Total current liabilities | | | 1,742,093 | |
| | | | | |
| Long-term portion of capital lease obligation | | | 4,901 | |
| | | | | |
| TOTAL LIABILITIES | | | 1,746,994 | |
| | | | | |
COMMITMENTS AND CONTINGENCIES | | | | |
| | | | | |
MEMBER'S DEFICIT | | | (765,894 | ) |
| | | | | |
| TOTAL LIABILITIES AND MEMBER'S DEFICIT | | $ | 981,100 | |
| MRO INTEGRATED SOLUTIONS, LLC |
| STATEMENTS OF OPERATIONS (UNAUDITED) |
| | | | For the Period | | | For the Period | |
| | | | Ended | | | Ended | |
| | | | June 29, | | | June 30, | |
| | | | 2007 | | | 2006 | |
| | | | | | | | |
| Net sales | | $ | 606,237 | | $ | 54,544 | |
| | | | | | | | |
| Cost of goods sold | | | 511,243 | | | 51,876 | |
| | | | | | | | |
| GROSS PROFIT | | | 94,994 | | | 2,668 | |
| | | | | | | | |
| Selling, general and administrative expenses | | | 260,949 | | | 220,762 | |
| | | | | | | | |
| LOSS FROM OPERATIONS | | | (165,955 | ) | | (218,094 | ) |
| | | | | | | | |
| Interest and financing expense | | | 34,130 | | | 63,091 | |
| | | | | | | | |
| NET LOSS | | $ | (200,085 | ) | $ | (281,185 | ) |
| MRO INTEGRATED SOLUTIONS, LLC |
| STATEMENT OF CHANGES IN MEMBER'S DEFICIT (UNAUDITED) |
| FOR THE PERIOD ENDED JUNE 29, 2007 |
| | | | Units | | | Amount | |
| | | | | | | | |
Balance - December 31, 2006 | | | 100 | | $ | (433,165 | ) |
| | | | | | | | |
| Contributions | | | - | | | 1,356 | |
| | | | | | | | |
| Distributions | | | - | | | (134,000 | ) |
| | | | | | | | |
| Net loss | | | - | | | (200,085 | ) |
| | | | | | | | |
Balance - June 29, 2007 | | | 100 | | $ | (765,894 | ) |
| MRO INTEGRATED SOLUTIONS, LLC |
| STATEMENTS OF CASH FLOWS (UNAUDITED) |
| | | | | | |
| | | For the Period | | For the Period | |
| | | Ended | | Ended | |
| | | June 29, | | June 30, | |
CASH FLOWS FROM OPERATING ACTIVITIES | | 2007 | | 2006 | |
| Net loss | | $ | (200,085 | ) | $ | (281,185 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | |
| Depreciation | | | 5,066 | | | - | |
| Amortization of deferred financing fees | | | 6,000 | | | - | |
| Changes in operating assets and liabilities: | | | | | | | |
| Accounts receivable | | | (24,413 | ) | | (50,915 | ) |
| Inventory | | | (176,275 | ) | | (45,635 | ) |
| Prepaid expenses | | | 2,090 | | | - | |
| Accounts payable | | | 84,307 | | | 82,161 | |
| Accrued expenses | | | 2,267 | | | 5,113 | |
| | | | | | | | |
| NET CASH USED IN OPERATING ACTIVITIES | | | (301,043 | ) | | (290,461 | ) |
| | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | |
| Gross proceeds from convertible notes payable - related party | | | 500,000 | | | - | |
| Deferred financing fee in connection with convertible notes payable | | | (15,000 | ) | | - | |
| Proceeds from notes payable | | | - | | | 250,000 | |
| Contributions by member | | | 1,356 | | | 122,612 | |
| Distributions to member | | | (134,000 | ) | | (68,955 | ) |
| Payments of capital lease obligation | | | (2,132 | ) | | - | |
| | | | | | | | |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | | | 350,224 | | | 303,657 | |
| | | | | | | | |
| NET INCREASE IN CASH | | | 49,181 | | | 13,196 | |
| | | | | | | | |
CASH - BEGINNING OF PERIOD | | | 300,228 | | | 3,008 | |
| | | | | | | | |
CASH - END OF PERIOD | | $ | 349,409 | | $ | 16,204 | |
| | | | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | | | | |
| Cash paid for interest | | $ | 25,864 | | $ | 62,500 | |
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
AS OF AND FOR THE PERIOD ENDED JUNE 29, 2007 AND JUNE 30, 2006
1. | ORGANIZATION AND NATURE OF BUSINESS |
MRO Integrated Solutions, LLC, was incorporated as Logistics Supply Company, LLC in the State of Connecticut on April 18, 2005. On August 5, 2005, Logistics Supply Company, LLC legally changed its name to MRO Integrated Solutions, LLC. MRO Integrated Solutions, LLC merged with MRO Integrated Solutions of Delaware, LLC (“MRO” or the “Company”) on August 28, 2007 and continues to operate under the name MRO Integrated Solutions, LLC (“MRO” or the “Company”). The purpose of this transaction was to effectuate a change in location of incorporation to Delaware (see note 13).
MRO is headquartered in Shrewsbury, Massachusetts (“MA”) and purchases spare, consumable maintenance and repair parts and resells them directly to semiconductor fabrication facilities.
On June 29, 2007, MRO became a wholly owned subsidiary of Conihasset Capital Partners, Inc (“CCP”) (see note 4). These financial statements do not reflect the transactions relating to the acquisition of the Company by CCP which includes the conversion of the convertible note payable of $1,500,000 to equity, the write-off to expense of deferred financing costs of $67,000 and the write-off of accrued and unpaid interest on the convertible note payable of $7,083, which was forgiven as part of the acquisition (see notes 5 and 8).
2. | LIQUIDITY AND FINANCIAL CONDITION |
The Company incurred net losses of $200,085, $504,310, and $169,741 for the period ended June 29, 2007, for the year ended December 31, 2006, and for the period from inception (April 18, 2005) to December 31, 2005, respectively. At June 29, 2007, the Company's members’ deficit amounted to $765,894, prior to the acquisition.
On June 29, 2007, the Company was acquired by CCP (see note 5).
Management believes the funds the Company expects to generate from operations, and CCP’s ability to raise additional capital, will sustain the business through June 30, 2008. In the event that the Company is required to obtain additional capital subsequent to June 30, 2008, the Company cannot provide any assurance that it will secure any commitments for new financing on acceptable terms, if at all.
3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Cash
The Company places its cash with high quality financial institutions, which at times may exceed federal insured limits. The Company has not experienced any losses on these accounts and believes such risk is minimal.
Allowance for Doubtful Accounts
The Company sells its product throughout the United States of America. Credit is extended to customers only after an evaluation of the customer’s financial condition and generally collateral is not required. Since its inception, the Company has not had any write-offs of its trade accounts receivable. Based on historical collection activity, management determined it is not necessary to establish an allowance for doubtful accounts as of June 29, 2007.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Inventory consists of semiconductor spare and consumable parts.
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
AS OF AND FOR THE PERIOD ENDED JUNE 29, 2007 AND JUNE 30, 2006
Deferred Financing Costs
The Company incurred $15,000 in financing costs in connection with its entering into a convertible promissory note for the period ended June 29, 2007. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases”, the Company is amortizing these financing costs over the maximum life of the loans based on there being no understanding between the Company and the lender as to the length of time over which the loan would be outstanding. Any unamortized balance will be written-off in the event that the loans are repaid or converted prior to maturity. For the period ended June 29, 2007, the Company amortized $6,000 of deferred financing fees and had a remaining unamortized balance of $67,000.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation, and are depreciated over the estimated useful life of the related asset. Depreciation is computed by the straight line method. Equipment acquired under capital leases are depreciated over the estimated useful life of the asset. The estimated useful lives used in computing depreciation are summarized as follows:
| | Years of |
| | Useful Life |
| | |
| Office furniture | 5 |
| Computer equipment | 5 |
| Equipment acquired under capital lease | 5 |
Maintenance and repairs of property and equipment are charged to operations, and major improvements are capitalized. Upon retirement, sale, or other disposition of property and equipment, the costs and accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is included in results of operations.
Fair Value of Financial Instruments
The fair value of financial instruments is the amount for which the instrument could be exchanged in a current transaction between willing parties. As of June 29, 2007, the carrying values of cash, accounts receivable, inventory, accounts payable, accrued expenses and convertible note payable approximated their respective fair values because of the short duration of these instruments. Additionally, it is management’s opinion that the Company is not exposed to significant interest rate or credit risks arising from these instruments
Revenue Recognition
The Company generates revenue from sales of its products to semiconductor fabrication facilities. The Company sells its products directly to third parties and to other distributors. The Company also provides warehousing services for other distributors. The Company applies the revenue recognition principles set forth in Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition”, with respect to all of its revenue. Accordingly, the Company records revenue when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the sales price is fixed or determinable, and (iv) collectability of the sale is reasonably assured.
The Company recognizes revenue at the time in which it receives a confirmation that the goods were either tendered at their destination when shipped “FOB destination” or transferred to a shipping agent when shipped “FOB shipping point”. Delivery to the customer is deemed to have occurred when the customer takes title to the product. Generally, title passes to the customer upon shipment, but could occur when the customer receives the product based on the terms of the agreement with the customer.
Revenue from warehousing services is recognized when products are shipped from its warehouse at the request of its customer.
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
AS OF AND FOR THE PERIOD ENDED JUNE 29, 2007 AND JUNE 30, 2006
Revenue Reporting
On July 13, 2007, the Company entered into an agreement with a distributor whereby the Company agreed to provide warehousing services for inventory that the distributor requests the Company to buy on its behalf. In exchange for such services, the distributor has agreed to pay the Company its cost plus a fixed percentage of such cost. Further, the distributor has agreed to purchase back from the Company any inventory that it requests the Company to purchase on its behalf that the Company is unable to sell to the Company’s other customers within 12 months from the date of purchase. The term of the agreement is retroactive from January 1, 2007 to December 31, 2009. Prior to January 1, 2007, there was no formal written agreement between the Company and this distributor; however, these terms between the Company and the distributor were in effect during 2006.
The Company is recording the purchase of this inventory as its own inventory since title transfers to the Company at the time of purchase, and the Company has the right to sell the inventory to its customer base with no restrictions.
In accordance with Emerging Issues Task Force (“EITF”) 99-19, “Reporting Revenue Gross versus Net as an Agent”, the Company reports the sales to the distributor at the net amount retained because it has earned a fee rather than generating a sale of goods. During the period ended June 29, 2007, the Company transferred $84,436 of material at cost and recognized $5,231 in warehousing fees. During the six months ended June 30, 2006, the Company transferred $19,930 of material at cost and recognized $1,002 in warehousing fees. As June 29, 2007, the Company had $55,891 of inventory on hand that the distributor had requested the Company to purchase.
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 amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. The Company evaluates all of its estimates on an on-going basis. Actual results could differ from these estimates.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”).
SFAS No. 133 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments in accordance with EITF 00-19. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of SFAS No. 133. SFAS No. 133 and EITF 00-19 also provide an exception to this rule when the host instrument is deemed to be conventional (as that term is described in the implementation guidance to SFAS No. 133 and further clarified in EITF 05-2, “The Meaning of “Conventional Convertible Debt Instrument” in Issue No. 00-19).
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with the provisions of EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features,” (“EITF 98-5”) and EITF 00-27, “Application of EITF 98-5 to Certain Convertible Instruments.” Accordingly, the Company records when necessary discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption.
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
AS OF AND FOR THE PERIOD ENDED JUNE 29, 2007 AND JUNE 30, 2006
The Company evaluated the conversion option embedded in its convertible instruments during each of the reporting periods presented and has determined, in accordance with the provisions of these statements, that it does not meet the criteria requiring bifurcation of these instruments. Additionally, the Company’s conversion options, if free standing, would not be considered derivatives subject to accounting guidelines prescribed under SFAS No. 133.
The Company has evaluated the provisions of EITF 00-19-2 "Accounting for Registration Payment Arrangements", which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with SFAS 5, "Accounting for Contingencies." Adoption of EITF 00-19-2 is required for fiscal years beginning after December 15, 2006. The implementation of EITF 00-19-2 did not have an effect on the Company’s financial statements.
Concentrations of Credit Risk
The Company believes it is not exposed to any significant credit risk with cash. The Company maintains its cash with a high credit quality financial institution. Total deposits on account at the financial institution are secured by the Federal Deposit Insurance Corporation up to $100,000.
Shipping and Handling Fees and Costs
Shipping and handling fees billed to customers are classified in net sales in the statements of operations. Shipping and handling costs are classified in cost of goods sold in the statements of operations. These costs totaled $16,433 and $6,163 for periods ended June 29, 2007 and June 30, 2006, respectively.
Income Taxes
The Company is not a tax paying entity for federal and state income tax purposes, and thus no income tax expense/benefit has been recorded in the financial statements. The income or loss of the Company is taxed to the members in their respective returns.
On June 13, 2007, the President and sole owner of MRO (the “Seller”), and CCP entered into a sale agreement (the “Sale Agreement”) for the sale of all of the outstanding membership interests of MRO to CCP.
On June 29, 2007 (the “Closing Date”), the Seller completed the sale of one hundred percent (100%) of the outstanding membership interests of MRO. In consideration for such sale, CCP agreed, pursuant to arm’s length negotiations, to pay and deliver on the Closing Date a purchase price of $3 million in the form of the issuance to the Seller of 300,000 shares of CCP’s common stock at a price of $5.00 per share, the conversion by MRO of a convertible promissory note in the amount of $1.5 million held by CCP and the forgiving of $7,083 of accrued and unpaid interest related to this note. Additionally, unamortized deferred financing fees of $67,000 were written off to expense by the Company. Upon completion of such transactions, the Company became a wholly owned subsidiary of CCP. In addition, the Seller will remain the President of MRO.
These financial statements do not reflect the transactions relating to the acquisition of the Company by CCP.
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
AS OF AND FOR THE PERIOD ENDED JUNE 29, 2007 AND JUNE 30, 2006
At June 29, 2007, property and equipment is comprised of the following:
| | | | | |
| Office furniture | | $ | 2,260 | |
| Computer equipment | | | 36,641 | |
| Leased equipment | | | 11,760 | |
| Total property and equipment | | | 50,661 | |
| Less: accumulated depreciation | | | (19,013 | ) |
| Property and equipment, net | | $ | 31,648 | |
Depreciation expense on property and equipment amounted to $5,066 and $0 for the periods ended June 29, 2007 and June 30, 2006, respectively.
On January 31, 2006, the Company entered into a $250,000 note payable bearing interest at 60% per annum, payable on demand but in no event later than January 31, 2007. The note was personally guaranteed by President of MRO. Interest was payable on a monthly basis. The $250,000 note was paid in full by the Company on September 30, 2006. Included in accrued expense in the accompanying balance sheet at June 29, 2007 is an additional $38,500 of accrued and unpaid interest on this note. There are no late fees or penalties accruing on this liability.
Per Accounting Principles Board Opinion No. 21, “Interest on Receivables and Payables”, if the interest rate is deemed unreasonable, an imputed interest rate must be used to determine the present value of the note, and any discount or premium must be recognized and amortized over the life of the note. Since the note was paid back within the year, no discount or premium was recognized on this note.
7. | CONVERTIBLE NOTES PAYABLE-RELATED PARTY |
On August 28, 2006, the Company entered into a 5% convertible promissory note with CCP in the amount of $150,000, payable on demand, but no later than August 28, 2011, and was convertible in whole into membership units representing 5% of the total outstanding membership units of the Company. The Company received $150,000 in gross proceeds, less $9,000 in financing costs.
On October 2, 2006, the Company received an additional $75,000 in gross proceeds from CCP, less $4,500 in financing costs. This 5% convertible promissory note was also due on demand but no later than October 2, 2011 and was convertible in whole into membership units representing 2.5% of the total outstanding membership units of the Company.
On November 15, 2006, the Company received an additional $775,000 in gross proceeds from CCP, less $46,500 in financing costs. The prior two notes were rescinded and consolidated into a new convertible note, including this borrowing, for $1,000,000. As a condition of this convertible note, the Company entered into a registration rights agreement with CCP. The agreement does not provide a liquidated damages clause.
On May 18, 2007, the Company received an additional $500,000 from CCP. The prior $1,000,000 note was rescinded and consolidated into a new Convertible Note for $1,500,000.
This new convertible note payable to CCP in the amount of $1,500,000, bearing interest at 5% per annum, is payable on demand but in no event later than May 18, 2012. The note was secured by substantially all of the assets of the Company and was convertible in whole into membership units representing 50% of the total outstanding membership units of the Company. CCP, at its option, could convert the note at anytime on or before the maturity date. Interest is payable on a quarterly basis.
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
AS OF AND FOR THE PERIOD ENDED JUNE 29, 2007 AND JUNE 30, 2006
The Company has accrued and unpaid interest as of June 29, 2007 of $7,083 related to this note included in accrued expenses in the accompanying balance sheet. Interest expense related to this note was $19,167 for the year ended December 31, 2006.
On June 29, 2007, CCP elected to convert this $1,500,000 note into equity (see note 4), in conjunction with its acquisition of 100% of the membership units of the Company, making the Company a wholly owned subsidiary of CCP.
Ownership rights in the Company are reflected in Membership Units as recorded by the Company. The Membership Units all have the same preferences, limitations and rights, including voting rights. On June 1, 2007, the President of MRO, in a private transaction, acquired the remaining outstanding Membership Units from the other two members, becoming the sole member of MRO. As of June 29, 2007, both prior and subsequent to the acquisition of the Company by CCP, there were 100 Membership Units outstanding.
9. | COMMITMENTS AND CONTINGENCIES |
Lease Commitments
The Company has an operating facility in Shrewsbury, MA, under a four-year non-cancelable operating lease expiring on May 31, 2009. Base rent for the premises does not include real estate taxes and other operating expenses for which the Company is separately liable. Annual base rent on the premises is $56,820, payable in monthly installments of $4,735 each.
Future minimum operating lease payments at June 29, 2007 are as follows:
| Year ending December 31, | | | | |
| 2007 | | $ | 28,410 | |
| 2008 | | | 56,820 | |
| 2009 | | | 23,675 | |
| Total | | $ | 108,905 | |
Rent expense and related costs amounted to $35,138 and $35,138 for the period ended June 29, 2007 and June 30, 2006, respectively.
Payroll Liabilities
As of June 29, 2007, the Company has accrued $23,466 for payroll taxes, including penalties and interest, that it may owe related to payments made to individuals who provided services to the Company during the year ended December 31, 2006 and for the period from inception (April 18, 2005) to December 31, 2005.
For the period ended June 29, 2007, the Company had two customers, which comprised approximately 73% and 13% of net sales. As of June 29, 2007, accounts receivable from these customers amounted to $193,148 and $3,588, respectively. For the period ended June 30, 2006, the Company had two customers, which comprised approximately 50% and 22% of net sales.
11. | OBLIGATION UNDER CAPITAL LEASE |
The Company entered into a capital lease for warehouse equipment on July 26, 2006. The lease payments are $367 per month for a term of 36 months, with a bargain purchase option of $1 at the maturity of the lease, July 31, 2009. The lease carries an interest rate of 8% and is guaranteed by a member of the Company. The net carrying value of assets under this obligation was $8,452 at June 29, 2007.
MRO INTEGRATED SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
AS OF AND FOR THE PERIOD ENDED JUNE 29, 2007 AND JUNE 30, 2006
As of June 29, 2007, the aggregate future minimum annual lease payments under this capital lease are as follows:
Years ending December 31, | | | | |
| 2007 | | $ | 1,837 | |
| 2008 | | | 4,408 | |
| 2009 | | | 2,939 | |
| Total minimum lease payments | | | 9,184 | |
| Less: amount representing interest | | | (732 | ) |
| Present value of minimum lease payments | | | 8,452 | |
| Less: current maturity | | | (4,901 | ) |
| Obligations under capital lease, non-current maturity | | $ | 3,551 | |
12. | RELATED PARTY TRANSACTIONS |
Two relatives of a member of the Company were paid $3,938 and $10,000 for warehouse services provided for the period ended June 29, 2007 and June 30, 2006, respectively. For the period ended June 29, 2007 and June 30, 2006, $34,622 and $60,400, respectively, was recorded as compensation to the members, and is included in selling, general, and administrative expenses.
On July 13, 2007, the Company entered into an agreement with a distributor whereby the Company agreed to provide warehousing services for inventory that the distributor requests the Company to buy on its behalf. In exchange for such services, the distributor has agreed to pay the Company its cost plus a fixed percentage of such cost. Further, the distributor has agreed to purchase back from the Company any inventory that it requests the Company to purchase on its behalf that the Company is unable to sell to the Company’s other customers within 12 months from the date of purchase. The term of the agreement is retroactive from January 1, 2007 to December 31, 2009.
On July 19, 2007, the Company, CCP and Metron Technology, Inc. (“Metron”), a Delaware corporation that supports original equipment manufacturers, semiconductor manufacturers and suppliers, entered into a purchase agreement (the “Purchase Agreement”) whereby the Company would purchase certain assets of Metron’s North American Cleanroom Consumable Products Division (“NACCPD”).
On July 23, 2007 (the “Closing Date”), MRO completed the purchase from Metron of all of the NACCPD assets. In consideration for such purchase, the Purchaser agreed, pursuant to arm’s length negotiations, to pay and deliver on the Closing Date a purchase price of $1.1 million in cash allocable to the NACCPD assets acquired.
The Company merged into MRO Integrated Solutions of Delaware, LLC on August 28, 2007. The purpose of this transaction was to effectuate a change in location of incorporation to Delaware. The Company will continue to operate under the name MRO Integrated Solutions, LLC.
(b) Pro Forma Financial Information.
The Company has included below the following Conihasset Capital Partners, Inc. and Subsidiary Unaudited Pro Forma Condensed Combined Financial Statements required as a result of the Purchase Agreement:
| | · | Balance Sheet as of June 30, 2007; |
| | · | Statement of Operations for the six months ended June 30, 2007; and |
| | · | Statement of Operations for the year ended December 31, 2006 |
CONIHASSET CAPITAL PARTNERS, INC. AND SUBSIDIARY
Unaudited Pro Forma Condensed Combined Financial Statements
Introduction to the Unaudited Pro Forma Condensed Combined Financial Statements
On June 13, 2007, Conihasset Capital Partners, Inc. (“CCP” or the “Company”) and Thomas Melina (the “Seller”), President and sole member of MRO Integrated Solutions, LLC (“MROIS” or the “Subsidiary”), a Delaware limited liability company (formerly a Connecticut limited liability company) that specializes in spares and consumable products, entered into a purchase agreement (the “Purchase Agreement”) for the purchase of all of the outstanding membership interests of the Subsidiary.
On June 29, 2007 (the “Closing Date”), the Company completed the purchase from the Seller of one hundred percent (100%) of the outstanding membership interests of the Subsidiary. In consideration for such purchase, the Company agreed, pursuant to arm’s length negotiations, to pay and deliver on the Closing Date a purchase price of $3 million in the form of the issuance to the Seller of 300,000 shares of the Company’s common stock at a price of $5.00 per share, and the conversion by the Subsidiary of a convertible subordinated promissory note in the amount of $1.5 million held by the Company. In addition, the Seller will remain the President of the Subsidiary. The results of the Subsidiary’s operations have been included in the consolidated financial statements of CCP since that date.
The purchase method was used to account for the acquisition at June 29, 2007, and the purchase price was initially allocated as follows:
| Cash | | $ | 349,409 | |
| Accounts receivable | | | 210,711 | |
| Inventory | | | 305,614 | |
| Other current assets | | | 12,861 | |
| Property and equipment | | | 31,648 | |
| Goodwill | | | 2,224,749 | |
| Total assets acquired | | | 3,134,992 | |
| Accounts payable | | | 191,606 | |
| Other current liabilities | | | 10,386 | |
| Net assets acquired | | $ | 2,933,000 | |
The net assets acquired consist of the $3,000,000 purchase price less unamortized deferred finance fees of $67,000.
Subsequently, the Company determined that $400,000 of the amount previously allocated to goodwill should be allocated to the Subsidiary’s customer list.
Additionally, there was $67,000 of unamortized deferred finance fees on the books of CCP which were originally offset against equity with the resulting affect on goodwill. The Company subsequently determined that these unamortized deferred finance fees should have been recorded as income on the books of CCP on the closing date and eliminated in consolidation with MROIS. An adjustment for this change has been included in the unaudited pro forma condensed combined balance sheet as of June 30, 2007 and the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2007. The effect of this adjustment is an increase of $67,000 to goodwill and stockholders' equity in the pro forma condensed combined balance sheet as of June 30, 2007 and an increase of $67,000 in interest from controlled investments in the pro forma condensed combined statement of operations for the six months ended June 30, 2007.
CONIHASSET CAPITAL PARTNERS, INC. AND SUBSIDIARY
Unaudited Pro Forma Condensed Combined Financial Statements
Introduction to the Unaudited Pro Forma Condensed Combined Financial Statements
The following unaudited pro forma condensed combined balance sheet as of June 30, 2007 reflects the re-allocation of the purchase price, the adjustment for the change in accounting for the unamortized deferred finance fees and subsequent adjustments made to the MROIS balance sheet as of June 29, 2007 which was included in the condensed consolidated balance sheet of CCP as of June 30, 2007 that was filed as part of the Company's 10-Q as of that date and for the six months then ended.
The following unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2007 combines the results of operations of CCP and MROIS for the period from January 1, 2007 through June 30, 2007, as though the acquisition had occurred as of March 1, 2006.
The following unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006 combines the results of operations of CCP and MROIS for the period from the date of inception of CCP (March 1, 2006) through December 31, 2006, as though the acquisition had occurred as of March 1, 2006.
The unaudited pro forma condensed combined balance sheet and statements of operations reflect management’s best estimate of the purchase price allocation related to CCP’s acquisition of MROIS. However, the final allocations may differ from the pro forma amounts.
These unaudited pro forma condensed combined balance sheet and statements of operations should be read in conjunction with the separate historical audited financial statements as of December 31, 2006 and for the year ended December 31, 2006 and the unaudited financial statements as of June 29, 2007 and for the six months ended June 29, 2007 for MROIS included elsewhere in this form 8-K/A and the historical audited financial statements as of December 31, 2006 and for the period from the date of inception (March 1, 2006) to December 31, 2006 and the unaudited financial statements as of June 30, 2007 and for the six months ended June 30, 2007 for CCP.
CONIHASSET CAPITAL PARTNERS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2007
| | | | CCP | | Pro Forma Adjustments | | Pro Forma Combined | |
| | | (a) | | | | | | | | | | |
ASSETS | | | | | | | | | | | | | |
Current Assets: | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 1,848,309 | | $ | - | | | | | $ | 1,848,309 | |
| Accounts receivable | | | 210,711 | | | - | | | | | | 210,711 | |
| Inventory | | | 305,614 | | | - | | | | | | 305,614 | |
| Deposits | | | 16,263 | | | - | | | | | | 16,263 | |
| Prepaid expense | | | 12,284 | | | 3,857 | | | (b | ) | | 16,141 | |
| Total Current Assets | | | 2,393,181 | | | 3,857 | | | | | | 2,397,038 | |
| | | | | | | | | | | | | | |
| Property and equipment, net | | | 37,511 | | | 9,604 | | | (c | ) | | 47,115 | |
| Leased equipment, net | | | 9,604 | | | (9,604 | ) | | (c | ) | | - | |
| Intangible assets, net | | | - | | | 400,000 | | | (d | ) | | 400,000 | |
| Goodwill | | | 2,224,749 | | | (291,855 | ) | | (d,e,g,h | ) | | 1,932,894 | |
| | | | | | | | | | | | | | |
| Total Assets | | $ | 4,665,045 | | $ | 112,002 | | | | | $ | 4,777,047 | |
LIABILITES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Current Liabilities: | | | | | | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 394,865 | | $ | 21,536 | | | (e | ) | $ | 416,401 | |
| Accrued officer payroll and related payroll taxes | | | 82,734 | | | 23,466 | | | (e | ) | | 106,200 | |
| Current maturity of capital lease | | | 3,886 | | | (335 | ) | | (f | ) | | 3,551 | |
| Total Current Liabilities | | | 481,485 | | | 44,667 | | | | | | 526,152 | |
| | | | | | | | | | | | | | |
| Obligation under capital lease | | | 4,566 | | | 335 | | | (f | ) | | 4,901 | |
| | | | | | | | | | | | | | |
| Total Liabilities: | | | 486,051 | | | 45,002 | | | | | | 531,053 | |
| | | | | | | | | | | | | | |
Stockholders’ Equity: | | | | | | | | | | | | | |
| Common stock | | | 1,084 | | | - | | | | | | 1,084 | |
| Additional paid-in capital | | | 5,433,413 | | | - | | | | | | 5,433,413 | |
| Accumulated deficit | | | (1,255,503 | ) | | 67,000 | | | (g | ) | | (1,188,503 | ) |
| | | | | | | | | | | | | | |
| Total Stockholders’ Equity | | | 4,178,994 | | | 67,000 | | | | | | 4,245,994 | |
| | | | | | | | | | | | | | |
| Total Liabilities and Stockholders’ Equity | | $ | 4,665,045 | | $ | 112,002 | | | | | $ | 4,777,047 | |
See notes to unaudited pro forma condensed combined financial statements.
CONIHASSET CAPITAL PARTNERS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007
| | | | CCP | | | MRO Integrated Solutions, LLC | | | Pro Forma Adjustments | | | | | | Pro Forma Combined | |
| | | | (1) | | | (2) | | | | | | | | | | |
| Net sales | | $ | - | | $ | 606,237 | | $ | - | | | | | $ | 606,237 | |
| | | | | | | | | | | | | | | | | |
| Cost of goods sold | | | - | | | 511,243 | | | - | | | | | | 511,243 | |
| | | | | | | | | | | | | | | | | |
| GROSS PROFIT | | | - | | | 94,994 | | | - | | | | | | 94,994 | |
| | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 875,092 | | | 260,949 | | | 20,000 | | | (6 | ) | | 1,156,041 | |
| | | | | | | | | | | | | | | | | |
| LOSS FROM OPERATIONS | | | (875,092 | ) | | (165,955 | ) | | (20,000 | ) | | | | | (1,061,047 | ) |
| | | | | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE): | | | | | | | | | | | | | | | | |
| Interest income from controlled investments | | | 25,167 | | | - | | | (25,167 | ) | | (3,5 | ) | | - | |
| Interest income | | | 6,785 | | | - | | | - | | | | | | 6,785 | |
| Interest expense | | | - | | | (34,130 | ) | | 32,250 | | | (4,5 | ) | | (1,880 | ) |
| TOTAL OTHER INCOME (EXPENSE), NET | | | 31,952 | | | | ) | | 7,083 | | | | | | 4,905 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| NET INCOME (LOSS) | | $ | (843,140 | ) | $ | (200,085 | ) | $ | (12,917 | ) | | | | $ | (1,056,142 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net loss per common share, basic and diluted | | $ | (1.78 | ) | | | | | | | | | | $ | (1.37 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares of common shares outstanding, basic and diluted | | | 474,382 | | | | | | 296,685 | | | (7 | ) | | 771,067 | |
See notes to unaudited pro forma condensed combined financial statements.
CONIHASSET CAPITAL PARTNERS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MARCH 1, 2006) THROUGH DECEMBER 31, 2006
| | | | CCP | | | MRO Integrated Solutions, LLC | | | Pro Forma Adjustments | | | | | | Pro Forma Combined | |
| | | | (8) | | | (9) | | | | | | | | | | |
| Net sales | | $ | - | | $ | 376,689 | | $ | - | | | | | $ | 376,689 | |
| | | | | | | | | | | | | | | | | |
| Cost of goods sold | | | - | | | 314,373 | | | - | | | | | | 314,373 | |
| | | | | | | | | | | | | | | | | |
| GROSS PROFIT | | | - | | | 62,316 | | | - | | | | | | 62,316 | |
| | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 427,440 | | | 333,582 | | | 33,333 | | | (11 | ) | | 794,355 | |
| | | | | | | | | | | | | | | | | |
| LOSS FROM OPERATIONS | | | (427,440 | ) | | (271,266 | ) | | (33,333 | ) | | | | | (732,039 | ) |
| | | | | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE): | | | | | | | | | | | | | | | | |
| Interest income from controlled investments | | | 13,023 | | | - | | | (13,023 | ) | | (10 | ) | | - | |
| Interest income | | | 2,054 | | | - | | | - | | | | | | 2,054 | |
| Interest expense | | | - | | | (139,649 | ) | | 13,023 | | | (10 | ) | | (126,626 | ) |
| TOTAL OTHER INCOME (EXPENSE), NET | | | 15,077 | | | (139,649 | ) | | - | | | | | | (124,572 | ) |
| | | | | | | | | | | | | | | | | |
| NET LOSS | | $ | (412,363 | ) | $ | (410,915 | ) | $ | (33,333 | ) | | | | $ | (856,611 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net loss per common share, basic and diluted | | $ | (4.76 | ) | | | | | | | | | | $ | (2.22 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares of common shares outstanding, basic and diluted | | | 86,642 | | | | | | 300,000 | | | (12 | ) | | 386,642 | |
See notes to unaudited pro forma condensed combined financial statements.
CONIHASSET CAPITAL PARTNERS, INC. AND SUBSIDIARY
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
| 1. | Pro Forma adjustments - Unaudited Condensed Combined Balance Sheet as of June 30, 2007 |
| (a) | Derived from the unaudited condensed consolidated balance sheet of CCP and Subsidiary, as reported in the June 30, 2007 in its form 10-Q filed on August 14, 2007. |
| (b) | Recording subsequent increase to prepaid insurance as of June 29, 2007. |
| (c) | Recording leased equipment with property and equipment. |
| (d) | Subsequent re-allocation of purchase price to the MROIS customer list of $400,000, resulting in a reduction to goodwill of $400,000. This customer list is being amortized over an estimated useful life of ten years. |
| (e) | Recording subsequent increase to accrued expenses and accrued officer payroll as of June 29, 2007. |
| (f) | To adjust current and long-term maturity of capital lease. |
| (g) | Correction of error to reverse write-off of $67,000 of unamortized deferred finance fees previously recorded by CCP, resulting in an increase to goodwill of $67,000. |
| (h) | Recording subsequent adjustments made to the balance sheet of MROIS as of June 29, 2007 resulting in an increase (decrease) to goodwill as follows: |
| | | | |
| Prepaid expense | | $ | (3,857 | ) |
| Accounts payable and accrued expenses | | | 21,536 | |
| Accrued officer payroll and related payroll taxes | | | 23,466 | |
| | | | | |
| Net increase to goodwill from these adjustments | | $ | 41,145 | |
| 2. | Pro Forma adjustments - Unaudited Pro Forma Condensed Combined Statement of Operations for the six months ended June 30, 2007 |
| (1) | Derived from the unaudited condensed consolidated statement of operations of CCP for the six months ended June 30, 2007, as reported in its form 10-Q filed on August 14, 2007. |
| (2) | Derived from the unaudited condensed statement of operations of MROIS for the period from January 1, 2007 to June 29, 2007. |
| (3) | Interest income from controlled investment for CCP for the six months ended June 30, 2007 as reported in its form 10-Q has been increased by $67,000 for the correction in accounting related to the write-off of unamortized deferred finance fees. These fees are eliminated in the consolidating pro forma adjustment with MROIS. |
| (4) | The unaudited condensed statements of operations of MROIS does not include the affects of the Purchase Agreement at the Closing Date. At the Closing Date, MROIS recorded the following transactions to expense the unamortized portion of deferred finance fees in the amount of $67,000 and to record the forgiveness of interest due to CCP in the amount of $7,083. These amounts are eliminated in Note 5 below. |
| Write-off of unamortized deferred finance fee | | $ | (67,000 | ) |
| Forgiveness of interest due to CCP | | | 7,083 | |
| Net increase to interest expense | | $ | (59,917 | ) |
| (5) | The elimination of inter-company activity including - |
| Write-off of unamortized deferred finance fee | | $ | 67,000 | |
| Amortization of deferred finance fee | | | 6,000 | |
| Interest charged by CCP to MROIS | | | 26,250 | |
| Reversal of interest due to CCP by MROIS forgiven as part | | | | |
| of the acquisition | | | (7,083 | ) |
| | | | | |
| Net elimination entry | | $ | 92,167 | |
| (6) | Amortization of the customer list recognized as part of the acquisition. |
| (7) | To record issuance of 300,000 shares issued in connection with CCP’s acquisition of 100% of the outstanding membership interests of MROIS. |
CONIHASSET CAPITAL PARTNERS, INC. AND SUBSIDIARY
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
| 3. | Pro Forma adjustments - Unaudited Pro Forma Condensed Combined Statement of Operations for the period from inception (March 1, 2006) to December 31, 2006. |
| (8) | Derived from the audited statement of operations for the period from inception (March 1, 2006) to December 31, 2006, as reported in the CCP 10-K. |
| (9) | Derived from the unaudited condensed statement of operations of MROIS for the period from March 1, 2006 to December 31, 2006. |
(10) Elimination of interest charged by CCP to MROIS | $11,023 |
| | | |
| Elimination of amortization of deferred finance fees | 2,000 |
| | | |
| Total amount of elimination adjustment | $13,023 |
| | | |
| (11) | Amortization of the intangible asset recognized as part of the acquisition |
| (12) | To record issuance of 300,000 shares issued in connection with CCP's acquisition of 100% of the outstanding membership interests of MROIS. |
(c) Shell company transaction.
Not applicable.
(d) Exhibits.
| | 2.1 | Stock Purchase Agreement dated as of June 13, 2007 by and between Conihasset Capital Partners, Inc. and Thomas J. Melina.* |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| | | |
| Date: September 20, 2007 | CONIHASSET CAPITAL PARTNERS, INC. |
|
|
|
| By: | /s/Richard D. Bailey |
| |
Richard D. Bailey |
| | President and Chief Executive Officer |
