Exhibit 99.2
Consolidated Financial Statements As of December 31, 2010 | ||||
F-1 | ||||
FINANCIAL STATEMENTS | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
Board of Directors
Mt. Hood Solutions Company
Portland, OR
INDEPENDENT AUDITORS’ REPORT
We have audited the accompanying consolidated balance sheet of Mt. Hood Solutions Company as of December 31, 2010, and the related consolidated statements of operations and comprehensive income, stockholder’s equity and comprehensive loss and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mt. Hood Solutions Company as of December 31, 2010, and the results of their operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Scharf Pera & Co., PLLC
Charlotte, North Carolina
July 12, 2011
F-1
MT. HOOD SOLUTIONS COMPANY
DECEMBER 31, 2010
ASSETS | ||||
Current assets | ||||
Cash and cash equivalents | $ | 243,032 | ||
Marketable securities — Note 3 | 28,884 | |||
Accounts receivable, net of allowance — Note 2 | 2,223,540 | |||
Employee receivables | 27,353 | |||
Due from related party | 10,000 | |||
Inventory — Note 4 | 1,710,449 | |||
Prepaid expenses and other current assets | 213,318 | |||
Total current assets | $ | 4,456,576 | ||
Property and equipment, net —Note 5 | 4,474,925 | |||
Other assets | ||||
Intangible assets, net — Note 6 | 25,072 | |||
$ | 8,956,573 | |||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||
Current liabilities | ||||
Line of credit — Note 7 | $ | 738,210 | ||
Accounts payable | 1,126,875 | |||
Deferred compensation — Note 11 | 783,896 | |||
Accrued expenses and other current liabilities — Note 11 | 1,001,537 | |||
Income taxes payable | 14,640 | |||
Total current liabilities | $ | 3,665,158 | ||
Commitments and contingencies —Note 8 | — | |||
Stockholder’s equity | ||||
Common stock, no par value, authorized 1,000 shares, 37 shares issued and outstanding at December 31, 2010 | 95,738 | |||
Retained earnings | 5,175,378 | |||
Accumulated other comprehensive loss | (1,726 | ) | ||
Total Mt Hood Solutions Company stockholder’s equity | 5,269,390 | |||
Non-controlling interest | 22,025 | |||
$ | 8,956,573 | |||
See Notes to Consolidated Financial Statements
F-2
MT. HOOD SOLUTIONS COMPANY
YEAR ENDED DECEMBER 31, 2010
Revenue | ||||
Products and services | $ | 23,650,280 | ||
Costs and Expenses | ||||
Cost of sales | $ | 10,549,561 | ||
Selling, general and administrative | 11,291,306 | |||
Depreciation and amortization | 747,048 | |||
Total costs and expenses | 22,587,915 | |||
Income from Operations | 1,062,365 | |||
Other Income (Expense) | ||||
Interest expense | (7,375 | ) | ||
Rental income | 85,227 | |||
Gain on sale of property and equipment | 57,513 | |||
Loss on marketable securities | (16,213 | ) | ||
Other | 19,239 | |||
Total other income (expense) | 138,391 | |||
Net Income Before Income Taxes | 1,200,756 | |||
Income Taxes | (12,951 | ) | ||
Net Income | 1,187,805 | |||
Net Income Attributable to Non-Controlling Equity Interest | (5,372 | ) | ||
Net Income Attributable to Mt Hood Solutions Company | 1,182,433 | |||
Other Comprehensive Income | ||||
Unrealized gain on marketable securities | 9,341 | |||
Comprehensive Income | $ | 1,191,774 | ||
See Notes to Consolidated Financial Statements
F-3
MT. HOOD SOLUTIONS COMPANY
YEAR ENDED DECEMBER 31, 2010
Accumulated | ||||||||||||||||||||||||
Other | Non- | |||||||||||||||||||||||
Common Stock | Comprehensive | Retained | controlling | |||||||||||||||||||||
Shares | Amount | Loss | Earnings | Interest | Total | |||||||||||||||||||
Balance as of December 31, 2009 | 37 | $ | 95,738 | $ | (11,067 | ) | $ | 5,016,732 | $ | 36,027 | $ | 5,137,430 | ||||||||||||
Distributions | (1,023,787 | ) | (19,374 | ) | (1,043,161 | ) | ||||||||||||||||||
Net income | 1,182,433 | 5,372 | 1,187,805 | |||||||||||||||||||||
Unrealized gain on marketable securities | 9,341 | 9,341 | ||||||||||||||||||||||
Balance as of December 31, 2010 | 37 | $ | 95,738 | $ | (1,726 | ) | $ | 5,175,378 | $ | 22,025 | $ | 5,291,415 | ||||||||||||
See Notes to Consolidated Financial Statements
F-4
MT. HOOD SOLUTIONS COMPANY
YEAR ENDED DECEMBER 31, 2010
Cash provided by operating activities | ||||
Net income | $ | 1,187,805 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||
Depreciation and amortization | 747,048 | |||
Provision for doubtful accounts | 138,904 | |||
Realized loss on marketable securities | 16,213 | |||
Gain on sale of property and equipment | (57,513 | ) | ||
Changes in working capital components: | ||||
Accounts receivable | (246,403 | ) | ||
Employee receivable | (12,497 | ) | ||
Due from related party | 10,000 | |||
Investment | (9,336 | ) | ||
Inventory | (59,448 | ) | ||
Prepaid expenses and other assets | (22,826 | ) | ||
Accounts payable and accrued expenses | (118,815 | ) | ||
Deferred compensation | 31,356 | |||
Accrued income taxes | (10,586 | ) | ||
Cash provided by operating activities | $ | 1,593,902 | ||
Cash used in investing activities | ||||
Purchases of property and equipment | (556,639 | ) | ||
Proceeds from sale of property and equipment | 85,848 | |||
Proceeds from sale of marketable securities | 827 | |||
Cash used in investing activities | (469,964 | ) | ||
Cash used in financing activities | ||||
Distributions to stockholder | (1,609,269 | ) | ||
Distributions to non-controlling equity interest | (19,374 | ) | ||
Net advances from line of credit | 690,335 | |||
Cash used in financing activities | (938,308 | ) | ||
Net change in cash and cash equivalents | 185,630 | |||
Cash and cash equivalents at beginning of year | 57,402 | |||
Cash and cash equivalents at end of year | $ | 243,032 | ||
See Notes to Consolidated Financial Statements
F-5
MT. HOOD SOLUTIONS COMPANY
NOTE 1 — | BUSINESS DESCRIPTION |
Mt. Hood Solutions Company (“MHS”), is a manufacturer and distributor of over 300 industrial detergents and other cleaning compounds headquartered in Portland, Oregon. Its customers primarily consist of institutional and commercial enterprises in Oregon, Washington, Utah, Colorado, California and Idaho.
AML2, LLC (“AML2”) was founded in 2008, to manufacture a cleaning compound for use in institutional and commercial enterprises. AML2 is headquartered in Portland, Oregon.
Principles of Combination and Consolidation
MHS and AML2 (collectively the “Company”) have common ownership and management. The financial statements of these two companies have been consolidated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 “Consolidation”.
The non-controlling equity interest amounts shown represent the third-party ownership interest in AML2. All inter-company transactions are eliminated in these consolidated financial statements.
NOTE 2 — | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates and such differences could affect the results of operations reported in future periods.
Cash and Cash Equivalents
The Company considers all cash accounts and all highly liquid short-term investments purchased with an original maturity of three months or less to be cash or cash equivalents. As a result of the Company’s cash management system, checks issued but not presented to the banks for payment may create negative book cash balances. Such negative balances are included in trade accounts payable and totaled $44,063 at December 31, 2010.
Marketable Securities
At December 31, 2010, the Company held equity securities classified as available for sale. Available for sale securities are carried at fair market value with the unrealized holding gains and losses reported in other comprehensive income. For determining gross realized gains and losses, the cost of securities sold is based upon specific identification. Quoted market prices are used in determining the fair market value of the Company’s investments.
Accounts Receivable
Accounts receivable consist of amounts due from customers for product sales and services. Accounts receivable are reported net of an allowance for doubtful accounts. The allowance is management’s best estimate of uncollectible amounts and is based on a number of factors, including overall credit quality, age of outstanding balances, historical write-off experience and specific account analysis that projects the ultimate collectability of the outstanding balances. As of December 31, 2010, the allowance was $206,460.
F-6
MT. HOOD SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inventory
Inventory is stated at the lower of cost or market determined using the last in-first out (LIFO) cost method.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is provided using the straight-line method over the estimated useful lives of individual assets or classes of assets as follows:
Building Improvements | 15 years | |||
Dish Machines | 5 years | |||
Office Equipment and Furniture | 5 years | |||
Machinery and Equipment | 5 years | |||
Vehicles | 5 years |
When an asset is sold or otherwise disposed, the related cost and accumulated depreciation or amortization are removed from the respective accounts and the gain or loss is recognized. Maintenance and repairs are charged to expense when incurred.
Intangible Assets
Intangible assets include customer relationships and formulas purchased during acquisitions. Customer relationships are amortized on a straight-line basis over the expected average life of the acquired accounts, which is five years.
Long-lived Assets
In accordance with FASB ASC360-10-35 “Impairment of Disposal of Long-lived Assets”, losses related to the impairment of long-lived assets are recognized when the carrying amount is not recoverable and exceeds its fair value. When facts and circumstances indicate that the carrying values of long-lived assets may be impaired, management of the Company evaluates recoverability by comparing the carrying value of the assets to projected future cash flows, in addition to other qualitative and quantitative analyses.
Compensated Absences
Employees of the Company are entitled to paid vacation, sick days and personal days, depending on job classification, length of service, and other factors. It is impractical to estimate the amount of compensation for future absences and accordingly no liability has been recorded in the accompanying financial statements. The company’s policy is to recognize the costs of compensated absences when actually paid to employees.
Revenue Recognition
Revenue from product sales and services is recognized when the services are performed or the products are delivered to the customer, provided that persuasive evidence of a sales arrangement exists, both title and risk of loss have passed to the customer, and collection is reasonably assured.
Advertising
The Company expenses non-direct advertising costs when incurred. Advertising expense was $74,136 for the year ended December 31, 2010.
F-7
MT. HOOD SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income Taxes
Effective July 1, 2003, the Company’s stockholder elected that the corporation be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under this provision, the stockholder is taxed on their proportionate share of the Company’s taxable income. As a Subchapter S corporation, the Company bears no liability or expense for federal income taxes. The Company is required to file income tax returns in several states. Various states do not recognize Subchapter S of the Internal Revenue Code and as such the Company may incur income tax expense.
FASB ASC740-10, “Income Taxes”, clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the balance sheet. It also provides guidance on derecognition, measurement and classification of amounts related to uncertain tax positions, accounting for and disclosure of interest and penalties, accounting in interim period disclosures and transition relating to the adoption of new accounting standards. Under FASB ASC740-10, the recognition for uncertain tax positions should be based on a more likely than not threshold that the tax position will be sustained upon audit. The tax position is measured as the largest amount of benefit that has a greater than fifty percent probability of being realized upon settlement. Management has determined that adoption of this topic has had no effect on the Company’s balance sheet.
Fair Value of Financial Instruments
The Company’s financial instruments include cash, marketable securities, receivables and accrued liabilities. The Company adopted the provisions of FASB ASC Topic 820 “Fair Value Measurements and Disclosures”, effective January 1, 2008. Under FASB ASC820-10-30-2, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
FASB ASC820-10-30-2 establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs be used when available. Observable inputs are from sources independent of the Company, whereas unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 inputs are valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.
Level 2 inputs are valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 inputs are valuations that are unobservable and significant to the overall fair value measurement.
The Company did not have any outstanding financial derivative instruments.
Segment Information
FASB ASC 280, “Segment Reporting,” establishes standards for reporting information regarding operating segments in annual financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group in making decisions on how to allocate resources and assess performance.
F-8
MT. HOOD SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company manages, allocates resources and reports in one business segment. The Company’s chief operating decision-maker, as defined under FASB ASC 280, is the Company’s chief executive officer. Based on the information reviewed by its chief executive officer, the Company operates in one business segment.
NOTE 3 — | FAIR VALUE MEASUREMENTS |
The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with FASB ASC820-10-30-2, as described in Note 2. The following table presents information about the Company’s marketable securities measured at fair value as of December 31, 2010.
Quoted Price in | ||||||||||||||||
Active Markets for | Significant Other | Significant | Balance as of | |||||||||||||
Identical Assets | Observable Inputs | Unobservable Inputs | December 31, | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | 2010 | |||||||||||||
Marketable securities actively traded | $ | 28,884 | $ | — | $ | — | $ | 28,884 | ||||||||
$ | 28,884 | $ | — | $ | — | $ | 28,884 | |||||||||
NOTE 4 — | INVENTORY |
Inventory as of December 31, 2010 consists of the following components:
Raw materials | $ | 923,211 | ||
Finished goods | 880,565 | |||
Purchased goods | 192,617 | |||
Supplies | 65,224 | |||
LIFO reserve | (351,168 | ) | ||
$ | 1,710,449 | |||
NOTE 5 — | PROPERTY AND EQUIPMENT |
Property and equipment as of December 31, 2010 consists of the following:
Building improvements | $ | 3,615,615 | ||
Dish machines | 2,233,047 | |||
Office equipment and furniture | 87,955 | |||
Machinery and equipment | 812,966 | |||
Vehicles | 1,180,747 | |||
7,930,330 | ||||
Less: accumulated depreciation | (3,455,405 | ) | ||
$ | 4,474,925 | |||
Depreciation expense for the year ended December 31, 2010 is $736,303.
F-9
MT. HOOD SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 6 — | INTANGIBLE ASSETS |
Intangible assets as of December 31, 2010 consists of the following:
Customer list | $ | 53,726 | ||
Less: accumulated amortization | (28,654 | ) | ||
$ | 25,072 | |||
Amortization expense for the year ended December 31, 2010 is $10,745.
As of December 31, 2010, future amortization of customer relationships for the next three years is as follows:
2011 | $ | 10,745 | ||
2012 | 10,745 | |||
2013 | 3,582 | |||
$ | 25,072 | |||
NOTE 7 — | LINE OF CREDIT |
In July 2010, the Company amended its revolving line of credit with a financial institution having a maximum borrowing of up to $3,000,000. The line of credit matures on July 31, 2011. Borrowings under these lines are used for general working capital purposes and capital expenditures. The line of credit is collateralized by accounts receivable and substantially all assets not otherwise encumbered. Interest is payable monthly at the bank’s announced prime rate less 0.50%, which at December 31, 2010 was 3.25%. The line of credit contains financial covenants which the Company met at December 31, 2010. At December 31, 2010, the Company had borrowings totaling $738,210 against the line of credit.
NOTE 8 — | COMMITMENTS AND CONTINGENCIES |
The Company leases its headquarters and other facilities, equipment and vehicles under operating leases that expire at varying times through 2023. Future minimum lease payments for operating leases that had initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2010 are as follows:
Twelve months ended | ||||
December 31, 2011 | $ | 675,984 | ||
December 31, 2012 | 675,984 | |||
December 31, 2013 | 675,984 | |||
December 31, 2014 | 675,984 | |||
December 31, 2015 | 672,588 | |||
Thereafter | 4,747,200 | |||
$ | 8,123,724 | |||
The Company leases its headquarters from a limited liability company related through common ownership. The lease expires March 2023 and has two five-year renewal options. Under terms of the lease, the Company is responsible for utilities, maintenance, taxes and insurance. Future payments under this lease totaling $8,059,200 are included in the above figures. During the year ended December 31, 2010, the Company paid this related party $662,400 as rent for use in the facility.
F-10
MT. HOOD SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Total rent expense for operating leases, including those with terms of less than one year was approximately $737,000 for the year ended December 31, 2010.
The Company has determined that, as a potentially responsible party, it is likely that it has incurred a liability for environmental remediation costs resulting from leasing certain real property in past years. The Company has accrued approximately $150,000 of estimated environmental remediation costs in accrued liabilities as of December 31, 2010.
NOTE 9 — | RELATED-PARTY TRANSACTIONS |
As of December 31, 2010, the Company had guaranteed the debt of its related party lessor totaling approximately $4,721,000, which is fully collateralized by property and facilities. The Company is required to perform under the guaranty in the event the related party fails to make contractual payments. The term of the loan covered by this guaranty is through March 2018. There is no recognition of any potential future payment obligation as the Company believes the potential for making this payment is remote.
NOTE 10 — | EMPLOYEE BENEFIT PLAN |
The Company has a 401(k) profit sharing plan which covers all eligible employees. Plan participants can make voluntary contributions of up to $16,500 of compensation, subject to certain limitations. Under this plan, the Company may contribute to participants’ accounts at management’s discretion. Total Company contributions to the plan for the year ended December 31, 2010 was $230,000. Accrued contributions of $230,000 are included in accrued liabilities at December 31, 2010.
NOTE 11 — | SUPPLEMENTAL FINANCIAL INFORMATION |
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of December 31, 2010 consists of the following:
Sales tax payable | $ | 85,806 | ||
Accrued commissions | 136,620 | |||
Accrued payroll and payroll taxes | 39,412 | |||
Profit sharing | 230,000 | |||
Other accrued expenses | 509,699 | |||
$ | 1,001,537 | |||
The Company entered into a deferred compensation agreement with an employee in December 1993. The agreement provides that the Company pay the employee an incentive bonus based upon the number of full employment years and average monthly pay of the employee at termination. The amount is fully vested. The Company’s liability is approximately $783,896 at December 31, 2010.
Supplemental Disclosure of Cash Flow Information
Supplemental cash flow information with respect to the year ended December 31, 2010 is as follows:
Cash paid for: | ||||
Interest | $ | 7,375 | ||
Income taxes | $ | 25,741 | ||
Shareholder loan converted to equity | $ | 585,481 | ||
F-11
MT. HOOD SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 12 — | SUBSEQUENT EVENTS |
The Company evaluated all events and transactions through July 12, 2011, the date these financial statements were issued. During this period, there were no material recognizable or non-recognizable subsequent events except for the following:
On May 4, 2011, the Company entered into an agreement under which it sold certain assets and liabilities of the Company to Swisher Hygiene Inc. Assets sold included substantially all inventory and supplies, accounts receivable, property and equipment, customer lists, and other assets.
F-12