Exhibit 99.5
CHEMICAL SPECIALISTS AND DEVELOPMENT, INC. & SUBSIDIARIES
TABLE OF CONTENTS
| Page |
| |
FINANCIAL STATEMENTS | |
UNAUDITED CONSOLIDATED BALANCE SHEETS | 2 |
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME | 4 |
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY | 5 |
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS | 6 |
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 7 |
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CHEMICAL SPECIALISTS AND DEVELOPMENT, INC. & SUBSIDIARIES
CONROE, TEXAS
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2013(UNAUDITED) AND JANUARY 31, 2013
| | September 30, 2013 | | January 31, 2013 | |
| | (unaudited) | | | |
ASSETS | | | | | |
Current Assets | | | | | |
Cash | | $ | 127,315 | | $ | 715,987 | |
Accounts receivable, net | | 25,374,562 | | 23,676,544 | |
Due from employees | | 26,050 | | 18,063 | |
Miscellaneous receivables | | — | | — | |
Inventories | | 9,323,071 | | 8,684,002 | |
Prepaid expenses | | 1,532,965 | | 833,585 | |
Current deferred tax asset | | 293,075 | | 293,075 | |
Total Current Assets | | 36,677,038 | | 34,221,256 | |
Property and Equipment | | | | | |
Property and equipment, net | | 10,568,526 | | 11,363,406 | |
Total Property and Equipment | | 10,568,526 | | 11,363,406 | |
Other Assets | | | | | |
Deposits | | 23,766 | | 23,766 | |
Trademark | | 350,000 | | 350,000 | |
Goodwill and other | | 526,487 | | 526,487 | |
| | 900,253 | | 900,253 | |
TOTAL ASSETS | | $ | 48,145,817 | | $ | 46,484,915 | |
The accompanying notes are an integral part of these consolidated financial statements.
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CHEMICAL SPECIALISTS AND DEVELOPMENT, INC. & SUBSIDIARIES
CONROE, TEXAS
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2013(UNAUDITED) AND JANUARY 31, 2013
| | September 30, 2013 | | January 31, 2013 | |
| | (unaudited) | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
Current Liabilities | | | | | |
Accounts payable | | $ | 14,941,809 | | $ | 17,617,361 | |
Revolving line of credit | | 15,540,000 | | 10,120,000 | |
Accrued expenses | | 3,000,296 | | 6,268,442 | |
Corporate income tax payable | | — | | — | |
Current portion of long-term debt | | 360,605 | | 373,162 | |
Total Current Liabilities | | 33,842,710 | | 34,378,965 | |
Long-term Liabilities | | | | | |
Long-term debt | | 1,475,389 | | 1,696,282 | |
Deferred income taxes | | 769,048 | | 769,048 | |
Total Long-term Liabilities | | 2,244,437 | | 2,465,330 | |
Total Liabilities | | 36,087,147 | | 36,844,295 | |
STOCKHOLDERS’ EQUITY | | | | | |
Controlling interest | | | | | |
Common stock; $1 par; 1,000,000 shares authorized; 42,000 shares issued; 42,000 outstanding | | 30,000 | | 30,000 | |
Additional paid-in capital | | 417,694 | | 417,694 | |
Retained earnings | | 12,313,357 | | 9,898,905 | |
| | 12,761,051 | | 10,346,599 | |
Treasury stock; 6,000 shares at cost | | (662,974 | ) | (662,974 | ) |
| | 12,098,077 | | 9,683,625 | |
Noncontrolling interest | | (39,407 | ) | (43,005 | ) |
Total Stockholders’ Equity | | 12,058,670 | | 9,640,620 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 48,145,817 | | $ | 46,484,915 | |
The accompanying notes are an integral part of these consolidated financial statements.
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CHEMICAL SPECIALISTS AND DEVELOPMENT, INC. & SUBSIDIARIES
CONROE, TEXAS
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE EIGHT MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
| | 2013 | | 2012 | |
NET SALES | | $ | 130,361,846 | | $ | 130,840,153 | |
COST OF SALES | | | | | |
Chemicals, packing, and shipping materials | | 102,287,482 | | 101,213,985 | |
Freight | | 6,450,838 | | 6,973,386 | |
Labor | | 3,283,105 | | 3,247,820 | |
Other | | 327,163 | | 348,363 | |
| | 112,348,588 | | 111,783,554 | |
GROSS PROFIT | | 18,013,258 | | 19,056,599 | |
GENERAL AND ADMINISTRATIVE EXPENSES | | 10,510,446 | | 10,445,710 | |
OPERATING INCOME | | 7,502,812 | | 8,610,889 | |
OTHER INCOME (EXPENSE) | | | | | |
Interest income | | 25 | | — | |
Miscellaneous income | | 148,879 | | 293,777 | |
| | 148,904 | | 293,777 | |
INCOME BEFORE INCOME TAXES | | 7,651,716 | | 8,904,666 | |
PROVISION FOR INCOME TAXES | | 1,733,666 | | 1,440,772 | |
CONSOLIDATED NET INCOME | | 5,918,050 | | 7,463,894 | |
LESS: NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST | | (3,598 | ) | (26,925 | ) |
NET INCOME ATTRIBUTABLE TO THE CONTROLLING INTEREST | | $ | 5,914,452 | | $ | 7,436,969 | |
The accompanying notes are an integral part of these consolidated financial statements.
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CHEMICAL SPECIALISTS AND DEVELOPMENT, INC. & SUBSIDIARIES
CONROE, TEXAS
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE EIGHT MONTHS ENDED SEPTEMBER 30, 2013
| | Controlling Interest | | | | | |
| | Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Treasury
Stock | | Non-
Controlling
Interest | | Total | |
BALANCE AS OF JANUARY 31, 2013 | | $ | 30,000 | | $ | 417,694 | | $ | 9,898,905 | | $ | (662,974 | ) | $ | (43,005 | ) | $ | 9,640,620 | |
Dividends declared | | — | | — | | (3,500,000 | ) | — | | — | | (3,500,000 | ) |
Net income | | — | | — | | 5,914,452 | | — | | 3,598 | | 5,918,050 | |
BALANCE AS OF SEPTEMBER 30, 2013 | | $ | 30,000 | | $ | 417,694 | | $ | 12,313,357 | | $ | (662,974 | ) | $ | (39,407 | ) | $ | 12,058,670 | |
The accompanying notes are an integral part of these consolidated financial statements.
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CHEMICAL SPECIALISTS AND DEVELOPMENT, INC. & SUBSIDIARIES
CONROE, TEXAS
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
| | 2013 | | 2012 | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Cash received from customers | | $ | 128,793,604 | | $ | 124,095,140 | |
Cash paid to suppliers and employees | | (130,691,117 | ) | (121,970,198 | ) |
Interest received | | 24 | | — | |
Interest paid | | (277,564 | ) | (234,125 | ) |
Federal income taxes paid | | (350,000 | ) | (853,000 | ) |
State income taxes paid | | (115,969 | ) | (105,918 | ) |
Other income received | | 148,879 | | 293,777 | |
Net cash provided by (used in) operating activities | | (2,492,143 | ) | 1,225,676 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Purchase of property and equipment | | (432,199 | ) | (1,556,491 | ) |
Proceeds from sales of property and equipment | | 649,120 | | — | |
Net cash provided by (usedin) investing activities | | 216,921 | | (1,556,491 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Net borrowings on revolving line of credit | | 5,420,000 | | 445,000 | |
Principal payment on long-term debt | | (233,450 | ) | (263,214 | ) |
Dividends paid | | (3,500,000 | ) | — | |
Net cash provided by financing activities | | 1,686,550 | | 181,786 | |
Net increase (decrease) in cash | | (588,672 | ) | (149,029 | ) |
Cash at beginning of year | | 715,987 | | 1,126,020 | |
Cash at end of year | | $ | 127,315 | | $ | 976,991 | |
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: | | | | | |
Net income | | $ | 5,918,050 | | $ | 7,463,894 | |
Depreciation and amortization | | 440,000 | | 440,000 | |
Loss on sale of property and equipment | | 137,763 | | — | |
(Increase) Decrease in: | | | | | |
Accounts receivable | | (1,698,018 | ) | (6,757,186 | ) |
Other receivables | | (7,987 | ) | 12,173 | |
Inventories | | (639,069 | ) | (1,117,894 | ) |
Prepaid expenses | | (699,184 | ) | (1,185,334 | ) |
Deposits | | — | | — | |
Deferred tax asset | | — | | — | |
Increase (Decrease) in: | | | | | |
Accounts payable | | (2,675,552 | ) | 4,021,781 | |
Accrued expenses | | (3,268,146 | ) | (1,651,758 | ) |
Corporate income tax payable | | — | | — | |
Net cash provided by (used in) operating activities | | $ | (2,492,143 | ) | $ | 1,225,676 | |
The accompanying notes are an integral part of these consolidated financial statements.
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CHEMICAL SPECIALISTS AND DEVELOPMENT, INC. & SUBSIDIARIES
CONROE, TEXAS
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE EIGHT MONTHS ENDED SEPTEMBER 30, 2013
NOTE 1 — NATURE OF ACTIVITIES AND BASIS OF PRESENTATION
Nature of Activities
Chemical Specialists and Development, Inc. was organized in the State of Texas on April 26, 1976, and is engaged in the packaging and distribution of chemicals, solvents, and other materials for governmental and industrial use. The Company sells its products to various departments of the federal government and to domestic and international customers through its various divisions. Operations were expanded in October 2009 with the purchase of a plant in Baton Rouge, Louisiana.
Startex Chemical, Inc. is a wholly owned subsidiary of Chemical Specialists and Development, Inc. that was formed in 1985 to sell to distributors and retail outlets.
Startex Distribution West, LLC was formed July 1, 2009 to expand sales, consistent with current operations, along the west coast of the United States. Operations in California are conducted via a logistics support chemical management warehouse facility located in the southern part of that state. Chemical Specialists and Development, Inc. has an eighty percent (80%) controlling interest in Startex Distribution West, LLC. The remaining twenty percent (20%) minority interest is owned by an individual.
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of Chemical Specialists and Development, Inc., and its subsidiaries: Startex Chemical, Inc. and Startex Distribution West, LLC (collectively, the “Company”) and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. As such, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments, except as disclosed herein) considered necessary for a fair statement have been included. All significant intercompany transactions have been eliminated in consolidation.
The unaudited consolidated financial data as of January 31, 2013 presented in these unaudited consolidated financial statements were derived from Company’s audited consolidated financial statements, but do not include all disclosures required by U.S. GAAP. Interim financial data should be read in conjunction with the audited consolidated financial statements and accompanying notes for the fiscal year ended January 31, 2013.
NOTE 2 — INVENTORY
Inventory consisted of the following as of September 30, 2013 and January 31, 2013:
| | September 30, 2013 | | January 31, 2013 | |
Finished goods | | $ | 5,891,443 | | $ | 5,474,611 | |
Raw materials | | 3,927,628 | | 3,609,618 | |
Reserve for obsolete and slow-moving inventory | | (496,000 | ) | (400,227 | ) |
Total Inventory | | $ | 9,323,071 | | $ | 8,684,002 | |
NOTE 3 — PROPERTY AND EQUIPMENT
Property and equipment is composed of the following as of September 30, 2013 and 2013:
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CHEMICAL SPECIALISTS AND DEVELOPMENT, INC. & SUBSIDIARIES
CONROE, TEXAS
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE EIGHT MONTHS ENDED SEPTEMBER 30, 2013
| | September 30, 2013 | | January 31, 2013 | |
Land | | $ | 599,996 | | $ | 1,071,917 | |
Buildings and improvements | | 10,190,255 | | 10,412,565 | |
Storage tanks | | 2,001,441 | | 1,997,050 | |
Machinery and equipment | | 5,172,791 | | 5,098,925 | |
Transportation equipment | | 91,617 | | 72,826 | |
| | 18,056,100 | | 18,653,283 | |
Less accumulated depreciation | | (7,487,574 | ) | (7,289,877 | ) |
Property and Equipment, Net | | $ | 10,568,526 | | $ | 11,363,406 | |
Depreciation expense amounted to $440,000 and $440,000 for the eight months ended September 30, 2013 and 2012, respectively.
NOTE 4 — REVOLVING LINE OF CREDIT
The Company has a $25,000,000 revolving bank line of credit that expires on June 28, 2015. Of the $25,000,000 line of credit, $750,000 may be used as standby letters of credit. Advances under the line of credit bear interest at prime less applicable margin (0.50 to 1.00) and are secured by accounts receivable, inventory, equipment and property owned by the Company. Under the terms of the line of credit, the Company is required to maintain certain debt-to-worth ratios and fixed charge coverage ratios. Advances outstanding on the line of credit at September 30, 2013 and January 31, 2013 were $15,540,000 and $10,120,000, respectively. Of the $750,000 in standby letters of credit, $150,302 and $71,649 had been issued at September 30, 2013 and January 31, 2013, respectively.
NOTE 5 — LONG-TERM OBLIGATIONS
Long-term debt consisted of the following at September 30, 2013 and January 31, 2013:
| | September 30, 2013 | | January 31, 2013 | |
Term notes | | | | | |
Current portion | | $ | 354,000 | | $ | 353,996 | |
Long-term portion | | 1,475,389 | | 1,696,282 | |
| | 1,829,389 | | 2,050,278 | |
Capital leases payable | | | | | |
Current portion | | 6,605 | | 19,166 | |
| | 6,605 | | 19,166 | |
Total Long-term Debt | | $ | 1,835,994 | | $ | 2,069,444 | |
NOTE 6 — COMMITMENTS AND CONTINGENCIES
Contingencies
The Company is party to litigation and claims arising in the normal course of business. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such litigation and claims will not be material to the financial statements.
The Company was party to an environmental claim regarding purchased property in Georgia, which may have required the Company to incur the liability for costs associated with the reporting, testing, clean-up and/or remediation of such property. In August 2013, the Company sold this property to a third party, which is contractually obligated to indemnify and hold the Company harmless from and against any liability arising related to this environmental claim. Through the date of sale, the Company did not incur any expenses related to this contingency.
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CHEMICAL SPECIALISTS AND DEVELOPMENT, INC. & SUBSIDIARIES
CONROE, TEXAS
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE EIGHT MONTHS ENDED SEPTEMBER 30, 2013
NOTE 7 — RETIREMENT PLAN
The Company has a 401(k) Plan (Plan) to provide retirement and incidental benefits for its employees. Employees may contribute from one percent (1%) to twenty percent (20%) of their annual compensation to the Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service.
The Company matches employee contributions equal to 100% of salary deferrals each payroll period that do not exceed four percent (4%) of eligible compensation. All matching contributions vest immediately.
Company matching contributions to the Plan totaled $183,902 and $180,298 for the eight months ended September 30, 2013 and 2012, respectively.
NOTE 8 — WELFARE BENEFIT PLAN
On January 1, 2010, the Company board of directors voted to rescind the single employer welfare benefit plan covering individuals who are actively employed by the Company, who are members of a select group of management or highly compensated employees, who are not sole proprietors, and who own more than fifty percent (50%) ownership interest in the Company. This corporate resolution was made in response to an IRS audit that disallowed the deductions taken on the 2006, 2007 and 2008 Federal income tax returns.
An alternative plan of deferred compensation for named key employees was adopted. For a period of 6 (six) years, beginning January 1, 2010 and ending December 31, 2015, 5 (five) key employees shall share $350,000 that shall be due and payable on or before January 31 of each calendar year during the term of this agreement while employed by the Company. This compensation is taxable at the individual level and is subject to payroll tax at the Company level. In November 2013, the Company’s Board of Directors resolved to fund the remaining three years of contributions ahead of the sale of the Company (see Note 11).
NOTE 9 — RELATED PARTY TRANSACTIONS
On May 1, 2010, ST Laboratories Group, LLC (STLG) was formed. The 10 (ten) members of STLG, are all employees and/or owners of the Company. On a monthly basis, the Company pays STLG $50,000 to perform laboratory testing services for the Company, and STLG pays the Company $11,000 rent for laboratory facilities and equipment. STLG generated approximately 27% (twenty-seven percent) and 30% (thirty percent) of its gross revenue from the Company for the eight month periods ended September 30, 2013 and 2012, respectively. The Company did not owe any amounts to STLG for the periods ended September 30, 2013 and January 31, 2013, respectively.
In August 2013, the Company purchased two dwellings from Buckeye Properties, Inc., a company owned by the same principals of the Company, for a total of $257,650 in cash. The Company also simultaneously sold undeveloped land to Buckeye Properties, Inc. for cash proceeds of $50,600.
NOTE 10 — MAJOR CUSTOMERS
The Company’s sales to various branches of the federal government accounted for approximately 5% and 13% of the total sales for the eight months ended September 30, 2013 and 2012, respectively.
The Company continued a contract with a major paint supply company, which comprised 12% of the total sales for the eight months ended September 30, 2013 and 2012.
Additionally, the Company secured a contract with an international chemical company that develops specialty fuels, which comprised approximately 9% and 6% of the total sales for the eight months ended September 30, 2013 and 2012, respectively. All sales transactions with this company are conducted in U.S. currency.
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CHEMICAL SPECIALISTS AND DEVELOPMENT, INC. & SUBSIDIARIES
CONROE, TEXAS
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE EIGHT MONTHS ENDED SEPTEMBER 30, 2013
NOTE 11 — SUBSEQUENT EVENTS
The Company was acquired by a subsidiary of Nexeo Solutions Holdings, LLC (“Nexeo Solutions”). Nexeo Solutions completed the transaction on December 2, 2013.
Events occurring after September 30, 2013 have been evaluated through January 29, 2014, the date when these financial statements were available to be issued.
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