Exhibit 99.2
IT Logistics, Inc.
Statements of Operations
(unaudited and not reviewed)
(amounts in thousands)
| | | | | | | | |
| | | Six Months
Ended
June 30, 2011 | | | Six Months
Ended
June 30, 2010 | |
| | |
Contract revenue | | $ | 7,822 | | | $ | 12,077 | |
| | | | | | | | |
| | |
Cost of contract revenue | | | 5,201 | | | | 6,618 | |
| | | | | | | | |
Gross profit | | | 2,621 | | | | 5,459 | |
Operating expenses | | | 870 | | | | 1,207 | |
| | | | | | | | |
Income from operations | | | 1,751 | | | | 4,252 | |
Other expense | | | | | | | | |
Interest expense | | | (30 | ) | | | — | |
| | | | | | | | |
Net income | | $ | 1,721 | | | $ | 4,252 | |
| | | | | | | | |
See accompanying notes to the financial statements.
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IT Logistics, Inc.
Statement of Financial Position
(unaudited and not reviewed)
(amounts in thousands)
| | | | | | | | |
| | | June 30, 2011 | | | December 31,
2010 | |
| ASSETS | | | | | | | | |
Current assets | | | | | | | | |
Cash | | $ | 25 | | | $ | 258 | |
Accounts receivable | | | 2,050 | | | | 1,571 | |
Notes receivable | | | — | | | | 305 | |
Inventories | | | 513 | | | | 569 | |
Other current assets | | | 780 | | | | 95 | |
| | | | | | | | |
Total current assets | | | 3,368 | | | | 2,798 | |
| | |
Property and equipment, net of accumulated depreciation | | | 160 | | | | 159 | |
Other assets | | | 77 | | | | 1 | |
| | | | | | | | |
Total assets | | $ | 3,605 | | | $ | 2,958 | |
| | | | | | | | |
| | |
| LIABILITIES and STOCKHOLDERS’ DEFICIT | | | | | | | | |
Current liabilities | | | | | | | | |
Accounts payable and other accrued payables | | $ | 2,137 | | | $ | 664 | |
Accrued compensation and benefits | | | 70 | | | | 96 | |
Senior credit facility – short-term | | | 1,950 | | | | 895 | |
Other current liabilities | | | — | | | | 1,388 | |
| | | | | | | | |
Total current liabilities | | | 4,157 | | | | 3,043 | |
| | |
Other liabilities | | | — | | | | 3 | |
| | | | | | | | |
Total liabilities | | | 4,157 | | | | 3,046 | |
| | | | | | | | |
Stockholders’ deficit | | | | | | | | |
Common stock | | | 1 | | | | 1 | |
Retained Earnings | | | 2,560 | | | | 3,024 | |
Treasury stock | | | (3,113 | ) | | | (3,113 | ) |
| | | | | | | | |
Total stockholders’ deficit | | | (552 | ) | | | (88 | ) |
| | | | | | | | |
Total liabilities, and stockholders’ deficit | | $ | 3,605 | | | $ | 2,958 | |
| | | | | | | | |
See accompanying notes to the financial statements.
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IT Logistics, Inc.
Statement of Cash Flows
(unaudited and not reviewed)
(amounts in thousands)
| | | | | | | | |
| | | Six Months Ended June 30, | |
| | | 2011 | | | 2010 | |
Operating activities: | | | | | | | | |
Net income | | $ | 1,721 | | | $ | 4,252 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 27 | | | | 26 | |
Changes in other operating assets and liabilities | | | (1,152 | ) | | | 1,064 | |
| | | | | | | | |
Cash provided by operating activities | | | 596 | | | | 5,342 | |
| | | | | | | | |
| | |
Investing activities: | | | | | | | | |
Purchases of property and equipment | | | (1 | ) | | | (5 | ) |
| | | | | | | | |
Cash used in investing activities | | | (1 | ) | | | (5 | ) |
| | | | | | | | |
| | |
Financing activities: | | | | | | | | |
Net proceeds from line of credit | | | 1,055 | | | | — | |
Collection of notes receivable | | | 305 | | | | — | |
Payments on capital lease | | | (3 | ) | | | — | |
Principal payments on notes payable | | | — | | | | (2,075 | ) |
Dividends paid | | | (2,185 | ) | | | (2,260 | ) |
| | | | | | | | |
Cash used in financing activities | | | (828 | ) | | | (4,335 | ) |
| | | | | | | | |
| | |
(Decrease) increase in cash | | | (233 | ) | | | 1,002 | |
Cash at beginning of period | | | 258 | | | | 267 | |
| | | | | | | | |
| | |
Cash at end of period | | $ | 25 | | | $ | 1,269 | |
| | | | | | | | |
See accompanying notes to the financial statements.
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IT Logistics, Inc.
Notes to Financial Statements
(Unaudited)
Note A - Summary of Significant Accounting Policies
Nature of Operations
IT Logistics, Inc. (the “Company”) provides survey, design, engineering, and installation services of inside and outside plant secure networking infrastructure and program management expertise to both government and commercial customers throughout the United States. The work is performed under lump sum and time and material contracts. The length of the Company’s contracts varies, but is typically between twelve to eighteen months.
Basis of Presentation
The unaudited condensed financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim condensed financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The balance sheet information as of December 31, 2010 was derived from the audited financial statements released on August 31, 2011. These interim financial statements should be read in conjunction with that report.
Use of Estimates
Management uses estimates and assumptions in preparing the financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting period. In these financial statements, assets, liabilities, and earnings from contracts involve extensive reliance on management’s estimates. Actual results could differ from these estimates.
Revenue Recognition
Revenues from long-term construction contracts are recognized on the percentage-of-completion method for financial reporting purposes, measured by the percentage of costs incurred to date to estimated total costs for each contract. This method is used because management considers total cost to be the best available measure of progress on these contracts.
Contract costs include all direct job costs and those indirect costs related to contract performance, such as indirect labor, supplies, insurance, equipment repairs, and depreciation costs. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
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All other revenues including survey, design, project management, and sale of materials are recognized under the accrual method.
Accounts Receivable
An allowance for doubtful accounts on accounts receivable has not been provided, as it is management’s opinion that losses, if any, would not be material to the financial statements.
Inventory
Inventory includes materials and supplies used in construction contracts and is stated at the lower of cost or market, determined by the first-in, first-out (FIFO) method.
Taxes on Income
Effective January 1, 2007, the Company elected, with the consent of its shareholders, to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under these provisions, the Company does not pay Federal corporate income taxes on its taxable income. Instead, the stockholders are liable for individual Federal income taxes on the Company’s taxable income. The Company has elect & to pay state income taxes in applicable states based on its taxable income and, accordingly, a liability for state income taxes and a provision for state income taxes are reflected on the financial statements.
Note B – Major Customers
The Company had a major customer who generated substantially all contract revenues earned for the six months ended June 30, 2011 and 2010, respectively.
Note C — Fair Value of Instruments
The carrying amounts of the Company’s financial instruments, including cash, cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short-term nature. The carrying amounts of the Company’s indebtedness approximate fair value due to their terms.
Note D - Revolving Line-of-Credit
The Company has a $2,400,000 line-of-credit agreement with a bank which expired May 26, 2011. The line bears a variable interest rate at 1% above lender’s prime and is secured by accounts receivable, inventory, equipment, and the personal guarantee of the stockholder of the Company. The amount outstanding on the line at June 30, 2010 and December 31, 2010 was $1,950,000 and $895,000, respectively. The line-of-credit was paid off and closed after the sale of the assets to Telos Corporation described in Note E.
Note E — Subsequent Events
Subsequent events have been evaluated through September 19, 2011, which is the date the financial statements were available to be issued.
On July 1, 2011 the Company and its sole stockholder entered into and closed on an asset purchase agreement with Telos Corporation, its major customer, whereby the Company agreed to sell certain assets relating to the operation of the Company’s business. Under the terms of the agreement, Telos is assuming certain liabilities of the Company, principally liabilities that accrue on or after the sale date, under certain contracts assumed by Telos.
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The sale price for the assets (in addition to the assumed liabilities described above) consisted of (1) $8 million payable on July 1, 2011, (2) $7 million payable in 10 monthly payments of $700,000, together with interest on the unpaid balance of such amount at the rate of 0.50% per annum, beginning on August 1, 2011 and on the first day of each subsequent month thereafter, and (3) a subordinated promissory note with a principal amount of $15 million. The subordinated note accrues interest at a rate of 6.0% per annum beginning November 1, 2012, and is payable on July 1, 2041.
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