Exhibit 99.1
BIOS INTERNATIONAL CORPORATION
Financial Statements
and
Independent Auditors’ Report
December 31, 2011 and 2010
BIOS INTERNATIONAL CORPORATION
Table of Contents
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Independent Auditors’ Report | 1 |
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Financial Statements |
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Balance Sheets | 2 |
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Statements of Income | 3 |
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Statement of Changes in Stockholders’ Equity | 4 |
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Statements of Cash Flows | 5 |
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Notes to Financial Statements | 6 |
INDEPENDENT AUDITORS’ REPORT
Stockholders
Bios International Corporation
Butler, New Jersey
We have audited the accompanying balance sheets of Bios International Corporation (the “Company”) as of December 31, 2011 and 2010, and the related statements of income, changes in stockholders’ equity, and cash flows for the years 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 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, the financial statements referred to above present fairly, in all material respects, the financial position of Bios International Corporation as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
| /s/ Ehrhardt Keefe Steiner & Hottman PC |
| Ehrhardt Keefe Steiner & Hottman PC |
July 27, 2012
Denver, Colorado
BIOS INTERNATIONAL CORPORATION
Balance Sheets
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| December 31, |
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| 2011 |
| 2010 |
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Assets |
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Current assets |
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Cash and cash equivalents |
| $ | 40,320 |
| $ | 368,172 |
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Accounts receivable |
| 806,491 |
| 649,778 |
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Inventory, net |
| 962,804 |
| 798,057 |
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Other current assets |
| 16,146 |
| — |
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Total current assets |
| 1,825,761 |
| 1,816,007 |
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Non-current assets |
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Property and equipment, net |
| 67,637 |
| 33,920 |
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Other long-term assets |
| 28,993 |
| 26,763 |
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Total non-current assets |
| 96,630 |
| 60,683 |
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Total assets |
| $ | 1,922,391 |
| $ | 1,876,690 |
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Liabilities and Stockholders’ Equity |
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Current liabilities |
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Accounts payable |
| $ | 107,168 |
| $ | 95,164 |
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Accrued expenses |
| 146,577 |
| 136,627 |
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Total current liabilities |
| 253,745 |
| 231,791 |
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Total liabilities |
| 253,745 |
| 231,791 |
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Commitments and contingencies (Note 6) |
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Stockholders’ equity |
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Common stock, $10 par value, 1,000 shares authorized, issued, and outstanding |
| 10,000 |
| 10,000 |
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Retained earnings |
| 1,658,646 |
| 1,634,899 |
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Total stockholders’ equity |
| 1,668,646 |
| 1,644,899 |
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Total liabilities and stockholders’ equity |
| $ | 1,922,391 |
| $ | 1,876,690 |
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See notes to financial statements.
BIOS INTERNATIONAL CORPORATION
Statements of Income
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| For the Years Ended |
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| December 31, |
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| 2011 |
| 2010 |
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Revenues |
| $ | 6,786,460 |
| $ | 6,273,404 |
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Cost of revenue |
| 2,277,491 |
| 2,037,135 |
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Gross profit |
| 4,508,969 |
| 4,236,269 |
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Operating expenses |
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General and administrative |
| 1,240,643 |
| 1,037,658 |
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Research and development |
| 492,860 |
| 489,409 |
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Selling |
| 806,248 |
| 850,577 |
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Total operating expenses |
| 2,539,751 |
| 2,377,644 |
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Other income |
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Other income |
| (862 | ) | 577 |
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Total other income |
| (862 | ) | 577 |
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Net income |
| $ | 1,970,080 |
| $ | 1,858,048 |
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See notes to financial statements.
BIOS INTERNATIONAL CORPORATION
Statement of Changes in Stockholders’ Equity
For the Years Ended December 31, 2011 and 2010
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| Total |
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| Common Stock |
| Retained |
| Stockholders’ |
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| Shares |
| Amount |
| Earnings |
| Equity |
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Balance - December 31, 2009 |
| 1,000 |
| $ | 10,000 |
| $ | 1,268,904 |
| $ | 1,278,904 |
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Net income |
| — |
| — |
| 1,858,048 |
| 1,858,048 |
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Distributions |
| — |
| — |
| (1,492,053 | ) | (1,492,053 | ) | |||
Balance - December 31, 2010 |
| 1,000 |
| 10,000 |
| 1,634,899 |
| 1,644,899 |
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Net income |
| — |
| — |
| 1,970,080 |
| 1,970,080 |
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Distributions |
| — |
| — |
| (1,946,333 | ) | (1,946,333 | ) | |||
Balance - December 31, 2011 |
| 1,000 |
| $ | 10,000 |
| $ | 1,658,646 |
| $ | 1,668,646 |
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See notes to financial statements.
BIOS INTERNATIONAL CORPORATION
Statements of Cash Flows
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| For the Years Ended |
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| December 31, |
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| 2011 |
| 2010 |
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Cash flows from operating activities |
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Net income |
| $ | 1,970,080 |
| $ | 1,858,048 |
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Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities |
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Depreciation and amortization |
| 8,499 |
| 5,925 |
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Provision for inventory reserve |
| 8,330 |
| 30 |
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Changes in assets and liabilities |
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Accounts receivable |
| (156,713 | ) | (59,089 | ) | ||
Inventory |
| (183,077 | ) | (114,769 | ) | ||
Other current assets |
| (16,146 | ) | — |
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Other long-term assets |
| (2,230 | ) | 7,000 |
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Accounts payable |
| 12,004 |
| (17,772 | ) | ||
Accrued expenses |
| 9,950 |
| 10,006 |
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| (319,383 | ) | (168,669 | ) | ||
Net cash and cash equivalents provided by operating activities |
| 1,650,697 |
| 1,689,379 |
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Cash flows from investing activities |
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Purchase of property and equipment |
| (32,216 | ) | — |
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Net cash and cash equivalents used in investing activities |
| (32,216 | ) | — |
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Cash flows from financing activities |
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Distributions to owners |
| (1,946,333 | ) | (1,492,053 | ) | ||
Stockholder loan repayment |
| — |
| (11,286 | ) | ||
Net cash and cash equivalents used in financing activities |
| (1,946,333 | ) | (1,503,339 | ) | ||
Net (decrease) increase in cash and cash equivalents |
| (327,852 | ) | 186,040 |
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Cash and cash equivalents - beginning of year |
| 368,172 |
| 182,132 |
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Cash and cash equivalents - end of year |
| $ | 40,320 |
| $ | 368,172 |
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Supplemental disclosure of non-cash activity:
The Company traded $10,000 of inventory for $10,000 of fixed assets during the year ended December 31, 2011.
See notes to financial statements.
BIOS INTERNATIONAL CORPORATION
Notes to Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies
Bios International Corporation (“Bios” or the “Company”) was established in 1991. Bios is a recognized manufacturer of gas flow measurement, providing the industry’s most reliable products, service, and solutions for professionals in environmental protection, workplace safety, industrial process control, and laboratory calibration. The Company serves its customers directly and through a vast network of distributors across the globe.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests.
Accounts Receivable
The Company estimates an allowance for doubtful accounts based on overall historic write-offs, the age of receivable balances, and the payment history and creditworthiness of the customer. The losses ultimately incurred could differ materially in the near term from the amounts estimated in determining the allowance. As of December 31, 2011 and 2010, the Company determined that no allowance was necessary as all accounts were deemed fully collectible.
Concentrations of Credit Risk
The Company grants credit in the normal course of business to customers. The Company periodically performs credit analysis and monitors the financial condition of its customers to reduce credit risk.
Inventory
Inventory consists of raw materials and finished products, which are stated at the lower of cost or market, determined using the first-in, first-out method. The Company’s policy is to periodically evaluate the market value of the inventory and the stage of product lifecycle and record a reserve for any inventory considered slow-moving or obsolete.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets, ranging from 3 to 20 years, and the related lease terms for leasehold improvements.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, when title and risk of ownership passes, the sales price is fixed or determinable, and collectibility is probable. The Company recognizes revenues at the time products are shipped and risk of loss has transferred. Revenue from ongoing product service and repair is fully recognized upon completion and shipment of serviced product.
BIOS INTERNATIONAL CORPORATION
Notes to Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued)
Other than normal and customary ongoing customer service, the Company does not have any post-shipment contractual obligations to its customers, such as installation or training.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2011 and 2010 was $54,290 and $24,509, respectively.
Research and Development Costs
Expenditures made for research and development are charged to expense as incurred.
Shipping and Handling Costs
For product sold, payments by customers to the Company for shipping and handling costs are included in revenue on the statements of income, while the Company’s expense is included in cost of revenue. Shipping and handling for inventory and materials purchased by the Company is included as a component of inventory on the balance sheets, and in cost of revenue when the product is sold.
Income Taxes
The Company has elected to be treated as an S corporation for income tax purposes. Accordingly, taxable income and losses of the Company are reported on the income tax returns of the Company’s stockholders, and no provision for federal income taxes has been recorded in the accompanying financial statements.
The Company applies guidance on accounting for uncertainty in income taxes. If taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed on the stockholders rather than the Company. Accordingly, there would be no effect on the Company’s financial statements. If the Company were deemed to be other than an S corporation, additional taxes may be the responsibility of the Company.
Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. No interest or penalties have been assessed as of December 31, 2011. The Company’s informational returns for tax years subject to examination by tax authorities included 2007 and 2008 through the current year for state and federal tax reporting purposes, respectively.
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, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
BIOS INTERNATIONAL CORPORATION
Notes to Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)
Warranties
The Company provides limited product warranty on its products and, accordingly, accrues an estimate of the related warranty expense at the time of sale. The Company recorded $21,000 for warranty reserve as of December 31, 2011 and 2010, which is included in accrued expenses on the balance sheets.
Commission
The Company paid $500,000 of commissions to a separate entity, owned by a common shareholder of the Company, during the years ended December 31, 2011 and 2010. This commission is included in selling expense in the accompanying statements of income.
Note 2 - Related Party Transactions
The Company pays its sole owner $200,000 in royalties annually for the use of patented technology. The related expense is recorded as cost of revenue within the statements of income for the years ended December 31, 2011 and 2010.
Note 3 - Inventory
Inventories are summarized as follows:
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| December 31, |
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| 2011 |
| 2010 |
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Finished goods and raw materials |
| $ | 971,324 |
| $ | 798,247 |
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Inventory reserve |
| (8,520 | ) | (190 | ) | ||
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| $ | 962,804 |
| $ | 798,057 |
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Finished goods include raw materials, direct labor, and manufacturing overhead at December 31, 2011 and 2010.
BIOS INTERNATIONAL CORPORATION
Notes to Financial Statements
Note 4 - Property and Equipment
Property and equipment consist of the following:
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| December 31, |
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| 2011 |
| 2010 |
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Machinery |
| $ | 32,980 |
| $ | 10,480 |
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Computer equipment |
| 8,374 |
| 6,194 |
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Furniture |
| 10,870 |
| 10,870 |
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Leasehold improvements |
| 29,713 |
| 29,713 |
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Office equipment |
| 17,536 |
| — |
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| 99,473 |
| 57,257 |
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Less accumulated depreciation |
| (31,836 | ) | (23,337 | ) | ||
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| $ | 67,637 |
| $ | 33,920 |
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Depreciation expense for the years ended December 31, 2011 and 2010 was $8,499 and $5,925, respectively.
Note 5 - Accrued Expenses
Accrued expenses consist of the following:
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| December 31, |
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| 2011 |
| 2010 |
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Profit-sharing contribution |
| $ | 50,249 |
| $ | 48,000 |
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Payroll and benefits |
| 38,644 |
| 29,920 |
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Warranty liability |
| 21,000 |
| 21,000 |
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Customer deposits |
| 10,089 |
| 24,271 |
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Other |
| 26,595 |
| 13,436 |
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| $ | 146,577 |
| $ | 136,627 |
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Note 6 - Commitments and Contingencies
Operating Leases
The Company leases equipment, storage, and vehicles under non-cancelable operating leases. Rent expense for the years ended December 31, 2011 and 2010 was $160,349 and $174,214, respectively.
BIOS INTERNATIONAL CORPORATION
Notes to Financial Statements
Note 6 - Commitments and Contingencies (continued)
Operating Leases (continued)
Future minimum lease payments under these leases are approximately as follows:
Year Ending December 31, |
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2012 |
| $ | 180,000 |
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2013 |
| 180,000 |
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2014 |
| 180,000 |
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2015 |
| 15,000 |
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| $ | 555,000 |
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Litigation
In the normal course of business, the Company is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the Company.
Note 7 - Employee Benefit Plan
The Company sponsors a Section 401(k) retirement plan (the “Plan”). Eligible employees may make voluntary contributions to the Plan. In addition, the Company may make discretionary matching contributions to the Plan. The Company made matching contributions of $65,659 and $50,200 during the years ended December 31, 2011 and 2010, respectively.
Note 8 - Stockholders’ Equity
Stockholders’ Equity
Bios was incorporated in the state of New Jersey on January 2, 1991. The Company authorized 1,000 shares for issuance. As of December 31, 2011 and 2010, there were 1,000 shares issued and outstanding.
Note 9 - Subsequent Events
On May 15, 2012, substantially all of the assets and liabilities of the Company were acquired by Mesa Laboratories, Inc. (“Mesa”). Under the terms of the acquisition, certain assets and liabilities of the Company were acquired for a cash payment of $16,660,000, which includes $1 million held in escrow and contingent consideration of up to $6,710,000, depending on the results of a three-year earn period.
The Company has evaluated all subsequent events through July 27, 2012, which is the date the financial statements were available to be issued.