EXHIBIT 99.2
VISUAL MANAGEMENT SYSTEMS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
VISUAL MANAGEMENT SYSTEMS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2007 AND 2006
- ---------------------------------------------------------------------------------------------------
ASSETS
2007 2006
(unaudited) (unaudited)
Current assets
Cash $ 113,993 $ 45,974
Accounts receivable 209,492 413,842
Inventory 527,507 133,088
Prepaid expenses 8,893 5,291
----------- -----------
Total current assets 859,885 598,195
Property and equipment - net 283,518 230,022
Equipment under capital leases - net 26,300 37,105
Deposits and other assets 15,923 12,253
Intangible assets - net 3,674 4,446
----------- -----------
$ 1,189,300 $ 882,021
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 799,703 $ 120,268
Accrued expenses and other current liabilities 273,053 68,479
Sales tax payable 34,141 36,469
Deferred revenue 17,146 18,241
Convertible notes payable 125,000 -
Current portion of long-term debt 71,967 47,889
Current portion of obligations under capital leases 13,917 12,039
----------- -----------
Total current liabilities 1,334,927 303,385
Long-term debt - net of current portion 281,226 208,829
Obligations under capital leases - net of current portion 12,792 16,654
Convertible notes payable - 325,000
Loans payable - stockholders 6,000 66,956
Stockholders' deficit
Common stock, $.01 par value; 50,000,000 shares authorized,
11,820,400 and 9,790,000 shares issued and outstanding at
March 31, 2007 and 2006, respectively 13,399 2,501
Additional paid-in capital 2,997,686 748,515
Accumulated deficit (3,456,730) (789,819)
----------- -----------
Total stockholders' deficit (445,645) (38,803)
----------- -----------
$ 1,189,300 $ 882,021
=========== ===========
The Notes to Consolidated Financial Statements are an integral part of these statements.
VISUAL MANAGEMENT SYSTEMS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 2007 AND 2006
- -------------------------------------------------------------------------------------------
2007 2006
(unaudited) (unaudited)
Revenues - net $ 1,546,887 $ 1,195,590
Cost of revenues 730,247 633,663
----------- -----------
Gross margin 816,640 561,927
Operating expenses (including stock-based compensation of
($164,803 and $77,321 for 2007 and 2006, respectively) 1,626,310 581,403
----------- -----------
Loss from operations (809,670) (19,476)
Other (income) expenses
Interest income (49) (28)
Interest expense 171 -
Debt conversion expense - 58,890
Miscellaneous expenses 26,013 17,170
----------- -----------
26,135 76,032
----------- -----------
Net loss (835,805) (95,508)
Accumulated deficit
Beginning of period (2,620,925) (694,311)
----------- -----------
End of period $(3,456,730) $ (789,819)
=========== ===========
The Notes to Consolidated Financial Statements are an integral part of these statements.
VISUAL MANAGEMENT SYSTEMS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTERS ENDED MARCH 31, 2007 AND 2006
- --------------------------------------------------------------------------------------------------
2007 2006
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(835,805) $ (95,508)
Adjustments to reconcile net loss to net cash used by operating
activities
Depreciation and amortization 26,412 18,139
Stock-based compensation 164,803 77,321
Change in deferred revenue (4,940) 596
Debt conversion expense - 58,890
Bank overdraft (46,697) -
(Increase) decrease in operating assets
Accounts receivable 174,226 (175,225)
Inventory (281,468) (12,995)
Prepaid expenses and other assets 5,364 165
Deposits and other 42,401 -
Increase (decrease) in operating liabilities
Accounts payable 12,166 (116,822)
Accrued expenses and other current liabilities 46,543 43,389
Sales tax payable 11,610 (9,163)
--------- ---------
Net cash used by operating activities (685,385) (211,213)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (12,177) (11,030)
Payment of security deposits - (4,953)
--------- ---------
Net cash used by investing activities (12,177) (15,983)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayment of obligations under capital leases (3,647) (10,703)
Proceeds from convertible notes payable 125,000 275,000
Proceeds from loans payable - stockholders (4,943) 9,895
Proceeds from the sale of common stock 715,350 -
Principal repayments of long-term debt (21,168) (11,924)
--------- ---------
Net cash provided by financing activities 810,592 262,268
--------- ---------
Net change in cash 113,030 35,072
CASH
Beginning of period 963 10,902
--------- ---------
End of period 113,993 45,974
========= =========
The Notes to Consolidated Financial Statements are an integral part of these statements.
VISUAL MANAGEMENT SYSTEMS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed by Visual Management Systems
Holding, Inc. ("VMS Holdings") and its wholly-owned subsidiaries,
Visual Management Systems, LLC ("VMS, LLC") and Visual Management
Systems PDG, LLC ("PDG"), collectively the "Company," in the
preparation of the accompanying consolidated financial statements are
summarized below:
NATURE OF BUSINESS OPERATIONS
The Company delivers protective technology solutions and remote
management loss prevention surveillance systems and provides on-site
consultations regarding its products. The Company also sells, installs,
upgrades and services Digital Video Recording Systems. The Company is
New Jersey-based, began operations in June 2003.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Visual
Management Systems Holding, Inc. and its wholly owned subsidiaries,
Visual Management Systems, LLC and Visual Management Systems PDG, LLC
collectively the "Company." All inter-company transactions and balances
have been eliminated in consolidation.
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 disclosure 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.
STOCK-BASED COMPENSATION
Effective January 1, 2005, the Company adopted Statement of Financial
Accounting Standards No. 123R, SHARE-BASED PAYMENTS ("SFAS 123R").
Under this method, the Company recognizes stock-based compensation over
the vesting period of each grant. Stock-based compensation is measured
based on the fair values of all stock awards on the dates of grant. The
Company has elected to use the Black-Scholes-Merton ("BSM")
option-pricing model to determine the fair value of stock-based awards
under SFAS 123R.
SFAS 123R requires compensation expense to be recognized based on
awards ultimately expected to vest. As a result, forfeitures need to be
estimated on the date of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. On January
1, 2005, the Company began to estimate forfeitures based on
management's best estimate of forfeitures to occur.
In addition, the company accounts for stock awards issued to
non-employees in accordance with the provisions of SFAS 123R, under
which the BSM method is used to measure the value of options granted to
non-employees at each vesting date to determine the appropriate charge
to stock-based compensation.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash balances and
trade receivables. The Company invests its excess cash in highly liquid
investments. The Company's customer base is principally comprised of
financial institutions. The Company does not require collateral from
its customers.
ACCOUNTS RECEIVABLE AND CREDIT POLICY
Accounts receivable are uncollateralized customer obligations due under
normal trade terms, ordinarily requiring payment within 30 days from
the invoice date. Interest is not charged on unpaid receivables with
invoice dates over 30 days old.
Accounts receivable are stated at the amount billed to the customer.
Payments of accounts receivable are allocated to the specific invoices
identified on the customer's remittance advice or, if unspecified, are
applied to the earliest unpaid invoices.
VISUAL MANAGEMENT SYSTEMS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
- --------------------------------------------------------------------------------
Management believes all accounts receivable to be fully collectible
and, therefore, the Company has not recorded an allowance as of either
March 31, 2007 or 2006.
INVENTORY
Inventory is comprised predominantly of finished goods, which consists
of digital video recorders, security cameras and related installation
materials, is stated at the lower of cost or market value. Cost is
computed on the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation charges with
respect to property and equipment have been made by the Company using
accelerated methods based on the following estimated useful lives:
ESTIMATED
CLASSIFICATION LIFE (YEARS)
-------------- ------------
Computer hardware and software 5-7
Furniture and fixtures 7
Machinery and equipment 5-7
Vehicles 5
Expenditures for repairs and maintenance are charged to operations as
incurred. Expenditures for betterments and major renewals are
capitalized and, therefore, are included in property and equipment.
REVENUE RECOGNITION
The Company generates revenues from the sale and installation of remote
management loss prevention systems. Revenue is recognized at the time
of the installation, net of anticipated credits, returns and
allowances. Amounts billed in advance of the period in which service is
rendered, generally support, are recorded as a liability under
"Deferred revenue."
ADVERTISING
Advertising costs are expensed as incurred and approximated $14,000 and
$4,000 for the quarters ended March 31, 2007 and 2006, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheet for cash, accounts
receivable, accrued expenses and other current liabilities approximates
fair value because of the immediate short-term maturity of these
financial instruments. The carrying amount of long-term debt
approximates fair value based on terms currently available to the
Company.
INCOME TAXES
The Company files a consolidated tax return. Deferred income tax assets
and liabilities are recognized for the differences between financial
and income tax reporting bases of assets and liabilities based on
enacted tax rates and laws. The deferred income tax provision or
benefit generally reflects the net change in deferred income tax assets
and liabilities during the year. The current income tax provision
reflects the tax consequences of revenues and expenses currently
taxable or deductible on the Company's income tax return for the year
reported.
VISUAL MANAGEMENT SYSTEMS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
- --------------------------------------------------------------------------------
2. PROPERTY AND EQUIPMENT
The major classifications of property and equipment at March 31 are as
follows:
2007 2006
Computer hardware and software $ 81,405 $ 75,536
Furniture and fixtures 25,622 24,622
Machinery and equipment 50,378 40,225
Vehicles 277,911 166,563
--------- ---------
Total cost 435,316 306,946
Accumulated depreciation (151,798) (76,924)
--------- ---------
Property and equipment - net $ 283,518 $ 230,022
========= =========
Depreciation included as a charge to operations amounted to $23,498 and
$15,252 for the quarters ended March 31, 2007 and 2006, respectively.
3. EQUIPMENT UNDER CAPITAL LEASES
Equipment under capital leases at March 31 are as follows:
2007 2006
Computer hardware and software $ 17,587 $ 17,587
Machinery and equipment 28,661 28,661
-------- --------
Total cost 46,248 46,248
Accumulated amortization (19,948) (9,143)
-------- --------
Equipment under capital leases - net $ 26,300 $ 37,105
======== ========
Amortization included as a charge to operations amounted to $2,722 and
$2,695 for the quarters ended March 31, 2007 and 2006, respectively.
4. INTANGIBLE ASSETS
Intangible assets at March 31, are as follows:
Gross
Amortization Carrying Accumulated
Period Amount Amortization Net
------ ------ ------------ ---
2007
Deferred financing costs 7 Years $ 5,338 $ 1,664 $ 3,674
============== ============== ==============
2006
Deferred financing costs 7 Years $ 5,338 $ 892 $ 4,446
============== ============== ==============
Amortization expense amounted to $192 for each of the quarters ended
March 31, 2007 and 2006.
VISUAL MANAGEMENT SYSTEMS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
- --------------------------------------------------------------------------------
Estimated future amortization expense for each of the next five twelve
month periods ending March 31, and in the aggregate, is as follows:
2008 $ 768
2009 768
2010 768
2011 768
2012 602
------------------
$ 3,674
==================
5. CONVERTIBLE DEBT
In September 2005, the Company issued $50,000 of 8% convertible notes
due on March 15, 2008. Interest is payable semi-annually in March and
September. The notes are convertible by the holder into shares of the
Company's common stock at any time at a conversion price of $2.50 per
share, which is subject to adjustment based on the provisions of the
agreement. The proceeds were primarily used for general corporate
purposes. The notes were converted in October 2006.
In March 2006, the Company issued $50,000 of 8% convertible notes due
on March 15, 2008. Interest is payable semi-annually in March and
September. The notes are convertible by the holder into shares of the
Company's common stock at any time at a conversion price of $2.50 per
share, which is subject to adjustment based on the provisions of the
agreement. The proceeds were primarily used for general corporate
purposes. The notes were converted in July 2006.
In March 2006, the Company issued $25,000 of 8% convertible notes due
on March 15, 2008. Interest is payable semi-annually in March and
September. The notes are convertible by the holder into shares of the
Company's common stock at any time at a conversion price of $2.50 per
share, which is subject to adjustment based on the provisions of the
agreement. The proceeds were primarily used for general corporate
purposes. The notes were converted in July 2006.
In March 2006, the Company issued $50,000 of 8% convertible notes due
on March 15, 2008. Interest is payable semi-annually in March and
September. The notes are convertible by the holder into shares of the
Company's common stock at any time at a conversion price of $2.50 per
share, which is subject to adjustment based on the provisions of the
agreement. The proceeds were primarily used for general corporate
purposes. The notes were converted in December 2006.
In March 2006, the Company issued $150,000 of 8% convertible notes due
on March 15, 2008. Interest is payable semi-annually in March and
September. The notes are convertible by the holder into shares of the
Company's common stock at any time at a conversion price of $2.50 per
share, which is subject to adjustment based on the provisions of the
agreement. The proceeds were primarily used for general corporate
purposes. The notes were converted in December 2006.
In September 2006, the Company issued $50,000 of 8% convertible notes
due on March 15, 2008. Interest is payable semi-annually in March and
September. The notes are convertible by the holder into shares of the
Company's common stock at any time at a conversion price of $2.50 per
share, which is subject to adjustment based on the provisions of the
agreement. The proceeds were primarily used for general corporate
purposes. The notes were converted in October 2006.
In March 2007, the Company issued $125,000 of 8% convertible notes due
in September 2007. Interest is payable in September 2007. The notes are
convertible by the holder into shares of the Company's common stock at
any time at a conversion price of $1.25 per share, which is subject to
adjustment based on the provisions of the agreement. The proceeds were
primarily used for general corporate purposes.
As of March 31, 2007 and 2006, the Company had $325,000 and $125,000,
respectively, of convertible notes payable outstanding.
VISUAL MANAGEMENT SYSTEMS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
- --------------------------------------------------------------------------------
In accordance with FAS-84, INDUCED CONVERSIONS OF CONVERTIBLE DEBT, the
conversion of previously issued notes to common stock during the period
ended March 31, 2006 and 2005 resulted in $264,990 and $58,890,
respectively, of debt conversion expense.
6. STOCK PURCHASE WARRANTS
During the quarters ended March 31, 2007 and 2006, the management
approved the issuance of warrants to purchase shares of the Company's
common stock. Such warrants are exercisable at $1.25 per share, vest
over a period of 36 months and expire at various times through October
2009.
The issuance of stock purchase warrants was accounted for under SFAS
123R using the BSM model (with the same assumptions as those used for
the options, see note 11), which did not result in the recording of
compensation cost during the quarters ended March 31, 2007 and 2006.
A summary of warrant activity for 2007 and 2006 is as follows:
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER OF EXERCISE WARRANTS EXERCISE
WARRANTS PRICE EXERCISABLE PRICE
--------------- --------------- --------------- ---------------
Outstanding, December 31, 2005 240,000 1.25 240,000 1.25
Granted -- --
Exercised -- --
---------------
Outstanding, March 31, 2006 240,000 1.25 240,000 1.25
===============
Outstanding, December 31, 2006 540,000 1.25 540,000 1.25
Granted -- --
Exercised (540,000) --
---------------
Outstanding, March 31, 2007 -- -- -- --
===============
In March 2007, all outstanding warrants were converted into shares of
the Company's common stock. The conversion was induced by management
through a 2-for-1 share offering.
7. LONG-TERM DEBT
Long-term debt at March 31 is as follows:
2007 2006
Term loans payable, collateralized by vehicles, due
in monthly installments ranging from $404 - $612,
including interest at fixed rates ranging from
3.90% - 8.69% and maturing through November 2012. $ 193,076 $ 126,691
Term loan payable - due in monthly installments of
$794 including interest at a fixed rate of 8.61%
and maturing October 2013. The loan is secured by
substantially all assets of the Company and the
personal guarantee of the majority stockholder. 48,682 --
Small Business Administration term loan due in
monthly installments of $2,282 including interest
at a fixed rate of 7.23% and maturing January
2012. The loan is collateralized by substantially
all assets of the Company. 111,435 130,027
------------------ -----------------
353,193 256,718
Less: current portion 71,967 47,889
------------------ -----------------
Long-term debt - net of current portion $ 281,226 $ 208,829
VISUAL MANAGEMENT SYSTEMS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
- --------------------------------------------------------------------------------
Aggregate maturities of long-term debt of the Company due within each
of the next five twelve month periods ending March 31 and thereafter,
are as follows:
2008 $ 71,967
2009 77,625
2010 75,197
2011 57,985
2012 46,863
Thereafter 23,556
------------------
$ 353,193
==================
8. OBLIGATIONS UNDER CAPITAL LEASES
Obligations under capital leases at March 31, are as follows:
2007 2006
Equipment leases - monthly payments ranging from
$83 - $282, including interest between 15.33% -
19.03% and maturing through June 2010. $ 26,709 $ 28,693
Less: current portion 13,917 12,039
------------------ -----------------
Obligations under capital leases - net of
current portion $ 12,792 $ 16,654
Aggregate maturities of obligations under capital leases of the Company
due within each of the next five twelve month periods ending March 31
and thereafter, are as follows:
2008 $ 17,344
2009 11,384
2010 2,638
2011 330
2012 --
------------------
Total future minimum lease payments 31,696
Less: imputed interest 4,987
------------------
Present value of minimum lease payments $ 26,709
==================
9. COMMITMENTS AND CONTINGENCIES
The Company conducts its operations from facilities in New Jersey, New
York and Ohio with leases expiring on January 31, 2009, November 30,
2009 and November 30, 2007, respectively. Rent expense for the quarters
ended March 31, 2007 and 2006 approximated $25,000 and $12,000,
respectively.
Minimum future rental payments under non-cancelable operating leases
for the twelve month periods ended March 31 are as follows:
2008 $ 124,288
2009 96,652
2010 60,109
2011 4,043
2012 --
------------------
$ 285,092
==================
Included in future minimum rental payments are lease payments related
to a second facility in New Jersey under an operating lease that was
entered into subsequent to quarter-end.
In January 2007, the Company entered into compensation agreements with
key members of management. The agreements are described in full within
the body of the 8-k filing.
VISUAL MANAGEMENT SYSTEMS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
- -----------------------------------------------------------------------------------------------------------
10. INCOME TAXES
Income tax benefit is summarized as follows for the quarters ended
March 31:
2007 2006
Federal and state - current $ -- $ --
Deferred -- --
----------------- ----------------
Provision for income taxes $ -- $ --
================= ================
The details of deferred income tax assets are as follows:
2007 2006
Deferred income tax assets $ 169,600 $ 53,600
Valuation allowance (169,600) (53,600)
----------------- ----------------
Deferred income tax assets - net $ -- $ --
================= ================
The principal temporary difference that gives rise to deferred income
tax assets is net operating loss carryforwards.
At December 31, 2006 and 2005, the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately $424,000 and $134,000, respectively expiring through
2012. Utilization of such net operating losses could be limited under
the Internal Revenue Code.
11. STOCK OPTION PLAN
The Company maintains a non-qualified stock option plan (the "Plan")
that provides for the awarding of stock options to selected employees
and non-employees. Options granted under the Plan become vested 50% one
year from the date of grant and in full two years from the date of
grant. Options are exercisable immediately upon vesting. No shares are
reserved for the Plan and all shares are expected to be issued from
authorized shares not yet outstanding, or from Treasury Stock, if
available.
The Company estimated the fair value of each option award on the date
of grant using the BSM valuation model. Assumptions about stock-price
volatility have been estimated by management based upon the implied
volatilities of publicly traded companies within the industry. The
risk-free rate for periods within the contractual life of the option is
based on the U.S. Treasury yield curve in effect at the time of grant.
Forfeitures were estimated as management's best approximation.
The following table presents the weighted-average assumptions used to
estimate the fair values of the stock options granted in the periods
presented:
MARCH 31,
------------------------------
2007 2006
------------- -------------
Risk-free interest rate 4.94% 4.51%
Expected volatility 150% 150%
Expected life (in years) 10 10
Weighted-average estimated fair value
of options granted during the year $ 1.59 $ 1.59
VISUAL MANAGEMENT SYSTEMS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
- ---------------------------------------------------------------------------------------------------------
The following table summarizes the activity under the Plan:
OPTIONS OUTSTANDING
-----------------------------------------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AGGREGATE
NUMBER OF EXERCISE REMAINING INTRINSIC
SHARES PRICE TERM (YRS.) VALUE
------------- ------------- ------------- -------------
Balance, December 31, 2005 1,410,000 1.25 9.50 618,567
Granted 25,000 1.25
Exercised -- --
Lapsed -- --
------------- -------------
Balance, March 31, 2006 1,435,000 1.25 9.01 658,330
============= =============
Balance, December 31, 2006 1,850,000 1.25 8.75 1,318,427
Granted 25,000 1.25
Exercised -- --
Lapsed -- --
------------- -------------
Balance, March 31, 2007 1,875,000 1.25 9.52 1,358,192
============= =============
12. SUBSEQUENT EVENT
On July 17, 2007, the Company was merged with and into VMS Acquisition
Corp., a NJ Corporation, and became a wholly-owned subsidiary of Visual
Management Systems, Inc., a Nevada Corporation (formely Wildon
Productions, Inc.), a publicly traded entity subject to the provisions
of the Public Company Accounting Oversight Board. As a result of the
merger, each outstanding share of the Company's common stock was
converted into 0.50 shares of common stock of Visual Management
Systems, Inc.
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During the quarter ended March 31, 2006, the Company incurred $8,000 in
capital leases payable in connection with the financing of additions to
equipment under capital lease.