UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet
combines the historical balance sheets of Lower Lakes and Rand as of December
31, 2005, giving effect to the transactions described in the Stock Purchase
Agreement as if they had occurred on December 31, 2005.
1 The Stock Purchase Agreement provides for the acquisition of all of the
outstanding shares of capital stock of Lower Lakes by LL Acquisition Corp. for
an aggregate cash purchase price of $53,730,000 less an amount necessary to
retire all of the outstanding senior and subordinated debt of Lower Lakes, Lower
Lakes Transportation and Grand River as of the closing date of the acquisition,
and less the redemption price of the shares of Grand River not held by Lower
Lakes, which redemption price will be funded by Rand. The purchase price is
subject to a post-closing adjustment based on Lower Lakes' net working capital
as of January 15, 2006.
The following unaudited pro forma condensed consolidated statements of
operations combine (i) the historical statement of operations of Rand for the
twelve months ended December 31, 2005 and the historical statement of operations
of Lower Lakes for the twelve months ended December 31, 2005 giving effect to
the acquisition as if it had occurred on January 1, 2005. The unaudited Lower
Lakes statement of operations for the twelve months ended December 31, 2005 was
deduced from the Lower Lakes' statements of operations for the nine month
periods ended December 31, 2005, the twelve month period ended March 31, 2005
and the nine month period ended December 31, 2004.
We are providing this information to aid you in your analysis of the
financial aspects of the acquisition. The unaudited pro forma condensed
consolidated financial statements described above should be read in conjunction
with the historical financial statements of Lower Lakes and Rand and the related
notes thereto. The Pro Forma adjustments are preliminary and the unaudited pro
forma information is not necessarily indicative of the financial position or
results of operations that may have actually occurred had the acquisition taken
place on the dates noted, or the future financial position or operating results
of Rand.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2005
Pro Forma Pro Forma
Lower Lakes Rand Adjustments Note 1 Combined
------------- ------------- ------------- --------------
ASSETS
CURRENT
Cash and cash reserved
for repairs and drydock
expenditures $ 2,492,077 $ 176,945 $ 15,000,000 (a) $ 5,965,994
21,906,308 (b)
24,511,698 (c)
(43,866,235) (d)
(3,640,590) (f)
(750,000) (i)
(9,864,209) (h)
Accounts receivable, net 8,125,659 8,125,659
Prepaid expenses and other
current assets 2,347,396 17,815 2,365,211
Investments held in trust 24,511,698 (24,511,698) (c)
Deferred income taxes 123,378 123,378
- ----------------------------------------------------------------------------------------------------------------------------------
13,088,510 24,706,458 (21,214,726) 16,580,242
CAPITAL ASSETS, NET 34,790,439 2,700,000 (h), (l) 37,490,439
DEFERRED INCOME TAXES 5,335,159 5,335,159
DEFERRED ACQUISITION COSTS 2,083,097 (2,083,097) (h) --
DEFERRED DRYDOCK AND FINANCING
COSTS, NET 5,836,504 579,834 (b) 5,679,051
(2,572,000) (b), (d)
1,814,713 (f)
INTANGIBLE ASSETS -- 11,068,837 (h) 11,068,837
- ----------------------------------------------------------------------------------------------------------------------------------
$ 59,050,612 $ 26,789,555 $ (9,686,439) $ 76,153,728
==================================================================================================================================
LIABILITIES
CURRENT $ 10,513,134 $ 2,096,275 $ 2,250,000 (b) $ 10,532,637
(2,501,772) (d)
(1,825,000) (f)
LONG-TERM DEBT
Long-term debt - senior and
subordinated 41,364,463 20,236,142 (b) 20,400,142
(41,364,463) (d)
Long-term obligation - vessel
lease 1,758,132 1,758,132
Deferred income taxes 4,233,537 950,000 (h) 5,183,537
Common stock subject to
conversion 4,744,826 (4,744,826) (j) --
Convertible notes 10,057,529 (10,057,529) (e) --
- ----------------------------------------------------------------------------------------------------------------------------------
57,413,661 4,744,826 (34,980,676) 27,177,811
- ----------------------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST -- --
- ----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Convertible preferred
shares 15,000,000 (a) 14,500,000
(500,000) (f)
Common stock par value 560 560
Share capital 1,383,575 10,057,529 (e)
(1,720,016) (g)
(9,721,088) (h)
Due from shareholder (1,720,016) 1,720,016 (g) --
Additional paid in capital 1,482,353 19,844,465 (1,482,353) (h) 24,629,291
4,744,826 (j)
Accumulated deficit (4,987,472) 63,439 4,987,472 (h) (686,571)
(750,000) (i)
Accumulated other
comprehensive loss (5,034,623) 5,034,623 (h) --
- ----------------------------------------------------------------------------------------------------------------------------------
(8,876,183) 19,948,454 27,371,009 38,443,280
- ----------------------------------------------------------------------------------------------------------------------------------
$ 59,050,612 $ 26,789,555 $ (9,686,439) $ 76,153,728
==================================================================================================================================
See notes to unaudited pro forma condensed consolidated financial statements.
2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 2005
Pro Forma Pro Forma
Lower Lakes Rand Adjustments Note 1 Combined
-------------- ------------ -------------- --------------
REVENUE $ 61,240,535 $ $ $ 61,240,535
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Outside voyage charter fees 7,379,638 7,379,638
Vessel operating expenses 40,628,366 40,628,366
Winter costs 1,625,671 1,625,671
Administration 2,952,486 323,702 3,276,188
Depreciation 3,739,420 200,000 (k) 3,939,420
Amortization of deferred drydock 1,033,339 1,033,339
costs
Foreign exchange gain (276,251) (276,251)
Loss on asset disposal 113,405 113,405
- -------------------------------------------------------------------------------------------------------------------------------
57,196,074 323,702 200,000 57,719,776
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 4,044,461 (323,702) (200,000) 3,520,759
- -------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND EXPENSES
Interest 3,596,750 (1,600,000) (d) 1,996,750
Other income (16,463) (581,555) (598,018)
Loss on debt extinguishment 52,130 52,130
Amortization of deferred financing costs 864,264 864,264
- -------------------------------------------------------------------------------------------------------------------------------
4,496,681 (581,555) (1,600,000) 2,315,126
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST (452,220) 257,853 1,400,000 1,205,633
- -------------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 91,184 169,249 490,000 (d), (k) 750,433
MINORITY INTEREST -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (543,404) $ 88,604 $ 910,000 $ 455,200
- -------------------------------------------------------------------------------------------------------------------------------
Pro forma net loss per share:
Pro forma weighted average outstanding shares - basic and
diluted 5,600,000 (l) 5,600,000
------------ --------------
Pro forma net loss per share - basic and diluted $ 0.02 $ (0.13)
------------ --------------
See notes to unaudited pro forma condensed consolidated financial statements.
3
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. PRO FORMA ADJUSTMENTS
Adjustments included in the column under the heading "Pro Forma
Adjustments" include the following:
(a) To reflect the issuance of $15,000,000 of Series A convertible
preferred stock. $500,000 of closing costs were attributable
to the Series A shares (see Note (d)).
(b) To reflect the new $22,486,142 debt facility to be entered
into in replacement of Lower Lakes' existing debt facility.
$2,572,000 of deferred financing costs associated with
replaced debt facilities were written off.
(c) The funds held in trust by Rand will be released in connection
with the acquisition.
(d) The existing senior and subordinated debt of Lower Lakes will
be extinguished for approximately $43,866,235. Based on
interest rates attributable to the extinguished subordinated
debt, interest savings expected as a result of lower debt
levels are estimated to be $1,600,000 annually. The tax effect
of such savings is estimated to be $570,000 at an estimated
combined statutory tax rate of 35%.
(e) The outstanding Lower Lakes convertible notes will be
converted to common shares of Lower Lakes immediately prior to
the acquisition.
(f) Closing costs of approximately $3,640,590 will be paid by
Rand.
(g) P&B Ships Limited will return the shares of Lower Lakes it
currently owns in exchange for extinguishment of the note
payable to Lower Lakes.
4
(h) The purchase price allocation to the fair values of assets and
liabilities acquired after the existing long-term debt of
Lower Lakes is extinguished is as follows:
Purchase price of $53,730,000, including acquisition
costs attributed to the business combination of $1,563,974 $ 55,293,974
------------
Current assets 13,088,510
Capital assets 37,490,439
Intangible assets (goodwill) 11,068,837
Deferred drydock, financing costs and deferred tax assets 9,495,858
Current liabilities (10,513,134)
Long-term liabilities and deferred tax liabilities (4,440,341)
------------
$ 55,293,974
============
This purchase price allocation is preliminary and will be
subject to a final determination subsequent to the closing of
the acquisition of Lower Lakes by Rand. The final
determination of the purchase price allocation may result in
material allocation differences when compared to this
preliminary allocation and the impact of the revised
allocation may have a material effect on the actual results of
operation and financial position of the merged entities. As a
result of the application of purchase accounting, the accounts
in the minority interest and shareholders' deficiency section
of the balance sheet of Lower Lakes were eliminated.
(i) Immediately following the purchase of Lower Lakes shares by LL
Acquisition, Grand River will redeem the remaining 75% of its
outstanding shares for $750,000.
(j) Reflects the reclassification of common stock subject to
redemption, classified as a liability in the December 31, 2005
balance sheet of Rand, to equity as no stockholders demanded
redemption of their shares in connection with the business
combination between Rand and Lower Lakes.
(k) Increased depreciation of approximately $200,000 per year
results from a fair value increment of $2,700,000 assigned to
vessels with an assumed average remaining life of 15 years.
The tax effect of this adjustment has been calculated based on
an assumed combined statutory tax rate of 35%.
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(l) Pro forma net income per share. The following table provides
details regarding the calculation of basic and diluted pro
forma net income per share for the pro forma statements of
operations.
Income Shares Per Share Amount
------------ ----------- ----------------
Twelve months ended December 31, 2005
Pro forma net income $ 455,200
Less: convertible preferred stock dividends (1,162,500)
------------
Pro forma basic and diluted loss per share
Pro forma loss applicable to common
stockholders (707,300) 5,600,000 $ (0.13)
==================================================
Effect of dilutive securities:
Warrants -- 8,720,549
Convertible preferred stock 1,162,500 2,419,355
------------ ------------
Pro forma diluted net loss per share (584,800) 16,739,904 $ (0.03)
============ ============ ==========
The pro forma diluted loss per share excludes the potential
dilutive effect of convertible preferred shares and warrants
issued by Rand of 2,419,355 shares and 8,720,549 common
shares, respectively, as the inclusion of these items is
anti-dilutive.
6