UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF EARLIEST EVENT REPORTED – May 20, 2014
A.C. SIMMONDS AND SONS INC.
(Exact Name of Registrant as Specified in its Charter)
| NEVADA | 001-35802 | 45-5512933 |
| (State or other jurisdiction of | (Commission | (IRS Employer |
| incorporation) | File Number) | Identification Number) |
3565
King Rd., King City, Ontario, Canada L7B 1M3
(Address of principal executive offices)
(905)
833-9845
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act |
Explanatory Note
On May 27, 2014, A.C. Simmonds and Sons Inc. (the “Company”), formerly known as BLVD Holdings, Inc., filed a report on Form 8-K with the U.S. Securities & Exchange Commission (the “Original Form 8-K”). The Original Form 8-K disclosed the Share Purchase Agreement, dated on May 20, 2014, among the Company and Direct Reefer Services Inc. (“DRS”), a corporation incorporated under the laws of the Province of Ontario, and Sam Sinisi and Italo Sinisi, the sole shareholders of DRS, pursuant to which the Company purchased one hundred percent (100%) of the outstanding shares of common stock of DRS.
This Form 8-K/A amends the Original Form 8-K to file the audited financial statements and pro forma financial statements related to the DRS acquisition pursuant to Item 9.01 of Form 8-K.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
DRS's audited combined financial statements, including the report of independent public accounting firm, as of and for the years ended December 31, 2013 and 2012 are attached hereto as Exhibit 99.1 and are incorporated herein by reference thereto.
(b) Pro Forma Financial Information
Unaudited pro forma condensed consolidated financial statements and explanatory notes for the Company, after giving effect to the acquisition of DRS and adjustments described in such pro forma financial information, are attached hereto as Exhibit 99.2 and are incorporated herein by reference thereto.
(d) Exhibits.
| 2 |
FORWARD LOOKING STATEMENTS
This Current Report on Form 8-K (this “Report”) and the Exhibits hereto may contain forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “seeks,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Such statements may include, but are not limited to, information related to: anticipated operating results; our product offerings; relationships with suppliers; consumer demand; financial resources and condition; revenues; prospective profitability; changes in accounting treatment; cost of sales; selling, general and administrative expenses; interest expense; the ability to produce the liquidity or enter into agreements to acquire the capital necessary to continue our operations and take advantage of opportunities; product and commercial liability; legal proceedings and claims. Forward-looking statements represent our estimates and assumptions only as of the date of this Report. You should read this Report and the documents that we reference and file or furnish as exhibits to this Report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
| 3 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| A.C. SIMMONDS AND SONS INC. | |||
| Dated: September 3, 2014 | By: | /s/ John G. Simmonds | |
| Name: | John G. Simmonds | ||
| Title: | Chief Executive Officer | ||
| 4 |
A.C. Simmonds and Sons Inc. 8-K/A
Exhibit 99.1
DIRECT REEFER SERVICES, INC.
December 31, 2013 and 2012 Financial Statements
Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2013 and 2012
Statements of Operations for the years ended December 31, 2013 and 2012
Statement of Shareholder’s Deficit for the two years ended December 31, 2013 and 2012
Statements of Cash Flows for the years ended December 31, 2013 and 2012
Notes to Financial Statements
March 31, 2014 Interim Financial Statements (unaudited)
Condensed Balance Sheet at March 31, 2014 and December 31, 2013
Condensed Statement of Operations for the three months ended March 31, 2014
Condensed Statements of Cash Flows for the three months ended March 31, 2014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Direct Reefer Services, Inc.
We have audited the accompanying balance sheets of Direct Reefer Services, Inc. (the “Company”) as of December 31, 2013 and 2012, and the related statements of operations, shareholders’ deficit and cash flows for each of the two years in the period ended December 31, 2013. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on the consolidated financial statements based upon our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (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 misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe 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 consolidated financial position of Direct Reefer Services, Inc. at December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the company will continue as a going concern. As discussed in the Note 1 to the accompanying financial statements, the Company has suffered recurring losses and negative cash flows from operations that raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ RBSM LLP
New York, New York
August 13, 2014
Direct Reefer Services Inc.
Balance Sheet
As at December 31, 2013
| 2013 | 2012 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Accounts receivable, net | $ | 179,186 | $ | 278,316 | ||||
| Prepaid expenses and other current assets | 15,000 | 15,000 | ||||||
| Total Current Assets | 194,186 | 293,316 | ||||||
| Property and equipment, net | 241,880 | 294,249 | ||||||
| Total Assets | $ | 436,066 | $ | 587,565 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Cash disbursed in excess of available balance | $ | 4,860 | $ | 9,849 | ||||
| Accounts payable and accrued expenses | 892,080 | 758,470 | ||||||
| Current portion of long term debt - capital leases | 54,342 | 89,216 | ||||||
| Due to shareholder | 194,508 | 78,022 | ||||||
| Due to related party 1549037 Ontario Inc. | 32,246 | |||||||
| Total Current Liabilities | 1,178,036 | 935,557 | ||||||
| Non current liabilities | ||||||||
| Capital Leases - long term | 72,224 | 101,566 | ||||||
| Total Liabilities | 1,250,260 | 1,037,123 | ||||||
| Commitments and contingencies | — | — | ||||||
| Stockholders' (deficit): | ||||||||
| Common Stock | — | |||||||
| Authorised - unlimited | ||||||||
| Issued 100 - par value $1 | 100 | 100 | ||||||
| Accumulated deficit | (814,294 | ) | (449,658 | ) | ||||
| Total Stockholders' deficit | (814,194 | ) | (449,558 | ) | ||||
| Total Liabilities and Stockholder Deficit | $ | 436,066 | $ | 587,565 | ||||
DIRECT REEFER SERVICES INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND 2012
| 2013 | 2012 | |||||||
| Revenue: | ||||||||
| Sales | $ | 3,595,092 | $ | 3,486,512 | ||||
| Cost of Sales | 3,146,848 | 2,977,274 | ||||||
| Gross Profit | 448,244 | 509,238 | ||||||
| Operating Expenses: | ||||||||
| Advertising | 13,268 | 1,079 | ||||||
| Depreciation | 77,369 | 111,213 | ||||||
| General and administrative | 642,419 | 571,652 | ||||||
| Total operating expenses | 733,056 | 683,944 | ||||||
| Operating Loss | (284,812.0 | ) | (174,706.0 | ) | ||||
| Other expenses: | ||||||||
| Interest Expense | 46,721 | 150,012 | ||||||
| Loss on disposal of assets | 33,103 | |||||||
| Net loss | $ | (364,636 | ) | $ | (324,718 | ) | ||
| Net loss per common share- Basic and Diluted | $ | (3,646 | ) | $ | (3,247 | ) | ||
| Weighted average number of common shares outstanding - Basic and diluted | 100 | 100 | ||||||
Direct Reefer Services, Inc
STATEMENT OF SHAREHOLDERS' DEFICIT
December 31, 2013
| Common Stock | Additional | Accumulated | Total Shareholder's | |||||||||||||||||
| Shares | Amount | Paid-in-Capital | Deficit | Deficit | ||||||||||||||||
| Balance - December 31, 2011 | 100 | $ | 100 | $ | — | $ | (124,940 | ) | $ | (124,840 | ) | |||||||||
| Net loss for the year | — | — | — | (324,718 | ) | (324,718 | ) | |||||||||||||
| Balance - December 31, 2012 | 100 | 100 | — | (449,658 | ) | (449,558 | ) | |||||||||||||
| Net loss for the year | — | — | — | (364,636 | ) | (364,636 | ) | |||||||||||||
| Balance - December 31, 2013 | 100 | $ | 100 | $ | — | $ | (814,294 | ) | $ | (814,194 | ) | |||||||||
Direct Reefer Services Inc.
Statement of Cash Flows
For the year ended December 31, 2013
| December 31, 2013 | December 31, 2012 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | (364,636 | ) | $ | (324,718 | ) | ||
| Adjustments to reconcile net loss to | ||||||||
| net cash used in operating activities: | ||||||||
| Depreciation | 77,369 | 111,213 | ||||||
| Bad debt | 18,750 | — | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts Receivable | 80,380 | 21,957 | ||||||
| Deposits | — | (15,000 | ) | |||||
| Due to related party | 32,246 | — | ||||||
| Accounts Payable | 133,610 | 246,666 | ||||||
| Net cash used in operating activities | (22,281 | ) | 40,118 | |||||
| INVESTING ACTIVITIES | ||||||||
| Net cash used in investing activities | (25,000 | ) | (142,448 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Payment for capital lease | (64,216 | ) | 95,671 | |||||
| Proceeds from related party | 116,486 | 40,564 | ||||||
| Net cash provided by financing activities | 52,270 | 136,235 | ||||||
| NET INCREASE IN CASH | 4,989 | 33,905 | ||||||
| CASH AT BEGINNING OF YEAR | (9,849 | ) | (42,177 | ) | ||||
| CASH AT END OF YEAR | (4,860 | ) | (9,849 | ) | ||||
| Supplementary disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 46,721 | $ | 150,012 | ||||
| Income tax | $ | 0 | $ | 0 | ||||
| Supplemental schedule of non-cash investing and financing activities: | ||||||||
| Assets purchase on capital lease | $ | 25,000 | $ | 105,000 | ||||
DIRECT REEFER SERVICES INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 And 2012
| 1. | Nature of operations |
Direct Reefer Services Inc. (“the Company”, “we”, “us” or “our”) was incorporated under the Business Corporations Act in the province of Ontario, Canada on October 31, 2003. The Company is in frozen and dry food transportation business that provides transportation, distribution and logistical solutions to food companies.
The Company operates out of leased facilities in Mississauga, Ontario Canada and its clients are mostly in the frozen food business and many have been long standing customers who either do not have their own distribution system, or want deliveries to locations that their trucks do not service but are delivery points for others.
Frozen food deliveries require specialised trailers and the product is maintained in good condition by reefers attached to each trailer. These reefers need to be operational before and for the duration of the trip to maintain the integrity of the cargo. Deliveries are either based on skid lots (LTL) or full truck.
The Company focuses on providing the trailers for these deliveries and relies on owner operators to make the delivery.
| 2. | Significant accounting policies |
Basis of presentation
The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America.
The Company uses the accrual method of accounting and accrues for costs and expenses outstanding at the end of the accounting period.
In the opinion of management, all adjustments necessary to fairly present the results for the periods presented have been made. All adjustments made are of a normal and recurring nature and no non-recurring adjustments have been made in the presentation of these financial statements.
All amounts referred to in the notes to the financial statements are in United States Dollars ($) unless stated otherwise.
The Company records payables for services or materials received. Because of the nature of the business, the Company’s expenses consist mainly of payment to independent owner / operators for deliveries and fuel for maintaining tractors and trailers. Independent operators are responsible for their own fuel, maintenance, insurance etc. costs for their trucks as the company pays for services.
Cash and cash equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash and cash equivalents with two financial institutions in the USA.
Concentration of Credit Risk
The Company’s financial instrument that is exposed to a concentration of credit risk is cash and accounts receivable. On occasion, the Company’s cash and cash equivalents in interest-bearing accounts may exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.
To mitigate its credit risk, the Company factors a number of accounts to a factoring who perform due diligence on the customers before advancing funds against. Typically they advance 90% of the receivable and send the balance, less charges (normally 2.5% per month) once they receive the full payment. In the event that an invoice becomes uncollectible, they charge the Company back for the amount outstanding. In the year 2013 the Company has had one significant chargeback of this nature in the amount of $18,500 which was written off as uncollectible after efforts at collection failed.
In the year 2013 the Company has 4 customers accounting for 46% of the business and all others are below 5% of its total sales. In the year 2012, the Company has 5 customers accounting for 53% of the business.
Lease
The Company records its leases on vehicles as capital leases and reflects the liability on its balance sheet.
Cost of Sales
The Company records all costs relating to the operation of its reefer trailers as cost of sales. This includes items such as drivers’ time sheets, trailer fuel costs, insurance, repairs and maintenance, lease expenses on trailers etc.
Going Concern
The accompanying financial statements have been prepared on a basis that assumes the Company will continue as a going concern. As of December 31, 2013, the Company has a deficit of $814,294 applicable to the shareholder and has incurred significant operating losses and negative cash flows. For the year ended December 31, 2013, the Company sustained a net loss attributable to the Company of $364,636 compared to a net loss of $324,718 for the year ended December 31, 2012. The Company has negative working capital (current liabilities exceed current assets) of $983,850. The Company will need additional financing which may take the form of equity or debt. In the event the Company is not able to increase its working capital, the Company will not be able to implement or may be required to delay all or part of its business plan, and their ability to attain profitable operations, generate positive cash flows from operating and investing activities and materially expand the business will be materially adversely affected. The accompanying consolidated financial statements do not include any adjustments relating to the classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the company be unable to continue in existence.
Revenue Recognition
The Company recognizes revenue on four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the fee charged for services rendered and products delivered and the collectability of those fees. Revenue is generally recognized upon shipment.
In the event of an account becoming uncollectible, the company either accrues this as an allowance for doubtful accounts and charges it against income, or writes it off directly.
The Company recognizes revenue from customers once the delivery to their client has been successfully completed, a signed Bill of Lading has been received and collection is reasonably assured.
Property and Equipment
Property and Equipment are recorded at cost less accumulated amortization. Amortization is calculated annually at the following rates and methods over the established useful lives of the assets as follows:
| Trailers | 10% Straight Line |
| Trucks and Tractors | 20% Straight Line |
| Warehouse equipment | 10% Straight Line |
The Company reviews for impairment of property and equipment whenever events or change in circumstances indicate that the carrying value may not be recoverable. If the total of the estimated undiscounted future cash flows is less than the carrying value of the assets, an impairment loss is recognized for the excess of the carrying value over the fair value of the assets during the year the impairment occurs.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that effect certain reported amount and disclosures in the financial statements.
Assumptions are based on a number of factors, including historical experience, current events and actions that the Company may undertake in the future, and other assumptions believed reasonable under the circumstances. These estimated are periodically reviewed and, accordingly, adjustments made to these estimates are taken into income in the year in which it is determined. These estimates are subject to measurement uncertainty, and actual results may therefore differ from those estimates. Estimates are used when accounting for certain items, such as useful lives of fixed assets, allowance for doubtful accounts, and provisions for slow-moving inventories and income tax.
Income Tax
The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are recognized, net of a valuation allowance, for the estimated future tax effects of deductible temporary differences and tax credit carry-forwards. A valuation allowance against deferred tax assets is recorded when, and if, based upon available evidence, it is more likely than not that some or all deferred tax assets will not be realized.
There are no unrecognized tax benefits at December 31, 2013 and 2012. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. There are no accrued interests or penalties associated with any unrecognized tax benefits, nor were any interest expense recognized during the year. The Company has determined it has no uncertain tax positions at December 31, 2013. Currently, the Company’s federal and provincial income tax returns for the years 2009-2012 remain open to inspection by the IRS and various state taxing authorities. The Company believes that it has appropriate support for income tax positions taken in its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including experience and interpretations of tax laws applied to the facts of each matter.
Due to its adverse operating results, the Company has had net operating loss carry forwards for income tax purposes as follows for the years ended December 31:
| 2009 | $ | 103,813 | |
| 2010 | 16,265 | ||
| 2011 | 39,545 | ||
| 2012 | 178,790 |
Based on the current year’s results, the Company expects to have an additional loss carry forward for 2013.
Fuel Availability and Cost
The motor carrier industry is dependent upon the availability of fuel and this is the same for our business as our reefer trailers consume a significant amount of fuel. Fuel shortages or increases in fuel taxes or fuel costs have adversely affected our profitability and will continue to do so. Fuel prices have fluctuated widely, and fuel prices and fuel taxes have generally increased in recent years. We have not experienced difficulty in maintaining necessary fuel supplies, and in the past we generally have been able to partially offset increases in fuel costs and fuel taxes through increased freight rates and through a fuel surcharge that increases incrementally as the price of fuel increases above an agreed upon baseline price per gallon.
At December 31, 2013, we did not have any long-term fuel purchase contracts, and we have not entered into any other hedging arrangements that protect us against fuel price increases. However, the company is constantly seeking out the most competitive suppliers to maintain a manageable cost base.
Customers
The Company has maintained a customer base consisting of customers in various sectors of the frozen food business.
The table below shows the revenue attributable to our top 10 customers for the period shown:
| 2013 | 2012 | |||||||
| Top 10 customers | 74 | % | 73 | % | ||||
| Top 5 customers | 53 | % | 53 | % | ||||
| Largest Customer | 12 | % | 13 | % | ||||
Suppliers
The most significant component of our purchases is driver services and fuel.
The table below shows the revenue attributable to our top 10 suppliers for the period shown:
| 2013 | 2012 | |||||||
| Top 10 suppliers | 70 | % | 66 | % | ||||
| Top 5 suppliers | 58 | % | 52 | % | ||||
| Largest Supplier (related party) | 31 | % | 24 | % | ||||
| Largest non-related supplier | 8 | % | 9 | % | ||||
Liability for Cargo
The Company is responsible for product picked up from various locations from the point of pick up to final destination. The Company has insurance coverage for loss of product resulting from accident or equipment malfunction and damages. The Company has experienced some occasions where product was damaged in-transit or arrived at the customer’s location either damaged or short. Drivers are responsible for any shortages, and damages are either charged back to the pick-up location or absorbed by the company. The losses in this regard has been minimal.
Fair Value of Financial Instruments
The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for loans payable, accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments. The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with the accounting guidance.
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Financial assets measured at amortized cost include accounts receivable, and HST recoverable. Financial liabilities measured at amortized cost include accounts payable.
Segment Information
Accounting Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment.
Related Parties
Parties are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company shall disclose all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to related party.
Reclassifications
Certain reclassifications have been made to conform the prior period data to the current presentations. These reclassifications had no effect on the reported results.
Recent Accounting Pronouncements
There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.
| 3. | Property and Equipment |
Property and equipment consists of the following at December 31, 2013 and 2012.
| December 31 | December 31 | |||||||
| 2013 | 2012 | |||||||
| Assets | ||||||||
| Cost | ||||||||
| Warehouse Equipment | $ | 50,750 | $ | 50,750 | ||||
| Trailers | 683,500 | 658,500 | ||||||
| Trucks and Tractors | 336,263 | 336,263 | ||||||
| Total | 1,070,513 | 1,045,513 | ||||||
| Accumulated Depreciation and Amortization | 828,633 | 751,264 | ||||||
| Net Book Value | $ | 241,880 | $ | 294,249 | ||||
The aggregate depreciation charge to operations was $77,369 and $111,213 for the years ended December 31, 2013 and 2012 respectively. The depreciation policies followed by the company are described in Note 2. During the year ended December 31, 2013, the Company charged to operations $33,103 as loss on disposal of assets. These represented old and non performing equipment that were mostly cannibalized for parts.
| 4. | Long Term Debt - Capital Leases |
The Company had several capital lease obligations. Property under those capital lease obligations (included in property, plant and equipment) at December 31, 2013 and 2012 consist of the following:
| Capital Lease Property | 2013 | 2012 | ||||||
| Machinery & equipment | $ | 548,263 | $ | 523,263 | ||||
| Less: Accumulated depreciation | (380,793 | ) | (343,874 | ) | ||||
| Net capital lease property | $ | 167,470 | $ | 179,389 | ||||
Depreciation and amortization expense of leased property under capital lease obligations amounted to $36,919, and $57,734 for the year ended December 31, 2013 and 2012, respectively.
The Company acquires its equipment under leases with a bargain purchase option at the end of the lease period. The Company treats these leases as capital leases
| December 31, | December 31, | |||||||
| 2013 | 2012 | |||||||
| The Company’s obligations under these leases are: | $ | 126,566 | $ | 190,782 | ||||
| Less current portion | 54,342 | 89,216 | ||||||
| $ | 72,224 | $ | 101,566 | |||||
| Capital Lease payments | December 31 | |||||||
| 2014 | 60,384 | |||||||
| 2015 | 33,312 | |||||||
| 2016 | 26,329 | |||||||
| 2017 | 18,409 | |||||||
| Less interest | (11,867 | ) | ||||||
| $ | 126,566 | |||||||
| 5. | Share Capital |
| December 31, | December 31, | ||||||
| 2013 | 2012 | ||||||
| Issued | |||||||
| 100 common shares, par value $1 | $ | 100 | $ | 100 | |||
| 6. | Related Party Transactions |
| December 31 | December 31 | |||||||
| 2013 | 2012 | |||||||
| Italo Countre is a related party to the Company. He is the brother of Sam Sinisi and provides services to the Company in the form of drivers and trucks who make deliveries on behalf of the Company’s customers to their clients. Pricing of these services is based on market rates consistent with the rates paid to other independent drivers used by the Company. The value of services provided by Italo’s Companies were: | $ | 500,080 | $ | 717,146 | ||||
| This represents billings made by Italo’s Companies for drivers’ charges on deliveries made on DRS’ behalf. | ||||||||
| As a percentage of total purchases by the Company | 31 | % | 24 | % | ||||
| The net amount owing to Italo and his companies were: | $ | 388,773 | $ | 510,694 | ||||
| These amounts were included in Accounts Payable at year end. | ||||||||
| As a percentage of Accounts Payable, this represents | 43 | % | 65 | % | ||||
| In addition, Italo paid for certain expenses on behalf of the Company which he is reimbursed for. At the end of the year, the Company owed him an amount which is reflected as | ||||||||
| Due to related parties 1540937 Ontario Inc. | $ | 32,246 | $ | — | ||||
Due to the Company’s precarious cash position, Sam Sinisi, had to inject funds either from personal savings, credit cards or loans from acquaintances to meet cash requirements and these are recorded as due to shareholder. This loan is interest free and unsecured. | ||||||||
| The amounts owing at the end of the year is as follows: | $ | 194,508 | $ | 78,022 | ||||
| 7. | Commitments and Contingencies |
The Company has no outstanding employment contracts or agreements with any officer or individual and has not entered into any contracts or agreements with others including supply of services or purchase of goods and services.
Litigation
The company does not have any outstanding legal obligation or litigation that it is aware of at this time.
| 8. | Financial Instruments |
Financial instruments consist of recorded amounts of accounts receivable which will result in future cash receipts, as well as bank notes payable, accounts payable and long term debt which will result in future cash outlays.
The Company is exposed to the following risks in respect of certain of the financial instruments held.
Fair Value
Accounting principles generally accepted in the United States of America requires that the Company disclose information about the fair value of its financial assets and liabilities unless it is not practicable within the constraint of timelines or cost to determine the fair value of the financial assets and liabilities with sufficient reliability. All financial assets and liabilities are stated at cost which approximates fair market value.
Credit risk
The Company is subject to risk on non-payment of accounts receivable. However, the Company has a number of customers which minimizes the concentration of credit risk. The Company believes that there is minimal risk associated with the collection of these amounts.
Interest rates risk
The Company negotiates the interest rate on its leases at the time of acquisition of the equipment and this rate is locked in for the duration of the lease.
Currency risk
The Company has no currency risk exposure as all of its transactions are conducted in Canadian currency.
| 9. | Subsequent events |
On May 20, 2014, BLVD Holdings, Inc. (BLVD) entered into a share purchase agreement with the sole shareholders of the Company to purchase one hundred percent (100%) of the outstanding shares of the common stock of the Company in consideration for a total of:
72,000 shares of BLVD’s Series A-2 6% 2014 Convertible Redeemable Preferred Stock, par value $0.001 per share. The Series A-2 6% Preferred Stock has a stated value of $10.00 per share and is convertible into BLVD’s common stock at a conversion value of $10.00 per share. The Series A-2 Preferred Stock has a 6% dividend paid annually in arrears on a non- cumulative basis.
DIRECT REEFER SERVICES INC.
Balance Sheet
| March 31, | December 31, | |||||||
| 2014 | 2013 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | — | $ | — | ||||
| Accounts Receivable | 160,542 | 179,186 | ||||||
| Inventories | — | |||||||
| Prepaid expenses and other current assets | 15,000 | 15,000 | ||||||
| Total Current Assets | 175,542 | 194,186 | ||||||
| Property and equipment, net | 227,117 | 241,880 | ||||||
| Goodwill and intangible assets, net | — | — | ||||||
| Other non current assets | — | — | ||||||
| $ | 402,659 | $ | 436,066 | |||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Cash disbursed in excess of available balance | $ | 11,106 | $ | 4,860 | ||||
| Bank Indebtedness | — | |||||||
| Accounts Payable | 916,215 | 892,080 | ||||||
| Current portion of long term debt - leases | 40,756 | 54,342 | ||||||
| Due to shareholder | 210,961 | 194,508 | ||||||
| Due to related party 1549037 Ontario Inc. | 32,246 | 32,246 | ||||||
| Total Current Liabilities | 1,211,284 | 1,178,036 | ||||||
| Non current liabilities - Capital Leases | 72,224 | 72,224 | ||||||
| Stockholders' deficit: | ||||||||
| Preferred stock | — | |||||||
| Common stock par value $1 | 100 | 100 | ||||||
| Additional paid-in capital | — | |||||||
| Accumulated deficit | (880,949 | ) | (814,294 | ) | ||||
| Other Comprehensive Income | — | |||||||
| Total Stockholders' deficiency | (880,849 | ) | (814,194 | ) | ||||
| $ | 402,659 | $ | 436,066 |
DIRECT REEFER SERVICES INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1 TO MARCH 31, 2014
| 2014 | ||||
| Sales | $ | 740,865 | ||
| Cost of Sales | $ | 673,566 | ||
| Gross Profit | $ | 67,299 | ||
| Operating Expenses | $ | 119,248 | ||
| Loss from operations | $ | (51,949 | ) | |
| Interest Expense | $ | 13,906 | ||
| Loss after interest expense | $ | (65,855 | ) | |
| Loss on disposal of assets | $ | — | ||
| Net loss | $ | (65,855 | ) | |
DIRECT REEFER SERVICES INC.
Statement of Cash Flows
For the 3 months ended March 31, 2014
| March 31 | ||||
| 2014 | ||||
| OPERATING ACTIVITIES | ||||
| Net Loss | $ | (65,855 | ) | |
| Adjustments to reconcile net loss to | ||||
| net cash used by operating activities: | ||||
| Depreciation | 14,763 | |||
| Loss on disposal of fixed assets | — | |||
| Changes in operating assets and liabiities | ||||
| Accounts Receivable | 18,644 | |||
| Prepaid expenses | — | |||
| Other assets | — | |||
| Accounts Payable | 24,135 | |||
| Net cash used in operating activities | (8,313 | ) | ||
| Increase in loan from related parties | 16,453 | |||
| INVESTING ACTIVITIES | ||||
| Net cash used in investing activities | — | |||
| FINANCING ACTIVITIES | ||||
| Net cash provided by financing activities | (14,386 | ) | ||
| NET INCREASE (DECREASE) IN CASH | (6,246 | ) | ||
| (increase in long term debt) | ||||
| CASH AT BEGINNING OF PERIOD | (4,860 | ) | ||
| CASH AT END OF PERIOD | $ | (11,106 | ) | |
A.C. Simmonds and Sons Inc. 8-K/A
Exhibit 99.2
PRO FORMA FINANCIAL INFORMATION
Condensed Consolidated Pro Forma Unaudited Balance Sheet as of March 31, 2014
Condensed Consolidated Pro Forma Unaudited Statement of Operations for the three months Ended March 31, 2014
Condensed Consolidated Pro Forma Unaudited Statement of Operations for the Year Ended December 31, 2013
Notes to Condensed Consolidated Pro Forma Unaudited Financial Statements
On May 20, 2014, A.C. Simmonds and Sons Inc., formerly BLVD Holdings, Inc. (the “Company”) entered into a share purchase agreement with Direct Reefer Services Inc. (“Direct Reefer”), a corporation incorporated under the laws of the Province of Ontario, and with Sam Sinisi and Italo Sinisi, the sole shareholders of Direct Reefer, to purchase one hundred percent (100%) of the outstanding shares of the common stock of Direct Reefer. The Company’s acquisition of Direct Reefer (the “Acquisition”) was completed on May 20, 2014.
The unaudited condensed combined pro forma statements of operations are presented as if the Acquisition had been completed on January 1, 2013 combining Direct Reefer condensed audited statement of operations for the year ended December 31, 2013 and the Company’s audited condensed statement of operations for the year ended December 31, 2013. The unaudited condensed combined pro forma statements of operations are presented as if the Acquisition had been completed on January 1, 2014 combining Direct Reefer’s condensed unaudited Statement of Operations for the three months ended March 31, 2014 and the Company’s unaudited condensed statement of operations for the three months ended March 31, 2014. The unaudited condensed combined pro forma balance sheet gives effect to the acquisition as if the Acquisition had taken place on March 31, 2014 and combines Direct Reefer’s unaudited condensed balance sheet as of March 31, 2014 with the Company’s condensed balance sheet as of March 31, 2014.
The unaudited pro forma combined statement of operations is presented for illustrative purposes only and, therefore, is not necessarily indicative of the operating results that might have been achieved had the transaction occurred as of an earlier date, nor is it necessarily indicative of the operating results that may be achieved in the future. You should not rely on the pro forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined companies will experience after the Acquisition.
The unaudited pro forma combined statement of income, including the notes thereto, should be read in conjunction with the Company’s audited historical consolidated financial statements for the year ended December 31, 2013 included in our Annual Report on Form 10-K for the year ended December 31, 2013, as well as Direct Reefer’s audited financial statements for the years ended December 31, 2013 and 2012 included in Exhibit 99.1 to this Form 8-K/A.
A.C. Simmonds and Sons Inc.
Unaudited Condensed Combined Pro Forma Balance Sheet
| DRS | DRS | A.C. Simmonds | Pro Forma | Pro Forma | ||||||||||||||||
| 3/31/2014 | 3/31/2014 | 3/31/2014 | Adjustments | Combined | ||||||||||||||||
| Cnd$ | US$ | US$ | US$ | US$ | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Current Assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | — | $ | — | $ | 84 | $ | — | $ | 84 | ||||||||||
| Accounts Receivable | 160,542 | 143,605 | — | 143,605 | ||||||||||||||||
| Inventories | — | — | — | — | ||||||||||||||||
| Prepaid expenses and other current assets | 15,000 | 13,418 | — | 13,418 | ||||||||||||||||
| Total Current Assets | 175,542 | 157,022 | 84 | 157,106 | ||||||||||||||||
| Property and equipment, net | 227,117 | 203,156 | 7,995 | 211,151 | ||||||||||||||||
| Goodwill and intangible assets, net | — | — | 791,969 | 791,969 | ||||||||||||||||
| Other non current assets | — | — | 9,500 | 9,500 | ||||||||||||||||
| Total Assets | $ | 402,659 | $ | 360,178 | $ | 17,579 | $ | 791,969 | $ | 1,169,726 | ||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||
| Cash disbursed in excess of available balance | $ | 11,106 | $ | 9,934 | $ | — | $ | — | $ | 9,934 | ||||||||||
| Accounts Payable | 916,215 | 819,572 | 1,585 | — | 821,157 | |||||||||||||||
| Current portion of long term debt - capital leases | 40,756 | 36,446 | — | — | 36,446 | |||||||||||||||
| Due to shareholder | 210,961 | 188,698 | — | — | 188,698 | |||||||||||||||
| Due to related party | 32,246 | 28,844 | — | — | 28,844 | |||||||||||||||
| Total Current Liabilities | 1,211,284 | 1,083,494 | 1,585 | 1,085,079 | ||||||||||||||||
| Non current liabilities | 72,224 | 64,604 | — | 64,604 | ||||||||||||||||
| Stockholders' (deficit) equity: | ||||||||||||||||||||
| Preferred stock | — | — | 3,960 | 3,960 | ||||||||||||||||
| Common stock | 100 | 89 | 6,980 | 7,069 | ||||||||||||||||
| — | ||||||||||||||||||||
| Additional paid-in capital | — | — | 167,234 | — | 167,234 | |||||||||||||||
| — | ||||||||||||||||||||
| Accumulated deficit | (880,949 | ) | (788,009 | ) | (158,220 | ) | 788,009 | (158,220 | ) | |||||||||||
| Other Comprehensive Income | — | — | — | |||||||||||||||||
| Total Stockholders' Equity | (880,849 | ) | (787,920 | ) | 15,994 | 791,969 | 20,043 | |||||||||||||
| TOTAL LIABILITIES AND | ||||||||||||||||||||
| STOCKHOLDERS' EQUITY | $ | 402,659 | $ | 360,178 | $ | 17,579 | $ | 791,969 | $ | 1,169,726 | ||||||||||
A.C. Simmonds and Sons Inc.
Unaudited Condensed Combined Pro Forma Statement of Operations
| Direct Reefer Services Inc. | Direct Reefer Services Inc. | A.C. Simmonds | Pro Forma | Pro Forma | Pro Forma | |||||||||||||||||||
| 3/31/2014 | 3/31/2014 | 3/31/2014 | Adjustments | Notes | Combined | |||||||||||||||||||
| Cnd$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||
| Net Revenue | $ | 740,865 | $ | 671,372 | $ | 21,500 | $ | — | $ | $ | 692,872 | |||||||||||||
| Cost of goods sold | 673,566 | 610,386 | — | — | 610,386 | |||||||||||||||||||
| Gross profit | 67,299 | 60,986 | 21,500 | — | 82,486 | |||||||||||||||||||
| Operating Expenses | 119,248 | 108,063 | 121,670 | — | 229,733 | |||||||||||||||||||
| Loss from operations | (51,949 | ) | (47,076 | ) | (100,170 | ) | — | (147,246 | ) | |||||||||||||||
| Interest Expense | 13,906 | 12,602 | — | — | — | |||||||||||||||||||
| Other income (expense), net | — | — | 1,039 | — | 1,039 | |||||||||||||||||||
| Income before provision for income taxes | (65,855 | ) | (59,678 | ) | (99,131 | ) | — | (158,809 | ) | |||||||||||||||
| Provision for income taxes | — | — | — | — | — | |||||||||||||||||||
| Net loss | (65,855 | ) | (59,678 | ) | (99,131 | ) | — | (158,809 | ) | |||||||||||||||
| Preferred dividend | — | — | — | 100,320 | 1 | 100,320 | ||||||||||||||||||
| Net income available to common stockholders | (65,855 | ) | (59,678 | ) | (99,131 | ) | (100,320 | ) | (1 | ) | (259,129 | ) | ||||||||||||
| Net loss per share | (0.02 | ) | ||||||||||||||||||||||
| Weighted average number of common shares | 7,090,521 | |||||||||||||||||||||||
A.C. Simmonds and Sons Inc.
Unaudited Condensed Combined Pro Forma Statement of Operations
| Direct Reefer Services Inc. | Direct Reefer Services Inc. | A.C. Simmonds | Pro Forma | Pro Forma | Pro Forma | |||||||||||||||||||
| 12/31/2013 | 12/31/2013 | 12/31/2013 | Adjustments | Notes | Combined | |||||||||||||||||||
| Cnd$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||
| Net Revenue | $ | 3,595,092 | $ | 3,490,834 | $ | 21,500 | $ | — | $ | 3,512,334 | ||||||||||||||
| Cost of goods sold | 3,146,848 | 3,055,589 | — | — | 3,055,589 | |||||||||||||||||||
| Gross profit | 448,244 | 435,245 | 21,500 | 456,745 | ||||||||||||||||||||
| Operating Expenses | 733,056 | 711,797 | 121,670 | — | 833,467 | |||||||||||||||||||
| Loss from operations | (284,812 | ) | (276,552 | ) | (100,170 | ) | — | (376,722 | ) | |||||||||||||||
| Interest Expense | 46,721 | 45,366 | — | |||||||||||||||||||||
| Other income (expense), net | (33,103 | ) | (32,143 | ) | 1,039 | — | (31,104 | ) | ||||||||||||||||
| Income before provision for income taxes | (364,636 | ) | (354,062 | ) | (99,131 | ) | — | (453,193 | ) | |||||||||||||||
| Provision for income taxes | — | — | — | — | — | |||||||||||||||||||
| Net loss | (364,636 | ) | (354,062 | ) | (99,131 | ) | — | (453,193 | ) | |||||||||||||||
| Preferred dividend | 100,320 | 1 | 100,320 | |||||||||||||||||||||
| Net income available to common stockholders | $ | (364,636 | ) | $ | (354,062 | ) | $ | (99,131 | ) | $ | (100,320 | ) | (1 | ) | $ | (553,513 | ) | |||||||
| Net loss per share | (0.06 | ) | ||||||||||||||||||||||
| Weighted average number of common shares | 7,090,521 | |||||||||||||||||||||||
A.C. Simmonds and Sons Inc.
NOTES TO CONDENSED PRO FORMA UNAUDITED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Financial Information.
The Pro forma Unaudited Condensed Financial Statements have been prepared in order to present consolidated financial position and results of operations of the Company and Direct Reefer as if the Acquisition had occurred as of December 31, 2013 for the pro forma condensed consolidated balance sheet and to give effect to the Acquisition by the Company, as if the transaction had taken place at January 1, 2013 for the pro forma condensed consolidated statement of operations for the year ended December 31, 2013.
The following pro forma adjustments are incorporated into the pro forma condensed consolidated balance sheet as of December 31, 2013 and the pro forma condensed consolidated statement of operations for the year ended December 31, 2013, respectively.
(1) To record the issuance of 72,000 shares of the Company’s newly issued Series A-2 6% 2014 Convertible Redeemable Preferred shares at $10 per share, in exchange for all of Direct Reefer outstanding shares owned by the Direct Reefer shareholders and allocation of the purchase price.
The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. In order to ultimately determine the fair values of tangible and intangible assets acquired and liabilities assumed for Direct Reefer, we may engage a third party independent valuation specialist, however as of the date of this report, the valuation has not been undertaken. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of May 27, 2014. The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuation of the fair values and useful lives of property and equipment acquired; (ii) finalization of the valuations and useful lives for intangible assets; (iii) finalization of the valuation of accounts payable and accrued expenses; and (iv) finalization of the fair value of non-cash consideration.
Duringthe measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The Company expects the purchase price allocations for the acquisition of Direct Reefer to be completed by the end of the fourth quarter of 2014. The Company estimated the fair value of the Company’s shares issued on a preliminary basis based on quoted market value on the closing date, net of an approximately 10% discount to recognize the legal restrictions imposed by the United States federal securities laws.
Trade names are amortized on a straight-line basis over their estimated lives of one year. Customer relationships are amortized based on the future expected revenues, with weighted average amortization periods. Non-compete agreements and employment agreements are amortized over their contractual lives.
The following table summarizes the preliminary fair values of the Direct Reefer assets acquired and liabilities assumed as of the acquisition date:
| Current assets | $ | 157,022 | ||
| Property and equipment | 203,156 | |||
| Other assets | — | |||
| Total assets acquired | 360,178 | |||
| Less: liabilities assumed | 1,148,098 | |||
| Net liabilities acquired | 787,920 | |||
| Consideration paid (convertible preferred stock) | 720,000 | |||
| Excess- identifiable intangible assets and goodwill | $ | 1,597,920 |
These pro forma adjustments do not reflect the amortization of intangible assets acquired, if any, in the Acquisition.
(2) To eliminate Direct Reefer’s accumulated deficit and capital structure.