EX-99.2 4 l27903aexv99w2.htm EX-99.2 EX-99.2
 

Exhibit 99.2
INNOVATIV SYSTEMS DESIGN, INC.
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2007 AND DECEMBER 31, 2006 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

 

 

INNOVATIV SYSTEMS DESIGN, INC. AND SUBSIDIARIES

Table of Contents
     
    Page
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    
Condensed Consolidated Balance Sheets
   1
Condensed Consolidated Income Statements
   2
Condensed Consolidated Statements of Cash Flows
   3
Notes to Condensed Consolidated Financial Statements
   4

 

 

INNOVATIV SYSTEMS DESIGN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts at March 31, 2007 are unaudited)
                 
    March 31     December 31  
(In thousands)   2007     2006  
ASSETS
                
Current assets:
                
Cash and cash equivalents
   $ 9,782     $ 11,298  
Accounts receivable, net
     35,559       47,989  
Inventories
     762       936  
Prepaid expenses and other current assets
     284       322  
 
            
Total current assets
     46,387       60,545  
Property, plant and equipment, net
     1,332       1,455  
Other long-term assets
     487       487  
Assets of discontinued operations
     59       66  
 
            
Total assets
   $ 48,265     $ 62,553  
 
            
 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Current liabilities
                
Accounts payable
   $ 25,634     $ 36,060  
Accrued liabilities
     571       2,169  
Deferred income
     1,167       1,401  
 
            
Total current liabilities
     27,372       39,630  
Long term liabilities
     1,240       1,440  
Liabilities of discontinued operations
     211       332  
Stockholders’ equity
                
Captial Stock
     1       1  
Retained earnings
     19,441       21,150  
 
            
Total stockholders’ equity
     19,442       21,151  
 
            
Total liabilities and stockholders’ equity
   $ 48,265     $ 62,553  
 
            
See accompanying notes to the condensed consolidated financial statements.

1

 

INNOVATIV SYSTEMS DESIGN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
                 
    Three Months Ended  
    March 31  
(In thousands)   2007     2006  
Net sales
   $ 35,295     $ 35,676  
Cost of goods sold
     27,912       22,861  
 
            
Gross profit
     7,383       12,815  
Operating expenses
     5,787       5,859  
 
            
Operating income
     1,596       6,956  
Other income
                
Interest income, net
     90       53  
Other income, net
     2       3  
 
            
Income before taxes
     1,688       7,012  
Income tax expense
     (13 )     (55 )
 
            
Income from continuing operations
     1,675       6,957  
Income (loss) from discontinued operations, net of taxes
     39       (2,708 )
 
            
Net income
   $ 1,714     $ 4,249  
 
            
See accompanying notes to the condensed consolidated financial statements.

2

 

INNOVATIV SYSTEMS DESIGN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Three Months Ended  
    March 31  
(In thousands)   2007     2006  
Operating activities:
                
Net income
   $ 1,714     $ 4,249  
Add: Income (loss) from discontinued operations
     (39 )     2,708  
 
            
Income from continuing operations
     1,675       6,957  
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
                
Depreciation and amortization
     142       109  
Changes in working capital:
                
Accounts receivable
     12,430       11,233  
Inventory
     72       66  
Accounts payable
     (10,426 )     1,163  
Accrued liabilities
     (1,598 )     (3,835 )
Unearned income
     (234 )     (268 )
Prepaid expenses and other current assets
     38       (12 )
Other
     (94 )     155  
 
            
Total Adjustments
     330       8,611  
Net cash provided by operating activities
     2,005       15,568  
 
Investing Activities:
                
Purchase of property and equipment
     (23 )     (37 )
 
            
Net cash used for investing activities
     (23 )     (37 )
 
Financing activities:
                
Dividend payments
     (3,423 )     (4,212 )
 
            
Net cash used for financing activities
     (3,423 )     (4,212 )
 
Cash flows (used for) provided by continuing operations
     (1,441 )     11,319  
Cash flows of discontinued operations:
                
Operating cash flows
     (75 )     (2,971 )
 
            
Net (decrease) increase in cash and cash equivalents
     (1,516 )     8,348  
Cash and cash equivalents at beginning of period
     11,298       4,437  
 
            
Cash and cash equivalents at end of period
   $ 9,782     $ 12,785  
 
            
See accompanying notes to the condensed consolidated financial statements.

3

 

INNOVATIV SYSTEMS DESIGN, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(Table amounts in thousands)
1. Financial Statement Presentation
Innovativ Systems Design, Inc. and its subsidiaries (the “Company” or “Innovativ”) are an integrator and value-added reseller of servers, enterprise storage management products and professional services. Headquartered in Edison, New Jersey, Innovativ operates throughout the United States of America.
Basis of Presentation
The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all information and disclosures necessary for a presentation of the Company’s financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”).
The condensed consolidated balance sheet as of March 31, 2007, as well as the condensed consolidated income statements and cash flows for the three months ended March 31, 2007 and 2006 have been prepared by the Company without audit. However, the financial statements have been prepared on the same basis as those in the audited annual financial statements. In the opinion of management, all adjustments necessary to fairly present the results of operations, financial position, and cash flows have been made. Such adjustments were of a normal recurring nature.
The accompanying consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. Inter-company transactions and balances have been eliminated in consolidation. Unless otherwise indicated, amounts in the notes to the consolidated financial statements refer to continuing operations.
Significant Accounting Policies
A detailed description of the Company’s significant accounting policies can be found in the audited annual financial statements for the fiscal year ended December 31, 2006, which are included as exhibit 99.1 of the accompanying Form 8-K/A. There have been no material changes in the Company’s significant accounting policies and estimates from those disclosed therein.
2. Severance Obligation
In 2006, the Company entered into a $0.5 million severance obligation with a former employee in settlement of involuntary termination of employment.
In 2003, the Company entered into a severance obligation with two former employees in settlement of compensation due to the employees. Under the severance agreement, the Company was obligated to pay $4.0 million to the former employees, of which $1.2 million was paid upon execution of the severance agreement. The remaining $2.8 million was being paid in 14 equal semi-annual installments without interest commencing October 15, 2003 with the final payment due April 15, 2010. The present value of the remaining severance obligation (after payment of the $1.2 million upon execution of the severance agreement) was initially recognized as liability by the Company using a four percent discount rate.

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Following is a reconciliation of the beginning and ending balance of the severance obligation:
         
Balance at January 1, 2007
   $ 1,788  
Payments
     (500 )
 
      
Balance at March 31, 2007
   $ 1,288  
 
      
The Company placed $0.4 million, plus interest, in escrow as security against its future obligations under the severance agreement. The amount held in escrow is classified as restricted cash included in other long-term assets in the accompanying consolidated balance sheets. The interest earned on monies held in escrow is classified as interest income in the accompanying consolidated income statement.
On June 29, 2007, the Company paid the remaining severance liability of $1.3 million as a result of the merger with Agilysys, Inc. Severance payments of $0.5 million were made during the normal course of business in the first half of 2007.
3. Discontinued Operations
The operating results of the discontinued operations described below have been classified as a component of discontinued operations in the accompanying consolidated financial statements for all periods presented.
Wild Empire, LLC
Wild Empire, LLC (“Wild Empire”) was organized as a Colorado Limited Liability Company in June 2004 and is 100% owned by the Company. Wild Empire was established to create and to acquire content to provide unique interactive experiences using a variety of technology and digital formats. Due to lack of revenue generated by Wild Empire, in late 2005 the Company discontinued its operations.
The results of discontinued operations in the accompanying consolidated financial statements include the following relating to Wild Empire:
                 
    Three Months Ended
    March 31
    2007   2006
Net sales
   $ —     $ —  
Pre-tax income (loss)
     39       (33 )
Included in the accompanying consolidated balance sheet are total assets of $0.1 million at March 31, 2007 and December 31, 2006, and total liabilities of $0.2 million and $0.3 million at March 31, 2007 and December 31, 2006, respectively. Such amounts have been classified as a component of assets and liabilities of discontinued operations. The assets are principally made up of amounts receivable at each year-end. The liabilities are principally made up of an accrual for the payment of ongoing operating lease commitments.

5

 

Clique Communications, LLC
Clique Communications, LLC (“Clique”) was organized as a New Jersey Limited Liability Company in April 2004 and was 100% owned by the Company. Clique was organized to develop proprietary software to produce a commercially viable video communication system. Its activities were limited to research and development, developing markets, and recruiting and training personnel. In 2006, the Company distributed, as a dividend, pro rata to each of the Company’s shareholders all of the Company’s ownership in Clique. The distribution was equal to the carrying value of the net assets of Clique at the time of distribution. The distribution of the units of Clique to the Company’s shareholders has been treated as a disposal of a component of an entity.
The results of discontinued operations in the accompanying consolidated financial statements include the following relating to Clique:
                 
    Three Months Ended
    March 31
    2007   2006
Net sales
   $ —     $ 66  
Pre-tax loss
     —       (1,765 )
Verifichi LLC
Verifichi LLC (“Verifichi”) was formed as a New Jersey Limited Liability Company in December 2004 and was 100% owned by the Company. Verifichi was organized to develop and sell software technologies, products, and services to both the Company and third-party businesses. In 2006, the Company distributed, as a dividend, pro rata to each of the Company’s shareholders all of the Company’s ownership in Verifichi. The distribution was equal to the carrying value of the net assets of Verifichi at the time of distribution. The distribution of the units of Verifichi to the Company’s shareholders has been treated as a disposal of a component of an entity.
The results of discontinued operations in the accompanying consolidated financial statements include the following relating to Verifichi:
                 
    Three Months Ended
    March 31
    2007   2006
Net sales
   $ —     $ 44  
Pre-tax loss
     —       (801 )
4. Agreement and Plan of Merger with Agilysys, Inc.
On May 25, 2007, the Company signed an Agreement and Plan of Merger with Agilysys, Inc. Under the Agreement, Agilysys, Inc. acquired all of the outstanding shares of the Company for $100 million. In addition, Agilysys, Inc. will pay an earn-out of two dollars for every dollar of EBITDA greater than $50 million in cumulative EBITDA over the first two years after closing. The earn-out will be limited to a maximum payout of $90 million. The transaction closed on July 2, 2007.
In connection with the Agreement and Plan of Merger with Agilysys, Inc., the Company’s Amended and Restated Shareholders’ Agreement dated November 2005 was terminated.

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