UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 8-K/A
_________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 10, 2014
_________________________
INVISA, INC.
(Exact name of registrant as specified in its
Charter)
Nevada |
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000-50081 |
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65-1005398 |
(State or other jurisdiction |
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(Commission File Number) |
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(IRS Employer |
of Incorporation) |
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Identification No.) |
1800 2nd Street, Suite
965
Sarasota, FL 34236
(Address of principal
executive offices)
(941) 870-3950
(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:
o |
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.01 |
Completion of Acquisition
or Disposition of Assets. |
On November 10, 2014,
we filed a Current Report on Form 8-K reporting that on November 10, 2014, we had closed our acquisition of all of the ownership
interests in Uniroyal Engineered Products, LLC (“UEP”) and all of the ordinary common stock of Engineered Products
Acquisition Limited (“EPAL”).
This Form 8-K/A amends
the Form 8-K that we filed on November 10, 2014 to provide certain more detailed information about the two companies subject to
such acquisitions and to include UEP’s audited financial statements for the years ended December 30, 2012 and December 29,
2013 and EPAL’s audited consolidated financial statements for the year ended December 31, 2013, together with the unaudited
condensed financial statements as of June 29, 2014 and June 30, 2013 and the unaudited pro forma consolidated financial information
related to our acquisitions required by Items 9.01(a) and 9.01(b) of Form 8-K.
Forward Looking Statements:
Statements in this Current Report that are not strictly historical in nature constitute “forward looking statements.”
Such statements include, but are not limited to, statements about Invisa, UEP, EPAL and/or the combined entity, events occurring
after the date hereof and any other statements relating to the post-acquisition company or activities or opportunities pre or post
acquisition. Such statements may include, without limitation, statements with respect to the Company’s plans, objectives,
expectations and intentions and other statements identified by words such as “may,” “could,” “would,”
“should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,”
“plans” or any similar expression. Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors that may cause the actual results of Invisa, UEP, EPAL and/or the combined entity to be materially different
from historical results or from any results expressed or implied by such forward-looking statements. These factors include, but
are not limited to the benefits, risks, uncertainties, difficulties or delays related to the acquisitions and activities or conduct
of the businesses after the acquisitions. All forward-looking statements are qualified in their entirety by this cautionary statement,
and none of Invisa, UEP nor EPAL undertakes any obligation to revise or update this press release to reflect events, developments
or circumstances after the date hereof.
Business
UEP
General
UEP is the successor
to a long line of businesses that have manufactured vinyl coated fabrics. Its best known brand, Naugahyde®,
is the product of many improvements on a rubber-coated fabric developed a century ago in Naugatuck, Connecticut. UEP designs,
manufactures and markets a wide selection of vinyl coated fabric products under a portfolio of nationally recognized brand names.
We believe that it has continued to be a leading supplier in its marketplace because of its ability to provide specialized materials
with performance characteristics customized to the end-user specifications, complemented by technical and customer support for
the use of its products in manufacturing.
Products
UEP’s products
have undergone considerable evolution and today are distinguished by superior performance in a wide variety of applications as
alternatives to leather, cloth and other synthetic fabric coverings. UEP’s product lines consist of more than 600
SKUs with combinations of colors, textures, patterns and other properties. UEP’s products are differentiated by unique protective
top finishes, adhesive back coatings and transfer print capabilities. Additional process capabilities include embossing grains
and patterns, and rotogravure printing.
UEP’s Naugahyde
vinyl coated fabrics products have various high performance characteristics and capabilities. They are durable, stain resistant,
easily processed, more cost-effective and better performing than traditional leather or fabric coverings. UEP’s products
are frequently used in applications that require rigorous performance characteristics such as automotive and non-automotive transportation,
certain indoor/outdoor furniture, commercial and hospitality seating, healthcare facilities and athletic equipment. Materials
manufactured by UEP come in a wide range of colors and textures and can be hand or machine sewn, laminated to an underlying structure,
thermoformed to cover various substrates or made into a variety of shapes for diverse end-uses.
The automotive sector
represented approximately 44% of the total sales of UEP in 2013. UEP’s products are used primarily in the following automotive
applications:
The transportation
and contract sector represented 38% of UEP’s 2013 sales and primarily consisted of seating products for original equipment
manufacturers of non-automotive and light truck vehicles in the following five categories:
| · | Personal watercraft, ATV’s, snowmobiles, golf carts |
| · | Light and heavy industrial equipment and agricultural equipment (tractors, bulldozers) |
| · | Recreational vehicles, vans and motor homes |
| · | Mass Transit (trains, buses) |
The distribution market
sector represented approximately 17% of UEP’s 2013 sales and consists primarily of nationwide sales of the standard Naugahyde
product line to local furniture shops, smaller furniture manufacturers and companies serving the hospitality and automotive and
marine aftermarkets for refurbishing and replacement. The sales organization employed to service this market is a network of approximately
40 distributor locations.
Products are developed
and marketed based upon the performance characteristics required by end-users. For example, for recreational products used outdoors,
such as boats, personal watercraft, golf carts and snowmobiles, a Naugahyde product designed primarily for durability and weatherability
is used. UEP also manufactures a line of products called BeautyGard®, with water-based topcoats that contain agents
to protect against bacterial and fungal micro-organisms and can withstand repeated cleaning, a necessity in the restaurant and
healthcare industries. These topcoats are environmentally friendlier than solvent-based topcoats. The line is widely used in
hospitals and other healthcare facilities. Flame and smoke retardant Naugahyde vinyl coated fabrics are used for a variety of
commercial and institutional furniture applications, including hospitals restaurants and residential care centers and seats for
school busses and aircraft. In its Stoughton, Wisconsin plant UEP has two production lines that produce coated fabrics in more
than 1,200 colors, textures, patterns and other properties.
UEP believes that
it is one of the few manufacturers that can produce vinyl coated fabrics and laminated composites through a continuous cast manufacturing
process. The continuous cast method yields a material with a soft finish, deep grain pattern, wide temperature tolerance range
and high malleability factor for thermoforming. In addition, UEP possesses plastisol-compounding capability, a variety of proprietary
formulations and highly versatile finishing processes. UEP believes that its products are differentiated in the market by unique
protective topcoat finishes and adhesive back coats, as well as rotogravure printing, which imparts multiple features, character
prints and non-registered prints. UEP also has the in-house capability to perform transfer printing as well as micro-perforation,
which provides product breathability.
UEP owns the following
proprietary brands and trademarks:
UEP’s management
believes that UEP is the industry’s technology leader in continuous cast formable products (versus a simple cut-and-sew
process). UEP maintains its leadership through a strong research and development effort that provides strong product development
capability. This yields enhanced product characteristics, lower cost of material combinations and new proprietary product formulations.
UEP estimates that approximately 40% of its non-automotive sales relate to products developed to customer specifications.
UEP achieved ISO 9001:2008
status in 1999 and has renewed it annually since then.
UEP maintains its
process technology as trade secrets. It holds no patents.
Research and Development
UEP is actively engaged in
research and development programs designed to develop new products, manufacturing processes, systems and technologies, while reducing
costs to customers and enhancing existing product lines. We believe that investment in research and development has been an important
factor in establishing and maintaining UEP’s competitive position in many of the specialized niche markets in which its
products are sold. Product performance capabilities and characteristics are continually adjusted to meet customer needs. UEP spent
$764,988 for research and development in 2012 and $764,952 in 2013.
Competition
UEP competes primarily
on the basis of style, color, product breadth and quality, as well as price and customer service.
The vinyl coated fabrics
market in North America is highly fragmented. The uses of vinyl coated fabrics include automotive, furniture, industrial, protective
clothing, wall coverings, book coverings, non-automotive transportation and awnings and tents.
End users of UEP’s
non-automotive products include John Deere, Caterpillar, Applebee’s, Polaris and Freightliner. 32.6% of UEP’s non-automotive
sales in 2013 were contributed by its top 25 customers. UEP’s automotive customers and end users include BOS Automotive Products,
Faurecia Automotive Seating, Johnson Controls Inc., Lear Corporation, PolyOne Automotive Solutions, Ford, General Motors, Daimler-Benz and Harley
Davidson. UEP’s largest customer contributed approximately 25% to its total sales in 2013.
The following table
sets forth product applications in the markets in which UEP actively competes and UEP’s competitors in those markets.
Markets | |
Key Uses | |
Primary Competitors |
Automotive | |
Interior components Seating applications Security shades | |
Canadian General-Tower Limited
Haartz Corporation
Morbern, Inc. |
Transportation and Contract | |
ATV/snowmobile/PWC/golf carts Heavy/light equipment RVs/motor homes | |
Canadian General-Tower Limited
Morbern, Inc.
Spradling International Inc. |
Distribution | |
Approximately 40 distributor and reseller locations | |
OMNOVA Solutions
Morbern, Inc. |
Contract | |
Office/contract/institutional furniture Restaurant booth /medical/dental/salon | |
OMNOVA Solutions
Morbern, Inc.
Spradling International Inc. |
Other | |
Home furnishings/dinettes | |
Enduratex
Spradling International Inc. |
UEP’s
sales are made in the following sectors: automotive, transportation and contract, distribution and other. The 2011, 2012 and
2013 sales from each market segment were as follows:
Sector |
2011 Net Sales |
2012 Net Sales |
2013 Net Sales |
Automotive |
50.4% |
48.3% |
43.6% |
Transportation
and Contract |
32.8% |
33.6% |
38.1% |
Distribution |
16.2% |
17.6% |
17.2% |
Other |
0.6% |
0.5% |
1.1% |
Marketing
Products are developed
and marketed based upon the performance characteristics required by end-users. UEP
currently serves over 700 non-automotive customers through direct sales to industrial customers and through four salesmen and
a distributor network, 16.4 percent of UEP’s non-automotive sales in 2013 were made through distributors. UEP serves its
automotive customers through sales staff in Nappanee, Indiana and Detroit.
UEP maintains a website
for its principal non-automotive products at www.naugahyde.com.
Raw Materials
The principal raw
materials for UEP’s coated fabrics are casting paper, knit fabric, PVC plastic resins, pigments and plasticizers. UEP has
multiple sources for these materials.
Wardle Storeys
General
EPAL is a holding
company for the wholly owned operating subsidiaries doing business as Wardle Storeys.
Wardle Storeys, based
in Earby in the Northwest of England, is a leading manufacturer of polymer films and coated fabrics. Like UEP, it is a successor
to businesses that were founded over a century ago. With a focus on surface design and technical product innovation, Wardle Storeys
supplies international markets in several sectors.
Products
Wardle Storeys engages
in the manufacture and supply of polymer films and coated fabrics. It offers products for various interior trim components, including
instrument panels, door casings, seating, gear lever and steering column gaiters, headliners, and load space covers; and vinyl
sheeting that is used in medical, nuclear protection, personal protection, moisture barriers, pool liners, pram and nursery, cinema
screens, and decorative surface applications.
Wardle Storeys also
provides hi-loft, anti-squeak finishes, automotive foils and coated fabrics for car interiors, contract furniture/upholstery seating
materials, marine internal linings and trims, and healthcare coverings.
Wardle Storeys
is a long-established supplier to the global automotive industry. It designs, develops and manufactures an extensive range of
products to meet customer process requirements and OEM (original equipment manufacturer) specifications.
For the automotive
market Wardle Storeys manufactures products for interior trim components from floor to headliner which are produced to meet specific
component production requirements such as cut and sew, vacuum forming/covering, R&S (Riders and Sliders) Rim, compression
molding, and high frequency welding. Some products are supplied with micro perforations, which are necessary on most compression
molding processes. Materials can also be combined with polyurethane or polypropylene foam laminated with either flame or hot melt
adhesive for seating, fascia and door applications.
As a committed supply
partner in a global market, Wardle Storeys seeks to ensure that every product fully meets customer requirements of specification,
reliability and performance. Wardle Storeys achieved ISO TS 16949 status in February 2004, and is approved to the European Council
Directive 96/98 EX on Marine Equipment as amended for Module D Production Quality Assurance.
With a focus on surface
design and technical product innovation, Wardle Storeys supplies international markets in many sectors including the following:
Sector |
Products |
Automotive |
foils and coated fabrics for car interiors |
Contract furniture / upholstery |
high performance seating materials |
Marine |
internal linings and trim |
Healthcare |
protective coverings and laminates |
Child care |
printed polymer sheeting |
Transportation |
bus seat covering material |
Industrial Equipment |
materials for industrial applications |
Wardle Storeys believes
that is also a market leader in the manufacture of vinyls for use in the manufacture of pram and nursery products.
Wardle Storeys’
well established brand names include: Amblon®, Ambla®, Velbex®, Cirroflex®, Vynide® and Plastolene®.
Wardle Storeys manufactures expanded PVC on three coating lines. The characteristics and products of these brands are described
in the following chart.
Coating Line |
Brand |
Characteristics/Products |
Spread Coating |
Amblon |
Amblon is the trade name for unsupported expanded vinyl for applications such as fascias, door panels, seat backs and trim. Amblon is suitable for vacuum forming, vacuum covering and other related polyurethane foam processes. |
|
Ambla |
Ambla is the trade name for supported expanded vinyl using various backing fabrics. Ambla is supplied for applications such as seating, head rests, gear lever gaiters, consoles and door panels. It is suitable for cut and sew, stick down, and certain vacuum forming processes. |
Calendering |
Velbex |
Velbex is an unsupported solid vinyl sheeting product supplied for products such as sun visors, floor mats and water shedders. It is suitable for high frequency, ultrasonic and vibrational welding techniques. |
Lamination |
Cirroflex / Vynide |
Cirroflex and Vynide are solid vinyl sheeting products supported by a range of woven, knitted and non-woven fabrics. Cirroflex is used in areas where a lighter weight product is required, such as headlining and seating. Vynide is used in areas where a more robust material is required, such as piping and gear level applications. |
|
Plastolene |
Plastolene is a solid vinyl sheeting reinforced with woven or warp knitted scrims. It is supplied for interior security covers and general strengthening applications and is suitable for all welding techniques. |
For automotive products
each material is produced to specific OEM requirements and can be modified to suit individual process needs, generating performance
based products required to produce Tier 1 components. This involves close cooperation with all parties at the beginning of new
programs, where new technologies/materials can be introduced and product development is required to achieve component production
and in performance requirements.
Wardle Storeys maintains
its process technology as trade secrets. It holds no patents.
Research and Development
In-house design and
innovative product development are key features of Wardle Storeys’ export-oriented business. Its in-house design studio
enables Wardle Storeys to develop new designs for customers and then deliver them in sample form or by computer-aided design (CAD).
Wardle
Storeys’ in-house design team has access to a vast range of grain, prints and surface effects, which are constantly
evolving and increasing. Further trends are captured and expressed in Wardle Storeys’ own concept work and exclusive
designs are developed from customer requests. Wardle Storeys’ CAD systems allow fast creation and display of design
innovation. “Drape” software enables computer generated designs to be shown in situ in interiors of
vehicles before the expense of production is incurred. A silicone cast surface-modeling system permits the transfer of
material surface finishes, including leather and fabrics, onto vinyl foils for customer review before investment in tooling.
Diverse production systems and equipment create an extensive automotive product range. Hi-Loft and anti-squeak finish (ASF)
are examples of product developments providing customers with cost reduction and material performance enhancements.
Wardle Storeys spent
approximately $502,203 in 2013 and $566,642 in 2012 for research and development.
Competition
Approximately 85%
of Wardle Storeys’ revenue for 2013 was derived from automotive customers. The automotive concentration has been a mainstay
of Wardle Storeys for more than 25 years. The remaining 15% was from customers supplying industrial sectors such as contract upholstery
(restaurants, stadiums, and airports), marine, healthcare, and industrial equipment.
Markets |
Key Uses |
Primary Competitors |
Automotive |
interior components
seating applications
security shades |
Benecke-Kaliko AG
Hornschuch Group GmbH
Vulcaflex S.p.A.
|
Industrial / contract |
contract upholstery
marine
healthcare
industrial |
Hornschuch Group GmbH
Alcor
Gislaved Folie AB
Griffine Enduction |
Marketing
For the automotive
industry Wardle Storeys has a direct sales team of five salespersons who deal with OEMs, a Tier 1 support manager and agents and
distributors to support activity in the four main market areas of the U.K., Germany, Turkey and Italy. For industrial products
in the UK, Wardle Storeys sells both direct to end users and also via non-exclusive distributors. The direct sales team consists
of three persons based in the UK.
For industrial sales
in other countries, Wardle Storeys uses agents and an independent distribution network, primarily in Scandinavia, France, Germany
and Hong Kong. The industrial business is supported mainly from stock and via a catalogue. The major brand name for the industrial
products is Ambla, and Wardle Storeys maintains a separate website for this business at www.ambla.com.
Wardle Storeys’
top 25 customers account for approximately 89% of its sales. No individual automotive customer represented more than 12% of its
total sales, and no single industrial customer accounted for more than 8% of its total sales in 2013.
Raw Materials
The principal raw
materials for Wardle Storeys’ foils and coated fabrics are casting paper, knit fabric, PVC resins and plasticizers. Wardle
Storeys has multiple sources for most of these materials.
Both Companies
Employees
UEP and Wardle
Storeys maintain stable, experienced and productive workforces, currently employing a total of 190 employees at UEP and 220 at
Wardle Storeys.
Most of the employees
of UEP and Wardle Storeys who are involved in the production process are located at manufacturing facilities in Stoughton, Wisconsin
and Earby, England. The production employees at the Stoughton, Wisconsin facility are represented by Local 1207 of the United
Steel Workers (formerly P.A.C.E). The term of the collective bargaining agreement for UEP’s represented employees extends
to March 2018. Most of the employees at Wardle Storeys’ Earby facility are represented by UNITE. The collective bargaining
agreement with UNITE does not specify a termination date.
Costs of Environmental
Compliance
Both UEP and Wardle
Storeys believe that they are in compliance with all applicable environmental laws and regulations. Neither company has made any
material expenditure to maintain such compliance during the past two fiscal years, nor does either company anticipate having to
make any material expenditure to maintain such compliance in the foreseeable future.
Wardle Storeys aims
to comply with all existing regulatory legislation at European, national and local levels and adopts a positive stance in anticipating
future, more stringent regulatory requirements. It endeavors to minimize waste throughout the production facility with better
utilization of raw materials, energy and water and to prevent at the source the emission of pollutants into the environment. Wardle
Storeys is committed to continual improvements in environmental performance, and it achieved ISO 14001 status in 2000.
Anticipated
Synergies of the UEP and Wardle Storeys Businesses
The acquisition
by Invisa combines UEP with Wardle Storeys, creating one of the top-ten vinyl coated fabric suppliers in the world. The
combination is a vinyl coated fabrics company with over $100 million in annualized sales. Approximately two-thirds of the
revenue generated by the combined companies is from automotive OEMs and suppliers, and one-third is from other sources,
including transportation, recreational and industrial customers.
The combination occurs
at a time when the automotive markets are gaining momentum in both America and Europe. Also, the companies believe that there
are significant synergistic opportunities in purchasing, as well as cross-fertilization in selling opportunities and design and
technology exchanges.
UEP has been exploring
international growth opportunities, particularly in Europe, to expand its automotive and non-automotive business markets.
The business combination with Wardle Storeys is expected to complement UEP’s technical expertise and access to customers
abroad. This should enable the combined company to improve its market share in both the automotive and non-automotive industries.
A predecessor of UEP
formerly operated a manufacturing site for Naugahyde products in the UK, which was eventually sold. UEP anticipates that Wardle
Storeys’ well-established sales networks could help reinvigorate the brand in the UK and Europe.
The companies anticipate
that the integration of their design team will enable them to offer an unprecedented choice of colors and patterns in non-automotive
products.
Description of Property
UEP leases its production
facility and headquarters in Stoughton, Wisconsin (near Madison). The term of its lease extends to October 31, 2033 with an option
to renew the lease for an additional five years. This facility consists of an approximately 230,000 square foot building with
production, laboratory and administrative office space and a warehouse. UEP also leases several nearby buildings used for storage.
The plant achieved ISO 9001:2008 certification and renews this certification on an annual basis. Major equipment at the production
facility includes two cast coating lines, five rotogravure printers, four paper reconditioning machines one buffer, four standard
embossers, one GAP embosser, two micro-perforators, nine inspection stations with automatic data collection, bulk material handling
systems and warehouse bar coding and locator systems. Laboratory facilities at the Stoughton facility replicate the production
floor capabilities and enhance UEP’s research and development capability.
UEP has two efficient,
major cast coating production lines that produce vinyl coated fabrics in more than 1,200 different colors, patterns and textures
through a proprietary manufacturing process. 2013 production was approximately 7.8 million linear yards. UEP currently uses approximately
62% of full capacity of the plant.
Wardle
Storeys operates in a leased facility of approximately 250,000 square feet at West Craven Business Park, Earby, Barnoldswick,
Lancashire. The term of its lease extends to March 2, 2029. Wardle Storeys achieved ISO TS 16949 status in February 2004, and
is approved to the European Council Directive 96/98 EC on Marine Equipment as amended for Module D Production Quality
Assurance. Major equipment at the production facility includes three coating lines, six inspection tables, four printers, one
calender, three laminators, one embosser, and one perforating process. Current production is approximately 5.6 million linear
yards, 700,000 panels and 1.9 million components, representing approximately 60% of full capacity of the plant.
Legal Proceedings
Neither UEP nor Wardle
Storeys is involved in any material pending legal proceedings other than ordinary routine litigation incidental to their businesses.
Executive Officers of the Coated Fabrics
Segment
UEP is led by a management
team with extensive experience. Howard R. Curd, Chairman and Chief Executive Officer, has over 40 years in executive and operational
management. Howard F. Curd, President, brings 20 years of experience in investment banking, financing, and mergers and acquisitions.
George L. Sanchez, Executive Vice President - Operations, has over 25 years of financial and manufacturing management experience.
Bernard A. Wagner, Senior Vice President and Chief Financial Officer, a certified public accountant, has over 30 years of financial
management experience, including prior experience as the chief financial officer of public companies. Larry E. Bressler, Senior
Vice President of Automotive Sales, has approximately 40 years of experience in new product development and operational management.
Ted R. Torres, Senior Vice President of Sales and Marketing for the Company’s core (non-automotive) markets, has over 20
years of domestic and international sales and marketing experience and new product development. UEP has recently bolstered its
technology, sales, and operational management to better serve the automotive marketplace.
Wardle Storeys is also led by an equally motivated
management team with experience serving their target markets. Stewart Quinn, Director of Operations and Finance, has a background
in all aspects of finance with experience including financial, management, manufacturing and commercial accounting roles spread
across a number of different market sectors. He is a qualified Chartered Management Accountant. Adrian Howarth is an experienced
Manufacturing Manager and has focused heavily on introducing lean manufacturing techniques. Tom Paterson, Automotive Sales Manager,
has been with Wardle Storeys since 1979 beginning in quality control, moving into technical services, and serving the last 12 years
as Automotive Sales Manager.
Certain Transactions with Related Persons
Prior to the acquisition
by Invisa, UEP was a party to an agreement with a company owned by its Chief Executive Officer, which provided for that company
to provide management and administrative services to UEP. The management agreement was assigned to Invisa at the time of the acquisition.
During 2013 UEP sold
real estate and certain insurance policies for $2,117,098 to a related party owned by the majority owners of UEP. The proceeds
were used to reduce UEP’s term debt and line of credit obligations by the same amount. Additionally, as part of the transaction
with the related party, UEP leased the real estate it had sold plus additional land from the related company. The term of the
lease runs to October 31, 2033.
The Chief Executive
Officer of UEP holds four subordinated secured promissory notes dated October 17, 2003, of UEP. The aggregate principal amount
of the four notes is $2,000,000. The notes carry an interest rate of 9.25% per annum. Payment of the principal amount, which was
due on October 17, 2013, was deferred, with payment of $600,000 being due on October 17, 2017 and $1,400,000 and any other outstanding
amounts being due on October 17, 2018. UEP pays an accommodation fee for the deferral of two percent (2%) of the amount of the
deferred payment on October 17 of each year until the notes have been repaid in full. The notes are secured by a security agreement
providing a lien on all of the assets of UEP but subordinated to the lien of UEP’s senior lender.
The Chief Executive
Officer of UEP also holds a secured promissory note dated December 31, 2013, of EPAL in the amount of approximately $1,348,000
with an interest rate of 6.25% per annum. The maturity date of the note is December 21, 2023. The note is secured by a security
agreement granting a lien against all assets of EPAL. He also holds the 50 outstanding shares of EPAL’s preferred shares,
having a stated value of approximately $20 million.
UEP is a party to
an agreement with its managers, Howard R. Curd and Howard F. Curd, and its former shareholders, who are officers of
UEP, whereby the managers and shareholders granted consents and waivers in connection with certain organizational documents
of UEP to permit the acquisition by Invisa’s subsidiary, UEP Holdings, LLC. The agreement also provides for the
indemnification of the former shareholders by UEP for any proceedings in connection with tax claims arising prior to the
closing of the acquisition by Invisa.
UEP has a Split-Dollar
Life Insurance Plan, whereby UEP pays premiums for insurance on the lives of Howard R. Curd, Howard F. Curd and George L. Sanchez,
Executive Vice President- Global Operations of UEP. Under the plan, UEP has purchased two life insurance policies on the life
of Howard R. Curd. Each of the policies has a face amount of $5,000,000. UEP has also purchased life insurance policies under
the plan on the lives of Howard F. Curd and George L. Sanchez.
The consideration
received by former owners and executives of UEP and EPAL in connection with certain transactions relating to such companies and
Invisa is disclosed in the transaction documents filed with the November 10 8-K, which documents are incorporated into this description
by reference.
Item 2.03 Creation of a Direct Financial
Obligation
In connection with
our acquisition of EPAL, Lloyds Bank Commercial Finance Limited (“Lloyds”), EPAL’s senior lender, has required
that Invisa, as the ultimate parent of EPAL, guaranty EPAL’s debt to Lloyds under three borrowing instruments. We have entered
into the Guaranty required by Lloyds. A copy of the Guaranty is attached as Exhibit 2.1 to this Form 8-K/A and incorporated by
reference into this Form 8-K/A. The balance due under the loan agreements that we have guaranteed was approximately $7,896,000 as
of January 14, 2015.
Item 9.01 |
Financial Statements and Exhibits. |
(a) |
Financial Statements of Business
Acquired. |
The audited financial
statements of UEP for the years ended December 29, 2013 and December 30, 2012, the related statements of comprehensive income
(loss), statements of members’ equity and statements of cash flows for the years then ended, the related notes to the financial
statements and the related auditor’s report of Baker Tilly Virchow Krause, LLP are attached as Exhibit 99.1 to this Form
8-K/A and are incorporated by reference into this Form 8-K/A. The audited consolidated balance sheet of EPAL for the year ended
December 31, 2013, the related consolidated profit and loss account, consolidated reconciliation of movements in
shareholders’ funds and consolidated statement of cash flows for the year, the related notes to the consolidated financial
statements and the related auditor’s report of KPMG, LLP are attached as Exhibit 99.2 to this Form 8-K/A and incorporated
by reference into this Form 8-K/A.
(b) |
Unaudited
Financial Statements of Business Acquired. |
The
following unaudited financial information related to the acquisition of UEP and EPAL is attached as Exhibits 99.3, 99.4 and
99.5 to this Form 8-K/A and are incorporated by reference into this Form 8-K/A:
|
(i) |
Unaudited supplemental financial information for EPAL for the year ended December 31, 2013 translated from British Pounds to United States Dollars and
presented in the financial format consistent with UEP’s financial statements. |
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(ii) |
Unaudited condensed financial
statements of UEP as of June 29, 2014 and June 30, 2013 and the six months ended June 29, 2014 and June 30, 2013. |
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(iii) |
Unaudited condensed financial
statements of EPAL as of June 29, 2014 and June 30, 2013 and the six months ended June 29, 2014 and June 30, 2013. |
(c) |
Pro
Forma Financial Information. |
The following
unaudited pro forma condensed combined financial information related to the acquisition of UEP and EPAL is attached as
Exhibit 99.6 to this Form 8-K/A and is incorporated by reference into this Form 8-K/A:
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(i) |
Unaudited pro forma condensed combined
balance sheet as of June 30, 2014. |
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(ii) |
Unaudited pro forma condensed combined
statement of operations for the six months ended June 30, 2014. |
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(iii) |
Unaudited pro forma condensed combined
statement of operations for the year ended December 31, 2013. |
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(iv) |
Notes to the pro forma
condensed combined financial statements. |
The following
exhibits are being filed as part of this Current Report on Form 8-K/A:
Exhibit No. |
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Description |
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2.1 |
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Guaranty in favor of Lloyds Bank Commercial
Finance Limited. |
99.1 |
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Audited Financial Statements of UEP for
the Years Ended December 29, 2013 and December 30, 2012. |
99.2 |
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Audited Consolidated Financial Statements
of EPAL for the Year Ended December 31, 2013.
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99.3 |
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Unaudited Supplemental Financial Information of EPAL for the Year Ended December 31, 2013 (US Presentation). |
99.4 |
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Unaudited Condensed Financial Statements
of UEP for the Six Months Ended June 29, 2014 and June 30, 2013. |
99.5 |
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Unaudited Condensed Financial Statements
of EPAL for the Six Months Ended June 29, 2014 and June 30, 2013. |
99.6 |
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Unaudited Pro Forma Condensed Combined Financial Information. |
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
hereunto duly authorized.
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INVISA, INC. |
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By: |
/s/ Edmund C. King |
Date: January 20, 2015 |
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Edmund C. King |
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Chief Executive Officer |
Exhibit 2.1
GUARANTY
THIS GUARANTY (this
“Guaranty”), dated as of January 19, 2015, is made by Invisa, Inc., a Nevada corporation (the “Guarantor”),
in favor of Lloyds Bank Commercial Finance Limited (the “Lender”).
Wardle Storeys (Earby)
Limited, a company incorporated under the laws of England and Wales with company number 04710820 (the “Obligor”), and
the Lender are parties to (i) a Receivables Finance Agreement dated October 6, 2009 (as amended, modified, renewed or extended
from time to time, the “Finance Agreement”), (ii) a Loan Agreement dated March 4, 2013 (as amended, modified, renewed
or extended from time to time, the “Initial Loan Agreement”), and (iii) a Loan Agreement dated February 13, 2014 (as
amended, modified, renewed or extended from time to time, the “Additional Loan Agreement”). The Guarantor has agreed
to guarantee the indebtedness and other obligations of the Obligor to the Lender under or in connection with the Finance Agreement,
the Initial Loan Agreement and the Additional Loan Agreement (the “Facilities Agreements”) as set forth herein. The
Guarantor, as indirect parent company of the Obligor, will derive substantial direct and indirect benefits from the extension of
credit to the Obligor pursuant to the Facilities Agreements (which benefits are hereby acknowledged by the Guarantor).
Accordingly, to induce
the Lender to extend credit to the Obligor, and in consideration thereof, the Guarantor hereby agrees as follows:
SECTION 1 Definitions;
Interpretation.
(a) Certain Defined
Terms. As used in this Guaranty, the following terms shall have the following meanings:
“Affiliate”
means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
“Bankruptcy
Code” means Title 11 of the United States Code entitled “Bankruptcy.”
“Collateral”
means any property and interests and proceeds thereof now or hereafter acquired by the Obligor or any other Person in which a Lien
shall exist in favor of the Lender to secure the Guaranteed Obligations.
“Collateral
Documents” means any agreement pursuant to which the Obligor or any other Person provides a Lien on any Collateral and
all filings, documents and agreements made or delivered pursuant thereto.
“Commitment”
means any obligation of the Lender to extend credit to the Obligor under or in connection with the Facilities Agreements.
“Control”
means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled”
have meanings correlative thereto.
“Credit Parties”
means the Obligor, the Guarantor and any other Subsidiary of the Guarantor party to any Finance Document.
“Debtor Relief
Laws” means the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States
of America or other applicable jurisdictions from time to time in effect.
“Event of
Default” means an event of default under the Facilities Agreements.
“Finance
Documents” means the Facilities Agreements, this Guaranty and all other documents, agreements and instruments delivered
by the Obligor, the Guarantor or other Credit Party to the Lender under or in connection with Facilities Agreements, this Guaranty
and all such other documents, agreements and instruments.
“Governmental
Authority” means any federal, state, local or other governmental department, commission, board, bureau, agency, court,
tribunal or other instrumentality or authority exercising executive, legislative, judicial, regulatory or administrative functions
of or pertaining to government.
“Guaranteed
Obligations” has the meaning set forth in Section 2.
“Guarantor
Documents” means this Guaranty and all other certificates, documents, agreements and instruments delivered by the Guarantor
to the Lender under or in connection with this Guaranty.
“Insolvency
Proceeding” means, with respect to any Person, (a) any case, action or proceeding with respect to such Person before
any court or other governmental agency or authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling
of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its
creditors; in either case undertaken under Debtor Relief Laws.
“Lien”
means any mortgage, deed of trust, pledge, security interest, assignment, deposit arrangement, charge or encumbrance, lien, or
other type of preferential arrangement.
“Material
Adverse Effect” means any event, matter, condition or circumstance which has or would reasonably be expected to have
a material adverse effect on the business, properties, results of operations or condition (financial or otherwise) of any the Guarantor
and its Subsidiaries taken as a whole.
“Organization
Documents” means, relative to any Person, its articles or certificate of incorporation, or certificate of limited partnership
or formation, its bylaws, partnership or operating agreement or other organizational documents.
“Person”
means an individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, Governmental
Authority, or any other entity of whatever nature.
“Related
Party” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees,
agents, trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.
“Solvent”
means, as to any Person at any time, that (a) the fair value of the property of such Person is greater than the amount of
such Person’s liabilities (including disputed, contingent and unliquidated liabilities) as such value is established
and liabilities evaluated for purposes of §101(32) of the Bankruptcy Code and, in the alternative, for purposes of applicable
state law; (b) the present fair saleable value of the property of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to
realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities)
as they mature in the normal course of business; (d) such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (e) such Person is
not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s
property would constitute unreasonably small capital.
“Subsidiary”
means any corporation, association, partnership, joint venture or other business entity of which more than 50% of the voting stock
or other equity interest is owned directly or indirectly by any Person or one or more of the other Subsidiaries of such Person
or a combination thereof.
(b) Interpretation.
In this Guaranty, except to the extent the context otherwise requires: (i) any reference to an Article, a Section, a Schedule
or an Exhibit is a reference to an article or section thereof, or a schedule or an exhibit thereto, respectively, and to a subsection
or a clause is, unless otherwise stated, a reference to a subsection or a clause of the Section or subsection in which the reference
appears; (ii) the words “hereof,” “herein,” “hereto,” “hereunder” and the
like mean and refer to this Guaranty as a whole and not merely to the specific Article, Section, subsection, paragraph or clause
in which the respective word appears; (iii) the meaning of defined terms shall be equally applicable to both the singular
and plural forms of the terms defined; (iv) the words “including,” “includes” and “include”
shall be deemed to be followed by the words “without limitation;” (v) references to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other modifications thereto; (vi) references to statutes
or regulations are to be construed as including all statutory and regulatory provisions consolidating, amending, supplementing,
interpreting or replacing the statute or regulation referred to; and (vii) any table of contents, captions and headings are
for convenience of reference only and shall not affect the construction of this Guaranty.
SECTION 2 Guaranty.
(a) Guaranty.
The Guarantor hereby unconditionally and irrevocably guarantees to the Lender, and its successors, endorsees, transferees and
assigns, the full and prompt payment when due (whether at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise) and performance of the indebtedness, liabilities and other obligations of the Obligor to the Lender, whether
created under, arising out of or in connection with the Facilities Agreements or otherwise, including all unpaid principal under
the Facilities Agreements, all interest accrued thereon, all fees due under the Facilities Agreements and all other amounts payable
by the Obligor to the Lender thereunder or in connection therewith. The terms “indebtedness,” “liabilities”
and “obligations” are used herein in their most comprehensive sense and include any and all advances, debts, obligations
and liabilities, now existing or hereafter arising, whether voluntary or involuntary and whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether recovery upon such indebtedness, liabilities and obligations
may be or hereafter become unenforceable or shall be an allowed or disallowed claim in any Insolvency Proceeding, and including
interest that accrues after the commencement by or against any Credit Party of any Insolvency Proceeding naming such Person as
the debtor in such Insolvency Proceeding. The foregoing indebtedness, liabilities and other obligations of the Obligor, and all
other indebtedness, liabilities and obligations to be paid or performed by the Guarantor in connection with this Guaranty (including
any and all amounts due under Section 14), shall hereinafter be collectively referred to as the “Guaranteed Obligations.”
(b) Limitation
of Guaranty. To the extent that any court of competent jurisdiction shall impose by final judgment under applicable law (including
applicable state law and §§544 and 548 of the Bankruptcy Code) any limitations on the amount of the Guarantor’s
liability with respect to the Guaranteed Obligations which the Lender can enforce under this Guaranty, the Lender accepts such
limitation on the amount of the Guarantor’s liability hereunder to the extent needed to make this Guaranty and the Guarantor
Documents fully enforceable and nonavoidable.
SECTION 3 Liability
of Guarantor. The liability of the Guarantor under this Guaranty shall be irrevocable, absolute, independent and
unconditional, and shall not be affected by any circumstance which might constitute a discharge of a surety or guarantor
other than the indefeasible payment and performance in full of all Guaranteed Obligations. In furtherance of the foregoing
and without limiting the generality thereof, the Guarantor agrees as follows:
(i) the Guarantor’s
liability hereunder shall be the immediate, direct, and primary obligation of the Guarantor and shall not be contingent upon the
Lender’s exercise or enforcement of any remedy it may have against the Obligor, any other Credit Party or any other Person,
or against any Collateral;
(ii) this
Guaranty is a guaranty of payment when due and not merely of collectability;
(iii) the Lender may enforce
this Guaranty upon the occurrence and during the continuance of an Event of Default notwithstanding the existence of any dispute
between the Lender and the Obligor with respect to the existence of such Event of Default;
(iv) the Guarantor’s
payment of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge the Guarantor’s
liability for any portion of the Guaranteed Obligations remaining unsatisfied; and
(v) the Guarantor’s
liability with respect to the Guaranteed Obligations shall remain in full force and effect without regard to, and shall not be
impaired or affected by, nor shall the Guarantor be exonerated or discharged by, any of the following events: (A) any Insolvency
Proceeding with respect to the Obligor, the Guarantor, any other Credit Party or any other Person; (B) any limitation, discharge,
or cessation of the liability of the Obligor, the Guarantor, any other Credit Party or any other Person for any Guaranteed Obligations
due to any statute, regulation or rule of law, or any invalidity or unenforceability in whole or in part of any of the Guaranteed
Obligations or the Finance Documents; (C) any merger, acquisition, consolidation or change in structure of the Obligor, the Guarantor
or any other Credit Party or Person, or any sale, lease, transfer or other disposition of any or all of the assets or shares of
the Obligor, the Guarantor, any other Credit Party or other Person; (D) any assignment or other transfer, in whole or in part,
of the Lender’s interests in and rights under this Guaranty or the other Finance Documents, including the Lender’s
right to receive payment of the Guaranteed Obligations, or any assignment or other transfer, in whole or in part, of the Lender’s
interests in and to any of the Collateral; (E) any claim, defense, counterclaim or setoff, other than that of prior performance,
that the Obligor, the Guarantor, any other Credit Party or other Person may have or assert, including any defense of incapacity
or lack of corporate or other authority to execute any of the Finance Documents; (F) the Lender’s amendment, modification,
renewal, extension, cancellation or surrender of any Finance Document, any Guaranteed Obligations, any Collateral, or the Lender’s
exchange, release, or waiver of any Collateral; (G) the Lender’s exercise or nonexercise of any power, right or remedy with
respect to any of the Collateral, including the Lender’s compromise, release, settlement or waiver with or of the Obligor,
the Guarantor, any other Credit Party or any other Person; (H) the Lender’s vote, claim, distribution, election, acceptance,
action or inaction in any Insolvency Proceeding related to the Guaranteed Obligations; (I) any impairment or invalidity of any
of the Collateral or any failure to perfect any of the Lender’s Liens thereon or therein; and (J) any other guaranty, whether
by the Guarantor or any other Person, of all or any part of the Guaranteed Obligations or any other indebtedness, obligations or
liabilities of the Obligor to the Lender.
SECTION 4 Consents
of Guarantor. The Guarantor hereby unconditionally consents and agrees that, without notice to or further assent from the
Guarantor:
(i) the principal amount
of the Guaranteed Obligations may be increased or decreased and additional indebtedness or obligations of any Credit Party under
the Finance Documents may be incurred, by one or more amendments, modifications, renewals or extensions of any Finance Document
or otherwise;
(ii) the time, manner,
place or terms of any payment under any Finance Document may be extended or changed, including by an increase or decrease in the
interest rate on any Guaranteed Obligation or any fee or other amount payable under such Finance Document, by an amendment, modification
or renewal of any Finance Document or otherwise;
(iii) the time for the
Obligor’s (or any other Person’s) performance of or compliance with any term, covenant or agreement on its part to
be performed or observed under any Finance Document may be extended, or such performance or compliance waived, or failure in or
departure from such performance or compliance consented to, all in such manner and upon such terms as the Lender may deem proper;
(iv) the Lender may discharge
or release, in whole or in part, any other Credit Party or any other Person liable for the payment and performance of all or any
part of the Guaranteed Obligations, and may permit or consent to any such action or any result of such action, and shall not be
obligated to demand or enforce payment upon any of the Collateral, nor shall the Lender be liable to the Guarantor for any failure
to collect or enforce payment or performance of the Guaranteed Obligations from any Person or to realize upon the Collateral;
(v) in addition to the
Collateral, the Lender may take and hold other security (legal or equitable) of any kind, at any time, as collateral for the Guaranteed
Obligations, and may, from time to time, in whole or in part, exchange, sell, surrender, release, subordinate, modify, waive, rescind,
compromise or extend such security and may permit or consent to any such action or the result of any such action, and may apply
such security and direct the order or manner of sale thereof;
(vi) the Lender may request
and accept other guaranties of the Guaranteed Obligations and any other indebtedness, obligations or liabilities of the Obligor
to the Lender and may, from time to time, in whole or in part, surrender, release, subordinate, modify, waive, rescind, compromise
or extend any such guaranty and may permit or consent to any such action or the result of any such action; and
(vii) the Lender may exercise,
or waive or otherwise refrain from exercising, any other right, remedy, power or privilege (including the right to accelerate the
maturity of any indebtedness and any power of sale) granted by any Finance Document or other security document or agreement, or
otherwise available to the Lender, with respect to the Guaranteed Obligations or any of the Collateral, even if the exercise of
such right, remedy, power or privilege affects or eliminates any right of subrogation or any other right of the Guarantor against
the Obligor;
all as the Lender may deem advisable,
and all without impairing, abridging, releasing or affecting this Guaranty.
SECTION 5 Guarantor’s
Waivers.
(a) Certain
Waivers. The Guarantor waives and agrees not to assert: (i) any right to require the Lender to marshal assets in favor of
the Obligor, the Guarantor, any other Credit Party or any other Person, to proceed against the Obligor, any other Credit Party
or any other Person, to proceed against or exhaust any of the Collateral, to give notice of the terms, time and place of any public
or private sale of personal property security constituting the Collateral or to pursue any other right, remedy, power or privilege
of the Lender whatsoever; (ii) the defense of the statute of limitations in any action hereunder or for the collection or performance
of the Guaranteed Obligations; (iii) any defense arising by reason of any lack of corporate or other authority or any other defense
of the Obligor, the Guarantor or any other Person; (iv) any defense based upon the Lender’s errors or omissions in the administration
of the Guaranteed Obligations; (v) any rights to set-offs and counterclaims; (vi) any defense based upon an election of remedies
(including, if available, an election to proceed by nonjudicial foreclosure) which destroys or impairs the subrogation rights
of the Guarantor or the right of the Guarantor to proceed against the Obligor or any other obligor of the Guaranteed Obligations
for reimbursement; and (vii) without limiting the generality of the foregoing, to the fullest extent permitted by law, any defenses
or benefits that may be derived from or afforded by applicable law limiting the liability of or exonerating guarantors or sureties,
or which may conflict with the terms of this Guaranty.
(b) Additional Waivers.
The Guarantor waives any and all notice of the acceptance of this Guaranty, and any and all notice of the creation, renewal, modification,
extension or accrual of the Guaranteed Obligations, or the reliance by the Lender upon this Guaranty, or the exercise of any right,
power or privilege hereunder. The Guaranteed Obligations shall conclusively be deemed to have been created, contracted, incurred
and permitted to exist in reliance upon this Guaranty. The Guarantor waives promptness, diligence, presentment, protest, demand
for payment, notice of default, dishonor or nonpayment and all other notices to or upon the Obligor, the Guarantor or any other
Person with respect to the Guaranteed Obligations.
(c) Independent Obligations.
The obligations of the Guarantor hereunder are independent of and separate from the obligations of the Obligor and any other Credit
Party and upon the occurrence and during the continuance of any Event of Default, a separate action or actions may be brought against
the Guarantor, whether or not the Obligor or any other Credit Party is joined therein or a separate action or actions are brought
against the Obligor or any other Credit Party.
(d) Financial Condition
of Obligor. The Guarantor shall not have any right to require the Lender to obtain or disclose any information with respect
to: (i) the financial condition or character of any Credit Party or the ability of any Credit Party to pay and perform the
Guaranteed Obligations; (ii) the Guaranteed Obligations; (iii) the Collateral; (iv) the existence or nonexistence
of any other guarantees of all or any part of the Guaranteed Obligations; (v) any action or inaction on the part of the Lender
or any other Person; or (vi) any other matter, fact or occurrence whatsoever.
SECTION 6 Subrogation.
Until the Guaranteed Obligations shall be satisfied in full and any Commitments shall be terminated, the Guarantor shall not
have, and shall not directly or indirectly exercise, (i) any rights that it may acquire by way of subrogation under this
Guaranty, by any payment hereunder or otherwise, (ii) any rights of contribution, indemnification, reimbursement or
similar suretyship claims arising out of this Guaranty, or (iii) any other right which it might otherwise have or
acquire (in any way whatsoever) which could entitle it at any time to share or participate in any right, remedy or security
of the Lender as against the Obligor or other Credit Parties, whether in connection with this Guaranty, any of the other
Finance Documents or otherwise. If any amount shall be paid to the Guarantor on account of the foregoing rights at any time
when all the Guaranteed Obligations shall not have been paid in full, such amount shall be held in trust for the benefit of
the Lender and shall forthwith be paid to the Lender to be credited and applied to the Guaranteed Obligations, whether
matured or unmatured, in accordance with the terms of the Finance Documents.
SECTION 7 Continuing
Guaranty; Reinstatement.
(a) Continuing Guaranty.
This Guaranty is a continuing guaranty and agreement of subordination relating to any Guaranteed Obligations, including Guaranteed
Obligations which may exist continuously or which may arise from time to time under successive transactions, and the Guarantor
expressly acknowledges that this Guaranty shall remain in full force and effect notwithstanding that there may be periods in which
no Guaranteed Obligations exist. This Guaranty shall continue in effect and be binding upon the Guarantor until termination of
any Commitments and payment and performance in full of the Guaranteed Obligations.
(b) Reinstatement.
This Guaranty shall continue to be effective or shall be reinstated and revived, as the case may be, if, for any reason, any payment
of the Guaranteed Obligations by or on behalf of any Credit Party (or receipt of any proceeds of Collateral) shall be rescinded,
invalidated, declared to be fraudulent or preferential, set aside, voided or otherwise required to be repaid to any Credit Party,
its estate, trustee, receiver or any other Person (including under the Bankruptcy Code or other state or federal law), or must
otherwise be restored by the Lender, whether as a result of Insolvency Proceedings or otherwise. To the extent any payment is so
rescinded, set aside, voided or otherwise repaid or restored, the Guaranteed Obligations shall be revived in full force and effect
without reduction or discharge for such payment. All losses, damages, costs and expenses that the Lender may suffer or incur as
a result of any voided or otherwise set aside payments shall be specifically covered by the indemnity in favor of the Lender contained
in Section 14.
SECTION 8 Payments.
The Guarantor hereby agrees, in furtherance of the foregoing provisions of this Guaranty and not in limitation of any other
right which the Lender or any other Person may have against the Guarantor by virtue hereof, upon the failure of the Obligor
to pay any of the Guaranteed Obligations when and as the same shall become due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of
the automatic stay under §362(a) of the Bankruptcy Code), the Guarantor shall forthwith pay, or cause to be paid, in
cash, to the Lender an amount equal to the amount of the Guaranteed Obligations then due as aforesaid (including interest
which, but for the filing of a petition in any Insolvency Proceeding with respect to the Obligor, would have accrued on such
Guaranteed Obligations, whether or not a claim is allowed against the Obligor for such interest in any such Insolvency
Proceeding). The Guarantor shall make each payment hereunder, unconditionally in full, free and clear of any and all taxes,
without set-off, counterclaim or other defense, on the day when due in U.S. dollars or other applicable currency in which the
Guaranteed Obligations are denominated, and in same day or immediately available funds, to the Lender at such office of the
Lender and to such account as the Lender shall notify to the Obligor in writing. All such payments shall be promptly applied
from time to time by the Lender to the payment of the Guaranteed Obligations in such order of application as the Lender in
its sole discretion may choose.
SECTION 9 Representations
and Warranties. The Guarantor represents and warrants to the Lender that:
(a) Organization and
Powers. The Guarantor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation,
is qualified to do business and is in good standing in each jurisdiction in which the failure so to qualify or be in good standing
would have a Material Adverse Effect and has all requisite power and authority to own its assets and carry on its business and
to execute, deliver and perform its obligations under the Guarantor Documents.
(b) Authorization;
No Conflict. The execution, delivery and performance by the Guarantor of this Guaranty and any other Guarantor Documents have
been duly authorized by all necessary action of the Guarantor, and do not and will not: (i) contravene the terms of the Organization
Documents of the Guarantor or result in a breach of or constitute a default under any indenture or loan or credit agreement or
any other agreement, lease or instrument to which the Guarantor is a party or by which it or its properties may be bound or affected;
or (ii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree or the like binding
on or affecting the Guarantor.
(c) Binding Obligation.
This Guaranty constitutes the legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance
with its terms.
(d) Governmental Consents.
No authorization, consent, approval, license, exemption of, or filing or registration with, any Governmental Authority, or approval
or consent of any other Person, is required for the due execution, delivery or performance by the Guarantor of the Guarantor Documents.
(e) Solvency.
Immediately prior to and after and giving effect to the incurrence of the Guarantor’s obligations under this Guaranty the
Guarantor is and will be Solvent.
(f) Consideration.
The Guarantor has received at least “reasonably equivalent value” (as such phrase is used in §548 of the Bankruptcy
Code and in comparable provisions of other applicable law) and more than sufficient consideration to support its obligations hereunder
in respect of the Guaranteed Obligations and under any of the Collateral Documents to which it is a party.
(g) Independent Investigation.
The Guarantor hereby acknowledges that it has undertaken its own independent investigation of the financial condition of the Obligor
and all other matters pertaining to this Guaranty and further acknowledges that it is not relying in any manner upon any representation
or statement of the Lender with respect thereto. The Guarantor represents and warrants that it has received and reviewed copies
of the Finance Documents and that it is in a position to obtain, and it hereby assumes full responsibility for obtaining, any additional
information concerning the financial condition of the Obligor and any other matters pertinent hereto that the Guarantor may desire.
The Guarantor is not relying upon or expecting the Lender to furnish to the Guarantor any information now or hereafter in the Lender’s
possession concerning the financial condition of the Obligor or any other matter.
SECTION 10. Reporting
Covenants. So long as any Guaranteed Obligations (other than contingent indemnification obligations) shall
remain unsatisfied or the Lender shall have any Commitment, the Guarantor agrees that:
(a) Financial Statements
and Other Reports. The Guarantor shall furnish to the Lender:
(i) Financial Statements.
The Guarantor shall furnish to Lender from time to time such information respecting Guarantor’s financial condition as Lender
may from time to time reasonably request. Without limiting the foregoing, the Guarantor shall furnish to the Lender promptly upon
the issuance thereof, copies of all reports, if any, to or other documents filed by it with the Securities and Exchange Commission
under the Securities Act of 1933 or the Securities Exchange Act of 1934.
(ii) Additional Information.
The Guarantor shall furnish to the Lender: (i) prompt written notice of any condition or event which has resulted, or that
could reasonably be expected to result, in a Material Adverse Effect; and (ii) such other information respecting the operations,
properties, business or condition (financial or otherwise) of the Guarantor or its Subsidiaries as the Lender may from time to
time reasonably request.
SECTION 11 Additional
Covenants. So long as any Guaranteed Obligations (other than contingent indemnification obligations) shall remain
unsatisfied or the Lender shall have any Commitment, the Guarantor agrees that:
(a) Preservation of
Existence, Etc. The Guarantor shall, and shall cause each of its Subsidiaries to, maintain and preserve its legal existence,
its rights to transact business and all other rights, franchises and privileges necessary or desirable in the normal course of
its business and operations and the ownership of its properties.
(b) Governmental Consents.
The Guarantor shall maintain all authorizations, consents, approvals, licenses, exemptions of, or filings or registrations with,
any Governmental Authority, or approvals or consents of any other Person, required in connection with this Guaranty or any other
Guarantor Documents.
(c) Ownership of the
Obligor. The Guarantor shall maintain at all times, directly or indirectly, ownership of all of the issued and outstanding
capital stock of the Obligor and possess, directly or indirectly, capital stock or other equity interests representing voting control
of the Obligor.
(d) Restrictions on
Fundamental Changes. The Guarantor shall not merge with or consolidate into any Person, or sell, transfer, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets.
(e) Further Assurances
and Additional Acts. The Guarantor shall execute, acknowledge, deliver, file, notarize and register at its own expense all
such further agreements, instruments, certificates, documents and assurances and perform such acts as the Lender shall deem necessary
or appropriate to effectuate the purposes of this Guaranty and the other Guarantor Documents, and promptly provide the Lender with
evidence of the foregoing satisfactory in form and substance to it.
SECTION 12 Notices.
All notices and other communications provided for hereunder and under the other Guarantor Documents shall, unless otherwise
stated herein, be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered
mail or sent by facsimile or by email (i) if to the Lender, at or to its address, email address or facsimile number set
forth in the Facilities Agreements, and (ii) if to the Guarantor, at or to its address, email address or facsimile
number set forth below its name on the signature page hereof, or at or to such other address, email address or facsimile
number as such party shall have designated in a written notice to the other party. Notices and other communications sent by
hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when
received. Notices and other communications (A) sent by facsimile or by email shall be deemed to have been given when sent,
and (B) posted to an internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient,
at its email address as described herein, of notification that such notice or communication is available and identifying the
website address therefor; provided that, for both clauses (A) and (B) above, if a notice or other
communication is not given during normal business hours for the recipient, it shall be deemed to have been given at the
opening of business on the next business day for the recipient.
SECTION 13 No
Waiver; Cumulative Remedies. No failure on the part of the Lender to exercise, and no delay in exercising, any right,
remedy, power or privilege hereunder or under any other Guarantor Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights and remedies under this Guaranty and the other
Guarantor Documents are cumulative and not exclusive of any rights, remedies, powers and privileges that may otherwise be
available to the Lender.
SECTION 14 Costs
and Expenses; Indemnification.
(a) Costs and Expenses.
The Guarantor agrees to pay all out-of-pocket expenses incurred by the Lender (including the fees, charges and disbursements of
any counsel for the Lender) in connection with the enforcement or protection of its rights (i) in connection with this Guaranty
and the other Guarantor Documents, including its rights under this Section, and (ii) in connection with the Guaranteed Obligations,
including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of the Guaranteed
Obligations, and including in or in connection with any Insolvency Proceeding.
(b) Indemnification.
The Guarantor shall indemnify the Lender (and any agent thereof) and each Related Party of any of the foregoing Persons (each such
Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), incurred by
any Indemnitee or asserted against any Indemnitee by any Person (including the Guarantor, the Obligor or any other Credit Party),
other than such Indemnitee and its Related Parties, arising out of, in connection with, or as a result of (i) the execution
or delivery of this Guaranty, any other Guarantor Document or other Finance Document or any agreement or instrument contemplated
hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation
of the transactions contemplated hereby or thereby, (ii) the Guaranteed Obligations or the use or proposed use of the proceeds
therefrom, or any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether
based on contract, tort or any other theory, whether brought by a third party or by the Guarantor, the Obligor or any other Credit
Party, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee,
be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court
of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct
of such Indemnitee or (y) result from a claim brought by the Guarantor, the Obligor or any other Credit Party against an Indemnitee
for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Finance Document, if the Obligor, the
Guarantor or such Credit Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court
of competent jurisdiction.
(c) Waiver of Consequential
Damages, Etc. To the fullest extent permitted by applicable law, the Guarantor shall not assert, and hereby waives, and acknowledges
that no other Person shall have, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential
or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Guaranty,
any other Guarantor Document or Finance Document or any agreement or instrument contemplated hereby or thereby, the transactions
contemplated hereby or thereby, the Guaranteed Obligations or the use of the proceeds thereof. No Indemnitee referred to in subsection (b)
above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed
by it through telecommunications, electronic or other information transmission systems in connection with this Guaranty or the
other Guarantor Documents or Finance Documents or the transactions contemplated hereby or thereby.
(d) Payment. All
amounts due under this Section 14 shall be payable upon demand.
SECTION 15 Right
of Set-Off. Upon the occurrence and during the continuance of any Event of Default each of the Lender and its Affiliates
is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and
apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held
and other obligations (in whatever currency) at any time owing by the Lender or any such Affiliate to or for the credit or
the account of the Guarantor or any other Credit Party against any and all of the obligations of the Guarantor or such other
Credit Party now or hereafter existing under this Guaranty or any other Guarantor Document to the Lender or its Affiliates,
irrespective of whether or not the Lender or its Affiliate shall have made any demand under this Guaranty or any other
Guarantor Document and although such obligations of the Guarantor or such other Credit Party may be contingent or unmatured
or denominated in a currency different from that of the applicable deposit or obligations or are owed to a branch, office or
Affiliate of the Lender different from the branch, office or Affiliate holding such deposit or obligated on such
indebtedness. The rights of the Lender and its Affiliates under this Section 15 are in addition to other rights and
remedies (including other rights of set-off) which the Lender or its Affiliates may have. By its acceptance hereof, the
Lender shall promptly notify the Guarantor after any such set-off and application; provided, however, that the
failure to give such notice shall not affect the validity of such setoff and application.
SECTION 16 Survival. All
covenants, agreements, representations and warranties made in this Guaranty and in any other Guarantor Document shall survive the
execution and delivery of this Guaranty, and shall continue in full force and effect so long as the Lender has any Commitment or
any Guaranteed Obligations remain unsatisfied. Without limiting the generality of the foregoing, the obligations of the Guarantor
under Section 14 shall survive the satisfaction of the Guaranteed Obligations and the termination of any Commitments.
SECTION 17 Benefits of Guaranty.
This Guaranty is entered into for the sole protection and benefit of the Lender and its successors and assigns, and no other Person
(other than any Related Party specified herein) shall be a direct or indirect beneficiary of, or shall have any direct or indirect
cause of action or claim in connection with, this Guaranty. The Lender, by its acceptance of this Guaranty, shall not have any
obligations under this Guaranty to any Person other than the Guarantor, and such obligations shall be limited to those expressly
stated herein.
SECTION 18 Binding Effect;
Assignment.
(a) Binding Effect.
This Guaranty shall be binding upon the Guarantor and its successors and assigns, and inure to the benefit of and be enforceable
by the Lender and its successors, endorsees, transferees and assigns. Delivery by the Guarantor of an executed counterpart of a
signature page of this Guaranty by facsimile or in electronic (i.e., “pdf” or “tif”) format shall
be effective as delivery of a manually executed counterpart of this Guaranty.
(b) Assignment.
The Guarantor shall not have the right to assign or transfer its rights and obligations hereunder or under any other Guarantor
Documents without the prior written consent of the Lender. The Lender may, without notice to or consent by the Guarantor, sell,
assign, transfer or grant participations in all or any portion of the Lender’s rights and obligations hereunder and under
the other Guarantor Documents in connection with any sale, assignment, transfer or grant of a participation by the Lender under
the Facilities Agreements of its rights and obligations thereunder and under the other Finance Documents. The Guarantor agrees
that in connection with any such sale, assignment, transfer or grant by the Lender, the Lender may deliver to the prospective participant
or assignee financial statements and other relevant information relating to the Guarantor and its Subsidiaries. In the event of
any grant of a participation, the participant (i) shall be deemed to have a right of setoff under Section 15 in respect
of its participation to the same extent as if it were the “Lender,” provided that such participant shall have
agreed to share any amount so realized with the Lender on terms and conditions satisfactory to the Lender; and (ii) shall
also be entitled to the benefits of Section 14.
SECTION 19 Governing Law.
This Guaranty and the other Guarantor Documents and any claims, controversy, dispute or cause of action (whether in contract or
tort or otherwise) based upon, arising out of or relating to this Guaranty or any other Guarantor Document (except, as to any other
Guarantor Document, as expressly set forth therein) and the transactions contemplated hereby and thereby shall be governed by,
and construed in accordance with, the law of the State of New York.
SECTION 20 Submission
to Jurisdiction.
(a) Submission to
Jurisdiction. The Guarantor irrevocably and unconditionally agrees that it will not commence any action, litigation or proceeding
of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, against the Lender or any Related
Party of the Lender in any way relating to this Guaranty or any other Guarantor Document or the transactions relating hereto or
thereto, in any forum other than the courts of the State of New York sitting in New York County, and of the United States District
Court of the Southern District of New York, and any appellate court from any thereof, and each of the Guarantor and the Lender
(by its acceptance hereof) irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all
claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to
the fullest extent permitted by applicable law, in such federal court. Each of the Guarantor and the Lender (by its acceptance
hereof) agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Guaranty or in any other Guarantor
Document shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Guaranty
or any other Finance Document against the Guarantor or any other Credit Party or its properties in the courts of any jurisdiction.
(b) Waiver of Venue.
The Guarantor irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it
may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Guaranty or any
other Guarantor Document in any court referred to in subsection (a) of this Section. Each of the Guarantor and the Lender
(by its acceptance hereof) hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Service of
Process. Each of the Guarantor and the Lender (by its acceptance hereof) irrevocably consents to service of process in the
manner provided for notices in Section 12. Nothing in this Guaranty will affect the right of any party hereto to serve process
in any other manner permitted by applicable law.
SECTION 21 Waiver
of Jury Trial. THE GUARANTOR AND THE LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY RIGHTS THEY MAY HAVE TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED ON OR ARISING FROM ANY GUARANTOR
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED BY THE GUARANTOR DOCUMENTS.
SECTION 22 Entire Agreement; Amendments and
Waivers.
(a) Entire Agreement.
This Guaranty and the other Guarantor Documents constitute the entire agreement of the Guarantor with respect to the matters set
forth herein and supersede any prior agreements, commitments, drafts, communications, discussions and understandings, oral or written,
with respect thereto. There are no conditions to the full effectiveness of this Guaranty.
(b) Amendments
and Waivers. This Guaranty and the other Guarantor Documents may not be amended except by a writing signed by the Guarantor
and the Lender. No waiver of any rights of the Lender under any provision of this Guaranty or consent to any departure by the
Guarantor therefrom shall be effective unless in writing and signed by the Lender. Any such amendment, waiver or consent shall
be effective only in the specific instance and for the specific purpose for which given.
SECTION 23 Lender Not a Fiduciary
to Guarantor. The relationship between the Guarantor and its Affiliates, on the one hand, and the Lender and its Affiliates,
on the other hand, is solely that of debtor and creditor, and neither the Lender not any Affiliate thereof shall have any fiduciary
or other special relationship with the Guarantor or any of its Affiliates, and no term or provision of any Finance Document, no
course of dealing, no written or oral communication, or other action, shall be construed so as to deem such relationship to be
other than that of debtor and creditor.
SECTION 24 Judgment Currency.
If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder in one currency into another
currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Lender could purchase
the first currency with such other currency on the business day preceding that on which final judgment is given. The obligation
of the Guarantor in respect of any such sum due from it to the Lender shall, notwithstanding any judgment in a currency (the “Judgment
Currency”) other than that in which such sum is denominated in accordance with the applicable provisions of the Finance Documents
(the “Agreement Currency”), be discharged only to the extent that on the business day following receipt by the Lender
of any sum adjudged to be so due in the Judgment Currency, the Lender may in accordance with normal banking procedures purchase
the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally
due to the Lender from such Guarantor in the Agreement Currency, the Guarantor agrees, as a separate obligation and notwithstanding
any such judgment, to indemnify the Lender or the Person to whom such obligation was owing against such loss. If the amount of
the Agreement Currency so purchased is greater than the sum originally due to the Lender in such currency, the Lender (by its acceptance
hereof) agrees to return the amount of any excess to the Guarantor (or to any other Person who may be entitled thereto under applicable
law). The agreements in this Section 24 shall survive the termination of any Commitments and the repayment of all Guaranteed Obligations.
SECTION 25 Severability.
Whenever possible, each provision of this Guaranty and the other Guarantor Documents shall be interpreted in such manner as to
be effective and valid under all applicable laws and regulations. If, however, any provision of this Guaranty or any other Guarantor
Document shall be prohibited by or invalid under any such law or regulation in any jurisdiction, it shall, as to such jurisdiction,
be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so
modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining
provisions of this Guaranty or such Guarantor Document, as the case may be, or the validity or effectiveness of such provision
in any other jurisdiction
SECTION 26 USA
PATRIOT Act Notice. The Guarantor acknowledges notice from the Lender that pursuant to the requirements of the USA PATRIOT
Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), the Lender is required
to obtain, verify and record information that identifies the Guarantor, which information includes the name and address of the
Guarantor and other information that will allow the Lender to identify the Guarantor in accordance with the Act. The Guarantor
shall, promptly following a request by the Lender, provide all documentation and other information that the Lender requests in
order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules
and regulations, including the Act.
[Remainder of page intentionally left
blank; signature page(s) follow]
IN WITNESS WHEREOF,
the Guarantor has executed this Guaranty, as of the date first above written.
|
INVISA, INC. |
|
|
|
By: |
/s/ Edmund C. King |
|
|
Edmund C. King |
|
|
Title: Chief Executive Officer |
|
|
|
|
Address: |
|
|
|
1800 2nd Street, Suite 695 |
|
Sarasota, Florida 34236, U.S.A. |
|
Attn: Oliver J. Janney |
|
Fax No. 941-906-8582 |
|
Email: ojanney@nauga.com |
|
|
Consented
to and Agreed:
WARDLE STOREYS (EARBY) LIMITED |
|
|
|
|
|
By: |
/s/ Howard R. Curd |
|
|
Title: Director |
|
As of January 19, 2015
Exhibit 99.1
UNIROYAL ENGINEERED PRODUCTS, LLC
Stoughton,
Wisconsin
FINANCIAL STATEMENTS
Including Independent
Auditors' Report
As of and for
the Years Ended December 29, 2013 and
December 30,
2012
UNIROYAL ENGINEERED PRODUCTS, LLC
TABLE OF CONTENTS
Independent Auditors' Report | |
| 1-2 | |
| |
| | |
Financial Statements | |
| | |
| |
| | |
Balance Sheets | |
| 3-4 | |
| |
| | |
Statements of Comprehensive Income (Loss) | |
| 5 | |
| |
| | |
Statements of Members' Equity | |
| 6 | |
| |
| | |
Statements of Cash Flows | |
| 7 | |
| |
| | |
Notes to Financial Statements | |
| 8-26 | |
INDEPENDENT AUDITORS’ REPORT
Members and Board of Managers
Uniroyal Engineered Products, LLC
Stoughton, Wisconsin
Report on the Financial Statements
We have audited the accompanying financial statements
of Uniroyal Engineered Products, LLC, which comprise the balance sheets as of December 29, 2013 and December 30, 2012, and the
related statements of comprehensive income (loss), members' equity, and cash flows for the years then ended, and the related notes
to the financial statements.
Management’s Responsibility for the Financial
Statements
Management is responsible for the preparation
and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States
of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement.
An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors'
judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation
of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
Members and Board of Managers
Uniroyal Engineered Products, LLC
We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of Uniroyal Engineered Products, LLC as of December
29, 2013 and December 30, 2012 and the results of its operations and its cash flows for the years then ended in accordance with
accounting principles generally accepted in the United States of America.
/s/ BAKER TILLY VIRCHOW KRAUSE, LLP
Madison, Wisconsin
April 30, 2014
UNIROYAL ENGINEERED PRODUCTS, LLC
BALANCE SHEETS
As of December 29, 2013 and December 30, 2012
ASSETS
| |
December 29, 2013 | |
December 30, 2012 |
CURRENT ASSETS | |
| | | |
| | |
Cash and cash equivalents | |
$ | 19,321 | | |
$ | 63,759 | |
Marketable securities | |
| 109,208 | | |
| — | |
Accounts receivable, net | |
| 6,680,732 | | |
| 6,275,842 | |
Inventories, net | |
| 10,487,303 | | |
| 10,438,537 | |
Other current assets | |
| 173,018 | | |
| 144,070 | |
Related party receivable | |
| 42,475 | | |
| 175,000 | |
Total Current Assets | |
| 17,512,057 | | |
| 17,097,208 | |
| |
| | | |
| | |
PROPERTY AND
EQUIPMENT | |
| 6,718,011 | | |
| 6,841,732 | |
| |
| | | |
| | |
OTHER ASSETS | |
| | | |
| | |
Intangible assets | |
| 1,266,266 | | |
| 1,323,684 | |
Goodwill | |
| 1,079,175 | | |
| 1,079,175 | |
Other long-term assets | |
| 571,824 | | |
| 628,637 | |
Total Other Assets | |
| 2,917,265 | | |
| 3,031,496 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 27,147,333 | | |
$ | 26,970,436 | |
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES | |
| | | |
| | |
Checks issued in excess of bank balance | |
$ | 622,590 | | |
$ | 881,976 | |
Line of credit | |
| 8,236,921 | | |
| 9,461,876 | |
Current maturities of long-term debt | |
| 545,026 | | |
| 979,041 | |
Current maturities of capital lease obligations | |
| 51,016 | | |
| 91,037 | |
Accounts payable | |
| 4,234,954 | | |
| 4,105,317 | |
Accrued expenses | |
| 1,103,058 | | |
| 1,252,328 | |
Current portion of postretirement benefit liability - health and life | |
| 131,714 | | |
| 128,291 | |
Total Current Liabilities | |
| 14,925,279 | | |
| 16,899,866 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES | |
| | | |
| | |
Long-term debt | |
| 2,967,113 | | |
| 3,926,226 | |
Capital lease obligations | |
| — | | |
| 51,016 | |
Related party lease financing obligation | |
| 2,014,440 | | |
| — | |
Postretirement benefit liability - health and life | |
| 2,358,896 | | |
| 2,676,661 | |
Postemployment benefit liability - severance | |
| 98,470 | | |
| 112,795 | |
Other long-term liabilities | |
| 61,567 | | |
| 124,094 | |
Total Long-Term Liabilities | |
| 7,500,486 | | |
| 6,890,792 | |
Total Liabilities | |
| 22,425,765 | | |
| 23,790,658 | |
See accompanying notes to financial statements.
UNIROYAL ENGINEERED PRODUCTS, LLC
BALANCE SHEETS
As of December 29, 2013 and December 30, 2012
(Continued)
| |
| December 29, 2013 | | |
| December
30, 2012 | |
| |
| | | |
| | |
MEMBERS' EQUITY | |
| | | |
| | |
Voting Class A common units, $1 unit value; 500,000 units authorized, issued and outstanding, liquidation preference of $500,000 | |
| 500,000 | | |
| 500,000 | |
Nonvoting Class B common units, $1 unit value; 120,000 units authorized, 81,200 and 75,000 issued and outstanding as of December 29, 2013 and December 30, 2012, respectively | |
| 52,750 | | |
| 45,000 | |
Additional members' equity - Class A common unit warrants | |
| 528,000 | | |
| 528,000 | |
Retained earnings | |
| 2,091,347 | | |
| 430,740 | |
Accumulated other comprehensive income | |
| 1,549,471 | | |
| 1,676,038 | |
Total Members' Equity | |
| 4,721,568 | | |
| 3,179,778 | |
| |
| | | |
| | |
TOTAL LIABILITIES
AND MEMBERS' EQUITY | |
$ | 27,147,333 | | |
$ | 26,970,436 | |
See accompanying notes to financial statements.
UNIROYAL ENGINEERED PRODUCTS, LLC
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 29, 2013 and December 30, 2012
| |
December 29, 2013 | |
December 30, 2012 |
| |
| | | |
| | |
NET SALES | |
$ | 53,942,233 | | |
$ | 60,302,913 | |
| |
| | | |
| | |
COST OF GOODS
SOLD | |
| 43,071,833 | | |
| 51,118,002 | |
| |
| | | |
| | |
Gross Profit | |
| 10,870,400 | | |
| 9,184,911 | |
| |
| | | |
| | |
OPERATING
EXPENSES | |
| 6,396,009 | | |
| 6,060,510 | |
| |
| | | |
| | |
Operating Income | |
| 4,474,391 | | |
| 3,124,401 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | |
Interest and other debt related expense | |
| (920,021 | ) | |
| (948,363 | ) |
Other income | |
| 34,073 | | |
| 36,503 | |
Net Other Income (Expense) | |
| (885,948 | ) | |
| (911,860 | ) |
| |
| | | |
| | |
NET INCOME | |
| 3,588,443 | | |
| 2,212,541 | |
| |
| | | |
| | |
OTHER COMPREHENSIVE INCOME (LOSS) | |
| | | |
| | |
Minimum benefit liability adjustment | |
| (183,380 | ) | |
| (727,961 | ) |
Unrealized gain (loss) on effective hedge | |
| | | |
| | |
Reclassification of amounts to earnings | |
| 64,108 | | |
| 61,501 | |
Unrealized loss for the year | |
| (7,295 | ) | |
| (53,883 | ) |
| |
| | | |
| | |
COMPREHENSIVE INCOME | |
$ | 3,461,876 | | |
$ | 1,492,198 | |
See accompanying notes to financial statements.
UNIROYAL ENGINEERED PRODUCTS, LLC
STATEMENTS OF MEMBERS' EQUITY
For the Years Ended December 29, 2013 and December 30, 2012
| |
Class
A Voting Common Units | |
Class
B Nonvoting Common Units | |
Class
A Common Unit Warrants | |
Retained
Earnings (Deficit) | |
Accumulated
Other Comprehensive Income | |
Total
Members' Equity |
| |
| | | |
| | | |
| | | |
| | | |
(Notes 9 and 10) | |
| | |
BALANCES, January 1, 2012 | |
$ | 500,000 | | |
$ | 90,000 | | |
$ | 528,000 | | |
$ | (577,335 | ) | |
$ | 2,396,381 | | |
$ | 2,937,046 | |
2012 net income | |
| — | | |
| — | | |
| — | | |
| 2,212,541 | | |
| — | | |
| 2,212,541 | |
Other comprehensive loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (720,343 | ) | |
| (720,343 | ) |
Redemption of Class B Common Units | |
| — | | |
| (45,000 | ) | |
| — | | |
| (11,250 | ) | |
| — | | |
| (56,250 | ) |
Distributions | |
| — | | |
| — | | |
| — | | |
| (1,193,216 | ) | |
| — | | |
| (1,193,216 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
BALANCES, December 30, 2012 | |
| 500,000 | | |
| 45,000 | | |
| 528,000 | | |
| 430,740 | | |
| 1,676,038 | | |
| 3,179,778 | |
2013 net income | |
| — | | |
| — | | |
| — | | |
| 3,588,443 | | |
| — | | |
| 3,588,443 | |
Other comprehensive loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (126,567 | ) | |
| (126,567 | ) |
Issuance of Class B Common Units | |
| — | | |
| 7,750 | | |
| — | | |
| — | | |
| — | | |
| 7,750 | |
Distributions | |
| — | | |
| — | | |
| — | | |
| (1,927,836 | ) | |
| — | | |
| (1,927,836 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
BALANCES, December 29, 2013 | |
$ | 500,000 | | |
$ | 52,750 | | |
$ | 528,000 | | |
$ | 2,091,347 | | |
$ | 1,549,471 | | |
$ | 4,721,568 | |
See accompanying notes to financial statements.
UNIROYAL ENGINEERED PRODUCTS, LLC
STATEMENTS OF CASH FLOWS
For the Years Ended December 29, 2013 and
December 30, 2012
| |
December 29, 2013 | |
December 30, 2012 |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net income | |
$ | 3,588,443 | | |
$ | 2,212,541 | |
Adjustments to reconcile net income to net cash flows from operating activities | |
| | | |
| | |
Depreciation | |
| 1,060,078 | | |
| 1,170,130 | |
Amortization of intangible assets | |
| 57,418 | | |
| 65,172 | |
Loss on disposal of property and equipment | |
| 267,730 | | |
| 7,114 | |
Noncash postemployment health and life benefit | |
| (183,380 | ) | |
| (727,961 | ) |
Noncash change in derivative liability | |
| — | | |
| (47,447 | ) |
Amortization of original issue note discount | |
| 42,680 | | |
| 52,800 | |
Changes in assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| (404,890 | ) | |
| 1,525,246 | |
Inventories | |
| (48,766 | ) | |
| 1,157,011 | |
Other current assets | |
| (28,948 | ) | |
| 388,500 | |
Other long-term assets | |
| 22,228 | | |
| (96,069 | ) |
Related party receivable | |
| 132,525 | | |
| (433,275 | ) |
Accounts payable | |
| 129,637 | | |
| 235,932 | |
Accrued expenses | |
| (149,270 | ) | |
| (155,599 | ) |
Postretirement benefit liability - health and life | |
| (314,342 | ) | |
| 171,819 | |
Postemployment benefit liability - severance | |
| (14,325 | ) | |
| (8,387 | ) |
Other long-term liabilities | |
| (5,714 | ) | |
| (5,369 | ) |
Net Cash Flows from Operating Activities | |
| 4,151,104 | | |
| 5,512,158 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Capital expenditures | |
| (587,749 | ) | |
| (1,014,000 | ) |
Purchase of marketable securities | |
| (109,208 | ) | |
| — | |
Cash paid for lease deposit | |
| (250,000 | ) | |
| — | |
Net Cash Flows from Investing Activities | |
| (946,957 | ) | |
| (1,014,000 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Checks issued in excess of bank balance | |
| (259,386 | ) | |
| (230,490 | ) |
Net payments on line of credit | |
| (83,695 | ) | |
| (2,649,988 | ) |
Payments on long-term debt | |
| (459,970 | ) | |
| (724,842 | ) |
Proceeds from issuance of long-term debt | |
| — | | |
| 108,843 | |
Payments on capital lease obligations | |
| (91,037 | ) | |
| (83,660 | ) |
Net payments on life insurance policies | |
| (423,986 | ) | |
| (299,657 | ) |
Payments on related party lease financing obligation | |
| (10,425 | ) | |
| — | |
Proceeds from issuance of Class B units | |
| 7,750 | | |
| — | |
Distributions to members | |
| (1,927,836 | ) | |
| (565,151 | ) |
Net Cash Flows from Financing Activities | |
| (3,248,585 | ) | |
| (4,444,945 | ) |
| |
| | | |
| | |
Net Change in Cash and Cash Equivalents | |
| (44,438 | ) | |
| 53,213 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS - Beginning of Year | |
| 63,759 | | |
| 10,546 | |
| |
| | | |
| | |
CASH
AND CASH EQUIVALENTS - END OF YEAR | |
$ | 19,321 | | |
$ | 63,759 | |
For noncash transactions and supplemental disclosure of cash flow
information see Note 2.
See accompanying notes
to financial statements.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
1 - Summary of Significant Accounting Policies
Nature of Operations
Uniroyal Engineered Products, LLC is engaged in the development,
manufacturing and distribution of vinyl coated fabrics primarily for use in transportation, residential, hospitality, health care,
office furniture and automotive applications. The company's customers are primarily located throughout North America.
The company's fiscal year is a 52/53 week year depending on the
nearest Sunday to December 31. The years ended December 29, 2013 and December 30, 2012 were 52 week years.
Cash and Cash Equivalents
The company defines cash and cash equivalents as highly liquid,
short-term investments with a maturity at the date of acquisition of three months or less.
The company maintains cash in bank accounts which, at times, exceeds
federally insured limits. The company has not experienced any losses in such accounts and believes it is not exposed to any significant
credit risks.
Marketable Securities
The company’s marketable securities consists of an available-for-sale
investment in common stock that is a related party as the majority owner of the company holds a majority voting interest. Available-for-sale
securities generally are stated at fair value based on quoted market prices in an active U.S. exchange, with unrealized holding
gains and losses reported as a separate component of members' equity. Realized gains and losses are included in income. Management
has determined that it is appropriate to value its investment in common stock at cost due to the thinly traded nature of the security
and the related party nature of the investment.
Accounts Receivable
Accounts receivable have been adjusted for all known uncollectible
accounts, returns and discounts; and are recorded net of an allowance for doubtful accounts, returns and discounts of $225,000
and $185,242 as of December 29, 2013 and December 30, 2012.
On an ongoing basis, the company evaluates its accounts receivable based on individual customer
circumstances, historical write-offs and collections, and current industry and customer credit conditions, and adjusts its allowance
for doubtful accounts accordingly. The company's policy regarding write-offs and collection efforts varies based on individual
customer circumstances. Past due accounts receivable are determined based on individual customer credit terms. The company does
not accrue interest on past due accounts receivable.
Customer Rebates
The company records customer rebates as a reduction of net sales and accounts receivable.
Accounts receivable are recorded net of an allowance for customer rebates of $95,472 and $72,451 as of December 29, 2013 and December
30, 2012.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
1 - Summary of Significant Accounting Policies (cont.)
Inventories
Inventories are valued at lower of cost, using the first-in, first-out
(FIFO) method, or market.
Property and Equipment
Property and equipment are stated at cost. Major expenditures for
property and equipment are capitalized. Maintenance, repairs, and minor renewals are expensed as incurred. When assets are retired
or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or
losses are included in income.
Property and equipment are depreciated using the straight-line method
over their estimated useful lives. For income tax reporting purposes, depreciation is calculated using both applicable straight-line
methods and accelerated methods.
Cash Surrender Value of Insurance Policies
Cash surrender value of insurance policies are valued at the cash
surrender value of the contract as determined by the life insurance company. The gross cash value of the insurance policies totaled
$219,341 and $828,046 as of December 29, 2013 and December 30, 2012. The cash value of the insurance policies are recorded net
of loans of $23,689 and $387,320 as of December 29, 2013 and December 30, 2012, respectively, and are included in other long-term
assets on the accompanying 2013 and 2012 balance sheets. During 2013, certain policies were sold to a related party (see Notes
2 and 8).
Impairment of Long-Lived Assets
The company reviews long-lived assets, including property, equipment,
and intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of
an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use
of the asset are less than the carrying amount of that asset. To date, there have been no such losses.
Goodwill
Goodwill represents the excess of the purchase price over the estimated
fair value of identifiable net assets acquired. Goodwill is reduced based upon an impairment analysis of the amount recorded on
the company's balance sheets. To the extent it has been determined that the carrying value of goodwill is not recoverable and is
in excess of its fair value, an impairment loss is recognized. Impairment is reviewed annually. No impairment loss adjustment was
deemed necessary for the years ended December 29, 2013 or December 30, 2012.
Income Taxes
The company is treated as a limited
liability company (LLC) for federal and state income tax purposes. As such, the company's income, losses, and credits are included
in the income tax returns of its members.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
1 - Summary of Significant Accounting Policies (cont.)
Income Taxes (cont.)
The tax effects from an uncertain tax position are recognized in
the financial statements only if the position is more likely than not to be sustained on audit, based on the technical merits of
the position. The company recognizes the financial statement benefit of a tax position only after determining that the relevant
tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than
not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood
of being realized, upon ultimate settlement with the relevant tax authority. The company does not believe there is any uncertainty
with respect to its tax positions which would result in a material change to the financial statements.
The company files income tax returns in the United States and in
several state jurisdictions. The company's federal and state tax returns for tax years 2010 and thereafter are subject to examination
by taxing authorities. The company records interest and penalties associated with uncertain tax positions related to these tax
filings as interest expense. For the years ended December 29, 2013 and December 30, 2012, the company has recorded no expense for
interest or penalties.
Derivatives
The company recognizes all of its derivative instruments, which
consist of interest rate swaps, as either assets or liabilities in the balance sheet at fair value. The accounting for changes
in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship
and further, whether the hedge is a cash flow hedge or a fair value hedge.
The company uses interest rate swaps to manage interest rate risk
on its variable interest rate long-term debt instruments. The gain or loss on the effective portion of interest rate swaps treated
as cash flow hedges is initially included as a component of other comprehensive income and is subsequently reclassified into earnings
when interest on the related debt is paid. The gain or loss on the portion of interest rate swaps that are "not" effective
is treated as trading financial instruments and are included as a component of interest expense on the accompanying statements
of operations.
Fair Value of Financial Instruments
The company’s short-term financial instruments consist of
the following: cash and cash equivalents, accounts receivable and accounts payable. The company believes that the carrying values
of these short-term financial instruments approximate their estimated fair values.
The fair value of the company’s long-term debt is estimated
based on current rates for similar instruments with the same remaining maturities. In determining the current interest rates for
similar instruments the company takes into account its risk of nonperformance. The company believes that the carrying value of
its long-term debt approximates its estimated fair value.
The fair value of the company’s interest rate swaps are the
estimated amounts that the company would receive, or pay, to sell, or transfer the swaps to a third party, taking into account
current and future interest rates and the nonperformance risk of the company and the counterparty. The company's interest rate
swaps are recorded at their estimated fair values in the accompanying balance sheets.
The fair value of the company's marketable securities approximates
its cost basis due to the thinly traded nature of the security and the related party nature of the investment.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
1 - Summary of Significant Accounting Policies (cont.)
Fair Value of Financial Instruments (cont.)
For the fiscal year ended December 29, 2013, there have been no
changes in the application of valuation methods applied to similar assets and liabilities.
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.
Revenue Recognition
The company recognizes revenue based upon the passage of inventory
title to its customers, which typically occurs upon shipment.
Shipping and Handling Costs
Shipping and handling costs charged to customers are included in
net sales. Shipping and handling costs incurred by the company are included in cost of goods sold.
Warranties
The company warrants that the materials and workmanship of its products
will meet customer specifications. The company estimates its accrued warranty expenses based upon prior warranty claims experience.
Accrued warranty expenses were not material as of December 29, 2013 and December 30, 2012.
Advertising
Advertising costs, other than promotional materials, are charged
to expense as incurred. Advertising expense was $100,929 and $67,230 for the years ended December 29, 2013 and December 30, 2012,
respectively. Promotional materials are expensed as they are distributed. As of December 29, 2013 and December 30, 2012, $124,882
and $148,620 of promotional materials were included in other long-term assets on the accompanying financial statements.
Research and Development
Research and development costs are charged to expense as incurred.
Research and development expense was $764,952 and $764,988 for the years ended December 29, 2013 and December 30, 2012, respectively.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
1 - Summary of Significant Accounting Policies (cont.)
Common Control Leasing Arrangements
The company has elected not to consolidate a lessor entity with
a common control leasing arrangement as allowed Accounting Standards Update 2014-07, Applying Variable Interest Entities Guidance
to Common Control Leasing Arrangements. While the lessor entity is a variable interest entity, the arrangement has met the
following criteria, which allows the lessor entity to not be consolidated: 1) substantially all activities between the company
and the lessor entities are related to the leasing activities between the two entities (including supporting leasing activities)
and 2) the principal amount of any lessor entity obligations is not explicitly guaranteed or collateralized by the company. When
common control leasing arrangements cease to meet the criteria above, the company will evaluate the lessor entities to determine
whether they are variable interest entities required to be consolidated by the company. See Note 8.
Subsequent Events
The company has evaluated subsequent events occurring through April
30, 2014, the date that the financial statements were available to be issued, for events requiring recording or disclosure in the
December 29, 2013 financial statements.
NOTE
2 - Noncash Transactions and Supplemental Disclosure of Cash Flow Information
During 2013 and 2012, the company had reduced borrowings on its
line of credit by converting dollars to additional borrowings on its term loans with Wells Fargo Capital Finance, LLC of $200,000
and $783,067, respectively. During 2013 and 2012, the company paid down its term loans using available borrowings on its line of
credit of $382,428 and $422,886, respectively.
During 2013, the company sold real estate and certain insurance
policies for $2,117,098 to a related party owned by the company's majority owners (see Note 8). The proceeds were used to reduce
the company's term debt and line of credit obligations by same amount. Additionally, as part of the transaction with the related
party, the company leased real estate and entered into a lease financing obligation with the related party for $2,024,865. (see
Note 8).
During 2012, the company distributed $628,065 of related party receivables
as distributions to a member. In addition, 45,000 units of Class B shares were redeemed by the company for $56,250 (see Note 11).
During 2012, the company's prepaid deposit of $175,000 with another
company owned by the CEO was transferred to a related party receivable as acquisition services were performed during 2012 and was
reimbursed by the CEO and CEO's company during 2013. This amount is included in related party receivables on the accompanying 2012
balance sheets (see Note 16).
| |
December 29, 2013 | |
December 30, 2012 |
| |
| | | |
| | |
Supplemental disclosure of approximate cash paid for: | |
| | | |
| | |
Interest | |
$ | 835,205 | | |
$ | 794,500 | |
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
3 - Inventories
Inventories consist of the following as of
December 29, 2013 and December 30, 2012:
| |
December 29, 2013 | |
December 30, 2012 |
| |
| | | |
| | |
Raw materials | |
$ | 3,011,765 | | |
$ | 2,892,343 | |
Work-in-process | |
| 1,528,415 | | |
| 1,808,431 | |
Finished goods | |
| 6,678,407 | | |
| 6,362,708 | |
| |
| 11,218,587 | | |
| 11,063,482 | |
Less: Allowance for inventory obsolescence | |
| (731,284 | ) | |
| (624,945 | ) |
| |
| | | |
| | |
Total Inventories | |
$ | 10,487,303 | | |
$ | 10,438,537 | |
NOTE
4 - Property and Equipment
The major categories of property
and equipment as of December 29, 2013 and December 30, 2012 are summarized as follows:
| |
Depreciable
Lives | |
December 29, 2013 | |
December 30, 2012 |
| |
| | | |
| | | |
| | |
Land | |
| — | | |
$ | — | | |
$ | 355,600 | |
Land improvements | |
| 8 - 13 yrs. | | |
| — | | |
| 29,851 | |
Building and building improvements | |
| 8
- 25 yrs. | | |
| 36,101 | | |
| 1,895,508 | |
Machinery and equipment | |
| 8 - 10 yrs. | | |
| 12,169,476 | | |
| 11,734,935 | |
Computer equipment | |
| 3 - 10 yrs. | | |
| 911,690 | | |
| 891,715 | |
Furniture and fixtures | |
| 7 - 10 yrs. | | |
| 54,600 | | |
| 47,384 | |
Real estate under lease | |
| 20 yrs. | | |
| 2,024,865 | | |
| | |
Construction-in-progress | |
| — | | |
| 18,125 | | |
| 416,818 | |
Total Property and Equipment | |
| | | |
| 15,214,857 | | |
| 15,371,811 | |
| |
| | | |
| | | |
| | |
Less: Accumulated depreciation | |
| | | |
| (8,496,846 | ) | |
| (8,530,079 | ) |
| |
| | | |
| | | |
| | |
Net Property and Equipment | |
| | | |
$ | 6,718,011 | | |
$ | 6,841,732 | |
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
5 - Intangible Assets
Intangible assets as of December 29, 2013 and December 30, 2012
are summarized as follows:
| |
Amortizable Lives | |
December 29, 2013 | |
December 30, 2012 |
| |
| |
| | | |
| | |
Debt issuance costs, net | |
3 - 10 yrs. | |
$ | 36,266 | | |
$ | 93,684 | |
Trademarks and tradenames | |
Indefinite | |
| 1,230,000 | | |
| 1,230,000 | |
Intangible Assets | |
| |
$ | 1,266,266 | | |
$ | 1,323,684 | |
Debt issuance costs are amortized on a straight-line basis over
the terms of the related long-term debt. During 2011, the company paid $157,067 to amend its Wells Fargo Capital Finance, LLC term
loans. The fees are being amortized over the remaining life of the term debt. Trademarks and tradenames are not amortized as management
believes that their useful lives are indefinite. Amortization expense is estimated to be $36,266 during 2014.
NOTE
6 - Line of Credit
The company has available a $30,000,000 line of credit financing
agreement with Wells Fargo Capital Finance, LLC, which matures on October 17, 2019. Interest is payable monthly at the Eurodollar
rate plus 2.50% or Wells Fargo Capital Finance, LLC's prime rate plus 0.25% at the company's election. The line of credit weighted
average interest rate was approximately 3.29% as of December 29, 2013. Borrowings on the line of credit are subject to the underlying
borrowing base specified in the agreement, which was amended in 2013 to exclude real estate, which was sold, from the base calculation.
The underlying borrowing base is currently determined based upon eligible accounts receivable, inventories and equipment. The line
of credit is secured by substantially all of the company's assets and includes certain financial and restrictive covenants.
The outstanding balance on the line of credit was $8,236,921 and
$9,461,876 as of December 29, 2013 and December 30, 2012, respectively. The company has classified the outstanding balance on its
line of credit within current liabilities in the accompanying balance sheets.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
7 - Long-Term Debt
Long-term debt consists of the following as
of December 29, 2013 and December 30, 2012:
| |
December 29, 2013 | |
December 30, 2012 |
| |
| | | |
| | |
Senior subordinated promissory notes issued to the company CEO and Chairman; original issue note discount of $528,000 ($0 and $42,680 as of December 29, 2013 and December 30, 2012, respectively); monthly interest only payments at 9.25%; principal payment of $600,000 due on October 17, 2017 and the remaining unpaid principal due on October 17, 2018. The original issue note discount resulted from the value allocated to the Class A common unit warrants attached to the note. The note discount was amortized to interest expense over the initial term of the notes. The senior subordinated promissory notes are secured by substantially all assets of the company subject to the notes' subordination to the line of credit and term loans with Wells Fargo Capital Finance, LLC. | |
$ | 2,000,000 | | |
$ | 1,957,320 | |
| |
| | | |
| | |
Term loans with Wells Fargo Capital Finance, LLC, monthly interest only payments at the Eurodollar rate plus 2.50% or Wells Fargo Bank, National Association's prime rate plus 0.25%. The term loans' weighted average interest rate was approximately 2.71% as of December 29, 2013. Monthly principal balances are reduced by $26,832 each month, resulting in a conversion, or increase, of the same amount in the line of credit each month (see Note 2). Term loans mature in October 2019 and are secured by substantially all of the company's assets and include certain financial and restrictive covenants. | |
| 1,060,667 | | |
| 1,977,381 | |
| |
| | | |
| | |
Note payable to McFarland State Bank; was payable in monthly installments of $1,589 including interest and principal at a rate of 7.875%. The note was paid in full during 2013. | |
| — | | |
| 164,582 | |
| |
| | | |
| | |
Note payable to McFarland State Bank; was payable in monthly installments of $1,021 including interest and principal at a rate of 7.875%. The note was paid in full during 2013. | |
| — | | |
| 113,812 | |
| |
| | | |
| | |
Capital expenditure term loans with Wells Fargo Capital Finance, LLC, monthly principal payments of $3,333 plus interest at 3.50%. The loans mature in October 2019 and are secured by certain equipment. | |
| 170,000 | | |
| — | |
| |
| | | |
| | |
Note payable to Balboa Capital Corporation; was payable in monthly installments of $7,138 including interest and principal at a rate of 8.50%. The note was paid in full during 2013. | |
| — | | |
| 37,236 | |
| |
| | | |
| | |
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
7 - Long-Term Debt (cont.)
| |
| December 29, 2013 | |
December 30, 2012 |
| |
| | | |
| | |
Note payable to Balboa Capital Corporation; assigned to Wells Fargo, payable in quarterly installments of $10,291 including interest and principal at a rate of 7.53% with the remaining principal due on October 1, 2014. The note is secured by certain equipment. | |
| 43,840 | | |
| 79,960 | |
| |
| | | |
| | |
Note payable to Balboa Capital Corporation; assigned to Wells Fargo, payable in quarterly installments of $18,570 including interest and principal at a rate of 7.82% with the remaining principal due on January 1, 2015. The note is secured by certain equipment. | |
| 95,639 | | |
| 159,227 | |
| |
| | | |
| | |
Note payable to Balboa Capital Corporation; assigned to Wells Fargo, payable in quarterly installments of $9,054 including interest and principal at a rate of 11.43% with the remaining principal due on October 1, 2015. The note is secured by certain equipment. | |
| 59,462 | | |
| 86,816 | |
| |
| | | |
| | |
Note payable to Balboa Capital Corporation; assigned to Wells Fargo, payable in monthly installments of $567 including interest and principal at a rate of 7.89% with the remaining principal due December 2015. The note is secured by certain equipment. | |
| 12,548 | | |
| 18,124 | |
| |
| | | |
| | |
Note payable to Balboa Capital Corporation; assigned to Wells Fargo, was payable in monthly installments of $628 including interest and principal at a rate of 5.80%. The note was paid in full during 2013. | |
| — | | |
| 7,301 | |
| |
| | | |
| | |
Note payable to Alliant Energy; was payable in monthly installments of $12,557 including interest and principal at a rate of 2.069%. The note was paid in full during 2013. | |
| — | | |
| 50,012 | |
| |
| | | |
| | |
Note payable to Alliant Energy; was payable in monthly installments of $11,765 including interest and principal at a rate of 1.034%. The note was paid in full during 2013. | |
| — | | |
| 128,748 | |
| |
| | | |
| | |
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
7 - Long-Term Debt (cont.)
| |
December 29, 2013 | |
December 30, 2012 |
| |
| | | |
| | |
Note payable to Balboa Capital Corporation; assigned to Wells Fargo, payable in quarterly installments of $8,620 including interest and principal at a rate of 12.70% with the remaining principal due November 2015. The note is secured by certain equipment. | |
| 59,983 | | |
| 84,748 | |
| |
| | | |
| | |
Note payable to a former member; non-interest bearing note payable in quarterly installments, with the final payment expected during 2014 (see Note 11). | |
| 10,000 | | |
| 40,000 | |
| |
| | | |
| | |
Totals | |
| 3,512,139 | | |
| 4,905,267 | |
| |
| | | |
| | |
Less: Current portion | |
| (545,026 | ) | |
| (979,041 | ) |
| |
| | | |
| | |
Long-Term Portion | |
$ | 2,967,113 | | |
$ | 3,926,226 | |
Principal requirements on long-term debt for years ending after
December 29, 2013 are as follows:
| | |
| Totals |
| | |
| |
2014 | | |
$ | 545,026 |
2015 | | |
| 456,103 |
2016 | | |
| 361,994 |
2017 | | |
| 739,016 |
2018 | | |
| 1,410,000 |
| | |
| |
Totals | | |
$ | 3,512,139 |
NOTE
8 - Related Party Lease Financing Obligation
During 2013, the company changed its method of accounting for common
control leasing arrangements through the election of a new accounting alternative recently issued by the Financial Accounting Standards
Board (FASB), and as a result, the company is no longer evaluating whether lessor entities in common control leasing arrangements
meeting the following criteria are variable interest entities: 1) substantially all activities between the company and the lessor
entities are related to leasing activities between the two entities (including supporting leasing activities) and 2) the principal
amount of any lessor entity obligations related to the leased assets explicitly guaranteed or collateralized by the company did
not exceed the value of the leased assets at the inception of the guarantee or collateralization. The company believes that electing
this accounting alternative will reduce the complexity of its accounting for common control leasing arrangements without resulting
in a loss of decision-useful information.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
8 - Related Party Lease Financing Obligation (cont.)
During 2013, the company sold real estate and certain insurance
policies for $2,117,098 to a related party owned by the company's majority owners, resulting in a related loss of $249,578. The
proceeds were used to reduce the company's term debt and line of credit obligations by same amount. Additionally, as part of the
transaction with the related party, the company leased real estate it sold, plus additional land, which resulted in a lease financing
obligation with the related party for $2,024,865. The lease financing obligation, under which the company leases its main manufacturing
facility and certain other property from the related party lessor entity, accrues interest at 18.20% and requires monthly principal
and interest payments of $30,000, which are adjusted annually based on the consumer price index. The lease financing obligation
matures during October 2033. The company made a security deposit of $250,000 with the lessor entity at the inception of the lease
financing arrangement.
The new accounting alternative considers that when common control
of the two entities exists and the fact that the company does not have alternative manufacturing facilities readily available,
the company has some exposure that the related party relationship could cause it to provide financial support to the lessor entity,
thus, requiring disclosure of the lessor's obligations. The lessor's obligations consist of a note payable to a bank of approximately
$2,600,000 as of December 29, 2013, which is payable in monthly installments of $29,355 including interest at a rate of 5.95% and
is due on November 19, 2023. The note is collateralized by the manufacturing facility leased to the company by the lessor entity.
The company’s majority owner and the majority owner of the lessor entity guarantees the note payable. Although the company
has a financial interest in the continuity of the note payable, it is not a party to the bank note and does not guarantee its payment.
Principal requirements on the related party lease financing obligation
for years ending after December 29, 2013, including years 2014 through 2016 where the amount of interest owed exceeds the amount
of payments made, resulting in a net increase to the outstanding principal balance of the lease financing obligation, are as follows:
| | |
| Totals | |
| | |
| | |
2014 | | |
$ | (7,000 | ) |
2015 | | |
| (4,467 | ) |
2016 | | |
| (1,394 | ) |
2017 | | |
| 2,328 | |
2018 | | |
| 6,827 | |
Thereafter | | |
| 2,018,146 | |
| | |
| | |
Totals | | |
$ | 2,014,440 | |
NOTE
9 - Derivatives
The company holds derivative instruments, which consist of interest
rate swaps. Accounting standards require that an entity recognize all derivative instruments as either assets or liabilities at
fair value in the balance sheet. Certain swaps do not meet the criteria of cash flow hedges under generally accepted accounting
standards; these swaps are accounted for as derivatives not designated as hedging instruments with changes in the fair value of
the interest rate swaps included in interest expense in the accompanying statements of operations. For derivative instruments that
are designated and qualify as a cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported
as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged
transaction affects earnings. Gains and losses on the derivative instrument representing either hedge ineffectiveness or hedge
components excluded from the assessment of effectiveness are recognized in current earnings.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
9 - Derivatives (cont.)
The company has an interest rate swap with a notional amount of
$6,000,000 accounted for as effective cash flow hedge. The interest rate swap fixes the company's one month LIBOR interest rate
on the notional amounts at a rate of 1.25%. The interest rate swap expires on July 30, 2014. The full amount of the interest rate
swap liability as of December 29, 2013 is expected to be reclassified into earnings within the next twelve months.
Derivative instruments are reported in the balance sheets at fair
value as of December 29, 2013 and December 30, 2012 are as follows:
Liability Derivative | |
Balance Sheet Location | |
Fair Value |
| |
| |
December 29, 2013 | |
December 30, 2012 |
| |
| |
| | | |
| | |
Interest rate swaps designated as hedging instruments | |
Other long-term liabilities | |
$ | 40,917 | | |
$ | 97,730 | |
The effect of interest rate swaps designated as hedging instruments
is reported in the statements of net income (loss) and comprehensive income (loss) and members' equity as follows:
Unrealized Loss Recognized
in OCI on Derivative (Effective Portion) | |
Location of Gain or (Loss) Reclassified
from Accumulated OCI into Income (Effective Portion) | |
Amount Reclassified from Accumulated
OCI into Income (Effective Portion) |
December 29, 2013 | |
December 30, 2012 | |
| |
December 29, 2013 | |
December 30, 2012 |
| | | |
| | | |
| |
| | | |
| | |
$ | (7,295 | ) | |
$ | (53,883 | ) | |
Interest expense | |
$ | 64,108 | | |
$ | 61,501 | |
The company follows accounting principles generally accepted in
the United States of America for measuring, reporting, and disclosing fair value. These standards apply to all assets and liabilities
that are measured, reported, and/or disclosed on a fair value basis.
Fair value is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Assets and liabilities
measured, reported and/or disclosed at fair value will be classified and disclosed in one of the following three categories:
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
9 - Derivatives (cont.)
Level 1 |
– |
Inputs to the valuation methodology are unadjusted quoted market prices for identical assets in active markets that the company has the ability to access. |
|
|
|
Level 2 |
– |
Observable market based inputs or unobservable inputs that are corroborated by market data. Inputs to the valuation methodology include: |
|
|
|
|
|
|
|
> |
|
quoted prices for similar assets or liabilities in active markets; |
|
|
> |
|
quoted prices for identical or similar assets or liabilities in inactive markets; |
|
|
> |
|
inputs other than quoted prices that are observable for the asset or liability; |
|
|
> |
|
inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
|
|
|
|
|
Level 3 |
– |
Unobservable inputs that are unobservable and not corroborated by market data. |
The asset’s or liability’s fair value measurement level
within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation
techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The LIBOR swap rates are observable at commonly quoted intervals
for the full terms of the interest rate swaps and therefore are considered level 2 items. As such, the company's interest rate
swap is considered a level 2 item. The company's marketable security investment in common stock of $109,208 has been valued at
cost (see Note 1). As such, the marketable security investment is considered a level 3 item.
The preceding method described may produce
a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although
the company believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies
or assumptions to determine the fair value could result in a different fair value measurement at the reporting date.
NOTE
10 - Postretirement and Postemployment Benefit Liabilities
Postretirement Benefit
Liability - Health and Life
The company provides certain health care and life insurance benefits
for substantially all employees (active or retired) who were employed prior to February 20, 1987. Accounting standards for postretirement
benefits require an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status
or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its
funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded
status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive
income of a business entity.
During 2007, there was a change in the provisions of the plan which
fixed the amount of benefit per participant for future and current retirees and their spouses. This had resulted in a $2,346,014
reduction in the liability and increase in the prior service credit. The actuarial gain is being amortized over approximately 7
years.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
10 - Postretirement and Postemployment Benefit Liabilities (cont’d)
Postretirement Benefit
Liability - Health and Life (cont.)
The accumulated postretirement benefit obligation, plan assets and accrued postretirement
liability as of the plan's measurement date of December 29, 2013 and December 30, 2012 are as follows:
| |
December 29, 2013 | |
December 30, 2012 |
| |
| | | |
| | |
Postretirement Benefit Liability - Health and Life | |
$ | 4,080,998 | | |
$ | 4,578,720 | |
Less: Plan assets | |
| — | | |
| — | |
| |
| | | |
| | |
Accrued postretirement benefit cost | |
| 4,080,998 | | |
| 4,578,720 | |
Less: Unrecognized net gain | |
| (1,590,388 | ) | |
| (1,773,768 | ) |
| |
| | | |
| | |
Accumulated postretirement benefit obligation | |
| 2,490,610 | | |
| 2,804,952 | |
Less: Current portion | |
| (131,714 | ) | |
| (128,291 | ) |
| |
| | | |
| | |
Long-Term Portion | |
$ | 2,358,896 | | |
$ | 2,676,661 | |
Net pension benefit for the plan for the years ended December 29,
2013 and December 30, 2012 was $395,877 and $464,656, respectively, which is comprised of the following:
| |
December 29, 2013 | |
December 30, 2012 |
| |
| | | |
| | |
Service cost | |
$ | 4,872 | | |
$ | 4,854 | |
Interest cost on projected benefit obligation | |
| 111,003 | | |
| 113,180 | |
Amortization of prior service cost | |
| (324,483 | ) | |
| (324,483 | ) |
Amortization of net gain | |
| (187,269 | ) | |
| (258,207 | ) |
| |
| | | |
| | |
Net pension benefit | |
$ | (395,877 | ) | |
$ | (464,656 | ) |
Reconciliation of losses in other comprehensive
income (loss) is as follows:
| |
December 29, 2013 | |
December 30, 2012 |
| |
| | | |
| | |
Net actuarial gain (loss) | |
$ | 328,372 | | |
$ | (145,271 | ) |
Amortization of prior service credit and actuarial gain | |
| (511,752 | ) | |
| (582,690 | ) |
| |
| | | |
| | |
Pension adjustment in other comprehensive income (loss) | |
$ | (183,380 | ) | |
$ | (727,961 | ) |
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
10 - Postretirement and Postemployment Benefit Liabilities (cont’d)
Postretirement Benefit Liability - Health and
Life (cont.)
The amount in accumulated other comprehensive income at December
29, 2013 that has not yet been recognized as a component of net periodic benefit costs is $1,590,388, which consists of unrecognized
net actuarial gains of $1,191,274 and unrecognized prior service credits of $399,114. The amount in accumulated other comprehensive
income at December 29, 2013 that is expected to be recognized as a component of net periodic pension benefit during 2013 is $589,895,
which consists of net actuarial gains of $265,412 and prior service credits of $324,483.
The significant assumptions used in determining the accumulated
postretirement benefit obligation and net periodic benefit cost are as follows:
| |
December 29, 2013 | |
December 30, 2012 |
| |
| | | |
| | |
Health Care Cost Trend Rates: | |
| | | |
| | |
2013/2012 | |
| 4.00 | % | |
| 4.00 | % |
Thereafter | |
| 4.00 | % | |
| 4.00 | % |
Discount rate | |
| 4.95 | % | |
| 4.05 | % |
Measurement Date | |
December 29, 2013 | | |
December 30, 2012 | |
In addition to the significant assumptions listed above, other assumptions
used in determining the accumulated postretirement benefit obligation and net periodic benefit cost are retirement and termination
probabilities and mortality estimates. The company assumes that employees participating in the plan will continue to participate
during retirement. The company also assumes that employees not participating in the plan will not participate in the plan prior
to or during retirement.
Employer and employee contributions
to the plan were $164,907 and $10,162 during the year ended December 29, 2013 and $145,123 and $12,489 during the year ended December
30, 2012, respectively. Contributions to the plan are made each year based on estimated benefit payments to be paid out of the
plan. Estimated benefit payments from the plan for each of the next five years, and in the aggregate for the five years thereafter,
are as follows:
2014 | | |
$ | 134,935 |
2015 | | |
| 147,335 |
2016 | | |
| 163,716 |
2017 | | |
| 182,744 |
2018 | | |
| 187,355 |
2019 - 2023 | | |
| 914,908 |
| | |
| |
Total | | |
$ | 1,730,993 |
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
10 - Postretirement and Postemployment Benefit Liabilities (cont’d)
Postemployment Benefit
Liability - Severance
The company provides certain severance benefits for substantially
all union employees who began their employment prior to 1986. Accounting standards for postemployment benefits require the company
to accrue the estimated cost of future severance payments during the years the employees provide services.
The accrued postemployment benefit liability as of December 29,
2013 and December 30, 2012 was $98,470 and $112,795, respectively. The accrued postemployment benefit liability was determined
using discount rates of 4.95% and 4.05% as of December 29, 2013 and December 30, 2012, respectively.
Postemployment Benefit
Liability - Other
Under the terms of the union contract, the company provides monthly
payments of $300 to the spouses of employees who died prior to retirement from the company. The payments cease upon the earlier
of the spouse remarrying, the spouse's death or the spouse attaining age 62. The spouses of two former employees are currently
receiving benefit payments under this provision of the union contract as of December 29, 2013 and December 30, 2012. The company
has recorded a long-term liability of $20,650 and $26,364 as of December 29, 2013 and December 30, 2012, respectively, which is
included in other long-term liabilities in the accompany balance sheets, related to the estimated future benefit payments to the
two former employees' spouses.
NOTE
11 - Members' Equity
In the event of liquidation or dissolution of the company, the Class
A common unit holders are entitled to a liquidation preference of $1 per Class A common unit. Any remaining proceeds will be divided
between the Class A and Class B common unit holders on a pro rata basis.
There were 165,000 Class B common units issued to management on
October 16, 2003. The units issued to management contain a call feature, which gives the company the right, but not the obligation,
to repurchase the units upon termination of employment based on the terms specified in the Class B common unit grant agreements.
During 2008, the company redeemed 75,000 Class B common units.
The company has an equity incentive agreement with an employee in
which the company granted 30,000 nonvoting, 100% vested Class B common units to the employee. These units had no value assigned
to them at the date of issuance and as such, no compensation expense was recorded.
During 2012, 45,000 Class B common units were redeemed by the company
for $56,250 from a former member. Related to the redemption, $16,250 and $40,000 are included in accounts payable and long-term
debt, respectively, on the accompanying 2012 balance sheet (see Notes 2 and 7). As of December 29, 2013, $10,000 remains payable
and is included in current maturities of long-term debt on the accompanying 2013 balance sheet (see Note 7). During 2013, 6,200
Class B common units were issued for $7,750.
In connection with the issuance of the senior subordinated promissory
notes (discussed in Note 7) the company issued detachable unit warrants for the purchase of 1,600,000 Class A common units at $1.25
per unit. The warrants are not puttable, therefore, the value allocated to the unit warrants has been recorded as additional members'
equity in the accompanying December 29, 2013 and December 30, 2012 balance sheets. The warrants are exercisable through October
17, 2019.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
12 - Capital Lease
The company has entered into an equipment capital lease which expires
in January 2014 with monthly lease payments of approximately $8,300 per month. The capital lease obligation is secured by the related
equipment. As of December 29, 2013 and December 30, 2012, approximately $433,000 of assets recorded under capital leases are included
in property and equipment in the accompanying balance sheets. Accumulated amortization on these capital leases as of December 29,
2013 and December 30, 2012 was approximately $101,000 and $80,000, respectively. Amortization of items under capital lease obligations
has been included with depreciation expense on owned property and equipment in the accompanying statements of operations. The entire
outstanding principal balance of the capital lease obligation of $51,016 will be paid during 2014.
NOTE
13 - Operating Leases
The company leases office facilities and equipment under various
lease agreements which expire from March 2014 through May 2018. The agreements include payments ranging from approximately $100
to $14,500 per month. Total operating lease expense was approximately $221,600 and $197,500 for the years ended December 29, 2013
and December 30, 2012, respectively.
Aggregate minimum rental expense under operating lease obligations
for years ending after are as follows:
2014 | | |
$ | 176,861 |
2015 | | |
| 175,481 |
2016 | | |
| 173,895 |
2017 | | |
| 173,895 |
2018 | | |
| 72,456 |
| | |
| |
Total | | |
$ | 772,588 |
NOTE
14 - Retirement Plan
Effective February 3, 2004, the company established a 401(k) plan
which covers substantially all non-union employees. The company did not make any contributions to the plan during the years ended
December 29, 2013 and December 30, 2012.
NOTE
15 - Concentrations
Labor Union
The company relies on P.A.C.E International Union Local No. 7-1207 for its manufacturing
employees. The current union contract expires on March 12, 2018. The contract will continue from year-to-year thereafter, unless
notice terminating the agreement is given, by either party, sixty days prior to March 12th in any year after March 12, 2018.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
15 - Concentrations (cont.)
Major Customers
Sales to four automotive industry suppliers accounted for 36% and
40% of total company sales during 2013 and 2012. Accounts receivables from these customers totaled 43% and 48% of total receivables
as of December 29, 2013 and December 30, 2012.
Major Suppliers
The company purchases a significant quantity of its raw materials
from certain major suppliers. Management believes this concentration does not pose a significant risk to the company's operations
as other suppliers are readily available.
NOTE
16 - Related Party Transactions
The company has entered into an agreement with a company owned by
the CEO which provides for the CEO's company to provide management and administrative services to the company. The agreement is
in effect until October 31, 2015 and provides for an additional two year extension. Under the terms of the agreement, the CEO's
company is to be paid management and administrative fees equal to 2% of the company's annual sales payable monthly based on the
company's sales for the immediately preceding calendar month. The fees shall provide or arrange for the provision of ordinary course
legal, financial, information systems, treasury, human resources, risk management, environmental and other support systems necessary
for the administrative support of UEP. The CEO's company is also entitled to annual reimbursement of up to $100,000 of costs and
expenses incurred while providing management and administrative services to the company.
The company incurred fees and expenses of $1,078,957 and $1,201,090
related to this agreement for the years ended December 29, 2013 and December 30, 2012, respectively. Also as a result of the contract,
the CEO's company paid for $57,600 and $96,679 of the company's legal, collection and other administrative expenses during 2013
and 2012, respectively.
As of December 30, 2012, the company had an outstanding deposit
with another company owned by the CEO for investment and acquisition services totaling $175,000. During 2012, acquisition services
were performed and the $175,000 was reimbursed by the CEO and CEO's company during 2013. This amount is included in related party
receivables on the accompanying 2012 balance sheets. There were no such receivables outstanding as of December 29, 2013.
During 2013, the company entered into a lease arrangement and obtained
a lease financing obligation with a related party lessor entity (see Note 8).
NOTE
17 - Employment Agreements
The company has employment agreements with three management employees
as of December 29, 2013. The initial term of the employment agreements is three years. The term can be renewed or extended as provided
for in the employment agreements. The agreements include various benefits to be provided to the employees including salary, bonus,
life insurance and severance benefits.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 29,
2013 and December 30, 2012
NOTE
18 - Subsequent Event
On March 14, 2014, the company entered into a non-binding letter of intent with a public
entity that would acquire all of the outstanding membership units of the company. This entity is a related party as the majority
owner of the company holds a majority voting interest.
NOTE
19 - Future Accounting Pronouncements
During January 2014, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) No. 2014-02, “Intangibles - Goodwill and Other (Topic 350): Accounting for Goodwill.”
The amendments in ASU No. 2014-02 allow for an accounting alternative, if elected, for the subsequent measurement of goodwill.
An entity within the scope of the amendments that elects the accounting alternative in the update would amortize goodwill on a
straight-line basis over 10 years, or less than 10 years if the entity demonstrates that another useful life is more appropriate.
If this update is elected, an entity is further required to make an accounting policy election to test goodwill for impairment
at either the entity level or the reporting unit level. Goodwill would be tested for impairment when a triggering event occurs
that indicates that the fair value of an entity (or a reporting unit) may be below its carrying amount. ASU No. 2014-02, if elected,
is applied prospectively to goodwill existing as of the beginning of the period of adoption and new goodwill recognized in annual
periods beginning after December 15, 2014. The company is currently assessing the effect that ASU No. 2014-02, if elected, will
have on its results of operations, financial position and cash flows.
Exhibit 99.2
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
ENGINEERED PRODUCTS ACQUISITION LIMITED
for the Year Ended December 31, 2013
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Contents
Independent Auditor’s Report |
1 |
Consolidated profit and loss account |
3 |
Consolidated balance sheet |
4 |
Consolidated cash flow statement |
5 |
Reconciliation of movements in shareholders’ funds |
6 |
Notes |
7 |
Independent Auditors’ Report
The Board of Directors
Engineered Products Acquisition Limited
Report on the Financial Statements
We have audited the accompanying consolidated
financial statements of Engineered Products Acquisition Limited and its subsidiaries (the “Company”), which comprise
the consolidated balance sheet as of December 31, 2013, and the related consolidated profit and loss account, cash flow statement
and reconciliation of movements in shareholders’ funds for the year then ended, and the related notes to the consolidated
financial statements, which, as described in Note 1 to the consolidated financial statements, have been prepared on the basis of
generally accepted accounting practice in the United Kingdom.
Management’s Responsibility
for the Financial Statements
Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with generally accepted accounting practice in the
United Kingdom; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Engineered Products Acquisition
Limited and its subsidiaries as of December 31, 2013, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting practice in the United Kingdom.
Emphasis of Matter
As discussed in Note 1 to the consolidated
financial statements, the Company prepared its consolidated financial statements in accordance with generally accepted accounting
practice in the United Kingdom which differs from U.S. generally accepted accounting principles. Our opinion is not modified with
respect to this matter.
Report on Comparative Information
The accompanying consolidated balance
sheet of the Company as of December 31, 2012, and the related consolidated profit and loss account, cash flow statement and reconciliation
of movements in shareholders’ funds for the year then ended were not audited, reviewed, or compiled by us and, accordingly,
we do not express an opinion or any other form of assurance on them.
/s/KPMG LLP
Manchester, UK
19 January 2015
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Consolidated
profit and loss account
for the year ended 31 December 2013
| |
| | | |
| | | |
| 26 weeks | |
| |
| | | |
| Year ended | | |
| ended | |
| |
| | | |
| 31 December | | |
| 31 December | |
| |
| | | |
| 2013 | | |
| 2012 | |
| |
| Note | | |
| £000 | | |
| £000 | |
| |
| | | |
| | | |
| | |
Group turnover | |
| 2 | | |
| 26,831 | | |
| — | |
| |
| | | |
| | | |
| | |
Change in inventory of finished goods and work in progress | |
| | | |
| (295 | ) | |
| — | |
Other operating income | |
| | | |
| 35 | | |
| — | |
Raw materials and consumables | |
| | | |
| (13,811 | ) | |
| — | |
Other external charges | |
| | | |
| (5,013 | ) | |
| — | |
Staff costs | |
| 5 | | |
| (6,489 | ) | |
| — | |
Depreciation and other amounts written off tangible and intangible fixed assets | |
| | | |
| 1,134 | | |
| — | |
| |
| | | |
| | | |
| | |
Group operating profit | |
| 3 | | |
| 2,392 | | |
| — | |
| |
| | | |
| | | |
| | |
Interest payable and similar charges | |
| 6 | | |
| (162 | ) | |
| — | |
| |
| | | |
| | | |
| | |
Profit on ordinary activities before taxation | |
| | | |
| 2,230 | | |
| — | |
| |
| | | |
| | | |
| | |
Tax on profit on ordinary activities | |
| 7 | | |
| (117 | ) | |
| — | |
| |
| | | |
| | | |
| | |
Profit for the financial year | |
| 17 | | |
| 2,113 | | |
| — | |
There were no recognised gains and
losses other than those shown above.
All amounts relate to continuing activities.
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Consolidated balance sheet
At 31 December 2013
| |
| | | |
| 31
December | | |
| 31
December | | |
| 31
December | | |
31 December |
| |
| | | |
| 2013 | | |
| 2013 | | |
| 2012 | | |
2012 |
| |
| Note | | |
| £000 | | |
| £000 | | |
| £000 | | |
£000 |
Fixed assets | |
| | | |
| | | |
| | | |
| | |
Intangible assets | |
| 8 | | |
| | | |
| (438 | ) | |
| | | |
— |
Tangible
assets | |
| 9 | | |
| | | |
| 2,074 | | |
| | | |
— |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| 1,636 | | |
| | | |
— |
Current assets | |
| | | |
| | | |
| | | |
| | |
Inventory | |
| 11 | | |
| 4,094 | | |
| | | |
| — | |
Debtors
(including £142,000 (31 December 2012: £nil) due after more than one year | |
| 12 | | |
| 5,671 | | |
| | | |
| 127 | |
Cash
at bank and in hand | |
| | | |
| 417 | | |
| | | |
| 12 | |
| |
| | | |
| 10,182 | | |
| | | |
| 139 | |
Creditors:
amounts falling due within one year | |
| 13 | | |
| (9,705 | ) | |
| | | |
| (139 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net
current assets | |
| | | |
| | | |
| 477 | | |
| | | |
— |
| |
| | | |
| | | |
| | | |
| | |
Total
assets less current liabilities and Net Assets | |
| | | |
| | | |
| 2,113 | | |
| | | |
— |
| |
| | | |
| | | |
| | | |
| | |
Capital and reserves | |
| | | |
| | | |
| | | |
| | |
Called up share capital | |
| 16 | | |
| | | |
| — | | |
| | | |
— |
Profit
and loss account | |
| 17 | | |
| | | |
| 2,113 | | |
| | | |
— |
| |
| | | |
| | | |
| | | |
| | |
Shareholders’
funds | |
| | | |
| | | |
| 2,113 | | |
| | | |
— |
These financial statements were approved
by the board of directors on 19 January 2015.
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Consolidated cash flow statement
for the year ended 31 December 2013
| |
| | | |
| | | |
| 26 weeks | |
| |
| | | |
| Year ended | | |
| ended | |
| |
| | | |
| 31 December | | |
| 31 December | |
| |
| | | |
| 2013 | | |
| 2012 | |
Cash flow statement | |
| Note | | |
| £000 | | |
| £000 | |
| |
| | | |
| | | |
| | |
Cash flow from operating activities | |
| 20 | | |
| 2,598 | | |
| — | |
Returns on investments and servicing
of finance | |
| 21 | | |
| (162 | ) | |
| — | |
Taxation | |
| | | |
| — | | |
| — | |
Capital expenditure and financial
investment | |
| 21 | | |
| (578 | ) | |
| — | |
Acquisitions | |
| 21 | | |
| (2,998 | ) | |
| — | |
| |
| | | |
| | | |
| | |
Cash (outflow) before financing | |
| | | |
| (1,140 | ) | |
| — | |
| |
| | | |
| | | |
| | |
Financing | |
| 21 | | |
| 1,545 | | |
| — | |
| |
| | | |
| | | |
| | |
Increase in cash in the period | |
| | | |
| 405 | | |
| — | |
| |
| | | |
| | | |
| | |
Reconciliation of net cash flow to movement in net debt | |
| 22 | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Increase in cash in the period | |
| | | |
| 405 | | |
| — | |
Cash (inflow) from increase in debt financing | |
| | | |
| (1,545 | ) | |
| | |
| |
| | | |
| | | |
| | |
Change in net debt resulting from cash flows | |
| | | |
| (1,140 | ) | |
| — | |
Debt acquired with subsidiary | |
| | | |
| (3,251 | ) | |
| | |
| |
| | | |
| | | |
| | |
Movement in net debt in the period | |
| | | |
| (4,391 | ) | |
| — | |
Net debt at start of period | |
| | | |
| 12 | | |
| — | |
| |
| | | |
| | | |
| | |
Net debt at the end of the period | |
| | | |
| (4,379 | ) | |
| — | |
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Reconciliation of movements in shareholders’ funds
for the year ended 31 December 2013
| |
| Year ended | | |
| ended | |
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
| |
| | | |
| | |
Profit / (loss) for the period | |
| 2,113 | | |
| — | |
Group dividends received / capital reduction | |
| — | | |
| — | |
| |
| | | |
| | |
Net increase in shareholders’ funds | |
| 2,113 | | |
| — | |
Opening shareholders’ funds | |
| — | | |
| — | |
| |
| | | |
| | |
Closing shareholders’ funds | |
| 2,113 | | |
| — | |
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes
(forming part of the financial statements)
1 Accounting
policies
The following accounting policies
have been applied consistently in dealing with items which are considered material in relation to the financial statements:
Basis of preparation
The financial statements have been
prepared in accordance with applicable UK GAAP (“UK Generally Accepted Accounting Practice”) accounting standards,
and under the historical cost accounting rules.
The group meets its day to day working
capital requirements through an invoice discounting facility and inventory facility which is subject to six months notice from
either party. At the date of this report management expect that the facility will remain in place.
The group’s forecasts and projections,
taking account of reasonably possible changes in trading performance, show the group should be able to operate within the level
of its current facilities. The directors have a reasonable expectation that the company and the group have adequate resources to
continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing
the directors’ report and financial statements.
Basis of consolidation
The consolidated financial statements
include the financial statements of the Engineered Products Acquisition Limited (the “Company”) and its subsidiary
undertakings made up to 31 December 2013. The acquisition method of accounting has been adopted. Under this method, the results
of subsidiary undertakings acquired or disposed of in the year are included in the consolidated profit and loss account from the
date of acquisition or up to the date of disposal.
Negative goodwill
Negative goodwill arising on consolidation
in respect of acquisitions since 1 January 1998 is included within fixed assets and released to the profit and loss account in
the periods in which the fair values of the non-monetary assets purchased on the same acquisition are recovered, whether through
depreciation or sale.
On the subsequent disposal or termination
of a business acquired since 1 January 1998, the profit or loss on disposal or termination is calculated after crediting the unamortised
amount of any related negative goodwill.
Tangible fixed assets and depreciation
Depreciation is provided to write off
the cost less the estimated residual value of tangible fixed assets by equal instalments over their estimated useful economic lives
as follows:
Plant and machinery – 5% to 50% per annum
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
1 Accounting policies (continued)
Foreign currencies
Transactions in foreign currencies
are recorded using the rate of exchange ruling at the date of the transaction or, if hedged forward, at the rate of exchange under
the related forward currency contract. Monetary assets and liabilities denominated in foreign currencies are translated using the
contracted rate or the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in
the profit and loss account.
Leases
Operating lease rentals are charged to the
profit and loss account on a straight line basis over the period of the lease.
Post retirement benefits
The Group operates a defined contribution
pension scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The
amount charged to the profit and loss account represents the contributions payable to the scheme in respect of the accounting period.
Design and development expenditure
Expenditure on design and development
is written off to the profit and loss account in the year in which it is incurred.
Inventory
Inventory is stated at the lower of
cost and net realisable value. Cost includes an appropriate proportion of overheads incurred in the normal course of business in
bringing products to their locations and condition at the balance sheet date.
Taxation
The charge for taxation is based on
the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain
items for taxation and accounting purposes.
Deferred tax is recognised, without
discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which
have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 19.
Cash and liquid resources
Cash, for the purpose of the cash flow
statement, comprises cash in hand and deposits repayable on demand.
Turnover
Turnover represents total sales by
the group to third parties, excluding sales-related taxes.
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
2 Turnover
The analysis of turnover by geographical
area is as follows:
| |
| | | |
| 26 weeks | |
| |
| Year ended | | |
| ended | |
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
| |
| | | |
| | |
United Kingdom | |
| 7,099 | | |
| — | |
Rest of European Union | |
| 16,009 | | |
| — | |
Rest of World | |
| 3,723 | | |
| — | |
| |
| 26,831 | | |
| — | |
3 Group operating
profit
| |
| | | |
| 26 weeks | |
| |
| Year ended | | |
| ended | |
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
Group operating profit is stated after charging/(crediting) | |
| | | |
| | |
Depreciation | |
| 345 | | |
| — | |
Amortisation | |
| (1,479 | ) | |
| — | |
Hire of plant and machinery - rentals payable under operating leases | |
| 77 | | |
| — | |
Hire of other assets – rentals payable under operating leases | |
| 265 | | |
| — | |
Design and development expenditure | |
| 640 | | |
| — | |
Auditor’s remuneration:
| |
| | | |
| 26 weeks | |
| |
| Year ended | | |
| ended | |
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2010 | |
| |
| £000 | | |
| £000 | |
| |
| | | |
| | |
Audit of these financial statements | |
| 6 | | |
| — | |
Amounts receivable by the auditors and their associates in respect of | |
| | | |
| | |
- audit of subsidiaries pursuant to legislation | |
| 32 | | |
| — | |
- other services relating to taxation | |
| — | | |
| — | |
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
4 Remuneration
of directors
The remuneration of directors is borne by Uniroyal
LLC, a related party to the group (see Note 23).
5 Staff numbers
and costs
The average number of persons employed
by the Group (including directors) during the period, analysed by category, was as follows:
| |
| | | |
| 26 weeks | |
| |
| Year ended | | |
| ended | |
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| | | |
| | |
Management and administration | |
| 50 | | |
| — | |
Production and sales | |
| 200 | | |
| — | |
| |
| 250 | | |
| — | |
The aggregate payroll costs of these
persons were as follows:
| |
| | | |
| 26 weeks | |
| |
| Year ended | | |
| ended | |
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
| |
| | | |
| | |
Wages and salaries | |
| 5,702 | | |
| — | |
Social security costs | |
| 543 | | |
| — | |
Other pension costs | |
| 244 | | |
| — | |
| |
| 6,489 | | |
| — | |
6 Interest payable and similar charges
| |
| | | |
| 26 weeks | |
| |
| Year ended | | |
| ended | |
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
| |
| | | |
| | |
Bank interest | |
| 162 | | |
| — | |
| |
| 162 | | |
| — | |
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
7 Taxation
Analysis of charge in period
| |
| | | |
| 26 weeks | |
| |
| Year ended | | |
| ended | |
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
UK corporation tax | |
| | | |
| | |
Current tax on income for the period | |
| — | | |
| — | |
Adjustments in respect of prior periods | |
| — | | |
| — | |
| |
| | | |
| | |
Total current tax | |
| — | | |
| — | |
| |
| | | |
| | |
Deferred tax (see note 13) | |
| | | |
| | |
Origination and reversal of timing differences | |
| 85 | | |
| — | |
Effect of tax rate change on opening balance | |
| 32 | | |
| — | |
| |
| | | |
| | |
Total deferred tax | |
| 117 | | |
| — | |
| |
| | | |
| | |
Tax on profit on ordinary activities | |
| 117 | | |
| — | |
Factors affecting the tax charge for the
period
The current tax charge for the period
is lower (year ended 31 December 2012: lower) than the standard rate of corporation tax in the UK 23.25% (year ended
31 December 2012: 24.5%). The differences are explained below.
| |
| | | |
| 26 weeks | |
| |
| Year ended | | |
| ended | |
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
Current tax reconciliation | |
| | | |
| | |
Profit on ordinary activities before tax | |
| 2,230 | | |
| — | |
| |
| | | |
| | |
Current tax at 23.25% (year ended 31 December 2012: 24.5%) | |
| 519 | | |
| — | |
| |
| | | |
| | |
Effects of: | |
| | | |
| | |
Income not taxable | |
| (344 | ) | |
| — | |
Expenses not deductible for tax purposes | |
| 4 | | |
| — | |
Difference between capital allowances for period and depreciation | |
| (31 | ) | |
| — | |
Short term timing differences | |
| (10 | ) | |
| — | |
Tax losses utilised | |
| (115 | ) | |
| — | |
Fixed asset differences | |
| (23 | ) | |
| | |
| |
| | | |
| | |
Total current tax charge (see above) | |
| — | | |
| — | |
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
Factors that may affect future current
and total tax charges
Reductions in the UK corporation tax rate from
26% to 24% (effective from 1 April 2012) and to 23% (effective 1 April 2013) were substantively enacted on 26 March 2012 and 3
July 2012 respectively. Further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were
substantively enacted on 2 July 2013. On 17th July 2014 the Finance Bill received Royal assent upon which date the tax
rates became enacted. This will reduce the company's future current tax charge accordingly and reduce the deferred tax assets /
liabilities at 31 December 2013 which has been calculated based on the rate of 20% substantively enacted at the balance sheet date.
8 Intangible
fixed assets
| |
| Negative | |
| |
| goodwill | |
| |
| £000 | |
Cost | |
| | |
At beginning of year | |
| — | |
Acquired in business combination | |
| 1,917 | |
| |
| | |
At end of year | |
| 1,917 | |
| |
| | |
Amortisation | |
| | |
At beginning of year | |
| — | |
Credited in year | |
| 1,479 | |
| |
| | |
At end of year | |
| 1,479 | |
| |
| | |
Net book value | |
| | |
At 31 December 2013 | |
| 438 | |
| |
| | |
At 31 December 2012 | |
| — | |
Negative goodwill is being released
to the profit and loss account commensurately with the recovery of the non-monetary assets acquired, whether through depreciation
or sale.
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
9 Tangible
fixed assets
| |
| Plant and machinery | |
| |
| £000 | |
| |
| | |
Cost or valuation | |
| | |
At beginning of period | |
| — | |
Acquired in business combination | |
| 1,841 | |
Additions | |
| 578 | |
| |
| | |
At end of period | |
| 2,419 | |
| |
| | |
Depreciation | |
| | |
At beginning of period | |
| — | |
Charge for period | |
| 345 | |
| |
| | |
At end of period | |
| 345 | |
| |
| | |
Net book value | |
| | |
At 31 December 2013 | |
| 2,074 | |
| |
| | |
At 31 December 2012 | |
| — | |
The net book value of fixed assets
includes £97,000 (31 December 2012: £nil) in respect of assets in the course of construction or installation
which have not been depreciated.
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
10 Inventory
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
| |
| | | |
| | |
Raw materials and consumables | |
| 1,253 | | |
| — | |
Work in progress | |
| 1,514 | | |
| — | |
Finished goods and goods for resale | |
| 1,327 | | |
| — | |
| |
| 4,094 | | |
| — | |
11 Debtors
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
| |
| | | |
| | |
Trade debtors | |
| 5,051 | | |
| — | |
Deferred tax assets (see note 13) | |
| 142 | | |
| — | |
Other debtors | |
| 101 | | |
| — | |
Prepayments and accrued income | |
| 377 | | |
| 127 | |
| |
| 5,671 | | |
| 127 | |
11 Creditors: amounts falling due within one year
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
| |
| | | |
| | |
Invoice discounting facility | |
| 3,786 | | |
| — | |
Inventory facility | |
| 1,010 | | |
| — | |
Trade creditors | |
| 2,953 | | |
| — | |
Other taxation and social security | |
| 178 | | |
| — | |
Other creditors | |
| 419 | | |
| — | |
Amounts owed to related party | |
| 816 | | |
| 139 | |
Accruals and deferred income | |
| 543 | | |
| — | |
| |
| 9,705 | | |
| 139 | |
The invoice discounting facility bears
interest at 2.65% above base rate and is subject to six months notice by either party. The facility is secured against the trade
debtors of the group.
The Inventory facility bears interest
at 3.15% above base rate and is subject to six months notice by either party. The facility is secured against the inventory of
the group.
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
13 Deferred
taxation
| |
| £000 | |
| |
| | |
At beginning of period | |
| — | |
Acquired in business combinations | |
| 259 | |
Transfer to profit and loss | |
| (117 | ) |
| |
| | |
At end of period | |
| 142 | |
The elements of deferred taxation are
as follows:
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
| |
| | | |
| | |
Accelerated capital allowances | |
| (8 | ) | |
| — | |
Short term timing differences | |
| 12 | | |
| — | |
Tax losses carried forward and other deductions | |
| 308 | | |
| — | |
Capital gains held over | |
| (170 | ) | |
| — | |
| |
| | | |
| | |
Deferred tax asset | |
| 142 | | |
| — | |
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
14 Acquisitions
On 4 March 2013 the Company acquired
all of the ordinary shares of Gweco 478 Limited. The resulting negative goodwill of £1,917,000 was capitalised and will be
released to the profit and loss account commensurately with the recovery of the non-monetary assets acquired, whether through depreciation
or sale.
| |
| Fair value | |
| |
| £000 | |
| |
| | |
Fixed assets | |
| | |
Tangible | |
| 1,841 | |
| |
| | |
Current assets | |
| | |
Inventory | |
| 4,654 | |
Debtors | |
| 6,140 | |
Deferred tax | |
| 259 | |
Cash | |
| 230 | |
Total assets | |
| 13,124 | |
| |
| | |
Creditors (including invoice discounting facility of £3,251,000) | |
| (7,979 | ) |
Net assets | |
| 5,145 | |
| |
| | |
Negative goodwill arising on acquisitions | |
| (1,917 | ) |
Purchase consideration and costs of acquisition | |
| 3,228 | |
The fair values contain provisional
amounts which will be finalised in the 2014 statutory financial statements when the detailed acquisition investigation has been
completed.
The post acquisition operating profit
of the group that was acquired was £864,000.
Fair value at the date of acquisition
was deemed to be the book value of the assets and liabilities at acquisition.
15 Called
up share capital
| | |
| 2013 | |
| | |
| £ | |
Authorised | | |
| | |
100 Ordinary share of 1 pound each | | |
| 100 | |
| | |
| | |
Allotted and called up | | |
| | |
1 Ordinary shares of 1 pound each | | |
| 1 | |
During the year the Company issued
one ordinary shares for a consideration of £1
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
16 Profit
and loss account
| |
| Profit and loss account | |
| |
| £000 | |
| |
| | |
At beginning of year | |
| — | |
Profit for the year | |
| 2,113 | |
| |
| | |
At end of year | |
| 2,113 | |
17 Commitments
| (a) | Capital commitments at the end of the financial period, for which no provision has been made, are
as follows: |
| | |
| 31 December | | |
| 31 December | |
| | |
| 2013 | | |
| 2012 | |
| | |
| £000 | | |
| £000 | |
| | |
| | | |
| | |
Contracted | | |
| 111 | | |
| — | |
| (b) | Annual commitments under non-cancellable operating leases are as follows: |
| |
| 31 December | | |
| 31 December | | |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2013 | | |
| 2012 | | |
| 2012 | |
| |
| Land and buildings | | |
| Other | | |
| Land and buildings | | |
| Other | |
| |
| £000 | | |
| £000 | | |
| £000 | | |
| £000 | |
Operating leases which expire: | |
| | | |
| | | |
| | | |
| | |
Within one year | |
| 20 | | |
| 136 | | |
| — | | |
| — | |
In the second to fifth years inclusive | |
| — | | |
| 165 | | |
| — | | |
| — | |
Over five years | |
| 315 | | |
| — | | |
| — | | |
| — | |
| |
| 335 | | |
| 301 | | |
| — | | |
| — | |
18 Pension scheme
The Group operates a defined contribution
pension scheme. The pension charge for the year represents contributions payable by the Group to the scheme and amounted to £244,000
(year ended 31 December 2012: £nil). Contributions amounting to £42,000 (year ended 31 December 2012: £nil)
were payable to the scheme and are included in creditors.
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
19 Loans
and borrowings
Amounts repayable under the terms of
the loans at the balance sheet date were:
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
Bank loans | |
| | | |
| | |
Invoice discounting facility | |
| 3,786 | | |
| — | |
Inventory facility | |
| 1,010 | | |
| — | |
| |
| 4,796 | | |
| — | |
Repayment of loans is as follows:
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
| |
| | | |
| | |
Repayable within one year | |
| 4,796 | | |
| — | |
The invoice discounting facility bears
interest at 2.65% above base rate and is subject to six months notice by either party. The facility is secured against the trade
debtors of the group.
The Inventory facility bears interest
at 3.15% above base rate and is secured against the inventory of the group.
20 Reconciliation of operating profit to operating cash flows
| |
| | | |
| 26 weeks | |
| |
| Year ended | | |
| ended | |
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
| |
| | | |
| | |
Operating profit | |
| 2,392 | | |
| — | |
Depreciation and amortisation | |
| (1,134 | ) | |
| — | |
Decrease in inventory | |
| 560 | | |
| — | |
Decrease in debtors | |
| 738 | | |
| — | |
Decrease in creditors | |
| 42 | | |
| — | |
Net cash inflow from operating activities | |
| 2,598 | | |
| — | |
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
21 Analysis
of cash flows
| |
| | | |
| 26 weeks | |
| |
| Year ended | | |
| ended | |
| |
| 31 December | | |
| 31 December | |
| |
| 2013 | | |
| 2012 | |
| |
| £000 | | |
| £000 | |
Returns on investment and servicing of finance | |
| | | |
| | |
Interest paid | |
| (162 | ) | |
| — | |
| |
| (162 | ) | |
| — | |
| |
| | | |
| | |
Capital expenditure | |
| | | |
| | |
Purchase of tangible fixed assets | |
| (578 | ) | |
| — | |
| |
| (578 | ) | |
| — | |
Financing | |
| | | |
| | |
Debt due within one year: | |
| | | |
| | |
Increase in short-term borrowing | |
| 1,545 | | |
| | |
| |
| 1,545 | | |
| — | |
| |
| | | |
| | |
Acquisitions | |
| | | |
| | |
Purchase of subsidiary undertakings | |
| (3,228 | ) | |
| — | |
Cash acquired with subsidiary | |
| 230 | | |
| | |
| |
| (2,998 | ) | |
| — | |
22 Analysis
of net debt
| |
| At beginning of period | | |
| Acquisitions | | |
| Cash flow | | |
| At end of period | |
| |
| £000 | | |
| £000 | | |
| £000 | | |
| £000 | |
| |
| | | |
| | | |
| | | |
| | |
Cash in hand and at bank | |
| 12 | | |
| 230 | | |
| 175 | | |
| 417 | |
Invoice discounting facility | |
| — | | |
| (3,251 | ) | |
| (1,545 | ) | |
| (4,796 | ) |
| |
| | | |
| | | |
| | | |
| | |
Total | |
| 12 | | |
| (3,021 | ) | |
| (1,370 | ) | |
| (4,379 | ) |
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
23 Related Party Transactions
The Company is owned 100% by Howard R Curd
who also owns 94% of a related party Uniroyal LLC. The Company owes Howard R Curd £816,000 which was loaned to the Company
to undertake the acquisition of Gweco 478 Limited. During the year there were no related party transactions between the Companies
owned by Howard R Curd.
24 Principal Subsidiary Undertakings
The undertakings in which the Company’s
interests at the period end were 100% are as follows:
| |
Country of incorporation | |
Principal activity | |
| Class and percentage of shares Company | |
| |
| |
| |
| | |
Subsidiary undertakings | |
| |
| |
| | |
Wardle Storeys (Holdings) Limited * | |
Great Britain | |
Investment | |
| Ordinary 100% | |
Gweco 478 Limited | |
Great Britain | |
Group holding Company | |
| Ordinary 100% | |
Wardle Storeys (Group) Limited * | |
Great Britain | |
Group holding Company | |
| Ordinary 100% | |
Wardle Storeys (Earby) Limited * | |
Great Britain | |
Specialised PVC/textile foils | |
| Ordinary 100% | |
Wardle Storeys Components Limited * | |
Great Britain | |
Dormant | |
| Ordinary 100% | |
Wardle Storeys (Services) Limited * | |
Great Britain | |
Management services | |
| Ordinary 100% | |
Wardle Storeys (Property) Limited * | |
Great Britain | |
Dormant | |
| Ordinary 100% | |
Tectrim Limited * | |
Great Britain | |
Investment | |
| Ordinary 100% | |
______________
*
Indirect subsidiary companies
With the exception of Wardle Storeys
(Group) Limited, Wardle Storeys (Earby) Limited and Wardle Storeys (Services) Limited all the other remaining companies had applications
to be struck off presented to companies house before 31 December 2013.
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
25 UK to US GAAP Reconciliation
These financial statements have been prepared
for the purpose of meeting the requirements of U.S. Securities and Exchange Commission (“SEC”) Rule 8-04 of Regulation
S-X following the acquisition of Engineered Products Acquisition Limited and its subsidiaries (“the Group”) by Invisa,
Inc. on 10 November 2014. The Group prepares its financial statements in accordance with generally accepted accounting practice
in the United Kingdom (‘UK GAAP’), which differ in certain respects from accounting principles generally accepted in
the United States of America (‘US GAAP’). Reconciliations of profit for the financial year (or net income) and shareholders’
funds (or shareholders’ equity) as reported in the consolidated financial statements under UK GAAP and those under US GAAP
are set out below:
| |
| |
2013 | |
2012 |
| |
| | | |
| Profit & | | |
| Shareholders’ | | |
| Profit & | | |
| Shareholders’ | |
| |
| | | |
| Loss | | |
| Funds | | |
| Loss | | |
| Funds | |
| |
| Notes | | |
| £000 | | |
| £000 | | |
| £000 | | |
| £000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Results Under UK GAAP | |
| | | |
| | | |
| | | |
| | | |
| | |
Profit for the year | |
| | | |
| 2,113 | | |
| — | | |
| — | | |
| — | |
Shareholders’ Funds | |
| | | |
| — | | |
| 2,113 | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
US GAAP Reporting Adjustments | |
| | | |
| | | |
| | | |
| | | |
| | |
Transaction costs | |
| (a) | | |
| (83 | ) | |
| (269 | ) | |
| (186 | ) | |
| (186 | ) |
Acquisition adjustments to certain assets and liabilities credited to income for the period | |
| (b) | | |
| 131 | | |
| 131 | | |
| | | |
| | |
Change in fair value of exchange rate contracts | |
| (c) | | |
| 65 | | |
| 65 | | |
| | | |
| | |
Change in exchange rate translation adjustment | |
| (d) | | |
| (47 | ) | |
| (47 | ) | |
| | | |
| | |
Reverse amortisation of UK negative goodwill | |
| (e) | | |
| (1,479 | ) | |
| (1,479 | ) | |
| | | |
| | |
Recognize US GAAP gain on bargain
purchase | |
| (f) | | |
| 3,086 | | |
| 3,086 | | |
| | | |
| | |
Tax effect of US GAAP changes | |
| (g) | | |
| 5 | | |
| 5 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Results under US GAAP | |
` | | | |
| 3,791 | | |
| 3,605 | | |
| (186 | ) | |
| (186 | ) |
Explanation of Notes:
(a) Transaction
costs
Under UK GAAP transaction costs must be capitalised
in Goodwill whereas under US GAAP these are recognised in earnings in the year incurred.
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
(b) Acquisition
Adjustments to Certain Assets and Liabilities Credited to Income for the Period
Adjustments to the carrying amount of certain
acquired assets and liabilities have been made under US GAAP for differences in purchase accounting which resulted in an increase
in net assets by £1,107,035. The detail of these adjustments as of the date of the acquisition are as follows:
| |
Balance Sheet | |
Profit & Loss |
| |
Adjustments | |
Adjustments |
| |
£’s | |
£’s |
| |
| |
|
Trademarks | |
| 1,512,297 | | |
| — | |
Inventory | |
| (106,321 | ) | |
| 106,321 | |
Debtors | |
| 35,873 | | |
| (35,873 | ) |
Other assets | |
| (23,321 | ) | |
| 23,321 | |
Tangible assets | |
| (156,468 | ) | |
| 13,039 | |
Creditors | |
| (155,025 | ) | |
| 23,787 | |
Total | |
| 1,107,035 | | |
| 130,595 | |
These adjustments resulted in a decrease of £130,595
to expenses for the year ended December 31, 2013. There is no profit and loss effect from the trademark adjustment since it has
an indefinite life and is not subject to amortization but will be reviewed annually for impairment.
Contained within this figure are a fixed asset
write down of (£156,468) and a holiday pay accrual (£50,000) which relate to the purchase accounting being finalised
in these financial statements. When the provisional fair values are finalised in the 2014 UK GAAP statutory financial statements
the comparative 2013 financial information presented within those 2014 statutory financial statements will not be retrospectively
adjusted.
(c) Change in Fair Value of Exchange Rate Contracts
Since
the fair value of exchange rate contracts are not recognised under UK GAAP, adjustments were made to recognize them at the
date of the acquisition in accordance with US GAAP. The fair value of the contracts at the date of the acquisition resulted in
a liability of £49,497. The fair value of the contracts at December 31, 2013 resulted in an asset of £15,017. These
adjustments had the effect of increasing the profit and loss for the year by £64,514.
(d) Change in Exchange Rate Translation Adjustment
In accordance with UK GAAP the Group reports the
fair value of financial assets and liabilities using the average rate of outstanding exchange rate contracts. For US GAAP purposes
the fair value is based on the period end spot rate. As a result of this difference an adjustment was made at the acquisition date
to increase net assets by £47,264 and an adjustment to reduce net assets by £233 was made at December 31, 2013. These
adjustments had the effect of decreasing profit and loss for the year by £47,497.
Engineered
Products Acquisition Limited
Consolidated
Financial Statements
31 December 2013
Notes (continued)
(e) Reverse Amortisation of UK Negative Goodwill
Under UK GAAP, negative goodwill arising on acquisitions
is capitalised and amortised commensurately with the recovery of nonmonetary assets acquired, whether through depreciation or sale.
The negative goodwill under UK GAAP at the date of the acquisition was calculated to be £1,917,072. During the year £1,478,828
of this amount was amortised and credited to Group operating profit. The adjustment is to remove the UK GAAP negative goodwill
amortisation to prepare for the recording of the US GAAP gain on bargain purchase.
(f) Recognize US GAAP Gain on Bargain Purchase
Under US GAAP, the gains on the bargain purchases
are not capitalised and amortised but are rather recognised in earnings at the acquisition date. The adjustment is to record the
US GAAP gain on bargain purchase in the amount of £3,086,171. Before the company recognized the gain on bargain purchase
it determined that it correctly identified all of the assets acquired and all of the liabilities assumed and that their recorded
amounts were appropriately measured. In addition, in determining the gain on bargain purchase, the consideration transferred for
the acquisition which was cash in the amount of £2,910,000 was complete and without any contingent consideration arrangement,
therefore no additional assets or liabilities were recorded. The
acquisition resulted in a gain on bargain purchase because the sellers were motivated to monetise their investment in the
Company which had originally been made in 2010.
(g) Tax Effect of US GAAP Changes
At the date of the acquisition an additional net
deferred tax liability in the amount of £254,105 was recorded for the net effect of all the US GAAP adjustments.
The adjustment of £5,368 above reflects
the net tax effect to increase the provision for the period by £33,981 for all the profit and loss adjustments recorded in
accordance with US GAAP and includes an adjustment to recognize the change in the enacted tax rates which reduced the provision
by £39,319.
Combined with the previously recorded deferred
tax amounts, the components of deferred taxes at December 31, 2013 were a current deferred tax asset of £344,108 and a deferred
tax liability of £451,774. A valuation allowance for the deferred tax asset was determined to be unnecessary since it is
not more likely than not that some portion or all of the deferred tax asset will not be realized.
Classification differences between UK and US GAAP
In addition to the differences between UK and
US GAAP related to the recognition and measurement of transactions by the Group, there are also a number of differences in the
manner in which items are classified in the consolidated profit and loss account (consolidated statement of operations) and consolidated
balance sheet. These classification differences have no impact on net income or shareholders’ equity and only affect the
disclosure.
Statement of Cash flows
There are no material differences between cash
or funds flow reporting reported in the primary financial statements and cash flows under UK GAAP that would be reported in a statement
of cash flows prepared in accordance with US GAAP.
EXHIBIT 99.3
Unaudited Supplemental Information
for
Engineered Products Acquisition Limited
as of December 31, 2013
(US Presentation)
Unaudited Supplemental Information
for
Engineered Products Acquisition Limited
as of December 31, 2013
(US Presentation)
The audited financial statements of Engineered Products Acquisition Limited (“EPAL”)
included as Exhibit 99.2 as of and for the year ended December 31, 2013 are prepared in accordance with UK GAAP with the amounts
in British Pounds. The unaudited financial statement for EPAL for the six months ended June 30, 2014 and June 29, 2013 and pro
forma financial information included as Exhibits 99.4 and Exhibit 99.5, respectively are presented in accordance with US GAAP
with the amounts in US Dollars. The following unaudited tables are selected EPAL financial information as of and for the year
ended December 31, 2013 prepared in accordance with US GAAP with the amounts in US Dollars. Together with Note 25 UK to US GAAP
Reconciliation in the EPAL audited financial statements, these tables provide supplemental information for the purpose of converting
the financial information to the US presentation.
Engineered Products Acquisition Limited |
Supplemental Financial Information |
As of December 31, 2013 |
(Unaudited) |
| |
| |
| |
|
Balance Sheet | |
| As of December 31, 2013 (As Adjusted for US GAAP) | | |
| Currency Translation Adjustment (1) | | |
| As of December 31, 2013 | |
| |
| £000 | | |
| | | |
| $000 | |
Current Assets | |
£ | 10,336 | | |
| 6,762 | | |
$ | 17,098 | |
Property and Equipment | |
| 1,931 | | |
| 1,262 | | |
| 3,193 | |
Other Assets | |
| 1,512 | | |
| 990 | | |
| 2,502 | |
Total Assets | |
£ | 13,779 | | |
| 9,014 | | |
$ | 22,793 | |
| |
| | | |
| | | |
| | |
Current Liabilities | |
£ | 8,907 | | |
| 5,825 | | |
$ | 14,732 | |
Long-term Liabilities | |
| 1,267 | | |
| 829 | | |
| 2,096 | |
Stockholders' Equity | |
| 3,605 | (3) | |
| 2,360 | | |
| 5,965 | (2) |
Total Liabilities and Stockholders' Equity | |
£ | 13,779 | | |
| 9,014 | | |
$ | 22,793 | |
____________
(1) |
|
The balance sheet items were translated into USD at the spot rate as of December 31, 2013 or for the applicable transaction date. |
(2) |
|
In order to convert the company's financial statements from GBP to USD, Stockholders' Equity includes a positive cumulative translation adjustment of $514,795. |
(3) |
|
Amount agrees to Note 25 UK to US GAAP Reconciliation in the EPAL audited financial statements. |
Engineered Products Acquisition Limited |
Supplemental Financial Information |
For the Year Ended December 31, 2013 |
(Unaudited) |
| |
| |
| |
|
Income Statement | |
| For
the Year Ended December 31, 2013 (As Adjusted for US GAAP) (1) | | |
| Currency
Translation Adjustment (2) | | |
| For
the Year Ended December 31, 2013 | |
| |
| £000 | | |
| | | |
| $000 | |
Net Sales | |
£ | 26,101 | | |
| 14,697 | | |
$ | 40,798 | |
Gross Profit | |
| 4,044 | | |
| 2,277 | | |
| 6,321 | |
Operating Income | |
| 959 | | |
| 540 | | |
| 1,499 | |
Income Before Tax Provision | |
| 3,903 | | |
| 2,021 | | |
| 5,924 | |
Net Income | |
£ | 3,791 | (3) | |
| 1,958 | | |
$ | 5,749 | |
____________
(1) |
|
As explained in Footnote 15 Acquisitions in the audited financial statements, EPAL acquired all the ordinary
shares of Gweco 478 Limited, the holding company for Wardle Storeys (Group), on March 4, 2013. Accordingly, these amounts only
include the operating results of Wardle Storeys (Group) for the ten months ended December 2013.
|
(2) |
|
The income statement items were translated into USD at the average rate for the reporting period.
|
(3) |
|
Amount agrees to Note 25 UK to US GAAP Reconciliation in the EPAL audited financial statements.
|
As indicated in the tables, EPAL acquired all the ordinary shares of Gweco 478 Limited the
holding company for Wardle Storeys (Group) on March 4, 2013. Accordingly the operating results for Wardle Storeys (Group) for
the period from January 1, 2013 to March 3, 2013 are not included in the results of EPAL since it is prior to the acquisition.
The following table summarize the operating results for this period:
For information purposes only:
| |
For the Period January 1, 2013
to March 3, 2013 | |
Currency
Translation Adjustment (1) | |
For the Period January 1, 2013
to March 3, 2013 |
| |
| £000 | | |
| | | |
| $000 | |
Net Sales | |
£ | 5,709 | | |
| 3,261 | | |
$ | 8,970 | |
Gross Profit | |
| 782 | | |
| 427 | | |
| 1,175 | |
Operating Income | |
| 114 | | |
| 65 | | |
| 179 | |
Income Before Tax Provision | |
| 87 | | |
| 50 | | |
| 137 | |
Net Income | |
£ | 73 | | |
| 42 | | |
$ | 115 | |
____________
(1) |
|
The items were translated into USD at the average rate for the reporting period.
|
EXHIBIT 99.4
UNIROYAL ENGINEERED PRODUCTS, LLC
UNAUDITED CONDENSED FINANCIAL STATEMENTS
For the Six Months Ended June 29, 2014 and June 30, 2013
UNIROYAL ENGINEERED PRODUCTS, LLC
BALANCE SHEETS
As of June 29,
2014 and June 30, 2013
(Unaudited)
| |
June 29, 2014 | |
June 30, 2013 |
CURRENT ASSETS | |
| | | |
| | |
Cash and cash equivalents | |
$ | 9,415 | | |
$ | 37,064 | |
Marketable Securities | |
| 247,922 | | |
| 27,131 | |
Accounts receivable, net | |
| 7,415,458 | | |
| 7,346,739 | |
Inventories, net | |
| 10,142,625 | | |
| 11,012,108 | |
Other current assets | |
| 180,720 | | |
| 172,302 | |
Related party receivable | |
| 102,934 | | |
| 1,332,616 | |
Total Current Assets | |
| 18,099,074 | | |
| 19,927,960 | |
| |
| | | |
| | |
PROPERTY AND EQUIPMENT | |
| 6,813,850 | | |
| 6,324,078 | |
| |
| | | |
| | |
OTHER ASSETS | |
| | | |
| | |
Intangible assets | |
| 1,336,033 | | |
| 1,293,834 | |
Goodwill | |
| 1,079,175 | | |
| 1,079,175 | |
Other long-term assets | |
| 727,063 | | |
| 749,495 | |
Total Other Assets | |
| 3,142,271 | | |
| 3,122,504 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 28,055,195 | | |
$ | 29,374,542 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Checks issued in excess of bank balance | |
$ | 355,319 | | |
$ | 717,426 | |
Line of credit | |
| 8,187,123 | | |
| 10,014,368 | |
Current maturities of long-term debt | |
| 453,379 | | |
| 808,508 | |
Current maturities of capital lease obligations | |
| — | | |
| 97,496 | |
Accounts payable | |
| 4,211,122 | | |
| 4,770,246 | |
Accrued
expenses | |
| 1,291,072 | | |
| 1,253,764 | |
Current portion of postretirement benefit liability - health and life | |
| 131,714 | | |
| 128,291 | |
Total Current Liabilities | |
| 14,629,729 | | |
| 17,790,099 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES | |
| | | |
| | |
Long-term debt | |
| 1,238,942 | | |
| 1,673,847 | |
Related party lease financing obligations | |
| 2,017,901 | | |
| — | |
Long-term debt to related parties | |
| 2,000,000 | | |
| 2,000,000 | |
Postretirement benefit liability - health and life | |
| 2,345,748 | | |
| 2,656,202 | |
Postemployment benefit liability - severance | |
| 74,549 | | |
| 112,795 | |
Other long-term liabilities | |
| 26,992 | | |
| 91,446 | |
Total Long-Term Liabilities | |
| 7,704,132 | | |
| 6,534,290 | |
Total Liabilities | |
| 22,333,861 | | |
| 24,324,389 | |
(Continued)
See accompanying notes to financial statements
UNIROYAL ENGINEERED PRODUCTS, LLC
BALANCE SHEETS
As of June 29,
2014 and June 30, 2013
(Unaudited)
| |
June
29, 2014 | |
| June
30, 2013 |
| |
| | | |
| | |
STOCKHOLDERS' EQUITY | |
| | | |
| | |
Common Stock | |
| 552,750 | | |
| 548,875 | |
Additional Paid In Capital | |
| 528,000 | | |
| 528,000 | |
Retained Earnings | |
| 3,354,479 | | |
| 2,523,279 | |
Accumulated Other Comprehensive Income | |
| 1,286,105 | | |
| 1,449,998 | |
Total Stockholders' Equity | |
| 5,721,334 | | |
| 5,050,152 | |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | |
$ | 28,055,195 | | |
$ | 29,374,541 | |
See accompanying notes to financial statements
UNIROYAL ENGINEERED PRODUCTS, LLC
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended June 29, 2014 and
June 30, 2013
(Unaudited)
| |
June 29, 2014 | |
June 30, 2013 |
| |
| |
|
NET SALES | |
$ | 26,240,735 | | |
$ | 27,957,088 | |
| |
| | | |
| | |
COST OF GOODS SOLD | |
| 20,611,178 | | |
| 22,216,143 | |
| |
| | | |
| | |
Gross Profit | |
| 5,629,557 | | |
| 5,740,945 | |
| |
| | | |
| | |
OPERATING EXPENSES | |
| 3,672,464 | | |
| 2,988,277 | |
| |
| | | |
| | |
Operating Income | |
| 1,957,093 | | |
| 2,752,668 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | |
Interest and other debt related expense | |
| (511,012 | ) | |
| (413,278 | ) |
Other income | |
| 30,053 | | |
| 9,920 | |
Net Other Expense | |
| (480,959 | ) | |
| (403,358 | ) |
| |
| | | |
| | |
NET INCOME | |
| 1,476,134 | | |
| 2,349,310 | |
| |
| | | |
| | |
OTHER COMPREHENSIVE INCOME (LOSS) | |
| | | |
| | |
Minimum benefit liability adjustment | |
| (294,948 | ) | |
| (255,876 | ) |
Unrealized gain (loss) on effective hedge | |
| | | |
| | |
Reclassification of amounts to earnings | |
| 33,143 | | |
| 31,739 | |
Unrealized loss for the year | |
| (1,561 | ) | |
| (1,903 | ) |
| |
| | | |
| | |
COMPREHENSIVE
INCOME | |
$ | 1,212,768 | | |
$ | 2,123,270 | |
See accompanying notes to financial statements
UNIROYAL ENGINEERED PRODUCTS, LLC
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 29, 2014 and
June 30, 2013
(Unaudited)
|
| |
June 29, 2014 | |
June 30, 2013 |
| |
| |
|
CASH FLOWS FROM OPERATING ACTIVITIES | |
| |
|
Net income | |
$ | 1,476,134 | | |
$ | 2,349,310 | |
Adjustments to reconcile net income to net cash flows from operating activities | |
| | | |
| | |
Depreciation | |
| 322,944 | | |
| 596,170 | |
Amortization of intangible assets | |
| 30,233 | | |
| 29,850 | |
Loss on disposal of property and equipment | |
| — | | |
| 1,532 | |
Noncash postemployment health and life benefit | |
| (294,948 | ) | |
| (255,876 | ) |
Amortization of original issue note discount | |
| — | | |
| 26,400 | |
Changes in assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| (734,725 | ) | |
| (1,070,897 | ) |
Inventories | |
| 344,679 | | |
| (573,571 | ) |
Other current assets | |
| (7,701 | ) | |
| (28,232 | ) |
Other long-term assets | |
| (249 | ) | |
| — | |
Related party receivable | |
| (60,459 | ) | |
| (1,157,616 | ) |
Accounts payable | |
| (23,835 | ) | |
| 664,930 | |
Accrued expenses | |
| 188,012 | | |
| 1,437 | |
Postretirement benefit liability - health and life | |
| (13,148 | ) | |
| (20,459 | ) |
Postemployment benefit liability - severance | |
| (23,921 | ) | |
| — | |
Other long-term liabilities | |
| (2,993 | ) | |
| (2,813 | ) |
Net Cash Flows from Operating Activities | |
| 1,200,023 | | |
| 560,165 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Capital expenditures | |
| (418,783 | ) | |
| (80,048 | ) |
Purchase of marketable securities | |
| (138,714 | ) | |
| (27,131 | ) |
Net Cash Flows from Investing Activities | |
| (557,497 | ) | |
| (107,179 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Checks issued in excess of bank balance | |
| (267,271 | ) | |
| (164,550 | ) |
Net payments on line of credit | |
| 222,176 | | |
| 357,348 | |
Payments on long-term debt | |
| (91,790 | ) | |
| (254,169 | ) |
Proceeds from issuance of long-term debt | |
| (100,000 | ) | |
| — | |
Payments on capital lease obligations | |
| (47,555 | ) | |
| (44,557 | ) |
Net payments on life insurance policies | |
| (154,990 | ) | |
| (120,858 | ) |
Proceeds from issuance of Class B units | |
| — | | |
| 3,875 | |
Distributions to members | |
| (213,002 | ) | |
| (256,770 | ) |
Net Cash Flows from Financing Activities | |
| (652,432 | ) | |
| (479,681 | ) |
| |
| | | |
| | |
Net Change in Cash and Cash Equivalents | |
| (9,906 | ) | |
| (26,695 | ) |
CASH AND CASH EQUIVALENTS - Beginning of Year | |
| 19,321 | | |
| 63,759 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS - END OF YEAR | |
$ | 9,415 | | |
$ | 37,064 | |
For noncash transactions and supplemental disclosure of cash flow information see Note 2.
See accompanying notes to financial statements
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Six Months Ended June 29, 2014 and June 30, 2013
NOTE 1 – Basis of Presentation
The interim Condensed Financial Statements of Uniroyal Engineered
Products, LLC (the “Company”) are unaudited and should be read in conjunction with the Company’s audited financial
statements and notes thereto for the year ended December 29, 2013 and December 30, 2012.
The company's fiscal year is a 52/53 week year depending
on the nearest Sunday to December 31. The years ended December 29, 2013 and December 30, 2012 were 52 week years.
In the opinion of the Company, all adjustments necessary
for a fair presentation of such Condensed Financial Statements have been included. Such adjustments consist only of normal recurring
items. Interim results are not necessarily indicative of results for a full year. The interim Condensed Financial Statements and
notes thereto do not contain certain information included in the Company’s annual Financial Statements and notes thereto.
NOTE 2 – Noncash Transaction
and Supplemental Disclosure of Cash Flow Information
During 2013, the company advanced a member $1,157,616 for 2013 tax distributions during
the six month period ending June 30, 2013. This amount is included in related party receivables on the accompanying 2013
balance sheets. This receivable was settled in full prior to December 31, 2013.
| |
June 29, 2014 | |
June 30, 2013 |
| |
| | | |
| | |
Supplemental disclosure of approximate cash paid for: | |
| | | |
| | |
Interest | |
$ | 467,916 | | |
$ | 358,821 | |
NOTE
3 – Inventories
Inventories consist of the following as of June 29, 2014
and June 30, 2013:
| |
June 29, 2014 | |
June 30, 2013 |
| |
| |
|
Raw Materials | |
$ | 2,777,244 | | |
$ | 3,047,338 | |
Work-in Process | |
| 1,818,808 | | |
| 1,633,436 | |
Finished Goods | |
| 6,300,280 | | |
| 6,990,792 | |
| |
| 10,896,332 | | |
| 11,671,566 | |
Less: Allowance for inventory obsolescence | |
| (753,707 | ) | |
| (659,458 | ) |
| |
| | | |
| | |
Total Inventories | |
$ | 10,142,625 | | |
$ | 11,012,108 | |
NOTE 4 – Subsequent Event
On November 10, 2014, the Company was acquired by Invisa, Inc.
(“Invisa”) in a stock transaction that included the acquisition of Engineered Products Acquisition Limited (”EPAL”)
the holding company for Wardle Storeys (Group) Limited (“Wardle Storeys”), a European manufacturer of textured coatings
and polymer films.
UNIROYAL ENGINEERED PRODUCTS, LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Six Months Ended June 29, 2014 and June 30, 2013
Invisa made the acquisitions of the Company through its newly formed subsidiary,
UEP Holdings, LLC (“UEPH”). The aggregate purchase consideration paid for 100% of the outstanding equity of
Uniroyal was preferred ownership interests issued by UEPH having an aggregate face value of $35 million. Invisa purchased
EPAL for 100 shares of Invisa’s common stock and Invisa’s guaranty of outstanding EPAL preferred stock retained
by the seller having a liquidation preference of £12,518,240 (approximately $20 million). Management of the
acquired entities was not altered in the acquisition.
As explained in the Initial 8-K Mr. Howard R. Curd beneficially
owned all of Invisa’s outstanding shares of Series A preferred stock and Series B preferred stock; a substantial portion
of Invisa’s outstanding Series C Preferred; and approximately 6.8 million shares of Invisa common stock. As a result of this
beneficial ownership, Mr. Curd controls in excess of 80% of Invisa voting rights in all matters to come before the Invisa shareholders.
Mr. Curd also owned all of the issued and outstanding capital stock of EPAL and a majority of the limited liability company interests
of the Company and was a controlling person of the Company and Wardle Storeys before the acquisitions. As a result of this common
ownership and as required by current accounting pronouncements, the transaction is treated as a combination between entities under
common control and is accounted for in a manner similar to the pooling-of-interest method. The recognized assets and liabilities
are transferred at their carrying amounts at the date of the transaction. Further, the companies will be combined retrospectively
for prior year comparative information to the extent permitted.
EXHIBIT 99.5
ENGINEERED PRODUCTS ACQUISITION LIMITED
UNAUDITED CONDENSED FINANCIAL STATEMENTS
For the Six Months Ended June 29, 2014 and June 30, 2013
ENGINEERED PRODUCTS ACQUISITION LIMITED
BALANCE SHEETS
As of June 29,
2014 and June 30, 2013
(Unaudited)
| |
June 29, 2014 | |
June 30, 2013 |
| |
| |
|
CURRENT ASSETS | |
| | | |
| | |
Cash and cash equivalents | |
$ | 676,210 | | |
$ | 1,092,226 | |
Accounts receivable, net | |
| 10,043,586 | | |
| 10,898,041 | |
Inventories, net | |
| 6,956,945 | | |
| 6,326,147 | |
Other current assets | |
| 1,621,024 | | |
| 1,382,047 | |
Total Current Assets | |
| 19,297,765 | | |
| 19,698,461 | |
| |
| | | |
| | |
PROPERTY AND EQUIPMENT | |
| 4,201,437 | | |
| 2,782,339 | |
| |
| | | |
| | |
OTHER ASSETS | |
| | | |
| | |
Intangible assets | |
| 2,575,812 | | |
| 2,307,611 | |
Total Other Assets | |
| 2,575,812 | | |
| 2,307,611 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 26,075,014 | | |
$ | 24,788,411 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Line of credit | |
$ | 8,484,897 | | |
$ | 9,658,794 | |
Current maturities of long-term debt | |
| 115,821 | | |
| — | |
Current maturities of capital lease obligations | |
| 86,443 | | |
| — | |
Accounts payable | |
| 5,550,988 | | |
| 6,078,683 | |
Accrued
expenses | |
| 2,631,634 | | |
| 1,993,238 | |
Due to related parties | |
| — | | |
| 419,622 | |
Total Current Liabilities | |
| 16,869,783 | | |
| 18,150,337 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES | |
| | | |
| | |
Long-term debt | |
| 424,675 | | |
| — | |
Capital lease obligations | |
| 291,745 | | |
| — | |
Long-term debt to related parties | |
| 1,388,473 | | |
| 1,243,901 | |
Other long-term liabilities | |
| 773,467 | | |
| 722,574 | |
Total Long-Term Liabilities | |
| 2,878,360 | | |
| 1,966,475 | |
Total Liabilities | |
| 19,748,143 | | |
| 20,116,812 | |
| |
| | | |
| | |
STOCKHOLDERS' EQUITY | |
| | | |
| | |
Common Stock | |
| 151 | | |
| 151 | |
Retained Earnings | |
| 5,631,319 | | |
| 4,593,693 | |
Accumulated Other Comprehensive Income | |
| 695,401 | | |
| 77,755 | |
Total Stockholders' Equity | |
| 6,326,871 | | |
| 4,671,599 | |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | |
$ | 26,075,014 | | |
$ | 24,788,411 | |
See accompanying notes to financial statements
ENGINEERED
PRODUCTS ACQUISITION LIMITED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended June 29, 2014 and
June 30, 2013
(Unaudited)
| |
June 29, 2014 | |
June 30, 2013 |
| |
| | | |
| (see
Note 1) | |
| |
| | | |
| | |
NET SALES | |
$ | 23,503,795 | | |
$ | 17,630,876 | |
| |
| | | |
| | |
COST OF GOODS SOLD | |
| 19,801,084 | | |
| 15,219,517 | |
| |
| | | |
| | |
Gross Profit | |
| 3,702,711 | | |
| 2,411,359 | |
| |
| | | |
| | |
OPERATING EXPENSES | |
| 3,259,790 | | |
| 1,870,515 | |
| |
| | | |
| | |
Operating Income | |
| 442,921 | | |
| 540,844 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | |
Interest and other debt related expense | |
| (292,549 | ) | |
| (123,434 | ) |
Gain on bargain purchase | |
| — | | |
| 4,646,045 | |
Other income | |
| 79,594 | | |
| (50,984 | ) |
Net Other Expense | |
| (212,955 | ) | |
| 4,471,627 | |
| |
| | | |
| | |
INCOME BEFORE TAX PROVISION | |
| 229,966 | | |
| 5,012,471 | |
| |
| | | |
| | |
TAX PROVISION | |
| 48,728 | | |
| 120,309 | |
| |
| | | |
| | |
NET INCOME | |
$ | 181,238 | | |
$ | 4,892,162 | |
See accompanying notes to financial statements
ENGINEERED PRODUCTS ACQUISITION LIMITED
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 29, 2014 and
June 30, 2013
(Unaudited)
| |
June 29, 2014 | |
June 30, 2013 |
| |
| | | |
| | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net income | |
$ | 181,238 | | |
$ | 4,892,162 | |
Adjustments to reconcile net income to net cash flows from operating activities | |
| | | |
| | |
Depreciation | |
| 364,825 | | |
| 206,491 | |
Gain on bargain purchase | |
| — | | |
| (4,646,045 | ) |
Changes in assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| (1,447,802 | ) | |
| (1,716,260 | ) |
Inventories | |
| 15,745 | | |
| 614,622 | |
Other current assets | |
| (192,034 | ) | |
| (104,091 | ) |
Accounts payable | |
| 667,488 | | |
| 521,317 | |
Accrued expenses | |
| 445,350 | | |
| (136,197 | ) |
Other long-term liabilities | |
| 3,905 | | |
| 19,683 | |
Net Cash Flows from Operating Activities | |
| 38,715 | | |
| (348,318 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Capital expenditures | |
| (875,107 | ) | |
| (418,526 | ) |
Purchase of Wardle Storeys less cash acquired | |
| — | | |
| (255,716 | ) |
Net Cash Flows from Investing Activities | |
| (875,107 | ) | |
| (674,242 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Net payments on line of credit | |
| 317,881 | | |
| 1,158,675 | |
Proceeds from issuance of long-term debt | |
| 567,450 | | |
| — | |
Payments on capital lease obligations | |
| (14,394 | ) | |
| — | |
Note payable to related party | |
| — | | |
| 931,371 | |
Net Cash Flows from Financing Activities | |
| 870,937 | | |
| 2,090,046 | |
| |
| | | |
| | |
Net Change in
Cash and Cash Equivalents | |
| 34,545 | | |
| 1,067,486 | |
CASH AND CASH EQUIVALENTS - Beginning of Year | |
| 622,496 | | |
| 19,715 | |
Effects of currency translation on cash and cash equivalents | |
| 19,169 | | |
| 5,025 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS - END OF YEAR | |
$ | 676,210 | | |
$ | 1,092,226 | |
For noncash transactions and supplemental disclosure of cash flow information see
Note 2.
See accompanying notes to financial statements
ENGINEERED PRODUCTS ACQUISITION LIMITED
NOTES TO FINANCIAL STATEMENTS
As of and for the Six Months Ended June 29, 2014 and June 30, 2013
NOTE 1 – Basis of Presentation
The interim Condensed Financial Statements of Engineered
Products Acquisition Limited (the “Company”) are unaudited and should be read in conjunction with the Company’s
audited financial statements and notes thereto for the year ended December 31, 2013. The Company is incorporated in the United
Kingdom and uses the British Pound as its functional currency. The amounts reflected in the financial statements have been translated
into United States Dollars as of the reporting date. The financial statements have been prepared in accordance with US GAAP.
In the opinion of the Company, all adjustments necessary
for a fair presentation of such Condensed Financial Statements have been included. Such adjustments consist only of normal recurring
items. Interim results are not necessarily indicative of results for a full year. The interim Condensed Financial Statements and
notes thereto do not contain certain information included in the Company’s annual Financial Statements and notes thereto.
Engineered Products Acquisition Limited acquired 100% of the common stock
Wardle Storeys (Group) Limited on March 4, 2013 using acquisition accounting. The purchase price was £2,910,000
or approximately $4,381,000. Included in the statement of operations for the six months ended June 30, 2013 is the
operating results of Wardle Storeys (Group) Limited for the period March 4, 2013 to June 30, 2013 or approximately four
months of Wardle Storeys (Group)’s operating results. Whereas, in the results for the six months ended June 29, 2014
there is a full six month of their operating results. As required by acquisition accounting, the assets acquired and the
liabilities assumed were adjusted to their fair value. Since the fair value of the net assets were greater than the purchase
price, current accounting standards required the Company to record the difference of $4,646,045 as a gain which is shown as
gain on bargain purchase in the Statement of Comprehensive Income for the six months ended June 30, 2013.
NOTE 2 – Inventories
Inventories consist of the following as of June 29, 2014
and June 30, 2013:
| |
June 29, 2014 | |
June 30, 2013 |
| |
| |
|
Raw Materials | |
$ | 2,345,596 | | |
$ | 2,428,183 | |
Work-in Process | |
| 2,485,711 | | |
| 2,455,180 | |
Finished Goods | |
| 2,787,205 | | |
| 1,864,083 | |
| |
| 7,618,512 | | |
| 6,747,446 | |
Less: Allowance for inventory obsolescence | |
| (661,567 | ) | |
| (421,299 | ) |
| |
| | | |
| | |
Total Inventories | |
$ | 6,956,945 | | |
$ | 6,326,147 | |
NOTE 3 – Operating Expenses
Subsequent
to the acquisition by EPAL, Wardle Storeys (Group) initiated
a study of its manufacturing staffing requirements. As a result of this
study, Wardle Storeys reduced its staffing and recorded a one time charge for the redundancy and other associated costs as statutorily
required in the United Kingdom. This charge,
in the amount of $459 ,809,
is included in operating expenses for the six months ended as of June 29,
2014 . The annualized
compensation and other payroll costs associated with these employees were approximately $750,000.
ENGINEERED PRODUCTS ACQUISITION LIMITED
NOTES TO FINANCIAL STATEMENTS
As of and for the Six Months Ended June 29, 2014 and June 30, 2013
NOTE 4 – Subsequent Event
On November 10, 2014, the Company was acquired by Invisa, Inc.
(“Invisa”) in a stock transaction that included the acquisition of Uniroyal Engineered Products, LLC (”UEP”)
United States manufacturer of textured coatings and polymer films.
Invisa purchased the Company for 100 shares of Invisa’s common stock and
Invisa’s guaranty of outstanding EPAL preferred stock retained by the seller having a liquidation preference of
£12,518,240 (approximately $20 million). Management of the acquired entities was not altered in the acquisition. Invisa
made the acquisitions of UEP through its newly formed subsidiary, UEP Holdings, LLC (“UEPH”). The aggregate
purchase consideration paid for 100% of the outstanding equity of Uniroyal was preferred ownership interests issued by UEPH
having an aggregate face value of $35 million.
As explained in the Initial 8-K Mr. Howard R. Curd beneficially
owned all of Invisa’s outstanding shares of Series A preferred stock and Series B preferred stock; a substantial portion
of Invisa’s outstanding Series C Preferred; and approximately 6.8 million shares of Invisa common stock. As a result of this
beneficial ownership, Mr. Curd controls in excess of 80% of Invisa voting rights in all matters to come before the Invisa shareholders.
Mr. Curd also owned all of the issued and outstanding capital stock of EPAL and a majority of the limited liability company interests
of the Company and was a controlling person of the Company and Wardle Storeys before the acquisitions. As a result of this common
ownership and as required by current accounting pronouncements, the transaction is treated as a combination between entities under
common control and is accounted for in a manner similar to the pooling-of-interest method. The recognized assets and liabilities
are transferred at their carrying amounts at the date of the transaction. Further, the companies will be combined retrospectively
for prior year comparative information to the extent permitted.
EXHIBIT 99.6
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On November 10th, 2014 Invisa, Inc. (“Invisa” or the
“Company”) filed with the Securities and Exchange Commission a Current Report on Form 8-K (the “Initial 8-K”)
to report that it acquired all of the ownership interests in Uniroyal Engineered Products, LLC (“Uniroyal”), a U.S.
manufacturer of textured coatings, and all of the ordinary common stock of Engineered Products Acquisition Limited (“EPAL”),
the holding company for Wardle Storeys (Group) Limited (“Wardle Storeys”), a European manufacturer of textured coatings
and polymer films.
Invisa made the acquisition of Uniroyal through its newly formed
subsidiary, UEP Holdings, LLC (“UEPH”), to which it contributed certain of its assets and liabilities as part of the
organization of that subsidiary. The aggregate purchase consideration paid for 100% of the outstanding equity of Uniroyal was preferred
ownership interests issued by UEPH having an aggregate face value of $35 million. In a separate transaction, Invisa also purchased
EPAL for 100 shares of Invisa’s Common Stock and Invisa’s guaranty of outstanding EPAL preferred stock retained by
the seller having a liquidation preference of £12,518,240 (approximately $20 million).
The foregoing description of the transaction is not complete and
is subject to and qualified in its entirety by reference to the full text of the transaction agreements which were attached to
the Initial 8-K as exhibits and are incorporated herein by reference.
The following unaudited pro forma condensed combined balance sheet
is based on the historical balance sheets of Invisa, Uniroyal and EPAL, giving effect to Invisa’s acquisition of Uniroyal
and EPAL as if the transaction had occurred on June 30, 2014. The following unaudited pro forma condensed combined statements
of operations for the year ended December 31, 2013 and the six months ended June 30, 2014 are based on the historical statements
of operations of Invisa, Uniroyal and EPAL, giving effect Invisa’s acquisition of Uniroyal and EPAL as if the transaction
had occurred on January 1, 2013. The historical information is derived from the audited financial statements of Invisa, Uniroyal
and EPAL for the year ended December 31, 2013 and the unaudited financial statements for the six months ended June 30, 2014. In
the case of EPAL, the historical financial information for the year ended December 31, 2013 was also translated into USD (see
Exhibit 99.3).
The unaudited pro forma condensed combined financial statements
are provided for information purposes only and are based on estimates and assumptions as set forth in the notes to such statements.
Pursuant to Regulation S-X, Article 11, of the Securities and Exchange Commission, pro forma adjustments include the effects of
events that are directly attributable to the acquisition and are factually supportable. As actual adjustments may differ from pro
forma adjustments, the unaudited pro forma combined financial information has been prepared for informational purposes only. The
unaudited pro forma condensed combined financial statements are not necessarily indicative of the combined results of operations
to be expected in any future period or the results that actually would have been realized had the transaction been completed on
January 1, 2013. This information should be read in conjunction with the historical financial statements and related notes of Invisa,
Uniroyal and EPAL and in conjunction with the accompanying notes to these unaudited pro forma condensed combined financial statements.
Invisa, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2014
| |
| Historical | | |
| | | |
| | |
| |
| Invisa,
Inc. | | |
| Uniroyal
Engineered Products LLC | | |
| Engineered
Products Acquisition Limited | | |
| Pro
Forma Adjustments | | |
| Pro
Forma Combined | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
CURRENT ASSETS | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash and
cash equivalents | |
$ | 253 | | |
$ | 9,415 | | |
$ | 676,210 | | |
| | | |
$ | 685,878 | |
Marketable securities | |
| — | | |
| 247,922 | | |
| — | | |
| (247,922 | ) | |
| — | |
Accounts receivable,
net | |
| 9,840 | | |
| 7,415,458 | | |
| 10,043,586 | | |
| | | |
| 17,468,884 | |
Inventories, net | |
| 4,007 | | |
| 10,142,625 | | |
| 6,956,945 | | |
| | | |
| 17,103,577 | |
Other current assets | |
| 22,154 | | |
| 180,720 | | |
| 1,621,024 | | |
| | | |
| 1,823,898 | |
Related party receivable | |
| — | | |
| 102,934 | | |
| — | | |
| | | |
| 102,934 | |
Total
Current Assets | |
| 36,254 | | |
| 18,099,074 | | |
| 19,297,765 | | |
| (247,922 | ) | |
| 37,185,171 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
PROPERTY
AND EQUIPMENT | |
| — | | |
| 6,813,850 | | |
| 4,201,437 | | |
| — | | |
| 11,015,287 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
OTHER ASSETS | |
| | | |
| | | |
| | | |
| | | |
| | |
Intangible assets | |
| — | | |
| 1,336,033 | | |
| 2,575,812 | | |
| | | |
| 3,911,845 | |
Goodwill | |
| — | | |
| 1,079,175 | | |
| — | | |
| | | |
| 1,079,175 | |
Other long-term assets | |
| — | | |
| 727,063 | | |
| — | | |
| | | |
| 727,063 | |
Total
Other Assets | |
| — | | |
| 3,142,271 | | |
| 2,575,812 | | |
| — | | |
| 5,718,083 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
TOTAL
ASSETS | |
$ | 36,254 | | |
$ | 28,055,195 | | |
$ | 26,075,014 | | |
$ | (247,922 | ) | |
$ | 53,918,541 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
LIABILITIES
AND STOCKHOLDERS' EQUITY | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | | |
| | | |
| | | |
| | |
Checks
issued in excess of bank balance | |
$ | — | | |
$ | 355,319 | | |
$ | — | | |
| | | |
$ | 355,319 | |
Line of credit | |
| — | | |
| 8,187,123 | | |
| 8,484,897 | | |
| | | |
| 16,672,020 | |
Current
maturities of long-term debt | |
| — | | |
| 453,379 | | |
| 115,821 | | |
| | | |
| 569,200 | |
Current
maturities of capital lease obligations | |
| — | | |
| — | | |
| 86,443 | | |
| | | |
| 86,443 | |
Accounts payable | |
| 17,265 | | |
| 4,211,122 | | |
| 5,550,988 | | |
| | | |
| 9,779,375 | |
Accrued expenses
| |
| 54,753 | | |
| 1,291,072 | | |
| 2,631,634 | | |
| | | |
| 3,977,459 | |
Due to related parties | |
| 20,260 | | |
| — | | |
| — | | |
| | | |
| 20,260 | |
Current
portion of postretirement benefit liability - health and life | |
| — | | |
| 131,714 | | |
| — | | |
| | | |
| 131,714 | |
Total
Current Liabilities | |
| 92,278 | | |
| 14,629,729 | | |
| 16,869,783 | | |
| — | | |
| 31,591,790 | |
(Continued)
See notes to unaudited
pro forma condensed combined financial statements
Invisa, Inc.
Unaudited
Pro Forma Condensed Combined Balance Sheet
As
of June 30, 2014
| |
| Historical | | |
| | | |
| | |
| |
| Invisa,
Inc. | | |
| Uniroyal
Engineered Products LLC | | |
| Engineered
Products Acquisition Limited | | |
| Pro
Forma Adjustments | | |
| Pro
Forma Combined | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
LONG-TERM LIABILITIES | |
| | | |
| | | |
| | | |
| | | |
| | |
Long-term
debt | |
| — | | |
| 1,238,942 | | |
| 424,675 | | |
| | | |
| 1,663,617 | |
Related
party lease financing obligations | |
| — | | |
| 2,017,901 | | |
| — | | |
| | | |
| 2,017,901 | |
Capital
lease obligations | |
| — | | |
| — | | |
| 291,745 | | |
| | | |
| 291,745 | |
Long-term
debt to related parties | |
| 1,345,640 | | |
| 2,000,000 | | |
| 1,388,473 | | |
| | | |
| 4,734,113 | |
Postretirement
benefit liability - health and life | |
| — | | |
| 2,345,748 | | |
| — | | |
| | | |
| 2,345,748 | |
Postemployment
benefit liability - severance | |
| — | | |
| 74,549 | | |
| — | | |
| | | |
| 74,549 | |
Other
long-term liabilities | |
| — | | |
| 26,992 | | |
| 773,467 | | |
| | | |
| 800,459 | |
Total
Long-Term Liabilities | |
| 1,345,640 | | |
| 7,704,132 | | |
| 2,878,360 | | |
| — | | |
| 11,928,132 | |
Total
Liabilities | |
| 1,437,918 | | |
| 22,333,861 | | |
| 19,748,143 | | |
| — | | |
| 43,519,922 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
STOCKHOLDERS' EQUITY | |
| | | |
| | | |
| | | |
| | | |
| | |
Convertible
Preferred Stock: 5,000,000 shares authorized ($100 value): | |
| | | |
| | | |
| | | |
| | | |
| | |
Series
A, 9,715 shares issued and outstanding | |
| 798,500 | | |
| — | | |
| — | | |
| | | |
| 798,500 | |
Series
B, 2,702 shares issued and outstanding | |
| 270,160 | | |
| — | | |
| — | | |
| | | |
| 270,160 | |
Series
C, 16,124 shares issued and outstanding | |
| 1,600,467 | | |
| — | | |
| — | | |
| | | |
| 1,600,467 | |
Preferred
Units UEP Holdings, Inc.: 350,000 units authorized | |
| | | |
| | | |
| | | |
| | | |
| | |
Series
A, 200,000 units issued and outstanding | |
| — | | |
| — | | |
| — | | |
| 393,055 | (a) | |
| 393,055 | |
Series
B, 150,000 units issued and outstanding | |
| — | | |
| — | | |
| — | | |
| 294,791 | (a) | |
| 294,791 | |
Preferred
Stock Engineered Products Acquisition Limited, 50 shares issued and outstanding | |
| — | | |
| — | | |
| — | | |
| 76 | (a) | |
| 76 | |
Additional
Paid In Capital from preferred stock | |
| — | | |
| — | | |
| — | | |
| 392,979 | (a) | |
| 392,979 | |
Common
Stock | |
| 14,524 | | |
| 552,750 | | |
| 151 | | |
| (552,901 | ) (a) | |
| | |
| |
| | | |
| | | |
| | | |
| (419 | ) (b) | |
| 14,105 | |
Additional
Paid In Capital from common stock | |
| 32,697,407 | | |
| 528,000 | | |
| — | | |
| (528,000 | ) (a) | |
| | |
| |
| | | |
| | | |
| | | |
| (247,503 | ) (b) | |
| 32,449,904 | |
Retained
Earnings | |
| (36,782,722 | ) | |
| 3,354,479 | | |
| 5,631,319 | | |
| — | | |
| (27,796,924 | ) |
Accumulated
Other Comprehensive Income | |
| — | | |
| 1,286,105 | | |
| 695,401 | | |
| — | | |
| 1,981,506 | |
Total
Stockholders' Equity | |
| (1,401,664 | ) | |
| 5,721,334 | | |
| 6,326,871 | | |
| (247,922 | ) | |
| 10,398,619 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY | |
$ | 36,254 | | |
$ | 28,055,195 | | |
$ | 26,075,014 | | |
$ | (247,922 | ) | |
$ | 53,918,541 | |
See notes to unaudited
pro forma condensed combined financial statements
Invisa,
Inc.
Unaudited
Pro Forma Condensed Combined Statement of Operations
For
the Year Ended December 31, 2013
| |
Historical | |
| |
|
| |
Invisa,
Inc. | |
Uniroyal
Engineered Products LLC | |
Engineered
Products Acquisition Limited | |
Pro
Forma Adjustments | |
Pro
Forma Combined |
| |
| | | |
| | | |
| (see
Note 5) | | |
| | | |
| | |
NET
SALES | |
$ | 26,819 | | |
$ | 53,942,233 | | |
$ | 40,797,599 | | |
| | | |
$ | 94,766,651 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
COST
OF GOODS SOLD | |
| 11,311 | | |
| 43,071,833 | | |
| 34,476,900 | | |
| | | |
| 77,560,044 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Gross
Profit | |
| 15,508 | | |
| 10,870,400 | | |
| 6,320,699 | | |
| — | | |
| 17,206,607 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
OPERATING
EXPENSES | |
| 307,317 | | |
| 6,396,009 | | |
| 4,821,602 | | |
| (1,078,957 | ) (a) | |
| 10,445,971 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Operating
Income (Loss) | |
| (291,809 | ) | |
| 4,474,391 | | |
| 1,499,097 | | |
| 1,078,957 | | |
| 6,760,636 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
OTHER
INCOME (EXPENSE) | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest
and other debt related expense | |
| (111,090 | ) | |
| (920,021 | ) | |
| (251,421 | ) | |
| | | |
| (1,282,532 | ) |
Gain
on bargain purchase | |
| — | | |
| — | | |
| 4,646,046 | | |
| | | |
| 4,646,046 | |
Other
income | |
| 45,044 | | |
| 34,073 | | |
| 30,321 | | |
| | | |
| 109,438 | |
Net
Other Income (Expense) | |
| (66,046 | ) | |
| (885,948 | ) | |
| 4,424,946 | | |
| — | | |
| 3,472,952 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
INCOME
(LOSS) BEFORE TAX PROVISION | |
| (357,855 | ) | |
| 3,588,443 | | |
| 5,924,043 | | |
| 1,078,957 | | |
| 10,233,588 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
TAX
PROVISION | |
| — | | |
| — | | |
| 175,491 | | |
| | | |
| 175,491 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
NET
INCOME (LOSS) | |
| (357,855 | ) | |
| 3,588,443 | | |
| 5,748,552 | | |
| 1,078,957 | | |
| 10,058,097 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Preferred
stock dividend | |
| — | | |
| — | | |
| — | | |
| (2,825,000 | ) (b) | |
| (2,825,000 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
NET
INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS | |
$ | (357,855 | ) | |
$ | 3,588,443 | | |
$ | 5,748,552 | | |
$ | (1,746,043 | ) | |
$ | 7,233,097 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
EARNINGS
(LOSS) PER COMMON SHARE: | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | (0.03 | ) | |
| | | |
| | | |
| | | |
$ | 0.52 | |
Diluted | |
$ | (0.02 | ) | |
| | | |
| | | |
| | | |
$ | 0.39 | |
WEIGHTED
AVERAGE SHARES OUTSTANDING: | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 14,214,398 | | |
| | | |
| | | |
| | | |
| 14,013,275 | |
Diluted | |
| 18,971,231 | | |
| | | |
| | | |
| | | |
| 18,770,108 | |
See
notes to unaudited pro forma condensed combined financial statements
Invisa,
Inc.
Unaudited
Pro Forma Condensed Combined Statement of Operations
For
the Six Months Ended June 30, 2014
| |
Historical | |
| |
|
| |
Invisa,
Inc. | |
Uniroyal
Engineered Products LLC | |
Engineered
Products Acquisition Limited | |
Pro
Forma Adjustments | |
Pro
Forma Combined |
| |
| | | |
| | | |
| | | |
| | | |
| | |
NET
SALES | |
$ | 25,716 | | |
$ | 26,240,735 | | |
$ | 23,503,795 | | |
| | | |
$ | 49,770,246 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
COST
OF GOODS SOLD | |
| 19,184 | | |
| 20,611,178 | | |
| 19,801,084 | | |
| | | |
| 40,431,446 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Gross
Profit | |
| 6,532 | | |
| 5,629,557 | | |
| 3,702,711 | | |
| — | | |
| 9,338,800 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
OPERATING
EXPENSES | |
| 130,179 | | |
| 3,672,464 | | |
| 3,259,790 | | |
| (525,047 | ) (a) | |
| 6,537,386 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Operating
Income (Loss) | |
| (123,647 | ) | |
| 1,957,093 | | |
| 442,921 | | |
| 525,047 | | |
| 2,801,414 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
OTHER
INCOME (EXPENSE) | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest
and other debt related expense | |
| (54,749 | ) | |
| (511,012 | ) | |
| (292,549 | ) | |
| | | |
| (858,310 | ) |
Gain
on bargain purchase | |
| | | |
| — | | |
| — | | |
| | | |
| — | |
Other
income | |
| — | | |
| 30,053 | | |
| 79,594 | | |
| | | |
| 109,647 | |
Net
Other Expense | |
| (54,749 | ) | |
| (480,959 | ) | |
| (212,955 | ) | |
| — | | |
| (748,663 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
INCOME
(LOSS) BEFORE TAX PROVISION | |
| (178,396 | ) | |
| 1,476,134 | | |
| 229,966 | | |
| 525,047 | | |
| 2,052,751 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
TAX
PROVISION | |
| — | | |
| — | | |
| 48,728 | | |
| | | |
| 48,728 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
NET
INCOME (LOSS) | |
| (178,396 | ) | |
| 1,476,134 | | |
| 181,238 | | |
| 525,047 | | |
| 2,004,023 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Preferred
stock dividend | |
| — | | |
| — | | |
| — | | |
| (1,412,500 | ) (b) | |
| (1,412,500 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
NET
INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS | |
$ | (178,396 | ) | |
$ | 1,476,134 | | |
$ | 181,238 | | |
$ | (887,453 | ) | |
$ | 591,523 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
EARNINGS
(LOSS) PER COMMON SHARE: | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | (0.01 | ) | |
| | | |
| | | |
| | | |
$ | 0.04 | |
Diluted | |
$ | (0.01 | ) | |
| | | |
| | | |
| | | |
$ | 0.03 | |
WEIGHTED
AVERAGE SHARES OUTSTANDING: | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 14,524,398 | | |
| | | |
| | | |
| | | |
| 14,163,069 | |
Diluted | |
| 19,281,231 | | |
| | | |
| | | |
| | | |
| 18,919,902 | |
See
notes to unaudited pro forma condensed combined financial statements
NOTES
TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
| 1. | DESCRIPTION
OF TRANSACTION |
On
November 10th, 2014 Invisa, Inc. (“Invisa” or the “Company”) filed with the Securities and Exchange Commission
a Current Report on Form 8-K (the “Initial 8-K”) to report that it acquired Uniroyal Engineered Products, LLC (“Uniroyal”),
a U.S. manufacturer of textured coatings, and Engineered Products Acquisition Limited (“EPAL”), the holding company
for Wardle Storeys (Group) Limited (“Wardle Storeys”), a European manufacturer of textured coatings and polymer films.
Invisa
made the acquisition of Uniroyal through its newly formed subsidiary, UEP Holdings, LLC (“UEPH”), to which it contributed
certain of its assets and liabilities as part of the organization of that subsidiary. The aggregate purchase consideration paid
for 100% of the outstanding equity of Uniroyal was preferred ownership interests issued by UEPH having an aggregate face value
of $35 million. In a separate transaction, Invisa also purchased 100% of the common stock of EPAL for 100 shares of Invisa’s
Common Stock and Invisa’s guaranty of outstanding EPAL preferred stock retained by the seller having a liquidation preference
of £12,518,240 (approximately $20 million).
| 2. | BASIS
OF PRO FORMA PRESENTATION |
The
following unaudited pro forma condensed combined balance sheet is based on the historical balance sheets of Invisa, Uniroyal and
EPAL, giving effect to Invisa’s acquisition of Uniroyal and EPAL as if the transaction had occurred on June 30, 2014. The
following unaudited pro forma condensed combined statements of operations for the year ended December 31, 2013 and the six months
ended June 30, 2014 are based on the historical statements of operations of Invisa, Uniroyal and EPAL, giving effect Invisa’s
acquisition of Uniroyal and EPAL as if the transaction had occurred on January 1, 2013. The historical information is derived
from the audited financial statements of Invisa, Uniroyal and EPAL for the year ended December 31, 2013 and the unaudited financial
statements for the six months ended June 30, 2014. In the case of EPAL, the historical financial information for the year ended
December 31, 2013 was also translated into USD (see Exhibit 99.3). The historical financial information is adjusted in
the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable
to the acquisition, (2) factually supportable, and (3) with respect to the condensed combined statements of income, expected to
have a continuing impact on the combined results.
As
explained in the Initial 8-K Mr. Howard R. Curd beneficially owned all of Invisa’s outstanding shares of Series A preferred
stock and Series B preferred stock; a substantial portion of Invisa’s outstanding Series C Preferred; and approximately
6.8 million shares of Invisa common stock. As a result of this beneficial ownership, Mr. Curd controls in excess of 80% of Invisa
voting rights in all matters to come before the Invisa shareholders. Mr. Curd also owned all of the issued and outstanding capital
stock of EPAL and a majority of the limited liability company interests of Uniroyal and was a controlling person of Uniroyal and
Wardle Storeys before the acquisitions. As a result of this common ownership and as required by current accounting pronouncements,
the transaction is being treated as a combination between entities under common control and is accounted for in a manner similar
to the pooling-of-interest method. The recognized assets and liabilities were transferred at their carrying amounts at the date
of the transaction. Further, the companies will be combined retrospectively for prior year comparative information to the extent
permitted.
The
unaudited pro forma condensed combined financial statements are provided for information purposes only, are based on estimates
and assumptions as set forth in the notes to such statements and does not purport to represent what the actual consolidated results
of operations or the consolidated financial position of the combined company would have been had the acquisition occurred on the
dates assumed. The unaudited pro forma condensed combined financial statements are also not necessarily indicative of the combined
results of operations to be expected in any future period.
The
unaudited pro forma condensed combined financial information does not reflect any integration activities or cost savings from
operating efficiencies, synergies, asset dispositions or other restructurings that could result from the acquisition.
NOTES
TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
| 3. | PRO
FORMA ADJUSTMENTS TO THE CONDENSED COMBINED BALANCE SHEET |
| (a) | To
record the issuance of preferred stock or units to the members of Uniroyal or stockholder
of EPAL |
| | |
| (b) | To
reclassify the Invisa, Inc. stock held by Uniroyal at June 30, 2014. |
| 4. | PRO
FORMA ADJUSTMENTS TO THE CONDENSED COMBINED STATEMENT OF OPERATIONS |
| (a) | To
eliminate the payments by Uniroyal for corporate management fees to a company owned by
Mr. Curd. This management agreement was assumed by Invisa and accordingly the fees paid
by Uniroyal and received by Invisa subsequent to the transaction will be eliminated in
consolidation. |
| | |
| (b) | To
record the assumed preference dividends paid for the period |
| (a) | EPAL
acquired all the ordinary shares of Gweco 478 Limited, the holding company for Wardle
Storeys (Group), on March 4, 2013. Accordingly, these amounts only include the operating
results of Wardle Storeys (Group) for the ten months ended December 2013. |
| | |
| (b) | The
Series A and Series B preferred units issued by UEPH for the acquisition of Uniroyal
have an issue price $100 per unit or a total of $20,000,000 and $10,000,000, respectively.
The Series A preferred units are entitled to a preferred return of an amount per annum
equal to five percent (5.00%) of the issue price of such Series A preferred unit. The
Series B preferred units are entitled to a preferred return of an amount per annum equal
to five and one half percent (5.50%) of the issue price of such Series B preferred unit,
increasing by one half percent (0.50%) on the first anniversary of the effective date
and by an additional one half percent (0.50%) on each successive anniversary of the effective
date thereafter, up to a maximum of eight percent (8.00%) on the fifth anniversary of
the effective date. |
| | |
| (c) | As
part of the transaction, the 50 shares of the EPAL common stock held by Howard R. Curd
were converted and reclassified as preferred shares. These preferred shares have a liquidation
preference of £12,518,240 or approximately $20,000,000 in the aggregate. These
preferred shares are entitled to a fixed cumulative preferential dividends of £625,912
per annum payable quarterly or approximately $1,000,000. |
| | |
| (d) | The tax provision for EPAL includes its tax provision based on its effective UK tax rates. The pro forma statements of operations
do not show a historical tax provision for Uniroyal since it was an LLC. lnvisa did not have a tax provision since it had
net losses for the periods reported and had accumulated net operating losses of approximately $17.7 million as of December
31, 2013. No tax provision is shown in the pro forma as the Company continues to analyze the tax attributes of the combined
companies. |
| | |
| (e) | As explained in the footnotes to the EPAL unaudited financial statements included in Exhibit 99.5, Wardle Storeys (Group)
implemented a staff reduction initiative and recorded a one-time charge in the amount of $459,809 to the operating results
for June 29, 2014 for redundancy and other associated costs as statutorily required in the United Kingdom. The annualized
compensation and other payroll costs associated with these employees were approximately $750,000. |
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