UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
November 21, 2014
Date of Report (Date of earliest event reported)
SPEED COMMERCE, INC.
(Exact name of registrant as specified in its charter)
|
Minnesota |
000-22982 |
41-1704319 |
|
(State of Incorporation) |
(Commission
File Number) |
(IRS Employer
Identification Number) |
|
|
1303 E. Arapaho Road, Suite 200
Richardson, TX 75081 |
|
|
|
(Address of principal executive offices) (Zip Code) |
|
(866) 377-3331
(Registrant’s telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
|
☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
|
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
|
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
On November 26, 2014, Speed Commerce, Inc. (the “Company”), filed a Current Report on Form 8-K (the “November 8-K”) reporting, among other things, that on November 21, 2014 the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Sigma Holdings, LLC. Under the Purchase Agreement, concurrent with the date of the Purchase Agreement, the Company purchased substantially all of the assets which were operated under the trade name Fifth Gear (the “Fifth Gear Assets”).
In the November 8-K, the Company also reported that the financial statements and pro forma financial information related to Fifth Gear Assets and required under Item 9.01 would be filed no later than 71 days following the date that the November 8-K was required to be filed. This Amendment No. 1 to the November 8-K contains the required financial statements and pro forma financial information.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
The consolidated balance sheet of Sigma Holdings, LLC. as of December 31, 2013 and the related consolidated statements of income, members’ equity and cash flows for the year then ended and the independent auditor’s report required by this Item 9.01(a) are attached hereto as Exhibit 99.1 and are incorporated herein by reference.
The condensed consolidated unaudited balance sheet of Sigma Holdings, LLC. as of September 30, 2014 and the related condensed consolidated unaudited statements of operations, changes in stockholders’ equity and cash flows for the three and nine months ended September 30, 2014 and September 30, 2013 required by this Item 9.01(a) are attached hereto as Exhibit 99.2 and are incorporated herein by reference.
(b) Pro Forma Financial Information
The unaudited pro forma financial information required by Item 9.01(b) pursuant to Article 11 of Regulation S-X is attached hereto as Exhibit 99.3 and is incorporated herein by reference.
(c) Exhibits. The following exhibits are filed with this document:
|
Exhibit No. |
Description |
|
|
|
|
2.1* |
Asset Purchase Agreement dated November 21, 2014, by and among Fifth Gear Acquisitions, Inc., Speed Commerce, Inc., Sigma Holdings, LLC, Sigma Micro, LLC and Lexton Group, L.L.C. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 26, 2014) |
| |
|
|
23.1 |
Consent of CliftonLarsonAllen, LLP |
| |
|
|
99.1 |
Financial Statements of Business Acquired |
|
|
|
|
|
Report of Independent Public Accounting Firm |
|
|
|
|
|
Consolidated balance sheet as of December 31, 2013, and related consolidated statements of income, members’ equity and cash flows for the year then ended. |
|
|
|
|
99.2 |
Financial Statements of Business Acquired |
|
|
|
|
|
Condensed consolidated unaudited balance sheet as of September 30, 2014, and related condensed consolidated unaudited statements of operations for the three and nine months ended September 30, 2014 and September 30, 2013 and cash flows for the nine months ended September 30, 2014 |
| |
|
| |
|
|
99.3 |
Pro Forma Financial Information |
|
|
|
|
|
Unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2014, and statements of operations for the six months ended September 30, 2014 and the year ended March 31, 2014 |
* Previously filed
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
Date: February 4, 2015 |
SPEED COMMERCE, INC. |
|
|
|
|
|
|
By: |
/s/ Terry J. Tuttle |
|
|
Name: |
Terry J. Tuttle |
|
|
Title: |
Chief Financial Officer |
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITOR
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3/A (File Numbers 333-197090) and S-8 (File Number 333-201258) of Speed Commerce, Inc. of our report dated January 22, 2015, relating to the consolidated financial statements of Sigma Holdings, LLC. as of December 31, 2013, appearing in this Current Report on Form 8-K/A.
/s/ CliftonLarsonAllen LLP
Indianapolis, Indiana
February 4, 2015
Exhibit 99.1
SIGMA HOLDINGS, LLC
Indianapolis, Indiana
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
TABLE OF CONTENTS
|
|
PAGE |
| |
|
|
INDEPENDENT AUDITORS’ REPORT |
1 |
| |
|
|
FINANCIAL STATEMENTS |
|
| |
|
|
Consolidated Balance Sheet |
3 |
|
Consolidated Statement of Income |
5 |
|
Consolidated Statement of Members’ Equity |
6 |
|
Consolidated Statement of Cash Flows |
7 |
|
Notes to Consolidated Financial Statements |
8 |
INDEPENDENT AUDITORS' REPORT
To the Members
Sigma Holdings, LLC
Indianapolis, Indiana
We have audited the accompanying consolidated financial statements of Sigma Holdings, LLC (Company) which comprise the consolidated balance sheet as of December 31, 2013, and the related consolidated statements of income, members’ equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated 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 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 Sigma Holdings, LLC as of December 31, 2013, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ CliftonLarsonAllen LLP
Indianapolis, Indiana
January 22, 2015
SIGMA HOLDINGS, LLC
CONSOLIDATED BALANCE SHEET
December 31, 2013
ASSETS
|
CURRENT ASSETS |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
644,921 |
|
|
Accounts receivable |
|
|
5,773,227 |
|
|
Accounts receivable, related party |
|
|
31,988,239 |
|
|
Inventories |
|
|
1,848,246 |
|
|
Prepaids expenses and other current assets |
|
|
743,861 |
|
|
Total current assets |
|
|
40,998,494 |
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
PROPERTY & EQUIPMENT, net |
|
|
7,211,417 |
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
Goodwill |
|
|
4,845,793 |
|
|
Intangibles, net |
|
|
1,700,013 |
|
|
Other assets |
|
|
83,243 |
|
|
Total other assets |
|
|
6,629,049 |
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
TOTAL ASSETS |
|
$ |
54,838,960 |
|
LIABILITIES AND MEMBERS' EQUITY
|
CURRENT LIABILITIES |
|
|
|
|
|
Outstanding checks in excess of bank balance |
|
$ |
262,459 |
|
|
Accounts payable, trade |
|
|
1,759,271 |
|
|
Accounts payable, related party |
|
|
24,238,094 |
|
|
Line of credit - bank |
|
|
255,338 |
|
|
Line of credit - equipment |
|
|
903,085 |
|
|
Line of credit - inventory |
|
|
1,981,685 |
|
|
Accrued expenses |
|
|
1,956,943 |
|
|
Current maturities of long-term debt |
|
|
1,003,674 |
|
|
Deferred revenue |
|
|
377,193 |
|
|
Total current liabilities |
|
|
32,737,742 |
|
| |
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
Long-term debt, less current maturities |
|
|
2,597,868 |
|
|
Customer deposits |
|
|
58,000 |
|
|
Interest rate swap |
|
|
92,651 |
|
|
Other long-term liabilities |
|
|
95,280 |
|
|
Total long-term liabilities |
|
|
2,843,799 |
|
| |
|
|
|
|
|
Total liabilities |
|
|
35,581,541 |
|
| |
|
|
|
|
|
MEMBERS' EQUITY |
|
|
|
|
|
Common units, no par value |
|
|
|
|
|
Authorized, issued, and outstanding units - 2,700,000 |
|
|
- |
|
|
Series A Preferred units, no par value |
|
|
|
|
|
Authorized, issued, and outstanding units - 125,000 |
|
|
1,125,000 |
|
|
Retained earnings |
|
|
18,132,419 |
|
|
Total members' equity |
|
|
19,257,419 |
|
| |
|
|
|
|
|
TOTAL LIABILITIES AND MEMBERS' EQUITY |
|
$ |
54,838,960 |
|
The accompanying notes are an integral part of the consolidated financial statements.
SIGMA HOLDINGS, LLC
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 2013
|
EARNED REVENUE |
|
$ |
51,376,238 |
|
| |
|
|
|
|
|
EXPENSES |
|
|
|
|
|
Cost of earned revenue |
|
|
25,903,459 |
|
|
Selling, general and administrative |
|
|
23,870,907 |
|
|
Total operating expenses |
|
|
49,774,366 |
|
| |
|
|
|
|
|
OPERATING INCOME |
|
|
1,601,872 |
|
| |
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
Interest income |
|
|
6,375 |
|
|
Interest expense |
|
|
(127,792 |
) |
|
Other income |
|
|
450 |
|
|
Total other income (expense) |
|
|
(120,967 |
) |
| |
|
|
|
|
|
NET INCOME |
|
$ |
1,480,905 |
|
The accompanying notes are an integral part of the consolidated financial statements.
SIGMA HOLDINGS, LLC
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
Year Ended December 31, 2013
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| |
|
Common Units |
|
|
Preferred Units |
|
|
Retained |
|
|
Members' |
|
| |
|
Units |
|
|
Amount |
|
|
Units |
|
|
Amount |
|
|
Earnings |
|
|
Equity |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2012 |
|
|
2,700,000 |
|
|
$ |
- |
|
|
|
125,000 |
|
|
$ |
1,125,000 |
|
|
$ |
16,806,407 |
|
|
$ |
17,931,407 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,480,905 |
|
|
|
1,480,905 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(154,893 |
) |
|
|
(154,893 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2013 |
|
|
2,700,000 |
|
|
$ |
- |
|
|
|
125,000 |
|
|
$ |
1,125,000 |
|
|
$ |
18,132,419 |
|
|
$ |
19,257,419 |
|
The accompanying notes are an integral part of the consolidated financial statements.
SIGMA HOLDINGS, LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, 2013
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
| |
|
|
|
|
|
Net income |
|
$ |
1,480,905 |
|
| |
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
Depreciation |
|
|
1,020,427 |
|
|
Amortization |
|
|
463,640 |
|
|
Fair value adjustment of interest rate swap agreement |
|
|
(91,072 |
) |
|
Gain on sale of equipment |
|
|
(450 |
) |
|
Effects of changes in operating assets and liabilities: |
|
|
|
|
|
Accounts receivable |
|
|
(1,841,925 |
) |
|
Accounts receivable, related party |
|
|
(1,374,657 |
) |
|
Inventories |
|
|
898,303 |
|
|
Prepaid expenses and other assets |
|
|
322,167 |
|
|
Accounts payable, trade |
|
|
251,707 |
|
|
Accounts payable, related party |
|
|
341,097 |
|
|
Accrued expenses |
|
|
(640,411 |
) |
|
Deferred revenue |
|
|
(26,683 |
) |
|
Net cash provided by operating activities |
|
|
803,048 |
|
| |
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
| |
|
|
|
|
|
Proceeds from sale of property and equipment |
|
|
1,200 |
|
|
Purchases of property and equipment |
|
|
(1,661,484 |
) |
|
Net cash used in investing activities |
|
|
(1,660,284 |
) |
| |
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
| |
|
|
|
|
|
Outstanding checks in excess of bank balance |
|
|
73,120 |
|
|
Net borrowing on lines of credit |
|
|
585,853 |
|
|
Proceeds from long-term debt |
|
|
853,297 |
|
|
Payments on long-term debt |
|
|
(932,566 |
) |
|
Distributions paid |
|
|
(154,893 |
) |
|
Net cash provided by financing activities |
|
|
424,811 |
|
| |
|
|
|
|
|
(DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(432,425 |
) |
| |
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
|
1,077,346 |
|
| |
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF YEAR |
|
$ |
644,921 |
|
The accompanying notes are an integral part of the consolidated financial statements.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Sigma Holdings, LLC (the Company) was formed on September 18, 2008 and is comprised of two wholly owned subsidiaries named Sigma Micro, LLC and Lexton Group, LLC. These businesses are managed collectively while sharing certain facilities and corporate service functions. The Company is a majority owned subsidiary of Sigma Holdings, Inc.
Sigma Micro, LLC develops and markets a comprehensive set of integrated commerce management solutions for leading specialty retailers in North America, Europe and Japan.
Lexton Group, LLC offers outsourced fulfillment and customer service solutions. Lexton Group, LLC provides a full suite of fulfillment, freight, warehousing and contact center services to clients in a broad range of industries, primarily specializing in direct-to-consumer (DTC) retail operations and promotional programs in the United States. It has warehousing facilities in Louisiana, Missouri, and Hazle Township, Pennsylvania, as well as contact center facilities in Louisiana and Moberly, Missouri.
The Company operates in one reportable segment.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Sigma Holdings, LLC and its wholly owned subsidiaries Sigma Micro, LLC and Lexton Group, LLC. All significant intercompany accounts and transactions have been eliminated in the consolidation.
ESTIMATES
The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
FISCAL YEAR
The Company’s fiscal year is the twelve-month period ended December 31.
CASH AND CASH EQUIVALENTS
Cash primarily consists of cash on hand and bank deposits. Cash equivalents primarily consist of money market accounts and other highly liquid investments with an original maturity of three months or less. The balances in cash accounts periodically may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes that it is not exposed to any significant credit risk on cash and cash equivalents.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company sells to customers using credit terms customary in its industry. Interest is not normally charged on receivables. Management establishes a reserve for losses on its accounts based on historic loss experience, the current aging of receivables, a specific review for potential bad debts and current economic conditions. Losses are charged off to the reserve when management deems further collection efforts will not produce additional recoveries. At December 31, 2013, no reserve for losses was deemed necessary.
INVENTORY
Inventory is valued at the lower of the cost of the inventory or fair market value. For certain inventory items, of which the Company maintains ownership until the product is purchased and distributed to the end consumer, the Company utilizes FOB shipping point to determine ownership of the inventory. This inventory is also subject to an agreement with one customer to be repurchased should the customer relationship be terminated.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Assets are depreciated by the straight-line method over their estimated useful lives ranging from three to ten years. The cost of leasehold improvements is amortized over the lesser of the length of the related leases or the estimated useful lives of the assets. Expenditures for renewals and betterments are capitalized. Maintenance and repairs are charged to expense as incurred. Upon disposal, the assets and accumulated depreciation amounts are eliminated, and any resulting gain or loss is reflected in current earnings.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the purchase method. The Company reviews goodwill for potential impairment annually for each reporting unit or when events or changes in circumstances indicate that the carrying value of the goodwill might exceed its current fair value. The Company evaluates impairment of goodwill by first performing a qualitative assessment to determine whether it is more likely than not that the fair value is less than its carrying value. Factors which may cause impairment include negative industry or economic trends and significant underperformance relative to historical or projected future operating results. The Company determines fair value by analyzing discounted cash flows. If the discounted present value of future cash flows is lower than its carrying amount, an impairment is indicated and goodwill is written down to its estimated fair value. All goodwill arose from the acquisition of and is allocated to Lexton Group, LLC.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INTANGIBLE ASSETS
The Company has other intangible assets including customer relationships, intellectual property and non-compete agreements. Amortization for the customer relationships, intellectual property and non-compete agreements is computed using the straight-line method with lives ranging from five to ten years. Intangible assets are tested for impairment whenever events or circumstances indicate that a carrying amount of an asset may not be recoverable. Fair value is determined using a discounted cash flow analysis. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated fair value of the asset.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at lower of carrying amount or fair value less costs to sell.
OPERATING LEASES
The Company conducts a portion of its business in leased facilities. Leasehold allowances, rent holidays and escalating rent provisions are accounted for on a straight-line basis over the term of the lease. The portion of deferred rent due in twelve months or less is considered short-term and is included in accrued expenses in the accompanying Consolidated Balance Sheet. The long-term portion is included in other long-term liabilities.
RESEARCH AND DEVELOPMENT
Research and development expenditures are generally charged to operations as incurred. Generally accepted accounting principles (GAAP) requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company’s product development costs, technological feasibility is established upon completion of a working model. Costs incurred by the Company between the completion of the working model and the point at which the product is ready for general release, have been insignificant. For the year ended December 31, 2013, the Company reported research and development expenses of approximately $1,424,000 which is included in the accompanying Consolidated Statement of Income as operating expenses.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
REVENUE RECOGNITION
The Company derives revenue from fulfillment services, freight services, contact center services, business services, merchandise sales, software licenses, computer hardware and post contract customer support (PCS) and services.
The Company recognizes revenue from the sale of merchandise at the time the customer takes possession of the merchandise. The Company honors merchandise returns from customers within 14 days from the date of sale and provides allowances for returns based on historical experience. The Company does not record an allowance for sales returns due to immateriality of return activity. The Company recognizes fulfillment service revenue when the service is completed. Fulfillment and freight revenues are recognized once the order has been fulfilled and the package has been transferred to the control of an independent freight carrier as evidenced by the receipt of a bill of lading. Call center service revenues are recognized in accordance with pricing addendums to the client contract based on the number of calls, emails, minutes or other business parameters. Other business service revenues are recognized as services are rendered.
Revenue from software license agreements is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed and determinable, and collectability is probable. For fees that are not fixed or determinable, revenue is recognized as payments become due from the customer. If collectability is not considered probable, revenue is recognized when the fee is collected. The Company recognizes revenue from the sale of hardware upon installation. Revenue allocable to PCS is deferred and recognized ratably over the related contract period, generally one year.
PCS includes technical support and future unspecified enhancements to the Company’s products on a when-and-if available basis. Services range from installation, training and basic consulting to software modification and customization to meet specific customer needs. In software arrangements that include rights to multiple software products, PCS and/or other services, the Company allocates the total arrangement fee amount to each deliverable based on the relative fair market value of each of the deliverables determined based on vendor-specific objective evidence.
The Company records deferred revenue for software arrangements when cash has been received from the customer and the arrangement does not qualify for revenue recognition under the Company’s revenue recognition policy.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are approximately $18,286,000 for 2013 and are included in cost of earned revenue.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
The Company elected to be classified as a Limited Liability Company under the Internal Revenue Code. Such entities are not subject to income tax and, accordingly, no provisions for federal or state taxes on income are required. Under the election, the members must include the taxable income or loss in their personal income tax returns, whether or not distributed. The federal and state income tax returns of the Company for 2010, 2011, and 2012 are subject to examination by the Internal Revenue Service (IRS) and state taxing authorities, generally for three years after they were filed.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (the “Update 2014-09”) to clarify the principles used to recognize revenue for all entities. The new guidance is effective for annual and interim periods beginning after December 15, 2016 with no early adoption permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the effect, if any, the adoption of this guidance will have on its financial position, results of operations, or cash flows.
SUBSEQUENT EVENTS
Management evaluated subsequent events through January 22, 2015, the date the consolidated financial statements were available to be issued. Events or transactions occurring after December 31, 2013, but prior to January 22, 2015, that provided additional evidence about conditions that existed at December 31, 2013, have been recognized in the consolidated financial statements as of December 31, 2013. Events or transactions that provided evidence about conditions that did not exist at December 31, 2013, but arose before the consolidated financial statements were available to be issued, have not been recognized in the consolidated financial statements as of December 31, 2013 (see Note 13).
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated depreciation, consists of the following major classes:
| |
|
2013 |
|
| |
|
|
|
|
|
Building and leasehold improvements |
|
$ |
4,640,840 |
|
|
Data processing equipment and software |
|
|
3,823,252 |
|
|
Warehouse and office equipment |
|
|
3,103,157 |
|
|
Capital in progress |
|
|
213,498 |
|
|
Automobiles |
|
|
51,868 |
|
| |
|
|
11,832,615 |
|
|
Accumulated depreciation |
|
|
(4,621,198 |
) |
| |
|
$ |
7,211,417 |
|
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
NOTE 3 – INTANGIBLE ASSETS
The carrying basis and accumulated amortization of recognized other amortized intangible assets at December 31, 2013 were:
| |
|
Amortization
Period
(Years) |
|
|
Gross
Carrying
Amount |
|
|
Accumulated
Amortization |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
10 |
|
|
$ |
4,636,400 |
|
|
$ |
2,936,387 |
|
Amortization expense for the year ended December 31, 2013 was $463,640. Estimated amortization expense for each of the succeeding years is:
|
2014 |
|
$ |
463,640 |
|
|
2015 |
|
|
463,640 |
|
|
2016 |
|
|
463,640 |
|
|
2017 |
|
|
309,093 |
|
| |
|
|
|
|
| |
|
$ |
1,700,013 |
|
NOTE 4 – DEBT
At December 31, 2013, Sigma Holdings, LLC, Sigma Micro, LLC and Lexton Group, LLC (“Borrower”) have a $4,000,000 revolving line of credit for which Sigma Holdings, Inc. (a holding company that owns approximately 85% of Sigma Holdings, LLC as of December 31, 2013) is the guarantor. The line of credit is secured by substantially all of the Company’s (including its consolidated subsidiaries’) business assets. The revolver matures in May 2014 (see Note 13). Interest is payable at the monthly published LIBOR plus 2.00% (2.17% at December 31, 2013). At December 31, 2013 there was $255,338 borrowed against this line.
At December 31, 2013, the Company has a $2,700,000 equipment credit facility that is secured by substantially all of the Company’s (including consolidated subsidiaries) business assets. The revolver matures in April 2014 (see Note 13). Interest is payable at the monthly published LIBOR plus 2.00% (2.17% at December 31, 2013). At December 31, 2013, there was $903,085 borrowed against this line.
At December 31, 2013, the Company has a $3,500,000 revolving line of credit that was extended to the Company by a customer to facilitate the purchase of approved inventory items from approved suppliers, for sale and distribution in accordance with a distribution agreement. The revolving line of credit is secured by the inventory acquired. The revolver matures in February 2016. Interest is payable at the monthly published LIBOR plus 1.50% (1.67% at December 31, 2013). At December 31, 2013, there was $1,981,685 borrowed against this line.
The credit agreement with the bank contains various financial and non-financial restrictive covenants, including a fixed charge coverage ratio and a bank debt to EBITDA ratio. As of December 31, 2013, the Company was not aware of any violations of the bank covenants.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
NOTE 4 – DEBT (continued)
Long-term debt consists of the following:
| |
|
2013 |
|
| |
|
|
|
|
|
Mortgage note, bank – monthly payments of $7,467 plus variable rate interest at LIBOR plus 200 basis points (2.17%); secured by real estate; due May 2016; hedged by interest rate swap agreement with fixed interest rate of 5.96%. |
|
$ |
1,560,533 |
|
|
Note payable, bank – monthly payments of $17,490 plus variable rate interest at LIBOR plus 200 basis points (2.17%); secured by equipment; due May 2015; hedged by interest rate swap agreement with fixed interest rate of 3.42%. |
|
|
297,331 |
|
|
Note payable, bank – requiring monthly payments of $10,251 plus variable rate interest at LIBOR plus 200 basis points (2.17%); secured by substantially all of the Company’s (including consolidated subsidiaries) business assets; due May 2015; hedged by interest rate swap agreement with fixed interest rate of 3.42%. |
|
|
174,272 |
|
|
Note payable, bank – requiring monthly payments of $30,654 plus variable rate interest at LIBOR plus 200 basis points (2.17%); secured by substantially all of the Company’s (including consolidated subsidiaries) business assets; due April 2016; hedged by interest rate swap agreement with fixed interest rate of 2.95%. |
|
|
858,325 |
|
|
Note payable, bank – requiring monthly payments of $17,777 plus variable rate interest at LIBOR plus 200 basis points (2.17%); secured by substantially all the Company’s (including consolidated subsidiaries) business assets; due April 2017; hedged by interest rate swap agreement with fixed interest rate of 2.87%. |
|
|
711,081 |
|
| |
|
|
3,601,542 |
|
|
Less: current maturities |
|
|
(1,003,674 |
) |
| |
|
$ |
2,597,868 |
|
Aggregate annual maturities of long-term debt at December 31, 2013 are as follows:
|
2014 |
|
$ |
1,003,674 |
|
|
2015 |
|
|
809,484 |
|
|
2016 |
|
|
1,717,276 |
|
|
2017 |
|
|
71,108 |
|
| |
|
$ |
3,601,542 |
|
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
NOTE 5 – LEASES
The Company has several non-cancelable operating leases, primarily related to its corporate offices, which expire at various dates through September 2018. Those leases generally contain renewal options for periods ranging from 2 to 5 years and require the Company to pay all execution costs such as taxes, maintenance, and insurance. Rental expenses for those leases totaled $603,477 for the year ended December 31, 2013. Future minimum lease payments under operating leases are:
|
2014 |
|
$ |
597,783 |
|
|
2015 |
|
|
551,842 |
|
|
2016 |
|
|
564,642 |
|
|
2017 |
|
|
296,170 |
|
|
2018 |
|
|
155,281 |
|
| |
|
$ |
2,165,718 |
|
NOTE 6 – EMPLOYEE BENEFITS
The Company maintains a profit-sharing plan for the benefit of all eligible employees. Plan contributions are discretionary up to 5% of eligible wages and the Company has the right to amend or terminate the plan at any time. The Company contributed $83,330 to the plan for the year ended December 31, 2013.
NOTE 7 – CONCENTRATION RISKS
The Company had four customers that provided in excess of 10% of consolidated earned revenue in 2013. These customers accounted for 56% of earned revenue in 2013. In addition, 37% of consolidated accounts receivable were due from these customers at December 31, 2013.
NOTE 8 – DERIVATIVE FINANCIAL INSTRUMENTS
The Company has entered into interest rate swap agreements for a portion of its variable rate debt. The agreements provide for the Company to receive interest from the counterparty at a monthly LIBOR rate plus 200 basis points and to pay interest to the counterparty at a fixed rate on the underlying notional amount of $3,601,541 at December 31, 2013. Under the agreement, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense. As of December 31, 2013, the fair value of the interest rate swap liability was $92,651.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
NOTE 8 – DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Management has not designated the interest rate swap agreements as cash flow hedges. As a result, the Company recorded the change in the fair values of the hedges for 2013 totaling $91,072 as interest expense.
NOTE 9 – FAIR VALUE OF FINANCIAL INSTRUMENTS
In determining fair value, the Company used various valuation approaches within the FASB Accounting Standards Codification (ASC) 820 fair value measurement framework. Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability.
ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. ASC 820 defines levels within the hierarchy based on the reliability of inputs as follows:
| Level 1: |
Valuations based on unadjusted quoted prices for identical assets or liabilities in active markets; |
| |
|
| Level 2: |
Valuations based on quoted prices for similar assets or liabilities or identical assets or liabilities in less active markets, such as dealer or broker markets; and |
| |
|
| Level 3: |
Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable, such as pricing models, discounted cash flow models and similar techniques not based on market, exchange, dealer or broker-traded transactions. |
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheet, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Interest rate swap agreement
The fair values of the interest rate swap obligations were determined by the counterparty based on the unobservable inputs and valuation models that are proprietary and, therefore, are classified within Level 3 of the valuation hierarchy. The fair value measurements of the related liabilities recognized in the accompanying consolidated financial statements were $92,651 at December 31, 2013.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
NOTE 9 – FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Interest rate swap agreement (continued)
The preceding methods 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 methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table sets forth by level, within the fair value hierarchy, the Company’s liabilities at fair value as of December 31, 2013:
| |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
92,651 |
|
|
$ |
92,651 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
92,651 |
|
|
$ |
92,651 |
|
The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated balance sheet using significant unobservable (Level 3) inputs:
| |
|
Liability
(Interest Rate
Swap Agreement) |
|
| |
|
|
|
|
|
Balance, December 31, 2012 |
|
$ |
(183,723 |
) |
|
Total unrealized gain included in interest expense |
|
|
91,072 |
|
|
Balance, December 31, 2013 |
|
$ |
(92,651 |
) |
The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheet at amounts other than fair value.
Cash and cash equivalents
The carrying amount approximates fair value.
Line of credit and long-term debt
Fair value is estimated based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities. The difference from the fair value and carrying amount is not considered significant. The terms of the amounts reflected in the consolidated balance sheet at December 31, 2013 are more fully discussed in Note 4.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
NOTE 9 – FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Line of credit and long-term debt (continued)
The following table presents estimated fair values of the Company’s other financial instruments at December 31, 2013.
| |
|
Carrying Amount |
|
|
Fair Value |
|
|
Financial Assets |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
644,921 |
|
|
$ |
644,921 |
|
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
Line of credit - bank |
|
|
255,338 |
|
|
|
255,338 |
|
|
Line of credit - equipment |
|
|
903,085 |
|
|
|
903,085 |
|
|
Line of credit - inventory |
|
|
1,981,685 |
|
|
|
1,981,685 |
|
|
Long-term debt |
|
|
3,601,542 |
|
|
|
3,601,542 |
|
NOTE 10 – SUPPLEMENTAL CASH FLOWS INFORMATION
| |
|
2013 |
|
|
Cash paid during the year for: |
|
|
|
|
|
Interest |
|
$ |
218,903 |
|
NOTE 11 – RELATED PARTY TRANSACTIONS
The Company has a royalty agreement with the majority stockholder of Sigma Holdings, Inc. (parent to the Company), to provide a $10,000 per month royalty payment to a trust controlled by the stockholder.
The Company is related to various companies through common ownership as follows:
| |
Company |
Nature of Relationship |
|
| |
|
|
|
| |
Sigma Holdings, Inc. (SHI) |
Majority member of the Company |
|
| |
Sigma Micro Infotech, Inc. (Infotech) |
Variable interest entity of SHI |
|
| |
Baron Aviation, LLC (Baron) |
Majority owned subsidiary of SHI |
|
The Company conducts certain transactions with these related entities primarily comprised of cash advances to/from these entities. As a result of such transactions, the consolidated balance sheet reflects related party accounts receivable and accounts payable as follows:
|
Related Party |
|
Accounts Receivable |
|
|
Accounts Payable |
|
| |
|
|
|
|
|
|
|
|
|
SHI |
|
$ |
30,701,935 |
|
|
$ |
17,776,858 |
|
|
Infotech |
|
|
1,075,646 |
|
|
|
6,367,984 |
|
|
Baron |
|
|
210,658 |
|
|
|
93,252 |
|
| |
|
$ |
31,988,239 |
|
|
$ |
24,238,094 |
|
Management establishes a reserve for losses based on historical results and ability of related parties to pay. At December 31, 2013, no reserve for loss was considered necessary.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
NOTE 12 – MEMBERS’ EQUITY
The Company was formed by Sigma Holdings, Inc. on September 18, 2008 with an initial capitalization of 2,700,000 Common Units of Membership Interests at no par value.
The Company has issued 125,000 Series A Preferred Units of Membership Interests (Preferred Units) for $1,125,000 with the entire amount recorded as paid-in capital contributions.
The Company issued 282,467.89 Profits Interests Units through December 31, 2012 and 68,254 Profits Interests Units in 2013. The Profits Interests Units were issued at zero value in accordance with IRS Revenue Procedure 93-27 and clarified by Revenue Procedure 2001-43. Profits Interests Units entitle the Member holding such units to share in the portion of the future net income, net loss and capital appreciation of the Company and entitle such Member to all of the other rights of a Member to the extent of such units. All outstanding Profits Interests Units are fully vested, unrestricted and not subject to forfeiture. No compensation expense relating to these units was recognized in 2013. The Company has the right, but not the obligation, to repurchase these units upon death or termination of employment of the Member.
Upon dissolution of the Company, members who are creditors are entitled to amounts to satisfy the member’s liabilities. In the event that all creditors are satisfied, Series A Preferred Members are to be paid an amount equal to Series A Preferred Member’s paid-in Capital Contributions. In the event that Series A Preferred Members are paid the amount of paid-in capital, Common and Profits Interest Members will be paid in accordance with the positive balances in the member’s capital accounts.
NOTE 13 – SUBSEQUENT EVENTS
Lines of credit
In July 2014, the Company amended the terms of its $4,000,000 revolving line of credit to mature August 1, 2015. In July 2014, the Company also amended its $2,700,000 equipment credit facility to mature August 1, 2015. All other terms and conditions for these agreements remain substantially the same.
Sale of Company
On November 21, 2014 (the “Close Date”), the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Speed Commerce, Inc. and one of its subsidiaries (collectively, the “Purchasers”). Under the Purchase Agreement, the Purchasers purchased substantially all of the assets of the Company and its subsidiaries on the Close Date.
The total consideration under the Purchase Agreement (the “Purchase Price”) was nine times Adjusted EBITDA for the Company’s 2014 fiscal year as defined therein. The Purchase Price was comprised of $55 million in cash paid on the Close Date and an Earn Out potential of up to 7,000,000 shares of Purchaser’s Common Stock that will be determined within ten days of the filing of the Purchaser’s quarterly report on Form 10-Q for the third quarter of its 2015 fiscal year. Potential adjustments include a working capital adjustment. The Purchase Agreement contains customary representations and warranties and indemnification obligations.
This information is an integral part of the accompanying consolidated financial statements.
19
Exhibit 99.2
SIGMA HOLDINGS, LLC
Indianapolis, Indiana
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
TABLE OF CONTENTS
PAGE
FINANCIAL STATEMENTS
|
Consolidated Balance Sheet |
2 |
|
Consolidated Statements of Income and Comprehensive Income |
3 |
|
Consolidated Statements of Stockholders’ Equity |
4 |
|
Consolidated Statements of Cash Flows |
5 |
|
Notes to Consolidated Financial Statements |
6 |
SIGMA HOLDINGS, LLC d.b.a. Fifth Gear
CONSOLIDATED BALANCE SHEETS
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| |
|
(Unaudited) |
|
|
(Audited) |
|
| ASSETS |
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
314,810 |
|
|
|
644,921 |
|
|
Accounts receivable |
|
|
5,461,272 |
|
|
|
5,773,227 |
|
|
Accounts receivable, related party |
|
|
33,078,335 |
|
|
|
31,988,239 |
|
|
Inventories |
|
|
1,628,696 |
|
|
|
1,848,246 |
|
|
Prepaids expenses and other current assets |
|
|
1,142,057 |
|
|
|
743,861 |
|
|
Total current assets |
|
|
41,625,170 |
|
|
|
40,998,494 |
|
| |
|
|
|
|
|
|
|
|
|
PROPERTY & EQUIPMENT, net |
|
|
7,717,485 |
|
|
|
7,211,417 |
|
| |
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
4,845,793 |
|
|
|
4,845,793 |
|
|
Intangibles, net |
|
|
1,360,542 |
|
|
|
1,700,013 |
|
|
Other assets |
|
|
83,363 |
|
|
|
83,243 |
|
|
Total other assets |
|
|
6,289,698 |
|
|
|
6,629,049 |
|
|
TOTAL ASSETS |
|
$ |
55,632,353 |
|
|
|
54,838,960 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
Outstanding checks in excess of bank balance |
|
$ |
371,781 |
|
|
|
262,459 |
|
|
Accounts payable, trade |
|
|
2,024,807 |
|
|
|
1,759,271 |
|
|
Accounts payable, related party |
|
|
24,484,283 |
|
|
|
24,238,094 |
|
|
Line of credit - bank |
|
|
1,045,316 |
|
|
|
255,338 |
|
|
Line of credit - equipment |
|
|
190,580 |
|
|
|
903,085 |
|
|
Line of credit - inventory |
|
|
1,450,823 |
|
|
|
1,981,685 |
|
|
Accrued expenses |
|
|
1,141,517 |
|
|
|
1,956,943 |
|
|
Current maturities of long-term debt |
|
|
1,288,929 |
|
|
|
1,003,674 |
|
|
Deferred revenue |
|
|
137,263 |
|
|
|
377,193 |
|
|
Total current liabilities |
|
|
32,135,299 |
|
|
|
32,737,742 |
|
| |
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities |
|
|
2,582,021 |
|
|
|
2,597,868 |
|
|
Customer deposits |
|
|
- |
|
|
|
58,000 |
|
|
Interest rate swap |
|
|
92,651 |
|
|
|
92,651 |
|
|
Other long-term liabilities |
|
|
91,596 |
|
|
|
95,280 |
|
|
Total long-term liabilities |
|
|
2,766,268 |
|
|
|
2,843,799 |
|
|
Total liabilities |
|
|
34,901,567 |
|
|
|
35,581,541 |
|
| |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
Common stock, no par value Authorized, issued, and outstanding shares - 2,700,000 |
|
|
- |
|
|
|
- |
|
|
Preferred stock, no par value Authorized, issued, and outstanding shares -125,000 |
|
|
1,125,000 |
|
|
|
1,125,000 |
|
|
Retained earnings |
|
|
19,605,786 |
|
|
|
18,132,419 |
|
|
Total stockholders' equity |
|
|
20,730,786 |
|
|
|
19,257,419 |
|
|
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY |
|
$ |
55,632,353 |
|
|
|
54,838,960 |
|
SIGMA HOLDINGS, LLC d.b.a. Fifth Gear
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
| |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNED REVENUE |
|
$ |
13,306,105 |
|
|
$ |
13,056,748 |
|
|
$ |
40,603,360 |
|
|
$ |
37,159,924 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of earned revenue |
|
|
6,850,951 |
|
|
|
6,790,357 |
|
|
|
20,877,395 |
|
|
|
18,610,261 |
|
|
Selling, general and administrative |
|
|
5,787,075 |
|
|
|
5,998,136 |
|
|
|
18,021,714 |
|
|
|
17,726,746 |
|
|
Total operating expenses |
|
|
12,638,026 |
|
|
|
12,788,493 |
|
|
|
38,899,110 |
|
|
|
36,337,007 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
668,079 |
|
|
|
268,255 |
|
|
|
1,704,250 |
|
|
|
822,917 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
1,721 |
|
|
|
1,431 |
|
|
|
5,304 |
|
|
|
3,893 |
|
|
Interest expense |
|
|
(56,778 |
) |
|
|
(56,740 |
) |
|
|
(165,548 |
) |
|
|
(159,987 |
) |
|
Other income |
|
|
66,068 |
|
|
|
450 |
|
|
|
69,114 |
|
|
|
450 |
|
|
Total other income (expense) |
|
|
11,011 |
|
|
|
(54,859 |
) |
|
|
(91,130 |
) |
|
|
(155,644 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
679,089 |
|
|
$ |
213,396 |
|
|
$ |
1,613,120 |
|
|
$ |
667,273 |
|
SIGMA HOLDINGS, LLC d.b.a. Fifth Gear
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 2014
(Unaudited)
| |
|
Controlling Interest |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| |
|
Common Stock |
|
|
Preferred Stock |
|
|
Retained |
|
|
Stockholders' |
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Earnings |
|
|
Equity |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2013 |
|
|
2,700,000 |
|
|
$ |
- |
|
|
|
125,000 |
|
|
$ |
1,125,000 |
|
|
$ |
18,132,419 |
|
|
$ |
19,257,419 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,613,120 |
|
|
|
1,613,120 |
|
|
Distributions |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(139,753 |
) |
|
|
(139,753 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, SEPTEMBER 30, 2014 |
|
|
2,700,000 |
|
|
$ |
- |
|
|
|
125,000 |
|
|
$ |
1,125,000 |
|
|
$ |
19,605,786 |
|
|
$ |
20,730,786 |
|
SIGMA HOLDINGS, LLC d.b.a. Fifth Gear
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
|
Nine Months Ended September 30, |
|
| |
|
2014 |
|
|
2013 |
|
| |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,613,120 |
|
|
$ |
667,273 |
|
| |
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
806,555 |
|
|
|
750,816 |
|
|
Amortization |
|
|
339,472 |
|
|
|
347,730 |
|
|
(Gain) / Loss on sale of equipment |
|
|
4,520 |
|
|
|
(450 |
) |
|
Effects of changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(778,141 |
) |
|
|
(2,150,400 |
) |
|
Inventories |
|
|
219,550 |
|
|
|
969,317 |
|
|
Prepaid expenses and other assets |
|
|
(398,316 |
) |
|
|
66,020 |
|
|
Accounts payable |
|
|
511,723 |
|
|
|
264,511 |
|
|
Accrued expenses |
|
|
(819,109 |
) |
|
|
(1,147,359 |
) |
|
Deferred revenue |
|
|
(239,929 |
) |
|
|
(134,580 |
) |
|
Customer deposits |
|
|
(58,000 |
) |
|
|
- |
|
|
Net cash provided by operating activities |
|
|
1,201,445 |
|
|
|
(367,122 |
) |
| |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment |
|
|
- |
|
|
|
1,200 |
|
|
Purchases of property and equipment |
|
|
(1,317,143 |
) |
|
|
(1,380,912 |
) |
|
Net cash used in investing activities |
|
|
(1,317,143 |
) |
|
|
(1,379,712 |
) |
| |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Increase/(Decrease) in outstanding checks in excess of bank balance |
|
|
109,322 |
|
|
|
(175,727 |
) |
|
Net borrowing on line of credit |
|
|
(453,390 |
) |
|
|
1,164,124 |
|
|
Proceeds from long-term debt |
|
|
1,141,019 |
|
|
|
853,297 |
|
|
Payments on long-term debt |
|
|
(871,612 |
) |
|
|
(681,648 |
) |
|
Distributions paid |
|
|
(139,753 |
) |
|
|
(154,893 |
) |
|
Net cash used in financing activities |
|
|
(214,413 |
) |
|
|
1,005,153 |
|
| |
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
(330,111 |
) |
|
|
(741,681 |
) |
| |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
644,921 |
|
|
|
1,077,346 |
|
| |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
314,810 |
|
|
$ |
335,665 |
|
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Sigma Holdings, LLC (the Company) was formed on September 19, 2008 and is comprised on two wholly owned subsidiaries named Sigma Micro, LLC and Lexton Group, LLC. These businesses are managed collectively while sharing certain facilities and corporate service functions.
Sigma Micro, LLC develops and markets a comprehensive set of integrated commerce management solutions for leading specialty retailers in North America, Europe and Japan.
Lexton Group, LLC offers outsourced fulfillment and customer service solutions. Lexton Group, LLC provides a full suite of fulfillment, freight, warehousing and contact center services to clients in a broad range of industries, primarily specializing in direct-to-consumer (DTC) retail operations and promotional programs in the United States. It has warehousing facilities in Louisiana, Missouri, and Hazle Township, Pennsylvania, as well as contact center facilities in Louisiana and Moberly, Missouri.
INTERIM FINANCIAL INFORMATION
The accompanying condensed consolidated financial statements as of September 30, 2014 and for the nine months ended September 30, 2014 and 2013 have not been audited. These unaudited condensed consolidated financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s financial position as of September 30, 2014 and its results of operations and cash flows for the periods presented herein. The unaudited condensed consolidated balance sheet does not include all disclosures, including notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). The results of operations for the periods presented are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year.
The unaudited condensed consolidated financial statements were prepared for the purpose of complying with Rule 3-05 of Regulation S-X of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Exhibit 99.1.
The preparation of these unaudited condensed consolidated 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 unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Sigma Holdings, LLC and its wholly owned subsidiaries Sigma Micro, LLC and Lexton Group, LLC. All significant intercompany accounts and transactions have been eliminated in the consolidation.
CASH AND CASH EQUIVALENTS
The Company considers cash deposits in federally insured accounts and all liquid investments with a maturity of three months or less when purchased to be cash equivalents. At September 30, 2014, balances in the Company’s non-interest bearing and interest bearing transaction deposit accounts were not fully insured by the FDIC, and balances in other deposit accounts are insured by the FDIC up to $250,000 per depositor bank. The Company maintains their cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. In the opinion of the Company’s management, it is believed the deposits in excess of insured amounts are not at risk at September 30, 2014.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Assets are depreciated by the straight-line method over their estimated useful lives ranging from three to ten years. The cost of leasehold improvements is amortized over the lesser of the length of the related leases or the estimated useful lives of the assets. Expenditures for renewals and betterments are capitalized. Maintenance and repairs are charged to expense as incurred. Upon disposal, the assets and accumulated depreciation amounts are eliminated, and any resulting gain or loss is reflected in current earnings.
REVENUE RECOGNITION
The Company derives revenue from fulfillment services, freight services, contact center services, business services, merchandise sales, software licenses, computer hardware and post contract customer support (PCS) and services.
The Company recognizes revenue from the sale of merchandise at the time the customer takes possession of the merchandise. The Company honors merchandise returns from customers within 14 days from the date of sale and provides allowances for returns based on historical experience. The Company does not record an allowance for sales returns due to immateriality of return activity. The Company recognizes fulfillment service revenue when the service is completed. Fulfillment and freight revenues are recognized once the order has been fulfilled and the package has been transferred to the control of an independent freight carrier as evidenced by the receipt of a bill of lading. Call center service revenues are recognized in accordance with pricing addendums to the client contract based on the number of calls, emails, minutes or other business parameters. Other business service revenues are recognized as services are rendered.
Revenue from software license agreements is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed and determinable, and collectability is probable. For fees that are not fixed or determinable, revenue is recognized as payments become due from the customer. If collectability is not considered probable, revenue is recognized when the fee is collected. The Company recognizes revenue from the sale of hardware upon installation. Revenue allocable to PCS is deferred and recognized ratably over the related contract period, generally one year.
PCS includes technical support and future unspecified enhancements to the Company’s products on a when-and-if available basis. Services range from installation, training and basic consulting to software modification and customization to meet specific customer needs. In software arrangements that include rights to multiple software products, PCS and/or other services, the Company allocates the total arrangement fee amount to each deliverable based on the relative fair market value of each of the deliverables determined based on vendor-specific objective evidence.
The Company records deferred revenue for software arrangements when cash has been received from the customer and the arrangement does not qualify for revenue recognition under the Company’s revenue recognition policy.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in cost of earned revenue.
GOODWILL
Goodwill is tested annually for impairment. If the discounted present value of future cash flows is lower than its carrying amount, an impairment is indicated and goodwill is written down to its estimated fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements. All goodwill arose from the acquisition of and is allocated to Lexton Group, LLC.
INTANGIBLE ASSETS
The Company has other intangible assets including customer relationships, intellectual property and non-compete agreements. Amortization for the customer relationships, intellectual property and non-compete agreements are computed using the straight-line method with lives ranging from five to ten years.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
INCOME TAXES
The Companies have elected to be classified as either an S Corporation or a Limited Liability Company under the Internal Revenue Code. Such entities are not subject to income tax and, accordingly, no provisions for federal or state taxes on income are required. Under the election, the stockholders must include the taxable income or loss in their personal income tax returns, whether or not distributed. The federal and state income tax returns of the Company are subject to examination by the Internal Revenue Service (IRS) and state taxing authorities generally for three years after they were filed.
ACCOUNTS RECEIVABLE
The Company sells to customers using credit terms customary in its industry. Interest is not normally charged on receivables. Management establishes a reserve for losses on its accounts based on historic loss experience, the current aging of receivables, a specific review for potential bad debts and current economic conditions. Losses are charged off to the reserve when management deems further collection efforts will not produce additional recoveries.
INVENTORY
Inventory is valued at the lower of the cost of the inventory or fair market value. For certain inventory items, of which the Company maintains ownership until the product is purchased and distributed to the end consumer, the Company utilizes FOB shipping point to determine ownership of the inventory. This inventory is also subject to an agreement with one customer to be repurchased should the customer relationship be terminated.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at lower of carrying amount or fair value less costs to sell.
RESEARCH AND DEVELOPMENT
Research and development expenditures are generally charged to operations as incurred. Generally accepted accounting principles (“GAAP”) requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company’s product development costs, technological feasibility is established upon completion of a working model. Costs incurred by the Company between the completion of the working model and the point at which the product is ready for general release, have been insignificant.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (the “Update 2014-09”) to clarify the principles used to recognize revenue for all entities. The new guidance is effective for annual and interim periods beginning after December 15, 2016 with no early adoption permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the effect, if any, the adoption of this guidance will have on its financial position, results of operations or cash flows.
NOTE 2 – SUPPLEMENTAL CASH FLOW INFORMATION
For the three months ended September 30, 2014 and 2013, the cash paid for interest was $56,584 and $56,871, respectively. For the nine months ended September 30, 2014 and 2013, the net cash paid for interest was $166,971 and $160,060, respectively.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
NOTE 3 – INTANGIBLE ASSETS
The carrying basis and accumulated amortization of recognized other amortized intangible assets as of September 30, 2014 and December 31, 2013, respectfully, were:
| |
|
|
|
|
|
September 30, 2014
(Unaudited) |
|
|
December 31, 2013 |
|
| |
|
Amortization
Period
(Years) |
|
|
Gross
Carrying
Amount |
|
|
Accumulated
Amortization |
|
|
Gross
Carrying
Amount |
|
|
Accumulated
Amortization |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
10 |
|
|
$ |
4,636,400 |
|
|
$ |
3,284,117 |
|
|
$ |
4,636,400 |
|
|
$ |
2,936,387 |
|
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated depreciation, consists of the following major classes as of September 30, 2014 and December 31, 2013, respectfully:
| |
|
September 30, 2014
(Unaudited) |
|
|
December 31, 2013 |
|
|
Building and leasehold improvements |
|
$ |
5,557,717 |
|
|
$ |
4,640,840 |
|
|
Data processing equipment and software |
|
|
3,887,080 |
|
|
|
3,823,252 |
|
|
Warehouse and office equipment |
|
|
3,298,990 |
|
|
|
3,103,157 |
|
|
Capital in progress |
|
|
121,943 |
|
|
|
213,497 |
|
|
Automobiles |
|
|
51,869 |
|
|
|
51,869 |
|
| |
|
|
12,917,599 |
|
|
|
11,832,615 |
|
|
Accumulated depreciation |
|
|
(5,200,114 |
) |
|
|
(4,621,198 |
) |
| |
|
$ |
7,717,485 |
|
|
$ |
7,211,417 |
|
NOTE 5 – DEBT
At September 30, 2014, Sigma Holdings, LLC, Sigma Micro, LLC and Lexton Group, LLC (“Borrower”) have a $4,000,000 revolving line of credit for which Sigma Holdings, Inc. is the guarantor. Sigma Holdings, Inc. is a holding company that owns approximately 85% of Sigma Holdings, LLC as of September 30, 2014. The line of credit is secured by substantially all of the Company’s (including its consolidated subsidiaries’) business assets. The revolver matures on August 1, 2015. Interest is payable at the monthly published LIBOR plus 2.00% (2.15% at September 30, 2014). At September 30, 2014, there was $1,045,316 borrowed against this line.
At September 30, 2014, the Company has a $2,700,000 equipment credit facility that is secured by substantially all of the Company’s (including consolidated subsidiaries) business assets. The revolver matures on August 1, 2015. Interest is payable at the monthly published LIBOR plus 2.00% (2.15% at September 30, 2014). At September 30, 2014, there was $190,580 borrowed against this line.
At September 30, 2014, the Company has a $3,500,000 revolving line of credit that was extended to the Company by a customer to facilitate the purchase of approved inventory items from approved suppliers, for sale and distribution in accordance with a distribution agreement. The revolving line of credit is secured by the inventory acquired. The revolver matures in February 2016. Interest is payable at the monthly published LIBOR plus 1.50% (1.65% at September 30, 2014). At September 30, 2014, there was $1,450,822 borrowed against this line.
The credit agreement with the bank contains various financial and non-financial restrictive covenants, including a fixed charge coverage ratio and a bank debt to EBITDA ratio. As of September 30, 2014, the Company was not aware of any violations of the bank covenants.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
Term loan debt was follows as of September 30, 2014 and December 31, 2013, respectively:
| |
|
September 30, 2014
(Unaudited) |
|
|
December 31, 2013 |
|
|
Mortgage note, bank – monthly payments of $7,467 plus variable rate interest at LIBOR plus 200 basis points (2.15%); secured by real estate; due May 2016; hedged by interest rate swap agreement with fixed interest rate of 5.96%. |
|
$ |
1,493,333 |
|
|
$ |
1,560,533 |
|
| |
|
|
|
|
|
|
|
|
|
Note payable, bank – monthly payments of $17,490 plus variable rate interest at LIBOR plus 200 basis points (2.15%); secured by equipment; due May 2015; hedged by interest rate swap agreement with fixed interest rate of 3.42%. |
|
|
139,921 |
|
|
|
297,331 |
|
| |
|
|
|
|
|
|
|
|
|
Note payable, bank – requiring monthly payments of $10,251 plus variable rate interest at LIBOR plus 200 basis points (2.15%); secured by substantially all of the Company’s (including consolidated subsidiaries) business assets; due May 2015; hedged by interest rate swap agreement with fixed interest rate of 3.42%. |
|
|
82,010 |
|
|
|
174,272 |
|
| |
|
|
|
|
|
|
|
|
|
Note payable, bank – requiring monthly payments of $30,654 plus variable rate interest at LIBOR plus 200 basis points (2.15%); secured by substantially all of the Company’s (including consolidated subsidiaries) business assets; due April 2016; hedged by interest rate swap agreement with fixed interest rate of 2.95%. |
|
|
582,435 |
|
|
|
858,325 |
|
| |
|
|
|
|
|
|
|
|
|
Note payable, bank – requiring monthly payments of $17,777 plus variable rate interest at LIBOR plus 200 basis points (2.15%); secured by substantially all the Company’s (including consolidated subsidiaries) business assets; due April 2017; hedged by interest rate swap agreement with fixed interest rate of 2.87%. |
|
|
551,088 |
|
|
|
711,081 |
|
| |
|
|
|
|
|
|
|
|
|
Note payable, bank – requiring monthly payments of $23,771 plus variable rate interest at LIBOR plus 200 basis points (2.15%); secured by substantially all the Company’s (including consolidated subsidiaries) business assets; due April 2018; hedged by interest rate swap agreement with fixed interest rate of 3.15%. |
|
|
1,022,163 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Less: current maturities |
|
|
(1,288,929 |
) |
|
|
(1,003,674 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
$ |
2,582,021 |
|
|
$ |
2,597,868 |
|
NOTE 6 – COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in a few litigation matters that are incidental to the operation of the Company’s business. The proceedings include fully insured worker compensation disputes and a claim for an alleged third party payable.
The Company does not believe that the resolution of any pending matters will have a material adverse effect on the Company’s consolidated results of operations, financial position or liquidity. No amounts were accrued with respect to the proceedings as of September 30, 2014.
NOTE 7 – SUBSEQUENT EVENTS
On November 21, 2014 (the “Close Date”), the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Speed Commerce, Inc. and one of its subsidiaries (collectively, the “Purchasers”). Under the Purchase Agreement, the Purchasers purchased substantially all of the assets of the Company and its subsidiaries on the Close Date.
SIGMA HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
The total consideration under the Purchase Agreement (the “Purchase Price”) was nine times Adjusted EBITDA for the Company’s 2014 fiscal year as defined therein. The Purchase Price was comprised of $55 million in cash paid on the Close Date and an Earn Out potential of up to 7,000,000 shares of Purchaser’s Common Stock that will be determined within ten days of the filing of the Purchaser’s quarterly report on Form 10-Q for the third quarter of its 2015 fiscal year. Potential adjustments include a working capital adjustment. The Purchase Agreement contains customary representations and warranties and indemnification obligations.
This information is an integral part of the accompanying condensed consolidated financial statements.
11
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements present the pro forma effect of the purchase of Sigma Holdings, LLC d.b.a. Fifth Gear Assets (“Fifth Gear”) by Speed Commerce, Inc. (“the Company” or “Speed Commerce”) through the Asset Purchase Agreement (the “Purchase Agreement”) on Speed Commerce’s historical financial position and results of operations using the purchase method of accounting. The purchase was effective November 21, 2014. Speed Commerce’s fiscal year ends on March 31 of each year, and Fifth Gear’s fiscal year ends on December 31 of each year.
The unaudited pro forma condensed combined financial information has been prepared pursuant to the requirements of Article 11 of Regulation S-X. The assumptions, estimates, reclassifications and adjustments herein have been made solely for purposes of developing the unaudited pro forma condensed combined financial information and are based upon available information and certain assumptions that we believe are reasonable. The related purchase accounting should be considered preliminary.
The unaudited pro forma condensed combined balance sheet as of September 30, 2014 is based on the historical balance sheet of Speed Commerce as of September 30, 2014 and of Fifth Gear as of September 30, 2014 and the assumption that the merger had occurred as of September 30, 2014. The pro forma condensed combined statements of operations for the fiscal year ended March 31, 2014 combines the results of operations of Speed Commerce for the year ended March 31, 2014 and of Fifth Gear for the year ended December 31, 2013 (in each case, the most recently completed fiscal year), and is based on the assumption that the merger had occurred on April 1, 2013 (incorporating Fifth Gear’s fiscal year beginning on January 1, 2013), the first days of the beginning of Speed Commerce’s and Fifth Gear’s fiscal years, respectively. As a result of the different fiscal year ends, and in order to present results for comparable periods, the unaudited pro forma interim condensed combined statements of operations for the six-month period ended September 30, 2014 combines Speed Commerce’s historical consolidated statement of operations and comprehensive income (loss) for the six-month period ended September 30, 2014 with Fifth Gear’s historical consolidated statement of operations for the six-month period ended September 30, 2014.
Assumptions underlying the pro forma adjustments necessary to reasonably present this unaudited pro forma condensed combined financial information are described in the accompanying notes, which should be read in conjunction with this unaudited pro forma condensed combined financial information. The pro forma adjustments described in the accompanying notes have been made based on available information and, in the opinion of management, are reasonable. The pro forma adjustments include the effects of Speed Commerce’s refinancing to its $100 million credit facility, which replaced prior credit facilities. The preliminary purchase price has been allocated on a preliminary basis to assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values as of the completion of the acquisition. The unaudited pro forma condensed combined statements of operations reflect the effects of applying certain preliminary purchase accounting adjustments to the historical consolidated results of operations, including items expected to have a continuing impact on the consolidated results, such as depreciation and amortization on acquired tangible and intangible assets. The unaudited pro forma condensed combined statements of operations for the six months ended September 30, 2014 and the year ended March 31, 2014 do not include non-recurring items such as transaction costs related to the acquisition of $2.0 million. A full and detailed valuation of Fifth Gear’s assets and liabilities is being completed and certain information and analyses is preliminary at this time. The final purchase price allocation is subject to the final determination of the fair values of assets acquired and liabilities assumed and, therefore, that allocation and the resulting effect on income from operations may differ materially from the unaudited pro forma amounts included herein.
The historical consolidated financial information has been adjusted to give effect to estimated pro forma events that are directly attributable to the acquisition, factually supportable and, with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the consolidated results of operations. Additionally, the unaudited pro forma condensed combined financial information does not reflect the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities. Therefore, the unaudited pro forma condensed combined financial information should not be considered indicative of actual results that would have been achieved had the acquisition occurred on the dates indicated and should not be construed as representative of the future consolidated results of operations or financial condition of the combined entity.
The unaudited pro forma condensed combined financial statements and notes thereto should be read in conjunction with (i) Speed Commerce’s historical consolidated financial statements and related notes contained in Speed Commerce’s annual report on Form 10-K for the year ended March 31, 2014, (ii) Speed Commerce’s Quarterly Report on Form 10-Q for the three and six-month periods ended September 30, 2014, (iii) Speed Commerce’s Current Reports on Form 8-K filed since March 31, 2014, and (iv) the historical financial information of Fifth Gear included within this filing.
Unaudited Pro Forma Condensed Combined Balance Sheet
(In thousands, except share amounts)
| |
|
Historical |
|
|
Pro Forma |
|
| |
|
Speed
Commerce, Inc. |
|
|
Fifth Gear |
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2014 |
|
|
Adjustments |
|
|
|
Combined |
|
| Assets |
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
6,927 |
|
|
$ |
315 |
|
|
$ |
(33 |
) |
(1) |
|
$ |
13,966 |
|
| |
|
|
|
|
|
|
|
|
|
|
6,757 |
|
(3) |
|
|
|
|
|
Accounts receivable, net |
|
|
21,915 |
|
|
|
38,540 |
|
|
|
(33,079 |
) |
(1) |
|
|
27,376 |
|
|
Prepaid expenses |
|
|
2,205 |
|
|
|
886 |
|
|
|
- |
|
|
|
|
3,091 |
|
|
Deferred costs |
|
|
4,660 |
|
|
|
- |
|
|
|
- |
|
|
|
|
4,660 |
|
|
Inventories |
|
|
- |
|
|
|
1,629 |
|
|
|
- |
|
|
|
|
1,629 |
|
|
Other assets — current |
|
|
- |
|
|
|
255 |
|
|
|
(99 |
) |
(1) |
|
|
156 |
|
|
Total current assets |
|
|
35,707 |
|
|
|
41,625 |
|
|
|
(26,454 |
) |
|
|
|
50,878 |
|
|
Property and equipment, net |
|
|
17,153 |
|
|
|
7,717 |
|
|
|
(2,050 |
) |
(2) |
|
|
22,820 |
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
20,924 |
|
|
|
1,361 |
|
|
|
(1,361 |
) |
(1) |
|
|
44,616 |
|
| |
|
|
|
|
|
|
|
|
|
|
23,692 |
|
(2) |
|
|
|
|
|
Goodwill |
|
|
30,665 |
|
|
|
4,846 |
|
|
|
(4,846 |
) |
(1) |
|
|
61,328 |
|
| |
|
|
|
|
|
|
|
|
|
|
30,663 |
|
(2) |
|
|
|
|
|
Other long-term assets |
|
|
19,889 |
|
|
|
83 |
|
|
|
(1,933 |
) |
(4) |
|
|
18,039 |
|
|
Total assets |
|
$ |
124,338 |
|
|
$ |
55,632 |
|
|
$ |
17,711 |
|
|
|
$ |
197,681 |
|
| Liabilities and shareholders’ equity |
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit |
|
$ |
- |
|
|
$ |
2,687 |
|
|
$ |
(1,236 |
) |
(1) |
|
$ |
1,451 |
|
|
Current portion of long-term debt |
|
|
875 |
|
|
|
1,289 |
|
|
|
(1,289 |
) |
(1) |
|
|
2,500 |
|
| |
|
|
|
|
|
|
|
|
|
|
1,625 |
|
(3) |
|
|
|
|
|
Accounts payable |
|
|
14,699 |
|
|
|
26,881 |
|
|
|
(24,856 |
) |
(1) |
|
|
16,134 |
|
| |
|
|
|
|
|
|
|
|
|
|
(590 |
) |
(3) |
|
|
|
|
|
Accrued expenses |
|
|
6,246 |
|
|
|
1,141 |
|
|
|
(26 |
) |
(1) |
|
|
7,361 |
|
|
Deferred payment obligation short-term - acquisition |
|
|
1,104 |
|
|
|
- |
|
|
|
- |
|
|
|
|
1,104 |
|
|
Other current liabilities |
|
|
4,372 |
|
|
|
137 |
|
|
|
- |
|
|
|
|
4,509 |
|
|
Total current liabilities |
|
|
27,296 |
|
|
|
32,135 |
|
|
|
(26,372 |
) |
|
|
|
33,059 |
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred payment obligation long-term - acquisition |
|
|
303 |
|
|
|
- |
|
|
|
- |
|
|
|
|
303 |
|
|
Deferred tax liabilities - long term |
|
|
2,405 |
|
|
|
- |
|
|
|
|
|
|
|
|
2,405 |
|
|
Long-term debt |
|
|
34,125 |
|
|
|
2,582 |
|
|
|
(2,582 |
) |
(1) |
|
|
97,500 |
|
| |
|
|
|
|
|
|
|
|
|
|
63,375 |
|
(3) |
|
|
|
|
|
Other long-term liabilities |
|
|
11,537 |
|
|
|
184 |
|
|
|
(184 |
) |
(1) |
|
|
11,537 |
|
|
Total liabilities |
|
|
75,666 |
|
|
|
34,901 |
|
|
|
34,237 |
|
|
|
|
144,804 |
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock, Series C, no par value: Authorized shares — 10,000,000; issued and outstanding shares — 3,333,333 at September 30, 2014 and zero at March 31, 2014 |
|
|
6,796 |
|
|
|
1,125 |
|
|
|
(1,125 |
) |
(1) |
|
|
6,796 |
|
|
Common stock, no par value: Authorized shares — 100,000,000; issued and outstanding shares — 65,829,512 at September 30, 2014 and 65,208,193 at March 31, 2014 |
|
|
216,862 |
|
|
|
- |
|
|
|
9,291 |
|
(5) |
|
|
226,153 |
|
|
Accumulated deficit |
|
|
(175,036 |
) |
|
|
19,606 |
|
|
|
(19,606 |
) |
(1) |
|
|
(180,122 |
) |
| |
|
|
|
|
|
|
|
|
|
|
(5,086 |
) |
(4) |
|
|
|
|
|
Accumulated other comprehensive income |
|
|
50 |
|
|
|
- |
|
|
|
- |
|
|
|
|
50 |
|
|
Total shareholders’ equity |
|
|
48,672 |
|
|
|
20,731 |
|
|
|
(16,526 |
) |
|
|
|
52,877 |
|
|
Total liabilities and shareholders’ equity |
|
$ |
124,338 |
|
|
$ |
55,632 |
|
|
$ |
17,711 |
|
|
|
$ |
197,681 |
|
Unaudited Pro Forma Condensed Combined Statement of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts)
| |
|
Historical |
|
|
Pro Forma |
|
| |
|
Speed
Commerce, Inc. |
|
|
Fifth Gear |
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
|
Adjustments |
|
|
|
Combined |
|
|
Net revenue |
|
$ |
107,079 |
|
|
$ |
51,376 |
|
|
$ |
- |
|
|
|
$ |
158,455 |
|
|
Cost of revenue |
|
|
88,972 |
|
|
|
36,832 |
|
|
|
- |
|
|
|
|
125,804 |
|
|
Gross profit |
|
|
18,107 |
|
|
|
14,544 |
|
|
|
- |
|
|
|
|
32,651 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
2,692 |
|
|
|
253 |
|
|
|
- |
|
|
|
|
2,945 |
|
|
General and administrative |
|
|
12,512 |
|
|
|
7,898 |
|
|
|
- |
|
|
|
|
20,410 |
|
|
Information technology |
|
|
2,780 |
|
|
|
3,322 |
|
|
|
- |
|
|
|
|
6,102 |
|
|
Depreciation and amortization |
|
|
5,848 |
|
|
|
1,469 |
|
|
|
2,708 |
|
(A) |
|
|
10,025 |
|
|
Total operating expenses |
|
|
23,832 |
|
|
|
12,942 |
|
|
|
2,708 |
|
|
|
|
39,482 |
|
|
Income (loss) from operations |
|
|
(5,725 |
) |
|
|
1,602 |
|
|
|
(2,708 |
) |
|
|
|
(6,831 |
) |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(1,859 |
) |
|
|
(121 |
) |
|
|
(8,723 |
) |
(B) |
|
|
(8,788 |
) |
| |
|
|
|
|
|
|
|
|
|
|
1,915 |
|
(C) |
|
|
|
|
|
Other income, net |
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
|
5 |
|
|
Income (loss) from continuing operations, before income tax |
|
|
(7,579 |
) |
|
|
1,481 |
|
|
|
(9,516 |
) |
|
|
|
(15,614 |
) |
|
Income tax expense from continuing operations |
|
|
(290 |
) |
|
|
- |
|
|
|
(75 |
) |
(D) |
|
|
(365 |
) |
|
Net income (loss) from continuing operations |
|
|
(7,869 |
) |
|
|
1,481 |
|
|
|
(9,591 |
) |
|
|
|
(15,979 |
) |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax |
|
|
(18,697 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
(18,697 |
) |
|
Net income (loss) |
|
$ |
(26,566 |
) |
|
$ |
1,481 |
|
|
$ |
(9,591 |
) |
|
|
$ |
(34,676 |
) |
Unaudited Pro Forma Condensed Combined Statement of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts)
| |
|
Historical |
|
|
Pro Forma |
|
| |
|
Speed
Commerce, Inc. |
|
|
Fifth Gear |
|
|
|
|
|
|
|
|
|
|
| |
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2014 |
|
|
Adjustments |
|
|
|
Combined |
|
|
Net revenue |
|
$ |
45,127 |
|
|
$ |
26,931 |
|
|
$ |
- |
|
|
|
$ |
72,058 |
|
|
Cost of revenue |
|
|
34,896 |
|
|
|
19,446 |
|
|
|
- |
|
|
|
|
54,342 |
|
|
Gross profit |
|
|
10,231 |
|
|
|
7,485 |
|
|
|
- |
|
|
|
|
17,716 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
1,765 |
|
|
|
179 |
|
|
|
- |
|
|
|
|
1,944 |
|
|
General and administrative |
|
|
7,751 |
|
|
|
3,786 |
|
|
|
- |
|
|
|
|
11,537 |
|
|
Information technology |
|
|
1,800 |
|
|
|
1,736 |
|
|
|
- |
|
|
|
|
3,536 |
|
|
Depreciation and amortization |
|
|
3,614 |
|
|
|
764 |
|
|
|
1,355 |
|
(A) |
|
|
5,733 |
|
|
Total operating expenses |
|
|
14,930 |
|
|
|
6,465 |
|
|
|
1,355 |
|
|
|
|
22,750 |
|
|
Income (loss) from operations |
|
|
(4,699 |
) |
|
|
1,020 |
|
|
|
(1,355 |
) |
|
|
|
(5,034 |
) |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(1,379 |
) |
|
|
(109 |
) |
|
|
(4,361 |
) |
(B) |
|
|
(4,420 |
) |
| |
|
|
|
|
|
|
|
|
|
|
1,429 |
|
(C) |
|
|
|
|
|
Loss on early extinguishment of debt, net |
|
|
(816 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
(816 |
) |
|
Other income, net |
|
|
1,761 |
|
|
|
65 |
|
|
|
- |
|
|
|
|
1,826 |
|
|
Income (loss) from continuing operations, before income tax |
|
|
(5,133 |
) |
|
|
976 |
|
|
|
(4,287 |
) |
|
|
|
(8,444 |
) |
|
Income tax expense from continuing operations |
|
|
(173 |
) |
|
|
- |
|
|
|
(49 |
) |
(D) |
|
|
(222 |
) |
|
Net income (loss) from continuing operations |
|
|
(5,306 |
) |
|
|
976 |
|
|
|
(4,336 |
) |
|
|
|
(8,666 |
) |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of discontinued operations, net of tax |
|
|
3,927 |
|
|
|
- |
|
|
|
- |
|
|
|
|
3,927 |
|
|
Loss from discontinued operations, net of tax |
|
|
(10,923 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
(10,923 |
) |
|
Net income (loss) |
|
$ |
(12,302 |
) |
|
$ |
976 |
|
|
$ |
(4,336 |
) |
|
|
$ |
(15,662 |
) |
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Conforming interim periods
Speed Commerce’s fiscal year end is March 31, while Fifth Gear’s fiscal year end is December 31. The latest interim period for Speed Commerce is its second quarter results for the three and six-month period ended September 30, 2014, while Fifth Gear’s latest interim period is its third quarter results for the three and nine-month period ended September 30, 2014. In order for the unaudited interim pro forma results of Fifth Gear to be most current, the interim results of Fifth Gear included in unaudited pro forma interim combined statement of operations reflect the six-months ended September 30, 2014. Accordingly, Fifth Gear’s historical unaudited financial information included in the unaudited pro forma condensed combined statement of operations covering the three-month period ended March 31, 2014 has been excluded as follows (amounts in thousands):
| |
|
Fifth Gear |
|
| |
|
Three Months Ended |
|
| |
|
March 31, 2014 |
|
| |
|
(Unaudited) |
|
|
Net revenue |
|
$ |
13,672 |
|
|
Cost of revenue |
|
|
9,638 |
|
|
Gross profit |
|
|
4,034 |
|
|
Operating expenses: |
|
|
|
|
|
Selling and marketing |
|
|
74 |
|
|
General and administrative |
|
|
2,055 |
|
|
Information technology |
|
|
847 |
|
|
Depreciation and amortization |
|
|
374 |
|
|
Total operating expenses |
|
|
3,350 |
|
|
Income from operations |
|
|
684 |
|
|
Other income (expense): |
|
|
|
|
|
Interest expense, net |
|
|
(51 |
) |
|
Other income (expense), net |
|
|
4 |
|
|
Income from operations, before income tax |
|
|
637 |
|
|
Income tax expense |
|
|
- |
|
|
Net income |
|
$ |
637 |
|
Transaction costs
The accompanying pro forma condensed combined financial statements do not include the impact of any transaction costs directly related to the purchase agreement that would be non-recurring. These costs are anticipated to be paid out of Speed Commerce’s cash on hand.
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2014
|
(1) |
To adjust the elimination of Fifth Gear’s assets, liabilities and equity not acquired or assumed in the transaction. |
|
(2) |
The total estimated fair value of consideration is allocated to the assets to be acquired and liabilities to be assumed is based on the following preliminary basis: |
|
Estimated fair value of total consideration |
|
$ |
63,792 |
|
| |
|
|
|
|
|
Current assets |
|
$ |
8,415 |
|
|
Fixed assets* |
|
|
5,667 |
|
|
Other assets |
|
|
83 |
|
|
Customer relationship intangible assets* |
|
|
20,100 |
|
|
Tradename* |
|
|
522 |
|
|
Developed technology intangible assets* |
|
|
3,070 |
|
|
Current liabilities |
|
|
(4,728 |
) |
|
Goodwill* |
|
|
30,663 |
|
|
Total estimated purchase price |
|
$ |
63,792 |
|
| |
* The final allocation of consideration to acquired intangible assets is subject to an independent appraisal and final analysis of the fair market value of individual items acquired. |
|
(3) |
Represents proceeds from financing in connection with the acquisition up to $100.0 million. |
|
(4) |
Represents estimated costs related to the debt agreement to finance the Fifth Gear acquisition and write-off of debt acquisition costs related to our prior debt facilities. |
|
(5) |
The fair value of the consideration as determined by a preliminary valuation. Consideration includes $54.5 million paid in cash at closing, including the estimated working capital settlement, and assumed issuance of 3.4 million shares of Speed Commerce Common Stock based upon estimates of Fifth Gear achievement of certain earnings thresholds for the year ended December 31, 2014. The fair value of consideration was determined as of September 30, 2014, the date on which the transaction is deemed to have occurred for purposes of the unaudited pro forma condensed combined balance sheet. |
Notes to Unaudited Pro Forma Condensed Combined Statements of Operations and Comprehensive Income (Loss)
|
(A) |
To record amortization expense for identifiable intangible assets and depreciation on fixed assets. |
| |
|
|
|
|
|
Year ended |
|
|
Six months |
|
| |
|
Estimated Life |
|
|
March 31, |
|
|
ended September |
|
| |
|
(in years) |
|
|
2014 |
|
|
30, 2014 |
|
|
Customer relationship intangible assets* |
|
|
12 |
|
|
$ |
1,675 |
|
|
$ |
838 |
|
|
Internally developed technology intangible assets* |
|
|
5 |
|
|
|
614 |
|
|
|
307 |
|
|
Tradename intangible asset* |
|
|
1 |
|
|
|
522 |
|
|
|
261 |
|
|
Fixed assets depreciation adjustment (valuation adjustment)* |
|
|
20 |
|
|
$ |
(103 |
) |
|
$ |
(51 |
) |
|
Pro forma adjustment |
|
|
|
|
|
$ |
2,708 |
|
|
$ |
1,355 |
|
| |
* The final allocation of consideration to acquired intangible assets and respective estimated life is subject to an independent appraisal and final analysis of the fair market value of individual items acquired. |
|
(B) |
To reflect the estimated interest and amortization of new debt issuance costs for the combined company over the term of the agreement. |
|
(C) |
To reflect the reversal of Speed Commerce’s interest expense on prior credit facilities and Fifth Gear’s interest expense related to debt not assumed. |
|
(D) |
To reflect an adjustment to the provision for income taxes for the combined company’s pro forma statutory tax rate of negative 3.8% for the twelve months ended March 31, 2014 and negative 3.4% for the six months ended September 30, 2014. |
7
Speed Comm (CE) (USOTC:SPDC)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
Speed Comm (CE) (USOTC:SPDC)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024
