EXHIBIT 99.2





Middlebury Hardwood Products, Inc. and Affiliate
 
   
Condensed consolidated balance sheets (Unaudited)
2
Condensed consolidated statements of income (Unaudited)
3
Condensed consolidated statements of cash flows (Unaudited)
4
Notes to condensed consolidated financial statements (Unaudited)
5-8
 
 
 
 
 

 
 
Middlebury Hardwood Products, Inc. And Affiliate
 
Condensed Consolidated Balance Sheets
September 29, 2012 (Unaudited) and December 31, 2011
 
   
September 29,
2012
   
December 31,
2011
 
             
ASSETS
           
             
Current Assets
           
Cash
  $ 2,310     $ 5,098  
Cash held by IPIC
    22,776       99,663  
Trade receivables
    1,776,322       643,079  
Inventories
    2,124,946       1,823,687  
Prepaid expenses
    56,668       126,823  
                 
Total current assets
    3,983,022       2,698,350  
                 
Property and Equipment, at depreciated cost
    4,359,561       4,754,255  
                 
Property and Equipment held by IPIC, at depreciated cost
    846,778       876,680  
                 
    $ 9,189,361     $ 8,329,285  
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current Liabilities
               
Note payable, bank
  $ 647,014     $ 1,134,564  
Current maturities of long-term debt
    525,000       525,000  
Current maturities of long-term debt held by IPIC
    64,250       64,250  
Current maturities of note payable, stockholder
    300,000       300,000  
Accounts payable
    1,358,199       992,951  
Accrued expenses
    1,574,010       598,506  
                 
Total current liabilities
    4,468,473       3,615,271  
                 
Long-Term Debt, less current maturities
    1,026,167       1,408,457  
                 
Long-Term Debt, less current maturities held by IPIC
    662,660       719,720  
                 
Note Payable, stockholder, less current maturities
    788,500       1,013,500  
                 
Commitments and Contingencies
               
                 
Stockholders' Equity
               
Common stock
    124,200       124,200  
Additional paid-in capital
    743,065       743,065  
Retained earnings
    1,233,652       512,699  
Noncontrolling interest
    142,644       192,373  
      2,243,561       1,572,337  
                 
    $ 9,189,361     $ 8,329,285  
 
See Notes to Condensed Consolidated Financial Statements.
 
 
2

 
 
Middlebury Hardwood Products, Inc. And Affiliate
 
Condensed Consolidated Statements of Income (Unaudited)
Nine months Ended September 29, 2012 and October 1, 2011
 
   
September 29,
2012
   
October 1,
2011
 
             
Net sales
  $ 28,626,562     $ 26,177,161  
                 
Cost of goods sold
    25,007,691       23,215,708  
                 
Gross profit
    3,618,871       2,961,453  
                 
Operating expenses:
               
Selling and delivery
    745,365       673,422  
General and administrative
    1,093,064       969,692  
      1,838,429       1,643,114  
                 
Operating income
    1,780,442       1,318,339  
                 
Interest expense
    (169,127 )     (221,306 )
                 
Consolidated net income
    1,611,315       1,097,033  
                 
Less: Noncontrolling interest in net income of consolidated variable interest entity
    (130,363 )     (113,124 )
                 
Net income attributable to the controlling interest
  $ 1,480,952     $ 983,909  
 
See Notes to Condensed Consolidated Financial Statements.
 
 
3

 
 
Middlebury Hardwood Products, Inc. And Affiliate
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months Ended September 29, 2012 and October 1, 2011
 
   
September 29,
2012
   
October 1,
2011
 
Cash Flows From Operating Activities
           
Consolidated net income
  $ 1,611,315     $ 1,097,033  
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
               
Depreciation
    666,259       574,412  
Amortization
    1,143       1,143  
Loss (gain) on sale of equipment
    9,481       (1,563 )
Change in assets and liabilities:
               
Decrease (increase) in:
               
Receivables
    (1,133,243 )     (907,098 )
Inventories
    (301,259 )     70,618  
Prepaid expenses
    70,154       (34,356 )
(Decrease) in:
               
Accounts payable
    365,250       178,086  
Accrued expenses
    975,505       91,925  
Net cash provided by operating activities
    2,264,605       1,070,200  
                 
Cash Flows From Investing Activities
               
Proceeds from sale of equipment
    14,366       1,563  
Purchase of property and equipment
    (266,654 )     (927,531 )
Net cash (used in) investing activities
    (252,288 )     (925,968 )
                 
Cash Flows From Financing Activities
               
Net (payments) borrowings under revolving credit agreement
    (487,550 )     400,517  
Principal payments on notes payable, stockholder
    (225,000 )     (105,000 )
Proceeds from long-term borrowings
    -       364,215  
Principal payments on long-term borrowings, including capital lease obligations
    (439,350 )     (434,894 )
Distributions to noncontrolling interest member
    (180,092 )     (50,210 )
Distributions
    (760,000 )     (275,000 )
Net cash (used in) financing activities
    (2,091,992 )     (100,372 )
Increase (decrease) in cash
    (79,675 )     43,860  
                 
Cash, beginning
    104,761       37,790  
                 
Cash, ending
  $ 25,086     $ 81,650  
 
See Notes to Condensed Consolidated Financial Statements.
 
 
4

 
 
Middlebury Hardwood Products, Inc. And Affiliate

Notes To Condensed Consolidated Financial Statements
 

 
Note 1.
Nature of Business, Subsequent Event and Significant Accounting Policies
 
Nature of business and subsequent event:

Middlebury Hardwood Products, Inc. (“MHP”) manufactures wood products, primarily cabinet doors, for the recreational vehicle industry mainly located in northern Indiana, generally under terms of 30 days.

I.P.I.C., Inc. (“IPIC”) owns and leases commercial property to MHP.  IPIC is related to MHP through common ownership of one of the stockholders.

On October 26, 2012, MHP and IPIC sold substantially all of their assets to an unrelated party.

Significant accounting policies:

Use of estimates:

The preparation of 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 as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Reporting entity principles of consolidation:

The condensed consolidated financial statements include the accounts of MHP and IPIC, a variable interest entity (VIE) for which MHP is the primary beneficiary.  All significant intercompany accounts and transactions have been eliminated in consolidation.  MHP and IPIC are collectively referred to as the “Company”.

IPIC is a VIE of MHP because of a leasing arrangement and because it requires financial support consisting of long-term debt guarantees.  The primary beneficiary of a VIE is the enterprise that has both (1) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (2) the obligation to absorb losses or the right to receive residual returns that potentially could be significant to the VIE.  See Note 7 for additional information regarding MHP’s consolidated VIE.

The Company’s month end is the last Saturday closest to the last day of the month.  The Company’s year end is December 31.
 
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2011. In our opinion, these Condensed Consolidated Financial Statements reflect all adjustments, consisting of normal, recurring accruals, necessary to present fairly our Condensed Consolidated Financial Statements for the interim periods presented herein. The consolidated results of operations for the nine months ended September 29, 2012, are not necessarily indicative of the results to be expected for the full year.
 
 
5

 

Middlebury Hardwood Products, Inc. And Affiliate

Notes To Condensed Consolidated Financial Statements
 

 
Noncontrolling interest:

Noncontrolling interest represents the portion of equity in the affiliate not attributable, directly or indirectly, to MHP.  The profit or loss derived from the performance of the affiliate is allocated to the net income attributable to the noncontrolling interest in the condensed consolidated statements of income.

Long-lived assets:

The Company reviews its long-lived assets periodically to determine potential impairment by comparing the carrying value of the long-lived assets with the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition.  Should the sum of the expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date.  An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets.  There was no impairment of long-lived assets for the nine months ended September 29, 2012 and October 1, 2011.

Revenue recognition:

Revenue is primarily recognized upon shipment under terms F.O.B. shipping point upon which title passes to the customer and, at which time, collectability is reasonably assured.

Risks and uncertainties:

The Company’s sales are highly concentrated in the recreational vehicle industry.  This industry has experienced demand fluctuations in recent years due to tightening of the wholesale and retail credit markets and low consumer confidence.

Delivery expense:

For the nine months ended September 29, 2012 and October 1, 2011, the expense associated with the cost of delivery is approximately $332,000 and $361,000 respectively and is reflected in selling and delivery expenses in the accompanying condensed consolidated statement of income.

Subsequent events:

The Company has evaluated subsequent events for potential recognition and/or disclosure through January 8, 2013 the date the condensed consolidated financial statements were available to be issued.
 
Note 2.
Inventories
 
Inventories at September 29, 2012 and December 31, 2011 consist of the following:

   
September 29,
2012
   
December 31,
2011
 
             
Raw materials
  $ 707,119     $ 479,955  
Work in process
    1,192,742       1,057,676  
Finished goods
    225,085       286,056  
    $ 2,124,946     $ 1,823,687  
 
 
6

 

Middlebury Hardwood Products, Inc. And Affiliate

Notes To Condensed Consolidated Financial Statements
 

 
Note 3.
Property and Equipment
 
The cost of property and equipment and the related accumulated depreciation at September 29, 2012 and December 31, 2011 are as follows:
 
   
September 29,
2012
   
December 31,
2011
 
             
Land and improvements
  $ 285,146     $ 262,280  
Buildings and improvements
    2,979,183       2,956,769  
Machinery and equipment
    8,734,468       8,918,430  
Transportation equipment
    192,925       173,444  
Furniture and fixtures
    551,238       572,461  
      12,742,960       12,883,384  
Less accumulated depreciation
    7,536,621       7,252,449  
    $ 5,206,339     $ 5,630,935  
 
Note 4.
Income Taxes
 
Both MHP and IPIC, with the consent of their stockholders, have elected to have their income taxed under Section 1362 of the Internal Revenue Code and a similar section of the state tax laws which provide that, in lieu of corporation income taxes, the stockholders account for their proportionate shares of the Company's items of income, deduction, losses, and credits.  Therefore, these condensed consolidated statements do not include any provision for corporation income taxes.  The Company intends to make distributions in amounts sufficient to reimburse each stockholder for personal income taxes attributable to the Company's net taxable income.
 
Note 5.
Major Customers
 
Net sales to customers comprising 10% or more of total net sales for the nine months ended September 29, 2012 and October 1, 2011 and the related trade receivable balances at September 29, 2012 and December 31, 2011 are approximately as follows:
 
   
September 29,
2012
   
September 29,
2012
   
October 1,
2011
   
December 31,
2011
 
   
Net Sales
   
Trade
 Receivables
   
Net Sales
   
Trade
 Receivables
 
                         
Customer A
  $ 18,708,000     $ 833,000     $ 17,803,000     $ 55,000  
Customer B
    4,126,000       230,000       3,607,000       300,000  
 
 
7

 
 
Middlebury Hardwood Products, Inc. And Affiliate

Notes To Condensed Consolidated Financial Statements
 

 
Note 6.
Cash Flows Information
 
Supplemental information relative to the statements of cash flows for the nine months ended September 29, 2012 and October 1, 2011 and as of September 29, 2012 and December 31, 2011 is as follows:

   
2012
   
2011
 
             
Supplemental disclosures of cash flows information:
           
Cash payments for interest
  $ 171,984     $ 221,195  
Accrued distributions
  $ 717,130     $ 156,600  
 
Note 7.
Variable Interest Entity
 
MHP is the primary beneficiary of and consolidates a related party (IPIC) that is a VIE.  MHP would absorb more than a significant amount of the VIE’s expected losses based on leasing and guarantee agreements as discussed in Note 1.  Through the lease agreement, MHP controls the significant activities of the VIE.  No additional support beyond what was previously agreed to have been provided during any periods presented.

For no consideration, MHP has agreed to guarantee the long-term debt of the VIE.  MHP’s maximum exposure under this guarantee was approximately $727,000 as of September 29, 2012.  MHP can be required to perform on its guarantee in the event of nonpayment of these arrangements by the VIE.  In the event MHP would be required to pay the entire guaranteed amount, the value of the assets pledged on the bank debt would be available to liquidate and recover some or all of the amounts paid.  However, any decision to liquidate the collateral would be made after an evaluation of the circumstances at the time and the amount of any recovery available to MHP is not currently estimable.

Under the terms of the lease agreements with the VIE, MHP is required to make monthly payments of $22,000 to the VIE under a month-to-month agreement.  In addition, the Company is required to pay for property taxes, insurance and maintenance on the related property.

The following table shows the significance of the VIE for the nine months ended September 29, 2012 and October 1, 2011 and as of September 29, 2012 and December 31, 2011:

   
2012
   
2011
 
             
Gross rentals
  $ 198,000     $ 198,000  
Net income
    130,363       113,124  
Cash
    22,776       99,663  
Real property
    846,778       876,680  
Long-term debt
    726,910       783,970  
Stockholders' equity
    142,644       192,373  
 
The assets that are collateral for the debt on the VIE are all assets disclosed above.  The creditor of the VIE does not have recourse to the general credit of MHP.

 
8