AFFINA, LLC STANDALONE FINANCIAL STATEMENTS MARCH 31, 2011

Transcription

1 AFFINA, LLC STANDALONE FINANCIAL STATEMENTS MARCH 31, 2011

2 AFFINA, LLC STANDALONE BALANCE SHEET March 31, 2011 ASSETS CURRENT ASSETS Cash and cash equivalents 3,068,747 Trade accounts receivables, net of allowance for 12,773,051 doubtful accounts of $10,000 - Other receivables 32,877 Prepaid expenses 473,882 Notes receivable from AFFINA Company 3,158,002 Total Current Assets 19,506,559 PROPERTY, PLANT, AND EQUIPMENT, net 6,338,087 OTHER ASSETS Investments 1,000 Deposits 247,436 Total Other Assets 248,436 TOTAL ASSETS 26,093,081

3 LIABILITIES AND MEMBER'S EQUITY CURRENT LIABILITIES Accounts payable 303,431 Accounts payable- related parties 654,822 Salaries, wages etc. 2,874,584 Accrued expense 1,513,935 Accrued expense 342,165 Current maturities (Capital lease) 9,983 Accrued interest payable to Hinduja Global Solutions, Inc. 6,506 Note payable to AFFINA, LLC Note payable to Hinduja Global Solutions, Inc., current portion - Total Current Liabilities 5,705,426 LONG-TERM LIABILITIES Deferred compensation Obligations under lease Note payable 583,687 Total Long Term Liabilities 583,687 Total Liabilities 6,289,113 MEMBER'S EQUITY Common units 5,300,000 Undistributed losses 14,503,968 Exchange loss Total Members equity 19,803,968 TOTAL LIABILITIES AND MEMBER'S EQUITY 26,093,081

4 AFFINA, LLC STANDALONE STATEMENT OF EARNINGS March 31, 2011 REVENUES 83,720,685 COST OF SERVICE 62,369,062 Gross profit 21,351,623 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 15,578,797 OPERATING INCOME 5,772,826 Other Income (Expense) Other Income - Interest Expense (205,603) NET PROFIT 5,567,223

5 AFFINA, LLC STANDALONE STATEMENT OF STOCKHOLDER'S EQUITY March 31, 2011 Total Common Undistributed Stockholder's Units Losses Equity BALANCE AT MARCH 31, ,300,000 8,936,745 14,236,744 Net earnings 5,567,223 5,567,223 BALANCE AT MARCH 31, ,300,000 14,503,968 19,803,967

6 AFFINA, LLC STANDALONE NOTES TO FINANCIAL STATEMENTS MARCH 31, 2011 NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AFFINA, LLC (the Company ) was incorporated on November 12, The Company partners with Fortune 1000 companies and government agencies to provide comprehensive Customer Relationship Management (CRM) programs integrating inbound contact center, internet, database marketing, market research, closed-loop lead management, and fulfillment services. The Company employs approximately 1,975 people nationwide and serves clients in the agriculture, consumer electronics, consumer products, consumer packaged goods, healthcare, and telecommunications industries. On November 10, 2006, Hinduja Global Solutions, Inc. acquired 100 percent of the common units of AFFINA, LLC. By acquiring 100 percent ownership of AFFINA, LLC, Hinduja Global Solutions, Inc. also acquired the underlying direct and indirect subsidiaries, RMT, LLC and AFFINA Company. In connection with the acquisition of the common units, Hinduja Global Solutions, Inc. retired all long-term debt, including accrued interest, of AFFINA, LLC as of November 10, The amount used to retire this debt and related accrued interest plus additional borrowings is reflected as an intercompany payable in the accompanying balance sheets. The accompanying balance sheets have been prepared based on AFFINA, LLC s historical basis and do not reflect push-down accounting for the November 10, 2006 acquisition. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimate is the allowance for doubtful accounts. Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Accounts Receivable Accounts receivable are uncollateralized customer obligations which generally require payment within thirty days from the invoice date. Accounts receivable are stated at the invoice amount.

7 NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounts Receivable (Continued) Account balances with invoices over ninety days old are considered delinquent. Payments of accounts receivable are applied to the specific invoices identified on the customer s remittance advice or, if unspecified, to prior unpaid invoices. The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management s best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management s assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer s credit worthiness or actual defaults are higher than the historical experience, management s estimates of the recoverability of amounts due the Company could be adversely affected. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts. Property, Plant, and Equipment Property, plant, and equipment are stated at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the assets which range from three to twenty years. Expenditures for maintenance and repairs are expensed; expenditures for renewals and improvements which extend the lives of the related assets are generally capitalized and depreciated. Upon sale or disposal, assets and related accumulated depreciation are removed from the accounts, and any related gains or losses are reflected in the statements of earnings. The Company capitalizes the consulting and license fees, internal employee costs, and other associated costs related to the development of internally used software systems. The assets are amortized over three years using the straight-line method. 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 the lower of carrying amount or the fair value less costs to sell.

8 NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue Recognition Revenues from all services are recognized upon completion of such services. Advertising The Company expenses advertising costs as incurred. Advertising expense was $101,522 for the year ended March 31, Income Taxes The Company is a single member LLC. Accordingly, it is treated as a disregarded entity for federal and state income taxes. As such, all income and losses are reported by Hinduja Global Solutions, Inc. The Company adopted the Financial Accounting Standards Board s requirements for accounting for uncertain tax positions on April 1, The Company determined that it was not required to record a liability related to uncertain tax positions as a result of implementing the new requirements. NOTE 2 - CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of the following at March 31: 2011 Cash in bank - operating $ 2,675,643 Cash in bank - client rebates 374,233 Petty cash 3,985 $ 3,053,861 NOTE 3 - NOTE RECEIVABLE FROM AFFINA COMPANY The note receivable from AFFINA Company has been classified by management as current. No written note agreement exists.

9 NOTE 4 - PROPERTY, PLANT, AND EQUIPMENT The components of property, plant, and equipment at March 31 are as follows: 2011 Office furniture and fixtures $ 1,317,778 Equipment 8,158,145 Leasehold improvements 333,645 Capitalized software 6,490,699 Work in process 78,675 Less: Accumulated depreciation (6,209,467) Accumulated amortization of capitalized software (3,,831,389) Total property, plant, and equipment $ 6,338,087 Depreciation expense, excluding amortization of capitalized software costs, was $955,632 for the year ended March 31, Amortization expense was $325,061 for the year ended March 31, NOTE 5 - OBLIGATIONS UNDER CAPITAL LEASE The Company leases equipment under capital leases which expire at various dates through March Cost and accumulated depreciation of the equipment at March 31, 2011are as follows: 2011 Cost $ 49,922 Accumulated depreciation 39,521 Net book value $ 71,151

10 NOTE 5 - OBLIGATIONS UNDER CAPITAL LEASE (CONTINUED) Future minimum lease payments under these leases are as follows: 2012 $ 12,484 Total minimum lease payments 12,484 Less amount representing interest 2,500 Present value of minimum lease payments 9,984 Less current maturities 9,984 Obligations under capital lease, less current maturities $ 0 NOTE 6 - NOTE PAYABLE TO HINDUJA GLOBAL SOLUTIONS, INC. The note payable to Hinduja Global Solutions, Inc. has been classified by management as longterm. No physical note agreement exists. Effective July 1, 2007, AFFINA, LLC began accruing interest on this payable at an annual rate of 8.5 percent. NOTE 7 - MEMBER S EQUITY At March 31, 2010 and 2009, the number of units is as follows: Contributed Capital Class A Units $ 5,300,000 NOTE 8 - EMPLOYEE BENEFIT PLANS Substantially all full-time employees may participate in the Company s 401(k) plan. Participating employees may contribute from 2 to 20 percent of their earnings. The Company matches 50 percent of the first 4 percent of earnings contributed by each employee. Expense for the plan was $283,561 for the year ended March 31, 2011.

11 NOTE 9 - COMMITMENTS At March 31, 2011, the Company provides three standby letters of credit aggregating $3,295,281 in favor of its landlords at its Peoria and El Paso locations. The letters of credit are collateralized by a bank account in the amount of $3,315,116 provided by Hinduja Global Solutions, Inc. The Company leases office, warehouse space, data processing software, and equipment under cancelable and noncancelable contractual agreements, some of which include renewal options for various periods. Rental expense under these agreements was $3,996,185 for the year ended March 31, The Company has also entered into noncancelable purchase agreements with certain vendors, principally related to telephone services, which extend beyond one year. Amounts purchased under purchase commitments were approximately $1,368,456 for the year ended March 31, Future minimum rental payments on building operating leases, and commitments under noncancelable purchase agreements, are as follows: Purchase Year Buildings Agreements 2012 $ 3,226,682 $ 500, ,001, , , ,598 - $ 4,839,695 $ 875,000 The Company self-insures a portion of the risks associated with medical related expenses incurred by its employees. Under the self-insurance plan, the Company is responsible for the first $150,000 of qualifying medical expenses per individual employee on an annual policy period (January 1 through December 31). There are approximately 1,367 participants at March 31, The Company maintains an insurance contract which covers individual claims in excess of $150,000 up to $1,000,000 on an annual policy period and aggregate claims exceeding approximately $6,875,460. During the three months ended March 31, 2010, the Company incurred $1,708,684 of its maximum potential cost. NOTE 10 - SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK Two customers accounted for approximately 18 and 11 percent of the Company s revenues for the year ended March 31, 2011.

12 Accounts receivable from these two customers totaled approximately $4,670,771 on March 31, The Company maintains its cash accounts with two banks. As of March 31, 2011, cash balances were insured by the FDIC up to $250,000 per depositor per bank. At times, the balances in these accounts may exceed the federally insured limits. NOTE 11 - RELATED PARTY TRANSACTIONS The Company had the following related party transactions during the years ended March 31, 2011: Name of Company Nature of Transaction Amount Revenue Source1 HTMT, Inc. Sevices rendered for HGSI Clients 2,173, Expenses Source1 HTMT, Inc. Interest expense on note payable 202, Source1 HTMT, Inc. Maintenance on Avaya Switch 27, Source1 HTMT, Inc. Phone expense for Ryder Program 34, HTMT Global Solutions RMC (workforce) services 126, HTMT Global Solutions 3rd Shift Support 12, HTMT Global Solutions Travel Costs (debit notes) 17, HTMT Cyber Park RCRC QA services 24, HTMT Cyber Park Labor-AT&T Manila program 2,640, HTMT Cyber Park AT&T Manila Trainer expenses 13, HTMT Cyber Park EMCO Awards Expense HTMT Cyber Park Labor-Andersen Emco program 848, Billings for Exp Recovery HTMT Cyber Park AT&T Manila Trainer expenses 37, Source1 HTMT, Inc. Sales/Marketing Costs 489, Asset Acquisition HTMT Global Solutions Debit Notes 1,301,175.79

13 NOTE 11 - RELATED PARTY TRANSACTIONS (CONTINUED) At March 31, 2011the Company had the following balances due to/from related parties: Name of Company Category Amount Source1 HTMT, Inc. Accounts Payable Related Parties - HTMT Global Solutions Accounts Payable Related Parties 9, HTMT Global Solutions Accounts Payable Related Parties 1, TOTAL 10, Source1 HTMT, Inc. Accrued Liabilities-Related Parties 2, HTMT Global Solutions Accrued Liabilities-Related Parties 9, HTMT Global Solutions Accrued Liabilities-Related Parties 1, HTMT Cyber Park Accrued Liabilities-Related Parties 58, HTMT Cyber Park Accrued Liabilities-Related Parties 1, HTMT Cyber Park Accrued Liabilities-Related Parties 146, TOTAL 219, Source1 HTMT, Inc. Accrued Interest Payable 32, Source1 HTMT, Inc. Note Payable, less current portion 3,762,945.93