NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 (UNAUDITED)
NOTE 1 - Organization and Business Operations
The Company was incorporated in the state of Delaware in June 1995 and is
in the business of selling automotive franchises and administering and
supporting full service automotive repair centers under the name "TILDEN FOR
BRAKES CAR CARE CENTERS". The majority of franchises are currently located in
New York, Florida and Colorado, with twelve states being represented and
expansion plans for several additional states.
NOTE 2- Interim Financial Statements
The unaudited financial statements as of September 30, 2007 and for the nine
months ended September 30, 2007 and 2006 have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with instructions to Form 10-QSB. In the opinion of
management, the unaudited financial statements have been prepared on the same
basis as the annual financial statements and reflect all adjustments, which
include only normal recurring adjustments, necessary to present fairly the
financial position as of September 30, 2007 and the results of operations and
cash flows for the periods ended September 30, 2007 and 2006. The financial data
and other information disclosed in these notes to the interim financial
statements related to these periods are unaudited. The results for the nine
months ended September 30, 2007 is not necessarily indicative of the results to
be expected for any subsequent quarter of the entire year ending December 31,
2007. The balance sheet at December 31, 2006 has been derived from the audited
financial statements at that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to the Securities
and Exchange Commission's rules and regulations. These unaudited financial
statements should be read in conjunction with our audited financial statements
and notes thereto for the year ended December 31, 2006 as included in our report
on Form 10-KSB.
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NOTE 3 - Accounts and Notes Receivable
Accounts and notes receivable consisted of the following:
September 30, December 31
2007
(Unaudited) 2006
-------------- --------------
Trade receivables from franchisees $ 803,280 $ 663,341
Installment loan due May 31, 2014 bearing interest
at 10% 80,000 41,087
-------------- --------------
Total 883,280 704,428
Less allowance for doubtful accounts (464,621) (427,239)
-------------- --------------
Net 418,659 277,189
Less long term portion (69,890) -
-------------- --------------
Current portion $ 348,769 $ 277,189
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NOTE 4 - Property and Equipment
Property and equipment consisted of the following:
September 30, December 31,
2007
(Unaudited) 2006
-------------- --------------
Machinery and shop equipment $ 59,286 $ 59,286
Signage 5,623 5,623
Furniture 11,693 11,693
Leasehold Improvements - -
-------------- --------------
Total 76,602 76,602
Less accumulated depreciation (26,681) (21,695)
-------------- --------------
Property and equipment, net
of accumulated depreciation $ 49,921 $ 54,907
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NOTE 5 - Intangible Assets
Intangible assets consisted of the following:
September 30, December 31,
2007
(Unaudited) 2006
-------------- --------------
Trademarks $ 41,347 $ 28,183
Franchise and market area rights 746,657 746,657
Organizational costs 11,325 11,325
-------------- --------------
Total 799,329 786,165
Less accumulated amortization (220,821) (219,681)
-------------- --------------
Intangible Assets, net
of accumulated amortization $ 578,508 $ 566,484
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In May 2007, the Company renewed one of its trademarks at a cost of
$13,164. Of the intangible assets listed above, only trademarks have been
amortized for the nine months ended September 30, 2007 in the amount of $1,140.
The franchise and market area rights are considered to have indefinite useful
lives and accordingly are not being amortized.
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NOTE 6 - Notes Payable
Notes payable consisted of the following:
September 30, December 31,
2007
(Unaudited) 2006
-------------- --------------
Notes payable bearing interest at varying rates
due in July of 2007 $ 18,700 $ 18,700
-------------- --------------
Total $ 18,700 $ 18,700
-------------- --------------
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In August, 2006, the Company secured a revolving line of credit. The line
is secured by the assets of the Company. During the nine months ended September
30, 2007, the Company utilized the line to help finance the purchase of a
building, which it later sold within the nine-month period. The Company used
part of the proceeds on the sale to pay down the line in full.
NOTE 7 - Income Taxes
Tilden Associates Inc. and its subsidiaries have elected to file a
consolidated income tax return for Federal and New York State income tax
purposes. Tax expense is allocated to each subsidiary based on the proportion of
its taxable income to the total consolidated taxable income.
Consolidated income tax expense consisted of the following:
Nine Months Ended
September 30,
-------------------------------
2007 2006
-------------- --------------
Current
Federal $ 7,870 $ 100,520
State 4,478 24,380
-------------- --------------
Total current provision 12,348 124,900
Deferred
Federal - -
State - -
-------------- --------------
Total deferred provision - -
-------------- --------------
Total income tax expense $ 12,348 $ 124,900
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Deferred income taxes arise from temporary differences resulting from
income and expense items reported in different periods for financial accounting
and tax purposes. The sources of deferred income taxes and their tax effects are
the result of nondeductible bad debt reserves and net operating loss
carryforwards. The benefit resulting from deferred taxes has been fully
reserved.
The actual income tax expense attributable to net income differed from
amounts computed by applying the U.S. Federal tax rate of 35% to pretax income
as a result of the benefit of net operating loss carryforwards, offset by a
reduction in the related valuation allowance and the effect of state and local
taxes. The Company is deficient in filing its Federal and State returns since
2004.
Net operating loss carryovers at December 31, 2006 were approximately
$185,000 and will expire in 2022. The Company expects to fully utilize these
carryovers in 2007.
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NOTE 8 - Commitments and Contingencies
Leases
The Company, through various subsidiaries, sub-lets properties to several
franchisees. Additionally, several franchisees sub-let property from affiliates
of the Company's President (See Note 10). Franchisees typically pay rent on
these properties to the subsidiaries. In some circumstances, franchisees may pay
rent directly to the lessors of the operating leases. At September 30, 2007,
future minimum lease payments under these operating leases for the years ending
December 31, are as follows:
2007 $ 91443
2008 291,163
2009 241,533
2010 116,533
2011 and thereafter 333,000
-----------
$ 1,073,672
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The Company leases an office in New York under an agreement that commenced
in October 2003 and expires in September 2008. Total gross rent expense for the
nine months ended September 30, 2007 was $43,189.
At September 30, 2007, the future minimum annual rental payments are as
follows:
2007 5,100
2008 15,300
-----------
$ 20,400
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Employment Agreements
The President of the Company, Mr. Robert Baskind, has an employment
contract that renews annually on the first day of each year and which entitled
him to a salary of approximately $147,000 during 2006. In accordance with the
terms of the employment contract, he is entitled to five percent increases on a
yearly basis. The employment agreement, as amended, expires in 2010.
Additionally, Mr. Baskind's agreement provides for other customary provisions.
NOTE 9 - Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk
include cash and accounts and notes receivable. At September 30, 2007 and at
December 31, 2006 two accounts exceeded federally insured limits by
approximately $322,000 and $347,000, respectively. Also, at September 30, 2007
and December 31, 2006, the Company had accounts and notes receivable from
franchisees of approximately $418,700 and $277,200, respectively, net of an
allowance for doubtful accounts of approximately $464,600 and $427,200,
respectively. Notes receivable, derived principally from sales of franchises and
market areas, are collateralized by the franchise agreements to which they
relate. Presently, a majority of the Company's franchises are within the states
of New York, Florida and Colorado.
NOTE 10- Related Party Transactions
Franchise Facilities
The Company rents certain Franchise locations owned or leased by the
Company's president and affiliates, which are sublet to Franchisees. For the
nine months ended September 30, 2007 and 2006, rent paid to the Company's
president and affiliates for real estate sublet was $55,962 and $42,000,
respectively. Management believes that the lease payments made by the Company to
these officers, directors, and affiliates are at fair market value and are
approximately equal to the rent charged to the Franchises occupying each
facility
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NOTE 11 - Stock Options
Tilden Associates, Inc. Stock Option Plans
From May 1998 to December 2005, the Company adopted several Tilden
Associates, Inc. Stock Option Plans ("the Plans") on an annual basis. The
Company may issue incentive options for a term of no greater than ten years and
non-incentive stock options for a term of no greater than eleven years. The
incentive stock options may be issued with an exercise price of no less than
100% of the fair market value of the stock at the time of the grant. However, in
the case of employees holding greater than 10% of the Company's common stock,
the option price shall not be less than 110% of the fair market value of the
stock at the time of the grant and the term of the option may not exceed five
years. The non-incentive stock options may be issued with an exercise price of
no less than 50% of the fair market value of the stock at the time of the grant.
Additionally, options may be granted to any eligible person for shares of common
stock of any value, provided that the aggregate fair market value of the stock
with respect to which incentive stock options are exercisable for the first time
during any calendar year, shall not exceed $100,000. Additionally, the option
price shall be paid in full at the time of exercise in cash or, with the
approval of the Board of Directors, in shares of common stock. Further, if prior
to the expiration of the option the employee ceases to be employed by the
Company, the options granted will terminate 90 days after termination of the
employee's employment with the Company.
From 1998 to 2005, the Company granted stock options to purchase a total
of 7,038,300 shares of the Company's common stock at exercise prices ranging
from $0.01 per share to $3.00 per share. Through December 31, 2005, 32,500
options were exercised, 938,800 options expired or were forfeited, and 6,067,000
options remained outstanding at December 31, 2005.
On July 18, 2006, a derivative action was filed challenging the issuance
of stock options by the Company to members of management and the Board of
Directors between 2001 and 2005. In August of 2006, the Company rescinded the
6,067,000 outstanding stock options issued in the years 2001 to 2005. On
September 11, 2006, the action was settled.
No stock options were granted in 2006 or in the nine months ended
September 30, 2007. At September 30, 2007, there are no stock options
outstanding.
NOTE 12 - Other Receivable
On May 5, 2004, Oilmatic Franchising Corp., a wholly owned subsidiary of
the Company ("Oilmatic"), was formed for the purpose of selling franchises for
the system developed by Oilmatic International LLC. ("International"). Through
December 31 2005, the Company advanced $79,258 to Oilmatic in connection with
its formation and the acquisition of the exclusive franchise rights for certain
locations from International. In November 2005, Oilmatic agreed to terminate its
franchise rights and International agreed to pay the Company $65,000 payable in
eighteen equal monthly installments of $3,611 commencing January, 2006. As of
September 30, 2007, the balance receivable on the agreement was $7,222.
NOTE 13 - Franchises and Market Area Activities
Franchises
During the nine months ended September 30, 2007 and 2006, the Company sold
five and seven new franchises, respectively. As of September 30, 2007 the
Company had 53 active franchised locations. Throughout each year several
franchises are returned to the Company's control either through foreclosures or
abandonment.
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Market Areas
During the nine months ended September 30, 2007 and 2006, the Company sold
none and four new rights to develop market areas, respectively.
NOTE 14 - Retirement Plan
In November 2006, the Company adopted a qualified deferred arrangement
401(k) plan where employees may contribute up to the Internal Revenue Service
deferred compensation limit for 401(k) plans, which was $15,000 in 2006. The
plan allows the Company to make optional non-elective contributions into the
plan for full-time employees. To date, the Company has matched 100% of employee
contributions subject to a minimum of 3% of the employees' wages. For the nine
months ended September 30, 2007, Company contributions to the plan (which are
expensed when incurred) were $0.
NOTE 15- Sale of Building
In March 2007, the Company purchased a building in West Babylon, New York
for approximately $819,000. The purchase was financed by cash on hand at the
time of the purchase and by the utilization of a line of credit established by
the Company in 2006. Included in the cost of the building was the purchase of
lease rights, from the franchisee who previously occupied the space, in the
amount of $125,000. Also in March 2007, the Company sold the West Babylon
building for approximately $950,000 resulting in a profit of approximately
$131,000. The contract of sale required that the Company keep $200,000 in escrow
until the building is evacuated and the equipment maintained by the franchisee
is removed. The Company anticipates that the premises will be emptied out by
December 2007, at which time it expects to have the funds held in escrow
released to them.
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