EX-99 4 ex991finst.txt EX-99.1 SDL FINANCIALS SEPT EXHIBIT 99.1 SENSYS DEVELOPMENT LABORATORIES, INC. REPORT ON AUDITS OF FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001 NO EXTRACTS FROM THIS REPORT MAY BE PUBLISHED WITHOUT OUR WRITTEN CONSENT. STEGMAN & COMPANY TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT FINANCIAL STATEMENTS PAGE ---- Balance Sheet 1 - 2 Statements of Operations 3 Statement of Stockholders' Equity 4 Statements of Cash Flows 5 NOTES TO FINANCIAL STATEMENTS 6 - 9 SUPPLEMENTARY INFORMATION Contract Costs 10 Operating Expenses 11 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Sensys Development Laboratories, Inc. Annapolis Junction, Maryland We have audited the accompanying balance sheet of Sensys Development Laboratories, Inc. as of September 30, 2002 and the related statements of operations, changes in stockholders' equity and cash flows for the years ended September 30, 2002 and 2001. Theses financial statements are the responsibility of the management of Sensys Development Laboratories, Inc. Our responsibility is to express an opinion on these 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 financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sensys Development Laboratories, Inc. as of September 30, 2002 and the results of their operations, changes in stockholders' equity and cash flows for the years ended September 30, 2002 and 2001 in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of expressing an opinion on the basic financial statements taken as a whole. The supplementary information for the years ended September 30, 2002 and 2001 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Baltimore, Maryland January 10, 2003 SENSYS DEVELOPMENT LABORATORIES, INC. BALANCE SHEET SEPTEMBER 30, 2002
ASSETS CURRENT ASSETS: Cash $ 198 Accounts receivable - trade 738,749 Prepaid expenses 14,284 Other current assets 1,335 ----------- Total current assets 754,566 ----------- PROPERTY AND EQUIPMENT - at cost: Office furniture and equipment 61,825 Leasehold improvements 124,392 ----------- 186,217 Less accumulated depreciation and amortization 144,031 ----------- Net value of property and equipment 42,186 ----------- OTHER ASSETS - Deposits 6,011 ----------- TOTAL ASSETS $ 802,763 =========== See accompanying notes.
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LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable - trade $ 11,311 Note payable 85,000 Accrued vacation 69,830 Retirement plan contribution payable 127,475 Deferred income taxes 197,879 Other current liabilities 12,348 --------- Total current liabilities 503,843 --------- STOCKHOLDERS' EQUITY: Common stock - par value $.001 per share; 1,000,000 shares authorized, 773,800 shares issued and outstanding 774 Paid-in capital 3,323 Retained earnings 294,823 --------- Total stockholders' equity 298,920 --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 802,763 ========= See accompanying notes.
2 SENSYS DEVELOPMENT LABORATORIES, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
2002 2001 ---------- ---------- REVENUES $3,100,754 $2,717,614 CONTRACT COSTS 2,667,679 2,621,990 ---------- ---------- GROSS PROFIT ON CONTRACTS 433,075 95,624 OPERATING EXPENSES 374,652 306,205 ---------- ---------- INCOME (LOSS) FROM OPERATIONS 58,423 (210,581) OTHER INCOME 58,489 56,418 INTEREST EXPENSE (160) (737) ---------- ---------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 116,752 (154,900) PROVISION (BENEFIT) FOR INCOME TAXES 46,175 (61,263) ---------- ---------- NET INCOME (LOSS) $ 70,577 $ (93,637) ========== ========== See accompanying notes.
3 SENSYS DEVELOPMENT LABORATORIES, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS ------ ------- -------- Balances at September 30, 2000 $773 $1,523 $316,082 Stock options exercised 1 1,800 1,801 Net loss - - (93,637) ---- ------ -------- Balances at September 30, 2001 774 3,323 224,246 Net income - - 70,577 ---- ------ -------- Balances at September 30, 2002 $774 $3,323 $294,823 ==== ====== ======== See accompanying notes.
4 SENSYS DEVELOPMENT LABORATORIES, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
2002 2001 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 70,577 $(93,637) Noncash items included in net income (loss): Depreciation and amortization 38,444 41,446 Proceeds from sale of equipment - 9,200 Gain on disposal of equipment - (2,430) Deferred income taxes 46,175 (61,263) Net changes in: Accounts receivable - trade (103,494) 14,426 Prepaid expenses (506) (242) Other current assets 7,865 (8,792) Accounts payable - trade (9,204) (9,975) Accrued vacation 17,942 (6,416) Accrued rent (3,573) (4,675) Retirement plan contribution payable (57,523) 39,688 Other current liabilities 929 280 -------- -------- Net cash provided (used) by operating activities 7,632 (82,390) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES - Purchase of property and equipment (2,738) - -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in line of credit note payable (5,000) 77,500 Exercise of common stock - 1,800 -------- -------- Net cash (used) provided by financing activities (5,000) 79,300 -------- -------- NET DECREASE IN CASH (106) (3,090) CASH AT BEGINNING OF THE YEAR 304 3,394 -------- -------- CASH AT END OF THE YEAR $ 198 $ 304 ======== ======== Supplemental disclosures of cash flows information: Cash paid during the year for: Interest $ 160 $ 737 ======== ======== Income taxes $ - $ - ======== ======== See accompanying notes.
5 SENSYS DEVELOPMENT LABORATORIES, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Sensys Development Laboratories, Inc. (the "Company") was founded in 1996 and provides both system and software engineering technical support to U. S. Government customers and prime contractors supporting government programs. Core competencies include signal intelligence (SIGINT) systems engineering, SIGINT processing, content-based filtering and selection and world-wide web technologies. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. ACCOUNTS RECEIVABLE Accounts receivables arise from U. S. Government prime contracts and subcontracts. Retainages (which are not material) will be collected upon job completion or settlement of audits performed by cognizant U. S. Government audit agencies. Company cost records have been audited through 2000. In the year an audit is settled, the difference between audit adjustments and previously established reserves is reflected in income. CONTRACT ACCOUNTING Revenue on time and materials contracts (approximately 95% and 96% of total revenues in 2002 and 2001, respectively) is recognized to the extent of billable rates multiplied by hours delivered, plus other direct costs. Revenues consist of services rendered primarily on time and materials contracts. Revenue on fixed-price and other contracts (approximately 5% and 4% of total revenues in 2002 and 2001, respectively) is recognized on the percentage-of-completion method of accounting based on costs incurred in relation to the total estimates costs. Anticipated losses are recognized as soon as they become known. Furthermore, while such contracts are fully funded by appropriations, they may be subject to other risks inherent in government contracts, such as termination for the convenience of the government. 6 INCOME TAXES The Company files its income tax returns on the cash basis. Deferred income taxes are recorded under the asset and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences, measured by enacted tax rates, attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the rate change becomes effective. Valuation allowances are recorded for deferred tax assets when it is more likely than not that such deferred tax assets will not be realized. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is calculated using straight-line methods based on useful lives as follows: Leasehold improvements Remaining life of lease Furniture and equipment 3 to 7 years Expenditures for repairs and maintenance are charged to expense as incurred. When assets are retired or otherwise disposed of, the asset and related allowance for depreciation are eliminated from the accounts and any resulting gain or loss is reflected in income. Depreciation expense for the years ended September 30, 2002 and 2001 was $38,444 and $41,446, respectively. 2. LINE-OF-CREDIT The Company has a line-of-credit loan with a commercial bank for $150,000. This loan has an interest rate of 5.25% and matures on May 15, 2003. This loan is personally guaranteed by three officers of the Company and has an outstanding balance of $85,000 as of September 30, 2002. 3. FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK The Company grants credit to subcontractors in the state of Maryland. Accounts receivable from these subcontractors totaled $738,749 at September 30, 2002. The Company has two major customers and sales to these customers comprise approximately 65% and 73% of total sales for the years ended September 30, 2002 and 2001, respectively. 7 4. COMMITMENTS AND CONTINGENCIES The Company leases office space under a long-term lease which expires in December 2003. The lease contains provisions to pay for proportionate increases in operating costs and property taxes. As of September 30, 2002, the Company is committed to pay aggregate rentals under these leases as follows:
2003 $174,123 2004 43,850
Rental expense charged to operations, including payments made under short-term leases, amounted to $164,248 and $166,181 in 2002 and 2001, respectively. 5. RETIREMENT PLAN The Company has a qualified defined contribution retirement plan, the Sensys Development Laboratories, Inc. Employee Benefit Plan, which includes a salary reduction 401(k) feature for its employees. The Plan provides for a mandatory contribution of 8% of covered compensation. The Company may make additional contributions at the discretion of the Board of Directors. Total contributions under the Plan were $219,510 and $278,070 for the years ended September 30, 2002 and 2001, respectively. 6. INCOME TAXES The components of the provision (benefit) for income taxes are as follows:
2002 2001 -------- -------- Current tax expense $ - $ - Deferred tax expense (benefit) 46,175 (61,263) -------- -------- Total provision (benefit) for income taxes $ 46,175 $(61,263)
======== ======== A reconciliation of the differences between the statutory federal income tax rate and the effective tax rate for the Company is as follows:
2002 2001 ------ ------ Federal income tax rate 35.0% 35.0% Increase (decrease) resulting from - State income taxes, net of federal income tax benefits 4.5 4.5 ------ ------ Effective tax rate 39.5% 39.5%
====== ====== The deferred income tax provision arises from timing differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. The principal sources of these timing differences are deferrals related to cash basis income tax reporting, depreciation expense and accrued vacation. 8 The deferred tax liability at September 30, 2002 consists of the following:
Cash basis tax reporting $289,870 Accrued vacation (27,618) Depreciation (31,483) Net operating loss (32,890) -------- Total deferred tax liability $197,879
======== The Company has a net operating loss ("NOL") carryforward of approximately $53,000 that is available, subject to certain limitations, to offset future income and taxes payable. The NOL begins to expire in 2019. The evaluation of the realizability of such deferred tax assets in future periods is made based upon a variety of factors for generating future taxable income, such as intent and ability to sell assets and historical and projected operating performance. At this time, the Company has not established a valuation reserve for any of its deferred tax assets. 7. STOCK OPTIONS As of September 30, 2002, there were 131,100 incentive stock options outstanding with exercise prices per share, as follows:
NUMBER OF EXERCISE OPTIONS PRICE --------- -------- 28,300 $.004 102,800 $3.00 ------- 131,100 =======
9 SUPPLEMENTARY INFORMATION SENSYS DEVELOPMENT LABORATORIES, INC. CONTRACT COSTS FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
2002 2001 ---------- ---------- Consultants $ 20,072 $ 108,680 Depreciation 4,634 36,305 Education and training 3,482 10,155 Employee welfare 375,981 425,294 Insurance - 2,800 Miscellaneous 7,018 5,043 Office equipment and supplies 16,980 35,072 Other direct costs 30,520 5,744 Payroll taxes 134,996 120,862 Recruitment and relocation 2,595 4,755 Rent and utilities 177,038 180,416 Repairs and maintenance 5,703 2,074 Salaries - direct 1,107,284 847,613 Salaries - indirect 448,090 509,133 Salaries - bonus 263,169 220,748 Subcontractors 8,553 - Taxes and licenses 100 100 Travel 25,679 71,145 USS components 35,785 36,051 ---------- ---------- $2,667,679 $2,621,990 ========== ==========
10 SENSYS DEVELOPMENT LABORATORIES, INC. OPERATING EXPENSES FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
2002 2001 ---------- ---------- Computer $ - $ 453 Depreciation 33,810 5,141 Education and training 305 1,085 Entertainment 4,192 6,696 Insurance 10,846 9,031 Marketing 7,348 3,565 Miscellaneous expense 4,061 4,986 Office equipment and supplies 2,051 17,609 Organizational costs 10,301 - Professional fees 50,636 11,468 Rent 5,051 24,936 Repairs and maintenance 65 - Salaries 242,266 217,472 Security 2,347 2,619 Taxes and licenses - 426 Travel 1,373 718 ---------- ---------- $ 374,652 $ 306,205 ========== ==========
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