EX-99.2 3 dex992.htm EXHIBIT 99.2 EXHIBIT 99.2

 

Exhibit 99.2

 

Gray Hawk Systems, Inc. and Subsidiaries

 

Condensed Consolidated Balance Sheets

 

     (Unaudited)

 
     March 31,
2005


    December 31,
2004


 

Assets

                

Current assets

                

Cash and cash equivalents

   $ —       $ 80,113  

Accounts receivable - contracts

     17,664,743       15,786,333  

Prepaid expenses

     326,388       191,253  
    


 


Total current assets

     17,991,131       16,057,699  
    


 


Property and equipment

     1,855,588       1,840,994  

Less: Accumulated depreciation

     (1,073,740 )     (947,143 )
    


 


Net property and equipment

     781,848       893,851  
    


 


Other assets

                

Deposits

     246,262       120,218  

Contract intangible

     202,841       202,841  

Certificate of deposit - restricte d

     37,814       37,768  

Goodwill

     8,256,549       8,143,515  
    


 


Total other assets

     8,743,466       8,504,342  
    


 


Total assets

   $ 27,516,445     $ 25,455,892  
    


 


 

The accompanying Notes to Financial Statements are an integral part of

these financial statements.


 

Gray Hawk Systems, Inc. and Subsidiaries

 

Condensed Consolidated Balance Sheets

 

     (Unaudited)

 
     March 31,
2005


    December 31,
2004


 

Liabilities and Stockholders’ Equity

                

Current liabilities

                

Bank overdraft

   $ —       $ 1,537,661  

Note payable - Line of credit

     7,520,000       5,635,000  

Note payable

     145,000       145,000  

Accounts payable

     3,410,726       2,333,989  

Accrued wages and expenses

     3,671,808       3,722,650  

Deferred income taxes

     207,316       207,316  

Deferred revenue

     358,658       118,934  
    


 


Total current liabilities

     15,313,508       13,700,550  

Long-term liabilities

                

Note payable

     —         145,000  

Deferred rent

     177,210       102,410  
    


 


Total liabilities

     15,490,718       13,947,960  
    


 


Commitments and contingencies

     —         —    

Minority interests

     —         —    
    


 


Stockholders’ equity

                

Common stock - $.01 par value, 20,000,000 shares authorized, 10,866,078 and 9,392,500 shares, respectively, issued and outstanding

     108,661       108,661  

Additional paid-in capital

     9,036,737       9,036,737  

Deferred compensation

     (2,151,842 )     (2,151,842 )

Retained earnings

     5,032,171       4,514,376  
    


 


Total stockholders’ equity

     12,025,727       11,507,932  
    


 


Total liabilities and stockholders’ equity

   $ 27,516,445     $ 25,455,892  
    


 


 

The accompanying Notes to Financial Statements are an integral part of

these financial statements.


 

Gray Hawk Systems, Inc. and Subsidiaries

 

Condensed Consolidated Statements of Income

 

     (Unaudited)

 

Three months ended March 31,


   2005

    2004

 

Contract revenue

   $ 18,026,825     $ 17,414,430  
    


 


Direct contract costs

                

Direct labor

     6,860,971       5,046,162  

Other direct costs

     3,201,246       5,644,360  
    


 


Total direct contract costs

     10,062,217       10,690,522  
    


 


Gross margin on revenue

     7,964,608       6,723,908  
    


 


Indirect costs

                

Overhead expenses

     4,660,224       3,477,020  

General and administrative expenses

     2,701,913       2,545,486  
    


 


Total indirect costs

     7,362,137       6,022,506  
    


 


Income from operations

     602,471       701,402  
    


 


Other income (expense)

                

Interest expense

     (87,741 )     (23,184 )

Miscellaneous income

     2,090       1,338  
    


 


Total other expense

     (85,651 )     (21,846 )
    


 


Net income before income taxes and minority interests

     516,820       679,556  

Provision for income taxes

     —         —    
    


 


Net income before minority interests

     516,820       679,556  

Minority interests

     —         —    
    


 


Net income

   $ 516,820     $ 679,556  
    


 


 

The accompanying Notes to Financial Statements are an integral part of

these financial statements.


 

Gray Hawk Systems, Inc. and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows

 

     (Unaudited)

 

Three months ended March 31,


   2005

    2004

 

Cash flows from operating activities

                

Net income

   $ 516,820     $ 679,556  

Adjustments to reconcile net income to net cash provided (used) by operating activities

                

Depreciation and amortization

     126,597       (172,971 )

Gain (loss) on disposal of fixed assets

     —         —    

Stock compensation

     —         3,434,800  

Minority interests

     —         —    

Minority interests awarded as compensation

     —         —    

(Increase) decrease in

                

Accounts receivable - contracts

     (1,878,410 )     (4,738,075 )

Prepaid expenses

     (135,135 )     258,447  

Deposits

     (126,044 )     (23,559 )

Increase (decrease) in

                

Bank overdraft

     (1,537,661 )     (2,184,138 )

Accounts payable

     1,076,737       8,539,434  

Notes payable

     (145,000 )     —    

Accrued wages and expenses

     (50,842 )     749,672  

Deferred income taxes

     —         —    

Deferred revenue

     239,724       (245,372 )

Deferred rent

     74,800       —    
    


 


Net cash provided (used) by operating activities

     (1,838,414 )     6,297,794  
    


 


Cash flows used by investing activities

                

Purchase of Symmetron, Inc., net of cash acquired

     (113,034 )     —    

Reinvestment of earnings of certificate of deposit

     (46 )     34,612  

Proceeds from sale of property and equipment

     —         —    

Purchase of property and equipment

     (14,594 )     —    
    


 


Net cash used by investing activities

     (127,674 )     34,612  
    


 


Cash flows from financing activities

                

Principal payments on line of credit

     (9,507,000 )     (14,472,000 )

Proceeds from line of credit

     11,392,000       11,124,000  

Proceeds from exercise of options

     —         —    

Redemption of common stock

     975       (2,860,512 )

Repurchase of minority membership interests

     —         —    
    


 


Net cash (used) provided by financing activities

     1,885,975       (6,208,512 )
    


 


 

The accompanying Notes to Financial Statements are an integral part of

these financial statements.


Gray Hawk Systems, Inc. and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows (continued)

 

     (Unaudited)

Three Months Ended March 31,


   2005

    2004

Net change in cash

   $ (80,113 )   $ 123,894

Cash, beginning of year

     80,113       —  
    


 

Cash, end of year

   $ —       $ 123,894
    


 

Actual cash payments for:

              

Interest

   $ 87,742     $ 23,184
    


 

Non-cash financing transactions

              

Note payable issued for redemption of common stock

   $ 148,914        

Note payable issued for redemption of membership units

   $ 141,086        

 

The accompanying Notes to Financial Statements are an integral part of

these financial statements.


Gray Hawk Systems, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the three months ending March 31, 2005 and 2004

Unaudited

 


1.    Introduction and Interview   

Gray Hawk Systems, Inc. (GHSI) was organized under the laws of the Commonwealth of Virginia on September 5, 1995. The Company’s primary business activities are focused on providing information solutions, intelligence analysis, software development and systems engineering services for government clients, in particularly the Department of Defense and the U.S. Intelligence community.

 

On September 19, 2000 the Company formed Gray Hawk Technology Solutions, LLC (GHTS), as a limited liability company under the laws of the Commonwealth of Virginia. As of March 31, 2005 and December 31, 2004, the Company owned 100% of GHTS.

 

On January 17, 2002 the Company formed Hawkeye Systems, LLC (HES), as a limited liability company under the laws of the Commonwealth of Virginia. As of March 31, 2005 and December 31, 2004, the Company owned 100% of HES.

 

On February 5, 2003 the Company formed DB Data Systems, LLC (DB Data) as a limited liability company under the laws of the Commonwealth of Virginia. At March 31, 2005 and December 31, 2004, the Company owned 100% of DB Data.

 

Effective April 8, 2004, the Company acquired all of the membership units representing the minority interests in its subsidiaries GHTS, HES, and DB Data for 1,495,337 shares of GHSI stock. This transaction was accounted for as a purchase.

 

Effective December 7, 2004, GHSI acquired all of the outstanding stock of Symmetron, Inc. (Symmetron) for cash consideration of $3,361,243 including transaction costs. The acquisition was accounted for as a purchase.


Gray Hawk Systems, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the three months ending March 31, 2005 and 2004

Unaudited

 


2.        

Basis of Presentation:    The accompanying consolidated financial statements include the accounts of Gray Hawk Systems, Inc. and its subsidiaries, GHTS, HES, DB Data, and Symmetron (collectively, the Company).

 

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with accounting principals generally accepted in the United States of America, have been condensed, or omitted pursuant to those rules and regulations. We recommend that you read these unaudited condensed consolidated financial statements in conjunction with the financial statements and related notes included in Exhibit number 99.3 for the fiscal year ending December 31, 2004 and 2003. We believe that these unaudited condensed consolidated financial statements reflect all adjustments that are necessary to fairly present the financial position, results of operations and cash flows for the interim periods. The results of operations for such interim periods are not necessarily indicative of the results for the full year.

3.    Goodwill   

Goodwill represents the excess of the purchase price of the net assets acquired over the fair value of those assets at the purchase date. The changes in the carrying amount of goodwill for the periods ended March 31, 2005 and December 31, 2004 are as follows:

 

           March 31, 2005     
 
December 31,
2004
    

Goodwill related to the acquisition of all of the noncontrolling equity interests in GHTS, HES, and DB Data

  $ 5,448,213    $ 5,448,213
     Goodwill related to the acquisition of Symmetron, Inc.     2,808,336      2,695,302
         
     Total   $ 8,256,549    $ 8,143,515
         
          In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS142 requires goodwill to be tested for impairment on an annual basis, and between annual tests in certain circumstances, and written down when impaired. There can be no assurance that future goodwill impairment tests will not result in a charge to earnings.
4.    Accounts Receivable   

Accounts receivable consist of amounts due under contracts in progress with Federal government agencies, primarily the Department of Defense and U.S. Intelligence community. Management deems all accounts receivable to be collectible and all receivables are expected to be collected during the next fiscal year. The components of accounts receivable are:

 

           March 31, 2005     
 
December 31,
2004
     Billed   $ 16,052,297    $ 14,556,051
     Unbilled     1,389,556      982,449
     Retention     222,890      247,833
         
     Total   $ 17,664,743    $ 15,786,333


Gray Hawk Systems, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the three months ending March 31, 2005 and 2004

Unaudited

 


5.    Property and Equipment    Property and equipment consist of the following:                 
            March 31, 2005      
 
December 31,
2004
 
 
              


     Furniture and fixtures    $ 136,528     $ 135,350  
     Office equipment      167,563       167,563  
     Computer equipment      1,095,985       1,082,569  
     Software      353,413       353,413  
     Leasehold improvements      102,099       102,099  
         

     Total    $ 1,855,588     $ 1,840,994  
         

     Less: Accumulated depreciation      (1,073,740 )     (947,143 )
         

     Net    $ 781,848     $ 893,851  
         

6.   

Note Payable -

Line of Credit

  

The Company has a line of credit agreement with Wachovia Bank which expires on June 30, 2005. Under the terms of the agreement, the Company can borrow up to the lesser of $10,000,000, or, 90% of the eligible Government accounts receivable plus 80% of eligible commercial accounts receivable less any amounts outstanding under letters of credit. At March 31, 2005 and December 31, 2004, the balance outstanding under the line was $7,520,000 and $5,635,000, respectively. Interest is payable monthly at a variable rate of LIBOR market index rate plus 2.75%, or, the bank’s prime rate. At March 31, 2005 and December 31, 2004, the interest rate was 5.36% and 4.9%, respectively. The line is secured by the assets of the Company.

 

The agreement requires the Company to maintain certain financial covenants, including (i) a minimum tangible net worth of $3,000,000, (ii) maintain a fixed charge coverage ratio of not less than 1.25 to 1. At March 31, 2005, the Company was in compliance with these covenants.

 

The Company has a letter of credit for $34,611 that was issued as security for an operating lease. The letter of credit is secured by a certificate of deposit.

        

   

  

7.    Note Payable   

The Company is obligated under the following note payable:

 

 

            March 31, 2005      
 
December 31,
2004
 
 
              


    

Note payable for the purchase of common stock and membership units of the Company, due in two annual installments of $145,000, no interest, subordinated to the Company’s line of credit, the Company did not impute interest on the note as it was deemed to be immaterial

   $ 145,000     $ 290,000  
     Less: Current portion      (145,000 )     (145,000 )
         


Gray Hawk Systems, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the three months ending March 31, 2005 and 2004

Unaudited

 


     Long-term portion       $        —    $  145,000
         
          The following is a schedule of future principal maturities of the note payable at:
    

Year Ending

December 31

     Amount       
         
      
            2006    $ 145,000       
         
      
     Total    $ 145,000       
         
      
8.   

Related Party

Transactions

   Of the rental expense incurred for March 31, 2005 and December 31, 2004, $38,629 and $153,553, respectively, was paid to a partnership in which certain stockholders, members of the Board of Directors, and executive officers are partners.
9.   

Commitments and

Contingencies

   Payments to the Company on cost-reimbursable contracts with the U.S. government are provisional payments subject to adjustment upon audit by DCAA. As of March 31, 2005, the Company has not negotiated any final settlements on indirect cost rates. The Company periodically reviews its cost estimates and experience rates, and adjustments, if needed, are made and reflected in the period in which the estimates are revised. In the opinion of management, redetermination of any cost-based contracts for the open years will not have a material effect on the Company’s financial position or results of operations.
10.   

Subsequent

Events

   On May 3, 2005, the Company entered into a definitive agreement to have all of the Company’s outstanding shares to be acquired by ManTech International, Incorporated. On May 31, 2005 the acquisition of 100 percent of the Company’s outstanding shares was completed. The purchase price for the Merger was $101.5 million in case, which includes $1.5 million related to an initial estimated closing balance sheet adjustment. The purchase price included the full payment of the Company’s outstanding debt, repurchase of employee stock options by the Company, transaction costs and other related transaction expenses. Pursuant to the Merger Agreement, and as security for the Company’s shareholders’ indemnification obligations, an escrow in an amount equal to 10% of the adjusted purchase price has been established for a period of one year following the closing of the Merger, which is to be used to satisfy certain indemnification obligations of the Company’s shareholders.