Attached files
file | filename |
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8-K/A - FORM 8-K/A - Vangent, Inc. | c06288e8vkza.htm |
EX-23.1 - EXHIBIT 23.1 - Vangent, Inc. | c06288exv23w1.htm |
EX-99.2 - EXHIBIT 99.2 - Vangent, Inc. | c06288exv99w2.htm |
Exhibit 99.1
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
BUCCANEER COMPUTER
SYSTEMS & SERVICE, INC.
AND SUBSIDIARIES
SYSTEMS & SERVICE, INC.
AND SUBSIDIARIES
DECEMBER 31, 2009 AND 2008
BUCCANEER COMPUTER SYSTEMS & SERVICE, INC. AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
CONTENTS
Page | ||||
Independent Auditors Report |
1 | |||
Consolidated Financial Statements |
||||
Consolidated Balance Sheets |
2 | |||
Consolidated Statements of Income |
3 | |||
Consolidated Statements of Stockholders Equity |
4 | |||
Consolidated Statements of Cash Flows |
5 | |||
Notes to the Consolidated Financial Statements |
6 - 12 | |||
ARGY, WILTSE & ROBINSON, P.C.
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders
Buccaneer Computer Systems & Service, Inc.
Warrenton, Virginia
Buccaneer Computer Systems & Service, Inc.
Warrenton, Virginia
We have audited the accompanying consolidated balance sheets of Buccaneer Computer Systems &
Service, Inc. and subsidiaries (collectively referred to as the Company) as of December 31, 2009
and 2008, and the related consolidated statements of income, of stockholders equity, and of cash
flows for the years then ended. These consolidated financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits 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 of 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Buccaneer Computer Systems & Service, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally accepted in the United
States of America.
As discussed in Note 9 to the consolidated financial statements, the accompanying consolidated
financial statements have been restated to reflect corrections made to certain estimates of revenue
and expenses as of and for the years ended December 31, 2009 and 2008.
/s/ Argy, Wiltse & Robinson, P.C.
Argy, Wiltse & Robinson, P.C.
McLean, Virginia
March 29, 2010, except for Notes 2 and 9 as to which the date is September 9, 2010
Argy, Wiltse & Robinson, P.C.
McLean, Virginia
March 29, 2010, except for Notes 2 and 9 as to which the date is September 9, 2010
1
BUCCANEER COMPUTER SYSTEMS & SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
2009 | 2008 | |||||||
(Restated) | (Restated) | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 803,065 | $ | 59,409 | ||||
Contract receivables |
17,849,774 | 17,244,042 | ||||||
Other current assets |
169,029 | 241,684 | ||||||
Total current assets |
18,821,868 | 17,545,135 | ||||||
Property and equipment, net |
7,370,962 | 5,469,610 | ||||||
Other assets |
150,782 | 57,395 | ||||||
Total assets |
$ | 26,343,612 | $ | 23,072,140 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Accounts payable and other accrued expenses |
$ | 3,064,260 | $ | 1,965,961 | ||||
Accrued payroll and related liabilities |
3,453,630 | 2,274,407 | ||||||
Billings in excess of revenue recognized |
754,623 | 305,401 | ||||||
Advance from stockholder |
0 | 120,000 | ||||||
Notes payable |
4,580,326 | 7,357,422 | ||||||
Total current liabilities |
11,852,839 | 12,023,191 | ||||||
Notes payable |
631,610 | 2,433,603 | ||||||
Total liabilities |
12,484,449 | 14,456,794 | ||||||
Commitments |
||||||||
Stockholders equity |
||||||||
Common stock, no par value, 8,000,000 shares authorized, 7,000,000 shares issued and outstanding |
26,000 | 10,000 | ||||||
Retained earnings |
13,574,933 | 8,368,470 | ||||||
Total BCSSI stockholders equity |
13,600,933 | 8,378,470 | ||||||
Noncontrolling interest |
258,230 | 236,876 | ||||||
Total stockholders equity |
13,859,163 | 8,615,346 | ||||||
Total liabilities and stockholders equity |
$ | 26,343,612 | $ | 23,072,140 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
2
BUCCANEER COMPUTER SYSTEMS & SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2009 AND 2008
2009 | 2008 | |||||||
(Restated) | (Restated) | |||||||
Revenue |
||||||||
8(a) contract revenue |
$ | 48,042,872 | $ | 27,848,493 | ||||
Non 8(a) contract revenue |
16,774,810 | 11,960,416 | ||||||
64,817,682 | 39,808,909 | |||||||
Operating costs and expenses |
||||||||
Cost of revenue |
57,216,182 | 35,269,819 | ||||||
Selling, general and administrative |
1,483,620 | 2,142,800 | ||||||
Depreciation and amortization |
523,030 | 289,858 | ||||||
Total operating costs and expenses |
59,222,832 | 37,702,477 | ||||||
Operating income |
5,594,850 | 2,106,432 | ||||||
Other income (expense) |
||||||||
Interest income |
4,003 | 20,402 | ||||||
Interest expense |
(220,304 | ) | (176,737 | ) | ||||
Other income |
17 | 103 | ||||||
Total other expense, net |
(216,284 | ) | (156,232 | ) | ||||
Net income |
5,378,566 | 1,950,200 | ||||||
Less: Net income attributable to the noncontrolling interest |
(171,354 | ) | (155,560 | ) | ||||
Net income attributable to BCSSI |
$ | 5,207,212 | $ | 1,794,640 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
BUCCANEER COMPUTER SYSTEMS & SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2009 AND 2008
Total | ||||||||||||||||||||||||
BCSSI, Inc. | Total | |||||||||||||||||||||||
Common stock | Retained | Stockholders | Noncontrolling | Stockholders | ||||||||||||||||||||
Shares | Amount | Earnings | Equity | Interest | Equity | |||||||||||||||||||
Balance at January 1, 2008 |
7,000,000 | $ | 2,000 | $ | 6,459,367 | $ | 6,461,367 | $ | 231,316 | $ | 6,692,683 | |||||||||||||
Stock-based compensation expense |
8,000 | 0 | 8,000 | 0 | 8,000 | |||||||||||||||||||
Contributions from BCSSI, Inc. stockholders |
0 | 114,463 | 114,463 | 0 | 114,463 | |||||||||||||||||||
Distributions to members of BDS, LLC |
0 | 0 | 0 | (150,000 | ) | (150,000 | ) | |||||||||||||||||
Net income, as restated |
0 | 1,794,640 | 1,794,640 | 155,560 | 1,950,200 | |||||||||||||||||||
Balance at December 31, 2008 |
7,000,000 | 10,000 | 8,368,470 | 8,378,470 | 236,876 | 8,615,346 | ||||||||||||||||||
Stock based compensation expense |
16,000 | 0 | 16,000 | 0 | 16,000 | |||||||||||||||||||
Distributions to stockholders of BCSSI, Inc. |
0 | (749 | ) | (749 | ) | 0 | (749 | ) | ||||||||||||||||
Distributions to members of BDS, LLC |
0 | 0 | 0 | (150,000 | ) | (150,000 | ) | |||||||||||||||||
Net income, as restated |
0 | 5,207,212 | 5,207,212 | 171,354 | 5,378,566 | |||||||||||||||||||
Balance at December 31, 2009 |
7,000,000 | $ | 26,000 | $ | 13,574,933 | $ | 13,600,933 | $ | 258,230 | $ | 13,859,163 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
BUCCANEER COMPUTER SYSTEMS & SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2009 AND 2008
2009 | 2008 | |||||||
(Restated) | (Restated) | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 5,378,566 | $ | 1,950,200 | ||||
Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |
||||||||
Depreciation and amortization |
523,030 | 289,859 | ||||||
Stock based compensation expense |
16,000 | 8,000 | ||||||
Changes in operating assets and liabilities: |
||||||||
Contract receivables |
(605,732 | ) | (10,584,594 | ) | ||||
Other current assets |
72,655 | (93,462 | ) | |||||
Accounts payable and other accrued expenses |
1,098,299 | 976,071 | ||||||
Accrued payroll and related liabilities |
1,179,223 | 816,271 | ||||||
Billings in excess of revenue recognized |
449,222 | 305,401 | ||||||
Total adjustments |
2,732,697 | (8,282,454 | ) | |||||
Net cash provided by (used in) operating
activities |
8,111,263 | (6,332,254 | ) | |||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(2,424,382 | ) | (1,124,727 | ) | ||||
Increase in other assets |
(93,387 | ) | (9,360 | ) | ||||
Net cash used in investing activities |
(2,517,769 | ) | (1,134,087 | ) | ||||
Cash flows from financing activities: |
||||||||
Net (repayments) borrowings under bank lines-of-credit |
(4,494,118 | ) | 7,279,072 | |||||
Repayments of principal under notes payable |
(84,971 | ) | (72,933 | ) | ||||
Distributions to stockholder |
(749 | ) | 0 | |||||
Distributions to noncontrolling interest |
(150,000 | ) | (150,000 | ) | ||||
Contributions from stockholder |
0 | 114,463 | ||||||
Proceeds from advance from stockholder |
(120,000 | ) | 120,000 | |||||
Net cash (used in) provided by financing activities |
(4,849,838 | ) | 7,290,602 | |||||
Net increase (decrease) in cash and cash equivalents |
743,656 | (175,739 | ) | |||||
Cash and cash equivalents at the beginning of the year |
59,409 | 235,148 | ||||||
Cash and cash equivalents at the end of the year |
$ | 803,065 | $ | 59,409 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for interest |
$ | 220,304 | $ | 176,737 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
BUCCANEER COMPUTER SYSTEMS & SERVICE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Buccaneer Computer Systems & Service, Inc. (BCSSI) was incorporated on February 7, 2000 in the
Commonwealth of Virginia. BCSSI provides computer, technical and other consulting services to
agencies of the Federal government and commercial companies.
PP&L, LLC (PP&L), was incorporated on March 5, 2004 in the Commonwealth of Virginia. BCSSI is the
sole owner of PP&L. PP&L was organized for the purpose of owning and managing real property in
Warrenton, Virginia, which is leased to BCSSI.
Buccaneer Data Services, LLC (BDS) was formed on May 12, 2006, in the state of Pennsylvania. BDS
provides computer, technical and other consulting services to one agency of the federal government.
BCSSI has a 70% ownership interest in BDS.
BCSSI operates as a U.S. government contractor under section 8(a) of the Small Business Act of
1958, and is an 8(a) firm for federal government contracting purposes. The term 8(a) refers to
section 8(a) of the Small Business Act of 1958 which permits the Small Business Administration to
enter into contracts with federal procuring agencies directly and to subcontract the performance of
the work to 8(a) certified companies. BCSSIs 8(a) status is currently valid through April 2011.
The significant accounting policies followed by BCSSI, PP&L, and BDS are described below.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of BCSSI, PP&L, and BDS
(collectively, referred to as the Company). The activity of the subsidiary (BDS) that is not
wholly-owned by BCSSI is presented as noncontrolling interest. All significant intercompany
balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of 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 at the date of the consolidated financial statements. Such estimates also
affect the reported amounts of revenues and expenses during the reporting period. Actual results
may differ from estimates under different assumptions or conditions.
Revenue recognition
Revenue from cost-reimbursable contracts is recognized on the basis of reimbursable contract costs
incurred during the period, increased by the applicable overhead and general and administrative
costs, plus a percentage of the fixed fee. Revenue from time and material contracts is recognized
on the basis of man-hours utilized, plus other reimbursable contract costs incurred during the
period. Revenue from firm-fixed price contract is recognized on the percentage of completion
method. Under this method, individual contract revenue earned is measured by the percentage
relationship that contract costs incurred bear to managements estimate of total contract costs.
Contract costs include direct labor, combined with allocations of operational overhead and other
direct costs. Provisions for estimated losses on uncompleted contracts are made in the period in
which such losses are determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and revenue, and are recognized in the period in
which such revisions are determined.
6
Multiple agencies of the federal government directly or indirectly provided the majority of the
Companys contract revenue during the years ended December 31, 2009 and 2008.
Federal government contract costs for 2004 through 2009, including indirect costs, are subject to
audit and adjustment by the Companys cognizant audit agency. Contract revenue has been recorded
in amounts that are expected to be realized upon final settlement.
Cash equivalents
The Company considers all highly liquid instruments with original maturities of three months or
less to be cash equivalents.
Contract receivables
Contract receivables are generated from prime and subcontracting arrangements with federal
governmental agencies and various commercial entities. Billed amounts represent invoices that have
been prepared and sent to the customer. Unbilled amounts represent costs and anticipated profits
awaiting milestones to bill, indirect rate variances and fee withholdings. Management determines
the allowance for doubtful accounts by regularly evaluating individual customer receivables and
considering a customers financial condition, credit history, and current economic conditions.
Management believes that all contract receivables are collectible.
Billed contract receivables are considered past due if the invoice has been outstanding more than
30 days. The Company does not charge interest on contract receivables; however, federal
governmental agencies generally pay interest on invoices outstanding more than 30 days. The
Company records interest income from federal governmental agencies when received.
Property and equipment
Property and equipment is stated at cost. Depreciation and amortization of property and equipment
is computed using the straight-line method over the estimated useful lives of the assets of three
to thirty-seven years. Amortization of leasehold improvements is computed using the straight-line
basis over the lesser of the estimated useful lives of the underlying assets or the terms of the
related lease.
Valuation of long-lived assets
The Company accounts for the valuation of long-lived assets under authoritative guidance issued by
the FASB, which requires that long-lived assets and certain intangible assets be reviewed for
impairment whenever events or circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of the long-lived assets is measured by a comparison of the
carrying amount of the asset to future undiscounted net cash flows expected to be generated by the
assets. 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 estimated fair value of the
assets.
Stock based compensation
The Company accounts for the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors, including employee stock options, based
on estimated fair values. Under authoritative guidance issued by the Financial Accounting
Standards Board (FASB), companies are required to estimate the fair value or calculated value of
share-based payment awards on the date of grant using an option-pricing model. The value of awards
that are ultimately expected to vest is recognized as expense over the requisite service periods in
the Companys statements of income. The Company uses the Black-Scholes Option Pricing Model to
determine the fair-value of stock-based awards.
Income taxes
BCSSI has elected to be treated as an S Corporation under Subchapter S of the Internal Revenue Code
(which also applies to most states), which provides that, in lieu of corporate income taxes, the
stockholders separately account for their pro rata share of BCSSIs items of income, deductions,
losses
and credits. Consequently, BCSSI is not liable for federal or state income taxes, except to the
extent BCSSI operates in jurisdictions that do not recognize S Corporation status.
7
BDS and PP&L are Limited Liability Companies (LLC) for federal income tax purposes (which also
applies to most states), and thus are treated as partnerships. As such, the Companies are
generally not subject to corporate income taxes and the income, deductions, credits and other tax
attributes of the Companies flow directly to the members of the Companies.
Concentrations of credit risk
The Companys assets that are exposed to credit risk consist primarily of cash and cash equivalents
and contract receivables. Contract receivables consist primarily of amounts due from various
agencies of the federal government or prime contractors doing business with the federal government.
Historically, the Company has not experienced significant losses related to contract receivables
and, therefore, believes that the credit risk related to contract receivables is minimal. The
Company maintains cash balances that may at times exceed federally insured limits. Cash balances
are maintained at high-quality financial institutions and the Company believes the credit risk
related to these cash balances is minimal.
Subsequent events
The Company evaluated its December 31, 2009 consolidated financial statements for subsequent events
through March 29, 2010, the date the consolidated financial statements were available to be issued.
The Company is not aware of any subsequent events which would require recognition or disclosure in
the consolidated financial statements.
Recently adopted accounting pronouncements
Effective January 1, 2009, the Company adopted the authoritative guidance issued by the FASB that
changes the accounting and reporting for non-controlling interests (previously referred to as
minority interest). Non-controlling interests are to be reported as a component of equity separate
from the parents equity, and purchases or sales of equity interests that do not result in a change
in control are to be accounted for as equity transactions. In addition, net income attributable to
a non-controlling interest is to be included in net income and, upon a loss of control, the
interest sold, as well as any interest retained, is to be recorded at fair value with any gain or
loss recognized in net income. Adoption of the new guidance did not have a material impact on the
accompanying consolidated financial statements.
Effective January 1, 2009, the Company adopted the authoritative guidance issued by the FASB on
accounting for uncertainty in income taxes recognized in a companys financial statements. Under
this guidance, when tax returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject to uncertainty about
the merits of the position taken or the amount of the position that would be ultimately sustained.
The benefit of a tax position is recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more likely than not that the position
will be sustained upon examination, including the resolution of appeals or litigation processes, if
any. Tax positions taken are not offset or aggregated with other positions. Tax positions that
meet the more-likely-than-not recognition threshold are measured as the largest amount of tax
benefit that is more than 50% likely of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax positions taken that exceeds the amount
measured as described above would be reflected as a liability for unrecognized tax benefits, along
with any associated interest and penalties that would be payable to the taxing authorities upon
examination. The adoption of this authoritative guidance had no effect on the Companys beginning
retained earnings.
Reclassifications
Certain amounts presented in the 2008 consolidated financial statements have been reclassified to
conform to the 2009 presentation. These reclassifications have no effect on the previously
recorded net income.
8
NOTE 2 CONTRACT RECEIVABLES AND BILLINGS IN EXCESS OF REVENUE RECOGNIZED
Contract receivables consist of the following at December 31:
2009 | 2008 | |||||||
(Restated) | (Restated) | |||||||
Billed receivables |
$ | 14,720,596 | $ | 16,166,132 | ||||
Unbilled receivables |
3,129,178 | 1,077,910 | ||||||
$ | 17,849,774 | $ | 17,244,042 | |||||
Unbilled receivables at December 31, 2009 and 2008 represent costs and anticipated profits awaiting
milestones to bill, indirect rate variances (i.e., actual indirect rates are higher than the
provisional indirect rates used for billing purposes) and fee withholdings.
Billings in excess of revenue recognized are comprised primarily of indirect rate variances (i.e.,
actual indirect rates are lower than the provisional indirect rates used for billing purposes).
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31:
2009 | 2008 | |||||||
Building and improvements |
$ | 6,002,765 | $ | 5,141,533 | ||||
Furniture and fixtures |
971,106 | 258,863 | ||||||
Computer equipment |
717,531 | 506,657 | ||||||
Office equipment |
526,442 | 137,932 | ||||||
Vehicles |
366,341 | 255,641 | ||||||
Software |
286,861 | 146,567 | ||||||
8,871,046 | 6,447,193 | |||||||
Less: accumulated depreciation and amortization |
(1,500,084 | ) | (977,583 | ) | ||||
$ | 7,370,962 | $ | 5,469,610 | |||||
NOTE 4 NOTES PAYABLE
Notes payable consists of the following as of December 31:
2009 | 2008 | |||||||
Bank line-of-credit agreement
for a maximum equal to the
lesser of $10,000,000 or 80%
to 90% of eligible billed
contract receivables plus 50%
of eligible unbilled contract
receivables. Borrowings
under this line-of-credit
agreement accrue interest at
the one month LIBOR plus
1.75% (1.98% at December 31,
2009). This bank
line-of-credit is due on
demand and is secured by
substantially all of the
Companys assets. The
agreement expires, if not
renewed, on June 15, 2010. |
$ | 2,784,954 | $ | 5,398,070 | ||||
Mortgage note payable in 59
monthly installments of
$15,386, including interest
at 6.90% per annum, and a
balloon payment of $1,737,884
on November 11, 2010. The
mortgage note is
collateralized by a first
deed of trust and is
guaranteed by the majority
stockholder and the majority
stockholders spouse. The
note is secured by property
with a book value of
$2,736,535. |
1,775,242 | 1,840,285 | ||||||
Mortgage note payable in 59
monthly installments of
$5,420, including interest at
6.88% per annum, and a
balloon payment of $609,117
on April 12, 2012. The
mortgage note is
collateralized by a first
deed of trust and is
guaranteed by the stockholder
and the stockholders spouse.
The note is secured by
property with a book value of
$810,961. |
651,740 | 671,668 | ||||||
Bank line-of-credit agreement
for $2,000,000. The Company
repaid the outstanding
balance in full during 2009.
The agreement expired on
February 28, 2009. |
0 | 1,881,002 | ||||||
Total |
5,211,936 | 9,791,025 | ||||||
Less: current portion |
(4,580,326 | ) | (7,357,422 | ) | ||||
Noncurrent portion |
$ | 631,610 | $ | 2,433,603 | ||||
9
The repayment schedule of the noncurrent portion of notes payable as of December 31, 2009 are as
follows:
Years ending December 31, | ||||
2011 |
$ | 21,579 | ||
2012 |
610,031 | |||
$ | 631,610 | |||
The bank line-of-credit agreement calls for administration fees and includes covenants that require
the Company to meet certain financial ratios.
NOTE 5 STOCK OPTION PLAN
Effective October 1, 2007, the Board of Directors approved the adoption of the Companys Stock
Option Plan (the Plan). Under the terms of the Plan, the Company may grant stock options to
provide incentives to its officers and key employees. The exercise price of each option is equal
to or greater than the market price of the Companys stock on the date of grant. The Company had
reserved 400,000 shares of common stock for issuance under the Plan. On December 21, 2009, the
Companys Board of Directors resolved to authorize another 600,000 shares of common stock for
issuance under the Plan bringing the total shares available for issuance to 1,000,000 as of
December 31, 2009. As of December 31, 2009 and 2008, there were 705,500 and 99,000 shares,
respectively, available for future grants under the Plan.
The weighted-average grant-date fair value of options granted during the year ended December 31,
2008 was $0.69. There were no options granted during the year ended December 31, 2009.
The calculated value of each 2008 option award was estimated on the date of grant using the
Black-Scholes Option Pricing Model using the weighted average assumptions noted in the following
table:
Expected volatility |
26 | % | ||
Expected dividends |
0.0 | % | ||
Expected term (in years) |
10.0 | |||
Risk-free interest rate |
2.25 | % |
The expected volatility of the options granted was estimated using the historical volatility of the
aerospace and defense industry (the primary industry in which the Company operates) as a substitute
for the historical volatility of the Companys common shares, which is not determinable without an
active external or internal market. The expected dividends are based on the Companys historical
issuance and managements expectations for dividend issuance in the future. The expected term of
options granted represents the period of time that options granted are expected to be outstanding.
The risk-free interest rate for periods within the contractual life of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
10
Presented below is a summary of the status of the stock options under the Plan for the year ended
December 31, 2009:
Weighted | ||||||||||||
Weighted | Average | |||||||||||
Number | Average | Remaining | ||||||||||
of | Exercise | Contractual | ||||||||||
Shares | Price | Term (Years) | ||||||||||
Outstanding at December 31, 2008 |
301,000 | $ | 0.69 | |||||||||
Granted |
0 | $ | 0.00 | |||||||||
Exercised |
0 | $ | 0.00 | |||||||||
Forfeited or expired |
(6,500 | ) | $ | 0.69 | ||||||||
Outstanding at December 31, 2009 |
294,500 | $ | 0.69 | 8.58 | ||||||||
Exercisable at December 31, 2009 |
0 | $ | 0.00 | 0.00 | ||||||||
The Company charged compensation expense of $16,000 and $8,000 to operations for the years ended
December 31, 2009 and 2008, respectively.
As of December 31, 2009, there was approximately $57,000 of total unrecognized compensation cost
related to share-based compensation arrangements granted under the Plan. That cost is expected to
be recognized over a weighted-average remaining period of three years.
NOTE 6 RETIREMENT PLANS
The Company maintains a 401(k) retirement plan (the BCSSI Plan) for all eligible BCSSI employees
who have reached the age of 21. Under the terms of the BCSSI Plan, participants may elect to
contribute up to the maximum amount allowable by law. Company contributions to the BCSSI plan are
at the discretion of the Board of Directors and vest to participants ratably over four years. The
Company recorded contributions to the BCSSI Plan of $541,033 and $359,982 for the years ended
December 31, 2009 and 2008.
Additionally, the Company maintains a 401(k) retirement plan (the BDS Plan) for all eligible BDS
employees who have met certain service requirements. Under the terms of the BDS Plan, participants
may elect to contribute up to the maximum amount allowable by law. Company contributions to the
BDS plan are at the discretion of the Board of Directors and vest to participants ratably over four
years. The Company recorded contributions to the BDS Plan of $69,713 and $60,831 during the years
ended December 31, 2009 and 2008, respectively.
NOTE 7 MAJOR CONTRACTS
For the year ended December 31, 2009, four contracts accounted for 57% of the Companys revenue.
For the year ended December 31, 2008, two contracts accounted for 70% of the Companys revenue. As
of December 31, 2009, these contracts represent 58% of the contract receivables balance. As of
December 31, 2008, these contracts represent 65% of the contract receivables balance.
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NOTE 8 COMMITMENTS
The Company leases office space under the terms of noncancelable operating leases, which expire at
various dates through September 2016. The following is a schedule of the future minimum lease
payments required under operating leases that have initial or remaining terms in excess of one year
as of December 31, 2009:
Years ending December 31, | ||||
2010 |
$ | 2,060,000 | ||
2011 |
2,224,000 | |||
2012 |
2,217,000 | |||
2013 |
1,980,000 | |||
2014 |
934,000 | |||
2015 |
705,000 | |||
$ | 10,120,000 | |||
Rent expense totaled $1,362,232 and $643,791 for the years ended December 31, 2009 and 2008.
NOTE 9 RESTATEMENT
Subsequent to the issuance of the Companys consolidated financial statements on March 29, 2010,
management discovered an error in an estimate to complete on one of its fixed price contracts.
Additionally, management discovered that cost of revenue was understated for certain contracts, and
selling, general and administrative expenses were also understated. The understatement of cost of
revenue and selling and general and administrative expenses was a result of managements evaluation
state statutes with respect to sales taxes associated with federal procurement.
As a result of the aforementioned errors, the accompanying consolidated financial statements have
been restated to increase 8(a) contract revenue for the years ended December 31, 2009 and 2008 by
$746,346 and $87,877, respectively, and to increase unbilled contract receivables by $834,222 and
$87,877 as of December 31, 2009 and 2008, respectively.
Additionally, the accompanying consolidated financial statements for the years ended December 31,
2009 and 2008 have been restated to increase cost of revenue by $456,990 and $331,278,
respectively, to increase selling, general and administrative expenses by $123,575 and $165,225,
respectively, and to increase accounts payable and other accrued expenses by $1,277,346 as of
December 31, 2009 and by $696,782 as of December 31, 2008.
Net income for the years ended December 31, 2009 and 2008 increased (decreased) by $165,781 and
($408,626) respectively, and retained earnings as of December 31, 2009 and 2008 decreased by
$443,124 and $608,905, respectively.
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