Attached files
file | filename |
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8-K - KEYW HOLDING CORP | v204341_8k.htm |
EX-99.5 - KEYW HOLDING CORP | v204341_ex99-5.htm |
EX-2.1 - KEYW HOLDING CORP | v204341_ex2-1.htm |
EX-23.1 - KEYW HOLDING CORP | v204341_ex23-1.htm |
EX-99.2 - KEYW HOLDING CORP | v204341_ex99-2.htm |
EX-99.4 - KEYW HOLDING CORP | v204341_ex99-4.htm |
EX-99.3 - KEYW HOLDING CORP | v204341_ex99-3.htm |
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
REPORT ON
AUDIT OF
CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE
PERIOD
JANUARY
1, 2010 TO SEPTEMBER 24, 2010
No
extracts from this report may be published without written consent.
Stegman &
Company
TABLE OF
CONTENTS
INDEPENDENT
AUDITORS’ REPORT
|
Page
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
|
Consolidated
Balance Sheet
|
1
|
Consolidated
Statement of Operations
|
2
|
Consolidated
Statement of Changes in Shareholders’ Equity
|
3
|
Consolidated
Statement of Cash Flows
|
4 -
5
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
6 -
11
|
INDEPENDENT
AUDITORS’ REPORT
To the
Board of Directors
Sycamore.US,
Inc. and Sycamore Services, Inc.
Frederick,
Maryland
We have audited the accompanying
consolidated balance sheet of Sycamore.US, Inc. and Sycamore
Services, Inc. (Maryland "S" Corporations, the "Company") as of September 24,
2010 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the period January 1, 2010 to September
24, 2010. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial
statements are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of Sycamore.US, Inc. and Sycamore Services, Inc. as of
September 24, 2010, and the results of operations, changes in stockholders'
equity and cash flows for the period January 1, 2010 to September 24, 2010 in
conformity with accounting principles generally accepted in the United States of
America.
/s/Stegman
& Company
|
Baltimore,
Maryland
December
1, 2010
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
CONSOLIDATED
BALANCE SHEET
SEPTEMBER
24, 2010
ASSETS
|
||||
CURRENT
ASSETS:
|
||||
Cash
|
$ | 464,642 | ||
Accounts
receivable
|
3,962,605 | |||
Prepaid
expenses
|
212,672 | |||
Other
receivables
|
13,352 | |||
Total
current assets
|
4,653,271 | |||
PROPERTY
AND EQUIPMENT - at cost, net of accumulated depreciation
|
109,741 | |||
OTHER
ASSETS - Deposits
|
14,140 | |||
TOTAL
ASSETS
|
$ | 4,777,152 | ||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||
CURRENT
LIABILITIES:
|
||||
Accounts
payable and accrued expenses
|
$ | 531,041 | ||
Accrued
compensation expense
|
919,806 | |||
Note
payable - current
|
9,113 | |||
Total
current liabilities
|
1,459,960 | |||
NOTE
PAYABLE - net of current portion
|
7,113 | |||
Total
liabilities
|
1,467,073 | |||
STOCKHOLDERS’
EQUITY
|
||||
Common
stock - no par value, 1,200 shares authorized, 826 shares issued and
outstanding
|
1,016,322 | |||
Paid-in-capital
|
107,031 | |||
Retained
earnings
|
2,186,726 | |||
Total
stockholders’ equity
|
3,310,079 | |||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 4,777,152 |
The
accompanying notes are an integral part of these financial
statements.
1
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE
PERIOD JANUARY 1, 2010 TO SEPTEMBER 24, 2010
REVENUE
|
$ | 16,499,522 | ||
DIRECT
COSTS
|
11,345,754 | |||
GROSS
PROFIT
|
5,153,768 | |||
OPERATING
EXPENSES
|
3,578,456 | |||
OTHER
(INCOME)
|
2,199 | |||
NET
INCOME
|
$ | 1,573,113 |
The
accompanying notes are an integral part of these financial
statements.
2
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE
PERIOD JANUARY 1, 2010 TO SEPTEMBER 24, 2010
Common
Stock
|
Paid-In
|
Retained
|
||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Total
|
||||||||||||||||
BALANCE
AT JANUARY 1, 2010
|
826 | $ | 1,016,322 | $ | 101,186 | $ | 1,151,852 | $ | 2,269,360 | |||||||||||
Stock-based
compensation
|
- | - | 5,845 | - | 5,845 | |||||||||||||||
Net
income
|
- | - | - | 1,573,113 | 1,573,113 | |||||||||||||||
Distributions
to stockholders
|
- | - | - | (538,239 | ) | (538,239 | ) | |||||||||||||
BALANCE
AT SEPTEMBER 24, 2010
|
826 | $ | 1,016,322 | $ | 107,031 | $ | 2,186,726 | $ | 3,310,079 |
The
accompanying notes are an integral part of these financial
statements.
3
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
FOR THE
PERIOD JANUARY 1, 2010 TO SEPTEMBER 24, 2010
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||
Net
income
|
$ | 1,573,113 | ||
Adjustments
to reconcile change in net assets to net cash used in operating
activities:
|
||||
Depreciation
|
36,152 | |||
Stock-based
compensation
|
5,845 | |||
Changes
in net operating assets and liabilities:
|
||||
Accounts
receivable
|
(740,426 | ) | ||
Prepaid
expenses
|
(57,827 | ) | ||
Other
receivables
|
9,104 | |||
Deposits
|
2,482 | |||
Accounts
payable and accrued expenses
|
24,455 | |||
Accrued
compensation expense
|
270,496 | |||
Net
cash provided by operating activities
|
1,123,394 | |||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||
Purchase
of property and equipment
|
(3,100 | ) | ||
Net
cash used in investing activities
|
(3,100 | ) | ||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||
Principal
repayment of note payable
|
(11,081 | ) | ||
Change
in revolving lines of credit
|
(140,385 | ) | ||
Distribution
to stockholders
|
(538,239 | ) | ||
Net
cash used in financing activities
|
(689,705 | ) | ||
NET
INCREASE IN CASH
|
430,589 | |||
CASH
AT BEGINNING OF PERIOD
|
34,053 | |||
CASH
AT END OF PERIOD
|
$ | 464,642 |
The
accompanying notes are an integral part of these financial
statements
4
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE
PERIOD JANUARY 1, 2010 TO SEPTEMBER 24, 2010
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash
paid during the period for:
|
||||
Interest
|
$ | 2,236 | ||
Income
Taxes
|
$ | - |
The
accompanying notes are an integral part of these financial
statements.
5
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
PERIOD JANUARY 1, 2010 TO SEPTEMBER 24, 2010
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Nature of
Business
The
Company, Sycamore.US, Inc. (SUS) and Sycamore Systems, Inc. (SSI), based in
Frederick, Maryland, provides science and technology services to the U.S.
Government's Department of Defense and commercial concerns. Services include
software development, database normalization and development, modeling and
simulation, information security, space science, systems engineering, systems
analysis, media applications, publications and graphic design services. The
Company, SUS and SSI, are Maryland corporations that have elected to be taxed as
"S" Corporations from inception under the income tax laws of the United States
of America. In 2007, Sycamore Services, Inc. was merged into Sycamore.US, Inc.,
becoming a wholly owned subsidiary of SUS, and an election was made to treat SSI
as a Q-sub for tax purposes.
Principals of
Consolidation
The
consolidated financial statements include the transactions of the parent and its
wholly owned subsidiary. All intercompany accounts and transactions
have been eliminated.
Revenue
Recognition
The
Company records income and expenses under the accrual method of accounting for
financial statement purposes.
The
Company recognizes income from time and material contracts
as work progresses through monthly billings of time and materials as they are
applied to the work pursuant to terms in the contracts.
The
Company recognizes income from fixed price systems engineering
contracts using the percentage of completion method, measured by the
percentage of cost incurred to date compared to the total estimated costs to
completion for each contract. This method is used because management considers
incurred cost the best measure of progress on these contracts. Because of the
inherent uncertainties in estimating costs and revenues, it is reasonable that
the estimates will change in the near term.
The
Company recognizes income and expenses for defense job order contracts
when materials are received and identified to the contract. The balance is
recognized when the assembled product is delivered and accepted under terms of
the contract.
Amounts
earned on specific jobs in excess of billings are treated as a current asset and
billings in excess of earnings are treated as a current
liability. Operating expenses, interest and other expenses are
charged to expense when the costs are incurred except as discussed above on job
order work-in-process. Provisions for estimated losses on uncompleted
contracts are made in the period when such losses are
determined.
6
Accounts Receivable and
Allowance for Bad Debts
Accounts
receivable are stated at the amount management expects to collect from
outstanding balances. Invoice terms range from net 10 days to net 30
days. Management provides for probable uncollectible amounts through
a charge to earnings and a credit to a valuation allowance (allowance for
doubtful accounts) based on its assessment of the current status of individual
accounts. Balances that are still outstanding after management has
used reasonable collection efforts are written-off through a charge to the
valuation allowance and a credit to trade accounts
receivable. Currently, there is no valuation because management
believes that all of the Company's accounts receivable are fully
collectible.
Concentration of Credit
Risk
The
Company maintains cash balances which may exceed federally insured
limits. Management does not believe that this results in significant
credit risk.
Prepaid
Expenses
Prepaid
expenses generally consist of amounts paid in advance for insurance and advanced
payments to suppliers or vendors.
Property and
Equipment
Property
and equipment are recorded at their original cost and are being depreciated
using straight line methods over estimated lives ranging from 3 to 27.5
years. Depreciation expense for the period January 1, 2010 to
September 24, 2010 was $36,152.
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 statement. Actual results could differ from those
estimates.
2.
|
ACCOUNTS
RECEIVABLE
|
Accounts
receivable consists of amounts billed but as of yet are unpaid, retainages, and
amounts for work performed but not yet billed. The Company's receivables are
included in a blanket lien securing the Company's revolving lines of
credit.
Accounts
receivables at September 24, 2010
Amounts
billed, including retainages
|
$ | 3,918,111 | ||
Amounts
unbilled
|
44,494 | |||
Total
|
$ | 3,962,605 |
The
Company did not have an allowance for doubtful accounts at September 24, 2010
because management believes that all accounts receivable are fully
collectible.
7
3.
|
PROPERTY
AND EQUIPMENT
|
Automobiles
|
$ | 71,643 | ||
Office
Furniture
|
31,706 | |||
Office
Equipment
|
30,624 | |||
Computer
Software
|
123,089 | |||
Compute
Hardware
|
233,585 | |||
Timeshares
|
1,950 | |||
|
492,597 | |||
Accumulated
depreciation
|
(382,856 | ) | ||
Property
and Equipment, net
|
$ | 109,741 |
4.
|
REVOLVING
LINES OF CREDIT
|
The
Company has two lines of credit with a combined borrowing limit of $2,000,000
with BB&T Bank. Both credit lines matured in March 2010 and have
been extended through March 2011.
Both
credit lines are cross-guaranteed by SUS and SSI with a blanket lien on all
assets. The agreement contains financial covenants, which require the Company to
maintain a tangible net worth of not less than $1,000,000 and a ratio of total
liabilities to tangible net worth of not greater than 1.50:1, calculated on the
consolidated financial statements of the Companies.
The line
of credit agreements contain restricted covenants which require that the Company
assume no additional debt in excess of $100,000 in the aggregate at any time,
make no expenditure in excess of $100,000 for fixed assets, enter into any
leasing arrangements in excess of $100,000 in annual payments in any fiscal year
for machinery and equipment, and restricts shareholder distributions and
treasury stock acquisitions in excess of $100,000 over the tax liability of the
Company shareholders in any fiscal year. The company was compliant
with the line of credit covenants for the period January 1, 2010 to September
24, 2010.
The
revolving line of credit lines are due upon demand and interest on the
outstanding balance is variable at 1% above the bank's prime rate. At
September 24, 2010 the outstanding balance on the credit lines was
zero.
5.
|
NOTE
PAYABLE
|
Note
payable as of September 24, 2010 consists of the following:
Note
payable – collateralized by an automobile, payable in 60 monthly
installments of $804 plus with interest at prime plus 1%. Final payment
scheduled for June 2012.
|
$ | 16,226 | ||
Less
amounts due within one year
|
9,113 | |||
Total
long-term note payable
|
$ | 7,113 |
8
Maturities
on the note payable at September 24, 2010 are as follows:
Year
ended September 30, 2011
|
$ | 9,113 | ||
Year
ended September 30, 2012
|
7,113 | |||
Thereafter
|
- |
Interest
expense from the lines of credit and note payable for the period January 1, 2010
to September 24, 2010 was $2,236.
6.
|
LEASE
OBLIGATIONS
|
The
Company leases certain office equipment and operating facilities under
noncancelable operating leases that expire at various dates through
2014. Future minimum lease payments due under these commitments
are as follows at September 24, 2010:
Year
ended September 30, 2011
|
$ | 224,024 | ||
Year
ended September 30, 2012
|
149,366 | |||
Year
ended September 30, 2013
|
41,874 | |||
Year
ended September 30, 2014
|
3,026 | |||
Thereafter
|
- | |||
$ | 418,290 |
Total
rent expense for the Company’s facilities was $152,029 for the period January 1,
2010 to September 24, 2010.
7.
|
STOCK-BASED
COMPENSATION
|
In 2004,
the Company adopted an Incentive Stock Plan. The plan provides for
the granting of stock-based awards, specifically either qualified or
non-qualified stock options to purchase an aggregate of up to 500 shares of
common stock to eligible employees, officers, members of board of directors, and
outside consultants of the Company. Through January 1, 2008 there
were 107 share awards issued under the plan.
Stock
option awards normally have an exercise price equal to the market price of the
Company's stock on the date of the grant. They generally vest
immediately upon grant or over a service life and generally expire 10 years
after the grant date. The estimated fair value of the stock options is
determined using Black-Scholes option-pricing model. Volatility is determined
using the historical stock volatility of other companies which have similar
characteristics and are publicly traded. Estimates of fair value are
not intended to predict actual future events or the value ultimately realized by
persons who receive equity awards. The fair value of stock options granted the
period January 1, 2010 to September 24, 2010 was estimated using the following
assumptions:
Assumptions:
|
||||
Risk-free
interest rate
|
3.61 | % | ||
Dividend
yield
|
0.00 | % | ||
Expected
life of option grants
|
10
yrs
|
|||
Weighted
average expected stock price volatility
|
112.36 | % |
9
There was
one option granted to an employee in the period January 1, 2010 to September 24,
2010. No options were exercised or forfeited in the period January 1,
2010 to September 24, 2010.
The
following is a summary of the Company's stock option activity for the period
January 1, 2010 to September 24, 2010:
Weighted
|
||||||||||||
Average
|
||||||||||||
Weighted
|
Remaining
|
|||||||||||
Average
|
Contractual
|
|||||||||||
Exercise
|
Term
|
|||||||||||
Options
|
Price
|
(in years)
|
||||||||||
Outstanding
at January 1, 2010
|
132 | $ | 3,556 | - | ||||||||
Granted
|
1 | 11,046 | 10.00 | |||||||||
Exercised
|
- | - | - | |||||||||
Outstanding
at September 24, 2010
|
133 | $ | 3,612 | 7.64 | ||||||||
Exercisable
at September 24, 2010
|
133 | $ | 3,612 | 7.64 |
The amount of stock based compensation
for the option award was $5,845 for the period January
1, 2010 to September 24, 2010.
8.
|
INCOME
TAXES AND UNCERTAIN TAX POSITIONS
|
At its organization Company elected "S
corporation" status for income tax purposes. Under this election, all
income and losses, and the related taxes are recognized and paid at the
stockholder level, including all state income items. Therefore, no
provision or liability for income taxes has been included in the consolidated
financial statements.
In 2007 Sycamore Services, Inc. (SSI)
was merged into Sycamore.US, Inc. (SUS) and became a wholly owned subsidiary of
SUS. At that time an election was made to treat SSI as a Q-sub for
tax purposes.
Management has not identified any
uncertain tax position which under US generally accepted accounting principles
would give rise to the recording of an uncertain tax benefit or disclosure in
the financial statements.
9.
|
PENSION
CONTRIBUTIONS PAYABLE
|
The Company maintains a 401(k) plan for
the benefit of full-time employees meeting eligibility requirements. The Company
matches 50% of participant contributions up to a maximum of 6% of gross
wages. The Company contributed $314,199 to its 401(k) plan for the
period January 1, 2010 to September 24, 2010.
10
10.
|
RELATED
PARTY TRANSACTIONS
|
Related party activity consists of
distributions of equity to the owners of the Company. Distributions
are made in proportion to the percentage of stock owned by the individual
owners. Distributions made to owners for the period January 1, 2010
to September 24, 2010 was $538,239.
11.
|
MAJOR
CUSTOMER CONCENTRATION INFORMATION
|
The Company's revenue is derived from
contracts with the U.S. Government in which the Company is a contractor or
subcontractor. For the period January 1, 2010 to September 24, 2010,
revenue was derived primarily from government programs. For the
period January 1, 2010 to September 24, 2010, the Company recognized $13.0
million or 78.51% of its total revenue from five large U.S. Government
Contractors.
12.
|
SUBSEQUENT
EVENTS
|
The Company has evaluated subsequent
events through December 1, 2010 - the date the statements were available to be
issued. No significant events or conditions were noted which require
additional disclosure in or adjustment to the financial statements.
On November 29, 2010 Sycamore.US, Inc.
and Sycamore Services, Inc. were acquired by The KEYW Holding Corporation
(“KEYW”) for $27 million in cash and 87,500 shares of KEYW common
stock.
11