Attached files
file | filename |
---|---|
8-K - KEYW HOLDING CORP | v204341_8k.htm |
EX-99.1 - KEYW HOLDING CORP | v204341_ex99-1.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 |
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
REPORT ON
AUDIT OF
CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE
YEARS ENDED
DECEMBER
31, 2009 AND 2008
No
extracts from this report may be published without our written
consent.
Stegman
& Company
TABLE OF
CONTENTS
INDEPENDENT
AUDITORS' REPORT
CONSOLIDATED
FINANCIAL STATEMENTS
|
Page
|
Consolidated
Balance Sheets
|
1
|
Consolidated
Statements of Operations
|
2
|
Consolidated
Statements of Changes in Stockholders' Equity
|
3
|
Consolidated
Statements of Cash Flows
|
4-5
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
6-12
|
INDEPENDENT
AUDITORS’ REPORT
To the
Board of Directors
Sycamore.US,
Inc. and Sycamore Services, Inc.
Frederick,
Maryland
We have
audited the accompanying consolidated balance sheets of Sycamore.US, Inc. and
Sycamore Services, Inc. (Maryland “S” Corporations, the “Company”) as of
December 31, 2009 and 2008 and the related consolidated statements of
operations, changes in stockholders’ equity and cash flows for the years then
ended. 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 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 audits 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
audits 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 December 31, 2009 and 2008, and the results of
operations, changes in stockholders’ equity and cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/
Stegman & Company
|
Baltimore, Maryland
November 24, 2010
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2009 AND 2008
ASSETS
2009
|
2008
|
|||||||
CURRENT
ASSETS:
|
||||||||
Cash
|
$ | 34,053 | $ | 59,918 | ||||
Accounts
receivable
|
3,222,179 | 3,218,254 | ||||||
Prepaid
expenses
|
154,845 | 98,374 | ||||||
Other
receivables
|
22,456 | 485,736 | ||||||
Total
current assets
|
3,433,533 | 3,862,282 | ||||||
PROPERTY
AND EQUIPMENT - at cost,
net
of accumulated depreciation
|
142,793 | 240,913 | ||||||
OTHER
ASSETS
|
||||||||
Deposits
|
16,622 | 16,789 | ||||||
TOTAL
ASSETS
|
$ | 3,592,948 | $ | 4,119,984 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 506,586 | $ | 525,364 | ||||
Accrued
compensation expense
|
649,310 | 930,323 | ||||||
Revolving
lines of credit
|
140,385 | 279,045 | ||||||
Notes
payable - current
|
13,347 | 12,977 | ||||||
Other
current liabilities
|
- | 52,985 | ||||||
Total
current liabilities
|
1,309,628 | 1,800,694 | ||||||
NOTES
PAYABLE - net of current portion
|
13,960 | 30,336 | ||||||
Total
liabilities
|
1,323,588 | 1,831,030 | ||||||
STOCKHOLDERS’
EQUITY
|
||||||||
Common
stock - no par value, 1200 shares authorized, 826
and
810 shares issued and outstanding at 2009 and 2008,
respectively
|
1,016,322 | 839,569 | ||||||
Paid-in-capital
|
101,186 | 101,186 | ||||||
Retained
earnings
|
1,151,852 | 1,348,199 | ||||||
Total
stockholders’ equity
|
2,269,360 | 2,288,954 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 3,592,948 | $ | 4,119,984 |
1
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
STATEMENTS
OF OPERATIONS
DECEMBER
31, 2009 AND 2008
2009
|
2008
|
|||||||
REVENUE
|
$ | 19,394,393 | $ | 16,566,142 | ||||
DIRECT
COSTS
|
13,982,148 | 11,356,693 | ||||||
GROSS
PROFIT
|
5,412,245 | 5,209,449 | ||||||
OPERATING
EXPENSES
|
5,384,896 | 4,672,456 | ||||||
OTHER
(INCOME) EXPENSE
|
24,962 | 577 | ||||||
NET
INCOME
|
$ | 2,387 | $ | 536,416 |
The
accompanying notes are an integral part of these financial
statements.
2
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
Common
Stock
|
Paid-In
|
Retained
|
||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Total
|
|||||||||||||||
BALANCE
AT JANUARY 1, 2008
|
784 | $ | 750,961 | $ | 66,627 | $ | 811,783 | $ | 1,629,371 | |||||||||||
Stock-based
compensation from options
|
- | - | 34,559 | - | 34,559 | |||||||||||||||
Stock-based
compensation from stock grants
|
26 | 88,608 | - | - | 88,608 | |||||||||||||||
Net
income
|
- | - | - | 536,416 | 536,416 | |||||||||||||||
BALANCE
AT DECEMBER 31, 2008
|
810 | 839,569 | 101,186 | 1,348,199 | 2,288,954 | |||||||||||||||
Stock-based
compensation from stock grants
|
16 | 176,753 | - | - | 176,753 | |||||||||||||||
Net
(income)
|
- | - | - | 2,387 | 2,387 | |||||||||||||||
Distributions
to shareholders
|
- | - | - | (198,734 | ) | (198,734 | ) | |||||||||||||
BALANCE
AT DECEMBER 31, 2009
|
826 | $ | 1,016,322 | $ | 101,186 | $ | 1,151,852 | $ | 2,269,360 |
The
accompanying notes are an integral part of these financial
statements.
3
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR TIE
YEARS ENDED DECEMBER 31, 2009 AND 2008
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 2,387 | $ | 536,416 | ||||
Adjustments
to reconcile change in net assets to net cash used
in operating activities:
|
||||||||
Depreciation
|
72,671 | 62,423 | ||||||
Loss
on dispositions
|
30,444 | 1,457 | ||||||
Stock-based
compensation
|
176,753 | 123,167 | ||||||
Changes
in net operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(3,925 | ) | (671,591 | ) | ||||
Prepaid
expenses
|
(56,471 | ) | 43,983 | |||||
Other
receivables
|
463,280 | (446,426 | ) | |||||
Deposits
|
167 | (1,178 | ) | |||||
Accounts
payable and accrued expenses
|
(18,778 | ) | 229,547 | |||||
Accrued
compensation
|
(281,013 | ) | 210,083 | |||||
Other
current liabilities
|
(55,645 | ) | 24,390 | |||||
Net
cash provided by operating activities
|
329,870 | 112,271 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Proceeds
from sale of equipment
|
- | 410 | ||||||
Purchase
of property and equipment
|
(4,995 | ) | (99,325 | ) | ||||
Net
cash used in investing activities
|
(4,995 | ) | (98,915 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Principal
repayment of notes payable
|
(13,346 | ) | (56,321 | ) | ||||
Change
in revolving lines of credit
|
(138,660 | ) | 203,239 | |||||
Payments
on stockholder loans
|
- | (139,000 | ) | |||||
Distribution
to stockholders
|
(198,734 | ) | - | |||||
Net
cash (used in) provided by financing activities
|
(350,740 | ) | 7,918 | |||||
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(25,865 | ) | 21,274 | |||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
59,918 | 38,644 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF YEAR
|
$ | 34,053 | $ | 59,918 |
4
SYCAMORE.US,
INC. AND SYCAMORE SERVICES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
2009
|
2008
|
|||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash
paid during the year for:
|
||||||||
Interest
|
$ | 6,472 | $ | 11,126 | ||||
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
YEARS ENDED DECEMBER 31, 2009 AND 2008
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.
Principles 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.
6
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.
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
Corporation 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 years ended December 31, 2009 and 2008 was $72,671
and $62,423, respectively.
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.
7
Accounts
receivable at December 31, 2009 and 2008 consist of the following:
2009
|
2008
|
|||||||
Amounts
billed, including retainages
|
$ | 3,192,227 | $ | 2,988,397 | ||||
Amounts
unbilled
|
29,952 | 229,857 | ||||||
Total
|
$ | 3,222,179 | $ | 3,218,254 |
The
Company did not have an allowance for doubtful accounts at December 31, 2009 and
2008 because management believes that all accounts receivable are fully
collectible.
3.
|
OTHER
RECEIVABLES
|
Other
receivables at December 31, 2009 and 2008 consist of the following:
2009
|
2008
|
|||||||
Advance
to payroll processing company
|
$ | - | $ | 466,171 | ||||
Other
receivable
|
22,456 | 19,565 | ||||||
Total
|
$ | 22,456 | $ | 485,736 |
4.
|
PROPERTY
AND EQUIPMENT
|
2009
|
2008
|
|||||||
Automobiles
|
$ | 71,644 | $ | 107,513 | ||||
Leasehold
Improvements
|
- | 87,507 | ||||||
Office
Furniture
|
31,706 | 31,706 | ||||||
Office
Equipment
|
30,624 | 32,187 | ||||||
Computer
Software
|
123,089 | 118,961 | ||||||
Computer
Hardware
|
231,484 | 240,384 | ||||||
Timeshares
|
1,950 | 150 | ||||||
|
490,497 | 618,408 | ||||||
Accumulated
depreciation
|
(347,704 | ) | (377,495 | ) | ||||
Property
and Equipment, net
|
$ | 142,793 | $ | 240,913 |
5.
|
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.
8
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 contains 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 years ending December 31, 2009 and
2008.
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 December
31, 2009 and 2008, $140,385 and $279,045, respectively, were
outstanding.
6.
|
NOTES
PAYABLE
|
Notes
payable as of December 31, 2009 and 2008 consist of the following:
2009
|
2008
|
|||||||
Notes
payable - collateralized by an automobile, payable in 60 equal monthly
installments of $648 with interest at 3%. Final payment scheduled for
July
|
$ | 4,495 | $ | 12,015 | ||||
Notes
payable - collateralized by an automobile, payable in 60 monthly
installments of $804 plus with interest at prime plus 1%. Final payment
scheduled
|
22,812 | 31,300 | ||||||
Total
notes payable
|
27,307 | 43,315 | ||||||
Less
amounts due within one year
|
13,347 | 12,977 | ||||||
|
||||||||
Total
long-term notes payable
|
$ | 13,960 | $ | 30,338 |
In
addition to the line of credit, maturities on the mortgage and notes payable at
December 31, 2009 are as follows:
Year
ending December 31:
|
||||
2010
|
$ | 13,347 | ||
2011
|
9,236 | |||
2012
|
4,724 | |||
Thereafter
|
- |
Interest
expense for the line of credit and notes payable for the years ended December
31, 2009 and 2008 was $6,472 and $11,126, respectively.
9
7.
|
LEASE
OBLIGATIONS
|
The
Company leases certain office equipment and operating facilities under
noncancelable operating leases that expire at various dates through 2013. Future
minimum lease payments due under these commitments are as follows at December
31, 2009:
2010
|
$ | 277,716 | ||
2011
|
195,852 | |||
2012
|
133,330 | |||
2013
|
12,281 | |||
Thereafter
|
- | |||
$ | 619,179 |
Total
rent expense for facilities was $265,670 and $247,331 for the years ended
December 31, 2009 and 2008.
8.
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 had been 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 year ended December 31, 2008
was estimated using the following assumptions:
2008
|
|||
Assumptions:
|
|||
Risk-free
interest rate
|
2.08 | % | |
Dividend
yield
|
0.00 | % | |
Expected
life of option grants
|
7
yrs
|
||
Weighted
average expected stock price volatility
|
30.93 | % |
There
were 25 options granted to employees in the year ended December 31, 2008. No
options were granted in the year ended December 31, 2009. No options were
exercised or forfeited in December 31, 2009 and 2008.
10
The
following is a summary of the Company's stock option activity for the two years
ended December 31, 2009:
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(in
years)
|
|||||||||
Outstanding
at January 1, 2008
|
107
|
$ | 3,590 | |||||||||
Granted
|
25 |
|
3,408 | 10.00 | ||||||||
Exercised
|
- |
|
- | |||||||||
Outstanding
at December 31, 2008
|
132 | 3,556 | ||||||||||
Granted
|
- | - | ||||||||||
Exercised
|
- | - | ||||||||||
Outstanding
at December 31, 2009
|
132 | $ | 3,556 | 8.38 | ||||||||
Exercisable
at December 31, 2009
|
132 | $ | 3,556 | 8.38 |
The
amount of stock based compensation for option awards was zero and $34,559 for
the year ended December 31, 2009 and 2008, respectively.
The
Company has issued granted stock awards to certain employees in the past as
non-cash bonuses vesting immediately. During 2009 and 2008 the Company granted
160 and 26 shares of stock, recording a relate compensation expense for each
year of $176,752 and $88,608, respectively.
9.
|
INCOME
TAXES AND UNCERTAIN TAX POSTIONS
|
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 owed subsidiary of SUS. At that time an election was made to treat SSI
as a Q-sub for tax
Management
has not identified any uncertain tax positions which under US generally accepted
accounting principles would give rise to the recording of an uncertain tax
benefit or disclosure in the financial statements.
11
10.
|
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 $680,195 and
$546,999 to its 401(k) plan for the years 2009 and 2008,
respectively.
11.
|
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 years ended December 31,
2009 and 2008 were $198,734 and zero, respectively. In 2008 the company repaid
loans in the amount of $139,000 to two majority stockholders. No amounts were
payable to or receivable from related parties at December 31, 2009 and
2008.
12.
|
MAJOR
CUSTOMER CONCENTRATION INFORMATION
|
The
Corporation's revenue is derived from contracts with the U.S. Government in
which the Company is a contractor or subcontractor. For the years ended December
31, 2009 and 2008, revenue was derived primarily from government programs. For
the years ended December 31, 2009 and 2008 the company recognized $16.1 million
and $13.0 million or 82.95% and 78.64% respectively, of its total revenue from
five large U.S. Government Contractors.
13.
|
SUBSEQUENT
EVENTS
|
The
Company has evaluated subsequent events through November 24, 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.
12