Attached files
| file | filename |
|---|---|
| EX-99.2 - UNAUDITED PRO FORMA FINANCIAL INFORMATION OF NOVUME SOLUTIONS, INC. GIVING EFFEC - Rekor Systems, Inc. | global992exhibit.htm |
| EX-23.2 - CONSENT OF BD & COMPANY INC., INDEPENDENT AUDITORS - Rekor Systems, Inc. | gtsconsentdraft-8ka.htm |
| EX-23.1 - CONSENT OF BD & COMPANY INC., INDEPENDENT AUDITORS - Rekor Systems, Inc. | gcpconsentdraft-8ka.htm |
| 8-K/A - PRIMARY DOCUMENT - Rekor Systems, Inc. | a8-k20171004globalmergerc.htm |
GLOBAL TECHNICAL SERVICES, INC.
Index to Financial Statements
|
Independent
Auditor’s Report
|
F-2
|
|
Combined Balance
Sheets at December 31, 2016 and 2015
|
F-3
|
|
Combined Statements
of Operations for the Years Ended December 31, 2016 and
2015
|
F-4
|
|
Combined Statements
of Stockholders’ Equity (Deficit) for the Years Ended
December 31, 2016 and 2015
|
F-5
|
|
Combined Statements
of Cash Flows for the Years Ended December 31, 2016 and
2015
|
F-6
|
|
Notes to Combined
Financial Statements
|
F-7
|
F-1
Independent Auditors’ Report
To the
Board of Directors
Global
Technical Services, Inc.
Report on Financial Statements
We have
audited the accompanying financial statements of Global Technical
Services, Inc. (“the Company”) which comprise the
balance sheets as of December 31, 2016 and 2015, and the related
statements of operations, changes in stockholders’ equity
(deficit) and cash flows for the years then ended, and the related
notes to the financial statements.
Management’s Responsibility for the Financial
Statements
Management
is responsible for the preparation and fair presentation of these
financial statements in accordance with accounting principles
generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to
fraud or error.
Auditor’s Responsibility
Our
responsibility is to express an opinion on these 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 from material
misstatement.
An
audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of
the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of
the financial statements to design audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation
of the financial statements.
We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as
of December 31, 2016 and 2015, and the results of its operations
and its cash flows for the years then ended in accordance with
accounting principles generally accepted in the United States of
America.
/s/
BD & Company, Inc.
Owings
Mills, MD
September
29, 2017
F-2
GLOBAL TECHNICAL SERVICES, INC.
BALANCE SHEETS
December 31, 2016 and 2015
|
|
2016
|
2015
|
|
ASSETS
|
|
|
|
Current
assets
|
|
|
|
Cash
|
$43,239
|
$60,369
|
|
Accounts
receivable - trade
|
2,337,461
|
1,768,050
|
|
Accounts
receivable - other
|
12,295
|
3,586
|
|
Employee
advances
|
84,008
|
137,049
|
|
Notes
Receivable
|
564,537
|
451,835
|
|
Interest
Receivable
|
19,628
|
24,111
|
|
Prepaid
expenses
|
214,659
|
277,109
|
|
Total
current assets
|
3,275,827
|
2,722,109
|
|
|
|
|
|
Property
and equipment
|
|
|
|
Autos
|
41,687
|
41,687
|
|
Furniture
and Equipment
|
723,958
|
1,493,787
|
|
Leasehold
improvements
|
135,485
|
135,485
|
|
|
901,130
|
1,670,959
|
|
Less
accumulated depreciation
|
(778,382)
|
(1,492,545)
|
|
Total
property and equipment
|
122,748
|
178,414
|
|
|
|
|
|
Total
assets
|
$3,398,575
|
$2,900,523
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIT) EQUITY
|
|
|
|
Current
liabilities
|
|
|
|
Accounts
payable
|
$91,173
|
$96,453
|
|
Accrued
expenses
|
347,275
|
247,171
|
|
Accrued
interest
|
69,940
|
31,878
|
|
Note
payable - current portion
|
421,193
|
342,172
|
|
Line
of credit
|
2,074,115
|
1,246,692
|
|
Total
current liabilities
|
3,003,696
|
1,964,366
|
|
Long-term
liabilities
|
|
|
|
Note
payable - net of current portion
|
682,897
|
827,713
|
|
Total
long-term liabilities
|
682,897
|
827,713
|
|
|
|
|
|
Total
liabilities
|
3,686,593
|
2,792,079
|
|
|
|
|
|
Stockholders'
(deficit) equity
|
|
|
|
Capital
Stock, $.10 par value; 1,000,000 shares authorized, 100,000 shares
issued, 44,050 shares outstanding at December 31, 2016 and
2015
|
10,000
|
10,000
|
|
Additional
paid-in-capital
|
565,984
|
565,984
|
|
Treasury
stock, 55,950 shares as of December 31, 2016 and 2015
|
(4,464,860)
|
(4,464,860)
|
|
Retained
earnings
|
3,600,858
|
3,997,320
|
|
Total
stockholders' (deficit) equity
|
(288,018)
|
108,444
|
|
|
|
|
|
Total
liabilities and stockholders' (deficit) equity
|
$3,398,575
|
$2,900,523
|
See accompanying notes to the financial statements.
F-3
GLOBAL TECHNICAL SERVICES, INC.
STATEMENT OF OPERATIONS
For the years ended December 31, 2016 and 2015
|
|
2016
|
2015
|
|
Sales
|
$18,116,381
|
$13,973,857
|
|
Cost
of sales
|
16,076,148
|
12,340,009
|
|
Gross
profit
|
2,040,233
|
1,633,848
|
|
|
|
|
|
Selling,
general and administrative expenses
|
2,313,754
|
2,170,247
|
|
Operating
loss
|
(273,521)
|
(536,399)
|
|
Other
income/(expense)
|
|
|
|
Interest
expense, net
|
(125,015)
|
(99,739)
|
|
Other
income, net
|
2,074
|
6,360
|
|
Other
expense, net
|
(122,941)
|
(93,379)
|
|
Net
loss
|
$(396,462)
|
$(629,778)
|
See accompanying notes to the financial statements.
F-4
GLOBAL TECHNICAL SERVICES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIT)
For the years ended December 31, 2016 and 2015
|
|
Shares of Common Stock
|
Common Stock
|
Shares of Treasury Stock
|
Treasury Stock
|
Additional Paid-In Capital
|
Retained Earnings
|
Total Stockholders’ Equity (Accumulated Deficit)
|
|
Balance
as of January 1, 2015
|
44,050
|
$10,000
|
55,950
|
$(4,464,860)
|
$565,984
|
$4,627,098
|
$738,222
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(629,778)
|
(629,778)
|
|
Balance
as of December 31, 2015
|
44,050
|
10,000
|
55,950
|
(4,464,860)
|
565,984
|
3,997,320
|
108,444
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(396,462)
|
(396,462)
|
|
Balance
as of December 31, 2016
|
44,050
|
$10,000
|
55,950
|
$(4,464,860)
|
$565,984
|
$3,600,858
|
$(288,018)
|
See accompanying notes to the financial statements.
F-5
GLOBAL TECHNICAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2016 and 2015
|
|
2016
|
2015
|
|
Cash flows from
operating activities
|
|
|
|
Net
loss
|
(396,462)
|
(629,778)
|
|
Adjustments to
reconcile net income to cash provided by operating
activities
|
|
|
|
Depreciation and
amortization
|
66,970
|
81,145
|
|
Bad debt
expense
|
347,407
|
123,626
|
|
(Increase) decrease
in:
|
|
|
|
Accounts
receivables – trade
|
(917,963)
|
(192,569)
|
|
Accounts
receivables – other
|
(7,401)
|
2,663
|
|
Employee
advances
|
52,877
|
(53,668)
|
|
Interest
receivable
|
4,483
|
30,603
|
|
Prepaid
expenses
|
62,451
|
269,015
|
|
Increase (decrease)
in:
|
|
|
|
Accounts
payable-trade
|
(5,280)
|
21,458
|
|
Accrued
expenses
|
100,103
|
125,744
|
|
Accrued
interest
|
38,062
|
31,878
|
|
Total
adjustments
|
(258,291)
|
439,895
|
|
Net cash used in
operating activities
|
(654,753)
|
(189,883)
|
|
Cash flows from
investing activities
|
|
|
|
Purchase of
property and equipment
|
(11,304)
|
(70,292)
|
|
Collections on
notes receivable
|
(112,703)
|
-
|
|
Advances on notes
receivable
|
-
|
359,397
|
|
Net cash (used in)
provided by investing activities
|
(124,007)
|
289,105
|
|
Cash flows from
financing activities
|
|
|
|
Proceeds of
short-term borrowings
|
18,054,015
|
14,033,049
|
|
Repayment of
short-term borrowings
|
(17,226,591)
|
(14,192,423)
|
|
Proceeds of notes
payable
|
239,074
|
244,865
|
|
Repayment of notes
payable
|
(304,868)
|
(354,288)
|
|
Net cash provided
by (used in) financing activities
|
761,630
|
(268,797)
|
|
Net decrease in
cash
|
(17,130)
|
(169,575)
|
|
Cash, beginning of
year
|
60,369
|
229,944
|
|
Cash, end of
year
|
$43,239
|
$60,369
|
|
Supplemental
Disclosures of Cash Flow Information
|
|
|
|
Cash paid for
income taxes
|
$5,016
|
$6,860
|
|
Cash paid for
interest
|
$117,387
|
$91,032
|
See accompanying notes to the financial statements.
F-6
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS
Global
Technical Services, Inc. (the Company) was organized and chartered
in 1989, in the state of Texas, as a corporation for the purpose of
providing temporary contract professional and skilled labor to
businesses throughout the United States. Contracts to provide such
services vary in length, usually less than one year. The
Company’s corporate offices are located in Fort Worth,
Texas.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
A
summary of the Company’s significant accounting policies
consistently applied in the preparation of the accompanying
financial statements follows:
Basis of accounting
The
accounts are maintained and the financial statements have been
prepared on the accrual basis of accounting in accordance with
generally accepted accounting principles (GAAP).
Statements of cash flows
For
purposes of the statements of cash flows, the Company considers all
short-term investments purchased with an original maturity of three
months or less to be cash equivalents. At December 31, 2016 and
2015, the Company had no such investments included in
cash.
Accounts receivable
The
Company performs ongoing credit evaluations of its customers’
financial conditions and extends credit to virtually all of its
customers on an uncollateralized basis. Customers are headquartered
throughout the United States and operate primarily within the
aerospace and defense industries.
Accounts receivable are stated at cost, net of any allowance for
doubtful accounts. The Company maintains an allowance for doubtful
accounts for estimated losses resulting from the failure of
customers to make required payments. The Company reviews the
accounts receivable on a periodic basis and establishes allowances
where there is doubt as to the collectability of individual
balances. In evaluating the collectability of individual receivable
balances, the Company considers many factors including the age of
the balance, the customer’s payments history, its current
credit-worthiness, and current economic trends. As of the years
ending December 31, 2016 and 2015, the Company deems all
receivables as collectible.
Accounts receivable at December 31, 2016 and 2015 include $222,269
and $188,415 in unbilled contracts respectively related to work
performed in the year in which the receivable was recorded. These
amounts were billed in the respective subsequent
years.
Revenue Recognition
The
Company recognizes revenues for the performance of services when
persuasive evidence of an arrangement exists, service have been
rendered or delivery has occurred, the fee is fixed or determinable
and the collectability of the related revenue is reasonably
assured. The Company derives revenues from fees for services
generated on a project basis. Revenues are recognized based on the
number of hours worked by the employees or consultants at an
agreed-upon rate per hour per the Company’s contracts or
purchase orders.
Property and equipment
Property
and equipment is stated at cost. Depreciation of property and
equipment is provided on the double-declining balance method over
the estimated useful lives as follows:
|
Autos
|
5
Years
|
|
Furniture
and equipment
|
5-7
Years
|
|
Leasehold
improvements
|
15
Years
|
Repairs
and maintenance are expensed as incurred; expenditures for
additions, improvements and replacements are capitalized.
Depreciation expense of $66,970 and $81,145 was incurred during
2016 and 2005, respectively.
F-7
Treasury stock
Treasury
stock is shown at cost and consists of 55,950 shares of the Company
common stock at December 31, 2016 and 2015.
Income taxes
The
Company has adopted the liability method of accounting for income
taxes in accordance with Account Standards Codification (ASC) 740,
“Accounting for Income
Taxes”. Deferred income taxes are recognized for
temporary differences between financial statement and income tax
basis of assets and liabilities and net operating loss
carry-forwards for which tax benefits will be realized in future
years.
Profit sharing plan
The
Company has a 401(k) deferred compensation plan for all eligible
employees. Active participants may elect to have the Company make
salary reduction contributions on their behalf based on a
percentage of their earnings, not to exceed 25% in 2016 and 2015.
The Company has the option of making annual discretionary
contributions to the plan up to a predetermined limit. For the
years ended December 31, 2016 and 2015, the Company made no
contributions to the plan. The Company terminated the 401(k) plan
on January 31, 2017.
Advertising
The
Company expenses advertising costs as incurred. Advertising expense
was $54,735 and $56,393 for the years ended December 31, 2016 and
2005, respectively.
Use of estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles 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 revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Going concern assessment
Beginning
with the year ended December 31, 2016 and all annual and
interim periods thereafter, management will assess going concern
uncertainty in the Company’s combined financial statements to
determine if there is sufficient cash on hand and working capital
to operate for a period of at least one year from the date the
combined financial statements are issued or available to be issued,
which is referred to as the “look-forward period”, as
defined in generally accepted accounting principles. As part of
this assessment, based on conditions that are known and reasonably
knowable, management will consider various scenarios, forecasts,
projections, estimates and will make certain key assumptions,
including the timing and nature of projected cash expenditures or
programs, and its ability to delay or curtail expenditures or
programs, if necessary, among other factors. Based on this
assessment, as necessary or applicable, management makes certain
assumptions around implementing curtailments or delays in the
nature and timing of programs and expenditures to the extent it
deems probable those implementations can be achieved and management
has the proper authority to execute them within the look-forward
period. Management’s assessment determined the Company is a
going concern.
New accounting pronouncements
In
February 2016, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) 2016-02, Leases. This ASU is a comprehensive new
leases standard that amends various aspects of existing guidance
for leases and requires additional disclosures about leasing
arrangements. It will require companies to recognize lease assets
and lease liabilities by lessees for those leases classified as
operating leases under previous U.S. GAAP. Topic 842 retains a
distinction between finance leases and operating leases. The
classification criteria for distinguishing between finance leases
and operating leases are substantially similar to the
classification criteria for distinguishing between capital leases
and operating leases in the previous leases guidance. The ASU is
effective for annual periods beginning after December 15,
2018, including interim periods within those fiscal years; earlier
adoption is permitted. In the financial statements in which the ASU
is first applied, leases shall be measured and recognized at the
beginning of the earliest comparative period presented with an
adjustment to equity. Practical expedients are available for
election as a package and if applied consistently to all leases.
The Company is currently evaluating the impact of the adoption of
this guidance on its consolidated financial condition, results of
operations and cash flows.
F-8
In
August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with
Customers—Deferral of the Effective Date, which defers
by one year the mandatory effective date of its revenue recognition
standard, and provides entities the option to adopt the standard as
of the original effective date. The new standard is now effective
for annual reporting periods beginning after December 15,
2017, and interim periods within those annual periods. Early
adoption is now permitted, but not before the original effective
date. The Company is currently evaluating the impact, if any, this
new standard will have on its combined financial statements, when
the Company will adopt the new standard, and the method of
adoption.
In
August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements –
Going Concern, which requires management to perform interim
and annual assessments of an entity’s ability to continue as
a going concern within one year of the date the financial
statements are issued and provides guidance on determining when and
how to disclose going concern uncertainties in the financial
statements. Certain disclosures will be required if conditions give
rise to substantial doubt about an entity’s ability to
continue as a going concern. This accounting standard update
applies to all entities and was effective for the annual period
ending after December 15, 2016, and for annual periods and
interim periods thereafter, with early adoption permitted. The
Company adopted this standard during fiscal year 2016.
Subsequent events
The
Company has evaluated subsequent events through September 29, 2017,
which is the date the combined financial statements were available
to be issued. See Note 10.
NOTE 3 -- LIQUIDITY
For the
year ended December 31, 2016, the Company generated net loss of
$409,255 and used $654,753 of cash for continuing operations.
Additionally, at December 31, 2016 the company had cash available
of $43,239 and a working capital of $259,338.
On
September 21, 2017, the Company entered into a Purchase Agreement
to be acquired by Novume Solutions Inc. Upon closing of the
acquisition, the Company will become a wholly-owned subsidiary of
Novume Solutions, Inc., a Delaware corporation
(“Novume”). For additional detail regarding this
transaction, refer to Subsequent Events (Note 10).
Management
believes that the Company’s current level of cash combined
with cash that it expects to generate in its operations during the
next 12 months including anticipated new customer contracts will be
sufficient to sustain the Company’s business initiatives
through at least September 2018, but there can be no assurance that
these measures will be successful or adequate. In the event that
the Company’s cash reserves and cash flow from operations are
not sufficient to fund the Company’s future operations, the
Company may need to obtain additional capital and rely on Novume
Solutions, Inc.
NOTE 4 -- NOTES PAYABLE
Notes
payable as of December 31, 2016 and 2015, consisted of the
following:
|
|
December
31, 2016
|
December
31, 2015
|
|
G&W
Ventures
|
$953,722
|
$953,722
|
|
Ally
Financial
|
13,894
|
21,505
|
|
Bank
Direct
|
49,440
|
15,617
|
|
SBC Insurance
Agency
|
87,034
|
145,612
|
|
Cowboys Stadium,
LP
|
-
|
33,429
|
|
Total Current Notes
Payable
|
1,104,090
|
1,169,885
|
|
Less: Current
Maturities of Long-Term Debt
|
(421,193)
|
(342,172)
|
|
Notes Payable, Less
Current Maturities
|
$682,897
|
$827,713
|
F-9
The
Company has an outstanding notes payable to G&W Ventures, Inc.
that carries an interest rate of 4% per annum and requires monthly
interest payments of $11,137. The note payable is secured by
Company stock and a life insurance policy. The principal balance at
December 31, 2016 and 2015 totaled $953,722 and $953,722,
respectively. Principal payments during the year ended December 31,
2015 totaled $15,837. There were no principal payments made during
the year ended December 31, 2016.
On
September 26, 2013, the Company entered into a note agreement with
Ally Financial in the amount of $38,000 for the purchase of an
automobile. The note matures on October 11, 2018. Payments of
principal and interest at 0.00% are due and payable monthly
beginning November 11, 2013. The principal balance at December 31,
2016 and 2015 totaled $13,892 and $21,505, respectively. Principal
payments made in 2016 and 2015 totaled $7,613 and
$6,985.
On
August 8, 2012, the Company entered into a note agreement with
Cowboys Stadium, L.P. in the amount of $36,000 for the purchase of
Seat Option at the Cowboys Stadium. The note matures on August 8,
2038. Payments of principal and interest at 8% are due and payable
annually beginning March 1, 2013. On November 28, 2016 the Company
exercised Seat Option Assignment and Assumption Agreement and sold
the rights to stadium seats. The principal balance at December 31,
2016 and 2015 totaled $0 and $33,429, respectively. Principal
payments made in 2016 and 2015 totaled $520 and $480,
respectively.
On
October 1, 2015, the Company entered into a note agreement with
Bank Direct Capital Finance in the amount of $23,212. The note was
unsecured and matured on July 1, 2016. Payments of principal and
interest at 7.4% were due and payable monthly beginning November 1,
2015. The principal balance at December 31, 2015 totaled $15,617.
Principal payments made in 2016 and 2015 totaled $7,595 and
$15,617, respectively.
On
October 1, 2015, the Company entered into a note agreement with SBC
Insurance Agency in the amount of $208,014. The note was unsecured
and matured on June 1, 2016. Payments of principal were due and
payable monthly beginning November 1, 2015. The principal balance
at December 31, 2015 totaled $145,612. Principal payments made in
2016 and 2015 totaled $62,404 and 145,612,
respectively.
On
October 1, 2016, the Company entered into a note agreement with
Bank Direct Capital Finance in the amount of $74,022. The note
matures on July 1, 2017. Payments of principal and interest at 7.0%
are due and payable monthly beginning November 1, 2016. The
principal balance at December 31, 2016 totaled $49,440. Principal
payments made in 2016totaled $24,582. Payment of the note payable
is unsecured.
On
October 1, 2016, the Company entered into a note agreement with SBC
Insurance Agency in the amount of $111,905. The note matures on
July 1, 2017. Payments of principal are due and payable monthly
beginning November 1, 2016. The principal balance at December 31,
2016 totaled $87,034. Principal payments made in 2016totaled
$24,871. Payment of the note payable is unsecured.
The
future debt service requirements are as follows:
|
2017
|
$421,193
|
|
2018
|
114,839
|
|
2019
|
112,978
|
|
2020
|
117,580
|
|
2021 and
thereafter
|
337,501
|
|
|
$1,104,091
|
NOTE 5 -- LINE OF CREDIT – BANK
As of
December 31, 2016, the Company renewed a revolving line of credit
(Line of Credit Agreement) with Wells Fargo Capital Finance (WFCF).
Advances from WFCF are due on December 31, 2017 with interest at
the LIBOR plus 3% payable monthly. Payment of the revolving line of
credit is secured by the accounts receivable of the Company. The
principal balance at December 31, 2016 and 2015 totaled $2,074,115
and $1,246,692, respectively.
As part
of the Line of Credit Agreement, the Company must maintain certain
financial covenants. The Company met all financial covenant
requirements during and as of the years ended December 31, 2016 and
2015.
F-10
NOTE 6 -- RELATED PARTY TRANSACTIONS
Employee advances
The
Company had outstanding employee advances to officers of $71,302
and $137,049 as of December 31, 2016 and 2015,
respectively.
Revolving line of credit
January
5, 2004, the Company granted a revolving line of credit in the
amount of $1,000,000 to Global Contract Professionals, Inc. (GCP),
a related party through common ownership. Advances to GCP are due
annually with interest at prime + ½% payable monthly. The
principal balance at December 31, 2016 and 2015 was $564,537 and
$451,835, respectively, and was recorded as notes receivable on the
Company’s balance sheet. The Company has recorded interest
income receivable of $19,628 and $24,111 as of December 31, 2016
and 2015, respectively, from GCP.
Reimbursement for expenses
The
Company received reimbursement from GCP for various expenses during
2016 and 2015 in the amounts of $134,744 and $217,487,
respectively.
NOTE 7 -- LEASES
The
Company conducts its operations from facilities that are leased
under a 24-month operating lease, with payments of $14,758 per
month through March 2016. In March of 2015 the company reduced
lease space and extended its lease through March 2018 with payments
of $12,559 per month. In June of 2016 the Company reduced lease
space and adjusted rent payment to $10,085.
In
March 2015 the Company increased the sublease base rent with GCP to
$1,960 per month. An additional amount equal to the percentage of
total paychecks processed multiplied by $6,816 (the remaining
unallocated rent of $12,559) is due monthly.
In June
2016 the Company renegotiated the sublease with GCP for the
facilities to $3,516 per month. An additional amount equal to the
percentage of total paychecks processed multiplied by $3,054 (the
remaining unallocated rent of $10,085) is due monthly.
Rent
expense for the years ended December 31, 2016 and 2015 was $68,781
and $105,871, respectively. Rental income from the sublease to GCP
during the year ended December 31, 2016 and 2015 was $66,696 and
$68,321, respectively.
Minimum
rental payments net of rental income required under the above
operating leases are as follows:
|
2017
|
$42,192
|
|
2018
|
42,192
|
|
|
$84,384
|
NOTE 8 -- INCOME TAXES
Income
taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus
deferred taxes. Deferred taxes are recognized for differences
between the basis of assets and liabilities for financial statement
and income tax purposes. The differences relate primarily to
depreciable assets (use of different depreciation methods and lives
for financial statement and income tax purposes) and state income
taxes (which are accrued for book purposes but deducted for tax
purposes in the year paid) and contribution carryovers (which are
deducted for book purposes when paid but are limited to 10% of
taxable income for tax purposes). The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled.
F-11
The
differences between actual income tax expense and the tax provision
computed by applying the statutory federal income tax rate to
earnings before income taxes are attributable to the
following:
|
|
2015
|
2016
|
|
Deferred Tax
Assets
|
|
|
|
Charity
Carryforward
|
$79,140
|
$84,402
|
|
NOL
|
227,022
|
359,766
|
|
Deferred Tax
Liabilities
|
|
|
|
Fixed
Assets
|
11,928
|
18,700
|
|
Net Deferred Tax
Assets
|
318,089
|
467,744
|
|
Less: Valuation
Allowance
|
(318,089)
|
(467,744)
|
|
Net Deferred Tax
Asset
|
$-
|
$-
|
NOTE 9 -- CONCENTRATION OF CREDIT RISK
The
Company operates within the aerospace and defense industries.
Accordingly, the risk exists that the ability to collect amounts
due from customers could be affected by economic fluctuations in
these markets and industries. The Company does not believe,
however, that it is subject to any unusual credit risk beyond the
normal credit risk attendant to operating the business.
Historically, credit losses have not been significant.
The
Company has one customer in 2016 and two customers in 2015, which
combined, accounted for approximately 59% and 65% of the
Company’s total sales during 2016 and 2015, respectively. The
amount due from these customers, included in accounts receivable,
was $1,535,128 and $1,535,128, or approximately 59% and 52% of the
balances, at December 31, 2016 and 2015, respectively.
NOTE 10 -- SUBSEQUENT EVENTS
On
September 21, 2017 the Company entered into a Equity Purchase
Agreement with Novume Solutions, Inc. in the amount of
approximately $3,750,000. This purchase agreement is expected to
close on October 1, 2017.
On
February 23, 2017 the Company entered into a note agreement with
Fora Financial in the amount of $149,500 with a fixed finance
charge of $37,375. The Company renegotiated the agreement on July
24, 2017 borrowing an additional $100,000 with a fixed finance
charge of $32,000 if paid by October 31, 2017.
F-12
GLOBAL CONTRACT PROFESSIONAL, INC.
Index to Financial Statements
|
Independent
Auditor’s Report
|
F-14
|
|
Combined Balance
Sheets at December 31, 2016 and 2015
|
F-15
|
|
Combined Statements
of Operations for the Years Ended December 31, 2016 and
2015
|
F-16
|
|
Combined Statements
of Stockholders’ Equity (Deficit) for the Years Ended
December 31, 2016 and 2015
|
F-17
|
|
Combined Statements
of Cash Flows for the Years Ended December 31, 2016 and
2015
|
F-18
|
|
Notes to Combined
Financial Statements
|
F-19
|
F-13
To the
Board of Directors
Global
Contract Professionals, Inc.
Report on Financial Statements
We have
audited the accompanying financial statements of Global Contract
Professionals, Inc. (“the Company”) which comprise the
balance sheets as of December 31, 2016 and 2015, and the related
statements of operations, changes in stockholders’ deficit
and cash flows for the years then ended, and the related notes to
the financial statements.
Management’s Responsibility for the Financial
Statements
Management
is responsible for the preparation and fair presentation of these
financial statements in accordance with accounting principles
generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to
fraud or error.
Auditor’s Responsibility
Our
responsibility is to express an opinion on these 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 from material
misstatement.
An
audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of
the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of
the financial statements to design audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation
of the financial statements.
We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as
of December 31, 2016 and 2015, and the results of its operations
and its cash flows for the years then ended in accordance with
accounting principles generally accepted in the United States of
America.
/s/
BD & Company, Inc.
Owings
Mills, MD
September
29, 2017
F-14
GLOBAL CONTRACT PROFESSIONALS, INC.
BALANCE SHEETS
December 31, 2016 and 2015
|
ASSETS
|
2016
|
2015
|
|
Current
assets
|
|
|
|
Cash
|
$28,458
|
$188,150
|
|
Accounts receivable
- trade
|
525,304
|
756,283
|
|
Accounts receivable
- other
|
1,750
|
17,150
|
|
Prepaid
expenses
|
3,525
|
17,482
|
|
Total current
assets
|
559,037
|
979,065
|
|
Property and
equipment
|
|
|
|
Autos
|
-
|
-
|
|
Furniture and
equipment
|
137,215
|
172,582
|
|
Leasehold
improvements
|
11,604
|
5,104
|
|
|
148,819
|
177,686
|
|
Less accumulated
depreciation
|
(115,867)
|
(133,642)
|
|
Total property and
equipment
|
32,952
|
44,044
|
|
Other
assets
|
|
|
|
Deposits
|
9,241
|
9,241
|
|
Total other
assets
|
9,241
|
9,241
|
|
Total
assets
|
$601,230
|
$1,032,350
|
|
LIABILITIES AND
STOCKHOLDERS' DEFICIT
|
|
|
|
Current
liabilities
|
|
|
|
Accounts
payable
|
$2,024
|
$24,555
|
|
Accrued
expenses
|
54,142
|
71,710
|
|
Accrued interest -
related party
|
19,628
|
24,111
|
|
Note payable -
related party
|
564,537
|
446,760
|
|
Line of
credit
|
434,587
|
636,949
|
|
Total current
liabilities
|
1,074,918
|
1,204,085
|
|
Total
liabilities
|
1,074,918
|
1,204,085
|
|
Stockholders'
deficit
|
|
|
|
Capital Stock, $.01
par value; 1,000,000 shares authorized 44,050 shares issued and
outstanding
|
441
|
441
|
|
Accumulated
deficit
|
(474,129)
|
(172,176)
|
|
Total stockholders'
equity
|
(473,688)
|
(171,735)
|
|
Total liabilities
and stockholders' deficit
|
$601,230
|
$1,032,350
|
See accompanying notes to the financial statements.
F-15
GLOBAL CONTRACT PROFESSIONALS, INC.
STATEMENT OF OPERATIONS
For the years ended December 31, 2016 and 2015
|
|
2016
|
2015
|
|
Sales
|
$6,272,572
|
$9,509,987
|
|
Cost
of sales
|
5,605,520
|
8,469,733
|
|
Gross
profit
|
667,052
|
1,040,254
|
|
Selling,
general and administrative expenses
|
896,702
|
1,034,705
|
|
Operating
(loss) income
|
(229,650)
|
5,549
|
|
Other
expense
|
|
|
|
Interest
expense
|
(71,621)
|
(82,783)
|
|
Other
expense, net
|
(682)
|
(1,734)
|
|
Net
loss
|
$(301,953)
|
$(78,968)
|
See accompanying notes to the financial statements.
F-16
GLOBAL CONTRACT PROFESSIONALS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the years ended December 31, 2016 and 2015
|
|
Shares of Common Stock
|
Common Stock
|
Accumulated Deficit
|
Total Stockholders’ Deficit
|
|
Balance
as of January 1, 2015
|
44,050
|
$441
|
$(93,208)
|
$(92,767)
|
|
Net
loss
|
-
|
-
|
(78,968)
|
(78,968)
|
|
Balance
as of December 31, 2015
|
44,050
|
441
|
(172,176)
|
(171,735)
|
|
Net
loss
|
-
|
-
|
(301,953)
|
(301,953)
|
|
Balance
as of December 31, 2016
|
44,050
|
$441
|
$(474,129)
|
$(473,688)
|
See accompanying notes to the financial statements.
F-17
GLOBAL CONTRACT PROFESSIONALS, INC.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2016 and 2015
|
|
2016
|
2015
|
|
Cash flows from
operating activities
|
|
|
|
Net
loss
|
$(301,953)
|
$(78,968)
|
|
Adjustments to
reconcile net income to cash provided by operating
activities
|
|
|
|
Depreciation and
amortization
|
19,083
|
20,083
|
|
Bad debt
expense
|
50,468
|
-
|
|
(Increase) decrease
in:
|
|
|
|
Accounts
receivables - trade
|
180,511
|
239,291
|
|
Accounts
receivables - other
|
6,500
|
30,724
|
|
Employee
advances
|
8,900
|
300
|
|
Prepaid
expenses
|
13,955
|
(12,154)
|
|
Increase (decrease)
in:
|
|
|
|
Accounts
payable-trade
|
(22,528)
|
(11,450)
|
|
Accrued
expenses
|
(17,568)
|
(3,968)
|
|
Accrued
interest
|
(4,483)
|
(1,505)
|
|
Total
adjustments
|
234,838
|
261,321
|
|
Net cash provided
by operating activities
|
(67,115)
|
182,353
|
|
Cash flows from
investing activities
|
|
|
|
Purchase of
property and equipment
|
(7,992)
|
(23,327)
|
|
Net cash used in
investing activities
|
(7,992)
|
(23,327)
|
|
Cash flows from
financing activities
|
|
|
|
Proceeds of
short-term borrowings
|
6,414,447
|
9,583,633
|
|
Repayment of
short-term borrowings
|
(6,616,809)
|
(9,793,139)
|
|
Proceeds of notes
payable
|
423,277
|
550,966
|
|
Repayment of notes
payable
|
(305,500)
|
(385,476)
|
|
Net cash used in
financing activities
|
(84,585)
|
(44,016)
|
|
Net decrease in
cash
|
(159,692)
|
115,010
|
|
Cash, beginning of
year
|
188,150
|
73,140
|
|
Cash, end of
year
|
$28,458
|
$188,150
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information
|
|
|
|
Cash paid for
income taxes
|
$2,500
|
$10,103
|
|
Cash paid for
interest
|
$73,057
|
$84,288
|
See accompanying notes to the financial statements.
F-18
GLOBAL CONTRACT PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS
Global
Contract Professionals, Inc. (the Company) was organized and
chartered on December 29, 2003, in the state of Texas, as a
corporation for the purpose of providing temporary contract
professional and skilled labor to businesses throughout the United
States. Contracts to provide such services vary in length, usually
less than one year. The Company’s corporate offices are
located in Fort Worth, Texas.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
A
summary of the Company’s significant accounting policies
consistently applied in the preparation of the accompanying
financial statements follows:
Basis of accounting
The
accounts are maintained and the financial statements have been
prepared on the accrual basis of accounting in accordance with
generally accepted accounting principles (GAAP).
Cash and cash equivalents
For
purposes of the balance sheet and statement of cash flows, the
Company considers all short-term investments purchased with an
original maturity of three months or less to be cash equivalents.
At December 31, 2016 and 2015, the Company had no such investments
included in cash.
Accounts receivable
The
Company performs ongoing credit evaluations of its customers’
financial conditions and extends credit to virtually all of its
customers on an uncollateralized basis. Customers are headquartered
throughout the United States and operate primarily within the
aerospace and defense industries.
Accounts receivable are stated at cost, net of any allowance for
doubtful accounts. The Company maintains an allowance for doubtful
accounts for estimated losses resulting from the failure of
customers to make required payments. The Company reviews the
accounts receivable on a periodic basis and establishes allowances
where there is doubt as to the collectability of individual
balances. In evaluating the collectability of individual receivable
balances, the Company considers many factors including the age of
the balance, the customer’s payments history, its current
credit-worthiness, and current economic trends. As of the years
ending December 31, 2016 and 2015, the Company deems all
receivables as collectible.
Accounts receivable at December 31, 2016 and 2015 include $16,445
and $41,363 in unbilled contracts respectively related to work
performed in the year in which the receivable was recorded. These
amounts were billed in the respective subsequent
years.
Revenue Recognition
The
Company recognizes revenues for the performance of services when
persuasive evidence of an arrangement exists, service have been
rendered or delivery has occurred, the fee is fixed or determinable
and the collectability of the related revenue is reasonably
assured. The Company derives revenues from fees for services
generated on a project basis. Revenues are recognized based on the
number of hours worked by the employees or consultants at an
agreed-upon rate per hour per the Company’s contracts or
purchase orders.
Property and equipment
Property
and equipment is stated at cost. Depreciation of property and
equipment is provided on the double-declining balance method over
the estimated useful lives as follows:
|
Autos
|
5
Years
|
|
Furniture
and equipment
|
5-7
Years
|
|
Leasehold
improvements
|
15
Years
|
Repairs
and maintenance are expensed as incurred; expenditures for
additions, improvements and replacements are capitalized.
Depreciation expense of $19,083 and $20,083 was incurred during the
years ended December 31, 2016 and 2015, respectively.
F-19
Profit sharing plan
The
Company has a 401(k) deferred compensation plan for all eligible
employees. Active participants may elect to have the Company make
salary reduction contributions on their behalf based on a
percentage of their earnings, not to exceed 25%. The Company has
the option of making annual discretionary contributions to the plan
up to a predetermined limit. For the year ended December 31, 2016
and 2015, the Company made no contributions to the
plan.
Advertising
The
Company expenses advertising costs as incurred. Advertising expense
was $54,545 and $73,763 for the years ended December 31, 2016 and
2015, respectively.
Use of estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles 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 revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Going concern assessment
Beginning
with the year ended December 31, 2016 and all annual and
interim periods thereafter, management will assess going concern
uncertainty in the Company’s combined financial statements to
determine if there is sufficient cash on hand and working capital
to operate for a period of at least one year from the date the
combined financial statements are issued or available to be issued,
which is referred to as the “look-forward period”, as
defined in generally accepted accounting principles. As part of
this assessment, based on conditions that are known and reasonably
knowable, management will consider various scenarios, forecasts,
projections, estimates and will make certain key assumptions,
including the timing and nature of projected cash expenditures or
programs, and its ability to delay or curtail expenditures or
programs, if necessary, among other factors. Based on this
assessment, as necessary or applicable, management makes certain
assumptions around implementing curtailments or delays in the
nature and timing of programs and expenditures to the extent it
deems probable those implementations can be achieved and management
has the proper authority to execute them within the look-forward
period. Management’s assessment determined the Company is a
going concern.
New accounting pronouncements
In
February 2016, the Financial
Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2016-02, Leases. This ASU is a comprehensive new
leases standard that amends various aspects of existing guidance
for leases and requires additional disclosures about leasing
arrangements. It will require companies to recognize lease assets
and lease liabilities by lessees for those leases classified as
operating leases under previous U.S. GAAP. Topic 842 retains a
distinction between finance leases and operating leases. The
classification criteria for distinguishing between finance leases
and operating leases are substantially similar to the
classification criteria for distinguishing between capital leases
and operating leases in the previous leases guidance. The ASU is
effective for annual periods beginning after December 15,
2018, including interim periods within those fiscal years; earlier
adoption is permitted. In the financial statements in which the ASU
is first applied, leases shall be measured and recognized at the
beginning of the earliest comparative period presented with an
adjustment to equity. Practical expedients are available for
election as a package and if applied consistently to all leases.
The Company is currently evaluating the impact of the adoption of
this guidance on its consolidated financial condition, results of
operations and cash flows.
In
August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with
Customers—Deferral of the Effective Date, which defers
by one year the mandatory effective date of its revenue recognition
standard, and provides entities the option to adopt the standard as
of the original effective date. The new standard is now effective
for annual reporting periods beginning after December 15,
2017, and interim periods within those annual periods. Early
adoption is now permitted, but not before the original effective
date. The Company is currently evaluating the impact, if any, this
new standard will have on its combined financial statements, when
the Company will adopt the new standard, and the method of
adoption.
F-20
In
August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements –
Going Concern, which requires management to perform interim
and annual assessments of an entity’s ability to continue as
a going concern within one year of the date the financial
statements are issued and provides guidance on determining when and
how to disclose going concern uncertainties in the financial
statements. Certain disclosures will be required if conditions give
rise to substantial doubt about an entity’s ability to
continue as a going concern. This accounting standard update
applies to all entities and was effective for the annual period
ending after December 15, 2016, and for annual periods and
interim periods thereafter, with early adoption permitted. The
Company adopted this standard during fiscal year 2016.
Subsequent events
The
Company has evaluated subsequent events through September 29, 2017,
which is the date the combined financial statements were available
to be issued. See Note 12.
NOTE 3 – LIQUIDITY
For the
year ended December 31, 2016, the Company generated net loss of
$301,953 and used $67,115 of cash for continuing operations.
Additionally, at December 31, 2016 the company had cash available
of $28,458 and a working capital deficit of $515,881.
On
September 21, 2017, the Company entered into a Purchase Agreement
to be acquired by Novume Solutions Inc. Upon closing of the
acquisition, the Company will become a wholly-owned subsidiary of
Novume Solutions, Inc., a Delaware corporation
(“Novume”). For additional detail regarding this
transaction, refer to Subsequent Events (Note 11).
Management
believes that the Company’s current level of cash combined
with cash that it expects to generate in its operations during the
next 12 months including anticipated new customer contracts will be
sufficient to sustain the Company’s business initiatives
through at least September 2018, but there can be no assurance that
these measures will be successful or adequate. In the event that
the Company’s cash reserves and cash flow from operations are
not sufficient to fund the Company’s future operations, the
Company may need to obtain additional capital and rely on Novume
Solutions, Inc.
NOTE 4 – LINE OF CREDIT – BANK
As of
December 31, 2016, the Company renewed a revolving line of credit
(Line of Credit Agreement) with Wells Fargo Capital Finance (WFCF).
Advances from WFCF are due on December 31, 2017 with interest at
the LIBOR plus 3% payable monthly. Payment of the revolving line of
credit is secured by the accounts receivable of the Company. The
principal balance at December 31, 2016 and 2015 totaled $434,587
and $636,949, respectively.
As part
of the Line of Credit Agreement, the Company must maintain certain
financial covenants. The Company met all financial covenant
requirements during and as of the years ended December 31, 2016 and
2015.
NOTE 5 – RELATED PARTY TRANSACTIONS
Reimbursement for expenses
The
Company reimbursed Global Technical Services, Inc. (GTS), a related
party through common ownership, for various expenses during 2016
and 2015 in the amounts of $134,744 and $217,487,
respectively.
Revolving line of credit
As of
January 5, 2004, the Company secured a revolving line of credit in
the amount of $1,000,000 from GTS. Advances from GTS are due
annually with interest at prime + 1/2% payable monthly. The
principal balance at December 31, 2016 and 2015 was $564,537 and
$446,760, respectively and was recorded as notes payable –
related party on the Company’s balance sheet. The Company has
recorded interest expense payable of $19,628 and $24,111 in 2016
and 2015, respectively.
F-21
Employee advances
The
Company had outstanding employee advances to officers of $1,750 and
$10,650 as of December 31, 2016 and 2015,
respectively.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
The
Company is a guarantor on a line of credit to GTS from a bank in
the amount of $3,000,000, with a balance at December 31, 2016 of
$2,074,115. This guarantee would require the Company to make
required loan payments to the bank in the event GTS was unable to
do so.
NOTE 7 – CONCENTRATION OF CREDIT RISK
The
Company operates within the aerospace and defense industries.
Accordingly, the risk exists that the ability to collect amounts
due from customers could be affected by economic fluctuations in
these markets and industries. The Company does not believe,
however, that it is subject to any unusual credit risk beyond the
normal credit risk attendant to operating the business.
Historically, credit losses have not been significant.
The
Company has three customers, which combined, accounted for
approximately 77% and 85% of the Company’s total sales during
2016 and 2015, respectively. The amount due from these customers,
included in accounts receivable, was $503,114 and $745,853 or
approximately 91% and 81% of the balances, at December 31, 2016 and
2015, respectively.
NOTE 8 – INCOME TAXES
The
Company has elected to be taxed under provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does
not pay federal corporate income taxes on its taxable income and is
not allowed a net operating loss carryover or carry back as a
deduction. Instead, the stockholders are liable for individual
federal income taxes on their respective shares of the
Company’s taxable income or include their respective shares
of the Company’s net operating loss in their individual
income tax returns.
NOTE 9 – EQUITY
The
Company has authorized a total of 1,000,000 shares of $.01 par
value common stock. The Company issued 44,050 shares of voting
stock to stockholders. The number of shares issued and outstanding
at December 31, 2016 and 2015 is 44,050.
NOTE 10 – LEASES
The
Company conducts its operations from facilities that are subleased
from GTS. In March 2015, the Company increased the sublease base
rent with GTS to $1,960 per month. An additional amount equal to
the percentage of total paychecks processed multiplied by $6,816
(the remaining unallocated rent of $12,559) is due
monthly.
In June
2016, the Company renegotiated the sublease with GTS for the
facilities to $3,516 per month. An additional amount equal to the
percentage of total paychecks processed multiplied by $3,054 (the
remaining unallocated rent of $10,085) is due monthly.
Net
rent expense for the years ended December 31, 2016 and 2015 was
$66,696 and $52,621, respectively.
F-22
Minimum
rental payments required under the above operating lease are as
follows:
|
2017
|
$42,192
|
|
2018
|
10,548
|
|
|
$52,740
|
NOTE 11 – SUBSEQUENT EVENTS
On
September 21, 2017, the Company entered into a Equity Purchase
Agreement with Novume Solutions, Inc. in the amount of
$3,750,000.
F-23