Exhibit 99.1

 

Mesoscribe Technologies, Inc.

 

CONTENTS

 

Report of Independent Certified Public Accountants

 

Financial Statements

 

Balance Sheets

Statements of Operations and Retained Earnings

Statements of Cash Flows

Notes to Financial Statements

 

 

INDEPENDENT AUDITORS REPORT

 

To the Board of Directors and

Stockholders of Mesoscribe Technologies, Inc.

 

We have audited the accompanying financial statements of Mesoscribe Technologies, Inc. a Delaware Corporation which comprise the balance sheets as of September 30, 2016 and 2015 and the related statements of income, retained earnings, 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 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 Responsibility

 

Our responsibility is to express an opinion on these 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 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 in order 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.

 

Unmodified Opinion

 

In our opinion the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Mesoscribe Technologies, Inc. as of September 30, 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/ La Sala, CPA, P.C.

La Sala, CPA, P.C.

October 3, 2017

 

 

Mesoscribe Technologies, Inc.

Balance Sheets

As of September 30,

 

 

		2016				2015
ASSETS
Current Assets
Cash and cash equivalents		$	584,999			$	945,195
Accounts receivable, net			238,101				159,389
Inventory			93,435				102,356
Deferred tax asset			138,517				4,396
Prepaid corporate taxes			82,836				83,667
Prepaid expenses			11,461				14,293
Total Current Assets			1,149,349				1,309,298
Property and equipment, net			113,060				99,617
Goodwill			100,000				100,000
Patents, net			33,259				39,259
Security deposit			36,072				36,072
Total Assets		$	1,431,739			$	1,584,246
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable		$	3,996			$	10,029
Accrued expenses			118,584				128,072
Deferred income			96,759				9,135
Deferred income taxes			11,692				20,470
Total Current Liabilities			231,031				167,706
Shareholder loan			20,743				20,743
Total Liabilities			251,774				188,449
Stockholders’ Equity:
Common stock - $0.01 par value – 20,000,000 shares authorized at September 30, 2016 and September 30, 2015: issued and outstanding 10,500,000 at September 30, 2016 and at September 30, 2015			10,500				10,500
Additional paid-in capital			16,109				16,109
Retained earnings			1,153,356				1,369,188
Total Stockholders’ Equity			1,179,965				1,395,797
Total Liabilities and Stockholders’ Equity		$	1,431,739			$	1,584,246

 

 

Mesoscribe Technologies, Inc.

Statements of Operations and Retained Earnings

Years ended September 30,

 

 

		2016				2015
Revenue		$	856,922			$	1,387,767
Cost of revenue			212,991				423,466
Gross profit			643,931				964,301
General and Administrative expenses			1,002,036				935,693
Total General and Administrative Expenses			1,002,036				935,693
Operating (loss)/income			(358,105	)			28,608
Other income (expense):
Interest income			202				284
Deferred tax expense			---				(9,728	)
Penalties			---				(688	)
Total other (expense)/income net			202				(10,132	)
(Loss)/income before income tax (benefit)/			(357,903	)			18,476
expense
Income tax (benefit)/expense			(142,073	)			3,783
Net (loss)/income		$	(215,830	)		$	14,693
Retained Earnings, Beginning of Year			1,369,188				1,354,495
Retained Earnings, End of Year			1,153,356				1,369,188

 

 

Mesoscribe Technologies, Inc.

Statements of Cash Flows

Years ended September 30,

 

		2016				2015
Cash flows from operating activities:
Net (loss)/income		$	(215,830	)		$	14,693
Adjustments to reconcile net (loss)/income to net cash used in operating activities
Depreciation and amortization			42,854				57,112
Deferred income tax benefit			(134,119	)			29,778
Increase/(decrease) in operating assets
Accounts receivable			(78,712	)			59,512
Inventories, net			8,921				(49,581	)
Other current assets			3,664				17,850
Increase/(decrease) in operating liabilities
Accounts payable			(8,828	)			(32,033	)
Accrued expenses			(15,472	)			24,178
Accrued litigation settlement			---
Deferred revenue			87,624
Total adjustments			(94,068	)			106,816
Net cash used in operating activities			(309,898	)			121,509
Cash flows from investing activities:
Capital expenditures			(50,297	)			---
Net cash (used in) investing activities			(50,297	)			---
Cash flows from financing activities
Net cash provided by/(used in) financing activities			---				---
Net (decrease)/increase in cash			(360,195	)			121,509
Cash - Beginning of year			945,195				823,687
Cash - End of year		$	584,999			$	945,195
Supplemental disclosure of cash flow information
Interest expenses			(202	)			284
Income taxes			824				3,783

 

 

Mesoscribe Technologies, Inc.

Notes to Financial Statements

September 30, 2016

 

1.     Description of Business

 

Mesoscribe Technologies (Company) is a Delaware Corporation engaged in manufacturing products used in harsh environments for the commercial, aerospace and defense markets. Antennas, heaters, sensors and wiring are applied directly to customer’s parts. The company is in New York and is registered to do business in New York and California.

 

2.     Summary of Significant Accounting Policies

 

a.     Basis of Accounting

The Company uses the accrual method of accounting for financial statement and income tax purposes. The accompanying statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

 

b.     Use of Estimates

Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenue and expenses. Actual results could differ from these estimates.

 

c.     Accounts Receivable

Accounts receivable are recorded at the amount the company expects to collect on balances outstanding at year-end. Management closely monitors outstanding balances and writes off, as of year-end, all balances that are uncollectible by the time the financial statements are issued. Bad debt expense and allowance for doubtful accounts for the years ended September 30, 2016 and September 30, 2015 are $0 respectively.

 

d.     Revenue Recognition

Sales are recorded when products are shipped to the customers. In instances where products are configured to customer requirements, revenue is recorded upon the successful completion of the Company’s final test procedures and the customer’s acceptance. Customer deposits not earned are included in deferred revenue.

 

e.     Taxes Collected from Customers and Remitted to Government Authorities – Net Basis

 

The Company’s policy is to present taxes collected from customers and remitted to government authorities on a net basis. The Company records the amounts collected as a current liability and relieves such liability upon remittance to the taxing authority without impacting revenues or expenses.

 

 

Mesoscribe Technologies, Inc.

Notes to Financial Statements

September 30, 2016

 

 

f.     Property, equipment and Intellectual Assets

 

Property and equipment are stated at cost. Depreciation is provided using the straight-line method and accelerated methods over the useful lives, which are as follows:

 

Equipment & computers	5-7 years
Furniture & fixtures	5-7 years
Leasehold improvements	39 years
Patents	20 years
Goodwill	15 years

 

Depreciation for the years ended September 30, 2016 and 2015 were $37,494 and $50,311 respectively.

 

g.     Inventory

 

Inventory, consisting of products and parts, is stated at cost. The inventory at September 30, 2016 and September 30, 2015 was $93,435 and $102,356 respectively.

 

h.     The Company has a line of credit with Chase Bank with a limit of $250,000. The line of credit is unsecured and bears interest of 4.500 percentage points. No balance on this line of credit was outstanding as of September 30, 2016 and 2015.

 

i.     Advertising

 

The company expenses advertising costs as they are incurred. Advertising expenses for the year ended September 30, 2016 and 2015 was $0.

 

j.     The Company has a SIMPLE IRA plan is a Savings Incentive Match Plan for Employees. Participating employees may elect to contribute, on a tax-deferred basis, a portion of their compensation, in accordance of 401(k) of the internal Revenue Code. The Company’s matching contribution rate is 100% of the employee contribution up to 3% of employee’s compensation. The Company’s matching contribution expense for the year ended September 30, 2016 was $14,433. The Company matching contribution expense for the year ended September 30, 2015 was $12,357.

 

k.     Income Tax

 

The Company accounts for income taxes in accordance with generally accepted accounting principles, whereby deferred taxes are provided on temporary differences arising from assets and liabilities whose bases are different for financial reporting and income tax purposes. Deferred taxes relate to the effects of the following items:

 

Differences in calculating depreciation on fixed assets

 

Tax loss carryforwards

 

Charitable contributions carryforwards

 

 

Mesoscribe Technologies, Inc.

Notes to Financial Statements

September 30, 2016

 

 

As of September 30, 2016 and 2015. The Company accounts for income taxes in accordance with the reporting used in filing its income tax returns, which is based on interpretations or prevailing tax laws that the Company believes are accurate and justified.

 

Deferred tax assets at September 30, 2016 and 2015 were $138,517 and $4,398 respectively.

 

A valuation allowance has not been established to eliminate the net deferred tax benefit due to uncertainty as to whether the tax benefits would ever be realized. Management is confident that deferred tax assets will be used in the next 20 years before its expiration.

 

As of September 30, 2016 and September 30, 2015, the Company had federal net operating loss carry forwards of $401,798 and $65,103 respectively that can be deducted against future taxable income. The tax carry forward amount of $65,103 expires on September 30, 2030 and $336,692 expires on September 30, 2031.

 

l.	Accrued Vacation Payable

 

Employees of the Company are entitled to paid vacation, paid sick days and personal days off, depending on job classification, length of service, and other factors. Accrued but unused vacation, sick and personal leave in the amount of $63,836 and $66,288 is included in accrued expenses on the balance sheet as of September 30, 2015 and 2016, respectively.

 

3.	Shareholder Loan

 

As of September 30, 2016 and 2015, the Company owed $20,743 to officers of the Company. Management does not expect to repay $20,743 during the year ended September 30, 2017 and the officers have agreed not to demand payment in 2017; therefore it is classified as long-term on the balance sheets.

 

4.	Significant Concentrations

 

a.

Credit Risk

 

The Company maintains its domestic checking and savings account with a financial institution that insures cash balances up to $250,000 through the Federal Deposit Insurance Corporation. At times, these accounts may exceed the insured limit.

 

b.

Major Suppliers

 

The company is dependent on a few major suppliers for all its product and parts available for sale.

 

 

Mesoscribe Technologies, Inc.

Notes to Financial Statements

September 30, 2016

 

 

c.

Major Customers

 

The Company provides service primarily to the air space manufacturing industry. In 2016 65% of revenue was received from commercial customers and 35% from grants and government R&D contracts. Any major changes in this industry which lead to reduced staffing and spending could have a material adverse effect on the company. Listing of the major customers is as follows:

 

R&D Grants & Contracts:
NASA	$374,990
Commercial Revenue:
MHI	$101,395
Boeing	$179,701

 

5.	Operating Lease

 

a.     On May 20, 2014, the Company signed a lease for corporate office space from Mr. Wei-Chen Chang in the city of Huntington Beach located at 7441 Vincent Circle, CA. The lease commenced on June 1, 2014 and expires on May 31, 2019. Future minimum lease payments at September 30, 2016, are as follows:

2015-2016			$	172,415
2016-2017			$	177,597
2017-2018			$	182,911
2018-2019			$	188,411

 

b.     On August 1, 2014, the Company signed a lease for corporate office space from Adriatic Holdings, L.L.C., in the city of Setauket located at 100 North Country Road, NY. The lease commenced on September 1, 2014 and expires on August 31, 2017 with an option to renew the lease for further 3 years. Future minimum lease payments at September 30, 2016, are as follows:

 

16-2017

$

18,456

 

Rental expense totaled $176,461 for the year ended September 30, 2016 and is recorded in the following expense line item: rent expense.

 

6.	Intangible Assets

 

a.

Patents

 

The Company owns certain patents under agreements that are classified as assets. The cost of the patents is included in the balance sheet as fixed asset and was $102,067 at September 30, 2016. Accumulated amortization for patents is approximately $ 62,807 and amortization expense for the year is $ 6,801.

 

 

Mesoscribe Technologies, Inc.

Notes to Financial Statements

September 30, 2016

 

 

b.

Goodwill

 

In May 2013, Mesoscribe Technologies, Inc. acquired assets from Robert Greenlaw through an asset purchase agreement. The cost of the investments was in excess of the underlying fair value of net assets acquired at the date of the purchase and accordingly such additional costs are recorded as goodwill. At September 30, 2016 goodwill was $100,000. Goodwill is assessed annually for impairment. If impaired, goodwill is written down to fair value and a corresponding impairment loss recognized.

 

During 2016, Mesoscribe Technologies Inc., determined, based on future expected cash flows, that the carrying amount of the goodwill associated with its acquisition of the assets did not exceed the current fair value. Therefore, an impairment loss of $0 was recognized during 2016.

 

7.	Subsequent Events

 

The Company has evaluated events from September 30, 2016 through the date the financial statements were issued.

 

a.     In 2017 Mesoscribe Technologies, Inc. was in discussions to sell the assets of the company.

 

b.     Operating lease for corporate office space from Adriatic Holdings, LLC, in the city of Setauket located at 100 N. Country Rd., NY will expire on August 31, 2017 and was not renewed.