CYBER-TEST, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
TABLE OF CONTENTS
Page No.
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AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
BALANCE SHEETS 2-3
STATEMENT OF INCOME AND RETAINED EARNINGS 4
STATEMENT OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-9
SUPPLEMENTAL SCHEDULES 10-11
CS&L - CHATHAM, SELAND & LASHLEY, P.A.
Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Cyber-Test, Inc.
448 Commerce Way #100
Longwood, Florida 32750
We have audited the accompanying balance sheets of Cyber-Test, Inc. as of
December 31, 2003 and 2002, and the related statements of income, retained
earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. 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 reaquire that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cyber-Test, Inc. as of December
31, 2003 and 2002, and the results of its operations and its cash flows for the
yeasrs then ended in conformity with accounting principles generally accepted in
the United States of America.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedules are presented
for the purposes of additional analysis and are not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
CHATHAM, SELAND & LASHLEY, P.A.
/s/ CHATHAM, SELAND & LASHLEY, P.A.
March 15, 2004
CYBER-TEST, INC.
BALANCE SHEETS
As of December 31, 2003 and 2002
ASSETS
------
2003 2002
---- ----
CURRENT ASSETS
Cash $ 676,407 $ 1,041,879
Accounts receivable (net of allowance
for doubtful amounts of $14,457 and $6,000) 459,831 398,208
Inventories 306,263 268,166
Prepaid expenses 20,113 12,324
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TOTAL CURRENT ASSETS $1,462,614 $ 1,720,577
PROPERY AND EQUIPMENT 175,120 201,523
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OTHER ASSETS
Deposits 20,978 41,434
Other Assets 224,325 107,887
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TOTAL OTHER ASSETS $ 245,303 149,321
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TOTAL ASSETS $1,883,037 $ 2,071,421
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Read the accompanying Notes
2
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
2003 2002
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CURRENT LIABILITIES
Accounts payable $ 1,435 $ 77,159
Accrued expenses 85,330 74,572
Unearned revenue 113,716 122,457
Other liabilities 60,634 93,398
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TOTAL CURRENT LIABILITIES 261,115 367,586
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LONG TERM DEBT - -
TOTAL LIABILITIES 261,115 367,586
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SHAREHOLDERS' EQUITY
Common stock (1000 shares authorized,
100 shares issued and outstanding,
$10 par value) 1,000 1,000
Additional paid in capital 49,000 49,000
Retained earnings 1,571,922 1,653,835
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TOTAL SHAREHOLDERS' EQUITY 1,621,922 1,703,835
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,883,037 $2,071,421
========== ==========
Read the accompanying Notes
3
CYBER-TEST, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
For the Years Ended December 31, 2003 and 2002
2003 2002
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SALES $ 5,182,106 $ 6,828,135
COST OF SALES 2,978,076 4,142,117
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GROSS PROFIT ON SALES 2,204,030 2,686,018
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EXPENSES
Personnel 1,391,630 1,498,455
Occupancy 288,909 290,163
General and administrative 413,562 417,775
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TOTAL EXPENSES 2,094,101 2,206,393
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INCOME FROM OPERATIONS 109,929 479,625
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OTHER INCOME (EXPENSES)
Interest Income 8,043 12,358
Director's compensation (96,699) (96,569)
Other (10,982) 4,840
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TOTAL OTHER INCOME (EXPENSES) (99,638) (79,371)
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NET INCOME 10,291 400,254
RETAINED EARNINGS: BEGINNING OF YEAR 1,653,835 1,393,356
DISTRIBUTIONS (92,204) (139,775)
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RETAINED EARNINGS: END OF YEAR $ 1,571,922 $ 1,653,835
=========== ===========
Read the accompanying Notes
4
CYBER-TEST, INC.
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2003 and 2002
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,291 $ 400,254
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 56,318 49,718
Changes in assets and liabilities:
(Increase) Decrease in acounts receivable (61,623) (189,299)
(Increase) Decrease in inventories (38,097) 260,950
(Increase) Decrease in prepaid expenses (7,789) 5,812
(Increase) Decrease in other assets (95,982) 164,391
(Increase) Decrease in accounts payable (75,724) 2,316
(Increase) Decrease in accrued expensse 10,758 18,032
(Increase) Decrease in other liabilities (32,764) 37,029
(Increase) Decrease in deferred revenue (8,741) 49,988
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NET CASH USED IN OPERATING ACTIVITIES (243,353) 799,191
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (29,915) (73,883)
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NET CASH USED IN INVESTING ACTIVITIES (29,915) (73,883)
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CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders (92,204) (139,775)
Increase in amount due from Shareholder - (7,500)
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NET CASH USED IN FINANCING ACTIVITIES (92,204) (147,275)
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NET INCREASE (DECREASE) IN CASH (365,472) 578,033
CASH AT BEGINNING OF PERIOD 1,041,879 463,846
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CASH AT END OF PERIOD $ 676,407 $1,041,879
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Read the Accompanying Notes
5
CYBER-TEST, INC.
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2003 and 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
This summary of significant accounting policies of Cyber-Test, Inc. is presented
to assist in the understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, which is
responsible for their integrity and objectivity. These accounting policies
conform to accounting principles generally accepted in the United States of
America and have been consistently applied in the preparation of the financial
statements.
BUSINESS ACTIVITY - The Company operates as an independent service
organization providing repair service for facsimile machines, printers,
scanners, monitors and multi-function units. The repairs are performed on
entire machines and/or circuit boards. A 90-day warranty is given to all
entire machine repairs and a one-year warranty to circuit boards. The
company provides office equipment dealers, original manufacturers, and
third-party warranty companies a turnkey alternative for additional revenue
by providing repairs to their customers. To help answer questions or give
advice for technical problems the dealer or end user may have, a toll free
number is available for select customers. Repair turn-around time averages
two days. Most sales are in the eastern section of the United States, but
sales are made to all geographic sections of the Unites States and there
are some foreign sales. At December 31, 2003 the company had a customer
base of approximately 5,000 dealers and repair shops.
The company's future growth potential centers on three distinct areas:
1. Diversification of repair capabilities to other types of
electronic business equipment
2. Providing repair services for manufacturers of facsimile machines
as part of their warranty and post-warranty program.
3. Selling a warranty service to the end user who does not already
have an extended service warranty.
MAJOR CUSTOMERS - During the years ended December 31, 2003 and 2002 the
Company had sales to one customer that accounted for 31% and 48% of total
sales, respectively.
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CYBER-TEST, INC.
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2003 and 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------------------
ACCOUNTS RECEIVABLE - The allowance for doubtful accounts is based on
management's evaluation of outstanding accounts receivable. During the year
ended December 31, 2003, accounts in the amount of $6,543 were determined
to be uncollectible and were charged to the allowance for doubtful acounts.
As of December 31, 2003, accounts receivable from the one major customer
was $158,376, for a total of 33% of all accounts receivable. As of December
31, 2002, accounts receivable from one major customer was $208,658, or 52%
of all accounts receivable.
INVENTORIES - Inventories consist primarily or repair parts, consumable
supplies for resale and used machines that are held for resale. Inventory
is stated at the lower of cost or market.
MANAGEMENT ESTIMATES - The preparation of financial statements requires
management to make the 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Unless otherwise indicated, the fair
values of all reported assets and liabilities which represent financial
instruments (none of which are held for trading purposes) approximate the
carrying values of such amounts.
PROPERTY AND DEPRECIATION - Property, plant and equipment are stated at
cost. Assets are depreciated using straight-line and accelerated methods
for financial statements and tax purposes, based on the following estimated
usefullives:
Building and improvements 15 to 40 years
Machinery and equipment 3 to 7 years
Furniture and fixtures 5 to 7 years
INCOME TAXES - The Company with the consent of its shareholders has elected to
be taxed as as S corporation, which provides that income is passed through to
the shareholders. Therefore there is no provision or liability for income taxes
reflected in the financial statements.
7
CYBER-TEST, INC.
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2003 and 2002
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment consist of the following:
2003 2002
---- ----
Office equipment $ 389,785 $ 468,197
Leaseholder improvements 109,696 106,344
Machinery and equipment 91,662 95,976
Vehicle 36,217 36,217
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627,360 706,734
Less: Accumulated depreciation and amortization (452,240) (505,211)
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Net Book Value $ 175,120 $ 201,523
========== ==========
Depreciation and amortization expense for the years ended December 31, 2003 and
2002 was $56,318 and $49,718, respectively.
NOTE 3 - OPERATING LEASE COMMENTS
- ---------------------------------
The Company is obligated under a lease for the premises located on Commerce Way,
Longwood, Florida. The lease expires on July 31, 2004.
Lease expense under this lease for the years ended December 31, 2003 and 2002
was $170,719 and $166,225, respectively.
NOTE 4 -RELATED PARTY LOAN
- --------------------------
Included in other assets is a $75,000 unsecured note receivable from a major
shareholder.
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CYBER-TEST, INC.
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2003 and 2002
NOTE 5 - ADDITIONAL DISCLOSURES FOR CASH FLOWS
- ----------------------------------------------
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
2003 2002
---- ----
Cash paid during the first year for interest $ - $ -
Cash paid during the year for income taxes $ - $ -
NOTE 6 - OTHER LIABILITIES
During 2002 the Company acquired a vehicle through a zero interest loan. The
balance at December 31, 2003, is $16.097. Future principal payments are $12,072
for 2004 and $4,025 for 2005.
NOTE 7 - CONCENTRATION OF CREDIT RISK
The Company places cash balances in excess of the limit insured by the Federal
Deposit Insurance Corporation with high credit quality financial institutions.
The excess amounts are therefore at risk of loss, although management believes
the likelihood of loss is remote.
9
CYBER-TEST, INC.
SUPPLEMENTARY SCHEDULES
For the Years Ended December 31, 2003 and 2002
SUPPLEMENTARY SCHEDULES
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2003 2002
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SCHEDULE #1 - COST OF SALES
- ---------------------------
Purchase - parts $ 902,909 $1,397,005
Labor and benefits 924,992 1,220,727
Shipping 690,627 935,840
Other 459,548 588,545
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TOTAL $2,978,076 $4,142,117
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SCHEDULE #2 - PERSONNEL COSTS
- -----------------------------
Officers $ 205,965 $ 303,975
Employees 973,999 940,998
Employee taxes and benefits 211,666 253,482
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TOTAL $1,391,630 $1,498,455
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SCHEDULE #3 - OCCUPANCY EXPENSES
- --------------------------------
Rent and Utilities $ 288,909 $ 290,163
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TOTAL $ 288,909 $ 290,163
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10
CYBER-TEST, INC.
SUPPLEMENTARY SCHEDULES
For the Years Ended December 31, 2003 and 2002
SUPPLEMENTARY SCHEDULES
-----------------------
2003 2002
---- ----
SCHEDULE #4 - GENERAL AND ADMINISTRATIVE EXPENSES
- -------------------------------------------------
Advertising $ 40,898 $ 69,973
Depreciation and amortization 56,318 49,718
Credit card fees 29,549 21,464
Printing 4,655 8,643
Subscriptions and internet connection 5,636 3,708
Meals and entertainment 10,316 13,519
Taxes and licenses 4,123 2,905
Insurance 23,413 14,383
Repairs and maintenance 14,256 21,301
Professional fees 53,929 65,756
Telephone 116,792 90,404
Office 9,600 18,717
Postage 7,242 7,701
Vehicle expense 5,952 3,228
Training and seminars 150 693
Travel 30,733 25,662
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TOTAL $413,562 $414,775
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