[LETTERHEAD OF MITCHELL B. GLASHOFER CPA, P.C.]
To the Board of Directors and Stockholders of
Corporate Security Solutions, Inc.
D/B/A Nexus Technologies Group
Yardley, Pennsylvania
We have audited the accompanying balance sheets of, Corporate Security
Solutions, Inc. (a Pennsylvania Subchapter S Corporation) as of December 31,
2004 and 2003, and the related statements of income, retained earnings, and cash
flows for the year 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 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Corporate Security Solutions,
Inc. as of December 31, 2004 and 2003, and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
- -------------------------------
Mitchell B. Glashofer CPA, P.C.
6049 Mark Circle
Bensalem, PA 19020
January 27, 2006
-1-
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A/ NEXUS TECHNOLOGIES GROUP
AUDITED FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2004 AND 2003
Mitchell B. Glashofer CPA, P.C.
A Professional Corporation
Bensalem, Pennsylvania
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES GROUP
DECEMBER 31, 2004 AND 2003
TABLE OF CONTENTS
Page
----
Accountants' Audit Report 1
Financial Statements:
Balance Sheets, December 31, 2004 and 2003 2-3
Statements of income, for the years ended
December 31, 2004 and 2003 4
Statements of retained earnings for the years
ended December 31, 2004 and 2003 5
Statements of cash flows for the years
ended December 31, 2004 and 2003 6
Notes to financial statements 7-10
Supplementary information:
Schedules of direct costs for the years ended
December 31, 2004 and 2003 11
Schedules of operating expenses for the years
ended December 31, 2004 and 2003 12
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES GROUP
BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES GROUP
BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
ASSETS
2004 2003
----------- -----------
Current assets:
Cash in banks $ 38,373 $ 18,781
Accounts receivable, net of
allowance for bad debts of $0 936,186 0
Inventory 28,041 0
Prepaid expenses 48,508 0
----------- -----------
Total current assets 1,051,108 18,781
----------- -----------
Property & equipment:
Office furnishings & equipment 31,929 1,802
Truck equipment 12,935 0
----------- -----------
44,864 1,802
Less: accumulated depreciation (2,821) (30)
----------- -----------
Net property & equipment 42,043 1,772
----------- -----------
Other assets:
Incorporation costs, net of
accumulated amortization of
$190 in 2003, and $260 in 2004 90 160
Security deposits 1,662 0
----------- -----------
1,752 160
----------- -----------
$ 1,094,903 $ 20,713
=========== ===========
See accountants' audit report and accompanying notes.
-2-
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES GROUP
BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
LIABILITIES AND SHAREHOLDERS' EQUITY
2004 2003
----------- -----------
Current liabilities:
Note payable bank $ 234,870 $ 32,500
Accounts payable 216,669 0
Accrued expenses & liabilities 138,969 0
----------- -----------
Total current liabilities 590,508 32,500
----------- -----------
Shareholders' equity:
Common stock, par value $1 per share,
100,000 shares authorized, issued and
outstanding, 3,000 in 2004, 2,000 in 2003 3,000 2,000
Additional paid in capital 2,018 3,018
Retained earnings, deficit in 2003 499,377 (16,805)
----------- -----------
504,395 (11,787)
----------- -----------
$ 1,094,903 $ 20,713
=========== ===========
See accountants' audit report and accompanying notes.
-3-
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES GROUP
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Ratio to Ratio to
2004 Sales 2003 Sales
---------- ---------- ---------- ----------
Revenue:
Consulting, integration and
maintenance fees, net $2,753,822 100.00% $ 147,970 100.00%
Direct costs 1,091,852 39.65 40,513 27.38
---------- ---------- ---------- ----------
Gross profit 1,661,970 60.35 107,457 72.62
---------- ---------- ---------- ----------
Operating expenses: 1,123,249 40.79 77,828 52.62
---------- ---------- ---------- ----------
Income from operations 538,721 19.56 29,629 20.00
---------- ---------- ---------- ----------
Other expenses:
Depreciation & amortization 2,861 0.11 100 0.04
Interest expense 19,678 0.71 1,995 1.35
---------- ---------- ---------- ----------
Net income $ 516,182 18.74% $ 27,534 18.61%
========== ========== ========== ==========
Earnings per share:
On common shares $ 172.06 $ 13.76
========== ==========
See accountants' audit report and accompanying notes.
-4-
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES GROUP
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
--------- ---------
Accumulated adjustments accounts:
Beginning deficit, January 1, 2004 and 2003 $ (16,805) $ (44,339)
Net income 516,182 27,534
--------- ---------
Ending balance 499,377 (16,805)
--------- ---------
Total retained earnings $ 499,377 $ (16,805)
========= =========
See accountants' audit report and accompanying notes.
-5-
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES, GROUP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
--------- ---------
Cash flows from operating activities:
Net income $ 516,182 $ 27,534
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,861 100
(Increase) decrease in:
Accounts receivable (936,186) 0
Inventory (28,041) 0
Prepaid expenses (48,508) 0
Increase (decrease) in:
Accounts payable 216,669 0
Accrued expenses 138,969 0
--------- ---------
Net cash (used in)
provided by operating
activities (138,054) 27,634
--------- ---------
Cash flows from investing activities:
Purchase of property & equipment (43,062) (1,802)
Refundable security deposits (1,662) 0
Net cash (used by)
provided by investing
activities (44,724) (1,802)
--------- ---------
Cash flows from financing activities:
Proceeds long & short term debt 0 10,346
Net change to short term debt 202,370 (30,000)
Net cash provided by
(used in) financing
activities 202,370 (19,654)
--------- ---------
Net increase in cash 19,592 6,178
Cash at beginning of year 18,781 12,603
--------- ---------
Cash at end of period $ 38,373 $ 18,781
========= =========
See accountants' audit report and accompanying notes.
-6-
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES GROUP
SCHEDULES OF DIRECT COSTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
---------- ----------
Direct costs:
Purchase-security equipment $ 817,631 $ 0
Outside technicians & contractors 136,088 40,513
Other direct service fees 138,133 0
---------- ----------
Total direct costs: $1,091,852 $ 40,513
========== ==========
See accountant's audit report and accompanying notes
-11-
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES GROUP
SCHEDULES OF OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
---------- ----------
Operating expenses:
Officers' salaries $ 401,923 $ 16,486
Salaries administrative 211,797 0
Payroll tax expense 51,372 0
Employee benefits 71,271 0
Rent 32,092 0
Accounting fees 2,075 400
Advertising & promotion 77,013 0
Auto expenses 13,503 5,400
Auto reimbursements 18,583 0
Bookkeeping 7,730 1,600
Cleaning & sanitation 1,150 0
Computer expenses 10,410 0
Consulting fees 10,115 46,700
Donations 1,300 0
Equipment rental 5,462 0
Insurance 34,303 0
Legal fees 37,920 1,784
Licenses & permits 1,853 30
Meals & entertainment 24,252 0
Office supplies & expenses 21,175 478
Postage & delivery 4,846 612
Printing & stationary 16,774 0
Professional dues & development 3,105 0
Professional fees 1,242 0
Repairs & maintenance 623 0
Telephone, internet & website 17,978 2,580
Travel reimbursements 42,182 1,758
Utilities 1,200 0
---------- ----------
Total operating expenses: $1,123,249 $ 77,828
========== ==========
See accountant's audit report and accompanying notes
-12-
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES GROUP
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Corporate Security
Solutions, Inc. D/B/A Nexus Technologies Group (the Company) is presented
to assist in understanding the Company's financial statements. The
financial statements and notes are the representations of the Company's
management who is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles,
and have been consistently applied in the preparation of these audited
financial statements.
Nature of Operations
The Company is a closely held corporation with five shareholders'. The Company
was formed on April 16, 2001 to provide complete worldwide security
solutions to all business and government sectors. On March 1, 2004, the
Company expanded their operations to include Electronic Security
Integration and is currently D/B/A Nexus Technologies Group.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. These estimates
and assumptions affect the reported amounts of assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the
estimates that were assumed in preparing the financial statements.
Inventories
Inventories are recorded at cost and consist primarily of electronic parts and
supplies held over short time periods (generally less than 3 months) for
client service needs. Because of the short-term nature of this inventory,
management utilizes the cost method in their annual inventory valuations.
The stated inventory amounts are considered immaterial to these audited
financial statements taken as a whole.
Accounts receivable
Account receivable are recorded when services are rendered and billed,
additionally, all bad debts written off annually when they are deemed
uncollectable. No provision for doubtful accounts has been established due
to the Company's collection history over the current and previous year.
Continued on next page,
See accountant's audit report
-7-
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES GROUP
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT.,
Depreciation
Property and equipment are recorded and carried at cost. Depreciation of
property and equipment is provided utilizing the Straight Line Method as
approved by generally accepted accounting principles. Property and
equipment are acquired by the company in their normal course of operations
and are capitalized over their estimated useful lives based on their
assigned asset class.
Maintenance and repairs are charged to expense while major renewals and
betterments which extend the useful lives of the property and equipment are
capitalized.
The estimated useful lives of all capitalized property and equipment are as
follows:
Years
-----
Transportation equipment 5
Computer equipment 5
Office equipment 5
Furniture & fixtures 7
Income taxes
The Company, with consent of all shareholders (from inception), has elected
under both the Internal Revenue and Pennsylvania Revenue Tax Codes to be
taxed as a Subchapter S corporation. As a Subchapter S Corporation, the
Shareholders are taxed individually, based on their proportionate share of
the Company's profits or losses. As a result of the above tax elections,
no provision for Federal and PA state income taxes has been established.
NOTE B- Prepaid expenses
Prepaid expenses consist primarily of unexpired insurance premiums paid in
advance as of the date of these audited financial statements. The
insurance policies including, business liability, workman's compensation
premiums, and other insurance premiums related security consulting
industry.
Continued on next page,
See accountant's audit report
-8-
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES GROUP
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE C- Property and equipment
As described in Note A above (Depreciation), all property and equipment
acquired in excess of $500 are capitalized by the Company if their
estimated useful lives exceeds one year.
As of the balance sheet date, the amounts included in property and equipment
included the following:
Original Salvage
Cost Value
------- -------
Transportation equipment $12,935 $ 3,000
Computer equipment 23,281 0
Office equipment 3,780 0
Furniture & fixtures 4,868 0
------- -------
Total property & equipment $44,864 $ 3,000
======= =======
NOTE D- Short term debt
2004 2003
---------- ----------
Note payable bank represents a
credit line with Commerce Bank
of Pennsylvania in the amount of
$600,000, payable in monthly
installments, including interest
at one point over the prime rate
As of December 31, 2004, the Prime
Rate was 5.25%. This note is
renewable annually and is secured
by the Company's accounts receivable
and personal guarantees of all
key shareholders' $ 234,870 $ 32,500
========== ==========
Other Short term debt:
In addition to the above revolving (floating) line of credit, the Company
has a $400,000 credit line available through Commerce Bank. This credit
line is renewable on an annual basis, with interest at one point over the
prime rate. This line of credit is also secured with by the Company's
accounts receivable, and through personal guarantees of the majority
shareholders'. As of the Balance Sheet date, at December 31, 2004 and
2003, the line of credit balance was at $0.
Continued on next page,
See accountant's audit report
-9-
CORPORATE SECURITY SOLUTIONS, INC.
D/B/A NEXUS TECHNOLOGIES GROUP
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE E- Commitments and Related Parties
1. The Company has committed to lease office space at 301 Oxford Valley Road,
Suite 1404-A, in Yardley, Pennsylvania. The lease is payable to Erin
Development corporation and calls for annual rents including utilities of
$16,200 ($1,350 monthly), the lease runs from September 1, 2004 through
September 1, 2005 and is renewable on an annual basis.
2. The Company has committed to lease office space a 7 West Cross Street, in
Hawthorne, New York. The lease is payable to BIJO, LLC and calls for
annual rents of $30,456 ($2,538 monthly), the lease runs from March 1,
2004 through March 1, 2005 and is renewable on an annual basis. Note,
utilities are not included in the monthly rent and is the obligation of
the Company (the lessee).
3. The Company has occupied office space at a monthly rental of $1, located
at 428 River View Plaza, in Trenton, New Jersey. The lease runs from March
1, 2004 through March 1, 2005, the lease includes a renewable option.
NOTE F- Earnings Per Share
Earnings per common share was computed by dividing net income by the weighted
number of shares of common stock outstanding during the year. Fully
diluted earnings per share is not presented here due to all shares
outstanding are common shares.
See accountant's audit report
-10-