[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-