Trial - Auditor Report

EEIZEIIJ FAH ammsaaz? JEIHH 141413 Lil?H SEI CORPORATIDN FINANCIAL STATEMENT DECEMBER 31. 1999 20:2H?ecnal 1?1 +21 TEI: 5+4 Independent auditors' repurt 1 Financial statemema Balance 2 inc:qu Mam-mam 3 Statemnt of changes in stat: ulder's equity 4 Statement Of cash ?aws 5 Nate:- to financial statements 64 iir??ix?E?iE 20:20 Flili 410733832? marines 14:49 54-4 Chills" DBERG, WIMBI3H STONE. P.A. MULLEN, 5 Pueuc lgate Road. Suite 200. Annapolis. Maryland 21401 PENDENT REPORT To the Board of Directors of SZI Corporation Severna Park, Maryland We have audited the a 1 9'39. and the related statemen year then ended. These ii management. lt'Jur responsibil' our audit. - mpanying balance sheet of 32i Corporation as of December 31, - of income. changes in stockholders equity and cash ?ows for the nciai statements are the responsibility of the Corporation's is to express an opinion on these ?nancial statements based on We conducted our on States of America. These reasonable assurance about I An audit includes examining. oi the ?nancial statements. An signi?cant estimates made by presentation. We believe that in accordance with auditing standards accepted in the United ndards require that we plan and perform the audit to obtain ether the financial statements are free of material misstatement. a test basis. evidence supporting the amounts and disclosures in dit also includes assessing the accounting principles used and anegernent. as well as evaluating the overall financial statement or audit provides a reasonable basis for our opinion. As more fully I in note 10 to the ?nancial statements. management applied fraudulent practices to borrow ?v a bank. overstated their sales and did not provide appropriate documentation for Certain exp see. in our opinion. ?nancial statements referred I accounting principles genera" SEI Corporation as of Decern - -- year then ended. of the oansactlons discussed in the preceding paragraph. the in the first paragraph do not present fairly. in oonfonnity with ccepted in the United States of America, the ?nancial position of 31. 'l 999. or the results of its operations or its cash flows for the MULLEN. WIMBISH STONE. FLA- Annapolis. Maryland December 18.. 2000 -1- HIGTIEWE 23:23 FAH 413733332? JDHH FEEI- 14-3331 14:43 Tilt?+1121 BEIEIB REBE- L313 SEI Curpnra?on BALANCE SHEET A3 af Demmber 31. 1333 CURRENT 35551-5 Cash - restricted 5 33,373 Accuunts ramivable 337.335 Total curmnt aunts PROPERTY AND EQUIF ENT 40 275 Nat of accumutatad da -. Iatmn at $10? 343 OTHER ASSETS Semi-?y dams?: 2,530 Drganitatian axpunna lat at accurrmtated at $2.36 355 Tat-3 other 2.335 Tntat assets 41 01 CURRENT LIABILITIES Bank averdraft 29.293 Acmunts payable and ad expenses 94.531 Line of credit 133.747 "3:33 payable 350.200 Tmal Currant LONG-TERM LIABILITI Notes payabte 17.951 Note.- payable a stockh - at 30.003 Tntal long?th ?mm 35 Tum! liabilities STOCKHOLDERS ED Capital stock, 400 aha - Inward. 203 shares aututHndi . run par value 20.000 Ratainad da?cit (329.3132 Total {uIty 333.315 Tntal and ckhuldnr'? equity The accompanying nut re an integral part of these financial statements. .2. HIGTIEWE 20:20 FAH 410733832? JDHH FEB- 1911-43 RUM: TD 41D . 1396-" 1313 521 Cameraman INCOME STATEMENT the Year Ended December 31. 1599 REVENUES Security 5 1 ?05,039 Recruiting 502.063 (lithe-r 1,111 Total memes EXPENSES Salaries and wages TDBABE Subcuntractnr - ulhaar 527.583 0111mm salary 290.9135 Bad debt expense 1:16.175 paid 141 .814 Telemann 75.695 Hunt 73.232 Payroll taxes T1864 Insurance 47.205 Depredalfnn 45.117 Auto 37.936 Office expense! 37.500 Legal and pmfeastonai 35.349 Travel 24.537 Dun: and aubsc?p?on? 22.517 Meals and 22.292 Insuranan - 19.386 0pm rating supplie? 1 7.753 1 7.504 Postage: 7.565 Leased equipmnt and fq [tum 3,771 Panama: and Hum 2.21? Property tax 2.036 InSurance - Illa 2.033 Amurtizatian 551 Totalamnm Net {1355 beran nther wanna taxpanneqs) EITHER REVENUE (me 355) mama: income 1 .305 [mares-at (132.444) Net Inns before in taxes Bana?t fur income [3133 Federal 113396 State: 2.31m Tntal incume taxes Menu-mm {1033) The mm an integral part :11 main ?nancial staremmt'a. -3- HECITHEWE 29:21 FAH 419733832? 14:40 544 DEED ?arparatian CHANGES IN EQUITY Fm" hs Year Ended December 31. 1999 Cummsn Retained ?mg? ?g mings Tatal Balanae. January 1. 1999' 40.990 5 46.399 55 86.939 Purchase of treasury stack (20,000} (34.767) (54.767) Nat loss -- (341 ,440} (341 ,4-99} Balanss.Dasambar31-1999 ?as-3,3131 The accompanying notes are integral part of theses ?nancial statamants. .4. 29:21 FMI 419733832? 14:49 Fer JEIHH TD: 41:3 99.99 r199 913 SZI Cameraman - ATEMENT OF CASH FLOWS Year Ended December 31. 1999 CASH FLOWS FROM UPI RATING ACTIVITIES Net loss (341.440) Gain en sale at aesete (1-111) Adjustments t9 recenctte - et less In net cash previde by operating activities: Depreciation and em - aetien 45.663 Changes in assets an Acceunts receivable 132.026 Accounts payable an accrued expenses 5.390 Deferred taxes (13.102) Net cash used by rating activities 171569 CASH FLOWS- FRDM- IN SWNG ACTIVITIES Purchases nf prepare? a I- H.131) Purchase at treasury I (44,500} Net cash used by vesting activities CASH FLOWS FROM Fl -NCING ACTNITIEB Berrewings 2.342544 Payments en nctes pay Ie g2.623,3343 Net cash previd I by financing $9199.19 Net decrease in sh (3.890) Cash at beginni of year 147.3 :35? SUPPLEMENTAL DISCL II SURES OF CASH FLOW INFORMATION Cash paid during the ye fer: Interest sgl?g The accempanying note are an integral part of these financiat statements. we ilratrsais 20:21 JDHH marries com 14:41 FE'iZil-l: TD: am 544 P. eoe- Corporation ND ES TO FINANCIAL STATEMENTS December 31. 1999 Hate - Somme of Si - rt?fi il?cop?u?ti?g?ljgiaa seam 52! Corporation (fo Beckett Brown International. Inc.) was Incorporated in Appeal 1995 in the State of aryland. The Company engages in executive placement and providing security and vestigative services. Basis of Accountind The financial stateme of SEI Corporation have been prepared on the accrual basis of accounting. Accounts Receivable The Company cons rs accounts receivable to be fully collectible. Accordingly. no allowance for doublfu i ocounts has been established. It accounts become unoollectible. they will be charged operations when that determination is made. .- cl .2 ..2 1.5 Property and equiprn is recorded at cost. Depreciation is computed using the straight- line method over the i- tirnalad useful lives of the assets. Maintenance and repairs are charged to expense . - incurred; major renewals and betten'nents are capitalized. When items of property an ul quiptnent are sold or retired. the related cost and aocumulated depreciation are rare -- ed from the accounts and any gain prices is included in the results of operations. Treasury Stock Treasury steel: is rec dad at cost. in the event of subsequent reissue. the treasury stock account will be redo i i. by the cost of soch stock on the average cost basis with any excess proceeds ac -: - - to additional paid-in capital. Treasury stock is available for general corporate - oses. in teas. the company repurchased 200 shares of its own common stock from - individual shareholders for $54,767- Use of Etl'males The preparation of ncial statements requires management to maize estimates and assumptions theta the reported amounts of assets and liabilities and disclosure of contingent asset. a liabilities at the date of the financial statements and the reported amounts of revert - - and expenses during the reporting period. Actual results could differ from those est ates. TU ?44 ease iireirseis 20:21 Fits JDHH 14:41 SEICet?peratlen TO FINANCIAL STATEMENTS (Cent.) mg? .. Summ?m 9f Significa I i inceme Taxes Inset-rte taxes are prt: 31. 1999 l?tth ?l?fUEEl P. 3.1134317"? l'ded fer the tax effects et transectiens reported In the financial statements and eensi of taxes currently due plus deterred taxes. Deferred taxes relate primatin te differen the recegnitien ei' revenue and expanses fer financial and tax reperting and i - different depreciation metheds behnreen ?nancial Statement and tax. The deferred tax seats and liabilities represent the future tax return censeeuanees of these differences I. hieh will either be taxable or deduetlble when the assets and liabilities are recover er settled. Deferred tax assets and liabilities are re?ected at ineeme tax. rates appi --. bie te the patted in which the defense tax assets er liabilities are expected te he rein ..-- er settled. As changes in tax laws er rates are enacted. deterred tax assets and liabilit 2 are adjusted threugh the previeien fer ineeme taxes. Mate The Company is req ed te maintain 10%. of each acceunt receivable acid to the bani: (see Nets 5) as a estt. As the eeceunts receivable are paid by the Cempany's the -- are released. days. the bank recha is used te repay the Nete3- n: and F'repetty and equip It the is net paid within 120 the acceunt receivable to the Company and the restricted cash a nk. teensiats ef the feilewing at December 31. 1999: urniture and it res Autemebiles Less accumulat 'n I dBpriClatiDl'l Net preperty and quipmeni Depreciatien expen Estimated Livge 5 7 years 5 NEWS 5 years 23,323 1 47.923 ?107,648) 40:2;5 . - fer the year ended December 31. 1999 was 545.117- 1120222012 20:22 F22 410222222? 9999 [2112022 14:43 FEW: e44 52! Corporation 0 STATEMENTS (Cont) December 31. 1999 Note 4 9 Line gt Cr?it The Company hae at of credit with a bent: for working capital needs with a borrowing limit of $259,999. Th line of credit expirea April 14. 2901. At December 31. 1999, the outstanding balance $193,747. Not? - 139399.99er19 thee payable 1999 consisted of the following: Notea payable I. nit and ?nance companies. Several loena collateraliz:= .. by equipment. currently payable in aggregate month inatallrnenta of $2.949. 9 97,123 Note payable ,v k. collateralized by accounts receivable. with borrowing limit 9f $799,999. Repaymente me - as accounts receivable are collected- A fee of 1.95% -- erged on each account receivable acid to bank. 378.1 51 Lees current met itiea (399.2991 Long-term portio Scheduled future :rn . ritiee of the above notes are as follows: Emma December a; 2900 399.299 2901 11,217 2992 9.734 37; 151 Total intereat experts . incurred on all debt for the year ended December 31, 1999 was 1:92.444. Ila-i- 1120122012 20:22 FAH 14:42 Penn; Nate 5 4 Nag?- Note 9 - 4101222221 JDHH 9999 0122022 713:4le 5+4 13151121121 H13 521 Corporation NOTE 9 FINANCIAL STATEMENTS (Cont) December 31. 1999 ?oteP al? a l: Note payable to stock ider at December 91. 1999 is as follows: James C- Dodo il used for the deve repaid over a 5 remaining bsiane Less current perti 2 maximum lean amount of $179,999 - merit of business endeavors. to be peried. interest at 19%. with any - be repaid January 2991. 3 39.909 W9. Total interest paid tot - stockholder for the year ended December 31 1999 was $5.349. Long-term person Gpera?gg Leases The Company lease spaoe and automobiles accounted for as operating leases. The office facility is -- a term of three years expiring February 29. 2991 lease payments are $4.55? I ith a maximum 4% annual increase. The auternebiles are leased for a term of three and expire between September 2999 and January 2.992. Combined mentth :2 ments are $2.995. Future minimum lea pawns-His are as follows: .1. 1.: lies: 2000 2001 2002 5 90.552 25.046 1 .11 1 316l319 Total rent expense fe the year ended December 31. 1999 was Pensien Flag The Company epon employees must be .2. I centributions are 191 a 491(k) pension plan for all eligible employees. To be eligible or older and have worked at least a thcusand hours. All vested. The Company does not contribute in the plan. 20:22 Hill JEIHH [3132033 FEB-14221211 HHS Tan-lie eels-e1: s2: Corporation 0 FINANCIAL STATEMENTS mom.) December 31. 1999 Note 9 - income Taxes The provision for tax a on income eonsist of the rollowlng: Currently pay lo Federal Si Etate I Total curren xes payable - Deferred inco a tax bene?t Federal . (10.796) State (2.306) Deferred be ?t for income taxes Total benefi or income taxes AS of December 31. 1 5. the Company had a net tax operating loss (NQL) carryfolward of approximater OD available to offset future income tat-t liability. expiring in years 2017 throtth 2019. N?l? 10- ",ll?l til. . For the year ended I: cember 31. 1999 management. Which included several of the shareholders. create raudulent sales in order to borrow additional funds from a bank- This overstated sale L- and overstated expenses by allowing funds to be acquired to ?nance excessive enses for of?cer satarles. meals and entertainment. and commission expensel Furthermore. there was insuf?cient documentation for several categories of aspen I- such as commissions. telephones and payments to the shareholders. The cu ulative effect on the ?nancial statements could not be determined.