Attached files
file | filename |
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8-K/A - FORM 8-K/A - KEYW HOLDING CORP | v236998_8ka.htm |
EX-99.3 - EXHIBIT 99.3 - KEYW HOLDING CORP | v236998_ex99-3.htm |
EX-99.1 - EXHIBIT 99.1 - KEYW HOLDING CORP | v236998_ex99-1.htm |
EX-23.2 - EXHIBIT 23.2 - KEYW HOLDING CORP | v236998_ex23-2.htm |
EX-23.1 - EXHIBIT 23.1 - KEYW HOLDING CORP | v236998_ex23-1.htm |
Flight Landata, Inc. and Subsidiary
Consolidated Financial Statements
Years Ended December 31, 2010 and 2009
Flight Landata, Inc. and Subsidiary
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Consolidated Financial Statements
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Years Ended December 31, 2010 and 2009
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Contents
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Page
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Independent Auditors’ Report
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1
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Consolidated Financial Statements
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Consolidated Balance Sheets
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2
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Consolidated Statements of Operations
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3
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Consolidated Statements of Changes in Stockholders’ Equity
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4
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Consolidated Statements of Cash Flows
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5 - 6
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Notes to Consolidated Financial Statements
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7 - 18
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Independent Auditors’ Report
To the Board of Directors
Flight Landata, Inc. and Subsidiary
North Andover, Massachusetts
We have audited the accompanying consolidated balance sheets of Flight Landata, Inc. (a Massachusetts corporation) and Subsidiary as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Flight Landata, Inc. and Subsidiary as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
As described in Note P to the financial statements, the Subsidiary changed its method of accounting for depreciation in 2010.
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February 7, 2011
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Flight Landata, Inc. and Subsidiary
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Consolidated Balance Sheets
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December 31,
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2010
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2009
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Assets
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||||||||
Current Assets
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||||||||
Cash
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$ | 2,752,378 | $ | 1,385,082 | ||||
Accounts receivable
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3,497,706 | 1,327,830 | ||||||
Other receivables
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23,717 | 19,920 | ||||||
Inventory
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103,952 | 309,203 | ||||||
Prepaid expenses
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325,635 | 145,783 | ||||||
Prepaid income taxes
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548,000 | 54,146 | ||||||
Deferred contract costs
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43,200 | 70,386 | ||||||
Deferred income taxes
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29,000 | 57,000 | ||||||
Total Current Assets
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7,323,588 | 3,369,350 | ||||||
Property and Equipment
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||||||||
Aircraft, operational
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4,292,897 | 1,281,766 | ||||||
Computers and equipment
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292,890 | 126,514 | ||||||
Furniture and fixtures
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31,026 | 18,684 | ||||||
Leasehold improvements
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123,891 | 19,585 | ||||||
Total
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4,740,704 | 1,446,549 | ||||||
Accumulated depreciation
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(1,445,686 | ) | (363,289 | ) | ||||
Net Property and Equipment
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3,295,018 | 1,083,260 | ||||||
Other Assets
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||||||||
Patents, net of amortization of: 2010 - $21,878; 2009 - $17,443
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94,474 | 86,357 | ||||||
Total Other Assets
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94,474 | 86,357 | ||||||
Total Assets
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$ | 10,713,080 | $ | 4,538,967 |
2010
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2009
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Liabilities and Stockholders’ Equity
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||||||||
Current Liabilities
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||||||||
Line of credit, bank
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$ | 500,000 | $ | - | ||||
Current maturities of long-term debt
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569,078 | 19,538 | ||||||
Accounts payable
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390,804 | 172,017 | ||||||
Accrued expenses
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246,153 | 202,422 | ||||||
Deferred revenue
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18,842 | 415,950 | ||||||
Total Current Liabilities
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1,724,877 | 809,927 | ||||||
Long-Term Liabilities
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||||||||
Long-term debt, net of current maturities
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233,838 | 643,614 | ||||||
Deferred income taxes
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765,000 | 333,000 | ||||||
Total Long-Term Liabilities
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998,838 | 976,614 | ||||||
Commitments and Contingencies (Notes F and L)
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-
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-
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||||||
Total Liabilities
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2,723,715 | 1,786,541 | ||||||
Stockholders’ Equity
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||||||||
Redeemable convertible preferred stock, 1,000,000 shares authorized, issued and outstanding: 2010 - 600,000; 2009 - 600,000
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600,000 | 600,000 | ||||||
Common stock, 6,000,000 shares authorized, issued and outstanding: 2010 -1,648,346; 2009 - 1,609,596
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958,235 | 931,360 | ||||||
Additional paid-in capital
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206,905 | 161,478 | ||||||
Retained earnings
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6,224,225 | 1,059,588 | ||||||
Total Stockholders’ Equity
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7,989,365 | 2,752,426 | ||||||
Total Liabilities and Stockholders’ Equity
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$ | 10,713,080 | $ | 4,538,967 |
See accompanying notes.
2.
Flight Landata, Inc. and Subsidiary
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Consolidated Statements of Operations
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Years Ended December 31,
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2010
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2009
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Revenues
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$ | 22,321,004 | $ | 9,235,397 | ||||
Cost of Revenues
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10,277,596 | 4,150,245 | ||||||
Gross Margin
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12,043,408 | 5,085,152 | ||||||
Operating Expenses
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Research and development
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453,786 | 467,382 | ||||||
Business development
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835,990 | 393,380 | ||||||
General and administrative
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2,031,115 | 1,690,360 | ||||||
Total Operating Expenses
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3,320,891 | 2,551,122 | ||||||
Income from Operations
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8,722,517 | 2,534,030 | ||||||
Other Income (Expense)
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||||||||
Interest expense
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(127,342 | ) | (190,092 | ) | ||||
Interest income
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8,322 | 1,395 | ||||||
Loss on sale of equipment
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- | (604,448 | ) | |||||
Other income
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- | 40,774 | ||||||
Total Other Expense
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(119,020 | ) | (752,371 | ) | ||||
Income Before Provision for Income Taxes
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8,603,497 | 1,781,659 | ||||||
Provision for Income Taxes
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3,438,860 | 706,945 | ||||||
Net Income
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$ | 5,164,637 | $ | 1,074,714 |
See accompanying notes.
3.
Flight Landata, Inc. and Subsidiary
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Consolidated Statements of Changes in Stockholders’ Equity
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Years Ended December 31, 2010 and 2009
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Common Stock
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Redeemable Convertible
Preferred Stock
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Additional
Paid-in
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Retained
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Total
Stockholders’
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||||||||||||||||||||||||
Shares
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Amount
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Shares
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Amount
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Capital
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Earnings
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Equity
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Balance, December 31, 2008
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1,609,596 | $ | 931,360 | 800,000 | $ | 800,000 | $ | 115,263 | $ | (15,126 | ) | $ | 1,831,497 | |||||||||||||||
Stock-based compensation
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- | - | - | - | 46,215 | - | 46,215 | |||||||||||||||||||||
Preferred stock redemption
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- | - | (200,000 | ) | (200,000 | ) | - | - | (200,000 | ) | ||||||||||||||||||
Net income
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- |
-
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- | - | - | 1,074,714 | 1,074,714 | |||||||||||||||||||||
Balance, December 31, 2009
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1,609,596 | 931,360 | 600,000 | 600,000 | 161,478 | 1,059,588 | 2,752,426 | |||||||||||||||||||||
Stock-based compensation
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- | - | - | - | 45,427 | - | 45,427 | |||||||||||||||||||||
Exercise of common stock options
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38,750 | 26,875 | - | - | - | - | 26,875 | |||||||||||||||||||||
Net income
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- |
-
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- | - | - | 5,164,637 | 5,164,637 | |||||||||||||||||||||
Balance, December 31, 2010
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1,648,346 | $ | 958,235 | 600,000 | $ | 600,000 | $ | 206,905 | $ | 6,224,225 | $ | 7,989,365 |
See accompanying notes.
4.
Flight Landata, Inc. and Subsidiary
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Consolidated Statements of Cash Flows
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Years Ended December 31,
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2010
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2009
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Operating Activities
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Net income
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$ | 5,164,637 | $ | 1,074,714 | ||||
Adjustments to reconcile net income to net cash operating activities:
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Depreciation and amortization
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1,086,832 | 184,261 | ||||||
Deferred rent
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-
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(2,605 | ) | |||||
Deferred income taxes
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460,000 | 363,000 | ||||||
Loss on sale of equipment
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-
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604,448 | ||||||
Equipment used in research and development and operations
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-
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2,862 | ||||||
Share-based compensation
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45,427 | 46,215 | ||||||
Increase (decrease) in cash from:
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Accounts receivable
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(2,169,876 | ) | (624,185 | ) | ||||
Other receivables
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(3,797 | ) | (12,066 | ) | ||||
Inventory
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205,251 | (36,592 | ) | |||||
Prepaid expenses
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(179,852 | ) | (16,258 | ) | ||||
Prepaid income taxes
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(493,854 | ) | 111,300 | |||||
Deferred contract costs
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27,186 | (70,386 | ) | |||||
Deposits
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-
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34,257 | ||||||
Accounts payable
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218,787 | (118,214 | ) | |||||
Accrued expenses
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43,731 | (281,779 | ) | |||||
Accrued severance
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-
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(232,157 | ) | |||||
Deferred revenue
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(397,108 | ) | (9,620 | ) | ||||
Net Cash Operating Activities
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4,007,364 | 1,017,195 | ||||||
Investing Activities
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Acquisition of property and equipment
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(2,154,048 | ) | (151,499 | ) | ||||
Proceeds from sale of aircraft, net
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-
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1,165,802 | ||||||
Acquisition of patents
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(12,552 | ) | (42,047 | ) | ||||
Net Cash Investing Activities
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(2,166,600 | ) | 972,256 | |||||
Financing Activities
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Proceeds from exercise of common stock options
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26,875 | - | ||||||
Payments for redemption of preferred stock
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-
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(200,000 | ) | |||||
Payments on notes payable, shareholders
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-
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(1,300,000 | ) | |||||
Proceeds from (payments on) line of credit, net
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500,000 | (400,000 | ) | |||||
Payments on long-term debt
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(1,000,343 | ) | (19,114 | ) | ||||
Payments on capital lease obligations
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-
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(1,161 | ) | |||||
Net Cash Financing Activities
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(473,468 | ) | (1,920,275 | ) |
See accompanying notes.
5.
Flight Landata, Inc. and Subsidiary
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Consolidated Statements of Cash Flows
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Years Ended December 31,
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(Continued)
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2010
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2009
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Net Change in Cash and Cash Equivalents
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1,367,296 | 69,176 | ||||||
Cash and cash equivalents, beginning of year
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1,385,082 | 1,315,906 | ||||||
Cash and Cash Equivalents, End of Year
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$ | 2,752,378 | $ | 1,385,082 |
See accompanying notes.
6.
Flight Landata, Inc. and Subsidiary
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Notes to Consolidated Financial Statements
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December 31, 2010 and 2009
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A.
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Description of Business
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Flight Landata, Inc. (a Massachusetts corporation) provides high resolution airborne digital imaging systems and services. The Company’s proprietary digital imaging systems and technology are suitable for light aircraft and unmanned aerial vehicles. The Company provides airborne digital imaging services to the United States military.
FLI-HI, LLC (a Massachusetts limited liability company), a wholly owned subsidiary of Flight Landata, Inc., was formed in April 2007 to own, operate, lease, exchange, purchase and sell aircraft.
B.
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Summary of Significant Accounting Policies
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1.
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Principles of consolidation - The accompanying consolidated financial statements include the accounts of Flight Landata, Inc. (the “Company”) and FLI-HI, LLC (the “Subsidiary”, together the “Companies”). All material intercompany transactions and balances have been eliminated in consolidation.
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2.
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Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. Accordingly, actual results may differ from those estimates.
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3.
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Cash and cash equivalents - The Companies consider all highly liquid instruments with original maturities of three months or less to be cash equivalents.
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4.
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Accounts receivable - The Company carries its accounts receivable at cost. On a periodic basis the Company evaluates its accounts receivable and writes off uncollectible accounts. The Company believes its accounts receivable are fully collectible, and accordingly, there is no allowance for uncollectible accounts at December 31, 2010 and 2009.
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5.
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Inventory - Inventory, consisting of raw materials, is stated at the lower of cost or market on a first-in, first-out basis.
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6.
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Property, equipment and depreciation - Property and equipment are stated at original cost. Major renewals, additions and betterments are charged to the property accounts while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed in the year incurred. Depreciation is computed on the straight line and accelerated methods over the estimated useful lives of the assets ranging from one to ten years. In 2010, the Subsidiary changed its method of accounting for depreciation for certain assets, see Note P. Depreciation expense for the years ended December 31, 2010 and 2009 was $1,082,397 and $181,040, respectively.
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7.
Flight Landata, Inc. and Subsidiary
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Notes to Consolidated Financial Statements
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December 31, 2010 and 2009
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B.
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Summary of Significant Accounting Policies (continued)
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7.
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Patents - Patent procurement costs are capitalized while the application is pending and are expensed in the year of denial or abandonment. Costs associated with patents that are granted are amortized over their estimated useful lives ranging from fourteen to twenty three years. There were no abandoned patents during the years ended December 31, 2010 and 2009. Costs for pending patents at December 31, 2010 and 2009 were $9,347 and $38,901, respectively. Amortization expense for the years ended December 31, 2010 and 2009 was $4,435 and $3,221, respectively.
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The following is a schedule of the estimated amortization expense for the years ending December 31:
2011 - 2015
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27,876 | |||
2016 - 2020
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21,161 | |||
2021 - 2025
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20,159 | |||
2026 - 2030
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15,932 |
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8.
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Impairment of long-lived assets - The Companies review long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable. Impairment is recognized to the extent the fair value of the asset is less than the carrying value. Prior to January 1, 2009, the Subsidiary recorded an impairment loss of $647,150 on an unused aircraft held for sale which represented the excess of the carrying value over the fair value, less expected costs to sell. During the year ended December 31, 2009, the Subsidiary sold the aircraft for proceeds of $1,165,802, net of selling costs of $134,198, realizing an additional loss of $604,448.
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9.
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Income taxes - Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.
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Effective January 1, 2009, a new methodology by which a company must identify, recognize, measure and disclose in its financial statements the effects of any uncertain tax reporting positions that a company has taken or expects to take is required under generally accepted accounting principles. The Companies must recognize an unrecognized tax benefit when, despite the Companies’ belief that its tax return positions are supportable, it is possible that certain positions may not be fully sustained upon review by tax authorities. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences affect income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense.
8.
Flight Landata, Inc. and Subsidiary
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Notes to Consolidated Financial Statements
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December 31, 2010 and 2009
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B.
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Summary of Significant Accounting Policies (continued)
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10.
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Revenue recognition - The Companies recognize revenues and the related cost of revenues when all of the following conditions are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is reasonably assured.
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Revenues from lease, maintenance and other service agreements are generally recognized ratably over the period during which the services are performed.
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11.
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Stock-based compensation - The Company recognizes stock compensation expense for awards of equity instruments to employees based on the grant-date fair value of those awards (with limited exceptions), measured using either current market data or an established option-pricing model. Stock awards to nonemployees are accounted for using the fair-value method. The measurement date for nonemployee awards is generally the date services are complete.
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12.
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Business development - The Company expenses business development costs when they are incurred. Business development costs were $835,990 and $393,380 for the years ended December 31, 2010 and 2009, respectively.
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13.
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Research and development - Expenditures for research activities related to product development are expensed as incurred. Research and development expenses were $453,786 and $467,382 for the years ended December 31, 2010 and 2009, respectively.
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14.
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Subsequent events - The Companies have evaluated all subsequent events through February 7, 2011, the date the consolidated financial statements were available to be issued.
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C.
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Deferred Contract Costs and Revenues
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Revenues and related costs from maintenance and service contracts are deferred and recognized ratably over the contract periods on a straight-line basis or as services are performed. Revenues and related costs from product upgrades are deferred and recognized when the upgrade is complete and product is shipped. At December 31, 2010 and 2009, deferred revenues totaled $18,842 and $415,950, respectively, all of which is recognizable within one year. Deferred contract costs totaled $43,200 and $70,386 for the years ended December 31, 2010 and 2009, respectively.
D.
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Line of Credit
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In March 2010, the Company entered into a line of credit agreement with a bank that allowed for borrowings up to $500,000. The line of credit grants the bank a security interest in substantially all assets of the Company. Amounts are payable upon demand with interest at the bank’s base rate plus 0.5% (3.75 % at December 31, 2010) subject to a minimum rate of 4.5%. The outstanding balance at December 31, 2010 was $500,000. The line expires on July 31, 2011, and is subject to certain financial and reporting covenants.
9.
Flight Landata, Inc. and Subsidiary
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Notes to Consolidated Financial Statements
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December 31, 2010 and 2009
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D.
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Line of Credit (continued)
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In 2009, the Company had a line of credit agreement with a bank that allowed for borrowings up to $500,000. Amounts were payable upon demand with interest at the Wall Street Journal prime rate (3.25% at December 31, 2009) plus 0.5%. The Company paid off the line of credit in full and cancelled the line during the year ended December 31, 2009.
E.
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Long-Term Debt
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The following long-term debt was outstanding at December 31:
2010
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2009
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|||||||
Note payable to bank, with monthly payments of $5,335, including principal and interest at 6.78%, through November 2027, secured by an aircraft, and personally guaranteed by certain shareholders
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$ | - | $ | 663,152 | ||||
Note payable to lender, with monthly payments of $9,391, including principal and interest at 12%, through May 2012, secured by an aircraft
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145,608 | - | ||||||
Note payable to lender, with monthly payments of $25,184, including principal and interest at 12%, through April 2012, secured by an aircraft
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370,659 | - | ||||||
Note payable to lender, with monthly payments of $17,205, including principal and interest at 12%, through April 2012, secured by an aircraft
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253,226 | - | ||||||
Note payable to lender, with monthly principal payments of $836, 0% interest through May 2014, secured by equipment
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33,423 | - | ||||||
802,916 | 663,152 | |||||||
Less: Current maturities of long-term debt
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(569,078 | ) | ( 19,538 | ) | ||||
Long-term debt, net of current maturities
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$ | 233,838 | $ | 643,614 |
Future maturities of long-term debt for the years ending December 31 are as follows:
2011
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$ | 569,078 | ||
2012
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220,469 | |||
2013
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10,027 | |||
2014
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3,342 |
10.
Flight Landata, Inc. and Subsidiary
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Notes to Consolidated Financial Statements
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December 31, 2010 and 2009
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F.
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Commitments and Contingencies
|
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1.
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Related party operating leases - The Company leases its facility in North Andover, Massachusetts from a shareholder under an operating lease expiring March 2012 with the option for two annual renewals at the current fair market rental value not to exceed an annual increase of 10%. In addition to fixed monthly lease payments, the Company is required to pay real estate taxes, utilities and other costs of operating the facility.
|
Other costs of operating the facility include the cost of a land lease held by the shareholder. The land lease expires April 2042 and provides for a base rent plus a calculated adjustment every three years based upon current fluctuations in the consumer price index. Total rent expense under the facilities lease for the years ended December 31, 2010 and 2009 was $116,280 and $96,594, respectively.
Future minimum lease payments under non-cancelable facility and land leases are as follows:
2011
|
$ | 119,847 | ||
2012
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44,097 | |||
$ | 163,944 |
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2.
|
Capital lease - The Company leased certain equipment under a non-cancelable capital lease which expired in June 2009. The cost of equipment under capital lease included in property and equipment was $7,753 at December 31, 2010 and 2009. Accumulated amortization of the leased equipment at December 31, 2010 and 2009 was $7,753 and $7,494, respectively. Amortization of assets under capital lease is included in depreciation expense.
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3.
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Litigation - From time to time, the Companies may be subject to legal proceedings and claims in the ordinary course of business. The Companies are not currently aware of any legal proceedings or claims that would have a material adverse effect on the financial position, results of operations or cash flows of the Companies.
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G.
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Redeemable Convertible Preferred Stock
|
In September, 2006, the Company issued 1,000,000 shares of redeemable convertible preferred stock (“preferred stock”) at $1.00 per share for total proceeds of $1,000,000.
In September 2009, a majority of the preferred stockholders elected to redeem 200,000 shares at $1.00 per share for total redemptions of $200,000. Preferred shares issued and outstanding are 600,000 at December 31, 2010 and 2009, respectively.
11.
Flight Landata, Inc. and Subsidiary
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Notes to Consolidated Financial Statements
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December 31, 2010 and 2009
|
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G.
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Redeemable Convertible Preferred Stock (continued)
|
The holders of preferred stock have various rights and preferences as follows:
Voting
Each share of preferred stock issued and outstanding has the number of votes equal to the number of shares of common stock into which such shares of preferred stock could be converted as defined below. Except as otherwise required by law, the holders of the preferred stock and the holders of the common stock shall vote together as a single class.
Dividends
Holders of preferred stock are entitled to receive dividends payable equally with the holders of common stock in an amount that would be paid if the preferred stock was converted into common shares prior to the declaration of the dividend. Dividends are payable out of the assets of the Company when and as declared by the Board of Directors.
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the preferred stockholders are entitled to receive an amount equal to the applicable original issue price of $1.00 for each share held prior and in preference to any distribution to the holders of common stock.
Conversion
Each share of preferred stock is convertible at any time, at the option of the holder, into common stock. The preferred stock is convertible on a one-to-one basis into common stock, subject to certain adjustments.
Redemption
Preferred stock is subject to redemption at the election of a majority of the preferred stockholders or the election of the Board of Directors. Preferred stock redeemed at the election of the preferred stockholders is limited to twenty five percent per annum beginning on the second anniversary through the fifth anniversary of the original issue date, September 2006, at a price equal to the original issue price of $1.00 per share. Preferred stock redeemed at the election of the Board of Directors is not subject to annual limits.
12.
Flight Landata, Inc. and Subsidiary
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Notes to Consolidated Financial Statements
|
December 31, 2010 and 2009
|
|
H.
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Common Stock
|
Voting and Dividends
The holders of the common stock are entitled to one vote for each share held at all meetings of stockholders. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and when declared, subject to any preferential dividend rights of any of the outstanding preferred stock.
Liquidation
After payment to the holders of preferred stock of the full preferential amounts, the entire remaining assets of the Company available for distribution shall be distributed pro rata among the holders of the common stock based upon the number of shares held.
I.
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Stock Option Plan
|
The Stock Option and Stock Incentive Plan (the “Plan”) provides for the granting of qualified incentive stock options, nonqualified stock options, restricted stock awards, or other awards to the Company’s employees, officers, directors, prospective employees and outside consultants. During the year ended December 31, 2009, the Company increased the number of shares available for issuance under the Plan to 1,000,000. Option awards are generally granted with an exercise price equal to the fair value of the Company’s common stock at the date of grant and have a five year contractual term. Incentive stock options may only be granted to employees of the Company, and the stock option price per share shall not be less than 100 percent of the fair value of the Company’s common stock on the date of the grant. If an employee owns more than ten percent of the combined voting stock of the Company, the option price of the Incentive Stock Option may not be less than 110 percent of the fair market value of the stock on the grant date and the contractual term may not exceed five years. At December 31, 2010 and 2009, the maximum number of shares available for future grants under the Plan was 169,350 and 296,850, respectively.
All stock options shall vest and expire according to schedules fixed by the Board, but no stock option shall be exercisable more than ten years after the date on which the stock option is granted. Vesting and expiration terms can be accelerated upon any event which the Board deems appropriate. During the years ended December 31, 2010 and 2009, no employee stock options were accelerated.
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model using the assumptions noted in the table below. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. The Company uses historical data on employee turnover and terminations to estimate the percentage of options that will ultimately be exercised. Expected volatility is based on average 2010 volatility for a representative sample of publicly traded companies. The expected term represents the period of time that the options are expected to be outstanding. The risk-free interest rate is estimated using the rate of return on U.S. Treasury Notes with a life that approximates the expected life of the option.
13.
Flight Landata, Inc. and Subsidiary
|
Notes to Consolidated Financial Statements
|
December 31, 2010 and 2009
|
|
I.
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Stock Option Plan (continued)
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2010
|
2009
|
|||||||
Risk-free interest rate
|
1.18% - 1.41 | % | 1.72% - 2.52 | % | ||||
Expected term
|
5 years
|
5 years
|
||||||
Expected volatility
|
90.0 | % | 101.9 | % | ||||
Expected annual dividends
|
0 | % | 0 | % |
The following is a summary of option activity under the Plan as of December 31, 2010 and 2009:
Weighted
|
||||||||||||||||
Average
|
||||||||||||||||
Weighted
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Remaining
|
|||||||||||||||
Average
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Contractual
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Aggregate
|
||||||||||||||
|
|
Exercise
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Term
|
Calculated
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||||||||||||
Options
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Shares
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Price
|
(Years)
|
Value
|
||||||||||||
Outstanding at January 1, 2009
|
479,750 | $ | 0.782 | |||||||||||||
Granted
|
319,900 | $ | 0.971 | |||||||||||||
Exercised
|
- | $ | - | |||||||||||||
Forfeited or expired
|
- | $ | - | |||||||||||||
Outstanding at December 31, 2009
|
799,650 | $ | 0.857 | 4.07 | $ | 284,931 | ||||||||||
Exercisable at December 31, 2009
|
567,250 | $ | 0.799 | 3.25 | $ | 163,140 | ||||||||||
Outstanding at January 1, 2010
|
799,650 | $ | 0.845 | |||||||||||||
Granted
|
127,500 | $ | 2.000 | |||||||||||||
Exercised
|
(38,750 | ) | $ | 0.694 | ||||||||||||
Forfeited or expired
|
- | $ | - | |||||||||||||
Outstanding at December 31, 2010
|
888,400 | $ | 1.028 | 3.380 | $ | 347,273 | ||||||||||
Exercisable at December 31, 2010
|
593,500 | $ | 0.828 | 2.609 | $ | 186,171 |
The weighted-average grant-date calculated value of options granted during the years ended December 31, 2010 and 2009 was $0.575 and $0.527, respectively.
For the years ended December 31, 2010 and 2009, there was unrecognized compensation costs of $159,071 and $120,257, respectively, related to nonvested share-based compensation arrangements granted under the Plan. Total share-based compensation expense is $45,427 and $46,215 for the years ended December 31, 2010 and 2009, respectively, and is included in general and administrative expenses in the accompanying consolidated statements of operations.
14.
Flight Landata, Inc. and Subsidiary
|
Notes to Consolidated Financial Statements
|
December 31, 2010 and 2009
|
|
I.
|
Stock Option Plan (continued)
|
A summary of the status of the Company’s nonvested shares as of December 31, 2010 and 2009 and changes during the years then ended are presented below:
Weighted
|
||||||||
Average
|
||||||||
Grant-Date
|
||||||||
Nonvested Shares
|
Shares
|
Fair Value
|
||||||
Nonvested at January 1, 2009
|
100,000 | $ | 0.159 | |||||
Granted
|
319,900 | $ | 0.527 | |||||
Vested
|
(187,500 | ) | $ | 0.334 | ||||
Forfeited or expired
|
- | $ | - | |||||
Nonvested at December 31, 2009
|
232,400 | $ | 0.524 | |||||
Nonvested at January 1, 2010
|
232,400 | $ | 0.524 | |||||
Granted
|
127,500 | $ | 0.575 | |||||
Vested
|
(65,000 | ) | $ | 0.524 | ||||
Forfeited or expired
|
- | $ | - | |||||
Nonvested at December 31, 2010
|
294,900 | $ | 0.546 |
J.
|
Income Taxes
|
The components of the provision for income taxes for the years ended December 31, are as follows:
2010
|
2009
|
|||||||
Current tax expense
|
||||||||
Federal
|
$ | 2,211,143 | $ | 268,302 | ||||
State
|
767,717 | 75,643 | ||||||
2,978,860 | 343,945 | |||||||
Deferred tax expense (benefit)
|
||||||||
Federal
|
480,000 | 272,300 | ||||||
State
|
(20,000
|
) | 90,700 | |||||
460,000 | 363,000 | |||||||
Total provision for income taxes
|
$ | 3,438,860 | $ | 706,945 |
15.
Flight Landata, Inc. and Subsidiary
|
Notes to Consolidated Financial Statements
|
December 31, 2010 and 2009
|
|
J.
|
Income Taxes (continued)
|
The following is a summary of the significant components of the Company’s deferred tax assets and liabilities as of December 31:
2010
|
2009
|
|||||||
Deferred tax assets
|
||||||||
Accrued expenses
|
$ | 29,000 | $ | 57,000 | ||||
Total deferred tax assets
|
29,000 | 57,000 | ||||||
Deferred tax liabilities
|
||||||||
Property and equipment
|
(728,000 | ) | (302,000 | ) | ||||
Intangibles
|
(37,000 | ) | (31,000 | ) | ||||
Total deferred tax liabilities
|
(765,000 | ) | (333,000 | ) | ||||
Net deferred tax (liability) asset
|
$ | (736,000 | ) | $ | (276,000 | ) |
The Company expects to realize all deferred tax assets. Accordingly, no valuation allowance has been established. However, this expectation could change if near term estimates of future taxable income are reduced.
The Company has analyzed its tax positions taken for all open tax years and has concluded that no provision for unrecognized tax benefits from uncertain tax positions is required in the Company’s consolidated financial statements. The Company’s income tax returns are subject to examination by U.S. federal and state taxing jurisdictions. As of December 31, 2010, the Company’s income tax returns generally remain open for the last four years. The years that remain open contain matters that could be subject to differing interpretations of the applicable tax laws and regulations as it relates to the amount and or timing of income, deductions and tax credits.
K.
|
Related Party Transactions
|
|
1.
|
Notes payable to shareholders - On July 15, 2008, the Subsidiary issued $1,300,000 of notes payable to shareholders accruing interest at 14% per quarter and payable in full by October 18, 2008. In October 2008, the Subsidiary paid accrued interest of $182,000 and refinanced the principal through June 18, 2009. The refinanced notes accrued interest at 15% per annum, payable monthly. One shareholder’s note was collateralized by an aircraft. The refinance was conditioned upon the active pursuit of sale of the collateralized aircraft. The aircraft was sold during the year ended December 31, 2009 and the $1,300,000, plus accrued interest, was paid in full, subsequent to the sale, during 2009.
|
16.
Flight Landata, Inc. and Subsidiary
|
Notes to Consolidated Financial Statements
|
December 31, 2010 and 2009
|
|
K.
|
Related Party Transactions (continued)
|
|
2.
|
Intercompany transactions - The Subsidiary leases an aircraft to the Company under an operating lease which expires in October 2012 with an option to renew for an additional twenty-four months. The lease provides for monthly rent payments of $81,000 and $60,000 for the years ended December 31, 2010 and 2009, respectively. Total rent under the lease for the years ended December 31, 2010 and 2009 was $972,000 and $720,000, respectively.
|
The Company has a management agreement with the Subsidiary to provide for certain administrative costs. Management fees charged to the Subsidiary were $18,000 for the years ended December 31, 2010 and 2009.
All intercompany transactions have been eliminated in consolidation.
L.
|
Risks and Uncertainties
|
Through September 2009, the Company conducted flight operations based in Afghanistan under a direct contract with the United States military. As of September 23, 2009, the Company’s operations in Afghanistan are conducted under a sub-contract to the U.S. military. The Company has obtained specialized defense-related insurance to cover the insurable risks of conducting flight operations in times of war. The carrying amount of assets based in Afghanistan at December 31, 2010 and 2009 is $2,442,478 and $952,328, respectively.
M.
|
Concentrations
|
|
1.
|
Uninsured cash deposits - The Companies maintain their cash in bank deposit accounts that could exceed federally insured limits. All noninterest bearing accounts are guaranteed in full by the Federal Deposit Insurance Corporation. At December 31, 2010, the Company had amounts in excess of federally insured limits of $252,680. There were no amounts uninsured at December 31, 2009. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risk on cash.
|
|
2.
|
Customers - In 2010, one customer accounted for approximately 86% of the Company’s revenue and two customers accounted for approximately 93% of the Company’s accounts receivable balance at December 31, 2010. In 2009, two customers accounted for approximately 96% of the Company’s revenue and one customer accounted for approximately 77% of the Company’s accounts receivable balance at December 31, 2009.
|
17.
Flight Landata, Inc. and Subsidiary
|
Notes to Consolidated Financial Statements
|
December 31, 2010 and 2009
|
|
N.
|
Accrued Severance
|
The Company negotiated severance agreements with former members of management whose employment terminated with the Company in 2008. Negotiated agreements provided for payments of $390,000 to be paid over a one year period from the dates of severance, plus health insurance benefits estimated at $35,100. All accrued severance has been paid in full as of December 31, 2009.
O.
|
Retirement Plan
|
The Company has a defined contribution retirement plan covering substantially all employees meeting the minimum eligibility requirements. The Company, at the discretion of the Board of Directors, may contribute additional amounts to the plan. The Company reserves the right to terminate the plan at any time. The Company made contributions to the plan for the years ended December 31, 2010 and 2009 in the amounts of $63,447 and $22,452, respectively.
P.
|
Change in Estimate
|
Prior to the year ended December 31, 2010, the Subsidiary depreciated in-theatre aircraft and related modifications using the straight-line method over the estimated useful lives of ten years. In 2010, the Subsidiary changed its policy for depreciation to double-declining balance and changed the estimated useful lives to five years to reflect the accelerated wear on in-theatre assets due to extreme conditions where they operate. In accordance with GAAP, a change in the method of depreciation is accounted for as a change in accounting estimate and is recognized prospectively.
The effect of this change in estimate was to increase 2010 depreciation expense and decrease 2010 income from operations and net income by approximately $621,000.
Q.
|
Supplemental Disclosure of Cash Flow Information
|
Cash paid for interest during the years ended December 31, 2010 and 2009 was $127,342 and $231,800, respectively.
Cash paid for income taxes during the years ended December 31, 2010 and 2009 was $3,472,714 and $384,000, respectively.
The Companies acquired $1,140,107 of equipment under long-term debt agreements.
18.