Exhibit No. 99.2
REAL PROPERTY TECHNOLOGIES LLC
UNAUDITED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MAY 31, 2006
| Balance Sheet -- As of May 31, 2006 (unaudited) | F-1 |
| | |
| Statements of Operations -- For the Five Months Ended May 31, 2006 (unaudited) | F-2 |
| | |
| Statements of Cash Flows -- For the Six Months Ended May 31, 2006 (unaudited) | F-3 |
| | |
| Notes to Financial Statements | F-4 |
REAL PROPERTY TECHNOLOGIES LLC
BALANCE SHEET
| | | May 31, 2006 (unaudited) | |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | | $ | 980,721 | |
| Accounts receivable | | | 4,540,527 | |
| Prepaid and other current assets | | | 1,035,645 | |
| Total current assets | | | 6,556,893 | |
| Property and equipment, net | | | 611,308 | |
| | | | | |
| Total assets | | $ | 7,168,201 | |
| Liabilities and Stockholders' Deficit | | | | |
| Current liabilities: | | | | |
| Accounts payable and accrued expenses | | $ | 145,326 | |
| Capital lease obligations | | | 190,801 | |
| Line of credit | | | 750,000 | |
| Total current liabilities | | | 1,086,127 | |
| Total liabilities | | | 1,086,127 | |
| Stockholders' equity: | | | | |
| Capital contribution | | | 168,865 | |
| Retained earnings | | | 4,805,483 | |
| Net income | | | 1,107,726 | |
| Total stockholders' equity | | | 6,082,074 | |
| Total liabilities and stockholders' equity | | $ | 7,168,201 | |
REAL PROPERTY TECHNOLOGIES LLC
STAEMENT OF OPERATIONS
FOR THE FIVE MONTHS ENDED MAY 31, 2006
unaudited
| | | May 31, 2006 | |
| | | | |
| Revenue | | $ | 9,358,624 | |
| | | | | |
| Cost of sales | | | 1,119,892 | |
| | | | | |
| Gross profit | | | 8,238,732 | |
| | | | | |
| Expenses | | | | |
| Employee related costs | | | 5,440,191 | |
| Selling, general and administrative | | | 1,690,815 | |
| | | | | |
| Total expenses | | | 7,131,006 | |
| | | | | |
| Net income | | $ | 1,107,726 | |
REAL PROPERTY TECHNOLOGIES LLC
STATEMENTS OF CASH FLOWS
FOR THE FIVE MONTHS ENDED MAY 31, 2006
unaudited
| | | Five Months Ended May 31, 2006 | |
Cash flows from operating activities: | | | |
| Net income | | $ | 1,107,726 | |
| | | | | |
Changes in operating assets and liabilities: | | | | |
| (Increase) decrease in accounts receivable | | | 10,427 | |
| (Increase) decrease in other current assets | | | (757,313 | ) |
| Increase (decrease) in accounts payable and accrued expenses | | | (60,535 | ) |
| Net cash provided by operating activities | | | 300,306 | |
Cash flows from investing activities: | | | | |
| Purchase of fixed assets | | | (114,356 | ) |
| Net cash used in investing activities | | | (114,356 | ) |
Cash flows from financing activities: | | | | |
| Net advances on lines of credit | | | 750,000 | |
| Distributions to stockholders’ | | | (25,458 | ) |
| Net cash used for financing activities | | | 724,542 | |
Net increase (decrease) in cash and cash equivalents | | | 910,492 | |
Cash and cash equivalents, beginning of period | | | 70,230 | |
Cash and cash equivalents, end of period | | | 980,721 | |
Supplemental disclosure of cash flow information | | | | |
| Interest paid | | $ | -- | |
REAL PROPERTY TECHNOLOGIES LLC
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2006
(1) | Nature of Business and Summary of Significant Accounting Policies: |
Nature of Business
Real Property Technologies LLC (the “Company”) was organized as a limited liability company in the State of New York on April 5, 1999. The Company is a real estate information company with all of its business operations in the State of New York.
Principles of Consolidation:
The consolidated financial statements include the accounts of Primary Foil Services, LLC and Dot Com Factory, LLC. All significant inter-company accounts and transactions have been eliminated.
Use of Estimates:
The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash equivalents consist of highly liquid investments with maturities of three months or less when purchased. Cash and cash equivalents are on deposit with financial institutions without any restrictions.
Allowance for Doubtful Accounts:
The allowance for doubtful accounts is an estimate made by management, based upon current information, to reserve for potential credit losses in the future. While these losses have been within management's expectations in the past, it is reasonably possible that the allowance for doubtful accounts will need to be revised in the future to reflect changing information and conditions.
Fixed Assets:
Fixed assets are stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are generally 3 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).
The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.
REAL PROPERTY TECHNOLOGIES LLC
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2006
(1) | Nature of Business and Summary of Significant Accounting Policies: (continued) |
Intangible Assets
The Company has adopted FASB 142. Under guidance of SFAS 142, net assets of companies acquired in purchase transactions are recorded at fair value at the date of acquisition, as such, the historical cost basis of individual assets and liabilities are adjusted to reflect their fair value. Identified intangibles are amortized on an accelerated or straight-line basis over the period benefited. Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level. The impairment test is performed in two phases. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. Of the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, an additional procedure must be performed. That additional procedure compares the implied fair value of the reporting units’ goodwill (as defined in SFAS 142) with the carrying amount of that goodwill. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value.
Revenue and Cost Recognition:
The Company recognizes revenue from services provided once all of the following criteria for revenue recognition have been met: 1) pervasive evidence of an agreement exists, 2) the services have been delivered, 3) the price is fixed and determinable and not subject to refund or adjustment and 4) collection of the amounts due is reasonably assured. Overhead and administrative costs are recognized when incurred and direct event costs and expenses are recognized during the period in which the event they are associated with occurs.
Advertising:
The Company expenses advertising costs as incurred.
Income Taxes:
The Company is treated as a partnership for income tax purposes. Consequently, federal income taxes are not payable or provided for, the Company. Members are taxed individually on their proportionate ownership interest of the Company’s earnings. The Company’s net income or loss is allocated among the members based upon their proportionate ownership interest.
Fair Value of Financial Instruments:
The Company has adopted SFAS No. 107, “Disclosures About Fair Value of Financial Instruments.” SFAS No. 107 requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. For certain of the Company’s financial instruments including cash, receivables, and accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities. The amounts shown for notes payable also approximate fair value because current interest rates and terms offered to the Company for similar debt are substantially the same.
REAL PROPERTY TECHNOLOGIES LLC
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2006
(1) | Nature of Business and Summary of Significant Accounting Policies: (continued) |
New Accounting Pronouncements:
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections." This statement applies to all voluntary changes in accounting principle and requires retrospective application to prior periods' financial statements of changes in accounting principle, unless this would be impracticable. This statement also makes a distinction between "retrospective application" of an accounting principle and the "restatement" of financial statements to reflect the correction of an error. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. This statement is not expected to have a material effect on the Company's consolidated financial position or results of operations.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS No. 155, permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company's first fiscal year that begins after September 15, 2006. This statement is not expected to have a material effect on the Company's consolidated financial position or results of operations.
In June 2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception. The guidance in EITF 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. EITF 05-6 is not expected to have a material effect on the Company's consolidated financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair values. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management believes that the adoption of SFAS No. 157 will not have a material impact on the consolidated financial results of the Company.
As of May 31, 2006, fixed assets are comprised of the following:
| | | May 31, 2006 | |
| Computer equipment | | $ | 512,512 | |
| Office equipment | | | 30,357 | |
| Furniture and fixtures | | | 93,866 | |
| Equipment under capital leases | | | 438,467 | |
| | | | 1,075,202 | |
| Less accumulated depreciation | | | (463,894 | ) |
| | | | | |
| | | $ | 611,308 | |
REAL PROPERTY TECHNOLOGIES LLC
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2006
As of May 31, 2006 other current assets is comprised of the following:
| | | May 31, 2006 | |
| Loans receivable | | $ | 168,624 | |
| Note receivable | | | 754,803 | |
| Security deposits | | | 111,443 | |
| Other assets | | | 776 | |
| | | $ | 1,035,645 | |
Loans and note receivables are due demand and bearing no stated interest. Loans receivable are primarily made up of monies the Company loaned to its employees and related party investments.
(4) | Commitments and Contingencies: |
Operating Leases
The Company has various noncancellable operating leases for its offices and equipments. Future annual minimum payments under these noncancellable operating leases are as follows:
| Years ending December 31, | | | |
| 2006 | | $ | 1,241,617 | |
| 2007 | | | 1,094,901 | |
| 2008 | | | 588,164 | |
| 2009 and Thereafter | | | 300,448 | |
| | | $ | 3,225,130 | |
Rental expense under operating leases for the years ended December 31, 2005 and 2004 was $1,133,020 and $946,089, respectively.
Litigation
In the normal course of business, the Company is involved in various legal actions. It is the opinion of management that none of these legal actions will have a material effect on the financial position or results of operations of the Company.
(5) | Related-Party Transactions: |
Loan Receivable from equity investment affiliate
Real Property Technologies contributed $300,000 to GeoData Plus LLC, an entity 50% owned by the Company as discussed in Note 4, during year ended December 23, 2002 in a combination of technical services, hardware, software, and facility usage in connection with the agreement. As of December 31, 2005 and 2004, a loan receivable totaling $136,633 and $128,899, respectively relates to amounts due from GeoData.
On June 5, 2006, the Company entered into a Share Exchange Agreement with Shearson Financial Network, Inc. (“Shearson”), whereby Shearson acquired all of the Company’s members’ equity in exchange for 100,000 shares of Shearson’s preferred stock which are convertible into common stock on a 1-for-10,000 share basis.
