Exhibit 99.2
NETCOM DATA SOUTHERN CORP.
UNAUDITED FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2008
INDEX
| | Page No. |
| June 30, 2008 | |
| 2 |
| 3 |
| 4 |
| 5 – 7 |
| | June 30, | | | December 31, | |
| Balance Sheets | | 2008 | | | 2007 | |
| | | (unaudited) | | | (audited) | |
| | | | | | | |
| Assets | | | | | | |
| | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 63,270 | | | $ | 2,467 | |
| Accounts receivable | | | 92,429 | | | | 91,888 | |
| Escrow account | | | 31,016 | | | | 30,780 | |
| Due from related parties | | | 21,306 | | | | 111,881 | |
| Total current assets | | | 208,021 | | | | 237,016 | |
| | | | | | | | | |
| Property and equipment, net: | | | 25,345 | | | | 27,646 | |
| | | | | | | | | |
| | | $ | 233,366 | | | $ | 264,662 | |
| | | | | | | | | |
| Liabilities and Stockholders' Equity | | | | | | | | |
| | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 27,994 | | | $ | 41,672 | |
| Accrued payroll and taxes | | | 72,455 | | | | 46,806 | |
| Escrow account liability | | | 30,780 | | | | 30,780 | |
| Total current liabilities | | | 131,229 | | | | 119,258 | |
| | | | | | | | | |
| Stockholders' equity: | | | | | | | | |
Common stock, no par value 100,000 shares authorized, 50,000 shares issued and outstanding | | | 500 | | | | 500 | |
| Retained earnings | | | 101,637 | | | | 144,904 | |
| | | | 102,137 | | | | 145,404 | |
| | | | | | | | | |
| | | $ | 233,366 | | | $ | 264,662 | |
The accompanying notes are an integral part of these financial statements.
| | Six Months Ended June 30, | | | Six Months Ended June 30, | |
| Statements of Operations and Retained Earnings - Unaudited | | 2008 | | | 2007 | |
| | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Revenues | | $ | 669,771 | | | $ | 749,337 | |
| | | | | | | | | |
| Cost of goods sold | | | 187,886 | | | | 214,742 | |
| | | | | | | | | |
| Gross profit | | | 481,885 | | | | 534,595 | |
| | | | | | | | | |
| Operating expenses | | | 467,120 | | | | 554,998 | |
| | | | | | | | | |
| Income from operations | | | 14,765 | | | | (20,403 | ) |
| | | | | | | | | |
| Loss on disposal of assets | | | - | | | | - | |
| | | | | | | | | |
| Net income | | | 14,765 | | | | (20,403 | ) |
| | | | | | | | | |
| Retained earnings, beginning of period | | | 144,904 | | | | 108,907 | |
| | | | | | | | | |
| Distributions | | | (58,032 | ) | | | (33,937 | ) |
| | | | | | | | | |
| Retained earnings, end of period | | $ | 101,637 | | | $ | 54,567 | |
The accompanying notes are an integral part of these financial statements.
| | Six Months Ended June 30 | | | Six Months Ended June 30 | |
| Statements of Cash Flows - Unaudited | | 2008 | | | 2007 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net income | | $ | 14,765 | | | $ | (20,403 | ) |
| Adjustments to reconcile net income to net | | | | | | | | |
| cash used in operating activities: | | | | | | | | |
| Depreciation | | | 2,301 | | | | 1,993 | |
| Changes in assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (541 | ) | | | 57,992 | |
| Escrow account | | | (236 | ) | | | - | |
| Due from related parties | | | 90,575 | | | | 29,248 | |
| Accounts payable | | | (13,678 | ) | | | (8,464 | ) |
| Accrued payroll | | | 25,649 | | | | (20,407 | ) |
| | | | | | | | | |
| Net cash provided by operating | | | | | | | | |
| activities: | | | 118,835 | | | | 39,959 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Disposition of property and equipment | | | - | | | | - | |
| | | | | | | | | |
| Net cash used by investing activities: | | | - | | | | - | |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Distributions | | | (58,032 | ) | | | (33,937 | ) |
| | | | | | | | | |
| Net cash used by financing activities: | | | (58,032 | ) | | | - | |
| | | | | | | | | |
| Net increase in cash and cash equivalents | | | 60,803 | | | | 6,022 | |
| | | | | | | | | |
| Cash and cash equivalents at beginning of period | | | 2,467 | | | | 25,476 | |
| | | | | | | | | |
| Cash and cash equivalents at end of period | | $ | 63,270 | | | $ | 31,498 | |
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
NOTE 1: Nature of the Business and Summary of Significant Accounting Policies
Organization and Operations
Netcom Data Southern Corp. (the “Company”) was organized in 1996 for the processing of merchant card services. The Company's customers are located primarily in the southeastern United States.
The Company has various operating agreements with sponsorship banks for merchant card services. The contracts are for varying periods of time. Residuals and set up fees represent negotiated amounts specific to each sponsorship bank. Contract renewal is determined one year before the end of the contract. Residuals transcend the life of the contract and are guaranteed through the life of the individual account processing with the specific sponsorship bank.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Accounts Receivable
The Company carries its accounts receivable at cost less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, based on a history of past write-offs and collections and current credit conditions. The Company's policy is not to accrue interest on accounts receivable. Accounts are written off as uncollectible at the time management determines that collection is unlikely.
No provision for doubtful collections has been made at June 30, 2008 (unaudited), or at December 31, 2007, as management considers all amounts fully collectible.
Property and Equipment
Property and equipment are recorded at cost. Major additions and improvements are capitalized, while ordinary maintenance and repairs are charged to income as incurred.
The Company depreciates property and equipment using both accelerated and straight-line methods over the estimated useful lives of the assets, as follows:
| Furniture and fixtures | | 7 years |
| Office equipment and computers | 5 years |
| Leasehold improvements | | 15-39 years |
For income tax reporting, the Company depreciates property and equipment using accelerated methods.
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicated that the cost of any long-lived asset may be impaired, an evaluation of recoverability would be performed.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with a maturity date of three months or less to be cash equivalents. At times, cash and cash equivalents may exceed federally insured amounts. The Company believes it mitigates risks by depositing cash and investing in cash equivalents with major financial institutions.
Income Taxes
The Company has elected under the Internal Revenue Code to be taxed as an S Corporation. Accordingly, no provision for federal or state income taxes are necessary since income, losses and credits are reported on the stockholders' income tax return.
The Company has a policy of paying distributions to its stockholders in an amount at least equal to their individual tax liability related to company earnings. This includes amounts required for quarterly estimated tax payments related to company earnings.
Advertising Costs
The Company charges advertising costs to expense as the costs are incurred.
NOTE 2: Economic Dependency
For the unaudited six months ended June 30, 2008, and six months ended June 30, 2007, the Company derived 67.4% and 59.5%, respectively, of its revenue from a single sponsorship bank. The Company has multiple bank sponsorships and it is management's belief that there would be no significant impact on their operations if it became necessary to migrate all activity to different sponsorship banks.
NOTE 3: Property and Equipment - Net
Property and equipment - net, at June 30, 2008, and December 31, 2007, is comprised of the following:
| | | June 30, 2008 (unaudited) | | | December 31, 2007 (audited) | |
| | | | | | | |
| Furniture and fixtures | | $ | 1,843 | | | $ | 1,843 | |
| Office equipment and computers | | | 12,323 | | | | 12,323 | |
| Leasehold improvements | | | 21,002 | | | | 21,002 | |
| | | | 35,168 | | | | 35,168 | |
| Less: Accumulated depreciation | | | (9,823 | ) | | | (7,522 | ) |
| | | $ | 25,345 | | | $ | 27,646 | |
| | | | | | | | | |
Depreciation expense associated with property and equipment totaled $2,301 for the six months ended June 30, 2008 (unaudited), and $2,300 for the six months ended June 30, 2007 (unaudited).
NOTE 4: Related Party Transaction
The Company has entered into a number of transactions with related parties. Due to the relationships between the parties involved, these transactions may not have been consummated on terms that would have been achieved with unrelated third parties. The Company, from time-to-time, lends money to and borrows money from related parties under informal agreements.
The Company leases certain office space from a related party under informal monthly operating leases. The Company incurred rent expense totaling $78,050 for the six months ended June 30, 2008 (unaudited), and $69,650 for the six months ended June 30, 2007 (unaudited).
NOTE 5: Commitments and Contingencies
The Company has a Reseller Agreement with a service provider. The original agreement dated May 1, 2007 had a minimum service commitment of $15,232 per month. The agreement was amended with an effective date of February 1, 2008 to require the Company to meet an Annual Commitment for services of $62,784 until December 31, 2010. In the event that the Company fails to meet the Annual Commitment, the service provider shall invoice the Company for such amount as the difference between the Company's Actual Spend and the Annual Commitment.
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