Report of Independent Registered Public Accounting Firm
Stockholder and Board of Directors
Pop Factory, LLC. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Pop Factory, LLC. and Subsidiaries (the “Company”) as of December 31, 2012, and the related consolidated statement of operations, members’ equity and cash flows for the year 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2012, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Cherry Bekaert LLP |
Atlanta, Georgia June 12, 2013 |
The accompanying notes to consolidated financial statements are an integral part of this statement.5
POP FACTORY, LLC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Note 1Description of business
Pop Factory LLC is a Florida Limited Liability Company which owns one hundred percent (100%) of three limited liability companies: All Star Media LLC, Stardust Entertainment LLC and Stardust International LLC, collectively "The Company". The Company provides websites (including digital beach lifestyle website Bikini.com) and content distributed through mobile and other platforms.
Note 2Summary of significant accounting policies
Use of Estimates – The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) 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 reporting period. Actual results could differ from those estimates.
Revenue Recognition – The Company has two primary sources of revenue: Mobile Royalty Revenue and Advertising Revenue (e.g. pay per click, banner ads). Due to the inability to determine when delivery of service has been rendered and lack of reasonable assurance of collection, the Company recognizes revenue on Mobile Royalty upon receipt of payment. Advertising Revenue is recognized based on the month the service is delivered.
Accounts Receivable – Accounts receivable consist of trade accounts receivable and are stated at cost, less an allowance for doubtful accounts, the net of which approximates fair value. Management’s determination of the allowance for doubtful accounts is based on an evaluation of the accounts receivable, past experience, current economic conditions, and other risks inherent in the accounts receivable portfolio. Credit is extended to customers after an evaluation of the customer’s financial condition, and generally collateral is not required. The allowance for doubtful accounts is adjusted based on the knowledge of the collections. Management believes all accounts are fully collectible and, therefore, no allowance has been recorded at December 31, 2012.
Property and Equipment – Property and equipment are stated at cost. Additions and improvements that extend asset lives are capitalized. Maintenance and repairs are charged to expense as incurred.
Depreciation – Depreciation is provided over the estimated remaining useful lives of the assets and is calculated using the straight-line method.
Lives used for depreciation calculations are as follows:
| | |
Software and Graphic Art | 3 years | |
Computers Equipment | 5 years | |
Furniture and Equipment | 7 Years | |
POP FACTORY, LLC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Note 2Summary of significant accounting policies (continued)
Income Taxes – The Company, with the consent of its members, elected to have their income taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay Federal or State corporate income taxes on its income. Instead, the stockholders of an S corporation are taxed on their proportionate share of the Company’s net income as adjusted for taxes. Therefore, no provision or liability for federal or state income taxes has been included in the financial statements. The calendar years ended December 31, 2010 through December 31, 2012 are generally still open to examination by applicable taxing authorities.
Subsequent Events – We have evaluated subsequent events through June 12, 2013, the date the financial statements were issued.
On March 29, 2013 the Company's members sold one hundred percent of their interest in the Company to Remark Media, Inc. for a total purchase price of $2,375,000. Upon the acquisition of the Company, its Federal S Election was terminated and the Company’s tax status converted to its default classification of disregarded, thereby joining the consolidated filing of Remark Media, Inc.
Note 3 Property and equipment
Major classes of property and equipment consist of the following at December 31, 2012:
| | |
Software and Graphic Art | $ | 8,849 |
Computer Equipment | | 44,754 |
Furniture and Fixtures | | 50,440 |
| | 104,043 |
Less accumulated depreciation | | -81,553 |
| | |
Property and equipment, net | $ | 22,490 |
Depreciation expense was $13,191 for the year ended December 31, 2012.
Note 4Lease commitments
The Company leases office space under a commercial real estate operating lease which expires September 30, 2013. There are no options to renew on the existing lease agreement. Lease expense for the year ended December 31, 2012 is $48,860. The remaining obligation as of December 31, 2012 under the Company's lease through September 30, 2013 is $45,269.
Note 5Employee benefits
The Company sponsors a 401(k) retirement plan (the “Plan”) that covers substantially all employees. Under the terms of the Plan, all contributions are discretionary. The 401(k) plan was terminated in connection with the sale of the Company on March 29, 2013.
POP FACTORY, LLC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Note 6Concentrations of credit risk and sales
The Company’s total net sales of $216,474 for 2012 were derived from various customers. However, four customers accounted for 57% of the Company's total net sales. The loss of one or more of these customers could have a significant negative impact on the Company's financial statements. Three customers accounted for the Company’s total trade accounts receivable balance of $6,783 at December 31, 2012.
