SOUTHERN DRAGON, INC.
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS' REPORT
YEAR ENDED DECEMBER 31, 2001
SOUTHERN DRAGON, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2001
TABLE OF CONTENTS
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PAGE
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INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Balance Sheet 2
Statement of Operations 3
Statement of Cash Flows 4
Statement of Changes In Stockholders' Deficit 5
Notes to Financial Statements 6-7
INDEPENDENT AUDITORS' REPORT
Board of Directors
Southern Dragon, Inc.
Lauderhill, Florida
We have audited the accompanying balance sheet of Southern Dragon, Inc. as of
December 31, 2001, and the related statements of operations, cash flows and
changes in stockholders' deficit, for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southern Dragon, Inc. as of
December 31, 2001, and the results of its operations and cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.
SHELDON, RIBOTSKY & LEVINE, P.A.
Certified Public Accountants
February 14, 2003
North Miami, Florida
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SOUTHERN DRAGON, INC.
BALANCE SHEET
DECEMBER 31, 2001
A S S E T S
CURRENT ASSETS $ --
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Total current assets $ --
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accrued interest payable $ 5,292
Note payable 31,000
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Total current liabilities 36,292
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value; 40,000,000 shares authorized;
6,992,000 shares issued and outstanding 6,992
Accumulated deficit (43,284)
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TOTAL ACCUMULATED DEFICIT (36,292)
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Total Liabilities and Stockholders' deficit $ --
========
The accompanying notes are an integral part of these financial statements
2
SOUTHERN DRAGON, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
REVENUE $ --
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EXPENSES:
Professional fees 1,150
Interest 3,100
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4,250
LOSS BEFORE INCOME TAXES (4,250)
PROVISION FOR INCOME TAXES --
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NET LOSS $(4,250)
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The accompanying notes are an integral part of these financial statements
3
SOUTHERN DRAGON, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
OPERATING ACTIVITIES:
Net loss $(4,250)
Adjustments to reconcile net loss to net
cash used by operating activities:
Interest payable 3,100
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Net cash (used) by operating activities (1,150)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common shares 1,150
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Net cash provided by financing activities 1,150
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NET INCREASE (DECREASE) IN CASH --
CASH - BEGINNING OF YEAR --
-------
CASH - END OF YEAR $ --
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
ISSUANCE OF COMMON STOCK FOR SERVICES $ 1,150
=======
The accompanying notes are an integral part of these financial statements
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5
SOUTHERN DRAGON, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 2001
Total
Common Stock Accumulated Stockholders'
Shares Amount Deficit Deficit
------------------------ --------- -------------
Balance - January 1, 2001 5,842,000 $ 5,842 $ (39,034) $ (33,192)
Common shares issued in
exchange for services 1,150,000 1,150 -- 1,150
Net loss for the year ended
December 31, 2001 -- -- (4,250) (4,250)
--------- --------- --------- ---------
Balance - December 31, 2001 6,992,000 $ 6,992 $ (43,284) $ (36,292)
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
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SOUTHERN DRAGON, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Southern Dragon, Inc. ("the Company"), a Florida
corporation, was organized on August 3, 1998. The Company originally
commenced operation in the retail food industry, however, by June 30,
1999, those activities were completely abandoned. On December 30,
2001, the Company entered into a letter of intent with Connectivity,
Inc. whereby the Company would acquire Connectivity, Inc. in a
tax-free exchange of common shares. On May 30, 2002, a definitive
acquisition agreement was executed, the transaction was consummated
and Connectivity, Inc. became a wholly-owned subsidiary of the
Company.
INCOME TAXES - Income taxes are estimated for the tax effects of
transactions reported in the financial statements and consist of taxes
currently payable plus deferred taxes related primarily to any
differences between the financial reporting basis and income tax basis
of assets and liabilities. Deferred tax assets and liabilities
represent future tax consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes may also be recognized for
operating losses that are available to offset future realizable
taxable income. Deferred taxes may also be recognized for operating
losses that are available to offset future realizable taxable income.
Deferred taxes are adjusted for changes in tax laws and tax rates when
those changes are enacted. In assessing the reliability of deferred
tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in
which the temporary differences become deductible, up to a maximum
allowable period of time.
Management considers the reversal of any deferred tax liabilities,
projected future taxable income and tax planning strategies in making
this assessment. Valuation allowances are established, when necessary,
to reduce the deferred tax assets to the amount expected to be
realized.
ESTIMATES - The preparation of financial statements requires the use
of estimates by management. Such estimates are based on prior
operating history and industry standards and affect the reported
amounts of assets and liabilities, revenue and expenses, and the
disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
NOTE 2 -NOTE PAYABLE
The note payable dated April 23, 2000 is to the President of the
Company. It bears interest at 10% and is unsecured. On May 30, 2002
the note and accrued interest totaling $37,597 were converted into
1,250,000 of the Company's common stock.
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SOUTHERN DRAGON, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 3 -INCOME TAXES
Deferred income taxes are primarily the result of unused operating
loss carryforwards that may be applied against future taxable income
and the reporting of tax basis versus book value on certain assets and
liabilities as well as the accruing of certain expenses differently
for income tax purposes versus financial reporting purposes. The
Company has net operating loss carryforwards of approximately $43,284
that expire in 2014 and 2015, however, a valuation allowance for the
full amount of the net deferred tax assets created from the unused
operating loss carryforwards has been recorded since the Company is
unable to determine whether the net deferred tax assets will be
realized.
There were no income taxes payable or receivable from the current
period's operations. The Company's reported income tax benefit differs
from the amount computed by applying statutory tax rates to the net
income before income taxes because of the differences in amounts
reported for income tax purposes and financial reporting purposes. The
principal differences relate to items, or portions of items, not
deductible for financial reporting purposes, such as the application
of prior years operating loss carryforwards to current year income.
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