THE EMINET DOMAIN, INC.
FINANCIAL STATEMENTS
For the Period from Inception (April 6, 1995) to December 31, 1995
and for the Year Ended December 31, 1996
THE EMINET DOMAIN, INC.
FINANCIAL STATEMENTS
For the Period from Inception (April 6, 1995) to December 31, 1995
and for the Year Ended December 31, 1996
CONTENTS
Page
Report of Certified Public Accountants.............................2
Financial Statements:
Balance Sheet....................................................3
Statements of Income and Retained Earnings.......................4
Statements of Cash Flows.........................................5
Notes to Financial Statements....................................6-9
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To the Shareholders
The Eminet Domain, Inc.
Boca Raton, Florida
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of The Eminet Domain, Inc. as of
December 31, 1996 and the related statements of income and retained earnings,
and cash flows for the period from inception (April 6, 1995) to December 31,
1995 and for the year ended December 31, 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide 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 The Eminet Domain, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
period from inception (April 6, 1995) to December 31, 1995 and for the year
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Millward & Co.
- ------------------------
Millward & Co. CPAs
Fort Lauderdale, Florida
August 7, 1997
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THE EMINET DOMAIN, INC.
BALANCE SHEET
December 31, 1996
ASSETS
CURRENT ASSETS:
Cash $ 14,964
Accounts Receivable 23,742
Prepaid Expenses 141
--------
Total Current Assets 38,847
--------
Property and Equipment, at Cost - Net of Accumulated
Depreciation and Amortization of $22,269 85,251
--------
OTHER ASSETS:
Other Assets 3,201
--------
Total Assets $127,299
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank Line of Credit $ 4,190
Accounts Payable and Accrued Expenses 8,339
Current Maturities of Notes Payable 6,000
Current Maturities of Capital Lease Obligations 8,731
--------
Total Current Liabilities 27,260
--------
LONG-TERM DEBT:
Note Payable, Net of Current Maturities 10,500
Capital Lease Obligations, Net of Current Maturities 8,712
--------
Total Long-Term Debt 19,212
--------
SHAREHOLDERS' EQUITY:
Common Stock - No Par Value, 1,000 Shares Authorized;
1,000 Shares Issued and Outstanding 21,506
Retained Earnings 59,321
--------
Total Shareholders' Equity 80,827
--------
Total Liabilities and Shareholders' Equity $127,299
========
The accompanying notes are an integral part of these financial statements.
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THE EMINET DOMAIN, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Period
For the Year from Inception
Ended (April 6, 1995)
December 31, to December 31,
1996 1995
----------- ------------
NET SALES $423,441 $117,143
COST OF SALES 160,133 53,822
----------- ------------
GROSS PROFIT 263,308 63,321
----------- ------------
OPERATING EXPENSES:
Selling 34,900 1,664
General and Administrative 45,058 10,071
Depreciation 17,656 4,613
----------- ------------
Total Operating Expenses 97,614 16,348
----------- ------------
INCOME FROM OPERATIONS 165,694 46,973
OTHER (EXPENSE):
Interest Expense (4,296) (796)
------------ -----------
NET INCOME 161,398 46,177
RETAINED EARNINGS - BEGINNING OF YEAR 30,177 -
DISTRIBUTION TO SHAREHOLDERS' (132,254) (16,000)
------------ -----------
RETAINED EARNINGS - END OF YEAR $ 59,321 $ 30,177
============ ===========
The accompanying notes are an integral part of these financial statements.
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THE EMINET DOMAIN, INC.
STATEMENTS OF CASH FLOWS
For the Period
For the Year from Inception
Ended (April 6, 1995)
December 31, to December 31,
1996 1995
------------ ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 161,398 $ 46,177
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 17,656 4,613
(Increase) Decrease in:
Accounts Receivable (10,313) (13,429)
Prepaid Expenses (141) -
Other Assets (2,278) (923)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 4,353 3,986
---------- ---------
Net Cash Provided by Operating Activities 170,675 40,424
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (44,151) (37,480)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Note Payable 22,190 -
Distributions to Shareholders (132,254) (16,000)
Principal Payments on Capital Lease Obligations (7,009) (1,437)
Principal Payments on Note Borrowings (1,500) -
Proceeds from Stock Issuance - 21,506
---------- --------
Net Cash (Used in) Provided by Financing Activities (118,573) 4,069
---------- --------
Net Increase in Cash 7,951 7,013
Cash - Beginning of Year 7,013 -
---------- ---------
Cash - End of Year $ 14,964 $ 7,013
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 4,296 $ 796
========== =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of Equipment Under Capital Lease $ 10,125 $ 15,706
========== =========
The accompanying notes are an integral part of these financial statements.
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THE EMINET DOMAIN, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The Eminet Domain, Inc. (the "Company") was incorporated on April
6, 1995 in the State of Florida. The Company is an internet access service
provider to individuals and businesses. It also acts as a host and developer of
individual and corporate web pages.
CASH AND CASH EQUIVALENTS - For purposes of the balance sheet and statements of
cash flows, the Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. As of December 31,
1996, the Company did not have any cash equivalents.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK - Financial instruments
which potentially subject the Company to concentrations of credit risk are
primarily cash and accounts receivable.
The Company maintains its cash balances at one major financial institution.
Accounts at this institution are insured by the Federal Deposit Insurance
Corporation up to $100,000.
With respect to accounts receivable, the Company extends credit to its customers
in the normal course of business and performs ongoing credit evaluations of the
customers, maintaining allowances for potential credit losses which, when
realized, have been within management's expectations.
The Company has not experienced any losses in such accounts. The Company
believes it is not exposed to any significant credit risk on cash and accounts
receivable.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation and amortization is computed on the straight-line method over the
estimated useful lives of the assets. When property and equipment is retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any resulting gain or loss on disposition is
reflected in operations. Repairs and maintenance are expensed as incurred;
expenditures for additions, improvements and replacements are capitalized.
INCOME TAXES - The Company, with the consent of both of its shareholders, has
elected to be taxed under the provisions of Subchapter S of the Internal Revenue
Code. Under those provisions, the Company does not provide for or pay federal
and state corporate income taxes on its taxable income. Instead, the
shareholders are liable for individual Federal income taxes on their share of
the Company's taxable income. Effective March 26, 1997, the Company, as a result
of the transaction referred to in Note 8, terminated its Subchapter S status and
shall be taxed as a taxable corporate entity.
USE OF ESTIMATES - The preparation of financial statements in conformity with
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
reporting period. Actual results could differ from those estimates.
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THE EMINET DOMAIN, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
Computer Equipment $107,520
Less: Accumulated Depreciation (22,269)
---------
$ 85,251
==========
Depreciation expense for the periods ended December 31, 1996 and 1995 amount to
$17,656 and $4,613, respectively.
NOTE 3 - CAPITAL LEASE OBLIGATIONS
The Company leases certain computer equipment under agreements which are
classified as capital leases. Cost and accumulated depreciation of such assets,
included in property and equipment, totaled $25,831 and $4,319, respectively, as
of December 31, 1996.
As of December 31, 1996, approximate future minimum lease payments under the
capital leases are as follows:
1997 $ 10,709
1998 8,377
1999 1,079
--------
Total future minimum lease payments 20,165
Less: amount representing interest 2,722
--------
Present value of future minimum lease payments 17,443
Less: current portion 8,731
--------
Long-term portion $ 8,712
========
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THE EMINET DOMAIN, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE 4 - COMMITMENTS
LEASES: The Company is party to various non-cancelable operating leases
pertaining to the computer equipment. The lease terms expire at various dates
through October 1998. The minimum lease payments may be subject to increases
because of the consumer price index and/or production levels.
The minimum lease commitment for non-cancelable operating leases is summarized
as follows:
Year Ending December 31,
1997 $ 9,282
1998 8,627
-------
$17,909
========
NOTE 5 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash, trade accounts receivable, other receivables, accounts payable: The
carrying amounts approximate fair value because of the short maturity of those
instruments.
Notes payable and long-term debt: The carrying amounts approximate fair value
due to the length of the maturities and the interest rates not being
significantly different from the current market rates available to the Company.
The estimated fair values of the Company's financial instruments as of December
31, 1996 are as follows:
NOTE 6 - LINE OF CREDIT - BANK
The Company has a credit facility with a bank consisting of a revolving line of
credit under which the Company can borrow up to a maximum of $25,000. The
Company has borrowings of $4,190 under the line of credit outstanding at
December 31, 1996. The revolving line of credit bears interest at 2.25% above
the prime rate (10.50% at December 31, 1996) and is payable on demand. The line
of credit is guaranteed by the Company's shareholders. At December 31, 1996, the
Company had $20,810 available under the line of credit.
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THE EMINET DOMAIN, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE 7 - NOTE PAYABLE
The Company has a note payable to a bank. The note with a principal balance of
$16,500 at December 31, 1996 requires monthly payments of principal amounting to
$500 plus interest payable monthly at prime plus 2.8% per annum (11.05% at
December 31, 1996).
As of December 31, 1997, future maturities of note principal are as follows:
1997 $ 6,000
1998 6,000
1999 4,500
-------
$16,500
=======
NOTE 8 - SUBSEQUENT EVENT
BUSINESS ACQUISITION
On January 31, 1997, a public company entered into an agreement to purchase all
of the shares of the Company. This transaction was consummated on March 26,
1997.
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