EXHIBIT 99.1
IMMEON NETWORKS, LLC
(A Development Stage Company)
BALANCE SHEET
DECEMBER 31, 2003
(UNAUDITED)
ASSETS
Current assets:
Cash $ 447,976
Accounts receivable 200,445
-----------
Total current assets $ 648,421
===========
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 6,729,819
Customer deposits 15,416
-----------
Total current liabilities 6,745,235
-----------
Members' deficit:
Initial capital contribution 2,000
Deficit accumulated during the development stage (6,098,814)
-----------
Total members' deficit (6,096,814)
-----------
$ 648,421
===========
See accompanying notes to unaudited financial statements.
IMMEON NETWORKS, LLC
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003 AND
FOR THE PERIOD FROM INCEPTION (JANUARY 8, 2001) TO DECEMBER 31, 2003
(UNAUDITED)
From
2003 Inception
----------- -----------
Revenue $ 350,289 $ 912,495
----------- -----------
Costs and expenses:
Cost of services rendered 603,295 3,769,360
Selling and other operating expenses 60,978 1,315,297
Administrative expenses 192,723 1,895,185
----------- -----------
856,996 6,979,842
----------- -----------
Net loss $ (506,707) $(6,067,347)
=========== ===========
See accompanying notes to unaudited financial statements.
IMMEON NETWORKS, LLC
(A Development Stage Company)
STATEMENT OF MEMBERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 2003 AND
FOR THE PERIOD FROM INCEPTION (JANUARY 8, 2001) TO DECEMBER 31, 2003
(UNAUDITED)
Deficit Accumulated
Initial Capital During the
Contribution Development Stage Total
--------------- ------------------- -----------
Balance at January 8, 2001 $ -- $ -- $ --
Initial capital contribution 2,000 -- 2,000
Net loss -- (5,592,107) (5,592,107)
----------- ----------- -----------
Balance at December 31, 2002 2,000 (5,592,107) (5,590,107)
Net loss -- (506,707) (506,707)
----------- ----------- -----------
Balance at December 31, 2003 $ 2,000 $(6,098,814) $(6,096,814)
=========== =========== ===========
See accompanying notes to unaudited financial statements.
IMMEON NETWORKS, LLC
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2003 AND
FOR THE PERIOD FROM INCEPTION (JANUARY 8, 2001) TO DECEMBER 31, 2003
(UNAUDITED)
From
2003 Inception
----------- -----------
Cash flows from operating activities:
Net loss $ (506,707) $(6,067,347)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Changes in assets and liabilities:
Accounts receivable (8,539) (200,445)
Accounts payable and accrued expenses 807,591 6,729,819
Customer deposits (84,692) 15,416
----------- -----------
Net cash provided by operating activities 207,653 477,443
----------- -----------
Cash flows from financing activities:
Initial capital contribution from members -- 2,000
----------- -----------
Net cash provided by financing activities -- 2,000
----------- -----------
Net increase in cash 207,653 479,443
Cash at beginning of year 271,790 --
----------- -----------
Cash at end of year $ 479,443 $ 479,443
=========== ===========
See accompanying notes to unaudited financial statements.
IMMEON NETWORKS, LLC
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2003
NOTE 1: NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
Immeon Networks, LLC (the "Company") was formed on January 8, 2001 as a limited
liability company pursuant to the provisions of the Delaware Limited Liability
Company Act (the "Act") to engage in the business of marketing, selling and
providing bandwidth-on-demand satellite communication services. The Company's
services are available throughout the United States and also in portions of
Canada and the Caribbean. The Company's corporate facilities, network operations
center and customer service center are located in Carlsbad, California.
FORMATION OF THE COMPANY
The terms of formation of the Company were specified by an operating agreement.
The Company has two members consisting of ViaSat, Inc. (ViaSat) and Loral
SpaceCom Corporation (Loral). The management committee is comprised of four
representatives, two representatives of ViaSat and two representatives of Loral
(individually, the managers; collectively, the management committee). The
general manager, who is responsible for managing the day-to-day operations of
the Company, is selected by ViaSat, subject to the approval of Loral. In July
2003, Loral filed for bankruptcy; therefore, its interest in the Company became
a nonvoting interest (See Note 4).
The operating agreement provides for an initial capital contribution and
additional capital contributions at the discretion of the management committee.
The initial capitalization of the Company consisted of cash totaling $2,000
($1,000 from ViaSat and $1,000 from Loral). Operating losses of the Company are
allocated to the members in accordance with each member's ownership interest in
the Company. Once the Company obtains profitability, contributions previously
provided by the members will be reimbursed based on the allocation of profits.
After all contributions have been fully reimbursed to the members, each member
is entitled to 50% of the net income of the Company, subject to certain
adjustments. Pursuant to the terms of a service agreement between the members
(see Note 3), services provided to the Company are considered additional capital
contributions for the purposes of determining the allocation of net losses.
Except as otherwise specifically provided for in the Act, the liability of the
members is generally limited to their initial capital contributions, additional
capital contributions (including contributions in the form of services) and
advances to and financial guarantees that form additional basis in the Company.
The Company will continue indefinitely unless dissolved by the Act; unanimous
consent of the members; withdrawal, expulsion or bankruptcy of the last
remaining member; sale of substantially all assets of the Company; or bankruptcy
of the Company.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 revenue and expenses during
the reporting period. Actual results could differ from those estimates.
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CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and highly liquid investments that are
readily convertible into cash and have a maturity of ninety days or less when
purchased. At times, cash and cash equivalent balances may exceed federally
insured amounts. The Company believes it mitigates any risk by depositing cash
and investing in cash equivalents with major financial institutions.
ACCOUNTS RECEIVABLE
In the normal course of business, the Company extends unsecured credit to its
customers. The Company performs ongoing credit evaluations of its customers.
Accounts receivable are generally due under normal trade terms requiring payment
within 30 days from the invoice date. Accounts receivable are stated at the
amount billed to the customer. Management individually reviews all accounts
receivable balances that exceed 90 days from invoice date and, based on an
assessment of current creditworthiness, past payment history and historical loss
experience, estimates the portion, if any, of the balance that will not be
collected. Management believes that all outstanding accounts receivable are
collectible and therefore has not established a valuation allowance.
There may be changes in future economic conditions that might give rise to
results that differ from past experience. Management will continue to assess
creditworthiness of customers and monitor whether a valuation allowance is
necessary.
REVENUE RECOGNITION
Revenue from services is recognized in the period in which the services are
provided.
Commissions are recognized as earned (see Note 3).
Deferred revenue represents customer deposits for services to be provided or
commissions to be earned and will be recognized as revenue in the period in
which the services are provided or the commissions are earned.
INCOME TAXES
As a limited liability company, the Company is treated as a partnership for
federal and state income tax purposes. Accordingly, no provision or benefit for
federal and state income taxes has been recorded in the accompanying financial
statements since all income, losses and tax credits from the Company's
operations are reported on the members' income tax returns.
NOTE 2: FACTORS AFFECTING OPERATIONS
The Company is in the development stage as it is in the process of marketing its
services. The Company has incurred accumulated losses since inception of
approximately $6 million as a development stage company. Continued losses are
expected until the Company completes the marketing stage of its initial services
and is able to obtain and maintain a customer base generating sufficient revenue
to generate a profit.
The continuation of the Company's business as a going concern is contingent
upon, among other things, the ability to achieve and maintain satisfactory
levels of future profitable operations; obtain and maintain satisfactory levels
of debt and/or equity financing; and provide sufficient cash from operations to
meet current and future obligations. Although there are no assurances,
management believes the Company will be able to achieve the objectives and
continue as a going concern at least through the end of the service agreement.
The accompanying financial statements do not include any adjustments that may
result from the outcome of these uncertainties.
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NOTE 3: RELATED PARTY TRANSACTIONS
Due to the relationships between the parties involved, these transactions may
not have been consummated on terms which would have been achieved with unrelated
third parties.
The amount due to ViaSat at December 31, 2003 totaled approximately $5.8 million
and the amount due to Loral at December 31, 2003 totaled approximately $930,000.
These amounts are included in accounts payable and accrued expenses in the
accompanying balance sheet.
SERVICE AGREEMENT
The Company entered into a service agreement with Loral and ViaSat. Under the
terms of the agreement, Loral provides satellite capacity, and related services,
to the Company and ViaSat provides communications equipment and hardware (ground
equipment) to be used with the satellites provided by Loral. ViaSat has also
agreed to operate a network operations center, manage sales and marketing and
provide other services, such as general and administrative, engineering and
technical assistance and research and development.
The Company's total cost for these services from ViaSat was approximately
$500,000 in 2003 and approximately $5.9 million from inception. The total cost
for satellite capacity from Loral was approximately $320,000 in 2003 and
approximately $1.1 million from inception. These charges from ViaSat and Loral
are referred to in the service agreement as eligible expenses.
FIn the event the Company has not generated sufficient cash to pay ViaSat and
Loral for their respective eligible expenses, the Company will prorate any
payment to ViaSat and Loral as a ratio of their respective cumulative unpaid
eligible expenses to total cumulative unpaid eligible expenses. During 2003 and
since inception, the Company did not have sufficient cash to pay any eligible
expenses.
DISTRIBUTOR AGREEMENT
The Company has entered into a distributor agreement with ViaSat pursuant to
which the Company is entitled to receive a commission from ViaSat for equipment
ViaSat sells to the Company's customers. Such commissions were not significant
during 2003 and totaled $54,084 since inception and are included in revenue and
expenses in the accompanying statement of operations from inception.
REFERRAL INCENTIVE PROGRAM
The Company has entered into a referral incentive program with ViaSat and Loral
pursuant to which ViaSat and Loral are entitled to receive a commission from the
Company for customer referrals. During 2003 and since inception, such
commissions were not significant.
SATELLITE SERVICES AGREEMENT
In November 2001, the Company and ViaSat entered into a five year agreement with
PanAmSat Corporation (PanAmSat) for the Company to offer bandwidth-on-demand
services to customers utilizing PanAmSat's satellite network.
NOTE 4: SUBSEQUENT EVENT
In January 2004, pursuant to the bankruptcy proceedings for Loral (see Note 1),
the bankruptcy court rejected the operating agreement (see Note 1) and the
service agreement (see Note 3). Accordingly, subsequent to January 2004, Loral
is no longer a member of the Company. ViaSat continues to operate the Company as
the sole member and ViaSat and Loral have executed a new agreement for Loral to
provide bandwidth to the Company at market rates.
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