1
STEPHEN P. HIGGINS, C.P.A.
67 DUMBARTON DRIVE
HUNTINGTON, NEW YORK 11743
GOLDONLINE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND MARCH 31, 1999 AND 1998
2
GOLDONLINE INTERNATIONAL, INC.
Index to Consolidated Financial Statements
Page
No.
Index 2
Auditors Report 3
Consolidated Balance Sheet 4
Consolidated Statements of Operations 5
Consolidated Statement of Stockholders' Equity 6
Consolidated Statements of Cash Flows 7-8
Notes to Consolidated Financial Statements 9-13
2
3
STEPHEN P. HIGGINS, C.P.A.
67 DUMBARTON DRIVE
HUNTINGTON, NEW YORK 11743
Board of Directors
Goldonline International, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Goldonline
International, Inc. and subsidiaries as of July 31, 1999 and the consolidated
statements of operations, stockholders' equity and cash flows for the four
months ended July 31, 1999 and the years ended March 31, 1999 and 1998. 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 Goldonline International, Inc.
and subsidiaries as of July 31, 1999 and the results of its operations and its
cash flows for the four months ended July 31, 1999 and the years ended March 31,
1999 and 1998 in conformity with generally accepted accounting principles.
December 14, 1999
Huntington, New York
3
4
GOLDONLINE INTERNATIONAL, INC. AND SUBSIDIARIES
BALANCE SHEET
JULY 31, 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 34,426
Accounts receivable, net of allowance of $0 30,999
Inventory 413,208
Prepaid expenses and other assets 500
Deferred income taxes 31,648
--------
Total current assets 510,781
Property and equipment, net 154,597
Deposits 6,141
Goodwill, less accumulated amortization of $1,112 99,008
--------
$770,527
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term debt and notes payable $202,146
Accounts payable 86,901
Bank overdraft 52,555
Accrued expenses 10,568
Income taxes payable 5,384
Due to shareholder 8,012
--------
Total current liabilities 365,566
Long-term debt less current installments 76,674
Deferred income tax liability 10,004
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value. Authorized 200,000,000 shares; issued and 8,700
outstanding 86,996,408
Paid-in capital 217,420
Retained earnings 92,163
--------
Total stockholders' equity 318,283
--------
$770,527
========
See accompanying notes to consolidated financial statements.
4
5
GOLDONLINE INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOUR MONTHS ENDED JULY 31, 1999 AND 1998 AND YEARS ENDED MARCH 31, 1999 AND 1998
FOUR MONTHS ENDED YEARS ENDED
JULY 31, MARCH 31,
1999 1998 1999 1998
(UNAUDITED)
SALES AND REVENUES $ 462,915 $ 440,116 $ 1,509,028 $ 1,411,585
COST OF SALES 229,340 221,257 814,835 876,384
------------ ------------ ------------ ------------
GROSS PROFIT 233,575 218,859 694,193 535,201
OTHER EXPENSE (INCOME)
Selling, general and administrative expense 257,656 204,889 659,063 483,044
Interest expense 7,426 4,545 17,542 16,963
Other income (25) (12) (165) (7,656)
------------ ------------ ------------ ------------
265,057 209,422 676,440 492,351
------------ ------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES (31,482) 9,437 17,753 42,850
INCOME TAX EXPENSE (BENEFIT) (10,501) 744 (68) 3,196
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) (20,981) 8,693 17,821 39,654
============ ============ ============ ============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.000) $ 0.000 $ 0.000 $ 0.001
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 80,014,892 75,000,000 75,000,000 75,000,000
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
5
6
GOLDONLINE INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
APRIL 1, 1997 THROUGH JULY 31, 1999
Common Stock Paid-in Retained
Shares Par Value Capital Earnings Total
BALANCE, April 1, 1997 500 $ 1,000 $ -- $ 55,669 $ 56,669
Net earnings 39,654 39,654
----------- ----------- ----------- ----------- -----------
Balance March 31, 1998 500 1,000 -- 95,323 96,323
Net earnings 8,693 8,693
----------- ----------- ----------- ----------- -----------
Balance July 31, 1998 (unaudited) 500 1,000 -- 104,016 105,016
Net earnings 9,128 9,128
----------- ----------- ----------- ----------- -----------
Balance March 31, 1999 500 1,000 -- 113,144 114,144
Recapitalization 74,999,500 6,500 (6,500) -- --
----------- ----------- ----------- ----------- -----------
75,000,000 7,500 (6,500) 113,144 114,144
Acquire Goldonline International, Inc 1,196,408 120 120
Acquire Gold Online.com, Inc. 10,000,000 1,000 24,000 25,000
Common stock sold for cash 800,000 80 199,920 200,000
Net loss (20,981) (20,981)
=========== =========== =========== =========== ===========
BALANCE, July 31, 1999 86,996,408 $ 8,700 $ 217,420 $ 92,163 $ 318,283
=========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
6
7
GOLDONLINE INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOUR MONTHS ENDED JULY 31, 1999 AND 1998 AND YEARS ENDED MARCH 31, 1999 AND 1998
FOUR MONTHS ENDED YEARS ENDED
JULY 31, MARCH 31,
1999 1998 1999 1998
(UNAUDITED)
Cash flows used in operating activities
Net earnings (loss) $ (20,981) $ 8,693 17,821 39,654
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 11,523 6,435 22,681 14,106
Deferred income taxes (10,501) 1,202 (5,452) (10,043)
Accounts receivable (12,091) (115) (4,422) (14,486)
Inventory (125,401) (2,306) (11,898) (106,731)
Other assets -- -- (3,691) (1,800)
Accounts payable 43,482 (63,563) (17,472) 62,285
Accrued expenses 5,944 (5,110) (10,525) 2,126
--------- --------- --------- ---------
Net cash used in operating activities (108,025) (54,764) (12,958) (14,889)
--------- --------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures (6,035) (4,076) (15,595) (23,673)
Proceeds from sale of equipment -- -- -- 11,988
--------- --------- --------- ---------
Net cash used in investing activities (6,035) (4,076) (15,595) (11,685)
--------- --------- --------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Proceeds from sale of common stock 200,000 -- -- --
Loan proceeds 50,000 57,567 98,000 132,880
Repayment of long-term debt and notes payable (106,721) (23,657) (60,350) (103,235)
Loans from (repayment) of amounts due shareholder (4,279) 19,433 (6,776) --
--------- --------- --------- ---------
Net cash provided by financing activities 139,000 53,343 30,874 29,645
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 24,940 (5,497) 2,321 3,071
CASH AND CASH EQUIVALENTS, beginning of period 9,486 7,165 7,165 4,094
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 34,426 $ 1,668 $ 9,486 $ 7,165
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
Continued
7
8
GOLDONLINE INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
FOUR MONTHS ENDED JULY 31, 1999 AND 1998 AND YEARS ENDED MARCH 31, 1999 AND 1998
FOUR MONTHS ENDED YEARS ENDED
JULY 31, MARCH 31,
1999 1998 1999 1998
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes are as follows:
Interest $ 7,426 $ 4,545 $ 17,542 $ 16,963
Income taxes $ -- $ 13,640 $ 13,640 $ --
Noncash investing and financing activities are as follows:
Acquisition of equipment in exchange for long-term debt $ 19,983 $ -- $ 42,145 $ 22,985
Common stock issued to acquire Gold Online.com, Inc. $ 25,000
Common stock issued to acquire Goldonline International, Inc. $ 120
Note payable assumed to acquire Goldonline International, Inc. $100,000
See accompanying notes to consolidated financial statements.
8
9
GOLDONLINE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Goldonline International, Inc. (formerly Transun International
Airways, Inc.) ("GOII") and its wholly owned subsidiaries
Con-Tex Silver Imports, Inc. ("Con-Tex") and Gold Online.com,
Inc. ("GO.com") (collectively referred to as the "Company").
All material intercompany accounts and transactions have been
eliminated.
(b) ORGANIZATION
GOII was incorporated May 22, 1996 in Delaware and until June
1999 was a development stage company with plans to establish
itself as an air transport company providing non-scheduled air
service (charter flights) for tour operators, charter brokers,
cruise line casinos, theme parks and theme attractions.
Con-Tex was incorporated September 12, 1994 in Texas. GO.com
was incorporated on February 3, 1999 in Delaware.
On June 10, 1999, GOII acquired all of the issued and
outstanding common stock of Con-Tex and GO.com. For accounting
purposes, the acquisitions have been treated as the
acquisition of Con-Tex and GO.com by GOII with Con-Tex as the
acquiror (reverse acquisition). The historical financial
statements prior to June 10, 1999 are those of Con-Tex.
(c) NATURE OF BUSINESS
GOII is now a holding company principally engaged in acquiring
and developing businesses. Con-Tex is a company involved in
both the wholesale and retail jewelry business. GO.com is
establishing an Internet jewelry business.
(d) CASH EQUIVALENTS
The Company considers all liquid investments with original
maturities of three months or less to be cash equivalents. At
July 31, 1999, cash equivalents consist of money market
accounts and business checking accounts.
(e) INVENTORIES
Inventories consist primarily of silver jewelry and are
carried at the lower of average cost or market.
(f) MACHINERY AND EQUIPMENT
Owned machinery and equipment are stated at cost and
depreciated using the straight-line method over the estimated
useful lives of the respective assets.
(g) GOODWILL
Costs in excess of the fair value of net assets acquired are
amortized over a fifteen-year period on a straight-line basis.
The carrying value of goodwill is reviewed if the facts and
circumstances suggest that it may be impaired. If this review
indicates that goodwill will not be recoverable, the Company's
carrying value of the goodwill would be reduced.
9
10
(h) INCOME TAXES
Deferred income taxes are recognized for income and expense
items that are reported for financial purposes in different
years than for income tax purposes.
(i) REVENUE AND COST RECOGNITION
Sales revenues are recognized when the product is shipped.
Cost of sales, which is recognized simultaneously with the
recognition of sales, is comprised of the cost of materials
and indirect costs incurred during the manufacturing process.
(j) NET EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share amounts are computed using the
weighted average number of shares outstanding during the
period. Fully diluted earnings (loss) per share is presented
if the assumed conversion of common stock equivalents results
in material dilution.
(k) USE OF ESTIMATES
The process of preparing consolidated financial statements in
conformity with generally accepted accounting principles
requires the use of estimates and assumptions regarding
certain types of assets, liabilities, revenues and expenses.
Such estimates primarily relate to unsettled transactions and
events as of the date of the consolidated financial
statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
(l) FAIR VALUE DETERMINATION
Financial instruments consist of cash, accounts receivable,
accounts payable, accrued liabilities, notes payable and
long-term debt. The carrying amount of these financial
instruments approximates fair value due to their short-term
nature or the current rates which the Company could borrow
funds with similar remaining maturities.
2. ACQUISITION
On June 10, 1999, GOII issued 75,000,000 of its common shares to
acquire all of the common shares of Con-Tex. Con-Tex is both a
wholesale and retail marketer of jewelry, primarily silver. For
accounting purposes, the acquisition has been treated as the
acquisition of Con-Tex by GOII with Con-Tex as the acquiror (reverse
acquisition). Simultaneously, GOII issued 10,000,000 of its common
shares to acquire all of the common shares of GO.com. GO.com is a new
Internet Company and it has the domain name Gold Online.com. A value of
$25,000 was recorded for this acquisition. Pro forma information has
not been presented as GOII had no prior continuing operations and
GO.com had only recently commenced operations.
3. RELATED PARTY TRANSACTIONS
Con-Tex leases its corporate headquarters from the principal
shareholder of the Company at the rate of $2,200 per month. This
amounted to $8,800 during the four month period ended July 31, 1999,
amounted to $8,800 during the four month period ended July 31, 1998
(unaudited) and amounted to $26,400 during each of the years ended
March 31, 1999 and 1998.
The Company had received loans from its principal shareholder. The
balance owed was $8,012 at July 31, 1999, $12,291 at March 31, 1999,
$24,947 at July 31, 1998 (unaudited) and $5,515 at March 31, 1998.
10
11
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at July 31, 1999:
Equipment and store furnishings $ 46,322
Transportation equipment 133,663
Web site 26,000
Leasehold improvements 1,035
---------
207,020
Less accumulated depreciation (52,423)
---------
$ 154,597
=========
5. LONG-TERM DEBT AND NOTES PAYABLE
Notes payable consists of the following:
Note payable to bank with interest at 10% payable on $136,400
demand or January 1, 2000 if no demand is made; accrued
interest payable monthly; collateralized by all assets of
Con-Tex and guaranteed by the principal shareholder of the
Company
Note payable to the brother of the principal shareholder 50,000
of the Company due on July 23, 2000 with interest at 8%,
unsecured, convertible into common stock of the Company at
$.01 per share
Note payable to company in monthly installments of 13,913
$597.61, including interest at 10% through September 30, 2001;
collateralized by transportation equipment
Note payable to company in monthly installments of 19,377
$330.96, including interest at 9.8% through July 23, 2000 and
a final payment of $17,464.96 due on August 23, 2000;
collateralized by transportation equipment
Note payable to company in monthly installments of 39,147
$730.18, including interest at 10.46% through November 7, 2001
and a final payment of $27,603.18 due on December 7, 2001;
collateralized by transportation equipment
Note payable to company in monthly installments of $442.44,
including interest at 11.6% through July 21, 2004;
collateralized by transportation equipment 19,983
--------
278,820
Current installments of long-term debt and notes payable 202,146
--------
Long-term debt less current installments $ 76,674
========
11
12
The aggregate maturities of long-term debt for the periods ending July
31, 2004 are as follows: 2000 - $25,214, 2001 $38,451, 2002 - $36,783,
2003 - $5,309 and 2004 - $5,309.
6. INCOME TAXES
Income tax expense (benefit) for the four months ended July 31, 1999
and 1998 and the year ended March 31, 1999 and 1998 consists of:
CURRENT DEFERRED TOTAL
July 31, 1999 - Federal $ -- ($ 10,501) ($ 10,501)
======== ========== =========
July 31, 1998 - Federal $ 1,946 (1,202) 744
======== ========== =========
March 31, 1999 - Federal $ 5,384 (5,452) (68)
======== ========== =========
March 31, 1998 - Federal $ 13,239 (10,043) 3,196
======== ========== =========
Actual income tax expense (benefit) applicable to earnings (loss)
before income taxes is reconciled with the "normally expected" federal
income tax expense (benefit) as follows:
JULY 31, MARCH 31,
1999 1998 1999 1998
"Normally expected" income tax
expense (benefit) ($10,704) 3,209 6,036 14,569
Surtax exemption -- (2,465) (6,816) (11,485)
Non-deductible entertainment 203 -- 712 112
-------- -------- -------- --------
($10,501) 744 (68) 3,196
======== ======== ======== ========
The deferred income tax assets and liabilities at July 31, 1999 are
comprised of the following:
CURRENT NONCURRENT
Expenses deferred for tax purposes $ 25,243 -
Net operating loss carryforwards 6,405 -
--------- --------
31,648 -
Less valuation allowance ( -) -
--------- --------
Deferred income tax asset 31,648 -
Deferred income tax liability - asset basis - (10,004)
--------- --------
Net deferred income tax assets (liabilities) $ 31,648 ($10,004)
========= ========
7. CAPITAL STOCK
The Company sold 200,000 units (The "Units") at $1.00 per Unit. Each
Unit consisted of 4 shares of common stock, par value $.001, and 1
warrant. Each warrant entitled the holder to purchase eight shares of
the common stock of the Company at a purchase price of $.50 per share.
12
13
Under the terms of the initial offering, the warrants are scheduled to
expire on September 30, 1999. The exercise period for the warrants was
extended until February 29, 2000.
At July 31, 1999, warrants for the purchase of 1,600,000 shares of the
Company's common stock at $.50 per share had been issued and all were
outstanding.
8. COMMITMENTS
The Company operates three retail jewelry stores in addition to its
corporate headquarters, which also houses its wholesale jewelry
operations. Rental expense was $58,554 and $48,550 during the
four-month periods ended July 31, 1999 and 1998, respectively, and
$215,531 and $86,976 during the years ended March 31, 1999 and 1998,
respectively. Minimum rental commitments under all non-cancelable
leases with an initial term in excess of one year are payable as
follows: 2000 - $13,836, 2001 - $12,819, 2002 - $13,201, 2003 - $8,561.
The majority of the Company's leases are month-to-month.
9. SUBSEQUENT EVENT
On September 1, 1999, the Company established a stock option plan,
which reserved 10,000,000 shares of the Company's common stock for
issue to certain employees, directors and consultants. The Plan
provides that options may be granted for no less than fair market value
at the date of the option grant.
13