Audited Financial Statements of Impact Media, LLC as of December 31, 1998.
Impact Media, LLC
Orem, Utah
We have audited the accompanying balance sheet of Impact Media, LLC as of
December 31, 1998, and the related statements of operations and members' equity,
and cash flows 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 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 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 Impact Media, LLC as of
December 31, 1998 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Wisan, Smith, Racker & Prescott, LLP
Salt Lake City, Utah
August 18, 1999
IMPACT MEDIA, LLC
BALANCE SHEET
December 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 151,660
Inventory 12,500
----------
TOTAL CURRENT ASSETS $ 164,160
EQUIPMENT 33,945
PREPAID EXPENSES 2,390
----------
TOTAL ASSETS $ 200,495
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LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 23,890
Accrued expenses 4,290
Notes payable - related party 2,400
Notes payable - current portion 14,684
----------
TOTAL CURRENT LIABILITIES 45,264
NOTES PAYABLE 18,875
MEMBERS' EQUITY 136,356
----------
TOTAL LIABILITIES AND EQUITY $ 200,495
==========
THE ACCOMPANYING NOTES ARE AN INTEGARAL PART OF THE FINANCIAL STATEMENTS.
IMPACT MEDIA, LLC
STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
Year ended December 31, 1998
REVENUE
Net sales $ 3,211,072
Cost of sales 2,615,227
-----------
GROSS PROFIT $ 595,845
OPERATING EXPENSES
Selling 17,450
General and administrative 451,172
Depreciation 3,935 472,557
----------- ----------
OPERATING INCOME 123,288
OTHER EXPENSE
Interest expense 3,650
----------
Income before income taxes 119,638
Income taxes -
----------
NET INCOME 119,638
MEMBERS' EQUITY
Balance - beginning of year -
Contributions 16,718
----------
Balance - end of year $ 136,356
==========
THE ACCOMPANYING NOTES ARE AN INTEGARAL PART OF THE FINANCIAL STATEMENTS.
IMPACT MEDIA, LLC
STATEMENT OF CASH FLOWS
Year ended December 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 119,638
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation 3,935
Changes in operating assets and liabilities:
Increase in inventory (12,500)
Increase in other assets (2,390)
Increase in trade accounts payable 23,890
Increase in accrued expenses 4,290
------------
Net cash flows from operating activities $ 136,863
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (17,751)
------------
Net cash used by investing activities (17,751)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash from notes payable 41,430
Principal payments on notes payable (25,600)
Cash from contributions 16,718
------------
Net cash flows from financing activities 32,548
-----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 151,660
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR -
-----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 151,660
===========
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In 1998, $20,129 of equipment was purchased by assuming $20,129 of long-term
capital leases.
THE ACCOMPANYING NOTES ARE AN INTEGARAL PART OF THE FINANCIAL STATEMENTS.
IMPACT MEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
I. Business Activities
Impact Media, LLC (the Company) was organized on January 1, 1998
and is engaged in the design, manufacture and marketing of
multimedia brochure kits, shaped compact discs and similar
products and services intended to facilitate conducting business
over the Internet. The Company markets its products and services
throughout the United States.
Cash and Cash Equivalents
-------------------------
Cash equivalents are generally comprised of certain highly liquid
investments with maturities of less than three months.
Inventories
-----------
Inventories are reflected in the financial statements at their
aggregate lower of cost (first-in, first-out) or market.
Inventory consists mainly of finished goods.
II. Property and Equipment
Depreciation expense in computed principally on the straight-line
method in amounts sufficient to write off the cost of depreciable
assets over their estimated useful lives.
Normal maintenance and repair items are charged to costs and
expenses as incurred. The cost and accumulated depreciation of
property and equipment sold or otherwise retired are removed from
the accounts and gain or loss on disposition is reflected in net
income in the period of disposition.
III. 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.
IV. Revenue Recognition
Revenue is recognized when services are provided to customers.
V. Income Taxes
The Company has filed an election with the Internal Revenue
Service to report taxable income as a partnership. Under such
election, federal and state income taxes on earnings of the
Company are the responsibility of the individual members.
VI. Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income," which establishes
new rules for the reporting and display of comprehensive income
and its components. Application of SFAS No. 130 had no impact on
the Company's net income or members' equity.
Advertising and Promotion
-------------------------
All costs associated with advertising and promoting the Company's
products and services are expensed in the period incurred.
Advertising expense amounted to $460 for the year ended December
31, 1998.
NOTE 2 - CASH AND CASH EQUIVALENTS
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. 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 cash
equivalents.
NOTE 4 - EQUIPMENT
Equipment as of December 31, 1998 is detailed in the following
summary:
Accumulated Net Book
Cost Depreciation Value
----------- ----------- -----------
Computer equipment $ 15,261 $ 2,025 $ 13,236
Furniture and fixtures 18,025 1,072 16,953
Computer software 4,594 838 3,756
----------- ----------- -----------
$ 37,880 $ 3,935 $ 33,945
=========== =========== ===========
Included in property and equipment are assets capitalized under
capital lease obligations at December 31, 1998 amounting to
$21,914 of which $17,860 is furniture and fixtures, $3,455 is
computer equipment and $599 is computer software. Accumulated
amortization for items capitalized under capital leases was
$2,250 at December 31, 1998. Amortization expense, which is
computed using the straight-line method over the term of each
lease, is included with depreciation expense.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
VII. Leases
The Company leases its office space under operating lease
agreements. Future aggregate minimum obligations under operating
leases as of December 31, 1998 are as follows:
Operating
Leases
Year ending December 31, -----------
1999 $ 18,600
2000 -
2001 -
2002 -
2003 -
------------
Total $ 18,600
============
Rental expenses under the operating lease agreements totaled
approximately $10,910 for the year ended December 31, 1998.
NOTE 5 - NOTES PAYABLE - RELATED PARTY
Notes payable - related party as of December 31, 1998 are
detailed in the following summary:
Note payable to relative of a member,
bearing interest at 20%, unsecured,
payable on demand $ 2,400
Less current portion (2,400)
------------
Long-term portion $ -
============
NOTE 6 - NOTES PAYABLE
Notes payable as of December 31, 1998 are detailed in the
following summary:
Note payable to a financial institution,
interest at 9.75%, payable in monthly payments
of $697 including principal and interest,
through December, 2000 $ 15,000
Obligations under capital leases, due in monthly
installments with imputed interest of 10% 18,559
-----------
33,559
Less current portion (14,684)
Long-term portion $ 18,875
===========
The following is a schedule by years of principal payments under
notes payable as of December 31, 1998:
1999 $ 14,684
2000 15,238
2001 3,637
-----------
$ 33,559
===========
The following is a schedule by years of future minimum lease
payments under capital leases together with the present value of
the net minimum payments as of December 31, 1998:
1999 $ 9,098
2000 9,098
2001 4,437
-----------
Total minimum lease payments 22,633
Amount representing interest (4,074)
-----------
Present value of net minimum lease
payments (including $7,461
classified as current) $ 18,559
===========
Interest paid during the year ended December 31, 1998 was $3,650.
NOTE 7 - YEAR 2000 ISSUE (UNAUDITED)
Like other companies, Impact Media, LLC, could be adversely
affected if the computer systems the Company, it's suppliers or
customers use do not properly process and calculate date-related
information and data from the period surrounding and including
January 1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and
devices such as production equipment, etc. At this time, because
of the complexities involved in the issue, management cannot
provide assurance that the Year 2000 issue will not have an
impact on the Company's operations.
NOTE 8 - SUBSEQUENT EVENTS
On June 25, 1999 Galaxy Enterprises, Inc. purchased the Company's
net assets by assuming all liabilities of the Company. The
agreement was effective May 31, 1999. The operations of the
Company on May 31, 1999 ceased and business activities related to
the Company were performed by Galaxy Enterprises, Inc. During
1998, the Company paid Galaxy Enterprises, Inc. $226,350 to
package and ship a portion of its products.