ANDERSEN ANDERSEN & STRONG, L.C.
Certified Public Accountants and Business Consultants
Member SEC Practice Section of the AICPA
941 East 3300 South, Suite 202
Salt Lake City, Utah 84106
Telephone 801 486-0096
Fax 801 486-0098
Board of Directors
5TH Digit Technologies, LLC
Salt Lake City, Utah
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of 5TH Digit Technologies, LLC
(development stage company) at December 31, 2000, and the results of operations,
changes in members' equity, and cash flows for the period October 6, 2000 (date
of inception) to December 31, 2000. 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 also includes assessing the accounting principles used
and significant estimates made by management as well as evaluating the overall
balance sheet 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 5TH Digit Technologies, LLC
(development stage company) at December 31, 2000, and the results of operations,
changes in members' equity, and cash flows for the period October 6, 2000 (date
of inception) to December 31, 2000, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company does not have the working
capital to service its debt or for its planned activity, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 5 . These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Salt Lake City, Utah /s/ Andersen Andersen & Strong
January 29, 2001
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5TH DIGIT TECHNOLOGIES, LLC
(Development Stage Company)
BALANCE SHEET
December 31, 2000
- ------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 79
Account receivable - related party 1,354
---------
Total Current Assets 1,433
---------
EQUIPMENT - net of accumulated depreciation - Note 2 6,132
---------
OTHER ASSETS
Patents pending - net of amortization - Note 3 2,941
---------
$ 10,506
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Note payable and accrued interest - related party - Note 4 $ 100,280
Accounts payable - related party 8,204
---------
Total Current Liabilities 108,484
---------
MEMBERS' EQUITY - MANAGING MEMBER (deficiency) (97,978)
---------
$ 10,506
The accompanying notes are an integral part of these financial statements.
2
5TH DIGIT TECHNOLOGIES, LLC
(Development Stage Company)
STATEMENT OF OPERATIONS
For the Period October 6, 2000 (date of inception)
to December 31, 2000
- -------------------------------------------------------------------------------------------------------------
REVENUES $ -
---------
EXPENSES
Research and development 30,076
Administrative 70,563
Amortization - patent 6
Interest expense 280
---------
100,925
NET LOSS $(100,925)
=========
The accompanying notes are an integral part of these financial statements.
3
5TH DIGIT TECHNOLOGIES, LLC
(Development Stage Company)
STATEMENT OF CHANGES IN MEMBERS' EQUITY
For the Period October 6, 2000 (Date of Inception)
to December 31, 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Net Operating
Contributed Profit (Loss) Total
----------- ------------- -----
Balance October 6, 2000 (date of inception) $ - $ - $ -
Assets contributed by member's 2,947 - 2,947
Net operating loss for the period October 6, 2000
to December 31, 2000 - (100,925) (100,925)
-------- ---------- ----------
Balance December 31, 2000 $ 2,947 $ (100,925) $ (97,978)
======== ========== ==========
The accompanying notes are an integral part of these financial statements.
4
5TH DIGIT TECHNOLOGIES, LLC
(Development Stage Company)
STATEMENT OF CASH FLOWS
For the Period October 6, 2000 (Date of Inception)
to December 31, 2000
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (100,925)
Adjustments to reconcile net loss to
net cash provided by operating activities
Change in account receivable (1,354)
Change in accounts payable 8,204
Changes in interest payable 280
Amortization 6
Net Decrease in Cash From Operations (93,789)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of office equipment (6,132)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable 100,000
----------
Net Increase in Cash 79
Cash at Beginning of Period -
----------
Cash at End of Period $ 79
==========
The accompanying notes are an integral part of these financial statements.
5
5TH DIGIT TECHNOLOGIES, LLC
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Company was organized under the laws of the State of New York on October 6,
2000 as a limited liability company and has elected to be taxed as a corporation
with a year ending of December 31, 2000.
On December 27, 2000 the original members of the Company sold and transferred
their member interests in the Company to Videolocity International Inc., a
corporation organized in the state of Nevada on May 26, 2000.
The Company was organized for the purpose of developing and marketing systems,
products, and solutions for the delivery of video and other content to end users
on demand.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Methods
The Company recognizes income and expenses based on the accrual method of
accounting.
Equipment
The equipment consists of office equipment and is depreciated over five years.
Income Taxes
On December 31, 2000 the Company had a net operating loss carryforward of
$100,925. The tax benefit from the loss carry forward has been fully offset by a
valuation reserve because the use of the future tax benefit is doubtful since
the Company has no operations and there has been a substantial change in the
members.
The loss carryforward will expire in 2021.
Amortization of Patent Costs
The patent costs are being amortized over their lives of seventeen years from
the date of application.
Financial Instruments
The carrying amounts of financial instruments, including cash, and accounts
payable, are considered by management to be their estimated fair values.
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5TH DIGIT TECHNOLOGIES, LLC
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of the assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing these financial statements.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130. The
adoption of this standard had no impact on the total members' equity.
Other Recent Accounting Pronouncements
The Company does not expect that the adoption of other recent accounting
pronouncements will have a material impact on its financial statements.
3. PATENTS PENDING
The Company has three patent applications pending numbered 60/226,66575,
60/218,528, 60/233,447 and described as follows.
The "Set Top Box" is a network appliance based on open hardware and software
methodologies, allowing for rapid development and deployment for different
markets.
The "Webcaster" is a ruggedized computer capable of reliably transmitting
multiple streams of internet video, whether in a studio application, or in
demanding environments.
The "Enhanced Video Compression Method" describes a method of filtering a
digitized video, much like a dedicated Time Base Corrector used on a broadcast
signal for analog video.
4. NOTE PAYABLE - RELATED PARTY
The note payable is a demand, 9% interest bearing note due Videolocity
International Inc., the sole member of the Company.
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5TH DIGIT TECHNOLOGIES, LLC
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
5. GOING CONCERN
The Company will need additional working capital to service its debt and to be
successful in its planned activity and therefore continuation of the Company as
a going concern is dependent upon obtaining additional working capital and the
management of the Company has developed a strategy, which they believe will
accomplish this objective through additional equity funding, and long term
financing, which will enable the Company to operate for the coming year.
6. RELATED PARTY TRANSACTIONS
All the of the business conducted by the Company have been between related
parties
7. CONTINUING AND CONTINGENT LIABILITIES
On December 20, 2000 the Company completed an employment agreement starting
January 5, 2001 and continuing for one year which provides for annual salaries
of $223,000 for three related parties.
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