ENHANCED MANAGEMENT CORPORATION, INC.
(A Development Stage Company)
Index to Financial Statements
Page
Independent auditors' report................................................F-2
Balance sheet, December 7, 1999.............................................F-3
Statement of operations, from November 29, 1999 (inception)
through December 7, 1999...............................................F-4
Statement of shareholder's deficit, from November 29, 1999 (inception)
through December 7, 1999...............................................F-5
Statement of cash flows, from November 29, 1999 (inception)
through December 7, 1999...............................................F-6
Summary of significant accounting policies..................................F-7
Notes to financial statements...............................................F-10
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Enhanced Management Corporation
We have audited the balance sheet of Enhanced Management Corporation (a
development stage company) as of December 7, 1999 and the related statements of
operations, shareholder's deficit and cash flows from December 2, 1999
(inception) through December 7, 1999. 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 Enhanced Management Corporation
as of
December 7, 1999 and the results of its operations and its cash flows from
December 2, 1999 (inception) through December 7, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in the Summary of Significant
Accounting Policies, the Company has no revenues and has experienced a
significant operating loss for the period ended December 7, 1999, which raises a
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in the Summary of
Significant Accounting Policies. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Cordovano and Harvey, P.C.
- ------------------------------
Cordovano and Harvey, P.C.
Denver, Colorado
December 10, 1999
F-2
ENHANCED MANAGEMENT CORPORATION
(A Development Stage Company)
BALANCE SHEET
December 7, 1999
ASSETS
DEFERRED OFFERING COSTS ...................................................... $ 1,500
-------
TOTAL ASSETS $ 1,500
=======
LIABILITIES AND SHAREHOLDER'S DEFICIT
LIABILITIES
Accrued liabilities .................................................... $ 2,081
-------
TOTAL LIABILITIES 2,081
-------
SHAREHOLDER'S DEFICIT (Note B)
Preferred stock, $.001 par value; 20,000,000 shares authorized;
-0- shares issued and outstanding .................................... --
Common stock, $.001 par value; 100,000,000 shares authorized;
3,800,000 shares issued and outstanding .............................. 3,800
Deficit accumulated during development stage ........................... (4,381)
-------
TOTAL SHAREHOLDER'S DEFICIT (581)
-------
TOTAL LIABILITIES AND SHAREHOLDER'S DEFICIT $ 1,500
=======
See accompanying summary of significant accounting policies and
notes to the financial statements.
F-3
ENHANCED MANAGEMENT CORPORATION
(A Development Stage Company)
STATEMENT OF OPERATIONS
November 29, 1999 (inception) through December 7, 1999
OPERATING EXPENSES
Stock-based compensation (Note B) .......................... $ 3,800
Payroll taxes .............................................. 581
-----------
NET LOSS BEFORE INCOME TAXES (4,381)
INCOME TAXES (Note C) ........................................... --
-----------
NET LOSS $ (4,381)
===========
Basic loss per common share ..................................... $ *
===========
Basic weighted average common shares outstanding ................ 3,377,778
===========
* Less than $.01 per share
See accompanying summary of significant accounting policies and
notes to the financial statements.
F-4
ENHANCED MANAGEMENT CORPORATION
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S DEFICIT
November 29, 1999 (inception) through December 7, 1999
Deficit
Accumulated
During the
Preferred stock Common Stock Development
Shares Par Value Shares Par Value Stage Total
------ --------- ------ --------- ----- -----
November 30, 1999, shares issued to officer for
services related to organizing the Company,
valued at the fair value of the services
($.001/share) (Note B)................................ -- $ -- 3,800,000 $ 3,800 $ -- $ 3,800
Net loss for the nine days ended
December 7, 1999...................................... -- -- -- -- (4,381) (4,381)
------ ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 7, 1999 -- $ -- 3,800,000 $ 3,800 $ (4,381) $ (581)
====== ========== ========== ========== ========== ==========
See accompanying summary of significant accounting policies and
notes to the financial statements.
F-5
RECIPES DIRECT, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
December 2, 1999 (inception) through December 7, 1999
OPERATING ACTIVITIES
Net loss ...................................................... $(4,381)
Transactions not requiring cash:
Common stock issued for services (Note B) .................. 3,800
Changes in operating liabilities:
Deferred offering costs .................................... (1,500)
Accrued liabilities ........................................ 2,081
-------
NET CASH (USED IN)
OPERATING ACTIVITIES --
-------
NET CHANGE IN CASH --
Cash, beginning of period .......................................... --
-------
CASH, END OF PERIOD $ --
=======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ...................................................... $ --
=======
Income taxes .................................................. $ --
=======
See accompanying summary of significant accounting policies
and notes to the financial statements.
F-6
ENHANCED MANAGEMENT CORPORATION
(A Development Stage Company)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development stage company
Enhanced Management Corporation (the "Company") is in the development stage in
accordance with Financial Accounting Standards Board Statements of Financial
Accounting Standards (SFAS) No. 7, "Accounting and Reporting by Development
Stage Enterprises".
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
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.
Cash equivalents
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Income taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and the tax
basis of assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
Earnings (loss) per share
The Company reports earnings (loss) per share using a dual presentation of basic
and diluted earnings per share. Basic earnings (loss) per share excludes the
impact of common stock equivalents. Diluted earnings (loss) per share utilizes
the average market price per share when applying the treasury stock method in
determining common stock equivalents. However, the Company has a simple capital
structure for the period presented and, therefore, there is no variance between
the basic and diluted earnings (loss) per share.
Year-end
The Company selected December 31 as its accounting and tax year-end.
F-7
ENHANCED MANAGEMENT CORPORATION
(A Development Stage Company)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Stock-based compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in October
1995. This accounting standard permits the use of either a "fair value based
method" or the "intrinsic value method" defined in Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) to account for
stock-based compensation arrangements.
Companies that elect to use the method provided in APB 25 are required to
disclose pro forma net income and pro forma earnings per share information that
would have resulted from the use of the fair value based method. The Company
adopted SFAS No. 123 during the period ended December 7, 1999; however, the
Company has elected to continue to determine the value of stock-based
compensation arrangements under the provisions of APB 25. No pro forma
disclosures have been included with the accompanying financial statements as
there was no pro forma effect to the Company's net loss or loss per share.
New accounting pronouncements
The Company has adopted the following new accounting pronouncements for the
period ended December 7, 1999. There was no effect on the financial statements
presented from the adoption of the new pronouncements. SFAS No. 130, "Reporting
Comprehensive Income," requires the reporting and display of total comprehensive
income and its components in a full set of general-purpose financial statements.
The Company did not have comprehensive income for the periods presented;
therefore, comprehensive income and net income are equal. SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," is based
on the "management" approach for reporting segments. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. SFAS No. 131 also requires disclosure about the Company's
products, the geographic areas in which it earns revenue and holds long-lived
assets, and its major customers. SFAS 131 is not applicable, as the Company had
no revenue-producing operations for the periods presented. SFAS No. 132,
"Employers' Disclosures about Pensions and Other Post-retirement Benefits,"
which requires additional disclosures about pension and other post-retirement
benefit plans, but does not change the measurement or recognition of those
plans. SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" requires an entity to recognize all derivatives on a balance sheet,
measured at fair value. The Company had no derivatives at October 31, 1999.
Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" requires that entities
capitalize certain internal-use software costs once certain criteria are met.
SOP 98-5, "Reporting on the Costs of Start-Up Activities" provides, among other
things, guidance on the reporting of start-up costs and organization costs. It
requires costs of start-up activities and organization costs to be expensed as
incurred. The Company will continue to review these new accounting
pronouncements over time to determine if any additional disclosures are
necessary based on evolving circumstances.
F-8
ENHANCED MANAGEMENT CORPORATION
(A Development Stage Company)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements, the Company is a development stage company with no revenue
as of December 7, 1999 and has incurred a loss of $4,381 for the period from
December 2, 1999 (inception) through December 7, 1999. This factor, among
others, may indicate that the Company will be unable to continue as a going
concern for reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations on a timely basis and ultimately to attain
profitability. The Company's management intends to file a Form SB-2 Registration
Statement under the Securities Act of 1933, as amended, during the first quarter
of 2000 to help fund the Company's operations as it expands. The Company plans
to offer a minimum of 400,000 and a maximum of 1,200,000 shares of its $.001 par
value common stock at a price of $.05 per share and raise $20,000 minimum to
$60,000 maximum on a "best efforts" basis. The Company plans to conduct the
offering through its executive officers and directors.
F-9
ENHANCED MANAGEMENT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE A: BACKGROUND
The Company was incorporated under the laws of California on December 2, 1999.
The principal activities since inception have been organizational matters and
the issuance of shares of its $.001 par value common stock. The Company was
formed to offer college-bound persons the ability to search and download college
and university applications online.
NOTE B: RELATED PARTY TRANSACTIONS
On December 3, 1999, the Board of Directors approved the issuance of 3,800,000
shares of the Company's $.001 par value restricted common stock to an
officer/director of the Company in exchange for incorporation fees and services
related to the organization of the Company. The transaction was recorded at the
fair value of the services rendered, which totaled $3,800. At the transaction
date, there was no market value in the Company's stock. This amount, $3,800, is
included in the accompanying financial statements as stock-based compensation
expense. The Company also recorded $581 in payroll tax expense related to the
stock-based compensation. These shares are "restricted securities" and may be
sold only in compliance with Rule 144 of the Securities Act of 1933, as amended.
An officer provided office space to the Company for the period presented. No
expense was recognized for the six days ended December 7, 1999.
NOTE C: INCOME TAXES
A reconciliation of the U.S. statutory federal income tax rate to the effective
rate is as follows:
December 7,
1999
----
U. S. Federal statutory graduated rate.. 15.00%
State income tax rate,
net of federal benefit .............. 7.51%
Net operating loss for which no tax
benefit is currently available ...... -22.51%
-------
0.00%
=======
At December 7, 1999, deferred taxes consisted of a net tax asset of $986, due to
operating loss carryforwards of $4,381, which was fully allowed for, in the
valuation allowance of $986. The valuation allowance offsets the net deferred
tax asset for which there is no assurance of recovery. The change in the
valuation allowance from December 2, 1999 (inception) through December 7, 1999
was $986. Net operating loss carryforwards will expire in 2019.
F-10
ENHANCED MANAGEMENT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE C: INCOME TAXES, CONTINUED
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
NOTE D: YEAR 2000 COMPLIANCE
The Year 2000 issue (Y2K) is the result of computer programs written using two
digits rather than four to define the applicable year. Any of the Company's
computer and telecommunications programs that have date sensitive software may
recognize a date using "00" as the year 1900 instead of 2000. This could result
in system failure or miscalculations causing disruptions in operations,
including the ability to process transactions, send invoices, or engage in
similar normal business activities. The Company had no equipment or software at
December 7, 1999.
The Company cannot determine the extent to which it is vulnerable to third
parties' failure to remediate their own Y2K problems. As a result, there can be
no guarantee that the systems of other companies on which the Company's business
relies will be timely converted, or that failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would have a
material adverse affect on the Company. In view of the foregoing, there can be
no assurance that the Y2K issue will not have a material adverse effect on the
Company's business.
F-11