UNAUDITED PRO FORMA CONDENSED BALANCE SHEET MARCH 31, 2004 AllianceCorner Essential Distributors, Pro Forma Pro Forma Reality, Inc. Inc. Adjustments Balance ------------- ---------- ------------ ------------- ASSETS Current assets: Cash $ -- $ 183,368 $ -- $ 183,368 Funds on deposit with escrow agent 158,088 -- (1) 3,799,500 3,042,258 (2) (915,330) Accounts receivable, net -- 366,840 -- 366,840 Due from factor -- 291,153 -- 291,153 Inventory -- 1,809,470 -- 1,809,470 Due from vendors -- 721,022 -- 721,022 Prepaid expenses and other current assets 40,870 39,649 -- 80,519 ------------- ---------- ------------ ------------- Total current assets 198,958 3,411,502 2,884,170 6,494,630 Equipment and improvements, net -- 410,414 -- 410,414 Other assets -- 17,636 -- 17,636 ------------- ---------- ------------ ------------- Total assets $ 198,958 $3,839,552 $ 2,884,170 $ 6,922,680 ============= ========== ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Book overdraft $ 280 $ -- (2) $ (280) $ -- Accounts payable 2,317,100 2,594,315 (2) (2,269,602) 2,641,813 Loan payable unsecured 25,000 -- (2) (25,000) -- Due to related parties 503,699 -- (2) (503,699) -- Secured convertible debenture 1,000,000 -- (2) (1,000,000) -- Notes payable 2,241,142 -- (2) (2,241,142) -- Current portion of long-term liabilities 28,647 -- 28,647 Accrued expenses and other current liabilities -- 138,693 -- 138,693 Liabilities payable in common stock -- -- (5) 32,200 32,200 ------------- ---------- ------------ ------------- Total current liabilities 6,087,221 2,761,655 (6,007,523) 2,841,353 Long-term obligations -- 302,931 -- 302,931 Stockholders' equity (deficit) Series A 6% Convertible Non Redeemable Preferred Stock -- -- (1) 1,125 1,685 (2) 452 (3) 108 Series B Convertible Non Redeemable Preferred Stock -- -- (4) 1,551 1,551 Common stock 18,588 300 (6) 3,412 22,000 (7) (300) Additional paid in capital 15,003,142 435,715 (1) 3,998,875 3,414,209 (2) 2,690,199 (3) 384,892 (4) (1,251) (6) 1,152,250 (7) (20,249,613) Deferred merger costs (108,396) -- (1) (200,500) -- (3) (385,000) (5) (32,200) (7) 726,096 Retained earnings (accumulated deficit) (20,801,597) 338,951 (2) 2,433,742 338,951 (6) (1,155,662) (7) 19,523,517 ------------- ---------- ------------ ------------- Total stockholders' equity (deficiency) (5,888,263) 774,966 8,891,693 3,778,396 ------------- ---------- ------------ ------------- Total liabilities and stockholders' equity (deficiency) $ 198,958 $3,839,552 $ 2,884,170 $ 6,922,680 ============= ========== ============ ============= Notes to Unaudited Pro Forma Condensed Balance Sheet at March 31, 2004 1 Reflects the Private Placement Offering ("PPO") for 1,124,767 shares of Series A 6% Convertible Non Redeemable Preferred Stock ("Series A Preferred Stock"). The PPO resulted in gross proceeds of $4,000,000 and net proceeds to the Company of $3,799,500 less $915,330 for payments of Essential's liabilities (see Note #2), leaving a balance of $2,884,171, to be held by the escrow agent. 2 Reflects the following resolution of outstanding liabilities of Essential as a result of the Share Exchange Agreement: Outstanding Forgiveness Pro Forma Balance at Converted of Unpaid Total Balance at 3/31/04 Paid to Stock Balance Adjustments 3/31/04 ---------- ---------- ---------- ---------- ---------- ---------- (a) Book overdraft $ 280 $ -- $ -- $ 280 $ 280 $ -- Accounts payable 2,317,100 631,965 128,100 1,509,537 2,269,602 47,498 Loan payable unsecured 25,000 -- -- 25,000 25,000 -- Related parties 503,699 19,035 -- 484,664 503,699 -- Secured convertible debenture 1,000,000 -- 1,000,000 -- 1,000,000 -- Notes payable 2,241,142 264,330 1,562,551 414,261 2,241,142 -- ---------- ---------- ---------- ---------- ---------- ---------- $6,087,221 $ 915,330 $2,690,651 $2,433,742 $6,039,723 $ 47,498 ========== ========== ========== ========== ========== ========== (a) - Amounts were converted to 452,202 shares of Series A Preferred Stock 3 Reflects 108,146 shares of Series A Preferred Stock issued to an investment banker as a fee for the PPO at $3.56 per share. 4 Reflects the issuance of 1,551,314 shares of Series B Convertible Non Redeemable Preferred Stock to the shareholders of Alliance per the Share Exchange Agreement. 5 Reflects the liability for the issuance of 110,000, post-split, shares of common stock for services in the amount of $32,200. 6 Reflects the issuance of 3,411,890 shares of common stock, net of cancellations, issued to employees (in accordance with severance agreements) and vendors at $.35 per share. 7 Reflects adjustment for reverse acquisition and reclassification of deferred merger costs to additional paid-in capital.