FINANCIAL INFORMATION RELATING TO SENDTEC
INDEX TO FINANCIAL STATEMENTS
Page
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Report of Independent Certified Public Accountants F-1
Consolidated Financial Statements
Balance Sheets F-2
Statements of Income F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
SendTec, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of SendTec, Inc.
and subsidiary as of December 31, 2003 and 2002, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain a 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
the 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 SendTec, Inc. and subsidiary at
December 31, 2003 and 2002, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
GREGORY, SHARER & STUART, P.A.
St. Petersburg, Florida
August 11, 2004
F-1
SENDTEC, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2004 2003 2002
-------------- -------------- --------------
ASSETS (Unaudited)
Current Assets
Cash $ 2,861,441 $ 3,263,255 $ 1,185,083
Accounts receivable 4,242,990 3,456,493 2,142,535
Deferred production costs 62,726 102,565 10,970
Deferred tax asset - - 206,000
Prepaid expenses and other 129,525 33,739 21,791
-------------- -------------- --------------
Total Current Assets 7,296,682 6,856,052 3,566,379
Property And Equipment,
net of accumulated depreciation of $672,242 (unaudited) at June 30, 2004
and $607,690 and $385,798 at December 31, 2003 and 2002, respectively 712,983 558,433 636,179
Other Assets
Interest receivable 33,444 31,992 29,223
Other 16,660 11,285 12,593
-------------- -------------- --------------
Total Other Assets 50,104 43,277 41,816
-------------- -------------- --------------
TOTAL ASSETS $ 8,059,769 $ 7,457,762 $ 4,244,374
============== ============== ==============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,784,576 $ 2,882,902 $ 1,680,981
Accrued expenses 395,576 104,530 69,809
Customer advances 215,470 144,343 590,930
Income taxes payable - 797,000 -
Deferred tax liabilities 38,000 39,000 -
Other - - 277
-------------- -------------- --------------
Total Current Liabilities 3,433,622 3,967,775 2,341,997
Stockholders' Equity
Preferred stock, par value $.001; 10,000,000 shares authorized;
no shares issued or outstanding - - -
Common stock, par value $.001; 100,000,000 shares authorized;
4,378,822 (unaudited) shares issued at June 30, 2004 and 4,377,822
shares issued at December 31, 2003 and 2002; 4,032,794 (unaudited)
shares outstanding at June 30, 2004; and 4,031,794, and 4,076,794
shares outstanding at December 31, 2003 and 2002, respectively 4,378 4,377 4,377
Additional paid-in capital 2,488,738 2,486,489 2,486,489
Treasury stock, at cost;
346,028 (unaudited) shares at June 30, 2004;
346,028 and 301,028 shares at December 31, 2003 and 2002, respectively (75,580) (75,580) (60,580)
Notes receivable - common stock (55,350) (55,350) (55,350)
Retained earnings (accumulated deficit) 2,263,961 1,130,051 (472,559)
-------------- -------------- --------------
Total Stockholders' Equity 4,626,147 3,489,987 1,902,377
-------------- -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,059,769 $ 7,457,762 $ 4,244,374
============== ============== ==============
See the accompanying notes.
F-2
SENDTEC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2004 2003 2003 2002
---------------- ---------------- ---------------- ----------------
(Unaudited) (Unaudited)
Revenue $ 17,633,235 $ 9,830,756 $ 22,729,512 $ 11,185,402
Cost Of Sales 12,892,834 6,805,454 15,978,944 7,869,775
---------------- ---------------- ---------------- ----------------
Gross Profit 4,740,401 3,025,302 6,750,568 3,315,627
Operating Expenses
Selling, general, and administrative 2,748,811 1,564,515 3,908,018 2,747,220
Depreciation and amortization 126,341 102,068 221,892 240,000
---------------- ---------------- ---------------- ----------------
2,875,152 1,666,583 4,129,910 2,987,220
Other Income (Expense)
Interest 11,635 11,085 23,952 16,681
Other (19,974) - - -
---------------- ---------------- ---------------- ----------------
(8,339) 11,085 23,952 16,681
---------------- ---------------- ---------------- ----------------
Income Before Provision
For Income Taxes 1,856,910 1,369,804 2,644,610 345,088
Provision For Income Taxes 723,000 538,000 1,042,000 167,000
---------------- ---------------- ---------------- ----------------
NET INCOME $ 1,133,910 $ 831,804 $ 1,602,610 $ 178,088
================ ================ ================ ================
See the accompanying notes.
F-3
SENDTEC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
AND THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
COMMON STOCK ADDITIONAL
--------------------------------- PAID-IN TREASURY
SHARES AMOUNT CAPITAL STOCK
--------------- --------------- --------------- ---------------
Balance At December 31, 2001 2,362,267 $ 2,362 $ 1,913,504 $ (60,000)
Issuance of common stock 15,555 15 34,985 -
Issuance of common stock for iFactz 2,000,000 2,000 538,000 -
Repurchase of common stock for cash - - - (580)
Net income for the year - - - -
--------------- --------------- --------------- ---------------
BALANCE AT DECEMBER 31, 2002 4,377,822 4,377 2,486,489 (60,580)
Repurchase of common stock for cash - - - (15,000)
Net income for the year - - - -
--------------- --------------- --------------- ---------------
BALANCE AT DECEMBER 31, 2003 4,377,822 4,377 2,486,489 (75,580)
Issuance of common stock (unaudited) 1,000 1 2,249 -
Net income for the six months ended
June 30, 2004 (unaudited) - - - -
--------------- --------------- --------------- ---------------
BALANCE AT JUNE 30, 2004 (UNAUDITED) 4,378,822 $ 4,378 $ 2,488,738 $ (75,580)
=============== =============== =============== ===============
NOTES (ACCUMULATED
RECEIVABLE - DEFICIT) TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
--------------- --------------- ---------------
Balance At December 31, 2001 $ (55,350) $ (650,647) $ 1,149,869
Issuance of common stock - - 35,000
Issuance of common stock for iFactz - - 540,000
Repurchase of common stock for cash - - (580)
Net income for the year - 178,088 178,088
--------------- --------------- ---------------
BALANCE AT DECEMBER 31, 2002 (55,350) (472,559) 1,902,377
Repurchase of common stock for cash - - (15,000)
Net income for the year - 1,602,610 1,602,610
--------------- --------------- ---------------
BALANCE AT DECEMBER 31, 2003 (55,350) 1,130,051 3,489,987
Issuance of common stock (unaudited) - - 2,250
Net income for the six months ended
June 30, 2004 (unaudited) - 1,133,910 1,133,910
--------------- --------------- ---------------
BALANCE AT JUNE 30, 2004 (UNAUDITED) $ (55,350) $ 2,263,961 $ 4,626,147
=============== =============== ===============
See the accompanying notes.
F-4
SENDTEC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2004 2003 2003 2002
--------------- --------------- --------------- ---------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,133,910 $ 831,804 $ 1,602,610 $ 178,088
Adjustments to reconcile net income
to net cash (used) provided by operating activities
Provision for bad debt - - - 22,775
Depreciation and amortization 126,341 102,068 221,892 240,000
Loss on disposal of property and equipment 19,974 - - -
Common stock issued for services - - - 10,000
(Increase) decrease in operating assets
Accounts receivable (786,497) (292,163) (1,313,958) (1,131,961)
Deferred production costs 39,839 (123,868) (91,595) (10,970)
Deferred taxes (1,000) 222,000 245,000 167,000
Interest receivable (1,452) (1,385) (2,769) (2,997)
Prepaid expenses and other assets (101,161) - (10,640) (5,261)
(Decrease) increase in operating liabilities
Accounts payable (98,326) 700,454 1,201,921 824,645
Accrued expenses 291,046 (6,704) 34,721 29,174
Customer advances 71,127 6,448 (446,587) 410,156
Income taxes payable (797,000) 316,000 797,000 -
Other liabilities - (277) (277) 277
--------------- --------------- --------------- ---------------
Net Cash (Used) Provided By Operating Activities (103,199) 1,754,377 2,237,318 730,926
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (310,865) (52,977) (144,146) (89,472)
Proceeds from sales of property and equipment 10,000 - - -
--------------- --------------- --------------- ---------------
Net Cash Used By Investing Activities (300,865) (52,977) (144,146) (89,472)
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 2,250 - - 25,000
Purchase of common stock - - (15,000) (580)
--------------- --------------- --------------- ---------------
Net Cash Provided (Used) By Financing Activities 2,250 - (15,000) 24,420
--------------- --------------- --------------- ---------------
NET (DECREASE) INCREASE IN CASH (401,814) 1,701,400 2,078,172 665,874
CASH AT BEGINNING OF PERIOD 3,263,255 1,185,083 1,185,083 519,209
--------------- --------------- --------------- ---------------
CASH AT END OF PERIOD $ 2,861,441 $ 2,886,483 $ 3,263,255 $ 1,185,083
=============== =============== =============== ===============
NONCASH FINANCING AND INVESTING ACTIVITIES
Issuance of common stock for iFactz $ - $ - $ - $ 540,000
=============== =============== =============== ===============
Common stock issued for services $ - $ - $ - $ 10,000
=============== =============== =============== ===============
See the accompanying notes.
F-5
SENDTEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
JUNE 30, 2004 AND 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature Of Operations
The accompanying consolidated financial statements include the accounts of
SendTec, Inc. (f/k/a DirectNet Advertising.Net, Inc.) and its wholly-owned
subsidiary iFactz, Inc. (collectively, the Company). All material intercompany
balances and transactions have been eliminated. The Company provides advertising
and marketing services for its customers located throughout the United States of
America. These services include distribution of internet advertising, purchase
of direct response television media for customers, and production of television
commercials for direct response advertising.
Effective December 31, 2003, iFactz, Inc. was merged into SendTec, Inc. The
merger had no impact on the consolidated financial statements of the Company.
Receivables And Credit Policies
Accounts receivable are uncollateralized customer obligations due under normal
trade terms generally requiring payment within 30 days from the invoice date.
Follow-up correspondence is made if unpaid accounts receivable go beyond 30
days.
Payments on accounts receivable are allocated to the specific invoices
identified on the customer's remittance advice.
Trade accounts receivable are stated at the amount management expects to collect
from outstanding balances. The carrying amounts of accounts receivable
approximate management's best estimate of the amounts that will be collected.
Management individually reviews all accounts receivable balances that exceed the
due date and estimates the portion, if any, of the balance that will not be
collected. Balances that are still outstanding after management has used
reasonable collection efforts are written off through a charge to earnings and a
credit to trade accounts receivable. Bad debt expense has not been material to
the financial statements.
Unbilled Revenue
Included in accounts receivable at December 31, 2003 and 2002 is unbilled
revenue of $1,058,590 and $658,488, respectively. At June 30, 2004, unbilled
revenue of $1,126,466 (unaudited) is included in accounts receivable.
Property And Equipment
Property and equipment are stated at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
related assets.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, which provides companies an alternative to accounting for
stock-based compensation as prescribed under APB Opinion No. 25.
F-6
SENDTEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
JUNE 30, 2004 AND 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SFAS No. 123 encourages, but does not require, companies to recognize
compensation expense for stock-based awards based on their fair market value at
the date of grant. SFAS No. 123 allows companies to continue to follow existing
accounting rules (intrinsic value method under APB No. 25) provided that
pro-forma disclosures are made of what net income would have been had the new
fair value method been used. The required disclosures were amended in December
2002 with the issuance of SFAS No. 148, Accounting for Stock Based Compensation
- - Transition and Disclosure. The Company has adopted the disclosure requirements
of SFAS No.123 as amended by SFAS No. 148, but will continue to account for
stock-based compensation under APB No. 25.
At June 30, 2004 and December 31, 2003 and 2002, the Company has a stock-based
compensation plan which is more fully described in Note E. No stock-based
employee compensation cost is reflected in net income for the unaudited period
ended June 30, 2004 or for the years ended December 31, 2003 and 2002. There
would have been no effect on net income if the Company had applied the fair
value recognition provisions of SFAS No. 123 to stock-based employee
compensation.
Business Combinations
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, which requires that all future business combinations be
recorded using the purchase method of accounting. The Company adopted SFAS No.
141 and it provisions effective July 1, 2001.
Use Of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that effect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Revenue Recognition
The Company has three primary sources of revenue. One source is from the
distribution of internet advertising, which comprised approximately 79%
(unaudited) for the six month period ended June 30, 2004 and 60% and 65% of
total revenues for the years ended December 31, 2003 and 2002, respectively.
Revenue is recognized when users visit and complete actions at an advertiser's
website. Recorded revenue is based upon reports generated by the Company's
tracking software.
A second source of revenue is from purchasing and tracking direct response media
for customers. This revenue comprised approximately 14% (unaudited) for the six
month period ended June 30, 2004 and 29% and 21% of total revenues for the years
ended December 31, 2003 and 2002, respectively. The Company recognizes this
revenue when the media is aired. Amounts received from customers in advance are
included in customer advances and totaled approximately $31,000 (unaudited) at
June 30, 2004 and $44,000 and $453,000 at December 31, 2003 and 2002,
respectively.
A third source of revenue is primarily from the production of direct response
advertising programs for clients. Production generally takes eight to 12 weeks
and the Company usually collects amounts up front and at various points
throughout production. This revenue category also includes other miscellaneous
services such as website development. Revenue from this category comprised
approximately 7% (unaudited) for the six month period ended June 30, 2004 and
11% and 14% of total revenues for the years ended December 31,
F-7
SENDTEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
JUNE 30, 2004 AND 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
2003 and 2002, respectively. Revenue is recognized when the programs are
complete and have been delivered or are available for immediate and
unconditional delivery.
Amounts received from customers prior to the completion of commercials are
included in customer advances and totaled approximately $184,000 (unaudited) at
June 30, 2004 and $100,000 and $138,000 at December 31, 2003 and 2002,
respectively. Direct costs associated with the production of commercials in
process are included in deferred production costs and totaled approximately
$63,000 (unaudited) at June 30, 2004 and $103,000 and $11,000 at December 31,
2003 and 2002, respectively.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
June 30, 2004 December 31,
Useful Lives (Unaudited) 2003 2002
-------------- ----------------- ----------------- ---------------
Equipment 5 years $ 407,632 $ 367,028 $ 222,882
Furniture and fixtures 7 years 172,455 7,650 7,650
Leasehold improvement 6 years 13,693 - -
Software 3 to 5 years 791,445 791,445 791,445
----------------- ----------------- ---------------
1,385,225 1,166,123 1,021,977
Less accumulated depreciation (672,242) (607,690) (385,798)
----------------- ----------------- ---------------
$ 712,983 $ 558,433 $ 636,179
================= ================= ===============
NOTE C - ACQUISITION OF IFACTZ
Effective February 2002, the Company acquired all of the outstanding shares of
iFactz, Inc. (an entity with stockholders common to both entities) in exchange
for 2,000,000 of the Company's shares. The value of the Company's shares was
estimated to be $.27 per share (based on a recent stock transaction) and totaled
$540,000. The sole asset of iFactz was developed software that tracks offline
media sources. The Company has allocated the full purchase price to software and
has included it with property and equipment. The software is being amortized
using the straight-line method over an estimated useful life of five years. The
consolidated financial statements include the operating results of iFactz from
the date of acquisition.
NOTE D - STOCKHOLDERS' EQUITY
Treasury Stock
During 2002, the Company purchased 78,806 shares of its common stock from a
former employee for $580. The price was based on the amount originally paid for
the shares. During 2003, the Company purchased 45,000 shares of its common stock
from two stockholders for a total of $15,000.
Notes Receivable - Common Stock
Prior to 2002, the Company issued 205,000 shares of its common stock to three
Company officers in exchange for promissory notes totaling $55,350. The value of
the shares was based upon management's estimate of the fair value of the shares
in June 2001. These notes mature in June 2006 and bear interest at the
F-8
SENDTEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
JUNE 30, 2004 AND 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Mid-Term Applicable Federal Rate in accordance with Section 1274(d) of the
Internal Revenue Code of 1986, as amended. The notes receivable are included as
a reduction of stockholders' equity.
NOTE E - STOCK OPTION PLAN
The Company's stock option plan (the Plan) was approved by the stockholders of
the Company effective February 2000. A maximum of 750,000 shares of the
Company's common stock may be issued under the Plan. The maximum term of the
stock options granted is 10 years and most optionees vest in the options over a
24-month period.
The purpose of the Plan is to provide additional incentives to officers, other
key employees and directors of and important consultants to the Company by
encouraging them to invest in shares of the Company's common stock and, thereby,
acquire a proprietary interest in the Company and an increased personal interest
in the Company's continued success and progress.
Options under the Plan may be options which qualify under Section 422 of the
Internal Revenue Code (Incentive Stock Options) or options which do not qualify
under Section 422 (Nonqualified Options). The following table summarizes option
activity:
Weighted
Average
Year ended December 31, 2002 Shares Exercise Price
---------------- ---------------
Stock option activity outstanding at beginning of year 160,800 $ 2.25
Granted 76,250 2.25
Expired or surrendered (149,500) (2.25)
---------------- ---------------
Outstanding at end of year 87,550 $ 2.25
================ ===============
Exercisable at end of year 25,275 $ 2.25
================ ===============
Year ended December 31, 2003
Stock option activity outstanding at beginning of year 87,550 $ 2.25
Granted 241,150 2.25
Expired or surrendered (10,500) (2.25)
---------------- ---------------
Outstanding at end of year 318,200 $ 2.25
================ ===============
Exercisable at end of year 52,050 $ 2.25
================ ===============
Six months ended June 30, 2004 (unaudited)
Stock option activity outstanding at beginning of period 318,200 $ 2.25
Granted 121,900 2.55
Exercised (1,000) (2.25)
Expired or surrendered (55,000) (2.25)
---------------- ---------------
Outstanding at end of period 384,100 $ 2.34
================ ===============
Exercisable at June 30, 2004 83,800 $ 2.25
================ ===============
F-9
SENDTEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
JUNE 30, 2004 AND 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The weighted average life of the options is five years. The estimated fair value
of stock options at the time of the grant using the Black-Scholes option pricing
model was as follows at June 30, 2004 (unaudited) and December 31, 2003 and
2002:
Fair value per option $ -
Assumptions:
Annualized dividend yield 0%
Expected volatility 0%
Risk free interest rate 4%
Expected option terms (in years) 5
NOTE F - LEASES
The Company has noncancelable operating lease agreements for buildings and
equipment. Future minimum lease payments required under the operating leases are
as follows at December 31, 2003:
2004 $ 25,040
2005 219,732
2006 225,225
2007 230,856
2008 236,627
Thereafter 304,694
----------------
$ 1,242,174
================
Rent expense for all operating leases was approximately $81,000 (unaudited) for
the six month period ended June 30, 2004 and $133,000 and $113,000 for the years
ended December 31, 2003 and 2002, respectively.
NOTE G - INCOME TAXES
The provision for income taxes consists of the following:
June 30, December 31,
2004 2003 2003 2002
----------------- ----------------- ----------------- -----------------
(Unaudited)
Current
Federal $ 618,000 $ 271,000 $ 681,000 $ -
State 106,000 46,000 116,000 -
----------------- ----------------- ----------------- -----------------
724,000 317,000 797,000 -
Deferred
Federal (1,000) 189,000 209,000 142,000
State - 32,000 36,000 25,000
----------------- ----------------- ----------------- -----------------
(1,000) 221,000 245,000 167,000
----------------- ----------------- ----------------- -----------------
$ 723,000 $ 538,000 $ 1,042,000 $ 167,000
================= ================= ================= =================
F-10
SENDTEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
JUNE 30, 2004 AND 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The income tax expense differs from the amount computed using the statutory
federal income tax rate as follows:
June 30, December 31,
2004 2003 2003 2002
----------------- ----------------- ----------------- -----------------
(Unaudited)
Income tax expense at federal statutory rate $ 631,000 $ 466,000 $ 899,000 $ 117,000
State tax expense, net of federal benefit 67,000 50,000 96,000 13,000
Amortization of acquired software 20,000 20,000 41,000 34,000
Other 5,000 2,000 6,000 3,000
----------------- ----------------- ----------------- -----------------
$ 723,000 $ 538,000 $ 1,042,000 $ 167,000
================= ================= ================= =================
Tax effects of temporary differences that give rise to the deferred tax assets
and liabilities relate to the following:
June 30, 2004 December 31,
Deferred tax assets (Unaudited) 2003 2002
----------------- ---------------- ------------------
Accrued liabilities $ 24,000 $ 11,000 $ 228,000
Other 2,000 5,000 10,000
Deferred tax liabilities
Depreciation and amortization (64,000) (55,000) (32,000)
----------------- ---------------- ------------------
Net deferred tax (liabilities) assets $ (38,000) $ (39,000) $ 206,000
================= ================ ==================
During 2003, the Company used federal and state net operating loss carryforwards
to offset taxable income of approximately $602,000.
NOTE H - CREDIT CONCENTRATIONS
The Company maintains its cash accounts with a commercial bank that has branches
located in the Tampa Bay area of Florida. Deposits at this bank exceeded federal
insurance limits by approximately $3,981,000 at December 31, 2003.
NOTE I - SIGNIFICANT CUSTOMERS AND SUPPLIERS
71% (unaudited) of the Company's revenue was from three customers for the six
month period ended June 30, 2004. For 2003 and 2002, 53% and 62%, respectively,
of the Company's revenue was from three customers and four customers.
As of June 30, 2004, eight customers comprised approximately 87% (unaudited) of
total accounts receivable. As of December 31, 2003 and 2002, five and six
customers comprised approximately 89% and 86% of total accounts receivable,
respectively.
The Company utilizes the services of a media supplier which accounts for
approximately 29% (unaudited) of the Company's cost of sales for the six month
period ended June 30, 2004 and 35% and 30% of the Company's cost of sales for
2003 and 2002, respectively.
F-11
SENDTEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
JUNE 30, 2004 AND 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE J - RETIREMENT PLAN
Effective January 1, 2003, the Company established a SIMPLE IRA savings plan
(Plan) which is maintained for the benefit of all eligible employees who have
completed six months of service. The Plan allows employees to make certain tax
deferred voluntary contributions. The Company contributes to the Plan such
amounts as deemed appropriate. Contributions made by the Company totaled
approximately $32,000 (unaudited) for the six months ended June 30, 2004 and
$57,000 for the year ended December 31, 2003.
F-12