<PAGE>
Allergy Immuno Technologies, Inc.
Contents
================================================================================
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants,
BDO Seidman, LLP FS-2
Financial Statements
Balance Sheet as of May 31, 2000 FS-3
Statements of Operations FS-4
Statements of Shareholders' Deficit FS-5
Statements of Cash Flows FS-6
Notes to Financial Statements FS-7 - FS-20
</TABLE>
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Allergy Immuno Technologies, Inc.
We have audited the accompanying balance sheet of Allergy Immuno Technologies,
Inc. (the "Company") as of May 31, 2000, and the related statements of
operations, shareholders' deficit and cash flows for the years ended May 31,
2000 and 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 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 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 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 Allergy Immuno Technologies,
Inc. as of May 31, 2000, and the results of its operations and its cash flows
for the years ended May 31, 2000 and 1999 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency. These conditions, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
BDO SEIDMAN, LLP
Costa Mesa, California
August 11, 2000
FS-2
<PAGE>
May 31, 2000
-----------------------------------------------------------------------
Assets
Current assets
Cash $ 2,603
Accounts receivable, less allowance for doubtful
accounts of $9,337 12,004
Inventory 4,377
Prepaid and other current assets 4,602
-----------------------------------------------------------------------
Total current assets 23,586
Fixed assets, net of accumulated depreciation of $46,276 306
Land held for investment 46,000
Patents, net of accumulated amortization of $5,066 12,204
-----------------------------------------------------------------------
$ 82,096
=======================================================================
<PAGE>
Allergy Immuno Technologies, Inc.
Balance Sheet
May 31, 2000
------------------------------------------------------------------------
Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable and accrued expenses $ 9,545
Due to affiliate 282,013
------------------------------------------------------------------------
291,558
------------------------------------------------------------------------
Shareholders' deficit
Preferred stock, par value $1.00 per share; 100,000 -
shares authorized; no shares issued and outstanding
Common stock, par value $.001 per share; 50,000,000
shares authorized; 17,170,390 shares issued and
outstanding at May 31, 2000 17,170
Additional paid in capital 1,777,388
Accumulated deficit (2,004,200)
------------------------------------------------------------------------
Total shareholders' deficit (209,462)
------------------------------------------------------------------------
$ 82,096
------------------------------------------------------------------------
See report of Independent Certified Public Accountants and
accompanying notes to financial statements.
FS-4
<PAGE>
Allergy Immuno Technologies, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Years Ended May 31, 2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 79,976 $ 70,351
Cost of sales 94,361 89,131
---------------------------------------------------------------------------------------------------
Gross loss (14,385) (18,780)
---------------------------------------------------------------------------------------------------
Operating expenses
General and administrative 111,099 64,679
Research and development 52,600 300
---------------------------------------------------------------------------------------------------
Total operating expenses 163,699 64,979
---------------------------------------------------------------------------------------------------
Operating loss (178,084) (83,759)
Other income, net 1,098 102,323
---------------------------------------------------------------------------------------------------
(Loss) income before income taxes (176,986) 18,564
Income tax expense 800 800
---------------------------------------------------------------------------------------------------
Net (loss) income $ (177,786 ) $ 17,764
===================================================================================================
Per share data (basic and diluted):
Net (loss) income $ (.01) $ .00
===================================================================================================
Weighted average number of common shares outstanding 17,170,390 17,170,390
===================================================================================================
See report of Independent Certified Public Accountants and
accompanying notes to financial statements.
</TABLE>
FS-5
<PAGE>
Allergy Immuno Technologies, Inc.
Statements of Shareholders' Deficit
<TABLE>
<CAPTION>
Additional Total
Common Stock Common Stock Subscribed Paid-in Accumulated Shareholders'
--------------------- -----------------------
Shares Amount Shares Amount Capital Deficit Deficit
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 1, 1998 15,253,961 $ 15,254 1,916,429 $ 1,916 $ 1,777,388 $ (1,843,998) $ (49,440)
Issuance of common stock 1,916,429 1,916 (1,916,429) (1,916) - - -
in exchange for common
stock subscribed
Net income - - - - - 17,764 17,764
-------------------------------------------------------------------------------------------------------------------------
Balances at May 31, 1999 17,170,390 17,170 - - 1,777,388 (1,826,234) (31,676)
Net loss - - - - - (177,786) (177,786)
-------------------------------------------------------------------------------------------------------------------------
Balances at May 31, 2000 17,170,390 $ 17,170 - $ - $ 1,777,388 $ (2,004,200) $ (209,462)
=========================================================================================================================
See report of Independent Certified Public Accountants and
accompanying notes to financial statements.
</TABLE>
FS-6
<PAGE>
Allergy Immuno Technologies, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended May 31, 2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income $ (177,786) $ 17,764
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 2,697 2,596
Provision for allowance for doubtful accounts (1,848) (297)
Changes in operating assets and liabilities:
Accounts receivable 3,394 11,289
Inventory 2,079 555
Other receivable - consulting 100,000 (100,000)
Prepaid and other current assets (1,323) 192
Accounts payable and accrued expenses 1,826 2,138
---------------------------------------------------------------------------------------------------
Net cash used in operating activities (70,961) (65,763)
---------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of property (2,643) -
---------------------------------------------------------------------------------------------------
Cash flows from financing activities
Advances from affiliate 74,005 64,403
---------------------------------------------------------------------------------------------------
Net change in cash 401 (1,360)
Cash at beginning of year 2,202 3,562
---------------------------------------------------------------------------------------------------
Cash at end of year $ 2,603 $ 2,202
===================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ - $ -
===================================================================================================
Income taxes $ 800 $ 800
===================================================================================================
See report of Independent Certified Public Accountants
and accompanying notes to financial statements.
</TABLE>
FS-7
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
1. Summary of Organization
Significant
Accounting Allergy Immuno Technologies, Inc. (the "Company")
Policies provides specialized diagnostic testing services
to physicians and clinics located throughout the
United States. The Company is a majority-owned
subsidiary of Biomerica
Accounts Receivable
Accounts receivable consists of fees due the
Company for testing provided to various
physicians, clinics and unrelated companies. The
Company extends credit to its customers and
generally performs ongoing credit evaluations of
such customers. The Company does not require
collateral to secure its accounts receivable. The
Company maintains reserves for potential credit
losses based on the Company's historical
experience related to credit losses.
Inventory
Inventory, comprised principally of various
chemicals and testing kits, is stated at the lower
of cost (first-in, first-out method) or market.
Market is determined by comparison with recent
purchases or net realizable value.
Fixed Assets
Fixed assets, which are primarily comprised of
furniture and fixtures, are recorded at cost and
depreciated using the straight-line method over
the estimated useful lives of the assets, which
are generally from three to five years.
Depreciation expense included in the accompanying
statements of operations totaled $2,337 and $1,636
for the years ended May 31, 2000 and 1999,
respectively. Expenditures for additions and major
improvements are capitalized. Repairs and
maintenance costs are charged to operations as
incurred.
FS-8
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
1. Summary of Patents
Significant
Accounting The Company holds certain patents which are
Policies amortized on a straight-line basis over 17 years.
(Continued) Amortization expense included in the accompanying
statements of operations amounted to $360 and $960
for the years ended May 31, 2000 and 1999,
respectively.
Revenue Recognition
Revenue is recognized upon completion of the
diagnostic testing services.
Advertising Costs
The Company reports the costs of all advertising
as expense in the period in which those costs are
incurred. Advertising costs were $1,227 and $779
for the years ended May 31, 2000 and 1999,
respectively.
Income Taxes
The Company accounts for income taxes in
accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
Under the asset and liability method of Statement
No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences
attributable to differences between the financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to
taxable income in the years in which those
temporary differences are expected to be recovered
or settled. Under Statement No. 109, the effect on
deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period
that includes the enactment date. A valuation
allowance is provided for certain deferred tax
assets if it is more likely than not that the
Company will not realize tax assets through future
operations.
FS-8
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
1. Summary of Accounting Estimates
Significant
Accounting The preparation of financial statements in
Policies conformity with generally accepted accounting
(Continued) 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 reported
period. Actual results could materially differ
from those estimates.
Stock-Based Compensation
During 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation", which defines a fair
value based method of accounting for stock-based
compensation. However, SFAS 123 allows an entity
to continue to measure compensation cost related
to stock and stock options issued to employees
using the intrinsic method of accounting
prescribed by Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees". Entities electing to remain with the
accounting method of APB 25 must make pro forma
disclosures of net income and earnings per share,
as if the fair value method of accounting defined
in SFAS 123 had been applied. The Company has
elected to account for its stock-based
compensation to employees under APB 25.
Fair Value of Financial Instruments
The Company has financial instruments whereby the
fair market value of the financial instruments
could be different than that recorded on a
historical basis on the accompanying balance
sheets. The Company's financial instruments
consist of cash, accounts receivable and accounts
payable. The carrying amounts of the Company's
financial instruments approximate their fair
values at May 31, 2000.
FS-10
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
1. Summary of Accounting For The Impairment of Long-Lived Assets
Significant
Accounting The Company follows the guidance under Statement
Policies of Financial Accounting Standards 121, "Accounting
(Continued) for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", ("SFAS
121"). SFAS 121 requires impairment losses to be
recorded on long-lived assets used in operations
when indicators of impairment are present and the
undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying
amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed
of. Management has determined that there is no
impairment of long-lived assets as of May 31,
2000.
Concentration of Credit Risk
The Company provides credit in the normal course
of business to customers throughout the United
States and foreign markets. The Company performs
ongoing credit evaluations of its customers. The
Company does not obtain collateral with which to
secure its accounts receivable. The Company
maintains reserves for potential credit losses
based upon the Company's historical experience
related to credit losses.
During the year ended May 31, 2000, the Company
had three major customers which accounted for
approximately 24%, 13% and 13% of net sales.
During the year ended May 31, 1999, the Company
had two major customers which accounted for
approximately 29% and 11% of net sales.
At May 31, 2000, the Company was owed $4,432 or
37%, $4,235 or 35% and $2,296 or 19% of net
accounts receivable from three customers.
FS-11
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
1. Summary of Going Concern
Significant
Accounting The accompanying financial statements have been
Policies prepared assuming the Company will continue as a
(Continued) going concern. During the year ended May 31,
2000 ("Fiscal 2000"), the Company experienced a
net loss of $177,786 and had negative cash flows
from operations of $70,961. In addition, the
Company had substantial working capital and
shareholders' deficits at May 31, 2000. These
factors, among others, raise substantial doubt
about the Company's ability to continue as a
going concern. The financial statements do not
include any adjustments that might result from
the outcome of this uncertainty.
There can be no assurances that the Company will
be able to successfully implement its plans,
including generating profitable operations,
generating positive cash flows from operations
and obtaining additional debt and equity capital
to meet present and future working capital
demands.
Net (Loss) Income Per Share
The Financial Accounting Standards Board has
issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 is primarily a disclosure
standard which requires public companies to
present basic earnings per share (EPS) and, if
applicable, diluted earnings per share, instead
of primary and fully diluted earnings per share.
Basic EPS is computed by dividing net income for
the year by the weighted average number of
shares of common stock outstanding during the
year. Diluted EPS is computed by dividing net
(Loss) income for the year by the weighted
average number of shares of common stock and
common stock equivalents outstanding during the
year.
FS-12
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
1. Summary of Significant The following table illustrates the required
Accounting disclosure of the reconciliation of the
Policies numerators and denominators of the basic and
(Continued) diluted EPS computations.
<TABLE>
<CAPTION>
For the Year Ended May 31, 2000
------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS -
Loss available to
common
shareholders $ (177,786) 17,170,390 $ (.01)
Effect of dilutive
securities -
Options - - -
------------------------------------------------------------------
Diluted EPS -
Loss available
to common
shareholders plus
assumed
conversions $ (177,786) 17,170,390 $ (.01)
==================================================================
</TABLE>
FS-13
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
<TABLE>
<CAPTION>
1. Summary of
Significant For the Year Ended May 31, 1999
Accounting --------------------------------------------
Policies Income Shares Per Share
(Continued) (Numerator) (Denominator) Amount
-----------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS -
Income available to
common
shareholders $ 17,764 17,170,390 $ .00
Effect of dilutive
securities -
Options - - -
-----------------------------------------------------------------
Diluted EPS -
Income available to
common
shareholders plus
assumed
conversions $ 17,764 17,170,390 $ .00
=================================================================
</TABLE>
Limitations on Dividends
Pursuant to state laws, the Company is currently
restricted, and may be restricted for the foreseeable
future, from making dividends to its stockholders as a
result of its accumulated deficit as of May 31, 2000.
FS-14
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
1. Summary of Significant Hazardous Materials
Accounting
Policies The Company's research and development
(Continued) involves the controlled use of hazardous
materials and chemicals. Although the
Company believes that safety procedures for
handling and disposing of such materials
comply with the standards prescribed by
state and Federal regulations, the risk of
accidental contamination or injury from
these materials cannot be completely
eliminated. In the event of such an
accident, the Company could be held liable
for any damages that result and any such
liability could exceed the resources of the
Company. The Company may incur substantial
costs to comply with environmental
regulations.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No.
130 requires that an enterprise report, by
major components and as a single total, the
change in its net assets during the period
from nonowner sources. The Company has no
elements of other comprehensive income.
2. Land Held Land held for investment consists of a parcel
for Investment of land located in the state of Utah, and is
stated at the lower of cost or market.
3. Shareholders' The Company's authorized equity
Equity capitalization consists of 50,000,000 shares
of voting common stock, par value $.001 and
100,000 shares of preferred stock, par value
$1.00 per share. As of May 31, 2000, there
were 17,170,390 shares of common stock
issued and outstanding.
Holders of common stock are entitled to
receive dividends when, as and if declared
by the Board of Directors, out of funds
legally available therefor. There have been
no dividends declared and management does
not anticipate any dividends in the near
future due to lack of funds and legal
restrictions. Dividends on any outstanding
shares of preferred stock may be required to
be paid in full before payment of any
dividends on the common stock. Upon
liquidation, dissolution or winding up of
the Company, holders of common stock are
entitled to share ratably in assets
available for distribution after payment of
all debts and other liabilities and subject
to the prior rights of any holders of any
preferred stock then outstanding.
FS-14
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
3. Shareholders' Holders of common stock are entitled to one vote
Equity per share with respect to all matters submitted
(Continued) to a vote of shareholders and do not have
cumulative voting rights. Accordingly, holders
of a majority of the common stock entitled to
vote in any election of directors may elect all
of the directors standing for election, subject
to the voting rights (if any) of any preferred
stock that may be outstanding. The Company's
Articles of Incorporation and Bylaws contain no
restrictions on the repurchase by the Company of
shares of the common stock or preferred stock.
All the outstanding shares of common stock are,
and additional shares of common stock will be,
when issued, validly issued, fully paid, and
nonassessable.
The Company is authorized to issue up to 100,000
shares of preferred stock, par value $1.00 per
share, the rights, preference and privileges of
which may be determined from time to time by the
Board of Directors. The Board if Directors is
authorized to designate with respect to each
series of preferred stock the number of shares
in each such series, the dividend rates and
dates of payment, voluntary and involuntary
liquidation preferences, redemption prices, if
any, whether or not dividends shall be
cumulative and, if cumulative, the date or dates
from which the same shall be cumulative, the
sinking fund provisions, if any, and the terms
and conditions on which shares can be converted
into or exchanged for shares of another class or
series, and the voting rights, if any. As of the
date hereof, there were no shares of preferred
stock issued and outstanding. Any preferred
stock issued will rank prior to the common stock
as to dividends and as to distributions in the
event of liquidation, dissolution or winding up
of the Company. The ability of the Board of
Directors to issue preferred stock, while
providing flexibility in connection with
possible acquisitions and other corporate
purposes, could, among other things, adversely
affect the voting powers of holders of common
stock. The preferred stock will, when issued, be
fully paid and assessable.
FS-15
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
3. Shareholders' Stock Issuances
Equity
(Continued) During fiscal 1998, 1,916,429 shares of the
Company's previously unissued common stock were
committed to Biomerica, Inc., the Company's
parent, as partial repayment of amounts loaned
to the Company (see Note 5). Such shares were
issued during fiscal 1999.
Stock Options
During fiscal 1998, the Company granted options
to purchase 1,185,000 shares of common stock to
various employees and directors, including an
option to purchase 250,000 shares granted to
Biomerica, Inc., the parent company. The
exercise price will be the fair value of the
Company's common stock on the date (the "Pricing
Date") of a successful completion of $3,000,000
in capital being raised or upon the merger with
another company or acquisition of another
company with greater than $6,000,000 in assets.
The options will vest 50% per year and expire
over five years beginning on the Pricing Date.
FS-17
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
4. Income Taxes The tax effect of temporary differences that
give rise to significant portions of the
deferred tax assets at May 31, 2000 are
presented below:
May 31, 2000
------------------------------------------------------
Deferred tax assets:
Accounts receivable, principally due
to allowances for doubtful accounts $ 3,719
State net operating loss
carryforwards 45,459
Federal net operating loss
carryforwards 636,062
Research and development tax
credit carryforwards 29,395
------------------------------------------------------
Total gross deferred tax assets 714,635
Less valuation allowance (714,635)
------------------------------------------------------
Net deferred tax asset $ -
======================================================
Income tax expense attributable to loss from
operations for the years ended May 31, 2000 and 1999
consists of the following current provisions:
May 31, 2000 1999
------------------------------------------------------
U.S. Federal $ - $ -
State and local 800 800
-----------------------------------------------------
$ 800 $ 800
=====================================================
FS-17
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
4. Income Taxes Income tax expense attributable to income from
(Continued) operations was $800 for each of the years ended May
31, 2000 and 1999, and differs from the amounts
computed by applying the U.S. Federal income tax rate
of 35 percent to pretax income from operations as a
result of the following:
May 31, 2000 1999
----------------------------------------------------------
Computed "expected" tax $ (60,175) $ 6,312
(benefit) expense
Increase (reduction) in income
taxes resulting from:
Change in the beginning-of- 60,175 (6,312)
the-year balance of the
valuation allowance for
deferred tax assets allocated
to income tax expense
State and local income taxes 800 800
----------------------------------------------------------
$ 800 $ 800
==========================================================
As of May 31, 2000, the Company has available
Federal and state net operating loss
carryforwards for tax purposes of approximately
$1,871,000 and $514,000, respectively, and
research and development tax credit
carryforwards of approximately $29,000. The
aforementioned carryforwards expire in various
years through 2020.
The Tax Reform Act of 1986 includes provisions
which limit the Federal net operating loss
carryforwards available for use in any given
year if certain events, including a significant
change in stock ownership, occur.
FS-19
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
5. Related Party Biomerica, Inc. paid expenses on behalf of the Company
Transactions of $156,419 and $64,403 during fiscal 2000 and
1999, respectively. Included in these amounts are
$1,450 per month for accounting and administrative
services rendered by Biomerica for the Company in
each fiscal year. The remaining amounts in each
year represents advances of funds to the Company
for payment of the Company's own expenses. The due
to affiliate at May 31, 2000 and 1999 represents
the related unpaid amounts due to Biomerica. The
advances are non-interest bearing and have no
stated due date. Biomerica does not intend to
require repayment of such advances in fiscal 2001.
Management believes that the charges by Biomerica
for its monthly services are reasonable and fair
and that these costs would be the same for the
Company if the Company were unaffiliated with
Biomerica. The breakdown of the $1,450 monthly
charge is $600 for accounting services, $500 for
executive and administrative services, $200 for
office expense and $50 for telephone expenses. If
extraordinary services are performed in a month,
additional charges are incurred. The Company does
not have a written contract for services with
Biomerica, but engages Biomerica on an as needed
basis.
The average outstanding balance during 2000 and
1999 was $245,010 and $212,186, respectively. The
amount outstanding at May 31, 2000 is comprised of
$198,763 for services and cash advances and
$83,250 for products purchased from Biomerica.
During fiscal 1999, the Company issued 1,916,429
shares of its common stock to Biomerica, Inc. as
partial repayment of amounts due. The shares were
valued at $0.07 per common share or $134,150 (see
Note 3).
The Company facilities are leased on a month-to-
month basis at $1,400 per month and are owned 50%
by a partnership in which a shareholder is a
partner. Rent expense was $16,800 for each of the
years presented.
FS-19
<PAGE>
Allergy Immuno Technologies, Inc.
Notes to Financial Statements
6. Retirement Effective September 1, 1986, the Company established a
Savings Plan 401(k) Plan for the benefit of its employees. The
plan permits eligible employees to contribute to
the plan up to the maximum percentage of total
annual compensation allowable under the limits of
Internal Revenue Code Sections 415, 401(k) and
404. The Company, at the discretion of its Board
of Directors, may make contributions to the plan
in amounts determined by the Board each year. No
contributions by the Company have been made since
the Plan's inception.
7. Other Income During the year ended May 31, 1999, the Company
performed consulting services for an unrelated
entity. The Company received $100,000 in cash in
June of 1999 and an option to acquire 10,000 units
of an unrelated entity. The $100,000 has been
recorded as other income in the accompanying
financial statements.
FS-20
