Exhibit 99.7
FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REPORT
ONLINE TELEVISION NETWORK SERVICES, INC.
September 20, 2000
BOARD OF DIRECTORS
ONLINE TELEVISION NETWORK SERVICES, INC.
San Diego, California
We have audited the accompanying balance sheet of ONLINE TELEVISION NETWORK
SERVICES, INC. (THE COMPANY) as of September 20, 2000 and the related statements
of operations, stockholders' deficit and cash flows for the period from June 1
to September 20, 2000. These financial statements are the responsibility of
Online Television Network Services, Inc.'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 Online Television Network
Services, Inc. as of September 20, 2000, and the results of its operations and
its cash flows for the period then ended, in conformity with generally accepted
accounting principles.
The Company has a limited operating history and its prospects are subject to the
risks, expenses and uncertainties frequently encountered by companies in new an
rapidly evolving markets for internet products and services. As discussed in
Note 9 to the financial statements, the Company has not generated sufficient
revenues to achieve profitability. Failure to secure financing or its ability
to generate sufficient cash flows through operations may have a material adverse
impact on the Company's operations and financial position. Management's plans
in regards to these matters are also described in Note 9. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
October 27, 2000
BY: /s/ HOOD & STRONG, LLP
-------------------------------
Hood & Strong, LLP
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ONLINE TELEVISION NETWORK SERVICES, INC.
BALANCE SHEET
September 20, 2000
========================================================================
ASSETS
CURRENT ASSETS:
Receivables $ 53,445
Prepaid expenses 2,329
------------------------------------------------------------------------
Total current assets 55,774
FURNITURE AND EQUIPMENT, net 79,869
OTHER ASSETS 7,593
------------------------------------------------------------------------
$ 143,236
========================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 8,250
Trade payables 50,920
Accrued expenses 12,036
Capitalized lease obligation, current portion 8,660
Notes payable 270,000
------------------------------------------------------------------------
Total current liabilities 349,866
------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Capitalized lease obligation 2,715
------------------------------------------------------------------------
Total liabilities 352,581
------------------------------------------------------------------------
STOCKHOLDERS' DEFICIT:
Common stock, $1 par value, 1,000,000 shares authorized,
1,000,000 shares issued and outstanding 1,000,000
Additional paid-in capital 1,486,240
Accumulated deficit (2,695,585)
------------------------------------------------------------------------
Total stockholders' deficit (209,345)
------------------------------------------------------------------------
$ 143,236
========================================================================
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ONLINE TELEVISION NETWORK SERVICES, INC.
STATEMENT OF OPERATIONS
For the Period From June 1 to September 20, 2000
================================================
REVENUE $ 66,629
COST OF SALES 199,937
------------------------------------------------
GROSS PROFIT (133,308)
------------------------------------------------
OPERATING EXPENSES:
Salaries and benefits 30,651
Professional fees 3,194
Office expenses 122,035
Other 5,400
------------------------------------------------
161,280
------------------------------------------------
NET LOSS $ (294,588)
================================================
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<TABLE>
<CAPTION>
ONLINE TELEVISION NETWORK SERVICES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
For the Period From June 1, to September 20, 2000
============================================================================================
Number Additional Total
of Shares Common Paid-in Accumulated Stockholders'
Outstanding Stock Capital Deficit Deficit
<S> <C> <C> <C> <C> <C>
BALANCES -
May 31, 2000 1,000,000 $ 1,000,000 $1,452,145 $ (2,400,997) $ 51,148
Contribution of
capital 34,095 34,095
Net loss (294,588) (294,588)
BALANCES -
September 20, 2000 1,000,000 $ 1,000,000 $1,486,240 $ (2,695,585) $ (209,345)
</TABLE>
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ONLINE TELEVISION NETWORK SERVICES, INC.
STATEMENT OF CASH FLOWS
For the Period From June 1 to September 20, 2000
===============================================================================
OPERATING ACTIVITIES:
Net loss $(294,588)
Adjustments to reconcile net loss to net cash used by operations:
Changes in:
Receivables 28,734
Prepaid expenses (260)
Other assets (3,630)
Accounts payable (13,530)
Accrued expenses (24,853)
-------------------------------------------------------------------------------
Net cash used by operating activities (308,127)
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INVESTING ACTIVITIES:
Purchase of furniture and equipment (4,914)
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Net cash used by investing activities (4,914)
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FINANCING ACTIVITIES:
Bank overdraft 8,250
Reductions in capital lease obligations (2,390)
Proceeds from issuance of notes payable 270,000
Contribution of capital 34,095
-------------------------------------------------------------------------------
Net cash provided by financing activities 309,955
-------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (3,086)
CASH AND CASH EQUIVALENTS, beginning of period 3,086
-------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 0
===============================================================================
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Notes to Financial Statements for Online Television Network Services, Inc.
NOTE 1 - ORGANIZATION:
Online Television Network Services, Inc. (the Company) is a
corporation organized under the laws of the State of California.
The Company was founded in 1997 for the purpose of designing and
managing comprehensive online benefits communication and trust
administration tools for labor unions, specializing in the design
and development of benefits-specific internet sites form
multi-employer union pension/health and welfare trust
organizations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Basis of Presentation:
---------------------
The Company maintains its accounts on the accrual basis of
accounting. The preparation of financial statements in
conformity with generally accepted accounting 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 amount of
revenues and expenses during the reported period. Actual
results could differ from those estimates.
b. Cash and Cash Equivalents:
-------------------------
For purposes of the statement of cash flows, the Company
considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents (of
which there are none as of September 20, 2000).
c. Depreciation:
------------
Fixed assets are recorded at cost. Property and equipment is
depreciated on a straight-line basis over estimated useful
lives ranging from three to seven years.
d. Revenue Recognition:
-------------------
The Company records revenue based upon specific contract
rates for website development and management services
rendered.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
e. Recently Enacted Accounting Standards:
-------------------------------------
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income", SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information",
SFAS No. 132, "employer's Disclosure about Pensions and
Other Postretirement Benefits", SFAS No.133 (as amended by
SFAS No. 137 and 138), "Accounting for Derivative
Instruments and Hedging Activities", SFAS No. 134,
"Accounting for Mortgage-Backed Securities ", and SFAS 135,
"Rescission of FASB No. 75 and Technical Corrections", were
recently issued. SFAS No. 130, 131, 132, 133 (as amended),
134 and 135 have no current application to the Company or
their affect on the financial statements would not have been
significant.
NOTE 3 - FURNITURE AND EQUIPMENT:
Furniture and equipment, at cost, is summarized as follows as of September 20,
2000:
Office equipment $ 174,221
Furniture and fixtures 32,517
206,738
Less accumulated depreciation 126,867
$ 79,869
NOTE 4 - LEASE COMMITMENTS:
The Company leases office space under an operating lease which
expires May 15, 2004. Rent expense approximated $16,396 for the
period ended September 20, 2000. As of September 20, 2000, future
minimum lease payments, by fiscal year, are as follows:
Year ended May 31,
2001 $ 54,755
2002 67,539
2003 70,241
2004 32771
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$ 225,306
=================================================================
NOTE 5 - INCOME TAXES:
No provision for federal and state income taxes has been recorded
because the Company has incurred net operating losses since
inception. The net operating loss carry-forwards as of September
20, 2000 approximate $1,900,000. These carry-forwards will be
available to offset future taxable income and expire beginning in
2012. (subject to the Internal Revenue Service and California
Code Restrictions)
Deferred income tax assets approximately $760,000 arising from
such loss carryforwards have been fully reserved as of September
20, 2000.
NOTE 6 - CAPITALIZED LEASES:
Capitalized leases bearing interest at rates ranging from 20% to
28% per annum. These leases expire between October 31 and
December 31, 2001.
NOTE 7 - NOTES PAYABLE:
At September 20, 2000 there were related party notes payable in
the amount of $270,000. There is no stated interest rate on the
notes. These notes have been classified as current as of
September 20, 2000.
NOTE 8 - CONCENTRATION OF CREDIT RISK:
The Company has identified its financial instruments which are
potentially subject to risk. These financial instruments consist
principally of cash and cash equivalents and receivables.
During the year, the Company had significant operating cash and
cash equivalents in excess of the federally insured limits.
Credit risk from receivables is substantially mitigated by the
Company's historically short collection periods.
NOTE 9 - BUSINESS RISKS:
The Company has a limited operating history and its prospects are
subject to the risks, expenses and uncertainties frequently
encountered by companies in new and rapidly evolving markets for
Internet products and services. The Company has not generated
sufficient revenues to achieve profitability.
The Company's failure to secure financing or its ability to
generate sufficient cash flows through operations may have a
material adverse impact on the Company's future operations and
financial position. As noted in Note 10, the Company is being
merged with Digital Bridge, Inc., a publicly-held company.
NOTE 10 - MERGER:
Effective September 20, 2000 the stockholders of the Company
entered into an agreement to exchange 100% of their outstanding
common stock to Digital Bridge, Inc., a Nevada corporation, in a
stock for stock transaction, pursuant to which the Company will
be a wholly owned subsidiary of the Digital Bridge, Inc. As
consideration, the stockholders received an aggregate of
3,059,500 shares of the Digital Bridge, Inc.'s stock with an
estimated value of $5,545,344. The transaction is expected to be
recorded as a pooling of interests The Company's financial
statements reflect the balances and activity immediately prior to
the above transaction.
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