<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 9, 1999
ZEROS & ONES, INC.
------------------
(Exact name of registrant as specified in its charter)
NEVADA
------
(State or other jurisdiction of incorporation)
33-26531LA 88-0241079
---------- ----------
(Commission File Number) (I.R.S. Employer
Identification No.)
39 EAST WALNUT STREET, PASADENA, CALIFORNIA 91103
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 584-4040
COMMERCIAL LABOR MANAGEMENT, INC.
137 N. LARCHMONT, #507
LOS ANGELES, CALIFORNIA 90004
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Total number of pages in this document: 168
--------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT...................................1
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS...............................1
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.........................................2
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT......................2
ITEM 5. OTHER EVENTS ......................................................2
ITEM 6. RESIGNATION OF DIRECTORS AND APPOINTMENT OF
NEW DIRECTORS..................................................3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS .................................4
SIGNATURES ..................................................................5
</TABLE>
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Not applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 9, 1999, the Company completed the acquisition of 100%
of the total issued and outstanding common and preferred stock of Pillar West
Entertainment, Inc. The Company also entered into an Amendment to Plans of
Reorganization and Exchange and Asset Purchase Agreements with Quantum Arts,
Inc., Kidvision, Inc., Wood Ranch Technology, Group, Inc., Polygonal research
Corporation, Zeros & Ones, Inc., (a Delaware corporation), and EKO
Corporation (collectively, the "Subsidiaries"), and their shareholders, dated
November 9, 1999 and effective as of July 1, 1999 (the "Amendment"), pursuant
to which a number of amendments were made to the Plans of Reorganization and
Exchange and Asset Purchase Agreements among the Company and its Subsidiaries
and their shareholders (collectively, the "Original Agreements.") As a result
of the Amendment, as of November 9, 1999, the Company has approximately
5,792,000 shares of its common stock issued and outstanding, rather than the
7,000,000 shares that were originally anticipated. A copy of the Amendment is
attached to this Report in Item 7(c) as Exhibit 7.1.
The Company has completed the audited financial statements for the
Subsidiaries and has attached them to this Report on Form 8-K, along with
unaudited pro forma combined financial statements of the Company and its
Subsidiaries for the periods as of the dates indicated. See "Items 7(a) and
7(b), Financial Statements of Business Acquired and Pro Forma Financial
Information."
Pursuant to the Amendment and related agreements, the following
clarifications were made and the parties agreed as follows:
1. Kidvision, Inc. is a California corporation.
2. The Company issued 16,000 shares of its common stock to Charles
Overton, the sole shareholder of Kidvision, Inc., in exchange for
100% of the total issued and outstanding stock of Kidvision,
Inc., rather than 500,000 shares.
3. In consideration for 100% of the assets of Zeros & Ones, Inc., a
Delaware corporation, the Company issued 512,000 shares rather
than 220,000 shares. Those shares were ultimately issued to
Robert Holtz, the sole shareholder of Zeros & Ones, Inc.
(Delaware).
4. In consideration for 100% of the total issued and outstanding
shares of Wood Ranch Technology Group, Inc., William Burnsed was
issued 500,000 shares of the Company's common stock (no change)
and Robert Holtz was issued 228,000 shares of the Company's
common stock rather than 375,000 shares.
5. In consideration for 100% of the total issued and outstanding
shares of Polygonal Research Corporation, Bernie Butler Smith was
issued 300,000 shares of the Company's common stock (unchanged)
and Robert Holtz was issued 155,000 shares of the Company's
common stock rather than 300,000 shares.
1
<PAGE>
6. In consideration for 100% of the total issued and outstanding
preferred and common stock of Pillar West Entertainment, Inc.,
the shareholders of Pillar West Entertainment, Inc. are being
issued a total of approximately 2,380,000 shares of the Company's
common stock and 370,000 warrants to purchase approximately
370,000 additional shares of the Company's common stock for a
purchase price of $3.00 per share, exercisable at any time until
November 5, 2002. The closing of the acquisition of Pillar West
Entertainment, Inc. occurred on November 5, 1999. The Company is
in the process of dissolving Pillar West Entertainment, Inc. and
absorbing its assets and liabilities.
7. The promissory note dated July 1, 1999, in the original principal
amount of $87,500 payable by the Company to Edward L. Torres and
Mark J. Richardson, bearing simple interest at the rate of 10%
per annum, will be due and payable in full on January 15, 2000.
8. Pursuant to the Plan of Reorganization and Exchange Agreement
between Quantum Arts, Inc., the Company and Steve Schklair, Mr.
Schklair is entitled to a total cash payment of $300,000, payable
in installments through December 31, 1999. To date, Mr. Schklair
has received payments of $60,000. The Company and Mr. Schklair
have agreed that the balance of the payment of $240,000 will be
made in monthly installments of $60,000 commencing on December
15, 1999.
9. Edward L. Torres and Mark J. Richardson have waived the Company's
covenant to have a positive net stockholders' equity of at least
$5,000,000 within 60 days after the closing of the acquisition of
the Subsidiaries (i.e. by September 29, 1999), and have agreed
that the Company may satisfy the net stockholders' equity
covenant on or before June 30, 2000.
10. The Original Agreements otherwise remain in full force and
effect.
ITEM 3. BANKRUPCTY OR RECEIVERSHIP
Not Applicable.
ITEM 4. CHANGES IN REGISTRANTS CERTIFYING ACCOUNTANT
Not Applicable.
ITEM 5. OTHER EVENTS.
The Company is in negotiations with an NASD registered broker-dealer
firm to be a placement agent for a private placement of the Company's common
stock. The Company is also in discussions with other potential investors that
have expressed an interest in contributing capital to the Company. The
Company entered into an agreement with the Beatton Group, a financial
advisory firm, pursuant to which The Beatton Group has agreed to assist the
Company to raise up to $20,000,000 of private capital in consideration for
(1) a success fee equal to 2-1/2% of the capital raised from The Beatton's
Group's efforts, and (2) for each one million dollars of capital raised from
its efforts, 8,000 stock options to purchase 8,000 shares of the Company's
common
2
<PAGE>
stock for a purchase price equal to the last sale price of the Company's
common stock on the public trading market on the date that the option is
granted, exercisable for a period of one year after the date of the grant.
The principals of The Beatton Group were common stockholders of Pillar West
Entertainment, Inc. and received a total of 110,000 shares of the Company's
common stock in exchange for their shares of Pillar West Entertainment, Inc.
There is no assurance that the Company will raise any capital in its private
placement of common stock or from any other source.
Steve Schklair and Robert Holtz are working full time for the
Company and William Burnsed is working full time for Wood Ranch Technology
Group, Inc. Bernie Butler Smith has not yet joined Polygonal Research
Corporation or the Company on a full-time basis, and will continue on a
part-time basis until the Company is adequately funded to compensate Mr.
Smith on a level commensurate with his present outside consulting income.
Effective November 1, 1999 Charles Overton resigned as an officer and
director of the Company and will become a consultant to the Company. Mr.
Overton will remain as the Chairman and Chief Executive Officer of Kidvision,
Inc., and has agreed to submit an updated business plan for Kidvision, Inc.
to the Company's Board of Directors in December 1999. At that time, the
Company will make a decision regarding the budget and planned operations for
Kidvision, Inc. Mr. Schklair has been appointed as the Company's Corporate
Secretary, effective November 1, 1999. See "Item 6. Resignation of Directors
and Appointment of New Directors." Furthermore, effective November 1, 1999,
Steve Schklair was appointed to be the Chief Executive Officer of the Company
and Robert Holtz was appointed to be the President of the Company.
Accordingly, on that date Steve Schklair resigned as the President of the
Company and Robert Holtz resigned as the Chief Executive Officer of the
Company.
On July 19, 1999, the Company entered into a consulting agreement
with ICC Holdings, Inc. to provide investor relations services for the
Company. In consideration for ICC Holdings, Inc.'s services during the one
year term of the Agreement, the Company has agreed to issue a total of 54,000
shares of its common stock to ICC Holdings, Inc. in monthly installments over
the term of the Agreement.
ITEM 6. RESIGNATION OF DIRECTORS AND APPOINTMENT OF NEW DIRECTORS
Effective November 1, 1999, Charles Overton resigned as an officer
and director of the Company and entered into a consulting agreement with the
Company. Pursuant to the Consulting Agreement, Mr. Overton has agreed to
assist the Company with the implementation of its business plan, with raising
capital, and with the completion of the transactions contemplated in the
Original Agreements and in the Amendment. Mr.Overton has agreed to provide
consulting services to the Company on a nonexclusive basis through June 30,
2000. He has also agreed to remain as the Chairman and Chief Executive
Officer of Kidvision, Inc. until final decisions are made regarding the
business and operating plans for Kidvision, Inc. In consideration for Mr.
Overton's consulting services, the Company has agreed to pay a net referral
fee to Mr. Overton equal to one-half of one percent of capital that is raised
for the Company through Mr. Overton's efforts, up to a maximum fee of
$100,000. Any other consulting or referral fees payable by the Company to Mr.
Overton (i.e. up to a maximum fee of $400,000) will be applied to the payment
of accounts receivable owed to the Company by an affiliate of Mr. Overton.
3
<PAGE>
Effective November 1, 1999, Steve Schklair became the Corporate
Secretary of the Company. The Company's Board of Directors presently has one
vacancy which the Board intends to fill in the near future. The Company has
not yet identified the candidate to fill the vacancy on its Board of
Directors.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIALS & EXHIBITS
(a) Financial Statements of Business Acquired
Audited balance sheets and related financial statements for Pillar West
Entertainment, Inc. (A Development Stage Company) for the years ended
and as of December 31, 1997 and December 31, 1998.
Compiled balance sheet and related financial statements for Pillar West
Entertainment, Inc. (A Development Stage Company) for the periods ended
and as of June 30, 1998, June 30, 1999, March 31, 1999 and September
30, 1998.
Audited balance sheets and related financial statements for EKO
Corporation (A Development Stage Company) for the years ended and as of
December 31, 1997 and December 31, 1998.
Compiled balance sheets and related financial statements for EKO
Corporation (A Development Stage Company) for the periods ended and as
of June 30, 1999 and March 31, 1999.
Audited balance sheet and related financial statements for Kidvision,
Inc. (A Development Stage Company) for the year ended and as of
December 31, 1998.
Compiled balance sheets and related financial statements for Kidvision,
Inc. (A Development Stage Company) for the periods ended and as of June
30, 1998, June 30, 1999 and March 31, 1999.
Compiled balance sheets and related financial statement for Quantum
Arts, Inc. as of and for the six months ended June 30, 1999.
Compiled balance sheet and related financial statements for Digital
Video Engineering (Wood Ranch Technology Group, Inc.) as of and for
the six months ended June 30, 1999.
Audited balance sheet and related financial statements for Polygonal
Research Corporation (A Development Stage Company) for the year ended
and as of December 31, 1998.
Compiled balance sheet and related financial statements for Polygonal
Research Corporation (A Development Stage Company) as of and for the
periods ended March 31, 1999, June 30, 1999, September 30, 1998 and
June 30, 1998.
(b) Pro Forma Financial Information
Pro Forma (Unaudited) Combined Financial Statements of the
Company and its Subsidiaries as of and for the years ended
December 31, 1998 and December 31, 1999, and as of and for the
six months ended June 30, 1998 and June 30, 1999.
4
<PAGE>
(c) Exhibits
7.1 Amendment to the Plans of Reorganization and Exchange and
Asset Purchase Agreements, dated November 9, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ZEROS & ONES, INC.
(FORMERLY COMMERCIAL LABOR MANAGEMENT, INC.)
----------------------------------------------
(Registrant)
Date: November 9, 1999
/s/ Steve Schklair
--------------------------------------
Steve Schklair, Chief Executive Officer
5
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Pillar West Entertainment Inc.
(a Development Stage Company)
We have audited the accompanying balance sheet of Pillar West Entertainment
Inc. (a Development Stage Company and a California corporation) as of
December 31, 1997 and the related statement of stockholders' equity, retained
earnings, and statement of cash flow for the year 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 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 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 Pillar West Entertainment
Inc. as of December 31, 1997, and its cash flow for the year then ended in
conformity with generally accepted accounting principles.
/s/ ARMANDO C. IBARRA
- ----------------------------
ARMANDO C. IBARRA, CPA
October 12, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 98
---------------------
TOTAL CURRENT ASSETS 98
FURNITURE AND EQUIPMENT NET 12,662
OTHER ASSETS
Organization Costs 1,400
Deposit 1,500
Due from Officers 188,525
---------------------
TOTAL OTHER ASSETS 191,425
---------------------
TOTAL ASSETS $ 204,185
=====================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 49,886
---------------------
TOTAL CURRENT LIABILITIES 49,886
---------------------
TOTAL LIABILITIES $ 49,886
STOCKHOLDERS' EQUITY
Common Stock (no par value, 10,000,000 shares 31,500
authorized, 225,000 shares issued and outstanding)
Preferred stock (no par value, 2,000,000 shares 3,561,396
authorized.
Deficit accumulated in the development stage (3,438,597)
---------------------
TOTAL STOCKHOLDERS' EQUITY 154,299
---------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 204,185
=====================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
DECEMBER 31, 1997
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (779,412)
Depreciation expense 2,452
Decrease in prepaid expense (21,600)
Increase in accounts payable 12,377
---------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (786,183)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (7,420)
Capital Distribution (1,478,704)
---------------------
NET CASH USED BY INVESTING ACTIVITIES (1,486,124)
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions by investors 2,408,100
Dividends paid (145,588)
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,262,512
---------------------
NET INCREASE (DECREASE) IN CASH (9,795)
CASH AT BEGINNING OF YEAR 9,893
---------------------
CASH AT END OF YEAR $ 98
=====================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 COMMON PREFERRED DEFICIT TOTAL
STOCK STOCK ACCUMULATED
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 31,500 2,632,000 (2,513,597) 149,903
Paid in Capital 2,408,100 2,408,100
Capital distribution (1,478,704) (1,478,704)
Dividends (145,588) (145,588)
Operating Loss December 31, 1997 (779,412) (779,412)
--------------------------------------------------------------------------------
Balance, December 31, 1997 $31,500 $3,561,396 ($3,438,597) $154,299
================================================================================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED ON DECEMBER 31, 1997
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------
REVENUES
Revenues $ 148,122
-------------------
TOTAL REVENUES $ 148,122
GENERAL & ADMINISTRATIVE EXPENSES 2,318,836
-------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES 2,318,836
LESS:
AFFILIATE SHARE OF EXPENSES (60%) (1,391,302)
-------------------
TOTAL NET GENERAL & ADMINISTRATIVE EXPENSES 927,534
NET INCOME/ (LOSS) $ (779,412)
===================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE TWELVE MONTHS ENDED ON DECEMBER 31, 1997
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
Advertising $ 21,374
Auto expenses 4,350
Bank charges 1,934
Consulting 82,500
Depreciation 2,452
Donation 1,350
Incorporation Fees 11,168
Insurance 32,588
Licenses & permits 110
Miscellaneous 15
Office supplies 10,052
Outside services 1,996
Parking 6,850
Payroll taxes 51,373
Printing and Reproduction 44,539
Production expenses 1,385,059
Professional fees 179,541
Rent 58,928
Repairs 5,202
Salaries 341,385
Shipping and postage 20,487
Taxes 4,177
Travel and Entertainment 18,609
Telephone 32,797
------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES $ 2,318,836
==================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
AS OF DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Pillar West Entertainment, Inc. a California corporation (the Company)
was organized on January 19, 1996. The Company was formed to develop the
Kids Educational Network on the Internet and to produce and distribute
entertaining educational television programming for children.
AGREEMENT
Agreement with Randall Overton Productions, Inc. On January 22, 1996, the
Company entered into a production and license agreement with Randall
Overton Productions, Inc., an affiliated California corporation
conducting business as independent production company. The Company is
obligated to contribute at least 60% of the total capital raised from the
placement of the shares.
BASIS OF ACCOUNTING
The financial statements of Pillar West, Inc. are prepared using the
accrual basis of accounting where as revenues are recognized when earned
and expenses are recognized when incurred. This basis of accounting
conforms to generally accepted accounting principles.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are valued at cost. Maintenance and repair costs
are charged to expense as incurred. Gains and losses on disposition of
property and equipment are reflected in income. Depreciation is computed on
the straight-line method for financial accounting purposes, based on the
estimated useful lives of the assets.
INCOME TAX REPORTING
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis, and to net operating loss and tax credit
carryforwards, measured by enacted tax rates for years in which taxes are
expected to be paid recovered.
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
AS OF DECEMBER 31, 1997
Deferred taxes are provided for temporary differences between financial
and tax accounting, principally for differences in the basis of plant and
equipment, allowance for doubtful accounts and other non-deductible expenses
as well as for net operating loss carryforwards.
2. SUBSEQUENT EVENTS:
Zeros and Ones, Inc. (a Delaware Corporation) acquired 100% of the
outstanding stock of Pillar West Entertainment, Inc.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Pillar West Entertainment Inc.
(a Development Stage Company)
We have audited the accompanying balance sheet of Pillar West Entertainment
Inc. (a Development Stage Company and a California corporation) as of
December 31, 1998 and the related statement of stockholders' equity, retained
earnings, and statement of cash flow for the year 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 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 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 Pillar West Entertainment
Inc. as of December 31, 1998, and its cash flow for the year then ended in
conformity with generally accepted accounting principles.
/s/ Armando C. Ibarra
- --------------------------
ARMANDO C. IBARRA, CPA
October 12, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 90,426
--------------------
TOTAL CURRENT ASSETS $ 90,426
FURNITURE AND EQUIPMENT NET 9,712
OTHER ASSETS
Organization Costs 1,400
Deposit 1,500
Due from Officers 143,800
--------------------
TOTAL OTHER ASSETS 146,700
--------------------
TOTAL ASSETS $ 246,838
====================
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO THE FINANCIAL STATEMENT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Payroll liability $ 46,931
--------------------
TOTAL CURRENT LIABILITIES 46,931
--------------------
TOTAL LIABILITIES $ 46,931
STOCKHOLDERS' EQUITY
Common Stock (no par value, 10,000,000 shares 31,500
authorized, 225,000 shares issued and outstanding)
Preferred stock (no par value, 2,000,000 shares 3,908,008
authorized.
Deficit accumulated in the development stage (3,739,601)
--------------------
TOTAL STOCKHOLDERS' EQUITY 199,907
--------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 246,838
====================
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO THE FINANCIAL STATEMENT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C>
REVENUES
Revenues 62,447
---------------------
TOTAL NET REVENUES $ 62,447
GENERAL & ADMINISTRATIVE EXPENSES 853,126
---------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES 853,126
OTHER INCOME (EXPENSES)
Other Income 521
Other expenses (2,722)
---------------------
TOTAL OTHER INCOME (EXPENSES) (2,201)
AFFILIATE SHARE OF EXPENSES (60%) (513,509)
---------------------
NET TOTAL EXPENSES $ 342,339
NET INCOME/ (LOSS) $ (279,371)
=====================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
DECEMBER 31, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (279,371)
Depreciation expense 3,200
Decrease in due from officers 34,486
Decrease in accounts payable (2,955)
---------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (244,640)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (9,200)
---------------------
NET CASH USED BY INVESTING ACTIVITIES (9,200)
CASH FLOWS FROM FINANCING ACTIVITIES
Net of Capital contributions 374,379
Dividends paid (30,211)
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 344,168
---------------------
NET INCREASE (DECREASE) IN CASH 90,328
CASH AT BEGINNING OF YEAR 98
---------------------
CASH AT END OF YEAR $ 90,426
=====================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 COMMON PREFERRED ACCUMULATED TOTAL
STOCK STOCK DEFICIT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 31,500 3,561,396 (3,438,597) 154,299
Paid in Capital 1,011,701 1,011,701
Capital distribution (665,089) (665,089)
Dividends (21,633) (21,633)
Operating Loss December 31, 1998 (279,371) (279,371)
---------------------------------------------------------------------------------
Balance, December 31, 1998 $31,500 $3,908,008 ($3,739,601) $199,907
=================================================================================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Advertising $ 3,898
Auto expenses 4,174
Bank charges 1,963
Consulting 12,128
Computer maintenance 14,455
Depreciation 3,200
Equipment rental 2,337
Incorporation fees 3,607
Insurance 8,603
Licenses & permits 1,564
Management 56,535
Marketing 27,781
Office supplies 6,335
Outside services 15,019
Parking 3,735
Payroll taxes 8,469
Printing and Reproduction 26,360
Production expenses 345,354
Professional fees 37,472
Rearch & development 4,000
Rearch - projections 6,750
Rent 78,464
Repairs 24,770
Salaries 64,286
Sales expenses 13,281
Shipping and postage 8,194
Taxes (Corporate) 810
Training 13,989
Travel and Entertainment 7,564
Telemarketing 16,452
Telephone 31,577
------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES $ 853,126
==================
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO THE FINANCIAL STATEMENT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
AS OF DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Pillar West Entertainment, Inc. a California corporation (the Company)
was organized on January 19, 1996. The Company was formed to develop the
Kids Educational Network on the Internet and to produce and distribute
entertaining educational television programming for children.
AGREEMENT
Agreement with Randall Overton Productions, Inc. On January 22, 1996, the
Company entered into a production and license agreement with Randall
Overton Productions, Inc., an affiliated California corporation
conducting business as independent production company. The Company is
obligated to contribute at least 60% of the total capital raised from the
placement of the shares.
BASIS OF ACCOUNTING
The financial statements of Pillar West, Inc. are prepared using the
accrual basis of accounting where as revenues are recognized when earned
and expenses are recognized when incurred. This basis of accounting
conforms to generally accepted accounting principles.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are valued at cost. Maintenance and repair costs
are charged to expense as incurred. Gains and losses on disposition of
property and equipment are reflected in income. Depreciation is computed on
the straight-line method for financial accounting purposes, based on the
estimated useful lives of the assets.
INCOME TAX REPORTING
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis, and to net operating loss and tax credit
carryforwards, measured by enacted tax rates for years in which taxes are
expected to be paid recovered.
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
AS OF DECEMBER 31, 1998
Deferred taxes are provided for temporary differences between financial
and tax accounting, principally for differences in the basis of plant and
equipment, allowance for doubtful accounts and other non-deductible expenses
as well as for net operating loss carryforwards.
2. SUBSEQUENT EVENTS:
Zeros and Ones, Inc. (a Delaware Corporation) acquired 100% of the
outstanding stock of Pillar West Entertainment, Inc.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of Pillar West Entertainment Inc.
We have compiled the accompanying balance sheet of Pillar West Entertainment
Inc. (a California corporation) as of June 30, 1998 and the related statement
of income and stockholders' equity for the three months then ended, in
accordance with Statements of Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not
express an opinion or any other form of assurance on them.
/s/ ARMANDO C. IBARRA
- --------------------------
ARMANDO C. IBARRA, CPA
October 12, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
BALANCE SHEET
JUNE 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 50,134
--------------------
TOTAL CURRENT ASSETS 50,134
FURNITURE AND EQUIPMENT NET 11,060
OTHER ASSETS
Organization costs 1,400
Deposit 1,500
Due from Officers 200,084
--------------------
TOTAL OTHER ASSETS 202,984
--------------------
TOTAL ASSETS $ 264,178
====================
</TABLE>
SEE ACCOUNTANT'S COMPILATION REPORT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
BALANCE SHEET
JUNE 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 22,599
--------------------
TOTAL CURRENT LIABILITIES 22,599
--------------------
TOTAL LIABILITIES $ 22,599
STOCKHOLDERS' EQUITY
Common Stock (no par value, 10,000,000 shares 31,500
authorized, 31,500 shares issued and outstanding)
Preferred stock (no par value, 2,000,000 shares 3,830,484
authorized)
Deficit accumulated in the development stage (3,620,405)
--------------------
TOTAL STOCKHOLDERS' EQUITY 241,579
--------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 264,178
====================
</TABLE>
SEE ACCOUNTANT'S COMPILATION REPORT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
JUNE 30, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON PREFERRED DEFICIT TOTAL
JUNE 30, 1998 STOCK STOCK ACCUMULATED
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 31,500 3,561,396 (3,438,597) 154,299
Paid in Capital 511,400 511,400
Capital distribution (242,312) (242,312)
Dividends (7,233) (7,233)
Net Loss (March 31, 1998) (95,847) (95,847)
Net Loss for the quarter ended (78,728) (78,728)
June 30, 1998
---------------------------------------------------------------------------------
Balance, June 30, 1998 $31,500 $3,830,484 ($3,620,405) $241,579
=================================================================================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
INCOME STATEMENT
FOR THE THREE MONTHS ENDED ON JUNE 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Revenues 0
-------------------
TOTAL NET REVENUES $ 0
GENERAL & ADMINISTRATIVE EXPENSES 194,352
-------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES 194,352
OTHER EXPENSES
Other expenses 2,395
-------------------
TOTAL OTHER EXPENSES 2,395
AFFILIATE SHARE OF EXPENSES (60%) (118,019)
-------------------
NET TOTAL EXPENSES $ 78,728
-------------------
NET INCOME (LOSS) $ (78,728)
===================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
STATEMENT OF CASH FLOW
JUNE 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (174,575)
Depreciation expense 4,910
Due from officers (11,559)
(Decrease) in accounts payable (27,287)
---------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (208,511)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (3,308)
Capital Distribution (242,312)
---------------------
NET CASH USED BY INVESTING ACTIVITIES (245,620)
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions by investors 511,400
Dividends paid (7,233)
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 504,167
---------------------
NET INCREASE (DECREASE) IN CASH 50,036
CASH AT BEGINNING OF YEAR 98
---------------------
CASH AT END OF YEAR $ 50,134
=====================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE THREE MONTHS ENDED ON JUNE 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Advertising $ 2,488
Bank charges 324
Consulting 1,720
Depreciation 4,910
Equipment rental 1,169
Incorporation fees 1,860
Insurance 2,100
Management 13,735
Office supplies 3,729
Outside services 6,000
Parking 1,215
Printing 3,867
Production expenses 68,541
Professional fees 8,727
Rearch projections 2,750
Rent 11,500
Repairs 4,434
Reproduction 12,500
Salaries 8,425
Sales expenses 7,730
Shipping and postage 3,734
Taxes & Licenses 800
Travel and Entertainment 2,014
Telemarketing 3,896
Telephone 3,893
Training 12,291
--------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES $ 194,352
====================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
NOTES TO THE FINANCIAL STATEMENT
AS OF JUNE 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Pillar West Entertainment, Inc. a California corporation (the Company)
was organized on January 19, 1996. The Company was formed to develop the
Kids Educational Network on the Internet and to produce and distribute
entertaining educational television programming for children.
AGREEMENT
Agreement with Randall Overton Productions, Inc. On January 22, 1996, the
Company entered into a production and license agreement with Randall
Overton Productions, Inc., an affiliated California corporation
conducting business as independent production company. The Company is
obligated to contribute at least 60% of the total capital raised from the
placement of the shares.
BASIS OF ACCOUNTING
The financial statements of Pillar West, Inc. are prepared using the
accrual basis of accounting where as revenues are recognized when earned
and expenses are recognized when incurred. This basis of accounting
conforms to generally accepted accounting principles.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are valued at cost. Maintenance and repair costs
are charged to expense as incurred. Gains and losses on disposition of
property and equipment are reflected in income. Depreciation is computed on
the straight-line method for financial accounting purposes, based on the
estimated useful lives of the assets.
INCOME TAX REPORTING
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis, and to net operating loss and tax credit
carryforwards, measured by enacted tax rates for years in which taxes are
expected to be paid recovered.
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
NOTES TO THE FINANCIAL STATEMENT
AS OF JUNE 30, 1998
Deferred taxes are provided for temporary differences between financial
and tax accounting, principally for differences in the basis of plant and
equipment, allowance for doubtful accounts and other non-deductible expenses
as well as for net operating loss carryforwards.
2. SUBSEQUENT EVENTS:
Zeros and Ones, Inc. (a Delaware Corporation) acquired 100% of the
outstanding stock of Pillar West Entertainment, Inc.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of Pillar West Entertainment Inc.
We have compiled the accompanying balance sheet of Pillar West Entertainment
Inc. (a California corporation) as of June 30, 1999 and the related statement
of income and stockholders' equity for the three months then ended, in
accordance with Statements of Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not
express an opinion or any other form of assurance on them.
/s/ ARMANDO C. IBARRA
- --------------------------
ARMANDO C. IBARRA, CPA
October 13, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL: (619) 422-1348 FAX: (619) 422-1465
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
BALANCE SHEET
JUNE 30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 1,837
---------------------
TOTAL CURRENT ASSETS 1,837
FURNITURE AND EQUIPMENT NET 8,090
OTHER ASSETS
Organization Costs 1,400
Deposit 1,500
---------------------
TOTAL OTHER ASSETS 2,900
---------------------
TOTAL ASSETS $ 12,827
=====================
</TABLE>
SEE ACCOUNTANT'S COMPILATION REPORT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
BALANCE SHEET
JUNE 30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 0
Due to Officers 28,500
---------------------
TOTAL CURRENT LIABILITIES 28,500
---------------------
TOTAL LIABILITIES $ 28,500
STOCKHOLDERS' EQUITY
Common Stock (no par value, 10,000,000 shares 31,500
authorized, 392,248 shares issued and outstanding)
Preferred stock (no par value, 2,000,000 shares 4,233,132
authorized, 789,305 shares issued and outstanding)
Deficit accumulated in the development stage (4,280,305)
---------------------
TOTAL STOCKHOLDERS' EQUITY (15,673)
---------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 12,827
=====================
</TABLE>
SEE ACCOUNTANT'S COMPILATION REPORT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK PREFERRED STOCK
SIX MONTHS ENDED ----------------------------------------------------------- ACCUMULATED
JUNE 30, 1999 NO. OF AMOUNT NO. OF AMOUNT DEFICIT TOTAL
SHARES SHARES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1999 31,500 $31,500 789,305 $4,060,846 ($3,933,345) $159,001
Paid in Capital 990,750 990,750
New Issuances 360,748
Capital distribution (818,464) (818,464)
Dividends
Net Loss for the quarter ended (346,960) (346,960)
June 30, 1999
---------------------------------------------------------------------------------------------
Balance, June 30, 1999 392,248 $31,500 789,305 $4,233,132 ($4,280,305) $(15,673)
=============================================================================================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
STATEMENT OF CASH FLOW
JUNE 30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (346,960)
Decrease in due from officers 132,032
---------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (214,928)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Distribution (818,464)
---------------------
NET CASH USED BY INVESTING ACTIVITIES (818,464)
CASH FLOWS FROM FINANCING ACTIVITIES
Paid in Capital 990,750
Dividends paid 28,500
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,019,250
---------------------
NET INCREASE (DECREASE) IN CASH (14,142)
CASH AT BEGINNING OF YEAR 15,979
---------------------
CASH AT END OF YEAR $ 1,837
=====================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Revenues $ 0
--------------------
TOTAL REVENUES $ 0
GENERAL & ADMINISTRATIVE EXPENSES 346,960
--------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES 346,960
--------------------
Net Total Expenses 346,960
--------------------
NET INCOME/(LOSS) $ (346,960)
====================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Bank charges 26
Consulting 179,052
Depreciation 1,622
Dues and subscriptions 85
Insurance 2,258
Legal and accounting 11,150
Licenses & permits 10
Marketing 14,500
Miscellaneous 1,731
Parking 786
Postage & delivery 5,103
Printing & Reproduction 30,690
Professional fees 4,667
Rent 11,548
Repairs 208
Research & Development 73,940
Supplies 1,702
Telephone 6,843
Travel & entertainment 1,039
------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES $ 346,960
==================
</TABLE>
SEE ACCOUNTANT'S COMPILATION REPORT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
NOTES TO THE FINANCIAL STATEMENT
AS OF JUNE 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Pillar West Entertainment, Inc. a California corporation (the Company)
was organized on January 19, 1996. The Company was formed to develop the
Kids Educational Network on the Internet and to produce and distribute
entertaining educational television programming for children.
AGREEMENT
Agreement with Randall Overton Productions, Inc. On January 22, 1996, the
Company entered into a production and license agreement with Randall
Overton Productions, Inc., an affiliated California corporation
conducting business as independent production company. The Company is
obligated to contribute at least 60% of the total capital raised from the
placement of the shares.
BASIS OF ACCOUNTING
The financial statements of Pillar West, Inc. are prepared using the
accrual basis of accounting where as revenues are recognized when earned
and expenses are recognized when incurred. This basis of accounting
conforms to generally accepted accounting principles.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are valued at cost. Maintenance and repair costs
are charged to expense as incurred. Gains and losses on disposition of
property and equipment are reflected in income. Depreciation is computed on
the straight-line method for financial accounting purposes, based on the
estimated useful lives of the assets.
INCOME TAX REPORTING
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis, and to net operating loss and tax credit
carryforwards, measured by enacted tax rates for years in which taxes are
expected to be paid recovered.
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
NOTES TO THE FINANCIAL STATEMENT
AS OF JUNE 30, 1999
Deferred taxes are provided for temporary differences between financial
and tax accounting, principally for differences in the basis of plant and
equipment, allowance for doubtful accounts and other non-deductible expenses
as well as for net operating loss carryforwards.
2. SUBSEQUENT EVENTS:
Zeros and Ones, Inc. (a Delaware Corporation) acquired 100% of the
outstanding stock of Pillar West Entertainment, Inc.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of Pillar West Entertainment Inc.
We have compiled the accompanying balance sheet of Pillar West Entertainment
Inc. (a California corporation) as of March 31, 1999 and the related statement
of income and stockholders' equity for the three months then ended, in
accordance with Statements of Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not
express an opinion or any other form of assurance on them.
/s/ Armando C. Ibarra
- --------------------------
ARMANDO C. IBARRA, CPA
October 12, 1999
637 Third Avenue, Suite H, Chula Vista, CA 91910
TEL: (619) 422-1348 FAX: (619) 422-1465
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
BALANCE SHEET
MARCH 31, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 15,979
--------------------
TOTAL CURRENT ASSETS 15,979
FURNITURE AND EQUIPMENT NET 8,901
OTHER ASSETS
Organization Costs 1,400
Deposit 1,500
Due from Officers 131,221
--------------------
TOTAL OTHER ASSETS 134,121
--------------------
TOTAL ASSETS $ 159,001
====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
BALANCE SHEET
MARCH 31, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 0
--------------------
TOTAL CURRENT LIABILITIES 0
--------------------
TOTAL LIABILITIES $ 0
STOCKHOLDERS' EQUITY
Common Stock (no par value, 10,000,000 shares 31,500
authorized, 31,500 shares issued and outstanding)
Preferred stock (no par value, 2,000,000 shares 4,060,846
authorized)
Deficit accumulated in the development stage (3,933,345)
--------------------
TOTAL STOCKHOLDERS' EQUITY 159,001
--------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 159,001
====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
THREE MONTHS ENDED --------------------------------- PREFERRED ACCUMULATED
MARCH 31, 1999 NO. OF AMOUNT STOCK DEFICIT TOTAL
SHARES
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999 31,500 $31,500 $3,908,008 ($3,739,601) $199,907
Paid in Capital 468,245 468,245
Capital distribution (315,407) (315,407)
Dividends (3,333) (3,333)
Net Loss for the quarter ended (190,411) (190,411)
March 31, 1999
------------------------------------------------------------------------------------------
Balance, March 31, 1999 31,500 $31,500 $4,060,846 ($3,933,345) $159,001
==========================================================================================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
STATEMENT OF CASH FLOW
MARCH 31, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (190,411)
Decrease in due from officers 13,390
Increase in accounts payable (46,931)
---------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (223,952)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment 0
Capital Distribution (315,407)
---------------------
NET CASH USED BY INVESTING ACTIVITIES (315,407)
CASH FLOWS FROM FINANCING ACTIVITIES
Net of Capital contributions 468,245
Dividends paid (3,333)
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 464,912
---------------------
NET INCREASE (DECREASE) IN CASH (74,447)
CASH AT BEGINNING OF YEAR 90,426
---------------------
CASH AT END OF YEAR $ 15,979
=====================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
INCOME STATEMENT
FOR THE THREE MONTHS ENDED ON MARCH 31, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Revenues $ 0
-------------------
TOTAL REVENUES $ 0
GENERAL & ADMINISTRATIVE EXPENSES 476,028
-------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES 476,028
AFFILIATE SHARE OF EXPENSES (60%) (285,617)
-------------------
NET TOTAL EXPENSES $ 190,411
-------------------
NET INCOME/(LOSS) $ (190,411)
===================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE THREE MONTHS ENDED ON MARCH 31, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Bank charges $ 271
Computer maintenance 5,000
Consulting 112,775
Express mail 2,255
Insurance 2,215
Legal and accounting 17,500
Management 4,500
Marketing 127,000
Miscellaneous 345
Office supplies 1,554
Outside services 2,000
Parking 350
Payroll taxes 350
Printing & reproduction 30,387
Production expenses 89,505
Professional fees 2,099
Rent 22,846
Salaries 26,002
Shipping and postage 551
Telephone 5,377
Travel and Entertainment 23,146
------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES $ 476,028
==================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
NOTES TO THE FINANCIAL STATEMENT
AS OF MARCH 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Pillar West Entertainment, Inc. a California corporation (the Company)
was organized on January 19, 1996. The Company was formed to develop the
Kids Educational Network on the Internet and to produce and distribute
entertaining educational television programming for children.
AGREEMENT
Agreement with Randall Overton Productions, Inc. On January 22, 1996, the
Company entered into a production and license agreement with Randall
Overton Productions, Inc., an affiliated California corporation
conducting business as independent production company. The Company is
obligated to contribute at least 60% of the total capital raised from the
placement of the shares.
BASIS OF ACCOUNTING
The financial statements of Pillar West, Inc. are prepared using the
accrual basis of accounting where as revenues are recognized when earned
and expenses are recognized when incurred. This basis of accounting
conforms to generally accepted accounting principles.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are valued at cost. Maintenance and repair costs
are charged to expense as incurred. Gains and losses on disposition of
property and equipment are reflected in income. Depreciation is computed on
the straight-line method for financial accounting purposes, based on the
estimated useful lives of the assets.
INCOME TAX REPORTING
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis, and to net operating loss and tax credit
carryforwards, measured by enacted tax rates for years in which taxes are
expected to be paid recovered.
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
NOTES TO THE FINANCIAL STATEMENT
AS OF MARCH 31, 1999
Deferred taxes are provided for temporary differences between financial
and tax accounting, principally for differences in the basis of plant and
equipment, allowance for doubtful accounts and other non-deductible expenses
as well as for net operating loss carryforwards.
2. SUBSEQUENT EVENTS:
Zeros and Ones, Inc. (a Delaware Corporation) acquired 100% of the
outstanding stock of Pillar West Entertainment, Inc.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of Pillar West Entertainment Inc.
We have compiled the accompanying balance sheet of Pillar West Entertainment
Inc. (a California corporation) as of September 30, 1998 and the related
statement of income and stockholders' equity for the three months then ended,
in accordance with Statements of Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not
express an opinion or any other form of assurance on them.
/s/ ARMANDO C. IBARRA
- --------------------------
ARMANDO C. IBARRA, CPA
October 12, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 29,404
--------------------
TOTAL CURRENT ASSETS $ 29,404
FURNITURE AND EQUIPMENT NET 13,570
OTHER ASSETS
Organization Costs 1,400
Deposit 1,500
Due from Officers 210,553
--------------------
TOTAL OTHER ASSETS 213,453
--------------------
TOTAL ASSETS $ 256,427
====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 19,546
--------------------
TOTAL CURRENT LIABILITIES 19,546
--------------------
TOTAL LIABILITIES $ 19,546
STOCKHOLDERS' EQUITY
Common Stock (no par value, 10,000,000 shares 31,500
authorized, 31,500 shares issued and outstanding)
Preferred stock (no par value, 2,000,000 shares 3,888,322
authorized)
Deficit accumulated in the development stage (3,682,941)
--------------------
TOTAL STOCKHOLDERS' EQUITY 236,881
--------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 256,427
====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
INCOME STATEMENT
FOR THE THREE MONTHS ENDED ON SEPTEMBER 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Revenues 21,250
-------------------
TOTAL REVENUES $ 21,250
GENERAL & ADMINISTRATIVE EXPENSES 206,103
-------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES 206,103
LESS:
AFFILIATE SHARE OF EXPENSES (60%) (123,662)
-------------------
NET TOTAL EXPENSES 82,441
NET INCOME/(LOSS) $ (61,191)
===================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
STATEMENT OF CASH FLOW
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (61,191)
Depreciation expense 2,400
Due from officers (10,469)
Increase in accounts payable 6,785
---------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (62,475)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (14,748)
Capital Distribution (123,662)
---------------------
NET CASH USED BY INVESTING ACTIVITIES (138,410)
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions by investors 181,500
Dividends paid (1,345)
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 180,155
---------------------
NET INCREASE (DECREASE) IN CASH (20,730)
CASH AT BEGINNING OF YEAR 50,134
---------------------
CASH AT END OF YEAR $ 29,404
=====================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON PREFERRED ACCUMULATED TOTAL
SEPTEMBER 30, 1998 STOCK STOCK DEFICIT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, July 1, 1998 31,500 3,830,484 (3,620,405) 241,579
Paid in Capital 181,500 181,500
Capital distribution (123,662) (123,662)
Dividends (1,345) (1,345)
Net Loss for the quarter ended (61,191) (61,191)
September 30, 1998
--------------------------------------------------------------------------------
Balance, September 30, 1998 $31,500 $3,888,322 ($3,682,941) $236,881
================================================================================
</TABLE>
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE THREE MONTHS ENDED ON SEPTEMBER 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Advertising $ 1,176
Bank charges 873
Computer maintenance 8,855
Consulting 9,908
Depreciation 2,400
Incorporation fees 625
Insurance 2,244
Management 35,300
Marketing 3,443
Miscellaneous 284
Office supplies 843
Outside services 4,019
Parking 1,035
Payroll taxes 2,658
Printing and Reproduction 1,609
Production expenses 68,541
Professional fees 6,900
Rearch projections 2,750
Rent 14,821
Repairs 822
Salaries 10,273
Sales expenses 2,300
Shipping and postage 1,664
Telemarketing 7,493
Telephone 13,570
Training 1,697
------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES $ 206,103
==================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
NOTES TO THE FINANCIAL STATEMENT
AS OF SEPTEMBER 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Pillar West Entertainment, Inc. a California corporation (the Company)
was organized on January 19, 1996. The Company was formed to develop the
Kids Educational Network on the Internet and to produce and distribute
entertaining educational television programming for children.
AGREEMENT
Agreement with Randall Overton Productions, Inc. On January 22, 1996, the
Company entered into a production and license agreement with Randall
Overton Productions, Inc., an affiliated California corporation
conducting business as independent production company. The Company is
obligated to contribute at least 60% of the total capital raised from the
placement of the shares.
BASIS OF ACCOUNTING
The financial statements of Pillar West, Inc. are prepared using the
accrual basis of accounting where as revenues are recognized when earned
and expenses are recognized when incurred. This basis of accounting
conforms to generally accepted accounting principles.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are valued at cost. Maintenance and repair costs
are charged to expense as incurred. Gains and losses on disposition of
property and equipment are reflected in income. Depreciation is computed on
the straight-line method for financial accounting purposes, based on the
estimated useful lives of the assets.
INCOME TAX REPORTING
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis, and to net operating loss and tax credit
carryforwards, measured by enacted tax rates for years in which taxes are
expected to be paid recovered.
<PAGE>
PILLAR WEST ENTERTAINMENT, INC.
NOTES TO THE FINANCIAL STATEMENT
AS OF SEPTEMBER 30, 1998
Deferred taxes are provided for temporary differences between financial
and tax accounting, principally for differences in the basis of plant and
equipment, allowance for doubtful accounts and other non-deductible expenses
as well as for net operating loss carryforwards.
2. SUBSEQUENT EVENTS:
Zeros and Ones, Inc. (a Delaware Corporation) acquired 100% of the
outstanding stock of Pillar West Entertainment, Inc.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of EKO Corporation, Inc.
(a Development Stage Company)
We have audited the accompanying balance sheets of EKO Corporation, Inc., (a
Delaware corporation) as of December 31, 1998 and December 31, 1997 and the
related statements of stockholders' equity, retained earnings, and statements
of cash flow 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 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 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 EKO Corporation as of
December 31, 1998 and December 31, 1997 and the results of operations, and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Armando C. Ibarra
- --------------------------
ARMANDO C. IBARRA, CPA
September 13, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
EKO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
1998 1997
--------------------- ----------------------
<S> <C> <C>
CURRENT ASSETS
Cash on Hand $ 1,000 $ 1,000
--------------------- ----------------------
TOTAL CURRENT ASSETS 1,000 1,000
OTHER ASSETS
Organization expenses 500 500
--------------------- ----------------------
TOTAL OTHER ASSETS 500 500
--------------------- ----------------------
TOTAL ASSETS $ 1,500 $ 1,500
===================== ======================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 0 $ 0
--------------------- ----------------------
TOTAL CURRENT LIABILITIES 0 0
--------------------- ----------------------
TOTAL LIABILITIES $ 0 $ 0
STOCKHOLDERS' EQUITY
Common Stock 81,600 23,500
Deficit accumulated in
the Development Stage (80,100) (22,000)
--------------------- ----------------------
TOTAL STOCKHOLDERS' EQUITY 1,500 1,500
--------------------- ----------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,500 $ 1,500
===================== ======================
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO FINANCIAL STATEMENTS
<PAGE>
EKO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED ON DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
REVENUES
Sales $ 0 $ 0
--------------- ---------------
TOTAL NET REVENUES $ 0 $ 0
OPERATING EXPENSES
Research and Development 58,100 22,000
--------------- ---------------
TOTAL OPERATING EXPENSES 58,100 22,000
OPERATING LOSS $ (58,100) $ (22,000)
--------------- ---------------
NET INCOME /(LOSS) $ (58,100) (22,000)
=============== ===============
</TABLE>
<PAGE>
EKO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED COMMON DEFICIT PAID-IN TOTAL
DECEMBER 31, 1997 STOCK ACCUMULATED CAPITAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, November 17 1,000 1,000
Paid in Capital 22,500 22,500
Net loss 1997 (22,000) (22,000)
--------------------------------------------------------------------------------------
Balance, December 31, 1997 $1,000 ($22,000) $22,500 $1,500
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED COMMON DEFICIT PAID-IN TOTAL
DECEMBER 31, 1998 STOCK ACCUMULATED CAPITAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1 23,500 (22,000) 1,500
Paid in Capital 58,100 58,100
Net loss 1998 (58,100) (58,100)
--------------------------------------------------------------------------------------
Balance, December 31, 1998 $23,500 ($80,100) $58,100 $1,500
======================================================================================
</TABLE>
<PAGE>
EKO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
DECEMBER, 31
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
1998 1997
------------------ ----------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Loss $ (58,100) $ (22,000)
------------------ ----------------
NET CASH PROVIDED (USED)BY OPERATING ACTIVITIES (58,100) (22,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital contributions 58,100 22,500
------------------ ----------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 58,100 22,500
CASH FLOWS FROM FINANCING ACTIVITIES
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 0 0
NET INCREASE (DECREASE) IN CASH 0 500
CASH AT BEGINNING OF YEAR 500 0
------------------ ----------------
CASH AT END OF YEAR $ 500 $ 500
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO FINANCIAL STATEMENTS
<PAGE>
EKO CORPORATION
(a Development Stage Company)
Notes to the Financial Statement
As of December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
EKO Corporation (a Delaware corporation) was incorporated on November 17,
1997. EKO Corporation, "The Company" is an internet based commerce oriented
online service and virtual community for entertainment professional.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affects certain reported amounts and disclosures.
Accordingly, actual amounts could differ from these estimates.
BASIS OF ACCOUNTING
The financial statements of EKO Corporation are prepared using the accrual
basis of accounting where as revenues are recognized when earned and
expenses are recognized when incurred. This basis of accounting conforms
to generally accepted accounting principles.
2. RESEARCH AND DEVELOPMENT:
EKO Corporation is an stage development corporation that has received only
investment monies for research, development and production. This investment
has been expensed for the years ended December 31, 1997 and 1998.
3. SUBSEQUENT EVENTS:
Zeros and Ones, Inc., (a Delaware corporation) acquired 100% of the
outstanding stock of EKO Corporation in exchange for shares of
stock of Zeros and Ones, Inc.
<PAGE>
4. INCOME TAX REPORTING
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis, and to net operating loss and tax credit
carryforwards, measured by enacted tax rates for years in which taxes are
expected to be paid recovered.
Deferred taxes are provided for temporary differences between financial and
tax accounting, principally for differences in the basis of plant and
equipment, allowance for doubtful accounts and other non-deductible
expenses as well as for net operating loss carryforwards.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A Professional Corporation)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of EKO Corporation, Inc.
We have compiled the accompanying balance sheet of EKO Corporation, Inc. (a
Delaware corporation) as of June 30, 1999 and the related statement of income
and stockholders' equity for the three months then ended, in accordance with
Statements of Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not express
an opinion or any other form of assurance on them.
/s/ Armando C. Ibarra
- --------------------------
ARMANDO C. IBARRA, CPA
October 12, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
EKO CORPORATION
BALANCE SHEET
JUNE 30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash on Hand $ 1,000
--------------------
TOTAL CURRENT ASSETS 1,000
OTHER ASSETS
Organization Costs 500
--------------------
TOTAL OTHER ASSETS 500
--------------------
TOTAL ASSETS $ 1,500
====================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 0
--------------------
TOTAL CURRENT LIABILITIES 0
--------------------
TOTAL LIABILITIES $ 0
STOCKHOLDERS' EQUITY
Common stock 256,682
Deficit accumulated in
the Development Stage (255,182)
--------------------
TOTAL STOCKHOLDERS' EQUITY 1,500
--------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,500
====================
</TABLE>
SEE ACCOUNTANTS' COMPLIATION REPORT
<PAGE>
EKO CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
JUNE 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON DEFICIT PAID-IN TOTAL
MARCH 31, 1999 STOCK ACCUMULATED CAPITAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1 23,500 (80,100) 58,100 1,500
Paid in capital 45,103 45,103
Net Loss for the quarter ended
March 31, 1999 (45,103) (45,103)
---------------------------------------------------------------------------------
Balance, March 31, 1999 $23,500 ($125,203) $103,203 $1,500
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON DEFICIT PAID-IN TOTAL
JUNE 30, 1999 STOCK ACCUMULATED CAPITAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, April 1 23,500 (125,203) 103,203 1,500
Paid in Capital 129,979 129,979
Net Loss for the quarter ended
June 30, 1999 (129,979) (129,979)
---------------------------------------------------------------------------------
Balance, June 30, 1999 $23,500 ($255,182) $233,182 $1,500
=================================================================================
</TABLE>
SEE ACCOUNTANTS' COMPLIATION REPORT
<PAGE>
EKO CORPORATION
INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Revenues $ 0
--------------------
TOTAL REVENUES 0
GENERAL & ADMINISTRATIVE EXPENSES 0
Administrative & Temporary Services 1,900
Bank fees 35
Consulting 15,000
Contract Services 5,956
Equipment Rental 7,541
Marketing 4,000
Office supplies 267
Postage & delivery 280
Professional fees 95,000
--------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES $ 129,979
OPERATING LOSS (129,979)
--------------------
NET INCOME (LOSS) $ (129,979)
====================
</TABLE>
<PAGE>
EKO CORPORATION
STATEMENT OF CASH FLOW
JUNE 30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net Loss $ (129,979)
---------------------
Net Cash Provided (Used) By Investing Activities (129,979)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital contributions 129,979
---------------------
Net Cash Provided (Used) By Investing Activities 129,979
CASH FLOWS FROM FINANCING ACTIVITIES
Net Cash Provided (Used) By Financing Activities 0
Net Increase (Decrease) In Cash & Cash Equivalents 0
CASH AT THE BEGINNING OF YEAR 1,000
---------------------
CASH AT THE END OF YEAR $ 1,000
=====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
EKO CORPORATION
NOTES TO THE FINANCIAL STATEMENT
AS OF JUNE 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
EKO Corporation (a Delaware corporation) was incorporated on November 17,
1997. EKO Corporation, "The Company" is an internet based commerce oriented
online service and virtual community for entertainment professional.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affects certain reported amounts and disclosures.
Accordingly, actual amounts could differ from these estimates.
BASIS OF ACCOUNTING
The financial statements of EKO Corporation are prepared using the accrual
basis of accounting where as revenues are recognized when earned and
expenses are recognized when incurred. This basis of accounting conforms
to generally accepted accounting principles.
2. RESEARCH AND DEVELOPMENT:
EKO Corporation is an stage development corporation that has received only
investment monies for research, development and production. This investment
has been expensed for the years ended December 31, 1997, 1998 and March 31,
1999.
3. SUBSEQUENT EVENTS:
Zeros and Ones, Inc., (a Delaware corporation) acquired 100% of the
outstanding stock of EKO Corporation in exchange for shares of
stock of Zeros and Ones, Inc.
<PAGE>
4. INCOME TAX REPORTING
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis, and to net operating loss and tax credit
carryforwards, measured by enacted tax rates for years in which taxes are
expected to be paid recovered.
Deferred taxes are provided for temporary differences between financial and
tax accounting, principally for differences in the basis of plant and
equipment, allowance for doubtful accounts and other non-deductible
expenses as well as for net operating loss carryforwards.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of EKO Corporation, Inc.
We have compiled the accompanying balance sheet of EKO Corporation, Inc. (a
Delaware corporation) as of March 31, 1999 and the related statement of income
and stockholders' equity for the three months then ended, in accordance with
Statements of Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not express
an opinion or any other form of assurance on them.
/s/ Armando C. Ibarra
- --------------------------
ARMANDO C. IBARRA, CPA
October 12, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
EKO CORPORATION
BALANCE SHEET
MARCH 31, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash on Hand $ 1,000
--------------------
TOTAL CURRENT ASSETS 1,000
OTHER ASSETS
Organization Costs 500
--------------------
TOTAL OTHER ASSETS 500
--------------------
TOTAL ASSETS $ 1,500
====================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 0
--------------------
TOTAL CURRENT LIABILITIES 0
--------------------
TOTAL LIABILITIES $ 0
STOCKHOLDERS' EQUITY
Common stock 126,703
Deficit accumulated in
the Development Stage (125,203)
--------------------
TOTAL STOCKHOLDERS' EQUITY 1,500
--------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,500
====================
</TABLE>
<PAGE>
EKO CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
MARCH 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON DEFICIT PAID-IN TOTAL
DECEMBER 31, 1998 STOCK ACCUMULATED CAPITAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1 23,500 (22,000) 1,500
Paid in Capital 58,100 58,100
Net loss 1998 (58,100) (58,100)
--------------------------------------------------------------------------------
Balance, December 31, 1998 $23,500 ($80,100) $58,100 $1,500
================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON RETAINED PAID-IN TOTAL
MARCH 31, 1999 STOCK EARNINGS CAPITAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1 23,500 (80,100) 58,100 1,500
Paid in capital 45,103 45,103
Net Loss for the quarter ended
March 31, 1999 (45,103) (45,103)
--------------------------------------------------------------------------------
Balance, March 31, 1999 $23,500 ($125,203) $103,203 $1,500
================================================================================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
EKO CORPORATION
STATEMENT OF CASH FLOW
MARCH 31, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net Loss $ (45,103)
---------------------
Net Cash Provided (Used) By Operating Activities (45,103)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital contributions 45,103
---------------------
Net Cash Provided (Used) By Investing Activities 45,103
CASH FLOWS FROM FINANCING ACTIVITIES
Net Cash Provided (Used) By Financing Activities 0
Net Increase (Decrease) In Cash 0
CASH AT THE BEGINNING OF YEAR 1,000
---------------------
CASH AT THE END OF YEAR $ 1,000
=====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
EKO CORPORATION
INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Revenues $ 0
--------------------
TOTAL REVENUES $ 0
GENERAL & ADMINISTRATIVE EXPENSES
Administrative & Temporary Services 701
Consulting 25,000
Contract Services 2,402
Marketing 2,000
Professional fees 15,000
--------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES $ 45,103
OPERATING LOSS (45,103)
--------------------
NET INCOME/(LOSS) $ (45,103)
====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
EKO CORPORATION
NOTES TO THE FINANCIAL STATEMENT
AS OF MARCH 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
EKO Corporation (a Delaware corporation) was incorporated on November 17,
1997. EKO Corporation, "The Company" is an internet based commerce oriented
online service and virtual community for entertainment professional.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affects certain reported amounts and disclosures.
Accordingly, actual amounts could differ from these
estimates.
BASIS OF ACCOUNTING
The financial statements of EKO Corporation are prepared using the accrual
basis of accounting where as revenues are recognized when earned and
expenses are recognized when incurred. This basis of accounting conforms
to generally accepted accounting principles.
2. RESEARCH AND DEVELOPMENT:
EKO Corporation is an stage development corporation that has received only
investment monies for research, development and production. This investment
has been expensed for the years ended December 31, 1997 and 1998.
3. SUBSEQUENT EVENTS:
Zeros and Ones, Inc., (a Delaware corporation) acquired 100% of the
outstanding stock of EKO Corporation in exchange for shares of
stock of Zeros and Ones, Inc.
<PAGE>
4. INCOME TAX REPORTING
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis, and to net operating loss and tax credit
carryforwards, measured by enacted tax rates for years in which taxes are
expected to be paid recovered.
Deferred taxes are provided for temporary differences between financial and
tax accounting, principally for differences in the basis of plant and
equipment, allowance for doubtful accounts and other non-deductible
expenses as well as for net operating loss carryforwards.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of KidVision, Inc.
(a Development Stage Company)
We have audited the accompanying balance sheet of KidVision, Inc. (a
California corporation) as of December 31, 1998 and the related statements of
income, stockholders' equity, retained earnings, and statements of cash flow
for the year 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 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 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 KidVision, Inc. as of
December 31, 1998 and the results of operations, and its cash flow for the
year then ended in conformity with generally accepted accounting principles.
/s/ Armando C. Ibarra
- --------------------------
ARMANDO C. IBARRA, CPA
September 13, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
KIDVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash on Hand $ 750
---------------------
TOTAL CURRENT ASSETS 750
OTHER ASSETS
Organization expenses 1,000
---------------------
TOTAL OTHER ASSETS 1,000
---------------------
TOTAL ASSETS $ 1,750
=====================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 0
---------------------
TOTAL LIABILITIES 0
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares authorized; 155,910
1,500 shares issued and outstanding
Deficit accumulated in the development stage (154,160)
---------------------
TOTAL STOCKHOLDERS' EQUITY 1,750
---------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,750
=====================
</TABLE>
SEE AUDITOR'S REPORT AND
NOTES TO THE FINANCIAL STATEMENT
<PAGE>
KIDVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 COMMON ACCUMULATED TOTAL
STOCK DEFICIT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, May 21, 1998 55,951 55,951
Paid in Capital 99,959 99,959
Net Loss December 31, 1998 (154,160) (154,160)
---------------------------------------------------------------------
Balance, December 31, 1998 $155,910 ($154,160) $1,750
=====================================================================
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO THE FINANCIAL STATEMENT
<PAGE>
KIDVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
DECEMBER 31, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (154,160)
CASH FLOWS USED IN INVESTING ACTIVITIES
Contributed Capital 155,910
CASH FLOWS FINANCING ACTIVITIES
Net Cash from Financing Activity
---------------------
NET INCREASE (DECREASE) IN CASH 1,750
CASH AT BEGINNING OF YEAR 0
---------------------
CASH AT END OF YEAR $ 1,750
=====================
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO THE FINANCIAL STATEMENT
<PAGE>
KIDVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
INCOME STATEMENT
FOR THE SEVEN MONTHS ENDED ON DECEMBER 31, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Product sales $ 23,604
Discounts (167)
Refunds (3,806)
--------------------
TOTAL NET REVENUES $ 19,631
OPERATING EXPENSES
Commissions 8,128
Computer maintenance 13,760
Management 56,768
Marketing 27,781
Reproduction 15,238
Sales expenses 13,281
Shipping and delivery 5,167
Telemarketing 16,452
Training 13,988
--------------------
TOTAL OPERATING EXPENSES 170,563
LOSS BEFORE ADMINISTRATIVE EXPENSES $ (150,932)
ADMINISTRATIVE EXPENSES
Office supplies 1,193
Telephone 2,035
--------------------
TOTAL ADMINISTRATIVE EXPENSES 3,228
--------------------
NET INCOME /(LOSS) $ (154,160)
====================
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO THE FINANCIAL STATEMENT
<PAGE>
KIDVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
AS OF DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
KidVision, Inc. a California corporation (the Company) was
organized on May 21, 1998. The company is engaged in the business of
operating an e-commerce catalog through which it distributes
educational products and marketing K.E.N. (the Kids Educational
Network) a website.
BASIS OF ACCOUNTING
The financial statements of KidVision, Inc. are prepared using the
accrual basis of accounting where as revenues are recognized when
earned and expenses are recognized when incurred. This basis of
accounting conforms to generally accepted accounting principles.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual amounts could differ from these
estimates.
REVENUE RECOGNITION
Revenue from contract services and related costs of contract
services are recognized when the services are performed for the
customer.
2. RESEARCH AND DEVELOPMENT:
KidVision, Inc. is an stage development corporation that has received
only investment monies for research, development and production.
This investment has been expensed for year ended December 31, 1998.
4. SUBSEQUENT EVENT:
Zeros and Ones, Inc. (a Delaware Corporation) acquired 100% of the
outstanding stock of KidVision, Inc.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of KidVision, Inc.
(A Development Stage Company)
We have compiled the accompanying balance sheet of KidVision, Inc. (a
California corporation) as of June 30, 1998 and the related statements of
income, stockholders' equity, and statements of cash flow for the three
months ended, in accordance with Statements of Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not
express an opinion or any other form of assurance on them.
/s/ Armando C. Ibarra
- --------------------------
ARMANDO C. IBARRA, CPA
October 12, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
KIDVISION, INC.
BALANCE SHEET
JUNE 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash on Hand $ 750
--------------------
TOTAL CURRENT ASSETS 750
OTHER ASSETS
Organization expenses 1,000
--------------------
TOTAL OTHER ASSETS 1,000
--------------------
TOTAL ASSETS $ 1,750
====================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 0
--------------------
--------------------
TOTAL LIABILITIES 0
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares authorized; 55,951
1,500 shares issued and outstanding
Deficit Accum. In the Development Stage (54,201)
--------------------
TOTAL STOCKHOLDERS' EQUITY 1,750
--------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,750
====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
KIDVISION, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON ACCUMULATED TOTAL
JUNE 30, 1998 STOCK DEFICIT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, May 21, 1998 1,000 0 1,000
Paid In Capital 54,951 54,951
Net Loss for the quarter ended
June 30, 1998 (54,201) (54,201)
-----------------------------------------------------------------
Balance, June 30, 1998 $55,951 ($54,201) $1,750
=================================================================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
KIDVISION, INC.
INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Product sales $ 3,156
Discounts (36)
--------------------
TOTAL NET REVENUES $ 3,120
OPERATING EXPENSES
Commissions 920
Management 13,968
Reproduction 12,500
Sales expenses 7,730
Shipping and delivery 3,403
Telemarking 3,896
Training 12,292
--------------------
TOTAL OPERATING EXPENSES 54,709
LOSS BEFORE ADMINISTRATIVE $ (51,589)
AND OTHER EXPENSES
ADMINISTRATIVE EXPENSES
Office supplies 312
Telephone 1,300
--------------------
TOTAL ADMINISTRATIVE EXPENSES 1,612
OTHER EXPENSES
Other expenses 1,000
--------------------
OPERATING LOSS $ (54,201)
====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
KIDVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
JUNE 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (54,201)
CASH FLOWS USED IN INVESTING ACTIVITIES
Contributed Capital 54,951
CASH FLOWS FINANCING ACTIVITIES
Net Cash from Financing Activity 0
---------------------
NET INCREASE (DECREASE) IN CASH 750
CASH AT BEGINNING OF YEAR 0
---------------------
CASH AT END OF YEAR $ 750
=====================
</TABLE>
SEE AUDITORS' REPORT AND NOTES TO THE FINANCIAL STATEMENT
<PAGE>
KIDVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
AS OF JUNE 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
KidVision, Inc. a California corporation (the Company) was
organized on May 21, 1998. The company is engaged in the business of
operating an e-commerce catalog through which it distributes
educational products and marketing K.E.N. (the Kids Educational
Network) a website.
BASIS OF ACCOUNTING
The financial statements of KidVision, Inc. are prepared using the
accrual basis of accounting where as revenues are recognized when
earned and expenses are recognized when incurred. This basis of
accounting conforms to generally accepted accounting principles.
INCOME TAX REPORTING
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis, and to net operating
loss and tax credit carryforwards, measured by enacted tax rates for
years in which taxes are expected to be paid or recovered.
Deferred tax are provided for temporary between financial and tax
accounting, principally for differences in the basis of plant and
equipment, allowance for doubtful accounts, inventory capitalization
and other non-deductible expenses, as well as for net operating loss
carryforwards.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual amounts could differ from these
estimates.
REVENUE RECOGNITION
Revenue from contract services and related costs of contract
services are recognized when the services are performed for the
customer.
<PAGE>
KIDVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
AS OF JUNE 30, 1998
2. RESEARCH AND DEVELOPMENT:
Kidvision, Inc. is an stage development corporation that has received
only investment monies for research, development and production.
This investment has been expensed for the years ended 1998.
3. SUBSEQUENT EVENTS:
Zeros and Ones, Inc., (a Delaware Corporation) acquired 100% of the
outstanding stock of Kidvision, Inc.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of KidVision, Inc.
(A Development Stage Company)
We have compiled the accompanying balance sheet of KidVision, Inc. (a
California corporation) as of June 30, 1999 and the related statements of
income, stockholders' equity, and statements of cash flow for the six
months ended, in accordance with Statements of Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not
express an opinion or any other form of assurance on them.
/s/ Armando C. Ibarra
- --------------------------
ARMANDO C. IBARRA, CPA
October 12, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
KIDVISION, INC.
BALANCE SHEET
JUNE 30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash on Hand $ 750
--------------------
TOTAL CURRENT ASSETS 750
OTHER ASSETS
Organization Costs 1,000
--------------------
TOTAL OTHER ASSETS 1,000
--------------------
TOTAL ASSETS $ 1,750
====================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 0
--------------------
TOTAL LIABILITIES 0
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares authorized; 177,478
1,500 shares issued and outstanding
Deficit Accumulated In the Development Stage (175,728)
--------------------
TOTAL STOCKHOLDERS' EQUITY 1,750
--------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,750
====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
KIDVISION, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON ACCUMULATED TOTAL
JUNE 30, 1999 STOCK DEFICIT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, April 1, 1999 $177,478 ($175,728) $1,750
Net Income for the quarter ended
June 30, 1999
-----------------------------------------------------------------
Balance, June 30, 1999 $177,478 ($175,728) $1,750
=================================================================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
KIDVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
JUNE 30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
0
Net loss $ 0
CASH FLOWS USED IN INVESTING ACTIVITIES
Contributed Capital 0
CASH FLOWS FINANCING ACTIVITIES
Net Cash from Financing Activity 0
---------------------
NET INCREASE (DECREASE) IN CASH 0
CASH AT BEGINNING OF YEAR 750
---------------------
CASH AT END OF YEAR $ 750
=====================
</TABLE>
SEE AUDITORS' REPORT AND NOTES TO THE FINANCIAL STATEMENT
<PAGE>
KIDVISION, INC.
INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Revenues $ 0
--------------------
Total Revenues 0
GENERAL & ADMINISTRATIVE EXPENSES 0
--------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES 0
OTHER EXPENSES
Other expenses 0
--------------------
TOTAL OTHER EXPENSES 0
--------------------
NET INCOME $ 0
====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
KIDVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
AS OF JUNE 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
KidVision, Inc., a California corporation (the Company) was
organized on May 21, 1998. The company is engaged in the business of
operating an e-commerce catalog through which it distributes
educational products and marketing K.E.N. (the Kids Educational
Network) a website.
BASIS OF ACCOUNTING
The financial statements of KidVision, Inc. are prepared using the
accrual basis of accounting where as revenues are recognized when
earned and expenses are recognized when incurred. This basis of
accounting conforms to generally accepted accounting principles.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual amounts could differ from these
estimates.
REVENUE RECOGNITION
Revenue from contract services and related costs of contract
services are recognized when the services are performed for the
customer.
2. RESEARCH AND DEVELOPMENT:
KidVision, Inc. is a stage development corporation that has received
only investment monies for research, development and production.
This investment has been expensed for years ended 1998.
3. SUBSEQUENT EVENT:
Zeros and Ones, Inc. (a Delaware Corporation) acquired 100% of the
outstanding stock of KidVision, Inc.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of KidVision, Inc.
(A Development Stage Company)
We have compiled the accompanying balance sheet of KidVision, Inc. (a
California corporation) as of March 31, 1999 and the related statement of
income, stockholders' equity, and statement of cash flows for the six months
then ended, in accordance with Statements of Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not
express an opinion or any other form of assurance on them.
/s/ Armando C. Ibarra
- --------------------------
ARMANDO C. IBARRA, CPA
October 12, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
KIDVISION, INC.
BALANCE SHEET
MARCH 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash on Hand $ 750
--------------------
TOTAL CURRENT ASSETS 750
OTHER ASSETS
Organization Costs 1,000
--------------------
TOTAL OTHER ASSETS 1,000
--------------------
TOTAL ASSETS $ 1,750
====================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 0
--------------------
TOTAL LIABILITIES 0
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares authorized; 177,478
1,500 shares issued and outstanding
Deficit Accumulated In the Development Stage (175,728)
--------------------
TOTAL STOCKHOLDERS' EQUITY 1,750
--------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,750
====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
KIDVISION, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON ACCUMULATED TOTAL
MARCH 31, 1999 STOCK DEFICIT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1999 $155,910 ($154,160) $1,750
Paid In Capital 21,568 21,568
Net Income for the quarter ended
March 31, 1999 (21,568) (21,568)
--------------------------------------------------------------------
Balance, March 31, 1999 $177,478 ($175,728) $1,750
====================================================================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
KIDVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
MARCH 31, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (21,568)
CASH FLOWS USED IN INVESTING ACTIVITIES
Contributed Capital 21,568
CASH FLOWS FINANCING ACTIVITIES
Net Cash from Financing Activity 0
---------------------
NET INCREASE (DECREASE) IN CASH 0
CASH AT BEGINNING OF YEAR 750
---------------------
CASH AT END OF YEAR $ 750
=====================
</TABLE>
SEE AUDITORS' REPORT AND NOTES TO THE FINANCIAL STATEMENT
<PAGE>
KIDVISION, INC.
INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Product sales $ 0
--------------------
TOTAL REVENUES 0
GENERAL & ADMINISTRATIVE EXPENSES
Computer Maintenance 5,000
Management 4,500
Marketing 12,000
Postage & shipping 68
--------------------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES 21,568
--------------------
NET INCOME (LOSS) $ (21,568)
====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
KIDVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
AS OF MARCH 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
KidVision, Inc. a California corporation (the Company) was
organized on May 21, 1998. The company is engaged in the business of
operating an e-commerce catalog through which it distributes
educational products and marketing K.E.N. (the Kids Educational
Network) a website.
BASIS OF ACCOUNTING
The financial statements of KidVision, Inc. are prepared using the
accrual basis of accounting where as revenues are recognized when
earned and expenses are recognized when incurred. This basis of
accounting conforms to generally accepted accounting principles.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual amounts could differ from these
estimates.
REVENUE RECOGNITION
Revenue from contract services and related costs of contract
services are recognized when the services are performed for the
customer.
2. RESEARCH AND DEVELOPMENT:
KidVision, Inc. is an stage development corporation that has received
only investment monies for research, development and production.
This investment has been expensed for years ended 1998.
3. SUBSEQUENT EVENT:
Zeros and Ones, Inc. (a Delaware Corporation) acquired 100% of the
outstanding stock of KidVision, Inc.
<PAGE>
QUANTUM ARTS
FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
WITH ACCOUNTANTS' COMPILATION REPORT
CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
ACCOUNTANTS' COMPILATION REPORT 1
FINANCIAL STATEMENTS:
Balance Sheet 2
Statement of Income (Operations), Proprietor's Capital and
Stockholder's Deficit 3
Statement of Cash Flows 4
</TABLE>
<PAGE>
Mr. Steve Schklair
Quantum Arts
Pasadena, California
We have compiled the accompanying balance sheet of Quantum Arts as of June 30,
1999, and the related statement of income (operations), proprietor's capital and
stockholder's deficit and cash flows for the six months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting, in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
The management has elected to omit substantially all of the disclosures required
by generally accepted accounting principles. If the omitted disclosures were
included in the financial statements, they might influence the user's
conclusions about the Company's financial position, results of operations, and
cash flows. Accordingly, these financial statements are not designed for those
who are not informed about such matters.
Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
September 16, 1999
1
<PAGE>
QUANTUM ARTS
BALANCE SHEET - JUNE 30, 1999
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 10,716
Prepaid expense 362
-------------
Total current assets $ 11,078
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 15,746
DEPOSIT 988
-------------
$ 27,812
=============
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Notes payable, related parties $ 80,000
Accrued expenses 11,623
Bank line of credit 8,924
Current maturities of obligations under capitalized leases 5,087
-------------
Total current liabilities $ 105,634
OBLIGATIONS UNDER CAPITALIZED LEASES, less current maturities 5,066
STOCKHOLDER'S DEFICIT:
Contributed capital 13,740
Accumulated deficit (96,628)
-------------
Total stockholder's deficit (82,888)
-------------
$ 27,812
=============
</TABLE>
See accompanying accountants' compilation report.
2
<PAGE>
QUANTUM ARTS
STATEMENT OF INCOME (OPERATIONS), PROPRIETOR'S CAPITAL AND
STOCKHOLDER'S DEFICIT
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
January 1, 1999 April 4, 1999 Contributed January 1, 1999
to April 3, 1999 to June 30, 1999 capital to June 30, 1999
---------------- ---------------- ------- ----------------
(a sole (C corporation)
proprietorship)
<S> <C> <C> <C> <C>
REVENUES $ 53,633 $ 7,458 $ - $ 61,091
OPERATING AND ADMINISTRATIVE
EXPENSES 41,815 104,086 - 145,901
------------ ------------ ----------- ------------
NET INCOME (LOSS) 11,818 (96,628) - (84,810)
PROPRIETOR'S CAPITAL,
beginning of period 32,922 - - 32,922
PROPRIETOR'S DRAW (31,000) - - (31,000)
------------ ------------ ----------- ------------
PROPRIETOR'S CAPITAL, end of period 13,740 (96,628) - (82,888)
PROPRIETOR'S CAPITAL CONTRIBUTED
TO C CORPORATION (13,740) - 13,740 -
------------ ------------ ----------- ------------
Total stockholder's deficit $ - $ (96,628) $ 13,740 $ (82,888)
============ ============ =========== ============
</TABLE>
* The Company was incorporated on April 4, 1999. Prior to the date of
incorporation, the Company was operated as a sole proprietorship.
See accompanying accountants' compilation report.
3
<PAGE>
QUANTUM ARTS
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net loss $ (84,810)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES -
depreciation and amortization $ 2,800
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable 23,441
Deposit (988)
INCREASE IN LIABILITIES -
accrued expenses (8,057)
---------------
Total adjustments 17,196
--------------
Net cash used for operating activities (67,614)
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from notes payable, related parties 80,000
Proceeds from bank line of credit 3,693
Payments on obligations under capitalized leases (2,621)
Draws by proprietor (31,000)
---------------
Net cash provided by financing activities 50,072
-------------
NET INCREASE IN CASH (17,542)
CASH, beginning of period 28,258
--------------
CASH, end of period $ 10,716
=============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 992
=============
Income taxes paid $ 800
=============
</TABLE>
See accompanying accountants' compilation report.
4
<PAGE>
QUANTUM ARTS
(A SOLE PROPRIETORSHIP)
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Balance Sheet 2
Statement of Income and Proprietor's Capital 3
Statement of Cash Flows 4
Notes to Financial Statements 5-9
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION 10
SUPPLEMENTAL INFORMATION:
Schedule of Revenues 11
Schedule of Operating and Administrative Expenses 12
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Mr. Steve Schklair
Quantum Arts
Pasadena, California
We have audited the accompanying balance sheet of Quantum Arts (a sole
proprietorship) as of December 31, 1998, and the related statements of income
and proprietor's capital and cash flows for the year 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 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 Quantum Arts as of December 31,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
May 21, 1999
1
<PAGE>
QUANTUM ARTS
(A SOLE PROPRIETORSHIP)
BALANCE SHEET - DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 28,258
Accounts receivable 23,441
Prepaid expense 362
-------------
Total current assets $ 52,061
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 20,181
-------------
$ 72,242
=============
LIABILITIES AND PROPRIETOR'S CAPITAL
CURRENT LIABILITIES:
Accrued expenses $ 21,315
Bank line of credit 5,231
Current maturities of obligations under capitalized leases 5,087
-------------
Total current liabilities $ 31,633
OBLIGATIONS UNDER CAPITALIZED LEASES, less current maturities 7,687
PROPRIETOR'S CAPITAL 32,922
-------------
$ 72,242
=============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
2
<PAGE>
QUANTUM ARTS
(A SOLE PROPRIETORSHIP)
STATEMENT OF INCOME AND PROPRIETOR'S CAPITAL
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C>
REVENUES $ 297,166 100.0%
OPERATING AND ADMINISTRATIVE EXPENSES 191,244 64.4
-------------- ------
NET INCOME 105,922 35.6%
======
PROPRIETOR'S CAPITAL, beginning of year -
PROPRIETOR'S DRAW (73,000)
--------------
PROPRIETOR'S CAPITAL, end of year $ 32,922
==============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
3
<PAGE>
QUANTUM ARTS
(A SOLE PROPRIETORSHIP)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $ 105,922
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES -
depreciation and amortization $ 5,738
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable (23,441)
Prepaid expenses (362)
INCREASE IN LIABILITIES -
accrued expenses 21,315
---------------
Total adjustments 3,250
-------------
Net cash provided by operating activities 109,172
CASH FLOWS USED FOR INVESTING ACTIVITIES -
payments to acquire property and equipment (9,244)
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from bank line of credit 5,231
Payments on obligations under capitalized leases (3,901)
Draws by proprietor (73,000)
---------------
Net cash used for financing activities (71,670)
-------------
NET INCREASE IN CASH 28,258
CASH, beginning of year -
-------------
CASH, end of year $ 28,258
=============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
interest paid $ 2,689
=============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES -
The Company acquired $16,675 property and equipment through capitalized leases.
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
4
<PAGE>
QUANTUM ARTS
(A SOLE PROPRIETORSHIP)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
Quantum Arts (the "Company") was founded in the State of
California in January of 1998 as a sole proprietorship. The
sole proprietor is personally liable for all federal and state
income taxes.
BUSINESS ACTIVITY:
The Company designs and develops children's entertainment and
educational interactive software for distributors and
publishers of software products. In addition to fees generated
from development of software products, the Company also
receives royalty income from sales of certain software
products developed for others. The accompanying financial
statements represent the results of operations of the Company
from January 9, 1998 to December 31, 1998.
USE OF ESTIMATES:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that effect 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
reporting period. Actual results could differ from those
estimates.
CASH:
CONCENTRATION
The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts.
EQUIVALENTS
Cash includes time deposits, certificates of deposit, and all
highly liquid debt instruments with original maturities of
three months or less which are not securing any corporate
obligations.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation and
amortization are computed straight line over the estimated
useful lives of the assets.
See accompanying independent auditors' report.
5
<PAGE>
QUANTUM ARTS
(A SOLE PROPRIETORSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
REVENUE RECOGNITION:
WORK FOR HIRE AGREEMENTS
The Company recognizes revenues at various stages of a project
upon delivery of the completed work product of the respective
particular stage as set forth in the "Work for Hire"
agreements.
ROYALTY INCOME
The Company earns royalty income from the net revenues of
products designed and developed by the Company at various
royalty rates ranging from 5% to 30% of net revenues using
various tiered methods of computation as set forth in the
development agreements. Pursuant to some agreements, the
Company also receives non-refundable advances that will be
offset against future royalty income. Royalty income is
recorded when reported by the payer on a periodic basis. The
distributors of the products have the right to recoup any and
all justifiable distribution costs prior to making payments to
the Company.
COMPREHENSIVE INCOME:
Effective December 1, 1997, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which establishes new
rules for the reporting and display of comprehensive income
and its components; however, the adoption had no impact on the
Company's net income. Comprehensive income consisted of net
income only.
INCOME TAXES:
No provision has been made in the accompanying financial
statements for federal and state income taxes because, as a
sole proprietorship, the results of operations are included in
the tax returns of the sole owner.
(2) MAJOR CUSTOMERS:
During the year ended December 31, 1998, revenues from two customers
amounted to approximately $286,000. At December 31, 1998, one customer
accounted for the entire accounts receivable balance, which was fully
collected as of May 21, 1999.
See accompanying independent auditors' report.
6
<PAGE>
QUANTUM ARTS
(A SOLE PROPRIETORSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
(3) PROPERTY AND EQUIPMENT:
A summary is as follows:
<TABLE>
<S> <C>
Computer equipment under capitalized leases $ 16,675
Computer equipment 9,244
--------------
25,919
Less accumulated depreciation and amortization 5,738
--------------
$ 20,181
==============
</TABLE>
Depreciation expense for the year ended December 31, 1998 amounted to
$5,738, of which $4,422 depreciation expense was on capitalized leases.
(4) BANK LINE OF CREDIT:
The Company has a $10,000 revolving line of credit with its bank,
personally guaranteed by the sole proprietor, which accrues interest on
the outstanding balance at varying rates not to exceed 14.0% per annum
and expires on February 3, 2003. At December 31, 1998, the outstanding
balance on the line of credit was $5,231 and the interest rate was
13.25%. The entire balance was subsequently paid off in May 1999.
Interest expense related to this bank line of credit for the year ended
December 31, 1998 amounted to $625.
(5) OBLIGATIONS UNDER CAPITALIZED LEASES:
The Company leases computer equipment from unrelated parties under
capitalized leases which are secured by the related assets. The
following is a schedule by year of future minimum lease payments
required under capitalized leases together with the present value of
the net minimum lease payments as of December 31, 1998:
<TABLE>
<S> <C>
Year ending December 31,
1999 $ 7,140
2000 7,140
2001 1,581
--------------
Total minimum lease payments 15,861
Less amounts representing interest 3,087
--------------
Present value of net minimum lease payments 12,774
Less current maturities 5,087
--------------
$ 7,687
==============
</TABLE>
See accompanying independent auditors' report.
7
<PAGE>
QUANTUM ARTS
(A SOLE PROPRIETORSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
(5) OBLIGATIONS UNDER CAPITALIZED LEASES, CONTINUED:
Interest expense related to obligations under capitalized lease for the
year ended December 31, 1998 amounted to $ 2,065.
(6) COMMITMENTS:
ROYALTY AGREEMENT
The Company has a verbal agreement with one of its contractors to pay
20% of royalty income earned by the Company from a certain product.
Included in accrued expenses is accrued royalties in the amount of
$8,240 as of December 31, 1998. Royalty expense for the year ended
December 31, 1998 amounted to $8,240.
FACILITY
The Company rents office space on a month to month basis at a monthly
rate of $1,975. The Company is also required to maintain insurance
coverage as prescribed in the agreement.
POTENTIAL CLAIM
The sole proprietor received a claim from a former employee for back
pay of approximately $37,000. The proprietor disputes such claim and
will defend this claim vigorously due to the lack of merit. The Company
did not accrue the amount of the disputed back pay on its financial
statements for the year ended December 31, 1998, due to the outcome of
the claim is uncertain.
(7) SUBSEQUENT EVENTS:
INCORPORATION
On April 13, 1999, Quantum Arts was incorporated in the State of
California. The new company (Quantum Arts, Inc.) has authorized 100,000
shares of common stock, of which 1,500 shares were issued and
outstanding as of May 21, 1999. All shares were held by one
shareholder.
REORGANIZATION AND EXCHANGE AGREEMENT
On April 30, 1999, the Company entered into a reorganization and
exchange agreement with Zeroes & Ones, Inc. ("ZOI"). Pursuant to this
agreement, the sole shareholder of Quantum Arts, Inc. exchanged 1,500
shares of his outstanding common stock in exchange for 850,000 shares
of ZOI's $.01 par value common stock. ZOI also agreed to pay the sole
shareholder $300,000 in cash as reimbursement of expenses personally
incurred by the sole shareholder of Quantum Arts, Inc. on or before
December 31, 1999. The agreement also specified certain revenue sharing
arrangements on projects developed prior to the reorganization and
exchange agreement.
See accompanying independent auditors' report.
8
<PAGE>
QUANTUM ARTS
(A SOLE PROPRIETORSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
(7) SUBSEQUENT EVENTS, CONTINUED:
LINE OF CREDIT
The new company obtained a new revolving line of credit from a
financial institution in the amount of $15,000. This line is unsecured,
due on demand upon default in excess of 10 days after the minimum
payment due date and bears interest at prime plus 6.0%. This line is
personally guaranteed by the only shareholder of the new company. The
outstanding balance on the line of credit as of May 21, 1999 amounted
to approximately $9,500.
See accompanying independent auditors' report.
9
<PAGE>
Mr. Steve Schklair
Quantum Arts
Pasadena, California
Our report on our audit of the basic financial statements of Quantum Arts (a
sole proprietorship) for the year ended December 31, 1998 appears on page 1.
That audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information is presented
for purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
May 21, 1999
10
<PAGE>
QUANTUM ARTS
(A SOLE PROPRIETORSHIP)
SCHEDULE OF REVENUES
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Amount Percent
------ -------
<C> <C>
REVENUES:
Projects and consulting $ 249,605 84.0%
Royalties 41,200 13.9
Other 6,361 2.1
--------------- -------
$ 297,166 100.0%
=============== =======
</TABLE>
See accompanying independent auditors' report on supplemental information.
11
<PAGE>
QUANTUM ARTS
(A SOLE PROPRIETORSHIP)
SCHEDULE OF OPERATING AND ADMINISTRATIVE EXPENSES
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C>
Advertising and public relations $ 887 .3%
Automobile expense 813 .3
Bank charges 217 .1
Contributions 297 .1
Depreciation and amortization 5,738 1.9
Dues and subscriptions 1,720 .6
Entertainment 2,129 .7
Equipment rental 1,399 .5
Insurance:
General 725 .2
Medical 3,447 1.2
Worker's Comp. 513 .2
Interest expense 2,690 .9
Miscellaneous 646 .2
Office supplies and expense 4,744 1.6
Outside services 78,076 26.3
Parking 108
Payroll expense 53,600 18.0
Payroll fees 840 .3
Payroll taxes 5,092 1.7
Postage and delivery 478 .2
Printing and reproduction 700 .2
Professional fees 2,580 .9
Rent 8,250 2.8
Royalties 8,240 2.8
Telephone 6,104 2.0
Travel 1,211 .4
--------------- -------
$ 191,244 64.4%
=============== =======
</TABLE>
See accompanying independent auditors' report on supplemental information.
12
<PAGE>
DIGITAL VIDEO ENGINEERING
(A SOLE PROPRIETORSHIP)
FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
WITH ACCOUNTANTS' COMPILATION REPORT
CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
ACCOUNTANTS' COMPILATION REPORT 1
FINANCIAL STATEMENTS:
Balance Sheet 2
Statement of Income and Proprietor's Capital 3
Statement of Cash Flows 4
</TABLE>
<PAGE>
Mr. William Burnsed
Digital Video Engineering
Pasadena, California
We have compiled the accompanying balance sheet of Digital Video Engineering as
of June 30, 1999, and the related statement of income and proprietor's capital
and cash flows for the six months then ended, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants.
A compilation is limited to presenting, in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
The owner has elected to omit substantially all of the disclosures required by
generally accepted accounting principles. If the omitted disclosures were
included in the financial statements, they might influence the user's
conclusions about the Company's financial position, results of operations, and
cash flows. Accordingly, these financial statements are not designed for those
who are not informed about such matters.
Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
September 16, 1999
1
<PAGE>
DIGITAL VIDEO ENGINEERING
(A SOLE PROPRIETORSHIP)
BALANCE SHEET - JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization $ 10,044
============
PROPRIETOR'S CAPITAL
PROPRIETOR'S CAPITAL $ 10,044
============
</TABLE>
See accompanying accountants' compilation report.
2
<PAGE>
DIGITAL VIDEO ENGINEERING
(A SOLE PROPRIETORSHIP)
STATEMENT OF INCOME AND PROPRIETOR'S CAPITAL
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C>
REVENUES $ 69,990 100.0%
OPERATING AND ADMINISTRATIVE EXPENSES 3,300 4.7
------------ -------
NET INCOME 66,690 95.3%
=======
PROPRIETOR'S CAPITAL, beginning of period 19,194
PROPRIETOR'S DRAW (75,840)
PROPRIETOR'S CAPITAL, end of period $ 10,044
============
</TABLE>
See accompanying accountants' compilation report.
3
<PAGE>
DIGITAL VIDEO ENGINEERING
(A SOLE PROPRIETORSHIP)
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $ 66,690
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES -
depreciation $ 675
CHANGES IN ASSETS:
(INCREASE) DECREASE IN ASSETS -
accounts receivable 18,000
-------------
Total adjustments 18,675
-------------
Net cash provided by operating activities 85,365
CASH FLOWS USED FOR INVESTING ACTIVITIES -
payments to acquire property and equipment (9,525)
CASH FLOWS USED FOR FINANCING ACTIVITIES -
draws by proprietor (75,840)
-------------
NET INCREASE IN CASH -
CASH, beginning of period -
-------------
CASH, end of period $ -
=============
</TABLE>
See accompanying accountants' compilation report.
4
<PAGE>
DIGITAL VIDEO ENGINEERING
(A SOLE PROPRIETORSHIP)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Income and Proprietor's Capital 3
Statements of Cash Flows 4
Notes to Financial Statements 5-6
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION 7
SUPPLEMENTAL INFORMATION:
Schedules of Operating and Administrative Expenses 8
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Mr. William Burnsed
Digital Video Engineering
Pasadena, California
We have audited the accompanying balance sheets of Digital Video Engineering (a
sole proprietorship) as of December 31, 1998, 1997 and 1996, and the related
statements of income and proprietor's capital and cash flows for the years then
ended. These financial statements are the responsibility of the Company's owner.
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 Digital Video Engineering as of
December 31, 1998, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
June 3, 1999
1
<PAGE>
DIGITAL VIDEO ENGINEERING
(A SOLE PROPRIETORSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31, December 31, December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CURRENT ASSETS -
accounts receivable $ 18,000 $ 35,000 $ -
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 1,194 10,264 8,924
------------ -------------- ------------
$ 19,194 $ 45,264 $ 8,924
============ ============== ============
PROPRIETOR'S CAPITAL
PROPRIETOR'S CAPITAL $ 19,194 $ 45,264 $ 8,924
============ ============== ============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
2
<PAGE>
DIGITAL VIDEO ENGINEERING
(A SOLE PROPRIETORSHIP)
STATEMENTS OF INCOME AND PROPRIETOR'S CAPITAL
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 67,500 100.0% $ 171,070 100.0% $ 194,425 100.0%
OPERATING AND ADMINISTRATIVE EXPENSES 17,109 25.3 59,487 34.8 63,342 32.6
---------- -------- ---------- -------- --------- -------
NET INCOME 50,391 74.7% 111,583 65.2% 131,083 67.4%
======== ======== =======
PROPRIETOR'S CAPITAL, beginning of year 45,264 8,924 -
PROPRIETOR'S DRAW (76,461) (75,243) (122,159)
---------- ---------- ---------
PROPRIETOR'S CAPITAL, end of year $ 19,194 $ 45,264 $ 8,924
========== ========== =========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
3
<PAGE>
DIGITAL VIDEO ENGINEERING
(A SOLE PROPRIETORSHIP)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31 December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $ 50,391 $ 111,583 $ 131,083
-------------- ------------- -------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
(USED FOR) OPERATING ACTIVITIES:
Depreciation 1,340 2,119 1,588
Loss on disposal of property and equipment 9,085 2,341 -
CHANGES IN ASSETS:
(INCREASE) DECREASE IN ASSETS -
accounts receivable 17,000 (35,000) -
-------------- ------------- -------------
Total adjustments 27,425 (30,540) 1,588
-------------- ------------- -------------
Net cash provided by operating activities 77,816 81,043 132,671
-------------- ------------- -------------
CASH FLOWS USED FOR INVESTING ACTIVITIES -
payments to acquire property and equipment (1,355) (5,800) (10,512)
-------------- ------------- -------------
CASH FLOWS USED FOR FINANCING ACTIVITIES -
draws by proprietor (76,461) (75,243) (122,159)
-------------- ------------- -------------
NET INCREASE IN CASH - - -
CASH, beginning of year - - -
-------------- ------------- -------------
CASH, end of year $ - $ - $ -
============== ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ - $ - $ -
============== ============= =============
Income taxes paid $ - $ - $ -
============== ============= =============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
4
<PAGE>
DIGITAL VIDEO ENGINEERING
(A SOLE PROPRIETORSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
Digital Video Engineering (the "Company") was founded in the
State of California in January of 1996 as a sole
proprietorship. The sole proprietor is personally liable for
all federal and state income taxes.
BUSINESS ACTIVITY:
The Company designs post production studios and develop
special effects for television and film production companies
worldwide.
USE OF ESTIMATES:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that effect 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
reporting period. Actual results could differ from those
estimates.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation and
amortization are computed straight line over the estimated
useful lives of the assets.
REVENUE RECOGNITION:
The Company recognizes revenues when services are performed.
COMPREHENSIVE INCOME:
The Company has adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which establishes new rules for the reporting and
display of comprehensive income and its components; however,
the adoption had no impact on the Company's net income.
Comprehensive income consisted of net income only.
INCOME TAXES:
No provision has been made in the accompanying financial
statements for federal and state income taxes because, as a
sole proprietorship, the results of operations are included in
the tax returns of the sole proprietor.
See accompanying independent auditors' report.
5
<PAGE>
DIGITAL VIDEO ENGINEERING
(A SOLE PROPRIETORSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(2) MAJOR CUSTOMERS:
A summary is as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues for the year from
major customer (customers) $ 67,500 $ 160,000 $ 176,000
============== =============== ==============
Number of major customer (customers) 1 1 2
============== =============== ==============
Accounts receivable balance of the major
customer as of year end $ 18,000 $ 35,000 $ -
============== =============== ==============
</TABLE>
(3) PROPERTY AND EQUIPMENT:
A summary is as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computer equipment $ 1,355 $ 13,385 $ 10,512
Less accumulated depreciation 161 3,121 1,588
-------------- --------------- --------------
$ 1,194 $ 10,264 $ 8,924
============== =============== ==============
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and
1996 amounted to $1,340, $2,119 and $1,588, respectively.
(4) SUBSEQUENT EVENTS:
During April 1999, the Company merged with Wood Ranch Technology Group,
Inc. ("WRTG"). WRTG was incorporated in the State of Delaware on
January 22, 1996 and remained inactive until this merger. Immediately
following the merger, WRTG entered into a Reorganization and Exchange
agreement with Zero's and Ones, Inc. ("ZOI"), whereby, ZOI issued
728,000 shares of common stock to the shareholders of WRTG in exchange
for all of the outstanding common stock of WRTG.
See accompanying independent auditors' report.
6
<PAGE>
Mr. William Burnsed
Digital Video Engineering
Pasadena, California
Our report on our audit of the basic financial statements of Digital Video
Engineering (a sole proprietorship) for the years ended December 31, 1998, 1997
and 1996 appears on page 1. That audit was conducted for the purpose of forming
an opinion on the basic financial statements taken as a whole. The supplemental
information is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
June 3, 1999
7
<PAGE>
DIGITAL VIDEO ENGINEERING
(A SOLE PROPRIETORSHIP)
SCHEDULE OF OPERATING AND ADMINISTRATIVE EXPENSES
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Automobile expense $ - $ 2,060 1.2% $ 4,867 2.5%
Depreciation 1,340 2.0 2,119 1.2 1,588 .8
Keogh plan contribution - 6,467 3.8 3,970 2.1
Meals and entertainment - 3,633 2.1 3,800 2.0
Office supplies and expense 1,983 2.9 2,456 1.4 2,246 1.1
Payroll expense - 6,000 3.5 -
Professional fees 105 .2 4,910 2.9 2,485 1.3
Taxes and licenses - 519 .3 -
Telephone 4,596 6.8 2,722 1.6 5,525 2.8
Travel - 25,635 15.0 37,864 19.5
Tools - 625 .4 997 .5
Loss on disposal of property and
equipment 9,085 13.4 2,341 1.4 -
----------- -------- ------------ ------- ----------- -------
$ 17,109 25.3% $ 59,487 34.8% $ 63,342 32.6%
=========== ======== ============ ======= =========== ======
</TABLE>
See accompanying independent auditors' report on supplemental information.
8
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Polygonal Research Corporation
(a Development Stage Company)
We have audited the accompanying balance sheet of Polygonal Research
Corporation (a Development Stage Company and a Delaware corporation) as of
December 31, 1998 and the related statement of stockholders' equity for the
year 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 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 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 Polygonal Research
Corporation as of December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ Armando C. Ibarra, CPA
- --------------------------
ARMANDO C. IBARRA, CPA
October 12, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
POLYGONAL RESEARCH CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Current assets $ 0
-----------------
TOTAL CURRENT ASSETS 0
OTHER ASSETS
Organization Costs 1,000
-----------------
TOTAL OTHER ASSETS 1,000
TOTAL ASSETS $ 1,000
=================
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO FINANCIAL STATEMENTS
<PAGE>
POLYGONAL RESEARCH CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 0
-----------------
TOTAL CURRENT LIABILITIES 0
-----------------
TOTAL LIABILITIES 0
STOCKHOLDERS' EQUITY
Common stock, no par value, 1,500 shares authorized; 1,000
1,500 shares issued and outstanding
-----------------
TOTAL STOCKHOLDERS' EQUITY 1,000
-----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,000
=================
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO FINANCIAL STATEMENTS
<PAGE>
POLYGONAL RESEARCH CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
DECEMBER 31, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Cash from Operating Activities $ 0
-----------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Net Cash used for Investing Activities (1,000)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Cash from Financing Activity 1,000
-----------------
Net Increase (Decrease) in Cash 0
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 0
-----------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 0
=================
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO FINANCIAL STATEMENTS
<PAGE>
POLYGONAL RESEARCH CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
APRIL 1, 1998 TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
COMMON RETAINED PAID-IN
STOCK EARNINGS CAPITAL TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, April 1, 1998 1,000 0 0 1,000
Net Income (Loss) for the
year ended December 31, 1998 0 0 0
--------------------------------------------------------------------------
Balance December, 31, 1998 $1,000 $0 $0 $1,000
==========================================================================
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO FINANCIAL STATEMENTS
<PAGE>
POLYGONAL RESEARCH CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
AS OF DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
Polygonal Research Corporation (a Delaware corporation) "The Company"
was organized in April of 1998. The Company is engaged in the business of
developing image compression technology called Dynamic Polygonal
Compression "DPC" and manufacturing products that utilize the DPC engine.
OPERATIONS:
This Company has no operations for the year ended December 31, 1998.
SUBSEQUENT EVENTS:
Zeros and Ones, Inc. (a Delaware corporation) acquired 100% of the
outstanding stock of Polygonal Research Corporation in exchange for
455,000 shares of stock.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of Polygonal Research Corporation
We have compiled the accompanying balance sheet of Polygonal Research
Corporation (a Delaware corporation) as of March 31, 1999 and the related
statement of stockholders' equity for the three months then ended, in
accordance with Statements of Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not
express an opinion or any other form of assurance on them.
Management has elected to omit the statement of cash flow ordinarily included
in the financial statements. If the omitted statement of cash flow was
included in the financial statements, they might influence the user's
conclusions about the company's assets, liabilities, and stockholders'
equity. Accordingly, these financial statements are not designed for those
who are not informed about such matters.
/s/ Armando C. Ibarra, CPA
- --------------------------
ARMANDO C. IBARRA, CPA
September 22, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
POLYGONAL RESEARCH CORPORATION
BALANCE SHEET
MARCH 31, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash on Hand $ 0
---------------------
TOTAL CURRENT ASSETS 0
OTHER ASSETS
Organization Costs 1,000
---------------------
TOTAL OTHER ASSETS 1,000
---------------------
TOTAL ASSETS $ 0
=====================
LIABILITIES & STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable $ 0
---------------------
TOTAL CURRENT LIABILITIES 0
---------------------
TOTAL LIABILITIES $ 0
STOCKHOLDERS' EQUITY
Common stock 1,000
Retained Earnings 0
---------------------
TOTAL STOCKHOLDERS' EQUITY 1,000
---------------------
TOTAL LIABILITIES AND
AND STOCKHOLDERS' EQUITY $ 1,000
=====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
POLYGONAL RESEARCH CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
MARCH 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON RETAINED PAID-IN
MARCH 31, 1999 STOCK EARNINGS CAPITAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1 1,000 0 0 1,000
Net Income for the quarter ended
March 31, 1999 0 0 0 0
---------------------------------------------------------------------------------
Balance, March 31, 1999 $1,000 $0 $0 $1,000
=================================================================================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
POLYGONAL RESEARCH CORPORATION
NOTES TO THE FINANCIAL STATEMENT
AS OF MARCH 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
Polygonal Research Corporation (a Delaware corporation) "The Company"
was organized in April of 1998. The Company is engaged in the business of
developing image compression technology called Dynamic Polygonal
Compression "DPC" and manufacturing products that utilize the DPC engine.
OPERATIONS:
This Company has no operations for the three months ended March 31, 1999.
SUBSEQUENT EVENTS:
Zeros and Ones, Inc. (a Delaware corporation) acquired 100% of the
outstanding stock of Polygonal Research Corporation in exchange for
455,000 shares of stock.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of Polygonal Research Corporation
We have compiled the accompanying balance sheet of Polygonal Research
Corporation (a Delaware corporation) as of June 30, 1999 and the related
statement of stockholders' equity for the three months then ended, in
accordance with Statements of Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not
express an opinion or any other form of assurance on them.
Management has elected to omit the statement of cash flow ordinarily included
in the financial statements. If the omitted statement of cash flow was
included in the financial statements, they might influence the user's
conclusions about the company's assets, liabilities, and stockholders'
equity. Accordingly, these financial statements are not designed for those
who are not informed about such matters.
/s/ Armando C. Ibarra, CPA
- --------------------------
ARMANDO C. IBARRA, CPA
September 22, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
POLYGONAL RESEARCH CORPORATION
BALANCE SHEET
JUNE 30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash on Hand $ 0
---------------------
TOTAL CURRENT ASSETS 0
OTHER ASSETS
Organization Costs 1,000
---------------------
TOTAL OTHER ASSETS 1,000
---------------------
TOTAL ASSETS $ 1,000
=====================
LIABILITIES & STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable $ 0
---------------------
TOTAL CURRENT LIABILITIES 0
---------------------
TOTAL LIABILITIES $ 0
STOCKHOLDERS' EQUITY
Common stock 1,000
Retained Earnings 0
---------------------
TOTAL STOCKHOLDERS' EQUITY 1,000
---------------------
TOTAL LIABILITIES AND
AND STOCKHOLDERS' EQUITY $ 1,000
=====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
POLYGONAL RESEARCH CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
JUNE 30, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON RETAINED PAID-IN
JUNE 30, 1999 STOCK EARNINGS CAPITAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, April 1 1,000 0 0 1,000
Net Income for the quarter ended
June 30, 1999 0 0 0 0
--------------------------------------------------------------------------------
Balance, June 30, 1999 $1,000 $0 $0 $1,000
================================================================================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
POLYGONAL RESEARCH CORPORATION
NOTES TO THE FINANCIAL STATEMENT
AS OF JUNE 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
Polygonal Research Corporation (a Delaware corporation) "The Company"
was organized in April of 1998. The Company is engaged in the business of
developing image compression technology called Dynamic Polygonal
Compression "DPC" and manufacturing products that utilize the DPC engine.
OPERATIONS:
This Company has no operations for the three months ended June 30, 1999.
SUBSEQUENT EVENTS:
Zeros and Ones, Inc. (a Delaware corporation) acquired 100% of the
outstanding stock of Polygonal Research Corporation in exchange for
455,000 shares of stock.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of Polygonal Research Corporation
We have compiled the accompanying balance sheet of Polygonal Research
Corporation (a Delaware corporation) as of September 30, 1998 and the related
statement of stockholders' equity for the three months then ended, in
accordance with Statements of Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not
express an opinion or any other form of assurance on them.
Management has elected to omit the statement of cash flow ordinarily included
in the financial statements. If the omitted statement of cash flow was
included in the financial statements, they might influence the user's
conclusions about the company's assets, liabilities, and stockholders'
equity. Accordingly, these financial statements are not designed for those
who are not informed about such matters.
/s/ Armando C. Ibarra, CPA
- --------------------------
ARMANDO C. IBARRA, CPA
September 22, 1999
<PAGE>
POLYGONAL RESEARCH CORPORATION
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash on Hand $ 0
---------------------
TOTAL CURRENT ASSETS 0
OTHER ASSETS
Organization Costs 1,000
---------------------
TOTAL OTHER ASSETS 1,000
---------------------
TOTAL ASSETS $ 1,000
=====================
LIABILITIES & STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable $ 0
---------------------
TOTAL CURRENT LIABILITIES 0
---------------------
TOTAL LIABILITIES $ 0
STOCKHOLDERS' EQUITY
Common stock 1,000
Retained Earnings 0
---------------------
TOTAL STOCKHOLDERS' EQUITY 1,000
---------------------
TOTAL LIABILITIES AND
AND STOCKHOLDERS' EQUITY $ 1,000
=====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
POLYGONAL RESEARCH CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON RETAINED PAID-IN
SEPTEMBER 30, 1998 STOCK EARNINGS CAPITAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, July 1 1,000 0 0 1,000
Net Income for the quarter ended
September 30, 1998 0 0 0 0
--------------------------------------------------------------------------------
Balance, September 30, 1998 $1,000 $0 $0 $1,000
================================================================================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
POLYGONAL RESEARCH CORPORATION
NOTES TO THE FINANCIAL STATEMENT
AS OF SEPTEMBER 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
Polygonal Research Corporation (a Delaware corporation) "The Company"
was organized in April of 1998. The Company is engaged in the business of
developing image compression technology called Dynamic Polygonal
Compression "DPC" and manufacturing products that utilize the DPC engine.
OPERATIONS:
This Company has no operations for the year ended September 30, 1998.
SUBSEQUENT EVENTS:
Zeros and Ones, Inc. (a Delaware corporation) acquired 100% of the
outstanding stock of Polygonal Research Corporation in exchange for
455,000 shares of stock.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accountants
To the Board of Directors and Stockholders
of Polygonal Research Corporation
We have compiled the accompanying balance sheet of Polygonal Research
Corporation (a Delaware corporation) as of June 30, 1998 and the related
statement of stockholders' equity for the three months then ended, in
accordance with Statements of Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial Statements, and accordingly do not
express an opinion or any other form of assurance on them.
Management has elected to omit the statement of cash flow ordinarily included
in the financial statements. If the omitted statement of cash flow was
included in the financial statements, they might influence the user's
conclusions about the company's assets, liabilities, and stockholders'
equity. Accordingly, these financial statements are not designed for those
who are not informed about such matters.
/s/ Armando C. Ibarra, CPA
- --------------------------
ARMANDO C. IBARRA, CPA
September 22, 1999
637 THIRD AVENUE, SUITE H, CHULA VISTA, CA 91910
TEL. (619) 422-1348 FAX (619) 422-1465
<PAGE>
POLYGONAL RESEARCH CORPORATION
BALANCE SHEET
JUNE 30, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash on Hand $ 0
---------------------
TOTAL CURRENT ASSETS 0
OTHER ASSETS
Organization Costs 1,000
---------------------
TOTAL OTHER ASSETS 1,000
---------------------
TOTAL ASSETS $ 0
=====================
LIABILITIES & STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable $ 0
---------------------
TOTAL CURRENT LIABILITIES 0
---------------------
TOTAL LIABILITIES $ 0
STOCKHOLDERS' EQUITY
Common stock 1,000
Retained Earnings 0
---------------------
TOTAL STOCKHOLDERS' EQUITY 1,000
---------------------
TOTAL LIABILITIES AND
AND STOCKHOLDERS' EQUITY $ 1,000
=====================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
POLYGONAL RESEARCH CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
JUNE 30, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED COMMON RETAINED PAID-IN
JUNE 30, 1998 STOCK EARNINGS CAPITAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, April 1 1,000 0 0 1,000
Net Income for the quarter ended
June 30, 1998 0 0 0 0
---------------------------------------------------------------------------------
Balance, June 30, 1998 $1,000 $0 $0 $1,000
=================================================================================
</TABLE>
SEE ACCOUNTANTS' COMPILATION REPORT
<PAGE>
POLYGONAL RESEARCH CORPORATION
NOTES TO THE FINANCIAL STATEMENT
AS OF JUNE 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
Polygonal Research Corporation (a Delaware corporation) "The Company"
was organized in April of 1998. The Company is engaged in the business of
developing image compression technology called Dynamic Polygonal
Compression "DPC" and manufacturing products that utilize the DPC engine.
OPERATIONS:
This Company has no operations for the year ended June 30, 1998.
SUBSEQUENT EVENTS:
Zeros and Ones, Inc. (a Delaware corporation) acquired 100% of the
outstanding stock of Polygonal Research Corporation in exchange for
455,000 shares of stock.
<PAGE>
FINANCIAL STATEMENTS
ZERO & ONES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AND PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma consolidated balance sheet as of June
30, 1999 of Zero and Ones Inc., a Nevada Corporation, and its subsidiaries
(the "Company"), and the unaudited pro forma condensed consolidated
statements of operations for the year ended December 31, 1998 and for the six
months ended June 30, 1999, have been prepared to illustrate the effect of
the business combination as described in Item 2 of Form 8-K and the
accompanying notes to the unaudited pro forma condensed consolidated
financial statements, as though the business combination had occurred on
January 1, 1998. The pro forma adjustments and the assumptions on which they
are based are described in the accompanying notes to the unaudited pro forma
condensed consolidated financial statements.
The unaudited pro forma condensed consolidated balance sheet and
unaudited pro forma condensed consolidated statements of operations are
presented for illustrative purposes only and are not necessarily indicative
of the financial position and results of operations of the Company that would
have been reported had the business combinations occurred on January 1, 1998,
nor do they represent a forecast of the financial position and results of
operations for any future period. The unaudited pro forma condensed
consolidated balance sheet and unaudited pro forma condensed consolidated
statements of operations, including the notes thereto, should be read in
conjunction with the historical financial statements.
<PAGE>
ZEROS & ONES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AND
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Pursuant to an Acquisition Agreement as described in Item 2 of Form 8-K,
Commercial Labor Management, Inc., (CLMI) a Nevada corporation and now named
Zero & Ones, Inc. entered into an Asset Purchase Agreement to purchase 100%
of the assets of Zero & Ones, Inc., a Delaware corporation (ZOI-DE), and
Plans of Reorganization and Exchange agreements to acquire 100% of the total
issued and outstanding shares of stock of (1) Quantum Arts Inc., (QA), (2)
EKO Corporation, (EKO), (3) Polygonal Research Corporation,(PRC), (4)
KidVision, Inc., (KV), (5) Digital Video Engineer (DVE) in exchange for the
issuance of a total of 2,566,000 new shares of CLMI's common stock plus
issuance of notes payable of $300,000 to stockholders of QA for reimbursement
of expenses. As part of the overall reorganization, CLMI also agreed to and
is making an exchange offer to the shareholders of Pillar West Entertainment,
Inc. (PW) to acquire 100% of the total issued and outstanding capital stock
of PW in consideration for the issuance to the shareholders of PW of (a)
approximately 2,380,000 new shares of the CLMI's common stock, and (b)
approximately 370,000 warrants to purchase approximately 370,000 additional
shares of the CLMI's common stock at $3.00 per share. The original majority
stockholders of CLMI also surrendered to the company for cancellation
3,700,000 shares of CLMI stock and received cash consideration of $207,500,
of which $120,000 was paid before July 1, 1999 and notes receivables of
$87,500 will be payable in January 2000. Under the plan of reorganization,
QA, EKO, PRC, KV, DVE, PW and the assets acquired from ZOI-DE, referred to as
"the Group", are merged into one company and are accounted for in the manner
similar to a pooling of interest as if they are under common control.
Effective July 1, 1999, the assets and liabilities of CLMI and the Group were
merged as one company. After the effective day of the business combination of
the Group and CLMI, the original stockholders of the Group own a majority of
the shares of common stock of the Company. The Group is treated as the
acquirer in this business combination under the Accounting Principal Board
Pronouncement number 16, paragraph 70, referred as a reverse merger. The
business combination of the Group and CLMI is accounted for under the
purchase method in which the purchase price of $207,500 cash paid and
liabilities assumed of CLMI are allocated to fair market value of assets and
liabilities acquired. Excess of purchase price over fair values of net assets
acquired has been recorded as goodwill.
The unaudited pro forma condensed consolidated balance sheet and condensed
consolidated statements of operations assume that the combination was
completed on January 1, 1998. The unaudited pro forma condensed consolidated
balance sheet and pro forma condensed consolidated statement of operations
are not necessarily indicative of financial position and operating results
which would have been achieved had the combination been consummatedas of
January 1, 1998 and should not be construed as representative of future
operations.
NOTE A After the effective day of the business combination, the original
shareholders of CLMI became minority stockholders of the newly
reorganized company. Based on the Accounting Principal Board
pronouncement number 16, paragraph 70, CLMI became the acquiree in
this business combination. Therefore, shareholders equity of CLMI is
eliminated in the unaudited pro forma consolidated financial
statements. The cash purchase price $207,500 to stockholders of CLMI
(the acquiree) is recorded as follows:
<TABLE>
<S> <C>
Partial payment of purchase price to CLMI was paid prior to
6-30-99 and was recorded as general and operating expenses.
Therefore, it was reclassified from general and administrative
expenses to goodwill. 120,000
Notes payable to CLMI stockholders,10% per annum 87,500
-----------
Total goodwill 207,500
===========
Note payable to stockholder of QA for reimbursement of expenses 300,000
is recorded as general and administrative expenses since QA is an
entity within the Group of the acquiring companies. Assets and
liabilities in the Group should not be re-valued. The merger and
reorganization of the
<PAGE>
Group is accounted for in the manner similar to pooling of
interest since all entities in the Group are treated as under
common control and are as part of an integrated planned
transaction.
</TABLE>
NOTE B Outstanding payable as of June 30, 1999 was subsequently paid
off or converted to equity as follows:
<TABLE>
<S> <C>
Stockholders of CLMI contributed capital of $57,750 $ 57,750
to pay off outstanding payable
Conversion of notes payable to stockholders to equity 80,000
-----------------------
Total contribution to equity $ 137,750
=======================
</TABLE>
NOTE C Accrued interest on Notes payable as described in Note A and
computed as follows:
<TABLE>
<CAPTION>
Stockholders of the company
CLMI QA Total
<S> <C> <C> <C>
Notes Payable- principal 87,500 300,000 387,500
Interest rate 10% 10% 10%
Interest expense per month $ 729 $ 2,500 $ 3,229
Interest expense for 6 months $ 4,375 $ 15,000 $ 19,375
Interest expense for 12 months $ 8,750 $ 30,000 $ 38,750
</TABLE>
NOTE D In August 1999, majority of the preferred shareholders of a
Pillar West converted the outstanding preferred shares to common
stock. The company expects all preferred stock will be converted
to common stock by December 31, 1999. The conversion rate is 2.29
shares of common shares for one share of preferred stock.
NOTE E Represents the amortization of goodwill and depreciation on
assets purchased from ZOI-DE and computed as follows:
For period ended
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
<S> <C> <C>
(1) Goodwill $ 207,500 $ 207,500
========================================
Amortization: 6 months 12 months
Life: 5 years or 60 months 60
Method: Straight line SL
Monthly amortization $ 3,458 6458
Number of months 6 12
----------------------------------------
$ 20,750 $ 41,500
========================================
(2) Net fixed assets purchased from ZOI-DE $ 829,284 $ 829,284
Depreciation
Life 3years 6 months 12 months
Method Straight line
Monthly depreciation 23,000 23,000
Number of months 6 12
----------------------------------------
$ 138,000 $ 276,000
========================================
Total amortization and depreciation $ 158,750 $ 317,500
========================================
</TABLE>
<PAGE>
NOTE F Reclassified accounts receivable from stockholders to contra
account to stockholders equity is due to the fact that the
collection of the accounts receivable is contingent upon
receipt of proceeds from future funding of capital for the
company.
<PAGE>
ZEROS & ONES, INC. AND SUBSIDARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET - JUNE 30, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
DVE PW EKO PRC QA ZOI - DE(1) KV
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ - $ 1,837 $ 1,000 - $ 10,716 $ 337,709 $ 750
Accounts receivable-stockholder - - - - - 292,300
Prepaid expenses - - - - 362
-------------------------------------------------------------------------
Total current assets - 1,837 1,000 - 11,078 630,009 750
-------------------------------------------------------------------------
Property and equipment 10,880 8,090 - 24,284 829,284 -
Accumulated depreciation (836) - - (8,538) -
-------------------------------------------------------------------------
10,044 8,090 - - 15,746 829,284 -
-------------------------------------------------------------------------
Other assets 2,900 500 1,000 988 1,000
Goodwill, net - - - - - - -
-------------------------------------------------------------------------
$10,044 $ 12,827 $ 1,500 $ 1,000 $ 27,812 $1,459,293 $ 1,750
=========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ - $ - - $ 11,623 $ 5,459 $ -
Bank line of credit - - - 8,924 -
Notes payable, related parties 28,500 - - 80,000 -
Current portion of obligations
under capital leases - - - 5,087 -
-
-------------------------------------------------------------------------
Total current liabilities - 28,500 - - 105,634 5,459 -
-------------------------------------------------------------------------
Obligations under capitalized leases, less
current maturities - - - 5,066 -
Stockholders' equity:
Preferred stock - 4,233,152 - - -
Common stock 31,500 1,000 177,478
Contributed capital - - 256,682 - 13,740 1,453,834 -
Less: receivable from
stockholder
Retained earnings (Accumulated
deficit) 10,044 (4,280,305) (255,182) - (96,628) (175,728)
-------------------------------------------------------------------------
Total stockholders' equity 10,044 (15,673) 1,500 1,000 (82,888) 1,453,834 1,750
-------------------------------------------------------------------------
$10,044 $ 12,827 $ 1,500 $ 1,000 $ 27,812 $1,459,293 $ 1,750
=========================================================================
Total of Combined Pro forma adjustments
------------------------ ---------------------------------------------------------
Group CLMI All entities A B C D
------------------------ ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 352,012 $ - $ 352,012
Accounts receivable-stockholder 292,300 - 292,300
Prepaid expenses 362 - 362
------------------------ -----------
Total current assets 644,674 - 644,674
------------------------ -----------
-
Property and equipment 872,538 - 872,538
Accumulated depreciation (9,374) - (9,374)
------------------------ -----------
863,164 - 863,164
------------------------ -----------
Other assets 6,388 6,388
Goodwill, net - - 207,500
------------------------ ---------------------------------------------------------
$ 1,514,226 $ - $ 1,514,226 $ 207,500 $ - $ -
======================== =========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ 17,082 $ - $ 17,082
Bank line of credit 8,924 - 8,924
Notes payable, related parties 108,500 57,750 166,250 87,500 (137,750)
300,000
Current portion of obligations
under capital leases 5,087 - 5,087
-
------------------------ -----------
Total current liabilities 139,595 57,750 197,343
------------------------ -----------
- -
Obligations under capitalized leases, less
current maturities 5,066 - 5,066
Stockholders' equity:
Preferred stock 4,233,132 - 4,233,132 (3,930,436)
Common stock 209,978 255,013 464,991 (255,013) 3,930,436
Contributed capital 1,724,256 572,506 2,296,762 (630,256) 137,750
Less: receivable from
stockholder
Retained earnings (Accumulated
deficit) (4,797,799) (885,269) (5,683,068) 885,269
120,000
(300,000)
------------------------ -----------
Total stockholders' equity 1,369,567 (57,750) 1,311,817
------------------------ ---------------------------------------------------------
$ 1,514,226 $ - $ 1,514,226 207,500 $ - $ - -
======================== =========================================================
Pro forma
-------------- -------------------------
F Consolidated
-------------- -------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 352,012
Accounts receivable-stockholder (292,300) -
Prepaid expenses 362
-------------------------
Total current assets 352,374
-------------------------
Property and equipment 872,538
Accumulated depreciation (9,374)
-------------------------
863,164
-------------------------
Other assets 6,388
Goodwill, net 207,500
-------------- -------------------------
$(292,300) $ 1,429,426
============== =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ 17,082
Bank line of credit 8,924
Notes payable, related parties 416,000
Current portion of obligations
under capital leases 5,087
- -
-------------------------
Total current liabilities 447,093
-------------------------
Obligations under capitalized leases, less
current maturities 5,066
Stockholders' equity:
Preferred stock 302,696
Common stock 4,140,414
Contributed capital 1,804,256
Less: receivable from
stockholder (292,300) (292,300)
Retained earnings (Accumulated
deficit) (4,977,799)
-------------------------
Total stockholders' equity 977,267
-------------- -------------------------
(292,300) $ 1,429,426
============== =========================
</TABLE>
(1) CLMI acquired 100% of net assets from ZOI-DE at fair market value.
See accompanying notes to pro forma financial statements.
<PAGE>
ZEROS & ONES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
--------------------------------------------------------------------
DVE PW EKO PRC QA ZOI - DE(1)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 69,990 $ - $ - - $ 61,091 $ -
Cost of Sales - - - 145,901 -
--------------------------------------------------------------------
Gross profit 69,990 - (84,810) -
Operating and
administrative 3,300 537,371 175,082 - - -
--------------------------------------------------------------------
Net income (loss) $ 66,690 $(537,371) $ (175,082) $ - $(84,810) $ -
====================================================================
Net earnings per share
Average shares outstanding
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Total of Combined adjustments Pro Forma
---------------------------------- -------------- --------------- ---------------
KV Group CLMI All entities Amount Ref Consolidated
---------------------------------- -------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ - $ 131,081 $ - $ 131,081 $ - $ 131,081
Cost of Sales - 145,921 23,200 169,101 - 169,101
--------------------------------- ------------------------ -------------
Gross profit - (14,820) (23,200) (38,020) - (38,020)
Operating and
administrative 21,568 737,321 - 737,321 (120,000)A 1,095,446
- - 300,000 A
19,375 C
158,750 D
-----------------------------------------------------------
==============
Net income (loss) $ (21,568) $ (406,849) $(23,200) $ (775,341) $ 358,125 $(1,133,466)
================================== ======================== =============
Net earnings per share $ (0.25)
Average shares outstanding 4,564,741
</TABLE>
(1) CLMI purchased assets from ZOI-DE as of June 30, 1999 and therfore, proforma
statements of operations are not applicable to this entity.
See accompanying notes to pro forma financial statements.
<PAGE>
ZEROS & ONES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - FOR THE
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
DVE PW EKO PRC QA ZOI - DE(1)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 67,500 $ 62,447 $ - - $ 297,166 $ -
Cost of Sales - - - - - -
-------------------------------------------------------------------------------------
Gross profit 67,500 62,447 - - 297,166 -
Operating and administrative 17,109 341,818 58,100 - 191,244 -
-------------------------------------------------------------------------------------
Net income (loss) $ 50,391 $ (279,371) $ (58,100) - $ 105,922 $ -
=====================================================================================
Net earnings per share
Average shares outstanding
</TABLE>
<TABLE>
<CAPTION>
Total of Combined Pro Forma Adjustments Pro Forma
-------------------------------------- ------------------------------------------- ------------------
KV Group CLMI All entities Amount Ref Consolidated
-------------------------------------- ------------------------------------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 19,631 $ 446,744 $ - $ 446,744 $ - $ 446,744
Cost of Sales - - - - - -
-------------------------------------- ------------------------------- ------------------
Gross profit 19,631 446,744 - 446,744 - 446,744
Operating and
administrative 173,791 782,062 234,201 1,016,263 120,000 A 1,792,513
- - 300,000 A
38,750 C
- - 317,500 E
-------------------------------------- ------------------------------- ------------------
Net income (loss) $ (154,160) $(335,318) $(234,201) $(569,519) $ 776,250 $(1,345,769)
====================================== ---------------================ ==================
Net earnings per share $ (0.16)
Average shares outstanding 8,173,804
</TABLE>
(1) CLMI purchased assets from ZOI-DE as of June 30, 1999, and therefore,
proforma statements of operations is not applicable to this entity.
See accompanying notes to pro forma financial statements.
<PAGE>
AMENDMENT TO PLANS OF REORGANIZATION
AND EXCHANGE AND ASSET PURCHASE AGREEMENTS
The undersigned, signatories to those certain plans of
reorganization and exchange and asset purchase agreements (collectively, the
"Agreements"), by and among Zeros & Ones, Inc. (formerly Commercial Labor
Management, Inc.), a Nevada corporation (the "Corporation"), Zeros & Ones,
Inc., a Delaware corporation, Quantum Arts, Inc., a California corporation,
Kidvision, Inc., a California corporation, Wood Ranch Technology Group, Inc.,
a Delaware corporation, EKO Corporation, a Delaware corporation, Polygonal
Research Corporation, a Delaware corporation, and Pillar West Entertainment,
Inc., a California corporation, dated as of July 1, 1999, hereby agree to
amend the Agreements on November 9, 1999, as follows:
1. Kidvision, Inc. is a California corporation, not a Delaware
corporation.
2. The number of shares of the Corporation's Common Stock issued
to Charles Overton, the sole shareholder of Kidvision, Inc.,
in exchange for 100% of the issued and outstanding stock of
Kidvision, Inc. is 16,000 rather than 500,000.
3. The number of shares of the Corporation's Common Stock issued
to Robert Holtz, the sole shareholder of Zeros & Ones, Inc., a
Delaware corporation, in consideration for 100% of the assets
of Zeros & Ones, Inc., a Delaware corporation, is 512,000
rather than 220,000.
4. The number of shares of the Corporation's Common Stock issued
to William Burnsed and Robert Holtz, the sole shareholders of
Wood Ranch Technology Group, Inc., in consideration for 100%
of the assets of Wood Ranch Technology Group, Inc. is 500,000
to William Burnsed and 228,000 rather than 375,000 to Robert
Holtz.
5. The number of shares of the Corporation's Common Stock issued
to Bernie Butler Smith and Robert Holtz, the sole shareholders
of Polygonal Research Corporation, in consideration for 100%
of the assets of Polygonal Research Corporation is 300,000 to
Bernie Butler-Smith and 155,000 rather than 300,000 to Robert
Holtz.
6. The number of shares of the Corporation's Common Stock issued
in exchange for 100% of the issued and outstanding common and
preferred stock of Pillar West Entertainment, Inc. will not
exceed 2,380,000 rather than 1,745,000, and the number of
warrants issued in exchange for 100% of the outstanding
preferred stock of Pillar West Entertainment, Inc. will not
exceed 370,000 rather than 320,000.
7. The promissory note, dated July 1, 1999, in the original
principal amount of $87,500 payable by the Corporation to
Edward L. Torres and Mark J. Richardson, bearing simple
interest at the rate of 10% per annum, will be due and payable
in full on or before January 15, 2000.
<PAGE>
8. To date the Corporation has paid $60,000 to Steve Schklair on
its obligation to pay a total of $300,000 in cash to Mr.
Schklair in connection with the Corporation's acquisition of
Quantum Arts, Inc. The remaining payment of $240,000 payable
to Steve Schklair will be payable by the Corporation without
interest in installments of $60,000 each on the fifteenth day
of each month commencing on December 15, 1999.
9. The Corporation will have a positive net stockholders' equity
of at least $5,000,000 on or before June 30, 2000, rather than
within 60 days after the closing of the Agreements (i.e. by
September 29, 1999).
10. The Agreements will remain in full force and effect without
modification except as amended by this Amendment to Plans of
Reorganization and Exchange and Asset Purchase Agreements
IN WITNESS WHEREOF, the undersigned hereby execute this Amendment to
Plans of Reorganization and Exchange and Asset Purchase Agreements in their
same capacity as they executed the original Agreements .
/s/ Robert Holtz
-----------------------------------
Robert Holtz
/s/ Steve Schklair
-----------------------------------
Steve Schklair
/s/ William Burnsed
-----------------------------------
William Burnsed
/s/ Bernie Butler-Smith
-----------------------------------
Bernie Butler-Smith
/s/ Charles Overton
-----------------------------------
Charles Overton
/s/ Mark J. Richardson
-----------------------------------
Mark J. Richardson
/s/ Edward L. Torres
-----------------------------------
Edward L. Torres
