MarketVision
Communications
Corporation
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Financial Statements
Years Ended December 31, 2003 and 2002
MarketVision Communications Corporation
Contents
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Independent auditors' report 3
Financial statements
Balance sheets 4
Statements of income 5
Statements of stockholders' equity 6
Statements of cash flows 7
Notes to financial statements 8
2
Independent Auditors' Report
The Stockholders and Board of Directors
MarketVision Communications Corporation
We have audited the accompanying balance sheets of MarketVision Communications
Corporation (the "Company") as of December 31, 2003 and 2002 and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MarketVision
Communications Corporation as of December 31, 2003 and 2002, and the results of
its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ BDO Seidman, LLP
January 23, 2004 (except for note 8
which is dated as of March 31, 2004)
3
MarketVision Communications Corporation
Balance Sheets
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December 31, 2003 2002
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Assets
Current
Cash and cash equivalents $ 793,727 $ 350,966
Receivables from related parties 1,248,141 741,190
Prepaid expenses and other assets 9,964 7,978
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Total current assets 2,051,832 1,100,134
Property and equipment, net 105,030 97,631
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$ 2,156,862 $ 1,197,765
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Liabilities and Stockholders' Equity
Current
Accounts payable and accrued liabilities $ 69,688 $ 68,389
Current portion of long-term debt 6,120 5,736
Unearned refundable fees from related parties 947,604 685,023
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Total current liabilities 1,023,412 759,148
Long-term debt, excluding current portion 13,754 19,843
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Total liabilities 1,037,166 778,991
Commitments and contingencies
Stockholders' equity
Common stock - no par value; 40,000,000 shares
authorized and 888,889 shares outstanding -- --
Additional paid-in capital 143,000 143,000
Retained earnings 1,153,246 471,382
Notes receivable from stockholder (176,550) (195,608)
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Total stockholders' equity 1,119,696 418,774
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$ 2,156,862 $ 1,197,765
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See accompanying summary of accounting policies and
notes to financial statements.
4
MarketVision Communications Corporation
Statements of Income
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Years ended December 31, 2003 2002
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Revenue $ 1,839,282 $ 1,373,944
Costs and expenses
Payroll and benefits 892,551 647,776
Professional fees 156,451 161,009
Administrative 110,932 97,942
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1,159,934 906,727
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Income from operations 679,348 467,217
Other income (expense)
Interest income 4,011 4,064
Interest expense (1,495) (1,765)
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Total other income, net 2,516 2,299
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Net income $ 681,864 $ 469,516
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See accompanying summary of accounting policies and
notes to financial statements.
5
MarketVision Communications Corporation
Statements of Stockholders' Equity
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Note
Common Stock Additional Receivable Total
-------------------------- Paid-in Retained from Stockholders'
Shares Amount Capital Earnings Stockholder Equity
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Balance, December 31, 2001 400,000 $ -- $ -- $ 1,866 $ -- $ 1,866
Stock compensation 488,889 -- 143,000 -- -- 143,000
Advances to stockholders -- -- -- -- (195,608) (195,608)
Net income -- -- -- 469,516 -- 469,516
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Balance, December 31, 2002 888,889 -- 143,000 471,382 (195,608) 418,774
Repayments -- -- -- -- 19,058 19,058
Net income -- -- -- 681,864 -- 681,864
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Balance, December 31, 2003 888,889 $ -- $ 143,000 $ 1,153,246 $ (176,550) $ 1,119,696
====================================================================================================================================
See accompanying summary of accounting policies and
notes to financial statements.
6
MarketVision Communications Corporation
Statements of Cash Flows
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Years ended December 31, 2003 2002
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Cash Flows from Operating Activities:
Net income $ 681,864 $ 469,516
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock compensation -- 143,000
Depreciation 31,063 23,771
Change in assets and liabilities:
Receivables from related parties (506,951) (699,555)
Prepaid expenses and other assets (1,986) (4,826)
Accounts payable and accrued liabilities 1,299 52,855
Unearned refundable fees from related parties 262,581 453,580
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Net cash provided by operating activities 467,870 438,341
Net Cash from Investing Activities:
Purchase of property and equipment (38,462) (23,876)
(Advances to) repayment from stockholders 19,058 (195,608)
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Net cash used in investing activities (19,404) (219,484)
Cash Flows from Financing Activities:
Payments on note payable (5,705) (5,004)
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Net cash used in financing activities (5,705) (5,004)
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Net Increase in Cash and Cash Equivalents 442,761 213,853
Cash and Cash Equivalents, beginning of year 350,966 137,113
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Cash and Cash Equivalents, end of year $ 793,727 $ 350,966
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Noncash Operating Activities:
Stock compensation $ -- $ 143,000
Supplemental Cash Flow Information:
Interest paid $ 1,495 $ 1,765
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See accompanying summary of accounting policies and
notes to financial statements.
7
MarketVision Communications Corporation
Notes to Financial Statements
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1. Description of the Organization - MarketVision Communications
Business Corporation (the Company), a Minnesota
S-Corporation, was formed on June 8, 2000 to
provide information technology services to
Natural Health Trends Corp. (NHTC) and its
affiliates. A director of NHTC is also the
Chief Executive Officer of one of the
affiliates of NHTC and a 45% stockholder of
the Company. As a result, NHTC and its
affiliates are considered related parties of
the Company. The Company paid this
stockholder a consulting fee of $120,000 and
$115,000 in 2003 and 2002, respectively,
that is included in professional fees.
2. Summary of Significant Use of estimates - In preparing the
Accounting Policies financial statements in conformity with
accounting principles generally accepted in
the United States of America, management is
required to make estimates and assumptions
that affect the reported amounts of assets,
liabilities, revenues and expenses during
the reporting period. Actual results may
vary from management's estimates.
Cash and cash equivalents - The Company
considers all highly liquid investments with
maturities when purchased of three months or
less to be components of cash.
Concentration of credit risks - Financial
instruments that potentially subject the
Company to concentrations of credit risk are
primarily cash equivalents, short-term
investments and receivables.
The Company maintains its cash in two bank
accounts. Accounts in the United States are
insured by the Federal Deposit Insurance
Corporation ("FDIC") up to $100,000. Some of
the Company's cash balances exceed insured
limits.
Property and equipment - Property and
equipment are recorded at cost and
depreciated using the straight-line method
over the estimated useful lives of the
assets, ranging from 3 to 7 years.
Depreciation expense is included in
administrative expenses. Property and
equipment are reviewed for impairment
whenever an event or change in circumstances
indicates that the carrying amount of an
asset or group of assets may not be
recoverable.
8
MarketVision Communications Corporation
Notes to Financial Statements
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Income taxes - The Company elected to be
taxed under the provisions of Subchapter S
of the Internal Revenue Code, under which
the Company's taxable income or loss is
included in the Federal income tax returns
of its stockholders. Therefore, no provision
or liability for Federal income taxes has
been included in the accompanying
financial statements.
Revenue recognition - The Company's revenue
is primarily derived from annual access fees
paid by NHTC and its affiliates for which
the Company provides NHTC's distributors
access to various internet technologies over
a 12-month period. Access fees are
determined based on the number of enabled
distributors using an agreed upon rate, are
billed in advance, and are refundable on a
pro rata basis in the event of distributor
termination prior to completion of the
12-month period. The Company recognizes
revenue from these fees ratably over the
12-month service period. During 2003 and
2002, the Company provided extended payment
terms for a portion of the outstanding
receivable balance with NHTC. The Company
believes collection of its receivables with
NHTC is reasonably assured.
3. Property and Equipment Property and equipment consisted of the
following at December 31, 2003 and 2002,
respectively:
Estimated
Useful
Lives
(Years) 2003 2002
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Furniture and office equipment 3-5 $ 123,699 $ 85,237
Automobile 5 45,820 45,820
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169,519 131,057
Less accumulated depreciation 64,489 33,426
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$ 105,030 $ 97,631
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9
MarketVision Communications Corporation
Notes to Financial Statements
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4. Unearned Refundable Fees Unearned refundable fees from related
from Related Parties parties represents annual access fees
received from NHTC and its affiliates that
are recognized as revenue over the 12-month
period that the Company provides NHTC's
distributors access to various internet
technologies. These fees are refundable on a
pro rata basis in the event of distributor
termination prior to completion of the
12-month service period.
5. Long-Term Debt Long-term debt consists of the following at
December 31:
2003 2002
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6.5% automobile note payable $ 19,874 $ 25,579
Less current portion 6,120 5,736
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Long-term portion $ 13,754 $ 19,843
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Future maturities of long-term debt are as follows:
Fiscal year ending
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2004 $ 6,120
2005 6,530
2006 7,224
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$ 19,874
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6. Notes Receivable Note receivable from stockholder bears
from Stockholder interest at 1.52% and was repaid as part of
the merger agreement described in note 8.
7. Stockholders' Equity On January 1, 2002, the Company issued
488,889 shares of its common stock to
certain employees as compensation. The
shares were valued at $0.2925 per share
based on an assessment by management.
10
MarketVision Communications Corporation
Notes to Financial Statements
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8. Subsequent Event On March 31, 2004, NHTC entered into a
merger agreement with the Company, pursuant
to which NHTC acquired all of the
outstanding capital stock of the Company in
exchange for the issuance of 690,000 shares
of NHTC restricted common stock, promissory
notes in the aggregate principal amount of
approximately $3,203,000, a cash payment of
approximately $1,337,000, acquisition costs
of approximately $150,000 less
pre-acquisition net payables due
MarketVision of $609,000 for a total
purchase price of approximately $17,618,000.
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