Exhibit 10.3

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

FINANCIAL STATEMENTS

 

DECEMBER 31, 2002 AND 2001

 

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

TABLE OF CONTENTS

 

Independent Auditors’ Report

 

Financial Statements:

 

Balance Sheets

 

Statements of Operations

 

Statements of Stockholders’ Equity

 

Statements of Cash Flows

 

Notes to Financial Statements

 

--------------------------------------------------------------------------------

 

INDEPENDENT AUDITORS’ REPORT

 

To the Board of Directors and Stockholders

of Public Media Works, Inc.

 

We have audited the accompanying balance sheets of Public Media Works, Inc. (a
Delaware corporation) as of December 31, 2002 and 2001, and the related
statements of operations, stockholders’ equity and cash flows for the years
ended December 31, 2002 and 2001 and for the period May 15, 2000 (inception)
through December 31, 2000. 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 U.S. generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Public Media Works, Inc. as of
December 31, 2002 and 2001, and the results of its operations and its cash flows
for the years ended December 31, 2002 and 2001 and for the period May 15, 2000
(inception) through December 31, 2000 in conformity with U.S. generally accepted
accounting principles.

 

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As disclosed in Note 8 to the
financial statements, the Company incurred a net loss of $272,818 during the
year ended December 31, 2002, and as of that date, the Company’s current
liabilities exceeded its current assets by $526,707. These factors create an
uncertainty as to the Company’s ability to continue as a going concern. The
ability of the Company to continue as a going concern is dependent upon
additional capital contributions from the sale of stock and the ability to
generate operating revenue as the Company transitions from a development stage
company to an operating company (see notes 8 and 9). The financial statements do
not include any adjustments that might be necessary should the company be unable
to continue as a going concern.

 

Salt Lake City, Utah

May 23, 2003

 

1

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

BALANCE SHEETS

 

DECEMBER 31, 2002 and 2001

 

 

 

2002

 

2001

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash

 

$

—

 

$

206

 

 

 

 

 

 

 

Total current assets

 

—

 

206

 

 

 

 

 

 

 

Property and Equipment:

 

 

 

 

 

Furniture and leasehold improvements

 

20,054

 

20,054

 

Computers and office equipment

 

38,384

 

46,142

 

 

 

58,438

 

66,196

 

Less: accumulated depreciation

 

26,622

 

18,273

 

 

 

31,816

 

47,923

 

 

 

 

 

 

 

Unamortized intangible assets, web site development

 

115,000

 

115,000

 

 

 

 

 

 

 

Total Assets

 

$

146,816

 

$

163,129

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

3,289

 

$

2,549

 

Accrued interest, stockholders

 

63,566

 

36,366

 

Notes payable, stockholders

 

459,852

 

392,137

 

 

 

 

 

 

 

Total current liabilities

 

526,707

 

431,052

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

Common stock, $.01 par value 20,000,000 shares authorized, 17,800,000 and
19,600,000 issued and outstanding

 

178,000

 

196,000

 

Additional paid-in capital

 

392,195

 

213,345

 

Deficit accumulated during the development stage

 

(950,086

)

(677,268

)

 

 

 

 

 

 

Total Stockholders’ Equity

 

(379,891

)

(267,923

)

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

146,816

 

$

163,129

 

 

The accompanying notes are an integral
part of the financial statements.

 

2

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

STATEMENTS OF OPERATIONS

 

YEARS ENDED DECEMBER 31, 2002 AND 2001

AND FOR THE PERIOD MAY 15, 2000 (INCEPTION)

THROUGH DECEMBER 31, 2000

 

 

 

2002

 

2001

 

For the period
May 15, 2000
(Inception)
Through
December 31,
2000

 

For the period
May 15, 2000
(Inception)
Through
December 31,
2002

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

—

 

$

—

 

$

—

 

$

—

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Advertising and promotion

 

—

 

130

 

16,534

 

16,664

 

Auto expenses

 

—

 

2,280

 

2,902

 

5,l82

 

Insurance

 

—

 

4,745

 

5,816

 

10,561

 

Professional fees

 

20,960

 

290

 

14,820

 

36,070

 

Office expenses

 

2,487

 

10,213

 

29,097

 

41,797

 

Public relations

 

—

 

—

 

8,211

 

8,211

 

Rent

 

1,000

 

8,410

 

6,360

 

15,770

 

Salaries

 

150,000

 

—

 

244,245

 

394,245

 

Payroll taxes

 

—

 

—

 

7,217

 

7,217

 

Telephone and utilities

 

1,139

 

3,987

 

11,427

 

16,553

 

Web development/ Consulting costs

 

21,361

 

41,137

 

94,286

 

156,784

 

Depreciation

 

11,451

 

12,509

 

6,326

 

30,286

 

Travel and entertainment

 

30,691

 

4,651

 

58,891

 

94,233

 

Other

 

1,073

 

2,712

 

38,776

 

42,561

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

240,162

 

91,064

 

544,908

 

876,134

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

(240,162

)

(91,064

)

(544,908

)

(876,134

)

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Loss on disposal of fixed assets

 

(4,656

)

(2,245

)

—

 

(6,901

)

Interest income

 

—

 

—

 

649

 

649

 

Interest expense

 

(27,200

)

(27,200

)

(10,900

)

(65,300

)

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

(31,856

)

(29,445

)

(10,251

)

(71,552

)

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(272,018

)

(120,509

)

(555,159

)

(947,686

)

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

800

 

800

 

800

 

2,400

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(272,818

)

$

(121,309

)

$

(555,959

)

$

(950,086

)

 

The accompanying notes are an integral
part of the financial statements.

 

3

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PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

STATEMENTS OF STOCKHOLDERS’ EQUITY

 

YEARS ENDED DECEMBER 31, 2002 AND 2001
AND FOR THE PERIOD MAY 15, 2000 (INCEPTION)
THROUGH DECEMBER 31, 2000

 

 

 

 

 

 

 

Additional

 

Deficit
Accumulated
During the

 

 

 

Common Stock

 

Paid-in

 

Development

 

 

 

Shares

 

Amount

 

Capital

 

Stage

 

 

 

 

 

 

 

 

 

 

 

Balance, May 15, 2000

 

—

 

$

—

 

$

—

 

$

—

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash at $.05/share on June 16, 2000

 

200,000

 

2,000

 

8,000

 

—

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash and Company expenses paid directly by shareholder
at $.08/share on June 16, 2000

 

600,000

 

6,000

 

44,000

 

—

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash at $.025/share on June 23, 2000

 

2,000,000

 

20,000

 

30,000

 

—

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to officers for services rendered during 2000 at $.01/share

 

16,800,000

 

168,000

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Cash contributed by shareholders during 2000

 

—

 

—

 

53,750

 

—

 

 

 

 

 

 

 

 

 

 

 

Net loss for the period May 15, 2000 (inception) through December 31, 2000

 

—

 

—

 

—

 

(555,959

)

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2000

 

19,600,000

 

196,000

 

135,750

 

(555,959

)

 

 

 

 

 

 

 

 

 

 

Cash contributed and Company expenses paid directly by shareholders

 

—

 

—

 

77,595

 

—

 

 

 

 

 

 

 

 

 

 

 

Net loss for the year ended December 31, 2001

 

—

 

—

 

—

 

(121,309

)

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2001

 

19,600,000

 

$

196,000

 

$

213,345

 

$

(677,268

)

 

The accompanying notes are an integral
part of the financial statements.

 

4

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

STATEMENTS OF STOCKHOLDERS’ EQUITY - CONTINUED

 

YEARS ENDED DECEMBER 31, 2002 AND 2001
AND FOR THE PERIOD MAY 15, 2000 (INCEPTION)
THROUGH DECEMBER 31, 2000

 

 

 

Common Stock

 

Additional
Paid-in

 

Deficit
Accumulated
During the
Development

 

 

 

Shares

 

Amount

 

Capital

 

Stage

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2001

 

19,600,000

 

$

196,000

 

$

213,345

 

$

(677,268

)

 

 

 

 

 

 

 

 

 

 

Cash contributed by shareholders during 2002

 

—

 

—

 

10,850

 

—

 

 

 

 

 

 

 

 

 

 

 

Shares returned to treasury as part of reorganization on November 1, 2002

 

(16,800,000

)

(168,000

)

168,000

 

—

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to officers for services rendered per November 1, 2002
reorganization at $.01/share

 

15,000,000

 

150,000

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Net loss for the year ended December 31, 2002

 

—

 

—

 

—

 

(272,818

)

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2002

 

17,800,000

 

$

178,000

 

$

392,195

 

$

(950,086

)

 

The accompanying notes are an integral
part of the financial statements.

 

5

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

STATEMENTS OF CASH FLOWS

 

YEARS ENDED DECEMBER 31, 2002 AND 2001

AND FOR THE PERIOD MAY 15, 2000 (INCEPTION)

THROUGH DECEMBER 31, 2000

 

 

 

2002

 

2001

 

For the period
May 15, 2000
(Inception)
Through
December 31,
2000

 

For the period
May 15, 2000
(Inception)
Through
December 31,
2002

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(272,818

)

$

(121,309

)

$

(555,959

)

$

(950,086

)

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Expenses paid directly by related party creditors

 

66,715

 

—

 

—

 

66,715

 

Loss on disposal of fixed assets

 

4,656

 

2,245

 

—

 

6,901

 

Depreciation

 

11,451

 

12,509

 

6,326

 

30,286

 

Contributions from stockholders

 

—

 

26,805

 

28,500

 

55,305

 

Common stock issued for services

 

150,000

 

—

 

168,000

 

318,000

 

Increase (decrease) in accounts payable and accrued expenses

 

27,940

 

27,180

 

11,735

 

66,855

 

 

 

 

 

 

 

 

 

 

 

Net cash used by operating activities:

 

(12,056

)

(52,570

)

(341,398

)

(406,024

)

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

—

 

—

 

(69,003

)

(69,003

)

Web site development costs capitalized

 

—

 

—

 

(115,000

)

(115,000

)

 

 

 

 

 

 

 

 

 

 

Net cash used by investing activities:

 

$

—

 

$

—

 

$

(184,003

)

$

(184,003

)

 

The accompanying notes are an integral
part of the financial statements.

 

6

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

STATEMENTS OF CASH FLOWS - CONTINUED

 

YEARS ENDED DECEMBER 31, 2002 AND 2001

AND FOR THE PERIOD MAY 15, 2000 (INCEPTION)

THROUGH DECEMBER 31, 2000

 

 

 

2002

 

2001

 

For the period
May 15, 2000
(Inception)
Through
December 31,
2000

 

For the period
May 15, 2000
(Inception)
Through
December 31,
2002

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

$

—

 

$

—

 

$

81,500

 

$

81,500

 

Cash contributed by stockholders

 

10,850

 

50,790

 

53,750

 

115,390

 

Proceeds from related party borrowings

 

1,000

 

—

 

392,137

 

393,137

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities:

 

11,850

 

50,790

 

527,387

 

590,027

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

(206

)

(1,780

)

1,986

 

—

 

 

 

 

 

 

 

 

 

 

 

Cash, beginning of period

 

206

 

1,986

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$

—

 

$

206

 

$

1,986

 

$

—

 

Interest paid

 

$

—

 

$

—

 

$

1,734

 

$

1,734

 

 

 

 

 

 

 

 

 

 

 

Income taxes paid

 

$

—

 

$

—

 

$

—

 

$

—

 

 

The accompanying notes are an integral
part of the financial statements.

 

7

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

 

 

1.                                       Summary of Business and Significant
Accounting Policies

 

a.               Summary of Business

 

The Company was incorporated under the laws of the State of Delaware on May 15,
2000.  The Company was formed to pursue opportunities in the motion picture
industry.  The Company plans to utilize the concept of interactive marketing. 
Interactive marketing is a new method to market, promote and produce films. The
new marketing method will presell product placement in films to help fund
production costs in the initial stages. The Company has not commenced principal
operations and is considered a “Development Stage Company” as defined by the
Financial Accounting Standards Board Statement No. 7.

 

b.              Cash Flows

 

For purposes of the statement of cash flows, the Company considers all highly
liquid investments purchased with a maturity of three months or less to be cash
or cash equivalents.

 

c.               Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using straight-line methods based on estimated useful
lives of five to seven years.

 

d.              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 results
could differ from those estimates.

 

2.                                       Unamortized Intangible Asset

 

In September 2000, the Company hired a web site development company to develop
its interactive marketing web site for $115,000. At December 31, 2002 and 2001,
the intangible asset has been assigned a fair value of $115,000.

 

Costs incurred internally to maintain and further develop the web site have been
recognized as an expense when incurred.

 

The interactive marketing web site is still in the development stage. The
Company has determined that the fair value of the intangible asset has not been
impaired.

 

8

--------------------------------------------------------------------------------

 

3.                                       Notes Payable, Stockholders

 

The Company has notes payable with two stockholders. The balance at December 31,
2002 and 2001 was $459,852 and $392,137, respectively. The notes are unsecured
and due on demand. Interest is being charged at 8% on $340,000. The remaining
amount is non-interest bearing.

 

4.                                       Preferred Stock

 

The Company has been authorized to issue 5,000,000 shares of preferred stock of
which no preferred stock has been issued as of December 31, 2002. The Company
has the authorization to issue the preferred stock in one or more series and to
determine the voting rights, preferences as to dividends and liquidation,
conversion rights, and other rights of each series.

 

5.                                       Issuance of Common Stock

 

During June 2000, the company issued 2,800,000 shares of its common stock at an
aggregate price of $110,000 of which $81,500 was received in cash and $28,500 in
Company expenses paid directly by a stockholder.

 

During the year 2000, the Company issued 16,800,000 shares of its common stock
to three officers for services rendered. The common shares were valued at $.01
per share for an aggregate price of $168,000. The $168,000 is included in
salaries expense in the accompanying statement of operations. In November 2002,
the Company hired a new chief executive officer and restructured the equity of
the Company. As part of the restructuring, the 16,800,000 common shares were
returned to Treasury. Pursuant to a board of directors resolution effective
November 1, 2002, the Company issued three officers 15,000,000 shares of its
common stock at $.01 per share for an aggregate cost of $150,000 for services
rendered. The $150,000 is included in salaries expense in the accompanying
statement of operations.

 

6.                                       Stock Options and Warrants

 

No options or warrants are outstanding to acquire the Company’s common stock.

 

9

--------------------------------------------------------------------------------

 

7.                                       Income Taxes

 

The provision for income tax consists of the following components at December
31, 2002, 2001 and 2000:

 

 

 

2002

 

2001

 

2000

 

Current:

 

 

 

 

 

 

 

Federal income taxes

 

$

—

 

$

—

 

$

—

 

State income taxes

 

800

 

800

 

800

 

Deferred

 

—

 

—

 

—

 

 

 

$

800

 

$

800

 

$

800

 

 

The following reconciles income taxes reported in the financial statements to
taxes that would be obtained by applying regular tax rates to income before
taxes:

 

 

 

2002

 

2001

 

2000

 

Expected tax benefit using regular rates

 

$

(92,486

)

$

(40,973

)

$

(188,754

)

State minimum tax

 

800

 

800

 

800

 

Valuation allowance

 

92,486

 

40,973

 

188,754

 

 

 

 

 

 

 

 

 

Tax Provision

 

$

800

 

$

800

 

$

800

 

 

Due to the Company being in the development stage and incurring net operating
losses, a valuation allowance has been provided to reduce deferred tax assets to
the amount that is more likely to be realized. The net deferred tax assets
consist of the following components:

 

 

 

2002

 

2001

 

2000

 

Deferred tax assets

 

$

92,486

 

$

40,973

 

$

188,754

 

Valuation allowance

 

(92,486

)

(40,973

)

(188,754

)

Deferred tax liabilities

 

—

 

—

 

—

 

 

 

 

 

 

 

 

 

Net deferred tax assets

 

$

—

 

$

—

 

$

—

 

 

The Company has loss carryforwards totaling $629,686 that may be offset against
future federal income taxes. If not used, the carryforwards will expire as
follows:

 

 

 

Operating
Losses

 

 

 

 

 

2020

 

$

387,159

 

2021

 

120,509

 

2022

 

122,018

 

 

 

 

 

 

 

$

629,686

 

 

10

--------------------------------------------------------------------------------

 

8.                                       Development Stage and Operating
Deficits

 

As shown in the accompanying financial statements, the Company incurred a net
loss of $272,818 during the year ended December 31, 2002 and accumulated losses
of $950,086 since opening for business in 2000. The Company’s current
liabilities exceed its current assets by $526,707 at December 31, 2002. These
factors create an uncertainty as to the Company’s ability to continue as a going
concern. The ability of the Company to continue as a going concern is dependent
upon the success of raising additional capital through the issuance of common
stock and the ability to generate operating revenue. The financial statements do
not include any adjustments that might be necessary should the Company be unable
to continue as a going concern.

 

9.                                       Subsequent Event

 

During April and May 2003, the Company issued 850,000 shares of its common stock
at $.40 per share for a total amount of $340,000.

 

In May 2003, the Company paid $50,000 to a shareholder for reimbursement of
Company expenses paid directly by the shareholder in a prior year. The $50,000
payable is included in notes payable, shareholders in the accompanying balance
sheet (see note 3).

 

11

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

 

FINANCIAL STATEMENTS

 

 

JUNE 30, 2003 AND DECEMBER 31, 2002

 

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

TABLE OF CONTENTS

 

Independent Auditors’ Report

 

Financial Statements:

 

Balance Sheets

 

Statements of Operations

 

Statements of Stockholders’ Equity

 

Statements of Cash Flows

 

Notes to Financial Statements

 

--------------------------------------------------------------------------------

 

INDEPENDENT AUDITORS’ REPORT

 

To the Board of Directors and Stockholders

of Public Media Works, Inc.

 

We have audited the accompanying balance sheets of Public Media Works, Inc. (a
Delaware corporation) as of June 30, 2003 and December 31, 2002, and the related
statements of operations, stockholders’ equity and cash flows for the six months
ended June 30, 2003 and the years ended December 31, 2002 and 2001. 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 U.S. generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Public Media Works, Inc. as of
June 30, 2003 and December 31, 2002, and the results of its operations and its
cash flows for the six months ended June 30, 2003 and the years ended December
31, 2002 and 2001 in conformity with U.S. generally accepted accounting
principles.

 

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As disclosed in Note 8 to the
financial statements, the Company incurred a net loss of $236,150 and $272,818,
respectively, during the six months ended June 30, 2003 and the year ended
December 31, 2002, and as of June 30, 2003, the Company’s current liabilities
exceeded its current assets by $415,569. These factors create an uncertainty as
to the Company’s ability to continue as a going concern. The ability of the
Company to continue as a going concern is dependent upon additional capital
contributions from the sale of stock and the ability to generate operating
revenue as the Company transitions from a development stage company to an
operating company (see notes 8 and 9). The financial statements do not include
any adjustments that might be necessary should the company be unable to continue
as a going concern.

 

Salt Lake City, Utah

August 22, 2003

 

1

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

BALANCE SHEETS

 

JUNE 30, 2003 AND DECEMBER 31, 2002

 

 

 

June 30,
2003

 

December 31,
2002

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash

 

$

118,738

 

$

—

 

Prepaid expenses

 

2,816

 

—

 

 

 

 

 

 

 

Total current assets

 

121,554

 

—

 

 

 

 

 

 

 

Property and Equipment:

 

 

 

 

 

Furniture and leasehold improvements

 

20,054

 

20,054

 

Computers and office equipment

 

38,384

 

38,384

 

 

 

58,438

 

58,438

 

Less: accumulated depreciation

 

31,910

 

26,622

 

 

 

26,528

 

31,816

 

 

 

 

 

 

 

Unamortized intangible assets, web site development

 

115,000

 

115,000

 

 

 

 

 

 

 

Total Assets

 

$

263,082

 

$

146,816

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

32,781

 

$

3,289

 

Accrued interest, stockholders

 

77,166

 

63,566

 

Notes payable, stockholders

 

427,176

 

459,852

 

 

 

 

 

 

 

Total current liabilities

 

537,123

 

526,707

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

Common stock, $.01 par value 20,000,000 shares authorized, 18,650,000 and
17,800,000 issued and outstanding

 

186,500

 

178,000

 

Additional paid–in capital

 

725,695

 

392,195

 

Deficit accumulated during the development stage

 

(1,186,236

)

(950,086

)

 

 

 

 

 

 

Total Stockholders’ Equity

 

(274,041

)

(379,891

)

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

263,082

 

$

146,816

 

 

The accompanying notes are an integral
part of the financial statements.

 

2

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

STATEMENTS OF OPERATIONS

 

SIX MONTHS ENDED JUNE 30, 2003 AND

YEARS ENDED DECEMBER 31, 2002 AND 2001

 

 

 

Six Months
Ended
June 30,
2003

 

Year Ended
December 31,
2002

 

Year Ended
December 31,
2001

 

For the period
May 15, 2000
(Inception)
Through
June 30,
2003

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

—

 

$

—

 

$

—

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Advertising and promotion

 

217

 

—

 

130

 

16,881

 

Auto expenses

 

18,061

 

—

 

2,280

 

23,243

 

Insurance

 

—

 

—

 

4,745

 

10,561

 

Professional fees

 

10,682

 

20,960

 

290

 

46,752

 

Office expenses

 

4,755

 

2,487

 

10,213

 

46,552

 

Public relations

 

—

 

—

 

—

 

8,211

 

Rent

 

5,400

 

1,000

 

8,410

 

21,170

 

Salaries

 

118,750

 

150,000

 

—

 

512,995

 

Payroll taxes

 

11,613

 

—

 

—

 

18,830

 

Telephone and utilities

 

2,398

 

1,139

 

3,987

 

18,951

 

Web development/ Consulting costs

 

13,080

 

21,361

 

41,137

 

169,864

 

Depreciation

 

5,288

 

11,451

 

12,509

 

35,574

 

Travel and entertainment

 

29,620

 

30,691

 

4,651

 

123,853

 

Other

 

2,686

 

1,073

 

2,712

 

45,247

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

222,550

 

240,162

 

91,064

 

1,098,684

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

(222,550

)

(240,162

)

(91,064

)

(1,098,684

)

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Loss on disposal of fixed assets

 

—

 

(4,656

)

(2,245

)

(6,901

)

Interest income

 

—

 

—

 

—

 

649

 

Interest expense

 

(13,600

)

(27,200

)

(27,200

)

(78,900

)

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

(13,600

)

(31,856

)

(29,445

)

(85,152

)

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(236,150

)

(272,018

)

(120,509

)

(1,183,836

)

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

—

 

800

 

800

 

2,400

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(236,150

)

$

(272,818

)

$

(121,309

)

$

(1,186,236

)

 

The accompanying notes are an integral
part of the financial statements.

 

3

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

STATEMENTS OF STOCKHOLDERS’ EQUITY

 

FOR THE PERIOD MAY 15, 2000 (INCEPTION)

THROUGH JUNE 30, 2003

 

 

 

 

Common Stock

 

Additional
Paid-in

 

Deficit
Accumulated
During the
Development

 

 

 

Shares

 

Amount

 

Capital

 

Stage

 

 

 

 

 

 

 

 

 

 

 

Balance, May 15, 2000

 

—

 

$

—

 

$

—

 

$

—

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash at $.05/share on June 16, 2000

 

200,000

 

2,000

 

8,000

 

—

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash and Company expenses paid directly by shareholder
at $.08/share on June 16, 2000

 

600,000

 

6,000

 

44,000

 

—

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash at $.025/share on June 23, 2000

 

2,000,000

 

20,000

 

30,000

 

—

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to officers for services rendered during 2000 at $.01/share

 

16,800,000

 

168,000

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Cash contributed by shareholders during 2000

 

—

 

—

 

53,750

 

—

 

 

 

 

 

 

 

 

 

 

 

Net loss for the period May 15, 2000 (inception) through December 31, 2000

 

—

 

—

 

—

 

(555,959

)

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2000

 

19,600,000

 

196,000

 

135,750

 

(555,959

)

 

 

 

 

 

 

 

 

 

 

Cash contributed and Company expenses paid directly by shareholders

 

—

 

—

 

77,595

 

—

 

 

 

 

 

 

 

 

 

 

 

Net loss for the year ended December 31, 2001

 

—

 

—

 

—

 

(121,309

)

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2001

 

19,600,000

 

$

196,000

 

$

213,345

 

$

(677,268

)

 

The accompanying notes are an integral
part of the financial statements.

 

4

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

STATEMENTS OF STOCKHOLDERS’ EQUITY - CONTINUED

 

FOR THE PERIOD MAY 15, 2000 (INCEPTION)

THROUGH JUNE 30, 2003

 

 

 

Common Stock

 

Additional
Paid-in

 

Deficit
Accumulated
During the
Development

 

 

 

Shares

 

Amount

 

Capital

 

Stage

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2001

 

19,600,000

 

$

196,000

 

$

213,345

 

$

(677,268

)

 

 

 

 

 

 

 

 

 

 

Cash contributed by shareholders during 2002

 

—

 

—

 

10,850

 

—

 

 

 

 

 

 

 

 

 

 

 

Shares returned to treasury as part of reorganization on November 1, 2002

 

(16,800,000

)

(168,000

)

168,000

 

—

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to officers for services rendered per November 1, 2002
reorganization at $.01/share

 

15,000,000

 

150,000

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Net loss for the year ended December 31, 2002

 

—

 

—

 

—

 

(272,818

)

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2002

 

17,800,000

 

178,000

 

392,195

 

(950,086

)

 

 

 

 

 

 

 

 

 

 

Cash contributed by shareholders during 2003

 

—

 

—

 

2,000

 

—

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash at $.40/share during April through June 2003

 

850,000

 

8,500

 

331,500

 

—

 

 

 

 

 

 

 

 

 

 

 

Net loss for the six months ended June 30, 2003

 

—

 

—

 

—

 

(236,150

)

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2003

 

18,650,000

 

$

186,500

 

$

725,695

 

$

(1,186,236

)

 

The accompanying notes are an integral
part of the financial statements.

 

5

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

STATEMENTS OF CASH FLOWS

 

SIX MONTHS ENDED JUNE 30, 2003 AND

YEARS ENDED DECEMBER 31, 2002 AND 2001

 

 

 

Six Months
Ended
June 30,
2003

 

Year Ended
December 31,
2002

 

Year Ended
December 31,
2001

 

For the period
May 15, 2000
(Inception)
Through
June 30,
2003

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(236,150

)

$

(272,818

)

$

(121,309

)

$

(1,186,236

)

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Expenses paid directly by related party creditors

 

17,324

 

66,715

 

—

 

84,039

 

Loss on disposal of fixed assets

 

—

 

4,656

 

2,245

 

6,901

 

Depreciation

 

5,288

 

11,451

 

12,509

 

35,574

 

 

 

 

 

 

 

 

 

 

 

Contributions from stockholders

 

—

 

—

 

26,805

 

55,305

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for services

 

—

 

150,000

 

—

 

318,000

 

Increase in prepaid expenses

 

(2,816

)

—

 

—

 

(2,816

)

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in accounts payable and accrued expenses

 

43,092

 

27,940

 

27,180

 

109,947

 

 

 

 

 

 

 

 

 

 

 

Net cash used by operating activities:

 

(173,262

)

(12,056

)

(52,570

)

(579,286

)

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

—

 

—

 

—

 

(69,003

)

Web site development costs capitalized

 

—

 

—

 

—

 

(115,000

)

 

 

 

 

 

 

 

 

 

 

Net cash used by investing activities:

 

$

—

 

$

—

 

$

—

 

$

(184,003

)

 

The accompanying notes are an integral
part of the financial statements.

 

6

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

STATEMENTS OF CASH FLOWS - CONTINUED

 

SIX MONTHS ENDED JUNE 30, 2003 AND

YEARS ENDED DECEMBER 31, 2002 AND 2001

 

 

 

Six Months
Ended
June 30,
2003

 

Year Ended
December 31,
2002

 

Year Ended
December 31,
2001

 

For the period
May 15, 2000
(Inception)
Through
June 30,
2003

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

$

340,000

 

$

—

 

$

—

 

$

421,500

 

Cash contributed by stockholders

 

2,000

 

10,850

 

50,790

 

117,390

 

Proceeds from related party borrowings

 

—

 

1,000

 

—

 

393,137

 

Repayment of related party borrowings

 

(50,000

)

—

 

—

 

(50,000

)

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities:

 

292,000

 

11,850

 

50,790

 

882,027

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

118,738

 

(206

)

(1,780

)

118,738

 

 

 

 

 

 

 

 

 

 

 

Cash, beginning of period

 

—

 

206

 

1,986

 

—

 

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$

118,738

 

$

—

 

$

206

 

$

118,738

 

Interest paid

 

$

—

 

$

—

 

$

—

 

$

1,734

 

 

 

 

 

 

 

 

 

 

 

Income taxes paid

 

$

—

 

$

—

 

$

—

 

$

—

 

 

The accompanying notes are an integral
part of the financial statements.

 

7

--------------------------------------------------------------------------------

 

PUBLIC MEDIA WORKS, INC.

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

 

1.                                       Summary of Business and Significant
Accounting Policies

 

a.               Summary of Business

 

The Company was incorporated under the laws of the State of Delaware on May 15,
2000.  The Company was formed to pursue opportunities in the motion picture
industry.  The Company plans to utilize the concept of interactive marketing. 
Interactive marketing is a new method to market, promote and produce films. The
new marketing method will presell product placement in films to help fund
production costs in the initial stages. The Company has not commenced principal
operations and is considered a “Development Stage Company” as defined by the
Financial Accounting Standards Board Statement No. 7.

 

b.              Cash Flows

 

For purposes of the statement of cash flows, the Company considers all highly
liquid investments purchased with a maturity of three months or less to be cash
or cash equivalents.

 

c.               Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using straight-line methods based on estimated useful
lives of five to seven years.

 

d.              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 results
could differ from those estimates.

 

2.                                       Unamortized Intangible Asset

 

In September 2000, the Company hired a web site development company to develop
its interactive marketing web site for $115,000. At June 30, 2003 and December
31, 2002, the intangible asset has been assigned a fair value of $115,000.

 

Costs incurred internally to maintain and further develop the web site have been
recognized as an expense when incurred.

 

The interactive marketing web site is still in the development stage. The
Company has determined that the fair value of the intangible asset has not been
impaired.

 

8

--------------------------------------------------------------------------------

 

3.                                       Notes Payable, Stockholders

 

The Company has notes payable with two stockholders. The balance at June 30,
2003 and December 31, 2002 was $427,176 and $459,352, respectively. The notes
are unsecured and due on demand. Interest is being charged at 8% on $340,000.
The remaining amount is non-interest bearing.

 

4.                                       Preferred Stock

 

The Company has been authorized to issue 5,000,000 shares of preferred stock of
which no preferred stock has been issued as of June 30, 2003. The Company has
the authorization to issue the preferred stock in one or more series and to
determine the voting rights, preferences as to dividends and liquidation,
conversion rights, and other rights of each series.

 

5.                                       Issuance of Common Stock

 

During April through June 2003, the Company issued 850,000 shares of its common
stock at $.40 per share for a total amount of $340,000.

 

During June 2000, the company issued 2,800,000 shares of its common stock at an
aggregate price of $110,000 of which $81,500 was received in cash and $28,500 in
Company expenses paid directly by a stockholder.

 

During the year 2000, the Company issued 16,800,000 shares of its common stock
to three officers for services rendered. The common shares were valued at $.01
per share for an aggregate price of $168,000. The $168,000 is included in
salaries expense in the accompanying statement of operations. In November 2002,
the Company hired a new chief executive officer and restructured the equity of
the Company. As part of the restructuring, the 16,800,000 common shares were
returned to Treasury. Pursuant to a board of directors resolution effective
November 1, 2002, the Company issued three officers 15,000,000 shares of its
common stock at $.01 per share for an aggregate cost of $150,000 for services
rendered. The $150,000 is included in salaries expense in the accompanying
statement of operations.

 

6.                                       Stock Options and Warrants

 

No options or warrants are outstanding to acquire the Company’s common stock.

 

9

--------------------------------------------------------------------------------

 

7.                                       Income Taxes

 

The provision for income tax consists of the following components at June 30,
2003 and December 31, 2002 and 2001:

 

 

 

June 30,
2003

 

December 31,
2002

 

December 31,
2001

 

Current:

 

 

 

 

 

 

 

Federal income taxes

 

$

—

 

$

—

 

$

—

 

State income taxes

 

—

 

800

 

800

 

Deferred

 

—

 

—

 

—

 

 

 

$

—

 

$

800

 

$

800

 

 

The following reconciles income taxes reported in the financial statements to
taxes that would be obtained by applying regular tax rates to income before
taxes:

 

 

 

June 30,
2003

 

December 31,
2002

 

December 31,
2001

 

Expected tax benefit using regular rates

 

$

(80,291

)

$

(92,486

)

$

(40,973

)

State minimum tax

 

—

 

800

 

800

 

Valuation allowance

 

80,291

 

92,486

 

40,973

 

 

 

 

 

 

 

 

 

Tax Provision

 

$

—

 

$

800

 

$

800

 

 

Due to the Company being in the development stage and incurring net operating
losses, a valuation allowance has been provided to reduce deferred tax assets to
the amount that is more likely to be realized. The net deferred tax assets
consist of the following components:

 

 

 

June 30,
2003

 

December 31,
2002

 

December 31,
2001

 

 

 

 

 

 

 

 

 

Deferred tax assets

 

$

402,504

 

$

322,213

 

$

229,727

 

Valuation allowance

 

(402,504

)

(322,213

)

(229,727

)

Deferred tax liabilities

 

—

 

—

 

—

 

 

 

 

 

 

 

 

 

Net deferred tax assets

 

$

—

 

$

—

 

$

—

 

 

The Company has loss carryforwards totaling $865,836 that may be offset against
future federal income taxes. If not used, the carryforwards will expire as
follows:

 

 

 

Operating
Losses

 

 

 

 

 

2020

 

$

387,159

 

2021

 

120,509

 

2022

 

122,018

 

2023

 

236,150

 

 

 

 

 

 

 

$

865,836

 

 

10

--------------------------------------------------------------------------------

 

8.                                       Development Stage and Operating
Deficits

 

As shown in the accompanying financial statements, the Company incurred a net
loss of $236,150 and $272,818, respectively, during the six months ended June
30, 2003 and year ended December 31, 2002 and accumulated losses of $1,186,236
since opening for business in 2000. The Company’s current liabilities exceed its
current assets by $415,569 at June 30, 2003. These factors create an uncertainty
as to the Company’s ability to continue as a going concern. The ability of the
Company to continue as a going concern is dependent upon the success of raising
additional capital through the issuance of common stock and the ability to
generate operating revenue. The financial statements do not include any
adjustments that might be necessary should the Company be unable to continue as
a going concern.

 

9.                                       Subsequent Event

 

On July 23, 2003, the Company entered into a Share Exchange Agreement with
Burnam Management, Inc. (BMI), a Delaware publicly traded company. The agreement
is scheduled to close on or before August 31, 2003. The shareholders of the
company have agreed to surrender all shares to BMI, then BMI will issue from
authorized but previously unissued shares, 19,062,500 shares of BMI common
voting shares to the Company’s Current Stockholders. As a result of the
exchange, the Company will become a wholly-owned subsidiary of BMI. After the
exchange, the total of BMI shares issued and outstanding will amount to
24,062,500.

 

During July and August 2003, the Company issued 412,500 shares of its common
stock at $.40 per share for a total amount of $165,000.

 

11

--------------------------------------------------------------------------------