**Exhibit99.1**

 

**REFOCUS GROUP, INC.**

(formerly VeryBestoftheInternet.com, Inc.)

 

Financial Statements

and

Independent Auditor’sReport

 

December 31, 2002 and 2001

 

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**REFOCUSGROUP, INC.**

(formerly VeryBestoftheInternet.com, Inc.)

 

**CONTENTS**

 
| **Report  of Independent Certified Public Accountants** |
|---------------------------------------------------------|
|                                                    |   |
| **Financial Statements**                                |
|                                                    |   |
|                                                    | Balance Sheets as  of December 31, 2002 and 2001 |
|                                                    |   |
|                                                    | Statements  of Operations and Comprehensive Loss for the years ended December 31, 2002  and 2001 and for the period from November 21, 2000 (date of incorporation)  through December 31, 2002 |
|                                                    |   |
|                                                    | Statement  of Changes in Stockholders’ Equity for the period from November 21, 2000  (date of incorporation) through December 31, 2002 |
|                                                    |   |
|                                                    | Statements  of Cash Flows for the years ended December 31, 2002 and 2001 and for the  period from November 21, 2000 (date of incorporation) through December 31,  2002 |
|                                                    |   |
|                                                    | Notes to Financial  Statements |

 

F-1

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[S. W. HATFIELD,CPA LETTER HEAD]

 

**REPORTOF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS**

 

Board of Directorsand Shareholders

Refocus Group,Inc.

 

We have auditedthe accompanying balance sheets of Refocus Group, Inc. (formerlyVeryBestoftheInternet.com, Inc.) (a Delaware corporation and a developmentstage company) as of December 31, 2002 and 2001 and the related statements ofoperations and comprehensive loss, changes in stockholders’ equity and cashflows for the years ended December 31, 2002 and 2001 and for the period fromNovember 21, 2000 (date of incorporation) through December 31, 2002,respectively.  These financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.

 

We conducted ouraudits in accordance with auditing standards generally accepted in the UnitedStates of America.  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion,the financial statements referred to above present fairly, in all materialrespects, the financial position of Refocus Group, Inc. (formerlyVeryBestoftheInternet.com, Inc.) as of December 31, 2002 and 2001and theresults of its operations and cash flows for the years ended December 31, 2002and 2001 and for the period from November 21, 2000 (date of incorporation)through December 31, 2002, respectively, in conformity with generally acceptedaccounting principles generally accepted in the United States of America.

 

The accompanyingfinancial statements have been prepared assuming that the Company will continueas a going concern.  As discussed inNote C to the financial statements, the Company has not been able to fullyimplement it’s business plan nor generate any revenues.  The Company has been primarily dependentupon its initial capitalization and the proceeds of an initial public offeringof the Company’s equity securities and loans from minority shareholders toprovide working capital.  This situationraise substantial doubt about the Company’s ability to continue as a goingconcern.  The financial statements donot contain any adjustments that might result from the outcome of theseuncertainties.

 

 
|              | S. W. HATFIELD, CPA |
|-------------------|---------------------|
| Dallas, Texas     |                |
| February 18, 2003 |                |

 

F-2

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**REFOCUSGROUP, INC.**

(formerly VeryBestoftheInternet.com, Inc.)

(a development stage enterprise)

**BALANCE SHEETS**

December 31, 2002 and 2001

 
|                                                                                                                     |   | **December  31,  2002** |   | **December  31,  2001** |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|-------------------------|--------|
| **ASSETS**                                                                                                               |   |                    |   |                    |   |
| **Current  assets**                                                                                                      |   |                    |   |                    |   |
| Cash  on hand and in bank                                                                                                |   | $                       | 144    |                    | $      | 47,451 |   |
| **Total  current assets**                                                                                                |   | 144                     |   | 47,451                  |   |
|                                                                                                                     |   |                    |   |                    |   |
| **Other  assets**                                                                                                        |   |                    |   |                    |   |
| Website  technology, net of permanent impairment in carrying value of approximately  $34,030                             |   | 2,000                   |   | —                  |   |
| **Total  other assets**                                                                                                  |   | 2,000                   |   | —                  |   |
|                                                                                                                     |   |                    |   |                    |   |
| **Total  Assets**                                                                                                        |   | $                       | 2,144  |                    | $      | 47,451 |   |
|                                                                                                                     |   |                    |   |                    |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                           |   |                    |   |                    |   |
|                                                                                                                     |   |                    |   |                    |   |
| **Current  liabilities**                                                                                                 |   |                    |   |                    |   |
| Accounts  payable - trade                                                                                                |   | $                       | 2,322  |                    | $      | 5,931 |   |
| Working  capital loan                                                                                                    |   | 4,000                   |   | 4,000                   |   |
| Due  to shareholder                                                                                                      |   | 4,976                   |   | 3,448                   |   |
| Accrued  interest payable                                                                                                |   | 398                     |   | 134                     |   |
| **Total  current liabilities**                                                                                           |   | 11,696                  |   | 13,513                  |   |
|                                                                                                                     |   |                    |   |                    |   |
| **Commitments  and contingencies**                                                                                       |   |                    |   |                    |   |
|                                                                                                                     |   |                    |   |                    |   |
| **Stockholders’  equity**                                                                                           |   |                    |   |                    |   |
| Preferred  stock - $0.0001 par value 10,000,000 shares authorized. None issued and outstanding.                          |   | —                  |   | —                  |   |
| Common  stock - $0.0001 par value. 60,000,000 shares authorized. 58,835,688 shares  issued and outstanding, respectively |   | 5,884                   |   | 5,884                   |   |
| Additional  paid-in capital                                                                                              |   | 71,788                  |   | 59,788                  |   |
| Deficit  accumulated during the development stage                                                                        |   | (87,224                 | )      | (26,584                 | )      |
|                                                                                                                     |   | (9,552                  | )      | 39,088                  |   |
| Stock  subscription receivable                                                                                           |   | —                  |   | (5,150                  | )      |
|                                                                                                                     |   |                    |   |                    |   |
| **Total  stockholders’ equity**                                                                                     |   | (9,552                  | )      | 33,938                  |   |
|                                                                                                                     |   |                    |   |                    |   |
| **Total  Liabilities and Stockholders’ Equity**                                                                     |   | $                       | 2,144  |                    | $      | 47,451 |   |

 

The accompanying notesare an integral part of these financial statements.

 

F-3

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**REFOCUSGROUP, INC.**

(formerly VeryBestoftheInternet.com, Inc.)

(a development stage enterprise)

**STATEMENTSOF OPERATIONS AND COMPREHENSIVE LOSS**

Years ended December 31, 2002 and 2001 and

Period from November 21, 2000 (date of incorporation)through December 31, 2002

 
|                                                                                                          |   | **Year ended  December 31, 2002** |    | **Year ended  December 31, 2001** |   | **Period  from  November 21, 2000  (date of incorporation)  through  December 31, 2002** |   |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|-----------------------------------|--------|------------------------------------------------------------------------------------------|--------|
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| **Revenues**                                                                                                  |   | $                                 | —  |                              | $      | —                                                                                   |   | $ | — |   |
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| **Cost  of Sales**                                                                                            |   | —                            |    | —                            |   | —                                                                                   |   |
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| **Gross  Profit**                                                                                             |   | —                            |    | —                            |   | —                                                                                   |   |
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| **Operating  expenses**                                                                                       |   |                              |    |                              |   |                                                                                     |   |
| Organizational  and start-up costs                                                                            |   | —                            |    | —                            |   | 1,000                                                                                    |   |
| Officer  compensation                                                                                         |   | 12,000                            |    | 12,000                            |   | 24,000                                                                                   |   |
| Legal  and professional fees                                                                                  |   | 9,965                             |    | 8,829                             |   | 18,794                                                                                   |   |
| General  and administrative expenses                                                                          |   | 4,381                             |    | 4,621                             |   | 9,002                                                                                    |   |
| Interest  expense                                                                                             |   | 264                               |    | 134                               |   | 398                                                                                      |   |
| Total  operating expenses                                                                                     |   | 26,610                            |    | 25,584                            |   | 53,194                                                                                   |   |
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| **Loss  from operations**                                                                                     |   | (26,610                           | )       | (25,584                           | )      | (53,194                                                                                  | )      |
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| **Other  income (expense)**                                                                                   |   |                              |    |                              |   |                                                                                     |   |
| Impairment  adjustment of carrying value of capitalized website development costs                             |   | (34,030                           | )       | —                            |   | (34,030                                                                                  | )      |
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| **Loss  before provision for income taxes**                                                                   |   | (60,640                           | )       | (25,584                           | )      | (87,224                                                                                  | )      |
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| **Provision  for income taxes**                                                                               |   | —                            |    | —                            |   | —                                                                                   |   |
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| **Net  Loss**                                                                                                 |   | (60,640                           | )       | (25,584                           | )      | (87,224                                                                                  | )      |
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| **Other  comprehensive income**                                                                               |   | —                            |    | —                            |   | —                                                                                   |   |
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| **Comprehensive  Loss**                                                                                       |   | $                                 | (60,640 | )                                 | $      | (25,584                                                                                  | )      | $ | (87,224 | ) |
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| Loss  per weighted-average share of common stock outstanding, computed on net loss  - basic and fully diluted |   | nil                               |    | nil                               |   | nil                                                                                      |   |
|                                                                                                          |   |                              |    |                              |   |                                                                                     |   |
| Weighted-average  number of common shares outstanding                                                         |   | 58,835,688                        |    | 58,216,375                        |   | 58,522,608                                                                               |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

F-4

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**REFOCUSGROUP, INC.**

(formerly VeryBestoftheInternet.com, Inc.)

(a development stage enterprise)

**STATEMENTOF CHANGES IN STOCKHOLDERS’ EQUITY**

Period from November 21, 2000 (date of incorporation)through December 31, 2002

 
|                                                                   |   | **Common Stock** |   | **Additional  paid-in  capital** |   | **Accumulated  deficit** |   | **Stock  subscription  receivable** |   | **Total** |    |
|------------------------------------------------------------------------|--------|------------------|--------|----------------------------------|--------|--------------------------|--------|-------------------------------------|--------|-----------|---------|
| **Shares**                                                             |   | **Amount**       |
| **Common  stock issued at initial capitalization**                     |   | 9,720,000        |   | $                                | 972    |                     | $      | —                              |   | $         | —  |   | $ | — |   | $ | 972 |   |
| Effect  of 5.9893386 for 1 forward stock split                         |   | 48,496,375       |   | 4,850                            |   | (4,850                   | )      | —                              |   | —    |    | — |   |
|                                                                   |   |             |   |                             |   |                     |   |                                |   |      |    |   |   |
| Capital  contributed to support operations                             |   | —           |   | —                           |   | 1,000                    |   | —                              |   | —    |    | 1,000 |   |
|                                                                   |   |             |   |                             |   |                     |   |                                |   |      |    |   |   |
| Net  loss for the period                                               |   | —           |   | —                           |   | —                   |   | (1,000                              | )      | —    |    | (1,000 | ) |
|                                                                   |   |             |   |                             |   |                     |   |                                |   |      |    |   |   |
| **Balances  at December 31, 2000**                                     |   | 58,216,375       |   | 5,822                            |   | (3,850                   | )      | (1,000                              | )      | —    |    | 972 |   |
|                                                                   |   |             |   |                             |   |                     |   |                                |   |      |    |   |   |
| Proceeds  from sale of common stock                                    |   | 103,400          |   | 10                               |   | 51,690                   |   | —                              |   | (5,150    | )       | 46,550 |   |
| Effect  of 5.9893386 for 1 forward stock split                         |   | 515,913          |   | 52                               |   | (52                      | )      | —                              |   | —    |    | — |   |
| Capital  contributed by officers in the form of executive compensation |   | —           |   | —                           |   | 12,000                   |   | —                              |   |      |    | 12,000 |   |
| Net  loss for the year                                                 |   | —           |   | —                           |   | —                   |   | (25,584                             | )      | —    |    | (25,584 | ) |
|                                                                   |   |             |   |                             |   |                     |   |                                |   |      |    |   |   |
| **Balances  at December 31, 2001**                                     |   | 58,835,688       |   | 5,884                            |   | 59,788                   |   | (26,584                             | )      | (5,150    | )       | 33,938 |   |
|                                                                   |   |             |   |                             |   |                     |   |                                |   |      |    |   |   |
| Collection  of stock subscription receivable                           |   | —           |   | —                           |   | —                   |   | —                              |   | 5,150     |    | 5,150 |   |
|                                                                   |   |             |   |                             |   |                     |   |                                |   |      |    |   |   |
| Capital  contributed by officers in the form of executive compensation |   | —           |   | —                           |   | 12,000                   |   | —                              |   |      |    | 12,000 |   |
|                                                                   |   |             |   |                             |   |                     |   |                                |   |      |    |   |   |
| Net  loss for the year                                                 |   | —           |   | —                           |   | —                   |   | (60,640                             | )      | —    |    | (60,640 | ) |
|                                                                   |   |             |   |                             |   |                     |   |                                |   |      |    |   |   |
| **Balances  at December 31, 2002**                                     |   | 58,835,688       |   | $                                | 5,884  |                     | $      | 71,788                              |   | $         | (87,224 | ) | $ | — |   | $ | (9,552 | ) |

 

F-5

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**REFOCUSGROUP, INC.**

(formerly VeryBestoftheInternet.com, Inc.)

(a development stage enterprise)

**STATEMENTS OF CASH FLOWS**

Years ended December 31, 2002 and 2001 and

Period from November 21, 2000 (date of incorporation)through December 31, 2002

 

 
|                                                                            |   | **Year ended  December 31, 2002** |    | **Year ended  December 31, 2001** |   | **Period  from  November 21, 2000  (date of incorporation)  through  December 31, 2002** |   |
|---------------------------------------------------------------------------------|--------|-----------------------------------|---------|-----------------------------------|--------|------------------------------------------------------------------------------------------|--------|
|                                                                            |   |                              |    |                              |   |                                                                                     |   |
| **Cash  flows from operating activities**                                       |   |                              |    |                              |   |                                                                                     |   |
| Net  loss for the period                                                        |   | $                                 | (60,640 | )                                 | $      | (25,584                                                                                  | )      | $ | (87,224 | ) |
| Adjustments  to reconcile net loss to net cash provided by operating activities |   |                              |    |                              |   |                                                                                     |   |
| Depreciation  and amortization                                                  |   | —                            |    | —                            |   | —                                                                                   |   |
| Compensation  expense contributed                                               |   | 12,000                            |    | 12,000                            |   | 24,000                                                                                   |   |
| Impairment  charges to operations                                               |   | 34,030                            |    | —                            |   | 34,030                                                                                   |   |
| Increase  (Decrease) in                                                         |   |                              |    |                              |   |                                                                                     |   |
| Accounts  payable                                                               |   | (3,609                            | )       | 5,931                             |   | 2,322                                                                                    |   |
| Accrued  interest payable                                                       |   | 264                               |    | 134                               |   | 398                                                                                      |   |
|                                                                            |   |                              |    |                              |   |                                                                                     |   |
| **Net  cash used in operating activities**                                      |   | (17,955                           | )       | (7,519                            | )      | (26,474                                                                                  | )      |
|                                                                            |   |                              |    |                              |   |                                                                                     |   |
| **Cash  flows from investing activities**                                       |   |                              |    |                              |   |                                                                                     |   |
| Cash  paid to acquire website technology                                        |   | (36,030                           | )       | —                            |   | (36,030                                                                                  | )      |
|                                                                            |   |                              |    |                              |   |                                                                                     |   |
| **Cash  flows from financing activities**                                       |   |                              |    |                              |   |                                                                                     |   |
| Proceeds  from working capital loan                                             |   | —                            |    | 4,000                             |   | 4,000                                                                                    |   |
| Cash  advanced by shareholder to support operations                             |   | 1,528                             |    | 3,448                             |   | 4,976                                                                                    |   |
| Proceeds  from sale of common stock                                             |   | 5,150                             |    | 46,550                            |   | 52,672                                                                                   |   |
| Capital  contributed to support operations                                      |   | —                            |    | —                            |   | 1,000                                                                                    |   |
|                                                                            |   |                              |    |                              |   |                                                                                     |   |
| **Net  cash provided by financing activities**                                  |   | 6,678                             |    | 53,998                            |   | 62,648                                                                                   |   |
|                                                                            |   |                              |    |                              |   |                                                                                     |   |
| **Increase  in Cash**                                                           |   | (47,307                           | )       | 46,479                            |   | 144                                                                                      |   |
|                                                                            |   |                              |    |                              |   |                                                                                     |   |
| Cash  at beginning of period                                                    |   | 47,451                            |    | 972                               |   | —                                                                                   |   |
|                                                                            |   |                              |    |                              |   |                                                                                     |   |
| **Cash  at end of period**                                                      |   | $                                 | 144     |                              | $      | 47,451                                                                                   |   | $ | 144 |   |
|                                                                            |   |                              |    |                              |   |                                                                                     |   |
| **Supplemental  disclosure of interest and income taxes paid**                  |   |                              |    |                              |   |                                                                                     |   |
| Interest  paid for the period                                                   |   | $                                 | —  |                              | $      | —                                                                                   |   | $ | — |   |
| Income  taxes paid for the period                                               |   | $                                 | —  |                              | $      | —                                                                                   |   | $ | — |   |

 

F-6

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**REFOCUSGROUP, INC.**

(formerly VeryBestoftheInternet.com, Inc.)

(a development stage enterprise)

 

**NOTESTO FINANCIAL STATEMENTS**

 

**Note A - Organization and Descriptionof Business**

 

Refocus Group,Inc. (Company) was initially incorporated as VeryBestoftheInternet.com, Inc. onNovember 21, 2000 under the laws of the State of Texas.

 

On February 18,2003, the Company changed its state of incorporation from Texas to Delaware bymeans of a merger with and into a Delaware corporation formed on January 14,2003 solely for the purpose of effecting the reincorporation.  The Certificate of Incorporation and Bylawsof the Delaware corporation are the Certificate of Incorporation and Bylaws ofthe surviving corporation.  SuchCertificate of Incorporation changed the Company’s name to Refocus Group, Inc.and modified the Company’s capital structure to allow for the issuance of70,000,000 total equity shares consisting of 10,000,000 shares of preferredstock and 60,000,000 shares of common stock. Both classes of stock have a par value of $0.0001 per share.

 

The Company’sbusiness plan is to be an on-line Internet website ranking service.  By accessing the Company’s “Grade The Web”website, consumers can gain, at no charge, valuable information and rankings onmany of the Internet’s best sites.  Onthe website, both our management and our website users will assign a “lettergrade” to each site surveyed, similar to grades received by many schoolstudents.  Grades assigned by ourmanagement will be unbiased assessments of various aspects of the sites, whichmay include the esthetics of the site, ease of navigation, and thesophistication of their technology.  Wewill not receive any compensation from sites that are graded on ourwebsite.  As an additional feature, ourwebsite users will be able to assign their own grade to each of the listedsites.  These grades will be averagedand listed as an additional element to help our website users further evaluatethese sites.  The Company will notreceive any compensation for grading a particular site, nor will we generateany revenue from the sale of merchandise off our site.

 

The Companyintends to solely generate revenues from Internet advertisers and marketersthat will pay a fee for banner advertising and direct hyperlink connections totheir websites.  Graded sites mayadvertise on our site, but the fact that graded sites are paying to advertiseon our site will be disclosed on the part of the site that evaluates and gradesthe site that has purchased the banner space.

 

The Companyentered into an arrangement with InSite Productions, LLC to develop, host andmaintain our “Grade The Web” Website. The officers and directors of InSite Productions, LLC are also officersand directors of the Company.

 

The Company isconsidered in the development stage and, as such, has generated no significantoperating revenues and has incurred cumulative operating losses ofapproximately $87,000.

 

**Note B - Preparation of FinancialStatements**

 

The Companyfollows the accrual basis of accounting in accordance with accountingprinciples generally accepted in the United States of America and has adopted ayear-end of December 31.

 

F-7

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The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

Management furtheracknowledges that it is solely responsible for adopting sound accountingpractices, establishing and maintaining a system of internal accounting controland preventing and detecting fraud.  TheCompany’s system of internal accounting control is designed to assure, amongother items, that 1) recorded transactions are valid; 2) valid transactions arerecorded; and 3) transactions are recorded in the proper period in a timelymanner to produce financial statements which present fairly the financialcondition, results of operations and cash flows of the Company for therespective periods being presented

 

For segmentreporting purposes, the Company operated in only one industry segment during theperiods represented in the accompanying financial statements and makes alloperating decisions and allocates resources based on the best benefit to theCompany as a whole.

 

**Note C - Going Concern Uncertainty**

 

The Company isconsidered in the development stage and, as such, has generated no significantoperating revenues and has incurred cumulative operating losses ofapproximately $87,000.

 

The Company has alimited operating history, minimal cash on hand, no operations or operatingrevenues or profits and operates a business plan with inherent risk.  Because of these factors, our auditors haveissued an audit opinion for the Company which includes a statement describingour going concern status.  This means,in our auditor’s opinion, substantial doubt about our ability to continue as agoing concern exists at the date of their opinion.

 

The Company’scontinued existence is dependent upon its ability to generate sufficient cashflows from operations to support its daily operations as well as provide sufficientresources to retire existing liabilities and obligations on a timely basis.

 

The Company maybecome dependent upon additional external sources of financing; including beingdependent upon its management and/or significant stockholders to provide sufficientworking capital in excess of the proceeds from the Company’s offering of equitysecurities in December 2001 to preserve the integrity of the corporate entity.

 

The Company mayoffer additional future sales of equity securities.  However, there is no assurance that the Company will be able toobtain additional funding through the sales of additional equity securities or,that such funding, if available, will be obtained on terms favorable to oraffordable by the Company.

 

F-8

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If no additionaloperating capital is received during the next twelve months, the Company willbe forced to rely on existing cash in the bank and additional funds loaned bymanagement and/or significant stockholders. In the event, the Company is unable to generate sufficient cash flow torepay advances from management and/or significant stockholders, the partyadvancing funds may elect to take title to the Company’s website technology tosatisfy this debt.  An action of thistype would significantly negatively impact the Company’s ongoing operations.

 

In such arestricted cash flow scenario, the Company would be unable to complete ourbusiness plan steps, and would, instead, delay all cash intensiveactivities.  Without necessary cashflow, the Company may become dormant during the next twelve months, or untilsuch time as necessary funds could be raised in the equity securities market.

 

While the Companyis of the opinion that good faith estimates of the Company’s ability to secureadditional capital in the future to reach our goals have been made, there is noguarantee that the Company will receive sufficient funding to sustainoperations or implement any future business plan steps.

 

It is the intentof management and significant stockholders to provide sufficient workingcapital necessary to support and preserve the integrity of the corporateentity.  However, no formal commitmentsor arrangements to advance or loan funds to the Company or repay any suchadvances or loans exist.  There is nolegal obligation for either management or significant stockholders to provideadditional future funding.

 

**Note D - Summary of SignificantAccounting Policies**

 

1. Cash and cash equivalents

 

For Statement ofCash Flows purposes, the Company considers all cash on hand and in banks,including accounts in book overdraft positions, certificates of deposit andother highly-liquid investments with maturities of three months or less, whenpurchased, to be cash and cash equivalents.

 

Cash overdraftpositions may occur from time to time due to the timing of making bank depositsand releasing checks, in accordance with the Company’s cash managementpolicies.

 

2. Website development costs

 

The Companyaccounts for website development costs in accordance with EITF (Emerging IssuesTask Force) Pronouncement 00-02 whereby preliminary website development costsare charged to expense as incurred. Upon achieving technical and financial viability and ensuring adequateresources to complete development, the Company capitalizes all direct costsrelating to the website development. Ongoing costs for maintenance and enhancement are charged to expense asincurred.  Capitalized costs will beamortized on a straight-line basis over five years commencing upon substantialcompletion and commercialization of the website.

 

F-9

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In accordance withStatement of Financial Accounting Standards No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets”, the Company follows the policy ofevaluating all qualifying assets as of the end of each reporting quarter.  As of December 31, 2002, management, uponevaluation and realization that the Company’s website had not reached any ofthe Fiscal 2002 operational objectives, recorded an impairment of futurerecoverability of the recorded unamortized website development costs ofapproximately $34,030.

 

3.   Organization costs

 

The Company hasadopted the provisions of AICPA Statement of Position 98-5, “Reporting on theCosts of Start-Up Activities” whereby all organization and initial costsincurred with the incorporation and initial capitalization of the Company werecharged to operations as incurred.

 

4.   Income Taxes

 

The Company usesthe asset and liability method of accounting for income taxes.  At December 31, 2002 and 2001, the deferredtax asset and deferred tax liability accounts, as recorded when material to thefinancial statements, are entirely the result of temporary differences.  Temporary differences represent differencesin the recognition of assets and liabilities for tax and financial reportingpurposes, primarily accumulated depreciation and amortization, allowance fordoubtful accounts and vacation accruals.

 

**Note E - Related Party Transactions**

 

In December 2001,the Company entered into an agreement with InSite Productions, LLC wherebyInSite would develop and maintain the Company’s website.  During the first quarter of 2002, theCompany paid approximately $36,030 under this agreement for development andcompletion of the website.  TheCompany’s officers and directors are also officers and directors of InSite.

 

In December 2002,the Company was billed approximately $1,800 for annual website maintenance andenhancement charges by InSite Productions, Inc.  This amount was charged to operations in the accompanyingfinancial statements.

 

**Note F - Fair Value of FinancialInstruments**

 

The carryingamount of cash, accounts receivable, accounts payable and notes payable, asapplicable, approximates fair value due to the short term nature of these itemsand/or the current interest rates payable in relation to current marketconditions.

 

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Interest rate riskis the risk that the Company’s earnings are subject to fluctuations in interestrates on either investments or on debt and is fully dependent upon thevolatility of these rates.  The Companydoes not use derivative instruments to moderate its exposure to interest raterisk, if any.

 

Financial risk isthe risk that the Company’s earnings are subject to fluctuations in interestrates or foreign exchange rates and are fully dependent upon the volatility ofthese rates.  The company does not usederivative instruments to moderate its exposure to financial risk, if any.

 

**Note G - Working Capital Loan**

 

On June 30, 2001,a minority stockholder loaned the Company $4,000 to support operations.  The note was originally due in December 2001and the minority stockholder has modified the payment terms to make the note payableon demand.  The note is unsecured and,at the option of the holder, may be repaid in restricted, unregistered commonstock of the Company at a conversion rate of $0.50 per share.

 

In February 2003,the same minority stockholder advanced the Company an additional $5,000 to supportoperations.

 

**Note H - Income Taxes**

 

The components ofincome tax (benefit) expense for the years ended December 31, 2002 and 2001,respectively, are as follows:

 
|     |   | **December  31,  2002** |   | **December  31,  2001** |   |
|----------|--------|-------------------------|--------|-------------------------|--------|
|     |   |                    |   |                    |   |
| Federal: |   |                    |   |                    |   |
| Current  |   | $                       | — |                    | $      | — |   |
| Deferred |   | —                  |   | —                  |   |
|     |   | —                  |   | —                  |   |
| State:   |   |                    |   |                    |   |
| Current  |   | —                  |   | —                  |   |
| Deferred |   | —                  |   | —                  |   |
|     |   | —                  |   | —                  |   |
|     |   |                    |   |                    |   |
| Total    |   | $                       | — |                    | $      | — |   |

 

As of December 31,2002, the Company has a net operating loss carryforward of approximately$87,000 to offset future taxable income.  Subject to current regulations, this carryforward will begin toexpire in 2020.  The amount andavailability of the net operating loss carryforwards may be subject to limitationsset forth by the Internal Revenue Code. Factors such as the number of sharesultimately issued within a three year look-back period; whether there is adeemed more than 50 percent change in control; the applicable long-term taxexempt bond rate; continuity of historical business; and subsequent income ofthe Company all enter into the annual computation of allowable annualutilization of the carryforwards.

 

 

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The Company’sincome tax expense for the years ended December 31, 2002 and 2001 and for theperiod from November 21, 2000 (date of incorporation) through December 31,2002, respectively, are as follows:

 
|                                                                                                                    |   | **Year ended  December 31, 2001** |   | **Year ended  December 31, 2002** |   | **Period from  November 21, 2000  (date of incorporation)  through  December 31, 2002** |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|-----------------------------------------------------------------------------------------|--------|
| Statutory  rate applied to income before income taxes                                                                   |   | $                                 | (8,700 | )                                 | $      | (340                                                                                    | )      | $ | (9,100 | ) |
| Increase  (decrease) in income taxes resulting from:                                                                    |   |                              |   |                              |   |                                                                                    |   |
| State  income taxes Other, including reserve for deferred tax asset and application  of net operating loss carryforward |   | (8,700                            | )      | 340                               |   | 9,100                                                                                   |   |
|                                                                                                                    |   |                              |   |                              |   |                                                                                    |   |
| Income  tax expense                                                                                                     |   | $                                 | — |                              | $      | —                                                                                  |   | $ | — |   |

 

Temporarydifferences, consisting primarily of statutory deferrals of expenses fororganizational costs and statutory differences in the depreciable lives forproperty and equipment, between the financial statement carrying amounts andtax bases of assets and liabilities give rise to deferred tax assets andliabilities as of December 31, 2001 and 2000, respectively:

 
|                              |   | **December  31,  2002** |   | **December  31,  2001** |   |
|-----------------------------------|--------|-------------------------|--------|-------------------------|--------|
|                              |   |                    |   |                    |   |
| Deferred  tax assets              |   |                    |   |                    |   |
| Net  operating loss carryforwards |   | $                       | 30,000 |                    | $      | 9,000 |   |
| Less  valuation allowance         |   | (30,000                 | )      | (9,000                  | )      |
|                              |   |                    |   |                    |   |
| Net  Deferred Tax Asset           |   | $                       | — |                    | $      | — |   |

 

During the yearsended December 31, 2002 and 2001,the reserve for the deferred current tax assetincreased by approximately $21,000 and $8,660, respectively.

 

**Note I - Equity Transactions**

 

On February 10,2003, the Company’s Board of Directors approved a 5.9893386 for 1 forward stocksplit for all stockholders of record on February 26, 2003.  The effect of this action is reflected inthe accompanying financial statements as of the first day of the first periodpresented.

 

 

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Upon its November21, 2000 capitalization, the Company sold an aggregate 9,720,000 pre-forwardsplit shares of restricted, unregistered common stock (approximately 58,216,375post-forward split shares) to its initial stockholders for gross proceeds ofapproximately $972.

 

On December 31,2001, the Company completed the sale of an aggregate of 103,100 pre-forwardsplit shares of its common stock (approximately 619,313 post-forward splitshares) for aggregate proceeds of approximately $51,700,  in satisfaction of the minimum offeringrequirement of its self-underwritten public offering of securities, pursuant toa Registration Statement Under The Securities Act of 1933 on Form SB-2.  Offering proceeds were released from escrowin January 2002 pursuant to the terms of the offering as detailed in the Company’sprospectus dated October 2, 2001.  OnJanuary 29, 2002, the Company closed its self-underwritten public offering ofsecurities.

 

**Note J - Officer Compensation**

 

Executivemanagement and oversight services are provided to the Company by twocontrolling shareholders/officers. These two individuals have an informal, unwritten agreement with theCompany whereby they will provide their services to the Company at an annualsalary of $6,000 each.  This amount iscontributed as additional capital to the Company.

 

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