The end.........
ZULU MEDIA, INC.
(A Delaware Corporation)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (27,427,460)
Adjustments to reconcile to net cash:
Depreciation 667,353
Amortization and write-off of goodwill 9,516,096
Provision for bad debts 189,732
Decrease in accounts receivable 2,721,646
Decrease in employee advances and other receivables 200,571
Decrease in prepaid expense 19,346
Increase in deposits (42,282)
Increase in accounts payable 138,597
Increase in payroll and other accrued liabilities 158,618
Increase in payable to related party 1,169,271
Decrease in deferred revenues (230,587)
-----------
Total Adjustments 14,508,361
-----------
NET CASH USED IN OPERATING ACTIVITIES (12,919,099)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (1,092,559)
NET CASH USED IN INVESTING ACTIVITIES (1,092,559)
CASH FLOWS FROM FINANCING ACTIVITIES
Additional capital contribution from parent 14,235,000
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,235,000
-----------
NET CASH PROVIDED BY ALL ACTIVITIES 223,342
CASH - December 31, 1996 351,893
-----------
CASH - December 31, 1997 575,235
-----------
See accompanying notes
6
ZULU MEDIA, INC.
(A Delaware Corporation)
STATEMENT OF CASH FLOWS
FOR THE PERIOD JUNE 19, 1996 (INCEPTION) TO DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS (5,146,779)
Adjustments to reconcile to net cash:
Depreciation 190,400
Amortization of goodwill 400,036
Provision for bad debts 307,470
Increase in accounts receivable (4,850,603)
Increase in employee advances and other receivables (108,803)
Increase in prepaid expense (33,397)
Increase in deposits (24,699)
Increase in accounts payable 4,238,617
Increase in payroll and other accrued liabilities 825,715
Decrease in payable to related party (74,271)
Decrease in deferred liabilities (380,557)
-----------
Total Adjustments 489,908
-----------
NET CASH USED IN OPERATING ACTIVITIES (4,656,871)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of SOFTBANK INTERACTIVE
MARKETING, INC. and Network 1.0,
net of cash acquired (5,497,156)
Acquisition of property and equipment (1,099,080)
------------
NET CASH USED IN INVESTING ACTIVITIES (6,596,236)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of stock 5,750,000
Additional capital contribution from parent 5,855,000
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,605,000
-----------
NET CASH PROVIDED BY ALL ACTIVITIES 351,893
CASH - June 19, 1996 --
CASH - December 31, 1996 351,893
-----------
See accompanying notes
7
ZULU MEDIA. INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD JUNE 19, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1997
1. ORGANIZATION AND DESCRIPTION OF BUSINESS ACTIVITIES
ZULU MEDIA, INC. (the Company), a Delaware corporation, is a
diversified interactive media sales, marketing and communications
company. Business activities of the Company include the sale of
interactive multimedia advertising and production of interactive
promotions.
The Company was formed on June 19, 1996 by SOFTBANK Holding Inc.
(SOFTBANK) with authorized capital consisting of 1,000 shares of
Preferred Stock (705 Series A voting shares and 295 Series B non-voting
shares) and 1,000 shares of Common Stock.
On June 19, 1996, SOFTBANK contributed 5,750,000 in cash and committed
to provide as a capital contribution additional cash, as required, in
exchange for 705 shares of Series A Preferred Stock and 705 shares of
Common Stock of the Company.
SoftBank Interactive Marketing, Inc. had a name change to Zulu Media,
Inc. on March 24, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Revenue Recognition
Revenues are derived from the performance of services, sale
and related placement of advertisements on internet sites and
production of trade shows. Revenues are recognized as services
are performed, on the run-date of an advertisement or when a
trade show commences.
In accordance with certain agreements, billings are submitted
to advertisers on behalf of client web sites. The gross sales
volume are recorded as accounts receivable and an accrual is
recorded for the amount due to the client web site in
accordance with the terms of the agreement. A deferred
liability has been established to account for timing
differences between advertising billings and the period in
which an advertisement runs. Such liability in the amount of
approximately 141,000 has been recorded as Deferred Revenues
in the balance sheet for the period ended December 31, 1996.
The liability for the year ended December 31, 1997 was
approximately 87,000. The remainder of the Deferred Revenue as
of December 31, 1996, and December 31, 1997 is attributed to a
license agreement with a related party. (See note 5. Related
Party Transaction).
8
ZULU MEDIA, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE PERIOD JUNE 19, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1997
b. Property and Equipment
Property and equipment acquired from IMI are stated at fair
market value as of the acquisition date. Property and
equipment acquired subsequent to June 19, 1996 are stated at
cost. Depreciation is computed on the straight-line basis over
the estimated useful lives of the related assets which is
estimated to be three years. Leasehold improvements are
amortized over the lesser of the term of the lease or the
useful life of the related improvement.
c. Goodwill
Goodwill is amortized using the straight-line method over 10
years. The carrying value of the goodwill is periodically
reviewed by the Company based on the expected future
undiscounted operating cash flows of the Company. Based upon
its most recent analysis, the Company believes that no future
value of goodwill exists as of December 31, 1997.
d. Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred tax
assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected
to reverse.
e. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
f. New Accounting Standards
Statement of Financial Accounting Standards No.121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of" (SFAS No.121) establishes
guidelines regarding when impairment losses on long-lived
assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how
impairment losses should be measured. The adoption resulted in
an impairment write down of 8,412,765 of goodwill and has been
recorded in the Company's current year operations.
9
ZULU MEDIA, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE PERIOD JUNE 19, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1997
3. ACQUISITION
On June 19, 1996, the Company acquired the business and assets of
Interactive Marketing Inc. (IMI) and Network 1.0 for consideration of
5,750,000 in cash, 295 shares of Series B Preferred Stock and 295
shares of Common Stock of the Company.
The acquisition has been accounted for using the purchase method of
accounting. The consideration paid, acquisition costs and the fair
market value of the net liabilities assumed have been assigned to
goodwill. The financial statements contained herein reflect the
operations of the Company from June 19, 1996 through December 31, 1996.
In connection with the acquisition of IMI, the Company's Board of
Directors authorized the closure of two IMI divisions. The Company
accrued 500,000 for liabilities relating to severance and other exit
costs, with a corresponding increase in goodwill.
The net purchase price has been allocated as follows:
Goodwill 8,000,717
Current assets 2,324,821
Fixed assets 406,662
Other assets 44,149
Current liabilities (5,029,193)
Acquisition costs (250,000)
----------
5,497,156
Net cash acquired 252,844
5,750,000
----------
4. CONCENTRATION OF CREDIT RISK
A concentration of credit risk may exist with respect to trade
receivables. Sales to date have been primarily to customers located in
the United States. The Company provides unsecured credit to its
customers in the normal course of business. Credit evaluations are
performed on the financial condition of customers and a reserve has
been established for accounts which may not be collectible.
10
ZULU MEDIA, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE PERIOD JUNE 19, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1997
The Company has a customer whose revenues represent approximately 40
percent of the Company's net revenues for the period from June 19, 1996
(inception) to December 31, 1996. Effective January 1, 1997, the
agreement with this customer has not been renewed. The Company does not
expect this to have an adverse impact on 1997 operations. In 1997, it
did not have an adverse impact as other customers replaced that one
customer.
5. RELATED PARTY TRANSACTIONS
The Company sells advertising on behalf of a related party. In
connection with the sales representation agreement, the related party
advanced the Company 1,250,000 to be offset against earned sales
revenues from the sale of advertisements made on their behalf. As of
December 31, 1997, the Company had earned 1,250,000 of such sales
revenue, which have been fully offset against the advances in the
accompanying balance sheet.
The Company's group medical, dental and related benefits programs are
provided by a related party. The related costs of 1,169,271 for the
year ended December 31, 1997 have been charged to the Company and such
amounts are expected to be repaid to the related party during 1998.
The Company has entered into a license agreement with a related
company. The Company has received a license fee of 450,000 as
consideration for granting the related company the exclusive right to
produce a certain trade show worldwide through December 31, 1998. The
license fee will be amortized over the term of the agreement and has
been included in Deferred Revenues in the accompanying balance sheet.
6. INCOME TAXES
As of December 31, 1996, the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately 5,147,000 and approximately 27,577,000 for the year ended
December 31, 1997 for a total 32,724,000. No benefit has been recorded
in the financial statements due to the uncertainty of future net
income. The federal operating loss carryforwards begin to expire in
2011 and the state operating loss carryforwards begin to expire in
2001.
Also, the losses will have a significant diminution because of a change
in ownership as promulgated by Internal Revenue Code Section 382.
11
ZULU MEDIA, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE PERIOD JUNE 191 1996 (INCEPTION) TO DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1997
7. MARKETABLE SECURITIES
At December 31, 1997, the Company held 11,853 available for sale shares
of Yahoo Stock with a closing bid price of 69.25 for a total asset
value of 820,820.
8. PROPERTY AND EQUIPMENT
Computer equipment 941,651
Network operating centers 1,038,389
Furniture and equipment 480,834
Leasehold improvement 114,258
---------
Total cost 2,575,132
Less accumulated depreciation 730,066
---------
PROPERTY AND EQUIPMENT NET 1,845,066
=========
Assets were pledged as security for loans made to the Company (Uniform
Commercial Code Filing.)
9. CONFORMITY
Prior auditor's statements were modified to conform to December 31,
1997 statement.
10. GROSS SALES VOLUME
Gross sales volume represents the volume of business generated to
produce the revenues. The gross sales volume of 38,218,566 produced
revenues of 6,220,857 for the year ended December 31, 1997. The gross
sales volume of 20,124,024 produced revenues of 4,140,127 for the year
ended December 31, 1996.
12
ZULU MEDIA, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS continued
FOR THE PERIOD JUNE 19,1996 (INCEPTION) TO DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1997
11. GOING CONCERN
The Company has suffered recurring losses from operations, has a net
loss of 27,577,236 for the year ended December 31, 1997. Also at
December 31, 1997, the Company's working capital position was a deficit
of 6,019,391. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
The Company has been able to continue operations through the funding
from private investors, cash inflows from operations, and the extension
of terms from creditors. Continued operations depend upon the Company
continuing to obtain financing for its activities. Management's plan
for the Company includes raising additional working capital through
debt and/or equity financing until profitable operations and positive
cash flow are achieved and maintained, which management believes are in
the near future. However, no assurances can be given that the Company
will be successful in raising additional capital, there is no assurance
that the Company will achieve profitability or positive cash flow. If
the Company is unable to obtain adequate additional financing,
management will be required to curtail the operations of the Company.
12. SUBSEQUENT EVENTS
In 1998, Yahoo Stock (Marketable Securities) were sold for 749,349
resulting in a loss of approximately 71,000.
In 1998, a settlement was effected with Netscape whereby the accounts
receivable due from Netscape (697,764) would be offset by the payable
due to Netscape (1,456,564). The net effect of the settlement was the
mutual dismissal of financial obligations to each other.
Zulu Media, Inc. was sold by SoftBank Holding, Inc. (the parent
company) to MediaBank, Inc., an intermediary for Netmaster, Inc. for
nine million one hundred twenty nine thousand dollars (9,129,000) in a
common stock purchase. The purchase price was paid to SoftBank
Holdings, Inc. with 9,129 shares of Series C redeemable preferred stock
of Netmaster, Inc. The Netmaster stock shall be redeemable in three
equal installments of 3.043 shares on or before each of December 31,
1999. December 31, 2001 and December 31, 2002 (each referred to as
redemption dates) by MediaBank delivery to SoftBank of 1,000 cash for
each share of Netmaster stock or an aggregate of three million
forty-three thousand dollars (3,043,000) on or before December 31,
1999, December 31, 2001, and December 31, 2002. MediaBank hereby
irrevocably guarantees jointly and severally Netmaster's obligation to
redeem the Netmaster stock as set forth above.
13
ZULU MEDIA, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE PERIOD JUNE 19, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1997
13. COMMITMENTS AND CONTINGENCIES
The Company leases its operating facilities under non-cancelable
operating leases which expire at various dates through 2001. Future
minimum lease payments under such operating leases are as follows:
1998 449,750
1999 461,750
2000 407,400
2001 307,500
---------
1,626,400
=========
Rental expense for the period from June 19, 1996 (inception) to
December 31, 1996 related to these leases were approximately 271,500
and for the year ended December 31, 1997 was approximately 566,000.
In the normal course of business the Company is involved in various
lawsuits. Management is of the opinion that any liability or loss in
excess of insurance coverage resulting from such litigation will not
have a material adverse effect on the financial statements.
14
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