Common use of Notes to Financial Statements Clause in Contracts

Notes to Financial Statements. 5-7 [LETTERHEAD OF XXXXXXX & XXXXXXX] INDEPENDENT AUDITORS' REPORT Board of Directors International Information Technology, Inc. Coral Gables, Florida We have audited the accompanying balance sheets of International Information Technology, Inc. at December 31, 1997 and 1996, and the related statements of operations and retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Information Technology, Inc. at December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Xxxxxxx & Xxxxxxx CERTIFIED PUBLIC ACCOUNTANTS Coral Gables, Florida July 22, 1998 ASSETS December 31, 1997 1996 ---- ---- CURRENT ASSETS Cash $ 9,520 $ 12,379 Accounts receivable 590,246 153,769 Due from related company in Venezuela 186,030 -- Other current assets 17,690 470 -------- -------- TOTAL CURRENT ASSETS 803,486 166,618 PROPERTY AND EQUIPMENT Computer equipment 43,954 21,578 Vehicles 45,119 45,119 -------- -------- 89,073 66,697 Less accumulated depreciation (46,547) (25,650) -------- -------- 42,526 41,047 -------- -------- $846,012 $207,665 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Cash overdraft $187,121 $ -- Accounts payable and accrued expenses 311,935 75,740 Income taxes payable 11,000 -- Unsecured loan payable to stockholder, non-interest bearing 30,060 60,061 Deferred income taxes 78,890 -- -------- -------- TOTAL CURRENT LIABILITIES 619,006 135,801 STOCKHOLDERS' EQUITY Capital stock, $1 par value per share, authorized issued and outstanding 1,000 shares 1,000 1,000 Retained Earnings 226,006 70,864 -------- -------- 227,006 71,864 -------- -------- $846,012 $207,665 -------- -------- -------- -------- The accompanying notes are an integral part of these financial statements.

Notes to Financial Statements. 5.... 7 (ERNST & YOUNG LOGO) - ERNST & YOUNG LLP - Phone:(612)343-7 [LETTERHEAD OF XXXXXXX & XXXXXXX] INDEPENDENT AUDITORS' REPORT Board 1000 220 South Sixth Street, Ste 1400 xxx.xx.xom Xxxxxxxxxxx, XX 00000-0000 Report of Indepenxxxx Xxxxxxxx Xxx Xxxxx xf Directors International Information TechnologyJasc Software, Inc. Coral Gables, Florida We have audited the accompanying balance sheets of International Information TechnologyJasc Software, Inc. at as of December 31, 1997 2003 and 19962002, and the related statements of operations and retained earningsincome, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our auditaudits. We conducted our audit audits in accordance with auditing standards generally accepted auditing standardsin the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 International Information TechnologyJasc Software, Inc. at as of December 31, 1997 2003 and 19962002, and the results of its operations and its cash flows for the years then ended ended, in conformity with accounting principles generally accepted accounting principlesin the United States. /s/ Xxxxxxx Ernst & Xxxxxxx CERTIFIED PUBLIC ACCOUNTANTS Coral GablesYoung LLP January 30, Florida July 222004 A Member Practice of Ernst & Young Global Jasc Software, 1998 Inc. Balance Sheets DECEMBER 31 ------------------------- 2003 2002 ----------- ----------- ASSETS December 31, 1997 1996 ---- ---- CURRENT ASSETS Current assets: Cash and cash equivalents $ 9,520 867,667 $ 12,379 802,375 Accounts receivable 590,246 153,769 Due from related company (less allowances for uncollectible accounts and product returns totaling $2,033,000 in Venezuela 186,030 2003 and $613,000 in 2002) 7,935,331 7,055,901 Note receivable 60,000 -- Other Inventories 1,161,846 460,392 Prepaid expenses 1,139,067 335,234 ----------- ----------- Total current assets 17,690 470 -------- -------- TOTAL CURRENT ASSETS 803,486 166,618 PROPERTY AND EQUIPMENT Computer equipment 43,954 21,578 Vehicles 45,119 45,119 -------- -------- 89,073 66,697 11,163,911 8,653,902 Property and equipment: Equipment and software 3,545,408 3,218,391 Leasehold improvements 236,019 236,019 ----------- ----------- 3,781,427 3,454,410 Less accumulated depreciation and amortization (46,5473,046,287) (25,6502,581,881) -------- -------- 42,526 41,047 -------- -------- ----------- ----------- 735,140 872,529 Restricted cash -- 30,000 Deposits 43,324 55,113 Other assets, net 52,150 73,009 Acquired technology, net 588,547 663,042 ----------- ----------- Total assets $846,012 12,583,072 $207,665 -------- -------- -------- -------- 10,347,595 =========== =========== DECEMBER 31 ------------------------- 2003 2002 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Cash overdraft $187,121 $ -- Current liabilities: Accounts payable $ 2,359,889 $ 802,949 Accrued compensation and withholdings 1,054,531 619,390 Accrued profit sharing -- 257,159 Accrued distributor discounts 812,759 538,892 Accrued royalties 574,608 466,082 Accrued rebates 784,039 514,451 Other accrued expenses 311,935 75,740 Income taxes payable 11,000 liabilities 576,804 832,426 Customer deposits 100,666 225,895 Current portion of capital lease obligation 2,500 -- Unsecured loan payable to stockholder----------- ----------- Total current liabilities 6,265,796 4,257,244 Capital lease obligation, non-interest bearing 30,060 60,061 Deferred income taxes 78,890 less current portion 4,146 -- -------- -------- TOTAL CURRENT LIABILITIES 619,006 135,801 STOCKHOLDERSStockholders' EQUITY Capital equity: Preferred stock, $1 0.01 par value per share, authorized issued value: Authorized shares - 5,000,000 Issued and outstanding 1,000 - none -- -- Common stock, $0.01 par value: Authorized shares 1,000 1,000 - 10,000,000 Issued and outstanding shares - 4,405,000 44,050 44,050 Additional paid-in capital 1,511,700 1,511,700 Retained Earnings 226,006 70,864 -------- -------- 227,006 71,864 -------- -------- earnings 4,757,380 4,534,601 ----------- ----------- Total stockholders' equity 6,313,130 6,090,351 ----------- ----------- Total liabilities and stockholders' equity $846,012 12,583,072 $207,665 -------- -------- -------- -------- The 10,347,595 =========== =========== See accompanying notes are an integral part notes. Jasc Software, Inc. Statements of these financial statements.Income YEAR ENDED DECEMBER 31 ------------------------- 2003 2002 ----------- ----------- Net sales $32,841,317 $27,292,756 Cost of goods sold 6,736,000 5,076,938 ----------- ----------- Gross profit 26,105,317 22,215,818 Operating expenses: General and administrative 5,078,809 4,282,741 Marketing and selling 10,497,309 8,203,931 Product development 6,797,173 7,501,652 Profit sharing compensation 727,584 777,525 ----------- ----------- 23,100,875 20,765,849 ----------- ----------- Income from operations 3,004,442 1,449,969 Interest expense (755) (36,716) Interest income 12,240 3,514 Other (expense) income (34,804) 84,329 Foreign currency gain 389,623 350,218 ----------- ----------- 366,304 401,345 ----------- ----------- Net income $ 3,370,746 $ 1,851,314 =========== =========== See accompanying notes. Jasc Software, Inc. Statement of Changes in Stockholders' Equity COMMON STOCK ADDITIONAL ------------------- PAID-IN RETAINED SHARES AMOUNTS CAPITAL EARNINGS TOTAL --------- ------- ---------- ----------- ----------- Balance, December 31, 2001 4,405,000 $44,050 $1,511,700 $ 4,284,778 $ 5,840,528 Distribution to stockholders -- -- -- (1,601,491) (1,601,491) Net income -- -- -- 1,851,314 1,851,314 --------- ------- ---------- ----------- ----------- Balance, December 31, 2002 4,405,000 44,050 1,511,700 4,534,601 6,090,351 Distribution to stockholders -- -- -- (3,147,967) (3,147,967) Net income -- -- -- 3,370,746 3,370,746 --------- ------- ---------- ----------- ----------- Balance, December 31, 2003 4,405,000 $44,050 $1,511,700 $ 4,757,380 $ 6,313,130 ========= ======= ========== =========== =========== See accompanying notes. Jasc Software, Inc. Statements of Cash Flows YEAR ENDED DECEMBER 31 ------------------------- 2003 2002 ----------- ----------- OPERATING ACTIVITIES Net income $ 3,370,746 $ 1,851,314 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 655,443 888,125 Loss (gain) on sale of property and equipment 351 (388) Changes in operating assets and liabilities: Accounts receivable (939,430) (2,049,782) Inventories (701,454) 133,058 Prepaid expenses (803,833) (204,602) Restricted cash 30,000 30,000 Deposits 11,789 43,099 Accounts payable 1,556,940 145,378 Accrued liabilities 574,341 1,547,278 Customer deposits (125,229) 68,350 ----------- ----------- Net cash provided by operating activities 3,629,664 2,451,830 INVESTING ACTIVITIES Purchases of property and equipment (324,631) (181,192) Acquisition of technology (90,000) (52,821) Proceeds from sale of property and equipment 100 -- ----------- ----------- Net cash used in investing activities (414,531) (234,013) FINANCING ACTIVITIES Net payments under line of credit -- (670,702) Distributions to stockholders (3,147,967) (1,601,491) Payments on obligation under capital lease (1,874) (189,243) ----------- ----------- Net cash used in financing activities (3,149,841) (2,461,436) ----------- ----------- Net increase (decrease) in cash 65,292 (243,619) Cash and cash equivalents at beginning of year 802,375 1,045,994 ----------- ----------- Cash and cash equivalents at end of year $ 867,667 $ 802,375 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for interest $ 755 $ 36,716 =========== =========== Property and equipment acquired through capital lease obligation $ 8,520 $ -- =========== =========== See accompanying notes. Jasc Software, Inc. Notes to Financial Statements December 31, 2003

Notes to Financial Statements. 5-7 8 88 [LETTERHEAD OF XXXXXXX ERNST & XXXXXXXYOUNG LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT Report of Independent Auditors Board of Directors International Information TechnologyLet's Talk Cellular of America, Inc. Coral Gables, Florida We have audited the accompanying balance sheets sheet of International Information TechnologyLet's Talk Cellular of America, Inc. at December as of July 31, 1997 and 1996, and the related statements of operations income and retained earningsstockholders' equity, and cash flows for the years year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. The financial statements of Let's Talk Cellular of America, Inc. for the year ended July 31, 1995, were audited by other auditors whose report dated October 31, 1995, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1996 financial statements referred to above present fairly, in all material respects, the financial position of International Information TechnologyLet's Talk Cellular of America, Inc. at December July 31, 1997 and 1996, and the results of its operations and its cash flows for the years year then ended in conformity with generally accepted accounting principles. /s/ Xxxxxxx Ernst & Xxxxxxx CERTIFIED PUBLIC ACCOUNTANTS Coral GablesYoung LLP September 26, Florida July 221996 89 Let's Talk Cellular of America, 1998 Inc. Balance Sheets JULY 31 1996 1995 ---------- ---------- ASSETS December 31Current assets: Cash and cash equivalents $1,357,172 $ 241,820 Accounts receivable, 1997 net of allowance for doubtful accounts of $15,638 in 1996 ---- ---- CURRENT ASSETS Cash $ 9,520 $ 12,379 Accounts receivable 590,246 153,769 Due from related company in Venezuela 186,030 -- Other 620,521 510,643 Inventory 1,210,159 1,191,352 Prepaid expenses and other current assets 17,690 470 -------- -------- TOTAL CURRENT ASSETS 803,486 166,618 PROPERTY AND EQUIPMENT Computer equipment 43,954 21,578 Vehicles 45,119 45,119 -------- -------- 89,073 66,697 Less accumulated depreciation (46,547) (25,650) -------- -------- 42,526 41,047 -------- -------- 73,735 298,705 Deferred tax asset 17,174 -- ---------- ---------- Total current assets 3,278,761 2,242,520 Cash held in escrow 2,009,194 -- Property and equipment, net 1,324,852 1,058,430 Other assets, net 69,243 73,945 ---------- ---------- Total assets $846,012 6,682,050 $207,665 -------- -------- -------- -------- 3,374,895 ========== ========== JULY 31 1996 1995 ----------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Cash overdraft Current liabilities: Trade accounts payable $ 841,490 $187,121 $ 1,231,606 Bank lines of credit 827,000 462,493 Accrued expenses and other current liabilities 512,486 365,845 Current portion of loans from shareholders -- Accounts 100,000 Current portion of bank term loan and obligations under capital leases 115,236 47,880 Income tax payable 60,761 -- Deferred revenues 79,886 97,903 Customer deposits 64,616 46,878 ----------------------- Total current liabilities 2,501,475 2,352,605 Bank term loan, less current portion 190,000 -- Loans from shareholders, less current portion 258,100 258,997 Obligations under capital leases, less current portion 26,226 69,071 Other liabilities 35,565 2,711 Deferred tax liability 19,293 35,264 Commitments and accrued expenses 311,935 75,740 Income taxes payable 11,000 -- Unsecured loan payable to stockholdercontingencies Stockholders' equity: Redeemable, non-interest bearing 30,060 60,061 Deferred income taxes 78,890 -- -------- -------- TOTAL CURRENT LIABILITIES 619,006 135,801 STOCKHOLDERS' EQUITY Capital convertible preferred stock, $1 30 par value per sharevalue, authorized 150,000 shares authorized, 100,000 issued and outstanding 1,000 3,000,000 -- Common Stock, $.001 par value, 50,000,000 shares 1,000 1,000 authorized, 650,000 issued and outstanding 650 650 Additional paid-in capital 201,166 257,600 Retained Earnings 226,006 70,864 -------- -------- 227,006 71,864 -------- -------- earnings 449,575 397,997 ----------------------- Total stockholders' equity 3,651,391 656,247 ----------------------- Total liabilities and stockholders' equity $846,012 6,682,050 $207,665 -------- -------- -------- -------- The 3,374,895 ======================= See accompanying notes are an integral part notes. 3 91 Let's Talk Cellular of these financial statementsAmerica, Inc. Statements of Income Years ended July 31, 1996 and 1995 1996 1995 ------------------------ Net revenues: Sales $ 8,151,904 $6,119,990 Usage commissions 4,833,635 1,872,406 Other 607,743 311,185 ------------------------ Total net revenues 13,593,282 8,303,581 Cost of sales 6,509,282 4,259,814 ------------------------ Gross profit 7,084,000 4,043,767 Operating expenses: Selling, general and administrative 6,568,078 3,822,491 Depreciation and amortization 272,578 122,811 ------------------------ Total operating expenses 6,840,656 3,945,302 ------------------------ Income from operations 243,344 98,465 Interest expense, net 152,827 39,898 ------------------------ Income before provision for income taxes 90,517 58,567 Income tax provision 38,939 14,810 ------------------------ Net income $ 51,578 $ 43,757 ======================== See accompanying notes.

Notes to Financial Statements. 5-7 [LETTERHEAD 8 REPORT OF XXXXXXX & XXXXXXX] INDEPENDENT AUDITORS' REPORT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors International Information TechnologyPark City Group, Inc. Coral Gables, Florida We have audited the accompanying balance sheets of International Information TechnologyPark City Group, Inc. at (a majority-owned subsidiary of Riverview Financial Corporation) as of December 31, 1997 2000 and 19961999, and the related statements of operations and retained earningsincome, stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our auditaudits. We conducted our audit audits in accordance with auditing standards generally accepted auditing standardsin the United States. Those standards require that we plan and perform the audit audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 International Information TechnologyPark City Group, Inc. at as of December 31, 1997 2000 and 19961999, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted accounting principlesin the United States. /s/ Xxxxxxx Sorensen, Vance & Xxxxxxx CERTIFIED PUBLIC ACCOUNTANTS Coral GablesCoxxxxx, Florida July 22X.X. /x/ Sorensen, 1998 ASSETS December Vance & Coxxxxx PARK CITY GROUP, INC. BALANCE SHEETS DECEMBER 31, 1997 1996 ---- ---- CURRENT ASSETS 2000 AND 1999 Assets 2000 1999 ---------- ---------- Current assets: Cash and cash equivalents $ 9,520 1,099,242 $ 12,379 Accounts receivable 590,246 153,769 Due from related company in Venezuela 186,030 -- Other 247,442 Receivables: Trade accounts, net of allowance for doubtful accounts of $160,758 for 2000 and $4,054 for 1999 272,137 758,446 Related parties 558,643 86,789 Deferred tax asset 120,000 60,000 Prepaid expenses and other current assets 17,690 470 -------- -------- TOTAL CURRENT ASSETS 803,486 166,618 PROPERTY AND EQUIPMENT 20,335 28,429 ------------- ------------- Total current assets 2,070,357 1,181,106 ----------- ----------- Property and equipment, at cost: Computer equipment 43,954 21,578 Vehicles 45,119 45,119 -------- -------- 89,073 66,697 868,586 799,945 Furniture and equipment 172,486 172,486 Equipment under capital leases 171,304 154,954 Leasehold improvements 85,795 85,795 ------------- ------------- 1,298,171 1,213,180 Less accumulated depreciation and amortization (46,5471,120,674) (25,650937,236) -------- -------- 42,526 41,047 -------- -------- ----------- ------------ Net property and equipment 177,497 275,944 ------------ ------------ Other assets: Deferred tax asset, net of valuation allowance of $846,012 2,239,656 for 2000 and $207,665 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Cash overdraft $187,121 2,230,328 for 1999 1,280,000 2,280,000 Deposits 33,802 34,150 ------------- ------------ Total other assets 1,313,802 2,314,150 ----------- ----------- Total assets $ -- Accounts payable and accrued expenses 311,935 75,740 Income taxes payable 11,000 -- Unsecured loan payable to stockholder, non-interest bearing 30,060 60,061 Deferred income taxes 78,890 -- -------- -------- TOTAL CURRENT LIABILITIES 619,006 135,801 STOCKHOLDERS' EQUITY Capital stock, $1 par value per share, authorized issued and outstanding 1,000 shares 1,000 1,000 Retained Earnings 226,006 70,864 -------- -------- 227,006 71,864 -------- -------- $846,012 $207,665 -------- -------- -------- -------- 3,561,656 $ 3,771,200 =========== =========== Continued - next page The accompanying notes are an integral part of these the financial statements.. PARK CITY GROUP, INC. BALANCE SHEETS DECEMBER 31, 2000 AND 1999 Continued from prior page - Liabilities and Stockholders' Deficit 2000 1999 ------------------------------------- ----------- ----------- Current liabilities: Line of credit $ 150,000 $ 137,000 Note payable 250,000 250,000 Accrued interest on note payable 36,956 21,971 Accounts payable 192,607 193,118 Accrued payroll and related liabilities 198,756 189,989 Sales tax payable 23,212 41,313 Accrued litigation settlements, current portion 54,944 125,333 Capital lease obligations, current portion 33,293 90,736 Deferred revenue 1,294,773 2,659,736 Accrued contingency -- 267,495 Income taxes payable 67,912 9,713 ----------- -------------- Total current liabilities 2,302,453 3,986,404 ----------- ----------- Long-term liabilities: Notes payable to parent corporation 2,150,000 2,150,000 Accrued interest on notes to parent corporation 267,203 151,394 Accrued litigation settlements, net of current portion -- 14,444 Capital lease obligations, net of current portion 6,642 28,006 ------------- ------------ Total long-term liabilities 2,423,845 2,343,844 ----------- ----------- Total liabilities 4,726,298 6,330,248 ----------- ----------- Stockholders' deficit: Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, $0.00002 par value, 40,000,000 shares authorized, 25,130,136 shares issued and outstanding 503 503 Additional paid-in-capital 6,294,031 6,294,031 Accumulated (deficit) (7,459,176) (8,853,582) ----------- ----------- Total stockholders' deficit (1,164,642) (2,559,048) ----------- ------------ Total liabilities and stockholders' deficit $ 3,561,656 $ 3,771,200 =========== =========== The accompanying notes are an integral part of the financial statements. PARK CITY GROUP, INC. STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 Revenues: 2000 1999 ----------- ------------- Software licenses $ 2,115,545 $ 2,321,655 Maintenance and support 2,066,523 2,403,287 Consulting and other 769,074 506,155 Development and software enhancement 1,562,000 -- ------------ ------------ 6,513,142 5,231,097 Cost of revenues 1,013,930 1,021,526 ------------- ------------ Gross profit 5,499,212 4,209,571 ------------ ------------ Operating expenses: Research and development 1,035,926 878,064 Sales and marketing 912,109 1,115,543 General and administrative expenses 970,792 1,339,282 ------------- ------------ 2,918,827 3,332,889 ------------ ------------ Operating income 2,580,385 876,682 ------------ ------------- Other income (expense): Interest expense (225,579) (190,665) Interest income 31,535 12,373 -------------- -------------- (194,044) (178,292) -------------- -------------- Income before income taxes 2,386,341 698,390 Income tax expense 991,935 324,699 -------------- -------------- Net income $ 1,394,406 $ 373,691 =========== ============ The accompanying notes are an integral part of the financial statements. PARK CITY GROUP, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 Additional Common Stock Paid Accumulated Shares Amount In Capital (Deficit) Total Balances: December 31, 1998 25,120,414 $ 502 $ 6,293,606 $ (9,227,273) $ (2,933,165) Common stock issued upon exercise of stock options 9,722 1 425 -- 426 Net income -- -- -- 373,691 373,691 -------------- ----------- ------------ ------------ ------------- Balances: December 31, 1999 25,130,126 503 6,294,031 (8,853,582) (2,559,048) Net income -- -- -- 1,394,406 1,394,406 -------------- ----------- ------------- ------------ -------------- Balances: December 31, 2000 25,130,136 $ 503 $ 6,294,031 $ (7,459,176) $ (1,164,462) ============== ============ ============= ============== ============== The accompanying notes are an integral part of the financial statements. PARK CITY GROUP, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 -------------- -------------- Cash Flows From Operating Activities: Net income $ 1,394,406 $ 373,691 -------------- -------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 183,437 255,920 Provision for doubtful accounts 182,154 116,959 Recognition of year 2000 contingency (267,495) (511,432) Decrease in deferred tax asset 940,000 310,000 (Increase) decrease in accounts receivable 304,155 (163,335) (Increase) in receivable from related parties (471,854) (86,789) (Increase) decrease in prepaid expenses and other current assets 8,094 (4,383) Decrease in deposits 348 -- Increase in accrued interest to parent corporation 115,809 151,394 (Decrease) in bank overdraft -- (67,922) (Decrease) in accounts payable (511) (155,185) Increase in accrued payroll and related liabilities 8,767 13,128 Increase in accrued interest 14,985 14,203 (Decrease) in sales tax payable (18,101) (11,086) Increase (decrease) in accrued litigation settlements (84,833) 139,777 (Decrease) in deferred revenue (1,364,963) (541,337) (Decrease) in payable to related party -- (9,021) Increase in income taxes payable 58,199 9,713 --------------- -------------- Total adjustments (391,809) (539,396) --------------- -------------- Net cash provided by (used in) operating activities 1,002,597 (165,705) --------------- -------------- Cash Flows From Investing Activities: Purchase of equipment (68,641) (60,150) --------------- ------------- Net cash (used in) investing activities (68,641) (60,150) --------------- ------------- Continued - next page The accompanying notes are an integral part of the financial statements. PARK CITY GROUP, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 Continued from prior page - 2000 1999 ------------ -------------- Cash Flows From Financing Activities: Proceeds from sale of equipment -- 50,000 Proceeds from issuance of common -- 426 Net proceeds from borrowing on line of credit 13,000 137,000 Proceeds from borrowing from parent corporation -- 505,000 Principal payments on capital leases (95,156) (79,129) Principal payments on note payable with parent corporation -- (140,000) ------------ -------------- Net cash provided by (used in) financing activities (82,156) 473,297 ------------ -------------- Net increase in cash and cash equivalents 851,800 247,442 Cash and cash equivalents, beginning of year 247,442 -- ---------------- -------------- Cash and cash equivalents, end of year $ 1,099,242 $ 247,442 ================= =============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 94,784 $ 25,068 =============== ============= Income taxes $ 1,731 $ 2,323 ================== ================ Non-Cash Transactions: Prior to 1999, the Company accrued a loss contingency related to the year 2000 issue for necessary changes to the software code. During the years ended December 31, 2000 and 1999, the Company recognized $267,495 and $511,432, respectively, as an offset to related costs in the statement of income. In 1999, long-term debt to a bank in the amount of $1,675,000 was assumed by the parent company in exchange for an equivalent note payable to the parent corporation. In 1999, the Company sold equipment with a cost of $68,000 to a related party. The related party paid cash of $50,000 and assumed the remaining liability on the equipment in the amount of $18,000. In 1999, several capital leases were renegotiated and combined into a new lease obligation for $186,000 which, also, included additional equipment purchased with a cost of $29,128. In 2000, the Company entered into a capital lease obligation for the acquisition of equipment with a cost of $16,350. The accompanying notes are an integral part of the financial statements. PARK CITY GROUP, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999

Notes to Financial Statements. 5-7 [LETTERHEAD OF XXXXXXX & XXXXXXX] INDEPENDENT AUDITORS' REPORT 61 Report of Independent Auditors The Board of Directors International Information TechnologySomerset Automation, Inc. Coral Gables, Florida We have audited the accompanying balance sheets of International Information TechnologySomerset Automation, Inc. at December as of September 30, 1997 and January 31, 1997 and 1996, and the related statements of operations and retained earningsincome, shareholders' equity and cash flows for the eight months ended September 30, 1997 and the years then endedended January 31, 1997 and 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our auditaudits. We conducted our audit audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 International Information TechnologySomerset Automation, Inc. at December September 30, 1997 and January 31, 1997 and 1996, and the results of its operations and its cash flows for the eight months ended September 30, 1997 and the years then ended January 31, 1997 and 1996, in conformity with generally accepted accounting principles. /s/ Xxxxxxx Ernst & Xxxxxxx CERTIFIED PUBLIC ACCOUNTANTS Coral GablesYoung December 3, Florida July 221997 Somerset Automation, 1998 ASSETS December Inc. Balance Sheets September 30 January 31 1997 1997 1996 ----------------------------------------------- Assets Current assets: Cash $ 860,938 $ 583,648 $ 183,767 Accounts receivable, net of allowance of $19,000, $19,000 and $16,700 at September 30, 1997 and January 31, 1997 1996 ---- ---- CURRENT ASSETS Cash $ 9,520 $ 12,379 Accounts receivable 590,246 153,769 Due from related company in Venezuela 186,030 -- Other and 1996, respectively 698,588 462,761 368,964 Prepaid expenses and other current assets 17,690 470 -------- -------- TOTAL CURRENT ASSETS 803,486 166,618 PROPERTY AND EQUIPMENT 41,329 23,841 28,676 ----------------------------------------------- Total current assets 1,600,855 1,070,250 581,407 Property and equipment, at cost: Computer equipment 43,954 21,578 Vehicles 45,119 45,119 -------- -------- 89,073 66,697 215,557 183,760 137,929 Office equipment 74,680 74,680 72,275 Furniture and fixtures 72,538 38,377 42,632 Computer software 51,287 44,002 32,233 ----------------------------------------------- 414,062 340,819 285,069 Less accumulated depreciation (46,547) (25,650) -------- -------- 42,526 41,047 -------- -------- and amortization 225,568 183,158 119,938 ----------------------------------------------- 188,494 157,661 165,131 Software development costs, net of accumulated amortization of $846,012 200,181, $207,665 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS170,534 and $126,063 at September 30,1997 and January 31, 1997 and 1996, respectively 22,174 51,821 96,292 Deferred income taxes -- -- 28,262 ----------------------------------------------- Total assets $ 1,811,523 $ 1,279,732 $ 871,092 =============================================== Liabilities and shareholders' EQUITY CURRENT LIABILITIES Cash overdraft $187,121 equity Current liabilities: Line of credit $ -- 14,211 $ 14,211 $ 14,211 Accounts payable and accrued expenses 311,935 75,740 151,451 178,445 45,486 Income taxes payable 11,000 164,607 88,000 -- Unsecured loan payable to stockholder, non-interest bearing 30,060 60,061 Other accrued liabilities 82,559 62,685 44,240 Deferred revenue 60,000 -- -- Deferred income taxes 78,890 172,262 99,262 121,262 Note payable to officer -- -------- -------- TOTAL CURRENT LIABILITIES 619,006 135,801 STOCKHOLDERS-- 50,000 Current portion of long-term debt 47,446 29,713 29,932 ----------------------------------------------- Total current liabilities 692,536 472,316 305,131 Long-term debt, net of current portion 5,031 22,942 52,421 Deferred income taxes 50,738 41,738 -- Commitments Shareholders' EQUITY Capital equity: Common stock, $1 no par value per share, authorized issued value: Authorized shares - 25,000,000 Issued and outstanding 1,000 shares 1,000 1,000 - 1,711,780, 1,711,780 and 1,743,030 at September 30, 1997 and January 31, 1997 and 1996, respectively 198,471 198,471 226,596 Note receivable (31,739) (31,739) (31,739) Retained Earnings 226,006 70,864 -------- -------- 227,006 71,864 -------- -------- earnings 896,486 576,004 318,683 ----------------------------------------------- Total shareholders' equity 1,063,218 742,736 513,540 ----------------------------------------------- Total liabilities and shareholders' equity $ 1,811,523 $ 1,279,732 $ 871,092 =============================================== See accompanying notes. Somerset Automation, Inc. Statements of Income Eight months ended September 30, Year ended January 31, 1997 1997 1996 --------------------------------------- Revenues: Systems integration and consulting services $ 2,458,210 $ 2,601,479 $ 1,195,223 Hardware sales 81,359 306,089 795,265 Licensing fees 375,600 650,000 670,325 --------------------------------------- Total revenues 2,915,169 3,557,568 2,660,813 Costs and operating expenses: Cost of revenues: Consulting and integration services 1,318,978 1,847,246 1,017,895 Hardware 65,601 207,035 577,083 Selling, general and administrative expense 981,638 1,126,739 1,052,858 --------------------------------------- Total costs and operating expenses 2,366,217 3,181,020 2,647,836 --------------------------------------- Operating income 548,952 376,548 12,977 Interest income, net of interest expense of $846,012 3,741, $207,665 -------- -------- -------- -------- The 10,469 and $7,139 for the eight months ended September 30, 1997 and the years ended January 31, 1997 and 1996, respectively 11,530 17,773 9,934 --------------------------------------- Income before provision for income taxes 560,482 394,321 22,911 Provision (benefit) for income taxes 240,000 137,000 (38,000) --------------------------------------- Net income $ 320,482 $ 257,321 $ 60,911 ======================================= See accompanying notes are an integral part of these financial statements.notes. Somerset Automation, Inc.