Attached files
EXHIBIT 99.2
MASTERBEAT, LLC
Unaudited Financial Statements
For the Periods Ended
September 30, 2009 and 2008
MASTERBEAT, LLC
INDEX TO FINANCIAL STATEMENTS
Page
----
Balance Sheet F-1
Statement of Operations for the nine months
ended September 30, 2009 and 2008 F-2
Statement of Cash Flows
for the nine months ended September 30, 2009 and 2008 F-3
Notes to Financial Statements September 31, 2009 F-4
MASTERBEAT, LLC
BALANCE SHEETS
September 30, December 31,
2009 2008
-------- --------
(Unaudited) (Audited)
Assets
Current assets
Cash $ 34,360 $ --
Accounts receivable, net of allowance of $14 and $20,857
as of September 30, 2009 and December 31, 2008 7,856 64,550
-------- --------
Total current assets 42,216 64,550
Fixed assets, net 106,234 121,541
Intangible asset, net 247,325 276,686
Other assets
Security deposit 15,000 15,000
-------- --------
Total Assets $410,775 $477,777
======== ========
Liabilities and Members' Equity
Current liabilities
Bank overdraft $ -- $ 13,503
Accounts payable and accrued liabilities 135,446 251,677
-------- --------
Total Liabilities 135,446 265,180
Members' Equity 275,329 212,597
-------- --------
Total Liabilities and Members' Equity $410,775 $477,777
======== ========
The accompanying notes are an integral part of these financial statements.
F-1
MASTERBEAT, LLC
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
----------- ----------- ----------- -----------
REVENUE $ 195,488 $ 46,719 $ 623,934 $ 327,462
----------- ----------- ----------- -----------
COST OF SALES 132,713 62,865 306,672 145,320
----------- ----------- ----------- -----------
GROSS PROFIT 62,775 (16,146) 317,262 182,142
----------- ----------- ----------- -----------
OPERATING EXPENSES
Depreciation and amortization 19,741 19,769 61,438 59,598
General and administrative 376,975 332,636 1,041,947 1,225,525
Professional fees 808 5,100 5,736 12,410
----------- ----------- ----------- -----------
Total Operating Expenses 397,524 357,505 1,109,121 1,297,533
----------- ----------- ----------- -----------
Net loss before income taxes (334,749) (373,651) (791,859) (1,115,391)
----------- ----------- ----------- -----------
Income taxes (1,321) (2,757) (12,026) (11,346)
----------- ----------- ----------- -----------
Net Loss $ (336,070) $ (376,408) $ (803,885) $(1,126,737)
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
MASTERBEAT, LLC
STATEMENTS OF CASH FLOWS
(UNAUDITED)
September 30,
2009 2008
----------- -----------
OPERATING ACTIVITIES
Net loss $ (803,885) $(1,126,737)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 61,438 59,598
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable 56,693 (11,044)
(Increase) in deposits (15,000)
Increase (Decrease) in accounts payable and accrued liabilities (116,230) 171,757
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (801,984) (921,426)
----------- -----------
INVESTING ACTIVITIES
Capitalized costs of website development -- (312,500)
Acquisition of fixed assets (16,770) (155,976)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (16,770) (468,476)
----------- -----------
FINANCING ACTIVITIES
Members' contributions 1,034,956 1,527,879
Members' distributions (168,339) (106,160)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 866,617 1,421,719
----------- -----------
NET INCREASE (DECREASE) IN CASH DURING PERIOD 47,863 31,817
CASH (OVERDRAFT), BEGINNING OF PERIOD (13,503) --
----------- -----------
CASH, END OF PERIOD $ 34,360 $ 31,817
=========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid $ -- $ --
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
MASTERBEAT, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Masterbeat, LLC (the "Company") is a California Limited Liability Company formed
on December 13, 2007, the Company was organized as a limited liability company
("LLC") with three members. The Company is primarily an online music download
service specializing in "Hip-Hop", dance and electronica music. The Company also
hosts parties and events, provides disc jockey services, acts as ticket agent
for events hosted by others and operates a website that provides photo
enlargement services and the printing of posters, signs and banners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10Q and Regulation S-K. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The operating results for
the nine month period ended September 30, 2009 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2009. For
further information, refer to the financial statements and notes thereto
included in the Company's Annual Report on Form 8K for the year ended December
31, 2008.
Use of Estimates:
The presentation 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 and disclosure of
contingent assets and liabilities at the date of the financial statement. Actual
results could differ from those estimates.
Cash and Cash Equivalents:
Cash and cash equivalents include all highly liquid investments with an original
maturity of three months or less. At various times during the fiscal year, the
Company's cash and cash equivalents in bank balances may exceed the Federally
insured limits.
F-4
MASTERBEAT, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts Receivable:
Accounts receivable consist mainly of unprocessed credit card sales from music
downloads, event ticket sales and online poster sales. The Company establishes
an allowance for uncollectable accounts receivable based on the age of
outstanding invoices and management's evaluation of the collectability of
outstanding balances.
Fixed Assets:
Fixed assets, consisting mainly of computer equipment, software and office
equipment and furniture, are stated at cost, net of accumulated depreciation
which is calculated using the straight-line method over the estimated useful
lives generally ranging from 5 to 7 years.
Web Site Development Costs:
The Company has incurred internal web site development costs during the
development, implementation and operational stages. Specific activities include
initial planning and research, coordination of design, engineering, integration
and design modifications, web site customizing and revisions, etc. These costs
were expensed or capitalized in accordance with FASB ASC 350-40(SOP 98-01,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use") and FASB ASC 350-50(EITF 00-02, "Accounting for Web Site
Development Costs").
Long-Lived Assets:
FASB ASC 360-10 (Prior Authoritative Literature: Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets), requires that we evaluate our long-lived assets for
financial impairment on a regular basis. We evaluate the recoverability of
long-lived assets not held for sale by measuring the carrying amount of the
assets against the estimated undiscounted future cash flows associated with
them. If such evaluations indicate that the future discounted cash flows of
certain long-lived assets are not sufficient to recover the carrying value of
such assets, the assets are adjusted to their fair values. The useful lives
assigned to the Company's internal-use website were based on management's
assessment of when standard maintenance and software updates would no longer
allow the website to perform at a level consistent with market expectations and
competitor's offerings.
Revenue Recognition:
We recognize revenue when persuasive evidence of an arrangement exists, the fee
is fixed or determinable, collectability is reasonably assured and delivery has
occurred. Revenues transacted from on-line platforms relating to audio download
and poster printing services are recognized at the point of sale.
F-5
MASTERBEAT, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition (Continued):
Agent revenues are recognized in accordance with FASB ASC 605-45 (Prior
authoritative literature: EITF 99-19, "Reporting Revenue Gross as a Principal
versus Net as an Agent"). Agent revenues are derived from ticket sales where we
are not the merchant of record and where the prices of our services are fixed at
the point of sale. Agent revenue is comprised of service fees and customer
processing fees and are reported at the net amounts received, without any
associated cost of revenue.
Amounts billed to customers in sales transactions related to shipping and
handling are classified as revenue in accordance with FASB ASC 605-45 (Prior
authoritative literature EITF 00-10, "Accounting for Shipping and Handling Fees
and Costs"). The actual cost to the Company is recognized as an operating
expense.
Fair Value of Financial Instruments:
The carrying value of cash and cash equivalent, accounts receivable, other
assets, accounts payable and other liabilities approximate their fair value
because of the short maturity of these instruments.
Advertising costs:
Advertising costs are generally expensed as incurred and are included in selling
and marketing expenses in the accompanying statement of operations. For the
third quarter and nine months ended September 30, 2009, advertising costs
incurred amounted to $112,927 and $147,144, respectively. Amounts incurred for
the third quarter and nine months ended September 30, 2008 totaled $64,963 and
$186,436, respectively.
Income Taxes:
As a LLC, the Company is treated as a partnership for federal and state income
tax purposes and accordingly, income and expenses flow through to the individual
members' income tax returns. However, the Company is subject to a California
minimum annual tax of $800 and an annual LLC fee based on gross receipts. The
LLC fees for the third quarter and nine months ended September 30, 2009 and 2008
were not significant.
Accounts Payable and Accrued Liabilities:
Accounts payable and accrued liabilities are comprised of operating expenses
recognized in the Company's statements of income and members' equity (deficit)
that remained unpaid at the Company's period-end financial reporting dates. The
amounts contained within the balance have payment terms of 12 months or less.
F-6
MASTERBEAT, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements:
In December 2007, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Codification ("ASC") 805 (Prior authoritative literature:
Statement of Financial Accounting Standards ("SFAS") No. 141(R), Business
Combinations, which replaces SFAS No. 141). ASC 805 establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired. The
statement also establishes disclosure requirements which will enable users to
evaluate the nature and financial effects of the business combination. ASC 805
is effective for calendar year companies on January 1, 2009. The Company has
adopted this ASC effective January 1, 2009 but has not consummated any business
combinations as of September 30, 2009.
In March 2008, the FASB issued ASC 815-10 (Prior authoritative literature: SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities, and
amendment of SFAS No. 133). This statement will require additional disclosures
about how and why we use derivative financial instruments, how derivative
instruments and related hedged items are accounted for under ASC 815 (Prior
authoritative literature: SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended and interpreted), and how derivative
instruments and related hedged items affect our financial position, results of
operations, and cash flows. ASC 815-10 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008;
however early adoption is encouraged, as are comparative disclosures for earlier
periods. The Company adopted this ASC effective January 1, 2009 which did not
have a material impact on its financial statements.
In April 2008, the FASB issued ASC 350-30 (Prior authoritative literature: FASB
Staff Position No. 142-3, Determination of the Useful Life of Intangible
Assets). ASC 350-30 amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under ASC 350 (Prior authoritative literature: SFAS
No. 142, "Goodwill and Other Intangible Assets") and also requires expanded
disclosure related to the determination of intangible asset useful lives. ASC
350-30 is effective for fiscal years beginning after December 15, 2008. Early
adoption is prohibited. The Company adopted this ASC effective January 1, 2009;
see Note 6 for information regarding useful lives of the Company's intangible
assets.
F-7
MASTERBEAT, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements (Continued):
In May 2009, the FASB issued FASB ASC 855-10 (prior authoritative literature,
SFAS No. 165, "Subsequent Events"). FASB ASC 855-10 established general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. FASB ASC 855-10
is effective for interim or annual financial periods ending after June 15, 2009.
The Company adopted this ASC effective the current quarter ended September 30,
2009; see Note 8 for a discussion of subsequent events through March 17, 2010.
In June 2009, the FASB issued FASB ASC 105-10 (prior authoritative literature,
SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles--a replacement of SFAS No. 162). FASB
ASC 105-10 replaces SFAS 162 and establishes the FASB Accounting Standards
Codification as the source of authoritative accounting principles recognized by
the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. FASB ASC 105-10 is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. As such, the Company is required to adopt this standard in
the current period. Adoption of FASB ASC 105-10 did not have a significant
effect on the Company's financial statements.
In June 2009, the FASB issued guidance under ASC 860 (Prior authoritative
literature: SFAS No. 166, "Accounting for Transfers of Financial Assets"), which
will require more information about transfer of financial assets, including
securitization transactions, and where entities have continuing exposure to the
risks related to transferred financial assets. It eliminates the concept of a
"qualifying special-purpose entity", changes the requirements for derecognizing
financial assets and requires additional disclosures. This ASC will be effective
for fiscal years beginning after November 15, 2009. The Company will adopt the
provision of this ASC effective January 1, 2010 and is currently evaluation the
impact, if any, on its financial statements.
F-8
MASTERBEAT, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Leases:
The Company has entered into a property lease agreement to lease office space in
a City of Los Angeles, California office complex. The lease term expires after
five years and each year's base rent is increased by the consumer price index
for Urban Wage Earners and Clerical Workers for Los Angeles, Riverside and
Orange County per the Consumer Price Index of the Bureau of Labor Statistics of
the U.S. Department of Labor. In addition to base rent the company is charged
common area maintenance (CAM) which varies on a month to month basis.
Management, based on historical data, estimates the monthly CAM expense to be
$2,100. The Company also rents parking spaces from the lessor at a monthly cost
of $510. The property lease expense for the third quarter and nine months ended
September 30, 2009 were $20,000 and $65,038, respectively. For the third quarter
and nine months ended September 30, 2008, lease expense were $20,435 and
$82,799, respectively. Management estimates future minimum lease payments for
the remaining years under lease to approximate the annual expense incurred for
the year ended December 31, 2008, subject to increases in the base rent based on
consumer price index adjustments.
Contingencies:
From time to time, the Company may become involved in litigation matters arising
in the ordinary course of business.
NOTE 4 - GOING CONCERN
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. For the nine months ended
September 30, 2009 and the year ended December 31, 2008, the Company incurred
net losses of $803,885 and $1,257,439, respectively.
The Company's continued existence is dependent upon its ability to raise
capital. The financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern.
F-9
MASTERBEAT, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
NOTE 5 - FIXED ASSETS
Fixed assets at September 30, 2009 and December 31, 2008 consisted of the
following:
September 30, December 31,
2009 2008
--------- ---------
Computer Equipment $ 75,355 $ 58,585
Software 49,282 49,282
Office Equipment and Furniture 58,283 58,283
--------- ---------
182,920 166,150
Less: Accumulated depreciation (76,686) (44,609)
--------- ---------
$ 106,234 $ 121,541
========= =========
Depreciation expense for the third quarter and nine months ended September 30,
2009 amounted to $9,954 and $32,077, respectively. For the third quarter and
nine months ended September 30, 2008, depreciation expense totaled $10,816 and
$33,571, respectively.
NOTE 6 - INTANGIBLE ASSET
The Company engaged an independent third party to develop a website providing
consumers the ability to purchase and download audio tracks or albums. The
website offers a "consumer friendly" platform that provides a customer with a
full range of services including the ability to preview tracks before buying
them, read reviews, view top sellers and obtain information about live events on
the horizon. The website was further developed to communicate with the Company's
internal accounting software and the Company's external credit card processor
making the point of sale process completely automated.
In accordance with FASB ASC 350-40(SOP 98-01, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use") and FASB ASC
350-50(EITF 00-02, "Accounting for Web Site Development Costs"), management
grouped the costs incurred at each stage of the development and determined the
useful life to amortize the costs over. Through December 31, 2008, management
determined that an aggregate $312,500 of the costs incurred relating to the
development and enhancement of its internal-use website should be capitalized.
The Company has classified $78,971 of the capitalized amount as being "software
related" with a useful life of 5 years, $183,529 as being either "hardware
related" with a useful life of 10 years and $50,000 as being significant
improvements with a useful life of 10 years.
F-10
MASTERBEAT, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
NOTE 6 - INTANGIBLE ASSET (Continued)
The Company's website was launched in January of 2008 and final delivery of
source fields and project assets were obtained during the 1st Quarter of 2008.
For ease of financial reporting, the Company began amortizing the capitalized
costs as of January 1, 2008. The $50,000 allocated to significant improvements
was completed on September 1, 2009. The Company will amortize capitalized costs
using the straight-line method over the useful life of the asset.
Costs incurred, totaling $23,350, during the nine months ended September 30,
2009 primarily relating to the maintenance of the website have been expensed.
The following table summarizes the allocation of capitalized costs, the useful
life estimation and the amount amortized as of September 30, 2009:
Gross Amount Useful Completion Amortization Net Amount
Capitalized Life Date Year 1 Capitalized
----------- ---- ---- ------ -----------
Software costs $ 78,971 5 yrs January 1, 2008 $ 27,640 $ 51,331
Hard ware costs 183,529 10 yrs January 1, 2008 32,118 151,411
Improvements 50,000 10 yrs September 1, 2008 5,417 44,583
-------- -------- ---------
Totals $312,500 $ 65,175 $ 247,325
======== ======== =========
NOTE 7 - EVALUATION OF LONG-LIVED ASSET
In accordance with FASB ASC 360-10, "Accounting for the Impairment or Disposal
of Long-Lived Assets", Management evaluates the recoverability of long-lived
assets on an annual basis. No impairment adjustments were determined necessary
as of September 30, 2009 and December 31, 2008.
F-11
MASTERBEAT, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
NOTE 8 - SUBSEQUENT EVENT
On December 18, 2009, Green Mountain Recovery, Inc. (the "Registrant"), a
Delaware corporation, entered into a Share Exchange Agreement (the "Exchange
Agreement") with the Company. Pursuant to the terms of the Exchange Agreement,
the Shareholders agreed to transfer all of the issued and outstanding limited
liability units in the Company to the Registrant in exchange for the issuance of
an aggregate of 8,500,000 shares of the Registrant's common stock to the
Shareholders, thereby causing the Company to become wholly-owned subsidiary of
the Registrant.
The Company has evaluated subsequent events through March 17, 2010, the date its
financial statements were issued, and concluded there were no other events or
transactions occurring during this period that required recognition or
disclosure in its financial statements.
F-1
