Post by ToddCT on Feb 28, 2005 10:16:38 GMT -5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2003
1. Basis of Presentation
The accompanying unaudited financial statements represent the consolidated financial position of Mellon Research, Inc. ("the Company") for the twelve months ended December 31, 2004 and 2003 include results of operations of the Company and Wall Street Securities Inc. ("Wall"), its wholly owned subsidiary, and cash flows for the twelve months ended December 31, 2004 and 2003. These statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and the instructions for the Information Statement. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments to these unaudited financial statements necessary for a fair presentation of the results for the interim period presented have been made. The results for the twelve months period ended December 31, 2004 and 2003 may not necessarily be indicative of the results for the entire fiscal year.
2. Summary of Significant Accounting Policies
The accounting policies followed by the Company, and the methods of applying those policies, which affect the determination of its financial position, results of operations and cash flows are summarized below:
Cash and Cash Equivalents
Cash and cash equivalents include all short-term liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. At times cash deposits may exceed government insured limits.
Principles of Consolidation
The consolidated financial statements include the Company and its wholly owned subsidiary, Wall. All intercompany accounts in consolidation have been eliminated.
Revenue Recognition
The Company's revenue is generated by customer agreements for providing investor relation services and joint venture services. Revenue is recognized when earned and when negotiations of services have been agreed by both parties. The Company has impaired the revenue in accordance with SAB 101.
Fair Value of Financial Instruments
The carrying amounts for investments in marketable securities, trade accounts receivable, trade accounts payable, accrued liabilities and notes payable, approximate their fair value due to the short maturity of these instruments. The Company has determined that the recorded amounts approximate fair value. The assets have been recorded in accordance with FASB 144 Fair Value Measurements based on stock restrictions and volume.
Net Earnings Per Share
Net earnings per share are calculated using the weighted average number of shares of common stock outstanding during the year. The Company has adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. This may affect the reported amounts of assets and liabilities and disclosure 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.
Stock-Based Compensation
Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), established accounting and disclosure requirements using a fair-value based method of accounting for stock-based employee compensation. In accordance with SFAS 123, the Company has elected to continue accounting for stock based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25.
3. Investments in Marketable Securities
Investments in marketable securities consisted of the following at December 31, 2004 and 2003:
Gross Unrealized Impaired
Cost Gains Losses Value
Equity securities 2004 $48,851,000 $ 0 $(46,919,940) $1,931,060
Equity securities 2003 $46,875,000 $ 0 $(45,919,940) $ 955,060
We have invested in common stock and related warrants of several publicly traded companies. At December 31, 2004 and 2003, our investment in marketable securities is made in seven different companies. The investment in one such company's securities represents approximately 25% of the estimated aggregate fair value of all investments in marketable securities at December 31, 2004 and 2003.
The Company has invested in or received stock for services in the following micro-cap companies:
Pearl Asian Mining Industries (PRLGF.BB); Hee Corporation (HCCF.PK) ("Hee"); UBTA Technologies, Inc. (UBTA.PK) ("UBTA"); Emerging Creative Media, Inc. (EGCM.PK); Equity Retirement Fund (ERDTF); Western Pacific Ltd. ("Western"); and Riverside Investment, Inc. (RRBK.PK).
4. Fair Value of Thinly Traded Securities
The Company has issued cash and stock for equity securities in several entities which are not reporting companies with the SEC. Reliable financial information on these companies is not readily obtainable. Trading in securities of these companies is highly speculative and is easily subject to market manipulation. According, the trading price is not a reliable indicator of the fair value of these investments.
The fair value standard for such thinly traded securities is valuation based on the value of the underlying assets or value of the income or cash flows of the entities. As stated above, information enabling valuation is accordance with this standard is not readily obtainable.
Management of the Company has made a best efforts attempt to value these securities in accordance with this standard, resulting in substantial discounts and impairments to the transactions if recorded at the strike price.
Additionally, certain stock based transactions, have also been discounted below strike price to give affect to the restrictions or lack of marketability. Further adjustment to these discounts or impairments may result from the completion of the audit.
5. Notes Payable and Line of Credit
Notes payables are recorded and interest is accrued in accordance with the individual terms of each note. Notes payable at December 31, 2004. The Company entered into a note agreement with The Shepherd US, Inc. for $100,000 on December 29, 2004.
6. Common Stock
Transactions in the Company's common stock issued for the acquisition of assets, products, or services are accounted for at 25% of fair value. Fair value is determined based on the closing price of the Company's common stock on the date of the transaction, or the fair value of the asset, product, or service received.
7. Income Taxes
The Company provides for income taxes based on the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, which among other things, requires that recognition of deferred income taxes be measured by the provisions of enacted tax laws in effect at the date of financial statements. The provision for income taxes for interim periods is calculated on the basis of the expected effective rate for the full year.
8. Spin off of Wall Street Securities, Inc.
These unaudited financial statements are prepared on a consolidated basis. Due to the December 2004 spin-off of Wall Street Securities, Inc., substantial restatement may be made to these financial statements to appropriately account for and present the spin-off in accordance with generally accepted accounting principles. The spin-off was to shareholders of record as of November 24, 2004. Accordingly, the adjustments resulting from recording the spin-off could result in substantial dilution of book equity per share to shareholders acquiring investment in Mellon subsequent to that date.
9. Commitments and Contingencies
Mellon is involved in various minor legal proceedings and no material developments occurred in any of these proceedings.
The SEC is conducting a formal investigation of the Company. The Company and Mario Pino, its sole officer, director and a principal shareholder, intend to cooperate fully in such investigation. The SEC's investigation has recently commenced and the Company can offer no assurances or predictions regarding the outcome of such investigation.
The costs and results associated with this investigation could be significant and could affect the results of our future operations. Further subsequent impairment to the assets of Mellon, resulting from the investigation by SEC could be substantial.
10. Subsequent Events
The Company has received approximately $500,000 from the sale of stock of marketable securities held by Mellon.
11. GAAP Basis Presentation
Financial statements issued under generally accepted accounting principles should include a Statement of Changes in Stockholders' Equity. The Company has entered into numerous cash and non-cash transactions involving the issuance of its equity shares. Due to the complexities of establishing fair value of the thinly traded securities, as discussed above, management has chosen to omit this required statement until completion o the audit process.
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2003
1. Basis of Presentation
The accompanying unaudited financial statements represent the consolidated financial position of Mellon Research, Inc. ("the Company") for the twelve months ended December 31, 2004 and 2003 include results of operations of the Company and Wall Street Securities Inc. ("Wall"), its wholly owned subsidiary, and cash flows for the twelve months ended December 31, 2004 and 2003. These statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and the instructions for the Information Statement. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments to these unaudited financial statements necessary for a fair presentation of the results for the interim period presented have been made. The results for the twelve months period ended December 31, 2004 and 2003 may not necessarily be indicative of the results for the entire fiscal year.
2. Summary of Significant Accounting Policies
The accounting policies followed by the Company, and the methods of applying those policies, which affect the determination of its financial position, results of operations and cash flows are summarized below:
Cash and Cash Equivalents
Cash and cash equivalents include all short-term liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. At times cash deposits may exceed government insured limits.
Principles of Consolidation
The consolidated financial statements include the Company and its wholly owned subsidiary, Wall. All intercompany accounts in consolidation have been eliminated.
Revenue Recognition
The Company's revenue is generated by customer agreements for providing investor relation services and joint venture services. Revenue is recognized when earned and when negotiations of services have been agreed by both parties. The Company has impaired the revenue in accordance with SAB 101.
Fair Value of Financial Instruments
The carrying amounts for investments in marketable securities, trade accounts receivable, trade accounts payable, accrued liabilities and notes payable, approximate their fair value due to the short maturity of these instruments. The Company has determined that the recorded amounts approximate fair value. The assets have been recorded in accordance with FASB 144 Fair Value Measurements based on stock restrictions and volume.
Net Earnings Per Share
Net earnings per share are calculated using the weighted average number of shares of common stock outstanding during the year. The Company has adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. This may affect the reported amounts of assets and liabilities and disclosure 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.
Stock-Based Compensation
Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), established accounting and disclosure requirements using a fair-value based method of accounting for stock-based employee compensation. In accordance with SFAS 123, the Company has elected to continue accounting for stock based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25.
3. Investments in Marketable Securities
Investments in marketable securities consisted of the following at December 31, 2004 and 2003:
Gross Unrealized Impaired
Cost Gains Losses Value
Equity securities 2004 $48,851,000 $ 0 $(46,919,940) $1,931,060
Equity securities 2003 $46,875,000 $ 0 $(45,919,940) $ 955,060
We have invested in common stock and related warrants of several publicly traded companies. At December 31, 2004 and 2003, our investment in marketable securities is made in seven different companies. The investment in one such company's securities represents approximately 25% of the estimated aggregate fair value of all investments in marketable securities at December 31, 2004 and 2003.
The Company has invested in or received stock for services in the following micro-cap companies:
Pearl Asian Mining Industries (PRLGF.BB); Hee Corporation (HCCF.PK) ("Hee"); UBTA Technologies, Inc. (UBTA.PK) ("UBTA"); Emerging Creative Media, Inc. (EGCM.PK); Equity Retirement Fund (ERDTF); Western Pacific Ltd. ("Western"); and Riverside Investment, Inc. (RRBK.PK).
4. Fair Value of Thinly Traded Securities
The Company has issued cash and stock for equity securities in several entities which are not reporting companies with the SEC. Reliable financial information on these companies is not readily obtainable. Trading in securities of these companies is highly speculative and is easily subject to market manipulation. According, the trading price is not a reliable indicator of the fair value of these investments.
The fair value standard for such thinly traded securities is valuation based on the value of the underlying assets or value of the income or cash flows of the entities. As stated above, information enabling valuation is accordance with this standard is not readily obtainable.
Management of the Company has made a best efforts attempt to value these securities in accordance with this standard, resulting in substantial discounts and impairments to the transactions if recorded at the strike price.
Additionally, certain stock based transactions, have also been discounted below strike price to give affect to the restrictions or lack of marketability. Further adjustment to these discounts or impairments may result from the completion of the audit.
5. Notes Payable and Line of Credit
Notes payables are recorded and interest is accrued in accordance with the individual terms of each note. Notes payable at December 31, 2004. The Company entered into a note agreement with The Shepherd US, Inc. for $100,000 on December 29, 2004.
6. Common Stock
Transactions in the Company's common stock issued for the acquisition of assets, products, or services are accounted for at 25% of fair value. Fair value is determined based on the closing price of the Company's common stock on the date of the transaction, or the fair value of the asset, product, or service received.
7. Income Taxes
The Company provides for income taxes based on the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, which among other things, requires that recognition of deferred income taxes be measured by the provisions of enacted tax laws in effect at the date of financial statements. The provision for income taxes for interim periods is calculated on the basis of the expected effective rate for the full year.
8. Spin off of Wall Street Securities, Inc.
These unaudited financial statements are prepared on a consolidated basis. Due to the December 2004 spin-off of Wall Street Securities, Inc., substantial restatement may be made to these financial statements to appropriately account for and present the spin-off in accordance with generally accepted accounting principles. The spin-off was to shareholders of record as of November 24, 2004. Accordingly, the adjustments resulting from recording the spin-off could result in substantial dilution of book equity per share to shareholders acquiring investment in Mellon subsequent to that date.
9. Commitments and Contingencies
Mellon is involved in various minor legal proceedings and no material developments occurred in any of these proceedings.
The SEC is conducting a formal investigation of the Company. The Company and Mario Pino, its sole officer, director and a principal shareholder, intend to cooperate fully in such investigation. The SEC's investigation has recently commenced and the Company can offer no assurances or predictions regarding the outcome of such investigation.
The costs and results associated with this investigation could be significant and could affect the results of our future operations. Further subsequent impairment to the assets of Mellon, resulting from the investigation by SEC could be substantial.
10. Subsequent Events
The Company has received approximately $500,000 from the sale of stock of marketable securities held by Mellon.
11. GAAP Basis Presentation
Financial statements issued under generally accepted accounting principles should include a Statement of Changes in Stockholders' Equity. The Company has entered into numerous cash and non-cash transactions involving the issuance of its equity shares. Due to the complexities of establishing fair value of the thinly traded securities, as discussed above, management has chosen to omit this required statement until completion o the audit process.