Notes to Consolidated Financial Statements June 30, 2002, 2001 and 2000

(1) Description of Business

Imergent, Inc. (formerly known as "Netgateway, Inc.", referred to hereinafter as Imergent or the "Company"), was incorporated as a Nevada corporation on April 13, 1995. In November 1999, it was reincorporated under the laws of Delaware. Effective July 3, 2002, a Certificate of Amendment was filed to its Certificate of Incorporation to change its name to Imergent, Inc. Imergent is an e-Services company that provides eCommerce technology, training and a variety of web-based technology and resources to over 100,000 small businesses and entrepreneurs annually. The Company's affordably priced e-Services offerings leverage industry and client practices, and help increase the predictability of success for Internet merchants. The Company's services also help decrease the risks associated with e-commerce implementation by providing low-cost, scalable solutions with minimal lead-time, ongoing industry updates and support. The Company's strategic vision is to remain an eCommerce provider tightly focused on its target market.

During the year ended June 30, 2001 the Company consolidated its operations into one facility in Utah. During this process certain equipment was disposed of and the net book value of the equipment was written off. The write down of these assets are included as an extraordinary item due to the fact that they were part of previously separate entities in a pooling of interests combination at June 30, 2000. In addition, in January 2001, the Company sold one of its subsidiaries that was previously reported as a separate segment, and accordingly has reported the gain realized on the sale as an extraordinary item in the accompanying consolidated financial statements. During the year ended June 30, 2001, the Company settled certain of its liabilities with its vendors for amounts less than the outstanding balances. The gain realized on these settlements has been recorded as an extraordinary item in the accompanying consolidated financial statements.

In January 2001, the Company sold one of its subsidiaries that was previously reported as a separate segment, and accordingly has reported the operations as discontinued operations in the accompanying consolidated financial statements.

(2) Summary of Significant Accounting Policies

(a) Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries which include Netgateway, Galaxy Enterprises, Inc., Galaxy Mall, Inc., StoresOnline Inc., StoresOnline, LTD., and StoresOnline.com, Inc. The acquisition of Galaxy Enterprises ("Galaxy") by Imergent on June 26, 2000 was accounted for under the pooling-of-interests method and accordingly all periods prior to the acquisition have been restated to include the accounts and results of operations of Galaxy Enterprises. All Galaxy common stock and common stock option information has been adjusted to reflect the exchange ratio. All significant intercompany balances and transactions have been eliminated in consolidation.

(b) Reverse Stock Split

On June 28, 2002 the shareholders of the Company approved a one-for-ten reverse split of the Company's outstanding common stock shares, which became effective July 3, 2002. All data for common stock shares, options and warrants have been adjusted to reflect the one-for-ten reverse split for all periods presented. In addition, all common stock share prices and per share data for all periods presented have been adjusted to reflect the one-for-ten reverse stock split.

(c) Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. Inventory consists mainly of products provided in conjunction with the Internet training workshops.

(d) Property and Equipment

Property and equipment are stated at cost. Depreciation expense is computed principally on the straight-line method in amounts sufficient to allocate the cost of depreciable assets, including assets held under capital leases, over their estimated useful lives ranging from 3 to 5 years. The cost of leasehold improvements is being amortized using the straight-line method over the shorter of the estimated useful life of the asset or the terms of the related leases. Depreciable lives by asset group are as follows:

Computer and office equipment ...................3 to 5 years
Furniture and fixtures...........................4 years
Computer software................................3 years
Leasehold improvements...........................term of lease

Normal maintenance and repair items are charged to costs and expenses as incurred. The cost and accumulated depreciation of property and equipment sold or otherwise retired are removed from the accounts and any related gain or loss on disposition is reflected in net income for the period.

(e) Intangible Assets

Intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:

Acquired technology..........................5 to 7 years Goodwill....................................... 10 years

As required by SFAS 142, beginning in July 1, 2003 goodwill will no longer be amortized but will be tested on an annual basis for impairment by comparing its fair value to its carrying value. If the carrying amount of goodwill exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess.

(f) Product and Development Expenditures

Product and development costs are expensed as incurred. Costs related to internally developed software are expensed until technological feasibility has been achieved, after which the costs are capitalized.

(g) Impairment of Long-Lived Assets

The Company reviews long-lived assets and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted operating cash flows projected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During the fiscal year ended June 30, 2001 the Company wrote off fixed assets with a book value totaling $1,091,052 as part of the closing of the American Fork, Long Beach, and Canadian offices included in extraordinary items (See Note 20). In addition, as a result of corporate restructuring, acquired technology and goodwill aggregating $1,084,476 was determined to be impaired and was written off during the fiscal year ended June 30, 2001 (See note 9).

(h) Financial Instruments

The carrying values of cash, accounts receivable, notes receivable, accounts payable, accrued liabilities, capital lease obligations, current portion of notes payable and convertible debenture approximated fair value due to either the short maturity of the instruments or the recent date of the initial transaction or the restructuring.

(i) Income Taxes

Income taxes are accounted for under the asset and liability method. The asset and liability method recognizes deferred income taxes for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.

Deferred tax assets are to be recognized for temporary differences that will result in tax deductible amounts in future years and for tax carryforwards if, in the opinion of management, it is more likely than not that the deferred tax assets will be realized.

(j) Accounting for Stock Options

The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, in accounting for its fixed plan employee stock options. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Compensation expense related to stock options granted to non-employees is accounted for under Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," whereby compensation expense is recognized over the vesting period based on the fair value of the options on the date of grant.

(k) Revenue Recognition

During the year ended June 30, 2001, the Company changed its product offering at its Internet training workshops. The date of the change was October 1, 2000, the beginning of the Company's second fiscal quarter of fiscal year 2001. Prior to that time, customers were sold a service consisting of the construction of Internet websites for their business, which service was to be provided at any time during the 12 months following the sale. Included in the price paid for this service was one year's hosting beginning when the website was published. Revenue from these transactions was deferred at the time of sale and recognized as the services were rendered or when the right to receive the services terminated.

Beginning October 1, 2000, the Company discontinued selling the service and in its place sold a new product called the StoresOnline Software ("SOS"). The SOS is a software product that enables the customer to develop their Internet website without additional assistance from the Company. When a customer purchases the SOS he or she receives a CD-ROM containing programs to be used with their computer and a password and instructions that allow access to the Company's website where all the necessary tools are present to complete the construction of the customer's website. When completed, the website can be hosted with the Company or any other provider of such services. If they choose the Company, an additional setup and hosting fee (currently $150) is required for publishing and 12 months of hosting. This fee is deferred at the time of sale and recognized over the subsequent 12 months.

The revenue from the sale of the SOS is recognized when the product is delivered to the customer. The Company accepts cash and credit cards as methods of payment and offers 24-month installment contracts to customers who prefer an extended payment term arrangement. The Company offers these contracts to all workshop attendees not wishing to use a check or credit card provided they complete a credit application, give the Company permission to independently check their credit and are willing to make an appropriate down payment. Installment contracts are carried on the Company's books as a receivable and the revenue generated by these installment contracts is recognized when the product is delivered to the customer and the contract is signed. This new revenue recognition procedure was in effect for the last three quarters of fiscal year 2001 and for all of fiscal year 2002.

Extended payment term arrangements for software sales that are longer than 12 months are governed by the AICPA Statement of Position 97-2, Software Revenue Recognition. This Statement of Position permits the recognition of revenue at the time of sale, rather than as the monthly payments become due, if the vendor's fee is fixed or determinable and collectibility is probable. Paragraph 28 states, "...Further, if payment of a significant portion of the software licensing fee is not due until after expiration of the license or more than twelve months after delivery, the licensing fee should be presumed not to be fixed or determinable. However, this presumption may be overcome by evidence that the vendor has a standard business practice of using long-term or installment contacts and a history of successfully collecting under the original payment terms without making concessions." The Company has been offering these 24-month installment contracts for more than four years and collecting them without making concessions, as defined in the AICPA Technical Practice Aids 5100.56. Therefore it is appropriate that the Company recognize the revenue at the time of delivery of the product

SOP 97-2 states that revenue from the sale of software should be recognized when the following four specific criteria are met: 1) persuasive evidence of an arrangement exists, 2) delivery has occurred, 3) the fee is fixed and determinable and 4) collectibility is probable. All of these criteria are met when a customer purchases the SOS product. The customer signs a Company order form and a receipt acknowledging a sale and receipt and acceptance of the product. As noted on the order and acceptance forms, all sales are final. All fees are fixed and final. Some states require a three-day right to rescind the transaction. Sales in these states are not recognized until the rescission period has expired. The Company offers customers the option to pay for the SOS with Extended Payment Term Arrangements (EPTAs). The EPTAs generally have a twenty-four month term. The Company has a standard of using long-term or installment contracts and has a four-year history of successfully collecting under the original payment terms without making concessions. Over the past four years the Company has collected or is collecting approximately 70% to 80% of all EPTAs issued to customers. Not all customers live up to their obligations under the contracts. The Company makes every effort to collect on the EPTAs, including the engagement of professional collection services. Despite the Company's efforts, approximately 20 percent of all EPTAs are determined to be uncollectible. All uncollectible EPTAs are written off against an allowance for doubtful accounts, which allowance is established at the time of sale based on the Company's four-year history of extending EPTAs. As a result, revenue from the sale of the SOS is recognized upon the delivery of the product.

Revenue related to the sale of certificates for web site hosting and banner licenses is recognized over the period representing the life of the certificate and the length of the prepaid service. Revenue related to banner advertising services is recognized over the period such advertising is usable and revenue related to the delivery of mentoring services is recognized over the estimated service period. Revenue recorded relating to the sale of merchant account software is reflected net of the cost of the product paid since the Company does not take title to the product prior to its sale.

Revenues relating to the design and development of Internet Web sites and related consulting projects is recognized using the percentage-of-completion method. Unbilled receivables represent time and costs incurred on projects in progress in excess of amounts billed, and are recorded as assets. Deferred revenue represents amounts billed in excess of costs incurred, and is recorded as a liability. To the extent costs incurred and anticipated costs to complete projects in progress exceed anticipated billings, a loss is recognized in the period such determination is made for the excess.

(l) Comprehensive Income (Loss)

Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" establishes standards for reporting and displaying comprehensive income (loss) and its components in a full set of general-purpose financial statements. This statement requires that an enterprise classify items of other comprehensive income (loss) by their nature in a financial statement and display the accumulated balance of other comprehensive income (loss) separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. The Company's only other comprehensive income (loss) were foreign currency translation adjustments related to its Canadian subsidiary, StoresOnline, Ltd.

(m) Business Segments and Related Information

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires enterprises to report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosure about products and services, geographic areas and major customers.

The Company has historically operated under two principal business segments (Internet services and multimedia products). The primary business segment (Internet services) is engaged in the business of providing its customers the ability to (i) acquire a presence on the Internet and (ii) to advertise and sell their products or services on the Internet. A secondary business segment (multimedia services) was engaged in providing assistance in the design, manufacture and marketing of multimedia brochure kits, shaped compact discs and similar products and services intended to facilitate conducting business over the Internet. This second segment was sold on January 11, 2001 and the gain on the sale is reported as an extraordinary item in the accompanying consolidated financial statements. As a result, the Company currently operates in one business segment.

(n) Foreign Currency Translation

The financial statements of the Company's Canadian subsidiary, StoresOnline.com, Ltd. have been translated into U.S. dollars from its functional currency in the accompanying consolidated financial statements in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation." Balance sheet accounts of StoresOnline.com, Ltd. are translated at period-end exchange rates while income and expenses are translated at the average of the exchange rates in effect during the period. Translation gains or losses that related to the net assets of StoresOnline.com Ltd. are shown as a separate component of stockholders' equity (capital deficit) and comprehensive income (loss). There were no gains or losses resulting from realized foreign currency transactions (transactions denominated in a currency other than the entities' functional currency) during the years ended June 30, 2002, 2001 and 2000.

(o) Per Share Data

Basic net income (loss) per share is computed by dividing net income
(loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Unexercised stock options to purchase 313,265 shares of the Company's common stock and unexercised warrants to purchase 502,212 shares of the Company's common stock were outstanding as of June 30, 2002, of which 1,236 stock options and 2,278 warrants were included in the diluted per share computation. Unexercised stock options to purchase 374,038 and 451,265 shares of the Company's common stock and unexercised warrants to purchase 210,735 and 122,490 shares of the Company's common stock at June 30, 2001 and 2000, respectively, in addition to shares of common stock from the conversion of subsidiary common stock and convertible debentures of 1,462,470 and 13,185 as of June 30, 2001 and 2000, respectively, were not included in the per share computations because their effect would have been antidilutive as a result of the Company's loss.

(p) Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date, and the reporting of revenues and expenses during the reporting periods to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. The Company has estimated that allowances for bad debt for Trade Receivables should be $3,276,611 as of June 30, 2002. In addition, the Company has recorded an allowance for doubtful accounts of $137,370 for estimated credit card chargebacks relating to the most recent 180 days of credit card sales.

(q) Reclassifications

Certain amounts reported in 2001 and 2000 have been reclassified to conform to the 2002 presentation.

(r) Discontinued Operations

APB Opinion No. 30 states that discontinued operations refers to the operations of a segment of a business that has been sold, abandoned, spun off, or otherwise disposed of or, although still operating, is the subject of a formal plan for disposal. In accordance with APB Opinion No. 30, the results of continuing operations are reported separately from discontinued operations and any gain or loss from disposal of a segment is reported in conjunction with the related results of discontinued operations, except where such effect is classified as an extraordinary item following a pooling-of-interests combination. In accordance with APB Opinion No. 16, the difference between the proceeds received from the sale of the Company's subsidiary and the carrying amount of the Company's investment sold is reflected as an extraordinary gain on disposal in the consolidated statements of operations.

(s) Advertising Costs

The Company expenses costs of advertising and promotions as incurred, with the exception of direct-response advertising costs. SOP 97-3 provides that direct-response advertising costs that meet specified criteria should be reported as assets and amortized over the estimated benefit period. The conditions for reporting the direct-response advertising costs as assets include evidence that customers have responded specifically to the advertising, and that the advertising results in probable future benefits. The Company uses direct-response marketing to register customers for its workshops. The Company is able to document the responses of each customer to the advertising that elicited the response. Advertising expenses included in selling and marketing expenses for the years ended June 30, 2002, 2001 and 2000 were approximately $5.3 million, $6.0 million and $5.9 million, respectively. As of June 30, 2002 the Company recorded $217,534 of direct response advertising related to future workshops as an asset.

(t) Commission Expense

Commission expense relating to third-party telemarketing activity is recognized as incurred.

(u) Recently Issued Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards No. 141, "Business Combinations" and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which establishes new standards for the treatment of goodwill and other intangible assets. SFAS 142 is effective for fiscal years beginning after December 31, 2001 and permits early adoption for companies with a fiscal year beginning after March 15, 2001. The Company did not early adopt FAS 142. SFAS 142 prescribes that amortization of goodwill will cease as of the adoption date. Additionally, the Company will be required to perform an impairment test as of the adoption date, annually thereafter, and whenever events and circumstances occur that might affect the carrying value of these assets. The Company has not yet determined what effect, if any, the impairment test of goodwill will have on the Company's results of operations and financial position.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS 143). Under this standard, asset retirement obligations will be recognized when incurred at their estimated fair value. In addition, the cost of the asset retirement obligations will be capitalized as a part of the asset's carrying value and depreciated over the asset's remaining useful life. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company does not expect that adoption of SFAS No. 143 will have a material impact on its financial condition or results of operations.

In October, 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). This standard requires that all long-lived assets (including discontinued operations) that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS 144 expands the scope of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The Company does not expect the implementation of SFAS 144 to have a material effect on its financial condition or results of operations.

In April 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS 13, and Technical Corrections as of April 2002 (SFAS 145). This standard rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements and excludes extraordinary item treatment for gains and losses associated with the extinguishment of debt that do not meet the APB Opinion No. 30, Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB 30) criteria. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in APB 30 for classification as an extraordinary item shall be reclassified. SFAS 145 also amends SFAS 13, Accounting for Leases as well as other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Certain provisions of SFAS are effective for transactions occurring after May 15, 2002 while others are effective for fiscal years beginning after May 15, 2002. The Company has not assessed the potential impact of SFAS 145 on its financial condition or results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). This standard addresses financial accounting and reporting for costs associated with exit or disposal activities and replaces Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) (EITF 94-3). SFAS 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for exit costs, as defined in EITF No. 94-3 were recognized at the date of an entity's commitment to an exit plan. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated by the Company after December 31, 2002.

(3) Business Combination

On June 26, 2000, the Company issued 392,998 shares of its common stock in exchange for all of the outstanding common stock of Galaxy Enterprises. This business combination has been accounted for as a pooling-of-interests and, accordingly, the consolidated financial statements for periods prior to the combination include the accounts and results of operations of Galaxy Enterprises.

Prior to the combination, Galaxy Enterprises' fiscal year ended December 31. In recording the pooling-of-interests combination, Galaxy Enterprises' financial statements for the twelve months ended June 30, 1999, were combined with the Company's financial statements for the same period. An adjustment has been made to capital deficit to eliminate the effect of including Galaxy Enterprises' results of operations for the six months ended December 31, 1998, in both the years ended June 30, 1999 and June 30, 1998. The adjustment results in the Company eliminating the related net income of $1,733,441 in fiscal year 1999, which includes $3.7 million in revenue.

The results of operations as previously reported by the separate enterprises and the combined amounts presented in the accompanying consolidated financial statements are summarized below:

c


                                                        ------------------------ ---------------------
                                                           Nine months ended          Year ended
                                                            March 31, 2000          June 30, 1999
                                                        ------------------------ ---------------------
                  Net revenues:
                      Imergent                            $   2,535,863             $      $157,282
                      Galaxy Enterprises                     12,665,271                  10,123,158
                                                        ------------------------ ---------------------
                      Combined                            $  15,201,134             $    10,280,440

                  Discontinued Operations
                     Income (loss) from
                     discontinued operations                 (1,028,781)                      3,013

                  Extraordinary item:
                     Imergent                             $           _             $     1,653,232
                     Galaxy Enterprises                               -                           -
                                                        ------------------------ ---------------------
                     Combined                             $           _             $     1,653,232

                  Net (loss) income:
                     Imergent                             $ (28,178,092)             $  (10,775,703)
                     Galaxy Enterprises                      (6,204,080)                 (4,367,788)
                                                        ------------------------ ---------------------
                      Discontinued Operations                (1,028,781)                      3,013
                                                        ------------------------ ---------------------
                      Combined                              (35,410,953)                (15,140,478)

On January 7, 2000, prior to completion of the combination between Imergent and Galaxy Enterprises, the Company advanced $300,000 in bridge financing to Galaxy Enterprises for working capital purposes and for the payment of certain professional fees incurred by Galaxy Enterprises in connection with the merger. On February 4, 2000, the Company advanced an additional $150,000 to Galaxy Enterprises for working capital purposes and for the payment of certain professional fees incurred by Galaxy Enterprises in connection with the merger. Each loan was secured by a pledge of Galaxy Enterprises' common stock from John
J. Poelman, the chief executive officer and largest shareholder of Galaxy Enterprises prior to the merger. The notes bore interest at 9.5% and were due and payable on the earlier of June 1, 2000 or the consummation date of the merger. The maturity date of the notes was later extended to the earlier of September 1, 2000 or the consummation date of the merger.

After completion of the merger, the Company contributed these loans to the capital of its subsidiary, Galaxy Enterprises, and released the pledges securing those loans. Prior to the consummation of the merger, the Company entered into certain transactions in the normal course of business with Galaxy Enterprises. For the year ended June 30, 2000, the Company generated revenue of $470,000 from Galaxy Enterprises. For the year ended June 30, 2000, Galaxy Enterprises generated revenue of $350,000 from Imergent. The revenue and expenses associated with these intercompany transactions have been eliminated in the consolidation of these entities.

(4) Going Concern

The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has primarily incurred losses since its inception, and has a cumulative net loss of a $69,520,461 through June 30, 2002. At June 30, 2002 the Company had working capital of $289,438 and an equity balance of $2,468,574. For the years ended June 30, 2002, 2001 and 2000 the Company recorded negative cash flows from continuing operations of $3,857,303, $8,002,343 and $16,640,273 respectively. The Company has historically relied upon private placements of its stock and issuance of debt to generate funds to meet its operating needs. Management's plans include the raising of additional debt or equity capital. However, there can be no assurance that additional financing will be available on acceptable terms, if at all. The Company continues to work to improve the strength of its balance sheet and has restructured its ongoing operations in an effort to improve profitability and operating cash flow. If adequate funds are not generated the Company may not be able to execute its strategic plan and may be required to obtain funds through arrangements that require it to relinquish rights to all or part of the intellectual property of its Stores Online software or control of its business. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

(5) Acquisitions

In January 1999, the Company acquired 100% of the outstanding stock of Spartan Multimedia, Inc., a Canadian corporation, in exchange for 18,572 shares of common stock of StoresOnline.com, Ltd., a wholly-owned Canadian subsidiary valued at $557,145. The shares are convertible on a one-to-one basis into common stock of the Company. The issuance of an additional 18,572 shares was contingent upon the attainment of certain performance standards in future periods. In April 1999, the Board of Directors approved the issuance of the contingent shares and waived the performance standards. Accordingly, the consideration increased to $1,392,858. The acquisition of Spartan Multimedia, Inc. was recorded using the purchase method of accounting. The consideration was allocated based on the relative fair values of the tangible and intangible assets and liabilities acquired. The operations of Spartan Multimedia, Inc. are included in the consolidated statement of operations of the Company from January 15, 1999. During the year ended June 30, 2001 the Company ceased the operations of StoresOnline.com, Ltd. and has written off the net book value of the goodwill related to the acquisition of StoresOnline.com, Ltd., a total of $834,331 that is included in operating expenses for the year ended June 30, 2001.

The StoresOnline.com Ltd. shares held by third parties has been recognized as a minority interest until such time as the shares are converted to the Company's common stock. As of June 30, 2002, 27,649 shares had been converted and recorded in stockholders' equity (capital deficit).

Effective May 31, 1999, Galaxy Enterprises acquired substantially all the net assets of Impact Media, LLC ("Impact") using the purchase method of accounting by assuming the liabilities of Impact. The purchase of Impact resulted in the recording of goodwill in the amount of $117,655, which was the extent to which liabilities assumed exceeded the fair values of the assets acquired. The terms of the Impact Media acquisition provided for additional consideration of up to 25,000 shares of common stock to be paid if certain agreed-upon targets are met during the years ended May 31, 2000 and May 31, 2001. As of June 30, 2000, one of the targets had been met, and as a result 11,971 shares of the Company's common stock were transferred to the former owners of Impact. The Company recorded additional goodwill of $138,625 for the fair value of these shares as an additional investment in Galaxy Enterprises' subsidiary, IMI, Inc. IMI, Inc. continued to conduct the business acquired from Impact. In January 2001, the Company sold its ownership interest in IMI, Inc (See Note 19).

(6) Change in Method of Accounting for Revenue

Effective October 1, 1999, the Company changed its method of accounting for certain revenue from the completed contract method to the percentage-of-completion method. The Company believes the percentage-of-completion method more accurately reflects the earnings process under the Company's contracts. The percentage-of-completion method is preferable according to Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, issued by the American Institute of Certified Public Accountants. The new method has been applied retroactively by restating the Company's consolidated financial statements for prior periods in accordance with Accounting Principles Board Opinion No. 20.

The impact of the accounting change was a decrease in net loss and loss per share as follows:

                                                Net Loss     Loss per Share
                                              ------------   ------------------

Three months ended September 30, 1999......$      8,294           $0.00
Year ended June 30, 1999 ..................$     13,858           $0.00

(7) Selling of Accounts Receivable With Recourse

The Company offers to customers the option to finance, through Extended Payment Term Arrangements (EPTAs), purchases made at the Internet training workshops. A significant portion of these EPTAs, are then sold, on a discounted basis, to third party financial institutions for cash. EPTAs sold to third party financial institutions are generally subject to recourse by the purchasing finance company after an EPTA is determined to be uncollectible. For the fiscal year ended June 30, 2002 the company sold contracts totaling $4,279,724. The Company maintains a two percent bad debt allowance for doubtful accounts on all EPTAs that are purchased by finance companies. The Company works with various finance companies and continues to seek relationships with other potential purchasers of these EPTAs.

(8) Property and Equipment

Property and equipment balances at June 30, 2002 and 2001 are summarized as follows:

                                          ----------------------------------
                                                2002             2001
                                          ----------------------------------
Computers and office equipment.......    $   1,384,557         $ 1,488,716
Furniture and fixtures....................      10,406              10,406
Leasehold improvements................          30,791              30,791
Software..................................     847,448             820,472
Automobiles..................................   31,000                   -
Less accumulated depreciation..........     (1,894,742)         (1,575,523)
                                          ----------------------------------
                                         $     409,460             774,862
                                          ==================================

Amounts included in property and equipment for assets capitalized under capital lease obligations as of June 30, 2002 and 2001 are $422,106 and 394,384, respectively. Accumulated depreciation for the items under capitalized leases was $303,206 and 320,763 as of June 30, 2002 and 2001, respectively.

(9) Goodwill

Goodwill as of June 30, 2002 and 2001 is summarized as follows:

                                        ------------------------------------
                                               2002             2001
                                        ------------------------------------
Goodwill                                   $    867,003     $    867,003
Less accumulated amortization                  (411,826)        (278,459)
                                        ------------------------------------
                                           $    455,177     $    588,544
                                        ====================================

Net acquired technology and goodwill balances of $910,043 and $174,433 were written off during the second quarter of Fiscal 2001 as part of a corporate-wide business restructuring (see Note 2(g)).

(10) Loans Payable

In May 2001, the Company borrowed $100,000 from an individual who is the principal member of the company that purchased IMI from the Company. The amount was non-interest bearing and due on demand. In September 2001 the loan was converted into 33,333 shares ($3.00 per share) of common stock of the Company in connection with the Company's raising capital in a private placement of equity securities (See Note 18).

(11) Notes Payable

A note payable of $97,779 to a financial institution, bearing interest at the prime rate plus 3% per annum (10% at June 30, 2001) was due on November 1, 2001. The note was secured by certain equipment of the Company and was guaranteed by the Company's current Chief Executive Officer. The note was paid in full on September 24, 2001. Notes payable at June 30, 2002 consist of $430,087 of principal and interest payable to King William (see Note 13) and $124,144 due to Imperial Premium Finance Company. Maturities of notes payable are as follows:

Year ending June 30,

    2003                                          $     160,671
    2004                                                 34,407
    2005                                                 34,407
    2006                                                 34,407
    2007                                                290,339
    Thereafter                                                -
                                                   ------------

                                                  $     554,231
                                                   ============

(12)     Notes Payable - Officers and Stockholders

During the year ended June 30, 2001 several officers and members of the Board of Directors loaned the Company an aggregate of $821,000. The loans were non-interest bearing exclusive of a note in the amount of $250,000 that bears interest at 18% per annum. The balance at June 30, 2001 was $140,000. The Company has imputed interest on the non-interest bearing loans at the rate of 18% per annum and recorded an aggregate of $38,756 as interest expense and as a contribution to capital during the year ended June 30, 2001. Principal payments made during the year ended June 30, 2001 aggregated $213,000 and in April 2001 the Company's President exchanged $118,000 of the amount due for 39,333 shares (market pricing on the date of conversion) of the Company's common stock. The total balance of the notes payable to officers and directors at June 30, 2001 was $490,000.

During the year ended June 30, 2002 several officers and members of the Board of Directors loaned the Company an aggregate of $273,976. Principal payments made during the year ended June 30, 2002 totaled $380,000. In addition, $383,976 was exchanged for 127,992 shares of common stock of the Company ($3.00 per share) during the year ended June 30, 2002.

(13) Convertible Debenture

In July 2000, the Company entered into a securities purchase agreement with King William, LLC ("King William"). Under the terms of the agreement, the Company issued to King William an 8% convertible debenture due July 31, 2003 in the principal amount of $4.5 million. The debenture was convertible at King William's option into the number of shares of our common stock at the lower of $17.90 or a conversion rate of 80% of the average market price of the common stock during any three non-consecutive trading days during the 20 trading days prior to conversion. The purchase price for the debenture was payable in two tranches. The first tranche of $2.5 million was paid at the closing in July 2000. The value of the beneficial conversion feature on the $2.5 million that has been drawn down was recorded as additional paid in capital and interest expense of $884,000 for the year ended June 30, 2001, as the convertible debentures were immediately exercisable.

In connection with the securities purchase agreement, the Company issued to King William a warrant to purchase 23,100 shares of the Company's common stock. In connection with the issuance of the debenture, the Company also issued to Roth Capital Partners, Inc., a warrant to purchase 9,000 shares of common stock and to Carbon Mesa Partners, LLC, a warrant to purchase 1,000 shares of common stock. Each of the warrants is exercisable for five years from the date of issue, at an exercise price of $16.25 per share and with cashless exercise and piggyback registration rights. The fair value of the warrants has been determined to equal $371,000 using the Black-Scholes pricing model with the following assumptions: dividend yield of zero, expected volatility of 80%, risk-free interest rate of 6.5% and expected life of 5 years. The $371,000 was accounted for as additional paid in capital and debt discount and was amortized over the life of the debt. The unamortized balance at June 30, 2002 and 2001 is $0 and $168,636, respectively.

Effective January 25, 2001, the Company reached an agreement with King William to restructure the debenture (the "Restructuring Agreement"). As of the date of the Restructuring Agreement the Company was in breach and/or violation of the Purchase Agreement, the Debenture, the King William Warrant Agreement, the Registration Rights Agreements and the Equity Agreement. However, pursuant to the terms of the Restructuring Agreement the holder of the convertible debenture has waived all of these defaults as of the date of the Restructuring Agreement. Under the terms of the Restructuring Agreement the agreements were terminated effective as of the date of the Restructuring Agreement and no termination payment or additional warrants were issued in connection therewith.

Under the terms of the Restructuring and Amendment Agreement the second tranche of the debenture will not be available to the Company. The Company agreed to repay the full amount of the Debenture plus a 15% premium ($375,000) with respect to the original principal amount in ten payments. As of the date of the Restructuring and Amendment Agreement the principal amount including accrued and unpaid interest was $2,972,781. Additionally, the Company has allowed King William to retain the right to convert any or all portions of the outstanding debt to equity, but only after the stock has traded at or above $30.00 for twenty consecutive trading days, or if the Company does not make a required payment of principal. Warrants already earned by King William were re-priced at $2.50 per share and King William was issued a warrant for an additional 26,900 shares of common stock at $2.50 per share. The incremental fair value of the re-pricing of the warrants and the issuance of new warrants, valued using the Black-Scholes pricing model with the following assumptions: dividend yield of zero, expected volatility of 170%, risk-free interest rate of 5% and expected life of 5 years, was $9,008 and $129,927, respectively. These costs were classified on the balance sheet as debt financing costs and were being amortized over the life of the debt. The unamortized balance as of June 30, 2002 and 2001 is $0 and $75,783, respectively. The initial payment of $250,000, as called for by the Restructuring and Amendment Agreement, was made during the first week of February 2001. A second payment to be paid on February 28, 2001 was not made.

In May 2001 King William elected to convert $200,000 of the principal and accrued and unpaid interest of the debenture (Conversion Amount) into 80,000 shares of Common Stock of the Company, at a conversion price of $2.50 per share. The Conversion Amount was credited toward the payment of $250,000 due on February 28, 2001, with the balance plus interest accrued to be paid on March 10, 2002. In addition, in May 2001, the Company entered into a Waiver Agreement with King William, LLC to amend certain of the terms of the Restructuring Agreement and to waive certain existing defaults under the Restructuring Agreement. The Waiver Agreement amended the Restructuring Agreement payment schedule to postpone the remaining April 2001 payment of $247,278 to February 2002 and the May 2001 payment of $247,278 to March 2002. As of the date of the Waiver Agreement King William has withdrawn and waived all defaults and violations.

Effective July 11, 2001 the Company and King William entered into a Second Restructuring Agreement. The Company agreed to pay, and King William agreed to accept, in full and final satisfaction of the Debenture at a closing effective September 10, 2001, (i) a cash payment of $100,000, (ii) a $400,000 promissory note of the Company due August 2004 bearing interest at 8% per annum and (iii) 280,000 shares of the Company's common stock. No accrued interest was payable in connection with these payments. King William has agreed to certain volume limitations relating to the subsequent sale of its shares of the Company's common stock and has also agreed to forgive the promissory note if the Company meets certain specific requirements including a minimal amount ($2,250,000) of proceeds King William receives from its sale of Company common stock. The Final Conversion Shares insure that King William will receive sufficient shares so that on the day of the closing King William will beneficially own common shares equal to 9.99% of the then outstanding shares of the Company. In September 2001 the Company issued the final conversion shares equal to 280,000. No gain or loss on the exchange of shares for debt was recorded in the accompanying financial statements. The Company was in default under the Second Restructuring Agreement for failure to make interest payments on November 10, 2001 and February 10, 2002, as called for by the agreement. King William may have accelerated payment of the unpaid balance of the note plus accrued interest upon written notice to the Company. No written notice of default had been received.

Effective February 13, 2002 the Company and King William agreed to amend certain terms of the Second Restructuring Agreement. The New Note is amended to provide for a final maturity on July 10, 2006 and to provide that interest shall accrue at the rate stated in the New Note and be added to the principal balance until August 13, 2002. In addition, interest payable may be paid in either cash or common stock of the Company, which common stock is to be valued at an amount equal to the average closing bid price of the Company's common stock during the five trading days prior to the date the interest payment is made. Upon the signing of this agreement the Company issued 10,000 shares of restricted common stock valued at $13,000. The Company is no longer required to file a registration statement with respect to the common stock of the Company currently held by King William or acquirable by it upon exercise of the warrants held by it. King William has waived any default by the Company under the Second Agreement and the New Note. Finally, the selling limitations in Section 4 of the Second Agreement are no longer in effect and King William is only bound by the limitations under Rule 144 relating to the resale of any securities.

(14) Convertible Long Term Notes

In January and April 2001, the Company issued long term Convertible Promissory Notes ("Notes") in a private placement offering totaling $2,076,500. The terms of Notes required them to be repaid on July 1, 2004 and April 4, 2004, respectively, plus accrual of interest at the rate of eight percent (8%) per annum. The Notes were convertible prior to the Maturity Date at the option of the Holder any time after July 1, 2001, or by the Company at any time after July 1, 2001 upon certain conditions as detailed in the Notes. The Notes were convertible into shares of common stock of the Company by dividing the Note balance on the date of conversion by $2.50, subject to Conversion Price Adjustments as defined in the agreement. The relative fair value of this Beneficial Conversion Feature of the notes was calculated to be $1,347,480 and was recorded as debt discount on the balance sheet, and was amortized over the life of the Notes in accordance with Emerging Issues Task Force issue 00-27 effective November 16, 2000.

In connection with the sale of the Notes, the Company issued a warrant to purchase a share of the Company's common stock at an exercise price of $5.00 per share for every two shares of Common Stock into which the Note is originally convertible. The Company issued a total of 366,100 warrants in connection with the sale of the Notes, with a date of expiration not to exceed sixty calendar days following the commencement date of the warrants. The relative fair value of the warrants has been determined to be $512,540 and has been recorded as debt discount on the balance sheet and is amortized over the life of the Notes in accordance with Emerging Issues Task Force issue 00-27 effective November 16, 2000. None of the warrants were exercised.

The beneficial conversion feature and debt discounts of $1,347,480 and $512,540, respectively, have been netted against the $2,076,500 balance of the Notes on the Balance Sheet and are being amortized over the life of the Notes in accordance with Emerging Issues Task Force issue 00-27 effective November 16, 2000. The unamortized balance of the beneficial conversion feature and debt discount at June 30, 2002 and 2001 was $0 and $1,634,328, respectively.

On July 15, 2001 the Company sent a letter to all holders of the Notes explaining their right to convert their investment into common stock. The letter included a calculation of the interest the note holder had earned and offered to convert both the principal balance of the Note and the accrued interest into common stock at a conversions price of $2.50 per share.

As of December 31, 2001, all Note holders, holding $2,147,295 of aggregate principal and accrued interest, had exercised their right to convert both principal and accrued interest into 859,279 shares of common stock.

(15) Income Taxes

Income tax expense for the years ended June 30, 2002, 2001 and 2000 represents the Utah and California state minimum franchise tax and is included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

Income tax (benefit) expense attributable to income (loss) from operations during the years ended June 30, 2002, 2001 and 2000 differed from the amounts computed by applying the U.S. federal income tax rate of 34 percent as a result of the following:

                                                      2002                2001               2000


Computed "expected" tax (benefit) expense        $     747,580       $  (1,237,170)      $(14,996,866)
Decrease (increase) in income tax resulting
   from: State and local income tax benefit, net of
   federal effect                                      101,583            (192,125)        (2,114,471)
   Change in the valuation allowance for
   deferred tax assets                              (5,634,171)          1,657,117         14,133,260

   Other (including cancellation of debt)            4,785,008            (227,822)           122,077

   Non-deductible stock compensation                    -                    -             2,856,000
                                                 ----------------    ----------------    --------------

Income tax expense                               $      -             $      -            $      -
                                                 ================    ================    ==============

         The tax effects of temporary  differences that give rise to significant
portions of the deferred tax assets and  deferred  tax  liabilities  at June 30,
2002 and 2001 are presented below:

                                                                         2002                     2001
                                                                -----------------------    --------------------
        Deferred tax assets:
           Net operating loss carryforwards                     $         15,430,985       $       17,754,865
           Stock option expense                                            2,131,625                2,286,615
           Deferred compensation                                             451,105                  471,501
           Accounts receivable principally due to
              allowance for doubtful accounts                              1,226,526                  998,477
           Accrued expenses                                                  346,206                  110,306
           Other                                                              13,801                  112,926
           Deferred revenue                                                  263,255                2,413,436
           Legal fees                                                        429,439                  460,524
             Property and equipment                                          139,085                        -
           Debt issuance costs                                                74,024                1,550,938
                                                                --------------------       ------------------

              Total gross deferred tax assets                             20,506,051               26,159,588
              Less valuation allowance                                   (20,506,051)             (26,140,222)

        Deferred tax liability:
           Property and equipment, principally due to
              differences in depreciation                                          -                  (19,366)
                                                                 -------------------       -------------------
        Net deferred tax assets                                 $               -          $               -
                                                                =======================    ====================

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become includable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the projections for future taxable income over the periods which the deferred tax assets are deductible, management believe it is more likely than not that the Company will not realize the benefits of these deductible differences. Such potential future benefits have been fully reserved, and accordingly, there are no net deferred tax assets.

As of June 30, 2002, the Company has net operating loss ("NOL") carryforwards of approximately of $40,000,000 available to reduce future taxable income of which a substantial portion is subject to limitations in accordance with Section 382 of the Internal Revenue Code. Additionally, the NOL carryforwards may be subject to further limitations should certain future ownership changes occur. The NOL carryforwards expire through 2022.

(16) Commitments and Contingencies

Year ending June 30,
2003                         $  275,650
2004                             279,975
2005                             247,724

Thereafter                  -
                            ---------------
Total                        $  803,349
                            ===============

Rental expense for the years ended June 30, 2002, 2001 and 2000 was approximately $270,000, $582,000 and $721,000, respectively.

Employment Agreements

In connection with the merger in June 2000, the Company entered into employment agreements with four of its employees expiring June 2002. The agreements require aggregate salary payments of approximately $358,000, bonus payments in September 2000 of approximately $69,000 and the granting of 78,000 options to purchase the Company's common stock with an exercise price to be determined on the date of the grant. As of June 30, 2002 the options have not been granted.

In January 2001, the Company entered into severance agreements with three former executives of the Company. The agreements require cash payments aggregating $97,000 through June 30, 2001, and two of them provide for a one-half interest in certain licenses and equipment owned by the Company and a grant of options to purchase common stock of the Company proportionate to any options granted to the Chairman of Board of the Company. In August 2001, two of the individuals issued a demand letter to the Company, claiming that certain payments stipulated in the agreements had not been made and purporting to reassert their rights under their respective employment agreements. These demands were subsequently resolved and withdrawn. As of June 30, 2002 no options have been granted to the Chairman of the Board or the former executives.

Private Placement of Stock

The private placement conducted in January-April 2001 to a group of accredited investors occurred in part while a dormant but not effective registration statement was on file with the SEC with respect to a public offering of the Company's common stock by a third party deemed by current SEC interpretations to be an offering by the Company. Although the Company believes that these unregistered securities were issued pursuant to an available exemption under applicable securities laws, other current interpretations by securities regulators may not be consistent with their view and if in fact the interpretation is proven incorrect then, among other consequences, the purchasers of such securities would be entitled to exercise rescission rights with respect to their investment of total proceeds of $2,076,500, plus interest at rates determined by state statutes from the date of such offering to the date of payment. If the Company were required to make such an offer and it was accepted, then the required payments would exceed current cash resources of the Company and would require the Company to seek additional financing, most likely in the form of additional issuances of common stock, to make such payments and would materially and adversely affect the financial condition of the Company.

Category 5 Complaint

On October 23, 2001, the Company signed an Agreement and Plan of Merger with Category 5 Technologies, Inc. (C5T), pursuant to which, subject to stockholder approval, the Company would be acquired through a merger of a subsidiary of C5T into the Company. On January 15, 2002, the Company and C5T issued a joint press release to announce that they had executed a Termination and Release Agreement on January 14, 2002 to terminate the Agreement and Plan of Merger and to abandon the merger contemplated by such agreement. Pursuant to and upon the terms and conditions contained in the Termination and Release Agreement, the Company agreed to pay a reimbursement fee of $260,630 in various monthly installments of at least $20,000 to C5T in connection with the termination of the merger. The Company did not pay the first monthly installment due under the Termination and Release Agreement on February 1, 2002. On February 8, 2002, the Company received notice from Category 5 that it was in default under the Termination and Release Agreement, and on February 12, 2002, the Company received an acceleration notice from Category 5, whereby Category 5 demanded payment of the entire reimbursement fee plus interest by February 18, 2002. The February 18, 2002 payment was not made. On April 8, 2002, C5T filed a Summons and Complaint against the Company for Breach of Contract, in the Third Judicial District Court in and for Salt Lake County, State of Utah, whereby C5T seeks judgment against the Company for breach of the Agreement and damages for the full amount of the Expense Reimbursement Fee. On April 11, 2002 the Company entered into a Waiver Agreement with C5T whereby payments due under the Termination Agreement are postponed for one year. Under the Waiver Agreement, the first payment will be due on February 1, 2003. The lawsuit has not, however, been withdrawn and the Company has been given an extension of time to respond. The Company does not believe that it is obligated to pay the Expense Reimbursement Fee; however, the Company is continuing to evaluate this situation and is working to resolve it. Due to the uncertainty of the outcome, the entire $260,630 fee has been accrued by the Company and is carried as a current liability.

Compliance with State and Federal Regulations

From time to time, the Company receives inquiries from attorney general offices and other regulators about civil and criminal compliance matters with various city, county, state and federal regulations. These inquiries sometimes rose to the level of threatened or actual investigations and/or litigation. In the past, the Company has received letters of inquiry from and/or has been made aware of investigations by government officials of the states of Hawaii, Illinois, Kentucky, Nebraska, North Carolina, Utah, Vermont, Texas, California and others, as well as from a regional office of the Federal Trade Commission and has responded to these inquiries and has generally been successful in addressing the concerns of these persons and entities, although there is often no formal closing of the inquiry or investigation. In the opinion of management, the outcome of any of these presently existing matters should not have a material adverse effect on the results of operations, cash flows or financial position of the Company.

General Litigation

The Company is involved in various legal proceedings arising in the normal course of its business. In the opinion of management, the outcome, if any, resulting from these matters will not have a material adverse effect on the results of operations, cash flows or financial position of the Company, but there can be no guarantee to this effect.

(17) Stock Option Plan

In July 1998, the Board of Directors adopted the 1998 Stock Compensation Program ("Program") which consists of, among other things, a non-qualified stock option plan. An aggregate of 100,000 shares were reserved for issuance under the Program. During the year ended June 30, 1999, the Company granted 98,335 options under the Program at exercise prices greater than and below the estimated market price of the Company's common stock on the date of grant ranging from $20.00 to $133.00 per share. The weighted-average fair value of options granted during the year ended June 30, 1999 under the Program was $34.40 per share. During the year ended June 30, 2000, the Company granted 12,642 options under the Program at exercise prices greater than and below the estimated market price of the Company's common stock on the date of grant ranging from $35.00 to $60.00 per share. The weighted-average fair value of options granted during the year ended June 30, 2000 under the Program was $35.90 per share. During the year ended June 30, 2001 the Company cancelled 60,326 options granted under the Program. The Company did not grant any options during the year ended June 30, 2001. During the year ended June 30, 2002, 250 options were cancelled. As of June 30, 2002 and 2001, options available for future grants under the Program totaled 65,613 and 65,363, respectively.

In December 1998, the Board of Directors adopted the 1998 Stock Option Plan (Plan) for Senior Executives. An aggregate of 500,000 shares were reserved for issuance under the Plan. During the year ended June 30, 1999, the Company granted 254,667 options under the Plan at exercise prices greater than and below the estimated market price of the Company's common stock on the date of grant ranging from $20.00 to $65.00 per share. The weighted-average fair value of the options granted under the Plan during the year ended June 30, 1999 was $26.90 per share. Subsequent to June 30, 1999, 224,667 of these options were cancelled. During the year ended June 30, 2000, the Company granted 55,071 options under the Plan at exercise prices greater than and below the estimated market price of the Company's common stock on the date of grant ranging from $35.00 to $92.50 per share. The weighted-average fair value of the options granted under the Plan during the year ended June 30, 2000 was $67.30 per share. During the year ended June 30, 2001 the Company granted 167,500 options under the Plan, with a weighted-average fair value of $7.10 per share. During the year ended June 30, 2002, 18,750 options were cancelled. There were 370,625 and 351,875 options available for future grants under the Plan as of June 30, 2002 and 2001, respectively.

In July 1999, the Board of Directors adopted the 1998 Stock Option Plan (Option Plan) for Non-Executives. An aggregate of 200,000 shares were reserved for issuance under the Option Plan; the reserve amount was later increased to 500,000 shares. During the year ended June 30, 2000, the Company granted 223,783 options under the Option Plan at exercise prices greater than and below the estimated market price of the Company's common stock on the date of grant ranging from $17.80 to $145.00 per share. The weighted-average fair value of the options granted under the Option Plan during the year ended June 30, 2000 was $73.40 per share. Also during the year ended June 30, 2000, 27,978 of these options were canceled. During the year ended June 30, 2001 the Company granted 165,550 options under the Option Plan, with a weighted-average fair value of $7.40 per share. During the year ended June 30, 2002, the Company granted 6,000 options under the Option Plan, with a weighted average fair value of $5.20, while 691 options were exercised. As of June 30, 2002 and 2001, there were 385,530 and 346,827 options, respectively, available for future grants under the Option Plan.

Pursuant to the terms of the Company's merger with Galaxy Enterprises in June 2000, each outstanding option to purchase shares of Galaxy Enterprises' common stock under Galaxy Enterprises' 1997 Employee Stock Option Plan was assumed by the Company, whether or not vested and exercisable subject to the per share equivalent used to issue common shares in the merger accounted for as a pooling of interests. The Company assumed options exercisable for an aggregate of 106,347 shares of its common stock.

The following is a summary of stock option activity under the Company's stock option plans:

                                                     ----------------------------------------
                                                       Number of Shares   Weighted average
                                                                           exercise price
                                                     ----------------------------------------

Balance at July 1, 1999                                     408,976             $  36.50
       Granted.......................................       346,050                66.00
       Exercised....................................        (34,572)               34.00
       Canceled or expired..........................       (269,189)               31.30
                                                     ----------------------------------------
Balance at June 30, 2000                                    451,265                62.40
       Granted......................................        333,051                 7.30
       Exercised....................................         (2,001)                2.50
       Canceled or expired..........................       (408,275)               45.00
                                                     ----------------------------------------
Balance at June 30, 2001                                    374,038                21.10
       Grantedn.....................................          6,000                 5.20
       Exercised....................................           (691)                2.50
       Canceled or expired...........................       (66,082)                8.70
                                                      ---------------------------------------
Balance at June 30, 2002                                    313,265             $  23.30
                                                     ========================================

         The following table summarizes information about shares under option as
of June 30, 2002:

---------------------------------------------------------------------  -------------------------------
                            Outstanding                                         Exercisable
---------------------------------------------------------------------  -------------------------------
                                       Weighted
                                        Average
                                      Remaining
     Range of Exercise     Number of   Contractual   Weighted-Average       Number of   Weighted-Average
        Prices              Options      Life             Price             Options         Price
---------------------------------------------------------------------  -------------------------------

     $.00 - $4.99            40,724      8.52         $  2.50                40,724     $ 2.50
     $5.00 - $7.49           47,250      8.42            5.03                42,563       5.03
         $7.50               41,000      8.52            7.50                20,625       7.50
    $7.60 - $10.00           42,750      8.50            9.99                   875       9.99
    $10.01 - $29.99          74,324      6.33           17.80                47,862      17.24
    $30.00 - $59.99          16,330      7.57           37.70                16,172     37.77
    $60.00 - $89.99          35,878      7.07           75.80                35,863     75.65
   $90.00 - $113.10          15,009      7.18          103.80                14,344     102.99
                       ----------------------------------------------  -------------------------------
                            313,265      7.70         $ 23.30               219,028    $ 27.70
                       ==============================================  ===============================

The Company applies APB Opinion No. 25 in accounting for stock options granted to employees, under which no compensation cost for stock options is recognized for stock option awards granted at or above fair market value. The Company recognized $652,825 of compensation expense for options granted below fair market value during the year ended June 30, 2000. The Company granted no employee stock options below market price during the years ended June 30, 2002 and 2001.

Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income (loss) would have been changed to the pro forma amounts indicated below for the years ended June 30, 2002, 2001 and 2000.

                                             2002           2001             2000
                                       --------------------------------------------------

Net income (loss) as reported               $ 2,198,769   $(3,638,736)     $(44,108,429)
Net income (loss) proforma                    1,839,009   $(5,396,419)     $(46,776,831)

Net (income) loss per share as reported:
Basic                                            $ 0.37        $(1.63)          $(23.83)
Diluted                                           $0.37        $(1.63)          $(23.83)

Net (income) loss per share pro forma:
Basic                                             $0.31        $(2.42)          $(25.27)
Diluted                                           $0.31        $(2.42)          $(25.27)

The weighted average fair value at date of grant for options granted during 2002, 2001 and 2000 was calculated using the Black-Scholes pricing model with the following weighted average assumptions: dividend yield of zero for each year, expected volatility of 262%, 384% and 80%, respectively, risk free interest rate of 5%, 5%, and 5.5%, respectively and expected life of 4 years.

(18) Stockholders' Equity

Year ended June 30, 2000

In July 1999, the Company entered into a Cable Reseller and Mall agreement with MediaOne of Colorado, Inc. (MediaOne) whereby the Company also issued to MediaOne 5,000 shares of common stock and warrants to purchase 20,000 shares of common stock. The exercise price of the warrants is dependent upon the market price of the Company's common stock on the date that the warrants are earned under certain performance criteria. As of June 30, 2002, the performance criteria had not been met.

In October 1999, the Company issued 118,877 shares of common stock upon the cashless exercise of warrants and 120,000 shares of common stock valued at $8,400,000 to three executives upon the cancellation of 198,000 options.

         In November and  December  1999,  the Company  sold  415,535  shares of
common stock in a public offering  generating net proceeds of  $25,313,863.  The
Company also granted 19,025 warrants as stock issuance costs.

During the period December 1999 through June 2000, the Company issued 23,958 shares of common stock upon the exchange of common stock of its StoresOnline.com, Ltd. subsidiary, pursuant to the terms of the original issuance of StoresOnline.com Ltd.'s common stock.

During the year ended June 30, 2000, the Company issued 53,859 shares of common stock valued at $3,660,498 for services, of which 50,000 shares were issued to the chief executive officer of the Company.

During the year ended June 30, 2000, the Company sold 14,593 shares of common stock in exchange for cash of $300,000.

Year ended June 30, 2001

During the year ended June 30, 2001, the Company issued 3,714 shares of common stock upon the exchange of common stock of its StoresOnline.com, Ltd. subsidiary, pursuant to the terms of the original issuance of common stock of StoresOnline.com Ltd. In addition, the Company issued 2,001 shares upon the exercise of employee options and issued 700 shares at fair market value on the date of issuance of common stock pursuant to employment contracts during the year ended June 30, 2001. The Company also issued 151,317 shares of common stock to officers of the Company for payment of past due wages, employment agreement obligations, and accrued liabilities at fair market value on the date of issuance. In addition, the Company issued 39,333 shares of common stock to an officer of the Company as payment in full of a note due to the officer, and issued 4,080 shares of common stock to an outside party for services at fair market value on the date of issuance.

In June 2001 pursuant to a private placement agreement, the Company received subscription agreements aggregating $398,200 for the sale of common stock at a price of $3.00 per share. As of June 30, 2001 the Company had collected $291,200 of these subscriptions and recorded a receivable of $107,000 that was subsequently received.

Year ended June 30, 2002

On August 1, 2001, the Company entered into an agreement with Electronic Commerce International ("ECI"), a company owned by Jay Poelman who was at that time a director of and the president of the Company, pursuant to which, among other matters, the Company agreed to issue to them a total of 83,192 shares of common stock of the Company at a price of $3.00 per share in exchange for the release by ECI of trade claims by them against the Company totaling $249,575. In connection with the exchange, the Company recorded a charge of $199,657, representing the difference between the market value and the exchange rate, which is included in cost of revenue.

During September 2001 the Company issued 280,000 common shares upon conversion of a long-term convertible debenture (see Note 13).

On November 13, 2001, the Company issued 233,333 shares of the common stock of the Company, and recorded an amount of $150,000 in its accounts payable, pursuant to the October 10, 2001 agreement with SBI E-2 Capital (USA) Ltd., for services as a financial advisor to the Company in connection with the acquisition of the Company by Category 5 Technologies. A member of the Company's Board of Directors at that time was a managing director of SBI E-2 Capital (USA) Ltd. The business combination transaction between the Company and Category Five Technologies, Inc. was never consummated. On account of the termination of this proposed transaction, SBI E-2 Capital (USA) Ltd. was not able to complete the provision of the financial advisory services to the Company. On February 1, 2002 an agreement was entered into between the Company and SBI E-2 Capital (USA) Ltd. to rescind and nullify the issuance of the common stock pursuant to the October 10 agreement and the related designation by SBI E-2 Capital (USA) Ltd. of certain persons to whom certain of the shares should be issued. Pursuant to the Rescission Agreement, the certificates representing all 233,333 shares of the common stock were returned to the Company, together with all documentation to transfer legal title in the common stock back to the Company. In addition, SBI E-2 and the designees disclaimed any interest whatsoever in the common stock. Upon receipt of the certificates representing the common stock, the Company directed its transfer agent to cancel the common stock from its books and records. As a result of the Rescission Agreement, the Company did not record the issuance of the shares during the three months ending December 31, 2001 and does not reflect the shares outstanding as of June 30, 2002.

On November 28, 2001 the Company issued 5,000 shares of common stock as settlement for contractual obligations to National Financial Communications Corp. (NFCC).

On November 28, 2001 the Company issued 15,000 shares of common stock as settlement for contractual obligations to Howard Effron.

During the twelve month period June 30, 2002, the Company converted long-term convertible notes totaling $2,147,294 of principle and interest into 859,279 shares of common stock ( see Note 14.)

On February 27, 2002 the Company issued 10,000 shares of common stock pursuant to the amendment of the Second Restructuring Agreement with King William LLC.

On June 12, 2002 the Company issued an aggregate of 112,500 shares of common stock to SBI and its designees for services rendered in connection with the Company's private placement that closed in May 2002 (see Note 21).

On June 20, 2002 the Company issued 20,000 shares of common stock to Howard Effron for services as a financial advisor.

During the twelve month period ended June 30, 2002, the Company issued 691 shares of common stock upon the exercise of employee stock options.

During the twelve months ended June 30, 2002, the Company closed two private placements. In the first, which closed in November 2001, the Company issued 1,061,226 shares of common stock at a price of $3.00 per share and recorded $285,223 of placement agent and finders' fees relating to the private placement offering against Additional Paid in Capital. In the second private placement, which closed in May 2002, the Company issued 6,102,869 shares of common stock at a price of $0.40 per share and recorded $228,691 of placement agent and finders' fees relating to the private placement offering against Additional Paid in Capital.

(19) Discontinued Operations

On January 11, 2001, the Company sold all of the outstanding shares of IMI, Inc. (see Note 20) and accordingly has reported the operations of IMI as discontinued operations for all of the periods presented. Certain information with respect to discontinued operations of IMI is summarized as follows. Operating results for the year ended June 30, 2001 include the operating activity through January 11, 2001.

                                             ----------------------------------
                                                    Year Ended June 30
                                             ----------------------------------
                                                   2001             2000
                                             ----------------------------------
    Revenue                                   $ 1,116,863       $5,275,110
    Cost of revenue                               703,831        5,467,840
                                             ----------------------------------
       Gross profit (loss)                        413,032          (192,730)
     Total operating expenses                     698,580         1,124,467
                                             ----------------------------------
    Loss from discontinued operations
       before other item shown below            (285,548)         (1,317,197)
    Other expense                                   (232)             (1,318)
                                             ----------------------------------
       Net loss from discontinued operations   $(285,780)        $(1,318,515)
                                             ==================================

(20)     Extraordinary Items

During the year ended June 30, 2001, the Company restructured its operations and combined its California facility with its facility in Utah. In connection with this decision, certain assets of the Company, which were owned prior to the merger in June 2000, were disposed. In accordance with Accounting Principles Board Opinion No.16 Accounting for Business Combinations relating to the disposition of assets of the previously separate entities in a pooling of interests combination, the Company recorded an extraordinary charge of an aggregate of $1,091,052.

On January 11, 2001, the Company sold all of the outstanding shares of IMI, Inc., dba Impact Media, a wholly-owned subsidiary, for $1,631,589 to Capistrano Capital, LLC ("Capistrano"). The principal shareholder of Capistrano subsequently became a stockholder of the Company. The Company received from Capistrano a cash payment of $300,000, with the balance owing of $1,331,589 in the form of a long-term note bearing interest at 8% per annum, payable by Capistrano. Principal payments under the note are due based on IMI's product sales, due no later than January 2011. Due to the uncertainty of the ultimate collectibility of the note, management has recorded a reserve on the entire note balance at June 30, 2001. The reserve has been netted against the gain on disposal of IMI. The net gain recorded on the sale of $363,656 has been included as an extraordinary item as a gain on disposal of assets subsequent to merger in the accompanying financial statements.

In January 2001 the Company entered into an agreement with an unrelated third party to negotiate settlement agreements with vendors and other debtors, relating mainly to the ICC (business-to-business) and CableCommerce divisions. Prior to June 30, 2001 approximately $2.5 million in obligations were settled for approximately $800,000, resulting in an extraordinary gain of $1,688,956.

(21) Related Entity Transactions

The Company utilizes the services of Electronic Commerce International, Inc. ("ECI"), a Utah corporation, to provide a credit card merchant account solution to our customers and formerly provided a leasing opportunity to customers who purchased our products at the Internet training workshops. The Company buys a product from ECI that provides on-line, real-time processing of credit card transactions and resells it to its customers. John J. Poelman, Chief Executive Officer, a director and a stockholder of the Company, was the sole owner of ECI during the fiscal years ended June 30, 2002, 2001 and 2000. Total revenue generated by the Company from the sale of ECI merchant account solutions was $5,106,494, $6,403,478 and $2,412,800 for the years ended June 30, 2002, 2001 and 2000, respectively. The cost to the Company for these products and services totaled $994,043, $975,257 and $1,110,404 for the years ended June 30, 2002, 2001 and 2000, respectively. During the years ended June 30, 2002, 2001 and 2000 the Company processed leasing transactions for its customers through ECI in the amounts of $1,090,520, $3,386,231, and $2,450,292, respectively. As of June 30, 2002 and 2001 the Company had a receivable from ECI for leases in process of $0 and $90,109, respectively. In addition, the Company had $26,702 and $516,858 as of June 30, 2002 and 2001, respectively, recorded in accounts payable relating to the amounts owed to ECI for the purchase of the merchant account software.

The Company offers its customers at its Internet training workshops, and through backend telemarketing sales, certain products intended to assist the customer in being successful with their business. These products include live chat and web traffic building services. The Company utilizes Electronic Marketing Services, LLC. ("EMS") to fulfill these services to the Company's customers. In addition, EMS provides telemarketing services, selling some of the Company's products and services. Ryan Poelman, who owns EMS, is the son of John
J. Poelman, Chief Executive Officer, a director and a stockholder of the Company. The Company's revenues generated from the above products and services were $4,806,497, $1,263,793 and $0 for the years ended June 30, 2002, 2001 and 2000, respectively. The Company paid EMS $479,984, $78,435, and $0 to fulfill these services during the years ended June 30, 2002, 2001 and 2000, respectively.

The Company engaged vFinance Investments, Inc. ("vFinance") as a financial advisor and placement agent for its private placement of unregistered securities that closed during May 2002. Shelly Singha1, a former member of the Company's Board of Directors, was a principal of vFinance at the time of private placement. During the year ended June 30, 2002 the Company paid vFinance $61,500 in fees and commissions for their services. The offering was successful with adjusted gross proceeds to the Company of $2,185,995.

The Company engaged SBI-E2 Capital USA Ltd. ("SBI") as a financial consultant to provide various financial services. Shelly Singhal, a former member of the Company's Board of Directors, is a managing director of SBI. During the year ended June 30, 2002 SBI provided the Company with a Fairness Opinion relating to the proposed merger with Category 5 Technologies, for which the Company was billed $152,437, of which the Company has paid $67,437, and $85,000 was still payable to SBI as of June 30, 2002.

The Company also paid SBI $58,679 for expenses & commissions relating to its private placement of unregistered securities which closed during November 2001. Adjusted gross proceeds to the Company from the offering totaled $2,898,455.

In addition, the Company paid SBI a total of $40,000 and issued to it and various of its designees an aggregate of 112,500 shares of the Company's common stock in payment for services rendered to the Company in connection with its private placement of common stock that closed in May 2002.

During the year ended June 30, 2001 the Company issued 12,500 warrants to Shelly Singhal, a former member of the Company's Board of Directors, for non-director services rendered. The warrants were valued using the Black-Scholes pricing model at $40,657.

(22) Segment Information

The Company has operated under two principal business segments (Internet services and multimedia products). The primary business segment (Internet services) is engaged in the business of providing its customers the ability to (i) acquire a presence on the Internet and (ii) to advertise and sell their products or services on the Internet. A secondary business segment (multimedia services) has been engaged in providing assistance in the design, manufacture and marketing of multimedia brochure kits, shaped compact discs and similar products and services intended to facilitate conducting business over the Internet. This second segment was sold on January 11, 2001 and accordingly is reported as discontinued operations in the accompanying consolidated statements of operations. As a result, the Company now operates in one business segment.

(23) Subsequent Event

On June 28, 2002 a special shareholders meeting was held to vote on three proposed amendments to the Certificate of Incorporation of the Company. The three proposed amendments included a one-for-ten reverse split of common stock shares, a reduction in the authorized number of shares outstanding from 250,000,000 to 100,000,000, and a change in the name of the Company to Imergent, Inc. All three proposed amendments were approved. Effective July 3, 2002 the shares of common stock began trading under the name Imergent, Inc. Also, beginning July 3, 2002 the shares of common stock outstanding of the Company reflected the one-for-ten reverse split.

(24) Quarterly Financial Information (unaudited)

Fiscal Year 2002                                                           Quarter Ended
                                             --------------------------------------------------------------------------
                                                 09/30/01           12/31/01          03/31/02           06/30/02
                                             ------------------ ----------------- ------------------ ------------------

Revenue                                    $ 11,634,043        $   7,455,746       $ 7,296,696        $ 10,964,365

Gross profit                                 10,044,474            6,159,180         5,804,382           8,817,014
Income (loss) from continuing operations      2,335,308             (185,688)          377,335            (328,186)
Income (loss) from discontinued operations            -                    -                 -                   -
Income (loss) from extraordinary items                -                    -                 -                   -
Net income (loss)                           $ 2,335,308        $    (185,688)      $   337,335        $   (328,186)

Basic income (loss) per share:
Income (loss) from continuing operations    $      0.68        $       (0.04)       $     0.08        $     (0.04)
Income (loss) from discontinued operations            -                    -                 -                   -
Income (loss) from extraordinary items                -                    -                 -                   -
Net income (loss)                           $      0.68        $       (0.04)       $     0.07        $      (0.04)

Diluted income (loss) per share:

Income (loss) from continuing operations    $      0.66        $       (0.04)       $     0.08        $      (0.04)
Income (loss) from discontinued operations            -                    -                 -                   -
Income (loss) from extraordinary items                -                    -                 -                   -
Net income (loss)
                                            $      0.66        $       (0.04)       $     0.07        $      (0.04)

Weighted average Common shares outstanding
Basic                                         3,450,711            4,388,230         4,833,462           9,035,396

Diluted (1)                                   3,539,724            4,388,230         4,833,462           9,035,396

Fiscal Year 2001                                                           Quarter Ended
                                             --------------------------------------------------------------------------
                                               09/30/00           12/31/00          03/31/01           06/30/01
                                             ------------------ ----------------- ------------------ ------------------

Revenue                                     $ 7,425,857        $  14,179,643       $ 7,886,385        $ 13,508,648

Gross profit                                  5,235,950           11,952,131         5,753,014          11,633,863

Income (loss) from continuing operations     (6,478,573)          (2,011,994)        1,211,000           2,965,051
Income (loss) from discontinued operations     (201,462)             (83,190)           (1,128)                  -
Income (loss) from extraordinary items                -           (1,091,052)          363,656           1,688,956
Net income (loss)                           $(6,680,035)       $  (3,186,236)      $ 1,573,528        $  4,654,007

Basic income (loss) per share:
Income (loss) from continuing operations    $     (3.00)$      $       (0.90)      $      0.60        $       1.20
Income (loss) from discontinued operations        (0.10)               (0.10)                -                   -
Income (loss) from extraordinary items                -                (0.50)             0.20                0.70
Net income (loss)                           $     (3.10)       $       (1.50)      $      0.80        $       1.90

Diluted income (loss) per share:
Income (loss) from continuing operations    $     (3.00)       $       (0.90)      $      0.30        $       0.90
Income (loss) from discontinued operations        (0.10)               (0.10)                -                   -
Income (loss) from extraordinary items                -                (0.50)             0.10                0.40
Net income (loss)                           $     (3.10)       $       (1.50)      $      0.40        $        1.30

Weighted average Common shares outstanding
Basic                                         2,169,146            2,169,146         2,169,479           2,404,402
Diluted (1)                                   2,169,146            2,169,146         4,127,412           3,950,085

Fiscal Year 2000                                                           Quarter Ended
                                             --------------------------------------------------------------------------
                                                  9/30/99           12/31/99           3/31/00             6/30/00
                                             ------------------ ----------------- ------------------ ------------------

Revenue                                     $ 3,942,509        $  4,671,502        $ 6,587,123        $  6,948,515
Gross profit                                  1,638,160           3,584,244          5,024,566           3,437,588
Loss from continuing operations              (5,143,546)        (21,687,644)        (7,550,983)         (8,407,741)
Loss from discontinued operations               (75,471)           (756,644)          (196,666)           (289,734)
Net loss                                    $(5,219,017)       $(22,444,288)       $(7,747,649)       $ (8,697,475)

Basic and diluted loss per share:
Loss from continuing operations             $     (3.70)       $     (12.30)       $     (4.80)       $    $ (2.30)
Loss from discontinued operations                 (0.10)              (0.40)             (0.10)              (0.10)
Net loss                                    $     (3.80)        $    (12.70)       $     (4.90)       $      (2.40)



(1)  Includes the dilutive effect of options, warrants and convertible securities.

(25) Income (Loss) Per Share

The following data was used in computing income (loss) per share:


                                                                         Year ended June 30,
                                                        ------------------------------------------------------
                                                             2002              2001               2000
                                                        ---------------  ----------------- -------------------


Income (loss) available to common shareholders         $  2,198,769       $ (3,638,736)   $    (44,108,429)

Basic EPS
--------------------------------------------------------------------------------------------------------------

 Shares
  Common shares outstanding entire period                 2,446,018          2,164,873           1,561,315
 Weighted average common shares:
       Issued during period                               3,427,636             63,092             289,799
      Canceled during period                                      -                  -                   -
                                                        ---------------  ----------------- -------------------

 Weighted average common shares outstanding
 during period                                            5,873,654          2,227,965           1,851,114
                                                        ---------------  ----------------- -------------------
  Income (loss) per common share - basic               $       0.37      $       (1.63)         $   (23.83)
                                                        ===============  ================= ===================

Diluted EPS
--------------------------------------------------------------------------------------------------------------


 Weighted average common shares outstanding
 during period - basic                                    5,873,654          2,227,965           1,851,114

  Dilutive effect of stock equivalents                        4,750                  -                   -
                                                        ---------------  ----------------- -------------------
 Weighted average common shares outstanding
 during period - diluted                                  5,878,404          2,227,965           1,851,114
                                                        ---------------  ----------------- -------------------

 Income (loss) per common share - diluted              $       0.37       $      (1.63)             (23.83)
                                                        ===============  ================= ===================

Income (loss) per share is computed independently for each of the quarters presented. Therefore, the sum of quarterly income (loss) per share amounts do not necessarily equal the total for the year due to rounding.