Notes to Consolidated Financial Statements June 30, 2003, 2002 and 2001

(1) Description of Business

Imergent, Inc. (the "Company" or "our"), 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. from Netgateway, Inc. Imergent is an e-Services company that provides eCommerce technology, training and a variety of web-based technology and resources to nearly 150,000 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.

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. 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) Cash and Cash Equivalents

Highly liquid investments with original maturities of three months or less when purchased are considered cash equivalents. The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value.

(d) Accounts Receivables and Allowances

The Company offers to its 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. The remainder of the EPTAs (those not sold to third parties) is retained as short term and long term Accounts Receivable on the Company's Balance Sheet.

The Company records an allowance for doubtful accounts, at the time the EPTA contract is perfected, for all EPTA contracts. The allowances represent estimated losses resulting from the customers' failure to make required payments. The allowances for EPTAs retained by the Company are netted against the current and long term accounts receivable balances on the consolidated balance sheets, and the associated expense is recorded as a bad debt expense line item in operating expenses.

EPTA's retained by the Company are charged off against the allowance when the customers involved are no longer making required payments and the EPTA's are determined to be uncollectible. Interest accrued is discontinued when an EPTA become delinquent.

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. The Company also provides an allowance for EPTAs estimated to be recoursed back to the Company.

All allowance estimates are based on historical bad debt write-offs, specific identification of probable bad debts based on collection efforts, aging of accounts receivable and other known factors. If allowances become inadequate additional allowances may be required.

(e) Transfers of Financial Assets

Transfers of financial assets are accounted for as having been transferred, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of the right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

(f) 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.

(g) Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. 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.

(h) Goodwill and Intangible Assets

As required by Statement of Financial Accounting Standards ("SFAS") 142, beginning on July 1, 2002 goodwill is no longer amortized but is 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.

(i) Product 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.

(j) 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 18). 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 7).

(k) Financial Instruments

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

(l) Income Taxes

The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred income tax assets and liabilities are provided based on the difference between the financial statement and tax bases of assets and liabilities as measured by the currently enacted tax rates in effect for the years in which these differences are expected to reverse. Deferred tax expense or benefit is the result of changes in deferred tax assets and liabilities. An allowance against deferred tax assets is recorded in whole or in part when it is more likely than not that such tax benefits will not be realized.

Deferred tax assets are 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. Deferred tax assets consist primarily of net operating losses carried forward. The Company has provided a valuation allowance against all of its net deferred tax assets at June 30, 2003 and against all of its deferred tax assets at June 30, 2002. Fiscal year 2002 was the first profitable year for the Company since its inception. However, differences between accounting principles generally accepted in the United States of America ("US GAAP") and accounting for tax purposes caused the Company to have a tax loss for the fiscal year ended June 30, 2002. For the year ended June 30, 2003 the Company has taxable income of approximately $8.2 million.

The Company's net operating loss carry forward ("NOL"), which is approximately $43 million, represents the losses reported for income tax purposes from the inception of the Company through June 30, 2002. FY 2003 was the first year in the Company's history that generated taxable income. Section 382 of the Internal Revenue Code ("Section 382") imposes limitations on a corporation's ability to utilize its NOLs if it experiences an "ownership change". In general terms, an ownership change results from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. Since our formation, we have issued a significant number of shares, and purchasers of those shares have sold some of them, with the result that two changes of control as defined by Section 382 have occurred. As a result of the most recent ownership change, utilization of our NOLs is subject to an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate resulting in an annual limitation amount of approximately $127,000. Any unused annual limitation may be carried over to later years, and the amount of the limitation may under certain circumstances be increased by the "recognized built-in gains" that occur during the five-year period after the ownership change (the "recognition period"). The Company believes that it will have significant recognized built-in gains and that during the recognition period the limitation will be increased by approximately $15 million based on an independent valuation of the Company as of April 3, 2002. The Company also believes that based on a valuation of the Company as of June 25, 2000, which is currently underway, the earlier ownership change will also have significant recognized built-in gains and that during the recognition period the limitation will be further increased by approximately $28 million thus allowing the Company to utilize its entire NOL. Significant management judgment was required in estimating the amount of the recognized built in gain. If it is determined that the actual amount of recognized built in gain is less than our estimate, the Company may be required to make a cash payment for taxes due on its income for fiscal year 2003, plus related interest, which could materially adversely impact the Company's financial position.

(m) Accounting for Stock Options and Warrants

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. The Company had options outstanding of 1,193,528 and 313,265 as of June 30, 2003 and 2002, respectively, with varying prices between $1.56 and $113.10. (See note 15)

The Company had 631,460 and 502,313 warrants outstanding as of June 30, 2003 and 2002, respectively, with varying strike prices between $.40 and $115.50 and expiration dates between February 22, 2004 and April 9, 2008.

(n) Stock-Based Compensation

The Company has applied the disclosure provisions of Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure -- An Amendment of FASB Statement No. 123," for the years ended 2001, 2002, and 2003. Issued in December 2002, SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation" to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As permitted by SFAS No. 148, the Company continues to account for stock options under APB Opinion No. 25, under which no compensation has been recognized. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148 to stock-based compensation:

                                              2003           2002            2001
                                        -------------------------------------------------
Net earnings (loss) as reported               $5,034,072    $2,198,769      $(3,638,736)
Net earnings (loss) proforma                  $4,928,030    $1,839,009      $(5,396,419)

Net earnings (loss) per share as reported:
Basic                                             $ 0.46         $0.37           $(1.63)
Diluted                                           $ 0.44         $0.37           $(1.63)

Net earnings (loss) per share pro forma:
Basic                                              $0.45         $0.31           $(2.42)
Diluted                                            $0.43         $0.31           $(2.42)

The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected volatility of 181 percent for 2003, 262 percent for 2002, and 384 percent for 2001; average risk-free interest rate of 4 percent for 2003, 5 percent for 2002, and 5 percent for 2001; and an expected life between 1 and 10 years for 2003, 2002, and 2001. Dividends were assumed as not being paid during the period of calculation.

Option pricing models require the input of highly subjective assumptions including the expected stock price volatility. Also, the Company's employee stock options have characteristics significantly different from those of traded options including long-vesting schedules and changes in the subjective input assumptions that can materially affect the fair value estimate. Management believes the best assumptions available were used to value the options and the resulting option values were reasonable as of the date of the grant.

Pro Forma information should be read in conjunction with the related historical information and is not necessarily indicative of the results that would have been attained had the transaction actually taken place.

(o) 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 license to use a new product called the StoresOnline Software ("SOS"). The SOS is a web based software product that enables the customer to develop their Internet website without additional assistance from the Company. When a customer purchases a SOS license at one of the Company's Internet workshops, 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 to host with the Company there is an additional setup and hosting fee (currently $150) for publishing and 12 months of hosting. This fee is deferred at the time it is paid and recognized during the subsequent 12 months. A separate file is available and can be used if the customer decides to create their website on their own completely without access to the Company website and host their site with another hosting service.

The revenue from the sale of the SOS license is recognized when the product is delivered to the customer. The Company accepts cash and credit cards as methods of payment and the Company 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 permission for the Company 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. At that same time an allowance for doubtful accounts is established. This procedure has been in effect for the last three quarters of fiscal year 2001, all of fiscal year 2002 and 2003.

The American Institute of Certified Public Accountants Statement of Position 97-2 ("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 one of the Company's order forms and a receipt acknowledging receipt and acceptance of the product. As is 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 license with Extended Payment Term Arrangements ("EPTAs"). The EPTAs generally have a twenty-four month term. The Company has offered its customers the payment option of a long-term installment contract for more than five years and has a history of successfully collecting under the original payment terms without making concessions. During fiscal years ended June 30, 1999 through 2003, the Company has collected or is collecting approximately 70% 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 our efforts, approximately 47 percent of all EPTAs become uncollectible during the life of the contract. All uncollectible EPTAs are written off against an allowance for doubtful accounts. The allowance is established at the time of sale based on our five-year history of extending EPTAs. As a result, revenue from the sale of the SOS is recognized upon the delivery of the product. Bad debts are accounted for as an operating expense.

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.

The Company also offers its customers, through telemarketing sales following the workshop, certain products intended to assist the customer in being successful with their business. These products include a live chat capability for the customer's own website and web traffic building services. Revenues from these products are recognized when delivery of the product has occurred. These products are purchased from independent third party vendors and resold by the Company to its customers with no continuing obligation on the part of the Company.

(p) 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.

(q) 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. As a result, the Company currently operates in one business segment.

(r) 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, 2003, 2002 and 2001.

(s) Per Share Data

Basic earnings (loss) per share is computed by dividing net earnings
(loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net earnings (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 1,193,528 shares of the Company's common stock and unexercised warrants to purchase 631,460 shares of the Company's common stock were outstanding as of June 30, 2003, of which 218,250 stock options and 315,277 warrants were included in the diluted per share computation. Unexercised stock options to purchase 313,265 shares of the Company's common stock and unexercised warrants to purchase 502,313 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 shares of the Company's common stock and unexercised warrants to purchase 210,735 shares of the Company's common stock were outstanding at June 30, 2001, in addition to shares of common stock from the conversion of subsidiary common stock and convertible debentures of 1,462,470 as of June 30, 2001, were not included in the per share computations because their effect would have been antidilutive as a result of the Company's loss.

(t) 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 $6,603,260 as of June 30, 2003. In addition, the Company has recorded an allowance for doubtful accounts of $319,812, for estimated credit card charge-backs relating to the most recent 180 days of credit card sales.

(u) Reclassifications

Certain amounts reported in 2001 and 2002 have been reclassified to conform to the 2003 presentation.

(v) 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.

(w) 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, 2003, 2002 and 2001 were approximately $7.6 million, $5.3 million and $6.0 million, respectively. As of June 30, 2003 the Company recorded $434,886 of direct response advertising related to future workshops as an asset.

(x) Commission Expense

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

(y) 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. SFAS 142 prescribes that amortization of goodwill will cease as of the adoption date. Additionally, an impairment test is required within six months as of the adoption date, annually thereafter, and whenever events and circumstances occur that might affect the carrying value of these assets.

SFAS 142 was applicable to the Company beginning July 1, 2002. As a result the Company discontinued the amortization of goodwill and arranged for an independent evaluation to determine if an impairment to goodwill existed. The Company engaged an independent consulting firm to perform an appraisal. Based on their report, management found that no impairment existed. The Company is now responsible to make this review annually if events and circumstances occur that might affect the carrying value of the Company goodwill.

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 adoption of SFAS No. 143 did not have a material impact on the Company's 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 implementation of SFAS 144 has had no material effect on the Company's 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. The Company has had no Exit or Disposal activity since December 31, 2002, and the Company does not expect the implementation of SFAS 144 to have a material effect on the Company's financial condition or results of operations.

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions (SFAS 147). This standard relates to acquisitions of financial institutions and is not expected to affect the Company's financial condition or results of operations.

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based Compensation--Transition and Disclosure" (SFAS 148). This standard amends the disclosure and certain transition provisions of SFAS 123, Accounting for Stock-Based Compensation. Its disclosure provisions are effective for interim periods beginning after December 15, 2002. The adoption of SFAS 148 has not had a material impact on the Company's financial condition or results of operations.

(z) Impact of SFAS 145

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 other are effective for fiscal years beginning after May 15, 2002. During the fiscal year ended June 30, 2001 the Company had originally reported an extraordinary item related to gain on extinguishment of debt in its Statement of Operations of $1,688,956. Based on SFAS No. 145 the Company has reclassified $1,688,956 to income before discontinued operations in its statement of operations included in this annual report.

We have adopted SFAS No. 145 in the fiscal year ended June 30, 2003. The following table reflects the earnings per share information as of June 30, 2001 as previously reported and as revised for SFAS No. 145:

                                          As Previously Reported      As Revised
                                          ----------------------      ----------
                                         (in thousands except per share amounts)

Loss from continuing operations                $(4,315)                 $(2,626)
Extraordinary items                                962                     (727)

Basic and Diluted loss per share:
Income (loss) from continuing operations         (1.94)                   (1.18)
Extraordinary items                               0.43                    (0.33)

(3)      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 incurred losses from its inception until fiscal year 2001 and, as of June 30, 2001, had a cumulative net loss of a $71,719,230 and a capital deficit of 9,306,829. As at the end of FY 2001, management anticipated future positive cash flows from continuing operations, and in addition had plans to raise additional debt or equity capital, which capital was raised. At the end of FY 2001, management believed that through future profitable operations and the raising of additional equity or debt capital, if necessary, the Company would be able to continue operating as a going concern. However, there could be no assurance that if additional capital was required that it would be available. The consolidated statements of operations, capital deficit and cash flows for FY 2001 did not include any adjustments that might have resulted from the inability of the Company, at that time, to continue as a going concern.

(4) 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 were 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 were recognized as a minority interest until such time as the shares are converted to the Company's common stock. As of June 30, 2003, all convertible 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 were 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 17).

(5) 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. The Company sold contracts totaling $5,024,990, $4,279,724 and $7,610,771 for the fiscal years ended June 30, 2003, 2002 and 2001, respectively. The Company maintains approximately a two percent bad debt allowance for doubtful accounts on all EPTAs that are purchased by finance companies. The Company sells contracts to three separate finance companies and continues to seek relationships with other potential purchasers of these EPTAs.

(6) Property and Equipment

Property and equipment balances at June 30, 2003 and 2002 are summarized as follows:

                                        -----------------------------------
                                              2003             2002
                                        -----------------------------------
Computers and office equipment......... $   1,281,191      $ 1,384,557
Furniture and fixtures ................        10,406           10,406
Leasehold improvements ................        49,316           30,791
Software ..............................       861,783          847,448
Automobiles ...........................        31,000           31,000
Less accumulated depreciation .........    (2,033,522)      (1,894,742)
                                        -----------------------------------
                                        $     200,174      $  409,460
                                        ===================================

Amounts included in property and equipment for assets capitalized under capital lease obligations as of June 30, 2003 and 2002 are $179,469 and 422,106, respectively. Capital leases at June 30, 2003 are at interest rates between 7% and 10%, and mature through July 2003 and October 2004. Accumulated depreciation for the items under capitalized leases was $156,583 and 303,206 as of June 30, 2003 and 2002, respectively.

(7) Goodwill and Intangible Assets

As required by Statement of Financial Accounting Standards ("SFAS") 142, beginning on July 1, 2002 goodwill is no longer amortized but is 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. Prior to July 1, 2002 goodwill was being amortized over a ten-year period. During the quarter ended December 31, 2002 the Company engaged an independent consulting firm to test the Company's goodwill for impairment. Based on the appraisal made by the independent consulting firm management has concluded that the fair market value of the Company's assets exceeded the carrying value at July 1, 2002 and determined that there is no goodwill impairment as of that date. As a result, no change to the carrying value of the goodwill is necessary as of July 1, 2002. As of June 30, 2003 management continues to believe that the fair market value of the Company's assets exceeded the carrying value and therefore have determined that there is no goodwill impairment as of that date. Prior to July 1, 2002 Goodwill was amortized on a straight-line basis over the estimated useful lives as follows:

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

Goodwill as of June 30, 2003 and 2002 is summarized as follows:

                                   ---------------------------------
                                       2003             2002
                                   ---------------------------------
Goodwill                              $    867,003     $    867,003
Less accumulated amortization             (411,826)        (411,826)
                                   ---------------------------------
                                      $    455,177     $    455,177
                                   ===============     =============

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)).

SFAS 142 requires disclosure of what reported income before extraordinary items and net income would have been exclusive of amortization expense recognized in periods presented relating to goodwill and intangible assets that are no longer being amortized. The amortization expense and net income before extraordinary items for the year ending 2003 (the year of initial application) and the prior two years follow:

                                                             -----------------------------------------------
                                                                      For the Years Ended June 30,
                                                             -----------------------------------------------
                                                                  2003             2002              2001
                                                             -----------------------------------------------

Reported net income before extraordinary items                $  5,034,072   $   2,198,769    $  (2,911,340)
Add back: goodwill amortization                                         -          133,368          107,032
                                                             -----------------------------------------------
Adjusted net income net income before extraordinary items     $  5,034,072   $   2,332,137     $ (2,804,308)

Basic earnings per share:
     Reported net income before extraordinary items           $       0.46   $        0.37     $      (1.31)
     Goodwill amortization                                             -              0.02             0.05
                                                             -----------------------------------------------
     Adjusted net income before extraordinary items           $       0.46   $        0.40     $      (1.26)

Diluted earnings per share:
     Reported net income before extraordinary items           $       0.44   $        0.37     $      (1.31)
     Goodwill amortization                                             -              0.02             0.05
                                                             -----------------------------------------------
     Adjusted net income before extraordinary items           $       0.44   $        0.40     $      (1.26)

(8) 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 16).

(9) 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, 2003 consist of $435,857 of principal and interest payable to King William (and $121,206 due to Imperial Premium Finance Company. Interest on the note payable to Imperial Premium Finance Company is recorded at an annual interest rate of 5.08%. Interest on the note payable to King William is recorded at an annual interest rate of 8.0%. Maturities of notes payable are as follows:

Year ending June 30,
    2004                                  $     121,206
    2005                                              -
    2006                                              -
    2007                                              -
    2008                                        435,857
    Thereafter                                        -
                                           ------------
                                          $     557,063
                                           ============

(10) 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 additional amount of $273,976. Principal payments made during the year ended June 30, 2002 totaled $380,000. In addition, the remaining balance of $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. As of June 30, 2002 there were no balances owing officers and directors and no loans were made to the Company by them during the fiscal year ended June 30, 2003.

(11) 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 a 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, 2003 and 2002 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 the 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. Interest on the King William note is being paid in cash.

(12) 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 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.

(13) Income Taxes

Income tax expense for the years ended June 30, 2003, 2002 and 2001 represents various state minimum franchise taxes and is included in general and administrative expenses in the accompanying consolidated statements of earnings. There are no Federal or state income taxes due for the fiscal year ended June 30, 2003 because of the Company's net operating loss carry forward.

Income tax (benefit) expense attributable to income (loss) from operations during the years ended June 30, 2003, 2002 and 2001 differed from the amounts computed by applying the U.S. federal income tax rate of 34 percent as a result of the following:

                                                      2003                2002               2001
                                                 --------------      --------------      --------------
Computed "expected" tax (benefit) expense        $   1,711,585       $     747,580       $ (1,237,170)
Decrease (increase) in income tax resulting from:
   State and local income tax benefit, net of
   federal effect                                      163,532             101,583           (192,125)
   Change in the valuation allowance for
   deferred  tax assets                             (1,236,581)         (5,634,171)         1,657,117

   Other (including cancellation of debt)             (638,536)          4,785,008           (227,822)

   Non-deductible stock compensation                         -                   -                  -
                                                 ----------------    ----------------    --------------

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, 2003 and 2002 are presented below:

                                                                 2003                     2002
                                                        -----------------------    --------------------
Deferred tax assets:
   Net operating loss carryforwards                     $  13,434,568              $       15,430,985
   Stock option expense                                     2,131,625                       2,131,625
   Deferred compensation                                      468,406                         451,105

   Accounts receivable principally due to
      allowance for doubtful accounts                       2,619,897                       1,226,526
   Accrued expenses                                           101,278                         346,206
   Other                                                                                       13,801
   Deferred revenue                                           243,742                         263,255
   Legal fees                                                 429,439                         429,439
    Property and equipment                                     52,475                         139,085
   Debt issuance costs                                         22,787                          74,024
                                                        -----------------------    --------------------

      Total gross deferred tax assets                      19,504,217                      20,506,051
      Less valuation allowance                            (19,269,470)                    (20,506,051)

Deferred tax liability:
   Capitalized Expenses                                      (234,747)                              -
                                                        -----------------------    --------------------
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 cannot be assured that the Company will realize the benefits of these deductible differences. Such potential future benefits have therefore been fully reserved, and accordingly, there are no net deferred tax assets.

The Company's net operating loss carry forward ("NOL"), which is approximately $43million, represents the losses reported for income tax purposes from the inception of the Company through June 30, 2002. FY 2003 was the first year in the Company's history that generated taxable income. Section 382 of the Internal Revenue Code ("Section 382") imposes limitations on a corporation's ability to utilize its NOLs if it experiences an "ownership change". In general terms, an ownership change results from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. Since our formation, we have issued a significant number of shares, and purchasers of those shares have sold some of them, with the result that two changes of control as defined by Section 382 have occurred. As a result of the most recent ownership change, utilization of our NOLs is subject to an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate resulting in an annual limitation amount of approximately $127,000. Any unused annual limitation may be carried over to later years, and the amount of the limitation may under certain circumstances be increased by the "recognized built-in gains" that occur during the five-year period after the ownership change (the "recognition period"). The Company believes that it will have significant recognized built-in gains and that during the recognition period the limitation will be increased by approximately $15 million based on an independent valuation of the Company as of April 3, 2002. The Company also believes that based on a valuation of the Company as of June 25, 2000, which is currently underway, the earlier ownership change will also have significant recognized built-in gains and that during the recognition period the limitation will be further increased by approximately $28 million thus allowing the Company to utilize its entire NOL. Significant management judgment was required in estimating the amount of the recognized built in gain. If it is determined that the actual amount of recognized built in gain is less than our estimate, the Company may be required to make a cash payment for taxes due on its income for fiscal year 2003, plus related interest, which could materially adversely impact the Company's financial position.

The available NOL for the fiscal year ended June 30, 2003 is approximately $15 million based on the Company's analysis of the provisions of
Section 382. As a result there is no provision for income taxes in the Consolidated Statement of Earnings for FY 2003. Any unused NOL from FY 2003 can be carried forward and used to offset future taxable income. The NOL carryforwards expire in various years through 2022.

(14) Commitments and Contingencies

Year ending June 30,
2004                         $  306,333
2005                            231,396
2006                              2,831
Thereafter                            -
                            ---------------
Total                        $  540,560
                            ===============

Rental expense for the years ended June 30, 2003, 2002 and 2001 was approximately $280,000, $270,000 and $582,000, respectively.

Employment Agreements

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, 2003 no options have been granted to the Chairman of the Board or the former executives.

Consulting Agreements

In April 2003, the Company entered into a Consulting Services Agreement with Richard Wexler for future services for a fee of $15,000, with such agreement to expire on July 23, 2003. As of June 30, 2003, the Company had a contingent liability for the final installment of $5,000, due July 1, 2003.

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 April 8, 2002 Category 5 Technologies, Inc. ("C5T") caused the Company to be served with a Summons and Complaint in the Third Judicial District Court in and for Salt Lake County, State of Utah, Case No. 020902991, whereby C5T sought judgment against the Company seeking reimbursement of $260,630 of their expenses associated with merger negotiations between the two companies. The Company has resolved this matter and entered into a First Amendment to Termination Agreement with Cat 5 dated as of March 10, 2003 memorializing that resolution. On April 9, 2003 a Stipulation of Settlement and Order of Dismissal was entered, dismissing the lawsuit with prejudice. Due to the uncertainty of the outcome, the entire $260,630 fee had been accrued by the Company and was carried as a current liability as of June 30, 2002. As a result of the settlement and dismissal of this action, the Company reversed the entire $260,630 current liability during the fiscal year ended June 30, 2003.

Compliance with State and Federal Regulations

The Company previously reported that it was the subject of a nonpublic investigation by the Federal Trade Commission. The first investigation activity began nearly five years ago when the FTC had announced what they refer to as a "sweep" of the industry. The Company cooperated fully with all requests for information and details, and after over a year's investigation, no action against the Company was taken and the case went dormant. During this same period of time, other unrelated companies and individuals targeted by the FTC were subject to consent agreements and injunctions and paid large financial penalties. Some of those companies are no longer in business.

About two years ago, based on various allegations and customer complaints, the FTC re-opened its investigation of the Company, requesting once again complete details about its marketing, sales, and customer service policies and other matters. The FTC also obtained details regarding customer complaints from the Better Business Bureau and various AG offices, and was fully aware of the "wrong doings" alleged by a nationally broadcast television story. In addition, FTC representatives attended one or more of the Company's workshops, visited its offices and were afforded an opportunity to review customer files. After nearly two years in this most recent investigation, the Company received written notice that the FTC investigation had been officially closed.

In its letter the FTC states that it "... has conducted a nonpublic investigation to determine whether Galaxy Mall and related entities have violated the Federal Trade Commission Act through the use of deceptive practices in connection with the sale of electronic "storefronts" or web sites or storefront-related products or services." and concludes in part by stating, "Upon further review of this matter, it now appears that no further action is warranted by the Commission at this time. Accordingly, the investigation has been closed." The FTC letter also states that "The Commission reserves the right to take such further action as the public interest may require."

The Company certainly regrets even one complaint, but can no more accept responsibility for failure of a business that purchases its products and services than the telephone company, a computer manufacturer or a business college, can accept responsibility for the failure of a customer or student to achieve success using, or not using, their telephone or computer or the knowledge learned from a college course. Although the Company is constantly looking for ways to improve its products and services, because its products and services are used by entrepreneurs and small businesses with such a broad range of objectives, backgrounds and skills, the Company anticipates that it will continue to receive complaints from some customers who are not able to successfully extend their business on the Internet. Regardless, the Company remains committed to work with and assist each of its customers by providing them information and tools necessary to help them establish or extend their business to the Internet.

From time to time, the Company receives inquiries from and/or has been made aware of investigations by government officials in many of the states in which it operates, as well as by the Federal Trade Commission. These inquiries and investigations generally concern compliance with various city, county, state and/or federal regulations involving sales and marketing practices. The Company has and does respond 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. The Federal Trade Commission investigation has been resolved as indicated above. There can be no assurance that the ultimate resolution of these or other inquiries and investigations will not have a material adverse effect on the Company's business or operations. The Company also receives complaints and inquiries in the ordinary course of business from both customers and governmental and non-governmental bodies on behalf of customers, and in some cases these customer complaints have risen to the level of litigation. To date, the Company has been able to resolve these matters on a mutually satisfactory basis and believes that it will be successful in resolving the currently pending matters but there can be no assurance that the ultimate resolution of these matters will not have a material adverse affect on the Company's business.

On June 3, 2003, the Utah Department of Commerce, Division of Consumer Protection, issued an Administrative Citation In the Matter Of: Imergent, Inc. and StoresOnline, Inc., previously known as Galaxy Mall, Inc., UDCP Case No. CP30320 et al. The Administrative Citation, among other things, alleged that the Company has violated the Utah Business Opportunity Disclosure Act, Utah Code Ann. ss. 13-15-1, et seq., and the Utah Consumer Sales Practices Act, 13-11-1 et seq. In the Administrative Citation, the Division of Consumer Protection is seeking a maximum potential fine of $1,000 for alleged violation of the Utah Business Opportunity Disclosure Act registration requirements, $89,000 in potential maximum fines for the alleged violation of the disclosure requirements of the Utah Business Opportunity Disclosure Act, $89,000.00 in fines for the alleged violation of the deceptive acts or practices portions of the Utah Consumer Sales Practices Act, and $83,000.00 in fines for the alleged failure to provide buyers a three day right of rescission under the Utah Consumer Sales Practices Act. The Utah Division of Consumer Protection reserved the right to amend the Administrative Citation and has informed the Company that it intends to amend the Administrative Citation in the next couple of weeks. The Company has denied the allegations in the Administrative Citation, and requested a hearing before a hearing officer under the Utah Administrative Procedures Act. Discussions with the state of Utah to resolve this matter are in progress. The Company believes that it has valid defenses to the Administrative Citation and intends to vigorously defend against the Administrative Citation.

On April 22, 2003, Maria J. Smith, purportedly on behalf of herself and the general public as private attorney general, filed a Complaint For Unfair Competition (California Business & Professions Code ss. 17200 et seq.) against the Company's subsidiary Galaxy Mall, Inc., and other defendants, including Electronic Commerce Internation, Inc. ("ECI"), in Orange County Superior Court, Central Justice Center, in the State of California, before the Honorable Steven Perk, Dept. C27 (Case No. 030005871). ECI is owned by John J. Poelman, the Company's former Chief Executive Officer and a former director. The complaint purportedly alleges, among other things, that the products and services acquired by the plaintiff were products and services that she did not need or were otherwise available to her through other means. Ms. Smith seeks preliminary and permanent injunctive relief, restitution in an unspecified amount for the benefit of members of the general public nationwide, and unspecified attorneys' fees and costs. The Company filed an answer to the complaint on May 28, 2003 denying the material allegations in Ms. Smith's Complaint and setting forth various affirmative defenses. On June 9, 2003, the Company filed a Motion To Stay Claims Pursuant to CCP 410.30, requesting that the action be stayed in California and requesting that the plaintiff be required to litigate her claim pursuant to a forum selection clause "in the courts of the State of Utah in the County of Utah or the United States District Court for the State of Utah." Defendant Leasecomm has informed the Company that they are engaged in negotiations with the plaintiffs to settle this matter and negotiations to reach a global settlement are anticipated. Both Leasecomm and the other named defendant in this case, ECI have indicated that they believe that were they found to be liable that they would be entitled to be indemnified by the Company with respect to any such liability. The Company's Motion To Stay presently is scheduled to be heard on September 26, 2003 at 11:00 a.m. The Company believes that it has valid defenses to the Complaint and the claims for indemnification and if a settlement is not reached, it intends to vigorously defend the action.

The Company is not currently involved in any other material litigation; however, it is subject to various claims and legal proceedings covering matters that arise in the ordinary course of business. The Company believes that the resolution of these cases will not have a material adverse effect on its business, financial position, or future results of operations. As previously disclosed, on April 8, 2002 Category 5 Technologies, Inc. ("C5T") caused the Company to be served with a Summons and Complaint in the Third Judicial District Court in and for Salt Lake County, State of Utah, Case No. 020902991, whereby C5T sought judgment seeking reimbursement of $260,000 of their expenses associated with merger negotiations between C5T and the Company. The Company has resolved this matter and entered into a First Amendment to Termination Agreement with Cat 5 dated as of March 10, 2003 memorializing that resolution. On April 9, 2003 a Stipulation of Settlement and Order of Dismissal was entered, dismissing the lawsuit with prejudice.

(15) Stock Option Plan

In July 1998, the Board of Directors adopted the 1998 Stock Compensation Program (the "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, 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. The Company did not grant any options during the year ended June 30, 2003 under the Program. As of June 30, 2003 and 2002, options available for future grants under the Program were 65,617 and 65,613, respectively.

In December 1998, the Board of Directors adopted the 1998 Stock Option Plan (the "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. In April 2003 the Board of Directors increased the shares available for grant as non-qualified stock options under the Plan by 500,000 shares so that the maximum number of shares of stock reserved for the grant of options under the Plan will be 1,000,000. During the year ended June 30, 2003 the Company granted 550,000 options under the Plan at exercise prices equal to the market price of the Company's common stock on the date of grant, ranging from $1.50 to $2.03 per share. There were 320,625 and 370,625 options available for future grants under the Plan as of June 30, 2003 and 2002, respectively.

In July 1999, the Board of Directors adopted the 1999 Stock Option Plan (the "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. In April 2003 the Board of Directors increased the shares available for grant as non-qualified stock options under the Plan by 500,000 shares so that the maximum number of shares of stock reserved for the grant of options under the Plan will be 1,000,000. During the year ended June 30, 2003 the Company granted 363,000 options under the Plan at exercise prices equal to the market price of the Company's common stock on the date of grant, ranging from $1.56 to $2.03 per share. Stock options exercised during the year ended June 30, 2003 totaled 25,375, while 6,077 options were cancelled. As of June 30, 2003 and 2002, there were 528,607 and 385,530 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:

                                  --------------------------------------
                                                        Weighted average
                                    Number of Shares      exercise price
                                  --------------------------------------
Balance at July 1, 2000               451,265            $  62.40
       Granted..................      333,050                7.30
       Exercised................       (2,001)               2.50
       Canceled or expired......     (408,276)              45.00
                                  -------------------- -----------------
Balance at June 30, 2001              374,038            $  21.10
      Granted...................        6,000                5.20
      Exercised.................         (691)               2.50
      Canceled or expired.......      (66,082)               8.70
                                  -------------------- -----------------
Balance at June 30, 2002              313,265            $  23.30
      Granted...................      913,000                1.70
      Exercised.................      (25,375)               2.04
      Canceled or expired.......       (7,362)              52.87
                                  -------------------- -----------------
Balance at June 30, 2003            1,193,528            $   7.04

         The following table summarizes information about shares under option as
of June 30, 2003:

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

            $.00 - $4.99           927,849      8.20        $   1.72                164,420   $  1.88
           $5.00 - $7.49            46,750      7.42            5.03                 43,813      5.03
               $7.50                40,750      7.52            7.50                 40,750      7.50
           $7.51 - $10.00           42,750      7.50           10.00                 42,125     10.00
          $10.01 - $29.99           73,038      5.43           17.86                 60,776     16.56
          $30.00 - $59.99           16,329      6.57           37.73                 16,254     37.72
          $60.00 - $89.99           32,753      6.04           76.55                 32,753     76.55
          $90.00 - $113.10          13,309      6.14          105.26                 13,309    105.26
                             -----------------------------------------------  -------------------------------
                                 1,193,528      7.85        $   7.04                414,200   $ 16.38
                             ===============================================  ===============================

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 with an exercise price at or above fair market value. The Company granted no employee stock options with an exercise price below market price during the years ended June 30, 2003, 2002 or 2001.

(16) Stockholders' Equity

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, Inc. ("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 12).

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 year ended June 30, 2002, the Company converted long-term convertible notes totaling $2,147,295 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 year 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 6,102,868 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.

Year ended June 30, 2003

In July 2002, the Company issued 5,000 shares of common stock at a price of $3.00 a share relating to the private placement of common stock which closed during November 2001 for which all necessary paperwork had not previously been received. The Company had held these funds as a current liability pending the receipt of all proper paperwork.

On December 6, 2002, the Company issued 26,675 shares of common stock in settlement of a finder's fee earned in connection with our private placement of common stock that closed in May 2002.

On February 14, 2003 the Company issued 9,472 shares of our common stock in exchange for 9,472 Exchangeable Shares of StoresOnline.com, Ltd. held by a former employee. The shares of the Company's common stock were issued pursuant to the provisions of a Stock Purchase Agreement dated November 1, 1998 that was entered into in connection with the acquisition of StoresOnline.com Ltd.

During the twelve month period ended June 30, 2003, the Company issued 26,623 shares of common stock upon the exercise of stock options.

(17) 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
                                                               ---------------
                Revenue                                         $  1,116,863
                Cost of revenue                                      703,831
                                                               ---------------
                   Gross profit (loss)                               413,032
                 Total operating expenses                            698,580
                                                               ---------------
                Loss from discontinued operations
                   before other item shown below                    (285,548)
                Other expense                                           (232)
                                                               ---------------
                   Net loss from discontinued operations           $(285,780)
                                                               ===============

(18)     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.

(19) Related Entity Transactions

John J. Poelman, former Chief Executive Officer and a former director and stockholder of the Company, was the sole owner of Electronic Commerce International, Inc. ("ECI") during the fiscal years ended June 30, 2002 and 2001 and during the three months ended September 30, 2002. During this period, the Company purchased a merchant account solutions product from ECI that provided on-line, real-time processing of credit card transactions and resold this product to its customers. The Company also formerly utilized the services of ECI to provide a leasing opportunity to customers who purchased its products at its Internet training workshops. Effective October 1, 2002, Mr. Poelman sold certain assets and liabilities of ECI, including ECI's corporate name and its relationship with the Company, to an unrelated third party. Total revenue generated by the Company from the sale of ECI's merchant account solutions product, while ECI's business was owned by Mr. Poelman, was $1,453,612, $5,106,494 and $6,403,478 for the years ended June 30, 2003, 2002 and 2001, respectively. The cost to the Company for these products and services totaled $223,716, $994,043 and $975,257 for the years ended June 30, 2003, 2002 and 2001, respectively. During the years ended June 30, 2003, 2002 and 2001 the Company processed leasing transactions for its customers through ECI in the amounts of $0, $1,090,520 and $3,386,231, respectively. As of June 30, 2003 and 2002 the Company had no receivable balance due from ECI for leases in process. In addition, the Company had $0 and $26,702 as of June 30, 2003 and 2002, respectively, recorded in accounts payable relating to the amounts owed to ECI for the purchase of the merchant account software while owned by Mr. Poelman.

The Company offers its customers at its Internet training workshops, and through telemarketing sales following the workshop certain products intended to assist the customer in being successful with their business. These products include a live chat capability for the customer's own website 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. The Company's revenues generated from the above products and services were $6,330,343, 4,806,497 and $1,263,793 for the years ended June 30, 2003, 2002 and 2001, respectively. The cost to the Company for these products and services totaled $994,827, $479,984 and $78,435 to purchase these services during the years ended June 30, 2003, 2002 and 2001, respectively. In addition, the Company had $92,094 and $53,023 as of June 30, 2003 and 2002, respectively, recorded in accounts payable relating to the amounts owed to EMS for product and services.

The Company sends complimentary gift packages to its customers who register to attend the Company's Workshop training sessions. An additional gift is sent to Workshop attendees who purchase products at the conclusion of the Workshop. The Company utilizes Simply Splendid, LLC ("Simply Splendid") to provide these gift packages to the Company's customers. Aftyn Morrison, who owns Simply Splendid, is the daughter of John J. Poelman, our former Chief Executive Officer, and formerly a director of the Company. The Company paid Simply Splendid $421,265, 0, and $0 to provide these products during the years ended June 30, 2003, 2002 and 2001, respectively. In addition, the Company had $22,831 and $0 as of June 30, 2003 and 2002, respectively, recorded in accounts payable relating to the amounts owed to Simply Splendid for gift packages.

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. The Company 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.

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.

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 (see note 16).

During the year ended June 30, 2002 SBI provided the Company with a Fairness Opinion relating to the proposed merger with Category 5 Technologies (CT5), for which the Company was billed $152,437, of which the Company paid $67,437. The balance of $85,000 that was payable to SBI as of June 30, 2002 was conceded by SBI upon the termination of the CT5 merger. As of June 30, 2003 no balance is owed to SBI.

(20) 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.

(21) Subsequent Event

On July 1, 2003 John J. (Jay) Poelman, retired and in connection therewith resigned as the Company's CEO and as a Director of the Company. Effective July 1, 2003 the Company agreed to retain Mr. Poelman as a consultant for the period of twelve months, for a monthly fee of $11,375 plus incidental expenses.

(22) Quarterly Financial Information (unaudited)

                                                                      Year ended June 30, 2003
                                                                            Quarter Ended
                                                      09/30/02          12/31/02           03/31/03           06/30/03
                                             ------------------ ----------------- ------------------ ------------------


Revenue                                          $  11,283,849      $ 10,588,681      $  15,786,458      $  15,566,095
Gross profit                                         8,825,417         8,364,656         12,724,229         12,408,411
Income (loss) from continuing operations               933,501           573,726          1,840,556            901,406
Income (loss) from discontinued operations                   -                 -                  -                  -
Income (loss) from extraordinary items                       -                 -                  -                  -
Net income (loss)                                $   1,083,150      $    740,340      $   1,596,941      $   1,613,642

Basic income (loss) per share:
Income (loss) from continuing operations         $        0.10      $       0.07      $        0.14      $        0.15
Income (loss) from discontinued operations                   -                 -                  -                  -
Income (loss) from extraordinary items                       -                 -                  -                  -
Net income (loss)                                $        0.10      $       0.07      $        0.14         $     0.15

Diluted income (loss) per share:
Income (loss) from continuing operations         $        0.11      $       0.07      $        0.14         $     0.14
Income (loss) from discontinued operations                   -                 -                  -                  -
Income (loss) from extraordinary items                       -                 -                  -                  -
Net income (loss)                                $        0.11      $       0.07      $        0.14         $     0.14

Weighted average Common shares outstanding
Basic                                               10,999,478        11,007,226         11,030,931         11,043,340
Diluted (1)                                         10,035,459        11,208,171         11,290,240         11,943,142


                                                                     Year ended June 30, 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)      $       0.08      $       (0.04)

Diluted income (loss) per share:
Income (loss) from continuing operations         $        0.66      $      (0.04)      $       0.08      $       (0.01)
Income (loss) from discontinued operations                   -                 -                  -                  -
Income (loss) from extraordinary items                       -                 -                  -                  -
Net income (loss)                                $        0.66      $      (0.04)      $       0.08      $       (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


                                                                     Year ended June 30, 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          4,654,007
Income (loss) from discontinued operations            (201,462)          (83,190)            (1,128)                 -
Income (loss) from extraordinary items                       -        (1,091,052)           363,656
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      $        1.94
Income (loss) from discontinued operations               (0.10)            (0.10)                 -                  -
Income (loss) from extraordinary items                      -              (0.50)              0.20                  -
Net income (loss)                                $       (3.10)     $      (1.50)      $       0.80      $        1.94

Diluted income (loss) per share:
Income (loss) from continuing operations         $       (3.00)     $      (0.90)      $       0.30*     $        1.18
Income (loss) from discontinued operations               (0.10)            (0.10)                 -                  -
Income (loss) from extraordinary items                       -             (0.50)      $       0.10*                 -
Net income (loss)                                $       (3.10)     $      (1.50)      $       0.40*     $       1.18

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

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

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.

         (25)     Earnings (Loss) Per Share

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

                                                                         Year ended June 30,
                                                        ------------------------------------------------------
                                                             2003              2002               2001
                                                        ---------------  ----------------- -------------------
Net earnings (loss) available to common shareholders    $   5,034,072    $      2,198,769  $      (3,638,736)

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

 Shares
 Common shares outstanding entire period                   10,995,774           2,446,018          2,164,873
 Weighted average common shares:
       Issued during period                                    23,320           3,427,636             63,092
      Canceled during period                                        -                   -                  -
                                                        ---------------  ----------------- -------------------

 Weighted average common shares outstanding
 during period                                             11,019,094           5,873,654         2,227,965
                                                        ---------------  ----------------- -------------------

 Earnings (loss) per common share - basic               $        0.46    $           0.37   $          (1.63)
                                                        ===============  ================= ===================
Diluted EPS
--------------------------------------------------------------------------------------------------------------

 Weighted average common shares outstanding
 during period - basic                                     11,019,094           5,873,654          2,227,965

 Dilutive effect of stock equivalents                         533,527               4,750                  -
                                                        ---------------  ----------------- -------------------
 Weighted average common shares outstanding
 during period - diluted                                   11,552,621           5,878,404          2,227,965
                                                        ---------------  ----------------- -------------------

 Earnings (loss) per common share - diluted             $        0.44    $           0.37  $           (1.63)
                                                        ===============  ================= ===================