F-5

SOLARATTIC, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY

Year Ended December 31, 1997 and 1998

Retained
Earnings
(Deficit)

Total
Stockholders
Equity

Common Stock
SharesAmount

Stock Notes
Receivable

December 31, 1996

8,977,216

$

544,353

$-

$

(433,099)

$

111,254

Issuance of stock
Stock issued for rent
Stock issued for services
Net loss

279,426
124,110
5,000
-

92,070
49,644
5,000
-

-
-
-
-

-
-
-
(159,560)

92,070
49,644
5,000
(159,560)

December 31, 1997

9,385,752

691,067

-

(592,659)

98,408

Issuance of stock
Stock issued for services
Stock issuance expense
Stock notes receivable
Net loss

591,526
2,400
-
-
-

144,365
12,000
(7,000)

-
-
-
(33,500)
-

-
-
-
-
(149,340)

144,365
12,000
(7,000)
(33,500)
(149,340)

-

December 31, 1998

9,979,678

$

840,432

$

(33,500)

$

(741,999)

$

64,933

See Notes to Financial Statements

F-6

SOLARATTIC, INC.
STATEMENTS OF CASH FLOWS

Year Ended December 31

1997

1998

Cash Flows From Operating Activities
Net loss$
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation
Amortization
Amortization of prepaid rent from stock
Issuance of common stock for services
(Increase) decrease in operating assets:
Accounts receivable
Inventory
Prepaid expenses
Prepaid stock issuance costs
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities
Other liabilities

(159,560)

$

(149,340)

8,372
11,156
18,617
5,000

8,919
11,156
24,822
12,000

(7,806)
5,932
(5,500)
(5,694)

(2,197)
(7,527)
(1,459)
(25,461)

1,600
42,400

45,633
7,423

Net cash flows from operating activities

(85,483)

(76,031)

Cash Flows From Investing Activities
Increase in due from officers, net
Purchase of equipment

(12,992)
(20,395)

(10,720)
—

Net cash flows from investing activities

(33,387)

(10,720)

Cash Flows From Financing Activities
Proceeds from issuance of common stock
Stock issuance expense
Proceeds from note payable to officer
Payments on note payable to officer

92,070
—
11,718
(468)

110,865
(7,000)
—
(783)

Net cash flows from financing activities

103,320

103,082

Change in cash and equivalents

(15,550)

16,331

Cash and Equivalents
Beginning of year

29,698

14,148

End of year

$

14,148

$

30,479

See Notes to Financial Statements.

F-7

SOLARATTIC, INC.
STATEMENTS OF CASH FLOWS (Continued)

Year Ended December 31

1997

1998

Supplemental Disclosures of Cash Flow
Information
Cash payments for interest
Income taxes paid

$11,659
$-

$16,900
$-

Supplemental Schedule of Noncash Investing
and Financing Activities
Issuance of common stock for services
Issuance of common stock for prepaid rent
Issuance of common stock for stock notes receivable

$5,000
$49,644
$-

$12,000
$-
$33,500

See Notes to Financial Statements.

F-8

NOTES TO FINANCIAL STATEMENTS

.

Note 1

NatureofBusinessandSignificantAccountingPrinciples

Nature of operations:

SolarAttic, Inc. (the Company), a Minnesota corporation, was formed on August 11, 1986 and
was in the development stage through December 31, 1996. The year 1997 is the first year during
which it was considered an operating company. Sales are currently throughout the continental
United States. However, markets for the Company’s technology and products are international in
nature. Products sold included primarily swimming pool heaters, space heaters and ventilation
systems. Sales are direct to consumers and through dealers.

Basis of financial statement presentation and accounting estimates:

The accompanying financial statements are presented in accordance with generally accepted
accounting principles. In preparing the financial statements, management is required to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could vary from those estimates.

Cash equivalent policy and cash flows:

For purposes of reporting cash flows, cash and equivalents is comprised of bank checking
accounts.

Accounts receivable:

Management has determined that no allowance for uncollectable accounts is necessary at December
31, 1997 and 1998.

Inventories:

Inventories are valued at the lower of cost (first-in, first-out method) or market. Inventory is
comprised primarily of raw materials.

Furniture and equipment:

Furniture and equipment is recorded at cost, less accumulated depreciation. Depreciation is
provided on a straight-line basis over the estimated useful life of three to seven years.

Patent:

The Company has capitalized costs related to acquiring a patent, which are being amortized using
the straight-line method over 9.5 years. All other patent costs are expensed as incurred.

Customer list:

The Company has capitalized costs related to acquiring a customer list, which are being amortized
using the straight-line method over 7 years.

Other liabilities:

The Company has credit cards payable, which are backed by the personal guarantee of an officer.

Research and development:

Research and development costs are charged to operations as incurred and totaled $1,853 and
$10,086 for 1997 and 1998, respectively.