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EXHIBIT 99.1
IZ.com Incorporated
(a development stage company)
Financial Statements
For the period from February 9, 1999 (inception) to December 31, 1999
CONTENTS
Report of Independent Auditors..........................................................................7
Audited Financial Statements
Balance Sheet...........................................................................................8
Statement of Operations.................................................................................9
Statement of Stockholders' Deficit.....................................................................10
Statement of Cash Flows................................................................................11
Notes to Financial Statements..........................................................................12
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Report of Independent Auditors
The Board of Directors
IZ.com Incorporated
We have audited the accompanying balance sheet of IZ.com Incorporated (a
development stage company) as of December 31, 1999, and the related statements
of operations, stockholders' deficit, and cash flows for the period from
February 9, 1999 (inception) to December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IZ.com Incorporated at December
31, 1999, and the results of its operations and its cash flows for the period
from February 9, 1999 (inception) to December 31, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company's funding requirements for the next twelve months exceeds its working
capital, which is negative at December 31, 1999. The Company is dependent on
obtaining additional financing. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
January 10, 2000
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IZ.com Incorporated
(a development stage company)
Balance Sheet
December 31, 1999
ASSETS
Current assets:
Cash and cash equivalents $ 66,167
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Total current assets 66,167
Property and equipment, net of accumulated depreciation of $22,094 233,135
Other assets 33,475
Web-site development costs, net of accumulated amortization
Of $51,742 362,190
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Total assets $ 694,967
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 950,646
Accrued payroll and other liabilities 26,291
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Total current liabilities 976,937
Deferred consulting fees 291,430
Long-term debt 830,363
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Total liabilities 2,098,730
Commitments and contingencies
Stockholders' deficit:
Obligation to issue Series A-1 convertible preferred stock 140,000
Preferred stock, $.001 par value, 10,000,000 shares authorized:
Series A convertible preferred stock, 619,500 shares issued and outstanding 620
Series B convertible preferred stock, 493,903 shares issued and outstanding 494
Notes receivable from employees (98,430)
Common stock, $.001 par value; 30,000,000 shares authorized, 3,101,000 shares
issued and outstanding 3,101
Additional paid in capital 3,543,880
Deficit accumulated during development stage (4,993,428)
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Total stockholders' deficit (1,403,763)
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Total liabilities and stockholders' deficit $ 694,967
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See accompanying notes.
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IZ.com Incorporated
(a development stage company)
Statement of Operations
For the period from February 9, 1999 (inception) to December 31, 1999
Costs and expenses:
General and administrative $ 2,184,543
Sales and marketing 1,196,436
Product development 1,632,390
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Total costs and expenses 5,013,369
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Interest income 19,941
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Net loss $ (4,993,428)
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See accompanying notes.
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IZ.com Incorporated
(a development stage company)
Statement of Stockholders' Deficit
For the period from February 9, 1999 (inception) to December 31, 1999
OBLIGATIONS
TO ISSUE SERIES A SERIES B
SERIES A-1 PREFERRED STOCK PREFERRED STOCK
PREFERRED -------------------------- ----------------------
STOCK SHARES AMOUNT SHARES AMOUNT
---------------------------------------- ----------------------
Balance at February 9, 1999 $ -- -- $ -- -- $ --
Issuance of common stock
for cash -- -- -- -- --
Issuance of common stock
for cash upon exercise
of stock options -- -- -- -- --
Issuance of common stock
to former employee for
services rendered -- -- -- -- --
Issuance of common stock
for services rendered -- -- -- -- --
Issuance of common stock
to employees for notes
receivable -- -- -- -- --
Issuance of Series A
preferred stock in March
at $2.00 per share for
cash, net of issuance
costs of $6,865 -- 619,500 620 -- --
Issuance of Series B
preferred stock in
August at $4.10 per
share for cash, net of
issuance costs of $3,234 -- -- -- 493,903 494
Issuance of warrants for
consulting services -- -- -- -- --
Obligations to issue
Series A-1 convertible
preferred stock 140,000 -- -- -- --
Net loss -- -- -- -- --
------------------------------------------------------------------
Balance at December 31, 1999 $ 140,000 619,500 $ 620 493,903 $ 494
==================================================================
DEFICIT
NOTES ACCUMULATED
RECEIVABLE ADDITIONAL DURING TOTAL
FROM COMMON STOCK PAID IN DEVELOPMENT STOCKHOLDERS'
EMPLOYEES SHARES AMOUNT CAPITAL STAGE DEFICIT
------------------------------------------------------------------------------------
Balance at February 9, 1999 $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock
for cash -- 2,243,000 2,243 73,687 -- 75,930
Issuance of common stock
for cash upon exercise
of stock options -- 499,000 499 24,341 -- 24,840
Issuance of common stock
to former employee for
services rendered -- 56,250 56 25,257 -- 25,313
Issuance of common stock
for services rendered -- 109,750 110 55,863 -- 55,973
Issuance of common stock
to employees for notes
receivable (98,430) 193,000 193 98,237 -- --
Issuance of Series A
preferred stock in March
at $2.00 per share for
cash, net of issuance
costs of $6,865 -- -- -- 1,231,515 -- 1,232,135
Issuance of Series B
preferred stock in
August at $4.10 per
share for cash, net of
issuance costs of $3,234 -- -- -- 2,021,274 -- 2,021,768
Issuance of warrants for
consulting services -- -- -- 13,706 -- 13,706
Obligations to issue
Series A-1 convertible
preferred stock -- -- -- -- -- 140,000
Net loss -- -- -- -- (4,993,428) (4,993,428)
-------------------------------------------------------------------------------------
Balance at December 31, 1999 $ (98,430) 3,101,000 $ 3,101 $ 3,543,880 $(4,993,428) $ (1,403,763)
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See accompanying notes.
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IZ.com Incorporated
(a development stage company)
Statement of Cash Flows
For the period from February 9, 1999 (inception) to December 31, 1999
OPERATING ACTIVITIES
Net loss $(4,993,428)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense 73,836
Issuance of warrants for consulting services 13,706
Issuance of common stock to former employee for services 25,313
Issuance of common stock for services rendered 55,973
Obligation to issue Series A-1 convertible preferred stock 140,000
Changes in operating assets and liabilities:
Other assets (33,475)
Accounts payable 950,646
Accrued payroll and other liabilities 26,291
Deferred compensation charges 83,950
Deferred consulting fees 207,480
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Net cash used in operating activities (3,449,708)
INVESTING ACTIVITIES
Purchase of property and equipment (255,229)
Investment in website development (413,932)
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Net cash used in investing activities (669,161)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 100,770
Proceeds from notes payable, net of repayments 830,363
Net proceeds from issuance of Series A convertible preferred stock 1,232,135
Net proceeds from issuance of Series B convertible preferred stock 2,021,768
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Net cash provided by financing activities 4,185,036
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Net increase in cash and cash equivalents 66,167
Cash and cash equivalents at beginning of period -
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Cash and cash equivalents at end of the period $ 66,167
See accompanying notes.
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1. ORGANIZATION
DESCRIPTION OF BUSINESS
IZ.com Incorporated (formerly MP3TV.Net, Incorporated, the "Company") was
incorporated in the state of Delaware on February 9, 1999. The Company was
organized to utilize specialized television programming to capture the attention
of its target audience, and then build upon that relationship utilizing its
website and direct contacts with its users to achieve commercial success for the
Company and its strategic partners. The Company's primary activities since
inception have consisted of incorporation, raising capital, identification of
strategic partners, formation of its management team and development of its
website and television programming.
As more fully discussed in Note 9, on January 7, 2000, the Company signed a
letter of intent to be acquired by PopMail.com. As a result of this acquisition,
the Company is changing its strategic focus to apply its multimedia expertise to
the email-based marketing business operated by PopMail.com. The Company is
currently modifying its website and television programming efforts in a directed
effort to complement PopMail.com's business strategy.
The Company has yet to generate revenues to offset operating costs and has
accumulated a deficit during the development stage of $4,993,428 as of December
31, 1999. No assurance can be given that the Company will be able to generate
revenues to cover operating costs, if at all.
The Company has raised net proceeds of $3,354,673 from private placements of
preferred and common stock through December 31, 1999. The Company will require
significant additional financing to continue executing its business plans and to
fund operating and capital requirements. The Company is in the process of
evaluating additional financing sources from both private and public sources.
There can be no assurance that the Company will be able to obtain such financing
on terms acceptable to the Company, if at all, or if obtained, that the Company
will generate positive operating results. If such financing is not obtained, the
business plan would need to be curtailed and management might be forced to
liquidate the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with original
maturities of three months or less.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of expenses during the reporting period. Actual
results could differ from those estimates.
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PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, and depreciated over the estimated
useful life of the asset, generally three and five years.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. The Company has elected, as permitted
under SFAS No. 123, to continue to account for stock-based employee compensation
in accordance with Accounting Principles Board Opinion No. 25 and to disclose
pro forma net income (loss) as if stock-based employee compensation were
computed under SFAS No. 123. Transactions with other than employees, in which
goods or services are the consideration received for the issuance of equity
instruments, are accounted for on a fair value basis under SFAS No. 123 and are
reflected in the Company's financial statements.
WEBSITE DEVELOPMENT COSTS
The Company capitalizes certain costs of developing its website after the design
phase has been completed, and consist primarily of outside costs paid to
consultants for programming services, and internal costs paid to employees
dedicated to website development. The Company is amortizing these development
costs over a 24-month period. The future realizability of this asset is highly
dependent on the commercial success of the IZ.com business model, and if the
Company is unable to derive sufficient revenues through its website, the
unamortized book value for the capitalized website development costs will be
charged to expense.
COMPREHENSIVE INCOME
The Company follows the disclosure requirements of SFAS 130, Reporting
Comprehensive Income. SFAS 130 establishes rules for the reporting and display
of comprehensive income and its components; however, the disclosures under this
statement had no impact on the Company's net loss or stockholders' equity.
3. STOCKHOLDERS' EQUITY
CAPITAL STRUCTURE
The Company is authorized to issue 10,000,000 shares of preferred stock and
30,000,000 shares of common stock. The Company's Board of Directors has
designated 670,000 authorized shares as Series A Convertible Preferred Stock,
80,000 authorized shares as Series A-1 Convertible Preferred Stock and 600,000
authorized shares as Series B Convertible Preferred Stock. The Board of
Directors establishes the rights and preferences of any series of preferred
stock it so designates. As of December 31, 1999, 619,500 shares of Series A
Convertible Preferred Stock have been issued at $2.00 per share for gross cash
proceeds totaling $1,239,000, 493,903 shares of Series B Convertible Preferred
Stock have been issued at $4.10 per share for gross cash proceeds totaling
$2,025,001, and
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3,101,000 shares of common stock have been issued at $0.03 to $0.51 per share
for gross cash proceeds totaling $100,770 and services performed.
SERIES A CONVERTIBLE PREFERRED STOCK
Series A Convertible Preferred Stock has the following significant rights,
privileges, preferences and restrictions:
- - Non-cumulative dividends equal to eight percent of the original issue price
per share, payable when and if declared by the Board of Directors;
- - Liquidation preference equal to the original issue price per share, plus
all declared and unpaid dividends;
- - Convertible into shares of common stock at the holders' option or
automatically upon (i) an initial public stock offering meeting certain
minimum criteria; (ii) a vote of the holders of a majority of the preferred
stock; or (iii) less than twenty five percent of the preferred shares
issued by the Company remaining outstanding. The conversion price shall be
equal to the original issue price per share, adjusted for certain
anti-dilutive effects on a formula basis; and
- - One vote for each share of the Company's common stock into which the Series
A Convertible Preferred Stock is convertible
SERIES A-1 CONVERTIBLE PREFERRED STOCK
Holders of Series A-1 Convertible Preferred Stock are entitled to the same
significant rights, privileges, preferences and restrictions as holders of
Series A Convertible Preferred Stock, except that Series A-1 holders are
entitled to a liquidation preference of $0.25 per share. No shares of Series A-1
Convertible Preferred Stock have been issued by the Company; however, the
Company is contractually obligated to issue 80,000 shares to certain consultants
to the Company, and has recorded the obligation based on the fair value of the
stock with a charge to expense of $140,000.
SERIES B CONVERTIBLE PREFERRED STOCK
Holders of Series B Convertible Preferred Stock are entitled to the same
significant rights, privileges, preferences and restrictions as holders of
Series A Convertible Preferred Stock, except that Series B holders are entitled
to a liquidation preference of $4.10 per share, plus all declared and unpaid
dividends.
RESTRICTED STOCK PURCHASE AGREEMENTS
Certain sales of common stock and early exercises of stock options are subject
to a Restricted Stock Purchase Agreement which provides that upon termination of
employment, the Company can repurchase unvested shares at the original issue
price per share. As of December 31, 1999, 214,583 shares of common stock are
subject to repurchase by the Company.
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STOCK OPTION PLAN
The Company has a stock option plan that provides for the granting of options
and stock purchase rights for the purchase of shares of common stock to
employees and other persons affiliated with the Company. As of December 31,
1999, 2,500,000 shares of common stock have been reserved for issuance under the
plan. Stock options and purchase rights are granted at fair value as determined
by the Board of Directors, are subject to vesting defined by the Board of
Directors, and terminate no more than ten years from the date of grant.
The following table summarizes common stock option plan activity:
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
----------------------------------
Outstanding at February 9, 1999 (inception) - $ -
Granted 2,762,750 .30
Exercised (499,000) .30
Cancelled (263,250) .05
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Outstanding at December 31, 1999 2,000,500 $ .30
==================================
As of December 31, 1999, outstanding options have exercise prices between $.03
and $.51 per share with expiration dates through August 2009. As of December 31,
1999, 204,000 options are exercisable at a weighted average exercise price of
$.30 per share.
If the Company recognized compensation cost for stock-based employee
compensation on a fair value basis in accordance with SFAS No. 123, the impact
on net loss at December 31, 1999 would not have been material. The fair value of
each option grant was estimated on the date of grant using an option pricing
model with the following weighted average assumptions: risk free interest rate
of 5.5 percent to 6.4 percent, expected option life of ten years and no expected
dividends.
NOTES RECEIVABLE FROM EMPLOYEES
The Company sold shares of common stock in 1999 to certain employees. In
consideration for the shares, the employees signed full recourse promissory
notes which are also collateralized by the common stock. The notes bear interest
at 6.21% and mature on the fifth anniversary date of the note.
WARRANTS TO BE ISSUED FOR PROFESSIONAL SERVICES
In 1999, the Company committed to the issuance of 375,764 fully vested common
stock warrants with exercise prices ranging from $.30 to $.51 per share to
consultants for professional services rendered in 1999. The fair value of the
warrants were recorded as expense in the period granted.
Subsequent to December 31, 1999, the Company issued a warrant to purchase an
additional 126,984 shares of common stock at $2.00 per share. This warrant was
issued as part of the agreement to terminate a consulting agreement, and the
fair value will be recorded as an expense in 2000.
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4. NOTE PAYABLE
During 1999, the Company signed promissory notes of $500,000 and $325,000 with
certain shareholders of the Company. These notes accrue interest at 9.0% per
annum and mature at the earlier of a qualified equity financing of at least
$3,000,000 or the third anniversary of the note. No payments of interest of
principal are due prior to the maturity date.
5. INCOME TAXES
At December 31, 1999, the Company has federal and state tax net operating loss
carryforwards of approximately $4,500,000 each. The federal and state tax loss
carryforwards will begin expiring in 2019 and 2007, respectively, unless
previously utilized.
Pursuant to Sections 382 of the Internal Revenue Code, annual use of the
Company's net operating loss and credit carryforwards may be limited in the
event of a cumulative change in ownership of more than 50% within a three year
period.
Significant components of the Company's deferred tax assets as of December 31,
1999 are shown below. A valuation allowance has been recognized as of December
31, 1999 to offset the deferred tax assets as realization of such assets is
uncertain.
Deferred tax assets:
Net operating loss carryforwards $ 1,822,000
Other, net 121,000
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Total deferred tax assets 1,943,000
Valuation allowance for deferred tax assets (1,943,000)
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Net deferred taxes $ -
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6. COMMITMENTS AND CONTINGENCIES
DEFERRED COMPENSATION
In May 1999, the Company and an employee entered into an employment contract
that provided for the deferral of payment of any salary until the achievement of
certain events. In October, the agreement was modified to a consulting agreement
requiring for a $100,000 payment to the consultant in May 2000. In conjunction
with the agreement, the Company accrued approximately $80,000 which is included
in deferred consulting fees in the accompanying balance sheet.
DEFERRED CONSULTING FEES LIABILITY
The Company signed a consulting agreement with a company that provides general
business services which allowed the Company to defer payment of 50% of the total
consulting fees billed. The deferred obligation is payable upon the raising of
an aggregate of $2.0 million of capital, excluding the initial financing of the
Company of approximately $1.2 million. Upon reaching the $2.0 million in
capital, the Company is liable to pay three times the total consulting fees
deferred. As of
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December 31, 1999, the Company had $69,160 in deferred consulting fees related
to this agreement and accrued $207,480 for the anticipated obligation.
FACILITIES
The Company occupies a facility that is leased on a month-to-month basis, and
for which the Company pays $11,210 per month. The Company recorded rent expense
of $66,983 for the period ended December 31, 1999.
7. AGREEMENTS WITH BROADCASTING COMPANIES
The Company had previously signed multiple contracts with consultants,
broadcasting companies, internet services and merchandising suppliers for
different media services. Due to a strategic change in the Company's business
objectives all of these contracts were terminated. As a result of the contract
terminations, the Company is liable for penalties and other payments per the
terms of the contracts, and has accrued approximately $280,000 for its
outstanding commitments for terminated contracts as of December 31, 1999.
The Company has a continuing obligation with one broadcasting company for
thirteen weeks of television programming beginning in April 2000. The Company
has previously cancelled programming time with this broadcasting company and is
currently negotiating cancellation of this obligation. If the Company is
unsuccessful in canceling it's obligation, their liability could be as much as
$450,000. The Company believes that they will be able to cancel at a cost not to
exceed $30,000 for which they have provided reserves as of December 31, 1999.
8. RELATED PARTY TRANSACTIONS
The Company has paid approximately $14,000 in professional service fees for the
period from inception to December 31, 1999 to entities which are stockholders of
the Company.
9. SUBSEQUENT EVENT
The Company has signed a letter of intent to be acquired by PopMail.com, a
publicly-held company. Under the terms of the proposed merger, shares of
PopMail.com Series F preferred stock will be issued for all the outstanding
warrants, and common and preferred shares of IZ.com. These shares of PopMail.com
Series F preferred stock are convertible into common shares of PopMail.com at an
equivalent ratio of exchange of approximately 1.56 PopMail.com common shares per
IZ.com common and preferred stock and IZ.com warrants, after the merger has been
approved by PopMail.com's stockholders.
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