EXHIBIT 99.1
Financial Statements
Sage Online, Inc.
December 31, 1999
Sage Online, Inc.
Financial Statements
December 31, 1999
Contents
Report of Independent Auditors............................................ 1
Balance Sheet............................................................. 2
Statement of Operations................................................... 3
Statement of Stockholders' Deficiency..................................... 4
Statement of Cash Flows................................................... 5
Notes to Financial Statements............................................. 6
Report of Independent Auditors
The Board of Directors and Stockholders
Sage Online, Inc.
We have audited the accompanying balance sheet of Sage Online, Inc. as of
December 31, 1999, and the related statements of operations, stockholders'
deficiency and cash flows for the year then ended. 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 auditing standards generally accepted
in the United States. 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 Sage Online, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLC
New York, New York
May 4, 2000
1
Sage Online, Inc.
Balance Sheet
December 31, 1999
Assets
Current assets:
Cash and cash equivalents $ 84,202
Accounts receivable 49,584
Prepaid expenses and other current assets 1,895
---------------
Total current assets 135,681
Property and equipment, net 39,126
---------------
$ 174,807
===============
Liabilities and stockholders' deficiency
Current liabilities:
Note payable $ 124,002
Accounts payable 22,404
Accrued expenses 70,179
Deferred revenue 74,200
---------------
Total current liabilities 290,785
Commitments and contingencies
Stockholders' deficiency:
Common Stock, par value $.01 per share; 2,000,000 shares authorized,
900,000 shares issued and outstanding 9,000
Additional paid-in capital 564,649
Accumulated deficit (689,627)
---------------
Total stockholders' deficiency (115,978)
---------------
$ 174,807
===============
See accompanying notes.
2
Sage Online, Inc.
Statement of Operations
Year ended December 31, 1999
Revenues $ 745,763
Operating expenses:
Cost of services 969,523
Selling, general and administrative 245,814
------------
Operating loss (469,574)
Interest expense 18,338
------------
Net loss $(487,912)
============
See accompanying notes.
3
Sage Online, Inc
Statement of Stockholders' Deficiency
Year ended December 31, 1999
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
---------------------------------------------
Balance at December 31, 1998 $9,000 $229,530 $(201,715) $ 36,815
Contribution from affiliate 312,091 312,091
Contributions from stockholders 23,028 23,028
Net loss (487,912) (487,912)
---------------------------------------------
Balance at December 31, 1999 $9,000 $564,649 $(689,627) $(115,978)
============================================
See accompanying notes.
4
Sage Online, Inc.
Statement of Cash Flows
Year ended December 31, 1999
Operating activities
Net loss $(487,912)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 10,341
Non-cash interest expense 18,338
Changes in assets and liabilities:
Accounts receivable 134,649
Prepaid expenses and other current assets 2,244
Accounts payable 478
Accrued expenses (57,134)
Deferred revenue 64,200
-------------------
Net cash used in operating activities (314,796)
-------------------
Investing activities
Equipment purchases (4,595)
-------------------
Net cash used in investing activities (4,595)
-------------------
Financing activities
Principal payments on note payable (11,787)
Contribution from stockholders 23,028
Contribution from affiliate 312,091
-------------------
Net cash provided by financing activities 323,332
-------------------
Net increase in cash and cash equivalents 3,941
Cash and cash equivalents, beginning of year 80,261
-------------------
Cash and cash equivalents, end of year $ 84,202
===================
See accompanying notes.
5
Sage Online, Inc.
Notes to Financial Statements
December 31, 1999
1. Organization
Sage Online, Inc. (the "Company") is an online provider of live events and
interactive community for personal finance, including mutual fund and equity
content, chat rooms, forums and message boards.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash equivalents include all highly-liquid investments with maturities of three
months or less when purchased.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is provided over the estimated useful lives of the respective
assets using the straight-line method, ranging from five to seven years.
Income Taxes
The Company uses the liability method to account for income taxes. Deferred
taxes are recorded based upon differences between the financial statement and
tax basis of assets and liabilities.
Advertising
The Company expenses the costs of advertising as incurred. Advertising expense
for the year ended December 31, 1999 was approximately $28,400.
Revenue Recognition
Revenues from marketing service agreements are recognized in equal installments
over the term of the agreement. Non-marketing service revenues from book sales
and advertising are recognized upon sale.
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Sage Online, Inc.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Deferred Revenue
Deferred revenue represents the unamortized portion of marketing services
received in advance.
Stock-Based Compensation
As permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation
("Statement 123"), the Company has elected to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for its employee stock-based compensation. Under
APB 25, no compensation expense is recognized at the time of option grant if the
exercise price of the employee stock option is fixed and equals or exceeds the
fair market value of the underlying common stock on the date of grant, and the
number of shares to be issued pursuant to the exercise of such option are known
and fixed at the grant date. The Company accounts for non-employee stock-based
compensation in accordance with Statement 123.
Start-Up Activities
In 1999, the Company adopted Statement of Position 98-5, Reporting on the Cost
of Start-Up Activities, which requires costs of start-up activities to be
expensed as incurred. This statement had no effect on the Company's financial
position or results of operations because the Company expensed such costs as
incurred in 1999.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable, accounts payable and note payable approximate
their fair values.
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Sage Online, Inc.
Notes to Financial Statements (continued)
3. Property and Equipment
Property and equipment at December 31, 1999 consists of the following:
Furniture and fixtures $ 3,698
Equipment 53,390
-----------
57,088
Less accumulated depreciation 17,962
-----------
$ 39,126
===========
4. Note Payable
On December 1, 1997, the Company entered into a loan agreement with a financial
institution to fund its working capital. Under the terms of the agreement, the
Company could borrow a maximum of $100,000 by November 30, 1998. The Company is
required to make quarterly payments based upon 3% of the Company's revenues. The
loan is required to be repaid by July 1, 2004, and maximum repayment amount is
limited to three times the funds borrowed. As of December 31, 1999, the note
payable of $124,002 is comprised of net drawdowns of $73,376 and an accretion of
interest of $50,626, as defined in the agreement. The Company incurred interest
expense of $18,354 during the year ended December 31, 1999. The loan is secured
by first security lien in the Company's technology. This note was repaid
subsequent to year-end.
5. Income Taxes
Deferred income taxes are determined using the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilties (i.e.
temporary differences) and are measured using enacted tax rates and laws that
will be in effect when the differences are expected to reverse. No deferred tax
asset or liability exists at December 31, 1999 or 1998.
The Company has elected to be treated under Subchapter S of the Internal Revenue
Code for federal and state purposes. Accordingly, no provision is made for
federal or state taxes.
6. Common Stock
The Company's Board of Directors approved a one-thousand-to-one stock split on
May 27, 1999.
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Sage Online, Inc.
Notes to Financial Statements (continued)
7. Stock Options
Effective May 27, 1999, the Company adopted the 1999 Stock Incentive Plan (the
"1999 Plan"), which authorizes the grant of options to purchase common stock of
the Company. Under the 1999 Plan, incentive stock options and non-qualified
stock options for an aggregate maximum of 100,000 shares of common stock are
available for grant, of which none remain available for grant at December 31,
1999.
The exercise price of all incentive stock options granted under the 1999 Plan
must be at least equal to the fair market value of the shares on the date of
grant. Options granted pursuant to the 1999 Plan will have terms not to exceed
10 years and become exercisable over a vesting period as specified in such
options. The Board of Directors may accelerate the exercisability of any or all
outstanding options at any time, for any reason. The 1999 Plan will terminate no
later than 2008. Options granted under the plan are nontransferable, other than
by will or by the laws of descent and distributions, and may be exercised during
the optionee's lifetime, only by the optionee.
The 1999 Plan provides for an adjustment of the number of shares exercisable in
the event of a merger, consolidation, recapitalization, change in control, stock
split, stock dividend, combination of shares or other similar changes.
The holders of options are required to enter into agreements with the Company
that place certain restrictions upon their ability to sell or otherwise transfer
such shares. In the event of termination of employment of the option holder by
the Company, the Company can repurchase all of the shares or options held by
such individuals, generally for an amount equal to the fair value of such shares
or the excess of the fair value of such options over their exercise price. In
the event of termination of employment, no further installments of the option
holder's options shall become exercisable, and the options shall terminate after
the passage of 90 days from the date of termination.
The following table summarizes the activity under the 1999 Plan relating to the
incentive stock options:
Number of Shares Exercise Price
Outstanding Exercisable of Options
--------------------------------------------------------
Outstanding at December 31, 1998 - - $ -
Granted 100,000 - 10.00
Canceled - - -
--------------------------------------------------------
Outstanding at December 31, 1999 100,000 - $10.00
========================================================
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Sage Online, Inc.
Notes to Financial Statements (continued)
7. Stock Options (continued)
The weighted-average fair value of options granted during 1999 was $2.51, and
the weighted-average remaining contractual life of options outstanding at
December 31, 1999 was 9.42 years.
Pro forma information regarding compensation expense and net income is required
by Statement 123 and has been determined as if the Company had been accounting
for its employee stock options under the fair value method of that statement.
The fair value of these options was estimated at the date of grant using the
minimum value method for non-public companies permitted by Statement 123 with
the following assumptions for 1999: weighted-average risk-free rate was 5.78%,
an expected dividend yield of zero and a weighted-average expected life of such
options of 5 years.
Option valuation methods require the input of highly subjective assumptions
including the expected life of the option. Because the Company's employee stock
options have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially
affect the fair value estimates, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For the purpose of pro forma disclosures, the estimated fair value of the
options granted is amortized to expense over the option's vesting periods. On a
pro forma basis, the Company's net loss for the year ended December 31, 1999
would have been approximately $525,000. These amounts may not be indicative of
the pro forma effect of Statement 123 for future periods in which options may be
granted.
8. Commitments and Contingencies
Leases
The Company has a lease agreement for its office space. Minimum future lease
payments due by fiscal year are as follows as of December 31, 1999:
Fiscal year
2000 $26,156
2001 26,156
2002 8,719
--------
$61,031
========
10
Sage Online, Inc.
Notes to Financial Statements (continued)
8. Commitments and Contingencies (continued)
Rent expense under operating leases was approximately $26,000 for the year ended
December 31, 1999.
9. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit consist principally of cash investments and accounts
receivables. The Company places its cash with major financial institutions. With
respect to accounts receivable, the Company performs ongoing credit evaluations
of its customers' financial condition and does not require collateral.
During fiscal 1999, the Company was economically dependent on one customer for
the majority of its revenue. Such customer represented approximately 41% of the
Company's revenues for the year ended December 31, 1999.
10. Related-Party Transactions
During 1999, the three stockholders contributed $23,028 to finance the Company's
working capital.
During 1999, an affiliate of the Company through common ownership contributed
$162,091 to finance the Company's working capital and $150,000 to pay for the
officers and stockholders salaries.
11. Subsequent Events
On March 13, 2000, the stockholders entered into an agreement to merge the
Company with Multex.com ("Multex"), a leading financial e-marketplace provider.
Under the terms of the agreement, Multex will, among other things, acquire for
cash and common stock, 100% of the stock of the Company. The merger was
effective March 20, 2000, subsequently the Company became a wholly-owned
subsidiary of Multex.
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