EXHIBIT 99.1
HISTORICAL FINANCIAL STATEMENTS FOR
NEXVU TECHNOLOGIES, L.L.C.
INDEPENDENT AUDITORS' REPORT
To the Board of Members of
Nexvu Technologies, LLC
We have audited the accompanying balance sheets of Nexvu Technologies, LLC (a
Development Stage Enterprise) as of December 31, 2002 and 2003 and the related
statements of operations and stockholders' equity, and cash flows for the years
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 audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 positions of Nexvu Technologies, LLC (a
Development Stage Enterprise) as of December 31, 2002 and 2003 and the results
of its operations, and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
/s/ Russell & Atkins, PLC
Russell & Atkins, PLC
May 3, 2004
Oklahoma City, Oklahoma
NEXVU TECHNOLOGIES, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 2002 AND 2003
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 616,880 $ -
Accounts receivable 61,270 9,590
Prepaid expenses 51,837 -
- -------------------------------------------------------------------------------------------------------
Total Current Assets 729,987 9,590
- -------------------------------------------------------------------------------------------------------
FIXED ASSETS - net of accumulated depreciation 136,341 179,777
- -------------------------------------------------------------------------------------------------------
OTHER ASSETS
Software licensing fee 300,000 300,000
Organization costs - net of accumulated amortization - 3,371
- -------------------------------------------------------------------------------------------------------
Total Other Assets 300,000 303,371
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,166,328 $492,738
- -------------------------------------------------------------------------------------------------------
</Table>
1
The accompanying notes are an integral part of these financial statements.
NEXVU TECHNOLOGIES, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 2002 AND 2003
- ------------------------------------------------------------------------------------------------------------
2003 2002
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 160,971 $ 219,519
- ------------------------------------------------------------------------------------------------------------
Total Current Liabilities 160,971 219,519
LONG-TERM
Loans payable 735,000 1,400,136
- ------------------------------------------------------------------------------------------------------------
Total Liabilities 895,971 1,619,655
MEMBERS' EQUITY(DEFICIT) 270,357 (1,126,917)
- ------------------------------------------------------------------------------------------------------------
Total Liabilities and Members' Equity $ 1,166,328 $ 492,738
- ------------------------------------------------------------------------------------------------------------
</Table>
2
The accompanying notes are an integral part of these financial statements.
NEXVU TECHNOLOGIES, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS AND MEMBERS' EQUITY (DEFICIT)
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION,
FEBRUARY
YEAR PERIOD 28, 2002
ENDED ENDED TO
DECEMBER DECEMBER DECEMBER
31, 2003 31, 2002 31, 2003
- ---------------------------------------------------------------------------------------------------------------------
REVENUE 59,027 - 59,027
- ---------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Consulting fees 134,883 47,452 182,335
Depreciation and amortization 84,395 39,075 123,470
Employee benefits 101,460 52,983 154,443
General and administrative 84,466 70,787 155,253
Loan interest 145,624 - 145,624
Professional fees 127,160 17,388 144,548
Rent and occupancy costs 127,602 42,118 169,720
Research and development expenditures 132,613 - 132,613
Salaries 1,654,513 829,020 2,483,533
Travel, entertainment and promotion 103,944 28,094 132,038
- ---------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 2,696,660 1,126,917 3,823,577
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (2,637,633) (1,126,917) (3,764,550)
MEMBERS' EQUITY (DEFICIT), BEGINNING (1,126,917) - -
CONTRIBUTIONS - CASH 1,825,000 1,825,000
CONTRIBUTIONS - LOAN CONVERSIONS 2,209,907 2,209,907
- ---------------------------------------------------------------------------------------------------------------------
MEMBERS' EQUITY (DEFICIT), ENDING 270,357 (1,126,917) 270,357
- ---------------------------------------------------------------------------------------------------------------------
</Table>
3
The accompanying notes are an integral part of these financial statements.
NEXVU TECHNOLOGIES, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
FEBRUARY
YEAR PERIOD 28, 2002
ENDED ENDED TO
DECEMBER DECEMBER DECEMBER
31, 2003 31, 2002 31, 2003
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES
NET LOSS $ (2,637,633) $ (1,126,917) $(3,764,550)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 84,395 39,075 122,796
Write off of organization costs 3,371 - -
Changes in assets and liabilities
Increase in accounts receivable (51,680) (9,590) (61,270)
Increase in prepaid expenses and sundry (51,837) - (51,837)
Increase(decrease) in accounts payable (58,548) 219,519 158,409
- -------------------------------------------------------------------------------------------------------------------------
(74,299) 249,004 168,098
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (2,711,932) (877,913) (3,596,452)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Loans payable - net 1,544,770 1,400,136 2,944,906
Contributions by members - net of repayments 1,825,000 - 1,825,000
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 3,369,770 1,400,136 4,769,906
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets (40,958) (218,178) (259,136)
Purchase of other assets - (304,045) (300,000)
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (40,958) (522,223) (559,136)
- -------------------------------------------------------------------------------------------------------------------------
Increase in Cash 616,880 - 614,318
Cash and Cash Equivalents - Beginning of Period - - -
- -------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents - End of period $ 616,880 $ - $ 614,318
- -------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 107,175 $ - $ 107,175
----------------------------------------------------------
Cash paid for income taxes $ - $ - $ -
----------------------------------------------------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Contributions by members through conversions of loans $ 2,209,907 $ - $ 2,209,907
----------------------------------------------------------
4
The accompanying notes are an integral part of these financial statements.
NEXVU TECHNOLOGIES, L.L.C.
A DEVELOPMENT STAGE ENTERPRISE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2003
NOTE 1 - Organization and Basis of Presentation
Nexvu Technologies, LLC, (the "Company") was organized as a Delaware limited
liability company on February 28, 2002 under the name of Siegler Technology
Development, LLC. The Company was formed to develop and market software and
hardware products and solutions for communication networks. The Company changed
its name to "Nexvu, LLC" on January 29, 2003, and to "Nexvu Technologies, LLC"
on October 22, 2003.
NOTE 2 - Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers those short-term, highly liquid investments
with original maturities of three months or less as cash and cash equivalents.
Property and Equipment
The Company capitalizes property and equipment in excess of $500. All property
and equipment are stated at cost. The cost of ordinary maintenance and repairs
is charged to operations while renewals and replacements are capitalized.
Depreciation is computed over the estimated useful lives of the assets generally
as follows:
Computers, Equipment & Furniture 5 to 7 years
Computer Software 3 years
Software Licensing Fee
The Company accounts for its software license in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 142, effective October 1, 2001. The
Company also reviews its long-lived assets for impairments. Impairment losses on
long-lived assets are recognized when events or changes in circumstances
indicate that the undiscounted cash flows estimated to be generated by such
assets are less than their carrying value and, accordingly, all or a portion of
such carrying value may not be recoverable. Impairment losses are then measured
by comparing the fair value of assets to their carrying amounts. The Company
recognized no impairment loss at December 31, 2002 and 2003.
5
NEXVU TECHNOLOGIES, L.L.C.
A DEVELOPMENT STAGE ENTERPRISE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2003
Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, prepaid expenses and accounts
payable are considered representative of their respective fair values because of
the short-term nature of these financial instruments.
Revenue Recognition
The Company has not generated any significant revenues through December 31,
2003. Revenues, if any, will be recognized when the price is reasonably
determinable, the product or service has been delivered and collection of the
sales price is reasonably assured.
Income Taxes
The Company is organized as a limited liability company. All profits or losses
or benefits derived are the responsibility of the members. Neither income taxes
nor the benefits relating to net losses are reflected in the accompanying
financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Recently Issued Accounting Pronouncements
SFAS No. 149 "Amendment of Statement 133 on derivative instruments and hedging
activities". This statement amends and clarifies financial accounting and
reporting for derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under SFAS 133,
"Accounting for derivative instruments and hedging activities".
SFAS No. 150 "Accounting for certain financial instruments with characteristics
of both liabilities and equity". This statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity.
The Company believes that the above standards would not have a material impact
on its financial position, results of operations or cash flows.
6
NEXVU TECHNOLOGIES, L.L.C.
A DEVELOPMENT STAGE ENTERPRISE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2003
NOTE 3 - Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of business. Through December 31, 2003, the Company had
incurred cumulative losses of $3,764,550. The Company's successful transition
from a development stage company to attaining profitable operations is dependent
upon obtaining financing adequate to achieving a level of revenues adequate to
support the Company's cost structure. Subsequent to the date of these financial
statements the Company has received a total of $7,625,075 in gross proceeds from
a private placement offering and an additional $550,000 in bridge loans have
been converted into common stock. See Note 9, Subsequent Events.
NOTE 4 - Software License Agreement
On August 31, 2003, the Company entered into a software licensing agreement with
Hifn, Inc. to acquire a non-exclusive license for the worldwide rights to market
and distribute Hifn's proprietary software. The term of the agreement is for
five years with provision for annual renewals thereafter. The cost of the
software licensing fee was $300,000 with annual upgrade and maintenance charges
of $30,000. The agreement also calls for minimum annual royalty payments
totaling $500,000 over the first five year period following customer shipment,
payable quarterly as follows:
Year 1 $ 50,000
Year 2 75,000
Year 3 100,000
Year 4 125,000
Year 5 150,000
If in any year the calculation of the royalty fee is greater than the minimum,
this excess will reduce the final amount due in the fifth year.
7
NEXVU TECHNOLOGIES, L.L.C.
A DEVELOPMENT STAGE ENTERPRISE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2003
NOTE 5 - Commitments
In July, 2002, the Company entered into a three year operating lease agreement
for office space. Minimum rentals, on an annual basis, are as follows:
2004 $ 76,265
2005 78,220
NOTE 6 - Notes Payable
Notes payable to members, unsecured,
interest at 8%, convertible to equity
according to the terms of the Loan
Conversion Agreement $625,000
Note payable to bank, secured by
certain personal assets of a member
and all assets of the Company,
interest at 9%, interest only due
monthly, principal due
March 31, 2004 110,000
--------
Total Notes Payable $735,000
========
NOTE 7 - Property and Equipment
Property and equipment at December 31, 2003 consists of the following:
Furniture and fixtures $ 89,375
Software 19,408
Computer equipment 128,491
Office equipment 3,629
Telephone equipment 18,236
-------
259,139
Less: Accumulated depreciation (122,798)
---------
$136,341
========
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NEXVU TECHNOLOGIES, L.L.C.
A DEVELOPMENT STAGE ENTERPRISE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2003
NOTE 8 - Related Parties
On December 1, 2003, the Company entered into an agreement for business and
financial advisory services to be provided by an entity controlled by one the
Company's directors. Fees for these services total $765,207.
NOTE 9 - Subsequent Events
On January 28, 2004, the Company merged with a wholly owned subsidiary of
Capital Growth Systems, Inc. ("CGSI"), a Florida "shell" corporation formed for
the purpose of acquiring an operating business. The Company has become the sole
operating business of CGSI. The merger was contingent upon CGSI having raised a
minimum of $2,000,000 of investor capital pursuant to a common stock private
placement at $1.35 per share. As of April 15, 2004 an aggregate of $7,625,075 of
gross proceeds from the private placement had been raised. In addition, at the
merger closing the $550,000 of bridge loans to the Company were converted into
additional common stock of CGSI at approximately $0.95 per share and one
additional $25,000 subscription was accepted shortly thereafter at such pricing.
In connection with the merger, an aggregate of 8,558,500 shares of common stock
of CGSI were issued to the members of the Company and the Company became a
wholly owned subsidiary of CGSI, with CGSI serving as its sole manager.
Following the merger the Company will be treated as a disregarded entity for
state and federal income tax purposes. The cash balances of CGSI as of March 1,
2004 are expected to be more than sufficient to cover the cost of operations of
the Company for 2004.
9