EXHIBIT 99.1
[LETTERHEAD OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Infolocity, Inc.
We have audited the accompanying balance sheet of Infolocity, Inc. as of June
30, 1999, and the related statements of operations, shareholders' equity, and
cash flows for the period from January 22, 1999 (inception) to June 30, 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 Infolocity, Inc. as of June 30,
1999, and the results of its operations and its cash flows for the period from
January 22, 1999 (inception) to June 30, 1999 in conformity with generally
accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
September 21, 1999
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INFOLOCITY, INC
BALANCE SHEET
JUNE 30, 1999
- - -------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 356,138
Accounts receivable 43,235
Prepaid expenses 3,600
--------------
Total current assets 402,973
FURNITURE AND EQUIPMENT, NET 11,003
--------------
TOTAL ASSETS $ 413,976
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 14,871
--------------
Total current liabilities 14,871
NOTES PAYABLE - RELATED PARTIES 37,212
--------------
Total liabilities 52,083
--------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, Series A, no par value
4,000,000 shares authorized
77,739 shaers issued and outstanding 280,040
Common stock, no par value
20,000,000 shares authorized
2,073,370 shares issued and outstanding 276,009
Subscription receivable (136,969)
Accumulated deficit (57,187)
--------------
Total shareholders' equity 361,893
--------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 413,976
==============
The accompanying notes are an integral part of these financial statements
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INFOLOCITY, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 22, 1999 (INCEPTION) TO JUNE 30, 1999
- - --------------------------------------------------------------------------------
REVENUES
Sales $ 55,235
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 113,578
--------------
LOSS FROM OPERATIONS (58,343)
OTHER INCOME
Interest income 1,956
--------------
LOSS BEFORE PROVISION FOR INCOME TAXES (56,387)
PROVISION FOR INCOME TAXES (800)
NET LOSS $ (57,187)
==============
BASIC LOSS PER SHARE $ (0.04)
==============
DILUTED LOSS PER SHARE $ (0.04)
==============
WEIGHTED-AVERAGE SHARES OUTSTANDING 1,384,152
===============
The accompanying notes are an integral part of these financial statements
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INFOLOCITY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 22, 1999 (INCEPTION) TO JUNE 30, 1999
- - ---------------------------------------------------------------------------------------------------------------------------------
Preferred Stock, Series A Common Stock
------------------------- ------------------- Subscription Accumulated
Shares Amount Shares Amount Receivable Deficit Total
---------- ------------ --------- -------- ------------ ----------- ----------
BALANCE, JANUARY 22, 1999 (INCEPTION) - $ - - $ - $ - $ - $ -
ISSUANCE OF COMMON STOCK FOR CASH 1,820,000 133,200 133,200
ISSUANCE OF COMMON STOCK IN EXCHANGE
FOR SERVICES RENDERED 80,000 5,840 5,840
EXERCISE OF OPTIONS IN EXCHANGE FOR
SUBSCRIPTION RECEIVABLE 173,370 136,969 (136,969) -
ISSUANCE OF PREFERRED STOCK FOR CASH 77,789 280,040 280,040
NET LOSS (57,187) (57,187)
---------- ----------- ---------- -------- ---------- ----------- ---------
BALANCE, JUNE 30, 1999 77,789 $ 280,040 2,073,370 $276,009 $(136,969) $ (57,187) $361,893
========== =========== ========== ======== ========== =========== =========
The accompanying notes are an integral part of these financial statements
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INFOLOCITY, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 22, 1999 (INCEPTION) TO JUNE 30, 1999
- - -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (57,187)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 1,626
Stock issued for services 5,840
(Increase) decrease in
Accounts receivable (43,235)
Prepaid expenses (3,600)
Increase (decrease) in
Accounts payable 14,871
------------
Net cash used in operating activities (81,685)
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (12,629)
------------
Net cash used in investing activities (12,629)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from related parties 37,212
Proceeds from issuance of common stock 133,200
Proceeds from issuance of preferred stock 280,040
------------
Net cash provided by financing activities 450,452
------------
Net increase in cash 356,138
CASH, BEGINNING OF PERIOD --
------------
CASH, END OF PERIOD $ 356,138
============
<FN>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the period from January 22, 1999 (inception) to June 30, 1999, the
Company issued 173,370 shares of common stock in exchange for a subscription
receivable of $136,969.
</FN>
The accompanying notes are an integral part of these financial statements
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INFOLOCITY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 - BUSINESS ACTIVITY
Infolocity, Inc. (the "Company") was incorporated in January 1999. The
Company provides internet-based business intelligence and information
management for private and publicly traded companies. Its proprietary
internet monitoring and search engines scour the internet for valuable
information for its clients. The Company's proprietary technology provides
real-time monitoring of internet message boards, chat forums, news groups,
and rumor sites.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH
The Company maintains cash deposits at numerous banks in Northern
California. Deposits at each bank are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000. As of June 30, 1999,
uninsured portions at those banks aggregated to $257,782.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from customers for the
sale of services. Management believes amounts are fully collectible, and as
such, no allowance for uncollectible amounts is deemed necessary.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. The cost of maintenance and
repairs is charged to operations as incurred, and significant additions and
betterments are capitalized. The Company provides for depreciation and
amortization using the straight-line method over the estimated useful lives
of the assets of one to three years.
INCOME TAXES
The Company utilizes Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires the recognitions of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for
the tax consequences in future years of differences between the tax bases
of assets and liabilities and their financial reporting amounts at each
period end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized. The provision for income
taxes represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs for
the period from January 22, 1999 (inception) to June 30, 1999 were $10,595.
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
disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the Company's
financial instruments, including cash, accounts receivable, and accounts
payable, the carrying amounts approximate fair value due to their short
maturities. The amounts shown for notes payable - related parties also
approximate fair value because current interest rates offered to the
Company for debt of similar maturities are substantially the same.
COMPREHENSIVE INCOME
For the period from January 22, 1999 (inception) to June 30, 1999, the
Company adopted SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined
includes all changes in equity (net assets) during a period from non-owner
sources. Examples of items to be included in comprehensive income, which
are excluded from net income, include foreign currency translation
adjustments and unrealized gains and losses on available-for-sale
securities. Comprehensive income is not presented in the Company's
financials statements since the Company did not have any of the items of
comprehensive income in any period presented.
LOSS PER SHARE
For the period from January 22, 1999 (inception) to June 30, 1999, the
Company adopted SFAS No. 128, "Earnings per Share." Basic loss per share is
computed by dividing the net income by the weighted-average number of
common shares available. Diluted loss per share is computed similar to
basic loss per share except that the denominator is increased to include
the number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional common
shares were dilutive.
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTIONS
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for
stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined as
of the date of grant and is recognized over the periods in which the
related services are rendered. The statement also permits companies to
elect to continue using the current implicit value accounting method
specified in Accounting Principles Bulletin ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," to account for stock-based
compensation. The Company has elected to use the implicit value based
method.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Post-Retirement Benefits." The Company does not expect adoption of SFAS No.
132 to have a material impact, if any, on its financial position or results
of operations.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is effective for financial statements with fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. This statement is not applicable to the Company.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," is effective for financial statements with the first fiscal
quarter beginning after December 15, 1998. This statement is not applicable
to the Company.
SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections," is effective for financial statements with fiscal years
beginning February 1999. This statement is not applicable to the Company.
In June 1999, the FASB issued SFAS No. 136, "Transfer of Assets to a
Not-for-Profit Organization or Charitable Trust that Raises or Holds
Contributions for Others." This statement is not applicable to the Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities." This statement is not applicable to
the Company.
Page 13
NOTE 3 - FURNITURE AND EQUIPMENT
Furniture and equipment at June 30, 1999 consisted of the following:
Computer equipment $ 8,864
Leasehold improvements 3,765
----------
12,629
Less accumulated depreciation and amortization 1,626
----------
TOTAL $ 11,003
==========
Depreciation and amortization expense for the period from January 22, 1999
(inception) to June 30, 1999 was $1,626.
NOTE 4 - NOTES PAYABLE - RELATED PARTIES
Related party amounts due for the period from January 22, 1999 (inception)
to June 30, 1999 aggregated to $37,212. These amounts due are
non-interest-bearing and are payable on December 31, 2000.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
LEASES
The Company has entered into a month-to-month operating leasing agreement
for its corporate office. The rent is $2,000 per month.
Rent expense for the period from January 22, 1999 (inception) to June 30,
1999 was $10,000.
LITIGATION
In the normal course of its business, the Company is subject to various
lawsuits and claims. The Company believes that the final outcomes of these
matters, either individually or in the aggregate, will not have a material
effect on its financial statements.
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NOTE 6 - SHAREHOLDERS' EQUITY
PREFERRED STOCK, SERIES A
During the period from January 22, 1999 (inception) to June 30, 1999, the
Company issued 77,789 shares of Series A convertible preferred stock
("Series A Preferred") for cash totaling $280,040. The holders of the
Series A Preferred are entitled to receive a non-cumulative dividend at an
annual rate of 7.5% of the purchase price per share, payable in cash at the
option of the Company. No dividends were declared or paid as of June 30,
1999.
If a holder has at least 50,000 shares of Series A Preferred (and/or common
stock issued upon conversion of such shares), each such holder of Series A
Preferred shall be given the right of first refusal to purchase up to
his/her pro rata share of any equity securities offered by the Company.
Each share of Series A Preferred is convertible into shares of common stock
at the option of the holder at a conversion rate of one-for-one. In
addition, Series A Preferred will be automatically converted into shares of
common stock at a one-for-one conversion rate upon the closing of an
initial public offering of not less than $7,500,000.
The Series A Preferred has a liquidation preference equal to the purchase
price per share plus all declared and unpaid dividends prior to the payment
of any amount to the holders of common stock.
COMMON STOCK
During the period from January 22, 1999 (inception) to June 30, 1999, the
Company issued 1,820,000 shares of common stock for cash totaling $133,200.
NOTE 7 - STOCK OPTIONS
STOCK OPTION PLAN
The Company adopted the 1999 Stock Option Plan (the "1999 Plan") on March
30, 1999. The purpose of the 1999 Plan is to attract, retain, and reward
persons performing services for the Company and to motivate such persons to
contribute to the growth and profitability of the Company. Each employee,
consultant, or director as determined by the Board of Directors of the
Company is eligible to be considered for the grant of awards under the 1999
Plan. The maximum number of shares of common stock that may be issued
pursuant to awards granted under the 1999 Plan is 600,000. Any shares of
common stock subject to an award, which for any reason expires or
terminates unexercised, are again available for issuance under the 1999
Plan. Under the 1999 Plan, no incentive stock option will be less than 100%
of the fair market value of the shares on the date the stock option is
granted, subject to certain provisions.
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NOTE 7 - STOCK OPTIONS (CONTINUED)
STOCK OPTION AGREEMENTS
The following summarizes the Company's stock option transactions:
1999 Weighted-
Stock Average
Option Exercise
Plan Price
--------- ---------
Options outstanding, January 22, 1999
(inception) - $ -
Granted 173,370 $ 0.79
Exercised (173,370) $ 0.79
---------
OPTIONS OUTSTANDING, JUNE 30, 1999 - $ -
=========
OPTIONS EXERCISABLE, JUNE 30, 1999 - $ -
=========
During the period from January 22, 1999 (inception) to June 30, 1999, the
Company issued options to purchase 253,370 shares of common stock. The
options were exercised concurrently with their issuance in exchange for a
subscription receivable in the amount of $136,969.
NOTE 8 - INCOME TAXES
Significant components of the provision for income taxes based on income
for the period from January 22, 1999 (inception) to June 30, 1999 are as
follows:
Current
Federal $ -
State 800
-------
800
Deferred
Federal -
State -
-------
-
-------
PROVISION FOR INCOME TAXES $ 800
=======
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NOTE 8 - INCOME TAXES (CONTINUED)
A reconciliation of the provision for (benefit from) income tax expense
with the expected income tax computed by applying the federal statutory
income tax rate to income before provision for income taxes for the period
from January 22, 1999 (inception) to June 30, 1999 is as follows:
Income tax provision computed at federal statutory tax rate 34.0%
State taxes, net of federal benefit 6.0
Change in deferred income tax valuation reserve and other (39.0)
------
TOTAL 1.0%
======
As of June 30, 1999, the Company had federal and state net operating loss
carryforwards of approximately $56,000 and $28,000, respectively, which
expire through 2014.
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes as of June 30, 1999 consisted of the
following:
Deferred tax asset
Net operating loss carryforwards $ 20,400
Valuation allowance (20,400)
---------
NET DEFERRED TAX ASSET $ -
=========
NOTE 9 - YEAR 2000 ISSUE
The Company is conducting a comprehensive review of their computer systems
to identify the systems that could be affected by the Year 2000 Issue and
is developing an implementation plan to resolve the Issue.
The Issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do
not properly recognize such information could generate erroneous data or
cause a system to fail. The Company is dependent on computer processing in
the conduct of their business activities.
Based on the review of the computer systems, management does not believe
the cost of implementation will be material to the Company's financial
position and results of operations.
Page 17
NOTE 10 - SUBSEQUENT EVENT (UNAUDITED)
DEFINITIVE AGREEMENT
In September 1999, IAT Resources Corporation signed a Definitive Agreement
to acquire 100% of the common stock of Infolocity, Inc. for 7,250,000
shares of common stock of IAT resources Corporation. The transaction is
subject to shareholder and regulatory approval.
Page 18
INFOLOCITY, INC.
BALANCE SHEET
AS OF SEPTEMBER 30, 1999
- - -------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 1,058,077
Accounts Receivable 54,141
Prepaid expenses 26,483
-------------
1,138,701
Fixed Assets 26,470
TOTAL ASSETS $ 1,165,171
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Due to IAT Resources Corporation $ 900,000
-------------
SHAREHOLDERS' EQUITY
Common Stock 450,452
Deficit (185,281)
-------------
Total Equity 265,171
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,165,171
=============
Page 19
INFOLICITY, INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
- - --------------------------------------------------------------------------------
REVENUES $ 115,492
EXPENSES
GENERAL AND ADMINISTRATIVE EXPENSES (285,553)
-------------
NET LOSS $ (170,061)
=============
BASIC LOSS PER SHARE $ (0.12)
=============
DILUTED LOSS PER SHARE $ (0.12)
=============
WEIGHTED-AVERAGE SHARES OUTSTANDING 1,384,162
=============
INFOLICITY, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
- - -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES $ (170,061)
Net loss
Adjustments to reconcile net cash
Used in operating activities
Depreciation and amortization 1,591
(Increase) decrease in
Accounts receivable (10,906)
Prepaid expenses 22,883
Increase (decrease) in
Accounts payable (14,871)
-------------
Net cash used in operating activities (171,364)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital (expenditures) on equipment (17,058)
-------------
Increase (decrease) on loans from related parties (37,212)
-------------
Net cash used in investing activities (54,270)
-------------
CASH FROM FINANCING ACTIVITIES
Proceeds from subscriptions receivable 27,573
Proceeds from borrowings 900,000
-------------
Net cash provided by financing activities 927,573
-------------
Net increase in cash 674,366
CASH, BEGINNING OF PERIOD 356,138
-------------
CASH, END OF PERIOD $ 1,058,077
=============
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