EXHIBIT 99.1
TERRA INSIGHT CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
Period from January 7, 2005 (inception)
to April 30, 2005
AND
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
TERRA INSIGHT CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONTENTS
Period from January 7, 2005 (inception) to April 30, 2005
- --------------------------------------------------------------------------------
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Shareholders' Equity (Deficit) 4
Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Terra Insight Corporation and Subsidiary:
We have audited the accompanying consolidated balance sheet of Terra Insight
Corporation and Subsidiary (the "Company") as of April 30, 2005, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the period from January 7, 2005 (inception) to April 30, 2005. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Accounting
Oversight Board (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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Terra Insight
Corporation and Subsidiary as of April 30, 2005, and the results of their
operations and their cash flows for the period from January 7, 2005 (inception)
to April 30, 2005 in conformity with U.S. generally accepted accounting
principles.
/s/ Rosen Seymour Shapss Martin & Company LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
July 20, 2005
TERRA INSIGHT CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
April 30, 2005
- --------------------------------------------------------------------------------
Assets
- ------
Current assets:
Cash $ 291,952
Accounts receivable 85,950
Deferred costs (Note 2) 217,780
Prepaid expenses and other current assets 103,097
---------------
Total current assets 698,779
Property and equipment, net of accumulated
depreciation of $264 (Note 4) 6,530
---------------
Total assets $ 705,309
===============
Liabilities and Shareholders' Equity (Deficit)
- ----------------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 448,157
Deferred revenue (Note 2) 515,066
---------------
Total current liabilities 963,223
---------------
Commitments (Note 7)
Shareholders' equity (deficit) (Note 8):
Preferred stock - par value $.0004, 5,000,000 shares authorized; no
shares issued or outstanding --
Common stock - par value $.0004, 45,000,000 shares authorized;
10,000,000 shares issued and outstanding 4,000
Accumulated deficit (261,914)
---------------
Total shareholders' equity (deficit) (257,914)
---------------
Total liabilities and shareholders' equity (deficit) $ 705,309
===============
The accompanying notes are an integral part of these consolidated financial
statements.
2
TERRA INSIGHT CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
Period from January 7, 2005 (inception) to April 30, 2005
- --------------------------------------------------------------------------------
Revenues $ 100,000
Cost of revenues (Note 6) 70,000
---------------
Gross profit 30,000
Operating expenses (Note 6) 291,914
---------------
Operating loss before provision for income taxes (261,914)
Provision for income taxes, net (Note 5) --
---------------
Net loss $ (261,914)
===============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
3
TERRA INSIGHT CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Period from January 7, 2005 (inception) to April 30, 2005
- --------------------------------------------------------------------------------
Total
Preferred Retained Shareholders'
Common Stock Stock Deficit Deficit
------------- ----------- ------------- -------------
Balance, January 7, 2005 $ -- $ -- $ -- $ --
Issuance of common stock 4,000 -- -- 4,000
Net loss -- -- (261,914) (261,914)
------------- ----------- ------------- -------------
Balance, April 30, 2005 $ 4,000 $ -- $ (261,914) $ (257,914)
============= =========== ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
4
TERRA INSIGHT CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
Period from January 7, 2005 (inception) to April 30, 2005
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (261,914)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 264
Changes in assets and liabilities:
(Increase) in assets:
Accounts receivable (85,950)
Deferred costs (217,780)
Prepaid expenses and other current assets (103,097)
Increase in liabilities:
Accounts payable and accrued expenses 448,157
Deferred revenue 515,066
---------------
Net cash provided by operating activities 294,746
---------------
Cash flows from investing activities:
Capital expenditures (6,794)
---------------
Net cash used in investing activities (6,794)
---------------
Cash flows from financing activities:
Issuance of common stock 4,000
---------------
Net cash provided by financing activities 4,000
---------------
Net change in cash 291,952
Cash, beginning of period --
---------------
Cash, end of period $ 291,952
===============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ --
===============
Income taxes $ --
===============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
5
TERRA INSIGHT CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
- --------------------------------------------------------------------------------
1. Organization and Basis of Presentation
--------------------------------------
Terra Insight Corporation ("Terra" or the "Company"), a Delaware corporation,
was formed January 7, 2005 and provides mapping, surveying and analytical
services to exploration, drilling and mining companies. The Company manages and
interprets geologic and satellite data to improve the assessment of natural
resources. The Company provides these services to its customers exclusively
through a services arrangement whereby it outsources the mapping, surveying and
analytical services to a related entity (see Note 6). The Company expects to
derive its revenue primarily from domestic customers. For the period ended April
30, 2005, all revenue was derived from a customer located in the state of
Nevada.
The consolidated financial statements include the accounts of Terra and its
wholly owned subsidiary, Terra Resources, Inc., a Delaware corporation, which is
currently inactive. All significant intercompany balances and transactions have
been eliminated.
2. Summary of Significant Accounting Policies
------------------------------------------
Revenue Recognition
- -------------------
Revenue is recognized when the survey is delivered to customer and
collectibility is reasonably assured. Amounts received in advance of performance
and/or completion of such services are recorded as deferred revenue.
Deferred Costs
- --------------
Deferred costs represent costs incurred in connection with services yet to be
completed.
Accounts Receivable
- -------------------
Accounts receivable are reported at amounts expected to be collected, net of
allowance for non-collection due to the financial position of customers. It is
the Company's policy to regularly review the accounts receivable aging for
specific accounts past due and set up an allowance when collection is uncertain.
Credit Risk
- -----------
Financial instruments which potentially subject the Company to concentrations of
credit risk, consist principally of cash and accounts receivable. The Company
places its cash with high quality financial institutions and limits the amount
of credit exposure to any single financial institution or instrument. As to
accounts receivable, the Company performs credit evaluations of customers before
services are rendered and generally requires no collateral.
Significant Customers
- ---------------------
The Company derived all of its revenue for the period ended April 30, 2005 from
one customer from the state of Nevada and all of its accounts receivable at
April 30, 2005 pertained to one Australian customer.
Property, Equipment and Depreciation
- ------------------------------------
Property and equipment are stated at cost. Depreciation is computed utilizing
the straight-line method over the estimated useful lives of the assets.
6
TERRA INSIGHT CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
- --------------------------------------------------------------------------------
Income Taxes
- ------------
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Deferred
tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Deferred income tax provisions
are based on the changes to the respective assets and liabilities from period to
period. A valuation allowance is recorded to reduce deferred tax assets when
uncertainty regarding realization exists.
Stock Options
- -------------
For the period ended April 30, 2005, the Company issued performance-based stock
options to employees in connection with employment agreements (see Note 7). The
Company applies the intrinsic value method in accounting for its employee stock
options as permitted by Statement of Financial Accounting Standards No. 123
("SFAS 123").
Certain pro forma information regarding employee stock options is required by
SFAS 123. Management has determined that due to the uncertainty of meeting the
performance based criteria of the stock options granted, there would not be any
pro forma impact to net income for the period ended April 30, 2005.
Estimates
- ---------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America require 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, if any, and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those
estimates.
3. Subsequent Events
-----------------
Reverse Merger
- --------------
On May 19, 2005, the Company entered into an agreement and plan of
reorganization (the "Agreement") with Compuprint, Inc. ("CPPT"), an inactive
public company. Pursuant to the Agreement, CPPT acquired the Company through an
exchange of 35,029,980 post-split shares of its common stock for all of the
outstanding shares of the Company's common stock. The shares issued by CPPT to
the Company's shareholders constitute approximately 85% of CPPT's common shares
outstanding as of May 19, 2005. A "reverse merger" transaction resulted because
the shareholders of the Company became the controlling shareholders of CPPT. The
reverse merger will be accounted for as a recapitalization. To complete the
reverse merger, it is anticipated that CPPT will change its name to Terra
Insight Corporation.
7
TERRA INSIGHT CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
- --------------------------------------------------------------------------------
Securities Purchase Agreement
- -----------------------------
On May 19, 2005, in connection with the reverse merger transaction, the Company
sold 2,411,138 shares of common stock to two accredited investors for gross
proceeds of $1,750,000. In connection with the sale of securities, the Company
granted the investors certain registration rights, agreeing to file a
registration statement for the resale of restricted shares that were sold. The
proceeds from the sale of securities will be used for working capital purposes.
Convertible Debenture
- ---------------------
On July 5, 2005, CPPT issued a $2 million 6% convertible debenture due December
31, 2007. The holder of the debenture is entitled, at any time, to convert the
principal amount of the debenture or any portion, into shares of CPPT common
stock at $1 per share. If, upon election of conversion, CPPT's issuance would
cause it to violate any listing requirements, then in lieu of such stock
issuance, CPPT will pay the holder cash in an amount equal to the amount elected
for conversion.
The debenture shall be subject to mandatory conversion in the event that the
CPPT's common stock trades in a public market at a price of $2 per share or more
with a mean average weekly volume of 250,000 shares or more in eight consecutive
weeks.
4. Property and Equipment
----------------------
Property and equipment at April 30, 2005 consists of the following:
Estimated
Useful
Lives - Years Amount
------------- ------
Office equipment 5 $ 6,794
Less accumulated
depreciation 264
---------
$ 6,530
=========
Depreciation expense for the period ended April 30, 2005 was $264.
5. Income Taxes
------------
The following summarizes the provision for income taxes
April 30, 2005
-----------
Current $ -
Deferred tax asset (105,000)
-----------
Total (105,000)
Valuation allowance 105,000
-----------
Net tax $ -
===========
At April 30, 2005, the Company had a deferred tax asset of approximately
$105,000, comprised of a net operating loss carryforward. This deferred tax
asset has been reduced in full by a valuation allowance due to uncertainty
regarding its ultimate utilization.
8
TERRA INSIGHT CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
- --------------------------------------------------------------------------------
6. Related Party Transactions
--------------------------
Technology License Agreement
- ----------------------------
The Company licenses, under a 30-year Technology License Agreement entered into
January 7, 2005, certain mapping technology from The Institute of
Geoinformational Analysis of the Earth (the "Institute"), a foreign-based
company controlled by the majority shareholder of the Company. Under the
Technology License Agreement, the Company is required to pay an annual license
fee of $600,000, payable on or before December 31 of each year. Until certain
criteria (as defined in the Services Agreement discussed below) are met, the
Company is entitled to a credit towards the licensing fees as described below.
Services Agreement
- ------------------
The Company entered into a Services Agreement with the Institute on January 7,
2005 for consulting and advisory services including analysis, surveying, and
mapping as well as recommendations related to the utilization of the Institute's
mapping technologies. Under the terms of the Services Agreement, the Institute
will charge the Company no more than 40% of its published standard rates for
such services subject to an annual minimum charge (see below). Within ten days
after the end of each month, for all requested services, the Institute must
furnish the Company with a statement, certified by an officer of the Institute,
setting forth the amounts owed for such services.
The minimum annual service fees for 2005 and 2006 are $500,000. Subsequent to
2006, the minimum annual service fee will increase by the lesser of 4% or the
percentage increase in the Consumer price Index using 2005 as the base year.
Until such time as the Company has annual revenues of at least $10 million or
until such time as the market capitalization of the Company exceeds $100
million, 83.334% of the license fees paid by the Company to the Institute
pursuant to the Technology License Agreement will be credited against service
fees pursuant to the Services Agreement.
The Company can terminate the Services Agreement by providing four weeks'
notice. If the Company does not provide such notice, the Company is obligated to
pay a termination fee equal to 8.33% of the prior calendar year's service fee
payments to the Institute. Termination of the Services Agreement does not
relieve the Company of its obligations under the Technology License Agreement.
Operating Lease
- ---------------
The Company leases office space from one of its directors on a month-to-month
basis pursuant to an oral agreement at $1,500 per month.
Other
- -----
For the period ended April 30, 2005, the Company paid legal fees of
approximately $93,000 to an attorney who is a director and shareholder of the
Company.
9
TERRA INSIGHT CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
- --------------------------------------------------------------------------------
7. Commitments
-----------
Employment Agreements
- ---------------------
On January 7, 2005, the Company entered into three, 3-year agreements with
certain of its executives. These agreements call for annual aggregate minimum
compensation of $420,000 with annual increases based on the Consumer Price
Index. If the Company's revenue exceeds $5 million or the Company obtains
financing of at least $5 million, annual aggregate minimum compensation
increases to $690,000. If the Company achieves a market capitalization of at
least $100 million, obtains financing of at least $8 million or achieves revenue
of at least $10 million, annual aggregate minimum compensation increases to
$965,000.
In connection with these employment agreements, the executives received
performance-based stock options. The stock options are exercisable over a 5-year
period and entitle the executives to purchase an aggregate of 7.5% of the
Company's outstanding common shares. The stock options are exercisable at
$0.32/share and vest as follows:
1/2 of the total When EBITDA exceeds $2 million or
revenue exceeds $6 million
1/2 of the total When EBITDA exceeds $4 million or
revenue exceeds $10 million
The employment agreement also contains change of control provisions, as defined,
whereby the executives would be entitled to 290% of their base compensation in
effect at that time. All stock options would also vest subsequent to a change of
control.
8. Shareholders' Equity
--------------------
Preferred Stock
- ---------------
The Board of Directors is expressly authorized to provide for the issue of all
or any shares of the preferred stock, in one or more series, and to fix for each
such series such voting powers, full or limited, and other such designations and
preferences. The number of authorized shares of preferred stock may be increased
or decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the voting power of all of
the then outstanding shares of the capital stock of the corporation entitled to
vote generally in the election of directors.
9. Recent Accounting Pronouncements
--------------------------------
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment: An
Amendment of FASB Statement No. 95." This statement also replaces SFAS 123 and
supersedes APB 25. SFAS 123(R) will require the Company to measure the cost of
all employee stock-based compensation awards that are expected to be exercised
and which are granted after the effective date based on the grant date fair
value of those awards and to record that cost as compensation expense over the
period during which the employee is required to perform service in exchange for
the award (generally over the vesting period of the award). Excess tax benefits,
as defined by SFAS 123(R), will be recognized as an addition to paid-in-capital.
However, if the tax benefit ultimately realized is less than the amount
recognized for financial reporting purposes, the difference will be recognized
as
10
TERRA INSIGHT CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
- --------------------------------------------------------------------------------
tax expense. SFAS 123(R) addresses all forms of share-based payment awards,
including shares issued under employee stock purchase plan, stock option,
restricted stock and stock appreciation rights. In addition, the Company is
required to record compensation expense (as previous awards continue to vest)
for the unvested portion of previously granted awards that remain outstanding at
the date of adoption. SFAS 123(R) will become effective for annual periods
beginning after June 15, 2005. SFAS 123(R) permits public companies to adopt its
requirements using one of two methods:
1. A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of SFAS 123(R) for all share-based payments granted after
the effective date and (b) based on the requirements of SFAS 123 for
all awards granted to employees prior to the effective date of SFAS
123(R) that remain unvested on the effective date.
2. A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits
entities to restate their financial statements based on the amounts
previously recognized under SFAS 123 for purposes of pro forma
disclosures for either (a) all prior periods presented or (b) prior
interim periods of the year of adoption.
The Company is currently evaluating the alternative method of adoption as
described above. As permitted by SFAS 123, the Company currently accounts for
share-based payments to employees using APB 25's intrinsic value method and, as
such, generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of SFAS 123(R)'s fair value method will have a
significant impact on our results of operations. The impact of adoption of SFAS
123(R) cannot be predicted at this time because it will depend on level of
share-based payments granted in the future.
In December 2004 the FASB also issued Statement No. 152 "Accounting for Real
Estate Time-Sharing Transactions," and No. 153, "Exchanges of Nonmonetary
Assets."
In May 2005 the FASB issued Statement No. 154, "Accounting Changes and Error
Corrections" which superseded APB Opinion No. 20 and FASB Statement No. 3. These
pronouncements are not expected to have any impact on the Company's future
operations.
11