Exhibit 99.3 - Financials
World Information Technology, Inc. (a Taiwan Corp)
(A Development Stage Company)
Balance Sheet
as of
December 31, 2002
and
Statement of Operations,
Changes in Stockholders' Equity, and
Cash Flows
for the year ended
December 31, 2002
TABLE OF CONTENTS
TABLE OF CONTENTS
PAGE
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Independent Auditor's Report F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Changes in Stockholders' Equity F-4
Statements of Cash Flows F-5
Footnotes F-6-11
Beckstead and Watts, LLP
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Certified Public Accountants
3340 Wynn Road, Suite B
Las Vegas, NV 89102
702.257.1984
702.362.0540 (fax)
INDEPENDENT AUDITORS' REPORT
Board of Directors
World Information Technology, Inc. (a Taiwan Corp)
We have audited the Balance Sheets of World Information Technology, Inc. (a
Taiwan Corp)(the "Company"), as of December 31, 2002, and the related Statements
of Operations, Stockholders' Equity, 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 generally accepted auditing standards
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
statement presentation. 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 World Information Technology,
Inc. (a Taiwan Corp) as of December 31, 2002, and the results of its operations
and cash flows for the year then ended, in conformity with generally accepted
accounting principles in the United States of America.
/s/ Beckstead and Watts, LLP
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Beckstead and Watts, LLP
March 14, 2003
F-1
World Information Technology, Inc.
Consolidated Balance Sheet
(Expressed in US dollars, unless otherwise stated)
Consolidated Balance Sheet
December 31,
2002
------------
Assets
Cash and equivalents $ 20,000
Short-term investments 204,000
Trade accounts receivable, net of allowance for doubtful
accounts of $832,000 3,328,000
Notes receivable - related party 29,000
Notes receivable 146,000
Inventories 34,000
Other current assets 92,000
------------
Total current assets 3,853,000
------------
Long-term investments 1,821,000
Fixed assets, net 2,721,000
Other assets 59,000
------------
$ 8,454,000
============
Liabilities and stockholders' equity
Notes payable $ 78,000
Trade accounts payable 4,000
Income tax payable 1,042,000
Accrued expense 178,000
Other payables and customer deposits 37,000
------------
Total current liabilities 1,339,000
------------
Deferred revenue 217,200
Other liabilities 4,000
------------
1,560,200
------------
Commitments and contingencies -
Stockholders' equity
Common stock 5,020,000
Retained earnings 1,991,800
Accumulated other comprehensive income -
foreign currency translation adjustment (118,000)
------------
6,893,800
------------
$ 8,454,000
============
The accompanying notes are an integral part of these financial statements.
F-2
World Information Technology, Inc.
Consolidated Statements of Operations
(Expressed in US dollars, unless otherwise stated)
Consolidated Statements of Operations
December 31,
------------
2002
------------
Net sales $ 4,126,800
Cost of goods sold (297,000)
------------
Gross profit 3,829,800
Officer compensation 30,000
Selling, general and administrative 599,000
------------
Net income from operations 3,200,800
Other income (expense)
Interest income -
Gain on sale of investments, net 35,000
Loss on sale of investments (415,000)
Other income -
------------
Net income before income taxes 2,820,800
Income tax expense (1,019,000)
------------
Net income $ 1,801,800
============
Weighted average number of common shares
outstanding - basic and fully diluted 17,096,676
============
Net income per share - basic and fully diluted $ 0.11
============
The accompanying notes are an integral part of these financial statements.
F-3
World Information Technology, Inc.
Consolidated Statement of Changes in Shareholders' Equity
(Expressed in US dollars, unless otherwise stated)
Consolidated Statement of Changes in Shareholders' Equity
Accumulated
Other
Retained Comprehensive
Common Stock Earnings Income (Loss) Total
---------- ----------- --------- ----------
Balance as of January 1, 2001 $1,820,000 $422,000 $ - $2,242,000
Shares issued for land 2,019,000 2,019,000
Net income for the year
ended December 31, 2001 949,000 949,000
Foreign exchange translation
adjustment - -
---------- ----------- --------- ----------
Balance as of December 31, 2001 3,839,000 1,371,000 - 5,210,000
Stock dividend 1,151,000 (1,151,000) -
Shares issued to employees for
profit share 30,000 (30,000) -
Net income for the year
ended December 31, 2002 1,801,800 1,801,800
Foreign exchange translation
adjustment (118,000) (118,000)
---------- ----------- --------- ----------
Balance as of December 31, 2002 $5,020,000 $ 1,991,800 $(118,000) $6,893,800
========== =========== ========= ==========
The accompanying notes are an integral part of these financial statements.
F-4
World Information Technology, Inc.
Consolidated Statements of Cash Flow
(Expressed in US dollars, unless otherwise stated)
Consolidated Statements of Cash Flow
December 31,
------------
2002
------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,801,800
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization expense 150,000
Unrealized (gain) loss on short-term investments (2,000)
(Gain) loss on long-term investments (35,000)
(Gain) loss on disposal of investments 415,000
Change in assets and liabilities:
Accounts receivable (2,951,000)
Other receivables 135,000
Inventories 1,000
Prepaid expenses 52,000
Other current assets -
Notes and accounts payable 50,000
Accrued pension expense 4,000
Other payables 826,000
Other current liabilities (3,000)
Deferred revenue 217,200
------------
Net cash provided by (used in) operating activities 661,000
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short-term investments, net 31,000
Increase in long-term investments (717,000)
Proceeds from disposal of long-term investments -
Acquisition of fixed assets -
Decrease (increase) in deposits 9,000
------------
Net cash provided by investing activities (677,000)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in due to stockholder (24,000)
------------
Net cash provided by financing activities (24,000)
------------
Net decrease in cash and bank deposits (40,000)
Cash and equivalents at beginning of the period 60,000
------------
Cash and equivalents at end of the period $ 20,000
============
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for income tax $ 187,000
============
The accompanying notes are an integral part of these financial statements.
F-5
World Information Technology, Inc.
Notes to Financial Statements
Note 1 - Nature of business and summary of significant accounting policies
World Information Technology, Inc. (the "Company") was incorporated as a
company limited by shares under the Company Law of the Republic of China
(R.O.C.) on October 17, 1998 and is based in Taipei, Taiwan. The company
specializes in e-commerce related business, online audio-visual programming and
broadcasting, design, host, and maintains virtual stores on the internet, and
promotional audio, video, and advertisement productions.
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 and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and cash equivalents
- -------------------------
The Company maintains a cash balance in a non-interest-bearing account that
currently does not exceed federally insured limits. For the purpose of the
statements of cash flows, all highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents.
Investments
- -----------
Investments in companies over which the Company exercises significant influence
are accounted for by the equity method whereby the Company includes its
proportionate share of earnings and losses of such companies in earnings.
Other long-term investments are recorded at cost and are written down to their
estimated recoverable amount if there is evidence of a decline in value which
is other than temporary.
Trade receivables
- -----------------
Trade receivables are carried at original invoice amount less an estimate made
for doubtful receivables based on a review of all outstanding amounts on a
monthly basis. Management determines the allowance for doubtful accounts by
regularly evaluating individual customer receivables and considering a
customer's financial condition and credit history, and current economic
conditions. Trade receivables are written off when deemed uncollectible.
Recoveries of trade receivables previously written off are recorded when
received.
Inventories
- -----------
Inventories are stated at the lower of cost or market value, with cost being
determined on a weighted average basis. Provisions made for inventory
obsolescence and declines in market value are included in cost of goods sold.
Property, plant and equipment
- -----------------------------
Property, plant and equipment are stated at the lower of cost or estimated net
recoverable amount. The cost of property, plant and equipment is depreciated
using the straight-line method based on the lesser of the estimated useful
lives of the assets or the lease term based on the following life expectancy:
Computer equipment 5 years
Vehicles 5 years
Office furniture and fixtures 7 years
Buildings 55 years
Repairs and maintenance expenditures are charged to operations as incurred.
Major improvements and replacements, which extend the useful life of an asset,
are capitalized and depreciated over the remaining estimated useful life of the
asset. When assets are retired or
F-6
World Information Technology, Inc.
Notes to Financial Statements
sold, the costs and related accumulated depreciation and amortization are
eliminated and any resulting gain or loss is reflected in operations.
Revenue recognition policy
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The Company enters into contractual arrangements for web-site development
services. The Company recognizes revenue for website development services
based on Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as
amended, and modified by SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions." SOP 98-9 modified SOP 97-2
by requiring revenue to be recognized using the "residual method" if certain
conditions are met. Revenues are recognized based on the residual method when
an agreement has been signed by both parties, the fees are fixed or
determinable, collection of the fees is probable, delivery of the website has
occurred and no other significant obligations remain.
The Company contractually agrees to host the websites for no additional fee and
at a minimal cost to the Company for periods ranging from 1 year to an
indefinite period of time based on the terms of the individual contracts. The
Company defers 5% of its revenue to match its costs incurred to host the
websites in future years.
Earnings per share
- ------------------
Net earnings per share is provided in accordance with Statement of Financial
Accounting Standards No. 128 (SFAS #128) "Earnings Per Share". Basic earnings
per share is computed by dividing earnings available to common stockholders by
the weighted average number of common shares outstanding during the period.
Advertising Costs
- -----------------
The Company expenses all costs of advertising as incurred. The Company
expensed $170,000 in advertising costs included in selling and marketing
expenses for the year ended December 31, 2002.
Foreign currency translations
- -----------------------------
The functional currency for the Company's foreign subsidiaries is the local
currency. Assets and liabilities of the Company's foreign operations are
translated into U.S. dollars at the exchange rates in effect at the balance
sheet date; revenues and expenses are translated using the average exchange
rates in effect during the period. The cumulative translation adjustments are
included in accumulated other comprehensive income or loss, which is a separate
component of stockholders' equity. Foreign currency transaction gains or losses
are included in the results of operations.
Fair value of financial instruments
- -----------------------------------
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 2002. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash and
accounts payable. Fair values were assumed to approximate carrying values for
cash and payables because they are short term in nature and their carrying
amounts approximate fair values or they are payable on demand.
Impairment of long lived assets
- -------------------------------
The Company reviews its long-lived assets and intangibles periodically to
determine potential impairment by comparing the carrying value of the long-
lived assets with the estimated future cash flows expected to result from the
use of the assets, including cash flows from disposition. Should the sum of the
expected future cash flows be less than the carrying value, the Company would
recognize an impairment loss. An impairment loss would be measured by comparing
the amount by which the carrying value exceeds the fair value of the long-lived
assets and intangibles. There were no impairment losses recognized in 2002.
F-7
World Information Technology, Inc.
Notes to Financial Statements
Stock-Based Compensation:
- -------------------------
The Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations and has adopted the disclosure-only
alternative of FAS No. 123, "Accounting for Stock-Based Compensation." Options
granted to consultants, independent representatives and other non-employees are
accounted for using the fair value method as prescribed by FAS No. 123.
Comprehensive Income
- --------------------
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for the
reporting and display of comprehensive income and its components in the
financial statements. The Company had no items of other comprehensive income
and therefore has not presented a statement of comprehensive income.
Segment reporting
- -----------------
The Company follows Statement of Financial Accounting Standards No. 130,
"Disclosures About Segments of an Enterprise and Related Information". The
Company operates as a single segment and will evaluate additional segment
disclosure requirements as it expands its operations.
Dividends
- ---------
The Company has not yet adopted any policy regarding payment of dividends. No
cash dividends have been paid or declared since inception.
Income taxes
- ------------
The Company follows Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") for recording the provision for
income taxes. Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability each
period. If available evidence suggests that it is more likely than not that
some portion or all of the deferred tax assets will not be realized, a
valuation allowance is required to reduce the deferred tax assets to the amount
that is more likely than not to be realized. Future changes in such valuation
allowance are included in the provision for deferred income taxes in the period
of change.
Deferred income taxes may arise from temporary differences resulting from
income and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are not related to an
asset or liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse.
Recent pronouncements
- ---------------------
In September 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 143, Asset Retirement Obligations. This statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The statement will be effective for the Company's fiscal year ending
2003. Management does not expect the adoption of this standard to have a
material impact on the Company's financial statements.
In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendments of FASB Statement No. 13, and Technical
Corrections. The Company does not believe that the adoption of this
pronouncement will have a material effect on its financial statements.
In June 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated With Exit or
F-8
World Information Technology, Inc.
Notes to Financial Statements
Disposal Activities. This statement requires the recognition of a liability for
a cost associated with an exit or disposal activity when the liability is
incurred versus the date the Company commits to an exit plan. In addition, this
statement states the liability should be initially measured at fair value. The
statement is effective for exit or disposal activities that are initiated after
December 31, 2002. The Company does not believe that the adoption of this
pronouncement will have a material effect on its financial statements.
In January 2003, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. This statement provides alternative
methods of transition for a voluntary change to the fair value-based method of
accounting for stock-based employee compensation. In addition, this statement
also amends the disclosure requirements of SFAS No. 123 to require more
prominent and frequent disclosures in the financial statements about the
effects of stock-based compensation. The transitional guidance and annual
disclosure provisions of this statement is effective for the December 31, 2002,
financial statements. The interim reporting disclosure requirements will be
effective for the Company's March 31, 2003, 10-QSB. Because the Company
continues to account for employee stock-based compensation under APB Opinion
No. 25, the transitional guidance of SFAS No. 148 has no effect on the
financial statements at this time. However, the December 31, 2002, financial
statements have incorporated the enhanced disclosure requirements of SFAS No.
148, as presented above under the caption "Employee Stock Plans."
In January 2003, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FASB Interpretation No. 45 clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing certain guarantees. The 2002
financial statements have incorporated the enhanced disclosure requirements of
Interpretation No. 45, as presented in Note 1 to the financial statements under
the caption "Product warranties." The Company does not expect that this
interpretation will have any other effect on its financial statements.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. This interpretation establishes standards for
identifying a variable interest entity and for determining under what
circumstances a variable interest entity should be consolidated with its
primary beneficiary. Until now, a company generally has included another entity
in its consolidated financial statements only if it controlled the entity
through voting interests. Interpretation No. 46 changes that by requiring a
variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entity's
activities or is entitled to receive a majority of the entity's residual
returns or both. The requirements of Interpretation No. 46 will apply to the
Company for its quarter ending September 30, 2003. The Company does not believe
that the adoption of this pronouncement will have a material effect on its
financial statements.
Note 2 - Accounts receivable
Accounts receivable totaled $4,160,000 and allowance for doubtful accounts
totaled $832,000 as of December 31, 2002.
F-9
World Information Technology, Inc.
Notes to Financial Statements
Note 3 - Fixed assets
Fixed assets consists of the following:
December 31,
2002
------------
Transportation equipment $ 45,000
Office equipment 766,000
Leasehold improvements 156,000
Other equipment 17,000
Land 2,008,000
Less accumulated depreciation (271,000)
Total $ 2,721,000
Depreciation expense totaled $150,000 for the year ended December 31, 2002.
Note 4 - Long-term investments
Details of long-term investments are summarized as follows:
December 31, 2002
------------------------
Percentage of
Name of Investee Amount Ownership
- -------------------------------------------------------------------------------
International Joyful shopping Mall Internet
Business Co., Ltd. $ 501,000 82.50%
Yong-Kun-Chen Technology Co., Ltd. 400,000 61.33%
Everbest Healthcare Co., Ltd. 80,000 1.84%
Eastern Multimedia Co., Ltd. 290,000 0.03%
Techmo Taiwan Co., Ltd. 521,000 18.07%
Rico Foodstuff Co., Ltd. 29,000 0.05%
Eternal Industries Co., Ltd. - 7.97%
Wisdom Industries Co., Ltd. - 5.71%
----------
Total $1,821,000
680:
Note 5 - Income taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), which
requires use of the liability method. SFAS No. 109 provides that deferred
tax assets and liabilities are recorded based on the differences between the
tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences. Deferred tax assets
and liabilities at the end of each period are determined using the currently
enacted tax rates applied to taxable income in the periods in which the
deferred tax assets and liabilities are expected to be settled or realized.
As of December 31, 2002, income tax payable to Taiwan taxing authorities
totaled $1,042,000 and income tax expense totaled $1,019,000.
F-10
World Information Technology, Inc.
Notes to Financial Statements
Note 6 - Stockholders' equity
The Company issued shares of common stock valued at $1,151,000 to its
shareholders as a stock dividend.
The Company issued shares of common stock valued at $30,000 to its employee
profit sharing plan.
The Company has a total of 17,096,676 shares of common stock issued and
outstanding as of December 31, 2002.
Note 7 - Related party transactions
The Company advanced an officer $29,000. The note receivable is non-interest
bearing and due on demand.
Note 8 - Subsequent events
Reverse merger
- --------------
On March 13, 2003, the Company effected a Merger and Reorganization Agreement
(the "Agreement") with World Information Technology, Inc., formerly EZ Travel,
Inc. ("WRLI"), a State of Nevada publicly-traded company. Pursuant to the
Agreement, WRLI acquired 80.75% of the outstanding common stock of the Company.
As consideration for the shares, WRLI transferred 13,805,524 shares of its
$0.001 par value common stock. The acquisition was accounted for using the
purchase method of accounting as applicable to reverse acquisitions because the
former stockholders of the Company controlled the WRLI's common stock
immediately upon conclusion of the transaction. Under reverse acquisition
accounting, the post-acquisition entity was accounted for as a recapitalization
of the Company.
F-11