EXHIBIT 99.1
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
California Clean Air, Inc.
(formerly Breakthrough Technology Partners I, Inc.)
(A Development Stage Enterprise)
We have audited the consolidated balance sheets of California Clean Air, Inc.
(formerly Breakthrough Technology Partners I, Inc.) (a development state
enterprise) as of December 31, 2002, and the related consolidated statements of
operations, changes in net capital deficiency, and cash flows for the years then
ended and for the cumulative activity during development stage from June 2, 2000
(inception) through December 31, 2002. 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
audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 audits provide 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 California Clean
Air, Inc. (formerly Breakthrough Technology Partners I, Inc.) (a development
stage enterprise) as of December 31, 2002 and 2001 and the results of its
operations and its cash flows for the years then ended and for the cumulative
activity during development stage June 2, 2000 (inception) through December 31,
2002 in accordance with U.S. generally accepted accounting principles.
March 25, 2003, except with respect to Note 6
as to which the date is June 16, 2003
Portland, OR
CALIFORNIA CLEAN AIR, INC.
(formerly Breakthrough Technology Partners I, Inc.)
(A Development Stage Enterprise)
Consolidated Balance Sheets
December 31
----------------------
2002 2001
ASSETS --------- ---------
------
Current assets $ - $ -
--------- ---------
Total current assets - -
Other assets - -
--------- ---------
$ - $ -
========= =========
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities -
Accrued state taxes payable $ 20 $ -
--------- ---------
Total current liabilities 20 -
Payable to related party 49,531 26,421
Stockholders' equity:
Preferred stock; $.001 par value; authorized 20,000,000 shares - -
Common stock; $.001 par value; authorized 100,000,000 shares;
issued and outstanding 5,000,000 shares 5,000 5,000
Deficit accumulated during development stage (54,551) (31,421)
--------- ---------
Net capital deficiency (49,551) (26,421)
--------- ---------
$ - $ -
========= =========
See accompanying notes.
CALIFORNIA CLEAN AIR, INC.
(formerly Breakthrough Technology Partners I, Inc.)
(A Development Stage Enterprise)
Consolidated Statements of Operations
Cumulative
activity during
development
stage
June 2, 2000
(inception)
Years ended December 31 through
--------------------------------- December 31,
2002 2001 2002
--------------- ---------------- -----------------
Operating expenses $ 23,110 $ 26,421 $ 50,031
--------------- ---------------- -----------------
Net loss from operations (23,110) (26,421) (50,031)
Provision for income taxes - State of Oregon 20 - 20
--------------- ---------------- -----------------
Net loss $ (23,130) $ (26,421) $ (50,051)
=============== ================ =================
Net loss per common share $ (.0046) $ (.0053) $ (.0100)
=============== ================ =================
See accompanying notes.
CALIFORNIA CLEAN AIR, INC.
(formerly Breakthrough Technology Partners I, Inc.)
(A Development Stage Enterprise)
Consolidated Statements of Changes in Net Capital Deficiency
June 2, 2000 (inception) through December 31, 2002
Deficit
accumulated
Preferred stock Common stock during
------------------------ ------------------------- development Net capital
shares amount shares amount stage deficiency
----------- ----------- ------------ ----------- ---------------- ---------------
Shares issued in
exchange for
services - $ - 5,000,000 $ 500 $ - $ 500
Effect of change in
par value of capital
stock - - - 4,500 (4,500) -
Net loss for the
period from
June 2, 2000
(inception)
through
December 31,
2000 - - - - (500) (500)
----------- ----------- ------------ ----------- ---------------- ---------------
Balance at
December 31,
2000 - - 5,000,000 5,000 (5,000) -
Net loss - - - - (26,421) (26,421)
----------- ----------- ------------ ----------- ---------------- ---------------
Balance at
December 31,
2001 - - 5,000,000 5,000 (31,421) (26,421)
Net loss - - - - (23,130) (23,130)
----------- ----------- ------------ ----------- ---------------- ---------------
Balance at
December 31,
2002 - $ - 5,000,000 $ 5,000 $ (54,551) $ (49,551)
=========== =========== ============ =========== ================ ===============
See accompanying notes.
CALIFORNIA CLEAN AIR, INC.
(formerly Breakthrough Technology Partners I, Inc.)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
Cumulative
activity during
development
stage
June 2, 2000
(inception)
Years ended December 31 through
--------------------------------- December 31,
2002 2001 2002
--------------- ---------------- ---------------
Cash flows from operating activities:
Net loss $ (23,130) $ (26,421) $ (50,051)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Shares issued in exchange for services - - 500
Increase in accrued state income taxes 20 - 20
---------- ---------- ----------
(23,110) (26,421) (49,531)
Cash flows from financing activities -
Expenses paid by related party on behalf
of Company 23,110 26,421 49,531
---------- ---------- ----------
Net change in cash $ - $ - $ -
========== ========== ==========
Supplemental schedule of noncash
financing activities - common stock issued
in exchange for services $ - $ - $ 500
========== ========== ==========
See accompanying notes.
CALIFORNIA CLEAN AIR, INC.
(formerly Breakthrough Technology Partners I, Inc.)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
December 31, 2002
1. Summary of significant accounting policies
------------------------------------------
COMPANY: California Clean Air, Inc. (the "Company") was originally
incorporated in the State of Delaware as Breakthrough Technology
Partners I, Inc. on June 2, 2000 to serve as a vehicle to affect a
merger, exchange capital stock, participate in an asset acquisition, or
any other business combination with a domestic or foreign private
business.
Effective December 20, 2002, the Company changed its state of
incorporation and legal domicile to the State of Nevada and
simultaneously changed its name to California Clean Air, Inc. The
change of legal domicile and change of name occurred pursuant to an
Agreement and Plan of Merger dated December 18, 2002 between the
Company and California Clean Air, Inc., a Nevada corporation.
BASIS OF CONSOLIDATION: On November 21, 2002, the Company organized
Smog Centers of California, LLC ("Smog Centers"), an Oregon limited
liability company. California Clean Air, Inc. is the sole owner of Smog
Centers. Smog Centers was organized to acquire, own and operate
test-only vehicles emissions inspection facilities in the State of
California under their Smog Check II program.
The consolidated financial statements include the accounts of
California Clean Air, Inc. and Smog Centers. All intercompany accounts
and transactions have been eliminated.
DEVELOPMENT STAGE ENTERPRISE: Since inception, the Company has not
commenced any formal business operations. The Company is considered to
be in the development stage and therefore has adopted the accounting
and reporting standards of Statement of Financial Accounting Standards
No. 7, "Accounting and Reporting by Development Stage Enterprises".
CASH EQUIVALENTS: For purposes of the consolidated statements of cash
flows, cash equivalents include all highly liquid investments purchased
with original maturities of three months or less.
INCOME TAXES: Income taxes are provided on the liability method whereby
deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases and
reported amounts of assets and liabilities. Deferred tax assets and
liabilities are computed using enacted tax rates expected to apply to
taxable income in the years in which temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities from a change in tax rates is recognized in income in the
period that includes the
CALIFORNIA CLEAN AIR, INC.
(formerly Breakthrough Technology Partners I, Inc.)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
December 31, 2002
1. Summary of significant accounting policies (continued)
------------------------------------------------------
INCOME TAXES (CONTINUED): enactment date. The Company provides a
valuation allowance for certain deferred tax assets if it is more
likely than not that the Company will not realize tax assets through
future operations.
REPORTING CONSOLIDATED COMPREHENSIVE INCOME (LOSS): The Company reports
and displays consolidated comprehensive income (loss) and its
components as separate amounts in the consolidated financial statements
with the same prominence as other financial statements. Consolidated
comprehensive income (loss) includes all changes in equity during the
year that results from recognized transactions and other economic
events other than transactions with owners. There were no components of
consolidated comprehensive income to report for the years ended
December 31, 2002 and 2001.
NET LOSS PER SHARE: Net loss per share is computed by dividing net loss
by the weighted average number of shares outstanding during the period.
The weighted average number of shares outstanding was 5,000,000 for the
years ended December 31, 2002 and 2001 and for the cumulative activity
during development stage June 2, 2000 (inception) through December 31,
2002.
USE OF ESTIMATES: The preparation of consolidated financial statements
in conformity with U.S. 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 consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Transactions with related parties
---------------------------------
The Company's operating expenses since inception, consisting
principally of professional services, has been paid for by an
individual considered to be a related party. The advances are
non-interest bearing and due on demand; however, this individual has
agreed not to demand repayment until cash is available from a merger,
capital stock exchange, asset acquisition, or other business
combination, or from operations.
3. Recapitalization
----------------
Effective December 20, 2002, the authorized capital stock of the
Company was increased to 20,000,000 shares of preferred stock and
100,000,000 shares of common stock and changed the par value of each
class of capital stock from $.0001 per share to $.001 per share. All
share amounts have been restated in the accompanying consolidated
financial statements.
CALIFORNIA CLEAN AIR, INC.
(formerly Breakthrough Technology Partners I, Inc.)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
December 31, 2002
4. Preferred stock
---------------
The Company's preferred stock may be voting or have other rights and
preferences as determined from time to time by the Board of Directors.
5. Income taxes
------------
Deferred income taxes consisted of the following at December 31:
2002 2001
--------- ---------
Deferred tax asset - business start-up and organizational
expenditures $ 10,800 $ 5,520
Valuation allowance (10,800) (5,520)
--------- ---------
Net deferred income taxes $ - $ -
========= =========
Reconciliation of income taxes computed at the Federal statutory rate
of 34% to the provision for income taxes is as follows:
Cumulative
activity during
development
stage
June 2, 2000
(inception)
Years ended December 31 through
--------------------------------- December 31,
2002 2001 2002
--------------- ---------------- -----------------
Tax at statutory rates $ (7,857) $ (8,983) $ (17,017)
Differences resulting from:
Progressive tax rates 4,390 5,020 9,512
State taxes net of federal tax benefit (1,793) (1,482) (3,275)
Change in deferred tax valuation allowance 5,280 5,445 10,800
--------------- ---------------- -----------------
Provision for income taxes $ 20 $ - $ 20
=============== ================ =================
CALIFORNIA CLEAN AIR, INC.
(formerly Breakthrough Technology Partners I, Inc.)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
December 31, 2002
6. Subsequent events
-----------------
BUSINESS COMBINATION: On June 16, 2003, Smog Centers entered into a
Letter of Intent to acquire all of the assets used in a privately held
business operating a test-only vehicles emissions inspection facility
in the State of California under their Smog Check II program. The
business combination will be accounted for as a purchase.
Under the Letter of Intent, Smog Centers paid $60,000 for the net
assets of the business. The entire purchase price will be allocated to
inspection equipment.
The acquisition can be summarized as follows:
Assets acquired $ 60,000
Fair value of consideration tendered 60,000
---------
Goodwill acquired in acquisition $ -
=========
The following pro forma summary presents consolidated financial
position and results of operations as if acquisition had been acquired
as of the beginning of the Company's 2002 and 2001 fiscal years:
December 31
---------------------------------
2002 2001
---------------- ---------------
Current assets $ 9,832 $ -
Tangible net assets 36,000 48,000
Total assets 45,832 48,000
Current liabilities - -
Total liabilities - 16,560
Total stockholders' equity 45,832 31,440
Years ended December 31
---------------------------------
2002 2001
---------------- ---------------
Net sales $ 74,115 $ 99,045
Cost of goods sold 13,588 18,159
Operating expenses 46,135 49,446
Net income 14,392 31,440
Earnings per common share .003 .006
The above amounts are based upon certain assumptions and estimates,
which the Company believes are reasonable. The pro forma financial
position and results of operations do not purport to be indicative of
the results which would have been obtained had the business combination
occurred as of January 1, 2001 or which may be obtained in the future.
CALIFORNIA CLEAN AIR, INC.
(formerly Breakthrough Technology Partners I, Inc.)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
December 31, 2002
6. Subsequent events (continued)
-----------------------------
STOCKHOLDERS EQUITY: On May 29, 2003, shareholders who owned 4,000,000
shares of the Company's common stock agreed to exchange their shares
for 4,000,000 shares of the Company's Series A Convertible Preferred
Stock.