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Exhibit 99.1
GLOBE-1, INC.
================================================================================
FINANCIAL STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 1999, AND
SIX-MONTH PERIODS ENDED JUNE 30, 1999
AND 2000 (unaudited), AND
INDEPENDENT AUDITORS' REPORT
Deloitte & Touche LLP
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Globe-1, Inc.
Bellevue, Washington
We have audited the accompanying balance sheet of Globe-1, Inc. (the Company) as
of December 31, 1999, and the related statement of operations, changes in
shareholders' equity (deficiency), 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 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, such financial statements present fairly, in all material
respects, the financial position of Globe-1, Inc. as of December 31, 1999, and
the results of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
September 29, 2000
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GLOBE-1, INC.
BALANCE SHEETS
DECEMBER 31, 1999, AND JUNE 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
---- ----
(unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 93,302 $ 3,324,181
Accounts receivable 33,962 138,591
Other receivables - 118,200
--------- -----------
Total current assets 127,264 3,580,972
PROPERTY AND EQUIPMENT, net 175,621 652,453
OTHER ASSETS - 7,124
--------- ----------
TOTAL $ 302,885 $4,240,549
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 29,690 $ 62,520
Accrued expenses and other 39,472 133,473
Deferred stock-based compensation 574,530 32,642
--------- ----------
Total current liabilities 643,692 228,635
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock, no par value - Authorized, 20,000,000 and
40,000,000 shares; issued and outstanding, 10,058,962 shares 254,812 1,889,829
Convertible Series A preferred stock, no par value - Authorized,
10,000,000 shares; issued and outstanding, 4,335,940
shares ($3,989,065 liquidation preference) - 3,742,360
Accumulated deficit (595,619) (1,620,275)
--------- -----------
Total shareholders' equity (deficiency) (340,807) 4,011,914
--------- -----------
TOTAL $ 302,885 $ 4,240,549
========= ===========
</TABLE>
___
2
See notes to financial statements.
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GLOBE-1. INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999, AND SIX MONTHS ENDED
JUNE 30, 1999 AND 2000 (unaudited)
================================================================================
December 31, June 30, June 30,
1999 1999 2000
------ ------ ------
(unaudited)
REVENUE $ 360,248 $ 141,273 $ 338,545
COST OF REVENUE 76,650 26,790 89,517
--------- ---------- -----------
Gross profit 283,598 114,483 249,028
OPERATING EXPENSES:
General and administrative 239,441 114,636 962,095
Sales and marketing 153,908 82,137 314,465
Product development 2,230 - 38,456
--------- ---------- -----------
Total operating expenses 395,579 196,773 1,315,016
--------- ---------- -----------
Operating loss (111,981) (82,290) (1,065,988)
OTHER INCOME (EXPENSE) (2,680) - 41,332
--------- ---------- -----------
NET LOSS $(114,661) $ (82,290) $(1,024,656)
========= ========== ===========
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3
See notes to financial statements.
<PAGE>
GLOBE-1, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
YEAR ENDED DECEMBER 31, 1999, AND SIX MONTHS ENDED JUNE 30, 2000 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Series A
Common Stock preferred stock
------------------------- ------------------------
Accumulated
Shares Amount Shares Amount deficit Total
--------- ---------- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1999 10,058,962 $ 254,812 -- $ -- $ (480,958) $ (226,146)
Net loss -- -- -- -- (114,661) (114,661)
---------- ---------- ---------- ----------- ------------- ------------
BALANCE, December 31, 1999 10,058,962 254,812 -- -- (595,619) (340,807)
Issuance of common stock warrants
for services -- 1,419,088 -- -- -- 1,419,088
Issuance of Series A preferred
stock, net -- -- 4,335,940 3,742,360 -- 3,742,360
Issuance of common stock warrants
to Series A preferred shareholders -- 215,929 -- -- -- 215,929
Net loss -- -- -- -- (1,024,656) (1,024,656)
---------- ---------- ---------- ----------- ------------ ------------
BALANCE, June 30, 2000 (unaudited) 10,058,962 $1,889,829 4,335,940 $3,742,360 $(1,620,275) $ 4,011,914
========== ========== ========== =========== ============ ============
</TABLE>
___
4
See notes to financial statements.
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GLOBE-1, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999, AND SIX MONTHS ENDED
JUNE 30, 1999 AND 2000 (unaudited)
================================================================================
December 31, June 30, June 30,
1999 1999 2000
---- ---- ----
(unaudited)
OPERATING ACTIVITIES:
Net loss $(114,661) $(82,290) $(1,024,656)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization 8,521 3,145 9,946
Stock-based compensation 272,314 124,995 870,075
Cash provided (used) by changes in
operating assets and liabilities:
Accounts receivable 50,188 26,497 (104,629)
Other receivables - - (118,200)
Deferred revenue (9,334) (6,667) -
Accounts payable 23,440 11,643 32,830
Accrued expenses and other 18,909 11,322 94,001
--------- -------- -----------
Net cash provided (used) by operating
activities 249,377 88,645 (240,633)
INVESTING ACTIVITIES:
Purchase of property and equipment (161,965) (69,563) (486,777)
FINANCING ACTIVITIES:
Borrowings under line of credit 12,584 12,107 -
Repayments under line of credit (12,584) (1,099) -
Issuance of Series A preferred stock, net - - 3,742,360
Issuance of common stock warrants to Series
A preferred shareholders - - 215,929
--------- -------- -----------
Net cash provided by financing activities - 11,008 3,958,289
--------- -------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 87,412 30,090 3,230,879
CASH AND CASH EQUIVALENTS:
Beginning of period 5,890 5,890 93,302
--------- -------- -----------
End of period $ 93,302 $ 35,980 $ 3,324,181
========= ======== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $ 1,562 $ 628 $ 204
___
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See notes to financial statements.
<PAGE>
GLOBE-1, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999, AND SIX MONTHS ENDED
JUNE 30, 1999 AND 2000 (unaudited)
================================================================================
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business: Globe-1, Inc. (the Company) was incorporated March
27, 1996, in the state of Washington as a Subchapter S corporation. On January
1, 1999, the Company revoked its Subchapter S status and registered as a C
corporation, also in the state of Washington.
The Company is a government to business exchange that provides procurement
services by electronically distributing government agency bid solicitations
and notices to targeted companies in its established vendor pool.
The Company is subject to certain business risks that could affect future
operations and financial performance. These risks include changes in
technology and increased competition.
Unaudited interim financial statements: The financial statements as of June
30, 2000, and for the six-month periods ended June 30, 1999 and 2000, are
unaudited and reflect all adjustments (consisting of normal, recurring
adjustments) which are, in the opinion of the Company's management, necessary
for a fair presentation of financial position, results of operations, and cash
flows. All financial statement disclosures related to the six-month periods
ended June 30, 1999 and 2000, are unaudited.
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
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents: The Company considers all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents. The
Company maintains its cash in interest-bearing and noninterest-bearing cash
accounts and money market funds. The Company's money market accounts are
carried at cost which approximates fair market value.
Internally developed software: The Company adopted Statement of Position (SOP)
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, on January 1, 1999. SOP 98-1 requires all costs related to the
development of internal use software other than those incurred during the
application development stage to be expensed as incurred. Costs incurred
during the application development stage are required to be capitalized and
amortized over the estimated useful life of the software. The Company
capitalized $151,958 in internally developed software costs during the year
ended December 31, 1999, and $6,065 and $29,874 during the six-month periods
ended June 30, 1999 and 2000, respectively. Capitalized software costs are
amortized on a straight-line basis over useful lives ranging from three to
five years. Amortization related to capitalized software was $2,230 for the
year ended December 31, 1999, and $4,460 for the six-month period ended June
30, 2000, respectively, and is recorded as a product development expense.
Property and equipment: Property and equipment are stated at cost.
Depreciation expense is recorded using the straight-line method for financial
statement purposes and accelerated methods for federal income tax purposes
over estimated useful lives of two to five years.
____
6
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Stock-based compensation: The Company has elected to account for its employee
and director stock-based awards under the provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Under
APB Opinion No. 25, compensation cost for stock options and warrants is
measured as the excess, if any, of the fair value of the underlying common
stock on the date of grant over the exercise price of the stock option or
warrant. The Company is required to implement the provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, for stock-based awards to nonemployees. The Company accounts for
nonemployee stock-based awards under the fair value method as prescribed by
SFAS No. 123, using a Black-Scholes pricing model with the following
underlying assumption: risk-free interest rates of 6.29% in 1999 and 6.59% in
2000; expected lives of three to four years; and stock price volatility of 70%
in 1999 and 96% in 2000.
Revenue recognition: The Company generates revenue primarily through delivery
of procurement services. Such revenue is recognized as services are performed.
Income taxes: Upon the election to revoke its Subchapter S corporation status,
the Company began accounting for income taxes under SFAS No. 109, Accounting
for Income Taxes. Under SFAS No. 109, deferred tax assets, including net
operating losses and liabilities are determined based on temporary differences
between the book and tax bases of assets and liabilities based on tax rates
expected to be in effect when the temporary differences reverse. The Company
provides a valuation allowance for deferred tax assets that cannot be
currently recognized due to the Company's losses and uncertainty of future
profitability.
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31, June 30,
1999 2000
---- ----
(unaudited)
Computers $ 22,055 $100,421
Furniture and fixtures 1,718 13,116
Office equipment 9,450 25,835
Software 155,998 532,167
-------- --------
189,221 671,539
Accumulated depreciation (13,600) (19,086)
-------- --------
$175,621 $652,453
======== ========
NOTE 3: LINE OF CREDIT
During 1998, the Company entered into a line-of-credit arrangement for $30,000,
with interest at prime plus 1%. There were no amounts outstanding under the line
of credit at December 31, 1999, or June 30, 2000.
On May 15, 2000, the Company entered into a line-of-credit arrangement for
$500,000 with a maturity date of November 25, 2000. Interest shall accrue on
advances at prime plus 1.25%. There were no amounts outstanding under the line
of credit at June 30, 2000. To facilitate this transaction, the Company issued
warrants to purchase 21,739 shares of common stock at $.92 per share.
____
7
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NOTE 4: INCOME TAXES
The tax effects of temporary differences and net operating loss carryforwards
that give rise to the Company's deferred tax assets and liabilities are as
follows:
December 31, June 30,
1999 2000
---- ----
(unaudited)
Deferred tax assets:
Net operating loss carryforwards $ - $302,000
Stock-based compensation 93,000 170,000
-------- --------
Gross deferred tax assets 93,000 472,000
Deferred tax liabilities:
Depreciation (54,000) (76,000)
------- -------
Net deferred tax assets 39,000 396,000
Valuation allowance (39,000) (396,000)
------- -------
Deferred tax assets $ - $ -
======== ========
The Company has not recorded any benefit from temporary differences and net
operating loss carryforwards, as realization of such benefits is not reasonably
assured. The Company's net operating loss carryforwards of $888,000 as of June
30, 2000, expire in 2020. The net change in the valuation allowance during the
year ended December 31, 1999, and the six months ended June 30, 2000, was
$39,000 and $357,000, respectively.
NOTE 5: SHAREHOLDERS' EQUITY
Authorized shares: On March 16, 2000, the Board of Directors increased the
number of authorized shares of common stock from 20,000,000 to 40,000,000 and
authorized the issuance of 10,000,000 shares of preferred stock, of which
4,347,827 shares are designated as Series A preferred stock. On July 17, 2000,
the number of Series A preferred stock was increased to 4,891,305.
Preferred stock: In 2000, the Company issued 4,335,940 shares of Series A
preferred stock for $3,773,136, net of issuance costs of $30,776. These shares
are convertible at the option of the holder into common stock at the Series A
conversion price, initially $.92 per share, and are automatically convertible
at the option of the holders or upon an initial public offering. Dividends are
payable when and if declared by the Board of Directors. In the event of a
voluntary or involuntary liquidation, dissolution, or winding up of the
Company, the holders of Series A preferred stock will be entitled to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of the Company to the holders of common stock, the amount of $.92 per
share, plus an amount equal to all declared but unpaid dividends on the
preferred stock. Each share of Series A preferred stock has voting rights and
powers equivalent to each full share of common stock to which the respective
shares of preferred stock would be convertible on the record date for the
vote. Related to this issuance, the Company recorded a receivable of $118,200
for amounts not collected as of June 30, 2000. These amounts have since been
received.
The Company also issued warrants to purchase shares of common stock to these
preferred stock shareholders at exercise prices ranging from $.08 to $.92 per
share. Proceeds from the respective
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<PAGE>
preferred stock issuances were allocated between the preferred stock and the
common stock warrants based on their relative fair values.
Common stock warrants: In 2000, the Company issued warrants to purchase common
stock to employees and nonemployees for services rendered in 2000 or prior, to
satisfy deferred stock-based compensation of $1,411,964. These warrants vest
immediately and have five-year terms from the date of grant. The exercise
prices range from $.02 to $.083 per share. Noncash stock-based compensation of
$272,315, $124,995, and $226,413 was recognized for the year ended December
31, 1999, and the six-month periods ended June 30, 1999 and 2000,
respectively. Of these amounts, $138,572, $61,795, and $56,178 were
capitalized for the year ended December 31, 1999, and the six-month periods
ended June 30, 1999 and 2000, respectively, as costs incurred for development
of internal use software.
The Company recorded $32,642 of deferred stock-based compensation as of June
30, 2000, related to services performed by a nonemployee. In the third quarter
of 2000, the Company issued 25,000 warrants to purchase common stock at an
exercise price of $.10 per share to satisfy such obligation.
Stock option plan: In March 2000, the Board of Directors approved a stock
option plan with 3,000,000 shares of the Company's common stock to be reserved
for issuance to employees, directors, and nonemployees.
NOTE 6: COMMITMENTS AND CONTINGENCIES
Operating leases: The Company has a month-to-month lease for its corporate
facilities which terminated April 15, 2000. Upon such termination, the Company
entered into a new lease agreement that terminates on March 31, 2005. Rent
expense under the Company's operating leases was $13,056 for the year ended
December 31, 1999, and $7,616 and $30,757 for the six-month periods ended June
30, 1999 and 2000, respectively.
Future minimum rental payments required under the noncancellable operating
leases are as follows for the years ending December 31:
2000 $ 93,080
2001 135,972
2002 139,812
2003 143,643
2004 147,480
Thereafter 37,110
--------
$697,097
========
On September 22, 2000, the Company signed an agreement to sublease these
facilities starting October 1, 2000, to a third party at monthly payments of
$11,091 through April 15, 2001.
Litigation: In the normal course of business, various legal claims and other
contingent matters may arise. Management believes that any liability that may
arise from such matters would not have a material adverse effect on the
Company's results of operations, cash flows, or financial position.
NOTE 7: RELATED PARTY TRANSACTIONS
Certain shareholders provided consulting services to the Company of $17,807 for
the year ended December 31, 1999, and $7,585 and $51,613 for the six-month
periods ended June 30, 1999 and 2000,
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respectively. Of these amounts, approximately $3,000 and $1,200 remained unpaid
as of December 31, 1999, and June 30, 2000, respectively.
The founder of the Company sold certain equipment to the Company since
inception. Amounts due to the founder for these sales were $26,955 and $6,245 as
of December 31, 1999, and June 30, 2000, respectively, and are included in
accrued expenses and other on the balance sheets.
NOTE 8: SUBSEQUENT EVENTS
On July 25, 2000, the Company entered into a merger agreement with Onvia.com,
Inc. to sell all the issued and outstanding shares of the Company in exchange
for approximately $2.85 million shares of Onvia.com, Inc. common stock. The
merger was approved by the Company's shareholders on July 23, 2000, and was
consummated on August 10, 2000.
Prior to the close of the merger, the Company repurchased 315,594 shares of
common stock from Robert E. Gilmore, founder, for $500,000.
In the third quarter of 2000, the Company granted 220,000 options to purchase
common stock to two employees under its stock option plan. These options were
fully vested and had an exercise price of $.10 per share. The Company recognized
$256,258 of expense at the date of grant. These options were exercised
immediately.
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