Exhibit 99.1
INTERCOASTAL DATA CORPORATION
FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
<PAGE>
INTERCOASTAL DATA CORPORATION
TABLE OF CONTENTS
PAGE
----
Financial statements:
Balance sheets.......................................................F-1 - F-2
Statements of income and comprehensive income..............................F-3
Statements of retained earnings............................................F-4
Statements of cash flows.............................................F-5 - F-6
Notes to financial statements.......................................F-7 - F-12
<PAGE>
INTERCOASTAL DATA CORPORATION
BALANCE SHEETS
JULY 31,
ASSETS
Current assets 2000 1999
-------------- ---------- ----------
Cash $ 360,943 $ 159,171
Investments in marketable securities 987,562 841,019
Accounts receivable 121,624 165,013
Prepaid expenses 400 400
----------- ----------
Total current assets 1,470,529 1,165,603
----------- ----------
Property, plant, and equipment, at cost
------------------------------
Land 43,549 43,549
Buildings 325,572 325,572
Furniture and equipment 367,652 342,674
Automobiles 42,013 42,013
Computer software 107,934 106,329
----------- ----------
886,720 860,137
Less accumulated depreciation (511,472) (461,051)
----------- ----------
375,248 399,086
----------- ----------
$ 1,845,777 $ 1,564,689
=========== ===========
See accompanying notes.
F-1
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INTERCOASTAL DATA CORPORATION
BALANCE SHEETS
JULY 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
------------- ----------
Current liabilities
Accrued expenses $ 31,000 $ 16,810
Deferred revenue 45,373 56,290
Obligations under capital lease,
current portion - related party 5,195 4,520
Income taxes payable 36,763 8,937
Deferred tax liability 272,054 204,207
----------- -----------
Total current liabilities 390,385 290,764
----------- -----------
Long-term liabilities
---------------------
Obligations under capital lease,
net of current portion - related party 15,060 20,260
Deferred tax liability 20,732 23,042
----------- -----------
35,792 43,302
----------- -----------
Stockholders' equity
--------------------
Common stock; $.50 par value,
1,000,000 shares authorized,
43,700 shares issued and outstanding 21,850 21,850
Additional paid-in capital 4,178 4,178
Retained earnings 672,706 663,505
Accumulated other comprehensive income
Unrealized gain on investments
in marketable securities 720,866 541,090
----------- -----------
1,419,600 1,230,623
----------- -----------
$ 1,845,777 $ 1,564,689
=========== ===========
See accompanying notes.
F-2
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<TABLE>
<CAPTION>
INTERCOASTAL DATA CORPORATION
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31,
2000 1999
---------------------- ----------------------
Three Six Three Six
Months Months Months Months
------------ -------- ---------- ---------
<S> <C> <C> <C> <C>
Sales $ 344,871 709,705 $ 345,382 $ 747,348
----------- -------- ---------- ---------
Operating expenses
Cost of service 126,713 270,243 127,140 259,288
Selling, general, and
administrative expenses 212,011 429,417 210,551 421,724
---------- -------- ---------- ---------
338,724 699,660 337,691 681,012
---------- -------- ---------- ---------
Income from operations 6,147 10,045 7,691 66,336
---------- -------- ---------- ---------
Other income (expenses)
----------------------
Interest expense (736) (1,512) (891) (1,817)
Interest income 4,633 6,348 1,170 1,459
Dividend income 3,328 5,401 3,851 5,180
Gain on sales of marketable
equity securities - 29,727 21,512 57,286
Loss on disposal of assets (10,508) (10,508) (7,058) (7,058)
---------- -------- ---------- --------
(3,283) 29,456 18,584 55,050
---------- -------- ---------- --------
Income before taxes 2,864 39,501 26,275 121,386
Income tax (benefit) expense (4,533) 4,763 (38,513) 24,602
---------------------------- ---------- -------- ---------- --------
Net income 7,397 34,738 64,788 96,784
Other comprehensive income
Unrealized gains on
marketable equity securities
Unrealized holding losses
arising during the period (20,830) (16,328) (122,611) (47,545)
---------- -------- ---------- --------
Total comprehensive
income [loss] $ (13,433) $ 18,410 $ (57,823) $ 49,239
========== ======== ========== ========
See accompanying notes.
</TABLE>
F-3
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<TABLE>
<CAPTION>
INTERCOASTAL DATA CORPORATION
STATEMENTS OF RETAINED EARNINGS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31,
2000 1999
------------------------ ------------------------
Three Months Six Months Three Months Six Months
------------ ----------- ------------ ----------
Retained earnings, beginning
<S> <C> <C> <C> <C>
of period $ 665,309 $ 637,968 $ 598,717 $ 566,721
Net income for the period 7,397 34,738 64,788 96,784
---------- ---------- ---------- ----------
Retained earnings, July 31, $ 672,706 $ 672,706 $ 663,505 $ 663,505
========== ========== ========== ==========
See accompanying notes.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
INTERCOASTAL DATA CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31,
Increase (Decrease) In Cash
2000 1999
---- ----
Three Months Six Months Three Months Six Months
------------ ---------- ------------ ----------
Cash flows from operating activities
------------------------------------
<S> <C> <C> <C> <C>
Net income $ 7,397 $ 34,738 $ 64,788 $ 96,784
-------- --------- --------- ---------
Adjustments to reconcile net
income to net cash provided by
operating activities Depreciation 10,777 21,155 10,343 20,686
Amortization 1,731 3,462 1,827 3,655
Deferred income taxes [benefit] (2,048) (683) (46,351) 15,166
Gain on investments in marketable
securities - (29,727) (21,512) (57,286)
Loss on disposal of property and
equipment 10,508 10,508 7,058 7,058
Changes in assets and liabilities
Accounts receivable 9,802 40,725 10,305 (38,501)
Prepaid expenses - 2,621 - 3,010
Accounts payable (1,268) (790) - (4,023)
Accrued expenses 10,921 9,289 (5,027) (4,287)
Deferred revenue (2,090) (8,213) (2,889) (3,107)
Income taxes payable (2,485) 5,446 7,323 8,936
--------- --------- --------- ---------
Total adjustments 35,848 53,793 (38,923) (48,693)
--------- --------- --------- ---------
Net cash provided by operating
activities 43,245 88,531 25,865 48,091
--------- --------- --------- ---------
Cash flows from investing activities
------------------------------------
Acquisition of property,
plant, and equipment - (23,780) (2,614) (2,614)
Proceeds from sale of marketable
securities - 70,294 36,332 77,183
Investments in marketable securities (373) (3,897) (43,225) (43,474)
--------- --------- --------- ---------
Net cash provided (used) by
investing activities (373) 42,617 (9,507) 31,095
--------- --------- --------- ---------
Cash flows from financing activities
------------------------------------
Principal payments on obligations
under capital lease (1,177) (2,341) (1,037) (2,038)
--------- --------- --------- ---------
Net increase in cash 41,695 128,807 15,321 77,148
Cash, beginning of period 319,248 232,136 143,850 82,023
--------- --------- --------- ---------
Cash, end of period $ 360,943 $ 360,943 $ 159,171 $ 159,171
========= ========= ========= =========
See accompanying notes.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
INTERCOASTAL DATA CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31,
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
2000 1999
---- ----
Three Months Six Months Three Months Six Months
------------ ---------- ------------ ----------
Cash paid during the periods for:
<S> <C> <C> <C> <C>
Interest $ 736 $ 1,512 $ 891 $ 1,817
Income taxes 0 0 0 0
See accompanying notes.
</TABLE>
F-6
<PAGE>
INTERCOASTAL DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
Note A
Summary of Significant Accounting Policies
------------------------------------------
Nature of Operations:
--------------------
INTERCOASTAL DATA CORPORATION (IDC), a Georgia corporation incorporated in 1972,
licenses EDI software and provides EDI services to users throughout the United
States.
Use of 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 revenues and expenses during the reporting period.
Estimates are used for, but not limited to, the accounting for doubtful
accounts, depreciation, deferred revenue, and accrued expenses. Actual results
could differ from those estimates.
Investments in Marketable Securities:
------------------------------------
The Company's marketable equity securities consist of equity securities that
have a readily determinable fair market value. Management determines the
appropriate classification of its investments at the time of purchase and
re-evaluates such determinations at each balance sheet date.
Since the Company does not intend to sell these securities in the near term,
they are classified as "available for sale" and, accordingly, are carried at
fair value with unrealized gains and losses reported as a separate component
within the stockholders' equity section of the balance sheets. Realized gains
and losses on all marketable securities are determined by specific
identification and are charged or credited to current earnings. The Company
accounts for any sales of investments on a first-in, first-out basis.
Accounts Receivable:
-------------------
The Company considers all accounts receivable to be fully collectible;
therefore, no allowance for doubtful accounts has been provided. The Company
does not require collateral for its accounts receivable. The amount of
accounting loss due to credit risk the Company would incur if the parties to the
accounts receivable failed to perform according to the terms of the agreements
would be the balance of the accounts receivable.
F-7
<PAGE>
INTERCOASTAL DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
Property, Plant, and Equipment:
------------------------------
Property, plant, and equipment are carried at cost. Expenditures for maintenance
and repairs are expensed currently while renewals and betterments that
materially extend the life of an asset are capitalized. The cost of assets sold,
retired, or otherwise disposed of and the related allowance for depreciation are
eliminated from the accounts, and any resulting gain or loss is included in
operations.
Depreciation is provided using both straight-line and accelerated methods over
the estimated useful lives of the assets, which are as follows:
Buildings 40 years
Furniture and equipment 5 - 7 years
Automobiles 4 - 5 years
Computer software 5 years
Revenue Recognition:
-------------------
Revenue consists primarily of consulting services, licensing fees, and
post-contract customer support. The Company accounts for such revenue in
accordance with the American Institute of Certified Public Accountants' (AICPA)
Statement of Position 97-2, "Software Revenue Recognition," as follows:
License revenue Revenue from the license of software is
recognized after shipment of the product and
fulfillment of acceptance terms, provided no
significant obligations remain and
collection of the resulting receivable is
deemed probable.
Installation, consulting, When services are provided.
and education
Support contract Ratably over the life of the contract from
effective date.
Income Taxes:
------------
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
relating primarily to the unrealized gains on marketable equity securities.
F-8
<PAGE>
INTERCOASTAL DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
Advertising:
-----------
The Company expenses all advertising costs as incurred. Advertising expenses for
the three months and ended July 31, 2000 and 1999, are $6,440 and $828, also
advertising expenses for the six months ended July 31, 2000 and 1999 are $6,848
and $980, respectively.
Note B
Uninsured Cash Balances
-----------------------
The Company from time to time maintains cash deposits in excess of federally
insured limits. At July 31, 2000 and 1999, the Company had approximately
$180,500 and $4,700, respectively, at risk.
Note C
Investments in Marketable Securities
------------------------------------
Cost and fair value of marketable securities available for sale are as follows:
Cost Unrealized Gains Fair Value
--------------- ------------------ ---------------
July 31, 2000 $ 266,697 $ 720,865 $ 987,564
=============== ================== ===============
July 31, 1999 $ 299,929 $ 541,090 $ 841,019
=============== ================== ===============
The unrealized gain on marketable securities, which is included as a separate
component of stockholders' equity in the accompanying balance sheets, decreased
$20,830 and $122,611 during the three months ended July 31, 2000 and 1999, and
also decreased $16,328 and $47,545 during the six months ended July 31, 2000 and
1999, respectively. The income tax expenses related to the unrealized gains on
marketable securities are included in the provision for income taxes within the
statement of operations. The amounts of income tax benefits recognized in the
financial statements related to the unrealized losses on marketable securities
are $7,862 and $46,274 for the three months ended July 31, 2000 and 1999, and
also $6,163 and $17,944 for the six months ended July 31, 2000 and 1999,
respectively.
F-9
<PAGE>
INTERCOASTAL DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
Note D
Income Taxes
------------
The provision for income taxes consists of:
2000 1999
---- ----
Three Six Three Six
Months Months Months Months
------ ------ ------ ------
Current Taxes
Federal $ $ 5,789 $ 6,662 $ 8,021
State - 1,022 1,176 1,415
--------- ---------- --------- --------
- 6,811 7,838 9,436
--------- ---------- --------- --------
Deferred Income Tax
(benefit) expense
Federal (3,853) (1,741) (39,398) 12,891
State (680) (307) (6,953) 2,275
--------- ---------- --------- --------
(4,533) (2,048) (46,351) 15,166
--------- ---------- --------- --------
Net income tax
(benefit) expense (4,533) (4,763) $ (38,513) $ 24,602
========= ========== ========= =========
The tax effects of temporary differences that give rise to the deferred tax
liability at July 31, 2000 and 1999, are presented below:
2000 1999
----------- ----------
Current
Deferred tax liability
Unrealized gains on marketable
securities $ 272,054 $ 204,207
========== ==========
Non-current
Deferred tax liability
Property and equipment, due to
differences in depreciation $ 20,732 $ 23,042
========== ==========
Note E
Related Party Transactions - Capital Lease
------------------------------------------
The Company leases equipment under a capital lease expiring in 2002 with an
interest rate of 14% per annum. Assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The assets are depreciated over their estimated useful
lives. Depreciation of assets under capital leases is included in depreciation
expenses.
The following is a summary of property and equipment held under capital leases:
F-10
<PAGE>
INTERCOASTAL DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
2000 1999
---- ----
Property and equipment under capital leases $ 32,149 $ 32,149
Less: Accumulated depreciation (19,290) (12,860)
--------- ---------
$ 12,859 $ 19,289
========= =========
Minimum future lease payments under capital leases are as follows:
July 31,
-------
2001 $ 7,711
2002 7,711
2003 9,181
--------
24,603
Less amount representing interest 4,348
--------
Present value of minimum lease payments 20,255
Current maturities of capital leases 5,195
--------
Long-term capital leases less current maturities $ 15,060
=========
The Company also leases additional equipment from a related party on a
month-to-month basis. The amount of lease expenses incurred by the Company in
connection with the leases was $1,822 and $1,872 during the three months ended
July 31, 2000 and 1999, and $3,647 and $3,644 for the six months ended July 31,
2000 and 1999, respectively. The amount of interest expense incurred on the
capital leases was $736 and $891 for the three months ended and $1,512 and
$1,817 for the six months ended July 31, 2000 and 1999, respectively.
Note F
Commitments and Contingencies
-----------------------------
Usage Commitment:
----------------
The Company entered into a long-distance contract with a telephone provider
during February 1999. The contract states that IDC will pay a minimum of $2,000
per month for 24 months. If the Company should discontinue service before the
contract expires, it would be obligated to pay the remaining monthly payments
multiplied by the remaining life. The Company can discontinue the contract if it
subscribes to a new phone plan with the same provider, which has a specified
revenue commitment equal to or greater than the remaining revenue commitment
under the plan being discontinued.
F-11
<PAGE>
INTERCOASTAL DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
Note G
Subsequent Events - Merger Agreement
------------------------------------
On August 2, 2000, the stockholders of the Company entered into a definitive
merger agreement with Internet Commerce Corporation (ICC) (Nasdaq: ICCSA); the
merger became effective on August 3, 2000, and the Company merged with and into
ICC. All issued and outstanding shares of the Company were surrendered by the
stockholders in consideration for $2 million in shares of ICC common stock and
additional shares equal to the value of the marketable equity securities valued
at the average of the average high and low trading prices for the ten trading
days ending four days prior to the closing date for a total of 190,861 shares of
ICC common stock. The Company's land and building were distributed to a third
company prior to the effective time of the merger. The third company is owned by
the Company's stockholders. The stockholders of the Company have the right to
receive additional shares of ICC common stock equal to the difference between
the number of shares calculated at the closing date and the number of shares of
ICC common stock calculated using the value of ICC common stock on the date the
registration statement becomes effective, not to exceed 125% of the total number
of shares of ICC common stock calculated at the closing date or 238,576 shares.
Additionally, the merger agreement includes an employment agreement for the
president of the Company terminating August 1, 2002. The employment agreement
includes an annual salary in the amount of $125,000 plus an annual bonus that
ranges from 10%-25% of the annual base salary. Also, the president is provided
with the option under the definitive merger agreement to purchase 10,000 shares
of ICC stock with the purchase price determined by the closing trading price of
the ICC common stock on August 2, 2000, the effective date of the employment
agreement.
It is the opinion of management that this transaction qualifies as a tax-free
reorganization within the meaning of section 368(a) of the Internal Revenue Code
of 1986.
F-12
