<PAGE>
INDEX TO FINANCIAL STATEMENTS
Information Solutions Group, Inc.
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..............................................F-1
Balance Sheets as of December 31, 1999 (Audited) and
March 31, 2000 (Unaudited)..................................................................F-2
Statements of Operations and Accumulated Deficit for the year ended December 31, 1999
(Audited) and the three months ended March 31, 2000 and 1999 (Unaudited)....................F-3
Statements of Cash Flows for the year ended December 31, 1999 (Audited) and the three
months ended March 31, 2000 and 1999 (Unaudited)............................................F-4
Notes to Financial Statements..................................................................F-5
</TABLE>
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Information Solutions Group, Inc.
We have audited the accompanying balance sheet of Information Solutions Group,
Inc. as of December 31, 1999, and the related statements of operations and
accumulated deficit, 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. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Information Solutions Group,
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.
/s/ ERNST & YOUNG LLP
Reno, Nevada
March 31, 2000
F-1
<PAGE>
Information Solutions Group, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 2000
----------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 7,158 $ 4,900
Accounts receivable 249,677 153,090
----------------------------------------
Total current assets 256,835 157,990
Furniture and equipment, net of accumulated depreciation and
amortization of $52,117 and $61,933, respectively 83,057 74,905
----------------------------------------
$ 339,892 $ 232,895
========================================
LIABILITIES AND SHAREHOLDERS' NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable $ 314,752 $ 247,482
Accrued liabilities 70,198 82,482
Line of credit - 35,000
Note payable to shareholder 10,000 -
Deferred revenue 394,627 413,167
Current portion of capital lease obligations 23,940 22,455
----------------------------------------
Total current liabilities 813,517 800,586
Capital lease obligations 25,944 48,536
Commitments (NOTE 9)
Shareholders' net capital deficiency:
Common stock, $.01 par value;
1,500,000 shares authorized;
840,000 shares issued and outstanding 8,400 8,400
Additional paid-in capital 225,912 225,912
Deferred stock compensation (183,250) (169,361)
Accumulated deficit (550,631) (681,178)
----------------------------------------
Total shareholders' net capital deficiency (499,569) (616,227)
========================================
$ 339,892 $ 232,895
========================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
Information Solutions Group, Inc.
Statements of Operations and Accumulated Deficit
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED MARCH 31,
DECEMBER 31, -------------------------------
1999 2000 1999
-------------------- ---- ----
(unaudited)
<S> <C> <C> <C>
Revenues:
Software license and support $ 1,090,219 $ 339,118 $ 125,933
Hardware systems 1,388,720 604,176 224,941
--------------------------------------------------
2,478,939 943,294 350,874
Cost and expenses:
Cost of software 204,545 54,972 38,334
Cost of hardware systems 1,078,339 499,378 169,051
Operating expenses 1,584,571 516,330 262,883
--------------------------------------------------
2,867,455 1,070,680 470,268
--------------------------------------------------
Loss from operations (388,516) (127,386) (119,394)
Other income (expenses):
Interest expense (3,633) (3,725) (400)
Interest income 2,561 564 628
--------------------------------------------------
Total other income (expenses) (1,072) (3,161) 228
Net loss (389,588) (130,547) (119,166)
Accumulated deficit, beginning of period (161,043) (550,631) (161,043)
--------------------------------------------------
Accumulated deficit, end of period $ (550,631) $ (681,178) $ (280,209)
==================================================
Basic net loss per share $ (0.46) $ (0.16) $ (0.14)
==================================================
Shares used in the calculation of
basic net loss per share 840,000 840,000 840,000
==================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Information Solutions Group, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED MARCH 31,
DECEMBER 31, -------------------------------
1999 2000 1999
-------------------- ---- ----
(unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (389,588) $ (130,547) $ (119,166)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 21,670 9,815 3,135
Stock compensation 39,000 13,889
Increase (decrease) in operating assets and
liabilities:
Accounts receivable (100,018) 96,587 36,808
Accounts payable 185,157 (67,270) (37,292)
Accrued liabilities 56,719 12,284 (6,748)
Deferred revenue 161,647 18,540 118,192
--------------------------------------------------
Net cash used in operating activities (25,413) (46,702) (5,071)
INVESTING ACTIVITIES
Purchase of furniture and equipment (35,184) (3,148) (3,321)
Proceeds from sale - leaseback of furniture and
equipment - 29,712 -
--------------------------------------------------
Net cash provided by (used in) investing
activities (35,184) 26,564 (3,321)
FINANCING ACTIVITIES
Payments on capital lease obligations (15,292) (7,120) (1,830)
Payment on note payable to shareholder - (10,000) -
Proceeds from line of credit - 35,000 -
Proceeds from note payable to shareholder 10,000 - -
--------------------------------------------------
Net cash provided by (used in) financing activities (5,292) 17,880 (1,830)
--------------------------------------------------
Net decrease in cash (65,889) (2,258) (10,222)
Cash, beginning of period 73,047 7,158 73,047
--------------------------------------------------
Cash, end of period $ 7,158 $ 4,900 $ 62,825
==================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Acquisition of furniture and equipment through
the incurrence of capital lease obligations $ 53,758 $ 29,712 $ -
Cash paid for interest $ 3,633 $ 3,725 $ 400
Cash paid for income taxes $ 1,173 $ - $ 1,173
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Information Solutions Group, Inc.
Notes to Financial Statements (continued)
December 31, 1999
(Information relating to March 31, 2000 and
the three months ended March 31, 1999 and 2000 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Information Solutions Group, Inc. (the "Company") is a Colorado corporation
formed in April 1994. The Company is engaged in two business segments, licensing
electronic real-estate forms, and consulting, resale, and installation of
hardware systems. The Company contracts with various real-estate boards
throughout the United States to provide the required forms and documents
electronically for real-estate agents in each location.
INTERIM FINANCIAL INFORMATION
The unaudited interim financial statements as of March 31, 2000 and for the
three months ended March 31, 2000 and 1999 have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2000.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of Position 97-2,
Software Revenue Recognition ("SOP 97-2"), as amended by Statement of Position
98-4, Deferral of the Effective Date of a Provision of SOP 97-2 ("SOP 98-4"),
and Statement of Position 98-9, Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions ("SOP 98-9"). The Company
derives revenue from the sale of software licenses and post-contract support
("support"). Support includes telephone technical support and rights to
unspecified upgrades on a when-and-if available basis. Revenue from license fees
is recognized when persuasive evidence of an agreement exists, delivery of the
product has occurred, the fee is fixed or determinable and collectibility is
probable. If collectibility is not considered probable, revenue is recognized
when the fee is collected.
F-5
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company recognizes revenue from the sale of hardware systems upon delivery
of the products and transfer of title. The Company recognizes revenues from
installation and consulting services upon the delivery of the services.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from two to five years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include capital lease obligations,
short-term borrowings, cash and equivalents, accounts receivable and accounts
payable. The amounts of capital lease obligations approximate their fair values,
which have been determined by the use of discounted cash flow analyses. The
carrying values of the Company's short-term borrowings approximated their fair
values, based on current incremental borrowing rates for similar types of
borrowing arrangements. The carrying amounts of cash and equivalents, accounts
receivable and accounts payable approximate fair value, based upon their
short-term nature.
INCOME TAXES
The Company accounts for income taxes by the asset/liability approach in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." Under this pronouncement, deferred
income taxes, if any, reflect the estimated future tax consequences when
reported amounts of assets and liabilities are recovered or paid. Deferred
income tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that are scheduled to be in effect when the
differences are expected to reverse.
F-6
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
The Company accounts for advertising costs as expenses in the period in which
they are incurred. Advertising expense for the year ended December 31, 1999
totaled approximately $111,000.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred, and are
included in operating expenses. Research and development costs were
approximately $155,000 for the year ended December 31, 1999.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB 25") and related Interpretations in
accounting for its stock option plan. Pro forma information regarding net
loss is required by Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation," ("SFAS 123"), which also requires that the
information be determined as if the Company had accounted for its employee
stock options granted subsequent to December 31, 1994 under the fair value
method of SFAS No. 123.
F-7
<PAGE>
2. RELATED PARTY TRANSACTIONS
The Company entered into a $10,000 unsecured note payable in November 1999 with
a shareholder. The note bears interest at 16% and is due in April 2000.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following as of December 31, 1999:
<TABLE>
<S> <C>
Furniture and fixtures $ 42,900
Computers, software and equipment 92,274
Less accumulated depreciation and amortization (52,117)
----------------
$ 83,057
================
</TABLE>
4. INCOME TAXES
The components of the Company's deferred income taxes as of December 31, 1999
are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryover $ 62,000
Deferred revenue 134,000
----------------
196,000
Deferred tax liabilities:
Depreciation (5,000)
----------------
191,000
Less: Valuation allowance (191,000)
----------------
$ -
================
</TABLE>
A valuation allowance has been established due to the Company's accumulated
losses as of December 31, 1999.
The Company has available $180,000 of unused operating loss carryforwards that
may be applied against future taxable income and that expire in 2019.
F-8
<PAGE>
5. LINE OF CREDIT
The Company entered into a revolving, unsecured, variable-rate line of credit
agreement (the "Line") with a bank, whereby the Company may borrow up to
$35,000. Interest on the Line is due monthly, calculated at the prime rate plus
6.75% (aggregating 15% at December 31, 1999). There were no borrowings
outstanding as of December 31, 1999.
6. CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under capital leases with a net book value
of $43,241 at December 31, 1999. Amortization for such equipment amounted to
$15,436 for the year ended December 31, 1999.
The future minimum lease payments under all capital leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
<C> <C>
2000 $ 28,550
2001 24,656
2002 3,219
------------------
Total minimum lease payments 56,425
Less: amount representing interest (6,541)
------------------
Present value of future minimum lease payments 49,884
Less: current portion (23,940)
------------------
Long-term portion $ 25,944
==================
</TABLE>
7. COMMON STOCK SPLIT
In March 1999, the Board of Directors authorized a common stock split whereby
each outstanding share of common stock was converted into 100 shares of common
stock. The stock split increased the number of outstanding shares from 8,400 to
840,000. All common stock share and per share amounts in the accompanying
financial statements and footnotes have been retroactively adjusted to reflect
the stock split.
F-9
<PAGE>
8. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options are
excluded from the computation of net loss per share because their effect is
antidilutive.
At December 31, 1999, the Company had outstanding options to purchase 77,000
shares of common stock, (with exercise prices ranging from $1.00 to $3.00). If
exercised, these options could potentially dilute basic earnings per share in
future periods.
9. COMMITMENTS
OPERATING LEASES
The Company leases its facilities and certain equipment under operating leases
expiring in July 2002. Future minimum rental payments under these operating
leases as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
2000 $ 32,440
2001 12,520
2002 1,493
---------------------
$ 46,453
=====================
</TABLE>
Rent expense totaled $31,213 for the year ended December 31, 1999 and has been
included in operating expenses.
F-10
<PAGE>
10. STOCK OPTION PLAN
In March 1999, the Company adopted the 1999 Stock Option Plan (the "Plan") and
reserved 100,000 shares of common stock for the issuance of incentive stock
options or non-qualified stock options. Under the terms of the Plan, options may
be granted to employees and consultants. Options granted under the Plan have a
term of ten years and vest ratably over four years from the date of grant. The
exercise price of incentive and non-qualified stock options granted under the
Plan may not be less than 100% of the fair market value of the Company's common
stock on the date of grant.
Pro forma information regarding net loss and earnings (loss) per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999: risk-free interest rate of 6.6%, dividend yield of 0%;
volatility factor of the expected market price of the Company's common stock of
0.9; and an expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. For purposes of pro
forma disclosures, the estimated fair value of the options is amortized to
expense over the vesting period. The Company's pro forma information follows:
<TABLE>
<CAPTION>
1999
---------------------
<S> <C>
Pro forma net loss $ 421,661
Pro forma basic net loss per share $ (0.50)
</TABLE>
F-11
<PAGE>
10. STOCK OPTION PLAN (CONTINUED)
The following table summarizes stock options available for grant as of December
31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Authorized 100,000
Granted (77,000)
Canceled -
---------------------
Available for future grant 23,000
=====================
</TABLE>
A summary of the status of the Plan as of December 31, 1999 is presented below:
<TABLE>
<CAPTION>
Weighted-Average
Shares Under Option Exercise Price
---------------------- -------------------------
<S> <C> <C>
Outstanding as of December 31, 1998 - $ -
Granted 77,000 1.24
Exercised - -
Canceled - -
---------------------- -------------------------
Outstanding as of December 31, 1999 77,000 $ 1.24
====================== =========================
Exercisable as of December 31, 1999 - -
====================== =========================
Weighted-average grant date fair value of options
granted during the year $ 0.28
==========
</TABLE>
F-12
<PAGE>
10. STOCK OPTION PLAN (CONTINUED)
The following table summarizes information about stock options outstanding as of
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------------------------------------------------
Weighted Average
Weighted
Exercise Price Shares Average Remaining Contractual
Range Under Option Exercise Price Life (in years)
-------------------------- --------------------- ---------------------- --------------------------
<S> <C> <C> <C>
$1.00 - $2.00 70,500 $1.08 9.3
$2.01 - $3.00 6,500 $3.00 9.8
---------------------
77,000 $1.24 9.3
=====================
</TABLE>
During the year ended December 31, 1999, the Company recorded deferred stock
compensation of $222,250 relating to stock options granted during the period
with exercise prices less than the estimated fair value of the Company's
common stock, as determined by management, on the date of grant. The deferred
stock compensation is being amortized into expense over the vesting period of
the stock options which is four years. Compensation expense of $39,000 was
recorded during the year ended December 31, 1999 relating to these options.
The remaining $183,250 will be amortized into expense in future periods.
11. RETIREMENT PLAN
The Company maintains a 401(k) Profit Sharing Plan (the "Plan") which covers all
employees meeting certain eligibility requirements. The Company matches 25% of
the first 8% of amounts contributed by employees. The Company made matching
contributions to the Plan totaling approximately $12,000 for the year ended
December 31, 1999.
12. BUSINESS SEGMENTS
During the year ended December 31, 1999, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). This statement established
standards for reporting information on operating segments in interim and annual
financial statements.
F-13
<PAGE>
12. BUSINESS SEGMENTS (CONTINUED)
The Company currently operates in two business segments, software license and
support and hardware systems. Data by segment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------
<S> <C>
Revenue:
Software license and support $ 1,090,219
Hardware systems 1,388,720
------------------
$ 2,478,939
==================
Operating income (loss):
Software license and support $ (479,020)
Hardware systems 90,504
------------------
$ (388,516)
==================
Identifiable assets:
Software license and support $ 73,604
Hardware systems 266,288
------------------
$ 339,892
==================
</TABLE>
13. YEAR 2000 ISSUE (UNAUDITED)
During 1999, the Company completed its assessment of the impact of the
accounting for the Year 2000 on its computer software and hardware systems used
in the Company's operating and accounting functions. Subsequent to year end, the
Company experienced no significant problems regarding Year 2000 computer issues.
14. SUBSEQUENT EVENT
The Company was acquired in April 2000 by HomeSeekers.com Incorporated. Under
the terms of the agreement, the Company's shareholders will receive
approximately 280,000 shares of HomeSeekers.com common stock.
F-14
