-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fpx00aP/ol68XOR00hPIOAwM9gbZgxsPKvwk9nQn9BZzFvTwBmuGgeWqwW7aUNVj mzcFSB/rR7m0aPjZt76r1g== 0000891554-99-002330.txt : 19991215 0000891554-99-002330.hdr.sgml : 19991215 ACCESSION NUMBER: 0000891554-99-002330 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19991214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNET HOLDINGS INC CENTRAL INDEX KEY: 0001001601 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 133758042 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-26888 FILM NUMBER: 99774207 BUSINESS ADDRESS: STREET 1: C/O LAW OFFICE OF BECKMAN MILLMAN & SAND STREET 2: 116 JOHN STREET CITY: NEW YORK STATE: NY ZIP: 10038 BUSINESS PHONE: 2124064700 MAIL ADDRESS: STREET 1: C/O LAW OFFICE OF BECKMAN MILLMAN & SAND STREET 2: 116 JOHN STREET CITY: NEW YORKMELVILLE STATE: NY ZIP: 10038 FORMER COMPANY: FORMER CONFORMED NAME: CHINA BIOMEDICAL GROUP INC DATE OF NAME CHANGE: 19951003 10KSB 1 FORM 10-KSB U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-KSB [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-26886 INTERNET HOLDINGS, INC. (Exact name of Company as specified in its charter) Utah 13-3758042 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) c/o Beckman, Millman & Sanders, LLP 116 John Street - Suite 1313 New York, New York 10038 (Address of principal executive offices) (Zip Code) Company's telephone number, including area code: (212) 406-4700 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: None Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) had been subject to such filing requirements for the past 90 days. Yes [_] No [X] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [X] State issuer's revenue for its most recent fiscal year: $ 79 State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked price of such stock, as of a specified date within the past 60 days: $4,503,873 as of December 30, 1998 State the number of shares outstanding of each of the Registrant's classes of common equity as of the latest 2,119,470 shares as of practicable date: December 31, 1998 -1- PART I Item 1. Description of Business Internet Holdings, Inc. (the "Company" or the "Registrant") had no operations during this reporting period, following the divestiture of the Company's only operating subsidiary Chiron Systems Ltd. ("CSL") with effect from December 19, 1997; pursuant to the acquisition agreement dated May 22, 1997. The structure of the divestiture was that the Company delivered to certain shareholders of the Company who had previously owned CSL all the outstanding shares in CSL. The CSL shareholders returned to the Company the shares held by them pursuant to the acquisition agreement. On July 28, 1998, CSL's creditors placed CSL into involuntary liquidation. As a result of the collapse and insolvency of CSL, the Company was advised by its lawyers that any rights it may have had under the acquisition agreement against CSL were not worth pursuing because even if a judgment were obtained, there was no prospect of any payment being made to the Company. As a result of this divestiture and the failure of CSL, the Company was unable to deliver products and technology as contracted under agreements with its joint venture partners. This failure led to legal proceedings. The Company countercharged that the assets purchased by it from its joint venture partners had not been effectively transferred. During the period September 1997 to October 1999 the Company was unable to raise funds to develop its business, unable to settle the outstanding litigation relating to its joint ventures and had its indebtedness been demanded the Company would have been unable to repay. In November 1999, the Company finally settled these legal proceedings and entered into a comprehensive settlement agreement. The adjudication of this matter enabled the Company to move forward. By this agreement the Company agreed not to pursue claims against certain assets purchased from the joint venture partners, the joint venture partners agreed not to pursue claims against the Company for alleged negligence and breach of contract and the Company was released from debts totaling approximately $300,000. This resulted in a net write off to the Company of $1.9 million. Following the planned appointment of additional management and the settlement of the legal proceedings the Company can now proceed to rebuild its business. Marketing The Company had no sales during the year. Employees None 2 Item 2. Description of Property During the year, the Company did not maintain offices. A mailing address and facility for meetings is maintained at the offices of the Company's legal counsel Beckman, Millman & Sanders, LLP. Item 3. Legal Proceedings During the period of the Company's ownership of CSL, in addition to other matters, the Company devoted considerable resources to expanding the market for CSL's products in Asia and Africa. Both these regions possess rapidly growing markets where there is substantial demand for new telephony technology. The efforts in these new markets were extremely successful with joint ventures being agreed in both Asia and Africa. However, the collapse of CSL and the consequent inability of the Company to supply products or technology to either joint venture left the Company exposed to allegations of breach of contract. The continuing defense against legal proceedings meant that the Company was unable to raise funds to continue its business. Item 4. Submission of matters to a Vote of Security Holders None 3 PART II Item 5. Market for Common Equity and Related Stockholder Matters The Company's Common Stock has been traded on the Over-The-Counter Bulletin Board (OTC - Bulletin Board) since July 22, 1977 and is currently traded under the symbol "HTTP". The following are reported high and low quotations for the Company's Common Stock for the periods indicated and do not include dealer mark ups, mark downs or commissions nor do they represent actual sale prices: Low High First Quarter 1998 3/32 5/16 Second Quarter 1998 3/8 3/8 Third Quarter 1998 5/32 5/8 Fourth Quarter 1998 1/8 2 1/8 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Sources of Capital As of December 31, 1998, the Registrant had current assets of $271 as compared to $35,600 as of December 31, 1997. On October 27, 1999 the Company filed a Form 8-K setting out a contingent acquisition, which, if consummated, would provide the Company with $2,160,000 in cash and liquid securities. This agreement is conditional on the settlement of all outstanding litigation, the filing of outstanding periodic and annual reports under the Securities Exchange Act of 1934, as amended, and the maintenance of the Company's quotation on the OTC - Bulletin Board. Results of Operations The Company had no operations during the period. Item 7. Financial Statements Attached. Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable. 4 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons in Compliance With Section 16(a) of the Exchange Act Christopher J. Wilkes, aged 33, became a Director of the Company on September 30, 1996. Mr. Wilkes also holds the offices of Chairman and President of the Company. He holds these offices and positions until the next annual meeting of the Company. Mr. Wilkes is the Senior Partner of Levenworth Management, a management consulting company based in the United Kingdom, which he founded in 1992. He has advised on the restructuring and operations of companies in a number of different industries and has an international clientele. Lewis M. Klee, aged 44, served as a Director of the Company beginning on September 30, 1996. Although Mr. Klee no longer holds this position, he still serves as Secretary of the Company. On August 1, 1996 Mr. Klee became the Managing Partner of the Law Office of Lewis M. Klee Esq., prior to this he was of counsel to the Law Office of Steven A. Sanders P.C. Item 10. Executive Compensation Mr. Wilkes was paid $12,178 in consultancy fees during the period. Item 11. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information with respect to beneficial ownership of Common Stock by (i) each person known by the Company to own beneficially more than five percent (5%) of the outstanding Common Stock of the Company, (ii) each director of the Company, and (iii) all directors and officers of the Company as a group. Except as other wise indicated the named person has sole voting and investment power with respect to such person's shares. Number of Common shares Name Beneficially owned Percent Christopher J. Wilkes 253,304 11.9% President & Director 22 Parrotts Field Hoddesdon Heretfordshire EN11 OQU United Kingdom Lewis M. Klee 25,000 1.2% Secretary The Law Office of Lewis M. Klee, 40 Exchange Place, 8th Floor New York, NY 10005 All executive officers and directors As a group: 278,304 13.1% 5 Item 12. Certain Relationships and Related Transactions None Item 13. Exhibits and Reports on Form 8-K None filed this quarter. 6 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Internet Holdings, Inc. Date: December 13, 1999 By: /s/ Christopher J. Wilkes ------------------------- Christopher J. Wilkes President 7 INTERNET HOLDINGS, INC. FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 and 1997 TOGETHER WITH AUDITORS' REPORT INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Internet Holdings, Inc.: We have audited the accompanying balance sheet of Internet Holdings, Inc. (the "Company"), as of December 31, 1998, and the related statements of operations, stockholders' deficit and cash flows for the years ended December 31, 1998 and 1997. 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 audits. Except as discussed in the following paragraph, we conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion. In our opinion, with respect to the 1998 financial statements, the financial statements referred to above present fairly, in all material respects, the financial position of Internet Holdings, Inc. as of December 31, 1998, and the results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. We were unable to audit the financial statements of Chiron Systems Ltd. (a former wholly-owned subsidiary of the Company in England, the "Subsidiary") for the period from May 22, 1997 to December 19, 1997. Furthermore, we were unable to audit certain joint venture transactions in Asia and Africa during the year ended December 31, 1997. The activities of the Subsidiary and joint ventures comprised substantially all of the Company's operations during the year ended December 31, 1997. Because of the significance of the operations of the Company's Subsidiary and joint ventures which we were unable to audit, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on the 1997 financial statements. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company presently has no revenue producing operations or activities and has suffered recurring losses from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ CALLAGHAN NAWROCKI LLP -------------------------- CALLAGHAN NAWROCKI LLP Melville, New York December 13, 1999 F-1 INTERNET HOLDINGS, INC. BALANCE SHEET DECEMBER 31, 1998 ASSETS CURRENT ASSETS: Cash $ 271 ----------- Total current assets 271 ----------- $ 271 =========== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable and accrued expenses $ 13,520 ----------- Total current liabilities 13,520 ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIT: Common stock, $.001 par value, 50,000,000 shares authorized, 2,119,470 shares issued and outstanding 2,119 Additional paid-in capital 5,723,560 Accumulated deficit (5,738,928) ----------- Total stockholders' deficit (13,249) ----------- $ 271 =========== The accompanying notes to financial statements are an integral part of this statement. F-2 INTERNET HOLDINGS, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 1998 1997 ----------- ----------- REVENUES $ 79 $ 3,813 EXPENSES 28,548 130,974 ----------- ----------- Loss from continuing operations (28,469) (127,161) LOSS FROM DISCONTINUED OPERATIONS -- (2,359,612) ----------- ----------- Net loss $ (28,469) $(2,486,773) =========== =========== PER SHARE DATA: Loss from continuing operations $ (0.01) $ (0.07) =========== =========== Loss from discontinued operations $ -- $ (1.30) =========== =========== Net loss $ (0.01) $ (1.37) =========== =========== Weighted average number of common shares outstanding 2,119,470 1,813,706 =========== =========== The accompanying notes to financial statements are an integral part of these statements. F-3 INTERNET HOLDINGS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Common Stock Additional Total --------------------------- Paid-In Accumulated Stockholders' Shares Amount Capital Deficit Equity (Deficit) ----------- ----------- ----------- ----------- --------------- BALANCE, JANUARY 1, 1997 1,697,858 $ 1,698 $ 3,151,481 $(3,223,686) $ (70,507) 8 to 1 reverse stock split (1,484,603) (1,485) 1,485 -- -- Shares issued pursuant to acquisition 2,640,313 2,640 657,360 -- 660,000 Shares issued in satisfaction of obligations 150,000 150 37,350 -- 37,500 2 to 1 reverse stock split (1,501,180) (1,501) 1,501 -- -- Shares issued in private placement 1,483,935 1,484 2,373,516 -- 2,375,000 Shares issued pursuant to conversion of loan note 250,000 250 124,750 -- 125,000 Shares cancelled pursuant to divestiture (1,320,157) (1,320) (658,680) -- (660,000) Shares issued in satisfaction of obligations 203,304 203 34,797 -- 35,000 Net loss for the year -- -- -- (2,486,773) (2,486,773) ----------- ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1997 2,119,470 2,119 5,723,560 (5,710,459) 15,220 Net loss for the year -- -- -- (28,469) (28,469) ----------- ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1998 2,119,470 $ 2,119 $ 5,723,560 $(5,738,928) $ (13,249) =========== =========== =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. F-4 INTERNET HOLDINGS, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (28,469) $(2,486,773) Adjustments to reconcile net loss to net cash used by operating activities: Loss from discontinued operations -- 2,359,612 (Increase) decrease in other receivable 34,000 (34,000) Decrease in accounts payable and accrued expenses (6,860) (87,239) ----------- ----------- Net cash used by operating activities (1,329) (248,400) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Shares issued in private placement -- 2,375,000 Proceeds from convertible loan note -- 125,000 ----------- ----------- Net cash provided by financing activities -- 2,500,000 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in joint venture -- (2,250,000) ----------- ----------- Net cash used by investing activities -- (2,250,000) ----------- ----------- NET INCREASE (DECREASE) IN CASH (1,329) 1,600 CASH, BEGINNING OF YEAR 1,600 -- ----------- ----------- CASH, END OF YEAR $ 271 $ 1,600 =========== =========== NON-CASH INVESTING AND FINANCING ACTIVITIES: Corporation acquired by issuance of common shares $ -- $ 660,000 Corporation divested by cancellation of common shares -- (660,000) Shares issued in satisfaction of other obligations -- 72,500 Shares issued pursuant to conversion of loan note -- 125,000
The accompanying notes to financial statements are an integral part of these statements. F-5 INTERNET HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS (1) Business and organization Internet Holdings, Inc. (the "Company") was originally incorporated in the State of Utah on July 22, 1977, under the name of Western Corn Dog Factories. The Company has had a series of mergers with other companies, all accounted for as reverse acquisitions, with the Company in each case changing its name to that of or similar to the reverse acquiror. In this regard, the Company's previous names were: Resources West, Inc., Magma Resources, Inc., Cellular Telecommunications & Technologies, Inc. and China Biomedical Group, Inc. The name Internet Holdings, Inc. was adopted on July 12, 1996. In 1993, the Company acquired Cellular Payphones, Inc., ("CPI"), (a Delaware Corporation), whereby all of the issued and outstanding shares of CPI were exchanged for approximately 90% of the issued and outstanding stock of the Company. This transaction was accounted for as a reverse acquisition purchase, in which CPI was the acquiring corporation, and the Company was the acquired corporation. The Company accounted for this transaction as a recapitalization of CPI, with the issuance of 2,625,000 shares of common stock for the net assets of the Company. Following the 1993 acquisition, the Company was engaged in the business of (i) installation and servicing of cellular credit-card pay telephones in taxicabs, radio-cabs, limousines, rental cars, trains, ferries, hotels, and business conference centers, and (ii) the data processing and development of streamline software specializing in credit card authorization processing with real-time billing functions. The Company ceased such operations in October 1994 due to substantial losses. Effective April 3, 1995, the Company acquired C.B. Marketing and Investment Limited, a privately-held English corporation engaged in the business of medical market research and the manufacture of pharmaceuticals and contraceptives in the Peoples' Republic of China. On April 22, 1996, the Company entered into a divestiture agreement with respect to C.B. Marketing and Investment Limited. During 1996, the Company was reorganized to invest in internet and ISDN ("International Standard Digital Network") related technologies. On May 22, 1997, the Company acquired Chiron Systems Ltd. ("CSL"), a privately-held English Corporation engaged in the business of designing and developing ISDN related products. During 1997, the Company, through CSL provided hardware and software products and services for internet and ISDN applications. CSL had expected to confirm several substantial orders from the Far East during the last quarter of 1997 based upon a new range of products. However, these orders never materialized due to alleged specification failure, resulting in a need for additional funding. The Company decided not to make any further investment in CSL and, effective December 19, 1997, exercised its right to divest CSL under the terms of the acquisition agreement. CSL was subsequently placed into liquidation by its creditors. During its ownership of CSL, the Company invested in joint ventures in Asia and West Africa in connection with the delivery of products and services being developed by CSL. As a result of the failure of CSL to develop the requisite products and technology, and the corresponding divestiture of CSL, the Company became engaged in various legal proceedings with its joint venture partners which was finally settled in October 1999. F-6 The Company presently has no revenue producing operations or activities and has suffered recurring operating losses from operations. Management's plans include seeking an acquisition candidate in the internet and related technology fields. In connection with such a transaction, which, similar to the Company's previous mergers will actually be a reverse acquisition, the Company may seek to raise proceeds from the sale of its securities. On October 27, 1999 the Company filed a Form 8-K setting out a contingent acquisition which, if consummated, would provide the Company with $2,160,000 in cash and liquid securities. This agreement is conditional on the settlement of all outstanding litigation, the filing of outstanding reports and the maintenance of the Company's quotation on the OTC - Bulletin Board. (2) Summary of significant accounting policies: Foreign currency translation - Gains and losses from foreign currency transactions are reflected in current operating results. Revenue and cost recognition - Revenues are generally recognized as earned and expenses are recognized when incurred under the accrual basis of accounting. Net loss per share - Net loss per share was computed by dividing net loss by the weighted average number of common shares issued and outstanding during the period. Income taxes - The Company has adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", to account for deferred income taxes. Deferred taxes are computed based on the tax liability or benefit in future years of the reversal of temporary differences in the recognition of income or deduction of expenses between financial and tax reporting purposes. The net difference, if any, between the provision for taxes and taxes currently payable is reflected in the balance sheet as deferred taxes. Deferred tax assets and/or liabilities, if any, are classified as current and noncurrent based on the classification of the related asset or liability for financial reporting purposes, or based on the expected reversal date for deferred taxes that are not related to an asset or liability. Comprehensive income - Other than net income, the Company has no items of comprehensive income as defined by generally accepted accounting principles. F-7 (3) Discontinued operations On December 19, 1997, the Company's Board of Directors approved a divestiture agreement whereby the Company delivered to certain shareholders who had previously owned Chiron Systems Ltd., ("CSL") all the outstanding shares in this corporation, which had been acquired by the Company on May 22, 1997. In return, the CSL shareholders transferred to the Company 1,320,157 shares (2,640,313 shares pre-reverse split) of the Company's common stock. In connection therewith, the Company recognized $361,641 of losses relating primarily to unrecoverable loans receivable from this divested corporation. In conjunction with its ownership of CSL, the Company entered into joint ventures in Asia and West Africa for the delivery of products and services being developed by CSL. During the year ended December 31, 1997, the Company invested $2,250,000 in certain assets purchased from joint venture partners. As a result of the failure of CSL to develop the requisite products and technology, and the corresponding divestiture of CSL, the Company became engaged in various legal proceedings with its joint venture partners. In October 1999, a comprehensive settlement agreement was reached by the Company with its joint venture partners. By this agreement, the Company agreed not to pursue claims against certain assets purchased from the joint venture partners, the joint venture partners agreed not to pursue claims against the Company relating to negligence and breach of contract and the Company was released from debts totaling $252,029. This resulted in a net write-off to the Company of $1,997,971, which is reflected as a loss from discontinued operations for the year ended December 31, 1997. (4) Accounts payable and accrued liabilities As of December 31, 1998, accounts payable and accrued liabilities consist primarily of obligations for legal and professional fees. (5) Stockholders' equity On March 11, 1997, the Board of Directors approved a 1-for-8 reverse stock split of the issued and outstanding shares of the Company's common stock. On May 22, 1997, the Company acquired Chiron Systems Ltd., a privately-held English Corporation in a stock-for-stock exchange. As a result of such transaction, the Company issued 2,640,313 shares of its authorized but unissued common stock to the shareholders of Chiron Systems Ltd. On December 19, 1997 the Company exercised its right to divest Chiron Systems Ltd., under the terms of the acquisition agreement. Accordingly, 1,320,157 (post 1-for-2 reverse stock split) shares were returned to the Company and immediately cancelled. On May 22, 1997, the Board of Directors approved the issuance of 150,000 shares of the Company's common stock in satisfaction of obligations in the amount of $37,500. On June 9, 1997, the Board of Directors approved a 1-for-2 reverse stock split of the issued and outstanding shares of the Company's common stock. F-8 On June 20, 1997, the Company sold pursuant to a private placement under Regulation S, 1,483,935 shares of common stock for proceeds of $2,375,000. The proceeds are net of $147,689 of placement costs. On August 12, 1997, 250,000 shares of the Company's common stock were issued pursuant to the conversion of a loan note in the amount of $125,000. On December 19, 1997, the Board of Directors approved the issuance of 203,304 shares of the Company's common stock in satisfaction of obligations in the amount of $35,000. (6) Income taxes The income tax provision is summarized as follows for the years ended December 31, 1998 and 1997: Year Ended Year Ended December 31, 1998 December 31, 1997 ----------------- ----------------- Federal $-- $-- State and local -- -- ---- ---- Total $-- $-- ==== ==== Statutory rates of income tax 40% 43% Income tax effect related to the following items: Net operating losses (40) (43) ---- ---- Total -- -- ==== ==== Effective rate of income tax 0% 0% ==== ==== The Company has net operating loss carryforwards to offset future taxable income of approximately $5 million expiring in the years 2009 through 2013. As it is not more likely than not that the resulting deferred tax benefits will be realized, a valuation allowance has been recognized for such deferred tax assets. (7) Commitments and contingencies The Company has not filed federal nor state income tax returns for the past several years, and is currently working with the Internal Revenue Service and state taxing authorities to ensure filings of all requisite returns are made as soon as possible. In management's opinion, there are no material liabilities as a result of the delay in filing these returns. (8) Legal proceedings and subsequent events During the period subsequent to December 31, 1998, various legal proceedings were settled. Reference is made to Note 3 for details as to such resolution. F-9 -----END PRIVACY-ENHANCED MESSAGE-----