EX-99.1 5 0005.txt FINANCIALS UNITED VENTURES GROUP, INC. AND SUBSIDIARIES REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999 AND 1998 UNITED VENTURES GROUP, INC. AND SUBSIDIARIES -------------------------------------------- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ PAGE NUMBER ------ Independent Auditors' Report F-2 Consolidated Financial Statements: Balance Sheet F-4 Statements of Operations F-5 Statements of Stockholders' Equity (Deficit) F-6 Statements of Cash Flows F-7 Notes to Financial Statements F8 - F16 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Board of Directors and Stockholders United Ventures Group, Inc. Long Island City, New York We have audited the accompanying consolidated balance sheet of United Ventures Group, Inc. and Subsidiaries as of December 31, 1999 and the related statements of operations, stockholders' equity (deficit) and cash flows for the years ended December 31, 1999 and 1998. 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. We conducted our audits in accordance with generally accepted auditing standards. 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 audits provide 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 United Ventures Group, Inc. and Subsidiaries as of December 31, 1999 and the results of its operations and its cash flows for the years ended December 31, 1999 and 1998 in conformity with generally accepted accounting principles. As discussed in Note 4 to the financial statements, United Ventures Group, Inc. and subsidiaries have reserved $1,840,000 of accounts receivable as allowance for doubtful accounts, since they were deemed uncollectible. If any collection is received subsequent to December 31, 1999, they will be recorded as income. Furthermore, non-trade receivables of $3,000,000 have also been written-off. F-2 The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements the Company has a working capital and stockholders' deficiency of approximately $1,376,000 and $831,000, respectively at December 31, 1999, and has incurred significant recurring operating losses which raise substantial doubt about its ability to continue as a going concern without the raising of additional debt and/or equity financing to fund operations. Management's plans in regard to these matters are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Feldman Sherb Horowitz & Co., P.C. ------------------------------------- Feldman Sherb Horowitz & Co., P.C. Certified Public Accountants New York, New York June 5, 2000 F-3 UNITED VENTURES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1999
ASSETS ------ CURRENT ASSETS: Cash $ 97,465 Accounts receivable-net of allowance for doubtful accounts of $ 1,840,000 3,972,855 Inventories 8,285,730 ------------------- TOTAL CURRENT ASSETS 12,356,050 PROPERTY AND EQUIPMENT, net 273,303 OTHER ASSETS : Deferred financing cost 551,354 Other 17,625 ------------------- $ 13,198,332 =================== LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- CURRENT LIABILITIES: Accounts payable and accrued expenses $ 1,740,366 Loans payable 4,310,688 Convertible debentures 1,300,000 Notes payable - financial institutions 6,380,538 ------------------- TOTAL CURRENT LIABILITIES 13,731,592 DUE TO STOCKHOLDERS 297,636 STOCKHOLDERS' DEFICIT : Common Stock, $.001 par value - 35,000,000 shares authorized, 24,930,992 shares issued and outstanding 24,931 Preferred stock, $.001 par value - 5,000,000 shares authorized, 200,000 Series A shares issued and outstanding 200 Additional paid-in capital 10,520,067 Stock subscription receivable (957,578) Deferred compensation expense (136,667) Accumulated deficit (10,281,849) ------------------- TOTAL STOCKHOLDERS' DEFICIT (830,896) ------------------- $ 13,198,332 ===================
See notes to consolidated financial statements F-4 UNITED VENTURES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, ----------------------- 1999 1998 ------------------ ----------------- Net sales $ 8,580,670 $ 10,564,598 Cost of goods sold 8,355,358 7,165,065 ------------------ ----------------- Gross profit 225,312 3,399,533 Selling, general and administrative expenses 1,706,549 2,920,953 Bad debts 4,165,058 3,192,050 ------------------ ----------------- Loss from operations (5,646,295) (2,713,470) Interest expense 312,616 1,094,959 Interest expense - Non-cash 2,494,147 - ------------------ ----------------- Income (loss) before extraordinary items (8,453,058) (3,808,429) Extraordinary items - loss on early extinguishment of debt, net of taxes 640,402 58,613 ------------------ ----------------- Net loss $ (9,093,460)$ (3,867,042) ================== ================= Pro forma net loss (unaudited): Historical income before income taxes and extraordinary items $ (8,453,058)$ (3,808,429) Historical income taxes - - Pro forma income taxes (unaudited) - - ------------------ ----------------- Pro forma loss before extraordinary income (unaudited) (8,453,058) (3,808,429) Extraordinary item net of pro forma tax benefit (unaudited) 640,402 58,613 ------------------ ----------------- Pro forma net loss (unaudited) $ (9,093,460)$ (3,867,042) ================== ================= Basic and diluted pro forma net loss per common share (unaudited): Before extraordinary item $ (1.27)$ (2.45) Extraordinary item (0.10) (0.04) ------------------ ----------------- Pro forma net loss $ (1.37)$ (2.49) ================== ================= Weighted average common shares outstanding 6,643,326 1,555,488 ================== =================
See notes to consolidated financial statements F-5
UNITED VENTURES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Preferred Stock, Series A ($.001 par value) ($.001 par value) Additional ---------------- ---------------- Paid-In Shares Amount Shares Amount Capital ------ ------ ------ ------ ------- Balance, December 31, 1997 702,350 702 - - 7,399,298 Issuance of common stock pursuant to acquisition 3,750,000 3,750 - - (3,750) Cancellation of common stock (699,218) (699) - - 699 Sale of common stock 646,878 647 - - 649,353 Forgiveness of notes payable by stockholders - - - - 500,000 Officers' compensation contributed to capital - - - - 454,000 Interest expense due shareholders - - - - 38,373 Net loss - - - - - Termination of S Corporation status - - - - (2,531,002) ------------ ------------- ------------ ------------- ------------ Balance, December 31, 1998 4,400,010 4,400 - - 6,506,971 Issuance of stock 20,350,982 20,351 200,000 200 1,634,727 Issuance of common stock for compensation 100,000 100 - - 204,900 Amortization of deferred compensation - - - - - Issuance of common stock for financing 80,000 80 - - 208,420 Issuance of warrants - - - - 1,349,286 Subscription received - - - - - Beneficial conversion features of convertible debentures - - - - 132,000 Officers' compensation contributed to capital - - - - 454,000 Interest due to shareholders contributed to - - - - 29,763 capital Net loss - - - - - ------------ ------------- ------------ ------------- ------------ Balance, December 31, 1999 24,930,992 $ 24,931 200,000 $ 200 $ 10,520,067 ============= ============= ============ ============= ============
Subscription Accumulated Deferred Stockholders' Receivable deficit Compensation Equity ---------- ------- ------------ ------ Balance, December 31, 1997 - 147,651 - 7,547,651 Issuance of common stock pursuant to acquisition - - - - Cancellation of common stock - - - - Sale of common stock (250,000) - - 400,000 Forgiveness of notes payable by stockholders - - - 500,000 Officers' compensation contributed to capital - - - 454,000 Interest expense due shareholders - - - 38,373 Net loss - (3,867,042) - (3,867,042) Termination of S Corporation status - 2,531,002 - - ------------ ------------ ------------ ------------ Balance, December 31, 1998 (250,000) (1,188,389) 5,072,982 Issuance of stock (957,578) - 697,700 Issuance of common stock for compensation - - (205,000) - Amortization of deferred compensation - - 68,333 68,333 Issuance of common stock for financing - - - 208,500 Issuance of warrants - - - 1,349,286 Subscription received 250,000 - - 250,000 Beneficial conversion features of convertible debentures - - - 132,000 Officers' compensation contributed to capital - - - 454,000 Interest due to shareholders contributed to - - - 29,763 capital Net loss - (9,093,460) - (9,093,460) ------------ ------------ ------------ ------------ Balance, December 31, 1999 $ (957,578)$ (10,281,849) $ (136,667)$ (830,896) ============ ============ ============ ============
See notes to consolidated financial statements F-6 UNITED VENTURES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, ----------------------- 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES : Net loss $ (9,093,460) $ (3,867,042) ------------ ------------ Adjustment to reconcile net income to net cash provided by (used in) operating activities: Depreciation 319,326 447,648 Amortization 117,048 325,451 Bad debts 4,165,058 3,192,050 Officers' compensation 454,000 454,000 Imputed interest on loan from shareholders 238,263 38,373 Interest expenses on conversion benefit 132,000 - Amortization of deferred compensation 68,333 - Extinguishment of debt 640,402 - Write-off of deferred financing and offering costs 460,530 159,672 Change in assets and liabilities; Increase in accounts receivable (3,006,264) (444,508) (Increase) decrease in inventories 3,005,219 (368,156) Decrease in prepaid expenses 2,613 97,247 Increase in accounts payable and accrued expenses 889,078 209,199 ------------ ------------ Total adjustments 7,485,606 4,110,976 ------------ ------------ Net cash provided by (used in) operating activities (1,607,854) 243,934 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES : Acquisition of property and equipment - (90,229) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of notes payable - financial institutions (1,036,816) - Repayment of notes payable - line of credit - (756,312) Repayment of notes payable - term loan - (320,831) Proceeds from convertible debentures 997,000 Proceeds from loans payable 1,310,688 - Increase (decrease) in cash overdraft (146,065) 146,065 Stock subscription received 250,000 Proceeds from issuance of stock 697,700 400,000 Borrowings from (repayment to) stockholders (380,216) 383,731 ------------ ------------ Net cash (used in) provided by financing activities 1,692,291 (147,347) ------------ ------------ Net increase in cash 84,437 6,358 Cash - beginning of year 13,028 6,670 ------------ ------------ Cash - end of year $ 97,465 $ 13,028 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION : Interest paid $ 312,616 $ 1,055,328 ============ ============ Taxes paid $ 3,596 $ 14,248 ============ ============ OFFICERS' COMPENSATION CONTRIBUTED TO CAPITAL $ 454,000 $ 454,000 ============ ============ IMPUTED INTEREST ON LOANS AND CONVERTIBLE DEBENTURES $ 1,078,998 $ 38,373 ============ ============ NON-CASH FINANICING AND INVESTING ACTIVITIES: Write-off of deferred financing and offering costs $ 460,530 $ 159,672 ============ ============ Increase in deferred financing costs 708,884 - ============ ============ Forgiveness of notes payable by related party $ - $ 500,000 ============ ============
See notes to consolidated financial statements F-7 UNITED VENTURES GROUP, INC. AND SUBSIDIARIES -------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1999 AND 1998 -------------------------- 1. THE COMPANY ----------- United Ventures Group, Inc. ("UVGI"), formerly known as Travelnet International, Corp., was organized in May 1996. In 1998, UVGI discontinued its operations as a tour organizer and changed its name to United Ventures Group, Inc. In October 1998, UVGI acquired all of the issued and outstanding shares of Shilaat Corp. ("Shilaat"), a New York shell corporation formed on August 1998, which acquired all of the shares of Jarnow Corporation ("Jarnow"), a company which was incorporated in 1993 and manufactures and distributes gold jewelry, in exchange for 3,750,000 shares of UVGI's common stock (the "Exchange"). The Exchange was completed pursuant to the Stock Exchange Agreement between UVGI, Shilaat and Odyssey Acquisition Corp, in which 1,500,000 shares were issued to Odyssey Acquisition Corp, which owned 40% of Shilaat and 2,250,000 shares were issued to the two other stockholders who owned the remaining 60% of Shilaat. The Exchange has been accounted for as a reverse acquisition under the purchase method for business combinations. Hereinafter, UVGI, Shilaat, and Jarnow are collectively referred to as the "Company". 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Use of Estimates - The presentation 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. Actual results could differ from those estimates. Inventories - Inventories consisting mainly of gold are stated at the lower of cost, determined by the first-in first-out method, or market. Allowance for Doubtful Accounts and Returns - Provisions for losses on accounts receivable are made in amounts required to maintain an adequate allowance for doubtful accounts. Accounts receivables are written off against such allowance when it is determined by the Company that collection will not be received. F-8 Property and Equipment - Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over their estimated useful lives of 5 years. Depreciation expense for December 31, 1999 and 1998 is $ $319,326 and $447,648, respectively. Income Taxes - Income taxes are accounted for under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Impairment of Long-Lived Assets - The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. At December 31, 1999, the Company believes that there has been no impairment of its long-lived assets. Fair Value of Financial Instruments - The carrying amounts reported in the balance sheet for cash, receivables, and accounts payable approximate their fair market value based on the short-term maturity of these instruments. New Accounting Pronouncement - The Company will adopt Statement of Financial Accounting Standard No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 137 for the year ended December 31, 2000. SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. The application of the new pronouncement is not expected to have a material impact on the Company's financial statements. Earnings Per Share - The Company has adopted the provisions of Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings per share is based on the weighted average number of shares outstanding. Potential common shares included in the computation of diluted earnings per share are not presented in the financial statements as their effect would be anti-dilutive. Stock based compensation - The Company accounts for stock transactions in accordance with APB Opinion No. 25, "Accounting For Stock Issued To Employees." In accordance with Statement of Financial Accounting Standards No. 123 (SFAS 123"), "Accounting For Stock - Based Compensation," the Company adopted the pro forma disclosure requirements of SFAS 123. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated. F-9 3. BASIS OF PRESENTATION --------------------- The Company has a working capital and stockholders' deficiency of approximately $1,376,000 and $831,000 respectively at December 31, 1999, and has incurred significant recurring operating losses which raise substantial doubt about its ability to continue as a going concern without the raising of additional debt and/or equity financing to fund operations. Management is actively pursuing new debt and/or equity financing and continually evaluating the Company's profitability, however any results of their plans and actions cannot be assured. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 4. ALLOWANCE FOR DOUBTFUL ACCOUNTS ------------------------------- The Company determined that for December 31, 1999, $1,840,000 of its accounts receivable were uncollectible and fully reserved them as an allowance for doubtful accounts. Collections received subsequent to December 31, 1999, will be recorded as income. Furthermore, non-trade receivables of $3,000,000 have also been written-off to bad debt expense. 5. PROPERTY AND EQUIPMENT ---------------------- Property and equipment at December 31, 1999 consists of the following: Factory machinery and equipment $2,040,648 Furniture and fixtures 27,781 Leasehold improvements 43,267 Computer software 194,004 Computer equipment 126,554 ------------------ 2,432,254 Less : Accumulated depreciation 2,158,951 ------------------ $ 273,303 ================== Substantially, all of the Company's property and equipment are collateral for its debt obligations. 6. GOODWILL - NET -------------- Goodwill of $1,627,261 relates to the prior years' acquisition by Jarnow of stock and assets of other companies and has been fully amortized. Amortization expense of goodwill amounted to $117,048 and $325,451 for the years ended December 31, 1999 and 1998 respectively. F-10 7. LOANS PAYABLE ------------- During the year ended December 31, 1999, the Company borrowed money from unrelated third parties on an informal basis. Such loans have been classified as current. Imputed interest at a rate of 10% per annum has been accrued on the outstanding loan balances. 8. NOTE PAYABLE ------------ In June 1998, the Company entered into a financing agreement with a financial institution ("Finance Company") which provided initial funding of $6,500,000 based upon certain levels of accounts receivable, inventory and equipment, and secured by the Company's assets. The proceeds of this loan were used to repay the Company's existing line of credit and term loan with a bank. Additional advances were made to the Company based on additional sales and other requirements, as defined. In September 1999, the Company entered into an arrangement with the Finance Company to settle the obligation by executing the following: (i) the issuance of a $2,000,000 note payable to the Finance Company with an annual interest rate of 10% due September 2000 and guaranteed by the principal shareholders of the Company; (ii) the payment of $500,000 (see below), and (iii) the transfer of the remaining balance of the existing line of credit at September 30, 1999 of $3,477,460, to the principal shareholders of the Company. Concurrent with the above financing, the Company entered into a separate financing agreement with another financial institution which provided for payment of $500,000 to the Finance Company. Funds are advanced directly to the Company based on sales and levels of accounts receivable, as defined, and collateralized by the Company's assets. Such advances bear interest at the rate of 10% per annum. As of December 31, 1999 the amount owed under such loan is $963,551. On April 5, 2000 a settlement agreement was reached in consideration for the Finance Company canceling: (a) a Term Promissory Note dated September 30, 2000, in the original principal amount of $2,000,000, from Jarnow to the Finance Company; and (b) a Term Promissory Note dated September 30, 2000, in the original principal amount of $3,477,460 (the "Jarnow Note"), from principal shareholders of the Company to the Finance Company by the Company making the following payments and accepting certain covenants. a) Jarnow made a payment of $1,200,000 to the Finance Company in immediately available funds. b) Principal shareholders of the Company will assign the Jarnow Note to the Finance Company. Finance Company will cancel the Jarnow Note in return for the principal shareholders of the Company's covenant not to receive any consideration whatsoever in connection with this transaction and the canceling of the Jarnow Note. F-11 c) Finance Company and Company will amend the existing Warrants (see Note 13) to provide for Finance Company's right to purchase a maximum of four million shares of the Company common stock at a price of $.001 per share, and Finance Company shall exercise such right by tendering payment of $4,000. Finance Company will retain all other existing rights under the Warrants (i.e., piggy-back registration rights), except as modified by point "d" below. d) Finance Company shall not retain its existing anti-dilution rights under the Warrant, and shall not have the right under the Warrant or otherwise to buy additional shares at any set price, other than the same right as members of the general public to purchase such shares as may become available through the public markets at the prevailing price; and e) Finance Company will return to the principal shareholders of the Company all previously pledged shares of the Company, and will release and return all corporate and personal guaranties and pledge agreements of any nature. As a result of this settlement the Company will recognize an extraordinary gain from the extinguishment of debt of $4,216,987 less the value assigned to the warrants of $1,000,000. 9. UNPAID PAYROLL TAXES -------------------- The Company has been delinquent on its payment of payroll taxes aggregating approximately $189,482 at December 31, 1999. The Company has reached an agreement for a payment plan with the Internal Revenue Service and as of April 25, 2000 has fully satisfied this obligation. 10. DUE TO STOCKHOLDERS ------------------- Money due to stockholders in the aggregate amount of $297,636 represents advances from stockholders of the Company. Interest is imputed on such loans at the rate of 10% per annum. 11. COMMITMENTS AND CONTINGENCIES ----------------------------- The Company leases space for its administrative offices, showrooms and its manufacturing facility on a month to month basis. The Company is currently negotiating a lease for new premises of approximately 8,000 square feet for $20,000 per month. For the years ended December 31, 1999 and 1998, the Company incurred total rent expenses amounting to $150,992 and $118,377 respectively. The Company is involved in various following lawsuits and claims: F-12 a) The Company is one of several defendants in a case filed on December 27, 1999, collectively alleging various causes of action which, in summary, alleges that, in connection with a New Jersey real estate transaction that occurred in the later part of 1993, the Company and/or its principals were the recipients of certain sums of money that were initially fraudulently obtained (by a third-party) from complainant. The petition seeks damages in the amount of $6,200,000. On or about March 3, 2000, the Company, its principals and certain other defendants filed a motion to dismiss the Petition for lack of subject matter jurisdiction. No decision has been rendered on this motion. At this incipient stage of the litigation it is too premature to evaluate the likelihood of an unfavorable outcome in the event this matter should go to trial or the likelihood of a favorable settlement prior to trial. The foregoing notwithstanding, management and the principals are of the belief that at least fifty-percent of the six million dollars in damages sought by the complainant are susceptible to dismissal by motion for summary judgement prior to completion of discovery and significantly before trial. b) On or about February 4, 2000 a Preliminary Order of forfeiture (the "Order") was filed by the US government pursuant to a Special Verdict of Forfeiture rendered by the jury. The Company is among the sixty-two items/entities listed in the Order to which the government asserts an entitlement and/or (undefined) ownership interest. Pursuant to the Order, the Company has thirty days from the final date of publication of the notice in a newspaper or receipt of actual notice from the government, by which to file a petition asserting claims to any right title or interest in the properties listed in the order. Management will timely file a Petition establishing the Company's prior right, title and interest to Jarnow Corporation, and will vigorously contest the (as of yet) undisclosed/unarticulated allegations underlying the Order. At this time it is premature to proffer an evaluation of the likelihood of an unfavorable outcome or to estimate the amount or range of potential loss. The Company believes that the disposition of these matters will not have a material adverse effect on the Company's financial position and intends to vigorously defend its position. 12. ECONOMIC DEPENDENCY AND CREDIT RISK ----------------------------------- The Company's net sales derived 10% from customers were as follows: 1999 1998 ---- ---- A 16% 12% B 13% 27% C 10% F-13 13. STOCKHOLDERS' EQUITY -------------------- Common Stock and Preferred Stock : ---------------------------------- In January 2000, the Company approved an amendment to its Article of Incorporation to raise the authorized shares of its common stock to 125,000,000 shares of which 120,000,000 shall be designated as common stock with a par value of $.001 per share, and 5,000,000 shall be designated as preferred stock with a par value of $.001 per share. In March 1999, the Company issued 200,000 shares of Series A Preferred Stock at $.001 per shares to two of the Company's principal shareholders, which gave them 54% of the votes on any matter that requires a vote of shareholders. Convertible Debentures: ---------------------- In January 1999, the Company authorized the issuance of up to $10,000,000 of convertible debentures. In April 1999, the Company entered into a Securities Purchase Agreement ("Agreement") for the sale of debentures for an aggregate purchase price of $1,300,000. Such debentures are due in 2002 and bear an interest rate of 8% per annum. The debentures are convertible into shares of the Company's common stock based on the lower of $ 2.318 or 70% of the market price of the Company's common stock at the time of conversion. The net proceeds from this agreement were $997,000. Pursuant to the Agreement, the Company agreed to issue warrants to purchase up to 300,000 shares of the Company's common stock at $.70 per share and up to 1,114,285 shares at $3.325 per share. In September 1999, the Company issued warrants (the "Warrants") to the financial institution described in Note 6 to purchase 645,501 shares of the Company's common stock at $.01 per share. The warrants were issued in connection with the settlement of debt described in Note 8 and will expire in September 2004. On February 1, 2000, the Company converted $100,000 debentures to 1,359,148 shares and on February 8, 2000, debentures for $591,760 were converted to 5,995,541 shares. In May 2000, the Company entered into a settlement agreement for the remaining balance of the obligation to the financial institution by paying back $650,000 within thirty days of execution of the settlement agreement. Contemporaneously with the delivery of the F-14 $650,000, the Company shall issue lender 1,000,000 warrants to purchase common stock of the Company at $.23 per warrant. The warrants shall expire three years from the date of execution of the settlement agreement and otherewise be governed by the same term as those found in the earlier warrants issued to them in April, 1999. Stock Warrants: --------------- In Fiscal Year 1999, the Company issued 2,059,786 warrants. The Company recognized compensation cost for the warrants issued of $798,000. The following table summarizes information about stock warrants at December 31, 1999:
Warrants Outstanding and Exercisable ---------------------------------------------------------------------------- Range of Exercise Price Number Outstanding Remaining Contractual Life Average Exercise Price --------------------------- ------------------------------------------------ ------------------------ $.01-$3.00 2,059,786 2 $1.90
Stock Option Plan: ------------------ In December 1998, The Company approved the establishment of a stock option plan for the issuance of 600,000 shares of its common stock. At December 31, 1999 there were no options outstanding. Deferred Compensation: ---------------------- During the year ended December 31, 1999 an advisory fee was paid to consultants retained by the Company to provide certain advisory services via the issuance of 100,000 common shares. The common shares were valued at their approximate fair market value on the dates of issuance less 20% discount. Stock subscription receivable: ------------------------------ During the year ended December 31, 1999 the Company sold 12,852,237 shares of common stock for which money is not yet received. 14. INCOME TAXES ------------ The Company accounts for income taxes under the provisions of SFAS 109. SFAS No. 109 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards. SFAS 109 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. At December 31, F-15 1999, the Company had net deferred tax assets of approximately $2,400,000. The Company has established a valuation allowance for the full amount of such deferred tax assets at December 31, 1999, as management of the Company has not been able to determine that it is more likely than not that the deferred tax assets will be realized. The following table reflects the Company's deferred tax assets and (liabilities) at December 31, 1999: Net operating loss deduction $2,400,000 Valuation allowance (2,400,000) ------------- Net deferred asset $ -- ============= The provision for income taxes (benefits) differs from the amount computed by applying the statutory federal income tax rate to income loss before income taxes as follows:
1999 1998 ---- ---- Income tax (benefit) computed at statutory rate $(2,100,000) $(415,000) Effect of permanent differences 875,000 415,000 Tax benefit not recognized (1,225,000) - ------------------- ------------------ Provision for income taxes (benefit). $ - $ - =================== ==================
The net operating loss carryforward at December 31, 1999 was approximately $7,000,000 and expires in the years 2012 to 2019. 15. SUBSEQUENT EVENTS ----------------- On April 11, 2000, United Ventures Group, Inc., ("UVGI") completed a merger with Advanced Ceiling Supplies Corp. ("ACSC"). The transaction was consummated pursuant to a share purchase agreement that was entered into by and among UVGI, a Delaware corporation, ACSC, a Colorado corporation and certain shareholders of ACSC. ACSC was subsequently merged with and into UVGI. F-16 PRO FORMA FINANCIAL DATA INTRODUCTION The following financial data is based upon the historical financial statements of United Ventures Group, Inc. ("UVGI" or the "Company") and has been prepared to illustrate the effects on such historical data of the Advanced Ceiling Supplies Corp. ("ACSC") acquisition. The unaudited pro forma consolidated balance sheet as of March 31, 2000 gives effect to the ACSC acquisition as if such transaction had been completed on March 31, 2000. The pro forma financial data is provided for comparative purposes only and does not purport to represent the actual financial position of the Company that actually would have been obtained if the ACSC acquisition had been consummated on the date specified. The pro forma financial data are based on certain assumptions and adjustments described in the notes thereto and should be read in conjunction therewith. F-17 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000
Historical Pro Forma ------------------------------------- ------------------------------- Advanced Adjustments (A) As Adjusted United Ventures Ceiling Group, Inc. Supplies Corp. ----------------- ----------------- --------------- ------------- Current assets: Cash $ 398,337 $ 205 $ (200,000) $ 198,542 Cash - Escrow 1,200,000 1,200,000 Accounts receivable, net 4,392,016 4,392,016 Inventory 6,408,001 6,408,001 Prepaid expenses 10,961 10,961 ----------------- ----------------- --------------- ------------- Total current assets 12,409,315 205 (200,000) 12,209,520 Property and equipment, net 238,303 238,303 Other Assets: Deferred financing cost 492,281 492,281 Other 17,625 17,625 ----------------- ----------------- --------------- ------------- Total assets $ 13,157,524 $ 205 $ (200,000) $ 12,957,729 ================= ================= =============== ============= Current liabilities: Accounts payable and accrued expenses $ 1,650,321 1,650,321 Loans payable 4,180,688 4,180,688 Convertible debentures 608,240 608,240 Notes payable - financial institution $ 5,714,958 $ $ $ 5,714,958 ----------------- ----------------- --------------- ------------- Total current liabilities 12,154,207 12,154,207 ----------------- ----------------- --------------- ------------- Due from shareholder 381,728 381,728 Stockholders' equity: Common stock, $.001 par value 35,000,000 shares authorized, 51,974,393 (actual) and 52,374,393 (pro forma) shares issued and outstanding 51,974 300 100 52,374 Preferred stock, $.001 par value - 5,000,000 shares authorised, 200,000 Series A shares 200 200 issued and outstanding Additional paid-in capital 11,624,702 (200,195) 11,424,507 Stock subscription receivable (799,996) (799,996) Deferred compensation expense (85,418) (85,418) Accumulated deficit (10,169,873) (95) 95 (10,169,873) ----------------- ----------------- --------------- ------------- Total stockholders' equity 621,589 205 (200,000) 421,794 ----------------- ----------------- --------------- ------------- Total liabilities and stockholders' equity $ 13,157,524 $ 205 (200,000) $ 12,957,729 ================= ================= =============== =============
See notes to unaudited pro forma consolidated financial statements F-18 UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT AS OF MARCH 31, 2000
Historical Pro Forma --------------------------------- ----------------------------- Advanced Adjustments As Adjusted United Venture Ceiling Group, Inc. Supplies, Inc. -------------- -------------- ------------ -------------- Net sales $ 3,448,850 $ $ $ 3,448,850 Cost of goods sold 2,586,638 2,586,638 -------------- -------------- ------------ -------------- Gross profit 862,213 862,213 Selling, general and administrative expenses 357,403 357,403 -------------- -------------- ------------ -------------- Income from operations 504,810 504,810 Interest expense 47,412 47,412 Interest expense - Non-Cash 345,422 345,422 -------------- -------------- ------------ -------------- Net income $ 111,976 $ $ $ 111,976 ============== ============== ============ ==============
See notes to unaudited pro forma consolidated financial statements F-19 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS 1. The following unaudited pro forma adjustments are included in the unaudited pro forma balance sheet at March 31, 2000: To record the acquisition of ACSC by UVGI. On April 11, 2000, UVGI completed the acquisition of ACSC under an agreement dated as of April 3, 2000. As part of the acquisition, the UVGI acquired 666 shares of ACSC's common stock in exchange for 400,000 shares of the capital stock of UVGI and $200,000 in cash. As a result of this transaction, the UVGI received 100% of the total outstanding common stock of ACSC, and at the completion of the transaction there were 52,374,393 shares of common stock of UVGI issued and outstanding. ACSC was merged with and into UVGI on April 7, 2000. F-20