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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
Music Tones Ltd.
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(Name of Small Business Issuer in its charter)
Colorado 84-1337504
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12146 East Amherst Circle
Aurora, Colorado 80014
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (303) 695-9554
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value
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(Title of class)
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ITEM 1. DESCRIPTION OF BUSINESS.
(A) BUSINESS DEVELOPMENT.
Music Tones Ltd., formerly The Trader's Edge Ltd. (hereinafter
referred to as the "Company"), was organized under the laws of the State of
Colorado on October 26, 1987. The name of the Company was changed to "Music
Tones Ltd." and the number of its authorized shares of capital stock was
changed from 50,000 shares of common stock, no par value per share, to
110,000,000 shares of capital stock, including 100,000,000 shares of common
stock, $.0001 par value per share (hereinafter referred to as the "Common
Stock"), and 10,000,000 shares of preferred stock, $.01 par value per share, on
March 28, 1996. The Company's executive offices are presently located at 12146
East Amherst Circle, Aurora, Colorado 80014, and its telephone number is (303)
695-9554. On March 20, 1996, the Board of Directors and shareholders of the
Company approved a forward split in the issued and outstanding shares of no par
value common stock of the Company on a 2,000-for-one basis, which was effected
on March 28, 1996. Upon the effectiveness of the forward split, 18,000 shares
of common stock, no par value per share, of the Company issued and outstanding
immediately prior thereto were changed and reclassified into 36,000,000
fully-paid and nonassessable shares of $.0001 par value Common Stock, which
were issued and outstanding immediately following the effectiveness of the
forward split. All shares and per share amounts included herein have been
restated to reflect this split.
The Company has generally been inactive, having conducted no business
operations except organizational activities since its inception. (See (b)
"Business of Issuer" immediately below for a description of the Company's
proposed business of conducting operations as a talent or booking agency.) As
of the date hereof, the Company has no musical artists or groups, comedy acts
or other artists or performers under contract.
(B) BUSINESS OF ISSUER.
Since its inception, the Company has conducted no business operations
except for organizational activities. Further, the Company has had no
employees since its organization. It is anticipated that the Company's
executive officers and directors, who have served in those positions without
compensation through the date hereof, will receive reasonable salaries for
services as executive officers at such time as the Company commences business
operations and the sum of $50 each for their attendance at meetings of the
Board of Directors. (See "Executive Compensation - Executive Compensation.")
The Company's President expects to devote 25% of his time to the business of
the Company and its Secretary/Treasurer will devote such time and effort as may
be necessary to participate in the day-to-day management of the Company. (See
"Directors, Executive Officers, Promoters and Control Persons - Executive
Officers.") The Company has no plans to employ any individuals except its two
executive officers on a part-time basis for the foreseeable future. The
Company proposes to engage in business as a talent or booking agency for
musical artists and groups, various types of comedy acts and other artists
whose performances are targeted, primarily, to the young adult under 25 years
of age. As of the date hereof, the Company has no musical artists, musical
groups, comedy acts or any other artists under contract.
The Company will be dependent upon its President, Mr. Daniel C.
Steinberg, to select the musicians, musical groups, comics and other artists
and performers whose careers the Company will seek to manage. Although Mr.
Steinberg is only 21 years of age, he has seven years of experience, with the
help of his father, Mr. Richard H. Steinberg, in promoting and producing live
concerts in the Denver, Colorado, metropolitan area. Since the incorporation
of the business under the name of "2 B Announced Presents, Inc." (hereinafter
referred to as "2 B Announced Presents"), in November 1993, Mr. Daniel C.
Steinberg has served as the President of 2 B Announced Presents and caused the
corporation's activities to be concentrated in the area of the
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promotion and production in the Rocky Mountain region of live concerts of Ska,
Punk Rock, Reggae and alternative music groups and various types of comedy acts
targeted to the young adult under 25 years of age. Mr. Richard H. Steinberg
serves as the Chaiman of the Board of Directors and the Treasurer of 2 B
Announced Presents. Mr. Daniel C. Steinberg will utilize the contacts with
musicians, musical groups, agents, directors, producers and others which he has
developed in the music business as a concert promoter and producer to target
and select performing artists and groups which he believes will have a chance
of achieving popular and commercial success.
The Company anticipates that, after its President targets or selects a
performing artist or group, he will negotiate with and seek to cause such
performer or group to sign an agency or management agreement with the Company.
Such an agency or management agreement will typically provide for payments to
the artist(s) or performer(s) of a portion of the fees and/or royalties that
the Company will receive from the promoter or producer of a live concert or
performance or the recording, production and/or distribution company or
companies of any records, audiotapes, videodisks or compact discs, featuring
the artist or group. Fees and/or royalties may be negotiated with the
performing artist(s) on a project-by-project basis. The Company expects that,
in certain instances, the cost of creating recordings, including the cost of
studio and equipment rental as well as any advances paid to the artist(s), may
be required to be advanced by the Company. If the Company is unable to effect
a distribution agreement for a recording it paid for and produced, it would be
required to absorb all such costs advanced. Since the popularity of any
musician, musical group, comic or other performing artist is largely a measure
of subjective audience reaction, there can be no assurance that the performance
or recording of any such artist or group would achieve any measure of popular
acclaim or financial success. Further, no assurance can be given that the
Company will be successful in contracting to manage the careers of any of the
Ska, Punk Rock, Reggae or alternative music groups and comedy acts for which 2
B Announced Presents presently books live concerts and performances, most of
which already have agents and managers. In this connection, the Company has
very limited financial, personnel and other resources and lacks a customer base
and market recognition with which to attract promising musical performers,
musical groups, comics and other such performing artists and, if required,
advance costs to create master recordings and effect distribution agreements.
In order to minimize the amount of any such advances, the Company may be
required to enter into joint venture agreements with production companies on
selected projects for the completion of master recordings which would require
the Company to make fee and royalty arrangements which would diminish the
Company's participation with respect to each such recording. (See "Risk
Factors.")
The Company intends to concentrate for the foreseeable future on
seeking to contract with artists and performers with a view to promoting their
careers via live concerts and performances. The Company believes that this
strategy will be the most suitable for the Company in the initial stages of its
development because of its limited resources and for the reason that the
Company's President believes that he will be able to utilize his ongoing
business experience as a concert promoter and producer, at least to some
degree, to benefit the careers of any musical artists and groups, comedy acts
and/or other artists and performers which the Company is able to sign to agency
or management contracts. However, while the Company may, it does not intend to
promote, as a general business practice, its affiliation with 2 B Announced
Presents or furnish any contractual guarantees or promises that 2 B Announced
Presents will promote or produce any live concerts or performances featuring
the artist(s) or performer(s) under contract to the Company. In the
circumstances where 2 B Announced Presents does feature any Company-managed
artist, performer or group at any of its live concerts or performances, Mr.
Daniel C. Steinberg, the Company's President, will be subject to conflicts of
interest in negotiating the percentage of the fees from each performance to be
divided between the Company and 2 B Announced Presents. In any such instance,
the Company intends to employ certain safeguards, such as ensuring that the
agreement conforms with standard industry practice in the Rocky Mountain
region, to assure that any such agreement is fair and reasonable to the
Company. Further, Mr. Steinberg will abstain
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from voting as a member of the Board of Directors on any such agreement in
which 2 B Announced Presents is a party or has an interest. The Company's
Amended and Restated Articles of Incorporation provide that any such related
party contract or transaction must be authorized, approved or ratified at a
meeting of the Board of Directors by sufficient vote thereon by directors not
interested therein or the contract or transaction must be fair and reasonable
to the Company. Accordingly, it is possible for the Company's Board of
Directors, by vote of a sufficient number of disinterested members thereof, to
authorize, approve or ratify a related party contract or transaction involving
2 B Announced Presents which is unfair and/or unreasonable to the Company, even
though Mr. Daniel C. Steinberg abstains from voting thereon. (See "Risk
Factors - 7. "Conflicts of Interest.")
In the event that the Company succeeds in contracting with one or more
musical artists, musical groups, comedy acts or other performers or artists to
manage their career(s), the Company expects to be engaged in a myriad of
activities calculated to enhance the artists' or performers' chances of
achieving popular and commercial success. These activities include but are not
limited to the following: (i) selecting the material for the artist or group
to perform and/or record; (ii) negotiating and/or consummating contracts on
behalf of the artist or performer with concert promoters and producers and
recording, production and/or distribution companies; (iii) promoting the
performers, artists and groups through advance billing, advertising and public
relations; (iv) scheduling media, publicity, product endorsement, charity and
other events surrounding a live performance, such as radio, press and
television interviews, newspaper ads, brochures distributed to the public,
audience surveys and the like; (v) managing income and controlling expenses on
behalf of the client and in connection with any particular event; (vi)
bookkeeping, collecting and processing checks, managing investments and
preparing tax returns; and (vii) handling travel arrangements. In general,
the Company, in its capacity as agent or manager for a musician, musical group,
comic or other artist or performer, will be responsible for all aspects of the
clients' general welfare. The agent functions as the liaison, representing the
best interests of its clients, in dealings with the myriad of promoters,
producers, directors, record companies, publishers, arrangers, songwriters,
attorneys and others engaged in the various aspects of the music business.
Ideally, a talent or booking agency, while it does not guarantee jobs for its
clients, will be successful in directing them to useful sources, offering
guidance which will make their work more salable and assisting them in settling
differences with those in the music business with whom they interact on a daily
basis.
Described in this paragraph below are certain general economic
information and projections regarding the agency or booking business in which
the Company will endeavor to compete, the basis for which are certain general
industry reference sources including, among others, the International Directory
of Company Histories, Volume II, and the Encyclopedia of Careers and Vocational
Guidance, Volumes I and III. While the business is marked by constant change
and has occasionally been subject to slumps, the overall economic picture is
one of steady growth. The business periodically exhibits periods of
significant economic growth, especially in the "pop" area, initiated by the
development of new technology, new musical trends or a new musical talent, with
the resultant effect of causing the public to increase its purchasing of
records, audio tapes, videodisks and/or compact discs. Economic projections
for the music business in general, which impact the agency or booking segment
of the business in which the Company proposes to operate, are for continued
steady expansion through the 1990's. However, favorable economic projections
for the music industry, in general, and the agency or booking business, in
particular, cause the entertainment industry to become increasingly
competitive. Because the revenue realized by an agency such as the Company is
the direct result of the success of the artists, performers and/or groups which
it has signed to agency or management contracts, the business is marked by
participants which have experienced results of operations ranging from failure
to vast success.
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Before making an investment decision, prospective investors in the
Company's Common Stock should carefully consider, along with other matters
referred to herein, the following risk factors inherent in and affecting the
business of the Company.
RISK FACTORS
1. DEVELOPMENT STAGE COMPANY. The Company, although it was
organized in 1987, is in the early form of development stage and must be
considered promotional. Management's efforts, since inception, have been
allocated primarily to organizational activities and the ability of the Company
to establish itself as a going concern is dependent upon the receipt of
additional funds from operations or otherwise to continue those activities.
Potential investors should be aware of the difficulties normally encountered by
a new enterprise in its development stage, including undercapitalization, cash
shortages, limitations with respect to personnel, technological, financial and
other resources and lack of a customer base and market recognition, most of
which are beyond the Company's control. The likelihood that the Company will
succeed must be considered in light of the problems, expenses and delays
frequently encountered in connection with the competitive environment in which
the Company will operate. The Company's success depends to a large extent on
gauging public tastes in entertainment and its ability to select performers who
will capture the public eye and hold the public's attention. There is no
guarantee that the Company's clients, if any, will attain the level of
popularity necessary for the Company to achieve profitable operations. There
are numerous talent and booking agencies already positioned in the music
business which are better financed than the Company. There can be no assurance
that the Company, with its very limited capitalization, will be able to compete
with these companies and achieve profitability.
2. NO OPERATING HISTORY, REVENUES OR EARNINGS. As of the date
hereof, the Company has not yet commenced operations and, accordingly, has
received no operating revenues or earnings. Since inception, most of the time
and resources of the Company's management have been spent in organizing the
Company, obtaining interim financing and developing a business plan. The
Company's success is dependent upon its obtaining additional financing from
intended operations or otherwise. There is no assurance that the Company will
be able to obtain additional debt or equity financing from any source. The
Company, during the development stage of its operations, can be expected to
sustain substantial operating expenses without generating any operating
revenues or the operating revenues generated can be expected to be insufficient
to cover expenses. Thus, for the foreseeable future, unless the Company
attains profitable operations, which is not anticipated, the Company's
financial statements will show an increasing net operating loss.
3. MINIMAL ASSETS, WORKING CAPITAL AND NET WORTH. As of March 31,
1996, the Company's total assets in the amount of $10,400 consisted of the sum
of $5,400 in cash and notes receivable in the aggregate principal amount of
$5,000 which have since been paid. Accordingly, the Company presently has only
very minimal assets and its working capital is minimal or negative. There can
be no assurance that the Company's financial condition will improve. Even
though management believes that it has sufficient capital with which to
implement its business plan on a limited scale, the Company is not expected to
continue in operation, without an infusion of capital, after the expiration of a
period of six months to one year from the date hereof. In order to obtain
additional equity financing, management may be required to dilute the interest
of existing shareholders or forego a substantial interest in its revenues, if
any.
4. NEED FOR ADDITIONAL CAPITAL. Without an infusion of capital
or profits from operations, the Company is not expected to continue in
operation after the expiration of the period of six months to one year from the
date hereof. Accordingly, the Company is not expected to become a viable
business entity unless additional equity and/or debt financing is obtained.
The
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Company does not anticipate the receipt of operating revenues until management
successfully implements its business plan, which is not assured. Further, the
Company may incur significant unanticipated expenditures which deplete its
capital at a more rapid rate because of, among other things, the conceptual
stage of its development, the rudimentary form of its business plan and the
lack of experience of its present management in the agency or booking aspect of
the music business. Because of these and other factors, management is
presently unable to predict what additional costs might be incurred by the
Company beyond those currently contemplated to obtain additional financing and
achieve market penetration on a commercial scale in its proposed line of
business. The Company has no identified sources for funds, and there can be no
assurance that resources will be available to the Company when needed.
5. DEPENDENCE ON KEY PERSONNEL. The possible success of the
Company is expected to be largely dependent on the continued service of its
President, Mr. Daniel C. Steinberg. Virtually all decisions concerning the
selection of musical artists and groups and comedy acts to be signed by the
Company will be made or significantly influenced by Mr. Steinberg. Mr.
Steinberg is presently serving as the President of 2 B Announced Presents, a
closely-held company founded by him and his father in 1993, and is required to
devote a significant amount of his time to the conduct of that company's
business. Mr. Steinberg is expected to devote approximately 25% of his time
and effort to the Company's business activities. (See Risk Factor 7.
"Conflicts of Interest" below.) The loss of the services of Mr. Steinberg
would adversely affect the conduct of the Company's business and its prospects
for the future. The Company presently holds no key man life insurance on the
life of, and has no employment contract or other agreement with, Mr. Steinberg
or its other executive officers and/or directors.
6. NO ARTISTS UNDER CONTRACT OR CUSTOMER BASE. The Company
presently has no musical artists, musical groups, comedy acts or other artists
or entertainers under contract. The Company will be dependent upon its
President, Mr. Daniel C. Steinberg, to select the musicians, musical groups,
comics and other artists and performers whose careers the Company will seek to
manage. Although Mr. Steinberg is only 21 years of age, he has seven years
of experience, with the help of his father, Mr. Richard H. Steinberg, the
Chairman of the Board of Directors and the Treasurer of 2 B Announced Presents,
in promoting and producing live concerts in the Denver, Colorado, metropolitan
area focusing, primarily, on Ska, Punk Rock, Reggae and alternative music
groups and various types of comedy acts targeted to the young adult under 25
years of age. While Mr. Steinberg will utilize the contacts with musicians,
musical groups, agents, directors, producers and others which he has developed
in the music business as a concert promoter and producer to select and target
performing artists and groups and comedy acts to be signed by the Company,
there can be no assurance that any such artists or performers will have a
chance of achieving popular and commercial success.
7. CONFLICTS OF INTEREST. There are existing and potential
conflicts of interest, including time, effort and corporate opportunity,
involved in the participation by the Company's executive officers and directors
in other business entities and transactions. Mr. Daniel C. Steinberg, the
Company's President and the President of 2 B Announced Presents, an affiliate
of the Company, will divide his time and efforts between and among the Company,
2 B Announced Presents and his other business obligations. Accordingly, Mr.
Steinberg and/or other members of management of the Company may be subject to
direct conflicts of interest and the corporate opportunities doctrine with
respect to business opportunities in the music business which come to their
attention. In the circumstances where 2 B Announced Presents features any
Company-managed artist, performer or group at any of its live concerts or
performances, Mr. Daniel C. Steinberg will be subject to conflicts of interest
in negotiating the percentage of the fees from each performance to be divided
between the Company and 2 B Announced Presents. The Company's Amended and
Restated Articles of Incorporation provide that any related party contract or
transaction must be authorized, approved or ratified at a meeting of the Board
of Directors by sufficient vote thereon by directors not interested therein or
the transaction must be fair and
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reasonable to the Company. Accordingly, while Mr. Daniel C. Steinberg will
abstain from voting on any related party contract or transaction involving 2 B
Announced Presents, it is nevertheless possible for the Company's Board of
Directors, by vote of a sufficient number of disinterested members thereof, to
authorize, approve or ratify such a contract or transaction even if it is not
fair or reasonable to the Company.
Because of existing and/or potential future associations of the
Company's executive officers and directors in various capacities with other
firms involved in a range of business activities and because of the limited or
minimal amount of time and effort which is expected to be devoted to the
Company by such persons, there are existing and potential continuing conflicts
of interest in their acting as executive officers and/or directors of the
Company. Messrs. Daniel C. Steinberg and Fred A. Bruecher, executive officers
and directors of the Company, will not be able to devote a significant amount
of time or effort to the business and affairs of the Company because of their
simultaneous participation in, employment by and/or commitments to other firms
involved in a range of business activities. Ms. Colleen E. Schmidt, the third
Company director, will only devote such time to the Company as is necessary to
attend meetings of the Board of Directors. In addition, all of the Company's
executive officers and/or directors are or may become, in their individual
capacities, officers, directors, controlling shareholders and/or partners of
other entities (in addition to 2 B Announced Presents) engaged in a variety of
businesses which are engaged, or may in the future engage, in various
transactions, or compete directly, with the Company. Conflicts of interest and
transactions which are not at arm's-length may arise in the future because the
Company's executive officers and/or directors are involved in the management of
any company which transacts business, or competes directly, with the Company.
8. COMPETITION. Competition is intense within the music
industry, in general, and in the agency or booking aspect of the industry in
which the Company proposes to conduct its operations. The Company's
opportunity to obtain clients with the potential for achieving popular and
commercial success may be limited by its financial resources and other assets.
It is anticipated that the music industry may be subject to changes in the
general state of the economy, shifts in the demographic structure, changes in
the buying habits of the public, the availability of alternative forms of
entertainment and the increased cost of doing business. Further, there may be
significant technological advances in the future and the Company may not have
adequate creative management and resources to enable it to take advantage of
such advances. Many of the agency or booking companies and other organizations
with which the Company will be in competition have far greater financial
resources, greater experience and larger staffs than the Company.
Additionally, many of such organizations have proven operating histories, which
the Company lacks. The Company expects to face strong competition from both
such well-established companies and independent companies like itself.
9. ABSENCE OF PUBLIC MARKET FOR SHARES. The Company's shares of
Common Stock are not registered with the U.S. Securities and Exchange
Commission under the Securities Act of 1933, as amended (hereinafter referred
to as the "Act"), and are "restricted securities." Rule 144 of the Act
provides, in essence, that holders of restricted securities for a period of two
years may, every three months, sell to a market maker or in ordinary brokerage
transactions an amount equal to one percent of the Company's then outstanding
securities. Nonaffiliates of the Company who hold restricted securities for a
period of three years may sell their securities without regard to volume
limitations or other restriction. A total of 6,000,000 shares of the Company's
Common Stock is presently available for resale under Rule 144 and the balance
of 30,000,000 shares of Common Stock will be available for resale under Rule
144 commencing in March 1998. Sales of shares of Common Stock under Rule 144
may have a depressive effect on the market price of the Company's Common Stock,
should a public market develop for such stock. Such sales might also impede
future financing by the Company.
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10. NO DIVIDENDS. While payment of dividends on the Common Stock
rests with the discretion of the Board of Directors, there can be no assurance
that dividends can or will ever be paid. Payment of dividends is contingent
upon, among other things, future earnings, if any, and the financial condition
of the Company, capital requirements, general business conditions and other
factors which cannot now be predicted. It is highly unlikely that cash
dividends on the Common Stock will be paid by the Company in the foreseeable
future; however Company management is presently evaluating, subject to
conformance with applicable securities laws, the possible distribution of
alternative, non-cash forms of dividends.
11. NO CUMULATIVE VOTING. The election of directors and other
questions will be decided by majority vote. Since cumulative voting is not
permitted and one-third of the Company's outstanding shares constitutes a
quorum, investors who purchase shares of the Company's Common Stock may not
have the power to elect even a single director and, as a practical matter, the
current management will continue to effectively control the Company.
12. CONTROL BY PRESENT SHAREHOLDERS. The present shareholders of
the Company's outstanding Common Stock will, by virtue of their percentage
share ownership and the lack of cumulative voting, be able to elect the entire
Board of Directors, establish the Company's policies and generally direct its
affairs. Accordingly, persons investing in the Company's Common Stock will
have no significant voice in Company management, and cannot be assured of ever
having representation on the Board of Directors.
13. POTENTIAL ANTI-TAKEOVER AND OTHER EFFECTS OF ISSUANCE OF
PREFERRED STOCK MAY BE DETRIMENTAL TO COMMON SHAREHOLDERS. The Company is
authorized to issue up to 10,000,000 shares of preferred stock, $.01 par value
per share (hereinafter referred to as the "Preferred Stock"); none of which
shares has been issued. The issuance of Preferred Stock does not require
approval by the shareholders of the Company's Common Stock. The Board of
Directors, in its sole discretion, has the power to issue shares of Preferred
Stock in one or more series and establish the dividend rates and preferences,
liquidation preferences, voting rights, redemption and conversion terms and
conditions and any other relative rights and preferences with respect to any
series of Preferred Stock. Holders of Preferred Stock may have the right to
receive dividends, certain preferences in liquidation and conversion and other
rights; any of which rights and preferences may operate to the detriment of the
shareholders of the Company's Common Stock. Further, the issuance of any
shares of Preferred Stock having rights superior to those of the Company's
Common Stock may result in a decrease in the value or market price of the
Common Stock, provided a market exists, and, additionally, could be used by the
Board of Directors as an anti-takeover measure or device to prevent a change in
control of the Company.
14. NO SECONDARY TRADING EXEMPTION. Secondary trading in the
Common Stock will not be possible in each state until the shares of Common
Stock are qualified for sale under the applicable securities laws of that state
or the Company verifies that an exemption, such as listing in certain
recognized securities manuals, is available for secondary trading in that
state. There can be no assurance that the Company will be successful in
registering or qualifying the Common Stock for secondary trading, or availing
itself of an exemption for secondary trading in the Common Stock, in any state.
If the Company fails to register or qualify, or obtain or verify an exemption
for the secondary trading of, the Common Stock in any particular state, the
shares of Common Stock could not be offered or sold to, or purchased by, a
resident of that state. In the event that a significant number of states
refuse to permit secondary trading in the Company's Common Stock, a public
market for the Common Stock will fail to develop and the shares could be
deprived of any value.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Plan of Operations
Since its inception, the Company, which is now known as "Music Tones
Ltd.," has conducted no business operations except for organizational
activities. As of March 31, 1996, the Company had no item of revenue and
operating expenses for legal, audit and filing fees and office expenses
aggregating $8,978. The Company proposes to engage in business as a talent or
booking agency for musical artists and groups, various types of comedy acts and
other artists and performers whose performances are targeted, primarily, to the
young adult under 25 years of age. Management expects that the Company will
initially obtain contracts with performing artists or groups through the concert
promotion and production activities of 2 B Announced Presents and the contacts
with musicians, musical groups, agents, directors, producers and others which
Mr. Daniel C. Steinberg, the Company's President, has developed as a concert
promoter and producer since 1989. If the Company is unable to generate
sufficient revenue from operations, management intends to explore all available
alternatives for debt and/or equity financing including but not limited to
private and public securities offerings.
Financial Condition, Capital Resources and Liquidity
At March 31, 1996, the Company had assets totaling $10,400 and $4,453
in liabilities. Since the Company's inception, it has received $10,000 in cash
contributed as consideration for the issuance of shares of Common Stock and an
additional $5,000 from the payment by two Company shareholders on May 8 and May
13, respectively, of non-interest bearing promissory notes in the aggregate
principal amount of $5,000 collateralized by 15,000,000 shares of the Company's
Common Stock, after giving effect to the 2,000:1 forward stock split effective
March 28, 1996, owned by each shareholder.
Management expects, without assurance, that the Company will be able to
satisfy its cash requirements for a period of six months to one year from the
date hereof because it is engaged in a service business operated, at present, on
a limited scale from the home of its President and at minimal expense. While
Company management believes that the Company will require an infusion of capital
upon the expiration of the next six to twelve months approximately, the Company
may be required to raise additional funding at an earlier time, i.e., in the
next six months to one year, depending upon its success in obtaining, and
realizing revenues from, management contracts with musical artists or groups,
comedy acts or other artists or performers and because the Company may incur
significant unanticipated expenditures which deplete its capital at a more rapid
rate. Nevertheless, for the foreseeable future over the period of six months to
one year from the date hereof, management anticipates that the Company will only
be able to implement its business plan on a limited scale and, accordingly, the
Company is not expected to achieve a level of revenues or profits from
operations which would eliminate the need for additional capital after the
expiration of such period. (See Item 1. "Description of Business," (B) "Business
of Issuer -- Risk Factors.")
The Company has no potential capital resources.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company's executive offices are located at the home of its
President, Mr. Daniel C. Steinberg, 12146 East Amherst Circle, Aurora, Colorado
80014, and its telephone number is (303) 695-9554. The Company owns no real or
personal property.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of June 4, 1996,
regarding the ownership of the Company's Common Stock by each shareholder known
by the Company to be the beneficial owner of more than five percent of its
outstanding shares of Common Stock, each director and all executive officers
and directors as a group. Except as otherwise indicated, each of the
shareholders has sole voting and investment power with respect to the shares of
Common Stock beneficially owned.
9
<PAGE> 10
<TABLE>
<CAPTION>
AMOUNT
NAME AND ADDRESS OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED CLASS
-------------------- ----------- ---------
<S> <C> <C>
Daniel C. Steinberg 17,800,000 (1) 49.4%
12146 East Amherst Circle
Aurora, Colorado 80014
Sandra S. Steinberg 17,800,000 (2) 49.4%
12146 East Amherst Circle
Aurora, Colorado 80014
Colleen E. Schmidt 15,000,000 (3) 41.7%
8 Elgin Lane
Palm Beach Gardens, Florida 33418
Fred A. Bruecher -0- 0.0%
7755 East Quincy Avenue, #A1-106
All Executive Officers and Directors as 32,800,000 91.1%
a Group (three persons)
</TABLE>
- ------------------
(1) Includes 600,000 shares and 15,600,000 shares of Common Stock
owned of record and beneficially by Mr. Richard H. Steinberg and his wife, Ms.
Sandra S. Steinberg, respectively (a total of 16,200,000 shares of Common
Stock), who are the parents of, and reside at the same address as, Mr. Daniel
C. Steinberg, their adult son. Does not include 1,600,000 shares of Common
Stock owned of record and beneficially by Ms. Jamie L. Steinberg, Mr. Daniel C.
Steinberg's adult sister, of which shares Mr. Daniel C. Steinberg disclaims any
beneficial ownership.
(2) Includes 600,000 shares and 1,600,000 shares of Common Stock
owned of record and beneficially by Mr. Richard H. Steinberg and his son, Mr.
Daniel C. Steinberg, respectively (a total of 16,200,000 shares of Common
Stock), who are the husband and son, respectively, of, and reside at the same
address as, Ms. Sandra S. Steinberg. Does not include 1,600,000 shares of
Common Stock owned of record and beneficially by Ms. Jamie L. Steinberg, Ms.
Sandra S. Steinberg's adult daughter, of which shares Ms. Sandra S. Steinberg
disclaims any beneficial ownership.
(3) Does not include 1,600,000 shares of Common Stock owned of
record and beneficially by Mr. Paul J. Schmidt, Ms. Colleen E. Schmidt's
father-in-law, of which she disclaims any beneficial ownership.
10
<PAGE> 11
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the names, ages, positions with the Company and
business experiences of the executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ------------------- --- -------------------------------
<S> <C> <C>
Daniel C. Steinberg 21 President and Director
Fred A. Bruecher 44 Secretary, Treasurer and Director
Colleen E. Schmidt 32 Director
</TABLE>
- -------------------
*The above-named persons, Mr. Richard H. Steinberg and Ms. Sandra S.
Steinberg, his wife, the parents of Mr. Daniel C. Steinberg, and Mr. Paul R.
Schmidt, the husband of Ms. Colleen E. Schmidt, may be deemed to be "promoters"
and "parents" of the Company, as those terms are defined under the Rules and
Regulations promulgated under the Securities Act of 1933, as amended.
All directors hold office until the next annual meeting of the
Company's shareholders and until their successors have been elected and
qualify. Officers serve at the pleasure of the Board of Directors. Mr. Daniel
C. Steinberg is expected to devote approximately 25% of his time to the
business of the Company. It is anticipated that Mr. Fred A. Bruecher will
devote such time and effort as may be necessary to participate, together with
Mr. Daniel C. Steinberg, in the day-to-day management of the affairs of the
Company. Ms. Colleen E. Schmidt is expected to devote such time to the
Company as may be required to attend meetings of the Board of Directors.
FAMILY RELATIONSHIPS
There are no family relationships between or among the executive
officers and directors of the Company.
BUSINESS EXPERIENCE
Daniel C. Steinberg has served as the President and a director of the
Company since April 20, 1996. With the help of his father, Mr. Richard H.
Steinberg, he has been involved in the music business as a concert promoter and
producer in the Denver, Colorado, metropolitan area since 1989. On November
12, 1993, the concert promotion and production business, which is separate from
the Company's proposed talent or booking agency business, was incorporated in
Colorado under the name of "2 B Announced Presents, Inc." Mr. Daniel C.
Steinberg has served as the President and a director of 2 B Announced Presents,
which is closely-held and has its offices in Aurora, Colorado, since the
corporation's inception. 2 B Announced Presents concentrates on the promotion
and production in the Rocky Mountain region of live concerts, focusing,
primarily, on Ska, Punk Rock, Reggae and alternative musical groups, and
various types of comedy acts targeted to the young adult under 25 years of age.
Mr. Steinberg was nominated and was a finalist for the 1995 "Rocky Mountain
Entrepreneur of the Year" Award sponsored by Ernst & Young LLP, Inc. Magazine,
Merrill Lynch, The Denver Business Journal, 9 News and Sprint Business.
Additionally, he was the recipient of the 1995 "Promoter of the Year" Award
sponsored by the Independent Record Label Association.
11
<PAGE> 12
Fred A. Bruecher has served as the Secretary, Treasurer and a director
of the Company since March 20, 1996. He has been employed as the senior sales
associate of High Spirits, Denver, Colorado, a retail liquor store, since 1984.
From 1979 through 1983, Mr. Bruecher was a shoe department manager at Woolco
Department Store, employed by Stylco, a division of Kinney Shoes, which is a
wholly-owned subsidiary of F.W. Woolworth Co. He received a B.S. degree in
business administration from the University of Las Vegas, Las Vegas, Nevada, in
June 1979. Mr. Bruecher has been a musician playing percussion drums for the
past twenty years. During this period, he has played back-up conga drums in
various local bands.
Colleen E. Schmidt has served as a director of the Company since March
22, 1992. She was employed by McGraw Cellular Communications, West Palm Beach,
Florida, which is now a division of A T & T, as a purchasing agent from 1993
through 1995; as a staff accountant from 1988 through 1993; and in customer
service from 1986 through 1988. From 1982 through 1986, Ms. Schmidt was
employed by the P.G.A. Sheraton Resort, Palm Beach Gardens, Florida, as a front
desk clerk.
ITEM 6. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
No cash or non-cash compensation was awarded to, earned by or paid to
any executive officer or director of the Company for all services rendered in
all capacities to the Company during the fiscal years ended December 31, 1993,
1994 and 1995. On March 22, 1992 (during the Company's 1992 fiscal year),
however, the Company issued an aggregate of 1,600,000 shares of Common Stock to
Mr. Daniel C. Steinberg for services rendered as a consultant to the
Corporation. Except for the standard arrangements for compensating directors
described under "Compensation of Directors" immediately below, it is not
anticipated that either of the executive officers of the Company will receive
any cash or non-cash compensation for their services in all capacities to the
Company until such time as the Company commences business operations. At such
time as the Company commences operations, it is expected that the Board of
Directors will approve the payment of salaries in a reasonable amount to each
of Messrs. Daniel C. Steinberg and Fred A. Bruecher for their services in the
positions of President and Secretary/Treasurer, respectively, of the Company.
At such time, the Board of Directors may, in its discretion, approve the
payment of additional cash or non-cash compensation to the foregoing for their
services to the Company.
The Company does not provide officers with pension, stock appreciation
rights, long-term incentive or other plans and has no intention of implementing
any such plans for the foreseeable future.
COMPENSATION OF DIRECTORS
The Company has standard arrangements for compensating the directors
of the Company in the amount of $50 each for their attendance at meetings of
the Board of Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 18, 1990, the Company issued 600,000 shares of Common Stock
to each of Mr. Richard H. Steinberg and Ms. Sandra S. Steinberg, the parents of
Mr. Daniel C. Steinberg (a total of 1,200,000 shares of Common Stock), in
consideration for services valued at $60 (an aggregate of $120) rendered to the
Company by each such person. The services performed by Mr. Richard H. and Ms.
Sandra S. Steinberg included advice and consulting in the areas of authoring,
12
<PAGE> 13
researching, editing and marketing related to the Company's prior publishing
business. The Company issued 1,600,000 shares of Common Stock to each of Mr.
Daniel C. Steinberg, the President and a director of the Company, and his adult
sister, Ms. Jamie L. Steinberg, on March 22, 1992, in consideration for
services rendered as consultants to the Company valued, in each case, at $160
(a total of $320). The consulting services performed by Mr. Daniel C.
Steinberg and Ms. Jamie L. Steinberg included, but were not limited to, advice
regarding the advisability of changing the Company's direction to the music
business and the type and quality of musical artists and groups, comedy acts
and other artists and performers with which the Company should consider
obtaining contracts. Messrs. Richard H. and Daniel C. Steinberg and Ms. Sandra
S. Steinberg, Mr. Richard H. Steinberg's wife, all reside at the same
residence. Ms. Sandra S. Steinberg purchased an additional 15,000,000 shares
of Common Stock on March 20, 1996, for an aggregate purchase price of $5,000 in
cash (approximately $.67 per share). She pledged these shares as collateral
for a non-interest bearing promissory note in the principal amount of $2,500,
of which she is the maker, payable to the Company, as the holder thereof, on
May 31, 1996.
On March 21, 1993, the Company issued 1,600,000 shares of Common Stock
to Mr. Paul J. Schmidt, the father-in- law of Ms. Colleen E. Schmidt, a
director of the Company, as consideration for business and financial consulting
services related to management, marketing, budgeting and planning in the
operation of a business, valued at $160.
On March 20, 1996, Ms. Colleen E. Schmidt, a Company director who is
the daughter-in-law of Mr. Paul J. Schmidt, purchased 15,000,000 shares of the
Company's Common Stock for a total purchase price of $5,000 in cash
(approximately $.67 per share). These shares collateralize the non-interest
bearing promissory note in the principal amount of $2,500, due and payable on
May 31, 1996, of which Ms. Schmidt is the maker and the Company is the holder.
ITEM 8. DESCRIPTION OF SECURITIES.
Description of Capital Stock
The Company's authorized capital stock consists of 100,000,000 shares
of Common Stock, $.0001 par value per share, and 10,000,000 shares of Preferred
Stock, $.01 par value per share.
Description of Common Stock
All shares of Common Stock have equal voting rights and, when validly
issued and outstanding, are entitled to one vote per share in all matters to be
voted upon by shareholders. The shares of Common Stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as
fully-paid and nonassessable shares. Cumulative voting in the election of
directors is not permitted; which means that the holders of a majority of the
issued and outstanding shares of Common Stock represented at any meeting at
which a quorum is present will be able to elect the entire Board of Directors
if they so choose and, in such event, the holders of the remaining shares of
Common Stock will not be able to elect any directors. In the event of
liquidation of the Company, each shareholder is entitled to receive a
proportionate share of the Company's assets available for distribution to
shareholders after the payment of liabilities and after distribution in full of
preferential amounts, if any, to be distributed to holders of the Preferred
Stock. All shares of the Company's Common Stock issued and outstanding are
fully-paid and nonassessable.
Dividend Policy. Holders of shares of Common Stock are entitled to
share pro rata in dividends and distributions with respect to the Common Stock
when, as and if declared by the Board of Directors out of funds legally
available therefor, after requirements with respect to
13
<PAGE> 14
preferential dividends on, and other matters relating to, the Preferred Stock,
if any, have been met. The Company has not paid any dividends on its Common
Stock and intends to retain earnings, if any, to finance the development and
expansion of its business. Future dividend policy is subject to the discretion
of the Board of Directors and will depend upon a number of factors, including
future earnings, capital requirements and the financial condition of the
Company.
Transfer Agent and Registrar. The Transfer Agent and Registrar for
the Company's Common Stock is Corporate Stock Transfer, Inc., 370 Seventeenth
Street, Suite #2350, Denver, Colorado 80202.
Description of Preferred Stock
Shares of Preferred Stock may be issued from time to time in one or
more series as may be determined by the Board of Directors. The voting powers
and preferences, the relative rights of each such series and the
qualifications, limitations and restrictions thereof shall be established by
the Board of Directors, except that no holder of Preferred Stock shall have
preemptive rights. The Company has no shares of Preferred Stock outstanding,
and the Board of Directors has no plan to issue any shares of Preferred Stock
for the foreseeable future unless the issuance thereof shall be in the best
interests of the Company.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS.
(A) MARKET INFORMATION.
There has been no established public trading market for the Common
Stock since the Company's inception on October 26, 1987.
(B) HOLDERS.
As of June 4, 1996, the Company had four shareholders of record of its
5,282,500 issued and outstanding shares of Common Stock, $.0001 par value per
share.
(C) DIVIDENDS.
The Company has never paid or declared any dividends on its Common
Stock and does not anticipate paying cash dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS.
The Company knows of no legal proceedings to which it is a party or to
which any of its property is the subject which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Because the Company has been generally inactive since its inception,
it has had no independent accountant until the retention of Janet Loss, C.P.A.,
P.C., 9101 East Kenyon Avenue, Suite #2000, Denver, Colorado 80237, in March
1996. Accordingly, there has been no
14
<PAGE> 15
change in the Company's independent accountant during the period commencing
with the Company's retention of Janet Loss, C.P.A., P.C., on March 7, 1996,
through the date hereof.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On March 21, 1993, the Company issued 1,600,000 shares of its Common
Stock, $.0001 par value per share, to Mr. Paul J. Schmidt, the father-in-law
of Ms. Colleen E. Schmidt, a director of the Company, as consideration for
business consulting services in reliance upon the exemption from registration
provided under Section 4(2) of the Securities Act of 1933, as amended, for
sales of securities by an issuer deemed not to involve a public offering.
On March 20, 1996, the Company issued to each of Mesdames Colleen E.
Schmidt, the daughter-in-law of Mr. Paul J. Schmidt and a Company director, and
Sandra S. Steinberg, the mother of Mr. Daniel C. Steinberg, the President and a
director of the Company, 15,000,000 shares of the Company's Common Stock,
$.0001 par value per share (a total of 30,000,000 shares of Common Stock), in
consideration, in each case, for the sum of $5,000 in cash (a total of $10,000
in cash). These shares collateralize two non-interest bearing promissory notes
in the principal amount of $2,500 each (an aggregate face amount of $5,000),
due and payable on May 31, 1996, of which each of Mesdames Schmidt and
Steinberg are the makers and the Company is the holder. The Company relied, in
connection with the sales of the shares, upon the exemption from registration
afforded by Section 4(2) of the Act for securities sales by an issuer not
constituting a public securities offering.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the Company's Articles of Incorporation contains
provisions providing for the indemnification of directors and officers of the
Company as follows:
(a) The corporation shall indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is otherwise serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with such action, suit or proceeding,
if he acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding, by judgment,
order, settlement, conviction upon a plea of nolo contendere or its equivalent,
shall not of itself create a presumption that the person did not act in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe the action was unlawful.
(b) The corporation shall indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action or suit by or in the right of the corporation, to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted
in good faith and
15
<PAGE> 16
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation, unless, and only to the extent that, the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability, but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnification for such
expenses which such court deems proper.
(c) To the extent that a director, officer, employee or agent of
the corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections (a) and (b) of this
Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under Section (a) or (b) of this Article
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the officer,
director and employee or agent is proper in the circumstances, because he has
met the applicable standard of conduct set forth in Section (a) or (b) of this
Article. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such quorum is not obtainable or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the affirmative vote of the
holders of a majority of the shares of stock entitled to vote and represented
at a meeting called for such purpose.
(e) Expenses (including attorneys' fees) incurred in defending a
civil or criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding, as
authorized in Section (d) of this Article, upon receipt of an understanding by
or on behalf of the director, officer, employee or agent to repay such amount,
unless it shall ultimately be determined that he is entitled to be indemnified
by the corporation as authorized in this Article.
(f) The Board of Directors may exercise the corporation's power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under this
Article.
(g) The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under these Articles of Incorporation, the Bylaws, agreements, vote
of the shareholders or disinterested directors, or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs and
personal representatives of such a person.
The Company has no agreements with any of its directors or executive
officers providing for indemnification of any such persons with respect to
liability arising out of their capacity or status as officers and directors.
At present, there is no pending litigation or proceeding involving a
director or executive officer of the Company as to which indemnification is
being sought.
16
<PAGE> 17
PART F/S
The Financial Statements of Music Tones Ltd. required by Regulation
S-X commence on page F-1 hereof in response to Part F/S of this Registration
Statement on Form 10-SB and are incorporated herein by this reference.
PART III
ITEM 1. INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
ITEM
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------------------
<S> <C>
2.1* Articles of Incorporation of The Trader's Edge Ltd. filed October 28, 1987.
2.2* Articles of Amendment to the Articles of Incorporation of The Trader's Edge Ltd.
filed March 28, 1996.
2.3* Amended and Restated Articles of Incorporation of Music Tones Ltd. filed April
2, 1996.
2.4* Bylaws of The Trader's Edge Ltd.
10.1* Promissory Note dated March 20, 1996, of Sandra S. Steinberg.
10.2* Promissory Note dated March 20, 1996, of Colleen E. Schmidt.
</TABLE>
- ------------------
*Previously filed.
ITEM 2. DESCRIPTION OF EXHIBITS.
The documents required to be filed as Exhibit Number 2 in Part III of
Form 1-A filed as part of this Registration Statement on Form 10-SB are listed
in Item 1 of this Part III above. No documents are required to be filed as
Exhibit Numbers 3, 5, 6 or 7 in Part III of Form 1-A, and the reference to such
Exhibit Numbers is therefore omitted. No additional exhibits are filed hereto.
17
<PAGE> 18
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this Form 10-SB/A Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
MUSIC TONES LTD.
(Registrant)
Date: June 4, 1996 By: /s/ Daniel C. Steinberg
--------------------------------
Daniel C. Steinberg, President
18
<PAGE> 19
Janet Loss, C.P.A., P.C.
9101 East Kenyon Avenue, Suite 2000
Denver, Colorado 80237
(303) 220-0227
Board of Directors
Music Tones Ltd.
Aurora, Colorado 80014
I have audited the accompanying balance sheet of Music Tones Ltd. (a
development stage enterprise) as of March 31, 1996, and the related statements
of operations, changes in stockholders' equity and cash flows for the three
months ended March 31, 1996. These financial statements are the responsibility
of the Company's management. My responsibility is to express an opinion on
these financial statements based on my audit.
I conducted my audit in accordance with generally accepted accounting
standards. These standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, based upon my examination, the financial statements referred to
above present fairly, in all material respects, the financial position of Music
Tones Ltd. as of March 31, 1996, in conformity with generally accepted
accounting principles.
/s/JANET LOSS, C.P.A., P.C.
Janet Loss, C.P.A., P.C.
May 15, 1996
1
<PAGE> 20
MUSIC TONES LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
MARCH 31, 1996
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS:
Cash in checking $ 5,400
Notes receivable $ 5,000
---------
TOTAL CURRENT ASSETS $ 10,400
---------
OTHER ASSETS:
Organization Costs,
net of amortization 0
TOTAL ASSETS $ 10,400
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 4,453
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.01 par value,
10,000,000 shares authorized, no
shares issued and outstanding -
Common Stock, $.0001 par value,
100,000,000 shares authorized,
36,000,000 shares issued and
outstanding 3,600
Additional paid-in-capital 12,000
(Deficit) accumulated during the (9,653)
development stage ---------
TOTAL STOCKHOLDERS' EQUITY 5,947
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 10,400
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 21
MUSIC TONES LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<S> <C>
INCOME FROM OPERATIONS $ --
----------
OPERATING EXPENSES:
Audit Fees 600
Filing Fees 200
Legal Fees 8,000
Office Expenses 178
----------
TOTAL OPERATING EXPENSES 8,978
----------
NET (LOSS) $ (8,978)
==========
NET (LOSS) PER SHARE $ N/A
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 22
MUSIC TONES LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM (INCEPTION) OCTOBER 26, 1987, THROUGH MARCH 31, 1996
<TABLE>
<CAPTION>
Additional Deficit Accumulated Total
Common Stock Common Stock Paid-In during the Stockholders'
Number of Shares Amount Capital Development Stage Equity
---------------- -------------- ------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Balance,
October 26, 1987 -- $ -- $ -- $ -- $ --
March 18, 1990,
600 shares issued,
for services
rendered; no par
value 600 -- -- -- --
March 22,1992,
1,600 shares issued
for consulting
services, no par
value 1,600 -- -- -- --
December 31, 1992,
amortization of
organization costs -- -- -- (75) (75)
March 21, 1993,
800 shares issued for
services rendered, no
par value 800 -- -- -- --
March 20, 1996,
15,000 shares issued
for cash and notes,
no par value 15,000 15,000 -- -- 15,000
Stock split,
2,000 to 1 for common
stock, $.0001 par
value 35,982,000 (11,400) 12,000 (600) --
Net (loss) for the
Three Months Ended
March 31, 1996 -- -- -- (8,978) (8,978)
---------------------------------------------------------------------------------------
Balance,
March 31, 1996 36,000,00 $3,600 $12,000 $(9,653) $ 5,947
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 23
MUSIC TONES LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1996, THROUGH MARCH 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (8,978)
Decrease in Organization Costs (75)
Increase in Payables, Stockholder 4,453
--------
NET CASH USED BY OPERATING ACTIVITIES (4,600)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 15,000
Increase in Notes Receivable (5,000)
--------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,000
--------
NET INCREASE IN CASH $ 5,400
CASH, BEGINNING OF THE PERIOD 0
--------
CASH, END OF THE PERIOD $ 5,400
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 24
MUSIC TONES LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE I - HISTORY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Music Tones Ltd., a Colorado Corporation, was incorporated October 26, 1987,
and since its inception, the Company has been in the development stage. The
original name of the corporation was The Trader's Edge Ltd.; the name change
occurred March 20, 1996.
Year End
The Company has elected a calendar year-end.
Accounting Method
The Company records income and expenses on the accrual method.
Organization Costs
Costs incurred in organizing the Company are being amortized over a
sixty-month period.
NOTE II - CAPITAL STOCK
On March 20, 1996, the corporation effected a 2,000 to 1 forward stock split
in its common stock. Thus, the total common stock authorized changed from
50,000 to 100,000,000; and from no par value to $.0001 par value.
NOTE III - RELATED PARTIES
The Company has issued 3,000 shares of stock for services rendered from March
18, 1990, to March 21, 1993.
NOTE IV - NOTES RECEIVABLE
On March 20, 1996, 15,000 shares of stock were issued in consideration of
$10,000 cash and two non-interest bearing promissory notes, each in the
principal amount of $2,500 due and payable on May 31, 1996. These notes were
paid on May 13, 1996.
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