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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 2000
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Commission file number: 0-29973
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SOLOMON ALLIANCE GROUP, INC.
(Exact name of small business issuer as specified in its charter)
ARIZONA 86-0843235
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3025 Windward Plaza
Suite 300
Alpharetta, GA 30005
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(Address of principal executive offices)
(770) 753-3130
---------------------------
(Issuer's telephone number)
MADISON HOLDINGS, INC.
39 Broadway, Suite 2250
New York, New York 10006
--------------------------------
(Former Name and Former Address)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 21,534,745 shares as of July31, 2000.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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ITEM 1. FINANCIAL STATEMENTS
Registrant's Financial Statements are filed herewith following the signature
page.
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with the generally
accepted accounting principles may have been omitted. However, in the opinion of
management, all adjustments (which include only normal recurring accruals)
necessary to present fairly the financial position and results of operations for
the period presented have been made. The results for interim periods are not
necessarily indicative of trends or of results to be expected for the full year.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 8-K, as amended.
The consolidated financial statements included herein have been subjected to a
limited review by Stokes & Company P.C., independent auditor for the Company,
whose report is included herein as Exhibit 15.
ITEM 2. PLAN OF OPERATION
GENERAL
The Company is a development stage enterprise focused on the emerging wireless
data industry. The Company does not, at this moment, have any business and is
seeking to acquire or merge with other existing, operating businesses. During
March 2000, the Company entered into non-binding letters of intent to acquire
all or part of three separate businesses within the wireless industry as part of
its EXPANSION THROUGH ACQUISITION strategy.
The Company plans to become a leading provider of customized wireless data
communications solutions for individual and business needs. The Company designs,
develops and markets wireless network products and services under the
"Knowledge2Go" brand that provide low-cost, high performance, easy-to-use
IP-based data communications. The products can be used in a broad range of
personal computer and industrial applications.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has had virtually no revenues from operations
and has relied almost exclusively on officer loans, convertible debenture issues
and sale of securities to raise working capital to fund operations. At June30,
2000 the company had $9,006 in cash.
The Company intends to continue the development, deployment and
commercialization of its Knowledge2Go services. The timing and amount of capital
expenditures may vary significantly depending on numerous factors including
market acceptance of its services, availability and financial terms of site
agreements for the Company's network infrastructure, technological
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feasibility, availability of modems, and availability of sufficient management,
technical, marketing and financial resources.
The Company will need to raise additional funds through the sale of its equity
or debt securities in private or public financing or through strategic
partnerships in order to complete the deployment and commercialization of
Knowledge2Go. There can be no assurance that such funds will be sufficient to
fund such deployment as planned. If thecompany is unable to obtain needed funds,
it could be forced to curtail or cease its activities.
The company has, in the past, issued shares of common stock to various parties
as payment for services rendered. The company intends to continue this practice.
Management has instituted a cost reduction program that included a reduction in
labor and fringe costs as well as the operating overhead. In addition, the
Company has converted substantial debt to capital and is actively seeking
additional capital resources. Management believes these factors will contribute
toward achieving profitability
ITEM 3. - FORWARD LOOKING STATEMENTS
When used in this report and in future filings by the company with the
Commission in the Registrants' press release or other public or stockholder
communications, and in oral statements made with the approval of an authorized
executive officer, the words or phrases "WILL LIKELY RESULT", "ARE EXPECTED TO",
"WILL CONTINUE", "IS ANTICIPATED", "ESTIMATE", "PROJECT" or similar expressions
are intended to identify "FORWARD LOOKING STATEMENTS" within the earning of the
Private Securities Litigation Reform Act of 1955. Such statements are subject to
certain risks and uncertainties, including the Company's liquidity constraints,
potential increases in costs and delays, pending litigation, availability of raw
materials, competition, demand for the product and other proprietary products
and delays in the distribution process that could cause actual results to differ
materially from those presently anticipated or projected. The company wishes to
caution readers not to place undue reliance on any such forward-looking
statements which speak only as of the date made. The company wishes to advise
readers that actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The company does not undertake - and specifically, declines any obligation - to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events.
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit(s).
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
27 Financial Data Schedule Filed with this Form 10-QSB
15 Independent Accountant's Report Filed with this Form 10-QSB
(b) Reports on Form 8-K
1) On May 15, 2000, Solomon filed a Current Report on Form 8-K/A.
2) On March 16, 2000, Solomon filed a Notice of Securities of a
Successor Issuer Deemed to be Registered on Form 8-K12G3.
SIGNATURES
In accordance with the requirements of the exchange act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SOLOMON ALLIANCE GROUP, INC.
By: /s/Thomas I. Weston
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Thomas I. Weston, Jr.
President
DATED: August 10, 2000
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SOLOMON ALLIANCE GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Financial Statements
June 30, 2000 and 1999
(Unaudited)
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CONTENTS
PAGE
FINANCIAL STATEMENTS
Consolidated Balance Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Financial Statements 6 - 8
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SOLOMON ALLIANCE GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 9,006
Employee receivables -
Prepaids 3,750
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Total current assets 12,756
ROPERTY AND EQUIPMENT - AT COST
Furniture and office equipment, net of accumulated
depreciation of $21,824 49,091
OTHER ASSETS
Goodwill, net of accumulated amortization of $113,114 506,935
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$ 568,782
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 187,775
Accrued salaries 112,500
Accrued payroll taxes 36,045
Officer loans 343,712
Note payable 50,000
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Total current liabilities 730,032
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LONG-TERM LIABILITIES
Convertible debentures 5,630
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STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value; 100,000,000 shares
authorized; 23,148,116 shares issued and 21,539,745
outstanding 21,540
Additional paid in capital 1,731,259
Deficit accumulated during development stage (1,919,679)
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(166,880)
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$ 568,782
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The accompanying notes are an integral part of these financial statements.
3
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SOLOMON ALLIANCE GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999,
THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999, AND THE
PERIOD FROM OCTOBER 25, 1996 (INCEPTION) TO JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months Three Months Three Months October 25, 1996
Ended Ended Ended Ended (Inception) to
June 30, June 30, June 30, June 30 June 30,
2000 1999 2000 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUE
Sales $ - $ 2,400 $ - $ - $ 7,856
COST OF MERCHANDISE SOLD - 2,035 - - 6,989
--------- --------- --------- --------- ----------
Gross profit - 365 - - 867
--------- --------- --------- --------- ----------
EXPENSES
Interest 14,353 29,522 8,110 17,022 95,985
Depreciation and amortization 39,936 35,667 22,263 19,856 134,938
Selling and administrative 341,783 650,053 80,157 350,517 2,142,662
--------- --------- --------- --------- ----------
396,072 715,242 110,530 387,395 2,373,585
--------- --------- --------- --------- ----------
Loss from operations (396,072) (714,877) (110,530) (387,395) (2,372,718)
OTHER INCOME AND EXPENSE
Interest income - 680 187 3,039
--------- --------- --------- --------- ----------
Loss before income tax expense
and extraordinary item (396,072) (714,197) (110,530) (387,208) (2,369,679)
INCOME TAXES - - - - -
--------- --------- --------- --------- ----------
Loss before extraordinary item (396,072) (714,197) (110,530) (387,208) (2,369,679)
EXTRAORDINARY ITEM:
Gain on extinquishment of debt,
less applicable tax - 450,000 - - 450,000
--------- --------- --------- --------- ----------
Net loss $(396,072) $(264,197) $(110,530) $(387,021) $(1,919,679)
========== ========== ========== ========== ============
EARNINGS (LOSS) PER COMMON SHARE:
Loss before extraordinary item $ (0.02) $ (0.06) $ (0.01) $ (0.03)
Extraordinary item - 0.04 - -
--------- --------- --------- ---------
Net loss $ (0.02) $ (0.02) $ (0.01) $ (0.03)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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SOLOMON ALLIANCE GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999, AND THE
PERIOD FROM OCTOBER 25, 1996 (INCEPTION) TO JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
October 25, 1996
(Inception) to
June, 30
2000 1999 2000
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from sales $ - $ 2,400 $ 7,856
Interest income - 680 3,039
Payments to vendors, suppliers and employees (263,464) (658,889) (1,799,337)
---------- ---------- ------------
NET CASH USED BY OPERATING ACTIVITIES (263,464) (655,809) (1,788,442)
---------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment - (42,021) (51,023)
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NET CASH USED BY INVESTING ACTIVITIES - (42,021) (51,023)
---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans 276,900 - 353,800
Repayments of loans (6,900) (10,000) (43,800)
Proceeds from convertible debentures - 880,557 1,289,900
Proceeds from warrants - - 2,500
Proceeds from issuance of common stock - - 51,890
Proceeds from acquisition of subsidiary - - 194,181
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NET CASH PROVIDED BY FINANCING ACTIVITIES 270,000 870,557 1,848,471
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NET INCREASE (DECREASE) IN CASH 6,536 172,727 9,006
CASH at beginning of period 2,470 78,386 -
---------- ---------- ------------
CASH at end of period $ 9,006 $ 251,113 $ 9,006
========== ========== ============
RECONCILIATION OF NET LOSS TO NET CASH
USED BY OPERATING ACTIVITIES:
Net Loss $(396,072) $(264,197) $(1,919,679)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 39,936 35,667 134,938
Accrued interest not paid 13,474 37,127 94,352
Debt forgiveness - (450,000) (450,000)
(Increase) decrease in assets:
Employee receivables 5,719 (5,719) -
Prepaids (3,750) (44,833) (3,750)
Increase (decrease) in liabilities:
Accounts payable 8,618 3,469 207,152
Accrued salaries 67,500 - 112,500
Accrued payroll taxes 1,111 32,677 36,045
---------- ---------- ------------
NET CASH USED BY OPERATING ACTIVITIES $(263,464) $(655,809) $(1,788,442)
========== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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SOLOMON ALLIANCE GROUP, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Six Months Ended June 30, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF ORGANIZATION
Solomon Alliance Group, Inc. was incorporated in the State of Arizona on October
25, 1996. The Company was incorporated for the purpose of seeking potential
business ventures. The Company is classified as a development stage enterprise
because it has had no significant operations since its inception. In 1998, the
Company decided to target the emerging wireless data industry and on July 17,
1998 the Company acquired 100% of the common stock of Visual Link Wireless, Inc.
(VLW), which became a wholly owned subsidiary. VLW was a startup company in the
wireless data industry focusing on applications for the mobile professional. On
August 5, 1999, the Company acquired MPTG Communications, Inc., another startup
company that designed wireless data devices for niche markets. During the fourth
quarter of 1999 the Company was reorganized and is now repositioning itself to
take advantage of new opportunities in the wireless industry. On March 8, 2000,
the Company acquired 100% of the common stock of Madison Holdings, Inc., which
became a wholly owned subsidiary.
Solomon is positioning itself to be a premier wireless data solutions provider
in the new and rapidly expanding wireless data market. Under the Knowledge2Go
brand, it focuses on integrated wireless Internet products and services for both
the business to business and personal use markets. In addition, Solomon plans to
expand into other segments of the industry through selected acquisitions and
joint ventures.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany accounts,
transactions, and profits are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers deposits that can be redeemed on demand and investments
that have original maturities of less than three months, when purchased, to be
cash equivalents. As of June 30, 2000, the Company had no cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized, and minor replacements, maintenance, and
repairs are charged to expense as incurred. When property and equipment are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in the
results of operations for the respective period. Depreciation is provided over
the estimated useful lives of the related assets using the straight-line method
for financial statement purposes. The Company uses other depreciation methods
(generally accelerated) for tax purposes where appropriate. The estimated useful
lives for significant property and equipment categories are as follows:
Computers and Equipment 5 years
Office Furniture and Fixtures 5 years
6
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SOLOMON ALLIANCE GROUP, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements (Continued)
Six Months Ended June 30, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES
Preparing the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect 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.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets, including tax loss and credit carryforwards, and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Deferred income tax expense represents the change during the
period in the deferred tax assets and deferred tax liabilities. The components
of the deferred tax assets and liabilities are individually classified as
current and non-current based on their characteristics. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. As of June 30, 2000 there were no deferred tax assets or liabilities.
GOODWILL
The excess of acquisition cost over the fair value of net assets (goodwill) of
Visual Link Wireless, Inc. (VLW), the Company's operating subsidiary, and
Madison Holdings, Inc. (MHI), are being amortized using the straight-line method
over 5 and 10 years, respectively. Management believes that there has been no
impairment of the goodwill as reflected in the Company's consolidated financial
statements as of June 30, 2000. The Company has adopted reduced periods of
amortization reflecting the approximate utility of the purchased goodwill. VLW
is subject to changes occurring in the high-tech communications industry and
MHI's utility is limited to access to the capital markets. Cost in excess of net
assets of VLW and MHI, net of amortization, was $188,366, and $332,696 as of
June 30, 2000. Amortization for the three months ending June 30, 2000 and 1999
was $18,931 and $14,127, respectively.
EARNINGS PER SHARE
Basic net earnings (loss) per common share (EPS) is computed by dividing net
earnings (loss) applicable to common shareholders by the weighted-average number
of common shares outstanding during the period. Diluted net earnings (loss) per
common share is determined using the weighted-average number of common shares
outstanding during the period, adjusted for the dilutive effect of common stock
equivalents, consisting of shares that might be issued upon the conversion of
debt. In periods where losses are reported, the weighted-average number of
common shares outstanding excludes common stock equivalents, because their
inclusion would be anti-dilutive. The average shares outstanding for basic EPS
during the second quarter of
7
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SOLOMON ALLIANCE GROUP, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements (Continued)
Six Months Ended June 30, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2000 and 1999, were 21,413,078 and 11,454,000, respectively; and, 21,143,567 and
11,454,000 for the six months ended June 30, 2000 and 1999.
GOING CONCERN
As shown in the accompanying consolidated financial statements, the Company has
incurred recurring losses from operations, and as of June 30, 2000, the
Company's current liabilities exceeded its current assets by $717,276 and its
total liabilities exceeded its total assets by $166,880. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management has instituted a cost reduction program that included a reduction in
labor and fringe costs as well as the operating overhead. In addition, the
Company has converted substantial debt to capital and is actively seeking
additional capital resources. Management believes these factors will contribute
toward achieving profitability. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
NOTE B - CAPITAL STOCK
The Company has entered into an agreement with a consultant to provide up to
500,000 shares of the Company's stock, in the form of warrants or options, for
compensation of services which have been provided and are to be provided in the
near future. The price to the consultant for these shares is $0.10 per share.
In connection with this agreement the Company has issued its warrant for 150,000
shares. The warrant expires on March 2, 2005. As of June 30, 2000, none of the
shares under this warrant have been acquired.
NOTE C - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
2000
----
Noncash Investing and Financing Activities:
Conversion of Debentures to Common Stock $695,400
Conversion of Accrued Interest to Common Stock $ 57,991
Acquisition of Madison Holdings, Inc. in exchange for
the Company's common stock $337,200
NOTE D - RELATED PARTY TRANSACTIONS
As of June 30, 2000, the Company has borrowed $505,932 for its operations from
an officer. Of this amount $343,712 is represented by direct loans to the
Company and $163,024 is included in the Company's accounts payable. All loans
and advances bear interest at 8% per annum. The amounts are due on demand and
unsecured.
8
