Form 10-QSB
(As last amended in Release No. 33-7505, effective January 1,1999, 63 F.R. 9632)
U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JULY 31, 2000
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( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number
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Southland Financial, Inc.
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(Exact name of small business issuer as
specified in its charter)
Nevada 94-3346241
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Suite 2, 25 Prospect Street, Box Hill, VIC 3128, Australia
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(Address of principal executive offices)
011 612 9999 3884
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court.
Yes No
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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: 19,789,569
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
SOUTHLAND FINANCIAL, INC.
Page
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Part 1. Financial Information .............................. 3
Item 1. Financial Statements ............................... 3
Balance Sheet ...................................... 3
Statement of Operations ............................ 4
Statement of Cash Flows ............................ 5
Item 2. Plan of Operations ................................. 10
Part II. Other Information .................................. 12
<PAGE>
SOUTHLAND FINANCIAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED BALANCE SHEETS
JULY 31, 2000 AND JANUARY 31, 2000
<TABLE>
<CAPTION>
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July 31, 2000
ASSETS (Unaudited) January 31, 2000
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<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 3,956 $ 110,168
Accounts receivable - affiliate 34,630 151,995
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Total current assets 38,586 262,163
EQUITY INVESTMENT IN JOINT VENTURE, net 3,472,017 -
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TOTAL ASSETS $ 3,510,603 $ 262,163
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LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY IN ASSETS)
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CURRENT LIABILITIES
Accounts payable and accrued expenses $ 83,758 $ 5,684
Salary payable - stockholder 400,000 -
Due to stockholders 169,530 -
Directors fee payable 150,000 -
Due to directors 115,150 -
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Total current liabilities 918,438 5,684
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LONG TERM DEBT
Salary payable - 250,000
Notes payable - directors - 200,647
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Total long-term debt - 450,647
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TOTAL LIABILITIES 918,438 456,331
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STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Common stock, par value $.001 per share; 100,000,000
shares authorized; 19,789,569 and 15,489,569 issued
and outstanding 19,790 15,490
Additional paid in capital 7,904,211 2,793,510
Stock subscription receivable (290,000) (290,000)
Deficit accumulated during the development stage (5,041,836) (2,713,168)
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Total stockholders' equity (deficiency in assets) 2,592,165 (194,168)
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TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIENCY IN ASSETS) $ 3,510,603 $ 262,163
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</TABLE>
See accompanying notes - unaudited
3
<PAGE>
SOUTHLAND FINANCIAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JULY 31, 2000
AND THE PERIOD FROM INCEPTION (JANUARY 14, 1998) TO JULY 31, 2000
<TABLE>
<CAPTION>
================================================================================================================================
For the three For the six Inception
months ended months ended (January 14, 1998)
July 31, 2000 July 31, 2000 to July 31, 2000
(Unaudited) (Unaudited) (Unaudited)
================================================================================================================================
<S> <C> <C> <C>
NET EQUITY IN EARNINGS OF
JOINT VENTURE $ 7,017 $ 7,017 $ 7,017
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OPERATING EXPENSES
Consulting - 123,172 1,860,213
Directors fees 75,000 1,696,875 1,696,875
Licensing fees - 81,082 81,082
Management fees - - 299,500
Meals and entertainment 124 1,110 3,196
Other expenses 9,579 15,815 72,517
Organizational expense - - 150,000
Printing/office expense 9,937 9,937 9,937
Professional fees 27,774 175,968 208,040
Public relations and advertising - 8,000 61,736
Salaries and wages 75,000 150,000 400,000
Stock related fees 65 1,805 41,319
Travel 16,954 74,028 167,169
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Total operating expenses 214,433 2,337,792 5,051,584
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LOSS FROM OPERATIONS ( 207,416) ( 2,330,775) ( 5,044,567)
OTHER INCOME 1,638 2,107 2,731
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NET LOSS ($ 205,778) ($ 2,328,668) ($ 5,041,836)
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Weighted Average Number of Common
Shares Outstanding $ 17,017,830 $ 16,695,646 11,318,281
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Net loss per share - basic and diluted ($ 0.01) ($ 0.14) ($ 0.45)
================================================================================================================================
</TABLE>
See accompanying notes - unaudited
4
<PAGE>
SOUTHLAND FINANCIAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 2000 AND THE PERIOD
FROM INCEPTION (JANUARY 14, 1998) TO JULY 31, 2000
<TABLE>
<CAPTION>
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Inception
Six months ended (January 14, 1998)
July 31, 2000 to July 31, 2000
(Unaudited) (Unaudited)
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 2,328,668) ($ 5,041,836)
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Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of excess purchase price over net assets
acquired in joint venture 6,482 6,482
Equity in earnings of joint venture ( 13,499) ( 13,499)
Stock issued for services 1,650,001 3,444,001
Changes in assets and liabilities:
Accounts receivable 117,365 ( 34,630)
Accounts payable 78,074 83,758
Salary payable 150,000 400,000
Directors fees payable 150,000 150,000
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Total adjustments 2,138,423 4,036,112
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Net cash used in operating activities ( 190,245) ( 1,005,724)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock - 725,000
Net borrowings from stockholders 83,883 169,530
Net borrowings from directors 150 115,150
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Net cash provided by financing activities 84,033 1,009,680
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NET (DECREASE) INCREASE IN CASH AND
EQUIVALENTS ( 106,212) 3,956
CASH AND EQUIVALENTS - BEGINNING 110,168 -
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CASH AND EQUIVALENTS - ENDING $ 3,956 $ 3,956
================================================================================================================================
</TABLE>
See accompanying notes - unaudited
5
<PAGE>
SOUTHLAND FINANCIAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 1. BASIS OF PRESENTATION
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The accompanying unaudited consolidated condensed financial
statements include the accounts of Southland Financial Inc.,
and its wholly owned subsidiary Cactus Multimedia Inc., (the
Company), and have been prepared in accordance with generally
accepted accounting principles for interim financial
information. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments considered
necessary for a fair presentation have been included and such
adjustments are of a normal recurring nature. Results for the
three month and six month periods ended July 31, 2000 are not
necessarily indicative of the results that may be expected for
the year ending January 31, 2001.
The financial data at January 31, 2000 is derived from audited
financial statements which are included in the Company's Form
8-K/A dated April 3, 2000 and should be read in conjunction
with the audited financial statements and the notes thereto.
Information relating to inception (January 14, 1998) to July
31, 2000 included in the consolidated condensed statements of
operations and cash flows have not been reviewed by
independent accountants.
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the 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.
Net Loss Per Share
The Company applies Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (FAS 128). Net loss
per share is computed by dividing net loss by the weighted
average number of common shares outstanding during the
reported periods after giving effect to a one-for-239 share
reverse stock split in January 1998. Outstanding stock
equivalents were not considered in the calculation as their
effect would have been anti-dilutive.
Investments
Investments in joint ventures, owned more than 20% but not in
excess of 50%, are recorded on the equity method.
6
<PAGE>
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NOTE 3. GOING CONCERN
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The Company has sustained substantial losses and negative cash
flows since inception. In the absence of achieving profitable
operations and positive cash flows from operations or
obtaining additional debt or equity financing, the Company may
have difficulty meeting current obligations.
In view of these matters, the Company may not have the ability
to continue in existence. Management believes that actions
presently being taken, including efforts to sell common stock,
provide the opportunity for the Company to continue as a going
concern. In addition, the stockholders and directors, have
agreed to not pursue collection of amounts due until such time
as the Company achieves profitable operations and/or it is
deemed by the directors that the Company has sufficient
working capital.
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NOTE 4. ACQUISITION
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On April 3, 2000, Southland Financial, Inc., a Nevada
corporation, acquired all the outstanding shares of common
stock of Cactus Multimedia I, Inc. (CMI), a Delaware
corporation, in consideration for 500,000 shares of the
Company's common stock. In connection with this acquisition
the Company entered into a consulting agreement with the
former majority shareholder of CMI for one year and paid the
former shareholder of CMI $100,000. As a result, Cactus became
a wholly owned subsidiary of the Company. At the time of the
acquisition, CMI had no operations and nominal net assets. The
acquisition is intended to qualify as a reorganization within
the meaning of Section 368 (a)(2)(B) of the Internal Revenue
Code of 1986, as amended. Upon effectiveness of the
acquisition Southland became the successor issuer to Cactus
for reporting purposes, under the Securities Exchange Act of
1934.
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NOTE 5. CHINA BEIJING STARBRIDGE HENGXIN INFORMATION
TECHNOLOGY, INC. LTD. JOINT VENTURE
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During March 2000, the Company entered into a contract with
China Changfeng StarBridge Computer Technology Ltd. (CCF), a
Chinese company to form a Sino-foreign Joint Venture to
develop Internet, Intranet and e-commerce businesses in China.
Under the contract, CCF will acquire a 55% ownership and the
Company will obtain a 45% ownership in CCF Starbridge, a
systems integrator holding an ISP license in China. Effective
July 24, 2000, upon final approval of the agreement by the
Ministry of Trade and Economic Cooperation, (MOFTEC), the
Company acquired a minority equity position in the Joint
Venture, in exchange for two million common stock shares of
the Company.
In addition, the Company issued one million shares of common
stock to a third party who provided consultations,
introductions, and intermediary services in connection with
this transaction.
7
<PAGE>
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NOTE 5. CHINA BEIJING STARBRIDGE HENGXIN INFORMATION
TECHNOLOGY, INC. LTD. JOINT VENTURE (Continued)
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The joint venture's unaudited summary of financial information
is as follows:
Condensed Statement of Earnings for the period ended from
December 31, 1999 to July 31, 2000
Joint Venture
Net sales $ 7,489,189
Gross profit 2,995,676
Income before income taxes 1,067,572
Net income 907,400
Southland's Equity in Earnings
Southland equity in income for the period 13,499
Amortization expense for the excess of cost
over the underlying net assets of the
joint venture ( 6,482)
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Net equity in earnings of the joint venture $ 7,017
==============================================================
The Company's investment in joint venture includes the
unamortized excess of the company's investment over its equity
in the joint venture's net assets. This excess was $2,910,270
at July 31, 2000, and is being amortized on a straight-line
basis over an estimated economic useful life of 10 years.
Condensed balance sheet information for the joint venture was:
Condensed Balance Sheet
Current assets $ 225,236
Noncurrent assets 1,109,393
Current liabilities 116,302
Shareholders' equity 1,218,327
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NOTE 6. COMMITMENTS
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Future annual minimum payments under an employment agreement
with a key executive are as follows:
Year ended January 31,
2001 $ 300,000
2002 350,000
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$ 650,000
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8
<PAGE>
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NOTE 7. SIGNIFICANT AGREEMENTS
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On May 5, 2000, the Company entered into an agreement for the
sale of 1,000,000 shares of its common stock to an unrelated
third party for approximately $700,000 cash based upon the
Company's closing bid price, (as defined), at delivery of
share certificates and cash consideration to a specified trust
account. As of June 16, 2000, 1,000,000 shares certificates
have been delivered to the specified trust account, however,
as the cash consideration was not placed in escrow as required
by the agreement, this transaction is not expected to be
consummated. Management anticipates canceling the shares held
in trust.
9
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
General
Management's discussion and analysis contains various "forward-looking
statements" within the meaning of the Securities and Exchange Act of 1934. Such
statements consist of any statement other than a recitation of historical fact
and can be identified by the use of forward-looking terminology such as "may,"
"expect," "anticipate," "estimate" or "continue" or use of negative or other
variations or comparable terminology.
The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those contained in the forward-looking statements, that these forward-looking
statements are necessarily speculative, and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements.
Management believes comparison of the results of operations for the six
month period ended July 31, 2000 to the six month period ended July 31, 1999
would not be meaningful as the Company is a developmental company, has sustained
substantial operating losses and has sustained negative cash flows since
inception.
On April 3, 2000, the Company acquired all the outstanding shares of
common stock of Cactus Multimedia I, Inc. in consideration for 500,000 shares of
the Company's common stock. This transaction was reported on Form 8-K on April
3, 2000 and on Form 8-K/A on April 18, 2000.
Plan of Operations
Since inception the Company has sustained a net loss of $5,041,836. The
net loss for the six months ended July 31, 2000 was $2,328,668. Operating
expenses have been principally attributable to consulting expenses and directors
fees, a substantial portion of which has been paid in the Company's common
stock. The Company will need to raise funds through the sale of its securities,
loan or other financing alternatives. The Company is reviewing financing
alternatives, but to date has not identified any financing alternatives that are
on terms acceptable to the Company. Management anticipates finalizing some
financing alternative within the next fiscal quarter. The Company does not
anticipate any expenses for research and development. The Company expects to
purchase computer equipment within the next 12 months. The Company does not
anticipate a change in the number of employees in the next fiscal quarter.
10
<PAGE>
The Company intends to generate revenues through several projects in
the Peoples Republic of China, one of which has recently commenced.
Revenues for the six months ended July 31, 2000 consisted of net equity
in earnings from a joint venture in the amount of $7,017. These revenues are
from a Sino foreign joint venture, CCF StarBridge Hengxin, among the Company and
China Changfeng StarBridge Computer Technology Ltd. (CCSC), a Chinese company.
This joint venture commenced on July 24, 2000, after final approval was granted
by the Chinese Ministry of Foreign Trade and Economic Cooperation (MOFTEC). The
CCF StarBridge Hengxin joint venture has developed a systems integration system
and also holds a national ISP license in the Peoples Republic of China. The
Company owns 45% of this joint venture.
Management of the Company is also negotiating for the acquisition of
Gold Phoenix and Associates Limited, a Hong Kong company. Gold Phoenix owns 60%
of Ai Wei Technologies Corporation, a Chinese corporation, that holds the right
to distribute smart cards for a health card registration management system
throughout the Peoples Republic of China. Management believes that this
acquisition will be completed by the end of the next fiscal quarter.
The Company intends to enter into other projects in the Peoples
Republic of China, including the development of Internet cafes and Internet
portals in hotels.
Liquidity and Capital Resources
The Company, since its inception, has experienced severe negative cash
flows and has met its cash requirements by issuing its common stock. Additional
funds were generated by borrowings of approximately $280,000 from stockholders
and directors. The Company is seeking additional funding to facilitate its
business plan. While an agreement was made for the sale of one million shares of
common stock for $700,000 and shares issued for this transaction, funding has
not been received. The Company does not anticipate receiving funds from this
agreement and has instructed its transfer agent to cancel these shares. Note 3
of the Consolidated Condensed Financial Statements states that the Company may
not be able to continue as a going concern.
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. The future dividend policy will depend on the
Company's earnings, capital requirements, expansion plans, financial condition
and other relevant factors.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities and Use of Proceeds
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) Exhibits required by Item 601 of Requlation S-B
None.
(aa) Reports on Form 8-K
None.
12
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SOUTHLAND FINANCIAL, INC.
Date: September 19, 2000 By: /s/ David Turik
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David Turik, Director and President
