<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------------------
FORM 10-SB
---------------------
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(g) of
The Securities Exchange Act of 1934
---------------------
MAGNOLIA VENTURES, INC.
(Name of Small Business Issuer in its charter)
Nevada 88-0355504
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1105 Terminal Way, Suite 202 Century Park
Reno, Nevada 89502
----------------------------------------- ---------
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (775) 348-5708
Securities to be registered pursuant to Section 12(b) of the Act:
none
Securities to be registered pursuant to Section 12(g) of the Act:
$.001 Common Stock
--------------------
(Title of Class)
Page One of 54 Pages
Exhibit Index is Located at Page 54.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
Item 1. Description of Business . . . . . . . . . . . . . 3
Item 2. Plan of Operation. . . . . . . . . . . . . . . . . 8
Item 3. Description of Property. . . . . . . . . . . . . . 14
Item 4. Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . 14
Item 5. Directors, Executive Officers, Promoters
and Control Persons. . . . . . . . . . . . . . . 16
Item 6. Executive Compensation . . . . . . . . . . . . . . 18
Item 7. Certain Relationships and
Related Transactions. . . . . . . . . . . . . . 19
Item 8. Description of Securities. . . . . . . . . . . . . 19
PART II
Item 1. Market for Common Equities and Related Stockholder
Matters . . . . . . . . . . . . . .. . . . . . . 20
Item 2. Legal Proceedings. . . . . . . . . . . . . . . . . 23
Item 3. Changes in and Disagreements with Accountants. . . 23
Item 4. Recent Sales of Unregistered Securities. . . . . . 23
Item 5. Indemnification of Directors and Officers. . . . . 25
PART F/S
Financial Statements . . . . . . . . . . . . . . . 26
PART III
Item 1. Index to Exhibits. . . . . . . . . . . . . . . . . 54
Signatures . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
2.
<PAGE> 3
PART I
Item 1. Description of Business
Magnolia Ventures, Inc. (the "Company") was incorporated on June 13,
1994 under the laws of the State of Nevada to engage in any lawful corporate
activity, including, but not limited to, selected mergers and acquisitions. The
Company has been in the developmental stage since inception and has no
operations to date. Other than issuing shares to its original shareholders, the
Company never commenced any operational activities. As such, the Company can be
defined as a "shell" company, whose sole purpose at this time is to locate and
consummate a merger or acquisition with a private entity. The Board of Directors
of the Company has elected to commence implementation of the Company's principal
business purpose described below under "Item 2 - Plan of Operation." The
proposed business activities described herein may classify the Company as a
"blank check" company.
The Company is filing this registration statement on a voluntary basis
because the primary attraction of the Company as a merger partner or acquisition
vehicle will be its status as a public company. Any business combination or
transaction will likely result in a significant issuance of shares and
substantial dilution to present stockholders of the Company.
In addition, the Company is filing this registration statement to
enhance investor protection and to provide information if a trading market
commences. On December 11, 1997, the National Association of Securities Dealers,
Inc. (NASD) announced that its Board of Governors had approved a series of
proposed changes for the Over The Counter ("OTC") Bulletin Board and the OTC
market. The principal changes, which was approved by the Securities and Exchange
Commission on or about January 5, 1999 allows only those companies that report
their current financial information to the Securities and Exchange Commission,
banking, or insurance regulators to be quoted on the OTC Bulletin Board. The
eligibility rule phase-in began on July 1, 1999 and was completed as of June 22,
2000. During the phase-in period, the NASD reviewed every company whose
securities were quoted on the OTC Bulletin Board for compliance with the new
filing requirements. The eligibility rule protects investors by ensuring that
they have access to companies' current financial information when considering
investments in OTC Bulletin Board-eligible securities.
Risk Factors
The Company's business is subject to numerous risk factors, including
the following:
3.
<PAGE> 4
1. No Operating History or Revenue and Minimal Assets. The Company has
had no operating history nor any revenues or earnings from operations. The
Company has no significant assets or financial resources. The Company will, in
all likelihood, sustain operating expenses without corresponding revenues, at
least until the consummation of a business combination. This may result in the
Company incurring a net operating loss which will increase continuously until
the Company can consummate a business combination with a profitable business
opportunity. There is no assurance that the Company can identify such a business
opportunity and consummate such a business combination.
2. The Company's Proposed Operations is Speculative. The success of the
Company's proposed plan of operation will depend to a great extent on the
operations, financial condition and management of the identified business
opportunity. While management intends to seek business combination(s) with
entities having established operating histories, there can be no assurance that
the Company will be successful in locating candidates meeting such criteria. In
the event the Company completes a business combination, of which there can be no
assurance, the success of the Company's operations may be dependent upon
management of the successor firm or venture partner firm and numerous other
factors beyond the Company's control.
3. Scarcity of and Competition for Business Opportunities and
Combinations. The Company is and will continue to be an insignificant
participant in the business of seeking mergers with, joint ventures with and
acquisitions of small private and public entities. A large number of established
and well-financed entities, including venture capital firms, are active in
mergers and acquisitions of companies which may be desirable target candidates
for the Company. Nearly all such entities have significantly greater financial
resources, technical expertise and managerial capabilities than the Company and,
consequently, the Company will be at a competitive disadvantage in identifying
possible business opportunities and successfully completing a business
combination. Moreover, the Company will also compete in seeking merger or
acquisition candidates with numerous other small public companies.
4. The Company has No Agreement for a Business Combination or Other
Transaction - No Standards for Business Combination. The Company has no
arrangement, agreement or understanding with respect to engaging in a merger
with, joint venture with or acquisition of, a private or public entity. There
can be no assurance the Company will be successful in identifying and evaluating
suitable business opportunities or in concluding a business combination.
Management has not identified any particular industry or specific business
within an industry for evaluation by the Company. There is no assurance the
Company will be able to negotiate a business combination on terms favorable to
the Company. The Company has not established a specific length of operating
history or a specified level of
4.
<PAGE> 5
earnings, assets, net worth or other criteria which it will require a target
business opportunity to have achieved, and without which the Company would not
consider a business combination in any form with such business opportunity.
Accordingly, the Company may enter into a business combination with a business
opportunity having no significant operating history, losses, limited or no
potential for earnings, limited assets, negative net worth or other negative
characteristics.
5. Continued Management Control, Limited Time Availability. While
seeking a business combination, management anticipates devoting up to ten hours
per month to the business of the Company. None of the Company's officers has
entered into a written employment agreement with the Company and none is
expected to do so in the foreseeable future. The Company has not obtained key
man life insurance on any of its officers or directors. Notwithstanding the
combined limited experience and time commitment of management, loss of the
services of any of these individuals would adversely affect development of the
Company's business and its likelihood of continuing operations. See "Item 5 -
Directors, Executive Officers, Promoters and Control Persons."
6. There May be Conflicts of Interest. Officers and directors of the
Company may in the future participate in business ventures which could be deemed
to compete directly with the Company. Additional conflicts of interest and
non-arms length transactions may also arise in the future in the event the
Company's officers or directors are involved in the management of any firm with
which the Company transacts business. Management has adopted a policy that the
Company will not seek a merger with, or acquisition of, any entity in which
management serve as officers, directors or partners, or in which they or their
family members own or hold any ownership interest.
7. Reporting Requirements May Delay or Preclude Acquisitions. Sections
13 and 15(d) of the Securities Exchange Act of 1934 (the "1934 Act"), require
companies subject thereto to provide certain information about significant
acquisitions, including certified financial statements for the company acquired,
covering one, two, or three years, depending on the relative size of the
acquisition. The time and additional costs that may be incurred by some target
entities to prepare such statements may significantly delay or essentially
preclude consummation of an otherwise desirable acquisition by the Company.
Acquisition prospects that do not have or are unable to obtain the required
audited statements may not be appropriate for acquisition so long as the
reporting requirements of the 1934 Act are applicable.
8. Lack of Market Research or Marketing Organization. The Company has
neither conducted, nor have others made available to it, results of market
research indicating that market demand exists for the transactions contemplated
by the Company. Moreover, the Company does not have, and does not plan to
5.
<PAGE> 6
establish, a marketing organization. Even in the event demand is identified for
a merger or acquisition contemplated by the Company, there is no assurance the
Company will be successful in completing any such business combination.
9. Lack of Diversification. The Company's proposed operations, even if
successful, will in all likelihood result in the Company engaging in a business
combination with a business opportunity. Consequently, the Company's activities
may be limited to those engaged in by business opportunities which the Company
merges with or acquires. The Company's inability to diversify its activities
into a number of areas may subject the Company to economic fluctuations within a
particular business or industry and therefore increase the risks associated with
the Company's operations.
10. Regulation. Although the Company will be subject to regulation under
the 1934 Act, management believes the Company will not be subject to regulation
under the Investment Company Act of 1940, insofar as the Company will not be
engaged in the business of investing or trading in securities. In the event the
Company engages in business combinations which result in the Company holding
passive investment interests in a number of entities, the Company could be
subject to regulation under the Investment Company Act of 1940. In such event,
the Company would be required to register as an investment company and could be
expected to incur significant registration and compliance costs. The Company has
obtained no formal determination from the Securities and Exchange Commission as
to the status of the Company under the Investment Company Act of 1940 and,
consequently, any violation of such Act would subject the Company to material
adverse consequences.
11. Probable Change in Control and Management. A business combination
involving the issuance of the Company's Common Shares will, in all likelihood,
result in shareholders of a private company obtaining a controlling interest in
the Company. Any such business combination may require management of the Company
to sell or transfer all or a portion of the Company's Common Shares held by
them, or resign as members of the Board of Directors of the Company. The
resulting change in control of the Company could result in removal of one or
more present officers and directors of the Company and a corresponding reduction
in or elimination of their participation in the future affairs of the Company.
12. Reduction of Percentage Share Ownership Following Business
Combination. The Company's primary plan of operation is based upon a business
combination with a private concern which, in all likelihood, would result in the
Company issuing securities to shareholders of any such private company. The
issuance of previously authorized and unissued Common Shares of the Company
would result in reduction in percentage of shares owned by present and
prospective shareholders of the Company and may result in a change in control or
management of the Company.
6.
<PAGE> 7
13. Disadvantages of Blank Check Offering. The Company may enter into a
business combination with an entity that desires to establish a public trading
market for its shares. A business opportunity may attempt to avoid what it deems
to be adverse consequences of undertaking its own public offering by seeking a
business combination with the Company. Such consequences may include, but are
not limited to, time delays of the registration process, significant expenses to
be incurred in such an offering, loss of voting control to public shareholders
and the inability or unwillingness to comply with various federal and state laws
enacted for the protection of investors.
14. Taxation. Federal and state tax consequences will, in all
likelihood, be major considerations in any business combination the Company may
undertake. Currently, such transactions may be structured so as to result in
tax-free treatment to both companies, pursuant to various federal and state tax
provisions. The Company intends to structure any business combination so as to
minimize the federal and state tax consequences to both the Company and the
target entity; however, there can be no assurance that such business combination
will meet the statutory requirements of a tax-free reorganization or that the
parties will obtain the intended tax-free treatment upon a transfer of stock or
assets. A non-qualifying reorganization could result in the imposition of both
federal and state taxes which may have an adverse effect on both parties to the
transaction.
15. Requirement of Audited Financial Statements May Disqualify Business
Opportunities. Management of the Company believes that any potential business
opportunity must provide audited financial statements for review, for the
protection of all parties to the business combination. One or more attractive
business opportunities may choose to forego the possibility of a business
combination with the Company, rather than incur the expenses associated with
preparing audited financial statements.
16. Dilution. Any merger or acquisition effected by the Company can be
expected to have a significant dilutive effect on the percentage of shares held
by the Company's then shareholders.
17. No Trading Market. There is no trading market for the Company's
common stock at present, and there has been no trading market to date. There is
no assurance that a trading market will ever develop or, if such market does
develop, that it will continue. The Company intends to request a broker-dealer
to make application to the NASD Regulation, Inc. to have the Company's
securities traded on the OTC Bulletin Board or published in print and electronic
media, or either, in the National Quotation Bureau LLC "Pink Sheet." The Company
has been informed that a trading market may not be able to be developed until
such time as the Company has completed a merger or acquisition and the combined
Company has complied with the 1934 Act or the Securities Act of 1933, as
amended, if required.
7.
<PAGE> 8
18. Any Business Combination May Require Special Year 2000 Disclosures.
The Year 2000 issue affected virtually all companies and organizations. A
business combination may result in the Company disclosing certain Year 2000
matters. Many existing computer programs used only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the change in the century. Management of the Company
believes that any potential business opportunity may require a disclosure that
the target company must undertake remedial action to address the Year 2000
issue. The disclosure of the potential costs and uncertainties will depend on a
number of factors, including its software and hardware and the nature of its
industry. The Company may be required to review whether it needs to disclose
future anticipated costs, problems and uncertainties associates with any
remedial Year 2000 consequences, particularly in its filings with the Securities
and Exchange Commission. The Company may have to disclose this information in
the Securities and Exchange Commission filings because (i) the form or report
may require the disclosure, or (ii) in addition to the information that the
Company is specifically required to disclose, the disclosure rules require
disclosure of any additional material information necessary to make the required
disclosure not misleading.
Item 2. Plan of Operation
The Company intends to seek to acquire assets or shares of an entity
actively engaged in business which generates revenues in exchange for its
securities. The Company has no particular acquisitions in mind and has not
entered into any negotiations regarding such an acquisition. None of the
Company's officers, directors, promoters or affiliates have engaged in any
preliminary contact or discussions with any representative of any other company
regarding the possibility of an acquisition or merger between the Company and
such other company as of the date of this registration statement.
The Company has no full time or part-time employees. None of the
officers and directors anticipates devoting more than ten (10%) percent of his
or her time to Company activities. The Company's President and Secretary have
agreed to allocate a portion of said time to the activities of the Company,
without compensation. These officers anticipate that the business plan of the
Company can be implemented by their devoting minimal time per month to the
business affairs of the Company and, consequently, conflicts of interest may
arise with respect to the limited time commitment by such officers. See "Item 5
- Directors, Executive Officers, Promoters and Control Persons Resumes."
General Business Plan
The Company's purpose is to seek, investigate and, if such investigation
warrants, acquire an interest in business opportunities presented to it by
persons or firms who or which
8.
<PAGE> 9
desire to seek the advantages of a company who has complied with the 1934 Act.
The Company will not restrict its search to any specific business, industry, or
geographical location and the Company may participate in a business venture of
virtually any kind or nature. This discussion of the proposed business is
purposefully general and is not meant to be restrictive of the Company's
virtually unlimited discretion to search for and enter into potential business
opportunities. Management anticipates that it may be able to participate in only
one potential business venture because the Company has nominal assets and
limited financial resources. See Item F/S, "Financial Statements." This lack of
diversification should be considered a substantial risk to shareholders of the
Company because it will not permit the Company to offset potential losses from
one venture against gains from another.
The Company may seek a business opportunity with entities which have
recently commenced operations, or which wish to utilize the public marketplace
in order to raise additional capital in order to expand into new products or
markets, to develop a new product or service, or for other corporate purposes.
The Company may acquire assets and establish wholly owned subsidiaries in
various businesses or acquire existing businesses as subsidiaries.
The Company anticipates that the selection of a business opportunity in
which to participate will be complex and extremely risky. Due to general
economic conditions, rapid technological advances being made in some industries
and shortages of available capital, management believes that there are numerous
firms seeking the benefits of a company who has complied with the 1934 Act. Such
benefits may include facilitating or improving the terms on which additional
equity financing may be sought, providing liquidity for incentive stock options
or similar benefits to key employees, providing liquidity (subject to
restrictions of applicable statutes), for all shareholders and other factors.
Potentially, available business opportunities may occur in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
extremely difficult and complex.
The Company has, and will continue to have, no capital with which to
provide the owners of business opportunities with any significant cash or other
assets. However, management believes the Company will be able to offer owners of
acquisition candidates the opportunity to acquire a controlling ownership
interest in a company who has complied with the 1934 Act without incurring the
cost and time required to conduct an initial public offering. The owners of the
business opportunities will, however, incur significant legal and accounting
costs in connection with acquisition of a business opportunity, including the
costs of preparing Form 8-K's, 10-K's or 10-KSB's, agreements and related
reports and documents. The 1934 Act, specifically requires that any merger or
acquisition candidate comply with all
9.
<PAGE> 10
applicable reporting requirements, which include providing audited financial
statements to be included within the numerous filings relevant to complying with
the 1934 Act. Nevertheless, the officers and directors of the Company have not
conducted market research and are not aware of statistical data which would
support the benefits of a merger or acquisition transaction for the owners of a
business opportunity.
The Company has made no determination as to whether or not it will file
periodic reports in the event its obligation to file such reports is suspended
under the 1934 Act. Peggy Melilli, an officer and director of the Company, has
agreed to provide the necessary funds, without interest, for the Company to
comply with the 1934 Act reporting requirements, provided that she is an officer
and director of the Company when the obligation is incurred.
The analysis of new business opportunities will be undertaken by, or
under the supervision of, the officers and directors of the Company, none of
whom is a professional business analyst. Management intends to concentrate on
identifying preliminary prospective business opportunities which may be brought
to its attention through present associations of the Company's officers and
directors, or by the Company's shareholders. In analyzing prospective business
opportunities, management will consider such matters as the available technical,
financial and managerial resources; working capital and other financial
requirements; history of operations, if any; prospects for the future; nature of
present and expected competition; the quality and experience of management
services which may be available and the depth of that management; the potential
for further research, development, or exploration; specific risk factors not now
foreseeable but which then may be anticipated to impact the proposed activities
of the Company; the potential for growth or expansion; the potential for profit;
the public recognition of acceptance of products, services, or trades; name
identification; and other relevant factors. Officers and directors of the
Company expect to meet personally with management and key personnel of the
business opportunity as part of their investigation. To the extent possible, the
Company intends to utilize written reports and personal investigation to
evaluate the above factors. The Company will not acquire or merge with any
company for which audited financial statements cannot be obtained within a
reasonable period of time after closing of the proposed transaction.
Management of the Company, while not especially experienced in matters
relating to the new business of the Company, will rely upon their own efforts in
accomplishing the business purposes of the Company. It is not anticipated that
any outside consultants or advisors will be utilized by the Company to
effectuate its business purposes described herein. However, if the Company does
retain such an outside consultant or advisor, any cash fee by such party will
need to be paid by the prospective merger acquisition candidate, as the Company
has no
10.
<PAGE> 11
cash assets with which to pay such obligation. There have been no contracts or
agreements with any outside consultants and none are anticipated in the future.
The Company will not restrict its search for any specific kind of firms,
but may acquire a venture which is in its preliminary or development stage,
which is already in operation, or in essentially any stage of its corporate
life. It is impossible to predict at this time the status of any business in
which the Company may become engaged, in that such business may need to seek
additional capital, may desire to have its shares publicly traded, or may seek
other advantages which the Company may offer. However, the Company does not
intend to obtain funds in one or more private placements to finance the
operation of any acquired business opportunity until such time as the Company
has successfully consummated such a merger or acquisition.
It is anticipated that the Company will incur nominal expenses in the
implementation of its business plan described herein. Because the Company has no
capital with which to pay these anticipated expenses, present management of the
Company will pay these charges with their personal funds, as interest free loans
to the Company or as capital contributions. However, if loans, the only
opportunity which management has to have these loans repaid will be from a
prospective merger or acquisition candidate. Management has agreed among
themselves that the repayment of any loans made on behalf of the Company will
not impede, or be made conditional in any manner, to consummation of a proposed
transaction.
The Company has no plans, proposals, arrangements or understandings with
respect to the sale or issuance of additional securities prior to the location
of an acquisition or merger candidate.
Acquisition of Opportunities
In implementing a structure for a particular business acquisition, the
Company may become a party to a merger, consolidation, reorganization, joint
venture, or licensing agreement with another corporation or entity. It may also
acquire stock or assets of an existing business. On the consummation of a
transaction, it is probable that the present management and shareholders of the
Company will no longer be in control of the Company. In addition, the Company's
directors may, as part of the terms of the acquisition transaction, resign and
be replaced by new directors without a vote of the Company's shareholders or may
sell their stock in the Company. Any terms of sale of the shares presently held
by officers and/or directors of the Company will be also afforded to all other
shareholders of the Company on similar terms and conditions. Any and all such
sales will only be made in compliance with the securities laws of the United
States and any applicable state.
11.
<PAGE> 12
It is anticipated that any securities issued in any such reorganization
would be issued in reliance upon exemption from registration under applicable
federal and state securities laws. In some circumstances, however, as a
negotiated element of its transaction, the Company may agree to register all or
a part of such securities immediately after the transaction is consummated or at
specified times thereafter. If such registration occurs, of which there can be
no assurance, it will be undertaken by the surviving entity after the Company
has successfully consummated a merger or acquisition and the Company is no
longer considered a "shell" company. The issuance of substantial additional
securities and their potential sale into any trading market which may develop in
the Company's securities may have a depressive effect on the value of the
Company's securities in the future, if such a market develops, of which there is
no assurance.
While the actual terms of a transaction to which the Company may be a
party cannot be predicted, it may be expected that the parties to the business
transaction will find it desirable to avoid the creation of a taxable event and
thereby structure the acquisition in a so-called "tax-free" reorganization under
Sections 368(a)(1) or 351 of the Internal Revenue Code (the "Code"). In order to
obtain tax-free treatment under the Code, it may be necessary for the owners of
the acquired business to own 80% or more of the voting stock of the surviving
entity. In such event, the shareholders of the Company, would retain less than
20% of the issued and outstanding shares of the surviving entity, which would
result in significant dilution in the equity of such shareholders.
As part of the Company's investigation, officers and directors of the
Company will meet personally with management and key personnel, may visit and
inspect material facilities, obtain independent analysis of verification of
certain information provided, check references of management and key personnel,
and take other reasonable investigative measures, to the extent of the Company's
limited financial resources and management expertise. The manner in which the
Company participates in an opportunity will depend on the nature of the
opportunity, the respective needs and desires of the Company and other parties,
the management of the opportunity and the relative negotiation strength of the
Company and such other management.
With respect to any merger or acquisition, negotiations with target
company management is expected to focus on the percentage of the Company which
the target company shareholders would acquire in exchange for all of their
shareholdings in the target company. Depending upon, among other things, the
target company's assets and liabilities, the Company's shareholders will in all
likelihood hold a substantially lesser percentage ownership interest in the
Company following any merger or acquisition. The percentage ownership may be
subject to significant reduction in the event the Company acquires a target
12.
<PAGE> 13
company with substantial assets. Any merger or acquisition effected by the
Company can be expected to have a significant dilutive effect on the percentage
of shares held by the Company's then shareholders.
The Company will participate in a business opportunity only after the
negotiation and execution of appropriate written agreements. Although the terms
of such agreements cannot be predicted, generally such agreements will require
some specific representations and warranties by all of the parties thereto, will
specify certain events of default, will detail the terms of closing and the
conditions which must be satisfied by each of the parties prior to and after
such closing, will outline the manner of bearing costs, including costs
associated with the Company's attorneys and accountants, will set forth remedies
on default and will include miscellaneous other terms.
The Company will not acquire or merge with any entity which cannot
provide independent audited financial statements within a reasonable period of
time after closing of the proposed transaction. The Company is subject to all of
the reporting requirements included in the 1934 Act. Included in these
requirements is the affirmative duty of the Company to file independent audited
financial statements as part of its Form 8-K to be filed with the Securities and
Exchange Commission upon consummation of a merger or acquisition, as well as the
Company's audited financial statements included in its annual report on Form
10-K (or 10-KSB, as applicable). All such filings with the Securities and
Exchange Commission are subject to review and comments. If such audited
financial statements are not available at closing, or within time parameters
necessary to insure the Company's compliance with the requirements of the 1934
Act, or if the audited financial statements provided do not conform to the
representations made by the candidate to be acquired in the closing documents,
the closing documents will provide that the proposed transaction will be
voidable, at the discretion of the present management of the Company. If such
transaction is voided, the agreement may also contain a provision providing for
the acquisition entity to reimburse the Company for all costs associated with
the proposed transaction.
Competition
The Company will remain an insignificant participant among the firms
which engage in the acquisition of business opportunities. There are many
established venture capital and financial concerns which have significantly
greater financial and personnel resources and technical expertise than the
Company. In view of the Company's combined extremely limited financial resources
and limited management availability, the Company will continue to be at a
significant competitive disadvantage compared to the Company's competitors.
13.
<PAGE> 14
Investment Company Act of 1940
Although the Company will be subject to regulation under the Securities
Act of 1933, as amended, and the 1934 Act, management believes the Company will
not be subject to regulation under the Investment Company Act of 1940 insofar as
the Company will not be engaged in the business of investing or trading in
securities. In the event the Company engages in business combinations which
result in the Company holding passive investment interests in a number of
entities, the Company could be subject to regulation under the Investment
Company Act of 1940. In such event, the Company would be required to register as
an investment company and could be expected to incur significant registration
and compliance costs. The Company has obtained no formal determination from the
Securities and Exchange Commission as to the status of the Company under the
Investment Company Act of 1940 and, consequently, any violation of such Act
would subject the Company to material adverse consequences. The Company's Board
of Directors unanimously approved a resolution stating that it is the Company's
desire to be exempt from the Investment Company Act of 1940 under Regulation
3a-2 thereto.
Lock-Up Agreement
Each of the officers and directors of the Company have executed and
delivered a "lock-up" letter agreement affirming that they shall not sell their
respective shares of the Company's common stock until such time as the Company
has entered into a merger or acquisition agreement, or the Company is no longer
classified as a "blank check" company, whichever first occurs.
Item 3. Description of Property
The Company has no properties and at this time has no agreements to
acquire any properties.
The Company presently occupies office space at 1105 Terminal Way, Suite
202, Century Park, Reno, Nevada 89502. This space is provided to the Company on
a rent free basis, and it is anticipated that this arrangement will remain until
such time as the Company successfully consummates a merger or acquisition.
Management believes that this arrangement will meet the Company's needs for the
foreseeable future.
Item 4. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners.
The following table sets forth the security and beneficial ownership for
each class of equity securities of the Company for any person who is known to be
the beneficial owner of more than five (5%) percent of the Company.
14.
<PAGE> 15
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Title of Class Owner Owner of Class
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Peggy Melilli 5,500,000 26.19%
38740 Maracaibo Circle
Palm Springs, CA 92264-0243
Common Dennis Melilli 5,500,000 26.19%
38740 Maracaibo Circle
Palm Springs, CA 92264-0243
Common Sherri Lynn Cooper 3,500,000 16.67%
759 Tawny Court
Oceanside, California 92057
Common All Officers and 14,500,000 69.05%
Directors as a Group
(three [3] individuals)
</TABLE>
The total of the Company's outstanding Common Shares are held by 25
persons.
(b) Security Ownership of Management.
The following table sets forth the ownership for each class of equity
securities of the Company owned beneficially and of record by all directors and
officers of the Company.
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Title of Class Owner Owner of Class
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Peggy Melilli 5,500,000 26.19%
38740 Maracaibo Circle
Palm Springs, CA 92264-0243
Common Dennis Melilli 5,500,000 26.19%
38740 Maracaibo Circle
Palm Springs, CA 92264-0243
Common Sherri Lynn Cooper 3,500,000 16.67%
759 Tawny Court
Oceanside, California 92057
Common All Officers and 14,500,000 69.05%
Directors as a Group
(three [3] individuals)
</TABLE>
15.
<PAGE> 16
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- ---------
<S> <C> <C>
Peggy Melilli 48 President/Director
Dennis Melilli 49 Secretary/Treasurer/
Director
Sherri Lynn Cooper 51 Director
</TABLE>
The above listed officers and directors will serve until the next annual
meeting of the shareholders or until their death, resignation, retirement,
removal, or disqualification, or until their successors have been duly elected
and qualified. Vacancies in the existing Board of Directors are filled by
majority vote of the remaining Directors. Officers of the Company serve at the
will of the Board of Directors. There are no agreements or understandings for
any officer or director to resign at the request of another person and no
officer or director is acting on behalf of or will act at the direction of any
other person. Peggy Melilli and Dennis Melilli are husband and wife. There is no
other family relationship between any executive officer and director of the
Company.
Resumes
Peggy Melilli
Peggy Melilli is the President and a Director of the Company. From 1995
to the present, Ms. Melilli has been an Interior Designer with Kreiss Collection
and International Corporation with 16 offices in the United States and abroad
and a past owner of her own design firm and manager of showrooms for other
independent design firms.
Dennis Melilli
Dennis Melilli is the Secretary, Treasurer and a Director of the
Company. From 1990 to the present, Mr. Melilli has been a Developer/General
Contractor under the name Melilli Construction with offices in Palm Desert and
San Diego. He specializes in shopping centers, radio stations and movie
theaters. He is also the developer of the new Festival of the Arts Theater, home
for the Palm Springs International Film Festival.
16.
<PAGE> 17
Sherri Lynn Cooper
Sherri Lynn Cooper is a Director of the Company. From 1994 to the
present, Ms. Cooper has been a Publishing Agent and College Career Counselor.
Ms. Cooper has been responsible for major fund raisers for several large
disabled children's charities and the San Diego Chapter of the Women's Resource
Center for abused women and children.
Previous Blank Check Companies - Current
Blank Check Companies
The officers and directors of the Company have not been officers and
directors in any other blank check offerings. The officers and directors,
however, do anticipate becoming involved with additional blank check companies
who may file under the Securities Act of 1933, as amended, or the 1934 Act, or
either. In addition, the officers and directors of the Company may become
involved in additional blank check companies which may request a broker-dealer
to request clearance from the NASD Regulation, Inc. for trading clearance in the
applicable quotation medium.
Conflicts of Interest
Members of the Company's management are associated with other firms
involved in a range of business activities. Consequently, there are potential
inherent conflicts of interest in their acting as officers and directors of the
Company. Insofar as the officers and directors are engaged in other business
activities, management anticipates it will devote only a minor amount of time to
the Company's affairs.
The officers and directors of the Company are now and may in the future
become shareholders, officers or directors of other companies which may be
engaged in business activities similar to those conducted by the Company.
Accordingly, additional direct conflicts of interest may arise in the future
with respect to such individuals acting on behalf of the Company or other
entities. Moreover, additional conflicts of interest may arise with respect to
opportunities which come to the attention of such individuals in the performance
of their duties or otherwise. The Company does not currently have a right of
first refusal pertaining to opportunities that come to management's attention
insofar as such opportunities may relate to the Company's proposed business
operations.
The officers and directors are, so long as they are officers or
directors of the Company, subject to the restriction that all opportunities
contemplated by the Company's plan of operation which come to their attention,
either in the performance of their duties or in any other manner, will be
considered opportunities of, and be made available to the Company
17.
<PAGE> 18
and the companies that they are affiliated with on an equal basis. A breach of
this requirement will be a breach of the fiduciary duties of the officer or
director. If the Company or the companies in which the officers and directors
are affiliated with both desire to take advantage of an opportunity, then said
officers and directors would abstain from negotiating and voting upon the
opportunity. However, all directors may still individually take advantage of
opportunities if the Company should decline to do so. Except as set forth above,
the Company has not adopted any other conflict of interest policy with respect
to such transactions.
Item 6. Executive Compensation.
None of the Company's officers and/or directors receive any compensation
for their respective services rendered unto the Company, nor have they received
such compensation in the past. They all have agreed to act without compensation
until authorized by the Board of Directors, which is not expected to occur until
the Company has generated revenues from operations after consummation of a
merger or acquisition. As of the date of this registration statement, the
Company has no funds available to pay directors. Further, none of the directors
are accruing any compensation pursuant to any agreement with the Company.
It is possible that, after the Company successfully consummates a merger
or acquisition with an unaffiliated entity, that entity may desire to employ or
retain one or a number of members of the Company's management for the purposes
of providing services to the surviving entity, or otherwise provide other
compensation to such persons. However, the Company has adopted a policy whereby
the offer of any post-transaction remuneration to members of management will not
be a consideration in the Company's decision to undertake any proposed
transaction. Each member of management has agreed to disclose to the Company's
Board of Directors any discussions concerning possible compensation to be paid
to them by any entity which proposes to undertake a transaction with the Company
and further, to abstain from voting on such transaction. Therefore, as a
practical matter, if each member of the Company's Board of Directors is offered
compensation in any form from any prospective merger or acquisition candidate,
the proposed transaction will not be approved by the Company's Board of
Directors as a result of the inability of the Board to affirmatively approve
such a transaction.
It is possible that persons associated with management may refer a
prospective merger or acquisition candidate to the Company. In the event the
Company consummates a transaction with any entity referred by associates of
management, it is possible that such an associate will be compensated for their
referral in the form of a finder's fee. It is anticipated that this fee will
18.
<PAGE> 19
be either in the form of restricted common stock issued by the Company as part
of the terms of the proposed transaction, or will be in the form of cash
consideration. However, if such compensation is in the form of cash, such
payment will be tendered by the acquisition or merger candidate, because the
Company has insufficient cash available. The amount of such finder's fee cannot
be determined as of the date of this registration statement, but is expected to
be comparable to consideration normally paid in like transactions. No member of
management of the Company will receive any finders fee, either directly or
indirectly, as a result of their respective efforts to implement the Company's
business plan outlined herein.
No retirement, pension, profit sharing, stock option or insurance
programs or other similar programs have been adopted by the Company for the
benefit of its employees.
Item 7. Certain Relationships and Related Transactions.
There have been no related party transactions, or any other transactions
or relationships required to be disclosed pursuant to Item 404 of Regulation
S-B.
Peggy Melilli has advanced $11,730.00 to the Company to pay for the
current accounting costs and initial legal costs applicable to this Form 10SB12G
and all amendments applicable to this filing, and has agreed to provide the
necessary funds, without interest, for the Company to comply with the 1934 Act
provided that she is an officer and director of the Company when the obligation
is incurred. All advances are interest-free.
Item 8. Description of Securities.
The Company's authorized capital stock consists of 25,000,000 shares,
par value $.001 per share and 10,000,000 shares, par value $.01 per share of
serial preferred stock. There are 21,000,000 Common Shares issued and
outstanding as of the date of this filing. There are no shares of serial
preferred stock issued and outstanding.
The Common Stock may be issued from time to time without action by the
stockholders. The Common Stock may be issued for such consideration as may be
fixed from time to time by the Board of Directors. The Board of Directors may
issue such shares of Common Stock in one or more series, with such voting
powers, designations, preferences and rights or qualifications, limitations or
restrictions thereof as shall be stated in the resolution or resolutions adopted
by them.
Each share of Common Stock shall entitle the holder thereof to one vote
on any matter submitted to a vote of or
19.
<PAGE> 20
consent of holders of Common Stock. Subject to the provisions of applicable law,
any dividends paid or distributed on or with respect to the Common Stock of the
corporation shall be paid or distributed ratably to the holders of its Common
Stock. In the event of any liquidation, dissolution or winding-up of the
corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the corporation and any amounts to
which the holders of any Serial Preferred Stock shall be entitled, as
hereinafter provided, the holders of Common Stock shall be entitled to share
ratably in the remaining assets of the corporation.
The Board of Directors is authorized to provide from time to time for
the issuance of shares of serial preferred stock in series and to fix and
determine from time to time before issuance the designation and relative rights
and preferences of the shares of each series of serial preferred stock and the
restrictions or qualifications thereof, including, without limiting the
generality of the foregoing, the following:
(1) The series designation and authorized number of shares;
(2) The dividend rate and the date or dates on which such
dividends will be payable;
(3) The amount or amounts to be received by the holders in
the event of voluntary or involuntary dissolution or
liquidation of the corporation;
(4) The price or prices at which shares may be redeemed, if
any, and any terms, conditions, limitations upon such
redemptions;
(5) The sinking fund provisions, if any, for redemption or
purchase of shares; and
(6) The terms and conditions, if any, on which shares may be
converted at the election of the holders thereof into
shares of other capital stock, or of other series of
Serial Preferred Stock, of the corporation.
PART II
Item 1. Market Price for Common Equity and Related Stockholder Matters.
(a) Market Price.
The Company's Common Stock is not quoted at the present time.
20.
<PAGE> 21
There is no trading market for the Company's Common Stock at present and
there has been no trading market to date. There is no assurance that a trading
market will ever develop or, if such a market does develop, that it will
continue. The Company intends to request a broker-dealer to make application to
the NASD Regulation, Inc. to have the Company's securities traded on the OTC
Bulletin Board System or published, in print and electronic media, or either, in
the National Quotation Bureau LLC "Pink Sheets."
The Securities and Exchange Commission adopted Rule 15g-9, which
established the definition of a "penny stock," for purposes relevant to the
Company, as any equity security that has a market price of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require: (i) that a broker or dealer approve a person's account for
transactions in penny stocks; and (ii) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person's
account for transactions in penny stocks, the broker or dealer must (i) obtain
financial information and investment experience and objectives of the person;
and (ii) make a reasonable determination that the transactions in penny stocks
are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (i)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stock in both public offering and in
secondary trading, and about commissions payable to both the broker-dealer and
the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
For the initial listing in the NASDAQ SmallCap market, a company must
have net tangible assets of $4 million or market capitalization of $50 million
or a net income (in the latest fiscal year or two of the last fiscal years) of
$750,000, a public float of 1,000,000 shares with a market value of $5 million.
The minimum bid price must be $4.00 and there must be 3 market makers. In
addition, there must be 300 shareholders holding 100 shares or more, and the
company must have an operating history of at least one year or a market
capitalization of $50 million.
21.
<PAGE> 22
For continued listing in the NASDAQ SmallCap market, a company must have
net tangible assets of $2 million or market capitalization of $35 million or a
net income (in the latest fiscal year or two of the last fiscal years) of
$500,000, a public float of 500,000 shares with a market value of $1 million.
The minimum bid price must be $1.00 and there must be 2 market makers. In
addition, there must be 300 shareholders holding 100 shares or more.
Management intends to strongly consider undertaking a transaction with
any merger or acquisition candidate which will allow the Company's securities to
be traded without the aforesaid limitations. However, there can be no assurances
that, upon a successful merger or acquisition, the Company will qualify its
securities for listing on NASDAQ or some other national exchange, or be able to
maintain the maintenance criteria necessary to insure continued listing. The
failure of the Company to qualify its securities or to meet the relevant
maintenance criteria after such qualification in the future may result in the
discontinuance of the inclusion of the Company's securities on a national
exchange. In such events, trading, if any, in the Company's securities may then
continue in the non-NASDAQ over-the-counter market. As a result, a shareholder
may find it more difficult to dispose of, or to obtain accurate quotations as to
the market value of, the Company's securities.
The Company intends to request a broker-dealer to make application to
the NASD Regulation, Inc. to have the Company's securities traded on the OTC
Bulletin Board Systems or published, in print and electronic media, or either,
in the National Quotation Bureau LLC "Pink Sheets," or either.
The Company has been informed that a trading market may not be able to
be developed until such time as the Company has completed a merger or
acquisition and the combined Company has complied with the 1934 Act or the
Securities Act of 1933, as amended, if required.
(b) Holders.
There are twenty-five (25) holders of the Company's Common Stock. In
1994, the Company issued 21,000,000, as adjusted for the stock split, of its
Common Shares for cash. All of the issued and outstanding shares of the
Company's Common Stock were issued in accordance with the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended.
As of the date of this registration statement, the Company believes that
all of the issued and outstanding shares of the Company's Common Stock are
eligible for sale under Rule 144 promulgated under the Securities Act of 1933,
as amended, subject to certain limitations included in said Rule. In general,
under Rule 144, a person (or persons whose shares are aggregated), who
22.
<PAGE> 23
has satisfied a one year holding period, under certain circumstances, may sell
within any three-month period a number of shares which does not exceed the
greater of one percent of the then outstanding Common Stock or the average
weekly trading volume during the four calendar weeks prior to such sale. Rule
144 also permits, under certain circumstances, the sale of shares without any
quantity limitation by a person who has satisfied a two-year holding period and
who is not, and has not been for the preceding three months, an affiliate of the
Company. (See "Item 4 - Recent Sales of Unregistered Securities.")
(c) Dividends.
The Company has not paid any dividends to date, and has no plans to do
so in the immediate future.
Item 2. Legal Proceedings.
There is no litigation pending or threatened by or against the Company.
Item 3. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
The Company has not changed accountants since its formation and there
are no disagreements with the findings of said accountants.
Item 4. Recent Sales of Unregistered Securities.
The Company has not issued any of its securities during the three year
period preceding the date of this registration statement. All of the shares of
Common Stock of the Company previously issued have been issued for investment
purposes in a "private transaction" and are "restricted" shares as defined in
Rule 144 under the Securities Act of 1933, as amended. These shares may not be
offered for public sale except under Rule 144, or otherwise, pursuant to said
Act.
As of the date of this report, the Company believes that all of the
issued and outstanding shares of the Company's Common Stock are eligible for
sale under Rule 144 promulgated under the Securities Act of 1933, as amended,
subject to certain limitations included in said Rule. Each of the officers and
directors have executed and delivered to the Company a "lock-up" letter
affirming that he or she shall not sell their respective shares of the Company's
Common Stock until such time as the Company has successfully entered into a
merger or acquisition agreement and/or the Company is no longer classified as a
"blank check" company.
23.
<PAGE> 24
In summary, Rule 144 applies to affiliates (that is, control persons)
and nonaffiliates when they resell restricted securities (those purchased from
the issuer or an affiliate of the issuer in nonpublic transactions).
Nonaffiliates reselling restricted securities, as well as affiliates selling
restricted or nonrestricted securities, are not considered to be engaged in a
distribution and, therefore, are not deemed to be underwriters as defined in
Section 2(11), if six conditions are met:
(1) Current public information must be available about the issuer
unless sales are limited to those made by nonaffiliates after
two years.
(2) When restricted securities are sold, generally there must be a
one-year holding period.
(3) When either restricted or nonrestricted securities are sold by
an affiliate after one year, there are limitations on the amount
of securities that may be sold; when restricted securities are
sold by non-affiliates between the first and second years, there
are identical limitations; after two years, there are no volume
limitations for resales by non-affiliates.
(4) Except for sales of restricted securities made by nonaffiliates
after two years, all sales must be made in brokers' transactions
as defined in Section 4(4) of the Securities Act of 1933, as
amended, or a transaction directly with a "market maker" as that
term is defined in Section 3(a)(38) of the 1934 Act.
(5) Except for sales of restricted securities made by nonaffiliates
after two years, a notice of proposed sale must be filed for all
sales in excess of 500 shares or with an aggregate sales price
in excess of $10,000.
(6) There must be a bona fide intention to sell within a reasonable
time after the filing of the notice referred to in (5) above.
The Company has been informed that in the opinion of a member of the
staff of the Securities and Exchange Commission, the Rule 144 "absolute" safe
harbor, as last amended in Release 33-7759, effective January 24, 2000, 64 F.R.
61382, may not be available to so-called "blank check" or "shell" companies,
notwithstanding the legislative mandate contained in said rule. The Rule 144
"absolute" safe harbor provides that any person who sells restricted securities
shall be deemed not to be engaged in a distribution of such securities and
therefore not an underwriter thereof, if the sale is made in accordance with all
of the conditions of the rule. The rule also provides that any
24.
<PAGE> 25
person who sells restricted securities on behalf of such person in a control
relationship with the issuer shall be deemed not to be engaged in a distribution
or sale of securities and therefore not an underwriter thereof, if the sale is
made in accordance with all of the conditions of the rule. Responsible officers
of the Securities and Exchange Commission and the NASD Regulators, Inc. have
purportedly attempted to interpret Rule 144 to limit or eliminate the statutory
safe harbor. A request from the NASD Regulators, Inc. for guidance (including a
request for an opinion) provided a series of scenarios and the Securities and
Exchange Commission's response to the questions proffered created an unjustified
dichotomy for treating similarly situated shareholders in different purpose
entities holding restricted securities who are not promoters or affiliates that
wish to resell restricted or non-restricted securities and comply with the rules
promulgated under the Act. Contrary to the mandate and position contained in the
Preliminary Note to Rule 144 and the rule itself, the response to the request
for guidance seems to advance the position that the rule is not available for
resale transactions, regardless of technical compliance, because the resale
transactions appear to be designed to distribute or redistribute securities to
the public without compliance with the Act. The series of scenarios -
hypothetical facts (deemed to be representations) and the response thereto
assumed that the selling shareholders are promoters, affiliates and/or
underwriters of a "blank check" or "shell" company issuer wherein technical
compliance with said rule is not enough.
Item 5. Indemnification of Directors and Officers.
Except for acts or omissions which involve intentional misconduct, fraud
or known violation of law or for the payment of dividends in violation of Nevada
Revised Statutes, there shall be no personal liability of a director or officer
to the Company, or its stockholders for damages for breach of fiduciary duty as
a director or officer. The Company may indemnify any person for expenses
incurred, including attorneys fees, in connection with their good faith acts if
they reasonably believe such acts are in and not opposed to the best interests
of the Company and for acts for which the person had no reason to believe his or
her conduct was unlawful. The Company may indemnify the officers and directors
for expenses incurred in defending a civil or criminal action, suit or
proceeding as they are incurred in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount of such expenses if it is ultimately
determined by a court of competent jurisdiction in which the action or suit is
brought determined that such person is fairly and reasonably entitled to
indemnification for such expenses which the court deems proper.
25.
<PAGE> 26
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to officers, directors or persons
controlling the Company pursuant to the foregoing, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is therefore unenforceable.
The Company has been informed that the Securities and Exchange
Commission will not issue "no action" letters relating to the resale of
securities, i.e., a person who has acquired shares of stock in a Section 4(2)
transaction under the Securities Act of 1933, as amended, and who offers and
sells the restricted securities without complying with Rule 144 is to be put on
notice by the Securities and Exchange Commission that in view of the broad
remedial purposes of the Securities Act of 1933, as amended, and the public
policy which strongly supports registration under said act, that those
individuals will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and the brokers of other person who participate in the transaction do so
at their own risk. The Company has been informed that any indemnification for
liabilities arising from such a transaction may also be against public policy as
expressed in the Securities Act of 1933, as amended, and is therefore
unenforceable.
PART F/S
Financial Statements.
The following financial statements for the year ended December 31, 1997,
December 31, 1998 and December 31, 1999 are attached to this report and filed as
a part thereof.
1) Table of Contents
2) Independent Auditors' Report
3) Balance Sheet - Assets
4) Balance Sheet - Liabilities and Stockholders' Equity
5) Statement of Operations
6) Statement of Changes in Stockholders' Equity
7) Statement of Cash Flows
8) Notes to Financial Statements
The following financial statements for the period ended December 31,
1999 and the first three months ended June 30, 2000 are attached to this report
and filed as a part thereof.
1) Table of Contents
2) Independent Auditors' Report
3) Balance Sheet - Assets
26.
<PAGE> 27
4) Balance Sheet - Liabilities and Stockholders' Equity
5) Statement of Operations
6) Statement of Changes in Stockholders' Equity
7) Statement of Cash Flows
8) Notes to Financial Statements
27.
<PAGE> 28
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE #
------
<S> <C>
INDEPENDENT AUDITORS REPORT 1
ASSETS 2
LIABILITIES AND STOCKHOLDERS' EQUITY 3
STATEMENT OF OPERATIONS 4
STATEMENT OF STOCKHOLDERS' EQUITY 5
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7-11
</TABLE>
<PAGE> 29
BARRY L. FRIEDMAN, P.C.
Certified Public Accountant
1582 TULITA DRIVE OFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO. (702) 869-0278
INDEPENDENT AUDITORS' REPORT
Board of Directors February 28, 2000
Magnolia Ventures, Inc.
Las Vegas, Nevada
I have audited the accompanying Balance Sheets of Magnolia Ventures,
Inc., (A Development Stage Company), as of December 31, 1999, December 31, 1998,
and December 31, 1997, and the related statements of operations, stockholders'
equity and cash flows for the three years ended December 31, 1999, December 31,
1998, and December 31, 1997. 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 auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Magnolia Ventures,
Inc., (A Development Stage Company), as of December 31, 1999, December 31, 1998,
and December 31, 1997, and the related statements of operations, stockholders'
equity and cash flows for the three years ended December 31, 1999, December 31,
1998, and December 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note #5 to the
financial statements, the Company has suffered recurring losses from operations
and has no established source of revenue. This raises substantial doubt about
its ability to continue as a going concern. Management's plan in regard to these
matters is described in Note #5. These financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BARRY L. FRIEDMAN
---------------------------
Barry L. Friedman
Certified Public Accountant
<PAGE> 30
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
December December December
31, 1999 31, 1998 31, 1997
-------- -------- --------
<S> <C> <C> <C>
CURRENT ASSETS
CASH $ 31 $ 31 $5,714
------ ------ ------
TOTAL CURRENT ASSETS $ 31 $ 31 $5,714
------ ------ ------
OTHER ASSETS $ 0 $ 0 $ 0
------ ------ ------
TOTAL OTHER ASSETS $ 0 $ 0 $ 0
------ ------ ------
TOTAL ASSETS $ 31 $ 31 $5,714
------ ------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE> 31
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December December December
31, 1999 31, 1998 31, 1997
-------- -------- --------
<S> <C> <C> <C>
CURRENT LIABILITIES
Advances Payable (Note #5) $ 155 $ 155 $6,000
------ ------ ------
TOTAL CURRENT LIABILITIES $ 155 $ 155 $6,000
------ ------ ------
STOCKHOLDERS' EQUITY (Note #4)
Common stock
No Par value
Authorized 2,500 shares
Issued and outstanding at
December 31, 1997 -
2,100 shares $2,100
December 31, 1998 -
2,100 shares $2,100
Common Stock
$.001 par value
Authorized 25,000,000 shares
Issued and outstanding at
December 31, 1999 -
210,000 shares $ 210
Additional Paid In Capital 1,890 0 0
Deficit Accumulated During
The Development Stage -2,224 -2,224 -2,386
TOTAL STOCKHOLDERS' EQUITY $ -124 $ -124 $ -286
------ ------ ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 31 $ 31 $5,714
------ ------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE> 32
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Year Year June 13, 1994
Ended Ended Ended (Inception)
Dec. 31, Dec. 31, Dec. 31, to Dec. 31,
1999 1998 1997 1999
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
INCOME
Revenue $ 0 $ 0 $ 0 $ 0
-------- -------- -------- --------
EXPENSES
General, Selling and
Administrative $ 0 $ 15 $ 475 $ 2,880
-------- -------- -------- --------
TOTAL EXPENSE $ 0 $ 15 $ 475 $ 2,880
-------- -------- -------- --------
NET PROFIT/LOSS (-) $ 0 $ -15 $ -475 $ -2,880
-------- -------- -------- --------
From Operations
Add: Interest Income $ 0 $ 177 $ 268 $ 656
-------- -------- -------- --------
Net Income/Loss $ 0 $ 162 $-207 $ -2,224
-------- -------- -------- --------
Net Profit/Loss (-)
Per weighted share
(Note #1) $ NIL $ NIL $ NIL $ -.0100
-------- -------- -------- --------
Weighted average
Number of common
Shares outstanding 210,000 210,000 210,000 210,000
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE> 33
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDER EQUITY
<TABLE>
<CAPTION>
Additional Accumu-
Common Stock paid-in lated
Shares Amount Capital Deficit
------ ------- ---------- -------
<S> <C> <C> <C> <C>
Balance,
December 31, 1996 2,100 $ 2,100 $ 0 $-2,179
Net loss year ended
December 31, 1997 -207
----- ------- ------- -------
Balance,
December 31, 1997 2,100 $ 2,100 $ 0 $-2,386
Net income year ended
December 31, 1998 +162
----- ------- ------- -------
Balance,
December 31, 1998 2,100 $ 2,100 $ 0 $-2,224
December 3, 1999
Changed from no par
Value to $.001 +2,098 -2,098
December 3, 1999
Forward stock split
100:1 207,900 +208 -208
Net loss Year Ended
December 31, 1999 0
------- ------- ------- -------
Balance,
December 31, 1999 210,000 $ 210 $ 1,890 $-2,224
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE> 34
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Year Mar. 13, June 13,1994
Ended Ended 1997 to (Inception)
Dec. 31, Dec. 31, Dec. 31, to Dec. 31,
1999 1998 1997 1999
-------- ------- -------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Loss/Income $ 0 $+162 $-207 $-2,224
Adjustment to
Reconcile net loss
To net cash provided
by operating
Activities
Changes in assets and
Liabilities
Advances Payable 0 -5,845 0 +155
------ ----- ----- -------
NET CASH USED IN
OPERATING ACTIVITIES $ 0 $-5,683 $-207 $-2,069
CASH FLOWS FROM
INVESTING ACTIVITIES 0 0 0 0
CASH FLOWS FROM
FINANCING ACTIVITIES
Issuance of Common
Stock for Cash 0 0 0 +2,100
------ ----- ----- -------
Net Increase (decrease) $ 0 $-5,683 $-207 $ 31
Cash,
Beginning of period 31 5,714 5,921 0
------ ----- ----- -------
Cash, End of Period $ 31 $ 31 $5,714 $ 31
------ ----- ----- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE> 35
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, December 31, 1998, and December 31, 1997
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized June 13,1994 under the laws of the State of
Nevada as Magnolia Ventures, Inc. The Company currently has no
operations and in accordance with SFAS #7, is considered a development
company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
The Company records income and expenses on the accrual method.
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and equivalents
The Company maintains a cash balance in a non-interest-bearing
bank that currently does not exceed federally insured limits.
For the purpose of the statements of cash flows, all highly
liquid investments with the maturity of three months or less are
considered to be cash equivalents. There are no cash equivalents
as of December 31, 1999.
- 7 -
<PAGE> 36
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999, December 31, 1998, and December 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Income taxes are provided for using the liability method of
accounting in accordance with Statement of Financial Accounting
Standards No. 109 (SFAS #109) "Accounting for Income Taxes". A
deferred tax asset or liability is recorded for all temporary
difference between financial and tax reporting. Deferred tax
expense (benefit) results from the net change during the year of
deferred tax assets and liabilities.
Loss Per Share
Net loss per share is provided in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS #128) "Earnings Per
Share". Basic loss per share is computed by dividing losses
available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted loss per
share reflects per share amounts that would have resulted if
dilative common stock equivalents had been converted to common
stock. As of December 31, 1999, the Company had no dilative
common stock equivalents such as stock options.
Year End
The Company has selected December 31st as its year-end.
- 8 -
<PAGE> 37
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999, December 31, 1998, and December 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Year 2000 Disclosure
The year 2000 issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Computer programs that have time sensitive
software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or
miscalculations causing disruption of normal business
activities. Since the Company currently has no operating
business and does not use any computers, and since it has no
customers, suppliers or other constituents, there are no
material Year 2000 concerns.
NOTE 3 - INCOME TAXES
There is no provision for income taxes for the period ended
December 31, 1999, due to the net loss and no state income tax
in Nevada, the state of the Company's domicile and operations.
The Company's total deferred tax asset as of December 31, 1999,
is as follows:
<TABLE>
<S> <C>
Net operation loss carry forward $2,224
Valuation allowance $2,224
Net deferred tax asset $ 0
</TABLE>
The federal net operating loss carry forward will expire between
2016 and 2019.
This carry forward may be limited upon the consummation of a
business combination under IRC Section 381.
- 9 -
<PAGE> 38
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999, December 31, 1998, and December 31, 1997
NOTE 4 - STOCKHOLDERS' EQUITY
Common Stock
The authorized common stock of Magnolia Ventures, Inc. consists of
25,000,000 shares with a par value of $0.001 per share.
Preferred Stock
Magnolia Ventures, Inc. has no preferred stock.
On June 30, 1994, the company issued 2,100 shares of its no par value
common stock in consideration of $2,100 in cash.
On December 3, 1999, the State of Nevada approved the Company's restated
Articles of Incorporation, which increased its capitalization from 2,500
common shares to 25,000,000 common shares. The no par value was changed
to $0.001.
On December 3, 1999, the Company forward split its common stock 100:1,
thus increasing the number of outstanding common stock shares from 2,100
shares to 210,000.
NOTE 5 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal
course of business. However, the Company does not have significant cash
or other material assets, nor does it have an established source of
revenues sufficient to cover its operating costs and to allow it to
continue as a going concern. It is the intent of the Company to seek a
merger with an existing, operating company. Until that time, the
stockholders/officers and or directors have committed to advancing the
operating costs of the Company interest free.
- 10 -
<PAGE> 39
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999, December 31, 1998, and December 31, 1997
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. An
officer of the corporation provides office services without charge. Such
costs are immaterial to the financial statements and accordingly, have
not been reflected therein. The officers and directors of the Company
are involved in other business activities and may, in the future, become
involved in other business opportunities. If a specific business
opportunity becomes available, such persons may face a conflict in
selecting between the Company and their other business interests. The
Company has not formulated a policy for the resolution of such
conflicts.
NOTE 7 - WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional
shares of common stock.
- 11 -
<PAGE> 40
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ACCOUNTANT'S LETTER 1
BALANCE SHEET - ASSETS 2
BALANCE SHEET - LIABILITIES AND STOCKHOLDERS' EQUITY 3
STATEMENT OF OPERATIONS 4-5
STATEMENT OF STOCKHOLDERS' EQUITY 6
STATEMENT OF CASH FLOWS 7-8
NOTES TO FINANCIAL STATEMENTS 9-13
</TABLE>
<PAGE> 41
BARRY L. FRIEDMAN, P.C.
Certified Public Accountant
1582 TULITA DRIVE OFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO. (702) 896-0278
INDEPENDENT AUDITORS' REPORT
Board of Directors July 14, 2000
MAGNOLIA VENTURES, INC.
Las Vegas, Nevada
I have audited the accompanying Balance Sheets of MAGNOLIA VENTURES,
INC. (A Development Stage Company), as of June 30, 2000, and December 31, 1999,
and the related statements of stockholders' equity for June 30, 2000, and
December 31, 1999, and statements of operation and cash flows for the three
months ending June 30, 2000, and June 30, 1999, for the six months ended June
30, 2000, and June 30, 1999, and the two years ended December 31, 1999, and
December 31, 1998, and the period June 13, 1994 (inception), to June 30, 2000.
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 auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of MAGNOLIA VENTURES,
INC. (A Development Stage Company), as of June 30, 2000, and December 31, 1999,
and the related statements of stockholders' equity for June 30, 2000, and
December 31, 1999, and statements of operation and cash flows for the three
months ending June 30, 2000, and June 30, 1999, for the six months ended June
30, 2000, and June 30, 1999, and the two years ended December 31, 1999, and
December 31, 1998, and the period June 13, 1994 (inception), to June 30, 2000,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note #5 to the
financial statements, the Company has had no operations and has no established
source of revenue. This raises substantial doubt about its ability to continue
as a going concern. Management's plan in regard to these matters is described in
Note #5. These financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ BARRY L. FRIEDMAN
---------------------------
Barry L. Friedman
Certified Public Accountant
<PAGE> 42
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
6 Mos. Ending Year Ended
June 30, 2000 Dec. 31, 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS
CASH $31 $31
--- ---
TOTAL CURRENT ASSETS $31 $31
--- ---
OTHER ASSETS $ 0 $ 0
--- ---
TOTAL OTHER ASSETS $ 0 $ 0
--- ---
TOTAL ASSETS $31 $31
--- ---
</TABLE>
The accompanying notes are an integral part of these financial statements
- 2 -
<PAGE> 43
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
6 Mos. Ending Year Ended
June 30, 2000 Dec. 31, 1999
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Officers Advances (Note #8) $ 11,730 $ 155
-------- -------
TOTAL CURRENT LIABILITIES $ 11,730 $ 155
-------- -------
STOCKHOLDERS EQUITY (Note #4)
Serial preferred stock
Par value $0.01
Authorized 10,000,000 shares
Issued and outstanding at
June 30, 2000 - None $ 0
Common stock, $.001 par value
authorized 25,000,000 shares
issued and outstanding at
December 31, 1999 - 210,000 shares $ 210
June 30, 2000 - 21,000,000 shares 21,000
Additional paid in Capital -18,900 1,890
Accumulated loss during
the development stage -13,799 -2,234
TOTAL STOCKHOLDERS' EQUITY $-11,699 $ -124
-------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 31 $ 31
-------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements
- 3 -
<PAGE> 44
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
3 Mos. Ended 3 Mos. Ended 6 Mos. Ended 6 Mos. Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
EXPENSES
General, Selling
and Administrative $ 500 $ 0 $ 11,575 $ 0
----------- ----------- ----------- -----------
Total Expenses $ 500 $ 0 $ 11,575 $ 0
----------- ----------- ----------- -----------
Net Profit/Loss (-)
from operations $ -500 $ 0 $ -11,575 $ 0
----------- ----------- ----------- -----------
Interest Income $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
Net Income/Loss $ -500 $ 0 $ -11,575 $ 0
----------- ----------- ----------- -----------
Net Loss per share -
Basic and diluted
(Note #2) $ NIL $ NIL $ -.0006 $ NIL
----------- ----------- ----------- -----------
Weighted average
number of common
shares outstanding 21,000,000 21,000,000 21,000,000 21,000,000
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
- 4 -
<PAGE> 45
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
Jun. 13, 1994
Year Ended Year Ended (Inception)
December 31, December 31, to June 30,
1999 1998 2000
------------ ------------ -------------
<S> <C> <C> <C>
REVENUE $ 0 $ 0 $ 0
----------- ----------- -----------
EXPENSES
General, Selling
and Administrative $ 0 $ 15 $ 14,455
----------- ----------- -----------
Total Expenses $ 0 $ 15 $ 14,455
----------- ----------- -----------
Net Profit/Loss (-)
from operations $ 0 $ -15 $ -14,455
----------- ----------- -----------
Interest Income $ 0 $ 177 $ 656
----------- ----------- -----------
Net Income/Loss $ 0 $ 162 $ -13,799
----------- ----------- -----------
Net Income/Loss per share -
Basic and diluted
(Note #2) $ NIL $ NIL $ -.0007
----------- ----------- -----------
Weighted average
number of common
shares outstanding 21,000,000 21,000,000 21,000,000
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
- 5 -
<PAGE> 46
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Accumu-
Common Stock paid-in lated
Shares Amount Capital Deficit
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance,
December 31, 1998 2,100 $ 2,100 $ 0 $ -2,224
December 3, 1999
Changed from no par
value to $0.001 -2,098 +2,098
December 3, 1999
Forward stock split
100:1 207,900 +208 -208
Net loss, Year Ended
December 31, 1999 0
---------- ---------- ---------- ---------
Balance,
December 31, 1999 210,000 $ 210 $ 1,890 $ -2,224
February 8, 2000
Forward stock split
100:1 20,790,000 +20,790 -20,790
Net Loss
January 1, 2000, to
June 30, 2000 -11,575
---------- ---------- ---------- ---------
Balance,
June 30, 2000 21,000,000 $ 21,000 $ -18,900 $ -13,799
---------- ---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
- 6 -
<PAGE> 47
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
3 Mos. Ended 3 Mos. Ended 6 Mos. Ended 6 Mos. Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash Flow from
Operating Activities
Net Loss $ -500 $ 0 $ -11,575 $ 0
-------- ---- --------- ----
Adjustment to reconcile
net loss to net cash
provided by operating
activities
Changes in Assets
and Liabilities
Increase in current
Liabilities
Officers Advances +500 0 +11,575 0
-------- ---- --------- ----
Net cash used in
operating Activities $ 0 $ 0 $ 0 $ 0
Cash Flows from
Investing Activities 0 0 0 0
Cash Flows from
Financing Activities
Issuance of Common
Stock 0 0 0 0
-------- ---- --------- ----
Net increase
(decrease)
in cash $ 0 $ 0 $ 0 $ 0
Cash, beginning
of period 0 0 0 0
-------- ---- --------- ----
Cash, end of period $ 0 $ 0 $ 0 $ 0
-------- ---- --------- ----
</TABLE>
The accompanying notes are an integral part of these financial statements
- 7 -
<PAGE> 48
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
June 13,1994
Year Ended Year Ended (Inception)
December 31, December 31, to June 30,
1999 1998 2000
------------ ------------ -----------
<S> <C> <C> <C>
Cash Flow from
Operating Activities
Net Loss $ 0 $ +162 $ -13,799
Adjustment to reconcile
net loss to net cash
provided by operating
activities
Changes in Assets
and Liabilities
Increase in current
Liabilities
Officers Advances 0 -5,845 +11,730
------ -------- ---------
Net cash used in
operating Activities $ 0 $ -5,683 $ -2,069
Cash Flows from
Investing Activities 0 0 0
Cash Flows from
Financing Activities
Issuance of Common
Stock 0 0 +2,100
------ -------- ---------
Net increase
(decrease)
in cash $ 0 $ -5,683 $ 31
Cash, beginning
of period 31 5,714 0
------ -------- ---------
Cash, end of period $ 31 $ 31 $ 31
------ -------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
- 8 -
<PAGE> 49
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2000, and December 31, 1999
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized June 13,1994, under the laws of the State of
Nevada as Magnolia Ventures, Inc. The Company currently has no
operations and in accordance with SFAS #7, is considered a development
stage company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
The Company records income and expenses on the accrual method.
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and equivalents
The Company maintains a cash balance in a non-interest-bearing
bank that currently does not exceed federally insured limits.
For the purpose of the statements of cash flows, all highly
liquid investments with the maturity of three months or less are
considered to be cash equivalents. There are no cash equivalents
as of December 31, 1999, or June 30, 2000.
- 9 -
<PAGE> 50
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Income taxes are provided for using the liability method of
accounting in accordance with Statement of Financial Accounting
Standards No. 109 (SFAS #109) "Accounting for Income Taxes". A
deferred tax asset or liability is recorded for all temporary
difference between financial and tax reporting. Deferred tax
expense (benefit) results from the net change during the year of
deferred tax assets and liabilities.
Reporting on Costs of Start-Up Activities
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs
of Start-Up Activities" which provides guidance on the financial
reporting of start-up costs and organization costs. It requires
most costs of start-up activities and organization costs to be
expensed as incurred. With the adoption of SOP 98-5, there has
been little or no effect on the company's financial statements.
Loss Per Share
Net loss per share is provided in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS #128) "Earnings Per
Share". Basic loss per share is computed by dividing losses
available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted loss per
share reflects per share amounts that would have resulted if
dilative common stock equivalents had been converted to common
stock. As of June 30, 2000, the Company had no dilative common
stock equivalents such as stock options.
Year End
The Company has selected December 31st as its year-end.
- 10 -
<PAGE> 51
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Year 2000 Disclosure
The Y2K issued had no effect on this Company.
NOTE 3 - INCOME TAXES
There is no provision for income taxes for the period ended June 30,
2000, due to the net loss and no state income tax in Nevada, the state
of the Company's domicile and operations. The Company's total deferred
tax asset as of December 31, 1999, is as follows:
<TABLE>
<S> <C>
Net operation loss carry forward $ 2,224
Valuation allowance $ 2,224
Net deferred tax asset $ 0
</TABLE>
The federal net operating loss carry forward will expire between 2014
and 2019.
This carry forward may be limited upon the consummation of a business
combination under IRC Section 381.
NOTE 4 - STOCKHOLDERS' EQUITY
Common Stock
The authorized common stock of Magnolia Ventures, Inc. consists of
25,000,000 shares with a par value of $0.001 per share.
Preferred Stock
Magnolia Ventures, Inc. has a serial preferred stock with a par value of
$0.01.
- 11 -
<PAGE> 52
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2000, and December 31, 1999
NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED)
On June 30, 1994, the company issued 2,100 shares of its no par value
common stock in consideration of $2,100 in cash.
On December 3, 1999, the State of Nevada approved the Company's restated
Articles of Incorporation, which increased its capitalization from 2,500
common shares to 25,000,000 common shares. The no par value was changed
to $0.001.
On December 3, 1999, the Company forward split its common stock 100:1,
thus increasing the number of outstanding common stock shares from 2,100
shares to 210,000.
On February 8, 2000, the State of Nevada approved the Company's Articles
of Incorporation, which created a new class of serial preferred stock,
with a par value of $0.01.
On February 8, 2000, the Company forward its common stock 100 to 1, thus
increasing the number of outstanding common stock shares from 210,000
shares to 21,000,000 shares.
NOTE 5 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal
course of business. However, the Company does not have significant cash
or other material assets, nor does it have an established source of
revenues sufficient to cover its operating costs and to allow it to
continue as a going concern. It is the intent of the Company to seek a
merger with an existing, operating company.
- 12 -
<PAGE> 53
MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, and December 31, 1999
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. An
officer of the corporation provides office services without charge. Such
costs are immaterial to the financial statements and accordingly, have
not been reflected therein. The officers and directors of the Company
are involved in other business activities and may, in the future, become
involved in other business opportunities. If a specific business
opportunity becomes available, such persons may face a conflict in
selecting between the Company and their other business interests. The
Company has not formulated a policy for the resolution of such
conflicts.
NOTE 7 - WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional
shares of common stock or serial preferred stock.
NOTE 8 - OFFICERS ADVANCES
While the Company is seeking additional capital through a merger with an
existing company, an officer of the Company has advanced funds on behalf
of the Company to pay for any costs incurred by it. These funds are
interest free.
- 13 -
<PAGE> 54
PART III
Item 1. Exhibit Index
<TABLE>
<CAPTION>
Sequential
No. Page No.
--- ----------
<S> <C>
(3) Articles of Incorporation and Bylaws
3.1 Articles of Incorporation, as amended, and restated 55
3.2 Bylaws 82
(12) Lock-Up Agreements
12.1 Peggy Melilli 97
12.2 Dennis Melilli 98
12.3 Sherri Lynn Cooper 99
(23) Consents - Experts
23.1 Consent of Barry L. Friedman 100
(27) Financial Data Schedule 101
27.1 Financial Data Schedule __
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: July 25, 2000 MAGNOLIA VENTURES, INC.
By: /s/ Peggy Melilli
------------------------
Peggy Melilli
President
-54-
