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