INTERNATIONAL BRANDS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
TABLE OF CONTENTS
Independent Auditors' Report
Consolidated Balance Sheets 2
Consolidated Statements of Income
Consolidated Statement of Stockholders' Equity 5
Consolidated Statements of Cash Plows 7
Notes to the Consolidated Financial
Statements............................... 8
Independent Auditors' Report
To the Board of Directors and Stockholders of International Brands,
Inc.
We have audited the accompanying balance sheets of International
Brands, Inc. (a Nevada corporation, formerly known as Stella Bella
Corporation, U.S.A.) as of December 31, 1999 and 1998, and the related
statements of income, stockholders, equity, and cash flows for the
years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our auditors in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatements.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
International Brands, Inc. as of December 31, 1999 and 1998, and the
consolidated results of its operations and its consolidated cash flows
for the years then ended 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 2 to the
financial statements, the Company continues to experience significant
losses. This raises substantial doubt about its ability to continue as
a going concern. Management's plan in regard to these matters are also
described in Note 9. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Mendoza Berger & Company, LLP
Laguna Hills, California
June 9, 2000
<TABLE>
INTERNATIONAL BRANDS, INC.
(FORMERLY STELLA BELLA CORPORATION, U.S.A.)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<CAPTION>
ASSETS
<S> <C> <C>
12/31/99 12/31/98
Current assets: -------- --------
Cash $6,457 $4,516
Accounts Receivable - $39,310
Inventories at lower of FIFO
cost or market (Note 1) $4,429 $10,901
Prepaid and other current assets $85 $65
-------- --------
Total current assets $10,971 $54,792
-------- --------
Property and equipment (Note 1)
Furniture and Fixtures $38,468 $38,468
Computers and Equipment $21,750 $21,750
-------- --------
$60,218 $60,218
Less: Accumulated depreciation ($60,900) ($38,175)
------- -------
Net property and equipment $9,318 $22,043
Other assets:
Deferred tax benefit (Note 5) - -
Investments at cost (Note 3) $35,000 $35,000
Notes Receivable-
Related party, net of
current portion (Note 6) $1,598,000 $9,221,947
Deposits and other assets $200 $2,330
---------- ----------
Total other assets $1,633,200 $9,336,112
========== ==========
See Accountants' Report.
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
INTERNATIONAL BRANDS, INC.
(FORMERLY STELLA BELLA CORPORATION, U.S.A.)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
12/31/99 12/31/98
<S> <C> <C>
Current liabilities:
Accounts Payable $241,267 $217,148
Accrued expenses and other (Note 8) $7,787,885 $7,785,797
---------- ----------
Total current liabilities $8,029,152 $8,002,945
Commitments and contingencies (Note 8) - -
Stockholders' equity (Note 4)
Common stock, $.001 par value
Authorized- see restricted common stock
authorization
Issued and outstanding-10,083,054 shares
at December 31, 1999 and 1,005,000 shares
at December 31, 1998 $10,083 $1,005
Restricted common stock, $.001 par value
Authorized- 400,000,000 shares
Issued and otstanding-57,612,293 shares
at December 31, 1999 and 9,078,054 shares
at December 31, 1998 $57,612 $9,078
Series IV convertible preferred stock,
$.001 stated value
Authorized-19,681,230 shares
Issued and outstanding-626,639 shares
at December 31, 1999 and 647,749 shares
at December 31, 1998 Conversion- each
share of perferred stock is convertible
into common stock based on a formula $627 $648
Series VI convertible preferred stock,
$.001 stated value
Authorized 19,581,230 shares
Issued and outstanding-0 shares at
December 31, 1999 and 1998, respectively
Conversion-each share of perferred stock
is convertible into five shares of
common stock - -
Additional Paid-in capital $946,278,098 $173,058,772
------------ ------------
Accumulated deficit ($352,722,083) ($171,736,336)
------------ ------------
Total stockholders' equity ($6,375,663) $1,333,167
------------ ------------
$1,653,489 $9,336,112
============ ============
See Accountants' Report.
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
INTERNATIONAL BRANDS, INC.
(FORMERLY STELLA BELLA CORPORATION, U.S.A.)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<CAPTION>
Year Year
Ended Ended
12/31/99 12/31/98
-------- --------
<S> <C> <C>
Net sales $32,714 $282,075
Cost of goods sold $14,673 $161,399
-------- --------
Gross Profit $18,041 $120,676
-------- --------
Operating expenses
General and administrative $181,104,559 $135,736,615
------------ ------------
Loss from operations ($181,086,518) ($135,615,939)
Other expenses
Interest Income, net of interest expense $100,771 $7,467
------------ ------------
Loss before provision taxes ($189,985,747) ($135,608,472)
Provision for income taxes (benefit)
(Note 6) - -
------------ -------------
Net loss ($189,985,747) ($135,608,472)
============ ============
Loss per share (Note 1) ($2.72) ($1.14)
============ ============
See Accountants' Report.
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
INTERNATIONAL BRANDS, INC.
(FORMERLY STELLA BELLA CORPORATION, U.S.A.)
STATEMENT OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998
<CAPTION>
SHARES
--------
Common Preferred Preferred
Common Stock Stock Stock
Stock Restricted Series IV Series VI
----- ---------- --------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 642,010 362,990 665,010 -
Shares issued to Z3 in
exchange for services and
for a 6%, $7,500,000 note
due December 22, 2001 - 7,550,100 - -
Shares issued in exchange for
services - 1,500 - -
Shares issued in settlelment
of lawsuit - 1,000,000 - -
Shares issued for exercise
of warrants - 505,535 - -
Shares issued in conversion
of preferred stock series
IV into common stock - 20,919 (7,261) -
Expiration of restriction
on common stock though
the year ended December
31, 1998 362,990 (362,990) - -
------- ---------- -------- ----
Net loss - - - -
Balance at December 31, 1998 1,005,000 9,078,054 647,749 -
========= ========= ======= ====
AMOUNT
--------
Common Preferred Preferred Additional
Common Stock Stock Stock Paid-In Accumulated
Stock Restricted Series IV Series VI Capital Deficit
------ --------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1997 $643 $356 $661 - $33,946,613 ($36,127,864)
Shares issued
to Z3 in
exchange for
services and for
a 6%,
$7,500,000 note
due December
22, 2001 - $7,550 - - $126,454,950 -
Shares issued
in exchange
for services - $2 - - $15,149 -
Shares issued
in settlement
of litigation - $1,000 - - $10,099,000 -
Shares issued
for exercise
of warrants - $520 - - $2,543,073 -
Shares issued
in conversion
of preferred
stock series
IV into
common stock - $13 ($13) - ($13) -
Expiration of
restriction
on common stock
through the
year ended
December 31,
1999 $363 ($363) - - - -
----- ------ ---- ---- ------------ ------------
Net loss - - - - - ($135,608,472
Balance at
December 31,
1998 $1,006 $9,078 $648 - $173,058,772($171,736,336
====== ====== === ===== ============ ============
See Accountants' Report.
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
INTERNATIONAL BRANDS, INC.
(FORMERLY STELLA BELLA CORPORATION, U.S.A.)
STATEMENT OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999
<CAPTION>
SHARES
------
Common Preferred Preferred
Common Stock Stock Stock
Stock Restricted Series IV Series VI
------ ---------- --------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 1,005,000 9,078,054 647,749 -
Shares issued to Z3 in
exchange for services and a
6% $120,000,000 note due
December 29, 2002 - 40,000,000 - -
Shares issued for officer
compensation - 13,000,000 - -
Shares issued for
services - 108,410 - -
Shares issued in settlement
of litigation - 70,000 - -
Shares issued to Z3 for
services - 4,000,000 - -
Shares issued in exercise
of warrants - 270,384 - -
Shares issued for conversion
of series IV preferred stock
to common stock - 163,498 (21,110) -
Expiration of restriction
on comon stock through
the year ended December
31, 1999 9,078,054 (9,078,054) - -
--------- ---------- -------- ----
Net Loss - - - -
Balance at December 31, 1999 10,083,054 57,612,292 626,639 -
========== ========== ======= ====
AMOUNT
--------
Common Preferred Preferred Additional
Common Stock Stock Stock Paid-In Accumulated
Stock Restricted Series IV Series VI Capital Deficit
------ ---------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1998 $1,006 $9,078 $648 - $173,058,772 ($171,736,336)
Shares issued
to Z3 in
exchange for
services and for
a 6% $120,000,000
note due
December 29,
2002 - $40,000 - - $119,960,000 -
Shares issued
for officer
compensation - $13,000 - - $38,987,000 -
Shares issued
for services - $75 - - $406,609 -
Shares issued
in settlement
of
litigation - $70 - - $347,430 -
Shares issued
to Z3 for
services - $4,000 - - $12,996,000 -
Shares issued
in exercise of
warrants - $303 - - $552,429 -
Shares issued
for conversion
of series IV
preferred stock
to common stock - $163 ($21) - ($142) -
Expiration of
restriction
on common stock
throught the
year ended
December 31,
1999 $9,078 ($9,078) - - - -
------ ------ ---- ---- ----------- -----------
Net loss - - - - - ($189,985,747)
Balance at
December
31, 1999 $10,084 $57,611 $627 - $346,278,098 ($352,772,083)
======= ======= ===== ===== ============ =============
See Accountants' Report.
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
INTERNATIONAL BRANDS, INC.
(FORMERLY STELLA BELLA CORPORATION, U.S.A.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Cash flow from
operating activities:
Net Loss ($180,985,747) ($135,608,472)
Adjustments to reconcile net loss
to net cash used by operations
Depreciation $12,725 $12,525
Common stock issued as compensation
for services $180,557,436 $125,028,842
Common stock issued in
settlement of lawsuit $34,430 $10,100,000
Change in assets and liabilities:
Decrease in accounts receivable $39,310 $38,481
Decrease in Inventories $6,472 $79,819
(Increase) in prepaids and other
current assets ($20) ($25)
(Decrease) in deposits and other
assets $2,130 $2,918
Increase in accounts payable and
other current labilities $26,205 $307,421
------------ ------------
$180,987,688 $135,629,981
------------ ------------
Net cash provided by operating
activities $1,941 $21,509
Cash flows from operating activities:
Cash flows from investing activities:
Purchase of investment - ($35,000)
------------ -------------
Net cash used by financing activities - ($35,000)
------------ -------------
Net increase (decrease) in cash $1,941 $13,491
Cash at the beginning of the year $4,516 $18,007
------------ -------------
Cash at the end of the year $6,457 $4,516
============ =============
Total intrest paid during the year - -
============ =============
See Accountants' Report.
The accompanying notes are an integral part of these financial
statements.
</TABLE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Company Background and Organization
International Brands, Inc. (Formerly known as Stella Bella
Corporation, U.S.A.) (the Company), a Nevada corporation, is an
Internet sales company selling a wide variety of products on the
Internet under the trade name WorldBestBuy.com. Sales are
primarily conducted via credit card and are cleared through a
credit card clearing house.
Prior to 1998, the company operated under the name of Stella Bella
Corporation, manufacturing gourmet coffee beans in a wide variety
of blends, roasts and flavors. The Company also operated a chain
of coffee houses which sold whole bean, ground, and brewed coffee
produced by the Company. At that time, the Company?s main
product, whole bean coffee, was sold primarily through grocery
stores and retail coffee houses. Currently, coffee is being sold
through the Internet.
Since September 1994, the Company has had an agreement with Z 3
Capital Corporation (?Z 3") to consult on matters concerning the
Company?s operational and fiscal policies and with the business
plan. In exchange for notes, relief of certain debt obligations
and consulting services, the Company issued a majority of its
outstanding shares of restricted common stock to Z 3. Z 3
subsequently assigned portions of its right of ownership in these
shares to various domestic and foreign individuals and
corporations (Note 6). As of December 31, 1999, Z 3 and its
assignees or designees held controlling ownership of the Company.
B. Inventory
Coffee inventory is stated at the lower of cost, computed on a
first-in, first-out (FIFO) basis, or market. Product is
manufactured to order and immediately shipped. Inventory on hand
is raw materials, consisting of roasted beans and flavoring oils.
At December 31, 1999 and 1998, the total cost of this inventory
was:
12/31/99 12/31/98
[S] [C] [C]
Raw materials $4,429 $10,901
------ -------
Total inventories $4,429 $10,901
====== =======
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
B. Inventories (Continued)
The Company regularly enters into futures contracts for the
purchase of whole green coffee beans. These commitments typically
cover a future period of 2 to 6 months. As of December 31, 1999
and 1998 any gain or loss arising from these commitments was
immaterial.
C. Property and Equipment
Property and equipment is stated at cost. The Company uses the
straight line method for depreciation over the estimated useful
lives of the assets which range from 5 to 7 years.
D. Revenue Recognition
The Company?s primary business is the sale of goods over the
Internet. Sales are recognized when cash, in the form of check or
credit card receipt is received, thereby confirming the sales order.
For all product sales transactions with its customers, the Company acts
as a principal, takes title to all products sold upon shipment, bears
credit risk, and bears inventory risk for returned products that are not
successfully returned to suppliers, although these risks are
mitigated through arrangements with credit card issuers, shippers
and suppliers from the manufacturer and assumes the risk of
ownership. The Company continues to manufacture coffee to order for Internet
sales and recognizes sales as of the date shipments are made to
customers. The Company guarantees the quality of the shipped product
and permits return of inferior goods, generally in exchange for the
same or similar product. A reserve for future returns is not provided
due to the nature of the Company?s coffee production and distribution
and the fact that any returned product can be sold through alternate
sources of distribution.
E. Financial Instruments
The Company follows the guidance of Statement of Accounting
Standards (SFAS) No. 102, Disclosure of Fair Value Financial
Instruments, which requires disclosure of the fair value of financial
instruments; however, this information does not represent the
aggregate net fair value of the Company. Unless quoted market price indicates
otherwise, the Company's cash and liabilities approximate fair value.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
F. Income Taxes
The Company uses the liability method of accounting for income
taxes specified by SFAS No. 109, Accounting for Income Taxes,
whereby deferred tax liabilities and assets are determined based
on the difference between financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. Deferred
tax assets are recognized and measured based on the likelihood of
realization of the related tax benefit in the future.
G. Loss Per Share
In February 1997, the Financial Accounting Standard Board (FASB)
issued SFAS No. 128, Earning Per Share which requires the
Company to present basic and diluted earnings per share for all
years presented. The computation of loss per common share (basic
and diluted) is based on the weighted average number of shares
actually outstanding during the period. Common stock equivalent
shares are excluded from the computation as their effect is
antidilutive.
H. Use of Estimates
The preparation of financial statements in accordance 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. Actual
results could differ from those estimates.
I. Investments
Investments in companies in which the Company has less than a 20%
interest are carried at cost. Investments in certain companies in
which the Company owns a 20% or more interest are carried at cost
because the Company does not exercise significant influence over
their operating and financial activities.
2. GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company
has sustained substantial operating losses in recent years. In
addition, the Company has used substantial amounts of working capital in
its operations. Furthermore, the Company has incurred losses of
$189,985,747 and $356,608,472 and working capital deficits of $8,018,181
and $7,948,153 as of and for the years ended December 31, 1999 and 1998
respectively.
Management has been advised by the Company?s Senior Financial Advisor,
who was also the President of Z 3 Capital Corporation, that Z
3 will continue to fund the Company's continued operations through
private placements of the Company's stock. Z 3 has demonstrated
continued ability since 1994 to raise capital for the Company.
The Company?s continued viability and its ability to continue as a
going concern is dependent upon its ability to issue stock and
raise funds in the future.
3. INVESTMENTS
A. Investment in Stella Bella Russia (AOZT)
The Company has issued 2,000,000 shares of restricted common stock
to acquire 51% of Stella Bella Russia (AOZT), as of December 31,
1994. Due to AOZT operating in an unstable economic environment,
the investment is valued at net realizable value in accordance
with Accounting Revenue Bulletin (ARB) No. 43 and FAS 94.
Consideration has been given to the Company's ability to control
the activity of AOZT and current political, economic and currency
stability. As of December 31, 1999 and 1998, this investment been
fully reserved and is carried at $0 value.
B. Kona Beverage Company
On January 11, 1995, the Company entered into an agreement to
purchase 250 shares or a 2 1/2% interest in Kona Beverage Company
(Kona) from stock owned by Z 3. In consideration for the purchase
of Kona stock, the Company issued 220,000 shares of restricted
common stock to assignees of Z 3. The purchase price of the 2 ? %
interest in Kona is $16,556. The Company?s ability to recover its
investment in Kona is uncertain. The Company has established a
100% valuation reserve for this investment and it is carried on
the Company?s books at $0 value.
3. INVESTMENTS (Continued)
C. San Diego Community Broadcasting Corporation
On August 7, 1998, the Company purchased 35,000 shares of San
Diego Community Broadcasting Corp., a privately held company, for
$1 per share. The investment is carried on the books of the
Company at the historical cost of $35,000. No current market
value is available.
4. CAPITAL STOCK
A. Common Stock
The Company has 10,083,054 shares and 1,005,000 shares of freely
traded common stock at December 31, 1999 and 1998, respectively.
These shares are part of the total 400,000,000 shares authorized
at December 31, 1999 and 1998.
B. Restricted Common Stock
At December 31, 1999 and 1998 the Company has authorized
400,000,000 shares of common stock and restricted common stock at
a stated par value of $.001. At December 31, 1999 and December 31,
1998, the total restricted shares issued and outstanding were
57,612,293 and 9,078,054 respectively. These shares carry varying
degrees of restriction and can be summarized as follows:
1999 1998
[S] [C] [C]
Regulation S shares 32,000,000 6,050,000
Restricted shares (Rule 144A) 25,612,293 3,028,054
Total restricted common stock 57,612,293 ,078,054
4. COMMON AND PREFERRED STOCK (Continued)
B. Restricted Common Stock (Continued)
Regulation S covers the purchase and resale of restricted shares
issued to foreign entities. The following foreign entities
received restricted common stock designated as Regulation S stock
pursuant to assignments from Z 3:
1999 1998
[S] [C] [C]
Nicosia Investments, LTD, a Bahamas
Company 4,000,000 600,000
Trenton Guaranty Corp., a Bahamas
Company 4,000,000 600,000
Kivah Guaranty Limited, a Bahamas
Company 4,000,000 600,000
Kirachi Corp., a Bahamas Company 4,000,000 600,000
Rose Blossom Corp., a Bahamas Company 4,000,000 1,850,000
Sumatra Investments, LTD, a Bahamas
Company 4,000,000 600,000
Two Corporation, a Bahamas Company 4,000,000 600,000
Camden Guaranty Investment Corp., A
Bahamas Company 4,000,000 600,000
Total Regulation S stock issued 32,000,000 6,050,000
C. Convertible Preferred Stock
Series IV
The Company has authorized 19,681,230 shares of redeemable,
convertible preferred stock. The stock has a stated value of
$.001. The stock pays an annual dividend of 15% and has a
liquidation value of $35. The conversion ratio is based on the
Average Bid Price (the prior four week average bid price) divided
into the liquidation value. After a fixed period of time, the
company may redeem, at the discretion of the board of directors,
the preferred stock with common shares at the redemption rate of
1.25 times the liquidation value divided by the Average Bid Price.
Each share contains 400 voting rights. As of December 31, 1999
and 1998, the Company issued 626,639 shares and 647,749 shares of
convertible preferred stock, respectively.
Series VI
The Company authorized 19,581,230 shares of non-voting redeemable,
convertible preferred stock. The stock has a stated value of $.001. Each
share is convertible into five common shares any time. No shares were
issued in 1999 and 499,847 shares were issued and converted into 2,499,237
restricted common shares in the first quarter of 2000.
4. COMMON AND PREFERRED STOCK (Continued)
D. Warrants
Warrant Series A
The Company authorized the issuance of 33,040,000 series A
warrants, covering the right to
purchase $0.001 par value, common stock of the Company. Each warrant
allows the holder to purchase one share of common stock at 50% of the
preceding month?s average bid price. The warrants may be exercised any
time after April 30, 1997 and
expire on June 30, 2000. There were 8,387,527 and 8,761,133 warrants
issued and outstanding as of December 31, 1998 and 1999, respectively.
Warrant Series B
The Company authorized the issuance of 33,040,000 series B
warrants, covering the right to purchase $0.001 par value, common stock of
the Company. Each warrant allows the holder to purchase one share of common
stock at 60% of the preceding month?s average bid price. The warrants may
be exercised any time after April 30, 1997 and expire on June 30, 2000.
There were 9,062,655 and 9,403,128 warrants issued and outstanding as of
December 31, 1998 and 1999, respectively.
Warrant Series C
The Company authorized the issuance of 33,040,000 series C
warrants, covering the right to purchase $0.001 par value, common stock of
the Company. Each warrant allows the holder to purchase one share of common
stock at 70% of the preceding month?s average bid price. The warrants may be
exercised any time after April 30, 1997 and expire on June 30, 2000. There
were 9,263,637 and 9,534,203 warrants issued and outstanding as of December
31, 1998 and 1999, respectively.
Warrant Series D
The Company authorized the issuance of 33,040,000 series D warrants, covering
the right to purchase $0.001 par value, common stock of the Company. Each
warrant allows the holder to purchase one share of common stock at 80% of the
preceding month?s average bid price. The warrants may be exercised any
time after April 30, 1997 and expire on June 30, 2000. There were 9,249,473
and 9,581,120 warrants issued and outstanding as of December 31, 1998 and 1999,
respectively.
4. COMMON AND PREFERRED STOCK (Continued)
E. Participation Rights
The company authorized the issuance of 600,800 participation
rights to the holders of the Company?s Series IV Redeemable, Convertible
Preferred Stock. The rights are exercisable if the Company?s common stock
dividend on the preferred stock has not equaled 100 common shares by April
30,2000 and the preferred stock has not been redeemed or converted. In that
case, the right holder may purchase additional common stock equal to one
hundred shares, at a price equal to 25% of the Average Bid Price during the
period May 1, 2001 through April 30, 2002. The participation right becomes
effective on May 1, 2002 and expires on May 30, 2002. There were
185,427 and 191,186 participation rights issued and outstanding as of
December 31 1998 and 1999, respectively.
5. INCOME TAXES
The Company?s effective tax benefit on pretax loss differs from the U.
S. Federal statutory tax rate for the fiscal year ended December 31,
1999 and 1998 as follows:
1999 1998
[S] [C] [C]
Federal statutory tax (benefit) (34.00%) (34.00%)
State taxes, net of federal tax
benefit (5.83%) (5.83%)
(39.83%) (39.83%)
Deferred income tax assets and liabilities are computed based on
temporary differences between the financial statement and income tax bases of
assets and liabilities using the enacted marginal income tax rate in
effect for the year in which the differences are expected to
reverse. Deferred income tax expense or credits are based on
the changes in the deferred income tax assets or liabilities
from period to period. The components of deferred tax
liabilities and assets at December 31, 1999 and 1998 are as
follows:
1999 1998
[S] [C] [C]
Net operating loss carry
forward $140,504,325 $68,410,139
Valuation allowance (140,504,325) (68,410,139)
Net deferred tax asset $ - $ -
5. INCOME TAXES (Continued)
The Company had available approximately 352,722,000 and 171,736,000 of
unused federal and state operating loss carry forwards, respectively at
December 31, 1999 and 1998, that may be applied against future taxable
income. These net operating loss carry forwards expire for federal
purposes from 2009 to 2019 and will expire for state purposes from
2000 to 2004. There can be no assurance that the Company will realize
the benefit of the net operating loss carry forwards.
SFAS No. 109 requires a valuation allowance to be recorded when it is
more likely than not that some or all of the deferred tax assets will
not be realized. At December 31, 1999 and 1998, valuations for 100% of
the net deferred tax assets were recorded due to uncertainties as to the
amount of taxable income that will be generated in future years. No
income tax benefit has been recorded for all periods presented because
of the valuation allowance.
Due to the ?change in ownership? provisions in the Internal Revenue Code
Section 382, the availability of the Company?s net operating loss carry
forwards may be subject to an annual limitation against taxable income
in future periods, which could substantially limit the eventual
utilization of these net operating loss carry forwards.
6. RELATED PARTY TRANSACTIONS
A. Stock Issuances
During the years ended December 31, 1999 and 1998, the Company
issued or assigned restricted common stock to certain domestic and
foreign individuals and companies (assignees). Z 3 exercises
significant control over these assignees, and they are considered
related parties for purposes of the restricted common stock
assigned to them. As of December 31, 1999 and December 31, 1998,
the total shares of restricted common stock issued or assigned
to Z 3 or its assignees were 32,000,000 and 6,050,000,
respectively.
B. Management Agreement and Issuance of Stock
Z 3 Capital Corporation (Z 3) entered into a consulting agreement
with the Company on September 30, 1994. The term of the agreement
is ongoing. Pursuant to the agreement, Z 3 will consult with the
Board of Directors of the Company and its officers or advisors on
matters concerning operational and fiscal policies and the
Company?s general business plan. In addition, on January 1, 1999,
the Company entered into an additional consulting agreement with Z
3, in which Z 3 is to develop
6. RELATED PARTY TRANSACTIONS (Continued)
B. Management Agreement and Issuance of Stock (Continued)
a Web site for marketing purposes. The contracts calls for
monthly payments of $650,000 to be applied against the Company?s note
receivable from Z 3. The term of the contract is from January 1, 1999 through
June 30, 2000. As of December 31, 1999,
$7,800,000 has been applied against the note receivable and accrued interest
from Z 3.
On January 29, 1999, the Company issued 40,000,000 shares of
restricted common stock in exchange for $80,000,000 of consulting
services rendered by Z 3 and for a $40,000,000 6% note due
December 29, 2002. On January 22, 1998, the Company issued
7,550,000 shares of restricted common stock in exchange for
services rendered by Z 3 and for a $7,500,000 6% note due December
21, 2001. Total interest income accrued on these notes during 1999
and 1998 was $82,863 and $4,446, respectively. Z 3 subsequently
assigned its rights to these shares to certain related domestic
and foreign individuals and corporations.
6. RELATED PARTY TRANSACTIONS (Continued)
B. Management Agreement and Issuance of Stock (Continued)
The following table summarizes the restricted common stock in
consideration of notes issued by Z3:
1999 1998
[S] [C] [C]
20,000,000 shares of
restricted common
stock issued in
consideration of a 6% note
issued October 25, 1995,
due December 1, 1999 $ - $ 1,070,990
31,072,450 shares of
restricted common
stock issued in
consideration of a 6% note
issued October 25, 1995,
due December 1, 1999,
which is past due as of
December 31, 1999 1,029,648 2,397,128
5,573,270 shares of restricted
common stock issued in
consideration of a 6% note
issued May 31, 1996,
due May 1, 1999 - 51,223
20,000,000 shares of
restricted common
stock issued in
consideration of a 6% note
issued June 21, 1996,
due May 21, 2001 493,304 1,891,869
7,550,000 shares restricted
common stock issued in
consideration of services
rendered and a 6% note
issued January 22, 1998,
due December 21, 2001 6,938,446 7,962,584
40,000,000 shares of
restricted common
stock issued in
consideration of services
rendered and a 6% note
issued January 29, 1999,
due December 29, 2002 40,951,861 -
Total notes receivable -
related party 49,413,259 13,373,794
Less: valuation allowance (47,815,259) (4,151,847)
1,598,000 9,221,947
6. RELATED PARTY TRANSACTIONS (Continued)
B. Management Agreement and Issuance of Stock (Continued)
A valuation allowance equal to approximately 97% and 31% of the
carrying value of the Z3 receivable was recorded by the Company at
December 31, 1999 and 1998, respectively, since the future collection of
this receivable, based on the uncertain financial condition of Z3, is in
doubt.
Pursuant to the consulting agreement, the company has recorded
$87,800,000 and $117,513,961 in compensation related to the services
performed by Z3 during the years ended December 31, 1999 and 1998,
respectively.
C. Payments to Officers
The Company employs certain individuals related to Z 3 as officers
of the Company. They hold the positions of President and Treasurer.
Total compensation paid to those individuals were $39,000,000 (Note 11)
in 1999 and $71,352 in 1998.
7. COMMITMENTS AND CONTINGENCIES
A. Operating Leases
The Company leases certain corporate office and warehouse space.
This lease will expire on June 15, 2000. The Company is currently
negotiating with the landlord to make this a month to month lease. The
future minimum lease payments under the current lease are:
2000 $ 8,250
Total rent expense for the years ended December 31, 1999 and 1998
was $ 39,378 and $94,379, respectively.
8. LEGAL MATTERS
On May 9, 2000, the Company received a final judgement against it as a
result of litigation initiated by the State of New Jersey against
International Brands and several other defendants. As a result, the
Company is enjoined from selling any of its stock within the State of
New Jersey. In addition, The Company shall send a notice to all New
Jersey residents who purchased stock allowing them a right of recision.
The Company, Z 3 and its chief executive are liable to the State of New
Jersey for $7,770,000 in civil monetary penalties. This amount has been
accrued on the Company=s books since December 31, 1996, as part of
accrued expenses since the source of this payment shall come from the
Company. The Company is currently appealing this judgement, however the
success of this appeal is in doubt.
9. SUBSEQUENT EVENTS
On January 12, 2000, the Company entered into a merger agreement with
Tele Special.Com (ATSC@) to acquire 100% of the outstanding common stock of
TSC by converting every 200 hares of TSC into one share of International
Brand, Inc., stock. The merger constitutes a reorganization qualifying under
the provisions of Section 368(a) of the Internal Revenue Code of 1954 as
amended.
The agreement states that every 200 shares of $0.001 par value, TSC
common stock shall be converted into one share of International Brands, Inc.,
$0.001 par value, common stock. Total consideration received by TSC was 31,500
shares of International Brands, Inc., with a value of $102,375.
The following summarized pro forma (unaudited) information assumes the
TSC acquisition had occurred on January 1, 1998.
1999 1998
[S] [C] [C]
Net sales $32,714 282,075
Net loss $(189,991,052) $(135,608,671)
Net loss per share $ (2.72) $ (1.14)
10. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted SFAS No. 131, Disclosures About Segments Of An
Enterprise And Related Information, in the fiscal year ended December 31,
1999. SFAS No. 131 establishes standards for reporting information regarding
operating segments in annual financial statements and requires selected
information for those segments to be presented in interim financial reports
issued to stockholders. SFAS No. 131 also establishes standards for related
disclosures about products and services and geographic areas. Operating
segments are identified as components of an enterprise about which separate
discrete financial information is available for evaluation by the chief
operating or decision maker, or decision making group, in deciding how to
allocate resources and assess performance. The Company=s chief decision
maker, as defined under SFAS No. 131, is a combination of the Chief Executive
Officer and the Chief Financial Officer. To date, the Company has viewed
its operations and manages its business as principally one segment, Internet
sales. Associated services are not significant. As a result, the financial
information disclosed herein represents all of the material financial
information related to the Company=s principal operating segment.
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
In addition to cash provided or used for operations, investing, and
financing, the Company had the following non-cash investing and financing
activities:
A. For the Year Ended December 31, 1999
1. The Company issued 40,000,000 shares of restricted common
stock in exchange for a $40,000,000 note receivable and
$80,000,000 in consulting services from Z 3 Capital
Corporation (Note 6 ).
2. The Company issued 70,000 shares of restricted common stock
in settlement of a lawsuit, having a fair market value of
$347,500.
3. The Company issued 4,108,410 shares of restricted common
stock in consideration for various services having a fair
market value of $13,406,687.
4. The Company issued its President 13,000,000 shares of
restricted common stock as compensation, having a fair
market value of $39,000,000.
5. Net adjustments to notes receivable consisted of $7,623,947.
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION(Continued)
B. For the Year Ended December 31, 1998
1. The Company issued 7,550,000 shares of
restricted common stock in exchange for a
$ 7,500,000 note receivable and
$118,962,500 in consulting services from Z
3 Capital Corporation (Note 6).
2. The Company issued 1,000,000 shares of
restricted common stock in settlement of a
lawsuit having a fair market value of
$10,100,000.
3. The Company issued 1,500 shares of
restricted common stock in consideration
for various services having a fair market
value of $15,136.
4. Net adjustments to notes receivable
consisted of $ (3,992,387).
CONSENT OF MENDOZA BERGER & COMPANY, LLP
INDEPENDENT CERTIFTED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference and use in the Form 8-K, Current
Report, under the Securities Exchange Act of 1934 of International Brands,
Inc. of our report on the financial statements of International Brands, Inc.
(formerly, Stella Bella Corporation, U.S.A.) for the year ended December
31, 1999.
/s/
Mendoza Berger & Company, LLP
Laguna Hills, California
Dated: June 21, 2000
