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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
AMENDMENT NO. 1
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the fiscal year ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-5223
YELLOWAVE CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 11-1771806
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11777 San Vicente Blvd., Suite 505,
Los Angeles, California, 90049
(Address of principal executive offices) (Zip Code)
(310) 979-8055
(Registrant's telephone number, including area code)
Check mark whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
/X/ Yes / / No
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
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State issuer's revenues for its most recent fiscal year: $181,000.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the issuer as of September 20, 2000 was equal to $74,587,500
based on the average bid and ask price of $6.75.
As of September 20, 2000, a total of 11,050,117 shares of the Registrant's
Common Stock, $.03 par value, were issued and outstanding, 7,425,000 of which
we dispute the issuance of to a certain entity. For a more detailed discussion
of the disputed issuance see our Form 8K filed with the Securities and
Exchange Commission dated September 26, 2000.
Documents Incorporated by Reference.
None.
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FORM 10-KSB
YELLOWAVE CORPORATION
Table of Contents
PART I Page
Item 1. Description of Business 3
Item 2. Description of Property 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 7
Item 6. Management's Discussion and Analysis or Plan of Operation 8
Item 7. Financial Statements 12
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 13
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act 13
Item 10. Executive Compensation 15
Item 11. Security Ownership of Certain Beneficial Owners and Management 17
Item 12. Certain Relationships and Related Transactions 18
Item 13. Exhibits and Reports on Form 8-K 19
Signatures 23
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PART I
Item 1. Description of business.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-KSB (this "Form 10-KSB"),
including statements under "Item 1. Description of Business," "Item 3 Legal
Proceedings" and "Item 6. Management's Discussion and Analysis," constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1934, as amended, and the Private Securities Litigation
Reform Act of 1995 (collectively, the "Reform Act"). Certain, but not
necessarily all, of such forward-looking statements can be identified by the
use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should," or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve
risks and uncertainties. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Yellowave Corporation (the "Company",
`we" or "us") to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements.
Overview.
In February 1999, we sold 30 retail hair salons (75% of company-owned units)
to Regis Corporation. We also sold three retail stores and abandoned nine
retail stores during fiscal year 1999. As of June 30, 1999, we did not own any
retail stores; therefore, we were strictly a franchising operation. In March
2000, we agreed to sell our hair salon franchise assets to Regis Corporation.
This transaction effectively discontinued our hair salon activities.
We are currently not engaged in any business. We are currently seeking
business opportunities in the high technology industry, which we believe to hold
a potential for profit. As a result, we intend to seek out the acquisition of
assets, property or a business that may be beneficial to us or our
stockholders. We currently have no products and offer no services.
Corporate History.
From 1955 to 2000, we engaged primarily in the franchising and ownership of
retail hair salons under the name Cutco Industries. Cutco Industries, a New
York corporation, was formed in 1955. On or about November 18, 1999, Cutco
Industries amended its Certificate of Incorporation to change its name to
Yellowave Corporation and then reincorporated as a Nevada corporation pursuant
to articles of merger dated June 7, 2000. Cutco Industries is our predecessor.
Our principal offices are located at 11777 San Vicente Blvd., Suite 505, Los
Angeles, California 90045, telephone (310) 979-8055.
Agreements.
On or about February 12, 1999, we sold 30 retail hair salons (75% of the
Company-owned units) to Regis Corporation for $1.6 million cash and recognized
a net gain of approximately $863,000. We also sold three retail stores and
abandoned nine retail stores during 1999. In March 2000, we sold the hair
salon franchise assets (approximately $742,000) to Regis for $3.6 million. The
final payment of $300,000 was received by us on or about July, 2000. This
transaction effectively discontinued our hair salon activities.
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RISK FACTORS
You should carefully consider the following risk factors and other information
in this Form 10KSB before deciding to invest in shares of our common stock.
The risk factors described below, and other factors noted throughout this Form
10KSB, including certain risks and uncertainties, could cause our actual
results to differ from those contained in any forward-looking statement.
Operating activities ceased since March 2000.
We have not engaged in any business operation since March 2000. In March 2000,
we sold substantially all of our assets and currently we have no operating
revenue. Our operations for the year ended June 30, 2000, primarily represents
activity from discontinued operations through March 2000.
We rely heavily on the acquisition of assets, property or a business
beneficial to us.
We have devoted all our efforts this year to various organizational
activities, including our effort to acquire a suitable business. We intend to
seek out the acquisition of assets, property or a business that may be
beneficial to us or our stockholders. We face all of the risks inherent in a
new business and those risks specifically inherent in the type of business in
which we propose to engage namely, the investigation and acquisition of an
interest in a business in the high technology industry. Even if we become
engaged in a new business, there can be no assurance that we will be able to
generate revenues or profits therefrom. Our business must be considered in
light of the risks, expenses and problems frequently encountered by companies
in their early stages of development, particularly companies, which have no
business plan.
We are currently involved in civil actions and an arbitration proceeding.
Item 3. Legal Proceedings.
On January 22, 1998 Carolyn Ryan instituted an action venued in the Eighth
Judicial District Court, Clark County, Nevada against Marvin Tripp and Cutco
Industries, Inc., our predecessor, seeking approximately $90,000 in damages.
The plaintiff alleges damages were sustained when the defendants made
misrepresentations of material facts relied upon by plaintiff in purchasing
the business. Legal counsel for the Company believes that plaintiff's claims
have little or no merit as against the Company.
On August 21, 2000, we commenced an action against Newtech Broadwidth Ltd
("Newtech"), Myriam Abitbol, Propser Abitbol, Jacques Ben Ezra and Benayahou
Shemesh. The Court granted us a temporary restraining order based upon
allegations that Defendants made misrepresentations and engaged in fraud in
order to induce us to enter into a Share Purchase Agreement. Under the terms
of the Agreement, Newtech agreed to sell to us all of the issued and
outstanding common stock of Newtech in consideration of seventy-five percent
of our Shares of common stock. The Agreement also provided for the
satisfaction of certain conditions by the Defendants. It is our allegation
that these conditions were not met.
On September 25, 2000 the United States Federal District Court ordered a
preliminary injunction issued against the defendants barring them from
exercising any management or control over us. On October 10, 2000 the
District Court amended its previous Order ordering us to post a bond in the
amount of $1,500,000. This claim may cause current management to lose control
of Yellowave to Defendants; however, our counsel believes that we will likely
prevail in this action.
On March 27, 2000, three former franchise holders of Cutco Industries
instituted an action before the American Arbitration Association, New York
Regional office against Cutco Industries, Inc., our predecessor and us seeking
revocation of contracts; asking for damages in a sum not less than $439,576,
for breaching their duties and obligations as a franchisor and selling all of
our owned stores. Our counsel believes this action has little or no merit.
Such claims and any resultant litigation, might subject us to liability for
damages, and even if not meritorious, could be time consuming, expensive to
defend, and result in the diversion of management time and attention.
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There are no assurances we will find a business opportunity and no assurances
such business will be profitable.
There is no assurance that we will acquire a favorable business opportunity.
Even if we should become involved in a business opportunity, there is no
assurance that it will generate revenues or profits, or that the market price
of our common stock will be increased thereby.
We may enter into a transaction with a company that is seeking to avoid the
difficulties of effecting its own public offering.
The type of business to be acquired may be one that desires to avoid effecting
its own public offering and the accompanying expense, delays, uncertainties,
and federal and state requirements which purport to protect investors.
Moreover, any business opportunity acquired may be currently unprofitable or
present other negative factors.
We may lose valuable business opportunities because we have no revenue and may
not be able to compete with other firms for such business opportunities.
The search for potentially profitable business opportunities is intensely
competitive. We have considerable cash on hand and will be able to continue as a
going concern for twelve months; however, since we currently have no operating
revenue we expect to be at a disadvantage when competing with many firms that
have substantially greater financial and management resources and capabilities
than Yellowave. These competitive conditions will exist in any industry in which
Yellowave may become interested.
We may sell control of Yellowave to an outside investor and current management
may be replaced. In addition, your percentage ownership of Yellowave may be
greatly reduced by such a transaction and you will have less voting control
over Yellowave.
We may consider an acquisition in which Yellowave would issue as consideration
for the business opportunity to be acquired an amount of our authorized but
unissued common stock that would, upon issuance, represent the great majority
of Yellowave voting power and equity. The result of such an acquisition would
be that the acquired company's stockholders and management would control
Yellowave, and our management could be replaced by persons unknown at this
time. Such a merger would result in a greatly reduced percentage of ownership
of Yellowave by our current shareholders. In addition, our major shareholders
could sell control blocks of stock at a premium price to the acquired
company's stockholders.
We were suspended from trading on the American Stock Exchange.
Failure to develop or maintain an active trading market could negatively
effect the price of our shares. Currently, our shares are suspended from
trading from the American Stock Exchange. We are in the process of de-listing
our shares from AMEX; however, we intend to have our shares listed on the NASD
Over the Counter Bulletin Board.
The loss of the services of our chief executive officer, could prevent us from
forming strategic alliances to acquire a successful business.
We are dependent on the continued employment and performance of our executive
officer, Richard Arons and our Chief Operating Officer, Laura Ballegeer. The
loss of either officer or their incapacity to perform their duties, would have
a materially negative effect upon our activities to form strategic alliances
and the prospect of acquiring a business.
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Governmental regulation.
There is the possibility that a business that we may acquire in the future
could be subject to governmental regulations, including environmental and
taxation matters, which regulations could have a materially adverse effect on
us and our stockholders.
Item 2. Description of Property.
Our principal executive offices are located in approximately 2,560 square feet
of office space located at 11777 San Vincente Boulevard, Los Angeles
California under a lease expiring in September 2002. Our monthly rent is
approximately $6,450. Our previous executive offices in New York are
sub-leased to another company for a monthly rent of approximately $9,000 under
a lease expiring in February 2002. We are currently responsible for an
additional $2,000 per month.
Item 3. Legal Proceedings.
On January 22,1998 Carolyn Ryan instituted an action venued in the Eighth
Judicial District Court, Clark Couny, Nevada against Marvin Tripp and Cutco
Industries, Inc. , our predecessor, seeking approximately $90,000 in damages.
The plaintiff alleges damages were sustained when the defendants made
misrepresentations of material facts relied upon by plaintiff in purchasing
the business. Legal counsel for the Company believes that plaintiff's claims
have little or no merit as against the Company.
On March 27, 2000, three former franchise holders of Cutco Industries
instituted an action before the American Arbitration Association, New York
Regional office against Cutco Industries, Inc., our predecessor and us seeking
revocation of contracts; asking for damages in a sum not less than $439,576,
for breaching their duties and obligations as a franchisor and selling all of
our owned stores.
On August 21, 2000, we announced that we had obtained a temporary restraining
order in the U.S. District Court for the Central District of California and
commenced an action against Newtech Broadwidth Ltd ("Newtech"), Myriam
Abitbol, Propser Abitbol, Jacques Ben Ezra and Benayahou Shemesh
(collectively, the "Defendants"). The Court granted the temporary restraining
order based upon allegations that Defendants made misrepresentations and
engaged in fraud in order to induce us to enter into a Share Purchase
Agreement. Under the terms of the Agreement, Newtech agreed to sell to us all
of the issued and outstanding common stock of Newtech in consideration of
certain shares of our common stock. The Agreement also provided for the
satisfaction of certain conditions by the Defendants. It is our allegation
that these conditions were not met. The civil action is also based on the
Defendants' alleged fraudulent conduct in connection with the Agreement. We
are currently seeking monetary damages as well as rescission of the Agreement.
In our complaint, we asserted five claims for relief:
o breach of contract;
o fraud;
o rescission of the Agreement;
o conversion; and
o injunctive relief.
On September 25, 2000 the United States Federal District Court ordered a
preliminary injunction issued against the defendants barring them from
exercising any management or control over us. On October 10, 2000 the District
Court amended its previous Order ordering us to post a bond in the amount of
$1,5000,000. Our counsel advises us that there is the likelihood that we will
prevail in this action. On August 23, 2000, the trading in our shares was
suspended by the American Stock Exchange ("the Exchange") pending a review by
the Exchange of the facts surrounding the Agreement and this litigation. For a
more detailed description of this pending litigation please see our Form 8-K,
which is incorporated by reference and filed with the Securities and Exchange
Commission on September 26, 2000. (File No. 000-05223).
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Item 4. Submission of Matters to a Vote of Security Holders.
On June 7, 2000 three resolutions were adopted by consent of the majority
shareholders of the Company., acting pursuant to the General Corporation Law
of the State of Nevada. Pursuant to the resolutions the Company:
(i) authorized the re-incorporation of the Company under the laws of the State
of Nevada;
(ii) approved the Company's 1999 Stock Incentive Plan; and
(iii) approved the sale of the Company's hair care salon assets to Regis
Corporation.
The board of directors solicited proxies in connection with the adoption of
these resolutions and proxies were requested from our Stockholders.
Item 5. Market for Common Equity and Related Stockholders Matters.
Market Information
From March 31, 1998 through July 28, 2000, our common stock traded on
the Over the Counter Bulletin Board; thereafter, our common stock traded for a
brief period of time on the American Stock Exchange until August 23, 2000. On
August 23, 2000, the trading in our shares was suspended by the American Stock
Exchange. There is currently no public market for our securities. It is
anticipated that we will attempt to cause our common stock to be listed or
admitted to quotation on the NASD Over the Counter Bulletin Board or, if it
then meets the financial and other requirements thereof, on the Nasdaq
SmallCap Market, National Market System, American Stock Exchange or regional
or national exchange. The following table sets forth, on a per share basis,
for the periods shown the high and low prices of the Common Stock as reported
on the Over the Counter Bulletin Board up to the 4th quarter ended, June 30,
2000.
Fiscal Year 2000 High Low
1st Quarter 3.00 .50
2nd Quarter 3.38 1.21
3rd Quarter 14.00 1.33
4th Quarter 15.00 2.81
Holders.
As of June 30, 2000, we had 218 holders of record not including owners whose
holdings are in single accounts of clearing houses or broker nominees.
Dividends.
We have not paid any cash dividends with respect to its common stock and do
not anticipate paying any cash dividends in the near future.
Sales of Unregistered Securities..
In October 1999, we sold 300,000 shares of our common stock at a price of
$1.833 and 1.75, respectively, per share to two investors and received gross
proceeds of $536,500.
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The offers were exempt from state and federal registration pursuant to Rule
506 of Regulation D, and Section 4(2) of the Securities Act.
Item 6. Management's Discussion and Analysis of Operations.
This Statement contains forward-looking statements. The words "anticipated,"
"believe," "expect," "plan," "intend," "seek," "estimate," "project," "will,"
"could," "may" and similar expressions are intended to identify
forward-looking statements. These statements include, among others,
information regarding future operations, future capital expenditures and
future net cash flow. Such statements reflect our current views with respect
to future events and financial performance and involve risks and
uncertainties, including, without limitation, general economic and business
conditions, changes in foreign, political, social and economic conditions,
regulatory initiatives and compliance with governmental regulations, the
ability to achieve further market penetration and additional customers, and
various other matters, many of which are beyond our control, including,
without limitation, the risks described under the caption "Business." Should
one or more of these risks or uncertainties occur, or should underlying
assumptions prove to be incorrect, actual results may vary materially and
adversely from those anticipated, believed, estimated, or otherwise indicated.
consequently, all of the forward-looking statements made in this Registration
Statement are qualified by these cautionary statements and there can be no
assurance of the actual results or developments.
Overview.
In February 1999, we sold 30 retail hair salons (75% of company-owned units)
to Regis Corporation ("Regis"). We also sold three retail stores and abandoned
nine retail stores during fiscal 1999 As of June 30, 1999, we did not own any
retail stores and we were strictly a franchising operation. In March 2000, we
agreed to sell the hair salon franchise assets to Regis . This transaction
effectively discontinued our hair salon activities.
We are currently seeking, investigating, and ultimately acquiring an interest
in a business with long-term growth potential in the high technology area. We
currently have no commitment or arrangement to participate in a business and
cannot now predict what type of business it may enter into or acquire. It is
emphasized that the business objectives discussed herein are extremely general
and are not intended to be restrictive on the discretion of our management.
Management believes that there are perceived benefits to being a reporting
company with a class of publicly-traded securities. These are commonly thought
to include:
o the ability to use registered securities to make acquisition of assets or
businesses;
o increased visibility in the financial community;
o the facilitation of borrowing from financial institutions;
o improved trading efficiency;
o shareholder liquidity;
o greater ease in subsequently raising capital;
o compensation of key employees through options stock;
o enhanced corporate image; and
o a presence in the United States capital market.
The analysis of new business opportunities will be undertaken by, or under the
supervision of our officers or directors, who are not professional business
analysts. Management does not have the capacity to conduct as extensive an
investigation of a target business as might be undertaken by a venture capital
fund or similar institution. As a result, management may elect to merge with a
target business, which has one or more undiscovered shortcomings and may, if
given the choice to select among target businesses, fail to enter into an
agreement with the most investment-worthy target business.
No assurances can be given that we will be able to enter into a business
combination, as to the terms of a business combination, or as to the nature of
the target business.
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Selection of a Business.
We anticipate that businesses for possible acquisition will be referred by
various sources, including its officers and directors, professional advisors,
securities broker-dealers, venture capitalists, members of the financial
community, and others who may present unsolicited proposals. We will seek
businesses from all known sources, but will rely principally on personal
contacts of our officers and directors and their affiliates, as well as
indirect associations between them and other business and professional people.
While it is not presently anticipated that we will engage unaffiliated
professional firms specializing in business acquisitions or reorganizations,
such firms may be retained if management deems it in our best interest.
Compensation to a finder or business acquisition firm may take various forms,
including one-time cash payments, payments based on a percentage of revenues
or product sales volume, payments involving issuance of securities (including
ours ), or any combination of these or other compensation arrangements. We
shall not restrict our search to any particular business, industry, or
geographical location, and management reserves the right to evaluate and enter
into any type of business in any location. The analysis of new businesses will
be undertaken by or under the supervision of officers and directors.
It is possible that we may propose to acquire a business in the development
stage. A business is in the development stage if it is devoting substantially
all of its efforts to establishing a new business, and either planned
principal operations have not commenced or planned principal operations have
commenced but there has been not significant revenue there from. Under Rule
419 the Company must acquire a business or assets for which the fair value of
the business represents at least 80% of the Offering proceeds, including funds
received or to be received from the exercise of warrants, less certain
underwriting expenses. Accordingly, we have the ability to acquire a business
in the development stage may be limited to the extent we cannot locate such
businesses with fair value high enough to satisfy the requirements of Rule
419.
We shall be subject to requirements of Rule 419 and certain reporting
requirements under the Exchange Act and will, therefore, be required to
furnish certain information about significant acquisitions, including audited
financial statements for the company(s) acquired, covering one, two, or three
years, depending on the relative size of the acquisition. Consequently,
acquisition prospects that do not have or are unable to obtain the required
audited statements which meet the requirements of Rule 419 and the Exchange
Act will not be appropriate for acquisition.
The decision to participate in a specific business may be based on
management's analysis of the quality of the other firm's management and
personnel, the anticipated acceptability of new products or marketing
concepts, the merit of technological changes, and other factors which are
difficult, if not impossible, to analyze through any objective criteria. It is
anticipated that the results of operations of a specific firm may not
necessarily be indicative of the potential for the future because of the
requirement to substantially shift marketing approaches, expand significantly,
change product emphasis, change or substantially augment management, and other
factors.
Acquisition of Business.
In implementing a structure for a particular business acquisition, we may
become a party to a merger, consolidation, or other reorganization with
another corporation or entity; joint venture; license; purchase and sale of
assets; or purchase and sale of stock, the exact nature of which cannot now be
predicted. The majority of our directors may, as part of the terms of the
acquisition transaction, resign and be replaced by new directors without vote
of our shareholders.
In connection with our acquisition of a business, our present shareholders,
including officers and directors, may, as a negotiated element of the
acquisition, sell a portion or all of our common stock held by them at a
significant premium over their original investment in us. As a result of such
sales, affiliates of the entity participating in the business reorganization
with us would acquire a higher percentage of equity ownership in us.
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It is anticipated that any securities issued in any such reorganization would
be issued in reliance on exemptions from registration under applicable federal
and state securities laws. In some circumstances, however, as a negotiated
element of the transaction, we may agree to register such securities either at
the time the transaction is consummated, under certain conditions, or at
specified times thereafter. The issuance of substantial additional securities
and their potential sale into any trading market, which may develop in our
securities, may have a depressive effect on such market.
We may be required to either seek additional debt or equity financing or
obtain funding from third parties, in exchange for which we would probably be
required to give up a portion of our interest in any acquired product. There
is no assurance that we will be able either to obtain additional financing or
interest third parties in providing funding for the further development,
marketing, and manufacturing of any products acquired.
We will participate in a business only after the negotiation and execution of
appropriate written agreements. Although the terms of such agreements cannot
be predicted, generally, such agreements will require 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 such closing, will outline the
manner of bearing costs if the transaction is not closed, will set forth
remedies on default, and will include miscellaneous other terms. It should be
expected that one of the conditions will be compliance with Rule 419, and
reconfirmation by investors representing at least 80% of the gross proceeds of
the offering.
It is anticipated that the investigation of specific businesses and the
negotiation, drafting, and execution of relevant agreements, disclosure
documents, and other instruments will require substantial management time and
attention and substantial costs for accountants, attorneys, and others. If a
decision is made not to participate in a specific business, the costs
theretofore incurred in the related investigation would not be recoverable.
Furthermore, even if an agreement is reached for the participation in a
specific business, the failure to consummate that transaction may result in
the loss to us of the related costs incurred which could materially adversely
affect subsequent attempts to locate and participate in additional businesses.
Operation of Business After an Acquisition.
Our operation following an acquisition of a business will be dependent on the
nature of the business and the interest acquired. We are unable to predict
whether we will be in control of the business or whether present management
will be in control of us following an acquisition. It may be expected that the
business will present various risks to investors. The specific risks of a
given business cannot be predicted at the present time.
Leverage.
We may be able to participate in a business involving the use of leverage.
Leveraging a transaction involves the acquisition of a business through
incurring indebtedness for a portion of the purchase price of that business,
which is secured by the assets of the business acquired.
One method by which leverage may be used is that we would locate an operating
business available for sale and arrange for the financing necessary to
purchase such business. Acquisition of a business in this fashion would enable
us to participate in a larger venture that its limited funds would permit, or
use less of our funds to acquire a business and thereby commit our remaining
funds to the operations of the business acquired. Leveraging a transaction
would involve significant risks due to the fact that the borrowing involved in
a leveraged transaction will ordinarily be secured by the combined assets of
us and the business to be acquired. If the combined enterprises are not able
to generate sufficient revenues to make payments on the debt incurred to
acquire the business, the lender would be able to exercise the remedies
provided by law or by contract and foreclose on substantially all of our
assets. Consequently, our participation in a leveraged transaction may
significantly increase the risk of loss to us.
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We cannot predict whether it will be able to locate any such business. As a
general matter it may be expected that we will have few, if any, opportunities
to examine businesses where leveraging would be appropriate.
Even if we are able to locate a business where leveraging techniques may be
used, there is no assurance that financing for the acquisition will be
available or, if available, on terms acceptable to us. Lenders from which we
may obtain funds for purposes of a leveraged buy-out may impose restrictions
of the future borrowing, dividend, and operating policies. It is not possible
at this time to predict the restrictions, if any, which lenders may impose or
the impact on us.
Results of Operations
Year Ended June 30, 2000
versus year Ended June 30, 1999
Total revenues of $6,213,116 in 1999 decreased to $898,000 in fiscal
2000, due to the Companies decision to discontinue its hair salon operations
and no company-owned sales in fiscal 2000.
Direct costs of revenues of $4,453,000 in 1999 decreased to $201,500
in 2000 and the 1999 gross profit contribution of $1,760,116 decreased 60% to
$696,500 in fiscal 2000 because of the Companies decision to discontinue all
hair salon activities.
Total selling general and administrative expenses of $1,912,674 in
1999 decreased to $1,425,870 in fiscal 2000. Such decrease resulted from cost
savings program instituted by management which was offset by additional costs
of $275,000 for the disposal of discontinued operations.
The Company discontinued its hair salon business in March 2000 with
the sale of its franchising operations for $3.6 million. Such sale resulted in
a gain on disposition of discontinued franchise assets of $2.9 million as
compared to the disposal of company-owned stores in fiscal 1999 for a $754,000
gain.
The loss from continuing operations decreased 12% in fiscal 2000 to
$452,171. Such decrease was due to greater investment income and lower
personnel costs in fiscal 2000 as compared to fiscal 1999. The operating
income from discontinued operations was $825,000 in fiscal 1999 vs. $148,000
in 2000 is due to the partial year operation of company-owned stores and full
year franchising operations during the fiscal year ended June 30, 1999.
The overall result of the above operations is an increase in net
income from $775,000 to $1,504,000 in fiscal 2000 and an increase in
fully-diluted earnings per share from $.28 to $.49 ($.67 in fiscal 2000
discontinued operations).
Liquidity and Capital Resources
The Company's assets increased from $3.1 million to $4.8 million.
This $1.7 million increase results principally from the investment of $3.3
million deposit received in March 2000 for the sale of franchising operations
and $536,000 sale of common stock, offset by a $1,385,000 loan made in August
1999 to a related party.
The Company's obligations increased by $750,000 in fiscal 2000 and it
repurchased approximately $1 million of outstanding common stock for
retirement purposes. As of June 30, 2000, working capital was $3.8 million
(4.73 ratio) as compared to $3 million (10.74 ratio) as of June 30, 1999.
In October 2000, the Company was required to post a $1.5 million bond
in connection with the "Newtech" litigation. Such bond will be represented by
a certificate of deposit acquired by the company and liquidity will be
significantly reduced.
The Company's management anticipates that available cash resources
will be sufficient to operate the company in the next twelve months. It also
anticipates a merger or acquisition of an operating business entity during
fiscal 2001.
11
<PAGE>
Year Ended June 30, 1999
versus year Ended June 30, 1998
Results of Operations
In fiscal 1999, revenues from Company-owned salon operations,
discontinued in March 2000, decreased as compared to the prior year. The
decrease in revenues was mainly attributable to the sale, closure or
abandonment of all Company-owned stores during fiscal 1999 for a net gain of
$753,756. As of June 30, 1998, there were 40 Company-owned salons. During
fiscal 1999, the Company-owned stores contributed a $129,000 operating loss.
Royalties and service fees decreased by 19% in fiscal 1999, as
compared to fiscal 1998. This decrease is due to a decline in the number of
franchised hair salons. The number of franchised hair salons has been steadily
decreasing for several years (191 at June 30, 1998 and 160 at June 30, 1999)
from non-renewal of franchise agreements, as well as lease terminations in
franchised salons. The Company granted its final franchise in 1998. These
operations were fully discontinued in March 2000.
In fiscal 1999, total selling, general and administrative expenses
decreased by 22%, or $477,000, from $2,170,000 in fiscal 1998. This decrease
was mainly due to lower lease occupancy and payroll costs.
Other income increased from $123,000 is fiscal 1998 to $217,000 in
fiscal 1999. The increase resulted from contractual payments due from certain
licensees and increased investment income.
Liquidity and Capital Resources
Cash and cash equivalents were $1,528,000 at June 30, 1999 as
compared to $754,000 at June 30, 1998. In addition, the Company had marketable
securities of $845,000 at June 30, 1999, as compared to $153,000 at June 1998.
In fiscal 1999, the primary source of the Company's liquidity and capital
resources were provided by operating activities of $253,000, as compared to
$5O,OOO in fiscal 1998.
The Company had a current ratio of 10.74 at June 30, 1999, as
compared to 2.59 at June 30, 1998. Subsequent to June 30, 1999, the Company
sold its marketable securities and made a $1,385,000 loan at 8% to Shera
Corp., a related party. Such loan is now collateralized by a certificate of
deposit.
12
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDIARIES
YEARS ENDED JUNE 30, 1999 AND 2000
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT AUDITOR
<PAGE>
REPORT OF INDEPENDENT AUDITOR
Board of Directors
Yellowave Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Yellowave
Corporation and Subsidiaries as of June 30, 1999 and June 30, 2000 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each year then ended. 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 audits 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 consolidated financial position of Yellowave
Corporation and Subsidiaries as of June 30, 1999 and June 30, 2000 and the
consolidated results of operations and cash flows for each year then ended, in
conformity with generally accepted accounting principles.
Jay J. Shapiro, CPA
a professional corporation
Encino, California
September 19, 2000
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 AND 2000
ASSETS
1999 2000
---- ----
Current assets:
Cash and cash equivalents $ 1,528,108 $ 1,752,047
Marketable securities 844,903 1,192,600
Notes receivable - Regis corporation 109,859 300,000
Notes and accounts receivable 1,535,000
Assets of discontinued operations 665,002
------------ ------------
Total current assets 3,147,872 4,779,647
Property:
Furniture, fixtures and equipment 0 21,990
Less: accumulated depreciation 0 (5,000)
------------ ------------
0 16,990
Other assets:
Deposits 0 6,790
------------ ------------
$ 3,147,872 $ 4,803,427
============ ============
(Continued)
See notes to consolidated financial statements
F-3
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - (CONTINUED)
JUNE 30, 1999 AND 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 2000
---- ----
Current Liabilities:
Accounts payable and accrued expenses $ 233,123 $ 173,403
Income taxes payable 31,558 800,000
------------ ------------
Total current liabilities 264,681 973,403
------------ ------------
Deposits payable 35,867
Total liabilities 264,681 1,009,270
Commitments and contingencies (Notes 4,5,6,8,& 10)
Stockholders' equity:
Common stock, $.03 par value; authorized
50,000,000 shares, issued and outstanding
5,850,618 and 2,564,486 shares in 1999 and
2000, respectively 195,021 85,400
Additional paid-in capital 4,275,725 310,224
Retained earnings 1,894,037 3,398,533
------------ ------------
6,364,783 3,794,157
------------ ------------
Less common stock held in treasury, at cost,
3,309,243 shares (3,481,592) 0
------------ ------------
Total stockholders' equity 2,883,191 3,794,157
------------ ------------
$ 3,147,872 $ 4,803,427
============ ============
See notes to consolidated financial statements
F-4
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31
CONSOLIDATED STATEMENTS OF OPERATIONS
1999 2000
----------------------------
1999 2000
---- ----
Revenues:
Investment income $ 121,530 $ 134,700
Miscellaneous income 95,182 46,650
------------ ------------
216,712 181,350
Costs and expenses:
Selling, general and administrative expenses (978,007) (887,521)
------------ ------------
Loss before income taxes - Continuing Operations (761,295) (706,171)
------------ ------------
Income tax benefit 244,000 254,000
------------ ------------
Loss - Continuing Operations ($517,295) ($452,171)
Income from Discontinued Operations including
gain on disposition of $753,756 and $2,858,052 and
less income tax provisions of $286,308 and
$1,050,000 in 1999 and 2000, respectively 1,292,362 1,956,667
------------ ------------
Net Income $ 775,067 $ 1,504,496
============= ============
Basic net (loss) per common share -
Continuing Operations $ (0.21) $ (0.19)
============= ============
Basic net income per common share -
Discontinued Operations $ 0.53 $ 0.81
============= ============
$ 0.32 $ 0.62
============= ============
Diluted net (loss) per share -
Continuing Operations $ (0.21) $ (0.15)
============= ============
Diluted net income per common share -
Discontinued Operations $ 0.49 $ 0.64
============= ============
$ 0.28 $ 0.49
============= ============
See notes to consolidated financial statements
F-5
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER EQUITY
YEAR ENDED JUNE 30, 1999 AND 2000
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
----------------- Paid-in Retained --------------
Shares Amount Capital Earnings Shares Amount Total
----- ------ ------- -------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1998 5,651,118 188,371 4,185,250 1,118,970 3,309,243 (3,481,592) 2,010,999
Options exercised 199,500 6,650 90,475 97,125
Net Income 775,067 775,067
----------- ----------- ------------ ------------ ---------- ------------ -----------
Balance at
June 30, 1999 5,850,618 $ 195,021 $ 4,275,725 $1,894,037 3,309,243 ($3,481,592) $ 2,883,191
=========== =========== ============ =========== =========== ============ ============
Purchase of shares
by Company 276,889 (1,130,030) (1,130,030)
Retirement of shares (3,586,132) (118,621) (4,493,001) (3,586,132) 4,611,622 0
Issuance of new shares 300,000 9,000 527,500 536,500
Net Income 1,504,496 1,504,496
----------- ----------- ------------ ----------- ---------- ------------ -----------
Balance at
June 30, 2000 2,564,486 $ 85,400 $ 310,224 $3,398,533 0 0 $ 3,794,157
=========== =========== ============ =========== =========== ============ ============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
JUNE 30, 1999 AND 2000
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 775,067 $ 1,504,495
------------- -------------
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Depreciation and amortization 0 5,000
Changes in operating assets and liabilities, net of discontinued operations:
Gain on disposal of discontinued assets (753,756) (2,858,052)
Notes and accounts receivable (340,141)
Deposits (6,790)
Accounts payable and accrued expenses (130,100) (59,720)
Accrued and withheld taxes, other than income taxes (64,956) 0
Income taxes payable 6,485 768,442
Deposits payable 0 35,867
Assets of discontinued operations 420,446 243,028
------------- -------------
(521,881) (2,212,366)
------------- -------------
Net cash provided (used) by operating activities 253,186 (707,871)
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (2,474) (21,990)
Purchase of marketable securities (691,527) (1,198,600)
Proceeds from sale of discontinued operations 1,125,000 3,300,000
Loan made - note receivable from related party 0 (1,385,000)
Sale of marketable securities 0 830,930
------------- -------------
Net cash provided by investment activities $ 430,999 $ 1,525,340
============= =============
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
JUNE 30, 1999 AND 2000
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Cash flows from financing activities:
Principal payments on loans (6,860) 0
Exercise of stock options 97,125 0
Purchase of common stock 0 (1,130,030)
Sale of common stock 0 536,500
----------- ------------
Net cash used in financing activities 90,265 (593,530)
----------- ------------
Net increase in cash and cash equivalents 774,450 223,939
Cash and cash equivalents, beginning of year 753,658 1,528,108
----------- ------------
Cash and cash equivalents, end of year $1,528,108 $ 1,752,047
=========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest 0 0
----------- ------------
Income taxes $11,200 $62,000
----------- ------------
Non-cash investment and financing activities:
Notes and accounts receivable received in connection
with disposition of assets $ 153,000 $ 300,000
=========== ============
</TABLE>
See notes to consolidated financial statements
F-8
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDIAIRES
NOTES TO CONSLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Yellowave Corporation and three inactive subsidiaries (the "Company")
were primarily engaged in the operation and franchising of hair care
salons. As more fully described in Note 2, during the years ended
June 30, 1999 and 2000, the Company-owned or retail store operations
were sold, closed, or abandoned and all remaining hair salon
operations including franchising were discontinued as March 31, 2000.
During fiscal 2000, the Company sought investment opportunities in
high technology industries. The Company does not anticipate that any
business operation will develop unless, and until, it acquires or
merges with an operating company.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Yellowave Corporation and its subsidiaries, all of which
are wholly-owned. All significant intercompany balances and
transactions have been eliminated.
INVESTMENTS IN MARKETABLE SECURITIES
Investments in marketable securities, which are classified as
"trading", are reported at fair market value, at June 30, 1999 and
2000:
1999 2000
---- -----
U.S. Treasury Notes $397,529 $ 0
Mutual Funds 0 445,600
Common Stocks 447,374 0
Debt Securities 747,000
-------- ----------
$884,903 $1,192,600
======== ===========
As of June 30, 1999, fair market value approximated cost. An
unrealized loss of $6,000 was established as of June 30, 2000.
STOCK SPLIT
The Company has effectively split the stock 3 for 1 as of June 30,
2000. All share amounts included in financial statement have been so
restated.
F-9
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T):
PROPERTY
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over their estimated useful lives (generally 5 years
on a straight-line basis).
REVENUES
During fiscal 1999, income form sales of franchises is recognized when
the Company has substantially fulfilled its related obligations under
the franchise agreement. Until such time, fees are deferred, net of
related direct cost. Royalties from franchisees are reported as revenue
as the fees are earned and become receivable from the franchisee.
INCOMES TAXES
For Fiscal 1999, deferred income taxes are recognized for temporary
differences between financial statements and income tax bases of assets
and liabilities, net operating loss carryforwards and tax credit
carryforwards, for which income tax expenses or benefits are expected to
be realized in future years. A valuation allowance has been established
to reduce such deferred tax assets as it is more likely than not that
such assets will not be realized. For fiscal 1999 and 2000, a $154,000
and $244,000 tax benefit was allocated to the loss from continuing
operations. There were no deferred taxes in fiscal 2000.
EARNINGS PER SHARE
For the year ended June 30, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128. "Earnings Per Share"
which replaces the presentation of primary earnings per share ("EPS")
and fully diluted EPS with a presentation of basic EPS and diluted EPS.
Basic EPS excludes common stock equivalents and is computed by dividing
net income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period (2,430,000
for 1999 and 2,409,000 shares for 2000.) Diluted EPS reflects the
potential dilution that could occur if common stock equivalents such as
stock options were exercised. The effect of stock options on the
calculation of earnings per common share resulted in 2,613,000 and
3,039,000 weighted shares for 1999 and for 2000, respectively.
F-10
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDIARIES
NOTES CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T):
STOCK-BASED COMPENSATION PLANS
The Company maintains two stock option plans, as more full described in
Note 6 to the financial statements, accounted for using the "intrinsic
value" method pursuant to the provisions of Accounting Principles Board
Opinion No. 25. "Accounting for Stock Issued to Employees." The Company
has adopted the disclosure provisions of SFAS No. 123, "Accounting for
Stock-based Compensation."
STATEMENT OF CASH FLOWS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
BUSINESS CONCENTRATIONS AND FINANCIAL INSTRUMENTS
Financial instruments which subject the Company to concentration of credit
risk consisted primarily of accounts and notes receivable relating to the
Company's franchising operations. The Company's principal financial
instruments now consist of investments in marketable securities, and
accounts and notes receivable. The Company believes that the carrying
amount of such instruments approximates fair value.
USE OF ESTIMATES AND OTHER
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reports amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" and SFAS No. 133/137
"Accounting for Derivative Instruments and Hedging Activities". The
Company operates within one business segment and no source of Other
Comprehensive Income or hedging activities. These statements have no
material impact on our consolidated financial position, results of
operations of cash flows.
F-11
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 2000
2. DISCONTINUED OPERATIONS:
In February 1999, the Company sold 30 retail hair salons (75% of
company-owned units) to Regis Corporation ("Regis") for $1.6 million cash
and recognized a net gain of approximately $863,000. In addition, the
Company sold three retail stores and abandoned nine retail stores during
fiscal 1999. resulting in a net loss of approximately $109,244. As of June
30, 1999, the Company did not own any retail stores and was strictly a
franchising operation. Such retail stores with approximate net book value
of $1.2 million were sold, closed or abandoned during 1999.
In March 2000, the Company agreed to sell the hair salon franchise assets
(approximately $742,000) to Regis for $3.6 million. The final payment of
$300,000 was received in July 2000 and the Company realized $2.9 million
gain as of June 30, 2000. This transaction effectively discontinued the
Company's hair salon activities and resulted in disposal of all operating
assets.
As of June 30, 1999, assets of discontinued operations were $665,002
consisting principally of notes receivable from franchisees (see Note 3)
and fixed assets in the New York office.
3. NOTES AND ACCOUNT RECEIVABLE:
Notes and accounts receivable consist of the following:
1999 2000
----- ----
Notes receivable (see Note 9) $ 205,894 $1,385,000
Accounts receivable 242,429 150,000
----------- -----------
Less allowance for doubtful accounts
and notes (125,000)
----------- -----------
$ 323,323 1,535,000
----------- -----------
Notes receivable, non-current, net 504,329
Less allowance for doubtful notes (246,095)
----------- -----------
Notes receivable, non-current, net $ 258,234 0
----------- -----------
$ 581,557 $1,535,000
=========== ===========
4. STOCK OPTIONS:
The Company has incentive stock option plans, as amended, which is
referred to as the 1990 Plan. The exercise price of options granted under
the plan shall not be at less than fair value at date of grant. Subject to
termination of employment, options granted expire up to ten years from
date of grant, and are non-transferable other than on death. Options
become exercisable at the rate of twenty-five percent per year, commencing
with the date of grant. Options for person who attain fifteen years of
service with the Company are fully exercisable on the date granted.
F-12
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 2000
4. STOCK OPTIONS (CON'T):
The following summarizes the changes in options outstanding under the
Company's 1990 and 1999 stock options plans for the two years ended June
30, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Number Option Exercise
Of Shares Price Price
--------------- --- ---------------- ----------------
<S> <C> <C> <C>
Outstanding at June 30, 1998 324,000 $0.41 - 1.00 $0.56
Exercised (199,500) $0.41 - 1.00 $0.57
Canceled (124,500) $0.41 - 1.00 $0.57
--------- ------------
Outstanding at June 30, 1999 0
Granted 180,000 $1.05 $1.05
--------- -------------
Outstanding at June 30, 2000 180,000 $1.05 $1.05
=========
--------------
Option exercisable at June 30, 2000(Note 10) 180,000 $1.05 $1.05
==========
Options exercisable at June 30, 1999 0 $0.41 - 1.00 $0.57
========== =============
</TABLE>
The Company has a incentive stock option and non-qualified stock option
plan referred to as the 1999 Plan. The plan provides for "cash-less"
exercise by use of options previously granted. The 1999 Plan consists of
1,200,000 shares and its fiscal 2000 activities are as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Option Exercise
Of Shares Price Price
--------- ------- ---------
<S> <C> <C> <C>
Granted 1,095,000 $0.95 - 5.50 $1.30
---------- ------------ -----
Outstanding at June 30, 2000 1,095,000 $0.95 - 5.50 $1.30
========== ============ ======
Options exercisable at June 30, 2000(Note 10) 1,095,000 $0.95 - 5.50 $1.30
========== ============
</TABLE>
On July 18, 2000, all outstanding options issued by both 1990 and 1999
Plans were exercised and 1,060,631 shares of common stock was issued as
part of the Newtech transaction (Note 10). Also, 75,000 options from the
1999 Plan were cancelled in September 2000.
F-13
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 2000
4. STOCK OPTIONS (CON'T):
The Company has 150,000 special options at $2.66 outstanding at June 30,
2000 as a result of a purchase of 150,000 shares at $1.83 per share in
October 1999.
If the Company had elected to recognize compensation expense based upon
the fair value at the grant dates for awards to officers and employees
under these plan consistent with the methodology prescribed by SFAS No.
123, the Company's reported net (loss) would be reduced to the pro forma
amount indicated below for the years ended June 30, 1999 and 2000:
1999 2000
---- ----
Net loss from continuing operations:
As reported ($517,295) ($452,171)
Pro forma ($512,000) ($950,000)
Diluted loss per share per continuing
operations:
As reported ($0.21) ($0.15)
Pro forma ($0.21) ($0.22)
These pro forma amounts may not be representative of future disclosures
since the estimated fair values of stock options would be amortized to
expense over the vesting period. The fair value of these options was
estimated at the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions for the fiscal years
ended June 30, 1999 and 2000: expected volatility of 30%; risk-free
interest rate of 5.7%: and expected term of 5 years for both years, and no
dividend yield.
The have no vesting restrictions and are fully transferable. In addition,
option valuation models require the use of highly subjective assumptions
including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different form
those of traded options, and because changes in the subjective assumptions
can materially affect the Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options which
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
F-14
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 2000
5. INCOME TAXES:
The Company and its subsidiaries file a consolidated Federal income tax
return and separate state and local returns. Income tax expense for the
years ended June 30, 1999 was composed of various state and local taxes.
For fiscal 2000, the Company owes California franchise taxes and has fully
utilized its federal net operating loss carryforward. The reasons for the
difference between the total tax provision and the amount computed by
applying the statutory Federal income tax rate to the income before income
taxes are as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------
1999 2000
---- ----
<S> <C> <C>
Expected tax provision $ 263,500 $ 821,400
State and local income taxes, net of
Federal income tax benefit 32,000 136,000
Decrease in valuation allowance (110,000) 0
Utilization of net operating loss (125,192) (161,400)
Other (18,000) 0
---------- ----------
$ 42,308 $ 796,000
========== ==========
Federal $ 0 $ 587,000
State and Local 42,308 209,000
---------- ----------
Total Expense $ 42,308 $ 796,000
========== ==========
</TABLE>
Deferred tax assets as of June 30, 1999, which related to the assets of
discontinued operations, was comprised of the following:
1999
-----
Gross deferred tax assets
Bad debt reserves $126,000
Net operating loss carryforward 312,000
Tax credits 52,000
Other 0
---------
490,000
Valuation allowance (490,000)
----------
Net deferred tax assets 0
=========
F-15
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 2000
6. COMMITMENTS:
The approximate net minimum rental payments under non-cancelable operating
leases related to corporate and franchise operations having an initial or
remaining term of more than one year as of June 30, 1999 was $780,000.
After the March 2000 disposal of franchising operations, the Company
commitments were substantially reduced and of June 30, 2000, the
approximate minimum net rentals are:
Year
----
2001 106,400
2002 108,000
2003 19,200
-------
Total $233,600
========
The following is a schedule of approximate rental expense (net of sublease
rental income) for the years ended June 30, 1999 and 2000:
1999 2000
---- ----
Minimum rentals $ 941,000 $ 40,702
Percentage rentals, real estate taxes $ 90,000 $ 0
----------- ---------
$ 1,031,000 $ 40,702
=========== =========
7. OTHER INCOME:
Miscellaneous income for fiscal 1999 includes $45,000 in closing credit
adjustments.
8. LITIGATION:
The Company is involved in various lawsuits (see Note 10) and there are
claims pending against the Company which management considers incidental
to normal operations. The legal responsibility and financial impact with
respect to such lawsuits and claims, including a $50,000 bond presently
reflected in accounts receivable, cannot presently be determined.
Management, after review, including consultation with counsel, considers
that any ultimate liability which would be likely to arise from these
lawsuits and claims would not materially affect the financial position or
results of operations of the Company. However, there can be no assurance
that these matters can be disposed of without such a material affect on
the Company.
F-16
<PAGE>
YELLOWAVE CORPORATION AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 2000
9. SHERA CORPORATION AND RELATED PARTY TRANSACTIONS:
a) In August 1999, the two controlling stockholders ("Former
Stockholders") sold their 35% interest (900,000 common shares) in
the Company to Shera Corp. ("Shera"), a Nevada Corporation for $1.2
million in cash. In addition, These Former Stockholders were given
termination payments of $100,000 and consulting agreements at
$48,000 each. General and administrative costs in fiscal 2000
include $264,000 of the payments.
The President of Shera became the Company's new Chairman and Chief
Executive Officer under a three-year employment agreement with
annual compensation of $192,000. In addition, he received 180,000
options under the 1990 Plan at $3.00 exercise price and 300,000
options at $1.05 exercise price under the 1999 Plan (See Note 4).
b) In August 1999, the Company entered into a loan agreement with Shera
which provides for a loan of $1,385,000 for a period of one year.
The loan was extended to February 15, 2001. The loan bears monthly
interest at the rate of 9.50% per annum with principal due at
maturity. The loan is collateralized with a certificate of deposit
($1.4 million) owned by Shera. The President of Shera resigned as
Chief Executive Officer of the Company.
c) In September 2000, the new Chief Executive Officer of the Company
received $262,500 in exchange for the cancellation of 150,000 shares
of common stock, 75,000 special options and 75,000 options granted
under the 1999 Plan.
10. NEWTECH TRANSACTIONS:
a) The Company entered into an agreement on July 5, 2000 with Newtech
Broadwidth Ltd. ("Newtech") to acquire Newtech's holdings of four
Israeli companies and their respective technologies. As part of the
agreement, the Company issued 7,425,000 common shares to Newtech for
all the outstanding stock of Newtech. Also pursuant to the
agreement, Company management received a consulting fee of $375,000
and was allowed immediate vesting and exercise of all outstanding
options (1,060,631 shares) as of July 5, 2000.
b) The Company did not received the required consideration or any
shares in Newtech and has initiated litigation in U.S. District
Court alleging breach of contract, fraud, rescission, conversion and
injunctive relief. Counsel has advised the Company that there is a
substantial likelihood that it will prevail on the merits in this
matter. The Company will post a $1.5 million bond by investment in a
certificate of deposit.
c) If the above transactions took place as of June 30, 2000, the
diluted net income per share would be reduced from $.49 to $.26 per
share.
F-17
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On June 10, 1998, our Board of Directors approved the selection of Nussbaum
Yates & Wolpow, P.C. ("NY&W") as its new independent auditors. On the same
date, NY&W accepted such appointment. The Company had not previously consulted
with NY&W regarding any accounting matters.
On September 14, 1999 in connection with our planned relocation of its offices
to California, we terminated NY&W as its independent auditors. NY&W had
reported on our financial statements for the year ended June 30, 1998. NY&W's
report did not contain an adverse opinion or a disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope or accounting
principles. There were no disagreements with NY&W on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of NY&W
would have caused NY&W to make reference to the subject matter of such
disagreements in connection with its report for the year ended June 30, 1998
or any subsequent interim period prior to its termination on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreement, if not resolved to the satisfaction of
NY&W would have caused NY&W to make reference to the matter to the matter in
their reports. The Company believes, and it has been advised by NY&W that it
concurs in such belief, that in connection with incomplete audits of the
Company's financial statements for each of the two fiscal years ended June 30,
1998 and 1999, and subsequent thereto, the Company and NY&W. On September 14,
1999, our Board of Directors approved the selection of Jay J. Shapiro, CPA, a
Professional Corporation ("Shapiro") as its independent auditor. On that date,
Shapiro accepted such appointment.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(A) of the Exchange Act.
Ron Oren., an officer of the Company, did not timely file a Form 3 in
September of 1999. Laura Ballegeer, an officer of the Company, did not timely
file a Form 3 in September of 1999. Shera Corporation, an affiliate of the
corporation did not timely file a Form 3 in September of 1999. The Oren Family
Trust, an affiliate of the Company did not timely file a Form 3 in September
of 1999. Simchia Oren, an affiliate of the Company did not file a Form 3 in
September of 1999.
The failure of the reporting persons to report was inadvertent and has been
corrected on a Form 3 filed on October 7, 2000.
13
<PAGE>
Directors and Officers
The following table sets forth certain information concerning each of our
directors and officers as of June 30, 2000:
Name Age Position
Richard Arons 52 President, CEO and a Director
Laura Ballegeer 30 Secretary, COO and a Director
Ron Oren 42 Director
Eileen Hastings 44 Director
Nir Natan 46 Director
Kelmon Winograd 62 Director
Richard Arons.
Richard Arons has been our President, CEO and a Director since [Biography]
discuss experience within the last 5 years.]
Laura Ballegeer.
Laura Ballegeer has been the Secretary and a Director of ours since August 2,
1999. For more than 5 years, she has been a private investor engaged in real
estate transactions for her own account. Ms. Ballegeer has also managed
investments for a limited number of private investors.
Ron Oren.
Ron Oren was our former President, CEO and Chairman. He resigned July, 2000 as
an officer but remains a director.
Richard Arons
Has been our President since November 1, 1999. He is a graduate of Wharton.
Mr. Arons is an attorney and enterpreneur engaging in oil and gas
investments.
Eileen Hastings
Has a degree in Philosophy from UCLA as well as a degree in Art.
Nir Natan
For more than ten years Mr. Natan has used his expertise in high technology
and telecommunication to write for Israel's leading business newspaper,
Globes, as a west coast correspondence.
Kelmon Winograd
Is a successful business investor in real estate as well as investing and
dealing in art, coins, stamps and manages his own portfolio investment in
equities.
14
<PAGE>
Item 10. Executive Compensation.
The following table shows information regarding compensation for services
rendered in all capacities to us during the fiscal years ended June 30, 1998,
1999 and 2000, to the three highest paid persons who are, or at some point
during the fiscal year ended June 30, 2000 were, officers or directors of ours
(being the only such persons whose aggregate annual compensation exceeds
$100,000).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Other Annual Restricted Securities
Name and Principal Stock Underlying LTIP All Other
Year Salary(1) Bonus Compensation Awards Options/SARs Payouts Compensation
---- --------- ----- ------------ ------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Arons 2000 $60,000 -0- -0- -0- 75,000 -0-
CEO
Ron Oren
Director(4)(5) 2000 $192,000 -0- -0- -0- 780,000 -0-
Don Vonliebermann,
President(2)(4) 2000 $17,696 -0- 148,000
1999 $202,000 -0- -0- -0- -0- -0-
1998 $202,000 -0- -0- -0- -0- -0-
Laura Ballegeer(4) 2000 $90,000 -0- -0- -0- 420,000 -0-
Marvin W. Marcus
2000 $17,696 -0 - 148,000
(2) (3) (4) 1999 $202,000 -0- -0- -0- -0- -0-
1998 $202,000 -0- -0- -0- -0- -0-
</TABLE>
(1) Excludes perquisites and other personal benefits that in the aggregate do
not exceed 10% of each of such individual's total annual salary and
bonus.
(2) Messrs. Marcus and VonLiebermann resigned as an officers, directors and
employee of us effective August 2, 1999. Each of them was paid his annual
salary at the rates set forth above through such date, as well as
termination of employment payments of $100,000 each and payments in
connection with consulting agreements of $48,,000 each.
(3) Does not include $16,200, $32,400 and $32,400 paid to the accounting firm
of Gettry, Marcus, Stern & Lehrer, CPA, P.C. (formerly known as Gettry,
Marcus & Co.), in which Mr. Marcus is a principal, for services rendered
by the firm during the fiscal years ended June 30, 2000, 1999 and 1998,
respectively, in the preparation of federal, state and local tax returns
and performance of other accounting services for us and our subsidiaries,
inclusive of disbursements.
(4) We provided and maintained automobiles for use by Marvin W. Marcus and
Don vonLiebermann in connection with our business during each of fiscal
years 1998 and 1999. The aggregate annual cost to us for these
automobiles in each year was approximately $47,000. In the fiscal year
2000 Laura Ballegeer and Ron Oren were provided with an allowance
of $18,000 for automobiles. To the extent these automobiles
were used for other than our business, the cost of rental and
maintenance may be considered compensation to the above-named
individuals. No value for personal use of automobiles by such individuals
has been included in the aggregate remuneration table set forth above.
(5) From August 2,1999 until November 1,1999 Mr .Oren was President, Chief
Executive Officer and Chairman. On November 1, 1999 he resigned as
President and Chief Executive Officer but remained as a director.
15
<PAGE>
Stock Option Plans.
We have two stock option plans for our officers, directors and employees. One
plan was adopted on November 15, 1990 (the "1990 Plan")and the other plan was
adopted by the Board of Directors on August 2, 1999 (the "1999 Plan"). On
August 2, 1999, options to purchase 180,000 shares of common stock under the
1990 Plan and 300,000 shares under the 1999 Plan were granted to Ron Oren and
options to purchase 150,000 shares under the 1999 Plan were grated to Laura
Ballegeer. The exercise price of these options was $1.00 per share. Adoption
of the 1999 Plan must be approved by the shareholders on June 7, 2000.
Options granted under the Plans to employees may be either incentive stock
options or non-qualified stock options at the discretion of the Board. Options
granted under the Plans to non-employee directors must be non-qualified stock
options. Non-qualified stock options are not intended to qualify for incentive
stock option plan treatment.
The Plans give sole discretion to the Board to grant options to purchase our
common stock at not less than the market value of the shares on the date of
grant. Options granted under the Plans must expire no later than ten years
(five years, if the grantee is a director or holder of 10% of the voting stock
of the Company), after the date of grant.
Options/ SAR Grants in Last Fiscal Year. The following table sets
forth certain information with respect to option or SAR grants during the
fiscal year ended June 30, 2000 to the named executive officers.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Percent of Total
Number of Securities Options Granted to
Underlying Options Employees in Fiscal Exercise or Base Price
Name Granted Year ($.SH) Expiration Date
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ron Oren 780,000 61% $1.30 December 31, 2005
--------------------------------------------------------------------------------------------------------------------
Laura Ballegeer 420,000 33% $1.30 December 31, 2005
--------------------------------------------------------------------------------------------------------------------
Richard Arons 75,000 6% $1.30 December 31, 2005
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Aggregated Options/SAR Exercises Year-end Table. During the fiscal year ended
June 30, 2000, none of the named executive officers exercised any options/SARs
issued by Yellowave. The following table sets forth information regarding the
stock options held as of June 30, 2000 by the named executive officers.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year-End Options at Fiscal Year End
--------------------------------------------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ron Oren 780,000 0 0 0
--------------------------------------------------------------------------------------------------------------------
Laura Ballegeer 420,000
--------------------------------------------------------------------------------------------------------------------
Richard Arons 75,000
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Directors' Compensation
Directors are reimbursed for their reasonable out-of-pocket expenses incurred
in connection with performance of their duties. A fee of $300 per meeting is
paid to non-employee members of the Board for attendance in person at Board
meetings.
16
<PAGE>
Item 11. Security Ownership of Certain Ownership of Certain Beneficial Owners
and Management.
The following table sets forth as of September 20, 2000, the number and
percentage of outstanding shares of common stock beneficially owned by each
person who beneficially owns:
o more than 5% of the outstanding shares of our common stock;
o each of our officers and directors; and
o all of our officers and directors as a group.
Except as otherwise noted, the persons named in this table, based upon
information provided by these persons, have sole voting and investment power
with respect to all shares of common stock owned by them. Unless otherwise
indicated, the address of each beneficial owner is c/o Yellowave Corporation
11777 San Vicente Blvd., Suite 505, Los Angeles, California, 90049. The
following percentages is based on a total of 11,050,117 shares of the
Registrant's Common Stock, $.03 par value on September 20, 2000, 7,425,000 of
which we dispute the issuance of to a certain entity. For a more detailed
discussion see our Form 8K filed with the Securities and Exchange Commission
dated September 26, 2000, which is incorporated by reference to this Form
10KSB.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
------------------- ---------------------- --------
SOLE VOTING AND SHARED VOTING AND
INVESTMENT POWER INVESTMENT POWER
---------------- -----------------
<S> <C> <C> <C>
Richard Arons 21,000 21,000 .1%
11777 San Vicente Blvd.
Los Angeles, CA 90049
Ron Oren(2) 711,789 1,851,453 16.75%
11777 San Vicente Blvd.
Los Angeles, CA 90049
Oren Family Trust(2) - 0 - 790,822 7.15%
P.O. Box 16001
Beverly Hills, CA 90209
Shera Corp. (2) 790,822 -0- 7.15%
9461 Charleville Blvd.
Suite 546
Beverly Hills, CA 90212
Simcha Oren(3) - 0 - 790,822 7.15%
9641 Charleville Blvd.
Suite 546
Beverly Hills, CA 90212
Laura Ballegeer (4) 348,842 1,851,453 16.75%
11777 San Vicente Blvd.
Los Angeles, CA 90049
All officers and
directors as a group
(3 persons) 1,081,631 1,872,453 16.94%
Newtech Broadwith Ltd. 7,425,000(5) -0- 67.19
</TABLE>
17
<PAGE>
(1) Each named person or group is deemed to be the beneficial owner of
securities. Laura Ballegeer has disclaimed any beneficial ownership
of Shera Corps' 790,000 shares.
(2) Ron Oren is the Trustee of the Oren Family Trust which is the sole
shareholder of Shera Corp. He is also the husband of Laura Ballegeer.
(3) Simcha Oren is the mother of Ron Oren and is the sole beneficiary of the
Oren Family Trust.
(4) Laura Ballegeer is the wife of Ron Oren
(5) The ownership of these shares by Newtech Broadwith Ltd. Is disputed by
the Company. For a more detailed discussion see our Form 8K filed with
the Securities and Exchange Commission dated September 26, 2000, which is
incorporated by reference to this Form 10KSB.
Item 12. Certain Relationships and Related Transactions and Subsequent Events.
We paid during $ 16,200 during the fiscal year 2000 to Gettry, Marcus, Stern &
Lehrer, CPA, P.C., a New York City accounting firm in which Marvin Marcus, a
former shareholder, director and executive officer of ours is a partner.
On August 11, 1999, we made a loan to Shera Corp., an affiliate of ours in the
face amount of $1,385,000, due in one year with interest at eight percent (8%)
per annum. The loan is secured by 700,000 shares of stock of the Company
pursuant to an extension with us the interest was renewed and changed to 9.5%
and secured by a $1.4 million CD.
Shera Corp. purchased 900,822 shares of our common stock at a purchase price
of $1.33 from our former President and Chairman respectively, Don vonlieberman
and Marvin Marcus. Shera Corp. also obtained an option to purchase 75,000
shares from Don vonleiberman, a former officer of ours, which option was
exercised in March, 2000.
On July 2000, Shera Corp. also executed an agreement with the Naftali Family
Trust to sell 180,000 shares of our common stock at a purchase price of $8.00
per share.
We believe that all of our transactions set forth above with persons
affiliated with us were made on terms no less favorable to us than could have
been obtained from unaffiliated third parties.
Transactions with Management.
Employment Agreements
Each of Messrs. Marcus and vonLiebermann had entered into Employment
Agreements with us dated October 15, 1998, and amended April 1, 1999. Those
Agreements provided for annual salaries of $184,500 for Mr. Marcus and
$210,000 for Mr. vonLiebermann. The Employment Agreements were terminated as
of August 2, 1999, in connection with the sale of Mr. Marcus and Mr.
vonLeibermann of shares of our common stock owned or controlled by them to
Shera Corp. Upon termination of employment they were each paid a termination
fee of $100,000 and consulting fees of $48,000.
18
<PAGE>
Effective August 2, 1999, we entered into Employment Agreements with Ron Oren
and Laura Ballegeer, providing for annual salaries to them of $192,000 and
$77,000, respectively. The Employment Agreements also contain customary
provisions relating to payment or reimbursement of expenses, disability,
non-competition, confidentially and termination.
In August 1999, the two controlling stockholders, Marvin W. Marcus and Don
vonLeibermann sold their 35% interest (900,000 common shares) in us to Shera
Corp., a Nevada Corporation for $1.2 million in cash. In addition, the former
Stockholders were given termination payments of $100,000 and consulting
agreements at $48,000 each. General and administrative costs in fiscal 2000
include $276,000 of the payments.
The President of Shera, Ron Oren became our new Chairman and Chief Executive
Officer under a three-year employment agreement with annual compensation of
$192,000. In addition, he received 180,000 options under the 1990 Plan at a
$1.05 exercise price, 300,000 options at a $1.05 exercise price, and 300,000
options at a $1.56 exercise price under the 1999 Plan.
In August 1999, we entered into a loan agreement with Shera which provides for
a loan of $1,385,000 for a period of one year. The loan was extended to
February 15, 2001. The loan bears monthly interest at the rate of 9.50% per
annum with principal due at maturity. The loan is collateralized with a
certificate of deposit ($1.4 million) owned by Shera.
In September 2000, our Chief Executive Officer received $262,500 in exchange
for the cancellation of 150,000 shares of common stock 75,000 special options
and 75,000 options previously granted under our 1999 Plan.
Item 13. EXHIBITS AND REPORTS ON FORM 8K
a) Financial Statements:
Independent Auditor's Reports F-1, 2
Balance Sheets F-3-4
Statements of Operations F-5
Statements of Stockholders' Equity (Deficit) F-6
Statements of Cash Flows F-7-8
Notes to Financial Statements F-9-17
b) Current Reports on Form 8K
On September 26, 2000, the Company filed a report on Form 8-K relating to: (a)
litigation instituted by the Company against Newtech Broadwidth, Ltd., Myriam
Abitbol, Prosper Abitbol, Jacques Ben Exra and Benyahou Shemesh; and (b) AMEX
suspending trading in the Company's stock pending a review of AMEX of the
facts surrounding the litigation.
On September 22, 1999, the Company filed a report on Form 8-K relating to the
Company terminating Nussbaum, Yates & Wolpon, P.C. as the independent auditors
for the Company.
On June 7, 2000 the Company filed a report on Form 8-K relating to sale of
substantially all of its assets to a subsidiary of Regis Corporation.
19
<PAGE>
c) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 The Registrant's Restated Certificate of Incorporation
is incorporated by reference to Exhibit 3(a) to the
Registrant's Registration Statement on Form S-1 filed
on October 25, 1968 (File No. 2-30569).
3.2 A Certificate of Amendment to the Registrant's
Certificate of Incorporation, dated October 26, 1981,
is incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for its 1982
fiscal year.
3.3 A Certificate of Amendment to the Registrant's Certificate of
Incorporation, dated December 6, 1983, is incorporated by
reference to Exhibit 3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1983.
3.4 A Certificate of Amendment to the Registrant's Certificate of
Incorporation, dated December 21, 1987 is incorporated by
reference to Exhibit 3.1.2 to the Registrant's Annual Report
on Form 10-K for its 1988 fiscal year.
3.5 A Certificate of Change to the Registrant's Certificate of
Incorporation, dated November 10, 1993, is incorporated by
reference to Exhibit 3(i) to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended March 31, 1994.
3.6 Certificate of Merger of CutCo Holdings Corp. into the
Registrant dated June 11, 1987 is incorporated by
reference to Exhibit 3.1.3 to the Registrant's Annual
Report on Form 10-K for its 1987 fiscal year.
3.7 Agreement and Plan of Merger dated December 30, 1986
by and among the Registrant, CutCo Holdings Corp. and
CutCo Merger Corp. is incorporated by reference to
Exhibit 3.1.4 to the Registrant's Annual Report on
Form 10-K for its 1987 fiscal year.
3.8 The Registrant's By-laws, as amended to date are
incorporated by reference to Exhibit
3.1.3 to the Registrant's Annual Report on
Form 10-K for its 1990 fiscal year.
3.9* Articles of Incorporation and Articles of Merger of
Yellowave Corp. of New York into Yellowave Corp. of
Nevada.
3.10* Certificate of Amendment changing name of our predecessor,
Cutco Industries, Inc. into Yellowave Corporation.
10.1 The Registrant's form of franchise agreement for use
in the United States is incorporated by reference to
Exhibit 10.1 to the Registrant's Annual Report on Form
10-KSB for the 1995 fiscal year.
10.2.1 The Registrant's 1987 Stock Option Plan is incorporated by
reference to Exhibit B to the Registrant's Proxy Statement
dated October 23, 1987, and mailed to shareholders on or
about that date in connection with the Registrant's annual
meeting of shareholders held on December 3, 1987.
10.2.2 The Registrant's 1990 Stock Option Plan is incorporated by
reference to Exhibit A to the Registrant's Proxy Statement
dated December 3, 1990, and mailed to shareholders on or
about that date in connection with the Registrant's annual
meeting of shareholders held on January 11, 1991.
20
<PAGE>
10.4 Employment Agreement dated as of April 24, 1991
between the Registrant and Marvin W. Marcus, as
amended by letter dated May 15, 1992 is incorporated
by reference to Exhibit 10.9 to the Registrant's
Annual Report on Form 10-K for the 1992 fiscal year.
10.4.1 Employment Agreement dated as of April 24, 1991 between the
Registrant and Don vonLiebermann, as amended by letter dated
May 15, 1992 is incorporated by reference to Exhibit 10.9.1
to the Registrant's Annual Report on Form 10-K for the 1992
fiscal year.
10.4.2 Employment Agreement dated as of April 24, 1991, between the
Registrant and Michael Kramer, as amended by letter dated
May 15, 1992, is incorporated by reference to Exhibit 10.9.2
to the Registrant's Annual Report on Form 10-K for the 1992
fiscal year.
10.5 Letter agreement dated June 22, 1994, amending
Employment Agreement dated as of April 24, 1991
between the Registrant and Marvin W. Marcus, is
incorporated by reference to Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K for the 1994
fiscal year.
10.5.1 Letter agreement dated June 22, 1994, amending Employment
Agreement dated as of April 24, 1991 between the Registrant
and Don vonLiebermann, is incorporated by reference to
Exhibit 10.6.1 to the Registrant's Annual Report on Form
10-K for the 1994 fiscal year.
10.5.2 Letter Agreement dated June 22, 1994, amending Employment
Agreement as of April 24, 1991 between the Registrant and
Michael Kramer, is incorporated by reference to Exhibit
10.6.2 to the Registrant's Annual Report on Form 10-KSB for
the 1994 fiscal year.
10.7.3 Agreement for Purchase and Sale of Assets dated as of
February 12, 1999, between Regis Corporation and Registrant
is incorporated by reference to Exhibit 7.1 to the
Registrant's Current Report on Form 8-K for an Event of
March 3, 1999.
21
<PAGE>
10.8.7* Agreement for Purchase and Sale of Assets among Cuto
Acquisition Corp., Cutco Salon Inc. and Yellowave Corporation.
10.8.8* Repurchase Agreement dated May 10, 2000 between Registrant and
Richard Arons.
27* Financial Data Schedule
* Filed herewith with this Form 10KSB
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has caused this Form 10KSB Amendment
No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 22, 2000 YELLOWAVE CORPORATION.
BY: /s/ Laura Ballegeer
---------------------------
Laura Ballegeer
COO & Secretary
(duly authorized
representative
of registrant)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed by the following persons on behalf of
the Registrant and in the capacities, and on the dates, indicated:
SIGNATURES TITLES DATE
/s/ Richard Arons President & CEO November 22, 2000
--------------------
Richard Arons
/s/ Laura Ballegeer Secretary & COO November 22, 2000
--------------------
Laura Ballegeer
/s/ Ron Oren Director November 22, 2000
--------------------
Ron Oren
/s/ Eileen Hastings Director November 22, 2000
--------------------
Eileen Hastings
/s/ Nir Natan Director November 22, 2000
--------------------
Nir Natan
/s/ Kelmon Winogard Director November 22, 2000
--------------------
Kelmon Winogard
