SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Fiscal year ended June 30, 2000
THE VIOLA GROUP INC.
(Exact name of registrant as specified in its charter)
New York
State of Incorporation
Commission File # 0-12493
13-3134389
(IRS Employer I.D. Number)
1653 Haight Avenue, Bronx, New York 10461-1503.
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone number with area code: (718) 409-6599.
Securities filed pursuant to Section 12(g) of the Act
Common, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (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.
Yes _X_. NO____.
As of July 31, 2000, the aggregate market value of The Viola Group,
Inc. common stock held by non-affiliates of the registrant was $3,000,000.
As of July 31,2000, The Viola Group, Inc. has 2,000,000 shares of
common stock outstanding.
PART I
ITEM 1. BUSINESS
The Company was organized under the laws of the State of New York
on October 14, 1982. The Company went public, through a registered
offering, (Regulation A), in 1984. It is the registrant's intention
to eithermerge with an operating company (with the acquisition /merger
candidate's management in operating and stock ownership control)
or to effect an LBO, using its tax loss carry forward and status as a
public entity as two of its selling points to consummate either
transaction. The company operated initially and is again operating,
as a Corporate Financial Consulting Company for leveraged
acquisition transactions, to achieve either of the above-mentioned
options. Should the LBO "Principal" option be undertaken, third party
cash flow loans and subordinated debt financing will be necessary.
Should the registrant undertake a leveraged buyout, it will do so as
a controlling principal for its own account.
History
Historically, two leveraged acquisition principal transactions were
successfully consummated. In 1984 the assets of Michel's Designs,
Inc. (a contract printer of wall coverings) were purchased for cash
and notes. During 1986, the assets of Heko Art Company, Inc. (a
designer - manufacturer of custom wall covering lines) were
acquired, also for cash and notes. Both acquisitions were
consolidated to eliminate redundant functions and expenses.
During a strategic change in operating philosophy by The Viola
Group, Inc., from contract printer to developer - manufacturer of its
own designer wall covering lines, the cancellation of a national wall
coverings line by a significant contract client caused significant
financial problems for the company including contract defaults
with suppliers, and a cash flow squeeze. All supply inventories,
direct labor and fixed and variable production costs for the line
were already completed, (expensed), prior to its cancellation;
causing the depletion of cash and other liquid short - term
assets and the eventual termination of business, for lack of
these assets. The registrant had no additional capital
alternatives available because of losses and illiquidity of its
common stock.
Plan of Operation
The company is being reorganized for the purposes of providing
a vehicle with "public" status for merger with a privately held
business, including divestitures from a public or private company.
Management believes that subsequent to a successful merger
or LBO acquisition, favorable attributes of the registrant can
facilitate the listing of the company's common stock in the
NASDAQ Market System. Among the favorable attributes
available, (should an LBO be effected by the registrant, as the
surviving principal in the transaction with similar control
shareholders), is a net operating loss carry forward of
$375,000, (to shelter initial acquisition earnings) and a goodly
number of shareholders (approx. 200), towards the NASDAQ
listing requirements. While management will take every
precaution, through the careful structuring of any transaction,
not to trigger unfavorable tax consequences, (i.e. the loss of
part or all of the NOL tax shelter), it can not guarantee that its
efforts will be successful.
Should a LBO be undertaken with the registrant as the
survivor, (option 1 in the Business Section), present
management and directors, in conjunction with potential
participating executives, will review all transactions. Existing
and potential management will work to structure a transaction
where non equity (preferred and debt), and quasi - equity,
(warrants with exercise or call provisions not less than one
year) are used so that existing shareholders and the
participating partners will not have their equity percentages
diluted.
In the case of a reverse merger alternative, where an
investment meeting the registrant's general merger criteria
for a reverse merger is found, (versus the management
buyout, registrant as survivor alternative), if the two
alternatives produce candidates at the same time, the
transaction that produces a rollup of significant size and
the highest market capitalization, will be consummated.
This should produce less dilution, (less shares issued at
higher prices), more earnings per share and an even higher
stock price, long term.
The company's business objective will be to seek long-term
growth potential in a business combination venture rather
than to seek immediate, short - term earnings. The company
will not restrict its search to any specific business,
industry or geographical location. The company does not
currently engage in any business activities, which provide
any cash flow.
ITEM 2. PROPERTIES:
The registrant, is a restructured, public company with
venture capital objectives: namely to seek a business
combination (s) in the form of established businesses
with excellent prospects that can be purchased, (as
divestitures from public or private businesses), or
through a reverse merger where the operating company
is the surviving entity. The former is our primary
objective.
The registrant does not presently own any such
businesses described in paragraph one, nor is it currently
negotiating with any such business(es) for their purchase
or merger.
The review process of those potential acquisitions is as
follow: personal inspection of the candidate, by current
management and any other specific industry consultant
that is necessary, the examination of certified financial
statements, (including balance sheets, income statements
and statements of cash flow and stockholders equity),
and the joint production, (with existing management), of
pro - forma sales and earnings estimates to justify the
purchase price and to obtain an estimate of market
capitalization at the post-merger phase of the transaction.
The company anticipates that the selection and
consummation of a business combination will be complex
and carry various risks with it. There can be no
guarantees as to its success.
<PAGE>2
ITEM 3. LEGAL PROCEEDINGS:
In accordance with the "Provision 103 of Reg. S-K;
there are no material pending legal proceedings to
which the registrant is a part.
Federal Taxes: There are currently approximately $9,000
in Internal Revenue Claims against the registrant,
that are being negotiated.
States Taxes: The registrant has paid all open state
tax liabilities in order to be reinstated as a Company
in "good standing" within the state of its
incorporation, New York State.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
PREEMPTIVE, CONVERSION AND REDEMPTIVE RIGHTS:
None of the holders of the common stock issued
have any preemptive rights, conversion rights or
redemptive rights.
NON - CUMULATIVE VOTING:
The common stock outstanding is fully paid and
non-assessable.
(a) There are no redemptive or sinking fund provision
or liability to further calls or to assessment by the
registrant on any of the common stock issued and
outstanding.
(b) The rights of the holders of the common stock
may not be modified other wise than by a vote of a
majority or more of the common stock outstanding,
voting as a class.
(c) There is no restriction on the repurchase or
redemption of shares by registrant.
(d) No other class of stock or other security or the
provisions of any contract or other document materially
limit or qualify the rights evidenced by the securities
to be registered.
No other securities, (other than the $.01 par value
common stock) are being Registered with the filing
of this document.
PART II
Item 5. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED SHAREHOLDERS MATTERS
At the time of this filing, The NASD cleared the common,
$.01 par value stock of the registrant for trading on
the NASDAQ OTC Bulletin Board commencing July 3, 2000.
At the time of this filing, (but subsequent to the close
of the quarter/fiscal year ending June 30, 2000), the
common stock was quoted at a $3.00 bid price.
A special stockholders meeting was held (on June 5, 2000)
during the quarter coinciding with the end of the fiscal
year that ended June 30,2000. All peretinent information
on this meeting was mailed to stockholders and filed with
the SEC in accordance with all rules. All the information
filed with the SEC, on My 5, 2000, is hereby incorporated
herein by reference. In summarization, the meeting was
for,and did approve a recapitalization of the company
for a contemplated acquisition/merger transaction.
In accordance with the '34 Act, the common $.01 par
value shares are the class of security being registered.
Presently there are 2,000,000 of these common
shares issued and outstanding. No common shares
are subject to outstanding options, warrants or
convertible securities.
At the date of this filing, there are 188 holders of record
of the Common $.01 par value shares. Also, at the date of
this filing,a reorganization is currently contemplated
that would alter the percentage of present holdings of
the registrant's common equity owned by shareholders,
or cause the issuance of other types of securities other
than the common stock. All Documentation on this matter
has previously been filed with the SEC and is
incorporated herein by reference. No dividends have ever
been paid, nor are they likely to be paid in the foreseeable
future, because the company wishes to attempt to build its equity.
RECENT SALES OF UNREGISTERED SECURITIES:
The company has sold no shares of unregistered common
stock since the last SEC filing.
DESCRIPTION OF REGISTRANT'S REGISTERED SECURITIES:
The capital stock to be registered is common, $.01
par value stock, of which two million shares are
authorized and presently outstanding. The
company will take the necessary steps required
to file the Corporate Charter amendment with
New York State to increase the authorized number
of common shares from 2 million to 80 million and
authorize other securities, (preferred stock), in
order to provide securities for proposed public
offering and for a merger, acquisition or compensation
plan.
These shares have right to receive dividends. To
date no dividends have been paid, nor are they
contemplated in the near future. It takes a majority of
shares to elect the board of directors. The common
shares have no liquidation rights.
ITEM 6. SELECTED FINANCIAL DATA
FOR FISCAL YEARS ENDING JUNE 30
2000 1999 1998 1997 1996
Net Sales
0 0 $3.0 0 0
Income (loss)
From Continuing
Operations: 0 0 2.9 0 (8.1)
Loss per Common Share:
0 0 0 0 0
Total Assets:
0 1.1 2.2 1.3 7.3
Long Term Obligations:
0 0 0 0 0
Redeemable Preferred
Stock:
0 0 0 0 0
Cash Dividends per
Share:
0 0 0 0 0
Note:
(1) All figures above are in (000)'s, except for per share figures
(2) The footnotes to the Certified Financial Statements
accompanying this Form 10-K filing are an integral part in
understanding this summary of Selected Financial Data.
Please refer to them.
<PAGE>3
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCES
The company will attempt to raise funds either through
a private placement of common stock to sophisticated
individuals and institutions, or through the creation of a
securities package with the underlying asset(s) and cash
flow supporting the debt service and equity securities
values.
While the higher risks associated with option one
mentioned above may be commensurate with the reward,
they must be stated: risks associated with remaining the
surviving, independent entity are risks of general economic
conditions, rapid technological advancement being made
in some industries and the expected high leverage that
will be associated with a principal transaction in the case
of a reverse merger, the existing equity shareholders
would be greatly diluted. The merger business combination
candidate will be reluctant to give up significant equity in
his business on a merger with a public vehicle that does
not have any cash. In the case of this option, it will only be
contemplated if it creates long -term benefits with a much
stronger and larger entity, eventually, than the registrant
can achieve for stockholders as an independent, surviving
corporation making its own acquisition.
The analysis of business combinations will be a team
effort by the officers, directors and part -time operations
consultants to the registrant. These part -time operations
consultants are high - level executives that have "operated"
companies, (as chief operating officers) in the industry
the proposed acquisition is in. (The registrant presently
retains no such consultants, and such retention will depend
on what industry the leveraged acquisition or reverse
merger candidate is in.) Members of the present
management are business managers as well as business
problem solvers capable of studying businesses in
order to make an informed decision on its appropriateness
as a potential leveraged acquisition or a reverse merger.
The areas to be studied are the company's historic results
in relation to it industry and the assumptions used to
develop the pro - forma financial numbers so that
investors and lenders can determine their respective risks
and returns. In analyzing prospective business
combinations, all interested parties will consider such
matters as working capital and other financial
requirements; history of operation, prospects for the
future; nature of present and expected competition; the
quality and experience of management services which
may be available and the depth of that management;
the perceived public recognition; and other relevant
factors.
<PAGE>4
Officers and directors of the registrant will meet
personally with management and key personnel of
the acquisition interested in the company sponsoring a
management buyout or a reverse merger transaction.
Since the registrant will be subject to Section 13 or
15(d) of the Securities Exchange Act of 1934, it will be
required to furnish certain information about significant
acquisitions, including audited financial statements for
the company acquired, covering one, two or three years
depending upon the relative size of the acquisition.
Consequently, acquisition prospects that do not have
or are unable to obtain the required audited
statements may not be appropriate for acquisition
so long as the reporting requirements of the Exchange
Act are applicable.
POTENTIAL RISKS:
It may be anticipated that any business combination
will present risk:
(a) Lack of Operating History: The registrant has
limited operating history over the last five years.
Even after a business combination, by means of a
reverse merger with a private company, there can
be no assurances that existing operating management
of the surviving private, (now public); entity will be
competent to operate as a public company.
(b) Dependence of Part-time Management: Currently,
this is considered a risk, in as much as the identification,
analysis and negotiation of a business combination,
through a reverse merger, and its structuring and
financing could take a significant amount of time.
(c) Difficulty of Financing Such Operation:
(1) Financing may prove virtually unavailable prior to
an acquisition contract being signed on a potential
business combination merger. However, once an
acquisition contract, (i.e. a Letter Of Intent subject
to financing), is signed and a deal capital structure is
established it becomes a less difficult task to raise
financing for the transaction through conventional
sources that normally finance buyouts or through
private investors, should a reverse merger be
contemplated.
(2) Limited Assets may prevent registrant from
remaining an independent entity. The registrant has
very limited resources and believes it can only succeed in
its stated first objective for growth, (that is, as the
surviving entity), if it gets significant outside financing.
If financing can not be raised to accomplish an acquisition
with the existing shareholders retaining a large
percentage of their present equity participation, it may
be necessary for the company to follow this second,
less favorable stated growth option, a reverse merger
with an operating company that wishes to be public.
(d) Competition: To survive is severe, with a significant
number of better capitalized companies in venture capital
competing for viable businesses whose product lines
have long-term promise. However, the registrant believes
through its current investment banking relationships an
appropriate candidate for buyout or reverse merger can
be found. The registrant would acquire assets and
historic sales, earnings and cash flow that could
positively influence a market for shares of the common
stock.
(e) Voting control by management and shareholders
inability to veto acquisitions. Current management, in
conjunction with operating and financial management
of a potential merger, and board representatives for
the financing sources used to consummate the
merger / acquisition transaction,
<PAGE>5
collectively, will have voting control. Those shareholders,
not included in the above mentioned grouping of insiders,
will not be able to veto any acquisition. They must rely
on the above insider groups to maximize equity value of
the registrant, for all shareholders.
(f) At the time of this writing, there is a public market
for the common stock of the registrant. The current bid
price of the common is $3.00, creating a market cap of $3
Million for the non-affiliated owned shares.
(g) No dividends and none expected: Current management
does not anticipate any dividends. Management is
expected to accumulate any earnings to foster internal
growth objectives and fund potential, additional acquisitions.
The Registrant has complied with and continues to
comply with the filing requirements of a reporting
company. The company is, once again, operating in
its original lines of business: Corporate Financial
Consulting, which includes advisory assignments in
(1) Growth through leveraged acquisitions, and (2) the
use of Venture Capital infusions to fund business plan
expansions.
<PAGE>6
ITEM 8. FINANCIAL STATEMENTS AND SUPPORTING SUPPLEMENTARY DATA:
The financial statements enclosed are filed for a
reactivated company, which had been dormant. The
company has been active for the last five years, and
has in fact been operating in its initial business segment
for the entire year, ending June 30, 2000.
Scrudato & Co.
Certified Public Accountants
7 VaIley View Drive
Califon. New Jersey 07830
(800) 832-8306
The Viola Group, Inc.
1653 Haight Avenue
Bronx, New York 10461-1503
We have audited the accompanying balance sheet of the Viola
Group, Inc. as of June 30, 2000 and 1999 and the related
statements of income, retained deficit and cash flow for years
then ended. These financial statements are the responsibility
of the company's management. Our responsibility is to express
an opinion on these statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
the Viola Group, Inc. as of June 30, 2000 and 1999 and the results of
it's operations and changes in financial position for the years then
ended in conformity with generally accepted accounting principles.
SCRUDATO & CO.
The Viola Group, Inc.
Balance Sheet
June 30, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C>
06/30/00 06/30/99
Assets:
Cash $ 0 $ 1,105
Total Assets $ 0 $ 1,105
Liabilities:
Income Taxes (Note 2) $36,139 $ 6,800
Total Liabilities 36,139 6,800
Stockholders' Deficit:
Common Stock, par value $ .01 per share
authorized 2,000,000 shares, issued and
outstanding 2,000,000 shares 5,000 5,000
Contributed Capital 363,023 363,023
Retained Deficit (403,762) (373,318)
(35,739) (5,295)
Less: Treasury stock, at cost 400 400
Total Stockholders' Deficit (36,139) (5,695)
Total liabilities & stockholders' deficit $ 0 $ 1,105
</TABLE>
The Viola Group, Inc.
Statement of Operations and Retained Deficit
For the three months and years ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
4/1-6/30/00 7/1/99-6/30/00 7/1/98-6/30/99
Sales(net) $0 $3,000 $500
Cost of Sales
Beginning Inventory 0 0 0
Purchases 0 0 0
Wages 0 0 0
Payroll Taxes 0 0 0
Rent 0 0 0
Utilities 0 0 0
Other Direct Costs 0 0 0
Ending Inventory 0 0 0
Total Cost of Sales 0 0 0
Gross Profit 0 3,000 500
General and Administrative
Telephone 875 1,089 921
Travel 0 225 0
Office 401 741 679
Computer Expense 0 1,500 0
Professional Fees 0 0 0
Filing Fees 550 550 0
Other Taxes 1,755 1,755 0
Total General 3,581 5,860 1,600
Other Expenses (Income)
Interest Expense 5,764 5,764 0
Total Other Expenses 5,764 5,764 0
Net Income(Loss) (9,345) (8,624) (1,100)
Retained Deficit, Beginning (372,597) (373,318) (372,218)
Prior Period Adjustment (Note 2) 21,820 21,820 0
Retained Deficit, Ending ($403,762) ($403,762) ($373,318)
Dividends per share $0 $0 $0
Loss per Share $0 $0 $0
</TABLE>
See accompanying accountants' report
The Viola Group, Inc.
Statement of Cash Flow
For the three months and years ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
4/1-6/30/00 7/1/99-6/30/00 7/1/98-6/30/99
Cash Flows from Operating
Activities:
Net Income (Loss) ($9,345) ($8,624) ($1,100)
Adjustments to reconcile
net income to cash
provided by (used in)
operating activities:
Changes in operating assets
and liabilities:
Accounts Receivable 0 0 0
Inventory 0 0 0
Deferred Expenses 0 0 0
Accounts Payable - Tax Liability 7,519 7,519 0
Notes Payable 0 0 0
Net cash provided by
(used in) operating activities
Contributed Capital-payment of
tax liability 7,519 7,519 0
Cash flows from liquidation
of assets 0 0 0
Net increase
(decrease) in cash (1,826) (1,105) (1,100)
Cash, Beginning 1,826 1,105 2,205
Cash, Ending $0 $0 $1,105
</TABLE>
See accompanying accountants' report
The Viola Group, Inc.
Notes to Financial Statements
For the periods ended June 30, 2000 and 1999
Note 1: Summary of Significant Accounting Policies
Summary of the Company's significant accounting
policies is described below.
General Information
The Viola Group, Inc. was organized under the laws
of the state of New York on October 14, 1982. Its initial
line of business was Corporate Financial Consulting
including the creation of turnkey leverage buyouts.
Also through the initial sale of common stock the company
participated in several of its own leveraged buyouts.
Since April 1, 1999 the company has restarted operations
in its initial line of business. The company currently has
a worldwide relationship with Intercontinental Capital
Partners, Inc. to provide Corporate Financial Consulting
and management buyout opportunities to several joint
clients.
Income Taxes
The company shows no tax accrual or deferred income
taxes due to a net operating loss of $ 373,551 as of
July 1, 1999 which can be used to offset future federal
taxable income.
Note 2: Tax Liabilities
As of June 8, 1999 the president of company, Mr. Arthur
Viola has paid off $15,491 of tax liabilities and has elected
to treat these payments as permanent contributions to
the corporation. The balance of $ 6,800 represents
minimum tax payments due to the State of New York for
inactive periods between 1989 and the present.
ITEM 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS'
ACCOUNTING AND FINANCIAL DISCLOSURES:
There are none, nor were there every any, changes
or disagreements with Accountants on Accounting
and Financial Disclosure. The same independent
accountant is being engaged, (and has agreed to be
engaged), as the Principal Accountant as was engaged
to do all past audits of the Registrant's Financial
Statements. There are no Disagreements with the
Accountants on any matter of Accounting Principles
or Practices, or Auditing Scope and Procedure.
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS
The officers and directors are as follows:
Name Age Position
Arthur D. Viola (1)(2) 53 President, CEO,
Nicholas D. Viola 52 CFO, Secretary/Treasurer
And Sole Director
Assistant Secretary
(1) May be deemed "promoters" of the company, as
that term is defined under the Securities act of 1933.
These promoters are the company's only "promoters."
(2) Mr. Arthur D. Viola has been a member of management,
serving in the capacity as president since the company
was organized in 1982.
The New York Corporation Law provides for
indemnification of the officers, directors' employees
and agents by the company. Under Article I IA of the
company's bylaws, the company will indemnify and
hold harmless to the fullest extent authorized by the
New York Corporation Law, any Director, Officer,
Agent or employee of the Company (registrant), against
all expense, liability and loss reasonably incurred or
suffered by such person in connection with the
Company.
Insofar, as indemnification for liabilities arising
under the Securities Act may be permitted to
Directors, Officers or Persons controlling the registrant,
pursuant to the foregoing provisions, the Registrant
has been informed that in the Opinion of the Securities
and Exchange Commission such indemnification is
against the public policy as expressed in The Securities
Act and is therefore, unenforceable.
<PAGE>7
ITEM 11. EXECUTIVE COMPENSATION
No officer or director of the company has will receive
compensation during the company's restructuring phase.
During the restructuring phase, the president will approve
all expenses. No compensation will be approved and paid
prior to sufficient funding to consummate an acquisition,
(business combination), having been raised.
No prerequisites, other personal benefits, interest or
long-term compensation agreements, dividends or
restricted stock or options-SAR grants or any other
executive compensation have been considered; nor
are they in effect.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
No director, executive officer, nominee for election
as a director; any security holder who is known to
the registrant to own of record or beneficially
more than five percent of any class of the
registrant's voting securities or any member of the
immediate family of any of the foregoing persons,
was party to any related transaction.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Since the beginnings of the registrant's last fiscal year,
no transactions, series of transactions, or any currently
proposed transaction to which the registrant or any of
its subsidiaries in the amount exceeding $60,000, ever
took place.
<PAGE>8
ITEM 14. Financial Statements Schedules required by
Item 601 of Sk-229.60 1:
No indentures, contracts, franchises, Plan of Acquisition,
reorganization arrangement, liquidation or succession
plans or other documents exist either in the past five
years or at the time of this filing, that are required
to be filed as an exhibit.
SIGNATURES:
THE VIOLA GROUP, INC.
A New York Corporation.
Dated: July 31, 2000
/s/ ARTHUR D. VIOLA
By:------------------------------------
ARTHUR D. VIOLA
President, CEO; CFO, Chairman, Secretary/Treasurer
And Sole Director.
In accordance with the Exchange Act, this report
to be signed below by the following person(s) on
behalf of the Registrant in the capacities and on
the dates indicated:
Dated: July 31, 2000
/s/ NICHOLAS D. VIOLA
By:------------------------------------
NICHOLAS D. VIOLA
Assistant Secretary
