ANNUAL REPORT FOR SMALL BUSINESS ISSUERS SUBJECT
TO THE 1934 ACT REPORTING REQUIREMENTS
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the year fiscal year ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-14213
GLOBAL VENTURE FUNDING, INC.
(Name of small business issuer in its charter)
Colorado 84-0990371
(State or other jurisdiction of incorporation (IRS Employer Identification
or organization) Number)
628 Las Vegas Blvd. S., Las Vegas, NV 89101
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (702) 233-6638
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
Check if there is no 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 registrant'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. [x]
Issuer's revenues for its most recent fiscal year $-0-.
Aggregate market value of voting Common Stock held by non-affiliates: $ -0-
Common Stock: $.0001 par value - 3,282,513 shares outstanding as of October
25, 1996
PART I
Item 1. Description of Business
General
Global Venture Funding, Inc. was incorporated in Colorado on December 7, 1984
under the name of Venture Funding Corporation. The Company was formed for the
purpose of acquiring or merging with a privately held business. The Company
completed its registered offering on form S-18 on October 17, 1985. The stock
was traded in the OTC market.
On May 8, 1992, a "Certificate of Assumed or Trade Name" was filed with the
Colorado Secretary of State to record the trade name of "Global Venture
Funding, Inc.". Global Venture Funding Inc. (GVFI) is the name under which
the Company transacts its business. On June 18, 1993, the Articles of
Incorporation were amended and the name of the Company was changed to Global
Venture Funding, Inc.
In late 1993, the management of the Company did a feasibility study of the
telephone debit card industry, to determine whether to enter this market. To
enter this market the Company needed to raise a minimum of $100,000 of
working capital. GVFI did not raise the necessary working capital to succeed in
this activity, and after a brief pilot program, discontinued its efforts in
selling telephone debit cards in December of 1994.
Since October of 1993, GVFI has allocated its efforts towards seeking a
viable business venture to acquire and/or develop internally. Based upon the
status of the Company, its lack of operating cash and its working capital
deficit, additional funding will be required in order for the Company to
complete any business ventures whether through an acquisition, merger, or
developed internally. The Company is attempting to establish profitable
operations in the telecommunications industry as noted below.
The Company is in the process of arranging and obtaining private and public
financing for additional equity to provide working capital for current
overhead costs as well as to finance start-up costs of planned tele-
communications opportunities. There is no assurance that the Company will be
successful in obtaining additional equity, that satisfactory financing can be
obtained, or that planned telecommunications operations will be located,
implemented, and succeed.
The Company has continued its efforts in identifying a company in the tele-
communications industry and/or to establish its own activity in the tele-
communications industry. Toward this end, on May 29, 1996, the Company
entered into a License Agreement with Cellular 99, Inc. whereby Cellular 99,
Inc. granted a ten year license for the exclusive right to engage in the
merchandising, marketing, distribution, promotion and renting of cellular
telephones in the State of Illinois and the right to use the trade name Cell
Phone 99. The company expects to secure additional licenses for other states.
The cellular phone services would be sold through retail outlets and it is
estimated that they would rent for 99 cents per day.
On May 7, 1996, the Company entered into a Stock For Stock Acquisition with
AllCell Communications, Inc., ("AllCell") a Georgia corporation, whereby
AllCell exchanged 100% of its stock for 5,500 shares of Series C Preferred
Stock of the Company. The Series C Preferred Stock is convertible at the rate
of 100 shares of common stock for each share of preferred stock. The share-
holder of AllCell, Walt Phillips, was given 500 shares of Series C Preferred
and the remaining 5,000 shares were placed in escrow, to be distributed pursuant
to the Agreement based upon certain performance requirements. Mr. Phillips did
not meet those performance requirements and due to the substantial losses of
AllCell and lack of performance on Mr. Phillips part the shares held in
escrow were cancelled.
The Company is a fully reporting public company and has applied for listing on
the OTC Bulletin Board.
The Company's offices are located at 628 Las Vegas Blvd. South, Las Vegas, NV
89101, Phone 702/233-6638.
Company Strategy
GVFI has chosen to participate in the largest untapped segment of the cellular
market: selling prepaid cellular services to users who have been turned down
due to unsatisfactory credit. Industry statistics indicate that the number
of cellular customers grew by 9.7 million (40% growth) in 1995 to a record
total of 33.8 million and has subsequently grown to 39.6 million according to
results from the Cellular Telecommunications Industry Association's 1996
wireless industry survey. Industry sources estimate that this number
represents only 70% of those wanting to use cellular service. The estimated
30% who were turned down, numbered approximately 17 million. Since the
average US cellular phone bill is $50 per month, these cellular prospects
represent over $10 billion in untapped potential annual sales revenue.
The Company's objective is to establish itself as a leading provider of
prepaid and rental cellular services in major metropolitan areas of the
country. To achieve this objective, the Company's growth strategy is focused
on the following three principal elements: (i) capturing a significant share
of the prepaid cellular market prior to competitors, by utilizing aggressive
marketing; (ii) expand the rental of pagers, cellular equipment and personal
communication devices to short term business and personal users in high
traffic locations and; (iii) seek additional market opportunities based on
the Company's proprietary technology and marketing expertise.
To test market acceptance of prepaid cellular operations, GVFI acquired 100%
of the common stock of AllCell Communications, Inc. (AllCell) in May 1996.
AllCell was an Atlanta, Georgia based startup retailer selling prepaid
cellular time to "credit impaired" individuals turned down by conventional
cellular service retailers.
GVFI used AllCell to test its marketing and retail plan by introducing
prepaid cellular services to Atlanta based customers. AllCell used a
combination of direct retail sales and agents to build up a client base of
approximately 700 retail customers through September 1996. The success of
the marketing results proved to be better than expected. However, the
experience of the management of AllCell proved to be disappointing because
they did not control the expenses resulting from significant sales growth
achieved in a short period of time. Therefore, the management of GVFI decided
to discontinue the Atlanta operations and move to another market and hire
managers with successful experience in high growth retail operations.
The Company is currently undertaking market studies to determine where the
next retail operations could possibly open. Possible locations under
consideration include California, Illinois, Nevada, Texas, Florida and
Pennsylvania. Based on the results of the market study and the receipt of
proceeds from an anticipated Private Placement Offering (described below)
GVFI plans to expand its operations in potentially lucrative markets.
Industry
The cellular communications industry has been rapidly growing during recent
years. As of June 1996, estimates indicate the cellular industry served more
than 39.6 million users within the United States, with industry revenues
aggregating in excess of $16 billion. Usage has nearly doubled since 1992,
and two of every three new telephone numbers have been assigned to cellular
phones since that year. According to industry sources, it is projected that
there will be 58.5 million cellular phone subscribers in the United States by
1999.
Company Products and Services
The Company intends to offer two distinct services: Rental of communication
devices such as pagers and cellular phones, to unique business segments such
as conventioneers, the elderly, and transient or short term business and
personal users. The Company will target its prepaid cellular services to
"credit impaired" individuals or others desiring prepaid services including
teenagers, college students, and military personnel.
The cellular phone services will also be sold through retail outlets and it is
estimated that they would rent for 99 cents per day. GVFI has discovered two
forms of technology needed to service this market niche. One type of
technology is a Self-Decrementing cellular telephone that will control the
amount of air time used by a customer. The use of a Self-Decrementing
telephone allows for the prepayment of minutes, and in return limits
liability to the Company. As the user makes calls, the pre-purchased amount
of time is debited in relation to the type and duration of the call. When
the user depletes the prepaid account time, the service terminates until the
account is replenished. GVFI also has plans to utilize Switch-Based service
that will interact with the cellular carriers Mobile Telephone Switching
Office. Using Switch-Based technology provides the Company greater
flexibility by enabling the activation of any cellular phone. The ability to
utilize Self-Decrementing as well as Switch-Based phones provides the Company
with the opportunity to capture the largest market share possible, while
keeping exposure to a minimum.
Equipment supplied to customers may utilize, but is not limited to, vendors
such as Sprint, Motorola, Nokia, and other top selling brands. The unique
benefit offered to customers is that any legitimate phone brought into the
retail outlet can usually be activated for a prepaid customer. Test market
results indicate that over fifty percent of the Atlanta customers brought in
their own cell phone for activation.
Marketing and Advertising
GVFI plans to promote its products and services using five, time-proven
methods, including regional and national television as well as radio
advertising, and regional print media. The media may include, but is not
limited to the "Penny Saver", "Thrifty Nickel", and other newspapers which
are freely distributed. Other methods may include direct mail, bus stop
shelter advertising, and incentive plans for customer referral by GVFI's
existing customers. The advertising campaigns stress No credit checks, free
voice mail, no long term contracts, no identification required, bankruptcies
OK, and you can bring your own phone.
GVFI plans to actively promote its products and services by direct mail and
advertising in selected publications in the market it serves. GVFI plans to
offer customer appreciation events and other special promotional events, and
also provide a toll-free telephone number that refers prospects to GFVI's
retail store or outlet closest to the caller. Furthermore, to increase its
market penetration, GVFI plans to print selected marketing materials in
Spanish to address the Hispanic customer base in many markets across the
United States. The marketing strategy is aimed at the credit impaired, and
the short term business or personal user for trips, emergencies, events or
everyday needs. Rentals will be offered for daily, weekly or monthly periods.
Agents. In certain markets, the Company intends to offer prepaid services
through agents. Agents are independent contractors who solicit customers
for the Company's prepaid service, and typically will include, but not be
limited to, specialized cellular and paging stores. The Company is planning
to pay a commission to the agent for each customer they activate. The
Company will make residual payments to agents based on the customer s ongoing
service charges and length of usage. The Company is taking steps to align
sales costs with revenues by emphasizing residual payments to agents over up
front commissions and utilizing Company controlled distribution channels such
as direct sales and telemarketing.
Telemarketing. GVFI's telemarketing department anticipates startup operations in
Fiscal 1997. The primary objective of the telemarketers are (1) to generate
rental prospect leads and open new accounts for sales personnel in retail
outlets by calling on companies in targeted geographical areas; and (2) to
call on inactive accounts to review whether they have current or near term
service needs for both rental and prepaid services, and (3) to perform market
research which will enable them to focus and refine their success.
National Corporate Accounts Program. GVFI anticipates implementing a National
Corporate Accounts department in fiscal 1997 at its headquarters in Las Vegas.
This department will be dedicated to marketing corporate customers with
employees who travel extensively and need rental or prepaid phone services.
This department supplements the effort of the sales force whose members may
deal directly with the management of the local facilities of national firms.
National Corporate Account marketers may call on the corporate headquarters
of GVFI's main commercial customers in order to expand existing business
relationships to include additional rental or prepaid units.
Sales Force. GVFI anticipates marketing its products and value-added services
through a regional sales force, consisting of sales managers who oversee the
sales representatives. Operating directly from the local retail locations,
sales managers will call regularly on industrial facilities, construction
sites, corporate prospects and others in their sales territories assisting
customers in planning for their airtime and rental requirements. Members of
GFVI's sales team will earn commissions on all equipment rentals and airtime
sales that they generate.
Proprietary Rights
The Company intends to protect its proprietary information and trade secrets,
through proprietary agreements with its employees, and restricted access to
its facilities by third parties.
Retail Operations
The Company anticipates opening several new retail operations in Illinois in the
next fiscal year. Prior to commencing the Illinois operation, a trial retail
store is being established in Las Vegas by the Company's Licensor, Cellular
99, Inc. It is anticipated that the Illinois stores will be modeled after
the success of the Las Vegas store and the experience gained from the Atlanta
operations. The Las Vegas store is expected to open prior to the end of
calendar 1996. Each retail operation is forecast to break-even after less
than six months of operation and will offer cellular, pager and accessories
for rent for as low as 99 cents per day.
GVFI plans to establish a national retail store support center in Las Vegas in
fiscal 1997. This center's mission is to provide assistance with store locations
setup, hiring, training materials, store operations, and cellular technical
support. The center would have personnel experienced in retail operations,
marketing, and customer support. This center would also coordinate the
regional advertising efforts with local radio and television stations. The
plan is to aggressively promote the opening of each store with radio ads for
prepaid cellular and follow-up with advertising and promotion of rental phone
services. Advertising would be negotiated on a national basis and supplied
to each region as necessary. This technique should help to establish a key
presence of the local retail outlet. Since marketing and advertising plays
an important part in differentiating providers of prepaid and rental cellular
services, much emphasis will be placed in this area and aggressive advertising
at startup and follow-up stages will be targeted until revenue and profit
objectives are attained for each store, region, and territory.
Competition
The cellular services market is highly competitive. The leading service
providers include AT & T, Cellular One, Air Touch, GTE Mobilnet and Excel.
These companies have only recently started to test market the "credit
impaired" cellular niche identified by the Company. However management's
experience with prior rollouts of major retail store chains selling consumer
products should allow it to create unique service products which are highly
differentiated from the competition.
Many of the Company's competitors have longer operating histories and are
substantially larger, better financed and better situated in the market than
the Company.
Historically the cellular services market has been competitive with little
differentiation between products. In addition to price, excellent service,
retail convenience and consumer awareness are important factors which will
help the Company compete for market share. GVFI believes its marketing plan
will help establish a major consumer awareness and retail purchasing
convenience.
Several of the Company's competitors concentrate on specific technologies
like 800 and 900 Mhz cellular, Personal Communication Services, and
Specialized Mobile Radio. GVFI, on the other hand is targeting its initial
efforts at cellular services, on various frequencies, with a long term
strategy to become a retailer of multiple technologies involved with personal
communication services of many modalities including voice and data
transmission. This differentiation offers a "one-stop shop" for consumers
who desire to rent these services for short periods of time without entering
into long-term contracts in a particular location. GVFI is thus not locked
into a single communication service whose hardware may become obsolete in a
short period of time. In fact, the ability to utilize a customer's existing
cellular phone provides a significant advantage over services offered by
cellular phone manufacturers who require the customer purchase the phone from
them.
Cellular Phone Fraud
The Cellular industry continues to be the subject of fraudulent activity.
Cloning, which is one form of such fraud, refers to the use of scanner and
other electronic devices to illegally obtain telephone numbers and electronic
serial numbers sent during cellular transmission. These stolen telephone and
serial number combinations can be programmed into a cellular phone and used
to obtain fraudulent access to cellular networks including the Company's.
The Company as well as the Common Carrier will work on a continuing basis to
reduce the negative impact of fraud on the income statement. The cost of
cellular fraud could have a significant impact on the Company's operating
results in the future.
Future Market Opportunities
The Company will seek to enter additional territories and markets in
situations where it believes that it can gain significant market share based
on its technology or by capitalizing on its sales channels for complimentary
products within the field of personal communication services. There can be
no assurances that the Company will enter additional markets until existing
ones have proven successful.
Strategic Alliances
The Company has established alliances with a company called 360
Communications, Inc. and is negotiating with various other key companies in
the Cellular industry.
Research and Development
The Company continually monitors industry announcements and technological
innovations. With this new information the Company hopes to create new
marketing themes and products with unique selling propositions to improve
upon its planned product line. Currently the company is investigating the
use of the 220 Mhz band for the transmission of voice and data and how these
new products could be integrated into planned retail operations. The Company
has been presented with an opportunity to purchase a significant number of
220 Mhz licenses which would give them the ability to control air time
charges over certain frequencies and thus set their own profit margins rather
than reacting to cost increases from cellular time suppliers.
Government Regulations
Government regulation is a significant factor in the development and
marketing of the Company's services, products and sales activities. The
Government, through the Federal Communications Commission, controls access to
cellular communications channels, determines tariffs, and sets communications
policy that effects the Company's customers and their access and cost for
cellular services. There is no assurance that future government actions will
not preclude the company from enjoying profitable operations.
Environmental Matters
The Company believes its operations are currently in compliance in all
material respects with applicable Federal, state and local laws, rules,
regulations and ordinances regarding the discharge of materials into the
environment. Such compliance has no material impact on the Company's capital
expenditures, earnings, competitive position, and no capital expenditures for
environmental control facilities are planned.
Continuation Of Business
In order for the Company to be successful, additional funding will be
required. The Company had no significant revenues and has borrowed over
$300,000 during the past nine months. The failure of the company to
successfully obtain additional funds may jeopardize its existence. The
company intends to raise additional working capital by the sale of common
stock, borrowings and/or possible licensing of its developed business
arrangements (See further discussion under "Management Discussion and
Analysis Of Financial Condition And Results Of Operations" section).
Employees
As of September 30, 1996, the Company had 2 full-time employees. By December 31,
1996, the Company expects to significantly increase the number of employees,
principally in retail operations, sales and marketing. The planned increase
in personnel is based primarily on expected increases in sales of prepaid
cellular services and the rental of cellular phones. The Company's employees
are not represented by a labor union and the Company believes its employee
relations are good.
Two new officers were appointed as of October 1, 1996. They are Robert M.
Dolan, President and CEO and Robert C. Brehm, Treasurer. Each brings
significant experience in the franchise and financial areas respectively.
Their addition to the company could significantly enhance operating results
in fiscal 1997.
Item 2. Properties
The Company shares approximately 1,000 square feet of office space with
Cellular 99, Inc. at 628 Las Vegas Blvd. So. in Las Vegas, Nevada. It is
anticipated that a larger headquarters facility will be established in Las
Vegas in 1997. The new headquarters will house management, customer support,
administrative and marketing personnel.
Item 3. Legal Proceedings
There are no known legal proceedings to which the Company is a party as of
September 30, 1996.
Item 4. Submission of Matters to a Vote of Security Holders.
None. No matters were submitted to a vote of the Registrant's Security
holders during the year ended September 30, 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Registrant's stock is not currently traded on any exchange, nor has the
Registrant's stock traded on any exchange in the past three years.
Bid and Ask Prices
Period Bid Price Ask Price
Year ended September 30, 1996 None None
Year ended September 30, 1995 None None
Year ended September 30, 1994 None None
The Company has approximately 569 owners of record and, it believes in excess of
1,000 beneficial owners of the Company's stock existed as of September 30,
1996.
The Company has not paid cash dividends on its common stock or preferred
stock and has no present plans to do so. Any payment of cash dividends in
the future will be at the discretion of the Company's Board of Directors and
will depend upon the financial condition, capital requirements, and earnings, if
any, of the Company, as well as other factors which the Board of Directors
may deem relevant.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Since October of 1993, GVFI has allocated its efforts towards seeking a
viable business venture to acquire and/or develop internally. Based upon the
status of the Company, its lack of operating cash and its stockholder's
deficit, additional funding will be required in order for the Company to
complete any business ventures whether through an acquisition, merger, or
developed internally.
The Company has continued in its efforts to identify a company in the tele-
communications industry and/or to establish its own activity in the tele-
communications industry. Toward this end, on May 29, 1996, the Company
entered into a License Agreement with Cellular 99, Inc. whereby Cellular 99,
Inc. granted a ten year license for the exclusive right to engage in the
merchandising, marketing, distribution, promotion and renting of cellular
telephones in the State of Illinois and the right to use the trade name Cell
Phone 99. The company expects to secure additional licenses for other states.
The cellular phone services would be sold through retail outlets and it is
estimated that they would rent for 99 cents per day.
On May 8, 1996, GVFI acquired 100% of the common stock of AllCell
Communications, Inc., (AllCell) a Georgia corporation, in exchange for 5,500
shares of the Company's Series C Preferred Stock, of which 5,000 shares were
placed in escrow pending achievement by AllCell of certain earnings levels as
specified in the purchase agreement. AllCell was acquired to test market the
Company's prepaid cellular products prior to a regional and national rollout
of retail stores offering cellular and related products.The Company cancelled
the shares and the losses have been accounted for as discontinued operations.
Results of Operations
Year Ended September 30, 1996 Compared to Year Ended September 30, 1995
The audited Balance Sheets, Statements of Operations, Changes In Stock-
holder's Deficit, and Cash Flows Statement for the years ending September
30, 1996 and 1995, are fully described in Item 7 of this Form 10-K Annual
Report.
The Company has had no sales from continuing operations for the years ended
September 30, 1996 and 1995. Revenues from AllCell were previously reported
on a consolidated basis on the Company's Form 10-QSB/A for the quarter ended
June 30, 1996 (as amended) with AllCell as a wholly owned subsidiary. When
the decision was made in September 1996 to discontinue the AllCell
operations, these revenues were included in the loss from discontinued
operations for the year ended September 30, 1996.
Selling, general and administrative expenses for 1996 increased $94,700 over
1995 to $107,700. Selling, general and administrative expenses for 1996 are
comprised mainly of legal and accounting expenses arising from the
preparation of SEC reporting forms for public disclosure, consulting fees,
filing fees and general office expenses incurred in starting up an on-going
operation which has been dormant for several years.
Certain stockholders of the Company are affiliated with firms who currently
provide or have provided legal services to the Company in prior years.
During the years ended September 30, 1996 and 1995, fees and other expenses
charged by these firms totaled approximately $31,700 and $4,800 respectively.
As of September 30, 1996, amounts due these firms totaled $27,900.
Interest expense for related parties increased $5,800 in 1996 to $10,400 up
from $4,600 in 1995. This increase was primarily due to interest incurred
for related parties including loans from Roger Knight, President of a
corporation which he controls, which were made to the company for the
purpose of funding the Atlanta operations and the Las Vegas headquarters
operations. These notes, due in 18 months from the date of issuance, bear
interest at the rate of 10% per annum.
Primarily, as a result of the above mentioned expenses, Net Losses from
Operations increased $98,800 in 1996 to ($119,200), up from a loss of
($20,400) in 1995.
There was no provision for income taxes in either 1995 or 1996 due to the
existence of net operating loss carry forwards from prior years, and the
likelihood of the Company being able to utilize these net operating losses
in the future.
There was a loss from discontinued operations in 1996 totaling $217,100
representing investments and advances to AllCell. On May 8, 1996, the
Company completed the acquisition of AllCell in a transaction accounted for
in a manner similar to a purchase. In accordance with accounting principals
associated with a transaction where the acquired company has been acquired by
a development stage company and the acquired company is considered a promoter
in the funding and organizing of the business, the acquired business assets
were recorded at the historical cost basis of the predecessor. AllCell
became a wholly owned subsidiary of the Company through the exchange of
5,500 series C preferred shares for all the outstanding stock of AllCell.
5,000 of the shares were placed in escrow to be released to the former
stockholder of AllCell based upon the achievement of certain performance
criteria as the President of AllCell. AllCell was formed on April 29, 1996
and had no significant operations prior to its acquisition by the Company.
As of September 30, 1996, the Company abandoned its telecommunications test
market operations through its subsidiary, AllCell, which suffered
substantial financial losses and was unable to sustain operations without
continued financial support from the Company. Investment and advances to
AllCell as of September 30, 1996, totaled $217,100 which has been charged to
the current period as a loss from discontinued operations.
For the period from acquisition, May 8, 1996, until September 30, 1996, the date
of abandonment, AllCell had revenues totaling $120,600. As of September 30,
1996, AllCell's net liabilities exceeded net assets by $491,900. In addition,
a substantial creditor of AllCell has threatened litigation against AllCell
and the Company in order to collect amounts allegedly owed by AllCell which
include significant contractual default penalties, totaling approximately
$200,000. Management of the Company believes that it has no obligation in
regards to these or any other liabilities or commitments of AllCell and has
no plans to satisfy them in the future.
Because AllCell experienced substantial financial losses and the Company has
abandoned any plans to fund the future operating deficits of the subsidiary,
as of September 30, 1996, the financial statements do not include the
accounts of the subsidiary on a consolidated basis. Rather the investment in
the subsidiary is carried on the books of the Company using the cost method.
Prior to the abandonment, the consolidated financial statements included the
accounts of the Company and AllCell. All material intercompany transactions
have been eliminated in consolidation in 1996.
There was an increase in the Extraordinary item in 1996 of $16,800. There was
no extraordinary item in 1995. In September 1996, the Company exchanged, on
terms favorable to the Company, a trade accounts payable debt for an agreed
upon installment obligation totaling $12,900 over the next 13 months. The
installment obligation is unsecured and bears no interest. A gain of
$16,800, net of tax, has been recognized on this debt restructuring
transaction. As part of this transaction, the Company issued post-dated
checks to a collection agency. These post-dated checks, in the amount of
$11,300 are included in the cash balance on the Balance Sheet for 1996.
The Company has experienced losses from discontinued operations of $217,100
for the year ended September 30, 1996, and has experienced losses from
continuing operations of $119,200 and $20,400 for the years ended September
30, 1996 and 1995 respectively, and has a stockholder's deficit of $280,400
as of September 30, 1996. The Company is planning on raising additional
capital through the issuance of additional stock in a private placement or
public offering. The Company is also seeking new business opportunities that
may be acquired or developed internally. Based on the current status of the
Company, additional capital will be required in order for the Company to
complete any business acquisitions or development, or to maintain their
ongoing operations.
Liquidity and Capital Resources
Cash and equivalents totaled $49,800 and $100 at September 30, 1996 and 1995,
respectively. During the year ending September 30, 1996, net cash used by
operating activities totaled $241,800, which includes results primarily from
losses from discontinued operations of $217,100 and the payment for
accounting and legal fees.
Net cash provided by financing activities for the year ending September 30, 1996
totaled $291,500 which is comprised of ($25,000) used to repay long term debt to
related parties, ($1,400) for repayment of notes payable, and $317,900 from
issuance of long term debt to related parties.
The above cash flow activities provided a net cash increase of $49,700 in
1996 or $49,800 increase over the ($100) decrease experienced in 1995.
Net Working Capital (Current Assets less Current Liabilities) was $17,300 in
1996 and ($120,700) in 1995. The significant increase in 1996 was due
primarily to the exchange of trade accounts payable for preferred stock and
the increase in cash from the issuance of long term debt to related parties.
Stockholders' deficit decreased to ($280,400) at September 30, 1996 from
($120,300) at September 30, 1995 due primarily to the net loss for the 1996
year of ($319,500), offset by various issuances of preferred stock and stock
options totaling $151,500.
Non-cash investing and financing activities
In March and April 1996, the Company issued 93,350 shares of Series B preferred
stock to certain creditors in exchange for trade accounts payable debts owed by
the Company in the amount of $92,200. All exchanges were valued at approx-
imately $1.00 per share.
In February and September 1996, certain stockholders exercised their preferred
stock conversion rights and the Company issued 1,700,000 shares of common stock
in exchange for the cancellation of 25,000 shares of Series II preferred
stock, 50,000 shares of Series B preferred stock and 12,000 shares of Series
C preferred stock for a combined value of $8,700.
In May 1996, 5,500 of Series C Preferred stock was issued in exchange for the
acquisition of AllCell for a total value of $28,300. An additional 550
shares was paid to a related party stockholder as a finder's fee. In
September 1996, the Company cancelled 5,000 shares of Series C Preferred
stock due to the discontinuation of AllCell's operations.
During the quarter ended June 30, 1996, the Company entered into an agreement
with Cellular 99, a Nevada corporation under the control of the president of
the Company, whereby it obtained an exclusive license to rent cellular phones
in the State of Illinois, using the proprietary marketing technology of
Cellular 99. The Company exchanged 10,000 shares of Series D Convertible
Preferred stock for these licensing rights. These rights were valued at
$1,000 or $.10 per share.
On July 26, 1996, the Company issued options to purchase 300,000 common shares
to Robert Brehm Consulting, in exchange for a management consulting agreement
scheduled to terminate May 26, 1997. The option agreement provides for an
exercise price of $.10 per share commencing July 26, 1996 until July 26, 1998
or 24 months after the filing and acceptance of the issuance with the
Securities and Exchange Commission, whichever date is later. The number of
shares issuable under the agreement are subject to adjustment to take into
account reorganization, recapitalization, mergers or other corporate events.
In addition, the Company has agreed to reserve 300,000 shares of its $.0001
par value common stock for the exercise of this option. This agreement was
valued at $30,000 and is being amortized over the life of the consulting
agreement.
To date the Company has financed its operations principally through borrow-
ings and private placements of equity securities and debt. The Company will
need additional capital to continue its existence and will endeavor to raise
sufficient funds through the sale of shares, or other means.
Future Funding Requirements
The Company's working capital and other capital requirements during the next
year or more will vary based on a number of factors, including the rate at
which retail stores are opened and generate profits, the level of sales and
marketing activities for prepaid cellular services, and the level of effort
needed to develop additional retail outlets in Illinois and elsewhere to the
point of commercial viability. The Company believes that the funds from the
net proceeds of the Offering and funds generated from the retail sales
operations, will be sufficient to support the Company's operations through at
least September 30, 1997.
The Company's failure either to ramp up sales sufficiently in Illinois or
elsewhere and receive additional funds from its Private Placement Offering,
could adversely affect the Company's cash flows. In addition, the Company's
business plans may change or unforeseen events may occur which require the
Company to raise additional funds. There can be no guarantees that the
Company can raise the required capital necessary to continue with its plans
for growth and expansion.
Restatement of prior period financial statements
Subsequent to the issuance of the September 30, 1995 financial statements, the
Company determined that the financial statements contained errors relating to
the following matters :
Preferred Stock
and additional Accumulated
Paid in Capital Deficit
Overstatement of advances from
affiliates and notes payable-related
party due to failure to relieve
liabilities assumed as a result of
the sale of a wholly owned subsidiary,
American West Foods, Inc. in June 1994. $ -- $ 27,300
Overstatement of compensation payable
due to failure to reduce salary
accruals payable to former officer to
contractual amount. $ -- $ 80,800
Understatement of preferred stock and
additional paid-in-capital due to
omission of stock issued for in-kind
services and cash. $ 113,800 $ (63,700)
Net Change as of September 30, 1994 $ 113,800 $ 44,400
The previously reported financial results for the year ended September 30, 1995
have been restated to reflect the above and other changes, net loss and net loss
per common share for the year ended September 30, 1995 has been restated as
follows :
1995
Net Income (loss) as previously reported $ 100,700
Adjustments for advances and notes payable
to related parties (27,300)
Adjustments for accrued compensation (80,800)
Adjustments for trade accounts payable (13,000)
Net Loss, as restated $ (20,400)
Net income (loss) per common share, as previously reported $ 0.06
Net loss per common share, as restated $ (0.01)
Atlanta Test Market
On May 7, 1996, GVFI entered into an Acquisition Agreement stock for stock with
AllCell, located in Jonesboro, Georgia. AllCell was a startup business solely
owned by Walt Phillips. Mr. Phillips does not have any prior relationship with
the Registrant or any of GVFI's affiliates, officers, directors or any
associate of any officers or directors. The Agreement involved the exchange
of 100% of the stock in AllCell for 5,500 shares of Series C Preferred
Convertible stock of the Registrant. The Series C Preferred stock is
convertible at the rate of 100 shares of Common stock for each share of
Preferred stock. The Company, in September 1996, after discontinuing
AllCell's operations, cancelled 5,000 shares of Preferred Stock which had
been issued to Mr. Phillips pursuant to the Agreement.
GVFI, through its acquisition of AllCell instituted market feasibility testing
of prepaid cellular telephone services in the Atlanta, Georgia area. AllCell
had a retail store to test management operations, cash control, sales
techniques, customer interfacing, price structure and customer marketing
techniques. Customers would pre-pay for the airtime needed, thereby avoiding
the risk of incurring airtime which the customer could not pay for later.
Once the airtime was used, the telephone disabled itself and the customer
could have the telephone reactivated with pre-paid airtime. AllCell also
successfully tested a technology that allowed them to activate almost any type
of cellular telephone, brought in by a potential customer.
AllCell operations were discontinued in September 1996 after successful
market results were obtained. At that time it was determined that it was in
the best interests of the company to halt operations and move them to more
lucrative locations under tighter controls and more experienced management.
The discontinued operations for the 1996 fiscal year ended September 30, 1996
have resulted in a write-off of $217,100.
Factors Affecting Future Performance
From time to time, in reports filed with the Securities and Exchange
Commission, in press releases, and in other communications to shareholders or
the investing public, the Company may comment on anticipated future
financial performance. Such forward looking statements are subject to risks
and uncertainties, including but not limited to, the impact of competitive
products and services, technological changes in the Company's industry, the
ability of the Company to develop and successfully deploy it's Dealer
Network, the Company's ability to attract and retain customers, product
demand and market acceptance risks, reliance on key strategic alliances,
fluctuations in operating results, delays in development of highly complex
products and services and other risks detailed from time to time in GVFI's
filing with the Securities and Exchange Commission. These risks could cause
the company's actual results for 1997 and beyond to differ materially from
those expressed in any forward looking statements made by, or on behalf of,
GVFI.
Although the cellular market, and in particular, the prepaid cellular market
segment, has experienced rapid growth in the recent year, there can be no
assurance that similar growth will continue at similar rates, or at all, or
that cellular customers will be attracted to the Company's services through
its sales and marketing efforts. In addition, the prepaid cellular market
will have significant competition from the emerging Personal Communication
Service (PCS) carriers who are offering prepaid services. These services will
include wireless communication for voice, fax, paging, and Internet
connection. The prepaid market is in its initial stage of development, and
if these markets do not grow as expected or if the customers in these markets
do not use the Company's services, the Company's business, financial
condition and results of operations could be materially and adversely affected.
Significant Accounting Issues
Accounting Treatment of Discontinued Operations:
The discontinuance of the AllCell operations in Atlanta have been treated as
discontinued operations expense of $217,100 for the 1996 fiscal year.
Private Placement Offering Anticipated
GVFI intends, in the near future, to offer for sale Common Stock and Warrants.
The expected offering price has not yet been determined. The shares sold in
the offering will be restricted shares subject to Rule 144 with certain
registration rights. The Company intends to sell the Units (consisting of
Common Stock and Warrants) solely to accredited investors (as the term is
defined under Rule 501(a) of Regulation D adopted by the Securities and
Exchange Commission).
THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL ACTUALLY MAKE THE OFFERING,
OR IF IT IS DOES MAKE THE OFFERING, THAT IT CAN RAISE ALL OR A PORTION OF THE
FUNDS PRESENTED IN THE PRIVATE OFFERING MEMORANDUM. FAILURE TO RAISE THESE
FUNDS COULD HAVE A MAJOR ADVERSE EFFECT ON THE OPERATION OF THE COMPANY.
Subsequent Events
Company hires new CEO and Treasurer
Robert M. Dolan was hired as President and CEO effective October 1, 1996. For
the past 24 years Mr. Dolan has been associated with many retail operations
including: Vice President of Franchise Support and Development for Franklin
Systems, Inc., CEO and Chairman of The Blarney Group, Inc., associated with
Sir Speedy Printing Centers operation, Gamma Graphics (Florida State
Franchisor for Sir Speedy Printing Centers), as Vice President of Franchise
Sales, and Business Cards Tomorrow, Inc., as Vice President of Franchise Sales.
Mr. Dolan's experience in multiple retail store operations and new store
opening brings a rich resource for the company which should be translated
into increased revenues and profits in 1997 and future years.
Robert C. Brehm was hired as Treasurer effective October 1, 1996. Mr. Brehm
has a double engineering degree in electrical engineering and computer
science and an MBA from UC Berkeley in Finance and Accounting. Mr. Brehm has
owned several software companies, a finance company and fully understands the
technical issues of the personal communications services business as well as
the business, marketing and financial requirements for success in a public
enterprise. His skill, knowledge and experience will be invaluable for the
rollout of the company. His responsibilities include business development,
financial and marketing program development and strategic planning.
Mr. Brehm also worked as a consultant to the Company through his consulting
firm, Robert C. Brehm Consulting, Inc. Under the terms of the Consulting
Agreement between Robert C. Brehm Consulting, Inc. and GVFI, he will be
compensated for services with stock options which are convertible into shares
of Common Stock.
GVFI as a Going Concern
The Company has aggressive plans to open regional retail stores in Illinois and
Texas, prior to embarking on a national rollout campaign. To establish the
viability of this game plan, the Company choose to test market the
feasibility of the prepaid concept in Atlanta. While the revenues obtained
in the Atlanta test market were quite acceptable, the management controls and
experience were contrary to expectations. Consequently it became apparent
that the Company needed help in this area and decided to hire a new
President, Robert Dolan, whose prior experience in establishing successful,
profitable, multiple retail outlets of consumer goods could be used to
generate bottom-line profits as was originally expected in Atlanta. The
Company has proved that the market exists, has hired a new experienced CEO,
and intends to offer through a Private Placement Offering $3,999,999 which
will provide the necessary working capital to fund the plans now in progress.
These funds, when realized, together with existing cash and assets, will
allow the Company to continue its operations as planned. The existing losses
in fiscal 1996 ending September 30, while not anticipated, have been acceptable
from the Company's standpoint, as an opportunity to determine the feasibility of
entering this lucrative market.
With the new efforts in effect, the Company anticipates higher revenues and
income in fiscal 1997. There can be no assurances that the Company will be
able to raise the necessary financing to continue its operations.
Item 7. Financial Statements and Supplementary Data.
Please refer to pages F-1 through F-12.
Item 8. Changes In and Disagreements on Accounting and Financial Disclosure.
During the period from inception (December 7, 1984) to September 30, 1996, the
Company had no disagreement with accountants on any matter of accounting
principles or practices or financial statement disclosure.
John M. Hanson & Company, P.C., Certified Public Accountants, Denver, Colorado
conducted their independent audit for fiscal year ended September 30, 1993. The
accounting firm was dismissed due to the fact that the Company was in an
inactive status and had no funds available for the audit for fiscal years
ended September 30, 1994 and 1995. The accountant's report for the fiscal
year ended September 30, 1993 did contain a qualified going concern opinion,
however, there were no disagreements with the accountant on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, the decision to change auditors was approved by
the Board of Directors in 1996.
On April 24, 1996, the Company engaged the accounting firm of Gilbert & Company,
Certified Public Accountants, for the purpose of conducting an independent
audit of the Company for fiscal years ended September 30, 1994 and 1995,
respectively. On August 30, 1996, the Company received a letter of resignation
from the accounting firm of Gilbert & Company. The accountant's reports for the
fiscal years ending September 30, 1994 and 1995 contained a going concern
opinion. At this time the Company is unaware of any disagreements with the
accountant on any matter of accounting principles or practices, or financial
statement disclosure in connection with the reports for those two years.
The previous accountant believes that the resignation was necessary because of
post-audit accounting fees unpaid at the time he dual dated the audit report
for the fiscal year ended September 30, 1995 and filed with an Amended Form
10-KSB, and therefore placing the accountant in a position whereby there
could be a possibility that the firm was not independent. The Company does
not agree with the accountant on the issue of whether or not the firm was
independent.
The Company subsequently engaged the accounting firm of Bradshaw, Smith & Co.
Las Vegas, Nevada for the purpose of auditing the financial statements for
the fiscal years ended September 30, 1995 and 1996.
PART III
Item 9. Directors and Executive Officers of the Registrant.
The Directors and Executive Officers of the Company are as follows:
Name Age Position
Robert M. Dolan 46 President and Director
Roger K. Knight 72 Chairman of the Board and Director
Robert C. Brehm 48 Treasurer
Silas A. Phillips 25 Secretary, Vice President and Director
Each director holds office until the next annual meeting of shareholders and
until his or her successor has been elected and qualified. Each executive
officer holds office at the pleasure of the Board of Directors and until his
or her successor has been elected and qualified.
There are no family relationships among the directors and executive officers of
the Company.
Robert M. Dolan has served as President, CEO and Director of the Company since
October 1, 1996. For the past 24 years Mr. Dolan has been associated with many
retail operations including: Vice President of Franchise support and
Development for Franklin Systems, Inc., CEO and Chairman of The Blarney Group,
Inc., associated with Sir Speedy Printing Centers operation, Gamma Graphics
(Florida State Franchisor for Sir Speedy Printing Centers), as Vice President
of Franchise Sales, and Business Cards Tomorrow, Inc., as Vice President of
Franchise Sales. Mr. Dolan's experience in multiple retail store operations
and new store opening brings a rich resource for the company which should
provide be translated into increased revenues and profits in the 1997 and
future years.
Robert C. Brehm was hired as Treasurer effective October 1, 1996. Mr. Brehm has
a double engineering degree in electrical engineering and computer science and
an MBA from UC Berkeley in Finance and Accounting. Mr. Brehm has owned
several software companies, a finance company and fully understands the
technical issues of the personal communications services business as well as
the business, marketing and financial requirements for success in a public
enterprise. His skill, knowledge and experience will be invaluable for the
rollout of the company. His responsibilities include business development,
financial and marketing program development and strategic planning.
Roger K. Knight has served as a Director of the Company since February 1, 1990.
Mr Knight has experience in identifying business candidates for acquisitions.
He served as president from January of 1995 through October 1996. Mr. Knight
retired from the U.S. Navy as a Captain in July, 1965. Mr. Knight has been
involved in retail operations since the mid-1970's and his experience will be
beneficial to the Company.
Silas A. Phillips has served as a Director of the Company since January 1,
1995. Mr. Phillips holds a degree from Wichita State University in
International Business. Mr. Phillips uses his analytical skills in assisting
the President in evaluating possible business mergers and acquisitions.
Item 10. Executive Compensation.
There was no compensation paid to any of the officers or directors for the
fiscal years ended September 30, 1996, 1995 and 1994. Mr. Knight, the
President and CEO through September 30, 1996, did not receive any
compensation from the Company and no other officers or directors were paid in
excess of $100,000.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information, as of September 30, 1996, with
respect to the beneficial ownership of the Company's common stock by each
person known by the Company to be the beneficial owner of more than five
percent of the outstanding common stock of the Company and by Directors and
executive officers of the Company, both individually and as a group:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shares
Title of Beneficially Percent of
Beneficial Owner Class Owned* Class
Roger K. Knight Series B Stock(6) 30,000(1) (1) 7.5%
2712 Echo Mesa Drive
Las Vegas, NV 89134
Cellular 99, Inc. Series D Stock(7) 10,000(1) 95%
628 Las Vegas Blvd., South
Las Vegas, NV 89101
Global Management Group, Inc. Common Stock 200,000(1) 6%
2712 Echo Mesa Drive
Las Vegas, NV 89134
First Venture Group, Inc. Common Stock 81,000(1) 3%
2712 Echo Mesa Drive
Las Vegas, NV 89134
Vintage Group, Inc. Common Stock 307,543(1) 9%
1625 Broadway
Suite 770
Denver, CO 94920
Robert Brehm Common Stock 300,000(2) 8%
6965 El Camino Real, #102-279
Carlsbad, CA 92009
BJM, Inc. Common Stock 250,000(4) 8%
P.O. Box 3235
Cheyenne, WY 82003
Blair J. Merriam Common Stock 337,500(4) 10%
P.O. Box 3235
Cheyenne, WY 82003
James A. Merriam Common Stock 500,000(5) 15%
138 Lyford Drive
Tiburon, CA 94970
Silas Phillips Series II Stock(8) 4,000(3) less than 1%
628 Las Vegas Blvd., South
Las Vegas, NV 89101
The Arapahoe Trust Series II Stock 20,000(8) 4%
7301 E Jarvis Place
Denver, CO 80237
Creative Invest Serv Inc. (9) Series II Stock 30,000(8) 6%
14 Red Tail Drive
Highlands Ranch, CO 80176
GJM Trading Partners Ltd. (9) Series II Stock 10,000(8) 2%
14 Red Tail Drive
Highlands Ranch, CO 80176
The Brian/Kevin McAdam Trust(9) Series II Stock 20,000(8) 4%
Lou Cangilla Trustee
7108 S. Lafayette Way
Littleton, CO 80122
David & Lucinda Ellsworth Series II Stock 25,000(8) 5%
459 Wianno Avenue, Box 35
Osterville, MA 02655
Quality Surplus Series II Stock 25,000(8) 5%
P.O. Box 15549
Del City, OK 73155
All officers and Directors
as a group (3 persons) Common Stock 2,078,543(10) 44%
</TABLE>
* Unless otherwise indicated in the footnotes below, each person has sole
voting and dispositive power over the shares indicated.
(1) Mr. Knight is a Director of the Company and holds sole voting and
dispositive power over 588,543 shares of stock for 18% of the Percent of
Class of common stock due to the fact that he is President of Global
Management Group, Inc., First Venture Group, Inc., and Vintage Group, Inc.
If Mr. Knight and Cellular 99, Inc. (a company for whom Mr. Knight is President)
were to convert their shares of Preferred stock to common stock, Mr. Knight
would have sole voting and dispositive power over a total of 1,738,543 shares
of stock for 39% of the Percent of Class of common stock. For purposes of
determining percent of class of beneficial owners, the Company calculated
each of the corporation's percentage of ownership individually. See Notes (6)
and (7) for the conversion rate of each of the series of preferred shares for
Mr. Knight and Cellular 99, Inc., respectively.
(2) Mr. Brehm is Treasurer of the Company and these shares consist of an option
to purchase 300,000 shares of common stock for $.10 per share pursuant to a
consulting agreement with the Company.
(3) Silas Phillips is Secretary and Director of the Company and has no sole
voting and dispositive power over any shares at this time, however, if Mr.
Phillips converted his Series II Preferred Stock to common stock at the
conversion rate of 10 shares of common stock for each share of Series II
Preferred stock, Mr. Phillips would control 40,000 shares of stock of the
Company. Mr. Phillips has not converted any of his preferred stock.
(4) Blair J. Merriam is President of BJM, Inc. and holds sole voting and
dispositive power over 587,500 shares of stock.
(5) James A. Merriam holds sole voting and dispositive power over 500,000 shares
of common stock and also holds 550 shares of Series C Preferred Stock. The
Series C Preferred Stock, can be converted to common stock at the conversion
rate of 100 shares of common stock for each share of Series C Preferred
Stock. Mr. Merriam is not eligible to convert his Series C Preferred Stock
until after May 1998.
(6) The Series B Preferred Stock can be converted to common stock at the
conversion rate of 5 shares of common stock for each share of Series B
Preferred stock. The shareholder has not converted his Series B Preferred
Stock.
(7) The Series D Preferred Stock can be converted to common stock at the
conversion rate of 100 shares of common stock for each share of Series D
Preferred stock. The shareholder is not eligible to convert its shares until
after May 1998.
(8) The Series II Preferred Stock, can be converted to common stock at the
conversion rate of 10 shares of common stock for each share of Series II
Preferred stock. These shareholders have not converted their preferred
shares however, for purposes of determining percentage of ownership, the
Company assumed the preferred shares were converted to common.
(9) These shares are controlled by the same individual and if that shareholder
converted all of the preferred stock to common stock the shareholder would
hold sole voting and dispositive power over 600,000 shares of common stock
for 15% of the common stock of the Company.
(10) For purposes of determining the percentage of class, the Company assumed
that all officers and directors converted preferred stock to common stock and/
or exercised options to purchase additional shares.
Item 12. Certain Relationships and Related Transactions.
Related parties to the Company have at various times loaned funds to the
corporation which funds are interest bearing. The balance due at September
30, 1996, was $ 298,700.
In addition to the above related party notes, the Company owed various related
parties (individual and business entity) as September 30, 1995, $20,820. This
debt was converted to Series B preferred stock (See subsequent events).
PART IV
Item 13. Exhibits, Financial Statements Schedules, and Reports on Form 8-K.
(a) Financial Statements - Independent Auditors Report; Balance Sheets as
of September 30, 1996 and 1995; Statements of Operations for the years
ended September 30, 1996 and 1995; Condensed Statements of Changes In
Stockholders' Equity for the years ended September 30, 1996, 1995, and
1994; Statements of Cash Flows for the years ended September 30, 1996
and 1995; Notes to Financial Statements for the years ended
September 30, 1996 and 1995
(b) Reports on Form 8-K - On August 21, 1996, the Company filed a Form
8-K/A Items 2, 4 and 5, disclosing that on May 7, 1996, the Company
acquired in a stock for stock exchange AllCell Communications, Inc.,
a Georgia company, that the Company had changed accountants from
John M. Hanson & Company to Gilbert & Company, and that on May 29,
1996, the Company entered into a ten year exclusive License Agree-
ment with Cellular 99, Inc.
On September 9, 1996, the Company filed a Form 8-K/A for the purpose of
filing the John M. Hanson accountant's letter.
On September 17, 1996, the Company filed a Form 8-K Item 4
disclosing that Gilbert & Company resigned as accountants for the
Company.
On October 17, 1996, the Company filed a Form 8-K/A for the purpose of
filing the Gilbert & Company accountant's letters.
On October 21, 1996, the Company filed a Form 8-K Item 5 disclosing
that Roger K. Knight has resigned as President of the Company and
that Robert M. Dolan was elected as President effective October 1,
1996.
(c) Exhibits
Exhibit
Number Description
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4 Specimen stock certificate (1)
(1) Incorporated by reference to the Company's Registration Statement on form
S-18 (Registration No. 33-19327)
GLOBAL VENTURE FUNDING, INC.
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
GLOBAL VENTURE FUNDING, INC.
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
CONTENTS
PAGE
Independent auditors' report 1
Financial statements:
Balance sheets 2
Statements of operations 3
Statements of changes in stockholders' deficit 4
Statements of cash flows 5
Notes to financial statements 6-12
Bradshaw, Smith & Co.
CPA's, Business Advisors & Consultants
5851 West Charleston
Las Vegas, NV 89102
(702)878-9788 FAX (702)878-4510
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Global Venture Funding, Inc.
We have audited the accompanying balance sheets of Global Venture
Funding, Inc. as of September 30, 1996 and 1995, and the related statements of
operations, changes in stockholders deficit, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Global Venture
Funding, Inc. as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1
to the financial statements, the Company has suffered recurring losses from
operations and has a net stockholders' deficit, which raises substantial
doubt about its ability to continue as a going concern. Management's plans
regarding those matters also are described in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Bradshaw, Smith & Co.
Las Vegas, Nevada
October 23, 1996
GLOBAL VENTURE FUNDING, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
1996 1995
______________________________________________
ASSETS (as restated)
Current assets:
Cash (Note 7) $ 49,800 $ 100
Prepaid expenses 26,600 --
Total current assets 76,400 100
Investment in and advances to
unconsolidated subsidiary(Note 3) -- --
Licensing rights (Note 6) 1,000 --
Deferred tax assets (Note 5) -- --
Other assets -- 400
$ 77,400 $ 500
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable (Note 7) $ 11,300 $ --
Accounts payable and
accrued liabilities 47,800 120,800
Total current liabilities 59,100 120,800
Long-term debt, related
parties (Note 6) 298,700 --
357,800 120,800
Contingencies (Note 3) -- --
Stockholders' deficit (Note 4):
Convertible preferred stock,
$.10 par value; authorized
20,000,000 shares:
Series II; authorized 500,000
shares; issued and outstanding
475,000 and 500,000 shares
(aggregate liquidation preference
of $475,000 and $500,000) 47,500 50,000
Series B; authorized 500,000
shares; issued and outstanding
397,800 and 355,000 shares
(aggregate liquidation preference
of $397,800 and $355,000) 39,800 35,500
Series C; authorized 50,000
shares; issued and outstanding
1,050 and 12,000 shares
(aggregate liquidation preference
of $105,000 and $1,200,000) 100 1,200
Series D; authorized 50,000
shares; issued and outstanding
10,500 and 500 shares
(no liquidation preference) 1,100 100
88,500 86,800
Common stock $.0001 par value;
authorized 150,000,000 shares;
issued and outstanding 3,282,513
and 1,582,513 shares 300 200
Additional paid-in capital 569,400 441,800
Stock options 30,000 --
Accumulated deficit (968,600) (649,100)
(280,400) (120,300)
$ 77,400 $ 500
The Notes to Financial Statements are an integral part of these statements.
F2
GLOBAL VENTURE FUNDING, INC.
STATEMENTS OF OPERATIONS
Year ended September 30,
1996 1995
___________________________
(as restated)
Revenues $ -- $ --
Cost of revenues -- --
Gross profit -- --
Selling, general and administrative expenses 107,700 13,000
Loss from operations (107,700) (13,000)
Other expense:
Interest expense, related parties (10,400) (4,600)
Interest expense (1,100) (2,800)
(11,500) (7,400)
Net loss from continuing operations
before taxes (119,200) (20,400)
Provision for income taxes (Note 5) -- --
Net loss from continuing operations (119,200) (20,400)
Discontinued operations (Note 3) (217,100) --
Net loss before extraordinary item (336,300) (20,400)
Extraordinary item (Note 7) 16,800 --
Net loss $ (319,500) $ (20,400)
Net loss per common share:
Net loss from continuing operations $ (0.05) $ (0.01)
Discontinued operations (0.09) --
Net loss before extraordinary item (0.14) (0.01)
Extraordinary item 0.01 --
Net loss $ (0.13) $ (0.01)
Weighted average common shares outstanding 2,424,180 1,582,513
The Notes to Financial Statements are an integral part of these statements.
F3
GLOBAL VENTURE FUNDING, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Additional Total
_____________________________________ Paid-In Stock Accumulated Stockholders'
Shares Amount Shares Amount Capital Options Deficit Deficit
______ ______ ______ ______ ________ _______ ___________ _____________
Balance, September 30, 1994 as
previously reported 777,500 $ 77,800 1,582,513 $ 200 $ 329,700 $ -- $ (673,100) $ (265,400)
Adjustment in connection with
prior period adjustments
(Note 2) 90,000 9,000 -- -- 104,800 -- 44,400 158,200
Balance,September 30, 1994
as restated 867,500 86,800 1,582,513 200 434,500 -- (628,700) (107,200)
Forgiveness of liabilities by
stockholders -- -- -- -- 7,300 -- -- 7,300
Net loss for the year -- -- -- -- -- -- (20,400) (20,400)
Balance, September 30, 1995,
as restated 867,500 86,800 1,582,513 200 441,800 -- (649,100) (120,300)
Issuance of preferred stock
in exchange for extinguish-
ment of debt (Note 4) 93,350 9,300 -- -- 82,900 -- -- 92,200
Conversion of preferred stock
(Note 4) (87,000) (8,700) 1,700,000 100 8,600 -- -- --
Issuance of preferred stock for
licensing agreement (Note 6) 10,000 1,000 -- -- -- -- -- 1,000
Acquisition of Allcell (Note 3) 500 100 -- -- 28,200 -- -- 28,300
Contributed capital for services
(Note 6) -- -- -- -- 7,900 -- -- 7,900
Issuance of stock options (Note 4) -- -- -- -- -- 30,000 -- 30,000
Net loss for the year -- -- -- -- -- -- (319,500) (319,500)
Balance, September 30, 1996 884,350 $ 88,500 3,282,513 $ 300 $ 569,400 $ 30,000 $(968,600) $ (280,400)
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F4
GLOBAL VENTURE FUNDING, INC.
STATEMENTS OF CASH FLOWS
Year ended September 30,
1996 1995
___________________________
(as restated)
Cash flows from operating activities:
Net loss $ (319,500) $ (20,400)
Adjustments to reconcile net income
to cash provided (used) by operating
activities:
Depreciation and amortization 9,400 200
Stock and contributed capital for
services 10,700 --
Write-off acquisition costs of
unconsolidated subsidiary 28,300 --
Extraordinary gain (16,800) --
Decrease (increase) in:
Inventory -- 7,400
Prepaid expenses (5,600) 200
Increase (decrease) in:
Accounts payable and accrued
liabilities 51,700 8,900
Net cash used by operating activities (241,800) (3,700)
Cash flows from financing activities:
Advances from stockholders -- 3,600
Proceeds from issuance of long-term
debt to related parties 317,900 --
Repayment of long-term debt to
related parties (25,000) --
Repayments of notes payable (1,400) --
Net cash provided by financing activities 291,500 3,600
Net increase (decrease) in cash 49,700 (100)
Cash, beginning of period 100 200
Cash, end of period $ 49,800 $ 100
Supplemental disclosure of cash flow
information:
Cash paid for income taxes $ -- $ --
Schedule of non-cash investing and
financing activities:
Preferred stock issued in exchange
for satisfaction of trade accounts
payable (Note 4) $ 92,200 $ --
Preferred stock issued in exchange
for acquisition of Allcell
Communications, Inc. (Note 3) $ 28,300 $ --
Conversion of preferred stock to
common stock (Note 4) $ 8,700 $ --
Stock options issued in exchange for
a management consulting contract
(Note 4) $ 30,000 $ --
The Notes to Financial Statements are an integral part of these statements.
F5
GLOBAL VENTURE FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1. Basis of presentation and accounting policies:
Organization and basis of presentation:
Global Venture Funding, Inc. (the "Company") is a corporation formed
under the laws of the State of Colorado on December 7, 1984 under the name
"Venture Funding Corporation." The Company has been engaged in a variety
of operations since inception, and recently, through its wholly owned
subsidiary, Allcell Communications, Inc. ("Allcell"), a Georgia corporation
formed on April 29, 1996, has been engaged in the business of reselling
cellular time through a distribution network on a prepaid basis. The
subsidiary ceased operations during September, 1996 with no immediate plans
in the future to resume operations.
The Company has experienced losses from discontinued operations of
$217,100 for the year ended September 30, 1996, and has experienced losses
from continuing operations of $119,200 and $20,400 for the years ended
September 30, 1996 and 1995, respectively, and has a stockholders deficit of
$280,400 as of September 30, 1996. The Company is planning on raising
additional capital through the issuance of additional stock in a private
placement or public offering. The Company is also currently seeking new
business opportunities that may be acquired or developed internally. Based
upon the current status of the Company, additional capital will be required
in order for the Company to complete any business acquisition or development,
or to maintain their ongoing operations.
These matters raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying financial statements do
not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of liabilities
that might result from the outcome of this uncertainty.
Unconsolidated subsidiary:
Because Allcell has experienced substantial financial losses and
the Company has abandoned any plans to fund the future operating deficits of
the subsidiary, as of September 30, 1996, the financial statements do not
include the accounts of the subsidiary on a consolidated basis. Rather, the
investment in the subsidiary is carried on the books of the Company using the
cost method. Prior to abandonment, the consolidated financial statements
included the accounts of the Company and Allcell. All material intercompany
transactions have been eliminated in consolidation.
Inventories:
Inventories consisted of telephone debit cards and are stated at
the lower of cost (first-in, first-out) method. These cards were subsequently
disposed of in their entirety during the year ended September 30, 1995.
Income taxes:
The Company has implemented the provisions on SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires that income tax
accounts be computed using the liability method. Deferred taxes are
determined based upon the estimated future tax effects of differences
between the financial reporting and tax reporting bases of assets and
liabilities given the provisions of currently enacted tax laws. The
adoption of this provision by the Company has not required any adjustment to
the financial statements presented.
Net loss per common share:
Net loss per common share is computed by dividing net loss by the
weighted average number of shares of common stock and dilutive common stock
equivalents outstanding during the year. Dilutive common stock equivalents
consist of shares issuable upon conversion of convertible preferred shares
and the exercise of the Company's stock options (calculated using the
treasury stock method). During 1996 and 1995, common stock equivalents are
not considered in the calculation of the weighted average number of common
shares outstanding because they would be anti-dilutive, thereby decreasing
the net loss per common share.
Reclassifications:
Certain reclassifications have been made to the September 30, 1995
financial statements in order to conform to the current year presentation.
Pervasiveness of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair value of financial instruments:
Based on the borrowing rates currently available to the Company, the
carrying value of long-term debt, related parties approximates fair value.
2. Restatement of prior period financial statements:
Subsequent to the issuance of the September 30, 1995 financial statements,
the Company determined that the financial statements contained errors related
to the following matters:
Preferred
stock and
additional
paid-in Accumulated
capital Deficit
___________ ______________
Overstatement of advances from affiliates
and notes payable-related party due to
failure to relieve liabilities assumed
as a result of the sale of a wholly owned
subsidiary, American West Foods, Inc. on
June 8, 1994 $ -- $ 27,300
Overstatement of compensation payable
due to failure to reduce salary
accruals payable to former officer to
contractual amount -- 80,800
Understatement of preferred stock and
additional paid-in capital due to
omission of stock issued for in-kind
services and cash 113,800 (63,700)
Net change as of September 30, 1994 $ 113,800 $ 44,400
The previously reported financial results for the year ended September 30, 1995
have been restated to reflect the above and other changes. Net loss and net
loss per common share for the year ended September 30, 1995 have been
restated as follows:
1995
__________
Net income, as previously reported $ 100,700
Adjustment for advances and notes payable to related parties (27,300)
Adjustment for accrued compensation (80,800)
Adjustment for trade accounts payable (13,000)
Net loss, as restated $ (20,400)
Net income per common share, as previously reported $ 0.06
Net loss per common share, as restated $ (0.01)
3. Business acquisition and discontinued operations:
On May 8, 1996, the Company completed the acquisition of Allcell in
a transaction accounted for in a manner similar to a purchase. In accordance
with accounting principles associated with a transaction where the acquired
company has been acquired by a development stage company, and the acquired
company is considered a promoter in the founding and organizing of the
business, the acquired business assets were recorded at the historical cost
basis of the predecessor. Allcell became a wholly owned subsidiary of the
Company through the exchange of 5,500 Series C preferred shares for all of
the outstanding stock of Allcell. 5,000 of the shares were escrowed, to be
released to the former stockholder of Allcell based upon the achievement of
certain performance criteria as the President of Allcell. Allcell was formed
on April 29, 1996 and had no significant operations prior to its acquisition
by the Company.
During September, 1996, the Company abandoned its telecommunications
operation through its subsidiary Allcell. Allcell suffered substantial
financial losses and was unable to sustain operations without continued
financial support from the Company. Investments and advances to Allcell as
of September 30, 1996, totaled $217,100, which has been charged to the
current period as a loss from discontinued operations. There was no tax
benefit recognized as a result of this loss. For the period from acquisition,
May 8, 1996, until September 30, 1996, Allcell had revenues totaling
$120,600. As of September 30, 1996, Allcell s net liabilities exceeded net
assets by $491,900. In addition, a substantial creditor of Allcell has
threatened litigation against Allcell and the Company in order to collect
amounts owed by Allcell, which include significant contractual default
penalties, totaling approximately $200,000. Management of the Company
believes that it has no obligation in regards to these or any other
liabilities or commitments of Allcell and has no plans to satisfy them in the
future.
4. Stockholders' deficit:
Preferred stock:
The Company's preferred stock may be divided into such series as may
be established by the Board of Directors. The Board of Directors may fix and
determine the relative rights and preferences of the shares of any series
established. All convertible preferred shares are noncumulative,
nonparticipating and do not carry any voting privileges.
In October, 1991, the Board of Directors authorized the issuance of
500,000 shares of Series II Convertible Preferred Stock. Each share of
Series II preferred stock is entitled to preference upon liquidation of
$1.00 per share for any unconverted shares. Each Series II preferred share
may be converted to common stock after a specified holding period as follows:
after one year, two shares of common stock; after two years, five shares of
common stock; after three years, ten shares of common stock.
In March, 1992, the Board of Directors authorized the issuance of
500,000 shares of Series B Convertible Preferred Stock. Each share of Series
B preferred stock is entitled to preference upon liquidation of $1.00 per
share for any unconverted shares. Each Series B preferred share may be
converted to common stock after a specified holding period as follows: after
one year, two shares of common stock; after two years, five shares of common
stock.
In June, 1992, the Board of Directors authorized the issuance of
50,000 shares of Series C Convertible Preferred Stock. Each share of Series
C preferred stock is entitled to preference upon liquidation of $100 per
share for any unconverted shares, and the liquidation preference is junior
only to that of all previously issued preferred shares. Each Series C
preferred share may be converted to 100 shares of common stock after a
specified holding period of one year. In February, 1996, 12,000 shares of
Series C preferred stock was converted to 1,200,000 shares of common stock.
In June, 1992, the Board of Directors authorized the issuance of
50,000 shares of Series D Convertible Preferred Stock. The Series D
preferred stock carry no liquidation preferences and is subject to forfeiture
prior to conversion. Each Series D preferred share may be converted to 100
shares of common stock after a specified holding period of one year.
In March, April and May, 1996, the Company issued 93,350 shares of
Series B preferred stock to certain creditors in exchange for trade accounts
payable debts owed by the Company in the amount of $92,200. All exchanges
were valued at approximately $1.00 per share.
In February and September, 1996, certain stockholders exercised
their preferred stock conversion rights and the Company issued 1,700,000
shares of common stock in exchange for the cancellation of 25,000 shares of
Series II preferred stock, 50,000 shares of Series B preferred stock and
12,000 shares of Series C preferred stock.
The Company has reserved 17,500,000 shares of its $.0001 par value
common stock for conversion of preferred stock issuances.
Stock options:
On July 26, 1996, the Company issued options to purchase 300,000
common shares to an individual in exchange for a management consulting
agreement scheduled to terminate on May 26, 1997. The option agreement
provides for an exercise price of $.10 per share commencing July 26, 1996
until July 26, 1998 or 24 months after the filing and acceptance of this
issuance with the Securities and Exchange Commission, whichever date is later
The number of shares issuable under the agreement are subject to adjustment
to take into account reorganizations, recapitalization, mergers or other
similar corporate events. In addition, the Company has agreed to reserve
300,000 shares of its $.0001 par value common stock for the exercise of this
option. This agreement was valued at $30,000 and is being amortized over the
life of the consulting agreement.
5. Income taxes:
The benefit for income taxes from continuing operations is
different than the amount computed by applying the statutory federal income
tax rate to net loss before taxes. A reconciliation of income tax benefit
follows:
Year ended September 30,
1996 1995
________________________
Computed tax benefit at federal statutory rate $ 40,500 $ 6,900
Change in valuation allowance (40,500) (6,900)
$ -- $ --
The provision for federal and state income
taxes consisted of the following:
Current $ -- $ --
Deferred -- --
$ -- $ --
The deferred tax asset consisted of the following:
Net operating loss carryforwards $ 613,600 $ 489,000
Valuation allowance (613,600) (489,000)
Net deferred tax asset $ -- $ --
The Company has net operating loss carryforwards ("NOLs") for federal income
tax reporting purposes of approximately $1,595,000. The NOLs expire at
various times through 2011.
Included in the above NOLs are net operating loss carryforwards which may be
subject to substantial limitations in accordance with various provisions of
the Internal Revenue Code. The Company has not yet determined the amount and
nature of these limitations.
6. Related party transactions:
Licensing agreement:
During the quarter ended June 30, 1996, the Company entered into an
agreement with Cellular 99, a Nevada corporation under the control of the
president of the Company, whereby it obtained an exclusive license to rent
cellular phones in the State of Illinois, using the proprietary marketing
technology of Cellular 99. The Company exchanged 10,000 shares of Series D
Convertible Preferred Stock for these licencing rights. These rights were
valued at $1,000 or $.10 per share.
Office space and administrative support:
The Company is provided office space and other administrative
support services at no cost to the Company by various corporations under the
control of the president of the Company, a principal stockholder. The value
of these services totals $7,900 and has been recorded as capital contribution
by the principal stockholder.
Notes payable to related party:
Notes payable to related party consisted of various notes payable
to the president of the Company, and a corporation under the control of the
president. The notes are unsecured, due in 18 months from the date of
issuance, and bear interest at 10%. The maturities range from November,
1997 to March, 1998.
Legal fees:
Certain stockholders of the Company are affiliated with firms who
currently provide or have provided legal services to the Company in prior
years. During the years ended September 30, 1996 and 1995, fees and other
expenses charged by these firms totaled approximately $31,700 and $4,800,
respectively. As of September 30, 1996, amounts due these firms totaled
$27,900.
7 . Extraordinary item:
In September, 1996, the Company exchanged on terms favorable to
the Company a trade accounts payable debt for an agreed upon installment
obligation totaling $12,900 over the next 13 months. The installment
obligation is unsecured, and bears no interest. A gain of $16,800, net of
tax, has been recognized on this debt restructuring transaction. As part of
this transaction, the Company issued post-dated checks to a collection
agency. These post-dated checks, in the amount of $11,300, are included in
the cash balance.
SIGNATURES
Pursuant to the requirements of section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Global Venture Funding, Inc.
Date: 10/29/96 By: /s/ Robert M. Dolan
Robert M. Dolan, President
Pursuant to the requirements of the Securities and 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.
/s/ Robert M. Dolan President, CEO and Director 10/29/96
Robert M. Dolan
/s/ Roger K. Knight Chairman of the Board, Director 10/29/96
Roger K. Knight
/s/ Silas A. Phillips Secretary, Vice President and Director 10/29/96
Silas A. Phillips
/s/ Robert Brehm Treasurer 10/29/96
Robert Brehm
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 49,800
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 76,400
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,400
<CURRENT-LIABILITIES> 59,100
<BONDS> 0
0
88,500
<COMMON> 300
<OTHER-SE> (369,200)
<TOTAL-LIABILITY-AND-EQUITY> 77,400
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 107,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,500
<INCOME-PRETAX> (119,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (119,200)
<DISCONTINUED> (217,100)
<EXTRAORDINARY> 16,800
<CHANGES> 0
<NET-INCOME> (319,500)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
