UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1997.
[ ] TRANSACTION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transaction period from To
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Commission File Number 0-14213
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GLOBAL VENTURE FUNDING, INC.
--------------------------------------------
(Name of small business issuer in its charter)
Colorado 84-0990371
-------------------------------- ------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identificaion No.)
628 Las Vegas Blvd., S., Las Vegas, NV 89101
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(Address of principal executive offices)
Issuer's telephone number (702) 233-6638
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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 issuer was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No
--- ---
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date.
Class Outstanding at May 7, 1997
- ---------------------------- --------------------------
Common Stock $.0001 par value 4,182,273
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<TABLE>
<CAPTION>
GLOBAL VENTURE FUNDING, INC.
BALANCE SHEETS
March 31, September 30,
1997 1996
ASSETS (Unaudited) (Audited)
------ ----------- ---------
Current assets:
<S> <C> <C>
Cash $ 9,366 $ 49,800
Prepaid expenses 21,911 26,600
--------- ---------
Total current assets 31,277 76,400
Investment in and advances to unconsolidated subsidiary -- --
Licensing rights 1,000
Leasehold improvements and equipment 16,620 --
Other assets - deposits 500 --
--------- ---------
Total assets $ 48,397 $ 77,400
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 5,144 $ 11,300
Current portion of long-term debt - related parties 286,376 --
Accounts payable and accrued liabilities 75,282 47,800
Stock subscriptions payable 81,000 --
--------- ---------
Total current liabilities 447,802 59,100
Long-term debt, related parties -- 298,700
Contingencies
Stockholders' deficit (Note ):
Convertible preferred stock, $.10 par value; authorized 20,000,000 shares:
Series II; authorized 500,000 shares; issued and outstanding
457,450 and 475,000 shares (aggregate liquidation preference
of $457,450 and $ 475,000) 45,745 47,500
Series B; authorized 500,000 shares; issued and outstanding
389,300 and 397,000 (aggregate liquidation preference
of $389,300 and $397,000) 38,930 39,800
Series C; authorized 50,000 shares; issued and outstanding
6,300 and 1,050 shares (aggregate liquidation preference
of $630,000 and $105,000) 630 100
Series D; authorized 50,000 shares; issued and outstanding
20,750 and 10,500 shares (no liquidation preference) 2,075 1,100
Common stock $0001 par value; authorized 150,000,000 shares;
issued and outstanding 397 300
Additional paid-in capital 737,234 569,400
Stock options -- 30,000
Accumulated deficit (1,224,416) (968,600)
--------- ---------
Total stockholders' deficit (399,405) (280,400)
--------- ---------
Total liabilities and stockholders' deficit $ 48,397 $ 77,400
========= =========
2
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<TABLE>
<CAPTION>
GLOBAL VENTURE FUNDING, INC.
STATEMENTS OF OPERATIONS
For the Six For the Three
Months Ended March 31, Months Ended March 31,
---------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ --
Cost of revenues -- -- -- --
----------- ----------- ----------- ----------
Gross profit -- -- -- --
----------- ----------- ----------- -----------
Selling, general,
and administrative expenses 239,214 404 140,940 169
----------- ----------- ----------- -----------
Loss from operations (239,214) (404) (140,940) (169)
Other expenses:
Interest expense, related parties 16,577 -- 9,436 --
Interest expense
----------- ----------- ----------- -----------
Net loss from continuing operations
before taxes (255,791) (404) (150,376) (169)
Provision for income taxes -- -- -- --
Net loss from continuing operations (255,791) (404) (150,376) (169)
Discontinued operations -- -- -- --
----------- ----------- ----------- -----------
Net loss before extraordinary item (255,791) (404) (150,376) (169)
Extraordinary item -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (255,791) $ (404) $ (150,376) $ (169)
=========== =========== =========== ===========
Net loss per common share
Net loss $ (0.07) Nil (0.05) Nil
Weighted average common shares
outstanding 3,853,932 1,581,263 2,905,430 1,581,263
</TABLE>
3
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GLOBAL VENTURE FUNDING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six For the Three
Months Ended March 31, Months Ended March 31,
---------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
CASH FLOWS FROM
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net loss $(255,791) $ (404) $(150,376) $ (169)
Depreciation 116 -- 58
Adjustments to reconcile net (loss) to
net cash (used) by operating activities:
(Increase) decrease in:
Stock options exercised 30,000
Accounts receivable & notes receivable
Prepaids, deposits, other assets 5,169 11,573
Intangible assets
Increase (decrease) in:
Accounts payable 27,482 11,357
Accrued expenses 8,024 8,059
Common stock subscriptions payable 81,000 81,000
--------- --------- --------- ---------
Net cash (used) by opereating activities (104,116) (288) (38,387) (111)
Cash flows from financing activities:
Issuance of common stock in exchange for services 25,390 25,390
Issuance of preferred stock in exchange for services 1,801 300
Proceeds from issuance of common stock net of
placement fees 79,620 79,620
Proceeds from issuance of long-term debt to related
parties 98,500
Repayments of long-term debt (118,889) (87,100)
Repayments of notes payable (6,156) (3,087)
--------- --------- --------- ---------
Net cash provided by financing activities 80,266 -- 15,123 --
Cash flows from investing activities
Purchase of leasehold improvements and equipment (16,620) (10,395)
INCREASE (DECREASE) IN CASH (40,470) (288) (33,659) (111)
CASH AT BEGINNING OF PERIOD 49,836 367 43,025 190
--------- --------- --------- ---------
CASH AT END OF PERIOD $ 9,366 $ 79 $ 9,366 $ 79
========= ========= ========= =========
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 services $ 1,801 -- $ 300 --
Common stock issued for placement fees $ -- -- $ 25,380 --
4
</TABLE>
<PAGE>
GLOBAL VENTURE FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED DECEMBER 31, 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. To further the Company's ability to
Capture market share and establish a retail presence, the Company has
located, signed a lease and is in the process of opening a 4,600 sq. ft.
retail location in Houston, TX. This center will operate as the Hub for
this market, providing support to a Dealer Network as well a Company owned
Satellite centers.
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 $ 150,376 and $ 169 for the quarters ended March
31, 1997 and 1996, respectively, and has a stockholders' deficit of $
399,405 as of March 31, 1997. The Company received proceeds of $216,00 from
a private placement during the quarter ended March 31, 1997, and 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. Effective 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.
5
<PAGE>
GLOBAL VENTURE FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED DECEMBER 31, 1996 AND 1995
1. Basis of presentation and accounting policies (continued):
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 1997 and 1996, 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.
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.
6
<PAGE>
GLOBAL VENTURE FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED DECEMBER 31, 1996 AND 1995
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 Accumulated
and additional deficit
paid-in capital
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 quarter ended December 31,
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)
7
<PAGE>
GLOBAL VENTURE FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED DECEMBER 31, 1996 AND 1995
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.
8
<PAGE>
GLOBAL VENTURE FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED DECEMBER 31, 1996 AND 1995
4. Stockholders' deficit (continued):
Preferred stock (continued):
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.
In November of 1996, the Company issued 2,250 shares of Series C and 250
shares of Series D preferred stock in exchange for services received.
In April of 1997, the Company issued 2,500 shares of Series C preferred
stock to Roger K. Knight President (2000 shares) and Silas Phillips Vice
President/Secretary (500 shares) in exchange for services to the Company.
The Company has reserved 17,500,000 shares of its $.0001 par value common
stock for conversion of preferred stock issuance's.
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. This option was exercised on December
16, 1996.
9
<PAGE>
GLOBAL VENTURE FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED DECEMBER 31, 1996 AND 1995
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 Year ended
September 30, 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: $ 613,600 $ 489,000
Net operating loss carryforwards
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 agreements:
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. In November of 1996, the Company
entered into a similar agreement with Cellular-99 for an exclusive license
to rent cellular phones in the State of Texas. The Company exchanged 10,000
shares of Series D Convertible Preferred Stock for these licensing rights.
These rights were valued a $1,000 or $.10 per share.
10
<PAGE>
GLOBAL VENTURE FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED DECEMBER 31, 1996 AND 1995
6. Related party transactions (continued):
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
Chairmen of the Board of the Company, and a corporation under the control
of the Chairman of the Board. 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 March 31, 1997, amounts due these firms totaled
$28,353.
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, are included in the cash balance.
8. Leasehold Improvements and equipment
During the quarter ended March 31, 1997 leasehold improvements and
equipment were purchased in preparation for the opening of the Houston
retail store in April. No depreciation has been provided for these assets
as they have not been put into operation as of March 31, 1997.
11
<PAGE>
PART I - Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
Overview
- --------
Since October of 1993, GVF 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
telecommunications industry and/or to establish its own activity in the
telecommunications 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. In November 1996, the Company entered into a similar agreement with
Cellular 99, Inc. to obtain the exclusive licensing rights to the State of
Texas. The stock was valued at $.10 per share with a total value of $1,000. 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, GVF 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 roll out of retail stores
offering cellular and related products. The Company canceled the shares and the
losses have been accounted for as discontinued operations.
Results of Operations
- ---------------------
Quarter Ended March 31, 1997 compared to the Quarter Ended March 31, 1996.
During the quarter ended March 31, 1996 the Company was inactive and had an
operating loss of $169.
During the quarter ended March 31, 1997, the Company had no sales because it
continued in the start-up stage of organizing the National Support Center in Las
Vegas and laying the ground work for the opening of its first retail store in
Houston, Texas.
Selling, general and administrative expenses for the second quarter were
$140,940. The National Support Center began operations on October 1, 1996.
Selling, general and administrative expenses for the National Support Center
were $89,034.25 and 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. An additional
$60,997 of expenses were incurred in preparation for the opening of the first
retail store in Houston Texas. These expenses were comprised mostly of rent,
office expenses and professional services.
Interest expense for related parties was $9,436 during the second quarter of
fiscal 1997. The interest is related to notes payable to related parties. These
notes, due in 18 months from the date of issuance, bear interest at the rate of
10% per annum. Furthermore, all portions of the aforementioned notes are now
classified as current debt, and mature by March of 1998.
Primarily, as a result of the above mentioned expenses, Net Losses from
Operations increased $150,376 in the quarter ended March 31, 1997. This compares
to a net loss of $169 for the quarter ended March 31, 1996.
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
12
<PAGE>
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.
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 are included
in the cash balance on the Balance Sheet for March 31, 1997.
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 $150,376 and $169 for the quarters ended March 31, 1997 and 1996
respectively, and has a stockholder's deficit of $399,405 as of March 31, 1997.
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 $9,366 and $79 at March 31, 1997 and 1996
respectively. During the quarter ending March 31, 1997, net cash used by
operating activities totaled $38,387, which includes payments for accounting,
legal fees and professional services.
Net Working Capital (Current Assets less Current Liabilities) was ($416,525) as
of March 31, 1997. As of March 31, 1996, net working capital was ($32,215).
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 approximately
$1.00 per share.
13
<PAGE>
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 shares 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 canceled 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. In
November of 1996, the Company entered into a similar agreement with Cellular 99,
Inc. for the State of Texas. The Company issued 10,000 shares of Series D
Preferred Stock to Cellular 99, Inc. to obtain the exclusive licensing rights to
the State of Texas. The stock was valued at $.10 per share with a total value of
$1,000.00.
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. These
options were exercised in full in December of 1996.
In November of 1996 the Company issued 10,000 shares of Series D Preferred stock
to Cellular-99 to obtain the exclusive licensing rights to the State of Texas.
The stock was valued a $.10 per share with a total value of $1,000.00
During the quarter ended March 31, 1997, 7,550 shares of Series II preferred
stock and 3,500 shares of Series B preferred stock were converted into 93,000
shares of common stock. The Company issued 3,000 shares of Series C preferred
stock and 100,000 shares of common stock for future consulting services. The
contract negotiations were not completed and the stock is in the possession of
the Company. These shares will be cancelled. Also the Company issued 27,000
shares of common stock for placement fees in consideration of funds received by
the Company from sale of shares under the private placement memorandum.
To date the Company has financed its operations principally through borrowings
and private placements of equity securities and debt. During the second quarter
of 1997, the Company raised $216,000 in a private placement for which stock was
issued for 135,000 shares prior to March 31, and the remaining 81,000 shares
were issued in April of 1997. The stock was sold at $1.00 per share. Net
proceeds to the company after placement fee's was $160,260. 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 and Texas
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.
14
<PAGE>
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 $350,000 during
the year. 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 March 31, 1997, the Company had 4 full-time employees. By June 30, 1997,
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.
On February 28, 1997. Robert C. Brehm resigned as Treasurer of the Company. On
March 18, 1997, Robert M. Dolan resigned as President and CEO. The Board of
Directors of the Company named Roger K. Knight as President and CEO. Mr. Knight
has previously served in this capacity for the Company. On April 23, 1997, the
Company appointed Conrad B. Nagel to assume the position of Chief Financial
Officer and Treasurer. He is a CPA and has substantial experience in the
financial and accounting areas.
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 GVF'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, GVF.
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.
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
15
<PAGE>
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)
--------
PART II
Item 1 - Legal Proceedings
- --------------------------
There are no known legal proceedings to which the Company is a party as of March
31, 1997
Item 2 - Changes In Securities
- ------------------------------
None
Item 3 - Defaults Upon Senior Securities
- ----------------------------------------
None
Item 4 - Submission of Matters To A Vote Of Security Holders
- ------------------------------------------------------------
None
Item 5 - Other Information - subsequent events
- ----------------------------------------------
On April 24, 1997 the Company issued preferred stock to certain officers in
exchange for compensation.
Roger K. Knight 1,000 shares of Series C stock
Silas A. Phillips 500 shares of Series C stock
Item 6 - Exhibits And Reports On Form 8-K
- -----------------------------------------
(a) None
(b) Reports on Form 8-K
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.
On April 25, 1997, the Company filed a Form 8-K disclosing
that Robert M. Dolan resigned as President of the Company
and that Roger K. Knight was elected as President effective
March 18, 1997.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Global Venture Funding, Inc.
Date: 03/14/97 By: /s/ Roger K. Knight
------------------------------------
Roger K. Knight, President
17
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