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, 1997
[ ] 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 (IRS Employer Identification
incorporation or organization) Number)
6965 El Camino Real, Suite 105-279, Carlsbad, CA 92009
(Address of principal executive offices)
(Zip Code)
Issuer's telephone number (760) 436-5485
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which
registered
None Over The Counter Bulletin Board
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: $204,806
Common Stock $.0001 par value - 1,447,929 shares outstanding as
of September 30, 1997
================================================================
TABLE OF CONTENTS
PART I 1
Item 1.
Description of Business 1
Business Development 1
General Business Overview 2
XyclonyX Business Strategy 4
Background 4
Patented Technology 6
Customer Profile/Market Profile 6
Licensed Technology Targets Billion Dollar Markets 7
Driving Forces in Market 9
Marketing and Licensing 11
Competitive Overview 12
Core Competency 12
Success Formula 13
Strategic Alliances 13
Environmental Matters 14
Employees 14
Continuation Of Business 14
Item 2.
Description of Properties 14
Item 3.
Legal Proceedings 14
Item 4.
Submission of Matters to a Vote of Security Holders 14
PART II 14
Item 5.
Market for Registrant's Common Equity and
Related Stockholder Matters 14
Item 6.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Overview 16
Results of Operations 17
Liquidity and Capital Resources 18
Non-cash investing and financing activities 18
Future Funding Requirements 20
Factors Affecting Future Performance 20
Significant Accounting Issues 20
Private Placement Offering Anticipated 20
Subsequent Events (after 9/30/97) 20
Item 7.
Financial Statements and Supplementary Data 20
Item 8.
Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 21
PART III 21
Item 9.
Directors and Executive Officers
of the Registrant 21
Item 10.
Executive Compensation 23
Item 11.
Security Ownership of Certain Beneficial
Owners and Management 23
PRINCIPAL SHAREHOLDERS 23
Item 12.
Certain Relationships and Related Transactions 26
CERTAIN TRANSACTIONS 26
Item 13.
Exhibits, Financial Statements Schedules,
and Reports on Form 8-K. 27
SIGNATURES 29
EXHIBIT A - Current Financial Statements 30
===============================================================
PART I
Item 1. Description of Business
Business Development
Global Venture Funding, Inc. (the "Company" or "GVF") 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. (GVF) 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.
From May 1996 to October 1997, GVF was pursuing opportunities in
the prepaid cellular communications business via an acquired
subsidiary in Atlanta, a national support center in Las Vegas,
and a retail store operation in Houston, TX. The Atlanta
operations was closed in 1996, and the national support center in
1997. The Houston operation was sold to its existing management
in December 1997 with an effective date of October 31, 1997.
The company does not intend to pursue the cellular communications
business in the future.
On November 14, 1996 the Company's stock resumed trading on the
OTC under the symbol GBVF. On October 1, 1997, the Company
changed its trading symbol to "BUGS".
On July 17, 1997, Robert Brehm became CEO and changed the
direction of the company. The Board of Directors authorized a
one for twenty reverse split of all classes of the stock
effective on August 20, 1997. GVF has a fiscal year ending in
September and is currently building an environmental conglomerate
based upon the microbial technology acquired from XyclonyX.
In August 30, 1997, GVF acquired XyclonyX, a microbial technology
company with headquarters in La Jolla, CA. The agreement calls
for the exchange of 250,000 shares of the Company's Common Stock
and a commitment of minimum licensing fees to XyclonyX's
technology licensor.
XyclonyX was acquired to capitalize on the prior commercial
success of the existing management with microbial technology
applications in oil recovery, environmental cleanup, hazardous
waste management and agricultural applications. GVF intends to
operate XyclonyX as a separate profit center with its own
management and technology. During fiscal 1998, GVF intends to
create another subsidiary, West Coast Fermentation Center, which
will cultivate microbial cultures to be sold to outside licensees
and other subsidiaries of GVF. In November 1997, GVF formed
Sub-Surface Waste Management, a wholly-owned subsidiary whose
purpose is to manufacture and sell the patented Bio-RaptorTM
technology licensed from XyclonyX.
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 its West Coast Fermentation Center, XyclonyX, and
Sub-Surface Waste Management operating subsidiaries.
General Business Overview
Global Venture Funding, Inc. is building an environmental
technology conglomerate which has the potential to generate
revenues over $100 Million in the next five years. Using the
proprietary microbial technology, patents and unique culture
collection developed over 30 years, acquired through its
wholly-owned subsidiary, XyclonyX, GVF believes it can build the
foundation for the commercialization of this previously
successful technology. GVF is strategically organizing itself to
capitalize on restarting a formally successful technology
operation, using proprietary products that requires capital,
people and product distribution. Unlike other companies who need
to develop a product or technology and find a market and
customers to sell it to, XyclonyX has licensed products that have
been developed and used for 30 years, have generated millions of
dollars, use advanced technology unavailable to many companies,
have a proven world-wide market with applications ranging from
oil field cleanup to increased food production in third world
countries. GVF is truly on the verge of releasing and
capitalizing on an enormous amount of technology for beneficial
use that can touch the lives of every person on earth.
Organizational Structure Description
GVF is developing an organizational structure of multiple
corporations which divides the organization into distinct units
for proprietary microbe or "bug" production, R & D, licensing &
patent protection, and sales organizations licensed to sell &
sublicense bug products to specific market segments. In this
manner, GVF, as the public holding company, can orchestrate the
deployment of the environmental technology to subsidiaries who in
turn license the technology or sell products to end users. The
component companies of the overall organization are described
below:
Company Description/Charter
Global Venture Funding, Inc. Public holding company to
(GVF) orchestrate subsidiaries, assist
in fund raising through public
markets, and administrative
management of subsidiary
operations
XyclonyX Technology Licensing, Patent
protection, R & D, Technical
product support to other
subsidiary licensees,
Environmental consulting to third
parties, Management of the West
Coast Fermentation Center
West Coast Fermentation Proprietary bug production for
Center, Inc. (WCFC) all GVF subsidiaries and external
licensees,joint ventures and
strategic alliances
Sub Surface Waste Licensed to manufacture and
Management, Inc. (SSWM) sublicense Bio-RaptorsTM and to
sell bugs used in the patented
Bio-RaptorTM process.
Sol Tech Corporation Sales Unit developed or acquired
to sell to Municipal, Industrial,
Commercial, Governmental,
Military and Healthcare markets
Bio-Con Microbes Licensed to sell products
manufactured by WCFC to the
agricultural, aqua/mariculture
markets
Applied Microbic Licensed to sell WCFC
Technology, Inc. (AMTI) products to Oil & Gas operators
for Oil Field Operations and MEOR
uses.
Technology Recap
Product Lines - XyclonyX has defined seven product lines
which have been sold by predecessor companies controlled by Mery
Robinson, president of XyclonyX. These product lines are
described in the table shown below:
XyclonyX Product Series Product Line Description
10X Septic Tanks, Leach Fields,
Imhoff Tanks, Anaerobic Lagoons
20X Aerobic Domestic Sewage Systems
30X Hydrocarbon Treatment
Products/Systems
40X Agricultural Treatment
Products/Systems
60X Aquaculture & Mariculture
Treatment Products/Systems
BT Biological Pesticides
MEOR Microbially Enhanced Oil
Recovery Products/Systems
Patents - The patents licensed by XyclonyX include the following:
Decontamination of hydrocarbon contaminated soil, US patent
5,039,415
Oil contamination clean up by use of microbes and air - US patent
5,334,533
Culture Collection - XyclonyX has the rights to use a culture
collection developed by George Robinson and Mery Robinson over
the past 30 years. This unique collection of microbes and the
specific combinations of bacteria makeup the products to be
manufactured by XyclonyX.
Market Segments Targeted
XyclonyX has identified nine major market segments in which its
products, from predecessor companies, have been successfully
sold. The segments are described in the following table:
Product Line Series
=================================================================
Market Description 10X 20X 30X 40X 60X BT MEOR
=================================================================
Commercial-R Retail Customer
Outlets X X X X X
=================================================================
Commercial-W Wholesale to
Commercial Accts X X X X X
=================================================================
Industrial Industrial Accounts X X X X X
=================================================================
Municipal City, State, Federal
Government X X X X X X
=================================================================
Agricultural Food/Non-Food
Growers X X X X X X
=================================================================
Manufacturing Food Processors,
lumber, textile X X X X X
=================================================================
Military Armed Services X X X X X X
=================================================================
Healthcare Hospitals, Clinics,
surgi-centers X X X
=================================================================
Energy Oil & Gas Operators X X X X
=================================================================
Capital
Approximately $15,000,000 of capital is required to implement
this strategy. The Company is currently developing plans for
capital acquisition in Fiscal 1998.
Facilities
The facilities required to house all these companies is
approximately 80,000 square feet with 20,000 for WCFC production
and 40,000 for SSWM. An inside warehouse is also required to
protect against undesirable bacterial contamination for incoming
raw material, work-in-process and finished goods storage. Clean
rooms and laboratory space will be needed for XyclonyX. The
company is currently searching for new facilities.
Distribution
The distribution of products will be via direct sales
(Bio-Raptors and existing letters of intent), joint ventures,
Strategic Partners, Licensees (third party and subsidiary), and
acquisitions.
XyclonyX Business Strategy
Background
Dr. Mery Robinson, a.k.a. The Bug LadyTM, has been around
microorganisms since she was a child. Her father, the late
George M. Robinson, president and CEO of Bio-Con Microbes and
Applied Microbic Technology, had the distinction of being
responsible for the first full-scale commercial microbial
clean-up of an oil spill in 1968, municipal sewage
bioaugmentation in 1967, septic tank and leach field treatment as
early as 1965, as well as odor and flying pest and larval control
in the animal feedlot and agricultural processing industry in
1964.
Robinson's application of microbic technology for the hospitality
industry ranged from the pioneering cleanout of the fuel holding
tanks on the Queen Mary during its "transplant" as a Long Beach
tourist attraction in the 70's, to the grease trap maintenance
for odor and grease buildup at world famous Pea Soup Anderson
Restaurant (in Buellton, California), to the Buellton Wild Animal
Park's odor and runoff control. The municipal sewer treatment
plant, too, had its share of microbe-miracles during those early
days of bioaugmentation, since a local ordinance required
dischargers to control and reduce their input to the local plant
and, hence, the discharge zone (river) until a newer and larger
municipal sewage treatment plant could be completed. Since the
plant not only serviced the Buellton community but also the
ever-popular and scenic, Danish community of Solvang, California,
it was no great surprise that the community was very pleased that
Robinson's "bug-brew" enabled the tourist-dependent community to
maintain an ever-expanding tourist base, control their
restaurants' waste generation, and meet water quality standards
until the new treatment plant could be completed.
With such a legacy, and the returning interest in
environmentally-compatible solutions to industry's most
troublesome problems, it is no surprise that Dr. (Mery) Robinson
decided to return to private environmental work, forming
XyclonyX, after a number of years in public-sector and
private-sector finance, technology management, and financial
information systems design and implementation. Robinson's work
focussed primarily on environmental impacts, energy, and liaison
with regional and national boards and agencies, and on the fiscal
policies affecting the large-budget management ($124M/1979) under
her control at Los Angeles Unified School District - the nation's
2nd largest.
From that successful vantage point, Robinson earned her graduate
degrees in Environmental Science and later in Environmental
Engineering while continuing her work in new, and ever-more-
exciting microbial applications from plant soil amendments, to
animal feed supplements, to plant pathogen control research and
the early and promising stages of today's thrust into enhanced
oil field applications (MEOR), and bioremediation of downhole
fluids recovered during the drilling process. Patents granted
cover such challenging environmental problems as above-ground,
in-situ, and open-water containment and remediation.
Now, with the technology patents she, and associates of Bio-Con
Microbes and Applied Microbic Technology were recently awarded,
it only seems appropriate for Dr. Robinson to return to industry
and share this exciting technology with an environmentally-aware
public when it's most needed locally and globally and cost
effective, forming XyclonyX which has licensed her patented
technology and utilizes her one-of-a-kind microbial "bug"
collection cultured, formulated, and preserved over the past
thirty years.
Global Microbial Mission
The Company mission is to profitably apply, develop, acquire,
protect, license, and transfer XyclonyX technologies consisting
of patents, knowledge, products, processes and people in the
global environmental, petrochemical, manufacturing, and natural
resource marketplace.
The Company's initial objective is to establish itself as a
leading provider of oil field operational and environmental
technology and products to companies on a worldwide basis by
licensing its superior technology, which meets governmental
standards, is environmentally friendly, easy to manufacture and
apply and yields high profit for its licensees.
To achieve this objective, the Company's growth strategy is
focused on the following three principal elements:
(i) licensing the technology to a major player in both the
petroleum production market and environmental remediation
industry;
(ii) licensing the technology to small petroleum operation/
production/treatment companies for MEOR, site clean-up and
maintenance products, related agricultural waste generators/
transporters, and aquaculture/mariculture applications in various
countries around the globe; and
(iii) acquiring, developing, or licensing related technologies
for licensing to other companies.
Product Profile
XyclonyX intends to license and is continuing to refine exciting
proprietary technology in the growing environmental remediation,
petroleum production, and hazardous/toxic waste reduction,
habitat restoration/reengineering arenas, and the hospitality
industry.
In the past, cost, technology limitations, wide-spread
inaccessibility, and environmental restrictions prevented
full-scale, multi-disciplinary application of this desirable and
attractive technology from making further inroads into vast,
untapped markets. Now, XyclonyX is, again, at the forefront in
integrating its patented process technologies and MEOR
applications, with decades-proven, environmentally sound
microbiological get-clean/stay-clean site applications products,
along with lease-scale and individual-well enhancing production
techniques. Integrating these methodologies to increase output
efficiency and site improvements will enable the Company to
address both wholly untapped mass market and niche market
requirements offering alternatives to existing less efficient or
more costly technologies and products.
XyclonyX intends to develop and license the patented
technologies, processes, and proprietary products, to companies
on a national and international basis.
Products and Processes
The major products and processes of XyclonyX include, but are not
exclusively limited to, the following:
* In-situ bioremediation of underground contaminants
* Surface enclosed and open bioremediation of contaminants
* Open-water (both fresh and marine) contaminant
containment/treatment bioremediation
* Microbially Enhanced Oil Recovery (MEOR)
* Habitat restoration of environmentally "challenged" areas
* Bioconversion of proteinaceous wastestreams into edible,
formed/containerized products (e.g. fish processing wastes and
poultry processing wastes).
In addition, the initial technology and products licensed and
enhanced can be used in niche markets (e.g. agriculture,
decorative water landscape maintenance, aquaculture and
mariculture, restaurant grease traps, et.al.), and applications
which have heretofore been economically infeasible.
XyclonyX has licensed technology which can be sold to application
equipment manufacturers, oil field operators and owners (MEOR
applications, gravity/viscosity improvement, downhole and
above-ground desulfurization of crude oil, gas well production
wastewater byproducts - salt, hydrocarbons, and other
production-based contaminant containment/remediation etc., -
treatment for deparaffination needs reduction, et.al.), toxic and
hazardous waste generators, and remediation companies in the
estimated $134 Billion and $600 Billion annual environmental
remediation market (according to 1993 U.S. Department of
Commerce estimates for annual U.S. and worldwide revenues,
respectively) both as new applications and replacement products.
With services and products covering such a wide range of oil and
gas related projects, the Company is poised to offer client-
driven response to design, economic, and long-range application
issues. Critical decisions to achieve maximum project results
can affect substantial cost effectiveness benefiting both the
client and the Company.
Patented Technology
The XyclonyX BIO-RAPTORTM is a patented bioremediation shredder,
sprayer, conveyor, system for cleaning up hydrocarbon
contaminated soils. It treats soil contamination on-site,
slashing costs, maximizing material treatment surface area and
aeration, reducing retention time, minimizing potential liability
through on-site treatment and elimination of contaminant
transportation-related risks and site downtime. The
BIO-RAPTORTM, will soon be available in three high-throughput
models (50, 100, 150 tons per hour) with larger and smaller
customized models available to fit specific site requirements,
The Bio-Raptor is easily transported at highway speed (8 foot
travel width) and also features automated remote operation from a
loader cab. The process patents mentioned above were granted
patent #5,039,415 and 5,334,533.
Patent Protection
Future technologies will also be protected by US and foreign
patents. Other proprietary information is protected by
non-disclosure agreements, trade secrecy agreements, and by
restricted access to the technology.
The Company's patent attorney for existing patents is: William
E. Haefliger, attorney-at-law, Pasadena, CA. It is anticipated
that future patent application and licensing needs will be
handled through domestic and international patent and trademarks
divisions of Baker and McKenzie with offices locally (San Diego)
and worldwide.
Licensing: The Company anticipates licensing the process
technologies to interested manufacturing companies who may also
market the product. The licensing plan is to identify product
lines, territories (countries) and applications within product
lines and then to license each category in as many territories as
possible. An initial license fee and ongoing royalty will be
charged to each licensee.
Customer Profile/Market Profile
The Company develops technology and licenses the technology to
others for commercial, industrial and consumer sales. The
licensed and patented process technology is aimed at
manufacturers with existing national or international
distribution channels for their current products within
complimentary market segments. These companies license or
purchase technology when it is cheaper than developing it
in-house, when they can get to the market quickly, or when the
technology complements existing product lines, replaces inferior
products, or meets mandated government requirements.
Potential Customers
Fortune 500 giants to smaller, independent entrepreneurs can
benefit from the XyclonyX microbial and environmental products.
These prospects include:
* Manufacturers of heavy-duty construction and earth-moving
equipment (General Motors, Ford, Chrysler, Detroit Diesel, Saturn
Shredders and Conveyor Systems, Royer Industries, UPP, Kohlberg
Conveyors, et.al.) who want a license to manufacture and
potentially market technology meeting specific mandated
environmental requirements for new application equipment,
retrofit of existing non-compliant/unlicensed equipment, or
replacement of outdated treatment process equipment for
application both in the United States and in complying
international environmentally responsive markets.
* Major domestic and international oil and gas producers
interested in:
MEOR: (Microbially enhanced oil recovery) from marginally-
producing wells or wells in formations where improved or
increased production would also afford measurable well
maintenance economic benefits.
Proprietary XyclonyX workover techniques to reduce
deparaffination expenses and related downhole treatments which
traditionally require substantial well shut-down time to afford
maximum benefits but also result in lost production time of the
well during the treatment period. XyclonyX workover techniques
may significantly reduce the time lost due to these maintenance
procedures and should also result in extended equipment life.
Possible production from new pay-zones not accessible prior to
the MEOR treatment program.
* Small-to-medium oil and gas producers interested in:
MEOR(microbially enhanced oil recovery) from marginally producing
wells where MEOR and XyclonyX's proprietary maintenance and
operational cost-reducing workover techniques offer a necessary
and highly desirable alternative to closing-down the site and
incurring well capping, plugging and abandonment expenses. These
sites may also benefit from the possible reduced well maintenance
costs, reduced down-time of the wells, extended equipment life,
and possible production from new pay-zones.
* Major toxic and hazardous waste treatment companies with a
desire to:
Extend the actual or potential life of present storage and
treatment sites and facilities through on-site remediation of
stored wastestreams Control nuisance odors
* Licensing of non-waste treatment companies desiring to treat
wastestreams in-house, on-site, and who want to avail themselves
of customized equipment with throughput characteristics necessary
to meet their unique application-specific sizes or as an
additional backup system to augment their existing waste
handling/remediation technology products.
* Companies who want to niche-market environmental remediation
treatment applications which have not been previously exploited.
(e.g. hydrocarbon wastestream treatment at the municipal waste
treatment facility or landfill operation, gasoline station
routine or emergency cleanup, open-water clean-up, habitat
restoration in environmentally sensitive locals, et.al.).
* Companies who want to replace existing, less efficient
treatment technologies in their respective niche markets. (e.g.
agricultural processors, paper and cellulosic wastestream
producers, golf courses, slaughterhouses -poultry, pork, beef,
fish processors, medical and hospitality wastestreams, et.al.) to
reduce their environmental disposal problems.
Licensed Technology Targets Billion Dollar Markets. The market
for MEOR, bioremediation, and wide-ranging environmental
technology applications is enormous with applications globally!
Initially, the Company has targeted the environmental remediation
needs of the oil and gas industry, as well as additional
challenging environmental waste streams. Additionally, the
Company will seek out MEOR application and application equipment
manufacturing licensees. As part of the long-range strategic
plan, the Company will target small to medium sized, under valued
or marginally producing properties and attempt to increase the
production and hence, the market value of those marginal
properties, through the use and application of the Company's
proprietary and unique workover technologies.
Management strongly believes that these target markets have been
and may continue to be passed-over by both the larger
environmental firms as well as the major petroleum industry
participants. This niche market presents a unique opportunity
for the Company and a potentially greater long-term investment in
production enhancement and environmental quality.
The Company's ultimate niche market estimated achievable size for
existing XyclonyX Technology is estimated at between 2 to 5% of
the environmental remediation process and product market. To
date, according to Department of Commerce reports published at
the 1996 Hazmat-West Conference and other corroborating sources,
no single environmental remediation firm controls more than 2% of
the available market place. The accessibility to larger
percentages of this market has remained relatively constant and
limited due to several constraints of existing firms, products,
processes, and technologies including:
* Vast size discrepancies between the major remediation market
participants fall into only two sub-groups: the very large,
multi-national firms, and the regional or local firms with few
offices and limited scope of addressable applications
* Many smaller firms lack the resources to address or, indeed
participate in the bidding process, for larger or
multi-application remediation or environmental projects.
* Larger companies may choose to ignore all except the
exceptionally high-revenue-generating contracts.
The XyclonyX microbial technology, when fully deployed through
licenses or strategic alliance agreements, will provide
profitable niche opportunities for all size firms and thus open
the doors to the lucrative bioremediation, petroleum production,
hazardous/toxic waste reduction, municipal waste, landfill
mitigation, agricultural and aqua/mari-culture major and niche
markets not yet fully exploited by XyclonyX or competitive
products. The key benefits of the Company's microbial
technology, which open significant new product opportunities,
include:
* new, unique proprietary mass production techniques usable in
third world countries
* significantly lower manufacturing costs
* very high "bug count" offering high efficiency products
* unique microbial cultures developed over many generations
* utilize naturally occurring bacteria
* environmentally friendly, meet governmental standards are easy
to apply
* yield quick results at affordable prices
* can be shipped anywhere in the world using regular carriers
* can be grown on site for special applications
* can be applied by low skilled workers to applications
* patent protection yields protected market opportunities
XyclonyX believes the introduction of these technical
breakthroughs will have the effect of significantly affecting
replacement, retrofit and new applications in the key markets
described. Furthermore, new applications in previously ignored
markets will now become economically feasible and will be offered
by XyclonyX to companies wishing to exploit these opportunities.
In recent decades, technology development has been focused on
micro-miniaturization, low energy/high efficiency requirements,
environmentally friendly and high profit relationships. The
XyclonyX microbial technology licensed and offered by the company
fits perfectly within these parameters.
Driving Forces in Market
The driving forces in each of the markets are as follows:
Bioremediation:
It should be emphasized, that bioremediation encompasses dual
opportunities in both the commercial/industrial and governmental
marketplace. In some cases, XyclonyX technology will be applied
to "remediate" a site rather than "clean up" a site. While these
terms are often applied interchangeably, "remediation" is the
removal or treatment of hazardous contaminants to levels or
standards imposed by regulatory agencies, which may neither
restore the site to "pristine" conditions, nor necessarily to
conditions existing prior to the activities causing the
contamination. The remediation levels or standards
established by regulatory agencies are primarily based upon
health risk assessments. These risk assessments analyze the
danger to public health and safety from various exposures to the
contaminants discovered. The risk of exposure, plus the severity
of the exposure itself, are the principal factors in determining
the remediation standards.
In many cases, however, bioremediation, enables the client to
"clean up" a site, thereby achieving levels of contamination at
or below the detectable level required by regulatory agencies.
Certainly, when this is possible, it also may improve the land
use opportunities and related economic benefits associated with
reduced contaminants (e.g. remediation or clean up will impact
reuse as reuse will impact the choices between remediation and
clean up). Risk assessments are based upon proposed uses of the
property upon which the contamination is discovered. Changed
uses or changing scientific health data regarding the danger
associated with particular exposures may also change the
remediation standards (i.e. in recent years, dangers associated
with exposure to environmental lead have led to increasingly
stringent lead remediation standards). XyclonyX bioremediation
applications technology enables the client to address these
changing needs for continuing or up-grading their respective land
use alternatives.
MEOR: (Microbially Enhanced Oil Recovery)
With increased interest in new drilling, reworking of existing
marginally producing wells, and capped well reentry, directed
toward domestic production focus, MEOR has shown great promise
in improved production and new pay zone identification, alongside
its ancillary applications for viscosity reduction, improved
gravity, deparaffination treatment reduction, and site get-clean/
stay-clean drilling fluids recovery and clean-up. MEOR sites
targeted by XyclonyX have shown remarkable results (in
predecessor companies to XyclonyX) on its limited numbers of
wells (one notable test well in Wilmington, California went from
.5bbl/day to a 2000% production increase after its initial MEOR
treatment) MEOR, while still in its infancy, certainly shows
outstanding promise and warrants expanded application to various
types of marginal producers to quantify its early successes
through a wide range of production/field environments. With these
early predecessor company successes in microbial enhancement of
oil recoveries achievement, and XyclonyX's knowledge of both oil
production and the abilities of microorganisms, XyclonyX is
confident that this product will grow into a large industry/
market with particular application for heavy crudes.
Hazardous/toxic waste reduction and treatment:
The "Greening of America" has become big business. If one
considers the 1980's as the decade of investigation, then,
surely, the 1990's and beyond, become the future of
implementation, remediation, and reduction/control both here and
abroad. In 1991, the Department of Defense (DOD) and the
Department of Energy (DOE) segments of the remediation
marketplace represented 20% of the expenditures for remediation.
Now, however, there is increasing momentum in these (as well as
BRAC-Base Realignment and Closure) segments of the environmental
industry. Sites studied, now are moving into the remediation
phase, with such sites as the Furnald, Ohio and Hanford,
Washington, sites far-and-away exceeding the $1 Billion mark,
each. Government contracting assignments aside (with XyclonyX's
specialized technology and broad-based skills yielding a
noteworthy edge), still, the remaining 65% of early-decade
expenditures for remediation were made, and continue to be borne,
by private industry. After the cleanup and upgrade of leaking
USTs (Underground Storage Tanks), what to do with the residual
waste and new waste (e.g. PCP, PCB, TCE, non-crop agro-waste),
source points will continue to drive the industry forward toward
remediation, cleanup, and source reduction. In addition to the
basic needs of environmental management and remediation of
hazardous and toxic sites, the wastewater treatment and air
quality control segments of the industry will forge ahead during
the post-early-90's-recession industry recovery and international
and solid waste markets should show dramatic expansion.
Agricultural Applications:
While XyclonyX predecessor companies enjoy a long history of
success in the specialty agricultural supplement industries
utilizing its cultured biological product containing various
mixtures of organic and inorganic compounds, soil conditioners,
and other products of biological fermentation, it may not
aggressively pursue any agricultural markets at this time other
than those complementing the waste treatment and odor/pest
control lines. The cultured soil amendment product line of
XyclonyX's predecessor companies enjoyed a loyal
distributor-based following during the late 1960's through the
early 1980's. Applications ranged from dramatic field crop
performance (e.g. additional cuts from grain fields, improved
soybean nitrogen fixation , and average yield increases on cotton
crops) to legendary performance in the seed production and floral
industry, and enhanced germination in soybeans, milo (sorghum),
and sugar cane.
Early safety testing led to test introduction of feed additives
(safety control vs. treated groups yielded dramatic weight gain
in the treated groups and no pathogenesis) Since this market and
its applications are so vast and, at this time, costly to pursue,
it may be included in some future marketing efforts related to
its application internationally as a nitrogen-based fertilizer
supplement or in relation to its feed additive potential in
third-world agriculture.
Freshwater and Marine Water Aquaculture
Beyond the basics of cosmetic control of decorative lakes and
ponds, the aquaculture/mariculture industries are a traditional
extension of these applications. Early applications in
decorative freshwater aquaculture habitats (the Santa Barbara,
CA/Santa Ynez,/CA ranch of television's star of "Daniel Boone,"
Fess Parker , and other fish enthusiasts) led to an aggressive
application and marketing success of XyclonyX's predecessor
companies through its early distributor base. Ultimately, these
applications led to more complex aqua/mariculture work focussing
on the international cultivated fishery industry---a market
XyclonyX fully intends to reenter from both the growth amendment
side of the marketplace as well as the cleanup of aquaculture/
mariculture waste by products for enhanced product yield and
suppression of pathogenic bacterial growth. The wide-ranging
application to finish and shellfish propagation includes
bioaugmentation, aeration and biofilters, and thin film
introduction for control and reduction of major undesirable
organic waste build-ups and gases. XyclonyX foresees a rapid
reentry into the live seafood distribution and processing
industry, the treatment of growth ponds of fish, shrimp, and
bivalves (hatcheries, farms, and beds), public aquaria
(commercial, educational, research, preservation oriented), and
the private and retail salt and freshwater industries, hobbyists,
and breeder/growers.
Use of these efficiency-improving products may also result in
reduced water consumption (hence, less shock to the aqua/
mariculture dwellers), reduced aeration, and other related
operational improvements.
The microbial technology under development and licensed by
XyclonyX meets the requirements of the various industries as well
as the EPA provisions for application of naturally occurring and
non-genetically modified microbes and provides potential products
which are a generation ahead of existing technology in terms of
energy efficiency, ease of manufacturing, breadth of usefulness
and cost.
Lending, Financial, Insurance, and Legal Industries
Remediation ultimately impacts reuse and/or a property's
availability for reuse, resale, or transfer of ownership,
not-to-mention, the impacts upon the financing and legal
obligations of potentially responsible parties. As recently as
1994, HAZMAT proceedings on military base closures stated
that..."No one is entitled to expect 100% certainty in the
environmental remediation process"... yet XyclonyX has the
opportunity to benefit from one of the longest bioremedial
success rates in the industry through its licensing of the firmly
based technology and patents it now possesses.
The purchase or management of contaminated industrial property
can result in staggering liability to the property owner or
manager. Under federal law, an "owner" or "operator" of property
is strictly liable for the release of any hazardous substance on
or under the property. Further, the current owner or operator
may be responsible for the cleanup of all previous contamination
if it did not investigate the existence of hazardous substances
prior to the purchase. (Baker & McKenzie, ---Environmental
Considerations of the Owner or Purchaser of Commercial Property
or Businesses in California).
Briefly stated, XyclonyX provides the owner-lender-
operator-manager an option in the on-going battle to control
costs and provide a clean environment for all parties potentially
or wholly liable for the site's contamination remediation.
Marketing and Licensing. The key to selling these products is to
educate the prospects on the technology benefits, show them why
the benefits are greater than the cost to develop equivalent
technology in-house, and how they can obtain the proprietary
technology quickly and easily for their custom application. GVF
has established or will establish in fiscal 1998, the following
subsidiaries and their target markets
GVF Subsidiary Target Market
Sub-Surface Waste Management Bio-RaptorTM Bioremediation
Systems for Hazardous Waste
Cleanup
Bio-Con Microbes Agricultural Applications,
Freshwater and Marine Water
Aquaculture
Applied Microbic Technology MEOR: (Microbially Enhanced
Oil Recovery)
SolTech Corporation Septic, Domestic Sewage
Systems, Lagoons
XyclonyX Research & Development,
Technology Licensing &
Protection, Bug Manufacturing
XyclonyX feels it is well positioned to exploit the vast
marketplace via a controlled licensing and microbial production
program. This will allow resources to be directed to research
and marketing rather than product application, and heavy
equipment manufacturing in competing companies.
Marketing Plan: The Company's marketing plan will employ several
strategies:
Direct Sales by GVF subsidiary employees. The marketing team of
each subsidiary company will directly contact key companies
identified in the Bioremediation, MEOR, Waste Reduction,
Agricultural, and Aquaculture, markets outlined in the previous
section. A technology licensing package will be sold to
interested companies using exclusive and non-exclusive agreements
depending upon the part(s) of the technology licensed.
Independent Technology Licensing Companies. These companies
specialize in licensing technology from patent owners. They
solicit interested parties and consummate the "deal" receiving a
commission for their efforts.
Foreign Trade Consulates. These individuals represent countries
and have lists of companies who may be interested in the
technology. They can facilitate direct contact with company and
country officials and can help consummate a licensing
transaction. They can also help with technology protection in
countries outside the US.
World Trade Organization. Membership in this type of
organization can facilitate technology transfer within the
membership network. Quite often members can transact business
quicker in this manner.
World Bank and related international funding agencies have
traditionally participated in the planning and funding of site
remediation programs (e.g. the World Bank's participation in the
U.S./Mexico sewage treatment project, et.al.).
Other Direct Advertising, University Research Funding,
Professional Conference Participation, Humanitarian Participation
in support of environmentally responsible projects.
Geographic Market: The company intends to approach the licensing
of the XyclonyX and other associated future technologies on a
worldwide basis with separate territory licenses by country and
by product line within country. Initial efforts will be within
the United State and countries which have mutual trade relations
with the US.
Pricing: The unique technology licensed by the company has a
manufacturing cost substantially lower than existing microbial
technology, yet the products can be produced easily in less
developed nations where high technology may be scarce. Cost
conscious end users will be demanding low cost, ease of
application and high efficiency for their applications.
Consequently the microbial technology should have a high
intrinsic value for companies who know how to exploit its use.
Future Market Opportunities: XyclonyX will seek to increase
sales in the future using two strategies. First the company will
maximize sales of its microbial technology in as many countries
and product lines as possible. Second, the company will develop
additional technology centered around the existing technology and
market these to existing customers and new ones. Thus the future
strategy will be to expand geographically and along product
lines.
Time Table: The company is on a specific timetable to re-enter
the markets previously exploited by entities owned by current
management. The first priority is to raise operating capital,
initiate sales efforts, set up administrative and production
facilities, develop strategic alliances and further endorsements.
This technology will then be licensed to a major manufacturer for
a substantial licensing fee and an on-going royalty. These new
territories and licensees will pay initial license fees and
on-going royalties which will bring additional revenue to the
Company.
Competitive Overview
Many companies are currently involved in manufacturing products,
product components and/or product designs using microorganisms
and related environmental bioremediation-type technology. The
products of XyclonyX, are unique collections of microbial
cultures developed over thirty years. They can be used in five
currently defined markets and have been tested in many more, but,
to date, have not been commercially exploited in these "lab
tested", markets. With further enhancement and refinement, the
XyclonyX products could be technologically superior to any known
existing cultures.
Core Competency
The core competency of the company is manifested in the talents,
skills, technical knowledge and entrepreneurial drive of its
leadership and support staff personnel and its growth strategy in
the future. The Company has assembled a core team of management,
technical talents, marketing and creative skills, and technology
which will become the nucleus for the future success of the
company.
XyclonyX's CEO is Mery Robinson, MSES/DEnv, featured in both the
Los Angeles and San Diego Business Journal's Book of Lists of
regionally largest companies. Featured under the Largest
Environmental Consultants as well as Largest Woman-Owned
Businesses, Robinson has also been published on environmental
issues, and served on local, regional, and national boards on
environmental issues. The Bio-RaptorTM was also nominated for
UCSD's High Technology Connect Consortium's "Most Innovative New
Product Award" in the 1994 Environmental category. She has had
significant experience and has been responsible for national/
international patenting/licensing of proprietary processes and
technologies of high technology manufacturing operations.
Robinson holds a Master of Science/Environmental Science (MSES),
a Doctorate in Environmental Science and Engineering (DEnv), has
attended the NFWBO-sponsored/Wharton Graduate School of Business/
Entrepreneurial Mini-MBA program, and has been a major "builder"
of several successful environmental and microbial firms over the
past three decades.
Robinson is building the Company around its core concept of
personalized, local and regional service, products, and technical
support. Additionally, the Company will serve as the
source-point for specialized environmental remediation,
engineering, and habitat restoration services. Because Robinson
enjoys many years of on-going relationships with primary oil and
gas customers, public utilities, municipalities, and industry in
general, XyclonyX feels it can offer a wide range of services,
in cooperation with these fellow service providers, at profit
margins more favorable than might be available for larger, more
multi-layered organizations.
XyclonyX's breakthrough technology, management posture and prior
successes have built a strong foundation for successful future
sales and earnings.
XyclonyX was incorporated in 1997 under the laws of the state of
Nevada, and is currently in the startup stage of development
having licensed microbial technology and associated patents.
XyclonyX, headquartered in La Jolla, CA, is licensing its
technology and seeking additional licensees and customers for
it's The Bug LadyTM product line of unique microbial products for
a wide variety of applications requiring products that are
environmentally friendly, meet governmental standards are easy to
apply and yield quick results at affordable prices.
Growth Strategy: The company will compliment the talents of
Robinson through the acquisition of associate scientists,
chemists, technologists, and engineering technicians. Additional
technical assistance will come from outside laboratories,
universities and independent contractors and consultants. As the
technology is further developed and refined or acquired it will
be researched and developed for commercial and consumer
applications, protected by appropriate patents and trade secrecy
agreements, and prepared for licensing and sale by the marketing
team. Restricted access, disclosure agreements and other
security measures will ensure the technology and business
strategies are protected.
Success Formula
The Company believes its success is a mixture of leading-edge
technology, good management, top-notch technical people, key
advisors, strategic alliances, outside endorsements of the
product, and technology protection via patents, trademarks,
licensing agreements and trade secrecy agreements. Each of these
areas contributes to the "success formula" developed by the
company and creates a unique knowledge system which is very
valuable and not easily replicable by others.
Strategic Alliances
The company intends to enter into strategic alliances and
associations with others when it is beneficial for both parties.
Such associations can provide: endorsements for the microbial
Technology, technical validation of measured phenomena for
technical market applications and sales purposes, and financial
rewards for involved parties in terms of licenses and technology
exploitation.
XyclonyX has established alliances with Solmar Corporation and is
negotiating with various other key companies.
Endorsements: The Company is engaged in the educational and
advocacy-building activities which will lead to professional,
educational, business, environmental, and utility-provider
endorsements. As these entities are further introduced to the
merits of the technology under development, its wide application
potential, and attendant environmental and energy production
enhancement and cost savings, their endorsement of the products
will follow and further fuel the success of the Company.
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.
Employees
As of September 30, 1997, the Company had 2 employees. The
Company's employees are not represented by a labor union and the
Company believes its employee relations are good.
Continuation Of Business
In order for the Company to be successful, additional funding
will be required. The Company had no revenues from the
environmental technology business in fiscal 1997, but expects
significant revenues in 1998. 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" section). The failure of the company to
successfully obtain additional funds may jeopardize its
existence.
Item 2. Description of Properties
GVF is currently searching for office space to set up
administrative and production facilities in the San Diego area.
With a large biotechnology contingent in the area, people,
facilities and resources are plentiful. XyclonyX requires 5,000
to 20,000 square feet for initial production, ramping up to a
larger facility and/or the use of external, outsourced
fermentation capacity as the business grows. GVF currently rents
a facility from Robert Brehm, its CEO for $500 per month.
Item 3. Legal Proceedings
There are no known legal proceedings to which the Company is a
party as of September 30, 1997.
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, 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
Market for Registrant's Common Equity and Related Stockholder
Matters.
The Registrant's stock is currently quoted on the Over The
Counter Bulletin Board under the symbol "BUGS".
Bid and Ask Prices
Period High Low
September 30, 1997 $3.00 $.05
June 30, 1997 $11.20 $1.20
March 31, 1997 $35.00 $10.50
December 31, 1996 $75.00 $17.50
Year ended September 30, 1996 None None
Year ended September 30, 1995 None None
The stock resumed trading on November 14, 1996.
The company did a 1 for 20 reverse split effective August 20,
1997.
All hi/low prices reflect the 1 for 20 reverse split
The number of registered certificate holders in each class of
stock as of September 30, 1997 is as follows:
Common: 621; Series II Preferred: 69; Series B Preferred: 40;
Series C Preferred: 16; Series D Preferred: 19
Description of Common and Preferred Stock
The authorized capital stock of the company consists of
150,000,000 shares of Common Stock, $.0001 par value and
20,000,000 shares of Preferred Stock, $.10 par value.
The following summary of certain terms of the Common Stock does
not purport to be complete and is subject to, and qualified in
its entirety by, the provisions of the Company's Certificate of
Incorporation and By-laws, which are included as exhibits to the
Annual 10KSB.
Common Stock
As of September 30, 1997, there were 1,447,929 shares of Common
Stock outstanding. Holders of Common Stock are entitled to one
vote for each share held of record on all matters submitted to a
vote of the stockholders. Holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor. In the
event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Common stock, if any. Holders
of Common Stock have no right to convert their Common Stock into
any other securities. The Common Stock has no preemptive or
other subscription rights. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are, and the Common Stock to be
outstanding upon completion of this Offering will be, duly
authorized, validly issued, fully paid and nonassessable.
Preferred Stock
The Board of Directors has the authority, without further action
of the stockholders, to issue up to 20,000,000 shares of
non-voting Preferred Stock, $.10 par value, as follows:
500,000 shares have been designated as Series II, of which 22,519
shares of Series II are currently issued and remain outstanding.
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
November 1996, the Board of Directors changed the conversion
schedule as follows: Commencing January 1, 1997, each shareholder
shall be entitled to convert 250 shares (or 5%) of each 5,000
share unit to 2,500 shares of common stock. The shareholder
shall be entitled to convert the balance of each unit of Series
II Preferred shares at the conversion rate of 475 shares of each
unit during each six month period thereafter beginning July 1,
1997.
500,000 shares have been designated as Series B, of which 18,655
shares of Series B are currently issued and remain outstanding.
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; after two years, five shares of Common stock.
In November 1996, the Board of Directors changed the conversion
schedule as follows: Commencing January 1, 1997, each shareholder
shall be entitled to convert 250 shares (or 5%) of each 5,000
share unit to 1,250 shares of common stock. The shareholder
shall be entitled to convert the balance of each unit of Series B
Preferred shares at the conversion rate of 475 shares of each
unit during each six-month period thereafter beginning July 1,
1997.
50,000 shares have been designated as Series C, of which 3,240
shares of Series C are currently issued. 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 Preferred stock after a specified holding period
of one year.
50,000 shares have been designated as Series D, of which 17,138
shares of Series D are currently issued and remain outstanding.
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 Preferred stock
after a specified holding period of one year.
The Company has reserved 17,500,000 shares of its $.0001 par
value Common stock for conversion of Preferred stock and exercise
of stock options.
The Board of Directors of the Company has authority to issue all
or a portion of the authorized but unissued preferred stock in
one or more series and to fix the rights, preferences, privileges
and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any series or
the designation of such series. The issuance of Preferred Stock
could adversely affect the voting power of holders of Preferred
Stock and could have the effect of delaying, deferring or
preventing a change in control of the Company.
Options and Warrants
Various options were granted to individuals during the period
ended September 30, 1997. These options are described more fully
in the footnotes of the financial statement for the period ending
September 30, 1997.
The Company has not paid cash dividends on its common 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
During Fiscal 1996 and 1997, GVF attempted to enter the prepaid
cellular communications market with operations of Allcell in
Atlanta Georgia, Cellular 99 of Houston and a national support
center in Las Vegas. After numerous attempts at starting retail
cellular operations, and a failure to raise sufficient operating
capital, the company was on the verge of bankruptcy in July 1997.
At that time Robert Brehm took over as President, and redirected
the company into the environmental technology field with an
acquisition of XyclonyX and out of the tending to periods as long
as ten months into 1998. This amount was expended due to the
lack of revenue in GVF in 1997 in the environmental industry.
The conservative nature of management has elected to expense
these prepaid contracts in 1997. The second component is the
difference obtained from the first subtracted from $956,900 or
$421,900. This number should actually be compared to the
September 1996 Selling, General and Administrative (S, G & A)
total of $107,700 to arrive at a similar comparison of an
increase in S, G & A in 1997 of $314,200 for similar expenses.
Interest expense for related parties increased $11,700 in 1997 to
$22,100 up from $10,400 in 1996. This increase was primarily due
to interest incurred for related parties including the loan
payoffs to First Venture Group, Inc. and Vintage Group, Inc.
which were controlled by Roger Knight, President, and loans to
Roger K. Knight.
Interest expense in 1996 was $94,800 which was an increase of
$93,700 from the $1,100 incurred in 1996. This interest was
incurred with creditors, accounts payable and notes payable.
As a result of the above-mentioned expenses, Net Losses from
Operations increased $954,600 in 1997 to ($1,073,800), up from a
loss of ($119,200) in 1996.
There was no provision for income taxes during the years 1996 or
1997 as no taxable income was generated.
There was a loss from discontinued operations in 1997 totaling
$211,200 representing net losses of Cellular 99 of Houston. GVF
has also booked a $42,200 expense from the expected loss on
disposal of the Houston Operation which includes expected
expenses through October 31, 1997, the effective date the
operation was sold to its existing management.
There was no extraordinary item in 1997 and therefore a decrease
in extraordinary items of $16,800 from 1996 levels.
The Company has experienced total net losses of $1,327,200 for
the year ended September 30, 1997, and has experienced total net
losses of $319,500 for the year ended September 30, 1996, and has
a stockholder's deficit of $174,700 as of September 30, 1997. As
noted above $535,000 of the current year's loss was attributable
to the expensing of the prepaid contracts. The company fully
expects the value of these services to significantly surpass the
value of the amount expended in the 1998 fiscal year. The
Company is planning on raising additional capital through the
issuance of stock in a private placement or public offering.
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 $1,700 at September 30,
1996 and 1997 respectively. During the year ending September 30,
1997, net cash used by operating activities totaled $356,200.
Net cash provided by investing activities in 1997 totaled
$308,100 compared to $291,500 in 1996.
The above cash flow activities provided a net cash decrease of
$48,100 in 1997 compared to a net cash increase of $49,700 in
1996.
Total stock issued in exchange for the extinguishment of debt was
$317,800 in 1997 compared to $92,200 in 1996. The net stock
issued in exchange for the acquisition of subsidiaries was
$36,200 for XyclonyX in 1997 and $28,300 for AllCell in 1996.
Net Working Capital (Current Assets less Current Liabilities) was
$15,300 in 1996 and ($210,900) in 1997, which includes an entry
of $79,600 for the net liabilities of the discontinued Cellular
99 of Houston operation.
Long term debt was $0 in 1997 and $298,700 in 1996. The decrease
was attributed to the conversion of debt to equity during the
last quarter of fiscal 1997.
Total Stockholders' equity increased to a smaller deficit of
($174,700) in 1997 from ($280,400) in 1996. Stock options
increased from $30,000 in 1996 to 187,700 in 1997 and Additional
paid in capital increased to $1,928,000 or an increase of
$1,274,300 over the $653,700 value on September 30, 1996.
During February, 1997, the Company sold 14,400 shares of common
stock with warrants to purchase 9,350 shares of common stock at
$60.00 per share pursuant to a private placement offering as
permitted under Regulation D of the Securities Act of 1933
related to transactions not involving a public offering. The net
proceeds to the Company after issuing costs was $225,600.
Non-cash investing and financing activities Common Stock
Transactions during the year ended September 30, 1997
During July, 1997, the Company issued 40,000 shares of common
stock for finder's fees related to assisting the Company in
obtaining financing. All exchanges were valued at approximately
$.01 per share.
During July, 1997, the Company issued 250,000 shares of common
stock to the President of the Company in exchange for his
acceptance as President of the Company. The exchange was valued
at approximately $.20 per share.
During August, 1997, the Company issued 14,667 shares of common
stock in exchange for various services. All exchanges were
valued at approximately $.50 per share.
During August, 1997, the Company issued 60,000 shares of common
stock to a creditor in exchange for debt owed by the Company in
the amount of $54,111. The exchange was valued at approximately
$.90 per share.
During September, 1997, the Company issued 560,000 shares of
common stock in exchange for various services. All exchanges
were valued at approximately $1.00 per share.
Preferred Stock transactions during the year ended September 30,
1997 During November 1966, the Company issued 113 shares of
Series C preferred stock to three employees in lieu of a cash
salary payment and 12 shares of Series D preferred stock to a
consultant for services. All exchanges were valued at
approximately $4 per share.
Throughout the year ended September 30, 1997, certain
stockholders exercises their preferred stock conversion rights
and the Company issued 119,736 shares of common stock in exchange
for the cancellation of 1,231 shares of Series II preferred
stock, 1,235 shares of Series B preferred stock and 1,000 shares
of Series D preferred stock.
During April, 1997, the Company issued 125 shares of Series C
preferred stock to two employees in lieu of a cash salary
payment. All exchanges were valued at approximately $4 per
share.
During July, 1997, the Company issued 12,500 shares of Series D
preferred stock to five employees in lieu of a cash salary
payment. All exchanges were valued at approximately $1 per
share.
During July and August, 1997, the Company issued 100 shares of
Series C preferred stock and 4,600 shares of series D preferred
stock for finder's fees related to assisting the Company in
obtaining financing. All exchanges were valued at approximately
$1 per share.
Preferred Stock transactions during the year ended September 30,
1996 In March, April and May, 1996, the Company issued 4,668
shares of Series B preferred stock to certain creditors in
exchange for debts owed by the Company in the amount of $92,200.
All exchanges were valued at approximately $20 per share.
In February and September, 1996 certain stockholders exercised
their preferred stock conversion rights and the Company issued
85,000 shares of common stock in exchange for the cancellation of
1,250 shares of Series II preferred stock, 2,500 shares of Series
B preferred stock and 600 shares of Series C preferred stock.
To date the Company has financed its operations principally
through borrowings 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 customer demand is generated
for bug sales, the size of bug manufacturing facility that can be
build given the constraints of capital and equipment lead time.
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 manufacturing operation, 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 1998 and beyond to differ materially from
those expressed in any forward looking statements made by, or on
behalf of, GVF.
Significant Accounting Issues
Accounting Treatment of Discontinued Operations:
The discontinuance of the Cellular 99 of Houston operations has
been treated as discontinued operations expense of $253,400 for
the 1997 fiscal year.
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
During the first half of fiscal 1998, GVF intends to offer (the
"Offering") for sale up to 15,000 shares of Series C, preferred
stock at $50 and $75 per share, with each share convertible into
100 shares of common stock twelve months after issuance. The
expected offering price is not based upon any appraisal or
estimate of the earnings potential of the Company, and should not
be considered an indication of the value of the Common Stock
before or after the Offering. The shares sold in the offering
will be restricted shares subject to Rule 144.
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 (after September 30, 1997)
Company appoints new Director
Mery Robinson, President of XyclonyX was appointed a Director of
Global Venture Funding, Inc. on November 4, 1997.
Item 7. Financial Statements and Supplementary Data.
Please refer to pages A-1 through A-17.
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
During the period from October 1, 1995 to September 30, 1997, 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 an unqualified
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 September 30, 1994 and 1995 contained an
unqualified going concern opinion regarding the Company's ability
to continue as a going concern. 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, 1996 and 1997.
PART III
Item 9. Directors and Executive Officers of the Registrant
As of September 30, 1997, GVF and its subsidiary had 2 employees.
By September 30, 1998, the Company expects to significantly
increase the number of employees in the Company and its
subsidiaries. A new officer was appointed as of July 18, 1997.
Robert Brehm, CEO, Treasurer and Chairman of the Board of
Directors. His addition to the company could significantly
enhance operating results in fiscal 1997 and beyond. On November
3, 1997, Mery Robinson was appointed a Director of GVF, replacing
Sy Phillips.
Directors and Executive Officers of the Registrant.
The Directors, Executive Officers of GVF are as follows:
Name Position
Robert C. Brehm Chairman/CEO/Treasurer
Mery Robinson Director
Roger K. Knight Director
Silas A. Phillips Secretary
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. A brief background of each officer is
given below:
Robert C. Brehm was hired as President and Treasurer effective
July 18, 1997. 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. Mr.
Brehm also worked as a consultant to the Company through his
consulting firm, Robert C. Brehm Consulting, Inc.
Mery Robinson , Director - Dr. Robinson holds a Master of
Science/Environmental Science(MSES), a Doctorate in Environmental
Science and Engineering(DEnv), has attended the NFWBO-sponsored/
Wharton Graduate School of Business/Entrepreneurial Mini-MBA
program, and has been a major "builder" of several successful
environmental and microbial firms over the past three decades.
Here technical and business experience will contribute directly
to bottom line results.
Roger K. 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.
There are no family relationships among the directors and
executive officers of the Company.
The executive officers and directors of XyclonyX are:
Mery, Robinson, Chairman of the Board, Chief Executive Officer.
XyclonyX's CEO is Mery Robinson, MSES/DEnv, featured in both the
Los Angeles and San Diego Business Journal's Book of Lists of
regionally largest companies. Featured under the Largest
Environmental Consultants as well as Largest Woman-Owned
Businesses, Dr. Robinson has also been published on
environmental issues, served on local, regional, and national
boards on environmental issues. The Bio-RaptorTM was also
nominated for UCSD's High Technology Connect Consortium's "Most
Innovative New Product Award" in the 1994 Environmental category.
She has had significant experience and has been responsible for
national/international patenting/licensing of proprietary
processes and technologies of high technology manufacturing
operations.
Robert C. Brehm, Secretary, Treasurer, Director.
The acting executive officers and directors of Sub-Surface Waste
Management are:
Mery, Robinson, Chairman of the Board, Chief Executive Officer
Robert C. Brehm, Secretary, Treasurer, Director.
Item 10. Executive Compensation
Executive Compensation.
There was no compensation paid to any of the officers or
directors for the fiscal years ended September 30, 1996, 1997 in
excess of $100,000. Mr. Brehm, through September 30, 1997, did
not receive any cash compensation from GVF and no other officers
or directors were paid in excess of $100,000. Mr. Brehm's firm,
Robert C. Brehm Consulting, Inc. was previously retained by GVF
for Investor Relations.
Fiscal 1997
Annual Compensation Long Term Compensation
=================================================================
Name and Principal
Position (1) Year Salary Bonus(2) Securities
& Options
=================================================================
Robert C. Brehm,
President/Treasurer Current $15,000 Options on
125,000 shares
of common stock
at $1.00. 5,000
shares of Prefd
Series D
=================================================================
Silas Phillips,
Secretary Current $7,675
=================================================================
Robert Dolan,
Ex President (3) Current $33,000 0 0
=================================================================
Roger K. Knight,
Ex President Current 0 0 0
1996 0
=================================================================
Conrad Nagel,
Treasurer Current $1,662
(1) See "Management - Directors and Executive Officers of the
Registrant" for the title of each position held by the named
Executive Officers.
(1) Bonus to be determined based on net income before taxes of
each fiscal year.
(2) $23,000 payroll and $10,000 to an entity controlled by Mr.
Dolan.
Employment Agreements
GVF has an employment agreement with Robert C. Brehm, president
which provides for employee benefits, car allowance, a $90,000
first year salary and 5,000 shares of Series D Preferred Stock.
The agreement is for two years and is renewable thereafter.
Compensation of Directors
Members of the Board of Directors are not compensated for serving
as directors of GVF.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
PRINCIPAL SHAREHOLDERS
The Company has approximately 766 owners of record and, it
believes in excess of 1,000 beneficial owners of the Company's
stock exist as of September 30, 1997.
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information, as of September 30,
1997, with respect to the beneficial ownership of the Company's
Common and Preferred stock by each person known by the Company to
be the beneficial owner of more than five percent of the
outstanding voting Common stock of the Company and by Directors
and executive officers of the Company for all Preferred Classes,,
both individually and as a group:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Title of Class Beneficial Owner Amount and Nature Percent of
of Beneficial owner Class
Common Robert C. Brehm 133,612(1) 7.8%
6965 El Camino Real, (Officer/Director)
#105-279
Carlsbad, CA 92009
================================================================
Common Robt C. Brehm 250,000(1) 14.5%
Consulting, Inc. (Officer/Director
6965 El Camino Real, control)
#105-279
Carlsbad, Ca 92009
=================================================================
Common Mery C. Robinson 275,000(2) 16.0%
6965 El Camino Real, (Director)
#105-279
Carlsbad, CA 92009
=================================================================
Common Cellular 99, Inc. 10,000 (3) <1.0%
2712 Echo Mesa Drive (Director Control)
Las Vegas, NV 89134
=================================================================
Common First Venture Group, Inc. 1,250 (3) < 1%
2712 Echo Mesa Drive (Director Control)
Las Vegas, NV 89134
=================================================================
Common Vintage Group, Inc. 15,378 (3) < 1%
2712 Echo Mesa Drive (Director Control)
Las Vegas, NV 89134
=================================================================
Common Silas Phillips 10,000 <1.0%
628 Las Vegas Blvd, S (Officer)
Las Vegas, NV 89101
=================================================================
Common Roger K. Knight 25,000 (3) 1.5%
2712 Echo Mesa Drive (Director)
Las Vegas, NV 89134
=================================================================
Common Marc L. Baker 400,000 23.3%
Consulting, Inc. (greater than 5%)
2966 NW 91st Ave.
Coral Springs, FL 33065
=================================================================
Series II Preferred (4) 200 (5) < 1%
Silas Phillips (Officer)
628 Las Vegas Blvd, South
Las Vegas, NV 89101
=================================================================
Series B Preferred (4) 1,500 (3)(8) 8%
Roger K. Knight (Director)
2712 Echo Mesa Drive
Las Vegas, NV 89134
=================================================================
Series C Preferred (4) 2,150 (3) 52%
Roger K. Knight (Director)
2712 Echo Mesa Drive
Las Vegas, NV 89134
=================================================================
Series C Preferred 850 (3) 20%
Vintage Group, Inc. (Director Control)
2712 Echo Mesa Drive
Las Vegas, NV 89134
=================================================================
Series C Preferred 37 (5) <1%
Silas Phillips (Officer)
628 Las Vegas Blvd, South
Las Vegas, NV 89101
=================================================================
Series D Preferred (4) 5,000 (1) 28.8%
Robert C. Brehm (Officer/Director)
6965 El Camino Real,
#105-279
Carlsbad, CA 92009
=================================================================
Series D Preferred (4) 1,000 5.8%
Silas Phillips (Officer)
628 Las Vegas Blvd, South
Las Vegas, NV 89101
=================================================================
Series D Preferred (4) 3,000 17.3%
Roger K. Knight (Director)
2712 Echo Mesa Drive
Las Vegas, NV 89134
=================================================================
Series D Preferred (4) 2,500 (2) 14.4%
Mery C. Robinson (Director)
6965 El Camino Real,
#105-279
Carlsbad, CA 92009
=================================================================
Common Stock & Equivalents 2,190,940 (6) 54%
All Officers & Directors
as a group ( 4 persons)
=================================================================
</TABLE>
Notes: Percentages above are based upon 9/30/97 amounts of
1,447,929 Common shares outstanding, Common stock options of
270,500 shares, Preferred Stock Series II of 22,519 shares;
Preferred Stock Series B of 18,655 shares; Preferred Stock Series
C is 3,240 shares; and Preferred Stock Series D of 17,138 shares.
Totals assume all stock options are exercised.
Common shares and options outstanding is 1,718,429. Total common
stock and common stock equivalents is 4,074,694.
* Unless otherwise indicated in the footnotes below, each
person has sole voting and dispositive power over the shares
indicated.
(1) Mr. Brehm is Chairman, CEO and Treasurer of the Company and
these shares consist of 258,612 shares of Common stock, 125,000
Common Stock Options, and 5,000 shares of Series D Preferred
convertible into 500,000 shares of common stock. The stock is
owned by entities controlled by Mr. Brehm. Mr. Brehm has sole
voting power over 883,612 shares or 22% of the Common Stock and
equivalents.
(2) Mery Robinson holds 250,000 shares of Common Stock received
for a stock for stock purchase of XyclonyX and 2,500 shares of
Series D Preferred stock. Ms. Robinson is a Director and has
control of 525,000 shares of common stock and equivalents or 13%
of total common stock and equivalents.
(3) Mr. Knight is a shareholder of the Company and holds sole
voting and dispositive power over 340,927 shares of stock (15% of
common stock & equivalents) due to the fact that he personally
owns preferred and common stock and he is President of Global
Management Group, Inc., First Venture Group, Inc., Vintage Group,
Inc., and Cellular 99, Inc. which hold shares as indicated in the
table above. For purposes of determining percent of class of
beneficial owners, GVF calculated each of the corporation's
percentage of ownership individually. Mr. Knight is a Director.
(4) The Series II Preferred Stock, can be converted to Preferred
stock at the conversion rate of 10 shares of Preferred stock for
each share of Series II Preferred stock.
The Series B Preferred Stock can be converted to Preferred stock
at the conversion rate of 5 shares of Preferred stock for each
share of Series B Preferred stock.
The Series C Preferred Stock can be converted to Preferred stock
at the conversion rate of 100 shares of Preferred stock for each
share of Series C Preferred stock.
The Series D Preferred Stock can be converted to Preferred stock
at the conversion rate of 100 shares of Preferred stock for each
share of Series D Preferred stock.
(5) Silas Phillips is Secretary of Global Venture Funding, Inc.
(6) For purposes of determining the percentage of class and total
for all officers and directors, the Company assumed that all
officers and directors converted preferred stock to Common stock
and/or exercised options to purchase additional shares.
<TABLE>
<CAPTION>
<S> <C> <C>
All Officers & Directors
Name and Address (1) Number of Common Percent of Class
Voting Shares Beneficially
Beneficially Owned Owned
===============================================================
Robert C. Brehm, 383,612 22%
President/Director
===============================================================
Silas Phillips, 10,000 <1%
Secretary
628 Las Vegas Blvd, South
Las Vegas, NV 89101
================================================================
Roger K Knight, 51,628 3%
Director
2712 Echo Mesa Drive
Las Vegas, NV 89134
================================================================
Mery Robinson, 275,000 16%
Director
================================================================
All Directors and
Named Executive Officers 720,240 42%
as a group (4 persons)(3)
=================================================================
</TABLE>
** All of the above calculations were made on an individual
basis. Therefore the sums do not equal the totals.
(1) Unless otherwise indicated, the address of each named holder
is c/o Global Venture Funding, Inc., 6965 El Camino Real, Suite
105-279, Carlsbad, CA 92009.
(2) Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally
includes voting or investment power with respect to securities.
Shares of Common Stock subject to options, warrants and
convertible notes currently exercisable or convertible, or
exercisable or convertible within sixty (60) days, are deemed
outstanding for computing the percentage of the person holding
such options but are not deemed outstanding for computing
the percentage of any one person. Except as indicated by
footnote, and subject to community property laws where
applicable, the persons named have sole voting and investment
power with respect to the shares of Preferred shown as
beneficially owned by them.
(3) Computations based upon 1,447,929 common shares and common
stock options for 270,500 shares
Item 12. Certain Relationships and Related Transactions
CERTAIN TRANSACTIONS
Certain Relationships and Related Transactions.
Notes payable
Certain officers and/or directors to the Company have at various
times loaned funds directly, or entities they controlled loaned
funds to the corporation which funds are interest bearing. During
fiscal 1996 and 1997, the following parties loaned funds to
Global:
Person/Entity Amount of Loans Terms
Roger K. Knight(1) $184,000 10% interest,18 months
Vintage Group, Inc.(2) $ 79,700 10% interest,18 months
First Venture
Group,Inc.(3) $ 94,000 10% interest,18 months
(1) In September of 1997, the balance of these notes was
converted to 2,000 shares of Series C Preferred Stock and the
notes cancelled.
(2) In September of 1997, the balance of these notes was
converted to 850 shares of Series C Preferred Stock and the notes
cancelled.
(3) During fiscal 1997, the balance of these loans were paid off
entirely.
Consulting Agreements
On July 26, 1996, the Company issued options to purchase 15,000
common shares to Robert C. Brehm Consulting, Inc. in exchange for
a management consulting agreement scheduled to terminate on May
26, 1997. The option agreement provided for an exercise price of
$2.00 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 15,000 shares of its
$.0001 par value common stock for the exercise of this option.
This agreement was valued at $30,000 and was amortized over the
life of the consulting agreement. The option was exercised in
December 1996.
License Agreements
During the quarter ended June 30, 1996, the Company entered into
an agreement with Cellular 99, Inc., a Nevada Corporation under
the control of the President of the Company at the time, whereby
it obtained an exclusive license to rent cellular phones in the
state of Illinois, suing the proprietary marketing technology of
Cellular 99. The Company exchanged 500 shares of Series D
preferred stock for these licensing rights. The rights were
valued at $1,000 or $2.00 per share. These shares were
subsequently converted to 50,000 shares of common stock and
returned to the Company and as treasury stock as Illinois
operations were never pursued.
During the quarter ended December 31, 1996, the Company entered
into a similar agreement with Cellular 99, Inc. as previously
described for licensing rights in the state of Texas. The
company exchanged 500 shares of Series D preferred stock for
these licensing rights. The rights were valued at $1,000 or $2.00
per share. These shares were subsequently converted to 50,000
shares of common stock. 40,000 shares were returned to the
company as treasury stock as only a portion of the state of Texas
operations were pursued.
Office Space and administrative support
During 1996, the Company was 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 at the time. A principal stockholder. The value of these
services totals $7,900 and has been recorded as a capital
contribution by the principal stockholder.
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, 1997 and
1996, fees and other expenses charged by these firms totaled
approximately $23,100 and $31,700, respectively. As of September
30, 1997, amounts due these firms totaled $12,300.
Subsidiary Acquisition
In August 1997, GVF acquired XyclonyX from Mery Robinson, a
microbial technology company with headquarters in La Jolla, CA.
The agreement calls for the exchange of 250,000 shares of the
Company's Common Stock. Dr. Robinson and other patent holders
are the licensor of the technology to XyclonyX and they
collectively receive a royalty from gross sales of XyclonyX.
Item 13. Exhibits, Financial Statements Schedules, and Reports
on Form 8-K.
(a) Financial Statements - Independent Auditors Report; Balance
Sheets as of September 30, 1997 and 1996; Statements of
Operations for the years ended September 30, 1997 and 1996;
Statements of Changes In Stockholders' Equity for the years ended
September 30, 1997, 1996; Statements of Cash Flows for the years
ended September 30, 1997 and 1996; Notes to Financial Statements
for the years ended September 30, 1997 and 1996
(b) Reports on Form 8-K -dated September 18, 1997, August 18,
1997, April 25, 1997 and November 18, 1996.
(c) A registration Statement on Form S-8, respecting the
registration of shares of the Common stock of the Company issued
under the employee benefit plans named on the front cover page of
the registration statement was filed with the Securities and
Exchange Commission on November 20, 1996 under SEC File No.
333-16467. An additional registration Statement on Form S-8
respecting the registration of shares of the common stock of the
Company issued under the employee benefit plans named on the
front cover page of the registration statement was filed with the
Securities and Exchange Commission on January 16, 1997 under SEC
File No. 333-19881. An additional registration statement on Form
S-8. respecting the registration of shares of the common stock of
the Company issued under the employee benefit plans named on the
front Cover page of the registration statement filed with the
Securities and Exchange Commission on September 25 ,1997 under
SEC File No 33-36333 An additional, registration Statement on
Form S-8 respecting the registration of shares of the Common
stock of the Company issued under the employee benefit plans
named on the front cover page of the registration statement was
filed with the Securities Exchange Commission on December 23,
1997
(d) Subsidiaries of Registrant as of September 30, 1997 -
XyclonyX - 100% owned.
(e) 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)
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: 02/02/98 By: /s/ Robert C. Brehm
Robert C. Brehm, 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 C. Brehm President, CEO, Treasurer 02/02/98
Robert C. Brehm and Director
/s/ Roger K. Knight Chairman of the Board, 02/02/98
Roger K. Knight Director
/s/ Mery C. Robinson Secretary, Vice President 02/02/98
Mery C. Robinson and Director
=============================================================
EXHIBIT A - Current Financial Statements
GLOBAL VENTURE FUNDING, INC.
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
===============================================================
GLOBAL VENTURE FUNDING, INC. AND SUBSIDIARY
REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
GLOBAL VENTURE FUNDING, INC. AND SUBSIDIARY
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
CONTENTS PAGE
Independent auditors' report 1
Consolidated financial statements:
Balance sheets 2
Statements of operations 3
Statements of changes in stockholders' deficit 4
Statements of cash flows 5
Notes to consolidated financial statements 6-17
=================================================================
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Global Venture Funding, Inc.
We have audited the accompanying consolidated balance sheets of
Global Venture Funding, Inc. and Subsidiary as of September 30,
1997 and 1996, and the related consolidated statements of
operations, changes in stockholders' deficit, and cash flows for
the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our 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 consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Global Venture Funding, Inc. and Subsidiary as of
September 30, 1997 and 1996, and the results of their operations
and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated 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 consolidated financial statements do
not include any adjustments that might result from the outcome of
this uncertainty.
Las Vegas, Nevada
January 21, 1998
=================================================================
GLOBAL VENTURE FUNDING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
ASSETS 1997 1996
Current assets:
Cash (Note 8) $ 1,700 $ 49,800
Prepaid expenses and other assets 28,000 26,600
Total current assets 29,700 76,400
Property and equipment (Note 2) 36,200 --
Investment in and advances to
unconsolidated subsidiary (Note 4) -- --
Licensing rights (Note 7) -- 1,000
Deferred tax assets (Note 6) -- --
$ 65,900 $ 77,400
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable (Note 3) $ 75,400 $ 11,300
Accounts payable and accrued
liabilities 88,300 47,800
Net liabilities of discontinued
operation (Note 4) 76,900 --
Total current liabilities 240,600 59,100
Long-term debt, related
parties (Note 7) -- 298,700
240,600 357,800
Commitments and contingencies
(Notes 4 and 9) -- --
Stockholders' deficit (Note 5):
Convertible preferred stock,
$.10 par value; authorized
20,000,000 shares:
Series II; authorized 500,000
shares; issued and outstanding
22,519 and 23,750 shares (aggregate
liquidation preference of $22,519
and $23,750) 2,300 2,300
Series B; authorized 500,000
shares; issued and outstanding
18,655 and 19,890 shares (aggregate
liquidation preference of $18,655
and $19,890) 1,900 2,000
Series C; authorized 50,000
shares; issued and outstanding
3,240 and 53 shares (aggregate
liquidation preference of $324,000
and $5,300) 300 --
Series D; authorized 50,000 shares;
issued and outstanding 17,138 and
525 shares (no liquidation preference) 1,700 100
6,200 4,400
Common stock $.0001 par value;
authorized 150,000,000 shares; issued
and outstanding 1,447,929 and 164,126
shares 200 100
Additional paid-in capital 1,928,000 653,700
Stock options 187,700 30,000
Treasury stock (1,000) --
Accumulated deficit (2,295,800) (968,600)
(174,700) (280,400)
$ 65,900 $ 77,400
================================================================
GLOBAL VENTURE FUNDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended September 30,
1997 1996
Revenues $ -- $ --
Cost of revenues -- --
Gross profit -- --
Selling, general and
administrative expenses 956,900 107,700
Loss from operations (956,900) (107,700)
Other expense:
Interest expense, related
parties (22,100) (10,400)
Interest expense (94,800) (1,100)
(116,900) (11,500)
Net loss from continuing
operations before taxes (1,073,800) (119,200)
Provision for income
taxes (Note 6) -- --
Net loss from continuing
operations (1,073,800) (119,200)
Discontinued operations
(Note 4):
Loss from operations of
Houston, Texas tele-
communications store to
be disposed of (no income
tax benefit) (211,200) --
Estimated loss on disposal of
Houston, Texas tele-
communications store,
including provision for
operating losses of $11,900
during phase-out period (no
income tax benefit) (42,200) --
Loss from operations of
Allcell Communications, Inc.
(no income tax benefit) -- (217,100)
(253,400) (217,100)
Net loss before extraordinary
item (1,327,200) (336,300)
Extraordinary item (Note 8) -- 16,800
Net loss $(1,327,200) $(319,500)
Net loss per common share:
Net loss from continuing
operations $(3.27) $(0.98)
Discontinued operations (0.64) (1.79)
Estimated loss on disposal of
Houston, Texas tele-
communications store (0.13) --
Net loss before extraordinary item (4.04) (2.77)
Extraordinary item -- 0.14
Net loss $ (4.04) $ (2.63)
Weighted average common
shares outstanding 328,638 121,209
=================================================================
GLOBAL VENTURE FUNDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Preferred Stock Common Stock Additional Stock
Treasury Accumd Tot
Shares Amount Shares Amount Paid-In Options Stock
Deficit Stck
Capital
Hldr
deficit
______ ______ ______ ______ ________ _______ ______
______ _____
Balance,
9/30/95 43,375 $4,300 79,126 $100 $524,400 $ -- $ --
$(649,100)
$(120,300)
Issuance of stock in exchange for
extinguishment of debt (Note 5)
4,668 500 -- -- 91,700 -- --
-- 92,200
Conversion of preferred stock (Note 5)
(4,350) (500) 85,000 -- 500 -- --
-- --
Issuance of stock for licensing agreement
(Note 7)
500 100 -- -- 900 -- --
-- 1,000
Acquisition of Allcell (Note 4)
25 -- -- -- 28,300 -- --
-- 28,300
Contributed capital for services (Note 7)
-- -- -- -- 7,900 -- --
-- 7,900
Issuance of stock options in exchange
for services (Note 5)
-- -- -- -- -- 30,000 --
-- 30,000
Net loss for the year
-- -- -- -- -- -- --
(319,500)(319,500)
Balance, September 30, 1996
44,218 4,400 164,126 100 653,700 30,000 --
(968,600)(280,400)
Issuance of stock in exchange for
extinguishment of debt (Notes 5 and 7)
2,850 300 60,000 -- 317,500 -- --
- -- 317,800
Conversion of preferred stock (Note 5)
(3,466) (300) 119,736 -- 300 -- --
- -- --
Issuance of stock for licensing agreement
(Note 7)
500 100 -- -- 900 -- --
- -- 1,000
Acquisition of XyclonyX (Note 4)
-- -- 250,000 -- 36,200 -- --
- -- 36,200
Issuance of stock options in exchange
for services (Note 5)
-- -- -- -- -- 187,700 --
- -- 187,700
Exercise of stock options (Note 5)
-- -- 15,000 -- 60,000 (30,000) --
- -- 30,000
Return of shares issued in conjunction with
Cellular 99 licensing agreements (Note 7)
-- -- -- -- -- -- (1,800)
- -- (1,800)
Issuance of stock in private placement
(Note 5)
-- -- 14,400 -- 225,600 -- --
- -- 225,600
Issuance of stock in exchange for services
(Note 5)
17,450 1,700 824,667 100 633,800 -- 800 --
636,400
Net loss for the year
-- -- -- -- -- -- --
(1,327,200) (1,327,200)
Balance, September 30, 1997
61,552 $6,200 1,447,929 $200 $1,928,000 $187,700
$(1,000) $(2,295,800)
$ (174,700)
</TABLE>
=================================================================
====
GLOBAL VENTURE FUNDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September
30,
1997 1996
Cash flows from operating activities:
Net loss $(1,327,200)
$(319,500)
Adjustments to reconcile net income
to cash provided (used) by operating
activities:
Depreciation and amortization --
9,400
Stock, options and contributed
capital in exchange for services 824,600
10,700
Write-off acquisition costs of
unconsolidated subsidiary --
28,300
Extraordinary gain
--
(16,800)
Loss on disposal of discontinued
operation 42,200
- --
Change in net liabilities of
discontinued operation 34,700
- --
Decrease (increase) in:
Prepaid expenses (1,400)
(5,600)
Increase (decrease) in:
Accounts payable and accrued liabilities 70,900
51,700
Net cash used by operating activities (356,200)
(241,800)
Cash flows from financing activities:
Proceeds from issuance of long-term debt
to related parties 98,500
317,900
Repayment of long-term debt to
related parties (155,500)
(25,000)
Proceeds from issuance of notes payable 110,000
- --
Repayments of notes payable (500)
(1,400)
Issuance of common stock in private
placement 225,600
- --
Exercise of stock options 30,000
- --
Net cash provided by financing activities 308,100
291,500
Net (decrease) increase in cash (48,100)
49,700
Cash, beginning of period 49,800
100
Cash, end of period $ 1,700 $
49,800
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ -- $ --
Cash paid for interest $ 2,600 $ --
Schedule of non-cash investing and financing activities:
Stock issued in exchange for extinguishment of debt
(Notes 5 and 7) $ 317,800 $
92,200
Stock issued in exchange for acquisition
of XyclonyX and Allcell Communications,
Inc. (Note 4) $ 36,200 $
28,300
Conversion of preferred stock to common
stock (Note 5) $ 300 $
500
=================================================================
===
GLOBAL VENTURE FUNDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
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 as detailed below.
During July, 1997, the Company opened a store in Houston, Texas
that was
engaged in the business of selling cellular phone products.
Effective October
31, 1997, the Company sold this business.
During August, 1997, the Company acquired the assets of XyclonyX,
a company
founded to develop, apply and license patented toxic and
hazardous waste
treatment and recovery processes as well as to license and apply
Microbially
enhanced oil recovery technologies and products. Operations for
XyclonyX have
yet to commence.
During 1996, through its wholly-owned subsidiary, Allcell
Communications, Inc.
("Allcell"), a Georgia corporation formed on April 29, 1996, the
Company was
engaged in the business of reselling cellular phone air time
through a
distribution network on a prepaid basis. The subsidiary ceased
operations
during September, 1996 with no plans to resume operations.
The Company has experienced losses from discontinued operations
of $253,400,
including an estimated loss on disposal of $42,200, and $217,100
for the years
ended September 30, 1997 and 1996, respectively, and has
experienced losses
from continuing operations of $1,073,800 and $119,200 for the
years ended
September 30, 1997 and 1996, respectively, and has a
stockholders' deficit of
$174,700 as of September 30, 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 currently
developing
business opportunities through its wholly-owned subsidiary,
XyclonyX. Based
upon the current status of the Company, additional capital will
be required in
order for the Company to complete any 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.
Consolidation:
The consolidated financial statements include the accounts of the
Company and
XyclonyX. All material intercompany transactions have been
eliminated in
consolidation.
Discontinued operations:
On December 30, 1997, the Company formally disposed of its
Houston, Texas
cellular phone product store. The sale was effective as of
October 31, 1997
with the buyer assuming all liabilities for products or services
entered into
from November 1, 1997 and forward. In accordance with the
Financial Accounting
Standards Board Emerging Issue Task Force 95-18, when the
measurement date for
a discontinued operation, as defined in APBO No. 30, "Reporting
the Results of
Operations - Reporting the Effects of Disposal of a Segment of a
Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions"
occurs after the balance sheet date but before the financial
statements for the
prior period have been issued, the estimated loss on disposal
should be
recognized and the segments operating results should be presented
as a
discontinued operation in the not yet released financial
statements.
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.
Deferred financing costs:
Costs associated with obtaining financing are included in prepaid
expenses and
other assets and are amortized over the term of the related debt
using the
straight-line method.
Property and equipment:
Property and equipment is stated at cost. Depreciation will be
calculated
using the straight-line method over the estimated useful lives of
the assets.
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.
In February, 1997, the Financial Accounting Standards Board
issued Financial
Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share,
which is
effective for periods ending after December 15, 1997. At that
time, the
Company will be required to change the method currently used to
compute
earnings per share and to restate all prior periods. Under the
new
requirements for calculating primary earnings per share, which
will be referred
to as basic earnings per share, the dilutive effect of stock
options and
warrants will be excluded. Diluted earning per share as defined
in SFAS 128 is
similar to fully diluted earnings per share as defined in APBO
No. 15 "Earnings
Per Share". The impact of SFAS 128 on the calculation of basic
and diluted
earnings per share for 1997 and 1996 is not expected to be
material.
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 notes payable and long-term debt, related parties
approximates fair
value.
2. Property and equipment:
Property and equipment consists principally of a fermentor and
related
accessories that were acquired as part of the Company's
acquisition of
XyclonyX. As of September 30, 1997, the assets have not been
placed in
service.
3. Notes payable:
Notes payable consist of various unsecured notes due in 6 months
from the date
of issuance and bear interest at 12%. The maturities range from
October, 1997
to March, 1998. Several of these notes were extinguished by the
issuance of
preferred stock subsequent to September 30, 1997.
4. Business acquisitions and discontinued operations:
For the year ended September 30, 1997:
On August 30, 1997, the Company completed the acquisition of
XyclonyX 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 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. XyclonyX became a wholly-owned
subsidiary of the
Company through the exchange of 250,000 shares of common stock
for all of the
outstanding stock of XyclonyX. XyclonyX was formed on August 14,
1997 and had
no significant operations prior to its acquisition by the
Company.
On October 31, 1997, the Company adopted a formal plan to sell
its Houston,
Texas cellular phone products store. The sale was effective as
of October 31,
1997 with the buyer assuming all liabilities for products or
services entered
into from November 1, 1997 forward. The assets of this operation
consisted of
inventories, deposits and leasehold improvements.
The estimated loss on disposal of the discontinued operation of
$42,220 (no
income tax benefit) represents the estimated loss on the disposal
of the assets
and a provision for operating losses of $11,900 during the
phase-out period.
Net sales of the discontinued operation were $29,000 and are not
included in
sales in the accompanying statement of operations.
Assets and liabilities of the discontinued operation consisted of
the following
at September 30, 1997:
Inventories $ 2,600
Deposits and other assets 3,700
Leasehold improvements 14,800
Total assets 21,100
Accounts payable and accrued expenses 98,000
Net liabilities $(76,900)
Net liabilities to be disposed of have been separately classified
in the
accompanying balance sheet at September 30, 1997.
The disposal was completed upon the asset and liability exchange
and the
exchange of 80,000 shares of the Company's common stock on
December 30, 1997.
For the year ended September 30, 1996:
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 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 275 Series C preferred shares for
all of the
outstanding stock of Allcell. 250 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. These shares
were never
released from escrow and thus retained by the Company. 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.
5. Stockholders' deficit:
On August 20, 1997, the Board of Directors authorized a
one-for-twenty (1:20)
reverse stock split of all shares of outstanding common and
preferred stock.
The effect was a reduction in the number of issued and
outstanding common
shares from 11,173,898 to 558,695 and preferred shares from
843,599 to 42,180.
All references in the accompanying financial statements to the
number of common
and preferred shares and per share amounts have been restated to
reflect the
above reverse stock split.
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 November, 1996, the
Board of
Directors changed the conversion schedule as follows: Commencing
January 1,
1997, each shareholder shall be entitled to convert 250 shares
(or 5%) of each
5,000 share unit to 2,500 shares of common stock. The
shareholder shall be
entitled to convert the balance of each unit of Series II
Preferred shares at
the conversion rate of 475 shares of each unit during each
six-month period
thereafter beginning July 1, 1997.
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
November, 1996, the Board of Directors changed the conversion
schedule as
follows: Commencing January 1, 1997, each shareholder shall be
entitled to
convert 250 shares (or 5%) of each 5,000 share unit to 1,250
shares of common
stock. The shareholder shall be entitled to convert the balance
of each unit
of Series B Preferred shares at the conversion rate of 475 shares
of each unit
during each six-month period thereafter beginning July 1, 1997.
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 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.
The Company has reserved 17,500,000 shares of its $.0001 par
value common stock
for conversion of preferred stock issuances.
Preferred stock transactions during the year ended September 30,
1997:
During November, 1996, the Company issued 113 shares of series C
preferred
stock to three employees in lieu of a cash salary payment and 12
shares of
Series D preferred stock to a consultant for services. All
exchanges were
valued at approximately $4 per share.
Throughout the year ended September 30, 1997, certain
stockholders exercised
their preferred stock conversion rights and the Company issued
119,736 shares
of common stock in exchange for the cancellation of 1,231 shares
of Series II
preferred stock, 1,235 shares of Series B preferred stock and
1,000 shares of
Series D preferred stock.
During April, 1997, the Company issued 125 shares of Series C
preferred stock
to two employees in lieu of a cash salary payment. All exchanges
were valued
at approximately $4 per share.
During July, 1997, the Company issued 12,500 shares of Series D
preferred stock
to five employees in lieu of a cash salary payment. All
exchanges were valued
at approximately $1 per share.
During July and August, 1997, the Company issued 100 shares of
Series C
preferred stock and 4,600 shares of Series D preferred stock for
finder's fees
related to assisting the Company in obtaining financing. All
exchanges were
valued at approximately $1 per share.
Preferred stock transactions during the year ended September 30,
1996:
In March, April and May, 1996, the Company issued 4,668 shares of
Series B
preferred stock to certain creditors in exchange for debts owed
by the Company
in the amount of $92,200. All exchanges were valued at
approximately $20 per
share.
In February and September, 1996, certain stockholders exercised
their preferred
stock conversion rights and the Company issued 85,000 shares of
common stock in
exchange for the cancellation of 1,250 shares of Series II
preferred stock,
2,500 shares of Series B preferred stock and 600 shares of Series
C preferred
stock.
Common stock transactions:
During February, 1997, the Company sold 14,400 shares of common
stock with
warrants to purchase 9,350 shares of common stock at $60.00 per
share pursuant
to a private placement offering as permitted under Regulation D
of the
Securities Act of 1933 related to transactions not involving a
public offering.
The net proceeds to the Company after issuing costs was $225,600.
During July, 1997, the Company issued 40,000 shares of common
stock for
finder's fees related to assisting the Company in obtaining
financing. All
exchanges were valued at approximately $.01 per share.
During July, 1997, the Company issued 250,000 shares of common
stock to the
President of the Company in exchange for his acceptance as
President of the
Company. The exchange was valued at approximately $.20 per
share.
During August, 1997, the Company issued 14,667 shares of common
stock in
exchanges for various services. All exchanges were valued at
approximately
$.50 per share.
During August, 1997, the Company issued 60,000 shares of common
stock to a
creditor in exchange for debt owed by the Company in the amount
of $54,111.
The exchange was valued at approximately $.90 per share.
During September, 1997, the Company issued 560,000 shares in
exchange for
various services. All exchanges were valued at approximately
$1.00 per share.
Stock options:
For the year ended September 30, 1997:
The Company issued options during the year for consulting
services, fees in
connection with obtaining financing and various other services.
For the year ended September 30, 1996:
On July 26, 1996, the Company issued options to purchase 15,000
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 $2 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 agreed to reserve 15,000 shares of its $.0001 par value
common stock
for the exercise of this option. This agreement was valued at
$30,000 and was
amortized over the life of the consulting agreement. These
options were
exercised during December, 1996.
Stock options and warrants summary information:
The Company accounts for stock compensation to non-employees
under the
provisions of SFAS 123, "Accounting for Stock-Based
Compensation."
Activity of options and warrants granted is as follows:
Options and warrants
outstanding
Weighted
average
Shares exercise
price
=================================================================
========
Balance, September 30, 1995 -- $ --
Granted 15,000 2.00
Balance September 30, 1996 15,000 2.00
Granted 270,500 3.55
Exercised (15,000) 2.00
Balance September 30, 1997 270,500 $ 3.55
Exercisable, September 30, 1997 220,350 $ 3.43
The following is a summary of options and warrants outstanding at
September 30,
1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C>
Options and warrants outstanding Options and warrants
exercisable
=================================================================
====
Weighted
Weighted
Range of Number average Weighted Number
average
exercise prices outstanding remaining average Exercisable
exercise
contractual exercise
price
life (years) price
$ .10 - .50 123,000 2.67 $ 0.36 83,000 $
0.48
1 125,000 5.00 1.00 125,000
1.00
10 3,150 4.85 10.00 3,000
10.00
20 10,000 3.50 20.00 --
- --
60 9,350 2.00 60.00 9,350
60.00
270,500 3.78 $ 3.55 220,350 $
3.43
</TABLE>
The fair value of each option and warrant is estimated on the
date of grant
using the Black-Scholes option pricing model. The following
assumptions were
used to estimate the fair value:
Expected stock price volatility 226.10%
Expected option/warrant lives 1-5 years
Expected dividend yields --
Risk-free interest rates 5.72 - 6.59%
The weighted average fair value of options/warrants granted was
$.69.
6. 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,
1997
1996
Computed tax benefit at federal statutory rate $451,200
$108,600
Change in valuation allowance (451,200)
(108,600)
$ --
$ --
The provision for federal and state income taxes consisted of the
following:
Year ended
September 30,
1997
1996
Current $ --
$ --
Deferred --
--
$ --
$ --
The deferred tax asset consisted of the following:
Net operating loss carryforwards $ 907,800
$ 542,300
Valuation allowance (907,800)
(542,300)
Net deferred tax asset $ --
$ --
The Company has net operating loss carryforwards ("NOLs") for
federal income
tax reporting purposes of approximately $2,670,000. The NOLs
expire at various
times through 2012.
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.
7. 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 at the time, 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 500 shares of
Series D
Preferred Stock for these licensing rights. These rights were
valued at $1,000
or $2 per share. These shares were subsequently converted to
50,000 shares of
common stock and returned to the Company as treasury stock as
Illinois
operations were never pursued.
During the quarter ended December 31, 1996, the Company entered
into a similar
agreement with Cellular 99 as previously described for licensing
rights in the
state of Texas. The company exchanged 500 shares of Series D
preferred stock
for these licensing rights. These rights were valued at $1,000
or $2 per
share. These shares were subsequently converted to 50,000 shares
of common
stock. 40,000 shares were returned to the Company as treasury
stock as only a
portion of the state of Texas operations were pursued.
Office space and administrative support:
During 1996, the Company was 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 corporations under the control of
the president.
The notes are unsecured, due in 18 months from the date of
issuance, and bear
interest at 10%. During August, 1997, the outstanding balance on
the notes was
$263,700. The Company issued 2,850 shares of Series C preferred
stock in
exchange for extinguishment of the liabilities. All exchanges
were valued at
approximately $93 per share.
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, 1997 and 1996, fees and other
expenses charged by
these firms totaled approximately $23,100 and $31,700,
respectively. As of
September 30, 1997, amounts due these firms totaled $12,300.
8. 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, were included in the cash balance at
September 30, 1996.
9. Commitments and contingencies:
Employment contract:
During July, 1997, the Company entered into a two-year employment
contract with
its President. Base compensation during the first year is
$90,000. Base
compensation during the second year is $120,000.
Consulting contract:
During November, 1996, the Company entered into a one-year
consulting contract
with an individual to run operations at its Houston, Texas
cellular phone
products store. Base compensation is $120,000. Liabilities for
these services
were extinguished as part of the sale of the operation as of
October 31, 1997.
Purchase commitment:
During December, 1996, the Company entered into a purchase
agreement for a
cellular calling card switch system. The outstanding commitment
of $76,100 as
of September 30, 1997 was assumed by the buyer of the Houston,
Texas cellular
products store as of October 31, 1997.
Store lease:
The Company leases a commercial facility for conducting its
cellular phone
products store operations. The lease covers the period from
December, 1996 to
November, 1997 with five one-year options to extend. All
liabilities relating
to this lease from November 1, 1997 and forward were assumed by
the buyer of
the operation.
The Notes to Consolidated Financial Statements are an integral
part of these
statements.
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,700
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,700
<PP&E> 36,200
<DEPRECIATION> 0
<TOTAL-ASSETS> 65,900
<CURRENT-LIABILITIES> 240,600
<BONDS> 0
0
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<COMMON> 200
<OTHER-SE> (181,100)
<TOTAL-LIABILITY-AND-EQUITY> 65,900
<SALES> 0
<TOTAL-REVENUES> 0
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<OTHER-EXPENSES> 956,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,900
<INCOME-PRETAX> (1,073,800)
<INCOME-TAX> 0
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