UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED (THE "ACT")
For the quarterly period ended August 31,2000.
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D) OF THE ACT
For the transition period from to
.
E-PAWN.COM, INC.
(Exact Name of Registrant as Specified in Its Charter, Referred to herein as
"Company")
NEVADA 33-2533-LA 87-0435741
(State or Other Jurisdiction Commission File Number I.R.S. Employer
of Incorporation) Identification No.
Merrill Lynch Tower
2855 University Drive, Suite 200
Coral Springs, Florida 33065
Tel. 954-575-7296
(Address of Principal Executive Offices and Telephone)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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Indicate by check mark whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of August 31, 2000 there were 153,548,820 shares of the Registrant's
Common Stock, $0.001 par value, outstanding, which is the only class of common
stock of the registrant issued as of that date that has a bid and ask price
quoted in a public market.
The Private Securities Reform Act of 1995 provides a "safe harbor" for
forward-looking statements. Certain information included in this Form 10-Q (as
well as information included in the Exhibits) contains statements that are
forward looking, such as those relating to consummation of the transaction,
anticipated future revenue of the companies and success of current product
offerings. Such forward looking information involves important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, such results may differ materially from those expressed in any
forward looking statements.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
E-PAWN.COM, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
Balance Sheet F-2
Statements of Operations F-3
Statements of Cash Flows F-4
Notes to Financial Statements F-5 - F10
F-1
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E-PAWN.COM, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
-----------
<TABLE>
<CAPTION>
August 31, 2000
(Unaudited) May 31, 2000
---------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 9,174 $ 7,271
Cash held in escrow 71,725 -
Accounts receivable (net of allowance of $37,400) 3,250 -
Prepaid expenses 83,944 94,475
---------------- --------------
TOTAL CURRENT ASSETS 168,093 101,746
---------------- --------------
FURNITURE AND EQUIPMENT (net of accumulated depreciation of $7,292 and $5,827) 22,005 23,470
---------------- --------------
INTANGIBLE ASSETS (net of accumulated amortization of $5,050 and $4,000) 16,615 16,965
---------------- --------------
GOODWILL (net of accumulated amortization of $12,409) 1,476,629 -
---------------- --------------
OTHER ASSETS
Investment in CeleXx Corp. 507,000 975,000
Advance on purchase of subsidiary - 677,343
Investment in Shoppers Online / Freebees 2,000 2,000
Investment in Edwards / Wasatch LLC 1 1
---------------- --------------
TOTAL OTHER ASSETS 509,001 1,654,344
---------------- --------------
$ 2,192,343 $ 1,796,525
================ ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 662,168 $ 304,688
Due to shareholder 2,040,944 1,250,000
Loan payable 500,000 500,000
---------------- --------------
TOTAL CURRENT LIABILITIES 3,203,112 2,054,688
---------------- --------------
MINORITY INTEREST 5,268 -
STOCKHOLDERS' DEFICIT:
Preferred stock, $10 par value; 10,000,000 shares authorized;
no shares issued and outstanding - -
Preferred stock, Class A, $.10 par value; 100,000,000 shares authorized;
100,000,000 issued and outstanding 10,000,000 10,000,000
Common stock, $.001 par value; 500,000,000 shares authorized;
153,548,820 and 153,048,820 shares issued and outstanding 153,549 153,049
Additional paid-in capital 5,217,185 5,111,185
Unrealized loss on marketable securities (3,546,000) (3,078,000)
Deficit accumulated during development stage (12,594,938) (12,051,064)
Deferred compensation related to stock issued for services (245,833) (393,333)
---------------- --------------
TOTAL STOCKHOLDERS' DEFICIT (1,016,037) (258,163)
---------------- --------------
$ 2,192,343 $ 1,796,525
================ ==============
</TABLE>
See notes to consolidated financial statements.
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E-PAWN.COM, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended August 31, May 26, 1999
------------------------------------- (Inception) to
2000 1999 August 31, 2000
----------------- --------------- ---------------
<S> <C> <C> <C>
REVENUE:
Commissions $ 91,855 $ 55,577 $ 179,918
Management fee 30,000 - 37,400
Miscellaneous 2,025 - 2,025
----------------- --------------- ---------------
TOTAL REVENUE 123,880 55,577 219,343
General, and administrative expenses 667,755 53,172 2,054,117
----------------- --------------- ---------------
Net income (loss) $ (543,875) $ 2,405 $ (1,834,774)
============== ============= ==============
Net income (loss) per common share-basic and diluted $ (0.00) $ 0.00 $ (0.01)
============== ============= ==============
Weighted average common shares outstanding 153,215,487 100,000,000 153,059,931
============== ============= ==============
Net income (loss) $ (543,875) $ 2,405 $ (1,834,774)
Other comprehensive loss -
Unrealized loss on marketable securities (468,000) - (3,546,000)
----------------- --------------- ---------------
Comprehensive income (loss) $ (1,011,875) $ 2,405 $ (5,380,774)
============== ============= ==============
</TABLE>
See notes to consolidated financial statements.
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E-PAWN.COM, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
For the Three Months Ended August 31, May 26, 1999
------------------------------------- (Inception) to
2000 1999 August 31, 2000
---------------- --------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (543,875) $ 2,405 $ (1,834,774)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Net income of minority interest 458 - 458
Depreciation and amortization 14,924 - 24,751
Bad debt 30,000 - 30,000
Common stock issued for services - - 461,667
Common stock issued in legal settlement - - 190,800
Amortization of deferred compensation 147,501 - 147,501
Change in assets and liabilities:
Accounts receivable (33,250) - (33,250)
Prepaid expenses 23,058 - (71,417)
Accounts payable and accrued expenses 287,287 - 452,963
---------------- --------------- -------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (73,897) 2,405 (631,301)
---------------- --------------- -------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of subsidiary (105,935) - (108,278)
Cash received from purchase of subsidiary 9,991 - 9,991
Investment in CeleXx Corp. - - (5,000)
Investment in Shoppers Online Inc. & Freebees Inc. - - (100,000)
Purchase of fixed assets - (24,342) (29,297)
Purchase of intangible assets (700) - (21,665)
---------------- --------------- -------------------
CASH USED IN INVESTING ACTIVITIES (96,644) (24,342) (254,249)
---------------- --------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds from loans payable - - 500,000
Due to shareholder 65,944 - 65,944
Proceeds from issuance of common stock 100,000 - 300,000
Contribution of capital 6,500 22,280 28,780
---------------- --------------- -------------------
CASH PROVIDED BY FINANCING ACTIVITIES 172,444 22,280 894,724
---------------- --------------- -------------------
NET INCREASE IN CASH 1,903 343 9,174
CASH - Beginning of period 7,271 - -
---------------- --------------- -------------------
CASH - end of period $ 9,174 $ 343 $ 9,174
================ =============== ===================
</TABLE>
See notes to consolidated financial statements.
F-4
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E-PAWN.COM, INC. AND SUBSIDIARIES
---------------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements of
E-Pawn.Com, Inc. and Subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and disclosures
required for annual financial statements. These financial statements should be
read in conjunction with the consolidated financial statements and related
footnotes for the year ended May 31, 2000 included in the Form 10-K for the year
then ended.
In the opinion of the Company's management, all adjustments (consisting
of normal recurring accruals) necessary to present fairly the Company's
financial position as of August 31, 2000, and the results of operations and cash
flows for the three-month periods ended August 31, 2000 and 1999 have been
included. The results of operations for the three-month periods ended August 31,
2000 and 1999, are not necessarily indicative of the results to be expected for
the full year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10-K as filed
with the Securities and Exchange Commission for the year ended May 31, 2000.
2. ACQUISITION
ON JULY 19, 2000, THE COMPANY ACQUIRED HOME REALTY & INVESTMENT CORP.,
INC. ("HOME"), A FLORIDA FULL SERVICE REAL ESTATE COMPANY, ESTABLISHED IN 1994.
UNDER THE TERMS OF THE AGREEMENT, THE COMPANY ISSUED 250,000 SHARES OF ITS
COMMON STOCK, WHICH WAS DISTRIBUTED IN APRIL 2000, AND $105,000, WHICH WAS PAID
AT CLOSING, IN EXCHANGE FOR 80% OF HOME'S CAPITAL STOCK. Also, on the first
anniversary of the closing date, the Company will issue an additional 250,000
shares of its common stock and pay an additional $50,000. The stock has been
valued at a price of $2.70 per share, which represents the average closing price
for the three days prior to and three days subsequent to the March 9, 2000
signing of the agreement, ($3.00) less a ten percent discount. The Company has
recorded an accrual of $725,000 for the amount to be paid in July 2001 which has
been included in due to stockholders on the accompanying balance sheet.
Purchase price $ 1,508,278
Less: Fair market value of assets acquired (94,122)
Liabilities assumed 74,880
-------------------
Goodwill $ 1,489,036
===================
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On the date of closing, the Company also entered into two employment agreements
with the former owners of Home. The agreements call for annual base salaries for
each employee of $100,000 per annum plus other bonuses and benefits.
The following unaudited pro-forma condensed statements of operations for the
three months ended August 31, 2000 and 1999 reflect the combined results of the
Company and Home as if the acquisition had occurred on June 1, 1999. The pro
forma amounts give effect to the appropriate adjustments for the compensation of
the former owners and the amortization of goodwill.
Three Months Ended August 31,
---------------------------------------
2000 1999
---------------- ----------------
Total revenue $ 213,230 $ 191,603
================ ================
Net loss (575,853) (67,706)
================ ================
Net loss per share 0.00 0.00
================ ================
Weighted average number of shares 153,215,487 100,250,000
================ ================
3. SECURITIES AND EXCHANGE COMMISSION INVESTIGATION AND REGULATORY ACTION
On June 14, 2000, the United States Securities and Exchange Commission
("Commission") announced (Release No. 42938) the temporary suspension of trading
of the securities of the Company. The Commission temporarily suspended trading
for 10 trading days because of questions which it had about the accuracy and
adequacy of publicly disseminated information concerning, among other things,
the identity of the persons in control of the Company and recent trading
activity in the Company's shares and whether is was related to manipulative
conduct. The Commission also issued a subpoena to the Company and to affiliates
of the Company as well as market makers and BROKERS INVOLVED IN THE TRADING OF
THE SHARES PURSUANT TO ITS ONGOING MARKET INVESTIGATION IN THE MATTER OF CERTAIN
MICROCAP SECURITIES (NY-6667). The Commission requested information concerning
the transaction whereby the Company acquired E-Pawn, Inc. and additional
information on its management, shareholders, and its public announcements.
Subsequent to the trading suspension, the NASD removed the Company's shares from
trading on the NASDAQ OTC Bulletin Board. The Commission admonished brokers to
not trade in the shares without due diligence and reference to the disclosure
requirements of Rule 15c2-11 under the Securities Exchange Act which provides
for the information which must be available to brokers and dealers in order to
resume quotations. The ultimate outcome of the SEC investigation on the future
operations of the Company cannot be determined at this time.
The announcement of the trading suspension and the Commission inquiry
and the other events have resulted in the suspension or termination of certain
transactions which the Company was pursuing. Certain parties with whom the
Company has agreements have attempted to use the Commission's action as a basis
for terminating certain contracts. Counsel for the Company has advised the
Company's management that the Commission's action does not cancel any legal
contractual relationship between the Company and third parties without express
language in the contract that allows one party to take such action upon the
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occurrence of such an event.
At the same time as the Commission was taking the action to suspend the
trading in the Company's common stock, on June 14, 2000, the United States
Department of Justice obtained indictments against Eli Leibowitz, the Company's
President and Chief Financial Officer, and Leslie Greyling, the husband of Anne
Greyling. Ms. Greyling is an affiliate of the Company through the ownership of
Swiss Arctic Traders Ltd. and LaSalle Group Ltd., entities that have held
controlling interests in the Company. The indictment alleges that the accused
committed wire fraud, securities fraud and conspiracy to commit wire fraud,
securities fraud and commercial bribery. The Company terminated the consulting
agreement with Mr. Leibowitz and removed him from all positions with the Company
and its subsidiaries. Counsel for the Company subsequently engaged Mr. Leibowitz
to assist in the compiling of certain financial information and documentation
for these financial statements for which he received compensation.
4. LITIGATION
A. CELEXX CORPORATION
On March 14, 2000, the Company announced that it had formed a strategic
alliance with CeleXx Corporation (OTCBB: CLXX) ("CeleXx") under the terms of
which CeleXx will provide management services, IT engineering and support
service, website design and website hosting services on a fee basis under a
mutually acceptable agreement. In addition, the agreement provided that the
Company could purchase one million shares of CeleXx common stock at $5 per share
and have an option for a period of up to one year, to acquire additional shares
aggregating a market value of $50 million. The Company and CeleXx amended the
agreement, and on April 5, 2000, the Company and CeleXx arranged for the
delivery of one million shares of the Company's free trading common stock owned
by a shareholder for one million shares of CeleXx common stock, and that this
exchange, by agreement, satisfied the condition for the purchase of the CeleXx
stock at $5 per share. The agreement, as amended, also provided for, at the
Company's option, an exchange of 10 million shares of the Company's common stock
for 12 million shares of CeleXx's common stock. Upon completion of this
exchange, the Company had the option for one year to repeat the transaction by
exchanging one million shares of the Company's free trading common stock for one
million shares of CeleXx' common stock and the Company could then exchange $50
million worth of the Company's common stock for $50 million worth of CeleXx's
common stock with the number of shares based on the market value on the date of
exercise of such option.
The Company valued the investment of the one million shares at $1.25
(CeleXx' closing price on the date the shares were issued of $1.38 less a ten
percent discount). However, as of May 31, 2000, the closing price of the stock
was $1.08 and after giving effect to a ten percent discount the net was $.97 per
share. Consequently, the Company recorded a valuation allowance of $280,000. As
of August 31, 2000, the closing price of the stock was $.56 and after giving
effect to a ten percent discount the net was $.50. The Company recorded an
additional valuation allowance of $468,000 on such investment at August 31,
2000, leaving a value of $507,000.
The Company exercised its option and issued the 10 million shares for
the exchange on April 17, 2000, pursuant to the agreement. However, CeleXx
failed to deliver the 12 million shares of its common stock and to fulfill other
commitments under the agreement, and, as a result, the certificate registered in
F-7
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the name of CeleXx for the 10 million shares is being held by the Company
pending delivery of the 12 million CeleXx shares.
The Company made demand for specific performance, and on August 1,
2000, the Company filed a lawsuit in the Circuit Court of the 15th Judicial
Circuit, Palm Beach Count, State of Florida. THE CASE IS STYLED E-PAWN.COM, INC.
V. CELEXX CORPORATION AND DOUGLAS H. FORDE, Case No. CL007436AN. The lawsuit
alleges causes of action for breach of contract, fraud and breach of fiduciary
duty. The Company is seeking, among other things, specific performance to have
CeleXx complete the transaction which was called for in the Investment Agreement
between the Company and CeleXx made on March 10, 2000, as amended in April 2000.
The defendants have filed a response seeking to have the case dismissed.
Following the delivery of the 1,000,000 shares of the Company's common stock
from a shareholder, the Company received 1,000,000 shares of common stock of
CeleXx, and CeleXx advanced $500,000 to the Company in connection with the
transactions associated with the Investment Agreement. CeleXx has made demand
for the return of the $500,000, and it has demanded rescission of all of the
agreements between the Company and CeleXx and return of the stock that was
exchanged.
On October 10, 2000, CeleXx and the Company agreed in principle to
settle the lawsuit that the Company filed against CeleXx and to release any
claims that the companies may have with respect to each other. The settlement
will be subject to documentation and delivery of all considerations. The
settlement includes, among other things, the issuance of an additional 2,000,000
shares of CeleXx restricted common stock to the Company (the Company already
owns 1,000,000 shares). CeleXx will also cancel the $500,000 that is due from
the Company and return the 1,000,000 shares of the Company's common stock that
CeleXx currently holds to the shareholder. CeleXx in return will receive
5,250,000 restricted shares of the Company's common stock.
B. SHOPPER'S ONLINE, INC. AND FREEBEES, INC.
On May 9, 2000, the Company agreed to purchase 19% of the outstanding
stock in Shopper's Online, Inc. ("Shoppers"), a New Jersey based e-commerce
Internet portal site, and Freebees, Inc. ("Freebees"), a New Jersey Internet
marketing company, in exchange for two million shares of restricted common stock
of the Company and $100,000. The Company issued one million shares of its common
stock to Shoppers and one million shares of its common stock to Freebees. In
addition, the Company paid $100,000 as part of the consideration for the
acquisition of the shares. The Company's stock was valued at $1.35 per share,
(the Company's closing price on the date of the agreement of $1.50 less a ten
percent discount). Also, each of the acquired companies engaged the Company to
manage certain of its Internet and applications functions for a monthly fee of
$10,000 per month in the aggregate.
On June 14, 2000, the Company received a notice that Shoppers and
Freebees intended to cancel the agreements between the Company and each of these
respective companies. The Company had delivered the shares and the funds and
performed all terms and conditions required of it under the agreement. Shoppers
and Freebees never delivered the shares representing 19% of each company. The
Company's counsel made demand for full restitution and charged the companies and
their principal, William C. Martucci, with violation of the Florida Civil Theft
law, and will seek to recover treble damages plus attorney's fees. No response
to the demand has been received within the required abatement period, which
expired on August 25, 2000. The Company has filed the lawsuit against all
F-8
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persons who participated in the transaction. The Company recorded a valuation
allowance as of August 31, 2000 of $2,798,000 on the investment.
C. OTHER LITIGATION
The Company is a defendant in a lawsuit brought by an individual in the
Orlando District Court seeking $70,000 for the purchase price and approximately
$200,000 in damages in connection with the proposed purchase of a start up
Internet advertising company made in November 1996. The Company has filed an
answer and is defending the action. Counsel for the Company believes it has
defenses to the causes of action which will be asserted. The case has been
dormant and no trial date has been set.
The Company has been informed in June 2000 that a lawsuit has been
filed against a former shareholder, and the Company may be named as a party. As
of August 31, 2000, the Company has not been served with any citation.
5. RELATED PARTY TRANSACTIONS
During the three months ended August 31, 2000, the Company borrowed
money from Vanguard Communications Group Ltd. ("Vanguard"). Vanguard is owned by
Steven Bazsuly, an affiliate of the Company, who is the general partner of the
controlling shareholder of Fortuna Holdings Limited, which, is the controlling
shareholder of the Company. As of August 31, 2000, total loans equaled $65,000.
6. STOCKHOLDERS' EQUITY
On July 16, 2000, the Company issued 500,000 shares of its restricted
common stock for $100,000 cash in a private placement to one investor.
7. MANAGEMENT
On July 3, 2000, the principal stockholders consented to the election
of Edward O. Ries as a director of the Company. The directors then elected him
as President and Chief Executive Officer of the Company. Per the terms of his
agreement, Mr. Ries will receive $150,000 annually for five years and 1,500,000
shares of the Company's restricted common stock as a signing bonus. As of August
31, 2000, the stock had not been issued. The Company has valued the stock at
$0.31 per share, (the Company's closing price on the date of the agreement of
$0.35 less a ten percent discount). The agreement also allows for a bonus of up
to 2,000,000 shares of restricted common stock to be paid at the end of the
first year, based on the Company's performance.
8. SUBSEQUENT EVENT
On October 6, 2000, the Company entered into an Exchange Agreement with
Centra Capital Corporation ("Centra"), a Nevada corporation, with headquarters
in New York City, the objective of which is to acquire 100% of Centra's common
stock. The Agreement provides that the Company will exchange one share of its
common stock for every two shares of Centra's common stock tendered. If less
than 100% of the shares are tendered, the Company shall have the option of
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accepting the tendered shares provided at least 80% of the outstanding shares
are tendered in acceptable form.
The principal business of Centra Capital Corporation is conducted
through its wholly owned subsidiary, International Paper Converters Limited, a
United Kingdom company. The company operates check cashing stores in London and
the region surrounding London under the trade name, Cheque Changers.
F-10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
E-Pawn.Com, Inc. is an applications service provider and holding
company for investments in companies that it services. The Company has developed
sophisticated software for networking and providing e-commerce platforms for
selling products and services through the Internet. The Company uses its
technological assets in conjunction with its marketing programs to add value to
companies. E-Pawn.Com, Inc. and its other affiliates customarily make an
investment in the companies to which it provides services in certain markets.
On June 14, 2000, the Securities and Exchange Commission suspended
trading of the Company's common stock for 10 trading days. The Commission stated
that it took this action because it had questions about the disclosure of the
persons in control and about certain market activity. The Commission also issued
subpoenas to the Company and to affiliates of the Company in connection with its
investigation. The Company has provided the Commission with information in
response to its inquiry. The action of the Commission did result in loss of
listing on the NASD OTC Bulletin Board, and through October 13, 2000, the
Company's stock has prices quoted only in the Electronic Quotation System "pink
sheets." The Company has made application to the NASD for relisting on the OTC
Bulletin Board.
On July 19, 2000, the Company acquired 80% of the outstanding stock of
Home Realty & Investment Corp., Inc. ("Home Realty"). Home Realty is a full
service real estate brokerage and marketing company focusing on the residential
market in the South Florida Atlantic Coast region. The company was organized in
1994. It has two offices, and it plans to open offices in every major market in
the region. The Company closed the transaction during the quarter ending August
31, 2000, and Home Realty is consolidated in this year's operations.
The Company intends to have Home Realty develop a real estate marketing
strategy using the Ubuyhomes.com brand and Internet banner. The website will be
a tool in the marketing program, and the Ubuyhomes.com website will be linked to
all other sites in the uBuy network and E- Pawn.Com universe of domain names.
The sites for this portal will be engaged in active cross selling. Visitors to
one site can browse the other sites, and these contacts will likely lead to
buyer interest. In addition, the website will offer Home Realty the chance to
present other promotions to attract visitors which will be more economic than
the typical marketing inducements which have low return on marketing
expenditures.
Management believes that the Company will require continuing cash
infusions from private and public sources using its debt and equity capital
resources, although the Company will avoid incurring debt which it cannot
service from operations. The sale or use of additional shares of the Company's
capital stock will result in dilution of its stockholders. There is no assurance
that the Company will be able to secure the additional financing on acceptable
terms from any source. The present controlling shareholders have contributed the
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working capital necessary to sustain operations when funds were not available
from other sources. The continued operation of the Company and its ability to
reach the goals of expansion and growth will be at risk until its capital
resources from internal and external sources are more definite and diverse.
The Company has not presented a comparative analysis of selected
financial data because the present Company has had only one year of operations,
and comparative information for the Company following the reverse acquisition
with E-Pawn, Inc. in February 2000, with the previous quarters does not offer a
fair measure of the financial condition and results of operation. The Company
divested its former assets and operations in February 2000 when it spun off its
Caribbean International Corporation subsidiary to its shareholders. The Company
acquired E-Pawn, Inc. in February 2000 in a reverse acquisition. The
consolidated financial statements that have been presented are those of E-Pawn,
Inc., which was incorporated on May 26, 1999, and it had no predecessors.
E-Pawn, Inc. had limited operations during the period prior to the acquisition,
and the Company did not own Home Realty prior to July 18, 2000.
On October 6, 2000, the Company entered into an Exchange Agreement with
Centra Capital Corporation, a Nevada corporation, with headquarters in New York
City. The Exchange Agreement provides that the Company will tender for all of
the outstanding shares of Centra Capital Corporation. The principal shareholders
have agreed to tender their shares. The Company will close the transaction
provided that a minimum of 80 percent of the outstanding shares of Centra
Capital Corporation are tendered. The Company will exchange one share of its
common stock for every two shares of Centra Capital Corporation common stock
tendered.
The principal business of Centra Capital Corporation is conducted
through its wholly owned subsidiary, International Paper Converters Limited, a
United Kingdom company. The company operates check cashing stores in London and
the region surrounding London under the trade name, CHEQUE CHANGERS.
RESULTS OF OPERATIONS
FISCAL QUARTER ENDING AUGUST 31, 2000
During the period, E-Pawn.Com, Inc. was a development stage enterprise
and accordingly, engaged in limited operations. The Company generated revenue of
$124,000, of which $94,000 represented revenue of Home Realty.
Operating expenses during this period were $668,000, which consisted
primarily of Internet expenses of $150,000, consulting services of $151,000,
salaries of $142,000 and sales commissions of 69,000.
Depreciation and amortization of $14,924 was expensed for the quarter
ended August 31, 2000. The Company depreciates its furniture and equipment, its
intangible assets and goodwill on a straight-line basis over periods ranging
from five to fifteen years, which are the estimated periods that the assets will
likely benefit the Company. Management will review the Company's carrying value
periodically. If the value is less than originally determined and the value must
be lowered, the Company may suffer a charge against earnings and a shortening of
the assets' life.
Through fiscal year ending May 31, 2000, the Company and its
subsidiaries have sustained substantial operating losses that may be offset
against future taxable income through the year 2018.
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A substantial amount of the carry forwards are subject to annual limitations
pursuant to the Internal Revenue Code which become effective when an "ownership
change" such as a change in control occurs.
FACTORS AFFECTING OPERATING RESULTS
The focus of the Company's operations during the period has been
acquisitions and capital formation. The Company must continue to maintain its
website infrastructure which is the primary asset which attracts acquisition
candidates. The acquisition program has placed, and will continue to place, a
significant drain on management's time and operational resources. When the
Company acquires a company or asset, the Company must continue to infuse time
and funds to integrate the acquired company and to install the systems necessary
to manage the business and finances for the acquired company. There is no
guarantee that the acquired company will make a successful transition, and if
the acquired company should fail, the Company may be required to write off the
amount of the investment.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generated most of its cash requirements from private
placements and advances by major shareholders. At August 31, 2000, the Company
had $81,000 cash on hand, of which $71,000 represented escrow funds. During the
three months ended August 31, 2000, $100,000 was received from proceeds for
issuance of common stock. The cash was used for operations and investments.
The consolidated financial statements have been prepared assuming the
Company will continue as a going concern. Since its inception, the Company has
incurred a loss of approximately $1,835,000 has a working capital and a total
stockholder's deficiency of approximately $3,035,000 and $1,016,000
respectively, which creates a substantial doubt about the Company's ability to
continue as a going concern. The recovery of assets and continuation of future
operations are dependent upon the Company's ability to obtain additional debt or
equity financing and its ability to generate revenues sufficient to continue
pursuing its business purposes. The principal shareholder has indicated a
willingness to continue to fund the operating expenses for the foreseeable
future although there is no assurance that such shareholder will continue to do
so. The Company is actively pursuing equity and debt financing to fund future
operations and acquisitions.
During the quarter ended August 31, 2000, the Company agreed to
acquire all of the Class A Preferred Stock held by Swiss Arctic Traders Ltd for
a promissory note in a principal amount of $1 million. The note will bear simple
interest at 10% per annum and payments will be interest only payable monthly and
principal and unpaid accrued interest will be due in five years. Fortuna
Holdings Limited entered into an agreement to acquire substantially all of the
common stock of the Company held by Swiss Arctic Traders. The Company may try to
sell the Preferred Stock in return for assumption of the note and other
consideration flowing to the Company.
INFLATION
Management is of the opinion that inflation in the economy has had no
adverse impact on the Company's operation.
YEAR 2000 COMPLIANCE
Management believes that it has taken appropriate steps to protect the
Company's programs and systems from Y2K failures and disruptions. The Company
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has had no significant problem with its systems because of the failure to
recognize 2000. The funds expended by the Company to manage this problem have
not been material.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On June 14, 2000, the Securities and Exchange Commission suspended
trading of the Company's common stock citing questions about the adequacy of
disclosures about controlling shareholders. The trading suspension lifted after
10 business days, and no further public administrative action has occurred
involving the Company. In another action on June 14, 2000, the United States
Department of Justice indicted Eli Leibowitz, the Company's President and
Director, and Leslie Greyling, the husband of Anne Greyling, who controls Swiss
Arctic Traders Ltd. and LaSalle Holdings Ltd. which are each controlling
shareholders of the Company. These relationships had been disclosed. The United
States charged the defendants with wire fraud, securities fraud and conspiracy
to commit wire and securities fraud and commercial bribery.
The commission issued subpoenas in connection with the investigation
styled In The Matter of Certain Microcap Securities to the Company and
affiliates of the Company. These included certain of its directors, and the
Company has provided the information requested. The investigation is ongoing and
the Company will cooperate with the inquiry. Although the Company was not
charged in the Department of Justice action, and the Company had no association
whatsoever with the persons involved in the criminal conduct highlighted by the
federal authorities in its news conference announcing the action, the inclusion
of the trading suspension in the same release and the general references made by
the authorities to manipulation of Internet stocks by those charged, caused
almost all of the media from around the world to associate the Company with
organized crime, which the Company denies. Only a few news sources accurately
reported that the trading suspension had nothing to do with the story concerning
Microcap Fraud involving organized crime. As a result of the confusion
associated with the government agencies' news releases and the misleading
headlines, the Company and its management have been subjected to numerous
inaccurate and erroneous rumors and stories in the financial press, news press,
by financial commentators and on the Internet message boards. These stories and
the other events have caused certain transactions which the Company was pursuing
to be terminated and certain transactions to be withdrawn. Management of the
Company believes that the Company and its shareholders have been damaged by the
persons who caused the false and misleading reports to be made which led to the
adverse consequences, including a substantial decline in the market value of the
Company's stock. The Company will evaluate the legal rights and remedies which
it may have against those that caused this damage. The ultimate outcome of the
aforementioned investigation cannot presently be determined.
On August 1, 2000, the Company filed a lawsuit in the Circuit Court of
the 15th Judicial Circuit, Palm Beach Count, State of Florida. The case is
styled E-PAWN.COM, INC. V. CELEXX CORPORATION and DOUGLAS H. FORDE, Case No.
CL007436AN. The lawsuit alleges causes of action for breach of contract, fraud
and breach of fiduciary duty. The Company is seeking damages, specific
performance, and an injunction. A material claim in the lawsuit is the failure
of CeleXx to complete the transaction which was called for in the Investment
Agreement between the Company and CeleXx made on March 10, 2000, as amended on
April 3, 2000. The Company received 1,000,000 shares of common stock of CeleXx
in exchange for 1,000,000 shares of free trading common stock of the Company,
and CeleXx advanced $500,000 to the Company in connection with the transactions
associated with the Investment Agreement. CeleXx has made demand for the return
of the $500,000, and it has demanded rescission of all of the agreements between
the Company and CeleXx and return of the stock that was exchanged.
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On October 10, 2000, CeleXx and the Company agreed in principle to
settle the lawsuit that the Company filed against CeleXx and to release any
claims that the companies may have with respect to each other. The settlement
will be subject to documentation and delivery of all considerations. The
settlement includes, among other things, the issuance of an additional 2,000,000
shares of CeleXx restricted common stock to the Company (the Company already
owns 1,000,000 shares). CeleXx will also cancel the $500,000 that is due from
the Company and return 1,000,000 shares of the Company's common stock that
CeleXx currently holds to the shareholder. CeleXx in return will receive
5,250,000 restricted shares of the Company's common stock.
On June 14, 2000, the Company received a notice that Shopper's Online,
Inc. and Freebees, Inc. intended to cancel the agreements between the Company
and each of these respective companies. The Company had entered into an
agreement with the owner of these companies to acquire 19% of the outstanding
shares of each respective company in exchange for two million shares of the
Company's common stock and a payment of $100,000. In addition, the two companies
entered into a management agreement with the Company to perform management
services for a fee of $10,000 per month. The stipulated value of the stock
exchange was $3.1 million. The Company delivered the shares and the funds and
performed all terms and conditions required of it under the agreement. The
Company's counsel made demand for full restitution and charged the companies and
their principal, William C. Martucci, with violation of the Florida Civil Theft
law, which may allow the Company to recover treble damages plus attorneys' fees.
No response to the demand has been received within the required abatement
period, which expired on August 25, 2000. The Company's counsel filed the
lawsuit against all persons who participated in the transaction.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On July 3, 2000, the principal stockholders consented to the election
of Edward O. Ries as a director of the Company. The directors then elected him
as President and Chief Executive Officer of the Company. Per the terms of his
agreement, Mr. Ries will receive $150,000 annually for five years and 1,500,000
shares of the Company's restricted common stock as a signing bonus. As of August
31, 2000, the stock had not been issued. The Company has valued the stock at
$0.31 per share, (the Company's closing price on the date of the agreement of
$0.35 less a ten percent discount). The agreement also allows for a bonus of up
to 2,000,000 shares of restricted common stock to be paid at the end of the
first year, based on the Company's performance.
The Company has postponed the meeting of shareholders previously
announced and set for October 30, 2000 in Coral Springs, Florida. The Board has
rescheduled the meeting for December 4, 2000. A notice of meeting and proxy will
be sent to shareholders of record as of October 31, 2000.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
On July 5, 2000, the Company filed a Current Report on Form 8-K dated June
30, 2000, to report
Under Item 1 (Change in Control of Registrant) that the Company had entered
into an agreement to acquire the 50 million shares of Class A Preferred Stock
held by Swiss Arctic Traders, Ltd. in consideration for a note in the principal
amount of $1,000,000 payable over five years.
Under Item 2 (Acquisition and Disposition of Assets) that the Company had
withdrawn its offers to acquire interest in several companies and that the
shares authorized for the transactions were canceled and returned to the
authorized, but unissued shares of the Company. The Company failed to receive
the consideration for the transactions with Marlborough International Plc. and
CeleXx Corporation. Shoppers' Online, Inc. and Freebees, Inc. announced that
each was rescinding the agreements with the Company.
Under Item 5 (Other Events) that the Securities and Exchange Commission had
suspended trading in the Company's common stock, and it had issued a subpoena to
the Company to produce certain records concerning the controlling persons of the
Company and the trading in its shares. The Company announced that through its
counsel it was providing the information within its possession. The Company
announced that Marlborough International had canceled its agreements with the
Company.
Under Item 6 (Change in Directors and Officers) that Clinton Greyling had
resigned and Eli Leibowitz was removed as directors following the SEC action.
Ray Winter was elected President, and David H Kinnon of London was elected a
Director and CFO, subject to receiving a mutually acceptable compensation
agreement. Doug Forde resigned as Chairman, but he agreed to remain as a
director.
No financial information was filed and none was required.
On July 20, 2000, the Company filed a Current Report on Form 8-K dated July
19, 2000, to report
Under Item 1 (Change of Control of Registrant) that Swiss Arctic Traders
Ltd., a controlling shareholder, had agreed to sell 25 million shares of common
stock to Fortuna Holdings Limited, a controlling shareholder, and to provide a
proxy for additional shares. Swiss Arctic announced that it intends to divest it
shares to reduce the aggregate number to less than five percent of the
outstanding shares.
Under Item 2 (Acquisition and Disposition of Assets) that the Company had
entered into a Rescission Agreement with Loyalty Holdings Limited terminating
and rescinding the agreements between the Company and Loyalty. Each side would
return the property and consideration exchanged between them. The Company and
Marlborough International Plc. signed a Release Agreement terminating all
agreements. An affiliate of David McKenna, the CEO of Marlborough agreed to
purchase 500,000 shares of common stock of the Company for $100,000.
The Company closed the acquisition of 80% of Home Realty & Investment
Corp., Inc. of Fort Lauderdale.
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Under Item 5 (Other Events) that Fortuna Holdings Limited and Swiss
Arctic Traders Ltd. had waived all conditions and rights to rescind the original
agreement involving the purchase of E- Pawn, Inc.
Under Item 6 (Changes in Directors and Officers) that Ray Winter had
resigned as an officer and director. Edward O. Ries was elected a director and
President of the Company. Alison Madej was elected director and vice president.
Jennifer Martin was elected a director.
On August 3, 2000, the Company filed a Current Report on Form 8-K dated
July 28, 2000, reporting
Under Item 5 (Other Events) that the Company had filed a lawsuit
against CeleXx Corporation and Doug Forde.
Under Item 6 (Change in Directors and Officers) that Doug Forde had
resigned following notice from his attorney that the resignation should be
effective as of July 1, 2000.
No Financials were filed or are required to be filed.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed by the undersigned,
thereunto duly authorized.
E-PAWN.COM, INC.
BY /S/ Edward O. Ries
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Edward O. Ries, President, CEO, and Director
Date: October 13, 2000
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