SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
January 31, 1996 00-18140
ADEN ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
California
(State of other jurisdiction of incorporation or organization)
87-0447215
(I.R.S. Employer Identification Number)
260 Regency Parkway, Suite 220, Omaha, Nebraska 68114
(Address of principal executive offices) (Zip Code)
(402) 343-0191
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject
such filing requirements for the past 90 days.
_____Yes X No
State the number of shares outstanding of each of the Registrant's classes of
common equity, as of the latest practicable date.
Common stock, par value $.001; shares outstanding
as of June 21, 1996
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
See Exhibit 1.
Item 2. Managements Discussion and Analysis of Results of
Operations and Liquidity and Capital Resources
Results of Operations: The Registrant completed the initial public offering
of its securities pursuant to a Form S-18 registration statement filed with the
Los Angeles, California office of the Securities and Exchange Commission,
which was effective on February 23, 1987.
For the 1995 fiscal year, the Company had a net loss of $98, 245. The first
nine of 1996, ending January 31, 1996, resulted in a net loss of $546, 893.
The losses were incurred from both losses on investments and in identifying
potential acquisition candidates. The activities are described below.
In December 1995, the Registrant announced it had acquired the assets of
Safe Pay, Inc. ("Safe Pay") through a wholly owned subsidiary, Safe Pay
Acquisition Corporation. After further exploration into the electronic
commerce industry, the Registrant has decided to discontinue its efforts to
establish itself in this industry. Pursuant to this decision, the Safe Pay
acquisition has been rescinded. The Registrant will instead focus all its
efforts into the telecommunications and internet service provider industries.
The Registrant acknowledges the possibility that Safe Pay may bring suit
against the Registrant to recover any damages it may have incurred.
In August 1995, the Registrant signed a letter of intent with ITSI, Inc.,
("ITSI") to merge with it and thereby acquire its wholly owned, operating
subsidiary company SmartPay Processing, Inc. ("SmartPay"). The
Registrant expected to utilize the services and expertise in the electronic
commerce industry, to this end the Registrant made various loans to
ITSI/SmartPay totaling approximately $1,800,000. The Registrant was
recently informed that SmartPay has since ceased operations and can longer
provide the Registrant with the services and expertise it sought, thus the
Registrant perceives no good business reason to pursue the merger. The
Registrant will do everything reasonably possible to recover some or all of
the amount loaned to ITSI, although the Registrant believes that recovery
of any or all of the loaned funds is unlikely.
The Registrant purchased an option to acquire all of the assets and business
of Telenational Communications Limited Partnership, a limited partnership
organized under the laws of the state of Nebraska ("Telenational"). The
Registrant paid $150,000 for the option, which has expired with no value.
The Registrant borrowed $1,000,000 from an investor for the purpose of the
Telenational transaction. Of the $1,000,000, $850,000 was loaned to
Telenational and $150,000 was paid for the option to acquire Telenational.
The $850,000 note is due on November 8, 1996, and there is no assurance
any of the $850,000 will be repaid.
The Registrant acquired several promissory notes from Capstone Group of
The Technology Group, a privately-held Maryland corporation, located in
Baltimore, Maryland ("TTG"). These promissory notes, combined with
additional advances and accrued interest totaled approximately $340,000 in
July 1995. These notes, which were due on December 1, 1995, are all in
default and there is no assurance these notes will be repaid.
The Registrant has invested $750,000 in Advanced Promotion Technologies
corporation ("APT") based in Pompano Beach, Florida. Although the
Registrant is not obligated to make additional investments in APT, in may
be determined that this is desirable if future capital becomes available. Based
upon the rollout of the joint venture between the Registrant and APT, there
are likely to be substantial capital requirements for marketing and
administrative purposes. There is no assurance these funds will be available.
Over the next 12 month period, the Registrant anticipates it will require
$3,500,000 of capital to complete its proposed business transactions. Of the
$3,500,000, approximately $2,000,000 will be used to repay loans made to
Registrant. The Registrant holds notes due to it from several companies
(ITSI, Telenational and TTG) also the Registrant has an equity investment
in APT. The Registrant is currently in discussions with potential investors
about the possibility of receiving additional capital contributions. There can
be no assurance the Registrant can acquire the additional funding it needs to
repay its debts. There is also no assurance that any of the notes due the
Registrant will be paid. Further, there is no assurance the Registrant will be
able to continue operating as a viable going concern if it does not receive
additional capital contributions.
The approximate financial positions with each of the investments is
contained below.
Capital Resources & Liquidity: The Registrant completed the initial
public offering of its securities pursuant to a Form S-18 registration
statement more that two years ago and received the bulk of the proceeds
pursuant to Utah Securities Division Rule 11.1 in March 1989. Those
proceeds have been expended. In February 1995, the Company authorized
convertible debentures, of which $75,000 was sold. The proceeds paid for
consulting and operating expenses.
In order for the Registrant to be adequately capitalized for its new business
plan, it has undertaken to sell shares of its common stock outside the United
States to institutions and other sophisticated investors who are not U.S.
persons pursuant to Regulation S of the Securities Act of 1933, as amended.
The Registrant's management has relationships with various offshore
investors and felt issuing Regulation S securities was the most efficient
method of acquiring initial capital.
The initial Regulation S shares were sold as units of 1 1/6 shares and 1
warrant converting at $0.50. There were 400,000 units sold for fifty cents
each (these were purchased prior to the stock dividend, and post-adjustment
received 600,000 units with warrants converting at $0.22 1/3). The
Registrant determined, after discussions with various investors, this was the
best available price at the time, given the condition of the Registrant. No
additional units have been sold to date, and management does not anticipate
selling units in the future. Since the unit offering, the Registrant has
sold 1.4 million Regulation S shares priced at fifty cents per share.
The Registrant has borrowed $2,522,000 for investment and overhead
purposes. The Registrant granted 2,122,000 warrants converting at $0.01 as
compensation to the lenders. Most of the lenders were also given 5%
lending fees and annualized interest. The loans are all currently extended or
past due. There is no assurance the Registrant will receive adequate funding
to repay these loans.
In order to consummate the pending acquisitions, the Registrant must raise a
significant amount of capital. At this time management is yet to make
definite arrangements to provide the required financing. Also, the Registrant
is unsure whether such financing will be accomplished through the use of
debt or equity. This determination could have a substantially dilative impact
on the Registrant's shareholders.
At the present time, the Registrant has limited liquid assets, specifically,
all of its investments to date have been made in private or restricted
securities. It is highly unlikely that these assets could provide liquidity
required for the contemplated acquisitions. Further, if no additional
capital is obtained and the Registrant fails to complete the contemplated
acquisitions, there are limited sources of revenue and the illiquid nature of
its assets are likely to lead to an inability to meet its present debt
obligations and continuing expenses. This would result in a likelihood that
the Registrant would not operate as a going concern.
Material Changes in Financial Condition: The financial condition of the
Registrant as of this filing reflects its status as a non-operating Registrant
which is seeking acquisitions. Events subsequent to year end have resulted
in funds of $900,000 from the sale of shares to non U.S. persons. These
funds have been expended for the purchase of investments designed to lead
to business operations for the Registrant and to pay operating expenses of
consultants and advisors to the Registrant, some of whom are affiliates or
shareholders.
The Registrant has borrowed $2,522,000 for investment and overhead
purposes. These funds have also been expended for the purchase of
investments designed to lead to business operations for the Registrant and to
pay operating expenses of consultants and advisors to the Registrant, some
of whom are affiliates or shareholders. The loans are all currently extended
or past due. There is no assurance the Registrant will receive adequate
funding to repay these loans.
The Registrant's ultimate success in pursuing its new business plan in the
electronic commerce industry will depend on its ability to raise capital.
PART 11 - OTHER INFORMATION
Item 1. Legal Matters
The Registrant is currently involved in the matter of Primary Resources v. Aden
Enterprises, Inc., et al. This case was filed by Primary Resources, Inc.,
("Primary") in the Eighteenth Judicial Circuit Court, DuPage County, Illinois.
Primary alleges that the Registrant is liable for the breach of a services
agreement between Primary and SmartPay Processing, Inc., ("SmartPay") a
company the Registrant had signed a letter of intent to acquire, however, that
acquisition never occurred. Primary is seeking damages in the amount of
$178,740.00.
In particular, Primary alleges that it entered into an agreement with SmartPay
in March 1995, wherein Primary agreed to perform services on a time and
expense basis. Primary alleged rendered services and/or incurred costs in the
amount of $178,740.00 pursuant to the terms of the contract. Primary
contends that on December 1, 1995, the Registrant informed Primary that it
would be assuming all the liabilities of SmartPay, including the
outstanding amount due Primary. Primary further contends that the Registrant
promised to make three monthly payments to it in the amount of $50,000 each
and, thereafter, final payment of $28,740.00.
The parties are currently engaged in the preliminary stages of litigation.
The Registrant recently filed a motion to dismiss Primary's Complaint
pursuant to the Illinois Statute of Frauds. At this stage of litigation, the
Registrant cannot predict the outcome of this matter, but the Registrant is
hopeful that this matter can be resolved in its favor.
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
None.
Item 6 Exhibits and Reports on Form 8-K
The Registrant filed a report with the Securities Exchange
Commission on Form 8-K on June 21, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this to be signed on its behalf by the undersigned
thereunto duly authorized.
Aden Enterprises, Inc.
June 28, 1996 Michael S. Luther
Michael S. Luther, President and
Chairman of the Board
June 28, 1996 Dennis Blackman
Dennis Blackman, Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
June 28, 1996 Michael S. Luther
Michael S. Luther, Director
June 28, 1996 Dennis Blackman
Dennis Blackman, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED THIRD QUARTER 1996 BALANCE SHEET, INCOME STATEMENT AND PROFIT
AND LOSS STATEMENT OF ADEN ENTERPRISES, INC., AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH UNAUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> JAN-31-1996
<CASH> 523
<SECURITIES> 600,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 600,523
<PP&E> 500
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,854,779<F1>
<CURRENT-LIABILITIES> 2,770,150
<BONDS> 0
0
0
<COMMON> 1,379,486<F2>
<OTHER-SE> 84,629
<TOTAL-LIABILITY-AND-EQUITY> 2,854,779<F3>
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 929,303
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (929,303)
<INCOME-TAX> 0
<INCOME-CONTINUING> (929,303)
<DISCONTINUED> 0
<EXTRAORDINARY> (150,000)
<CHANGES> 0
<NET-INCOME> (1,079,303)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (2.94)
<FN>
<F1>Included in the Company's Total Assets is $2,253,756 in Investments
Held for Sale.
<F2>As of January 31, 1996, the Company had issued and outstanding 5,601,393.
<F3>The Company had a (deficit) accumulated in Development Stage of
($1,294,857).
</FN>
</TABLE>
