SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
================================================================================
AMENDMENT NO. 1 TO FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 12, 1997
TSUNAMI CAPITAL CORPORATION
---------------------------
(Exact name of Registrant as specified in its charter)
Colorado 33-8066-D 84-1031657
-------- --------- ----------
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation or organization) Identification No.)
5757 W. Century Boulevard, Suite 515, Los Angeles, California 90045
-------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(310) 337-9979
--------------
(Registrant's telephone number,
including area code)
11811 N. Tatum Boulevard, Suite 4040, Phoenix, Arizona 85028
------------------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
<PAGE>
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS
On January 20, 1998, Evers & Company, Ltd. ("Evers") resigned as the
independent accountant engaged to audit the financial statements of Tsunami
Capital Corporation (the "Company"). During the Company's two most recent fiscal
years and the subsequent interim period preceding Evers' resignation, there were
(i) no disagreements with Evers on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, (ii)
no "reportable events" (as that term is defined in Item 304(a)(1)(v) of
Regulation S-K), and (iii) no reports on the financial statements that contained
an adverse opinion or a disclaimer of opinion, or were qualified or modified as
to uncertainty, audit scope, or accounting principles.
As of the date of this amended Report, the Company's Board of Directors
has yet to engage independent accountants to audit the Company's financial
statements for fiscal years 1997, 1996 and 1995.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
a. Financial Statements of Businesses Acquired. The financial
statements required by this Item are filed as Exhibit 1 to this amended Report.
b. Pro Forma Financial Information. The pro forma financial information
required by this Item are filed as Exhibit 2 to this amended Report.
c. Exhibits. The following exhibit is required pursuant to Item 601 of
Regulation S-K:
Exhibit No. Description
----------- -----------
3 Letter of Evers & Company, Ltd., dated March 3, 1998.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DATED: March 3, 1998
TSUNAMI CAPITAL CORPORATION
By: /s/ Dionisio Lee-Yang
---------------------------------------
Dionisio Lee-Yang, President
By: /s/ Gwo Jen Chin
---------------------------------------
Gwo Jen Chin, Chief Financial Officer
3
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, CA 90017
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CL Thomson - Vision Expedition, Inc.:
We have audited the accompanying consolidated balance sheets of CL Thomson -
Vision Expedition, Inc. and subsidiaries as of December 31, 1996 and 1995 and
the related consolidated statements of operations, stockholders' deficiency 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 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 CL Thomson - Vision
Expedition, Inc. as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated statements of operations, stockholders' deficiency
and cash flows for the year ended December 31, 1994 were not audited by us, and
accordingly, we do not express an opinion on them.
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 capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
September 30, 1997 /s/ KPMG Peat Marwick LLP
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents:
Nonrestricted $ 132,000 159,748
Restricted 110,000 260,000
Accounts receivable, net of allowance for
doubtful accounts of $143,553 and $21,851 for
1996 and 1995, respectively 1,001,786 717,883
---------- ----------
Total current assets 1,243,786 1,137,631
Property and equipment, net 79,176 41,095
Goodwill, net 1,921,139 212,622
Deposits with airlines 309,000 80,000
Other assets 95,572 32,494
---------- ----------
$ 3,648,673 1,503,842
========== ==========
Liabilities and Stockholders' Deficiency 1996 1995
----------- -----------
Current liabilities:
Accounts payable $ 1,567,770 1,177,822
Bank overdraft 431,047 280,119
Short-term borrowings from bank 697,500 382,500
Short-term notes payable 1,434,572 466,568
Payable to former stockholder of CL Thomson
Express International, Inc. 500,000 --
Accrued expenses and other current liabilities 181,302 168,553
----------- -----------
Total current liabilities 4,812,191 2,475,562
----------- -----------
Stockholders' deficiency:
Common stock, no par value. Authorized
5,000,000 shares; issued and outstanding
1,563,000 and 976,000 shares for 1996 and
1995, respectively 2,237,500 876,000
Common stock subscribed -- 344,000
Receivable from common stock subscribed -- (118,292)
Accumulated deficit (3,401,018) (2,073,428)
----------- -----------
Net stockholders' deficiency (1,163,518) (971,720)
Commitments and subsequent events (notes 8
and 9)
----------- -----------
$ 3,648,673 1,503,842
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net sales $ 55,873,867 44,479,697 24,337,358
Cost of sales 53,342,331 42,654,863 23,418,406
------------ ------------ ------------
Gross profit 2,531,536 1,824,834 918,952
Selling, general and administrative expenses 3,706,073 2,474,581 1,206,078
------------ ------------ ------------
Loss from operations (1,174,537) (649,747) (287,126)
Interest expense 149,853 81,277 7,483
------------ ------------ ------------
Loss before income taxes (1,324,390) (731,024) (294,609)
Income taxes 3,200 3,200 1,600
------------ ------------ ------------
Net loss $ (1,327,590) (734,224) (296,209)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Statements of Stockholders' Deficiency
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common stock Receivable from Net
----------------------- Common stock common stock Accumulated stockholders'
Shares Amount subscribed subscribed deficit deficiency
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 (unaudited) 926,000 $ 801,000 -- -- (1,042,995) (241,995)
Net loss (unaudited) -- -- -- -- (296,209) (296,209)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1994 926,000 801,000 -- -- (1,339,204) (538,204)
Common stock subscribed -- -- 344,000 (118,292) -- 225,708
Issuance of common stock for acquisitions
of Jetwin, Inc. and Tymes Air, Inc. 50,000 75,000 -- -- -- 75,000
Net loss -- -- -- -- (734,224) (734,224)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 976,000 876,000 344,000 (118,292) (2,073,428) (971,720)
Issuance of common stock subscribed 172,000 344,000 (344,000) -- -- --
Conversion of debt to settle receivable from
common stock subscribed -- -- -- 118,292 -- 118,292
Issuance of common stock 40,000 80,000 -- -- -- 80,000
Issuance of common stock for the acquisition
of CL Thomson Express International, Inc. 375,000 937,500 -- -- -- 937,500
Net loss -- -- -- -- (1,327,590) (1,327,590)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 1,563,000 $2,237,500 -- -- (3,401,018) (1,163,518)
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,327,590) (734,224) (296,209)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 123,886 33,779 12,412
Provision for bad debt 121,702 -- 21,851
Compensation expense recognized from
issuance of common stock 20,000 69,500 --
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable (137,858) (110,024) (514,191)
Other assets 198,850 60,999 (33,592)
Accounts payable and accrued
expenses (381,508) 174,902 1,050,948
Other current liabilities 36,687 53,396 --
----------- ----------- -----------
Total adjustments (18,241) 282,552 537,428
----------- ----------- -----------
Net cash (used in) provided by
operating activities (1,345,831) (451,672) 241,219
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (26,044) (13,195) (10,783)
Net cash received (paid) for acquisitions 18,623 (120,000) --
----------- ----------- -----------
Net cash used in investing
activities (7,421) (133,195) (10,783)
----------- ----------- -----------
Cash flows from financing activities:
Net short-term borrowings (repayments)
from bank 315,000 382,500 (25,000)
Net short-term loans (repayments) from (to)
related parties (466,568) 247,704 (10,000)
Net proceeds from notes payable 1,309,572 -- --
Proceeds from issuance of common stock 17,500 156,208 --
----------- ----------- -----------
Net cash provided by (used in)
financing activities 1,175,504 786,412 (35,000)
----------- ----------- -----------
Net (decrease) increase in cash
and cash equivalents (177,748) 201,545 195,436
Cash and cash equivalents at beginning of year 419,748 218,203 22,767
----------- ----------- -----------
Cash and cash equivalents at end of year $ 242,000 419,748 218,203
=========== =========== ===========
</TABLE>
(Continued)
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 143,791 81,277 7,483
Income taxes 3,200 3,200 1,600
=========== =========== ===========
Noncash investing and financing activities:
Issuance of common stock for the acquisition
of Jetwin, Inc. $ -- 30,000 --
Issuance of common stock for the acquisition
of Tymes Air, Inc. -- 45,000 --
Issuance of common stock for the acquisition
of CL Thomson Express International,
Inc 937,500 -- --
Conversion of short-term borrowings from
stockholders into common stock 160,793 -- --
=========== =========== ===========
In 1996, the Company purchased all of the
outstanding capital stock of CL Thomson
Express International, Inc. (note 2). In
connection with the acquisition, liabilities
assumed were as follows:
Fair value of assets acquired $ 2,585,946 -- --
Cash paid for the capital stock (250,000) -- --
Note payable to former stockholder of
CL Thomson Express International,
Inc (500,000) -- --
Fair market value of common stock
issued (937,500) -- --
----------- ----------- -----------
Liabilities assumed $ 898,446 -- --
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
Description of the Business
CL Thomson - Vision Expedition, Inc. and subsidiaries (the Company) is an
airline ticket consolidator. Prior to the acquisition of CL Thomson
Express International, Inc., the name of the Company was Vision
Expedition, Inc. The Company markets and distributes airline tickets
primarily for international travel focusing on certain niche markets. Its
principal customers are travel agents. Company management does not
believe that its business is concentrated in any particular market or
customer.
Certain Transactions
During December 31, 1996 and 1995, the Company had not maintained
customary records for a certain payment made to one individual by the
Company of $200,000 in 1996 and a payment made to another individual of
$100,000 in 1995 for the purchase of airline tickets. The Company has
included such amounts in cost of sales in the consolidated statements of
operations for the years ended December 31, 1996 and 1995, respectively.
The Company intended and believed that such payments were for ticket
purchases. However, the Company cannot determine with certainty the use
of the proceeds of such payments and whether such payments might create
any contingent or other liabilities to the Company. Accordingly, no
provision has been made in the accompanying consolidated financial
statements that might result from any contingent or other liabilities
that may arise from such payments. The Company no longer does business
with the vendor involved.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, JJM Interests, Inc.,
Jetwin, Inc., Tymes Air, Inc. and CL Thomson Express International, Inc.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
Liquidity and Going Concern
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As shown in the
accompanying consolidated financial statements, the Company's current
liabilities exceeded its current assets by $3,568,000 at December 31,
1996, and the Company has suffered operating losses in 1996 and 1995 and
has a stockholder's deficiency of $1,164,000. Such losses were incurred
as the Company defined its market position and established distribution
channels through acquisitions and expansion of sales offices for the sale
and distribution of airline tickets.
Management's plans include improving gross profit margins, streamlining
operations of acquired businesses and obtaining additional financing from
outside sources. The Company also plans to aggressively negotiate with
the airlines for payment of certain commissions and rebates. There can be
no assurance that the Company will realize such plans.
1
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Subsequent to year-end, the Company obtained loans totaling $750,000 from
Tsunami Capital Corporation (note 9), converted $532,500 notes payable
into capital, extended its line of credit agreements with its bank under
substantially the same terms and obtained a new $300,000 line of credit
with another bank. Success of future operations is dependent, among other
things, on the Company's ability to obtain further financing.
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 that might result from the outcome of these
uncertainties. There can be no assurance that the Company will realize
its plans.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash and cash equivalents. The
restricted cash consists of time certificates of deposit with various
banks which have been pledged as collateral to secure certain standby
letters of credit issued to airline companies.
Property and Equipment
Property and equipment are stated at cost. Depreciation has been provided
using the straight-line method over the estimated useful lives, generally
five to seven years.
Revenue Recognition
Revenue is recognized when airline tickets are sold, net of estimated
allowance for sales returns.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS
109 requires that deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax basis.
Goodwill
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited, generally ten years. The Company
assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using
a discounted rate reflecting the Company's average cost of funds. The
assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
Accounting for Long-Lived Assets
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," on January 1, 1996. This statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be
2
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of carrying
amount or fair value, less costs to sell. Adoption of this statement did
not have a material impact on the Company's financial position, results
of operations or liquidity.
Concentration of Business Risk
Certain financial instruments potentially subject the Company to credit
risk. These financial instruments primarily consist of accounts
receivable. The Company performs ongoing credit evaluations of its
customers but does not require collateral. The Company maintains reserves
for potential credit losses.
During 1996 and 1995, the Company purchased airline tickets from three
airlines which represent over 10% of the Company's total purchases as
follows:
Year Airline Percentage
---------- ---------- ----------
1996 A 23%
B 17
C 16
==========
1995 D 31%
E 22
F 12
==========
There were no purchases from airlines that represent greater than 10% in
1994.
A delay in the availability of such tickets or a change in relationship
with these airlines could have a material adverse affect on the Company's
operations.
Note Receivable
The Company prospectively adopted the provisions of SFAS No. 114,
"Accounting by Creditors for Impairment of Loan," as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosures," effective January 1, 1995. All notes receivable have
been evaluated for collectibility under the provisions of these
statements.
At December 31, 1996, the Company has an unsecured note receivable of
$330,000 from a domestic airline ticketing company in China. The note
bears interest at 10% and matures on September 1, 1999. The note
receivable represents cash advances made by the Company during 1996. Due
to the uncertain nature of the ultimate collectibility of this note, the
Company has provided a full allowance of $330,000 for this note
receivable.
3
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Use of Estimates
Management of the Company has made a number of estimates and assumptions
that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the balance sheet date
and the reported amounts of revenues and expenses during the reporting
period to prepare these consolidated financial statements in conformity
with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) Acquisitions
Effective August 8, 1996, the Company acquired all of the outstanding
capital stock of CL Thomson Express International, Inc. (CL Thomson) for
$1,687,500 ($750,000 in cash payable in three equal installment payments
and 375,000 shares of the Company's common stock valued at $937,500). The
first installment payment of $250,000 was paid and a $500,000 note
payable was given at the closing of the acquisition. During 1997, the
Company has made the second installment payment of $250,000. The Company
is currently in negotiation with the former stockholder of CL Thomson,
Vice Chairman of the Board of Directors of the Company to extend the due
date of the last installment payment of $250,000. Although there can be
no assurance that the extension will be granted, management believes a
settlement can be reached between the Company and the former stockholder
of CL Thomson. The excess of purchase price over the fair value of the
net assets acquired was $1,808,052 and has been recorded as goodwill,
which is being amortized on a straight-line basis over 10 years. The
unamortized goodwill was $1,732,717 at December 31, 1996.
Effective October 1, 1995, the Company acquired the trade name, certain
contracts with airlines and customer lists of Tymes Travel & Tours (dba
Tymes Air, Inc.), a division of Tymes International, Inc., for 30,000
shares of the Company's common stock valued at $45,000. There were no
tangible acquired assets or assumed liabilities transferred to the
Company. Accordingly, the entire purchase price was recorded as goodwill,
which is being amortized on a straight-line basis over 10 years. The
unamortized goodwill was $39,375 and $43,875 at December 31, 1996 and
1995, respectively.
Effective March 31, 1995, the Company acquired the outstanding capital
stock of Jetwin, Inc. for $150,000 ($120,000 in cash and 20,000 shares of
the Company's stock valued at $30,000). The fair value of the net assets
acquired was deemed immaterial. Accordingly, the entire purchase price
was recorded as goodwill, which is being amortized on a straight-line
basis over 10 years. The unamortized goodwill was $123,750 and $138,750
at December 31, 1996 and 1995, respectively.
Prior to 1995, the Company acquired JJM Interests, Inc. The related
goodwill is being amortized on a straight-line basis over 10 years. The
unamortized goodwill was $14,497 and $16,497 at December 31, 1996 and
1995, respectively.
These acquisitions were accounted for under the purchase method of
accounting. Accordingly, the results of operations of the acquired
businesses and the fair market values of the acquired assets and assumed
liabilities were included in the Company's consolidated financial
statements as of the effective date of the acquisitions.
4
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Balance Sheet Detail
A summary of property and equipment at December 31, 1996 and 1995
follows:
1996 1995
----------- -----------
Computer and equipment $ 98,559 55,582
Furniture and fixtures 36,464 17,009
----------- -----------
135,023 72,591
Less accumulated depreciation (55,847) (31,496)
----------- -----------
$ 79,176 41,095
=========== ===========
A summary of goodwill at December 31, 1996 and 1995 follows:
1996 1995
----------- -----------
Goodwill $ 2,050,052 242,000
Less accumulated amortization (128,913) (29,378)
----------- -----------
$ 1,921,139 212,622
=========== ===========
(4) Short-Term Borrowings from Bank
Short-term borrowings from bank at December 31 consist of the following:
1996 1995
-------- --------
Advances under a line of credit agreement with a
bank, interest at bank's prime rate plus 3.0%
(11.25% at December 31, 1996) $600,000 335,000
Advance under a line of credit agreement with a
bank, interest at bank's prime rate plus 3.0%
(11.5% at December 31, 1996) 50,000 --
Advance under a line of credit agreement with a
bank, interest at bank's prime rate plus 2.0%
(10.5% at December 31, 1996) 47,500 47,500
-------- --------
$697,500 382,500
======== ========
5
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The first credit agreement has a global borrowing limit of $1,500,000,
combining advances and standby letters of credit. All the borrowings
under this agreement are guaranteed by the Company's President and
secured by assets of the Company at a first position and certain personal
assets of the President. As of December 31, 1996, in addition to the
advances of $600,000, the Company had outstanding standby letters of
credit totaling $858,100 under this credit agreement. This agreement
expired on September 1, 1997. A renewal of the agreement is currently
being negotiated under substantially the same terms; however, there can
be no assurance that the renewal will be approved.
The second and third credit agreements are with the same bank, and permit
the Company to borrow up to $50,000 and $47,500, respectively. The second
credit agreement is unsecured and the third agreement is secured by
certain assets of a stockholder. The $50,000 under the second agreement
was repaid in August 1997 and the third agreement will expire on March 1,
1998.
In June 1997, the Company obtained another credit agreement with a bank
which provides the Company to issue letters of credit up to $300,000.
Advances under the credit agreement bear interest at the bank's prime
rate plus 3% (11.75% at June 30, 1997) and expires on June 23, 1998. The
borrowings under this credit agreement are also secured by the Company's
assets in a junior position to the first credit agreement.
(5) Income Taxes
Income tax expense for the years ended December 31, 1996, 1995 and 1994
consisted of the state minimum taxes for the Company and its
subsidiaries.
Income tax expense differs from the amount computed by applying the
Federal statutory tax rate of 34% to loss before income taxes as shown
below:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Computed "expected" income tax benefit $(324,400) (244,000) (100,000)
State income taxes, net of Federal income
tax benefit 2,000 2,000 1,000
Nondeductible expenses 235,000 42,000 --
Change in valuation allowance and other 90,600 203,200 100,600
--------- --------- ---------
Actual income taxes $ 3,200 3,200 1,600
========= ========= =========
</TABLE>
6
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets at December 31 are presented
below:
1996 1995
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 1,740,000 1,700,000
Accrued expenses 8,000 20,000
Allowance for doubtful accounts 60,000 --
Other 42,000 127,000
----------- -----------
Gross deferred tax assets 1,850,000 1,847,000
Less valuation allowance (1,850,000) (1,847,000)
----------- -----------
Net deferred tax assets $ -- --
=========== ===========
At December 31, 1996, the Company had net operating loss carryforwards
for U.S. Federal and state income tax purposes of $4,585,000 and
$2,387,000, respectively, expiring at various dates through the year 2011
and 2005, respectively. The utilization of the net operating loss
carryforwards may be limited due to certain changes in ownership and tax
statute limitations.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Based on the level of historical taxable income and
projections of future taxable income over the periods which the deferred
tax assets are deductible, management does not believe that it is more
likely than not that the Company will realize the benefits of these
deductible differences at December 31, 1996. Accordingly, a full
valuation allowance has been provided for the total deferred tax assets.
(6) Short-Term Notes Payable
At December 31, 1996, short-term notes payable consist of the following:
<TABLE>
<S> <C>
Note payable to an unrelated individual, unsecured and bearing
18% interest, due on demand $ 100,000
Note payable to various unrelated individuals, unsecured and
non-interest bearing, due on demand 617,188
Note payable to related parties, unsecured and non-interest
bearing, due on demand 592,384
Non-interest bearing note, due on demand 125,000
----------
$1,434,572
==========
</TABLE>
7
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Related Party Transactions
During 1996 and 1995, Dimerco Travel, a company owned by a brother of the
President, purchased airline tickets from the Company totaling $158,649
and $71,000, respectively. At December 31, 1996 and 1995, the accounts
receivable related to such purchases totaled $154,613 and $28,196,
respectively.
In 1996 and 1995, the Company issued common stock to certain related
parties and employees at a discount from the current fair market value of
the Company's common stock. The Company recorded compensation expense
associated with the price discount of $20,000 and $69,500 in 1996 and
1995, respectively.
(8) Commitments
The Company has several noncancelable operating leases for office space
that expire at various dates through 2001. Rental expense incurred for
these operating leases during 1996 and 1995 was $212,315 and $130,965,
respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1996 are as follows:
Year ending December 31:
1997 $228,043
1998 167,105
1999 139,160
2000 66,776
2001 15,390
--------
Total minimum lease payments $616,474
========
Due to the nature of the business, the Company issues standby letters of
credit to various airline companies. At December 31, 1996, the Company
had $858,100 outstanding standby letters of credit with a bank.
(9) Subsequent Events
On September 12, 1997, the Company consummated a merger agreement with
Tsunami Capital Corporation, a publicly traded company (Tsunami).
Pursuant to the merger agreement, all of the outstanding capital stock of
the Company was exchanged for newly issued shares of common stock of
Tsunami. As a result of the merger, the former stockholders of the
Company hold approximately 65% of the presently outstanding common stock
of Tsunami. Since the former stockholders of the Company received the
majority of the voting interest in the combined enterprise and,
therefore, retained control, the Company is presumed to be the acquiring
enterprise. The merger will be accounted for in a manner similar to a
pooling-of-interest whereby the assets and liabilities of both companies
will be recorded at their respective historical-cost basis.
8
<PAGE>
CL THOMSON - VISION EXPEDITION, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In 1997, the Company obtained unsecured loans totaling $750,000 from
Tsunami. The loans bear 10% interest and mature on December 31, 1997. The
Company also obtained a new line of credit agreement from a bank for
$300,000 (see note 4).
9
<PAGE>
TSUNAMI CAPITAL CORPORATION
UNAUDITED CONDENSED PRO-FORMA INCOME STATEMENT
FOR THE NINE MONTHS ENDED JULY 31, 1997
<TABLE>
<CAPTION>
Historical CL Thomson- Pro-forma Pro-forma
Results Vision Expedition Adjustments Results
<S> <C> <C> <C> <C>
Net Sales 0 50,954,446 50,954,446
Cost of Sales 0 48,253,659 48,253,659
----------- ----------- -----------
Gross Profit 0 2,700,788 2,700,788
Selling, General and
Administrative
Expenses 16,000 3,179,923 3,195,923
----------- ----------- -----------
Income (Loss) from Operations (16,000) (479,135) (495,135)
Interest and Other Expenses 19,000 119,597 138,597
----------- ----------- -----------
Income (Loss) Before Taxes (35,000) (598,731) (633,731)
Income Taxes (Recovery) (8,000) 6,133 (1,867)
----------- ----------- -----------
Net Income (Loss) (27,000) (604,865) (631,865)
=========== =========== ===========
</TABLE>
<PAGE>
TSUNAMI CAPITAL CORPORATION
UNAUDITED CONDENSED PRO-FORMA BALANCE SHEET
<TABLE>
<CAPTION>
Historical Pro-forma
Balance Balance
July 31, 1997 CL Thomson- Pro-forma July 31, 1997
(Unaudited) Vision Expedition Adjustments* (Unaudited)
<S> <C> <C> <C> <C>
Current Assets
Cash and Equivalents 267,000 (293,958) (26,958)
Accounts Receivable, Net 20,000 1,043,595 1,063,595
Other Current Assets 4,000 120,393 124,393
---------- ---------- ----------
Total Current Assets 291,000 870,030 1,161,030
Property and equipment, net 13,000 79,176 92,176
Goodwill, net 0 1,801,553 1,801,553
Deposit with airlines 0 415,777 415,777
Other Assets 500,000 395,220 (500,000) 395,220
---------- ---------- ---------- ---------
Total Assets 804,000 3,561,756 (500,000) 3,865,756
========== ========== ========== =========
Current Liabilities
Accounts Payable 0 1,849,756 1,849,756
Bank Overdraft 0 631,047 631,047
Bank Loan - Short Term 0 669,500 669,500
Notes Payable - Short Term 0 1,310,351 1,310,351
Note Payable (Tsunami) 0 500,000 (500,000) 0
Other Accrued Liabilities 2,000 130,642 132,642
---------- ---------- ---------- ---------
Total Current Liabilities 2,000 5,091,296 (500,000) 4,593,296
Shareholders' Equity
Common Stock 168,000 2,237,500 2,405,500
Accumulated Deficit 634,000 (3,767,040) (3,133,040)
---------- ---------- ---------- ---------
Net Shareholders'
Deficiency 802,000 (1,529,040) (727,540)
---------- ---------- ---------- ---------
Total Equity and Liabilities 804,000 3,561,756 (500,000) 3,865,756
========== ========== ========== =========
</TABLE>
* Reflects the consolidation of the $500,000 note payable of CL Thomson to the
Registrant.
<PAGE>
TSUNAMI CAPITAL CORPORATION
UNAUDITED CONDENSED PRO-FORMA INCOME STATEMENT
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
Historical CL Thomson- Pro-forma Pro-forma
Results Vision Expedition Adjustments Results
<S> <C> <C> <C> <C>
Net Sales 0 53,974,839 53,974,839
Cost of Sales 0 51,561,086 51,561,086
----------- ----------- -----------
Gross Profit 0 2,413,752 2,413,752
Selling, General and
Administrative
Expenses 9,134 3,484,433 3,493,567
----------- ----------- -----------
Income (Loss)from Operations (9,134) (1,070,681) (1,079,815)
Interest and Other Expenses 53,177 138,424 191,601
----------- ----------- -----------
Income (Loss) Before Taxes (62,311) (1,209,105) (1,271,416)
Income Taxes (Recovery) (32,609) 3,200 (29,409)
----------- ----------- -----------
Net Income (Loss) (29,702) (1,212,305) (1,242,007)
=========== =========== ===========
</TABLE>
March 3, 1998
SECURITIES AND EXCHANGE COMMISSION
450 5th Street, N.W.
Washington, D.C. 20549
Re: Tsunami Capital Corporation
SEC File No. 33-8066-D
Gentlemen:
We have read and agree with the comments in Item 4 of Amendment No. 1
to the Current Report on Form 8-K of the above-named registrant Tsunami Capital
Corporation, dated March 3, 1998
Very truly yours,
EVERS & COMPANY, LTD.
By: \s\ Joseph Evers
--------------------------
Joseph Evers
