UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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): May 7, 1999
Commission File Number: 33-11986-LA
STEIN'S HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Nevada 88-022660
------ ---------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
21800 Oxnard Street Suite 440, Woodland Hills CA 91367 (Address of
------------------------------------------------------------------
principal executive offices)(Zip Code)
Company's telephone number, including area code: (818) 598-6780
1
<PAGE>
ITEM 1. Changes in Control of Registrant
On March 31, 1999, the Registrant (the "Company"), formerly known as
"Vegas Ventures, Inc." and "TeleMall Communications, Inc.", entered into an
Agreement and Plan of Reorganization (the "Agreement") to acquire Multi-Source
Capital, Ltd. ("MSC"), a Colorado corporation. As a condition to completing that
acquisition, the Company's shareholders approved a 200-to-1 reverse stock split
and changed the Company's name to "Stein's Holdings, Inc." MSC is a company
engaged in web design, through a wholly owned subsidiary, 20/20 Web Design,
Inc., import/export, business consulting and related services. Also, MSC has an
agreement with College Connection, Inc. dba Stein's Bakery, Inc. in Lewisville,
Texas to acquire its bakery operations. As part of that proposed acquisition,
MSC has to raise $1,200,000 to pay off certain liabilities of the bakery. MSC
assigned that contract to the Company as part of its acquisition.
MSC transferred assets, consisting mostly of cash and freely trading
securities totaling approximately $530,000, to the Company in exchange for the
issuance of 4,247,754 shares of the Company's stock to the MSC shareholders. As
part of this transaction, two of the former Board members, Mr. Wells and Mr.
Savage, resigned. The size of the Board was increased to five and four new
directors were appointed to the Board. These four new directors are Randy
Sutton, Irving M. Einhorn, Christopher Burnell and James Smith.
ITEM 2. Acquisition or Disposition of Assets.
See discussion above in Item 1.
ITEM 7. Financial Statements and Exhibits.
(A) Financial Statements and Schedules
The following financial statements and schedules are filed as part of this
report:
Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Condensed Consolidated Statement of Income
Multi-Source Capital, Ltd. Financial Statements for the years
ended December 31, 1998 and 1997 including:
Independent Auditor's Report
Balance Sheet
Statement of Income
Statement of Changes in Stockholders' Equity
Statement of Cash Flows
Notes to Financial Statements
2
<PAGE>
(B) List of Exhibits
The following exhibits are filed with this report.
Financial Statements.
Agreement and Plan of Reorganization.
April 15, 2000 STEIN'S HOLDINGS, INC.
/s/ Shahram Khial, Ph.D.
----------------------------------------
Shahram Khial, President, Director
3
<PAGE>
STEIN'S HOLDINGS, INC.
(FORMERLY TELEMALL COMMUNICATIONS, INC.)
PRO FORMA FINANCIAL STATEMENTS
<PAGE>
In May, 1999, the company completed a merger with Multi-Source Capital Ltd. by
exchanging 4,247,754 shares of Section 144 restricted common stock for 100% of
the outstanding shares of Multi-Source Capital Ltd.
The acquisition will be accounted for as a pooling of interest with the assets
and liabilities recorded at book values.
The accompanying condensed consolidated financial statements illustrate the
effect of the acquisition ("Pro Forma") on the company's financial position and
results of operations. The condensed consolidated balance sheet as of December
31, 1998 is based on the historical balance sheets of the company and
Multi-Source Capital Ltd. as of that date and assumes the acquisition took place
on that date. The condensed consolidated statement of income for the year ended
December 31, 1998 is based on the historical statements of income of the company
and Multi-Source Capital Ltd. The pro forma condensed consolidated statement of
income assumes the acquisition took place on January 1, 1999.
The pro forma condensed consolidated financial statements may not be indicative
of the actual results of the acquisition.
The accompanying condensed consolidated pro forma financial statements should be
read in connection with the historical financial statements of the company and
Multi-source Capital Ltd.
<PAGE>
STEIN'S HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Stein's Multi-Source
Holdings, Capital Ltd. Pro
ASSETS Inc. Ltd. Adjustments Forma
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 0 $ 41,487 $ 0 $ 41,487
Trading securities 500,000 570,526 0 1,070,526
Inventory 3,101,061 0 0 3,101,061
---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS 3,601,061 612,013 0 4,213,074
Property and Equipments, Net 0 6,631 0 6,631
Other Assets 1,500,000 1,026 0 1,501,026
---------- ---------- ---------- ----------
TOTAL ASSETS $5,101,061 $ 619,670 $ 0 $5,720,731
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 290,687 $ 32,020 $ 0 $ 322,707
Margin accounts payable 0 40,168 0 40,168
Payroll taxes payable 0 1,197 0 1,197
Income taxes payable 0 16,505 0 16,505
Notes payable 41,000 0 0 41,000
---------- ---------- ---------- ----------
TOTAL CURRENT
LIABILITIES 331,687 89,890 0 421,577
STOCKHOLDERS' EQUITY 4,769,374 529,780 0 5,299,154
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,101,061 $ 619,670 $ 0 $5,720,731
========== ========== ========== ==========
</TABLE>
<PAGE>
STEIN'S HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
Stein's Multi-Source
Holdings, Capital Ltd. Pro
Inc. Ltd. Adjustments Forma
---------- ---------- ---------- ----------
REVENUES $ 0 $ 259,031 $ 0 $ 259,031
GENERAL AND ADMINISTRATIVE
EXPENSES 0 185,230 0 185,230
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 0 73,801 0 73,801
INCOME TAXES 0 17,163 0 17,163
---------- ---------- ---------- ----------
NET INCOME $ 0 $ 56,638 $ 0 $ 56,638
========== ========== ========== ==========
EARNINGS PER COMMON SHARE $ 0 $ .01
========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,354,630 4,354,630
========== ==========
<PAGE>
MULTI-SOURCE CAPITAL LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
TABLE OF CONTENTS
Page No.
--------
INDEPENDENT AUDITORS' REPORT ................................... 1
FINANCIAL STATEMENTS
Balance Sheet................................................ 2
Statement of Income.......................................... 3
Statement of Changes in Stockholders' Equity................. 4
Statement of Cash Flows...................................... 5 - 6
Notes to Financial Statements................................ 7 - 11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Multi-Source Capital Ltd.
Woodland Hills, California
We have audited the balance sheet of Multi-Source Capital Ltd. (A Colorado
Corporation) as of December 31, 1998, and the related statements of income,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Multi-Source Capital Ltd. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Moffitt & Company, P.C.
Scottsdale, Arizona
October 28, 1999
<PAGE>
MULTI-SOURCE CAPITAL LTD.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 41,487
Trading securities 570,526
---------
TOTAL CURRENT ASSETS $ 612,013
PROPERTY AND EQUIPMENT 6,631
OTHER ASSETS
Unamortized organization costs 1,026
---------
TOTAL ASSETS $ 619,670
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 9,520
Accounts payable, Tisa Capital Corp. 22,500
Margin accounts payable 40,168
Payroll taxes payable 1,197
Income taxes payable 16,505
---------
TOTAL CURRENT LIABILITIES $ 89,890
STOCKHOLDERS' EQUITY
Convertible preferred stock, Class A, $.01 par value;
10,000,000 shares authorized
230,000 shares issued and outstanding 2,300
Common stock, par value $.001 per share
100,000,000 shares authorized
133,865 shares issued and outstanding 134
Paid in capital in excess of par value of stock 560,986
Retained earnings (deficit) (33,640)
---------
TOTAL STOCKHOLDERS' EQUITY 529,780
---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 619,670
=========
See Accompanying Notes and Independent Auditors' Report.
2
<PAGE>
MULTI-SOURCE CAPITAL LTD.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
REVENUE
Realized and unrealized gains on trading securities $ 252,340
Dividends and interest 4,501
Website design 2,190
----------
TOTAL REVENUES $ 259,031
GENERAL AND ADMINISTRATIVE EXPENSES 185,230
----------
INCOME BEFORE INCOME TAXES 73,801
INCOME TAXES 17,163
----------
NET INCOME $ 56,638
==========
NET INCOME PER COMMON SHARE
Basic $ .65
----------
Diluted $ .24
----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES
Basic 86,559
----------
Diluted 2,361,559
----------
See Accompanying Notes and Independent Auditors' Report.
3
<PAGE>
MULTI-SOURCE CAPITAL LTD.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Class A
Preferred Stock Common Stock
------------------------- --------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 0 $ 0 0 $ 0
RESTRICTED SHARES ISSUED
FOR CASH @ $.0025 PER SHARE 0 0 6,000,000 6,000
SHARES ISSUED TO OFFICERS
AND DIRECTORS FOR SERVICES 0 0 300,000 300
SALE OF COMMON STOCK
PURSUANT TO PRIVATE
OFFERING @ $5.00 PER SHARE,
NET OF SHARES REPURCHASED 0 0 93,636 94
COSTS INCURRED FOR PRIVATE
PLACEMENT 0 0 0 0
REPURCHASE OF SHARES,
FROM OFFICERS 0 0 (4,000,000) (4,000)
COMMON STOCK AND REINVEST-
MENT OF DIVIDENDS 0 0 40,229 33
CASH DIVIDENDS PAID 0 0 0 0
ISSUANCE OF COMMON STOCK FOR
SERVICES BY TISA CAPITAL CORP. 7
TRANSFER OF COMMON STOCK TO
CLASS A PREFERRED 230,000 2,300 (2,300,000) (2,300)
NET INCOME FOR THE YEAR
ENDED DECEMBER 31, 1998 0 0 0 0
----------- ----------- ----------- -----------
230,000 $ 2,300 133,865 $ 134
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
4
<PAGE>
Paid in
Capital
in Excess
of Par Retained
Value of Stock Earnings
-------------- ---------
BALANCE, JANUARY 1, 1998 $ 0 $ (3,264)
RESTRICTED SHARES ISSUED
FOR CASH @ $.0025 PER SHARE 9,000 0
SHARES ISSUED TO OFFICERS
AND DIRECTORS FOR SERVICES 450 0
SALE OF COMMON STOCK
PURSUANT TO PRIVATE
OFFERING @ $5.00 PER SHARE,
NET OF SHARES REPURCHASED 468,086 0
COSTS INCURRED FOR PRIVATE
PLACEMENT (3,125) 0
REPURCHASE OF SHARES,
FROM OFFICERS (6,000) 0
COMMON STOCK AND REINVEST-
MENT OF DIVIDENDS 58,582 (52,128)
CASH DIVIDENDS PAID 0 (34,886)
ISSUANCE OF COMMON STOCK FOR
SERVICES BY TISA CAPITAL CORP. 33,993 0
TRANSFER OF COMMON STOCK TO
CLASS A PREFERRED 0 0
NET INCOME FOR THE YEAR
ENDED DECEMBER 31, 1998 0 56,638
--------- ---------
$ 560,986 $ (33,640)
========= =========
See Accompanying Notes and Independent Auditors' Report.
5
<PAGE>
MULTI-SOURCE CAPITAL LTD.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 56,638
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,812
Common stock issued for services 34,750
Increases (decreases) in:
Trading securities (570,526)
Accounts payable, trade 6,256
Accounts payable, Tisa Capital Corp. 22,500
Payroll taxes payable 1,197
Income taxes payable 16,505
---------
NET CASH FLOWS (USED) BY OPERATING
ACTIVITIES $(430,868)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,157)
---------
NET CASH FLOWS (USED) BY INVESTING
ACTIVITIES (8,157)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing on margin accounts payable 40,168
Issuance of common stock for cash, net 475,230
Dividends paid (34,886)
---------
NET CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES 480,512
---------
NET INCREASE IN CASH 41,487
CASH BALANCE, JANUARY 1, 1998 0
---------
CASH BALANCE, DECEMBER 31, 1998 $ 41,487
=========
See Accompanying Notes and Independent Auditors' Report.
6
<PAGE>
MULTI-SOURCE CAPITAL LTD.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid for:
Interest $ 5,480
=======
Taxes $ 600
=======
NON CASH INVESTING AND FINANCING
ACTIVITIES
Common stock issued for services $ 750
=======
Common stock issued for services to
Tisa Capital Corp. $34,000
=======
See Accompanying Notes and Independent Auditors' Report.
7
<PAGE>
MULTI-SOURCE CAPITAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Nature of Business
Multi-Source Capital Ltd. was organized on August 11, 1997, under the laws
of the state of Colorado for the purpose to carry on any lawful business
pursuant to the Colorado Business Corporation Act. The company's main
activities and sources of income are derived from daily trading in the
stock and commodities markets.
Method of Accounting
The company has adopted the accrual method of accounting which requires
that sales of securities be recorded on the "trade date" and payables be
recorded when incurred regardless of when paid.
Trading Securities
The company has adapted Statement of Financial Accounting Standards No.
115. This statement requires that trading securities be recorded as
follows:
A. Balance sheet - recorded at fair market value as a current
asset.
B. Unrealized holding gains and losses - included in the
statement of income as current earnings.
C. Dividends and interest income - included in the statement of
income as current earnings.
D. Cash flows from purchase, sales, and maturities of trading
securities shall be classified as cash flows from operating
activities.
Accounting Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
See Accompanying Notes and Independent Auditors' Report.
8
<PAGE>
MULTI-SOURCE CAPITAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements
are charged to the asset accounts while replacements, maintenance and
repairs, which do not improve or extend the lives of the respective
assets, are expensed. At the time property and equipment are retired or
otherwise disposed of, the asset and related accumulated depreciation
accounts are relieved of the applicable amounts. Gains or losses from
retirements or sales are credited or charged to income.
The company depreciates its property and equipment for financial reporting
purposes using the straight-line method based upon the following useful
lives of the assets:
Computer hardware 5 years
Computer software 3 years
Disclosure About Fair Value of Financial Instruments
The company has financial instruments, none of which are held for trading
purposes. The company estimates that the fair value of all financial
instruments at September 30, 1999 as defined in FASB 107, does not differ
materially from the aggregate carrying values of its financial instruments
recorded in the accompanying balance sheet. The estimated fair value
amounts have been determined by the company using available market
information and appropriate valuation methodologies. Considerable
judgement is required in interpreting market data to develop the estimates
of fair value, and accordingly, the estimates are not necessarily
indicative of the amounts that the company could realize in a current
market exchange.
Compensated Absences
Employees of the corporation are entitled to paid vacations, sick days and
other time off depending on job classification, length of service and
other factors. It is impractical to estimate the amount of compensation
for future absences and, accordingly, no liability has been recorded in
the accompanying financial statements. The corporation's policy is to
recognize the costs of compensated absences when paid to employees.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for
the current year and deferred taxes on temporary differences between the
amount of taxable income and pretax financial income and between the tax
bases of assets and liabilities and their reported amounts in the
financial statements. Deferred tax assets and liabilities are included in
the financial
See Accompanying Notes and Independent Auditors' Report.
9
<PAGE>
MULTI-SOURCE CAPITAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Income Taxes (Continued)
statements at currently enacted income tax rates applicable to the period
in which the deferred tax assets and liabilities are expected to be
realized or settled as prescribed in FASB Statement No. 109, Accounting
for Income Taxes. As changes in tax laws or rate are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes.
Net Earnings Per Share
The company adapted Statement of Financial Accounting Standards No. 128
that requires the reporting of both basic and diluted earnings per share.
Basic earnings per share is computed by dividing net income available to
common shareowners by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock.
NOTE 2 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consisted of:
Computer hardware $3,372
Computer software 4,785
------
8,157
Less accumulated depreciation 1,526
------
Total property and equipment $6,631
======
The depreciation expense for the year ended December 31, 1998 is $1,526.
NOTE 3 INCOME TAXES
Income from operations before income taxes $68,193
-------
The provision for income taxes is estimated as follows:
Currently payable $15,065
-------
Deferred receivable $ 2,098
-------
Total $17,163
=======
A reconciliation of the provision for income taxes
compared with the amounts at the U.S. Federal
statutory rate was as follows:
Tax at U.S. Federal statutory income
tax rate $17,163
=======
See Accompanying Notes and Independent Auditors' Report.
10
<PAGE>
MULTI-SOURCE CAPITAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3 INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities reflect the
impact of temporary differences between amounts of
assets and liabilities for financial reporting
purposes and the basis of such assets and liabilities
as measured by tax laws. The net deferred liability is $ 2,098
=========
Temporary differences that give use to deferred tax
assets and liabilities included the following:
Deferred Tax
-------------------
Assets Liabilities
------ -----------
Property and equipment
Related $ 0 $2,098
Valuation allowance 0 0
------ ------
Total deferred taxes $ 0 $2,098
====== ======
Balance, January 1, 1998 $ 615
Application of allowance for year ended
December 31, 1998 615
------
Balance, December 31, 1998 $ 0
======
NOTE 4 INTEREST
The company incurred interest expense for the year ended December 31, 1998
of $5,480
NOTE 5 RENT
The company rents its facilities on a month to month basis from an
affiliated company. The rent expense for the year ended December 31, 1998
was $20,633.
NOTE 6 CONVERTIBLE PREFERRED STOCK
No rights or preferences have been assigned to the preferred stock except
for the convertible privilege.
See Accompanying Notes and Independent Auditors' Report.
11
<PAGE>
MULTI-SOURCE CAPITAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 7 PRIVATE PLACE OF STOCK
The company offered for sale 200,000 shares of $.001 par value common
stock for $5.00 per share pursuant to Rule 504 of Regulation D of the
Securities Act of 1933, as amended. The company sold 93,636 shares for a
net proceeds of $464,961 after deducting offering costs of $3,125.
NOTE 8 CONSULTING SERVICES WITH TISA CAPITAL CORP.
The consulting fees to TISA Capital Corp., a related entity, were $81,500
for 1998 as follows:
Cash $25,000
Stock 34,000
Account payable at December 31, 1998 22,500
-------
$81,500
=======
NOTE 9 MERGER WITH STEIN HOLDINGS, INC.
On June 1, 1999, the company merged with Stein Holdings, Inc., a Nevada
corporation. The stockholders of Multi-Source Capital Ltd. received
4,247,754 shares of Stein Holdings, Inc. Multi-Source Capital Ltd. was
liquidated and Stein Holdings, Inc. became the successor company.
The merger was accounted for as a reverse acquisition which requires that
the net assets of Multi-Source Capital Ltd. be transferred to Stein
Holdings, Inc. at book value and the statement of income include the
operations of both companies from the beginning of their fiscal years
which was January 1, 1999 for both companies.
Pro-forma financial information for the period from January 1, 1999 to
June 1, 1999 is not presented as Stein Holdings Inc. was an inactive shell
corporation and had no activity.
See Accompanying Notes and Independent Auditors' Report.
12
<PAGE>
MULTI-SOURCE CAPITAL LTD.
FINANCIAL STATEMENTS
with
INDEPENDENT AUDITORS' REPORT
June 30, 1998
Prepared by:
Cordovano and Harvey, P.C.
Certified Public Accountants
Denver, Colorado
<PAGE>
MULTI-SOURCE CAPITAL LTD.
Index to Financial Statements
Page
----
Independent auditor's report ............................................. F-2
Balance sheets ........................................................... F-3
Statements of operations and retained deficit ............................ F-4
Statements of changes in shareholder's equity (deficit) .................. F-5
Statements of cash flows ................................................. F-6
Summary of significant accounting policies ............................... F-7
Notes to financial statements ............................................ F-9
<PAGE>
Cordovano and Harvey, P.C. Certified Public Accountants
- --------------------------------------------------------------------------------
201 Steele Street
Suite 300
Denver, Colorado 80206
(303) 329-0220 Phone
(303) 316-7493 Fax
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders
Multi-Source Capital Ltd.
INDEPENDENT AUDITORS' REPORT
We have audited the balance sheet of Multi-Source Capital Ltd. As of June 30,
1998 and December 31, 1997, and the related statements of operations,
shareholders' equity, and cash flows for the six months ended June 30, 1998 and
the period from August 11, 1997 (inception) through December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted audited standards.
Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Multi-Source Capital Ltd. as of
June 30, 1998 and December 31, 1997, and the results of its operations and its
cash flows for the six months ended June 30, 1998 and the period from August 11,
1997 (inception) through December 31, 1997, in conformity with generally
accepted accounting principles.
Cordovano and Harvey, P.C.
Denver, Colorado
August 7, 1998
<PAGE>
MULTI-SOURCE CAPITAL LTD.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash, including money market funds of $345,169 an $-0-, respectively $ 358,320 $ --
Marketable securities (Note C) ...................................... 129,742 --
--------- ---------
TOTAL CURRENT ASSETS ................. 488,062 --
EQUIPMENT, less accumulated depreciation of $634 ......................... 8,880 --
--------- ---------
$ 496,942 $ --
--------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable .................................................... $ 829 $ 1,432
Accounts payable, related party (Note B) ............................ -- 1,832
Accrued expenses .................................................... 3,444 --
Dividends payable (Note E) .......................................... 3,967 --
Income taxes payable ................................................ 19,041 --
--------- ---------
TOTAL CURRENT LIABILITIES ..................... 27,281 3,264
--------- ---------
SHAREHOLDERS' EQUITY (DEFICIT) (Note E)
Preferred stock, $.01 par value; 10,000,000 shares authorized;
-0- shares issued and outstanding ................................. -- --
Common stock, $.001 par value; 100,000,000 shares authorized;
4,402,838 shares issued and outstanding ........................... 4,403 --
Additional paid-in capital .......................................... 522,371 --
Retained deficit .................................................... (57,113) (3,264)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) ............................ 469,661 (3,264)
--------- ---------
$ 496,942 $ --
--------- ---------
</TABLE>
See accompanying summary of significant accounting policies
and notes to the financial statements.
<PAGE>
MULTI-SOURCE CAPITAL LTD.
STATEMENTS OF OPERATIONS AND RETAINED DEFICIT
<TABLE>
<CAPTION>
August 11, 1997
For the six (inception)
Months ended through
June 30, December 31,
1998 1997
------------ ---------------
<S> <C> <C>
REVENUES
Securities trading gains and losses, net (Note C) . $ 53,753 $ --
----------- -----------
EXPENSES
Salary and payroll taxes .......................... 11,686 --
----------- -----------
Consulting, related party (Note B) ................ 25,000 --
----------- -----------
Compensation (Note B) ............................. 300 --
----------- -----------
Rent, related party (Note B) ...................... 8,843 1,832
----------- -----------
Telephone ......................................... 2,421 --
----------- -----------
Other ............................................. 16,109 1,432
----------- -----------
TOTAL EXPENSES ................................. 64,359 3,264
----------- -----------
LOSS FROM OPERATIONS ........................... (10,606) (3,264)
----------- -----------
NON-OPERATING INCOME AND (EXPENSE)
Interest and dividend income ...................... 1,053 --
Interest expense .................................. (255) --
----------- -----------
LOSS BEFORE INCOME TAX ......................... (9,808) (3,264)
INCOME TAX BENEFIT (EXPENSE) (Note D)
Current income tax expense ........................ (19,041) (465)
Deferred income tax benefit (expense) ............. -- 465
----------- -----------
NET LOSS ....................................... (28,849) (3,264)
RETAINED DEFICIT, BEGINNING OF PERIOD .................. (3,264) --
DIVIDENDS DISTRIBUTED TO COMMON SHAREHOLDERS ........... (25,000) --
----------- -----------
RETAINED DEFICIT, END OF PERIOD ........................ $ (57,113) $ (3,264)
----------- -----------
BASIC EARNINGS PER COMMON SHARE ........................ $ * $ --
----------- -----------
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ....... 4,057,931 --
----------- -----------
</TABLE>
*Less than $.01 per share
See accompanying summary of significant accounting policies
and notes to the financial statements.
F-4
<PAGE>
MULTI-SOURCE CAPITAL LTD.
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
August 11, 1997 (inception) through June 30, 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------------ -------------------------- Paid-in
Shares Amount Shares Amount Capital
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, August 11, 1997 (inception) ...... -- $ -- -- $ -- $ --
Net loss for the period ended
December 31, 1997 ...................... -- -- -- -- --
---------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 .......... -- -- -- -- --
Shares issued to officers for cash (Note E) -- -- 6,000,000 6,000 9,000
Shares issued in common stock offering,
Less $3125 of offering costs (Note E) -- -- 181,756 182 910,883
Repurchase of shares, subsequently
Cancelled (Note E) ................... -- -- (2,080,000) (2,080) (402,920)
Shares issued to an officer and two
Directors for services (Note B) ...... -- -- 300,000 300 --
Dividends distributed in cash ............. -- -- -- -- --
Common stock dividends distributions ...... -- -- 1,082 1 5,408
Net loss for the six months ended
June 30,1998 .......................... -- -- -- -- --
---------- ----------- ----------- ----------- -----------
-- $ -- 4,402,838 $ 4,403 $ 522,371
---------- ----------- ----------- ----------- -----------
<CAPTION>
Total
Shareholders'
Retained Equity
Deficit (Deficit)
----------- -----------
<S> <C> <C>
Balance, August 11, 1997 (inception) ...... $ -- $ --
Net loss for the period ended
December 31, 1997 ...................... (3,264) (3,264)
----------- -----------
BALANCE, DECEMBER 31, 1997 .......... (3,264) (3,264)
Shares issued to officers for cash (Note E) -- 15,000
Shares issued in common stock offering,
Less $3125 of offering costs (Note E) -- 911,065
Repurchase of shares, subsequently
Cancelled (Note E) ................... -- (405,000)
Shares issued to an officer and two
Directors for services (Note B) ...... -- 300
Dividends distributed in cash ............. (19,591) (19,591)
Common stock dividends distributions ...... (5,409) --
Net loss for the six months ended
June 30,1998 .......................... (28,849) (28,849)
----------- -----------
$ (57,113) $ 469,661
----------- -----------
</TABLE>
See accompanying summary of significant accounting policies
and notes to the financial statements.
F-5
<PAGE>
MULTI-SOURCE CAPITAL LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
August 11, 1997
For the six For the
Months ended Period ended
June 30, December 31,
1998 1997
------------ ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ......................................... $ (24,849) $ (3,264)
Transactions not requiring cash:
Depreciation .................................. 634 --
Unrealized losses on marketable securities, net 93,958 --
Common Stock dividends distributed (Note E) ... (5,410) --
Stock issued for services (Note B) ............ 300 --
Changes in current assets and current liabilities:
Accounts payable and other current liabilities 24,017 3,264
Purchases of marketable securities ............ (9,889,545) --
Proceeds from the sale of marketable securities 9,665,845 --
----------- -----------
NET CASH (USED IN)
OPERATING ACTIVITIES ...................... (139,050) --
----------- -----------
INVESTING ACTIVITIES
Purchases of equipment ............................ (9541) --
----------- -----------
NET CASH (USED IN)
INVESTING ACTIVITIES ...................... (9541) --
----------- -----------
FINANCING ACTIVITIES
Proceeds from the issuance of common stock ........ 934,599 --
Purchase of treasury stock, subsequently cancelled (405,000) --
Distribution of dividends ......................... (19,590) --
Payments for offering costs ....................... (3,125 --
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES ........................ 506,884 --
----------- -----------
NET INCREASE IN CASH ........................ 358,320 --
Cash, beginning of period ............................. -- --
----------- -----------
CASH, END OF PERIOD ......................... $ 358,320 --
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .......................................... $ 255 $ --
----------- -----------
Income Taxes ...................................... $ 400 $ --
----------- -----------
</TABLE>
See accompanying summary of significant accounting policies
and notes to the financial statements.
F-6
<PAGE>
MULTI-SOURCE CAPITAL. LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
June 30, 1998
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash equivalents
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Marketable securities
Marketable securities consist of various equity securities and are stated at
fair market value as of the balance sheet date. All equity securities are
considered "trading" securities under the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Accordingly,
unrealized gains and losses on equity are reflected in the accompanying
statement of operations.
Securities transactions
The Company buys and sells securities over the internet for its own account. All
securities transactions are recorded on a trade date basis.
Equipment and depreciation
Equipment is recorded at cost and depreciated using the straight-line method
over the useful lives of the assets. Beginning at the t5ime the assets are
placed into service. As of June 30, 1998, all equipment consisted of computer
hardware and software totaling $9,514. Depreciation expense for the period from
August 11, 1997 (inception) through December 31, 1997 and the six months ended
June 30, 1998 totaled $-0- and $634, respectively.
Upon retirement or disposition of the equipment, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in operations. Repairs and maintenance are charged to expense as
incurred and expenditures for additions and improvements are capitalized.
F-7
<PAGE>
MULTI-SOURCE CAPITAL. LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
June 30, 1998
Income taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and the tax
basis of assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible with the assets
and liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
Earnings/(loss) per share
The Company reports earnings per share using a dual presentation of basic and
diluted earnings per share. Basic earnings per share excludes the impact of
common stock equivalents. Diluted earnings per share utilize the average market
price per share when applying the treasury stock method in determining common
stock equivalents. However, the Company has a simple capital structure for the
period presented and, therefore, there is no variance between the basic and
diluted earnings per share.
Comprehensive income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting, Standard No. 130, "Reporting Comprehensive Income" (SFAS
130). SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. Specifically, SFAS 130
requires that all items that meet the definition of components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. However, SFAS 130 does not specify
when to recognize or how to measure the items that make up comprehensive income
SFAS 130 is effective for years beginning after December 15, 1997, and early
application is permitted. SFAS 130 requires reclassification of financial
statements for all periods presented for comprehensive purposes. The Company's
marketable securities are classified as trading and unrealized gains and losses
are recognized in the statement of operations; accordingly, the adoption of SFAS
130 does not have a material effect on the Company's financial statements.
F-8
<PAGE>
MULTI-SOURCE CAPITAL. LTD.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
Note A: Background
Multi-Source Capital Ltd. (the "Company") was incorporated under the laws of
Colorado on August 11, 1997. The Company was organized to carry on any lawful
business pursuant to the Colorado Business Corporation Act. The Company's
planned principal operations include investment banking, exploring import/export
and manufacturing opportunities, and trading for own account in the stock and
commodities markets.
The principal activities since inception have included organizational matters,
the sale and issuance of shares of its $.001 par value common stock and
securities trading for own account.
Note B: Related party transactions
The Company rented office space from an affiliate for all periods presented.
During the period from August 11, 1997 (inception) through December 31, 1997 and
the six months ended June 30, 1998, the Company incurred rent expense of $1,832
and $8,843, respectively. At December 31, 1997 and June 30, 1998, the Company
owed affiliate $1,832 and $-0-, respectively, for accrued rent.
On April 12, 1998, the Company issued a total of 300,000 shares of the Company's
$.001 par value common stock to an officer and two directors of the Company in
exchange for services provided to the Company. The transaction was recorded at
the fair value of the services rendered, as determined by management, which
totaled $300. The $300 is included in the accompanying financial statements as
compensation.
During the six months ended June 30, 1998, the Company paid $25,000 to an
affiliate company for consulting services in the areas of securities trading,
public relations, and investor relations. The $25,000 is included in the
accompanying financial statements as consulting, related party.
During the six months ended June 30, 1998, the Company acquired 27,000 common
shares of an affiliated company at a cost of $54,000. At June 30, 1998, the
shares were valued at zero, resulting in a $54,000 unrealized loss.
Note C: Marketable securities
Marketable securities consisted of the following at June 30, 1998:
Market
Cost Value
-------------------
Equity securities ....................... $223,700 $129,742
-------------------
F-9
<PAGE>
MULTI-SOURCE CAPITAL LTD.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
Note C: Marketable Securities, continued
Following is a summary of investment earnings recognized in income during the
six months ended June 30, 1998:
TRADING SECURITIES
Realized gains ........................ $ 199,937
Realized losses ....................... (52,226)
---------
Realized gains, net ................ 147,711
---------
Unrealized gains ...................... $ 3,750
Unrealized losses ..................... (97,708)
---------
Unrealized losses, net ............. (93,958)
---------
GAIN ON TRADING SECURITIES, NET ....... $ 53,753
---------
Note D: Income Taxes
A reconciliation of the U.S. statutory federal income tax rate to the effective
rate is as follows:
June 30, December 31,
1998 1997
-------- ------------
U.S. federal statutory graduated rate . $ (1,904) $ (490)
State income tax rate,
Net of federal benefit .............. (746) (139)
Unrealized investment losses, net ..... 22,371 --
Permanent differences ................. 58 --
Net operating loss carryforward ....... (738) 629
-------- --------
$ 19,041 $ --
-------- --------
At December 31, 1997, deferred taxes consisted of a net tax asset due to
operating loss carryforwards of $3.264, which was fully allowed for in the
valuation allowance of $3,264. The valuation allowance offsets the net deferred
tax asset for which there is no assurance of recovery.
The change in the valuation allowance for the six months ended June 30,1998 was
$22,119, which increased the valuation allowance to $25,383. The increase in the
valuation allowance was due to the deferred tax asset related to the net
unrealized losses.
F-10
<PAGE>
MULTI-SOURCE CAPITAL LTD.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
Note E: Shareholders' equity (deficit)
Common stock sales
During the six months ended June 30, 1998, the Company offered for sale 200,000
shares of its $.001 par value common stock for $5.00 per share pursuant to Rule
504 of Regulation D of the Securities Act of 1933, as amended (the "Act"). The
Company sold 182,838 shares for net proceeds of $911,064 after deducting
offering costs of $3,125.
An additional 6,000,000 shares of common shares of common stock were issued to
two officers and an affiliate company at $.0025 per share for total proceeds of
$15,000. These shares are "restricted securities" and may be sold only in
compliance with Rule 144 of the Act.
During the six months ended June 30, 1998, the Company repurchased 2,080,000
shares of outstanding common stock. 2,000,000 shares were repurchased from a
former officer at .0025 per share ($5,000) and 80,000 shares were repurchased
from shareholders in the common stock offering at $5.00 per share ($400,000). No
gains or losses occurred through the repurchases. All repurchased shares were
subsequently cancelled.
Dividend distributions
During the six months ended June 30, 1998, the Board of Directors declared a
dividend for shareholders of record at March 31, 1998 in the amount of$25,000.
$5,410 of the dividend was distributed to shareholders through the issuance of
1,082 shares of the Company's common stock. The Company owed dividends totaling
$3,967 as of June 30, 1998.
Note F: Subsequent Events
On July 15, 1998, the Board of Directors approved the issuance of 6,800 shares
of the Company's common stock in exchange for consulting services provided by an
affiliated company valued at $34,000. The affiliate provided consulting services
in the areas of securities trading, public relations, and investor relations.
On July 15, 1998, the Board of Directors declared a cash dividend for
shareholders of record as of June 30, 1998. The total amount of dividends
distributed totaled $34,277.
F-11
