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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934 For the transition
period from ________ to ____________.
Commission file number 33-12613-NY
CELESTIAL VENTURES CORPORATION
(Exact name of Small Business Issuer as specified in its charter)
NEVADA 22-2814206
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
382 Route 59, Section 310, Monsey, New York 10952
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(Address of principal executive offices)
(914) 369-0132
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(Issuer's telephone number, including area code)
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer has: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
X Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding for each of the issuer's classes of
common equity, as of the latest practicable date:
Number of shares of Common Stock outstanding as of April 3, 1997: 1,137,053.
Transitional Small Business Disclosure Format (check one)
Yes No X
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Celestial Ventures Corporation and Subsidiaries
Condensed Consolidated Balance Sheet
March 31,
1997
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Assets
Current Assets
Cash and Cash Equivalents $ 34
Note Receivable 450,000
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Total Current Assets 450,034
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Total Assets $ 450,034
=========
See Accompanying Notes to Condensed Consolidated Financial Statements
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CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31,
1997
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Liabilities
Current Liabilities
Accounts Payable $ 101,025
Accrued Expenses and Sundry Liabilities 9,600
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Total Current Liabilities 110,625
Long-Term Liabilities
Notes Payable 170,000
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Total Long-Term Liabilities 170,000
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Total Liabilities 280,625
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Shareholders' Equity
Shareholders Equity:
Preferred Stock 272
Common Stock 1,076
Additional Paid-In-Capital 4,817,487
Accumulated Deficit (4,649,426)
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Total Shareholders' Equity 169,409
Total Liabilities and Shareholders' Equity $ 450,034
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See Accompanying Notes to Condensed Consolidated Financial Statements
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CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31,
1997 1996
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Revenues
Sales $ 205,192 $ 915,629
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Cost of Sales 53,612 241,692
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Gross Profit 151,580 673,937
Operating Expenses
General and Administrative Expenses 330,062 748,008
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Net (Loss) Before Other Income (Deductions) (178,482) (74,071)
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Other Income (Deductions)
Interest Expense -- (46,875)
Interest Income -- 23,293
Forgiveness of Debt -- 9,000
Gain on sale of subsidiary 447,451 --
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Total Other Income (Deductions) 447,451 (14,588)
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Net (Loss) before Taxes 268,969 (88,653)
Income Taxes (25) (571)
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Net Profit (Loss) $ 268,944 $ (89,224)
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Net Profit (Loss) Per Share $ .24 $ (.01)
========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements
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CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
1997 1996
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Revenues
Sales $ -- $ 232,836
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Cost of Sales -- 79,348
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Gross Profit -- 153,488
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Operating Expenses
General and Administrative Expenses 117,180 218,482
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Net Profit (Loss) Before
Other Income (Deductions) (117,180) (64,944)
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Other Income (Deductions)
Interest Expense -- (18,750)
Interest Income -- 7,000
Gain on sale of subsidiary -- --
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Total Other Income (Deductions) -- 11,750
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Net (Loss) before Taxes (117,180) (76,744)
Income Taxes (25) (571)
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Net Profit (Loss) $(117,205) $ (77,315)
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Net Profit or (Loss) Per Share $ (.10) $ (.01)
========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements
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CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
1997 1996
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Cash Flows from Operating Activities
Net Income (Loss) $ 268,944 $ (89,224)
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Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation 2,199 7,797
Amortization 16,667 50,001
Interest on redeemable common stock -- 46,875
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 128,012 (10,804)
Inventories 153,037 (4,472)
Prepaid expenses 35,034 (231,252)
Other Assets 925,150 23,325
Increase (decrease) in:
Accounts payable (1,106) 24,364
Accrued expenses and sundry liabilities (38,513) 51,122
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Total adjustments 1,220,480 (43,044)
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Net cash used in operating activities 1,489,424 (132,268)
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Cash Flows From Investing Activities:
Sale (purchase) of property & equipment - net 32,915 (43,621)
Deficit of subsidiary sold (acquired) 284,102 (283,060)
Purchase of assets from Re-Prod Inc -- (1,315,000)
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Note receivable from sale of subsidiary (450,000) --
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Net cash used in investing activities (132,983) (1,641,681)
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Cash Flows From Financing Activities:
Proceeds from loans - net of payments (517,111) 404,208
Financing of purchase of Re-Prod assets:
Note Payable (450,000) 250,000
Redeemable common stock (806,250) 750,000
Redemption of preferred stock 4 (611)
Issuance of common stock -- 366,820
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Net cash provided by financing activities (1,368,357) 1,770,417
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Net increase (decrease) in cash (11,916) (3,532)
Cash beginning of period 11,950 3,562
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Cash end of period $ 34 $ 30
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See Accompanying Notes to Condensed Consolidated Financial Statements
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CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
Celestial Ventures Corporation was organized under
the laws of the State of Nevada on January 28, 1987.
The Company's activities consist of ownership of
various diversified businesses. Effective June 30,
1995, the Company changed its year end from October
31 to June 30.
NOTE A: Significant Accounting Policies
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance
with generally accepted accounting principles for
interim financial information and with the
instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management,
all adjustments (consisting of normal recurring
accruals) considered necessary for a fair
presentation have been included. Operating results
for the three- and nine-month period ended March 31,
1997 is not necessarily indicative of the results
that may be expected for the year ended June 30,
1997. For further information, refer to the
consolidated financial statements and footnotes
thereto included in the Registrant Company and
Subsidiaries' annual report on Form 10-K for the year
ended June 30, 1996.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
The consolidated balance sheet as of March 31, 1997 and the consolidated
statement of operations for the nine months ended March 31, 1997 and 1996 have
been derived from the unaudited financial records of the Company. These
financial statements reflect all adjustments, consisting only of normal
recurring items, which in the opinion of management are necessary to fairly
state the Company's financial position and results of operations for the period
presented.
Financial Condition
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The Company's financial condition changed substantially at March 31, 1997
compared to June 30, 1996. These changes occurred as a result of the sale
Remarkable Office Products, Inc. ("Remarkable").
On November 21, 1996, the Registrant, effective October 1, 1996, sold all of
the issued and outstanding capital stock (the "Shares") of its wholly-owned
subsidiary, Remarkable Office Products, Inc. (hereinafter "Remarkable"), to
Dynamic Products Corp. (the "Purchaser"), for $1,406,250.00. Remarkable is in
the business of marketing re-markable wall calendars and office posters. The
assets of Remarkable included equipment, inventory, and accounts receivable.
The consideration paid to the Registrant was as follows: (i) repayment of
intercompany balance due to Remarkable as of November 20, 1996 of $106,450.85;
(ii) payment on November 21, 1996, of $43,539.15 in cash; (iii) a promissory
note for $450,000.00 due February 21, 1997, payment of which was extended until
May 21, 1997; and (iv) assumption of certain liabilities of the Registrant
totaling $806,250.00. The Registrant realized a gain of $447,451.00 on the
sale. The purchase price of Remarkable was determined in the manner of an arms
length transaction. The principles followed by the parties in determining the
consideration were as follows: Shares of Remarkable were valued at book value,
and the repayment of intercompany balance on November 20, 1996, the cash
payment on November 21, 1996, the note payable due on May 21, 1997, and the
assumption of certain liabilities of the Registrant were each calculated at
cash value. An officer, director, and stockholder of the Purchaser is also the
President and Chairman of the Board of Directors and a stockholder of the
Registrant. The transaction was approved and ratified by the Registrant's Board
of Directors in accordance with Nevada corporate law.
The sale of Remarkable resulted in an increase of current assets from $328,033
at June 30, 1996 to $450,034 at March 31, 1997 representing an increase of 37%
or $122,001. Property, plant and equipment decreased from $35,114 at June 30,
1996 to $0 at March 31, 1997 representing a decrease of 100% or $35,114. Other
assets decreased from $941,817 at June 30, 1996 to $0 at March 31, 1997
representing a decrease of 100% or $941,817. The Company experienced a decrease
in current liabilities from $451,213 at June 30, 1996 to $110,625 at March 31,
1997 representing a decrease of 75% or $340,588. The Company also experienced a
decrease in long-term liabilities from $431,142 at June 30, 1996 to $170,000 at
March 31, 1997 representing a decrease of 61% or $261,142. Redeemable common
stock decreased from $806,250 at June 30, 1996 to $0 at March 31, 1997
representing a decrease of 100% or $806,250. Shareholders' Equity increased
from $(383,641) at June 30, 1996 to $169,409 at March 31, 1997 representing an
increase of 144% or $553,050.
Results of Operations
- ---------------------
During the nine month period ended March 31, 1996 the Company experienced a net
loss of $(89,224) as compared to a net gain of $268,944 for the nine months
ended March 31, 1997. The net gain of $268,944 was on sales of $205,192. Cost
of goods sold was $53,612 and operational expenses were $330,062. Other income
of $447,451 was from the gain on the sale of the Remarkable subsidiary.
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Effect of Inflation
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The impact of inflation on the Company's financial condition and results of
operations has not been significant.
Liquidity and Capital Resources
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Cash provided from operations for the nine months ended March 31, 1997 was
$1,489,424. The Company had $18,866 in depreciation and amortization expense
which did not require cash outlay for the nine months ended March 31, 1997.
The source of funds from operations was a decrease of other assets of $925,150,
a decrease of inventories of $153,039 and a decrease in accounts receivable of
$128,012.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company filed on February 21, 1996 a complaint against Re-Prod,
Inc. and its stockholder Jacob Lahav in United States District Court for the
Southern District of New York, White Plains, New York Case Number 96 civ. 1274,
which sought a modification of the purchase price of the assets of Re-Prod,
Inc. The Company contends that certain assets, including accounts receivable,
which the Company was purchased from Re-Prod, Inc. did not exist at the time of
the acquisition. As a result the Company has suspended payments under a
$250,000 payable to Re-Prod, Inc. and did not honor other terms of the
acquisition.
On August 29, 1995 the Company purchased, as of July 1, 1995, all of
the issued and outstanding common stock of Success Direct, Inc., a mail order
business products company ("Success"). Mr. Irwin Schneidmill, who owned 41.5%
of Success, became the President and Chief Executive Officer of the Company on
August 1, 1995. Simultaneously with the acquisition of Success, Success
assigned to the Company its agreement to purchase certain business assets from
Re-Prod, Inc., including the name Remarkable Products, and the Company
consummated the transaction with Re-Prod, Inc. The assets purchased from
Re-Prod, Inc. are related to the direct mail industry.
In connection with the acquisition of the certain assets of Re-Prod,
Inc., Mr. Schneidmill and Mr. John Formicola, a stockholder of the Company, had
personally guaranteed the payment by the Company of a $250,000 promissory note
payable to Re-Prod, Inc., which represents part of the consideration paid by
the Company to acquire the assets of Re-Prod, Inc. This note bares interest at
9% per annum and is to be paid monthly by the Company in varying amounts by
applying the income received from renting its mailing list on a monthly basis.
On November 20, 1995, the Company contends the principal amount remaining under
the note was $210,127.53.
As part of the consideration for the acquisition, Re-Prod, Inc., also
received 750,000 shares of the restricted common stock of the Company. The
Agreement provided that Mr. Schneidmill would personally guarantee 375,000 of
such 750,000 shares payment of any difference between $393,750 ($1.05 per
share) and the fair market value of the shares on January 1, 1996. The value of
the common stock at February 1, 1996 was approximately $78,750. The Company and
Mr. Schneidmill and Formicola personally, have also executed a "Put Option
Agreement", whereby Re-Prod, Inc. can put
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these 375,000 shares to the Company as of January 1, 1996 and demand payment of
$393,750. Such demand was made on January 31, 1996. Furthermore, Mr.
Schneidmill and Mr. Formicola guaranteed payment of the difference between
$412,500 and the market value of the remaining 375,000 shares of the Company's
common stock held by Re-Prod, Inc. on July 1, 1996. The shares having a
guaranteed value at July 1, 1996 are subject to an identical Put Option
Agreement.
The Company, together with Mr. Schneidmill and Mr. Formicola have
contended that the assets purchased form Re-Prod, Inc. were not as represented
in the purchase agreement, and are seeking a renegotiation of the consideration
paid for those assets, including a renegotiation of their personal guarantees.
The Company has agreed to indemnify Mr. Schneidmill and Mr. Formicola against
any liability resulting form these guarantees.
On March 14, 1996, Re-Prod, Inc. and Jacob Lahav filed a counter
claim against the Company alleging specific performance on the $250,000
promissory note, fraud and conversion, breach of contract and securities fraud
and against Mr. Irwin Schneidmill and John Formicola for the enforcement of
certain financial guarantees as well as for common law fraud, securities fraud
and fraud and conversion. The total dollar amount claimed, approximately
$1,050,000, exclusive of interest equals the amount of the original purchase
price of Re-prod, Inc. The Company and Mr. Schneidmill are vigorously defending
these claims against them and is pursuing its claims against Re-Prod, Inc. and
Mr. Lahav.
On November 15, 1996, parties entered into, and the District Court
approved by order, a Stipulation of Settlement ("Settlement") of all claims and
counter claims. As a condition to entering into the Settlement, prior to its
execution, the Company paid to Re-Prod, Inc. the $6,039.55 balance of an escrow
account to be provided for in the purchase agreement. Under the Settlement, the
Company agreed to pay to Re-Prod, Inc. a balance of the purchase price of
$400,000 has been paid. The Company must make additional payments to Re-Prod,
Inc. on September 1, 1997 of $300,000 plus that amount equal to one half of the
excess (if any) of the closing value of Re-Prod, Inc.'s shares of the Company's
common stock (based upon the mean between the bid/asked price) on September 1,
1997 over $300,000 (payable upon the tender of Re-Prod, Inc,'s certificates).
(As a result of its May 1996 1 for 15 stock split, the Company issued to
Re-Prod, Inc., certificates for 50,004 new shares in exchange for its existing
certificate for 750,000 pre-split shares of common stock.) Under the
Settlement, the counter claim against Mr. Formicola was dismissed, and Mr. John
L. Patten, a stockholder of the Company, was named as an additional guarantor.
Mr. Schneidmill and Mr. Patten have unconditionally guaranteed the prompt and
full payment and performance of all of the Company's obligation under the
Settlement.
Under the purchase agreement, the Company granted Re-Prod, Inc. a
security interest in certain of the Company's assets. The Settlement provides
that Re-Prod, Inc. will subordinate its security interest to that of any third
party which lends the Company funds to repay its obligations to Re-Prod, Inc.
under the Settlement. Except as provided above, the rights and obligations of
the parties under the purchase agreement remain unchanged until fully
performed. In the event Re-Prod, Inc. alleges that the Company is in default in
making any payment due or performing any obligation required under the
Settlement, Re-Prod, Inc. will have the right (upon ten days written notice) to
apply to the Court for entry of judgment against the Company, and Messers.
Schneidmill and Patten, jointly and severally, for $1,100,000, less any sums
previously paid to Re-Prod, Inc. under the Settlement if Re-Prod, Inc.
certifies to the Court that the Company is in default and has received notice
thereof, and such alleged default has remained uncured for ten days; the Court
can enter judgment against the Company. Upon full satisfaction by the Company
of its obligations under the Settlement and the Asset Purchase Agreement,
Re-Prod, Inc.'s counter claim will be dismissed with prejudice and the Company
and Messers. Formicola and Patten will be released from all claims under the
Re-Prod, Inc. counter claim.
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ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no matters submitted to a vote of security holders
for the period covered by this Report.
ITEM 5. OTHER INFORMATION.
When used in this Annual Report on Form 10-KSB, the words "estimate",
"project", "intend", "expect" and similar expressions are intended to
identify forward-looking statements regarding events and financial
trends which may affect the Company's future operating results and
financial position. Such statements are subject to risks and
uncertainties that could cause the Company's actual results and
financial position to differ materially. Such factors are described in
detail elsewhere. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-B).
Exhibit
Numbers Description
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* 3(a) - Certificate of Incorporation of the Company
* 3(b) - Bylaws of the Company
** 4(a) - Form of Common Stock Certificate
** 10(a) - Purchase Agreement between the Company and Gulf
Coast Powder Coatings, Inc., and ATCO Corporation
for the purchase of Gulf Coast Powder Coatings, Inc.
by ATCO Corporation dated August 31, 1995.
** 10(b) - Purchase Agreement between the Company and Valves
International, Inc., Central Valve Services, Inc,
Alloy Valve International, Inc. (d/b/a CVC
International and/or T.J. Lingle International)
(collectively, the "Subsidiaries") and ATCO
Corporation for the purchase of the Subsidiaries by
ATCO Corporation, dated August 31, 1995.
** 10(c) - Purchase Agreement between Success Direct, Inc.,
Irwin Schneidmill, Performance Capital Corporation,
Martin Ewenstein, Brian Ugles, John Ecke
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and Cathy Santo ("Sellers") and the Company, for the
purchase by the Company of Success Direct, Inc.
** 10(d) - Assignment of contract between Success Direct, Inc.
and the Company for the rights to purchase assets of
Re-Prod, Inc., dated August 31, 1995.
** 10(e) - Purchase Agreement between the Company and Re-Prod
Inc., for the purchase of certain assets of Re-Prod,
Inc., dated August 31, 1995.
*** 10(f) - Promissory Note in the principal amount of $205,000
bearing interest at 11% per annum between the
Company as borrower and Performance Corporation as
lender, dated August 1, 1995.
*** 10(g) - Promissory Notes dated December 15, 1994 through
April 15, 1995 in the aggregate amount of $250,000
($50,000) bearing interest at 10% per annum between
Success Direct, Inc. as borrower and Performance
Capital Corporation as lender.
*** 10(h) - Employment Agreement between Irwin Schneidmill and
the Company dated March 1, 1996.
*** 10(i) - Supply contracts between the Company and V.W.
Eimicke, Ltd. each dated September 6th, 1990.
*** 10(j) - Indemnity Agreement between the Company and Irwin
Schneidmill and J John Formicola, indemnifying them
against liabilities arising from the acquisition of
assets of Re-Prod, Inc.
- Subsidiaries of the Company
*** 10(k) - Stock Option Certificate and Agreement between the
Company and Irwin Schneidmill dated September 15,
1995.
(b) Reports on Form 8-K - The Registrant since the last quarter filed
a report on Form 8-K dated November 21, 1996. The Form 8-K
discusses the Registrant's sale of its wholly owned subsidiary
Remarkable Office Products, Inc.
* Incorporated by reference to the Company's Registration Statement on
Form S-8 dated September 18, 1995.
** Incorporated by reference to the Company's Report on Form 8-K dated
August 31, 1995.
*** Incorporated by reference to the Company's Report on Form 10-KSB for
the period ended June 30, 1995.
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SIGNATURES
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In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
CELESTIAL VENTURES CORPORATION
By: /s/ IRWIN SCHNEIDMILL
-----------------------------
Irwin Schneidmill
President, Chief Executive, and
Financial Officer and a Director
Dated: May 22, 1997
