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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-KSB/A
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended:
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934 (NO FEE REQUIRED)
For the transition period from October 31, 1994 to June 30, 1995.
Commission file number 33-12613-NY
CELESTIAL VENTURES CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 22-2814206
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
382 Route 59, Section 310, Monsey, New York 10952
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 369-0132
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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Common Stock, no par value None
Preferred Stock, no par value None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant August 3, 1995, based on the average bid and
asked price on such date, was approximately $4,261,788.
Number of shares of Common Stock outstanding as of August 3, 1995: 9,935,878.
Number of shares of Preferred Stock outstanding as of August 3, 1995: 878,153.
No annual reports to security holders, proxy or information statements, or
prospectuses filed pursuant. Rule 424(b) or (c) have been incorporated by
reference in this report.
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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 under "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations". 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.
PART I
Item I. Business
Celestial Ventures Corporation, a Nevada corporation (the "Company"),
was incorporated on January 28, 1987. The Company's initial business was the
acquisition of real estate and real estate development. Since 1993, the Company
has primarily been engaged in the acquisition of businesses, divisions of
businesses or the assets of businesses that the Company's management identified
as having significant potential for business success. The Company is no longer
involved in real estate investment or development.
Valve Company Acquisitions
Pursuant to an Agreement and Plan of Reorganization dated August 12,
1993, the Company acquired all of the issued and outstanding common stock of
Valves International, Inc. ("VII"), an Oklahoma corporation, in exchange for
850,000 shares of the Company's restricted common stock. As a result of this
reorganization, the Company also acquired Central Valve Services, Inc., Alloy
Valves International, Inc., Valves International, Inc., and CVC International,
Inc., which were wholly owned subsidiaries of VII. VII and its subsidiaries were
operating companies engaged in the business of valve manufacturing and sales in
both Oklahoma and Texas.
Powder Coating Operations
On October 31, 1993, the Company acquired U.S. Powder Coaters, Inc., a
corporation whose principal business consisted of treating and coating metal and
non-metal materials, in exchange for 300,000 shares of the Company's common
stock. In 1993 the Company also acquired Gulf Coast Powder Coatings, Inc. As
part of the Company's reorganization, the Company discontinued operations of
U.S. Powder Coatings, Inc. in June 1994 and management renegotiated a 50%
reduction of its debt related to its acquisition.
Disposition of Valve and Powder Coating Operations
On August 31, 1995, effective as of April 30, 1995, the Company entered
into a purchase agreement whereby it sold all of its wholly owned subsidiaries
with the exception of U.S. Powder Coatings, Inc. to Turkey Delight
International, Inc., a Nevada corporation, (d/b/a ATCO Corporation) ("Purchaser"
or "Turkey DeLite") for $1,900,000 in cash, promissory notes and common stock.
Turkey DeLite's principal executive officer, Mr. Bob J. Sudderth, also served as
the Chairman of the Board of Directors of the Company. See "Certain
Relationships and Related Transactions". The subsidiaries referred to herein
include Valves International, Inc., Central Valve Services, Inc., Alloy Valve
International, Inc. and Gulf Coast Powder Coatings, Inc. The sales price
consisted of a combination of 1,550,000 shares of the Purchaser's common stock,
a $200,000
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promissory note due and the payment of $150,000 contingent upon the
successful completion of a stock offering by the Purchaser. The assets of U.S.
Powder Coatings, Inc. are still owned by the Company although the subsidiary is
inactive.
Direct Mail Business Acquisitions
On August 29, 1995, the Company purchased, effective as of July 1,
1995, all of the issued and outstanding common stock of Success Direct, Inc., a
New Jersey corporation, a mail order business products company ("Success"), for
total consideration of 1,000,000 restricted shares of common stock of the
Company. The principal stockholder of Success, Mr. Irwin Schneidmill, became the
President of the Company on August 1, 1995. 415,000 of such shares were paid to
Mr. Irwin Schneidmill who was the 41.5% owner of the capital stock of Success.
See "Certain Relationships and Related Transactions."
Simultaneously with the acquisition of Success, Success assigned to the
Company its rights under an 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. See "Certain
Relationships and Related Transactions".
In connection with the acquisition of certain assets of Re-Prod, Inc.,
the Company paid total consideration consisting of the following; (i) $315,000
in cash, (ii) a promissory note in the amount of $250,000 payment of which was
guaranteed by Mr. Schneidmill and Mr. John Formicola, a shareholder of the
Company, and (iii) 750,000 shares of the common stock of the Company as to which
Mr. Schneidmill and Mr. Formicola have agreed to pay the difference between the
actual and estimated market price of the shares on a future date. See "Certain
Relationships and Related Transactions".
From August to December, 1995, the Company operated Success as a wholly
owned subsidiary under the tradename Remarkable Products. On December 7, 1995,
Success changed its corporate name to Remarkable Office Products, Inc.
("Remarkable"), but has continued to use the tradename Remarkable Products.
Remarkable was incorporated in the State of New Jersey in September, 1994 and
from its inception through its acquisition by the Company in 1995 has been
engaged in the distribution of office products.
The Company, through its wholly-owned subsidiary, Remarkable, sells
specialized office products featuring time management and organizational tools
to small and medium-sized businesses nationwide through innovative, aggressive
direct marketing catalogs and programs. Remarkable's products include dry erase
boards and calendars with markers which can be wiped clean after use and
re-used. The Company also specializes in calendars and laminated products such
as large geographic wall maps, and federal law posters which many businesses are
required to post in the workplace (e.g., minimum wage posters, equal opportunity
and sexual harassment notices). The Company's strategy includes mailings of a
variety of distinctive, full color catalogs, a high level of customer service,
prompt order fulfillment, and discounted prices.
Industry Background
It is management's belief that distribution within the office products
industry is highly fragmented. End users traditionally have purchased office
products from commercial office supply companies and small retail dealers. These
distribution channels account for the vast majority of the market for office
products. The Company believes that direct marketing companies and office
products superstores have increased their share of the office products market
over the last several
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years.
Commercial office supply companies, often referred to as contract
stationers, traditionally have served large businesses through commissioned
sales forces. Contract stationers are able to purchase in large quantities
directly from manufacturers and offer significant volume-related discounts to
their large business customers. Because contract stationers use commissioned
sales forces and volume related programs to market products, it generally is
impracticable for them to service small and medium-sized businesses.
The independent retail channel, through which Remarkable's targeted
customers traditionally have purchased specialized office products, is
characterized by a large number of small retail dealers who primarily purchase
products from wholesalers for resale at or near manufacturers' list prices.
These small retail dealers typically stock a limited inventory of office
products, furniture and business machines.
In the past few years, alternative distribution channels such as office
products superstores and direct marketing companies have captured increasing
market shares at the expense of traditional retail office products dealers.
These superstores have emerged in most urban and suburban markets of the United
States targeting home office buyers and the small and medium-sized businesses
that purchase from retail dealers, by offering substantially lower prices.
Superstores generally operate on a cash and carry basis, charge extra for
delivery, and often require a nominal form of membership to obtain the best
pricing and to gain access to other limited services.
The Company believes that direct marketing has gained acceptance over
the past several years in many industries, including the office products
industry. Direct marketers of office products utilize a variety of catalogs and
other programs to market general office supplies, furniture and equipment at
discounts form manufacturers' list prices. Large direct marketing companies
typically purchase in large quantities, directly from manufacturers, and operate
from centralized distribution facilities. These larger direct marketers develop
large, proprietary customer databases that are segmented and used to improve the
effectiveness of catalog mailings to their customers.
Business Strategy
The Company believes that, properly executed, direct marketing provides
the most convenient and cost effective way for small and medium-sized businesses
to purchase certain office products, such as the time management and
organizational tools sold by Remarkable. Remarkable also believes that a high
level of customer service, aggressive product merchandising, fast delivery, and
ease and convenience in purchasing will become increasingly important
competitive factors, as competition increases from office products superstores.
Remarkable's strategy to distinguish itself from other direct marketers of
specialized office products, and from the low price, low service superstores, is
to provide small to medium-sized businesses with a high level of customer
service and a convenient, fast and economical means of purchasing a
comprehensive selection of specialized office products. Remarkable does not
compete in the highly competitive area of general office supplies which include
paper, writing instruments, desk accessories or office furniture because of the
small potential profit margin and the substantial competition in this area.
The Company believes that the most important elements of Remarkable's
business strategy are:
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Direct Marketing. Remarkable markets directly to its existing
and prospective customers through frequent catalog mailings of a variety of
distinctive, strategically planned catalogs and specialty solo mailings.
Remarkable uses state of the art information systems to analyze the results of
each mailing, and to refine and segment its customer database and mailing lists.
The Company believes these procedures enable Remarkable to target future
mailings in a manner designed to enhance profitability and customer response
while lowering overall marketing costs.
Customer Service. Remarkable emphasizes a high level of
customer relations. Remarkable attempts to make catalog shopping as convenient
and easy as possible by providing friendly, courteous order entry and customer
service representatives; "no questions asked", 30 day return policy, and 30 day
open account billing.
Prompt Order Fulfillment. Remarkable ships over 95% of all
orders on the day received. Remarkable estimates that substantially all orders
(other than custom printed items) are received by the customer within five
business days of the order date.
Merchandising. The Company believes that the majority of
Remarkable's sales are made at prices which are discounted from other
manufacturers' list prices. Remarkable updates its product selection to meet the
needs of its customers and continually evaluates the sales and profit
performance of each product through its state of the art information systems.
Catalog Publication
Remarkable uses its various catalogs to market directly to both
existing and prospective customers. Each catalog is printed in full color with
an effective selling presentation, including a picture of each item and a
narrative description that emphasizes key product benefits and features. The
catalogs are created and produced by outside vendors who provide designers,
writers and production artists and are printed by commercial printers.
Remarkable's regular catalog mailings include a complete buyers' guide
which is produced once a year and generally mailed in January to all active
customers. Remarkable has a database of over 250,000 customer, 100,000 of which
have ordered form Remarkable in the past two years. Remarkable anticipates
producing the buyer guide bi-annually in the future depending on available
working capital. In March, Remarkable mails a specialty mailing featuring only
its federal law posters (e.g., minimum wage, sexual harassment, workers
compensation, etc.). In April or May Remarkable does an academic mailing
featuring July to June reusable calendars which are used by academic
professionals and administrators. In September, October and November, Remarkable
concentrates on solo mailings which feature Remarkable's main reusable calendars
(January to December). These solo mailings are distinctive in that they are
packaged to look like a bank check making the consumer more likely to open the
mailing.
Marketing
Remarkable's various marketing programs are designed to attract new
customers and to stimulate additional purchases from existing customers.
Remarkable has sold to over 250,000 customers, 100,000 have purchased products
within the last two years.
V.W. Eimicke, Ltd. and V.W. Eimicke Associates, Inc. (collectively
"Eimicke") is Remarkable's largest customer and accounts for approximately 10%
of Remarkable's sales. The
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Company has a contracts with Eimicke which (i) make Eimicke the sole distributor
of Remarkable products in Canada, (ii) makes Remarkable the exclusive
manufacturer of laminated Federal law posters sold by Eimicke in the United
States and (iii) makes Eimicke a non-exclusive distributor of a series of
re-markable planning boards and other related products in the United States.
Each of these contracts is dated September 6, 1990 and expires November 30,
1996, and there is no assurance that this customer will continue to purchase the
Company's products on similar terms. The loss of this customer could have a
material adverse effect on the Company's business.
Remarkable acquires new customers by selectively mailing specially
designed catalogs to prospective customers. Remarkable obtains the names of
prospective customers through the rental of selected mailing lists from outside
marketing information services and other sources. These lists include lists of
business buyers of noncompeting direct mail companies, business subscription
lists and lists of complied business names. Remarkable also rents its mailing
list to these same sources.
After placing an initial order, new customers receive additional
catalogs and other mailings intended to stimulate continued product purchases.
Generating "bounce-back" orders is an important aspect of Remarkable's marketing
program because the costs incurred in acquiring new customers from a particular
mailing may exceed the gross profit generated by that mailing.
Remarkable uses what it believes to be sophisticated, state of the art
information systems to analyze the results of individual catalog mailings and
uses the information derived form these analyses to target future mailings. By
analyzing the results of mailings to prospective customers, Remarkable can
capture and measure its cost to acquire new customers. Each new customer is
identified and categorized. The cost of acquiring each customer is then compared
to the anticipated profitability of the future business that can be expected
from a typical customer from this category, based upon Remarkable's prior
experience. Remarkable's management uses these analyses to plan future
prospecting selections and mailings.
Remarkable also uses its information systems to update and segment its
proprietary customer database. Remarkable believes that it is able to capture
and analyze customer response to specific catalog mailings through criteria such
as recency and frequency of purchases, the dollar amount of orders and specific
products ordered. The resulting information is used to adjust the frequency and
selectivity of Remarkable's various catalog mailings to particular groups of
customers in order to achieve improved response and profitability.
In addition, Remarkable uses these systems to analyze the performance
of each product family. This analysis enables Remarkable to strengthen the
merchandising of its catalogs and to determine the placement of and amount of
space devoted to each product in a particular catalog based upon response, sales
and profit performance.
Distribution Center
Remarkable maintains its corporate headquarters in Monsey, New York.
This location is approximately 5,000 square feet, and 3,500 square feet of
warehouse space which is used as Remarkable's distribution center. The
distribution center maintains an inventory of products offered by Remarkable in
addition to custom printed items.
Order Entry and Fulfillment
Remarkable attempts to make purchasing its specialized office products
as convenient as possible for small and medium-sized businesses. Because
approximately 60% of customer orders
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are placed by telephone, the efficient handling of calls is an extremely
important aspect of Remarkable's business. Remarkable offers a nationwide
toll-free telephone number for customers to use in placing orders. Calls are
received by trained order entry representatives who utilize on-line terminals to
enter customer orders into the fully computerized order processing systems. The
order entry representatives also may use these systems to access information
about products, pricing and promotions in order to provide better service and
answer customer questions. Remarkable's telephone systems are intended to
provide prompt and efficient service, and have a negligible rate of abandoned
and lost telephone calls. In addition to telephone orders, Remarkable also
receives orders by mail and through a fax line.
When an order is entered into the system, the order is electronically
transmitted to the warehouse and a packing slip is printed on a printer for
order fulfillment. The Company believes that Remarkable has achieved
efficiencies in order entry and fulfillment which permit the shipment of over
95% of all orders on the day received and the shipment of substantially all
remaining orders on the following business day. Orders generally are shipped by
United Parcel Service.
Customer Service
The Company believes that exceptional customer service and customer
relations are key elements of Remarkable's marketing program. Remarkable trains
its order entry and customer relations representatives to provide prompt,
efficient and courteous service to all customers.
As part of the Company's commitment to customer service, Remarkable
maintains a "no questions asked", 30 day return policy. At the customer's
request, Remarkable will arrange for the pick-up of products to be returned and
pay all return shipping costs. Management believes that Remarkable's convenient
return policies help overcome a customer's initial reluctance to order products
from a catalog. Total returns and allowances average less than 1% of
Remarkable's total sales.
Merchandising and Purchasing
Remarkable offers a full line of time management and organizational
tools including the Remarkable line of reusable calendars which are now in the
sixteenth year of production.
Initial buying decisions are made by the Company's product manager who
is responsible for selecting and pricing products. In addition, the product
manager negotiates with suppliers, analyzes customer response and sales results
and plans catalog page presentations, product promotions and mailing schedules.
Inventory levels are maintained through the use of Remarkable's computerized
inventory control system. This system has enabled Remarkable to minimize its
inventory out-of-stock position.
Remarkable's main products, the various reusable calendars, and its
federal law posters, are manufactured specifically for Remarkable. An outside
graphic design firm does the layout and graphics for each calendar or poster in
accordance with specifications provided by Remarkable. Remarkable then orders
the appropriate paper from an independent paper vendor, and the paper and camera
ready art work produced by the graphic designer are sent to one of two printing
firms employed by Remarkable. Once the artwork is printed on the paper it is
sent to a laminator in the Rochester, New York area which applies a plastic
coating and creates the finished product, which is then shipped to the Company's
distribution center in Monsey, New York.
Other products which Remarkable sells, such as the markers, erasers and
cleaning fluids
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for the reusable calendars are purchased from a variety of vendors. Geographic
maps sold by Remarkable are purchased from American Map, Inc.
Although a substantial portion of Remarkable's purchases are obtained
from a relatively small number of suppliers, the Company believes that
alternative sources of supply are available for virtually every product it
carries. Remarkable considers its relationships with its suppliers to be
excellent and it has not experienced any difficulty in obtaining brand name
products.
Management Information Systems
Remarkable utilizes a sophisticated state of the art computer system
involving all aspects of Remarkable's business. By handling all order entry
fulfillment in a centralized fashion, Remarkable can provide faster order entry
and fulfillment and better customer service. The general accounting system and
inventory control, product merchandising, customer development and catalog
analysis function are supported by Remarkable's computer system.
Competition
The Company and its operating subsidiary, Remarkable, operate in a
highly competitive environment. In its targeted market of small to medium-sized
businesses, Remarkable believes that its principal competitors are other direct
marketing companies and office supply superstores. Remarkable's competitors are
larger and have greater financial resources than Remarkable.
The Company believes that its competitive position is enhanced by its
Remarkable line of calendars, now in its sixteenth year of production, and
Remarkable's history of customer loyalty, price structure as well as its strong
commitment to customer service. Remarkable believes that its commitment to
customer service has enabled it to compete effectively against other direct
marketers of office supply products, some of which offer comparable products at
prices lower than those charged by Remarkable.
Direct marketing of office products has expanded in recent years at the
expense of local retail dealers. A key aspect of this growth has been the
ability of direct marketing companies to overcome initial customer reluctance to
purchasing office products by catalog. As a result, Remarkable views the success
of other direct marketing companies as beneficial to Remarkable because it
increases customer acceptance of the direct marketing concept. Remarkable
believes that its principal competitors are G-Neil, Inc., a company based in
Florida, Myron Manufacturing and Keith Clark, a division of a public company, in
the direct market segment of the specialized office products, and specifically
the time management and organizational tools industry. Competitors of Remarkable
may be financially stronger, but still view Remarkable as the industry leader.
The office products industry has experienced increased competition in
recent years due to the emergence and rapid growth of office products
superstores. These superstores' target customers may include many of the
Company's target customers. Superstores offer a wide variety of office products
in a warehouse-type setting at prices that are lower than those typically
offered by Remarkable. Superstores are continuing to increase their share of the
office products market. The expansion of the superstores has resulted in
increased price competition throughout the industry. Remarkable has responded to
this increased competition by aggressively emphasizing Remarkable's customer
service and stylish product line. The Company has also recently introduced price
reductions in catalogs mailed to prospective customers.
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Employees and Employee Training
The Company and Remarkable place great emphasis on employee training
and seek to instill in each employee a commitment to provide his or her best,
honest and personal service to every customer, large or small. Remarkable
reinforces the importance of understanding customers and their needs by
periodically requiring all of its managers and officers to receive incoming
orders and customer service calls.
Employees are given updates on Remarkable's products and progress and
are provided an opportunity to comment openly on its operations and management.
The Company intends to institute a program to provide additional incentives for
outstanding job performance, and to afford career opportunities to each
employees in accordance with his or her skills, personal effort and future
potential . The Company also intends to institute an incentive bonus program for
the officers and managers. The Company also intends to provide for an employee
stock purchase plan for all full-time employees of the Company and of
Remarkable. See "Management - Compensation Pursuant to Plans."
The Company and Remarkable consider relations with their employees to
be excellent. At December 31, 1995, Remarkable employed approximately 6 persons
on a full-time basis, of whom 2 were engaged in management and administration, 3
were engaged in marketing, order processing, customer service and creative
services and 1 was engaged in warehouse distribution operations. None of
Remarkable's employees are covered by a collective bargaining agreement.
The Company has 6 full time and 4 part time employees.
State Sales Taxes
The Company and Remarkable collect sales taxes only in New York and New
Jersey. Remarkable sells products to customers in all states of the United
States. Several states are currently pursuing litigation against a number of
direct marketing companies seeking sales tax for products sold into those
states. From time to time, legislation has been proposed in the United States
Congress which would have the effect of requiring Remarkable to collect and
remit sales taxes in each state where its sales are consummated. Remarkable
believes that the enactment of any such legislation, or any other changes in
applicable law that would require Remarkable to collect sales taxes in
additional states, would impose an administrative burden on Remarkable but would
not have a material adverse effect on its business.
Medical Device Production Acquisitions
In September 1995, the Company executed a letter of intent to purchase
all of the issued and outstanding stock of Nexim Corp., a Nevada corporation,
("Nexim"), a 100% of which is owned by Mr. Andrew Jaloza who became a director
of the Company in January 1996. Upon the execution of the letter of intent, the
Company paid Mr. Jaloza $100,000 as a down payment for the purchase of Nexim.
Nexim owns a technology known as Medphone, a medical device product which acts
as a telephone based remote defibrilation. The Company has invested
approximately $33,000 toward development of this product. Nexim has no revenues
and is not an operating company.
Item 2. Properties
The Company and Remarkable maintain their corporate headquarters at 382
Route 59, Section 310, Monsey, New York, 10952. The facility includes
approximately 5,000 square feet, of which approximately 1,500 square feet are
dedicated to office space and approximately 3,500
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square feet are used for warehouse and distribution purposes. The 5,000 square
foot office is occupied pursuant to a lease which expires in October 31, 1998
and provides for an option to renew for two successive five-year periods. This
lease is made in the name of Success Direct, Inc. which had changed its name to
Remarkable Office Products, Inc. The monthly rent is $3,000 per month.
The Company also sublets office space in Westwood, New Jersey at a
monthly rent of $1,637. The primary lease is held by Mr. Irwin Schneidmill, the
Company's President and a director and stockholder, and expires October 31,
1998. In December, 1995, the Company moved all of its operations to Monsey, New
York.
Item 3. Legal Proceedings
On May 29, 1989, the Company, through its wholly-owned subsidiary, Celestial
Realty Group, Inc. entered into a joint venture agreement with Mystic Pines,
Inc. for the purpose of developing and building single family homes. The Company
contributed $525,000 for a 35% interest in the venture. In 1990, however, the
Company and Mystic Pines initiated a lawsuit against B.F. Properties and Reserve
Estates and other related parties and affiliates in order to recoup its
investment. During 1994, the bank which had a security interest in the lands,
foreclosed on the property and secured a choice in action. In effect, the
Company had lost its security interest in the real property.
As of October 31, 1994, the investment of $525,000 has been written off the
books of the Company as being uncollectable.
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.
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PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Company's common stock is currently traded on the NASDAQ Electronic
Bulletin Board, under the symbol "CVNR" and has several market makers. The high
and low bid (price which a market maker is willing to pay for the Shares)
quotations for the Company's Shares, as reported to the Company's management by
brokerage firms listed on the specified dates by the National Daily Quotation
System, Inc.'s "Pink Sheets" as making markets in the Company's securities are
listed in the following chart. These quotations are between dealers, do not
include retail mark-ups, mark-downs or other fees and commissions, and may not
represent actual transactions.
Date High Bid Low Bid
---- -------- -------
Fiscal 1994
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September 30, 1993 $.25 $.125
December 31, 1993 $1.25 $1.125
March 31, 1994 $1.25 $1.125
June 30, 1994 $.75 $.75
Fiscal 1995
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September 30, 1994 $.375 $.34375
December 31, 1994 $.625 $.625
March 31, 1995 $.75 $.71825
June 30, 1995 $.75 $.75
There were approximately 1,779 shareholders of record of the Company's
common stock on March 1, 1995.
The Company has not paid dividends on its Common Stock. The Company
intends to retain any future earnings to finance its growth.
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Item 6. Management's Discussion and Analysis Of Financial Condition and
Results of Operations
Management believes that a comparison of the eight month period ended
June 30th 1995 to the fiscal year ended October 31, 1994 is not meaningful
because of the length of the reporting periods and the disposition of the
Company's valve business as of April 30, 1995. Accordingly, financial statements
for the eight months ended June 30, 1995 and 1994 are presented below for
comparative purposes.
The consolidated balance sheet as June 30, 1995 and the statement of
operations for the eight months ended June 30, 1994 presented below 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 resulted of operations for the period presented.
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Consolidated Balance Sheet:
Eight Months Ended
Eight Months Ended June 30, 1994
June 30, 1995 (unaudited)
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Assets:
Current Assets
Cash & cash equivalents $28,562 $23,873
Accounts receivable - 798,926
Notes receivable - 52,000
Inventory - 1,149,786
Prepaid Expenses - 21,381
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Total Current Assets 28,562 2,045,966
Other Assets 2,324,654
Investments - 201,875
Intangible assets net - 148,780
Refundable deposits 4,210 17,075
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Total Other Assets 4,210 367,730
--------- ----------
Total Assets $32,772 $4,738,350
========= ==========
Liabilities and Shareholders' Equity:
Current Liabilities
Accounts payable $54,522 $628,964
Accrued Expenses - 46,472
Notes payable - 327,906
--------- ----------
Total Current Liabilities 54,522 1,003,342
Long-Term Liabilities
Notes payable - 1,078,210
Net liabilities of discontinued operations 278,540 -
-------- -----------
Total Liabilities 333,062 2,081,552
Total Shareholders' Equity (Deficit) (300,290) $2,656,798
--------- ----------
Total Liabilities and Shareholders' Equity $32,722 $4,738,350
========= ==========
</TABLE>
11
<PAGE>
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Eight Months Ended
Eight Months Ended June 30, 1994
June 30, 1995 (unaudited)
------------- -----------
<S> <C> <C>
Assets:
Sales - 1,846,759
Cost of Sales - 1,159,659
General and Administrative 122,611 1,007,005
----------
Net Loss Before Interest Income
and Non-Recurring Items (122,611) (319,905)
---------- ---------
Discontinued Operations
(Loss) from operations of discontinued
subsidiaries - net of taxes (959,233) -
(Loss) on disposal of subsidiaries -
net of taxes (1,498,410) -
Net (Loss) (2,580,254) (319,905)
</TABLE>
Financial Condition
The Company's financial condition at June 30, 1995 compared to June 30,
1994 changed dramatically. These changes occurred as a result of the sale of the
Company's valve and powder coating operating subsidiaries effective May 1, 1995.
From May 1995 until the acquisition of Success Direct, Inc. in July, 1995, the
Company had no active business.
Management believes that the sale of the operating subsidiaries has had
a positive effect on the Company as it represents a disposition of its
unprofitable operations and has positioned the Company to seek out new
acquisition candidates, such as the recent acquisition of Success Direct, Inc.
The sale of Valves International, Inc., Central Valve Services, Inc.,
Alloy Valve International, Inc. and Gulf Coast Powder Coatings, Inc., resulted
in a reduction of current assets from $2,045,966 at June 30, 1994 to $28,562 at
June 30, 1995, a reduction of 99% or $2,017,404. Property, plant and equipment
was reduced from $2,324,654 at June 30, 1994 to $0 at June 30, 1995, a reduction
100% or $2,324,654. Other assets increased from $367,730 at June 30, 1994 to
$4,210 at June 30, 1995 resulting in a decrease of 99% or $363,520. As a further
result of the disposition of the valve divisions, the Company experienced a
reduction of current liabilities from $1,003,342 at June 30, 1994 to $54,522 at
June 30, 1995, a reduction of 95% or $948,820. The Company also experienced a
reduction of long-term liabilities from 1,078,210 at June 30, 1994 to $278,540
at June 30, 1995, a reduction of 74% or $799,670. Shareholders Equity was
reduced from $2,656,798 at June 30, 1994 to $300,290 at June 30, 1995, a
reduction of 111% or $2,957,088.
The Company purchased Success and certain assets of Re-Prod, Inc. in
August 1995, effective as of July 1, 1995. Success's operations at the time of
the acquisition consisted of "business to business" direct mail office products
sales. The assets and operations of Re-Prod, Inc. consisted of a client base,
inventory, accounts receivable, telephone numbers, equipment and the use of the
name "Remarkable Products". The business of Success was started in October 1994,
by Mr. Irwin Schneidmill, who became the Company's President in August 1995.
Results of Operations
From June 30, 1994 to March 31, 1995 the Company owned and operated the
industrial valve and powder coating businesses. During this period the Company
generated $575,263 in sales and had a net loss
12
<PAGE>
on these sales of $(959,233). Upon the disposition of the industrial valve and
powder coating business in March 1995 to Turkey DeLite International, Inc.
("Turkey DeLite") (a.k.a "ATCO Corporation"), the Company recognized an
additional loss of ($1,498,410). This additional loss upon disposition was
recorded because it was determined that the securities of Turkey DeLite which
were used as part of the purchase of the industrial valve and powder coating
assets, had no value and because Turkey DeLite has no reliable financial
information, no value of the securities could be given. (Notwithstanding the
Company's reasonable requests for current financial information, it has not been
able to obtain this information from the management of Turkey DeLite, which is
not affiliated with the Company or within its control.) After March 31, 1995 and
prior to the acquisition of Success and Re-Prod effective July 1995, the Company
did not have any operating business. During the transitional eight month period
ended June 30, 1995 the Company experienced a net loss of ($959,233) as compared
to a net loss of ($1,603,038) for the eight months ended June 30, 1994. The net
loss of ($959,233) through date of disposition of subsidiaries was on sales of
$575,265. Cost of goods sold were $284,540 and operational expenses were
$790.766.
Effects of Inflation
The impact of inflation on the Company's financial condition and
results of operations has not been significant.
Liquidity and Capital Resources
Cash used in operations for the eight months ended June 30, 1995 was
$2,429,774 and cash used in operations for the year ended October 1994 was
$1,694,471. The Company had $0 and $129,949 in depreciated and amortization
expense which did not require cash outlay for the eight months ended June 30,
1995 and the year ended October 31, 1994, respectively. The decline in
depreciation and amortization is due to the sale of the tangible and intangible
assets in 1995. The major use of funds in operations was in increase in
investments of $1,550,000 and a decrease in notes payable of $1,352,315 for the
eight months ended June 30, 1995.
During the eight months ended June 30, 1995, the Company received
$1,900,000 in stock and notes from the sale of subsidiaries and $512,757 in cash
from the issuance of common stock, the proceeds of which were used to decrease
outstanding debt. The balance of the proceeds of the private placement,
approximately $300,00, was received subsequent to June 30, 1995 and was used for
the acquisition of Success Direct and certain assets of Re-prod, Inc. as well as
$100,000 for the purchase of an option to purchase Nexim Corp. $0 of these
proceeds were applied toward the acquisition of Success Direct and $315,000 and
$250,000 respectively of these proceeds were applied toward the acquisition of
Re-Prod, Inc.
Upon the acquisition of Success, the Company assumed $250,000 of its
aggregate principal indebtedness to Performance capital at the rate of 10% per
annum. See "Certain Transactions." Performance Capital has since lent the
Company an additional $205,000 which will be converted into common stock of the
Company at the rate of $.15 per share.
The Company intends to satisfy its short term liquidity needs primarily
through operating revenue and borrowing funds from private investors in exchange
from promissory notes and warrants to purchase common stock at the market price
on the day the warrants are granted. One of the Company's principal products are
laminated federal law posters, which include the Federal Minimum wage poster.
With the recent change in the Federal Minimum wage the Company anticipates
considerable increases in sales which will fund its long term liquidity needs.
13
<PAGE>
Item 7. Financial Statements
The response to this Item is submitted as a separate section of this report
commencing on page F-1
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
14
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant
The current executive offices and directors of the Company are set
forth below:
Name Age Position
---- --- --------
Bob J. Sudderth 56 Chairman, Director (1)
Irwin Schneidmill 42 CEO, President, Chief
Financial Officer and
Director (2)
Andrew L. Jaloza 37 Director
James P. Lofland 45 Director
Roddy L. Munyon - Director (3)
Richard T. Sudderth - Director (4)
Edward J. Lerma - Director and Secretary (5)
(1) Bob J. Sudderth resigned as Chairman and Director of the Company
effective August 1, 1995.
(2) Mr. Schneidmill was elected President, CEO, Chief Financial
Officer, and a Director of the Company on August 1, 1995.
(3) Mr. Munyon resigned as Director of the Company effective September
28, 1995.
(4) Mr. Richard Sudderth resigned as Director of the Company effective
June 23, 1995.
(5) Mr. Lerma resigned as Director and Secretary of the Company
effective August 1, 1995.
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Directors do not receive remuneration for their services as such, but may be
reimbursed for expenses incurred in connection therewith, such as the cost of
travel to Board meetings. Officers serve at the pleasure of the Board of
Directors until their successors have been elected and have qualified.
Bob J. Sudderth At June 30, 1995 Mr. Sudderth served as
Chairman of the Board and had been the president and Treasurer of the Company
until August 1, 1995. Mr. Sudderth has been active in the industrial valve
business since 1966, having worked in valve sales and service, and related
businesses in Oklahoma, Texas, California, New Jersey and Canada. During the
1970's and 1980's he was active as an officer in unrelated companies engaged in
the business of industrial equipment supplies, oil and gas development and
production, and real estate development. From 1988 to 1990 he spent full time on
personal investments, primarily on real estate projects which were operated by
unrelated third parties. In January, 1990, he filed a personal voluntary Chapter
7 petition in US Bankruptcy Court for the Northern District of Texas, Dallas
Division. The Case was discharged on April 14, 1992. In late 1990, Mr. Sudderth
founded and operated Valves International in northeastern Oklahoma and later
incorporated it in that state. Valves International, Inc. had been a wholly
owned subsidiary of the Company. Following a growing volume of business with
customers and suppliers in the Texas Gulf Coast area, he acquired the industrial
valve shop and office facility at 4807 Clinton Drive in Houston in May, 1992,
and changed the name to Central Valve Services, Inc. From that company, Alloy
Valve International, Inc. was formed in October, 1992 as a separate corporation
to perform both domestic and international sales and marketing functions for
valve inventory at all company locations. CVS and AVI had both been wholly owned
subsidiaries of the Company. In July 1995, Mr. Sudderth became the President and
Chief Executive Officer and Director of Turkey DeLite International, Inc.
("Turkey DeLite") (a.k.a. ATCO Corporation), which he has represented to the
Company as being a publicly traded company which trades on the "Pink Sheets". On
August 1, 1995, Turkey DeLite purchased substantially all of the valve
businesses from the Company. See "Certain Relationships and Related
Transactions". On August 1, 1995, Mr. Sudderth resigned as Chairman of the Board
of the Company and no longer holds any positions with the Company.
15
<PAGE>
Irwin Schneidmill has been the President, Chief Executive
Officer and the Director of the Company since August 1, 1995. From January 1991
to July 1993, Mr. Schneidmill had been a partner at Cataino & Schneidmill, CPAs,
a public accounting firm. From July 1993 to October 1994, Mr. Schneidmill had
been the sole stockholder of Irwin Schneidmill, P.C., a public accounting firm.
Mr. Schneidmill formed Success Direct, Inc., a New Jersey corporation in October
1995 and remains as the President of that Company. See "Certain Relationships
and Related Transactions".
Andrew L. Jaloza became a director of the Company in November
1995. For the last five years Mr. Jaloza has been a practicing attorney in New
York City. Mr. Jaloza is the sole shareholder of Nexim Corp., a corporation
that the Company had executed a letter of intent to purchase in September 1995.
See "Certain Relationships and Related Transactions".
James P. Lofland has been a director of the Company since
November of 1995. For the last five years he has owned and operated Lofland's
Restaurant in New York City.
Roddy Munyon has been a director of the Company since June of
1995. Mr. Munyon is an owner and operator of an industrial lumber company
located in New Jersey.
Edward Lerma Mr. Lerma was an employee of one of the
subsidiaries and has a background in the industrial valve business.
Richard T. Sudderth Mr. Sudderth was an employee of one of
the subsidiaries and has a background in the industrial valve business.
16
<PAGE>
Item 10. Executive Compensation
Neither the Company nor its subsidiaries paid a salary to any of its
officers for the twelve month period June 30, 1994 ending June 30, 1995. Mr.
Irwin Schneidmill became the President and Chief Executive Officer of the
Company in August, 1995 at an annual salary of $140,000 per annum. In
consideration of his employment by the Company Mr. Schneidmill also received and
beneficially owns 1,000,000 options of the Company which are immediately
exercisable at $.20 per share pursuant to a Stock Option Certificate and
Agreement dated September 15, 1995. The options expire in September 1998. In
addition, the Company pays $570 per month for the lease on Mr. Schneidmill's car
plus automobile insurance. Mr. Schneidmill also participates in the Company's
group health insurance plan.
The following table discloses for the fiscal years ended December 31,
1993, 1994, and 1995, individual compensation information relating to the chief
executive officer of the Company and the executive officers of the company who
earned in excess of $100,000 during 1995 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation Long Term Compensation
Name and Salary Bonus Other Annual Restricted Option LTIP All Other
Principal Position Compensation Stock Awards /SARS Payouts Compensation
($)/(1) ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Irwin Schneidmill
Chief Executive Officer &
President (2)
1995 45,000 0 - 0 0 0 0
1994 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0
Bob J. Sudderth
Chairman of
the Board, President,
Treasurer
1995 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0
</TABLE>
(1) Mr. Schneidmill received no compensation or other benefits from the Company
during fiscal years 1993, 1994 and 1995. The amounts reported above for
fiscal year 1995 were paid to Mr. Schneidmill by Success Direct, Inc. which
is currently a wholly owned subsidiary of the Company, but during 1993, 1994
and 1995 was owned by a corporation not related to the Company. However,
because the financial results of the Company have been consolidated with
those of Success Direct, Inc. retroactively to July 1994 by reason of common
ownership, compensation and other benefits paid to Mr. Schneidmill by
Success Direct, Inc. have been included in the above table.
(2) Mr. Schneidmill became President and Chief Executive Officer of the Company
in August, 1995.
(3) Mr. Sudderth served as Chairman of the Board, President and Treasurer until
August 1, 1995.
Employment and Consulting Agreements
Mr. Schneidmill has entered into a five-year employment agreement dated
March 1, 1996 with the Company to act as President and Chief Executive Officer;
which provides for an initial annual base salary of $140,000. Mr. Schneidmill
shall also be entitled to bonuses based on increased sales and earnings of the
operating entity. Mr. Schneidmill will be entitled to an annual cash bonus in
each year of the term of the agreement equal to 2% of Remarkable's gross sales
in excess of $1,500,000, plus 3% of gross sales in
17
<PAGE>
excess of $2,500,000, payable on a quarterly basis (such gross sales as
determined by the Company's independent auditors at the end of each sales
quarter). These quarterly bonuses will not be paid in any period in which
Remarkable does not have pre-tax income equal to or greater than pre-tax profits
for the same period of the preceding year. Moreover, the agreement provides that
bonuses will be paid only according to the Company's cash flow needs. Mr.
Schneidmill also has agreed to defer portions of his base salary to assist the
Company in meetings its cash flow needs and to support its capital expenditures,
if he, in his sole discretion, deems it appropriate. If a bonus is paid in any
quarter, and the Company determines at the end of any fiscal year that as bonus
was earned on an annual basis, Mr. Schneidmill's annual compensation will be
decreased to recoup any bonus amounts paid but not earned.
Under the employment agreement, Mr. Schneidmill also receives disability
insurance, hospitalization, major medical, vacation and other employee benefits,
reimbursement of reasonable business expenses incurred on behalf of the Company,
and use of Company-owned vehicles.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of October 1, 1995, the record and beneficial
ownership of Common Stock of the Company by each officer and director, all
officers and directors as a group, and each person known to the Company to own
beneficially or of record five percent or more of the outstanding shares of the
Company:
Number of Percentage
Shares Owned of Shares
Name and Address Beneficially(1)(2) Outstanding
- ---------------- ------------------ -----------
Irwin Schneidmill 1,415,000 9.9%
20 Roble Road
Suffern, NY 10901
Bob J. Sudderth(3) 952,000 6.66%
P.O Box 32
Nowata, OK 74448
Re-Prod, Inc. 750,000 5.24%
245 Pegasus Avenue
Northvale, NJ 07647
Jacob Lahav 750,000 5.24%
20 Deerkill Road
Hohokus, NJ 07423
Officers and directors 2,367,500 16.56%
as a group (2 persons)(2)**
- ---------------------
** Unless otherwise specified, the address of each named person is c/o 382
Route 59, Section 310, Monsey, NY 10952.
(1) Shares of Common Stock which are not outstanding but which a person has the
right to acquire within sixty days pursuant to outstanding options are
deemed outstanding for the purpose of computing such person's ownership
of Common Stock owned by such person, but are not deemed to be outstanding
for the purpose of computing number of shares or the percentage of Common
Stock owned by any other person.
18
<PAGE>
(2) Does not include 278,153 of Preferred Stock of the Company which is
currently exercisable into Common Stock.
(3) Includes 125,000 shares owned by Joyce Sudderth, the wife of
Bob J. Sudderth.
(4) By virtue of his positions as Chief Executive Officer and President of
Re-Prod, Inc., as well as a 100% owner of Re-Prod, Inc., Mr. Lahav may be
deemed to have voting and investment power with respect to, and therefore
may be deemed beneficial owner of, Re-Prod Inc's ownership of the Company.
Item 12. Certain Relationships and Related Transactions
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"). The principal stockholder of Success, Mr.
Irwin Schneidmill, who owned 41.5% of Success, had become 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 this acquisition, the Company paid to Mr.
Schneidmill 415,000 shares of the restricted common stock of the Company.
Additionally, in connection with the acquisition of certain assets of Re-Prod,
Inc., Mr. Schneidmill and Mr. John Formicola, a stockholder of the Company, have
personally guaranteed the payment by the Company of a $250,000 promissory note
payable to Re-Prod, Inc. This note bears 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 contended the principal amount remaining under the note amounted to
$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. 375,000
of such 750,000 were personally guaranteed by Mr. Schneidmill to have a market
value of $393,750 ($1.05 per share) on January 1, 1996. The value of the common
stock at February 1, 1996 was approximately $78,750. The Company, Mr.
Schneidmill, and Mr. Formicola personally, have also executed a "Put Option
Agreement", whereby Re-Prod, Inc. can put 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 have
guaranteed that the remaining 375,000 shares of the Company's common stock held
by Re-Prod, Inc. will have a market value of $412,500 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 from Re-Prod, Inc. were not as represented
in the purchase agreement and are seeking to renegotiate the consideration paid
for those assets, including their personal guarantees. See "Litigation". The
Company has agreed to indemnify Mr. Schneidmill and Mr. Formicola against any
liability resulting from these guarantees.
Mr. Schneidmill is the lessee of 2,850 square feet of office space at
345 Kinderkamack Road in Westwood, New Jersey. The annual rent for such space is
$51,300. Mr. Schneidmill has sublet a portion of this space to the Company at a
monthly rent of $1,637. Although, as of December 1995, the Company has moved
substantially all of its operations to Monsey, New York and is not currently
utilizing the Westwood, New Jersey space, it will paying its rent under the
sub-lease until April 1, 1996 when another sub-tenant will take over the space.
In addition, a portion of this space is sublet to Performance Capital
Corporation, a financial consulting firm owned by Mr. John Formicola, a
shareholder of the Company, for
19
<PAGE>
$500 per month. In return for consulting services and certain loans made to the
Company by Performance Capital Corporation, the Company has paid this $500 per
month since December 1995.
Performance Capital Corporation which is owned by Mr. John Formicola
had lent Success $250,000 prior to its acquisition by the Company in the form of
five promissory notes in the amount of $50,000 each dated December 15, 1994 and
January 15, February 15, March 15 and April 15, 1995. Each bearing interest at
the rate of 10% per annum. Performance Capital Corporation had owned 41.5% of
Success at that time. The Company assumed that debt upon the acquisition of
Success and paid to Performance Capital Corporation 415,000 shares of common
stock of the Company. The terms of that debt are as follows: all interest is to
accrue through 1995 and payments on interest are to commence February 1, 1996
and accrued interest shall be paid in six equal monthly installments. Payments
on principal are to commence February 1, 1997 and shall be paid monthly,
together with interest, for 60 months. Subsequent to the acquisition of Success
by the Company, Mr. Formicola and or Performance Capital have lent the Company
an aggregate of approximately $205,000 for working capital purposes. This
$205,000 is subject to an 11% demand promissory note date August 1, 1995.
On August 31, 1995, the Company entered into a purchase agreement
whereby it sold all of its wholly owned subsidiaries with the exception of U.S.
Powder Coatings, Inc. to Turkey DeLite International, Inc. (d/b/a ATCO
Corporation) ("Purchaser" or "Turkey DeLite") for $1,900,000 in cash, promissory
notes and common stock. Turkey DeLite's principal executive officer, Mr. Bob J.
Sudderth, is also the Chairman of the Board of Directors of the Company. The
subsidiaries referred to herein include Valves International, Inc., Central
Valve Services, Inc., Alloy Valve International, Inc. and Gulf Coast Powder
Coatings, Inc. The sales price consisted of a combination of 1,550,000 shares of
common stock of the Purchaser, issuance of a $150,000 promissory note and the
payment of $200,000 contingent upon the successful completion of a stock
offering by the Purchaser. Currently, the Company's largest asset is its
shareholdings of Turkey DeLite.
Mr. Sudderth had sold certain equipment and facilities to Central Valve
Services, Inc., which had been a subsidiary of the Company at the time of such
sale. Mr. Sudderth is owed approximately $600,000 from Central Valve Services,
Inc. as a result of such sale. The Company is not liable for such debt.
In September 1995, the Company executed a letter of intent to purchase
all of the issued and outstanding stock of Nexim, a 100% of which is owned by
Andrew Jaloza who became a director of the Company in January 1996. Upon the
execution of the letter of intent, the Company paid to Mr. Jaloza $100,000 as a
down payment for the purchase of Nexim. Nexim owns a technology known as
Medphone, a medical devise product, to which the Company has invested
approximately $33,000 toward its development. The Company has committed to
investing an additional $30,000 for the development of the Medphone technology
through June 1996 at which tie it will reevaluate the acquisition of Nexim.
Richard Greene, the Company's former President and legal counsel
received 100,000 shares of the Company's common stock in full payment of legal
services previously rendered to the Company. These shares were registered for
Mr. Greene pursuant to a Form S-8 filed with the Securities and Exchange
Commission on September 18, 1995, and Mr. Greene has since disposed of the
shares.
20
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-B).
Exhibit
Numbers Description
------- -----------
* 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 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 Reprod,
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.
21
<PAGE>
- 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 did not file any reports on
Form 8-K during the last quarter of the fiscal year ended June 30,
1995. The Registrant since the last quarter filed a report on Form
8-K dated August 31, 1995. Such report did not contain required
financial statements. An amendment to the Form 8-K was filed on
February 24, 1996.
* 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.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CELESTIAL VENTURES CORPORATION
By: /s/IRWIN SCHNEIDMILL
--------------------
Irwin Schneidmill
President, Chief Executive, and
Financial Officer and a Director
Dated: April 4, 1997
Pursuant to the requirement of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons, which include the
Chief Executive Officer, the Chief Financial Officer and a majority of the Board
of Directors, on behalf of the Registrant and in the capacities and on the dates
indicated:
Name Title Date
/s/ Irwin Schneidmill President Chief Executive April 4, 1997
- ---------------------- and Financial Officer, and
Irwin Schneidmill a Director (Principal
Executive and Financial Officer)
/s/Robert Trause Director April 4, 1997
- ----------------
Robert Trause
/s/Mark Wolchock Director April 4, 1997
- ----------------
Mark Wolchock
23
<PAGE>
CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
JUNE 30, 1995 and OCTOBER 1994
TABLE OF CONTENTS
Page
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Report of Certified Public Accountants
on the Financial Statements F1
Financial Statements
Consolidated Balance Sheets F2
Consolidated Statements of Operations F3
Consolidated Statements of Stockholders' Equity F4
Consolidated Statements of Cash Flows F5
Notes to Consolidated Financial Statements F6-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Celestial Ventures Corporation and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of Celestial
Ventures Corporation and Subsidiaries as of June 30, 1995 and October 31, 1994
and the related consolidated statements of operations, stockholders' equity and
cash flows for the eight months ended June 30, 1995 (Note 1) and the year ended
October 31, 1994. 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 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 Celestial Ventures Corporation
and Subsidiaries as of June 30, 1995 and October 31, 1994 and the results of its
operations for the periods ended June 30, 1995 and October 31, 1994 in
conformity with generally accepted accounting principles.
Coral Springs, Florida
February 14, 1996
See notes to financial statements.
F-1
<PAGE>
CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1995
- -------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 3,562
Deposit 25,000
----------
28,562
Other Asset
Deposit 4,210
----------
Total Assets $ 32,772
==========
Liabilities and Shareholders' (Deficit)
Current Liabilities
Accounts payable $ 54,522
Other Liabilities
Net liabilities of discontinued operations 278,540
----------
Total Liabilities 333,062
----------
Shareholders' (Deficit)
Convertible Preferred stock - $.001 par value; authorized
500,000,000 shares, issued and outstanding 889,426
shares 889
Common stock - $.001 par value; authorized 500,000,000
shares, issued and outstanding 9,905,865 shares 9,906
Additional paid-in capital 4,156,201
Accumulated (deficit) (4,467,286)
----------
Total Shareholders' (Deficit) (300,290)
----------
Total Liabilities and Shareholders' (Deficit) $ 32,772
==========
See notes to financial statements.
F-2
<PAGE>
CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Accumulated (Deficit)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
Eight Months Ended Year Ended
June 30, 1995 October 31, 1994
-------------------------------------------
<S> <C> <C>
Sales $ - $ -
Cost of Sales - -
------------- --------------
Gross Profit - -
Operating Expenses
General and administrative expenses 122,611 -
------------- --------------
(Loss) from Continuing Operations (122,611) -
------------- --------------
Discontinued Operations
(Loss) from operations of discontinued
subsidiaries - net of taxes (959,233) (1,603,038)
(Loss) on disposal of subsidiaries - net of taxes (1,498,410) -
Forgiveness of debt related to discontinued
operations - net of taxes - 170,000
------------- --------------
(2,457,643) (1,433,038)
------------- --------------
Net (Loss) (2,580,254) (1,433,038)
Accumulated (Deficit) - beginning of period (1,887,032) (453,994)
------------- --------------
Accumulated (Deficit) - end of period $ (4,467,286) $ (1,887,032)
============= ==============
Weighted Average Common Shares Outstanding 8,570,250 5,751,945
============= ==============
Loss Per Share $ .30 $ .25
============= ==============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' (Deficit)
For the Year Ended October 31, 1994 and the Eight Months Ended June 30, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
----------------------- ---------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital (Deficit) Total
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - October 31, 1993 1,863,426 $ 1,863 3,734,865 $ 3,735 $ 2,533,625 $ (453,994) $ 2,085,229
Stock issued (redeemed) (974,000) (974) 4,033,995 4,034 1,175,887 - 1,178,947
Net (loss) - - - - - (1,433,038) (1,433,038)
----------- ------- ----------- ---------- ------------ ------------- -------------
Balance - October 31, 1994 889,426 889 7,768,860 7,769 3,709,512 (1,887,032) 1,831,138
Common stock issued - - 2,137,005 2,137 446,689 - 448,826
Net (loss) - - - - - (2,580,254) (2,580,254)
----------- ------- ----------- --------- ------------ ------------- -------------
Balance - June 30, 1995 889,426 $ 889 9,905,865 $ 9,906 $ 4,156,201 $ (4,467,286) $ (300,290)
=========== ======= =========== ========= ============ ============= =============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
For the For the
Eight Months Year Ended
Ended June 30, October 31,
1995 1994
- --------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net (loss) $ (2,580,254) $ (1,433,038)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Loss on sale of subsidiaries 1,498,410 --
Loss from discontinued operations 959,233 1,603,038
Forgiveness of debt related to discontinued
operations -- (170,000)
Increase in accounts payable 18,694 --
------------ -----------
Net cash used in continuing operations (103,917) --
Net cash used in discontinued operations (325,886) (1,221,832)
------------ -----------
(429,803) (1,221,832)
------------ -----------
Cash Flows from Financing Activities
Issuance of common stock 448,826 1,178,947
------------ -----------
Cash Flows from Investing Activities
Deposits advanced (29,210) --
------------ -----------
Net (Decrease) in Cash (10,187) (42,885)
Cash and Cash Equivalents - beginning of period 13,749 56,634
------------ -----------
Cash and Cash Equivalents - end of period $ 3,562 $ 13,749
============ ===========
See notes to financial statements.
F-5
<PAGE>
CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1995 and October 31, 1994
- -------------------------------------------------------------------------------
1 - Business and Summary of Significant Accounting Policies
Celestial Ventures Corporation ("CVC") was organized under the laws of
the State of Nevada on January 28, 1987. CVC's activities consist of
ownership of various diversified businesses. On May 1, 1995, CVC sold its
businesses which were involved in the sales and repair of industrial
valves, and application of powder coatings onto industrial materials. CVC
subsequently purchased a wholly-owned subsidiary on July 1, 1995, Success
Direct Inc., which is in the business of Business to Business direct mail
marketing. Effective June 30, 1995, CVC changed its year-end from October
to June.
Significant accounting policies follow:
a. Principles of Consolidation - The consolidated financial statements
include the accounts of CVC and its subsidiaries (the "Company")
after elimination of intercompany accounts and transactions.
Investments in affiliated companies are accounted for using the
equity method.
b. Income Taxes - Current income taxes are based on the taxable income
for the year, as measured by the current year's tax returns. Deferred
income taxes arise primarily due to various temporary differences
between financial and income tax reporting. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount expected to be realized.
c. Earnings Per Share - Computed by dividing the net loss by the
weighted average number of shares outstanding during the year. Common
stock equivalents have not been included in the earnings-per-share
computation because of their anti-dilutive effect.
d. Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
F-6
<PAGE>
2 - Income Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
recognized for financial reporting and the amounts recognized for income
tax purposes. The significant components of deferred tax assets, as of
June 30, 1995, are as follows:
Assets
Net operating loss carryforwards $ 374,000
Other 1,000
---------
375,000
Less: Valuation allowance 375,000
---------
$ --
=========
The net deferred tax asset is fully offset by a valuation allowance due
to uncertainties surrounding the ultimate realization of those assets. At
June 30, 1995, approximately $1,100,000 of net operating loss
carryforwards, which expire in various periods through 2010, are
available to offset future taxable income.
3 - Discontinued Operations and Sale of Subsidiaries
During the period November 1, 1994 through June 30, 1995, and the year
ended October 31, 1994, the Company's discontinued operations consisted
of the following:
<TABLE>
<CAPTION>
Gulf Coast Valves U.S. Celestial
Powder International, Inc. Powder Realty
Coatings, Inc. and Subsidiaries Coaters, Inc. Group, Inc. Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Sales $ 158,311 $ 416,952 $ -- $ -- $ 575,263
Expenses 153,347 921,957 459,192 -- 1,534,496
---------- ------------ ----------- ----------- -------------
$ 4,964 $ (505,005) $ (459,192) $ -- $ (959,233)
========== ============ =========== =========== =============
1994
Sales $ 211,464 $ 2,043,339 $ 164,700 $ -- $ 2,419,503
Expenses 282,268 2,620,061 918,337 201,875 4,022,541
---------- ------------ ----------- ----------- -------------
$ (70,804) $ (576,722) $ (753,637) $ (201,875) $ (1,603,038)
========== ============ =========== =========== =============
</TABLE>
F-7
<PAGE>
Effective June, 1994, the Company ceased operations of U.S. Powder
Coaters, Inc. ("USPC"). USPC's principal business consisted of treating
and coating metal and non-metal materials. As part of the shut-down, the
Company wrote off $385,000 of equipment and negotiated a 50% reduction in
debt totaling $170,000. During the eight months ended June 30, 1995, the
Company wrote down $459,192 relating to its production equipment which
was deemed worthless. As of the balance sheet date, the Company has no
plans to dispose of the entity.
In addition, effective May 1, 1995, the Company discontinued the
operations comprising its valve manufacturing and coating businesses. In
connection therewith, the Company sold all its wholly-owned subsidiaries
with the exception of USPC to Turkey Delite, Inc. for promissory notes
and common stock. The subsidiaries consisted of Valves International,
Inc. and Subsidiaries, (Central Valve Services, Inc. and Alloy Valve
International, Inc.) and Gulf Coast Powder Coatings, Inc.
The market for Turkey Delite, Inc.'s common stock is thinly traded and
its market is maintained by one market maker. Additionally, a shareholder
and chief executive officer of Turkey Delite, Inc. was a shareholder and
chief executive officer of the Company as of the effective date.
After consummating this transaction, management determined that the
ultimate realization of the promissory notes and common stock is
uncertain and has fully reserved against these assets. Consequently, the
Company incurred a loss on the disposal of these subsidiaries of
$1,498,410.
Since there are uncertainties surrounding the ultimate realization of any
deferred tax assets, the tax benefits from the losses from discontinued
operations and disposal of subsidiaries have been offset by valuation
allowances resulting in no net tax benefit from these losses.
Net liabilities of discontinued operations are as follows:
Assets $ 5,700
Note Payable (170,000)
Other Liabilities (114,240)
----------
$ (278,540)
==========
The note payable represents the renegotiated balance due to R.M.
Engineering on a note related to the acquisition of USPC's equipment. The
note bears interest at 4%, and is secured by the equipment.
During 1994, the Company wrote off its remaining investment of $201,875
in a real estate joint venture through its wholly-owned subsidiary,
Celestial Realty Group, Inc.
F-8
<PAGE>
4 - Subsequent Events
a. Acquisitions:
Effective July 1, 1995, the Company consummated a business
combination with Success Direct, Inc. which was accounted for as a
reverse acquisition. (A reverse acquisition is equivalent to the
issuance of stock by Success Direct, Inc. for the net monetary assets
of the Company accompanied by a recapitalization. The accounting is
similar to that of a pooling of interests, in that the historical
cost basis of the purchased entity is used and no goodwill is
recorded.) The acquisition consisted of the Company's issuance of
66,667 shares of restricted common stock (with a par value of $.015),
in exchange for the outstanding shares of Success Direct, Inc.
The summarized assets and liabilities of the separate companies on
July 1, 1995, the date of acquisition, were as follows:
Acquired
Company Company
------------------------
Current Assets $ 28,562 $ 65,891
Property and Equipment - net -- 24,681
Other Assets 4,210 5,992
--------- ---------
Total Assets 32,772 96,564
--------- ---------
Current Liabilities 54,522 110,808
Long-Term Liabilities 278,540 268,816
--------- ---------
Total Liabilities 333,062 379,624
--------- ---------
Total Assets and Liabilities $(300,290) $(283,060)
========= =========
In connection with the acquisition of Success Direct, Inc. above, the
Company was assigned a contract to purchase certain assets of
Re-Prod, Inc. This acquisition, effective July 1, 1995, was accounted
for as a purchase. The purchase price of $1,315,000 was allocated
among the assets as follows:
Accounts Receivable $ 107,000
Inventory 208,000
Customer List 850,000
Trademarks 100,000
Telephone Numbers 50,000
----------
$1,315,000
==========
F-9
<PAGE>
The intangibles (customer list, trademarks, and telephone numbers)
will be amortized over their estimated useful lives of 15 years.
The purchase price was paid as follows:
Cash $ 315,000
Note Payable 250,000
Redeemable Common Stock 750,000
----------
$1,315,000
==========
The note bears interest, payable monthly, at 9% per annum on the
unpaid balance. Monthly payments of principal are also required,
equaling the greater of net list rental income or $10,000. Two of the
Company's shareholders have personally guaranteed the payment of this
note.
The Company issued 750,000 shares of stock valued at $1.00 per share.
The Company has guaranteed, through the issuance of put options, the
value of the common stock to be $1.05 per share by January 1, 1996
and $1.10 per share by July 1, 1996.
On February 21, 1996, the Company initiated a lawsuit against
Re-Prod, Inc., in Federal Court in the Southern District of New York,
White Plains, claiming a misrepresentation of the value of the assets
acquired. The Company stopped payments on the note payable and has
not honored the put options.
b. Reverse Stock Split
On May 3, 1996, the Company effected a 1-for-15 reverse stock split.
These financial statements do not reflect this reverse stock split.
F-10
