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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: December 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
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(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 December 31,
1997: 2,763,199
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
December 31,
1997
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Assets:
Current Assets
Cash $ 233
Loans and Exchanges 3,615
Due From Polymer Dynamics 4,081,756
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Total Current Assets 4,085,604
Total Assets $ 4,085,604
-----------
See Accompanying Notes to Condensed Consolidated Financial Statements
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CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
December 31,
1997
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Liabilities
Current Liabilities
Accrued Expenses $ 2,872
-----------
Total Current Liabilities 2,872
Long-Term Liabilities
Net liabilities of discontinued operations 170,000
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Total Long-Term Liabilities 170,000
Total Liabilities 172,872
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Shareholders' Equity:
Preferred Stock 259
Common Stock 3,274
Additional Paid-In-Capital 9,561,977
Accumulated Deficit (5,416,364)
Net Income (Loss) (236,414)
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Total Shareholders' Equity 3,912,732
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Total Liabilities and Shareholders' Equity $ 4,085,604
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See Accompanying Notes to Condensed Consolidated Financial Statements
2
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CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31,
1997 1996
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Revenues
Sales $ -- $ --
--------- ---------
Cost of Sales -- --
--------- ---------
Gross Profit -- --
Operating Expenses
General and Administrative Expenses 169,865 19,015
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Net (Loss) Before Other Income (Deductions) (169,865) (19,015)
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Other Income (Deductions)
Interest Income 70,000 --
Gain on sale of subsidiary -- 354,250
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Total Other Income (Deductions) 70,000 354,250
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Net Profit or (Loss) $ (99,865) $ 335,235
========= =========
Net Profit or (Loss) Per Share $ (.04) $ .29
========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements
3
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CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31,
1997 1996
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Revenues
Sales $ -- $ 205,192
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Cost of Sales -- 53,612
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Gross Profit -- 151,580
Operating Expenses
General and Administrative Expenses 318,170 212,882
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Net (Loss) Before Other Income (Deductions) (318,170) (61,302)
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Other Income (Deductions)
Interest Income 81,756 --
Gain on sale of subsidiary -- 354,250
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Total Other Income (Deductions) 81,756 354,250
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Net Profit or (Loss) $(236,414) $ 292,948
========= =========
Net Profit or (Loss) Per Share $ (.09) $ .26
========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements
4
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CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31,
1997 1996
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Cash Flows from Operating Activities
Net (Loss) (236,414) $ (292,948)
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Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation -- 4,349
Amortization -- 33,336
Interest on redeemable common stock -- --
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (4,08,371)
128,012
Inventory -- 153,037
Prepaid expenses -- 35,034
Other -- 908,481
Increase (decrease) in:
Accounts payable -- (84,909)
Accrued expenses and sundry liabilities (13,482) (38,513)
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Total adjustment (4,093,853) 1,138,827
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Net cash used in operating activities (4,330,267) 1,431,775
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Cash Flows From Investing Activities:
Sale of property & equipment -- 30,765
Deficit of acquired company -- 377,262
Note Receivable from sale of subsidiary (450,000)
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Net cash used in investing activities -- (41,973)
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Cash Flows From Financing Activities:
Proceeds (payments) from loans - net -- (517,111)
Payment of subsidiaries' loans (45,000)
Payment of redeemable common stock (806,250)
Issuance of preferred stock -- 4
Issuance of common stock 4,324,065 --
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Net cash provided by financial activities 4,324,065 (1,368,357)
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Net increase (decrease) in cash (6,202) 21,445
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Cash beginning of period 6,435 11,950
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Cash end of period $ 233 $ 33,395
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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
DECEMBER 31, 1997
Celestial Ventures Corporation was organized under the laws
of the State of Nevada on January 28, 1987. Effective June
30, 1995, the Company changed its year end from October 31
to June 30.
NOTE A: Material Subsequent Events and Contingencies
On August 21, 1997, the Company formally announced that it
had entered into a letter of intent to merge with a high
performance materials company which fits the Company's
parameters for an acquisition candidate. On October 30,
1997, the Company worked towards securing the acquisition as
well as providing future operating revenue for the Company
by completing an overseas private placement of common stock
pursuant to the exemptions afforded by Regulation S.
Celestial has received $4,059,000 from investors in
connection with the transaction, whereby a total of
1,353,000 common shares, par value $0.001, were issued for a
purchase price of $3.00 per share. Of those amounts received
from the offering, $4,000,000 has been remitted to the
enterprise with which the Company intends to merge in
exchange for Convertible Subordinated Notes (the "Notes")
totaling $4,000,000. The Notes provide for a Maturity Date
of December 30, 1997, and bear interest at an annualized
rate of seven percent (7%). This Maturity Date was later
extended by written agreement until April 30, 1998. The
Company remains confident that the merger will be completed
or the Notes will be repaid in full on or before that date.
The Company expects significant growth in revenues and
shareholder earnings as a result of this potential
acquisition and the related transactions.
NOTE B: 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 six-month period ended
December 31, 1997 is not necessarily indicative of the
results that may be expected for the year ended June 30,
1998. 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, 1997.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
The consolidated balance sheet as of December 31, 1997 and the consolidated
statement of operations for the six-months ended December 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.
Effect of Inflation
The impact of inflation on the Company's financial condition and results of
operations has not been significant.
Management's Plan of Operation
The Company's financial condition at December 31, 1997 compared to December
31, 1996 changed dramatically. These changes occurred as a result of the sale
of the Company's Direct Mail subsidiary in November 1996. Management believes
that the sale of the operating subsidiary has had a positive effect on the
Company as it has positioned the Company to seek out new acquisition
candidates as it has done in the past.
During the last two fiscal years, the Company has made an effort to dispose of
all operating subsidiaries as well as to remove all non-de minimis liabilities
from the Company's financials in order to attract a single, large, profitable,
private company with which to potentially merge. On August 21, 1997, the
Company formally announced that it had entered into a letter of intent to
merge with a high performance materials company which fits the Company's
parameters for an acquisition candidate.
On October 30, 1997, the Company worked towards securing the acquisition as
well as providing future operating revenue for the Company by completing an
overseas private placement of common stock pursuant to the exemptions afforded
by Regulation S. Celestial has received $4,059,000 from investors in
connection with the transaction, whereby a total of 1,353,000 common shares,
par value $0.001, were issued for a purchase price of $3.00 per share. Of
those amounts received from the offering, $4,000,000 has been remitted to the
enterprise with which the Company intends to merge in exchange for Convertible
Subordinated Notes (the "Notes") totaling $4,000,000. The Notes provide for a
Maturity Date of December 30, 1997, and bear interest at an annualized rate of
seven percent (7%). This Maturity Date was later extended by written agreement
until April 30, 1998. The Company remains confident that the merger will be
completed or the Notes will be repaid in full on or before that date. The
Company expects significant growth in revenues and shareholder earnings as a
result of this potential acquisition and the related transactions.
7
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Celestial Ventures Corporation vs. Re-Prod, Inc. et. al., Case No. 96 Civ.
1274, United States District Court for the Southern District of New York.
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 purchased from Re-Prod, Inc. did not exist at the time of the
acquisition. As a result the Company 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 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 (25,000 shares, adjusted to reflect a 1 for 15 share
reverse stock split, effective May 3, 1996) 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 from 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.
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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 12, 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, of which all 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
50,000 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. Mr.
Patten has since agreed to assume the obligation and hold the Company harmless
against the payment due 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
the 50,000 shares of the Company's common stock as described above. In
consideration of this as well as other assumptions of various liabilities of
the Company as well as for other services rendered to the Company, the Company
issued 93,316 shares of common stock to Mr. Patten in June, 1997. See the
Company's Report on Form 10-KSB for the period ended June 30, 1997.
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.
Mr. Patten has paid the final installment do to Re-Prod, Inc. in full
satisfaction by the Company of its obligations under the Settlement and the
Asset Purchase Agreement. Re-Prod, Inc.'s counterclaim, therefore, will be
dismissed with prejudice and the Company and Messers. Formicola, Patten and
Schneidmill will be released from all claims under the Re-Prod, Inc.
counterclaim.
Johnson vs. Central Valve Services, Inc., et. al., No. 96-42066, In the
District Court of Harris County, Texas, 80th Judicial District.
See the Company's Reports on Form 10-KSB for the period ended June 30, 1997
and Form 10-QSB for the period ended September 30, 1997. There have been no
material developments during the quarter for which this form is being filed.
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ITEM 2. CHANGES IN SECURITIES.
On August 21, 1997, the Company formally announced that it had entered into a
letter of intent to merge with a high performance materials company which fits
the Company's parameters for an acquisition candidate. On October 30, 1997,
the Company worked towards securing the acquisition as well as providing
future operating revenue for the Company by completing an overseas private
placement of common stock pursuant to the exemptions afforded by Regulation S.
Celestial has received $4,059,000 from investors in connection with the
transaction, whereby a total of 1,353,000 common shares, par value $0.001,
were issued for a purchase price of $3.00 per share. Of those amounts received
from the offering, $4,000,000 has been remitted to the enterprise with which
the Company intends to merge in exchange for Convertible Subordinated Notes
(the "Notes") totaling $4,000,000. The Notes provide for a Maturity Date of
December 30, 1997, and bear interest at an annualized rate of seven percent
(7%). This Maturity Date was later extended by written agreement until April
30, 1998. The Company remains confident that the merger will be completed or
the Notes will be repaid in full on or before that date. The Company expects
significant growth in revenues and shareholder earnings as a result of this
potential acquisition and the related transactions.
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.
On August 21, 1997, the Company formally announced that it had entered into a
letter of intent to merge with a high performance materials company which fits
the Company's parameters for an acquisition candidate. In working towards
securing the acquisition as well as providing future operating revenue for the
Company, on October 30, 1997 the Company accepted subscription proceeds for
the purchase of 1,353,000 shares of the Company's common stock, par value
$0.001, at a price of $3.00 per share, aggregating gross proceeds to the
Company of $4,059,000. Such private sales were authorized to be made under
either Rule 903 of Regulation S ("Regulation S") and/or Section 4(2) of the
Act.
Of those amounts received from the offering, $4,000,000 has been remitted to
the enterprise with which the Company intends to merge in exchange for
Convertible Subordinated Notes (the "Notes") totaling $4,000,000. The Notes
provide for a Maturity Date of December 30, 1997, and bear interest at an
annualized rate of seven percent (7%). This Maturity Date was later extended
by written agreement until April 30, 1998. The Company expects significant
growth in revenues and shareholder earnings as a result of this potential
acquisition and the related transactions.
Although the buyers were introduced to the securities by Pennsylvania Merchant
Group, Ltd., no underwriting discounts or commissions have been paid by the
Company to any underwriter. Based upon its review of documentation certified
by each buyer, the Company determined that each of the buyers to
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date was (i) sophisticated (based upon net worth and investment experience),
(ii) an institutional investor, and/or (iii) not a U.S. Person (as defined in
Regulation S).
When used in this Quarterly Report on Form 10-QSB, 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.
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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) - Employment Agreement between Irwin Schneidmill and
the Company dated March 1, 1996.
*** 10(b) - Indemnity Agreement between the Company and Irwin
Schneidmill and John Formicola, indemnifying them
against liabilities arising from the acquisition of
assets of Re-Prod, Inc.
*** 10(c) - Stock Option Certificate and Agreement between the
Company and Irwin Schneidmill dated September 15,
1995.
**** 10(d) - Assumption Agreement between John Patten and the
Company for the R. M. Engineering note and the
Dynamic subordinated note.
**** 10(e) - Indemnification Agreement between John Patten and
the Company for the Johnson vs. Central Valve
Services, Inc., et al., litigation.
***** 10(f) - Form of Common Stock Purchase Agreement and Investor
Confirmation Letter for the Overseas Private
Placement Pursuant to Regulation S.
(b) Reports on Form 8-K - The Registrant did not file any reports on Form
8-K during the last quarter of the fiscal period ended September 30,
1997.
* 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.
**** Incorporated by reference to the Company's Report on Form 10-KSB for
the period ended June 30, 1997.
***** Incorporated by reference to the Company's Report on Form 10-QSB for
the period ended September 30, 1997.
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SIGNATURES
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: February 10, 1997
