<PAGE>
===============================================================================
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, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from _______ to _____________.
Commission file number 33-12613-NY
CELESTIAL VENTURES CORPORATION
-----------------------------------------------------------------
(Exact name of Small Business Issuer as specified in its charter)
NEVADA 22-2814206
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
382 Route 59, Section 310, Monsey, New York 10952
-------------------------------------------------
(Address of principal executive offices)
(914) 369-0132
------------------------------------------------
(Issuer's telephone number, including area code)
---------------------------------------------------------------
(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
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, 1998:
2,935,716
Transitional Small Business Disclosure Format (check one) Yes / /
No /X/
===============================================================================
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Celestial Ventures Corporation and Subsidiaries
Condensed Consolidated Balance Sheet
December 31,
1998
----
Assets:
Current Assets
Cash $ 181
Notes Receivable - Polymer Dynamics Inc -
Net of allowance for
uncollectible amounts of $4,000,000 140,000
---------
Total Current Assets 140,181
---------
Total Assets $ 140,181
=========
See Accompanying Notes to Condensed Consolidated Financial Statements
1
<PAGE>
CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
December 31,
1998
----
Liabilities
Current Liabilities
Accrued Expenses $ 7,595
-----------
Total Current Liabilities 7,595
Long-Term Liabilities
Net liabilities of discontinued operations 170,000
-----------
Total Long-Term Liabilities 170,000
Total Liabilities 177,595
-----------
Shareholders' Equity:
Preferred Stock 259
Common Stock 2,936
Additional Paid-In-Capital 10,927,201
Accumulated Deficit (10,219,193)
Net Income (Loss) (748,617)
-----------
Total Shareholders' Equity (37,414)
-----------
Total Liabilities and Shareholders' Equity $140,181
===========
See Accompanying Notes to Condensed Consolidated Financial Statements
2
<PAGE>
CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues
Sales $ -- $ --
--------- ---------
Cost of Sales -- --
--------- ---------
Gross Profit -- --
Operating Expenses
General and Administrative Expenses 888,617 318,170
--------- ---------
Net (Loss) Before Other Income (Deductions) (888,617) (318,170)
--------- ---------
Other Income (Deductions)
Interest Income 140,000 81,756
--------- ---------
Total Other Income (Deductions) 140,000 81,756
--------- ---------
Net (Loss) $(748,617) $(236,414)
========= =========
Net (Loss) Per Share $(.26) $(.09)
===== =====
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE>
CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
---- -----
<S> <C> <C>
Revenues
Sales $ -- $ --
--------- ---------
Cost of Sales -- --
--------- ---------
Gross Profit -- --
Operating Expenses
General and Administrative Expenses 836,421 169,865
--------- ---------
Net (Loss) Before Other Income (Deductions) (836,421) (169,865)
--------- ---------
Other Income (Deductions)
Interest Income 70,000 70,000
--------- ---------
Total Other Income (Deductions) 70,000 70,000
--------- ---------
Net (Loss) $(766,421) $ (99,865)
========= =========
Net (Loss) Per Share $(.26) $(.04)
===== ======
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues
Sales $ -- $ --
--------- ---------
Cost of Sales -- --
--------- ---------
Gross Profit -- --
Operating Expenses
General and Administrative Expenses 888,617 318,170
--------- ---------
Net (Loss) Before Other Income (Deductions) (888,617) (318,170)
--------- ---------
Other Income (Deductions)
Interest Income 140,000 81,756
--------- ---------
Total Other Income (Deductions) 140,000 81,756
---------
Net (Loss) $(748,617) $(236,414)
========= =========
Net (Loss) Per Share $(.26) $(.09)
===== =====
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net (Loss) (748,617) $ (236,414)
---------
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (140,000) (4,080,371)
Prepaid expenses 3,795 --
Increase (decrease) in:
Accrued expenses and sundry liabilities (15,652) (13,482)
--------- ----------
Total adjustment (151,857) (4,093,853)
--------- ----------
Net cash used in operating activities (900,474) (4,330,267)
--------- ----------
Cash Flows From Investing Activities:
Net cash used in investing activities -- --
Cash Flows From Financing Activities:
Issuance of common stock 900,001 4,324,065
--------- ----------
Net cash provided by financial activities 900,001 4,324,065
--------- ----------
Net (decrease) in cash (473) (6,202)
--------- ----------
Cash beginning of period 654 6,435
--------- ----------
Cash end of period $ 181 $ 233
========= ==========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE>
CELESTIAL VENTURES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 Polymer Dynamics, Inc. ("PDI"), a high
performance materials company which fits the Company's
parameters for a combination candidate. On October 30,
1997, the Company worked towards securing the merger,
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 PDI in exchange for
Convertible Subordinated Notes (the "Notes") totaling
$4,000,000. The Notes provide for a maturity date of
December 31, 1997 and bear interest at an annualized
rate of seven percent (7%). The maturity date was
later extended to December 30, 1999. The Company
remains confident that the merger will be completed or
the Notes will be repaid in full on or before that
date.
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, 1998 is not
necessarily indicative of the results that may be
expected for the year ended June 30, 1999. For further
information, refer to the consolidated financial
statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended
June 30, 1998.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
The consolidated balance sheet as of December 31, 1998 and the
consolidated statement of operations for the six-months ended December 31, 1998
and 1997 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.
Management's Plan of Operation
The Company's financial condition at December 31, 1998 compared to
December 31, 1997 has not changed substantially.
During the last two fiscal years in particular, 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. Management
believes that the sale of its operating subsidiaries has had a positive effect
on the Company, as it has positioned the Company to proceed with a proposed
combination, pending governmental and stockholder approvals, with Polymer
Dynamics, Inc. ("PDI"). See the Company's annual report previously filed with
the SEC on Form 10-KSB, for the period ended June 30, 1998 for further details.
On October 30, 1997, the Company worked towards securing the merger, 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 PDI in exchange for
Convertible Subordinated Notes (the "Notes") totaling $4,000,000. The Notes
provide for a maturity date of December 31, 1997 and bear interest at an
annualized rate of seven percent (7%). The maturity date was later extended to
December 30, 1999. The Company will not recognize any interest income on these
notes, and will apply any payments received to reduce the principal.
On March 18, 1998, the Company and PDI entered into a definitive
Agreement and Plan of Merger (the "Merger Agreement") providing for transactions
that will result in PDI being merged with and into Registrant. The Company will
survive the merger and will continue to exist as a Nevada corporation that will
be renamed Polymer Dynamics, Inc. Completion of the merger is subject to, among
other things, the approval of the Company's and PDI's stockholders. Under the
Merger Agreement each outstanding share of the Company's Common Stock shall
remain unchanged, and each outstanding share of Company's Preferred Stock will
be converted into one-fifteenth (1/15th) of a share of the surviving
corporation's Common Stock. Each outstanding share of PDI's Common Stock and
Series A Preferred Stock will be converted into a single share of Common Stock
and Series A Preferred Stock, respectively, of the surviving corporation. A copy
of the Merger Agreement has been filed as an exhibit to the Company's current
report, previously filed with the SEC on Form 8-K, dated March 18, 1998 and is
incorporated by reference herewith. The Company and PDI jointly issued a press
release dated March 25, 1998 announcing that their boards of directors approved
the agreement to merge the two corporations. Based on the current number of
shares of the Company's and PDI's capital stock outstanding, upon completion of
the merger, the former stockholders of PDI will own approximately 92% of the
Common Stock of the surviving corporation. A copy of the press release was also
filed as an exhibit to the above referenced current report.
8
<PAGE>
As of September 30, 1998, the proposed merger had not been consummated.
Management remains confident, however, that the transaction will occur upon
terms substantially similar to those described above and contained in the Merger
Agreement or the Notes will be repaid in full on or before December 30, 1999.
Currently, Management anticipates that the consummation of the merger is the
more likely outcome. The Company expects significant growth in revenues and
shareholder earnings as a result of this potential acquisition and the related
transactions.
Given that the Company is concentrating on consummating the merger with
PDI, it does not expect to raise additional funds for operating capital within
the next twelve months. Furthermore, upon finalizing the merger, the Company's
structure, nature of business, cash requirements, number of employees, etc. will
change significantly.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Janet M. Johnson, individually and as Next Friend of Lauren Brel Clark and Eryn
Renee Clark, Minors, and as Executor of the Estate of Annie M. Murray vs.
Central Valve Services, Inc., Celestial Ventures Corporation, Huermann &
Associates, Inc. and Tony Huermann, No. 96-42066, In the District Court of
Harris County, Texas, 80th Judicial District.
The Plaintiffs' First Amended Original Petition was served upon the
Company (one of many defendants) on April 23, 1997. The Plaintiffs allege that
they were injured as a result of certain misrepresentations made by Tony
Heuermann (a Texas investment manager unconnected to the Company) which induced
the Plaintiffs into investing monies into the Company and its wholly-owned
subsidiary, Central Valve Services, Inc. ("Central"). The alleged investment
includes payment for 25,343 (prior to the 1 for 15 reverse split) shares of the
Company's common stock as well as numerous promissory notes issued by Central in
which Bob Sudderth (former President of the Company) also signed on behalf of
Central and the Company as Guarantor. The Plaintiffs claim that these notes are
in default and the shares are trading below the promised value. Accordingly, the
Plaintiffs now seek damages from the Company (as well as Central, Sudderth and
Heuermann) to recoup those monies lost as a result of these alleged false
representations and violations of Texas Deceptive Trade Practices Act in the
amount of $62,092 plus interest, costs and punitive damages. A partial summary
judgment based on default in the amount of $70,000 was awarded but is now being
challenged vigorously, as are claims for interest, costs and punitive damages.
The other parties to the litigation have agreed to address this matter
in non-binding mediation. Should the parties fail to resolve this matter by such
mediation, and the court schedules a hearing for this matter, the Company
intends to defend this action vigorously.
John L. Patten, a stockholder of the Company, pursuant to an agreement
dated August 25, 1997, has agreed to indemnify the Company and hold it harmless
for any costs incurred by the Company or for any potential award or settlement
that might arise in the future. Mr. Patten has demonstrated to the Company's
satisfaction his financial ability to assume such obligation. 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 annual
report on Form 10-KSB for the period ended June 30, 1997 for further
information.
9
<PAGE>
Sirco Systems, LLC vs. Gold Coast Powder Coatings, Inc., Celestial Ventures
Corporation, Custom Coatings, Inc., W. G. Dodson, William V. Reynolds, Herbert
W. Reynolds, et al., Civil Action No. CV 98-2215, In the Circuit Court of
Jefferson County, Alabama.
The Plaintiff brought suit in 1998, concerning a contractual dispute
with a former subsidiary of the Company, and obtained a judgment against all
defendants in the amount of $122,000. The Company is vigorously contesting
responsibility for any portion of the judgment through local counsel, and has
recently reached an agreement with plaintiff to settle any alleged liabilities.
Pursuant to the settlement agreement, the plaintiff is to receive $10,000 and
10,000 shares of the Company's stock held by John L. Patten, a stockholder of
the Company. Mr. Patten has agreed to indemnify the Company and hold it harmless
for any costs incurred by the Company and for any potential award or settlement
that might arise in the future. Mr. Patten has demonstrated to the Company's
satisfaction his financial ability to assume such obligation.
W.A. Salzman, et al v. Celestial Ventures Corp., et al., No 98-2948; In the
334th Judicial District of Harris County, Texas. This matter arises our of the
sale of T.J. Lingle Company to Celestial Ventures Corp. and Central Valve
Company. The allegations involved assert that the assets of T.J. Lingle Company
were misrepresented by R.J. Sudderth (former President of the Company). There is
a note that plaintiff believed obligated Celestial Ventures Corp. to pay between
$400,000 and $500,000, based on these misrepresentations. The Company vigorously
disputed this assertion. The Plaintiff, Mr. Salzman, passed away and the case is
inactive.
John L. Patten, a stockholder of the Company has agreed to indemnify
the Company and hold it harmless for any costs incurred by the Company or for
any potential award or settlement that might arise in the future. Mr. Patten has
demonstrated to the Company's satisfaction his financial ability to assume such
obligation.
Rouselle, I.D. v. Celestial Ventures Corp., R.J. Sudderth., Individually, and
William Salzman, Individually; In the County Court at Law Number Four (4) of
Harris County, Texas. No 647763. The Company has been named in the matter, which
we believe involves the same business dealings and operative facts involving the
sale of T.J. Lingle Co. as the sale described above in the Salzman matter, but
involving smaller dollar amounts. According to local counsel, the Company has
not yet been properly served in this matter. The Company does not intend to
defend vigorously.
John L. Patten, a stockholder of the Company has agreed to indemnify
the Company and hold it harmless for any costs incurred by the Company or for
any potential award or settlement that might arise in the future. Mr. Patten has
demonstrated to the Company's satisfaction his financial ability to assume such
obligation.
Dixie Pine Sales, Inc. V. T.J. Lingle Co. and Celestial Ventures Corp.; In the
Judicial District of Harris County, Texas. No 643629. The Company has been named
in the matter, which we believe involves similar allegations as the Salzman
matter described above, but involving smaller dollar amounts. According to local
counsel, the Company has not yet been properly served in this matter. The
Company does intend to defend vigorously.
John L. Patten, a stockholder of the Company has agreed to indemnify
the Company and hold it harmless for any costs incurred by the Company or for
any potential award or settlement that might arise
10
<PAGE>
in the future. Mr. Patten has demonstrated to the Company's satisfaction his
financial ability to assume such obligation.
For additional information, please see the Company's annual reports
previously filed with the SEC on Form 10-KSB for the years ended June 30, 1997
and 1998.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no matters submitted to a vote of security holders for the
period covered by this Report.
ITEM 5. OTHER INFORMATION.
When used in this 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.
11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-B).
<TABLE>
<CAPTION>
Exhibit
Numbers Description
------- -----------
<S> <C> <C> <C>
# 2 - Agreement and Plan of Merger, dated as of March 18, 1998, between
Celestial Ventures Corporation and Polymer Dynamics, Inc.
* 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.
# 99 - Celestial Ventures Corporation and Polymer Dynamics, Inc. Press
Release dated March 25, 1998.
</TABLE>
(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.
Symbols Used in Item 6:
<TABLE>
<S> <C>
# Incorporated by reference to the Company's Report on Form 8-K dated March 26, 1998.
* Incorporated by reference to the Company's Registration Statement on Form S-8 dated
September 18, 1995.
12
<PAGE>
** 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.
</TABLE>
13
<PAGE>
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 Officer,
Chief Financial Officer and Director
Dated: September 24, 1999
14
