SECURITIES AND EXCHANGE
COMMISSIONWashington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended March 31, 1998
Commission File No. 0-25810
ISO BLOCK PRODUCTS USA, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-1026503
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8037 South Datura Street
Littleton, Colorado 80120 (303) 795-9729
(Address of Principal's Executive Offices) (Registrant's Telephone No.
incl. Area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
.0001 par value.
Indicate by check mark whether the registrant (1) has 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 such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for at least the past 90 days.
Yes No X
Indicate by check mark if no disclosure of delinquent filers in response
to Item 405 of Regulation S-B will be contained in this form, and no
disclosure will 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.
Yes No X
The registrant's revenues for its most recent fiscal year were $213,205.
The aggregate market value of the voting and non-voting common
stock held by non-affiliates of the registrant, was not determinable.
At April 26, 1999, a total of 3,924,730 shares of common stock were
outstanding.
PART I
Item 1. Prior Business
On March 28, 1994, the Company entered into an Agreement and Plan
of Reorganization ("Reorganization Agreement") with R-S Iso-Block
Produktions GmbH, a German limited liability company ("Iso-Block
GmbH"), Josef Ratey, an individual ("Ratey"), Helge Seidel, an
individual ("Seidel"), and R-S Plus Investment Corp., a Florida
corporation ("R-S PLUS"). Pursuant to the Reorganization Agreement,
on March 31, 1995 the Company purchased from Ratey and Seidel all
of the equity interest in Iso-Block GmbH, and purchased from R-S Plus
all of its right, title and interest in and to Iso-Block GmbH, including all
R-S Plus property heretofore contributed to Iso-Block GmbH and all
R-S Plus's rights to Iso-Block profits, in exchange for the issuance of an
aggregate of 2,000,000 shares of the Company's authorized but
heretofore unissued common stock, no par value (the "Exchange
Shares"). In addition, Mr. Ratey, Mr. Seidel and R-S Plus were
entitled to receive options for a two-year period to purchase an
aggregate of not more than 1,000,000 shares of the Company at a
nominal price in order too prevent their aggregate equity interest in the
Company from being diluted below 57%. In 1995, Iso-Block GmbH
changed its name to R-S ISO-Block Produktions und Bautrager
GmbH, which permitted it to engage in the business of constructing
buildings as well as manufacture and production of building materials.
In fiscal years ended 1995 and 1996, Iso-Block GmbH had certain
operations in Germany. The Company wound down such operations in
the closing months of 1996. See Part II, Item 6 below.
Current Business of the Company
The Company now functions entirely as a US company engaged in the
business of residential home construction as general contractor as well
as the holding company of Franchise Connection, Inc., ("Franchise
Connection") a strategic conglomerate of new and emerging
franchise companies and a team of franchise experts that work together
to match the aspirations of entrepreneurs with viable analogous
franchise concepts.
Residential Home Building
The demand for housing in Colorado has exploded during the 1990s
because of the migration to Colorado of numerous large corporations as
well as the expansion of Colorado domiciled businesses due to the
current excellent economic climate. Metro Denver's January 1998 home
sales were the highest on record and were up almost 10% over January
1997. March, 1998 home sales in the Denver Metro area soared in
which 3,730 homes were placed under contract in contrast with
February, 1992 in which there were 3,436 homes placed under contract.
The monthly sales rate is currently 6.91% as compared to a 6.13% sales
rate for 1997. It is estimated that the only factor, which could slow
home sales in the Denver area, would be rising mortgage
interest rates. The Company believes the strong housing market will
allow it to build custom homes very profitably.
Franchising Operations
Franchise Connection, Inc. was incorporated in Colorado in 1996 with
headquarters in Denver, Colorado. The Company plans to form
strategic partnerships with prospective or existing franchise operations
("Franchisers")under which it will provide them with marketing and
sales services plus business and legal services in return for an equity
interest in, and/or a portion of their royalties. It is targeting private
companies, which are seeking to franchise expertise or financial
capacity to successfully engage in franchising. The Company
will offer comprehensive franchise marketing and consulting services
to its Franchisers companies including operations, personnel,
management, training, legal and financial advice. In addition,
Franchise Connection will assume total responsibility for the
recruitment of franchisees. This will include national
media advertising, trade show attendance, and other forms of
promotion supported by a commissioned sales staff.
In the evaluation of a prospective Franchiser, the Company will
generally be guided by a number of factors, including analysis of a
prospect's financial position, the experience of its management,
the product, service and/or concept offered and the identification of its
competitors, as well as itsability to show a profit at the franchisee level.
To date, Franchise Connection has established a strategic partnership
with several companies which will be the initial base franchises.
Franchise Connection receives a franchise sales commission plus has
varying interests in each company ranging from full ownership to a
royalty agreement. The initial base franchises include
Performance Marketing, Inc., a small business marketing and training
firm wholly owned by Franchise Connection which offers a
step-by-step, comprehensive, consistent marketing system
that is custom designed for each client; ENCORE NAILS, a nail salon
which offers women a nail covering which is attractive and durable
using a revolutionary, proprietary process; HYDRO-PHYSICS, a pipe
inspection service using video technology to inspect or locate
underground water or sewer pipe breakages; and, FOOT LAB, a full
service, compact, self contained, insole foot bed" manufacturing station
which can produce a foot platform that is custom shaped to a person's
foot . LARSON LEARNING CENTERS, a program of supplemental
education, offering development and enrichment in all core academic
subjects as well as basic skills in reading, writing and math.
Currently the principal focus of Franchise Connection, Inc. is the
development of Magna Dry LLC. Franchise Connection, Inc. has
formed a Colorado Limited Liability Company "Magna-Dry USA,
LLC" of which it is the sole member. Magna -Dry USA has purchased
the exclusive license to operate and franchise the Magna-Dry concept
in total cleaning throughout the United States. Franchise Connections,
Inc. has executed a five-year license agreement with continuos
two-year renewal options and has paid the master franchise fee.
Franchise Connection, Inc .has agreed to pay an ongoing license fee
throughout the agreement. The principal business is the manufacturing,
re-packaging, distribution and licensing of leading edge
environmentally safe-cleaning services developed by Australian
formulator Charles C. Borg. Franchise Connection, Inc. enjoys
exclusive territorial rights to manufacture and distribute
Magna-Dry products in the United States. Specifically, the operational
aims and proposed development plans are as follows: (1). Increase
resources for the sales and operations team and strengthen middle
management to support future growth of Magna-Dry (2). Magna-Dry
sub-franchising, forming synergistic services with other up-market
carpet retailers, existing laundry and cleaning businesses, upholstery
and soft furnishings businesses, car distributors and manufactures and
rapid numerical growth of the sales and operational teams (3). Magna-Dry
Area Franchising. Franchise Connection, Inc. has spent an additional
$175,000 in marketing and operational development costs for its
Magna-Dry subsidiary. The Magna-Dry carpet and drape cleaning
system has expanded to 22 countries around the world including the
United Kingdom, Germany, France, Belgium, the Netherlands,
Luxembourg, Italy and Asia. Magna-Dry has over one thousand units
operating internationally, which produce gross revenues in excess of
$300,000,000. In many areas Magna-Dry has captured over 60% of the
market. Unlike competitors using conventional wet or shampoo
cleaning methods, Magna-Dry employs a revolutionary cleaning
process with magnetic ionization technology that cleans faster and
more efficiently. It is a proven system that is safe, fast and reliable and
suitable for cleaning carpets, curtains, upholstery and mattresses of all
material types.There are many firms engaged in the business of
franchising small companies, and competition is fierce. Franchise
Connection believes that its particular marketing orientation (the
marketing of less expensive franchises of low-entry cost businesses)
combined with Johnny Wilson's experience and background will enable
it to be successful. Franchise Connection and its subsidiaries currently
employ 2 people in full-time positions and employ others as needed.
Staff will be added only as needed, and there is a labor pool or persons
with experience in the business of Franchise Connection available at a
reasonable cost.
Employees
The Company s only employees are its executive officers, who devote
most of their time to Company affairs, and the two employees of
Franchise Connection, Inc.
Item 2. Description of Property.
The Company occupies facilities provided at no charge by its President,
Mr. Egin Bresnig in his residence; these facilities are expected to be
adequate in the near term, through fiscal 1999. Franchise Connection
leases from unaffiliated parties approximately 2,300 square feet of
space at 10691 East Bethany Drive, Unit 800, Aurora, Colorado
80014. Management of Franchise Connection believes that these
facilities will be sufficient for their needs for at least the next
twelve months.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to the Company's security holders during
the fiscal year ended March 31, 1998.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
The Company's outstanding Common Shares are publicly quoted and
traded on the OTC Bulletin Board with the symbol ISOB. There is no
assurance that an active market will arise in the Company's common
shares.
Holders
The Company had 346 shareholders of record as of March 31, 1999,
which does not include shareholders whose shares are held in street or
nominee names.
Dividends
The Company does not expect to pay a cash dividend upon its capital
stock in the foreseeable future. Payment of dividends in the future will
depend on the Company's earnings (if any) and its cash requirements at
that time.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Business Operations
The Company's principal business operations through March 31, 1992
consisted of leasing out computers, peripheral products and software.
The Company realized only nominal revenues through March 31,
1992.Due to lack of significant revenues or operations, the Company
remained in the developmental stage, as defined in Financial
Accounting Standards Board Statement No. 7 until fiscal year ended
March 31, 1994.
The first half of the business year of 1994 was occupied in establishing
the infra structure to gear up for the planned operational activities of the
German subsidiary, ISO-Block GmbH. The Company had a very
difficult time trying to raise capital to start single-family and
multi-family developmental projects as a general contractor. The
Company decided to begin building single family custom homes at
first, using the Company's proprietary building system, before
attempting larger and more aggressive projects. Not until the first
quarter of 1995 was the Company able to raise sufficient additional
capital to begin operations.
The Company had a difficult but promising start, and the wholly owned
subsidiary Iso-Block GmbH began custom home construction in
Germany in the second quarter of 1995. A proof-of-concept home was
built to demonstrate the Company's proprietary building system,
several homes were completed for customers and others were initiated.
Bigger projects were planned, some with partial financing from local
governments. The weather in Germany in the fall and winter of 1995
(third and fourth quarter 1995) did turn so bad that it was practically
impossible, under those circumstances, to build anything for several
months. Also a very negative business climate developed in Germany
with an abnormally high unemployment rate, the highest since Word
War II. The weather improved but the business climate in Germany did
not. The construction industry, in general, in Germany hit bottom in
1995.
The Company had operating losses for 1995 and 1996 of
approximately $1,031,000 of which the major amount was due to the
very adverse business climate in Germany as outlined above.
However, in addition the previous Chairman of the Board and CEO,
Mr. Josef Ratey, resident of Germany, and the Company's major
shareholder did not provide the required direction and guidance. The
US side of the Company, represented by Mr. Egin Bresnig, was
challenged with taking over the offices of CEO and the presidency of
the Company from Mr. Josef Ratey. After this change of leadership, the
Company and its new management initiated drastic action to stop
the financial bleeding. The process of extraditing the Company from its
overseas operations was very costly because of the archaic business
practices still in place in Germany. The Company could not leave
projects unfinished but rather completed them knowing that these
projects would lose money. The Company explored other business
opportunities in the United States. Management of the Company
decided to cease all operational activities in Germany. The better
part of 1996 was spent winding down and closing the German
operation.
During the 1996 fiscal year, the Company discontinued its European
operations because of the continuing recession in Germany and the
difficulty in managing its European subsidiaries from Denver,
Colorado. Iso-Block GmbH ceased operations in July, 1996. The
Company incurred dissolution expenses in ceasing operations of its two
European subsidiaries of $166,000. The Company retained assets of
$126,000 consisting of undeveloped property in Kehl, Germany and
an account receivable for completed construction of one residential
property in Germany. On December 9, 1996 the Company sold its
Iso-Block GmbH subsidiary, including all liabilities and
assets, to Big B Tex A.G. (CH), a Swiss company domiciled in Zurich,
and the Company paid $40,000 to the buyer in addition to transferring
its Iso-Block GmbH assets. Big B Tex A.G. assumed all Iso-Block
GmbH liabilities and future contingent liabilities, if any.
Results of Operations Fiscal Year 1998
The Company realized a loss of $1,528,069 on total revenue of
$188,205 for the fiscal year ended March 31, 1998. As of March 31,
1998 the Company had accumulated a deficit since inception of
$2,885,509. The loss realized was primarily due to an extra ordinary
item , related to the non performance of the "German Grundschulden"
(mortgages) which are being presented for foreclosure and the
construction costs for the homebuilding activities and costs associated
with the beginning operations of Franchise Connection and the initial
development of Magna-Dry LLC.
Results of Operations - Fiscal Year 1997
The Company realized a loss of $348,921 on total revenue of $46,228
for the fiscal year ended March 31, 1997. As of March 31, 1997, the
Company had accumulated a deficit since inception of $1,357,440. The
loss realized was primarily due to beginning operations in the U.S., the
closing of operations in Germany and general and administrative
expenses incurred to date.
Liquidity and Capital Resources
Cash totaled $302,931 at March 31, 1997 compared with $4,234 at
March 31, 1998. The $298,697 decrease in cash was primarily from
operating activities. As of March 31, 1998, the Company had raised
$50,000 from the sale of its common shares and $335,360 in notes
payable related to the residential home building construction. The
Company considers its startup franchise business to be dependent upon
its ability to raise money from the sale of its stock and or complete the
sale of its residential home.
Income Taxes and Net Operating Losses
At March 31, 1998, the Company had net operating loss carryforwards
for United States and German income tax purposes totaling $2,885,509,
which are available to offset future taxable income. These NOL's
expire through 2005.
Plan of Operation
The Company intends to continue as general contractor in the United
States and has purchased two residential building sites in the Outlook
subdivision in Broomfield, Colorado, located approximately five miles
northwest of Denver, Colorado, The Company had the capacity to build
at least one speculative house at a constructed retail price of $285,000.
Construction was started June1997 and completed April 14, 1998. The
house will be offered to the public for sale May 1, 1998. When the first
residential house is sold, the Company will soon begin construction on
its second building site. The Company expects to continue its
construction program as long as the residential real estate business
climate continues its intensity in Colorado. According to the March 7,
1997 issue of The Rocky Mountain News "SunMicrosystems' $200
million planned research and development campus in Broomfield,
Colorado already has helped jump-start the metro area's home building
activity." One of the strongest areas of the Denver Metro home
construction industry is expected to be Broomfield, Colorado, thanks to
SunMicrosystems, which will create 4,000 jobs at an average salary of
$70,000. The Company is positioned correctly to take advantage of this
growth by establishing itself as general contractor in Broomfield. If the
Company realizes its profit goals by completing the first two
speculative homes then it intends to become a developer of housing
projects. Even though the current management of the Company
has limited building experience the availability of professional
construction consultants should provide the necessary guidance to the
Company. Management believes it will be successful in raising
additional capital required to become a meaningful player in the
Broomfield and Metro Denver housing construction market.
The Company is very excited about its completion of ownership of The
Franchise Connection, Inc. because of the importance of franchising in
today's economy. Franchising has been responsible for over 35% of the
United State's total retail sales in the 1990s and is projected too
grow to over 50% of all retail sales in the twenty-first century.
Franchising has proved to be an outstanding method of distribution and
market penetration. Established franchise organizations are growing by
11% annually and service related and business format franchises are
growing by 39% annually. Franchising has added two million jobs to
the US economy the past ten years. The Franchise Connection, Inc.
intends to capitalize on this predominate and enormous growth trend by
exploiting its franchise expertise in conjunction with viable, talented
entrepreneurs whom know and understand their business. These
business owners work diligently to insure that their business will be
successful and that it maintains its strong niche that can be
duplicated on a national and/or international scale through franchising.
By working in a "partnership" relationship with The Franchise
Connection, Inc., these entrepreneurs can continue to make their
business ever better while using The Franchise Connection, Inc. to
recruit franchises and expand their concept globally. Using this
strategic alliance, marketing costs, administration costs, and legal
expenses can be controlled and, thus, general overhead can be
reduced. The Franchise Connection's corporate objective is to acquire
successful business concepts and via franchise sales to multiply its
revenues over the next three years. The Franchise Connection, Inc. has
formed alliances with the following companies; each representing
a successful prototype and possessing a unique position in their
industry. They all have a proprietary product with the ability to
dominate their market if expanded rapidly. The concepts are very
teachable, have a universal consumer base and have very
affordable entry investment. Each one has management in place with
the technical expertise to operate the business. With the
franchising knowledge and marketing know-how of the Franchise
Connection they all have the ability to exceed five hundred units in a
reasonable period of time. The demand has never been
higher to get into business. The opportunity seeker is more
knowledgeable and seeking more than just buying a job.
Performance Marketing, Inc. offers marketing and training services to
small businesses that are custom designed to fit the client and his
budget. Performance Marketing offers a proprietary
product," The Living Marketing Manual" featuring an annualized
marketing blueprint that gets guaranteed results. With more than 22.5
million businesses currently operating the US and an additional
800,000 new businesses starting up every year the marketing
niche for this business is unlimited. Performance Marketing has a letter
of intent to provide marketing product to be made available for
distribution by a network of over 500 representatives. Encore Nails is
an upscale nail studio in the fast growing nail beautification industry. It
uses a revolutionary, proprietary process to offer clients attractive,
durable, environmentally safe, and technologically advanced
nail coverings. The product was tested for four years in a very
successful studio prior to being offered outside the control market. A
new unit opened in March, 1997 to serve as a prototype unit and has
proved to be successful. With the growth in the nail industry
exploding, Encore Nails is on the leading edge. Franchise Connection
has acquired the franchise rights which includes a 40% ownership of
Encore Nails and 50% of all franchise fees and has a letter of
intent to joint venture the franchising with financial partners who will
have day to day operation responsibility. Hydro-Physics is the first of
its kind, national video pipe inspection service franchise that saves
commercial and residential customers thousands of dollars in
unnecessary repair cost. The company utilizes a self-contained portable
state-of the-art video technology to identify, locate, and verify
underground pipeline problems. The market is wide-open
with limited competition. Hydro-Physics has a five-year history of
profitability. By using technology in insure portability with the ability
to inspect 3-inch pipes by a one-man crew the concept has wide appeal.
The company has in operation two franchises (Idaho and Missouri).
Franchise Connection has the exclusive marketing rights and receives
25% of royalty over five years with a conversion factor to own 30% of
the parent company. It is expected that five new units will be opened
over the next 12 months. Footlab is a full service, compact,
self-contained foot insole manufacturing station that produces
hand-make custom shaped foot support inserts from a variety of
materials depending on the intended use in less that five minutes.
Re-designed from a 25 year old invention from Switzerland and in use
in the winter ski industry for many years this concept can be located in
athletic footwear stores, sporting good stores, golf pro shops, and
department stores. With approximately 90 % of the 275 million US and
Canadian population needing foot inserts the market is very large. The
operating units require less than 20 sq. feet, which opens up many
avenues of opportunity. Franchise Connection is the franchisor and
owns 100% of Footlab with a contract to pay 10% royalty fees to the
founder who also has the responsibility to provide all research and
development of product. LARSON LEARNING CENTERS, a program
of supplemental education, offering development and enrichment in all
core academic subjects as well as basic skills in reading, writing and
math.
The principal business of MAGNA-DRY LLC is the manufacturing,
re-packaging, distribution and licensing of leading-edge environmentally
safe cleaning services developed by Australian formulator Charles C.
Borg. Franchise Connection, Inc. enjoys exclusive territorial rights to
manufacture and distribute Magna-Dry products in the United States.
Specifically, the operational aims and proposed development plans are
as follows: (1). Increase resources for the sales and operations team
and strengthen middle management to support future growth
of Magna-Dry (2). Magna-Dry sub-franchising, forming synergistic
services with other up-market carpet retailers, existing laundry and
cleaning businesses, upholstery and soft furnishings businesses, car
distributors and manufactures and rapid numerical growth of the sales
and operational teams (3). Magna-Dry Area Franchising. Franchise
Connection, Inc. has spent an additional $175,000 in marketing and
operational development costs for its Magna-Dry subsidiary.
Currently, Magna-Dry LLC has franchise operations in Denver,
Colorado, Reno, Nevada, Memphis, Tennessee and Winnipeg, Canada.
Additional locations are scheduled for Seattle, WA, which should be in
operation, by June 1, 1998.
The Magna-Dry carpet and drape cleaning system has expanded to 22
countries around the world including the United Kingdom, Germany,
France, Belgium, the Netherlands, Luxembourg, Italy and Asia.
Magna-Dry has over one thousand units operating internationally that
produce gross revenues in excess of $300,000,000. In many areas
Magna-Dry has captured over 60% of the market. Unlike competitors
using conventional wet or shampoo cleaning methods, Magna-Dry
employs a revolutionary cleaning process with magnetic ionization
technology that cleans faster and more efficiently. It is a proven system
that is safe, fast and reliable and suitable for cleaning carpets, curtains,
upholstery and mattresses of all material types.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects
of the Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year.
Any of the Company's computer programs or hardware that have
date-sensitive software or embedded chips may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities.
The Company presently leases one computer hardware and related
software. The Company also uses services from other company's and
does believe that all related computers are Year 2000 compliant.
Computer Hardware
The Company believes that the one leased computers hardware is Year
2000 compliant.
Computer Software
The Company believes that the one leased computers software is Year
2000 compliant.
Operating Equipment
The Company does not own any related operating equipment.
Nature and Level of Importance of Third Parties and Their Exposure to
the Year 2000
The Company continues to conduct surveys of its banking and other
vendor relationships to assess risks regarding their Year 2000 readiness.
The Company has banking relationships all of which have indicated
their compliance efforts will be complete before July 1999. The
Company's contingency plan in this regard is to move accounts from
any institution that cannot be certified Year 2000 compliant by August
1, 1999.
The Company does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors
who share information systems with the Company (external agents). To
date, the Company is not aware of any external agent with a Year 2000
compliance issue that would materially impact the Company's results of
operations, liquidity, or capital resources. However, the Company has
no means of ensuring that external agents will be Year 2000 compliant.
Management does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will
have a material impact on the financial position or results of operations
of the Company. However, the effect of non-compliance by external
agents is not readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project is $0. To date, the Company has
incurred $0 related to all phases of the Year 2000 project. Of the total
remaining project costs, approximately $0 is attributable to the purchase
of new software and operating equipment.
Risks Associated with the Year 2000
Management believes it has no risk associated with the Year 2000.
Item 7. Financial Statements.
See index to financial statements at page F-1. The financial statements
included as part of this report immediately follow that index. No
supplementary financial data is required or included.
Item 8. Changes in and Disagreements with Accountants or
Accounting and Financial Disclosure.
On April 29, 1996, the Company engaged R. Scott Hall, CPA, as its
independent auditor, replacing BDO Seidman LLP, who were
dismissed as the Company's auditors effective May 8, 1996, as reported
on Form 8-K dated such date.
Mr. Hall has reported on the Company's financial statements for the
fiscal years ended March 31, 1997 and 1996. Such reports did not
contain either an adverse opinion or a disclaimer of opinion,
and were not qualified or modified as to uncertainty, audit scope or
accounting principles. There were no disagreements on any matters of
accounting principle or practices, financial statement disclosures, or
auditing scope or procedure in connection with Mr. Hall's audits of the
Company's financial statements for such fiscal years which, if not
resolved to his satisfaction, would have caused him to make reference
in his reports on the subject matter of the disagreement.
BDO Seidman LLP reported on the Company's financial statements for
the fiscal year ended March 31, 1994. Such report did not contain either
an adverse opinion or a disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles.
However, such report contained an explanatory paragraph related to the
Company's ability to continue as a going concern. There were no
disagreements on any matters of accounting principle or practices,
financial statement disclosures, or auditing scope or procedure in
connection with such firm's audit of the Company's financial statements
for such fiscal year which, if not resolved to the auditors' satisfaction,
would have caused them to make reference in their report on the subject
matter of the disagreement.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Identification of Directors and Executive Officers The present directors
and executive officers of the Company, their ages, positions held in and
tenure with the Company, are listed below. Each director will serve
until the next annual meeting of shareholders, or until his respective
successor has been elected and duly qualified. Directors serve one-year
terms. Officers hold office at the pleasure of the Board of Directors,
absent any employment agreement, of which none currently exist or are
contemplated. There are no family relationships between any director
or executive officer.
Name Age Position Since
- ---- ----- ---------- ------
Egin Bresnig 63 Director, (since Dec. 1993) June 1995
President,
Chief Executive Officer
Dean Wicker 59 Director and Secretary June 1995
(since Dec. 1993),
Chief Financial and
Accounting Officer
Johnny M. Wilson 56 Director June 1997
The following is a brief account of the business experience during at
least the past five years of each director and executive officer,
indicating the principal occupation and employment during that period,
and the name and principal business of the organization in which such
occupation and employment were carried out.
Egin Bresnig. Mr. Egin Bresnig was raised and educated in Austria.
He has a doctor degree in Physical Education and Modern Languages
from the Karl Franzens University in Graz, Austria. He has been a
resident in the USA for over 37 years. Mr. Bresnig spent many years in
the winter ski industry as a ski school owner, business owner, importer
of equipment and clothing. He has been a real estate developer in
Colorado ski resort areas and has had 18 years experience in the
financial securities industry. He was a licensed securities broker, branch
manager, director of European operations, national sales manager and
the president of various investment banking firms. For several years he
owned his own branch office with up to 25 brokers. Mr. Bresnig was
the successful owner and president of a NASD member firm. He is
fluent in several European languages. He is an officer and director of
East Slope Funding Corp., a Colorado financial consulting firm, Eurous
Funding, Inc. a Colorado public relations firm, Eurous Investments
Holding Company, a non-active Colorado corporation , Arista
Corporation, a non-active Colorado company and REWIPAC
Worldwide Corporation, a non-active Nevada company.
Dean Wicker. Dean Wicker has lived in the Denver, Colorado area for
44 years. He graduated from the University of Colorado, Boulder, CO
in 1961 with a BA degree in American History. He has done advanced
degree work in financial accounting and merger and acquisition
negotiations. Mr. Wicker was the youngest Public Finance negotiator in
the Rocky Mountain region with the New York Member firm, J.A.
Hogle and CO. He changed careers in 1967 by developing retail winter
sports and apparel operations until 1981. Mr. Wicker reentered the
security industry with the position of Senior Institutional Sales with
George K. Baum and Co., Member of the New York Stock Exchange.
In 1984 he became a vice-president and Partner of Boettcher and Co.,
Inc., Member of the New York Stock Exchange and then, the largest
investment banking firm in the western United States. In 1991 he
became an independent financial consultant specializing in merger and
acquisitions. He is an officer and director of East Slope Funding Corp.,
a Colorado financial consulting firm, Eurous Funding, Inc., a Colorado
public relations company, Eurous Investments Holding Company a
non-active Colorado corporation, Arista Corporation, a non-active
Colorado company, and REWIPAC Worldwide Corporation, a
non-active Nevada company.
Johnny Wilson. Johnny M. Wilson has 25 years experience in the
franchise industry. Mr. Wilson received a BA degree from the
University of Missouri, Columbia, Mo and a J.D. degree
from the Missouri School of Law in Columbia, MO. He served as
Assistant Prosecuting Attorney of Scott County, MO for two years and
became President of Missouri Health and Medical Organization, a
non-profit corporation to organize and structure a prepaid health
delivery system for rural areas in Missouri. From 1972 to 1976 he
managed forty people and administrated a six million dollar grant from
the US Department of Health and Welfare. In 1976 Mr. Wilson started
Savings Plus Systems combining Savings and Loan associations, retail
merchants and consumers into automatic discount/savings programs.
In four years the Company grew to over 150 financial institutions,
thousands of merchants and hundred of thousands of consumers. Mr.
Wilson initiated and completed a private placement offering with
investors representing Massy Investment Group, ITT International, and
Citicorp Bank among others. Mr. Wilson sold his interest in the
company in 1979 to the investment partners. From 1980 until
1983 Mr. Wilson was in private law practice specializing in franchise
development. In 1983 he joined with investors in Denver, CO to
develop franchises in the packaging and shipping industry. He formed
Pack Mail Centers of America, Inc. He served as President, Chairman
of the Board until 1990. Under his direction the company grew to over
250 franchises and 25 million dollars in gross sales. He guided the
company through a public offering in 1986 and completed a friendly
buy-out by the executives of Beatrice Foods in 1989. Mr. Wilson
returned to franchise consulting through his own company, The
International Franchise Company from 1990 to 1996. In 1996 Mr.
Wilson formed The Franchise Connection, Inc. in which he serves as
President. Compliance with Section 16(a). Section 16(a) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"),
requires the Company's executive officers, directors and
persons who beneficially own more than 10% of a class of the
Company's equity securities registered under the Exchange Act to file
reports of ownership and changes in ownership with the
Securities and Exchange Commission. Because the Company was not
subject to the reporting requirements of the Exchange Act during the
fiscal year ended March 31, 1995, no filings under Section 16(a) were
required.
Item 10. Executive Compensation.
Cash Compensation and Compensation Pursuant to Plans
For the fiscal year ended March 31, 1998, Mr. Egin Bresnig, CEO and
Mr. Dean Wicker, Secretary received cash compensation of $45,000
and $42,500 respectively for the fiscal year and reimbursement of
out-of-pocket expenses incurred on behalf of the Company. The
Company does not have in effect any pension, profit-sharing, stock
appreciation or bonus plans. The Board of Directors authorized a
Medical Insurance Plan for its President, Mr. Egin Bresnig, effective
January 3, 1997. Other benefit plans are described below.
Employee Stock Compensation Plan
The Company has adopted the 1993 Employee Stock Compensation
Plan for employees, officers, directors of the Company and advisors to
the Company (the "ESC Plan"). The Company has reserved a
maximum of 500,000 Common Shares to be issued upon the grant of
awards under the ESC Plan. Employees will recognize taxable income
upon the grant of Common Stock equal to the fair market value of the
Common Stock on the date of the grant and the Company will
recognize a compensating deduction at such time. The ESC Plan
will be administered by the Board of Directors or Compensation
Committee. No Common Stock has been awarded under the ESC Plan.
Compensatory Stock Option Plan
The Company has adopted the 1993 Compensatory Stock Option Plan
for officers, employees, potential key employees, non-employee
directors and advisors (the "CSO Plan"). The Company
has reserved a maximum of 1,000,000 Common Shares to be issued
upon the exercise of options granted under the CSO Plan. The CSO
Plan is intended to qualify as an "incentive stock option" plan under
Section 422 of the Internal Revenue Code of 1986, as amended.
Options will be granted under the CSO Plan at exercise prices to be
determined by the Board of Directors or other CSO Plan administrator.
With respect to options granted pursuant to the CSO Plan,
optionees will not recognize taxable income upon the grant of options,
but will realize income (or capital loss) at the time the options are
exercised to purchase Common Stock. The amount of income will be
equal to the difference between the exercise price and the fair market
value of the Common Stock on the date of the exercise. The Board of
Directors or a Compensation Committee of directors will administer the
CSO Plan. Subsequent to year-end, an aggregate of 600,000 common
shares subject to purchase under options has been granted under the
CSO Plan.
See Item 11 below.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding compensation paid
to the Company's Chief Executive Officer and Secretary during the last
two fiscal years. The CEO's total annual salary and bonus did not
exceed $100,000, nor did that of any other executive officer.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
- --------------------------------
Annual Compensation Awards Payouts
(a) (b) (c ) (d) (e) (f) (g) (h) (i)
Name and Restricted No. Of $ All
Principal Stock Ops & LTIP Other ($)
Position Year Salary Bonus Other Awards ($) SARs Payouts Comp.
- --------- ---- ------ ----- ----- ---------- ---- ------- ------
Egin
Bresnig
CEO 1998 $45,000 -0- N/A -0-
1997 $47,500 -0- N/A -0-
Dean
Wicker
CFO,
Sec. 1998 $42,500 -0- N/A -0-
1997 $47,500 -0- N/A -0-
OPTIONS GRANTED DURING THE 1997 FISCAL YEAR
Individual Grant
- --------------------
(a) (b) (c ) (d) (e)
Number of % of Total Options
Securities Granted To
Underlying Employees Exercise or Base
Name Options Granted in Fiscal Year Price ($ / Share) Expiration Date
- ---- --------------- --------------- ----------------- ---------------
Egin
Bresnig - - - -
Dean
Wicker - - - -
OPTIONS EXERCISED IN LAST FISCAL YEAR and FISCAL YEAR-END OPTION VALUES
(a) (b) (c ) (d) (e)
Number of $
Securities Value of
Underlying Unexercised In-
Unexercised The-money
Number of Options at FY Options at FY
Shares Acquired $ End Exercisable/ End Exercisable/
Name on Exercise value Realized Unexercisable Unexercisable
- ---- ----------- -------------- ------------- -------------
Egin
Bresnig None None 200,000 / None None / None
Dean
Wicker None None 200,000 / None None / None
The Company has no stock appreciation rights (SAR) plan in place and
has not awarded SAR's to any person. The Company has no long-term
incentive plans, as that term is defined in the rules and regulations of the
Securities and Exchange Commission. During the fiscal year ended
March 31, 1998, the Company did not amend or re-price the exercise
price of any stock options granted to any executive officer.
Other Compensation
Mr. Helge Seidel, the former General Manager of Iso-Block GmbH,
was issued 200,000 shares of common stock for services rendered and
other consideration valued at $130,000.
Compensation of Directors
No person was compensated by the Company for serving as a director
during the fiscal year ended March 31, 1998. While no such compensation
is currently anticipated, the Company believes that directors in the
future will be paid for serving on the Board of Directors and on committees
of directors.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
(a)(b) Security Ownership. The following table sets forth as of April 1,
1998, the names of persons who own of record, or were known by the
Company to own beneficially, more than five percent of its total issued
and outstanding common stock and the beneficial ownership of all such
stock as of that date by officers and directors of the Company and all
such officers and directors as a group. Except as otherwise noted, each
person listed below is the sole beneficial owner of the shares and has
sole investment and voting power as to such shares No person listed
below has any option, warrant or other right to acquire additional
securities of the Company, except as may be otherwise noted.
Name and Address Amount & Nature of
Title of Class Of Beneficial Owner Beneficial Ownership
- -------------- ------------------- --------------------
Common Stock * Egin Bresnig
no par value 8037 So. Datura Street
Littleton,
Colorado 80120 356,500
SAME * Dean Wicker
5176 East Davis Drive
Littleton, Colorado 80122 367,500
SAME * Johnny M. Wilson
1885 S. Evanston
Aurora, Colorado 80012 462,500
SAME Cilla Berndt
Mering, Germany 291,128
SAME Paul Schneider
Klingstepen 12
D-31688 Wipperfurth,
Germaany 600,000
SAME John D. Brasher
90 Madison Street, Suite 707
Denver, Colorado 80206 165,000
* All officers and directors
This does not include any options granted, only shares issued.
Item 12. Certain Relationships and Related Transactions.
Settlement Agreement
Effective November 22, 1996, the Company entered into a Settlement
Agreement (the "Settlement Agreement") with Ratey, Seidel and R-S
Plus. The Settlement Agreement provided for the cancellation of
certain shares issued pursuant to the Reorganization Agreement dated
March 28, 1994.
Pursuant to the Reorganization Agreement, the Exchange Shares were
issued in the following proportions: 1,000,000 shares to R-S PLUS,
900,000 shares to Ratey, and 100,000 shares to Seidel, and a total of
300,000 of the shares issued to R-S PLUS subsequently were
transferred to two individuals. In addition, Ratey, Seidel and R-S PLUS
received options pursuant to the Exchange Agreement for a two-year
period to purchase an aggregate of not more than 1,000,000
shares of the Company. Pursuant to the Settlement Agreement, such
options were cancelled and voided as if never issued.
Of the 2,000,000 Exchange Shares originally issued, an aggregate of
1,737,500 shares were cancelled and voided, as follows:
(i) all 100,000 of the Exchange Shares issued to Seidel pursuant to the
Exchange Agreement;
(ii) 650,000 shares (that is, all but 250,000) of the Exchange Shares
issued to Ratey pursuant to the Exchange Agreement; and
(iii) 987,500 shares (that is, all but 12,500) of the 1,000,000 Exchange
Shares issued to R-S PLUS pursuant to the Exchange Agreement.
A total of 787,500 of the 1,737,500 cancelable shares have been
physically cancelled. The 650,000 shares of Ratey to be cancelled and
the 300,000 shares transferred to two individuals have by action of the
Company's board of directors been cancelled and are reflected as such
on the Company's records of stock transfer and registry, but have not
yet been physically cancelled. The 250,000 shares to Josef Ratey were
never issued nor were the options to buy 240,000 shares at $ 0.80,
because Mr. Josef Ratey has failed to surrender the physical shares
according to the settlement agreement. The certificates evidencing these
shares will be physically cancelled when received by the Company.
The Settlement Agreement provided for the full settlement and release
of all existing claims, if any, and all potential claims of R-S PLUS,
Ratey and Seidel against the Company and against all persons now or
formerly serving or acting as officers, directors or employees of the
Company or legal counsel, accountants or other advisers or consultants
to the Company. Upon the effective date of the Agreement and the
issuance of the options, neither R-S PLUS, Ratey nor Seidel retained
any further claim of any kind against the Company or the enumerated
persons.
The Settlement Agreement also provided for the issuance and delivery
to Ratey of options to purchase an aggregate of 240,000 shares of the
common stock of the Company at the price of Eighty Cents (US$0.80)
per share, subject to customary adjustments, for a period of two years
from the effective date of the Agreement (the "Settlement Options").
Exchange Agreement
In January, 1997 the Company completed an Exchange Agreement and
Plan of Reorganization for the purchase of 100% ownership of
Franchise Connection, Inc., a Colorado corporation and its wholly
owned subsidiary Brilliant Marketing, Inc. In full payment for the
control shares of Franchise Connection, Inc., and Brilliant Marketing,
Inc. the Company issued and delivered the shareholders an aggregate of
Five Hundred Thousand (500,000) shares of the authorized but
unissued shares of Iso Block Products USA, Inc.'s common stock and
One Million Five Hundred Thousand (1,500,000) shares of the Series
1996 Non-Voting Convertible Preferred Stock subject to adjustment as
outlined below. The preferred Exchange Shares shall be convertible
into shares of the no-par value common stock of the Company three (3)
years from the date of issuance at the following conversion rate:
(1) if Franchise Connection has by then sold an aggregate of 150
franchises, consisting of all or any franchises marketed by Franchise
Connection, each preferred Exchange Share will be convertible into one
(1) Conversion share; or
(2) if Franchise Connection has by then sold an aggregate of less than
150 franchises, the number of Conversion Shares into which the
preferred Exchange Shares are convertible will be proportionally
reduced.
(3) if Franchise Connection has sold an aggregate of less than 100
franchises by the third anniversary of the closing under the definitive
agreement, then in addition to the adjustment set forth above, the
Company may at its election demand the surrender and cancellation of
and may unilaterally cancel a percentage of the 500,000 common
Exchange Shares.
Pursuant to the Letter of Intent, ISO BLOCK advanced to Franchise
Connection an aggregate of $50,000 to be used as working capital.
Additionally, under the terms of the Exchange Agreement and Plan of
Reorganization ISO BLOCK will over the twelve months (12)
following the Closing make available to Franchise Connection an
aggregate of an additional $300,000, subject to adjustment, to be
advanced monthly. Such funds will be advanced within five (5) days
prior to the month in which needed upon written request of Franchise
Connection, which shall specify the amount needed and general use
intended. Such amounts shall be loaned to Franchise Connection on
customary commercial terms. As of April 7, 1998 a total of $395,530
had been advanced to Franchise Connection.
Employment Agreement
The Company entered into an Employment Agreement by and among
Franchise Connection, Brilliant Marketing Inc. ("BMI") and Johnny M.
Wilson for a three year period. Under the terms of the Employment
Agreement, Mr. Wilson will be employed by both BMI and the
Franchise Connection as Chief Executive Officer and President and
will serve as Chairman of the board of directors of both companies. He
also will serve in any other capacity as designated by either company'
board of directors. He will not compete with Franchise Connection or
BMI or any franchise project now or later undertaken by Franchise
Connection or BMI or engage in any franchise-related business
whatsoever, as consultant, employee or otherwise, except those
operated by Franchise Connection and BMI.
Otherwise, there were no transactions, or series of transactions, for the
fiscal year ended March 31, 1998, nor are there any currently proposed
transactions, or series of transactions, to which the Company is a party,
in which the amount exceeds $60,000, and in which to the knowledge
of the Company any director, executive officer, nominee, five percent
or greater shareholder, or any member of the immediate family of any
of the foregoing persons, have or will have any direct or indirect
material interest other than as described above or elsewhere in this
report.
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS REPORT 1
CONSOLIDATED COMPARATIVE FINANCIAL STATEMENTS
Balance Sheet. 2
Statement of Operations 3
Statement of Shareholder's Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6 - 12
INDEPENDENT AUDITOR'S REPORT
Board of Directors
ISO BLOCK PRODUCTS USA, INC.
I have audited the accompanying consolidated comparative balance
sheet of ISO Block Products USA, Inc., as of March 31, 1997 and 1998
and the related consolidated comparative - statements of operations,
shareholder's equity and cash flows for the years then ended. These
consolidated comparative financial statements are the responsibility of
the Company's management. My responsibility is to express an opinion
on these consolidated comparative f financial statements based on my
audit.
I conducted my audit in accordance with generally accepted auditing
standards. These standards require that I 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 the significant estimates made by management, as well as
evaluating the overall financial statement presentation. I believe that
my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated comparative financial statements
referred to above, present fairly, in all material respects, the financial
position of ISO Block Products USA, Inc., at March 31, 1997 and 1998
and the results of its operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.
/s/ R. Scott Hall
R. Scott Hall, CPA
April 16, 1999
Castle Rock, Colorado
Page 1
ISO BLOCK PRODUCTS USA, INC.
CONSOLIDATED COMPARATIVE BALANCE SHEET
ASSETS March 31,
Current Assets 1997 1998
- -------------- ---- ----
Cash $302,931 $4,234
Accounts receivable-officer 2,000 2,000
Accounts receivable- trade - 135,850
Mortgage receivable 1,176,590 16,200
Inventory-work in progress 72,033 235,494
----------- ----------
Total Current Assets 1,553,554 393,778
Property & Equipment
- ----------------------------
Office equipment 2,860 9,071
Vehicle - 14,273
Less: accumulated depreciation (179) (2,333)
----------- ----------
Net Property & equipment 2,681 21,011
Other Assets
- ---------------
Deposits - 2,551
Franchise & License - 114,233
----------- ----------
Total Other Assets - 116,784
TOTAL ASSETS $1,556,235 $531,573
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
- ----------------------
Accounts payable 8,780 81,381
Payroll taxes payable 4,639 -
Notes payable - 310,360
Accrued Interest payable - 14,349
Capitalized lease payable - 3,838
---------- ----------
Total Current Liabilities 13,419 409,928
Stockholders' Equity
- -------------------------
Preferred Stock, No Par Value,
10,000,000 Shares Authorized,
1,448,610 and 116,370 Shares
Outstanding, respectively 1,427,700 114,690
Common Stock, 50,000,000 Shares
Authorized, 2,070,821 and
4,128,046 Shares Outstanding,
respectively 1,472,556 2,867,464
Accumulated deficit (1,357,440) (2,860,509)
---------- ----------
Total Stockholders' Equity 1,542,816 121,645
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY 1,556,235 531,573
The accompanying notes are an integral part of these financial statements.
Page F-2
ISO BLOCK PRODUCTS USA, INC.
CONSOLIDATED COMPARATIVE
STATEMENT OF OPERATIONS
March 31,
INCOME 1997 1998
- ------ ---- ----
Sales $15,289 $190,867
Interest Income 30,939 22,338
---------- -----------
Total Income 46,228 213,205
Operating Expenses
- ------------------------
General and Administrative 304,812 562,337
Income (loss) From Operations (258,584) (349,132)
Other Extraordinary Income (loss)
- ---------------------------------
Loss From Disposal of Subsidiary (90,337) -
Mortgage Bad Debts - (1,153,937)
---------- ------------
Net Loss $(348,921) $(1,503,069)
Loss Per Common Share $(0.17) $(0.39)
Weighted Average Shares 2,070,821 3,854,730
The accompanying notes are an integral part of these financial statements.
Page F-3
ISO BLOCK PRODUCTS USA, INC.
CONSOLIDATED COMPARATIVE STATEMENT OF
STOCKHOOLDERS' EQUITY
Preferred Common Accum-
Stock Stock Lated
Shares Amount Shares Amount Deficit Total
Balance at ------ ------ ------ ------ ------- -----
April 1,
1996 924,000 $739,200 3,185,821 $1,436,055 $(831,889) $1,343,366
Issue of
Preferred
Shares 524,610 688,500 688,500
Issue of
Common
Stock 622,500 36,000 36,000
Foreign
Exchange
(loss) (158,692) (158,692)
Retirement
of Common
Stock (1,737,500) - -
Acquisition
of Sub-
sidiaries 501 (17,938) (17,437)
Net (loss)
of Year - - - - (348,921) (348,921)
Balance at
March 31,
1997 1,448,610 1,427,700 2,070,821 1,472,556 (1,357,440) 1,542,816
Issue of
Preferred
Shares 32,370 31,898 31,898
Issue of
Common
Shares 419,299 50,000 50,000
Conversion
of Preferred
Shares to
Common
Shares (1,364,610) (1,344,908)1,364,610 1,344,908 -
Net (loss)
for Year - - - - (1,503,069) (1,503,069)
Balance at
March 31,
1998 116,370 $114,690 3,854,730 $2,867,464 $(2,860,509) $121,645
The accompanying notes are an integral part of these financial
statements.
Page F-4
ISO BLOCK PRODUCTS USA, INC.
CONSOLIDATED COMPARATIVE
STATEMENT OF CASH FLOWS
March 31,
Cash Flow From Operating Activities 1997 1998
- ------------------------------------ ---- ----
Net Income (loss) $(348,921) $(1,503,069)
Depreciation 36 2,154
Loss on disposition of equipment 2,128 -
Accounts receivable- trade - (135,850)
Mortgages receivable 159,034 1,160,390
Inventory-work in process (72,033) (163,461)
Deposits - (2,551)
Accounts payable 6,737 67,962
Accrued interest-payable - 14,349
----------- ------------
Net Cash Used in Operating
Activities 46,228 (560,076)
Cash Flows Investing Activities
- -------------------------------
Purchase of Property & Equipment (2,717) (20,484)
Purchase of Franchise & License Rights - (114,233)
----------- -------------
Net Cash Flows From
Investing Activities (2,717) (134,717)
Cash Flows From Financing Activities
- ------------------------------------
Proceeds From Preferred Stock 688,500 31,898
Proceeds From Common Stock 36,501 50,000
Proceeds From Notes Payable - 310,360
Proceeds From Capitalizeed Lease - 14,871
Payments on Capitalized Lease - (11,033)
Acquisition-retained earnings (deficit) (17,938) -
Foreign Exchange Gains (losses) (158,692) -
----------- -----------
Net Cash Provided by (used in)
Financing activities 548,371 396,096
Net Increase (decrease) in Cash 292,635 (298,697)
Cash-Beginning of Year $10,296 $302,931
Cash-End of Year $302,931 $4,234
The accompanying notes are an integral part of these financial statements.
Page F-5
ISO BLOCK PRODUCTS USA, INC.
NOTES TO CONSOLIDATED
COMPARATVIE FINANCIAL STATEMENTS
For the Years Ended March 31, 1997 and 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Company Description
The Company was incorporated on April 28, 1986 under the laws of the
State of Colorado under the name of Champion Computer Rentals, Inc.
The Company's Articles of Incorporation were amended to change the
name of the corporation to ISO Block Products USA, Inc. from
Champion Computer Rentals, Inc. effective on September 21, 1994.
Settlement Agreement
Effective November 22, 1996, ISO Block Products USA, Inc. entered
into a Settlement Agreement with Josef Ratey, Helge Seidel, and R-S
Plus Investment Corp., a Florida corporation. The Settlement
Agreement provides for the cancellation of certain shares issued
pursuit to an Agreement and Plan of Reorganization dated March 28,
1994 among the Company, R-S ISO-Block Produktions GmBH, a
Germany limited liability company, Ratey, Seidel and R-S
Plus, in which the Company purchased from Ratey and Seidel all of the
equity interest in ISO-Block GmBH, and purchased from R-S Plus all
of its rights, title and interest in and to ISO-Block GmBH, including all
R-S Plus property theretofore contributed to ISO-Block GmBH
and all R-S Plus rights to ISO-Block GmBH profits, in exchange for the
issuance of an aggregate of 2,000,000 shares of the Company's
authorized but heretofore unissued common stock, no par value.
The Exchange shares were issued in the following proportions:
1,000,000 shares to R-S Plus, 900,000 shares to Ratey, and 100,000
shares to Seidel, and a total of 300,000 of the shares issued
to R-S Plus subsequently were transferred to two individuals. In
addition, Ratey, Seidel and R-S Plus received options pursuant to the
Exchange Agreement for a two year period to purchase an
aggregate of not more than 1,000,000 shares of the Company. Pursuant
to the Settlement Agreement, such options were cancelled and voided.
Of the 2,000,000 Exchange Shares originally issued, an aggregate of
1,737,500 shares were cancelled and voided as follows:
1. All 100,000 of the Exchange Shares issued to Seidel.
2. 650,000 shares of the Exchange Shares issued Ratey.
3. 987,500 shares of Exchange Shares issued to R-S Plus.
The Settlement Agreement also provided for the issuance and delivery
to Ratey of options to purchase an aggregate of 240,000 shares of the
common stock of the Company at the price of Eighty Cents (U.S. $.80)
per share for a period of two years from the effective date of the
Agreement.
Page 6
ISO BLOCK PRODUCTS USA, INC.
NOTES TO CONSOLIDATED
COMPARATVIE FINANCIAL STATEMENTS
For the Years Ended March 31, 1997 and 1998
Franchising Operations
Effective January 24, 1997, ISO acquired 100% stock of Franchise
Connection, Inc. and its wholly owned subsidiary Brilliant Marketing,
Inc. The Acquisition was accounted for as a purchase by ISO and the
accompanying financial statements present historical results of ISO and
include Franchise Connection, Inc. and Brilliant Marketing, Inc.
activities from the effective date of the acquisition.
Franchise Connection, Inc. was incorporated in Colorado in 1996 with
headquarters in Denver, Colorado. The Company plans to form
strategic partnerships with prospective or existing franchise operations
(Franchisors) under which it will provide them with marketing and
sales services plus business and legal services in return for an equity
interests in, and / or a portion of their royalties. It is targeting private
companies, which are seeking to franchise expertise or financial
capacity to successfully engage in franchising. The Company will offer
comprehensive franchise marketing and consulting services to its
franchisor companies including operations, personnel, management
training, legal and financial advice. In addition, Franchise Connection
will assume total responsibility for the recruitment of franchisees. This
will include national media advertising, trade show attendance and
other forms of promotion.
In the evaluation of a prospective Franchisor, the Company will
generally be guided by a number of factors, including analysis of a
prospect's financial position, the experience of its management,
the product or service and / or concept offered and the identification of
its competitors, as well as its ability to show a profit at the franchisee
level. To date, Franchise Connection has established a strategic
partnership with several companies which will be the initial
base franchises. Franchise Connection receives a franchise sales
commission plus has varying interest in each company
ranging from full ownership to a royalty agreement. The initial base
franchises include Performance Marketing, Inc., a small business
marketing and training firm wholly owned by Franchise Connection
which offers a step-by-step, comprehensive, consistent system that is
custom designed for each client; Encore Nails, a nail salon which offers
women a nail covering which is attractive and durable using a
revolutionary, proprietary process; Hydro-Physics, a pipe
inspection service technology to inspect or locate underground water
and sewer pipe breakages; Foot Lab, a full service, compact, self
contained, insole foot bed manufacturing station which can
produce a foot platform that is custom shaped to a person's foot; and
Larson Learning Centers, a program of supplemental education,
offering a development and enrichment in all core academic
subjects as well as basic skills in reading, writing and math.
Currently, Franchise Connection, Inc. is in the development of Magna
Dry, LLC. Franchise Connection, Inc. has formed a Colorado Limited
Liability Company, Magna-Dry USA, LLC of which it is the sole
member. Magna-Dry USA has purchased the exclusive license to
operate and franchise the Magna-Dry concept in total cleaning
throughout the United States. Franchise Connection, Inc. has executed a
five year license agreement with continous two year renewal
options and has paid the master franchise fee. Franchise Connection,
Inc. has agreed to pay an ongoing license fee throughout the agreement.
The principal business
Page 7
ISO BLOCK PRODUCTS USA, INC.
NOTES TO CONSOLIDATED
COMPARATVIE FINANCIAL STATEMENTS
For the Years Ended March 31, 1997 and 1998
is the manufacturing, re-packaging, distribution and licensing of
leading edge environmentally safe cleaning services developed by
Australian formulator Charles C. Borg. Franchise Connection, Inc.
enjoys exclusive territorial rights to manufacture and distribute
Magna-Dry products in the Unites States. Unlike competitors using
conventional wet or shampoo cleaning methods, Magna-Dry employs a
cleaning process with magnetic ionization technology that
cleans faster and more efficiently. It is a proven system that is safe, fast
and reliable and suitable for cleaning carpets, curtains, upholstery and
mattresses of all material types.
Settlement Agreement
The Company and its President, Egin Bresnig, had been named as
defendants in Texas Finance, Incorporated v. ISO Block Products USA,
Inc., et al, filed in the United States District Court for the District of
Colorado, Civil Action No.96-WM-1961. On October 7, 1997, Texas
Finance Incorporated and ISO Block Production USA, Inc. et al entered
into a settlement agreement in which the Company agreed to pay part
of plaintiff's attorney fees of $5,000 and additionally to issue plaintiff et
al shares of the Company's restricted common stock. On October 9,
1997, the United States Districts Court for the District of Colorado
issued Notice of Dismissal. The case was dismissed with prejudice,
with each of the parties bearing its own costs and attorney fees.
The Company is not subject to any pending or threatened legal
proceedings.
Consolidation
The financial statements include the accounts of ISO and its
wholly-owned subsidiaries Franchise Connection, Inc.,, Brilliant
Marketing, Inc., and Magna Dry, Inc. All significant
inter-company balances have been eliminated in consolidation.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of mortgages receivable.
The Company's mortgages receivable are concentrated in German real
estate and are concentrated in a limited number of borrowers. The
mortgages are from high quality entities and secured by high value real
estate to limit the Company's exposure to concentrations of credit risk.
The Company's mortgages receivable are classified as available for sale
as the Company does not have the positive intent to hold to maturity or
does not intend to trade actively. These securities are reported at fair
value with unrealized gains and losses reported as a.net amount as a
separate component of stockholders' equity.
Page 8
ISO BLOCK PRODUCTS USA, INC.
NOTES TO CONSOLIDATED
COMPARATVIE FINANCIAL STATEMENTS
For the Years Ended March 31, 1997 and 1998
During 1998, the Company began foreclosure proceedings in Germany
on most of its mortgages receivable. Although legal counsel handling
the case for the Company believes that a favorable outcome will be
reached, no one can say when or if all of the approximately $1,153,000
will be recovered. Therefore the Company has decided to treat the
mortgages as bad debts until such time as the foreclosure has been
settled.
Cash
All amounts are stated in U.S. dollars.
Property & Equipment
Property & equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of the assets.
Income Taxes
The Company has no current or deferred income tax liability due to
accumulated losses during the development stage- The Company has
not operating losses totaling $1,357,440 and $2,860,509, respectively,
which are available to offset future taxable income. These NOL's
expire through 2005.
Foreign Currency Translation
The functional currency for the Company's foreign operations is the
applicable local currency. The translation of the applicable foreign
currency into U.S. Dollars is performed for the balance sheet accounts
using current exchange rates in effect at the balance sheet date and for
revenue and expense accounts using a weighted average exchange rate
during the period. The gains or losses resulting from such translation
are included in stockholders, equity.
Income (Loss) Per Common Stock
Income (loss) per common share is based upon the weighted average
number of common shares outstanding during each period.
Page 9
ISO BLOCK PRODUCTS USA, INC.
NOTES TO CONSOLIDATED
COMPARATVIE FINANCIAL STATEMENTS
For the Years Ended March 31, 1997 and 1998
NOTE 2. STOCKHOLDERS' EQUITY
Effective December 31, 1993, the Company adopted a 1993
Compensatory Stock Option Plan with 500,000 common shares
reserved for issuance and a 1993 Employee Stock Compensation
Plan with 1,000,000 common shares reserved for issuance. No options
or shares have been granted under either plan,
NOTE 3. NOTE RECEIVABLE - OFFICER
The Company loaned the President of the company, Egin Bresnig,
$2,000.00. The note bears interest at 6% per annum and is due on
March 1, 1999.
NOTE 4. INVENTORY WORK IN PROCESS
Inventory is recorded at cost, on a first-in, first-out basis. Inventory
consists of two lots and construction costs located in Broomfield,
Colorado where the Company is constructing one home.
NOTE 5. NOTES PAYABLE
The Company has executed various notes payable with interest at 15%
per annum payable to Mr. Hal Schavet. The notes are due upon
completion of the house under construction by the Company in
Broomfield, Colorado. The notes are secured by property and house.
The balance outstanding at March 31, 1998 was $135,000.
On December 1, 1997, The Company executed a promissory note
payable with interest at 3.5% per annum payable to Mr. Hal Schavet
and Phyllis Schavet. The Company commits to the payment of $50,000
of the first $125,000 received from the sale of any country, area or local
Magna-Dry franchises as principal payment. The Company also
commits to the payment to the Payee of 10% of the net proceeds
received from the sale of any country, area or local Magna-Dry
Franchise until these payments total 20% or $20,000 which shall be
designated as interest payments. After such event, the Promisor
commits to the payment of 5% of the net proceeds received' from the
sale of any country, area or local Magna-Dry franchise until these
payments total 10% or $10,000 which shall be designated as interest
payments. The note is due in full on or before November 30, 1998.
The Promisor shall retain Payee as a Financial Consultant for a
minimum of twelve months and shall pay a financial consultant fee of
$250 per month.
Page 10
ISO BLOCK PRODUCTS USA, INC.
NOTES TO CONSOLIDATED
COMPARATVIE FINANCIAL STATEMENTS
For the Years Ended March 31, 1997 and 1998
The Promisor shall issue to Payee, Options to purchase 50,000 shares
of ISO Block Products USA, Inc. common stock (restricted under Rule
144 as designated by the United States Securities and Exchange
Commission) at an option price of $.80 per share.
The total principal outstanding at March 31, 199B was $100,000.
On October 6, 1997, the Company signed a promissory note payable to
Elaine Wicker with interest payable at 20% per annum. The note is
secured by the house and lot the Company is constructing in
Broomfield, Colorado. The note is due upon the completion and sale of
the house. The balance outstanding at March 31, 1998 was $25,000.
On October 1, 1997, the Company signed a letter of agreement payable
to Elaine Wicker. The letter of agreement provides that for the advance
sum of $25,000 to Magna-Dry, USA, LLC, Magna-Dry USA, LLC will
be obligated to paying to Elaine Wicker 50% of any franchise fees
received by Magna-Dry USA, LLC until the total amount of $25,000 is
repaid.
Magna-Dry USA, LLC also grants to Elaine Wicker an interest equal to
50% in any franchise operated by Magna-Dry USA, LLC in the greater
Denver Metro Area.
The Company has executed two notes payable to Ada Wilson totaling
$50,360 payable with interest at 15% per annum.
Total notes payable at March 31, 1998 $310,360.
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed with this report, except
those indicated as having previously been filed with the Securities and
Exchange Commission and which are incorporated by reference to
another report, registration statement or form. As to any shareholder of
record requesting a copy of this report, the Company will furnish any
exhibit indicated in the list below as filed with this report (not
incorporated by reference) upon payment to the Company of its
expenses in furnishing the information. References to the "Company"
mean ISO-BLOCK PRODUCTS USA, INC. (formerly named
Champion Computer Rentals, Inc.).
Page 11
2.0 Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
2.1 Agreement and Plan of Reorganization dated March 28, 1994
(incorporated by reference to Exhibit 2.1 to Form 8-K dated March
28, 1994)..................................................... *
3.0 Articles and Bylaws
3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to registration statement on Form S-18 of
Champion Computer Rentals, Inc., file no. (33-23257-D)......... *
3.3 Bylaws of the Company (incorporated by reference to Exhibit on
Form 10-KSB for fiscal year ended 1993)...................... *
3.4 Certificate of Amendment and Restatement to Articles of
Incorporation (incorporated by reference to Exhibit 3.4 to Form
8-K dated February 10, 1994)................................... *
3.5 Certificate of Amendment to Articles of Incorporation, changing
the Company's name to Iso-Block Products USA, Inc.
(incorporated by reference to Exhibit 2 to registration
statement on Form 8-A, file no. 0-25810)...................... *
3.6 Certificate of Designation Establishing Series A, Non-Voting
Convertible Preferred Stock, as filed with the Colorado Secretary
of State on May 19, 1995 ...................................... 1
3.7 Certificate of Designation Establishing Series B, Non-Voting
Convertible Preferred Stock, as filed with the Colorado Secretary
of State on May 26, 1995 ...................................... 1
3.8 Certificate of Amendment to Certificate of Designation
Establishing Series C, Non-Voting Convertible Preferred Stock, as
filed with the Colorado Secretary of State on June 26,
1995.......................................................... 1
3.9 Certificate of Designation Establishing Series 1996, Non-Voting
Convertible Preferred Stock (incorporated by reference to Exhibit
3.1 to Form 8-K dated January 24, 1997)....................... *
4.0 Instruments Establishing Rights of Security Holders
4.1 Specimen common stock certificate of the Company (incorporated
by reference to Exhibit 4.1 to registration statement on Form S-18
of Champion Computer Rentals, Inc., file no. 33-23257-D)...... *
4.2 Specimen Series A, Non-Voting Convertible Preferred Stock
certificate................................................... 1
4.3 Specimen Series B, Non-Voting Convertible Preferred Stock
certificate .................................................. 1
4.4 Specimen Series C, Non-Voting Convertible Preferred Stock
certificate................................................... 1
4.5 Specimen Series 1996, Non-Voting Convertible Preferred Stock
certificate .................................................. 1
Page 12
10.0 Material Exhibits
10.1 1993 Compensatory Stock Option Plan (incorporated by
reference to Exhibit 10.1 to Form 8-K dated February 10,
1994)........................................................ *
10.2 1993 Employee Stock Compensation Plan (incorporated by
reference to Exhibit 10.2 to Form 8-K dated February 10,
1994)........................................................ *
10.3 Settlement Agreement dated November 19, 1996 (incorporated by
reference to Exhibit 10 to Form 8-K dated November 22,
1996)........................................................ *
10.4 Stock Option dated November 19, 1996 (incorporated by
reference to Exhibit 4 to Form 8-K dated November 22,
1996)........................................................ *
10.5 Exchange Agreement and Plan of Reorganization dated December
27, 1996 (incorporated by reference to Exhibit 2.1 to Form 8-K
dated January 24, 1997)...................................... *
10.6 Employment Agreement dated December 27, 1996
(incorporated by reference to Exhibit 10.1 to Form
8-K dated January 24, 1997).................................. *
EX-27 FINANCIAL DATA SCHEDULE
* - Incorporated by reference to another registration statement, report
or document.
1 - Includes Exhibits filed as part of this Report.
(b) Reports on Form 8-K.
None.
(c ) Financial Statements.
The index to the financial statements appears at page F-1.
SIGNATURES
In accordance with section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this Annual Report on Form 10-KSB to
be signed on its behalf by the undersigned, thereto duly authorized
individual.
ISO BLOCK PRODUCTS USA, INC.
/s/ Egin Bresnig
By:______________________________
Egin Bresnig
President
and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Egin Bresnig Dir, President,
Egin Bresnig Chief Executive Officer April 26. 1999
/s/ Dean Wicker Director,
Dean Wicker Chief Financial Officer April 26, 1999
/s/ Johnny M. Wilson Director April 26, 1999
Johnny M. Wilson
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM 10-KSB FOR THE PERIOD
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
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<RECEIVABLES> 16,200
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<CURRENT-ASSETS> 393,778
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