SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended February 28, 1998 Commission File No. 33-23430-D
VIRTUAL ENTERPRISES INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
84-1091271
(I.R.S. Employer Identification Number)
4695 MacArthur Court, Ste. 530, Newport Beach, CA
(Address of principal executive offices)
92660
(Zip Code)
(714) 833-2091
(Registrant's telephone number, including area code)
2 Park Plaza, Suite 470, Irvine, California
(Former Address, if changed since last report)
92614
(Former Zip Code, if changed since last report)
N/A
(Former telephone number, if changed since last report)
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 for 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.
Yes No X
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 15, 1998, there were 799,372 shares of the Registrant's no
par value common stock issued and outstanding. There were also outstanding
warrants to purchase up to 668,000 shares of the Registrant's common stock.
There has been no bid or asked prices of the Registrant's common stock quoted in
any market since September 6, 1990.
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VIRTUAL ENTERPRISES INC.
INDEX
Page
PART I
Item 1. Financial Statements
Balance Sheets - February 28, 1998 ..............................1
Statements of Operations - Three and Nine Months Ended
February 28, 1998 and 1997....................................2
Statements of Cash Flows - Nine Months Ended
February 28, 1998 and 1997....................................3
Notes to Financial Statements....................................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................7
PART II
Item 1. Legal Proceedings................................................9
Item 2. Changes In Securities............................................9
Item 3. Defaults Upon Senior Securities..................................9
Item 4. Submission of Matters to a Vote of Security Holders..............9
Item 5. Other Information................................................9
Item 6. Exhibits and Reports on Form 8-K.................................9
I
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<TABLE>
<CAPTION>
VIRTUAL ENTERPRISES INC.
Balance Sheet
As of February 28, 1998 (Unaudited)
February 28,
1998
(Unaudited)
----------------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 14
----------------------
Total Current Assets 14
TOTAL ASSETS $ 14
======================
Current Liabilities:
Accounts payable and accrued expenses $ 34,039
Due to affiliates 388,292
----------------------
Total Current Liabilities 422,331
Stockholders' Deficiency:
Common stock - $.01 par value; 50,000,000 shares authorized;
799,372 shares issued and outstanding 7,994
Additional paid-in capital 432,948
Accumulated deficit (728,750)
Treasury stock (98,795 Shares, at Cost) (24,845)
-----------------------
Total Stockholders' Deficiency (422,317)
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 14
=======================
</TABLE>
See accompanying notes to these financial statements
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<TABLE>
<CAPTION>
VIRTUAL ENTERPRISES INC.
Statements of Operations
For the Three and Nine Months Ended
February 28, 1998 and 1997(Unaudited)
For the Three Months Ended For the Nine Months Ended,
February 28, February 28,
------------------- ------------------- ------------------ ------------------
1998 1997 1998 1997
------------------- ------------------- ------------------ ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Costs and expenses:
General and administrative $ 30,282 $ (105,376) $ 109,664 $ (33,428)
------------------- ------------------- ------------------ ------------------
Totals 30,282 (105,376) 109,664 (33,428)
------------------- ------------------- ------------------ ------------------
Net income (loss) $ (30,282) $ 105,376 $ (109,664) $ 33,428
=================== =================== ================== ==================
Net income (loss) per common share $ (.04) $ .13 $ (.14) $ .04
=================== =================== ================== ==================
Weighted average common
shares outstanding 799,372 799,372 799,372 799,372
=================== =================== ================== ==================
</TABLE>
See accompanying notes to these financial statements
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<TABLE>
<CAPTION>
VIRTUAL ENTERPRISES INC.
Statements of Cash Flows
For the Nine Months Ended February 28, 1998 and 1997 (Unaudited)
Nine Months Ended February 28,
1998 1997
------------------------ ---------------------
(Unaudited) (Unaudited)
------------------------ ---------------------
<S> <C> <C>
Operating activities:
Net income (loss) $ (109,664) $ 33,428
Adjustments to reconcile net income (loss) to net
cash provided (used) in operating activities:
Increase (decrease) from changes in:
Accounts payable and accrued expenses 5,980 (1,146)
Due to affiliate 103,686 (34,300)
------------------------ ---------------------
Net cash provided (used) in operating activities 2 (2,018)
------------------------ ---------------------
Net increase (decrease) in cash and cash equivalents 2 (2,018)
Cash and cash equivalents, beginning of period 12 51
------------------------ --------------------
Cash and cash equivalents, end of period $ 14 $ (2,069)
======================== =====================
Supplemental Disclosure:
Cash payments for income taxes $ - $ -
Cash payments for interest $ - $ -
</TABLE>
See accompanying notes to these financial statements
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VIRTUAL ENTERPRISES INC.
NOTES TO FINANCIAL STATEMENTS
February 28, 1998
Note 1. Summary of Significant Accounting Policies
Business and Organization
The Company was incorporated in June, 1989 as a Colorado corporation. The
Company was primarily engaged in the acquisition, maintenance and operation of
television stations in various states through 1992.
In August 1992, the Company sold its Sunbelt Media Group ("Sunbelt") division,
operating the television stations, to a majority stockholder of the Company.
Since August 1992 through the date of this report, the Company has had no
operations and management is seeking a merger and/or sale of controlling
interest in its stock.
In September 1994, the Company's shareholders voted to effect a 1 for 1000
reverse split of the Company's issued and outstanding common stock. The split
was implemented through a merger with a newly formed Nevada corporation. The
accompanying financial statements have been retroactively restated to reflect
the merger including the change from no par value common stock to $.01 par value
common stock. In connection with the merger and reverse split, the Company's
authorized number of shares was reduced from 785,000,000 to 50,000,000.
Effective October 8, 1996, the Company's Articles of Incorporation were amended
to change the name of the Company from The Toen Group Inc. to Virtual
Enterprises Inc.
Principals of Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
Income Taxes
The Company accounts for income taxes using the liability method. Income taxes
are provided on all revenue and expense items, regardless of the period in which
such items are recognized for tax purposes, except for those items representing
a permanent difference between pre-tax income and taxable income. A valuation
allowance is recorded when it is more likely than not that benefits resulting
from deferred tax assets will not be realized.
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VIRTUAL ENTERPRISES INC.
NOTES TO FINANCIAL STATEMENTS
February 28, 1998
Earnings (Loss) Per Common Share
Net income (loss) per common share is calculated by dividing net income (loss)
by the weighted average number of shares outstanding during each year. All per
share amounts are reported as adjusted after the merger and resulting reverse
stock split. Common stock equivalents were not considered in the loss per share
calculations as the effect would have been anti dilutive.
Issuance of Stock for Services
Shares of the Company's common stock issued for services are recorded in
accordance with APB16 at the fair market value of the stock issued or the fair
market of the services provided, whichever value is the more clearly evident.
The value of the services are typically stipulated by contract.
Reclassification of Prior Year Amounts
To enhance comparability, the fiscal 1996 financial statements have been
reclassified, where appropriate, to conform with the financial statements
presentation used in fiscal 1997.
Note 2. Going Concern
The Company has experienced recurring net losses, has limited liquid resources,
negative working capital and its primary operating subsidiary was liquidated
during fiscal year 1993. Management's intent is to keep searching for additional
sources of capital and new operating opportunities. In the interim, the Company
will keep operating with minimal overhead and key administrative functions will
be provided by NuVen Advisors, Inc., an affiliate ("NuVen"). It is estimated
that NuVen will have to contribute future financial support for the Company to
exist for the next fiscal year. Accordingly, the accompanying consolidated
financial statements have been presented under the assumption the Company would
continue as a going Concern.
Note 3. Federal Incomes Taxes
The Company accounts for income taxes using the liability method. The Company
has net operating loss carryforwards as of May 31, 1997 of approximately
$729,000, which expire at various times from 1999 through 2009, and are
available to reduce future Federal taxable income, if any.
As a result of a change in ownership that occurred in fiscal year 1993, the
Company's use of net operating loss carryforwards may be limited by section 382
of the Internal Revenue Code until such net operating loss carryforwards expire.
Deferred tax assets have been computed using the maximum expiration terms of 13
to 5 years for federal and state tax purposes, respectively.
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VIRTUAL ENTERPRISES INC.
NOTES TO FINANCIAL STATEMENTS
February 28, 1998
The deferred tax benefit applicable to the net operating loss carryforwards has
been offset by a 100% valuation reserve since it is more likely than not that
the Company will not recognize any tax benefit from the net operating loss
carryforwards.
Note 4. Capital Stock
In September 1994 the Company's shareholders voted to effect a 1 for 1000
reverse split of the Company's issued and outstanding common stock. The split
was implemented through a merger with a newly formed Nevada corporation. The
accompanying financial statements have been retroactively restated to reflect
the merger including the change from no par value common stock to $.01 par value
common stock. In connection with the merger and reverse split, the Company's
authorized number of shares was reduced from 785,000,000 to 50,000,000. There
are presently outstanding warrants to purchase 668,000 shares of common stock.
The warrants are exercisable at $5.00 per share.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Going Concern
The Company has experienced recurring net losses, has limited liquid
resources, and negative working capital. Management's intent is to
continue searching for additional sources of capital and the Company
intends to continue operating with minimal overhead and key
administrative functions provided by consultants who are compensated in
the form of the Company's common stock. It is estimated, based upon its
historical operating expenses and current obligations, that the Company
may need to utilize its common stock for future financial support to
finance its needs during fiscal 1998. Accordingly, the accompanying
consolidated financial statements have been presented under the
assumption the Company will continue as a going concern.
Results of Operations
Quarter Ended February 28, 1998 Compared to Quarter Ended February 28,
1997
There were no operations during the quarter ended February 28, 1998 and
as such, there were no revenues or cost of revenues recorded during the
current quarter.
General and administrative expenses was $30,282 in the current quarter
compared to $105,376 credit in the comparable period last year. The
change is attributable to continued services provided by professional
consultants and other advisors offset by a credit received by a
consultant due to minimal services provided.
Results of Operations
Nine Months Ended February 28, 1998 Compared to Nine Months Ended
February 28, 1997
There were no operations during the period ended February 28, 1998 and
as such, there were no revenues or cost of revenues recorded during the
current quarter.
General and administrative expenses were $109,664 in the current period
compared to $33,428 credit in the comparable period last year. The
change is attributable to continued services provided by professional
consultants and other advisors offset by a credit received by a
consultant due to minimal services provided.
Liquidity and Capital Resources
As of February 28, 1998 the Company had a working capital deficit of
$422,317, an increase of $109,665 from May 31, 1997. The change was
attributable to the accrual of professional, consulting and advisory
fees during the quarter that were incurred but not paid.
The Company had cash balances of approximately $14 and $(2,069) at
February 28, 1998 and 1997, respectively. The limited cash balances are
a direct result of the Company having no operations during the
quarters.
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The Company's plan is to keep searching for additional sources of
capital and new operating opportunities. In the interim, the Company's
existence is dependent on continuing financial support from NuVen for
the next fiscal year. Furthermore, the Company may have to utilize its
common stock for future financial support to finance its needs. Such
conditions raise substantial doubt about the Company's ability to
continue as a going concern. As such, the Company's independent
accountants have modified their report for the Company's latest fiscal
year ended May 31, 1997 to include an explanatory paragraph with
respect to the uncertainty.
The Company has no commitments for capital expenditures or additional
equity or debt financing and no assurances can be made that its working
capital needs can be met.
Additionally, as of February 28, 1998, the Company had no operations or
employees other than its President.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
The Company knows of no significant changes in the status of
the pending litigation or claims against the Company as
described in Form 10-KSB for the Company's fiscal year ended
May 31, 1997.
Item 2. Changes In Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission Of Matters To A Vote Of Security Holders
None
Item 5. Other Information
None
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Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits:
Exhibit Number Description of Exhibit
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIRTUAL ENTERPRISES INC.
(Registrant)
Date: August 10, 1998 By: /s/ Fred G. Luke
----------------------------------
Fred G. Luke, Chairman of the Board
and President
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 14
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14
<CURRENT-LIABILITIES> 422,331
<BONDS> 0
0
0
<COMMON> 7,994
<OTHER-SE> (430,311)
<TOTAL-LIABILITY-AND-EQUITY> 83
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 30,282
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (30,282)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,282)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
