SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
------------
For the Fiscal Year Ended May 31, 1997 Commission file number 33-23430-D
VIRTUAL ENTERPRISES, INC.,
(formerly, The Toen Group, Inc.)
(Exact name of registrant as specified in its charter)
Nevada
(State of other jurisdiction of incorporation or organization)
84-1091271
(I.R.S. Employer Identification No.)
4695 MacArthur Court, Suite 530, Newport Beach, California 92660
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (714) 833-5362
------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
At March 31, 1998, 799,372 shares of 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.
Documents Incorporated by Reference:
None
[VEI\10KSB\53197.10K]-4
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TABLE OF CONTENTS
Page
PART I
Item 1. Business ...................................................1
Item 2. Properties..................................................2
Item 3. Legal Proceedings...........................................2
Item 4. Submission of Matters to a Vote of Security Holders.........2
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder matters .......................................2
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................3
Item 7. Financial Statements........................................4
Item 8. Change in and Disagreements With Accountants................4
PART III
Item 9. Directors and Executive Officers............................5
Item 10. Executive Compensation......................................7
Item 11. Security Ownership of Certain Beneficial Owners and
Management ................................................10
Item 12. Certain Relationships and Related Transactions..............12
PART IV
Item 13. Exhibits and Reports on Form 8-K............................13
Index to Consolidated Financial Statements and Schedules....F-1
[VEI\10KSB\53197.10K]-4
<PAGE>
PART I
ITEM 1. BUSINESS
Virtual Enterprises, Inc., (formerly, The Toen Group, Inc.) (the
"Registrant" or the "Company") was incorporated in the State of Colorado on June
10, 1988 for the purpose of searching for, evaluating and acquiring an interest
in one or more business opportunities. On December 3, 1989, the Company
completed a public offering of its stock pursuant to a Registration Statement on
Form S-18 filed with the Denver Regional Office of the Securities and Exchange
Commission ("SEC"). The Company, through an underwriter, sold a total of
50,000,000 shares of the its no par value common stock and redeemable common
stock purchase warrants ("Warrants") which entitle the holders to purchase
162,000,000 additional shares of common stock at a later date.
On March 9, 1990, the Company completed an agreement to exchange its
common stock for all of the issued and outstanding capital stock of Sunbelt
Media Group Inc. ("Sunbelt"). Pursuant to the terms of the agreement with the
shareholders of Sunbelt, the Company issued 278,400,000 shares of its common
stock in exchange for all the outstanding shares of common stock of Sunbelt
following which Sunbelt became a wholly-owned subsidiary of the Company. From
March 1990 to October 1992 Sunbelt owned, operated, and provided programming to
low power television stations and related businesses. The Company discontinued
the Sunbelt business in October 1992 and sold all the assets associated with the
operation of Sunbelt to William J. Kitchen ("Kitchen") in consideration of 1)
Kitchen's forgiveness of notes and other obligations owed to Kitchen by the
Registrant; and 2) Kitchen's assumption of miscellaneous debts of Sunbelt.
Pursuant to the sale, Kitchen also re-conveyed back to the Company 98,795,000
shares of the its common stock for cancellation. Since October 1992 the Company
has not had any revenues or operations.
The Company is currently in the process of seeking the acquisition of
or merger with a business entity or entities. The Registrant's day-to-day
business affairs are handled by two directors and three officers. Executive
compensation has been accrued but not paid to them or to any other employees or
consultants during the fiscal year ended May 31, 1997. As of the filing date of
this Report the Registrant had one employee and no operations. Current
management is pursuing business opportunities, but no assurance can be given
that the Registrant will be successful in acquiring any business opportunities,
or if acquired, what revenues might be provided from such operations.
On August 31, 1992 Jeffrey Paul Stroud ("Stroud") acquired 173,995,000
shares of the Registrant's common stock, representing 51% of the then issued and
outstanding shares, from Kitchen. Stroud also acquired the Warrants from
Kitchen. In March 1993 Stroud sold the 173,995,000 shares of the Registrant's
common stock and the Warrants.
On June 17, 1993 the Registrant's then existing Board of Directors
resigned and Fred G. Luke and Jon L. Lawver were appointed as replacement
Directors. The outgoing Board also elected Fred G. Luke as President of the
Registrant and Jon L. Lawver as Secretary, Treasurer and Chief Financial
Officer.
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.
[VEI\10KSB\53197.10K]-4
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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, exercisable at
$5.00 per share.
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.
As used herein, the term "Company" or the "Registrant" refers to
Virtual Enterprises, Inc., (formerly The Toen Group Inc.) The Registrant
currently maintains its executive offices at 4695 MacArthur Court, Suite 530,
Newport Beach, California 92660. The telephone number is (714)833-5362.
ITEM 2. PROPERTIES
The Registrant's principal executive offices are located in shared
leased premises of approximately 3,300 square feet in Newport Beach, California.
These premises are provided to the Registrant under an Advisory and Management
Agreement with NuVen Advisors, Inc. ("NuVen"), an affiliate.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this Report there are no legal proceedings to which
the Registrant is a party, or of which any of the Registrant's properties is the
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
Following the completion of the public offering on November 30, 1989
and until September 6, 1990, the Company's common stock was traded on the
over-the-counter market and reported by the National Quotation Bureau Pink
Sheets. Trading ceased on September 6, 1990. The Registrant's outstanding
securities presently consist of 799,372 shares of $.01 par value common stock
and 668,000 Warrants, following the shareholders' approval of a 1:1000 reverse
split of the Company's common stock on September 28, 1994, decreasing the number
of issued and outstanding common stock from 249,371,667 to 249,372, and a 1:250
reverse split of the Warrants, decreasing the number of issued and outstanding
Warrants from 167,000,000 to 668,000 and increasing the exercise price from $.02
per Warrant to $5.00 per Warrant. Additionally, the expiration date of the
Warrants was extended to December 31, 1997. Each Warrant currently entitles the
holder to purchase at a price of $5.00, one share of the Company's common stock.
[VEI\10KSB\53197.10K]-4
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There has not been a market bid and ask price for the Company's common
stock during the last three fiscal years as there has been no market for the
Registrant's Common Stock since September 6, 1990.
(b) Holders
The approximate number of holders of record of each class of equity
securities of the Registrant as of May 31, 1997, was as follows:
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- ----------------------------------------- --------------
$.01 Par Value Common Stock 40
Redeemable Common Stock Purchase Warrants 30
(c) Dividends
The Registrant has never declared or paid a cash dividend on its common
stock. The Registrant does not intend to pay a cash dividend in the foreseeable
future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Year Ended May 31, 1997 Compared to Year Ended May 31, 1996
There were no operations during fiscal 1997 and as such, there were no
revenues or cost of revenues recorded during fiscal 1997.
General and administrative expenses was $ (1,685) in fiscal 1997
compared to $1,761 in fiscal 1996. The change was primarily
attributable to a credit in the approximate amount of $109,000 received
from NuVen Advisors, Inc. ("NuVen"), an affiliate and contracted
advisor. Due to minimal services performed by NuVen during fiscal 1997,
the Registrant received a credit against outstanding invoices owed to
NuVen.
Liquidity and Capital Resources.
As of May 31, 1997 the Registrant had a working capital deficit of
$312,652, a decrease of $1,685 from May 31, 1996. The small decrease
was attributable to the offsetting effect of the continued accrual of
professional, consulting and advisory fees during fiscal 1997 that were
incurred but not paid and a credit received by NuVen, discussed above.
The Registrant had cash balances of approximately $12 and $51, at May
31, 1997 and 1996, respectively. The limited cash balances are a direct
result of the Registrant having no operations during fiscal year 1997.
[VEI\10KSB\53197.10K]-4
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The Registrant's plan is to keep searching for additional sources of
capital and new operating opportunities. In the interim, the
Registrant's existence is dependent on continuing financial support
from an affiliate which is estimated to be approximately $465,000 for
the next fiscal year based upon current agreements and obligations the
Company has at May 31, 1997. Furthermore, the Registrant may have to
utilize its common stock for future financial support to finance its
needs. Such conditions raise substantial doubt about the Registrant's
ability to continue as a going concern. As such, the Registrant's
independent accountants have modified their report to include an
explanatory paragraph with respect to the uncertainty.
The Registrant 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 May 31, 1997, the Registrant had no operations or
employees other than its President.
ITEM 7. FINANCIAL STATEMENTS
Financial Statements are referred to in Item 13(a), listed in the Index
to Financial Statements and filed and included elsewhere herein as a part of
this Annual Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Following May 31, 1990, Jerome W. Karsh & Co. resigned as the
Registrant's principal accountants. In April, 1993, the Registrant notified
O'Neal & White of its appointment as the Registrant's principal independent
accountants. On July 19, 1995, C. Williams & Associates replaced O'Neal & White
as the Registrant's principal accountants. On April 24, 1996, Spurgeon, Kang &
Associates replaced C.
Williams & Associates as the Registrant's principal accountants.
The Reports of Spurgeon, Kang & Associates with respect to the 1994 and
1995 fiscal years financial statements include an explanatory paragraph with
respect to the substantial doubt existing about the ability of the Company to
continue as a going concern due to its recurring net losses, negative cash flows
from operating activities since its inception, limited liquid resources and
negative working capital.
Mr. Charles R. Williams, one of the principals of C. Williams &
Associates, was advised by the Texas State Board of Public Accountancy in a
letter dated January 29, 1996, addressed to the Chief Accountant of the Division
of Corporation Finance of the Securities and Exchange Commission (the
"Commission"), that his certificate as a Certified Public Accountant was revoked
effective as of May 18, 1995, which was subsequently revised to provide for a
revocation date as of March 2, 1995. The Chief Accountant of the Division of
Corporation Finance advised Mr. Williams by means of a letter dated February 7,
1996, that the Commission does not recognize any person as a certified public
accountant who is not duly registered and in good standing as such under the
laws of the place of his residence or principal office as of March 2, 1995. No
opinion on the Registrant's financial statements was ever issued by C. Williams
& Associates.
In connection with the audit for the fiscal year ended May 31, 1990,
and for the period from June 10, 1988, to May 31, 1990, there were no
disagreements between the Registrant and Jerome W. Karsh & Co. on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
Jerome W. Karsh & Co. would have caused it to make reference in connection with
its report.
[VEI\10KSB\53197.10K]-4
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<PAGE>
None of the reports of Jerome W. Karsh & Co. on the Registrant's
financial statements contained an adverse opinion or a disclaimer of opinion or
was qualified as to uncertainty, audit scope, or accounting principles except
that the opinion was qualified by the assumption that the Registrant would
continue as a going concern.
The decision to change principal independent accountants was made by
the Registrant's Board of Directors.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
(a) Identification of Directors and Executive Officers.
The following table furnishes the information concerning the directors
and executive officers of the Registrant as of May 31, 1997. The directors of
the Registrant are elected every year and serve until their successors are
elected and qualify.
<TABLE>
<CAPTION>
Period Served as Officer Period Served
Name Age Director Position as Officer
- --------------- --- ------------------- ----------------------- -------------------
<S> <C> <C> <C> <C>
Fred G. Luke 50 6-17-93 to Present President 6-17-93 to Present
Jon L. Lawver 58 6-17-93 to Present Secretary, 6-17-93 to Present
Chief Financial Officer 6-17-93 to 4-24-96
John D. Desbrow 41 9-28-94 to 5-9-97 N/A N/A
Steven H. Dong 30 N/A Chief Financial Officer 4-24-96 to 6-30-97
</TABLE>
(b) Business Experience.
The Registrant has no audit, compensation or nominating committees. No
family relationships exist between any of the officers or directors.
The officers of the Registrant are chosen by and serve at the pleasure
of the Board of Directors.
The following is a brief account of the business experience during the
past five years of each director and executive officer of the Registrant,
including principal occupations and employment during that period and the name
and principal business of any corporation or other organization in which such
occupation and employment were carried on.
[VEI\10KSB\53197.10K]-4
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<PAGE>
Fred G. Luke. Mr. Luke has been Chairman of the Board and President of
the Registrant since June, 1993. Mr. Luke has over twenty-seven (27)
years of experience in domestic and international financing and the
management of privately and publicly held companies. Since 1982, Mr.
Luke has provided consulting services and has served, for brief periods
lasting usually not more than six months, as Chief Executive Officer
and/or Chairman of the Board of various publicly held and privately
held companies in conjunction with such financial and corporate
restructuring services. In addition to his position with the
Registrant, Mr. Luke currently serves as Chairman and Chief Executive
Officer of NuOasis Resorts, Inc., (formerly, Nona Morelli's II, Inc.)
("NuOasis Resorts"), Chairman and former President of Group V
Corporation (formerly, NuOasis Gaming, Inc.) ("Group V"), Chairman and
President of NuVen Advisors, Inc., ("NuVen Advisors") formerly New
World Capital, Inc. ("New World"), Chairman and President of Hart
Industries, Inc. ("Hart"), and Chairman and President of Diversified
Land & Exploration Co. ("DL&E"). DL&E is a former publicly traded
independent natural resource development company engaged in domestic
oil and gas exploration, development and production. Prior to 1995,
DL&E was a 90% owned subsidiary of Basic Natural Resources, Inc.
("BNR"). From 1991 through 1994, Mr. Luke served as the President and a
Director of BNR. BNR is presently inactive. Hart and DL&E were formerly
in the environmental services and natural gas processing business,
respectively. Hart is a public company which was formerly traded on
NASDAQ or the OTC Bulletin Board. Hart does not have ongoing
operations. Nona is a publicly traded (OTC Bulletin Board) diversified
holding company with overseas gaming and domestic pasta production
subsidiaries. NuOasis Gaming is a publicly traded (OTC Bulletin Board)
holding company with domestic gaming development activities. NuVen
Advisors provides managerial, acquisition and administrative services
to public and private companies including the Registrant, Nona, NuOasis
Gaming and Hart pursuant to independent Advisory and Management
Agreements. NuVen Advisors, which is controlled by Fred G. Luke, as
Trustee of the Luke Family Trust, is an affiliate of the Registrant.
NuVen Advisors is a stockholder of Hart, DL&E, NuOasis Gaming and Nona,
and beneficial stockholder of the Registrant. Mr. Luke also served from
1973 through 1985 as President of American Energy Corporation, a
privately held oil and gas company involved in the operation of
domestic oil and gas properties. From 1970 through 1985 Mr. Luke served
as an officer and Director of Eurasia, Inc., a private equipment
leasing company specializing in oil and gas industry equipment. Mr.
Luke received a Bachelor of Arts Degree in Mathematics from California
State University, San Jose in 1969.
Jon L. Lawver, has been Secretary and a Director of the Registrant
since June, 1993 and was Chief Financial Officer from June 1993 to
April 24, 1996. Mr. Lawver has twenty-two (22) years of experience in
the area of bank financing where he has assisted medium size companies
($5 million to $15 million) by providing expertise in documentation
preparation and locating financing for expansion requirements. Mr.
Lawver was with Bank of America from 1961 to 1970, ending his
employment as Vice President and Manager of one of its branches. From
1970 to present Mr. Lawver has served as President and a Director of
J.L. Lawver Corp., a financial consulting firm. Since 1988 Mr. Lawver
has served as President and a Director of Eurasia, a private finance
equipment leasing company specializing in oil and gas industry
equipment. Mr. Lawver also serves as an executive officer of one of
NuOasis Resort's wholly-owned subsidiaries.
John D. Desbrow, served as a Director of the Registrant from September
28, 1994 to May 29, 1997. Mr. Desbrow also previously served as
Director and Secretary of Hart Industries, Inc, Secretary and Director
of NuOasis Resorts, Inc., and, Secretary and Director of Group V. Mr.
Desbrow is a member in good standing of the State Bar of California and
has been since 1980.
[VEI\10KSB\53197.10K]-4
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<PAGE>
Prior to joining the Company Mr. Desbrow was in the private practice of
law. Mr. Desbrow received his Bachelor of Science degree in Business
Administration from the University of Southern California in 1977, his
Juris Doctorate from the University of Southern California Law Center
in 1980, and his Master of Business Taxation degree from the University
of Southern California Graduate School of Accounting.
Steven H. Dong. Mr. Dong, a Certified Public Accountant, served as
Chief Financial Officer of the Registrant from April 24, 1996 to June
30, 1997. Prior to joining the Registrant, Mr. Dong worked with the
international accounting firm of Coopers & Lybrand since 1988. In
addition to his position with the Registrant, Mr. Dong previously
served as Chief Financial Officer of NuOasis Resorts, Group V and Hart.
Mr. Dong received his Bachelor of Science degree in Accounting from
Babson College in 1988 and is a member in good standing with the
California Society of Certified Public Accountants and American
Institute of Certified Public Accountants.
(c) Identification of Certain Significant Employees.
There are no employees other than the executive officers disclosed
above who make or are expected to make, significant contributions to the
business of the Registrant, the disclosure of which would be material.
(d) Family Relationships.
None.
(e) Compliance with Section 16(a) of the Securities Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Registrant's officers and directors, and persons
who own more than ten percent of a registered class of the Registrant's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers and directors, and greater than
ten-percent shareholders are required by Securities and Exchange Commission
regulations to furnish the Registrant with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished to the
Registrant, or representations that no Forms 5 were required or filed, the
Registrant believes that during fiscal year 1997, all Section 16(a) filing
requirements applicable to its officers, directors, and greater than ten-percent
beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
(a) Summary Compensation Table.
The following summary compensation table sets forth in summary form the
compensation received during each of the Registrant's last three completed
fiscal years by the Registrant's President and four most highly compensated
officers (the "Named Executive Officers"). There were no executive officers who
were compensated in excess of $100,000 during fiscal year 1997.
[VEI\10KSB\53197.10K]-4
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<PAGE>
<TABLE>
<CAPTION>
Name and Principal Fiscal Salary Other Annual Options
Position Year ($) Compensation($) Granted (#)22)
- -------------------------- ------ ------ --------------- --------------
<S> <C> <C> <C> <C>
Fred G. Luke (1) 1997 54,000 - -
-
Chairman and President 1996 54,000 - 750,000
(6-93 to Present) 1995 54,000 - -
</TABLE>
(1) The dollar value of base salary (cash and non-cash).
(2) Except for stock option plans, the Registrant does not have in effect
any plan that is intended to serve as incentive for performance to occur
over a period longer than one fiscal year.
(b) Stock Options
There were no options granted during fiscal year 1997 to the
Registrant's Named Executive Officers. The following table sets forth in summary
form the aggregate options exercised during fiscal year 1997 and the May 31,
1997 value of unexercised options for The Registrant's Named Executive Officer.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Option/SAR's at Fiscal Options/SAR's at Fiscal
Year-End (#) Year-End ($)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ---------------------------- ------------------ ------------ ------------------------------ ---------------------------
<S> <C> <C> <C> <C>
Fred G. Luke, President
and Director - - 750,000 Exercisable (2)(3) Exercisable
NuVen Advisors, Inc.(1) - - 100,000 Exercisable (3) Exercisable
Steven Dong, former CFO - - 100,000 Exercisable (3) Exercisable
</TABLE>
(1) The Luke Family Trust (the "Luke Trust") owns 93% of NuVen Advisors,
formerly New World. Fred G. Luke, as Co- Trustee of the Luke Trust
determines the voting of such shares and, as a result, may be deemed to
control the Luke Trust.
(2) Exercise price for Mr. Luke's options are 110% of net book value on
August 1, 1995 of the Company. Since the Company had a negative book
value on August 1, 1995, the exercise price is deemed to be $.01 per
share.
(3) As of the date of this Report the potential realizable value of each
grant of options is not applicable due to a lack of a market price for
the shares of common stock underlying the options.
(c) Long Term Incentive Plans.
None.
[VEI\10KSB\53197.10K]-4
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<PAGE>
(d) Compensation of Directors
The Company has no standard arrangement for the compensation of
directors or their committee participation or special assignments. There was no
compensation paid to any directors during fiscal year 1997.
(e) Contracts with Named Executive Officer and other Officers and Directors.
Effective April 1, 1993, the Company and NuVen, entered into an Advisory
and Management Agreement for the engagement of NuVen to perform advisory
services on behalf of the Company for a 3 year term. Pursuant to such agreement
the Company is obligated to pay NuVen $120,000 annually in monthly installments
of $10,000. Under the terms of such agreement, the Company has granted NuVen an
option to purchase 100,000 shares of the Company's common stock exercisable at a
price of $1.00 per share. The option vested on the date of the agreement.
Effective February 1, 1995 the Company amended its Advisory and
Management Agreement with NuVen. The amended terms require the Company to pay
NuVen, for services rendered, $5,000 a month for an annual total of $60,000
through January 31, 1998. Due to the minimal services performed by NuVen, the
Company received a credit of $162,909 against amounts owed to NuVen and
accordingly, the Company recorded a net credit of $102,909 during fiscal 1996.
Also, the Company expensed $100,000 during fiscal year 1995, and had $144,864
due as of May 31, 1996.
In August 1995, the Company entered into an Employment Agreement with
Fred G. Luke, the Company's Chairman and President. The terms of the Employment
Agreement call for Mr. Luke to receive approximately $54,000 per year
retroactive to June 1, 1994, for five (5) years as a base salary; grants him an
option to purchase 750,000 shares of the Company's common stock at an exercise
price of 110% of the book value per share on August 1, 1995; and requires the
Company to purchase life insurance coverage, reimburse him for vehicle expenses,
and provide fringe benefits. No cash payments were made to Mr. Luke but the
Company expensed $54,000 during fiscal 1997 and 1996 and had $150,000 due to Mr.
Luke as of May 31, 1997.
Effective April 24, 1996, the Company entered into a consulting
agreement with Mr. Steven H. Dong, pursuant to which Mr. Dong is to perform
accounting services and to hold the office of Chief Financial Officer through
June 30, 1996. Pursuant to the agreement the Company agreed to pay Mr. Dong
$5,000 in cash or in the Company's common stock and granted him an option to
purchase 100,000 shares of the Company's common stock at an exercise price of
$.10 per share. Effective July 1, 1996, the Consulting Agreement was renewed for
fiscal year 1997 for an amount of $1,000 per month. No cash payments were made
to Mr. Dong by the Company during fiscal 1996. The Company expensed $12,000 and
$5,000 during fiscal 1997 and 1996, respectively, and had $17,000 due to Mr.
Dong as of May 31, 1997.
In July 1996, the Company memorialized a prior verbal consulting
agreement entered into in September 1994 with Mr. Desbrow to hold the office of
Director through December 31, 1996. Pursuant to the agreement the Company agreed
to pay Mr. Desbrow $1,000 per month. Effective January 1, 1997, the Consulting
Agreement was renewed for fiscal year 1997 for $1,000 per month. No cash
payments were made to Mr. Desbrow by the Company during fiscal 1996. The Company
expensed $12,000 and $12,000 during fiscal 1997 and 1996, respectively, and had
$32,000 due to Mr. Desbrow as of May 31, 1997. Mr.
Desbrow resigned in May, 1997.
[VEI\10KSB\53197.10K]-4
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<PAGE>
In July 1996, the Company memorialized a prior verbal consulting
agreement effective June 1, 1995 with Mr. Lawver, to hold the office of
Secretary through December 31, 1996. Pursuant to the agreement the Company
agreed to pay Mr. Lawver $1,000 per month. Effective January 1, 1997, the
Consulting Agreement was renewed for fiscal year 1997 for $1,000 per month. No
cash payments were made to Mr. Lawver by the Company during fiscal 1996. The
Company expensed $12,000 and $12,000 during fiscal 1997 and 1996, respectively,
and had $24,000 due to Mr. Lawver as of May 31, 1997.
(f) Report on Repricing of Options
During fiscal year 1997, the Registrant has not adjusted or amended the
exercise price of stock options.
(g) Change in Control.
None.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Beneficial owners of five percent (5%) or greater of the Registrant's
Outstanding Voting Securities.
The following sets forth information with respect to ownership by
holders of more than five (5%) of the Registrant's outstanding voting securities
known by the Registrant.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial
Title of Class of Beneficial Owner Interest Percent of Class(1)
- --------------------------- ----------------------------------------- ------------------ -------------------
<S> <C> <C> <C>
$.01 par value New World Capital Markets, Ltd.
Common Stock Companies House 173,995 21.76%(1)
Tower Street
Ramsey, Isle of Man
John D. Desbrow 60,000 7.5%(1)
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
J. L. Lawver Corp 60,000 7.5%(1)
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
Fred G. Luke 60,000 7.5%(1)
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
Fred Graves Luke 60,000 7.5%(1)
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
Structure America, Inc. 60,000 7.5%(1)
550 N. Jefferson
Loveland, CO 80537
</TABLE>
[VEI\10KSB\53197.10K]-4
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<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial
Title of Class of Beneficial Owner Interest Percent of Class(1)
- ------------------------- ------------------------------------------ ----------------- -------------------
<S> <C> <C> <C>
Redeemable Common New World Capital Markets, Ltd. 648,000 97.00%(2)
Stock Warrants Companies House
Tower Street
Ramsey, Isle of Man
Combined $.01 par value New World Capital Markets, Ltd. 821,995 56.18%(3)
Common Stock and Companies House
Redeemable Common Tower Street
Stock Warrants Ramsey, Isle of Man
</TABLE>
(1) Based upon 799,372 common shares outstanding.
(2) Based upon 668,000 Warrants outstanding.
(3) Based upon 1,467,372 Combined Common Stock and Warrants outstanding.
The following sets forth information with respect to the Registrant's
Common Stock beneficially owned by each Officer and Director, and by all
Officers and Directors as a group. No Officer or Director personally owns any of
the Registrant's Redeemable Common Stock Purchase Warrants.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial
Title of Class of Beneficial Owner Interest Percent of Class(5)
- ------------------------- ----------------------------------------- -------------------------- ---------------------
<S> <C> <C> <C>
$.01 par value Fred G. Luke 810,000(1) 52%
Common Stock 4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
NuVen Advisors, Inc.(2) 350,000(3) 39%
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
Jon L. Lawver 60,000 7.5%
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
John D. Desbrow 60,000 7.5%
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
Steven H. Dong 100,000(4) 11%
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
Redeemable Common Fred G. Luke 0 0%
Stock Warrants 4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
Jon L. Lawver 0 0%
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
Steven H. Dong 0 0%
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
All Officers and Directories as a group 1,380,000 79%
</TABLE>
[VEI\10KSB\53197.10K]-4
11
<PAGE>
(1) As of the date of this Report, 60,000 shares are held by Mr. Luke, with
750,000 shares subject to stock options held.
(2) The Luke Family Trust (the "Luke Trust") owns 93% of NuVen Advisors,
formerly New World. Fred G. Luke, as Co- Trustee of the Luke Trust
determines the voting of such shares and, as a result, may be deemed to
control the Luke Trust.
(3) As of the date of this Report, 250,000 shares are held by NuVen, with
100,000 shares subject to stock options held.
(4) As of the date of this Report, no shares are held by Mr. Dong, with
100,000 shares subject to stock options held.
(5) Number of shares deemed outstanding includes 799,732 as of December 31,
1997, and any shares subject to stock options held by the person or
entity.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions With Management and Affiliates.
During fiscal 1997 there were no transactions with related parties that
exceeded $60,000 other than the following:
The Luke Family Trust (the "Trust") and J.L. Lawver Corp. (the "JLL
Corp.") owns 93% and 7%, respectively, of the common stock of NuVen. Fred G.
Luke, as the trustee of the Trust, controls the Trust and Jon L. Lawver is the
majority stockholder of JLL Corp. Mr. Luke and Mr. Lawver are also officers and
directors of the Company.
Effective April 1, 1993, the Company and NuVen, entered into an
Advisory and Management Agreement for the engagement of NuVen to perform
advisory services on behalf of the Company for a 3 year term. Pursuant to such
agreement the Company is obligated to pay NuVen $120,000 annually in monthly
installments of $10,000. Under the terms of such agreement, the Company granted
NuVen an option to purchase 100,000 shares of the Company's common stock
exercisable at a price of $1.00 per share. The option vested on the date of the
agreement. As of the date of this Report the option remains unexercised.
Effective February 1, 1995 the Company amended its Advisory and
Management Agreement with NuVen. The amended terms require the Company to pay
NuVen, for services rendered, $5,000 a month for an annual total of $60,000
through January 31, 1998. Due to the minimal services performed by NuVen, the
Company received a credit of $109,097 against amounts owed to NuVen and
accordingly, the Company recorded a net credit of $102,909 during fiscal 1996.
Also, the Company expensed $45,000 during fiscal year 1997, and had $20,602 due
to NuVen as of May 31, 1997.
[VEI\10KSB\53197.10K]-4
12
<PAGE>
(b) Certain Business Relationships.
There are no employees other than the executive officers disclosed
above who make, or are expected to make, significant contributions to the
business of the Registrant, the disclosure of which would be material.
(c) Indebtedness of Management.
None.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Financial Statements:
The Financial Statements are included elsewhere herein and are indexed
on Page F-1, "Index to Financial Statements."
(b) 8-K Reports:
There were no Reports on Form 8-K filed during fiscal 1997.
(c) Exhibits:
Exhibit
Number Description
----------------------------------------------------------------------
3 Articles of Incorporation and Bylaws [incorporated herein by
reference to Exhibit 3.1 and 3.2 of Registrant's Registration
Statement on Form S-18 (No. 33-23430-D)].
4(a) Warrant Agreement and form of Warrant Certificate
[incorporated herein by reference to Exhibit 4.6 of
Registrant's Registration Statement on Form S-18 (No.
33-23430-D)].
4(b) Specimen Redeemable Common Stock Purchase Warrant
[incorporated herein by reference to Exhibit 4.2 of
Registrant's Registration Statement on Form S-18 (No.
33-23403-D)].
10(a) Underwriting Agreement with Tri-Bradley Investment, Inc.
[incorporated herein by reference as Exhibit 1.1 to Amendment
No. 5 to Form S-18 Registration Statement on Form S-18 (No.
33-23430-D)].
10(b) Agreement to Purchase Stock dated August 31, 1992 between The
Toen Group, Inc., Jeffrey Stroud and William J. Kitchen
[incorporated herein by reference to Exhibit "A" to Form 8-K
dated September 25, 1992, and filed October 9, 1992].
[VEI\10KSB\53197.10K]-4
13
<PAGE>
10(c) Stock Purchase Agreement dated March 31, 1993 between New
World Capital Markets, Ltd. and Jeffrey Paul Stroud.
[Incorporated by reference to Exhibit 10.c to Form 10-KSB for
the fiscal years ended May 31, 1992 and 1993].
10(d) Advisory and Management Agreement with NuVen Advisors, Inc.
[incorporated herein by reference to Exhibit 10(d) to Form
10-KSB for fiscal year ended May 31, 1995]
10(e) Employment Agreement with Fred G. Luke. [incorporated herein
by reference to Exhibit 10(e) to Form 10-KSB for fiscal year
ended May 31, 1995]
10(f) Consulting Agreement with John D. Desbrow. [incorporated
herein by reference to Exhibit 10(f) to Form 10-KSB for fiscal
year ended May 31, 1995]
10(g) Consulting Agreement with Steven Dong. [incorporated herein by
reference to Exhibit 10(g) to Form 10-KSB for fiscal year
ended May 31, 1995]
27 Financial Data Schedule [Exhibit included herein]
[VEI\10KSB\53197.10K]-4
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VIRTUAL ENTERPRISES, INC.
(formerly, The Toen Group, Inc.)
(Registrant)
Date: April 21, 1998 By: /s/ Fred G. Luke
----------------------------------
Fred G. Luke,
Chairman of the Board
and President
Date: April 21, 1998 By: /s/ Jon L. Lawver
----------------------------------
Jon L. Lawver,
Secretary and Director
[VEI\10KSB\53197.10K]-4
14
<PAGE>
VIRTUAL ENTERPRISES, INC.
(formerly, The Toen Group, Inc.)
INDEX TO FINANCIAL STATEMENTS
Financial Statememts, Fiscal Year 1997 Page
Independent Auditors Report ......................................F-2
Balance Sheet as of May 31, 1997..................................F-3
Statements of Operations for the years
ended May 31, 1997 and 1996......................................F-4
Statements of Stockholders' Deficiency
for the years Ended May 31, 1997 and 1996........................F-5
Statements of Cash Flows for the Years
Ended May 31, 1997 and 1996 .....................................F-6
Notes to Financial Statements.....................................F-7
[VEI\10KSB\53197.10K]-4
F-1
<PAGE>
Kang,Yu &Jun
An Accountancy Corporation,
Member Firm of AICPA, SECPS, PCPS and CSCPA
9831 Belmont Street
Belmont Street, Bellflower, CA. 90706
(310)251-2161
INDEPENDENT AUDITOR'S REPORT FYE 1997
Board of Directors and Stockholders
VIRTUAL ENTERPRISES, INC.
(formerly, The Toen Group, Inc.)
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
We have audited the accompanying balance sheet of Virtual Enterprises, Inc. as
of May 31, 1997 and the related statements of income, retained earnings and cash
flow for the years ended May 31, 1997 and 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Virtual Enterprises, Inc. as of
May 31, 1997 and the results of its operations and cash flows for the years
ended May 31, 1997 and 1996 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as going concern. As discussed in Note 1 to the financial
statements, the Company has incurred net losses and possesses limited liquid
resources and negative working capital as of May 31, 1997. Management's plans
regarding those matters are described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ KY&J CPA'S
- ----------------------------------
KY&J CPA'S
Bellflower, CA
April 7, 1998
[VEI\10KSB\53197.10K]-4
F-2
<PAGE>
<TABLE>
<CAPTION>
VIRTUAL ENTERPRISES, INC.
(formerly, The Toen Group, Inc.)
Balance Sheet
May 31, 1997
Assets
<S> <C>
Cash $ 12
-------------------
Total Current Assets 12
-------------------
Total Assets $ 12
===================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 28,058
Due to affiliates 284,606
-------------------
Total Current Liabilities 312,664
Commitments and Contingencies -
Liabilities and 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 (728,749)
Treasury stock (98,795 Shares, at Cost) (24,845)
--------------------
Total Stockholders' Deficiency (312,652)
Total Liabilities and Stockholders'
Deficiency $ 12
====================
</TABLE>
[VEI\10KSB\53197.10K]-4
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
VIRTUAL ENTERPRISES, INC.
(formerly, The Toen Group, Inc.)
Statements of Operations
For the Years Ended May 31,
1997 1996
--------------------------- ---------------------------
<S> <C> <C>
General and Administrative Expenses:
Employment and Consulting Services (35,859) (25,239)
Legal and Accounting 34,174 27,000
--------------------------- ---------------------------
Total (1,685) 1,761
--------------------------- ---------------------------
Income Tax Expense (Note 3) - -
--------------------------- ---------------------------
Operating income (loss) 1,685 (1,761)
--------------------------- ---------------------------
Net Loss From Operations 1,685 (1,761)
--------------------------- ---------------------------
Net Income (Loss) $ 1,685 $ (1,761)
=========================== ===========================
Net Income (Loss) Per Share:
Net Income (Loss) per Share $ .002 $ (.002)
=========================== ===========================
Weighted Average Number of Shares
Outstanding 778,559 778,539
=========================== ===========================
</TABLE>
[VEI\10KSB\53197.10K]-4
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
VIRTUAL ENTERPRISES, INC.
(formerly, The Toen Group, Inc.)
Statements of Stockholders' Deficiency
For The Years Ended May 31, 1996 and 1995
COMMON ADDITIONAL TOTAL
SHARES COMMON TREASURY PAID-IN ACCUMULATED STOCKHOLDERS'
OUTSTANDING STOCK STOCK CAPITAL DEFICIT DEFICIENCY
------------- --------- ------------- ------------------ ---------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at May 31, 1995 549,372 $ 5,494 $ (24,845) $ 432,948 $ (728,673) $ (315,076)
Conversion of debt for
stock 250,000 2,500 2,500
Net Loss (1,761) (1,761)
------------- --------- ------------- ------------------ ---------------------- ------------------------
Balances at June 1, 1996 799,372 7,994 (24,845) 432,948 (730,434) (314,337)
Net Income 1,685 1,685
Balances at May 31, 1997 799,372 $ 7,994 $ (24,845) $ 432,948 $ (728,749) $ (312,652)
============= ========= ============= ================== ====================== ========================
</TABLE>
[VEI\10KSB\53197.10K]-4
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
VIRTUAL ENTERPRISES, INC.
(formerly, The Toen Group, Inc.)
Statements of Cash Flows
For the Years Ended May 31,
1997 1996
------------------------ -------------------------
<S> <C> <C>
Operating Activities:
Net income (loss) $ 1,685 $ (1,761)
Adjustments to Reconcile Net Loss to Net Cash
Provided (Used) by Operating Activities:
Changes in Assets and Liabilities:
Increase (Decrease) in Liabilities:
Accounts payable (4,394) 26,356
Due to affiliates 2,670 (24,705)
------------------------ -------------------------
Net cash provided (used) by operating activities (39) (110)
------------------------ -------------------------
Increase (decrease) in cash and cash equivalents (39) (110)
Beginning Balance, Cash and Cash Equivalents 51 161
------------------------ -------------------------
Ending Balance, Cash and Cash Equivalents $ 12 $ 51
======================== =========================
Supplemental Disclosure of Cash Flow
Information:
Cash payments for income taxes $ - $ -
Cash payments for interest $ - $ -
======================== =========================
Supplemental Disclosure of Non-Cash Investing
and Financing Activities:
Stock exchanged for trade debt $ - $ 2,500
======================== =========================
</TABLE>
[VEI\10KSB\53197.10K]-4
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
VIRTUAL ENTERPRISES, INC.
(formerly, The Toen Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
May 31, 1997
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.
[VEI\10KSB\53197.10K]-4
F-7
<PAGE>
VIRTUAL ENTERPRISES, INC.
(formerly, The Toen Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
May 31, 1997
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 earnings (loss)
per share calculations as the effect would have been anti dilutive or
insignificant.
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 financial
statements have been presented under the assumption the Company would continue
as a going Concern.
Note 3. Federal Income 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.
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.
[VEI\10KSB\53197.10K]-4
F-8
<PAGE>
VIRTUAL ENTERPRISES, INC.
(formerly, The Toen Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
May 31, 1997
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 and expired December 31, 1996.
Note 5. Commitments and Contingencies
The Company maintains its executive offices at facilities provided by NuVen
under an Advisory and Management Agreement (Note 6).
Note 6. Related Party Transactions
The Luke Family Trust (the "Trust") and J.L. Lawver Corp. (the "JLL Corp.") owns
93% and 7%, respectively, of the common stock of NuVen. Fred G. Luke, as the
trustee of the Trust, controls the Trust and Jon L. Lawver is the majority
stockholder of JLL Corp. Mr. Luke and Mr. Lawver are also officers and directors
of the Company.
Effective April 1, 1993, the Company and NuVen, entered into an Advisory and
Management Agreement for the engagement of NuVen to perform advisory services on
behalf of the Company for a 3 year term. Pursuant to such agreement the Company
is obligated to pay NuVen $120,000 annually in monthly installments of $10,000.
Under the terms of such agreement, the Company has granted NuVen an option to
purchase 100,000 shares of the Company's common stock exercisable at a price of
$1.00 per share. The option vested on the date of the agreement.
Effective February 1, 1995 the Company amended its Advisory and Management
Agreement with NuVen. The amended terms require the Company to pay NuVen, for
services rendered, $5,000 a month for an annual total of $60,000 through January
31, 1998. Due to the minimal services performed by NuVen, the Company received a
credit of $162,909 in fiscal 1996 and $102,909 during fiscal 1997, against
amounts owed to NuVen and accordingly, the Company recorded a net credit of
$102,909 during fiscal 1996 and $95,333 during fiscal 1997. Also, the Company
expensed $144,864 during fiscal 1997 and $13,764 during fiscal 1997.
In August 1995, the Company entered into an Employment Agreement with Fred G.
Luke, the Company's Chairman and President. The terms of the Employment
Agreement call for Mr. Luke to receive approximately $54,000 per year
retroactive to June 1, 1994, for five (5) years as a base salary; grants him an
option to purchase 750,000 shares of the Company's common stock at an exercise
price of 110% of the book value per share on August 1, 1995; and requires the
Company to purchase life insurance coverage, reimburse him for vehicle expenses,
and provide fringe benefits. No cash payments were made to Mr. Luke but the
Company expensed $54,000 during fiscal 1997 and 1996 and had $149,598 due to Mr.
Luke as of May 31, 1997.
[VEI\10KSB\53197.10K]-4
F-9
<PAGE>
VIRTUAL ENTERPRISES, INC.
(formerly, The Toen Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
May 31, 1997
Effective April 24, 1996, the Company entered into a consulting agreement with
Mr. Steven H. Dong, pursuant to which Mr. Dong is to perform accounting services
and to hold the office of Chief Financial Officer through June 30, 1996.
Pursuant to the agreement the Company agreed to pay Mr. Dong $5,000 in cash or
in the Company's common stock and granted him an option to purchase 100,000
shares of the Company's common stock at an exercise price of $.10 per share.
Effective July 1, 1996, the Consulting Agreement was renewed for fiscal year
1997 for an amount of $1,000 per month. No cash payments were made to Mr. Dong
by the Company during fiscal 1996. The Company expensed $12,000 and $5,000
during fiscal 1997 and 1996, respectively, and had $17,000 due to Mr. Dong as of
May 31, 1997.
In July 1996, the Company memorialized a prior verbal consulting agreement
entered into in September 1994 with Mr. Desbrow to hold the office of Director
through December 31, 1996. Pursuant to the agreement the Company agreed to pay
Mr. Desbrow $1,000 per month. Effective January 1, 1997, the Consulting
Agreement was renewed for fiscal year 1997 for $1,000 per month. No cash
payments were made to Mr. Desbrow by the Company during fiscal 1997. The Company
expensed $12,000 and $12,000 during fiscal 1997 and 1996, respectively, and had
$32,000 due to Mr. Desbrow as of May 31, 1997. Mr. Desbrow resigned in May,
1997.
In July 1996, the Company memorialized a prior verbal consulting agreement
effective June 1, 1995 with Mr. Lawver, to hold the office of Secretary through
December 31, 1996. Pursuant to the agreement the Company agreed to pay Mr.
Lawver $1,000 per month. Effective January 1, 1997, the Consulting Agreement was
renewed for fiscal year 1997 for $1,000 per month. No cash payments were made to
Mr. Lawver by the Company during fiscal 1997. The Company expensed $12,000 and
$12,000 during fiscal 1997 and 1996, respectively, and had $24,000 due to Mr.
Lawver as of May 31, 1997.
[VEI\10KSB\53197.10K]-4
F-10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12
<CURRENT-LIABILITIES> 312,604
<BONDS> 0
0
0
<COMMON> 7,994
<OTHER-SE> (320,646)
<TOTAL-LIABILITY-AND-EQUITY> 12
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (1,685)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,685
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,685
<EPS-PRIMARY> .002
<EPS-DILUTED> 0
</TABLE>
