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
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended June 30, 2000
[ ] Transition report under section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to _______
Commission File Number 0-19620
REDDI BRAKE SUPPLY CORPORATION
(Name of small business issuer in its charter)
Nevada 84-1152135
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
5882 South 900 East, Suite 202, Salt Lake City, Utah 84121
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code 801-269-9500
Securities registered pursuant to Section 12(b) of the Exchange
Act: None
Securities registered under Section 12(g) of the Exchange Act:
$.0001 par value Common Stock
(Title of class)
Check whether the Issuer (1) filed all reports required to be
filed by section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is contained in this form, and no
disclosure will be contained, to the best of the 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. [ X ]
The issuer's revenue for its most recent fiscal year was: $ -0-
The aggregate market value of the issuer's Common Stock held as
of October 11, 2000 by non-affiliates of the issuer was $778,979.
As of October 11, 2000, issuer had 74,999,972 shares of its
$.0001 par value common stock outstanding.
Transitional Small Business Format: Yes [ ] No [ X ]
Documents incorporated by reference: None
<PAGE>
PART I
Item 1. Description of Business.
The Company was incorporated in Nevada on July 13, 1990 as
Franklin Capital, Inc. On October 17, 1991, the Company changed
its name to Wesco Auto Parts Corporation and again effected a
name change on April 21, 1994 to Reddi Brake Supply Corporation.
The Company's only significant asset was its wholly owned
(operating) subsidiary RBSC, Inc., (formerly Reddi Brake Supply
Company, Inc.). The subsidiary filed for Chapter 11 bankruptcy
protection on March 17, 1997. All of the subsidiary's operating
assets were sold to satisfy claims of creditors. The
subsidiary's Plan of Reorganization became effective March 22,
1998. The subsidiary's assets, primarily cash from the sale of
operating assets and notes, were transferred to a Creditors'
Trust and the subsidiary shell was reorganized for the benefit of
creditors. This resulted in the Company losing the operating
subsidiary, its only tangible asset.
Since the divestiture of the Company's subsidiary, the
Company has not engaged in any operations. At the present time,
the Company continues to seek, investigate, and if warranted,
acquire an interest in a business opportunity. The Company does
not propose to restrict its search for a business opportunity to
any particular industry or geographical area and may, therefore,
engage in essentially any business in any industry. The Company
has unrestricted discretion in seeking and participating in a
business opportunity, subject to the availability of such
opportunities, economic conditions and other factors.
The selection of a business opportunity in which to
participate is complex and extremely risky and will be made by
management in the exercise of its business judgment. There is no
assurance that the Company will be able to identify and acquire
any business opportunity which will ultimately prove to be
beneficial to the Company and its shareholders.
The activities of the Company are subject to several
significant risks which arise primarily as a result of the fact
that the Company has no specific business and may acquire or
participate in a business opportunity based on the decision of
management which will, in all probability, act without the
consent, vote, or approval of the Company's shareholders.
Sources of Opportunities
It is anticipated that business opportunities may be
available to the Company from various sources, including its
officers and directors, professional advisers, securities broker-
dealers, venture capitalists, members of the financial community,
and others who may present unsolicited proposals.
The Company will seek a potential business opportunity from
all known sources, but will rely principally on personal contacts
of its officers and directors as well as indirect associations
between them and other business and professional people.
Although the Company does not anticipate engaging professional
firms specializing in business acquisitions or reorganizations,
if management deems it in the best interests of the Company, such
firms may be retained. In some instances, the Company may
publish notices or advertisements seeking a potential business
opportunity in financial or trade publications.
Criteria
The Company will not restrict its search to any particular
business, industry or geographical location. The Company may
acquire a business opportunity or enter into a business in any
industry and in any stage of development. The Company may enter
into a business or opportunity involving a "start up" or new
company. The Company may acquire a business opportunity in
various stages of its operation.
In seeking a business venture, the decision of management of
the Company will not be controlled by an attempt to take
advantage of an anticipated or perceived appeal of a specific
industry, management group, or product or industry, but will be
based upon the business objective of seeking long-term capital
appreciation in the real value of the Company.
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In analyzing prospective business opportunities, management
will consider such matters as the available technical, financial
and managerial resources; working capital and other financial
requirements; the history of operations, if any; prospects for
the future; the nature of present and expected competition; the
quality and experience of management services which may be
available and the depth of the management; the potential for
further research, development or exploration; the potential for
growth and expansion; the potential for profit; the perceived
public recognition or acceptance of products, services, trade or
service marks, name identification; and other relevant factors.
Generally, the Company will analyze all available factors in
the circumstances and make a determination based upon a composite
of available facts, without reliance upon any single factor as
controlling.
Methods of Participation of Acquisition
Specific business opportunities will be reviewed and, on the
basis of that review, the legal structure or method of
participation deemed by management to be suitable will be
selected. Such structures and methods may include, but are not
limited to, leases, purchase and sale agreements, licenses, joint
ventures, other contractual arrangements, and may involve a
reorganization, merger or consolidation transaction. The Company
may act directly or indirectly through an interest in a
partnership, corporation, or other form of organization.
Procedures
As part of the Company's investigation of business
opportunities, officers and directors may meet personally with
management and key personnel of the firm sponsoring the business
opportunity, visit and inspect material facilities, obtain
independent analysis or verification of certain information
provided, check references of management and key personnel, and
conduct other reasonable measures.
The Company will generally request that it be provided with
written materials regarding the business opportunity containing
such items as a description of product, service and company
history; management resumes; financial information; available
projections with related assumptions upon which they are based;
an explanation of proprietary products and services; evidence of
existing patents, trademarks or service marks or rights thereto;
present and proposed forms of compensation to management; a
description of transactions between the prospective entity and
its affiliates; relevant analysis of risks and competitive
conditions; a financial plan of operation and estimated capital
requirements; and other information deemed relevant.
Competition
The Company expects to encounter substantial competition in
its efforts to acquire a business opportunity. The primary
competition is from other companies organized and funded for
similar purposes, small venture capital partnerships and
corporations, small business investment companies and wealthy
individuals.
Employees
The Company does not currently have any employees but relies
upon the efforts of its officers and directors to conduct the
business of the Company.
Item 2. Description of Property.
The Company does not own any property. The Company
currently utilizes office space, free of charge, from officers
and directors of the Company.
Item 3. Legal Proceedings.
McCormick, et al., v. Reddi Brake Supply Corp., et al,
L.A.S.C. Case No. BC 180840. On November 6, 1997, the above
action was filed in the Los Angeles County Superior Court as a
class action on behalf of all persons or entities who bought
common stock of Reddi Brake Supply Corporation prior to March 23,
1996 and/or who bought or sold such stock thereafter until August
13, 1996. The complaint asserts causes of action for breach of
fiduciary duty by officers and directors and conspiracy to
manipulate the price of the common stock of the Company
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and concealment thereof. Reddi Brake has denied and continues to
deny all of the claims and contentions alleged in the complaint.
The parties to the litigation have entered into a Stipulation of
Settlement dated May 21, 1999, dismissing the litigation with
prejudice. The Stipulation of Settlement provides that the
Plaintiffs will release the Company from a $20 million judgment
if the Company and individual defendants assign any and all
rights for insurance coverage to the Plaintiffs. As of the date
of this report, the settlement offer remains pending.
Sheerin v. McCorrian, Birin and Reddi Brake Supply
Corporation, L.A.S.C. Case No. BC 186930. On March 3, 1998, the
above action was filed in the Los Angeles County Superior Court
alleging breach of contract, breach of fiduciary duty, fraud,
negligent misrepresentation, violation of federal securities laws
and violation of California securities laws. The Company has
denied and continues to deny all of the claims and contentions
alleged in the complaint. The parties have been negotiating a
settlement agreement, which remains unresolved as of the date of
this report.
Item 4. Submission of Matters to a Vote of Securities Holders.
No matters were submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders.
However, on October 6, 2000 and subsequent the fiscal year 2000,
the Preferred B Stockholders unanimously consented to convert
each share of Preferred B Stock into 262.917 shares of Common
Stock.
PART II
Item 5. Market for Common Equity, Related Stockholder Matters.
The Company's common stock is listed on the Over the Counter
Bulletin Board ("OTCBB"), under the symbol "REDI". As of October
11, 2000 the Company had 634 shareholders holding 74,999,972
shares of common stock. Of the issued and outstanding common
stock, 53,129,779 are free trading, the balance are restricted
stock as that term is used in Rule 144.
The following quotations, as provided by the National
Quotation Bureau, represent prices between dealers and do not
include retail markup, markdown or commission. In addition,
these quotations do not represent actual transactions.
CLOSING BID CLOSING ASK
HIGH LOW HIGH LOW
1998
First Quarter .035 .002 .042 .0025
Second Quarter .015 .005 .017 .007
Third Quarter .0065 .003 .0075 .004
Fourth Quarter .003 .002 .0045 .0025
1999
First Quarter .0085 .002 .01 .0029
Second Quarter .018 .004 .021 .006
Third Quarter .01 .005 .013 .006
Fourth Quarter .005 .003 .007 .005
2000
First Quarter .074 .003 .08 .005
Second Quarter .05 .0152 .058 .02
The Company has never declared a dividend on its Common
Stock. The Company has not paid, nor declared, any dividends
since its inception and does not intend to declare any such
dividends in the foreseeable future. The Company's ability to pay
dividends is subject to limitations imposed by Nevada law. Under
Nevada law, dividends may be paid to the extent that the
corporation's assets exceed its liabilities and it is able to pay
its debts as they become due in the usual course of business.
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Recent Sale of Unregistered Securities
On June 14, 2000, by resolution of the Board of Directors,
the Company authorized and issued 2,000,000 shares of a Class C
Preferred Stock with voting rights of 50 votes per share to
Capital Holdings, LLC ("Capital Holdings") in consideration of
$10,000 paid by Capital Holdings for legal debts incurred by the
Company. The securities were sold in a private transaction,
without registration, to Capital Holdings (which is equally owned
by John Chymboryk and Kip Eardley, directors and officers of the
Company) in reliance on the exemption provided by Section 4(2) of
the Securities Act. The investor had a pre-existing relationship
with the Company and had access to all material information
pertaining to the Company and its financial condition. No broker
was involved and no commissions were paid in the transaction.
On October 6, 2000, by resolution of the Board of Directors
and unanimous consent of the Preferred B Stockholders, the
Company converted 60,000 shares of Preferred B Stock into
15,775,020 shares of Common Stock at a conversion rate of
1:262.917. The securities were exchanged in a private
transaction with an accredited investor, without registration, in
reliance on the exemption provided by Section 4(2) of the
Securities Act. No broker was involved and no commissions were
paid in the transaction
Item 6. Management's Discussion and Analysis or Plan of
Operation.
As of the fiscal year end June 30, 2000 the Company's total
current assets are $4,226 in cash. Other assets include $2,034
in securities available for sale and $222,261 in convertible debt
offering costs. The Company has current liabilities in the
amount of $11,352,562, which includes $50,835 in accounts
payable, $6,900,00 in the form of a subordinated convertible debt
and $4,401,727 in accrued interest payable on the convertible
debt.
The Company did not generate any revenue from operations
during fiscal years 2000 and 1999. The Company has no material
commitments for capital expenditures for the next twelve months.
The Company is currently in negotiations with the debenture
holders to settle the debt. The Company believes that its
current cash needs can be met with the cash on hand for at least
the next twelve months. However, should the Company obtain a
business opportunity, it may be necessary to raise additional
capital. This may be accomplished by loans from the principals
of the Company, debt financing, equity financing or a combination
of financing options.
Item 7. Financial Statements.
The financial statements of the Company appear at the end of
this report beginning with the Index to Financial Statements on
page F-1.
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
The following tables sets forth as of June 30, 2000, the
name, age, and position of each executive officer and director
and the term of office of each director of the Company.
Name Age Position Director or Officer Since
John Chymboryk 47 President and Director February 2000
Kip Eardley 41 Secretary/Treasurer and February 2000
Director
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All Directors hold their positions for one year or until
successors are duly elected and qualified. All officers hold
their positions at the will of the Board of Directors.
Set forth below is certain biographical information
regarding each of the Company's executive officers and directors:
John Chymboryk, President and Director. Mr. Chymboryk
received his bachelor's degree with an emphasis in accounting and
economics in 1982. Following graduation he worked for a large
international accounting firm until 1984. He then taught courses
in finance, marketing and management in the business departments
of a Community College from 1984 to 1992. Concurrent with his
teaching experience, Mr. Chymboryk operated an accounting
business that specialized in preparing financial statements, tax
returns and business plans for small businesses. Mr. Chymboryk
co-founded a company that specialized in marketing, customer
retention and management training. Mr. Chymboryk served as Vice
President and was responsible for the financial operations and in
developing and delivering management training. Mr. Chymboryk was
instrumental in designing and presenting the sales management
workshop that was contracted with Lexus, the Toyota Motor
Corporation luxury car line. In 1997, Mr. Chymboryk was involved
in designing, developing and implementing a new application that
assists companies in following up and retaining their existing
customer base. Mr. Chymboryk is a director in the following
reporting companies, GTG Holdings, Inc., GTM Holdings, Inc.,
VideoPlex, Inc., Golden Quest, Inc., and Heavenly Hotdog, Inc.
Kip Eardley, Secretary/Treasurer and Director. Since 1989,
Mr. Eardley has been self-employed as the president and owner of
Capital Consulting of Utah, Inc., a consulting firm to various
public and private companies. Mr. Eardley is also a director in
the following reporting companies, Holmes Microsystems, Inc., GTC
Holdings, Inc., GTM Holdings, Inc., VideoPlex, Inc., Golden
Quest, Inc., and Heavenly Hotdog, Inc.
To the knowledge of management, during the past five years,
no present or former director, executive officer or person
nominated to become a director or an executive officer of the
Company:
(1) filed a petition under the federal bankruptcy laws or
any state insolvency law, nor had a receiver, fiscal agent
or similar officer appointed by a court for the business or
property of such person, or any partnership in which he was
a general partner at or within two years before the time of
such filing, or any corporation or business association of
which he was an executive officer at or within two years
before the time of such filing;
(2) was convicted in a criminal proceeding or named subject
of a pending criminal proceeding (excluding traffic
violations or other minor offenses);
(3) was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
him from or otherwise limiting, the following activities;
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator,
floor broker, leverage transaction merchant, associated
person of any of the foregoing, or as an investment advisor,
underwriter, broker or dealer in securities, or as an
affiliate person, director or employee of any investment
company, or engaging in or continuing any conduct or
practice in connection with such activity; (ii) engaging in
any type of business practice; or (iii) engaging in any
activity in connection with the purchase or sale of any
security or commodity or in connection with any violation of
federal or state securities laws or federal commodities
laws;
(4) was the subject of any order, judgment, or decree, not
subsequently reversed, suspended, or vacated, of any federal
or state authority barring, suspending, or otherwise
limiting for more than 60 days the right of such person to
engage in any activity described above under this Item, or
to be associated with persons engaged in any such activity;
(5) was found by a court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to
have violated any federal or state securities law, and the
judgment in such civil action or finding by the Securities
and Exchange Commission has not been subsequently reversed,
suspended, or vacated
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(6) was found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission
to have violated any federal commodities law, and the
judgment in such civil action or finding by the Commodity
Futures Trading Commission has not been subsequently
reversed, suspended or vacated.
Item 10. Executive Compensation.
No compensation has been paid to any officer or director of
the Company in the past three years. There are no compensatory
plans or arrangements, including payments to be received from the
Company, with respect to any officers or directors of the Company
which would in any way result in payments to any such person
because of his resignation, retirement, or other termination of
such person's employment with the Company, or any change in
control of the Company, or a change in the person's
responsibilities following a change in control of the Company.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth as of October 11, 2000, the
name and the number of shares of the Company's voting stock,
consisting of Common Stock, par value. $.0001, one vote per share
and Class C Preferred stock with voting rights of 50 votes per
share (hereinafter collectively referred to as the "Voting
Stock") held of record, or was known by the Company to own
beneficially, more than 5% of the Company's issued and
outstanding Voting Stock; plus, the name and shareholdings of
each director and of all officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage of Percentage of
Title of Class Beneficial Owner (1) Beneficial Ownership Class Voting Stock
<C> <C> <C> <C> <C>
Common CBIC Wood Gundy (London), Ltd 17,297,844 shares 23% 9.8%
BCE Place, 10th Floor
161 Bay Street
Toronto, CN M5J 2S8
Preferred C John Chymboryk,(2)(3) 2,000,000 shares 100% 57.1%
5882 S. 900 E., Suite 202
Salt Lake City, UT 84121
Preferred C Kip Eardley, (2)(3) 2,000,000 shares 100% 57.1%
5882 S. 900 E., Suite 202
Salt Lake City, UT 84121
Preferred C Officers, Directors and Nominees 2,000,000 shares 100% 57.1%
as a Group: 2 persons.
</TABLE>
(1) For purposes of this table, a beneficial owner is one who,
directly or indirectly, has or shares with others (a) the power
to vote or direct the voting of the Voting Stock (b) investment
power with respect to the Voting Stock which includes the power
to dispose or direct the disposition of the Voting Stock.
(2) Officer and/or director of the Company.
(3) John Chymboryk and Kip Eardley each own 50% of Capital
Holdings, which currently holds all 2,000,000 shares of the Class
C Preferred Stock.
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Item 12. Certain Relationships and Related Transactions.
On June 14, 2000, by resolution of the Board of Directors,
the Company authorized and issued 2,000,000 shares of a Class C
Preferred Stock with voting rights of 50 votes per share to
Capital Holdings, in consideration of $10,000 paid by Capital
Holdings, for legal debts incurred by the Company. John
Chymboryk and Kip Eardley, both officers and directors of the
Company, jointly own Capital Holdings. This gives Capital
Holdings control of the Company with a total of 100,000,000
votes, which is equivalent to fifty seven percent (57%) of all
issued and outstanding Voting Stock.
The Company utilizes office space provided by the officers
and directors of the Company at no charge to the Company.
Item 13. Exhibits and Reports on Form 8-K.
Reports on Form 8-K
A report on Form 8-K was filed on June 20, 2000. The form
reported that the Company's Board of Directors authorized the
designation of 2,000,000 shares of Class C Preferred Stock with
voting rights of 50 votes per share. The Certificate of
Designation of Class C Preferred Stock was filed with the state
of Nevada on June 14, 2000. Two million (2,000,000) shares of
Class C Preferred stock were then issued to Capital Holdings in
consideration of $10,000 paid by Capital Holdings for legal debts
incurred by the Company. At the time of issuance, the Company
had 59,224,952 shares of Common Stock issued and outstanding with
each share of common stock having one vote. The issuance of the
Class C Preferred Stock with 50 votes per share, placed Capital
Holdings in a control position with 100,000,000 votes or 63% of
the voting stock. Capital Holdings is owned 50% by John
Chymboryk, Director and President of the Company and 50% by Kip
Eardley, Director and Secretary/Treasurer of the Company.
Exhibits
Copies of the following documents are included as exhibits
to this report pursuant to Item 601 of Regulation S-B.
Exhibit SEC Ref. Title of Document Location
No. No.
1 (3)(i) Articles of Incorporation See Note (1)
2 (3)(i) Articles of Amendment to the Articles of
Incorporation See Note (1)
3 (3)(i) Articles of Amendment to the Articles of
Incorporation See Note (1)
4 (3)(i) Articles of Amendment to the Articles of
Incorporation See Note (1)
5 (3)(i) Articles of Amendment to the Articles of
Incorporation See Note (1)
6 (3)(i) Articles of Amendment to the Articles of
Incorporation See Note (1)
7 (3)(ii) By Laws See Note (1)
8 (4) Certificate of Designation for Preferred
Class C Stock See Note (2)
9 (4) Certificate of Amendment to Preferred Class B
Stock Attached
10 (10) Asset Purchase Agreement See Note (1)
11 (10) Lease Agreement See Note (1)
12 (27) Financial Data Schedule Attached
13 (99) Order Confirming Plan of Reorganization See Note (1)
Note (1) - Filed as an Exhibit on Form 10-KSB for the fiscal year
ended June 30, 1999 and filed March 20, 2000, is incorporated
herein by reference.
Noted (2) - Filed as an Exhibit on Form 8-K, which was filed on
June 23, 2000, and is incorporated herein by reference
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
REDDI BRAKE SUPPLY CORPORATION
Date: October 13, 2000 By: /s/ John Chymboryk
President
Date: October 13, 2000 By: /s/ Kip Eardley
Chief Financial Officer
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Date: October 13, 2000 By: /s/ John Chymboryk
Director
Date: October 13, 2000 By: /s/ Kip Eardley
Director
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REDDI BRAKE SUPPLY CORPORATION
(A Development Stage Company)
Financial Statements
June 30, 2000
CONTENTS
Independent Auditors' Report F-2
Balance Sheet F-3
Statements of Operations F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-6
Notes to the Financial Statements F-7
<PAGE>
ANDERSEN ANDERSEN & STRONG, L.C. 941 East 3300 South, Suite 202
Certified Public Accountants and Salt Lake City, Utah 84106
Business Consultants Telephone 801-486-0096
Fax 801 486-0098
Board of Directors
Reddi Brake Supply Corporation
Salt Lake City, Utah
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of Reddi Brake
Supply Corporation (development stage company) at June 30, 2000
and the related statements of operations, stockholders' equity,
and cash flows for the years ended June 30, 2000 and 1999 and the
period July 1, 1997 (date of inception of development stage) to
June 30, 2000. 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 audits.
We conducted our audits 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 balance sheet presentation. We believe that our
audits provide 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 Reddi Brake Supply Corporation at June 30, 2000 and the
results of operations, and cash flows for the years ended June
30, 2000 and 1999 and the period July 1, 1997 (date of inception
of development stage) to June 30, 2000, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
has suffered recent substantial losses and does not have the
necessary working capital for any future planned activity , which
raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are
described in Note 8. These financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
/s/ Anderson, Anderson & Strong
Salt Lake City, Utah
September 29, 2000
F-2
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REDDI BRAKE SUPPLY CORPORATION
(Development Stage Company)
BALANCE SHEET
June 30, 2000
ASSETS
CURRENT ASSETS
Cash $ 4,226
Total Current Assets 4,226
OTHER ASSETS
Securities - available for sale - Note 3 2,034
Convertible debt offering costs - net of amortization - Note 4 222,261
$ 228,521
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 50,835
Subordinated convertible debt - Note 4 6,900,000
Accrued interest payable - convertible debt - Note 4 4,401,727
Total Current Liabilities 11,352,562
STOCKHOLDERS' EQUITY
Preferred stock - Note 5
2,500,000 shares authorized at $0.0001 par value;
2,060,000 shares issued and outstanding 206
Common stock - Note 5
75,000,000 shares authorized at $0.0001 par value;
59,224,952 shares issued and outstanding 5,922
Capital in excess of par value 37,217,358
Accumulated deficit - Note 1 (48,347,527)
Total Stockholders' Deficiency (11,124,041)
$ 228,521
The accompanying notes are an integral part of these financial statements.
F-3
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REDDI BRAKE SUPPLY CORPORATION
(Development Stage Company)
STATEMENTS OF OPERATIONS
For the Years Ended June 30, 2000 and 1999 and the period
July 1, 1997 (date of inception of development stage) to June 30,
2000
July 1, 1997
June 30, June 30, to
2000 1999 June 30, 2000
REVENUES $ - $ - $ -
----------- --------- -----------
EXPENSES
Administrative 37,594 16,615 104,220
Interest 953,982 885,678 2,657,034
NET OPERATING LOSS - before other losses (991,576) (902,293) (2,761,254)
LOSS ON LIQUIDATION OF ASSETS
AND LIABILITIES - - (25,223,711)
--------- -------- -----------
NET LOSS $ (991,576) $ (902,293) $ (27,984,965)
NET LOSS PER COMMON
SHARE
Basic $ (.02) $ (.02)
AVERAGE OUTSTANDING
SHARES
Basic 58,224,952 50,186,949
The accompanying notes are an integral part of these financial statements.
F-4
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REDDI BRAKE SUPPLY CORPORATION
(Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Period July 1, 1997 (date of inception of development stage) to June 30, 2000
<TABLE>
<CAPTION>
Capital in
Preferred Stock Common Stock Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance July 1, 1997 130,000 $ 13 50,186,949 $ 5,018 $37,093,672 $(20,251,979)
Issuance of common stock for
redemption of preferred (70,000) (7) 8,038,003 804 (797) -
Net operating loss for the year
ended June 30, 1998 - - - - - (26,091,096)
Net operating loss for the year
ended June 30, 1999 - - - - - (902,293)
Preferred stock dividends - - - - 82,856 (82,856)
Balance June 30, 1999 60,000 6 58,224,952 5,822 37,175,731 (47,328,224)
Issuance of common stock for
settlement of legal action
at $.0042 - October 1999 - - 1,000,000 100 4,100 -
Issuance of class C preferred stock for
for expenses - June 14, 2000 -
related party 2,000,000 200 - - 9,800 -
Preferred stock dividends - - - - 27,727 (27,727)
Net operating loss for the year
ended June 30, 2000 - - - - (991,576)
Balance June 30, 2000 2,060,000 $ 206 59,224,952 $ 5,922 $37,217,358 $(48,347,527)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
REDDI BRAKE SUPPLY CORPORATION
(Development Stage Company)
STATEMENT OF CASH FLOWS
For the Years Ended June 30, 2000 and 1999 and the Period
July 1, 1997 (date of inception of development stage) to June 30, 2000
June 30, June 30, July 1, 1997
2000 1999 to June 30, 2000
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(991,576) $(902,293) $(27,984,965)
Adjustments to reconcile net loss to
net cash provided by operating
activities
Changes in accounts receivable 12,756 - 12,756
Changes in accounts payable 5,681 7,000 50,835
Loss of assets - - 25,223,711
Accrued interest - convertible debt 953,982 885,679 2,657,034
Issuance common stock for settlement
of legal action 4,200 - 4,200
Issuance of preferred stock for expenses 10,000 - 10,000
------ ------- --------
Net Cash Used in Operations (4,957) (9,614) (26,429)
------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
- - -
------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
- - -
-------- ------- --------
Net Increase (Decrease) in Cash (4,957) (9,614) (26,429)
Cash at Beginning of Period 9,183 18,797 30,655
Cash at End of Period $ 4,226 $ 9,183 $ 4,226
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
REDDI BRAKE SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Company was incorporated under the laws of the State of
Nevada on July 12, 1990 with name "Franklin Capital, Inc" with
authorized common stock of 35,000,000 shares with a par value of
$0.0001 and preferred stock of 2,500,000 shares with a par value
of $0.0001. On October 24, 1996 the authorized common stock was
increased to 75,000,000 shares with the same par value. The
Company had several name changes and on April 21, 1994 changed
its name to "Reddi Brake Supply Corporation".
The principal business activity of the corporation through its
subsidiary, Reddi Brake Supply company, Inc., has been the sale
of auto parts, mainly to professional installers, through several
warehouses located throughout the United States.
On March 17, 1997 an involuntary petition in bankruptcy was filed
against the subsidiary, which resulted in the loss of the
business and the warehouses and as a result of the bankruptcy the
Company sustained substantial losses. After 1997 the Company had
no operations and is considered to be a development stage company
since that date.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Methods
The Company recognizes income and expenses based on the accrual
method of accounting.
Dividend Policy
The Company has not adopted a policy regarding payment of
dividends.
Income Taxes
On June 30, 2000 the Company had a net operating loss carry
forward of $48,347,527. The tax benefit from the loss carry
forward has been fully offset by a valuation reserve because the
use of the future tax benefit is doubtful since the Company has
no operations and there has been a substantial change in its
stockholders. The net operating loss will expire starting in
1998 through 2021.
Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share amounts are computed based on
the weighted average number of shares actually outstanding.
Diluted net income (loss) per share amounts are computed using
the weighted average number of common shares and common
equivalent shares outstanding as if shares had been issued on the
exercise of the preferred share rights unless the exercise
becomes antidilutive and then only the basic per share amounts
are shown in the report.
F-7
<PAGE>
REDDI BRAKE SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial Instruments
The carrying amounts of financial instruments, including cash,
securities, and accounts payable, are considered by management to
be their estimated fair values.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards
No. 130. The adoption of this standard had no impact on the total
stockholder's equity.
Accounting for Stock-Based Compensation
The Company has adopted Statement of Financial Accounting
Standards No. 123 but has elected to continue to measure
compensation cost under APB 25. The adoption of FASB No. 123 has
no impact
on the Company's financial statements.
Recent Accounting Pronouncements
The Company does not expect that the adoption of other recent
accounting pronouncements will
have a material impact on its financial statements.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of the assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were
assumed in preparing these financial statements.
3. SECURITIES - AVAILABLE FOR SALE
Securities consists of 2,034 shares of Micro Transmission
Systems. The fair market value is considered to be $2,034.
F-8
<PAGE>
REDDI BRAKE SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
4. SUBORDINATED CONVERTIBLE DEBT
On February 9, 1995, the Company completed a private placement
of 9% adjustable convertible subordinated debentures due 2005 in
the amount of $6.9 million. Interest on the unpaid principal is
payable quarterly on April 30, July 31, October 31 and January
31 of each year. The Company may call the Debentures after
January 17, 1998. The debentures are subordinated to all of the
obligations due to the Company's bank and suppliers and are
convertible into shares of the Company's common stock at a
conversion price of $3.50 per share. The conversion price is
also subject to the antidilution adjustments.
The accrued interest payable is in default and therefore the
debt and the accrued interest is shown under current
liabilities.
Any holders of shares issuable upon conversion have demand and
piggyback rights to have the shares registered, at the Company's
expense, under the Securities Act of 1993.
The Company received approximately $6.5 million in net proceeds
from the Placement. The offering and sale of the securities in
the placement were not registered under the Act, in reliance
upon the exemption from registration provided by Regulation D.
The issuance costs of $400,000 are being amortized over ten
years.
5. PREFERRED STOCK
On March 25, 1996 and April 23, 1996, the Company authorized the
issuance of 400,000 shares of Class A preferred stock at $10
issue price and 550,000 shares of Class B preferred stock at $10
issue price. Subsequent to the authorization of the preferred
stock, the Company completed private placements of the 950,000
shares of preferred stock.
The Company received approximately $8.3 million in net proceeds
from the placements of the preferred shares. The offerings and
sale of the securities in the placement were not registered
under the Securities Act of 1933, in reliance upon the exemption
from registration provided by Regulation S.
The holders of class A and class B preferred stock are entitled
to a cumulative annual dividend at the rate of four percent of
the initial issue price of $10.00 per share, to accrue
quarterly. The dividends can be paid in cash or in common stock
of the Company at the option of the Company, at the conversion
rates outlined below.
The holders of class A and class B preferred stock will be
entitled to convert these shares into fully paid and non-
assessable shares of the Company's common stock. The agreement
provided for the automatic conversion of any preferred shares
not converted on December 31, 1997.
During 1996 and 1997 all of the preferred A and part of the
preferred B shares were converted into the Company's common
stock leaving a balance of 60,000 preferred B shares
outstanding.
F-9
<PAGE>
REDDI BRAKE SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
5. PREFERRED STOCK - continued
On September 29, 2000, by mutual agreement, the conversion rate
on the remaining 60,000 preferred B shares was modified to
provide for the issuance of 262.917 shares of common stock for
one share of preferred stock including any accumulated and unpaid
dividends on the remaining shares. On the date of this report the
Company was in negotiations with the preferred stockholders to
convert their preferred shares into common stock, which would
amount to the issuance of 15,775,020 common shares.
On June 14, 2000 the Company was authorized and issued 2,000,000
of class C preferred shares, to a related party, as reimbursement
for expenses paid. The terms of the class C preferred shares
carry voting rights of 50 votes for each share and after 90 days
from the issuance, conversion rights of one share of preferred C
for one share of common, at the option of the stockholder.
6. STOCK WARRANTS
On June 30, 2000, the Company had 20,000 warrants outstanding
issued to Software License - IDCS, Inc., which entitles the
holder to purchase one share of Common stock for each warrant at
an exercise price of $5.00 per share. The date of grant for the
warrants was October 19, 1991 and the expiration date is October
18, 2001.
No value was assigned to the warrants.
7. RELATED PARTY TRANSACTIONS
A related party owns 2,000,000 shares of the Company's
outstanding class C preferred stock.
8. GOING CONCERN
The Company intends to acquire interests in various business
opportunities which, in the opinion of management, will provide a
profit to the Company, however there is insufficient working
capital for any future planned activity.
Continuation of the Company as a going concern is dependent upon
obtaining additional working capital and the management of the
Company has developed a strategy, which it believes will
accomplish this objective through settlement of its debt and
additional equity funding and long term debt which will enable
the Company to conduct operations for the coming year.
F-10
<PAGE>
REDDI BRAKE SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
9. LEGAL ACTIONS
McCormick, et al., v. Reddi Brake Supply Corporation., et al.
On November 6, 1997, a class action lawsuit was filed in the Los
Angeles County Superior Court on behalf of all persons or
entities who bought common stock of the defendant prior to March
23, 1996, and/or who bought or sold any shares thereafter until
August 13, 1996, excluding defendants, their families, employees,
agents or assigns. The complaint asserts causes of action for
breach of fiduciary duty by officers and director and conspiracy
to manipulate the price of the common stock of the defendant.
The Reddi Brake Defendants have denied the claims. The parties
to the litigation have entered into a Stipulation of Settlement
dated May 21, 1999, dismissing the litigation with prejudice.
The Stipulation of Settlement provides that the Plaintiffs will
release the Company from a $20 million judgement if the Company
and individual defendants assign any and all rights for insurance
coverage to the Plaintiffs. As of the date of this report, the
settlement offer remains pending.
Sheerin, et al., v Reddi Brake Supply Corporation, Birin and
McGorrian et al.
On March 3, 1998, Allen J. Sheerin filed a lawsuit in the Los
Angeles County Superior Court against the Company and
specifically against two former officers and directors of the
Company. Mr. Sheerin alleges that these officers and directors
misrepresented the financial status of the Company during the
time that he was negotiating to buy shares in the Company, which
resulted in a loss to him of $2,100,000.
The parties have been negotiating a settlement agreement that
remains unresolved at the report date.
F-11
<PAGE>
