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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 Fiscal Year ended August 31, 1996 Commission File Number 0-26110
AMERICAN PHOENIX GROUP, INC.
FORMERLY KUSHI MACROBIOTICS CORP.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3768554
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5 Park Plaza, Suite 1260
Irvine, California 92714
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,
including Area Code: (714) 224-2525
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share)
Title of Class
Redeemable Warrants
Title of Class
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 twelve (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 ninety (90) days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the registrant's best knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
The aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $63,589,854 as of December 4, 1996.
The number of shares outstanding of Registrant's Common Stock as of
December 4, 1996: 27,969,371
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PART I
ITEM 1. BUSINESS
General
American Phoenix Group, Inc., a Delaware corporation ("American
Phoenix" or the "Company") was incorporated in Delaware in May 1994 under the
name Kushi Macrobiotics Corp. The Company is primarily engaged in providing,
through local affiliates, wireless data communications services to customers who
are located principally in developing economies thereby taking advantage of the
increasing demand for alternatives to wire line services in those locations.
The Company was initially engaged in the business of marketing premium
macrobiotic food products. Because the Company's marketing strategies were
unsuccessful, it determined to abandon this business and search for a suitable
merger or acquisition candidate. As a result of its search efforts, effective
September 26, 1996, the Company emerged as the surviving entity in a merger with
American Phoenix Group, Inc., a Nevada corporation ("APG"), and adopted that
company's name. Immediately prior to consummation of the merger, the Company
spun off its food business to its stockholders.
In November 1996, the Company purchased all issued and outstanding
shares of Tetherless Access Asia Limited, an Australian company ("TAAL"), in
consideration for the issuance of Common Stock and Preferred Stock giving the
shareholders of TAAL control of the Company. In connection with this
transaction, the Company sold substantially all of its assets. It is currently
expected that the proceeds of these sales will be used for the financing of the
Company's business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Security Ownership of Certain Beneficial
Owners and Management" and "Certain Relationships and Related Transactions."
TAAL and American Phoenix are together hereinafter sometimes referred to as the
"Company."
Background
Tetherless Access Limited, a California corporation ("TAL US"), was
formed in 1990. In September 1996, TAAL acquired all of the assets of TAL US and
assumed certain of its liabilities. The objective of TAL US was and the
objective of the Company is the creation of low cost medium speed wireless data
communications by obviating the need for wire lines in geographic locations,
particularly in developing economies outside the United States, where such lines
are either non-existent or costly to install. The Company believes that there is
a growing need for medium speed wireless services as a result of the following
factors:
* rapid improvements in the performance, and a reduction in the price
of personal computers resulting in an increase in the demand for these
products by multi-branch businesses;
* the growing need to adapt to the increased speed of data
communications as a result of the emergence of the Transport Control
Protocol/Internet Protocol ("TCP/IP") which is a set of protocols for
the transmission of data used in the Internet and which
has become the dominant international standard for data communications;
* the desire for continuing modernization of existing business systems
in developing economies.
Particularly in developing economies, conventional wireline
communications companies are not always able to meet the increased demand for an
improvement in the data communications infrastructure for a number of reasons.
First, many locations are too thinly populated to justify the capital
investments required to create such an infrastructure. Second, many of the
existing wirelines are unsuitable for higher speed data communications. Finally,
many of these companies have had long term relationships with existing customers
to whom they provide
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highly priced services that are extremely profitable. As a consequence, they
usually lack the incentive to reduce the prices required to make their services
attractive and widely available.
An additional impetus to the growth of the wireless business has been
the proliferation of technology associated with wireless indoor local area
networks and of mobile telephones, which have lead to a sharp reduction in the
price of wireless networking technologies. Therefore, wireless technology has
become a cost effective alternative to conventional wireline systems in many
suburban and rural areas around the world.
The Company believes that the combination of the above circumstances
has created a valuable business opportunity that it intends to exploit fully.
TAAL Business
The Company develops and operates public wireless data
communications services in cooperation with partners that are principally
located in developing economies. Its principal customers are multiple-branch
businesses in metropolitan areas that are in need of establishing electronic
links between the various branches and their customers and suppliers by forming
an internal "intranet," or that require high speed access to the Internet.
The Company's primary focus is on medium speed communications ranging
from 56kbps to 2mbps through Company installed and operated public networks. The
Company believes that many businesses require this speed for data communication
purposes. For example, many banks utilize client/server software based around
PC's that require interbranch data communications at such speeds. In addition,
businesses generally require this speed to access the Internet.
The Company believes that connecting clients through public networks
presents important business opportunities for two reasons. First, connecting
networks across metropolitan areas requires specific skills that in-house MIS
departments at business organizations do not usually possess. Generally, the
Company and its local affiliates are capable of providing cost-efficient
services by connecting multiple branches of a business across a metropolitan
area utilizing the special skills required for such assignments. Second, by
installing a network across an area of this size, the Company believes
that it can provide important cost savings by connecting multiple
customers to the same public network.
Services
The Company through its local affiliates provides wireless
data communications services using the TCP/IP protocol at speeds of up to 450
kilo bits per second. Specifically, the Company links customers to
the Internet and connects multiple customer sites together. The Company's
services are provided by the installation of networks which have a structure
similar to a cellular telephone communications system. The speed, range, and
other properties of the service depend on the particular system used by the
customer. The Company currently has two customer premises systems available:
SUBSPACE 2001(TM) wireless routers that use direct-sequence spread
spectrum and TCP/IP technology. These routers allow the user to create links to
network base sites up to 30 kilometers away. The average user will operate the
system at a speed of 110kbps.
SUBSPACE 2002(TM) wireless routers that use frequency hopping spread
spectrum and TCP/IP technology. These routers allow the user to create links to
network base sites located up to 20 kilometers away. The average user will
operate the system at a speed of 450kbps.
In public networks, the services provided through the Company's
affiliates are sold in packages consisting of a customer premises wireless
router and an installation kit that will cost the user approximately $2,500.
Installation and public monthly access fees vary by country, but the Company
believes that they are competitive with prices generally charged
by local telephone companies.
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The Company, through its affiliates, generally initiates the
planning and installation of the public networks. Once the network has been
installed, the Company or its local affiliates will usually provide the
services associated with public utilities, including customer services,
equipment maintenance and billing.
Sales and Marketing
The Company anticipates that it will primarily target customers located
in developing countries, especially in Asia, the Pacific Rim, the Indian
subcontinent and Africa.
To date, the Company has focused its efforts principally on making
preparations and laying the groundwork for its operations in those locations
where the Company will be operating public wireless data networks. Included
in such preparations are identifying suitable local partners, usually
telecommunications companies or Internet service providers, and securing the
necessary regulatory approvals such as operating licenses, spectrum
allocation and tariff approvals.
The Company usually operates through joint ventures with local partners
in each country to create public wireless metropolitan data communications
systems. Generally, such joint ventures provide public wireless metropolitan
internetworking systems, or private internetworks in which geographically
dispersed branches of a single business organization can communicate. Pursuant
to such arrangements, the Company will generally provide the management
expertise, technology and capital required to launch and sustain the networking
systems. The local joint venture partners will usually provide personnel and the
relationships with local government officials that are a prerequisite to the
success of the Company's business on a local level as well as working capital.
The Company has initiated, among others, the following projects:
* A joint venture with a local telecommunications company in Manila,
Philippines. This network provides high-speed wireless public
access to the Internet and private intranet services to customers that
include a major bank, a chain of fast food restaurants and government
agencies;
* A joint venture with a local internet service provider in Buenos
Aires, Argentina. This internetwork provides high-speed wireless public
access to the Internet and private intranet services to customers that
include a major bank and the local offices of multinational
corporations;
* A joint venture with a branch of the Chinese People's Liberation Army
in cooperation with the Beijing Tourism Administration that is
developing a wireless internet in Beijing to provide Internet and
booking services to hotels; and
* Service agreements with a major retailer and a bank in Australia to
link their rural and fringe urban branches to their respective national
inter-branch computer networks.
TAAL currently maintains offices in Sunnyvale, California; Melbourne,
Australia; Beijing and Shenzhen, China; Buenos Aires, Argentina; Manila,
Philippines; and Cape Town, South Africa.
Network Equipment Development
The Company is a communications service provider. As a result,
development of network equipment is not considered part of its core business.
Nevertheless, as a consequence of the current lack of availability of equipment
required to access and operate the wireless data communications networks, the
Company engages third parties to develop the radio technology and hardware
necessary for the Company's services to operate. The Company also designs its
own computer software and internetworking systems.
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The Company cooperated with Cylink Corporation to modify and
manufacture the radio technology required for the operation of the SubSpace
2001. The radio technology used in the SubSpace 2002 was modified by RDC
Communications to fit the Company's specifications.
The Company anticipates that uniform standards will emerge in the wide
area data communications industry that are likely to lead to an increase in the
supply of suitable equipment. Therefore, it will be less involved in the
development of products required to access and operate its networks.
Competition
Among the Company's principal competitors are the traditional
telecommunications companies that provide wire line services. The Company will
usually benefit to the extent that these companies are unable to deliver wire
lines at competitive prices and without the usual waiting time. As a result, the
Company believes that it is able to compete effectively with these companies,
especially in developing economies.
In developing economies there are a number of operators that provide
wireless network services, most notably data communications via the GSM mobile
telephone networks, that are potential competitors of the Company's services.
However, most of these services are of limited bandwidth, costly and usually
targeted at mobile users.
Additional potential competitors include a number of wireless network
operators, including Advanced Radio Technologies, National Digital Network and
Winstar. These companies utilize a new generation of low cost high speed point
to point microwave equipment. However, these companies operate almost
exclusively in the United States.
The Company utilizes a technology that is generally well-known and
understood. Therefore, there can be no assurance that other companies will not
enter this market and compete effectively with the Company.
ITEM 2. PROPERTIES
In September, 1995, TAL US entered into a three-year Second Sublease
for approximately 15,000 square feet of office and warehouse space located in
Sunnyvale, California. The lease calls for a monthly payment of $11,250 in year
one, $12,000 in year two, and $12,750 in year three. The Second Sublease is
subject and subordinate to a Master Lease dated October, 1985. In addition, TAL
US shall pay to the sublandlord TAL US's pro rata share (18.16%) of all costs
and expenses of every kind and nature which may be imposed, at any time, on the
sublandlord for the premises pursuant to the Master Lease or the Sublease
(except for Base Rent) including, but not limited to, additional rent, property
taxes, common area maintenance, HVAC, and utilities.
In August 1996, the Company entered into a five-year lease for 2,134
square fee of office space located in Irvine, California. The lease calls for
monthly payments of $3,777.
In August 1995, the Company entered into a five-year lease for 4,000
square feet of office space located in Stamford, Connecticut. The lease provides
for monthly payments of approximately $5,000, escalating to $6,000 during the
fifth year of the agreement. The Company moved into the facility in October 1995
and moved out in September 1996. In September 1996, the Company entered into an
agreement with a subtenant to sublet the office space from the Company for
substantially the same terms and for the same period as the Company's lease with
the landlord. The subtenant will pay rent directly to the landlord during the
term of the agreement. The Company remains liable for performance on the lease
if the subtenant defaults on the agreement.
In August 1995, the Company entered into a five-year lease for 27,000
square feet of warehouse space located in Parsippany, New Jersey. The lease
calls for monthly payments of approximately $10,000 during the term of the
lease. The Company occupied such space beginning in September 1995 and moved out
in April 1996. In April 1996, the Company entered into an agreement with a
subtenant to sublet the warehouse from the Company for substantially the same
terms and for the same period as the Company's lease with the landlord. The
subtenant will pay rent directly to the landlord during the term of the
agreement. The Company remains liable for performances on the lease if the
subtenant defaults on the agreement.
ITEM 3. LEGAL PROCEEDINGS
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Mendelson v. Kushi Macrobiotics Corp. In March 1996, the Company
terminated its Vice President of Sales, Mr. Mark Mendelson, for cause. Mr.
Mendelson commenced an action against the Company in Superior Court in Stamford,
Connecticut, for alleged breach of his employment agreement with the Company and
related matters. The Court granted Mr. Mendelson's motion for an attachment in
the sum of $130,000. The Company deposited the attachment amount in an
attorney's escrow account pending resolution of the matter. There have been
recent settlement discussions but no settlement has been reached.
American Phoenix Group, Inc. v. Daniel J. Doud. On August 2, 1995, APG
filed a complaint against Daniel J. Doud ("Doud") in the Superior Court of the
State of California, County of Los Angeles, Case No. BC132728, alleging, inter
alia, Breach of Contract, Breach of Promissory Note, Fraud, Deceit and Negligent
Misrepresentation. The dispute involves the 1993 sale by APG of all of the
issued and outstanding common shares of ECI Construction Services, Inc.
("ECICS"), then a wholly owned subsidiary of APG, for a purchase price of
$750,000 (the "Sale"). Doud agreed to purchase ECICS for $750,00 and executed a
written promissory note in favor of APG. The Sale also required Doud to deliver
500,000 shares of common stock of APG ("Shares") beneficially owned by him to a
collateral account for ECICS"s bonding company, Golden Eagle Insurance Company,
to satisfy a bond which was guaranteed by Doud and APG. In March 1994, and
continuing to the present, Doud has failed to pay to the Company $750,000
pursuant to the written promissory note and to deliver the Shares into the
collateral account. The Company seeks payment under the promissory note and
other relief. Doud has requested arbitration of this controversy.
In 1994, APG rescinded the acquisition of 99.52% of the equity of ECI
France, S.A. formerly known as Handtop France, S.A. Although the transaction
was rescinded, the Company established a liability of $526,000 for obligations
to Banque de Neuflixe, Schlumlberger Mallet and Credit Lyonnais ("Banks"),
whereby the Banks advanced funds to ECI France, S.A. secured by a guarantee
from the Company. On May 16, 1995, Credit Lyonnais was awarded a court judgment
in France against the Company for approximately $300,000 principal amount plus
interest from July 28, 1994.
Bruce Street Medical Center Annex, a Nevada Limited Partnership, and
Robert Roggen, as General Partner v. American Phoenix Group, Inc. On May 17,
1995, Bruce Street Medical Center Annex, a Nevada Limited Partnership, and
Robert Roggen, as General Partner (jointly "Medical Center"), filed a complaint
in the District Court of the State of Nevada, Clark County, Case No. A346087,
against APG alleging monies owed pursuant to a certain lease agreement which the
Medical Center allegedly entered into with APG on or about December 1994. The
Complaint seeks to recover monies for, inter alia, unpaid rent at the rate of
$3,880.10 per month from and after December 24, 1994 and for reimbursement of
certain tenant improvements made by the Medical Center allegedly on APG's behalf
in an amount in excess of $12,500. The Company disputes the validity of the
lease agreement. To date, the Company is unaware of any further prosecution of
this lawsuit.
Daniel J. Doud v. American Phoenix Group, Inc. On November 8, 1995,
Daniel J. Doud ("Doud") filed a complaint against APG in the Superior court of
the State of California, County of Los Angeles Case No. SC039240 alleging inter
alia, breach of contract, breach of promissory note and unjust enrichment. Doud
further alleges that he entered into an Employment Agreement dated March 1, 1994
with APG whereby APG agreed to pay Doud $84,000 per year plus certain benefits,
including a signing bonus; $4,200 for reimbursable costs of health insurance;
$8,100 for moving expenses; $67,000 for travel expenses; and $4,200 for auto
allowance in exchange for Doud's future services to be rendered for APG. Doud
also asserts that on November 9, 1993, he entered into a Business Loan Agreement
with Handtop Technologies, S.A. to receive $325,000 plus interest at the rate of
8.5 percent per annum with a maturity date of June 30, 1994, and that his
obligation was subsequently assigned to and undertaken by APG. APG disputes the
validity of the employment agreement, the validity of the business loan
agreement and disputes that Doud rendered any services to APG. The Company has
numerous defenses to this complaint and intends to vigorously defend this
action.
General Electric Capital Corporation v. Environmental Control
Industries and American Phoenix Group, Inc. On October 17, 1994, General
Electric Capital Corporation ("GECC") filed a complaint in the Superior Court of
the State of California, County of Alameda, Case No. 741459 against
Environmental Control Industries and APG for monies owed and seeking possession
of equipment provided to Environmental Control Industries under that certain
Lease Agreement dated August 23, 1990 ("Lease"). On or about August 24, 1990,
APG executed a guarantee in favor of GECC ("Guarantee"). GECC alleges that
Environmental Control Industries defaulted under the Lease. By this complaint,
GECC seeks the sum of $39,596.84, claimed to be due and owing under the Lease as
of March 1, 1994, $6,426.16 under an amendment to the Lease, interest at the
rate of 10 percent per annum or $7,679.14 up through October 30, 1995 and
reasonable attorneys' fees. GECC also seeks to hold APG liable under the
Guarantee. On October 30, 1995, GECC sought and obtained default judgments
against Environmental Control
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Industries and APG. The Company disputes the validity of the default judgment
and may seek to have the default judgment set aside and to assert any defense it
may have to this action.
The Company is also party to various suits and claims incidental to its
business. In the opinion of management, the ultimate disposition of these
proceedings will not have a material adverse effect on the Company's financial
position or results of operations.
Threatened Claims
On July 6, 1995, the Franchise Tax Board of the State of California
("FTB") served APG with a Notice of Corporation Tax Deficiency demanding that
APG pay $93,434.65 in delinquent income taxes for the period August 1990, August
1992 and August 1993, file all past due returns and pay the total of all tax,
penalties and interest due for each of the above referenced years. These
assessments arise from federal income tax amounts assessed by the FTB. The
Company disputes that any of this assessment is due. In addition to other
remedies, the FTB has suspended the Company's foreign corporation qualification
in California.
On June 30, 1995, the American Stock Exchange notified APG that it owed
$22,000 for fees and other costs incurred to list APG shares of common stock on
this exchange.
On or about March 16, 1996, the Internal Revenue Service filed a Notice
of Federal Tax Lien in the amount of $12,291.14 allegedly based on APG unpaid
balance of a tax assessment, including interest and penalties for the tax period
ending September 30, 1994.
In August 1995 APG entered into an employment agreement with its then
President, Wallace N. Seward. The agreement provided for an annual base salary
of $120,000. In the event of a termination by the Company other than for cause
or due to death or disability, the Company was to pay a sum of $250,000. The
Company has not made any payments under the agreement. Mr. Seward has advised
the Company in writing of his claim in the sum of $500,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the merger with American Phoenix Group, Inc., in May
1996, holders of 1,384,995 shares of Common Stock consented to the merger. This
represented approximately 50.4% of the total number of shares of Common Stock
then issued and outstanding.
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PART II
ITEM 5. MARKET PRICE OF REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock and Warrants are traded on the Nasdaq
SmallCap under the symbol APHX.
The following table sets forth the high and low bid quotations for the
Company's Common Stock and Warrants from the fiscal quarter ended August 31,
1995, when the Company completed its initial public offering, through the fiscal
quarter ended August 31, 1996. These quotations have been reported by the
National Association of Securities Dealers, Inc. and represent quotations by
dealers without adjustments for retail mark-ups, mark-downs or commissions and
may not represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Warrants
------------ --------
Fiscal
Quarter High Low High Low
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ended
August 31, 1995 $6 1/4 $4 1/2 $1 3/4 $ 3/4
Ended
November 30, 1995 $5 1/2 $3 5/8 $2 1/4 $1 1/4
Ended
February 29, 1996 $ 5 $ 3 $2 1/4 $ 1
Ended
May 31, 1996 $ 4 $1 5/8 $1 5/8 $11/16
Ended
August 31, 1996 $4 1/4 $1 3/4 $1 3/4 $ 3/8
</TABLE>
The Company has not paid a cash dividend on its Common Stock. The
Company intends to retain all earnings for the foreseeable future for use in the
operation and expansion of its business and, accordingly, the Company does not
contemplate paying any cash dividends on its Common Stock in the near future.
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ITEM 6. SELECTED FINANCIAL DATA
The following tables summarize certain financial data that are
qualified by the more detailed financial statements included herein. Figures are
stated in thousands of United States Dollars, except per share amounts.
<TABLE>
<CAPTION>
Fiscal Year Ended August 31 1996 1995
- ------------------------------ -------- -------
<S> <C> <C>
Net Sales $ -- $ --
Income/(Loss) $ (4,919) $(2,794)
Net Earnings/(Loss) per Share $ (0.26) $ (0.22)
Selected Balance Sheet Data:
Working Capital $ 9,170 $(2,726)
Total Assets $ 11,196 $ 434
Total Liabilities $ 5,914 $ 3,010
Stockholders' Equity/(Deficit) $ 5,283 $(2,576)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto included elsewhere
herein. As a result of the merger with American Phoenix Group, Inc., a Nevada
corporation ("APG"), and which for accounting purposes was treated as a
reverse acquisition, the Company, which prior to the merger was known as Kushi
Macrobiotics Corp., adopted the fiscal year end of APG. As a consequence, the
results for the years ended August 31, 1996 and 1995 are those of APG.
OVERVIEW
During the fiscal year ended August 31, 1996, APG was an international
technology and financial holding organization engaged principally in developing
advanced technologies through wholly-owned subsidiaries. APG's strategy was to
acquire technology related businesses principally by the issuance or exchange of
APG common stock for operating companies or income producing assets. To that
end, APG consummated certain transactions during the past fiscal year that added
substantial value to the company and to shareholders' equity. The following
acquisitions, all of which were subsequently disposed of in November 1996, were
completed during the year:
Barlile Corp. Ltd. In October, 1995, the Company's wholly owned
subsidiary, Tokan, acquired approximately 13.6% of the outstanding
shares of Barlile in exchange for 510,147 shares of APG common stock.
At the time of the investment, Barlile was listed on the Australian
Stock Exchange. Barlile was engaged in the agribusiness, dairy and
brewery industries as a participant in joint ventures operating in the
Pacific Rim.
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Masling Industries Pty.Ltd. In February 1996 the Company's subsidiary,
Marine Turbine Australia Pty.Ltd. ("MTA") acquired all of the
outstanding stock of Masling, a leading accredited aircraft component
overhaul and engineering facility.
Note Portfolio. In February 1996, the Company and P.R. Finance &
Investment Ltd. entered into a note purchase agreement in which the
Company acquired $9.7 million principal amount in promissory notes for
1,280,000 shares of APG common stock and $3.0 million promissory note.
Based principally on the aforementioned acquisitions, APG reported
(unaudited) total assets of approximately $18.5 million and shareholders' equity
of $10.5 million in its Form 10-QSB for the quarter ended May 31, 1996.
On May 30, 1996, the boards of directors and the shareholders of the
Company and of APG approved a merger agreement which provided, as amended, that
the APG shareholders would own 85% of the combined entity and the Company's
shareholders would own 15%. Immediately prior to consummation of the merger, the
Company's macrobiotics foods business was spun-off to its shareholders. The
merger was consummated on September 26, 1996, and the Company emerged as the
surviving entity, changed its name from Kushi Macrobiotics Corp. to American
Phoenix Group, Inc. and, having disposed of its food business, pursued the
business of APG.
On October 24, 1996, the Company entered into an agreement to acquire
all of the capital stock of Tetherless Access Asia Ltd. ("TAAL"), a privately
held Australian corporation, in exchange for shares of Common Stock and
Preferred Stock to be issued to the shareholders of TAAL. On a fully diluted
basis, the shareholders of TAAL are the beneficial owners of 60% of the
Company's Common Stock. As a condition to closing, the Company was required to
sell its business assets and make the proceeds generated from such disposition
available to fund the business of TAAL.
The TAAL transaction was consummated on November 13, 1996. In
connection with the consummation of the TAAL transaction, the Company's
MTA/Masling subsidiary and its Barlile and note portfolio investments were sold
for a total consideration of approximately $10.3 million payable incrementally
and in full by February 28, 1997.
Upon compliance with certain legal requirements, the Company intends
to change its name to TAL Wireless Networks, Inc., implement a one-for-two
reverse split of its common stock, and distribute a dividend of one common stock
purchase warrant for every four shares of the Company's common stock held as of
a record date of October 30, 1996. The Company's future growth plans and
strategies are based on growing the business of TAAL.
RESULTS OF OPERATIONS
The Company's principal subsidiaries and operating assets were acquired
during the fiscal year ended August 31, 1996, and were disposed of on or about
November 12, 1996, prior to the TAAL acquisition. Accordingly, the carrying
values of the Company's operating assets and investments at August 31, 1996,
were adjusted to reflect their net realized value upon disposition in November
1996. The write-down of the Company's investment in Barlile resulted in a
$683,000 loss. The discontinued operations of the Company generated a net
operating profit of approximately $350,000.
Total general and administrative expenses for the year ended August 31,
1996 were approximately $4,427,000. Such costs included approximately $3,638,000
reflecting the estimated fair value of the Company's common shares issued for
services to consultants ($2,838,000) and the Company's Chief Executive Officer
("CEO")($200,000). Included in other general and administrative costs were:
legal, accounting and professional fees in the amount of $150,000; travel and
entertainment costs of $260,000, including $200,000 of previously unreimbursed
business expenses incurred by the CEO; rent, salaries and other overhead costs
of $294,000; and consulting fees in the amount of $85,000.
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Total interest expense during the year ended August 31, 1996, was
approximately $150,000 reflecting the interest incurred on notes payable in
connection with the partial funding of the Company's acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of approximately $9.0 million at August
31, 1996, an increase of nearly $11.8 million over the ($2.8) million working
capital deficit at August 31, 1995. The increase in working capital is
principally due to approximately $10 million net assets to be realized from the
acquisition and disposition of discontinued operations and $2.8 million proceeds
realized from the sale of common shares under Regulation S placements, partially
offset by the costs of operations. At August 31, 1996, the Company had total
cash of approximately $650,000.
In September 1996, the Company loaned $200,000 to Vancouver Development
Company ("VLD") in exchange for which it received a promissory note from VLD
payable on or about November 11, 1996. The note is currently in default. The
loan was made in connection with purported agreements entered into in November
1995 which provided for the acquisition of VLD by the Company and the employment
of its principal. These purported agreements have since been rescinded.
As discussed elsewhere herein, the Company's growth plans and
strategies are based on growing the business of TAAL. The Company will receive
approximately $10.3 million cash proceeds incrementally between the dates of
disposition of its Australian assets, on or about November 12, 1996, and
February 28, 1997. The planned use of such proceeds during the next 12 months
includes: $1.0 million for reduction of accounts payable; $1.5 million for
capital equipment expenditures for TAAL network systems; $2.4 million costs
associated with installing and developing network systems; $700 thousand for
product development; $1.1 million for sales and marketing costs; and $1.9
million for overhead and general corporate purposes.
The Company will, from time to time, seek to use equity to resolve its
obligations. Accordingly, the holder of a $2.2 million note payable has agreed
to accept shares of the Company's common stock to resolve the debt. In addition,
the Company accrued and will pay by issuing common shares approximately $2.2
million for consulting fees incurred during the year ended August 31, 1996. Such
issuances of equity to resolve debt are expected to be consummated in December
1996.
The Company also anticipates that, if the TAAL business meets its
growth objectives, warrants exercisable at $3.75 may be exercised in the future
thereby generating material proceeds for the Company. Such possible proceeds
would be used to fund a more rapid expansion of its business.
The Company believes that $10.3 million funds generated by the sale of
assets, the planned payment of debt with equity, and anticipated revenues from
its network systems, are likely to be sufficient to fund the costs of launching
at least four (4) new networking systems and to meet operating expenses for the
next 12 months. If for any reason these funds were not to be available to the
Company, the Company's plan of operation could be materially and adversely
affected. No assurance can be made that alternative capital sources would become
available.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included herein commencing on page F-1.
11
<PAGE> 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On October 30, 1996, the Company dismissed Israeloff, Trattner & Co. as
its independent accountants ("Israeloff"). This action had been approved by the
Company's Board of Directors. Israeloff's reports on the Company's financial
statements for the years ended December 31, 1994 and 1995 contained "going
concern" qualifications. Otherwise, during the past two years Israeloff did not
issue a report on the Company's financial statements that either contained an
adverse opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period of their engagement from September 1994 until October
30, 1996, there were no disagreements between the Company and Israeloff on any
matter of accounting principles or practices, financial statement disclosure, or
audit scope and procedure, which disagreement, if not resolved to the
satisfaction of Israeloff, would have caused them to make reference to the
subject matter of the disagreement in connection with any report that was to
have been, or will be, prepared for the Company.
On October 30, 1996 the Company's Board of Directors appointed
Hollander Gilbert & Co. ("Hollander") as its independent accountants. Prior to
such engagement, the Company did not consult with Hollander regarding the
application of accounting principles to a specified transaction, or the type of
audit opinion that may be rendered with respect to the Company's financial
statements.
12
<PAGE> 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
OFFICERS AND DIRECTORS
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION TO BE HELD
<S> <C> <C>
Patrick N. Di Carlo ....... 59 Director, Chief Executive Officer
John Davis ................ 41 Director
Jay W. Hubbard ............ 72 Director
Daniel A. France .......... 48 Director, Chief Financial Officer
</TABLE>
PATRICK N. DICARLO has been the Chief Executive Officer and President
of the Company since September 1996. Prior thereto he had been the Chief
Executive Officer and President of APG since June 1996. Over the last
several years, Mr. DiCarlo served as a consultant to APG from time to time.
Before joining APG, Mr. DiCarlo spent the last ten years as an international
financial advisor in the U.K. and France. Prior to his international financial
advisor role, Mr. DiCarlo spent over 25 years in roles such as a merchant banker
(Zurich, Switzerland) and founder and chairman of such companies as Cavendish
Guaranty Bank (UK), Cavendish Insurance Co., Gibraltar (UK), Cambridge Group
International (UK) and GCI International (domestic).
JOHN DAVIS has practiced as an attorney in Australia for the past 18
years and has specialized in commercial and tax jurisdictions. Since 1988, he
has also been a Director and Chief Executive Officer of Kamisha Corporation
Limited, a licensed securities dealer in Australia. Mr. Davis is on the Board of
various other companies which are active in managed futures, property
syndication, agribusiness, finance and technology industries.
JAY W. HUBBARD is a native of California, who served in the United
States Marine Corps. from 1940 to 1975 as an Infantry Officer (WWII) and as a
Fighter Attach Pilot (Korean and Vietnam Wars). Mr. Hubbard retired as Brigadier
General in December 1972. Mr. Hubbard is a graduate of the National War college
and holds an M.S. in International Affairs from The George Washington
University. He has post-military experience in residential development and
served as a Consultant-Interim Chief Executive Officer/Chief Operating Officer
steering public companies through Chapter 11 reorganizations.
DANIEL A. FRANCE was a co-founder of the Company and served as its Vice
President/Finance and Chief Financial Officer from 1994 to present. Mr. France
is a CPA, beginning his career in public accounting with Peat, Marwick, Mitchell
& Co., in June 1973. From 1976 until 1989, Mr. France held senior accounting and
financial positions with CBS (June 1976 to April 1981), the RCA Corporation (May
1981 to January 1986) and Citibank, N.A. (January 1986 to March 1987). From
April 1988 until May 1992, he served as Vice President/Finance of Sonin, Inc., a
privately-held manufacturer of electronic tools. Mr. France was the Chief
Financial Officer of Natural Child Care, Inc. from May 1992 until September
1993. Following its mergers with Winners All International, Inc., he maintained
its accounting records on a part-time basis until August 1994. He also
maintained the accounting records of Light Savers USA, Inc. from February 1994
until December 1994 when he resigned to devote full time to the Company.
BOARD OF DIRECTORS
Each director is elected at the Company's annual meeting of
stockholders and holds office until the next annual meeting of
stockholders, or until his successor is elected and qualified.
At present, the Company's bylaws require no fewer than one director.
The bylaws permit the Board of Directors to fill any vacancy and the
new director may serve until the next annual meeting of stockholders
13
<PAGE> 14
or until his successor is elected and qualified. Officers are elected by the
Board of Directors and their terms of office are, except to the extent governed
by employment contracts, at the discretion of the Board.
COMPENSATION OF DIRECTORS
It is contemplated that the Company's directors will be compensated for
attending Board meetings. The amounts of such compensation are to be determined.
EMPLOYMENT AGREEMENTS
In June 1996, the Company entered into a two-year employment agreement
with Daniel France, its Chief Financial Officer. The agreement is automatically
renewable for one year periods. The agreement provides for a base annual salary
of $115,000, subject to adjustment based on the Comsumer Price Index and merit
increases as recommended by the Board of Directors. The agreement also provides
for a performance bonus. In addition, the agreement entitles Mr. France to a
monthly car allowance of $600 and, for a period of six months, a monthly housing
allowance of $1,500. Mr. France also received a one time relocation allowance of
$25,000 in connection with the Company's move from Connecticut to California.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company during the two fiscal years ended August 31, 1996 (i) to its Chief
Executive Officer and (ii) to the three highest paid employees of the Company
whose cash compensation exceeded $100,000 per year in any such year (other than
the individuals listed in the table, no employee of the Company received
compensation in excess of $100,000):
14
<PAGE> 15
Summary Compensation Table(1)(2)(3)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Annual Compensation
(a) (b) (c) (d) (e)
------------------------------------------------------------------------------
Name/Principal Position Year Ended August 31 Salary ($) Bonus All Other Compensation
===============================================================================================================
<S> <C> <C> <C> <C>
Michio Kushi 1996 $52,000 -- $39,000
Chief Executive Officer(4)
-----------------------------------------------------
1995 $39,000 -- --
-----------------------------------------------------
Dan Almagor 1996 $90,000 -- --
Chief Executive Officer(5)
-----------------------------------------------------
1995 -- -- --
-----------------------------------------------------
Daniel A. France 1996 $77,613 $ 9.702 $66,750
Chief Financial Officer
-----------------------------------------------------
1995 $56,250 -- --
-----------------------------------------------------
Rodney C. Lewis 1996 $77,613 $ 4,851 $68,500
VP, Sales and Marketing(6)
-----------------------------------------------------
1995 $56,250 -- --
-----------------------------------------------------
</TABLE>
15
<PAGE> 16
- -------------------------
(1) The above compensation does not include the use of an automobile and
other personal benefits, the total value of which do not exceed as to
any named officer or director or group of executive officers the lesser
of $50,000 or 10% of such person's or persons' cash compensation.
(2) Pursuant to the regulations promulgated by the Securities and Exchange
Commission, the table omits columns reserved for types of compensation
not applicable to the Company.
(3) None of the individuals listed in the table above received any
long-term incentive plan awards during the fiscal year.
(4) Mr. Kushi became CEO on April 26, 1996 and resigned effective September
26, 1996.
(5) Mr. Almagor became CEO on December 22, 1995 and resigned on April 26,
1996.
(6) Consists of employment contract settlement payments accrued at August
31, 1995 and paid in September 1996.
STOCK OPTION PLANS
The Company's stockholders and Board of Directors have adopted a Stock
Bonus Plan (the "Bonus Plan") for the Company's employees and consultants. The
Company has reserved an aggregate of 100,000 shares of Common Stock for issuance
pursuant to the Bonus Plan. The Board of Directors and stockholders of the
Company also have adopted a Stock Option Plan (the "Option Plan," together
with the Bonus Plan, the "Plans") as an incentive for, and to encourage share
ownership by, the Company's officers, directors and other key employees and/or
consultants. The Option Plan provides that options to purchase a maximum of
250,000 shares of Common Stock (subject to adjustment in certain circumstances)
may be granted under the Option Plan. The Option Plan also allows for the
granting of stock appreciation rights ("SARs") in tandem with, or independently
of, stock options. Any SARs granted will not be counted against the 250,000
limit. The Company has orally agreed with the underwriter of its initial public
offering not to grant any SARs for two years after its initial Public Offering
and until the Company has a profitable quarter.
The purpose of the Option Plan is to make options (both "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code"), and non-qualified options) and "stock
appreciation rights" (with non-qualified options only) available to certain
officers, directors and other key employees and/or consultants of the Company in
order to give such individuals a greater personal interest in the success of the
Company and, in the case of employees, an added incentive to continue and
advance in their employment.
The Plans are administered by the majority vote of a Committee (the
"Committee") appointed by the Board of Directors and comprised of at least two
members of the Board who, in the case of the Option Plan, are not eligible to
receive options, other than pursuant to a formula, it being intended that such
plan shall qualify under Rule 16b-3 as promulgated pursuant to the Securities
Exchange Act of 1934, as amended. The Committee will designate those persons to
receive grants under the Plans and determine the number of shares and/or
options, as the case may be, to be granted and the price payable for the shares
of Common Stock thereunder. The price payable for the shares of Common Stock
under each incentive stock option will be fixed by the Committee at the time of
the grant, but most be not less than 100% (110% if the person granted such
option owns more than 10% of the outstanding shares of Common Stock) of the fair
market value of Common Stock at the time the option is granted.
The Company agreed with the underwriter of its initial public
offering that, until August 11, 1997, it will not issue any securities under any
of the Plans at less than the fair market value of the Common Stock on the date
of grant. The Company also agreed that, until such date, it will not register
more than 100,000 shares of
16
<PAGE> 17
Common Stock underlying the options issuable under the Option Plan, provided,
that unless otherwise consented to by the underwriter of its initial public
offering, any options granted which will be exercisable into registered stock
must provide that the options will not be exercised for six months following the
date of grant and an aggregate of not more than 25,000 options can vest during
each of the first two years following the date of this Prospectus.
No options or SARs were granted during the last fiscal year under the
Plans. However, subsequent to the end of the most recent fiscal year, the Board
has resolved to grant options to a number of employees, consultants and other
persons associated with the Company.
The following table sets forth information with regard to aggregated
option values at August 31, 1996 of options granted to the two highest paid
employees of the Company whose cash compensation exceeded $100,000 per year in
such year.
AGGREGATED OPTION/ SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Individual Grants
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Name Shares Value realized Number of Unexercised Options at Value of Unexercised In-the
Acquired on ($) FY-End (#) Money Options at FY-End
Exercise (#)
Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Daniel A. France 0 0 3,000 0 0 0
Rodney C. Lewis 0 0 3,000 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the fiscal year ended August 31, 1996 all Section 16(a)
filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with.
17
<PAGE> 18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of November 29, 1996, information
regarding the beneficial ownership of the Company's Common Stock based upon the
most recent information available to the Company for (i) each person known by
the Company to own beneficially more than five (5%) percent of the Company"s
outstanding Common Stock, (ii) each of the Company's officers and directors and
(iii) all officers and directors of the Company as a group. The "as adjusted"
columns set forth the number of shares of Common Stock (and the percentage of
total outstanding) that will be beneficially owned by the afore-mentioned
persons giving effect to the issuance of the Preferred Stock in connection with
the acquisition by the Company of TAAL and the issuance of 48,000,000 shares of
Common Stock upon conversion of the Preferred Stock. See "Business--General,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Relationships and Related Transactions." Unless
otherwise indicated, each stockholder's address is c/o the Company, 5 Park
Plaza, Suite 1260, Irvine, California.
<TABLE>
<CAPTION>
Shares Owned Beneficially Shares Owned Beneficially
and of Record (1) As Adjusted (2)
------------------------- ------------------------------
Name and Address No. of Shares % of Total No. of Shares % of Total
- ---------------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
John Davis 25,795 * 335,336 *
Patrick N. DiCarlo 2,096,070 7.5 2,096,070 2.8
Daniel France 265,046 * 265,046 *
Jay Hubbard 21,335 * 21,335 *
Consortium Investments Group 1,849,899 6.6 4,848,686 6.4
Level 7
575 Bourke Street
Melbourne, Australia 3000
P.R. Finance & Investment Ltd. 2,986,900 10.7 2,986,900 3.9
2001 Leeward Highway
Providenciales
British West Indies
Rubywell Pty. Ltd. 1,706,800 6.1 1,706,800 2.3
Level 20
307 Queen Street
Brisbane, Australia
Greenchip Emerging Growth (3) 1,045,032 1.1 13,585,411 17.9
Level 15
600 Bourke Street
Melbourne, Australia 3000
Greenchip Investment Ltd. (3) 1,045,032 * 13,585,411 17.9
Level 15
600 Bourke Street
Melbourne, Australia 3000
All Officers and Directors as a 2,408,246 8.6 2,717,787 3.6
Group (4 persons)
</TABLE>
- ------------------------------
* Less than 1%
18
<PAGE> 19
(1) Includes shares issuable within 60 days upon the exercise of
all options and warrants. Shares issuable under options or
warrants are owned beneficially but not of record.
(2) The shares of Common Stock issuable upon conversion of the
Preferred Stock have voting rights on an as converted basis.
As a consequence, such shares of Common Stock are deemed to be
outstanding for purposes of calculating the percentage
ownership of all persons listed in the "as adjusted" columns.
(3) Includes shares of Common Stock beneficially owned by the
Greenchip Emerging Growth Fund and the Greenchip Investment
Ltd. Also includes 262,261 shares of Common Stock beneficially
owned by Greenchip Opportunites Ltd. The "as adjusted" column
also includes 3,409,396 shares of Common Stock beneficially
owned by Greenchip Opportunites Ltd.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 13, 1996, the Company consummated the purchase of all
issued and outstanding securities of TAAL in consideration for the issuance of
4,000,000 shares of Common Stock and an aggregate of 16,000,000 shares of
Preferred Stock which were issued in four series and which are each convertible
over a period from six months to four years into three shares of Common Stock.
On a fully diluted basis, the former shareholders of TAAL will hold
approximately 60% of the Company's Common Stock. Under the terms of the
agreement, the former shareholders of TAAL have the right to appoint the
entire Board of Directors of the Company.
John Davis, a director of the Company and of TAAL, abstained from
voting on the transaction in his capacity as a director of the Company. In
addition, he resigned his position with TAAL shortly before the transaction was
consummated.
On February 27, 1996, the Company acquired from P.R. Finance &
Investment Ltd. ("P.R. Finance") a loan portfolio valued at approximately $9.7
million in exchange for 1,280,017 shares of the Company's common stock and a
promissory note for $3,000,000. Rubywell Pty. Ltd ("Rubywell") transferred its
2,133,361 shares of the Company's common stock to P.R. Finance as additional
consideration for the purchase of the loan portfolio. Both P.R. Finance and
Rubywell are principal stockholders of the Company.
Effective August 31, 1996, the Company's Board of Directors approved
the issuance of 1,226,000 shares of Common Stock to Wall Street Consulting for
services rendered to the Company. Wall Street Consulting is owned by Patrick N.
DiCarlo. Mr. DiCarlo is the Chief Executive Officer and a director of the
Company.
19
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. and 2. Financial Statements and Schedules
The financial statements are listed in the Index to Financial
Statements on page F-1 and are filed as part of this annual report.
3. Exhibits
The Index to Exhibits following the Signature Page indicates
the exhibits which are being filed herewith and the exhibits which are
incorporated herein by reference.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the last quarter of
the fiscal year ended August 31, 1996.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AMERICAN PHOENIX GROUP, INC.
By:/s/ Patrick N. DiCarlo
-----------------------
Chief Executive Officer
Dated: December 9, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below as of December 9, 1996 by the following
persons on behalf of Registrant and in the capacities indicated.
/s/
------------------------------
Patrick N. DiCarlo, Director
/s/
------------------------------
John Davis, Director
/s/
------------------------------
Daniel A. France, Director
(Chief Financial and Accounting Officer)
______________________________
Jay W. Hubbard, Director
<PAGE> 22
EXHIBITS
Registrant hereby incorporates by reference the following
documents filed as part of its Registration Statement on Form SB-2 (File No.
33-92154-NY), declared effective August 31, 1995 (the "Registration Statement"):
3.1 Restated Certificate of Incorporation
3.2 By-Laws
4.1 Specimen Common Stock Certificate
4.2 Specimen Preferred Stock Certificate
4.3 Specimen 10% Promissory Note
4.6 Form of Representative's Stock Warrant
4.7 Form of Representative's Warrant
4.8 Form of Subscription Agreement between Registrant and
Investors pursuant to October 31, 1995 Private Placement
Memorandum
10.1 Lease Agreement between the Registrant and American Office
Centers, Inc., dated December 12, 1994
10.2 Assignment and License Agreement between the Registrant and
Micho, Aveline and Philip Kushi, dated October 10, 1994, as
amended
10.3 Agreement between the Registrant and Micho, Aveline and Philip
Kushi, dated October 10, 1994.
10.4 Employment Agreement between the Registrant and Michio Kushi,
dated October 10, 1994, as amended
10.5 Employment Agreement between the Registrant and Robert Morrow,
dated October 20, 1994, as amended
10.6 Employment Agreement between the Registrant and Daniel France,
dated October 20, 1994, as amended
10.7 Employment Agreement between the Registrant and Rodney C.
Lewis, dated October 20, 1994, as amended
10.8 Consulting Agreement between the Registrant and Mark
Schindler, dated October 20, 1994, as amended
10.9 Consulting Agreement between the Registrant and Eugene
Stricker, dated October 20, 1994, as amended
10.10 Consulting Agreement between the Registrant and Fred Sternau,
dated October 20, 1994, as amended
10.11 1994 Kushi Macrobiotics Corp. Stock Option Plan
10.12 1994 Kushi Macrobiotics Corp. Stock Bonus Plan
Registrant hereby incorporates by reference the following
documents that were filed with Amendment No. 1 to the Registration Statement:
1.4.1 Form of Underwriter's Consulting Agreement, as amended
1.5 Warrant Exercise Fee Agreement
4.4 Specimen Warrant Certificate
4.5 Form of Warrant Agreement
4.6.1 Form of Representative's Stock Warrant, as amended
4.7.1 Form of Representative's Warrant, as amended
10.13 Form of Employee/Consultant Waiver Agreement
10.14 Security Agreement between the Company and Mr. Kushi
10.15 Form of Lock-up letter
10.16 Agreement between Registrant and ABIC International
Consultants, Inc. dated June 13, 1995
10.17 Agreement between Registrant and Regu-Tech(r) Associates, Inc.
dated January 12, 1995.
22
<PAGE> 23
Registrant hereby incorporates by reference the following documents
that were filed with Amendment No. 2 to the Registration Statement.
10.18 License Agreement between the Company and Baldwain Hill
Bakery, dated March 1, 1995.
10.19 License Agreement between the Registrant and U.S. Mills, Inc.,
dated June 9, 1995.
The following exhibit is incorporated by reference from the
Registrant's Form 10-QSB for the quarter ended September 30, 1995:
10.1 Millennium Securities Corp. Agreement
Registrant hereby incorporates by reference the following documents
that were filed with Registrant's Form 10-QSB for the year ended December 31,
1995:
10.20 Employment Agreement between the Registrant and Mark S.
Mendelson effective as of August 1, 1995
10.21 Agreement between Robert M. Morrow and the Registrant, dated
as of December 22, 1995.
10.22 Agreement between ACG International Inc. and the Registrant
dated December 4, 1995
10.23 Lease between the Registrant and Three Stamford Landing
Associates, LLC dated August 23, 1995
10.24 Lease between the Registrant and Allan V. Rose d/b/a AVR
Realty Company dated August 21, 1995
Registrant hereby incorporates by reference the following documents
that was filed with Registrant's Form 10-QSB for the quarter ended June 30,
1996:
2.1 Agreement and Plan of Merger by and among Kushi Macrobiotics
Corp. and American Phoenix Group, Inc. and Kushi Cuisine
Corporation dated June 1, 1996. (Terminated).
Registrant hereby incorporates by reference the following document that
was filed with Registrant's Registration Statement on Form S-4 (File No.
333-10755) that was declared effective on September 3, 1996:
2.2 Amended and Restated Plan of Merger by and among Kushi
Macrobiotics Corp., American Phoenix Group, Inc. and Kushi
Natural Foods Corp. dated August 12, 1996.
Registrant hereby incorporates by reference the following documents
that were filed with Registrant's Registration Current Report on Form 8-K on
November 29, 1996:
2.3 Plan and Agreement of Reorganization dated October 24, 1996,
by and between Registrant, Tetherless Access Asia Limited
("TAAL") and the Shareholders of TAAL
10.25 Agreement dated November 4, 1996, between Registrant, Rubywell
Pty, Ltd. and Marine Turbine Australia Pty, Ltd. and related
deed and promissory note
10.26 Deed between Registrant and Capital Finance Corporation and
related Promissory Note in the principal amount of $8,600,000
27 Financial Data Schedule (Electronic Filing)
23
<PAGE> 24
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheets as of August 31, 1995 and 1996
Consolidated Statements of Operations for the years ended
August 31, 1995 and 1996
Consolidated Statement of Stockholder's Equity (Deficiency)
for the years ended August 31, 1995 and 1996
Consolidated Statements of Cash Flows for the years ended
August 31, 1995 and 1996
Notes to Consolidated Financial Statements
Unaudited Pro Forma Combining Condensed Financial Statements
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
American Phoenix Group, Inc.
We have audited the consolidated balance sheets of American Phoenix Group, Inc.
(formerly known as Kushi Macrobiotics Corporation) and subsidiaries as of August
31, 1995 and 1996, and the related consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for the years then ended. 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 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
misstatements. 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Phoenix
Group, Inc. and subsidiaries as of August 31, 1995 and 1996, and the results of
their operations, stockholders' equity (deficiency) and cash flows for the years
then ended, in conformity with generally accepted accounting principles.
Hollander, Gilbert & Co.
Los Angeles, California
November 29, 1996
<PAGE> 26
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,039 $ 648,021
Due from related party (Note 8) 282,468
Net assets of discontinued operations (Note 2) 9,902,596
Investment in Barlile Corp. (Note 2) 150,000
---------------- --------------
TOTAL CURRENT ASSETS 283,507 10,700,617
PROPERTY AND EQUIPMENT, Net 46,526
OTHER ASSETS
Funds held in escrow (Note 4) 230,000
Insurance escrow deposit (Note 4) 150,000 150,000
Other deposits 69,190
---------------- --------------
150,000 449,190
---------------- --------------
$ 433,507 $ 11,196,333
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Due to related parties (Note 8) $ 346,228 $
Notes payable (Note 5) 696,762
Accounts payable and accrued expenses 846,790 1,004,418
Reserve for rescission/guarantee (Note 6) 526,000 526,000
Net liabilities of discontinued operations (Note 7) 594,188
---------------- --------------
TOTAL CURRENT LIABILITIES 3,009,968 1,530,418
LIABILITIES TO BE SATISFIED BY THE ISSUANCE
OF SHARES OF COMMON STOCK (Note 11) 4,383,159
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock - authorized 10,000,000 shares, $.01 par value ,
issued and outstanding - 4,000,000 shares in 1995 40,000
Common stock - authorized 50,000,000 shares, $.001 par value,
issued and outstanding 3,954,306 shares in 1995
and 19,119,371 in 1996 3,955 19,119
Additional paid-in capital 8,914,553 21,717,639
Accumulated deficit (11,534,969) (16,454,002)
---------------- --------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (2,576,461) 5,282,756
---------------- --------------
$ 433,507 $ 11,196,333
================ ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 27
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
REVENUES $ $
-------------- --------------
COSTS AND EXPENSES
General and administrative 4,426,956
Loss on reverse acquisition 2,512,876
-------------- --------------
TOTAL COSTS AND EXPENSES 2,512,876 4,426,956
-------------- --------------
(2,512,876) (4,426,956)
-------------- --------------
OTHER INCOME (EXPENSE)
Interest expense (148,994)
Write-down of investment in Barlile (Note 2) (683,000)
-------------- --------------
TOTAL OTHER INCOME (EXPENSE) (831,994)
-------------- --------------
LOSS FROM CONTINUING OPERATIONS (2,512,876) (5,258,950)
-------------- --------------
DISCONTINUED OPERATIONS:
Income (loss) from operations of MTA and Masling (Note 2) (281,562) 1,172,977
Income from operations of loan portfolio (Note 2) 506,395
Income from discharge of net liabilities of discontinued operations (Note 7) 594,188
Estimated loss on disposal of MTA and Masling (Note 2) (1,076,758)
Estimated loss on disposal of loan portfolio (Note 2) (856,885)
-------------- --------------
(281,562) 339,917
-------------- --------------
NET LOSS $ (2,794,438) $ (4,919,033)
============== ==============
NET LOSS PER SHARE
Loss from continuing operations $ (0.20) $ (0.28)
Income (loss) from discontinued operations of MTA and Masling (0.02) 0.06
Income from discontinued operations of loan portfolio 0.03
Income from discharge of net liabilities of discontinued operations 0.03
Loss on disposal of MTA and Masling (0.06)
Loss on disposal of loan portfolio (0.04)
-------------- --------------
Net loss $ (0.22) $ (0.26)
============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 12,488,000 19,120,000
============== ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 28
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED AUGUST 31, 1995 AND 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------- ------------------------ Additional
Shares Amount Shares Amount Paid-in Capital
----------- ----------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, August 31, 1994 4,000 $ 40,000 3,954,306 $ 3,955 $ 8,914,553
Net loss for the year
----------- ----------- ----------- ---------- ---------------
BALANCE, August 31, 1995 4,000,000 40,000 3,954,306 3,955 8,914,553
Conversion of preferred shares into common shares (Note 2) (4,000,000) (40,000) 8,533,446 8,533 31,467
Cancellation of shares issued to Rubywell (Note 2) (4,266,723) (4,267) 4,267
Sale of shares in Reg S placements 3,166,038 3,166 2,807,160
Issuance of shares for services 1,726,635 1,727 1,259,482
Issuance of shares to acquire interest in Barlile (Note 2) 510,147 510 832,490
Issuance of shares to acquire a loan portfolio (Note 2) 1,280,017 1,280 6,698,720
Issuance of shares for payment of note payable (Note 5) 128,002 128 216,905
Issuance of shares as replacement of previously
cancelled shares 469,340 469 (469)
Issuance of shares as compensation 426,672 427 199,573
Issuance of shares to settle accrued legal fees 53,334 53 99,947
Issuance of shares for payment of note payable (Note 5) 270,251 270 506,444
Shares retained by Kushi's pre-merger stockholders 2,867,906 2,867 147,101
Net loss for the year
----------- ----------- ----------- ---------- ---------------
BALANCE, August 31, 1996 $ 19,119,371 $ 19,119 $ 21,717,639
=========== =========== =========== ========== ===============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Deficit Total
--------------- --------------
<S> <C> <C>
BALANCE, August 31, 1994 $ (8,740,531) $ 217,977
Net loss for the year (2,794,438) (2,794,438)
--------------- --------------
BALANCE, August 31, 1995 (11,534,969) (2,576,461)
Conversion of preferred shares into common shares (Note 2)
Cancellation of shares issued to Rubywell (Note 2)
Sale of shares in Reg S placements 2,810,326
Issuance of shares for services 1,261,209
Issuance of shares to acquire interest in Barlile (Note 2) 833,000
Issuance of shares to acquire a loan portfolio (Note 2) 6,700,000
Issuance of shares for payment of note payable (Note 5) 217,033
Issuance of shares as replacement of previously
cancelled shares
Issuance of shares as compensation 200,000
Issuance of shares to settle accrued legal fees 100,000
Issuance of shares for payment of note payable (Note 5) 506,714
Shares retained by Kushi's pre-merger stockholders 149,968
Net loss for the year (4,919,033) (4,919,033)
--------------- --------------
BALANCE, August 31, 1996 $ (16,454,002) $ 5,282,756
=============== ==============
</TABLE>
<PAGE> 29
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations $ (2,512,876) $ (5,258,950)
Adjustments to reconcile loss from continuing operations
to net cash provided by (used in) operating activities:
Loss on reverse acquisition, including cash received 2,513,740
Interest expense 151,985
Write-down of investment in Barlile 683,000
Shares of common stock issued for services 1,461,209
Increase (decrease) in:
Accounts payable and accrued expenses 157,628
Liabilities to be satisfied by the issuance of shares
of common stock 2,177,000
-------------- --------------
Net cash provided by (used in) continuing operations 864 (628,128)
Net cash provided by (used in) discontinued operations 26 (1,339,468)
-------------- --------------
Net cash provided by (used in) operating activities 890 (1,967,596)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in other assets (149,222)
Purchases of furniture and equipment (46,526)
-------------- --------------
Net cash provided by (used) in investing activities (195,748)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 2,810,326
-------------- --------------
Net cash provided by financing activities 2,810,326
-------------- --------------
NET INCREASE IN CASH 890 646,982
CASH, Beginning of period 149 1,039
-------------- --------------
CASH, End of period $ 1,039 $ 648,021
============== ==============
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of shares of common stock for the following:
Acquisition of interest in Barlile $ 833,000
Acquisition of loan portfolio $ 6,700,000
Settlement of notes payable $ 723,747
Services rendered $ 1,461,209
Settlement of accrued legal fees $ 100,000
Note payable to acquire loan portfolio $ 3,000,000
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 30
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business - American Phoenix Group, Inc.
(the "Company"), formerly known as Kushi Macrobiotics Corporation, was
incorporated under the laws of the State of Delaware in May 1994.
Effective November 13, 1996, the Company acquired all issued and
outstanding securities of Tetherless Access Asia Ltd., a privately held
Australian corporation. The Company, as conditions of the merger,
disposed of its subsidiary, Marine Turbine Australia Pty. Ltd., its
investment in Barlile Corporation Limited and its investment in a loan
portfolio. The Company is now a communications services company
utilizing high speed wireless data routers.
Basis of Presentation - On May 30, 1996, American Phoenix Group, Inc.,
a Nevada corporation ("APG") and Kushi Macrobiotics Corporation
("Kushi") entered into an Agreement and Plan of Merger which provided
for the merger of APG into and with Kushi. Pursuant to the merger
agreement which closed on September 26, 1996, Kushi was the surviving
corporation and all of the issued and outstanding shares of common
stock of APG were converted into that number of shares of common stock
of Kushi which constituted 85% of the issued and outstanding shares of
Kushi as of the effective time of the merger. As of August 31, 1996,
APG had 38,088,869 issued and outstanding shares of common stock which
were converted into 16,251,465 shares of Kushi's shares ( a conversion
ratio of .4267 for each share of APG). Immediately after the merger,
the Company had 19,119,371 issued and outstanding shares of common
stock. All references in the accompanying financial statements to the
number of common stock have been restated to reflect the conversion
ratio. Simultaneously, Kushi changed its name to American Phoenix
Group, Inc. Although as a matter of corporate law, the existence of APG
ceased upon the merger, for accounting purposes, APG is deemed the
survivor and the merger is considered a reverse acquisition of Kushi by
APG. As a consequence, the Company changed its fiscal year end from
December 31 to August 31. Prior to the effective time of the merger,
Kushi transferred substantially all of its assets and liabilities to
Kushi Natural Foods Corp. ("Kushi Foods"), an entity newly organized
for the purpose of pursuing the natural foods business of Kushi. All of
the issued and outstanding common stock of Kushi Foods were distributed
to the pre- merger stockholders of Kushi as dividends. In as much as
all of the net assets of Kushi were spun-off prior to the merger, the
historical financial statements are those of APG.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned and majority
owned-subsidiaries: Tokan Holdings Inc., a Delaware corporation and
Marine Turbine Australia Pty. Ltd., an Australian proprietary limited
company ("MTA"). MTA's accounts include its wholly-owned subsidiary,
Masling Industries Pty. Ltd. , an Australian proprietary limited
company. MTA and Masling were sold on November 11, 1996, thus, its net
assets and results of operations are shown as "Discontinued Operations"
in the accompanying financial statements. All intercompany balances and
transactions have been eliminated.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.
<PAGE> 31
Property and Equipment - Property and equipment are stated at cost.
Depreciation is computed on the straight-line method based upon the
estimated useful life of the asset.
Foreign Currency Translation - Results of operations of foreign
subsidiaries are translated using the average exchange rates during the
period. Resulting translation adjustments are not material. All foreign
currency transactions are converted into US dollars using the exchange
rate at the date of the transaction.
Net Loss Per Share - Net loss per share is based upon the weighted
average number of common shares outstanding as adjusted by the
conversion ratio at the merger. Common share equivalents are not
included as they are anti-dilutive.
2. ACQUISITIONS AND DISPOSITIONS
Marine Turbine Australia Pty. Ltd. ("MTA") - Effective August 31, 1995,
APG acquired from Rubywell Pty. Ltd. ("Rubywell") 100% of the issued
and outstanding common stock of MTA in exchange for 4,000,000 shares of
Series B Preferred Stock of APG, which was converted into 8,533,446
shares of common stock. However, in July 1996, Rubywell surrendered
4,266,723 shares of common stock, by that reducing its holdings to
4,266,723 shares. Rubywell is a research and development company,
operating under an Australian government program, that developed and
enhanced a high speed ocean pursuit craft. MTA is an Australian
technology company formed to build and test a propulsion unit for
marine applications. MTA holds rights to the modular power unit
technology, which permits power from two or more gas turbine engines to
be coupled and transmitted through one transmission. The transaction
was accounted for as a reverse acquisition whereby APG was the legal
survivor, however, the accounting reflected MTA as the survivor since
MTA was in effect the continuing business and, accordingly, the
financial statements in 1995 are those of MTA.
On December 15, 1995, APG sold 1,250 shares (12.25% interest)
of MTA's common stock to Consortium Investment Group Pty. Ltd.
("Consortium") for a total consideration of $1,160,000 of which
$400,000 had been paid and the balance of $760,000 was due on September
30, 1996. Prior to this sale, APG owned 100% of MTA and after this
transaction, APG owned 87.75% of MTA. The sale resulted in a gain of
$1,007,046 representing the excess of the sale price over its carrying
amount which was offset against the estimated loss on disposal of MTA
and Masling. On November 11, 1996, Consortium assigned all of its
rights and interest in MTA's shares to Rubywell including the
outstanding balance of $760,000 due to APG which was settled by
Rubywell through the assignment of a promissory note from Budbox Pty.
Ltd. ("Budbox") to the Company. Budbox, an Australian corporation, is
an investment vehicle controlled by Geoff Player. After this
transaction, Geoff Player will beneficially own more than 5% of the
issued and outstanding shares of the Company.
In March 1996, MTA sold 937 shares (8.4% interest) of its
common stock to Consortium Development Fund ("CDF") for a total
consideration of $897,664 which was paid in full. Subsequently, APG
repurchased the shares from CDF in exchange for 959,053 shares of APG's
<PAGE> 32
common stock. APG recorded the transaction as issuance of shares of
common stock above par value. No gain or loss was recognized from the
exchange of the shares.
On February 16, 1996, MTA paid a non-refundable deposit of
$292,300 for the purchase of 100% outstanding shares of Masling. MTA
contemporaneously paid a non-refundable deposit of $23,700 for the
purchase of certain assets of Masling Rotor Wing Pty. Ltd. from Masling
stockholders, subject to Cootamundra Shire Counsel approval, which was
orally obtained. Masling is an accredited aircraft component overhaul
and engineering facility. A further $2,076,677 was due and payable on
September 30, 1996. As a result of the disposition of MTA on November
11, 1996, this liability was eliminated.
On November 11, 1996, the Company sold all of its equity
interest in MTA to Rubywell for $100 and a Royalty Agreement. All
receivables of the Company from MTA, including the receivable of
$760,000 from Consortium which was assigned by Consortium to Rubywell
concurrent with the sale, had been satisfied by the assignment of a
promissory note from Budbox for $1,500,000. The non-interest bearing
note is payable $150,000 on November 30, 1996, $350,000 on December 31,
1996, $500,000 on January 31, 1997 and $500,000 on February 28, 1997.
The note was issued by Budbox to Rubywell in exchange for 853,345
shares of APG's common stock that Rubywell owned. The Royalty Agreement
provides that MTA will pay a royalty to the Company of 3% of sales made
by MTA and/or Rubywell of boats produced utilizing the turbine
propulsion unit through December 31, 2000. Consequently, the net assets
of MTA, including Masling, are presented in the accompanying balance
sheet as of August 31, 1996 as "Net assets of discontinued operations"
which consisted of the following:
<TABLE>
<S> <C>
Cash $ 245,964
Accounts receivable 258,000
Receivable from sale of subsidiary stock 760,000
Inventory 1,182,027
Prepaid expenses 2,375
Property and equipment, net 940,742
Organization cost 10,729
Deposits and advances to affiliated companies 2,333,474
----------
Total assets 5,733,311
----------
Notes payable 2,054,037
Accounts payable and accrued expenses 126,534
Reserve for loss on disposition 2,083,804
----------
Total liabilities 4,264,375
----------
Net assets of discontinued operations $1,468,936
==========
</TABLE>
Operating results of MTA and Masling for the year ended August
31, 1996 are shown separately in the accompanying statement of
operations. The statement of operations for the year ended August 31,
1995 has been restated and operating results of MTA are also shown
separately.
<PAGE> 33
Following is a summary of results of operations of MTA and Masling for
the year ended August 31, 1996:
<TABLE>
<S> <C>
Revenues $1,730,016
Costs and expenses, excluding management fee to parent company 557,039
----------
Net income $1,172,977
==========
</TABLE>
Barlile Corporation Limited ("Barlile') - On July 26, 1995, through
APG's wholly owned subsidiary, Tokan Holdings, Inc.("Tokan"), the
Australian Foreign Investment Review Board gave approval for Tokan to
lodge a tender offer through September 25, 1995 to acquire up to all of
the issued and outstanding common stock of Barlile for $2.00 per share.
Barlile was engaged in the agribusiness, dairy and brewery industries
as a participant in joint ventures operating in the Pacific Rim. Tokan
elected not to proceed with lodging a full tender offer. On October 5,
1995, Tokan reached an agreement to acquire 552,100 shares of Barlile
common stock (or approximately 13.55% of the outstanding shares) for
$1,104,200 to be delivered at settlement. On October 26, 1995 APG
delivered 463,770 shares of its common stock as a guarantee against
Tokan's payment due at settlement, and issued an additional 46,377
shares of APG's common stock reserved to compensate for foreign
currency exchange rate fluctuations at the time of settlement. This
transaction settled for the consideration of an aggregate of 510,147
shares of APG's common stock in exchange for 552,100 shares of Barlile
common stock. The investment was recorded at its fair market value
(trading price of the Barlile shares in the Australian Stock Exchange
less 30% discount) at acquisition date of $833,000.
On November 11, 1996, the Company sold its investment in
Barlile to Clouden Pty. Ltd. as trustee for Finance Investment Trust in
exchange for a non-interest bearing note of $158,000 payable $79,000 on
November 21, 1996 and $79,000 on February 28, 1997. As of August 31,
1996, the investment in Barlile was written-down to its net realizable
value of $150,000.
Loan Portfolio - On February 27, 1996, APG and P.R. Finance &
Investment Ltd. ("P.R. Finance") entered into the Note Purchase
Agreement, which was amended as of May 3, 1996 (as amended the "Note
Purchase Agreement"). Under the Note Purchase Agreement, APG acquired
approximately $9.7 million principal amount in promissory notes (the
"Loan Portfolio") for 1,280,017 shares of APG's common stock, and a
promissory note in the principal amount of $3,000,000 (the "Note").
Rubywell transferred its 2,133,361 shares of APG's common stock to P.R.
Finance as additional consideration for the purchase of the Loan
Portfolio. The Note which was originally due on March 25, 1996 was
extended to May 3, 1996. On May 3, 1996, the Note was again extended to
September 30, 1996.
On September 30, 1996, the Note was further extended for 90
days. The Company agreed to accrue interest effective June 1, 1996 at
the rate of 20% per annum and allowed P.R. Finance to receive and hold
any interest received and any principal repayments made. Such payments
will be deducted against the outstanding amount due under the Note. As
of August 31, 1996, the Company accrued interest payable on the Note
amounted to $122,009 and the Company had deducted $915,850 from the
Note representing the interest earned and received on the Loan
Portfolio of $579,080 and
<PAGE> 34
principal repayments of $409,455, less management fee due P.R. Finance
of $72,685, resulting to a balance of $2,206,159. On December 3, 1996,
the Company and P.R. Finance agreed that the balance of the Note will
be settled by the issuance of the Company's common stock valued at
$2.75 per share. As a consequence, the Company's obligation on the
Note is shown as part of the "Liabilities to be satisfied by the
issuance of shares of common stock".
On November 11, 1996, the Company sold the Loan Portfolio to
Capital Finance Corporation Pty. Ltd. in exchange for a non-interest
bearing note of $8,600,000 payable $500,000 on December 1, 1996,
$3,000,000 on December 15, 1996, $2,000,000 on January 31, 1997 and
$3,100,000 on February 28, 1997. The present value of the note using an
imputed interest rate of 10% amounts to $8,433,660. As of August 31,
1996, the investment in Loan Portfolio was included in the balance
sheet as part of the "Net assets of discontinued operations" at its net
realizable value of $8,433,660.
Tetherless Access Asia Ltd. ("TAAL") - On October 24, 1996, the Company
entered into a definitive Agreement and Plan of Reorganization (the
"TAAL Agreement"), by and among the Company, TAAL, and the holders of
all of the issued and outstanding capital stock of TAAL. The TAAL
agreement was closed on November 13, 1996. Consummation of the
agreement has resulted in a change of control of the Company. TAAL, a
privately held Australian corporation, is a communications services
company using high speed wireless data routers, with some critical
components being the proprietary technology of TAAL. Under the terms of
the TAAL agreement, the Company has acquired all of the outstanding
capital of TAAL in exchange for 4,000,000 shares of the Company's
common stock and 8,000,000 shares of the Company's Preferred Stock
comprised of four separate series denominated as Series A through D.
Each Series of the Preferred stock (comprised of 2,000,000 shares each)
will be convertible into 6,000,000 shares of common stock upon the
expiration of the applicable periods. The conversion ratio applied does
not give effect to a reverse split of 2:1 of the common stock which
will be implemented upon compliance with certain legal requirements.
Thus, the shares issued to the TAAL stockholders will initially
represent approximately 16.7% of the equity of the Company. On a fully
diluted basis, these shares represent approximately 60% of the
Company's equity. In September 1996, TAAL foreclosed on delinquent
obligations due from its affiliate, Tetherless Access, Ltd. ("TAL
USA"). Pursuant to the foreclosure, TAAL succeeded to the assets and
liabilities of TAL USA. The transaction will be accounted for as a
reverse acquisition whereby the Company which is the legal acquirer is
considered, for accounting purposes, to be the acquiree since TAAL, on
a fully diluted basis, will receive 60% of the equity of the combined
corporation.
3. DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
Limited Operating History - The Company has only a limited operating
history under its present business. The Company first generated
revenues during the second quarter of fiscal year 1996, principally by
its former subsidiary MTA and MTA's subsidiary Masling. The Company
also earned interest income from its investment in loan portfolio. On
November 11, 1996, the Company disposed of MTA and Masling, subsidiary
of MTA, its investment in Barlile and the loan portfolio. As a result,
the Company's assets as of November 11, 1996 consisted substantially of
cash and notes receivable.
<PAGE> 35
Additional Funding May Be Required - Achievement of management's
objectives will be dependent upon its ability to access significant
capital. Management believes that it can raise sufficient capital
through private placements, registered public offerings or exercise of
outstanding warrants. If, for any reasons, sufficient capital is
unavailable, the ability to achieve managements objectives may be
adversely affected.
4. OTHER ASSETS
Funds Held in Escrow - On March 8, 1996, the Company terminated Mr.
Mark Mendelson as its Vice President-Sales, for cause. Mr. Mendelson
has sued the Company claiming wrongful termination and is asking for
$1,000,000 in damages plus interest and expenses. The Company is
defending the suit vigorously. The Court has granted Mr. Mendelson a
prejudgment attachment in the sum of $130,000. The Company deposited
the amount in an attorney's trust account and accrued the liability for
$130,000.
The Company had deposited $100,000 in a special account which
was designated to pay certain expenses in connection with the merger of
APG and Kushi.
Insurance Deposit - On March 4, 1994, APG entered into a Compromise and
Settlement Agreement ("Settlement Agreement") by and between APG,
Western Environmental Insurance Company ("WEIC") (In May 1994, WEIC was
dissolved with the State of Vermont) and National Union Fire Insurance
Company ("National"). The Settlement Agreement resolved the issues
surrounding the workers' compensation policies that APG purchased from
National for the periods of April 1, 1990 through April 1, 1992,
inclusive, and the separate reinsurance agreement National had with
WEIC with respect to the above workers' compensation policies. The
Settlement Agreement became effective as of January 31, 1994, and the
terms were as follows:
a. APG paid $1,000,000 to National and, in return, APG and WEIC
obtained a release from National, for any and all claims, as
it relates to the workers' compensation policies purchased by
APG for the periods of April 1, 1990 through April 1, 1992,
and the separate reinsurance agreement between National had
with WEIC with respect to said workers' compensation policies.
b. APG placed $150,000 on deposit to be held for purposes of
indemnification which will inure to the benefit of National
for losses which exceed $1,000,000. Should the losses be less
than $1,000,000, APG will participate in the savings at a rate
of 50%.
5. NOTES PAYABLE
Notes payable consisted of the following at August 31, 1995 and 1996:
<TABLE>
August 31, 1995 August 31, 1996
--------------- ---------------
<S> <C> <C>
John Errecart (1) $494,354 $
</TABLE>
<PAGE> 36
<TABLE>
<S> <C> <C>
Kurt P. Zimmerman (2) 202,408
---------- ----------
$ 696,762 $
========== ==========
</TABLE>
(1) On December 22, 1993, APG entered into a note payable with John
Errecart ("Errecart") for $300,000 with an interest rate of 1.66% per
month and was secured by the assets of APG. This note payable and all
unpaid interest were due on April 22, 1994. On December 12, 1995,
Errecart was awarded a court judgment for $494,354. The Company settled
this obligation by the issuance of 270,251 shares of the Company's
common stock to John Errecart.
(2) Kurt P. Zimmerman ("Zimmerman"), former Chairman of the Board and
Chief Executive Officer of APG, advanced APG $350,000 for a one time
fee of $25,000. On March 31, 1994, $200,000 was paid, leaving an amount
outstanding of $175,000, which was due on April 30, 1994. The
outstanding amount as of August 31, 1995 was $202,408, including
accrued interest of $27,408. On May 31, 1996, Zimmerman converted the
principal amount plus the accrued interest of the note in the total
amount of $217,033 into 128,002 shares of APG's common stock.
6. RESERVE FOR RESCISSION/GUARANTEE
In 1994, APG rescinded the acquisition of 99.52% of the equity of ECI
France, S.A. formerly known as Handtop France, S.A. Although the
transaction was rescinded, the Company established a liability of
$526,000 for obligations to Banque de Neuflixe, Schlumlberger Mallet
and Credit Lyonnais ("Banks"), whereby the Banks advanced funds to ECI
France, S.A. secured by a guarantee from the Company. On May 16, 1995,
Credit Lyonnais was awarded a court judgment in France against the
Company for approximately $300,000 principal amount plus interest from
7/28/94.
7. NET LIABILITIES OF DISCONTINUED OPERATIONS
The net liabilities of discontinued operations were those of two former
subsidiaries of APG namely: Environmental Control Industries and
Pactherm, Inc. On August 31, 1994, these subsidiaries filed Chapter 7
Bankruptcy with the United States Bankruptcy Court. During 1996, the
remaining liabilities of these subsidiaries were discharged. The income
from the discharge of the net liabilities of discontinued operations
was shown separately in the "Discontinued Operations" in the
accompanying statements of operation.
8. RELATED PARTY TRANSACTIONS
Due From/To Related Parties - As of August 31, 1995, the Company had
outstanding advances of $282,468 to Rubywell and loans payable to
former affiliated companies of MTA in the amount of $346,228. These
amounts were settled in 1996.
MTA and Rubywell License - In May 1996, MTA and Rubywell entered into
an agreement, amending the license agreement dated June 16, 1995. The
parties agreed that the license fee payable by Rubywell to MTA is the
sum of $1,600,000 payable annually effective from August 31, 1995. The
<PAGE> 37
parties also agreed that the license will not be terminable at the will
of MTA but will be for a term of five years commencing on August 31,
1995. Rubywell will be entitled anytime during the term of this
agreement by notice in writing to MTA to terminate this agreement.
Rubywell will pay to MTA a proportionate part of the license fee
payable under this agreement calculated from August 31st in the
relevant year until the date of expiration of the notice of
termination. On November 11, 1996, the Company sold back MTA to
Rubywell (see Note 2).
Effective August 31, 1996, the Company's Board of Directors approved
the issuance of 1,226,000 Shares of Common Stock to Wall Street
Consulting for services rendered to the Company. Wall Street Consulting
is owned by Patrick N. DiCarlo. Mr. DiCarlo is the Chief Executive
Officer and a director of the Company.
9. COMMITMENTS AND CONTINGENCIES
Operating leases - In August 1995, the Company entered into a five-year
lease for approximately 4,000 square feet of office space located in
Stamford, CT. The lease provides for monthly payments of approximately
$5,000 in the first year, escalating to $6,000 per month during the
fifth year of the agreement. The Company occupied the facility
beginning in October 1995 and moved out in September 1996. In September
1996, the Company entered into an agreement with a subtenant to sublet
the office space from the Company for substantially the same terms and
for the same period as the Company's lease with the landlord. The
subtenant will pay rent directly to the landlord during the term of the
agreement. The Company remains liable for performance on the lease if
the subtenant defaults on the agreement in the aggregate amount of
approximately $300,000 for the remaining term of the lease.
In August 1995, the Company entered into a five-year lease for
27,000 square feet of warehouse space located in Parsippany, NJ. The
lease calls for monthly payments of approximately $10,000 during the
term of the lease. The Company occupied such space beginning in
September 1995 and moved out in April 1996. In April 1996, the Company
entered into an agreement with a subtenant to sublet the warehouse from
the Company for substantially the same terms and for the same period as
the Company's lease with the landlord. The subtenant will pay rent
directly to the landlord during the term of the agreement. The Company
remains liable for performance on the lease if the subtenant defaults
on the agreement in the aggregate amount of approximately $500,000 for
the remaining term of the lease.
In July 1996, the Company entered into a five-year lease for
approximately 2,134 square feet of office space located in Irvine, CA.
The lease provides for monthly payments of $3,777 commencing on August
1, 1996. Rent expense for year ended August 31, 1996 was $3,777. The
following is a schedule, by year, of future minimum rentals due under
the terms of the agreement:
<TABLE>
<S> <C>
1997 $ 45,324
1998 45,324
1999 45,324
2000 45,324
2001 41,547
--------
$222,843
========
</TABLE>
<PAGE> 38
Employment Agreements:
Daniel A. France - On June 15, 1996, the Company entered into a
two-year employment agreement with Daniel A. France, the Company's
Chief Financial and Operating Officer. The agreement is renewable for
successive one-year periods after the second anniversary of the
agreement. The agreement provides for base compensation of $115,000 per
year which shall be adjusted annually based upon the Consumer Price
Index and merit increases as may be recommended by the Chief Executive
Officer to the Board of Directors. In addition, the Company shall pay
him a performance bonus based on mutually agreed objectives with the
Chief Executive Officer and Board of Directors. The Company will also
pay him a $600 per month car allowance, $1,500 monthly housing
allowance for six months and $25,000 relocation allowance.
Wallace N. Seward - On June 30, 1995, the Board of Directors approved
Mr. Seward's employment agreement which pays him $120,000 per year for
a term of three years and pays him a bonus of not less than $100,000
per year. Mr. Seward no longer serves as an officer or employee of the
Company, however, should Mr. Seward assert a claim against the Company
under his employment agreement, he may seek all of the compensation
provided therein. The Company is engaged in settlement discussions with
Mr. Seward. Management has provided for the issuance of 100,000 shares
of common stock to settle this obligation.
Pending Proceedings:
Mendelson v. Kushi - On March 8, 1996, the Company terminated Mr. Mark
Mendelson as its Vice President-Sales, for cause. Mr. Mendelson has
sued the Company claiming wrongful termination and is asking for
$1,000,000 in damages plus interest and expenses. The Company is
defending the suit vigorously. The Court has granted Mr. Mendelson a
prejudgment attachment in the sum of $130,000. The Company deposited
the amount in an attorney's trust account and accrued the liability for
$130,000. Management believes that the ultimate settlement of this
lawsuit will not have a significant effect on the Company's financial
position or results of operations.
Bruce Street Medical Center Annex, a Nevada Limited Partnership, and
Robert Roggen, as General Partner v. American Phoenix Group, Inc. On
May 17, 1995, Bruce Street Medical Center Annex, a Nevada Limited
Partnership, and Robert Roggen, as General Partner (jointly "Medical
Center"), filed a complaint in the District Court of the State of
Nevada, Clark County, Case No. A346087, against APG alleging monies
owed pursuant to a certain lease agreement which the Medical Center
allegedly entered into with APG on or about December 1994. The
Complaint seeks to recover monies for, inter alia, unpaid rent at the
rate of $3,880 per month from and after December 24, 1994 and for
reimbursement of certain tenant improvements made by the Medical Center
allegedly on APG's behalf in an amount in excess of $12,500. The
Company disputes the validity of the lease agreement. To date, the
Company is unaware of any further prosecution of this lawsuit.
<PAGE> 39
Daniel J. Doud v. American Phoenix Group, Inc. On November 8, 1995,
Daniel J. Doud ("Doud") filed a complaint against APG in the Superior
Court of the State of California, County of Los Angeles, Case No.
SC039240 alleging inter alia breach of contract, breach of promissory
note and unjust enrichment. Doud further alleges that he entered into
an Employment Agreement dated March 1, 1994 with APG whereby APG agreed
to pay Doud $84,000 per year plus certain benefits, including a signing
bonus; $4,200 for reimbursable costs of heath insurance; $8,100 for
moving expenses; $67,000 for travel expenses; and $4,200 for auto
allowance in exchange for Doud's future services to be rendered for
APG. Doud also asserts that on November 9, 1993, he entered into a
Business Loan Agreement with Handtop Technologies, S.A. to receive
$325,000 plus interest at the rate of 8.5 percent per annum with a
maturity date of June 30, 1994, and that this obligation was
subsequently assigned to and undertaken by APG. APG disputes the
validity of the employment agreement, the validity of the business loan
agreement and disputes that Doud rendered any services to APG. The
Company has numerous defenses to this complaint and intends to
vigorously defend this action. The Company is engaged in settlement
discussions with Doud. Management believes that the ultimate settlement
of this lawsuit will not have a significant effect on the Company's
financial position or results of operations.
General Electric Capital Corporation v. Environmental Control
Industries and American Phoenix Group, Inc. On October 30, 1995,
General Electric Capital Corporation ("GECC") obtained a default
judgment against the Company in the principal amount of $54,603 plus
prejudgment interest of $9,111 and attorney's fees of $6,176 in its
complaint for monies owed and possession of equipment provided to
Environmental Control Industries and, as against, the Company under the
Company's written guarantee in favor of GECC. The Company is engaged in
settlement discussions with GECC.
The Company is also party to various suits and claims incidental to its
business. In the opinion of management, the ultimate disposition of
these proceedings will not have a material adverse effect on the
Company's financial position or results of operations.
10. INCOME TAXES
There were no provisions for income taxes for the fiscal years ended
1995 and 1996. The Company has federal tax net operating loss carry
forwards of approximately $9,500,000 which is available to offset
future taxable income. The utilization of such carry forwards will be
limited by the change in ownership. The Company has not recorded any
deferred tax asset as a result of the net operating loss carry forwards
as it has provided a 100% allowance against this asset.
11. LIABILITIES TO BE SATISFIED BY THE ISSUANCE OF
SHARES OF COMMON STOCK
Effective August 31, 1996, the Company's Board of Directors approved
the issuance of 4,354,000 shares of common stock to certain
consultants, including 1,200,000 shares to the Company's President
and Chairman of the Board of Directors and 1,226,000 shares to his
consulting company, for services rendered to the Company. The shares
were valued at a total of $2,177,000 based on the average market price
of the shares when the services were rendered.
On December 3, 1996, the Company and a note holder agreed that the
balance of the note as of November 30, 1996 will be settled through
the issuance of shares of common stock valued at $2.75 per share. The
balance of the note as of August 31, 1996 in the amount of $2,206,159
was included in the "Liabilities to be satisfied by the issuance of
shares of common stock".
12. STOCK OPTIONS AND WARRANTS
The following is a schedule of all stock options and warrants
outstanding as of August 31, 1996:
<PAGE> 40
<TABLE>
<CAPTION>
Number of Exercise
Shares Price Expiry Date
------ ----- -----------
<S> <C> <C> <C>
Incentive and non-qualified stock options 8,500 $ 5.00 August 10, 2000
IPO warrants 1,610,000 $ 3.75 August 10, 2000
Underwriter warrants 140,000 $ 10.31 August 10, 2000
Underwriter warrants 110,000 $ 10.25 August 10, 2000
Post-effective (Merger) warrants 1,575,000 $ 3.75 August 10, 2000
Pre-merger warrants 2,867,906 $ 3.75 August 10, 2000
Warrants issued to Aviva Corporation Ltd.,
a financial and consulting company 213,350 $ 3.52 August 10, 2000
---------
6,524,756
=========
</TABLE>
<PAGE> 41
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
AND TETHERLESS ACCESS ASIA LIMITED
UNAUDITED PRO FORMA COMBINING CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combining condensed financial statements give
effect to the acquisition by American Phoenix Group, Inc. ("APG") of all of the
issued and outstanding shares of Tetherless Access Asia Limited ("TAAL")
pursuant to the Definitive Agreement and Plan of Reorganization and are based on
the estimates and assumptions set forth herein and in the notes to the financial
statements. This pro forma information has been prepared utilizing the
historical financial statements of the each of the entities. The pro forma
financial data is provided for comparative purposes only and does not purport to
be indicative of the results which actually would have been obtained if the
acquisition had been effected on the date indicated or those results which may
be obtained in the future.
The transaction is accounted for as a reverse acquisition whereby APG which is
the legal acquirer is considered, for accounting purposes, to be the acquiree
since TAAL, on a fully diluted basis, will receive 60% of the equity of the
combined corporation.
The pro forma adjustments are described in the Accompanying Notes to Pro Forma
Combining Condensed Financial Statements. The unaudited Pro Forma Combining
Condensed Statement of Operations assumes that the acquisition of TAAL had
occurred on October 1, 1995. The unaudited Pro Forma Combining Condensed Balance
Sheet assumes that the acquisition of TAAL had occurred on August 31, 1996,
although the actual acquisition date is subsequent to August 31, 1996.
<PAGE> 42
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
AND TETHERLESS ACCESS ASIA LIMITED
NOTES TO UNAUDITED PRO FORMA COMBINING CONDENSED
FINANCIAL STATEMENTS
1. Tetherless Access Asia Limited ("TAAL) balance sheet as of September
30, 1996 included the assets and liabilities of Tetherless Access
Limited ("TAL"). TAAL foreclosed on delinquent obligations due from its
affiliate, TAL. Pursuant to the foreclosure, TAAL succeeded to the
assets and liabilities of TAL.
2. To reflect the issuance of 8,000,000 shares of APG's Preferred Stock,
4,000,000 shares of APG's common stock, a reverse split of 2:1 and the
elimination of the accumulated deficit of APG.
3. The transaction is accounted for as a reverse acquisition whereby APG
which is the legal acquirer is considered, for accounting purposes, to
be the acquiree, thus, the historical result of operations of APG is
not included in the combined statement of operations.
4. The "Liabilities to be satisfied by the issuance of shares of common
stock" are settled through the issuance of 4,354,000 shares of common
stock.
<PAGE> 43
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
AND TETHERLESS ACCESS ASIA LIMITED
UNAUDITED PRO FORMA COMBINING CONDENSED BALANCE SHEETS
AUGUST 31, 1996
<TABLE>
<CAPTION>
American Tetherless
Phoenix Access Asia Pro Forma
Group, Inc. Limited (1) Adjustments
--------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 648,021 $ 114,288 $
Inventory 442,472
Accounts receivable 123,936
Subscriptions receivable 1,664,540
Prepaid expenses 15,416
Net assets of discontinued operations 9,902,596
Investment in Barlile Corp, 150,000
--------------- -------------- --------------
TOTAL CURRENT ASSETS 10,700,617 2,360,652
PROPERTY AND EQUIPMENT, Net 46,526 545,586
OTHER ASSETS
Funds held in escrow 230,000
Insurance escrow deposit 150,000
Other deposits 69,190 84,860
Intellectual property 315
Investments 137,984
--------------- -------------- --------------
449,190 223,159
--------------- -------------- --------------
$ 11,196,333 $ 3,129,397 $
=============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ $ $
Accounts payable and accrued expenses 1,004,418 289,977
Reserve for rescission/guarantee 526,000
--------------- -------------- --------------
TOTAL CURRENT LIABILITIES 1,530,418 289,977
LIABILITIES TO BE SATISFIED BY THE ISSUANCE OF SHARES
OF COMMON STOCK 4,383,159 (2,177,000)(4)
STOCKHOLDERS' EQUITY
Preferred stock - authorized 10,000,000 shares, $.01 par value ,
issued and outstanding - 8,000,000 shares (pro forma) 80,000(2)
Common stock - authorized 50,000,000 shares, $.001 par value,
issued and outstanding 19,119,371 shares at August 31, 1996
and 15,913,686 shares (pro forma) 19,119 3,490,125 (3,493,330)(2)(4)
Additional paid-in capital 21,717,639 6,942,776 (10,863,672)(2)(4)
Accumulated deficit (16,454,002) (7,593,481) 16,454,002(2)
--------------- -------------- --------------
TOTAL STOCKHOLDERS' EQUITY 5,282,756 2,839,420 2,177,000
--------------- -------------- --------------
$ 11,196,333 $ 3,129,397 $
=============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Combined
--------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 762,309
Inventory 442,472
Accounts receivable 123,936
Subscriptions receivable 1,664,540
Prepaid expenses 15,416
Net assets of discontinued operations 9,902,596
Investment in Barlile Corp, 150,000
--------------
TOTAL CURRENT ASSETS 13,061,269
PROPERTY AND EQUIPMENT, Net 592,112
OTHER ASSETS
Funds held in escrow 230,000
Insurance escrow deposit 150,000
Other deposits 154,050
Intellectual property 315
Investments 137,984
--------------
672,349
--------------
$ 14,325,730
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $
Accounts payable and accrued expenses 1,294,395
Reserve for rescission/guarantee 526,000
--------------
TOTAL CURRENT LIABILITIES 1,820,395
LIABILITIES TO BE SATISFIED BY THE ISSUANCE OF SHARES
OF COMMON STOCK 2,206,159
STOCKHOLDERS' EQUITY
Preferred stock - authorized 10,000,000 shares, $.01 par value ,
issued and outstanding - 8,000,000 shares (pro forma) 80,000
Common stock - authorized 50,000,000 shares, $.001 par value,
issued and outstanding 19,119,371 shares at August 31, 1996
and 15,913,686 shares (pro forma) 15,914
Additional paid-in capital 17,796,743
Accumulated deficit (7,593,481)
--------------
TOTAL STOCKHOLDERS' EQUITY 10,299,176
--------------
$ 14,325,730
==============
</TABLE>
See accompanying Notes to Pro Forma Combining Condensed Financial Statements.
<PAGE> 44
AMERICAN PHOENIX GROUP, INC. AND SUBSIDIARIES
AND TETHERLESS ACCESS ASIA LIMITED
UNAUDITED PRO FORMA COMBINING CONDENSED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Tetherless Tetherless
Access Asia Access American
Limited Limited TAAL & TAL Phoenix Pro Forma
("TAAL") ("TAL") Combined Group, Inc, (3) Adjustments
------------- -------------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES $ $ 683,627 $ 683,627 $ $
------------- -------------- -------------- --------------- -----------
COSTS AND EXPENSES
Cost of sales 560,762 560,762
Selling, general and administrative 466,831 4,820,222 5,287,053
Research and development 514,434 514,434
------------- -------------- -------------- --------------- -----------
TOTAL COSTS AND EXPENSES 466,831 5,895,418 6,362,249
------------- -------------- -------------- --------------- -----------
LOSS FROM OPERATIONS (466,831) (5,211,791) (5,678,622)
------------- -------------- -------------- --------------- -----------
OTHER INCOME 3,520 8,778 12,298
------------- -------------- -------------- --------------- -----------
NET LOSS $ (463,311) $ (5,203,013) (5,666,324) $ $
============= ============== ============== =============== ===========
NET LOSS PER SHARE
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
</TABLE>
<TABLE>
<CAPTION>
Combined
--------------
<S> <C>
REVENUES $ 683,623
--------------
COSTS AND EXPENSES
Cost of sales 560,762
Selling, general and administrative 5,287,053
Research and development 514,434
--------------
TOTAL COSTS AND EXPENSES 6,362,249
--------------
LOSS FROM OPERATIONS (5,676,622)
--------------
OTHER INCOME 12,298
--------------
NET LOSS $ (5,665,324)
==============
NET LOSS PER SHARE $ (0.49)
==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 11,560,000
==============
</TABLE>
See accompanying Notes to Pro Forma Combining Condensed Financial Statements.
<PAGE> 45
EXHIBIT INDEX
Registrant hereby incorporates by reference the following
documents filed as part of its Registration Statement on Form SB-2 (File No.
33-92154-NY), declared effective August 31, 1995 (the "Registration Statement"):
3.1 Restated Certificate of Incorporation
3.2 By-Laws
4.1 Specimen Common Stock Certificate
4.2 Specimen Preferred Stock Certificate
4.3 Specimen 10% Promissory Note
4.6 Form of Representative's Stock Warrant
4.7 Form of Representative's Warrant
4.8 Form of Subscription Agreement between Registrant and
Investors pursuant to October 31, 1995 Private Placement
Memorandum
10.1 Lease Agreement between the Registrant and American Office
Centers, Inc., dated December 12, 1994
10.2 Assignment and License Agreement between the Registrant and
Micho, Aveline and Philip Kushi, dated October 10, 1994, as
amended
10.3 Agreement between the Registrant and Micho, Aveline and Philip
Kushi, dated October 10, 1994.
10.4 Employment Agreement between the Registrant and Michio Kushi,
dated October 10, 1994, as amended
10.5 Employment Agreement between the Registrant and Robert Morrow,
dated October 20, 1994, as amended
10.6 Employment Agreement between the Registrant and Daniel France,
dated October 20, 1994, as amended
10.7 Employment Agreement between the Registrant and Rodney C.
Lewis, dated October 20, 1994, as amended
10.8 Consulting Agreement between the Registrant and Mark
Schindler, dated October 20, 1994, as amended
10.9 Consulting Agreement between the Registrant and Eugene
Stricker, dated October 20, 1994, as amended
10.10 Consulting Agreement between the Registrant and Fred Sternau,
dated October 20, 1994, as amended
10.11 1994 Kushi Macrobiotics Corp. Stock Option Plan
10.12 1994 Kushi Macrobiotics Corp. Stock Bonus Plan
Registrant hereby incorporates by reference the following
documents that were filed with Amendment No. 1 to the Registration Statement:
1.4.1 Form of Underwriter's Consulting Agreement, as amended
1.5 Warrant Exercise Fee Agreement
4.4 Specimen Warrant Certificate
4.5 Form of Warrant Agreement
4.6.1 Form of Representative's Stock Warrant, as amended
4.7.1 Form of Representative's Warrant, as amended
10.13 Form of Employee/Consultant Waiver Agreement
10.14 Security Agreement between the Company and Mr. Kushi
10.15 Form of Lock-up letter
10.16 Agreement between Registrant and ABIC International
Consultants, Inc. dated June 13, 1995
10.17 Agreement between Registrant and Regu-Tech(r) Associates, Inc.
dated January 12, 1995.
<PAGE> 46
Registrant hereby incorporates by reference the following documents
that were filed with Amendment No. 2 to the Registration Statement.
10.18 License Agreement between the Company and Baldwain Hill
Bakery, dated March 1, 1995.
10.19 License Agreement between the Registrant and U.S. Mills, Inc.,
dated June 9, 1995.
The following exhibit is incorporated by reference from the
Registrant's Form 10-QSB for the quarter ended September 30, 1995:
10.1 Millennium Securities Corp. Agreement
Registrant hereby incorporates by reference the following documents
that were filed with Registrant's Form 10-QSB for the year ended December 31,
1995:
10.20 Employment Agreement between the Registrant and Mark S.
Mendelson effective as of August 1, 1995
10.21 Agreement between Robert M. Morrow and the Registrant, dated
as of December 22, 1995.
10.22 Agreement between ACG International Inc. and the Registrant
dated December 4, 1995
10.23 Lease between the Registrant and Three Stamford Landing
Associates, LLC dated August 23, 1995
10.24 Lease between the Registrant and Allan V. Rose d/b/a AVR
Realty Company dated August 21, 1995
Registrant hereby incorporates by reference the following documents
that was filed with Registrant's Form 10-QSB for the quarter ended June 30,
1996:
2.1 Agreement and Plan of Merger by and among Kushi Macrobiotics
Corp. and American Phoenix Group, Inc. and Kushi Cuisine
Corporation dated June 1, 1996. (Terminated).
Registrant hereby incorporates by reference the following document that
was filed with Registrant's Registration Statement on Form S-4 (File No.
333-10755) that was declared effective on September 3, 1996:
2.2 Amended and Restated Plan of Merger by and among Kushi
Macrobiotics Corp., American Phoenix Group, Inc. and Kushi
Natural Foods Corp. dated August 12, 1996.
Registrant hereby incorporates by reference the following documents
that were filed with Registrant's Registration Current Report on Form 8-K on
November 29, 1996:
2.3 Plan and Agreement of Reorganization dated October 24, 1996,
by and between Registrant, Tetherless Access Asia Limited
("TAAL") and the Shareholders of TAAL
10.25 Agreement dated November 4, 1996, between Registrant, Rubywell
Pty, Ltd. and Marine Turbine Australia Pty, Ltd. and related
deed and promissory note
10.26 Deed between Registrant and Capital Finance Corporation and
related Promissory Note in the principal amount of $8,600,000
27 Financial Data Schedule (Electronic Filing)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated financial statements included in the company's Annual
Report on Form 10-K for the fiscal year ended August 31, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 648,021
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,700,617
<PP&E> 46,526
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,196,333
<CURRENT-LIABILITIES> 1,530,418
<BONDS> 0
0
0
<COMMON> 19,119
<OTHER-SE> 5,263,637
<TOTAL-LIABILITY-AND-EQUITY> 11,196,333
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,426,956
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148,994
<INCOME-PRETAX> (5,258,950)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,258,950)
<DISCONTINUED> 339,917
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,919,033)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> 0
</TABLE>
