SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number: 33-1986-LA
TeleMall Communications, Inc.
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 88-022660
- --------------------- ----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
5030 Paradise Rd., #C-213, Las Vegas, Nevada 89119-1214
--------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone number, Including Area Code: (702) 736-8899
----------------
Vegas Ventures, Inc., 1601 E. Flamingo #18, Las Vegas, Nevada 89109
-------------------------------------------------------------------
Former Name and Former Address
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Dated August 12, 1996
Page 1 of 6 Pages
TELEMALL COMMUNICATIONS, INC.
SEC FORM 10-Q FOR PERIOD ENDED JUNE 30, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Attached are three (3) copies of the Registrant's Financial Statements for
the year-end December 31, 1995, and the period ended June 30, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Registrant, then-named Vegas Ventures, Inc., a dormant/inactive NASDAQ
Bulletin Board company, acquired 100% of TeleMall Network, Inc. in June 1996,
pursuant to which the Registrant's name was changed to TeleMall Communications,
Inc. ("TeleMall"). The Directors of Vegas Ventures resigned and were replaced by
the slate of Directors of TeleMall Network, Inc.; and TeleMall Communications
(now the Registrant) continued to operate the business as a public company.
The Registrant filed a Form 8-K on June 27, 1996 and attached its Audited
Financial Statements for TeleMall Network Inc. as of May 31, 1996 and for
TeleMall Communications as of June 5, 1996. This Form 8-K is incorporated herein
by reference.
Consequently, every line item was significantly affected by the
accountant's treatment of the Merger and are not reflected in this Analysis in
reliance on Instruction 3 to Form 10-Q which states "Registrants need not recite
the amounts of changes from period to period which are readily computable from
the financial statements."
However, there are significant events that not only are reflected in the
financial statements, but that are relevant to the future financial prospects
for the Registrant.
Significant Financial Statement changes include: Current Liabilities
increased from $1,291 to $241,535; Total Stockholders' Equity increased from
$1,578,709 to $5,044,895; Current Assets increased to $3,611,790; Property and
Equipment to $71,970 and Other Assets to $1,623,311; Revenues increased from $0
to $56,197 during the three months ended June 30, 1996.
The increase in Assets is the result of the exchange of 310,000 shares of
$10.00 par value Series A Convertible, Redeemable Preferred Stock of the
Registrant, which replaces the TeleMall Network Series A Preferred Stock, which
was issued in exchange for an inventory of Len Garon Artwork, of $3,100,000, as
set forth in Footnote 7 to the "Notes to Financial Statements"; and the exchange
of 200,000 shares of said Series A Convertible Redeemable Preferred Stock of the
Registrant's Preferred Stock in exchange for said 200,000 shares of the TeleMall
Network Series A $10.00 par value Preferred Stock; which were issued for 100,000
shares at $20 per share of Aristocrat Endeavor Fund (British Virgin Islands)
resulting in an addition to Assets of $2,000,000. A redemption of $500,000 is
anticipated in August 1996 (subject to a 5% redemption fee). See Footnote 8 to
the "Notes to Financial Statements."
Management believes it is important to understand that although the
Registrant now has 30 employees, its senior management group has been operating
in their present capacities together for only four months, during which time the
current Business Plan, Marketing Analysis, and extensive promotional, marketing
and advertising materials have been developed, and the Registrant's negotiations
with vendors and customers have only recently reached a point where significant
revenue creating agreements have materialized.
Page 2 of 6 Pages
In July, 1996, the Registrant entered into an agreement for the script and
production for commercial, cable and satellite television of one 1/2 hour
Infomercial, one 60-second and one 120-second "Direct Response" commercial; and
an agreement for six of the "As Seen on TV Kiosks" for a high profile retail
area in Las Vegas, Nevada. The Registrant's compensation for these two
transactions is $125,000. Management believes these revenue producing
transactions are a direct result of the Registrant's recent completion of
printed, colored marketing brochures, and the attendant marketing efforts of the
Management team now having worked together since the spring of 1996. However, it
is too early to know whether or within what timeframe additional revenue
producing transactions will take place. However, negotiations are held daily
with interested companies for additional production contracts.
In 1994 the Registrant launched a "Test Market" of its retail sales
consumer product, Multi-level Marketing Concept. Over 8,000 persons signed up to
participate, and 6,500 paid membership "test-marketing fees" of $29.95, $39.95
to $49.95. From this initial program, the Registrant concluded to use $49.95 as
the annual fee. It should be noted that approximately 700 recently enrolled
members/representatives have elected to participate in a program offered to
assist them in their Representative programs. These 700 new Representatives have
each paid $295.00 to the Registrant. Enrollment of additional Representatives is
continuing at, what management feels, is an acceptable rate consistent with its
projections.
Management anticipates that it will be able to implement the business
activities of each of its three Divisions with capital of $200,000 for each
Division; and currently is offering $1,000,000 of its securities to the public
through a Regulation D, Rule 506 Private Placement Memorandum.
Management does not believe a comparison of current revenues and
anticipated revenues is material in that Messrs. Wells and Johanning assumed
their executive positions in the first quarter of 1996, and the necessary
promotional materials have been printed and available for distribution only
during the past six weeks. See item 4 herein for resumes of Registrant's
officers and directors. The Registrant plans to file a Registration Statement on
Form SB-2 in the summer of 1996 for raising additional capital of up to $5
million. However, neither the $1 million (nor any portion) nor the proposed
public offering can be assured. In the event the Registrant cannot secure
adequate capital to commercialize one or more of its Divisions and generate a
positive cash flow to sustain and grow operations, the Registrant will be
severely restricted in its operations. During the first half of calendar 1996,
the Registrant was required to issue Common Stock for rent and other services;
and was dependent on loans from officers and directors for operating capital.
However, in the event the Registrant is successful in increasing its cash
capital by approximately $1,000,000, it plans to investigate and negotiate for
the acquisition of an existing television station, a full service television
production studio, and a satellite uplink transponder, and possibly other
established related entities. inasmuch as Management's initial negotiations
leads it to believe that the acquisitions will not require all cash to
consummate these transactions in that thus far, all negotiations have dealt with
the sellers exchanging assets for Registrant's restricted equity.
Mailings of promotional materials to the Registrant's 8,000 Network
Marketing representatives may generate net revenues to sustain the Division
through the recruitment of new Members and Representatives, annual fees,
purchase of promotional materials, and from the Company's sale of Company
products and services. It is anticipated the majority of new representatives
will participate in Home Based Business Packages offered by the Company. The
Home Based Business System to be announced in late August, 1996, will be
available to all company Representatives. Details of the program are currently
being finalized. However, it is management's opinion that, once introduced, the
System will, in effect, revolultionize the conventional representative program.
The computer based System will provide the professional, up to date, efficient
technologies required to assist all Registrant's Representatives to maximize
their efforts towards financial independence. Thomas Wells, President and Chief
Operations Officer, based on his experience, anticipates the introduction of the
Home Based Business System will enable the Registrant to deliver indisputable,
tangible value to its Representatives, a fact that could propel the
Representative Program beyond most other Network Marketing organizations.
Page 3 of 6 Pages
In addition to an immediate revenue source for the Registrant, the Home
Based System will substantially reduce ongoing costs of printing and postage,
historically very high in the Networking Industry.
Currently, the Member/Representative program is generating approximately
$80,000 in gross revenue monthly, a figure expected to increase dramatically
with the introduction of the Home Based Business System in late August, 1996.
Kenneth Johanning, Senior Vice President and head of the Vegas Heat Retail
Store Division has negotiated with many former owners of franchise/joint venture
operations directed by him, and has expressed the opinion that three to ten
commitments will be signed by the end of summer, 1996. Although there can be no
assurance of the number of Vegas Heat stores nor the As Seen on TV Kiosks, the
Registrant has executed several letters of intent for joint venture partnerships
for kiosks in Nevada. Other individual Letters of Intent for Kiosk Joint Venture
Contracts have been executed by the Registrant. A letter of Intent for a Vegas
Heat Theme Retail Store has also been executed for an up-scale California mall
location.
PART II OTHER INFORMATION
Items 1, 2 and 3 are Inapplicable.
Item 4. Submission of Matters to a vote of Security Holders.
At a meeting of the stockholders of Vegas Ventures, Inc., the Registrant's
predecessor company, a NASDAQ Bulletin Board publicly traded company on June 5,
1996 voted on the merger with TeleMall Network, Inc. (The Registrant's name
since its 1994 incorporation as a Nevada company.)
A unanimous vote of 8,580,000 present in person or by proxy (96% of the
outstanding shares) approved the Resolutions set forth in the Notice of the
Special Meeting and Proxy Statement.
As a result of the Resolutions of the Shareholders:
1. A one for ten share stock split was authorized, resulting in 856,100
shares of Vegas Ventures Common Stock remained with the former Vegas Ventures
stockholders; and 2,933,000 shares of Common Stock of the Registrant were issued
to the former TeleMall Network shareholders.
2. The name was changed to TeleMall Communications, Inc. and the Amended
Articles of Incorporation, together with the "Articles of Merger" were filed
with the Nevada Secretary of State.
3. 10,000,000 shares of Preferred was authorized. 510,000 shares of Series
A Convertible Preferred Stock had been issued by TeleMall Network and were
replaced by Registrant's 510,000 shares and are now convertible into 1,020,000
shares of Common Stock of Registrant. See Footnote (4) to the "Notes to
Financial Statements."
4. The following directors were elected to replace the previous Vegas
Ventures directors (together with their executive position and resumes):
Page 4 of 6 Pages
Directors and Executive Officers
Name Position
---- --------
Richard Sullivan Chairman of the Board and CEO*
Thomas Wells Director, President and COO*
Kenneth Johanning Director, Senior V.P. - Retail Stores*
Beryl Wolk Director Elect
Robert Lawrence Director
Eric Savage Director Elect
- ---------
* Members of the Executive Committee
Richard Sullivan, (43), founded the Company in February 1994. He has a
broad background in business development. His experience encompasses
manufacturing, television production and extensive work in the travel and travel
related businesses. He was President of Sullivan Manufacturing and Sales which
tripled in sales volume during his tenure (1980-1992). He served Paradise
Marketing as that organization expanded from start-up to $104 million in sales
in four years (1980 - 1984). Mr. Sullivan is a Director of Vegas Ventures Inc.
He has owned and managed nightclubs, restaurants and stage show productions,
including a weekly one-hour televised program that ran continuously for 80
weeks.
Thomas A. Wells, (48), served as President and CEO of Las Vegas based
Multi-Level Marketing and Franchise Operations Company offering discount buying
of over 250,000 consumer products, travel and long distance telephone services
(1992-1995). He was President and CEO of Sun-Ray Industries, Inc., a General
Engineering Contractor of Tucson, Arizona, specializing in government contracts,
municipal, state and federal (1980-1992); and owner of W.B. Contractors, Inc., a
residential home builder and general contractor of medium sized projects in the
greater Philadelphia area (1973-1979). Mr. Wells has extensive experience in
time management, micro management, negotiating with large companies and
government regulatory agencies. Mr. O. Wells studied Business Management at both
Temple University in Philadelphia an at the University of Arizona in Tucson.
Kenneth L. Johanning, (50), served as Chairman of the Board and CEO of
Kenco Corporation, Wichita, Kansas, specialized in market research, real estate
development and consulting in the creative concept and development of
international fast-track growth of retail restaurant and hotel chains
(1972-present). Among the prestigious clients were Pizza Hut, Taco Bell, Payless
Shoe Source, Safelite, Wendy's, Residence Inns, Quality Inns, Marriott, Trak
Auto, Sonic Industries, Susie's Deals, Cricket Alley, Family Dollar and Kroger.
He was one of the principal executives in the start up and development of the
first five state area of Electronic Realty Association (E.R.A.) Franchise
offices (1972-1979), was a partner with Tarn Deulin in the development of 685,
Rent-A-Center stores (sold to Thorne E.M.I., London, England) (1988-1991), then
joined Frank Carney (founder of Pizza Hut) in the development of the WESTRAC
Rent-A-Center franchise territory (also sold to Thorne E.M.I.). Mr. Johanning
has also been involved in the creation and development of theme parks, theme
shopping complexes and time-share resorts. He is a graduate of Boston College
with a B.S. Marketing degree and furthered his education at Washburn University
School of Law.
Beryl J. Wolk (65) has spent his entire business career with his family
owned Goodway Group, dba Multi-Media Marketing, now serving as Chief Executive
Officer. Mr. Wolk holds an MBA degree from the University of Pennsylvania
Wharton School of Business and is a retired Commander in the United States Naval
Reserve. The Multi-Media Group exchanged $3,100,000 in assets for Company
Preferred Stock at $10 per share. Founded in 1929, this 66 year old
Philadelphia-based Goodway Group of companies comprises 21 entities in four
states, and over 100 joint ventures devoted to Multi-Media Direct Response
Marketing. Its 1,200 employees service America's leading companies and a growing
number of emerging business enterprises. This family-owned business occupies one
of America's premier positions in developing and implementing marketing
strategies through such entities as The Family Guide, read by more than 175
national corporations; co-founder of the Cable Guide, with over 18.5 million
readers; Soccer Magazine; America Vision Magazine (upscale Afro-America; Casino
Player) Casino Journal magazine; and four other consumer magazines. Beryl Wolk
has produced over 1,600
Page 5 of 6 Pages
Infomercials and is considered a pioneer in both Infomercial and Entermercials
(Las Vegas type entertainment with "soft sell"advertising).
Robert Lawrence (62), obtained an Engineering Degree from Purdue University
and became a Captain in the U.S. Air Force where he served as a navigator in
Early Warning and Control aircraft. Following his service, he was manager of
system development of computer based defense systems for a major aerospace
company in California and New Jersey. He served in Personnel Management with
System Development Corp., McDonald Douglas Missile Systems and UNISYS. During
the last five years, he has designed, built, operated and owned six restaurants
and been active in multi-level marketing.
Eric N. Savage (43) graduated from Georgetown University in 1975. From 1991
to 1993, Mr. Savage conducted consulting for private clients. From 1994 to
November 1995 Mr. Savage was a director of Harvard Scientific Corp., a publicly
traded Nevada based biopharmaceutical company. Mr. Savage was Executive Vice
President of Inca Gold CIA from 1989 to 1991. From 1987 to 1989, Mr. Savage was
Vice President of Finance and Administration of see Mining, Inc. In the early
1980's, Mr. Savage was Director of Administration and International Marketing
for a major supplier of software to the U.S. Government.
Item 5. Other Information
See Item 2 regarding the June 27, 1996 Form 8-K.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2) Plan of Acquisition
(3) Articles of Incorporation
(4) Bylaws
(b) Report on Form 8-K
The Registration filed a Form 8-K on June 27, 1996, reporting:
Item 1. Changes in Control of Registrant
Item 7. Audited Financial Statements for TeleMall Network, Inc. as of May 31,
1996 and for TeleMall Communications, Inc. as of June 5, 1996:
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TeleMall Communications, Inc.
Date August 13, 1996 /s/ Rick Sullivan
-----------------
Rick Sullivan, Chairman and CFO
Date August 13, 1996 /s/ Tom Wells
-------------
Tom Wells, President and COO
Page 6 of 6 Pages
TELEMALL COMMUNICATIONS, INC.
(formerly Vegas Ventures, Inc.)
BALANCE SHEETS
(unaudited)
ASSETS
June 30, December 31,
1996 1995
--------- -----------
Current Assets
- --------------
Cash 5,348 0
Aristocrat Mutual Fund (Note 8) 500,000 0
Inventory (Notes 1 and 7) 3,101,061 0
Prepaid expenses 5,381 0
--------- ---------
Total Current Assets 3,611,790 0
--------- ---------
Property and Equipment
- ----------------------
Office furniture and equipment 65,979 0
Capitalized equipment leases 6,000 0
--------- ---------
71,979 0
Less: Accumulated depreciation (17,629) 0
--------- ---------
Net Property and Equipment 54,350 0
--------- ---------
Investment in Stock (Note 5) 0 1,580,000
- ------------------- --------- ---------
Other Assets
- ------------
Aristocrat Mutual Fund (Note 8) 1,500,000 0
Tape production costs net of
amortization of $10,846 21,332 0
Distributor list 79,440 0
Trademark costs 22,539 0
--------- ---------
Total Other Assets 1,623,311 0
--------- ---------
Total Assets 5,289,451 1,580,000
========= =========
The accompanying notes are an integral part
of these financial statements.
1
TELEMALL COMMUNICATIONS, INC.
(formerly Vegas Ventures, Inc.)
BALANCE SHEETS
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1996 1995
--------- ------------
Current Liabilities
- -------------------
Accounts payable 133,645 1,291
Accrued liabilities 63,746 0
Notes payable (Note 9) 41,000 0
Current portion of capital leases 3,144 0
--------- ---------
Total Current Liabilities 241,535 1,291
--------- ---------
Long-Term Liabilities
- ---------------------
Long term portion of capital leases 3,021 0
--------- ---------
Total Long-Term Liabilities 3,021 0
--------- ---------
Total Liabilities 244,556 1,291
--------- ---------
Stockholders' Equity
- --------------------
Common stock: 50,000,000 shares
authorized at $.001 per share par
value; issued and outstanding
3,789,100 shares at June 30, 1996,
14,961,000 shares at December 31,
1995 3,789 14,961
Convertible preferred stock:
10,000,000 shares authorized at $10.00
stated value per share, issued and
outstanding 510,000 shares at June 30,
1996, 0 shares at December 31, 1995 5,100,000 0
Paid in capital 1,167,885 2,789,722
Accumulated deficit (1,226,779) (1,225,974)
--------- ---------
Total Stockholders' Equity 5,044,895 1,578,709
--------- ---------
Total Liabilities and
Stockholders' Equity 5,289,451 1,580,000
========= =========
The accompanying notes are an integral
part of these financial statements.
2
TELEMALL COMMUNICATIONS, INC.
(formerly Vegas Ventures, Inc.)
INCOME STATEMENTS
(unaudited)
For the Three
Months Ended Year to Date
June 30, June 30,
----------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- -------
Revenues 56,197 0 56,197 0
------ --- ------ ---
Operating Expenses:
Selling, general and
administrative expenses 54,114 0 54,114 0
Depreciation 804 0 804 0
Amortization 1,084 0 1,084 0
------ --- ------ ---
Total Operating Expenses 56,002 0 56,002 0
------ --- ------ ---
Operating Income 195 0 195
Interest Expense (1,000) 0 (1,000) 0
----- --- ----- ---
Net Income before taxes ( 805) 0 ( 805) 0
Provision for income taxes 0 0 0 0
------ --- ------ ---
Net Income ( 805) 0 ( 805) 0
===== === ===== ===
Per share calculations are Nil per share.
The accompanying notes are an integral
part of these financial statements.
3
TELEMALL COMMUNICATIONS, INC.
(formerly Vegas Ventures, Inc.)
STATEMENT OF STOCKHOLDERS' EQUITY
INCEPTION TO JUNE 30, 1996
(unaudited)
Deficit
Accumulated
Common Stock During the Total
----------------- Paid In Development Stockholders'
Issued Amount Capital Stage Equity (Deficit)
------ ------ ------- ------------ ----------------
Balance at November 3, 1986
(inception) -- -- -- -- --
Shares of common stock issued
in November 1986 in exchange for
Cash ($.08 per share):
Officers and directors 75,000 75 5,925 -- 6,000
Related parties 5,000 5 395 -- 400
Net Loss for the period -- -- -- ( 163) ( 163)
------- ------ ------- ------- ---------
Balance at December 31, 1986 80,000 80 6,320 ( 163) 6,237
Shares of common stock issued in
public stock offering at $1.00
per share in September 1987 (net
of offering costs of $66,512) 201,000 201 134,287 -- 134,488
Shares of common stock issued in
October 1987 for services in
connection with public stock
offering 750,000 750 ( 750) -- --
Net Loss for the year -- -- -- ( 3,128) ( 3,128)
--------- ------ --------- ------- ---------
Balance at December 31, 1987 1,031,000 1,031 139,857 ( 3,291) 137,597
Net Loss for the year -- -- -- (137,557) ( 137,557)
--------- ------ --------- ------- ---------
Balance at December 31, 1988 1,031,000 1,031 139,857 (140,848) 40
The accompanying notes are an integral
part of these financial statements.
4
TELEMALL COMMUNICATIONS, INC.
(formerly Vegas Ventures, Inc.)
STATEMENT OF STOCKHOLDERS' EQUITY
INCEPTION TO JUNE 30, 1996
(unaudited)
(continued)
Deficit
Accumulated
Common Stock During the Total
----------------- Paid In Development Stockholders'
Issued Amount Capital Stage Equity (Deficit)
------ ------ ------- ------------ ----------------
Balance at December 31, 1988 1,031,000 1,031 139,857 (140,848) 40
Shares of common stock issued
in April 1989 for cash
$.22 per share) 45,000 45 9,955 -- 10,000
Shares of common stock issued
in July 1989 for services 760,000 760 ( 760) -- --
Net Loss for the year -- -- -- ( 9,748) ( 9,748)
---------- ------ --------- ------- ---------
Balance at December 31, 1989 1,836,000 1,836 149,052 (150,596) 292
Shares of common stock issued
in January 1990 for services 3,155,000 3,155 ( 3,155) -- --
Net Loss for the year -- -- -- ( 500) ( 500)
---------- ------ --------- ------- ---------
Balance at December 31, 1990 4,991,000 4,991 145,897 (151,096) ( 208)
Net Loss for the year -- -- -- ( 4,363) ( 4,363)
---------- ------ --------- ------- ---------
Balance at December 31, 1991 4,991,000 4,991 145,897 (155,459) ( 4,571)
The accompanying notes are an integral
part of these financial statements.
5
TELEMALL COMMUNICATIONS, INC.
(formerly Vegas Ventures, Inc.)
STATEMENT OF STOCKHOLDERS' EQUITY
INCEPTION TO JUNE 30, 1996
(unaudited)
(continued)
Deficit
Accumulated
Common Stock During the Total
----------------- Paid In Development Stockholders'
Issued Amount Capital Stage Equity (Deficit)
------ ------ ------- ------------ ----------------
Balance at December 31, 1991 4,991,000 4,991 145,897 ( 155,459) ( 4,571)
Shares of common stock issued
in August 1992 to related
parties for consulting services
($.01 per share) 1,470,000 1,470 18,530 -- 20,000
Shares of common stock issued
in August 1992 in exchange
for unimproved real estate
($.41 per share) 6,400,000 6,400 2,627,395 -- 2,633,795
Net Loss for the year -- -- -- ( 59,049) ( 59,049)
---------- ------ --------- --------- ---------
Balance at December 31, 1992 12,861,000 12,861 2,791,822 ( 214,508) 2,590,175
Shares of common stock issued
March 30, 1993 in exchange
for services 250,000 250 ( 250) -- --
Net Profit (Loss) for the year -- -- -- 0 0
---------- ------ --------- --------- ---------
Balance at December 31, 1993 13,111,000 13,111 2,791,572 214,508 2,590,175
Net (loss) for the year -- -- -- (1,011,466) 0
---------- ------ --------- --------- ---------
Balance at December 31, 1994 13,111,000 13,111 2,791,572 (1,225,974) 1,578,709
Shares of common stock issued
October 1, 1995 in exchange
for services 1,850,000 1,850 ( 1,850) -- --
Net Profit (Loss) for the year -- -- -- 0 0
---------- ------ --------- --------- ---------
Balance at December 31, 1995 14,961,000 14,961 2,789,722 (1,225,974) 1,578,709
The accompanying notes are an integral
part of these financial statements.
6
TELEMALL COMMUNICATIONS, INC.
(formerly Vegas Ventures, Inc.)
STATEMENT OF STOCKHOLDERS' EQUITY
INCEPTION TO JUNE 30, 1996
(unaudited)
(continued)
Deficit
Accumulated Total
Common Stock Preferred Shares During the Stockholders'
----------------- ------------------ Paid In Development Equity
Issued Amount Issued Amount Capital Stage (Deficit)
------ ------ ------ ------ ------- ------------- --------------
Balance at
December 31, 1995 14,961,000 14,961 2,789,722 (1,225,974) 1,578,709
Return of Company
shares in exchange
for investment
shares distributed
to shareholders ( 6,400,000) ( 6,400) (1,573,600) -- (1,580,000)
---------- ------ --------- --------- ---------
8,561,000 8,561 1,216,122 (1,225,974) ( 1,291)
Reverse 10 for 1
split ( 7,704,900) ( 7,705) 7,705 0
---------- ------ --------- --------- ---------
856,100 856 1,223,827 (1,225,974) ( 1,291)
Issuance of common
stock for merger
of TeleMall Network,
Inc. 2,933,000 2,933 ( 55,942) ( 53,009)
Preferred stock issued
to replace Telemall
Network, Inc.
preferred stock 510,000 5,100,000 5,100,000
Net (loss) for period
ended June 30, 1996 ( 805) ( 805)
---------- ------ ------- --------- --------- --------- ---------
Balance, June 30, 1996 3,789,100 3,789 510,000 5,100,000 1,167,885 (1,226,779) 5,044,895
========= ====== ======= ========= ========= ========= =========
The accompanying notes are an integral
part of these financial statements.
7
TELEMALL COMMUNICATIONS, INC.
(formerly Vegas Ventures, Inc.)
STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Month Period
Ended
June 30,
--------------------------------
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) ( 805) 0
Adjustments to reconcile net loss
to net cash provided (used) in
operating activities
Depreciation and amortization 1,888 0
(Increase) in trademark costs ( 22,539) 0
(Increase) in inventory (3,101,061) 0
Increase in accounts payable 132,354 0
Increase in accrued expenses 63,746 0
(Increase) in tape production costs ( 22,416) 0
(Increase) in distribution costs ( 79,440) 0
(Increase) in prepaids ( 5,381) 0
--------- ---
NET CASH (USED) BY OPERATING ACTIVITIES (3,033,654) 0
--------- ---
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in investment in stock 1,580,000 0
(Increase) in office furniture and equipment ( 55,154) 0
(Increase) in mutual fund (2,000,000) 0
--------- ---
NET CASH (USED) IN INVESTING ACTIVITIES ( 475,154) 0
--------- ---
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable 41,000 0
Increase in capital leases 6,165 0
Surrender of common shares
for investment stock (1,580,000) 0
Increase in preferred stock 5,100,000 0
Issuance of common shares for acquisition
of TeleMall Network, Inc. ( 53,009) 0
--------- ---
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 3,514,156 0
--------- ---
NET INCREASE IN CASH 5,348 0
--------- ---
CASH, BEGINNING OF PERIOD 0 0
--------- ---
CASH, END OF PERIOD 5,348 0
========= ===
The accompanying notes are an integral part
of these financial statements.
8
TELEMALL COMMUNICATIONS, INC.
(formerly Vegas Ventures, Inc.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND DECEMBER 31, 1995
(unaudited)
Note 1 Summary of Significant Accounting Policies:
-------------------------------------------
This summary of significant accounting policies of TELEMALL
COMMUNICATIONS, INC. (the "Company") (formerly Vegas Ventures, Inc.) is
presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of
the Company's management, which is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the
preparation of the financial statements.
(a) Organization and Business Nature:
The Company was incorporated in the State of Nevada on November 3,
1986 as Ed-Phills, Inc. On August 24, 1992, the Corporation changed
its name from Ed-Phills, Inc. to Vegas Ventures, Inc. Vegas
Ventures, Inc. changed its name to TeleMall Communications, Inc. on
June 4, 1996.
Since inception through June 5, 1996, the Company had been engaged
in organizational activities.
(b) Depreciation:
Depreciation is provided by the straight-line method at rates
calculated to amortize cost over the estimated useful lives of
respective assets. Upon sale or retirement of the respective
assets, the related cost and accumulated depreciation are
eliminated from the accounts, and gains or losses are reflected in
income. Repair and maintenance expenditures, not anticipated to
extend original asset lives, are charged to income as incurred.
(c) Inventory:
Inventory is stated at the lower of cost or market and includes
$3,100,000 of artwork, stored in a warehouse in Jenkintown,
Pennsylvania (see note 7).
(d) Fiscal Year:
The Company operates on a calendar year end basis.
(e) Basis of Operation:
The Company prepares its financial statements and federal income
taxes on the accrual basis of accounting.
Note 2 Mergers and Acquisitions:
------------------------
Effective June 4, 1996 the Company merged with Telemall Network, Inc.
by issuing 2,933,000 shares of its common stock in exchange for the
issued and outstanding shares of TeleMall Network Incorporated.
TeleMall Network, Inc. was incorporated in Nevada on May 12, 1994 and
the main business activity of the new combined company is merchandising
products over television.
9
TELEMALL COMMUNICATIONS, INC.
(formerly Vegas Ventures, Inc.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND DECEMBER 31, 1995
(unaudited)
(continued)
Note 3 Options, Warrants and Preferred Stock Conversion Features:
----------------------------------------------------------
There are no options or warrants outstanding against the common stock
of the Company. The 510,000 shares of convertible preferred stock
issued by the Company replaced the 510,000 shares of convertible
preferred stock issued by Telemall Network, Inc., and provides for the
exchange of one share of preferred stock for two shares of common stock
of TeleMall Communications, Inc. at the option of the shareholders. The
conversion option provides for redemption release stages over time with
no expiration date as to the conversion option.
Note 4 Dividend Policy:
----------------
The Company has not yet adopted a policy regarding dividends.
Note 5 Investment in Stock:
--------------------
On June 30, 1992, the Company entered into an agreement to acquire a
5/6 interest in three parcels of unimproved real property located in
the Las Vegas, Nevada metropolitan area in exchange for 6,400,000
shares of the Company's common stock. The three parcels were appraised
at $3,157,555 for the 5/6 interest and were subject to two loans
totaling $466,635 plus accrued interest of $35,541, and unpaid property
taxes of $9,862.
On August 16, 1993 the Company filed for relief in Chapter XI Federal
Bankruptcy, in the United States Bankruptcy Court, District of Nevada,
case number BK-S-93-21874-LBR.
Effective January 4, 1994 the Company was successful in providing a
plan of reorganization which primarily provided for the sale of the 5/6
interest in the three parcels of unimproved real estate for 395,000
shares of preferred voting stock of C.E.C., a public company. The buyer
of the vacant parcels also assumed the debt associated with the
unimproved parcels.
The Company was subsequently successful in obtaining a dismissal from
the Chapter XI proceedings.
In May 1996 the 395,000 shares of C.E.C. stock held by the Company was
exchanged for the 6,400,000 shares originally issued for the vacant
parcels. The Company then cancelled all of the 6,400,000 shares.
10
TELEMALL COMMUNICATIONS, INC.
(formerly Vegas Ventures, Inc.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND DECEMBER 31, 1995
(unaudited)
(continued)
Note 6 Common Stock:
-------------
On August 24, 1992, the Company approved a 10 for 1 reverse stock
split. All references in the Financial Statements to shares of common
stock and per share data reflect the August 24, 1992 changes.
In May, 1996 the Company approved a 10 for 1 reverse split and the
corresponding effect is reflected in the current period in order to
relate to the stock activity for the pre and post merger transaction.
Note 7 Artwork:
--------
Inventory of Len Garon Artwork was acquired
from Cable Print Network Marketing in
exchange for 310,000 shares of TeleMall
Network, Inc. Redeemable Convertible
Preferred Stock valued @ $10/share (replaced by
the Company's Preferred Stock) $3,100,000
----------
In the event the preferred shares or their equivalent in common shares
do not have a market price of at least $3,100,000 within two years, the
Company, at its option, shall return the artwork or issue additional
shares to compensate for the deficiency.
Note 8 Securities:
-----------
Investment in Aristocrat Endeavor Fund consists of 100,000 shares at
$20/share which was exchanged for 200,000 shares of TeleMall Network,
Inc. Convertible Preferred Stock valued @ $10/share, which was replaced
by the Company's Preferred Stock.
The investment is in the form of a Mutual Fund held in the British
Virgin Islands. The Company's management anticipates a redemption of
$500,000 of shares shortly after the hold is released on the redemption
period which is anytime after August 1, 1996. The redemption fee is
five percent (5%) of the amount redeemed and the fee decreases each
year thereafter.
Note 9 Notes Payable:
--------------
Officer and director - demand note 16,000
Officer and director - demand note 25,000
------
Total 41,000
======
11
TELEMALL COMMUNICATIONS, INC.
(formerly Vegas Ventures, Inc.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND DECEMBER 31, 1995
(unaudited)
(continued)
Note 10 Income Taxes:
-------------
At June 30, 1996, the Company has a federal net operating loss
carryforward of $1,226,779 for financial accounting and federal income
tax purposes. Utilization of the net operating loss in any taxable year
during the carryforward period may be subject to an annual limitation
due to the ownership change limitations imposed by the tax law.
The net operating losses will expire at various dates commencing in the
year 2006 through 2011.
The deferred tax asset consists of the future benefit of net operating
loss carryforwards. A valuation allowance limits the recognition of the
benefit of deferred tax assets until realization is reasonably assured
by future profitability.
The following is a summary of deferred taxes:
Deferred asset 417,145
Valuation allowance (417,145)
-------
Total 0
=======
12
EXHIBIT INDEX
Name Page No.
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Agreement and Plan of Merger I