14
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from _______ to _______
COMMISSION FILE NUMBER 000-29865
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CATHAYONE, INC.
---------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-4140336
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(State or other jurisdiction of (IRS Employer identification
No.)
incorporation or organization)
c/o Fisher & Fisher - One Whitehall Street, 21st Floor - New York, NY 10004
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(Address of principal executive offices)
(917) 699-4352
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court. Yes [ ] No [X]
Number of shares of common stock outstanding as of
August 15, 2001: 29,689,158
CATHAYONE, INC. AND SUBSIDIARIES
(A Development Stage Company)
PART I - FINANCIAL INFORMATION (Post Re-Capitalization - See Notes)
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PAGE NO.
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Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2001(unaudited) 3
Consolidated Statements of Operations for the
Three and six months ended June 30, 2001 and 2000 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 2001 and 2000 5-6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis
9-12
PART II - OTHER INFORMATION
-------------------------------
Item 1. Legal Proceedings (including Chapter 11 bankruptcy filing
information) 13
Item 2. Changes in Securities and Use of Proceeds
13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders
13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K
13
SIGNATURES 14
ITEM 1. FINANCIAL STATEMENTS
CATHAYONE, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000
ASSETS
------
(Unaudited)
CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . Jun 30, 2001 Dec 31, 2000
-----------------------------------------------------------------
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . $ 8 $ 37,187
Loan Receivable, net. . . . . . . . . . . . . . . . . . . . . . -0- -0-
Prepaid Expenses. . . . . . . . . . . . . . . . . . . . . . . . -0- 500
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . 8 37,687
FIXED ASSETS
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Furniture and Office Equipment. . . . . . . . . . . . . . . . . 5,946 5,946
Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . (1,050) (850)
Net Fixed Assets . . . . . . . . . . . . . . . . . . . . . . 4,896 5,096
-------------- --------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . $ 4,904 $ 42,783
============= ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES
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Accounts Payable and Accrued Expenses . . . . . . . . . . . . . 1,166,767 1,044,701
Due to Related Parties. . . . . . . . . . . . . . . . . . . . . 822,377 776,177
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . 1,989,144 1,820,878
STOCKHOLDERS' DEFICIT
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Common Stock ($.001 par value, 100,000,000 shares authorized:
29,689,158 and 29,489,158 issued and outstanding at
June 30, 2000 and December 31, 2000, respectively) . . . . . . 29,689 29,489
Preferred Stock ($.001 par value, 5,000,000 shares authorized:
none issued and outstanding) . . . . . . . . . . . . . . . . . -0- -0-
Additional Paid-in-Capital. . . . . . . . . . . . . . . . . . . 3,129,149 2,667,349
Deficit Accumulated During Development Stage. . . . . . . . . . (5,143,078) (4,474,933)
TOTAL STOCKHOLDERS' DEFICIT . . . . . . . . . . . . . . . . . (1,984,240) (1,778,095)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT . . . . . . . . . $ 4,904 $ 42,783
============= ==============
CATHAYONE, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000*
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000*
OPERATING EXPENSES:
------------------------------------------
General and administrative . . . . . . . $ 8,665 $ 96,829 $ 206,041 $ 98,129
TOTAL EXPENSES . . . . . . . . . . . . 8,665 96,829 206,041 98,129
OPERATING LOSS . . . . . . . . . . . . (8,665) (96,829) (206,041) (98,129)
OTHER EXPENSE:
------------------------------------------
Interest Expense - Note 3. . . . . . . . -0- -0- (462,104) -0-
TOTAL OTHER EXPENSE. . . . . . . . . . -0- -0- (462,104) -0-
LOSS BEFORE TAXES. . . . . . . . . . . (8,665) (96,829) (668,145) (98,129)
INCOME TAX (PROVISION) BENEFIT . . . . -0- -0- -0- -0-
NET LOSS . . . . . . . . . . . . . . . $ (8,665) $ (96,829) $ (668,145) $ (98,129)
Net Loss Per Common Share
Basic & Fully Diluted. . . . . . . . . . $ ** $ (0.01) $ (0.02) $ (0.02)
Weighted Average Common
Shares Outstanding . . . . . . . . . . . 29,689,158 8,032,495 29,655,825 6,120,407
* Date of reorganization was March 1, 2000
** Less than $.01
CATHAYONE, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000*
June 30, 2001 June 30, 2000*
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (668,145) $ (98,129)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . 200 -0-
Common stock issued in connection with legal services - Note 3. 462,000 -0-
Common stock issued in reorganization . . . . . . . . . . . . . -0- 29,258
Write-down of note receivable and prepaid asset . . . . . . . . 8,000
Increase in operating liabilities:
Amounts due related party for
services rendered . . . . . . . . . . . . . . . . . . . . . . 46,200 -0-
Accounts payable and accrued expenses . . . . . . . . . . . . 122,066 87,798
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . (29,679) 18,927
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CASH FLOWS FROM INVESTING ACTIVITIES
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Investment in distribution company. . . . . . . . . . . . . . . . -0- (16,139)
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . -0- (16,139)
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Issuance of note receivable . . . . . . . . . . . . . . . . . . . (7,500) -0-
Common stock issuances. . . . . . . . . . . . . . . . . . . . . . -0- 1,299
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . (7,500) 1,299
----------------- ---------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . (37,179) 4,087
CASH AND CASH EQUIVALENTS:
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Beginning of period . . . . . . . . . . . . . . . . . . . . . 37,187 -0-
End of period . . . . . . . . . . . . . . . . . . . . . . . . $ 8 $ 4,087
============== ================
* Date of reorganization was March 1, 2000
CATHAYONE, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000*
June 30, 2001 June 30, 2000*
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
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Cash paid for interest . . . . . . . . . . . . . $ 104 $ -0-
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NON-CASH FINANCING ACTIVITIES:
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Common stock issued in connection
with legal services - Note 3 . . . . . . . . . . $ 462,000 $ -0-
============== ===============
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
June 30, 2001
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments consisting only of normal recurring accruals
considered necessary to present fairly the Company's financial position at June
30, 2001, the results of operations for the three and six month periods ended
June 30, 2001 and 2000, and cash flows for the six months ended June 30, 2001
and 2000. The results for the period ended June 30, 2001, are not necessarily
indicative of the results to be expected for the entire fiscal year ending
December 31, 2001.
NOTE 2 - EARNINGS (LOSS) PER SHARE
The following represents the calculation of earnings per share:
For the three months ended For the six months ended
June 30, June 30,
BASIC & DILUTED* 2001 2000 2001 2000
---------------------------------- ------------ ----------- ----------------- ---------
Net loss $ (8,665) $ (96,829) $ (668,145) $(98,129)
Less- preferred stock dividends -- -- -- --
------------ ----------- ---------------- -----------
Net loss $ (8,665) $ (96,829) $ (668,145) $(98,129)
Weighted average number
of common shares 29,689,158 8,032,495 29,655,825 6,120,407
------------ ----------- ----------------- ----------
Basic & diluted earnings per share $ ** $ (.01) $ (.02) $ (.02)
============ =========== ================== ===========
*There were no common stock equivalents for either period presented.
** Less than $.01
NOTE 3 - OTHER EXPENSE
During the six months ended June 30, 2001, the Company issued 200,000 shares of
its common stock in connection with legal services performed rendered on behalf
of the Company. The Company is disputing a significant portion of the
approximately $593,000 in accumulated invoices claimed by the law firm. The
Company has accrued these invoices in its financial statements pending a
settlement with the law firm. The shares were issued pursuant to an agreement
whereby the law firm will provide the Company until April 30, 2001 to pay the
outstanding invoices. The Company is currently in default of this agreement. The
value of the shares was determined using the fair market on the date of
issuance, or $2.31 per share, yielding an aggregate market value of $462,000.
NOTE 4 - BANKRUPTCY FILING
On June 15, 2001, The registrant filed a voluntarily Chapter 11 petition in the
United States Bankruptcy Court for the Southern District of New York, Case No.
01-41726(cb). The registrant is continuing as a debtor in possession with its
prior management, except as noted in Item 6, pursuant to Section 1107 of Title
11 of the United States Code. The Company intends to file a plan of
reorganization as provided by Chapter 11 of the United States Bankruptcy Code as
soon as practicable.
A meeting of creditors pursuant to section 341 of the United States Bankruptcy
Code was held in August 2001.
The Company intends to proceed as expeditiously as possible to resolve
outstanding liabilities. The Company presently is in negotiation with
prospective merger partners in order to inject new capital into the Company, and
therefore maximize value for its constituents.
NOTE 5 - CHANGE IN DIRECTORS
Subsequent to the Special Meeting, Phillip Lee Flaherty announced his
resignation as Chairman, Treasurer and Director of CathayOne, Inc., as well as
his position as Chief Executive Officer of its subsidiary, Cathay Entertainment
Ltd.
Mr Flaherty was replaced by the addition of Charles A Nelson to the Company's
Board of Directors. Mr Nelson is a Senior Vice President for New Business
Development at Auerbach, Pollack & Richardson.
--The rest of this page is left intentionally blank--
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
--------
With the exception of historical facts stated herein, the matters discussed in
this report are "forward looking" statements that involve risks and
uncertainties that could cause actual results to differ materially from
projected results. Such "forward looking" statements include, but are not
necessarily limited to, statements regarding anticipated levels of future
revenues and earnings from operations of the Company. Readers of this report are
cautioned not to put undue reliance on "forward looking" statements that are, by
their nature, uncertain as reliable indicators of future performance. The
Company disclaims any intent or obligation to publicly update these "forward
looking" statements, whether as a result of new information, future events, or
otherwise.
DESCRIPTION OF BUSINESS
Business Development History
------------------------------
CathayOne, Inc. (the "Company") is a publicly traded Delaware corporation that
was originally incorporated in the State of Utah on August 6, 1984, under the
name North American Clothing Company, Inc.
As of June 30, 2000, a majority of the shareholders of the Company authorized a
change in the Company's state of incorporation from Utah to Delaware, and the
merger of the Company into its wholly owned subsidiary, Cathay Bancorp Inc.,
CathayOne Inc. being the surviving company. The re-domiciling of the Company to
the State of Delaware and the concurrent change of the Company's name to
CathayOne Inc. occurred on August 9, 2000.
The Company has vacated their former executive offices and is receiving
correspondence at their attorneys office at: c/o Fisher and Fisher - One
Whitehall Street, 21st Floor - New York, NY 10004
Business of the Issuer.
-------------------------
Principal Products and Services
The Company's stated business purpose is to manage, take a majority position in,
and/or make strategic investments in technological and service companies in the
entertainment industry. While located in the United States, the Company has
attempted to take advantage of the appetite for foreign content entertainment as
well as foreign entertainment in China, the fast-growing broadband multimedia
information dissemination opportunities, and Internet content services market in
China. Management believes that the best returns for investments in the next
decade will be in the People's Republic of China, Hong Kong, Macao and Taiwan
(collectively, "Greater China").
The Greater China market is increasingly looking outward in its appetite for
foreign content entertainment. The Company believes it can capitalize on the
growth in information technology, and will initially focus on developing
companies in the entertainment markets, including: music, theater and sporting
events.
The Company will attempt to provide its North American expertise in management,
new technologies, and financial acumen to companies in China. As the companies
mature, the Company will seek to enhance value and liquidity for its
shareholders by bringing these companies to the public market, arranging merger
and acquisition opportunities, or negotiating private transactions for them. In
the alternative, the Company may take an equity position or enter into joint
ventures with such companies.
Distribution
The Company is still in the developmental phase and has not, to this date,
embarked on any consistent attempts to market or distribute its products in the
Greater China region or elsewhere. The Company has performed no formal market
studies related to its proposed products and services in the Greater China
region. However, the Company has been involved in limited in-house research to
determine the types of music and entertainment that might be marketed
successfully in the Greater China region.
Competition
The Company will be involved in intense competition with other business
entities, many of which will have a competitive edge over the Company by virtue
of their stronger financial resources and prior experience in business. There
is no assurance that the Company will be successful in obtaining additional
suitable business opportunities, or that it will be able to successfully operate
its current proposed businesses.
The market for the provision of entertainment products and/or services to
individuals and businesses is extremely competitive and highly fragmented. There
may be substantial barriers to entry in Mainland China and other foreign
countries where the Company seeks to operate, and the Company expects that
competition will intensify. The Company believes that the primary competitive
factors determining success in this market are a reputation for reliability and
service, effective customer support, pricing, creative marketing, and geographic
coverage. Other important factors include the timing of introductions of new
products and services and industry and general economic trends. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures faced by the Company will
not materially adversely affect its business, financial condition and results of
operations.
In order to respond to expected changes in the competitive environment, the
Company may, from time to time, make price, service or marketing decisions or
make acquisitions that could possibly harm its business. Developing new
technologies may also increase competitive pressures on the Company by enabling
its competitors to offer a lower cost service.
Dependence on Major Customers
The Company's business plan does not envision dependence on one or a few major
customers
Governmental Regulation
The Company is subject to the same federal, state and local laws as other
companies providing entertainment and Internet products and services. Today,
there are relatively few laws specifically directed toward online products and
services. However, due to the increasing popularity and use of the Internet and
online services, it is possible that laws and regulations may be adopted with
respect to the Internet or online products and services. These laws and
regulations could cover issues such as online contracts, user privacy, freedom
of expression, pricing, fraud, content and quality of products and services,
taxation, advertising, intellectual property rights and information security.
Applicability to the Internet of existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, taxation, libel,
obscenity and personal privacy are uncertain. Several jurisdictions have
proposed legislation that would limit the uses of personal user information
gathered online or require online services to establish privacy policies.
While located in the United States, the Company has positioned itself to take
advantage of foreign content entertainment, the fast-growing broadband
multimedia information dissemination opportunities, and Internet content
services market in foreign markets. Management intends to build its business in
the People's Republic of China, Hong Kong, Macao and Taiwan (collectively,
"Greater China"). In all of these countries, businesses face varying degrees of
government regulation. Mainland China is heavily regulated. Because the
Company is in a start-up mode, it is presently impossible to predict the
government regulation, if any, to which the Company may be subject. The use of
assets and/or conduct of businesses that the Company may acquire could subject
it to environmental, public health and safety, land use, trade, or other
governmental regulations and state or local taxation. The Company is presently
attempting to ascertain the effects of such government regulation on the
prospective business of the Company. Under the present circumstances, the
Company is in the development stage. Therefore, it is not feasible to predict
with any degree of accuracy the impact of government regulation on the Company's
operations. The inability to ascertain the effect of government regulation on
the Company's prospective business activity creates a high degree of risk.
Regulatory Overview
It is possible that additional laws and regulations may be adopted with respect
to the entertainment industry. Such new laws or regulations may cover issues
such as content, pricing, consumer protection, electronic commerce, taxation,
copyright infringement and other intellectual property issues. The Company
cannot predict the impact, if any, that any future regulatory changes or
development may have on its business, financial condition and results of
operations. Changes in the regulatory environment that directly or indirectly
affect the ability to market products or services, or increase the likelihood or
scope of competition, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Employees
The two remaining officers continue to manage the Company as a
debtor-in-possession. This arrangement will continue into the foreseeable future
pursuant to their Chapter 11 plan of reorganization.
RESULTS OF OPERATIONS
-----------------------
The following are the results of operation as of and for the three and six
months ended June 30, 2001 and 2000. As indicated in the accompanying financial
statements, the Company did not have any material operations for the three
months ended March 31, 2000.
Net Income
The Company had a net loss of $8,665 for the three months ended June 30, 2001
versus a net loss of $96,829 for the same period in 2000. The net loss for the
first half of the year was primarily attributable to non-cash expense on an
accounts payable and accrued consulting fees that were, $462,000 and $120,000,
respectively.
Sales
The Company did not have any revenues during the periods presented.
Expenses
Total expenses were $8,665 for the three months ended June 30, 2001 versus
$96,829 in during the same period in 2000. Total expenses for the six month
period ended June 30, 2000 were $668,145 versus $98,129 in during the same
period in 2000.
Total expenses included $462,000 in connection with the payable due the
Company's legal counsel. The payment was made with 200,000 shares of the
Company's common stock valued at $2.31 per share, the fair market value at the
time of issuance. Expenses also included $120,000 in accruals for consultants
and officers pursuant to their respective employment agreements. Rent expense
was $16,200.
Liquidity and Capital Resources
On June 30, 2001, the Company had cash of $8 and a working capital deficit of
$1,989,136. The working capital deficit represents primarily obligations from
operations and amounts due related parties for advances and services.
Net cash used in operating activities was $29,679 for the six months ended June
30, 2001 versus net cash provided by operating activities of $18,927 during the
same period in 2000. The difference in cash used was primarily attributable to
an increase in loss from operations in the amount of $659,480, an increase in
accounts payable of $87,798 during 2000 and $462,000 in common stock issuances
for services.
Cash used in financing activities totaled $7,500 for the six months ended June
30, 2001 as a result of the incurrence of a loan receivable in the amount of
$7,500 to an unrelated party. The Company now believes collection of this is
unlikely and, accordingly, has reserved this amount to bad debt. The Company
will need to raise funds during the next twelve months for its operations. The
Company does not currently have enough liquid assets to remain in operations. In
addition, the Company's auditors expressed doubt as to the Company's ability to
continue as a going concern. Failure to raise additional capital during the next
twelve months will have a material adverse effect on the Company. The Company
estimates it will need $3 to 5 million over the next twelve months and $14
million over the long-term in order to develop its business plan.
PART II. OTHER INFORMATION
-----------------------------
Item 1. Legal Proceedings
Capital Lake S.A. v. CathayOne, Inc., Case No. 01-CV-1266 (SAS) filed in the
----------------------------------------
United States District Court for the Southern District of New York. The case
---
involves a claim to entitlement to a $300,000 finder's fee/brokerage commission.
--
The Company denies liability and is defending the action. The case is in its
early stages. No discovery has occurred. The Company is unable to express an
opinion on the outcome at this time, although the Company does feel it has a
meritorious defense to the claim.
As a result of the bankruptcy filing, this case has been stayed.
The Company is aware of a claim being asserted by its former legal counsel for
fees in the approximate amount of $593,000, which amount is contested by the
Company. The Company is attempting to settle this claim. Collection efforts on
this claim has also been stayed
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
------------
None.
b) Reports on Form 8-K
--------------------------
1. A Form 8-K was filed on June 20, 2001 announcing the bankruptcy
proceeding filed under Chapter 11 of the United Stated Bankruptcy Code and the
resignation of a director of the Company.
SIGNATURES
----------
In accordance with 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.
/s/ David Cooperberg, President
-------------------------------------------
Date: August 15, 2001 David Cooberberg, President