SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File
Number 333-24671
1997 CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3936988
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
315 106th Street, 4th Floor, New York, New York 10025
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (212) 678-6231
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 ___
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [x].
Issuer's revenues for fiscal year 1997 were $ 1,362.
As of March 25, 1998: (a) 45,000 Common Shares, $.001 par value, of the
registrant were outstanding; (b) 30,000 Common Shares were held by
non-affiliates; and (c) the aggregate market value of Common Shares held by
non-affiliates was $150,000 based on the funds held in escrow for the benefit of
non-affiliates.
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PART I
ITEM 1. BUSINESS
Business Objectives
The Company, which is a "blank check" was formed on March 17, 1997 to serve
as a vehicle to effect a merger, exchange of capital stock, asset acquisition or
other business combination (a "Business Combination") with an operating business
(a "Target Business"). The Company completed its initial public offering of
30,000 shares for net proceeds of $150,000 in September 1997. The business
objective of the Company is to effect a Business Combination with a Target
Business which the Company believes has significant growth potential. The
Company intends to utilize the net proceeds of its public offering, equity
securities, debt securities, bank and other borrowing or a combination thereof
in effecting a Business Combination.
The Company will seek to acquire a Target Business without limiting itself
to a particular industry. Most likely, the Target Business will be primarily
located in the United States, although the Company reserves the right to acquire
a Target Business primarily located outside the United States. In seeking a
Target Business, the Company will consider, without limitation, businesses which
(I) offer or provide services or develop, manufacture or distribute goods in the
United States or abroad, including, without limitation, in the following areas:
health care and health products, educational services, environmental services,
consumer-related products and services (including amusement and/or recreational
services), personal care services, voice and data information processing and
transmission and related technology development or (ii) is engaged in wholesale
or retail distribution. The Company will not acquire a Target Business unless
the fair market value of such business, as determined by the Company based upon
standards generally accepted by the financial community, including revenues,
earnings, cash flow and book value (the "Fair Market Value"), is at least 80%
(or $120,000) of the offering proceeds (the "Fair Market Value Test"). If the
Company determines that the financial statements of a proposed Target Business
do not clearly indicate that the Fair Market Value Test has been satisfied, the
Company will obtain an opinion from an investment banking firm that is a member
of the National Association of Securities Dealers, Inc. (the "NASD") with
respect to the satisfaction of such criteria. While the Company may, under
certain circumstances, seek to effect Business Combinations with more than one
Target Business, in all likelihood, as a result of its limited resources, the
Company will have the ability to effect only a single Business Combination with
a Target Business. The Company does not intend to register as a broker-dealer,
merge with or acquire a registered broker-dealer, or otherwise become a member
of the NASD. There are no plans, proposals or arrangements or understandings
with respect to the sale of additional securities to affiliates, current
shareholders or others following this offering, but prior to the location of a
business opportunity. Prior to any merger or acquisition, the Company will
provide its shareholders with a post-effective prospectus, including audited
financial statements, concerning the targeted entity and its business.
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Background. As a result of management's broad discretion with respect to
the specific application of the net proceeds of the Company's public offering,
the Company can be characterized as a "blank check" company. Although
substantially all of the net proceeds of the 1997 offering are intended to be
utilized generally to effect a Business Combination, such proceeds are not
otherwise being designated for any more specific purposes. Consummation of a
Business Combination may involve the acquisition of, or merger or consolidation
with, a company that does not need substantial additional capital but which
desires to establish a public trading market for its shares, while avoiding what
it may deem to be the adverse consequences of undertaking a public offering
itself, such as the time delays and significant expenses incurred to comply with
the various Federal and state securities laws that regulate initial public
offerings.
In connection with stockholder approval of a Business Combination, the
Company intends to provide stockholders with disclosure documentation in
accordance with the Proxy Rules, including audited financial statements,
concerning a Target Business. Accordingly, any Target Business that is selected
would need to have audited financial statements or be audited in connection with
the transaction. To the extent the Company effects a Business Combination with a
financially unstable company or an entity in its early stage of development or
growth (including entities without established records of revenue or income),
the Company will become subject to numerous risks inherent in the business and
operations of financially unstable and early stage or potential emerging growth
companies. In addition, to the extent that the Company effects a Business
Combination with an entity in an industry characterized by a high level of risk,
the Company will become subject to the currently unascertainable risks of that
industry. An extremely high level of risk frequently characterizes certain
industries which experience rapid growth. Although management will endeavor to
evaluate the risks inherent in a particular industry or Target Business, there
can be no assurance that the Company will properly ascertain or assess all
risks.
Probable Lack of Business Diversification. As a result of the limited
resources of the Company, the Company, in all likelihood, will have the ability
to effect only a single Business Combination. Accordingly, the prospects for the
Company's success will be entirely dependent upon the future performance of a
single business. Unlike certain entities that have the resources to consummate
several Business Combinations or entities operating in multiple industries or
multiple segments of a single industry, it is highly likely that the Company
will not have the resources to diversify its operations or benefit from the
possible spreading of risks or offsetting of losses. The Company's probable lack
of diversification may subject the Company to numerous economic, competitive and
regulatory developments, any or all of which may have a material adverse impact
upon the particular industry in which the Company may operate subsequent to
consummation of a Business Combination. The prospects for the Company's success
may become dependent upon the development or market acceptance of a single or
limited number of products, processes or services. Accordingly, notwithstanding
the possibility of capital investment
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in and management assistance to the Target Business by the Company, there can be
no assurance that the Target Business will prove to be commercially viable. The
Company has no present intention of either loaning any of its assets to any
Target Business or of purchasing or acquiring a minority interest in any Target
Business.
Under the Delaware General Corporation Law, various forms of Business
Combinations can be effected without stockholder approval. In addition, the form
of Business Combination will have an impact upon the availability of dissenters'
rights (i.e., the right to receive fair payment with respect to the Common
Stock) to stockholders disapproving of the proposed Business Combination. Under
current Delaware law, only a merger or consolidation may give rise to a
stockholder vote and to dissenters' rights. The Company intends to provide
stockholders with disclosure documentation in accordance with Rule 419,
including audited financial statements, concerning a Target Business as a part
of the investment re-confirmation offer process. In addition, the Delaware
General Corporation Law requires approval of certain mergers and consolidations
by a majority of the outstanding stock entitled to vote. Even if investors are
afforded the right to approve a Business Combination under the Delaware General
Corporation Law, no dissenters' rights to receive fair payment will be available
for stockholders if the Company is to be the surviving corporation unless the
Certificate of Incorporation of the Company is amended and as a result thereof:
(i) alters or abolishes any preferential right of such stock; (ii) creates,
alters or abolishes any provision or right in respect of the redemption of such
shares or any sinking fund for the redemption or purchase of such shares; (iii)
alters or abolishes any preemptive right of such holder to acquire shares or
other securities; or (iv) excludes or limits the right of such holder to vote on
any matter, except as such right may be limited by the voting rights given to
new shares then being authorized of any existing or new class.
Limited Ability to Evaluate Management of a Target Business. The role of
the present management of the Company, following a Business Combination, cannot
be stated with any certainty. Although the Company intends to scrutinize closely
the management of a prospective Target Business in connection with its
evaluation of the desirability of effecting a Business Combination with such
Target Business, there can be no assurance that the Company's assessment of such
management will prove to be correct. While it is possible that certain of the
Company's directors or its executive officers will remain associated in some
capacities with the Company following consummation of a Business Combination, it
is unlikely that any of them will devote a substantial portion of their time to
the affairs of the Company subsequent thereto. Moreover, there can be no
assurance that such personnel will have significant experience or knowledge
relating to the operations of the particular Target Business. The Company also
may seek to recruit additional personnel to supplement the incumbent management
of the Target Business. There can be no assurance that the Company will have the
ability to recruit additional personnel or that such additional personnel will
have the requisite skills, knowledge or experience necessary or desirable to
enhance the incumbent management. In addition, there can be no assurance that
the future management of the Company will have the necessary skills,
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qualifications or abilities to manage a public company intending to embark on a
program of business development.
Selection of a Target Business and Structuring of a Business Combination.
Management may, but does not presently intend to, negotiate or otherwise consent
to the purchase of a portion or their shares in connection with a Business
Combination. Given management paid between $1.00 and $2.00 for their shares and
the public shareholders have paid $5.00 per share there will be an inherent
conflict of interest, as management may have an interest in undertaking a
Business Combination which provides a good return on their investment, but does
not provide the same return to the public investors. Should an investor believe
that management has breached its fiduciary duty to the Company and its
shareholders, pursuit of a claim for such breach of fiduciary duty by investors
is likely to be prohibitively expensive. While management does not intend to
take any fees or other compensation from the Company (but only to obtain their
investment return through appreciation in the common stock), there is no
assurance that the Company will not pay fees to firms or individuals with whom
management has relationships. However, it is expected that the law firm of
Epstein Becker & Green, P.C. will represent the Company in connection with a
Business Combination. Richard Campbell is special counsel to Epstein Becker &
Green, P.C. and has agreed with the firm that he will receive no fees in
connection with such representation. Management has a substantial number of
relationships in the business community and considers it likely that they will
draw on these relationships and pay fees to those parties who are involved in a
concluded Business Combination. The form or amount of these fees or other
consideration cannot be determined at this time. The Company will not undertake
Business Combinations with entities owned or controlled by affiliates or
associates of the Company or engage in the creation of subsidiary entities with
a view to distributing their securities to the shareholders of the Company. In
order to mitigate against the possibility that management may undertake
transactions with undue consideration of their own interests, the Company has
established a requirement that 51% of the Shares purchased in the offering
approve any Business Combination, including the terms of management's
involvement and consideration, if any. Management does not intend to accept a
premium for their shares above the amount paid to the public. Management has
adopted a resolution respecting the above corporate policy and is unaware of any
circumstances under which this policy, through management's own initiative,
would be changed.
Management of the Company will have substantial flexibility in identifying
and selecting a prospective Target Business. However, the Company's flexibility
is limited to the extent that it must satisfy the Fair Market Value Test. If the
Company determines that the financial statements of a proposed Target Business
do not clearly indicate that the Fair Market Value Test has been satisfied, the
Company will obtain an opinion from an independent investment banking firm that
is a member of the NASD with respect to the satisfaction of such criteria. As a
result, investors will be almost entirely dependent on the judgment of
management in connection with the selection of a Target Business. In evaluating
a prospective Target Business, management will consider, among
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other factors, the following: (I) costs associated with effecting the Business
Combination; (ii) equity interest in and opportunity for control of the Target
Business; (iii) growth potential of the Target Business; (iv) experience and
skill of management and availability of additional personnel of the Target
Business; (v) capital requirements of the Target Business; (vi) competitive
position of the Target Business; (vii) stage of development of the Target
Business; (viii) degree of current or potential market acceptance of the Target
Business, products or services; (ix) proprietary features and degree of
intellectual property or other protection of the Target Business; (x) the
financial statements of the Target Business; and (xi) the regulatory environment
in which the Target Business operates.
The foregoing criteria are not intended to be exhaustive and any evaluation
relating to the merits of a particular Target Business will be based, to the
extent relevant, on the above factors as well as other considerations deemed
relevant by management in connection with effecting a Business Combination
consistent with the Company's business objectives. In connection with its
evaluation of a prospective Target Business, management, with the possible
assistance of an independent investment banking firm, anticipates that it will
conduct a due diligence review which will encompass, among other things, meeting
with incumbent management and inspection of facilities, as well as a review of
financial, legal and other information which will be made available to the
Company.
The time and costs required to select and evaluate a Target Business
(including conducting a due diligence review) and to structure and consummate
the Business Combination (including negotiating and documenting relevant
agreements and preparing requisite documents for filing pursuant to applicable
securities laws and state "blue sky" and corporation laws) cannot presently be
ascertained with any degree of certainty. The Company's current executive
officers and directors intend to devote 15 to 20 hours per month of their time
to the affairs of the Company, and, accordingly, the consummation of a Business
Combination may require a greater period of time than if the Company's
management devoted their full time to the Company's affairs. However, each
officer and director of the Company will devote such time as they deem
reasonably necessary to carry out the business and affairs of the Company,
including the evaluation of potential Target Businesses and the negotiation of a
Business Combination and, as a result, the amount of time devoted to the
business and affairs of the Company may vary significantly depending upon, among
other things, whether the Company has identified a Target Business or is engaged
in active negotiation of a Business Combination. Any costs incurred in
connection with the identification and evaluation of a prospective Target
Business with which a Business Combination is not ultimately consummated will
result in a loss to the Company and reduce the amount of capital available to
otherwise complete a Business Combination or for the resulting entity to
utilize.
The Company anticipates that various prospective Target Businesses will be
brought to its attention from various sources, including securities
broker-dealers, investment bankers, venture capitalists, bankers, other members
of the financial community and affiliated sources, including, possibly, the
Company's executive
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officer, directors and their affiliates. The Company may also engage the
services of professional firms that specialize in finding business acquisitions,
in which event the Company may pay a finder's fee or other compensation. In no
event, however, will the Company pay a finder's fee or commission to officers or
directors of the Company or any entity with which they are affiliated for such
service.
As a general rule, Federal and state tax laws and regulations have a
significant impact upon the structuring of business combinations. The Company
will evaluate the possible tax consequences of any prospective Business
Combination and will endeavor to structure a Business Combination so as to
achieve the most favorable tax treatment to the Company, the Target Business and
their respective stockholders. There can be no assurance that the Internal
Revenue Service or relevant state tax authorities will ultimately assent to the
Company's tax treatment of a particular consummated Business Combination. To the
extent the Internal Revenue Service or any relevant state tax authorities
ultimately prevail in recharacterizing the tax treatment of a Business
Combination, there may be adverse tax consequences to the Company, the Target
Business and their respective stockholders. Tax considerations as well as other
relevant factors will be evaluated in determining the precise structure of a
particular Business Combination, which could be effected through various forms
of a merger, consolidation or stock or asset acquisition.
The Company may utilize cash derived from the net proceeds of the 1997
offering, equity securities, debt securities or bank or other borrowing or a
combination thereof as consideration in effecting a Business Combination.
Although the Company has no commitments as of the date of this annual report to
issue any shares of Common Stock or options or warrants, the Company will, in
all likelihood, issue a substantial number of additional shares in connection
with the consummation of a Business Combination. To the extent that such
additional shares are issued, dilution to the interests of the Company's
stockholders will occur. Additionally, if a substantial number of shares of
Common Stock are issued in connection with the consummation of a Business
Combination, a change in control of the Company may occur which may affect,
among other things, the Company's ability to utilize net operating loss carry
forwards, if any.
There currently are no limitations on the Company's ability to borrow funds
to effect a Business Combination. However, the Company's limited resources and
lack of operating history may make it difficult to borrow funds. The amount and
nature of any borrowing by the Company will depend on numerous considerations,
including the Company's capital requirements, potential lenders' evaluation of
the Company's ability to meet debt service on borrowing and the then prevailing
conditions in the financial markets, as well as general economic conditions. The
Company does not have any arrangements with any bank or financial institution to
secure additional financing and there can be no assurance that such arrangements
if required or otherwise sought, would be available on terms commercially
acceptable or otherwise in the best interests of the Company. The inability of
the Company to borrow funds required to effect or facilitate a Business
Combination, or to provide funds
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for an additional infusion of capital into a Target Business, may have a
material adverse effect on the Company's financial condition and future
prospects, including the ability to effect a Business Combination. To the extent
that debt financing ultimately proves to be available, any borrowing will
subject the Company to various risks traditionally associated with indebtedness,
including the risks of interest rate fluctuations and insufficiency of cash flow
to pay principal and interest. Furthermore, a Target Business may have already
incurred debt financing and, therefore, subject the Company to all the risks
inherent thereto.
Acquisition Restrictions
The Company may acquire a company or business by purchasing, trading or
selling the securities of such company or business. However, the Company does
not intend to engage primarily in such activities. Specifically, the Company
intends to conduct its activities so as to avoid being classified as an
"investment company" under the Investment Company Act of 1940, and therefore
avoid application of the costly and restrictive registration and other
provisions of the Investment Company Act of 1940 and the regulations promulgated
thereunder.
Section 3(a) of the Investment Company Act excepts from the definition of
an "investment company" an entity which does not engage primarily in the
business of investing, reinvesting or trading in securities, or which does not
engage in the business of investing, owning, holding or trading "investment
securities" (defined as "all securities other than government securities or
securities of majority-owned subsidiaries") the value of which exceed 40% of the
value of its total assets (excluding government securities, cash or cash items).
The Company intends to implement its business plan in a manner which will result
in the availability of this exception from the definition of "investment
company." Consequently, the company's acquisition of a company or business
through the purchase and sale of investment securities will be limited. Although
the Company intends to act to avoid classification as an investment company, the
provisions of the Investment Company Act of 1940 are extremely complex and it is
possible that it may be classified as an inadvertent investment company. The
Company intends to vigorously resist classification as an investment company,
and to take advantage of any exemptions or exceptions from application of the
Investment Company Act of 1940, which allows an entity a one time option during
any three-year period to claim an exemption as a "transient" investment company.
The necessity of asserting any such resistance, or making any claim of
exemption, could be time consuming and costly, or even prohibitive, given the
Company's limited resources.
The Company's plan of business may involve changes in its capital
structure, management, control and business, especially if it consummates a
reorganization as discussed above. Each of these areas is regulated by the
Investment Company Act of 1940, which regulation has the purpose of protecting
purchasers of investment company securities. Since the Company does not intend
to register as an investment company, shareholders are not afforded these
protections.
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The Company will be subject to certain reporting requirements under the
Exchange Act of 1934. In the event the Company no longer would be required to
file reports and other information with the Commission under the Exchange Act,
the Company intends nonetheless to continue to file such reports. Pursuant to
Section 13 and 15(d) of the Act, in the event significant acquisitions take
place, the Company will be required to furnish information including certified
financial statements for the acquired company covering one, two or three years
depending upon the relative size of the acquisition. Consequently, acquisition
prospects that do not have or are unable to obtain the required certified
financial statements will not be appropriate for acquisition so long as the
reporting requirements of the Exchange Act are applicable.
Various impediments to an acquisition of a business or company or a merger
may arise such as appraisal rights afforded the shareholders of a prospective
acquisition company or merger partner may arise under the laws of the state the
prospective acquisition company is organized under. This may prove to be
deterrent to a particular combination.
Pursuant to a resolution adopted and approved by the Board of Directors,
the Company will not acquire or merge with any business or company in which the
Company's promoters, management or their affiliates or associates, directly or
indirectly, have an ownership interest. Management has agreed that this
resolution will not be changed by management's own initiative.
Rule 419 Prescribed Acquisition Criteria and Reconfirmation
The Company's acquisition activities are subject to Rule 419 under the Act.
As such, among other things, any agreement to acquire an acquisition candidate
must provide for the acquisition of a business or assets for which the fair
market value of the business or assets to be acquired represents at least 80% of
the offering proceeds. The fair market value of the business or assets to be
acquired must be at least $120,000. Once an acquisition agreement meeting the
above criteria has been executed, the Company must successfully complete a
reconfirmation offering.
Competition
The Company expects to encounter intense competition from other entities having
business objectives similar to that of the Company. Many of these entities are
well established and have extensive experience in connection with identifying
and effecting business combinations directly or through affiliates. Many of
these competitors possess greater financial, technical, human and other
resources than the Company and there can be no assurance that the Company will
have the ability to compete successfully. The Company's financial resources are
limited in comparison to those of many of its competitors. Further, such
competitors will generally not be required to seek the prior approval of their
own stockholders, which may enable them to close a Business Combination more
quickly than the Company. This inherent competitive limitation may compel the
Company to select certain less attractive Business Combination prospects. There
can be no assurance that such prospects will permit the Company to satisfy its
stated business
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objectives.
Uncertainty of Competitive Environment of Target Business
In the event that the Company succeeds in effecting a Business Combination,
the Company will, in all likelihood, become subject to intense competition from
competitors of the Target Business. In particular, certain industries which
experience rapid growth frequently attract an increasingly large number of
competitors including competitors with increasingly greater financial,
marketing, technical, human and other resources than the initial competitors in
the industry. The degree of competition characterizing the industry of any
prospective Target Business cannot presently be ascertained. There can be no
assurance that, subsequent to a Business Combination, the Company will have the
resources to compete effectively, especially to the extent that the Target
Business is in a high-growth industry.
Possible Liquidation of the Company
In the event that the Company does not effect a Business Combination within
18 months from the effective date of its initial public offering, or October 24,
1998, the Company will distribute to the then holders of Common Stock acquired
as part of the Shares sold in the 1997 offering, the amounts in the escrow
account together with a pro-rata share of all interest accrued in such account.
Employees
As of the date of this annual report, the Company employs Ms. Haselton and
Mr. Campbell on a part time basis. Such persons will serve as officers and
director without compensation at least until completion of a Business
Combination. Epstein Becker & Green, P.C., a firm where Mr. Campbell is special
counsel, may receive fees for legal services actually rendered to the Company.
ITEM 2. PROPERTIES
The Company, pursuant to an oral agreement, utilizes and will utilize the
offices of Judith Haselton, the Company's Chairman of the Board and President at
no cost to the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings and knows of no
threatened litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Shares are currently held in escrow by Continental
Stock Transfer and Trust Company pending completion of a Business Combination.
It is expected that following closing, if any, of a Business Combination, the
Common Stock will be traded in the over-the-counter market and quoted in the
NASDAQ Bulletin Board.
No dividends have been declared on the Common Shares since the inception of
the Company in March 1997 and the Company does not anticipate paying any cash
dividends in the foreseeable future. On March 25, 1998, the Company had
approximately 132 holders of record.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is currently in the development stage. In 1997 the Company
raised $150,000 through the sale of 30,000 shares of Common Stock. The proceeds
from the sale as well as the shares of Common Stock sold are currently held in
escrow pending approval of a Business Combination or the return of the same to
the shareholders of the Company. All activity of the Company to date has been
related to its formation, financing, and review of various businesses for
acquisition by the Company. As of December 31, 1997, the Company had incurred
approximately $20,000 of costs associated with the formation and capitalization
of the Company. The founding shareholders of the Company, who hold 15,000 of the
45,000 shares presently outstanding, funded these costs. The Company will use
the net proceeds from the previous offering principally in connection with
effecting a Business Combination, and structuring and consummating a Business
Combination (including possible payment of finder's fees or other compensation
to persons or entities which provide assistance or services to the Company). The
Company does not have discretionary access to the income on the monies in the
escrow account and stockholders of the Company will not receive any distribution
of the income (except in connection with a liquidation of the Company) or have
any ability to direct the use or distribution of such income. Thus, such income
will cause the amount in escrow to increase. The Company cannot use the escrowed
amounts to pay the costs of evaluating potential Business Combinations. To the
extent that Common Stock is used as consideration to effect a Business
Combination, the balance of the net proceeds from the offering not theretofore
expended will be used to finance the operations of the Target Business. No cash
compensation will be paid to any officer or director in their capacities as such
until after the consummation of the first Business Combination. Since the role
of present management after a Business Combination is uncertain, the Company has
no ability to determine what remuneration, if any, will be paid to such persons
after a Business Combination.
In the event that the Company does not effect a Business Combination by
October 24, 1998, the Company will distribute to the
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then holders of Common Stock acquired as part of the Shares sold in its 1997
offering the amount held in the escrow account with a pro-rata share of all
interest accrued in such account.
ITEM 7. FINANCIAL STATEMENTS
The Company's consolidated financial statements for the fiscal year ended
December 31, 1997 are included herein and consist of:
Consolidated Balance Sheet
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Feldman, Radin & Co. P.C. audited the opening balance sheet of the Company.
Coopers & Lybrand, LLC has audited the 1997 year end financial statements of the
Company. The Company has no, and has had no, disagreements with Feldman, Radin &
Co. P.C. with respect to their prior engagement as the Company's auditors.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, COMPLIANCE WITH SECTION 16 (a) OF THE
EXCHANGE ACT
The current directors and officers of the Company are as follows:
Name Age Position
---- --- --------
Judith S. Haselton 43 Chairman of the
Board, President
Richard L. Campbell 42 Secretary,Treasurer
Director
Judith S. Haselton, Chairman of the Board, President and Director is an
independent financial consultant and private investor. From February, 1987, to
October, 1991, she was employed as an investment banker in the corporate finance
department of Smith Barney, Inc., and from June, 1983, to February, 1987, with
E.F. Hutton and Company Inc. She also served from June, 1980, to June, 1983, as
a commercial banker with Bank of America NT & SA. Ms. Haselton received her
Masters in Business Administration from Columbia University Graduate School of
Business and her undergraduate degree from Macalester College.
Richard L. Campbell, Secretary, Treasurer, and Director, is a Managing
Director of Mantis Holdings, Inc., a privately held investment holdings company
and since January 1, 1997, also is special counsel to the law firm of Epstein,
Becker & Green, P.C. Prior to the formation of Mantis in June, 1992, Mr.
Campbell was principally engaged as a corporate attorney concentrating in the
areas of corporate finance and securities, and continues to act as counsel to a
select number of companies in his capacity as special counsel to the firm of
Epstein Becker & Green, P.C. Mr. Campbell received his undergraduate degree from
The University of Michigan, his Juris Doctorate from Wayne State University, and
his Masters in Corporation Law from New York University.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Directors receive no
compensation for serving on the Board of Directors other than the reimbursement
of reasonable expenses incurred in attending meetings. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
No family relationships exist among any of the named directors or the
Company's officers. No arrangement or understanding exists between any such
director or officer and any other person pursuant to which any director or
officer was elected as a director or officer of the Company.
There are no agreements or understandings for any officer or director of
the Company to resign at the request of another person and none of the officers
or directors of the Company are acting on behalf of, or will act at the
direction of, any other person.
Conflicts of Interest
None of the Company's directors or officers is required to
13
<PAGE>
commit his full time to the affairs of the Company and it is likely that such
persons will not devote a substantial amount of time to the affairs of the
Company. Such personnel will have conflicts of interest in allocating management
time among various business activities. As a result, the consummation of a
Business Combination may require a greater period of time than if the Company's
management devoted their full time to the Company's affairs. However, each
officer and director of the Company will devote such time as she or he deems
reasonably necessary to carry out the business and affairs of the Company,
including the evaluation of potential Target Businesses and the negotiation of a
Business Combination and, as a result, the amount of time devoted to the
business and affairs of the Company may vary significantly depending upon, among
other things, whether the Company has identified a Target Business or is engaged
in active negotiation of a Business Combination. The Company expects that its
officers will spend 15 to 20 hours per month of their time on the business
affairs of the Company until a potential Business Combination has been
identified, upon which event they expect to spend significantly more time until
such Business Combination is consummated. Prior to their involvement with the
Company, none of the directors or officers of the Company has been involved in
any "blank check" offerings. There can be no assurance that any of the foregoing
conflicts will be resolved in favor of the Company.
In connection with any stockholder vote relating either to approval of a
Business Combination or the liquidation of the Company due to the failure of the
Company to effect a Business Combination within the time allowed, all of the
Company's present stockholders, including all of its officers and directors (and
any stockholders who are affiliated with its officers and directors), have
agreed to vote all of their respective shares of Common Stock in accordance with
the vote of the majority of the shares voted by all non-affiliated public
stockholders of the Company (in person or by proxy) with respect to such
Business Combination or liquidation.
Prior and Future Blank Check Offerings
None of the Company's officers, directors, promoters or other persons
engaged in management-type activities has been previously involved with any
blank check offerings and has no plans with respect to future blank check
offerings. It is possible that management will undertake future blank check
offerings; however, management does not have any present intention to undertake
other blank check offerings and expects that if it does undertake additional
blank check offerings that it would not do so until a Business Combination is
concluded by the Company.
ITEM 10. EXECUTIVE COMPENSATION
The Company has not entered into employment agreements or other
understandings with its directors or executive officers concerning compensation.
No cash compensation has been or will be paid to any officer or director in
their capacities as such until after the consummation of the first Business
Combination. Since the role of present management after the consummation of a
Business Combination is uncertain, the Company has no ability
14
<PAGE>
to determine what remuneration, if any, will be paid to such persons after the
consummation of a Business Combination.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of the date hereof, based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (I) each person known by the
Company to be the owner of more than 5% of the outstanding shares of Common
Stock, (ii) each director, and (iii) all executive officers and directors as a
group:
Amount
and Percentage
Nature of Outstanding
of Common Stock
Beneficial Shares of
Name of Group Ownership Common Stock
------------- --------- ------------
Judith S. Haselton (1) 5,000 11%
315 West 106th Street
Fourth Floor
New York, New York 10025
Richard L. Campbell 10,000 22%
407 East Grand River
Brighton, Michigan 48116
All executive officers and
directors as a group
(two person) 15,000 33%
- ----------
(1) James Gale, the husband of Judy Haselton, owns 5,430 shares of common
stock purchased in the Company's public offering. Ms. Haselton disclaims
beneficial ownership of these shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1997, the Company issued 10,000 shares of Common Stock to Richard
L. Campbell and 5,000 shares of Common Stock to Judith S. Haselton. Mr. Campbell
paid $1.00 per share for his shares and Ms. Haselton paid $2.00 per share for
her shares. Mr. Campbell is special counsel to Epstein Becker & Green, P.C.,
counsel to the Company.
15
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits.
The following exhibits are filed as part of this report:
Exhibit No.
3.1 Certificate of Incorporation*
3.2 Bylaws of the Company*
*Previously filed as Exhibits to the Company's Registration Statement on
Form SB-2 (Commission file No.333-24671).
(b) Reports on Form 8-K.
None
16
<PAGE>
1997 CORP.
Index to Financial Statements
Page(s)
-------
Report of Independent Accountants 1
Financial Statements as of and for the period from March 17, 1997
(date of inception) to December 31, 1997:
Balance Sheet 2
Statement of Operations 3
Statement of Cash Flows 4
Notes to Financial Statements 5-6
<PAGE>
Report of Independent Accountants
To the Board of Directors of 1997 Corp.:
We have audited the accompanying balance sheet of 1997 CORP., as of December 31,
1997, and the related statements of operations and cash flows for the period
from March 17, 1997 (date of inception) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As explained in Note 3 to the financial statements, all proceeds held in escrow
will be returned to the public investors and the related stock certificates will
be cancelled if a business combination has not been approved by the shareholders
by October 24, 1998.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 1997 Corp., as of December 31,
1997, and the results of its operations and its cash flows for the period from
March 17, 1997 (date of inception) to December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
New York, New York
February 28, 1998
1
<PAGE>
1997 CORP.
Balance Sheet
December 31, 1997
ASSETS
Cash $ 1,064
Cash held in escrow 151,362
---------
Total assets $ 152,426
---------
LIABILITIES and STOCKHOLDERS' EQUITY
Accounts payable $ 407
---------
Total liabilities 407
---------
Redeemable stockholder's equity:
Common stock, $.001 par value, authorized 10,000,000 shares;
issued and outstanding 45,000 45
Paid in capital 210,005
Accumulated deficit (58,031)
---------
Total redeemable stockholders' equity 152,019
---------
Total liabilities and redeemable stockholders' equity $ 152,426
=========
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
1997 CORP.
Statement of Operations
For the period from March 17, 1997 (date of inception) to December 31, 1997
Interest income $ 1,362
--------
Expenses:
General and administrative expenses 59,393
--------
Total expenses 59,393
--------
Net loss $(58,031)
========
Basic and diluted loss per share $ (2.05)
========
Basic and diluted weighted average shares 28,333
========
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
1997 CORP.
Statement of Cash Flows
For the period from March 17, 1997 (date of inception) to December 31, 1997
Cash flows from operating activities:
Net loss $(58,031)
Adjustments to reconcile net cash used in operating activities:
Stock-based compensation expense 55,000
Changes in assets and liabilities:
Accounts payable 407
---------
Net cash used in operating activities (2,624)
---------
Cash flows from investing activities:
Payments to cash escrow reserve (151,362)
---------
Net cash used in investing activities (151,362)
---------
Cash flows from financing activities:
Proceeds from issuance of common stock 170,000
Payments of stock issuance costs (14,950)
---------
Net cash provided by financing activities 155,050
---------
Net increase in cash and cash equivalents 1,064
---------
Cash and cash equivalents, end of year $ 1,064
=========
Supplemental schedule of noncash investing and financing activities:
Issuance of common stock to management as compensation $ 55,000
=========
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
1997 CORP.
Notes to Financial Statements
1. Organization:
1997 Corp., (the "Company"), was incorporated in the state of Delaware on
March 17, 1997. During 1997, the Company had a "blank check" offering
subject to the Securities and Exchange Commission's Rule 419 of Regulation
C under the Securities Act of 1933. It intends to serve as a vehicle to
effect a business combination with a target business which will be an
operating business (not yet identified). The Company intends to utilize the
net proceeds from an offering of equity securities, debt securities, bank
and other borrowing or a combination thereof in effecting a business
combination. All activity of the Company to date has been related to its
formation, financing, and review of various businesses for acquisition by
the Company.
2. Summary of Significant Accounting Policies:
Cash and Cash Equivalents
The Company considers investments in highly liquid debt instruments with an
original maturity of three months or less to be cash equivalents.
Basic and Diluted Loss Per Share
Basic and diluted loss per share is based on the number of shares of common
stock outstanding during the period.
Income Taxes
Under the balance sheet-based liability method specified by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes",
("SFAS 109"), deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect
when the differences reverse. The Company records a valuation allowance to
reduce deferred tax assets to the amount expected to be realized.
3. Cash Held In Escrow:
Continental Stock Transfer & Trust Company ("Continental") is holding the
public offering proceeds and the stock certificates of the public investors
in escrow pursuant to Rule 419 of the Rules and Regulations of the
Securities and Exchange Commission. Continental will hold the proceeds and
the stock certificates pursuant to Rule 419 until the approval of a
business combination by the shareholders. If a business combination has not
been approved by the shareholders by October 24, 1998 all proceeds will be
returned to the public investors and the stock certificates will be
cancelled.
5
<PAGE>
1997 CORP.
Notes to Financial Statements, Continued
4. Redeemable Stockholders Equity:
During 1997, the Company raised $155,050, net of offering costs of $14,950
by offering 45,000 shares of $.001 par value common stock. Included within
the 45,000 shares issued, 15,000 shares were issued to management at prices
ranging from $1-$2 per share. The remaining 30,000 shares were issued in
conjunction with the "blank check" offering at a price of $5 per share.
A $55,000 charge to income as compensation expense was incurred as a result
of the Company issuing stock to management at less than fair value. Fair
value is based on the per share "blank check" offering price of $5 per
share.
5. Income Taxes:
As of December 31, 1997, the Company's net operating loss for tax purposes
will differ from the loss for financial reporting purposes as a result of
certain costs being capitalized and expensed over a five-year period for
tax purposes.
Significant components of the Company's deferred tax assets as of December
31, 1997 are a result of temporary differences related to the item
described as follows:
Deferred
Tax Assets
----------
Organizational costs $56,067
-------
Valuation allowance 56,067
-------
$ --
=======
Due to the uncertainty of the realization of the deferred tax asset, a full
valuation allowance has been provided of the net deferred tax asset.
6. Proposed Offering:
In March 1998, the Company is in discussion with a target business
regarding the possible acquisition of all of the outstanding capital stock
of that target business. In addition, the Company is contemplating raising
additional capital through a private placement offering of approximately
$5,000,000.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
1997 CORP.
By:/s/ Judith Haselton
------------------------------------------
Judith Haselton
Chairman of the Board of Directors, and
Principal Executive Officer
Date: March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Judith Haselton
- ------------------------ Chairman of the Board March 25, 1998
Judith Haselton of Directors, and
Principal Executive
Officer
/s/ Richard L. Campbell
- ------------------------ Chief March 25, 1998
Richard L. Campbell Financial Officer
(Principal Financial and
Accounting Officer)
7
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 152,426
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 152,426
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 152,426
<CURRENT-LIABILITIES> 407
<BONDS> 0
0
0
<COMMON> 45
<OTHER-SE> 151,974
<TOTAL-LIABILITY-AND-EQUITY> 152,426
<SALES> 0
<TOTAL-REVENUES> 1,362
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 59,393
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (58,031)
<INCOME-TAX> 0
<INCOME-CONTINUING> (58,031)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (58,031)
<EPS-PRIMARY> (2.05)
<EPS-DILUTED> (2.05)
</TABLE>
