Form 10-KSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 1998.
[ ] Transition report pursuant section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from................to................
Commission file number: 0-23171 - CIK 0001045280
Applied Capital Funding, Inc.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-1280679
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4155 E. Jewell Ave., Suite 909. Denver, CO 80222
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (303) 691-6163
NONE
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes: X No:
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is 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]
State issuer's revenues for its most recent fiscal year: $-0-
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) $.001.
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
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(Issuers involved in bankruptcy proceeding during the past five years) Check
whether the issuer has 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 a court. Yes [ ] No [ ] NOT APPLICABLE
(Applicable only to corporate registrants)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 15,112,000.
Documents incorporated by reference
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).
Transitional Small Business Disclosure Format (check one):Yes [X]; No...
In accordance with paragraph H of the General Instructions the registrant
has elected to provide the information set forth under "Information Required in
Annual Report of Transitional Small Business Issuers."
<PAGE>
PART I
Alternative 1.
The Company has elected to furnish the information required by Questions 1,
3, 4, 11, 14-20, 28-43, 45, and 47-50 of Model A of Form 1-A, as follows:
THE COMPANY
1. Exact corporate name: Applied Capital Funding, Inc.
State and date of incorporation: Colorado - September 28, 1994
Street address of principal office: 4155 E. Jewell Avenue, Denver, CO 80222
Company Telephone Number: 303-691-6163
Fiscal Year: December 31.
Person(s) to contact at Company: David R. Reitsema
Telephone Number (if different from above:) N/A
BUSINESS AND PROPERTIES/
With respect to the business of the Company and its properties:
(a) Describe in detail what business the Company does and proposes to do,
including what products or goods are or will be produced or services that are or
will be rendered.
The Company was organized in 1994 as a Colorado corporation. It was formed
to engage in the business of residential mortgage brokerage and its marketing
efforts were aimed primarily at refinance loans. From 1994 through the present
it has originated and sold loans, primarily to national wholesale lenders.
Although the Company has had agents working for it who marketed to realtors,
attorneys and other traditional sources of residential loans, the Company has
not made them the primary focus of its marketing, choosing instead to look to
refinance loans and second mortgage loans for its primary business. It currently
employs two loan officers.
Commencing in 1994, residential interest rates began climbing over their
historic lows of 1993. This resulted in disappointing revenues to the Company,
and the Company has only nominal current revenues. However, beginning in 1996,
residential interest rates began falling and have continued their downward
movement. Although there is no assurance that the rates will continue at their
present level or continue to fall, there is a general prevailing economic
opinion that rates may rise before the end of 1999 at the earliest.
The Company's principals have experience in marketing residential refinance
loans and intend to implement a strategy to explore new marketing efforts.
Traditional marketing methods include newspaper advertising, direct mail and
telemarketing, and the Company's principals have experience with these types of
marketing.
(b) Describe how these products or services are to be produced or rendered
and how and when the Company intends to carry out its activities. If the Company
plans to offer a new product(s), state the present stage of development,
including whether or not a working prototype(s) is in existence. Indicate if
completion of development of the product would require a material amount of the
resources of the Company, and the estimated amount. If the Company is or is
expected to be dependent upon one or a limited number of suppliers for essential
raw materials, energy or other items, describe. Describe any major existing
supply contracts.
The Company's services of mortgage brokering are carried out by soliciting
mortgages through newspaper and other print media advertising. The Company does
not use its own capital to supply funds for mortgages to its clients but
utilizes wholesale lenders who supply such funds. The Company prepares the
necessary loan documents to facilitate the mortgage including the filing of the
documents with the appropriate governmental agencies.
(c) Describe the industry in which the Company is selling or expects to
sell its products or services and, where applicable, any recognized trends
within that industry. Describe that part of the industry and the geographic area
in which the business competes or will compete.
The mortgage industry - commercial and residential - is extremely
competitive as this time. The Company's business is predicated substantially on
re-financing of home mortgages when interest rates reduce. At the present time,
interest rates are at an all-time low and the Company's business is in a slack
period. The Company's mortgage business is derived mainly from an area comprised
of metropolitan Denver, Colorado and surrounding suburban cities. The Company
may, at its discretion, expand its business to cities within a 200 mile radius
from Denver, Colorado.
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Indicate whether competition is or is expected to be by price, service, or
other basis. Indicate (by attached table if appropriate) the current or
anticipated prices or price ranges for the Company's products or services, or
the formula for determining prices, and how these prices compare with those of
competitors' products or services, including a description of any variations in
product or service features. Name the principal competitors that the Company has
or expects to have in its area of competition. Indicate the relative size and
financial and market strengths of the Company's competitors in the area of
competition in which the Company is or will be operating. State why the Company
believes it can effectively compete with these and other companies in its area
of competition.
Competition in the residential mortgage business is generally driven by
price of stated interest rates and loan origination points added to the mortgage
loan. Prospective borrowers generally are aware of the difference that interest
rates (although varying only one-quarter to one-half percentage point) can make
over a 15 or 30 year mortgage. Competition is also driven by the amount that
mortgage brokers and lenders add at the origination of the loan - i.e. "points"
which are added to the initial origination fees. These points usually are from
1/4 point to 1 point.
(d) Describe specifically the marketing strategies the Company is employing
or will employ in penetrating its market or in developing a new market. Set
forth in response to Question 4 below the timing and size of the results of this
effort which will be necessary in order for the Company to be profitable.
Indicate how and by whom its products or services are or will be marketed (such
as by advertising, personal contact by sales representatives, etc.), how its
marketing structure operates or will operate and the basis of its marketing
approach, including any market studies. Name any customers that account for, or
based upon existing orders will account for a major portion (20% or more) of the
Company's sales. Describe any major existing sales contracts.
Prospective mortgagees are usually derived from two sources: (i)
advertising and (ii) references from real estate agents. Advertising is placed
in print media, radio and television. The Company is not currently advertising
in any media. The decision to use any one or all of the media is based upon
current competition at the time of advertising and the perceived resultant
responses to such advertising. The choices of any one or more of the media
varies considerably and is a constant variable. The Company's contact with real
estate agents is also variable depending upon the market thrust and location of
residential sales. The Company has no contact with developers or builders as
this segment of the market usually has its own financing for new homes in place
at the time of sale.
(e) State the backlog of written firm orders for products and/or services
as of a recent date (within the last 90 days) and compare it with the backlog of
a year ago from that date:
As of: 012/01/98 $ -0-
(a recent date)
As of: 012/01/97 $ -0-
(one year earlier)
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Explain the reason for significant variations between the two figures, if any.
Indicate what types and amounts of orders are included in the backlog figures.
State the size of typical orders. If the Company's sales are seasonal or
cyclical, explain.
(f) State the number of the Company's recent employees and the number of
employees it anticipates it will have within the next 12 months. Also, indicate
the number of type of employee (i.e., clerical, operations, administrative,
etc.) The Company will use, whether or not any of them are subject to collective
bargaining agreements, and the expiration date(s) of any collective bargaining
agreement(s). If the Company's employees are on strike, or have been in the past
three years, or are threatening to strike, describe the dispute. Indicate any
supplemental benefits or incentive arrangements the Company has or will have
with its employees.
The Company has only two employees at the present time. The Company does
not anticipate any additional increase in the number of employees until such
time as the Company is able to generate mortgage loans.
(g) Describe generally the principal properties (such as real estate, plant
and equipment, patents, etc.) That the Company owns, indicating also what
properties it leases and a summary of the terms under those leases, including
the amount of payments, expiration dates and the terms of any renewal options.
Indicate what properties the Company intends to acquire in the immediate future,
the cost of such acquisitions and the sources of financing it expects to use in
obtaining these properties, whether by purchase, lease or otherwise.
The Company currently owns no property, real estate, or equipment.
(h) Indicate the extent to which the Company's operations depend or are
expected to depend upon patents, copyrights, trade secrets, know-how or other
proprietary information and the steps undertaken to secure and protect this
intellectual property, including any use of confidentiality agreements,
covenants-not-to-compete and the like. Summarize the principal terms and
expiration dates of any significant license agreements. Indicate the amounts
expended by the Company for research and development during the last fiscal
year, the amount expected to be spent this year and what percentage of revenues
research and development expenditures were for the last fiscal year.
The Company's business does not depend on patents, copyrights or any other
proprietary information.
(i) If the Company's business, products, or properties are subject to
material regulation (including environmental regulation) by federal, state, or
local governmental agencies, indicate the nature and extent of regulation and
its effects or potential effects upon the Company.
There are no laws, regulations or rules governing the operation of the
Company's operation as a mortgage broker in the State of Colorado, nor under
federal law, other than the normal business regulations.
<PAGE>
(j) State the names of any subsidiaries of the Company, their business
purposes and ownership, and indicate which are included in the Financial
Statements attached hereto. If not included, or if included by not consolidated,
please explain.
The Company has no subsidiaries.
(k) Summarize the material events in the development of the Company
(including any material mergers or acquisitions) during the past five years, or
for whatever lesser period the Company has been in existence. Discuss any
pending or anticipated mergers, acquisitions, spin-offs or recapitalizations. If
the Company has recently undergone a stock split, stock dividend or
recapitalization in anticipation of this offering, describe (and adjust
historical per share figures elsewhere in this Offering Circular accordingly).
The Company is unable to ascertain what this last sentence means as this is not
an offering. Shares have already been sold.
The Company has not engaged in any business combination, merger or
acquisition activities. As a subsequent event, so noted in the Company's
financial statements accompanying this report, On January 14, 1999, the Board of
Directors of the Company approved the issuance of 160,000 share of its preferred
stock in exchange for cancellation of 13,362,000 shares of its common stock. On
January 29, 1999, the Board of Directors of the Company approved a 2 for 1
forward split of its common stock, effective as of the record date of February
22, 1999.
4. (a)If the Company was not profitable during its last fiscal year, list
below in chronological order the events which in management's opinion must or
should occur or the milestones which in management's opinion the Company must or
should reach in order for the Company to become profitable, and indicate the
expected manner of occurrence or the expected method by which the Company will
achieve the milestones.
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Date or number of months
Expected manner of occurrence after receipt of proceeds
Event of Milestone or method of achievement date should be accomplished
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1. Development of Company officers Not Applicable
marketing plans conduct planning session (no offering proceeds)
2. Hiring additional Advertising and Not Applicable
sales personnel industry contacts (no offering proceeds)
(b) State the probable consequences to the Company of delays in achieving
each of the events or milestones within the above time schedule, and
particularly the effect of any delays upon the Company's liquidity in view of
the Company's then anticipated level of operating costs. (See Question No. 11)
The probable consequences to the Company would be only a slight delay as
the tasks as set forth above are not difficult to achieve. However there is no
assurance that the Company will be able to set an exact schedule on the meeting
of the milestones as described above.
<PAGE>
11. Indicate whether the Company is having or anticipates having within the next
12 months any cash flow or liquidity problems and whether or not it is in
default or in breach of any note, loan, lease or other indebtedness or financing
arrangement requiring the Company to make payments. Indicate if a significant
amount of the Company's trade payables have not been paid within the stated
trade term. State whether the Company is subject to any unsatisfied judgments,
liens or settlement obligations and the amounts thereof. Indicate the Company's
plans to resolve any such problems.
The Company is not in breach or default of any note, loan or lease, nor is
the Company carrying any debt or obligation for debt service. There are no liens
or judgements against the Company.
DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS
28. If the Company has within the last five years paid dividends, made
distributions upon its stock or redeemed any securities, explain how much and
when:
NONE
OFFICERS AND KEY PERSONNEL OF THE COMPANY
29. Chief Executive Officer: Title: President
Name: Gary G. Clark Age: 57
Office Street Address: 4155 E. Jewell Ave. Telephone No: 303-691-6163
Denver, CO 80222
Name of employers, titles and dates of positions held during past five years
with an indication of job responsibilities:
Gary G. Clark has been a mortgage loan officer and mortgage broker since 1991.
Mr. Clark also served as a director of Attache Holdings, Ltd., from July 1996 to
April 1996, Enfield Trading Corporation from April to July 1996, and Gulf and
Orient Steamship Company. His business experience includes management of retail
and wholesale companies, personnel training, customer service, inventory
control, real estate sales, and investment opportunities. From 1992 to November
1994, he was a mortgage banker with Hilliscot Group, Inc., Denver, Colorado.
From 1990 to 1993 he was Sales Manager for Mobile Telecommunications, Inc. From
1982 to 1990 he was Sales Manager for InterLink Communications of Colorado. From
1977 to 1982, he was Regional Sales Manager for Westinghouse Corporation in the
Rocky Mountain region. From 1967 to 1977, he was the President and General
Manager for Bragdon Appliance Company, a Denver based retailer. His education
includes a degree in Business Administration from the University of Colorado
with advanced studies at Notre Dame University, Westinghouse Learning
Foundation, and Jones Real Estate College.
Also a Director of the Company? [x] Yes [ ] No
<PAGE>
Indicate amount of time to be spend on Company matters if less than full
time: Four days per month until fully operational.
31. Chief Financial Officer: Title: Secretary
Name: David R. Reitsema Age: 51
Office Street Address: 4155 E. Jewell Ave. Telephone No: 303-691-6163
Denver, CO 80222
Name of employers, titles and dates of position held during past five years with
an indication of job responsibilities:
David R. Reitsema incorporated the Company in 1994, and served as officer
and director until August 1996, when he resigned to pursue other business
opportunities. He was appointed to the Board of Directors and the office of
Secretary in July 1997. He is the President and a Director of EDR Financial,
Inc., a Colorado company engaged in investment banking. He is the President of
Corporate International, Ltd. A Colorado company engaged primarily in business
consulting with firms engaged in international transactions. From 1992 to 1994,
he owned and operated Silverthorne Funding Corporation, a mortgage brokerage
firm located in Denver, Colorado. Mr. Reitsema is an attorney licensed to
practice in the state of Colorado since 1973. He received his B. A. Degree from
Calvin College in Grand Rapids, Michigan, and his Juris Doctor Degree from the
University of Denver College of Law.
Also a Director of the Company? [X] Yes [ ] No
Indicate amount of time to be spend on Company matters if less than full
time: Four days a month until fully operational.
DIRECTORS OF THE COMPANY
33. Number of Directors: 2.
If Directors are not elected annually, or are elected under a voting trust
or other arrangement, explain: NOT APPLICABLE.
34. Information concerning outside or other Directors (i.e., those not described
above): NOT APPLICABLE.
35.(a) Have any of the Officers or Directors ever worked for or managed a
company (including a separate subsidiary or division of a larger enterprise) in
the same business as the Company? [X] Yes [ ] No
(b). If any of the Officers, Directors or other key personnel have ever worked
for or managed a company in the same business or industry as the Company or in a
related business or industry, describe what precautions, if any, (including the
obtaining of releases or consents from prior employers) have been taken to
preclude claims by prior employers for conversion or theft of trade secrets,
know-how or other proprietary information.
<PAGE>
The officers have not previously worked for any company that possessed
trade secrets, proprietary know-how or other proprietary information.
(c) If the Company has never conducted operations or is otherwise in the
development stage, indicate whether any of the Officers or Directors has ever
managed any other company in the start-up or development stage and describe the
circumstances, including relevant dates.
NOT APPLICABLE
(d) If any of the Company's key personnel are not employees but are consultants
or other independent contractors, state the details of their engagement by the
Company.
NOT APPLICABLE
(e) If the Company has key man life insurance policies on any of its Officers,
Directors or key personnel, explain, including the names of the persons insured,
the amount of insurance, whether the insurance proceeds are payable to the
Company and whether there are arrangements that require the proceeds to be used
to redeem securities or pay benefits to the estate of the insured person or a
surviving spouse.
NONE
36. If a petition under the Bankruptcy Act or any State insolvency law was
filed by or against the Company or its Officers, Directors or other key
personnel, or a receiver, fiscal agent or similar officer was appointed by
a court for the business or property of any such persons, or any
partnership in which any of such persons was a general partner at or within
the past five years, or any corporation or business association of which
any such person was an executive officer at or within the past five years,
set forth below the name of such persons, and the nature and date of such
actions.
NOT APPLICABLE.
PRINCIPAL STOCKHOLDERS
37. Principal owners of the Company (those who beneficially own directly or
indirectly 10% or more of the common and preferred stock presently
outstanding) starting with the largest common stockholder. Include
separately all common stock issuable upon conversion of convertible
securities (identifying them by asterisk) and show average price per share
as if conversion has occurred. Indicate by footnote if the price paid was
for a consideration other than cash and the nature of any such
consideration.
<PAGE>
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Average No. of Shares
Class Price No. of % Held After %
of Per Shares of Offering if All of
Shares Share Now Held Total Securities Sold Total
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Name:
Gary G. Clark Common n/a 706,000 5% (no offering) 5%
David R. Reitsema Common n/a 706,000 5% (no offering) 5%
38.: Number of shares beneficially owned by Officers and Directors as a group:
1,412,000
MANAGEMENT RELATIONSHIPS, TRANSACTIONS AND REMUNERATION
39.(a) If any of the Officers, Directors, key personnel or principal
stockholders are related by blood or marriage, please describe. NOT APPLICABLE
(b) If the Company has made loans to or is doing business with any of its
Officers, Directors, key personnel or 10% stockholders, or any of their
relatives (or any entity controlled directly or indirectly by any such persons)
within the last two years, or proposes to do so within the future, explain.
(This includes sales or lease of goods, property or services to or from the
Company, employment or stock purchase contracts, etc.) State the principal terms
of any significant loans, agreements, leases, financing or other arrangements.
NOT APPLICABLE
(c) If any of the Company's Officers, Directors, key personnel or 10%
stockholders has guaranteed or co-signed any of the Company's bank debt or other
obligations, including any indebtedness to be retired from the proceeds of this
offering, explain and state the amounts involved.
NOT APPLICABLE
40.(a) List all remuneration by the Company to Officers, Directors and key
personnel for the last fiscal year:
Gary G. Clark $4,500
David R. Reitsema $4,500
41. (a) Number of shares subject to issuance under presently outstanding stock
purchase agreements, stock options, warrants or rights: shares ( % of total
shares to be outstanding after the completion of the offering if all securities
sold, assuming exercise of options and conversion of convertible securities).
Indicate which have been approved by shareholders. State the expiration dates,
exercise prices and other basic terms for these securities:
NONE
<PAGE>
(b) Number of common shares subject to issuance under existing stock purchase or
option plans but not yet covered by outstanding purchase agreements, options or
warrants: shares.
NONE
(c) Describe the extent to which future stock purchase agreements, stock
options, warrants or rights must be approved by shareholders.
NOT APPLICABLE
42. If the business is highly dependent on the services of certain key
personnel, describe any arrangements to assure that these persons will remain
with the Company and not compete upon any termination.
The business of the company is highly dependent upon the services of the
officers and directors of the Company. If these persons were not available for
any reason, the Company feels it would not be difficult to find other persons
with like-in-kind abilities, but it is undetermined whether the Company could
attract such persons at the price or salary which the Company might be able to
pay. The Company has no non-compete agreements with its officers and directors
and in the absence of such agreements, the Company is at risk with respect to
the competitiveness of its officers and directors if such persons decide to
leave the employ of the Company and seek other employment with companies which
may be in a position to compete. After reviewing the above, one should consider
whether or not the compensation to management and other key personnel directly
or indirectly, is reasonable in view of the present stage of the Company's
development.
LITIGATION
43. Describe any past, pending or threatened litigation or administrative action
which has had or may have a material effect upon the Company's business,
financial condition, or operations, including any litigation or action involving
the Company's Officers, Directors or other key personnel. State the names of the
principal parties, the nature and current status of the matters, and amounts
involved. Give an evaluation by management or counsel, to the extent feasible,
of the merits of the proceedings or litigation and the potential impact on the
Company's business, financial condition, or operations.
The Company is not engaged in any litigation nor is any pending or
contemplated.
MISCELLANEOUS FACTORS
45. Describe any other material factors, either adverse or favorable, that will
or could affect the Company or its business (for example, discuss any defaults
under major contracts, any breach of bylaw provisions, etc.) or which are
necessary to make any other information in this Offering Circular [registration
statement in this case as this is not an offering circular] not misleading or
incomplete.
<PAGE>
The mortgage business is highly dependent on interest rates which are
substantially at the discretion of the Federal Reserve Commission and subsequent
wholesale lenders. The mortgage brokerage industry, of which the Company is a
part, is impacted to a large degree by interest rates set by others. As a
result, any success or failure of attracting loan prospects and making mortgage
loans is highly volatile and unpredictable.
Year 2000 Issues. The mortgage business of the Company may be impacted to
an unknown degree in the computation of forward interest rates and any unknown
problems exhibited by the Company's wholesalers of mortgage funds upon which the
Company's lending activities entirely depend. The Company is unable at this date
to make any reasonable estimate of difficulties which may be encountered in the
future due to the impact of computer technology which may be unable to
accommodate the automatic use of the year 2000 in numbered use.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CERTAIN RELEVANT FACTORS
47. If the Company's financial statements show losses from operations, explain
the causes underlying these losses and what steps the Company has taken or is
taking to address these causes.
The Company's plan of operation during the next twelve months is to
initiate a modest advertising campaign to seek refinancing mortgage loans. This
advertising campaign will be conducted in the media deemed most advantageous
based on the market analysis referred to above.
The Company's business is substantially impacted by mortgage interest
rates. As previously noted, the Company experienced a decline in its mortgage
loan business due to an increase in interest rates, resulting in a decline in
the demand for residential mortgage loans. This historical fluctuation of
mortgage business revenues -- increase when interest rates fall; decrease when
interest rates rise -- is an expected part of the mortgage business.
Additionally, general economic conditions have additional impact on the mortgage
loan business. As a result, the Company attempts to condition itself to downsize
its operations in time of decline and increase and expand during a rising
market.
Since the operation of the mortgage brokerage business is not cash
intensive -- its loan officers being paid modest salaries and commissions based
upon performance -- the Company believes its cash requirements will be
sufficient to maintain its current operations. The Company is also aware that if
its operations expand and increase, it may be faced with the necessity to raise
additional capital for such expansion. This capital would be utilized for the
immediate, up-front costs of employing additional loan officers and support
staff for loan processing. At the present time, the Company is unable to predict
the number of additional employees it may need in the future, nor the costs with
may be attributable to such increase in personnel.
48. Describe any trends in the Company's historical operating results. Indicate
any changes now occurring in the underlying economics of the industry or the
Company's business which, in the opinion of Management, will have a significant
impact (either favorable or adverse) upon the Company's results of operations
within the next 12 months, and give a rough estimate of the probable extent of
the impact, if possible.
<PAGE>
As noted above, the Company is subject to a large degree by interest rates
set by government agencies and wholesale lenders. The Company is unable to
predict with certainty the fluctuations of interest rates in the coming year.
These interest rates also are also determined by the general strength of the
economy in the nation as well as the State of Colorado and the Denver
metropolitan area. Because of this, it is difficult to determine whether the
Company might experience good or bad times in the near future.
49. If the Company sells a product or products and has had significant sales
during its last fiscal year, state the existing gross margin (net sales less
cost of such sales as presented in accordance with generally accepted accounting
principals) as a percentage of sales for the last fiscal year: %. What is the
anticipated gross margin for next year of operations? Approximately %. If this
is expected to change, explain. Also, if reasonably current gross margin figures
are available for the industry, indicate these figures and the source or sources
from which they are obtained.
NOT APPLICABLE
50. Foreign sales as a percent of total sales for last fiscal year: %. Domestic
government sales as a percent of total domestic sales for last fiscal year: %.
Explain the nature of these sales, including any anticipated changes:
NOT APPLICABLE
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other shareholder matters.
Information required by Item 201 of Regulation S-B.
(a) Market Information. There is no current market price on the Company's
common stock as the shares are not trading at the time of this report.
(b) Holders. At the date of December 31, 1998, there are 26 holders of the
common equity of the Company.
(c) Dividends. The Company has paid no dividends and does not contemplate
any dividends during the next two fiscal years.
Item 2. Legal Proceedings
If the registrant uses either Alternative 2 or Alternative 3 of this form,
furnish the information required by Item 103 of Regulation S-B.
NOT APPLICABLE. The registrant is using Alternative 1.
<PAGE>
Item 3. Changes in and Disagreements with Accountants
Furnish the information required by Item 304 of Regulation S-B.
There have been no changes of and no disagreement with accountants on
accounting and financial disclosure.
Item 4. Submission of Matters to a Vote of Security Holders
If any matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise, furnish the following information:
No matter was submitted to the securities holders as described above.
Item 5. Compliance with Section 16(a) of the Exchange Act
Gary G. Clark, No changes since registration
David R. Reitsema, No changes since registration
Item 6. Reports on form 8-K
State whether any reports on Form 8-K were filed during the last quarter of
the period covered by this report, listing the times reported, any financial
statement filed and the dates of such report.
NONE
PART F/S
Furnish the information required by Item 310 of Regulation S-B.
The audited financial statements for the fiscal year ended December 31,
1998, follow:
<PAGE>
APPLIED CAPITAL FUNDING, INC.
FINANCIAL STATEMENTS
with
Independent Auditors' Report
For the Years Ended December 31, 1998 and 1997
<PAGE>
APPLIED CAPITAL FUNDING, INC.
TABLE OF CONTENTS
Page
----
Independent Auditors' Report F-1
Financial Statements
Balance Sheet F-2
Statement of Operations F-3
Statement of Cash Flows F-4
Statement of Shareholder's Equity F-5
Notes to the Financial Statements F-6 - F-9
<PAGE>
Kish * Leake & Associates, P.C.
Certified Public Accountants
Independent Auditor's Report
----------------------------
We have audited the accompanying balance sheet of Applied Capital Funding, Inc.,
at December 31, 1998, and the related statement of operations, shareholders'
equity, and cash flows for the year ended December 31, 1998 and 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 the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Applied Capital funding, Inc.
at December 31, 1998 and the results of its operations and its cash flows for
the years ended December 31, 1998 and 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 5 to the financial
statements, the Company has a lack of sufficient working capital to operate as
of December 31, 1998. This raises substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 5. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/s/ Kish, Leake & Associates, P.C.
- - ----------------------------------
Kish, Leake & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
January 25, 1999
F-1
<PAGE>
Applied Capital Funding, Inc.
Balance Sheet
Audited
December
31, 1998
--------
ASSETS
Current Assets - Cash $ 2,430
--------
TOTAL ASSETS $ 2,430
========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts Payable $ 330
Other Accrued Expenses 1,700
--------
TOTAL LIABILITIES 2,030
--------
SHAREHOLDERS' EQUITY
Preferred Stock, No Par Value,
Non Voting, Authorized 5,000,000 shares;
Issued And Outstanding -0- Shares 0
Common Stock, No Par Value
Authorized 50,000,000 shares;
15,112,000 Shares Issued And Outstanding
34,520
Retained (Deficit) (34,120)
--------
TOTAL SHAREHOLDERS' EQUITY 400
--------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 2,430
========
The Accompanying Notes Are An Integral Part Of These Financial Statements.
F-2
<PAGE>
Applied Capital Funding, Inc.
Statement Of Operations
Year Ended Year Ended
December December
31, 1998 31, 1997
-------- --------
Income:
Loan Fees 0 $ 425
---------- ----------
Total Revenue 0 425
---------- ----------
Operating Expenses:
Appraisals, Credit Reports & Closing Fees 1,752 56
Bank Charges 22 72
Office 607 226
Legal and Accounting 5,938 832
Rent 1,200 1,200
Salaries 9,000 6,000
Telephone 0 142
Stock Transfer Fees 920 0
Taxes - Payroll 549 348
---------- ----------
Total Expenses 19,988 8,876
---------- ----------
Net (Loss) ($19,988) ($8,451)
========== ==========
Basic(Loss) Per Common Share ($-0.00 ($-0.00)
========== ==========
Weighted Average Common Shares Outstanding 15,112,000 7,120,333
========== ==========
The Accompanying Notes Are An Integral Part Of These Financial Statements.
F-3
<PAGE>
Applied Capital Funding, Inc.
Statement Of Cash Flow
Year Ended Year Ended
December December
31, 1998 31, 1997
-------- --------
Net (Loss) ($19,988) ($ 8,451)
-------- --------
Plus Items Not Affecting Cash Flow: 0 0
Contributed Rent And Services 3,000 4,200
Increase (Decrease) In Accrued Expenses 1,408 352
-------- --------
Net Cash Flows From Operations (15,580) (3,899)
-------- --------
Cash Flows From Investing Activities:
0 0
-------- --------
Net Cash Flows From Investing: 0 0
-------- --------
Cash Flows From Financing Activities:
Common Stock Issued For Cash 0 27,400
Deferred Offering Costs 0 (5,500)
-------- --------
Net Cash Flows From Financing: 0 21,900
-------- --------
Net Increase (Decrease) In Cash (15,580) 18,001
Cash At Beginning Of Period 18,010 9
-------- --------
Cash At End Of Period $ 2,430 $ 18,010
======== ========
Summary Of Non-Cash Investing And Financing
Activities:
Common Stock Issued For Money Advanced $ 0 $ 0
======== ========
The Accompanying Notes Are An Integral Part Of These Financial Statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Applied Capital Funding, Inc.
Statement Of Shareholders' Equity
Number Of Number Of Retained
Shares Shares Preferred Common Earnings
Preferred Common Stock Stock (Deficit) Total
--------- ------ ----- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance At December 31, 1995 0 1,000,000 $ 0 $ 100 ($ 5,662) ($ 5,562)
March, 1996 issued
412,000 Shares Of No Par Value
Common Stock For Advances
Previously Made By Shareholder 0 412,000 0 4,120 4,120
Contributed Rent 1,200 1,200
Net (Loss) (19) (19)
----------- ----------- ----------- ----------- ----------- -----------
Balance At December 31, 1996 0 1,412,000 $ 0 $ 5,420 ($ 5,681) ($ 261)
September 1997 Issued 13,700,000
Shares Of No Par Value Common
Stock For Cash At $.002 Per Share 13,700,000 27,400 27,400
Deferred Offering Costs (5,500) (5,500)
Contributed Services And Rent 4,200 4,200
Net (Loss) (8,451) (8,451)
----------- ----------- ----------- ----------- ----------- -----------
Balance At December 31, 1997 0 15,112,000 0 31,520 (14,132) 17,388
Contributed Services And Rent 3,000 3,000
Net (Loss) (19,988) (19,988)
----------- ----------- ----------- ----------- ----------- -----------
Balance At December 31, 1998 0 15,112,000 $ 0 $ 34,520 ($ 34,120) $ 400
=========== =========== =========== =========== =========== ===========
The Accompanying Notes Are An Integral Part Of These Financial Statements
F-5
</TABLE>
<PAGE>
Applied Capital Funding, Inc.
Notes To The Financial Statements
At December 31, 1998 and 1997
- - -----------------------------
Note 1 - Organization and Summary of Significant Accounting Policies
- - --------------------------------------------------------------------
Organization:
- - -------------
On September 26, 1994, Applied Capital Funding, Inc. ("the Company") was
incorporated under the laws of Colorado, to engage in the business of
originating residential mortgage loans. The Company may also engage in any
business which is permitted by the Colorado Business Corporation Act, as
designated by the board of directors of the Company.
Accounting Method:
The Company uses the accrual method to record its transactions. When a mortgage
loan is closed the Company then records the revenue and accrues applicable
expenses.
Fiscal Year:
The Company has chosen December 31 as its fiscal year end.
Statement of Cash Flows:
For purposes of the statement of cash flows, the Company considers demand
deposits and highly liquid-debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Cash paid for interest and taxes in the period ended December 31, 1998 and 1997
was $-0-.
Use Of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-6
<PAGE>
Applied Capital Funding, Inc.
Notes To The Financial Statements
At December 31, 1998 and 1997
- - -----------------------------
Note 2 - Capital Stock
- - ----------------------
Common Stock:
The Company initially authorized 50,000,000 shares of no par value common stock
and issued 1,000,000. In March 1996, the Company's Board Of Directors approved
the issuance of an additional 412,000 of common stock in exchange for the $4,120
that was owed an officer.
In September 1997 the Company sold 13,700,000 shares of its no par value common
stock for $27,400 in cash or $.002 per share. The Company incurred deferred
offering expenses of $5,500 comprised of legal and accounting fees. These
expenses are deducted from the proceeds. If the offering was unsuccessful then
these expenses would have been deducted.
Preferred Stock
The Company initially authorized 5,000,000 shares of no par value, non-voting
preferred stock, the rights and preferences of which is to be determined by the
Board Of Directors at the time of issuance. No stock has been issued.
The Company has declared no dividends through December 31, 1998.
Note 3 - Income Taxes
- - ---------------------
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax basis
of assets and liabilities for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset federal income taxes.
The Company has a net operating loss carryforward for tax purposes of $23,421 at
December 31, 1998. These carryforwards, will start to expire in 2011 if not
utilized.
F-7
<PAGE>
Applied Capital Funding, Inc.
Notes To The Financial Statements
At December 31, 1998 and 1997
- - -----------------------------
Note 3 - Income Taxes (Continued)
- - ---------------------------------
The components of the deferred income tax asset arising under FASB Statement No.
109 and recognized in the accompanying balance sheet at December 31, 1998 are as
follows:
Deferred Tax Asset $ 3,398
Valuation Allowance (3,398)
-------
$ -0-
=======
The types of temporary differences between the tax basis of assets and their
financial reporting amounts that give rise to a significant portion of the
deferred tax asset are as follows:
Temporary Differences Tax Effect
--------------------- ----------
Accrued Expenses $ 1,530 $ 306
Net operating loss carryforward 15,458 3,092
------- -------
$16,988 $ 3,398
======= =======
Note 4 - Related Party Events
- - -----------------------------
The Company presently maintains its principal offices at an address provided by
a related party. The office is located at 4155 E Jewell Ave - Suite 909, Denver,
Colorado 80222. Commencing August 1, 1997 the Company will pay a minimum of $100
per month in rent on a month to month basis.
Note 5 - Officer Compensation And Rent
- - --------------------------------------
During the year ended December 31, 1998 and 1997 Company management contributed
$3,000 and $3,500 respectively in services and which have been recorded as a
contribution of equity.
During the years ended December 31, 1997 management contributed rent which was
valued at $700 which was recorded as a contribution of equity.
Note 6 - Basis Of Presentation
- - ------------------------------
In the course of its activities, the Company has sustained continuing losses and
expects such losses to continue in the foreseeable future. The Company plans to
continue financing its operations with stock sales and in the longer term,
revenues from its operations. The Company's ability to continue as a going
concern is dependent upon the successful completion of its offering of common
stock, additional financing and, ultimately, upon achieving profitable
operations.
F-8
<PAGE>
Applied Capital Funding, Inc.
Notes To The Financial Statements
At December 31, 1998 and 1997
- - -----------------------------
Note 7 - Subsequent Events
- - --------------------------
On January 14, 1999 the Board of Directors approved the issuance of 160,000
shares of preferred stock in exchange for 13,362,000 shares of outstanding
common stock. The Directors have assigned the following preferences to the
issued and outstanding shares of Preferred Stock: (i) Preferred Stock shall be
non-voting, (ii) the holders of the stock as a group have the right to receive,
prorata, upon dissolution or winding up of the Company, 10% of the assets of the
Company prior to division and distribution of assets to the holders of the
Company's Common Stock.
On January 29, 1999 the Board of Directors approved a 2 for 1 forward split of
its common stock effective as of the record date of February 22, 1999.
F-9
<PAGE>
PART III
Item 1. Index to Exhibits
Exhibits required in Part III of Form 1-A
Exhibit Number: Description
Exhibit No. 2. Plan of Acquisition Not Applicable
Exhibit No. 3. Charter and Bylaws Previously Filed
Exhibit No. 5. Voting trust agreement Not applicable
Exhibit No. 6. Material contracts Not applicable
Exhibit No. 7. Material foreign patents Not applicable
Exhibit No. 11. Statement re: computation of per
share earnings Not applicable
Exhibit No. 24. Power of attorney Not applicable
Exhibit No. 27. Financial Data Schedule Attached
<PAGE>
Signatures
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
APPLIED CAPITAL FUNDING, INC.
(Registrant)
Date: March 3, 1999
/s/ David R. Reitsema
------------------------------------
David R. Reitsema, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,430
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,430
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,430
<CURRENT-LIABILITIES> 2,030
<BONDS> 0
0
0
<COMMON> 34,520
<OTHER-SE> (34,120)
<TOTAL-LIABILITY-AND-EQUITY> 2,430
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (19,988)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,988)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
