U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB/A
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities
Exchange Act of 1934
SUNBURST ACQUISITIONS III, INC.
(Name of Small Business Issuer in its charter)
Colorado 84-1432001
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4807 South Zang Way, Morrison, Colorado 80465
(Address of Principal Office) Zip Code
Issuer's telephone number: (303) 979-2404
Securities to be registered under Section 12(b) of the Act:
Title of each class to be so registered - N/A
Name of each exchange on which each class is to be registered
N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock
(Title of class)
Series A Convertible Preferred Stock
(Title of class)
<PAGE>
PART I
Item 1. Description of Business.
General
Sunburst Acquisitions III, Inc. (the "Company") was incorporated
under the laws of the State of Colorado on August 27, 1997, as a "shell"
company, and is in the early developmental and promotional stages. It
was initially capitalized with approximately $10,000, and as of August
31, 1997, had current assets of $8,000, liabilities of $300, and
stockholders' equity of $8,000. To date the Company's only activities
have been organizational ones, directed at developing its business plan
and raising its initial capital. The Company has not commenced any
commercial operations. The Company has no full-time employees and
owns no real estate.
The Company's business plan is to seek, investigate, and, if
warranted, acquire one or more properties or businesses, and to pursue
other related activities intended to enhance shareholder value. The
acquisition of a business opportunity may be made by purchase, merger,
exchange of stock, or otherwise, and may encompass assets or a business
entity, such as a corporation, joint venture, or partnership. The
Company has very limited capital, and it is unlikely that the Company
will be able to take advantage of more than one such business
opportunity.
At the present time the Company has not identified any business
opportunity that it plans to pursue, nor has the Company reached any
agreement or definitive understanding with any person concerning an
acquisition. Prior to the effective date of this registration statement, it
is anticipated that the Company's officers, directors, and affiliates will
contact broker-dealers and other persons with whom they are acquainted
who are involved in corporate finance matters to advise them of the
Company's existence and to determine if any companies or businesses
they represent have a general interest in considering a merger or
acquisition with a blind pool or blank check entity. No direct
discussions regarding the possibility of a merger with the Company are
expected to occur until after the effective date of this registration
statement. No assurance can be given that the Company will be
successful in finding or acquiring a desirable business opportunity, given
the limited funds that are expected to be available for acquisition, or that
any acquisition that occurs will be on terms that are favorable to the
Company or its stockholders.
The Company's search will be directed toward small and
medium-sized enterprises which have a desire to become public
corporations and which are able to satisfy, or anticipate in the reasonably
near future being able to satisfy, the minimum asset requirements in
order to qualify shares for trading on NASDAQ (See "Investigation and
Selection of Business Opportunities"). The Company anticipates that the
business opportunities presented to it would not satisfy the types of
requirements typically imposed by broker-dealers which handle initial
public offerings. Accordingly, it is likely that such business
opportunities will (i) either be in the process of formation or, be recently
organized with limited operating history, or a history of losses
attributable to under-capitalization or other factors; (ii) be experiencing
financial or operating difficulties; (iii) be in need of funds to develop a
new product or service or to expand into a new market; (iv) be relying
upon an untested product or marketing concept; or (v) have a
combination of the characteristics mentioned in (i) through (iv). The
Company intends to concentrate its acquisition efforts on properties or
businesses that it believes to be undervalued or that it believes may
realize a substantial benefit from being publicly owned. Given the above
factors, investors should expect that any acquisition candidate may have
little or no operating history, or a history of losses or low profitability.
The Company does not propose to restrict its search for
investment opportunities to any particular geographical area or industry,
and may, therefore, engage in essentially any business, to the extent of
its limited resources. This includes industries such as service, finance,
natural resources, manufacturing, high technology, product development,
medical, communications and others. The Company's discretion in the
selection of business opportunities is unrestricted, subject to the
availability of such opportunities, economic conditions, and other
factors.
The Company has elected to voluntarily file this registration
statement on Form 10-SB in order to become a reporting company under
the Securities Exchange Act of 1934, and currently anticipates that it will
voluntarily continue to file periodic reports even in the event that its
obligation to file reports is suspended under the Exchange Act. As a
consequence of this registration of its securities, any entity which has an
interest in being acquired by, or merging into, the Company is expected
to be an entity that desires to become a public company and establish a
public trading market for its securities. In connection with such a
merger or acquisition, it is highly likely that an amount of stock
constituting control of the Company would be issued by the Company or
purchased from the current principal shareholders of the Company by the
acquiring entity or its affiliates. If stock is purchased from the current
shareholders, the transaction is very likely to be a private transaction
rather than a public distribution of securities, but is also likely to result
in substantial gains to them relative to their purchase price for such
stock. In the Company's judgment, none of its officers and directors
would thereby become an "underwriter" within the meaning of Section
2(11) of the Securities Act of 1933, as amended as long as the
transaction is a private transaction rather than a public distribution of
securities. The sale of a controlling interest by certain principal
shareholders of the Company could occur at a time when the other
shareholders of the Company remain subject to restrictions on the
transfer of their shares.
Depending upon the nature of the transaction, the current officers
and directors of the Company may resign their management positions
with the Company in connection with a change in control of the
Company or its acquisition of a business opportunity (See "Form of
Acquisition," below, and "Risk Factors - The Company - Lack of
Continuity in Management"). In the event of such a resignation, the
Company's current management would not have any control over the
conduct of the Company's business following the change in control of
the Company's combination with a business opportunity.
It is anticipated that business opportunities will come to the
Company's attention from various sources, including its officers and
directors, its other stockholders, professional advisors such as attorneys
and accountants, securities broker-dealers, venture capitalists, members
of the financial community, and others who may present unsolicited
proposals. The Company has no plans, understandings, agreements, or
commitments with any individual for such person to act as a finder of
opportunities for the Company.
The Company does not foresee that it would enter into a merger
or acquisition transaction with any business with which its officers or
directors are currently affiliated. Should the Company determine in the
future, contrary to the foregoing expectations, that a transaction with an
affiliate would be in the best interests of the Company and its
stockholders, the Company is in general permitted by Colorado law to
enter into such a transaction if:
(1) The material facts as to the relationship or interest of the
affiliate and as to the contract or transaction are disclosed or are known
to the Board of Directors, and the Board in good faith authorizes the
contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors constitute
less than a quorum; or
(2) The material facts as to the relationship or interest of the
affiliate and as to the contract or transaction are known to the
stockholders entitled to vote thereon, or are disclosed to such
stockholders in writing, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Company as of
the time it is authorized, approved or ratified, by the Board of Directors
or the stockholders.
It should be noted that members of management own a sufficient number
of shares to approve any matter submitted to the shareholders for
approval without any other votes. It should also be noted that the
"fairness" of a particular transaction will be determined by an
examination of all relevant facts and circumstances, including, but not
limited to, a comparison to other available options.
To the extent deemed necessary or appropriate, a written opinion as to
the "fairness" of a particular transaction may be requested from an
unrelated third party. However, as a result of the limited resources
available to the Company, it is not anticipated that either a "fairness"
opinion or an independent appraisal of the value of the business or
Company will be obtained in the event a related party transaction is
contemplated. The potential for management's fiduciary duties to be
compromised will therefore increase, and any remedies available to
shareholders under state law will most likely be prohibitively expensive
and time consuming.
Investigation and Selection of Business Opportunities
To a large extent, a decision to participate in a specific business
opportunity may be made upon management's analysis of the quality of
the other company's management and personnel, the anticipated
acceptability of new products or marketing concepts, the merit of
technological changes, the perceived benefit the Company will derive
from becoming a publicly held entity, and numerous other factors which
are difficult, if not impossible, to analyze through the application of any
objective criteria. In many instances, it is anticipated that the historical
operations of a specific business opportunity may not necessarily be
indicative of the potential for the future because of the possible need to
shift marketing approaches substantially, expand significantly, change
product emphasis, change or substantially augment management, or
make other changes. The Company will be dependent upon the owners
of a business opportunity to identify any such problems which may exist
and to implement, or be primarily responsible for the implementation of,
required changes. Because the Company may participate in a business
opportunity with a newly organized firm or with a firm which is entering
a new phase of growth, the Company will incur further risks, because
management in many instances will not have proved its abilities or
effectiveness, the eventual market for such company's products or
services will likely not be established, and the company may not be
profitable when acquired.
It is anticipated that the Company will not be able to diversify,
but will essentially be limited to one such venture because of the
Company's limited financing. This lack of diversification will not
permit the Company to offset potential losses from one business
opportunity against profits from another, and should be considered an
adverse factor affecting any decision to purchase the Company's
securities.
It is emphasized that management of the Company may effect
transactions having a potentially adverse impact upon the Company's
shareholders pursuant to the authority and discretion of the Company's
management to complete acquisitions without submitting any proposal to
the stockholders for their consideration. Holders of the Company's
securities should not anticipate that the Company necessarily will furnish
such holders, prior to any acquisition, with financial statements, or any
other documentation, concerning a target company or its business,
although merger transactions would be expected to require prior approval
by the shareholders. In some instances, however, a proposed acquisition
transaction may be submitted to the stockholders for their consideration,
either voluntarily by such directors to seek the stockholders' advice and
consent or because state law so requires.
The analysis of business opportunities will be undertaken by or
under the supervision of the Company's officers, directors and affiliates,
none of whom are professional business analysts (See "Management").
Although there are no current plans to do so, Company management
might hire an outside consultant to assist in the investigation and
selection of business opportunities, and might pay a finder's fee. Since
Company management has no current plans to use any outside
consultants or advisors to assist in the investigation and selection of
business opportunities, no policies have been adopted regarding use of
such consultants or advisors, the criteria to be used in selecting such
consultants or advisors, the services to be provided, the term of service,
or regarding the total amount of fees that may be paid. However,
because of the limited resources of the Company, it is likely that any
such fee the Company agrees to pay would be paid in stock and not in
cash. Otherwise, the Company anticipates that, although management
has limited experience and a lack of expertise in analysis of business
opportunities, members of management will use their best judgment to
review factors they deem important. This includes, among other things,
the following factors:
(1) Potential for growth and profitability, indicated by new
technology, anticipated market expansion, or new products;
(2) The Company's perception of how any particular business
opportunity will be received by the investment community and by the
Company's stockholders;
(3) Whether, following the business combination, the financial
condition of the business opportunity would be, or would have a
significant prospect in the foreseeable future of becoming sufficient to
enable the securities of the Company to qualify for listing on an
exchange or on a national automated securities quotation system, such
as NASDAQ. This would permit the trading of such securities to be
exempt from the requirements of Rule 15c2-6 adopted by the Securities
and Exchange Commission and thereby allow the Company to be in a
position to attract interest from a larger number of broker-dealers who
may be interested in making a market in the Company's securities or
underwriting new offerings of the Company's securities. (See "Risk
Factors - The Company - Regulation of Penny Stocks")
(4) Capital requirements and anticipated availability of required
funds, to be provided by the Company or from operations, through the
sale of additional securities, through joint ventures or similar
arrangements, or from other sources;
(5) The extent to which the business opportunity can be
advanced;
(6) Competitive position as compared to other companies of
similar size and experience within the industry segment as well as within
the industry as a whole;
(7) Strength and diversity of existing management, or
management prospects that are scheduled for recruitment;
(8) The cost of participation by the Company as compared to the
perceived tangible and intangible values and potential; and
(9) The accessibility of required management expertise,
personnel, raw materials, services, professional assistance, and other
required items.
In regard to the possibility that the shares of the Company would
qualify for listing on NASDAQ, the current standards include the
requirements that the issuer of the securities that are sought to be listed
have either net tangible assets of $4,000,000, market capitalization of
$50,000,000, or net income of $750,000, as well as satisfying other
requirements relating to minimum bid price, number of shares in the
public float, number of shareholders, and operating history of at least 1
year. Many, and perhaps most, of the business opportunities that might
be potential candidates for a combination with the Company would not
satisfy the NASDAQ listing criteria either immediately or in the
foreseeable future.
No one of the factors described above will be controlling in the
selection of a business opportunity, and management will attempt to
analyze all factors appropriate to each opportunity and make a
determination based upon its analysis of such factors and other data it
is able to obtain given its limited resources. Potentially available
business opportunities may occur in many different industries and at
various stages of development, all of which will make the task of
comparative investigation and analysis of such business opportunities
extremely difficult and complex. Potential investors must recognize that,
because of the Company's limited capital available for investigation and
management's limited experience in business analysis, the Company may
not discover or adequately evaluate adverse facts about the opportunity
to be acquired.
The Company is unable to predict when it may participate in a
business opportunity. It expects, however, that the analysis of specific
proposals and the selection of a business opportunity may take several
months or more.
Prior to making a decision to participate in a business
opportunity, the Company will generally request that it be provided with
written materials regarding the business opportunity containing such
items as a description of products, services and company history;
management resumes; financial information; available projections, with
related assumptions upon which they are based; an explanation of
proprietary products and services; evidence of existing patents,
trademarks, or services marks, or rights thereto; present and proposed
forms of compensation to management; a description of transactions
between such company and its affiliates during relevant periods; a
description of present and required facilities; an analysis of risks and
competitive conditions; a financial plan of operation and estimated
capital requirements; audited financial statements, or if they are not
available, unaudited financial statements, together with reasonable
assurances that audited financial statements would be able to be produced
within a reasonable period of time not to exceed 60 days following
completion of an acquisition transaction; and other information deemed
relevant.
As part of the Company's investigation, the Company's executive
officers and directors may meet personally with management and key
personnel, may visit and inspect material facilities, obtain independent
analysis or verification of certain information provided, check references
of management and key personnel, and take other reasonable
investigative measures, to the extent of the Company's limited financial
resources and management expertise.
It is possible that the range of business opportunities that might
be available for consideration by the Company could be limited by the
impact of Securities and Exchange Commission regulations regarding
purchase and sale of "penny stocks." Such regulations restrict the
activities of broker-dealers with respect to "penny stocks" and, as a
result, limit the number of broker-dealers who are willing to make a
market in such securities. The regulations would affect, and possibly
impair, any market that might develop in the Company's securities until
such time as they qualify for listing on NASDAQ or on another
exchange which would make them exempt from applicability of the
"penny stock" regulations. (See "Risk Factors - Regulation of Penny
Stocks")
Company management believes that various types of potential
merger or acquisition candidates might find a business combination with
the Company to be attractive. These include acquisition candidates
desiring to create a public market for their shares in order to enhance
liquidity for current shareholders; acquisition candidates which have
long-term plans for raising capital through the public sale of securities
and believe that the possible prior existence of a public market for their
securities would be beneficial; and, acquisition candidates which plan to
acquire additional assets through issuance of securities rather than for
cash, and believe that the possibility of development of a public market
for their securities will be of assistance in that process. Acquisition
candidates which have a need for an immediate cash infusion are not
likely to find a potential business combination with the Company to be
an attractive alternative.
Form of Acquisition
It is impossible to predict the manner in which the Company may
participate in a business opportunity. Specific business opportunities will
be reviewed as well as the respective needs and desires of the Company
and the promoters of the opportunity and, upon the basis of that review
and the relative negotiating strength of the Company and such
promoters, the legal structure or method deemed by management to be
suitable will be selected. Such structure may include, but is not limited
to, leases, purchase and sale agreements, licenses, joint ventures and
other contractual arrangements. The Company may act directly or
indirectly through an interest in a partnership, corporation or other form
of organization.
Implementing such structure may require the merger,
consolidation or reorganization of the Company with other corporations
or forms of business organization. In addition, the present management
and stockholders of the Company most likely will not have control of a
majority of the voting shares of the Company following a merger or
reorganization transaction. As part of such a transaction, the Company's
existing directors may resign and new directors may be appointed
without any vote by stockholders.
It is likely that the Company will acquire its participation in a
business opportunity through the issuance of Common Stock or other
securities of the Company. Although the terms of any such transaction
cannot be predicted, it should be noted that in certain circumstances the
criteria for determining whether or not an acquisition is a so-called "tax
free" reorganization under the Internal Revenue Code of 1986, depends
upon the issuance to the stockholders of the acquired company of a
controlling interest (i.e. 80% or more) of the common stock of the
combined entities immediately following the reorganization. If a
transaction were structured to take advantage of these provisions rather
than other "tax free" provisions provided under the Internal Revenue
Code, the Company's current stockholders would retain in the aggregate
20% or less of the total issued and outstanding shares. This could result
in substantial additional dilution in the equity of those who were
stockholders of the Company prior to such reorganization. Any such
issuance of additional shares might also be done simultaneously with a
sale or transfer of shares representing a controlling interest in the
Company by the current officers, directors and principal shareholders.
(See "Description of Business - General").
It is anticipated that any new securities issued in any
reorganization would be issued in reliance upon exemptions, if any are
available, from registration under applicable federal and state securities
laws. In some circumstances, however, as a negotiated element of the
transaction, the Company may agree to register such securities either at
the time the transaction is consummated, or under certain conditions or
at specified times thereafter. The issuance of substantial additional
securities and their potential sale into any trading market that might
develop in the Company's securities may have a depressive effect upon
such market.
The Company will participate in a business opportunity only after
the negotiation and execution of a written agreement. Although the
terms of such agreement cannot be predicted, generally such an
agreement would require specific representations and warranties by all
of the parties thereto, specify certain events of default, detail the terms
of closing and the conditions which must be satisfied by each of the
parties thereto prior to such closing, outline the manner of bearing costs
if the transaction is not closed, set forth remedies upon default, and
include miscellaneous other terms.
As a general matter, the Company anticipates that it, and/or its
principal shareholders, will enter into a letter of intent with the
management, principals or owners of a prospective business opportunity
prior to signing a binding agreement. Such a letter of intent will set
forth the terms of the proposed acquisition but will not bind any of the
parties to consummate the transaction. Execution of a letter of intent
will by no means indicate that consummation of an acquisition is
probable. Neither the Company nor any of the other parties to the letter
of intent will be bound to consummate the acquisition unless and until
a definitive agreement concerning the acquisition as described in the
preceding paragraph is executed. Even after a definitive agreement is
executed, it is possible that the acquisition would not be consummated
should any party elect to exercise any right provided in the agreement
to terminate it on specified grounds.
It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require
substantial management time and attention and substantial costs for
accountants, attorneys and others. If a decision is made not to
participate in a specific business opportunity, the costs theretofore
incurred in the related investigation would not be recoverable.
Moreover, because many providers of goods and services require
compensation at the time or soon after the goods and services are
provided, the inability of the Company to pay until an indeterminate
future time may make it impossible to procure goods and services.
Investment Company Act and Other Regulation
The Company may participate in a business opportunity by
purchasing, trading or selling the securities of such business. The
Company does not, however, 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 (the "Investment Act"), and therefore
to avoid application of the costly and restrictive registration and other
provisions of the Investment Act, and the regulations promulgated
thereunder.
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 Act in order to protect purchasers of
investment company securities. Since the Company will not register as
an investment company, stockholders will not be afforded these
protections.
Any securities which the Company might acquire in exchange for
its Common Stock are expected to be "restricted securities" within the
meaning of the Securities Act of 1933, as amended (the "Act"). If the
Company elects to resell such securities, such sale cannot proceed unless
a registration statement has been declared effective by the Securities and
Exchange Commission or an exemption from registration is available.
Section 4(1) of the Act, which exempts sales of securities not involving
a public distribution by persons other than the issuer, would in all
likelihood be available to permit a private sale. Although the plan of
operation does not contemplate resale of securities acquired, if such a
sale were to be necessary, the Company would be required to comply
with the provisions of the Act to effect such resale.
An acquisition made by the Company may be in an industry
which is regulated or licensed by federal, state or local authorities.
Compliance with such regulations can be expected to be a
time-consuming and expensive process.
Competition
The Company expects to encounter substantial competition in its
efforts to locate attractive opportunities, primarily from business
development companies, venture capital partnerships and corporations,
venture capital affiliates of large industrial and financial companies,
small investment companies, and wealthy individuals. Many of these
entities will have significantly greater experience, resources and
managerial capabilities than the Company and will therefore be in a
better position than the Company to obtain access to attractive business
opportunities. The Company also will experience competition from other
public "blind pool" companies, many of which may have more funds
available than does the Company.
Administrative Offices
The Company currently maintains a mailing address at 4807 S.
Zang Way, Morrison, Colorado 80465, which is the office address of
its Secretary. The Company's telephone number there is (303) 979-
2404. Other than this mailing address, the Company does not currently
maintain any other office facilities, and does not anticipate the need for
maintaining office facilities at any time in the foreseeable future. The
Company pays no rent or other fees for the use of this mailing address.
Employees
The Company is a development stage company and currently has
no employees. Management of the Company expects to use consultants,
attorneys and accountants as necessary, and does not anticipate a need
to engage any full-time employees so long as it is seeking and evaluating
business opportunities. The need for employees and their availability
will be addressed in connection with the decision whether or not to
acquire or participate in specific business opportunities.
Risk Factors
A. Conflicts of Interest. Certain conflicts of interest exist
between the Company and its officers and directors. They have other
business interests to which they currently devote attention, and may be
expected to continue to do so although management time should be
devoted to the business of the Company. As a result, conflicts of
interest may arise that can be resolved only through their exercise of
judgment in a manner which is consistent with their fiduciary duties to
the Company. (See "Management," and "Conflicts of Interest.")
In particular, the Company's officers and directors currently have
an interest in three other blind pool or blank check companies. Two of
them, Sunburst Acquisition I, Inc., and Sunburst Acquisitions II, Inc.,
were formed in February 1997, and March 1997, respectively, and have
registered under the Securities Exchange Act of 1934. They have a
capital structure and a business plan which is identical to that of the
Company, but have certain shareholders who are not also shareholders
of the Company. Thus, to an extent, they are in a conflict of interest
position with the Company. The third blind pool or blank check
company, Sunburst Acquisitions IV, Inc., was formed at the same time
as the Company, and has a capital structure and shareholders identical
to the Company. Thus, its existence does not create a conflict of
interest. Company management may, in the future, form additional
blind pool or blank check companies with a business plan similar or
identical to that of the Company. Additional blind pool or blank check
companies formed in the future, which do not have the same capital
structure and shareholders as the Company, would also be in direct
competition with the Company for available business opportunities. (See
Item 5 - "Directors, Executive Officers, Promoters and Control Persons
- - Conflicts of Interest")
It is anticipated that the Company's principal shareholders may
actively negotiate or otherwise consent to the purchase of a portion of
their common stock as a condition to, or in connection with, a proposed
merger or acquisition transaction, and it is anticipated that a substantial
premium may be paid by the purchaser in conjunction with any sale of
shares by members of Company management which is made as a
condition to, or in connection with, a proposed merger or acquisition
transaction. In this process, the Company's principal shareholders may
consider their own personal pecuniary benefit rather than the best
interests of other Company shareholders, and the other Company
shareholders are not expected to be afforded the opportunity to approve
or consent to any particular stock buy-out transaction. (See "Conflicts
of Interest.")
B. Possible Need for Additional Financing. The Company
has very limited funds, and such funds may not be adequate to take
advantage of any available business opportunities. Even if the
Company's funds prove to be sufficient to acquire an interest in, or
complete a transaction with, a business opportunity, the Company may
not have enough capital to exploit the opportunity. The ultimate success
of the Company may depend upon its ability to raise additional capital.
The Company has not investigated the availability, source, or terms that
might govern the acquisition of additional capital and will not do so until
it determines a need for additional financing. If additional capital is
needed, there is no assurance that funds will be available from any
source or, if available, that they can be obtained on terms acceptable to
the Company. If not available, the Company's operations will be limited
to those that can be financed with its modest capital. The Company has
no current plans, proposals, arrangements or understandings with respect
to the sale or issuance of additional securities prior to the location of an
acquisition or merger candidate or over the next twelve month period.
C. Regulation of Penny Stocks. The Company's securities,
when available for trading, will be subject to a Securities and Exchange
Commission rule that imposes special sales practice requirements upon
broker-dealers who sell such securities to persons other than established
customers or accredited investors. For purposes of the rule, the phrase
"accredited investors" means, in general terms, institutions with assets
in excess of $5,000,000, or individuals having a net worth in excess of
$1,000,000 or having an annual income that exceeds $200,000 (or that,
when combined with a spouse's income, exceeds $300,000). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's
written agreement to the transaction prior to the sale. Consequently, the
rule may affect the ability of broker-dealers to sell the Company's
securities and also may affect the ability of purchasers in this offering to
sell their securities in any market that might develop therefor.
In addition, the Securities and Exchange Commission has adopted
a number of rules to regulate "penny stocks." Such rules include Rules
3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, and 15g-7 under the
Securities Exchange Act of 1934, as amended. Because the securities of
the Company may constitute "penny stocks" within the meaning of the
rules, the rules would apply to the Company and to its securities. The
rules may further affect the ability of owners of shares to sell the
securities of the Company in any market that might develop for them.
Under the Securities Enforcement Remedies and Penny Stock Reform
Act of 1990, broker-dealers which engage in transactions in penny stocks
have additional disclosure requirements, including the requirement to
deliver a standardized risk disclosure document that provides information
about penny stocks and the risks in the penny stock market. Broker-
dealers must also provide customers with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, and monthly statements showing
the market value of each penny stock held in the customer's account.
Shareholders should be aware that, according to Securities and
Exchange Commission Release No. 34-29093, the market for penny
stocks has suffered in recent years from patterns of fraud and abuse.
Such patterns include (i) control of the market for the security by one or
a few broker-dealers that are often related to the promoter or issuer; (ii)
manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and
undisclosed bid-ask differentials and markups by selling broker-dealers;
and (v) the wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level,
along with the resulting inevitable collapse of those prices and with
consequent investor losses. The Company's management is aware of the
abuses that have occurred historically in the penny stock market.
Although the Company does not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the
market, management will strive within the confines of practical
limitations to prevent the described patterns from being established with
respect to the Company's securities.
D. No Operating History. The Company was formed in
August of 1997 for the purpose of registering its common stock under
the 1934 Act and acquiring a business opportunity. The Company has
no operating history, revenues from operations, or assets other than cash
from private sales of stock. The Company faces all of the risks of a
new business and the special risks inherent in the investigation,
acquisition, or involvement in a new business opportunity. The
Company must be regarded as a new or "start-up" venture with all of the
unforeseen costs, expenses, problems, and difficulties to which such
ventures are subject.
E. No Assurance of Success or Profitability. There is no
assurance that the Company will acquire a favorable business
opportunity. Even if the Company should become involved in a business
opportunity, there is no assurance that it will generate revenues or
profits, or that the market price of the Company's Common Stock will
be increased thereby.
F. Possible Business Not Identified and Highly Risky. The
Company has not identified and has no commitments to enter into or
acquire a specific business opportunity and therefore can disclose the
risks and hazards of a business or opportunity that it may enter into in
only a general manner, and cannot disclose the risks and hazards of any
specific business or opportunity that it may enter into. An investor can
expect a potential business opportunity to be quite risky. The
Company's acquisition of or participation in a business opportunity will
likely be highly illiquid and could result in a total loss to the Company
and its stockholders if the business or opportunity proves to be
unsuccessful. (See Item 1 "Description of Business.")
G. Type of Business Acquired. The type of business to be
acquired may be one that desires to avoid effecting its own public
offering and the accompanying expense, delays, uncertainties, and
federal and state requirements which purport to protect investors.
Because of the Company's limited capital, it is more likely than not that
any acquisition by the Company will involve other parties whose primary
interest is the acquisition of control of a publicly traded company.
Moreover, any business opportunity acquired may be currently
unprofitable or present other negative factors.
H. Impracticability of Exhaustive Investigation. The
Company's limited funds and the lack of full-time management will
likely make it impracticable to conduct a complete and exhaustive
investigation and analysis of a business opportunity before the Company
commits its capital or other resources thereto. Management decisions,
therefore, will likely be made without detailed feasibility studies,
independent analysis, market surveys and the like which, if the Company
had more funds available to it, would be desirable. The Company will
be particularly dependent in making decisions upon information provided
by the promoter, owner, sponsor, or others associated with the business
opportunity seeking the Company's participation. A significant portion
of the Company's available funds may be expended for investigative
expenses and other expenses related to preliminary aspects of completing
an acquisition transaction, whether or not any business opportunity
investigated is eventually acquired.
I. Lack of Diversification. Because of the limited financial
resources that the Company has, it is unlikely that the Company will be
able to diversify its acquisitions or operations. The Company's probable
inability to diversify its activities into more than one area will subject the
Company to economic fluctuations within a particular business or
industry and therefore increase the risks associated with the Company's
operations.
J. Possible Reliance Upon Unaudited Financial Statements.
The Company generally will require audited financial statements from
companies that it proposes to acquire. No assurance can be given,
however, that audited financials will be available to the Company. In
cases where audited financials are unavailable, the Company will have
to rely upon unaudited information received from target companies'
management that has not been verified by outside auditors. The lack of
the type of independent verification which audited financial statements
would provide, increases the risk that the Company, in evaluating an
acquisition with such a target company, will not have the benefit of full
and accurate information about the financial condition and operating
history of the target company. This risk increases the prospect that the
acquisition of such a company might prove to be an unfavorable one for
the Company or the holders of the Company's securities.
Moreover, the Company will, by virtue of this registration, be
subject to the reporting provisions of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and currently anticipates that
it would voluntarily continue to file periodic reports in the event that its
obligation to file such reports is suspended under the Exchange Act.
Thus, the Company will be required to furnish certain information about
significant acquisitions, including audited financial statements for any
business that it acquires. Consequently, acquisition prospects that do not
have, or are unable to provide reasonable assurances that they will be
able to obtain, the required audited statements would not be considered
by the Company to be appropriate for acquisition so long as the
reporting requirements of the Exchange Act are applicable. Should the
Company, during the time it remains subject to the reporting provisions
of the Exchange Act, complete an acquisition of an entity for which
audited financial statements prove to be unobtainable, the Company
would be exposed to enforcement actions by the Securities and Exchange
Commission (the "Commission") and to corresponding administrative
sanctions, including permanent injunctions against the Company and its
management. The legal and other costs of defending a Commission
enforcement action are likely to have material, adverse consequences for
the Company and its business. The imposition of administrative
sanctions would subject the Company to further adverse consequences.
In addition, the lack of audited financial statements would prevent
the securities of the Company from becoming eligible for listing on
NASDAQ, the automated quotation system sponsored by the National
Association of Securities Dealers, Inc., or on any existing stock
exchange. Moreover, the lack of such financial statements is likely to
discourage broker-dealers from becoming or continuing to serve as
market makers in the securities of the Company. Without audited
financial statements, the Company would almost certainly be unable to
offer securities under a registration statement pursuant to the Securities
Act of 1933, and the ability of the Company to raise capital would be
significantly limited until such financial statements were to become
available.
K. Other Regulation. An acquisition made by the Company
may be of a business that is subject to regulation or licensing by federal,
state, or local authorities. Compliance with such regulations and
licensing can be expected to be a time-consuming, expensive process and
may limit other investment opportunities of the Company.
L. Dependence upon Management; Limited Participation of
Management. The Company will be heavily dependent upon the skills,
talents, and abilities of its officers and directors to implement its
business plan, and may, from time to time, find that the inability of such
persons to devote their full time attention to the business of the Company
results in a delay in progress toward implementing its business plan.
Furthermore, the Company will be entirely dependent upon the
experience of its officers and directors in seeking, investigating, and
acquiring a business and in making decisions regarding the Company's
operations. See "Management." Because investors will not be able to
evaluate the merits of possible business acquisitions by the Company,
they should critically assess the information concerning the Company's
officers and directors.
M. Lack of Continuity in Management. The Company does
not have an employment agreement with any of its officers or directors,
and as a result, there is no assurance that they will continue to manage
the Company in the future. In connection with acquisition of a business
opportunity, it is likely the current officers and directors of the Company
may resign. A decision to resign will be based upon the identity of the
business opportunity and the nature of the transaction, and is likely to
occur without the vote or consent of the stockholders of the Company.
N. Indemnification of Officers and Directors. The Company's
Articles of Incorporation provide for the indemnification of its directors,
officers, employees, and agents, under certain circumstances, against
attorney's fees and other expenses incurred by them in any litigation to
which they become a party arising from their association with or
activities on behalf of the Company. The Company will also bear the
expenses of such litigation for any of its directors, officers, employees,
or agents, upon such person's promise to repay the Company therefor if
it is ultimately determined that any such person shall not have been
entitled to indemnification. This indemnification policy could result in
substantial expenditures by the Company which it will be unable to
recoup.
O. Director's Liability Limited. The Company's Articles of
Incorporation exclude personal liability of its directors to the Company
and its stockholders for monetary damages for breach of fiduciary duty
except in certain specified circumstances. Accordingly, the Company
will have a much more limited right of action against its directors than
otherwise would be the case. This provision does not affect the liability
of any director under federal or applicable state securities laws.
P. Dependence Upon Outside Advisors. To supplement the
business experience of its officers and directors, the Company may be
required to employ accountants, technical experts, appraisers, attorneys,
or other consultants or advisors. The selection of any such advisors will
be made by the Company's officers without any input from stockholders.
Furthermore, it is anticipated that such persons may be engaged on an
"as needed" basis without a continuing fiduciary or other obligation to
the Company. In the event the officers of the Company consider it
necessary to hire outside advisors, they may elect to hire persons who
are affiliates, if they are able to provide the required services.
Q. Leveraged Transactions. There is a possibility that any
acquisition of a business opportunity by the Company may be leveraged,
i.e., the Company may finance the acquisition of the business
opportunity by borrowing against the assets of the business opportunity
to be acquired, or against the projected future revenues or profits of the
business opportunity. This could increase the Company's exposure to
larger losses. A business opportunity acquired through a leveraged
transaction is profitable only if it generates enough revenues to cover the
related debt and expenses. Failure to make payments on the debt
incurred to purchase the business opportunity could result in the loss of
a portion or all of the assets acquired. There is no assurance that any
business opportunity acquired through a leveraged transaction will
generate sufficient revenues to cover the related debt and expenses.
R. Competition. The search for potentially profitable
business opportunities is intensely competitive. The Company expects
to be at a disadvantage when competing with many firms that have
substantially greater financial and management resources and capabilities
than the Company. These competitive conditions will exist in any
industry in which the Company may become interested.
S. No Foreseeable Dividends. The Company has not paid
dividends on its Common Stock and does not anticipate paying such
dividends in the foreseeable future.
T. Loss of Control by Present Management and Stockholders.
The Company may consider an acquisition in which the Company would
issue, as consideration for the business opportunity to be acquired, an
amount of the Company's authorized but unissued Common Stock that
would, upon issuance, represent the great majority of the voting power
and equity of the Company. The result of such an acquisition would be
that the acquired company's stockholders and management would control
the Company, and the Company's management could be replaced by
persons unknown at this time. Such a merger would result in a greatly
reduced percentage of ownership of the Company by its current
shareholders. In addition, the Company's President could sell his control
block of stock at a premium price to the acquired company's
stockholders.
U. No Public Market Exists. There is no public market for
the Company's common stock, and no assurance can be given that a
market will develop or that a shareholder ever will be able to liquidate
his investment without considerable delay, if at all. If a market should
develop, the price may be highly volatile. Factors such as those
discussed in this "Risk Factors" section may have a significant impact
upon the market price of the securities offered hereby. Owing to the
low price of the securities, many brokerage firms may not be willing to
effect transactions in the securities. Even if a purchaser finds a broker
willing to effect a transaction in these securities, the combination of
brokerage commissions, state transfer taxes, if any, and any other selling
costs may exceed the selling price. Further, many lending institutions
will not permit the use of such securities as collateral for any loans.
V. Rule 144 Sales. All of the outstanding shares of Common
Stock and the outstanding shares of Class A Convertible Preferred Stock
held by present stockholders are "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As
restricted shares, these shares may be resold only pursuant to an
effective registration statement or under the requirements of Rule 144 or
other applicable exemptions from registration under the Act and as
required under applicable state securities laws. Rule 144 provides in
essence that a person who has held restricted securities for a minimum
of one year may, under certain conditions, sell every three months, in
brokerage transactions, a number of shares that does not exceed the
greater of 1.0% of a company's outstanding shares or the average
weekly trading volume during the four calendar weeks prior to the sale.
Rule 144 also contains other restrictions on the manner of sale of
restricted securities which are applicable to affiliates of the Company and
to non-affiliates who have held their shares for less than two years. The
volume limitations and other restrictions imposed by Rule 144 are not
applicable to resales of restricted securities by non-affiliates who have
held their shares for more than two years. A sale under Rule 144 or
under any other exemption from the Act, if available, or pursuant to
subsequent registrations of shares of Common Stock of present
stockholders, may have a depressive effect upon the price of the
Common Stock in any market that may develop. A total of 1,935,000
shares of common stock held by present stockholders of the Company
will become available for resale under Rule 144 ninety (90) days after
the Company registers its common stock under Section 12(g) of the
Securities and Exchange Commission. The 80,000 shares of Class A
Convertible Preferred Stock, and the shares of common stock into which
such shares may be converted, will become available for resale starting
in August, 1998.
W. Blue Sky Considerations. Because the securities registered
hereunder have not been registered for resale under the blue sky laws of
any state, and the Company has no current plans to register or qualify
its shares in any state, the holders of such shares and persons who desire
to purchase them in any trading market that might develop in the future,
should be aware that there may be significant state blue sky law
restrictions upon the ability of investors to sell the securities and of
purchasers to purchase the securities. As a result of recent changes in
federal law, non-issuer trading or resale of the Company's securities may
be exempt from state registration or qualification requirements.
However, some states may continue to attempt to restrict the trading or
resale of blind-pool or "blank-check" securities. Accordingly, although
management is not currently aware of any states in which investors will
be unable to resell their shares, investors should consider the secondary
market for the Company's securities to be a limited one.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS.
Liquidity and Capital Resources
The Company remains in the development stage and, since
inception, has experienced no significant change in liquidity or capital
resources or stockholder's equity other than the receipt of net proceeds
in the amount of $8,000 from its inside capitalization funds.
Consequently, the Company's balance sheet for the period ending August
31, 1997, reflects a current asset value of $8,000 which is in the form
of cash, and a total asset value of $8,300.
The Company will carry out its plan of business as discussed
above. The Company cannot predict to what extent its liquidity and
capital resources will be diminished prior to the consummation of a
business combination or whether its capital will be further depleted by
the operating losses (if any) of the business entity which the Company
may eventually acquire.
Results of Operations
During the period from August 27, 1997 (inception) through
November 30, 1997, the Company has engaged in no significant
operations other than organizational activities, acquisition of capital and
preparation filing of its Registration Statement on Form 10-SB for
purposes of registration of its securities under the Securities Exchange
Act of 1934, as amended. No revenues were received by the Company
during this period.
For the current fiscal year, the Company anticipates incurring a
loss as a result of organizational expenses, expenses associated with
registration under the Securities Exchange Act of 1934, and expenses
associated with locating and evaluating acquisition candidates. The
Company anticipates that until a business combination is completed with
an acquisition candidate, it will not generate revenues other than interest
income, and may continue to operate at a loss after completing a
business combination, depending upon the performance of the acquired
business.
Need for Additional Financing
The Company believes that its existing capital will be sufficient
to meet the Company's cash needs, including the costs of compliance
with the continuing reporting requirements of the Securities Exchange
Act of 1934, as amended, for a period of approximately one year.
Accordingly, in the event the Company is able to complete a business
combination during this period, it anticipates that its existing capital will
be sufficient to allow it to accomplish the goal of completing a business
combination. There is no assurance, however, that the available funds
will ultimately prove to be adequate to allow it to complete a business
combination, and once a business combination is completed, the
Company's needs for additional financing are likely to increase
substantially.
No commitments to provide additional funds have been made by
management or other stockholders. Accordingly, there can be no
assurance that any additional funds will be available to the Company to
allow it to cover its expenses.
Irrespective of whether the Company's cash assets prove to be
inadequate to meet the Company's operational needs, the Company
might seek to compensate providers of services by issuances of stock in
lieu of cash. For information as to the Company's policy in regard to
payment for consulting services, see "Certain Relationships and
Transactions."
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE
HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. Except for historical matters,
the matters discussed in this Form 10-SB are forward-looking statements
based on current expectations, and involve risks and uncertainties.
Forward-looking statements include, but are not limited to, statements
under the following headings:
(i) "Description of Business - General" - the general
description of the Company's plan to seek a merger or acquisition
candidate, and the types of business opportunities that may be pursued.
(ii) "Description of Business - Investigation and Selection of
Business Opportunities" - the steps which may be taken to investigate
prospective business opportunities, and the factors which may be used
in selecting a business opportunity.
(iii) "Description of Business - Form of Acquisition" - the
manner in which the Company may participate in a business acquisition.
The Company wishes to caution the reader that there are many
uncertainties and unknown factors which could affect its ability to carry
out its business plan in the manner described herein. Many of these
uncertainties and unknown factors are discussed herein under the heading
"Risk Factors."
Item 3. DESCRIPTION OF PROPERTY.
The Company does not currently maintain an office or any other
facilities. It does currently maintain a mailing address at 4807 S. Zang
Way, Morrison, Colorado 80465, which is the address of its Secretary.
The Company pays no rent for the use of this mailing address. The
Company does not believe that it will need to maintain an office at any
time in the foreseeable future in order to carry out its plan of operations
described herein. The Company's telephone number is (303) 979-2404.
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The following table sets forth, as of the date of this Registration
Statement, the number of shares of Common Stock owned of record and
beneficially by executive officers, directors and persons who hold 5% or
more of the outstanding Common Stock of the Company. Also included
are the shares held by all executive officers and directors as a group.
<TABLE>
<CAPTION>
%
of
Number of Shares Class
Name and address Owned Beneficially Owned
<S> <C> <C>
Michael R. Quinn<F1>
2082 Cherry Street
Denver, Colorado 80207 723,500<F2> 37.39%
Jay Lutsky<F1>
4807 S. Zang Way
Morrison, Colorado 80465 725,500<F2> 37.49%
All directors and executive
officers (2 persons) 1,449,000 74.88%
<FN>
<F1> The person listed is an officer and a director of the Company.
<F2> Includes 15,000 shares of common stock issuable upon conversion of
Series A Preferred Stock owned by each such person. Each share of Series A
Preferred Stock is convertible into two shares of common stock at any time on
or after March 1, 1998.
</FN>
</TABLE>
Item 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS.
The directors and executive officers currently serving the Company are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Positions Held and Tenure
Michael R. Quinn 73 President and Director
Jay Lutsky 54 Secretary/Treasurer and Director
</TABLE>
The directors named above will serve until the first annual
meeting of the Company's stockholders. Thereafter, directors will be
elected for one-year terms at the annual stockholders' meeting. Officers
will hold their positions at the pleasure of the board of directors, absent
any employment agreement, of which none currently exists or is
contemplated. There is no arrangement or understanding between any
of the directors or officers of the Company and any other person
pursuant to which any director or officer was or is to be selected as a
director or officer. There are no agreements or understandings for any
officer or director to resign at the request of another person, and none
of the officers or directors are acting on behalf of, or will act at the
direction of, any other person.
The directors and officers will devote their time to the
Company's affairs on an "as needed" basis, which, depending on the
circumstances, could amount to as little as two hours per month, or more
than forty hours per month. More than likely, their time commitment
will fall within the range of five to ten hours per month.
Biographical Information
JAY LUTSKY
Mr. Lutsky has served as Secretary and as a Director of the
Company since its inception. From 1968 to 1974, Mr. Lutsky was
employed at United Bank of Denver in various management positions,
including Guaranteed Check Manager, Corporate Programs Manager and
Executive Lending Officer. From April 1974 through April 1980, Mr.
Lutsky was involved in the publishing and ski promotions business,
serving as President of Mountain States Ski Association, a company he
helped to start. From August 1983 through September 1985, Mr.
Lutsky worked in the positions of General Manager of the SumFun
Program, Regional marketing Manager, and Investor Relations Manager
for Gold C Enterprises, Inc., a publicly-traded Colorado corporation that
published discount coupon books. Since May of 1980, Mr. Lutsky has
done business as Dolphin & Associates, a private consulting firm and he
has managed his personal investment portfolio.
Mr. Lutsky has served on the board and been president of several
public companies. From December 1986 through May, 1990, Mr.
Lutsky served as president of Eagle Venture Acquisitions, Inc.
("Eagle"). Eagle merged with Network Financial Services, Inc.
("Network") in May 1990. Mr. Lutsky continued on the board of
Network which traded on the NASDAQ system until December,
1993. Mr. Lutsky was a vice-president and served on the board of
Starlight Acquisitions, Inc. ("Starlight") a blank check offering.
Starlight merged with Toucan Gold Corporation ("Toucan"), TUGO-
Bulletin Board, on May 10, 1996. Mr. Lutsky now serves as an advisor
to the current board of directors of Toucan. Until November, 1997, Mr.
Lutsky was an officer and served on the board of directors of Gatwick,
Ltd., a Regulation A public company. In November, 1997, Gatwick,
Ltd., changed its name to AIM Smart Corporation and completed a share
acquisition transaction with Smart AIM Corporation, a Michigan
corporation. Mr. Lutsky also currently serves on the board of directors
of Sunburst Acquisitions I, Inc., Sunburst Acquisitions II, Inc., and
Sunburst Acquisitions IV, Inc., all of which are blind pool or blank
check companies he has formed in conjunction with Mr. Quinn.
He earned a Bachelor of Science degree from Kent State
University in 1967.
MICHAEL R. QUINN
Mr. Quinn has served as President and Director of the Company
since its inception. He has been involved with several development
stage companies. He consults with companies contemplating trading
publicly and his services consist of corporate structuring, management,
accounting, productions, sales, etc.
Mr. Quinn earned the degrees of Metallurgical Engineer and
Engineer of Mines at the Colorado School of Mines in 1946. He did
graduate work and was employed as a research assistant at MIT.
Over the last six years, Mr. Quinn has served as a consultant to
equity holders involved in a bankruptcy case, as a consultant and lead
plaintiff in three lawsuits, all of which have resulted in favorable
decisions for the plaintiff.
He served as President, Treasurer and Director of O.T.C. Capital
Corporation ("OTC"). OTC acquired Capital 2000 and is currently
actively trading. He was a founder of American Leverage, Inc., and
was its Secretary/Treasurer and a Director until American Leverage, Inc.
acquired Data National Corporation ("Data"). Data is active, profitable
and in a growth mode. Until November, 1997, Mr. Quinn was an
officer and served on the board of directors of Gatwick, Ltd., a
Regulation A public company. In November, 1997, Gatwick, Ltd.,
changed its name to AIM Smart Corporation and completed a share
acquisition transaction with Smart AIM Corporation, a Michigan
corporation. Mr. Quinn also currently serves on the board of directors
of Sunburst Acquisition I, Inc., Sunburst Acquisition II, Inc., and
Sunburst Acquisitions IV, Inc., all of which are blind pool or blank
check companies he has formed in conjunction with Mr. Lutsky.
Indemnification of Officers and Directors
As permitted by Colorado law, the Company's Articles of
Incorporation provide that the Company will indemnify its directors and
officers against expenses and liabilities they incur to defend, settle, or
satisfy any civil or criminal action brought against them on account of
their being or having been Company directors or officers unless, in any
such action, they are adjudged to have acted with gross negligence or
willful misconduct. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers
or persons controlling the Company pursuant to the foregoing provisions,
the Company has been informed that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in that Act and is, therefore, unenforceable.
Exclusion of Liability
Pursuant to the Colorado Business Corporation Act, the
Company's Articles of Incorporation exclude personal liability for its
directors for monetary damages based upon any violation of their
fiduciary duties as directors, except as to liability for any breach of the
duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, acts in violation
of Section 7-106-401 of the Colorado Business Corporation Act, or any
transaction from which a director receives an improper personal benefit.
This exclusion of liability does not limit any right which a director may
have to be indemnified and does not affect any director's liability under
federal or applicable state securities laws.
Other Blind Pool Activities
Each of the Company's executive officers, directors, and
principal shareholders is also currently an officer, director and
shareholder of Sunburst Acquisitions I, Inc., Sunburst Acquisitions II,
Inc., and Sunburst Acquisitions IV, Inc., which are also a public shell
corporations. The Company and these other entities will be in
competition with each other for prospective companies to acquire. See
"Conflicts of Interest" below.
The officers and directors of the Company have each been
involved in other blind pool activities in the past and may establish
additional blind pools in the future. (See "Conflicts of Interest.")
Conflicts of Interest
None of the officers of the Company will devote more than a
portion of his time to the affairs of the Company. There will be
occasions when the time requirements of the Company's business conflict
with the demands of the officers' other business and investment
activities. Such conflicts may require that the Company attempt to
employ additional personnel. There is no assurance that the services of
such persons will be available or that they can be obtained upon terms
favorable to the Company.
Each of the Company's officers and directors is also an officer
and director of one other development-stage corporation in the same
business as the Company. See "Other Blind Pool Activities." These two
companies will be in direct competition for available opportunities.
When a business opportunity comes to the attention of any of the
Company's officers or directors, he intends to inform the other officers
and directors of the Company, and together, they will determine which
blind pool or public shell company will have the first option to consider
an acquisition of the particular target. It is presently anticipated that the
officers and directors will pursue a policy whereby the opportunity will
be presented to the public company that has had its securities registered
pursuant to Section 12(g) of the 1934 Act for the longest period of time.
In the event that none of the pools is more mature than the others, the
officers and directors will arbitrarily assign the particular business
opportunity to one of the pool companies. Potential investors should
expect that, because of the policy that will be employed by the
Company's officers and directors as set forth above, whereby more
"mature" pool companies will have business opportunities presented to
them first, the Company and its shareholders may have to wait a
significant amount of time before an appropriate business opportunity for
the Company is identified.
Members of management have a fiduciary obligation to the
stockholders of the Company, as well as to the stockholders of other
companies with which they are affiliated. Should a business opportunity
that would be appropriate for consideration by the Company arise and
be presented by an officer or director of the Company to another
company with which one of them is affiliated, and not be presented to
the Company, then any one or all of them may be unable to satisfy his
fiduciary obligation to the Company's stockholders. Notwithstanding the
foregoing, however, as of the date of this registration statement, the
Company and the other blind-pool company described herein, have the
same shareholders. It is also anticipated that both such companies will
continue to have the same shareholders until such time as a public
market, if any, develops for their shares. Since a public market is not
expected to develop for the shares of the Company, or for the other
blind-pool company, until they have completed the acquisition of a
business opportunity, the possibility of claims by a shareholder of the
Company, or of the other blind pool company, alleging breach of
fiduciary duty by the officers and directors, is substantially reduced or
eliminated.
Company management intends to actively negotiate or otherwise
consent to the purchase of a portion of their common stock as a
condition to, or in connection with, a proposed merger or acquisition
transaction. Members of management acquired their shares for services
rendered at a price of $0.001 per share, and the total purchase price for
all presently issued and outstanding shares, including both common stock
of Series A Convertible Preferred Stock was $9,935, of which $8,000
was paid in cash and $1,935 was paid in the form of performance of
services. It is anticipated that a substantial premium may be paid by the
purchaser in conjunction with any sale of shares by members of
Company management which is made as a condition to, or in connection
with, a proposed merger or acquisition transaction. The fact that a
substantial premium may be paid to members of Company management
to acquire their shares creates a conflict of interest for them and may
compromise their state law fiduciary duties to the Company's other
shareholders. In making any such sale, members of Company
management may consider their own personal pecuniary benefit rather
than the best interests of the Company and the Company's other
shareholders, and the other shareholders are not expected to be afforded
the opportunity to approve or consent to any particular buy-out
transaction involving shares held by members of Company management.
Item 6. EXECUTIVE COMPENSATION.
At inception of the Company, the Company's two directors each
received 825,000 shares of common stock valued at $0.001 per share
which were issued for services rendered to the Company in investigating
and developing the Company's business plan and for agreeing to be a
Director. No officer or director has received any other remuneration.
Until the Company acquires additional capital, it is not intended that any
officer or director will receive compensation from the Company other
than reimbursement for out-of-pocket expenses incurred on behalf of the
Company. See "Certain Relationships and Related Transactions." The
Company has no stock option, retirement, pension, or profit-sharing
programs for the benefit of directors, officers or other employees, but
the Board of Directors may recommend adoption of one or more such
programs in the future.
The Company has employed the law firm of Frascona, Joiner &
Goodman, P.C., in which one of its shareholders, Gary S. Joiner, is a
shareholder, to provide legal services in connection with registration of
the Company's shares. It may also employ the same law firm to provide
legal services in connection with the acquisition of a business. Mr.
Joiner and any other members of his firm, if employed, would be paid
their normal hourly rate for legal services provided.
Item 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
Prior to the date of this Prospectus, the Company issued to its
officers, directors, and others a total of 1,935,000 shares of Common
Stock, valued at $0.001 per share, or an aggregate total of $1,935, for
services rendered to the Company. The company also sold a total of
80,000 shares of its Series A Convertible Preferred Stock at a price of
$0.10 per share. Each share of Series A Convertible Preferred Stock is
convertible into two shares of common stock on or after March 1, 1998.
Upon conversion of the outstanding Series A Convertible Preferred Stock
to common stock, the effective price per share of common stock paid by
the persons who purchased preferred stock will be $0.05 per share. For
additional information concerning restrictions that are imposed upon the
securities held by current stockholders, and the responsibilities of such
stockholders to comply with federal securities laws in the disposition of
such Common Stock, see "Risk Factors - Rule 144 Sales."
On or about September 5, 1997, two of the officers and directors
of the company made gifts of a portion of their common shares to
various friends and family members. Michael R. Quinn transferred a
total of 19,000 shares to 88 people, and Jay Lutsky transferred a total of
17,000 shares to 17 people. The shares which were transferred by gift
are considered restricted securities in the hands of the donees.
No officer, director, promoter, or affiliate of the Company has
or proposes to have any direct or indirect material interest in any asset
proposed to be acquired by the Company through security holdings,
contracts, options, or otherwise.
The Company has adopted a policy under which any consulting
or finder's fee that may be paid to a third party for consulting services
to assist management in evaluating a prospective business opportunity
would be paid in stock or in cash. Any such issuance of stock would be
made on an ad hoc basis. Accordingly, the Company is unable to
predict whether or, in what amount, such a stock issuance might be
made.
It is not currently anticipated that any salary, consulting fee, or
finder's fee shall be paid to any of the Company's directors or executive
officers, or to any other affiliate of the Company except as described
under "Executive Compensation" above.
The Company maintains a mailing address at the residence of its
President, for which it pays no rent, and for which it does not anticipate
paying rent in the future. The Company anticipates that following the
consummation of a business combination with an acquisition candidate,
the Company's office will be moved, but cannot predict future office or
facility arrangements with officers, directors or affiliates of the
Company.
Although management has no current plans to cause the Company
to do so, it is possible that the Company may enter into an agreement
with an acquisition candidate requiring the sale of all or a portion of the
Common Stock or Series A Convertible Preferred Stock held by the
Company's current stockholders to the acquisition candidate or principals
thereof, or to other individuals or business entities, or requiring some
other form of payment to the Company's current stockholders, or
requiring the future employment of specified officers and payment of
salaries to them. It is more likely than not that any sale of securities by
the Company's current stockholders to an acquisition candidate would be
at a price substantially higher than that originally paid by such
stockholders. Any payment to current stockholders in the context of an
acquisition involving the Company would be determined entirely by the
largely unforeseeable terms of a future agreement with an unidentified
business entity.
Item 8. DESCRIPTION OF SECURITIES.
Common Stock
The Company's Articles of Incorporation authorize the issuance
of 100,000,000 shares of Common Stock. Each record holder of
Common Stock is entitled to one vote for each share held on all matters
properly submitted to the stockholders for their vote. Cumulative voting
for the election of directors is not permitted by the Articles of
Incorporation.
Holders of outstanding shares of Common Stock are entitled to
such dividends as may be declared from time to time by the Board of
Directors out of legally available funds; and, in the event of liquidation,
dissolution or winding up of the affairs of the Company, holders are
entitled to receive, ratably, the net assets of the Company available to
stockholders after distribution is made to the preferred stockholders, if
any, who are given preferred rights upon liquidation. Holders of
outstanding shares of Common Stock have no preemptive, conversion or
redemptive rights. All of the issued and outstanding shares of Common
Stock are, and all unissued shares when offered and sold will be, duly
authorized, validly issued, fully paid, and nonassessable. To the extent
that additional shares of the Company's Common Stock are issued, the
relative interests of then existing stockholders may be diluted.
Preferred Stock
The Company's Articles of Incorporation authorize the issuance
of 20,000,000 shares of preferred stock. The Board of Directors of the
Company is authorized to issue the preferred stock from time to time in
series and is further authorized to establish such series, to fix and
determine the variations in the relative rights and preferences as between
series, to fix voting rights, if any, for each series, and to allow for the
conversion of preferred stock into Common Stock. The Board of
Directors has authorized the issuance of 80,000 shares of Series A
Convertible Preferred Stock. This Series A Convertible Preferred Stock
is redeemable in whole or in part, at the option of the Company, at a
redemption price of $0.15 per share, plus accrued and unpaid dividends,
at any time after the earlier of August 1, 1999, or the date upon which
the Company completed a merger, acquisition, reorganization or other
transaction resulting in a change of control. Each share of Series A
Convertible Preferred Stock has a preferential liquidation value of $0.10
per share, and is convertible at the option of the holder into two shares
of common stock at any time on or after August 31, 1997. No dividends
are payable on the Series A Convertible Preferred Stock on or before
August 1, 1999. Thereafter, dividends equal to $0.01 per annum per
share are payable quarterly in arrears when and as declared by the board
of directors. Payment of dividends on the Series A Convertible
Preferred Stock is preferred and has priority over payment of dividends
on the outstanding common stock of the Company. Holders of Series A
Convertible Preferred Stock have no voting rights.
Reports to Stockholders
The Company plans to furnish its stockholders with an annual
report for each fiscal year ending August 31 containing financial
statements audited by its independent certified public accountants. In the
event the Company enters into a business combination with another
company, it is the present intention of management to continue
furnishing annual reports to stockholders. Additionally, the Company
may, in its sole discretion, issue unaudited quarterly or other interim
reports to its stockholders when it deems appropriate. The Company
intends to comply with the periodic reporting requirements of the
Securities Exchange Act of 1934.
PART II
Item 1. Market Price and Dividends on the Registrant's Common Equity
and Other Shareholder Matters
No public trading market exists for the Company's securities and
all of its outstanding securities are restricted securities as defined in Rule
144. There are no current plans, proposals, arrangements or
understandings with any person with regard to the development of a
trading market in any of the Company's securities. There were 110
holders of record of the Company's common stock on November 30,
1997. No dividends have been paid to date and the Company's Board
of Directors does not anticipate paying dividends in the foreseeable
future.
Item 2. Legal Proceedings
The Company is not a party to any pending legal proceedings,
and no such proceedings are known to be contemplated.
No director, officer or affiliate of the Company, and no owner
of record or beneficial owner of more than five percent (5%) of the
securities of the Company, or any associate of any such director, officer
or security holder is a party adverse to the Company or has a material
interest adverse to the Company in reference to pending litigation.
Item 3. Changes in and Disagreements with Accountants.
Not applicable.
Item 4. Recent Sales of Unregistered Securities.
Since August 27, 1997 (the date of the Company's formation),
the Company has sold its common stock to the persons listed in the table
below in transactions summarized as follows:
<TABLE>
<CAPTION>
Name Date of Shares Aggregate Price
Sale Purchase Per
Price Share
<S> <C> <C> <C> <C>
Jay Lutsky 8/27/97 727,500 727.50<F1> 0..001
Michael R. Quinn 8/27/97 727,500 727.50<F1> 0.001
Gary S. Joiner 8/27/97 95,000 95.00<F1> 0.001
Grant W. Peck 8/27/97 95,000 95.00<F1> 0.001
Dean F. Sessions 8/27/97 95,000 95.00<F1> 0.001
John B. Marvin 8/27/97 195,000 195.00<F1> 0.001
<FN>
<F1> Consideration consisted of pre-incorporation consulting services
rendered to the Registrant related to investigating and developing the
Registrant's proposed business plan and capital structure and completing
the organization and incorporation of the Registrant.
</FN>
</TABLE>
Since August 27, 1997 (date of the Company's formation), the
Company has sold its Series A Convertible Preferred Stock to the
persons listed in the table below in transaction summarized as follows:
<TABLE>
<CAPTION>
Name Date of Shares Aggregate Price
Sale Purchase Per
Price Share
<S> <C> <C> <C> <C>
Michael R. Quinn 8/27/97 7,500 750 0.10
Jay Lutsky 8/27/97 7,500 750 0.10
John B. Marvin 8/27/97 5,000 500 0.10
J.L. Evans 8/27/97 15,000 1,500 0.10
R. Gerald Spehar
and Susan M. Spehar,
Joint Tenants 8/27/97 15,000 1,500 0.10
Clayton Wood 8/27/97 15,000 1,500 0.10
Kip Pedrie 8/27/97 10,000 1,000 0.10
Helen K. Quinn 8/27/97 5,000 500 0.10
</TABLE>
Each of the sales of Series A Convertible Preferred Stock listed
above was made for cash and each of the sales of Common Stock listed
above was made for services rendered to the Company. The listed sales
of common stock were made in reliance upon the exemption from
registration provided by Rule 701 adopted pursuant to Section 3(b) of the
Securities Act of 1933. The listed sales of preferred stock were made
in reliance upon the exemption from registration offered by Section 4(2)
of the Securities Act of 1933. Based upon Purchaser Questionnaires
and/or Consultation and Subscription Agreements completed by each of
the subscribers and the pre-existing relationship between the subscribers
of the Company's officers and directors, the Company had reasonable
grounds to believe immediately prior to making an offer to the private
investors, and did in fact believe, when such subscriptions were
accepted, that such purchasers (1) were purchasing for investment and
not with a view to distribution, and (2) had such knowledge and
experience in financial and business matters that they were capable of
evaluating the merits and risks of their investment and were able to bear
those risks. The purchasers had access to pertinent information enabling
them to ask informed questions. The shares were issued without the
benefit of registration. An appropriate restrictive legend is imprinted
upon each of the certificates representing such shares, and stop-transfer
instructions have been entered in the Company's transfer records. All
such sales were effected without the aid of underwriters, and no sales
commissions were paid.
Item 5. Indemnification of Directors and Officers
The Articles of Incorporation and the Bylaws of the Company,
filed as Exhibits 3.1 and 3.2, respectively, provide that the Company
will indemnify its officers and directors for costs and expenses incurred
in connection with the defense of actions, suits, or proceedings where
the officer or director acted in good faith and in a manner he reasonably
believed to be in the Company's best interest and is a party by reason of
his status as an officer or director, absent a finding of negligence or
misconduct in the performance of duty.<PAGE>
SUNBURST ACQUISITIONS III, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountant
Balance Sheet
Statement of Loss and Accumulated Deficit
Statement of Stockholders' Equity
Statement of Cash Flows
Notes to Financial Statements<PAGE>
REPORT OF CERTIFIED PUBLIC ACCOUNTANT
The Board of Directors and Stockholders of
Sunburst Acquisitions III, Inc.
We have audited the accompanying balance sheet of Sunburst
Acquisitions III, Inc. (a development stage company) as of August 31,
1997, and the related statement of loss and accumulated deficit,
stockholders' equity, and cash flows for the period from inception
(August 27, 1997) to August 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sunburst Acquisitions
III, Inc., as of August 31, 1997, and the results of its operations and its
cash flows for the initial period then ended in conformity with generally
accepted accounting principles.
Comiskey & Co.
A Professional Corporation
Denver, Colorado
September 24, 1997<PAGE>
SUNBURST ACQUISITIONS III, INC.
(A Development Stage Company)
BALANCE SHEET
<TABLE>
<CAPTION>
November 30 August 30
1997 (unaudited) 1997 (audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 4,485 8,000
Total current assets 4,485 8,000
OTHER ASSETS
Organizational costs (net) 285 300
TOTAL ASSETS 4,770 8,300
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - related party - 300
Total current liabilities - 300
STOCKHOLDERS' EQUITY
Preferred stock, no par value
20,000,000 shares authorized;
80,000 shares issued and outstanding 8,000 8,000
Common stock, no par value
100,000,000 shares authorized;
1,935,000 shares issued and
outstanding 1,935 1,935
Additional paid-in capital 150
Deficit accumulated during the
development stage (5,315) (1,935)
4,770 8,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 4,770 8,300
</TABLE>
The accompanying notes are an integral part of the financial statements.<PAGE>
SUNBURST ACQUISITIONS III, INC.
(A Development Stage Company)
STATEMENT OF LOSS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Period from Three
August 27, months Year
1997 (inception) ended ended
to November November August
30, 1997 30, 1997 31, 1997
(unaudited) (audited)
<S> <C> <C> <C>
REVENUES - - -
EXPENSES
Amortization expense 15 15 -
Legal and accounting 3,200 3,200 -
Office expense 15 15 -
Rental expense 150 150 -
Consulting fees 1,935 - 1,935
Total expenses 5,315 3,380 1,935
NET LOSS (5,315) (3,380) (1,935)
Accumulated deficit
Balance, beginning of period - (1,935) -
Balance, end of period (5,315) (5,315) (1,935)
NET LOSS PER SHARE (NIL) (NIL) (NIL)
WEIGHTED AVERAGE NUMBER
OF SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS
OUTSTANDING 2,095,000 2,095,000 2,095,000
</TABLE>
The accompanying notes are an integral part of the financial statements.<PAGE>
SUNBURST ACQUISITIONS III, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Page 1 of 2)
For the period from inception (August 27, 1997) to August 31, 1997
<TABLE>
<CAPTION>
Preferred Stock Common stock
Number of Number of
shares Amount shares Amount
S> <C> <C> <C> <C>
Preferred stock issued for
cash, August 1997
at $0.10 per share 80,000 8,000 - -
Common stock issued for
services, August 1997
at $.0001 per
share - - 1,935,000 1,935
Net loss for the period
August 31, 1997
Balance
August 31, 1997 80,000 8,000 1,935,000 1,935
Rent provided as no charge - - - -
Net loss for the
period ended
November 30, 1997 - - - -
Balance
November 30, 1997 80,000 8,000 1,935,000 1,935
</TABLE>
The accompanying notes are an integral part of the financial statements.<PAGE>
SUNBURST ACQUISITIONS III, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Page 2 of 2)
For the period from inception (August 27, 1997) to August 31, 1997
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during the Total
paid in development stockholders'
capital stage equity
<S> <C> <C> <C)
Preferred stock issued for
cash, August 1997
at $0.10 per share - - 8,000
Common stock issued for
services, February 1997
at $.0001 per
share - - 1,935
Net loss for the period
August 31, 1997 - (1,935) (1,935)
Balance,
August 31, 1997 - (1,935) 8,000
Rent provided as no charge 150 - 150
Net loss for the period
ended November 30, 1997 - (3,380) (3,380)
Balance, November 30, 1997 150 (5,315) 4,770
</TABLE>
The accompanying notes are an integral part of the financial statements.<PAGE>
SUNBURST ACQUISITIONS III, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Three
August 27, months Year
1997 (inception) ended ended
to November November August
30, 1997 30, 1997 31, 1997
(unaudited) (audited)
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Loss (5,315) (3,380) (1,935)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Stock issued for consulting fees 1,935 - 1,935
Amortization 15 15 -
Rent expense 150 150 -
Net cash used by
operating activities (3,215) (3,215) -
CASH FLOWS FROM INVESTING ACTIVITIES
Organization costs (300) (300) -
Net cash used by
investing activities (300) (300) -
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of preferred stock 8,000 - 8,000
Net cash provided by
financing activities 8,000 - 8,000
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 4,485 (3,515) 8,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 8,000 -
CASH AND CASH EQUIVALENTS,
END OF PERIOD 4,485 4,485 8,000
</TABLE>
The accompanying notes are an integral part of the financial statements.<PAGE>
SUNBURST ACQUISITIONS III, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development stage company.
SUNBURST ACQUISITIONS III, INC. (a development stage
company) (the "Company") was incorporated under the laws of the State
of Colorado on August 27, 1997. The initial principal office of the
corporation is 4807 South Zang Way, Morrison, Colorado 80465.
The Company is a new enterprise in the development stage as defined by
Statement No. 7 of the Financial Accounting Standards Board and has
not engaged in any business other than organizational efforts. It has
no full-time employees and owns no real property. The Company
intends to operate as a capital market access corporation by registering
with the U.S. Securities and Exchange Commission under the Securities
Exchange Act of 1934. After this, the Company intends to seek to
acquire one or more existing businesses which have existing
management, through merger or acquisition. Management of the
Company will have virtually unlimited discretion in determining the
business activities in which the Company might engage.
Accounting method
The Company records income and expenses on the accrual method.
Fiscal year
The fiscal year of the Company shall be established by the board of
directors.
Loss per share
Loss per share was computed using the weighted number of common
shares and common share equivalents outstanding during the period.
Organization costs
Costs to incorporate the Company have been capitalized and will be
amortized over a sixty-month period.
Statement of cash flows
For the purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
Use of estimates
The preparation of the Company's financial statements in conformity
with generally accepted accounting principals requires the Company's
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual
results could differ from those estimates.
2. STOCKHOLDERS' EQUITY
As of August 31, 1997, 1,935,000 shares of the Company's no
par value common stock had been issued for consulting services
provided. The services were converted to shares at $0.001 per share.
As of August 31, 1997, 80,000 shares of the Company's no par
value Series A preferred stock had been issued at $0.10 per share.
Commencing on September 1, 1999, the holders of record of
shares of this Series A preferred stock shall be entitled to receive, when
and as declared by the board of directors out of funds legally available
therefor, cash dividends at the rate of $0.01 per share per annum,
payable quarterly, in arrears, on such dates as may from time to time be
determined by the board of directors.
In the event of a liquidation, dissolution or winding up of the
Corporation, the holders of shares of this Series A shall be entitled to
receive out of the assets of the Corporation an amount equal to $0.10 per
share, plus any accrued and unpaid dividends thereon to the date fixed
for distribution. This distribution shall be in preference and have
priority over any such distribution upon the common stock of the
Corporation and all other preferred stock of the Corporation. If the
assets of the Corporation are not sufficient to pay such amount in full to
the holders of this Series A and all other series of preferred stock
ranking equally as to liquidation preferences with the shares of this
Series A, then the holders of Series A and of all such other Series shall
share ratably in any such distribution of assets in accordance with the
amount which would be payable on such distribution if the amounts to
which the holders of this and all such other Series are entitled were paid
in full.
To the extent not previously converted into shares of common
stock, this Series A may be redeemed, in whole or in part, at the option
of the Corporation by resolution of its board of directors at a redemption
price per share of $0.15, plus any accrued and unpaid dividends thereon
to the date fixed for redemption.
The holders of shares of this Series A shall have the right, at
their option, to convert such shares into fully paid and nonassessable
shares of common stock of the Corporation at any time on or after
March 31, 1998. Each outstanding share of this Series A shall be
convertible into two shares of common stock of the Corporation.
The holders of this Series A shall have no right to vote either in
the election of directors or in any other matter.
3. RELATED PARTY TRANSACTIONS
As of the date hereof, Michael R. Quinn and Jay Lutsky are the
officers and directors of the Company, and are the owners of 1,650,000
shares of its issued and outstanding common stock, constituting
approximately 85% of the Company's issued and outstanding common
stock. If the purchasers of the Series A shares exercise the conversion
privilege, Jay Lutsky and Michael R. Quinn will own 1,680,000 shares
constituting approximately 80% of the Company's issued and outstanding
shares.
The accounts payable of $300 is due to Gary Joiner, corporate
counsel and one of the principle shareholders' of the Company.
The Company's President is providing office space at no charge
to the Company. For purposes of the financial statements, the Company
will accrue $50 per month as additional paid-in capital for this use
beginning September 1, 1997.
4. INCOME TAXES
The Company has Federal net operating loss carryforwards of
approximately $1,935 expiring in the year 2012. The tax benefit of this
net operating loss is approximately $400 and has been offset by a full
allowance for realization. This carryforward may be limited upon the
consummation of a business combination under IRC Section 381. For
the period ended August 31, 1997, the valuation allowance increased by
$373.
5. SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES
During the year ended August 31, 1997, the Company elected not
to accumulate any amortization of the organization costs, as one month
of amortization is immaterial to the financial statements taken as a
whole.
Similarly, the Company elected to forego any rent expense for the
year ended August 31, 1997, but will begin recording the rent expense
as additional paid-in capital during the year ended August 31, 1998.
PART III
Item 1. Index to Exhibits
The Exhibits listed below are filed as part of this Registration
Statement.
Exhibit
No. Document
2.1 Articles of Incorporation
(incorporated by reference to Form 10-SB filed 12/29/97)
2.2 Bylaws
(incorporated by reference to Form 10-SB filed 12/29/97)
3.1 Specimen Common Stock Certificate
(incorporated by reference to Form 10-SB filed 12/29/97)
3.2 Specimen Class A Convertible Preferred Stock Certificate
(incorporated by reference to Form 10-SB filed 12/29/97)
27 Financial Data Schedule
<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.
SUNBURST ACQUISITIONS III, INC.
By: /s/ JAY LUTSKY
President and Director
(Principal Executive Officer)
Date: April 16, 1998
By: /s/ MICHAEL R. QUINN
Secretary, Treasurer and Director
(Principal Financial Officer)
Date: April 16, 1998<PAGE>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> NOV-30-1997
<CASH> 4,485
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,485
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,770
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
8,000
<COMMON> 1,935
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,770
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (5,315)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,315)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,315)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
