As filed with the Securities and Exchange Commission on February 23, 1999
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 3
to
Form SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
FLEX FINANCIAL GROUP, INC.
FLEX ACQUISITIONS CORP.
----------------------------------------------
(Name of Small Business Issuer in its charter)
Texas 6159 76-0498636
--------------------------- ------------------ ---------------------
(State or other of (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation Classification Code Identification Number)
or organization) Number)
Michael T. Fearnow
President
Flex Financial Group, Inc.
179 Ruskin Drive East 179 Ruskin Drive East
Montgomery, Texas 77356 Montgomery, Texas 77356
(409) 449-5244 (409) 449-5244
- -------------------------------- -----------------------------------
Address, and telephone number of (Name, address and telephone number
Principal Place of Business and of Agent for Service)
Principal Executive Offices)
Copies to:
Robert L. Sonfield, Jr., Esq.
Sonfield & Sonfield
770 South Post Oak Lane
Houston, Texas 77056-1913
(713) 877-8333
Facsimile: (713) 877-1547
Email: [email protected]
Approximate Date of Proposed Sale to the Public: As soon as practicable
following the effectiveness of this Registration Statement.
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
Proposed Proposed
Amount to be maximum Maximum Amount of
Title of each class of registered offering price Aggregate registration
securities to be registered per share (1) Offering price (1) fee
- ---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Units, (2)................................... 100,000 $6.00 $ 600,000 $181.80
- ---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Common Stock ($.001) ................... 100,000 $ .00 $ 0 $ 0.00
- ---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Class B Warrants (3).................... 200,000 $ .00 $ 0 $ 0.00
- ---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Common Stock Underlying Class B Warrants 200,000 $6.25 $1,250,000 $378.75
- ---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Class C Warrants (3).................... 200,000 $ .00 $ 0 $ 0.00
- ---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Common Stock Underlying Class C Warrants 200,000 $10.00 $2,000,000 $606.00
- ---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Common Stock (4)............................ 20,000 $0.04 $ 800 $ 0.24
- ---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
TOTAL $1,166.79
========================================================== =============== ================== ===================== ===============
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Each consisting of one share of common stock, $.001 par value, two Class B
Warrants and two Class C Warrants
(3) Pursuant to Rule 416, there are also being registered such indeterminable
additional shares of Common Stock as may be issued pursuant to the
anti-dilution provisions of the Class B and Class C Warrants, should such
provisions become operative.
(4) Shares to be distributed to the shareholders of American NorTel
Communications, Inc. The registration fee is based upon the book value of
the Flex Acquisitions as of July 31, 1996. Rule 457(a).
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a)
may determine.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus: (1) to be
used in connection with the offering of 100,000 Units (the "Unit Offering"); and
(2) to be used in connection with the distribution of 20,000 shares of common
stock to the shareholders of American NorTel Communications, Inc. (the
"Distribution"). The Prospectuses are identical in all respects expect for the
front cover page, table of contents, an alternate "Use of Proceeds" section and
a section in the Distribution Prospectus entitled "The Distribution" instead of
the "Plan of Distribution" section in the Unit Offering Prospectus. The section
entitled "Dilution" is not included in the Distribution Prospectus. Pages
included in the Distribution Prospectus and not in the Unit Offering Prospectus
are marked "Alternate Page for Distribution Prospectus" and follow the financial
statements.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS DATED
FLEX FINANCIAL GROUP, INC.
(a Delaware corporation)
(Formerly Flex Acquisitions Corporation)
100,000 Units, Each Unit Consisting of One Share of Common Stock,
Two Class B Warrants and Two Class C Warrants
$6.00 per Unit
Flex Financial Group, Inc. (the "Company") is offering 100,000 Units, each
Unit consisting of one share of common stock, $.001 par value ("the Common
Stock"), and four Common Stock purchase warrants, two Class B Warrants ("the
Class B Warrants") and two Class C Warrants ("the Class C Warrants,"
collectively the "Warrants"). The components of the Units are immediately
separately transferable. The Units will not be tradable.
Each Class B Warrant and each Class C Warrant is immediately exercisable
and entitles the holder thereof to purchase one share of Common Stock at an
exercise price of $6.25 and $10.00, respectively. The Warrants expire on January
1, 2002, unless extended by the Company. Each Class B Warrant may be redeemed by
the Company at any time after March 30, 1998 at a price of $0.05 per warrant if
the reported closing bid price of the Common stock is at least $7.50 per share
(132% of the initial public offering price of the Common Stock) for a period of
20 consecutive trading days immediately prior to the date of the notice of
redemption to warrant holders. Each Class C Warrant may be redeemed by the
Company at any time after March 30, 1998 at a price of $0.05 per warrant if the
reported closing bid price of the Common stock is at least $12.00 per share
(222% of the initial public offering price of the Common Stock) for a period of
20 consecutive trading days immediately prior to the date of the notice of
redemption to warrant holders. Notice of the redemption will be mailed to all
Warrant holders at least 30 days before the date on which the Warrants have been
called. See "Description of Securities-Redeemable Common Stock Purchase
Warrants."
Simultaneously with the offering of the Units (the "Units Offering"), the
Company is distributing, by means of a separate prospectus, 20,000 shares of
Common stock (the "Spin-off" or the "Distribution") to the shareholders of
American NorTel Communications, Inc. ("American NorTel"). Immediately prior to
commencement of the Units Offering and the Distribution, Flex Acquisitions
Corporation ("Flex Acquisitions") will merge with Flex Financial Group, Inc. and
change its name to Flex Financial Group, Inc. (the "Merger"). Therefore,
references to the Company means the surviving corporation of the Merger. Neither
Flex Financial nor Flex Acquisitions has any history of operations. The Merger
to take place pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"), a copy of which is included as an exhibit to the registration
statement on Form S-4 which covers the Merger. See "Summary of the Offering -
The Transactions."
Prior to the Units Offering, there has been no public market for the Common
Stock or Warrants and there can be no assurance that such a market will develop
or, if developed, that it will be sustained. The offering price of the Units and
the exercise price and other terms of the Warrants have been arbitrarily
determined by the Company and will not necessarily be related to the assets,
book value or any other established criterion of value. See "Risk Factors"
beginning on page 13 and "Plan of Distribution" on page 41.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK INCLUDING A LACK OF OPERATING HISTORY, LIMITED OPERATIONS IF ONLY THE
MINIMUM OFFERING IS SOLD AND IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD NOT
BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS." COMMENCING ON PAGE 13OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- --------------------------------------------------------------------------------
Per Unit $ 6.00 $ .60 $ 5.40
Total Maximum:
100,000 Units $600,000.00 $60,000.00 $540,000.00
Total Minimum:
20,000 Units (3) $120,000.00 $12,000.00 $108,000.00
================================================================================
See footnotes on following page.
The Units are being offered on a "best efforts all or none basis" as to
20,000 Units and on a "best efforts basis" as to the remaining 80,000 Units.
The date of this Prospectus is December ___,
1998.
<PAGE>
ii
(1) The Company has not entered into any agreement with a member firm of the
National Association of Securities Dealers, Inc. ("NASD") to assist in the
sales of the securities and, therefore, is not presently obligated to pay
any commissions in connection with such sales. In the event the Company
enters into an agreement with an NASD member firm, the Company may pay the
member firm, as agent, an estimated commission in the range of 10% of the
sale price of any securities sold by such broker-dealer. The Company may
agree to indemnify the broker-dealer against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. It is also likely
that any such agreement by the Company with a broker-dealer will include
reimbursement to the broker-dealer for any out-of-pocket expenses incurred
in connection with the offer and sale of the securities, based upon a
percentage of the amount of securities sold. See "Plan of Distribution."
(2) Before deducting expenses, other than underwriting discounts and
commissions, payable by the Company, estimated to be $40,000 for a maximum
offering and $20,000 for a minimum offering.
(3) Subscription funds will be held in an interest-bearing escrow account with
Southwest Bank of Texas, N.A., Houston, Texas, as Escrow Agent, until the
minimum offering has been subscribed. Upon receipt of subscription funds
for the minimum offering, the escrow will terminate and the funds released
to the Company. If the minimum is not subscribed, all funds will be
returned by the Escrow Agent without deduction and without interest. See
"Plan of Distribution" on page 41.
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION........................................................v
CAUTIONARY STATEMENTS........................................................v
SUMMARY OF THE OFFERING......................................................6
Overview..................................................................6
The Company...............................................................7
General.................................................................7
Business Plan...........................................................7
Management..............................................................7
Use of Proceeds...........................................................7
Minimum Offering........................................................7
Maximum Offering........................................................8
The Transactions..........................................................8
The Distribution........................................................8
The Merger..............................................................9
The Offering..............................................................9
Parties to the Transaction...............................................10
Flex Financial Group, Inc..............................................10
Flex Acquisitions Corporation..........................................10
American NorTel Communications, Inc....................................11
Summary Consolidated Financial Data......................................12
RISK FACTORS................................................................13
Risks Inherent in Development Stage Company..............................13
Arbitrary Determination of Offering Price and Warrant Exercise Price.....13
No Assurance of a Public Market and Likelihood of a Volatile Market......13
Penny Stock Regulation...................................................13
Dependence on Michael Fearnow............................................14
Conflicts of Interest....................................................14
Lack of Independent Directors............................................14
Lack of Ability to Fully Investigate Financing Opportunities.............14
Current Prospectus and State Blue Sky Registration
Required to Exercise the Warrants....................................14
Competition..............................................................15
Adverse Effect of Sale of Less Than Total Offering........ ..............15
Risk of No Underwriter...................................................15
Lack of Participating Broker Dealers.....................................15
No Cash Dividends........................................................15
Shares Eligible for Future Sale..........................................16
Market Standoff Agreement................................................16
Dilution.................................................................17
Anti-Takeover Provisions.................................................18
USE OF PROCEEDS.............................................................18
DIVIDEND POLICY.............................................................19
CAPITALIZATION..............................................................19
DILUTION....................................................................20
Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................21
General................................................................21
Liquidity and Capital Resources........................................21
Year 2000 Issue..........................................................21
BUSINESS OF THE COMPANY.....................................................21
Overview.................................................................22
General................................................................22
Plan of Operation........................................................22
Business Objectives....................................................22
Business Experience of Principals......................................23
Subordination Loans and Bridge Loans.....................................23
General Consideration..................................................23
Subordination Loans....................................................23
Bridge Loans...........................................................23
Typical Scenarios......................................................24
Plan of Operation for Next 12 Months.....................................24
Other Investment Transactions............................................25
General................................................................25
Investment Transactions................................................25
Typical Scenarios......................................................25
Method of Participation................................................25
Flex Financial May Be Deemed to Be an Underwriter......................25
Flex Financial May Have Exposure as a Control Person...................26
Other Considerations.....................................................26
Sources of Opportunities...............................................26
Evaluation Procedures..................................................27
Competition..............................................................27
Description of Properties................................................27
Course of Business Should the Minimum Offering Not be Sold...............28
Legal Proceedings........................................................28
MANAGEMENT OF THE COMPANY...................................................28
Directors, Executive Officers and Significant Employees..................28
Compensation of Directors and Officers...................................28
Stock Incentive Plan.....................................................29
General Provisions of the Stock Incentive Plan......................29
Stock Options and Stock Appreciation Rights.........................29
Restricted Stock....................................................30
Tax Information.....................................................30
Limitations of Liability and Indemnification of Directors................31
Certain Transactions........................................................32
PRINCIPAL STOCKHOLDERS......................................................33
Security Ownership of Certain Beneficial Owners..........................33
Security Ownership of Management.........................................34
Parents..................................................................34
DESCRIPTION OF SECURITIES...................................................34
Units....................................................................35
Common Stock.............................................................35
Redeemable Common Stock Purchase Warrants and Options....................36
Class A Common Stock Purchase Options..................................36
Class B Warrants.......................................................36
Class C Warrants.......................................................36
General................................................................37
Current Prospectus and State Blue-Sky Registration Required
to Exercise Warrants......................................................37
Unit Purchase Options....................................................38
Preferred Stock..........................................................38
Defenses Against Hostile Takeovers.......................................38
Introduction...........................................................38
Authorized Shares of Capital Stock.....................................38
Stockholder Meetings...................................................39
Classified Board of Directors and Removal of Directors.................39
Restriction of Maximum Number of Directors and Filling
Vacancies on the Board of Directors................................39
Stockholder Vote Required to Approve Business Combinations
with Related Persons.................................................39
Advance Notice Requirements for Nomination of Directors and
Proposal of New Business at Annual Stockholder Meetings..............40
Limitations on Acquisitions of Capital Stock...........................40
Supermajority Voting Requirement for Amendment of Certain
Provisions of the Certificate of Incorporation.......................40
Registrar Transfer Agent and Warrant Agent...............................41
PLAN OF DISTRIBUTION........................................................41
SHARES ELIGIBLE FOR FUTURE SALE.............................................42
LEGAL MATTERS...............................................................42
EXPERTS.....................................................................42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES.............................................F-1
<PAGE>
AVAILABLE INFORMATION
Flex Financial has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of Flex Financial Common Stock described in this
Prospectus. This Prospectus, which is a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement or
the exhibits and schedules thereto, certain portions having been omitted
pursuant to the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract or other document are not
necessarily complete with respect to each such contract or other document filed
with the Commission as an exhibit to the Registration Statement. Reference is
made to such exhibits for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference.
The Registration Statement and the exhibits and schedules thereto filed
with the Commission may be inspected and copied (at prescribed rates) at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Such reports and other information
can be reviewed through the Commission's Electronic Data Gathering Analysis and
Retrieval System, which is publicly available through the Commission's Web site
(http://www.sec.gov).
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY FLEX FINANCIAL, FLEX ACQUISITIONS OR ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES MADE UNDER THIS
PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF FLEX FINANCIAL OR FLEX ACQUISITIONS SINCE THE
DATE OF THIS PROSPECTUS.
CAUTIONARY STATEMENTS
This Prospectus contains statements relating to future results of the
Company (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995 (the "Litigation Reform Act"). Section 27A(b)(2)(D) of the
Securities Act and Section 21E(b)(2)(D) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as promulgated by the Litigation Reform Act,
expressly state that the safe harbor for forward-looking statements does not
apply to statements made in connection with an initial public offering. Actual
results may differ materially from those projected as a result of certain risks
and uncertainties, including, but not limited to, changes in political and
economic conditions, regulatory conditions, government healthcare spending,
integration of acquisitions and competitive pricing pressures, all as detailed
from time to time in the filings of the Company made with the Commission.
When used in this Prospectus with respect to Flex Financial or Flex
Acquisitions the words "estimate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Such risks and uncertainties include
those risks, uncertainties and risk factors identified in this Prospectus under
the headings "Risk Factors," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Company does not undertake
any obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
<PAGE>
SUMMARY OF THE OFFERING
Simultaneously with and as a condition to the consummation of the offering
made by this Prospectus, Flex Acquisitions will merge with Flex Financial and
Flex Acquisitions Corporation will change its name to Flex Financial as the
survivor of the Merger. Unless otherwise indicated, all references to the
"Company" herein include the combination of Flex Acquisitions and Flex Financial
after the Merger, and references herein to "Flex Acquisitions" means Flex
Acquisitions Corporation prior to the consummation of the Merger and references
to "Flex Financial" means Flex Financial Group, Inc. prior to the consummation
of the Merger.
Simultaneously with and as a condition to the consummation of the offering
made by this Prospectus and as a part of the series of integrated transactions
that restructures the Company, American NorTel Communications, Inc.("American
NorTel") will consummate the Distribution by distributing 20,000 shares of
Common Stock of the post-Merger Company ratably to its shareholders.
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained in or incorporated by
reference in this Prospectus and the Appendices hereto. Prospective shareholders
are urged to read carefully this Prospectus in their entirety. Capitalized terms
used herein without definition are, unless otherwise indicated, defined in the
text below and used herein with such meanings.
Overview
The management of the Company, Flex Acquisitions and American NorTel
believe that the shareholders of Flex Financial and American NorTel will benefit
from receiving shares in a transaction that has been registered under the
Securities Act in exchange for their shares of capital stock, in the case of
Flex Financial, or as a dividend with possible future value, in the case of
American NorTel. Further, the management of the Company and of Flex Acquisitions
believe that the distribution of Shares to the stockholders of American NorTel
in the Distribution will provide the basis for the creation of a public market
for the common stock of the post-Merger Company and that the existence of such a
public market will benefit the Company and American NorTel stockholders. No
assurance can be given, however, that a market will develop for the Common Stock
or, if it develops, that it will be sustained. See "Risk Factors - No Assurance
of a Public Market and Likelihood of a Volatile Market."
The management of Flex Financial determined that, after research into other
possible alternatives, the proposed Restructuring presented the fastest and
least expensive method of accessing the U.S. public capital markets and
providing the most desirable corporate vehicle for conducting its business
operations. The criteria applied by the board was to obtain trading status for
the shares held by Flex Financial's shareholders and to seek to raise additional
capital in order to expand its business operations while utilizing its existing
infrastructure, management and knowledge of its industry at the least cost to
shareholders measured in terms of capital expended and dilution.
Simultaneously with and as a condition to the consummation of the offering
made by this Prospectus, Flex Acquisitions will merge with Flex Financial with
Flex Acquisitions Corporation changing its name to Flex Financial as the
survivor of the Merger and American NorTel will distribute share of Common Stock
to its shareholders. Following the completion of the Distribution, the Company
will operate as an independent, publicly-traded company.
The American NorTel shareholders will not be required to pay any cash or
other consideration for the shares of Common Stock received in the distribution
or will they need to surrender their American NorTel common stock certificates
in order to receive shares of Company Common Stock in the Distribution. The
Distribution Agent will send American NorTel shareholder's stock certificates
following consummation of the Merger.
The Company will attempt to qualify the Common Stock on the NASD
inter-dealer Electronic Bulletin Board. The Company Common Stock received
pursuant to the Distribution will be freely transferable under the Securities
Act, except for shares of Common Stock received by any person who may be deemed
to be an "affiliate" of the Company within the meaning of Rule 144 promulgated
under the Securities Act. Persons who may be deemed to be affiliates of the
Company after the Distribution generally include individuals or entities that
control, are controlled by, or are under common control with the Company, and
may include the directors and executive officers of the Company. Persons who are
affiliates of the Company will be permitted to sell their Common Stock received
pursuant to the Distribution only pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act. The Registration Statement of
which this Prospectus is a part will not cover resales of Company Common Stock
by affiliates of the Company. See "Shares Eligible for Future Sale."
The Company
General. Flex Financial was organized to provide Subordination Loans to
selected underwriters requiring short term additional net capital to underwrite
specific issues on a firm commitment basis; to provide Bridge Loans on a highly
selective basis within established guidelines to selected issuers meeting the
company's due diligence standards to facilitate initial public offerings or
secondary financing; and to engage in "spin-off" activities in which the company
serves as a vehicle or facility to convert private operating companies to public
ownership.
Business Plan. The Company intends to participate in short term financing
opportunities by (i) providing and/or participating in equity subordination
loans to selected underwriters requiring additional excess net capital for
underwriting specific issues on a firm commitment basis ("Subordination Loans")
and (ii) providing and/or participating in bridge loans to selected issuers
meeting the Company's due diligence standards in connection with initial public
offerings and secondary financing ("Bridge Loans"). The Company also intends to
engage in "spin-off" activities such as are described herein, such spin-offs to
involve the distribution, by way of stock dividends or otherwise, of registered
shares of stock of other public companies. The Company is not aware of any
comparable size public company that provides the type of financing proposed to
be provided by the Company.
Management. Management of the company has virtually unlimited discretion in
searching out and participating in a financing opportunity. The company is
unable to predict when it may become engaged in a financing opportunity. It
expects, however, that review and analysis of specific proposals and the
selection of a financing opportunity will likely take several weeks or more
following the successful completion of this offering. There can be no assurance
as to when or if a financing opportunity will become available, however,
management is confident that such opportunities will become available.
The business office of the Company is 179 Ruskin Drive East, Montgomery, TX
77356. Its telephone number is 409.597.7500.
Use of Proceeds
Minimum Offering. The net proceeds to the Company from the sale of the
minimum number of Units offered hereby, assuming a public offering price of
$6.00 per Unit and after deducting estimated offering expenses, are estimated to
be approximately $88,000. The following table sets forth the estimated
application by the Company of the net proceeds to be derived from the sale of
the minimum number of Units offered hereby.
Amount Percentage
of Net of Net
Use of Proceeds Proceeds Proceeds
- --------------- -------- ---------
To pay principal and accrued
Interest on Flex Financial
Bridge Loan Notes (1) $60,000 68%
To make Subordination and
Bridge Loans 28,000 32%
To provide general working
Capital 0 0%
Total Net Proceeds $88,000 100%
(1) Proceeds of the Bridge Loans were used by Flex Financial to cover the
legal, audit and other expenses of the Units Offering, Merger and
Distribution transactions, including registration of the Merger
transaction.
The Company intends to use the net proceeds of the minimum Units Offering
first to retire the Bridge Loans, then to apply the remaining net proceeds to
making Subordination and Bridge Loans.
The Company believes that the minimum offering proceeds from the sale of
Units offered hereby will enable the Company to earn fees and interest on Bridge
Loans and Subordination Loans by participating in Subordination and Bridge Loans
of duration that enable two completed transactions per year in amounts in the
range of $10,000.
If less than the maximum number of Units offered hereby is sold, the
Company will not have sufficient capital resources to permit the Company to
participate in Subordination and Bridge Loans of the number, amount and in the
timing proposed in its business plan. Therefore, the Company will operate at
reduced levels of activity until operating revenues or additional financing
proceeds enable the Company to increase its operations. See "Use of Proceeds"
and "Business of the Company - Plan of Operation for Next 12 Months."
Maximum Offering. The net proceeds to the Company from the sale of the
maximum number of Units offered hereby, assuming a public offering price of
$6.00 per Unit and after deducting estimated offering expenses, are estimated to
be approximately $500,000. The following table sets forth the estimated
application by the Company of the net proceeds to be derived from the sale of
maximum number of Units offered hereby.
Amount Percentage
of Net of Net
Use of Proceeds Proceeds Proceeds
- --------------- -------- --------
To pay principal and accrued
Interest on Flex Financial
Bridge Loan Notes (1) $60,000 12%
To make Subordination and
Bridge Loans 395,000 79%
To provide general working
Capital 45,000 9%
-------- ----
Total Net Proceeds $500,000 100%
- ---------------------
(1) Proceeds of the Bridge Loans were used by Flex Financial to cover the
legal, audit and other expenses of the Units Offering, Merger and
Distribution transactions, including registration of the Merger
transaction.
The Company intends to use the net proceeds of the maximum Units Offering
first to retire the Bridge Loans, then to apply the remaining net proceeds to
Subordination and Bridge Loans after 15% of net proceeds exceeding $200,000
($45,000 if the maximum offering is sold) are applied to general working capital
(overhead or general and administrative expenses).
The Company believes that the maximum offering proceeds from the sale of
Units offered hereby will enable the Company to earn fees and interest on Bridge
Loans and Subordination Loans by participating in Subordination and Bridge Loans
of duration that enable six completed transactions per year in amounts in the
range of $150,000. The Company does not anticipate additional capital
requirements thereafter unless for the purposes of expanding its available
capital to permit expansion of its participation in Subordination and Bridge
Loans or the replacement of capital depleted by extraordinary losses in its loan
portfolio. The Company believes it will be able to provide for its working
capital needs from the maximum offering proceeds of the Units Offering and
operating revenues. If the Company's plans change, its assumptions prove to be
inaccurate, or the capital resources available to the Company otherwise prove to
be insufficient to implement its business plan (as a result of unanticipated
expenses, problems or difficulties, or otherwise), the Company would be required
to seek additional financing or curtail its activities. See "Use of Proceeds"
and "Business of the Company - Plan of Operation for Next 12 Months."
The Transactions
The Distribution. The Distribution will be effected immediately after
consummation of the Merger. On the Distribution Date, American NorTel will
distribute to its stockholders as of the Distribution Record Date, shares of
Company Common Stock. Each stockholder of American NorTel as of the Distribution
Record Date will receive one share of Company Common Stock for each 588 share of
American NorTel Common Stock held as of the Distribution Record Date. The
Distribution will not take place unless all of the conditions to effecting the
Merger (other than the completion of the Distribution) have been fulfilled.
American NorTel's transfer agent, Registrar and Transfer Company, 10 Commerce
Drive, Cranford, New Jersey, will act as the Distribution Agent for the
Distribution and will deliver certificates for Company Common Stock as soon as
practicable to holders of record of American NorTel Common Stock as of the close
of business on the Distribution Record Date. All shares of Company Common Stock
will be fully paid and nonassessable and the holders thereof will not be
entitled to preemptive rights. Immediately following the completion of the
Distribution, Company will be an independent, publicly-traded company.
The Merger. Following the approval and adoption of the Merger Agreement
by the requisite vote of the stockholders of Flex Acquisitions and Flex
Financial and the satisfaction or waiver of the other conditions to the Merger,
Flex Acquisitions will be merged with Flex Financial with Flex Acquisitions
Corporation changing its name to Flex Financial and continuing as the Surviving
Corporation. A majority of the shareholders of Flex Financial have agreed to
vote in favor of the Merger. The Merger will become effective upon filing, with
the Secretary of State of the State of Delaware and the Secretary of State of
the State of Texas, a duly executed Certificate of Merger, in the form required
by and in accordance with the Delaware General Corporation Law ("DGCL") and the
Texas Business Corporation Act ("BCA"), or at such time thereafter as is
provided in the Certificate of Merger.
Pursuant to the Merger Agreement, at the effective time of the Merger
("Effective Time") each Security of Flex Financial, issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive the same number of duly authorized, validly issued, fully paid and
nonassessable identical securities of Flex Acquisitions. In addition, the name
of Flex Acquisitions will be changed to Flex Financial and its state of
incorporation will be changed to Delaware. Michael Fearnow is the only officer
and director of Flex Financial and will be the only officer and director of the
Company. The following table shows the distribution of the shares of capital
stock of the constituent parties before and after the Merger.
Number of Shares of Capital Stock (1)
Before Merger After Merger
Beneficial Owners Flex Financial Flex Acquisitions The Company
Flex Financial Shareholders 94,000 94,000 (2) 94,000 (2)
American NorTel 0 20,000 0 (3)
American NorTel's Shareholders 0 0 20,000 (3)
---------- ------------- --------
20,000 94,000 (3) 114,000 (3)
(1) All shares of capital stock are shares of Common Stock.
(2) In addition to these shares, there are reserved 217,665 shares of Flex
Financial Common Stock issuable upon the exercise of outstanding options
and warrants.
(3) American NorTel will distribute its 20,000 Shares to its approximately 780
shareholders. See "- The Distribution." The Company may choose to pay in
cash the fair value of fractions of a share as of the time when those
entitled to receive such fractions are determined or to aggregate
fractional share interests with those of other small-denomination
shareholders who choose not to receive their certificates, and have the
shares sold through a broker into the open market after trading in the
shares should commence in the open market, and distribute to those entitled
the net cash proceeds of such sale.
The Offering
Units
100,000 Units, each consisting of one share of Common Stock and four
redeemable Warrants. Minimum offering 20,000 Units.
Common Stock Outstanding
Before Offering (1) 114,000
After Offering (2) 214,000
Warrants:
The Offering
400,000 Warrants offered as part of the Units. The Warrants will be
immediately detachable and separately transferable from the Common Stock.
Exercise Terms
200,000 Class B Warrants are immediately exercisable to purchase one share
of Common Stock, at $6.25 per share, subject to adjustment in certain
circumstances. 200,000 Class C Warrants are immediately exercisable to purchase
one share of Common Stock, at $10.00 per share, subject to adjustment in certain
circumstances. See "Description of Securities."
Expiration Date January 1, 2002.
Redemption
The Class B Warrants are redeemable by the Company commencing January 1,
1998 upon at least 30 days notice, at a price of $0.05 per warrant, at any time
the market price of the Common stock is at least $7.50 per share for a period of
20 consecutive trading days. The Class B Warrants are redeemable by the Company
commencing January 1, 1998 upon at least 30 days notice, at a price of $0.05 per
warrant, at any time the market price of the Common stock is at least $7.50 per
share for a period of 20 consecutive trading days. See "Description of
Securities - Redeemable Common Stock Purchase Warrants."
Use of Proceeds
Participation in short term financing opportunities including subordinated
equity loans to underwriters, bridge loans to selected issuers in connection
with initial public offerings and second round financing, repayment of certain
indebtedness and other general corporate needs. See "Use of Proceeds."
Risk Factors
The securities offered hereby are speculative and involve a high degree of
risk and immediate and substantial dilution. Potential risks include, among
others: the Company in the development stage, lack of assurance of public
market, dependence on key personnel, sale of less than the maximum offering,
evaluation of prospective financing opportunities, possible price violation of
the shares and no payments of dividends. See "Risk Factors."
Parties to the Transaction
Three companies and their shareholders are affected by the Distribution
and Merger transactions described in this Prospectus.
Flex Financial Group, Inc. Flex Financial Group, Inc. ("Flex Financial")
was incorporated under the business corporation laws of the State of Texas on
August 16, 1995 and reincorporated in Delaware in December 1997. The outstanding
securities of Flex Financial are owned of record by 12 persons.
The business office of Flex Financial is located at 179 Ruskin Drive East,
Montgomery, Texas 77356. Its telephone number is 409-597-7500.
Flex Acquisitions Corporation. Flex Acquisitions Corporation (the "Flex
Acquisitions") was incorporated under the laws of the State of Texas on March
21, 1996, for the sole purpose of the Merger and Distribution transaction
described in this Prospectus. The Company has no business operations or
significant capital and has no present intention of engaging in any active
business except to merge with Flex Financial, change its name to Flex Financial
and execute the business plan of Flex Financial.
The business office of Flex Acquisitions and after completion of the
Merger, Distribution and offering made by this Prospectus will continue to be
located at 179 Ruskin Drive East, Montgomery, Texas 77356. Its telephone number
is 409.597.7500. Upon completion of the Merger with Flex Financial, Flex
Acquisitions will change its name to Flex Financial and Flex Financial will
cease to exist and all of its business, properties and outstanding securities
will be the business, properties and securities of Flex Financial. The combined
companies are referred to herein as the "Company." See "- The Company."
American NorTel Communications, Inc. American NorTel Communications, Inc.
("American NorTel") filed its Certificate of Registration and Articles of
Continuance with the Secretary of State of the State of Wyoming and became a
Wyoming corporation effective February 9, 1993. The company was originally
incorporated in British Columbia, Canada on May 17, 1979. American NorTel's
common stock has been listed for trading on the Vancouver Stock Exchange since
September 18, 1980. In conjunction with a one for five reverse stock split, the
company's name was changed to Coldsprings Resources Ltd. on June 4, 1987. In
conjunction with a one for ten consolidation, its name was changed to Islehaven
Capital Corporation on July 14, 1987. The company changed its name to NorTel
Communications Inc. on June 17, 1991. Effective May 11, 1992 the company changed
its name to American NorTel Communications Inc. reverse split its common stock
by issuing one share for each outstanding ten shares.
American NorTel currently operates only in the telecommunications business,
providing long distance telephone service in combination with additional related
services in the United States and a number of foreign countries, including
Argentina, Brazil, Mexico, Canada, and Costa Rica. Until the end of 1993, the
Company was also in the mining development and exploration business in Costa
Rica and Canada, and has divested of its remaining mining assets.
In 1987, American NorTel was inactive and was classified as dormant under
the rules of the Vancouver Stock Exchange. The then current management organized
a reverse takeover by a number of limited partnerships and private companies
which were engaged in the mining development and exploration business and who,
on July 14, 1987, transferred all of their assets into the company for Treasury
shares. The company is no longer active in the mining development and
exploration business. In 1990, American NorTel became active in the long
distance telecommunications business, which is now its only business.
American NorTel has approximately 780 shareholders, is a reporting company
pursuant to Section 12(g) of the Exchange Act and files quarterly, annual and
periodic reports with the SEC. The company seeks to diversify its business
opportunities and investment potential to its shareholders by engaging in
"spin-off" activities such as are described herein, such spin-offs to involve
the distribution, by way of stock dividends or otherwise, of registered shares
of stock of other companies. As of the date of this Prospectus American NorTel
has no intention of spinning off any other parts of its operations. American
NorTel organized Flex Acquisitions as the only shareholder and, prior to
consummation of the Merger, will be the only shareholder. The only preexisting
relationship between Flex Financial or Flex Acquisition and American NorTel is
the ownership of a minority number of shares of stock of American NorTel by a
shareholder in Flex Financial Group, Inc., a Texas corporation. Prior to the
date of this Prospectus, Flex Financial acquired all the assets and assumed
certain of the liabilities of Flex Financial Group, Inc., a Texas corporation.
American NorTel's address is 7201 E. Camelback Road, Suite 320, Scottsdale,
Arizona 85251. Its telephone number is 602.945.1266.
<PAGE>
Summary Consolidated Financial Data
(In Thousands Except Per Share Data)
The following summary historical consolidated financial data of Flex
Financial Group has been derived from the historical financial statements and
should be read in conjunction with such financial statements and notes thereto,
which, accept for the ten months ended July 31, 1998, are included elsewhere
herein. Flex Acquisitions data has been derived from and should be read in
conjunction with the pro forma consolidated financial statements that are also
included elsewhere herein. The pro forma condensed consolidated financial data
gives retroactive effect to the Merger as if it occurred on July 31, 1996.
<TABLE>
<CAPTION>
Flex Financial Group Flex Acquisitions
Historical Pro Forma (Unaudited)
Ten Months
Ended
Year Ended May 31, Year Ended
July 31, July 31,
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Statement of (Unaudited)
Operations Data:
Interest $ - $ 1 $ 2 $ - $1 $2
------ - ---- ---- ------ --- --
Income
Operating Expenses 76 29 55 76 29 55
Interest 6 5 8 6 5 8
----- ----- ----- -- -- -
Expense
$ 82 $(34) $(61) $82 $(34) $(61)
===== ===== ===== ==== ===== =====
Net
Loss
Pro Forma Net Loss $0.87 $ (0.36) $ (0.65) $0.72 $(0.30) $(0.54)
====== ========= ========= ====== ======= =======
per Share
Pro Forma Weighted
Average Shares Outstanding 94,000 94,000 94,000 114,000 114,000 114,000
======= ======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
May 31, July 31 May 31, July 31
<S> <C> <C> <C> <C> <C> <C>
Balance 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Sheet Data:
(Unaudited)
Working $ (94) $(12) $17 $(94) $(17) $17
====== ===== ==== ===== ===== ===
Capital
(Deficit)
Total Assets $5 $46 $84 $5 $47 $85
=== ==== ==== === ==== ===
Total $ 99 $59 $63 $99 $59 $63
===== ==== ==== ==== ==== ===
Liabilities
Total Shareholders' $ (94) $(12) $21 $(94) $(12) $22
====== ===== ==== ===== ===== ===
Equity (Deficit)
</TABLE>
Note:
The Flex Financial Group historical information as of July 31, 1998 and
includes the accounts of Texas through December 31, 1997 and Delaware subsequent
to December 31, 1997.
<PAGE>
RISK FACTORS
The shareholders of American NorTel, by accepting shares in the
Distribution, and the purchaser of Units offered by this Prospectus are making
an investment decision that involves a high degree of risk and should carefully
consider the following factors in evaluating the Company and its business in
addition to the other information contained in this Prospectus.
Risks Inherent in Developmental Stage Company.
The Company was organized in March 1996 and has no operating history or
revenues from operations. The proceeds from its issuance of equity and debt has
been expended on organizational expenses and the expenses associated with the
Units Offering. The Company faces all of the risks of a new business and those
risks specifically inherent in the investigation, participation, or investment
in financing of the type sought by the Company. Purchase of the securities in
this offering must be regarded as placing funds at a high risk in a new or
"start-up" venture with all of the unforeseen costs, expenses, problems, and
difficulties to which such ventures are subject. There is no assurance that the
Company will close the Units Offering necessary for it to implement its business
plan, or if it does, that the Company will be able to locate and participate in
financing and investment opportunities. In addition, even if the Company becomes
involved in a financing opportunity, there is no assurance that it will generate
revenues or profits, nor that the value or market price of the Company's Common
Stock would be increased thereby.
Arbitrary Determination of Offering Price and Warrant Exercise Price.
The offering price of the Common Stock and the exercise price of the
Warrants was arbitrarily determined by the Company and is not necessarily
indicative of the actual or projected value of the Common Stock or the Warrants.
Among the factors considered in establishing the offering price of the Common
Stock and the exercise price of the Warrants were: the proceeds to be raised by
the Company, the percentage of ownership to be held by investors in this Units
Offering, the experience of Company management, the current market conditions in
the over-the-counter securities market, the Company's capital structure,
possible future capital requirements of the Company, potential dilution to
shareholders from Warrant exercise, and the general prospects for the Company.
Accordingly, there is no relationship whatsoever between the offering price and
the assets, earnings or book value of the Company, or any other recognized
criteria of value. See "Plan of Distribution."
No Assurance of a Public Market and Likelihood of a Volatile Market.
There is presently no public market for the Common Stock of the Company and
there is no assurance that a public market for such securities will develop
after completion of the offering made hereby, or, if one develops, that it will
be sustained. It is likely that any market that develops for the Common Stock,
should it develop, will be highly volatile and that the trading volume in such
market will be limited.
Penny Stock Regulation.
The Company's common stock is covered by a Securities and Exchange
Commission Rule 15-g that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5 million or individuals with net worth in excess of $1 million or annual
income exceeding $200,000 or $300,000 jointly with their spouse). 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 persons receiving shares in this offering to sell
their shares in the secondary market. Further, the Company's Common Stock will
initially be quoted on an NASD inter-dealer system called "the Electronic
Bulletin Board," will not have the required assets or stockholders' equity in
order to qualify for quotation on the NASDAQ Stock Market, and may not be
expected to command a market price of $5 per share, the price required for an
Electronic Bulletin Board security to avoid the trading limitation imposed by
the Commission on so-called "penny stocks." These trading limitations tend to
reduce broker-dealer and investor interest in penny stocks and could operate (i)
to inhibit the ability of the Company's stock to reach a $3 per share trading
price that would make it eligible for quotation on NASDAQ even should it
otherwise qualify for quotation on NASDAQ and (ii) to inhibit the ability of the
Company to use its stock for business acquisition purposes. See "Information
about the Company - Market for the Company's Common Stock and Related
Stockholders Matters."
Dependence on Michael Fearnow.
The affairs of the Company will be conducted by the sole officer and
director, Michael Fearnow. The success of the Company is dependent upon, among
other things, the services of Michael T. Fearnow, President and sole director of
the Company. The loss of the services of Mr. Fearnow, for any reason, may have a
materially adverse effect on the prospects of the Company. There are no
employment contracts with Mr. Fearnow or any alternative management or key
personnel of the Company. The Company will be heavily dependent on the skills,
talents, and abilities of Mr. Fearnow to successfully implement its business
plan. Although Mr. Fearnow has experience in seeking, investigating and
participating in financing and investment opportunities, Mr. Fearnow will
generally depend on his general business expertise in making decisions regarding
the Company's operations. Because investors will not be able to evaluate the
merits of possible business opportunities by the Company, they should critically
assess the information concerning the Company's management. The Company does not
have, nor does it or the Company presently intend to obtain, key man life
insurance (with proceeds payable to the Company) on the life of Mr. Fearnow. The
loss of the services of Mr. Fearnow for any reason may have a material adverse
effect on the present and future prospects of the Company.
Conflicts of Interest.
Mr. Fearnow will, as the sole officer and director of the Company, provide,
without compensation, the ministerial duties necessary for the president of the
Company and will with respect thereto have a continuing fiduciary obligation to
the Company. Mr. Fearnow will devote up to one-half of his time to provide
ongoing advice with respect to business opportunities and the business
activities of the Company. During the investigation of a possible business
opportunity and in order to supplement the business experience of management,
the Company may employ accountants, technical experts, appraisers, attorneys, or
other consultants and advisers. The selection of any advisers will be made by
Mr. Fearnow and without any control from stockholders.
Conflicts of interest will exist between the Company and Mr. Fearnow. In
particular, he will face a conflict of interest with regard to his possible
future participation in other business relationships with companies to which the
Company may provide financing. In such cases, Mr. Fearnow may have interests
that conflict with those of the Company. Although Mr. Fearnow will attempt to
resolve any conflicts in favor of the Company, there is no assurance that this
will be the case. The Company has not established procedures for the resolution
of such conflicts of interest.
Lack of Independent Directors.
Upon completion of the Units Offering, and for a foreseeable period of time
thereafter, the Company's board of directors will have only one director. As
such, upon completion of the Units Offering, the Company's sole director will be
Michael T. Fearnow, the Company's sole officer.
Lack of Ability to Fully Investigate Financing Opportunities .
The Company's limited funds will make it impracticable to conduct a
complete and exhaustive investigation and analysis of a financing opportunity
before the Company commits its capital or other resources. Management decisions
may be made without detailed due diligence, feasibility studies, independent
analysis, market surveys, and the like which, if the Company had more funds
available, would be desirable. Management decisions will be particularly
dependent on information provided by the issuer, underwriter, their principals,
or others associated with the business opportunity seeking the Company's
participation.
Current Prospectus and State "Blue Sky" Registration Required to Exercise the
Warrants .
Holders of the Warrants offered hereby will have the right to exercise them
to purchase shares of the Company's Common Stock only if a current prospectus
relating to such shares is then in effect and only if the shares are qualified
for sale or exempt from qualification under the securities laws of the states in
which the holder of the Warrant resides. Although the Company has undertaken to
use its best efforts to maintain a current prospectus under the Securities Act
which will permit the purchase and sale of the Common Stock underlying such
Warrants during the warrant exercise term, there can be no assurance that the
Company will be able to do so. Although the Company intends to seek to qualify
the shares of Common Stock underlying the Warrants for sale in the states in
which the original holders may reside, no assurance can be given that
qualification will occur or will remain in effect at such time as the Warrants
may be exercised. The Warrants may be deprived of any value if a current
prospectus covering the shares issuable upon exercise thereof is not kept
effective or if such underlying shares are not, or cannot be, qualified in the
applicable states. See "Description of Securities Current Prospectus and State
"Blue-Sky" Registration Required to Exercise the Warrants."
Competition.
The Company expects to encounter competition in its efforts to locate
opportunities for the employment of its capital. The primary competition for
desirable investments is expected to come from other small companies organized
and funded for similar purposes, small venture capital partnerships and
corporations, small business investment companies, and individuals with
unlimited financial resources. The Company is not aware of any comparable size
public company that provides the type of financing proposed to be provided by
the Company. Many of these entities may 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 business
opportunities. See "Business of the Company - Competition."
Adverse Effect of Sale of Less Than Total Offering.
In the event less than the total number of Securities being offered hereby
should be sold, the proposed operations of the Company, primarily providing
Subordination and Bridge Loans, would be significantly reduced and therefore
adversely affected. In such event, the Company's operations will require
additional financing for which the Company has not arranged and no assurance can
be offered that such financing would be available.
Risk of No Underwriter
The offering price of the Units has been arbitrarily determined by the
Company without the concurrence of an underwriter, or other unrelated third
party, and bear no direct relationship to the Company's assets, book value, net
worth or any other established criteria of value. Among the factors considered
in such determination were the history of and prospects for the industry in
which the Company competes, estimates of the business potential of the Company,
the present state of its development, its financial conditions, risks associated
with the financial services industry in general and demand for similar
securities of comparable companies.
Lack of Participating Broker Dealers
The Company has not identified any broker/dealers who have agreed to
participate in this offering of the Units. The failure of the Company to obtain
the agreements of a significant number of broker/dealers to participate in this
offering will increase the likelihood that less than all of the Units will be
sold. The sale of only a small amount of the Units may adversely affect
Unitholders. See "Adverse Effect of Sale of Less Than Total Offering" above.
No Cash Dividends.
It is anticipated that any earnings which may be generated from operations
of the Company will be used to finance the growth of the Company, and cash
dividends will not be paid to holders of the Common Stock. See "Dividend
Policy."
Shares Eligible for Future Sale.
Upon completion of this offering the present shareholders of the Company
will own a total of 114,000 shares of Common Stock, all of which will be freely
tradable without restriction or further registration under the Securities Act,
except to the extent such shares are held by "affiliates" of the Company. Shares
held by affiliates will be subject to the limitations of Rule 144 promulgated
under the Securities Act. Sales of a substantial number of shares of Common
Stock in the public market subsequent to this offering, or the perception that
such sales may occur, could adversely affect the prevailing market price of the
Common Stock.
Market Standoff Agreement.
The Distribution Agreement contains a provision that the beneficial owners
of not less than 80% of the outstanding capital stock of the Company will not
sell any stock for 90 days after the effective date of the Merger and
Distribution unless (i) the average daily closing bid price of the Company
common stock is not less than $7.50 per share for a period of 45 days, or (ii)
Michael Fearnow, as the Chief Executive Officer of the Company, gives him
consent. See "Shares Eligible for Future Sale."
<PAGE>
Dilution.
The pro forma net tangible book value (deficit) of the Company giving
effect to the Merger as of July 31, 1998 was $(94,332) or $(0.83) per share of
Common Stock. Net tangible book value per share represents the amount of total
tangible assets of the Company less total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the sale of the
100,000 shares of Common Stock, 200,000 Class B Warrants and 200,000 Class C
Warrants offered hereby at an initial public offering price of $5.70 per share,
$.10 per Class B Warrant and $.05 per Class C Warrant, respectively, and the
receipt by the Company of the net proceeds therefrom, the pro forma net tangible
book value of the Company as of July 31, 1998 would have been $415,668 or $1.94
per share. This represents an immediate increase in pro forma net tangible book
value of $2.77 per share to existing shareholders and an immediate dilution of
$3.76 per share to new investors ("New Investors") purchasing shares of Common
Stock in this Offering. The following table illustrates this per share dilution:
July, 1998
Book value BV per Share
Proforma shares outstanding -
Post Merger 114,000 ($94,332) $ (0.83)
shares offered 100,000 $570,000 $ 5.70
commissions ($60,000)
---------- ---------
Proforma book value per share
after offering 214,000 $415,668 $ 1.94
========== ========= =========
Per share dilution $ 3.76
======
(Book value excludes the proceeds attributable to the warrants)
Should only the minimum offering be completed, the following table
summarizes the resulting dilution:
31-Jul-98
Book value BV per Share
Proforma shares outstanding -
Post Merger 114,000 ($94,332) $ (0.83)
shares offered 20,000 $114,000 $ 5.70
commissions ($12,000)
---------- ---------
Proforma book value per share
after offering 134,000 $7,668 $ (0.06)
======== ======= ==========
Per share dilution $ 5.64
======
(Book value excludes the proceeds attributable to the warrants)
There will be an immediate and substantial dilution to the public investors
who purchase shares in this offering in that the net tangible book value per
share of the Common Stock after the offering will be substantially less than the
Price to Public of the shares offered hereby. The dilution to new investors
after this offering as of July 31, 1998 will be approximately $3.76 per share
(or 66%) for the maximum offering, and approximately $5.64 per share (or 99%)
for the minimum offering. See "Dilution."
Anti-Takeover Provisions.
Certain provisions of Delaware law and the Company's Certificate of
Incorporation and By-Laws may have the effect of delaying or preventing a change
in control or acquisition of the Company. The Company's Certificate of
Incorporation and By-Laws include provisions for a classified Board of
Directors, "blank Check" preferred stock (the terms of which may be fixed by
Michael Fearnow as sole director without stockholder approval), a prohibition on
stockholder action by written consent in lieu of a meeting, and certain
procedural requirements governing stockholder meetings. See "Description of
Common Stock - Defenses Against Hostile Takeovers."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered hereby,
assuming a public offering price of $6.00 per Unit and after deducting estimated
offering expenses, are estimated to be approximately $88,000, if the minimum
number of 20,000 Units is sold and $500,000 if the maximum number of 100,000
Units is sold.. The following table sets forth the estimated application by the
Company of the net proceeds to be derived from the sale of Units offered hereby.
Minimum Offering Maximum Offering
---------------- ----------------
Amount, Percentage Amount, Percentage
20,000 of Net 100,000 of Net
Use of Proceeds Units Proceeds Units Proceeds
------ ---------- ------- ---------
To pay principal and accrued
Interest on Flex Financial
Bridge Loan Notes (1) $60,000 68% $60,000 12%
To make Subordination and
Bridge Loans 28,000 32% 395,000 79%
To provide general working
Capital 0 0% 45,000 9%
Total Net Proceeds $88,000 100% $500,000 100%
- -----------------
(1) Principal of $50,000, bearing interest at 10% per annum (estimated accrued
interest of $10,000), currently due and payable on the earlier of March 31,
1999 or the closing of a public offering of the Company's securities
pursuant to the Securities Act of 1933, as amended, representing gross
proceeds of no less than $60,000. Proceeds of the Bridge Loans were used by
Flex Financial to defray the legal, audit and other expenses of the Units
Offering, Merger and Distribution transactions, including registration of
the Merger transaction.
The Company intends to use the net proceeds of the Units Offering first to
retire the Bridge Loans, then to apply the remaining net proceeds to making
Subordination and Bridge Loans, provided however, that 15% of net proceeds
exceeding $200,000 ($45,000) shall be applied to general working capital
(overhead or general and administrative expenses).
Pending use of the net proceeds for the above purposes, the Company intends
to invest such funds in short term, investment grade, interest bearing
obligations. The Company believes that the maximum offering proceeds from the
sale of Units offered hereby will enable the Company to satisfy its anticipated
financing needs for a period of at least 12 months following this offering.
During the twelve month period following closing of the Units Offering, the
Company expects to earn fees and interest on Bridge Loans and Subordination
Loans by participating in Subordination and Bridge Loans of duration that enable
two to six completed transactions per year in amounts ranging from $10,000 if
the minimum offering is sold to $150,000 if the maximum offering is sold. The
Company does not anticipate additional capital requirements thereafter unless
for the purposes of expanding its available capital to permit expansion of its
participation in Subordination and Bridge Loans or the replacement of capital
depleted by extraordinary losses in its loan portfolio. The Company believes it
will be able to provide for its working capital needs from the maximum offering
proceeds of the Units Offering and operating revenues. Based on the Company's
current assumptions relating to implementation of its business plan (including
the timetable of, and cost associated with, making Subordination and Bridge
Loans), the Company will seek to participate in up to six subordination and/or
bridge loans during the 12 months following consummation of this Units Offering.
If the Company's plans change, its assumptions prove to be inaccurate, or the
capital resources available to the Company otherwise prove to be insufficient to
implement its business plan (as a result of unanticipated expenses, problems or
difficulties, or otherwise), the Company would be required to seek additional
financing or curtail its activities.
If less than the maximum number of Units offered hereby is sold, there can
be no assurance that the Company will have sufficient capital resources to
permit the Company to participate in Subordination and Bridge Loans of the
number, amount and in the timing proposed in its business plan or to otherwise
implement such plan.
DIVIDEND POLICY
The Company has never paid any cash dividends on its stock and anticipates
that, for the foreseeable future, it will continue to retain any earnings for
use in the operation of its business. Payment of cash dividends in the future
will depend upon the Company's earnings, financial condition, any contractual
restrictions, restrictions imposed by applicable law, capital requirements and
other factors believed relevant by the Company's Board of Directors.
CAPITALIZATION
The following table sets forth the capitalization of the Company at July
31, 1998, (i) on a pro forma basis giving effect to the Merger and (ii) as
adjusted to reflect the sale of the 100,000 Shares of Common Stock, 200,000
Class B Warrants and 200,000 Class C Warrants offered by the Company hereby (at
an initial public offering price of $6.00 per Unit), and the application of the
net proceeds therefrom. See "Use of Proceeds."
July 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Net
Merger Pro Forma Offering
Adjustments Post- Proceeds As
Actual (2) Merger (3) Adjusted
------ ------------ ---------- --------- --------
Shareholders' Equity:
Common Stock, $0.001 par value.
Authorized 10,000,000 shares;
actual issued and outstanding
20,000 shares pre-Merger;
114,000 post-Merger;
and 214,000 shares post-
Units Offering (1) $ 20 $ 94 $ 114 $ 100 $ 214
Additional paid-in capital 980 82,200 83,118 509,900 593,080
Deficit accumulated during
the developmental stage (1,008) (176,550) (177,558) -- (177,558)
Total shareholders' equity (deficit) (8) (94,256) (94,264) $510,000 415,736
Total capitalization $ (8) $(94,256) $(79,373) $510,000 $415,736
</TABLE>
(1) Table reflects actual shares outstanding of 114,000 post Merger which
includes 20,000 pre Merger shares owned by American NorTel and 94,000
shares owned by Flex Financial shareholders; and post Units Offering shares
outstanding of 214,000 reflecting issuance of additional 100,000 shares
pursuant to the Units Offering. Does not include 217,665 shares of Common
Stock issuable upon exercise of warrants and options outstanding at May 31,
1998 or 400,000 shares of common Stock issuable upon exercise of warrants
to be outstanding if the maximum number of Units are sold.
(2) Represents the historical cost of $82,200 paid for 94,000 shares of $.01
par value Flex Financial common stock to be exchanged for 94,000 shares of
the Company's $.001 par value common shares pursuant to the Merger; the
$(176,558) deficit accumulated during the developmental stage of Flex
Financial; resulting in a deficit of $(94,256) for Flex Financial
shareholder equity.
(3) "Common Stock" and "Additional Paid-in Capital" reflect net proceeds of
$5.10 per share from the Units Offering (gross proceeds of $600,000, less
offering expenses of $60,000 and 30,000 allocated to the warrants and
options) applied $100 to Common Stock and $509,900 to Additional Paid-in
Capital.
DILUTION
The pro forma net tangible book value (deficit) of the Company giving
effect to the Merger as of July 31, 1998 was approximately $(94,264) or $(0.83)
per share of Common Stock. Net tangible book value per share represents the
amount of total tangible assets of the Company less total liabilities, divided
by the number of shares of Common Stock outstanding. After giving effect to the
sale of the 100,000 shares of Common Stock, 200,000 Class B Warrants and 200,000
Class C Warrants offered hereby at an initial public offering price of $5.70 per
share, $.10 per Class B Warrant and $.05 per Class C Warrant, respectively, and
the receipt by the Company of the net proceeds therefrom, the pro forma net
tangible book value of the Company as of May 31, 1998 would have been $415,736
or $1.94 per share. This represents an immediate increase in pro forma net
tangible book value of $2.77 per share to existing shareholders and an immediate
dilution of $3.76 per share to new investors ("New Investors") purchasing shares
of Common Stock in this Offering. The following table illustrates this per share
dilution:
Maximum Minimum
Offering Offering
Assumed initial public offering price per share............ $5.70 $5.70
Net tangible book value per share before offering..........($0.83) ($0.83)
Increase in net tangible book value per share attributable
to New Investors........................................ $2.77 $0.89
Pro Forma net tangible book value per share after offering. $1.94 $0.06
Dilution per share to New Investors........................ $3.76 $5.04
(The above table excludes the proceeds attributable to the warrants.)
The following table summarizes, as of May 31, 1998, the number of
shares of Common Stock purchased from the Company, the total cash consideration
paid, and the average price per share paid by existing shareholders and to be
paid by purchasers of shares of Common Stock offered hereby at an initial
offering price of $5.70 (excluding the cost of Class B and Class C Warrants):
Shares Purchased Total Cash Consideration
Average Price
Number Per Share Percent Amount Percent
- --------------------- -------- -------- ------------- -------- -------
Existing Shareholders 114,000 $.73 53.3% 83,200 12.7%
New Investors 100,000 $5.70 46.7% 570,000 87.3%
Total 214,000 100% 653,200 100%
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of financial condition and results of operations
for the Company includes both Flex Acquisitions and Flex Financial. The
following discussion is based upon and should be read in conjunction with the
selected historical financial data, the unaudited pro forma condensed
consolidated financial statements and the historical financial statements of
Flex Acquisitions and Flex Financial and the respective notes thereto, included
elsewhere herein.
General. The following should be read in conjunction with the Financial
Statements of Flex Financial and the Notes thereto, and the other financial and
other information included elsewhere in this Prospectus. This Prospectus
contains certain statements regarding future trends which are subject to various
risks and uncertainties. Such trends, and their anticipated impact on Flex
Financial, could differ materially from those discussed in this Prospectus.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors" and elsewhere in this Prospectus.
Flex Financial was organized in August 1995 and is in the development
stage. Flex Financial has not yet commenced operations, has not generated any
revenues from operations to date, and will not generate any revenues from
operations until after the completion of the Units Offering, which the company
anticipates will occur in January 1998. There can be no assurance that the
company will be able to successfully generate meaningful revenue or achieve
profitable operations.
Since inception, Flex Financial has developed a business plan; developed
and disseminated promotional material to prospective clients of its business
services; identified potential clients with respect to its services; developed a
marketing strategy; and raised an aggregate of $137,200 in gross proceeds
through private equity and debt offerings.
Liquidity and Capital Resources. As of July 31, 1998, Flex Financial has
approximately $1,000 in cash and cash equivalents. It is anticipated that the
company will realize $500,000 in net proceeds from the sale of the Common Stock
and Warrants offered in the Units Offering. The net proceeds of the Units
Offering will be used to pay off the Bridge Loans, to commence investment in
Bridge Loans and Subordination Loans, and to pay for general administrative and
overhead expenses incurred in connection therewith.
Flex Financial is dependent upon the proceeds of the Units Offering,
existing cash, and cash flow from operations, if any, or other financing, if
available, to implement its proposed business plan. Management believes that the
proceeds from the sale of the Common Stock and Warrants offered in the Units
Offering will enable Flex Financial to satisfy its anticipated financing needs
for a period of at least 12 months following the Effective Date. However, there
can be no assurance that Flex Financial will have sufficient capital resources
to permit it to fully implement its business plan.
Year 2000 Issue.
Without a reasonably complete assessment of the systems affected, the
Company does not have a reasonable basis to conclude that the impacts of the
Year 2000 Issue are not likely to come to fruition. Also, the Company has no
reasonable basis to conclude that the Year 2000 Issue will not materially affect
future financial results, or cause reported financial information not to be
necessarily indicative of future operating results or future financial
condition. Accordingly, disclosure that no assessment has yet been made or that
the assessment is incomplete would be required, together with the Company's
current plans to undertake/compete the assessment.
BUSINESS OF THE COMPANY
Simultaneously with and as a condition to the consummation to the offering
made by this Prospectus, Flex Acquisitions will merge with Flex Acquisitions
changing its name to Flex Financial as the survivor of the Merger. Unless
otherwise indicated, all references to the "Company" herein include Flex
Acquisitions and Flex Financial after the Merger, and references herein to "Flex
Acquisitions" mean Flex Acquisitions Corporation prior to the consummation of
the Merger and references to "Flex Financial" mean Flex Financial Group, Inc.
prior to the consummation of the Merger.
Flex Financial was incorporated under the laws of the State of Texas in
August 1995 and reincorporated in Delaware in December 1997.
Overview.
General. Flex Financial was organized to provide Subordination Loans to
selected underwriters requiring short term additional net capital to underwrite
specific issues on a firm commitment basis; to provide Bridge Loans on a highly
selective basis within established guidelines to selected issuers meeting the
company's due diligence standards to facilitate initial public offerings or
secondary financing; and to engage in "spin-off" activities in which the company
serves as a vehicle or facility to convert private operating companies to public
ownership.
The company will generally use the proceeds of the Units Offering, after
paying off the Bridge Loans, to investigate and, if warranted, participate in a
financing opportunity with immediate short-term earnings potential. Because of
the company's limited financial, managerial, and other resources, the number of
suitable potential financing opportunities which will be available to it under
its criteria will be extremely limited. The company currently has no commitment
or arrangement to participate in any financing opportunity and cannot now
predict what type of opportunity may become available to it.
Michael Fearnow, as sole officer and director of the company, has virtually
unlimited discretion in searching out and participating in a financing
opportunity. The company is unable to predict when it may become engaged in a
financing opportunity. It expects, however, that review and analysis of specific
proposals and the selection of a financing opportunity will likely take several
weeks or more following the successful completion of this offering. There can be
no assurance as to when or if a financing opportunity will become available,
however, management is confident that such opportunities will become available.
Management anticipates that the company may be able to participate in
ongoing financing opportunities. This diversification should enable the company
to reduce its risks by offsetting potential losses from one financing against
gains from another.
Plan of Operation
Business Objectives. Flex Financial was formed primarily to serve as a
vehicle to invest in short-term financing opportunities in the underwriting
segment of the securities industry. The company intends to participate in
short-term financing opportunities by (i) providing equity subordination loans
to underwriters requiring additional excess net capital for underwriting
specific issues on a firm commitment basis ("Subordination Loans") and (ii)
providing bridge loans to selected issuers to connection with initial public
offerings and secondary financing ("Bridge Loans"). The business objectives of
the company are to (i) provide Subordination Loans to selected underwriters for
specific issues on terms suiting the company's investment requirements, and (ii)
to provide Bridge Loans on a highly selective basis within established
guidelines to issuers meeting the company's due diligence standards. Flex
Financial also intends to engage in "spin-off" activities such as are described
herein, such spin-offs to involve the distribution, by way of stock dividends or
otherwise, of registered shares of stock of other companies. The company intends
to use the proceeds of the Units Offering primarily to provide the capital to
commence the investigation, negotiation and participation in Subordination and
Bridge Loans.
The company believes that financing opportunities will become available to
it due primarily to the contacts of its officers, directors and consultants with
entities and individuals participating in various segments of the securities
industry, liquidity of its assets, its future status as a publicly-held company,
and its flexibility in structuring and participating in financing opportunities.
The company has no agreement or understanding to participate in any financing
opportunity, nor does it currently have any opportunity under investigation.
Decisions as to which financing opportunities to participate in will be made by
management of the company, which will in all probability act without the
consent, vote, or approval of Flex Financial's stockholders except when required
by applicable law.
Business Experience of Principals. The present executive officer and
director and certain consultants who have been retained by Flex Financial have
business experience which has provided them with certain skills which the
company believes will be helpful in identifying and evaluating potential Bridge
Loan and Subordination Loan candidates and in negotiating the terms of Bridge
Loans and Subordination Loans. They have had significant experience in a variety
of business transactions, including providing investment banking, underwriting,
bridge loans and general business consulting to public and private companies in
the $5 million to $10 million asset range. The company expects to actively
recruit board members with extensive management, financial and entrepreneurial
backgrounds to assist in these endeavors. The company expects that future
directors will have similar experience and/or extensive business management and
financial management experience. In addition, Michael Fearnow as sole director
may establish an advisory committee (the "Advisory Committee") consisting of up
to eight (8) persons to assist in finding and evaluating potential candidates
for Bridge Loans and Subordination Loans. Members of the Advisory Committee will
have significant experience in the securities industry primarily in areas of
business interest to the company. The Advisory Committee will not have any role
in the management of the business of the company, but will be available, to the
extent management may require, to consult with management as to potential
candidates for Bridge Loans and Subordination Loans.
Subordination Loans and Bridge Loans.
General Considerations. Management intends to participate in a portfolio of
subordinated loans and bridge loans that will provide prudent risk and
diversification. The amount of and timing of each transaction will be determined
by management taking into account the liquid assets and net worth of the
Company, and the ongoing general and administrative costs of the Company.
Whenever possible management will further diversify by participating with other
investors in its financing opportunities.
Subordination Loans. Flex Financial intends to provide Subordination Loans
to selected underwriters to facilitate the underwriting of specific issues on a
firm commitment basis. Small underwriters seek short-term equity subordinated
underwriting loans to meet excess net capital requirements for firm commitment
underwriting. The Company intends to participate in Subordination Loans that can
be structured with the following general terms. Subordination Loans will
typically be very short-term loans (maximum term of 30 to 45 days) made to an
underwriter for the purpose of meeting excess net capital requirements for a
specific firm commitment underwriting. Principals of the underwriter will in
most cases be required to personally guarantee repayment of the loan. The terms
of the loan will normally require that loan proceeds be maintained in a
segregated account invested in short-term money market or similar securities.
The underwriter will normally be expected to pay a minimum of 2% of the amount
of the underwriting for the loan, yielding a return of 7% to 10% to the Company.
The Company expects to participate in up to six Subordination Loans a year in
amounts ranging from $50,000 to $150,000 each, yielding a return in excess of
50% per year.
Subordination Loans will only be made to underwriters acceptable to Flex
Financial and in connection with specific underwriting for issuers acceptable to
the company. Bridge Loans will only be made to companies that can pass an
extensive due diligence review of the company's management, business, deal
structure, underwriter, and public relations firm. The company may require
representation on the issuer's board and will require substantial penalties for
a loan default, although in a default situation Flex Financial's remedies may be
limited. Any participation by the company will be subject to the issuer
executing a firm commitment underwriting letter of intent with an underwriter
approved by the company.
Bridge Loans. Flex Financial intends to provide Bridge Loans to selected
issuers to facilitate an issuer's initial public offering or secondary public
financing. Bridge Loans are typically short term loans (maximum term of one year
with mandatory prepayment out of the proceeds of the underwriting) made to an
issuer for the purpose of providing funds to pay underwriting costs and to a
lesser extent general corporate expenses relating to the underwriting. The
Company intends to participate in Bridge Loans that can be structured with the
following general terms. In the typical transaction the Company would expect the
loan to be repaid from the proceeds of the underwriting within 4 to 6 months of
the loan. The loan would typically range in amount from $50,000 to $200,000 and
normally carry an interest rate of three to five points above prime. The Company
will require an equity enhancement in the form of warrants or cheap stock
designed to provide a return of 200% to 300% of the loan amount within 12 to 18
months of the loan. In connection with equity enhancements, the Company will
require demand and piggy back registration rights with expenses paid by the
issuer. Principals of the issuer will be expected to personally guarantee
repayment of the loan and in most cases the loan will collateralized by some
assets of the issuer.
Typical Scenarios. Although the Company cannot predict the exact terms and
structure of any financing transaction in which it may participate, the
following represents the type of transaction structures that the Company will
attempt to negotiate.
With respect to a typical scenario for a Subordination Loan, the Company
intends to seek situations in which a small underwriter with net capital of
$500,000 or less wants to underwrite an entire issue of $4 million to $10
million on a firm commitment basis. NASD and SEC rules and regulations require
the underwriter to have excess net capital of 30% of the retention less
underwriting fees. A $5 million firm commitment underwriting would require
$5,000,000 X .90 = $4,500,000 X .30 = $1,350,000 in excess net capital. An
underwriter requiring another $850,000 in excess net capital to underwrite the
issue would require additional underwriters or a subordinated underwriting loan
to provide the additional $850,000 in excess net capital. The Company would
expect to participate in such a subordinated loan in the amount of $150,000
which would underwrite $500,000 of the issue. The underwriter would expect to
pay a minimum of 2% of the underwritten amount or $10,000 for the loan, yielding
a return to the Company of 7% to 10% over a 30 to 45 day period.
With respect to a typical scenario for a Bridge Loan transaction, the
Company will expect to make a one-year $100,000 Bridge Loan to an issuer to
facilitate the issuer's initial public offering to be priced at $5.00 per share.
The loan would bear interest at 13% per annum with mandatory prepayment from the
proceeds of the underwriting at closing. The loan will be personally guaranteed
by the issuer's principals and collateralized by available assets of the issuer.
The Company would expect to receive a stock purchase warrant to buy 50,000
shares of the issuer's common stock at $2.00 per share as an equity enhancement.
Six months after the loan the underwriting closes and the Company would expect
to be repaid $100,000 principal and $6,500 in interest. Twelve months after the
underwriting (18 months after the loan) assuming the issuer's stock is trading
at $6.00, the value of the warrants would be $200,000 or 200% of the original
loan. The results and return on the equity enhancement would of course be
completely dependent upon the performance of the issuer's publicly traded
securities and in some cases may be of no value. Normally, the securities
representing the equity enhancement are registered in the issuer's initial
public offering.
The level of the Company's participation in any particular Subordination or
Bridge Loan would depend upon available capital and prudent risk management and
portfolio diversification.
Plan of Operation for Next 12 Months
During the twelve month period following closing of the Units Offering, the
Company expects to earn fees and interest on Bridge Loans and Subordination
Loans by participating in Subordination and Bridge Loans of duration that enable
two to six completed transactions per year in amounts ranging from $10,000 if
the minimum offering is sold to $150,000 if the maximum offering is sold. The
Company expects that such fees and earnings will be sufficient to meet its
operating expenses. The Company will attempt to diversify its loan portfolio and
limit the size and number of transactions consistent with the amount of capital
raised in the Units Offering. The minimum net proceeds of $88,000 is expected to
permit the Company to repay the Bridge Loans and have sufficient capital to
participate in three $10,000 Subordination and Bridge Loans during the next 12
months. The maximum net proceeds of $500,000 is expected to permit the Company
to participate in six Subordination and Bridge Loan transactions up to $150,000
each during the 12 months following closing of the Units Offering. The Company
further intends to syndicate its participation in Subordination and Bridge Loans
through third party investors as a means of reducing its risk and diversifying
its financing portfolio. The Company also expects to retain a minority equity
position in a Public Candidate as a fee for acting as the parent corporation in
a Distribution Transaction after distributing a major portion of the earned
equity to its shareholders in the form of a dividend. In addition, the Company
will receive fees for strategic business advise from its client companies
without regard to the amount of proceeds received from the offering.
The Company does not anticipate the need for additional capital on a long
term basis unless it suffers significant losses in its loan portfolio, loss of
earnings. Lack of positive cash flow, inadequate capital, or loss of commitment
from Focus-Tech to provide facilities and equipment. The Company does not
believe it can participate in more than three to six Subordination and Bridge
Loan transactions a year because of the completion time of a transaction and the
duration of the loans. The net proceeds of a maximum Units Offering and fees and
interest earned from Subordination and Bridge Loans is expected to provide
sufficient capital to support the Company's business operations into the long
term. The Company also intends to liquidate any equity retained in a
Distribution Transaction during the twenty-four-month period of a public market
developing in the Public Candidate. In the event earnings from the Company's
short term financing transactions are not sufficient to meet its operating
expenses, or if the Company determines to expand its participation in
Subordination and Bridge Loans, or it the Company suffers losses in its loan
portfolio requiring additional capital, or otherwise, the Company will endeavor
to raise needed capital in a private placement or public offering of its
securities.
Other Investment Transactions
General. By reason of its participation in Subordination and Bridge Loans,
Flex Financial expects to be presented investment opportunities resulting in the
acquisition of a non-controlling equity interest in a company that wishes to
become publicly held ("Public Candidate") and which the Company believes has
growth potential. These opportunities are expected to be in the form of
"spin-off" transactions.
Investment Transactions. The Company will not use any portion of the
proceeds of this Units Offering to investigate and enter into any definitive
agreement relating to an Investment Transaction. The Company would not expect to
acquire more than a 10% equity interest in a Public Candidate in an Investment
Transaction.
Typical Scenarios. In a typical scenario, Flex Financial may be approached
by a Public Candidate. Flex Financial will enter into an agreement with the
Public Candidate for a proposed merger-spin-off transaction which would result
in the Public Candidate becoming a publicly held company. The proposed
merger-spin-off would be effected by Flex Financial forming a new subsidiary
which would be thinly capitalized with Flex Financial as its sole shareholder.
The Target would merge into the subsidiary with the Target shareholders
receiving approximately 90% of the issued and outstanding shares of the
subsidiary and Flex Financial retaining 10% of the shares. Subsequent to the
merger, Flex Financial will distribute some or all of the subsidiary's shares to
its shareholders (expected at that time to exceed 300 in number).
Contemporaneously with the merger-spin-off, the subsidiary would file a
registration statement on Form S-4 with the Securities and Exchange Commission
(the "SEC") to register the merger shares and file a registration statement on
Form SB-2 with the SEC to register the spin-off shares. The subsidiary may, in
connection with the filing of the S-4, register shelf shares for future issuance
in association with possible acquisitions and may in connection with the filing
of the SB-2 register the sale of additional shares to provide working capital or
register the resale of shares for the account of its shareholders. As a result
of the transaction, the Public Candidate becomes a publicly held company with
Flex Financial or its shareholders owning 10% of the public company. Flex
Financial will not bear any expense in connection with such a transaction.
Method of Participation. It is impossible to predict exactly how Flex
Financial may participate in an Investment Transaction, or if it will, but
generally speaking, the following represents the type of transaction structures
that the will attempt to negotiate. Subject to a letter of intent, the company
may agree to form a wholly-owned subsidiary. The subsidiary may then enter into
a definitive agreement under which the Public Candidate merges into the
subsidiary with the retaining a negotiated equity interest in the surviving
subsidiary (expected to be 10% of issued and outstanding shares). The Company
may then use the shares for, among other things, distribution as a dividend to
its shareholders, sale for cash, exchange for other assets, or retention for
investment purposes.
Flex Financial May Be Deemed to Be an Underwriter.. In a typical scenario
as described above, Flex Financial may be deemed an underwriter by reason of its
intent to distribute any shares that may be owned by it as a dividend
distribution to its shareholders ("Distribution Shares").
After a distribution by Flex Financial of Distribution Shares to its
shareholders, the company may no longer own any shares of capital stock of the
Public Candidate, except to the extent it may elect to distribute less than all
of the Distribution Shares.
A consequence to Flex Financial should it be deemed to be an underwriter of
the shares to be distributed to its shareholders, is that any person who
purchases the registered Shares within three years after the distribution could
assert a claim against Flex Financial under Section 11 of the Securities Act of
1933. The purchase could be in the open market as long as the shares purchased
can be traced to the registered Distribution Shares Flex Financial distributes
to its shareholders. Such a claim, to be successful, must be based upon a
showing that statements in the registration statement were false or misleading
with respect to a material fact or that the registration statement omitted
material information required to be included therein.
Open market purchasers may have to prove reliance upon the alleged
misstatement or omission, but reliance may not necessarily require a showing
that the purchaser actually read the registration statement but, instead, that
the misstatements or omissions in the registration statement were a substantial
factor in the purchase of the shares.
Flex Financial May Have Exposure as a Control Person. In a typical scenario
as described above, the Company's organization of a subsidiary will result in
the company being a "control person" of the subsidiary, as that term is defined
in Section 15 of the Securities Act of 1933 ("the Act") from the subsidiary's
organization and until any proposed merger should become effective.
Section 15 of the Act imposes joint and several liability on persons who
control other persons substantively liable under other sections of the Act -
Section 11, for misrepresentations in a registration statement, Section 12(1) -
the unlawful sale of unregistered securities, and Section 12(2)
misrepresentations in the sale of securities. A controlling person can avoid
liability by proving "he had no knowledge of or reasonable grounds to believe in
the existence of the facts by reason of which the liability of the controlled
person is alleged to exist."
Other Considerations
Sources of Opportunities. The principals of the Company have extensive
experience in working with small underwriters and in providing investment
banking, underwriting, bridge loans, and general business and financial
consulting to smaller public and private companies. The company anticipates that
financing opportunities will be referred by various sources, including its
officers and directors, professional advisers, securities broker-dealers,
members of the financial community, and others who may present unsolicited
proposals. The company may agree to pay a finder's fee or other compensation for
services provided by unaffiliated persons who submit a financing opportunity in
which the company participates. No guideline or policy has been adopted by the
company concerning the circumstances under which a finder's fee will be paid or
the amount of such fee.
The company will seek potential financing opportunities from all known
sources, but will rely principally on personal contacts of its officers,
directors and consultants as well as indirect associations between them and
other business and professional people. In some instances, the company may
publish notices or advertisements seeking a potential financing opportunity in
financial or trade publications.
The company will seek to enter into transactions with mature businesses,
but may seek a transaction with a business in any industry and in any stage of
development, including an established business which needs additional funding or
a firm which is in need of additional capital to overcome financial problems or
difficulties. However, the company does not intend to enter into such
transaction with a "start up" or new company.
The analysis of financing opportunities will be undertaken by or under the
supervision of the officers and directors. Certain of the Company's officers,
directors and consultants have extensive business experience in the securities
industry, particularly regarding small public underwritings, and are primarily
engaged in the business of analyzing businesses for underwriting suitability and
negotiating, participating in and advising as to Bridge Loans and Subordination
Loans. In analyzing prospective financing opportunities, management will
consider the following factors regarding an issuer: available technical,
financial, and managerial resources, working capital and other financial
requirements; history of operations, if any; quality and experience of
management services which may be available and the depth of that management;
capability of effecting an underwriting, including quality of underwriter and
professional advisers; and other relevant factors.
The company will analyze all available factors and make a determination
based upon a composite of available facts, without reliance on any single
factor.
Evaluation Procedures. A thorough evaluation of an issuer prior to a Bridge
Loan will be difficult. The company will have limited time and funds available
in its search for and analysis of financing opportunities and will not be able
to expend significant funds on a complete and exhaustive investigation of any
financing opportunity. However, the company will investigate, to an extent
believed reasonable by its management, such potential opportunities by obtaining
financial and other information reasonably available concerning the issuer
and/or underwriter; conducting meetings and interviews with management and
underwriter; reviewing experience and other financial factors; and other
reasonable methods.
As part of the Company's investigation, officers and directors may meet
personally with management and key personnel of the firm sponsoring the
investment opportunity, visit and inspect material facilities, obtain
independent analysis or verification of certain information provided, check
references of management and key personnel, and conduct other reasonable
measures, to the extent allowed by the Company's limited financial resources and
management and technical expertise.
The company will participate in a financing opportunity only pursuant to
negotiation and execution of a written agreement. Although the terms cannot be
predicted, agreements generally require specific representations and warranties
by all of the parties thereto and specify certain events of default.
The investigation of specific financing opportunities and the negotiation,
drafting and execution of relevant agreements, disclosure documents, and other
instruments may 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 financing opportunity, the costs previously
incurred in the related investigation would not be recoverable. Furthermore,
even if an agreement is reached for the participation in a specific financing
opportunity, the failure to consummate that transaction may result in the loss
to the company of the related costs incurred.
Competition.
The Company expects to encounter competition in its efforts to locate
opportunities for the employment of its capital. The primary competition for
desirable investments is expected to come from other small companies organized
and funded for similar purposes, small venture capital partnerships and
corporations, small business investment companies, and individuals with
unlimited financial resources. Many of these entities may 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
business opportunities. However, the company believes that it has sufficient
expertise and contacts to compete successfully in this market.
Description of Properties
Flex Financial currently shares a portion of approximately 2,000 square
feet of office space in premises occupied by Focus-Tech Investments, Inc. at 179
Ruskin Drive East, Montgomery, Texas 77356. Mr. Fearnow is a principal of
Focus-Tech Investments, Inc. ("Focus-Tech"), a Nevada corporation, that provides
investment banking consulting services. Flex Financial believes that such space
and services will be adequate for the business of Flex Financial into the
foreseeable future. The cost for such space is included in a $4,000 per-month
fee charged by Focus-Tech for general and administrative services during
calendar year 1996.
Upon closing of the Units Offering Focus-Tech has agreed to provide to Flex
Financial for as long as required for Flex Financial's business use such general
and administrative services, which will include the cost of the use of office
space, personnel, facilities and equipment, for a monthly fee of $4,000. Flex
Financial believes that such space and services will be adequate for the
business of Flex Financial into the foreseeable future. Focus-Tech has agreed to
make this space available as long as required for the use of the Flex Financial.
Focus-Tech has agreed that its fee for providing such services shall be paid
only out of 15% of net Units Offering proceeds in excess of $200,000, and
thereafter agrees to accrue the monthly fee for payment solely out of the fees,
interest earned and earnings generated by the Company's business.
Course of Business Should the Minimum Offering Not be Sold
Should the minimum offering not be sold, the Company will be without any
significant business. The Company's management has no present plans for this
contingency but would seek to acquire, in exchange for stock of the Company, a
business or assets that would constitute a business. Should no acquisition that
would cause the Company to become a going concern be made within 18 months after
the date of the Registration Statement of which this Prospectus is a part, the
holders of the majority of the issued and outstanding shares of Common Stock
will have the voting power to cause a dissolution of the Company, and persons
who would be the holders of a majority of these shares have indicated their
intention to do so.
Legal Proceedings
Neither the Company nor its property is a party to or the subject of
pending legal proceedings.
MANAGEMENT OF THE COMPANY
Directors, Executive Officers and Significant Employees
Set forth below are the identities of the directors, executive officers and
significant employees of the Company and a brief account of their business
experience, especially during the last 5 years, including their principal
occupations and employment during that period and the names and principal
businesses of any corporations or organizations in which such occupations and
employment was carried on. All offices with the Company have been held since
December 1997 and expire in December 1998.
Person Age Office Office Held Since Term of Office
- ------ --- ------ ----------------- --------------
Michael T. Fearnow 53 Director, President 1995 March 1999
and Secretary
Michael T. Fearnow. Mr. Fearnow has been an independent securities
consultant to small to medium-sized growth companies in the field of investment
banking transactions, financial and broker relations, and publicly underwritten
securities since 1987. Mr. Fearnow obtained a degree in Business Administration
from the University of Kansas in 1967. He began his investment banking career as
an account executive with Merrill Lynch in 1972 and by 1978 had become a Senior
Account Executive and Product Manager for new issues underwriting. In 1978, Mr.
Fearnow was a co-founder of Porcari, Fearnow & Associates, Inc., a full service
NASD broker-dealer. He served as chairman from 1978 to 1987 and structured and
participated in financing many private placements, public underwritings, venture
capital transactions and tax-sheltered investments and specialized in areas of
financial planning and due diligence.
Compensation of Directors and Officers
Mr. Fearnow, the sole officer and director of the Company is receiving no
compensation for his services for the Company. No compensation is proposed to be
paid to any officer or director of the Company prior to the proposed Merger.
After the offering, Mr. Fearnow shall continue as the sole director of the
Company as the survivor of the Merger. There are no present plans, arrangements,
or understandings concerning any change in compensation for him after the Merger
either directly or indirectly.
The following sets forth the 1995, 1996 and 1997 remuneration of the
president of the Company and the 1998 remuneration payments proposed to be made
to the three highest paid persons who are officers of the Company, among whom
the president is one:
Securities
Name of Individual Underlying
or Group Capacity Year Salary Stock Options
- ------------------ -------- -------- ------- ------------
Michael T. Fearnow President 1995-1997 $0.00 0
Michael T. Fearnow President 1998 $0.00 0
Stock Incentive Plan
Michael Fearnow as sole director of the Company has approved and adopted by
written consent, the Flex Financial Stock Incentive Plan (the "Stock Incentive
Plan"). The purpose of the Stock Incentive Plan is to provide deferred stock
incentives to certain key employees and directors of the Company who contribute
significantly to the long-term performance and growth of the Company. The
following description of the Stock Incentive Plan is qualified by the Stock
Incentive Plan itself.
General Provisions of the Stock Incentive Plan. The Stock Incentive Plan
will be administered by the Board of Directors or a committee of the Board of
Directors duly authorized and given authority by the Board of Directors to
administer the Stock Incentive Plan (the Board of Directors or such designated
Committee as administrator of the Stock Incentive Plan shall be hereinafter
referred to as the "Board"). The Board will have exclusive authority to
administer the Stock Incentive Plan including without limitation, to select the
employees to be granted awards under the Stock Incentive Plan, to determine the
type, size and terms of the awards to be made, to determine the time when awards
will be granted, and to prescribe the form of instruments evidencing awards made
under the Stock Incentive Plan. The Board will be authorized to establish, amend
and rescind any rules and regulations relating to the Stock Incentive Plan as
may be necessary for efficient administration of the Stock Incentive Plan. Any
Board action will require a majority vote of the members of the Board.
Three types of awards are available under the Stock Incentive Plan: (i)
nonqualified stock options or incentive stock, (ii) stock appreciation rights,
and (iii) restricted stock. An aggregate of 1,000,000 shares of Common Stock may
be issued pursuant to the Stock Incentive Plan, subject to adjustment to prevent
dilution dud to merger, consolidation, stock split or other recapitalization of
the Company.
The Stock Incentive Plan will not affect the right or power of the Company
or its stockholders to make or authorize any major corporate transaction such as
a merger, dissolution or sale of assets. If the Company is dissolved, liquidated
or merged out of existence, each participant will be entitled to a benefit as
though he became fully vested in all previous awards to him immediately prior to
or concurrently with such dissolution, liquidation or merger. The Board may
provide that an option or stock appreciation right will be fully exercisable, or
that a share of restricted stock will be free of such restriction upon a change
in control of the Company.
The Stock Incentive Plan may be amended at any time and from time to time
by the Board of Directors but no amendment which increases the aggregate number
of shares of Common Stock that may be issued pursuant to the Stock Incentive
Plan will be effective unless it is approved by the stockholders of the Company.
The Stock Incentive Plan will terminate upon the earlier of the adoption of a
resolution by the Board of Directors terminating the Stock Incentive Plan, or
ten years from the date of the Stock Incentive Plan's approval by Michael
Fearnow as sole director December 1, 1997.
Stock Options and Stock Appreciation Rights. Stock options are rights to
purchase shares of Common Stock. Stock appreciation rights are rights to
receive, without payment to the Company, cash and/or shares of Common Stock in
lieu of the purchase of shares of Common Stock under the stock option to which
the stock appreciation right is attached. The Board may grant stock options in
its discretion under the Stock Incentive Plan. The option price shall be
determined by the Board at the time the option is granted and shall not be less
than the par value of such shares.
The Board will determine the number of shares of Common Stock to be subject
to any option awarded. The option will not be transferable by the recipient
except by the laws of descent and distribution. The option period and date of
exercise will be determined by the Board and may not exceed ten years. The
option of any person who dies may be exercised by his executors, administrators,
heirs or distributors if done so within one year after the date of that person's
death with respect to any Common Stock as to which the decedent could have
exercised the option at the time of this death. Upon exercise of an option, the
participant may pay for Common Stock so acquired in cash, with Common Stock (the
value of which will be the fair market value at the date of exercise), in a
combination of both cash and Common Stock, or, in the discretion of the Board,
by promissory note. For purposes of determining the amount, if any, of the
purchase price satisfied by payment with Common Stock, fair market value is the
mean between the highest and lowest sales price per share of Common Stock on a
given day on the principal exchange upon which the stock trades or some other
quotation source designated by the Board.
The Board may, in its discretion, attach a stock appreciation right to an
option awarded under the Stock Incentive Plan. A stock appreciation right is
exercisable only to the extent that the option to which it is attached is
exercisable. A stock appreciation right entitles the optionee to receive a
payment equal to the appreciated value of each share of Common Stock under
option in lieu of exercising the option to which the right is attached. The
appreciated value is the amount by which the fair market value of a share of
Common Stock exceeds the option exercise price for that share of Common Stock. A
holder of a stock appreciation right may receive cash, Common Stock or a
combination of both upon surrendering to the Company the unexercised option to
which the stock appreciation right is attached. The Company must elect its
method of payment within fifteen business days after the receipt of written
notice of an intention to exercise the stock appreciation right.
Any person granted an incentive stock option under the Stock Incentive Plan
who makes a disposition, within the meaning of ss.425(c) of the Internal Revenue
Code of 1986, as amended ("Code"), and the regulations promulgated thereunder,
of any shares of Common Stock issued to him pursuant to his exercise of an
option within two years from the date of the granting of such option or within
one year after the date any shares are transferred to him pursuant to the
exercise of the incentive stock option must within ten days of the disposition
notify the Company and immediately deliver to the Company any amount of federal
income tax withholding required by law.
A person to whom a stock option or stock appreciation right is awarded will
have no rights as a stockholder with respect to any shares of Common Stock
issuable pursuant to the stock option or stock appreciation rights until actual
issuance of a stock certificate for Common Stock.
Restricted Stock. The Board may in its discretion award Common Stock that
is subject to certain restrictions on transferability. This restricted stock
issued pursuant to the Stock Incentive Plan may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by the laws
of descent and distribution, for a period of time as determined by the Board,
from the date on which the award is granted. The Company will have the option to
repurchase the shares of restricted Common Stock at such price as the Board
shall have fixed, in its sole discretion, when the award was made, which option
will be exercisable at such times and upon the occurrence of such events as the
Board shall establish when the restricted stock award is granted. The Company
may also exercise its option to repurchase the restricted Common Stock if prior
to the expiration of the restricted period, the participant has not paid to the
Company amounts required to be withhold pursuant to federal, state or local
income tax laws, Certificates for restricted stock will bear an appropriate
legend referring to the restrictions. A holder of restricted stock may exercise
all rights of ownership incident to such stock including the right to vote and
receive dividends, subject to any limitations the Board may impose.
Tax Information. A recipient of an incentive stock option or a
non-qualified stock option will not recognize income at the time of the grant of
the option. On the exercise of a non-qualified stock option, the amount by which
the fair market value of Common Stock on the date of exercise exceeds the option
price will generally be taxable to the holder as ordinary income, and will be
deductible for tax purposes by the Company. The disposition of Common Stock
acquired upon exercise of a non-qualified option will ordinarily result in
capital gain or loss. In the case of officers who are subject to the
restrictions of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the date for measuring the amount of ordinary income to be
recognized upon the exercise of a non-qualified stock option will generally be
six months after exercise rather than the date of exercise.
On the exercise of an option that qualifies as an "incentive stock option"
within the meaning of the Code, the holder will not recognize any income and the
Company will not be entitled to a deduction for tax purposes. However, the
difference between the exercise price and the fair market value of Common Stock
received on the date of the exercise will be treated as an "item of tax
preference" to the holder that may be subject to the alternative minimum tax.
The disposition of Common Stock acquired upon exercise of an incentive stock
option will ordinarily result in capital gain or loss, however if the holder
disposes of Common Stock acquired upon the exercise of an incentive stock option
within two years after the date of grant or one year after the date of exercise
(a "disqualifying disposition"), the holder will recognize ordinary income, and
the Company will be entitled to a deduction for tax purposes in the amount of
the excess of the fair market value of the shares of Common Stock on the date
the option was exercised over the option price (or, in certain circumstances,
the gain on sale, if less). Otherwise, the Company will not be entitled to any
deduction for tax purposes upon disposition of such Common Stock. Any excess of
the amount realized by the holder on the disqualifying disposition over the fair
market of Common Stock on the date of exercise of the option will be capital
gain.
If an incentive option is exercised through the use of Common Stock
previously owned by the holder, such exercise generally will not be considered a
taxable disposition of the previously owned Common Stock and thus no gain or
loss will be recognized with respect to such Common Stock upon exercise.
However, if the previously owned Common Stock was acquired by the exercise of an
incentive stock option or other tax qualified stock option and the holding
period requirements for Common Stock were not satisfied at the time the
previously owned Common Stock was used to exercise the incentive option, such
use would constitute a disqualifying disposition of such previously owned Common
Stock resulting in the recognition of ordinary income (but, under proposed
Treasury regulations, not any additional gain in capital gain) in the amount
described above.
The amount of any cash or the fair market value of any Common Stock
received upon the exercise of stock appreciation rights under the Stock
Incentive Plan will be subject to ordinary income tax in the year of receipt and
the Company will be entitled to a deduction for such amount. However, if the
holder receives Common Stock upon the exercise of stock appreciation rights and
is then subject to the restrictions of Section 16(b) of the Exchange Act; unless
the holder elects otherwise, the amount of Ordinary income and deduction will be
measured at the time such restrictions lapse.
Generally, a grant of restricted stock under the Stock Incentive Plan will
not result in taxable income to the employee or deduction to the Company in the
year of the grant. The value of Common Stock will be taxable to the employee and
compensation income in the years in which the restrictions on Common Stock
lapse. Such value will be the fair market value of Common Stock on the dates the
restrictions terminate, less any amount the recipient may have paid for Common
Stock at the time of the issuance. An employee, however, may elect to treat the
fair market value of Common Stock on the date of such grant (less restricted
stock, provided the employee makes the election within thirty days after the
date of the grant. If such an election is made and the employee later forfeits
Common Stock to the Company, the employee will not be allowed to deduct at a
later date the amount he had earlier included as compensation income. In any
case, the Company will receive a deduction corresponding in amount and time to
the amount of compensation included in the employee's income in the year in
which that amount is so included.
As of the date of this Prospectus, no incentive stock options have been
granted under the Stock Incentive Plan.
Limitations of Liability and Indemnification of Directors
The Company's Certificate of Incorporation provides that directors will not
be personally liable to the Company or its stockholders for monetary damages for
breach of their fiduciary duties as directors, except for liability (i) for
breaches of the duty of loyalty to the Company or its stockholders, (ii) for any
acts or omissions not in good faith or involving intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL relating to
unlawful dividends, or (iv) transactions involving an improper personal benefit.
Moreover, if Delaware law were to change in the future to permit the further
elimination or limitation the personal liability of directors, the liability of
a director of the Company would be eliminated or limited to the fullest extent
permitted by Delaware law, as so amended. The Certificate of Incorporation and
the Bylaws of the Company also contain provisions to indemnify the directors,
officers, employees or other agents to the fullest extent permitted by the DGCL.
These provisions may have the practical effect in certain cases of eliminating
the ability of stockholders to collect monetary damages from directors.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
Certain Transactions
On or about October 31, 1995, Flex Financial issued $50,000 principal
amount of 10% subordinated notes ("Notes") and Unit Purchase Options ("Option
Units"). The Option Units entitle the holders to purchase such number of
equivalent units of the Company's securities as may be offered in an initial
public offering at an aggregate offering price of at least $60,000 pursuant to
an effective registration statement filed under the Securities Act and that
closes prior to June 30, 1996. The number of equivalent units purchasable at a
price of $.50 per unit is determined by dividing the IPO unit offering price
into the principal amount of Notes. Effective October 15, 1996, the Notes and
other agreements were amended to increase the number of Option Units available
and to extend maturity dates to March 31, 1997. Effective June 13, 1997, the
Notes and other agreements were amended to increase the number of Option Units
purchasable to 16,333 and to extend maturity dates of the Notes to the earlier
of the closing date of an IPO at an aggregate offering price of at least $60,000
pursuant to an effective registration statement filed under the Act and that
closes prior to March 31, 1999.
On or about April 21, 1996, Flex Financial closed a $67,200 offering of
14,000 Units, each Unit consisting of 1 share of Common Stock, 2 Class B
Warrants and 2 Class C Warrants.
Flex Financial entered into a financial consulting agreement with Financial
Public Relations, Ltd. pursuant to which FPR rendered investment banking
consulting services to the Company. The services rendered by FPR included
assistance in the development of Flex Financial's business plan, initial
development of a contact list of potential clients with respect to Subordination
and Bridge Loans, and development of a marketing strategy with respect to its
business operations. Mr. M. Stephen Roberts is the general partner and owner of
FPR. Mr. Fearnow is a principal of Focus-Tech Investments, Inc., a Nevada
corporation, that provides investment banking consulting services to FPR. Under
the terms of the agreement, the Company paid FPR $5,000. The services rendered
to the Company by FPR were primarily for the services of and provided through
Messrs. Roberts and Fearnow.
Pursuant to an understanding between Focus-Tech and Flex Financial,
Focus-Tech provided to Flex Financial such general and administrative services,
including the cost of the use of office space, personnel, facilities and
equipment, as required for Flex Financial's business in exchange for a general
and administrative services fee of $4,000 per month for the seven month period
ending December 31, 1996. Flex Financial shared a portion of approximately 3,000
square feet of office space in premises occupied by Focus-Tech and Financial
Broker Relations, Ltd. ("FPR") at 770 South Post Oak Lane, Suite 515, Houston,
Texas 77056. Management estimates that Flex Financial's expenses would have been
approximately $6,000 a month on a stand alone basis.
Until the closing of the Units Offering Focus-Tech will continue to provide
space and services located at 179 Ruskin Drive East, Houston, Texas 77356
without charge to Flex Financial. Upon closing of the Units Offering Focus-Tech
has agreed to provide to the Company such general and administrative services,
which will include the cost of the use of office space, personnel, facilities
and equipment, as may be required for the Company's business use on a monthly
basis for a fee of $4,000 per month and to make this space available as long as
required for the use of the Company. The Company believes that such space and
services will be adequate for the business of the Company into the foreseeable
future. Focus-Tech has agreed that its fee for providing such services shall be
paid only out of 15% of net Units Offering proceeds in excess of $200,000, and
thereafter agrees to accrue the monthly fee for payment solely out of the fees,
interest earned and earnings generated by the Company's business.
From February through August 1996 Focus-Tech borrowed $13,000 from Flex
Financial evidenced by four promissory notes bearing interest at 10% and secured
by marketable securities valued in excess of $100,000. All four notes were
repaid with interest on November 15, 1996.
PRINCIPAL STOCKHOLDERS
American NorTel owns and will continue to own 20,000 shares of common stock
Flex Financial, which represents 17.5% of the total outstanding, immediately
after consummation of the Merger and until consummation of the Distribution.
Because all of the shares of Flex Financial Common Stock held by American NorTel
will be distributed to shareholders of American NorTel in connection with the
Distribution, the number of shares of Company Common Stock shown below to be
owned beneficially by certain beneficial owners holding more than five percent
of the issued and outstanding Company Common Stock will depend upon the number
of shares of American NorTel Common Stock held by such persons at the time of
Distribution. The tables assumes that (i) each of the executive officers named
below own no shares of American NorTel Common Stock and (ii) no person owns a
sufficient number of shares of American NorTel Common Stock (including, if
applicable, shares underlying options to acquire American NorTel Common Stock
exercisable within 60 days of such date) to own five percent of the Company
Common Stock immediately after the Distribution and prior to offering of the
Units. The tables also assume that there is no material change in the number of
shares owned by each shareholder of American NorTel.
Security Ownership of Certain Beneficial Owners
The following table sets forth as of a date of this Prospectus after giving
effect to the Merger and the Distribution, those persons who beneficially own
more than five percent of the issued and outstanding Common Stock of the
Company.
Percentage of Shares Outstanding(1)
Name and Address of Number Before After Offering
Beneficial Owner of Shares Offering Minimum Maximum
- -------------------- --------- -------- ------- --------
Focus-Tech Investments, Inc. 60,000(2) 18.09% 13.90% 7.21%
179 Ruskin Drive East
Montgomery, Texas 77356
Ruth Shepley (2) 40,000(3) 12.06% 9.27% 4.81%
7617 Del Monte
Houston, Texas 77063
John J. Garrett, Trustee 20,000(3) 6.03% 4.63% 2.40%
P.O. Box 130444
Houston, Texas 77219
Lighthouse Communications Inc.(3) 40,000(4) 12.06% 9.27% 4.81%
43 Bluewater Drive
Eureka Springs, Arkansas 72632
Bridge Lenders(4)
Dr. S.S. Dhother 40,832.5(5) 12.3% 9.46% 4.91%
4134 W. North Hampton Place
Houston, Texas 77098
Dave Lennox 40,832.5(5) 12.3% 9.46% 4.91%
7311 Bellerive, No. 148
Houston, Texas 77036
American NorTel Communications 20,000(6) 0% 0% 0%
7201 East Camelback Road
Suite 320
Scottsdale, Arizona 85251
- ------------------------
(1) Includes all shares issuable in connection with options or warrants
exercisable within 60 days of this Prospectus (331,665 total) does not
include shares issuable as a part of the Units offered hereby.
(2) Includes 30,000 shares owned of record by Focus-Tech Investments, Inc.,
30,000 shares issuable upon exercise of Class A Options. The beneficial
owner is Michael T. Fearnow.
(3) Includes 20,000 shares owned beneficially and of record, 20,000 shares
issuable upon exercise of Class A Options.
(4) Includes 20,000 shares owned beneficially and of record, 20,000 shares
issuable upon exercise of Class A Options.
(5) Includes 8,166.5 shares issuable upon exercise of the Option Units, 16,333
shares issuable upon exercise of Class B Warrants included in the Option
Units and 16,333 shares issuable upon exercise of Class C Warrants included
in the Option Units.
(6) After giving effect to the Merger and prior to the Distribution.
Security Ownership of Management
The following table sets forth as of the date of this Prospectus, the
amount of Flex Financial Common Stock beneficially owned by each of Flex
Financial's directors, each executive officer, and all directors and executive
officers as a group based on information obtained from such persons.
Percentage of Shares Outstanding(1)
Name and Address of Number Before After Offering
Beneficial Owner of Shares Offering Minimum Maximum
Michael T. Fearnow 60,000 (2) 18.09% 13.90% 7.21%
179 Ruskin Drive East
Montgomery, Texas 77356
Officers and Directors
as a Group 60,000 (2) 18.09% 13.90% 7.21%
(One person)
- ------------------------
(1) Includes all shares issuable in connection with options or warrants
exercisable within 60 days of this Prospectus (331,665 total shares).
(2) Includes 30,000 shares owned of record by Focus-Tech Investments, Inc. and
30,000 shares issuable upon exercise of Class A Options.
Parents
No shareholder of American NorTel owns sufficient stock to exercise control
over Flex Financial through stock ownership.
The parents of Flex Financial are its board of directors. No shareholder of
Flex Financial owns sufficient stock to exercise control over Flex Financial
through stock ownership.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 10 million shares of common stock,
$0.001 par value, and 10 million shares of preferred stock. The presently
outstanding shares of Common Stock are fully paid and nonassessable. There are
no shares of preferred stock issued and outstanding.
Units
The Units offered hereby consist of one share of Flex Financial Common
Stock $.001 par value per share, two redeemable Class B common stock purchase
warrants ("Class B Warrants") and two redeemable Class C common stock purchase
warrants ("Class C Warrants"). Each of the Class B Warrants entitles the holder
older, upon exercise, to purchase one share of Flex Financial Common Stock at a
price $6.25 per share. Each of the Class C Warrants entitles the holder, upon
exercise, to purchase on share of the Company's Common Stock at a price of
$10.00 per share. The Class B and the Class C Warrants are immediately
detachable and are eligible for separate trading if a market for the Warrants
develops. The Class B and Class C Warrants are exercisable immediately and will
continue to be exercisable until January 1, 2003.
Common Stock
The authorized Common Stock consists of 10,000,000 shares, $.001 par value,
of which 94,000 shares were issued and outstanding as of the date of this
Prospectus. The holders of Common Stock are entitled to one vote per share on
the election of directors and on all other matters submitted to a vote of
stockholders. Shares of Common Stock do not have preemptive rights or cumulative
voting rights. The Company's Certificate of Incorporation provides that the
board of directors shall be divided into three classes, as nearly equal in
number as possible, and that at each annual meeting of stockholders all of the
directors of one class shall be elected for a three-year term. The affirmative
vote of not less than 75% of the outstanding shares of Common Stock is required
to approve a merger or consolidation, a transfer of substantially all the
assets, certain issuances and transfers of the Company's securities to other
entities or a dissolution of the Company, unless the Board of Directors of the
Company has approved the transaction. Additionally, certain business
combinations involving the Company and any holder of 15% or more of the
Company's outstanding voting stock must be approved by at least 66.67% of such
voting stock, exclusive of the stock owned by the 15% stockholders, unless
approved by a majority of the directors not affiliated with such holder or
certain price and procedural requirements are met. These provisions, together
with the authorization to issue preferred stock on terms designated by Michael
Fearnow as sole director, described above, could be used as anti-takeover
devices.
The holders of Common Stock are entitled to receive dividends ratably when,
as and if declared by Michael Fearnow as sole director, and upon liquidation are
entitled to share ratably in the Company's net assets. Payment of dividends on
the Common Stock may become subject to restrictions contained in any agreement
in connection with the future issuance of Preferred Stock and to prior payment
of dividends on future issuances of Preferred Stock. See " - Preferred Stock."
The decision to pay dividends is subject to such other financial considerations
as Michael Fearnow as sole director of the Company may deem relevant. No
assurance can be given as to the timing or amount of any dividend that the
Company may declare on the Common Stock.
The Company's By-Laws provide that, subject to certain limitations
discussed below, any stockholder entitled to vote in the election of directors
generally may nominate one or more persons for election as directors at a
meeting. The Company's By-Laws also provide that a stockholder must give written
notice of such stockholder's intent to make such nomination or nominations,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Company not later than (i) with respect to an election to be
held at an Annual Meeting of Stockholders, 90 days prior to the anniversary date
of the date of the immediately preceding Annual Meeting, and (ii) with respect
to an election to be held at a Special Meeting of Stockholders for the election
of directors, the close of business on the tenth day following the date on which
a written statement setting forth the date of such meeting is first mailed to
stockholders provided that such statement is mailed no earlier than 120 days
prior to the date of such meeting. Notwithstanding the foregoing, if an existing
director is not standing for re-election to a directorship which is the subject
of an election at such meeting or if a vacancy exists as to a directorship which
is the subject of an election, whether as a result of resignation, death, an
increase in the number of directors, or otherwise, then a stockholder may make a
nomination with respect to such directorship at any time not later than the
close of business on the tenth day following the date on which a written
statement setting forth the fact that such directorship is to be elected and the
name of the nominee proposed by Michael Fearnow as sole director is first mailed
to stockholders. Each notice of a nomination from a stockholder shall set forth:
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Company entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder, (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the Exchange Act
and the rules and regulations thereunder (or any subsequent provisions replacing
such Act, rules or regulations); and (e) the consent of each nominee to serve as
a director of the Company if so elected. The presiding officer of the meeting
may refuse to acknowledge the nomination of any person not made in compliance
with the foregoing procedure.
Redeemable Common Stock Purchase Warrants and Options
Class A Common Stock Purchase Options. In September 1995, Flex Financial
authorized the issuance of 80,000 Class A Common Stock Purchase Options ("Class
A Options") in connection with a private placement of 80,000 shares of common
stock to its founding shareholders. As of the date of this Prospectus, all of
such Class A Options continue to be owned by the original subscribers and are
outstanding. The Class A Options are currently exercisable and will terminate on
December 31, 2003, and may be exercised at a price of $.50 per share.
Pursuant to this Prospectus, the Company is offering 200,000 Class B
Redeemable Common Stock Purchase Warrants ("Class B Warrants") and 200,000 Class
C Redeemable Common Stock Purchase Warrants ("Class C Warrants") to purchase an
aggregate of 400,000 shares of Common Stock.
Class B Warrants. The Class B Warrants are being issued under a Warrant
Agreement dated November 15, 1995 between the Company and the Warrant Agent.
Each Class B Warrant will be exercisable immediately upon its acquisition and
until January 1, 2003, at an exercise price of $6.25 per Warrant, and shall
entitle the holder thereof to receive one (1) share of Stock for each Class B
Warrant exercised. Fractional shares of Stock will not be required to be issued
upon exercise of the Class B Warrants. A Class B Warrant may be exercised by
surrendering a Class B Warrant certificate with an executed form of election to
purchase shares attached to the certificate, and paying to the Company the full
exercise price for the B Warrants being exercised. Holders of Class B Warrants
will not be entitled (by virtue of being Class B Warrant holders) to receive
dividends, vote, receive notices of shareholders' meetings or otherwise have any
rights of shareholders of the Company.
The Class B Warrants are redeemable, at the option of the Company, at a
price of $0.05 per Class B Warrant at any time after January 1, 1999, upon not
less than 30 days prior written notice, provided that there is a public trading
market for the Common Stock and that the reported high bid price of the Common
Stock equals or exceeds $7.50 per share for the 20 consecutive trading days
immediately prior to the date of the notice of redemption to warrant holders.
The exercise price, number and kind of shares of Common Stock to be
obtained by the exercise of the Class B Warrants is subject to adjustment in the
event of a split of the Common Stock or in the event of the reorganization or
recapitalization of the Company or of the merger or consolidation of the
Company. As of the date of this Prospectus Flex Financial had 28,000 Class B
Warrants outstanding.
The Company will reserve from the authorized and unissued shares a
sufficient number of shares of Common Stock for issuance upon the exercise of
the Class B Warrants.
Class C Warrants. The Class C Warrants are being issued under a Warrant
Agreement dated November 15, 1995, between the Company and Warrant Agent. Each
Class C Warrant will be exercisable immediately upon its acquisition and until
January 1, 2003, at an exercise price of $10.00 per Warrant, and shall entitle
the holder thereof to receive one (1) share of stock for each Class C Warrant
exercised. Fractional shares of stock will not be required to be issued upon
exercise of the Class C Warrants. A Class C Warrant may be exercised by
surrendering a Class C Warrant certificate with an executed form of election to
purchase shares attached to the certificate, and paying to the Company the full
exercise price for the Class C Warrants being exercised. Holders of Class C
Warrants will not be entitled (by virtue of being Class C Warrant holders) to
receive dividends, vote, receive notices of shareholders' meetings or otherwise
have any rights of shareholders of the Company.
The Class C Warrants are redeemable, at the option of the Company, at a
price of $0.05 per Class C Warrant at any time after January 1, 1999, upon not
less than 30 days prior written notice, provided that there is a public trading
market for the Common Stock and that the reported high bid price of the Common
Stock equals or exceeds $12.00 per share for the 20 consecutive trading days
immediately prior to the date of the notice of redemption to warrant holders.
The exercise price, number and kind of shares of Common Stock to be
obtained by the exercise of the Class C Warrants is subject to adjustment in the
event of a split of the Common Stock or in the event of the reorganization or
recapitalization of the Company or of the merger or consolidation of the
Company. As of the date of this prospectus 28,000 Class C Warrants are
outstanding
The Company will reserve from the authorized and unissued shares a
sufficient number of shares of Common Stock for issuance upon the exercise of
the Class C Warrants.
General. The Warrants may be exercised upon surrender of the certificate or
certificates therefor on or prior to the expiration or the redemption date (as
explained above) at the offices of the Company's warrant agent (the "Warrant
Agent") with the Subscription Form on the reverse side of the certificate or
certificates completed and executed as indicated, accompanied by payment (in the
form of a certified or cashier's check payable to the order of the Company) of
the full exercise price for the number of Warrants being exercised.
The Warrants contain provisions but protect the holders thereof against
dilution by adjustment of the exercise price per share and the number of shares
issuable upon exercise thereof upon the occurrence of certain events, including
issuances of Common Stock (or securities convertible, exchangeable or
exercisable into Common Stock) at less than market value, stock dividends, stock
splits, mergers, sale of substantially all of the Company's assets, and for
other extraordinary events; provided, however, that no such adjustment shall be
made upon, among other things, (i) the issuance of exercise of options or other
securities under the Stock Option Plan or other employee benefit plans or (ii)
the sale or exercise of outstanding options or warrants or the Warrants offered
hereby.
The Company is not required to issue fractional shares of Common Stock, and
in lieu thereof will make a cash payment based upon the current market value of
such fractional shares. The holder of the Warrants will not possess any rights
as a shareholder of the Company unless and until he exercises the Warrants.
Upon notice to the Warrantholders, the Company has the right to reduce the
exercise or extend the expiration date of the Warrants.
Current Prospectus and State "Blue - Sky" Registration Required to Exercise
Warrants. The Warrants included in the Units offered hereby will be immediately
detachable and separately tradable. Although the Units will not knowingly be
sold to purchasers in jurisdictions in which the Units are not registered or
otherwise qualified for sale, purchasers who reside in or move to jurisdictions
in which the shares underlying the Warrants are not so registered or qualified
during the period that the Warrants are exercisable may buy Units (or the
Warrants included therein) in the aftermarket. In this event, the Company would
be unable to issue shares to those persons desiring to exercise their Warrants
unless and until the underlying shares could be registered or qualified for sale
in the jurisdictions in which such purchasers reside, or unless an exemption
from such qualification exists in such jurisdictions. No assurance can be given
that the Company will be able to effect any such required registration or
qualification.
Additionally, purchasers of the Units will be able to exercise the Warrants
included therein only if a current prospectus relating to the shares underlying
the Warrants is then in effect under the Securities Act and such securities are
qualified for sale or exempt from qualification under the applicable securities
or "blue sky" laws of the states in which the various holders of the Warrants
then reside. Although the Company has undertaken to the use reasonable efforts
to maintain the effectiveness of the a current prospectus covering the
securities underlying the Warrants, no assurance can be given that the Company
will be able to do so. The value of the Warrants may be greatly reduced if a
current prospectus covering the shares issuable upon the exercise of the
Warrants is not kept effective or if such shares are not qualified or exempt
from qualification in the states in which the holders of the Warrants then
reside.
Unit Purchase Options
In connection with an IPO Bridge Loan, Flex Financial issued $50,000
principal amount of 10% subordinated notes ("Notes") and 16,333 Unit Purchase
Options ("Option Units"). The Option Units entitle the holders to purchase, for
$.50 each, Units each consisting of one share of common stock. two Class B
Warrants and two Class C Warrants.
Preferred Stock
Michael Fearnow as sole director of the Company is authorized by its
Certificate of Incorporation, without any action on the part of stockholders, to
issue preferred stock in one or more series, with such voting powers, full or
limited but not to exceed one vote per share, or without voting powers, and with
such designations, preferences, limitations, descriptions and terms thereof,
including the extent, if any, to which the holders of the shares of any such
series will be entitled to vote as a class or otherwise with respect to the
election of directors or otherwise, all as shall, to the extent permitted under
the laws of the State of Delaware, be determined by Michael Fearnow as sole
director of the Company. Thus, Michael Fearnow as sole director, without
stockholder approval, may authorize the issuance of preferred stock which could
make it more difficult for another company to effect certain business
combinations with the Company.
Defenses Against Hostile Takeovers
Introduction. While the following discussion summarizes the reasons for,
and the operation and effects of, certain provisions of the Company's
Certificate of Incorporation which management has identified as potentially
having an anti-takeover effect, it is not intended to be a complete description
of all potential anti-takeover effects, and it is qualified in its entirety by
reference to the Company's Certificate of Incorporation and By-Laws, copies of
which are available from the Company, which should be reviewed for more detailed
information.
In general, the anti-takeover provisions in Delaware law and the Company's
Certificate of Incorporation are designed to minimize the Company's
susceptibility to sudden acquisitions of control which have not been negotiated
with and approved by the Company's Board of Directors. As a result, these
provisions may tend to make it more difficult to remove the incumbent members of
the Board of Directors. The provisions would not prohibit an acquisition of
control of the Company or a tender offer for all of the Company's capital stock.
The provisions are designed to discourage any tender offer or other attempt to
gain control of the Company in a transaction that is not approved by Michael
Fearnow as sole director, by making it more difficult for a person or group to
obtain control of the Company in a short time and then impose its will on the
remaining stockholders. However, to the extent these provisions successfully
discourage the acquisition of control of the Company or tender offers for all or
part of the Company's capital stock without approval of Michael Fearnow as sole
director, they may have the effect of preventing an acquisition or tender offer
which might be viewed by stockholders to be in their best interests.
Tender offers or other non-open market acquisitions of stock are usually
made at prices above the prevailing market price of a company's stock. In
addition, acquisitions of stock by persons attempting to acquire control through
market purchases may cause the market price of the stock to reach levels which
are higher than would otherwise be the case. Anti-takeover provisions may
discourage such purchases, particularly those of less than all of the company's
stock, and may thereby deprive stockholders of an opportunity to sell their
stock at a temporarily higher price. These provisions may therefore decrease the
likelihood that a tender offer will be made, and, if made, will be successful.
As a result, the provisions may adversely affect those stockholders who would
desire to participate in a tender offer. These provisions may also serve to
insulate incumbent management from change and to discourage not only sudden or
hostile takeover attempts, but any attempts to acquire control which are not
approved by Michael Fearnow as sole director, whether or not stockholders deem
such transactions to be in their best interests.
Authorized Shares of Capital Stock. The Company's Certificate of
Incorporation authorizes the issuance of up to 10 million shares of serial
preferred stock. Shares of the Company's serial preferred stock with voting
rights could be issued and would then represent an additional class of stock
required to approve any proposed acquisition. This preferred stock, together
with authorized but unissued shares of Common Stock (the Certificate of
Incorporation authorizes the issuance of up to 10 million shares), could
represent additional capital stock required to be purchased by an acquiror.
Issuance of such additional shares may dilute the voting interest of the
Company's stockholders. If Michael Fearnow as sole director of the Company
determined to issue an additional class of voting preferred stock to a person
opposed to a proposed acquisition, such person might be able to prevent the
acquisition single-handedly.
Stockholder Meetings. Delaware law provides that the annual stockholder
meeting may be called by a corporation's board of directors or by such person or
persons as may be authorized by a corporation's certificate of incorporation or
By-Laws. The Company's Certificate of Incorporation provides that annual
stockholder meetings may be called only by the Company's Board of Directors or a
duly designated committee of the Board. Although the Company believes that this
provision will discourage stockholder attempts to disrupt the business of the
Company between annual meetings, its effect may be to deter hostile takeovers by
making it more difficult for a person or entity to obtain immediate control of
the Company between one annual meeting as a forum to address certain other
matters and discourage takeovers which are desired by the stockholders. The
Company's Certificate of Incorporation also provides that stockholder action may
be taken only at a special or annual stockholder meeting and not by written
consent.
Classified Board of Directors and Removal of Directors. The Company's
Certificate of Incorporation provides that The Company's Board of Directors is
to be divided into three classes which shall be as nearly equal in number as
possible. The directors in each class serve for terms of three years, with the
terms of one class expiring each year. Each class currently consists of
approximately one-third of the number of directors. Each director will serve
until his successor is elected and qualified.
A classified Board of Directors could make it more difficult for
stockholders, including those holding a majority of the Company's outstanding
stock, to force an immediate change in the composition of a majority of the
Board of Directors. Since the terms of only one-third of the incumbent directors
expire each year, it requires at least two annual elections for the stockholders
to change a majority, whereas a majority of a non-classified Board may be
changed in one year. In the absence of the provisions of the Company's
Certificate of Incorporation classifying the Board, all of the directors would
be elected each year. The provision for a staggered Board of Directors affects
every election of directors and is not triggered by the occurrence of a
particular event such as a hostile takeover. Thus a staggered Board of Directors
makes it more difficult for stockholders to change the majority of directors
even when the reason for the change would be unrelated to a takeover.
The Company's Certificate of Incorporation provides that a director may not
be removed except for cause by the affirmative vote of the holders of 75% of the
outstanding shares of capital stock entitled to vote at an election of
directors. This provision may, under certain circumstances, impede the removal
of a director and thus preclude the acquisition of control of the Company
through the removal of existing directors and the election of nominees to fill
in the newly created vacancies. The supermajority vote requirement would make it
difficult for the stockholders of the Company to remove directors, even if the
stockholders believe such removal would be beneficial.
Restriction of Maximum Number of Directors and Filling Vacancies on the
Board of Directors. Delaware law requires that the board of directors of a
corporation consist of one or more members and that the number of directors
shall be set by the corporation's By-Laws, unless it is set by the corporation's
certificate of incorporation. The Company's Certificate of Incorporation
provides that the number of directors (exclusive of directors, if any, to be
elected by the holders of preferred stock) shall not be less than five or more
than 15, as shall be provided from time to time in accordance with the Company
By-Laws. The power to determine the number of directors within these numerical
limitations and the power to fill vacancies, whether occurring by reason of an
increase in the number of directors or by resignation, is vested in the
Company's Board of Directors. The overall effect of such provisions may be to
prevent a person or entity from quickly acquiring control of the Company through
an increase in the number of the Company's directors and election of nominees to
fill the newly created vacancies and thus allow existing management to continue
in office.
Stockholder Vote Required to Approve Business Combinations with Related
Persons. The Company's Certificate of Incorporation generally requires the
approval of the holders of 75% of the Company's outstanding voting stock (and
any class or series entitled to vote separately), and a majority of the
outstanding stock not beneficially owned by a related person (as defined) (up to
a maximum requirement of 85% of the outstanding voting stock), to approve
business combinations (as defined) involving the related person, except in cases
where the business combination has been approved in advance by two-thirds of
those members of the Company's Board of Directors who were directors prior to
the time when the related person became a related person. Under Delaware law,
absent these provisions, business combinations generally, including mergers,
consolidations and sales of substantially all of the assets of the Company must,
subject to certain exceptions, be approved by the vote of the holders of a
majority of the Company's outstanding voting stock. One exception under Delaware
law to the majority approval requirement applies to business combinations (as
defined) involving stockholders owning 15% of the outstanding voting stock of a
corporation for less than three years. In order to obtain stockholder approval
of a business combination with such a related person, the holders of two-thirds
of the outstanding voting stock, excluding the stock owned by the 15%
stockholder, must approve the transaction. Alternatively, the 15% stockholder
must satisfy other requirements under Delaware law relating to (i) the
percentage of stock acquired by such person in the transaction which resulted in
such person's ownership becoming subject to the law, or (ii) approval of the
board of directors of such person's acquisition of the stock of the Delaware
corporation. Delaware law does not contain price criteria. The supermajority
stockholder vote requirements under the Certificate of Incorporation and
Delaware law may have the effect of foreclosing mergers and other business
combinations which the holders of a majority of the Company's stock deem
desirable and place the power to prevent such a transaction in the hands of a
minority of the Company's stockholders
Under Delaware law, there is no cumulative voting by stockholders for the
election of the Company's directors. The absence of cumulative voting rights
effectively means that the holders of a majority of the stock voted at a
stockholder meeting may, if they so choose, elect all directors of the Company,
thus precluding a small group of stockholders from controlling the election of
one or more representatives to the Company's Board of Directors.
Advance Notice Requirements for Nomination of Directors and Proposal of New
Business at Annual Stockholder Meetings. The Company's Certificate of
Incorporation generally provides that any stockholder desiring to make a
nomination for the election of directors or a proposal for new business at a
stockholder meeting must submit written notice not less than 30 or more than 60
days in advance of the meeting. This advance notice requirement may give
management time to solicit its own proxies in an attempt to defeat any dissident
slate of nominations, should management determine that doing so is in the best
interests of stockholders generally. Similarly, adequate advance notice of
stockholder proposals will give management time to study such proposals and to
determine whether to recommend to the stockholders that such proposals be
adopted. In certain instances, such provisions could make it more difficult to
oppose management's nominees or proposals, even if the stockholders believe such
nominees or proposals are in their interests. Making the period for nomination
of directors and introducing new business a period not less than 10 days prior
to notice of a stockholder meeting may tend to discourage persons from bringing
up matters disclosed in the proxy materials furnished by the Company and could
inhibit the ability of stockholders to bring up new business in response to
recent developments.
Limitations on Acquisitions of Capital Stock. The Company's Certificate of
Incorporation generally provides that if any person were to acquire beneficial
ownership of more than 20% of any class of the Company's outstanding Common
Stock, each vote in excess of 20% would be reduced to one-hundredth of a vote,
with the reduction allocated proportionately among the record holders of the
stock beneficially owned by the acquiring person. The limitation on voting
rights of shares beneficially owned in excess of 20% of the Company's
outstanding Common Stock, would discourage stockholders from acquiring a
substantial percentage of the Company's stock in the open market, without
disclosing their intentions, prior to approaching management to negotiate an
acquisition of the Company's remaining stock. The effect of these provisions is
to require amendment of the Certificate of Incorporation, which requires Board
approval, before a stockholder can acquire a large block of the Company's Common
Stock. As a result, these provisions may deter takeovers by potential acquirors
who would have acquired a large holding before making an offer for the remaining
stock, even though the eventual takeover offer might have been on terms
favorable to the remaining stockholders.
Supermajority Voting Requirement for Amendment of Certain Provisions of the
Certificate of Incorporation. The Company's Certificate of Incorporation
provides that specified provisions contained in the Certificate of Incorporation
may not be repealed or amended except upon the affirmative vote of the holders
of not less than seventy-five percent of the outstanding stock entitled to vote.
This requirement exceeds the majority vote that would otherwise be required by
Delaware law for the repeal or amendment of the Certificate of Incorporation.
Specific provisions subject to the supermajority vote requirement are (i)
Article X, governing the calling of stockholder meetings and the requirement
that stockholder action be taken only at annual or special meetings, (ii)
Article XI, requiring written notice to the Company of nominations for the
election of directors and new business proposals, (iii) Article XII, governing
the number and terms of the Company's directors, (iv) Article XIII, governing
the removal of directors, (v) Article XIV, limiting acquisitions of 20% or more
of the Company's stock, (vi) Article XV, governing approval of business
combinations involving related persons, (vii) Article XVI, relating to the
consideration of various factors in the evaluation of business combinations,
(viii) Article XVII, providing for indemnification of directors, officers,
employees and agents, (ix) Article XVIII, limiting directors' liability, and (x)
Articles XIX and XX, governing the required stockholder vote for amending the
By-Laws and Certificate of Incorporation, respectively. Article XX is intended
to prevent the holders of less than 75% of the Company's outstanding voting
stock from circumventing any of the foregoing provisions by amending the
Certificate of Incorporation to delete or modify one of such provisions. This
provision would enable the holders of more than 25% of the Company's voting
stock to prevent amendments to the Certificate of Incorporation or By-Laws even
if they were favored by the holders of a majority of the voting stock.
Registrar Transfer Agent and Warrant Agent
Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey
07016-3572 is the transfer agent, registrar and warrant agent of the Company.
PLAN OF DISTRIBUTION
It is presently anticipated that the Company will sell Units only through
its employees without engaging the services of a broker-dealer. The Company will
make such sales in compliance with the Securities Exchange Act of 1934 Rule
3a4-1(a)(1),(2),(3) and (4) and either 3a4-1(a)(4)(i),(ii) or (iii). The Company
is offering a minimum of 20,000 Units on a "best efforts-all or none" basis and
an additional 80,000 Units on a "best efforts basis" at a purchase price of
$6.00 per Unit.
The Company may choose in the future to employ the services of a NASD
member broker-dealer for purposes of offering the Units. It has been estimated
by management that, if the services of a broker-dealer are utilized to sell the
Units, the Company would pay to such broker-dealer a commission in the range of
.10% of the selling price of Units actually sold. It is also likely that, if the
services of a broker-dealer are utilized, the Company would agree to reimburse
such entity for its costs and expenses, up to a maximum of 1% of the selling
price of Units actually sold. In addition, the Company may agree to indemnify
any broker or dealer utilized by the Company in connection with the offering
against liabilities, including liabilities under the Securities Act of 1933, as
amended.
The obligation of any broker-dealer to offer Units described herein is
likely to be subject to (a) the accuracy of the representations and warranties
of the Company contained in the agreement with the broker-dealer, (b)
performance by the Company of its obligations contained herein, (c) approval of
certain legal matters by the broker-dealer or its counsel and (d) the condition,
among others, that a Registration Statement on Form SB-2 shall have become
effective with the U.S. Securities and Exchange Commission
When collected, subscription funds will be held in an interest-bearing
escrow account with Southwest Bank of Texas, N.A., Houston, Texas or other
F.D.I.C. insured banking institution ("Escrow Agent"). Upon receipt of
subscriptions for 20,000 Units, the proceeds will be released from escrow to the
Company. In the event the minimum offering is not subscribed, all funds will be
returned by the Escrow Agent without deduction and without interest. Additional
subscription proceeds will be available to the Company as received from the sale
of Units. The Company reserves the right to reject orders for the purchase of
Units in whole or in part, and if a subscription is rejected, the subscriber's
funds will returned without interest within three business days after rejection.
Within 30 days following the acceptance of subscriptions, a Unitholders's
security certificates will be mailed by first class mail.
All purchasers' checks should be made payable to "Flex Financial
Corporation - Escrow Account." Certificates evidencing Common Stock and Warrants
will be issued to purchasers only if the proceeds from the sale of at least
20,000 Units are actually deposited in escrow and released to the Company
pursuant to the Escrow Agreement. Until such time as the proceeds are actually
received by the Company and the certificates delivered to the purchasers
thereof, such purchasers will be deemed subscribers and not security holders of
the Company. During the selling period, purchasers will have no right to demand
return of their subscription proceeds. If the minimum proceeds are successfully
obtained, the Units Offering will be continued until completed, until the
maximum period of the Units Offering has elapsed or until the Units Offering is
terminated by the Company, whichever occurs first.
Michael Fearnow as the sole director and officer of Flex Financial
determined that, after research into other possible alternatives, the proposed
price of the Units was fair to the purchasers of Units. The criteria applied was
to obtain trading status for the shares held by Flex Financial's shareholders
and to seek to raise additional capital in order to expand its business
operations while utilizing its existing infrastructure, management and knowledge
of its industry at the least cost to shareholders measured in terms of capital
expended and dilution. Applying this criteria, the board determined that,
considering the 17% dilution was in line with prior disclosures to shareholders
regarding expected dilution in any merger and spin-off transaction, the terms of
the proposed offering price is fair to the shareholders.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering the present shareholders of the Company
will own a total of 114,000 shares of Common Stock, all of which will be freely
tradable without restriction or further registration under the Securities Act,
except to the extent such shares are held by "affiliates" of the Company. Shares
held by affiliates will be subject to the limitations of Rule 144 promulgated
under the Securities Act. In general, under Rule 144 as currently in effect,
beginning 90 days after the date of this Prospectus, persons who may be deemed
affiliates of the Company, as that term is defined in the Securities Act would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of one percent of the then outstanding shares of the
Company's Common Stock (approximately 1,340 shares if the minimum offering is
sold and 2,140 shares if the maximum offering is sold) or the average weekly
trading volume during the four calendar weeks preceding a sale by such person.
Sales under Rule 144 are also subject to certain provisions relating to the
manner and notice of sale and availability of current public information about
the Company. Following the offering approximately 217,665 shares of Common Stock
will be issuable upon the exercise of options and warrants held by present
shareholders of the Company and an additional 400,000 shares underlying the
Warrants included in the Units (or a total of 617,665 shares) will be issuable
if the maximum offering is sold.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Sonfield & Sonfield, Houston, Texas.
EXPERTS
The financial statements of Flex Financial Group, Inc. at July 31, 1997,
appearing in this Prospectus and Registration Statement have been audited by
Harper & Pearson Company, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
<PAGE>
F - 12
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
C O N T E N T S
Page
FLEX FINANCIAL GROUP, INC.
Independent Auditor's Report................................. 2
Balance Sheets............................................... 3
Statements of Operations..................................... 4
Statements of Changes in Stockholders' Equity (Deficit)...... 5
Statements of Cash Flows..................................... 6
Notes to Financial Statements................................ 7-11
FLEX ACQUISITIONS CORPORATION
Independent Auditor's Report.................................. 12
Balance Sheets................................................ 13
Statements of Operations...................................... 14
Statements of Changes in Stockholders' Equity (Deficit)....... 15
Statements of Cash Flows...................................... 16
Notes to Financial Statements................................. 17-18
FLEX ACQUSITIONS CORPORATION (PRO FORMA)
Accountant's Compilation Report............................... 19
Pro Forma Consolidated Balance Sheets......................... 20
Pro Forma Consolidated Statements of Operations............... 21
Summary of Significant Assumptions and Accounting Policies.... 22
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Directors of
Flex Financial Group, Inc.
(A Development Stage Company)
Montgomery, Texas
We have audited the accompanying balance sheets of Flex Financial Group, Inc. (A
Development Stage Company) as of July 31, 1998 and 1997, and the related
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the years ended July 31, 1998 and 1997 and the period August 17, 1995
(date of inception) through July 31, 1998. 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 audits.
We conducted our audits 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 audits provide 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 Flex Financial Group, Inc. (A
Development Stage Company) at July 31, 1998 and 1997, and the results of its
operations and its cash flows for the years and period then ended in conformity
with generally accepted accounting principles.
......... /s/HARPER & PEARSON COMPANY
Houston, Texas
September 12, 1998
<PAGE>
FLEX FINANCIAL GROUP, INC.
A DEVELOPMENT STAGE COMPANY
BALANCE SHEETS
JULY 31, 1998 AND 1997
ASSETS
1998 1997
--------- ---------
CURRENT ASSETS
Cash $ 269 $ 9,564
Interest receivable 963 596
Note receivable, Flex Acquisition Corporation 4,000 4,000
Deferred registration costs -0- 32,303
-------- --------
$ 5,232 $ 46,463
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 3,454 $ -0-
Notes payable 50,000 50,000
Note payable, Focus-Tech Investments, Inc. 31,185 -0-
Interest payable 14,849 8,822
-------- --------
TOTAL CURRENT LIABILITIES 99,488 58,822
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value in 1998
and no par value in 1997, 10,000,000 shares
authorized, none issued and outstanding -0- -0-
Common stock, $.001 par value in 1998 and
$.01 par value in 1997, 10,000,000 shares
authorized, 94,000 shares sold and
to be issued 94 940
Additional paid-in capital 82,200 81,260
Deficit accumulated during the
development stage (176,550) (94,559)
-------- --------
(94,256) (12,359)
-------- --------
$ 5,232 $ 46,463
======== ========
See accompanying notes.
<PAGE>
FLEX FINANCIAL GROUP, INC.
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1998 AND 1997 AND CUMULATIVE THROUGH JULY 31, 1998
August 17, 1995
through
1998 1997 July 31, 1998
-------- -------- --------------
INTEREST INCOME $ 366 $ 1,004 $ 3,648
------- ------- --------
EXPENSES
Advertising -0- -0- 2,564
Amortization -0- 1,250 1,250
Bad debt expense -0- 10,000 10,000
Consulting expenses -0- -0- 16,902
Filing fees -0- 4,923 5,433
Interest expense 6,026 5,000 18,598
Legal and professional fees 43,899 12,687 62,686
Other expenses 35 688 1,073
Printing -0- -0- 1,295
Overhead allocation, Focus-Tech
Investments, Inc. -0- -0- 19,109
Accrued overhead, Focus-Tech
Investments, Inc. -0- -0- 8,891
Write-off of deferred registration costs 32,397 -0- 32,397
------ ------- --------
82,357 34,548 180,198
------- ------- --------
NET LOSS $(81,991) $(33,544) $(176,550)
======= ======= ========
LOSS PER COMMON SHARE $ (.49) $ (.20) $ (1.07)
======= ======= ========
SHARES USED IN COMPUTING LOSS PER SHARE 166,982 166,982 164,580
======= ======= ========
See accompanying notes.
<PAGE>
FLEX FINANCIAL GROUP, INC.
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 17, 1995 (Date of Inception) THROUGH JULY 31, 1998
Additional
Preferred Common Paid-In Retained
Stock Stock Capital (Deficit) Total
--------- ------ ---------- --------- -----
Sale of Common
Stock - Texas $ -0- $ 940 $ 81,260 $ -0- $ 82,200
Net Loss -0- -0- -0- (61,015) (61,015)
-------- -------- -------- -------- --------
Balance -
July 31, 1996 -0- 940 81,260 (61,015) 21,185
Net Loss -0- -0- -0- (33,544) (33,544)
-------- -------- -------- -------- --------
Balance -
July 31, 1997 -0- 940 81,260 (94,559) (12,359)
Removal of Texas
Common Stock
Previously
Issuable -0- (940) 940 -0- -0-
Sale of Common
Stock - Delaware -0- 94 -0- -0- 94
Net Loss -0- -0- -0- (81,991) (81,991)
-------- -------- -------- -------- --------
Balance -
July 31, 1998 $ -0- $ 94 $ 82,200 $(176,550) $ (94,256)
======== ======== ======== ======== ========
See accompanying notes.
<PAGE>
FLEX FINANCIAL GROUP, INC.
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1998 AND 1997 AND CUMULATIVE THROUGH JULY 31, 1998
August 17, 1995
through
1998 1997 July 31, 1998
-------- -------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(81,991) $(33,544) $(176,550)
------- ------- --------
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization of loan origination
costs, net -0- 1,250 5,000
Write-off of note receivable -0- 10,000 10,000
Write-off of deferred registration costs 32,303 -0- 32,303
Change in operating assets and
liabilities:
Interest receivable (367) 890 (963)
Accounts payable 3,454 (58) 3,454
Interest payable 6,027 5,000 14,849
Accrued overhead, Focus-Tech
Investments, Inc. -0- (8,891) -0-
------- ------- -------
Total Adjustments 41,417 8,191 64,643
------- ------- -------
Net Cash Used by Operating Activities (40,574) (25,353) (111,907)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred registration costs -0- (32,303) (32,303)
Loan origination costs -0- -0- (5,000)
Notes receivable -0- -0- (35,000)
Note receivable -0- -0- (10,000)
Long-term note receivable, Flex
Acquisition Corporation -0- -0- (4,000)
Collection of notes receivable -0- 25,000 35,000
------- ------- -------
Net Cash Provided (Used) by
Investing Activities -0- (7,303) (51,303)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable -0- -0- 50,000
Notes payable, Focus-Tech Investments, Inc. 31,185 -0- 31,185
Proceeds from issuance of common stock 94 -0- 87,294
Stock issuance costs -0- -0- (5,000)
------- ------- -------
Net Cash Provided by Financing
Activities 31,279 -0- 163,479
------- ------- -------
NET (DECREASE) INCREASE IN CASH (9,295) (32,656) 269
CASH AT BEGINNING OF PERIOD 9,564 42,220 -0-
------- ------- -------
CASH AT END OF PERIOD $ 269 $ 9,564 $ 269
======= ======= =======
See accompanying notes.
<PAGE>
FLEX FINANCIAL GROUP, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Flex Financial Group, Inc. (A Development Stage Company) (the Company) was
incorporated in August 1995 for the purpose of engaging in the business of
providing loans to companies going public; subordinated equity loans to
underwriters; and providing a platform for taking companies public through a
merger/spin-off transaction. It is anticipated by management that the Company
will become a publicly owned corporation within the near future. Effective
December 8, 1997, the Company organized a Delaware corporation which purchased
substantially all assets and liabilities of the Texas Corporation incorporated
in 1995.
Merger Spin-off - On June 30, 1996, the Company entered into an agreement
with American Nortel Communications, Inc. (American Nortel), a public
corporation engaged in providing long distance telephone services and owned by
approximately 780 individuals, for a proposed merger-spin-off transaction which
would create a public market for the Company's stock. The proposed
merger-spin-off would be effected by American Nortel capitalizing a recently
formed subsidiary (Flex Acquisitions Corporation) which would sell 20,000 shares
of $.001 par value common stock to American Nortel for $1,000. Flex
Acquisitions, an entity under common management because of overlapping director
and officers, has authorized 10 million shares of Common Stock with a par value
of $.001 per share and 10 million shares of Preferred Stock with no par value.
The preferences, rights, and qualities of each series of the Preferred Stock
will be set by future resolutions of Flex Acquisitions Board of Directors. All
currently outstanding stock of the Company will be canceled and converted into
94,000 shares of common stock of Flex Acquisitions. The Company has options and
warrants currently outstanding which will be canceled and options and warrants
on Flex Acquisitions' common stock will be issued according to the plan of
merger. Subsequent to the merger, American Nortel will distribute to its
shareholders the 20,000 shares of common stock of Flex Acquisitions previously
held by American Nortel. Contemporaneously with the merger-spin-off, Flex
Acquisitions will file a registration statement on Form S-4 with the Securities
and Exchange Commission (SEC) to register 94,000 shares of Common Stock and file
a registration statement on Form SB-2 with the SEC to register the spin-off of
the 20,000 shares by American Nortel and the sale of 100,000 shares of common
stock by Flex Acquisitions.
Common Management - Common management of the Company and Flex Acquisitions
result from the following relationships; Michael T. Fearnow, sole director and
officer of the Company holds similar positions with Flex Acquisitions and is the
sole owner of Focus-Tech Investments, Inc., a former 17.5% owner of the Company.
Financial Public Relations, Ltd. is a Texas limited partnership with all
interests owned by entities controlled or owned by M. Stephen Roberts, a 17.5%
owner of the predecessor Company.
Effective with the reorganization as a Delaware company, Mr. Roberts is no
longer a shareholder of the surviving company.
Going Concern - As shown in the accompanying financial statements, the
Company has a working capital and equity deficit, and has no significant
operating activities. The future viability of the Company is dependent upon the
successful procurement of additional loans or capital and the commencement of
profitable operating activities.
Management's Estimates - Management uses estimates and assumptions in
preparing financial statements in accordance with generally accepted accounting
principles. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the estimates
that were used.
Concentrations of Credit - Substantially all of the Company's loans have
been granted to entities under common management and a third party customer of
the Company. The concentrations of credit by type of loan are set forth in Note
B.
Interest Rate Risk - The Company intends to be principally engaged in
providing short-term commercial loans with fixed interest rates. These loans
have been primarily funded through short-term notes payable and the sale of the
Company's stock.
Notes Receivable - Notes receivable are reported at the principal amount
outstanding. Management is of the opinion that all notes are fully collectible,
therefore, no allowance for possible credit losses is deemed necessary.
Deferred Registration Costs - During 1997, deferred registration costs were
capitalized to be netted against the proceeds, if any, received from the sale of
securities to the public. During 1998, deferred registration costs were expensed
as the related offering was postponed.
Allowance for Possible Credit Losses - When deemed necessary, an allowance
for possible credit losses will be established to provide a valuation allowance
for losses expected to be incurred on loans and other commitments to extend
credit. All losses will be charged to the allowance for possible credit losses
when the loss actually occurs or when a determination is made that a loss is
likely to occur. Recoveries are credited to the allowance at the time of
recovery.
Throughout the year, management will estimate the likely level of losses to
determine whether the allowance for possible credit losses, when deemed
necessary, is adequate to absorb anticipated losses in the existing portfolio.
Based on these estimates, an amount will be charged to the provision for
possible credit losses and credited to the allowance for possible credit losses
in order to adjust the allowance to a level determined to be adequate to absorb
losses.
Management's judgment as to the level of losses on existing loans involves
the consideration of current and anticipated economic conditions and their
potential effects on specific borrowers; an evaluation of the existing
relationships among loans, potential loan losses, and the present level of the
allowance; and management's internal review of the loan portfolio. In
determining the collectibility of certain loans, management will also consider
the fair value of any underlying collateral. The amounts ultimately realized may
differ from the carrying value of these assets because of economic, operating or
other conditions beyond the Company's control.
Statement of Cash Flows - For purposes of reporting cash flows, cash and
cash equivalents includes only cash on hand and in demand deposit accounts with
a bank.
Loss Per Common Share - Loss per common share is computed using the
weighted average number of shares of common stock outstanding during the period,
as adjusted for shares issuable upon exercise of options priced below the
anticipated IPO price per share as shown below:
1998 1997 Cumulative
-------- -------- ----------
Weighted average shares
outstanding for issued shares 94,000 94,000 91,598
Shares issuable upon, exercise
of options 80,000 80,000 80,000
Less treasury shares repurchased
from option proceeds (7,018) (7,018) (7,018)
------- ------- -------
Adjusted weighted average
shares outstanding 166,982 166,982 164,580
======= ======= =======
<PAGE>
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income Taxes - For the years ended July 31, 1998 and 1997, the Company
incurred net operating losses amounting to $81,991 and $33,544, respectively.
Net operating loss carryforwards will expire in the years 2013, 2012 and 2011,
if not previously utilized.
No tax benefit for the loss carryforward has been reported in the financial
statements. Accordingly, the tax benefit of approximately $60,000 resulting from
the utilization of the loss carryforwards has been offset by a valuation
allowance of the same amount.
Common Stock - Common stock sold is subject to a subscription agreement
which provides for, among other things; (1) each purchaser is sold "units" at a
price of $4,800 which includes 1,000 shares of common stock, 2000 Class B
warrants and 2,000 Class C warrants collectively referred to as offered
securities; and (2) purchaser of offered securities will not be able to resell
them until and unless the securities are registered pursuant to a registration
statement and properly qualified for sale in each jurisdiction. The Class B and
Class C redeemable warrants entitle the holders to purchase one share of common
stock for each warrant held at $6.25 and $10.00, respectively.
80,000 shares of the 94,000 common shares sold and to be issued were sold
to "Founders", subject to a separate subscription agreement at a price of $.25
per share. This subscription agreement provides the subscribers with the option
to purchase up to an additional 80,000 common shares at a per share price of
$.50. The option for the purchase of additional shares expires December 31,
2000, if not previously exercised.
No compensation expense has resulted from the issuance of any of the
Company's warrants or options as the exercise prices were in excess of the fair
market value of the Company's common stock.
Preferred Stock - The Corporation's Articles of Incorporation allow the
Board of Directors to determine the rights, preferences, qualifications,
limitations and restrictions and any other benefits of the Company's preferred
stock.
Operating Costs - Subsequent to December 31, 1996, pursuant to an agreement
with Flex Acquisitions, the Company provides Flex Acquisitions rent, accounting
services, management and other operating expenses without compensation.
NOTE B NOTES RECEIVABLE, RELATED PARTIES
Notes receivable due from entities under common management consist of the
following at July 31, 1998 and 1997.
1998 1997
-------- ---------
Flex Acquisition Corporation - 10% note,
at the option of the holder, the note is
convertible into common stock in multiples
of $1,000 unpaid principal at a conversion
price of $.05 per share at any time up to
maturity, subordinated, redeemable at a 10%
premium, due March 31, 1999, renewable for an
additional two year term, interest due at
maturity; unsecured $ 4,000 $ 4,000
Less current portion 4,000 4,000
------- -------
Long-term note receivable, related party $ -0- $ -0-
======= =======
NOTE C NOTES PAYABLE
Notes payable consist of the following at July 31, 1998 and 1997:
1998 1997
-------- ---------
Two 10% unsecured, subordinated notes payable
on the earlier of (1) March 31, 1999, or
(2) the closing of a public offering of the
Company's securities pursuant to the Securities
Act of 1933, as amended, representing gross
proceeds of not less than $60,000; the notes
are subject to subscription and option agreements $ 50,000 $ 50,000
======= =======
On several occasions, these notes have been amended to extend the maturity
dates to March 31, 1997, March 31, 1998 (the holders were granted an additional
8,000 Option Units for this extension), and most recently these notes and the
option exercise dates were extended through March 31, 1999 with no further
modifications.
In connection with the issuance of these notes, the Company granted to the
purchasers Unit Purchase Options (Option Units). The Option Units entitle the
holders to purchase such number of equivalent units of the Company's securities
as may be offered in an initial public offering at an aggregate offering price
of at least $60,000 pursuant to an effective registration statement filed under
the Securities Act that closes prior to March 31, 1999. The number of equivalent
units purchasable at a price of $.50 per unit is determined by dividing the
Units Offering price into the principal amount of notes. Under the terms of this
Units Offering, holders of the Option Units are entitled to purchase 8,333
equivalent Units.
NOTE D TRANSACTIONS AND BALANCES WITH ENTITIES AND AN INDIVIDUAL
UNDER COMMON MANAGEMENT
1998 1997 1996
-------- -------- ---------
Flex Acquisition Corporation (1)
Interest income/receivable $ 366 $ 400 $ 134
Financial Public Relationship, Ltd. (2)
Interest income -0- -0- 1,709
Interest receivable -0- -0- 917
Consulting expense -0- -0- 5,000
Focus-Tech Investments, Inc. (3)
Interest income/receivable -0- -0- 48
Overhead allocation - allocation
covers rent, telephone, fax, office
supplies and expenses, postage,
repairs, use of furniture and
equipment, and administration
management as needed -0- -0- 19,109
Accrual of overhead -0- -0- 8,891
Consulting expense -0- -0- 2,500
M. Stephen Roberts - Attorney at Law;
initial registered agent
Legal fees, various corporate
matters 4,712 4,850 13,550
Legal fees, registration costs -0- 27,400 -0-
1) Michael T. Fearnow, sole director and officer of Flex Acquisitions holds
similar positions with the Company and is the sole owner of Focus-Tech
Investments, Inc., a 17.5% owner of the Company.
2) Financial Public Relations, Ltd. is a Texas limited partnership with all
interests owned by entities controlled or owned by M. Stephen Roberts, a
17.5% owner of the predecessor Texas Company.
3) Focus-Tech Investments, Inc. is a Nevada corporation wholly owned by
Michael T. Fearnow. Mr. Fearnow is also the sole director and officer of
Focus-Tech Investments, Inc. Pursuant to an understanding between
Focus-Tech and Flex Financial, Focus-Tech provided to Flex Financial such
general and administrative services as the cost of the use of office space,
personnel, facilities and equipment, as required for Flex Financial's
business in exchange for a general and administrative services fee of
$4,000 per month for the seven month period ending July 31, 1996. Flex
Financial shares a portion of approximately 2,000 square feet of office
space in premises occupied by Focus-Tech at 179 Ruskin Drive East Drive,
Montgomery, Texas. In lieu of actual payments by Flex Financial to
Focus-Tech, Flex Financial directly paid expenses of Focus-Tech in the
amount of $19,109 and received credit toward the payment of the $28,000 in
general and administrative services fees owed to Focus-Tech. Overhead
allocation refers to amounts paid by Flex Financial on behalf of Focus-Tech
which were allocated as a credit against the general and administrative
services fee due Focus-Tech.
Accrual of overhead refers to the $8,891 balance due Focus-Tech against the
$28,000 in accrued general and administrative services fees after applying the
$19,109 credit given Flex Financial for its direct payments.
Management estimates that Flex Financial's expenses would have been
approximately $6,000 a month on a stand alone basis.
Until the closing of the Units Offering, Focus-Tech will continue to
provide such space and services without charge to Flex Financial. Upon closing
of the Units Offering, Focus-Tech has agreed to provide to the Company such
general and administrative services, which will include the cost of the use of
office space, personnel, facilities and equipment, as may be required for the
Company's business use on a monthly basis for a fee of $4,000 per month and to
make this space available as long as required for the use of the Company. The
Company believes that such space and services will be adequate for the business
of the Company into the foreseeable future. Focus-Tech has agreed that its fee
for providing such services shall be paid only out of 15% of net Units Offering
proceeds in excess of $200,000, and thereafter agrees to accrue the monthly fee
for payment solely out of the fees, interest earned and earnings generated by
the Company's business.
<PAGE>
F - 18
INDEPENDENT AUDITOR'S REPORT
To the Stockholder and Directors of
Flex Acquisitions Corporation
(A Development Stage Company)
Montgomery, Texas
We have audited the accompanying balance sheets of Flex Acquisitions
Corporation (A Development Stage Company) as of July 31, 1998 and 1997, and the
related statements of operations, changes in stockholder's equity (deficit) and
cash flows for the years ended July 31, 1998 and 1997, and the periods March 22,
1996 (date of inception) through July 31, 1998 and 1996. 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 audits.
We conducted our audits 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 audits provide 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 Flex Acquisitions
Corporation (A Development Stage Company) at July 31, 1998 and 1997, and the
results of its operations and its cash flows for the years and periods then
ended in conformity with generally accepted accounting principles.
/s/Harper & Pearson Company
Houston, Texas
November 6, 1998
<PAGE>
FLEX ACQUISITIONS CORPORATION
A DEVELOPMENT STAGE COMPANY
BALANCE SHEETS
JULY 31, 1998 AND 1997
ASSETS
1998 1997
-------- --------
OTHER ASSETS
Start-up costs $ 4,992 $ 4,992
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Note payable, Flex Financial Group, Inc. $ 4,000 $ 4,000
Accounts payable 134 134
Interest payable 934 534
------- -------
TOTAL CURRENT LIABILITIES 5,068 4,668
------- -------
STOCKHOLDER'S EQUITY (DEFICIT)
Preferred stock, no par value, 10,000,000
shares authorized, none issued and
outstanding, rights, preferences,
qualifications, limitations and
restrictions and any other benefits to be
determined by the Board of Directors -0- -0-
Common stock, $.001 par value, 10,000,000
shares authorized, 20,000 shares sold
and to be issued 20 20
Additional paid-in capital 980 980
Deficit accumulated during the development stage (1,076) (676)
------- -------
(76) 324
------- -------
$ 4,992 $ 4,992
======= =======
See accompanying notes.
<PAGE>
FLEX ACQUISITIONS CORPORATION
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF OPERATIONS
YEARS AND PERIODS ENDED JULY 31, 1998, 1997 AND 1996
Cumulative
1998 1997 1996(1) (2)
--------- --------- -------- ----------
EXPENSES
Interest expense $ 400 $ 400 $ 134 $ 934
Outside services -0- -0- 80 80
Bank service charges -0- -0- 54 54
Postage and delivery -0- -0- 8 8
-------- -------- -------- ---------
400 400 276 1,076
------- ------- ------- ---------
NET LOSS $ (400) $ (400) $ (276) $ (1,076)
======= ======= ======= =========
LOSS PER COMMON SHARE $ (.02) $ (.02) $ (.01) $ (.05)
======= ======= ======= =========
SHARES USED IN COMPUTING
LOSS PER SHARE 20,000 20,000 20,000 20,000
====== ======= ======= =========
(1) March 22, 1996 (Date of Inception) to July 31, 1996
(2) March 22, 1996 (Date of Inception) to July 31, 1998
See accompanying notes.
<PAGE>
FLEX ACQUISITIONS CORPORATION
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
YEARS ENDED JULY 31, 1998, 1997 AND PERIOD ENDED JULY 31, 1996
Additional
Preferred Common Paid-In Retained
Stock Stock Capital (Deficit) Total
--------- ------ ------- ---------- -----
Sale of Common
Stock $ -0- $ 20 $ 980 $ -0- $ 1,000
Net Loss -0- -0- -0- (276) (276)
-------- -------- -------- -------- --------
Balance -
July 31, 1996 -0- 20 980 (276) 724
Net Loss -0- -0- -0- (400) (400)
-------- -------- -------- -------- --------
Balance -
July 31, 1997 -0- 20 980 (676) 324
Net Loss -0- -0- -0- (400) (400)
-------- -------- -------- -------- --------
Balance -
July 31, 1998 $ -0- $ 20 $ 980 $(1,076) $ (76)
======== ======== ======== ======== ========
See accompanying notes.
<PAGE>
FLEX ACQUISITIONS CORPORATION
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF CASH FLOWS
YEARS AND PERIODS ENDED JULY 31, 1998, 1997 AND 1996
<TABLE>
<S> <C> <C> <C> <C>
Cumulative
1998 1997 1996(1) (2)
-------- -------- -------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (400) $ (400) $ (276) $ (1,076)
------- ------- ------- --------
Adjustments to reconcile net loss to net
cash used by operating activities:
Change in operating assets and
liabilities:
Accounts payable -0- -0- 134 134
Interest payable 400 400 134 934
------- ------- ------- -------
Total Adjustments 400 400 268 1,068
------- ------- ------- -------
Net Cash Used by Operating
Activities -0- -0- (8) (8)
-------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Start-up costs -0- -0- (4,992) (4,992)
------- ------- ------- -------
Net Cash Used by Investing
Activities -0- -0- (4,992) (4,992)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term note payable, Flex Financial
Group, Inc. -0- -0- 4,000 4,000
Proceeds from issuance of common stock -0- -0- 1,000 1,000
------- ------- ------- -------
Net Cash Provided by Financing
Activities -0- -0- 5,000 5,000
------- ------- ------- -------
NET INCREASE IN CASH -0- -0- -0- -0-
CASH AT BEGINNING OF PERIOD -0- -0- -0- -0-
CASH AT END OF PERIOD $ -0- $ -0- $ -0- $ -0-
======= ======= ======= ======= =
</TABLE>
(1) March 22, 1996 (Date of Inception) to July 31, 1996
(2) March 22, 1996 (Date of Inception) to July 31, 1998
See accompanying notes.
<PAGE>
FLEX ACQUISITIONS CORPORATION
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Flex Acquisitions Corporation (A Development Stage Company) (Acquisitions)
a wholly owned Texas subsidiary of American Nortel Communications, Inc.
(American Nortel) was incorporated on March 21, 1996 for the purpose of; (a)
merging with Flex Financial Group, Inc. (Flex Financial), an entity under common
management because of overlapping director and officers, and (b) a proposed
filing of a registration statement with the Securities and Exchange Commission.
Simultaneously with these transactions, it is anticipated that American Nortel
will then distribute its shares of the Company to American Nortel shareholders.
The newly formed public Company will then engage in the business of
participating in certain short-term financing opportunities (terms of less than
one year) in the underwriting segment of the securities industry and in certain
long-term financing and investment opportunities (terms of greater than one
year) in transactions with operating businesses with significant growth
potential.
The Company has no business operations or significant capital and does not
intend to engage in any active business until it merges with Flex Financial.
Should the merger not occur, the Company would seek other business opportunities
and if none were found, would be dissolved within eighteen months by a vote of
the majority of its common stockholders.
Common management of Acquisitions and Flex Financial result from the
following relationships; Michael T. Fearnow, sole director and officer of
Acquisitions holds similar positions with Flex Financial and is the sole owner
of Focus-Tech Investments, Inc., a 17.5% owner of Acquisitions. Financial Public
Relations, Ltd. is a Texas limited partnership with all interests owned by
entities controlled or owned by M. Stephen Roberts, a 17.5% owner of
Acquisitions. Focus-Tech Investments, Inc. is a Nevada corporation wholly owned
by Michael T. Fearnow. Mr. Fearnow is also the sole director and officer of
Focus-Tech Investments, Inc. M. Stephen Roberts, attorney at law, is a 17.5%
owner of Acquisitions and less than .5% shareholder in American Nortel.
Merger Spin-Off - In July 1996, the Company agreed to merge with Flex
Financial. Flex Financial is a developmental stage company formed to participate
in certain short-term financing opportunities (terms of less than one year) in
the underwriting segment of the securities industry and to participate in
certain long-term financing and investment opportunities (terms of greater than
one year) in transactions with operating businesses with significant growth
potential.
The Company will be the surviving corporation (Survivor) but Flex Financial
will elect all directors and officers of the Survivor. All currently outstanding
stock of Flex Financial will be canceled and converted into 94,000 shares of the
Company's common stock. Flex Financial has options and warrants currently
outstanding which will be canceled and options and warrants on the Company's
common stock will be issued according to the plan of merger.
The merger is contingent upon the effectiveness of the registration
statements, and upon the shareholders of the Company and of Flex Financial
approving the proposed merger.
Management's Estimates - Management uses estimates and assumptions in
preparing financial statements in accordance with generally accepted accounting
principles. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the estimates
that were used.
<PAGE>
FLEX ACQUISITIONS CORPORATION
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
YEARS ENDED JULY 31, 1998, 1997 AND PERIOD ENDED JULY 31, 1996
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Loss Per Common Share - Loss per common share is computed using the
weighted average number of shares of common stock outstanding during the period.
Income Taxes - For the years and period ended July 31, 1998 and 1997, the
Company incurred net operating losses amounting to $400 each period. Net
operating loss carryforwards will expire in the years 2012 and 2011, if not
previously utilized.
No tax benefit for the loss carryforward has been reported in the financial
statements. Accordingly, the tax benefit of approximately $360 resulting from
the utilization of the loss carryforward has been offset by a valuation
allowance of the same amount.
Start-up Costs - Represents legal and other costs associated with the
organization of the Company and services in connection with the anticipated
merger/spin-off with American Nortel Communications, Inc. and Flex Financial
Group, Inc. These costs will be amortized over a five year period upon
commencement of operations.
Operating Costs - Subsequent to December 31, 1996, pursuant to an
agreement with Flex Financial, the Company is provided free rent,
accounting services, management and other operating expenses.
NOTE B TRANSACTIONS AND BALANCES WITH FLEX FINANCIAL GROUP, INC.
AND MR. STEVE ROBERTS
Transactions and balances with Flex Financial and Mr. Roberts for the
periods ended July 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996
-------- -------- --------
Flex Financial Group, Inc.
Interest expense/payable $ 400 $ 400 $ 134
======= ======== ========
Roberts - Attorney at Law;
initial registered agent
Start-up costs $ -0- $ -0- $ 4,992
======= ========= =======
<PAGE>
ACCOUNTANTS' REPORT
To the Stockholder and Directors of
Flex Financial Group, Inc. and Flex Acquisitions Corporation
(A Development Stage Company)
Montgomery, Texas
We have compiled the accompanying pro forma consolidated balance sheets of
Flex Acquisitions Corporation as of July 31, 1998, 1997 and 1996, and the
related pro forma consolidated statements of operations for the years then
ended.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been had
the merger between Flex Financial Group, Inc. and Flex Acquisitions Corporation
occurred at July 31, 1996. However, the pro forma consolidated financial
statements are not necessarily indicative of the results of operations or
related effects on financial position that would have been attained had the
above-mentioned transaction actually occurred earlier.
The accompanying presentation and this report were prepared for the Flex
Financial Group, Inc. Form SB-2 and should not be used for any other purpose.
A compilation is limited to presenting in the form of pro forma financial
statement information that is the representation of management and does not
include evaluation of the support for the assumptions underlying the pro forma
transactions. We have not examined or reviewed the accompanying pro forma
consolidated financial statements and, accordingly, do not express an opinion or
any other form of assurance on them.
Houston, Texas
November 6, 1998
<PAGE>
FLEX ACQUISITIONS CORPORATION
A DEVELOPMENT STAGE COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEETS
JULY 31, 1998, 1997 AND 1996
ASSETS
July 31, July 31, July 31,
1998 1997 1996
-------- -------- --------
CURRENT ASSETS
Cash $ 269 $ 9,564 $ 42,220
Interest receivable 29 62 1,352
Note receivable, Flex
Acquisition Corporation -0- -0- 25,000
Note receivable, Flex Delaware -0- -0- 10,000
Loan origination costs, net -0- -0- 1,250
Deferred registration costs -0- 32,303 -0-
--------- -------- --------
TOTAL CURRENT ASSETS 298 41,929 79,822
-------- -------- --------
OTHER ASSETS
Start-up costs 4,992 4,992 4,992
-------- -------- --------
$ 5,290 $ 46,921 $ 84,814
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 3,588 $ 134 $ 192
Notes payable 50,000 50,000 50,000
Interest payable 14,849 8,822 3,822
Note payable, Focus-Tech
Investments, Inc. 31,185 -0- -0-
Accrued overhead, Focus-Tech
Investments, Inc. -0- -0- 8,891
--------- -------- --------
TOTAL CURRENT LIABILITIES 99,622 58,956 62,905
--------- -------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, no par value,
10,000,000 shares authorized,
none issued and outstanding,
rights, preferences,
qualifications, limitations and
restrictions and any other
benefits to be determined by
the Board of Directors as
provided in the Articles of
Incorporation -0- -0- -0-
Common stock, $.01 par value,
10,000,000 shares authorized,
94,000 shares sold and to be
issued 114 114 114
Additional paid-in capital 83,180 83,180 83,086
Deficit accumulated during the
development stage (177,626) (95,235) (61,291)
-------- -------- --------
(94,332) (12,035) 21,909
-------- -------- --------
$ 5,290 $ 46,921 $ 84,814
======== ======== ========
See summary of significant assumptions and accounting policies and accountants'
report.
<PAGE>
FLEX ACQUISITIONS CORPORATION
A DEVELOPMENT STAGE COMPANY
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996
Year Year Year
Ended Ended Ended
July 31, July 31, July 31,
1998 1997 1996
-------- ------ ------
INTEREST INCOME $ -0- $ 604 $ 2,144
------- ------- -------- -
EXPENSES
Advertising -0- -0- 2,564
Amortization -0- 1,250 -0-
Bad debt expense -0- 10,000 -0-
Consulting expenses -0- -0- 16,982
Filing fees -0- 4,523 510
Interest expense 6,060 5,400 7,572
Legal and professional
fees 43,899 12,687 6,100
Other expenses 35 688 1,707
Write-off of deferred
registration costs 32,397 -0- -0-
Accrued overhead, Focus-Tech
Investments, Inc. -0- -0- 8,891
Overhead allocation, Focus-Tech
Investments, Inc. -0- -0- 19,109
------- ------- --------
82,391 34,548 63,435
------- ------- --------
NET LOSS $(82,391) $(33,944) $ (61,291)
======= ======= ========
See summary of significant assumptions and accounting policies and
accountants' report.
<PAGE>
FLEX ACQUISITIONS CORPORATION
A DEVELOPMENT STAGE COMPANY
SUMMARY OF SIGNIFICANT ASSUMPTIONS AND ACCOUNTING POLICIES
MAY 31, 1998, JULY 31, 1997 AND 1996
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The pro forma consolidated financial statements are based upon the
historical financial statements of Flex Financial Group, Inc. (A Development
Stage Company) (FFGI) and Flex Acquisitions Corporation (FAC) and their proposed
merger, as if the merger was effective July 31, 1996. All intercompany
transactions and balances have been eliminated (primarily notes
payable/receivable and interest income/expense). No changes have been made to
the accounting policies of the merged entities.
The pro forma consolidated financial statements should be read in
conjunction with the historical financial statements of the merged entities and
the pro forma information is not necessarily indicative of the results that
would have been attained if the merger had actually taken place July 31, 1996.
Alt - 1
[ALTERNATE COVER PAGE FOR DISTRIBUTION PROSPECTUS]
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 1, 1998
FLEX FINANCIAL GROUP, INC.
Common Stock, $.001 per Share
This Prospectus covers 20,000 shares of common stock, par value $.001 per
share ("Flex Financial Common Stock"), of Flex Financial Group, Inc. a Delaware
corporation ("Flex Financial"). This Prospectus is being furnished to the
stockholders of American NorTel Communications, Inc. ("American NorTel"), in
connection with the proposed distribution (the "Distribution") to American
NorTel's stockholders of shares of Flex Financial Common Stock, pursuant to the
terms of an Agreement and Plan of Distribution, dated as of June 30, 1996, by
and between American NorTel, Flex Acquisitions and Flex Financial, Flex
Financial (the "Distribution Agreement"). A copy of the Distribution Agreement
is included as an exhibit to the Registration Statement of which this Prospectus
is a part. American NorTel is proposing to make the Distribution in connection
with and as part of a proposed reorganization that also involves the merger of
Flex Acquisitions Corporation ("Flex Acquisitions") with and into Flex Financial
(the "Merger"), with Flex Financial remaining as the surviving corporation
(after the Merger, the "Company"), the Merger to take place immediately prior to
the Distribution, pursuant to a Restated Agreement and Plan of Merger by and
between Flex Acquisitions and Flex Financial dated as of December 1, 1997 (the
"Merger Agreement"), a copy of which is included as an exhibit to the
Registration Statement of which this Prospectus is a part. As of the date of
this Prospectus, American NorTel is the sole shareholder of Flex Acquisitions
and, upon consummation of the Merger, will become a shareholder of the combined
companies, the Company. The consummation of the Distribution is conditioned upon
the successful completion of the Merger. The completion of the Merger is subject
to the approval of American NorTel (in its capacity as the sole shareholder of
Flex Acquisitions) and the shareholders of Flex Financial. Both American NorTel
and a majority of the shareholders of Flex Financial have agreed to approve the
Merger.
One share of Company Common Stock will be distributed for each 588 shares
of common stock of American NorTel, par value $_____ per share (the "American
NorTel Common Stock"), issued and outstanding on the date established by the
Board of Directors of American NorTel for determining stockholders of record
entitled to receive Company Common Stock in the Distribution (the "Distribution
Record Date").
No consideration will be paid by American NorTel's stockholders for the
shares of Flex Acquisitions Common Stock to be received by them in the
Distribution. There is currently no public trading market for the shares of Flex
Financial Common Stock. the Company intends to attempt to qualify the Company
Common Stock for quotation on the Electronic Bulletin Board (EBB) under the
trading symbol "________."
STOCKHOLDERS OF AMERICAN NORTEL SHOULD CAREFULLY CONSIDER THE INFORMATION
SET FORTH UNDER THE CAPTION "RISK FACTORS" ON PAGE 13 HEREOF WITH RESPECT TO THE
SECURITIES BEING OFFERED HEREBY.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December 1, 1998
Alt - 10
[ALTERNATE TABLE OF CONTENTS PAGE FOR DISTRIBUTION PROSPECTUS]
TABLE OF CONTENTS
AVAILABLE INFORMATION.........................................................v
CAUTIONARY STATEMENTS.........................................................v
SUMMARY OF THE OFFERING.......................................................6
Overview...................................................................6
The Company................................................................7
General..................................................................7
Business Plan............................................................7
Management...............................................................7
Use of Proceeds............................................................7
Minimum Offering.........................................................7
Maximum Offering.........................................................8
The Transactions...........................................................8
The Distribution.........................................................8
The Merger...............................................................9
The Offering...............................................................9
Parties to the Transaction................................................10
Flex Financial Group, Inc...............................................10
Flex Acquisitions Corporation...........................................10
American NorTel Communications, Inc.....................................11
Summary Consolidated Financial Data.......................................12
RISK FACTORS.................................................................13
Risks Inherent in Development Stage Company...............................13
Arbitrary Determination of Offering Price and Warrant Exercise Price......13
No Assurance of a Public Market and Likelihood of a Volatile Market.......13
Penny Stock Regulation....................................................13
Dependence on Michael Fearnow.............................................14
Conflicts of Interest.....................................................14
Lack of Independent Directors.............................................14
Lack of Ability to Fully Investigate Financing Opportunities..............14
Current Prospectus and State Blue Sky Registration Required to
Exercise the Warrants...................................................14
Competition...............................................................15
Adverse Effect of Sale of Less Than Total Offering........................15
Risk of No Underwriter....................................................15
Lack of Participating Broker Dealers......................................15
No Cash Dividends.........................................................15
Shares Eligible for Future Sale...........................................16
Market Standoff Agreement.................................................16
Dilution..................................................................17
Anti-Takeover Provisions..................................................18
USE OF PROCEEDS..............................................................18
DIVIDEND POLICY..............................................................19
CAPITALIZATION...............................................................19
DILUTION.....................................................................20
Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................21
General.................................................................21
Liquidity and Capital Resources.........................................21
Year 2000 Issue...........................................................21
BUSINESS OF THE COMPANY......................................................21
Overview..................................................................22
General.................................................................22
Plan of Operation.........................................................22
Business Objectives.....................................................22
Business Experience of Principals.......................................23
Subordination Loans and Bridge Loans......................................23
General Consideration...................................................23
Subordination Loans.....................................................23
Bridge Loans............................................................23
Typical Scenarios.......................................................24
Plan of Operation for Next 12 Months......................................24
Other Investment Transactions.............................................25
General.................................................................25
Investment Transactions.................................................25
Typical Scenarios.......................................................25
Method of Participation.................................................25
Flex Financial May Be Deemed to Be an Underwriter.......................25
Flex Financial May Have Exposure as a Control Person....................26
Other Considerations......................................................26
Sources of Opportunities................................................26
Evaluation Procedures...................................................27
Competition...............................................................27
Description of Properties.................................................27
Course of Business Should the Minimum Offering Not be Sold................28
Legal Proceedings.........................................................28
MANAGEMENT OF THE COMPANY....................................................28
Directors, Executive Officers and Significant Employees...................28
Compensation of Directors and Officers....................................28
Stock Incentive Plan......................................................29
General Provisions of the Stock Incentive Plan.......................29
Stock Options and Stock Appreciation Rights..........................29
Restricted Stock.....................................................30
Tax Information......................................................30
Limitations of Liability and Indemnification of Directors.................31
Certain Transactions.........................................................32
PRINCIPAL STOCKHOLDERS.......................................................33
Security Ownership of Certain Beneficial Owners...........................33
Security Ownership of Management..........................................34
Parents...................................................................34
DESCRIPTION OF SECURITIES....................................................34
Units.....................................................................35
Common Stock..............................................................35
Redeemable Common Stock Purchase Warrants and Options.....................36
Class A Common Stock Purchase Options...................................36
Class B Warrants........................................................36
Class C Warrants........................................................36
General.................................................................37
Current Prospectus and State Blue-Sky Registration Required
to Exercise Warrants.................................................37
Unit Purchase Options.....................................................38
Preferred Stock...........................................................38
Defenses Against Hostile Takeovers........................................38
Introduction............................................................38
Authorized Shares of Capital Stock......................................38
Stockholder Meetings....................................................39
Classified Board of Directors and Removal of Directors..................39
Restriction of Maximum Number of Directors and Filling
Vacancies on the Board of Directors..................39
Stockholder Vote Required to Approve Business Combinations
with Related Persons...............................39
Advance Notice Requirements for Nomination of Directors
and Proposal of New Business at Annual Stockholder Meetings...........40
Limitations on Acquisitions of Capital Stock............................40
Supermajority Voting Requirement for Amendment of
Certain Provisions of the Certificate of Incorporation................40
Registrar Transfer Agent and Warrant Agent................................41
THE DISTRIBUTION.............................................................41
Terms of the Distribution Agreement.......................................41
Manner of Effecting the Distribution......................................41
Trading of Company Common Stock; Restrictions on Resale...................42
Treatment of Small Number of Shares.......................................42
Purpose of the Restructuring..............................................42
Accounting Treatment of Proposed Merger...................................43
Certain Federal Income Tax Consequences...................................43
Taxation of Stock as a Dividend...........................................44
Taxpayer Relief Act.......................................................45
Backup Withholding........................................................45
Certain State Tax Consequences............................................45
Reoffering by Party Deemed to be an Underwriter...........................45
SHARES ELIGIBLE FOR FUTURE SALE..............................................46
LEGAL MATTERS................................................................46
EXPERTS......................................................................48
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES.......................................F - 1
<PAGE>
[ALTERNATE PAGE FOR DISTRIBUTION PROSPECTUS]
USE OF PROCEEDS
Immediately prior to the Distribution, Flex Acquisitions will merge with
and into Flex Financial and American NorTel as the sole shareholder of Flex
Acquisitions, will receive Flex Financial Common Stock. Such shares of Flex
Financial Common Stock will be distributed in a manner expected to receive
tax-free treatment to American NorTel stockholders as of the Distribution Record
Date, and no consideration will be paid by such stockholders in the
Distribution. Therefore, there will be no proceeds from the issuance of the Flex
Financial Common Stock.
THE DISTRIBUTION
The following information describes certain aspects of the proposed
Distribution as well as a general description of the business of the Company
that will exist following the completion of the Merger and the Distribution. For
information describing certain aspects of the Merger, see " - Terms of the
Distribution Agreement" and " - Manner of Effecting the Distribution." The
descriptions of the various agreements contained herein, including, without
limitation, the Distribution Agreement, do not purport to be complete and are
qualified in their entirety by reference to forms of such agreements which are
filed as an exhibit to the registration statement of which this Prospectus is a
part, which such exhibits are incorporated herein by reference. All American
NorTel Stockholders are urged to read such agreements in their entirety.
Terms of the Distribution Agreement
Simultaneously with the execution of the Merger Agreement, Flex Financial
and Flex Acquisitions executed the Distribution Agreement. Following the Merger,
Flex Financial will succeed to Flex Acquisition's obligations arising pursuant
to the Distribution Agreement by operation of law following the Merger. The
Distribution Agreement provides that the Distribution will be effected by
distributing to each holder of American NorTel Common Stock as of the close of
business on the Distribution Date certificates representing one share of Flex
Financial Common Stock for each 588 shares of American NorTel Common Stock held
by such holder as of such time. See "-- Manner of Effecting the Distribution."
Manner of Effecting the Distribution
The American NorTel Board of Directors will determine the Distribution Date
and it is expected that the Distribution will be made on the Distribution Date
to stockholders of record of American NorTel Common Stock as of the Distribution
Record Date. The Merger is expected to take place promptly following the
satisfaction of certain conditions set forth in the Merger Agreement and is
expected to occur immediately following the Time of Distribution. The
Distribution will not take place unless all of the conditions to effecting the
Merger (other than the completion of the Distribution) have been fulfilled, and
there can be no assurance as to the timing or consummation of the Distribution.
American NorTel's transfer agent, Registrar and Transfer Company, 10 Commerce
Drive, Cranford, New Jersey, will act as the Distribution Agent for the
Distribution and will deliver certificates for Company Common Stock as soon as
practicable to holders of record of American NorTel Common Stock as of the close
of business on the Distribution Record Date on the basis of one share of Company
Common Stock for every 588 shares of American NorTel Common Stock held on the
Distribution Record Date. All shares of Company Common Stock will be fully paid
and nonassessable and the holders thereof will not be entitled to preemptive
rights. See "Description of Capital Stock." Following the completion of the
Distribution, the Company will operate as an independent, publicly-traded
company.
YOU WILL NOT BE REQUIRED TO PAY ANY CASH OR OTHER CONSIDERATION FOR THE
SHARES OF COMMON STOCK RECEIVED IN THE DISTRIBUTION OR WILL YOU NEED TO
SURRENDER YOUR AMERICAN NORTEL COMMON STOCK CERTIFICATES IN ORDER TO RECEIVE
SHARES OF COMPANY COMMON STOCK IN THE DISTRIBUTION. THE DISTRIBUTION AGENT WILL
SEND YOU YOUR STOCK CERTIFICATES FOLLOWING THE CONSUMMATION OF THE MERGER.
Trading of Company Common Stock; Restrictions on Resale
The Company will attempt to qualify the Common Stock on the NASD
inter-dealer Electronic Bulletin Board. The Company Common Stock received
pursuant to the Distribution will be freely transferable under the Securities
Act, except for shares of Common Stock received by any person who may be deemed
to be an "affiliate" of the Company within the meaning of Rule 144 promulgated
under the Securities Act. Persons who may be deemed to be affiliates of the
Company after the Distribution generally include individuals or entities that
control, are controlled by, or are under common control with the Company, and
may include the directors and executive officers of the Company. Persons who are
affiliates of the Company will be permitted to sell their Common Stock received
pursuant to the Distribution only pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act. The Registration Statement of
which this Prospectus is a part will not cover resales of Company Common Stock
by affiliates of the Company. See "Shares Eligible for Future Sale."
Treatment of Small Number of Shares.
With respect to certificates representing the ownership of fewer than five
Distribution Shares of the Company, the Transfer Agent shall not immediately
distribute these certificates to the American NorTel shareholders. Rather, each
American NorTel shareholder entitled to one of these small denomination
certificates shall be advised by American NorTel that the shareholder can elect
either (i) to receive his certificate or (ii) to have his shares aggregated with
those of other small-denomination shareholders who choose not to receive their
certificates, have his shares sold through a broker into the open market after
trading in the shares should commence in the open market, and receive the net
cash proceeds of the sale after the payment of customary selling commissions. No
fractional share interests will be distributed. The Company may choose to pay in
cash the fair value of fractions of a share as of the time when those entitled
to receive such fractions are determined or to aggregate fractional share
interests with those of other small-denomination shareholders who choose not to
receive their certificates, and have the shares sold through a broker into the
open market after trading in the shares should commence, and distribute to those
entitled the net cash proceeds of such sale.
Purpose of the Restructuring
Flex Acquisitions, which is a wholly owned subsidiary of American NorTel,
was recently organized for purposes of the Transactions. Until shortly before
the Merger, Flex Acquisitions will own no material assets and will conduct no
business activities other than in preparation for the Transactions. Consummation
of the Merger is a condition to the Distribution.
Michael Fearnow has been acquainted with the chief executive officer of
American NorTel for many years and advanced the idea of the distribution. As a
result of their discussions, Flex Acquisitions and American NorTel believe that
the shareholders of Flex Financial and American NorTel will benefit from
receiving shares in a transaction that has been registered under the Securities
Act in exchange for their shares of capital stock, in the case of Flex
Financial, or as a dividend with possible future value, in the case of American
NorTel. Further, the management of the Company and of Flex Acquisitions believe
that the distribution of Shares to the stockholders of American NorTel in the
Distribution will provide the basis for the creation of a public market for the
common stock of the post-merger Company and that the existence of such a public
market will benefit the Flex Financial and American NorTel stockholders. No
assurance can be given, however, that a market will develop for the Common Stock
or, if it develops, that it will be sustained. See "Risk Factors - No Assurance
of a Public Market and Likelihood of a Volatile Market."
In determining to undertake the Restructuring by means of the Merger and
Distribution on the terms proposed, Michael Fearnow as sole director of Flex
Financial considered the 17% dilution to shareholders of Flex Financial and the
fairness of the consideration received by the shareholders pursuant to the
Merger and Distribution. The board considered among other factors: prior
disclosures to shareholders as to expected dilution in any merger and spin-off
transaction, the amount of capital contributed by the shareholders, the
estimated expenses and timing of an independent initial public offering of
securities, the percentage of ownership to be held by investors in this Units
Offering, the current market conditions in the over-the-counter securities
market, the Company's proposed capital structure, possible future capital
requirements of the Company, potential dilution to shareholders from Warrant
exercise, the estimated costs of acquiring a fully reporting and current public
shell corporation, the dilutive effects of such alternative transactions, the
company's ability to develop a public market for its common stock, and the costs
and dilutive effect of similar transactions necessary to accomplish a public
underwriting and to become a widely owned public company. The board concluded
that alternative undertakings posed a number of obstacles which management
determined were unreasonable, including: substantial time requirements, legal
and accounting costs, the inability to obtain an underwriter willing to commit
to a firm underwriting, limited capital available to the company, and the
potential amount of dilution likely to be experienced by the Flex Financial
shareholders and other costs associated with an IPO or shell acquisition.
Michael Fearnow as the sole director and officer of Flex Financial
determined that, after research into other possible alternatives, the proposed
Restructuring presented the fastest and least expensive method of accessing the
U.S. public securities markets and providing the most desirable corporate
vehicle for conducting its business operations. The criteria applied by the
board was to obtain trading status for the shares held by Flex Financial's
shareholders and to seek to raise additional capital in order to expand its
business operations while utilizing its existing infrastructure, management and
knowledge of its industry at the least cost to shareholders measured in terms of
capital expended and dilution. Applying this criteria, the board determined
that, considering the 17% dilution was in line with prior disclosures to
shareholders regarding expected dilution in any merger and spin-off transaction,
the terms of the proposed Merger and Distribution were fair to its shareholders.
As provided in the Distribution Agreement, prior to the consummation of the
Distribution, American NorTel will take certain actions as the sole stockholder
of Flex Acquisitions or will ratify action taken by officers and directors of
Flex Acquisitions in connection with adoption of the Plan and Agreement of
Merger, including: (i) adopting the Certificate of Incorporation and Bylaws of
Flex Acquisitions to be in effect at the Time of Distribution (as defined in the
Distribution Agreement); (ii) causing the officers directors of the Company to
serve in such capacities following the Distribution; and (iii) adopting an
incentive compensation plans for the benefit of directors, officers, and
employees of the Company to be in effect following the Distribution. For
information concerning the Certificate of Incorporation and Bylaws of the
Company, see "Description of Securities - Common Stock and - Defenses Against
Hostile Takeovers." For information concerning the individuals who will serve as
directors and executive officers of the Company following the Distribution and a
description of the Flex Financial stock incentive plan, see "Management of the
Company."
Accounting Treatment of Proposed Merger
Because Flex Acquisitions has no material assets or liabilities and is not
an operating entity, the proposed Merger will be accounted for as if Flex
Financial recapitalized.
Certain Federal Income Tax Consequences
The following summary description of the material federal income tax
consequences of the Distribution is based upon the opinion of Sonfield &
Sonfield, federal tax counsel for the Company ("Tax Counsel"). This summary is
for general informational purposes only and is not intended as a complete
description of all of the tax consequences of the Distribution and does not
discuss tax consequences under the laws of state or local governments or of any
other jurisdiction. The Company has not requested a ruling from the Internal
Revenue Service (the "Service") with respect to these matters. Accordingly, no
assurance can be given as to the Service's interpretation with respect to these
matters. Moreover, the tax treatment of a stockholder may vary depending upon
his, her or its particular situation. In this regard, certain stockholders
(including (i) insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, and persons who are not citizens or residents of
the United States or who are foreign corporations, foreign partnerships or
foreign trusts or estates as defined for United States federal income tax
purposes, and (ii) stockholders that hold shares as part of a position in a
"straddle" or as part of a "hedging" or "conversion" transaction for United
States federal income tax purposes and stockholders with a "functional currency"
other than the United States dollar) may be subject to special rules not
discussed below. In addition, this summary applies only to shares which are held
as capital assets. The following discussion may not be applicable to a
stockholder who acquired his or her shares pursuant to the exercise of stock
options or otherwise as compensation. There can be no assurance that there will
not be differences of opinion as to the interpretation of applicable law.
Tax opinions are not binding on the IRS or any court. Moreover, the tax
opinions are based upon, among other things, certain representations as to
factual matters made by Flex Financial and Flex Acquisitions, which
representations if incorrect or incomplete in certain material respects, would
jeopardize the conclusions reached in the opinions.
This information is directed to stockholders who acquire shares in the
initial distribution thereof, who are citizens or residents of the United
States, including domestic corporations and partnerships, and who hold the
shares as "capital assets" within the meaning of Section 1221 of the Code.
Taxpayers and preparers of tax returns (including those filed by any partnership
or other company) should be aware that under applicable Treasury regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice is (i) given with respect to events that have
occurred at the time the advice is rendered and is not given with respect to the
consequences of contemplated actions, and (ii) is directly relevant to the
determination of an entry on a tax return. Accordingly, taxpayers should consult
their own tax advisors and tax return preparers regarding the preparation of any
item on a tax return, even where the anticipated tax treatment has been
discussed herein..
THE FOLLOWING DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
CODE, TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE WHICH MAY OR MAY NOT
BE RETROACTIVE, AND ANY SUCH CHANGES COULD AFFECT THE TAX CONSEQUENCES DESCRIBED
HEREIN. SEE "POSSIBLE FUTURE LEGISLATION" BELOW.
EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE TRANSACTION DESCRIBED
HEREIN, INCLUDING, THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
TAX LAWS, AND THE POSSIBLE EFFECTS OF CHANGES OF APPLICABLE TAX LAWS.
Taxation of Stock as a Dividend
Dividends paid on common stock are subject to tax as ordinary income to the
extent of the company's current or accumulated earnings and profits as computed
for federal income tax purposes. To the extent that the amount of the dividend
paid on the common stock exceeds the company's current and accumulated earnings
and profits for federal income tax purposes, such dividend will be treated first
as a nontaxable return of capital which will be applied against and reduce the
adjusted tax basis of the common stock of the holder. Any amount in excess of
the holder's adjusted tax basis would then be taxed as capital gain, and will be
long-term capital gain if the holder's holding period for the common stock
exceeds one year. For purposes of the remainder of this discussion of federal
income tax consequences, the term "dividend" refers to a distribution out of
current or accumulated earnings and profits and taxed as ordinary income as
described above, unless the context indicates otherwise.
The 70% (and in some cases, 80%) dividends received deduction may be
available with respect to dividends paid by the company to holders which are
corporations. However, a corporate holder that disposes of shares within 45 days
of their date of acquisition cannot claim the dividends received deduction for
dividends on such shares. (These time periods are extended for periods during
which the taxpayer's risk of loss with respect to such shares is diminished, for
example, by an offsetting position.) In addition, under section 246A of the
Code, if a corporation incurs indebtedness for the purpose of making or carrying
a portfolio stock investment (which would include the common stock), the 70% (or
in some cases, 80%) deduction for dividends received will generally be
disallowed with respect to the dividends on that portion of such stock which was
acquired or carried by means of such indebtedness
Section 1059 of the Code imposes a special basis reduction rule that
requires a corporate shareholder to reduce its basis (but not below zero) for
stock owned by it to the extent of the nontaxed portion of any extraordinary
dividend if as of the earliest of the date on which the corporation declares,
announces or agrees to the amount or payment of such dividend the corporate
shareholder has not held such stock for more than two years. Generally, the
nontaxed portion of an extraordinary dividend is the amount excluded from income
under section 243 of the Code (relating to the deduction for dividends received
by corporations). An extraordinary dividend is generally defined as a dividend
equaling or exceeding a prescribed threshold percentage (5% for Bonds and 10%
for common stock) of the corporate shareholder's adjusted basis in such stock.
Under certain circumstances the corporate shareholder may elect to use fair
market value rather than adjusted basis in computing the threshold percentage
for determining whether an extraordinary dividend has been received. In
addition, a corporate shareholder shall recognize, in the year such stock is
sold or otherwise disposed of, as gain from the sale or exchange of stock, an
amount equal to the aggregate nontaxed portions of any extraordinary dividends
with respect to such stock which did not reduce the basis of such stock by
reason of the limitation on reducing basis below zero
Taxpayer Relief Act
The Taxpayer Relief Act of 1997 ("TRA 1997") was signed into law on August
5, 1997. TRA 1997 contains certain restrictions involving a distribution or
"spin off" to stockholders of portions of a business enterprise, accompanied by
a merger or acquisition of a specific unit of the business enterprise involving
a third party acquiror. The Distribution and the Merger are not affected by the
restrictions imposed by TRA 1997.
Backup Withholding
United States information reporting requirements and backup withholding at
the rate of 31% may apply with respect to dividends paid on, and proceeds from
the taxable sale, exchange or other disposition of Flex Financial Common Stock,
unless the stockholder (i) is a corporation or comes within certain other exempt
categories, and, when required, demonstrates these facts, or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A stockholder who does not supply Flex Financial
with his, her or its correct taxpayer identification number may be subject to
penalties imposed by the IRS. Any amount withheld under these rules will be
refunded or credited against the stockholder's federal income tax liability.
Stockholders should consult their tax advisers as to their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption. If information reporting requirements apply to a stockholder, the
amount of dividends paid with respect to such shares will be reported annually
to the IRS and to such stockholder.
These back-up withholding tax and information reporting rules currently are
under review by the United States Treasury Department and proposed Treasury
Regulations issued on April 15, 1996 would modify certain of such rules
generally with respect to payments made after December 31, 1997. Accordingly,
the application of such rules may be changed.
Certain State Tax Consequences
Because each state's income tax laws vary, it is impossible to predict the
income tax consequences to the holders of Bonds in all of the state taxing
jurisdictions in which they are already subject to tax. Bondholders are urged to
consult their own tax advisors with respect to state income and corporate
franchise tax consequences arising out of the purchase, ownership and
disposition of Bonds.
Reoffering by Party Deemed to be an Underwriter
The Shares described herein are to be redistributed by the owner of such
Shares, American NorTel, who might be deemed to be an underwriter by reason of
its intent to distribute such Shares. See "Terms of the Distribution." In
addition, any American NorTel shareholder who is an affiliate of American NorTel
might be deemed to be an underwriter if such shareholder has an intent to
redistribute the Distribution Shares received in the Distribution. The Company
is not aware of any such shareholder who may be deemed to be an affiliate. See
"Principal Stockholders."
After the distribution by American NorTel of the Distribution Shares to its
shareholders, American NorTel will no longer own any shares of capital stock of
the Company, except to the extent that an uncertain number of Distribution
Shares representing undistributed fractional and whole share interests, would
not be allocated in the rounding down process. See "Terms of the Distribution."
In the event American NorTel or a shareholder of American NorTel should be
deemed to be an underwriter of the Shares to be distributed to its shareholders,
any person who purchases the registered Shares within three years after the
distribution could assert a claim against American NorTel under Section 11 of
the Securities Act of 1933. The purchase could be in the open market as long as
the shares purchased can be traced to the Shares American NorTel distributes to
its shareholders under this Prospectus. Such a claim, to be successful, must be
based upon a showing that statements in the registration statement were false or
misleading with respect to a material fact or that the registration statement
omitted material information required to be included therein.
Open market purchasers may have to prove reliance upon the alleged
misstatement or omission, but reliance may not necessarily require a showing
that the purchaser actually read the registration statement but, instead, that
the misstatements or omissions in the registration statement were a substantial
factor in the purchase of the shares.
<PAGE>
II - 5
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under Delaware Law. Section 145 of the General
Corporation Law of Delaware provides that:
(a) A corporation may indemnify any person, including officers and directors,
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of another corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation under the same
conditions, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Article XV of the Certificate of Incorporation of the Registrant provides,
in effect, that subject to certain limited circumstances, the Company will
indemnify its officers and directors to the extent permitted by Delaware Law.
The Company is not insured for liabilities it may incur pursuant to Article XV
of its Certificate of Incorporation relating to the indemnification of officers
and directors of the Company and its subsidiaries or affiliates.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting commissions and the non accountable expense allowance. None of the
expenses are being paid by the distributing security holder, American NorTel
Communications, Inc. All expenses are being paid by Flex Financial Group, Inc.,
the Company with which Flex Acquisitions proposes to Merger.
ITEM AMOUNT
Registration fees $3,000
Escrow agent's fee 1,750
Stock transfer agent's fee 4,000
Printing and engraving 5,000 (1)
Postage 4,000 (1)
Legal 35,000
Accounting 15,000
Moody's publication fee 3,500
---------
TOTAL $ 71,250
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(1) Estimate
ITEM 26. Recent Sales of Unregistered Securities
On March 31, 1996, the Flex Acquisitions issued its convertible
subordinated redeemable note ("Flex Note") in the principal sum of $4,000 to
Flex Financial. The Flex Note bears 10% interest with principal and interest due
March 31, 1998 and is convertible into Common Stock at a conversion price of
$.05 per share. If the Merger is consummated the Flex Note be eliminated as part
of the transaction. If the Merger or any other merger is not effected within 18
months of the effective date of the S-4 registration statement, Flex Financial
has agreed to convert the Flex Note into Common Stock of the Company and
exercise its voting rights to cause a dissolution of the Company.
On September 1, 1996 Flex Acquisitions issued 20,000 shares of its Common
Stock to its corporate parent, American NorTel Communications, Inc., a Wyoming
corporation, for a cash consideration of $1,000 received on April 12, 1996. This
is the only issuance of Common Stock by Flex Acquisitions, which remains a
wholly-owned subsidiary of American NorTel Communications, Inc.
There was no underwriter, and the securities were not offered to any person
other than American NorTel Communications, Inc.
The securities were not registered under the Securities Act of 1933 in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act. It is believed that Congress never intended, in enacting the
Securities Act, that a corporation needs the protection of the registration
provisions of the Securities Act when it organizes a wholly-owned subsidiary
corporation whose directions and policies will be established and governed by
the corporate parent.
Flex Financial was organized under the laws of Delaware on the 8th day of
December, 1997 and, as a part of its organization, privately offered and sold
94,000 share of common stock, $.001 par value per share, 80,000 Class A Options,
28,000 Class B Warrants and 28,000 Class C Warrants for a price equal to the par
value or a total of $94.00. In addition, Flex Financial agreed to acquire all
the assets and certain liabilities of Flex Financial Group, Inc., a Texas
corporation, in consideration for cash in an amount equal to the shareholders'
equity as of July 31, 1996.
The issuance of the securities was deemed exempt from registration under
the Securities Act in reliance on Rule 506 promulgated under the Securities Act.
All recipients had adequate access to information about the Flex Financial,
and the recipients represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates. Flex Financial believes that all of the purchasers of the Common
Stock in this offering at $4.80 per Unit were accredited investors as defined in
Rule 501 promulgated under the Securities Act.
<PAGE>
ITEM 27. EXHIBITS.
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1.1 Form of Underwriting Agreement (3)
1.2 Form of Selected Broker-Dealer Agreement (2)
2.1 Agreement of Merger of July 1, 1996 between Flex Acquisitions Corporation
and Flex Financial Group, Inc. (2)
2.1.1Restated Agreement of Merger of July 1, 1996 between Flex Acquisitions
Corporation and Flex Financial Group, Inc.(1)
2.2 Business Combination-Spinoff Agreement of June 30, 1996 among Flex
Acquisitions Corporation, Flex Financial Group, Inc. and American NorTel
Communications, Inc. (2)
2.2.1Restated Business Combination-Spinoff Agreement of June 30, 1996 among
Flex Acquisitions Corporation, Flex Financial Group, Inc. and American
NorTel Communications, Inc.(1) 3.1 Certificate of Incorporation of Flex
Acquisitions Corporation (2)
3.2 Certificate of Incorporation of Flex Financial Group, Inc., a Texas
corporation (2)
3.2.1Certificate of Incorporation of Flex Financial Group, Inc. a Delaware
corporation (1) 3.3 Bylaws of Flex Acquisitions Corporation (2)
3.4 Bylaws of Flex Financial Group, Inc., a Texas corporation (2)
3.4.1 Bylaws of Flex Financial Group, Inc., a Delaware corporation (1)
4.1 Form of Class B Redeemable Common Stock Purchase Warrant
4.2 Form of Class C Redeemable Common Stock Purchase Warrant
4.3 Form of Class A Unit Purchase Options (3)
4.4 Form Of Common Stock Purchase Options (3)
4.5 Form of Unit Purchase Options (2)
4.6 Form of Class A Common Stock Purchase Options (2)
5.1 Opinion of Sonfield & Sonfield as to the legality of the (1)
8.1 Opinion of Sonfield & Sonfield as to tax matters (included in Exhibit 5.1)
(1)
10.1 Escrow Agreement Among Flex Acquisitions Corporation; American NorTel
Communications, Inc., and Southwest Bank of Texas N.A. (3)
10.2 Agreement of Flex Financial relating to compliance with S.E.C. Rule 419 (3)
10.3 Indemnification Agreement between the Company and Michael T. Fearnow (1)
10.4 Flex Financial Stock Incentive Plan (1)
23.1 Consent of Sonfield & Sonfield (included in Exhibit 5.1)
23.2 Consent of Harper & Pearson Company, independent auditors of Flex
Acquisitions Corporation (1)
23.3 Consent of Harper & Pearson Company, independent auditors of Flex Financial
Group, Inc. (1)
27.1 Financial Data Schedule (1)
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(1) Filed herewith
(2) Previously filed
(3) Deleted
<PAGE>
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("the Act") may be permitted to directors, officers and controlling
persons of Flex Acquisitions Corporation pursuant to the foregoing provisions,
or otherwise, Flex Acquisitions Corporation has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Flex Acquisitions Corporation of expenses incurred or
paid by a director, officer or controlling person of Flex Acquisitions
Corporation in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Flex Acquisitions Corporation will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Montgomery, Texas on December 1,
1998.
FLEX ACQUISITIONS CORPORATION
FLEX FINANCIAL GROUP, INC.
By: /s/ Michael T. Fearnow
------------------------
Michael T. Fearnow
Chief Executive Officer, President and
Chairman of the Board of Directors
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
FLEX ACQUISITIONS CORPORATION
FLEX FINANCIAL GROUP, INC.
By: /a/ Michael T. Fearnow
-------------------------
Michael T. Fearnow
Chief Executive Officer, President,
Chief Financial Officer, Chairman
of the Board of Directors, and Director
(Principal Executive Officer)
(Principal Financial and
Accounting Officer)
Date: December 1, 1998
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(1) Does not include up to 217,665 shares reserved for issuance upon exercise
of outstanding options and warrants. See "Description of Securities."
(2) Does not include (i) 1,000,000 shares reserved for issuance under the
Company's stock option plan or (ii) 400,000 shares reserved for issuance
under the Warrants being offered hereby. See "Description of Securities."
