AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1999
Registration No. 333-17107
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
_______________
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<CAPTION>
FLEX FINANCIAL GROUP, INC.
(Name of Small Business Issuer in its charter)
<S> <C> <C>
DELAWARE . . . . . . . . . . . . 6159 76-0498636
(State or other jurisdiction of. (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) . Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
179 RUSKIN DRIVE EAST. . . . . . . . . . . . . . . MICHAEL T. FEARNOW, PRESIDENT
MONTGOMERY, TEXAS 77356. . . . . . . . . . . . . . FLEX FINANCIAL GROUP, INC.
(409) 597-7500
(Address, and telephone number of Principal. . . . MONTGOMERY, TEXAS 77356 (409) 597-7500
Place of Business and Principal Executive Offices) (Name, address and telephone number of Agent for Service)
<S> <C>
179 RUSKIN DRIVE EAST
MONTGOMERY, TEXAS 77356
179 RUSKIN DRIVE EAST
(Address, and telephone number of Principal
Place of Business and Principal Executive Offices)
</TABLE>
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.
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<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) FEE
- --------------------------------------------------- ------------- ---------------- ------------------- -------------
<S> <C> <C> <C> <C>
Units, (2) 100,000 $ 6.00 $ 600,000 $ 181.81
- --------------------------------------------------- ------------- ---------------- ------------------- -------------
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 $ 378.79
- --------------------------------------------------- ------------- ---------------- ------------------- -------------
Class C Warrants (3) 200,000 $ .00 $ 0 $ 0.00
- --------------------------------------------------- ------------- ---------------- ------------------- -------------
Common Stock Underlying Class C Warrants 200,000 $ 10.00 $ 2,000,000 $ 606.06
- --------------------------------------------------- ------------- ---------------- ------------------- -------------
Common Stock (4) 20,000 $ 0.50 $ 40,000 $ 12.12
- --------------------------------------------------- ------------- ---------------- ------------------- -------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . $ 1,178.78
- --------------------------------------------------- -------------
</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, ("Common
Share") two Class B Warrants and two Class C Warrants.
(3) Pursuant to Rule 416, there are also being registered such indeterminable
additional Common Shares as may be issued pursuant to the anti-dilution
provisions of the Class B and Class C Warrants, should such provisions
become operative.
(4) Common 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 (which was merged into the Company) as of December 31,
1998. 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
"Offering"); and
(2) to be used in connection with the distribution of 20,000 Common
Shares 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>
PRELIMINARY PROSPECTUS DATED __________, 1999
FLEX FINANCIAL GROUP, INC.
100,000 UNITS EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK,
TWO CLASS B WARRANTS AND TWO CLASS C WARRANTS OFFERING PRICE: $6.00 PER UNIT
Flex Financial Group, Inc. (the "Company") is offering (the "Offering")
100,000 units (the "Units") Units, each consisting of one share of common stock,
$.001 par value ("Common Share" or "Common Stock"), 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 and
transferable.
Simultaneously with the offering of the Units (the "Units Offering"), the
Company is distributing, by means of a separate prospectus (the "Distribution
Prospectus"), 20,000 Common Shares (the "Spin-off" or the "Distribution") to the
shareholders of American NorTel Communications, Inc. ("American NorTel").
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<CAPTION>
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 COMPANY
<S> <C> <C> <C>
Per Unit. . . . $ 6.00 $ -0- $ 6.00
Total Maximum:
100,000 Units $ 600,000.00 $ -0- $ 600,000.00
- ---------------
</TABLE>
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 obligated to pay any commissions in
connection the Offering. It intends to sell the Units through its President who
will receive no compensation for effecting sales. See "Plan of Distribution."
The proceeds to the Company is before deducting expenses, payable by the
Company, estimated to be $40,000 if the maximum amount of the Offering is
("Maximum Offering").
The Units are being offered on a "best efforts" basis. The Offering has no
minimum amount.
The offering will terminate ____________, 2000, 180 days after the date of
this prospectus unless extended for not more than an additional 60 days.
This investment involves a high degree of risk. Investors should purchase
shares
only if they can afford a complete loss. See "Risk Factors" beginning on page
___.
<TABLE>
<CAPTION>
Each unit consists of:
<S> <C> <C> <C> <C>
QUANTITY TITLE DESCRIPTION EXPIRATION DATE REDEMPTION
- -------- ------------------------- ------------------------ ----------------- ------------
1. . . . Common Stock Common Equity ___________ ___________
Six months after the date
of this prospectus if the
Exercisable for One market price of the
Share of Common Stock common stock is not less
2. . . . Class B Warrants at $6.25 December 31, 2003 than $7.50.
Six months after the date
of this prospectus if the
Exercisable for One market price of the
Share of Common Stock common stock is not less
3. . . . Class C Warrants at $10.00 December 31, 2003 than $12.00.
</TABLE>
THE DATE OF THIS PROSPECTUS IS _______________,1999.
<PAGE>
i
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY OF THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CAUTIONARY STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DILUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2
BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CERTAIN TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PRINCIPAL STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SHARES ELIGIBLE FOR FUTURE SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ALTERNATE COVER PAGE FOR DISTRIBUTION PROSPECTUS. . . . . . . . . . . . . . . . . . . Alt 1- 2
ALTERNATE PAGE FOR DISTRIBUTION PROSPECTUS. . . . . . . . . . . . . . . . . . . . . . Alt 1- 2
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . F - 2
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II - 2
</TABLE>
<PAGE>
3
SUMMARY OF THE OFFERING SUMMARY OF THE OFFERING
Simultaneously with and as a condition to the consummation of the Offering,
American NorTel Communications, Inc. ("American NorTel") will distribute 20,000
Common Shares ratably to its shareholders (the "Distribution").
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. Prospective shareholders are urged to read this
Prospectus carefully in its entirety. Capitalized terms used herein without
definition are, unless otherwise indicated, defined in the text below and used
herein with such meanings.
OVERVIEW
Michael T. Fearnow is the only officer, director or employee of the
Company. Therefore, any references in this prospectus to officers and
directors, the Company, the Company's employees, management or similar
references mean Mr. Fearnow.
The Company is offering its securities in Units, each Unit consisting of
one Common Share, two redeemable Class B Warrants exercisable at $6.25 and two
redeemable Class C Warrants exercisable at $10.00. The Warrants expire on
January 1, 2003, unless extended by the Company. Each Class B Warrant may be
redeemed by the Company commencing six months after the effective date of this
Registration Statement any time 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 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 commencing six months after the effective date of this
Registration Statement at a price of $0.05 per warrant if the reported closing
bid price of the Common Shares is at least $12.00 per share for a period of 20
consecutive trading days immediately prior to the date of the notice of
redemption to warrant holders. See "Description of Securities - Redeemable
Common Stock Purchase Warrants."
Flex Acquisitions Corp. ("Flex Acquisitions") merged (the "Merger") into
the Company pursuant to an agreement dated February 25, 1999. Prior thereto, it
issued 20,000 shares of its common stock to American Nortel. In the Merger,
those shares were exchanged for 20,000 Common Shares. These 20,000 Common
Shares ("distributed shares") will be distributed to American Nortel
stockholders as a dividend as soon as practical following the effective date of
the offering made hereby (this "Offering").
Mr. Fearnow and management of American NorTel believe that the shareholders
of the Company and American NorTel will benefit from this registered
distribution. American Nortel shareholders will benefit from possible future
value of the Common Shares in the event a public market is created and sustained
and Common shareholders of the Company may benefit if the distribution provides
the basis for the creation of a public market for the Common Shares. No
assurance can be given, however, that a market will develop for the Common
Shares or, if it develops, that it will be sustained. See "Risk Factors - No
Assurance of a Public Market and Likelihood of a Volatile Market."
Mr. Fearnow determined that, after research into other possible
alternatives, the proposed Distribution presented the most desirable method of
accessing the public capital markets and providing the most desirable corporate
vehicle for conducting its business operations. The business plan applied by
Mr. Fearnow was to obtain trading status for the Common Shares 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.
American NorTel shareholders will not be required to pay any cash or other
consideration for the distributed shares nor will they need to surrender their
American NorTel common stock certificates in order to receive the distributed
shares. Neither the Company nor any of its affiliates is affiliated with
American NorTel or any of its shareholders.
The Company will attempt to qualify the Common Shares which are part of the
Units, the Common Shares underlying the Warrants and the Warrants on the
Electronic Bulletin Board. The Common Shares received by American Nortel
stockholders pursuant to the Distribution will be freely transferable under the
Securities Act, except for Common Shares 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
the distributed shares only pursuant to an effective registration statement
under the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act. This Registration Statement will not cover
resales of Common Shares by affiliates of the Company. See "Shares Eligible for
Future Sale."
Prior to the Offering, there has been no public market for the Common
Shares 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" and
"Plan of Distribution".
GENERAL
The Company 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 enhances
shareholder value by distributing shares of its portfolio companies and converts
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. However, major Wall Street investment banks and other
institutions with substantially greater resources than the Company provide such
services.
The Company has no agreement or understanding to participate in any
financing opportunity, nor does it currently have any opportunity under
investigation.
MANAGEMENT
Mr. Fearnow, as the sole member of management, 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, Mr. Fearnow is confident that such opportunities will become available.
The Company's offices are located at 179 Ruskin Drive East, Montgomery,
Texas 77356. Its telephone number is 409-597-7500.
USE OF PROCEEDS
The Company intends to use the proceeds of the Offering to retire a bridge
loan, to make subordinated equity and/or bridge loans and for general and
administrative expenses.
THE TRANSACTIONS
The Distribution. The distribution record date will be ten business days
-----------------
following the effective date of the Registration Statement and the Distribution
accomplished as soon practicable thereafter. On the Distribution Date, American
NorTel will distribute to its approximately 780 stockholders as of that date,
the 20,000 Common Shares which it owns. Each stockholder of American NorTel
will receive one Common Share for approximately each 700 shares of American
NorTel common stock held as of the distribution record date. Approximately half
of such shares will be distributed to American NorTel's principal shareholder,
Mr. Bill Williams. The transfer agent will be American Registrar and Transfer
Company, and will act as the distribution agent for the Distribution and will
deliver certificates for the Common Shares as soon as practicable thereafter.
All Distribution Shares will be fully paid and nonassessable. Immediately
following the completion of the Distribution, the Company will be an
independent, publicly-traded company.
The Merger. American Nortel purchased 20,000 shares of the common stock of
----------
Flex Acquisitions. Flex Acquisitions has been merged into the Company.
Pursuant to the Merger Agreement, the shares of common stock of Flex
Acquisitions were exchanged for an equal number of Common Shares of the Company.
THE OFFERING UNITS
100,000 Units, each consisting of one share of Common Stock and four
redeemable Warrants.
Common Stock Outstanding
Before Offering(1) 114,000
After Offering (2) 214,000
WARRANTS
400,000 Warrants are being offered as part of the Units. The Warrants will
be immediately detachable and separately transferable from the Common Stock.
Warrant Exercise Terms. 200,000 Class B Warrants are immediately
------------------------
exercisable each to purchase one Common Share, at $6.25 per share, subject to
----
adjustment in certain circumstances. 200,000 Class C Warrants are immediately
exercisable each to purchase one Common Share, at $10.00 per share, subject to
adjustment in certain circumstances. See "Description of Securities."
Expiration Date December 31, 2003
Redemption. The Class B Warrants are redeemable by the Company commencing
----------
six months after the effective date of this prospectus upon at least 30 days
notice, at a price of $0.05 per warrant, at any time the market price of the
Common Shares is at least $7.50 per share for a period of 20 consecutive trading
days. The Class C Warrants are redeemable by the Company commencing six months
after the effective date of this Registration Statement upon at least 30 days
notice, at a price of $0.05 per warrant, at any time the market price of the
Common Shares is at least $12.00 per share for a period of 20 consecutive
trading days. See "Description of Securities - Redeemable Common Stock Purchase
Warrants."
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: development stage company, lack of assurance of public market,
dependence on key personnel, sale of less than the maximum amount of the
Offering("Maximum Offering"), evaluation of prospective financing opportunities,
possible price volitility of the Common Shares and no payments of dividends.
See "Risk Factors."
PARTIES TO THE TRANSACTION
The Company 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 the Company are owned of record by 12
persons.
American NorTel was originally incorporated in British Columbia, Canada in
1979 but changed its domicile to Wyoming in 1993. American NorTel's common
stock had been listed on the Vancouver Stock Exchange since 1980. In
conjunction with a one for five reverse stock split, American Nortel's name was
changed to Coldsprings Resources Ltd. on June 4, 1987. In conjunction with a
one for ten consolidation, AmericanNortel's name was changed to Islehaven
Capital Corporation on July 14, 1987. In 1987, American NorTel was inactive and
was classified as dormant under the rules of the Vancouver Stock Exchange. Mr.
Fearnow then 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. It changed its name to NorTel
Communications Inc. on June 17, 1991. Effective May 11, 1992, it changed its
name to American NorTel Communications Inc. and effected a reverse split of its
common stock by issuing one share for each outstanding ten shares and commenced
trading on the OTCBB.
American NorTel is a 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, but has
divested its mining assets.
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 Commission. 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. The only
preexisting relationship between the Company and American NorTel is the
ownership of a minority number of shares of the common stock of American NorTel
by a shareholder of the Company.
American NorTel's address is 7201 E. Camelback Road, Suite 320,
Scottsdale, Arizona 85251. Its telephone number is 602-945-1266.
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA (IN THOUSANDS EXCEPT PER SHARE
DATA)
<TABLE>
<CAPTION>
The following summary pro forma consolidated financial data of the Company
has been derived from the historical financial statements of Flex Financial
Group, Inc. and should be read in conjunction with such financial statements and
notes thereto, which are included elsewhere herein.
Year Ended July 31,
---------------------
1999 1998
--------------------- ---------
<S> <C> <C>
Statement of
Operations Data: (000)
Interest Income . . . . . . $ 0 $ 0
--------------------- ---------
Operating Expenses. . . . . 20 76
Interest Expense. . . . . . 9 6
--------------------- ---------
Net Loss. . . . . . . . . . $ (29 ) $ (82)
===================== =========
Basic Net Loss per Common
Share. . . . . . . . . . . . $ (0.16) $ (0.44)
===================== =========
Weighted Average Shares and
Common Stock equivalents
outstanding. . . . . . . . . 186,982 186,982
===================== =========
July 31, 1999
- ------------------------------
Balance
Sheet Data:. . . . . . . . . . (000)
Working Capital (Deficit) . $ (124)
=====================
Total Assets. . . . . . . . $ 1
=====================
Total Liabilities . . . . . $ 125
=====================
Total Shareholders' Equity
(Deficit) . . . . . . . $ (124)
=====================
</TABLE>
<PAGE>
34
AVAILABLE INFORMATION AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") the Registration Statement on Form SB-2 under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to securities of Flex
Financial Common Stock described in this Prospectus. This Prospectus, which is
a part of this Registration Statement on Form SB-2, 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.
This 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 THE COMPANY 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 THE COMPANY SINCE THE DATE OF THIS PROSPECTUS.
CAUTIONARY STATEMENTSCAUTIONARY 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, and stock market conditions 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 the Company 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>
RISK FACTORSRISK FACTORS
The shareholders of American NorTel, by accepting shares in the
Distribution, and purchasers of Units offered by this Prospectus are making
investment decisions that involve 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 August, 1995 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 this
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 types 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 sell sufficient Units 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 Common
Shares would be increased thereby.
NO ASSURANCE OF A PUBLIC MARKET AND LIKELIHOOD OF A VOLATILE MARKET
There is presently no public market for the Units, Common Shares or
Warrants and there is no assurance that a public market for the securities will
develop after completion of this Offering, or, if one develops, that it will be
sustained. It is likely that any market that develops for the Units, Common
Shares or Warrants, should they develop, will be highly volatile and that the
trading volume will be limited.
LACK OF LIQUIDITY BECAUSE OF PENNY STOCK REGULATION
The Company's securities are covered by 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 OTCBB 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 securities to reach a $4.00 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 Securities Related Stockholders
Matters."
DEPENDENCE ON MICHAEL T. FEARNOW
The affairs of the Company will be conducted by its sole officer and
director, Michael T. Fearnow. The success of the Company is dependent upon,
among other things, the services of Mr. Fearnow, President. The loss of his
services, for any reason, may have a materially adverse effect on the prospects
of the Company. There is no employment contract with Mr. Fearnow. 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 Mr. Fearnow. The Company does not have, nor does it or the Company
presently intend to obtain, key man life insurance 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
Michael T. Fearnow will, as the sole officer and director of the Company,
provide, without present compensation, the ministerial duties necessary as
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 Mr.
Fearnow, 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 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. See "Business."
LACK OF INDEPENDENT DIRECTORS
Upon completion of the Units Offering, and for a foreseeable period of time
thereafter, the Company will have only one director, Michael T. Fearnow.
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. Mr. Fearnow's
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. Mr. Fearnow's decisions will be
particularly dependent on information provided by the issuer, underwriter and/or
their principals, or others associated with business opportunities seeking the
Company's participation.
RISK CREATED BY NEED FOR 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 Common Shares 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 that it will use its best
efforts to maintain a current prospectus under the Securities Act which will
permit the purchase and sale of the Common Shares underlying the 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 Common
Shares 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
extensive 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 Maximum Offering 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 and the exercise price of the Warrants have
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. See "Plan of
Distribution."
LACK OF PARTICIPATING BROKER DEALERS
The Company has not identified any broker/dealers who have agreed to
participate in the Offering. The failure of the Company to obtain the
agreements of a significant number of broker/dealers to participate in the
offering will increase the likelihood that less than the Maximum Offering 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 its growth, and cash dividends will not be
paid to Common shareholders. (See "Dividend Policy.")
COMMON SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the 114,000 shares held by the present
Common shareholders 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. Common Shares held by affiliates will be
subject to the limitations of Rule 144 promulgated under the Securities Act.
Sales of a substantial number of Common Shares 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.
DILUTION
Present shareholders acquired their shares at a lower price than will
subscribers in the Offering and subscribers will suffer dilution in the book
value of their shares subsequent to purchase or exercise. (See "Dilution.")
ANTI-TAKEOVER PROVISIONS
Certain provisions of Delaware law and the Company's certificate of
incorporation (the "certificate of incorporation") and the Company's By-Laws
("By-Laws") may have the effect of delaying or preventing a change in control or
acquisition of the Company. The 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 T. 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 USE OF PROCEEDS
<TABLE>
<CAPTION>
The net proceeds to the Company from the sale of the Maximum Offering and
after deducting estimated offering expenses which are estimated to be
approximately $50,000. The following table sets forth the estimated application
by the Company of the net proceeds to be derived from the sale of Maximum
Offering.
AMOUNT PERCENTAGE
OF NET OF NET
USE OF PROCEEDS PROCEEDS PROCEEDS
- ------------------------------------ --------- -----------
<S> <C> <C>
To pay principal and accrued
Interest on current Bridge Loan
Notes (1). . . . . . . . . . . . $ 65,000 11%
To make Subordination and
Bridge Loans . . . . . . . . . . 440,000 73%
To provide general and
Administrative costs . . . . . . 45,000 16%
--------- -----------
Total Net Proceeds . . . . . $ 550,000 100%
========= ===========
</TABLE>
- ---------------------------------
(1) Proceeds of bridge loans were used by the Company to cover the legal, audit
and other expenses of the Offering, the merger of Flex Acquisitions into the
Company and the Distribution.
The Company intends to use the net proceeds of the Maximum Offering first
to retire the Bridge Loans, then to make subordination and bridge loans. 15% of
net proceeds exceeding $200,000 to a maximum of $45,000 will be available for
general and administrative expenses.
If less than the Maximum Offering 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."
The Company believes that the proceeds from sale of the Maximum Offering
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 up to six completed transactions during the first 12 months
of operations. 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 proceeds from the sale of the Maximum 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.")
Pending use of the net proceeds for the above purposes, the Company intends
to invest funds raised in this Offering in short term, investment grade,
interest bearing obligations. The Company believes that proceeds from the
Maximum Offering will enable the Company to satisfy its anticipated financing
needs for a period of at least 12 months. During this period, the Company
expects to earn fees and interest on bridge loans and subordination loans by
participating in loans of duration that enable two to six completed transactions
per year.
If less than the Maximum Offering 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 under the caption "Proposed Business".
DIVIDEND POLICY DIVIDEND POLICY
The Company has never paid any cash dividends 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 its 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 ("Board").
CAPITALIZATION CAPITALIZATION
<TABLE>
<CAPTION>
The following table sets forth the capitalization of the Company at July
31, 1999 and on a pro forma basis (i) giving effect to the Merger and (ii)
adjusted to reflect the sale of the 100,000 Common Shares, 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, 1999
OFFERING
PROCEEDS
ACTUAL ADJUSTED
--------------- ----------
<S> <C> <C>
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) . . . . . . . . . . . $ 114 $ 214
Additional paid-in capital . . . . . 83,180 643,080
Deficit accumulated during
the developmental stage. . . . . (206,965) (206,965)
--------------- ----------
Total shareholders' equity (deficit) $ (123,671) $ 436,329
=============== ==========
</TABLE>
________________________
(1) Table reflects actual Common Shares outstanding of 114,000 shares and
post Offering shares outstanding of 214,000 shares reflecting issuance of
additional 100,000 shares pursuant to this Offering. Does not include 201,332
Common Shares issuable upon exercise of warrants and options outstanding at
February 28, 1999 or the additional 400,000 shares of common Stock issuable upon
exercise of warrants to be outstanding if the Maximum Offering is sold.
(2) "Common Stock" and "Additional Paid-in Capital" reflect net proceeds of
$5.60 per share from this Offering.
DILUTION DILUTION
<TABLE>
<CAPTION>
The net tangible book value (deficit) of the Company as of July 31, 1999 was
$(123,671) or $(1.08) 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 units at $6.00 and the receipt by the Company of the net
proceeds therefrom, the net tangible book value of the Company will be $436,329 or
$2.04 per share. This represents an immediate increase in pro forma net tangible book
value of $3.12 per share to existing shareholders and an immediate dilution of $3.96
per share to new investors ("New Investors") purchasing shares of Common Stock in this
Offering. The following table illustrates this per share dilution:
Maximum
Offering
<S> <C>
Assumed initial public offering price per share . . . . . . . . . . . . . . $ 6.00
Net tangible book value per share before offering . . . . . . . . . . . . . ($1.08)
Increase in net tangible book value per share attributable to New Investors $ 3.12
Pro Forma net tangible book value per share after offering. . . . . . . . . $ 2.04
Dilution per share to New Investors . . . . . . . . . . . . . . . . . . . . $ 3.96
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes, as of July 31, 1999, 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 $6.00
(excluding the cost of Class B and Class C Warrants):
SHARES PURCHASED TOTAL CASH CONSIDERATION
- ------------------------- ------------------------
AVERAGE
PRICE
NUMBER PER SHARE AMOUNT PERCENT
------------------------ ----------
<S> <C> <C> <C> <C>
EXISTING SHAREHOLDERS . . 114,000 $ .73 83,200 12.2%
NEW INVESTORS . . . . . . 100,000 $ 6.00 600,000 87.8%
TOTAL. . . . . . . . 214,000 683,200 100.0%
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 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 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 the
Company and the respective notes thereto, included elsewhere herein.
GENERAL
This Prospectus contains certain statements regarding future trends which
are subject to various risks and uncertainties. Such trends, and their
anticipated impact on the Company, 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.
The Company was organized in August, 1995 and is in the development stage.
It 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 this Offering. There can be no assurance that the
Company will be able to successfully generate meaningful revenue or achieve
profitable operations.
Since inception, the Company has developed a business plan; developed and
disseminated promotional material to prospective clients of its business
services; identified potential clients for 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, 1999, the Company has approximately $1,149 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 included in the Units.
The net proceeds of this 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.
The Company 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. Mr. Fearnow believes that the proceeds
from the sale of the Units Offering will enable the Company 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 the Company will have
sufficient capital resources to permit it to fully implement its business plan.
YEAR 2000 ISSUE
Until recently, many computer programs were written using two digits rather
than four digits to define the applicable year in the twentieth century. Such
software may recognize the date using "00" as the year 1900 rather than the year
2000. We have not implemented any Year 2000 date conversion program to ensure
that our computer systems and applications will function properly beyond 1999.
We do not believe any Year 2000 action is necessary.
BUSINESS BUSINESS
The Company was incorporated under the laws of the State of Texas in
August, 1995 and reincorporated in Delaware in December, 1997.
OVERVIEW
General. The Company 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 this 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 T. 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, Mr. Fearnow is confident that such opportunities will become
available.
Mr. Fearnow 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. The Company was formed with the primary business
--------------------
objective to serve as a vehicle to invest in short-term financing opportunities
in the underwriting segment of the securities industry 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 second round public financing ("Bridge Loans") on a highly
selective basis with established guidelines to issuers meeting the company's due
diligence standards. 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 companies. The Company intends to use the proceeds of the
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
Mr. Fearnow, which will in all probability act without the consent, vote, or
approval of its stockholders except when required by applicable law.
Business experience of principals. Mr. Fearnow and certain consultants who
---------------------------------
have not yet been identified by the Company have business experience that has
provided them with skills the company believes will be helpful in identifying,
evaluating and negotiating potential Bridge Loan and Subordination Loans. Mr.
Fearnow has significant experience in a broad range 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 T. Fearnow as sole director may establish an
advisory committee (the "Advisory Committee") consisting of up to eight 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 Mr. Fearnow
may require, to consult with Mr. Fearnow as to potential candidates for Bridge
Loans and Subordination Loans.
SUBORDINATION LOANS AND BRIDGE LOANS
General considerations. Mr. Fearnow intends to participate in a portfolio
-----------------------
of Subordination Loans and Bridge Loans that will provide prudent risk and
diversification. The amount of and timing of each transaction will be
determined by Mr. Fearnow taking into account the liquid assets and net worth of
the Company, and the ongoing general and administrative costs of the Company.
Whenever possible Mr. Fearnow will further diversify by participating with other
investors in its financing opportunities.
Subordination loans. The Company 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 potential 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
potential return in excess of 50% per year.
Subordination Loans will only be made to underwriters acceptable to the
Company and in connection with specific underwritings for issuers acceptable to
the Company.
Bridge loans. The Company intends to provide Bridge Loans to selected
-------------
issuers to facilitate an issuer's initial public offering or second round public
financing. 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 the Company'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 are typically short term loans (maximum term of one year with
mandatory prepayment out of the proceeds of the underwritten) made to an issuer
for the purpose of providing funds to pay public offering costs and to a lesser
extent general corporate expenses relating to the public offering. The Company
intends to participate in Bridge Loans that can be structured with the following
general terms: (i) repayment from the proceeds of the public offering within 4
to 6 months after the loan, (ii) ranging in amount from $50,000 to $200,000,
(iii) an interest rate of three to five points above prime, (iv) 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, (v)
demand and piggy back registration rights with expenses paid by the issuer, (vi)
personal guarantees by principals of the issuer covering repayment of the loan,
and (vii) in most cases, collateralization 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 Commission 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. The
additional $850,000 in excess net capital to underwrite the issue can be
accomplished by participating with 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 maximum
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.
As a hypothetical scenario for a Bridge Loan transaction, the Company makes
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 is personally guaranteed by the issuer's principals and
collateralized by available assets of the issuer. The Company receives 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 is repaid $100,000 principal and $6,500 in interest.
Twelve months after the underwriting (18 months after the loan) if the issuer's
stock is trading at $6.00, the value of the warrants is $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 Offering, the
Company expects to earn fees and interest on Bridge Loans and Subordination
Loans by participating in loans of durations that enable two to six completed
transactions per year in amounts ranging from $10,000 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 net
proceeds from sale of the Maximum Offering 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 or 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 the Maximum 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,
-------
the Company 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 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, the Company may be approached by
-----------------
a public candidate (the "Public Candidate"). The Company would 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 the Company forming a new
subsidiary which would be thinly capitalized with the Company 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 the Company retaining 10% of the shares. The Company will
distribute some or all of the subsidiary's shares to its shareholders.
Contemporaneously with the merger-spin-off, the subsidiary would file
registration statements with the Commission with the Commission to register the
merger shares and the spin-off shares. The subsidiary may register shelf shares
for future issuance in association with possible acquisitions and may also
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 the
Company or its shareholders owning 10% of the public company. The Company would
not bear any expense in connection with such a transaction.
Method of participation. It is impossible to predict exactly how the
-------------------------
Company may participate in an investment transaction, or if it will, but
generally speaking, the following represents the type of transaction structures
that the Company 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 would merge
into the subsidiary with the Company 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.
In a typical scenario as described above, the Company 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").
A consequence to American Nortel 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 the Company 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 the Company 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.
THE COMPANY 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 from the
subsidiary's organization and until any proposed merger should become effective.
Section 15 of the Securities 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."
FIDUCIARY DUTY OF MR. FEARNOW
Under the Delaware General Corporation Law the directors of a corporation
or trustees for the stockholders have an obligation to act in good faith and
deal fairly with the Company and its assets. The relationship of Mr. Fearnow to
the Company is as a fiduciary and in a transaction with the Company in which he
has a personal interest there must be the utmost good faith and full disclosure.
Therefore, if he breaches his obligation he is liable to the shareholders who
are the beneficiaries of the fiduciary relationship.
OTHER CONSIDERATIONS
Sources of opportunities. Michael T. Fearnow, sole director of the
--------------------------
Company, has 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 Mr. Fearnow, 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 Michael T. Fearnow, its sole director and officer. He has
extensive business experience in the securities industry, particularly regarding
small public underwritings. In time, it is anticipated that additional
directors and officers who 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 will join the Company. In
analyzing prospective financing opportunities, Mr. Fearnow 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 Mr. Fearnow, such potential opportunities by obtaining financial
and other information reasonably available concerning the issuer and/or
underwriter; conducting meetings and interviews with Mr. Fearnow and
underwriter; reviewing experience and other financial factors; and other
reasonable methods.
As part of the Company's investigation, Mr. Fearnow 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
The Company 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. The Company 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 all services required to operate the Company
during calendar year 1996. Mr. Fearnow believes this arrangement is comparable
to what would be changed by unaffiliated third parties. Focus-Tech Investments,
Inc. has provided all general and administrative services at no cost since
January, 1999.
Upon closing of the Offering, Focus-Tech has agreed to provide to the
Company for as long as required its 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. 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 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.
YEAR 2000 ISSUE
Until recently, many computer programs were written using two digits rather
than four digits to define the applicable year in the twentieth century. Such
software may recognize the date using "00" as the year 1900 rather than the year
2000. We have not implemented any Year 2000 date conversion program to ensure
that our computer systems and applications will function properly beyond 1999.
We do not believe any Year 2000 action is necessary.
LEGAL PROCEEDINGS LEGAL PROCEEDINGS
Neither the Company nor its property is a party to or the subject of actual
or pending legal proceedings.
MANAGEMENT MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
<TABLE>
<CAPTION>
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. Michael T. Fearnow has held office since December
1997 and his term expires in December, 1999.
PERSON OFFICE OFFICE HELD SINCE TERM OF OFFICE
- ---------------------- ------------------- ----------------- --------------
<S> <C> <C> <C>
Michael T. Fearnow, 55 Director, President 1995 March 2000
and Secretary
</TABLE>
Michael T. 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 B.S. 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, Houston, Texas. 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
Michael T. Fearnow, the sole officer and director of the Company is
receiving no present 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 termination of the offering. 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 termination of the offering either
directly or indirectly.
<TABLE>
<CAPTION>
The following sets forth remuneration of Michael T. Fearnow, President and
sole officer and director of the Company.
SECURITIES
NAME OF INDIVIDUAL UNDERLYING
OR GROUP CAPACITY YEAR SALARY STOCK OPTIONS
- ------------------ ---------- --------- ------- -------------
<S> <C> <C> <C> <C>
Michael T. Fearnow President 1995-1999 $ 0.00 0
</TABLE>
STOCK INCENTIVE PLAN
Michael T. Fearnow as sole director of the Company has approved and adopted
by written consent, a 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 is presently administered solely by Mr. Fearnow.
After termination of the offering, it will be administered by the Board or a
committee of the Board duly authorized and given authority by the Board to
administer the Stock Incentive Plan (the Board 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 due 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 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 terminating the Stock Incentive Plan, or ten years from the date of
the Stock Incentive Plan's approval by Michael T. 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 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 TRANSACTION CERTAIN TRANSACTION
The following is a description of any transaction during the last two
years, or proposed transactions, to which the Company was or is to be a party,
in which any officer, director or principal shareholder had or is to have a
direct or indirect material interest. The only person to whom such transactions
have occurred are Michael T. Fearnow.
Pursuant to an understanding between Focus-Tech and the Company, Focus-Tech
provided such general and administrative services, including the cost of the use
of office space, personnel, facilities and equipment, as required for the
Company'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. The
Company 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. Mr. Fearnow estimates
that Flex Financial's expenses would have been approximately $6,000 a month on a
stand alone basis.
Until the closing of the Offering, Focus-Tech, a company controlled by
Michael T. Fearnow, will continue to provide space and services from its offices
at 179 Ruskin Drive East, Houston, Texas 77356 without charge to the Company.
Upon closing of the 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 proceeds of the
Offering 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
through the Company's business.
PRINCIPAL STOCKHOLDERS PRINCIPAL STOCKHOLDERS
American NorTel owns and will continue to own 20,000 Common Shares
representing 17.5% of the total outstanding Common Shares, until consummation of
the Distribution. Because all of the Common Stock held by American NorTel will
be distributed to its shareholders in connection with the Distribution, the
number of Common Shares shown below to be owned beneficially by certain
beneficial owners holding more than five percent of the issued and outstanding
Common Shares 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 of the Company own no shares of American
NorTel common stock and (ii) no American NorTel stockholder (holdings to
include, if applicable, shares underlying options to acquire American NorTel
common stock exercisable within 60 days of such date) would own five percent of
the issued and outstanding Common Shares immediately after the Distribution and
prior to sale of any Units. The tables also assume that there is no material
change in the number of shares owned by each stockholder of American NorTel.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
The following table sets forth as of a date of this Prospectus and subsequent to the
Distribution, those persons who beneficially own more than five percent of the issued and outstanding
Common Shares and the number of Shares beneficially owned by each director and executive officer, and
all directors and executive officers as a group.
PERCENTAGE OF SHARES OUTSTANDING(1)
-----------------------------------
NAME AND ADDRESS OF NUMBER BEFORE AFTER OFFERING
---------------
BENEFICIAL OWNER OF SHARES OFFERING MAXIMUM
- ------------------------------------- ----------------------------------- ---------
<S> <C> <C> <C>
Focus-Tech Investments, Inc.(1)(2). . 60,000(1) 18.1% 7.2%
179 Ruskin Drive East
Montgomery, Texas 77356
Ruth Shepley (1)(2)(3). . . . . . . . 40,000(1) 12.1% 4.8%
7617 Del Monte
Houston, Texas 77063
Lighthouse Communications Inc. (1)(3) 40,000(1) 12.1% 4.8%
43 Bluewater Drive
Eureka Springs, Arkansas 72632
Bridge Lenders(1)
Dr. S.S. Dhother. . . . . . . . . . 41,665(1) 12.3% 4.9%
4134 W. North Hampton Place
Houston, Texas 77098
Dave Lennox . . . . . . . . . . . . 41,665(1) 12.3% 4.9%
7311 Bellerive, No. 148
Houston, Texas 77036
Michael T. Fearnow(4) . . . . . . . . 60,000 18.1% 7.2%
179 Ruskin Drive East
Montgomery, Texas 77356
OFFICERS AND DIRECTORS AS A GROUP . . 60,000 (5) 18.1% 7.2%
(ONE PERSON)
</TABLE>
__________________________________
(1) Includes Common Shares issuable in connection with options or warrants
exercisable within 60 days of this Prospectus. Does not include shares issuable
as a part of the Units offered hereby.
(2) Includes 30,000 Common Shares owned of record by Focus-Tech Investments,
Inc., and 30,000 Shares issuable upon exercise of Class A Options. The
beneficial owner is Michael T. Fearnow.
(3) Includes 20,000 Common Shares owned beneficially and of record, and 20,000
Common Shares issuable upon exercise of Class A Options.
(4) Includes Common Shares issuable in connection with options or warrants
exercisable within 60 days of this Prospectus , includes 30,000 Common Shares
owned of record by Focus-Tech Investments, Inc. and 30,000 Common Shares
issuable upon exercise of Class A Options.
PARENTS
No shareholder of American NorTel owns sufficient stock to exercise control
over the Company through stock ownership.
The parent of the Company is Michael T. Fearnow, its sole director. No
shareholder of the Company owns sufficient stock to exercise control through
stock ownership.
DESCRIPTION OF SECURITIES DESCRIPTION OF SECURITIES
The Company is authorized to issue 10,000,000 Common Shares, $0.001 par
value, and 10,000,000 shares of preferred stock. The presently outstanding
Common Shares are fully paid and nonassessable. No shares of preferred stock
are issued and outstanding.
UNITS
The Units offered hereby consist of one Common 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 Common Share
at a price $6.25 per share. Each of the Class C Warrants entitles the holder,
upon exercise, to purchase one Common Share 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
December 31, 2003.
COMMON STOCK
The authorized Common Stock consists of 10,000,000 shares, $.001 par value,
of which 114,000 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. Common Shares do not have preemptive rights or cumulative voting
rights. The 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 Common Shares 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 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
T. Fearnow as sole director, described above, could be used as anti-takeover
devices.
Holders of Common Shares are entitled to receive dividends ratably when, as
and if declared by Mr. 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 Mr. 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 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 T. 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, the Company
------------------------------------------
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 (as part of the Units)
260,666 Class B Redeemable Common Stock Purchase Warrants ("Class B Warrants")
and 260,666 Class C Redeemable Common Stock Purchase Warrants ("Class C
Warrants").
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 Common Share 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 commencing six months after the
effective date of the Offering, at the option of the Company, at a price of
$0.05 per Class B Warrant at any time, 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.
The Company has reserved from the authorized and unissued Common Shares a
sufficient number of Common Shares 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. Class
C Warrant will be exercisable immediately upon its acquisition and until
December 31, 2003, at an exercise price of $10.00 per Warrant, and shall entitle
the holder thereof to receive one (1) Common Share 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 commencing six months after the
effective date of the Offering, upon not less than 30 days prior written notice,
provided that there is a public trading market for the Common Shares and that
the reported high bid price of the Common Shares equals or exceeds $12.00 per
share for the 20 consecutive trading days immediately prior to the date of the
notice of redemption to warrantholders.
The exercise price, number and kind of Common Shares 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 of the Company 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 has reserved from the authorized and unissued Common Shares a
sufficient number of Common Shares 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.
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 T. Fearnow as sole director of the Company is authorized by the
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 T. Fearnow as sole
director of the Company. Thus, Mr. Fearnow, as sole director, 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 certificate of
incorporation which Mr. Fearnow 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 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
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 Board. 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 T. 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 T. 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 Mr. Fearnow from change and to discourage not only
sudden or hostile takeover attempts, but any attempts to acquire control which
are not approved by Michael T. Fearnow as sole director, whether or not
stockholders deem such transactions to be in their best interests.
AUTHORIZED SHARES OF CAPITAL STOCK
The 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 T. 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
certificate of incorporation provides that annual stockholder meetings may be
called only by the Board 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 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 certificate of incorporation provides that the Board 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 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 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 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 Mr. Fearnow to continue in office.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH RELATED PERSONS
The 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
Board 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 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 Mr. Fearnow time to solicit its own proxies in an attempt
to defeat any dissident slate of nominations, should Mr. Fearnow determine that
doing so is in the best interests of stockholders generally. Similarly,
adequate advance notice of stockholder proposals will give Mr. Fearnow 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 Mr. Fearnow'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 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 Mr. Fearnow 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 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
American Registrar and Transfer Company, 10 Exchange Place, Suite 705, Salt
Lake City, Utah 84110 is the transfer agent, registrar and warrant agent of the
Company and the distribution agent of American Nortel.
PLAN OF DISTRIBUTION PLAN OF DISTRIBUTION
It is presently anticipated that the Company will sell Units through Mr.
Fearnow who will receive no commission or other compensation for effecting
sales. 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 maximum of 100,000
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. In that event, the
Company would file a post effective amendment to the Registration Statement of
which this Prospectus is a part. It has been estimated by Mr. Fearnow 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 by the broker-dealer. It is also likely that, if
the services of a broker-dealer are utilized, the Company would agree to
reimburse it for its costs and expenses, up to a maximum of 3% of the selling
price of Units actually sold by it. 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.
The obligation of any broker-dealer to offer Units is likely to be subject
to (a) the accuracy of the representations and warranties of the Company
contained in an agreement with the broker-dealer, (b) performance by the Company
of its obligations contained therein, (c) approval of certain legal matters by
the broker-dealer or its counsel and (d) the condition, among others, that a
registration statement filed with the Commission shall have become effective.
Subscription proceeds from the sale of the Units will be available to the
Company as received. 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 close of the Offering,
certificates representing the Common Shares and Warrants included in the Units
will be mailed by first class mail.
All purchasers' checks should be made payable to "Flex Financial Group,
Inc." Certificates evidencing Common Shares and Warrants will be issued to
purchasers as soon as practicable after the close of the Offering. 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. The
Offering will be continued until earliest of the sale of the Maximum Offering,
until the maximum period of the Offering has elapsed or until the Offering is
terminated by the Company, whichever occurs first.
Michael T. Fearnow as the sole director and officer of the Company
determined that, after research into other possible alternatives, the proposed
price of the Units was fair to subscribers. The criteria applied was to obtain
trading status for the shares held by the Company'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 SHARES ELIGIBLE FOR FUTURE SALE
Present shareholders of the Company will own a total of 114,000 Common
Shares, all of which will be freely tradable, at the conclusion of the Offering,
without restriction or further registration under the Securities Act, except to
the extent such shares are held by "affiliates" of the Company. Common 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 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 201,332 Common Shares 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 617,665 shares) will be issuable if the Maximum Offering is sold.
LEGAL MATTERS LEGAL MATTERS
The validity of the Common Shares and the Warrants offered hereby as part
of the Unit and the Common Shares underlying the Warrants will be passed upon
for the Company by Sonfield & Sonfield, Houston, Texas.
EXPERTS EXPERTS
The financial statements of the Company at July 31, 1999 and 1998,
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>
Alt 1 - Page 7
ALT - 1[ALTERNATE COVER PAGE FOR DISTRIBUTION PROSPECTUS] ALTERNATE COVER PAGE
FOR DISTRIBUTION PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER ___, 1999
FLEX FINANCIAL GROUP, INC.
COMMON STOCK, $.001 PER SHARE
This Prospectus covers 20,000 shares of common stock, par value $.001 per
share ("Common Shares" or "Common Stock"), of Flex Financial Group, Inc. a
Delaware corporation (the "Company"). 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 Common Shares, pursuant to the terms of an Agreement
and Plan of Distribution by and between American NorTel and the Company (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.
One Common Share will be distributed for each 700 shares of common stock of
American NorTel (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 Common Shares in the
Distribution (the "distribution record date").
No consideration will be paid by American NorTel's stockholders for the shares
of Common Shares to be received by them in the Distribution. There is currently
no public trading market for the Common Shares. The Company intends to attempt
to qualify the Company Common Stock for quotation on the Electronic Bulletin
Board ("OTCBB").
STOCKHOLDERS OF AMERICAN NORTEL SHOULD CAREFULLY CONSIDER THE INFORMATION SET
FORTH UNDER THE CAPTION "RISK FACTORS" 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 October ___, 1999
<PAGE>
[ALTERNATE TABLE OF CONTENTS PAGE FOR DISTRIBUTION PROSPECTUS]
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
USE OF PROCEEDS. 2
THE DISTRIBUTION 2
</TABLE>
<PAGE>
[ALTERNATE PAGE FOR DISTRIBUTION PROSPECTUS]ALTERNATE PAGE FOR DISTRIBUTION
PROSPECTUS
USE OF PROCEEDS]USE OF PROCEEDS
Common Shares 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 distribution of the Common Stock.
THE DISTRIBUTION]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 Distribution. For information
describing certain aspects of the Distribution, 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, wherein such exhibits are incorporated herein by reference. All American
NorTel Stockholders are urged to read these agreements in their entirety.
TERMS OF THE DISTRIBUTION AGREEMENT
The distribution agreement provides that the Distribution will be effected
by distributing to each holder of NorTel common stock as of the close of
business on the distribution record date certificates representing one Common
Share for each 700 shares of American NorTel common stock held by such holder as
of such time.
MANNER OF EFFECTING THE DISTRIBUTION
The distribution record date will be the date of this Prospectus.
American NorTel's transfer agent, Registrar and Transfer Company, will act as
the distribution agent for the Distribution and will deliver certificates
representing Common Shares to holders of record of American NorTel common stock
as soon as practicable after the close of business on the distribution record
date on the basis of one Share for every approximate 700 shares of American
NorTel Common Stock held on the distribution record date. All Common Shares
will be fully paid and nonassessable and the holders thereof will not be
entitled to preemptive rights. See "Description of Capital Stock.") Following
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 IN THE DISTRIBUTION. THE DISTRIBUTION AGENT WILL SEND YOU YOUR STOCK
CERTIFICATES FOLLOWING THE DATE OF THIS PROSPECTUS.
TRADING OF COMPANY COMMON STOCK; RESTRICTIONS ON RESALE
The Company will attempt to qualify the Common Stock on the
Over-the-Counter 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 Common Shares 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
Common Shares in the Distribution, 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 was organized for purposes of the Transactions. Flex
Acquisitions owned no material assets and conducted no business activities other
than in preparation for the Transactions.
Michael T. Fearnow, President and sole Director of the Company 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,
the Company and American NorTel believe that the shareholders of the Company and
of 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 the Company, or as a dividend with possible future value,
in the case of American NorTel. Further, Mr. Fearnow believes 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.")
In determining to undertake the restructuring by means of the merger and
the distribution, Mr. Fearnow considered the 17% dilution to shareholders of the
Company and the fairness of the consideration received by the shareholders
pursuant to the Merger and the 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 the 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 Company's
shareholders and other costs associated with an initial public offering or shell
acquisition.
Mr. Fearnow determined that, after research into other possible
alternatives, the proposed restructuring presented the most desirable method of
accessing the United States public securities markets and providing a corporate
vehicle for conducting its business operations. The criteria applied by the
board was to obtain trading status for the shares held by the Company'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 the distribution were fair to its
shareholders.
ACCOUNTING TREATMENT OF MERGER OF FLEX ACQUISITIONS INTO THE COMPANY
Because Flex Acquisitions had no material assets or liabilities and was
not an operating entity, the Merger was 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 "IRS") with respect to these matters. Accordingly, no
assurance can be given as to the IRS'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 the Company, 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
Distribution, 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 a 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") 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 is 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 the distributed shares,
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 the Company
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 the distributed shares in all of the
state taxing jurisdictions in which they are already subject to tax.
Distributed Shareholders 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 the distributed shares.
REOFFERING BY PARTY DEEMED TO BE AN UNDERWRITER
Distribution Shares are to be redistributed by their owner, American
NorTel, which might be deemed to be an underwriter by reason of such intent.
(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. The
Company is not aware that any American Nortel shareholder may be deemed 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 Common Shares, except
to the extent that an uncertain number of Distribution Shares representing
undistributed fractional and whole share interests, may 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 distributed shares, any person who purchases
the distributed shares within three years after the distribution could assert a
claim against American NorTel under Section 11 of the Securities Act. The
purchase could be in the open market as long as the Shares purchased could be
traced to the distributed shares. Such a claim, to be successful, must be based
upon a showing that statements in this Registration Statement were false or
misleading with respect to a material fact or that this Registration Statement
omitted material information required to be included herein. 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 this Registration Statement but, instead, that the misstatements or
omissions in this Registration Statement were a substantial factor in the
purchase of the Shares.
<PAGE>
F - Page 2
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTSINDEX TO FINANCIAL STATEMENTS
FLEX FINANCIAL GROUP, INC.
<S> <C>
Independent Auditor's Report dated October 19, 1999. . . . . . . . . F - 2
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . F - 3
Consolidated Statement of Operations . . . . . . . . . . . . . . . . F - 4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) F - 5
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . F - 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F - 7-10
</TABLE>
<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 consolidated balance sheet of Flex Financial
Group, Inc. (A Development Stage Company) as of July 31, 1999, and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the years ended July 31, 1999 and 1998 and the period August
17, 1995 (date of inception) through July 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated 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, 1999, and the results of
its operations and its cash flows for the years ended July 31, 1999 and 1998 and
the period August 17, 1995 (date of inception) through July 31, 1999 in
conformity with generally accepted accounting principles.
/s/HARPER & PEARSON COMPANY
Houston, Texas
October 19, 1999
<PAGE>
F - 10
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
JULY 31, 1999
<TABLE>
<CAPTION>
ASSETS
- ------
CURRENT ASSETS
<S> <C>
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,149
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,149
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,401
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Note payable, Focus-Tech Investments, Inc.. . . . . . . . . . . . . . . . . . . . 44,185
Interest payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,234
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,820
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value, 10,000,000 shares authorized, none issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0-
Common stock, $.001 par value, 10,000,000 shares authorized, 114,000 shares sold
and to be issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,180
Deficit accumulated during the development stage. . . . . . . . . . . . . . . . . (206,965)
(123,671)
$ 1,149
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1999 AND 1998 AND INCEPTION THROUGH JULY 31, 1999
August 17, 1995
Through
1999 1998 July 31, 1999
----------------- --------- ---------------
INTEREST INCOME $-0- $-0- $3,881
<S> <C> <C> <C>
EXPENSES
Advertising. . . . . . . . . . . . . . . . . -0- -0- 2,564
Amortization . . . . . . . . . . . . . . . . -0- -0- 1,250
Bad debt expense . . . . . . . . . . . . . . -0- -0- 10,000
Consulting expenses. . . . . . . . . . . . . -0- -0- 16,902
Filing Fees. . . . . . . . . . . . . . . . . -0- -0- 5,433
Interest expense . . . . . . . . . . . . . . 9,385 6,060 27,583
Legal and professional fees. . . . . . . . . 14,279 43,899 76,965
Other expenses . . . . . . . . . . . . . . . 683 35 3,465
Printing . . . . . . . . . . . . . . . . . . -0- -0- 1,295
Overhead allocation, Focus-Tech Investments,
Inc. . . . . . . . . . . . . . . . . . . . . -0- -0- 28,000
Write-off of start-up costs. . . . . . . . . 4,992 -0- 4,992
Write-off of deferred registration costs . . -0- 32,397 32,397
29,339 82,391 210,846
----------------- --------- ---------------
NET LOSS . . . . . . . . . . . . . . . . . . $ (29,339) $(82,391) $ (206,965)
BASIC LOSS PER COMMON SHARE. . . . . . . . . $ (0.16) $ (0.44) $ (1.12)
SHARES USED IN COMPUTING BASIC LOSS
PER SHARE. . . . . . . . . . . . . . . . . . 186,982 186,982 184,580
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 17, 1995 (DATE OF INCEPTION) THROUGH JULY 31, 1999
Additional
Preferred Common Paid-In Retained
Stock Stock Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
Sale of Common Stock - Group
(Texas) . . . . . . . . . . . $ -0- $ 940 $ 81,260 $ -0- $ 82,200
Sale of Common Stock -
Acquisition . . . . . . . . . -0- 20 980 -0- 1,000
Net Loss. . . . . . . . . . . -0- -0- -0- (61,291) (61,291)
Balance - July 31, 1996 . . . -0- 960 82,240 (61,291) 21,909
Net Loss. . . . . . . . . . . -0- -0- -0- (33,944) (33,944)
Balance - July 31, 1997. . . -0- 960 82,240 (95,235) (12,035)
Removal of Group (Texas)
Common Stock Previously
Issuable. . . . . . . . . . . -0- (940) 940 -0- -0-
Sale of Common Stock - Group
(Delaware). . . . . . . . . . -0- 94 -0- -0- 94
Net Loss. . . . . . . . . . . -0- -0- -0- (82,391) (82,391)
Balance - July 31, 1998 . . -0- 114 83,180 (177,626) (94,332)
Net Loss. . . . . . . . . . . -0- -0- -0- (29,339) (29,339)
Balance - July 31, 1999 . . $ -0- $ 114 $ 83,180 $(206,905) $(123,671)
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1999 AND 1998 AND INCEPTION THROUGH JULY 31, 1999
August 17, 1995
Through
1999 1998 July 31, 1999
----------------- --------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (29,339) $(82,391) $ (206,965)
Adjustments to reconcile net loss to net cash used by operating
activities:
Amortization of loan origination costs, net. . . . . . . . . -0- -0- 5,000
Write-off start-up costs . . . . . . . . . . . . . . . . . . 4,992 -0- 4,992
Write-off of note receivable . . . . . . . . . . . . . . . . -0- -0- 10,000
Write-off of deferred registration costs . . . . . . . . . . -0- 32,303 32,303
Change in operating assets and liabilities:
Interest receivable. . . . . . . . . . . . . . . . . . . . 29 (367) (257)
Accounts payable . . . . . . . . . . . . . . . . . . . . . 2,813 3,454 6,267
Interest payable . . . . . . . . . . . . . . . . . . . . . 9,385 6,427 24,633
Total Adjustments . . . . . . . . . . . . . . . . . . . . . . . 17,219 41,817 82,938
Net Cash Used by Operating Activities . . . . . . . . . . . . . (12,120) (40,574) (124,027)
CASH FLOWS FROM INVESTING ACTIVITIES
Deferred registration costs . . . . . . . . . . . . . . . . . . -0- -0- (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- -0- 35,000
Net Cash Provided (Used) by Investing Activities. . . . . . . . -0- -0- (51,303)
CASH FLOWS FROM FINANCING ACTIVITIES
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . -0- -0- 50,000
Notes payable, Focus-Tech Investments, Inc. . . . . . . . . . . 13,000 31,185 44,185
Proceeds from issuance of common stock. . . . . . . . . . . . . -0- 94 87,294
Stock issuance Costs. . . . . . . . . . . . . . . . . . . . . . -0- -0- (5,000)
Net Cash Provided by Financing Activities . . . . . . . . . . . 13,000 31,279 176,479
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . 880 (9,295) 1,149
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . 269 9,564 -0-
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 1,149 $ 269 $ 1,149
</TABLE>
See accompanying notes.
<PAGE>
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements include the accounts of Flex Financial Group, Inc.
and its 100% owned subsidiary Flex Acquisitions. All significant intercompany
balances and activity have been eliminated. Flex Acquisitions merged with Flex
Financial Group, Inc. during fiscal 1999. This merger has been accounted for as
a pooling of interests due to common ownership and management of the two
entities. All reported activity and balances are presented as if the merger had
occurred at the inception of the two entities.
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 certain 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. On February 28, 1999, Flex Acquisitions,
a wholly owned subsidiary of American Nortel, merged with the Company. Flex
Acquisitions exchanged its 20,000 shares for 20,000 shares of common stock of
the Company.
Common Management - Michael T. Fearnow, the sole officer and director of Flex
- ------------------
Financial, is also the 100% owner and president of Focus-Tech Investments, Inc.,
- --
a 26.3% shareholder of the issuer.
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.
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.
- --
<TABLE>
<CAPTION>
Basic 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:
1999 1998 Cumulative
-------- -------- -----------
<S> <C> <C> <C>
Weighted average shares
outstanding for issued shares. . 114,000 114,000 114,000
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 . . . . . . 186,982 186,982 186,982
======== ======== ===========
</TABLE>
Income Taxes - For the years ended July 31, 1999 and 1998, the Company incurred
- -------------
net operating losses amounting to $29,339 and $82,391, respectively. Net
operating loss carryforwards will expire in the years 2011 through 2014, if not
previously utilized.
No tax benefit for the loss carryforward has been reported in the financial
statements. Accordingly, the tax benefit of approximately $70,000 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 114,000 common shares 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, 2003, 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, 1995, pursuant to an agreement
- ----------------
between Focus-Tech and Flex Financial, Focus-Tech provides Flex Acquisitions
- ----
rent, accounting services, management and other operating expenses without
- ---
compensation.
- ---
NOTE B NOTES PAYABLE
Notes payable consist of the following at July 31, 1999:
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
========
These notes have been amended to extend the maturity dates to March 31, 1997,
then to 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, 2000 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 pursuant to an effective
registration statement filed under the Securities Act that closes prior to March
31, 2000. 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.
<TABLE>
<CAPTION>
NOTE C TRANSACTIONS AND BALANCES WITH ENTITIES AND AN INDIVIDUAL UNDER
COMMON MANAGEMENT
August 17,
1995
to
July 31,
1999 1998 1999
---------- ----- ------
<S> <C> <C> <C>
Financial Public Relations, Ltd. (1)
Attorney at Law;
Initial registered agent
Legal fees, various corporate matters. -0- 4,712 23,112
Consulting expense. . . . . . . . . . -0- -0- 5,000
Focus-Tech Investments, Inc. (2)
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- 28,000
Consulting expense. . . . . . . . . . . . -0- -0- 2,500
</TABLE>
1) 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.
2) Focus-Tech Investments, Inc. is a Nevada corporation wholly owned by
Michael T. Fearnow. Mr. Fearnow is also the sole director and officer of Flex
Financial Group, 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 December 31, 1995 totaling $28,000. Flex Financial shares a portion of
approximately 2,000 square feet of office space in premises occupied by
Focus-Tech at 179 Ruskin Drive, Montgomery, Texas. Focus-Tech has supplied
general administrative services and use of office space at no cost from January
1, 1996 to the present. 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>
II - 2
PART II]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.
<TABLE>
<CAPTION>
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.
ITEM AMOUNT
- --------------------------- =======
<S> <C> <C>
Registration fees . . . . . $ 3,000
- --------------------------- -------
Stock transfer agent's fee. 4,000
- --------------------------- -------
Printing and engraving(1) . 5,000 (1)
- --------------------------- ------- ---
Postage(1). . . . . . . . . 4,000 (1)
- --------------------------- ------- ---
Legal . . . . . . . . . . . 35,000
- --------------------------- -------
Accounting. . . . . . . . . 15,000
- --------------------------- -------
Moody's publication fee . . 3,500
- --------------------------- -------
TOTAL. . . . . . . . . $69,500
- --------------------------- -------
(1) Estimate
- ---------------------------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On March 31, 1996, the Flex Acquisitions issued a note ("Flex Note") in the
principal sum of $4,000 to the Company. The debt represented by the Flex Note
was forgiven and the Flex Note was cancelled by the holders thereof upon the
consummation of the merger of Flex Acquisitions into the Company.
On September 1, 1996 Flex Acquisitions issued in a private sale 20,000
shares of its Common Stock to American NorTel Communications, Inc., a Wyoming
corporation, for a cash consideration of $1,000. The shares of common stock of
Flex Acquisition were converted to Common Shares of the Company upon
consummation of the merger of Flex Acquisition into the Company.
The securities were not registered under the Securities Act in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act.
The Company was organized under the laws of Delaware on December 8, 1997
and sold 94,000 shares 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 $94.00 (the
aggregate par value). In addition, the Company acquired all the assets and
certain liabilities of Flex Financial Group, Inc., (Texas) in consideration for
cash in an amount equal to its shareholders' equity as of July 31, 1996.
The securities were not registered under the Securities Act in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act.
In connection with two bridge loans, the Company 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 Common Share, two Class B Warrants and two
Class C Warrants.
In April 1996, the Company raised $67,200 through the private placement of
14,000 Units at $4.80 per Unit. All recipients had adequate access to
information about the Company 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. The Company believes that all of the purchasers were
accredited investors as defined in Rule 501 promulgated under the Securities
Act.
On February 28, 1999, Flex Acquisitions was merged into the Company and its
shareholder exchanged its 20,000 shares of Flex Acquisitions common stock for
20,000 of the Company's common stock.
ITEM 27. EXHIBITS.
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)
2.1.1 Restated Agreement of Merger of July 1, 1996 between Flex Acquisitions
Corporation and Flex Financial Group, Inc.(2)
2.2 Business Combination-Spin-off Agreement of June 30, 1996 among Flex
Acquisitions Corporation, Flex Financial Group, Inc. and American NorTel
Communications, Inc. (2)
2.2.1 Restated Business Combination-Spin-off 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)
3.2.1 certificate of incorporation of Flex Financial Group, Inc. a Delaware
corporation (2)
3.3 Bylaws of Flex Acquisitions Corporation (2)3.4 Bylaws of Flex Financial
Group, Inc., a Texas corporation (3)
3.4.1 Bylaws of Flex Financial Group, Inc., a Delaware corporation (2)
4.1 Form of Class B Redeemable Common Stock Purchase Warrant(2)
4.2 Form of Class C Redeemable Common Stock Purchase Warrant(2)
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)
4.7 Form of Placement Agent Agreement(2)
5.1 Opinion of Sonfield & Sonfield(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 (2)
10.4 Flex Financial Stock Incentive Plan (2)
23.1 Consent of Sonfield & Sonfield (included in Exhibit 5.1)
23.2 Consent of Harper & Pearson Company, independent auditors of Flex Financial
Group, Inc. (1)
27.1 Financial Data Schedule (1)
- -------------------------------
(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 the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the 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 the Company of expenses incurred or paid by a
director, officer or controlling person of the Company 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, the
Company 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 October 22,
1999.
FLEX FINANCIAL GROUP, INC.
By: /s/ Michael T. Fearnow
---------------------------
Michael T. Fearnow Chief Executive Officer,
President and Chairman of the Board (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 FINANCIAL GROUP, INC.
By: /s/ 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: October 22, 1999
<PAGE>
Exhibit 5.1 - Page 1
EXHIBIT 5.1
<TABLE>
<CAPTION>
SONFIELD & SONFIELD
A PROFESSIONAL CORPORATION
<S> <C> <C>
ATTORNEYS AT LAW
LEON SONFIELD (1865-1934)
GEORGE M. SONFIELD (1899-1967)
ROBERT L. SONFIELD (1893-1972) . . . . 770 SOUTH POST OAK LANE
____________________ . . . . . . . . . HOUSTON, TEXAS 77056
[email protected]
FRANKLIN D. ROOSEVELT, JR. (1914-1988)
TELECOPIER (713) 877-1547. . . . . . NEW YORK
____ . . . . . . . . . . . . . . . . LOS ANGELES
ROBERT L. SONFIELD, JR.. . . . . . . . TELEPHONE (713) 877-8333 WASHINGTON, D.C.
MANAGING DIRECTOR
</TABLE>
October 22, 1999
Board of Directors
Flex Financial Group, Inc.
179 Ruskin Drive East
Montgomery, Texas 77356
Ladies and Gentlemen:
In our capacity as counsel for Flex Financial Group, Inc. (the "Company"),
we have participated in the corporate proceedings relative to the authorization
and issuance of 100,000 units each unit consisting of one share of common stock,
two Class B Warrants and two Class C Warrants at an offering price of $6.00 per
unit, all as set out and described in the Company's registration statement on
Form SB-2 (File No. 333-17103) under the Securities Act of 1933 (the
"registration statement"). We have also participated in the preparation and
filing of the registration statement including the federal income tax
information set out therein under the caption "Federal Income Tax Consequences"
and elsewhere in the prospectus constituting a part of the registration
statement.
Based upon the foregoing and upon our examination of originals (or copies
certified to our satisfaction) of such corporate records of the Company and
other documents as we have deemed necessary as a basis for the opinions
hereinafter expressed, and assuming the accuracy and completeness of all
information supplied us by the Company, having regard for the legal
considerations which we deem relevant, we are of the opinion that:
(1) The Company is a corporation duly organized and validly
existing under the laws of the State of Delaware;
(2) The Company has taken all requisite corporate action and all
action required by the laws of the State of Delaware with respect to the
authorization, issuance and sale of the Company common stock, the Company
options and the shares of the Company common stock issuable upon exercise of the
Company options to be issued pursuant to the registration statement;
(3) The 100,000 units each unit consisting of one share of common
stock, two Class B Warrants and two Class C Warrants at an offering price of
$6.00 per unit, when issued and distributed pursuant to the registration
statement, will be validly issued, fully paid and nonassessable shares of common
stock of the Company;
(4) Based upon the current provisions of federal income tax laws
and regulations, and on current authoritative interpretations thereof, we are of
the opinion that the discussion in the prospectus under the caption "Federal
Income Tax Consequences" of the federal income tax laws relevant to the
prospective investors, although necessarily general, considers each material
federal income tax issue of significance to Internet Law stockholders and the
result which, more likely than not, would obtain under the laws and regulations
in effect as of the date hereof.
We hereby consent to the use of this opinion as an exhibit to the
registration statement and to the references to our firm in the prospectus.
Yours very truly,
/s/Sonfield & Sonfield
- ------------------------
SONFIELD & SONFIELD
<PAGE>
Exhibit 23.2 - Page 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form SB-2 No.
33-17103 of our report dated October 19, 1999, relating to the financial
statements of Flex Financial Group, Inc., and to the reference to our Firm under
the caption "Experts" in the Prospectus.
/s/HARPER & PEARSON COMPANY
Houston, Texas
October 22, 1999
<PAGE>
Exhibit 27 - Page 1
EXHIBIT 27
FINANCIAL DATA SCHEDULE
<TABLE>
<CAPTION>
This schedule contains summary financial information extracted from the
financial statements as of and for the twelve months ended July 31, 1999, and is
qualified in its entirety by reference to such financial statements. (In
thousands, except EPS.)
<S> <C> <C>
ITEM NUMBER . ITEM DESCRIPTION AMOUNT
- ------------- --------------------------------------------------------- -------
5-02(1) . . . Cash and cash items. $ 1
5-02(2) . . . Marketable securities 0
5-02(3)(a)(1) Notes and interest receivable-trade 0
5-02(4) . . . Allowances for doubtful accounts 0
5-02(6) . . . Inventory 0
5-02(9) . . . Total current assets 1
5-02(13). . . Property, plant and equipment 0
5-02(14). . . Accumulated depreciation 0
5-02(18). . . Total assets 1
5-02(21). . . Total current liabilities 124
5-02(22). . . Bonds, mortgages and similar debt 0
5-02(28). . . Preferred stock-mandatory redemption 0
5-02(29). . . Preferred stock-no mandatory redemption 0
5-02(30). . . Common stock 1
5-02(31). . . Other stockholder's equity <124>
5-02(32). . . Total liabilities and stockholder's equity 1
5-03(b)1(a) . Net sales tangible products 0
5-03(b)1. . . Total revenues 0
5-03(b)2(a) . Cost of tangible goods sold 0
5-03(b)2. . . Total costs and expenses applicable to sales and revenues 0
5-03(b)3. . . Other costs expenses 20
5-03(b)5. . . Provision for doubtful accounts and notes 0
5-03(b)(8). . Interest and amortization of debt discount 9
5-03(b)(10) . Income before taxes and other items <29>
5-03(b)(11) . Income tax expense 0
5-03(b)(14) . Income/loss continuing operations <29>
5-03(b)(15) . Discontinued operations 0
5-03(b)(17) . Extraordinary items 0
5-03(b)(18) . Cumulative effect-changes in accounting principles 0
5-03(b)(19) . Net income or loss <29>
5-03(b)(20) . Earnings per share-primary <.16>
5-03(b)(20) . Earnings per share-fully diluted 0
</TABLE>
