UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
Commission file Number 0-24987
AEI ENVIRONMENTAL, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO
(State or Other Jurisdiction of Incorporation)
0-24987 05-0499525
(Commission File Number) (I.R.S. Employer Identification Number)
105 East First Street, Hinsdale, IL 60521
(Address of Principal Executive Offices) (Zip code)
(630) 325-6900
(Registrant's Telephone Number, Including Area Code)
CHUHAK &TECSON, P.C.
225 WEST WASHINGTON STREET, SUITE 1300
CHICAGO, IL 60606-3418
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(Name and Address of agent for service)
<PAGE>
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $.001 Par Value - 10,271,780 as of
September 30, 1999.
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FORWARD LOOKING STATEMENTS
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THIS FORM 10-QSB AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
AEI ENVIRONMENTAL, INC. (HEREINAFTER REFERRED TO AS "AEI" AND/OR
"COMPANY" AND/OR "REGISTRANT") OR ITS REPRESENTATIVES CONTAIN STATEMENTS
WHICH MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
FIFTEEN U.S.C.A. SECTIONS 77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS
INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF
AEI AND MEMBERS OF ITS MANAGEMENT TEAM AS WELL AS THE ASSUMPTIONS
ON WHICH SUCH STATEMENTS ARE BASED.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS
AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT
FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH
IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS
INCLUDED AS EXHIBIT 99.1 TO THIS FORM 10-QSB, AND ARE HEREBY INCORPORATED
HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR
REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE
OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS
OVER TIME.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
AEI ENVIRONMENTAL, INC.
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND THE PERIOD
FROM JANUARY 1, 1999 TO SEPTEMBER 30, 1999
<PAGE>
AEI Environmental, Inc.
(A Development Stage Company)
BALANCE SHEET
September 30, 1999
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 97,378
Other Current Assets (93,108)
Total Current Assets $ 4,270
TOTAL FIXED ASSETS 28,458
TOTAL OTHER ASSETS
A/D-Other Intangibles (1,055)
A/D-Non Compete Agreement (16,421)
A/D-Goodwill (22,449)
A/A-Organization Costs (1,737)
Other Intangibles 35,000
LT Notes Receivable 150,000
Organizational Costs (230,556)
Research & Development 1,394,689
Security Deposits 5,073
TOTAL ASSETS $ 1,345,073
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Total Current Liabilities $ (3,722)
STOCKHOLDERS' EQUITY
Common Stock, no par value
40,000,000 Shares Authorized
10,271,780 issued and outstanding 541,000
Preferred Stock, $100 par value,
10,000,000 Shares Authorized -
Total Stockholders' Equity 1,337,869
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,345,073
<PAGE>
AEI Environmental, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Three Months ended September 30, 1999
Three Months
ended
September 30, 1999
Revenue
$ -
Expenses
Legal Fees 1,443
Other Professional Fees 80,000
Miscellaneous Office Expense 15,000
Rent 12,090
Wages and Salaries 141,079
Total Expenses 272,421
NET LOSS $ (299,049)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
AEI ENVIRONMENTAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1999
=====================================
NINE MONTHS ENDING SEPTEMBER 30, 1999
=====================================
The following information should be read in conjunction with the historical
financial information included in Item 1 of this Quarterly Report.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121") issued by the FASB, is effective for financial statements for
fiscal years beginning after December 15, 1995. The standard establishes new
guidelines regarding when impairment losses on long-lived assets, which
include plant and equipment, certain identifiable intangible assets, and
goodwill, should be recognized and how impairment losses should be measured.
The Company does not expect adoption to have a material effect on its
financial position or results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") issued by the FASB, is effective for
specific transactions entered into after December 15, 1995. The disclosure
requirements of SFAS 123 are effective for financial statements for fiscal
years beginning no later than December 15, 1995. The new standard established
a fair value method of accounting for stock-based compensation plans and for
transactions in which an entity acquires goods or services from non-employees
in exchange for equity instruments. The Company does not expect adoption to
have a material effect on its financial position or results of operations.
<PAGE>
Liquidity and Capital Resources
The Company remains in the development stage and, since inception,
has experienced no significant change in liquidity or capital resources
or stockholder's equity. The Company's balance sheet as of September 30,
1999, reflects a total asset value of $1,345,073. The Company currently
has no line of credit.
Results of Operations
During the period from January 1, 1998 through September 30, 1999,
the Company has engaged in no significant operations other than
organizational activities, acquisition of capital and preparation for
registration of its securities under the Securities Exchange Act of 1934,
as amended. No revenues were received by the Company during this period.
For the current fiscal year, the Company anticipates incurring
a loss as a result of organizational expenses, expenses associated with
registration under the Securities Exchange Act of 1934.
Need for Additional Financing
The Company believes that its existing capital will be sufficient
to meet the Company's cash needs, including the costs of compliance with
the continuing reporting requirements of the Securities Exchange Act of
1934, as amended, for a period of approximately one year. There is no
assurance, however, that the available funds will ultimately prove to be
adequate to allow it to fully execute its business plan, and, the Company's
needs for additional financing are likely to increase substantially.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
Neither the Registrant nor any of its affiliates are a
party, nor is any of their property subject, to material
pending legal proceedings or material proceedings known
to be contemplated by governmental authorities.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
On September 13, 1999, the Company completed a merger with Oak Brook
Capital I, Inc., ("OBC") a fully reporting 1934 Act public SEC
shell company, which immediately thereafter changed its name to
AEI Environmental, Inc. The merger was done specifically to
enhance the Company's ability to have several options for future
capital formation and to aid in attracting additional key employees.
The NASD 15c211 disclosure form has been filed with the National
Association of Securities Dealers (NASD) and the Company is
expecting to begin OTC trading before the end of the calendar year.
The Company is currently negotiating a private placement of a $4
million convertible preferred stock issue with an institutional
investor.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8 K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8 K
-Filed on September 30, 1999, Item 1 and 2, Change of Control,
Plan of Merger.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
<S> <C> <C>
# 3.1 Articles of Incorporation of the Registrant, as amended;
# 3.2 Bylaws of the Registrant;
# 4.1 Instruments Defining Rights of Security Holders/Minutes
of Annual/Special Meetings of the Registrant;
# 10.1 Issuance of Restricted Shares from Authorized Shares
# 23.1 Consent of Mark T. Thatcher, P.C.;
x 27 Financial Data Schedule
x 99.1 Safe Harbor Compliance Statement
_______________________
x Filed herewith.
# Incorporated by reference from the Registrant's Amendment No. 3 to the
Registration Statement filed on Form 10-SB on or about July 29, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AEI ENVIRONMENTAL, INC.
/s/ Mark Margason
DATE: November 15, 1999 By: MARK MARGASON
Name: MARK MARGASON
Title: Vice Chairman
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
Article 5 Fin. Data Schedule for 1st Qtr 10-Q
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 97,378
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,270
<PP&E> 28,458
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,345,073
<CURRENT-LIABILITIES> 3,722
<BONDS> 0
0
0
<COMMON> 541,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,345,073
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 272,421
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (299,049)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> (299,049)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (299,049)
<EPS-BASIC> (.00)
<EPS-DILUTED> (.00)
</TABLE>
EXHIBIT 99.1
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD-LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), 15 U.S.C.A. Sections 77z-2 and 78u-5 (Supp. 1996), Congress
encouraged public companies to make "forward-looking statements" by creating a
safe harbor to protect companies from securities law liability in connection
with forward-looking statements. AEI Environmental, Inc. ("AEI" or the
"Company") intends to qualify both its written and oral forward-looking
statements for protection under the Reform Act and any other similar safe
harbor provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All forward-
looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of AEI. The Company
undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements (the "Safe Harbor Statement") to
reflect future developments. In addition, AEI undertakes no obligation
to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future operating results
over time.
AEI provides the following risk factor disclosure in connection with
its continuing effort to qualify its written and oral forward-looking statements
for the safe harbor protection of the Reform Act and any other similar safe
harbor provisions. Important factors currently known to management that could
cause actual results to differ materially from those in forward-looking
statements include the disclosures contained in the Quarterly Report on
Form 10-QSB to which this statement is appended as an exhibit and also
include the following:
FORWARD LOOKING STATEMENTS
THIS QUARTERLY REPORT AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
AEI ENVIRONMENTAL, INC. (HEREINAFTER REFERRED TO AS "AEI" AND/OR
"COMPANY") OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF
1933 AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. FIFTEEN U.S.C.A. SECTIONS 77Z-2
AND 78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE
INTENT, BELIEF OR CURRENT EXPECTATIONS OF AEI AND MEMBERS OF ITS
MANAGEMENT TEAM AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE
BASED. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY
KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE SAFE HARBOR
COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1
TO THIS FORM 10QSB, AND ARE HEREBY INCORPORATED HEREIN BY REFERENCE. THE
COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING
STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED
EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME.
<PAGE> 1
RISK FACTORS
1. YEAR 2000.
It is possible that the Company's currently installed computer system,
software products or other business systems, or those of the Company's
customers, vendors or resellers, working either alone or in conjunction with
other software or systems, will not accept input of, store, manipulate and
output dates for the years 1999, 2000 or thereafter without error or
interruption (commonly known as the "Year 2000" problem). The Company has
conducted a review of its business systems, including its computer systems,
and is querying its customers, vendors and resellers as to their progress in
identifying and addressing problems that their computer systems may face in
correctly interrelating and processing date information as the year 2000
approaches and is reached.
The detail planning and inventory for the majority of the Company's legacy
systems that are being modified for Year 2000 compatibility has been
completed and such systems are in remediation.
The estimated cost of the Company's Year 2000 efforts is $10,000 to
$15,000 over 1998 and 1999, the majority of which represents redirection
of internal resources. However, there can be no assurance that the Company
will identify all such Year 2000 problems in its computer systems or those
of its customers, vendors or resellers in advance of their occurrence or
that the Company will be able to successfully remedy any problems that are
discovered. The expenses of the Company's efforts to identify and address
such problems, or the expenses or liabilities to which the Company may become
subject as a result of such problems, could have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition, failure of the Company to identify and remedy Year 2000
problems could put the Company at a competitive disadvantage relative to
companies that have corrected such problems.
<PAGE>
2. Control by Principal Shareholders, Officers and Directors.
The Company's principal shareholders, officers and directors will
beneficially own approximately fifty-four percent (54%) of the
Company's Common Stock. As a result, such persons may have the
ability to control the Company and direct its affairs and
business. Such concentration of ownership may also have the
effect of delaying, deferring or preventing change in control of
the Company. See "Principal Stockholders."
3. Conflicts of Interest.
Certain conflicts of interest exist between the Company and its
officers and directors. They have other business interests to which
they devote their attention, and they may be expected to continue
to do so although management time should be devoted to the business
of the Company. As a result, conflicts of interest may arise that
can be resolved only through their exercise of such judgment as is
consistent with his fiduciary duties to the Company. See
"Management," and "Conflicts of Interest."
4. Possible Need for Additional Financing.
The Company has very limited funds, and such funds may not be adequate
to take advantage of any available business opportunities. The ultimate
success of the Company may depend upon its ability to raise additional
capital. The Company has not investigated the availability, source, or
terms that might govern the acquisition of additional capital and will
not do so until it determines a need for additional financing. If additional
capital is needed, there is no assurance that funds will be available
from any source or, if available, that they can be obtained on terms
acceptable to the Company. If not available, the Company's opera-
tions will be limited to those that can be financed with its modest
capital.
5. Regulation of Penny Stocks.
The Company's securities, when available for trading, will be subject to
a Securities and Exchange Commission rule that imposes special sales
practice requirements upon broker-dealers who sell such securities to
persons other than established customers or accredited investors. For
purposes of the rule, the phrase "accredited investors" means, in
general terms, institutions with assets in excess of $5,000,000, or
individuals having a net worth in excess of $1,000,000 or having an
annual income that exceeds $200,000 (or that, when combined with a
spouse's income, exceeds $300,000). For transactions covered by the rule,
the broker-dealer must make a special suitability determination for the
purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. Consequently, the rule may affect the ability of broker-
dealers to sell the Company's securities and also may affect the ability
of purchasers in this offering to sell their securities in any market that
might develop therefor.
In addition, the Securities and Exchange Commission has
adopted a number of rules to regulate "penny stocks." Such rules
include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, and
15g-7 under the Securities Exchange Act of 1934, as amended.
Because the securities of the Company may constitute "penny stocks"
<PAGE>
within the meaning of the rules, the rules would apply to the Company
and to its securities. The rules may further affect the ability
of owners of Shares to sell the securities of the Company in any
market that might develop for them.
Shareholders should be aware that, according to Securities and
Exchange Commission Release No. 34-29093, the market for penny
stocks has suffered in recent years from patterns of fraud and abuse.
Such patterns include (i) control of the market for the security by one
or a few broker-dealers that are often related to the promoter or issuer;
(ii) manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and
undisclosed bid-ask differentials and markups by selling broker-
dealers; and (v) the wholesale dumping of the same securities by
promoters and broker-dealers after prices have been manipulated to a
desired level, along with the resulting inevitable collapse of those
prices and with consequent investor losses. The Company's
management is aware of the abuses that have occurred historically in
the penny stock market. Although the Company does not expect to
be in a position to dictate the behavior of the market or of broker-
dealers who participate in the market, management will strive within
the confines of practical limitations to prevent the described patterns
from being established with respect to the Company's securities.
6. No Operating History.
The Company has no operating history, revenues from operations, or assets
other than cash from private sales of stock. The Company faces all of
the risks of a new business and the special risks inherent in the
investigation, acquisition, or involvement in a new business opportunity.
The Company must be regarded as a new or "start-up" venture with all of
the unforeseen costs, expenses, problems, and difficulties to which
such ventures are subject.
<PAGE>
7. Reporting Requirements May Delay Or Preclude Acquisition.
Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act"),
requires companies subject thereto to provide certain information about
significant acquisitions, including certified financial statements for the
company acquired, covering one or two years, depending on the relative
size of the acquisition. The time and additional costs that may be
incurred by some target entities to prepare such statements may
significantly delay or essentially preclude consummation of an
otherwise desirable acquisition by the Company. Acquisition prospects
that do not have or are unable to obtain the required audited statements
may not be appropriate for acquisition so long as the reporting
requirements of the 1934 Act are applicable.
8. Lack of Market Research or Marketing Organization.
The Company has neither conducted, nor have others made available to it,
results of market research indicating that market demand exists for the
transactions contemplated by the Company. Moreover, the Company does not
have, and does not plan to establish, a marketing organization.
9. Lack of Diversification.
Because of the limited financial resources that the Company has, it is
unlikely that the Company will be able to diversify its acquisitions or
operations. The Company's probable inability to diversify its activities
into more than one area will subject the Company to economic fluctuations
within a particular business or industry and therefore increase the risks
associated with the Company's operations.
10. Indemnification of Officers and Directors.
The Company's Articles of Incorporation provide for the indemnification
of its directors, officers, employees, and agents, under certain
circumstances, against attorney's fees and other expenses incurred by them
in any litigation to which they become a party arising from their association
with or activities on behalf of the Company. The Company will also
bear the expenses of such litigation for any of its directors, officers,
employees, or agents, upon such person's promise to repay the Company
therefor if it is ultimately determined that any such person shall not
have been entitled to indemnification. This indemnification policy could
result in substantial expenditures by the Company which it will be unable
to recoup.
<PAGE>
11. Director's Liability Limited.
The Company's Articles of Incorporation exclude personal liability of its
directors to the Company and its stockholders for monetary damages for
breach of fiduciary duty except in certain specified circumstances.
Accordingly, the Company will have a much more limited right of action
against its directors than otherwise would be the case. This provision
does not affect the liability of any director under federal or applicable
state securities laws.
12. No Foreseeable Dividends.
The Company has not paid dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future.
13. No Public Market Exists.
There is no public market for the Company's common stock, and no
assurance can be given that a market will develop or that a shareholder
ever will be able to liquidate his investment without considerable
delay, if at all. If a market should develop, the price may be highly
volatile. Factors such as those discussed in this "Risk Factors"
section may have a significant impact upon the market price of the
securities offered hereby. Owing to the low price of the securities,
many brokerage firms may not be willing to effect transactions in the
securities. Even if a purchaser finds a broker willing to effect a
transaction in these securities, the combination of brokerage
commissions, state transfer taxes, if any, and any other selling costs
may exceed the selling price. Further, many lending institutions will
not permit the use of such securities as collateral for any loans.
14. Rule 144 Sales.
All of the outstanding shares of Common Stock held by present
stockholders are "restricted securities" within the meaning of
Rule 144 under the Securities Act of 1933, as amended.
As restricted shares, these shares may be resold only pursuant to an
effective registration statement or under the requirements of Rule 144
or other applicable exemptions from registration under the Act and as
required under applicable state securities laws. Rule 144 provides in
essence that a person who has held restricted securities for a
prescribed period may, under certain conditions, sell every three
<PAGE>
months, in brokerage transactions, a number of shares that does not
exceed the greater of 1.0% of a company's outstanding common stock
or the average weekly trading volume during the four calendar weeks
prior to the sale. As a result of revisions to Rule 144 which
became effective on or about April 29, 1997, there will be no limit on
the amount of restricted securities that may be sold by a nonaffiliate
after the restricted securities have been held by the owner for a period
of two years. A sale under Rule 144 or under any other exemption
from the Act, if available, or pursuant to subsequent registrations of
shares of Common Stock of present stockholders, may have a
depressive effect upon the price of the Common Stock in any market
that may develop.
15. Blue Sky Considerations.
Because the securities registered hereunder have not been registered for
resale under the blue sky laws of any state, the holders of such shares
and persons who desire to purchase them in any trading market that might
develop in the future, should be aware that there may be significant state
blue-sky law restrictions upon the ability of investors to sell the
securities and of purchasers to purchase the securities.
