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 March 31, 2000
Commission file Number 0-24989
AMERICAS POWER PARTNERS, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO
(State or Other Jurisdiction of Incorporation)
0-24989 36-4288975
(Commission File Number) (I.R.S. Employer Identification Number)
105 East First Street, Hinsdale, IL 60521
(Address of Principal Executive Offices) (Zip code)
(630) 325-9101
(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)
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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, No Par Value - 8,499,600 shares as of March 31,
2000.
Transitional Small Business Disclosure Format:
YES [X] NO [ ]
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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
AMERICAS POWER PARTNERS, INC. (HEREINAFTER REFERRED TO AS "APPI"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 APPI
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.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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AMERICAS POWER PARTNERS, INC.
FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
MARCH 31, 2000
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AMERICAS POWER PARTNERS, INC.
BALANCE SHEET
March 31, 1999
ASSETS
CURRENT ASSETS
Cash $1,777,754
Accounts receivable 62,499
Due from related parties 34,515
Prepaid expenses 76,708
TOTAL CURRENT ASSETS 1,951,476
PROPERTY AND EQUIPMENT
Computer equipment 47,144
Office equipment 2,600
49,744
Less accumulated depreciation (3,297)
TOTAL PROPERTY AND EQUIPMENT 46,447
OTHER ASSET
Security deposit 7,770
TOTAL ASSETS $2,005,693
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 158,119
Accrued expenses 96,488
Advance from related party 10,000
Deferred revenue on maintenance agreement 32,060
Current maturities of capital leases 8,546
TOTAL CURRENT LIABILITIES 305,213
CAPITAL LEASES - net of current maturities 16,153
STOCKHOLDERS' EQUITY
Common Stock, no par value
40,000,000 Shares authorized, 8,499,600
shares issued and outstanding 1,307,700
Preferred Stock, no par value,
10,000,000 Shares authorized;
2,725,000 Series A authorized,
2,709,519 shares issued and outstanding 3,000,000
Retained earnings (deficit) (2,623,373)
TOTAL STOCKHOLDERS' EQUITY 1,684,327
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,005,693
See accompanying Notes to Financial Statements.
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AMERICAS POWER PARTNERS, INC.
STATEMENTS OF OPERATIONS
For the Periods of Nine and Three Months ended March 31, 2000
Nine Months Three Months
Ended Ended
March 31, 2000 March 31, 2000
Contract revenues $ 30,437 $ 30,437
Cost of client services 32,437 32,437
Gross profit (2,000) (2,000)
Costs and expenses:
Management fee 533,812 215,764
Consulting fee 505,770 385,770
Other professional fees 288,861 135,992
General and administrative 743,252 388,844
Total expenses 2,071,695 1,126,370
Interest income (19,034) (17,772)
Interest expense 1,528 183
Total interest (income) expense (17,506) (17,589)
NET LOSS ($2,056,189) ($1,110,781)
Net loss per share ($0.29) ($.13)
Weighted average number of
common shares outstanding 7,165,882 8,332,628
See accompanying Notes to Financial Statements
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AMERICAS POWER PARTNERS, INC.
STATEMENTS OF CASH FLOWS
For the Periods of Nine and Three Months ended March 31, 2000
Nine Months Three Months
Ended Ended
March 31, 2000 March 31, 2000
Cash Flows from Operating Activities:
Net loss ($2,056,189) ($1,110,781)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Provision for depreciation and
amortization 3,297 2,770
Change in accounts receivable (62,499) (62,499)
Change in prepaid expense (44,521) (9,982)
Change in accounts payable 40,627 24,051
Change in accrued expenses 81,936 (50,252)
Change in deferred revenues 32,060 32,060
Total adjustments 50,900 (63,852)
Net cash (used in)
operating activities (2,005,289) (1,174,633)
Cash Flow from Investing Activities:
Purchase of equipment (22,168) (9,112)
Decrease (increase) in
security deposit (7,770) 5,940
Net cash (used in)
investing activities (29,938) (3,172)
Cash Flow from Financing Activities:
Increase in advances to
related parties (34,515) (34,515)
Proceeds from issuance of
Common Stock 551,350 175,100
Proceeds from issuance of
Preferred Stock 3,000,000 3,000,000
Proceeds (payment) of
related party loans 10,000 (57,000)
Principal payments on
insurance financing (17,635) (10,729)
Decrease in investor advances - (250,000)
Principal payments on
long-term debt (2,877) (14,055)
Net cash provided by
financing activities 3,506,323 2,808,801
Net Increase in Cash 1,471,096 1,630,996
Cash at beginning of period 306,658 146,758
CASH AT END OF PERIOD $ 1,777,754 $1,777,754
See accompanying Notes to Financial Statements
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AMERICAS POWER PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of the Business and Development Stage Activities
The Company has been in the development stage since its inception on January
27, 1998. During the period of three months ended March 31, 2000, the Company
emerged from its development stage with the signing of two client contracts,
billings under these contracts, and the raising of additional capital through
a private placement Preferred Stock offering.
The Company was formed to develop, optimize, own and operate power plant
systems (steam, electric, compressed air, water, waste water and condensate
return) for industrial and commercial clients. The Company has formed
strategic alliances with two recognized energy companies in the areas of power
plant optimization, operations and maintenance, fuel supply, and electric
power marketing. These two strategic relationships bring key skill sets to the
development process, as well as a steady flow of project opportunities from
their established client base. The Company will generate revenue primarily
from fees produced from structuring and financing these energy projects.
The company is prepared to participate in the private energy market through
two distinct avenues, namely, financing upgrades, or purchasing powerhouse
assets and selling utilities back to clients through long-term contracts.
(b) Basis of Presentation
The financial information presented in the accompanying financial statements
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods. See Note 2 of Notes to Financial
Statements. Results shown for interim periods are not necessarily indicative
of the results for a full fiscal year. The interim financial statements should
be read in conjunction with the audited financial statements and notes thereto
included in the Company's Form SB-1, filed March 28, 2000, for the fiscal year
ended June 30, 1999.
(d) Fixed Assets
Fixed assets, including capitalized equipment acquired by leases,
are stated at cost. Depreciation is computed using the straight-line and
accelerated methods, over the respective assets' estimated useful lives.
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AMERICAS POWER PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
NOTE 2 - BASIS OF ACCOUNTING FOR EQUITY SECURITIES ISSUED
FOR OTHER THAN CASH
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 is in the process of
evaluating various agreements it has entered into that may meet the
requirements for accounting recognition under SFAS 123, and, if applicable, it
expects to adapt provisions of the new standard prior to the end of its fiscal
year on June 30, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the historical
financial information and the notes thereto included in Item 1 of this
Quarterly Report.
Results of Operations
During the period from January 27, 1998 (inception) through December 31, 1999,
the Company 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. The Company
recorded no revenues during this period.
During the period of three months ended March 31, 2000, the Company signed its
first contract for the modernization of a steam generation facility, and
recognized revenue and expenses associated with the contract. Revenue billed
in connection with a second contract for the optimization of a client plant
was deferred at March 31, 2000 pending finalization of a related agreement
with a third-party partner.
At March 31, the Company has over forty separate projects being negotiated, in
stages ranging from letters of intent to final contract proposals, with several
"Fortune 500" companies.
During the periods of nine and three months ended March 31, 2000, the Company
incurred net losses of $2,056,189 and $1,110,781, respectively. In the
current quarter, the Company finalized payment with the venture capital firm
responsible for orchestrating the August 1999 merger with its present
publicly-traded corporate entity and the $3,000,000 private placement of
Preferred Stock in January 2000. Under terms of consulting agreements, the
Company recorded management fees of approximately $534,000 and $216,000 during
the nine and three-month periods ended March 31,
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2000. Professional fees increased during the current quarter as a result of
increased legal costs associated with the aforementioned private placement
agreement. General and administrative expenses in the three-month period
ended March 31, 2000 increased over corresponding prior quarterly periods with
the addition of management personnel, rental of office facilities, and the
initiation of marketing programs.
For the current fiscal year, the Company anticipates incurring a net loss as a
result of the aforementioned organizational and financing expenses, and costs
associated with registration under the Securities Exchange Act of 1934.
Liquidity and Capital Resources
On January 31, 2000, the Company authorized 2,725,000 share s of Series A
Convertible Preferred Stock to be issued and sold 2,709,519 shares of the
Series A Convertible Preferred Stock in a private placement to a strategic
partner and certain of the partner's officers for $3,000,000 and the exchange
of 521,694 shares of the Company's Common Stock. The Company currently has no
line of credit.
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.
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.
See Note 2 of Notes to Financial Statements regarding Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") issued by the FASB.
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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
On January 31, 2000, the Registrant authorized 2,725,000 share s of Series A
Convertible Preferred Stock to be issued and sold 2,709,519 shares of the
Series A Convertible Preferred Stock in a private placement to a strategic
partner and certain of the partner's officers for $3,000,000 and the exchange
of 521,694 shares of the Registrant's Common Stock. The Series A Preferred
shares have the right of conversion into a number of shares of Common
Stock of the Registrant such that, upon conversion, the percentage ownership of
common shares by the preferred shareholders is 21.55%.
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
On August 17, 1999, the Company completed a merger with Oak Brook Capital II,
Inc., ("OBC") a fully reporting 1934 Act public SEC shell company, which
immediately thereafter changed its name to Americas Power Partners, 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's Common Stock began
trading on January 24, 2000.
Upon completion of the merger, OBC changed its name to Americas Power
Partners, Inc., and issued 10,000 shares of common stock for each share of the
former Americas Power Partners, Inc. then outstanding. All shares of the
former Americas Power Partners were then retired.
Certain shareholders hold their stock pursuant to subscription agreements
dated May 4, 1999 which stipulated that their percentage ownership of the
Company will be non-dilutable until the completion of the initial capital
raise of $2,000,000 or twelve (12) months, whichever comes first. 7,539,194
shares of no par value common stock were issued.
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ITEM 5. Other Information
On January 3, 2000, the Registrant's Board of Director's approved the Americas
Power Partners, Inc. Stock Option Plan, and authorized the allocation of a
maximum of 1,500,000 shares of Common Stock, no par value, to be granted at an
exercise price of $0.01 per share pursuant to the terms of the Plan.
ITEM 6. Exhibits and Reports on Form 8 K
a. Exhibits
b. Reports on Form 8 K
Filed on March 3, 2000, Item 2, Acquisition or Disposition of
Assets Sale of Series A Convertible Preferred Stock
Filed on March 17, 2000, Item 2, Acquisition or Disposition of
Assets Sale of Series A Convertible Preferred Stock
INDEX TO EXHIBITS
EXHIBIT NO DESCRIPTION
99.1 Safe Harbor Compliance Statement
_______________________
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SIGNATURES
In accordance with 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.
AMERICAS POWER PARTNERS, INC.
________________________
May 12, 2000 David Pequet
Chairman
________________________
May 12, 2000 Tom F. Perles
Chief Accounting Officer
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EXHIBIT 99.1
SAFE HARBOR COMPLIANCE STATEMENT
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. Americas Power Partners, Inc. ("APPI" 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 APPI.
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, APPI 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.
APPI 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
AMERICAS POWER PARTNERS, INC. (HEREINAFTER REFERRED TO AS "APPI" 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 THEINTENT, BELIEF
OR CURRENT EXPECTATIONS OF APPI 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
<PAGE>
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.
RISK FACTORS
1. Year 2000.
The Company's currently installed computer systems, software products or other
business systems, and those of the Company's customers, vendors or resellers,
working either alone or in conjunction with other software or systems, have
experienced no significant problems in accepting input of, storing,
manipulating and/or processing dates for the years 1999, 2000 or thereafter
without error or interruption (commonly known as the "Year 2000" problem).
2. Control by Principal Shareholders, Officers and Directors.
The Company's principal shareholders, officers and directors beneficially own
approximately seventy-one percent (71%) 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.
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.
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
<PAGE>
Company has not investigated the availability, source, or terms that might
govern the acquisition of additional capital and will not do so until it
determines a need for additional financing. If additional capital is needed,
there is no assurance that funds will be available from any source or, if
available, that they can be obtained on terms acceptable to the Company. If
not available, the Company's operations will be limited to those that can be
financed with its modest capital.
5. Regulation of Penny Stocks.
The Company's securities are 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 therefore.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1,
15g-2, 15g-3, 15g-4, 15g-5, 15g-6, and 15g-7 under the Securities Exchange Act
of 1934, as amended. Because the securities of the Company may constitute
"penny stocks" within the meaning of the rules, the rules would apply to the
Company and to its securities. The rules may further affect the ability of
owners of Shares to sell the securities of the Company in any market that
might develop for them.
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.
<PAGE>
6. No Operating History.
The Company has no significant operating history, limited revenues from
operations, and insignificant assets other than cash from the 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.
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 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.
9. 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 therefore 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.
10. 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.
<PAGE>
11. No Foreseeable Dividends.
The Company has not paid dividends on its Common Stock and does not anticipate
paying such dividends in the foreseeable future.
12. Limited Public Market Exists.
There is a limited public market for the Company's Common Stock, and no
assurance can be given that a market will develop or that a shareholder will
be able to liquidate his investment without considerable delay. The price in
the public market may be highly volatile. 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.
13. 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 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 nonaffiliated shareholder 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.
14. 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.
