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FORM 10-KSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED] for the transition period from
____________ to ____________
Commission file number: 000-25019
OAK BROOK CAPITAL III, INC.
(Name of small business issuer in its charter)
COLORADO 000-25013 05-0499527
--------------- --------------------- ---------------------
(State of (Commission File No.) (IRS Employer ID No.)
Incorporation)
1250 Turks Head Building
Providence, RI 02903
401-272-5800
--------------------------------------------------
(Address of Principal Executive Offices)
NADEAU & SIMMONS, P.C.
1250 TURKS HEAD BUILDING
PROVIDENCE, RI 02903
401-272-5800
--------------------------------------------------
(Name and Address of agent for service)
Securities registered pursuant to Section 12(b) of the Securities
Exchange Act:
Title of each class Name of each exchange
on which registered
NONE
Securities registered pursuant to section 12(g) of the Securities
Exchange Act:
COMMON STOCK,
NO PAR VALUE PER SHARE NASD
Check whether the issuer (1) 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB
[ ]
State issuer's revenues for its most recent fiscal year:
$ 0.00
The aggregate market value of the 122,800 shares of Common Stock held by
non-affiliates was $0.00 as of December 31, 1999. For purposes of the
foregoing calculation only, each of the issuer's officers and directors is
deemed to be an affiliate. The market value of the shares was calculated
based on the book value of such shares on such date.
As of December 31, 1999, 1,228,000 shares of the issuer's Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The following documents are following by reference into the registration
statement:
(a)-1. Oak Brook's Form 8-K, Current Report, filed April 17, 2000;
Mighty Star Holdings' Form 8-K, Current Report, filed February 25,
2000;
Mighty Star Holdings' Definitive 14C, Information Statement, filed
January 12, 2000;
Oak Brook's Form 10-QSB, filed December 22, 1999 for the quarter ending
September 30, 1999;
Oak Brook's Form 10-QSB/A, filed October 19, 1999 for the quarter ending
June 30, 1999;
Oak Brook's Form 10-QSB, filed August 13, 1999 for the quarter ending
June 30, 1999;
Oak Brook's Form 10-QSB/A, filed July 30, 1999 for the quarter ending
March 31, 1999;
Oak Brook's Form 10-QSB, filed May 18, 1999 for the quarter ending
March 31, 1999;
all other reports filed pursuant to section 13(a) or 15(d) since the end of
the year covered by the above annual reports.
(a)-2. All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the
date hereof and prior to the filing of a post-effective amendment which
indicates that all securities offered hereby have been sold or which
de-registers all securities covered hereby then remaining unsold shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents, except as to any portion of any future
Annual or Quarterly Report to Stockholders which is deemed to be modified or
superseded for purposes of this Registration Statement to the extent that such
statement is replaced or modified by a statement contained in a subsequently
dated document incorporated by reference or contained in this Registration
Statement.
(a)-3 The description of the Company's common stock which is contained in the
Form 10SB12G, Registration Statement filed under Section 12 of the Securities
Exchange Act of 1934, including any amendments or reports filed for the
purpose of updating such description.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
The Company was incorporated under the laws of the State of
Colorado on May 15, 1998, and is in the early developmental and
promotional stages. To date the Company's only activities have been
organizational ones, directed at developing its business plan and
raising its initial capital. The Company has not commenced any
commercial operations. The Company has no full-time employees and
owns no real estate.
The proposed business activities described herein classify the Company
as a "blank check" or "shell company whose sole purpose at this time is
to locate and consummate a merger or acquisition with a private entity.
Many states have enacted statutes, rules and regulations limiting the sale
of securities of "blank check" companies in their respective jurisdictions.
Management does not believe it will undertake any efforts to cause a market
to develop in the Company's securities until such time as the Company has
successfully implemented its business plan described herein. However,
if the Company intends to facilitate the eventual creation of a public trading
market in its outstanding securities, it must consider that the Company's
securities, when available for trading, will be subject to a Securities and
Exchange Commission rule that imposes special sales practice requirements
upon broker-dealers who sell such securities to persons other than
established customers or accredited investors. For purposes of the
rule, the phrase "accredited investors" means, in general terms,
institutions with assets in excess of $5,000,000, or individuals having
a net worth in excess of $1,000,000 or having an annual income that
exceeds $200,000 (or that, when combined with a spouse's income,
exceeds $300,000). For transactions covered by the rule, the broker-
dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior
to the sale. Consequently, the rule may affect the ability of broker-
dealers to sell the Company's securities and also may affect the ability
of purchasers in this offering to sell their securities in any market that
might develop therefor.
In addition, the Securities and Exchange Commission has
adopted a number of rules to regulate "penny stocks." Such rules
include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, and
15g-7 under the Securities Exchange Act of 1934, as amended.
Because the securities of the Company may constitute "penny stocks"
within the meaning of the rules, the rules would apply to the
Company and to its securities. The rules may further affect the ability
of owners of Shares to sell the securities of the Company in any
market that might develop for them.
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.
The Company's business plan is to seek, investigate, and, if
warranted, acquire one or more properties or businesses, and to pursue
other related activities intended to enhance shareholder value. The
acquisition of a business opportunity may be made by purchase,
merger, exchange of stock, or otherwise, and may encompass assets
or a business entity, such as a corporation, joint venture, or
partnership. The Company has very limited capital, and it is unlikely
that the Company will be able to take advantage of more than one
such business opportunity. The Company intends to seek
opportunities demonstrating the potential of long-term growth as
opposed to short-term earnings.
At the present time the Company has not identified any business
opportunity that it plans to pursue, nor has the Company reached
any agreement or definitive understanding with any person concerning
an acquisition. The Company's officers and directors have previously
been involved in transactions involving a merger between an
established company and a shell entity, and have a number of contacts
within the field of corporate finance. As a result, they have had
preliminary contacts with representatives of numerous companies
concerning the general possibility of a merger or acquisition by a shell
company. However, none of these preliminary contacts or discussions
involved the possibility of a merger or acquisition transaction with the
Company.
It is anticipated that the Company's officers and directors may
contact broker-dealers and other persons with whom they are acquainted
who are involved in corporate finance matters to advise them of the
Company's existence and to determine if any companies or businesses
they represent have an interest in considering a merger or acquisition
with the Company. No assurance can be given that the Company will
be successful in finding or acquiring a desirable business opportunity,
given the limited funds that are expected to be available for
acquisitions, or that any acquisition that occurs will be on terms that
are favorable to the Company or its stockholders.
The Company's search will be directed toward small and
medium-sized enterprises which have a desire to become public
corporations and which are able to satisfy, or anticipate in the
reasonably near future being able to satisfy, the minimum asset
requirements in order to qualify shares for trading on NASDAQ or on
a stock exchange (See "Investigation and Selection of Business
Opportunities"). The Company anticipates that the business
opportunities presented to it will (i) be recently organized with no
operating history, or a history of losses attributable to
under-capitalization or other factors; (ii) be experiencing financial or
operating difficulties; (iii) be in need of funds to develop a new
product or service or to expand into a new market; (iv) be relying
upon an untested product or marketing concept; or (v) have a
combination of the characteristics mentioned in (i) through (iv). The
Company intends to concentrate its acquisition efforts on properties or
businesses that it believes to be undervalued. Given the above factors,
investors should expect that any acquisition candidate may have a
history of losses or low profitability.
The Company does not propose to restrict its search for investment
opportunities to any particular geographical area or industry,
and may, therefore, engage in essentially any business, to the extent
of its limited resources. This includes industries such as service,
finance, natural resources, manufacturing, high technology, product
development, medical, communications and others. The Company's
discretion in the selection of business opportunities is unrestricted,
subject to the availability of such opportunities, economic conditions,
and other factors.
As a consequence of the registration of its securities, any
entity which has an interest in being acquired by, or merging into the
Company, is expected to be an entity that desires to become a public
company and establish a public trading market for its securities. In
connection with such a merger or acquisition, it is highly likely that
an amount of stock constituting control of the Company would be
issued by the Company or purchased from the current principal
shareholders of the Company by the acquiring entity or its affiliates.
In the Company's judgment, none of its officers and directors
would thereby become an "underwriter" within the meaning of the
Section 2(11) of the Securities Act of 1933, as amended. The sale
of a controlling interest by certain principal shareholders of the
Company could occur at a time when the other shareholders of the
Company remain subject to restrictions on the transfer of their shares.
Depending upon the nature of the transaction, the current
officers and directors of the Company may resign their management
positions with the Company in connection with the Company's
acquisition of a business opportunity. See "Form of Acquisition,"
below, and "Risk Factors - The Company - Lack of Continuity in
Management." In the event of such a resignation, the Company's
current management would not have any control over the conduct of
the Company's business following the Company's combination with
a business opportunity.
It is anticipated that business opportunities will come to the
Company's attention from various sources, including its officers and
directors, its other stockholders, professional advisors such as attorneys
and accountants, securities broker-dealers, venture capitalists, members
of the financial community, and others who may present unsolicited
proposals. The Company has no plans, understandings, agreements,
or commitments with any individual for such person to act as a finder
of opportunities for the Company.
The Company does not foresee that it would enter into a
merger or acquisition transaction with any business with which its
officers or directors are currently affiliated. Should the Company
determine in the future, contrary to the foregoing expectations, that a
transaction with an affiliate would be in the best interests of the
Company and its stockholders, the Company is in general permitted
by Colorado law to enter into such a transaction if:
1. The material facts as to the relationship or interest of the
affiliate and as to the contract or transaction are disclosed or
are known to the Board of Directors, and the Board in good
faith authorizes the contract or transaction by the affirmative
vote of a majority of the disinterested directors, even though
the disinterested directors constitute less than a quorum; or
2. The material facts as to the relationship or interest of the
affiliate and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith
by vote of the stockholders; or
3. The contract or transaction is fair as to the Company as of the
time it is authorized, approved or ratified, by the Board of
Directors or the stockholders.
Investigation and Selection of Business Opportunities
To a large extent, a decision to participate in a specific business
opportunity may be made upon management's analysis of the quality
of the other company's management and personnel, the anticipated
acceptability of new products or marketing concepts, the merit of
technological changes, the perceived benefit the company will derive
from becoming a publicly held entity, and numerous other factors
which are difficult, if not impossible, to analyze through the
application of any objective criteria. In many instances, it is antici-
pated that the historical operations of a specific business opportunity
may not necessarily be indicative of the potential for the future
because of the possible need to shift marketing approaches
substantially, expand significantly, change product emphasis, change
or substantially augment management, or make other changes. The
Company will be dependent upon the owners of a business opportunity
to identify any such problems which may exist and to implement, or
be primarily responsible for the implementation of, required changes.
Because the Company may participate in a business opportunity with
a newly organized firm or with a firm which is entering a new phase
of growth, it should be emphasized that the Company will incur fur-
ther risks, because management in many instances will not have
proved its abilities or effectiveness, the eventual market for such
company's products or services will likely not be established, and such
company may not be profitable when acquired.
It is anticipated that the Company will not be able to diversify,
but will essentially be limited to one such venture because of the
Company's limited financing. This lack of diversification will not
permit the Company to offset potential losses from one business
opportunity against profits from another, and should be considered an
adverse factor affecting any decision to purchase the Company's
securities.
It is emphasized that management of the Company may effect
transactions having a potentially adverse impact upon the Company's
shareholders pursuant to the authority and discretion of the Company's
management to complete acquisitions without submitting any proposal
to the stockholders for their consideration. Holders of the Company's
securities should not anticipate that the Company necessarily will
furnish such holders, prior to any merger or acquisition, with financial
statements, or any other documentation, concerning a target company
or its business. In some instances, however, the proposed participation
in a business opportunity may be submitted to the stockholders for
their consideration, either voluntarily by such directors to seek the
stockholders' advice and consent or because state law so requires.
The analysis of business opportunities will be undertaken by or under
the supervision of the Company's President, who is not a professional
business analyst. See "Management." Since Company management has
no current plans to use any outside consultants or advisors to assist in the
investigation and selection of business opportunities, no policies have
been adopted regarding use of such consultants or advisors, the criteria
to be used in selecting such consultants or advisors, the services to be
provided, the term of service, or regarding the total amount of fees
that may be paid.
The Company anticipates that it will consider, among other things,
the following factors:
1. Potential for growth and profitability, indicated by new
technology, anticipated market expansion, or new products;
2. The Company's perception of how any particular business
opportunity will be received by the investment community and
by the Company's stockholders;
3. Whether, following the business combination, the financial
condition of the business opportunity would be, or would have
a significant prospect in the foreseeable future of becoming
sufficient to enable the securities of the Company to qualify
for listing on an exchange or on a national automated
securities quotation system, such as NASDAQ, so as to permit
the trading of such securities to be exempt from the
requirements of Rule 15c2-6 recently adopted by the Securities
and Exchange Commission. See "Risk Factors - The
Company - Regulation of Penny Stocks."
4. Capital requirements and anticipated availability of required
funds, to be provided by the Company or from operations,
through the sale of additional securities, through joint ventures
or similar arrangements, or from other sources;
5. The extent to which the business opportunity can be advanced;
6. Competitive position as compared to other companies of
similar size and experience within the industry segment as
well as within the industry as a whole;
7. Strength and diversity of existing management, or management
prospects that are scheduled for recruitment;
8. The cost of participation by the Company as compared to the
perceived tangible and intangible values and potential; and
9. The accessibility of required management expertise, personnel,
raw materials, services, professional assistance, and other
required items.
In regard to the possibility that the shares of the Company
would qualify for listing on NASDAQ, the current standards include
the requirements that the issuer of the securities that are sought to be
listed have total assets of at least $4,000,000 and total capital and
surplus of at least $2,000,000, and proposals have recently been made
to increase these qualifying amounts. Many, and perhaps most, of the
business opportunities that might be potential candidates for a
combination with the Company would not satisfy the NASDAQ listing
criteria.
No one of the factors described above will be controlling in
the selection of a business opportunity, and management will attempt
to analyze all factors appropriate to each opportunity and make a
determination based upon reasonable investigative measures and
available data. Potentially available business opportunities may occur
in many different industries and at various stages of development, all
of which will make the task of comparative investigation and analysis
of such business opportunities extremely difficult and complex.
Potential investors must recognize that, because of the Company's
limited capital available for investigation and management's limited
experience in business analysis, the Company may not discover or
adequately evaluate adverse facts about the opportunity to be acquired.
The Company is unable to predict when it may participate in
a business opportunity. It expects, however, that the analysis of
specific proposals and the selection of a business opportunity may take
several months or more.
Prior to making a decision to participate in a business
opportunity, the Company will generally request that it be provided
with written materials regarding the business opportunity containing
such items as a description of products, services and company history;
management resumes; financial information; available projections, with
related assumptions upon which they are based; an explanation of
proprietary products and services; evidence of existing patents,
trademarks, or services marks, or rights thereto; present and proposed
forms of compensation to management; a description of transactions
between such company and its affiliates during relevant periods; a
description of present and required facilities; an analysis of risks and
competitive conditions; a financial plan of operation and estimated
capital requirements; audited financial statements, or if they are not
available, unaudited financial statements, together with reasonable
assurances that audited financial statements would be able to be
produced within a reasonable period of time not to exceed 60 days
following completion of a merger transaction; and other information
deemed relevant.
As part of the Company's investigation, the Company's
executive officers and directors may meet personally with management
and key personnel, may visit and inspect material facilities, obtain
independent analysis or verification of certain information provided,
check references of management and key personnel, and take other
reasonable investigative measures, to the extent of the Company's
limited financial resources and management expertise. There will
be no loan agreements or understandings between the Company
and third parties, nor does the Company intend to raise any operating
capital by implementing private placements of restricted stock and/or
public offerings of its common stock.
It is possible that the range of business opportunities that
might be available for consideration by the Company could be limited
by the impact of Securities and Exchange Commission regulations
regarding purchase and sale of "penny stocks." The regulations would
affect, and possibly impair, any market that might develop in the
Company's securities until such time as they qualify for listing on
NASDAQ or on another exchange which would make them exempt
from applicability of the "penny stock" regulations.
Company management believes that various types of potential
merger or acquisition candidates might find a business combination
with the Company to be attractive. These include acquisition
candidates desiring to create a public market for their shares in order
to enhance liquidity for current shareholders, acquisition candidates
which have long-term plans for raising capital through the public sale
of securities and believe that the possible prior existence of a public
market for their securities would be beneficial, and acquisition
candidates which plan to acquire additional assets through issuance of
securities rather than for cash, and believe that the possibility of
development of a public market for their securities will be of
assistance in that process. Acquisition candidates which have a need
for an immediate cash infusion are not likely to find a potential
business combination with the Company to be an attractive alternative.
Form of Acquisition
It is impossible to predict the manner in which the Company
may participate in a business opportunity. Specific business op-
portunities will be reviewed as well as the respective needs and desires
of the Company and the promoters of the opportunity and, upon the
basis of that review and the relative negotiating strength of the
Company and such promoters, the legal structure or method deemed
by management to be suitable will be selected. Such structure may
include, but is not limited to leases, purchase and sale agreements,
licenses, joint ventures and other contractual arrangements. The
Company may act directly or indirectly through an interest in a
partnership, corporation or other form of organization. Implementing
such structure may require the merger, consolidation or reorganization
of the Company with other corporations or forms of business
organization, and although it is likely, there is no assurance that the
Company would be the surviving entity. In addition, the present
management and stockholders of the Company most likely will not
have control of a majority of the voting shares of the Company
following a reorganization transaction. As part of such a transaction,
the Company's existing directors may resign and new directors may
be appointed without any vote by stockholders.
Management may actively negotiate or otherwise consent to the
purchase of any portion of their common shares as a condition to or
in connection with a proposed merger or acquisition transaction.
It is emphasized that management of the Company may effect
transactions having a potentially adverse impact upon the Company's
shareholders pursuant to the authority and discretion of the Company's
management to complete acquisitions without submitting any proposal
to the stockholders for their consideration. Holders of the Company's
securities should not anticipate that the Company necessarily will
furnish such holders, prior to any merger or acquisition, with financial
statements, or any other documentation, concerning a target company
or its business. In some instances, however, the proposed participation
in a business opportunity may be submitted to the stockholders for
their consideration, either voluntarily by such directors to seek the
stockholders' advice and consent or because state law so requires.
It is likely that the Company will acquire its participation in
a business opportunity through the issuance of Common Stock or
other securities of the Company. Although the terms of any such
transaction cannot be predicted, it should be noted that in certain
circumstances the criteria for determining whether or not an acquisi-
tion is a so-called "tax free" reorganization under the Internal Revenue
Code of 1986, depends upon the issuance to the stockholders of the
acquired company of a controlling interest (i.e. 80% or more) of the
common stock of the combined entities immediately following the
reorganization. If a transaction were structured to take advantage of
these provisions rather than other "tax free" provisions provided under
the Internal Revenue Code, the Company's current stockholders would
retain in the aggregate 20% or less of the total issued and outstanding
shares. This could result in substantial additional dilution in the
equity of those who were stockholders of the Company prior to such
reorganization. Any such issuance of additional shares might also be
done simultaneously with a sale or transfer of shares representing a
controlling interest in the Company by the current officers, directors
and principal shareholders. (See "Description of Business - General").
It is anticipated that any new securities issued in any
reorganization would be issued in reliance upon exemptions, if any are
available, from registration under applicable federal and state securities
laws. In some circumstances, however, as a negotiated element of the
transaction, the Company may agree to register such securities either
at the time the transaction is consummated, or under certain conditions
or at specified times thereafter. The issuance of substantial additional
securities and their potential sale into any trading market that might
develop in the Company's securities may have a depressive effect
upon such market.
The Company will participate in a business opportunity only
after the negotiation and execution of a written agreement. Although
the terms of such agreement cannot be predicted, generally such an
agreement would require specific representations and warranties by all
of the parties thereto, specify certain events of default, detail the terms
of closing and the conditions which must be satisfied by each of the
parties thereto prior to such closing, outline the manner of bearing
costs if the transaction is not closed, set forth remedies upon default,
and include miscellaneous other terms.
As a general matter, the Company anticipates that it, and/or its
officers and principal shareholders will enter into a letter of intent
with the management, principals or owners of a prospective business
opportunity prior to signing a binding agreement. Such a letter of
intent will set forth the terms of the proposed acquisition but will not
bind any of the parties to consummate the transaction. Execution of
a letter of intent will by no means indicate that consummation of an
acquisition is probable. Neither the Company nor any of the other
parties to the letter of intent will be bound to consummate the
acquisition unless and until a definitive agreement concerning the ac-
quisition as described in the preceding paragraph is executed. Even
after a definitive agreement is executed, it is possible that the
acquisition would not be consummated should any party elect to
exercise any right provided in the agreement to terminate it on
specified grounds.
It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require
substantial management time and attention and substantial costs for
accountants, attorneys and others. If a decision is made not to
participate in a specific business opportunity, the costs theretofore
incurred in the related investigation would not be recoverable.
Moreover, because many providers of goods and services require
compensation at the time or soon after the goods and services are
provided, the inability of the Company to pay until an indeterminate
future time may make it impossible to procure goods and services.
Investment Company Act and Other Regulation
The Company may participate in a business opportunity by
purchasing, trading or selling the securities of such business. The
Company does not, however, intend to engage primarily in such
activities. Specifically, the Company intends to conduct its activities
so as to avoid being classified as an "investment company" under the
Investment Company Act of 1940 (the "Investment Act"), and
therefore to avoid application of the costly and restrictive registration
and other provisions of the Investment Act, and the regulations
promulgated thereunder.
Section 3(a) of the Investment Act contains the definition of
an "investment company," and it excludes any entity that does not
engage primarily in the business of investing, reinvesting or trading in
securities, or that does not engage in the business of investing,
owning, holding or trading "investment securities" (defined as "all
securities other than government securities or securities of
majority-owned subsidiaries") the value of which exceeds 40% of the
value of its total assets (excluding government securities, cash or cash
items). The Company intends to implement its business plan in a
manner which will result in the availability of this exception from the
definition of "investment company." Consequently, the Company's
participation in a business or opportunity through the purchase and
sale of investment securities will be limited.
The Company's plan of business may involve changes in its
capital structure, management, control and business, especially if it
consummates a reorganization as discussed above. Each of these areas
is regulated by the Investment Act, in order to protect purchasers of
investment company securities. Since the Company will not register
as an investment company, stockholders will not be afforded these
protections.
Any securities which the Company might acquire in exchange
for its Common Stock will be "restricted securities" within the
meaning of the Securities Act of 1933, as amended (the "Act"). If the
Company elects to resell such securities, such sale cannot proceed
unless a registration statement has been declared effective by the
Securities and Exchange Commission or an exemption from
registration is available. Section 4(1) of the Act, which exempts sales
of securities not involving a distribution, would in all likelihood be
available to permit a private sale. Although the plan of operation does
not contemplate resale of securities acquired, if such a sale were to be
necessary, the Company would be required to comply with the
provisions of the Act to effect such resale.
An acquisition made by the Company may be in an industry
which is regulated or licensed by federal, state or local authorities.
Compliance with such regulations can be expected to be a
time-consuming and expensive process.
Competition
The Company expects to encounter substantial competition in
its efforts to locate attractive opportunities, primarily from business
development companies, venture capital partnerships and corporations,
venture capital affiliates of large industrial and financial companies,
small investment companies, and wealthy individuals. Many of these
entities will have significantly greater experience, resources and
managerial capabilities than the Company and will therefore be in a
better position than the Company to obtain access to attractive
business opportunities. The Company also will experience competition
from other public "blind pool" companies, many of which may have
more funds available than does the Company.
Employees
The Company is a development stage company and currently
has no employees. Management of the Company expects to use
consultants, attorneys and accountants as necessary, and does not anti-
cipate a need to engage any full-time employees so long as it is
seeking and evaluating business opportunities. The need for em-
ployees and their availability will be addressed in connection with the
decision whether or not to acquire or participate in specific business
opportunities. Although there is no current plan with respect to its
nature or amount, remuneration may be paid to or accrued for the
benefit of, the Company's officers prior to, or in conjunction with,
the completion of a business acquisition. The Company's officers
have accepted common stock for services rendered for consulting,
organizing the corporation, seeking merger candidates and evaluating
these candidates. See "Executive Compensation" and under "Certain
Relationships and Related Transactions."
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND
ASSOCIATED RISKS
The statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
statements regarding the Company's expectations, hopes, intentions or
strategies regarding the future. All forward-looking statements included
herein are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statements. It is important to note that the Company's actual results could
differ materially from those in such forward-looking statements. Among the
factors that could cause actual results to differ materially are the risk
factors which may be listed from time to time in the Company's reports on Form
10-QSB, 10-KSB and registration statements filed under the Securities Act.
Forward-looking statements encompass the (i) expectation that the Company can
secure additional capital, (ii) continued expansion of the Company's
operations through joint ventures and acquisitions, (iii) success of existing
and new marketing initiatives undertaken by the Company, and (iv) success in
controlling the cost of services provided and general administrative expenses
as a percentage of revenues.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties.
These forward-looking statements were based on assumptions that the Company
would continue to expand, that capital will be available to fund the Company's
growth at a reasonable cost, that competitive conditions within the industry
would not change materially or adversely, that demand for the Company's services
would remain strong, that there would be no material adverse change in the
Company's operations or business, and that changes in laws and regulations or
court decisions will not adversely or significantly alter the operations of the
Company. Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive, regulatory and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of
the Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
information will prove to be accurate.
In light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
ITEM 2. DESCRIPTION OF PROPERTY
Administrative Offices
The Company currently maintains a mailing address at 1250
Turks Head Building, Providence, Rhode Island 02903, which is the
office address of its legal counsel. The Company's telephone number is
(401) 272-5800. Other than this mailing address, the Company does
not currently maintain any other office facilities, and does not
anticipate the need for maintaining office facilities at any time in the
foreseeable future. The Company pays no rent or other fees for the
use of this mailing address.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings to which the Company (or any of its directors
and officers in their capacities as such) is party or to which property of
the Company is subject is pending and no such material proceeding is known
by management of the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 4, 2000, a closing was concluded under a Stock Purchase Agreement
(the "Plan"), pursuant to which a change of control of the Registrant occurred.
Pursuant to the Plan, Wai Hong Chong sold 9,670,500 shares of the Registrant's
common stock to Mark T. Thatcher ("Thatcher") and Gerard M. Werner in exchange
for $1.00. In addition, all of the issued and outstanding shares of Mighty Star
Holdings, Ltd. ("MSHL"), a British Virgin Islands corporation and wholly-owned
subsidiary of the Registrant were transferred to Wai Hong Chong. Pursuant to
the Plan, the Registrant's then officers and directors resigned and
were replaced by new management as set forth below.
Pursuant to the attached Plan, Wai Hong Chong transferred all of his
controlling interest in the Registrant to Mr. Werner and Mr. Thatcher.
In October 1999, an 8-K was filed with the SEC reporting on a reverse
merger and potential name change for Oak Brook Capital III, Inc., the
predecessor corporation to MHSL. Such transaction was never fully
consummated, and as a result, has been abandoned. On April 3,
2000, documents were prepared to confirm the complete nullification
of the transaction as set forth herein.
Mr. Werner and Mr. Thatcher were the original directors and majority
shareholders of the Registrant and will now continue to operate and
manage the Registrant as an ongoing "blank check" issuer, a company
whose business plan is to seek out and consummate a business
combination transaction with a privately held corporation whose
intent is to become a reporting company under Section 12 of the
Securities Exchange Act of 1934 (the "Exchange Act").
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There has been no public trading market for the Company's Common Stock
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends on the Common
Stock have been paid by the Company, nor does the Company anticipate that
dividends will be paid in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OR
PLAN OF OPERATION
The following discussion should be read in conjunction with the Financial
Statements and notes thereto.
PLAN OF OPERATION
General
The Company intends to seek to acquire assets or shares of an entity
actively engaged in business which generates revenues, in exchange for its
securities. The Company has no particular acquisitions in mind and has not
entered into any negotiations regarding such an acquisition. None of the
Company's officers, directors, promoters or affiliates have engaged in any
preliminary contact or discussions with any representative of any other
company regarding the possibility of an acquisition or merger between the
Company and such other company as of the date of this registration statement.
While the Company will attempt to obtain audited financial statements of
a target entity, there is no assurance that such audited financial statements
will be available. The Board of Directors does intend to obtain certain
assurances of value of the target entity's assets prior to consummating such a
transaction, with further assurances that an audited statement would be
provided within seventy-five days after closing of such a transaction.
Closing documents relative thereto will include representations that the value
of the assets conveyed to or otherwise so transferred will not materially
differ from the representations included in such closing documents.
The Company has, and will continue to have, no capital with which to
provide the owners of business opportunities with any significant cash or
other assets. However, management believes the Company will be able to offer
owners of acquisition candidates the opportunity to acquire a controlling
ownership interest in a publicly registered company without incurring the cost
and time required to conduct an initial public offering. The owners of the
business opportunities will, however, incur significant legal and accounting
costs in connection with the acquisition of a business opportunity, including
the costs of preparing Form 8-K's, 10-K's or 10-KSB's, agreements and related
reports and documents. The Securities Exchange Act of 1934 (the "34 Act"),
specifically requires that any merger or acquisition candidate comply with all
applicable reporting requirements, which include providing audited financial
statements to be included within the numerous filings relevant to complying
with the 34 Act. Nevertheless, the officers and directors of the Company have
not conducted market research and are not aware of statistical data which
would support the perceived benefits of a merger or acquisition transaction
for the owners of a business opportunity.
As stated hereinabove, the Company will not acquire or merge with any
entity which cannot provide independent audited financial statements within a
reasonable period of time after closing of the proposed transaction. The
Company is subject to all of the reporting requirements included in the 34
Act. Included in these requirements is the affirmative duty of the Company to
file independent audited financial statements as part of its Form 8-K to be
filed with the Securities and Exchange Commission upon consummation of a
merger or acquisition, as well as the Company's audited financial statements
included in its annual report on Form 10-K (or 10-KSB, as applicable). If
such audited financial statements are not available at closing, or within time
parameters necessary to insure the Company's compliance with the requirements
of the 34 Act, or if the audited financial statements provided do not conform
to the representations made by the candidate to be acquired in the closing
documents, the closing documents may provide that the proposed transaction
will be voidable, at the discretion of the present management of the Company.
The Company's officers and shareholders have verbally agreed that they
will advance to the Company any additional funds which the Company needs for
operating capital and for costs in connection with searching for or completing
an acquisition or merger. These persons have further agreed that such
advances will be made in proportion to each person's percentage ownership of
the Company. These persons have also agreed that such advances will be made
interest free without expectation of repayment unless the owners of the
business which the Company acquires or merges with agree to repay all or a
portion of such advances. Such repayment will in no way be a condition to the
selection of a target company. There is no dollar cap on the amount of money
which such persons will advance to the Company. The Company will not borrow
any funds from anyone other than its current shareholders for the purpose of
repaying advances made by the shareholders, and the Company will not borrow
any funds to make any payments to the Company's promoters, management or their
affiliates or associates.
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
December 31, 1999, reflects a current asset value of $0.00, and a
total asset value of $0.00 in the form of cash and capitalized
organizational costs.
The Company will carry out its plan of business as discussed
above. The Company cannot predict to what extent its liquidity and
capital resources will be diminished prior to the consummation of a
business combination or whether its capital will be further depleted by
the operating losses (if any) of the business entity which the Company
may eventually acquire.
RESULTS OF OPERATIONS
During the period from May 15, 1998 (inception) through
December 31, 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, and expenses
associated with locating and evaluating acquisition candidates. The
Company anticipates that until a business combination is completed
with an acquisition candidate, it will not generate revenues other than
interest income, and may continue to operate at a loss after completing
a business combination, depending upon the performance of the
acquired business.
Need for Additional Financing
The Company believes that its existing capital will be
sufficient to meet the Company's cash needs, including the costs of
compliance with the continuing reporting requirements of the
Securities Exchange Act of 1934, as amended, for a period of
approximately two years. Accordingly, in the event the Company is
able to complete a business combination during this period, it
anticipates that its existing capital will be sufficient to allow it to
accomplish the goal of completing a business combination. There is
no assurance, however, that the available funds will ultimately prove
to be adequate to allow it to complete a business combination, and
once a business combination is completed, the Company's needs for
additional financing are likely to increase substantially.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109") issued by the Financial Accounting Standards Board ("FASB"),
under which deferred tax assets and liabilities are provided on differences
between the carrying amounts for financial reporting and the tax basis of
assets and liabilities for income tax purposes using the enacted tax rates.
Under SFAS 109, deferred tax assets may be recognized for temporary
differences that will result in deductible amounts in future periods. A
valuation allowance is recognized, if on the weight of available evidence, it
is more likely than not that some portion or the entire deferred tax asset
will not be realized.
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.
FEDERAL INCOME TAX ASPECTS OF INVESTMENT IN THE COMPANY
The discussion contained herein has been prepared by the Company and is based
on existing law as contained in the Code, amended United States Treasury
Regulations ("Treasury Regulations"), administrative rulings and court
decisions as of the date of this Annual Report. No assurance can be
given that future legislative enactments, administrative rulings or court
decisions will not modify the legal basis for statements contained in this
discussion. Any such development may be applied retroactively to transactions
completed prior to the date thereof, and could contain provisions having an
adverse affect upon the Company and the holders of the Common Stock. In
addition, several of the issues dealt with in this summary are the subjects of
proposed and temporary Treasury Regulations. No assurance can be given that
these regulations will be finally adopted in their present form.
Y2K COMPLIANCE
The Company has conducted an assessment of issues related to the Year 2000
and determined that all its computer driven systems and software in
use are able to recognize, calculate, and display data-related dates correctly
after the year 1999. At this time, the Company cannot determine the impact the
Year 2000 will have on its key suppliers. However, if the Company's key
suppliers do not convert their systems to become Year 2000 compliant, the
Company may be adversely impacted.
FORWARD LOOKING STATEMENT
This Management's Discussion and Analysis of Financial Condition and Results
of Operations includes a number of forward-looking statements that reflect
Management's current views with respect to future events and financial
performance. Those statements include statements regarding the intent, belief
or current expectations of the Company 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 risk and uncertainties, and that
actual results may differ materially from those contemplated by such forward-
looking statements. Readers are urged to carefully review and consider the
various disclosures made by the Company in this report and in the Company's
other reports filed with the Securities and Exchange Commission. Important
factors currently known to Management could cause actual results to differ
materially from those in forward-looking statements. The Company undertakes no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes in the future
operating results over time. The Company believes that its assumptions are
based upon reasonable data derived from and known about its business and
operations and the business and operations of the Company. No assurances are
made that actual results of operations or the results of the Company's future
activities will not differ materially from its assumptions.
ITEM 8. FINANCIAL STATEMENTS
The financial statements are included beginning at F-2. See page F-1
for the Index to the Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
Compliance with Section 16(a) of the Securities Exchange Act of 1934
- --------------------------------------------------------------------------------
Section 16(a) of the Exchange Act, requires the Company's officers,
directors and persons who beneficially own more than ten percent of the Common
Stock to file reports of securities ownership and changes in such ownership
with the Securities and Exchange Commission. Officers, directors and greater
than ten percent beneficial owners also are required by rules promulgated by
the Securities and Exchange Commission to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely upon review of the copies of such forms furnished to the
Company, or written representations that no Form 5 filings were required, the
Company believes that during 1999 all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with on a timely basis.
Committees of the Board
- -----------------------------------
The Board of Directors delegates certain of its authority to a Compensation
Committee and an Audit Committee. There are currently vacancies on both of
these committees. The Board expects to fill such vacancies after it has
filled the vacancies on the Board of Directors.
The primary function of the Compensation Committee will be to review and make
recommendations to the Board with respect to the compensation, including
bonuses, of the Company's officers and to administer the Company's
Compensatory Stock Consulting Plan.
The function of the Audit Committee is to review and approve the scope of
audit procedures employed by the Company's independent auditors, to review and
approve the audit reports rendered by both the Company's independent auditors
and to approve the audit fee charged by the independent auditors. The Audit
Committee will report to the Board of Directors with respect to such matters
and recommends the selection of independent auditors.
THE DIRECTORS
The following table sets forth the ages of and positions and offices
presently held by each director of the Company.
<TABLE>
<CAPTION>
Name Age Positions Held and Tenure
<S> <C> <C>
Mark T. Thatcher 35 President and Director since
May 15, 1998
Gerard Werner 29 Vice President and Director since
May 15, 1998
</TABLE>
The directors named above will serve until the first annual
meeting of the Company's stockholders. Thereafter, directors will be
elected for one-year terms at the annual stockholders' meeting.
Officers will hold their positions at the pleasure of the board of
directors, absent any employment agreement, of which none currently
exists or is contemplated. There is no arrangement or understanding
between the sole directors and officers of the Company and any other
person pursuant to which any director or officer was or is to be
selected as a director or officer.
The sole directors and officers of the Company will devote their
time to the Company's affairs on an "as needed" basis. As a result,
the actual amount of time which they will devote to the Company's
affairs is unknown and is likely to vary substantially from month to
month.
Biographical Information
Mark T. Thatcher, Esq.
Mr. Thatcher attended the University of Denver where he earned
his law degree and masters in business administration. He is
presently a member of the State Bar of Colorado; Court of Appeals,
District of Columbia; Committee Member of the Securities Forum,
Colorado, Washington, D.C. and the American Bar Association; and
Member of the International Society of Business Law.
Mr. Thatcher has participated as a business and legal advisor
for a number of public and privately held companies. He has been
retained for federal and state securities compliance, venture capital
analysis, public and private mergers and acquisitions, corporate
reorganization/restructuring, and international franchising
development. From 1991 through 1995, Mr. Thatcher was "of counsel"
to Daniel P. Edwards, P.C., an "AV" rated Colorado law firm. The
firm was "of counsel" to Hughes Dorsey, Denver, Colorado, Heron
Burchette, Washington, D.C. and Sparks, Dix and Enoch, Colorado
Springs, Colorado. From 1995 through August of 1999 he served as
general counsel to Acadia Group, Inc. (Ticker "ANHS") and
CollegeLink.com (Ticker "APS"). He has recently joined the
Providence-based law firm of Nadeau & Simmons, P.C. in an
"of-counsel" capacity. He is an honorary member of Alpha Kappa
Delta, Sutton Award candidate, and recipient of the E.V. Graham
Scholarship Merit Award.
Gerard Werner
Mr. Werner passed the District of Columbia, Court of Appeals Bar
examination in February 1998. Since that time he has served as
Case Design Manager for The Equitable, April 1998- Sep. 1998.
He is a registered representative, having passed series 6 and series
63, as well as Virginia's Life and Health Insurance licensing exam.
Mr. Werner graduated from the Georgetown University Law School
in 1997 where he served as a staff member of the American Criminal
Law Review Volume 33, and as Articles and Notes Editor Volume 34.
He published author Volume 33-3, Eleventh Survey of White Collar
Crime- "Tax Evasion".
Mr. Werner graduated in 1994 from Georgetown University with a
double major in philosophy and government. He served as an intern
in United States Representative Thomas Petri's office on three separate
occasions: 1992, 1994 and 1995.
Indemnification of Officers and Directors
As permitted by Colorado law, the Company's Articles of In-
corporation provide that the Company will indemnify its directors and
officers against expenses and liabilities they incur to defend, settle, or
satisfy any civil or criminal action brought against them on account
of their being or having been Company directors or officers unless, in
any such action, they are adjudged to have acted with gross negligence
or willful misconduct. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in that Act and is, therefore, unenforceable.
Exclusion of Liability
Pursuant to the Colorado Business Corporation Act, the
Company's Articles of Incorporation exclude personal liability for its
directors for monetary damages based upon any violation of their
fiduciary duties as directors, except as to liability for any breach of the
duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, acts in violation
of Section 7-106-401 of the Colorado Business Corporation Act, or
any transaction from which a director receives an improper personal
benefit. This exclusion of liability does not limit any right which a
director may have to be indemnified and does not affect any director's
liability under federal or applicable state securities laws.
Other Public Shell Activities
The Company's President and Vice President are also officers and
directors of additional shell companies, including Oak Brook Capital IV,
Inc., and Providence Capital I-X, Inc.
Conflicts of Interest
The sole officers and directors of the Company will devote only
a small portion of their time to the affairs of the Company, estimated
to be no more than approximately 20 hours per month. There will be
occasions when the time requirements of the Company's business
conflict with the demands of their other business and investment
activities. Such conflicts may require that the Company attempt to
employ additional personnel. There is no assurance that the services
of such persons will be available or that they can be obtained upon
terms favorable to the Company.
There is no procedure in place which would allow Mr. Thatcher or
Mr. Werner to resolve potential conflicts in an arms-length fashion.
Accordingly, they will be required to use their discretion to resolve them
in a manner which they consider appropriate.
The Company's sole officers and directors may actively
negotiate or otherwise consent to the purchase of a portion of their
common stock as a condition to, or in connection with, a proposed
merger or acquisition transaction. It is anticipated that a substantial
premium over the initial cost of such shares may be paid by the
purchaser in conjunction with any sale of shares by the Company's
officers and directors which is made as a condition to, or in connection
with, a proposed merger or acquisition transaction. The fact that a
substantial premium may be paid to the Company's sole officers and directors
to acquire their shares creates a potential conflict of interest for
them in satisfying their fiduciary duties to the Company and its other
shareholders. Even though such a sale could result in a substantial
profit to them, they would be legally required to make the decision based
upon the best interests of the Company and the Company's other
shareholders, rather than their own personal pecuniary benefit.
No employee of the Company receives any additional compensation for his
services as a director.
Non-management directors receive no salary for their services as
such, but are entitled to receive reasonable travel or other out-of-pocket
expenses incurred by non-management directors in attending meetings of the
Board of Directors and a fee of $100.00 per meeting attended.
The Company has no retirement, pension or profit sharing program for the
benefit of its directors, officers or other employees. The Board of
Directors may recommend one or more such programs for adoption in the future.
ITEM VI. EXECUTIVE COMPENSATION
At inception of the Company, its Directors, Mark T. Thatcher and
Gerard Werner each received 552,500 shares of Common Stock
valued at $0.0038 per share in consideration of pre-incorporation services
rendered to the Company related to investigating and developing the
Company's proposed business plan and capital structure, and completion
of the incorporation and organization of the Company. No officer or
director has received any other remuneration. Although there is no
current plan in existence, it is possible that the Company will adopt
a plan to pay or accrue compensation to its sole officers and directors
for services related to seeking business opportunities and completing
a merger or acquisition transaction. See "Certain Relationships and
Related Transactions." The Company has no stock option, retirement,
pension, or profit-sharing programs for the benefit of directors,
officers or other employees, but the Board of Directors may
recommend adoption of one or more such programs in the future.
It is possible that, after the Company successfully consummates a merger
or acquisition with an unaffiliated entity, that entity may desire to employ
or retain one or more members of the Company's management for the purposes of
providing services to the surviving entity, or otherwise provide other
compensation to such persons. However, the Company has adopted a policy
whereby the offer of any post-transaction remuneration to members of
management will not be a consideration in the Company's decision to undertake
any proposed transaction. Each member of management has agreed to disclose to
the Company's Board of Directors any discussions concerning possible
compensation to be paid to them by any entity which proposes to undertake a
transaction with the Company and further, to abstain from voting on such
transaction. Therefore, as a practical matter, if each member of the
Company's Board of Directors is offered compensation in any form from any
prospective merger or acquisition candidate, the proposed transaction will not
be approved by the Company's Board of Directors as a result of the inability
of the Board to affirmatively approve such a transaction.
No member of management of the Company will receive any finders fee, either
directly or indirectly, as a result of their respective efforts to implement
the Company's business plan outlined herein. Also, there are no plans,
proposals, arrangements or understandings with respect to the sale or issuance
of additional securities by the Company prior to the location of an
acquisition or merger candidate. Please also see Item I, Description of
Business-General for information regarding the seeking out and selection of
a target company, addressing matters such as the manner of solicitation of
potential investors, the approximate number of persons who will be contacted
or solicited, their relationships to the Company's management, etc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1999, information with
respect to the beneficial ownership of the Company's outstanding Common Stock
by (i) each director and executive officer of the Company, (ii) all directors
and executive officers of the Company as a group, and (iii) each shareholder
who was known by the Company to be the beneficial owner of more than 5% of
the Company's outstanding Common Stock. Except as otherwise indicated,
the persons or entities listed below have sole voting and investment power
with respect to all shares of Common Stock beneficially owned by them.
<TABLE>
<CAPTION>
Name and Address Number of Percent of
Shares Owned Class Owned
Beneficially
<S> <C> <C>
Gerard Werner, Esq.(1)
C/O Law Offices of
Mark T. Thatcher
360 Thames Street
Newport, RI 02840 552,600 45.00%
Mark T. Thatcher(1)
360 Thames Street
Newport, RI 02840 552,600 45.00%
All directors and executive
officers as a group (2 persons) 1,105,200 90.00%
</TABLE>
(1) The persons listed are the sole officers and directors of the Company.
Management has no plans to issue any additional securities to management,
promoters or their affiliates or associates and will do so only if such
issuance is in the best interests of shareholders of the Company and
complies with all applicable federal and state securities rules and
regulations.
Although the Company has a very large amount of authorized but unissued
common and preferred stock that may be issued without further shareholder
approval or notice, it is the intention of the Company to avoid inhibiting
certain transactions with prospective acquisition or merger candidates,
based upon the perception by such candidate that they may be engaged
in a rapidly expanding industry (i.e. Internet) and cannot afford to proxy
shareholders each time their management needs to authorize additional
shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the transactions described below, the Company did not secure
an independent determination of the fairness and reasonableness of such
transactions and arrangements with affiliates of the Company. However, in
each instance described below, the directors reviewed and unanimously approved
the fairness and reasonableness of the terms of the transactions. The Company
believes that the transactions described below were fair and reasonable to
the Company on the basis that such transactions were on terms at least as
favorable as could have been obtained from unaffiliated third parties. The
transactions between officers and directors of the Company, on the one hand,
and the Company, on the other, have inherent conflicts of interest.
There is no public market for the Company's Common Stock. The Common
Stock may be traded in the over-the-counter market in the near future, however,
there can be no assurance as to the price at which trading in the Common
Stock will occur.
With respect to financial and other information relating to the Company,
Nadeau & Simmons, P.C., whose address is 1250 Turks Head Building, Providence,
RI 02903 will file annual and periodic reports with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934. Copies of such
reports may be inspected by anyone without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington D.C. 20549, and copies may be obtained from the Commission at
prescribed rates. In addition, the Company will provide without charge, upon
the request of any stockholder, a copy of its Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1999, to be filed with the Commission.
Any such requests should be directed to the President of the Company, address
1250 Turks Head Building, Providence, RI 02903.
Prior to the date of this Annual Report, the Company issued to its officers
and directors a total of 1,105,200 shares of Common Stock for a total
services valued at $60,000. Certificates evidencing the Common Stock issued
by the Company to these persons have all been stamped with a restrictive
legend, and are subject to stop transfer orders by the Company.
No officer, director, promoter, or affiliate of the Company has or proposes
to have any direct or indirect material interest in any asset proposed to be
acquired by the Company through security holdings, contracts, options, or
otherwise.
Although there is no current plan in existence, it is possible
that the Company will adopt a plan to pay or accrue compensation to
its sole officers and directors for services related to seeking business
opportunities and completing a merger or acquisition transaction.
The Company maintains a mailing address at the office of its
legal counsel, but otherwise does not maintain an office. As a result,
it pays no rent and incurs no expenses for maintenance of an office
and does not anticipate paying rent or incurring office expenses in the
future.
Although management has no current plans to cause the
Company to do so, it is possible that the Company may enter into an
agreement with an acquisition candidate requiring the sale of all or a
portion of the Common Stock held by the Company's current
stockholders to the acquisition candidate or principals thereof, or to
other individuals or business entities, or requiring some other form of
payment to the Company's current stockholders, or requiring the
future employment of specified officers and payment of salaries to
them. It is more likely than not that any sale of securities by the
Company's current stockholders to an acquisition candidate would be
at a price substantially higher than that originally paid by such
stockholders. Any payment to current stockholders in the context of
an acquisition involving the Company would be determined entirely
by the largely unforeseeable terms of a future agreement with an
unidentified business entity.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are filed herewith or have been included as exhibits
to previous filings with the Commission and are incorporated herein by this
reference:
Exhibit No. Exhibit
x 3(a) Articles of Incorporation
x 3(b) Bylaws
x 4(a) Agreements Defining Certain Rights of Shareholders
x 4(b) Specimen Stock Certificate
7 Not applicable
9 Not applicable
x 10(a) Pre-incorporation Consultation and Subscription Agreement
11 Not applicable
14 Not applicable
16 Not applicable
21 Not applicable
# 23.1 Consent of Counsel
# 24.1 Consent of CPA.
27 Financial Data Schedule
28 Not applicable
# 99.1 Safe Harbor Compliance Statement
____________________________
# filed herewith
x incorporated herein by reference from Registrant's Form 10SB12G,
Registration Statement Amendment No. 4, filed on July 29, 1999.
(b) REPORTS ON FORM 8-K
The Company filed the following reports on Form 8-K during the last quarter
of the 1999 fiscal year.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OAK BROOK CAPITAL III, INC.
By: /s/ Mark T. Thatcher
________________________________
MARK T. THATCHER,
Chairman and President
Date: April 14, 2000
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Mark T. Thatcher, his true and lawful
attorneys-in-fact and agents with full power of substitution and
re-substitution, for then and in their name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this annual report and to file the same with all
exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
This power of attorney may be executed in counterparts.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -----------------------------------------------------------
<S> <C> <C>
/s/ Gerard Werner Director, Secretary April 14, 2000
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
EXHIBITS
TO
FORM 10-KSB
---------------------------
OAK BROOK CAPITAL III, INC.
EXHIBIT INDEX
(a) EXHIBITS
The following documents are filed herewith or have been included as exhibits
to previous filings with the Commission and are incorporated herein by this
reference:
Exhibit No. Exhibit
x 3(a) Articles of Incorporation
x 3(b) Bylaws
x 4(a) Agreements Defining Certain Rights of Shareholders
x 4(b) Specimen Stock Certificate
7 Not applicable
9 Not applicable
x 10(a) Pre-incorporation Consultation and Subscription Agreement
11 Not applicable
14 Not applicable
16 Not applicable
21 Not applicable
# 23.1 Consent of Counsel
(contained in Exhibit 5.1)
# 24.1 Consent of CPA.
27 Financial Data Schedule
28 Not applicable
# 99.1 Safe Harbor Compliance Statement
____________________________
# filed herewith
x incorporated herein by reference from Registrant's Form 10SB12G,
Registration Statement, Amendment No. 4 on July 29, 1999.
OAK BROOK CAPITAL III, INC.
TABLE OF CONTENTS
Independent Auditors' Report...........................................F - 2
Financial Statements
Balance Sheet - December 31, 1999..................................F - 3
Statements of Operations -
Years Ended December 31, 1999 and 1998.............................F - 4
Statement of Changes in Stockholders' Equity -
Years Ended December 31, 1999 and 1998............................F - 5
Statements of Cash Flows -
Years Ended December 31, 1999 and 1998.............................F - 6
Notes to Consolidated Financial Statements.............................F - 7
<PAGE> F-2
OAK BROOK CAPITAL III, INC.
(A Development Stage Company)
March 29, 2000
Shareholders and Board of Directors
OAK BROOK CAPITAL III, INC.
Newport, Rhode Island
Report of Independent Auditors
We have audited the accompanying balance sheet of Oak Brook Capital
III, Inc. (a development stage Company) as of December 31, 1999, and the
related statements of operations and stockholders' equity for the year
ended December 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Oak Brook Capital
III, Inc. (a development stage Company) as of December 31, 1999, and
the results of operations, and its cash flows for the year ended December 31,
1999 in conformity with generally accepted accounting principles.
/s/ Dennis W. Bersch
Milwaukee, Wisconsin
March 29, 2000
<PAGE> F-3
OAK BROOK CAPITAL III, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C> <C>
OTHER ASSETS:
Organizational Costs $ 4,200
Less accumulated amortization (1,365)
Total other assets $ 2,835
Total assets $ 2,835
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,225
Total current liabilities $ 10,225
EQUITY:
Preferred Stock, no par value,
10,000,000 shares authorized
Common Stock, no par value,
50,000,000 shares authorized,
1,228,000 shares outstanding;
1,105,200 shares issued at
$.0038 $ 4,200
122,800 shares issued by gift 0.00
Issued and Outstanding $ 4,200
Deficit accumulated during the
development stage (11,590)
Total equity $ (7,390)
Total liabilities and equity $ 2,835
</TABLE>
<PAGE> F-4
OAK BROOK CAPITAL III, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C>
REVENUE $ 0
COSTS AND EXPENSES:
Audit and professional fees $ 2,500
Amortization of Organizational Cost 840
Net loss $ (3,340)
PER SHARE INFORMATION:
Weighted average number of
common shares outstanding 1,228,000
Profit (loss) per share $ (0.0027)
</TABLE>
<PAGE> F-5
OAK BROOK CAPITAL III, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common
Shares Stock Retained
Issued Amount Earnings Equity
<S> <C> <C> <C> <C>
Equity at Inception $ -
Shares issued at inception
for services at $0.0038
per share 1,105,200 $ 4,200 $ 4,200
Shares issued by gift 122,800
Retained Earnings
12/31/98 $ (8,250) (8,250)
Net loss for the year
ended 12/31/99 - - $ (3,340) $(3,340)
TOTAL 1,228,000 $ 4,200 $(11,590) $(7,390)
</TABLE>
OAK BROOK CAPITAL III, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
SOURCES OF CASH
Investment $ -
USES OF CASH
Professional Fees $ -
Bank Charges - -
Net cash provided this year -
Balance beginning of year -
Cash Balance as
December 31, 1999 $ -
<PAGE> F-7
OAK BROOK CAPITAL III, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on May 1, 1998, in the State of Colorado,
with the intent to operate as a capital market access corporation and to
acquire one or more existing businesses through merger or acquisition.
In October 1999, a Form 8-K was filed with the SEC reporting on a reverse
merger and potential name change for Oak Brook Capital III, Inc. That
transaction was never fully consummated, and as a result, the transaction
as far as it had proceeded was undone. On April 3, 2000, documents were
prepared to confirm the complete nullification of the transaction.
Subsequent to the audit date, on April 8, 2000 that transaction was
nullified. For that reason this report is prepared on a pro-forma
basis, as if that transaction had never happened. The Company has had no
significant business activity to date. The Company has selected the
calendar year as its fiscal year.
Organizational costs
Organizational costs include costs for professional fees and are amortized
using the straight-line method over five years.
Net loss per share
The net loss per share is computed by dividing the net loss for the period
by the weighted average number of common shares outstanding for the
period.
Estimates
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual
results could differ from those estimates.
2. STOCKHOLDERS' EQUITY
On May 15, 1998, the Company issued 1,105,200 shares of its no par value
common stock to affiliates for services valued at their fair market value
of $4,200. The shares were issued pursuant to Rule 701 of the Securities
Act of 1933 (the "Act") and are restricted securities within the meaning of
Rule 144 of the Act. An additional 122,800 shares were issued as qualified
gifts during 1998.
3. RELATED PARTY TRANSACTIONS
There have been no related party transactions since the issuance of shares
using organization costs as consideration.
<PAGE> F-7
using organization costs as consideration. The account payable of $7725.00
reflects $4225.00 for services in connection with the organization of the
company and $3500.00 for the December 31 audit.
BERSCH ACCOUNTING, SC
CERTIFIED PUBLIC ACCOUNTANTS
CONSENT FOR INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Oak Brook Capital III, Inc.
Dated: April 14, 2000
I hereby consent to the incorporation by reference in this Annul Report to
Shareholders on Form 10-KSB of my report dated December 31, 1999 appearing on
page F-2 of Oak Brook's Annual Report on Form 10-KSB for the year ended
December 31, 1999. I also consent to the reference to me under the heading
"Exhibits" in such Registration Statement.
BERSCH ACCOUNTING, sc
/s/ Dennis W. Bersch
------------------------------------
DENNIS BERSCH, CPA
CONSENT OF COUNSEL
We hereby consent to the incorporation by reference in this Annual Report on
Form 10-KSB of our consent dated April 14, 2000 appearing in the Oak Brook
Capital III, Inc. Registration Statement on Form 10SB12G filed July 29, 1999.
We also consent to the reference to us under the heading "Exhibits" in such
Registration Statement.
NADEAU & SIMMONS, P.C.
/s/ Nadeau & Simmons, P.C.
By:_______________________
Providence, RI
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. Oak Brook Capital III, Inc. ("Oak Brook" 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 Oak Brook. 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, Oak Brook 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.
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 $1,000 to
$1,500 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
2. Control by Principal Shareholders, Officers and Directors.
The Company's principal shareholders, officers and directors will
beneficially own approximately ninety percent (90%) 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."
It is anticipated that Company's President and Vice President
may actively negotiate or otherwise consent to the purchase of a portion
of their common stock as a condition to, or in connection with, a proposed
merger or acquisition transaction. In this process, the Company's
President and/or Vice President may consider their own personal pecuniary
<PAGE> 3
benefit rather than the best interests of other Company shareholders, and
the other Company shareholders are not expected to be afforded the
opportunity to approve or consent to any particular stock buy-out
transaction. See "Conflicts of Interest."
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. Even if the
Company's funds prove to be sufficient to acquire an interest in, or
complete a transaction with, a business opportunity, the Company may not
have enough capital to exploit the opportunity. The ultimate success of
the Company may depend upon its ability to raise additional capital. The
Company has not investigated the availability, source, or terms that
might govern the acquisition of additional capital and will not do so
until it determines a need for additional financing. If additional
capital is needed, there is no assurance that funds will be available
from any source or, if available, that they can be obtained on terms
acceptable to the Company. If not available, the Company's 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> 4
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 was formed in May of 1998 for the purpose of registering
its common stock under the 1934 Act and acquiring a business opportunity.
The Company has no operating history, revenues from operations, or assets
other than cash from private sales of stock. The Company faces all of
the risks of a new business and the special risks inherent in the
investigation, acquisition, or involvement in a new business opportunity.
The Company must be regarded as a new or "start-up" venture with all of
the unforeseen costs, expenses, problems, and difficulties to which
such ventures are subject.
7. No Assurance of Success or Profitability.
There is no assurance that the Company will acquire a favorable business
opportunity. Even if the Company should become involved in a business
opportunity, there is no assurance that it will generate revenues or
profits, or that the market price of the Company's Common Stock will
be increased thereby.
<PAGE> 5
8. 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.
9. 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. Even in the
event demand is identified for a merger or acquisition contemplated by
the Company, there is no assurance the Company will be successful in
completing any such business combination.
10. Possible Business - Not Identified and Highly Risky.
The Company has not identified and has no commitments to enter into or
acquire a specific business opportunity and therefore can disclose the
risks and hazards of a business or opportunity that it may enter into
in only a general manner, and cannot disclose the risks and hazards of
any specific business or opportunity that it may enter into. An
investor can expect a potential business opportunity to be quite risky.
The Company's acquisition of or participation in a business
opportunity will likely be highly illiquid and could result in a total
loss to the Company and its stockholders if the business or
opportunity proves to be unsuccessful. See Item 1 "Description of
Business."
11. Type of Business Acquired.
The type of business to be acquired may be one that desires to avoid
effecting its own public offering and the accompanying expense, delays,
uncertainties, and federal and state requirements which purport to protect
investors. Because of the Company's limited capital, it is more likely than
not that any acquisition by the Company will involve other parties whose
primary interest is the acquisition of control of a publicly traded
company. Moreover, any business opportunity acquired may be
<PAGE> 6
currently unprofitable or present other negative factors.
12. Impracticability of Exhaustive Investigation.
The Company's limited funds and the lack of full-time management will
likely make it impracticable to conduct a complete and exhaustive
investigation and analysis of a business opportunity before the Company
commits its capital or other resources thereto. Management decisions,
therefore, will likely be made without detailed feasibility studies,
independent analysis, market surveys and the like which, if the Com-
pany had more funds available to it, would be desirable. The
Company will be particularly dependent in making decisions upon
information provided by the promoter, owner, sponsor, or others
associated with the business opportunity seeking the Company's
participation. A significant portion of the Company's available funds
may be expended for investigative expenses and other expenses related
to preliminary aspects of completing an acquisition transaction,
whether or not any business opportunity investigated is eventually
acquired.
13. 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.
14. Possible Reliance upon Unaudited Financial Statements.
The Company generally will require audited financial statements from
companies that it proposes to acquire. No assurance can be given,
however, that audited financials will be available to the Company. In
cases where audited financials are unavailable, the Company will have
to rely upon unaudited information received from target companies'
management that has not been verified by outside auditors. The lack
of the type of independent verification which audited financial
statements would provide, increases the risk that the Company, in
evaluating an acquisition with such a target company, will not have
the benefit of full and accurate information about the financial
condition and operating history of the target company. This risk
increases the prospect that the acquisition of such a company might
prove to be an unfavorable one for the Company or the holders of the
Company's securities.
<PAGE> 7
Moreover, the Company will be subject to the reporting provisions of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
thus will be required to furnish certain information about significant
acquisitions, including audited financial statements for any business
that it acquires. Consequently, acquisition prospects that do not have,
or are unable to provide reasonable assurances that they will be able to
obtain, the required audited statements would not be considered by the
Company to be appropriate for acquisition so long as the reporting
requirements of the Exchange Act are applicable. Should the Company,
during the time it remains subject to the reporting provisions of the
Exchange Act, complete an acquisition of an entity for which audited
financial statements prove to be unobtainable, the Company would be
exposed to enforcement actions by the Securities and Exchange Commission
(the "Commission") and to corresponding administrative sanctions,
including permanent injunctions against the Company and its
management. The legal and other costs of defending a Commission
enforcement action are likely to have material, adverse consequences
for the Company and its business. The imposition of administrative
sanctions would subject the Company to further adverse consequences.
In addition, the lack of audited financial statements would prevent the
securities of the Company from becoming eligible for listing on NASDAQ,
the automated quotation system sponsored by the National Association of
Securities Dealers, Inc., or on any existing stock exchange. Moreover,
the lack of such financial statements is likely to discourage broker-dealers
from becoming or continuing to serve as market makers in the securities
of the Company. Without audited financial statements, the Company would
almost certainly be unable to offer securities under a registration statement
pursuant to the Securities Act of 1933, and the ability of the Company to
raise capital would be significantly limited until such financial statements
were to become available.
15. Other Regulation.
An acquisition made by the Company may be of a business that is subject to
regulation or licensing by federal, state, or local authorities. Compliance
with such regulations and licensing can be expected to be a time-consuming,
expensive process and may limit other investment opportunities of the Company.
<PAGE> 8
16. Dependence upon Management; Limited Participation of Management.
The Company currently has two individuals who are serving as its sole
officers and directors. The Company will be heavily dependent upon
their skills, talents, and abilities to implement its business plan,
and may, from time to time, find that the inability of the sole
officers and directors to devote their full time attention to the
business of the Company results in a delay in progress toward
implementing its business plan. Furthermore, since only two individuals
are serving as the sole officers and directors of the Company, it will be
entirely dependent upon their experience in seeking, investigating, and
acquiring a business and in making decisions regarding the Company's
operations. See "Management." Because investors will not be able to
evaluate the merits of possible business acquisitions by the Company,
they should critically assess the information concerning the Company's
sole officer and director.
17. Lack of Continuity in Management.
The Company does not have an employment agreement with its sole officers
and directors, and as a result, there is no assurance that they will
continue to manage the Company in the future. In connection with
acquisition of a business opportunity, it is likely the current officers
and directors of the Company may resign. A decision to resign will be
based upon the identity of the business opportunity and the nature of the
transaction, and is likely to occur without the vote or consent of the
stockholders of the Company.
18. 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> 9
19. 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.
20. Dependence upon Outside Advisors.
To supplement the business experience of its sole officer and director,
the Company may be required to employ accountants, technical experts,
appraisers, attorneys, or other consultants or advisors. The selection
of any such advisors will be made by the Company's President without any
input from stockholders. Furthermore, it is anticipated that such persons
may be engaged on an "as needed" basis without a continuing
fiduciary or other obligation to the Company. In the event the
President of the Company considers it necessary to hire outside
advisors, he may elect to hire persons who are affiliates, if they are
able to provide the required services.
21. Leveraged Transactions.
There is a possibility that any acquisition of a business opportunity by
the Company may be leveraged, i.e., the Company may finance the acquisition
of the business opportunity by borrowing against the assets of the business
opportunity to be acquired, or against the projected future revenues or
profits of the business opportunity. This could increase the
Company's exposure to larger losses. A business opportunity acquired
through a leveraged transaction is profitable only if it generates
enough revenues to cover the related debt and expenses. Failure to
make payments on the debt incurred to purchase the business
opportunity could result in the loss of a portion or all of the assets
acquired. There is no assurance that any business opportunity
acquired through a leveraged transaction will generate sufficient
revenues to cover the related debt and expenses.
22. Competition.
The search for potentially profitable business opportunities is intensely
competitive. The Company expects to be at a disadvantage when competing
with many firms that have substantially greater financial and management
resources and capabilities than the Company. These competitive conditions
will exist in any industry in which the Company may become interested.
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23. No Foreseeable Dividends.
The Company has not paid dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future.
24. Loss of Control by Present Management and Stockholders.
The Company may consider an acquisition in which the Company
would issue as consideration for the business opportunity to be
acquired an amount of the Company's authorized but unissued
Common Stock that would, upon issuance, represent the great majority
of the voting power and equity of the Company. The result of such
an acquisition would be that the acquired company's stockholders and
management would control the Company, and the Company's
management could be replaced by persons unknown at this time.
Such a merger would result in a greatly reduced percentage of
ownership of the Company by its current shareholders. In addition, the
Company's President and/or Vice President could sell their control
block of stock at a premium price to the acquired company's
stockholders.
25. 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.
26. 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
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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. Of the total 1,228,000 shares of common stock held
by present stockholders of the Company, 1,105,200 shares which were
issued pursuant to Rule 701, will become available for resale under Rule
144, on or about February 3, 1999, and the remaining 122,800 shares
will become available for resale starting in May, 1999.
27. 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. Some jurisdictions
may not under any circumstances allow the trading or resale of blind-pool or
"blank-check" securities. Accordingly, investors should consider the
secondary market for the Company's securities to be a limited one.
