U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended July 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIESEXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
STEARMAN ENTERPRISES INC.
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(Name of small business issuer in its charter)
Delaware 13-4082876
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(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
c/o Herbert Maxwell
1501 Broadway, Suite 1807, New York, New York 10036
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(Address of principal executive office including zip code)
(212) 768-2383
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Issuer's telephone number
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.0001 par value per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not 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. [X]
State the aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days. (See definition of affiliate in Rule 12b-2 of the
Exchange Act.) Not Applicable
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No N/A X
DOCUMENTS INCORPORATED BY REFERENCE
None
ITEMS 1 & 2. DESCRIPTION OF THE BUSINESS AND THE
COMPANY'S PROPERTIES
A. The Company
Stearman Enterprises, Inc. (the "Company") was organized under
the laws of the State of Delaware on March 13, 1992. The Company was
organized for the purposes of creating a corporate vehicle to locate and
acquire an operating business entity which management believes is a
suitable acquisition candidate (a "Target Company"). The Company will
not restrict its search to any specific business, industry or geographical
location.
The Company does not currently engage in any business activities
that provide any cash flow. The costs of identifying, investigating, and
analyzing business combinations will be paid with money in the
Company's treasury or loaned by management.
Although the Company was under no obligation to do so, it has
voluntarily filed this registration statement because it believes that it can
better facilitate its business goals if it were a "reporting issuer" under
the Securities Exchange Act of 1934 (the "Exchange Act").
PROPOSED BUSINESS
The Company will seek to locate an acquire a Target Company
which is the opinion of the Company's management (sometimes referred
to as the "Management") offers long term growth potential. The
Company will not restrict its search to any specific business, industry or
geographical location. The Company may seek to acquire a Target
Company which has just commenced operations, or which works to avail
itself of the benefits of being a "reporting issuer" in order to facilitate
capital formation to expand into new products or market.
There are certain perceived benefits to being a reporting company
with a class of publicly-traded securities. These are commonly thought
to include the following:
* the ability to use registered securities to make acquisitions of
assets or businesses;
* increased visibility in the financial community;
* the facilitation of borrowing from financial institutions;
* improved trading efficiency;
* shareholder liquidity;
* greater ease in subsequently raising capital;
* compensation of key employees through stock options;
* enhanced corporate image;
* a presence in the United States capital market.
A Target Company, if any, which may be interested in a business
combination with the Company may include the following:
* a company for which a primary purpose of becoming public is
the use of its securities for the acquisition of assets or
businesses;
* a company which is unable to find an underwriter of its
securities or is unable to find an underwriter of securities on
terms acceptable to it;
* a company which wishes to become public with less dilution
of its common stock than would occur upon an underwriting;
* a company which believes that it will be able obtain
investment capital on more favorable terms after it has
become public;
* a foreign company which may wish an initial entry into the
United States securities market;
* a special situation company, such as a company seeking a
public market to satisfy redemption requirements under a
qualified Employee Stock Option Plan;
* a company seeking one or more of the other perceived
benefits of becoming a public company.
There is no assurances that the Company will be able to effect an
acquisition of a Target Company. In addition, at this time, no specifics
as to an acquisition or as to the nature of the Target Company can be
provided.
RISK FACTORS
The Company's business is subject to numerous risk factors,
including the following:
Anticipated Change in Control and Management. Upon the successful
completion of the acquisition of a Target Company, the Company
anticipates that it will have to issue to the Target Company or its
shareholders some authorized but unissued common stock which, when
issued will comprise a majority of the Company's then issued and
outstanding shares of common stock. Therefore, the Company anticipates
that upon the closing of the acquisition of a Target Company, the
Company will no longer be controlled by the current shareholders. In
addition, existing management and directors may resign. The Company
cannot give any assurance that the experience or qualifications of new
management, as it relates to either in the operation of the Company's
activities or in the operation of the business, assets or property being
acquired, will be adequate for such purposes.
Conflict of Interest - Management's Fiduciary Duties. A conflict of
interest may arise between management's personal financial benefit and
management's fiduciary duty to you. The Company's sole director and
officer is or may become officers, directors, controlling shareholders
and/or partners of other entities engaged in a variety of businesses. Mr.
Maxwell is engaged in other business activities. Accordingly, the
amount of time he will devote to the Company's business will only be
about five (5) to ten (10) hours per month. There exists potential
conflicts of interest including allocation of time between the Company
and its representatives' other business interests.
Experience of Management; Consultants. Although management has
general business experience, it has limited experience in effecting
business combinations and may not have any significant experience in
acquiring or operating certain business interests that the company might
choose to acquire. Management does not have, nor does it presently
intend to enter into, any contracts or agreements with any consultants or
advisors with respect to its proposed business activities. Consequently,
Management has not established the criteria that will be used to hire
independent consultants regarding their experience, the services to be
provided, the term of service, etc., and no assurance can be made that the
Company will be able to obtain such assistance on acceptable terms.
Potential Future Rule 144 Sales. Of the 100,000,000 shares of the
Company's Common Stock authorized, there are presently issued and
outstanding 1,623,000 shares; of which 1,108,000 shares are restricted
securities as that term is defined under the Securities Act of 1933 (the
"Securities Act"), and in the future may, subject to the foregoing
discussion, be sold in compliance with Rule 144 of the Securities Act, or
pursuant to a Registration Statement filed under the Act. Rule 144
provides, in essence, that a person holding restricted securities for a
period of 1 year may sell those securities in unsolicited brokerage
transactions of in transactions with a market maker, in an amount equal
to 1% of our outstanding common stock every 3 months. Additionally,
Rule 144 requires that an issuer of securities make available if the issuer
satisfies the reporting requirements of Sections 13 or 15(d) of the
Exchange Act and of Rule 15c2-11 thereunder. Rule 144 also permits,
under certain circumstances, that sale of shares by a person who is not an
affiliate of ours and who has satisfied a 2 two year holding period
without any quantity limitation and whether or not there is adequate
current public information available. Investors should be aware that
sales under Rule 144, or pursuant to a registration statement filed under
the Securities Act, may have a depressive effect on the market price of
the Company's common stock in any market that may develop for such
shares.
Pursuant to a letter dated January 21, 2000 from the United States
Securities and Exchange Commission (the "Commission") to NASD
Regulation, Inc. the Commission has taken the position that, both before
and after a business combination, the promoters or affiliates of blank
check companies, as well as their transferees, are underwriters of the
securities issued and accordingly such securities can only be resold
pursuant to a Registration Statement filed under the Securities Act.
Accordingly the aforementioned shares may not be sold in compliance of
Rule 144.
Possible Issuance of Additional Shares. The Company's Certificate of
Incorporation, authorizes the issuance of 100,000,000 shares of common
stock $.0001 par value. The Company's Board of Directors has the power
to issue any or all of such additional shares without stockholder approval
for such consideration as it deems. Management presently anticipates
that it may choose to issue a substantial amount of the Company's shares
in connection with the acquisition of a target business.
Risks of Leverage. There are currently no limitations relating to the
Company's ability to borrow funds to increase the amount of capital
available to it to effect a business combination or otherwise finance the
operations of any Target Company. The amount and nature of any
borrowings by the Company will depend on numerous factors, including
the Company's capital requirements, the Company's perceived ability to
meet debt services on any such borrowings, and then-prevailing
conditions in the financial, if required or otherwise sought, will be
available on terms deemed to be commercially acceptable and in the best
interest of the Company's inability to borrow funds required to effect or
facilitate a business combination, or to provide funds for an additional
infusion of capital into a Target Company, may have a material adverse
affect on the Company's financial condition and future prospects.
Additionally, to the extent that debt financing ultimately proves to be
available, any borrowings may subject the Company to various risks
traditionally associated with incurring of indebtedness, including:
* if the Company's operating revenues after the acquisition
were to be insufficient to pay debt service, there would be a
risk of default and foreclosure on our assets.
* if a loan agreement containing covenants is breached without
a waiver or renegotiation of the terms of that covenant, then
the lender could have the right to accelerate the payment of
the indebtedness even if the Company has made all principal
and interest payments when due.
* if the interest rate on a loan fluctuated or the loan was
payable on demand, the Company would bear the risk of
variations in the interest rate or demand for payment.
* if the terms of a loan did not provide for amortization prior to
maturity of the full amount borrowed and the "balloon"
payment could not be refinanced at maturity on acceptable
terms, we might be required to seek additional financing and,
to the extent that additional financing is not available on
acceptable terms, to liquidate the Company's assets.
Possible Need for Additional Financing. The Company cannot ascertain
with any degree of certainty the capital requirements for an particular
Target Company inasmuch as the Company has not yet identified any
acquisition candidates. If the Target Company requires additional
financing, such additional financing (which, among other forms, could be
derived from the public or private offering of securities or from the
acquisition of debt through conventional bank financing), may not be
available, due to, among other things, the Target Company not having
sufficient:
* credit or operating history;
* income stream;
* profit level;
* asset base eligible to be collateralized; or
* market for its securities.
Since no specific business has been targeted for acquisition, it is not
possible to predict the specific reasons why conventional private or
public financing or conventional bank financing might not become
available. Although there are no agreements between the Company and
any of its officers and/or directors pursuant to which we may borrow and
such officers and/or directors are obligated to lend the Company monies,
there are no restrictions on our right to borrow money from officers and
directors. No stockholder approval is required in connection with any
such loan.
Penny Stock Rules. Under Rule 15g-9, a broker or dealer may not sell a
"penny stock" (as defined in Rule 3a51-1) to or effect the purchase of a
penny stock by any person unless:
(1) such sale or purchase is exempt from Rule 15g-9; or
(2) prior to the transaction the broker or dealer has (a) approved
the person's account for transaction in penny stocks in
accordance with Rule 15g-9 and (b) received from the person
a written agreement to the transaction setting forth the
identity and quantity of the penny stock to be purchased.
The Commission adopted regulations that generally define a penny
stock to be any equity security other than a security excluded from such
definition by Rule 3a51-1. Such exemptions include, but are not limited
to (a) an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous
operations for at least three years; (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than
three years; or (iii) average revenue of at least $6,000,000 for the
preceding three years; (b) except for purposes of Section 7(b) of the
Exchange Act and Rule 419, any security that has a price of $5.00 or
more; (c) and a security that is authorized or approved for authorization
upon notice of issuance for quotation on the National Association of
Securities ("NASD") Dealers Automated Quotation System ("NASDAQ").
It is likely that the Company's common stock will be subject to the
regulations on penny stocks; consequently, the market liquidity for our
common stock may be adversely affected by such regulations. This, in
turn, will affect shareholders ability to sell his shares following the
completion of an acquisition.
There is no current trading market for shares (the "Shares") of the
Company's common stock and there can be no assurance that a trading
market will develop, or, if such a trading market does develop, that it
will be sustained. The Shares, to the extent that a market develops for
the Shares at all, will likely appear in what is customarily known as the
"pink sheets" or on the NASD over-the-counter Bulletin Board (the
"OTCBB"), which may limit the marketability and liquidity of the
Shares.
To date, neither the Company nor anyone acting on behalf of the
Company has taken any affirmative steps to request or encourage any
broker/dealer to act as a market maker for our common stock. The
Company has had no discussions or understandings, with any "market
makers" regarding the participation of any such market maker in the
future trading market, if any, in the Company's common stock.
Management expects that discussions in this area will ultimately be
initiated by the management in office after completion of the acquisition
of a Target Company.
Risks Associated with Operations in Foreign Countries. The Company's
business plan is to seek to acquire a Target Company. Management's
discretion is unrestricted, and the Company may participate in any
business whatsoever that may in the opinion of Management meet the
Company's business objectives. The Company may acquire a business
outside the United States. The Company has not limited the scope of its
search to a particular region or country. Accordingly, if the Company
acquires a business located, or operating in a foreign jurisdiction, the
Company's operations may be adversely affected to the extent of the
existence of unstable economic, social and/or political conditions in such
foreign regions and countries.
No Recent Operating History or Revenue and Minimal Assets. The
Company has had no operating history nor any revenues or earnings from
operations since 1998. The Company has no significant assets or
financial resources. The Company will, in all likelihood, sustain
operating expenses without corresponding revenues, at least until the
consummation of a business combination. This may result in the
Company incurring a net operating loss which will increase continuously
until the Company can consummate a business combination with a Target
Company. There is no assurance that the Company can identify such a
Target Company and consummate such a business combination.
Speculative Nature of the Company's Proposed Operations. The success
of the Company's proposed plan of operation will depend to a great
extent on the operations, financial condition and management of the
identified Target Company. While management will prefer business
combinations with entities having established operating histories, there
can be no assurance that the Company will be successful in locating
candidates meeting such criteria. In the event the Company completes a
business combination, of which there can be no assurance, the success of
the Company's operations will be dependent upon management of the
Target Company and numerous other factors beyond the Company's
control.
Scarcity of and Competition for Business Opportunities and
Combinations. The Company is and will continue to be an insignificant
participant in the business of seeking mergers with and acquisitions of
business entities. A large number of established and well-financed
entities, including venture capital firms, are active in mergers and
acquisitions of companies which may be merger or acquisition target
candidates for the Company. Nearly all such entities have significantly
greater financial resources, technical expertise and managerial
capabilities than the Company and, consequently, the Company will be at
a competitive disadvantage in identifying possible business opportunities
and successfully completing a business combination. Moreover, the
Company will also compete with numerous other small public companies
in seeking merger or acquisition candidates.
No Agreement for Acquisition of a Target Company Combination. The
Company has no current arrangement, agreement or understanding with
respect to engaging in a merger with or acquisition of a specific business
entity. There can be no assurance that the Company will be successful in
identifying and evaluating suitable business opportunities or in
concluding a business combination. Management has not identified any
particular industry or specific business within an industry for evaluation
by the Company. There is no assurance that the Company will be able to
negotiate a business combination on terms favorable to the Company.
The Company has not established a specific length of operating history or
a specified level of earnings, assets, net worth or other criteria which it
will require a Target Company to have achieved, or without which the
Company would not consider a business combination with such business
entity. Accordingly, the Company may enter into a business combination
with a business entity having no significant operating history, losses,
limited or no potential for immediate earnings, limited assets, negative
net worth or other negative characteristics.
Reporting Requirements May Delay or Preclude Acquisition. Section 13
of 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 companies to
prepare such financial 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 Exchange Act are applicable.
Lack of Market Research or Marketing Organization. The Company has
neither conducted, nor have others made available to it, market research
indicating that demand exists for the transactions contemplated by the
Company. Even in the event demand exists for a merger or acquisition of
the type contemplated by the Company, there is no assurance the
Company will be successful in completing any such business
combination.
Lack of Diversification. The Company's proposed operations, even if
successful, will in all likelihood result in the Company engaging in a
business combination with only one business entity. Consequently, the
Company's activities will be limited to those engaged in by the business
entity which the Company merges with or acquires. The Company's
inability to diversify its activities into a number of areas may subject the
Company to economic fluctuations within a particular business or
industry and therefore increase the risks associated with the Company's
operations.
Regulation under Investment Company Act. Although the Company will
be subject to regulation under the Exchange Act, management believes
the Company will not be subject to regulation under the Investment
Company Act of 1940, insofar as the Company will not be engaged in the
business of investing or trading in securities. In the event the Company
engages in business combinations which result in the Company holding
passive investment interests in a number of entities, the Company could
be subject to regulation under the Investment Company Act of 1940. In
such event, the Company would be required to register as an investment
company and could be expected to incur significant registration and
compliance costs. The Company has obtained no formal determination
from the Securities and Exchange Commission as to the status of the
Company under the Investment Company Act of 1940 and, consequently,
any violation of such Act could subject the Company to material adverse
consequences.
Probable Change In Control and Management. A business combination
involving the issuance of the Company's common stock will, in all
likelihood, result in shareholders of a Target Company obtaining a
controlling interest in the Company. Any such business combination may
require shareholders of the Company to sell or transfer all or a portion of
the Company's common stock held by them. The resulting change in
control of the Company will likely result in removal of the present
officer and director of the Company and a corresponding reduction in or
elimination of his participation in the future affairs of the Company.
Taxation. Federal and state tax consequences will, in all likelihood, be
major considerations in any business combination the Company may
undertake. Currently, such transactions may be structured so as to result
in tax-free treatment to both companies, pursuant to various federal and
state tax provisions. The Company intends to structure any business
combination so as to minimize the federal and state tax consequences to
both the Company and the Target Company; however, there can be no
assurance that such business combination will meet the statutory
requirements of a tax-free reorganization or that the parties will obtain
the intended tax-free treatment upon a transfer of stock or assets. A non-
qualifying reorganization could result in the imposition of both federal
and state taxes which may have an adverse effect on both parties to the
transaction.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any pending legal proceedings and is not
aware of any contemplated legal proceedings to which it may be a party
or of which any of its properties may be subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
During the last quarter of the fiscal year ended July 31, 2000 no
matter was submitted to the vote of the Company's security holders,
through resolutions of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDERS MATTERS
There is no trading market for the Company's Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
This Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange
Act. All statements other than statements of historical facts included in
this Report, including, without limitation, the statements under
"Management's Discussion and Analysis or Plan of Operation" regarding
the Company's prospects and the Company's financial position are
forward-looking statements. Although the Company believes that the
expectations are reasonable and it can give no assurance that such
expectations are reasonable and it can give no assurance that such
expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") are disclosed in this Report,
including, without limitation, in conjunction with the forward-looking
statements included in this Report under "Risks Associated with the
Company's Business." All subsequent written and oral forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
Business Objectives
The Company's business plan is to seek to acquire or merge with
potential businesses that may, in the opinion of Management, warrant the
Company's involvement. Management's discretion is unrestricted, and
the Company may participate in any business whatsoever that may in the
opinion of Management meet the business objectives discussed herein.
The Company recognizes that as a result of its limited financial,
managerial or other resources, the number of suitable potential
businesses that may be available to it will be extremely limited. The
Company's principal business objective will be to seek long-term growth
potential in the business in which it participates rather than immediate,
short-term earnings. In seeking to attain its business objectives, the
Company will not restrict its search to any particular industry. Rather,
the Company may investigate businesses of essentially any kind or
nature, including but not limited to finance, high technology,
manufacturing, service, research and development, communications,
insurance, brokerage, transportation, and others. Management may also
seek to become involved with other development stage companies or
companies that could be categorized as "financially troubled." At the
present time, the Company has not chosen the particular area of business
in which it proposes to engage and has not conducted any market studies
with respect to any business, property or industry.
Businesses that seek the Company's participation in their operations
may desire to do so to avoid what such businesses deem to be adverse
factors related to undertaking a public offering. Such factors include
substantial time requirements, market conditions, legal costs, conditions
or requirements imposed by Federal and state securities laws and possible
loss of voting control. In making an investment in the Company,
investors should recognize that the terms of their purchase of the
Company's securities may ultimately prove to be less favorable than if
such persons had invested in the securities of a specific business that was
undertaking its own public offering.
Evaluation Criteria
The analysis of potential business endeavors will be undertaken by or
under the supervision of Management, no member of which is a
professional business analyst. Management is comprised of individuals
of varying business experiences, and Management will rely on its own
business judgment in formulating decisions as to the types of businesses
that the Company may acquire or in which the Company may participate.
It is quite possible that Management will not have any business
experience or expertise in the type of business engaged in by the
company ultimately acquired. Management will seek to examine those
factors described herein when making a business decision; however, the
mention of such factors to be examined by Management with regard to its
determining the potential of a business endeavor should not be read as
implying any experience or expertise on behalf of Management as to the
business chosen. These factors are merely illustrative of the types of
factors that Management may consider in evaluating a potential
acquisition.
Management anticipates that the selection of a Target Company will be
complex and risky because of the competition for such business
opportunities among all segments of the financial community. The nature
of the Company's search for the acquisition of a Target Company requires
maximum flexibility inasmuch as the Company will be required to
consider various factors and divergent circumstances which may preclude
meaningful direct comparison among the various business enterprises,
products or services investigated. Investors should recognize that the
possible lack of diversification in relation to the Company's acquisition
may not permit the Company to offset potential losses from one venture
against profits from another. This should be considered a negative factor
affecting any decision to purchase the Shares. Management of the
Company will have virtually unrestricted flexibility in identifying and
selecting a prospective Target Company. Management may consider,
among other factors in evaluating a prospective Target Company and
determining the "fair market value" thereof, the following:
* the Target Company' net worth;
* the Target Company' total assets;
* the Target Company' cash flow;
* costs associated with effecting the Business Combination;
* equity interest in and possible management participation in the
Target Company;
* earnings and financial condition of the Target Company;
* growth potential of the Target Company and the industry in which
it operates;
* experience and skill of management and availability of additional
personnel of the Target Company;
* capital requirements of the Target Company;
* competitive position of the Target Company;
* stage of development of the product, process or service of the
Target Company;
* degree of current or potential market acceptance of the product,
process or service of the Target Company;
* possible proprietary features and possible other protection of the
product, process or service of the Target Company; and
* regulatory environment of the industry in which the Target
Company operates.
The foregoing criteria is not intended to be exhaustive or obligatory
any evaluation relating to the merits of a particular Business
Combination will be based, to the extent relevant, on the above factors as
well as other considerations deemed relevant by management in
connection with effecting a Business Combination consistent with the
Company's business objectives.
It is anticipated that locating and investigating specific business
proposals could take a considerable amount of time. The time and costs
required to select and evaluate a Target Company candidate (including
conducting a due diligence review) and to structure and consummate the
Business Combination (including negotiating relevant agreements and
preparing requisite documents for filing pursuant to applicable securities
laws and state corporate laws) cannot presently be ascertained with any
degree of certainty.
The Company anticipates that it will make contact with business
prospects primarily through the efforts of its officers, who will meet
personally with existing management and key personnel, visit and inspect
material facilities, assets, products and services belonging to such
prospects, and undertake such further reasonable investigation as
Management deems appropriate, to the extent of its limited financial
resources. The Company anticipates that certain Target Company
candidates may be brought to its attention from various unaffiliated
sources, including securities broker/dealers, investment bankers, venture
capitalists, bankers, other members of the financial community, and
affiliated sources. While the Company does not presently anticipate
engaging the services of professional firms that specialize in business
acquisitions on any formal basis, the Company may engage such firms in
the future, in which event the Company may pay a finder's fee or other
compensation.
To date, the Company has not selected any particular industry or any
Target Company in which to concentrate its Business Combination
efforts.
Daily Operations
The Company expects to use attorneys and accountants as necessary,
and does not anticipate a need to engage any full-time employees so long
as it is seeking and evaluating business opportunities. The need for
employees and their availability will be addressed in connection with the
decision whether or not to acquire or participate in a specific Business
Acquisition.
Until an active business is commenced or acquired the Company will
have no employees or day- to-day operations. The Company is unable to
make any estimate as to the future number of employees which may be
necessary, if any, to work for the Company. If an existing business is
acquired it is possible that its existing staff would be hired by the
Company. At the present time it is the intention of Management to meet
or be in telephone contact at least once a week and more frequently if
needed to review business opportunities, evaluate potential acquisitions
and otherwise operate the affairs of the Company. Except for
reimbursement of reasonable expenses incurred on behalf of the
Company, Management will not be compensated for these services
rendered on behalf of the Company.
Office Facilities
The Company will maintain its business address at1501 Broadway, Suite
1807, New York, New York 10036. Pursuant to an oral agreement, which
agreement may be terminated by either party on 30 days prior written
notice, the Company will use these offices on a rent free basis until such
time as it consummates a Business Combination
ITEM 7. FINANCIAL STATEMENTS
Index
Page
Independent Auditor's Report F-1
Balance Sheet as of July 31, 2000 F-2
Statements of Loss for the Years
Ended July 31, 1997, July 31, 1998,
July 31, 1999 and July 31, 2000. F-3
Statements of Cash Flows for the Years Ended
July 31, 1997, July 31, 1998,
July 31, 1999 and July 31, 2000. F-4
Statements of Changes in Stockholders' Equity (Deficit)
for the Years Ended July 31, 1997, July 31, 1998,
F-5
July 31, 1999 and July 31, 2000.
Notes to Financial Statements F-6 - F-8
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
AND ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
Directors and Executive Officers
Set forth below is the name of each of the directors and
officers of the Company, all positions and offices with the Company
held, the period during which such person has never served as such, and
the business experience during at least the last five years:
Name Age Positions and Offices Held
Herbert Maxwell 78 President and Director
(Since August 1999)
There are no agreements or understandings for the officer or
director to resign at the request of another person and the above-named
officer and director is not acting on behalf of nor will act at the direction
of any other person.
Herbert Maxwell became sole officer and director of the Company
on August 1, 1999. Mr. Maxwell has been an independent businessman
for the past five years and has been a consultant for troubled companies
and a principal in investment groups for the past two decades. Mr.
Maxwell has also served as a director and officer (and was a principal
stockholder) of four publicly held companies, which although not
engaged in blank check offerings nevertheless consummated acquisitions
of the type described in this Prospectus. These include:
(1) Zachary Ventures, Inc. was organized in December, 1993. It
conducted an offering pursuant to Rule 419 which offering was
concluded in March, 1994. Zachary Ventures, Inc. did not effect a
Business Combination pursuant to Rule 419 and in June, 1996
returned the deposited proceeds to the investors as required by such
Rule. Zachary Ventures has been dissolved and is no longer in
business.
(2) C.S. Primo Corp. was organized in 1986 initially as an
inactive publicly held corporation pursuing a business acquisition.
Mr. Maxwell became a principal stockholder and a director of C.S.
Primo Corp. on or about June 3, 1988. On or about March 4, 1991,
C.S. Primo Corp. acquired approximately 98% of the issued and
outstanding common stock of Dynasty World Express, Inc. in
exchange for approximately 90% of C.S. Primo Corp.'s common
stock; since then, C.S. Primo Corp. has changed its name to
Phoenix Information Systems Corp. and its common stock trades on
the over-the-counter market. Mr. Maxwell served as a director
from June, 1988 to March, 1991.
(3) Lewis Resources, Inc. was organized in 1987, initially
through a stock dividend distribution, as an inactive publicly held
corporation pursuing a business acquisition. Mr. Maxwell was one
of the initial stockholders and directors of Lewis Resources, Inc.
On September 28, 1993, Lewis Resources, Inc. acquired from Lema
Investments Ltd. all of the outstanding shares of Gallium Arsenide
Industries Ltd., a development stage Israeli company. Since then,
Lewis Resources, Inc. has changed its name to Israel Semiconductor
Corporation and its common stock trades on the over-the-counter
market. Mr. Maxwell served as a director from its formation
through September, 1993.
(4) Lewison Enterprises Inc. was organized in 1988 initially,
through a stock dividend distribution, as an inactive publicly held
corporation pursuing a business acquisition. Mr. Maxwell was one
of the initial stockholders and directors of Lewison Enterprises Inc.
In July, 1993 the Lewison Enterprises Inc. issued 8,000,000 shares
of common stock to the stockholders of Omega Development Corp.
("Omega") in exchange for all of the issued and outstanding shares
of common stock of Omega. Since then, Lewison Enterprises Inc.
has changed its name to Omega Development, Inc. To date, no
trading market has developed for shares of its common stock. Mr.
Maxwell has been a director since its formation.
Except for Omega Development, Inc., Mr. Maxwell is no longer a
principal stockholder, director or officer of any of the foregoing
corporations. Except as set forth above, Mr. Maxwell does not presently
serve as a director of any public company. He is an active investor and
writes a newsletter on the New York theater industry.
ITEM 10. EXECUTIVE COMPENSATION
No officer or director presently receives a salary. Except as described
herein it is not anticipated that any director or officer will receive any
fee or salary pending consummation of a Business Combination.
However, directors and/or officers will receive expense reimbursement
for expenses reasonably incurred on behalf of the Company.
In addition, Mr. Maxwell as a stockholder of the Company or his
affiliates may receive personal financial gain, by: (i) payment of
consulting fees, (ii) sales of affiliates' stock, and (iii) payments of
salaries. See "Risks Associated with the Company's Business."
However, no finders fees will be paid to an officer, director or principal
stockholder or their affiliates by virtue of their initiation of, or the
identification of a Target Company with which a Business Combination is
consummated.
Conflicts of Interest.
The Company's sole officer and director expects to organize other
companies of a similar nature and with a similar purpose as the Company.
Consequently, there are potential inherent conflicts of interest in acting
as an officer and director of the Company. Insofar as the director is
engaged in other business activities, he will devote only a minor amount
of time to the Company's affairs. The Company does not have a right of
first refusal pertaining to opportunities that come to management's
attention insofar as such opportunities may relate to the Company's
proposed business operations.
A conflict may arise in the event that another blank check and/or
blind pool company (a "blind pool company") with which management is
affiliated is formed and actively seeks a Target Company. It is
anticipated that target companies will be located for the Company and
other blind pool companies in chronological order of the date of
formation of such blind pool companies or by lot. However, any blank
check companies that may be formed may differ from the Company in
certain items such as place of incorporation, number of shares and
shareholders, working capital, types of authorized securities, or other
items. It may be that a Target Company may be more suitable for or may
prefer a certain blind pool company formed after the Company. In such
case, a business combination might be negotiated on behalf of the more
suitable or preferred blind pool company regardless of date of formation
or choice by lot. Mr. Maxwell will be responsible for seeking,
evaluating, negotiating and consummating a business combination with a
Target Company which may result in terms providing benefits to Mr.
Maxwell.
The Company may agree to pay finder's fees, as appropriate and
allowed, to unaffiliated persons who may bring a Target Company to the
Company where that reference results in a business combination. No
finder's fee of any kind will be paid by the Company to management or
promoters of the Company or to their affiliates. No loans of any type
have, or will be, made by the Company to management or promoters of
the Company or to any of their associates or affiliates.
Management has not adopted policies involving possible conflicts
of interest.
There are no binding guidelines or procedures for resolving
potential conflicts of interest. Failure by Management to resolve
conflicts of interest in favor of the Company could result in liability of
Management to the Company. However, any attempt by shareholders to
enforce a liability of Management to the Company would most likely be
prohibitively expensive and time consuming.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as of July 31, 2000
and as adjusted to reflect the sale of the Shares by: (i) each person who
is known by the Company to own beneficially more than five percent
(5%) of the Company's outstanding common stock, (ii) each of the
Company's officers and directors, and (iii) all directors and officers of
the Company as a group.
NAME AND ADDRESS SHARES OF APPROXIMATE
OF COMMON PERCENTAGE
BENEFICIAL STOCK OWNED
OWNER BENEFICIALLY
OWNED
Herbert Maxwell 15,000 *
1501 Broadway,
Suite 1807
New York, New York
10036
Joseph Sierchio 554,000 34%
150 East 58th Street,
25th Floor
New York, New York
10155
Stephen Albert 554,000 34%
2635 Merrick Avenue
Merrick, New York
11566
Michael Seifert 126,000 7.8%
4480 Ross Crescent
West Vancouver, BC
V7W 1B2 Canada
Colin Watt 126,000 7.8%
Suite 1360-605 Robson St
Vancouver, BC Canada
David Patterson 124,000 7.6%
Suite 1360-605 Robson St
Vancouver, BC Canada
Officers and Directors 15,000 *
as a Group (1 person)
*less than 1%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 13. EXHIBITS AND REPORTS ON 8K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this Annual Report on Form 10-KSB to be signed on
its behalf by the undersigned, thereunto duly authorized.
STEARMAN ENTERPRISIES LTD
(Registrant)
Dated: November 24, 2000 By: /s/ Herbert Maxwell
--------------------------
Herbert Maxwell, President
F1
RUSSELL & CO.
AUDITORS' REPORT TO THE DIRECTORS OF:
STEARMAN ENTERPRISES INC
(A Delaware Corporation)
(A development stage company)
We have audited the balance sheet of Stearman Enterprises Inc. as at July
31, 2000, and July 31, 1999 and the statements of loss and shareholders'
equity (deficit) and cash flows for the years ended July 31, 2000, July
31, 1999, July 31, 1998 and July 31, 1997. 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 an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at July 31, 2000 and
July 31, 1999 and the results of its operations and its cash flows for the
years ended July 31, 2000, July 31, 1999, July 31, 1998 and July 31,
1997 in accordance with accounting principles generally accepted in the
United States.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company's negative working capital and
deficit raises substantial doubt about its ability to continue as a going
concern. The financial statements do not contain any adjustments that
might result from the outcome of this uncertainty.
Chartered Accountant
West Vancouver, B.C.
Canada.
November 20, 2000
415 Gordon Ave., West Vancouver, B.C., V7T 1P4
Telephone: (604) 913-0405 - Fax: (604) 913-0406
F2
STEARMAN ENTERPRISES INC
(A Delaware Corporation)
(A development stage company)
Balance Sheet
as at July 31, 2000 and July 31, 1999
(U.S. DOLLARS)
2000 1999
Assets
Current assets
Cash and bank $ 300 $ 300
----------------------------------------------------------------------
- 300
Incorporation costs 403 403
----------------------------------------------------------------------
Total Assets $ 703 $ 703
======================================================================
Liabilities
Current liabilities
Accounts payable $ 2,412 $ 357
Accrued interest 6 55
Convertible Debenture - 500
----------------------------------------------------------------------
Total Liabilities 2,418 912
Shareholders' equity (deficit)
Share Capital
Authorized:
100,000,000 common shares with a par value of $.0001each
Issued and outstanding
1,623,000 common shares with a par value of $0.0001
at July 31, 2000 and 515,000 at July 31, 1999
1,104 550
----------------------------------------------------------------------
1,104 550
Accumulated Deficit (2,819) (759)
----------------------------------------------------------------------
(1,715) (209)
----------------------------------------------------------------------
$ 703 $ 703
CONTINUING OPERATIONS (NOTE 1)
F3
STEARMAN ENTERPRISES LTD.
(A Delaware Corporation)
(A development stage company)
Statement of Loss
For the year ended July 31, 2000,
and years ended July 31, 1999 , July 31, 1998 and July 31, 1997
(U.S. DOLLARS)
2000 1999 1998 1997
Expenses
Legal and audit $ 2,055 $ - $ - $ 500
Interest and bank charges 5 25 25 5
Filing fees - 204 - -
Net earnings (loss) for the period $(2,060) $(229) $ (25) $(505)
=========================================================================
Basic and diluted loss per share $(0.0015)$(0.0005) $(0.1000)$(2.0200)
-------------------------------------------------------------------------
Weighted average shares Outstanding 1,392,293 500,411 250 250
F4
STEARMAN ENTERPRISES INC.
(A Delaware Corporation)
(A development stage company)
Statement of Cash Flow
For the years ended July 31, 2000
July 31, 1999, July 31, 1998 and July 31, 1997
(U.S. DOLLARS)
2000 1999 1998 1997
Cash provided by (used in)
Operations
Net Loss for period $(2,060) $ (229) $ ( 25) $ (505)
(2,060) (229) (25) (505)
Net change in non-cash working
capital balances
Accounts payable 2,055 204 - -
Accrued interest (49) 25 25 5
Convertible Debenture (500) - - 500
-----------------------------------------------------------------------------
Net cash used in operating activities
(554) - - -
Financing
Issuance of capital stock 554 300 - -
--------------------------------------------------------------------------------
Net cash generated
by financing activities 554 300 - -
--------------------------------------------------------------------------------
Change in cash for period - 300 - -
Cash, beginning of period 300 - - -
Cash, end of period $ 300 $ 300 $ - $ -
F5
STEARMAN ENTERPRISES INC.
(A Delaware Corporation)
(A development stage company)
Statement of Shareholders' Equity (Deficit)
For the year ended July 31, 2000,
and years ended July 31, 1999 , July 31, 1998 and July 31, 1997
(US DOLLARS)
Common shares Total
Accumulated
Shareholders'
Shares Amount (Deficit) Equity (Deficit)
Balance July 31, 1996 250 $250 - $ 250
Net loss - - (505) (505)
---------------------------------------------------------------------------
Balance at July 31, 1997 250 250 (505) (255)
Net loss - - (25) (25)
---------------------------------------------------------------------------
Balance at July 31, 1998 250 250 (530) (280)
Stock split 499,750 - - -
Private placement 15,000 300 - 300
Net loss - - (229) (229)
---------------------------------------------------------------------------
Balance at July 31, 1999 515,000 550 (759) (209)
Conversion of debenture 1,108,000 554 - 554
Net loss - - (2,060) (2,060)
---------------------------------------------------------------------------
Balance at July 31, 2000 1,623,000 $1,104 $(2,819) $(1,715)
===========================================================================
F6
STEARMAN ENTERPRISES INC.
(A Delaware Corporation)
(A development stage company)
Notes to Financial Statements
Year ended July 31, 2000
(U.S. DOLLARS)
1. Continuing operations
Stearman Enterprises Inc. was incorporated on March 13, 1992 in
the state of Delaware, U.S.A.
The Company has negative working capital and a deficit. The
ability for the Company to continue as a going concern is dependent upon
its ability to obtain adequate financing to reach profitable levels of
operations. It is not possible to predict whether financing efforts will be
successful or if the Company will attain profitable levels of operations.
2. Summary of significant accounting policies
These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States and
reflect the following significant accounting principles:
a. Estimates and assumptions
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
b. Earnings (loss) per common share
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings Per Share (SFAS 128),
which established new standards for computing and presenting
earnings per share effective for fiscal years ending after
December 15, 1997. With SFAS 128, primary earnings per
share is replaced by basic earnings per share, which is
computed by dividing income available to
F7
common shareholders by the weighted average number of
shares outstanding for the period. In addition, SFAS 128
requires the presentation of diluted earnings per share, which
includes the potential dilution that could occur if dilutive
securities were exercised or converted into common stock.
The computation of diluted EPS does not assume the
conversion or exercise of securities if their effect is anti-
dilutive. Common equivalent shares consist of the common
shares issuable upon the conversion of the convertible loan
notes and special warrants (using the if-converted method)
and incremental shares issuable upon the exercise of stock
options and share purchase warrants (using the treasury stock
method).
c. Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in
banks and highly liquid investments with an original maturity
of three months or less.
3. Convertible debenture
On May 13, 1997 the Company issued a 5% Convertible Debenture
in the amount of $500 U.S. due May 13, 2002 in partial settlement
of outstanding legal fees. The debenture principle bears interest at
5% per annum and the accrued interest and the principle shall be
convertible, in part or in whole on the basis of 1 share for every
$1.00 U.S. ($0.0005 post forward split) of debt, at the holder's
option by giving the Company a Notice of Conversion within 75
days prior to the conversion date. The Convertible debenture was
converted on October 15, 1999.
4. Share Capital
a. On May 4, 1999, the Company amended its certificate of
incorporation by subdividing the authorized capital stock of
the corporation so that each share shall be subdivided into
two thousand shares. The certificate of incorporation was
further amended by increasing the authorized capital stock
of the corporation by 18,000,000 with a par value of $0.01
each.
b. On October 20, 1999, the Company amended its certificate of
incorporation by increasing its authorized capital stock to
100,000,000 shares of common stock and changing the par
value of its common shares to $0.0001 par value per share.
c. On October 15, 1999, the Company issued 1,108,000 common
shares on the conversion of the debt and accrued interest of
$54 at 1 share for every $0.0005 U.S. of debt
F8
5. Related party transactions
a. At July 31, 2000, members of Maitland & Company, Canadian
legal counsel owned 125,000 shares of the Company's
common stock.
b. At July 31, 2000, members of the Company's U.S. legal
counsel owned 1,108,000 shares of the Company's common
stock.
6. Income taxes
The Company has net operating losses, which may give rise to
future tax benefits of approximately $2,060, $229, $25 and $505 as
of July 31, 2000, July 31, 1999, July 31, 1998 and July 31, 1997
respectively. To the extent not used, net operating loss carry
forwards expire in varying amounts beginning in the year 2012.
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards No.109 (SFAS 109). Under this
method, deferred income taxes are determined based on differences
between the tax basis of assets and liabilities and their financial
reporting amounts at each year end, and are measured based on
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. No provision for income taxes is
included in the statement due to its immaterial amount.
