U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 3
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
PROVIDENCE CAPITAL IV, INC.
(Name of Small Business Issuer in its charter)
Colorado 05-0508620
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
735 Broad Street, Suite 800
Chattanooga, Tennessee 37402
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (423) 265-5062
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Not Applicable Not Applicable
Securities to be registered under Section 12(g) of the Act:
Common Stock
(Title of class)
FORWARD LOOKING STATEMENTS
THIS FORM 10-SB12G AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
PROVIDENCE CAPITAL IV, INC. (HEREINAFTER REFERRED TO AS "PROVIDENCE CAPITAL"
AND/OR "COMPANY") OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES
ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. FIFTEEN U.S.C.A. SECTIONS 77Z-2 AND
78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT,
BELIEF OR CURRENT EXPECTATIONS OF PROVIDENCE CAPITAL AND MEMBERS OF ITS
MANAGEMENT TEAM AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS
ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES,
AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN
FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE
STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS FORM
10-SB12G, AND ARE HEREBY INCORPORATED HEREIN BY REFERENCE. THE COMPANY
UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO
REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES
TO FUTURE OPERATING RESULTS OVER TIME.
<PAGE> 1
RISK FACTORS
1. The majority control by the Company's Principal Shareholders, Officers
and Directors may negatively impact the operation of the Company.
The Company's principal shareholders, officers and directors will beneficially
own ninety-five percent (95%) of the Company's Common Stock. As a
result, such persons will 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."
2. Conflicts of interest between the Company and its officers and directors
may impede the operational ability of the Company, negatively impact
the ability of the Company to secure the best available business
opportunity and may lead to the possible breach of fiduciary duties
owed to the Company by such officers and directors.
Certain conflicts of interest exist between the Company and its officers and
directors as follows:
(a)-They have other business interests to which they devote their attention,
and they may be expected to continue to do so. As a result, conflicts
of interest may arise that can be resolved only through their exercise of
such judgment as to whether certain needs of the Company may not be
adequately and necessarily addressed, provided the Company's officers and
directors elect to devote attention to outside interest when they could
be attending to the needs of the Company;
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(b)-The Company's President, Vice President and all current shareholders own
all of the issued and outstanding stock of eight (8) additional
corporations (Providence Capital I, III, IV, V, VI, VII, IX, and X) which
are shell companies formed November 24. The Form 10-SB registration
statement of Providence Capital I through X may become effective by lapse
of time on or about May 17, 2000. (See "Item 5. Directors, Executive
Officers, Promoters, and Control Persons---Other Blind Pool Activities.")
Thus, the Company may be in competition with Providence Capital I, III, IV,
V, VI, VII, VIII, IX, and X in seeking merger candidates.
The Company's Directors may also elect, in the future, to form one or more
additional public shell companies with a business plan similar or identical
to that of the Company. Any such additional shell companies would also be
in direct competition with the Company for available business opportunities.
(See Item 5 - "Directors, Executive Officers, Promoters and Control
Persons- Conflicts of Interest.")
(c)-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 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."
3. The possible need for additional financing may impair the Company's
ability to locate the best available business opportunity.
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 operations will be
limited to those that can be financed with its modest capital.
4. The regulation of Penny Stocks may negatively impact the potential
trading market for the Company's securities.
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
<PAGE> 3
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.
5. The Company's limited operating history may severely impact its
ability to operate and locate the best available business opportunity.
The Company was formed in November of 1999 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.
<PAGE> 4
6. There can be no assurance of the Company's potential 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.
7. Reporting Requirements May Delay Or Preclude Acquisition.
Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act"),
requires companies subject thereto to provide certain information about
significant acquisitions, including certified financial statements for the
company acquired, covering one or two years, depending on the relative size of
the acquisition. The time and additional costs that may be incurred by some
target entities to prepare such statements may significantly delay or
essentially preclude consummation of an otherwise desirable acquisition by the
Company. Acquisition prospects that do not have or are unable to obtain the
required audited statements may not be appropriate for acquisition so long as
the reporting requirements of the 1934 Act are applicable.
8. The Company lacks market research and 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.
9. The Company's potential business opportunity -
Has not been identified and will be 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."
10. The type of business acquired may be unprofitable or present other
negative factors.
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
<PAGE> 5
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 currently unprofitable or
present other negative factors.
11. The Company may not be able to conduct an exhaustive investigation
and analysis of potential business opportunities.
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 Company 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.
12. The Company may lack 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.
13. The Company may have to rely upon unaudited financial statements of
a potential business opportunity.
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.
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
<PAGE> 6
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.
14. Government, State or Local regulations may limit the Company's
business opportunities.
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.
15. There will be a limited participation by Management in the daily
operations of the Company.
The Company currently has three 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 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 three
individuals are serving as the 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 three officers and directors.
<PAGE> 7
16. There is a lack of continuity in the Management of the Company.
The Company does not have an employment agreement with its 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.
17. The Company's required indemnification of its Officers and Directors
may negatively impact its operation.
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.
18. The Company's Directors have potentially limited liability.
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.
19. The Company may have to depend upon Outside Advisors.
To supplement the business experience of its officers and directors, 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.
20. The Company may engage in a highly risky leveraged transaction.
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
<PAGE> 8
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.
21. Significant competition may impair the Company's ability to locate
the best available business opportunity.
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.
22. There are no foreseeable dividends for the Company's shareholders.
The Company has not paid dividends on its Common Stock and does not anticipate
paying such dividends in the foreseeable future.
23. The Company's present Management and Stockholders may lose control.
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.
24. There is no public trading market for the Company's common stock.
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.
<PAGE> 9
25. Affiliates and their successors/assigns may have exposure and risk
if re-selling securities pursuant to Rule 144.
All of the outstanding shares of Common Stock held by present stockholders are
"restricted securities" within the meaning of Rule 144 under the Securities
Act of 1933, as amended.
As restricted shares, these shares may be resold only pursuant to an effective
registration statement or under the requirements of Rule 144 or other
applicable exemptions from registration under the Act and as required under
applicable state securities laws. Rule 144 provides in essence that a person
who has held restricted securities for a prescribed period may, under certain
conditions, sell every three months, in brokerage transactions, a number of
shares that does not exceed the greater of 1.0% of a company's outstanding
common stock or the average weekly trading volume during the four calendar
weeks prior to the sale. As a result of revisions to Rule 144 which became
effective on or about April 29, 1997, there will be no limit on the amount of
restricted securities that may be sold by a 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 734,000 shares of common stock held by present stockholders of
the Company, 734,000 shares which were issued pursuant to Rule 701 and may
become available for resale under Rule 144, on or about July 1, 2000. However,
recent correspondence directed from the Commission to the NASD suggests that
Rule 144 sales by affiliates or their successors/assigns will generally not
be afforded an opportunity to rely on Rule 144 for "safe harbor" re-selling
under such rule and will most likely only be able to transfer such securities
pursuant to an effective registration statement filed under the Securities
Act of 1933 (the "Act").
26. Blue Sky considerations may negatively impact the Company's ability
to sell or transfer its securities or to establish secondary trading
markets.
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.
<PAGE> 10
PART I
ITEM I. DESCRIPTION OF BUSINESS.
General
The Company was incorporated under the laws of the State of Colorado on
November 24, 1999, 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
<PAGE> 11
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.
As part of its business plan, this Company is filing this registration
statement on Form 10-SB on a voluntary basis in order to become a "public"
company by virtue of being subject to the reporting requirements of the
Securities Exchange Act of 1934.
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
<PAGE> 12
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 this 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.
If stock is purchased from the current shareholders, the transaction is very
likely to result in substantial gains to them relative to their purchase price
for such stock.
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.
<PAGE> 13
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 anticipated 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 further 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.
<PAGE> 14
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. As of the date of this
filing, the Company owed $125,000 in organizational, legal and consulting fees
to Nadeau & Simmons, P.C., counsel for the Company, in connection with initial
reviews of the Company's business plan, organizational and operating
activities and preparation of this registration statement and all accompanying
documentation.
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."
<PAGE> 15
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
<PAGE> 16
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. See "Risk Factors --
Regulation of Penny Stocks."
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 opportunities 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
<PAGE> 17
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 acquisition 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.
<PAGE> 18
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 acquisition
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
<PAGE> 19
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.
Administrative Offices
The Company currently maintains its offices at 735 Broad Street, Suite 800,
Chattanooga, Tennessee 37402. The Company's telephone number is (423) 265-5062.
Other than this mailing address, the Company does not currently maintain any
other office facilities, and does not anticipate the need for maintaining
additional office facilities at any time in the foreseeable future. The Company
pays no rent or other fees for the use of this address.
<PAGE> 20
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 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 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."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
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 is filing this registration statement on a voluntary basis because
the primary attraction of the Company as a merger partner or acquisition
vehicle will be its status as an SEC reporting company. Any business
combination or transaction will likely result in a significant issuance of
shares and substantial dilution to present stockholders of the Company.
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
<PAGE> 21
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.
<PAGE> 22
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 November 24, 1999 (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 one year. 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 all of the deferred tax asset will not be realized.
<PAGE> 23
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 Registration Statement. 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 subject of
proposed and temporary Treasury Regulations. No assurance can be given that
these regulations will be finally adopted in their present form.
Basis in Common Stock
The tax basis that a Shareholder will have in his Common Stock will equal his
cost in acquiring his Common Stock. If a Shareholder acquires Common Stock at
different times or at different prices, he must maintain records of those
transactions so that he can accurately report gain or loss realized upon
disposition of the Common Stock.
<PAGE> 24
Dividends on Common Stock
Distributions made by the Company with respect to the Common Stock will be
characterized as dividends that are taxable as ordinary income to the extent
of the Company's current or accumulated earnings and profits ("earnings and
profits"), if any, as determined for U.S. federal income tax purposes. To the
extent that a distribution on the Common Stock exceeds the holder's allocable
share of the Company's earnings and profits, such distribution will be treated
first as a return of capital that will reduce the holder's adjusted tax basis
in such Common Stock, and then as taxable gain to the extent the distribution
exceeds the holder's adjusted tax basis in such Common Stock. The gain will
generally be taxed as a long-term capital gain if the holder's holding period
for the Common Stock is more than one year.
The availability of earnings and profits in future years will depend on future
profits and losses which cannot be accurately predicted. Thus, there can be
no assurance that all or any portion of a distribution on the Common Stock
will be characterized as a dividend for general income tax purposes.
Corporate shareholders will not be entitled to claim the dividends received
deduction with respect to distributions that do not qualify as dividends. See
the discussion regarding the dividends received deduction below.
Redemption of Common Stock
The Company does not have the right to redeem any Common Stock. However, any
redemption of Common Stock, with the consent of the holder, will be a taxable
event to the redeemed holder.
The Company does not believe that the Common Stock will be treated as debt for
federal income tax purposes. However, in the event that the Common Stock is
treated as debt for federal tax purposes, a holder generally will recognize
gain or loss upon the redemption of the Common Stock measured by the difference
between the amount of cash or the fair market value of property received
and the holder's tax basis in the redeemed Common Stock. To the extent the
cash or property received are attributable to accrued interest, the holder may
recognize ordinary income rather than capital gain. Characterization of the
Common Stock as debt would also cause a variety of other tax implications,
some of which may be detrimental to either the holders, the Company, or both
(including, for example, original issue discount treatment to the Investors).
Potential Investors should consult their tax advisors as to the various
ramifications of debt characterization for federal income tax purposes.
Other Disposition of the Common Stock
Upon the sale or exchange of shares of Common Stock, to or with a person other
than the Company, a holder will recognize capital gain or loss equal to the
difference between the amount realized on such sale or exchange and the holder's
adjusted basis in such stock. Any capital gain or loss recognized will
generally be treated as a long-term capital gain or loss if the holder held
such stock for more than one year. For this purpose, the period for which the
Common Stock was held would be included in the holding period of the Common
Stock received upon a conversion.
<PAGE> 25
State, Local and Foreign Taxes
In addition to the federal income tax consequences described above, prospective
investors should consider potential state, local and foreign tax consequences of
an investment in the Common Stock.
ERISA Considerations for Tax-Exempt Investors/Shareholders
General Fiduciary Requirements
Title I of ERISA includes provisions governing the responsibility of fiduciaries
to their Qualified Plans. Qualified Plans must be administered according to
these rules. Keogh plans that cover only partners of a partnership or
self-employed owners of a business are not subject to the fiduciary duty rules
of ERISA, but are subject to the prohibited transaction rules of the Code.
Under ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a Qualified Plan is considered to
be a fiduciary of such Qualified Plan (subject to certain exceptions not here
relevant).
ERISA Section 404(a)(1) requires a fiduciary of a Qualified Plan to "discharge
his duties with respect to a plan solely in the interest of the participants
and beneficiaries and (A) for the exclusive purpose of: (i) providing benefits
to participants and their beneficiaries, and (ii) defraying reasonable
expenses of administering the plan; (B) with the care, skill, prudence, and
diligence under the circumstances then prevailing that a prudent man acting in
a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; (C) by diversifying the
investments of a plan so as to minimize the risk of large losses, unless under
the circumstances it is clearly prudent not to do so; and (D) in accordance
with the documents and instruments governing the plan."
FIDUCIARIES WHO BREACH THE DUTIES THAT ERISA IMPOSES MAY SUFFER A WIDE VARIETY
OF LEGAL AND EQUITABLE REMEDIES, INCLUDING (i) THE REQUIREMENT TO RESTORE
QUALIFIED PLAN LOSSES AND TO PAY OVER ANY FIDUCIARY'S PROFITS TO THE QUALIFIED
PLAN; (ii) REMOVAL AS FIDUCIARY OF THE QUALIFIED PLAN; AND (iii) LIABILITY
FOR EXCISE TAXES THAT SECTION 4975 OF THE CODE IMPOSES.
<PAGE> 26
ITEM III. DESCRIPTION OF PROPERTY.
The Company currently maintains an office and mailing address at 735 Broad
Street, Suite 800, Chattanooga, Tennessee 37402. The Company pays no rent for
the use of this mailing address. The Company does not believe that it will
need to maintain additional offices at any time in the foreseeable future in
order to carry out its plan of operations described herein. The Company's
telephone number is (423) 265-5062.
ITEM IV. 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>
Common Shares Owned
Name and Address Number of Percent of
Shares Owned Class Owned
Beneficially
<S> <C> <C>
Richard Nadeau, Jr. 250,000(1) 16.67%
1250 Turks Head Building
Providence, RI 02903
James R. Simmons 250,000(1) 16.67%
1250 Turks Head Building
Providence, RI 02903
Mark T. Thatcher 250,000(1) 16.67%
1250 Turks Head Building
Providence, RI 02903
<PAGE> 27
James H. Brennan, III 250,000(1) 16.67%
735 Broad Street, Suite 800
Chattanooga, TN 37402
Doug Dyer 250,000(1) 16.67%
735 Broad Street, Suite 800
Chattanooga, TN 37402
All directors and executive
officers as a group
(3 persons) 750,000(1) 50.00%
</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.
<PAGE> 28
ITEM V. DIRECTORS, EXECUTIVE OFFICES, PROMOTERS AND CONTROL PERSONS
The directors and executive officers currently serving the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Positions Held and
Tenure
<S> <C> <C>
Richard Nadeau, Jr. 46 President and Director since
November 24, 1999
James R. Simmons 38 Vice President and Director since
November 24, 1999
Mark T. Thatcher 35 Secretary and Director since
November 24, 1999
</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 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 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
Richard Nadeau, Jr.--graduated with honors from Colby College in 1979 and from
Georgetown University Law School in 1982. During law school, Rick was a law
review editor and a clerk at several law firms, including Tobin & Silverstein
in Providence, Goldstein & Manello in Boston, and King & Newmyer in
Washington, D.C. After graduating from Georgetown, Rick was admitted to the
District of Columbia bar and became associated with King & Newmyer. Although
Rick is no longer actively practicing in Washington, he remains a member of
the D.C. bar. In 1982, Rick relocated to Rhode Island and became associated
with the Providence law firm of Wistow, Barylick & Bruzzi, where he was
responsible for the majority of the firm's commercial litigation. Rick started
the firm in 1985 and, since then, has engaged in a successful practice
concentrating in corporate law, commercial lending and creditors'
rights. Rick was also appointed Municipal Court Judge for the Towns of
Burrillville and North Smithfield in 1999.
<PAGE> 29
James R. Simmons--graduated magna cum laude from the University of Hartford in
1985 and received his law degree from George Washington University in 1988.
Before joining N&S, Jim practiced with Tillinghast Collins & Graham in its
corporate, commercial and real estate departments. Jim serves on the Banks and
Trusts Committee of the Rhode Island Bar Association and his practice is
concentrated in the areas of corporate law, banking and commercial law,
mortgage lending and real estate, bankruptcy, and creditors' rights. He is
admitted to practice law in both Rhode Island and Massachusetts.
Mark T. Thatcher--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.
Indemnification of Officers and Directors
As permitted by Colorado law, the Company's Articles of Incorporation 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.
<PAGE> 30
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, Vice President and Secretary have also recently
formed other shell companies, Providence Capital I, II, III, V, VI, VII,
IX and X. Each of the persons who is currently a shareholder in the Company
is also a shareholder in these other shell companies.
Providence Capital I, II, III, V, VI, VII, IX and X were formed November 24,
1999, and will file a registration statement on Form 10-SB which may become
effective on or about May 31, 2000 as a result of lapse of time. There is not
currently a market for resale of the outstanding shares of Providence Capital
I, II, III, V, VI, VII, IX and X.
The Company's Secretary, Mark T. Thatcher, also owns a controlling interest
in Oak Brook Capital IV, Inc., a shell company formed in May of 1998 that
has yet to complete a business combination transaction. The Company's
Directors, who are also counsel to the Company, may assist Mr. Thatcher in
locating an acquisition candidate. Such activity would place Oak Brook Capital
IV, Inc. in direct competition with the Company.
Conflicts of Interest
The 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 week. 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.
The Company's sole officers and directors will promote all nine (9) "blank
check" entities noted above and will use the vehicles in an ascending
selection from Providence Capital I, Inc. to Providence Capital X, Inc. to
justify placing a particular privately held entity into one of the "blank
check" entities. Therefore, the first privately held entity that elects to
consummate an acquisition or merger with one of the Providence Capital
entities will be provided with Providence Capital I, Inc. Management does not
intend to promote any other "blank check" entities until business combination
transactions are completed on behalf of all nine (9) Providence Capital
entities and Oak Brook Capital IV, Inc.
There is no procedure in place which would allow Mr. Nadeau, Mr. Simmons or
Mr. Thatcher 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.
<PAGE> 31
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.
ITEM VI. EXECUTIVE COMPENSATION
At inception of the Company, its Directors, Richard Nadeau, Jr., James R.
Simmons and Mark T. Thatcher each received one hundred thousand (100,000)
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.
<PAGE> 32
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 VII. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is no public market for PROVIDENCE CAPITAL Common Stock. The PROVIDENCE
CAPITAL 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
PROVIDENCE CAPITAL Common Stock will occur.
With respect to financial and other information relating to PROVIDENCE
CAPITAL, Nadeau & Simmons, P.C., whose address is 1250 Turks Head Building,
Providence, Rhode Island 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, PROVIDENCE CAPITAL 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
PROVIDENCE CAPITAL, address 1250 Turks Head Building, Providence, Rhode Island
02903.
Prior to the date of this Registration Statement, the Company issued to its
officers and directors a total of three hundred thousand (300,000) shares of
Common Stock for total services valued at $25,000.00. 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. For additional information concerning restrictions that are imposed
upon the securities held by current stockholders, and the responsibilities of
such stockholders to comply with federal securities laws in the disposition of
such Common Stock, see "Risk Factors -Rule 144 Sales."
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.
<PAGE> 33
The Company maintains a business address at the office of its investment
banker of record. 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.
ITEM VIII. DESCRIPTION OF SECURITIES
Common Stock
The Company's Articles of Incorporation authorize the issuance of 50,000,000
shares of Common Stock. Each record holder of Common Stock is entitled to one
vote for each share held on all matters properly submitted to the stockholders
for their vote. Cumulative voting for the election of directors is not
permitted by the Articles of Incorporation.
Holders of outstanding shares of Common Stock are entitled to such dividends
as may be declared from time to time by the Board of Directors out of legally
available funds; and, in the event of liquidation, dissolution or winding up
of the affairs of the Company, holders are entitled to receive, ratably, the
net assets of the Company available to stockholders after distribution is made
to the preferred stockholders, if any, who are given preferred rights upon
liquidation. Holders of outstanding shares of Common Stock have no preemptive,
conversion or redemptive rights. All of the issued and outstanding shares of
Common Stock are, and all unissued shares when offered and sold will be, duly
authorized, validly issued, fully paid, and nonassessable. To the extent that
additional shares of the Company's Common Stock are issued, the relative
interests of then existing stockholders may be diluted.
Preferred Stock
The Company's Articles of Incorporation authorize the issuance of 50,000,000
shares of preferred stock. The Board of Directors of the Company is authorized
to issue the preferred stock from time to time in series and is further
authorized to establish such series, to fix and determine the variations
<PAGE> 34
in the relative rights and preferences as between series, to fix
voting rights, if any, for each series, and to allow for the conversion of
preferred stock into Common Stock. No preferred stock has been issued by the
Company. The Company anticipates that preferred stock may be utilized in making
acquisitions.
Transfer Agent
The Company is currently serving as its own transfer agent, and plans to
continue to serve in that capacity until such time as management believes it
is necessary or appropriate to employ an independent transfer agent in order
to facilitate the creation of a public trading market for the Company's
securities. Since the Company does not currently expect any public market to
develop for its securities until after it has completed a business combination,
it does not currently anticipate that it will seek to employ a independent
transfer agent until it has completed such a transaction.
Reports to Stockholders
The Company plans to furnish its stockholders with an annual report for each
fiscal year containing financial statements audited by its independent
certified public accountants. In the event the Company enters into a business
combination with another company, it is the present intention of management to
continue furnishing annual reports to stockholders. Additionally, the Company
may, in its sole discretion, issue unaudited quarterly or other interim reports
to its stockholders when it deems appropriate. The Company intends to comply
with the periodic reporting requirements of the Securities Exchange Act of 1934
for so long as it is subject to those requirements.
PART II
ITEM I. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
No public trading market exists for the Company's securities and all of its
outstanding securities are restricted securities as defined in Rule 144.
There were eight (8) holders of record of the Company's common stock on
December 31, 1999. No dividends have been paid to date and the Company's
Board of Directors does not anticipate paying dividends in the foreseeable
future.
The Company does not plan to take affirmative steps to request or encourage
any broker-dealer to act as a market maker for the Company's securities.
There are to date no understandings, agreements or discussions in place with
any such broker-dealer. Although management has set forth disclosure throughout
this registration statement indicating it would consider the public "trading"
of its securities if such activity was in the best interests of its
shareholders, it presently has no plans to do so.
<PAGE> 35
(a) MARKET PRICE. The Company's Common Stock is not quoted at the present
time.
Effective August 11, 1993, the Securities and Exchange Commission adopted Rule
15g-9, which established the definition of a "penny stock," for purposes
relevant to the Company, as any equity security that has a market price of
less than $5.00 per share or with an exercise price of less than $5.00 per
share, subject to certain exceptions. For any transaction involving a penny
stock, unless exempt, the rules require: (i) that a broker or dealer approve
a person's account for transactions in penny stocks; and (ii) the broker or
dealer receive from the investor a written agreement to the transaction,
setting forth the identity and quantity of the penny stock to be purchased. In
order to approve a person's account for transactions in penny stocks, the
broker or dealer must (i) obtain financial information and investment
experience and objectives of the person; and (ii) make a reasonable
determination that the transactions in penny stocks are suitable for that
person and that person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny
stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prepared by the Commission relating to the penny
stock market, which, in highlight form, (i) sets forth the basis on which the
broker or dealer made the suitability determination; and (ii) that the broker
or dealer received a signed, written agreement from the investor prior to the
transaction. Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading, and about
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
The National Association of Securities Dealers, Inc. (the "NASD"), which
administers NASDAQ, has recently made changes in the criteria for initial
listing on the NASDAQ Small Cap market and for continued listing. For initial
listing, a company must have net tangible assets of $4 million, market
capitalization of $50 million or net income of $750,000 in the most recently
completed fiscal year or in two of the last three fiscal years. For initial
listing, the common stock must also have a minimum bid price of $4 per share.
In order to continue to be included on NASDAQ, a company must maintain
$1,000,000 in net tangible assets and a $1,000,000 market value of its
publicly-traded securities. In addition, continued inclusion requires two
market-makers and a minimum bid price of $1.00 per share.
Management intends to strongly consider undertaking a transaction with any
merger or acquisition candidate which will allow the Company's securities to
be traded without the aforesaid limitations. However, there can be no
assurances that, upon a successful merger or acquisition, the Company will
qualify its securities for listing on NASDAQ or some other national exchange,
or be able to maintain the maintenance criteria necessary to insure continued
listing. The failure of the Company to qualify its securities or to meet the
relevant maintenance criteria after such qualification in the future may
result in the discontinuance of the inclusion of the Company's securities on a
<PAGE> 36
national exchange. In such events, trading, if any, in the Company's
securities may then continue in the non-NASDAQ over-the-counter market. As a
result, a shareholder may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Company's securities.
(b) HOLDERS. There are eight (8) holders of the Company's Common Stock.
Prior to the date of this Registration Statement, the Company issued to its
officers and directors a total of three hundred thousand (300,000) shares of
Common Stock for a total services valued at $25,000.00.
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. For additional information concerning
restrictions that are imposed upon the securities held by current stockholders,
and the responsibilities of such stockholders to comply with federal securities
laws in the disposition of such Common Stock.
The Company has taken the following action to ensure that a public
re-distribution of the Shares does not take place:
(i)a "restrictive" legend will be placed on each stock certificate issued in
connection with the founder transactions;
(ii)"stop transfer" order instructions will be placed on each stock
certificate issued in connection with the founder transactions;
(iii)shareholders have been placed on notice that their securities will need
to be sold in compliance with Rule 144 of the Act, and may not be transferred
otherwise;
(iv)disclosure has been set forth throughout the Form 10SB describing the
above restrictions.
Redistribution - Rule 144
Rule 144 of the Securities Act lists criteria under which restricted securities
and securities held by affiliates or control persons may be resold without
registration. The rule prevents the creation of public markets in
securities when the issuers have not made adequate current information
available to the public. Preliminary Note to Securities Act Rule 144. The
requirements of Rule 144(b) through (i) include provisions that:
1)current public information be available regarding the issuer of the
securities;
2)at least one year elapse between the time the securities are acquired from
an issuer or affiliate and the date the securities are resold under the rule;
<PAGE> 37
3)the amount of securities able to be sold is limited, depending on whether
the sale is by an affiliate or not;
4)the securities be sold in brokers' transactions or with a market maker;
5)Commission Form 144 be filed depending on the size of the transaction; and
6)the person filing the form has a bona fide intention to sell the securities
within a reasonable time.
State Exemptions Following the Section 4(2) Exemption:
A number of states exempt from their registration requirements offers and
sales exempt from federal registration by reason of Section 4(2) of the
Securities Act. That provision provides an exemption for transactions not
involving a public offering and constitutes the issuer private placement
exemption. The exemption may explicitly refer to Section 4(2) of the
Securities Act or may exempt non-public offerings. Of course, those
jurisdictions without general securities registration requirements, including
Colorado, District of Columbia, New York, and Nevada may also rely on the
Section 4(2) exemption.
The Company is relying on the following state exemptive provision's that are
applicable to the private placement contemplated herein and that no further
requirements are necessary in the respective jurisdictions to ensure the
availability of such states' various private placement exemptions:
No. of Shareholders Exemptive
State Receiving Shares Provision
Rhode Island 3 1992 Reenactment, General
Laws of
Rhode Island, as amended,
Sec. 7-11-402(10)
Illinois 2 Illinois Rev. Statutes,
192 Laws 1990, H 1222, Sec.
11-51-308
Tennessee 2 Tenn. Rev. Statutes,
Securities Act
of 1957, Sec. 5(581-5) IC
The Company has confirmed that the following states have adopted the National
Securities Markets Improvement Act of 1996 which provides for exemptive
provisions applicable to the status of secondary trading in the securities
following subsequent distributions to additional shareholders:
<PAGE> 38
Section 18(b) of the Securities Act of 1933, i.e., Subsection 18(b)(1),
18(b)(2), 18(b)(3) and 18(b)4 defines a "covered security" or "federal covered
security". Exempt from state regulation are (1) investment companies
registered under the Investment Company Act of 1940; (2) certain securities
listed on nationally-recognized stock exchanges; (3) offers or sales made to
qualified purchasers; (4) certain transactions exempt from registration under
the Securities Act of 1933; (5) investment advisers with assets over
$25,000,000; and (6) Rule 506 offerings. States are still allowed to regulate
smaller offerings, penny stocks, intrastate offerings, and certain limited
offerings. Except for certain exchange-listed securities, the states may
still require notice filings and have the power to require registration or
suspend offerings for which notices have not been filed.
In particular, Section 18(b)(4)(A) provides that a security is a covered
security with respect to a transaction that is exempt from registration
pursuant to paragraph (1) or (3) of Section 4, and the issuer of such security
files reports with the Commission pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Section 4(1) of the Act exempts transactions by any person other than an
issuer, underwriter, or dealer.
Section 4(3) of the Act exempts transactions by a dealer (including an
underwriter no longer acting as an underwriter in respect of the security
involved in such transaction), except--
(A) transactions taking place prior to the expiration of 40 days after the
first date upon which the security was bona fide offered to the public by the
issuer or by or through an underwriter;
(B) transactions in a security as to which a registration statement has been
filed taking place prior to the expiration of 40 days.
The following states have adopted laws and/or regulations addressing Section
(b)(4)(A) of NSMIA:
Arizona Georgia
Illinois Maine
Maryland Minnesota
New Jersey Rhode Island
Texas Wisconsin
Tennessee
Based upon the foregoing. We are of the opinion that "secondary trading"
opportunities may exist pursuant to Sections 18(b)(4)(A), 4(1), 4(3) or 4(4)
of the Act, in the states referenced above, provided that the Company
continues to timely files reports required under Section 13 or 15(d) of the
Exchange Act and effectuate any filings that may be required in each
respective state listed above, if any.
<PAGE> 39
Colorado:
To obtain the exemption for "non-issuer" secondary trading (Colorado Rev.
Statutes Sec. 11-51-308(1)(b)(V)), the Company will be required to file Form
ST with the Securities Commissioner in order for the transactional securities
registration exemption to apply.
Connecticut:
Section 4(1), 4(3) ane 4(4) of the Act have ben adopted and provide an
exemption for "non-issuer", secondary trading transactions. Regulations also
provide an exemption for sales made through registered "broker/dealers".
Florida:
Sec. 517.061, Florida Statutes provides that the offer or sale of securities
in a transaction exempt under Section 4(1) of the Act is an exempt transaction,
so long as the person has owned the securities for at least one (1) year.
Mass.:
Section 4(1), 4(3) ane 4(4) of the Act have been adopted and provide an
exemption for "non-issuer", secondary trading transactions. Regulations also
provide an exemption for sales made through registered "broker/dealers".
New York:
Sec. 352-g of the New York Consolidated Laws, provides an exemption for
"secondary trading"
Although the above information may provide "secondary trading" exemptions for
the donees, provided they sell in full compliance with Rule 144 of the Act,
nonetheless, the Company must still timely file the reports required to be
filed as prescribed by Section 13 or 15(d) of the Exchange Act and must file
any required material with each respective state authority:
(c) DIVIDENDS. The Company has not paid any dividends to date, and has no
plans to do so in the immediate future.
<PAGE> 40
ITEM II. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings, and no such
proceedings are known to be contemplated.
No director, officer or affiliate of the Company, and no owner of record or
beneficial owner of more than 5.0% of the securities of the Company, or any
associate of any such director, officer or security holder is a party adverse
to the Company or has a material interest adverse to the Company in reference
to pending litigation.
ITEM III. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
ITEM IV. RECENT SALES OF UNREGISTERED SECURITIES
Since November 24, 1999 (the date of the Company's formation), the Company has
sold its Common Stock to the persons listed in the table below in transactions
summarized as follows:
<TABLE>
<CAPTION>
Name Date of Shares Aggregate
Purchase
Sale Purchase Price
Price per
Share
<S> <C> <C> <C> <C>
Richard P. Nadeau 11-24-99 100,000 $380.00(1) $0.0038
James R. Simmons 11-24-99 100,000 $380.00(1) $0.0038
Mark T. Thatcher 11-24-99 100,000 $380.00(1) $0.0038
Jim Brennan 11-24-99 100,000 $380.00(1) $0.0038
Doug Dyer 11-24-99 100,000 $380.00(1) $0.0038
</TABLE>
<PAGE> 41
(1) Consideration consisted of pre-incorporation consulting services rendered
to the Company related to investigating and developing the Company's proposed
business plan and capital structure and completing the organization and
incorporation of the Company.
With respect to the sales made, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended. No advertising or general solicitation
was employed in offering the shares. The securities were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted.
In general, under Rule 144, a person (or persons whose shares are aggregated)
who has satisfied a one year holding period, under certain circumstances, may
sell within any three-month period a number of shares which does not exceed
the greater of one percent of the then outstanding Common Stock or the average
weekly trading volume during the four calendar weeks prior to such sale. Rule
144 also permits, under certain circumstances, the sale of shares without any
quantity limitation by a person who has satisfied a two-year holding period
and who is not, and has not been for the preceding three months, an affiliate
of the Company.
Each of the sales listed above was made either for cash or for services.
Sales for which the consideration was services were made in reliance upon the
exemption from registration provided by Rule 701 adopted pursuant to Section
3(b) of the Securities Act of 1933. Sales for which the consideration was
cash were made in reliance upon the exemption from registration offered by
Section 4(2) of the Securities Act of 1933. Based upon the Preincorporation
Consultation and Subscription Agreement executed by the persons who acquired
shares for services, and the Subscription Agreement and Investment
Representations executed by persons who acquired shares for cash, and based
upon the pre-existing relationship between the cash subscribers and the
Company's officers and directors, the Company had reasonable grounds to
believe immediately prior to making an offer to the private investors, and
did in fact believe, when such subscriptions were accepted, that such purchasers
(1) were purchasing for investment and not with a view to distribution, and
(2) had such knowledge and experience in financial and business matters that
they were capable of evaluating the merits and risks of their investment and
were able to bear those risks. The purchasers had access to pertinent
information enabling them to ask informed questions. The shares were issued
without the benefit of registration. An appropriate restrictive legend is
imprinted upon each of the certificates representing such shares, and
stop-transfer instructions have been entered in the Company's transfer records.
All such sales were effected without the aid of underwriters, and no sales
commissions were paid.
<PAGE> 42
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Articles 7-109-101 through 7-109-109 of the Colorado Business Corporation Act
provides that any director or officer of a Colorado corporation may be
indemnified against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by him in connection with or in defending any action,
suit or proceeding in which he is a party by reason of his position, so long
as it shall be determined that he conducted himself in good faith and that he
reasonably believed that his conduct was in the corporation's best interest.
If a director or officer is wholly successful, on the merits or otherwise, in
connection with such proceeding, such indemnification is mandatory.
The Company's articles of incorporation and bylaws contain provisions which
provide, among other things, that the Company shall indemnify certain persons,
including officers and directors, against judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with any action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. As to any action brought
by or in the right of the Company, such indemnification is limited to expenses
(including attorney's fees) actually and reasonably incurred in connection
with the defense or settlement of the case, and shall not be made, absent court
approval, if it was determined that such person was liable for negligence or
misconduct in the performance of his duty to the Company.
The Articles of Incorporation and the Bylaws of the Company, filed as Exhibits
3.1 and 3.2, respectively, provide that the Company will indemnify its
officers and directors for costs and expenses incurred in connection with the
defense of actions, suits, or proceedings where the officer or director acted
in good faith and in a manner he reasonably believed to be in the Company's
best interest and is a party by reason of his status as an officer or
director, absent a finding of negligence or misconduct in the performance of
duty.
<PAGE> F-1
FINANCIAL STATEMENTS
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1999
<PAGE> F-2
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Providence Capital IV, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of PROVIDENCE CAPITAL IV,
INC. (a development stage company) as of December 31, 1999 and the related
statements of operations, stockholders' equity and cash flows for the period
from November 24, 1999 to 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. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As discussed in Note 1 to the financial statements, the Company was
incorporated on November 24, 1999 and is in the development stage and had no
operations to date.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PROVIDENCE CAPITAL
IV, INC. as of December 31, 1999, and the results of its operations and its
cash flows for the period from November 24, 1999 to December 31, 1999 in
conformity with generally accepted accounting principles.
Providence, Rhode Island
July 26, 2000
/s/ Cayer Prescott Clune & Chatellier, LLP
<PAGE> F-3
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Total assets $ 0
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 15,525
Stockholders' deficit:
Common stock, $.001 par value; 50,000,000 shares
authorized, 734,000 shares issued and outstanding 734
Paid in capital 2,055
Preferred stock, $.001 par value, 50,000,000 shares
authorized, no shares outstanding
Deficit accumulated during the development stage ( 18,414)
Total stockholders' deficit ( 15,625)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 0
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> F-4
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
PERIOD FROM NOVEMBER 24, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
Revenue $ 0
Expenses:
Professional fees 15,625
Organization costs 2,789
Total expenses 18,414
Net loss $( 18,414)
Loss Per Common Share $ (.03)
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> F-5
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' DEFICIT
PERIOD FROM NOVEMBER 24, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
Common
Stock
Shares Amount Deficit
Balance at November 24, 1999 0 $ 0 $ 0
Issuance of common stock:
Stock issued for services rendered at 734,000 2,789
inception
Net loss for the period from November 24,
1999 through December 31, 1999 ( 18,414)
Balance at December 31, 1999 734,000 $ 2,789 $( 18,414)
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> F-7
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
PERIOD FROM NOVEMBER 24, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
Cash flows from operating activities:
Net loss $ ( 18,414)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Services performed in exchange for stock 2,789
Increase in accounts payable 15,625
Net cash provided by operating activities 0
Increase in cash and cash equivalents 0
Cash and cash equivalents, beginning of period 0
Cash and cash equivalents, end of period $ 0
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> F-8
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Development Stage Operations
The Company was incorporated on November 24, 1999, in the State of
Colorado. The Company is in the development stage and its intent is to
operate as a capital market access corporation and to acquire one or more
existing businesses through merger or acquisition. The Company has had no
significant business activity to date. The Company has selected the calendar
year as its fiscal year. Costs associated with organization have been
expensed in accordance with SOP 98-5.
Stock-Based Compensation
The Company accounts for stock-based compensation under Statement of
Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based
Compensation". The Company accounts for stock-based compensation based on the
fair value of the consideration received or the fair value of the stock
issued, whichever is more reliably measurable.
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 November 24, 1999, the Company issued seven hundred thirty-four thousand
(734,000) shares of its $0.001 par value common stock for services valued
at their fair market value of $2,789. 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.
The Company authorized 50,000,000 shares of Series A convertible
preferred stock with a par value of $0.001 per share. Currently, there are no
shares outstanding. Each share of preferred stock can be converted into one
share of common stock and each share is entitled to one vote, voting together
with the holders of shares of common stock.
3. RELATED PARTY TRANSACTIONS
The accounts payable of $15,625 was for legal services rendered in connection
with business planning and compliance. Those legal services were rendered by
shareholders of the Company.
As described in footnote #2 the Company issued common stock for services
provided by related parties that are valued at the fair market value of
$2,789.
(CONTINUED)
<PAGE> F-9
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
4. INCOME TAXES
Due to the current period's operating loss, the Company has no provision for
income taxes for 1999.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's net
deferred tax asset balances are attributable to net operating loss
carryforwards. At December 31, 1999, the Company's deferred tax asset
consisted of the following:
Deferred tax asset $ 5,500
Valuation allowance ( 5,500)
Net deferred tax assets recognized on the
accompanying balance sheets $ 0
The components of the income tax provision (benefit) consisted of the
following for the year ended December 31, 1999.
Current $ 0
Deferred 5,500
Tentative tax provision (benefit) 5,500
Change in valuation allowance ( 5,500)
Net income tax provision (benefit) $ 0
The Company has a net operating and economic loss carryforward of
approximately $15,625 available to offset future federal and state taxable
income through 2019 as follows:
Year of Expiration Amount
2019 $ 15,625
(CONCLUDED)
<PAGE>
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
AND THE PERIOD FROM NOVEMBER 24, 1999
(DATE OF INCEPTION) TO MARCH 31, 2000 AND
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
REVIEW REPORT
<PAGE> F-2
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
To the Board of Directors
Providence Capital IV, Inc.
(A Development Stage Company)
We have reviewed the accompanying balance sheet of Providence Capital IV, Inc.
(a development stage company) as of March 31, 2000, and the related statements
of operations, stockholders' equity, and cash flows for the three month period
then ended and the period from November 24, 1999 (inception) to March 31, 2000.
These financial statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
statements consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
Providence, Rhode Island
July 26, 2000
/s/ Cayer Prescott Clune & Chatellier, LLP
<PAGE> F-3
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
ASSETS
TOTAL ASSETS $ 0
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 16,525
Stockholders' deficit:
Common stock, $.001 par value;
50,000,000 shares authorized,
734,000 shares issued and
outstanding 734
Paid in capital 2,055
Preferred stock, $.001 par value,
50,000,000 shares authorized,
no shares outstanding
Deficit accumulated during the development stage ( 19,314)
Total stockholders' deficit ( 16,525)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 0
SEE NOTES TO FINANCIAL STATEMENTS AND
INDEPENDENT CERTIFIED ACCOUNTANTS' REVIEW REPORT.
<PAGE> F-4
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
AND THE PERIOD FROM NOVEMBER 24, 1999 (DATE OF INCEPTION)
TO MARCH 31, 2000
(UNAUDITED)
Three Months November 24, 1999
Ended (Inception) to
March 31, 2000 March 31, 2000
Revenue $ 0 $ 0
Expenses:
Professional fees 900 16,525
Organization costs 2,789
Total expenses 900 19,314
Net loss $ (900) $( 19,314)
Loss Per Common Share $ (.001) $ (.026)
SEE NOTES TO FINANCIAL STATEMENTS AND
INDEPENDENT CERTIFIED ACCOUNTANTS' REVIEW REPORT.
<PAGE> F-5
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED MARCH 31, 2000
AND THE PERIOD FROM NOVEMBER 24, 1999 (DATE OF INCEPTION)
TO MARCH 31, 2000
(UNAUDITED)
Common
Stock
Shares Amount Deficit
Balance at November 24, 1999 0 $ 0 $ 0
Issuance of common stock:
Stock issued for services
rendered at inception 734,000 2,789
Net loss for the period from
November 24, 1999 through
December 31, 1999 ( 18,414)
Balance at December 31, 1999 734,000 $ 2,789 ( 18,414)
Net loss for the three months
ended March 31, 2000 (900)
Balance at March 31, 2000 734,000 $ 2,789 $( 19,314)
SEE NOTES TO FINANCIAL STATEMENTS AND
INDEPENDENT CERTIFIED ACCOUNTANTS' REVIEW REPORT.
<PAGE> F-6
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000
AND THE PERIOD FROM NOVEMBER 24, 1999 (DATE OF INCEPTION)
TO MARCH 31, 2000
(UNAUDITED)
Three Months November 24, 1999
Ended (Inception) to
March 31, 2000 March 31, 2000
Cash flows from operating activities:
Net loss $ (900) $ ( 19,314)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Services performed for stock 2,789
Increase in accounts payable 900 16,525
Net cash provided by
operating activities 0 0
Increase in cash and cash equivalents 0 0
Cash and cash equivalents,
beginning of period 0 0
Cash and cash equivalents, end of period $ 0 $ 0
SEE NOTES TO FINANCIAL STATEMENTS AND
INDEPENDENT CERTIFIED ACCOUNTANTS' REVIEW REPORT.
<PAGE>
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Development Stage Operations
Providence Capital IV, Inc. (a Development Stage Company) (the Company) was
incorporated on November 24, 1999, in the State of Colorado. The Company is in
the development stage and its intent is to operate as a capital market access
corporation and to acquire one or more existing businesses through merger or
acquisition. The Company has had no significant business activity to date.
The Company has selected the calendar year as its fiscal year. Costs
associated with organization have been expensed in accordance with SOP 98-5.
Stock-Based Compensation
The Company accounts for stock-based compensation under Statement of
Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based
Compensation". The Company accounts for stock-based compensation based on the
fair value of the consideration received or the fair value of the stock issued,
whichever is more reliably measurable.
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 November 24, 1999, the Company issued seven hundred thirty-four thousand
(734,000) shares of its $.001 par value common stock for services, rendered by
related parties, valued at their fair market value of $2,789. 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.
The Company authorized 50,000,000 shares of Series A convertible preferred
stock with a par value of $.001 per share. Currently, there are no shares
outstanding. Each share of preferred stock can be converted into one share of
common stock and each share is entitled to one vote, voting together with the
holders of shares of common stock.
3. RELATED PARTY TRANSACTIONS
$16,525 of the accounts payable balance was for legal services rendered in
connection with business planning and compliance. Those legal services were
rendered by shareholders of the Company.
As described in footnote #2 the Company issued common stock for services
provided by related parties that are valued at the fair market value of
$2,789.
SEE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REVIEW REPORT.
(CONTINUED)
<PAGE>
PROVIDENCE CAPITAL IV, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
4. INCOME TAXES
Due to the current period's operating loss, the Company has no provision for
income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's net
deferred tax asset balances are attributable to net operating loss carry-
forwards. At March 31, 2000, the Company's deferred tax asset consisted of
the following:
Deferred tax asset $ 5,800
Valuation allowance ( 5,800)
Net deferred tax assets recognized on
the accompanying balance sheets $ 0
The components of the income tax provision (benefit) consisted of the following
for the period ended March 31, 2000.
Current $ 0
Deferred 5,800
Tentative tax provision (benefit) 5,800
Change in valuation allowance ( 5,800)
Net income tax provision (benefit) $ 0
The Company has a net operating and economic loss carryforward of
approximately $16,525 available to offset future federal and state taxable
income through 2019 as follows:
Year of Expiration Amount
2019 $ 16,525
SEE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REVIEW REPORT.
(CONCLUDED)
PART III
ITEM I. INDEX TO EXHIBITS
(b)Exhibits
3(a)Articles of Incorporation
3(b)Bylaws
4(a)Agreements Defining Certain Rights of Shareholders
4(b)Specimen Stock Certificate
7 Not applicable
9 Not applicable
11 Not applicable
14 Not applicable
16 Not applicable
21 Not applicable
23.1Consent of Counsel, Nadeau & Simmons, P.C.
24 Not applicable
27 Financial Data Schedule
28 Not applicable
99 Section 27(a) Compliance Statement
ITEM 2. DESCRIPTION OF EXHIBITS
See Item I above.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Company caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROVIDENCE CAPITAL IV, INC.
By: /s/ Richard Nadeau, Jr.
______________________________
RICHARD NADEAU, JR.,
President
Date: August 1, 2000
