UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
CAPITAL GROWTH SYSTEMS, INC.
(Name of Small Business Issuer in its charter)
Florida 65-0953505
(State of incorporation or organization) (Federal Identification No.)
6856 Bridlewood Court Boca Raton, Florida 33433
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (561)362-5287
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With Copy To:
Jeffrey G. Klein.
Jeffrey G. Klein, P.A.
23123 State Road 7 Suite 350B
Boca Raton, FL 33428
(561)470-9010
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
Securities to be registered under Section 12(g) of the Act:
Common Stock $.0001 Par Value
(Title of class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The name of our company is CAPITAL GROWTH SYSTEMS, INC. We were incorporated
under the laws of the State of Florida on September 29, 1999. We are a
developmental stage company and have no revenues to date. Since inception, our
activities have been limited to actions related to our organization and the
preparation of this Registration Statement. We are a "shell" company conducting
virtually no business operation, other than our efforts to seek merger partners
or acquisition candidates. We have no full time employees and own no real
estate.
We were created to effect a merger, exchange of capital stock, asset acquisition
or other similar business combination (a "Business Combination") with an
operating or development stage business (the "Target Business") which desires to
utilize our status as a reporting corporation under the Securities Exchange Act
of 1934 ("Exchange Act"). We have a shareholder base of approximately 41
shareholders and 931,500 shares of Common Stock outstanding, all of which shares
are restricted pursuant to Rule 144 of the Securities Act of 1933, as amended
(the "Securities Act"). See "Description of Securities". Pursuant to a
resolution of our board of directors, we will not enter into any Business
Combination until the Target Business has obtained the requisite audited
financial statements required pursuant to Form 8-K (or its equivalent)
promulgated under the Exchange Act.
Upon the effectiveness of this registration statement, we intend to seek
potential business opportunities and effectuate a Business Combination with a
Target Business with significant growth potential which, in the opinion of our
management, could provide a profit to both the Company and its shareholders. We
intend to seek opportunities demonstrating the potential of long term growth as
opposed to short term earnings. Our efforts in identifying a prospective Target
Business are expected to emphasize businesses primarily located in the United
States; however, we reserves the right to acquire a Target Business located
primarily elsewhere. While we may, under certain circumstances, seek to effect
Business Combinations with more than one Target Business, as a result of our
limited resources, we will, in all likelihood, have the ability to effect only a
single Business Combination. We may effect a Business Combination with a Target
Business which may be financially unstable or in its early stages of development
or growth. We will not restrict our search to any specific business, industry or
geographical location, and we may participate in a business venture of virtually
any kind or nature. Our management may become involved in management of the
Target Business and/or may hire qualified but as yet unidentified individuals to
manage such Target Business. Presently, we have no plans, proposal, agreement,
understanding or arrangement to acquire or merge with any specific business or
company, and we have not identified any specific business or company for
investigation and evaluation.
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Our discussion of the proposed business under this caption and throughout this
registration statement is purposefully general and is not meant to restrict our
virtually unlimited discretion to search for and enter into potential business
opportunities.
"SHELL" CORPORATION
Background.
We have conducted virtually no business operations to date and expect to conduct
none in the future , other than our efforts to effectuate a Business
Combination, we can be characterized as a "shell" corporation. As a shell
corporation, we face special risks inherent in the investigation, acquisition,
or involvement in a new business opportunity. Further, as a new or "start-up"
company, we face all of the unforeseen costs, expenses, problems, and
difficulties related to such companies. We are dependent upon the efforts of our
officers and directors to effectuate a Business Combination. Assuming our
officers and directors are successful in identifying a Business Combination, it
is unlikely our shareholders will have an opportunity to evaluate the specific
merits or risks of any one or more Business combinations and will have no
control over the decision making relating to such.
Due to our limited capital resources, the consummation of a Business Combination
will likely involve the acquisition of, or merger or consolidation with, a
company that does not need substantial additional capital but which desires to
establish a public trading market for its shares, while avoiding what it might
deem to be the adverse consequences of undertaking a public offering itself,
such as the time delays and significant expenses incurred to comply with the
various federal and state securities laws that regulate initial public
offerings. A Target Business might desire, among other reasons, to create a
public market for their shares in order to enhance liquidity for current
shareholders, facilitate raising capital through the public sale of securities
of which a prior existence of a public market for its securities exists, and/or
acquire additional assets through the issuance of securities rather than for
cash.
No trading market in our securities presently exists. In light of the
restrictions concerning shell companies contained in many state blue sky laws
and regulations, it is not likely that a trading market will be created in our
securities until such time as a Business Combination occurs with a Target
Business. No assurances are given that subsequent to such a Business Combination
that a trading market in our securities will develop. We presently have 931,500
shares of Common Stock outstanding, all of which are deemed to be "restricted
securities", as that term is defined under Rule 144 promulgated under the
Securities Act, in that such shares were issued in private transactions not
involving a public offering. A portion of the 900,000 shares issued to the sole
officer and principal shareholder and most of the 31,500 shares issued to
non-affiliated shareholders will be available for sale under Rule 144 beginning
in December 2001 so long as all other conditions of Rule 144 are met (and
assuming no other changes in our capitalization). No assurances are made;
however, that Rule 144 will be available at any time for any shareholders'
shares, that the Rule will not be amended or that we will not provide to any
shareholder
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registration rights to register under the Securities Act any shareholder's
shares for sale. See "Market for Common Equity and Related Stockholder Matters".
We cannot estimate the time that it will take to effectuate a Business
Combination. It could be time consuming; possibly in excess of many months or
years. Additionally, no assurance can be made that we will be able to effectuate
a Business Combination on favorable terms. We might identify and effectuate a
Business Combination with a Target Business which proves to be unsuccessful for
any number of reasons, many of which are due to the fact that the Target
Business is not identified at this time. If this occurs, the Company and its
shareholders might not realize any type of profit.
Unspecified Industry and Target Business.
We will seek to acquire a Target Business without limiting ourselves to a
particular industry. Most likely, the Target Business will be primarily located
in the United States, although we reserve the right to acquire a Target Business
primarily located outside the United States. In seeking a Target Business, we
will consider, without limitation, businesses which (i) offer or provide
services or develop, manufacture or distribute goods in the United States or
abroad, including, without limitation, in the following areas: Internet
services, real estate, health care and health products, educational services,
environmental services, consumer-related products and services (including
amusement, entertainment and/or recreational services), personal care services,
voice and data information processing and transmission and related technology
development or (ii) is engaged in wholesale or retail distribution. To date, we
have not selected any particular industry or any Target Business in which to
concentrate its Business Combination efforts. Accordingly, we are only able to
make general disclosures concerning the risks and hazzards of effectuating a
Business Combination with a Target Business since there is presently no current
basis for us to evaluate the possible merits or risks of the Target Business or
the particular industry in which we may ultimately operate. Any Target Business
that is selected will be required to have audited financial statements prior to
the commencement of a the Business Combination.
To the extent that we effect a Business Combination with a financially unstable
company or an entity in its early stage of development or growth (including
entities without established records of sales or earnings), we will become
subject to numerous risks inherent in the business and operations of financially
unstable and early stage or potential emerging growth companies. In addition, to
the extent that we effect a Business Combination with a Target Business in an
industry characterized by a high level of risk, we will become subject to the
currently unascertainable risks of that industry. An extremely high level of
risk frequently characterizes certain industries which experience rapid growth.
Although management will endeavor to evaluate the risks inherent in a particular
industry or Target Business, there can be no assurances that we will properly
ascertain or assess all significant risk factors.
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Probable Lack of Business Diversification.
As a result of our limited resources, in all likelihood, we will have the
ability to effect only a single Business Combination. Accordingly, our prospects
for success will be entirely dependent upon the future performance of a single
business.
Unlike certain entities that have the resources to consummate several Business
Combinations or entities operating in multiple industries or multiple segments
of a single industry, it is highly unlikely that we will have the resources to
diversify our operations or benefit from spreading risks or offsetting losses.
Our probable lack of diversification could subject us to numerous economic,
competitive and regulatory developments, any or all of which may have a material
adverse impact upon the particular industry in which we may operate subsequent
to consummation of a Business Combination. The prospects for our success may
become dependent upon the development or market acceptance of a single or
limited number of products, processes or services. Accordingly, notwithstanding
the possibility of management assistance to the Target Business by us, there can
be no assurance that the Target Business will prove to be commercially viable.
Limited Ability to Evaluate Target Business' Management.
While our ability to successfully effect a Business Combination will be
dependent upon certain key personnel, the future role of such personnel in the
Target Business cannot presently be stated with any certainty. There can be no
assurance that current management will remain associated in any operational
capacity with the Company following a Business Combination. Moreover, there can
be no assurances that current management will have any experience or knowledge
relating to the operations of the particular Target Business. Furthermore,
although we intend to closely scrutinize the management of a prospective Target
Business in connection with evaluating the desirability of effecting a Business
Combination, there can be no assurances that our assessment of such management
will prove to be correct, especially since none of our management are
professional business analysts. See "Directors, Executive Officers, Promoters
and Control Persons".
Accordingly, we will be dependant, in some significant respects, on the ability
of the management of the Target Business who are unidentifiable as of the date
hereof. In addition, there can be no assurances that such future management will
have the necessary skills, qualifications or abilities to manage a public
company. We may also seek to recruit additional managers to supplement the
incumbent management of the Target Business. There can be no assurances that we
will have the ability to recruit such additional managers, or that such
additional managers will have the requisite skill, knowledge or experience
necessary or desirable to enhance the incumbent management.
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Opportunity for Shareholder Evaluation or Approval of Business Combinations.
Our non-affiliate shareholders will, in all likelihood, not receive nor
otherwise have the opportunity to evaluate any financial or other information
which will be made available to us in connection with selecting a potential
Business Combination until after we have entered into an agreement to effectuate
a Business Combination. Such agreement to effectuate a Business Combination,
however, will be subject to shareholder approval pursuant to applicable law. As
a result, our non-affiliate shareholders will be almost entirely dependent on
the judgment and experience of management in connection with the selection and
ultimate consummation of a Business Combination. In addition, under Florida law,
the form of Business Combination could impact upon the availability of
dissenters' rights (i.e., the right to receive fair payment with respect to the
Company's Common Stock) to shareholders disapproving the proposed Business
Combination. See "Description of Business - Shell Corporation - Conflicts of
Interest" and "Certain Relationships and Related Transactions".
Selection of a Target Business and Structuring of a Business
Combination.
We anticipate that the selection of a Target Business will be complex and risky
because of competition for such business opportunities among all segments of the
financial community. The nature of our search for the acquisition of a Target
Business requires maximum flexibility inasmuch as we will be required to
consider various factors and circumstances which may preclude meaningful direct
comparison among the various business enterprises, products or services
investigated. Investors should recognize that the possible lack of
diversification among our acquisitions may not us to offset potential losses
from one venture against profits from another. We have virtually unrestricted
flexibility in identifying and selecting a prospective Target Business. In
addition, in evaluating a prospective Target Business, management will consider,
among other factors, the following factors which are not listed in any
particular order:
- financial condition and results of operation of the Target Business;
- growth potential and projected financial performance of the Target
Business and the industry in which it operates;
- experience and skill of management and availability of additional
personnel of the Target Business;
- capital requirements of the Target Business;
- the availability of a transaction exemption from registration pursuant to
the Securities Act for the Business Combination;
- the location of the Target Business;
- competitive position of the Target Business;
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- stage of development of the product, process or service of the Target
Business;
- degree of current or potential market acceptance of the product, process
or service of the Target Business;
- possible proprietary features and possible other protection of the
product, process or service of the Target Business;
- regulatory environment of the industry in which the Target Business
operates;
- costs associated with effecting the Business Combination; and
- equity interest in and possible management participation in the Target
Business.
The foregoing criteria are not intended to be exhaustive; any evaluation
relating to the merits of a particular Business Combination will be based, to
the extent relevant, on the above factors as well as other considerations deemed
relevant by us in connection with effecting a Business Combination consistent
with our business objective. In many instances, it is anticipated that the
historical operations of a Target Business 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.
We will be dependent upon the owners of a Target Business to identify any such
problems which may exist and to implement, or be primarily responsible for the
implementation of, required changes. Because we may engage in a Business
Combination with a newly organized firm or with a firm which is entering a new
phase of growth, we will incur further risks, because in many instances,
management of the Target Business will not have proven its abilities or
effectiveness, the eventual market for the products or services of the Target
Business will likely not be established, and the Target Business may not be
profitable subsequent to a Business Combination.
Our 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 Target Business before we commit our 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
we had more funds available to it, would be desirable. We will be particularly
dependent in making decisions upon information provided by the promoter, owner,
sponsor, or others associated with the business opportunity seeking our
participation.
In connection with its evaluation of a prospective Target Business, management
anticipates that it will conduct a due diligence review which will encompass,
among other things, meetings with incumbent management and inspection of
facilities, as well as review of financial or other information which will be
made available to us. The time and costs required to select and evaluate
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a Target Business (including conducting a due diligence review) and to structure
and consummate the Business Combination (including negotiating relevant
agreements and preparing requisite documents for filing pursuant to applicable
securities laws and state "blue sky" and corporation laws) cannot presently be
ascertained with any degree of certainty. Our officers and directors only devote
a small portion of their time to the operations of the Company, and,
accordingly, consummation of a Business Combination may require a greater period
of time than if they devoted their full time to the Company's affairs.
However, our officers and directors will devote such time as they deem
reasonably necessary, to carry out the business and affairs of the Company,
including the evaluation of potential Target Businesses and the negotiation of a
Business Combination and, as a result, the amount of time devoted to our
business and affairs may vary significantly depending upon, among other things,
whether we have identified a Target Business or are engaged in active
negotiations of a Business Combination. Any costs incurred in connection with
the identification and evaluation of a prospective Target Business with which a
Business Combination is not ultimately consummated will result in a loss to the
Company and reduce the amount of capital available to otherwise complete a
Business Combination or for the resulting entity to utilize. In the event we
deplete our cash reserves, we might be forced to cease operations and a Business
Combination might not occur.
We anticipate that we will locate and make contact with Target Businesses
primarily through the reputation and efforts of our officers and directors, who
will meet personally with existing management and key personnel, visit and
inspect material facilities, assets, products and services belonging to such
prospects, and undertake such further reasonable investigation as they deem
appropriate. Management has a network of business contacts and believes that
prospective Target Businesses will be referred to the Company through these
network of contacts.
We also expect that many prospective Target Businesses will be brought to its
attention from various other non-affiliated sources, including securities
broker-dealers, investment bankers, venture capitalists, bankers, and other
members of the financial community. We have neither the present intention, nor
does the present potential exist for us, to consummate a Business Combination
with a Target Business in which our management, promoters, or their affiliates
or associates directly or indirectly have a pecuniary interest, although no
existing corporate policies would prevent this from occurring. Although there
are no current plans to do so, we may engage the services of professional firms
that specialize in finding business acquisitions and pay a finder's fee or other
compensation. Since we have no current plans to utilize any outside consultants
or advisors to assist in a Business Combination, 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. However,
because of our limited resources, it is likely that any such fee we agree to pay
would be paid in stock and not in cash. In no event will we pay a finder's fee
or commission to
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any officer or director or to any entity with which they are affiliated for such
service. Moreover, in no event shall we issue any of our securities to any of
our other officers, directors or promoters if any, or any of their respective
affiliates or associates, in connection with activities designed to locate a
target business.
As a general rule, Federal and state tax laws and regulations have a significant
impact upon the structuring of business combinations. We will evaluate the
possible tax consequences of any prospective Business Combination and will
endeavor to structure a Business Combination so as to achieve the most favorable
tax treatment for us, the Target Business and their respective stockholders.
There can be no assurance that the Internal Revenue Service or relevant state
tax authorities will ultimately assent to our tax treatment of a particular
consummated Business Combination.
To the extent the Internal Revenue Service or any relevant state tax authorities
ultimately prevail in recharacterizing the tax treatment of a Business
Combination, there may be adverse tax consequences to us, the Target Business
and their respective stockholders. Tax considerations as well as other relevant
factors will be valuated in determining the precise structure of a particular
Business Combination, which could be effected through various forms of a merger,
consolidation or stock or asset acquisition.
Although we have no commitments as of the date of this registration statement to
issue any shares of Common Stock, preferred stock, options or warrants, other
than as described in this registration statement, we will, in all likelihood,
issue a substantial number of additional shares in connection with the
consummation of a Business Combination. To the extent that such additional
shares are issued, dilution to the interests of our stockholders will occur.
Additionally, if a substantial number of shares of Common Stock are issued in
connection with the consummation of a Business Combination, a change in our
control is likely to occur which will likely affect, among other things, our
ability to utilize net operating loss carry forwards, if any.
Any such change in control may also result in the resignation or removal of our
present officer and director. If there is a change in management, no assurance
can be given as to the experience or qualification of such persons, either in
the operation of our activities or in the operation of the business, assets or
property being acquired. Management considers it likely that in order to
consummate a Business Combination, a change in control will occur; therefore,
management anticipates offering a controlling interest to a Target Business in
order to effectuate a Business Combination.
Management may actively negotiate for or otherwise consent to the disposition of
any portion of their Common Stock as a condition to or in connection with a
Business Combination. Therefore, it is possible that the terms of any Business
Combination will provide for the sale of some shares of Common Stock held by
management. It is likely that none of our other shareholders will be afforded
the right to sell their shares of Common Stock in connection with a Business
Combination pursuant to the same terms that Management will be provided.
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There are currently no limitations relating to our ability to borrow funds to
increase the amount of capital available to us to effect a Business Combination
or otherwise finance the operations of the Target Business. However, our limited
resources and lack of operating history could make it difficult for us to borrow
additional funds from other sources. The amount and nature of any borrowings by
us will depend on numerous considerations, including our capital requirements,
potential lenders' evaluation of our ability to meet debt service on borrowings
and the then prevailing conditions in the financial markets, as well as general
economic conditions. We do not have any arrangements with any bank or financial
institution to secure additional financing and there can be no assurance that
such arrangements if required or otherwise sought, would be available on terms
commercially acceptable or otherwise in our best interests. Our inability to
borrow funds required to effect or facilitate a Business Combination, or to
provide funds for an additional infusion of capital into a Target Business, may
have a material adverse effect on our financial condition and future prospects,
including the ability to effect a Business Combination. To the extent that debt
financing ultimately proves to be available, any borrowings may subject us to
various risks traditionally associated with indebtedness, including the risks of
interest rate fluctuations and insufficiency of cash flow to pay principal and
interest. Furthermore, a Target Business may have already incurred debt
financing and, therefore, all the risks inherent thereto.
If our securities are issued as part of an acquisition, such securities are
required to be issued either in reliance upon exemptions from registration under
applicable federal or state securities laws or registered for public
distribution. We intend to primarily target only those companies where an
exemption from registration would be available; however, since the structure of
the Business Combination has yet to be determined, no assurances can be made
that we will be able to rely on such exemptions. Registration of securities
typically requires significant costs and time delays are typically encountered.
In addition, the issuance of additional securities and their potential sale in
any trading market which might develop in our Common Stock, of which there is
presently no trading market and no assurances can be given that one will
develop, could depress the price of our Common Stock in any market which may
develop in our Common Stock. Further, such issuance of additional securities
would result in a decrease in the percentage ownership of present shareholders.
Due to our small size and limited amount of capital, our ability to raise
additional capital if and when needed could be constrained. Until such time as
any enterprise, product or service which we acquire generates revenues
sufficient to cover operating costs, it is conceivable that we could find
ourselves in a situation where it needs additional funds in order to continue
our operations. This need could arise at a time when we are unable to borrow
funds and when market acceptance for the sale of additional shares of our Common
Stock does not exist. See "Management's Discussion and Analysis or Plan of
Operation".
Conflicts of Interest.
None of our affiliates, officers and directors are required to commit their full
time to our affairs and, accordingly, such persons may have conflicts of
interest in allocating management time
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among various business activities. Our affiliates, officers and directors may
engage in other business activities similar and dissimilar to those we are
engaged in. To the extent that such persons engage in such other activities,
they will have possible conflicts of interest in diverting opportunities to
other companies, entities or persons with which they are or may be associated or
have an interest, rather than diverting such opportunities to us. As no policy
has been established for the resolution of such a conflict, we could be
adversely affected should management choose to place their other business
interests before ours. No assurance can be given that such potential conflicts
of interest will not cause us to lose potential opportunities. Management may
become aware of investment and business opportunities which may be appropriate
for presentation to us as well as the other entities with which they are
affiliated. Management may have conflicts of interest in determining which
entity a particular business opportunity should be presented. Accordingly, as a
result of multiple business affiliations, management may have similar legal
obligations relating to presenting certain business opportunities to multiple
entities. In addition, conflicts of interest may arise in connection with
evaluations of a particular business opportunity by the board of directors with
respect to the foregoing criteria. There can be no assurances that any of the
foregoing conflicts will be resolved in our favor. We may consider Business
Combinations with entities owned or controlled by persons other than those
persons described above. There can be no assurances that any of the foregoing
conflicts will be resolved in our favor.
Management may actively negotiate for or otherwise consent to the disposition of
any portion of their Common Stock as a condition to or in connection with a
Business Combination. Therefore, it is possible that the terms of any Business
Combination will provide for the sale of some shares of Common Stock held by
Management. In the event that occurs, the Company's directors intend to approve
the Business Combination pursuant to Section 607.0902(2)(d)(7) of the Florida
Business Corporation Act which will have the effect of removing the transaction
from the purview of the control-share acquisition statute promulgated under
Section 607.0902 of the Florida Business Corporation Act. Thus, it is likely
that none of our other shareholders will be afforded the right to sell their
shares of Common Stock in connection with a Business Combination pursuant to the
same terms that Management will be provided. Also, such shareholders will not be
afforded an opportunity to approve or consent to Management's stock purchase.
See "Description of Business - Shell Corporation - Selection of a Target
Business and Structuring of a Business Combination".
Investment Company Act and Other Regulation
We may participate in a Business Combination by purchasing, trading or selling
the securities of such Target Business. We do not, however, intend to engage
primarily in such activities.
Specifically, we intend to conduct our 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.
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Our plan of business may involve changes in our capital structure, management,
control and business, especially if we consummate a Business Combination as
discussed above. Each of these areas is regulated by the Investment Act, in
order to protect purchasers of investment company securities. Since we will not
register as an investment company, stockholders will not be afforded these
protections.
Any securities which we might acquire in exchange for our Common Stock will be
"restricted securities" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). If we elect 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 Securities Act, which exempts sales of securities
not involving a public distribution by persons other than the issuer, would in
all likelihood be available to permit a private sale. Although our plan of
operation does not contemplate the resale of an acquired Target Business'
securities, if such a sale were to be necessary, we would be required to comply
with the provisions of the Securities Act to effect such resale.
Any acquisition we make 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.
Penny Stock Regulations - State Blue Sky restrictions -
Restrictions on Marketability.
The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. Our securities may
be covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse). For transactions covered by the rule, the broker-dealers must make a
special suitability determination for the purchase and receive the purchaser's
written agreement of the transaction prior to the sale. Consequently, the rule
may affect the ability of broker-dealers to sell our securities and also may
affect the ability of our shareholders to sell their shares in the secondary
market.
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-9 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 the Company's
shareholders to sell their shares in any public market which might develop.
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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. We are
aware of the abuses that have occurred historically in the penny stock market.
Although we do 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 our securities.
We have 25,000,000 shares of authorized Common Stock with 931,500 shares of
Common Stock outstanding. See "Description of Securities". No trading market in
our securities presently exists. In light of the restrictions concerning shell
companies contained in many state blue sky laws and regulations, it is not
likely that a trading market will be created in our securities until such time
as a Business Combination occurs with a Target Business. No assurances are given
that subsequent to such a Business Combination that a trading market in ours
securities will develop. We presently have 931,500 shares of Common Stock
outstanding, of which all of such shares are deemed to be "restricted
securities", as that term is defined under Rule 144 promulgated under the
Securities Act, in that such shares were issued in private transactions not
involving a public offering. No assurances are made; however, that these shares
will be available for sale under Rule 144. The Company has not provided to any
shareholder registration rights to register under the Securities Act any
shareholder's shares for sale. See "Market for Common Equity and Related
Stockholder Matters".
COMPETITION
We expect to encounter intense competition from other entities having a business
objective similar to ours. Many of these entities are well-established and have
extensive experience in connection with identifying and effecting business
combinations directly or through affiliates. Many of these competitors possess
greater financial, marketing, technical, personnel and other resources than us
and there can be no assurances that we will have the ability to compete
successfully. Our financial resources will be extremely limited in comparison to
those of many of its competitors. This inherent competitive limitation could
compel us to select certain less attractive Target Businesses for a Business
Combination. There can be no assurances that such Target Businesses will permit
us to meet our stated business objective. Management believes, however, that our
status as a reporting public entity could give us a competitive advantage over
privately held entities having a similar business objective to ours in acquiring
a Target Business with significant growth potential on favorable terms.
-13-
<PAGE>
UNCERTAINTY OF COMPETITIVE ENVIRONMENT OF TARGET BUSINESS
In the event that we succeed in effecting a Business Combination, we will, in
all likelihood, become subject to intense competition from competitors of the
Target Business. In particular, certain industries which experience rapid growth
frequently attract an increasingly larger number of competitors, including
competitors with increasingly greater financial, marketing, technical and other
resources than the initial competitors in the industry. The degree of
competition characterizing the industry of any prospective Target Business
cannot presently be ascertained. There can be no assurances that, subsequent to
a Business Combination, we will have the resources to compete effectively,
especially to the extent that the Target Business is in a high-growth industry.
FEDERAL SECURITIES LAWS COMPLIANCE
Under the Federal securities laws, companies reporting under the Exchange Act
must furnish stockholders certain information about significant acquisitions,
which information may require audited financial statements for a Target Business
with respect to one or more fiscal years, depending upon the relative size of
the acquisition. Consequently, the Company's policy is to only effect a Business
Combination with a Target Business that has available the requisite audited
financial statements. See "Description of Securities--Securities Exchange Act of
1934".
FACILITIES
Our principal office is located at the personal residence of our president at
6856 Bridlewood Court in Boca Raton, Florida 33433. We occupy this space rent
free at the principal place of business of our company president, Allen
Borowsky.. We believe these facilities are adequate to serve our needs until
such time as a Business Combination occurs. We expect to be able to utilize
these facilities, free of charge, until such time as a Business Combination
occurs. See "Description of Property" and "Certain Relationships and Related
Transactions".
EMPLOYEES
As of the date of this Registration Statement, we are in the development stage
and currently have no full time employees. Our management serves on a part time
basis. We expect to use consultants, attorneys and accountants as necessary, and
do not anticipate a need to engage any full-time employees so long as it is
seeking and evaluating Target Businesses. The need for employees and their
availability will be addressed in connection with the decision whether or not to
acquire or participate in a specific Business Combination.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
-14-
<PAGE>
We are presently a development stage company conducting virtually no business
operation, other than our efforts to effect a Business Combination with a Target
Business which we considers to have significant growth potential. To date, we
have neither engaged in any operations nor generated any revenue. We receive no
cash flow. We will carry out our plan of business as discussed above. See
"Description of Business". We cannot predict to what extent our liquidity and
capital resources will be diminished prior to the consummation of a Business
Combination or whether our capital will be further depleted by the operating
losses, if any, of the Target Business which we effectuate a Business
Combination with. The continuation of our business is
dependant upon our ability to obtain adequate financing arrangements, effectuate
a Business Combination and ultimately, engage in future profitable operations.
Presently, we are not in a position to meet our cash requirements for the
remainder of our fiscal year or for the next 12 months. We do not generate any
cash revenue or receive any type of cash flow. From inception to the date of
this registration statement, management has committed to make loans to us on a
need be basis in the form of promissory notes. Our operating costs, which
includes professional fees and costs related to a Business Combination, are
likely to approximate $10,000 to $15,000 during the next 12 months. It is likely
that a Business Combination might not occur during the next 12 months. In the
event we cannot meet our operating costs prior to the effectuation of a Business
Combination, we may cease operations and a Business Combination may not occur.
Prior to the occurrence of a Business Combination, we may be required to raise
capital through the sale or issuance of additional securities in order to ensure
that we can meet our operating the effectuation of a Business Combination. As of
the date of this registration statement, no commitments of any kind to provide
additional funds have been made by management, other present shareholders or any
other third person. There are no agreements or understandings of any kind with
respect to any loans from such persons on our behalf. Accordingly, there can be
no assurance that any additional funds will be available to the Company to allow
it to cover its expenses. In the event the Company can no longer borrow funds
from management, and the Company elects to raise additional capital prior to the
effectuation of a Business Combination, it expects to do so through the private
placement of restricted securities rather than through a public offering. The
Company does not currently contemplate making a Regulation S offering.
ITEM 3. DESCRIPTION OF PROPERTY.
The principal office of the Company is located at 6856 Bridlewood Court Boca
Raton, Florida 33431 at the personal residence of our president. This space is
provided to us rent free. . We believe these facilities are adequate to serve
our needs until such time as a Business Combination occurs. We expect to be able
to utilize these facilities, free of charge, until such time as a
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<PAGE>
Business Combination occurs. See "Certain Relationships and Related
Transactions".
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth, as of the date hereof, the names, addresses,
amount and nature of beneficial ownership and percent of such ownership of each
person known to the Company to be the beneficial owner of more than five percent
(5%) of Company's Common Stock:
<TABLE>
<CAPTION>
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Owner Percent of Class
------------------- ------------------- ----------------
<S> <C> <C>
Allen Borowsky 450,000 48.3%
6856 Bridlewood Court
Boca Raton, Florida 33433
Jeffrey Klein 450,000 48.3%
23123 State Road 7
Suite 350 B
Boca Raton, FL 33428
All Officers and Directors
as a Group (1 person) 450,000 48.3%
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS.
The current directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C>
Allen Borowsky 63 President/Secretary/Treasurer/Director
Jeffrey Klein 45 Shareholder
</TABLE>
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<PAGE>
Allen Borowsky has served as the company sole officer and director since the
Company's inception. He has since August 1999 served as the president of Hunter
Automotive Group, Inc., a company which is attempting to manufacture and
distribute a prototype automobile in the United States. Mr. Borowsky has also
since 1992 served as the president of A.L. Molesworth, Inc. Molesworth is
located in Boca Raton, Florida and is involved in buying and selling used
construction equipment in international trade. From 1991 to 1993 Mr. Borowsky
served as president of Westbridge Media Corp., an entity involved in direct mail
solicitations. Mr. Borowsky received his Bachelor of Arts in Biology from City
College of New York.
Jeffrey Klein, is a practicing attorney in Boca Raton, Florida. Mr. Klein has
operated his own firm for the past ten years Mr. Klein limits his practice to
corporate and securities matters and serves as counsel for the Company. Prior
thereto, he served as general counsel for American Media Group Inc. Mr. Klein
received his J.D. and an M.B.A. from the University of Pittsburgh.
There are no agreements or understandings for our sole officer or director to
resign at the request of another person, and our sole officer and director is
not acting on behalf of or will act at the discretion of any other person.
Until such time as a Business Combination occurs, management does not expect any
significant changes in the composition of our officers or board of directors.
OTHER BLANK CHECK ACTIVITIES
None of our current officers or directors have engaged in any other blank check
activities,
ITEM 6. EXECUTIVE COMPENSATION.
Executive Compensation.
Management receives no salary or other compensation in connection with their
employment as such. None of our officers or directors have employment agreements
with us. Pursuant to Instruction (5) to Item 402(a)(2) of Regulation S-B, no
table or column is provided in this Item 6 to this registration statement.
Compensation of Directors
No director receives any type of compensation from us for serving as such.
Until we effectuate a Business Combination, it is not anticipated that any
officer or director will receive any compensation other than reimbursement for
out-of-pocket expenses incurred on our behalf. See "Certain Relationships and
Related Transactions". We have no stock option,
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<PAGE>
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. No other arrangements are presently
in place regarding compensation to directors for their services as directors or
for committee participation or special assignments.
Our officers and directors hold office until their respective successors is
elected and qualified or until his/her resignation in the manner provided in our
Bylaws.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None of our officers, directors, promoters or affiliates has or proposes to have
any direct or indirect material interest in any asset proposed to be acquired
through security holdings, contracts, options, or otherwise.
It is not currently anticipated that any other salary, consulting fee, or
finder's fee shall be paid to any of our directors or executive officers, or to
any other of our affiliates except as described in this registration statement.
See "Executive Compensation".
Our officers, directors and principal shareholders may actively negotiate for or
otherwise consent to the disposition of any portion of their Common Stock as a
condition to or in connection with a Business Combination. Therefore, it is
possible that the terms of any Business Combination will provide for the sale of
some shares of Common Stock held by management.. Thus, it is likely that no
other shareholders of the Company will be afforded the right to sell their
shares of Common Stock in connection with a Business Combination pursuant to the
same terms that management will be provided. Also, such shareholders will not be
afforded an opportunity to approve or consent to management's stock purchase.
See "Description of Business - Shell Corporation - Selection of a Target
Business and Structuring of a Business Combination". It is more likely than not
that any sale of securities by our 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 us would be determined entirely by the largely
unforeseeable terms of a future agreement with an unidentified business entity.
See "Description of Business - Shell Corporation - - Selection of a Target
Business and Structuring of a Business Combination".
Should we require additional funds, management has agreed to loan the Company
funds on an as needed basis.
ITEM 8. DESCRIPTION OF SECURITIES.
GENERAL
We are authorized to issue 25,000,000 shares of Common Stock. As of the date of
this
-18-
<PAGE>
registration statement 931,500 shares of Common Stock are outstanding, held of
record by approximately 41 shareholders. We are also authorized to issue
5,000,000 shares of preferred stock with such rights and preferences as
determined by the Board of Directors. We have not issued any preferred shares.
We have elected not to be governed by Florida statute Section 607.0901 and
607.0902 which govern control share acquisitions. By virtue of this election,
the non-affiliated shareholders will be less likely given an opportunity to vote
upon any type of acquisition or reorganizaition.
COMMON STOCK
Our shareholders are entitled to one vote for each share held of record on all
matters to be voted on by shareholders. There is no cumulative voting with
respect to the election of directors, with the result that the holders of more
than 50% of the shares voted for the election of directors can elect all of the
directors. By virtue of management's ownership of more than 50% of the
outstanding Common Stock, management can elect all of the directors of the
Company. Florida law permits the holders of the minimum number of shares
necessary to take action at a meeting of shareholders (normally a majority of
the outstanding shares) to take action by written consent without a meeting,
provided notice is given within ten days to all other shareholders. The holders
of Common Stock are entitled to receive dividends when, as and if declared by
the board of directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities and after provision has been
made for each class of stock, if any, having preference over the Common Stock.
Holders of shares of Common Stock, as such, have no conversion, preemptive,
redemption provisions or other subscription rights.
DIVIDENDS
We have not paid any dividends on our Common Stock and do not presently intend
to pay cash dividends prior to the consummation of a Business Combination. The
payment of cash dividends in the future, if any, will be contingent upon our
revenues and earnings, if any, capital requirements and general financial
condition subsequent to consummation of a Business Combination. The payment of
any dividends subsequent to a Business Combination will be within the discretion
of our then board of directors. It is the present intention of the board of
directors to retain all earnings, if any, for use in our business operations
and, accordingly, the board does not anticipate paying any cash dividends in the
foreseeable future.
SECURITIES EXCHANGE ACT OF 1934
By virtue of filing this registration statement, we are making an application
with the Commission to
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<PAGE>
register our Common Stock under the provisions of Section 12(g) of the Exchange
Act. Such registration will require us to comply with periodic reporting, proxy
solicitations and certain other requirements of the Exchange Act. If we seek
shareholder approval of a Business Combination at such time as our securities
are registered pursuant to Section 12(g) of the Exchange Act, our proxy
solicitation materials required to be transmitted to shareholders may be subject
to prior review by the Securities and Exchange Commission. Under the federal
securities laws, public companies must furnish certain information about
significant acquisitions, which information may require audited financial
statements of an acquired company with respect to one or more fiscal years,
depending upon the relative size of the acquisition.
Consequently, if a prospective Target Business did not have available and was
unable to reasonably obtain the requisite audited financial statements, we
could, in the event of consummation of a Business Combination with such company,
be precluded from (i) any public financing of its own securities for a period of
as long as three years, as such financial statements would be required to
undertake registration of such securities for sale to the public; and (ii)
registration of its securities under the Exchange Act. As a result these
requirements, and in order to remain in compliance with the Company's board of
director's resolution, Target Businesses will be required to possess the
requisite audited financial statements prior to the consummation of a Business
Combination. See "Description of Business- General" and "Market For Common
Equity and Related Stockholder Matters- Market Information".
In the event our obligation to file periodic reports under the Exchange Act is
suspended, we presently intend to continue to file such periodic reports on a
voluntary basis.
CERTAIN PROVISIONS OF THE COMPANY'S BYLAWS
The Company's bylaws provide, among other things, that (i) officers and
directors of the Company will be indemnified to the fullest extent permitted
under Florida law. See "Indemnification of Directors and Officers".
TRANSFER AGENT
We presently serves as our own transfer agent.
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
-20-
<PAGE>
Our common stock has not been registered with the Securities and Exchange
Commission or any state securities agency or authority. We intend to apply to
the NASDAQ Stock Market, Inc. to list our shares for quotation on the OTC
Bulletin Board. We cannot assure you when or if our application will be
accepted. If accepted, current quoted bid and asked, and last sales price for
our shares of common stock will be available on the OTC Bulletin Board.
No public trading market presently exists for our Common Stock, and there are no
present plans, proposals, arrangements or understandings with any person with
regard to the development of any trading market in any of ours securities. No
assurances are made, however, that a trading market for our Common Stock will
ever develop. No shares of Common Stock have been registered for resale under
the blue sky laws of any state. The holders of shares of Common Stock and
persons who may desire to purchase shares of Common Stock 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 shareholders to sell their
shares and of purchasers to purchase the shares of Common Stock. Some
jurisdictions may not allow the trading or resale of blind-pool or "blank-check"
securities under any circumstances. Accordingly, shareholders should consider
the secondary market for our securities to be a limited one.
No shares of Common Stock of the Company are presently subject to outstanding
options or warrants to purchase, or securities convertible into our common
equity. There are 41 holders of the Company's Common Stock. The Company
presently has 931,500 shares of Common Stock outstanding, all of which are
"restricted securities", as that term is defined under Rule 144 promulgated
under the Securities Act, in that such shares were issued in private
transactions not involving a public offering. None of these shares are currently
available for sale under Rule 144 as currently in effect. The Company has not
provided to any shareholder registration rights to register under the Securities
Act any shareholder's shares for sale.
In general, under Rule 144, as currently in effect, subject to the satisfaction
of certain other conditions, a person, including an affiliate of the Company (or
persons whose shares are aggregated), who has beneficially owned restricted
shares of Common Stock for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class or, if the Common Stock
is traded on a national securities exchange or the NASDAQ system, the average
weekly trading volume during the four calendar weeks preceding the sale.
A person who has not been an affiliate of the Company for at least the three
months immediately preceding the sale and who has beneficially owned restricted
shares of Common Stock for at least one year is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above. No
assurances are made; however, that Rule 144 will be available at any time for
any shareholder's shares.
We have no present plans, proposals, arrangements, understandings or intention
of selling any amount of shares of Common Stock in the public market subsequent
to a Business Combination. Nevertheless, in the event that substantial amounts
of Common Stock are sold in
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<PAGE>
the public market subsequent to a Business Combination, such sales may adversely
affect the price for the sale of the Company's equity securities in any trading
market which may develop. No prediction can be made as to the effect, if any,
that market sales of restricted shares of Common Stock or the availability of
such shares for sale will have on the market prices prevailing from time to
time.
DIVIDENDS
We have not paid any dividends on our Common Stock to date and do not presently
intend to pay cash dividends prior to the consummation of a Business
Combination. The payment of cash dividends in the future, if any, will be
contingent upon our revenues and earnings, if any, capital requirements and
general financial condition subsequent to the consummation of a Business
Combination. The payment of any dividends subsequent to a Business Combination
will be within the discretion of our then board of directors. It is the present
intention of the board of directors to retain all earnings, if any, for use in
our business operations and, accordingly, the board of directors does not
anticipate paying any cash dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS.
We are not a party to any material legal proceedings, nor are we aware of any
threatened litigation of a material nature.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not Applicable.
ITEM 4. RECENT SALE OF UNREGISTERED SECURITIES
We have issued an aggregate of 931,500 shares of our common stock in a private
offering exempt from registration under the Securities Act pursuant to Section
4(2) thereof for the total consideration of $4,815 to 41 investors, including
900,000 shares issued to our principal shareholders. We issued the balance of
the shares to individuals or entities, each of whom are relatives, friends
and/or business associates of management. We offered the shares ourselves and no
fee or discount was given to any underwriter, placement agent or other person in
connection with the private placement transactions. Except as described in the
preceding sentence, we have not offered, sold or issued any other securities.
ITEM 5 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our bylaws contain the broadest form of indemnification for our officers and
directors and former officers and directors permitted under Florida law. Our
bylaws generally provide that: The
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<PAGE>
Company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by, or in the right of the Company) by reason of the fact that he is or was a
director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of any other
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorney's fees), judgments, fines, amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, including any appeal thereof, if he acted in good
faith in a manner he reasonably believed to be in, or not opposed to the best
interests of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe that her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contenders or its equivalent shall not create,
of itself, a presumption that the person did not act in good faith or in a
manner which he reasonably believed to be in, or not opposed to, the best
interests of the Company or, with respect to any criminal action or proceeding,
had reasonable cause to believe that her conduct was unlawful.
To the extent that a director, officer, employee or agent of the Company has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above, or in any defense of any claim, issue or matter
therein, he shall be indemnified against expenses, including attorneys fees,
actually and reasonably incurred by him in connection therewith.
Any indemnification shall be made only if a determination is made that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth above. Such determination shall be made either (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) by the shareholders who were
not parties to such action, suit or proceeding. If neither of the above
determinations can occur because the Board of Directors consists of a sole
director or the Company is owned by a sole shareholder, then the sole director
or sole shareholder shall be allowed to make such determination.
Expenses incurred in defending any action, suit or proceeding may be paid in
advance of the final disposition of such action, suit or proceeding as
authorized in the manner provided above upon receipt of any undertaking by or on
behalf of the director, officer, employee or agent to repay such amount, unless
it shall ultimately be determined that she is entitled to be indemnified by the
Company.
The indemnification provided shall be in addition to the indemnification rights
provided pursuant to Chapter 607 of the Florida Statutes, and shall not be
deemed exclusive of any other rights to which any person seeking indemnification
may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent of the Company and shall inure to the benefit of the
heirs, executors and administrators of such a person.
-23-
<PAGE>
PART F/S
INDEX TO FINANCIAL STATEMENTS
Description Page
Independent Auditor's Report............................................. F-1
Balance Sheet............................................................ F-2
Statement of Operations.................................................. F-3
Statement of Cash Flows.................................................. F-4
Statement of Retained Earnings........................................... F-5
Notes to Financial Statements............................................ F-6
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<PAGE>
PART III
Item 1. Index to Exhibits
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Specimen of Common Stock Certificate
27.1 Financial Data Schedule
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<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAPITAL GROWTH SYSTEMS, INC.
Date: June 14, 2000 By: /s/ Allen Borowsky
-----------------------
Allen Borowsky, President
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<PAGE>
CAPITAL GROWTH SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
Description Page
Independent Auditor's Report............................................. F-1
Balance Sheet............................................................ F-2
Statement of Operations.................................................. F-3
Statement of Cash Flows.................................................. F-4
Statement of Retained Earnings........................................... F-5
Notes to Financial Statements............................................ F-6
<PAGE>
CPA
BRUCE JAY RE1NGOLD P.A.
9033 GLADES ROAD SUITE C
BOCA RATON, FLORIDA 33434
TELEPHONE 561-451-0866 o FACSIMILE 561-487-5691
Independent Auditors Report
To the Board of Directors
Capital Growth Systems, Inc
Boca Raton, Florida
I have audited the accompanying balance sheet of Capital Growth Systems, Inc (a
development stage enterprises) as of May 31, 2000 and the related statement of
operations and retained earnings (accumulated Deficits), statement of
shareholders' equity, and the statement of cash flows for the period then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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, as well, as evaluating the overall financial statement
presentation. I believe that my audit provide a reasonable basis for my opinion.
In my opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of Capital Growth System, Inc. as of
May 31, 2000, the result of operations, and its cash flows for the period then
ended in conformity with generally accepted accounting principles.
/s/ Bruce Reingold
----------------------
Bruce Reingold
Certified Public Accountant
June 12, 2000
F-1
<PAGE>
CAPITAL GROWTH SYSTEMS, INC.
(A Development Stage Enterprises)
Balance Sheet
MAY 31,2000
ASSETS
Current assets:
Cash and cash equivalents $ 4,656
Total assets $ 4,656
--------------
Liabilities and Shareholders' Equity
--------------
Current liabilities:
Account payable $ 1,500
Commitment and contingencies 0
Shareholders' equity:
Common stock, $0001 par value, 25,000,000
shares authorized, 931,500 shares issued
and outstanding 93
Capital in excess of par value 4,722
Accumulated deficit (1,659)
--------------
$ 4,656
==============
READ ACCOMPANYING NOTES TO FINANCiAL STATEMENTS
F-2
<PAGE>
CAPITAL GROWTH SYSTEMS, INC
(A development Stage Enterprise)
Statement of Operations and Accumulated Deficit
Period from
September 29,1999
(inception ) to
MAY 31, 2000
-----------------
Revenue $ 0
Cost of Sales 0
--------
Gross profit 0
Expenses:
Legal and Accounting (1,500)
Licenses & Permits (159)
--------
Net loss for period (1,659)
Retained earnings-beginning of period 0
Accumulated deficit-end of period (1,659)
Weighted average number of shares outstanding
during the period-basis undiluted 931,500
--------
Net loss per share-basis and diluted $(.00178)
--------
READ ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE>
CAPITOL GROWTH SYSTEMS, INC.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
Period from
September 29, 1999
(Inception) to
May 31, 2000
------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($1,659.00)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED FROM OPERATING ACTIVITIES:
Increase in payables 1,500.00
----------
NET CASH PROVIDED BY OPERATING ACTIVITIES: (159.00)
CASH FLOWS FROM INVESTING ACTIVITIES: 0.00
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 4,815.00
NET INCREASE IN CASH 4,656.00
----------
CASH-BEGINNING OF PERIOD 0.00
CASH-END OF PERIOD $ 4,656.00
==========
READ ACCOMPANYING NOTES TO FINANC1AL STATEMENTS
F-4
<PAGE>
CAPITOL GROWTH SYSTEMS, INC.
(A Development Stage Enterprise)
STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
COMMON SHARES CAPITAL RETAINED EARNINGS
Capital in Excess Accumulated
Number Amount of Par Value Deficit Total
------ ------ -------------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance-September 29, 1999 0 0 0 0 0
(inception)
Issuance of Common Stock 931,500 93 4722 - 4,515
Net Loss-inception to
May 31,2000 0 0 0 (1,659) 1,659
Balance-May 31, 2000 931,500 93 4,722 (1,659) 3,156
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READ ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-5-
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CAPITAL GROWTH SYSTEMS, INC.
(A Development Stage Enterprises)
Notes to Financial Statements
MAY31, 2000
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
a) Organization
Capital Growth Systems, (a development stage enterprise) the
"Company" was incorporated in Florida on September 29, 1999
(inception of development stage). The Company intends to serve
as a vehicle to effect as asset acquisition, merger, exchange of
capital stock or other business combination with a domestic or
foreign business. At May 31, 2000, the company had not yet
commenced any formal business operations and all activity to
date related to the Company formation, capital stock issuance's,
professional fees with regard to proposed Securities and
Exchange Commission filing and identification of target
businesses. The Company's calendar year end is December 31.
b) Use of Estimates
In preparing financial statements to conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that effect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and
revenues and expenses during the reported period.
Actual results could differ from those estimates.
c) Cash and cash equivalents
For purposes of the cash flow statements, the Company considers
all highly liquid investments with original maturates of three
months or less at the time of purchase to be cash equivalents
d) Income Taxes
The Company accounts for income taxes under the financial
Accounting Standards Board Statement of financial Accounting
Standards No. 109 "Accounting for Income Taxes" (Statement
109). Under Statement 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled.
F-6
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INDEX TO EXHIBITS
Exhibit No. Description
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3.1 Articles of Incorporation
3.2 Bylaws
4.1 Specimen of Common Stock Certificate
27.1 Financial Data Schedule
