SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER
Section 12(b) or 12(g) of the
Securities Exchange Act of 1934
--------------------------
The Flag Group, Inc.
--------------------------
(Exact name of Registrant as specified in its charter)
Florida 65-0993932
------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3000 NE 30 Place, Suite 107
Fort Lauderdale, Florida 33306
------------------------------- -------------------------------
(Address of Principal Executive Officer) Zip Code
954-564-6994
-------------------------------------------
Registrant's Telephone Number and Area Code
--------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
TO BE ON WHICH EACH CLASS IS TO
REGISTERED BE REGISTERED
------------------------------- -------------------------------
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, .001 par value per share
-------------------------------------------
(Title of Class)
Copies of Communications Sent to: Gerald W. Gritter, Esq. and Joel Martin
McTague, Esq., c/o English McCaughan & O'Bryan, P.A., 100 NE Third Avenue, Suite
1100, Fort Lauderdale, Florida 33301. Telephone: (954-462-3300) Fax:
(954-763-2439)
<PAGE>
Item 1. Description of Business.
The Flag Group, Inc. (the "Company") was incorporated on February 4, 2000, under
the laws of the State of Florida. The Company was formed as a result of a
spin-off to shareholders of assets previously acquired by Mobilevest, Inc.
("Mobilevest"), from Signature Financial Services, Inc., ("Signature"). Both
Mobilevest and Signature were engaged primarily in the purchase, rental and
operation of mobile home parks in Florida. Mobilevest's acquisition of
Signature's assets was primarily an effort to increase Mobilevest's management
depth by adding Signature's principals to the management team. Following the
acquisition, however, differences arose among the combined management as to the
proper direction of Mobilevest. Therefore, it was determined to separate
Mobilevest into two companies, one operated by the historical Mobilevest
management and one operated by the former Signature management. This was
accomplished through the formation of the Company and the subsequent spin-off of
the Company to the Mobilevest shareholders. Mobilevest shareholders received
approximately one (1) share of the Company for every two (2) shares of
Mobilevest owned on February 18, 2000, the record date for the spin-off. (See
"Description of the Securities".) Though its initial intent was to acquire and
operate mobile home parks, the Company chose not to pursue this industry after
evaluating its prospects and chose instead to seek out other possible business
acquisitions, combinations, operations or other business plans.
Currently, the Company has no commercial operations and its activities to date
have been organizational in nature. The Company is currently in its
developmental stage. The Company has no full time employees, owns no real estate
and since inception has been concerned primarily with developing its business.
The Company's current business plan is to seek out business opportunities
through merger or acquisition. Because the Company has no other capital, it is
unlikely that the Company will be able to take advantage of more than one such
business opportunity. To benefit our stockholders, the Company intends to seek
opportunities demonstrating the potential of long-term growth.
The Company is evaluating various business opportunities but to date, 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 is filing this Form 10-SB on a
voluntary basis to become a 12 (g) registered company under the Securities
Exchange Act of 1934 and is under no obligation to do so. As a "reporting
company", the Company may be more attractive to a private acquisition target
because it may be listed to trade its shares on the OTC Bulletin Board.
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. No
assurances can be given that the Company will be able to develop a
2
<PAGE>
business plan satisfactory to management or the nature of the industry which the
Company may ultimately choose.
FACTORS THAT MAY AFFECT OUR FUTURE RESULTS AND MARKET PRICE OF STOCK
The Company's business is subject to numerous risk factors, including the
following:
THE COMPANY HAS NO OPERATING HISTORY OR REVENUE AND MINIMAL ASSETS. In its
current form, the Company has no operating history nor any revenues or earnings
from operations. The Company has no significant assets or financial resources.
The Company will, in all likelihood, sustain operating expenses without
corresponding revenues, at least until the consummation of a business
combination or the execution of a business plan. This may result in the Company
incurring a net operating loss which will increase continuously until the
Company can generate revenues. There is no assurance that the Company can
identify such a target company and consummate such a business combination.
THE COMPANY'S PROPOSED OPERATIONS ARE SPECULATIVE. The success of the Company's
proposed plan of operation will depend to a great extent on the operations,
financial condition and management of the business plan or proposed target
company. While management prefers a business combination with entities having
established operating histories, there can be no assurance that the Company will
be successful in locating candidates meeting such criteria. In the event the
Company completes a business combination, of which there can be no assurance,
the success of the Company's operations will be dependent upon management of the
target company and numerous other factors beyond the Company's control.
THERE IS A SCARCITY OF, AND COMPETITION FOR, BUSINESS OPPORTUNITIES AND
COMBINATIONS. The Company is and will continue to be an insignificant
participant in the business of seeking mergers with and acquisitions of business
entities. A large number of established and well-financed entities, including
venture capital firms, are active in mergers and acquisitions of companies which
may be merger or acquisition target candidates for the Company. Nearly all such
entities have greater financial resources, technical expertise and managerial
capabilities than the Company and, consequently, the Company will be at a
competitive disadvantage in identifying possible business opportunities and
successfully completing a business combination. Moreover, the Company will
compete with numerous other small public companies in seeking merger or
acquisition candidates.
THE COMPANY HAS NO AGREEMENT FOR A BUSINESS COMBINATION OR OTHER TRANSACTION AND
NO STANDARDS FOR BUSINESS COMBINATIONS. The Company has no current arrangement,
agreement or understanding with respect to engaging in a merger with or
acquisition of a specific business entity. The Company may not be successful in
identifying and
3
<PAGE>
evaluating suitable business opportunities or in concluding a business
combination. Management has not identified any particular industry or specific
business within an industry for evaluation by the Company. The Company may not
be able to negotiate a business combination on terms favorable to the Company.
The Company has not established a specific length of operating history or a
specified level of earnings, assets, net worth or other criteria which it will
require a target company to have achieved, or without which the Company would
not consider a business combination with such business entity. Accordingly, the
Company may enter into a business combination with a business entity having no
significant operating history, losses, limited or no potential for immediate
earnings, limited assets, negative net worth or other negative characteristics.
THE COMPANY'S MANAGEMENT HAS ONLY LIMITED TIME AVAILABILITY FOR COMPANY
MANAGEMENT. While seeking a business combination, management anticipates
devoting only a limited amount of time per month to the business of the Company.
They have other business interests to which they also devote their attention,
and they will continue to do so. As a result, management may be subject to
conflicts of interest in allocating time among their various business interests.
The Company's officers have not entered into written employment agreements with
the Company and they are not expected to do so in the foreseeable future. The
Company has not obtained key man life insurance on its officers and directors.
Notwithstanding the combined limited experience and time commitment of
management, loss of the services of these individuals would adversely affect
development of the Company's business and its likelihood of continuing
operations.
THE COMPANY'S 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 statements for the company acquired covering
one or two years, depending on the relative size of the acquisition. The time
and additional costs that may be incurred by some target companies to prepare
such financial statements may significantly delay or essentially preclude
consummation of an otherwise desirable acquisition by the Company. Acquisition
prospects that do not have or are unable to obtain the required audited
statements may not be appropriate for acquisition so long as the reporting
requirements of the Exchange Act are applicable.
THE COMPANY HAS NOT PERFORMED ANY MARKET RESEARCH OR DEVELOPED ANY MARKETING
ORGANIZATION. The Company neither has conducted, nor have others made available
to it, market research indicating that demand exists for the transactions
contemplated by the Company. Even in the event demand exists for whatever
business plan may get executed, there is no assurance the Company will be
successful in completing any such business combination.
THE COMPANY'S OPERATIONS WILL LIKELY LACK DIVERSIFICATION. The Company's
proposed operations, even if successful, will in all likelihood result in the
Company engaging in a business combination with only one business entity or
execute a business plan in one business industry. Consequently, the Company's
activities will be limited to those engaged in by the business
4
<PAGE>
entity that the Company merges with or acquires. The Company's inability to
diversify its activities into a number of areas may subject the Company to
economic fluctuations within a particular business or industry and therefore
increase the risks associated with the Company's operations.
POSSIBLE REGULATION UNDER THE INVESTMENT COMPANY ACT. Although the Company will
be subject to regulation under the Exchange Act, management believes the Company
will not be subject to regulation under the Investment Company Act of 1940,
insofar as the Company will not be engaged in the business of investing or
trading in securities. In the event the Company engages in business combinations
which result in the Company holding passive investment interests in a number of
entities, the Company could be subject to regulation under the Investment
Company Act of 1940. In such event, the Company would be required to register as
an investment company and could be expected to incur significant registration
and compliance costs. The Company has obtained no formal determination from the
Securities and Exchange Commission as to the status of the Company under the
Investment Company Act of 1940 and, consequently, any violation of such Act
could subject the Company to material adverse consequences.
CONTROL AND MANAGEMENT OF THE COMPANY WILL PROBABLY CHANGE AS A RESULT OF ANY
BUSINESS COMBINATION. A business combination involving the issuance of the
Company's common stock will, in all likelihood, result in shareholders of a
target company obtaining a controlling interest in the Company. The resulting
change in control of the Company will likely result in removal of the present
officers and directors of the Company and a corresponding reduction in or
elimination of their participation in the future affairs of the Company.
POTENTIAL REGULATION AS A PENNY STOCK. The trading price of the Company's Common
stock could be subject to wide fluctuations in response to many factors
including variations in anticipated or actual results of operations and market
conditions in the industries in which we operate. Trading in the Common stock is
expected to be conducted, at least initially, in the over-the-counter market in
what is commonly referred to as the OTC Bulletin Board. As a result, an investor
may find it more difficult to dispose of or obtain accurate quotations as to the
price of the Common stock which can limit the Company's ability to create and
sustain a viable market for its Common stock. Furthermore, if our share price is
below $5 per share, brokerage firms are required to make a special suitability
determination for purchasers and to obtain the purchaser's written consent to
the trade before making the sale. Accordingly, these rules may affect the
ability of broker-dealers to make effective markets in our securities and also
may affect adversely the ability of purchasers of the Company's stock to resell
the stock in the secondary market.
THERE ARE POTENTIAL TAX CONSEQUENCES TO ANY BUSINESS COMBINATION. Federal and
state tax consequences will, in all likelihood, be major considerations in any
business combination the Company may undertake. Currently, such transactions may
be structured to result in tax-free treatment to both companies and their
shareholders, pursuant to various federal and state tax provisions. The Company
intends to structure any business combination so as to minimize the federal and
state consequences to both companies and their shareholders; however, there can
be no
5
<PAGE>
assurance that a business combination will meet the statutory requirements of a
tax-free reorganization or that the parties will obtain the intended tax-free
treatment upon transfer of stock or assets. A non-qualifying reorganization
could result in the imposition of both federal and state taxes that may have an
adverse effect on shareholders of the Company.
NO PUBLIC MARKET EXISTS FOR THE COMPANY 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.
RULE 144 SALES COULD AFFECT THE COMPANY'S STOCK PRICE. All of the outstanding
shares of the Company's Common Stock 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 one year 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 company's outstanding common stock or the average weekly
trading volume during the four calender weeks prior to the sale. There is 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 registration 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.
Item 2. Plan of Operation.
The Company intends to merge with or acquire a business entity in exchange for
the Company's securities. The Company's management has had preliminary
discussions and performed limited investigations as to a few potential business
combinations, but at the present time, the Company has no particular acquisition
in mind and is not currently negotiating any acquisition.
Management anticipates seeking out a target company through solicitation. Such
solicitation may include newspaper or magazine advertisements, mailings or other
distributions to law firms, accounting firms, investment bankers, financial
advisors and similar persons, and the use of one or
6
<PAGE>
more world-wide websites and similar methods. No estimate can be made as to the
number of persons who will be contacted or solicited. Management may engage in
such solicitation directly or may employ one or more entities to conduct or
assist in such solicitation. The Company and/or any entity with which the
Company enters into a business combination may pay referral fees to consultants
and others who refer target businesses for mergers into public companies. Such
payments would be made only if a business combination occurs and may consist of
cash or a portion of the stock in the resulting company retained by management
and its affiliates or both.
The Company has no full-time employees. The Company's officers have agreed to
allocate a portion of their time to the activities of the Company without
compensation. The officers anticipate that the business plan of the Company can
be implemented by their devoting no more than ten (10) hours each month to the
business affairs of the Company. However, the officers may experience conflicts
of interest in allocating their time because of the limited time commitment by
such officer.
GENERAL BUSINESS PLAN
The Company's purpose is to seek, investigate and, if such investigation
warrants, acquire an interest in a business entity which desires to seek the
perceived advantages of a corporation which has a class of securities registered
under the Exchange Act. The Company will not restrict its search to any specific
business, industry or geographical location and the Company may participate in a
business venture of virtually any kind or nature. Management anticipates that it
will be able to participate in only one potential business venture because the
Company has nominal assets and limited financial resources. See Item F/S -
Financial Statements.
This lack of diversification should be considered a substantial risk to the
shareholders of the Company because it will not permit the Company to offset
potential losses from one venture against gains from another. The Company may
seek a business opportunity with entities which have recently commenced
operations or which wish to utilize the public market place in order to raise
additional capital in order to expand into new products or markets, to develop a
new product or service or for other corporate purposes. The Company may acquire
assets and establish wholly-owned subsidiaries and various businesses or acquire
existing businesses as subsidiaries. The Company anticipates that the selection
of the business opportunity in which to participate will be complex and
extremely risky. Management believes, but has not conducted any research to
confirm, that there are business entities seeking the perceived benefits of a
publicly registered corporation. Such perceived benefits may include
facilitating or improving the terms on which additional equity may be sought
providing liquidity for incentive stock options or similar benefits to key
employees, increasing the opportunity to use securities for acquisitions,
providing liquidity for shareholders and other factors. Business opportunities
may be available in many different industries and at various stages of
development, all of which will make the task of comparative investigation
analysis of such business opportunities difficult and complex. The Company has
and will continue to have no capital with which to provide the owners of the
business entities with any cash or other assets. Management believes, however,
the Company will be able to offer owners of acquisition candidates the
7
<PAGE>
opportunity to acquire a controlling ownership interest in a public company
without incurring the cost and time required to conduct an initial public
offering. Management has not conducted market research and is not aware of
statistical data to support the perceived benefits of a merger or acquisition
transaction for the owners of the business opportunity.
The analysis of new opportunities and businesses will be undertaken by or under
the supervision of the officers and directors of the Company. In analyzing
prospective business opportunities, management will consider such matters as the
available technical, financial and managerial resources, working capital and
other financial requirements, history of operations, if any, prospects for the
future, nature of present and expected competition, the quality and experience
of management services which may be available and the depth of that management,
the potential for further research, development or exploration, specific risk
factors not now foreseeable but which then may be anticipated to impact the
proposed activities of the Company, the potential for growth or expansion, the
potential for profit, the perceived public recognition or acceptance of product
services or trades, name identification, and other relevant factors. This
discussion of the proposed criteria is not meant to be restrictive of the
Company's virtually unlimited discretion to search for and enter into potential
business opportunities.
The Exchange Act requires that any merger or acquisition candidate comply with
certain reporting requirements which include providing audited financial
statements to be included in the filings made under the Exchange Act. The
company will not acquire or merge with any company for which audited financial
statements cannot be obtained at or within a reasonable period of time after
closing of the proposed transaction.
The Company may enter into a business combination with a business entity that
desires to establish a public trading market for its shares. A target company
may attempt to avoid what it deems to be adverse consequences of undertaking its
own public offering by seeking a business combination with the Company. Such
consequences may include, but are not limited to, time delays of the
registration process, significant expenses to be incurred in an offering, loss
of voting control to public shareholders, or the inability to obtain an
underwriter or to obtain an underwriter on satisfactory terms.
The Company will not restrict its search for any specific kind of business
entity may acquire a venture which is in its preliminary or development stage
which is already in operation or essentially any stage of its business life. It
is impossible to predict at this time the stage of any business in which the
Company may become engaged in that such business may need to seek additional
capital, may desire to have its shares publicly traded, or may seek other
perceived advantages which the Company may offer.
Management of the Company, which in all likelihood will not be experienced in
matters relating to the business of a target company, will rely upon its own
efforts in accomplishing the business
8
<PAGE>
purposes of the Company. Outside consultants or advisors may be utilized by the
company to assist in the search for qualified target companies. If the Company
does retain such outside consultant or advisor, any cash fee earned by such
person will need to be assumed by the target company as the company has limited
cash assets with which to pay such obligation.
Following a business combination, the Company may benefit from the services of
others in regard to accounting, legal services, underwriting, and corporate
public relations. If requested by a target company, management may recommend one
or more underwriters, financial advisors, accountants, public relation firms, or
other consultants to provide such services.
A potential target company may have an agreement with a consultant or advisor
providing that the services of the consultant or advisor be continued after any
business combination. Additionally, a target company may be presented to the
Company only on the condition that the services of a consultant or advisor be
continued after a merger or acquisition. Such pre-existing arrangements of
target companies for the continuation of services of attorneys, accountants,
advisors or consultants could be a factor in the selection of a target company.
ACQUISITION OF OPPORTUNITIES
In implementing a structure for a particular business acquisition, the Company
may become a party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another corporation or entity. It may also acquire
stock or assets of an existing business. On the consummation of the transaction,
it is likely that the present management and shareholders of the Company will no
longer be in control of the resulting company. In addition, it is likely that
the Company's officers and directors will, as part of the terms of the
acquisition transaction, resign and be replaced by one or more new officers and
directors.
We anticipate that any securities issued in such a reorganization would be
issued in reliance upon an exemption from registration under applicable federal
and state security laws. In some circumstances, however, as a negotiated element
of its transaction, the Company may register for resale all or part of such
securities immediately after the transaction is consummated or at a specified
time thereafter. If such a registration occurs, it will be undertaken by the
surviving entity after the Company has entered into an agreement for the
business combination or has consummated a business combination and the Company
is no longer considered a blank-check company. Until such time as this occurs,
the Company does not intend to register any additional securities. The issuance
of additional securities and their potential sale into any trading market which
may develop in the Company's securities.
While the terms of the business transaction to which the Company may be a party
cannot be predicated, it is expected that the parties to the business
transaction will desire to avoid the creation
9
<PAGE>
of a taxable event and thereby structure the acquisition in a tax-free
reorganization under Section 351or 368 of the Internal Revenue Code of 1986 as
amended.
With respect to any merger or acquisition negotiations with a target company,
management expects to focus on the percentage of the Company which target
company shareholders would acquire in exchange for their shareholdings in the
target company, depending upon, among other things, the target company's assets
and liabilities. The Company's shareholders will be in all likelihood hold a
substantially lesser percentage of ownership in the Company following any merger
or acquisition. The percentage of ownership may be subject to significant
reduction in the event that the Company acquires a target company with
substantial assets. Any merger or acquisition affected by the Company can be
expected to have a significant dilutive effect on the percentage of shares held
by the Company's shareholders at such time.
The Company will participate in a business opportunity only after the
negotiation and execution of appropriate agreements. Although the terms of such
agreements cannot be predicted, generally such agreements will require certain
representations and warranties of the parties, will specify certain events of
default, will detail the terms of closing and the conditions which must be
satisfied prior to and after closing, will outline the manner of bearing costs
associated with the transaction and will include miscellaneous other terms.
The Company will not acquire or merge with any entity that cannot provide
audited financial statements at or 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 Exchange Act. Included in these
requirements is the duty of the company to file audited financial statements as
part of or within sixty days following the filing of a Form 8K with the
Securities and Exchange Commission upon consummation of a merger or acquisition,
as well as including the Company's audited financial statements in its annual
report on form 10K or 10K-SB, as applicable. If such audited financial
statements are not available at the closing, or within a time parameter
necessary to insure the company's compliance with the requirements of the
Exchange Act, or if the audited financial statements provided do not conform to
the representations made by the target company, the closing documents may
provide that the proposed transaction will be voidable at the discretion of the
present management of the company.
COMPETITION
The Company expects to encounter substantial competition in its efforts to
locate attractive business opportunities. This competition is expected to come
primarily from business development affiliate companies, venture capital
partnerships and corporations, venture capital company affiliates of large
10
<PAGE>
industrial and financial companies, small investment companies and wealthy
individuals. Many of these entities have significantly greater financial and
personnel resources and technical expertise than the company. The company also
may experience competition from other public shell companies, some of which may
have more funds available than the Company. As a result of the Company's
combined extremely limited financial resources and limited management
availability, the Company will continue to be at a significant competitive
disadvantage compared to the Company's competitors.
Results of Operations for the Period from February 4, 2000 (Inception) through
September 30, 2000
There were no revenues for the Company for February 4, 2000 (Inception) through
September 30, 2000. Since the Company is a Development Stage Enterprise, no
revenue is expected until 2001 or 2002.
With regard to operating expenses, professional fees were $13,744, depreciation
expenses were $3,556 and office expenses were $745for the period from February
4, 2000 (Inception) through September 30, 2000. Expenses are expected to be
similar on a pro-rata basis for the remainder of 2000.
LIQUIDITY AND CAPITAL RESOURCES for the Period from February 4, 2000 (Inception)
through September 30, 2000
Cash used by operating activities was $2,023 for February 4, 2000 (Inception)
through September 30, 2000. During that period $6,000 of cash was provided by
shareholder loans. It is anticipated that major shareholders will continue to
provide financing until the companies business plan is achieved.
Working Capital is $2,511 at September 30, 2000.
OTHER
This report contains forward-looking statements and information that is based on
management's beliefs and assumptions, as well as information currently available
to management. When used in this document, the words "anticipate," "estimate,"
"expect," "intend" and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or expected.
11
<PAGE>
Item 3. Description of Property.
The Company has no property. The Company currently does not maintain an office
or any other facilities. It maintains a mailing address at 3000 NE 30 Place,
Suite 107, Fort Lauderdale, Florida. The Company pays no rent for the use of
this mailing address. The Company does not believe that it will need to maintain
an office at any time in the foreseeable future in order to carry out its plan
of operations described herein.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following tables set forth certain information regarding the ownership of
the common stock as of September 30, 2000, by each person or entity known by us
to be beneficial owner of more than 5% of the outstanding shares, directors and
officers individually and the directors and executive offices as a group.
--------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES OWNED PERCENTAGE OF
OUTSTANDING STOCK
OWNED
--------------------------------------------------------------------------------
Cede & Co. 1,096,602 20.7%
--------------------------------------------------------------------------------
Southern Companies (1) 852,333 16.1%
--------------------------------------------------------------------------------
Charles Tokarz (2) 220,431 4.2%
--------------------------------------------------------------------------------
Stephen McConihay 871,52 16.4%
--------------------------------------------------------------------------------
Theodore F. Bertuca (3) 1,065,192 20.1%
--------------------------------------------------------------------------------
Officers and Directors as a 3,009,477 56.8%
Group
--------------------------------------------------------------------------------
(1) Mr. Welsh, the Company's President, is the President and a Director of the
Southern Companies.
(2) Includes 20,431 shares held jointly by Mr. Tokarz and his wife.
(3) Includes 193,671 shares held by a party related to Mr. Bertuca of which Mr.
Bertuca disclaims beneficial ownership and exercises no voting control.
12
<PAGE>
Item 5. Directors and Executive Officers, Promoters and Control Persons.
Jeffrey Dale Welsh President and Director
Theodore F. Bertuca Vice President and Director
Stephen McConihay Vice President, Secretary and Director
Charles Tokarz Chief Financial Officer and Director
Jeffrey Dale Welsh has been the President and Director of the Company since
Inception. Since September 1995, Mr. Welsh has been President of Southern
Financial Services, a firm specializing in outsourcing of accounting, finance
and administrative functions. In January, 1999, Mr. Welsh became President of
Strategic Investors Group, a company specializing in financial public relations.
In 1998 and 1999, Mr. Welsh was a director of Bullhide Corporation, a publicly
traded company. He practiced law in New York for approximately thirteen years,
with an emphasis on securities law. Mr. Welsh is a graduate of the U.S. Naval
Academy, having served in the U.S. Navy for five years. He is also a graduate of
the University of Pittsburgh School of Law.
Theodore F. Bertuca has been Vice President and a Director of the Company since
inception. He owns several restaurants.
Stephen McConihay's professional experience includes serving as President of The
Signature Financial Services, Inc., which is located in Zephyr hills, Florida.
In this role, Mr. McConihay has been involved in the purchase, finance and
operation of properties valued at over $75,000,000. As President of Signature,
he was responsible for the management of 4,000 mobile home sites. Additionally,
Mr. McConihay co-developed the Park Co-Op Program for the resident purchase of
mobile home parks resulting in a defined exit strategy for enhanced park value.
While working as a dealer at Arbor Homes Sales, Mr. McConihay helped develop
site rental programs for mobile home parks, and directed the sales, finance,
installation and maintenance of home sales.
Charles Tokarz is the Chief Financial Officer and Director of the Company since
inception. Prior to joining the Company, Mr. Tokarz served from 1997 to 1998 as
Chief Financial Officer and Treasurer for Silver Star International, Inc., a
publicly traded wholesale distributor of clothing and novelty items, in 1999 as
Chief Financial Officer of Bullhide, Corp., a publicly traded company, and Chief
Financial Officer of Mobilevest, Inc., a now bankrupt corporation. He serves on
the Board of Directors of Icy Splash Food and Beverage, Inc., Synergistic
Capital Resources, Corp, and Select CFO Partners, Inc. Since January 2000, Mr.
Tokarz has been President of Select CFO Partners, Inc., a firm specializing in
the outsourcing of accounting, finance, and administrative functions to small
businesses. From 1987 to 1997, he was self-employed as a Certified Public
Accountant ("CPA"). From 1986 to 1987, Mr. Tokarz served as President of Gardner
Capital, Corp., a small NASD broker-dealer specializing in equity financing for
real estate projects. From 1987 to 1986, he served
13
<PAGE>
as Vice President of Finance for Retirement Corporation of America, a developer
and manager of elderly housing and nursing home facilities. From 1978 to 1987,
he served as Vice President and Controller for Fininvest, Ltd. and Appalachian
Joint Venture, developers of luxury condominium s and office buildings. From
1976 to 1978, he served as Comptroller of the California Club, Inc., a country
club owned by Caesar's World, Inc., a company listed on the New York Stock
Exchange. He is a CPA and has over 20 years of business, financial and financial
planning experience. Mr. Tokarz holds a BS and an MBA from the University of
Massachusetts.
INVESTMENT COMPANY ACT OF 1940.
Although the Company may participate in a business opportunity by purchasing,
trading or selling the securities of such business, the Company does not 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 and, therefore, to avoid application of
the costly and restrictive registration and other provisions of that Act and the
regulations promulgated thereunder. In the event, however, that the Company
engages in business combinations which result in the Company holding passive
investment interest in a number of entities, the Company will be subject to
regulation under the Investment Company Act of 1940. In such event, the Company
would be required to register as an Investment Company and could be expected to
incur significant registration and compliance costs. The Company has obtained no
formal determination that the Securities and Exchange Commission as to the
status of the Company under the Investment Company Act of 1940. Any violation of
such act would subject the Company to material adverse consequences.
Item 6. Executive Compensation.
The table below summarizes the annual compensation for service capacities to the
Company for the (i) person serving as our Chief Executive Officer; and (ii) all
other officers for the last fiscal year:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
NAME TITLE SALARY/ BONUS AWARDS
FISCAL YEAR
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jeffrey Dale Welsh President 0 0 0
--------------------------------------------------------------------------------------------------------------
Theodore F. Bertuca Vice President 0 0 0
--------------------------------------------------------------------------------------------------------------
Stephen McConihay Vice President and 0 0 0
Secretary
--------------------------------------------------------------------------------------------------------------
Charles Tokarz Chief Financial 0 0 0
Officer
--------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Item 7. Certain Relationships and Related Transactions.
There have been no transactions between the Company and related parties.
Item 8. Description of Securities.
COMMON STOCK
GENERAL. The Company is authorized to issue 10,000,000 shares of Common Stock,
$.001 par value per share. At September 30, 2000, there were 5,300,000 shares
issued and outstanding. All shares of Common Stock outstanding are validly
issued, fully paid and non-assessable.
VOTING RIGHTS. Each share of Common Stock entitles the holder thereof to one
vote, either in person or by proxy, at meetings of shareholders. The holders are
not permitted to vote their shares cumulatively. Accordingly, the holders of
Common Stock holding, in the aggregate, more than fifty percent (50%) of the
total voting rights can elect all of the directors of the Company.
DIVIDEND POLICY. All shares of Common Stock are entitled to participate ratably
in dividends when and as declared by the Company's Board of Directors out of the
funds legally available therefore and subject to the rights, if any, of the
holders of outstanding shares of preferred stock. Any such dividends may be paid
in cash, property or additional shares of Common Stock. The Company has not paid
any dividends since its inception and presently anticipates that all earnings,
if any, will be retained for development of the Company's business and that no
dividends on the shares of Common Stock will be declared in the foreseeable
future. Any future dividends will be subject to the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
the operating and financial condition of the Company, is capital requirements,
general business conditions and other pertinent facts. Therefore, there can be
no assurance that any dividends on the Common Stock will be paid in the future.
MISCELLANEOUS RIGHTS AND PROVISIONS. Holders of Common Stock have no preemptive
or other subscription rights, conversion rights, redemption or sinking fund
provisions. In the event of the dissolution, whether voluntary or involuntary,
of the Company, each share of Common Stock is entitled to share ratably in any
assets available for distribution to holders of the equity of the Company after
satisfaction of all liabilities and payment of the applicable liquidation
preference of any outstanding shares of Preferred Stock.
15
<PAGE>
SPIN-OFF. On February 18, 2000, Mobilevest distributed to its shareholders pro
rata all shares of common stock of the Company. The Company's shares distributed
to Edgar Fox, the Chief Executive Officer of Mobilevest, and his affiliates,
were then exchanged with the Company's management for all interests in
Mobilevest held by the Company's management.
CERTAIN FLORIDA LEGISLATION. Florida has enacted legislation that may deter or
frustrate takeovers of Florida corporations. The Florida Control Share Act
generally provides that shares acquired in excess of certain specified
thresholds will not possess any voting rights unless such voting rights are
approved by a majority or a corporation's disinterested shareholders. The
Florida Affiliated Transactions Act generally requires super majority approval
by disinterested shareholders of certain specified transactions between a public
corporation and holders of more than 10% of outstanding voting shares of
corporation (or their affiliates). In addition, Florida law presently limits the
personal liability of corporate directors for monetary damages, except where the
directors (i) breach their fiduciary duties and (ii) such breach constitutes or
includes certain violations of criminal law, a transaction from which the
directors derived an improper person benefit, certain unlawful distributions or
certain reckless, wanton or willful acts or misconduct.
PREFERRED SHARES
The Company is authorized to issue 50,000,000 shares of Preferred Stock, $ .001
par value per share. At September 30, 2000, there were no shares issued and
outstanding. The board of directors has wide latitude in determining the rights
and preferences of such series of stock. The board of directors, without
stockholder approval, can issue preferred stock with voting, conversion or other
rights that could adversely affect the voting power and other rights of the
holders of common stock. Preferred stock could thus be issued quickly with terms
calculated to delay or prevent a change in control of the Company or make
removal of management more difficult. Additionally, the issuance of preferred
stock may have the effect of decreasing the market price of the common stock,
and may adversely affect the voting and other rights of the holders of common
stock.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
16
<PAGE>
MARKET PRICE
There is no trading market for the Company's Common Stock at present and there
can be no assurance that any trading market will ever develop or, if such a
market does develop, that it will continue.
The Securities and Exchange Commission has 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 that $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 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.
In order to qualify for listing on the Nasdaq SmallCap Market, a company must
have at least (i) net tangible assets of $4,000,000 or market capitalization of
$50,000,000 or net income for two of the last three years of $750,000; (ii)
public float of 1,000,000 shares with a market value of $5,000,000; (iii) a bid
price of $4.00; (iv) three market makers; (v) 300 shareholders and (vi) an
operating history of one year or, if less than one year, $50,000,000 in market
capitalization. For continued listing on the Nasdaq SmallCap Market, a company
must have at least (i) net tangible assets of $2,000,000 or market
capitalization of $35,000,000 or net income for two of the last three years of
$500,000; (ii) a public float of 500,000 shares with a market value of
$1,000,000; (iii) a bid price of $1.00; (iv) two market makers; and (v) 300
shareholders.
If, after a merger or acquisition, the Company does not meet the qualifications
for listing on the Nasdaq SmallCap Market, the Company's securities may be
traded in the over-the-counter ("OTC") market. The OTC market differs from
national and regional stock exchanges in that it (1) is not sited in a single
location but operates through communication of bids, offers and confirmations
between broker-dealers and (2) securities admitted to quotation are offered by
one or more broker-dealers rather than the "specialist" common to stock
exchanges. The Company may apply for listing on the
17
<PAGE>
NASD OTC Bulletin Board or may offer its securities in what are commonly
referred to as the "pink sheets" of the National Quotation Bureau, Inc. To
qualify for listing on the NASD OTC Bulletin Board, an equity security must have
one registered broker-dealer, known as the market maker, willing to list bid or
sale quotations and to sponsor the company for listing on the Bulletin Board.
If the Company is unable initially to satisfy the requirements for quotation on
the Nasdaq SmallCap Market or becomes unable to satisfy the requirements for
continued quotation thereon, and trading, if any, is conducted in the OTC
market, 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.
Item 2. Legal Proceedings.
There is no litigation pending or threatened by or against the Company.
Item 3. Changes in and Disagreements with Accountants.
The Company has not changed accountants since its formation and there are no
disagreements with the findings of its accountants.
Item 4. Recent Sales of Unregistered Securities.
The Company, upon its creation, issued 5,000,000 shares of Common Stock to
Mobilevest on February 7, 2000. These shares were distributed to Mobilevest's
shareholders effective as of February 18, 2000.
Item 5. Indemnification of Directors and Officers.
INDEMNIFICATION PROVISIONS OF FLORIDA LAW AND OF THE COMPANY'S INCORPORATION AND
BYLAWS
Florida law presently provides that in the case of a nonderivative action (that
is, an action other than by or in the right of a corporation to procure a
judgment in its own favor), a corporation has the power to indemnify any person
who was or is a party or is threatened to be made a party to any proceeding by
reason of the fact that the person is or was an agent of the corporation,
against
18
<PAGE>
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with the proceeding that if that person acted
in good faith an in a manner the person reasonably believed to be the best
interests of the corporation and, in the case of a criminal proceedings, had no
reasonable cause to believe that the conduct of the person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction, or
upon a pleas of nolo contendere or its equivalent does not, of itself, create a
presumption that the person did not act in good faith and in a manner that the
person reasonably believed to be in the best interests of the corporation or
that the person had reasonable cause to believe that the person's conduct was
unlawful.
With respect to derivative actions, Florida law provides that a corporation has
the power to indemnify any person who was or is a party or is threatened,
pending or completed action by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was an agent
of the corporation, against expenses actually and reasonably incurred by that
person in connection with the defense or settlement of the action if the person
acted in good faith, in a manner the person believed to be in the best interests
of the corporation and its shareholders. Indemnification is not permitted to be
made in respect of any claim, issue, or matter as to which the person shall have
been adjudged to be liable to the corporation in the performance of that
person's duty to the corporation and its shareholders, unless and only to the
extent that the court in which the proceeding is or was pending determines that,
in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnify for expenses, and then only to the extent that
the court shall determine.
19
<PAGE>
PART F/S
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Shareholders
The Flag Group, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying balance sheet of The Flag Group, Inc. (a
development stage company) as of September 30, 2000, and the related statement
of operations, changes in shareholders' equity and cash flows for the period
from inception (February 4, 2000) to September 30, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Flag Group, Inc. (a
development stage company) as of September 30, 2000, and the results of its
operations and its cash flows for the period then ended in conformity with
generally accepted accounting principles.
------------------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
November 10, 2000
20
<PAGE>
THE FLAG GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
<S> <C>
-ASSETS-
CURRENT ASSETS:
Cash $ 3,977
Prepaid expenses 12,456
----------
TOTAL CURRENT ASSETS 16,433
----------
FIXED ASSETS (Note 2c):
Office furniture and equipment 20,000
Computer software 4,000
----------
24,000
Less: accumulated depreciation 3,566
----------
20,444
----------
$ 36,877
==========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
CURRENT LIABILITIES:
Accounts payable $ 5,522
Accrued expenses and other current liabilities 2,400
Shareholders' loans (Note 3) 6,000
----------
TOTAL CURRENT LIABILITIES 13,922
----------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY (Note 4):
Preferred stock, $.001 par value, 50,000,000 shares authorized,
no shares issued and outstanding --
Common stock, $.001 par value, 10,000,000 shares authorized,
5,300,000 shares issued and outstanding 5,300
Additional paid-in capital 35,700
Deficit accumulated during the development stage (18,045)
----------
22,955
----------
$ 36,877
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
THE FLAG GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 4, 2000 (INCEPTION) THROUGH SEPTEMBER 30, 2000
REVENUES: $ --
----------
OPERATING EXPENSES:
Professional fees 13,744
Depreciation 3,556
Office expense 745
----------
18,045
NET LOSS: $ (18,045)
==========
LOSS PER SHARE (Note 2g):
Basic and diluted $ (0.01)
===========
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
THE FLAG GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FEBRUARY 4, 2000 (INCEPTION) THROUGH SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
----------------------------- Paid-in Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
At Inception, February 4, 2000 -- $ -- $ -- $ -- $ --
Issuance of common stock 5,000,000 5,000 19,000 24,000
Shares issued for services (Note 4) 300,000 300 16,700 -- 17,000
Net loss, September 30, 2000 -- -- -- ( 18,045) (18,045)
--------- ------ -------- -------- -------
BALANCE, SEPTEMBER 30, 2000 5,300,000 5,300 35,700 ($18,045) $22,955
========= ====== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
PART F/S
FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS
(A DEVELOPMENT STATE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FEBRUARY 4, 2000 (INCEPTION) THROUGH SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(18,045)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 3,556
Compensatory stock - professional fees 6,544
Changes in assets and liabilities:
Increase in prepaid expenses (2,000)
Increase in accounts payable 5,522
Increase in accrued expenses and other current liabilities 2,400
--------
Net cash used by operating activities (2,023)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shareholders loans 6,000
--------
Net cash provided by financing activities 6,000
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,977
Cash and cas equivalents, at February 4, 2000 --
--------
CASH AND CASH EQUIVALENTS, AT SEPTEMBER 30, 2000 $ 3,977
========
SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Fixed assets exchanged for common stock as a result of spin-off $ 24,000
Common stock issued for services rendered $ 17,000
Interest paid $ --
Taxes paid $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
THE FLAG GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 - NATURE OF BUSINESS:
THE FLAG GROUP, INC. (the "Company") was incorporated on
February 4, 2000 under the laws of the State of Florida and
was formed as a result of a spin-off of assets previously
owned by Mobilevest, Inc. Though its initial intent was to
acquire and operate mobile home parks, the Company chose not
to pursue this industry after evaluating its prospects and
chose instead to seek out other possible business
acquisitions, combinations, operations or other business
plans. The Company has been in the development stage in
accordance with Statement of Financial Accounting Standards
No. 7, since its inception. Principal operations of the
Company have not yet commenced.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with
generally accepted accounting principles. Outlined below are
those policies considered particularly significant.
(a) Use of Estimates:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that affect the
reported financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. While
actual results could differ from these estimates, management
does not expect such variances, if any, to have a material
effect on the financial statements.
(b) Concentration of Credit Risk/Fair Value:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash.
The Company, from time-to-time may maintain cash balances
which exceed the federal depository insurance coverage limit.
The Company will perform periodic reviews of the relative
credit rating of its bank to lower its risk.
The carrying amounts of cash, accounts payable and accrued
expenses approximate fair value due to the short-term nature
of these items.
(c) Fixed Assets and Depreciation:
Fixed assets are reflected at cost. Depreciation and
amortization are provided on a straight-line basis over the
following useful lives:
Office Furniture and equipment 5 years
Computer software 3 years
25
<PAGE>
THE FLAG GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Maintenance and repairs are charged to expense as incurred;
major renewals and betterments are capitalized.
(d) Income Taxes:
The company utilizes Financial Accounting Standard Board
Statement No. 109, "Accounting for Income Taxes" ("SFAS 109"),
which requires the use of the asset and liability approach of
providing for income taxes. SFAS 109 requires recognition of
deferred taxes liabilities and assets for the expected future
tax consequences of events that have been included in the
financial statements or tax returns. Under this method
deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse.
Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
(e) Statements of Cash Flows:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents.
(f) Comprehensive Income:
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130 "Reporting Comprehensive Income" ("SFAS
130"),. which prescribes standards for reporting other
comprehensive income and its components. Since the Company
currently does not have any items of other comprehensive
income, a statement of comprehensive income is not yet
required.
(g) Earnings (Loss) Per Share:
The Company has adopted Financial Accounting Standards Board
Statement No. 128 "Earnings Per Share" ("SFAS 128"), which has
changed the method of calculating earnings (loss) per share.
SFAS 128 requires the presentation of basic and diluted
earnings (loss) per share on the face of the statement of
operations. Earnings (loss) per common share is computed by
dividing net income by the weighted average number of common
shares outstanding and for diluted earnings (l9ss) per share,
also common equivalent shares outstanding.
The following average shares were used for the computation of
basic and diluted earnings (loss) per share:
Basic and diluted 2,597,879
26
<PAGE>
THE FLAG GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(h) Stock-Based Compensation:
Financial Accounting Standards Board Statement No. 123
"Accounting For Stock Based Compensation" ("SFAS 123")
requires the Company to either record compensation expense or
to provide additional disclosure with respect to stock awards
and stock option grants made after December 31, 1994. The
accompanying notes to financial statements include the
disclosures required by SFAS No. 123.
NOTE 3 - DUE TO SHAREHOLDERS
At September 30, 2000, the Company owed an aggregate of $6,000
to two of its shareholders. These loans, which are non
interest bearing, are anticipated to be repaid within the next
12 month period.
NOTE 4 - CAPITAL STOCK
The Flag Group, Inc. was formed as a result of a spin-off to
shareholders of assets previously owned by Mobilevest, Inc.
("Mobilevest"). Mobilevest shareholders received approximately
one share of common stock of the Company for every two shares
of common stock of Mobilevest owned on February 18, 2000. Of
10,000,000 authorized shares of common stock at $.001 par
value, 5,000,000 shares are issued and outstanding as a result
of the spin-off. The shares were recorded at the fair market
value of the assets spun-off to the Company.
Additionally, a law firm and a financial consulting firm have
been issued 100,000 and 200,000 shares of common stock,
respectively, as compensation for services rendered. These
additional shares were recorded for the fair market value of
the services, based on the firms' standard billing rates. The
law firm will be issued another 100,000 shares (see note 5).
NOTE 5 - COMMITMENTS AND CONTINGENCIES:
The Company entered into an agreement with a law firm to
provide services in order to successfully file a Form 10-SB
with the Securities and Exchange Commission. As part of the
consideration for these services, the Company would issue
200,000 shares of common stock, 100,000 shares upon acceptance
of the agreement and another 100,000 upon completion of the
assignment. The stock was valued at $.03 per share based on
the law firm's standard billing rates and time expended on
similar assignments. To date, 100,000 shares have been issued
and 100,000 remain to be issued. The accompanying financial
statements reflect compensation expense for both the issued
and unissued shares based on the estimated percentage of
completion of the law firm's assignment.
27
<PAGE>
PART III
Item 1. Index to Exhibits.
2.1 Articles of Incorporation
2.2 By Laws
23.1 Consent of Lazar Levine & Felix, LLP, Auditor to the Company
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
The Flag Group, Inc.
-----------------------------------
(Registrant)
Date: January 3, 2001 By: /s/ Jeffrey Dale Welsh
------------------------------ --------------------------------
(Signature)*
*Print name and title of the signing officer under his signature.
29
