U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
-----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to __________________
Commission File No. 33-3358-NY
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COMPOSITE DESIGN, INC.
----------------------
(Name of Small Business Issuer in its Charter)
NEVADA 88-0224219
- ------------------------------- --------------------------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
9005 Cobble Canyon Lane
Sandy, Utah 84093
-----------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 942-0555
Securities Registered under Section 12(b) of the Exchange Act: None.
Securities Registered under Section 12(g) of the Exchange Act: None.
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: December 31, 1998 -
$0
For the Exhibit Index see Item 13 of this Report.
State the aggregate market value of the common voting stock held by non-
affiliates computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within
the past 60 days.
April 6, 1999 - $13,688.75. There are approximately 219,020 shares of
common voting stock of the Registrant held by non-affiliates. The Registrant
has valued these shares on the bid price per share on April 6, 1999.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Not Applicable.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practicable date:
April 6, 1999
1,069,020
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
A description of "Documents Incorporated by Reference" is
contained in Item 13 of this Report.
Transitional Small Business Issuer Format Yes X No ___
PART I
Item 1. Description of Business.
-----------------------
Business Development.
- --------------------
Corporate Developments.
----------------------
For information regarding Corporate developments prior to 1998, see
the Registrant's 10-KSB Annual Report for the year ended December 31, 1997,
which is incorporated herein by reference (the "1997 10-KSB"). See Part III,
Item 13.
Other than maintaining and restoring its good standing status in
the State of Nevada, and seeking prospective businesses or assets to acquire,
the Company has had no material business operations for the year ended
December 31, 1998.
Sales of Unregistered Securities During the Past Five Years.
-----------------------------------------------------------
See this heading under Part I, Item 1, of the 1997 10-KSB.
Business.
--------
The Company has not engaged in any material business operations
since 1989. Its only activities since that time have consisted of restoring
and maintaining its good standing in the State of Nevada. The Company has no
material tangible property or assets.
The Company intends to continue to seek out the acquisition of
assets, property or business that may be beneficial to it and its
stockholders. In considering whether to complete any such acquisition, the
Board of Directors shall make the final determination, and the approval of
stockholders will not be sought unless required by applicable law, the
Company's Articles of Incorporation or Bylaws or contract. The Company can
give no assurance that any such endeavor will be successful or profitable.
The Company is not currently engaging in any substantive business
activity and has no plans to engage in any such activity in the foreseeable
future. In its present form, the Company may be deemed to be a "shell" and
will be a vehicle to acquire or merge with a business or company. The Company
does not intend to restrict its search to any particular business or industry,
and the areas in which it will seek out acquisitions, reorganizations or
mergers may include, but will not be limited to, the fields of high
technology, manufacturing, natural resources, service, research and
development, communications, transportation, insurance, brokerage, finance and
all medically related fields, among others. The Company recognizes that
because of its lack of resources, the number of suitable potential business
ventures which may be available to it will be extremely limited, and may be
restricted to entities who desire to avoid what these entities may deem to be
the adverse factors related to an initial public offering ("IPO"). The most
prevalent of these factors include substantial time requirements, legal and
accounting costs, the inability to obtain an underwriter who is willing to
publicly offer and sell shares, the lack of or the inability to obtain the
required financial statements for such an undertaking, limitations on the
amount of dilution public investors will suffer to the benefit of the
stockholders of any such entities, along with other conditions or requirements
imposed by various federal and state securities laws, rules and regulations.
Any of these types of entities, regardless of their prospects, would require
the Company to issue a substantial number of shares of its common stock to
complete any such acquisition, reorganization or merger, usually amounting to
between 80 and 95 percent of the outstanding shares of the Company following
the completion of any such transaction; accordingly, investments in any such
private entity, if available, would be much more favorable than any investment
in the Company.
Management intends to consider a number of factors prior to making
any decision as to whether to participate in any specific business endeavor,
none of which may be determinative or provide any assurance of success. These
may include, but will not be limited to an analysis of the quality of the
entity's management personnel; the anticipated acceptability of any new
products or marketing concepts; the merit of technological changes; its
present financial condition, projected growth potential and available
technical, financial and managerial resources; its working capital, history of
operations and future prospects; the nature of its present and expected
competition; the quality and experience of its management services and the
depth of its management; its potential for further research, development or
exploration; risk factors specifically related to its business operations; its
potential for growth, expansion and profit; the perceived public recognition
or acceptance of its products, services, trademarks and name identification;
and numerous other factors which are difficult, if not impossible, to properly
analyze without referring to any objective criteria.
Regardless, the results of operations of any specific entity may
not necessarily be indicative of what may occur in the future, by reason of
changing market strategies, plant or product expansion, changes in product
emphasis, future management personnel and changes in innumerable other
factors. Further, in the case of a new business venture or one that is in a
research and development mode, the risks will be substantial, and there will
be no objective criteria to examine the effectiveness or the abilities of its
management or its business objectives. Also, a firm market for its products
or services may yet need to be established, and with no past track record, the
profitability of any such entity will be unproven and cannot be predicted with
any certainty.
Management will attempt to meet personally with management and key
personnel of the entity sponsoring any business opportunity afforded to the
Company, visit and inspect material facilities, obtain independent analysis or
verification of information provided and gathered, check references of
management and key personnel and conduct other reasonably prudent measures
calculated to ensure a reasonably thorough review of any particular business
opportunity; however, since the Company has extremely limited current assets
and cash reserves, these activities may be limited, and if undertaken, the
cost and expense thereof will be advanced by management, and may further
dilute the interest of the stockholders of the Company.
The Company is unable to predict the time as to when and if it may
actually participate in any specific business endeavor. The Company
anticipates that proposed business ventures will be made available to it
through personal contacts of directors, executive officers and principal
stockholders, professional advisors, broker dealers in securities, venture
capital personnel, members of the financial community and others who may
present unsolicited proposals. In certain cases, the Company may agree to pay
a finder's fee or to otherwise compensate the persons who submit a potential
business endeavor in which the Company eventually participates. Such persons
may include the Company's directors, executive officers, beneficial owners or
their affiliates. In this event, such fees may become a factor in
negotiations regarding a potential acquisition and, accordingly, may present a
conflict of interest for such individuals.
Because the Company has extremely limited assets, management
anticipates that any finder's fees would be paid in the form of common stock
of the Company, rather than cash. This would have the effect of further
diluting the shares of current stockholders. In the event that funds become
available from a company that is a candidate for a merger or acquisition
transaction, such fees may be paid in cash. Whether paid in the form of
common stock or cash, and whether paid to members of management, beneficial
owners or their affiliates, or unaffiliated third parties, the amount of such
finder's fees will not exceed the amount that the Company would pay to an
unaffiliated third party in an arm's length transaction.
Further, substantial fees are often paid in connection with the
completion of these types of acquisitions, reorganizations or mergers, ranging
from a small amount to as much as $250,000. These fees are usually divided
among promoters or founders, after deduction of legal, accounting and other
related expenses, and it is not unusual for a portion of these fees to be paid
to members of management or to principal stockholders as consideration for
their agreement to retire a portion of the shares of common stock owned by
them. Such fees may become a factor in negotiations regarding any potential
acquisition by the Company and, accordingly, may present a conflict of
interest for such individuals.
None of the Company's directors, executive officers or promoters,
or their affiliates or associates, has had any negotiations with any
representatives of the owners of any business or company regarding the
possibility of an acquisition or merger transaction with the Company. Nor are
there any present plans, proposals, arrangements or understandings with any
such persons regarding the possibility of any acquisition or merger involving
the Company.
Risk Factors.
- ------------
In any business venture, there are substantial risks specific to
the particular enterprise and which cannot be ascertained until a potential
acquisition, reorganization or merger candidate has been identified; however,
at a minimum, the Company's present and proposed business operations will be
highly speculative and subject to the same types of risks inherent in any new
or unproven venture, and will include those types of risk factors outlined
below.
Limited Assets; No Source of Revenue. The Company has no assets
and has had no revenues since 1989. Nor, will the Company receive any
revenues until it completes an acquisition, reorganization or merger, at the
earliest. The Company can provide no assurance that any acquired business
will produce any material revenues for the Company or its stockholders or that
any such business will operate on a profitable basis.
Discretionary Use of Proceeds; "Blank Check" Company. Because the
Company is not currently engaged in any substantive business activities, as
well as management's broad discretion with respect to the acquisition of
assets, property or business, the Company may be deemed to be a "blank check"
company. Although management intends to apply substantially all of the
proceeds that it may receive through the issuance of stock or debt to a
suitable acquisition, subject to the criteria identified above, such proceeds
will not otherwise be designated for any more specific purpose. The Company
can provide no assurance that any allocation of such proceeds will allow it to
achieve its business objectives.
Absence of Substantive Disclosure Relating to Prospective
Acquisitions. Because the Company has not yet identified any assets, property
or business that it may potentially acquire, potential investors in the
Company will have virtually no substantive information upon which to base a
decision whether or not to invest in the Company. Potential investors would
have access to significantly more information if the Company had already
identified a potential acquisition or if the acquisition target had made an
offering of its securities directly to the public. The Company can provide no
assurance that any investment in the Company will not ultimately prove to be
less favorable than such a direct investment.
Unspecified Industry and Acquired Business; Unascertainable Risks.
To date, the Company has not identified any particular industry or business in
which to concentrate its acquisition efforts. Accordingly, prospective
investors currently have no basis to evaluate the comparative risks and merits
of investing in the industry or business in which the Company may invest. To
the extent that the Company may acquire a business in a highly risky industry,
the Company will become subject to those risks. Similarly, if the Company
acquires a financially unstable business or a business that is in the early
stages of development, the Company will become subject to the numerous risks
to which such businesses are subject. Although management intends to consider
the risks inherent in any industry and business in which it may become
involved, there can be no assurance that it will correctly assess such risks.
Uncertain Structure of Acquisition. Management has had no
preliminary contact or discussions regarding, and there are no present plans,
proposals or arrangements to acquire any specific assets, property or
business. Accordingly, it is unclear whether such an acquisition would take
the form of an exchange of capital stock, a merger or an asset acquisition.
However, because the Company has virtually no resources as of the date of this
Report, management expects that any such acquisition would take the form of an
exchange of capital stock.
State Restrictions on "Blank Check" Companies. A total of 36
states prohibit or substantially restrict the registration and sale of "blank
check" companies within their borders. Additionally, 36 states use "merit
review powers" to exclude securities offerings from their borders in an effort
to screen out offerings of highly dubious quality. See Paragraph 8221, NASAA
Reports, CCH Topical Law Reports, 1990. The Company intends to comply fully
with all state securities laws, and plans to take the steps necessary to
ensure that any future offering of its securities is limited to those states
in which such offerings are allowed. However, these legal restrictions may
have a material adverse impact on the Company's ability to raise capital
because potential purchasers of the Company's securities must be residents of
states that permit the purchase of such securities. These restrictions may
also limit or prohibit stockholders from reselling shares of the Company's
common stock within the borders of regulating states.
By regulation or policy statement, eight states (Idaho, Maryland,
Missouri, Nevada, New Mexico, Pennsylvania, Utah and Washington) place various
restrictions on the sale or resale of equity securities of "blank check" or
"blind pool" companies. These restrictions include, but are not limited to,
heightened disclosure requirements, exclusion from "manual listing"
registration exemptions for secondary trading privileges and outright
prohibition of public offerings of such companies.
Further, all states (with the exception of Alabama, Delaware,
Hawaii, Minnesota, Nebraska and New York) have adopted some form of the Small
Corporate Offering Registration Exemption ("SCORE") program, which permits an
issuer to notify the Securities and Exchange Commission of certain offerings
registered in such states by filing a Form D under Regulation D of the
Securities and Exchange Commission. States participating in the SCORE program
also allow applications for registration of securities by qualification by
filing a Form U-7 with the states' securities commissions. In most
jurisdictions, "blank check" and "blind pool" companies are not eligible for
participation in the SCORE program.
Management to Devote Insignificant Time to Activities of the
Company. Members of the Company's management are not required to devote their
full time to the affairs of the Company. Because of their time commitments,
as well as the fact that the Company has no business operations the members of
management anticipate that they will devote an insignificant amount of time to
the activities of the Company, at least until such time as the Company has
identified a suitable acquisition target.
Voting Control. Due to the ownership of a majority of the
Company's outstanding common stock, Chiricahua Company, David C. Merrell and
Corie Merrell have the ability to elect all of the Company's directors, who in
turn elect all executive officers, without regard to the votes of other
stockholders. Accordingly, these persons may be deemed to have absolute
control of the Company. See the caption "Security Ownership of Certain
Beneficial Owners and Management," Part III, Item 11.
No Market for Common Stock; No Market for Shares. Although the
Company intends to submit for listing of its common stock on the OTC Bulletin
Board of the National Association of Securities Dealers, Inc. (the "NASD"),
there is currently no market for such shares; there can be no assurance that
such a market will ever develop or be maintained. Any market price for shares
of common stock of the Company is likely to be very volatile, and numerous
factors beyond the control of the Company may have a significant effect. In
addition, the stock markets generally have experienced, and continue to
experience, extreme price and volume fluctuations which have affected the
market price of many small capital companies and which have often been
unrelated to the operating performance of these companies. These broad market
fluctuations, as well as general economic and political conditions, may
adversely affect the market price of the Company's common stock in any market
that may develop. See Part II, Item 5.
Conflicts of Interest; Related Party Transactions. Although the
Company has not identified any potential acquisition target, the possibility
exists that the Company may acquire or merge with a business or company in
which the Company's directors, executive officers, principal stockholders or
their affiliates may have an ownership interest. Such a transaction may occur
if management deems it to be in the best interests of the Company and its
stockholders, after consideration of the above referenced factors. A
transaction of this nature would present a conflict of interest to those
parties with a managerial position and/or an ownership interest in both the
Company and the acquired entity, and may compromise management's fiduciary
duties to the Company's stockholders. If management's fiduciary duties become
compromised, any remedy available under state corporate law will most likely
be prohibitively expensive and time consuming.
An independent appraisal of the acquired company may or may not be
obtained in the event a related party transaction is contemplated.
Furthermore, because management may be eligible for finder's fees or other
compensation related to potential acquisitions by the Company, such
compensation may become a factor in negotiations regarding such potential
acquisitions.
Chiricahua Company, David C. Merrell and Corie Merrell may
actively negotiate or otherwise consent to the purchase of all or any portion
of their common stock as a condition to or in connection with any proposed
merger or acquisition transaction, which may present a further conflict of
interest. The Company's other stockholders may not be afforded an opportunity
to approve or consent to any particular stock buyout transaction.
Risks of "Penny Stock." The Company's common stock may be deemed
to be "penny stock" as that term is defined in Reg. Section 240.3a51-1 of the
Securities and Exchange Commission. Penny stocks are stocks (i) with a price
of less than five dollars per share; (ii) that are not traded on a
"recognized" national exchange; (iii) whose prices are not quoted on the
NASDAQ automated quotation system (NASDAQ-listed stocks must still meet
requirement (i) above); or (iv) is an issuer with net tangible assets less
than $2,000,000 (if the issuer has been in continuous operation for at least
three years) or $5,000,000 (if in continuous operation for less than three
years), or with average revenues of less than $6,000,000 for the last three
years.
Until recently there has never been any "established public market"
for the Company's common stock. At this time the Company's stock is traded in
the over-the-counter market on the "Electronic Bulletin Board" of the
National Association of Securities Dealers, Inc. (the "NASD") under the symbol
"CDSG."
There is presently one market makers for the Company's common
stock. Since there is only one market maker in the Company's securities,
there is a risk that the market maker will dominate the market and set prices
that are not based on competitive forces.
Section 15(g) of the Securities Exchange Act of 1934, as amended,
and Reg. Section 240.15g-2 of the Securities and Exchange Commission require
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any transaction in
a penny stock for the investor's account. Potential investors in the
Company's common stock are urged to obtain and read such disclosure carefully
before purchasing any shares that are deemed to be "penny stock."
Moreover, Reg. Section 240.15g-9 of the Securities and Exchange
Commission requires broker-dealers in penny stocks to approve the account of
any investor for transactions in such stocks before selling any penny stock to
that investor. This procedure requires the broker-dealer to (i) obtain from
the investor information concerning his or her financial situation, investment
experience and investment objectives; (ii) reasonably determine, based on that
information, that transactions in penny stocks are suitable for the investor
and that the investor has sufficient knowledge and experience as to be
reasonably capable of evaluating the risks of penny stock transactions; (iii)
provide the investor with a written statement setting forth the basis on which
the broker-dealer made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it
more difficult for investors in the Company's common stock to resell their
shares to third parties or to otherwise dispose of them.
Item 2. Description of Property.
- --------------------------------
The Company has no property or assets; its principal executive
office address and telephone number are the business office address and
telephone number of David C. Merrell, which are provided at no cost. See Item
1 of this Report.
Item 3. Legal Proceedings.
- --------------------------
The Company is not the subject of any pending legal proceedings;
and to the knowledge of management, no proceedings are presently contemplated
against the Company by any federal, state or local governmental agency.
Further, to the knowledge of management, no director or executive
officer is party to any action in which any has an interest adverse to the
Company.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
No matter was submitted to a vote of the Company's security
holders during the fourth quarter of the period covered by this report or
during the previous two calendar years.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
- -----------------------------------------------------------------
Market Information
- ------------------
The Company's common stock is currently quoted on the OTC Bulletin
Board of the National Association of Securities Dealers, Inc. ("NASD") under
the symbol "CDSG." No assurance can be given that a market for the Company's
common stock will be maintained. However, the sale of "unregistered" and
"restricted" shares of common stock pursuant to Rule 144 of the Securities and
Exchange Commission by members of management or others may have a substantial
adverse impact on any such public market; and all of these persons have
satisfied the "holding period" under Rule 144. See the heading "Sales of
Unregistered Securities During the Past Five Years," of Part I, Item 1, of the
1997 10-KSB.
Holders
- -------
The number of record holders of the Company's common stock as of
the calendar year ended December 31, 1997 was approximately 403 and as of the
calendar year ended December 31, 1998 was 407; these numbers do not include an
indeterminate number of stockholders whose shares are held by brokers in
street name. As of April 6, 1999, there were approximately 407 stockholders.
Dividends
- ---------
There are no present material restrictions that limit the ability
of the Company to pay dividends on common stock or that are likely to do so in
the future. The Company has not paid any dividends with respect to its common
stock, and does not intend to pay dividends in the foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of Operation.
- ------------------------------------------------------------------
Plan of Operation
- -----------------
The Company has not engaged in any material operations in the
period ending December 31, 1998 or since 1989. The Company intends to
continue to seek out the acquisition of assets, property or business that may
be beneficial to the Company and its stockholders.
The Company's only foreseeable cash requirements during the next
12 months will relate to maintaining the Company in good standing in the State
of Nevada. Management does not anticipate that the Company will have to raise
additional funds during the next 12 months.
Results of Operations
- ---------------------
The Company discontinued its active operations in 1989. At
December 31, 1997, the Company had a loss of ($2,179) from discontinued
operations for the year, and at December 31, 1998, the Company had a loss of
($11,647).
Liquidity
- ---------
At December 31, 1998, the Company had no assets and had losses of
($11,647), compared to a loss as of December 31, 1997 of ($2,179). There were
contributions to capital of $3,173 in 1998 and $1,484 in 1997, by a principal
stockholder.
Year 2000
- ---------
The Company presently has no material operations, and is presently
seeking a suitable candidate for a merger or acquisition transaction. Due to
its very limited activities and assets, management does not believe that the
change of year to the year 2000 will have any material effect on its business,
results of operations or financial condition.
In seeking out a merger or acquisition target, the Company will take
into account the ways in which the Year 2000 may materially affect the
operations of any such target. However, until such an entity has been
identified, management can not accurately predict how (if at all) the Year
2000 issue may affect the operations of the reorganized Company. At such time
as the Company completes such a reorganization, it will timely disclose all
material Year 2000 issues in the appropriate filing with the Securities and
Exchange Commission.
Item 7. Financial Statements.
- -----------------------------
For the years ended December 31, 1998 and 1997
Independent Auditors' Report
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity (Deficit)
Statements of Cash Flows
Notes to the Financial Statements
COMPOSITE DESIGN, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 1998 and 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Composite Design, Inc.
(A Development Stage Company)
Salt Lake City, Utah
We have audited the accompanying balance sheet of Composite Design, Inc.
(a development stage company) as of December 31, 1998 and the related
statements of operations, stockholders equity (deficit) and cash flows for
the years ended December 31, 1998 and 1997 and from inception on January 15,
1986 through December 31, 1998. 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 audits.
We conducted our audits 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 audits provide 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 Composite Design,
Inc. (a development stage company) as of December 31, 1998 and the results of
its operations and its cash flows for the years ended December 31, 1998 and
1997 and from inception on January 15, 1986 through December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company is a development stage company with no
operating capital which together raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/S/Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
March 9, 1999
<PAGE>
<TABLE>
COMPOSITE DESIGN, INC.
(A Development Stage Company)
Balance Sheet
<CAPTION>
ASSETS
December 31,
1998
<S> <C>
CURRENT ASSETS
Cash $ -
Total Current Assets -
TOTAL ASSETS $ -
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 9,169
Total Liabilities 9,169
STOCKHOLDERS EQUITY
Common stock, $0.001 par value, authorized
200,000,000 shares; 1,069,020 shares
issued and outstanding 1,069
Additional paid-in capital 525,193
Deficit accumulated during the development stage (535,431)
Total Stockholders Equity (Deficit) (9,169)
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT) $ -
</TABLE>
<TABLE>
COMPOSITE DESIGN, INC.
(A Development Stage Company)
Statements of Operations
<CAPTION>
From
Inception on
For the Years January 15,
Ended 1986 Through
December 31, December 31,
1998 1997 1998
<S> <C> <C> <C>
REVENUE $ - $ - $ -
EXPENSES 11,647 2,179 535,431
NET LOSS $ (11,647) $ (2,179) $ (535,431)
BASIC LOSS PER SHARE $ (0.01) $ (0.00)
</TABLE>
<TABLE>
COMPOSITE DESIGN, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
From Inception on January 15, 1986 Through December 31, 1998
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
<S> <C> <C> <C> <C>
At inception, January 15, 1986 - $ - $ - $ -
Common stock issued for cash
at approximately $8.20 per share 25,000 25 204,975 -
Stock order offering costs - - (45,853) -
Common stock issued for
purchasing subsidiary at
approximately $5.77 per share 20,000 20 115,395 -
Recision of common stock by
the SEC (8,102) (8) 8 -
Contributed capital by shareholder - - 82,024 -
Net loss from inception January
15, 1986 to December 31, 1994 - - - (356,586)
Balance, December 31, 1994 36,898 37 356,549 (356,586)
Net loss for the year ended
December 31, 1995 - - - -
Balance, December 31, 1995 36,898 37 356,549 (356,586)
Common stock issued for
services at $1.00 per share 162,000 162 161,838 -
Contributed capital by
shareholder - - 2,149 -
Common stock issued for
services at $0.001 per share 870,000 870 - -
Stock split adjustment 122 - - -
Net loss for the year ended
December 31, 1996 - - - (165,019)
Balance, December 31, 1996 1,069,020 1,069 520,536 (521,605)
Contributed capital by
shareholder - - 1,484 -
Net loss for the year ended
December 31, 1997 - - - (2,179)
Balance, December 31, 1997 1,069,020 1,069 522,020 (523,784)
Contributed capital by shareholder
(unaudited) - - 3,173 -
Net loss for the year ended
December 31, 1998 - - - (11,647)
Balance, December 31, 1998 1,069,020 $ 1,069 $525,193 $ (535,431)
</TABLE>
<TABLE>
COMPOSITE DESIGN, INC.
(A Development Stage Company)
Statements of Cash Flows
<CAPTION>
From
Inception on
For the Years January 15,
Ended 1986 Through
December 31, December 31,
1998 1997 1998
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Loss from operations $ (11,647) $ (2,179) $(535,431)
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Amortization and depreciation
expense - - 102,719
Contributed capital for
expenses 3,173 1,584 88,930
Stock issued for services - - 162,870
Increase (decrease) in account
payable 8,474 595 9,069
Net Cash Provided (Used) by
Operating Activities - - (171,843)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investment - - 12,696
Net Cash Provided (Used) by
Investing Activities - - 12,696
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock for cash - - 205,000
Stock offering costs - - (45,853)
Net Cash Provided (Used) by
Financing Activities $ - $ - $ 159,147
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ - $ - $ -
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD - - -
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ - $ - $ -
Cash Paid For:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for
services $ - $ - $ 162,870
Contributed capital for
expenses $3,173 $ 1,584 $ 88,930
Common stock issued for
subsidiary $ - $ - $ 115,415
</TABLE>
COMPOSITE DESIGN, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The Company was incorporated as SRS Technical, Inc. under the laws of
the State of Nevada on January 15, 1986, to engage in the business activity.
On May 29, 1987, the Company acquired a company named Composite Design
Corporation (CDC). 20,000 shares of the Company s stock was given in
exchange for the 100% of CDC s shares. CDC was suspended by both the
Secretary of State of California and the Franchise Tax Board in 1988. On
June 2, 1987, the Board of Directors resolved to change the corporate name
from SRS Technical, Inc. to Composite Design, Inc. (CDI). At the current
time, the Company does not have any active business operations.
The Company has authorized 200,000,000 shares of $0.001 par value
common stock. The Company has elected a calendar year end.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
b. Provision for Taxes
At December 31, 1998, the Company had net operating loss carryforwards
of approximately $180,000 that may be offset against future taxable income
through 2013. No tax benefit has been reported in the financial statements,
because the Company believes there is a 50% or greater chance the
carryforward will expire unused. Accordingly, the potential tax benefits of
the loss carryforward are offset by a valuation account of the same amount.
c. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
d. Basic Loss Per Common Share
Basic loss per common share has been calculated based on the weighted
average number of shares of common stock outstanding during the period.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has not established revenues
sufficient to cover its operating costs and allow it to continue as a going
concern. Management is seeking a merger with an existing operating company.
In the interim, management is committed to covering all operating and other
costs until sufficient revenues are generated.
NOTE 4 - STOCK TRANSACTIONS
On February 27, 1996, the Company issued 162,000 shares of common
stock for services rendered which was valued at $162,000. The Company
effected a 1,000 for 1 reverse stock split on June 25, 1996 and issued 870,000
shares of post split common stock for services valued at $870. The reverse
split has been applied retroactively to the financial statements.
NOTE 5 - CONTINGENCIES
The Company's former subsidiary CDC was suspended by the State of
California. In order to operate in the State of California, the Company may
be required to pay back fees of approximately $8,000 plus accrued interest and
penalties.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- --------------------
No independent accountant of the Company has resigned, declined to
stand for re-election or was dismissed during the Company's two most recent
fiscal years or any interim period.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
- -------------------------------------------------
Identification of Directors and Executive Officers
- --------------------------------------------------
The following table sets forth, in alphabetical order, the names
and the nature of all positions and offices held by all directors and
executive officers of the Company for the calendar years ending December 31,
1997 and 1998, and to the date hereof, and the period or periods during which
each such director or executive officer served in his or her respective
positions.
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
---- ----------- ----------- --------------
Corie Merrell Director 2/96 *
Secretary/ 2/96 *
Treasurer
David C. Merrell President 2/96 *
Director
* These persons presently serve in the capacities
indicated opposite their respective names.
Term of Office
- --------------
The term of office of the current directors shall continue until
the annual meeting of stockholders, which has been scheduled by the Board of
Directors to be held in December of each year. The annual meeting of the
Board of Directors immediately follows the annual meeting of stockholders, at
which officers for the coming year are elected.
Business Experience
- -------------------
David C. Merrell, Director and President. Since 1989, he has been
the owner of DCM Finance, a Salt Lake City based finance company which makes
and brokers real estate loans. Mr. Merrell received his Bachelor of Science
degree in Economics from the University of Utah in 1981.
Corie Merrell, Director and Secretary/Treasurer. Since 1989, she
has been part owner of DCM Finance and is currently a part time student at
Westminster College majoring in Psychology.
Family Relationships
- --------------------
David C. Merrell and Corie Merrell are husband and wife.
Involvement in Certain Legal Proceedings
- ----------------------------------------
Except as indicated below and to the knowledge of management,
during the past five years, no present or former director, person nominated to
become a director, executive officer, promoter or control person of the
Company:
(1) Was a general partner or executive officer of any business
by or against which any bankruptcy petition was filed,
whether at the time of such filing or two years prior
thereto;
(2) Was convicted in a criminal proceeding or named the subject
of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
him from or otherwise limiting, the following activities:
(i) Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant,
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or
employee of any investment company, bank, savings and
loan association or insurance company, or engaging in
or continuing any conduct or practice in connection
with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the
purchase or sale of any security or commodity or
in connection with any violation of federal or
state securities laws or federal commodities
laws;
(4) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal
or state authority barring, suspending or otherwise limiting
for more than 60 days the right of such person to engage in
any activity described above under this Item, or to be
associated with persons engaged in any such activity;
(5) Was found by a court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have
violated any federal or state securities law, and the
judgment in such civil action or finding by the Securities
and Exchange Commission has not been subsequently reversed,
suspended, or vacated; or
(6) Was found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to
have violated any federal commodities law, and the judgment
in such civil action or finding by the Commodity Futures
Trading Commission has not been subsequently reversed,
suspended or vacated.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
No securities of the Company are registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, and the Company files reports
under Section 15(d) of the Securities Exchange Act of 1934; accordingly,
directors, executive officers and 10 percent stockholders are not required to
make filings under Section 16 of the Securities Exchange Act of 1934.
Item 10. Executive Compensation.
- -------------------------------
Cash Compensation
- -----------------
The following table sets forth the aggregate compensation paid by
the Company for services rendered during the periods indicated:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Years or other all
principal periods Annual restricted option/ LTIP other
position Ended $ $ Compen- Stock SAR's Payouts Compen-
Salary Bonus sation awards$ # $ sation$
- ------------------------------------------------------------------------------
Corie Merrell 12/31/98 0 0 0 0 0 0 0
Sec/Tres 12/31/97 0 0 0 0 0 0 0
Director 12/31/96 0 0 0 50,000 0 0 0
David C. 12/31/98 0 0 0 0 0 0 0
Merrell 12/31/97 0 0 0 0 0 0 0
President 12/31/96 0 0 0 800,000* 0 0 0
Director
*See the caption "Sales of Unregistered Securities During the Past
Five Years," Part I, Item 1, of the 1997 10-KSB.
No cash compensation, deferred compensation or long-term incentive
plan awards were issued or granted to the Company's management during the
calendar years ending December 31, 1996, 1997, or 1998, or the period ending
on the date of this Report. Further, no member of the Company's management
has been granted any option or stock appreciation right; accordingly, no
tables relating to such items have been included within this Item. See the
Summary Compensation Table of this Item.
Compensation of Directors
- -------------------------
There are no standard arrangements pursuant to which the Company's
directors are compensated for any services provided as director. No
additional amounts are payable to the Company's directors for committee
participation or special assignments.
There are no arrangements pursuant to which any of the Company's
directors was compensated during the Company's last completed calendar year or
the previous two calendar years for any service provided as director. See the
Summary Compensation Table of this Item.
Termination of Employment and Change of Control Arrangement
- -----------------------------------------------------------
There are no compensatory plans or arrangements, including
payments to be received from the Company, with respect to any person named in
the Summary Compensation Table set out above which would in any way result in
payments to any such person because of his or her resignation, retirement or
other termination of such person's employment with the Company or its
subsidiaries, or any change in control of the Company, or a change in the
person's responsibilities following a change in control of the Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- -----------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners.
- -----------------------------------------------
The following table sets forth the shareholdings of those persons
who own more than five percent of the Company's common stock as of December
31, 1997 and 1998, and to the date hereof:
Number and Percentage
of Shares Beneficially Owned
----------------------------
Name and Address 12/31/97 12/31/98 and Currently
- ---------------- -------- ----------------------
Chiricahua Company* 800,000 74.8% 800,000 74.8%
9005 Cobble Lane
Sandy, Utah 84093
TOTALS 800,000 74.8% 800,000 74.8%
* David C. Merrell is the sole owner of Chiricahua Company, and is
deemed to be the beneficial owner of these shares.
Security Ownership of Management.
- --------------------------------
The following table sets forth the shareholdings of the Company's
directors and executive officers as of December 31, 1997 and 1998, and to the
date hereof:
Number and Percentage
of Shares Beneficially Owned
----------------------------
Name and Address 12/31/97 12/31/98 and currently
- ---------------- -------- ----------------------
David C. Merrell* 800,000 74.8% 800,000 74.8%
9005 Cobble Lane
Sandy, Utah 84093
Corie Merrell 50,000 4.6% 50,000 4.6%
9005 Cobble Lane
Sandy, Utah 84093
TOTALS 850,000 79.5% 850,000 79.5%
* David C. Merrell is the sole owner of Chiricahua Company, and is
deemed to be the beneficial owner of these shares.
Changes in Control
- ------------------
To the knowledge of management, there are no present arrangements
or pledges of the Company's securities which may result in a change in its
control.
Item 12. Certain Relationships and Related Transactions.
- -------------------------------------------------------
Transactions with Management and Others.
- ---------------------------------------
Except as indicated below, or under the heading "Sales of
Unregistered Securities During the Past Five Years," of Part I, Item 1, of the
1997 10-KSB, there were no material transactions, or series of similar
transactions, during the Company's last three calendar years, or any currently
proposed transactions, or series of similar transactions, to which the Company
or any of its subsidiaries was or is to be a party, in which the amount
involved exceeded $60,000 and in which any director, executive officer or any
security holder who is known to the Company to own of record or beneficially
more than five percent of any class of the Company's common stock, or any
member of the immediate family of any of the foregoing persons, had an
interest.
Certain Business Relationships.
- ------------------------------
Except as indicated under the heading "Transactions with
Management and Others" above, there were no material transactions, or series
of similar transactions, during the Company's last three calendar years, or
any currently proposed transactions, or series of similar transactions, to
which it or any of its subsidiaries was or is to be a party, in which the
amount involved exceeded $60,000 and in which any director, executive officer
or any security holder who is known to the Company to own of record or
beneficially more than five percent of any class of its common stock, or any
member of the immediate family of any of the foregoing persons, had an
interest.
Indebtedness of Management.
- --------------------------
Except as indicated under the heading "Transactions with
Management and Others" above, there were no material transactions, or series
of similar transactions, during the Company's last three calendar years, or
any currently proposed transactions, or series of similar transactions, to
which it or any of its subsidiaries was or is to be a party, in which the
amount involved exceeded $60,000 and in which any director, executive officer
or any security holder who is known to the Company to own of record or
beneficially more than five percent of any class of its common stock, or any
member of the immediate family of any of the foregoing persons, had an
interest.
Transactions with Promoters.
- ---------------------------
Except as indicated under the heading "Transactions with
Management and Others" above, there were no material transactions, or series
of similar transactions, during the Company's last three calendar years, or
any currently proposed transactions, or series of similar transactions, to
which it or any of its subsidiaries was or is to be a party, in which the
amount involved exceeded $60,000 and in which any promoter or founder or any
member of the immediate family of any of the foregoing persons, had an
interest.
Item 13. Exhibits and Reports on Form 8-K.
- -----------------------------------------
Reports on Form 8-K
- -------------------
None.
Exhibit
Exhibits* Number
Number -------
- ------
(i) None.
Financial Data Schedule 27
(ii) Where Incorporated
In This Report
Number ------------------
- ------
10-KSB Annual Report for the year ended Part I, Item 1
December 31, 1997 Part II, Item 5
Part III, Item 10
Articles of Incorporation of SRS Part III, Item 12
Technical, Inc. dated January 15, 1986
Certificate of Amendment to Articles of
Incorporation of SRS Technical, Inc. dated
June 5, 1987
Certificate of Amendment to the Articles of
Incorporation of Composite Design, Inc., as
corrected, dated December 13, 1996
* A summary of any Exhibit is modified in its entirety by reference
to the actual Exhibit.
** These documents and related exhibits have previously been filed
with the Securities and Exchange Commission and are incorporated
herein by this reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
COMPOSITE DESIGN INC.
Date: 4/8/99 By/s/David C. Merrell
David C. Merrell, President and Director
Date: 4/8/99 By/s/Corie Merrell
Corie Merrell, Secretary/Treasurer and
Director
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated:
COMPOSITE DESIGN INC.
Date: 4/8/99 By/s/David C. Merrell
David C. Merrell, President and Director
Date: 4/8/99 By/s/Corie Merrell
Corie Merrell, Secretary/Treasurer and
Director
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<PERIOD-END> DEC-31-1998
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0
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</TABLE>
