SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to
the Securities Exchange Act of 1934
For the fiscal year ended September 30, 1998
Commission file number 33-5203-D
THE ENTITY, INC.
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(Exact name of registrant as specified in its charter)
MOONSTONE, INC.
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(Prior Name of Registrant)
Colorado 84-0953839
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(State of incorporation) (I.R.S. Employer
Identification No.)
10200 W. 44th Avenue, Suite 400, Wheat Ridge, CO 80033
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(303) 422-8127
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: None
Name of each exchange on which registered: N/A
Securities registered pursuant to Section 12(g) of the Act:
Title of each class: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes No X
Check if disclosure of delinquent filers pursuant 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. $0
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Transitional Small Business Disclosure Format:
Yes X No
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Aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 30, 1998: $0
Number of outstanding shares of the registrant's no par value common stock, as
of September 30, 1998: 81,400,000
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PART 1
Item 1. Business
Moonstone, Inc (the "Registrant" or the "Company") was incorporated
under the laws of the State of Colorado on July 7, 1983 for the primary
purpose of seeking acquisitions of businesses or properties, without
limitation as to geographic location or type of business. The Company's
initial activities were directed toward the acquisition of operating
capital. The Company changed its name to The Entity, Inc. in 1991.
On December 15, 1986, the Company completed a public offering (the
"Offering") of 5,000,000 Units, each Unit consisting of one share of
Common Stock, $.0001 par value, and one Warrant to purchase a share of
Common Stock. From this public offering, the Company received net
proceeds of approximately $33,597.
Since the completion of the Offering, the Company has not engaged in
any operations nor has it generated any revenue. The Company has been
engaged in the identification and evaluation of target business
entities for possible acquisition.
Current Activities
The Company is currently engaged, and for the next fiscal year intents
to engage, in the continued identification and evaluation of target
business entities and/or assets for possible acquisition.
Employees
The Company has no full-time employees. Its officers, who represent the
only part time employees, devote as much of their time as is necessary
to conduct the Company's business.
No business activity was conducted by the Company during the fiscal
year. As a result, no income was realized by the Company in its last
fiscal year.
The Company was inactive and presently does not participate in any
industry segment. The Company had no material revenues, or operating
profits or identifiable assets attributable to its industry segment.
In December 1997, the shareholders elected three new directors. In
1997, Larry Carr acquired 34,574,000 shares of
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common stock from James D. Pauls in a levy and execution under a
judgment and controls the Company through such shares.
The Company is actively seeking acquisition candidates.
The Company's Articles of Incorporation, as amended, entitle it to
transact any lawful business or businesses for which corporations may
be incorporated pursuant to the Colorado Corporation Code. The Company
can be defined as a "shell" company, whose sole purpose at this time is
to locate and consummate a merger or acquisition with a private entity.
Any business combination or transaction will likely result in a
significant issuance of shares and substantial dilution to present
stockholders of the Company.
The proposed business activities described herein classify the Company
as a "blank check" company. Many states have enacted statutes, rules
and regulations limiting the sale of securities of "blank check"
companies in their respective jurisdictions. In order to comply with
these various limitations, management does not intend to undertake any
efforts to sell any additional securities of the Company, either debt
or equity, or cause a market to develop in the Company's securities
until such time as the Company has successfully implemented its
business plan described herein.
General Business Plan
The Company's purpose is to seek, investigate and, if such
investigation warrants, acquire an interest in business opportunities
presented to it by persons or firms who or which desire to seek the
perceived advantages of a corporation which is registered under the
Securities Exchange Act of 1934 (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. This discussion of the
proposed business is purposefully general and is not meant to be
restrictive of the Company's virtually unlimited discretion to search
for and enter into potential business opportunities. Management
anticipates that it may be able to participate in only one potential
business venture because the Company has nominal assets and limited
financial resources. See "Financial Statements." This lack of
diversification should be considered a substantial risk to 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
marketplace in order to raise additional
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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 in various
businesses or acquire existing businesses as subsidiaries.
The Company anticipates that the selection of a business opportunity in
which to participate will be complex and extremely risky. Due to
general economic conditions, rapid technological advances being made in
some industries and shortages of available capital, management believes
that there are numerous firms seeking the perceived benefits of a
publicly registered corporation. Such perceived benefits may include
facilitating or improving the terms on which additional equity
financing may be sought, providing liquidity for incentive stock
options or similar benefits to key employees, providing liquidity
(subject to restrictions of applicable statutes) for all shareholders
and other factors. Potentially, available business opportunities may
occur in many different industries and at various stages of
development, all of which will make the task of comparative
investigation and analysis of such business opportunities extremely
difficult and complex.
The Company has, and will continue to have, no capital with which to
provide the owners of business opportunities with any significant cash
or other assets. However, management believes that the Company will be
able to offer owners of acquisition candidates the opportunity to
acquire a controlling ownership interest in a publicly registered
company without incurring the cost and time required to conduct an
initial public offering. The owners of the business opportunities will,
however, incur significant legal and accounting costs in connection
with the acquisition of a business opportunity including the costs of
preparing forms 8-K, 10Q, or agreements and related reports and
documents. The Exchange Act specifically requires that any merger or
acquisition candidate comply with all applicable reporting
requirements, which include providing audited financial statements to
be included within the numerous filings relevant to comply with the
Exchange Act. Nevertheless, the officers and directors of the Company
have not conducted market research and are not aware of statistical
data which would support the perceived benefits of a merger or
acquisition transaction for the owners of a business opportunity. The
analysis of new business opportunities will be undertaken by, or under
the supervision of, the officers and directors of the Company have not
conducted market research and are not aware of statistical acquisition
transaction for the owners of a business opportunity.
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The analysis of new business opportunities will be undertaken by, or
under the supervision of, the officers and directors of the Company,
none of whom is a professional business analyst. Management intends to
concentrate on identifying preliminary prospective business
opportunities which may be brought to its attention through present
associations of the Company's officers and directors, or by the
Company's shareholders. 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 products,
services or trades; name identification; and other relevant factors.
Officers and directors of the Company will meet personally with
management and key personnel of the business opportunity as part of
their investigation. To the extent possible, the Company intends to
utilize written reports and personal investigation to evaluate the
above factors. The Company will not acquire or merge with any company
for which audited financial statements cannot be obtained within a
reasonable period of time after closing of the proposed transaction.
Management of the Company, while not especially experienced in matters
relating to the new business of the Company, shall rely upon their own
efforts and, to a much lesser extent, the efforts of the Company's
shareholders, in accomplishing the business purposes of the Company. It
is not anticipated that any outside consultants or advisors, other than
the Company's legal counsel and accountants, will be utilized by the
Company to effectuate its business purposes described herein. However,
if the Company does retain such an outside consultant or advisor, any
cash fee earned by such party will need to be paid by the prospective
merger/acquisition candidate, as the Company has no cash assets with
which to pay such obligation. There have been no contracts or
agreements with any outside consultants and none are anticipated in the
future.
The Company will not restrict its search to any specific kind of firms,
but may acquire a venture which is in its preliminary or development
stage, which is already in operation or which is in essentially any
stage of its corporate life. It is impossible to predict at this time
the status of any business in which the Company may become
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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.
It is anticipated that the Company will incur nominal expenses in the
implementation of its business plan described herein. Because the
Company has no capital with which to pay these anticipated expenses,
present management of the Company will pay these charges with their
personal funds, as interest free loans to the Company. However, the
only opportunity which management has to have these loans repaid will
be from a prospective merger or acquisition candidate. Management has
agreed among themselves that the repayment of any loans made on behalf
of the Company will not impede, or be made conditional in any manner,
on consummation of a proposed transaction.
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 a transaction, it is probable that the present
management and shareholders of the Company will no longer be in control
of the Company. In addition, the Company's directors may, as part of
the terms of the acquisition transaction, resign and be replaced by new
directors without a vote of the Company's shareholders or may sell
their stock in the Company. Any and all such sales will only be made in
compliance with the securities laws of the United States and any
applicable state.
It is anticipated that any securities issued in any such reorganization
would be issued in reliance upon exemption from registration under
applicable federal and state securities laws. In some circumstances,
however, as a negotiated element of its transaction, the Company may
agree to register all or a part of such securities immediately after
the transaction is consummated or at specified times thereafter. If
such registration occurs, of which there can be no assurance, it will
be undertaken by the surviving entity after the Company has
successfully consummated a merger or acquisition and the Company is no
longer considered a "shell" company. Until such time as this occurs,
the Company will not attempt to register any additional securities. The
issuance of substantial additional securities and their potential sale
into any trading market which may develop in the Company's securities
may have a depressive effect on the value of the Company's
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securities in the future, if such a market develops, of which
there is no assurance.
While the actual terms of a transaction to which the Company may be a
party cannot be predicted, it may be expected that the parties to the
business transaction will find it desirable to avoid the creation of a
taxable event and thereby structure the acquisition in a so-called
"tax-free" reorganization under Sections 368(a)(1) or 351 of the
Internal Revenue Code (the "Code"). In order to obtain tax-free
treatment under the Code, it may be necessary for the owners of the
acquired business to own 80% or more of the voting stock of the
surviving entity. In such event, the shareholders of the Company would
retain less than 20% of the issued and outstanding shares of the
surviving entity, which would result in significant dilution in the
equity of such shareholders.
As part of the Company's investigation, officers and directors of the
Company will meet personally with management and key personnel, may
visit and inspect material facilities, obtain independent analysis or
verification of certain information provided, check references of
management and key personnel and take other reasonable investigative
measures, to the extent of the Company's limited financial resources
and management expertise. The manner in which the Company participates
in an opportunity will depend on the nature of the opportunity, the
respective needs and desires of the Company and other parties, the
management of the opportunity and the relative negotiation strength of
the Company and such other management.
With respect to any merger or acquisition, negotiations with target
company management are expected to focus on the percentage of the
Company which target company shareholders would acquire in exchange for
all of their shareholdings in the target company. Depending upon, among
other things, the target company's assets and liabilities, the
Company's shareholders will in all likelihood hold a substantially
lesser percentage ownership interest in the Company following any
merger or acquisition. The percentage ownership may be subject to
significant reduction in the event the Company acquires a target
company with substantial assets. Any merger or acquisition effected by
the Company can be expected to have a significant dilutive effect on
the percentage of shares held by the Company's then-shareholders. If
required to so do under relevant law, management of the Company will
seek shareholder approval of a proposed merger or acquisition via a
Proxy Statement. However, such approval would be assured where
management supports such a business transaction because management
presently controls sufficient shares of the Company to effectuate a
positive vote on the proposed transaction. Further, a prospective
transaction may be structured so that
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shareholder approval is not required, and such a transaction may be
effectuated by the Board of Directors without shareholder approval.
The Company will participate in a business opportunity only after the
negotiation and execution of appropriate written agreements. Although
the terms of such agreements cannot be predicted, generally such
agreements will require some specific representations and warranties by
all of the parties thereto, will specify certain events of default,
will detail the terms of closing and the conditions which must be
satisfied by each of the parties prior to and after such closing, will
outline the manner of bearing costs, including costs associated with
the Company's attorneys and accountants, will set forth remedies on
default and will include miscellaneous other terms.
As stated hereinabove, the Company will not acquire or merge with any
entity which cannot provide independent audited financial statements
within a reasonable period of time after closing of the proposed
transaction. The Company is subject to all of the reporting
requirements included in the Exchange Act. Included in these
requirements is the affirmative duty of the Company to file independent
audited financial statements as part of its Form 8-K to be filed with
the Securities and Exchange Commission upon consummation of a merger or
acquisition, as well as the Company's audited financial statements
included in its annual report on Form 10-KSB (or 10-K, as applicable).
If such audited financial statements are not available at closing, or
within time parameters necessary to insure the Company's compliance
with the requirements of the Exchange Act, or if the audited financial
statements provided do not conform to the representations made by the
candidate to be acquired in the closing documents, the closing
documents will provide that the proposed transaction will be voidable,
at the discretion of the present management of the Company. If such
transaction is voided, the agreement will also contain a provision
providing for the acquisition entity to reimburse the Company for all
costs associated with the proposed transaction.
Competition
The Company will remain an insignificant participant among the firms
which engage in the acquisition of business opportunities. There are
many established venture capital and financial concerns which have
significantly greater financial and personnel resources and technical
expertise than the Company. In view of the Company's combined extremely
limited financial resources and limited management availability, the
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Company will continue to be at a significant competitive disadvantage
compared to the Company's competitors.
Employees
The Company has no full time employees. The Company's president,
treasurer and secretary have agreed to allocate a portion of their time
to the activities of the Company, without compensation. These officers
anticipate that the business plan of the Company can be implemented by
their devoting approximately 20 hours per month to the business affairs
of the Company and, consequently, conflicts of interest may arise with
respect to the limited time commitment by such officers. See Item 9,
"Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act."
Investment Company Act of 1940
The Company may participate in a business or opportunity by purchasing,
trading or selling the securities of such business. However, 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 (the "Investment Act"), and therefore avoid
application of the costly and restrictive registration and other
provisions of the Investment Act and the regulations promulgated
thereunder.
Section 3(a) of the Investment Act provides the definition of an
"investment company" which includes an entity that engages or holds
itself out as being engaged primarily in the business of investing,
reinvesting or trading in securities, or that engages or proposes to
engage in the business of investing, reinvesting, owning, holding or
trading "investment securities" (defined as all securities other than
government securities, securities of majority-owned subsidiaries and
certain other securities) the value of which exceeds 40% of the value
of its total assets (excluding government securities, cash or cash
items). The Company intends to implement its business plan in a manner
that will result in the availability of this exception from the
definition of "investment company." Consequently, the Company's
participation in a business or opportunity through the purchase and
sale of investment securities will be limited. In order to avoid
classification as an investment company, the Company will search for,
analyze and acquire or participate in a business opportunity by use of
a method that does not involve the acquisition, ownership or holding of
investment securities.
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The Company's plan of business may involve changes in its capital
structure, management, control and business, especially if it
consummates a reorganization as discussed above. Each of these areas is
regulated by the Investment Act, which regulation has the purported
purpose of protecting purchasers of investment company securities.
Since the Company will not register as an investment company, its
shareholders will not be afforded these purported protections.
The Company intends to vigorously resist classification as an
investment company and to take advantage of any exemptions or
exceptions from application of the Investment Act, which allows an
entity a one-time option during any three-year period to claim an
exemption as a "transient" investment company. The necessity of
asserting any such resistance, or making any claim of exemption, could
be time-consuming and costly, or even prohibitive, given the Company's
limited resources.
Certain Risks
The Company's business is subject to numerous risk factors, including
the following:
No Operating History or Revenue and Minimal Assets. The Company has had
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. This may result in the Company incurring a net operating
loss which will increase continuously until the Company can consummate
a business combination with a profitable business opportunity. There is
no assurance that the Company can identify such a business opportunity
and consummate such a business combination.
Speculative Nature of Company's Proposed Operations. The success of the
Company's proposed plan of operation will depend to a great extent on
the operations, financial condition and management of the identified
business opportunity. While management intends to seek business
combination(s) 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 may be dependent upon
management of the successor firm or venture partner firm and numerous
other factors beyond the Company's control.
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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, joint ventures
with and acquisitions of small private and public 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 desirable target candidates for the Company. Nearly all
such entities have significantly greater financial resources, technical
expertise and managerial capabilities than the Company and,
consequently, the Company will be at a competitive disadvantage in
identifying possible business opportunities and successfully completing
a business combination. Moreover, the Company will also compete in
seeking merger or acquisition candidates with numerous other small
public companies.
No Agreement for Business Combination or Other Transaction; No
Standards for Business Combination. The Company has no arrangement,
agreement or understanding with respect to engaging in a merger with,
joint venture with or acquisition of, a private or public entity. There
can be no assurance that the Company will be successful in identifying
and evaluating suitable business opportunities or in concluding a
business combination. Management has not identified any particular
industry or specific business within an industry for evaluation by the
Company. There is no assurance that the Company will be able to
negotiate a business combination on terms favorable to the Company. The
Company has not established a specific length of operating history or a
specified level of earnings, assets, net worth or other criteria which
it will require a target business opportunity to have achieved, and
without which the Company would not consider a business combination in
any form with such business opportunity. Accordingly, the Company may
enter into a business combination with a business opportunity having no
significant operating history, losses, limited or no potential for
earnings, limited assets, negative net worth or other negative
characteristics.
Continued Management Control; Limited Time Availability. While seeking
a business combination, management anticipates devoting up to 20 hours
per month to the business of the Company. None of the Company's
officers has entered into a written employment agreement with the
Company and none is expected to do so in the foreseeable future. The
Company has not obtained key man life insurance on any of its officers
or directors. Notwithstanding the combined limited experience and time
commitment of management, loss of the services of any of these
individuals would adversely affect development of the
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Company's business and its likelihood of continuing operations. See
Item 9, "Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act."
Conflicts of Interest - General. Certain of the officers and directors
of the Company are directors and/or principal shareholders of other
blank check companies and, therefore, could face conflicts of interest
with respect to potential acquisitions. In addition, officers and
directors of the Company may in the future participate in business
ventures which could be deemed to compete directly with the Company.
Additional conflicts of interest and non-arms length transactions may
also arise in the future in the event the Company's officers or
directors are involved in the management of any firm with which the
Company transacts business. The Company's Board of Directors has
adopted a policy that the Company will not seek a merger with, or
acquisition of, any entity in which management serve as officers or
directors, or in which they or their family members own or hold a
controlling ownership interest. Although the Board of Directors could
elect to change this policy, the Board of Directors has no present
intention to do so. In addition, if the Company and other blank check
companies with which the Company's officers and directors are
affiliated both desire to take advantage of a potential business
opportunity, then the Board of Directors has agreed that said
opportunity should be available to each such company in the order in
which such companies registered or became current in the filing of
annual reports under the Exchange Act subsequent to January 1, 1997.
See Item 9, "Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act - Conflicts
of Interest."
Reporting Requirements May Delay or Preclude Acquisition. Sections 13
and 15(d) of the Exchange Act require companies subject thereto to
provide certain information about significant acquisitions, including
certified financial statements for the company acquired, covering one,
two or three years, depending on the relative size of the acquisition.
The time and additional costs that may be incurred by some target
entities to prepare such statements may significantly delay or
essentially preclude consummation of an otherwise desirable acquisition
by the Company. Acquisition prospects that do not have or are unable to
obtain the required audited statements may not be appropriate for
acquisition so long as the reporting requirements of the Exchange Act
are applicable.
Lack of Market Research or Marketing Organization. The Company has
neither conducted, nor have others made available
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to it, results of market research indicating that market demand exists
for the transactions contemplated by the Company. Moreover, the Company
does not have, and does not plan to establish, a marketing
organization. Even in the event demand is identified for a merger or
acquisition contemplated by the Company, there is no assurance the
Company will be successful in completing any such business combination.
Lack of Diversification. The Company's proposed operations, even if
successful, will in all likelihood result in the Company engaging in a
business combination with a business opportunity. Consequently, the
Company's activities may be limited to those engaged in by the business
opportunity or opportunities which the Company merges with or acquires.
The Company's inability to diversify its activities into a number of
areas may subject the Company to economic fluctuations within a
particular business or industry and therefore increase the risks
associated with the Company's operations.
Regulation. 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 would subject
the Company to material adverse consequences.
Probable Change in Control and Management. A business combination
involving the issuance of the Company's Common Stock will, in all
likelihood, result in shareholders of a private company obtaining a
controlling interest in the Company. Any such business combination may
require management of the Company to sell or transfer all or a portion
of the Company's Common Stock held by them, or resign as members of the
Board of Directors of the Company. The resulting change in control of
the Company could result in removal of one or more present officers and
directors of the Company and a corresponding reduction in or
elimination of their participation in the future affairs of the
Company.
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Reduction of Percentage Share Ownership Following Business Combination.
The Company's primary plan of operation is based upon a business
combination with a private concern which, in all likelihood, would
result in the Company issuing securities to shareholders of any such
private company. The issuance of previously authorized and unissued
shares of Common Stock of the Company would result in a reduction in
the percentage of shares owned by present and prospective shareholders
of the Company and may result in a change in control or management of
the Company.
Disadvantages of Blank Check Companies. The Company may enter into a
business combination with an entity that desires to establish a public
trading market for its shares. A business opportunity 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 such
an offering, loss of voting control to public shareholders and the
inability or unwillingness to comply with various federal and state
laws enacted for the protection of investors.
Taxation. Federal and state tax consequences will, in all likelihood,
be major considerations in any business combination the Company may
undertake. Currently, such transactions may be structured so as to
result in tax-free treatment to both companies, pursuant to various
federal and state tax provisions. The Company intends to structure any
business combination so as to minimize the federal and state tax
consequences to both the Company and the target entity; however, there
can be no assurance that such business combination will meet the
statutory requirements of a tax-free reorganization or that the parties
will obtain the intended tax-free treatment upon a transfer of stock or
assets. A non-qualifying reorganization could result in the imposition
of both federal and state taxes which may have an adverse effect on
both parties to the transaction.
Requirement of Audited Financial Statements May Disqualify Business
Opportunities. Management of the Company believes that any potential
business opportunity must provide audited financial statements for
review, for the protection of all parties to the business combination.
One or more attractive business opportunities may choose to forego the
possibility of a business combination with the Company, rather than
incur the expenses associated with preparing audited financial
statements.
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Item 2. Property
The Company does not have any formal offices at year end. Records are
maintained and mail received at 10200 W. 44th Avenue, Suite, Wheat
Ridge, CO 80033. The Company owns no real property.
Item 3. Legal Proceedings
The Company is a party to no pending legal proceedings, nor is its
property subject to such proceedings, at September 30, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
On December 23, 1997, a Special Meeting of Shareholders was held, at
which new directors were elected, whose names and biographical
information are contained in Item III, Management.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of the date of this report, management knows of no trading or
quotation of the Company's common stock. The range of high and low bid
quotations for each fiscal quarter since the last report, as reported
by the National Quotation Bureau Incorporated, was as follows:
1997 High Low
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First quarter * *
Second quarter * *
Third quarter * *
Fourth quarter * *
1996 High Low
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First quarter * *
Second quarter * *
Third quarter * *
Fourth quarter * *
1995 High Low
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First quarter * *
Second quarter * *
Third quarter * *
Fourth quarter * *
* No quotations reported
The above quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent
actual transactions.
As of September 30, 1998, there were 421 record holders of the
Company's common Stock.
The Company has not declared or paid any cash dividends on its common
stock and does not anticipate paying dividends for the foreseeable
future.
-17-
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition and Changes in Financial Condition
No operations were conducted and no revenues were generated in the
fiscal year. The Company had no income in year ended September 30, 1998. The
Company at year end had no capital, no cash, and no other assets. The Company at
year end was totally illiquid and needed cash infusions from shareholders to
provide capital, or loans from any sources.
Results of Operations - Year Ended September 30, 1998 Compared to Year Ended
September 30, 1997
During the fiscal year ended September 30, 1998, the Company had no
revenues, and in 1997, the Company had no revenues. In 1998, the Company
incurred no expenses for operations. In 1997, the Company incurred no expenses.
The Company had no profit or loss on operations in 1998 and in 1997 wrote off
$14,240 in assets of ($14,240).
Item 7. Financial Statements and Supplementary Data
Please refer to pages F-1 through F-7.
Item 8. Changes in and Disagreements on Accounting
and Financial Disclosure
Michael B. Johnson & Company, CPA's of Denver, Colorado was
retained in 1998 as auditors for the Company for fiscal year 1998. Prior
auditors for the Company were Michael B. Johnson & Co., P.C. of Denver for the
fiscal years 1988.
In connection with audits of most recent fiscal year and any interim
period preceding resignation, no disagreements exist with any former accountant
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope of procedure, which disagreements if not resolved
to the satisfaction of the former accountant would have caused him to make
reference in connection with his report to the subject matter of the
disagreement(s).
The principal accountants' reports on the financial statements for any
of the past year contained no adverse opinion or a disclaimer of opinion nor was
qualified as to uncertainty, audit scope, or accounting principles except for
the "going concern" qualification.
-18-
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant and Compliance with
Section 16(a)
The directors and executive officers of the Company as of September 30,
1998, are as follows:
Name Age Position
- ------------------ ------ -------------
Larry Carr 56 President and Director
Sharon Carr 56 Secretary and Director
Chris Sanders 39 Vice President and Director
The term of office of each director and executive officer ends at, or
immediately after, the next annual meeting of shareholders of the Company.
Except as otherwise indicated, no organization by which any director or officer
has been previously employed is an affiliate, parent or subsidiary of the
Company.
Larry M. Carr, age 56, has been President and Director of the Company
since 1997. He attended Loyola University from 1961- 63 and 1967-68 and attended
Tarkio College from 1963-64. From 1989 to the present, he has been CEO and
principal of Nursefinders Management Corporation From 1996 to the present, he
has been CEO and principal of Computerized Healthcare Management Services, LLC.
He has been Chairman of the Board of Northwest National Bank of Arlington since
1996. He has been Chairman of the Board of VSI Enterprises, Inc., a public
company, since 1994.
Sharon R. Carr, age 56, has been Secretary and Director since 1997. She
received a Bachelors Degree from the University of Miami in 1965 and a Masters
Degree from Roosevelt University in 1971. From 1989 to the present, she has been
a Director and principal in Nursefinders Management Corporation and Computerized
Healthcare Management Services, LLC.
Christine Sanders, age 39, has been a Director since 1997. She received
a BSN from Marquette University in 1982. From 1995 to the present, she has been
President and COO of Nursefinders Management Corporation. From 1996 to the
present, she has been President of Computerized Healthcare Management Services,
LLC. From 1988 to the present, she has been Regional Vice President and Regional
Director of Nursefinders, Inc.
-19-
<PAGE>
Conflicts of Interest
Members of the Company's management are associated with other firms
involved in a range of business activities. Consequently, there are potential
inherent conflicts of interest in their acting as officers and directors of the
Company. Insofar as the officers and directors are engaged in other business
activities, management anticipates it will devote only a minor amount of time to
the Company's affairs.
Certain of the officers and directors of the Company are directors and
principal shareholders in other blank check companies, and officers and
directors of the Company may in the future become shareholders, officers or
directors of other companies which may be formed for the purpose of engaging in
business activities similar to those conducted by the Company. Accordingly,
direct conflicts of interest may arise in the future with respect to such
individuals acting on behalf of the Company or other entities. Conflicts of
interest may arise with respect to opportunities which come to the attention of
such individuals in the performance of their duties or otherwise. The Company
does not currently have a right of first refusal pertaining to opportunities
that come to management's attention insofar as such opportunities may relate to
the Company's proposed business operations.
The officers and directors are, so long as they are officers or
directors of the Company, subject to the restriction that all opportunities
contemplated by the Company's plan of operation which come to their attention,
either in the performance of their duties or in any other manner, will be
considered opportunities of, and be made available to the Company and the
companies that they are affiliated with on an equal basis. A breach of this
requirement will be a breach of the fiduciary duties of the officer or director.
If the Company and the companies with which the officers and directors are
affiliated both desire to take advantage of an opportunity, then the Board of
Directors has agreed that said opportunity should be available to each such
company in the order in which such companies registered or became current in the
filing of annual reports under the Exchange Act subsequent to January 1, 1997.
All directors may still individually take advantage of opportunities if the
Company should decline to do so. Except as set forth above, the Company has not
adopted any other conflict of interest policy with respect to such transactions.
The Company's Board of Directors has adopted a policy that the Company
will not seek a merger with, or acquisition of, any entity in which any officer
or director serves as an officer or director or in which they or their family
members own or hold a controlling ownership interest. Although the Board of
Directors could elect to change this policy, the Board of Directors has no
present intention to do so.
-20-
<PAGE>
There can be no assurance that management will resolve all conflicts of
interest in favor of the Company.
Item 10. Executive Compensation
The Company accrued no compensation to the executive officers as a
group for services rendered to the Company in all capacities during the 1998
fiscal year. No one executive officer received, or has accrued for his benefit,
in excess of $60,000 for the year. No cash bonuses were or are to be paid to
such persons.
The Company does not have any employee incentive stock option plans.
There are no plans pursuant to which cash or non-cash compensation was
paid or distributed during the last fiscal year, or is proposed to be paid or
distributed in the future, to the executive officers of the Company. No other
compensation not described above was paid or distributed during the last fiscal
year to the executive officers of the Company. There are no compensatory plans
or arrangements, with respect to any executive office of the Company, which
result or will result from the resignation, retirement or any other termination
of such individual's employment with the Company or from a change in control of
the Company or a change in the individual's responsibilities following a change
in control.
-21-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Annual Compensation Awards
Name and Year Salary Bonus Other Annual Restricted Securities
Principal ($) ($) Compensation Stock Underlying
Position ($) Award(s) Options/
($) SARs (#)
- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Larry Carr, 1996 0 0 0 0 0
President
1997 0 0 0 0 0
------------- -------------- ------------ ------------------------- --------------------- -------------
1998 0 0 0 0 0
------------- -------------- ------------ ------------------------- --------------------- -------------
Sharon 1996 0 0 0 0 0
Carr,
Secretary
- -------------------------
1997 0 0 0 0 0
------------- -------------- ------------ ------------------------- --------------------- -------------
1998 0 0 0 0 0
------------- -------------- ------------ ------------------------- --------------------- -------------
Christine 1996 0 0 0 0 0
Sanders,
Vice
President
- -------------------------
1997 0 0 0 0 0
------------- -------------- ------------ ------------------------- --------------------- -------------
1998 0 0 0 0 0
============= ============== ============ ========================= ===================== =============
</TABLE>
Option/SAR Grants Table (None)
Aggregated Option/SAR Exercises in Last Fiscal Year an FY-End
Option/SAR value (None)
Long Term Incentive Plans - Awards in Last Fiscal Year (None)
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
(Except for compensation of Officers who are also Directors which Compensation
is listed in Summary Compensation Table of Executives)
<TABLE>
<CAPTION>
Cash Compensation Security Grants
Name Annual Meeting Consulting Number Number of
Retainer Fees Fees/Other of Securities
Fees ($) ($) Fees ($) Shares Underlying
(#) Options/SARs(#)
<S> <C> <C> <C> <C> <C>
A. All 0 0 0 0 0
Directors
</TABLE>
-22-
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, as of September 30, 1998,
with respect to the beneficial ownership of the Company's no par value common
stock by each person known by the Company to be the beneficial owner of more
than five percent of the outstanding common stock.
Stock Names and Address Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
- -------------- ------------------- ---------- --------
Common Larry Carr 34,574,000 42%
Security Ownership of Certain Beneficial Owners and Management
(Continued)
The following table sets forth information, as of September 30, 1998,
with respect to the beneficial ownership of the Company's no par value common
stock by the directors and officers of the Company, both individually and as a
group.
Stock Names and Address Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
- -------------- ------------------- ---------- ---------
Common Larry Carr 34,574,000 42%
Common Sharon Carr 0 0%
Common Christine Sanders 0 0%
Officers and Directors as a group 42%
Item 12. Certain Relationships and Related Transactions
None.
-23-
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
The following documents are filed as part of this report:
1. Reports on Form 8-K:
None
2. Exhibits:
INDEX
Form 10-K
Regulation Consecutive
S-K Number Exhibit Page Number
- ---------- ------- -----------
3.1 Articles of Incorporation *Incorporated by reference
to Registration Statement
3.2 Bylaws *Incorporated by reference
to Registration Statement
27.1 Financial Data Schedule EX-27.1
-24-
<PAGE>
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.
The Entity, Inc.
(Registrant)
Date: December 20, 1999
/s/ Larry Carr
--------------------------------
Larry Carr, President/Director
/s/ Sharon Carr
--------------------------------
Sharon Carr, Secretary/Director
Christine Sanders
--------------------------------
Christine Sanders, Director
-25-
<PAGE>
THE ENTITY, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To: The Board of Directors
The Entity, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of The Entity, Inc., as of
September 30, 1999 and 1998, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The company has been dormant for many years and has lost or destroyed many of
the financial records during this time. Due to loss records, we were unable to
confirm the liabilities and stockholders' equity and accordingly do not express
an opinion on these items.
As shown in the financial statements, the company incurred a net loss of $3,000
for 1999 and had incurred substantial losses in the prior years. At September
30, 1999, current liabilities exceed assets by $9,624. These factors indicate
that the company has substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the company
cannot continue in existence.
In our opinion, except for the items mentioned above, the financial statements,
referred to above, present fairly, in all material respects, the financial
position of The Entity, Inc., as of September 30, 1999 and 1998, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Michael Johnson & Co.
Denver, Colorado
December 28, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
THE ENTITY, INC.
BALANCE SHEET
FOR THE YEAR ENDED SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
ASSETS:
Other Assets
TOTAL ASSETS $- $-
================= =================
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable 4,624 4,624
Advance from Stockholders 5,000 2,000
----------------- -----------------
Total Current Liabilities 9,624 6,624
----------------- -----------------
Stockholders' Equity
Preferred Stock, ($.01) par value, 10,000,000 - -
shares authorized, none issued and outstanding
Common Stock, (.0001) par value, 100,000,000 8,140 8,140
shares authorized. 81,400,000 shares issued and
outstanding
Additional Paid-In Capital 53,610 53,610
Accumulated Deficit (71,374) (68,374)
----------------- -----------------
Total Stockholders' Equity (Deficit) (9,624) (6,624)
----------------- -----------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $- $-
================= =================
</TABLE>
The accompanying notes are an integral part of this financial statement
F-2
<PAGE>
<TABLE>
<CAPTION>
THE ENTITY, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
REVENUES:
TOTAL REVENUES: $- $-
=========================== ==========================
EXPENSES:
Operational Expenses (3,000) -
--------------------------- --------------------------
TOTAL EXPENSES (3,000) -
--------------------------- --------------------------
NET LOSS ($3,000) $-
=========================== ==========================
Net Loss Per share (0.01) -
Weighted Average Number of
Shares Outstanding 81,400,000 81,400,000
=========================== ==========================
</TABLE>
The accompanying notes are an integral part of this financial statement
F-3
<PAGE>
<TABLE>
<CAPTION>
THE ENTITY, INC.
STOCKHOLDERS' EQUITY
SEPTEMBER 30, 1999
Additional
Common Stock Paid-In Accum.
Shares Amount Capital Deficit Total
------ ------ ---------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance 09/30/97 81,400,000 $8,140 $53,610 ($68,374) ($6,624)
Net Loss 09/30/98 - - - - -
---------------------- ------------------ --------------------- ------------------- -----------
Balance 09/30/98 81,400,000 8,140 53,610 (68,374) (6,624)
Net Loss 09/30/99 - - - (3,000) (3,000)
---------------------- ------------------ --------------------- ------------------- -----------
Balance 09/30/99 81,400,000 $8,140 $53,610 ($71,374) ($9,624)
====================== ================== ===================== =================== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement
F-4
<PAGE>
<TABLE>
<CAPTION>
THE ENTITY, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss ($3,000) $-
Cash Used in Operating Activities
Increase in Advance from Stockholders 3,000 -
-------------------------- ----------------------
Net Cash Used in Operating Activities - -
Cash and cash equivalents at
Beginning of Year - -
Cash and cash equivalents at
End of Year $- $-
========================== ======================
Supplemental Disclosure of Cash Flows
Information Cash Paid During the Year for:
Interest - -
Income Taxes - -
</TABLE>
The accompanying notes are an integral part of this financial statement
F-5
<PAGE>
THE ENTITY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1999 AND 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The following is a summary of The Entity, Inc. (Company)
significant accounting policies:
Organizations
The Company was incorporated July 7, 1983 under the laws of
Colorado under the name of Moonstone, Inc. for the primary
purpose of seeking acquisitions of business or properties,
without limitation as to geographic location or type of
business. Moonstone, Inc., a publicly traded entity, merged
with The Entity, Inc. Moonstone, Inc., the surviving entity
after the merger, changed its name to The Entity, Inc.
On December 23, 1997, an application for Reinstatement and
Corporate Report was approved and submitted after a special
stockholders' meeting. Many of the corporate records have been
lost or destroyed. Since the completion of the initial
offering, the Company has not engaged in any operations nor
has it generated any revenue. The Company has been engaged in
the identification and evaluation of target business entities
or assets for possible acquisition.
Cash and Cash Equivalents
For purpose of the statement of cash flows, cash and cash
equivalents include cash in banks and money market accounts.
The Company has no cash accounts at the present time.
Deferred Organization Expenses
Cost incurred in connection with the organization were charged
to expenses using the straight-line method over 60 months.
Income Taxes
The Financial Accounting Standards Board (FASB) has issued
Statement of Financial Accounting Standards Number 109 ("SFAS
109"), "Accounting for Income Taxes," which requires a change
from the deferred method to the assets and liability method,
deferred income taxes are recognized for the tax consequences
of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the
financial statement carrying amounts and the tax basis of
existing assets and liabilities.
At September 30, 1999, the Company had net operating loss
carryforwards of approximately $71,370 for federal income tax
purposes. These carryforwards, if not utilized to offset
taxable income, will expire at the end of 2002. There is no
provision or benefit for income taxes in fiscal 1999.
F-6
<PAGE>
THE ENTITY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
--------------------------------------------------
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosures 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.
NOTE 2 - GOING CONCERN
-------------
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles,
which contemplates continuation of the Company as a going
concern. However, the Company has sustained an operation loss
this year. As shown in the financial statements, the Company
incurred a net loss of $3,000 for 1999 and had incurred net
losses in the prior years. At September 30, 1999, current
liabilities exceed current assets by $9,624. These factors
indicate that the Company has substantial doubt about its
ability to continue as a going concern. The financial
statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in
existence.
In view of these matters, realization of a major portion of
the assets in the accompanying balance sheet is dependent upon
continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financial
requirements, and the success of its future operations.
F-7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 6624
<BONDS> 0
0
0
<COMMON> 8140
<OTHER-SE> (14764)
<TOTAL-LIABILITY-AND-EQUITY> (6624)
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
