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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the Quarter Ending March 31, 1996
Commission File No. 033-27508-LA
SUN HARBOR FINANCIAL RESOURCES, INC.
(Exact name of Registrant as specified in its Charter)
Incorporated under the Laws 33-0338441
of the State of Delaware (I.R.S. Employer
(State or other jurisdiction of Identification Number)
incorporation or organization)
5001 East Commercenter Drive, Suite 245, Bakersfield, California 93309
(Address of principle executive office)
(805) 637-1000
(Registrant's telephone number, including area code)
4275 Executive Square, Suite 800, La Jolla, California 92037
(Former name, former address, and former fiscal year,
if changed since last report)
Common Stock Outstanding at March 31, 1996
29,965,200 Shares at $0.01 Par Value Common
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes NO X .
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SUN HARBOR FINANCIAL RESOURCES, INC.
TABLE OF CONTENTS
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1996 (unaudited) and December 31, 1995. . . . 3
Consolidated Statements of Operations (unaudited)
Three Months Ended March 31, 1996 (unaudited)
and Three Months Ended March 31, 1995 (unaudited) . . . 5
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended March 31, 1996 and March 31, 1995. . 6
Notes to Consolidated Financial Statements (unaudited). . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 8
Item 2A. Factors That May Affect Future Results . . . . . . . . . 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . 19
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders . . . 19
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 19
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUN HARBOR FINANCIAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1996 1995
---------------- ----------------
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and cash equivalents. . $ 1,613 $ 114
Accounts receivable. . . . . 0 0
Loans held for resale. . . . 0 0
Investment . . . . . . . . . 47,625 19,886
---------------- ----------------
Total current assets. . 49,238 20,000
FIXED ASSETS:
Furniture and equipment. . . 0 0
Accumulated depreciation . . 0 0
---------------- ----------------
Net fixed assets. . . . 0 0
OTHER ASSETS:
Security deposits. . . . . . 0 0
Notes receivable . . . . . . 12,500 15,000
---------------- ----------------
Total other assets. . . 12,500 15,000
---------------- ----------------
TOTAL ASSETS . . . . . . . . . $ 61,738 $ 35,000
---------------- ----------------
---------------- ----------------
The accompanying notes are an integral part of these statements.
3
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SUN HARBOR FINANCIAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1996 1995
------------- --------------
(Unaudited) (Audited)
CURRENT LIABILITIES:
Accrued expenses. . . . . . . . . . . . $ 0 $ 3,000
Cash overdraft. . . . . . . . . . . . . 0 17,741
Income taxes payable. . . . . . . . . . 0 0
Current portion of long term debts. . . 0 0
------------- --------------
Total current liabilities . . . . . 0 20,741
LONG TERM DEBT, less current maturities 25,000 0
------------- --------------
Total liabilities . . . . . . . . . 25,000 20,741
STOCKHOLDERS' EQUITY:
Common Stock, 30,000,000 shares
authorized, issued and outstanding
$.01 par value;. . . . . . . . . . . 295,152 295,152
Preferred Stock, 5,000,000 shares
authorized, issued and outstanding
$.01 par value;. . . . . . . . . . . 340 340
Additional paid-in capital. . . . . . . (182,135) (228,588)
Unrealized gain on securities
available for sale . . . . . . . . . 12,719 0
Retained earnings (deficit) . . . . . . (89,338) (52,645)
------------- --------------
Total stockholders' equity. . . . . 36,738 14,259
------------- --------------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY. . . . . . . . $ 61,738 $ 35,000
------------- --------------
------------- --------------
The accompanying notes are an integral part of these statements.
4
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SUN HARBOR FINANCIAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months
Ended March
----------------
1996 1995
-------- ---------
Sales
Origination of loans . . . . . . . . . $ 0 $ 130,127
Servicing and interest income. . . . . 10 19,648
Others . . . . . . . . . . . . . . . . 0 9,810
-------- ---------
Gross profit . . . . . . . . 10 159,585
Operating expenses
Selling expenses . . . . . . . . . . . 0 48,887
General and administrative expenses. . 5,670 106,781
Depreciation . . . . . . . . . . . . . 0 3,500
Interest . . . . . . . . . . . . . . . 188 2,700
-------- ---------
Total expenses . . . . . . . 5,858 161,868
Income (loss) before taxes . (5,848) (2,283)
Income taxes . . . . . . . . . . . . . . 0 0
-------- ---------
NET INCOME (LOSS). . . . . . $ (5,848) $ (4,683)
-------- ---------
-------- ---------
EARNINGS (LOSS) PER SHARE. . . . . . . . $ (.0002) $ (.0003)
-------- ---------
-------- ---------
The accompanying notes are an integral part of these statements.
5
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SUN HARBOR FINANCIAL RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flow from operating activities:
Net cash (used in) provided by operating activities. $ (5,848) $ (4,683)
Adjustments to reconcile net income (loss)
by operating activities:
Depreciation. . . . . . . . . . . . . . . . . . 0 3,500
Changes in current assets and liabilities:
(Increase) decrease in receivables. . . . . . . 0 5,424
(Increase) decrease in loans held for resale. . 0 (41,500)
(Increase) decrease in advances and other assets 0 667
Increase (decrease) in accrued expenses . . . . (3,000) (4,382)
Increase (decrease) in warehouse line payable . 0 39,305
Increase (decrease) in deferred revenues. . . . 0 0
Increase (decrease) in current portion of
long term debts. . . . . . . . . . . . . . 0 (367)
Increase (decrease) in deferred income taxes. . 0 (2,400)
------------ ------------
Net cash used in operating activities . . . . . (8,848) 364
Cash flows from investing activities:
Additions to fixed assets. . . . . . . . . . . . . 0 (2,013)
Net changes to notes receivable. . . . . . . . . . 2,500 15,000
Purchase of securities . . . . . . . . . . . . . . (15,020) 0
------------ ------------
Net cash (used) by investing activities . . . . (12,520) 12,987
Cash flows from financing activities:
Payments of long term debt . . . . . . . . . . . . 0 (1,604)
Redemption of preferred stock. . . . . . . . . . . 0 (1,000)
Additional paid-in capital . . . . . . . . . . . . 42,000 0
Paid-in capital reduced. . . . . . . . . . . . . . (1,392) 0
------------ ------------
Net cash provided by financing activities . . . 40,608 (2,604)
------------ ------------
Net increase in cash and cash equivalents . . . 19,240 10,747
Cash and cash equivalents at beginning of period . . (17,627) 58,889
------------ ------------
Cash and cash equivalents at end of period . . . . . $ 1,613 $ 69,636
------------ ------------
------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . . . $ 188 $ 2,700
Income taxes. . . . . . . . . . . . . . . . . . 0 0
</TABLE>
The accompanying notes are an integral part of these statements.
6
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SUN HARBOR FINANCIAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the consolidated
financial position of Sun Harbor Financial Resources, Inc. and Subsidiaries
(the "Company") as of March 31, 1996 and December 31, 1995 and the results
of its operations and its cash flows for the three months ended March 31,
1996 and 1995. The results of operations and cash flows for the three
months ended March 31, 1996 are not necessarily indicative of the results
to be expected for any other interim period or the full year. These
consolidated financial statements should be read in combination with the
consolidated financial statements and notes thereto for the year ended
December 31, 1995.
2. On October 31, 1995, the Company's Board of Directors voted to sell
(effective June 29, 1995), the Company's three wholly-owned subsidiaries:
Sun Harbor Mortgage, Inc., Sun Harbor Leasing, Inc., and Peninsula Funding
Corporation to a Company officer, David W. Langill at a selling price of
$15,000. The sale is subject to approval of the Company's shareholders.
Under the terms of the transaction, Mr. Langill has assumed all of the
Company's liabilities and has agreed to indemnify and hold the Company
harmless from and against all material liabilities that the Company had as
of June 29, 1995.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This report has been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information normally
included in annual reports has been condensed or omitted pursuant to such
rules and regulations. This report should be read in conjunction with the
Company's latest Annual Report on Form 10-K for the year ended December 31,
1994, a copy of which may be obtained by writing Sun Harbor Financial
Resources, Inc., 5001 East Commercenter Drive, Suite 245, Bakersfield,
California 93309.
INTRODUCTION
The Company was incorporated in the state of Delaware on May 3, 1988.
On August 28, 1989, the Company registered 1,000,000 shares of its Common
Stock issued to Exten Ventures, Inc. in exchange for certain consulting and
merchant banking services received by the Company with the result that
723,933 of these shares were distributed to Exten's shareholders as dividend.
Exten is not an affiliate of the Company.
From inception to June 29, 1995 and subject to approval of the Company's
shareholders, the Company has had three wholly-owned subsidiaries: Sun
Harbor Mortgage, Inc. ("SHMI"), Peninsula Funding Corporation ("PFC"), and
Sun Harbor Leasing, Inc. ("SHL").
SHMI has been in the mortgage brokerage business primarily in San Diego
County, SHL is engaged in the automobile and aircraft leasing business, and
PFC is a trustee corporation. The Company's business has been primarily
derived from its mortgage brokerage and related business and historically
most of this business has been derived from operations within San Diego
County, California.
On October 31, 1995 and after five years of cumulative losses, the
Company's Board of Directors, after receiving an independent valuation
opinion, voted to sell SHMI, SHL, and PFC to a Company officer, David W.
Langill for $15,000. The proposed sale is subject to approval of the
Company's shareholders.
RESULTS OF OPERATIONS
THREE MONTHS ENDING MARCH 31, 1996 AND MARCH 31, 1995
For the three months ending March 31, 1996 (the "First Quarter 1996"),
the Company recorded $10 in revenues in comparison with the three months
ending March 31, 1995 (the "First Quarter 1995"), where the Company recorded
$159,585 in revenues. The latter's revenues were largely derived from fees
the Company earned on real property loan origination services, loan servicing
and interest income, and miscellaneous fees.
8
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The near absence of any sales revenues during the First Quarter 1996 was
due to the action of the Company's Board of Directors, to sell the Company's
three wholly-owned subsidiaries (Sun Harbor Mortgage, Inc., Sun Harbor
Leasing, Inc., and Peninsula Funding Corporation) to a Company officer, David
W. Langill. The sale agreement is subject to shareholder approval and
provides that the subsidiaries were sold to Mr. Langill effective June 29,
1995.
Expenses for the First Quarter 1996 included: (i.) $5,670 in general and
administrative expenses which included certain legal, accounting, and related
costs and (ii.) $188 recorded as interest expense.
By comparison with First Quarter 1995, the Company recorded $48,887 in
Selling Expenses, $106,781 in General and Administrative Expenses, $3,500 in
Depreciation, and $2,700 in Interest Expense. These expenses were incurred
in connection with the Company's operation of its mortgage brokerage,
automobile and aircraft leasing, and trustee service business.
As a result, the Company incurred a loss of $5,848 for the First Quarter
1996 in comparison with a loss of $4,683 for the comparable First Quarter
1995. The decreased loss was primarily due to the limited scope and level of
operating activity by the Company during the First Quarter 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the First Quarter 1996, the Company's cash requirements were met
through the use of the Company's cash resources.
For the First Quarter 1996, the Company experienced negative cash flow
in operating activities of $8,848. After investing and financing activities,
the Company recorded a net increase in cash and cash equivalents of $19,240
for the First Quarter 1996.
By comparison, for the First Quarter 1995, the Company experienced a
positive cash flow of $364 in its operating activities. After investing and
financing activities, the Company recorded a net increase in cash and cash
equivalents of $19,240 for the First Quarter 1996 compared to an increase of
$10,747 for First Quarter 1995.
Although the Company has no outstanding credit facilities, the Company
believes that it will need to issue common stock, preferred stock, debt, or
some combination of these securities in connection with any acquisition of
any existing business.
9
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PLAN OF OPERATION
The Company, pending the approval of its shareholders, will become a
"clean public shell" and thereby seek to either merge with or acquire an
operating company with operating history and assets. The Securities and
Exchange Commission has defined and designated these types of companies as
"blind pools" and "blank check" companies.
The primary activity of the Company will likely involve seeking merger
or acquisition candidates with whom it can either merge or acquire. The
Company has not selected any company for acquisition or merger and does not
intend to limit potential acquisition candidates to any particular field or
industry, but does retain the right to limit acquisition or merger
candidates, if it so chooses, to a particular field or industry. The
Company's plans are in the conceptual stage only.
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. The discussion of the
proposed business under this caption 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.
The Company intends to obtain funds in one or more private placements to
finance the operation of any acquired business. Persons purchasing
securities in these placements and other shareholders will likely not have
the opportunity to participate in the decision relating to any acquisition.
The Company's proposed business is sometimes referred to as a "blind pool"
because any investors will entrust their investment monies to the Company's
management before they have a chance to analyze any ultimate use to which
their money may be put. Consequently, the Company's potential success is
heavily dependent on the Company's management, which will have virtually
unlimited discretion in searching for and entering into a business
opportunity. There can be no assurance that the Company will be able to
raise any funds in private placements.
Management anticipates that it will only participate in one potential
business venture. This lack of diversification should be considered a
substantial risk in investing in 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 a firm which only
recently commenced operations, or a developing company in need of additional
funds for expansion into new products or markets, or seeking to develop a new
product or service, or an established business which may be experiencing
financial or operating difficulties and is in the need for additional capital
which is perceived to be easier to raise by a public company. In some
instances, a business opportunity may involve the acquisition or merger with
a corporation which does not need substantial additional cash but which
desires to establish a public trading market for its common stock.
10
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The Company may purchase assets and establish wholly owned subsidiaries
in various businesses or purchase existing businesses as subsidiaries.
The Company anticipates that the selection of a business opportunity in
which to participate will be complex and extremely risky. Because of 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 benefits of a publicly traded
corporation. Such perceived benefits of a publicly traded corporation may
include facilitating or improving the terms on which additional equity
financing may be sought, providing liquidity for the principals of a
business, creating a means for providing 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.
As is customary in the industry, the Company may pay a finder's fee for
locating an acquisition prospect. If any such fee is paid, it will be
approved by the Company's Board of Directors and will be in accordance with
the industry standards. Such fees are customarily between 1% and 5% of the
size of the transaction, based upon a sliding scale of the amount involved.
Such fees are typically in the range of 5% on a 41,000,000 transaction
ratably down to 1% in a $4,000,000 transaction.
The Company has insufficient capital with which to provide the owners of
business opportunities with any significant cash or other assets. However,
management believes the Company will offer owners of business opportunities
the opportunity to acquire a controlling ownership interest in a public
company at substantially less cost than is required to conduct an initial
public offering.
The owners of the business opportunities will, however, incur
significant post-merger or acquisition registration costs in the event they
wish to register a portion of their shares for subsequent sale. The Company
will also incur significant legal and accounting costs in connection with the
acquisition of a business opportunity including the costs of preparing
post-effective amendments, Forms 8-K, agreements and related reports and
documents, nevertheless, the officers and directors of the Companies 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 company does not intend to make any loans to any prospective merger
or acquisition candidates or to unaffiliated third parties.
11
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EVALUATION OF OPPORTUNITIES
The analysis of new business opportunities will be undertaken by or
under the supervision of the officers and directors of the Company.
Management intends to concentrate on identifying prospective business
opportunities which may be brought to its attention through present
associations with management. 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 operation, if any; prospects for the
future; 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 each Company will meet personally with
management and key personnel of the firm sponsoring 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. It may be anticipated that any
opportunity in which the Company participates will present certain risks.
Many of these risks cannot be adequately identified prior to selection of the
specific opportunity, and the Company's shareholders must, therefore, depend
on the ability of management to identify and evaluate such risk. In the case
of some of the opportunities available to the Company, it may be anticipated
that the promoters thereof have been unable to develop a going concern or
that such business is in its development stage in that it has not generated
significant revenues from its principal business activities prior to the
Company's participation.
There is a risk, even after the Company's participation in the activity
and the related expenditure of the Company's funds, that the combined
enterprises will still be unable to become a going concern or advance beyond
the development stage. Many of the opportunities may involve new and
untested products, processes, or market strategies which may not succeed.
Such risks will be assumed by the Company and, therefore, its shareholders.
The Company will not restrict its search for any specific kind of
business, but may acquire a venture which is in its preliminary or
development stage, which is already in operation, or in essentially any stage
of its corporate life. It is currently impossible to predict the status of
any business in which the Company may become engaged, in that such business
may need additional capital, may merely desire to have its shares publicly
traded, or may seek other perceived advantages which the Company may offer.
12
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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, franchise or licensing agreement with another corporation or entity.
It may also purchase stock or assets of an existing business. On the
consummation of a transaction, it is possible that the present management and
shareholders of the Company will not be in control of the Company. In
addition, a majority or all of the Company's officers and directors may, as
part of the terms of the acquisition transaction, resign and be replaced by
new officers and directors without a vote of the Company's shareholders.
It is anticipated that any securities issued in any such reorganization
would be issued in reliance on exemptions from registration under applicable
federal and state securities laws. In some circumstances, however, as a
negotiated element of this transaction, the Company may agree to register
such securities either at the time the transaction is consummated, under
certain conditions, or at a specified time thereafter. The issuance of
substantial additional securities and their potential sale into any trading
market which may develop in the Company's Common Stock may have a depressive
effect on such market.
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 Section 368(a)(1) of the Internal Revenue Code of 1986,
as amended (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, including investors in this offering, would
retain less than 20% of the issued and outstanding shares of the surviving
entity, which could 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 reference 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 each 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 negotiating strength of the Company and such other management.
13
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With respect to any mergers or acquisitions, negotiations with target
company management will be expected to focus on the percentage of the Company
which target company shareholders would acquire in exchange for their
shareholdings in the target company. Depending upon, among other things, the
target company's assets and liabilities, the Company's shareholders will in
all likelihood hold a 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 dilative effect on the percentage of
shares held by the Company's then shareholders, including purchasers in this
offering. (See "Factors That May affect Future Results").
The Company will not have sufficient funds (unless it is able to raise
funds in a private placement) to undertake any significant development,
marketing and manufacturing of any products which may be acquired.
Accordingly, following the acquisition of any such product, the Company will,
in all likelihood be required to either seek debt or equity financing or
obtain funding from third parties, in exchange for which the Company would
probably be required to give up a substantial portion of its interest in any
acquired product. There is no assurance that the Company will be able either
to obtain additional financing or interest third parties in providing funding
for the further development, marketing and manufacturing of any products
acquired.
It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require
substantial management time and attention and substantial costs for
accountants, attorneys and others. If a decision is made not to participate
in a specific business opportunity, the costs therefore incurred in the
related investigation would not be recoverable. Furthermore, even if an
agreement is reached for the participation in a specific business
opportunity, the failure to consummate that transaction may result in the
loss of the Company of the related costs incurred.
14
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ITEM 2A. FACTORS THAT MAY AFFECT FUTURE RESULTS
1. NEW COMPANY: NO REVENUES FROM OPERATION; RISK OF LOSS. The Company faces
all of the risks inherent in a new business, coupled with the risks involved
with a blind pool/blank check company. Since the Company, subject to
shareholder approval, has sold its existing businesses, there is no
information at this time upon which to base an assumption that its plans will
either materialize or prove successful. There can be no assurance that any
of the Company's business activities will result in any operating revenues or
profits. Investors should be aware that they may lose all or substantially
all of their investment.
2. NO FULL-TIME EMPLOYEES. The Company has no full-time employees and
management and none of its officers devote their full time to the Company's
proposed business affairs. None of the officers or directors receives a
salary, but are reimbursed for any expenses they may incur in the activities
of the Company. Due to the fact that no salaries are paid to officers of the
Company and that members of management are engaged in activities outside the
operation of the Company, the ability and speed for the Company to effect a
merger or acquisition may be significantly impaired.
3. RELIANCE UPON OFFICERS; LIMITED EXPERIENCE. The Company is dependent upon
the personal efforts and abilities of its officers and directors, who devote
only limited time to the affairs of the Company. The officers and directors
of the Company have certain business experience but have limited experience
in acquisition or merger activities. The officers and directors have not
agreed to expend any specific amount of time on behalf of the Company, but
will devote such time as necessary to identify and consummate a merger or
acquisition.
4. LIMITED FINANCIAL RESOURCES AND NEED FOR ADDITIONAL FINANCING. The
Company's financial resources are minimal. The Company needs to obtain
additional financing from the sale of the Company's Common Stock, Debt, or
some combination thereof in order to undertake further business plans. The
Company's ability to operate as a going concern is contingent upon its
receipt of additional financing through private placements or by loans. The
Company's business may require additional funds in the future. There can be
no assurance that if additional funds are required they will be available,
or, if available, that they can be obtained on terms satisfactory to
Management. In the event the Company elects to issue stock to raise
additional capital, any rights or privileges attached to such stock may
either (i) dilute the percentage of ownership of the already issued common
shares or (ii) dilute the value of such shares. No rights or privileges have
been assigned to the stock and any such rights and privileges will be at the
total discretion of the Board of Directors of the Company. There can be no
guarantee that the Company will be able to obtain additional financing, or if
successful, that it will be able to do so on terms that are reasonable in
light of current market conditions.
15
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5. LIMITED TRADING MARKET FOR COMMON STOCK. The Company's Common Stock is
traded (OTC) on the Electronic Bulletin Board. Trading for the stock is
sporadic and at present there is a limited market for the Company's Common
Stock. At the present time, there is a limited public market for the
Company's Common Stock, and there can be no assurance that a market will in
fact develop. Even if a market does develop, it may not be sustained.
6. LIMITED FACILITIES AND LOCATION. The Company presently maintains initial
principal offices at the offices of its President. The office space is
supplied at no cost. The Company pays its own charges for long distance
telephone calls and other miscellaneous secretarial, photocopying and similar
expenses.
7. LACK OF REVENUES AND DEVELOPMENT STAGE COMPANY. The Company faces all of
the risks inherent in a new business. There is no information at this time
upon which to base an assumption that its plans will either materialize or
prove successful. There can be no assurance that any of the Company's
business activities will result in any operating revenues or profits.
Investors should be aware that they may lose all or substantially all of
their investment.
8. LACK OF DIVIDENDS. The company has not paid dividends and does not
contemplate paying dividends in the foreseeable future.
9. COMPETITION. The Company is an insignificant participant among firms
which engage in business combinations with, or financing of, development
stage enterprises. There are many established management and financial
consulting companies and venture capital firms which have significantly
greater financial and personnel resources, technical expertise and experience
than the Company. In view of the Company's limited financial resources and
management availability, the Company will continue to be at significant
competitive disadvantage vis-avis the Company's competitors.
10. REGULATION & TAXES. The Investment Company Act of 1940 defines an
"investment company" as an issuer which is or holds itself out as being
engaged primarily in the business of investing, reinvesting or trading of
securities. While the Company does not intend to engage in such activities,
the Company could become subject to regulation under the Investment Company
Act of 1940 in the event the Company obtains or continues to hold a minority
interest in a number of development stage enterprises. The Company could be
expected to incur significant registration and compliance costs if required
to register under the Investment Company Act of 1940. Accordingly,
management will continue to review the Company's activities from time to time
with a view toward reducing the likelihood the Company could be classified as
an "investment company." The Company intends to structure a merger or
acquisition in such manner as to minimize Federal and State tax consequences
to the Company and to any target company.
16
<PAGE>
11. POSSIBLE RULE 144 STOCK SALES. A total of 28,470,000 shares of the
Company's outstanding Common Stock are "restricted securities" and may be
sold only in compliance with Rule 144 adopted under the Securities Act of
1933 or other applicable exemptions from registration. Rule 144 provides
that a person holding restricted securities for a period of two years may
thereafter sell in brokerage transactions, an amount not exceeding in any
three month period the greater of either (i) 1% of the Company's outstanding
Common Stock, or (ii) the average weekly trading volume during a period of
four calendar weeks immediate preceding any sale. Persons who are not
affiliated with the Company and who have held their restricted securities for
at least three years are not subject to the volume limitation. Possible or
actual sales of the Company's Common Stock by present shareholders under Rule
144 may have a depressive effect on the price of the Company's Common Stock
in any market which may develop.
12. RISKS OF LOW PRICED STOCKS. Limited and sporadic trading for the
Company's Common Stock currently exists in the over-the-counter market in the
so-called "pink sheets," or the NASD's "Electronic Bulletin Board."
Consequently, a shareholder may find it more difficult to dispose of, or to
obtain accurate quotations as to the price of, the Company's securities. In
the absence of a security being quoted on NASDAQ, or the Company having
$2,000,000 in net tangible assets, trading in the Common Stock is covered by
Rule 3a51-1 promulgated under the Securities Exchange Act of 1934 for
non-NASDAQ and non-exchange listed securities. Under such rule,
broker/dealers who recommend such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or an annual income exceeding $200,000 or $300,000 jointly with
their spouse) must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction
prior to sale.
Securities are also exempt from this rule if the market price is at least
$5.00 per share, or for warrants, if the warrants have an exercise price of
at least $5.00 per share. The Securities Enforcement and Penny Stock Reform
Act of 1990 requires additional disclosure related to the market for penny
stocks and for trades in any stock defined as a penny stock. The Commission
has recently adopted regulations under such Act which define a penny stock to
be any NASDAQ or non-NASDAQ equity security that has a market price or
exercise price of less than $5.00 per share and allow for the enforcement
against violators of the proposed rules.
In addition, unless exempt, the rules require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule prepared by the
Commission explaining important concepts involving the penny stock market,
the nature of such market, terms used in such market, the broker/dealer's
duties to the customer, a toll-free telephone number for inquiries about the
broker/dealer's disciplinary history, and the customer's rights and remedies
in case of fraud or abuse in the sale.
Disclosure also must be made about commissions payable to both the
broker/dealer and the registered representative, current quotations for the
securities, and if the broker/dealer is the sole market-maker, the
broker/dealer must disclose this fact and its control over the market.
17
<PAGE>
Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. While many NASDAQ stocks are covered by the
proposed definition of penny stock, transactions in NASDAQ stock are exempt
from all but the sole market-maker provision for (i) issuers who have
$2,000,000 in tangible assets ($5,000,000 if the issuer has not been in
continuous operation for three years), (ii) transactions in which the
customer is an institutional accredited investor and (iii) transactions that
are not recommended by the broker/dealer. In addition, transactions in a
NASDAQ security directly with the NASDAQ market-maker for such securities,
are subject only to the sole market-maker disclosure, and the disclosure with
regard to commissions to be paid to the broker/dealer and the registered
representatives.
Finally, all NASDAQ securities are exempt if NASDAQ raised its
requirements for continued listing so that any issuer with less then
$2,000,000 in net tangible assets or stockholder's equity would be subject to
delisting. These criteria are more stringent than the proposed increased in
NASDAQ's maintenance requirements.
The Company's securities are subject to the above rules on penny stocks
and the market liquidity for the Company's securities could be severely
affected by limiting the ability of broker/dealers to sell the Company's
securities.
18
<PAGE>
PART II - OTHER INFORMATION (UNAUDITED)
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in any of the Company's legal
proceedings since disclosed in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Report on Form 8-K as filed on June 21, 1996 relating to a change in
the Company's auditor from Cashuk, Wiseman & Goldberg to Lawrence P. Rub, CPA.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Registrant:
SUN HARBOR FINANCIAL RESOURCES, INC.
/s/ David W. Langill
--------------------------------
David W. Langill
Date: July 2, 1996
20
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