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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 June 30, 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) 637-2481
(Registrant's telephone number, including area code)
___________________________________________________
(Former name, former address, and former fiscal year,
if changed since last report)
Common Stock Outstanding at June 30, 1996
29,515,200 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 X NO .
---- ----
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SUN HARBOR FINANCIAL RESOURCES, INC.
TABLE OF CONTENTS
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
June 30, 1996 (unaudited) and December 31, 1995. . . . 3
Statements of Operations (unaudited)
Three Months Ended June 30, 1996 (unaudited)
and Three Months Ended June 30, 1996 (unaudited)
and Six Months Ended June 30, 1996 (unaudited)
and Six Months Ended June 30, 1995 . . . . . . . . . . 5
Statements of Cash Flows (unaudited)
Six Months Ended June 30, 1996 and June 30, 1995
Notes to 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
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Sun Harbor Financial Resources, Inc.
BALANCE SHEETS
ASSETS
June 30, December 31,
1996 1995
-------------- --------------
(Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents $2,474 $ 114
Accounts receivable 0 0
Loans held for resale 0 0
Investments 70,125 19,886
-------------- --------------
Total current assets 72,599 20,000
FIXED ASSETS
Furniture and equipment 0 0
Accumulated depreciation 0 0
-------------- --------------
Net fixed assets 0 0
OTHER ASSETS
Investments 80,000 0
Notes receivable 11,250 15,000
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Total other assets 91,250 15,000
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TOTAL ASSETS $163,849 $ 35,000
-------------- --------------
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The accompanying notes are an integral part of these statements.
3
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Sun Harbor Financial Resources, Inc.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 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
STOCKHOLDERS' EQUITY
Common stock, 30,000,000 shares authorized;
$.01 parvalue; 29,515,200 and 13,515,200
shares issued and outstanding at
June 30, 1996 and December 31, 1995 295,152 295,152
Preferred stock, 5,000,000 shares authorized;
$.01 par value; 34,000 and 34,000 shares
issued and outstanding at June 30, 1996
and December 31, 1995 340 340
Additional paid-in capital (104,098) (228,588)
Unrealized Gain on Securities Avail. for Sale 13,088 0
Retained earnings (deficits) ( 65,633) (52,645)
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Total stockholders' equity 138,549 14,259
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$163,849 $ 35,000
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The accompanying notes are an integral part of these statements.
4
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Sun Harbor Financial Resources, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES
Origination of loans $ 0 $254,169 $ 0 $124,042
Servicing and interest income 27 40,944 18 21,296
Other 0 18,561 0 8,751
-------- -------- -------- -------
Total revenues 27 313,674 18 154,089
Operating expenses
Selling expenses 0 106,930 0 58,043
General and administrative expenses 11,490 231,049 5,820 124,268
Depreciation 0 7,000 0 3,500
Interest 375 12,590 188 9,890
-------- -------- -------- -------
Total expenses 11,865 357,569 6,008 195,701
-------- -------- -------- -------
Income (loss) before
income taxes (11,838) (43,895) ( 5,990) (41,612)
Income taxes (1,150) (2,400) (1,150) 0
-------- -------- -------- -------
NET INCOME (LOSS) $(12,988) $(46,295) $( 7,140) $(41,612)
-------- -------- -------- -------
-------- -------- -------- -------
INCOME (LOSS) PER SHARE $(.0004) $(.0016) $(.0002) $(.0014)
-------- -------- -------- -------
-------- -------- -------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
5
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Sun Harbor Financial Resources, Inc.
STATEMENTS OF CASH FLOWS
Six months ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ (12,988) $(46,295)
Adjustments to reconcile net income by operating activities:
Depreciation 0 (7,000)
Changes in current assets and liabilities:
(Increase) decrease in receivables 0 11,380
(Increase) decrease in loans held for resale 0 178,500
(Increase) decrease in advances and other assets 0 (2,958)
Increase (decrease) in accrued expenses (3,000) (12,405)
Increase (decrease) in warehouse line payable 0 (169,695)
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 provided by (used in) operating activities (15,988) (32,440)
Purchase of Investments (117,151) 0
Additions to fixed assets 0 (2,594)
Net changes to notes receivable 3,750 23,082
-------------- --------------
Net cash provided by (used in) investing activities 113,401 20,488
-------------- --------------
Cash flows from financing activities:
Payments of long-term debt, net 0 (4,712)
Proceeds from the issuance of common stock 0 185,020
Reductions in additional paid in capital 124,490 55,315
Additional Paid in Capital 153,750 0
-------------- --------------
Net cash provided by financing activities 124,490 55,315
-------------- --------------
Net increase (decrease) in cash and cash equivalents 20,101 43,363
Cash and cash equivalents at beginning of period (17,627) 58,889
-------------- --------------
Cash and cash equivalents at end of period $ 2,474 $102,252
-------------- --------------
-------------- --------------
Supplemental disclosures of cash flow information:
Cash paid during for:
Interest $ 375 $ 12,590
Income Taxes 1,150 0
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
6
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SUN HARBOR FINANCIAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
1. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial position of Sun Harbor Financial
Resources, Inc. and Subsidiaries (the "Company") as of June 30, 1996 and
December 31, 1995 and the results of its operations and its cash flows for the
nine and three months ended June 30, 1996 and 1995. The results of operations
and cash flows for the six and three months ended June 30, 1996 are not
necessarily indicative of the results to be expected for any other interim
period or the full year. These financial statements should be read in
combination with the 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, 1995, 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, 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. 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
SIX MONTHS ENDING JUNE 30, 1996 AND JUNE 30, 1995
For the six months ending June 30, 1996 (the "1996 Period"), the
Company recorded a minimal revenues as 1996 Period revenues were $27 in
comparison with the six months ending June 30, 1995 (the "1995 Period"), where
the Company recorded $313,674 in revenues.
The decline reflected the Company's current lack of operations as the
Company has become a "public shell" corporation.
8
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Expenses for the 1996 Period included: (i.) $ 11,490 in General,
Selling, and Administrative Expenses (which includes legal, accounting, and
management expenses) and (ii.) $375 in Interest Expense. By comparison for the
comparable 1995 Period, the Company recorded: (i.) $231,049 in General and
Administrative Expenses, (ii.) $106,930 in Selling Expenses, (iii.) $7,000 in
Depreciation Expenses, and (iv.) $12,590 in Interest Expenses.
As a result, the Company incurred a loss of $11,838 for the 1996
Period in comparison with a loss of $43,895 for the comparable 1995 Period. The
decreased loss was primarily due to the minimal operating status of the Company
and the lower consequent expenses associated with this level.
THREE MONTHS ENDING JUNE 30, 1996 AND JUNE 30, 1995
For the three months ending June 30, 1996 ("Second Quarter 1996"), the
Company recorded a only $18 in revenues in comparison with the three months
ending June 30, 1995 ("Second Quarter 1995"). Second Quarter 1995 revenues were
$154,089.
The decline in revenues during Second Quarter 1996 reflected the
Company's current lack of operations as the Company has become a "public shell"
corporation.
Selling Expenses declined to $0 from $106,930 in Second Quarter 1995
as the Company did not possess any marketing operations. General and
Administrative Expenses declined by 95.32% during Second Quarter 1996 from the
amounts incurred during Second Quarter 1995 as the Company incurred only minimal
administrative expenses in connection with maintaining its corporate existence.
Depreciation expense decreased to $0 from $3,500 recorded during the Second
Quarter 1995. Interest Expenses Decreased by 98.10% from Second Quarter 1995 to
Second Quarter 1996. The latter decrease was due largely to the Company's
decision not to borrow money in view of the Company's minimal operating level.
As a result, in the Second Quarter 1996, the Company incurred a Net
Loss of $7,140, in comparison with a Net Loss of $41,612 for the Second Quarter
1995.
LIQUIDITY AND CAPITAL RESOURCES
During the Second Quarter 1996, the Company's cash requirements were
met through the use of the Company's cash resources.
For the six month period ending June 30, 1996, the Company experienced
negative cash flow in operating activities of ($15,988). After investing and
financing activities, the Company recorded a net increase in cash and cash
equivalents of $20,101 for the first six months of 1996.
9
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By comparison, for the first six months of 1995, the Company
experienced negative cash flow of ($32,440) in its operating activities. After
investing and financing activities, the Company recorded a net increase in cash
and cash equivalents of $43,363 for the first six months of 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. There can be no assurance that the Company will be
successful in issuing additional common stock, preferred stock, or debt
securities to complete any acquisition, or, if it is successful, that the terms
of any such financing arrangement will be reasonable in light of the Company's
current circumstances.
PLAN OF OPERATION
The Company, with 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.
10
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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. 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.
11
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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.
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.
12
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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.
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.
13
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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.
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 "Risk Factors").
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 OPERATIONS; 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 attorney. 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-a-vis 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>
Further, 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) Reports on Form 8-K
None
_________________________
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\ Peter H. Norman
-----------------------
Peter H. Norman, Chairman & President
Date: August 26, 1996
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