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, 2000
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)
3211 Emerald Arbor Street, Bakersfield, California 93312
(Address of principle executive office)
(661) 588-3839
(Registrant's telephone number, including area code)
(Former name, former address, and former fiscal year,
if changed since last report)
Common Stock Outstanding at March 31, 2000
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, 2000 (unaudited) and December 31, 1999 . . . . F-1
Consolidated Statements of Operations (unaudited)
Three Months Ended March 31, 2000 (unaudited)
and Three Months Ended March 31, 1999 (unaudited) . . . . F-3
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended March 31, 2000 and March 31, 1999 . . F-4
Notes to Consolidated Financial Statements (unaudited) . . F-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 8
Item 2A. Factors That May Affect Future Results . . . . . . . . . . 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 17
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders . . . . 17
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 17
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SUN HARBOR FINANCIAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . $ 72 $ 18
Accounts receivable. . . . . . . . 0 0
Loans held for resale. . . . . . . 0 0
Investment . . . . . . . . . . . . 0 0
------------ ------------
Total current assets. . . . . 72 18
FIXED ASSETS:
Furniture and equipment. . . . . . 900 900
Accumulated depreciation . . . . . (319) (300)
------------ ------------
Net fixed assets. . . . . . . 581 600
OTHER ASSETS:
Interest receivable . . . . . . . 6,000 5,700
Notes receivable . . . . . . . . . 15,000 15,000
------------ ------------
Total other assets. . . . . . 21,000 20,700
TOTAL ASSETS . . . . . . . . . . . . $ 21,653 $ 21,318
============ ============
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
SUN HARBOR FINANCIAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable . . . . . . . . . $ 8,750 $ 8,000
Accrued expenses . . . . . . . . . 2,500 4,714
Income taxes payable . . . . . . . 2,680 0
Current portion of long term debts 0 0
------------ ------------
Total current liabilities. . . 13,930 12,714
LONG TERM DEBT, less current maturities 43,638 43,038
------------ ------------
Total liabilities. . . . . . . 57,568 55,752
STOCKHOLDERS' EQUITY:
Common Stock, 30,000,000 shares
authorized, issued and outstanding
29,515,200 shares, $.01 par value; 295,152 295,152
Preferred Stock, 5,000,000 shares
authorized, issued and outstanding
34,000 shares, $.01 par value;. 340 340
Additional paid-in capital . . . . (92,378) (92,378)
Retained earnings (deficit) . . . (239,029) (237,548)
------------ ------------
Total stockholders' equity . . (35,915) (34,434)
------------ ------------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY . . . . . $ 21,653 $ 21,318
============ ============
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
SUN HARBOR FINANCIAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months
Ended March 31,
--------------
2000 1999
-------- --------
<S> <C> <C>
Sales
Origination of loans . . . . . . . $ 0 $ 0
Servicing and interest income. . . 300 0
Others . . . . . . . . . . . . . . 0 0
-------- ---------
Gross profit . . . . . . 300 0
Operating expenses
Selling, General and
Administrative expenses. . . . . 1,781 459
Depreciation . . . . . . . . . . . 0 0
Interest . . . . . . . . . . . . . 0 0
-------- ---------
Total expenses . . . . . 1,781 459
Income (loss) before taxes (1,781) (459)
Income taxes . . . . . . . . . . . . 0 0
-------- ---------
NET INCOME (LOSS). . . . $ (1,481) $ (459)
======== =========
EARNINGS (LOSS) PER SHARE. . . . . . $(.00005) $(.00002)
======== =========
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
SUN HARBOR FINANCIAL RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net cash (used in) provided by operating activities $ (1,481) $ (365)
Adjustments to reconcile net income (loss)
by operating activities:
Depreciation. . . . . . . . . . 18 18
Changes in current assets and liabilities:
(Increase) decrease in receivables (300) (300)
(Increase) decrease in loans held for resale 0 0
(Increase) decrease in advances and other assets 0 0
Increase (decrease) in payables 750 0
Increase (decrease) in accrued expenses 187 188
Increase (decrease) in warehouse line payable 0 0
Increase (decrease) in deferred revenues 0 0
Increase (decrease) in current portion of
long term debts. . . . . . 0 0
Increase (decrease) in deferred income taxes 280 0
-------- --------
Net cash used in operating activities (546) (459)
Cash flows from investing activities:
Additions to fixed assets. . . . . 0 0
Net changes to notes receivable. . 0 0
Purchase of securities . . . . . . 0 0
-------- --------
Net cash (used) by investing activities 0 0
Cash flows from financing activities:
Advances from Officers . . . . . . 600 250
Redemption of preferred stock. . . 0 0
Additional paid-in capital . . . . 0 0
Paid-in capital reduced. . . . . . 0 0
-------- --------
Net cash provided by financing activities 600 250
-------- --------
Net increase in cash and cash equivalents 54 (209)
Cash and cash equivalents at beginning of period 18 217
-------- --------
Cash and cash equivalents at end of period $ 72 $ 8
======== ========
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
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SUN HARBOR FINANCIAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
NOTE I: SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING PRINCIPLES
1. Sun Harbor Financial Resources, Inc. was incorporated under the
laws of the state of Delaware on May 3, 1988. The Company has adopted a
December 31 calendar year for reporting requirements. The books of Sun Harbor
Financial Resources, Inc. are maintained on the accrual basis of accounting.
2. Fixed assets are depreciated or amortized using the straight-line
method over their useful lives.
3. The tax returns for Sun Harbor Financial Resources are being
prepared on the accrual basis with an adjustment for the allowances for market
value for marketable securities and investments in 1996.
NOTE II: ORGANIZATION COSTS
Organization costs are being amortized over a period of 12 years
using the straight line method.
NOTE III: INCOME TAXES
Sun Harbor Financial Resources, Inc. is a Delaware Corporation and
is subject to certain minimum taxes in the state of Delaware. In 1996 Sun
Harbor Financial Resources applied and was approved to operate in the state of
California and is subject to certain minimum taxes in California as well.
There is currently a net operating loss for Federal income tax purposes and
state income tax purposes.
NOTE IV: ALLOWANCE FOR MARKETABLE SECURITIES & INVESTMENTS
Sun Harbor Financial Resources, Inc. is carrying its marketable
securities at the lower of cost or market. At the date of issue of these
financial statement the SEC placed a hold on the trading of the Marketable
Securities in Alliance Industries. The investment in other stock have no
current market value. Management estimates that there will be some future
value to the securities and stocks.
NOTE V: NOTES PAYABLE
There is currently only one note payable to Peter Norman for $25,000
unsecured with an interested rate of 3% payable on demand. Interest on this
note has a balance as of March 31, 2000 of $2,500.
NOTE VI: NOTES RECEIVABLE
There is currently only one note receivable from David W. Langill
for $15,000 for the sale of the wholly owned subsidiaries sold in 1995.
There has been no payment of this note as of the date of issuance of these
financial statements. Payments were due to start on January 15, 1998 at $500
per month until the note was paid in full principle and interest. The entire
balance is due on June 29, 1998. This note is secured by the outstanding common
stock of the 3 subsidiaries sold, Sun Harbor Mortgage, Inc., Sun Harbor Leasing,
Inc. and Peninsula Funding Corporation. Management feels that this note is
still collectible in the future.
NOTE VII: ADVANCES FROM OFFICERS:
Peter Norman has advanced to Sun Harbor Financial Resources, Inc.
funds to continue its operations. These advances are considered to be a long
term loan with no implied interest rate.
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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, 1999, a copy
of which may be obtained by writing Sun Harbor Financial Resources, Inc.,
3211 Emerald Arbor Street, Bakersfield, California 93312.
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 and the Company has not yet set a date for a meeting of the
Company's shareholders.
RESULTS OF OPERATIONS
THREE MONTHS ENDING MARCH 31, 2000 AND MARCH 31, 1999
For the three months ending March 31, 2000 (the "First Quarter 2000"),
the Company recorded $0 in revenues in comparison with the three months ending
March 31, 1999 (the "First Quarter 1999"), where the Company recorded $0 in
revenues. During First Quarter 1999 the Company was dormant and did not have
any operations or business activities.
The absence of any sales revenues during the First Quarter 2000 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 was subject to shareholder approval and provided
that the subsidiaries were sold to Mr. Langill effective June 29, 1995.
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Expenses for the First Quarter 2000 included $1,781 in general and
administrative expenses which included certain legal, accounting, and related
costs plus $300 in Interest Income. By comparison with First Quarter 1999, the
Company recorded $1,231 in Selling General and Administrative Expenses.
As a result, the Company incurred a Net Loss of $1,481 for the First
Quarter 2000 in comparison with a loss of $1,782 for the comparable First
Quarter 1999. The decreased loss was primarily due to the limited scope and
level of operating activity by the Company during the First Quarter 2000.
LIQUIDITY AND CAPITAL RESOURCES
During the First Quarter 1999, the Company's cash requirements were met
through the use of the Company's cash resources and from funds provided by the
Company's President, Peter H. Norman.
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.
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.
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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. 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.
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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.
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.
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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.
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.
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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 "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.
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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.
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 no 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.
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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.
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 one year 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.
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12. RISKS OF LOW PRICED STOCKS. Limited and sporadic trading for the Company's
Common Stock formerly existed 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.
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.
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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-KSB for
the fiscal year ended December 31, 1999.
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
None.
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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
Date: July 6, 2000
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