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 September 30, 1997
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 November 10, 1997
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 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
September 30, 1997 (unaudited) and December 31, 1996. . . . 3
Consolidated Statements of Operations (unaudited)
Three Months Ended September 30, 1997 (unaudited)
and Three Months Ended September 30, 1996 (unaudited)
Nine Months Ended September 30, 1997 (unaudited)
and Nine Months Ended September 30, 1996 (unaudited). . . . 5
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended September 30, 1997 and September 30, 1996 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 . . . . . . . . . . . . . . . . . . . . . 18
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 18
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of Security Holders . . . . 18
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 18
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SUN HARBOR FINANCIAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . $ 284 $ (4,505)
Accounts receivable. . . . . . . . 0 0
Loans held for resale. . . . . . . 0 0
Investment . . . . . . . . . . . . 0 0
------------ ------------
Total current assets. . . . . 284 (4,505)
FIXED ASSETS:
Furniture and equipment. . . . . . 900 900
Accumulated depreciation . . . . . (75) (75)
------------ ------------
Net fixed assets. . . . . . . 825 825
OTHER ASSETS:
Security deposits. . . . . . . . . 0 0
Notes receivable . . . . . . . . . 15,000 15,000
------------ ------------
Total other assets. . . . . . 15,825 15,825
TOTAL ASSETS . . . . . . . . . . . . $ 16,109 $ 11,320
============ ============
<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>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable . . . . . . . . . $ 1,000 $ 1,000
Accrued expenses . . . . . . . . . 63 63
Cash overdraft . . . . . . . . . . 0 0
Income taxes payable . . . . . . . 0 0
Current portion of long term debts 0 0
------------ ------------
Total current liabilities. . . 1,063 1,063
LONG TERM DEBT, less current maturities 37,496 25,000
------------ ------------
Total liabilities. . . . . . . 38,559 26,063
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). . . . (225,564) (217,857)
------------ ------------
Total stockholders' equity . . 22,450 14,743
------------ ------------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY . . . . . $ 16,109 $ 11,320
============ ============
<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>
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Servicing and interest income..... 0 27 0 0
-------- -------- -------- --------
Gross profit.................. 0 27 0 0
Operating expenses
Selling, General and
Administrative expenses......... 6620 20,061 425 8,571
Interest.......................... 0 562 0 187
-------- -------- -------- --------
Loss from operations........... (6620) (20,623) (425) (8,758)
-------- -------- -------- --------
Income (loss) before taxes..... (20,596) (20,596) (425) (8,758)
Income taxes........................ 0 1,150 0 0
-------- -------- -------- --------
NET INCOME (LOSS).............. $(20,596) $(21,746) $ (425) $ (8,758)
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE........... $(.00069) $(.00073) $(.00001) $(.00030)
======== ======== ======== ========
<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
NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income $ (5,326) $(21,746)
Adjustments to reconcile net income
by operating activities:
Depreciation 54 0
Changes in current assets and liabilities:
(Increase) decrease in receivables (3,000) 0
Increase (decrease) in accrued expenses 564 (3,000)
-------- --------
Net cash provided by (used in) operating activities (7,708) (24,746)
Cash flows from investing activities:
Purchase of Investments 0 (117,151)
Net changes to notes receivable 0 5,000
-------- --------
Net cash provided by (used in) investing activities 0 112,151
-------- --------
Cash flows from financing activities:
Reductions in additional paid in capital 0 (7,362)
Additional Paid in Capital 12,497 163,250
-------- --------
Net cash provided by financing activities 12,497 155,888
-------- --------
Net increase (decrease) in cash and cash equivalents 4,789 18,991
Cash and cash equivalents at beginning of period (4,505) (17,627)
-------- --------
Cash and cash equivalents at end of period $ 284 $ 1,364
======== ========
Supplemental disclosures of cash flow information:
Cash paid during for:
Interest $ 0 $ 562
Income Taxes $ 0 1,150
======== ========
<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
SEPTEMBER 30, 1997
(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 September 30, 1997 of $627.
NOTE VI: NOTES RECEIVABLE
There is currently only one note receivable form 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. Interest for 1996 and 1997 has all been accrued in 1997
totaling $3,000. Payment are due to start on January 15, 1998 at $500 per
month until the note is paid in full principle and interest.
NOTE VII: ADVANCES FROM OFFICERS:
Peter Norman has advanced to Sun Harbor Financial Resources, Inc.
funds to continue its operations during 1997. These advances are considered to
be a long term loan with no implied interest for 1997.
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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., 3211
Emerald Arbor, 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, 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
NINE MONTHS ENDING SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
For the nine months ending September 30, 1997 (the "1997 Period"), the
Company recorded only $0 in Total Revenues compared $27 in Total Revenue during
the nine months ending September 30, 1996 (the "1996 Period").
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The absence of sales revenues during the 1997 Period 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 1996 Period included: (i.) $20,061 in general and
administrative expenses which included certain legal, accounting, and related
costs and (ii.) $562 recorded as interest expense.
By comparison, for the comparable 1997 Period, the Company recorded $425.22
in General and Administrative Expenses and $0 in Interest Expense. The General
and Administrative Expenses were incurred for office expenses.
As a result, the Company incurred a loss of $425.22 in the 1997 period
compared to $21,746 for the 1996 Period.
THREE MONTHS ENDING SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
For the three months ending September 30, 1997 ("Third Quarter 1997"), the
Company recorded no revenues similar to the three months ending September 30,
1996 ("Third Quarter 1996"), where the Company recorded no revenues.
The absence of sales revenues during Third Quarter 1997 and Third 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.
The only expenses for Third Quarter 1997 were $425.22 compared to Third
Quarter 1996 which were $8,571 in general and administrative expenses which
included certain legal, accounting, administrative, and related costs and $187
in Interest Expense.
As a result and without any revenues in the Third Quarter 1997, the Company
incurred a loss of ($425.22).
LIQUIDITY AND CAPITAL RESOURCES
During the Third Quarter 1997, the Company's cash requirements were met
through the use of the Company's cash resources.
For the nine month period ending September 30, 1997 the Company remained
dependent upon the Company's President, Peter H. Norman to provide funds for
the Company.
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.
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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. The Company may purchase assets and
establish wholly owned subsidiaries in various businesses or purchase existing
businesses as subsidiaries.
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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.
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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.
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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.
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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.
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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 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.
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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 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.
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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.
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-K for
the fiscal year ended December 31, 1996.
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.
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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 and President
Date: June 6, 2000
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