SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended March 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 0-22236
FARADAY FINANCIAL, INC.
(Exact name of small business issuer in its charter)
DELAWARE 33-0565710
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
1500 Quail Street, Suite 550
Newport Beach, California 92660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 660-1500
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Securities registered pursuant to Section 12(b) of the Act: None
----------------
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.001
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
State issuer's revenues for its most recent fiscal year: None
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 31, 1996 was not determinable since the Common
Stock was not traded.
The number of shares outstanding of the issuer's classes of Common
Stock as of March 31, 1996:
Common Stock, $.001 Par Value - 424,600 shares
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
Item 1. DESCRIPTION OF BUSINESS
Background
Faraday Financial, Inc.,a Delaware corporation (the "Company") was
incorporated on June 11, 1992. The Company has no operating history other than
organizational matters, and was formed specifically to be a "clean public shell"
and for the purpose of either merging with or acquiring 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 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 executive offices of the Company are located at 1500 Quail Street,
Suite 550, Newport Beach, California 92660. Its telephone number is (714)
660-1500.
Plan of Operation - General
The Company was organized for the purpose of creating a corporate
vehicle to seek, investigate and, if such investigation warrants, acquire an
interest in one or more business opportunities presented to it by persons or
firms who or which desire to seek the perceived advantages of a publicly held
corporation. At this time,the Company has no plan, proposal, agreement,
understanding or arrangement to acquire or merge with any specific business or
company, and the Company has not identified any specific business or company for
investigation and evaluation. No member of Management or promotor of the Company
has had any material discussions with any other company with respect to any
acquisition of that company. Although the Company's Common Stock is currently
not freely tradeable, it will eventually become so under exemptions such as Rule
144 promulgated under the Securities Act of 1933. See "Description of
Securities." 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 and throughout this Registration Statement 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. None of the officers and
directors of the Company has had any experience in the proposed business of the
Company. There can be no assurance that the Company will be able to raise any
funds in private placements. In any private placement, management may purchase
shares on the same terms as offered in the private placement. (See "Risk
Factors" and "Management").
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
(see "Risk Factors").
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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 business 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 $1,000,000 transaction ratably down to 1% in a
$4,000,000 transaction. Management has adopted a policy that such a finder's fee
or real estate brokerage fee could, in certain circumstances, be paid to any
employee, officer, director or 5% shareholder of the Company, if such person
plays a material role in bringing a transaction to the Company.
As part of any transaction, the acquired company may require that
Management or other stockholders of the Company sell all or a portion of their
shares to the acquired company, or to the principals of the acquired company. It
is anticipated that the sales price of such shares will be lower than the
current market price or anticipated market price of the Company's Common Stock.
The Company's funds are not expected to be used for purposes of any stock
purchase from insiders. The Company shareholders will not be provided the
opportunity to approve or consent to such sale. The opportunity to sell all or a
portion of their shares in connection with an acquisition may influence
management's decision to enter into a specific transaction. However, management
believes that since the anticipated sales price will be less than market value,
that the potential of a stock sale by management will be a material factor on
their decision to enter a specific transaction.
The above description of potential sales of management stock is not
based upon any corporate bylaw, shareholder or board resolution, or contract or
agreement. No other payments of cash or property are expected to be received by
Management in connection with any acquisition.
The Company has not formulated any policy regarding the use of
consultants or outside advisors, but does not anticipate that it will use the
services of such persons.
The Company has, and will continue to have, 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
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directors of the Company have not conducted market research and are not aware of
statistical data which would support the perceived benefits of a merger or
acquisition transaction for the owners of a business opportunity.
The Company does not intend to make any loans to any prospective merger
or acquisition candidates or to unaffiliated third parties.
Sources of Opportunities
The Company anticipates that business opportunities for possible
acquisition will be referred by various sources, including its officers and
directors, professional advisers, securities broker-dealers, venture
capitalists, members of the financial community, and others who may present
unsolicited proposals.
The Company will seek a potential business opportunity from all known
sources, but will rely principally on personal contacts of its officers and
directors as well as indirect associations between them and other business and
professional people. It is not presently anticipated that the Company will
engage professional firms specializing in business acquisitions or
reorganizations.
The officers and directors of the Company are currently employed in
other positions and will devote only a portion of their time (not more than one
hour per week) to the business affairs of the Company, until such time as an
acquisition has been determined to be highly favorable, at which time they
expect to spend full time in investigating and closing any acquisition for a
period of two weeks. In addition, in the face of competing demands for their
time, the officers and directors may grant priority to their full-time positions
rather than to the Company.
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 (see
"Management"). 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,
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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 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
Sections 368(a)(1) or 351 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.
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
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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.
Management believes that the Company may be able to benefit from the
use of "leverage" in the acquisition of a business opportunity. Leveraging a
transaction involves the acquisition of a business through incurring significant
indebtedness for a large percentage of the purchase price for that business.
Through a leveraged transaction, the Company would be required to use less of
its available funds for acquiring the business opportunity and, therefore, could
commit those funds to the operations of the business opportunity, to acquisition
of other business opportunities or to other activities. The borrowing involved
in a leveraged transaction will ordinarily be secured by the assets of the
business opportunity to be acquired. If the business opportunity acquired is not
able to generate sufficient revenues to make payments on the debt incurred by
the Company to acquire that business opportunity, the lender would be able to
exercise the remedies provided by law or by contract. These leveraging
techniques, while reducing the amount of funds that the Company must commit to
acquiring a business opportunity, may correspondingly increase the risk of loss
to the Company. No assurance can be given as to the terms or the availability of
financing for any acquisition by the Company. No assurance can be given as to
the terms or the availability of financing for any acquisition by the Company.
During periods when interest rates are relatively high, the benefits of
leveraging are not as great as during periods of lower interest rates because
the investment in the business opportunity held on a leveraged basis will only
be profitable if it generates sufficient revenues to cover the related debt and
other costs of the financing. Lenders from which the Company may obtain funds
for purposes of a leveraged buy-out may impose restrictions on the future
borrowing, distribution, and operating policies of the Company. It is not
possible at this time to predict the restrictions, if any, which lenders may
impose or the impact thereof on the Company.
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 a significant competitive disadvantage vis-a-vis the
Company's competitors.
Regulation and Taxation
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 intend 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.
Employees
The Company's only employees at the present time are its officers and
directors, who will devote as much
time as the Board of Directors determine is necessary to carry out the affairs
of the Company. (See
"Management").
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Item 2. DESCRIPTION OF PROPERTY
The Company rents an executive suite on an as needed basis. The Company
pays its own charges for long distance telephone calls and other miscellaneous
secretarial, photocopying and similar expenses.
Item 3. LEGAL PROCEEDINGS
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended March 31, 1996.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has not traded. As of March 31, 1996, there
were approximately 110 stockholders of record.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Company has been recently formed and has not engaged in any
operations other than organizational matters. Its operating deficit is being
funded by an officer and director.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company required to be
included in Item 7 are set forth in the Financial Statements Index.
Its operating deficit is being funded by an officer and director.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
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PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors and Executive Officers
The members of the Board of Directors of the Company serve until the
next annual meeting of stockholders, or until their successors have been
elected. The officers serve at the pleasure of the Board of Directors.
Information as to the directors and executive officers of the Company is as
follows. The officer and director holds similar positions in a number of other
"blind pool-blank check" companies. See "Conflicts of Interest."
Jehu Hand has been President, Secretary and Chief financial Officer
since April 1, 1994. Mr. Hand has been engaged in corporate and securities law
practice and has been a partner of the law firm of Hand & Hand since 1992. From
January 1992 to December 1992 he was the Vice President-Corporate Counsel and
Secretary of Laser Medical Technology, Inc., which designs, manufactures and
markets dental lasers and endodontics equipment. He was a director of Laser
Medical from February 1992 to February 1993. From January to October, 1992 Mr.
Hand was Of Counsel to the Law Firm of Lewis, D'Amato, Brisbois & Bisgaard. From
January 1991 to January 1992 he was a shareholder of McKittrick, Jackson,
DeMarco & Peckenpaugh, a law corporation. From January to December 1990 he was a
partner of Day, Campbell & Hand, and was an associate of its predecessor law
firm from July 1986 to December 1989. From 1984 to June 1986 Mr. Hand was an
associate attorney with Schwartz, Kelm, Warren & Rubenstein in Columbus, Ohio.
Jehu Hand received a J.D. from New York University School of Law and a B.A. from
Brigham Young University.
Conflicts of Interest
Certain conflicts of interest now exist and will continue to exist
between the Company and its officers and directors due to the fact that each has
other business interests to which he devotes his primary attention. Each officer
and director may continue to do so notwithstanding the fact that management time
should be devoted to the business of the Company.
Certain conflicts of interest may exist between the Company and its
management, and conflicts may develop in the future. The Company has not
established policies or procedures for the resolution of current or potential
conflicts of interests between the Company, its officers and directors or
affiliated entities. There can be no assurance that management will resolve all
conflicts of interest in favor of the Company, and failure by management to
conduct the Company's business in the Company's best interest may result in
liability to the management. The officers and directors are accountable to the
Company as fiduciaries, which means that they are required to exercise good
faith and integrity in handling the Company's affairs. Shareholders who believe
that the Company has been harmed by failure of an officer or director to
appropriately resolve any conflict of interest may, subject to applicable rules
of civil procedure, be able to bring a class action or derivative suit to
enforce their rights and the Company's rights.
The Company has no arrangement, understanding or intention to enter
into any transaction for participating in any business opportunity with any
officer, director, or principal shareholder or with any firm or business
organization with which such persons are affiliated, whether by reason of stock
ownership, position as an officer or director, or otherwise.
The Company, by resolution of its Board of Directors and
stockholders, adopted a 1992 Stock Option Plan (the "Plan")on June 11, 1992.The
Plan enables the Company to offer an incentive based compensation system to
employees, officers and directors and to employees of companies who do business
with the Company.
In the discretion of a committee comprised of non-employee directors
(the "Committee"), directors, officers, and key employees of the Company and its
subsidiaries or employees of companies with which the
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Company does business become participants in the Plan upon receiving grants in
the form of stock options or restricted stock. A total of 2,000,000 shares are
authorized for issuance under the Plan, of which 20,000 shares are issuable
under options granted to an officer and director at $.50 per share, exercisable
until May 4, 1997. The Company does not intend to grant additional options until
such time as a merger or acquisition has been consummated. The Company may
increase the number of shares authorized for issuance under the Plan or may make
other material modifications to the Plan without shareholder approval. However,
no amendment may change the existing rights of any option holder.
Any shares which are subject to an award but are not used because the
terms and conditions of the award are not met, or any shares which are used by
participants to pay all or part of the purchase price of any option may again be
used for awards under the Plan. However, shares with respect to which a stock
appreciation right has been exercised may not again be made subject to an award.
Stock options may be granted as non-qualified stock options or
incentive stock options, but incentive stock options may not be granted at a
price less than 100% of the fair market value of the stock as of the date of
grant (110% as to any 10% shareholder at the time of grant); non-qualified stock
options may not be granted at a price less than 85% of fair market value of the
stock as of the date of grant. Restricted stock may not be granted under the
Plan in connection with incentive stock options.
Stock options may be exercised during a period of time fixed by the
Committee except that no stock option may be exercised more than ten years after
the date of grant or three years after death or disability, whichever is later.
In the discretion of the Committee, payment of the purchase price for the shares
of stock acquired through the exercise of a stock option may be made in cash,
shares of the Company's Common Stock or by delivery or recourse promissory notes
or a combination of notes, cash and shares of the Company's common stock or a
combination thereof. Incentive stock options may only be issued to directors,
officers and employees of the Company.
Stock options may be granted under the Plan may include the right to
acquire an Accelerated Ownership Non-Qualified Stock Option ("AO"). If an option
grant contains the AO feature and if a participant pays all or part of the
purchase price of the option with shares of the Company's common stock, then
upon exercise of the option the participant is granted an AO to purchase, at the
fair market value as of the date of the AO grant, the number of shares of common
stock the Company equal to the sum of the number of whole shares used by the
participant in payment of the purchase price and the number of whole shares, if
any, withheld by the Company as payment for withholding taxes. An AO may be
exercised between the date of grant and the date of expiration, which will be
the same as the date of expiration of the option to which the AO is related.
Stock appreciation rights and/or restricted stock may be granted in
conjunction with, or may be unrelated to stock options. A stock appreciation
right entitles a participant to receive a payment, in cash or common stock or a
combination thereof, in an amount equal to the excess of the fair market value
of the stock at the time of exercise over the fair market value as of the date
of grant. Stock appreciation rights may be exercised during a period of time
fixed by the Committee not to exceed ten years after the date of grant or three
years after death or disability, whichever is later. Restricted stock requires
the recipient to continue in service as an officer, director, employee or
consultant for a fixed period of time for ownership of the shares to vest. If
restricted shares or stock appreciation rights are issued in tandem with
options, the restricted stock or stock appreciation right is canceled upon
exercise of the option and the option will likewise terminate upon vesting of
the restricted shares.
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Item 10. EXECUTIVE COMPENSATION
No compensation is paid or anticipated to be paid by the Company
until an acquisition is made.
On acquisition of a business opportunity, current management may
resign and be replaced by persons associated with the business opportunity
acquired, particularly if the Company participates in a business opportunity by
effecting a reorganization, merger or consolidation. If any member of current
management remains after effecting a business opportunity acquisition, that
member's time commitment will likely be adjusted based on the nature and method
of the acquisition and location of the business which cannot be predicted.
Compensation of management will be determined by the new board of directors, and
shareholders of the Company will not have the opportunity to vote on or approve
such compensation.
Directors currently receive no compensation for their duties as
directors.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information relating to the beneficial
ownership of Company common stock by those persons beneficially holding more
than 5% of the Company capital stock, by the Company's directors and executive
officers, and by all of the Company's directors and executive officers as a
group, as of March 31, 1996.
<TABLE>
<CAPTION>
Percentage
Name of Number of of Outstanding
Stockholder Shares Owned Common Stock
<S> <C> <C>
Jehu Hand (1)(2) 665,400 66.5%
Elizabeth Rodelli 90,000 21.2%
2249 Via Salvador
San Clemente, CA 92672
All officers and
directors as a group
(1 person) (1) 665,400 66.5%
</TABLE>
(1) Includes 20,000 shares issuable upon exercise of stock options
held by Mr. Hand, and 575,400
shares of common stock issuable upon conversion of a
promissory note.
(2) The address of such person is care of the Company.
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Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with organizing the Company, persons consisting of its
officers, directors, and other individuals paid an aggregate of $500 in cash to
purchase a total of 400,000 shares of Common Stock at an average sales price of
$.00125 per share. In April 1993 Messrs. Hand and Anderson also contributed
$500.00 to the Company as a contribution to capital. Under Rule 405 promulgated
under the Securities Act of 1933, Messrs. Hand and Anderson may be deemed to be
promoters of the Company. No other persons are known to Management which would
be deemed to be promoters.
An officer of the Corporation has advanced certain expenses on behalf
of the Company. As of March 31, 1995 and 1996 such expenses totalled $1,216 and
$1,326. On April 1, 1995 the Company gave the officer a demand promissory note
convertible into 575,400 shares of common stock at the officer's option.
12
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits of the Company are included herein.
Exhibit No. Document Description
3. Certificate of Incorporation and Bylaws
3.1. Articles of Incorporation(1)
3.2 Bylaws(1)
3.3 Certificate of Designation for Series A
Non-Convertible Preferred Stock(2)
10. Material Contracts
10.1. 1992 Stock Option Plan(1)
10.2 Stock Option Agreement with Jehu Hand(1)
10.3 Demand Convertible Promissory Note from
Jehu Hand(2)
(1) Incorporated by reference to such exhibit as filed with the Company's
registration statement on Form 10-
SB, File No. 0-22236.
(2) Filed herewith.
(b) Reports on Form 8-K.
Not Applicable.
13
<PAGE>
<TABLE>
<CAPTION>
FARADAY FINANCIAL, INC.
(A Development Stage Company) Statements of Financial Position
ASSETS
March 31, March 31,
1996 1995
<S> <C> <C>
CURRENT ASSETS - CASH $ $
OTHER ASSETS
Organization costs, net of accumulated
amortization of $215 and $161 (Note 1) 56 110
TOTAL ASSETS $ 56 $ 110
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES - Accounts payable $ 1,326 $ 1,216
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value; 1,000,000 shares authorized, including one
share of Series A Preferred
Stock; no shares issued and outstanding
Common Stock, $.001 par value; 20,000,000 shares
authorized; 424,600 shares issued and outstanding 425 425
Additional paid-in Capital 821 821
Accumulated deficit during the development stage (2,516) (2,352)
TOTAL STOCKHOLDERS' EQUITY (1,270) (1,106)
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 56 $ 110
</TABLE>
The accompanying notes are an integral part of the financial
statements.
14
<PAGE>
<TABLE>
<CAPTION>
FARADAY FINANCIAL, INC.
(A Development Stage Company) Statements of Operations
CUMULATIVE
FROM
FOR THE INCEPTION
YEAR ENDED (June 11, 1992)
TO TO
March 31, 1996 March 31, 1995 March 31, 1996
<S> <C> <C> <C>
REVENUES $ $ $
OPERATING EXPENSES
General and Administrative 110 268 2,301
Amortization 54 57 215
TOTAL OPERATING EXPENSES 164 1,225 2,516
NET (LOSS) $ (224) $ (1,225) $ (2,516)
NET (LOSS) PER SHARE $ (Nil) $ (Nil) $ .01
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 424,600 424,600 417,311
</TABLE>
The accompanying notes are an integral part of the financial
statements.
15
<PAGE>
<TABLE>
<CAPTION>
FARADAY FINANCIAL, INC. Statement of Changes in Stockholders'
(A Development Stage Company) Equity From Inception (June 11, 1992)
Through March 31, 1996
Accumulated
Deficit
Common Stock Additional During the
Paid-In Development
Shares Amount Capital Stage Total
Issuance of common stock
<S> <C> <C> <C> <C>
for cash 400,000 $ 400 $ 100 $ $ 500
Net (loss) (270) (270)
Balances at
March 31, 1993 400,000 400 100 (270) 230
Net (loss) (857) (857)
Contribution to capital 500 500
Sale of shares in private placement 24,600 25 221 246
on September 30, 1993
Balances at
March 31, 1994 424,600 $ 425 $ 821 $ (1,127) $ 119
Net (loss) (unaudited) (1,225) (1,225)
Balances at
March 31, 1995 (unaudited) 424,600 $ 425 $ 821 $ (2,352) $ (1,106)
Net (loss) (unaudited) (164) (164)
Balances at March 31, 1996
(unaudited) 424,600 $ 425 $ 825 $ (2,516) $ (1,270)
</TABLE>
The accompanying notes are an integral part of these
financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
FARADAY FINANCIAL, INC.
(A Development Stage Company) Statements of Cash Flows
CUMULATIVE
FOR THE FOR THE FROM INCEPTION
YEAR YEAR (June 11, 1992)
ENDED ENDED TO
March 31, 1996 March 31, 1995 March 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (Loss) $ (164) $ (1,225) $ (2,516)
Add item not requiring the use
of cash - amortization 54 57 215
Increase (decrease) in accounts payable 110 1,168 1,326
Net cash flows from operating activities (975)
CASH FLOWS FROM INVESTING ACTIVITIES
Organization Costs (271)
CASH FLOWS FROM FINANCING ACTIVITIES
Contribution to Capital 500
Sale of common stock 746
Net Cash flows from financing activities 1,246
NET INCREASE IN CASH
CASH BALANCE AT BEGINNING OF PERIOD
CASH BALANCE AT END OF PERIOD $ $ $
</TABLE>
The accompanying notes are an integral part of the
financial statements.
17
<PAGE>
FARADAY FINANCIAL, INC.
(A Development Stage Company) Notes to Financial Statements
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated under the laws of the State of Delaware
on June 11, 1992, for the purpose of seeking out business
opportunities, including acquisitions. The Company is in the
development stage and will be very dependent on the skills, talents,
and abilities of management to successfully implement its business
plan. Due to the Company's lack of capital, it is likely that the
Company will not be able to compete with larger and more experienced
entities for business opportunities which are lower risk and are
more attractive for such entities. Business opportunities in which
the Company may participate will likely be highly risky and
speculative. Since inception, the Company's activities have been
limited to organizational matters. Organizational costs are
amortized on a straight-line basis over five years.
The financial statements as of and for the years ended March 31,
1996 and 1995 are unaudited, pursuant to the exemption provided by
Rule 3-11 of Regulation S-X.
NOTE 2 CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
NOTE 3 RELATED PARTY TRANSACTIONS
The officer and director of the Company currently serves without
compensation.
An officer of the Corporation has advanced certain expenses on
behalf of the Company. As of March 31, 1995 and 1996 such expenses
totalled $1,216 and $1,326. The Company has given the officer a
demand promissory note convertible into 575,400 shares of common
stock at the officer's option, which is included in accounts
payable, representing this obligation.
NOTE 4 INCOME TAXES
The fiscal year end of the Company is March 31st and an income tax
return has not been filed. However, if an income tax return had been
filed, the Company would have a net operating loss carryforward of
$1,326 that would begin expiring in the year 2008.
NOTE 5 STOCK OPTION PLAN
The Company has stock option plans for directors, officers,
employees, advisors, and employees of companies that do business
with the Company, which provide for non-qualified and qualified
stock options. The Stock Option Committee of the Board determines
the option price which cannot be less than the fair market value at
the date of the grant of 110% of the fair market value if the
Optionee holds 10% or more of the Company's common stock. The price
per share of share subject to a Non-Qualified Option shall not be
less than 85% of the fair market value at the date of the grant.
Options generally expire either three months after termination of
employment, or ten years after date of grant (five years if the
optionee holds 10% or more of the Company's common stock at the time
of grant).
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized April 10, 1996.
FARADAY FINANCIAL, INC.
By: /s/ Jehu Hand
Jehu Hand
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities on April 10, 1996.
By: /s/ Jehu Hand President, Secretary, Chief Financial Officer and Director
Jehu Hand
19
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FARADAY FINANCIAL, INC.
(Pursuant to Section 242 of
the Delaware General Corporation Law)
The undersigned, Eric W. Anderson and Jack A. Thomsen, being
respectively the President and Secretary of Faraday Financial, Inc., a Delaware
corporation (the "Corporation"), do hereby certify as follows:
1. The Certificate of Incorporation of the Corporation is hereby
amended pursuant to Section 242(a)(3) of the General Corporation Law of the
State of Delaware by amending Article FOURTH in its entirety, to read as
follows:
FOURTH: The total number of shares of all classes
which the Corporation is authorized to have outstanding is
Twenty One Million (21,000,000) shares of which stock Twenty
Million (20,000,000) shares in the par value of $.001 each,
amounting in the aggregate of Twenty Thousand Dollars
($20,000) shall be common stock and of which One Million
(1,000,000) shares in the par value of $.001 each, amounting
in the aggregate to One Thousand Dollars ($1,000) shall be
preferred stock. The board of directors is authorized to
effect any forward or reverse stock split without the approval
of stockholders. The rights of preferred stock shall be as
follows:
(1) Series A Non-Convertible Preferred Stock. There is hereby
authorized a series of preferred stock to be designated Series
A Non-Convertible Preferred Stock, having the following
rights, powers, preferences, qualifications, limitations and
restrictions.
(a) Number. The number of shares constituting
the Series A Non-
Convertible Preferred Stock shall be One (1) Share.
(b) Dividend Rights. The holders of Series A
Non-Convertible
Preferred Stock shall not be entitled to receive any dividends.
(c) Redemption. The Series A Non-Convertible
Preferred Stock may
not be redeemed.
<PAGE>
(d) Liquidation Rights. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of Series A Non-Convertible Preferred
Stock shall be entitled to receive from the assets of the
Corporation $1.00 per share, all of which shall be paid or set
apart for payment before the payment or setting apart for
payment of any amount for, or the distribution of any assets
of the Corporation to, the holders of common stock in
connection with such liquidation, dissolution, or winding up.
Each share of Series A Non-Convertible Preferred Stock shall
rank on a parity with each other share of Series
Non-Convertible Preferred Stock, with respect to the
respective preferential amounts fixed for such series payable
upon any distribution of assets by way of liquidation,
dissolution, or winding up of the Corporation. After the
payment or the setting apart of payment to the holders of
Series Non-Convertible Preferred Stock of the preferential
amount so payable to them, the holders of common stock shall
be entitled to receive, ratably, all remaining assets of the
Corporation.
(e) Voting Rights. The holders of Series A
Non-Convertible Preferred Stock shall vote as a class with the
holders of common stock on any matter submitted to the holders
of common stock. Holders of the Series A NonConvertible
Preferred Stock shall be entitled to two million (2,000,000)
votes per share (the "Voting Rights").
(A) Stock Splits and Combinations. If the
Corporation shall at any
-----------------------------
time subdivide the outstanding shares of
common stock without an
equivalent subdivision of the Series A
Non-Convertible Preferred
Stock, the Voting Rights then in effect
immediately before that
subdivision shall be proportionately
increased, and, if the
Corporation shall at any time combine the
outstanding shares of
common stock without an equivalent
combination of the Series A
Non-Convertible Preferred Stock, the
Voting Rights then in effect
immediately before that combination shall be
proportionately
decreased. Any adjustment under this
subsection shall become
effective at the close of business on the
date the subdivision or
combination becomes effective. A dividend
on any security of the
Corporation payable in common stock of the
Corporation shall be
considered a subdivision of common stock
for purposes of this
subsection (e)(A) at the close of business
on the record date for the
determination of holders of any security
entitled to receive such
dividend.
(B) Reclassification, Exchange and Substitution.
If the common stock shall be changed into
the same or a different number of shares of
any other class or classes of stock, whether
by capital reorganization, reclassification,
or otherwise (other than a subdivision or
combination of shares provided for above),
the
2
<PAGE>
Voting Rights of the holders of the Series A
Non-Convertible Preferred Stock shall be
deemed to apply with respect to such class
of stock; provided, however, that the number
of Voting Rights shall be increased or
decreased proportionately so that they bear
the same percentage of voting power to the
total number of shares outstanding as they
did with respect to the common stock
immediately prior to the capital
reorganization, reclassification, or other
change.
(C) Reorganizations, Mergers, Consolidations or
Sale of Assets. If
--------------------------------------------
at any time there shall be a capital
reorganization of the
Corporation's common stock (other than a
subdivision,
combination, reclassification or exchange of
shares provided for
elsewhere in this subsection (e) or merger
of the Corporation into
another corporation, or the sale of the
Corporation's properties and
assets as, or substantially as, an entirety
to any other person), then,
as a part of such reorganization, merger or
sale, lawful provision
shall be made so that the holders of the
Series A Non-Convertible
Preferred Stock shall thereafter be entitled
to receive a number of
Voting Rights in proportion to the
percentage of voting power held
with respect to the common stock immediately
prior to the capital
reorganization or merger or sale of assets.
(f) No Impairment. The Corporation will not, by
amendment of its Certificate of Incorporation or through any
reorganization, recapitalization, transfer of assets, merger,
dissolution, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will
at all times in good faith assist in the carrying out of all
the provision of this subsection (1) and in the taking of all
such action as may be necessary or appropriate in order to
protect the Voting Rights and other rights of the holders of
the Series A Non-Convertible Preferred Stock against
impairment.
(g) Conversion Rights. The Series A
Non-Convertible Preferred Stock
shall not be convertible into common stock or any other class
of shares of the
Corporation.
(2) Other Series of Preferred Stock. The board of directors is
authorized, subject to limitations prescribed by law, to
provide for the issuance of the remaining authorized shares of
preferred stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be
included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions
thereof. The authority of the board with respect to each
series shall include, but not be limited to, determination of
the following:
3
<PAGE>
(a) The number of shares constituting that series and the
distinctive
designation of that series;
(b) The dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so,
from which date or dates, and the relative rights of
priority, if any, of payment of dividends on shares
of that series;
(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and,
if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such
conversion, including provision for adjustment of the
conversion rate in such events as the Board of
Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of
such redemption, including the date or date upon or
after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount
may vary under different conditions, and at different
redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and,
if so, the terms and amount of such sinking fund;
(g) The rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution
or winding up of the corporation, and the relative
rights of priority, if any, of payment of shares of
that series;
(h) Any other relative rights, preferences and
limitations of that series, unless otherwise provided
by the certificate of determination.
2. The foregoing Amendment to the Certificate of Incorporation was
first authorized by the Board of Directors and subsequently duly adopted by the
stockholders by the written consent of the stockholders holding all of the
Corporation's outstanding stock entitled to vote thereon in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
3. In accordance with Section 228 of the General Corporation Law of the
State of Delaware, notice of the authorization and adoption of this Certificate
of Amendment has been promptly given to all stockholders of the Corporation who
have not consented in writing to this corporate action.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment as of June __, 1993 and DO HEREBY CERTIFY, that the facts stated in
this Certificate of Amendment are true and correct.
4
<PAGE>
Eric W. Anderson
President
Jack A. Thomsen
Secretary
5
<PAGE>
CONVERTIBLE PROMISSORY NOTE
$1,216 April 1, 1995
FOR VALUE RECEIVED, the undersigned Faraday
Financial, Inc., a Delaware corporation ("Maker") promises to pay to the order
of Jehu Hand ("Lender"), at its principal office, or at such other place as may
be designated in writing by the holders of this Promissory Note ("Note"), the
principal sum of ONE THOUSAND TWO HUNDRED SIXTEEN AND 00/100 DOLLARS ($1,216.00)
(the "Principal Sum"). The unpaid Principal Sum shall bear interest from the
date hereof until paid at a rate equal 4% per annum.
The unpaid Principal Sum and all accrued but unpaid
interest thereon shall all be due and payable on two years of the date of this
Note.
All payments to be made under this Note shall be
payable in lawful money of the United States of America which shall be legal
tender for public and private debts at the time of payment.
In the event that an action is instituted to collect this
Note, or any portion thereof, Maker promises to pay all costs of collection,
including but not limited to reasonable attorneys' fees, court costs, and such
other sums as the court may establish.
In the event of a default under this Note when due,
then the holder of this Note, at its election, may declare the entire unpaid
Principal Sum and all accrued but unpaid interest thereon immediately due and
payable.
Lender shall have the right at any time to convert the
Principal Sum and all accrued and unpaid interest thereon into 575,400 shares of
common stock of the Maker ("Shares").
Every provision hereof is intended to be several. If
any provision of this Note is determined, by a court of competent jurisdiction
to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall not affect the other provisions hereof, which shall
remain binding and enforceable.
This Note is made in the State of California and it
is mutually agreed that California law shall apply to the interpretation of the
terms and conditions of this Note.
All agreements between the holder of this Note and
Maker are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of deferment or acceleration of the maturity of
this Note or otherwise, shall the rate of interest hereunder exceed the maximum
permissible under applicable law with respect to the holder. If, from any
circumstances whatsoever, the rate of interest resulting from the payment
1
<PAGE>
and/or accrual of any amount of interest hereunder, at any time that payment of
interest is due and/or at any time that interest is accrued, shall exceed the
limits prescribed by such applicable law, then the payment and/or accrual of
such interest shall be reduced to that resulting from the maximum rate of
interest permissible under such applicable law. This provision shall never be
superseded or waived.
The makers, endorsers, and/or guarantors of this Note
do hereby severally waive presentment, demand, protest and notices of protest,
demand, dishonor and nonpayment.
IN WITNESS WHEREOF, this instrument is
executed as of the date first hereinabove set forth.
FARADAY FINANCIAL, INC.
By:
Name:
Its:
2
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE STATEMENTS FOR THE YEAR ENDED MARCH 31, 1996 AND
AS OF MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000910639
<NAME> FARADAY FINANCIAL, INC.
<MULTIPLIER> 1
<CURRENCY> US dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Mar-31-1996
<PERIOD-START> Apr-01-1995
<PERIOD-END> Mar-31-1996
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 1,326
<BONDS> 0
0
0
<COMMON> 1,246
<OTHER-SE> (2,516)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 164
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (164)
<INCOME-TAX> 0
<INCOME-CONTINUING> (164)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (164)
<EPS-BASIC> (.00)
<EPS-DILUTED> (.00)
</TABLE>
