Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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.
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants 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. [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company:
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
State the aggregate market value of the voting and non-voting common stock held by non-affiliates computed by reference to the price at which the common stock was last sold, or the average bid and asked price of such common stock, as of the last business day of the Registrants most recently completed second fiscal quarter.
The aggregate market value of the voting and non-voting common stock of the Registrant was approximately $1,116.83, based on 1,116,834 shares held by non-affiliates, valued at the par value of $0.001 per share for the Registrants common stock on December 31, 2008, as there is, and was at that date, no current public market for these shares.
Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
As of September 15, 2009, the Registrant had 1,715,004 shares of common stock outstanding.
See Part IV, Item 15.
ITEM 1. BUSINESS
We (PSP Industries, Inc. or our Company, and we, our, us and words of similar import) were organized under the laws of the State of Utah on August 21, 1978, under the name Sampson Resources, to engage in any lawful business and for the purpose of acquiring any business or enterprise that would be beneficial to us and our stockholders. Accordingly, we were deemed to be a shell company.
We had business operations during the years beginning in 1978 through early 1987, and we are now a shell company as defined in Rule 12b-2 of the Securities and Exchange Commission (the SEC) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). See the heading Business Development below.
The following is a summary of material organizational and business development events since our inception:
We were incorporated under the laws of the state of Utah on August 21, 1978, under the name Samson Resources, with an authorized capital of Ten Million (10,000,000) authorized shares of a par value of One Cent ($0.01) per share.
On or about January 24, 1980, we filed Articles of Amendment to our Articles of Incorporation whereby we changed our authorized shares to Fifty Million (50,000,000) shares of a par value of One Mill ($0.001) per share.
On or about April 17, 1984, we effected a reverse split of our outstanding securities on a basis of one for five, while retaining the then present authorized capital and par value, with appropriate adjustments to our capital accounts. All computations hereafter take into account this recapitalization.
We acquired all of the outstanding stock of PSP Synfuels & Technology, Inc. (PSP Michigan), a Michigan corporation, in exchange for 858,750 of our common stock on or about April 17, 1984.
We also acquired all of the outstanding stock of Dynel Todd Corporation, also a Michigan corporation (DTC), in exchange for 120,000 shares of our common stock on or about May 8, 1984.
In 1987, we ceased business operations and disposed of the shares of stock of PSP Michigan and DTC acquired in 1984 for nominal consideration.
On or about October 13, 1995, we filed an Amendment to our Articles of Incorporation, changing our name to PSP Industries, Inc.
On December 9, 2003, we filed Amended and Restated Articles of Incorporation whereby our authorized shares were increased to Two Hundred Million (200,000,000) shares and our par value was changed to One Cent ($0.01) per share.
Also on December 9, 2003, we filed Second Amended and Restated Articles of Incorporation whereby our par value was changed to One Mill ($0.001) per share.
On or about December 15, 2003, we effected a reverse split of our outstanding securities on a basis of one for 10, and while retaining the then present authorized capital and par value, with appropriate adjustments to our capital accounts. All computations hereafter take into account this recapitalization.
We discontinued our business operations in early 1987 for lack of funding.
Effective March 3, 2009, we acquired and canceled an aggregate total of 12,387,500 shares of our common stock for consideration of a $20 payment made by a related party.
All computations herein take into account all recapitalizations and reverse splits outlined above.
The following are the material differences from our prior Articles of Incorporation our Second Amended and Restated Articles of Incorporation: Article I of our prior Articles of Incorporation (the Prior Articles) indicates our prior name; and Article I of our Second Amended and Restated Articles of Incorporation (the New Articles) reflects our current name, PSP Industries, Inc. Article II of the Prior Articles was amended in a new Article II to reflect that we are organized to engage in any lawful purpose. The old Article II in the Prior Articles, reflecting that our duration was perpetual has been stricken from the New Articles, as under the Utah Revised Business Corporation Act, Section 16-10a-302, all corporations have perpetual duration unless the Articles express otherwise. Article III of the Prior Articles, reflecting that we were organized for the purpose of mining has been amended to limit the liability of directors to the full extent allowable under the Utah Revised Business Corporation Act in the New Articles. Article IV has been amended to adjust our capitalization from Ten Million (10,000,000) shares of a par value of One Cent ($0.01) per share in the Prior Articles to Two Hundred Million (200,000,000) shares of a par value of One Mill ($0.001) per share in the New Articles. Article V of the Prior Articles, which abolished pre-emptive rights, has been amended to reflect the name and address of our registered office and the registered agent in the New Articles; there is no Article eliminating preemptive rights in the New Articles because the Utah Revised Business Corporation Act, Section 16-10a-630, prohibits preemptive rights unless specifically stated in the Articles of Incorporation. Article VI of the Prior Articles, regarding the prohibition to not commence business until at least $1,000 has been paid into the Company has been amended in the New Articles to allow a majority of the members of our Board of Directors to set the size of the Board and the fill vacancies on the Board. Article VII of the Prior Articles regarding our Internal Affairs has been deleted and the new Article VII as amended authorizes us to make, amend, alter or repeal our own Bylaws. Article VIII of the Prior Articles, regarding registered office and agent has been amended in the New Articles to provide for action by written consent of the holders of outstanding voting securities having the minimum number of votes necessary to authorize or take the action at a meeting at which all shares entitled to vote were authorized to be present and vote, in accordance with the Sections 16-10a-704 and 16-10a-1704 of the Utah Revised Business Corporation Act. Article IX of the Prior Articles regarding directors has been amended in the New Articles to provide for an exemption from the Utah Control Shares Acquisition Act, Section 61-6-1, so that acquisitions or mergers that may have been the subject of such Section, are exempted therefrom. Finally, Article X, Incorporators and Article XI, Officers and Directors Contracts, of the Prior Articles, have been repealed in the New Articles, as these matters are customarily handled in the Bylaws or in the Utah Revised Business Corporation Act.
Description of Business
We are currently seeking potential assets, property or businesses to acquire, in a business combination, by reorganization, merger or acquisition. We have had no material business operations since early, 1987. Our plan of operation for the next 12 months is to: (i) consider guidelines of industries in which we may have an interest; (ii) adopt a business plan regarding engaging in the business of any selected industry; and (iii) to commence operations
through funding and/or the acquisition or business combination with a going concern engaged in any industry selected. We are unable to predict the time as to when and if we may actually participate in any specific business endeavor, and we will be unable to do so until we determine any particular industry in which we may conduct business operations.
We are not currently engaged in any substantive business activity except the search for potential assets, property or businesses to acquire, and we have no current plans to engage in any other activity in the foreseeable future unless and until we complete any such acquisition. In our present form, we are deemed to be a shell company seeking to acquire or merge with a business or company. We do not intend to restrict our search for business opportunities to any particular business or industry, and the areas in which we will seek out business opportunities may include all lawful businesses. We recognize that the number of suitable potential business ventures that may be available to us will be extremely limited, and may be restricted to businesses or entities that desire to become a publicly-held company while avoiding what many may deem to be the adverse factors related to an initial public offering (IPO) as a method of going public. The most prevalent of these factors include the substantial time requirements, legal and accounting costs, the inability to obtain an underwriter who is willing to publicly offer and sell securities on behalf of the particular entity, the lack of or the inability to obtain the required financial statements for such an undertaking, state limitations on the amount of dilution to public investors in comparison to the stockholders of any such entity, along with other conditions or requirements imposed by various federal and state securities laws, rules and regulations and federal and state agencies that implement them.
Amendments to SEC Form 8-K regarding shell companies and transactions with shell companies require the filing of all information about an acquired company that would have been required to have been filed had any such company filed a Form 10 Registration Statement with the SEC, along with required audited, interim and proforma financial statements, within four business days of the closing of any such transaction (Item 5.01(a)(8) of Form 8-K); and the recent amendments to SEC Rule 144 adopted by the SEC that were effective on February 15, 2008, that limit the resale of most securities of shell companies until 12 months after the filing of such information (the Form 10 Information), may eliminate many of the perceived advantages of going public transactions with shell companies. These types of transactions are customarily referred to as reverse reorganizations or mergers in which the acquired companys stockholders become the controlling stockholders in the acquiring company and the acquiring company becomes the successor to the business operations of the acquired company. Regulations governing shell companies also deny the use of SEC Form S-8 for the registration of securities and limit the use of SEC Form S-8 to a reorganized shell company until the expiration of 60 days from when any such entity is no longer considered to be a shell company. This prohibition could further restrict opportunities for us to acquire companies that may already have stock option plans in place that cover numerous employees. In such instances, there may be no exemption from registration for the issuance of securities in any business combination to these employees, thereby necessitating the filing of a registration statement with the SEC to complete any such reorganization, and incurring the time and expenses that are normally avoided by reverse reorganizations or mergers.
Recent amendments to Rule 144, adopted by the SEC and effective on February 15, 2008, codify the SECs prior position limiting the tradeability of certain securities of shell companies, including those issued by us in any business combination, and further limit the tradeability of additional securities of shell companies; these proposals will further restrict the availability of opportunities for us to acquire any business or enterprise that desires to utilize us as a means of going public. See the heading Rule 144, of Item 5, for a discussion of the general requirements of Rule 144 and the limitations of Rule 144 with respect to shell companies.
Any of these types of business combination transactions, regardless of the particular prospect, would require us to issue a substantial number of shares of our common stock that could amount to as much as 95% or more of our outstanding voting securities; accordingly, investments in the private enterprise, if available, would be much more favorable than any investment in us.
Management intends to consider a number of factors prior to making any decision to participate in any specific business endeavor, none of which may be determinative or provide any assurance of success. These may include, but will not be limited to, as applicable, an analysis of the quality of the particular business or entitys management and personnel; the anticipated acceptability of any new products or marketing concepts that any such business or company may have; the merits of any such business or companys technology or intellectual property; the present
financial condition, projected growth potential and available technical, financial and managerial resources; working capital, history of operations and future prospects; the nature of present and expected competition; the quality and experience of any such business or companys management services and the depth of management; the business or the companys potential for further research, development or exploration; risk factors specifically related to the business or companys operations; the potential for growth, expansion and profit; the perceived public recognition or acceptance of products, or services offered and trademarks and name identification; and numerous other factors that are difficult, if not impossible, to properly or accurately quantify or analyze, let alone describe or identify, without referring to specific objective criteria of an identified business or company.
Regardless, the results of operations of any specific entity may not necessarily be indicative of what may occur in the future, by reason of changing market strategies, plant or product expansion, changes in product emphasis, future management personnel and changes in innumerable other factors. Further, in the case of a new business venture or one that is in a research and development mode, the risks will be substantial, and there will be no objective criteria to examine the effectiveness or the abilities of its management or its business objectives. Also, a firm market for its products or services may yet need to be established, and with no past track record, the profitability of any such business will be unproven and cannot be predicted with any certainty.
Our management will attempt to meet personally with management and key personnel of any entity providing a potential business opportunity for us, visit and inspect material facilities, obtain independent analysis or verification of information provided and gathered, check references of material personnel and conduct other reasonably prudent measures calculated to ensure a reasonably thorough review of any particular business opportunity; however, due to time constraints of management and limited capital, these activities may be limited.
We are unable to predict the time as to when and if we may actually participate in any specific business endeavor or if at all. We anticipate that proposed business ventures will be made available to us through personal contacts of directors, executive officers and principal stockholders, professional advisors, broker dealers in securities, venture capital personnel and others who may present unsolicited proposals. In certain cases, we may agree to pay a finders fee or to otherwise compensate the persons who submit a potential business endeavor in which we eventually participate. Such persons may include our directors, executive officers and beneficial owners of our securities or their affiliates. In this event, such fees may become a factor in negotiations regarding any potential venture and, accordingly, may present a conflict of interest for such individuals. Management does not presently intend to acquire an interest in any business enterprise in which any member has an ownership interest.
Although we currently have no plans to do so, depending on the nature and extent of services rendered, we may compensate members of our management in the future for services that they may perform for us. Because we currently have extremely limited resources, and we are unlikely to have any significant resources until we have determined a business or enterprise to engage in or have completed a business combination, management expects that any such compensation would take the form of an issuance of shares of our common stock to these persons; this would have the effect of further diluting the holdings of our other stockholders. There are presently no preliminary agreements or understandings between us and members of our management respecting such compensation. Any shares issued to members of our management would be required to be resold under an effective registration statement filed with the SEC or could not be publicly sold until 12 months after we file the Form 10 information about the business combination with the SEC as now required by SEC Form 8-K. These provisions could further inhibit our ability to complete any business combination where finders or others who may be subject to these resale limitations refuse to provide us with any introductions or to close any such transactions unless they are paid requested fees in cash rather than our shares or unless we agree to file a registration statement with the SEC that includes any shares that are to be issued to them, at no cost to them. These expenses could limit potential acquisition candidates, especially those in need of cash resources, and could affect the number of shares that our stockholders retain following any such transaction, by reason of the increased expense.
Substantial fees are also often paid in connection with the completion of all types of business combinations, ranging from a small amount to as much as $600,000 or more. These fees are usually divided among promoters or founders or finders, after deduction of legal, accounting and other related expenses, and it is not unusual for a portion of these fees to be paid to members of management or to principal stockholders as consideration for their agreement to retire a portion of their shares of common stock or as consideration to them to provide an indemnification for all of our
prior liabilities. Members of management may also actively negotiate or otherwise consent to the purchase of all or any portion of their shares of common stock as a condition to, or in connection with, a proposed business combination. It is not anticipated that any such opportunity will be afforded to other stockholders or that such other stockholders will be afforded the opportunity to approve or consent to any particular stock buy-out transaction. In the event that any such fees are paid or shares are purchased, these requirements may become a factor in negotiations regarding any business combination with us and, accordingly, may also present a conflict of interest for such individuals. We have no present arrangements or understandings respecting any of these types of fees or opportunities. Any of these types of fees that are paid in shares of our common stock will also be subject to the resale limitations embodied in the recent amendments to Rule 144 that prohibit, among other requirements, the public resale of these shares until 12 months after the filing of the Form 10 Information with the SEC.
None of our directors, executive officers, founders or their affiliates or associates are currently involved in any negotiations with any representatives of the owners of any business or company regarding the possibility of a business combination with us.
Distribution Methods of the Products or Services
None; not applicable.
Status of any Publicly Announced New Product or Service
None; not applicable.
Competitive Business Conditions and Smaller Reporting Companys Competitive Position in the Industry and Methods of Competition
Management believes that there are literally thousands of shell companies engaged in endeavors similar to those engaged in by us; many of these companies have substantial current assets and cash reserves. Competitors also include thousands of other publicly-held companies whose business operations have proven unsuccessful, and whose only viable business opportunity is that of providing a publicly-held vehicle through which a private entity may have access to the public capital markets via a reverse reorganization or merger. There is no reasonable way to predict our competitive position or that of any other entity in these endeavors; however, we, having limited assets and no cash reserves, will no doubt be at a competitive disadvantage in competing with shell companies that have significant cash resources and have recent operating histories when compared with the complete lack of any substantive operations by us since early 1987.
Sources and Availability of Raw Materials and Names of Principal Suppliers
None; not applicable.
Dependence on One or a Few Major Customers
None; not applicable.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts, including Duration
None; not applicable.
Need for any Governmental Approval of Principal Products or Services
Because we currently have no business operations, produce no products nor provide any services, we are not presently subject to any governmental regulation in this regard. However, in the event that we complete a business combination transaction, we will become subject to all governmental approval requirements to which the reorganized, merged or acquired entity is subject or may become subject.
Effect of Existing or Probable Governmental Regulations on the Business
We are subject to the following regulations of the SEC and applicable securities laws, rules and regulations:
Securities and Exchange Commission and Sarbanes/Oxley Act
Smaller Reporting Company
We are subject to the reporting requirements of Section 13 of the Exchange Act, subject to the disclosure requirements of Regulation S-K of the Securities and Exchange Commission, as a smaller reporting company. That designation will relieve us of some of the informational requirements of Regulation S-K applicable to larger companies.
We are subject to the Sarbanes-Oxley Act of 2002. The Sarbanes/Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members appointment, compensation and oversight of the work of public companies auditors; management assessment of our internal controls; auditor attestation to managements conclusions about internal controls (anticipated to commence with the April 30, 2010, year end); prohibits certain insider trading during pension fund blackout periods; requires companies and auditors to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with the requirements of the Sarbanes/Oxley Act will substantially increase our legal and accounting costs.
Exchange Act Reporting Requirements
Section 14(a) of the Exchange Act requires all companies with securities registered pursuant to Section 12(g) of the Exchange Act to comply with the rules and regulations of the Securities and Exchange Commission regarding proxy solicitations, as outlined in Regulation 14A. Matters submitted to our shareholders at a special or annual meeting thereof or pursuant to a written consent will require us to provide our shareholders with the information outlined in Schedules 14A or 14C of Regulation 14; preliminary copies of this information must be submitted to the Securities and Exchange Commission at least 10 days prior to the date that definitive copies of this information are forwarded to shareholders.
We are also required to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the Securities and Exchange Commission on a regular basis, and will be required to timely disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in a Current Report on Form 8-K.
Research and Development Costs During the Last Two Fiscal Years
None; not applicable.
Cost and Effects of Compliance with Environmental Laws
Our current business operations are not subject to any material environmental laws, rules or regulations that would have an adverse material effect on our business operations or financial condition or result in a material compliance cost; however, we will become subject to all such governmental requirements to which the reorganized, merged or acquired entity is subject or may become subject, on the closing of a business combination.
Number of Total Employees and Number of Full-Time Employees
We have no employees.
You may read and copy any materials that we file with the Securities and Exchange Commission at the Securities and Exchange Commissions Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may also find all of the reports or registration statements that we have filed electronically with the Securities and Exchange Commission at its Internet site at
www.sec.gov. Please call the Securities and Exchange Commission at 1-202-551-8090 for further information on this or other Public Reference Rooms. Our Securities and Exchange Commission reports and registration statements are also available from commercial document retrieval services, such as CCH Washington Service Bureau, whose telephone number is 1-800-955-0219.
ITEM 1A. RISK FACTORS
In any business venture, there are substantial risks specific to the particular enterprise which cannot be ascertained until a potential acquisition, reorganization or merger candidate has been identified; however, at a minimum, our present and proposed business operations will be highly speculative and will be subject to the same types of risks inherent in any new or unproven venture, and will include those types of risk factors outlined below.
Extremely Limited Assets and No Source of Revenue; Accordingly, We May Fail.
We have no assets and have had no revenue since 1987; nor will we receive any revenue until we complete a business combination, at the earliest. We can provide no assurance that any acquired or commenced business will produce any material revenues for us or benefit for our stockholders or that any such business will operate on a profitable basis.
We Are Deemed to be a Shell Company Until We Adopt a Business Plan and Commence Principal Significant Operations.
Our present limited business operations involve those of a shell company. The only activities to be conducted by us include maintaining our good standing in the State of Utah, compliance with our reporting requirements with the SEC and the seeking out and investigating the potential acquisition of any viable business opportunity in a business combination.
Discretionary Use of Proceeds; Blank Check or Shell Company.
Because we are not currently engaged in any substantive business activities, as well as managements broad discretion with respect to selecting a business or industry for commencement of operations or completing a business combination, we are deemed to be a blank check or shell company. Although management intends to apply any proceeds we may receive through the issuance of our common stock or debt securities to a suitable business enterprise or combination, subject to the criteria identified in Item 1, such proceeds will not otherwise be designated for any more specific purpose. We can provide no assurance that any use or allocation of such proceeds will allow us to achieve our business objectives.
We Are Not Currently Engaged in any Substantive Business Activity, and We Have No Plans to Engage in any Such Activity in the Foreseeable Future, Except the Search for a Business or an Entity to Acquire that May Be Beneficial to Us and that May Benefit Our Stockholders.
When and if we will complete a business combination is presently unknown, and will depend upon various factors, including but not limited to, funding and its availability; and if and when any potential acquisition may become available to us on terms acceptable to us. No assurance can be given that any such opportunity will be made available to us or will be completed; and if made available or completed, will benefit us or our stockholders.
We Will Seek Out Business Opportunities.
Management will seek out and investigate business opportunities through every reasonably available fashion, including personal contacts, professionals, securities broker dealers, venture capital personnel, members of the financial community and others who may present unsolicited proposals; we may also advertise our availability as a vehicle to bring a company to the public market through a reverse reorganization or merger business combination, subject to the limitations on any such advertising that are included in the Securities Act of 1933, as amended (the Securities Act), and the General Rules and Regulations of the SEC promulgated thereunder.
Absence of Substantive Disclosure Relating to Prospective Acquisitions.
Because we have not yet identified any industry or potential business combination that we may engage in or acquire, potential investors in us will have virtually no substantive information upon which to base a decision of whether to invest in us. Potential investors would have access to significantly more information if we had already identified a potential acquisition or business combination, or if the acquisition or business combination target had made an offering of its securities directly to the public. We can provide no assurance that any investment in us will not ultimately prove to be less favorable than such a direct investment.
Unspecified Industry and Acquired Business and Unascertainable Risks May Cause us to Fail.
We have not identified any particular industry or business in which to concentrate our efforts. Accordingly, prospective investors in us currently have no basis to evaluate the comparative risks and merits of investing in the industry or business in which we may acquire or otherwise engage in. To the extent that we may acquire a business in a high risk industry, we will become subject to those risks. Similarly, if we acquire a financially unstable business or a business that is in the early stages of development, we will become subject to the numerous risks to which such businesses are subject. Although management intends to consider the risks inherent in any industry and business in which we may become involved, there can be no assurance that we will correctly assess such risks.
Uncertain Structure of Any Acquisition and Unknown Dilution to Our Stockholders.
Management has had no preliminary contact or discussions regarding, and there are no present plans, proposals or arrangements, to engage in or acquire any specific business, assets or property in a business combination or otherwise. Accordingly, it is unclear whether such an acquisition or business combination would take the form of an exchange of capital stock, a merger or an asset acquisition. However, because we have virtually no resources as of the date of this Annual Report, management expects that any such acquisition or business combination would take the form of an exchange of our capital stock that would further dilute our stockholders.
Auditors Going Concern Opinion that Expresses Doubt About Our Ability to Continue as a Going Concern.
Our auditors who audited our consolidated financial statements for the calendar years ended June 30, 2009, and 2008, have expressed substantial doubt about our ability to continue as a going concern in Note 7 of our consolidated financial statements for the years ended June 30, 2009, and 2008, which accompany this Annual Report, due to our status as a shell company and our lack of profitable operations or available funds. See our financial statements, Item 8.
There Are Losses Associated with Startup Companies, and We May Fail.
We have not had a profitable operating history; and we cannot guarantee that we will become profitable or that we will complete any business combination of any kind or that if one is completed, that it will become profitable.
Federal and State Restrictions on Blank Check or Shell Companies that Will Further Limit Our Opportunities.
Recent amendments to SEC Form 8-K by the SEC regarding shell companies and transactions with shell companies require the filing of the Form 10 Information about an acquired company that would have been required to have been filed had any such company filed a Form 10 Registration Statement with the SEC, along with required audited, interim and proforma financial statements, within four business days of the closing of any such transaction. These new regulations also deny the use of SEC Form S-8 for the registration of securities of a shell company, and limit the use of SEC Form S-8 to a reorganized shell company until the expiration of 60 days from when any such shell company is no longer considered to be a shell company. This prohibition could further restrict opportunities for us to acquire companies that may already have stock option plans in place that cover numerous employees. In such instances, there may be no exemption from registration under the Securities Act for the issuance of securities in any business combination to these employees, thereby necessitating the filing of a registration statement with the SEC to complete any such business combination, and incurring the time and expense normally avoided by reverse reorganizations or mergers.
Further, recent amendments to Rule 144 adopted by the SEC and effective on February 15, 2008, codify the SECs prior position limiting the tradeability of certain securities of shell companies, including those issued by shell companies in any acquisition or business combination, and further limit the tradeability of additional securities of shell companies; these proposals will further restrict the availability of opportunities for us to acquire any business or enterprise that may desire to utilize us as a means of going public. See the heading Rule 144 of Item 5 for a discussion of the general requirements of Rule 144 and the limitations of Rule 144 with respect to shell companies.
If we publicly offer any securities as a condition to the closing of any acquisition or business combination while we are a blank check or shell company, we will have to fully comply with SEC Rule 419 and deposit all funds in escrow pending advice about the proposed transaction to our stockholders fully disclosing all information required by Regulation 14 of the SEC and seeking the vote and agreement of investment of those stockholders to whom such securities were offered; if no response is received from these stockholders within 45 days thereafter or if any stockholder elects not to invest following our advice about the proposed transaction, all funds that must be held in escrow by us under Rule 419, as applicable, will be promptly returned to any such stockholder. All securities issued in any such offering will likewise be deposited in escrow, pending satisfaction of the foregoing conditions. This is only a brief summary of Rule 419. We do not anticipate making any public offerings of our securities that would come within the context of an offering described in Rule 419.
All of these laws, rules and regulations could severely restrict us from completing an acquisition of any business combination for the following reasons, among others:
The time and expense in complying with any of the foregoing could be prohibitive and eliminate the reasons for a reverse reorganization or merger.
Management or others who own or are to receive shares that may be subject to the new resale limitations of Rule 144 may demand registration rights for these shares, and the acquisition or business combination candidate may refuse to grant them by reason of the time, cost and expense involved; or because the filing of any such registration statement may be integrated with planned financing options of the acquisition or business combination candidate that could prohibit or interfere with such options or such registration statement.
Demands for cash in lieu of securities could be too high a cost of dilution to the acquisition or business combination candidate, especially when taking into account the dilution that results from the shareholdings that are retained by our stockholders.
These costs and expenses, if agreed upon, would no doubt further dilute our stockholders, as any acquisition or business combination candidate may not be willing to leave as many shares with our stockholders in any such transaction, had these issues not been present.
Finders and parties who may introduce acquisition or business combination candidates to us may be unwilling to introduce any such candidates if shares to be issued to them are not registered for resale with the SEC, which would restrict our ability to attract potential candidates.
Will limit resales of securities issued in acquisitions or business combinations by providing a 12 month holding period from the filing of the Form 10 information required to be filed with the SEC within four days of the closing of any such transaction, thereby denying acquired companies stockholders the newly proposed six month holding period that they would be subject to if their company went public by means other than the use of a shell company.
Presently, a total of 34 states prohibit or substantially restrict the registration and sale of shares of blank check or shell companies within their borders. We intend to comply fully with all state securities laws, and plan to take the steps necessary to ensure that any future offering of our securities are limited to those states in which such offerings are allowed. However, while we have no substantive business operations and are deemed to be a blank check or shell company, these legal restrictions may have a material adverse impact on our ability to raise capital, because potential purchasers of our securities must be residents of states that permit the purchase of such securities. These restrictions may also limit or prohibit stockholders from reselling shares of common stock within the borders of regulating states. Section 18 of the Securities Act exempts private sales of shares of blank check or shell companies from state registration laws, rules and regulations if sold under SEC Rule 506.
By regulation or policy statement, some states place various restrictions on the sale or resale of equity securities of blank check or shell companies. These restrictions include, but are not limited to, heightened disclosure requirements, exclusion from manual listing registration exemptions for secondary trading privileges and outright prohibition of public offerings of such companies.
In most jurisdictions, blank check and shell companies are not eligible for participation in the Small Corporate Offering Registration (SCOR) program, which permits an issuer to notify the SEC of certain offerings registered in such states by short form filing. All states (with the exception of Alabama, Minnesota, Nebraska and New York) have adopted some form of SCOR. States participating in the SCOR program also allow applications for registration of securities by qualification via filing of a Form U-7 with the states securities commissions. Nevertheless, while we are a blank check or shell company, we do not anticipate making any SCOR offering or other public offering in the foreseeable future, even in any jurisdiction where we may be eligible for participation in SCOR.
The net effect of the above-referenced laws, rules and regulations will be to place significant restrictions on our ability to register, offer and sell and/or to develop a secondary market for shares of our common stock in virtually every jurisdiction in the United States. These restrictions should cease once and if we acquire a venture by acquisition or business combination, so long as the business operations succeeded to involve sufficient activities of a specific nature.
Management to Devote Insignificant Time to Activities of Our Company, Which Will Limit Opportunities that May Be Made Available to Us and Our Business Model May Fail.
Members of our management are not required to devote their full time to our affairs. Because of their time commitments, as well as the fact that we have limited business operations and funds, the members of our management currently devote approximately one hour per week to our activities, and will continue to do so until such time as we have identified a suitable acquisition or business combination candidate, or have determined to engage in a particular business or industry and have commenced such operations.
There is No Market for Our Common Stock.
We intend to submit for quotations of our common stock on the OTC Bulletin Board of FINRA before any selection of a business opportunity or prior to consideration of the acquisition of any business or the completion of any
business combination, and to seek a broker dealer to act as market maker for our securities (without the use of any consultant); our common stock was last publicly quoted in December, 1985. There is currently no market for our shares of common stock; there have been no discussions with any broker dealer or any other person in this regard; no market maker has been identified; and there can be no assurance that any broker dealer will agree to file a Form 211 for the OTC Bulletin Board or the Pink Sheets for us or that in the event of such quotations being granted for our common stock, that any market for our common stock will ever develop or be maintained. Any market price for shares of our common stock is likely to be very volatile, and numerous factors beyond our control may have a significant effect. In addition, the stock markets generally have experienced, and continue to experience, extreme price and volume fluctuations that have affected the market price of many small capital companies and that have often been unrelated to the operating performance of these companies. These broad market fluctuations, as well as general economic and political conditions, may adversely affect the market price of shares of our common stock in any market that may develop. Sales of restricted securities under Rule 144 or pursuant to registration statements may also have an adverse effect on any market that may develop. See the heading Rule 144 of Item 5.
Our Common Stock is Penny Stock Under SEC General Rules and Regulations, Which Means There Will be a Very Limited Trading Market for Our Shares if Any Trading Market Ever Develops.
Our common stock is deemed to be penny stock as that term is defined in SEC Rule 3a51-1. Penny stocks are stocks (i) with a price of less than $5.00 per share; (ii) that are not traded on a recognized national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must still meet requirement (i) above); or (iv) in issuers with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average revenues of less than $6,000,000 for the last three years.
Section 15(g) of the Exchange Act and Rule 15g-2 of the SEC require broker dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investors account. Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be penny stock.
Moreover, SEC Rule 15g-9 requires broker dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investors financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for investors in our common stock to resell their shares to third parties or to otherwise dispose of them.
Our Shares Are Subject to Additional Rule 144 Resale Restrictions Applicable to Shell Companies that May Make an Acquisition or Business Combination With Us Less Suitable as a Means of Becoming a Publicly-Held Company.
Any securities issued by us while we are a shell company will be subject to resale limitations imposed on shell companies that limit the resale of securities issued by shell companies until 12 months after the cessation of a shell company status and the filing of the Form 10 Information about the acquired company as required by Item 5.01(a)(8) of SEC Form 8-K.
The following is an excerpt from Rule 144(i) regarding resales of securities of shell companies:
This section is not available for the resale of securities initially issued by an issuer defined below:
An issuer, other than a business combination related shell company, as defined in §230.405, or an asset-backed issuer, as defined in Item 1101(b) of Regulation AB (§229.1101(b) of this chapter), that has:
Assets consisting of any amount of cash and cash equivalents and nominal other assets; or
An issuer that has been at any time previously an issuer described in paragraph (i)(1)(i).
Notwithstanding paragraph (i)(1), if the issuer of the securities previously had been an issuer described in paragraph (i)(1)(i) but has ceased to be an issuer described in paragraph (i)(1)(i); is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act; has filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the issue was required to file such reports and materials), other than Form 8-K reports (§249.308 of this chapter); and has filed current Form 10 information with the SEC reflecting its status as an entity that is no longer an issuer described in paragraph (i)(1)(i), then those securities may be sold subject to the requirements of this section after 12 months have elapsed from the date that the issuer filed Form 10 information with the SEC.
The term Form 10 information means the information that is required by Form 10 or Form 20-F (§249.220f of this chapter), as applicable to the issuer of the securities, to register under the Exchange Act each class of securities being sold under this rule. The issuer may provide the Form 10 information in any filing of the issuer with the SEC. The Form 10 information is deemed filed when the initial filing is made with the SEC.
Securities of a shell company cannot be publicly sold under Rule 144 in the absence of compliance with this subparagraph.
Since we are a shell company as defined in subparagraph (i) of Rule 144, our shares of common stock that were issued while or after we became a shell company cannot be publicly resold under Rule 144 until we comply with the requirements outlined above under the heading Shell Companies. Until those requirements have been satisfied, any resales of our shares of common stock must be made in compliance with the provisions of the exemption from registration under the Securities Act provided in Section 4(1) thereof, applicable to persons other than an issuer, underwriter or a dealer. That will require that such shares of common stock be sold in routine trading transactions, which would include compliance with substantially all of the requirements of Rule 144, including the availability of current public information about us as required by subparagraph (c) (1) or (c)(2) of Rule 144, regardless of the Rules availability; and such resales may be limited to our non-affiliates. It has been the position of the SEC that the Section 4(1) exemption is not available for the resale of any securities of an issuer that is or was a shell company, by directors, executive officers, promoters or founders or their transferees. See
NASD Regulation, Inc., CCH Federal Securities Law Reporter, 1990-2000 Decisions, Paragraph No. 77,681, the so-called Worm-Wulff Letter. The current position of the SEC that is contained in Securities Act Release No. 33-8899, effective February 15, 2008, and that codified the position of the SEC set forth in the Worm-Wulff Letter and revised Rule 144 as outlined above, is that Rule 144 now defines what resales can be made under Section 4(1) of the Securities Act, and with limited exceptions, which are set forth in footnote 172 of that Release, shares of shell companies must be sold in compliance with Rule 144(i) that is quoted above.