UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
(Mark one)
[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2004
[ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the transition period from ______________ to _____________
Commission File Number: 0-28453
Ameri-First Financial Group, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 75-2610236
(State of incorporation) (IRS Employer ID Number)
211 West Wall Street, Midland, TX 79701
(Address of principal executive offices)
(432) 682-1761
(Issuer's telephone number)
Securities registered under Section 12 (b) of the Exchange Act - None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock - $0.00001 par value
Check whether the issuer has (1) filed all reports required to be files by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period the Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes [X] No [ ]
The issuer's revenues for the fiscal year ended December 31, 2004 were $-0-.
The aggregate market value of voting common equity held by non-affiliates as of
February 22, 2007 was approximately $-0-, as there are no current quotes
available for the Registrant's equity securities.
As of February 22, 2007 there were 5,054,422 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format : Yes [ ] No [X]
AMERI-FIRST FINANCIAL GROUP, INC.
INDEX TO CONTENTS
Page
Number
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PART I
Item 1 Description of Business 3
Item 2 Description of Property 16
Item 3 Legal Proceedings 17
Item 4 Submission of Matters to a Vote of Security Holders 17
PART II
Item 5 Market for Company's Common Stock and Related Stockholders
Matters 17
Item 6 Management's Discussion and Analysis or Plan of Operation 18
Item 7 Financial Statements 20
Item 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures 20
Item 8A Controls and Procedures 21
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 21
Item 10 Executive Compensation 22
Item 11 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 23
Item 12 Certain Relationships and Related Transactions 23
Item 13 Exhibits and Reports on 8-K 24
Item 14 Principal Accountant Fees and Services 24
SIGNATURES 25
2
CAUTION REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this annual filing, including, without
limitation, statements containing the words "believes", "anticipates", "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
Such factors include, among others, the following: international, national and
local general economic and market conditions: demographic changes; the ability
of the Company to sustain, manage or forecast its growth; the ability of the
Company to successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other factors referenced in this and previous filings.
Given these uncertainties, readers of this Form 10-KSB and investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
BACKGROUND
On March 22, 2000, a change in control of Itronics Communications Corporation
occurred in conjunction with closing under an Agreement and Plan of
Reorganization (the "Reorganization Agreement") between Itronics Communications
Corporation and Ameri-First Financial Group, Inc. (AFFG), a Nevada corporation.
The closing under the Reorganization Agreement consisted of a stock for stock
exchange in which Itronics Communications Corporation acquired all of the issued
and outstanding common stock of AFFG in exchange for the issuance of 9,386,116
shares of its common stock. As a result of this transaction, Itronics
Communications Corporation became a wholly-owned subsidiary of AFFG.
The Reorganization was approved by the unanimous consent of the Board of
Directors of Ameri-First Financial Group on March 20, 2000. The Reorganization
qualified as a reorganization within the meaning of Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended.
Prior to the Agreement, Ameri-First Financial Group had 9,386,116 shares of
common stock issued and outstanding. Following the Agreement, Registrant had
9,436,116 shares of common stock outstanding. Ameri-First Financial Group,
formerly known as Tahoe Pacific Corporation and Pacific Holdings, Inc., was
incorporated in the State of Nevada on September 27, 1996. Upon effectiveness of
the Reorganization Agreement, pursuant to Rule 12g-3(a) of the General Rules and
Regulations of the Securities and Exchange Commission, Ameri-First Financial
Group became the successor issuer to Itronics Communications Corporation, Inc.
for reporting purposes under the Securities Exchange Act of 1934 and elected to
report under the Act effective March 22, 2000.
A copy of the Agreement was filed as an exhibit to a Current Report on Form 8-K
filed on March 23, 2000 and is incorporated in its entirety herein. The
foregoing description is modified by such reference.
For periods prior to 2000, the Company participated in numerous unsuccessful
ventures and corporate name changes, as discussed in greater detail in previous
Form 10-KSB filings.
3
The use of "Ameri-First Financial Group, Inc." in this filing refers to the
operations of all entities, past and present, as the original Ameri-First
Financial Group, Inc. is the historical accounting entity since it's initial
inception and may be referred to as "Registrant" In anticipation of acquiring
certain assets of Ameri-First Financial Corporation on January 10, 2000, the
Company changed its name to Amer-First Financial Group, Inc. On February 7,
2000, the Company acquired Ameri-First Financial Corporation for what was then
4,500,000 shares of its Common Stock.
In approximately May 2000, the former management of the Registrant determined
that it would be in the best interest of the Registrant for it to become a hotel
owner for investment purposes. The Registrant began negotiations with HMGT
Management Corporation, a Delaware corporation engaged in the management of
hotels, and Wilkerson Consulting, Inc., a Nevada corporation, acting as an
acquisition agent for parties desiring to purchase hotels. The principals of the
aforementioned corporations are as follows:
HMGT Management Corporation (subsequently merged into Homegate Corporation
which later changed its name to Covenant Financial Corporation):
Gary W. Bell, President/Director
C. Keith Wilkerson II, Vice-President/Director
Keith Newton Secretary/Treasurer/Director
Majority owned (84%) by Wilkerson Consulting, Inc., of which Charles
Wilkerson is the beneficial owner.
Wilkerson Consulting, Inc.
Charles K. Wilkerson President/Secretary/Treasurer/Director
Kathy Wilkerson Vice-President
Wholly owned by the Wickliffe Trust
Wickliffe Trust
C. Keith Wilkerson II Trustee
Charles K. Wilkerson Primary Beneficiary
Following the negotiations with HMGT Management Corporation and Wilkerson
Consulting, Inc., two separate agreements were reached to facilitate the
Registrant's investment in hotel properties. On June 9, 2000, the Registrant
entered into an Exclusive Agency Agreement with Wilkerson Consulting, Inc. The
pertinent terms of the Exclusive Agency Agreement were as follows:
1. The Registrant had a five day right of first refusal to (a) purchase
any hotel or motel to be sold by an entity that is owned by,
controlled by, or associated with Charles K. Wilkerson, and (b)
purchase any hotel or motel placed under contract by Charles K.
Wilkerson or any entity that is owned by, controlled by, or associated
with Charles K. Wilkerson; and
2. For all hotels and motels purchased by the Registrant, a consulting
fee would be paid to Wilkerson Consulting, Inc. as set forth below: a)
2% of the purchase price of the property in cash; and b) Common stock
of the Registrant (restricted under Rule 144) equal in value to 2% of
the purchase price of property, with the value of the stock to be
based on the published "BID" price of the Registrant's stock as of the
day prior to closing of the property.
On June 15, 2000, the Registrant entered into a Hotel/Motel Management Agreement
with HMGT Management Corporation. Under the terms of the Hotel/Motel Management
Agreement, HMGT Management Corporation would manage all hotels owned by the
Registrant, or its subsidiaries, in the future and would be paid a percentage of
the gross revenue received by the hotels.
ACQUISITION OF FIVE (5) HOMEGATE HOTELS
On June 28, 2000, Ameri-First Holdings, Inc. (a wholly-owned subsidiary of the
Registrant) closed the purchase of five (5) hotels from VPS I, L.P., a Delaware
limited partnership. The hotels were located in Irving, Texas (one hotel), San
Antonio, Texas (two hotels), Amarillo, Texas (one hotel) and El Paso, Texas (one
hotel). VPS I, L.P. is a limited partnership having HMGT Properties, Inc. as its
general partner and AQW Corporation as its limited partner. The principals of
the aforementioned entities were as follows:
4
HMGT Properties, Inc., a Texas corporation
Gary W. Bell President/Director
C.Keith Wilkerson II Vice-President/Secretary/Treasurer/Director
Wholly owned by Amerand Corporation
AQW Corporation, a Texas corporation
Gary W. Bell President/Director
C.Keith Wilkerson II Vice-President/Secretary/Treasurer/Director
Wholly owned by Amerand Corporation
Amerand Corporation, a Delaware corporation
Gary W. Bell President/Director
Charles K. Wilkerson Vice-President/Director
Owned 50% by Gary W. Bell and 50% by Wickliffe Trust
The purchase price of the five hotels was $34,000,000. The Registrant paid the
price by (a) assuming approximately $17,600,000 in debt secured by all five
hotels, (b) the issuance of 4,500,000 shares of the common stock, restricted by
Rule 144, of the Registrant, and (c) the payment of $250,000 in cash. In
addition, the Registrant purchased the accounts receivable by transferring
66,000 free trading shares of Integrated Technology Group, Inc. (ITGI) to VPS I,
L.P. The price of the hotels was determined by prior management to be an
accurate valuation of the property based on VPS I, L.P.'s asking price and the
information provided by the VPS I, L.P. In connection with the purchase of these
hotels, the Company issued 4,500,000 shares of Company common stock and paid
$250,000 to VPS I, L.P., but the debt was not paid and the shares of Integrated
Technology Group, Inc. were never transferred.
Pursuant to the Exclusive Agency Agreement with Wilkerson Consulting, Inc., the
aforementioned purchase obligated the Registrant to pay Wilkerson Consulting,
Inc. $1,360,000 ($680,000 in cash, $680,000 in stock). As payment for this
obligation, and for pre-payment of future obligations, the Registrant and
Wilkerson Consulting, Inc. entered into a Stock Purchase Agreement wherein the
Registrant agreed to re-purchase 800,000 shares of the common stock of the
Registrant at a price of $2.00 per share. The shares were to be owned by
Wilkerson Consulting, Inc. pursuant to payments made under the Exclusive Agency
Agreement. No payments were made to Wilkerson Consulting and no shares of stock
were issued to Wilkerson Consulting pursuant to the above mentioned agreement.
Wilkerson Consulting received a note for $1,800,000 from the Company in
consideration for amounts due Wilkerson Consulting for management fees in
connection with managing the five hotels as well as finders fees associated with
the acquisitions of such hotels. The note was settled in January 2001 for the
issuance of 1,000,000 shares of Company common stock.
Prior to this issuance of Company common stock, the Company affected a 1 for 25
reverse stock split.
In 2000, subsequent to the execution of the Settlement Agreement, the
Registrant, its then subsidiaries and prior management failed and refused to
make the required payments under the terms of the Promissory Note. The five (5)
hotels previously owned by the Registrant were managed and owned by The Tour
Group, Inc. whose principals are listed below:
The Tour Group, Inc.
Gary W. Bell President/Director
C. Keith Wilkerson II Vice-President/Secretary/Director
Owned 50% by Gary W. Bell and 50% by C. Keith Wilkerson II
The five Homegate hotels have been foreclosed upon.
In December 2000, the Registrant, by and through its former president, Jeffrey
Bruteyn, informed the principals of The Tour Group, Inc. and Wilkerson
Consulting, Inc. that there was no money to perform an audit or to do the
necessary work to comply with the disclosure requirements for a public company.
Therefore, in the interest of itself as a shareholder, and in the interest of
the other shareholders, Wilkerson Consulting, Inc. proposed an additional
settlement agreement. The Registrant agreed to enter into a series of agreements
wherein the following would take place:
5
1. The Registrant would perform a 1-for-25 reverse split of its common
stock;
2. Wilkerson Consulting, Inc. would be issued 1,000,000 post-reverse
split shares of the Registrant's common stock in exchange for
releasing the Registrant from its liability on the Promissory Note
($1,800,000) effectuated to settle the aforementioned lawsuit;
3. That the then-current officers and directors of the Registrant would
resign; and
4. Given that the securities subsidiary, Ameri-First Securities, Inc.,
was losing money and in danger of defaulting on its net capital
requirements, it was in the best interest of the Registrant to sell
the subsidiary to Jeffrey Bruteyn. Therefore, the Registrant entered
into an agreement wherein the stock of Ameri-First Securities, Inc.
was transferred to Jeffrey Bruteyn for $10.00 and an agreement of
Jeffrey Bruteyn to indemnify the Registrant from any liabilities
arising from the operation of Ameri-First Securities, Inc. The above
agreements were signed to be effective as of December 22, 2000. New
management was elected in March 2001.
Concurrent with the above transaction, the Company dissolved and abandoned all
subsidiary entities.
On January 18, 2005, Registrant ("AMFG") and Wilkerson Consulting, Inc.
("Wilkerson") entered into a Debt and Stock Purchase Agreement with Glenn A.
Little ("Little") pursuant to which Little agreed to purchase $740,000 in
outstanding debt against AMFG held by Wilkerson and to purchase Wilkerson's
stock in the Company, (700,000 shares) for cash consideration of $60,000.
The purchase price was placed in the escrow account of Wilkerson's attorneys
pending completion of the following conditions precedent.
1. Receipt of a Good Standing Certificate from the State of Delaware
regarding AMFG;
2. Completion of GAAP audits and tax returns of AMFG for calendar years
2002 and 2003;
3. Affidavit from the Board of Directors of AMFG that there are no
additional outstanding debts or demands from either regulatory groups,
debtors, or stockholders;
4. Receipt of a tax lien and judgment search on AMFG showing no liens or
judgments; and
5. Receipt of resignations from the Board of Directors and all officers
of AMFG and the appointment of Glenn Little to the Board of Directors.
In the event such conditions were not completed within 120 days of the date of
the agreement, the $60,000 purchase price was to be returned to Little and the
transaction terminated. A closing of the transaction was scheduled on May 5,
2005. At the Closing, Little was advised that the conditions precedent for the
Closing regarding the GAAP audits and tax returns had not been completed. At the
request of Wilkerson's legal counsel, Little granted an extension of time for
completion of the conditions precedent.
Despite their failure to complete the GAAP Audits and tax returns as required,
the officers and directors of the Company delivered their resignations and the
appointment of Little as the sole officer and director of AMFG. On November 2,
2005, Wilkerson delivered the required corporate resolution to effect the
transfer of Wilkerson's shares to Little.
Notwithstanding the resignations of the officers and directors of AMFG and their
unilateral appointment of Little as the sole officer and director of AMFG and
the eventual delivery to Little by Wilkerson of the required resolutions to
transfer Wilkerson's stock into Little's name, Little did not deem the
transaction closed due to the failure of Wilkerson and AMFG to fulfill the
conditions precedent relating to the audit and tax returns.
On January 2, 2006, Little waived the failure of the completion of conditions
precedent and accepted his appointment as an officer and director of the
Registrant and deemed the transaction closed as of that date.
6
The Company's equity securities have no current trading symbol and, accordingly,
the Company's equity securities do not have posted quotations.
The Company may be referred to as a reporting shell corporation. Shell
corporations have zero or nominal assets and typically no stated or contingent
liabilities. Private companies wishing to become publicly trading may wish to
merge with a shell (a reverse merger or reverse acquisition) whereby the
shareholders of the private company become the majority of the shareholders of
the combined company. The private company may purchase for cash all or a portion
of the common shares of the shell corporation from its major stockholders.
Typically, the Board and officers of the private company become the new Board
and officers of the combined Company and often the name of the private company
becomes the name of the combined entity.
The Company has very limited capital, and it is unlikely that the Company will
be able to take advantage of more than one such business opportunity. The
Company intends to seek opportunities demonstrating the potential of long-term
growth as opposed to short-term earnings. However, at the present time, the
Company has not identified any business opportunity that it plans to pursue, nor
has the Company reached any agreement or definitive understanding with any
person concerning an acquisition.
It is anticipated that the Company's officers and directors will contact
broker-dealers and other persons with whom they are acquainted who are involved
with corporate finance matters to advise them of the Company's existence and to
determine if any companies or businesses that they represent have a general
interest in considering a merger or acquisition with a blind pool or blank check
or shell entity. No assurance can be given that the Company will be successful
in finding or acquiring a desirable business opportunity, given the limited
funds that are expected to be available for acquisitions. Furthermore, no
assurance can be given that any acquisition, which does occur, will be on terms
that are favorable to the Company or its current stockholders.
The Company's search will be directed toward small and medium-sized enterprises,
which have a desire to become public corporations. In addition these enterprises
may wish to satisfy, either currently or in the reasonably near future, the
minimum tangible asset requirement in order to qualify shares for trading on
NASDAQ or on an exchange such as the American Stock Exchange. (See Investigation
and Selection of Business Opportunities). The Company anticipates that the
business opportunities presented to it will (I) either be in the process of
formation, or be recently organized with limited operating history or a history
of losses attributable to under-capitalization or other factors; (ii)
experiencing financial or operating difficulties; (iii) be in need of funds to
develop new products or services or to expand into a new market, or have plans
for rapid expansion through acquisition of competing businesses; (iv) or other
similar characteristics. The Company intends to concentrate its acquisition
efforts on properties or businesses that it believes to be undervalued or that
it believes may realize a substantial benefit from being publicly owned. Given
the above factors, investors should expect that any acquisition candidate may
have little or no operating history, or a history of losses or low
profitability.
The Company does not propose to restrict its search for investment opportunities
to any particular geographical area or industry, and may, therefore, engage in
essentially any business, to the extent of its limited resources. This include
industries such as service, finance, natural resources, manufacturing, high
technology, product development, medical, communications and others. The
Company's discretion in the selection of business opportunities is unrestricted,
subject to the availability of such opportunities, economic conditions, and
other factors.
As a consequence of this registration of its securities, any entity, which has
an interest in being acquired by, or merging into the Company, is expected to be
an entity that desires to become a public Company and establish a public trading
market for its securities. In connection with such a merger or acquisition, it
is highly likely that an amount of stock constituting control of the Company
would either be issued by the Company or be purchased from the current principal
stockholders of the Company by the acquiring entity or its affiliates. If stock
is purchased from the current principal stockholders, the transaction is likely
to result in substantial gains to the current principal stockholders relative to
their purchase price for such stock. In the Company's judgment, none of the
officers and directors would thereby become an underwriter within the meaning of
the Section 2(11) of the Securities Act of 1933, as amended as long as the
transaction is a private transaction rather than a public distribution of
securities. The sale of a controlling interest by certain principal shareholders
of the Company would occur at a time when minority stockholders are unable to
sell their shares because of the lack of a public market for such shares.
7
Depending upon the nature of the transaction, the current officers and directors
of the Company may resign their management and board positions with the Company
in connection with a change of control or acquisition of a business opportunity
(See Form of Acquisition, below, and Risk Factors, The Company, Lack of
Continuity of Management). In the event of such a resignation, the Company's
current management would thereafter have no control over the conduct of the
Company's business.
It is anticipated that business opportunities will come to the Company's
attention from various sources, including its officers and directors, its other
stockholders, professional advisors such as attorneys and accountants,
securities broker-dealers, venture capitalists, members of the financial
community, and others who may present unsolicited proposals. The Company has no
plan, understandings, agreements, or commitments with any individual for such
person to act as a finder of opportunities for the Company.
The Company does not foresee that it will enter into a merger or acquisition
transaction with any business with which its officers or directors are currently
affiliated. Should the Company determine in the future, contrary to the forgoing
expectations, that a transaction with an affiliate would be in the best
interests of the Company and its stockholders, the Company is, in general,
permitted by Delaware law to enter into a transaction if: The material facts as
to the relationship or interest of the affiliate and as to the contract or
transaction are disclosed or are known to the Board of Directors, and the Board
in good faith authorizes, approves or ratifies the contract or transaction by
the affirmative vote of a majority of the disinterested directors, even though
the disinterested directors constitute less than a quorum; or the material facts
as to the relationship or interest of the affiliate and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically authorized, approved or
ratified in good faith by vote of the stockholders; or the contract or
transaction is fair as to the Company as of the time it is authorized, approved
or ratified, by the Board of Directors or the stockholders.
INVESTIGATION AND SELECTION OF BUSINESS OPPORTUNITIES
To a large extent, a decision to participate in a specific business opportunity
may be made upon management's analysis of the quality of the other Company's
management and personnel, the anticipated acceptability of new products or
marketing concepts, the merit of technological changes, the perceived benefit
the business opportunity will derive from becoming a publicly held entity, and
numerous other factors which are difficult, if not impossible, to analyze
through the application of any objective criteria. In many instances, it is
anticipated that the historical operations of a specific business opportunity
may not necessarily be indicative of the potential for the future because of a
variety of factors, including, but not limited to, the possible need to expand
substantially, shift marketing approaches, change product emphasis, change or
substantially augment management, raise capital and the like.
It is anticipated that the Company will not be able to diversify, but will
essentially be limited to the acquisition of one business opportunity because of
the Company's limited financing. This lack of diversification will not permit
the Company to offset potential losses from one business opportunity against
profits from another, and should be considered an adverse factor affecting any
decision to purchase the Company's securities.
Certain types of business acquisition transactions may be completed without any
requirement that the Company first submit the transaction to the stockholders
for their approval. In the event the proposed transaction is structured in such
a fashion that stockholder approval is not required, holders of the Company's
securities (other than principal stockholders holding a controlling interest)
should not anticipate that they will be provided with financial statements or
any other documentation prior to the completion of the transaction. Other types
of transactions require prior approval of the stockholders.
In the event a proposed business combination or business acquisition transaction
is structured in such a fashion that prior stockholder approval is necessary,
the Company will be required to prepare a Proxy or Information Statement
describing the proposed transaction, file it with the Securities and Exchange
Commission for review and approval, and mail a copy of it to all Company
stockholders prior to holding a stockholders meeting for purposes of voting on
the proposal. Minority shareholders that do not vote in favor of a proposed
transaction will then have the right, in the event the transaction is approved
by the required number of stockholders, to exercise statutory dissenter's rights
and elect to be paid the fair value of their shares.
8
The analysis of business opportunities will be undertaken by or under the
supervision of the Company's officers and directors, none of whom are
professional business analysts (See Management). Although there are no current
plans to do so, Company management might hire an outside consultant to assist in
the investigation and selection of business opportunities, and might pay a
finder's fee. Since Company management has no current plans to use any outside
consultants or advisors to assist in the investigation and selection of business
opportunities, no policies have been adopted regarding use of such consultants
or advisors, the criteria to be used in selecting such consultants or advisors,
the services to be provided, the term of service, or the total amount of fees
that may be paid. However, because of the limited resources of the Company, it
is likely that any such fee the Company agrees to pay would be paid in stock and
not in cash.
Otherwise, in analyzing potential business opportunities, Company management
anticipates that it will consider, among other things, the following factors:
* Potential for growth and profitability indicated by new technology,
anticipated market expansion, or new products;
* The Company's perception of how any particular business opportunity
will be received by the investment community and by the Company's
stockholders;
* Whether, following the business combination, the financial condition
of the business opportunity would be, or would have a significant
prospect in the foreseeable future of becoming, sufficient to enable
the securities of the Company to qualify for listing on an exchange or
on a national automated securities quotation system, such as NASDAQ,
so as to permit the trading of such securities to be exempt from the
requirements of Rule 15g-9 adopted by the Securities and Exchange
Commission (See Risk Factors The Company Regulations of Penny Stocks).
* Capital requirements and anticipated availability of required funds,
to be provided by the Company or from operations, through the sale of
additional securities, through joint ventures or similar arrangements,
or from other sources;
* The extent to which the business opportunity can be advanced;
* Competitive position as compared to other companies of similar size
and experience within the industry segment as well as within the
industry as a whole;
* Strength and diversity of existing management or management prospects
that are scheduled for recruitment;
* The cost of participation by the Company as compared to the perceived
tangible and intangible values and potential; and
* The accessibility of required management expertise, personnel, raw
materials, services, professional assistance, and other required
items.
In regard to the possibility that the shares of the Company would qualify for
listing on NASDAQ, the current standards for initial listing include, among
other requirements, that the Company (1) have net tangible assets of at least
$4.0 million, or a market capitalization of $50.0 million, or net income of not
less that $0.75 million in its latest fiscal year or in two of the last three
fiscal years; (2) have a public float (i.e., shares that are not held by any
officer, director or 10% stockholder) of at least 1.0 million shares; (3) have a
minimum bid price of at least $4.00; (4) have at least 300 round lot
stockholders (i.e., stockholders who own not less than 100 shares); and (5) have
an operating history of at least one year or have a market capitalization of at
least $50.0 million. Many, and perhaps most, of the business opportunities that
might be potential candidates for a combination with the Company would not
satisfy the NASDAQ listing criteria.
No one of the factors described above will be controlling in the selection of a
business opportunity, and management will attempt to analyze all factors
appropriate to each opportunity and make a determination based upon reasonable
investigative measures and available data. 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.
Potential investors must recognize that, because of the Company's limited
capital available for investigation and management's limited experience in
business analysis, the Company may not discover or adequately evaluate adverse
facts about the opportunity to be acquired.
The Company is unable to predict when it may participate in a business
opportunity. It expects, however, that the analysis of specific proposals and
the selection of a business opportunity may take several months or more.
9
Prior to making a decision to participate in a business opportunity, the Company
will generally request that it be provided with written materials regarding the
business opportunity containing as much relevant information as possible,
including, but not limited to, such items as a description of products, services
and Company history; management resumes; financial information; available
projections, with related assumptions upon which they are based; an explanation
of proprietary products and services; evidence of existing patents, trademarks,
or service marks, or rights thereto; present and proposed forms of compensation
to management; a description of transactions between such Company and its
affiliates during the relevant periods; a description of present and required
facilities; an analysis of risks and competitive conditions; a financial plan of
operation and estimated capital requirements; audited financial statements, or
if they are not available, unaudited financial statements, together with
reasonable assurance that audited financial statements would be able to be
produced within a reasonable period of time not to exceed 60 days following
completion of a merger or acquisition transaction; and the like.
As part of the Company's investigation, the Company's executive officers and
directors may meet personally with management and key personnel, may visit and
inspect material facilities, obtain independent analysis or verification of
certain information provided, check references of management and key personnel,
and take other reasonable investigative measures, to the extent of the Company's
limited financial resources and management expertise.
It is possible that the range of business opportunities that might be available
for consideration by the Company could be limited by the impact of Securities
and Exchange Commission regulations regarding purchase and sale of penny stocks.
The regulations would affect, and possibly impair, any market that might develop
in the Company's securities until such time as they qualify for listing on
NASDAQ or on an exchange which would make them exempt from applicability of the
penny stock regulations. (See Risk Factors Regulation of Penny Stocks)
Company management believes that various types of potential merger or
acquisition candidates might find a business combination with the Company to be
attractive. These include acquisition candidates desiring to create a public
market for their shares in order to enhance liquidity for current stockholders,
acquisition candidates which have long-term plans for raising capital through
public sale of securities and believe that the possible prior existence of a
public market for their securities would be beneficial, and acquisition
candidates which plan to acquire additional assets through issuance of
securities rather than for cash, and believe that the possibility of development
of a public market for their securities will be of assistance in that process.
Acquisition candidates, which have a need for an immediate cash infusion, are
not likely to find a potential business combination with the Company to be an
attractive alternative.
FORM OF ACQUISITION
It is impossible to predict the manner in which the Company may participate in a
business opportunity. Specific business opportunities will be reviewed as well
as the respective needs and desires of the Company and the promoters of the
opportunity and, upon the basis of the review and the relative negotiating
strength of the Company and such promoters, the legal structure or method deemed
by management to be suitable will be selected. Such structure may include, but
is not limited to leases, purchase and sale agreements, licenses, joint ventures
and other contractual arrangements. The Company may act directly or indirectly
through an interest in a partnership, corporation or other form of organization.
Implementing such structure may require the merger, consolidation or
reorganization of the Company with other corporations or forms of business
organization. In addition, the present management and stockholders of the
Company most likely will not have control of a majority of the voting stock of
the Company following a merger or reorganization transaction. As part of such a
transaction, the Company's existing directors may resign and new directors may
be appointed without any vote by stockholders.
It is likely that the Company will acquire its participation in a business
opportunity through the issuance of Common Stock or other securities of the
Company. Although the terms of any such transaction cannot be predicted, it
should be noted that in certain circumstances the criteria for determining
whether or not an acquisition is a so-called B tax free reorganization under the
Internal Revenue Code of 1986 as amended, depends upon the issuance to the
stockholders of the acquired Company of a controlling interest (i.e., 80% or
more) of the common stock of the combined entities immediately following the
reorganization. If a transaction were structured to take advantage of these
provisions rather than other a tax free provisions provided under the Internal
Revenue Code, the Company's current stockholders would retain in the aggregate
20% or less of the total issued and outstanding shares. This could result in
substantial additional dilution in the equity of those who were stockholders of
the Company prior to such reorganization. Any such issuance of additional shares
might also be done simultaneously with a sale or transfer of shares representing
10
a controlling interest in the Company by the current officers, directors and
principal stockholders.
It is anticipated that any new securities issued in any reorganization would be
issued in reliance upon one or more exemptions from registration under
applicable federal and state securities laws to the extent that such exemptions
are available. In some circumstances, however, as a negotiated element of the
transaction, the Company may agree to register such securities either at the
time the transaction is consummated or under certain conditions at specified
times thereafter. The issuance of substantial additional securities and their
potential sale into any trading market that might develop in the Company's
securities may have a depressive effect upon such market.
The Company will participate in a business opportunity only after the
negotiation and execution of a written agreement. Although the terms of such
agreement cannot be predicted, generally such an agreement would require
specific representations and warranties by all of the parties thereto, specify
certain events of default, detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing, outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.
As a general matter, the Company anticipates that it, and/or its principal
stockholders will enter into a letter of intent with the management, principals
or owners of a prospective business opportunity prior to signing a binding
agreement. Such a letter of intent will set forth the terms of the proposed
acquisition but will not bind any of the parties to consummate the transaction.
Execution of a letter of intent will by no means indicate that consummation of
an acquisition is probable. Neither the Company nor any of the other parties to
the letter of intent will be bound to consummate the acquisition unless and
until a definitive agreement is executed. Even after a definitive agreement is
executed, it is possible that the acquisition would not be consummated should
any party elect to exercise any right provided in the agreement to terminate it
on specific grounds.
It is anticipated that the investigation of specific business opportunities and
the negotiation, drafting and execution of relevant agreements, disclosure
documents and other instruments will require substantial management time and
attention and substantial costs for accountants, attorneys and others. If a
decision is made not to participate in a specific business opportunity, the
costs incurred in the related investigation would not be recoverable. Moreover,
because many providers of goods and services require compensation at the time or
soon after the goods and services are provided, the inability of the Company to
pay until an indeterminate future time may make it impossible to produce goods
and services.
INVESTMENT COMPANY ACT AND OTHER REGULATION
The Company may participate in a business opportunity by purchasing, trading or
selling the securities of such business. The Company does not, however, intend
to engage primarily in such activities. Specifically, the Company intends to
conduct its activities so as to avoid being classified as an investment Company
under the Investment Company Act of 1940 (the Investment Act), and therefore to
avoid application of the costly and restrictive registration and other
provisions of the Investment Act, and the regulations promulgated thereunder.
The Company's plan of business may involve changes in its capital structure,
management, control and business, especially if it consummates the
reorganization as discussed above. Each of these areas is regulated by the
Investment Act, in order to protect purchasers of investment Company securities.
Since the Company will not register as an investment Company, stockholders will
not be afforded these protections.
COMPETITION
The Company expects to encounter substantial competition in its efforts to
locate attractive business combination opportunities. The competition may in
part come from business development companies, venture capital partnerships and
corporations, small investment companies, brokerage firms, and the like. Some of
these types of organizations are likely to be in a better position than the
Company to obtain access to attractive business acquisition candidates either
because they have greater experience, resources and managerial capabilities than
the Company, because they are able to offer immediate access to limited amounts
of cash, or for a variety of other reasons. The Company also will experience
competition from other public companies with similar business purposes, some of
which may also have funds available for use by an acquisition candidate.
11
EMPLOYEES
The Company currently has no employees. Management of the Company expects to use
consultants, attorneys and accountants as necessary, and does not anticipate a
need to engage any full-time employees so long as it is seeking and evaluating
business opportunities. The need for employees and their availability will be
addressed in connection with the decision whether or not to acquire or
participate in specific business opportunities.
RISK FACTORS
The Company's business and plan of operation is subject to numerous risk
factors, including, but not limited to, the following:
LIMITED OPERATING HISTORY MAKES POTENTIAL DIFFICULT TO ASSESS
The Company has had no operating history nor any revenues or earnings from
operations since 2000. All business efforts since our inception have been
unsuccessful. The Company has no assets or financial resources. The Company
will, in all likelihood, continue to sustain operating expenses without
corresponding revenues, at least until the consummation of a business
combination. These will most likely result in the Company incurring a net
operating loss which will increase continuously until the Company can consummate
a business combination with a target company. There is no assurance that the
Company can identify such a target company and consummate such a business
combination.
THERE IS NO AGREEMENT FOR A BUSINESS COMBINATION AND NO MINIMUM REQUIREMENTS FOR
A BUSINESS COMBINATION
The Company has no current arrangement, agreement or understanding with respect
to engaging in a business combination with a specific entity. There can be no
assurance that the Company will be successful in identifying and evaluating
suitable business opportunities or in concluding a business combination. No
particular industry or specific business within an industry has been selected
for a target company. The Company has not established a specific length of
operating history or a specified level of earnings, assets, net worth or other
criteria which it will require a target company to have achieved, or without
which the Company would not consider a business combination with such business
entity. Accordingly, the Company may enter into a business combination with a
business entity having no significant operating history, losses, limited or no
potential for immediate earnings, limited assets, negative net worth or other
negative characteristics. There is no assurance that the Company will be able to
negotiate a business combination on terms favorable to the Company.
NO ASSURANCE OF SUCCESS OR PROFITABILITY
There is no assurance that the Company will acquire a favorable business
opportunity. Even if the Company should become involved in a business
opportunity, there is no assurance that it will generate revenues or profits, or
that the market price of the Company's outstanding shares will be increased
thereby.
TYPE OF BUSINESS ACQUIRED
The type of business to be acquired may be one that desires to avoid effecting
its own public offering and the accompanying expense, delays, uncertainties, and
federal and state requirements which purport to protect investors. Because of
the Company's limited capital, it is more likely than not that any acquisition
by the Company will involve other parties whose primary interest is the
acquisition of control of a publicly traded Company. Moreover, any business
opportunity acquired may be currently unprofitable or present other negative
factors.
LACK OF DIVERSIFICATION
Because of the limited financial resources that the Company has, it is unlikely
that the Company will be able to diversify its acquisitions or operations. The
Company's probable inability to diversify its activities into more than one area
will subject the Company to economic fluctuations within a particular business
or industry and therefore increase the risks associated with the Company's
operations.
12
ONLY ONE DIRECTOR AND OFFICER
Because management consists of only one person, while seeking a business
combination, Glenn A. Little, the Company's President of the Company, will be
the only person responsible in conducting the day-to-day operations of the
Company. The Company does not benefit from multiple judgments that a greater
number of directors or officers would provide, and the Company will rely
completely on the judgment of its one officer and director when selecting a
target company.
Mr. Little anticipates devoting only a limited amount of time per month to the
business of the Company. Mr. Little has not entered into a written employment
agreement with the Company and he is not expected to do so. The Company does not
anticipate obtaining key man life insurance on Mr. Little. The loss of the
services of Mr. Little would adversely affect development of the Company's
business and its likelihood of continuing operations.
DEPENDENCE UPON MANAGEMENT; LIMITED PARTICIPATION OF MANAGEMENT
The Company will be entirely dependant upon the experience of its sole officer
and director in seeking, investigating, and acquiring a business and in making
decisions regarding the Company's operations. It is possible that, from time to
time, the inability of such persons to devote their full time attention to the
Because investors will not be able to evaluate the merits of possible future
business acquisitions by the Company, they should critically assess the
information concerning the Company's officers and directors. (See Management.)
CONFLICTS OF INTEREST
Certain conflicts of interest exist between the Company and its officers and
directors. They have other business interests to which they currently devote
attention, and are expected to continue to do so. As a result, conflicts of
interest may arise that can be resolved only through their exercise of judgement
in a manner which is consistent with their fiduciary duties to the Company. (See
Management, Conflicts of Interest.)
It is anticipated that the Company's principal shareholders may actively
negotiate or otherwise consent to the purchase of a portion of their common
stock as a condition to, or in connection with, a proposed merger or acquisition
transaction. In this process, the Company's principal shareholders may consider
their own personal pecuniary benefit rather than the best interest of other
Company shareholders. Depending upon the nature of a proposed transaction,
Company shareholders other than the principal shareholders may not be afforded
the opportunity to approve or consent to a particular transaction.
NEED FOR ADDITIONAL FINANCING
The Company has very limited funds, and such funds, may not be adequate to take
advantage of any available business opportunities. Even if the Company's
currently available funds prove to be sufficient to pay for its operations until
it is able to acquire an interest in, or complete a transaction with, a business
opportunity, such funds will clearly not be sufficient to enable it to exploit
the opportunity. Thus, the ultimate success of the Company will depend, in part,
upon its availability to raise additional capital. In the event that the Company
requires modest amounts of additional capital to fund its operations until it is
able to complete a business acquisition or transaction, such funds, are expected
to be provided by the principal shareholders. However, the Company has not
investigated the availability, source, or terms that might govern the
acquisition of the additional capital which is expected to be required in order
to exploit a business opportunity, and will not do so until it has determined
the level of need for such additional financing. There is no assurance that
additional capital will be available from any source or, if available, that it
can be obtained on terms acceptable to the Company. If not available, the
Company's operations will be limited to those that can be financed with its
modest capital.
DEPENDENCE UPON OUTSIDE ADVISORS
To supplement the business experience of its officers and directors, the Company
may be required to employ accountants, technical experts, appraisers, attorneys,
or other consultants or advisors. The selection of any such advisors will, be
made by the Company's officers, without any input by shareholders. Furthermore,
it is anticipated that such persons may be engaged on an as needed basis without
a continuing fiduciary or other obligation to the Company. In the event the
13
officers of the Company consider it necessary to hire outside advisors, they may
elect to hire persons who are affiliates, if those affiliates are able to
provide the required services.
REGULATION OF PENNY STOCKS
The Commission has adopted a number of rules to regulate "penny stocks." Such
rules include Rule 3a51-1 and Rules 15g-1 through 15g-9 under the Securities
Exchange Act of 1934, as amended. Because the securities of the Company may
constitute "penny stocks" within the meaning of the rules (as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, largely traded in the National
Association of Securities Dealers' (NASD) OTC Bulletin Board or the "Pink
Sheets", the rules would apply to the Company and to its securities. The
Commission has adopted Rule 15g-9 which established sales practice requirements
for certain low price securities. Unless the transaction is exempt, it shall be
unlawful for a broker or dealer to sell a penny stock to, or to effect the
purchase of a penny stock by, any person unless prior to the transaction: (i)
the broker or dealer has approved the person's account for transactions in penny
stock pursuant to this rule and (ii) the broker or dealer has received from the
person a written agreement to the transaction setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person's
account for transactions in penny stock, the broker or dealer must: (a) obtain
from the person information concerning the person's financial situation,
investment experience, and investment objectives; (b) reasonably determine that
transactions in penny stock are suitable for that person, and that the person
has sufficient knowledge and experience in financial matters that the person
reasonably may be expected to be capable of evaluating the risks of transactions
in penny stock; deliver to the person a written statement setting forth the
basis on which the broker or dealer made the determination (i) stating in a
highlighted format that it is unlawful for the broker or dealer to affect a
transaction in penny stock unless the broker or dealer has received, prior to
the transaction, a written agreement to the transaction from the person; and
(ii) stating in a highlighted format immediately preceding the customer
signature line that (iii) the broker or dealer is required to provide the person
with the written statement; and (iv) the person should not sign and return the
written statement to the broker or dealer if it does not accurately reflect the
person's financial situation, investment experience, and investment objectives;
and (d) receive from the person a manually signed and dated copy of the written
statement. It is also required that disclosure be made as to the risks of
investing in penny stock and the commissions payable to the broker-dealer, as
well as current price quotations and the remedies and rights available in cases
of fraud in penny stock transactions. Statements, on a monthly basis, must be
sent to the investor listing recent prices for the Penny Stock and information
on the limited market. Shareholders should be aware that, according to
Securities and Exchange Commission Release No. 34-29093, the market for penny
stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (i) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer; (ii)
manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; (iii) "boiler room" practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (iv) excessive and undisclosed bid-ask differential and markups
by selling broker-dealers; and (v) the wholesale dumping of the same securities
by promoters and broker dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses. The Company's management is aware of the abuses that
have occurred historically in the penny stock market. Although the Company does
not expect to be in a position to dictate the behavior of the market or of
broker-dealers who participate in the market, management will strive within the
confines of practical limitations to prevent the described patterns from being
established with respect to the Company's securities.
THERE MAY BE A SCARCITY OF AND/OR SIGNIFICANT COMPETITION FOR BUSINESS
OPPORTUNITIES AND COMBINATIONS
The Company is and will continue to be an insignificant participant in the
business of seeking mergers with and acquisitions of business entities. A large
number of established and well-financed entities, including venture capital
firms, are active in mergers and acquisitions of companies which may be merger
or acquisition target candidates for the Company. Nearly all such entities have
significantly greater financial resources, technical expertise and managerial
capabilities than the Company and, consequently, the Company will be at a
competitive disadvantage in identifying possible business opportunities and
successfully completing a business combination. Moreover, the Company will also
compete in seeking merger or acquisition candidates with other public shell
companies, some of which may also have funds available for use by an acquisition
candidate.
14
REPORTING REQUIREMENTS MAY DELAY OR PRECLUDE ACQUISITION
Pursuant to the requirements of Section 13 of the Exchange Act, the Company is
required to provide certain information about significant acquisitions including
audited financial statements of the acquired company. These audited financial
statements must be furnished within 4 business days following the effective date
of a business combination. Obtaining audited financial statements are the
economic responsibility of the target company. The additional time and costs
that may be incurred by some potential target companies to prepare such
financial statements may significantly delay or essentially preclude
consummation of an otherwise desirable acquisition by the Company. Acquisition
prospects that do not have or are unable to obtain the required audited
statements may not be appropriate for acquisition so long as the reporting
requirements of the Exchange Act are applicable. Notwithstanding a target
company's agreement to obtain audited financial statements within the required
time frame, such audited financials may not be available to the Company at the
time of effecting a business combination. In cases where audited financials are
unavailable, the Company will have to rely upon unaudited information that has
not been verified by outside auditors in making its decision to engage in a
transaction with the business entity. This risk increases the prospect that a
business combination with such a business entity might prove to be an
unfavorable one for the Company.
LACK OF MARKET RESEARCH OR MARKETING ORGANIZATION
The Company has neither conducted, nor have others made available to it, market
research indicating that demand exists for the transactions contemplated by the
Company. In the event demand exists for a transaction of the type contemplated
by the Company, there is no assurance the Company will be successful in
completing any such business combination.
REGULATION UNDER THE INVESTMENT COMPANY ACT OF 1940
In the event the Company engages in business combinations which result in the
Company holding passive investment interests in a number of entities, the
Company could be subject to regulation under the Investment Company Act of 1940.
In such event, the Company would be required to register as an investment
company and could be expected to incur significant registration and compliance
costs. The Company has obtained no formal determination from the Securities and
Exchange Commission as to the status of the Company under the Investment Company
Act of 1940 and, consequently, any violation of such Act could subject the
Company to material adverse consequences.
PROBABLE CHANGE IN CONTROL OF THE COMPANY AND/OR MANAGEMENT
In conjunction with completion of a business acquisition, it is anticipated that
the Company will issue an amount of the Company's authorized but unissued common
stock that represents the greater majority of the voting power and equity of the
Company, which will, in all likelihood, result in shareholders of a target
company obtaining a controlling interest in the Company. As a condition of the
business combination agreement, the current shareholder of the Company may agree
to sell or transfer all or a portion of the Company's common stock he owns so to
provide the target company with all or majority control. The resulting change in
control of the Company will likely result in removal of the present officer and
director of the Company and a corresponding reduction in or elimination of his
participation in the future affairs of the Company.
POSSIBLE DILUTION OF VALUE OF SHARES UPON BUSINESS COMBINATION
A business combination normally will involve the issuance of a significant
number of additional shares. Depending upon the value of the assets acquired in
such business combination, the per share value of the Company's common stock may
increase or decrease, perhaps significantly.
NO PUBLIC MARKET EXISTS
There is currently no public market for the Company's common stock, and no
assurance can be given that a market will develop or that a shareholder ever
will be able to liquidate his investment without considerable delay, if at all.
If a market should develop, the price may be highly volatile. Factors such as
those discussed in this "Risk Factors" section may have a significant impact
upon the market price of the securities offered hereby. Owing to the low price
15
of the securities, many brokerage firms may not be willing to effect
transactions in the securities. Even if a purchaser finds a broker willing to
effect a transaction in theses securities, the combination of brokerage
commissions, state transfer taxes, if any, and any other selling costs may
exceed the selling price. Moreover, many lending institutions will not permit
the use of such securities as collateral for any loans.
RULE 144 SALES
Of the 5,054,422 presently issued and outstanding shares of the Company's stock,
4,442,522 shares are "restricted securities" within the meaning of Rule 144
under the Securities Act of 1933, as amended. As restricted shares, these shares
may be resold only pursuant to an effective registration statement or under the
requirements of Rule 144 or other applicable state securities law. Rule 144
provides in essence that a person who has held restricted securities for a
prescribed period, may under certain conditions, sell every three months, in
brokerage transactions, a number of shares that does not exceed the greater of
1.0% of a company's outstanding common stock or the average weekly trading
volume during the four calendar weeks prior to sale. There is no limit on the
amount of restricted securities that may be sold by a non-affiliate after the
restricted securities have been held by the owner, for a period of at least two
years. A sale under Rule 144, or under an other exemption from the Act, if
available, or pursuant to subsequent registrations of common stock of present
shareholders, may have a depressive effect upon the price of the Common Stock in
may market that may develop.
BLUE SKY CONSIDERATION
Because the securities registered hereunder have not been registered for resale
under the Blue Sky laws of any state, the holders of such shares and persons who
desire to purchase them in any trading market that might develop in the future,
should be aware, that there may be significant state Blue Sky law restrictions
upon the ability of investors to sell the securities and of purchasers to
purchase the securities. Accordingly, investors should consider the secondary
market for the Company's securities to be a limited one.
ADDITIONAL RISKS - DOING BUSINESS IN A FOREIGN COUNTRY
The Company may effectuate a business combination with a merger target whose
business operations or even headquarters, place of formation or primary place of
business are located outside the United States of America. In such event, the
Company may face the significant additional risks associated with doing business
in that country. In addition to the language barriers, different presentations
of financial information, different business practices, and other cultural
differences and barriers that may make it difficult to evaluate such a merger
target, ongoing business risks result from the international political
situation, uncertain legal systems and applications of law, prejudice against
foreigners, corrupt practices, uncertain economic policies and potential
political and economic instability that may be exacerbated in various foreign
countries.
TAXATION
Federal and state tax consequences will, in all likelihood, be major
considerations in any business combination that the Company may undertake.
Currently, such transactions may be structured so as to result in tax-free
treatment to both companies, pursuant to various federal and state tax
provisions. The Company intends to structure any business combination so as to
minimize the federal and state tax consequences to both the Company and the
target entity; however, there can be no assurance that such business combination
will meet the statutory requirements of a tax-free reorganization or that the
parties will obtain the intended tax-free treatment upon a transfer of stock or
assets. A non-qualifying reorganization could result in the imposition of both
federal and state taxes, which may have an adverse effect on both parties to the
transaction.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company currently maintains a mailing address at 211 West Wall, Midland,
Texas 79701. The Company's telephone number there is (432) 682-1761. Other than
this mailing address, the Company does not currently maintain any other office
facilities, and does not anticipate the need for maintaining office facilities
at any time in the foreseeable future. The Company pays no rent or other fees
for the use of the mailing address as these offices are used virtually full-time
by other businesses of the Company's President.
16
It is likely that the Company will not establish an office until it has
completed a business acquisition transaction, but it is not possible to predict
what arrangements will actually be made with respect to future office
facilities.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings, and no such
proceedings are known to be contemplated.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has not conducted any meetings of shareholders during the preceding
quarter.
PART II
ITEM 5 - MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET FOR TRADING
The Company's equity securities has no current trading symbol and , accordingly,
the Company's equity securities do not currently have posted quotations.
In prior periods, the Company's common stock was traded in the National
Association of Securities Dealers (NASD) OTC Bulletin Board (OTCBB) under the
symbol "AMFS". The following table sets forth the high and low closing bid
prices for the periods indicated, as reported by the OTCBB:
High Low
---- ---
YEAR ENDED DECEMBER 31, 2000
1st Quarter 5.3125 3.75
2nd Quarter 4.13 1.26
3rd Quarter 1.81 1.09
4th Quarter 1.44 0.19
YEAR ENDED DECEMBER 31, 2001
1st Quarter 0.36 0.21
2nd Quarter 0.24 0.01
3rd Quarter 0.125 0.125
4th Quarter 0.15 0.001
YEAR ENDED DECEMBER 31, 2002 - no posted quotations, as noted above
YEAR ENDED DECEMBER 31, 2003 - no posted quotations, as noted above
YEAR ENDED DECEMBER 31, 2004 - no posted quotations, as noted above
These quotations are inter-dealer prices without retail markup, markdown or
commissions, and may not necessarily represent actual transactions.
As of February 22, 2007, there were approximately 240 shareholders of record of
the Company's common stock
17
TRANSFER AGENT
Our independent stock transfer agent is Securities Transfer Company, located in
Frisco, Texas. Their mailing address and telephone number is: 2591 Dallas
Parkway, Suite 102; Frisco, Texas 75034; (469) 633-0101 (voice); (469) 633-0088
(fax).
REPORTS TO STOCKHOLDERS
The Company plans to furnish its stockholders with an annual report for each
fiscal year ending December 31 containing financial statements audited by its
independent certified public accountants. In the event the Company enters into a
business combination with another Company, it is the present intention of
management to continue furnishing annual reports to stockholders. Additionally,
the Company may, in its sole discretion, issue unaudited quarterly or other
interim reports to its stockholders when it deems appropriate. The Company
intends to maintain compliance with the periodic reporting requirements of the
Securities Exchange Act of 1934.
DIVIDEND POLICY
No dividends have been paid to date and the Company's Board of Directors does
not anticipate paying dividends in the foreseeable future. It is the current
policy to retain all earnings, if any, to support future growth and expansion.
RECENT ISSUANCES OF UNREGISTERED SECURITIES
February 2003, Ameri-First issued 1,500,000 shares of restricted, unregistered
common stock to officers of the company: Gary Bell (500,000 shares); Keith D.
Newton (500,000 shares); and C. Keith Wilkerson, II (500,000 shares) for
services valued at $15,000, which approximated the fair value of the securities
issued.
In November 2003, Ameri-First issued of 1,227,160 shares of restricted,
unregistered common stock. Approximately 727,160 shares were issued to Douglas
Larson for consulting services and settlement of accounts payable valued at
$5,000 and $20,000 respectively. 500,000 shares were issued to C. Keith
Wilkerson, II for services valued at $5,000, which approximated the fair value
of the securities issued.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The Company has had no operations or significant assets since the year ended
December 31, 2000 and, accordingly, has had no revenue for the years ended
December 31, 2004 or 2003, respectively.
General and administrative expenses for the years ended December 31, 2004 or
2003 were nominal, principally interest accrued on a debt payable to Wilkerson
Consulting, Inc. Earnings per share for the respective years ended December 31,
2004 and 2003 were also nominal, based on the weighted-average shares issued and
outstanding at the end of each respective year.
The Company does not expect to generate any meaningful revenue or incur
operating expenses for purposes other than fulfilling the obligations of a
reporting company under the Securities Exchange Act of 1934 unless and until
such time that the Company's operating subsidiary begins meaningful operations.
At December 31, 2004 and 2003, respectively, the Company had negative working
capital of approximately $867,000 and $823,000.
It is the belief of management and significant stockholders that sufficient
working capital necessary to support and preserve the integrity of the corporate
entity will be present. However, there is no legal obligation for either
management or significant stockholders to provide additional future funding.
Should this pledge fail to provide financing, the Company has not identified any
alternative sources. Consequently, there is substantial doubt about the
Company's ability to continue as a going concern.
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The Company's need for working capital may change dramatically as a result of
any business acquisition or combination transaction. There can be no assurance
that the Company will identify any such business, product, technology or company
suitable for acquisition in the future. Further, there can be no assurance that
the Company would be successful in consummating any acquisition on favorable
terms or that it will be able to profitably manage the business, product,
technology or company it acquires.
PLAN OF BUSINESS
GENERAL
The Company intends to locate and combine with an existing, privately-held
company which is profitable or, in management's view, has growth potential,
irrespective of the industry in which it is engaged. However, the Company does
not intend to combine with a private company which may be deemed to be an
investment company subject to the Investment Company Act of 1940. A combination
may be structured as a merger, consolidation, exchange of the Company's common
stock for stock or assets or any other form which will result in the combined
enterprise's becoming a publicly-held corporation.
Pending negotiation and consummation of a combination, the Company anticipates
that it will have, aside from carrying on its search for a combination partner,
no business activities, and, thus, will have no source of revenue. Should the
Company incur any significant liabilities prior to a combination with a private
company, it may not be able to satisfy such liabilities as are incurred.
If the Company's management pursues one or more combination opportunities beyond
the preliminary negotiations stage and those negotiations are subsequently
terminated, it is foreseeable that such efforts will exhaust the Company's
ability to continue to seek such combination opportunities before any successful
combination can be consummated. In that event, the Company's common stock will
become worthless and holders of the Company's common stock will receive a
nominal distribution, if any, upon the Company's liquidation and dissolution.
COMBINATION SUITABILITY STANDARDS
In its pursuit for a combination partner, the Company's management intends to
consider only combination candidates which are profitable or, in management's
view, have growth potential. The Company's management does not intend to pursue
any combination proposal beyond the preliminary negotiation stage with any
combination candidate which does not furnish the Company with audited financial
statements for at least its most recent fiscal year and unaudited financial
statements for interim periods subsequent to the date of such audited financial
statements, or is in a position to provide such financial statements in a timely
manner. The Company will, if necessary funds are available, engage attorneys
and/or accountants in its efforts to investigate a combination candidate and to
consummate a business combination. The Company may require payment of fees by
such combination candidate to fund the investigation of such candidate. In the
event such a combination candidate is engaged in a high technology business, the
Company may also obtain reports from independent organizations of recognized
standing covering the technology being developed and/or used by the candidate.
The Company's limited financial resources may make the acquisition of such
reports difficult or even impossible to obtain and, thus, there can be no
assurance that the Company will have sufficient funds to obtain such reports
when considering combination proposals or candidates. To the extent the Company
is unable to obtain the advice or reports from experts, the risks of any
combined enterprise's being unsuccessful will be enhanced. Furthermore, to the
knowledge of the Company's officers and directors, neither the candidate nor any
of its directors, executive officers, principal shareholders or general
partners:
1) will not have been convicted of securities fraud, mail fraud, tax
fraud, embezzlement, bribery, or a similar criminal offense involving
misappropriation or theft of funds, or be the subject of a pending
investigation or indictment involving any of those offenses;
2) will not have been subject to a temporary or permanent injunction or
restraining order arising from unlawful transactions in securities,
whether as issuer, underwriter, broker, dealer, or investment advisor,
may be the subject of any pending investigation or a defendant in a
pending lawsuit arising from or based upon allegations of unlawful
transactions in securities; or
19
3) will not have been a defendant in a civil action which resulted in a
final judgment against it or him awarding damages or rescission based
upon unlawful practices or sales of securities.
The Company's officers and directors will make these determinations by asking
pertinent questions of the management of prospective combination candidates.
Such persons will also ask pertinent questions of others who may be involved in
the combination proceedings. However, the officers and directors of the Company
will not generally take other steps to verify independently information obtained
in this manner which is favorable. Unless something comes to their attention
which puts them on notice of a possible disqualification which is being
concealed from them, such persons will rely on information received from the
management of the prospective combination candidate and from others who may be
involved in the combination proceedings.
LIQUIDITY AND CAPITAL RESOURCES
It is the belief of management and significant stockholders that sufficient
working capital necessary to support and preserve the integrity of the corporate
entity will be present. However, there is no legal obligation for either
management or significant stockholders to provide additional future funding.
Should this pledge fail to provide financing, the Company has not identified any
alternative sources. Consequently, there is substantial doubt about the
Company's ability to continue as a going concern.
The Company has no current plans, proposals, arrangements or understandings with
respect to the sale or issuance of additional securities prior to the location
of a merger or acquisition candidate. Accordingly, there can be no assurance
that sufficient funds will be available to the Company to allow it to cover the
expenses related to such activities.
The Company does not currently contemplate making a Regulation S offering.
Regardless of whether the Company's cash assets prove to be inadequate to meet
the Company's operational needs, the Company might seek to compensate providers
of services by issuances of stock in lieu of cash. For information as to the
Company's policy in regard to payment for consulting services, see Certain
Relationships and Transactions.
ITEM 7 - INDEX TO FINANCIAL STATEMENTS
The required financial statements begin on page F-1 of this document.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Pursuant to the formation of a successor Registered Independent Certified Public
Accounting Firm by Mr. Carlos Lopez, the Company's lead audit partner, the Board
of Directors of Ameri-First Financial Group, Inc. (Company) has dismissed the
Registered Independent Certified Public Accounting Firm of Malone & Bailey, PLLC
of Houston, Texas (Malone) and engaged the Registered Independent Certified
Public Accounting Firm of LBB & Associates Ltd., LLP of Houston, Texas (LBB).
The action to engage LBB was taken upon the unanimous approval of the Board of
Directors of the Company, which performs the function of the Audit Committee.
During the two most recent fiscal years and through the date of this Report, the
Company has not consulted with LBB regarding either:
1. the application of accounting principles to any specified transaction,
either completed or proposed, or the type of audit opinion that might
be rendered on the Company's financial statements, and neither a
written report was provided to the Company nor oral advice was
provided that LBB concluded was an important factor considered by the
Company in reaching a decision as to the accounting, auditing or
financial reporting issue; or
2. any matter that was either subject of disagreement or event, as
defined in Item 304(a)(1)(iv)(A) of Regulation S-B and the related
instruction to Item 304 of Regulation S-B, or a reportable event, as
that term is explained in Item 304(a)(1)(iv)(A) of Regulation S-B.
20
ITEM 8A - CONTROLS AND PROCEDURES
As of the date of this filing, an evaluation of the effectiveness of the design
and operation of Ameri-First Financial Group, Inc.'s disclosure controls and
procedures was carried out under the supervision and with the participation of
management, including our Chief Executive and Financial Officer. Based upon that
evaluation, our Chief Executive and Financial Officer concluded that the
Company's disclosure controls and procedures are effective. There have been no
significant changes in our internal controls or in other factors that could
significantly affect internal controls subsequent to the date we carried out the
evaluation.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers serving the Company are as follows:
Name Age Position Held and Tenure
---- --- ------------------------
Glenn A. Little 53 President, Chief Executive Officer
Chief Financial Officer and Director
BIOGRAPHICAL INFORMATION
GLENN A. LITTLE, is a graduate of The University of Florida, Gainesville
(Bachelor of Science in Business Administration) and the American Graduate
School of International Management (Master of Business Administration -
International Management) and has been the principal of Little and Company
Investment Securities (LITCO), a Securities Broker/Dealer with offices in
Midland, Texas since 1979. Before founding LITCO, Mr. Little was a stockbroker
with Howard, Weil, Labouisse Friedrich in their New Orleans, Louisiana and
Midland, Texas offices and also worked for First National Bank of Commerce in
New Orleans, Louisiana.
Mr. Little was appointed an Adjudicatory Official for the State Bar of Texas and
served in that capacity from 1997 through 2003. Additionally, Mr. Little was
appointed by the 142nd District Court, Midland County, State of Texas as
Receiver to "take charge of the corporate affairs of Texas American Group, Inc."
(a dormant publicly-held company) and to take all steps necessary to reorganize
this entity.
Since 1988, Mr. Little has been successful in the reactivation of various
inactive public companies, similar to the Company, upon his acquisition of a
controlling position in each entity. In each situation, the business purpose and
plan of operation, after Mr. Little's acquisition of a controlling position,
became identical to that of the Company's as of the date of this filing. Mr.
Little is no longer a controlling shareholder, officer or director of any of the
entities in which he has participated in the reactivation of effective with the
fulfillment of the respective plan of operation involving a business combination
transaction with a private entity wishing to become publicly-owned. It is
specifically noted that the relative success or failure of any of these entities
subsequent to Mr. Little's involvement in them is not an indication of the
possibility of success or failure of the Company upon the completion of it's
current plan of operations.
No director or officer of the Company has been convicted in any criminal
proceeding (excluding traffic violations) or is the subject of a criminal
proceeding which is currently proceeding. No director or officer of the Company
is the subject of any legal proceeding involving the Company or the performance
of his duties as such director or officer.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors, executive
officers and persons who own more than ten percent of a registered class of the
Company's equity securities ("10% holders"), to file with the Securities and
21
Exchange Commission (SEC) initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Directors, officers and 10% holders are required by SEC regulation to furnish
the Company with copies of all of the Section 16(a) reports they file. Based
solely on a review of reports furnished to he Company or written
representationsfrom the Company's directors and executive officers during the
fiscal year ended December 31, 2002, no Section 16(a) filing requirements
applicable to its directors, officers and 10% holders for such year were
complied with.
CONFLICTS OF INTEREST
None of the officers of the Company will devote more than a small portion of
their respective time to the affairs of the Company. There will be occasions
when the time requirements of the Company's business conflict with the demands
of the officers' other business and investment activities. Such conflicts may
require that the Company attempt to employ additional personnel. There is no
assurance that the services of such persons will be available or that they can
be obtained upon terms favorable to the Company.
The officers, directors and principal shareholders of the Company may actively
negotiate for the purchase of a portion of their common stock as a condition to,
or in connection with, a proposed merger or acquisition transaction. It is
anticipated that a substantial premium may be paid by the purchaser in
conjunction with any sale of shares by the Company's officers, directors and
principal shareholders made as a condition to, or in connection with, a proposed
merger or acquisition transaction. The fact that a substantial premium may be
paid to members of Company management to acquire their shares creates a conflict
of interest for them and may compromise their state law fiduciary duties to the
Company's other shareholders. In making any such sale, members of Company
management may consider their own personal pecuniary benefit rather than the
best interests of the Company and the Company's other shareholders, and the
other shareholders are not expected to be afforded the opportunity to approve or
consent to any particular buy-out transaction involving shares held by members
of Company management.
The Company has adopted a policy under which any consulting or finders fee that
may be paid to a third party for consulting services to assist management in
evaluating a prospective business opportunity would be paid in stock rather than
in cash. Any such issuance of stock would be made on an ad hoc basis.
Accordingly, the Company is unable to predict whether, or in what amount, such
stock issuance might be made.
It is not currently anticipated that any salary, consulting fee, or finders fee
shall be paid to any of the Company's directors or executive officers, or to any
other affiliate of the Company except as described under Executive Compensation
above.
Although management has no current plans to cause the Company to do so, it is
possible that the Company may enter into an agreement with an acquisition
candidate requiring the sale of all or a portion of the Common Stock held by the
Company's current stockholders to the acquisition candidate or principals
thereof, or to other individuals or business entities, or requiring some other
form of payment to the Company's current stockholders, or requiring the future
employment of specified officers and payment of salaries to them. It is more
likely than not that any sale of securities by the Company's current
stockholders to an acquisition candidate would be at a price substantially
higher than that originally paid by such stockholders. Any payment to current
stockholders in the context of an acquisition involving the Company would be
determined entirely by the largely unforeseeable terms of a future agreement
with an unidentified business entity.
ITEM 10 - EXECUTIVE COMPENSATION
Currently, management of the Company requires less than four (4) hours per
month. Accordingly, no officer or director has received any compensation from
the Company. Until the Company acquires additional capital, it is not
anticipated that any officer or director will receive compensation from the
Company other than reimbursement for out-of-pocket expenses incurred on behalf
of the Company. See Certain Relationships and Related Transactions.
22
The Company has no stock option, retirement, pension, or profit-sharing programs
for the benefit of directors, officers or other employees, but the Board of
Directors may recommend adoption of one or more such programs in the future.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date of this Annual Report, the number
of shares of Common Stock owned of record and beneficially by executive
officers, directors and persons who hold 5% or more of the outstanding Common
Stock of the Company. Also included are the shares held by all executive
officers and directors as a group.
% of Class
Name and address Number of Shares Beneficially Owned
---------------- ---------------- ------------------
Glenn A. Little * 700,000 13.8%
211 West Wall Street
Midland TX 79701
Gary Bell 500,000 9.9%
Keith D Newton 500,000 9.9%
C. Keith Wilkerson 500,000 9.9%
Charles Wilkerson 500,000 9.9%
Douglas Larson 1,227,160 24.3%
Janaxral Desri 268,000 5.3%
13663 Jupiter Road, Suite 401
Dallas TX 75238
Total of stockholders owning more that
5% of the outstanding shares 4,195,160 83%
* Executive Officers and Directors
as a group (one person) 700,000 13.8%
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company currently maintains a mailing address at 211 West Wall, Midland,
Texas 79701. The Company's telephone number there is (432) 682-1761. Other than
this mailing address, the Company does not currently maintain any other office
facilities, and does not anticipate the need for maintaining office facilities
at any time in the foreseeable future. The Company pays no rent or other fees
for the use of the mailing address as these offices are used virtually full-time
by other businesses of the Company's President.
23
It is likely that the Company will not establish an office until it has
completed a business acquisition transaction, but it is not possible to predict
what arrangements will actually be made with respect to future office
facilities.
ITEM 13 - EXHIBITS
Exhibits
31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.- Chief
Executive Officer & Chief Financial Officer
32.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company has not paid or accrued any fees in each of the prior two fiscal
years to any accounting firm.
The Company has not designated a formal audit committee. However, as defined in
Sarbanes-Oxley Act of 2002, the entire Board of Directors (Board), in the
absence of a formally appointed committee, is, by definition, the Company's
audit committee.
In discharging its oversight responsibility as to the audit process, commencing
with the engagement of LBB & Associates Ltd., LLP, and the Board obtained from
the independent auditors a formal written statement describing all relationships
between the auditors and the Company that might bear on the auditors'
independence as required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees." The Board discussed with the
auditors any relationships that may impact their objectivity and independence,
including fees for non-audit services, and satisfied itself as to the auditors'
independence.
The Board discussed and reviewed with the independent auditors all matters
required to be discussed by auditing standards generally accepted in the United
States of America, including those described in Statement on Auditing Standards
No. 61, as amended, "Communication with Audit Committees".
The Board reviewed the audited financial statements of the Company as of and for
the years ended December 31, 2004 and 2003 with management and the independent
auditors. Management has the sole ultimate responsibility for the preparation of
the Company's financial statements and the independent auditors have the
responsibility for their examination of those statements.
Based on the above-mentioned review and discussions with the independent
auditors and management, the Board of Directors approved the Company's audited
financial statements and recommended that they be included in its Annual Report
on Form 10-KSB for the year ended December 31, 2004, for filing with the
Securities and Exchange Commission.
The Company's principal accountant, LBB & Associates Ltd., LLP, did not engage
any other persons or firms other than the principal accountant's full-time,
permanent employees.
24
SIGNATURES
In accord with Section 13 or 15(d) of the Securities Act of 1933, as amended,
the Company caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.
AMERI-FIRST FINANCIAL GROUP, INC.
Dated: February 22, 2007 By: /s/ Glenn A. Little
----------------- ------------------------------
Glenn A. Little
President, Director
Chief Executive Officer and
Chief Financial Officer
In accordance with the Securities Exchange Act of 1934, as amended, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date as indicated.
Dated: February 22, 2007 By: /s/ Glenn A. Little
----------------- ------------------------------
Glenn A. Little
President, Director
Chief Executive Officer and
Chief Financial Officer
25
AMERI-FIRST FINANCIAL GROUP, INC.
CONTENTS
Page
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
FINANCIAL STATEMENTS
Balance Sheet
as of December 31, 2004 F-3
Statements of Operations and Comprehensive Loss
for the years ended December 31, 2004 and 2003 F-4
Statements of Shareholders' Deficit
for the years ended December 31, 2004 and 2003 F-5
Statements of Cash Flows
for the years ended December 31, 2004 and 2003 F-6
Notes to Financial Statements F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Ameri-First Financial Group, Inc.
Midland, Texas
We have audited the accompanying balance sheet of Ameri-First Financial Group,
Inc. as of December 31, 2004, and the related statements of operations,
stockholders' deficit, and cash flows for each of the years in the two-year
period ended December 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ameri-First Financial Group,
Inc. as of December 31, 2004, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2004 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
which raises substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ LBB & Associates Ltd., LLP
-----------------------------------
Houston, Texas
February 14, 2007
F-2
AMERI-FIRST FINANCIAL GROUP, INC.
BALANCE SHEET
December 31, 2004
ASSETS
TOTAL CURRENT ASSETS $ --
------------
TOTAL ASSETS $ --
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ --
Accrued interest payable to shareholder 107,412
Note payable to shareholder 740,000
------------
TOTAL LIABILITIES 847,412
------------
COMMITMENTS
SHAREHOLDERS' DEFICIT
Common stock - $0.00001 par value
25,000,000 shares authorized
5,054,422 shares issued and outstanding, respectively 50
Additional paid-in capital 31,445,482
Accumulated deficit (32,292,944)
------------
TOTAL SHAREHOLDERS' DEFICIT (847,412)
------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ --
============
The accompanying notes are an integral part of these financial statements.
F-3
AMERI-FIRST FINANCIAL GROUP, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the years ended December 31, 2004 and 2003
2004 2003
----------- -----------
REVENUES $ -- $ --
----------- -----------
EXPENSES
General and administrative expenses -- 25,000
----------- -----------
LOSS FROM OPERATIONS -- (25,000)
OTHER EXPENSE
Interest expense (44,400) (44,400)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (44,400) (69,400)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET LOSS (44,400) (69,400)
OTHER COMPREHENSIVE INCOME -- --
----------- -----------
COMPREHENSIVE LOSS $ (44,400) $ (69,400)
=========== ===========
Earnings per share of common stock
outstanding computed on net loss -
basic and fully diluted $ (0.01) $ (0.02)
=========== ===========
Weighted-average number of shares
outstanding - basic and fully diluted 5,054,422 3,980,657
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
AMERI-FIRST FINANCIAL GROUP, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
Years ended December 31, 2004 and 2003
Common Stock Additional
-------------------- paid-in Accumulated
Shares Amount capital deficit Total
------ ------ ------- ------- -----
BALANCES AT DECEMBER 31, 2002 2,327,262 $ 23 $ 31,400,509 $(32,179,144) $ (778,612)
Issuance of common stock
for services 2,727,160 27 44,973 -- 45,000
Net loss -- -- -- (69,400) (69,400)
----------- ------- ------------ ------------ ----------
BALANCES AT DECEMBER 31, 2003 5,054,422 50 31,445,482 (32,248,544) (803,012)
Net loss -- -- -- (44,400) (44,400)
----------- ------- ------------ ------------ ----------
BALANCES AT DECEMBER 31, 2004 5,054,422 $ 50 $ 31,445,482 $(32,292,944) $ (847,412)
=========== ======= ============ ============ ==========
The accompanying notes are an integral part of these financial statements.
F-5
AMERI-FIRST FINANCIAL GROUP, INC.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2004 and 2003
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (44,400) $ (69,400)
Adjustments to reconcile net loss to net
cash used in operating activities
Operating expenses paid with common stock -- 45,000
Increase (Decrease) in accrued interest payable 44,400 24,400
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES -- --
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES -- --
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES -- --
---------- ----------
INCREASE (DECREASE) IN CASH -- --
Cash at beginning of period -- --
---------- ----------
CASH AT END OF PERIOD $ -- $ --
========== ==========
SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID
Interest paid for the year $ -- $ --
========== ==========
Income taxes paid for the year $ -- $ --
========== ==========
The accompanying notes are an integral part of these financial statements.
F-6
AMERI-FIRST FINANCIAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS
On March 22, 2000, pursuant to the closing of an Agreement and Plan of
Reorganization (the "Reorganization Agreement") between Itronics Communications
Corporation and Ameri-First Financial Group, Inc. (AFFG), a Nevada corporation,
effected a change in control of Itronics Communications Corporation, which was
incorporated on August 22, 1995 under the laws of the State of Delaware.
The closing under the Reorganization Agreement consisted of a stock for stock
exchange in which Itronics Communications Corporation acquired all of the issued
and outstanding common stock of AFFG in exchange for the issuance of 9,386,116
shares of its common stock. As a result of this transaction, Itronics
Communications Corporation became a wholly-owned subsidiary of AFFG.
The Reorganization was approved by the unanimous consent of the Board of
Directors of Ameri-First Financial Group on March 20, 2000. The Reorganization
qualified as a reorganization within the meaning of Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended.
Prior to the Agreement, AFFG had 9,386,116 shares of common stock issued and
outstanding. Following the Agreement, Ameri-First had 9,436,116 shares of common
stock outstanding. AFFG, formerly known as Tahoe Pacific Corporation and Pacific
Holdings, Inc., was incorporated in the State of Nevada on September 27, 1996.
Upon effectiveness of the Reorganization Agreement, pursuant to Rule 12g-3(a) of
the General Rules and Regulations of the Securities and Exchange Commission,
AFFG became the successor issuer to Itronics Communications Corporation, Inc.
for reporting purposes under the Securities Exchange Act of 1934 and elected to
report under the Act effective March 22, 2000.
For periods prior to 2000, the Company participated in numerous unsuccessful
ventures and corporate name changes, as discussed in greater detail in previous
Form 10-KSB filings.
In March 2000, Ameri-First acquired five (5) hotel properties and began managing
and operating hotels. These hotel properties were foreclosed upon in December
2000. Since December 2000, the Company has had no assets or operating
activities.
The Company's current principal business activity is to seek a suitable reverse
acquisition candidate through acquisition, merger or other suitable business
combination method.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the balance sheet. Actual results could differ from
those estimates.
F-7
CASH EQUIVALENTS
Cash equivalents include highly liquid, temporary cash investments having
original maturity dates of three months or less. For reporting purposes, such
cash equivalents are stated at cost plus accrued interest which approximates
fair value.
REVENUE RECOGNITION
Revenues are recorded as services are performed.
INCOME TAXES
The asset and liability approach is used to account for income taxes by
recognizing deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities. Ameri-First records a valuation allowance to
reduce the deferred tax assets to the amount that is more likely than not to be
realized.
FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which include cash,
accounts receivable, loans receivable, bank indebtedness, accounts payable and
accrued liabilities, short term debt, shareholder debt, and long term debt,
approximate fair value. It is management's opinion that the Company is not
exposed to significant interest, currency or credit risk arising from these
financial instruments unless otherwise noted.
STOCK-BASED COMPENSATION
The Company periodically issues common stock for acquisitions and services
rendered. Common stock issued is valued at the estimated fair market value, as
determined by management and the board of directors of the Company. Management
and the board of directors consider market price quotations, recent stock
offering prices and other factors in determining fair market value for purposes
of valuing the common stock.
EARNINGS PER COMMON SHARE
Basic and diluted net loss per share excludes dilution and is computed by
dividing net loss by the weighted average number of common shares outstanding
for the period presented
RECENT ACCOUNTING PRONOUNCEMENTS
Ameri-First does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Ameri-First's results of
operations, financial position or cash flows.
NOTE 2 - FINANCIAL CONDITION AND GOING CONCERN
Ameri-First has incurred losses totaling $44,400 and $69,400 for the each of the
years ended December 31, 2004 and 2003, respectively and has a capital deficit
of $(847,412) at December 31, 2004. Because of these losses, Ameri-First will
require additional working capital to develop business operations.
F-8
The Company intends to raise additional working capital either through private
placements, public offerings and/or bank financing or will seek a merger or
acquisition candidate.
There are no assurances that Ameri-First will be able to either (1) achieve a
level of revenues adequate to generate sufficient cash flow from operations; or
(2) obtain additional financing through either private placement, public
offerings and/or bank financing necessary to support Ameri-First's working
capital requirements. To the extent that funds generated from any private
placements, public offerings and/or bank financing are insufficient, Ameri-
First will have to raise additional working capital. No assurance can be given
that additional financing will be available, or if available, will be on terms
acceptable to Ameri-First. If adequate working capital is not available,
Ameri-First may not renew its operations.
These conditions raise substantial doubt about the Ameri-First's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the carrying amounts or the amount and classification of
liabilities that might be necessary should Ameri-First be unable to continue as
a going concern.
NOTE 3 - NOTE PAYABLE TO SHAREHOLDER
On August 1, 2002, the Company issued a $740,000 note to Wilkerson Consulting,
Inc. as compensation to replace a guarantee related to a former officer's debt.
This note was unsecured and bore interest at 6% on unpaid principal and 10% on
matured unpaid principal. The note is payable on demand, or if no demand is
made, the entire principal amount and all accrued interest shall be due and
payable on July 31, 2006. (See: Note 7, Subsequent Event)
NOTE 4 - INCOME TAXES
Ameri-First Financial Group, Inc., follows Statement of Financial Accounting
Standards Number 109 (SFAS 109), "Accounting for Income Taxes". Deferred income
taxes reflect the net effect of a (a) temporary difference between carrying
accounts of assets and liabilities for financial purposes and the amounts used
for income taz reporting purposes, and (b) net operating loss carryforwards. No
net provision for refundable Federal income tax has been made in accompanying
statement of loss because no recoverable taxes were paid previously. Similarly,
no deferred tax asset attributable to the net operating loss carryforward has
been recognized, as it is not deemed likely to be realized
The provision for refundable Federal income tax consists of the following:
December 31, 2004 December 31, 2003
----------------- -----------------
Refundable Federal income tax attributed to:
Current Operations $ 15,000 $ 351,000
Less, Change in valuation allowance (15,000) (351,000)
--------- ---------
Net refundable amount $ 0 $ 0
========= =========
The cumulative tax effect at the expected rate of 34% of significant items
comprising our net deferred tax amount is as follows:
December 31, 2004
-----------------
Deferred tax assets attributable to:
Current Operations $ 629,000
Less, Change in valuation allowance (629,000)
---------
Net refundable amount $ 0
=========
F-9
In January 2001, Ameri-First had a change in ownership, which has resulted in
Ameri-First's net operating loss carryforwards being subject to certain
utilization limitations in the future. At December 31, 2004, Ameri-First
Financial Group, Inc. had an unused net operating loss carryover approximating
$1,849,000 that is available to offset future taxable income; it expires
beginning in 2021-2024.
NOTE 5 - STOCKHOLDERS EQUITY
COMMON STOCK:
In February 2003, Ameri-First issued 1,500,000 shares of restricted,
unregistered common stock to officers of the Company: Gary Bell (500,000 shares)
Keith D. Newton (500,000 shares) and C. Keith Wilkerson, II (500,000 shares) for
services valued at $15,000.
In November 2003, Ameri-First issued of 1,227,160 shares of common stock. Of
those 727, 160 shares were issued to Douglas Larson for settlement of accounts
payable and services valued at $20,000 and 5,000 respectively. 500,000 shares
issued to an officer of the Company for services valued at $5,000.
NOTE 6 - RELATED PARTY TRANSACTIONS
After the foreclosure of the 5 hotel properties, Ameri-First neither owns nor
leases any real or personal property. An officer has provided office services
without charge. Such costs are immaterial to the financial statements and
accordingly are not reflected herein. The officers and directors are involved in
other business activities and most likely will become involved in other business
activities in the future. If a specific business opportunity becomes available,
such persons may face a conflict of interest. A company policy for handling such
a conflict has not yet been formulated.
NOTE 7 - SUBSEQUENT EVENT
On January 18, 2005, the Company and Wilkerson Consulting, Inc. ("Wilkerson")
entered into a Debt and Stock Purchase Agreement with Glenn A. Little ("Little")
pursuant to which Little agreed to purchase $740,000 in outstanding debt against
AMFG held by Wilkerson and to purchase Wilkerson's stock in the Company,
(700,000 shares) for cash consideration of $60,000. The note payable to
shareholder remains outstanding as of February 2007.
The purchase price was placed in the escrow account of Wilkerson's attorneys
pending completion of the following conditions precedent: (i) Receipt of a Good
Standing Certificate from the State of Delaware regarding AMFG; (ii) Completion
of GAAP audits and tax returns of AMFG for calendar years 2002 and 2003; (iii)
Affidavit from the Board of Directors of AMFG that there are no additional
outstanding debts or demands from either regulatory groups, debtors, or
stockholders; (iv) Receipt of a tax lien and judgment search on AMFG showing no
liens or judgments; and (v) Receipt of resignations from the Board of Directors
and all officers of AMFG and the appointment of Glenn Little to the Board of
Directors.
Certain events were not completed within 120 days of the date of the agreement
plus an extension of time, consequently, the officers and directors of the
Company resigned and the Company appointed Little as the sole officer and
director of the Company. On November 2, 2005, Wilkerson delivered the required
corporate resolution to effect the transfer of Wilkerson's shares to Little.
On January 2, 2006, Little waived the failure of the completion of conditions
precedent and accepted his appointment as an officer and director of the
Registrant and deemed the transaction closed as of that date.
F-10