SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
Commission File Number: 333-56046
SHADOWS BEND DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
87-0617649
(IRS Employer Identification Number)
200 Lafayette Street, Suite 750, Baton Rouge, LA 70801
(Address of principal executive offices)(Zip Code)
(225) 343-7811
(Registrant's telephone no., including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
The number of shares outstanding of the Company's common stock as of September
30, 2002 is shown below:
Title of Class Number of Shares Outstanding Common Stock, par value $.001 per
share 42,109,744
Documents Incorporated by Reference: None
SHADOWS BEND DEVELOPMENT, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3 - Item 307 of Regulation S-B
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds
Item 6 - Reports on Form 8-K
SIGNATURES
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The financial statements of the company are set forth beginning on page F-1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with our unaudited
consolidated interim financial statements and related notes thereto included in
this quarterly report and in our audited consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") contained in our Form 10-KSB for the year ended December 31,
2001. Certain statements in the following MD&A are forward looking statements.
Words such as "expects", "anticipates", "estimates" and similar expressions are
intended to identify forward looking statements. Such statements are subject to
risks and uncertainties that could cause actual results to differ materially
from those projected.
GENERAL
Shadows Bend Development, Inc. ("Shadows Bend" or the "Company"), a Nevada
Corporation, was originally organized as an Idaho corporation on May 25, 1967
under the name Silver Beaver Mining Co., Inc. The Company changed its domicile
to Nevada on June 30, 1998. On June 2, 2000, the Company changed its name to
Shadows Bend Development, Inc. when it merged with a private Louisiana
corporation. The Company's headquarters are located at 200 Lafayette Street,
Suite 750, Baton Rouge, Louisiana 70801.
Shadows Bend develops and operates "specialty care" facilities designed to help
people diagnosed with AD or other related illnesses to manage their lives with
the greatest independence and quality. Our business plan includes the
construction and operation of resident care facilities for persons afflicted
with Alzheimer's or other related dementia diseases. Residents of these
facilities are among the four million plus adults in the United States with AD
or related dementia illnesses that want practical solutions at affordable costs.
Shadows Bend was originally incorporated in Louisiana in 1998 with a group of
individuals with extensive backgrounds in Assisted Living, Alzheimer's
Treatment, and Home Health Operations.
RESULTS OF OPERATIONS
On June 1, 2002, Shadows Bend purchased Three Oaks Corporation ("Three Oaks")
and Holly Hills Corporate Services, Inc. ("Holly Hills") for stock and the
assumption of liabilities. Currently, the Company operates Shadows Bend Court in
Pensacola, Florida. The Company's other facility, Holly Hills, is currently
closed for renovation and expansion.
The Company anticipates the need to raise funds, either by borrowing the funds
or through equity financing, in order to continue principal operations.
COMPARISION OF QUARTER ENDED SEPTEMBER 30, 2001 TO QUARTER ENDED SEPTEMBER 30,
2002
The Company had no revenue in the quarter ended September 30, 2001. Revenue for
Holly Hills and Shadows Bend Court commenced after their acquisitions in June of
2002. Thus, the revenue and operating expenses and substantially higher for the
quarter ended September 20, 2002. The increase in operations also results in a
substantially higher net loss for the quarter ended September 30, 2002 compared
to the quarter ended September 30, 2001. The loss increased from $26,739 to
$3,086,457.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2001 TO NINE MONTHS ENDED
SEPTEMBER 30, 2002.
The Company had no revenue for the nine months ended September 30, 2001 but did
incur expenses in their operations. Revenues commenced for their two facilities
in June of 2002; thus, while the revenues are higher, the expenses and operating
loss are substantially higher as well.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has not generated significant revenue and has
been dependent on debt and equity raised from individual investors to sustain
its operations. During the nine months ended September 30, 2002 and 2001, the
Company incurred net losses of $(5,869,272) and $(255,849), respectively. At
September 30, 2002, the Company had negative working capital of $(2,690,586).
These factors raise substantial doubt about the Company's ability to continue as
a going concern.
The Company is currently considering a public sale or private placement of its
common stock if an active trading market for its existing outstanding shares can
be established. The Company is also exploring conventional loans or a loan from
the Department of Housing and Urban Development ("HUD") for construction of its
facilities. However, such sources of funding may be unavailable. The Company's
long-term viability as a going concern is dependent on certain key factors as
follows:
- The ability of the Company to obtain adequate sources of funding to
continue the implementation of its business strategy. Sources of
funding may not be available on terms that are acceptable to the
Company and existing stockholders, or may include terms that will
result in substantial dilution to existing stockholders.
- The ability of the Company to find suitable long-term care facilities
to establish a revenue base.
- The ability of the Company to ultimately achieve adequate
profitability and strong operating cash flows to sustain its
operations.
FORWARD LOOKING STATEMENTS
This filing contains statements that plan for or anticipate the future.
Forward-looking statements include statements about the future of operations
involving the construction and management of facilities for persons afflicted
with Alzheimer's or other related dementia diseases, statements about our future
business plans and strategies, and most other statements that are not historical
in nature. In this filing forward-looking statements are generally identified by
the words "anticipate," "plan," "believe," "expect," "estimate," and the like.
Although we believe that any forward-looking statements we make in this filing
are reasonable, because forward-looking statements involve future risks and
uncertainties, there are factors that could cause actual results to differ
materially from those expressed or implied. For example, a few of the
uncertainties that could affect the accuracy of forward-looking statements,
besides the specific factors identified in the Risk Factors section of this
filing, include the following:
- Our ability to fund and complete our first facility;
- changes in the United States healthcare system and changes in
applicable government regulations that might affect our future
profitability;
- our substantial indebtedness and debt service obligations;
- our ability to operate in a heavily regulated environment and to
satisfy regulatory authorities;
- the continued availability of insurance for the inherent risks of
liability in the healthcare industry;
- our reputation for delivering high-quality care and our ability to
attract and retain patients;
- changes in our business strategies;
- market acceptance of our services;
- our ability to compete with existing and future care providers;
- difficulty recruiting and retaining staff of sufficient technical
caliber to provide adequate and on-going services to our residents;
- failure to successfully market our services and attract sufficient
numbers of residents with adequate resources to fill our facilities;
- our ability to secure the capital and the related cost of the capital
necessary to fund our proposed operations and future growth; and
- our ability to establish a market for our commons stock.
In light of the significant uncertainties inherent in the forward-looking
statements made in this filing, particularly in view of our early stage of
operations, the inclusion of this information should not be regarded as a
representation by us or any other person that our objectives and plans will be
achieved.
The Private Securities Litigation Reform Act of 1995, which provides a "safe
harbor" for similar statements by existing public companies, does not apply to
this offering.
ITEM 3. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Michael Sciacchetano, our Chief Executive Officer and Acting Chief Accounting
Officer, has concluded that our disclosure controls and procedures are
appropriate and effective. He has evaluated these controls and procedures as
of a date within 90 days of the filing date of this report on Form 10-QSB.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II
Pursuant to the Instructions on Part II of the Form 10-QSB, Items 1, 3, and 5
are omitted.
ITEM 2. CHANGES IN SECURITIES
The following information sets forth certain information as of September 30,
2002, for all securities the Company sold, excluding any information "previously
reported as defined in Rule 12B-2 of the Securities Exchange Act of 1934." There
were no underwriters in any of these transactions, nor were any sales
commissions paid thereon.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the undersigned has duly caused this Form 10-QSB to be signed on
its behalf by the undersigned, there unto duly authorized, in the City of Baton
Rouge, Louisiana, on April 23, 2003
SHADOWS BEND DEVELOPMENT, INC
By: /s/ Michael Sciacchetano
-------------------------------------------
Michael Sciacchetano
President, Director and Principal
Financial Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1933, this 10-QSB
has been signed below by the following persons on behalf of the registrant in
the capacities and on the date indicated.
Signature Name and Title Date
/s/ Michael Sciacchetano April 23, 2003
-------------------------------------
Michael Sciacchetano
President, Director and Principal
Financial Accounting Officer
CERTIFICATIONS
I, Michael Sciacchetano, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Shadows Bend
Development, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 23, 2003
/s/ Michael Sciacchetano
- --------------------------
Michael Sciacchetano
President
I, Michael Sciacchetano, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Shadows Bend
Development, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 23, 2003
/s/ Michael Sciacchetano
- --------------------------
Michael Sciacchetano
Principal Financial Accounting Officer
Certification of President of Shadows Bend Development, Inc. pursuant to Section
- --------------------------------------------------------------------------------
906 of the Sarbanes-Oxley Act of 1992 and Section 1350 of 18 U.S.C. 63.
- -------------------------------------------------------------------------------
I, Michael Sciacchetano, the President of Shadows Bend Development hereby
certify that to my knowledge, Shadows Bend Development's periodic report on Form
10-QSB for the period ended September 30, 2002, fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and that information contained in the periodic report on Form 10-QSB and the
financial statements contained therein fairly presents, in all material
respects, the financial condition and results of the operations of Shadows Bend
Development.
Date: April 23, 2003 /s/ Michael Sciacchetano
---------------------
Michael Sciacchetano
President
Certification of Principal Financial Accounting Officer of Shadows Bend
- -------------------------------------------------------------------------------
Development pursuant to Section 906 of the Sarbanes-Oxley Act of 1992 and
- --------------------------------------------------------------------------------
Section 1350 of 18 U.S.C. 63.
- ---------------------------------
I, Michael Sciacchetano, the Principal Financial Accounting Officer of Shadows
Bend Development hereby certify that to my knowledge, Shadow Bend Development's
periodic report on Form 10-QSB for the period ended September 30, 2002, fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that information contained in the periodic report on
Form 10-QSB and the financial statements contained therein fairly presents, in
all material respects, the financial condition and results of the operations of
Shadows Bend Development.
Date: April 23, 2003 /s/ Michael Sciacchetano
---------------------
Michael Sciacchetano,
Principal Financial Accounting Officer
SHADOWS BEND DEVELOPMENT, INC.
__________
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
SHADOWS BEND DEVELOPMENT, INC.
TABLE OF CONTENTS
-------------
PAGE
----
Unaudited Consolidated Condensed Financial Statements:
Unaudited Consolidated Condensed Balance Sheet as of
September 30, 2002 and December 31, 2001 F-2
Unaudited Consolidated Condensed Statement of Operations
for the three months and nine months ended September 30,
2002 and 2001 F-3
Unaudited Consolidated Condensed Statement of Stockholders'
Equity for the nine months ended September 30, 2002 and 2001 F-4
Unaudited Condensed Statement of Cash Flows for the nine
months ended September 30, 2002 and 2001 F-5
Selected Notes to Unaudited Consolidated Condensed Financial
Statements F-6
SHADOWS BEND DEVELOPMENT, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
-------------
SEPTEMBER 30, DECEMBER 31,
2002 2001
ASSETS (UNAUDITED) (NOTE)
------ --------------- --------------
Current assets:
Cash and cash equivalents $ 6,045 $ 1,387
Prepaid expenses and other assets 4,035 -
--------------- --------------
Total current assets 10,080 1,387
Deposits 685 -
Property, net 2,014,369 1,111,260
--------------- --------------
Total assets $ 2,025,134 $ 1,112,647
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable $ 1,936,811 $ 207,000
Accounts payable 244,771 153,904
Accounts payable to related parties 137,281 -
Accrued liabilities 381,803 34,682
--------------- --------------
Total current liabilities 2,700,666 395,586
Notes payable, net of current portion - 150,000
--------------- --------------
Total liabilities 2,700,666 545,586
--------------- --------------
Stockholders' equity:
Common stock, $0.001 par value, 50,000,000 shares
authorized, 42,109,744 and 38,265,906 shares
issued and outstanding at September 30, 2002 and
December 31, 2001, respectively 42,110 38,266
Additional paid-in capital 5,893,294 1,080,638
Unissued common stock 962,924 -
Subscription receivable (1,152,745) -
Accumulated deficit (6,421,115) (551,843)
--------------- --------------
Total stockholders' equity (675,532) 567,061
--------------- --------------
Total liabilities and stockholders' equity $ 2,025,134 $ 1,112,647
=============== ==============
Note: The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
F-2
SHADOWS BEND DEVELOPMENT, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
-------------
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenue $ 599,958 - $ 675,203 $ -
------------ ------------ ------------ ------------
Operating expenses:
Residence operating expenses 622,313 1,790 700,332 42,929
General and administrative expenses 44,213 16,774 593,862 84,745
Consulting expenses 2,345,000 - 3,520,000 96,000
Depreciation expense 54,664 - 63,401 -
------------ ------------ ------------ ------------
Total operating expenses 3,066,190 18,564 4,877,595 -
------------ ------------ ------------ ------------
Operating loss (2,466,232) (18,564) (4,202,392) (223,674)
Other expenses:
Loss from repossession of property - - 1,011,260 -
Interest expense 87,752 8,175 123,147 32,175
Impairment loss 532,473 - 532,473 -
------------ ------------ ------------ ------------
Total other expense 620,225 8,175 1,666,880 32,175
------------ ------------ ------------ ------------
Net loss $(3,086,457) $ (26,739) $(5,869,272) $ (255,849)
============ ============ ============ ============
Basic and diluted net loss per common
share $ (0.08) $ 0.00 $ (0.15) $ (0.03)
============ ============ ============ ============
Basic and diluted weighted average
shares outstanding 41,109,928 10,000,578 40,347,853 10,000,578
============ ============ ============ ============
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
F-3
SHADOWS BEND DEVELOPMENT, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
-------------
COMMON STOCK ADDITIONAL UNISSUED
------------------------- PAID-IN COMMON SUBSCRIPTION
SHARES AMOUNT CAPITAL STOCK RECEIVABLE DEFICIT TOTAL
----------- ------------ ---------- -------- -------------- ------------ ------------
Balance at December 31,
2001 38,265,906 $ 38,266 $1,080,638 $ - $ - $ (551,843) $ 567,061
Common stock issued to acquire
Holly Hills Corporate
Services, Inc. 100,000 100 44,900 155,609 - - 200,609
Common stock issued to acquire
Three Oaks Corporation 150,000 150 67,350 451,064 - - 518,564
Common stock issued in exchange
for subscription receivable 1,500,000 1,500 1,151,245 - (1,152,745) - -
Common stock issued for
employee compensation 37,500 37 31,218 - - - 31,255
Common stock to be issued in re-
payment of a note payable to
a related party - - - 356,251 - - 356,251
Stock options issued for
consulting services - - 1,175,000 - - - 1,175,000
Common stock issued for consul-
ting services 2,150,000 2,150 2,342,850 - - - 2,345,000
Cancellation of shares (93,662) (93) 93 - - - -
Net loss - - - - - (5,869,272) (5,869,272)
----------- ------------ ---------- -------- -------------- ------------ ------------
Balance at September 30, 2002 42,109,744 $ 42,110 $5,893,294 $962,924 $ (1,152,745) $(6,421,115) $ (675,532)
=========== ============ ========== ======== ============== ============ ============
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
F-4
SHADOWS BEND DEVELOPMENT, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
----------
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
--------------- ---------------
Cash flows from operating activities:
Net loss $ (5,869,272) $ (255,849)
Adjustments to reconcile net loss to net cash
provided by (used by) operating activities 5,904,148 224,232
--------------- ---------------
Net cash provided by (used by) operating
activities 34,876 (31,617)
--------------- ---------------
Cash flows from investing activities:
Capital expenditures - 26,350
--------------- ---------------
Net cash used by investing activities - (26,350)
--------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable - 207,000
Payments of notes payable (30,218) (150,000)
--------------- ---------------
Net cash provided by (used by) financing
activities (30,218) 57,000
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 4,658 (967)
Cash and cash equivalents at beginning of period 1,387 1,051
--------------- ---------------
Cash and cash equivalents at end of period $ 6,045 $ 84
=============== ===============
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
F-5
SHADOWS BEND DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
----------
1. ORGANIZATION
------------
Shadows Bend Development, Inc. (the "Company") is a Nevada Corporation
involved in an effort to buy or develop long-term care facilities equipped
for the care of Alzheimer patients. The Company was established in its
current form in an August 4, 2000 recapitalization transaction with Silver
Beaver Mining Company, Inc. Until June 1, 2002, the Company was considered
a development stage enterprise as defined in Statement of Financial
Accounting Standards ("SFAS") No. 7 because the Company had devoted
substantially all of its efforts to capital raising efforts and the
establishment of a new business. The Company's planned principal operations
commenced upon acquisition of Three Oaks Corporation and Holly Hills
Corporate Services, Inc. (See Note 5).
2. INTERIM FINANCIAL STATEMENTS
------------------------------
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB
and Article 10 of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and nine month periods ended September 30, 2002 and 2001 are not
necessarily indicative of the results that may be expected for the
respective full years.
A summary of the Company's significant accounting policies and other
information necessary to understand these consolidated interim financial
statements is presented in the Company's audited financial statements for
the years ended December 31, 2001 and 2000. Accordingly, the Company's
audited financial statements should be read in connection with these
financial statements.
3. COMPREHENSIVE INCOME
---------------------
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting Comprehensive Income, which requires a company
to display an amount representing comprehensive income as part of the
Company's basic financial statements. Comprehensive income includes such
items as unrealized gains or losses on certain investment securities and
certain foreign currency translation adjustments. The Company's financial
statements include none of the additional elements that affect
comprehensive income. Accordingly, comprehensive income and net income are
identical.
4. ESTIMATES
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets or liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Continued
F-6
SHADOWS BEND DEVELOPMENT, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS, CONTINUED
----------
5. ACQUISITIONS
------------
On June 1, 2002, the Company purchased Three Oaks Corporation ("Three
Oaks") for a total purchase price of $1,824,942. This acquisition was
achieved through the issuance of 150,000 shares of the Company common stock
valued at $67,500, the issuance of a promissory note and common stock for
$518,564 and the assumption of liabilities totaling $1,306,378.
Under the terms of the promissory note issued in connection with the
purchase of Three Oaks, the note shall be repaid through the issuance of
common stock of the Company, using its $0.45 market price on the date of
the agreement. The value of the 1,002,364 shares of common stock issuable
under this promissory note are presented in the accompanying balance sheet
as unissued common stock.
On June 1, 2002, the Company also purchased Holly Hills Corporate Services,
Inc. ("Holly Hills") for a total purchase price of $878,304. This
acquisition was structured in a manner similar to the Three Oaks purchase
and included the issuance of 100,000 shares of the Company's common stock
valued at $45,000, the issuance of a promissory note and common stock for
$200,609 and the assumption of liabilities totaling approximately $677,695.
Following is an analysis of the acquisitions of Three Oaks and Holly Hills:
THREE OAKS HOLLY HILLS TOTAL
----------- ------------ ----------
Tangible assets acquired $ 1,824,942 $ 878,304 $2,703,246
=========== ============ ==========
Liabilities assumed $ 1,306,378 $ 677,695 $1,984,073
Common stock issued or issuable under
terms of promissory notes 518,564 200,609 719,173
----------- ------------ ----------
$ 1,824,942 $ 878,304 $2,703,246
=========== ============ ==========
6. INCOME TAX
-----------
The difference between the Federal statutory income tax rate and the
Company's effective income tax rate is primarily attributable to an
increase in valuation allowance for deferred tax assets relating to net
operating losses.
7. STOCKHOLDERS' EQUITY
---------------------
During the quarter ended March 31, 2002, the Company issued 2,500,000 stock
options to consultants for human resources and general business activities
for the period from January 1, 2002 to December 31, 2002. The stock options
have an exercise price of 50% of the quoted market price at the date of
issue and resulted in compensation expense to consultants of $1,175,000
during the quarter ended March 31, 2002.
During the quarter ended September 30, 2002, the Company issued 2,150,000
shares of common stock for consulting services and recognized compensation
expense related to the issuance of $2,345,000.
Continued
F-7
SHADOWS BEND DEVELOPMENT, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS, CONTINUED
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7. STOCKHOLDERS' EQUITY, CONTINUED
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Effective February 5, 2002, the Company declared a 3 for 1 stock split for
stockholders of record as of January 29, 2002. This stock split has been
reflected in the accompanying financial statements and all references to
common stock outstanding, additional paid-in capital, weighted average
shares outstanding and per share amounts prior to the record date of the
split have been restated to reflect the stock split on a retroactive basis.
8. GOING CONCERN CONSIDERATION
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Since its inception, the Company has not generated significant revenue and
has been dependent on debt and equity raised from individual investors to
sustain its operations. During the nine months ended September 30, 2002 and
2001, the Company incurred net losses of $(5,869,272) and $(255,849),
respectively. At September 30, 2002, the Company had negative working
capital of $(2,690,586). These factors raise substantial doubt about the
Company's ability to continue as a going concern.
The Company is currently considering a public sale or private placement of
its common stock if an active trading market for its existing outstanding
shares can be established. The Company is also exploring conventional loans
or a loan from the Department of Housing and Urban Development ("HUD") for
construction of its facilities. However, such sources of funding may be
unavailable. The Company's long-term viability as a going concern is
dependent on certain key factors as follows:
- The ability of the Company to obtain adequate sources of funding to
continue the implementation of its business strategy. Sources of
funding may not be available on terms that are acceptable to the
Company and existing stockholders, or may include terms that will
result in substantial dilution to existing stockholders.
- The ability of the Company to find suitable long-term care facilities
to establish a revenue base.
- The ability of the Company to ultimately achieve adequate
profitability and strong operating cash flows to sustain its
operations.
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