SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 24, 2005
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Falcon Ridge Development Inc.
(formerly known as PocketSpec Technologies Inc.)
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(Exact name of registrant as specified in its charter)
Nevada 0-28789 84-1461919
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5111 Juan Tabo Boulevard N.E. Albuquerque, New Mexico 87111
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (866) 302-2248
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[] Written communications pursuant to Rule 425 under the Securities Act (17CFR
230.425)
[] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
SECTION 1 - THE COMPANY'S BUSINESS AND OPERATIONS.
SECTION 5 - CORPORATE GOVERNANCE AND MANAGEMENT.
ITEMS 1.01, 5.01 AND 5.02. ENTRY INTO A MATERIAL
DEFINITIVE AGREEMENT, CHANGES IN CONTROL OF THE
REGISTRANT AND DEPARTURE OF DIRECTORS OR PRINCIPAL
OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF
PRINCIPAL OFFICERS; CHANGE OF FISCAL YEAR.
OVERVIEW
On May 20, 2005, we completed a reverse acquisition transaction. We
acquired Sierra Norte, LLC, a New Mexico limited liability company, which
thereby became a wholly-owned subsidiary of ours. Sierra Norte, LLC is a land
development company in the Albuquerque, New Mexico area.
As a result of the acquisition, Sierra Norte, LLC continues as a
wholly-owned subsidiary of ours and the former security holders of Sierra Norte,
LLC acquired a majority of our outstanding shares of common stock, par value
$.001 per share. The reverse acquisition was consummated under Colorado law and
pursuant to an Agreement and Plan of Reorganization, dated as of May 20, 2005
(the Acquisition Agreement), a copy of which is filed as an exhibit to our May
24, 2005 Form 8K.
We have reincorporated the company to Nevada from Colorado and changed the
name of the public company to Falcon Ridge Development Inc., after stockholder
approval on July 6, 2005. In connection with the name change, we acquired a new
trading symbol, FLRD.OB.
THE ACQUISITION AND SUBSEQUENT TRANSACTION
Pursuant to the Acquisition Agreement, at closing, stockholders of Sierra
Norte, LLC received 100,000,000 shares of our common stock for a 100% interest
in Sierra Norte, LLC. The consideration issued in the Acquisition was determined
as a result of arm's-length negotiations between the parties.
Immediately following the closing, we sold to a group of investors our
wholly-owned subsidiary, ColorSpec Technologies, Inc, in exchange for an
indemnification of us from liabilities by these investors. The investors assumed
historical ColorSpec operations and its historical liabilities of those
operations. A copy of this agreement was filed as an exhibit to our May 24, 2005
Form 8K.
Giving effect to the issuance of these new shares, there were a total of
137,265,372 shares of our common stock issued and outstanding after the
Acquisition.
On July 6, 2005, we entered into an exchange of securities whereby we
acquired 100% of the ownership of Spanish Trails, LLC, a New Mexico limited
liability company in exchange for the issuance of a total of 614,882,069 common
shares. As a result, we now have a total of 752,507,441 common shares issued and
outstanding.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS: Position(s) Effective Date
--------------------------------- ------------------- ---------------
Fred Montano 53 Chairman and Chief May 20, 2005
Executive Officer,
Director
Karen Duran 63 Secretary Treasurer May 20, 2005
And Chief Financial
Officer
Jerry Apodaca 70 Director June 9, 2005
Sebastian Ramirez 54 Director June 9, 2005
Matthew Milonas 38 Director June 9, 2005
Troy Duran 39 Director June 9, 2005
The principal occupations for the past five years (and, in some instances,
for prior years) of each of our executive officers, present directors and
proposed directors are as follows:
Fred Montano, Chairman and Chief Executive Officer. Mr. Montano has worked
with Sierra Norte since its founding in June, 2003. He became our Chairman and
Chief Executive Officer on May 20, 2005. He has been an owner of Falcon Ridge
Development, LLC, a private New Mexico real estate development company since
1997. Prior to that time, he did real estate development on behalf of client
home builders. He is a licensed New Mexico real estate broker. He attended the
University of New Mexico.
Karen Duran, Secretary. Ms. Duran became our Secretary on May 20, 2005 and
our Treasurer on June 9, 2005. She has been an owner of Falcon Ridge
Development, LLC, a private New Mexico real estate development company since
1997. Prior to that time, she did real estate development on behalf of client
home builders. She is a licensed New Mexico real estate broker. She attended the
University of New Mexico.
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Jerry Apodaca, Director. Mr. Apodaca served as New Mexico's 24th governor
from 1975 to 1979. Beginning in 1979, he wrote a statewide column, "From the
Outside", served as a member of the Board of Regents of the University of New
Mexico from 1985-1991, two of those years as president, invested in several
businesses, consulted certain corporations on marketing the Hispanic consumer,
traveled to many university campuses as a motivational speaker, headed three
non-profit organizations, and was involved in the start-up of two national
Hispanic publications. He was one of the founders of Vista Magazine, an English
language newspaper insert targeted at Hispanics and was the founding publisher
of Hispanic Magazine. From 1985-1992, he served as president of the Hispanic
Association on Corporate Responsibility, a coalition of national Hispanic
organizations, which came together to improve working relations with corporate
America. During this time he negotiated and signed seven corporate fair share
agreements. In 1990 he founded the Japan-Hispanic Institute and served as
president until 1994. The Institute worked to improve relations with Japanese
owned companies and the Hispanic community. That same year he founded the
National Institute of Former Governors. As its president, he recruited many of
the former governors to bring their individual experience, talents and knowledge
to work on problems in our country. In 1989, he and his son Jerry founded
Apodaca Investment Group, a money management firm with offices in San Francisco.
He served as Chairman and CEO until 1997 when he resigned from the company to
run for governor. At that time the firm was managing 500 million dollars. He is
currently Chairman of the Board of Infinite Dispute Resolution Services, LLC, a
mediation firm, President of Jerry Apodaca Consultants, LLC., and a senior level
associate with Butch Maki & Associates, Santa Fe, NM.
Mr. Apodaca serves on the board of Educate New Mexico, a recently
established non-profit, which provides scholarships to families that need
financial assistance to send their kids to private schools. He also sits on the
state board of the Fellowship of Christian Athletes. For the past four years he
has devoted his time every week to work as a mentor with grade school kids who
need help with their reading.
He is a graduate of the University of New Mexico. He is past Chairman of
the President's Council on Fitness and Sports. In 1977 he was elected Chairman
of the Education Commission of the States. In 1978 he was the recipient of the
Award for Distinguished Service for Higher Education. He was also awarded
Honorary Doctor of Law degrees from Our Lady of the Lake University and Eastern
New Mexico University.
Sebastian Ramirez, Director. From 1999 to the present, he has been
President of Sebastian R. Ramirez Advisors, a consulting firm specializing in
market research and analysis, market development and strategic planning. From
2004, to present, he has also been a Partner in Cascade Design and Development,
a company offering professional architectural, engineering, and planning
services to the public and private sectors in New Mexico. From 1993 to 1998, he
was President of Rampar Development Corporation, a diversified firm offering
full service engineering, land development, and financial and planning services
to public and private sector clients in New Mexico.
Mr. Ramirez is a graduate of the University of New Mexico and has
post-graduate work on a Master's degree from the University of New Mexico. From
1996 to 2001, he was on the Board of Trustees of the University of New Mexico
Hospital. From 1991 to 1993, he served on the New Mexico Quincentenary
Commission. From 1991 to 1992, he served on the Advisory Committee of the New
Mexico Border Development Authority.
Matthew Milonas, Director. Mr. Milonas has been a special projects manager
for MCI from February, 2005 to the present. From September, 2003 to January,
2005, he was a business analyst with GE Access-Quovadx, Inc. From November, 2002
to August, 2003, he was Assistant Controller and Human Resources Manager for
International Marble and Granite, Inc. He served as Chief Financial Officer of
DSSG, LLC from 2001 to 2002 and as Chief Financial Officer of FSOC. Inc. from
1996 to 1998, both restaurant chains based in Colorado. Additionally he has
served as Controller for the Colorado Convention Center from 1991 to 1996, Brass
Smith, Inc. from 1998 to 2001, a large manufacturing firm, and for IMG from 2002
to 2003, a large natural stone importer all which are based in Denver, Colorado.
Mr. Milonas additionally has worked for INVESCO Funds as a staff auditor
(1992-1994). He was also a Director of Inform World Wide Holdings, Inc., a
public company. Mr. Milonas holds a Bachelor of Arts degree from Ft Lewis
College, with a minor in psychology from Colorado State University.
Troy Duran, Director. Mr. Duran is a communications and marketing
specialist with more than 23 years experience in broadcast advertising. From
2002 to the present, he has owned his own radio production company, which
specializes in imaging and voice-over work. Prior to that time, he was the
production director for KMOX, news talk radio in St. Louis, Missouri from 2000
to 2002.
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MEETINGS OF OUR BOARD OF DIRECTORS
Our board of directors held no meetings during the year ended January 31,
2005. Our newly constituted board of directors held one meeting, on June 11,
2005.
COMPENSATION OF DIRECTORS
We do not pay members of our Board of Directors any fees for attendance or
similar remuneration, but reimburse them for any out-of-pocket expenses incurred
by them in connection with our business.
COMMITTEES OF OUR BOARD OF DIRECTORS
Audit Committee
Our board of directors has established an audit committee comprised of Mr.
Ramirez and Mr. Milonas. Messrs. Ramirez and Milonas are independent of
management.
Compensation Committee
Our entire board of directors serves as our compensation committee. The
compensation committee will review and approve our salary and benefits policies,
including compensation of executive officers.
Nominating Committee
Our board of directors does not have and does not intend to establish a
nominating committee, and such functions are to be performed by the full board
of directors.
Code of Ethics
We endeavor to adhere to the requirements as dictated by the SEC and
provide assurances to outside investors and interested parties that our
officers, directors and principal financial officer adhere to a reasonably
responsible code of ethics and as such, we have adopted a code of ethics that
applies to our executive officers.
INDEBTEDNESS OF MANAGEMENT
No executive officer, present director, proposed director or any member of
these individuals' immediate families or any corporation or organization with
whom any of these individuals is an affiliate is or has been indebted to us
since the beginning of our last fiscal year.
LEGAL PROCEEDINGS
As of the date hereof, there is no material proceeding to which any
director, officer, affiliate or stockholder of our is a party adverse to it.
FAMILY RELATIONSHIPS
Troy Duran is the son of Karen Duran. Otherwise, there are no family
relationships among our directors and officers.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as otherwise set forth below, the address of each of the persons
listed below is: 5111 Juan Tabo Boulevard N.E. Albuquerque, New Mexico 87111
Shares of Common Stock
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NAME AND ADDRESS OF PERCENTAGE OF SHARES
BENEFICIAL OWNER NUMBER OF SHARES(2) BENEFICIALLY OWNED (1)
- ------------------- -------------------- ------------------------
Fred Montano 325,755,707(3) 43.5%
Karen Duran 276,252,804(3) 36.7%
Jerry Apodaca -0- -0-
Sebastian Ramirez -0- -0-
Matthew Milonas -0- -0-
Troy Duran -0- -0-
All executive officers 602,008,511 80.2%
and directors as a
group (6 persons)
5% STOCKHOLDERS:
New World Development, Inc. 45,150,446 6%
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(1) Unless otherwise indicated, includes shares owned by a spouse, minor
children and relatives sharing the same home, as well as entities owned or
controlled by the named person. Unless otherwise noted, shares are owned of
record and beneficially by the named person.
(2) Based upon 752,507,441 shares of common stock outstanding and beneficially
owned on August 18, 2005.
(3) Includes 45,148,674 shares of common stock jointly owned by Mr. Montano and
Ms. Duran in Real Estate Services, Inc., an entity jointly controlled by
Mr. Montano and Ms. Duran.
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EXECUTIVE COMPENSATION AND CERTAIN OTHER TRANSACTIONS
CASH COMPENSATION
The following Summary Compensation Table sets forth, for the years
indicated, all cash compensation paid, distributed or accrued for services,
including salary and bonus amounts, rendered in all capacities by our chief
executive officers and all other executive officers who received or are entitled
to receive remuneration in excess of $100,000 during the stated periods.
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SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
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Awards Payouts
Name Other
Restricted All
And Salary Annual Stock LTIP
Other
Principal Compensation Bonus Compensation Award(s)
Options/
Position Year ($) ($) ($)
- ---------- ---------- ---------- ---------- ---------- ----------
Janet 2004 $ -0-
Brophy, Former 2003 $ 112,190 --
Chairman (1) 2002 $ 96,300 --
Chairman (1) 2001 $ 14,017 --
2000 $ -0- --
- ----------------------------
(1) Ms. Brophy became an officer and director in 2001. She became our Chairman
in 2003. No payment for wages was paid to Ms. Brophy. All wages were
accrued for the year ended January 31, 2004. Ms. Brophy's employment
agreement was terminated during the year ended January 31, 2005.
- ----------------------------
We have no compensation committee, retirement, pension, sharing, stock
option, insurance or other similar programs but plan to establish such programs
in the future, although there are no definitive plans to do so at this time.
We do not pay members of our Board of Directors any fees for attendance or
similar remuneration, but reimburse them for any out-of-pocket expenses incurred
by them in connection with our business.
2003 STOCK COMPENSATION PLAN 1
We have a current registration statement on Form S-8 for our 2003 Stock
Compensation Plan I. A total of 1,000,000 shares have been registered under the
plan. We have issued a total of 674,826 shares and no options under this plan as
of January 31, 2004.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "34 Act")
requires our officers and directors and persons owning more than ten percent of
the Outstanding Common Stock, to file initial reports of ownership and changes
in ownership with the Securities and Exchange Commission ("SEC"). Additionally,
Item 405 of Regulation S-B under the 34 Act requires us to identify in its Form
10-KSB and proxy statement those individuals for whom one of the above
referenced reports was not filed on a timely basis during the most recent fiscal
year or prior fiscal years. Given these requirements, we have the following
report to make under this section. None of our officers or directors made timely
Form 3 or 4 filings. Mr. Robertson, a former director, did not make either a
Form 3 or Form 4 Filing for the last fiscal year. Ms. Kettl, a former officer
and director, did not make a timely Form 5 filing for the last fiscal year.
CAUTIONARY STATEMENTS
If any of the following material risks occur, our business, financial
condition or results of operations would likely suffer.
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RISKS RELATING TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY AND NO HISTORY OF PROFITABILITY IN OUR
PRESENT ORGANIZATION.
We began 2003 but have a limited history of operations, which has been
limited to the Sierra Norte development in Albuquerque, New Mexico. We have had
no other commercial operations to date. Accordingly, we have limited relevant
operating history upon which an evaluation of our performance and prospects can
be made. We are subject to all of the business risks associated with a new
enterprise, including, but not limited to, risks of unforeseen capital
requirements, failure of market acceptance, failure to establish business
relationships and competitive disadvantages as against larger and more
established companies.
We have generated $5,824,945 in revenue for the six months ended June 30,
2005, and will not generate any additional revenues after the completion of the
Sierra Norte development unless we can develop new projects, which we cannot
guarantee will happen. Any start-up delays due to problems with acquisition of
properties, staffing, permitting or other operational issues would negatively
impact us.
OUR FUTURE GROWTH REQUIRES ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE.
Our operations require significant amounts of cash. We have financed our
operations to date through borrowings and internally generated funds. We will be
required to seek additional capital, whether from sales of equity or debt or
additional bank borrowings, for the future growth and development of our
business. We can give no assurance as to the terms or availability of such
additional capital. Moreover, the indentures for our outstanding debt and our
revolving credit facility contain provisions that restrict the debt we may incur
in the future. If we are not successful in obtaining sufficient capital, it
could reduce our sales and may adversely affect our future growth and results of
operations.
BECAUSE OF THE CYCLICAL NATURE OF OUR INDUSTRY, FUTURE CHANGES IN GENERAL
ECONOMIC, REAL ESTATE CONSTRUCTION OR OTHER BUSINESS CONDITIONS COULD ADVERSELY
AFFECT OUR BUSINESS.
The homebuilding industry is cyclical and is significantly affected by
changes in general and local economic conditions, such as:
o employment levels;
o availability of financing for home buyers;
o interest rates;
o consumer confidence; and
o housing demand.
An oversupply of alternatives to new homes, such as competitively priced
rental properties and used homes, could depress new home prices and reduce our
margins on the sale of new homes.
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The terrorist attacks or other acts of violence in the future, and any
corresponding response by the United States, may adversely affect general
economic conditions or cause a slowdown of the national economy.
Inventory risks can be substantial for homebuilders. We must continuously
seek and make acquisitions of land for expansion into new markets and for
replacement and expansion of land inventory within our current markets. The
risks inherent in purchasing and developing land increase as consumer demand for
housing decreases. Thus, we may have bought and developed land on which we
cannot build and sell homes. The market value of undeveloped land, building lots
and housing inventories can fluctuate significantly as a result of changing
market conditions. We cannot assure you that the measures we employ to manage
inventory risks will be successful.
In addition, inventory carrying costs can be significant and can result in
losses in a poorly performing project or market. In the event of significant
changes in economic or market conditions, we may have to sell homes at a loss.
The homebuilding industry has from time to time experienced significant
difficulties, including:
o shortages of qualified trades people;
o reliance on local subcontractors, who may be inadequately
capitalized;
o shortages of materials; and
o volatile increases in the cost of materials, particularly
increases in the price of lumber, drywall and cement, which are
significant components of home construction costs.
Weather conditions and natural disasters, such as hurricanes, tornadoes,
earthquakes, volcanic activity, floods and fires, can harm the homebuilding
business. The climates and geology of many of the states in which we operate or
propose to operate.
As a result of all of the foregoing, in the future, potential customers may
be less willing or able to buy our homes, or we may take longer or pay more
costs to build them. We may not be able to recapture increased costs by raising
prices in many cases because we fixed our prices up to six months in advance of
delivery by signing home sales contracts. In addition, some home buyers may
cancel or not honor their home sales contracts altogether.
FUTURE INCREASES IN INTEREST RATES OR REDUCTIONS IN MORTGAGE AVAILABILITY COULD
PREVENT POTENTIAL CUSTOMERS FROM BUYING OUR HOMES AND ADVERSELY AFFECT OUR
BUSINESS.
Virtually all our customers finance their acquisitions through lenders
providing mortgage financing. Increases in interest rates or decreases in
availability of mortgage financing could depress the market for new homes
because of the increased monthly mortgage costs to potential home buyers. Even
if potential customers do not need financing, changes in interest rates and
mortgage availability could make it harder for them to sell their homes to
potential buyers who need financing. This could adversely affect our results of
operations.
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In addition, we believe that the availability of FHA and VA mortgage
financing is an important factor in marketing many of our homes. Any limitations
or restrictions on the availability of such financing could adversely affect our
sales.
GOVERNMENTAL REGULATIONS COULD INCREASE THE COST AND LIMIT THE AVAILABILITY OF
OUR DEVELOPMENT AND HOMEBUILDING PROJECTS AND ADVERSELY AFFECT OUR BUSINESS.
We are subject to extensive and complex regulations that affect the
development and homebuilding process, including zoning, density and building
standards. These regulations often provide broad discretion to the administering
governmental authorities. This can delay or increase the costs of development or
homebuilding.
We also are subject to a variety of local, state and federal laws and
regulations concerning protection of the environment. These environmental laws
may result in delays, may cause us to incur substantial compliance and other
costs, and can prohibit or severely restrict development and homebuilding
activity in environmentally sensitive regions or areas.
OUR SUBSTANTIAL DEBT AND NEGATIVE STOCKHOLDERS' EQUITY COULD ADVERSELY AFFECT
OUR FINANCIAL CONDITION.
We have a significant amount of debt. As of June 30, 2005, our total
liabilities are $1,389,192, compared to total assets of $1,309,329. We have a
total shareholders' deficit of $79,863 as of June 30, 2005.
Possible Consequences. The amount of our debt could have important
consequences to you. For example, it could:
o limit our ability to obtain future financing for working capital,
capital expenditures, acquisitions, debt service requirements or other
requirements;
o require us to dedicate a substantial portion of our cash flow from
operations to payment of or on our debt and reduce our ability to use
our cash flow for other purposes;
o limit our flexibility in planning for, or reacting to, the changes in
our business;
o place us at a competitive disadvantage because we have more debt than
some of our competitors; and
o make us more vulnerable in the event of a downturn in our business or
in general economic conditions.
Dependence on Future Performance. Our ability to meet our debt service and
other obligations will depend upon our future performance. We are engaged in
businesses that are substantially affected by changes in economic cycles. Our
revenues and earnings vary with the level of general economic activity in the
markets we serve. Our businesses are also affected by financial, political,
business and other factors, many of which are beyond our control. The factors
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that affect our ability to generate cash can also affect our ability to raise
additional funds for these purposes through the sale of equity securities, the
refinancing of debt, or the sale of assets. Changes in prevailing interest rates
may affect our ability to meet our debt service obligations, because borrowings
under our revolving credit facility bear interest at floating rates. We have not
entered into "interest rate swap" agreements to date to lessen the impact.
Our acquisition and development notes as of June 30, 2005 total $552,553.
Bassed on the current level of operations, we believe our cash flow from
operations, available cash and available borrowings under our revolving credit
facility will be adequate to meet our future liquidity needs. We cannot assure
you, however, that in the future our business will generate sufficient cash flow
from operations or that borrowings will be available to us in an amount
sufficient to enable us to pay or refinance our indebtedness or to fund other
liquidity needs.
Credit Facility Restrictions. The indentures governing our revolving credit
facility impose restrictions on our operations and activities. The most
significant restrictions relate to debt incurrence, lien incurrence, sales of
assets and cash distributions by us and require us to comply with certain
financial covenants. If we fail to comply with any of these restrictions or
covenants, the banks could cause our debt to become due and payable prior to
maturity. In addition, available credit under our revolving credit facility is
subject to limitations based on specified percentages of the costs of unsold
homes, developed lots and lots under development included in inventory and the
amount of other senior, unsecured indebtedness.
HOMEBUILDING IS VERY COMPETITIVE, AND COMPETITIVE CONDITIONS COULD ADVERSELY
AFFECT OUR BUSINESS.
The homebuilding industry is highly competitive. Homebuilders compete not
only for home buyers, but also for desirable properties, financing, raw
materials and skilled labor. We compete with other local, regional and national
homebuilders, including those with a sales presence on the Internet, often
within larger subdivisions designed, planned and developed by such homebuilders.
The competitive conditions in the homebuilding industry could result in:
o difficulty in acquiring suitable land at acceptable prices;
o increased selling incentives;
o lower sales or profit margins; or
o delays in construction of our homes.
WE CANNOT ASSURE YOU THAT OUR GROWTH STRATEGIES WILL BE SUCCESSFUL.
We are focused on building new developments. Although we believe that we
have been successful in doing so in the past, we can give no assurance that we
will continue to be able to identify, acquire and integrate successful strategic
acquisitions in the future. Moreover, we may not be able to implement
successfully our operating and growth strategies within our existing and
proposed markets.
WE MAY NOT BE ABLE TO RETAIN OUR KEY EXECUTIVES WHOM WE NEED TO SUCCEED, AND NEW
QUALIFIED PERSONNEL ARE EXTREMELY DIFFICULT TO ATTRACT.
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We believe that our continued success will depend to a significant extent
upon the efforts and abilities of our senior management team, including Fred
Montano , our Chairman and Chief Executive Officer and Karen Duran, Secretary
and Treasurer. Our failure to retain these individuals, in particular, or to
attract and retain additional qualified personnel, could adversely affect our
operations. We do not currently carry key-man life insurance on any of our
officers.
CONSIDERATIONS RELATED TO OUR COMMON STOCK
THERE HAS PREVIOUSLY BEEN NO ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK, AND OUR
STOCKHOLDERS MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE PRICE AT
WHICH SUCH SHARES WERE PURCHASED, OR AT ALL.
There has been no active public market for our common stock to date. We
have not disclosed in this Report information regarding past trading of our
common stock because we are conducting a different type of business following
the merger. An active public market for the common stock may not develop or be
sustained. The market price of our common stock may fluctuate significantly in
response to factors, some of which are beyond our control.
The stock market in general has recently experienced extreme price and
volume fluctuations. In particular, market prices of securities of
energy-related companies have experienced fluctuations that often have been
unrelated or disproportionate to the operating results of these companies.
Continued market fluctuations could result in extreme volatility in the price of
our common stock, which could cause a decline in the value of our common stock.
Price volatility might be worse if the trading volume of our common stock is
low.
BECAUSE WE BECAME PUBLIC BY MEANS OF A REVERSE MERGER, WE MAY NOT BE ABLE TO
ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS.
Additional risks may exist since we became public through a "reverse
acquisition." Securities analysts of major brokerage firms may not provide us
with coverage since there is no incentive to brokerage firms to recommend the
purchase of our common stock. No assurance can be given that brokerage firms
will want to conduct any secondary offerings on our behalf in the future.
OUR COMMON STOCK MAY BE CONSIDERED "A PENNY STOCK" AND MAY BE DIFFICULT TO SELL.
The SEC has adopted regulations which generally define "penny stock" to be
an equity security that has a market price of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to specific exemptions.
Initially, the market price of our common stock is likely to be less than $5.00
per share and therefore may be designated as a "penny stock" according to SEC
rules. This designation requires any broker or dealer selling these securities
to disclose certain information concerning the transaction, obtain a written
agreement from the purchaser and determine that the purchaser is reasonably
suitable to purchase the securities. These rules may restrict the ability of
brokers or dealers to sell our common stock and may affect the ability of
investors to sell their shares. In addition, since our common stock is currently
traded on the NASD's OTC Bulletin Board, investors may find it difficult to
obtain accurate quotations of our common stock and may experience a lack of
buyers to purchase such stock or a lack of market makers to support the stock
price.
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A SIGNIFICANT NUMBER OF OUR SHARES WILL BE ELIGIBLE FOR SALE, AND THEIR SALE
COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a significant number of shares of our common stock in the public
market could harm the market price of our common stock. As additional shares of
our common stock become gradually available for resale in the public market
pursuant to the registration of those shares the supply of our common stock will
increase, which could decrease its price. Some or all of these shares of common
stock may be offered from time to time in the open market pursuant to Rule 144
(or pursuant to a registration statement, if one is effective), and these sales
may have a depressive effect on the market for the shares of our common stock.
In general, a person who has held restricted shares for a period of one year
may, upon filing with the SEC a notification on Form 144, sell into the market
common stock in an amount equal to the greater of 1% of the outstanding shares
or the average weekly number of shares sold in the last four weeks prior to such
sale. Such sales may be repeated once each three months, and any of the
restricted shares may be sold by a non-affiliate after they have been held two
years.
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT MAY NOT BE IN THE BEST INTEREST OF OTHER STOCKHOLDERS.
Our officers, directors and principal stockholders control approximately
86.2% of our currently outstanding common stock. If these stockholders act
together, they may be able to exert significant control over our management and
affairs requiring stockholder approval, including approval of significant
corporate transactions. This concentration of ownership may have the effect of
delaying or preventing a change in control and might adversely affect the market
price of our common stock. This concentration of ownership may not be in the
best interests of all our stockholders.
WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS FOR THE FORESEEABLE FUTURE, AND THE
LACK OF DIVIDENDS MAY HAVE A NEGATIVE EFFECT ON OUR STOCK PRICE.
We have never declared or paid any cash dividends or distributions on our
capital stock. We currently intend to retain our future earnings to support
operations and to finance expansion and therefore we do not anticipate paying
any cash dividends on our common stock in the foreseeable future.
CAUTIONARY LANGUAGE REGARDING
FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
Some of the statements under "Cautionary Statements," "Description of
Business" and elsewhere in this Report constitute "forward-looking statements"
that involve risks and uncertainties, many of which are beyond our control. Our
actual results could differ materially and adversely from those anticipated in
such forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Report.
All statements, other than statements of historical facts, included in this
Report regarding our strategy, future operations, financial position, estimated
revenue or losses, projected costs, prospects and plans and objectives of
management are forward-looking statements. When used in this Report, the words
"will," "may," "believe," "anticipate," "intend," "estimate," "expect,"
13
"project," "plan" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
such identifying words. All forward-looking statements speak only as of the date
of this Report. We are under no duty to update any forward-looking statements or
other information contained in this Report. Stockholders and potential investors
should not place undue reliance on these forward-looking statements. Although we
believe that our plans, intentions and expectations reflected in or suggested by
the forward-looking statements in this Report are reasonable, we cannot assure
stockholders and potential investors that these plans, intentions or
expectations will be achieved. We disclose important factors that could cause
our actual results to differ materially from our expectations under "Cautionary
Statements" and elsewhere in this Report. These cautionary statements qualify
all forward-looking statements attributable to us or persons acting on our
behalf.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934 and, in accordance with that act, file periodic
reports, documents and other information with the SEC relating to its business,
financial statements and other matters. These reports and other information may
be inspected and are available for copying at the offices of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549 and are available on the SEC's website at
"www.sec.gov."
ACCOUNTING TREATMENT
The Acquisition has been accounted for as a reverse acquisition, since the
members of Sierra Norte own a majority of the outstanding shares of common stock
of us immediately following the Acquisition. Sierra Norte is deemed to be the
acquiror in the reverse Acquisition and, consequently, the assets and
liabilities and the historical operations that will be reflected in the
financial statements will be those of Sierra Norte and will be recorded at the
historical cost basis of Sierra Norte. We intend to carry on Sierra Norte's
business as a wholly-owned subsidiary.
CORPORATE OFFICE
Our executive offices are located at 5111 Juan Tabo Boulevard, NE,
Albuquerque, New Mexico 87111. Our new telephone number is (866) 302-2248.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired. In accordance with Item
9.01(a), our audited financial statements have been filed with this Current
Report on Form 8-K and are attached.
(b) Pro Forma Financial Information. In accordance with Item 9.01(b), our
pro forma financial have been filed with this Current Report on Form 8-K and are
attached.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 24, 2005 Falcon Ridge Development Inc.
By: /s/ Fred Montano
------------------------------
Fred Montano (President)
15
FALCON RIDGE DEVELOPMENT INC.
Index to Financial Statement
Page
----
Reports of Independent Registered Public Accounting Firm ................ F-2
Balance Sheets, at June 30, 2005 (unaudited) and December 31, 2004 ...... F-3
Statements of Operations, for the six months ended June 30, 2005 and 2004
(unaudited) and the years ended December 31, 2004 and 2003 ......... F-4
Statements of Changes in Shareholders' Deficit for the period
from January 1, 2003 through December 31, 2004 and for the period
from January 1, 2005 through June 30, 2005 (unaudited) ............. F-5
Statements of Cash Flows, for the six months ended June 30, 2005 and 2004
(unaudited) and the years ended December 31, 2004 and 2003 ......... F-6
Notes to Financial Statements ........................................... F-7
Unaudited Pro Forma Combined Statements of Operations
for the Period Ended December 31, 2004............................... F-13
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Falcon Ridge Development Inc.:
We have audited the accompanying balance sheet of Falcon Ridge Development Inc.
as of December 31, 2004, and the related statements of operations, changes in
shareholders' deficit, and cash flows for the years ended December 31, 2004 and
2003. 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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 Falcon Ridge Development Inc.
as of December 31, 2004, and the results of its operations and its cash flows
for the years ended December 31, 2004 and 2003 in conformity with generally
accepted accounting principles in the United States.
/s/ Cordovano and Honeck LLP
- ----------------------------
Cordovano and Honeck LLP
Denver, Colorado
July 25, 2005
F-2
FALCON RIDGE DEVELOPMENT INC.
Balance Sheets
June 30, December 31,
2005 2004
----------- -----------
(unaudited)
Assets
Current Assets:
Cash and cash equivalents ............................ $ 140,618 $ 158,834
Land and development costs (Note 3) .................. 1,161,134 4,684,533
Other asset (Note 2) ................................. -- 45,461
----------- -----------
Total current assets ...................... 1,301,752 4,888,828
Equipment, net of accumulated depreciation ............... 7,577 --
----------- -----------
Total assets .............................. $ 1,309,329 $ 4,888,828
=========== ===========
Liabilities and Shareholders' Deficit
Current Liabilities:
Accounts payable and accrued liabilities ............. $ 279,619 $ 624,539
Indebtedness to related party (Note 2) ............... 379,305 80,000
Deferred revenue ..................................... 177,714 315,714
Acquisition and development notes payable (Note 4) ... 552,554 4,440,220
----------- -----------
Total liabilities ......................... 1,389,192 5,460,473
----------- -----------
Shareholders' deficit:
Common stock, $0.001 par value, 900,000,000 shares
authorized, 137,265,372 (unaudited) and 100,000,000
shares issued and outstanding .................... 137,265 100,000
Additional paid-in capital ........................... 210,644 210,644
Retained deficit ..................................... (427,772) (882,289)
----------- -----------
-----------
Total shareholders' deficit ............... (79,863) (571,645)
----------- -----------
Total liabilities and shareholders' deficit $ 1,309,329 $ 4,888,828
=========== ===========
See accompanying notes to financial statements
F-3
FALCON RIDGE DEVELOPMENT INC.
Statements of Operations
Six Months Ended Years Ended
June 30, December 31,
------------------------------ -------------------------------
2005 2004 2004 2003
------------- ------------- ------------- -------------
(unaudited) (unaudited)
Real estate sales:
Net sales ............................... $ 5,824,945 $ 1,332,311 $ 2,720,867 $ 931,634
Costs of sales .......................... (5,261,696) (1,432,180) (2,793,739) (1,031,403)
------------- ------------- ------------- -------------
Gross profit (loss) .......... 563,249 (99,869) (72,872) (99,769)
Selling, general and administrative expenses 41,490 19,897 44,263 33,948
------------- ------------- ------------- -------------
Operating income (loss) ...... 521,759 (119,766) (117,135) (133,717)
------------- ------------- ------------- -------------
Nonoperating income ......................... -- -- -- 197
------------- ------------- ------------- -------------
Net income (loss) ............ 521,759 (119,766) (117,135) (133,520)
------------- ------------- ------------- -------------
Pro forma adjustments:
Members' distributions (Note 2) ......... (30,000) (315,817) (631,634) --
Income taxes ............................ (96,918) -- -- --
------------- ------------- ------------- -------------
Pro forma net income (loss) .. $ 394,841 $ (435,583) $ (748,769) $ (133,520)
============= ============= ============= =============
Net income (loss) per share ................. $ 0.00 $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
Pro forma net income (loss) per share ....... $ 0.00 $ (0.00) $ (0.01) $ (0.00)
============= ============= ============= =============
Weighted average number of shares outstanding 110,647,249 100,000,000 100,000,000 100,000,000
============= ============= ============= =============
See accompanying notes to financial statements
F-4
FALCON RIDGE DEVELOPMENT INC.
Statement of Changes in Shareholders' Deficit
Common Stock Additional
-------------------------- paid-in Retained
Shares Par Value capital deficit Total
------------ ------------ ------------ ------------ ------------
Balance at
January 1, 2003 ............................ *100,000,000 $ 100,000 $ (100,000) $ -- $ --
Contributed asset (Note 2) ..................... -- -- 282,500 -- 282,500
Contributed development costs (Note 2) ......... -- -- 28,144 -- 28,144
Net loss ....................................... -- -- -- (133,520) (133,520)
------------ ------------ ------------ ------------ ------------
Balance at
December 31, 2003 .......................... *100,000,000 100,000 210,644 (133,520) 177,124
Cash dividend distribution ..................... -- -- -- (582,000) (582,000)
Deemed dividend distribution (Note 2) .......... -- -- -- (49,634) (49,634)
Net loss ....................................... -- -- -- (117,135) (117,135)
------------ ------------ ------------ ------------ ------------
Balance at
December 31, 2004 .......................... *100,000,000 100,000 210,644 (882,289) (571,645)
Dividend distribution (unaudited) .............. -- -- -- (30,000) (30,000)
Merger with PocketSpec
Technologies, Inc (unaudited) (Note 1 and 5) 37,265,372 37,265 -- (37,242) 23
Net income (unaudited) ......................... -- -- -- 521,759 521,759
------------ ------------ ------------ ------------ ------------
Balance at
June 30, 2005 (unaudited) .................. $137,265,372 $ 137,265 $ 210,644 $ (427,772) $ (79,863)
============ ============ ============ ============ ============
* Restated (See footnote 5)
See accompanying notes to financial statements
F-5
FALCON RIDGE DEVELOPMENT INC.
Statements of Cash Flows
Six Months Ended Year Ended
June 30, December 31,
-------------------------- -------------------------
2005 2004 2004 2003
----------- ----------- ----------- -----------
(unaudited)
(unaudited)
Cash flows from operating activities:
Net income (loss) ...................................... $ 521,759 $ (119,766) $ (117,135) $ (133,520)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Changes in operating assets and liabilities,
excluding effects of business combinations:
Land development costs .......................... 3,523,422 352,188 (825,647) (3,858,886)
Other receivables ............................... -- (10,201) 49,634 (49,634)
Other current assets ............................ 45,461 94,712 175,043 (220,504)
Acquisition and development notes ............... (3,868,625) (331,916) 753,643 3,686,577
Accounts payable ................................ (344,920) 59,365 555,627 68,912
Builders deposit ................................ (138,000) (11,000) 161,714 154,000
Related party payable ........................... -- -- 10,000 70,000
----------- ----------- ----------- -----------
Net cash (used in) provided by
operating activities ....................... (260,903) 33,382 762,879 (283,055)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Acquisition of equipment and leasehold improvements .... (7,577) -- -- --
----------- ----------- ----------- -----------
Net cash used in
investing activities ....................... (7,577) -- -- --
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from related party loan ....................... 266,000 170,000 170,000 --
Proceeds from acquisition and development notes payable 430,822 1,040,348 2,875,426 729,766
Repayments of related party loan ....................... -- (170,000) (170,000) --
Repayments of acquistion and development notes payable . (416,558) (1,040,348) (2,925,060) (419,122)
Distributions paid ..................................... (30,000) -- (582,000) --
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities ....................... 250,264 -- (631,634) 310,644
----------- ----------- ----------- -----------
Net change in cash and
cash equivalents ........................... (18,216) 33,382 131,245 27,589
Cash and cash equivalents:
Beginning of period .................................... 158,834 27,589 27,589 --
----------- ----------- ----------- -----------
End of period .......................................... $ 140,618 $ 60,971 $ 158,834 $ 27,589
=========== =========== =========== ===========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Income taxes ......................................... $ -- $ -- $ -- $ --
=========== =========== =========== ===========
Interest ............................................. $ 76,256 $ 43,246 $ 115,408 $ 16,840
=========== =========== =========== ===========
Non-cash investing and financing activities:
Purchase of land and development costs for notes payab$e $ -- $ -- $ -- $(2,955,084)
=========== =========== =========== ===========
See accompanying notes to financial statements
F-6
FALCON RIDGE DEVELOPMENT INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
Organization and Basis of Presentation
- --------------------------------------
Effective May 20, 2005, Sierra Norte LLC ("SNLLC") was acquired by PocketSpec
Technologies, Inc. ("PTI") in an equity-for-equity exchange. SNLLC was organized
in February 2003. PTI was incorporated under the laws of Colorado in 1998. In
June 2005, PTI changed its domicile to Nevada and its name to Falcon Ridge
Development Inc. (the "Company" or "Falcon Ridge").
Since incorporation in 1998, PTI has conducted three businesses. Originally PTI
was in the retail arts and crafts industry. PTI then transitioned into the real
estate development business, where it acquired and developed real estate
properties for its own account, primarily in Colorado. Finally, PTI became a
technology company. In 1999, PTI filed a registration statement on Form 10-SB
with the U.S. Securities and Exchange Commission to become a reporting company
under Section 12G of the Securities and Exchange Act of 1934.
Falcon Ridge is engaged in the real estate industry and acquires tracts of raw
land and develops them into residential lots for sale to homebuilders. In
addition, Falcon Ridge plans to expand its operations into the homebuilding
business. These operations are predominantly located in City of Rio Rancho, New
Mexico. Since inception, the Company has developed one property known as Sierra
Norte. The Company plans to expand in the homebuilding business
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, and disclosure of contingent assets and 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.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid securities with original maturities of
three months or less when acquired to be cash equivalents. The Company had no
cash equivalents at June 30, 2005 (unaudited) and December 31, 2004.
Revenue Recognition and Deferral Policy on Sales of Real Estate
- ---------------------------------------------------------------
The profit on sales of real estate is accounted for in accordance with the
provisions of SFAS No. 66, "Accounting for Sales of Real Estate." The Company
recognizes revenue from the sale of real estate at the time the sale is closed
and the title is transferred from the Company to the buyer.
Earnest money deposits of $177,714 (unaudited) and $315,714 were deferred for
the six months ended June 30, 2005 and for the year ended December 31, 2004,
respectively, as the deposits did not meet the criteria established under SFAS
No. 66.
Land Development Costs
- ----------------------
The carrying value of land and development includes the initial acquisition
costs of land, improvements thereto, and other costs incidental to the
acquisition or development of land. These costs are allocated to properties on a
relative sales value basis and are charged to costs of sales as specific
properties are sold. Due to the nature of the business, land and development
costs have been classified as an operating activity on the consolidated
statement of cash flows.
F-7
Environmental impact credits received from the sales of amenities are offset
against land development costs. Interest of $94,744 (unaudited) and $214,943 was
capitalized to land and development during the six months ended June 30, 2005
and for the year ended December 31, 2004, respectively. No real estate taxes
were capitalized for either period.
Equipment and Depreciation
- --------------------------
Property and equipment are recorded at cost. Expenditures that extend the useful
lives of assets are capitalized. Repairs, maintenance and renewals that do not
extend the useful lives of the assets are expensed as incurred. Depreciation is
provided on the straight-line method over the following estimated useful lives:
furniture, 7 years; equipment, 5 years.
Earnings (loss) per Common Share
- --------------------------------
Basic net income per share is computed by dividing the net income available to
common shareholders (the numerator) for the period by the weighted average
number of common shares outstanding (the denominator) during the period. The
computation of diluted earnings is similar to basic earnings per share, except
that the denominator is increased to include the number of additional common
shares that would have been outstanding if potentially dilutive common shares
had been issued.
At June 30, 2005 (unaudited) and December 31, 2004, there was no variance
between basic and diluted loss per share as there were no potentially dilutive
common shares outstanding.
Long Lived Assets
- -----------------
The Company has reviewed the recoverability of long-lived assets, including real
estate held for development and sale, and equipment, for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. There has been no material impairment of long-lived
assets reflected in the consolidated financial statements for the six months
ended June 30, 2005 and 2004 (unaudited) and the years ended December 31, 2004
and 2003.
In August 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 144, "Accounting For the Disposal
or Impairment of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," and requires that one accounting impairment model be used for
long-lived assets to be disposed of by sales, whether previously held and used
or newly acquired, and broadens the presentation of discontinued operations to
include more disposal transactions. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. The Company adopted SFAS No. 144 on January
1, 2002. There were no adjustments from the adoption of SFAS No. 144 for the
year ended December 31, 2004.
Income Taxes
- ------------
In tax years December 31, 2004 and 2003, the Company operated as a limited
liability company, and therefore was exempt from taxation; instead, its earnings
and losses are included in the personal returns of the members and taxed
depending on the individual's personal tax situation.
Financial Instruments and Concentration of Credit Risk
- ------------------------------------------------------
The carrying amounts of the Company's financial assets and liabilities,
including cash, and accounts payable at June 30, 2005 (unaudited) and December
31, 2004, approximate fair value because of the short maturity of these
instruments. The carrying amount of the Company's notes payable approximates
fair value at June 30, 2005 (unaudited) and December 31, 2004, since the notes
are at floating rates or fixed rates that approximate current market rates for
notes with similar risks and maturities.
F-8
For the six months ended June 30, 2005 and 2004 (unaudited) and for the years
ended December 31, 2004 and 2003, 100% of the Company's sales were to three
homebuilders. For the six months ended June 30, 2005 and 2004 and for each of
the years ended December 31, 2004 and 2003, three vendors represented
approximately 92%, 93%, 91% and 79%, respectively, of the Company's total
purchases. The Company's reliance on certain vendors can be shifted to
alternative sources of supply for products it sells should such changes be
necessary.
Pro Forma Provision for Salary Distributions and Income Taxes
- -------------------------------------------------------------
The accompanying statements of operations include pro forma adjustments to
reflect as salaries distributions to officers/shareholders that were made while
the Company operated as an LLC, and to reflect an estimated provision for income
taxes. Prior to the reverse acquisition, the Company was organized as a limited
liability company and, consequently, was not subject to income tax. The
effective income tax rate used on the pro forma adjustments is that estimated
had the Company been a C corporation.
Unaudited Financial Information
- -------------------------------
The accompanying financial information as of June 30, 2005 and for the six
months ended June 30, 2005 and 2004 is unaudited. In the opinion of management,
all normal and recurring adjustments which are necessary to provide a fair
presentation of operating results for the six months ended June 30, 2005 and
2004 have been made. The results of operations for the six months ended June 30,
2005 is not necessarily indicative of the results to be expected for the year.
Recently Issued Accounting Standards
- ------------------------------------
In December 2004, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 123R "Share Based Payment". This statement is a revision of SFAS
No. 123, "Accounting for Stock-Based Compensation" and supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its related implementation
guidance. SFAS No. 123R addresses all forms of share based payment ("SBP")
awards including shares issued under employee stock purchase plans, stock
options, restricted stock and stock appreciation rights. Under SFAS No. 123R,
SBP awards result in a cost that will be measured at fair value on the awards'
grant date, based on the estimated number of awards that are expected to vest.
This statement is effective for public entities that file as small business
issuers, as of the beginning of the first interim or annual reporting period
that begins after December 15, 2005. The Company is currently in the process of
evaluating the effect that the adoption of this pronouncement may have on its
financial statements.
(2) Related Party Transactions
The Company conducts its operations, along with other affiliated entities, in a
building owned by two of the Company's officers/shareholders, whereby it uses
the office facility and labor. During the years ended December 31, 2004 and
2003, the Board of Directors of the Company estimated the value of such an
arrangement to be $101,150 and $29,744, respectively based on amount of time
spent on the Company's project and rates for similar space in the local area.
The accompanying financial statements reflect 34% and 84% of the office space,
facilities, and labor as costs directly related to the development of the
Company's projects during the years ended December 31, 2004 and 2003,
respectively. The Company reimburses its costs through an arrangement with its
common members. During the years ended December 31, 2004 and 2003, the Company
recorded $10,369 and $85,168, respectively, as development costs. On January 1,
2005, the Board of Directors of the Company increased the estimated value of the
use of the office facility and labor to $275,000 (unaudited) per year, due to
increase in rent and labor. At June 30, 2005, the Company recorded $111,969
(unaudited) as development costs.
F-9
During the years ended December 31, 2004 and 2003, SNLLC's principal members
charged their individual time and effort to the Company totalling $68,400 and
$7,350, respectively. The value of management's time and effort was estimated by
the amount of time spent on SNLLC's project. The manager approved such
estimates. For the years ended December 31, 2004 and 2003, the Company
recognized $68,400 and $7,350, as part of development costs. The Company reviews
the estimated rate from time-to-time. At June 30, 2005 and December 31, 2004,
$379,305 (unaudited) and $80,000, respectively, were due to affiliate and
included in the accompanying financial statements as indebtedness to related
party. In addition, $28,144 of development costs was recorded as contributed
capital during the year ended December 31, 2003.
During the six months ended June 30, 2005, a principal member advanced the
Company $266,000 (unaudited) for working capital purposes. At June 30, 2005, the
balance of $266,000 (unaudited) remained outstanding and included as
indebtedness to related party in the accompanying financial statements.
During the years ended December 31, 2004 and 2003, affiliates paid for certain
expenses on behalf of the Company totaling $170,000 and $97,241, respectively.
At December 31, 2004, advances from affiliates were repaid.
During the year ended December 31, 2003, the Company overdrew $49,634 from a
line of credit for development costs. The amount was subsequently recorded by
the Company as a deemed distribution in the accompanying financial statements.
During the year ended December 31, 2003, an affiliate of the Company contributed
impact fee credits to the Company in the amount of $282,500. Impact fee credits
were sold to homebuilders for cash. At June 30, 2005 and December 31, 2004,
unused impact fee credits were $-0- (unaudited) and $45,461, respectively.
During the six months ended June 30, 2005, a family member of an affiliate of
the Company purchased a property lot from the Company valued at approximately
$5,000. This person also paid associated fees of approximately $3,000.
(3) Real Estate Operations
The Company is in the process of developing approximately 80 acres of raw land
in the City of Rio Rancho, New Mexico. The land was divided into two phases.
Phase one consists of 26 acres of land subdivided into 116 home sites and phase
two consists of 54 acres of land subdivided into 256 home sites. Home sites are
sold to three different builders. At June 30, 2005, Phase one is approximately
100% (unaudited) complete and Phase two is approximately 99% (unaudited)
complete. At December 31, 2004, Phase one is approximately 100% complete and
Phase two is approximately 50% complete.
Land and development costs, consist of the following:
June 30, December 31,
2005 2004
---------- ----------
(unaudited)
Land acquisition costs ................. $ 382,001 $1,705,000
Land development costs ................. 715,579 2,775,313
Capitalized interest ................... 63,554 204,220
---------- ----------
$1,161,134 $4,684,533
========== ==========
F-10
(4) Acquisition and Development Notes Payable
Acquisition and development notes payable consist of the following: [OBJECT
OMITTED]Aggregate maturities required on long-term debt at December 31, 2004,
are as follows:
June 30, December 31,
2005 2004
---------- ----------
(unaudited)
Notes payable to a bank, interest at prime plus 1%, due
on demand, collateralized by real estate mortgage held
by respective lender. Total financing under the loan
agreement is $4,633,451 .............................................. $ 375,644 $1,469,021
Notes payable to a bank, interest at prime plus 1%, due
on demand, collateralized by real estate mortgage held
by respective lender. Total financing under the loan
agreement is $2,617,430 .............................................. 0 2,154,641
Notes payable to seller, interest at 7%, interest only payable
monthly, with a balloon payment due October 2007,
Collateralized by a second mortgage on real estate
Total financing under the agreement is $871,000 ...................... 176,910 816,558
---------- ----------
$ 552,554 $4,440,220
========== ==========
The Company finances its land acquisition program and land development costs
with credit facilities obtained from commercial and private lenders. Under the
terms of each loan agreement, the Company is required to make loan payments as
lots are sold to obtain release of the lien on those lots.
The Company has been making principal payments under the note payable to seller,
although not required, under the terms of the contract to do so.
The Company incurred interest costs of $94,744 (unaudited), $214,943 and
$190,759, respectively, for the six months ended June 30, 2005 and for the years
ended December 31, 2004 and 2003 of which $94,744 (unaudited), $214,943 and
$190,759, respectively, was capitalized.
(5) Reverse Merger and Sale of Subsidiary
On May 20, 2005, SNLLC exchanged certificates representing 100 percent of its
equity securities for 100,000,000 shares of the common stock of PTI. The
acquisition has been treated as a recapitalization of SNLLC, a New Mexico
limited liability company, with PTI the surviving legal entity. Since PTI had,
after the sale of its color comparison devices business, minimal assets,
(consisting of cash) and no operations, the recapitalization has been accounted
for as the sale of 37,265,372 shares of common stock for the net assets of PTI.
Costs of the transaction have been charged to the period. After the closing of
the acquisition, there were 137,265,372 shares of common stock of the Company
issued and outstanding.
SNLLC is deemed to be the acquirer in the reverse acquisition and, consequently,
the assets and liabilities and historical operations that are reflected in the
accompanying financial statements are those of SNLLC and are recorded at the
historical cost basis of SNLLC.
Immediately following the closing, PTI sold to a group of its shareholders PTI's
color comparison devices business in exchange for an indemnification from
liabilities by these investors. These shareholders assumed the color comparison
devices business including its liabilities. The sale was consummated between
related parties. Accordingly, the sale was booked as a capital transaction and
no gain or loss on the transaction was recorded.
(6) Subsequent Events
Name Change and Re-incorporation
- --------------------------------
In July 2005, PTI changed its name to Falcon Ridge Development Inc. and merged
into Falcon Ridge Development Inc., a Nevada corporation.
Acquisition of Spanish Trails, LLC
- ----------------------------------
On July 6, 2005, the Company entered into an exchange of securities whereby it
acquired 100% of the ownership of Spanish Trails, LLC ("STLLC"), a New Mexico
limited liability company, in exchange for the issuance of a total of
614,882,069 common shares. As a result, 752,507,441 shares of common stock were
issued and outstanding after the exchange. STLLC is a newly formed New Mexico
limited liability company incorporated to develop approximately 2,300 acres in
southern New Mexico into a residential and golf community.
F-11
FALCON RIDGE DEVELOPMENT INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 2004
The unaudited Pro Forma Combined Statements of Operations for the year ended
December 31, 2004 (the "Pro Forma Combined Financial Statements") gives effect
to the acquisition of Sierra Norte LLC (SNLLC), the operating company, by
PocketSpec Technologies, Inc. (PTI), the Registrant. Subsequent to the
acquisition, the Company's name was changed to Falcon Ridge Development Inc. and
the state of domicile was changed to Nevada.
The unaudited pro forma combined statement of operations are presented as if the
acquisition occurred at the beginning of the period presented.
The pro forma combined financial statements were taken from the financial
statements of SNLLC for the year ended December 31, 2004 and the financial
statements of the Registrant for the year ended January 31, 2005.
The unaudited Pro Forma Combined Financial Statements are based upon historical
financial statements of the SNLLC and PTI.
The pro forma adjustments and the resulting pro forma combined financial
statements have been prepared based upon available information and certain
assumptions and estimates deemed appropriate by the Registrant.
The Pro Forma Combined Statements of Operations are not necessarily indicative
of the results of operations that actually would have been achieved had the
acquisition been consummated as of the dates indicated, or that may be achieved
in the future. Furthermore, the Pro Forma Combined Financial Statements do not
reflect changes that may occur as the result of post-combination activities and
other matters.
The Pro Forma Combined Financial Statements and notes thereto should be read in
conjunction with the accompanying historical financial statements and notes
thereto of Falcon Ridge Development Inc. and the audited financial statements of
the Registrant in its Annual Report on Form 10-KSB for the year ended January
31, 2005.
F-12
FALCON RIDGE DEVELOPMENT INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 2004
FALCON RIDGE DEVELOPMENT INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 2004
Pro Forma
Pocket Spec Adjustments
Sierra Norte Technologies, Increase Pro Forma
LLC Inc. (Decrease) Combined
------------- ------------- ------------- -------------
Revenues ........................................ $ 2,720,867 $ 247,372 $ -- $ 2,968,239
Cost of revenues ................................ 2,793,739 125,308 -- 2,919,047
------------- ------------- ------------- -------------
Gross profit ............................ (72,872) 122,064 -- 49,192
------------- ------------- ------------- -------------
Costs and expenses:
Selling, general and administrative ........ 44,263 375,217 631,634 1,051,114
Stock-based compensation ................... -- 31,462 -- 31,462
Rent expense to related party .............. -- 54,600 -- 54,600
Research and development ................... -- 224 -- 224
Depreciation ............................... -- 60,881 -- 60,881
------------- ------------- ------------- -------------
Total operating expenses ................ 44,263 522,384 631,634 1,198,281
------------- ------------- ------------- -------------
Loss before income taxes ................ (117,135) (400,320) (631,634) (517,455)
Interest expense ................................ -- (75,892) -- (75,892)
Provision for income taxes (benefit) ............ -- -- -- --
------------- ------------- ------------- -------------
Net loss ................................ $ (117,135) $ (476,212) $ (631,634) $ (593,347)
============= ============= ============= =============
Net loss per share:
Basic ...................................... $ (0.00) $ (0.01)) $ (0.020) $ (0.01)
============= ============= ============= =============
Shares used for computing net loss per share 100,000,000 36,601,109 (36,601,109) 100,000,000
============= ============= ============= =============
F-13
Acquisition
On May 20, 2005, SNLLC exchanged certificates representing 100 percent of its
equity securities for 100,000,000 shares of the common stock of PTI. The
acquisition has been treated as a recapitalization of SNLLC, a New Mexico
limited liability company, with PTI the surviving legal entity. Since PTA had,
prior to the recapitalization, minimal assets, (consisting principally of cash)
and no operations, the recapitalization has been accounted for as the sale of
37,265,372 shares of common stock for the net assets of PTI. Costs of the
transaction have been charged to the period.
In July 2005, PTI changed its name to Falcon Ridge Development Inc. and
re-incorporated in the state of Nevada.
Assumptions
A. Adjustment to increase officer salaries to $631,634 less consideration
paid to these individuals during the year ended December 31, 2004.
F-14